DMBA 203 Marketing Management

Marketing Management Unit 1
Unit 1 Introduction to Marketing Management

Structure:
1.1 Introduction
Objectives
1.2 Market and Marketing
Market place and market space
Marketing
1.3 The Exchange Process
1.4 Core Concepts of Marketing
1.5 Functions of Marketing
1.6 Importance of Marketing
1.7 Marketing Orientations
The production concept
The product concept
The selling concept
The marketing concept
The societal marketing concept
1.8 Summary
1.9 Glossary
1.10 Terminal Questions
1.11 Answers
1.12 Case Study
1.1 Introduction
Marketing is said to be as old as civilisation itself. In fact, marketing came
into existence with the barter system. With the passage of time, barter
system evolved into the art of selling. The origin of marketing dates back to
the ancient civilisation when man used symbols, signs, and material
artefacts to transact and communicate with others. The industrial revolution
of 18th and 19th century further fostered the evolution of marketing. The rapid
social change driven by technological and scientific innovation fuelled the
systematic approach for marketing.
The late 50s observed the emergence of real marketing concept, which was
entirely different from the sales concept. Higher level of competitiveness
forced the marketers to depart from the traditional sales approach.
Manipal University Jaipur B1629 Page No. 1

Eventually, customer satisfaction became an inseparable function of

marketing. Gradually, considering the long-term interest of society over the
specific needs and interests of a given target market became important to
marketing. This new approach was termed as social marketing. But, from
1960 onwards, most markets witnessed saturation, which pioneered the
sophistication of marketing management.
In recent years, the advent and wide availability of the Internet completely
changed the marketing concept. Increasingly demanding customers, rapid
technological change, heterogeneous and fragmented markets, and intense
competition led to the emergence of new branches of marketing, which
could potentially meet the challenges of the 21st century marketer.
The concept of marketing is based on identifying and meeting human and
social needs. The shortest definition of marketing is “meeting needs
profitably.” For example, Procter & Gamble observed that people want tasty
but less fatty food and they come up with the idea of Olestra. Likewise,
CarMax sensed people’s uncertainty while buying used automobile and
invented an entirely new system for selling cars.
The term ‘marketing’ is often used interchangeably with advertising or
publicity and most importantly, sales. Marketing encompasses many
activities like advertising, promotion, product design, etc.
Case Let
Marketing Management at Apple Computer

When Apple Computer launched its iPod digital music player, CEO Steve
Jobs called it the “21st century walkman”, referring to the Sony product
launched in 1979, which revolutionised the way consumers listened to
music. The stylish iPod has more than fulfilled that prophecy. Despite
intense competition from Sony, Samsung, and other rivals, the iPod
captured more than 60% of the US market for digital music players. Just
as important, iPod plays a strategic role as the cornerstone of Apple’s
ambitious marketing drive to bring its brand to a broader customer base
and boost long-term profits.
Apple’s marketers know that customers associate the brand with user-
friendly functionality, innovative technology, and sleek design. Therefore,

every Apple product - the iPod, Macintosh desktops, laptop computers,

the online iTunes Music Store, and Tiger Software is consistent with this
image and delivers the kind of experience that customers expect from the
brand. The iPod’s runaway success brought new attention to the rest of
Apple’s offerings. As customers try other Apple products, it is helping
reverse Macintosh’s steep decline in the market share. However, market
share is only one measurement of marketing accomplishment, as the
CEO knows. Can Apple’s marketing managers keep up the momentum in
building relationships with customers and profits for shareholders, is a
thing to watch in the future.
(Source: Philip Kotler and Kevin Lane Keller, A Framework for Marketing
Management, 3rd Edition, Pearson Education)
This unit provides answers to the following questions:

 What is marketing?
 What are the functions and relevancies of marketing?
 What are the modern concepts of marketing adopted by marketing
managers with the changing landscape?
Objectives:
After studying this unit, you should be able to:
 define market and marketing
 analyse the concepts of marketing
 discuss the functions of marketing
 explain the importance of marketing
 differentiate between types of marketing orientations
 evaluate how marketing function has changed over a period of time
1.2 Market and Marketing

1.2.1 Market place and market space
Earlier, a market was defined as a place where buyers, sellers, resellers,
and intermediaries met for exchange of goods and services. But with the
changing landscape, modern day marketing has witnessed drastic changes.
Globalisation and technological advances like the Internet and e-commerce
empowers the marketer to overcome geographical boundaries. The market
has become a virtual world and marketing comes off in space than in a

geographical place. Thus, market may be defined as a set of consumers,

potential consumers, past consumers, sellers, resellers, and intermediaries
who are involved in either the process of exchange or the process of getting
involved in an exchange process. Hence, marketplace is a physical place
where buyers and sellers meet for an exchange, whereas market space is
the virtual world where buyers and sellers meet through the Internet.
Markets can differ in size, range, geographic scale, location, types, variety
of human communities, and the types of goods and services traded. Some
examples include local farmers' markets held in town squares or grounds,
shopping centres and shopping malls, international currency and commodity
markets, etc.
We can categorise markets on the following basis:
 Markets based on focus of the marketer – We can classify markets
into the following types:
(a) Consumer markets – These are the markets dominated by
products and services intended for the general consumer. Consumer
markets are categorised into four primary categories - consumer
products, food and beverage products, retail products,
and transportation products. For example, market for cars, consumer
durables, FMCGs, soft drinks, etc. (Provided these goods are bought
for individual use).
(b) Industrial markets – The goods and services sold in these markets
are not directly aimed at final consumers. They are aimed at buyers
who purchase them for use in the production of other goods and
services. For example, markets for machines, photocopier, trucks,
auditing services, etc.
(c) Non-profit and governmental markets – In these markets, the
buyers are government agencies and non-profit institutions who buy
products and services for running their organisations. For example,
the military needs an incredible amount of supplies to feed and equip
troops.
 Markets based on area – When area is used as a basis of market
classification, the markets can be categorised into the following types:
(a) Local markets – This market includes the client or customers who
purchase the product in the region or area where it is brought forth.

Marketing managers must know the target customers, their location,

and the distance they are willing to travel to purchase the product.
The local market includes customers located within the region where
the products or services are available. For example, vegetable
market, hairdressers, tailors, etc.
(b) National markets – This market encompasses domestic
marketplace for goods and services functioning within the borders
and is governed by the regulations of a particular country. The health
of national markets can be a deciding factor for business success.
For example, spice market located in Kerala, rice market located in
Kolkata, etc.
(c) International markets – This market is for products and services
that are bought by consumers residing outside the national
boundaries of the country to which the manufacturing company
belongs. For example, for companies like Tata Motors, Reliance,
Wipro, etc., all countries except India constitute international market.
 Markets based on the nature of competition – The most important
form of market classification is based on the nature of competition,
i.e., the buyer-seller interaction. On this basis, the markets can be
classified as:
(a) Perfect competition – This is a kind of market structure which
reflects a perfect degree of competition and where a single price
prevails. The concept of perfect competition was propounded by
Dr. Alfred Marshall. It is a free-market situation in which the following
conditions are fulfilled:
(i) buyers and sellers are numerous but a few have a degree of
individual control over the prices;
(ii) buyers and sellers attempt to maximise their profit (income);
(iii) buyers and sellers are free to get in or leave the market;
(iv) buyers and sellers are endowed with the information regarding
availability, price, and quality of goods being traded; and
(v) goods of a specific category are homogeneous, hence they are
interchangeable for one another. This market structure is also
called perfect market or pure competition.
The industry that closely resembles perfect competition in real life is
the agricultural industry.

(b) Imperfect market – In a market category where individual firms

exercise control over the price, there are fewer buyers and sellers,
and the firms do not sell identical products. These markets are
further divided into three parts as shown in figure 1.1:
Imperfect Market
Monopolistic
Monopoly Oligopoly
Competition
Fig. 1.1: Types of Imperfect Market

Monopoly – A kind of market structure where there is a single seller
and there is no close substitute for the product that is offered by the
seller. The price of the product is set by the single seller (price is
often regulated by some regulatory authority like the government).
There are four key features of monopoly: (i) there is a single firm that
sells all the output in a market, (ii) the firm or the seller offers a
unique product, (iii) there are restrictions to enter and exit the
industry, and (iv) other potential producers do not have access to the
specialised information about the production techniques. A few
examples of monopoly are local water utility, local electricity utility,
railways, etc.
Oligopoly – A kind of market structure where there are a few sellers
in the market and they control the supply of a product in the market.
Each seller has some degree of control over the price. There are
three key features of oligopoly: (i) the industry is controlled by a
small number of large firms, (ii) the firms sell either homogeneous or
differentiated products, and (iii) there are significant barriers to enter
the industry. A few examples of oligopoly are the petroleum, steel,
and aluminium industry.
Monopolistic competition – A kind of market structure where there
are many sellers (but not as many as in a perfect market) and they
produce somewhat different products that are close substitutes of
each other. There are four key features of monopolistic competition:
(i) there are large numbers of small firms, (ii) they sell similar but not
homogeneous products, (iii) there is relative freedom of entry and
exit, and (iv) the producers have extensive knowledge of technology
and prices.
1.2.2 Marketing
Marketing is the management process which facilitates the movement of
goods and services from concept (advertising, product development, etc.) to
the customer. The philosophy of marketing is based on a notion about the
business in terms of customer needs and their satisfaction. In simple terms,
marketing can be described as ‘the art of anticipating and serving customer
needs’. Marketing differs from selling because (in the words of Harvard
Business School's emeritus professor of marketing Theodore C. Levitt)
"Selling concerns itself with the tricks and techniques of getting people to
exchange their cash for your product. It is not concerned with the values that
the exchange is all about. And it does not, as marketing invariably does,
view the entire business process as consisting of a tightly integrated effort to
discover, create, arouse, and satisfy customer needs."
The broad field of marketing includes activities such as:
 Estimating customer demand, needs, and wants and designing a
product to satisfy them.
 Promoting the product to educate/inform the customers by using tools
such as public relations, advertising, and direct marketing.
 Setting a price and making the product available to the customers.
Let us look at some common and popular definitions of marketing that will
help you understand the meaning of marketing.
American Marketing Association defines marketing as:
“The performance of business activities that directs the flow of goods and
services from producer to consumer or user.”
This definition seems somewhat narrow because of its emphasis on flow of
products that have already been produced. This definition is more of a
physical distribution-oriented idea, which assumes that there is nothing
beyond smooth flow of quality goods and services to customers.
Philip Kotler defines marketing as:
“A societal process by which individuals and groups obtain what they need
and want through creating, offering and freely exchanging products and
services of value to each other.”

Paul Mazur defines marketing as:

“An ongoing process of discovering and translating consumer needs and
desires into products and services, creating demand for these products and
services, serving the consumer and his demand through a network of
marketing channels and expanding the market base in the face of
competition.”
From a broader social point of view, this definition is more relevant.
Self Assessment Questions
1. Which of these is a feature of an imperfect market?
(a) Large number of buyers
(b) Identical products
(c) Few sellers
(d) Freedom of entry and exit
2. In industrial markets, goods are generally bought for individual
consumption. (True/False)
3. In ____________ there is a single seller in the market.
4. According to Kotler, marketing is a _________ process.
1.3 The Exchange Process

Marketing occurs when people decide to satisfy their needs and wants
through the exchange of goods and services. It is the core concept of
marketing. It is the act of obtaining a desired object from someone by
offering something in return. For example, exchange takes place when you
buy a music CD from a store and give money to the store owner or when
you give your services to an organisation in return for salary.
For exchange potential to exist, the following five conditions must be
fulfilled.
 At least two parties must exist
 At least two things of value must form consideration for each other (for
example, car and cash)
 Each party must be able to communicate and deliver
 Each party must be free to accept or reject the exchange offer
 Each party must believe it is appropriate to deal with other party

An exchange will actually occur only when the two parties involved can
agree on terms that will leave them both better off (or at least not worse off)
than before. Exchange can be looked at as a value-creating process as it
usually leaves both parties better off.
Figure 1.2 shows an exchange process where customer and marketer
exchange things that have value and both the parties agree to the terms and
conditions of the exchange.
Something of Value
(Goods, Service, Ideas, etc.)

Both Parties freely agree to
Marketer the terms and conditions of exchange Customer
(Money, Credit, Goods, Labour)
Something of Value
Fig. 1.2: The Concept of Exchange

nd
(Source: Marketing Management-Text and Cases, 2 Edition, Tapan K Panda,
Excel Books, New Delhi)
You must note that an exchange is not an event. It is a process of

negotiation in which both the parties try to arrive at mutually agreeable
terms. When they reach an agreement, we say that a transaction takes
place. A transaction involves at least two things of value, agreed-upon
conditions, a time of agreement, and a place of agreement.
Generally, a legal system exists to support and enforce compliance among
the parties involved in a transaction.
You must also note that transactions do not require money as one of the
traded values. For example, in a barter transaction, goods or services are
traded for other goods or services.
5. Exchange takes place when there is a __________________.
6. A transaction involves at least two things that have ____________.

1.4 Core Concepts of Marketing

Marketing is a social process which alleviates individuals and groups to get
what they need and want through creating and exchanging products and
value with others. This definition rests on the core concepts as shown and
discussed below:
 Needs, wants, and demands
 Products
 Value and satisfaction
 Exchange and transactions
 Markets
Needs, Value Exchange Markets

Wants and Products and and and
Demands Satisfaction Transactions Marketers
Fig. 1.3: Core Concepts of Marketing

(Source: http://www.idc.iitb.ac.in/~chakku/dm/02_marketting%20design.pdf)
Let us now study the concepts in detail.

 Needs, wants and demand – A need can be defined as a felt state of
deprivation of some basic satisfaction. The human needs can be further
divided into three types as shown in figure 1.4.
Human Needs
Physical Needs Social Needs Individual Needs
Fig. 1.4: Types of Human Needs
(a) Physical needs – It addresses the basic need for food, clothing,
warmth, and safety.
(b) Social needs – It calls for belongingness and affection.
(c) Individual needs – It includes needs for knowledge and self-
expression.
Wants are desire for specific satisfiers of deeper needs. Wants are
shaped by culture and individual personality. For example, if you are
thirsty, this is your need but if you want coca-cola to quench your thirst
then this is your want. Human needs and wants are unlimited, while the
resources available to meet them are limited.
Demand is want for specific products that are backed by an ability and
willingness to buy them at a price. For example, you have money to buy
coca-cola.
Marketing aims at identifying the following:
(a) Human (and social) needs and wants
(b) Consumers’ demand
(c) Endeavours to satisfy them by creating, communicating, and
delivering products and services
 Products and services – A product is a mix of intangibles and tangibles
offered by the marketer at a price. For example, cars, food, air
conditioner, mobiles, etc.
Services may be described as intangible products such as banking and
other financial services, teaching, cleaning, hairdressing, counselling,
transportation, medical treatment. etc.
Sometimes, it becomes difficult to distinguish services from product as it
is closely associated with the product. For instance, if you visit a doctor,
the combination of diagnosis with the administration of a medicine may
confuse you.
 Value and satisfaction – Value is the benefit that the customer gains
from owning and using a product compared to the cost of obtaining the
product. A lot depends on consumers’ perceptions about the value that
different products or services are expected to deliver. The sources that
build customer expectations include experience with products, friends,
family members, neighbours, associates, consumer reports, and
marketing communications.
Customer satisfaction is based on the product’s performance and
expectations. Customers generally experience satisfaction when the
performance level meets or exceeds the minimum performance
expectation levels.
Performance ≥ Expectations → Satisfaction

Performance < Expectation → Dissatisfaction
Activity 1:
Conduct a small survey among customers of a bank and find out the
difference between the customers’ expectations of service and what is
being delivered at the counter.
 Exchange, transaction, and relationship – (The concept of exchange

and transaction has already been discussed in the section 1.3.)
Building relationship with the customers is an important part of business
transactions. Of late, marketers have realised its relevance and are now
focusing on relationship marketing. It is an approach that focuses on
developing a series of transactions with consumers.
5. Markets – A market can be viewed as any person, group, or
organisation with which an individual, group, or organisation has an
existing or potential exchange relationship. Without the existence of a
marketplace, whether physical or virtual, no marketing would take place.
7. _______________ is a felt state of deprivation of some basic
satisfaction.
a. Need
b. Want
c. Desire
d. Demand
8. I am willing to buy a sports car but I do not have enough money to buy
it. It is a demand. (True/False)
9. Services like hairdressing, consulting, etc., are _________ in nature.
10. A customer is satisfied when the performance of a product exceeds
minimum performance _______________ level.
1.5 Functions of Marketing

Marketing is a mixture of various activities that will get the consumer to buy
a product. These activities are referred to as marketing functions. Figure 1.5
depicts the major functions of marketing.

Fig. 1.5: Functions of Marketing
Let us now study the functions in detail.

1. Marketing research – Marketers need to approach their customers in a
scientific manner. Marketing research provides a basis for it as it is
basically concerned with gathering data about the market. So, market
analysis (measurement and evaluation of target market and its
characteristics), product/service determination (analysis of consumer
aspirations, expectations, tastes, functional, and economic utility), and
distribution analysis are the important sub-functions of marketing
research.
2. Advertising – Advertising is a mass media tool. It is perhaps a very
powerful tool in the hands of the marketer, particularly in consumer
goods markets. It is an impersonal presentation and promotion of ideas,
products, or services that are paid by the sponsors. It attempts to inform,
persuade, and remind customers about the products and services.
3. Sales promotion – This is a short-term incentive to boost sales. It acts
as a supplement to personal selling and advertising. Usually, marketers
use various sales promotion devices when the product is launched and
when the product reaches its maturity. Consumer sales promotion and
dealer sales promotion are the important sub-functions of a sales
promotion programme.
4. Sales planning – This function involves the planning for marketing of
the right products at the right prices. The sub-functions include
formulating sales plans, price and quantity determinations, packaging,
and budgeting (forecast sales, setting sales quota, and estimating sales
expenses).
5. Sales operations – This is concerned with transferring of products to

the customer point. Organising field and indoor sales force and their
management are the sub-functions of sales operations. Sales force
management includes recruitment, training, direction and supervision,
compensation, and evaluation.
6. Physical distribution – Moving and handling of products comes under
physical distribution. Order processing, inventory, warehousing, and
transportation are the key decisions to be assessed in the physical
distribution system.
11. If an advertisement says “It is the best product”, it is attempting to
______________ the consumers.
(a) Inform
(b) Remind
(c) Persuade
(d) Inform and/or persuade
12. Sales promotion is a long-term incentive to boost sales and is directed at
the dealers. (True/False)
13. Handling of goods is a part of physical distribution function of marketing.
(True/False)
1.6 Importance of Marketing

Peter Drucker, popularly known as the father of modern management, said
in one of his articles that “marketing is everything”. All other activities in the
organisation are support services to the marketing strategy that a firm
pursues.
Marketing is important for the company, consumers, and the economy.
 Importance of marketing for the company
 The success of a company is known by its achievement in the
marketing front, measured in terms of profit, market share, and cash
flow.
 It brings revenue and earns goodwill for a manufacturer or a
marketer.

 Importance of marketing for the consumer

 It provides more alternatives to choose from, controls the price
mechanism, and allows the consumer to bring a balance between
his/her income and level of consumption.
 It ensures that high quality goods and services are available to the
customers at the right time and at the right place.
 Importance of marketing for the economy
 It opens new vistas of research by supporting product innovation and
enhancing the quality of life of the people of the economy.
 It generates resources that are ploughed back to the economic
system, which accelerates the growth cycle of the country.
 It generates additional employment, increases per capita income,
and helps in the overall progress of an economy.
14. Marketing ensures that goods and services are available at the right
time and right place. (True/False)
15. Marketing activities attempt to enhance the quality of life of the
consumers. (True/False)
1.7 Marketing Orientations

A marketing manager must formulate strategies that can build profitable
relationships with the target consumers. Things are continuously changing
in terms of business and social changes, customer related changes, and
changes in manufacturing and marketing organisations. Therefore, the
organisations should select their marketing orientation considering these
factors. The various marketing orientations that exist help in understanding
how the marketing orientation has been undergoing various shifts.
Figure 1.6 depicts the marketing orientations; namely, production concept,
product concept, selling concept, marketing concept, and societal marketing
concept.

Fig. 1.6: Marketing Orientations
Companies conduct their marketing activities around five concepts. These

are discussed in the following subsections.
1.7.1 The production concept
The basic proposition of this concept is that customers will choose products
and services that are widely available and are of low cost. So, managers try
to achieve higher volume by lowering production costs and following
intensive distribution strategy.
Figure 1.7 depicts the philosophy, objective, and operation of production
concept.
Companies interested to take the benefit of scale economies pursue this
kind of orientation. However, application of this concept leads to poor quality
of service and higher level of impersonalisation in business.
Production Concept
Philosophy Quality products at affordable prices sell themselves
Objective Minimise costs to lower prices, keep quality high.
Focus on Production & Distribution Efficiency to

How?
maximise Sales and revenue
Fig. 1.7: Production Concept

(Source: http://www.soopertutorials.com/business/marketing/2459-
production-concept.html)

1.7.2 The product concept

This concept is based on the idea that consumers will favour those products
that offer attributes like quality, performance, and other innovative features.
Managers focus on developing superior products and improving the existing
product lines over a period of time.
Fig. 1.8: The Total Product Concept
A product has three layers or levels. These layers along with the features
associated with them are depicted in figure 1.8. All these levels put together
form the total product.
 The core product – This explains the reasons for which the customer
purchases the product. The essential benefit associated with the product
forms the core product. For example, a customer in a hotel is buying rest
and sleep and buyer of car is buying ease of transportation.
 The actual product – This refers to the basic utilities associated with
the product like physical attributes and tangible elements of a product.
Product’s attributes like design, brand name, features, quality level,
styling, packaging, etc., form the actual product. For example, a hotel
room includes a bed, bed sheet, wardrobes, towels, telephone, etc.
 The potential product – This includes all possible augmentations and
transformations that a product may undergo in the future. Here, the
company looks for innovative ways to differentiate its offer. Marriott’s
hotels are examples of innovative transformation of the traditional hotel
product.

The focus of the total product concept is on the product attributes. The
problem with this orientation is that managers forget to read the customer’s
mind and launch products based on their own technological research and
scientific innovations. Prof. Theodore Levitt of Harvard Business School
termed this as ‘marketing myopia’. He recommended that companies
should not be short-sighted and adapt to the changing needs of the
customers and environment.
A similar thing happened with Onida when it launched “The Golden Eye”
Technology in India. The market could not perceive the benefit of the
technology and the idea flopped. Later, when consumers became aware of
the various brands and technologies related to televisions, LG again brought
this technology to the market and achieved marketing success.
1.7.3 The selling concept
This concept proposes that customers, whether individuals or organisations,
will not buy enough of the firm’s products unless they are persuaded to do
so through the selling effort. The marketers believe that the consumers need
to be motivated to buy a firm’s products or services through persuasion and
selling action.
Figure 1.9 depicts the philosophy, objective, and operation of selling
concept.
Selling Concept
Products don’t necessarily sell themselves.
Philosophy
Customers must be convinced to buy products.
Objective Maximise sales revenue
How? Aggressive promotion to create demand
Fig. 1.9: Selling Philosophy

(Source: http://courses.unt.edu/kt3650_1/sld004.htm)
Companies selling unsought goods like life insurance, vacuum cleaner, fire
fighting equipment including fire extinguishers, etc., are using this concept.

The problem with this concept is that some marketers assume that a
customer will certainly buy his/her product after persuasion and he/she will
never complain, even if he/she is dissatisfied. In reality, this does not
happen and companies who blindly pursue this concept often fail in
business.
1.7.4 The marketing concept
The reason for success lies in the company’s ability to create, deliver, and
communicate a better value proposition through its marketing offer, in
comparison to the competitors, for its chosen target segment.
Figure 1.10 depicts the underlying philosophy, objective and operations
behind marketing concept.
Fig. 1.10: Marketing Concept

(Source: http://courses.unt.edu/kt3650_1/images/img050.gif)
This concept is an elaborative attempt to explain the phenomenon that rests

on the four key issues:

Fig. 1.11: Pillars of Marketing Concept
1. Companies, instead of spending on a mass, undifferentiated market,

prefer to look for specific product market which will best match their
product and accordingly design a marketing program that suits the taste
of this target segment.
2. The marketers attempt to know the needs of the consumers. For this,
they conduct a marketing research. On the basis of customers’ needs,
companies design and offer a suitable product or service to the
consumers. Their aim is to provide maximum satisfaction to the
consumers.
3. Companies need an integrated approach to achieve the goal of higher
consumer satisfaction. Keeping the marketing goals in mind, companies
need to integrate various key marketing functions like product design,
distribution channel selection, advertising, sales promotion, customer
service, and marketing research.
4. Companies look to earn profit. Earlier, companies worked only for
profits. But slowly this perception is changing. Now, profitability has
become a by-product of the efforts and strategies followed by firms in
their pursuit to create superior product value and higher customer
satisfaction.

Table 1.1 depicts the differences between selling and marketing concepts.
Table 1.1: Differences Between Selling and Marketing Concepts
Selling Marketing
Emphasis is on the product Emphasis is on the needs and wants of
the consumer
Company first manufactures the Company first determines customers’
product and then decides to sell needs and wants and then decides on
how to deliver a product to satisfy these
needs and wants
Management is sales-volume Management is profit-oriented
oriented
Planning is short-run oriented, in Planning is long-run oriented, in terms of
terms of today’s products and new products, tomorrow’s market and
markets future growth
Stresses on the needs of the seller Stresses on the needs and wants of the
buyer
Views business as a goods Views business as a customer satisfying
producing process process
Emphasis is on staying with Emphasis is on innovation in every
existing technology and reducing sphere, on providing better value to the
costs customer by adopting a superior
technology
Different departments work in All departments of business operate in an
highly separate departments integrated manner, the sole purpose
being generation of consumer satisfaction
Costs determine price Consumer determines price, price
determines cost
Views customer as the last link in Views customers as the main purpose of
business business
Activity 2:
Though we have summarized by saying that a real marketing orientation
comes out of enterprise-wide application of marketing culture, but this is
not so in many Indian organizations. Please visit five companies near
your city and find out how customer oriented these people are.

1.7.5 The societal marketing concept

The term ‘societal marketing’ is growing in popularity day-by-day. It
proposes that the enterprise’s task is to determine the needs, wants, and
intentions of the target market. To enhance the consumer’s and society’s
well-being, a marketer is supposed to deliver the expected satisfaction more
effectively and efficiently than its competitors.
The concept of societal marketing combines the best elements of marketing
to bring social change in an integrated planning and action framework with
the utilisation of communication technology and marketing techniques. It
also expects marketers to instil social and ethical considerations into their
marketing decisions.
Some people also refer to social marketing as cause-related marketing that
utilises concepts of market segmentation, consumer research, product
concept development, product testing, and brand communication to
maximise the target segment response.
Almost all major companies are engaged in societal marketing in some form
or other. For example, P&G with CRY - each time you buy a P&G product,
you help support one day’s education of one child, Sony launched “Shiksha”
to help educate underprivileged children.

16. Health insurance companies generally use _____________ concept to
sell their policies.
(a) Product
(b) Production
(c) Selling
(d) Marketing
17. A concept where the marketer produces a product that is technologically
superior is product concept. (True/False)
18. Societal concept is just an extension of the marketing concept with
consideration for _____________ needs and values.
19. Marketing concept focuses on customer’s needs and ____________.
20. The term ‘marketing myopia’ was given by Professor _________.

1.8 Summary
Let us recapitulate the important concepts discussed in this unit:
 Marketing is a social activity directed towards satisfying customer needs
and wants through an exchange process.
 The five core concepts of marketing are:
 Needs, wants, and demand,
 Product and services,
 Exchange process,
 Customer value and satisfaction, and
 Markets.
 The main functions of marketing are advertising, sales promotion,
market research, and sales planning.
 Marketing is not only important for a company but also for consumers
and the economy. It attempts to improve standard of living through
better product and service offers.
 Marketing, as a concept, has evolved over a period of time and has
witnessed changes and modifications with the progress of civilisation.
There are five concepts that explain this change and offer ways to
companies on how to conduct their activities. They are production
concept, product concept, selling concept, marketing concept, and
societal marketing concept.
1.9 Glossary
Exchange process: It occurs when the buyer with a demand and a seller
with a product offering confront each other.
Marketing myopia: It refers to a short-sighted and inward looking approach
to marketing that focuses more on the needs of the producer than the needs
and wants of the consumers.
Marketing: A societal process by which individuals and groups obtain what
they need and want through creating, offering, and freely exchanging
products and services of value with others.
Marketing orientation: It requires the firm to look for consumer needs and
the necessity to search for new opportunities to satisfy the consumers in a
better way than the competitor.

Needs: A condition or situation in which something is required.

Production concept: A concept that assumes that customers will choose
products and services that are widely available and are of low cost.
Product concept: A concept based on the proposition that consumers will
favour those products that offer the most attributes like quality, performance,
and other innovative features.
Selling concept: A concept that proposes that customers will not buy
enough of the organisation’s products unless they are persuaded through
selling efforts.

1. Explain the concept of market and marketing.
2. Describe an exchange process with the help of an example.
3. Explain the core concepts of marketing.
4. What role does marketing play in an economy?
5. ‘Marketing involves satisfaction of consumer needs’. Elucidate the
statement.
6. What are the marketing concepts? Explain the evolution process of
management philosophy.
1.11 Answers

1. (c)
2. False
3. Monopoly
4. Societal
5. Transaction
6. Value
7. (a)
8. False
9. Intangible
10. Expectation

11. (d)
12. False
13. True
14. True
15. True
16. (c)
17. True
18. Society’s
19. Wants
20. Theodore Levitt
Terminal Questions
1. Market is a place, physical or virtual, where buyers and sellers meet to
exchange goods and services. Marketing is a process through which
goods and services move from concept to the customer. For more
details, refer section 1.2.
2. Exchange process involves an interaction between the buyer and seller
in which each party gives something of value to the other. For example,
sale of a book. For more details, refer section 1.3.
3. There are five core concepts of marketing: needs, products and
services, exchange, customer value, and markets. For more details,
refer section 1.4.
4. Marketing supports the process of economic development as it
enhances quality of life of the people and generates employment. For
more details, refer section 1.6.
5. Consumer needs are fundamental to the formulation of any marketing
strategy, from developing a product to its delivery. For more details, refer
section 1.4 and 1.5.
6. Marketing concepts aid a company in conducting their activities. There
are five marketing concepts: production, product, selling, marketing and
societal marketing. For more details, refer section 1.7.
1.12 Case Study

Marketing in the Banking Industry
Banks play a large role in the economy of every country in the world. They
offer a large and ever expanding number of services to the public and

private sector such as long-term and short-term loans, annuities, savings

accounts, mortgages, financial advice, and other financial services.
Banks are getting more serious about marketing and it shows. All you have
to do is watch the television for a short period of time and you'll see a
number of ads for banks that have branches all over the country.
Fig. 1.12: Banking is now more Customer-Oriented

(Source: blog.reuters.com/ mobile.netpmb.com/ggn.ac.in)
Depending on the customer needs for finance, the market can also be
segmented into trade finance, consumer finance, etc. For the banker to
derive maximum returns and enhance his/her market position, the marketing
mix has to be effectively managed. The products offered by a bank may be
in the core or augmented form. The core products offered by a bank include
savings bank account or housing loan.
The augmented product includes services like Internet banking, ATMs, 24-
hour customer service, etc. These augmented services help the banker
differentiate his/her service offering from those of competitors.
The place element of the marketing mix refers to making the services
available and accessible to customers. Improvements in the availability and
accessibility of services have changed the process of banking.
Technological innovations have given rise to modern channels like the
Internet, which have helped banks increase business volumes and attract
new customers.
ATMs, credit cards, and debit cards offer convenience to customers and
have also improved the efficiency of banking operations. These changes
have helped banks tackle the challenges of services marketing. The
promotion or communication mix in banking refers to varied strategies like
personal selling, advertising, discounts, publicity, etc., used by present-day
banks to promote their service offerings.
People also play an important role, even though their role has been eclipsed
by technology in the recent past. Process determines the efficiency of
banking operations and thus, the service quality in a bank. Physical
evidence includes the infrastructure and buildings not only in branch offices,
but also the ATMs or other places of interaction. Even the quality of cheque
books and mailers to customers forms physical evidence.
The banking industry has changed drastically over the past decade. The
banking reforms and the opening of the economy to foreign and private
banks have improved the working of the public sector banks. This has
resulted in improved service to the customers of the banking industry.
Increased competition and technology have enhanced the quality of service
offered to the customers and also improved the returns for bankers.
Today, banks like State Bank of India, Punjab National Bank, ICICI Bank,
HDFC Bank, Standard Chartered, Axis Bank, HSBC, and many more banks
compete in India and are looking at the future prospects of banking in India.
One can say that marketing will surely be the differentiating factor.
Discussion Questions:
1. What type of orientation do private banks have?
(Hint: Private banks work for customer satisfaction and profits.)
2. How have banks used marketing concept for their benefit?
(Hint: Banks have become more customer-oriented.)
3. Comment on the marketing practices of ICICI Bank.
(Hint: It uses customer-oriented marketing and differentiates itself using
innovative promotion methods.)
4. How are the marketing efforts of public banks different from those of
private banks?
(Hint: Public banks do not have as much funds to allocate as compared
to the private banks.)
(Source: www.icmrindia.org)

References:
 Philip, K. (2007). Marketing Management, Pearson Education.
 Tapan, P.K. (2010). Marketing Management: Excel Books, New Delhi.
 Ramaswami, V.S. and Namakumari, S. (2003). Marketing Management,
Macmillan Publishers.
E-References:
 http://www.netmba.com/marketing/ – Retrieved on December 29 2011
 http://www.agecon.ksu.edu/accc/kcdc/PDF%20Files/marketing.pdf –
Retrieved on December 29 2011
 http://marketingteacher.com/lesson-store/lesson-what-is-marketing.html
– Retrieved on December 29 2011

Unit 2 The Marketing Process

Structure:
2.1 Introduction
Objectives
2.2 Marketing Mix-The Traditional 4Ps
2.3 The Modern Components of the Mix- The Additional 3Ps
2.4 Developing an Effective Marketing Mix
2.5 Marketing Planning
Marketing plan
Marketing planning process
2.6 Marketing Implementation and Control
Marketing implementation
Mechanisms to control marketing implementation
2.7 Summary
2.8 Glossary
2.10 Answers
2.11 Case Study
2.1 Introduction
In the previous unit we dealt with the basic concepts of marketing, the
exchange process, the core concepts, functions, importance, and
orientations of marketing. In this unit we will deal with how those basic
concepts are put to use in a marketing process. Marketing processes aim to
deliver increased profitability in business through improved marketing
strategy and marketing plan development. For a company to get marketing
success, they must have an effective marketing strategy and plan.
Marketing mix is a model of crafting and implementing marketing strategy.
Marketing mix is a major concept in modern marketing. It involves practically
everything that a marketing company can use to influence consumer
perceptions favourably towards its products or services so that consumer
and organisational objectives are attained.
Another important aspect of marketing strategy is marketing planning. It is a
process of designing the marketing blueprint for the future. A marketing plan
is a broad set of guidelines as to how the firm is going to accomplish its
strategic goals. Marketing mix decisions are an integral part of the marketing
planning process.

However, the development of a marketing plan is not the end of the

marketing process. Marketing implementation and control are equally
important. High-performance companies must sharpen their expertise in
implementing and controlling marketing activities that will give them an edge
in today’s fast-paced business world.
Case Let
PepsiCo’s Marketing Plans

PepsiCo sold $3.6 billion worth of Pepsi, Diet Pepsi, Pepsi Max, and
other beverage products outside the US market in 1995. This was 8%
more than what they sold in 1994. Its international operations earned
$226 million, 16% more than the operations in 1994.
However, the Coca-Cola Co. continues to outsell PepsiCo nearly by
three cans to one can outside the US. It drives nearly 80% of its
earnings from overseas beverage sales as compared to PepsiCo's 6%.
Pepsi also trails Coke in the US. To gain market share and further
differentiate itself from its archrival, PepsiCo planned to revamp its
overseas marketing strategy with a complete redesign of the company's
cans and bottles, a fresh advertising campaign, and a renovation of its
overseas manufacturing and distribution systems. Projected cost of the
overhaul was $300 to 500 million.
Code-named "project blue," PepsiCo's plans called for updating cans
and bottles designed for overseas markets from the familiar red, white,
and blue labels to a royal blue design with a futuristic, three-dimensional
graphic of the company logo.
Fig. 2.1a: New Bottles and Can of Pepsi

(Source: http://www.theoriginof.com/wp-content/uploads/2007/04/
Pepsi-3.jpg)

The purpose of project blue was to refocus PepsiCo's overseas image

and make its marketing more consistent. These moves paralleled a then
recent transformation in PepsiCo's overseas snacks division. For
example, the firm's Doritos brand had been standardised globally in
terms of shape, packaging, and positioning, although elements such as
seasoning and thickness were still tailored for regional taste differences.
These changes helped make Doritos the number one selling salty snack
with $2 billion sales over twenty countries. The US Executives believed
that the project blue will have a similar effect on PepsiCo's international
beverage division, giving Pepsi a boost in the global cola wars.
(Source: Lon Bongiorno, "The Pepsi Regeneration," Business Week,
March 11, 1996; Robert Frank, "PepsiCo to Revamp Beverage Line
Outside the US," Wall Street Journal, March 15, 1996)

What is marketing mix?
What are the traditional 4Ps and additional 3Ps of marketing?
How is marketing planning done?
What are the approaches to marketing implementation and control?
Objectives:
 identify the traditional 4Ps of marketing
 describe the modern 3Ps of marketing
 analyse how to develop an effective marketing mix
 explain the process of marketing planning and list the contents of
marketing plan
 discuss the approaches to marketing implementation and control
2.2 Marketing Mix – The Traditional 4PS

A marketing mix can be referred to as a planned mix of the controllable
elements of a product's marketing plan, commonly termed as 4Ps: product,
price, place, and promotion. These four elements are adjusted until the right
combination that serves the needs of the customers, while generating
optimum income for the company is found.

Figure 2.1b depicts the constituents of a marketing mix namely product,

price, place, promotion (the traditional 4Ps), people, process, and physical
evidence (the additional 3Ps).
Fig. 2.1b: Marketing Mix

(Source: http://www.bized.co.uk/sites/bized/files/images/mixmap.gif)
Let us now study the traditional 4Ps of marketing in detail.

Product
In marketing mix, the product or service is the most important element.
Customers acquire products for a singular reason that they are perceived as
the means to satisfy their needs and wants. According to Philip Kotler, “A
product is anything that can be offered to a market for attention, acquisition,
use, or consumption that might satisfy a need or want.” In effect, according
to this definition, products include physical products, services, persons,
places, organisations, and ideas.
Figure 2.2 depicts examples of some products like a packet of chips, tour
and travel, hotel, courier service, mobile phone, and a nation.

Fig. 2.2: Examples of Products
Products have various attributes such as quality, variety, design, brand,

packaging, services, and warranties that can be manipulated depending on
what the target market wants. For example, when consumers wanted a
premium but fuel efficient sedan, Tata Motors launched Tata Indigo Marina,
which was an updated version of Tata Indigo.
Price
The second element is the price, which impacts the volume of sales.
It is a value that will purchase a specific quantity, weight, or other measure
of a product. For example, you buy a packet of chips which is net 10grams
in weight for ` 10, this value ` 10 denotes the price of the product.
Figure 2.3 depicts how price of a product (Apple Ipod in this case) is
displayed or made clear to the customers.

Fig. 2.3: Pricing of a Product
Price is the only marketing mix variable that can be altered quickly. Price
directly influences the development of marketing strategy as it is a major
factor that influences the assessment of value obtained by customers.
Firms have to consider some factors while deciding the price of a product.
These factors are:
 Objectives of business
 The competitive environment
 Product and promotional policies of the firm
 Nature of price sensitivity
 Conflicting interest between manufacturer and intermediaries
 Routine pricing decisions
 Active entry of non-business groups in pricing decisions
Let us now study the factors in detail.
Objectives of business
Pricing is not an end in itself but a means to an end. The fundamental guide
to pricing, therefore, is the firm's overall goals.
The competitive environment
Under the present competitive conditions, it is more important for the firm to
offer the product which best satisfies the wants and desires of the
consumers than the one which sells at the lowest possible price.
Product and promotional policies of the firm
Pricing is only one aspect of marketing strategy and a firm must consider it
together with its product and promotional policies. Thus, before making a
price change, the firm must be sure that the price is at fault and not its sales
promotion program, the quality of the product, or some other element.
Nature of price sensitivity
Businessmen often tend to exaggerate the importance of price sensitivity
and ignore many identifiable factors at work that tend to minimise its role.
The various factors which may generate insensitivity to price changes are
variability in consumer behaviour, variation in the effectiveness of marketing
effort, nature of the product, importance of after sales service, the existence

of highly differentiated products which are difficult to compare and multiple

dimensions of product quality.
Conflicting interests between manufacture and intermediaries

The interests of manufacturers and middlemen (through whom the former
often sells) are sometimes in conflict. This is called vertical conflict. For
instance, the manufacturers would desire that the middlemen should sell
their product at a minimum mark-up, whereas the middlemen would like
their margin to be large enough to stimulate them to push up the product.
Routine pricing decision
Pricing in practice is often routinised though its extent may differ from
company to company and from product to product. For example, the
management may prefer to depend on suggested prices, which is a
mechanical formula for pricing decisions. The degree of routinisation
depends on the following factors:
Number of pricing decisions – A firm has to take thousands of pricing
decisions on a wide range of products, none of which provides a substantial
proportion of sales. In this case, it will find that the cost of analysis of pricing
strategy to be adopted for each product is too high. It would, therefore, find it
economical to adopt relatively mechanical routine for pricing.
Speed in making a pricing decision – Mechanical formulae, such as a
pre-determined mark-up on full cost, have the advantage of speed, though
flexibility and adaptability to special conditions are lost.
Quality of available information – If the data on demand and costs are
highly conjectural, the best the firm may be able to do is to rely on some
mechanical formula such as cost plus formulation.
Competitive market – If a firm is selling its product in a highly competitive
market, it will have little scope for pricing discretion. This will pave the way
for routinised pricing.
Active entry of non-business groups in pricing decisions
The government, acting on behalf of the public, seeks to prevent the abuse
of monopolistic power and collusion among businessmen. There is a
complex body of regulation and even more confusing series of judicial

decisions guiding pricing principles in every country. Very often, the

government elects to control certain prices.
Firms adopt various pricing policies to price a product or service. Some of

these policies are:
Perceived value pricing method – In this method, prices are decided on
the basis of customer's perceived value. They see the buyer's perceptions
of value as the key indicator of pricing and not the seller's cost. They use
various promotional methods like advertising and brand building for creating
this perception.
Value pricing method – In this method, the marketer charges fairly low
price for a high quality offering. This method proposes that price represents
a high value offer to consumers.
Going rate pricing – In this method, firms base their price on the average
price of the product in the industry or prices charged by competitors.
Sealed bid pricing – In this method, firms submit bids in sealed covers for
the price of the job or the service. This is based on the firm's expectation
about the level at which the competitor is likely to set up prices rather than
on the cost structure of the firm.
Psychological pricing – In this method, the marketer bases prices on the
psychology of consumers. Many consumers perceive price as an indicator
of quality. While evaluating products, buyers carry a reference price in their
mind and evaluate the alternatives on the basis of this reference price.
Sellers often manipulate these reference points and decide their pricing
strategy.
Odd pricing – In this method, the buyer charges an odd price to get noticed
by the consumer. A typical example of odd pricing is the pricing strategy
followed by Bata. Their prices are always an odd number like ` 899.99.
Geographical pricing – This is a method in which the marketer decides

pricing strategy depending on the location of the customer like domestic
pricing, international pricing, third world pricing, etc. Multinational firms

follow such a pricing strategy as they operate in different geographic

locations.
Discriminatory pricing – This is a method is which the marketer
discriminates his/her pricing on certain basis like the type of customer,
location, etc. It occurs when a company sells a product or service at two or
more prices that do not reflect a proportional difference in the costs. One
can sell at different prices in different segments. Different prices for different
forms of the same product can sell the same product at two different levels
depending on the image differences.
Place
This is another key marketing mix tool, which encompasses the various
activities the company attempts to make the product available to the target
customers. Place mix deals with the physical distribution of products at the
right time and right place. For example, a customer usually purchases
toiletries from nearby retail stores. So, toiletry marketers must ensure that
their products are available at almost every nook and corner store.
Figure 2.4 depicts a picture of Spencer’s, a popular general retailer.
Fig. 2.4: Spencer’s is a Popular Retail Store
(Source: http://retail-guru.com/wp-content/uploads/2010/02/spencers-retail-
e1266548099819.jpg)
Distribution channels may also be used in marketing strategy to differentiate

a product from its competitors. For example, Amway distributes its products
using direct distribution channel while HUL uses multi-channel distribution
(through retailers, wholesalers, online sources, etc.). A company uses

distribution channels like retailers, wholesalers, merchants, brokers and

value added resellers.
The management also aims to keep the physical distribution costs
(inventory, transportation, and storage) as low as possible.
Promotion
This includes the methods to communicate the features and benefits of the
products or services to its target customers. Some common methods
include advertising, sales promotion, direct selling, public relations, and
direct marketing. For example, Toyota promotes its brands by advertising,
sales promotions, public relations, sponsorships, etc.
Figure 2.5 depicts a promotional method adopted by the popular ice cream
retailer Baskin-Robbins.
Fig. 2.5: A Promotional Offer from Baskin-Robbins
(Source: http://moneysavingmom.com/wp-content/uploads/2011/02/Baskin-
Robbins-Buy-One-Get-One-Free-cone.gif)
Promotion is a key element of marketing programme that is used to

favourably influence target customers’ perceptions to facilitate exchange
between the marketer and the customer.
Activity 1:
Compare the marketing mix of Hindustan Unilever and Procter & Gamble
India. Spot the differences and similarities between the two. You may use
the following links- www.hul.co.in, www.pg-india.com.


1. Which of these is the main element of the marketing mix?
(a) Product
(b) Price
(c) Place
(d) Promotion
2. Price is the only revenue generating element of the marketing mix.
(True/False)
3. The concept of marketing mix was given by ____________________.
4. Advertising, sales promotion, and public relations are tools of
__________________________.
2.3 The Modern Components of the Mix – The Additional 3PS

The traditional 4Ps were not enough to market services. Considering the
increasing role of services in the economy and customer-orientation,
additional 3Ps were added to the marketing mix. These 3Ps are people,
process, and physical evidence. They play a greater role in the marketing of
services than in the marketing of products.
Let us now study the 3Ps in detail.
People
This is a very important element of the modern marketing mix or the service
mix. An essential ingredient to any service provision is the use of
appropriate staff and people. Recruiting the right staff and training them
appropriately to delivery their services are very essential if the organisation
wants to obtain a competitive advantage.
Figure 2.6 depicts a picture of the cabin crew of British Airways. Cabin crew
is an essential part of any airlines service.

Fig. 2.6: Cabin Crew of British Airways

(Source: http://www.topnews.in/files/British-Airways_7.jpg)
Consumers make judgments and deliver perceptions of the service based

on the behaviour and performance of employees they interact with.
Therefore, the service staff should have the appropriate interpersonal skills,
aptitude, and service knowledge to provide the service that the consumers
are paying for.
Process
This refers to the way in which a service is delivered to the end customer.
For example, when you go to McDonalds drive-through, you are first greeted
by an attendant who asks you for your order. Then, he/she notes down your
order and informs a crew member about it. By the time you pay the billed
amount, your order arrives. You take your order and leave. This represents
a service delivery process.
Figure 2.7 depicts a simple loan delivery/processing process.

Fig. 2.7: Loan Delivery Process
Service process can be mechanised as well. For example, movie theatres

have introduced online ticket booking facility and ticket kiosks to offer
convenience to customers and also reduce the human element in the
service delivery process.
Physical evidence
Physical evidence is the tangible part of a service. Service customers
experience a greater perceived risk as they cannot rate a particular service
until it is consumed. Therefore, service providers should try to attach an
element of tangibility to their service offering.
Physical evidence can include web pages, paperwork (such as invoices,
tickets, and despatch notes), brochures, furnishings, ambience, signage
(such as those on aircraft and retail stores), brand logos, uniform of
employees, business cards, and the building itself.
Figure 2.8 depicts the physical evidence associated with large discount
retailer, Big Bazaar.

Fig. 2.8: Physical Evidence Associated with Big Bazaar

5. ____________________ refers to the way in which a service is
delivered to the target customer.
6. Physical evidence is used to attach an element of _________________
to the service.
2.4 Developing an Effective Marketing Mix

To develop an effective marketing mix the company should consider the
following factors and then choose the most appropriate mix of elements
(7Ps) to target the customers:
Company’s resources – These are one of the prime factors affecting the
company’s marketing mix. The financial, human, and technological
resources available with the company affect the composition of the
marketing mix.
The firm needs to conduct a Strength, Weakness, Opportunity, and Threat
(SWOT) analysis for the business unit.

Figure 2.9 depicts the SWOT analysis diagram with likely sources of
strengths, weaknesses, opportunities, and threats of a company.
Fig. 2.9: SWOT Analysis

(Source: http://www.bizstrategies.biz/images/SWOT-Analysis-sm.jpg)
The key points to remember about SWOT are shown in figure 2.10.

Fig. 2.10: Key Points in SWOT
Demographics – It implies to the changes in the composition of the market,

the demand of the population, the opportunities in the country, etc. that
affect the marketing mix.
Current and projected economic conditions – It connotes the economic
factors like inflation, employment, taxes, and other economic factors that
influence marketing mix decisions.
Market potential – Analysis of market potential for new products considers
market growth, prospect's need for your offering, the benefits of the offering,
the number of barriers to immediate use, the credibility of the offering and
the impact on the customer's daily operations.
Competitors – They are important considerations that affect the marketing
mix of a firm as the potential for competitive retaliation is based on the
competitor’s resources, commitment to the industry, cash position,
predictability, and status of the market.
Figure 2.11 depicts the Porter's five forces analysis model, which is an
important tool for assessing the potential for profitability in an industry. It
works by looking at the strength of five important forces that affect
competition.

Fig. 2.11: Porter’s Five Forces Model

(Source: www.hbr.org)
Let us now study the forces in detail.

Supplier power – The power of suppliers to drive up the prices of inputs.
Buyer power – The power of customers to drive down products’ prices.
Competitive rivalry – The strength of competition in the industry.
Threat of substitution – The extent to which different products and
services can be used in place of a particular product.
Threat of new entry – The ease with which new competitors can enter the
market if they see that a product is making good profits (and then drive your
prices down).
By thinking about how each force affects a product and by identifying the
strength and direction of each force, you can quickly assess the strength of
a product’s position and ability to make a sustained profit in the industry
7. ______________ is not a part of company’s resources.
(a) Employees
(b) Technology
(c) Finance
(d) Media

8. SWOT analysis is done to measure the changes in composition of the

population. (True/False)
9. ___________________ is an important tool for assessing the potential
for profitability in an industry.
10. The extent to which different products and services can be used in
place of a particular product refers to the ____________________.
2.5 Marketing Planning

Planning is a process of designing the blueprint for the future. Marketing
planning for an organisation is planning for that organisation's revenue-
earning activities. Marketing managers have to face changes every day in
the market place. So a successful marketing management process should
be continuous and must involve a cycle of planning, implementation, and
control.
2.5.1 Marketing plan
A marketing plan is a written document that specifies the required actions to
attain one or more marketing objectives. A good marketing plan should
communicate to every member what is desired of them, so that they have
some level of goal clarity, understanding of assumptions that lie behind the
goals, and the context of each activity and decision.
A standard marketing plan should contain elements as explained in
table 2.1.
Table 2.1: Elements of Standard Marketing Plan
Elements Description
Executive The marketing plan should start with an executive summary of
summary and the plan and should include a table of contents. The summary
table of would help the senior management to get a glimpse of what is
contents included in the plan.
Mission The mission statement should come out of the corporate and
statement business unit level plan and explain why the business exists.
Summary of The plan should present the summary of the past performance.
performance It should explain the results of the previous strategies followed
till date by the marketer, which will help in developing a base for future
planning. This section provides relevant background data on
sales, profits, markets, competitors, number of intermediaries,
and relationships with them.

Summary of Past marketing performance must have been measured in

financial financial terms to explain the efficacy of financial investments.
projections Summary of projections for the future comes out of the past
performance and will help in giving a snapshot of what will
happen in the future.
Market This comes out of the trend analysis and monitoring of the
overview market and indicates about the behaviour of the market in the
future. A marketer can use scenario analysis to explain the
likely behaviour of the market.
SWOT A Strategic Business Unit (SBU) is an
analysis for autonomous division or organisational unit that is small enough
major SBUs to be flexible in its operations and big enough to control most
of the factors that affect its long-term performance. If the
company has more than one SBU, the marketing planner
needs to evaluate each SBU and conduct SWOT analysis for
each SBU, as both marketing opportunities and strengths of
SBUs will vary from business to business.
Portfolio A summary of portfolios helps in allocation decisions. It will
summary of show where the money should come from and also the
all the SBUs business that needs further investments. Portfolio summary will
show how balanced the company is among its portfolios.
Market Plans are always made under certain assumptions. If the
assumptions assumptions go wrong then the plans will also go wrong. So a
careful list of assumptions should be included in the marketing
plan based on which the rest of the plan will flow.
Marketing Marketing objectives and goals in clear, measurable terms
objectives and should be included in the plan. This will serve as a milestone
goals for the execution of the plan. In this section, the marketing
planner would include the plan's major market goals expressed
in measurable terms like sales volume, market share, profit,
etc.
Financial Financial projections for three coming years will help the firm to
projections for regulate the marketing function, break overall projections into
at least three achievable targets for each responsible person and into each
years territory of the market.
Marketing In this section, the marketing planner will define the target
strategy segment(s), the target marketing strategy to be followed, and
the positioning of the product in the market in relation to
competitors.
Marketing Each marketing strategy element like product, price, place, and
action plans promotion should be elaborated through a set of functional
plans and programs.

Activity 2:
A company is planning to launch a branded lantern in the heartland of
Bihar. Prepare a marketing plan for the launch.
2.5.2 Marketing planning process

The marketing planning process must begin by setting the corporate
objectives and should be followed by strategies and plans for each function.
Figure 2.12 depicts the five steps in marketing planning process.
Fig. 2.12: Steps in a Marketing Planning Process
1. The first step in marketing planning process is setting marketing

objectives and policies.
2. The second step is designing the marketing system. In the marketing
system, a company has to design/define each function with its
contribution.
3. The third step is developing separate objectives, programmes, and
strategies for each function (like new product development function,
pricing decisions, distribution function, promotion function) so that they
can be assessed for the target’s purpose and the broad objectives.
4. The fourth step is drawing detailed plans for each function for a shorter
period, i.e., a quarter, half a year, or a year. It will help in defining
responsibilities, timing, and costs needed to achieve the short-term
objectives.
5. The fifth step is merging the marketing plans into organisational plans.


11. A __________________ refers to a written document that specifies the
required necessary actions to attain one or more marketing objectives.
(a) Marketing planning
(b) Marketing plan
(c) Marketing strategy
(d) Marketing mix
12. Marketing planning has to be a continuous process. (True/False)
13. Deciding the positioning of the product is a part of marketing strategy
decisions. (True/False)
2.6 Marketing Implementation and Control

Marketing implementation and control activities are very important and focus
on “how” to put marketing strategies into action.
Based on the views of Orville C Walker, Jr., and Robert W Ruekert it can be
said that firms have two types of strategies:
Intended strategy – This is the strategy that a company wants to
implement. It is developed during the planning phase.
Realised strategy – This is the strategy that actually takes place while the
strategy is being implemented.
During implementation, the intended strategy is converted into realised
strategy. The realised strategy, in most cases, is worse than the intended
strategy.
After the marketing plan has been implemented, the marketing managers
should take appropriate control and evaluation measures. You will learn
about marketing implementation and control in the subsequent subsections.
2.6.1 Marketing implementation
Marketing managers can adopt different approaches to implement
marketing strategies. In this regard, two general approaches are:
1. Internal marketing
2. Quality control management

Internal marketing
Company employees are the internal customers and all those individuals
who patronise a company are referred to as external customers. Internal
customers (company employees) are the ones who work to satisfy external
customers. Thus, the needs of these two groups must be met to ensure
successful implementation. It is understandable that if the internal
customers are not satisfied, external customers may not be served in a
manner that would result in satisfaction. Companies, besides directing their
communications to external customers, also use internal marketing to
attract, train, motivate, and retain qualified and competent internal
customers (employees).
To implement internal marketing, management at all levels takes necessary
steps to understand and accept their respective roles in the implementation
of marketing strategy and the importance of delivering satisfaction to the
company’s external customers.
Internal marketing activities focus on designing programmes to satisfy the
needs of the company’s employees. For this purpose, many companies use
planning sessions, employee workshops, appreciation letters, and personal
conversations.
Quality control management
With increasing competition, declining market shares, and more demanding
customers, quality has become a major concern in many companies. As a
result, some companies are adopting the following three philosophies:
Total Quality Management (TQM) – TQM is the customer-supplier
interface, both externally and internally, and at each interface there are a
number of processes.
Quality Function Development (QFD) – QFD is preferred to convert the
requirements of customer into engineering specifications. This is applied in
the initial stages of the design phase so that the need of customer is
incorporated into the final product.
Return On Quality (ROQ) – According to David Greising, those advocating
ROQ pursue a policy of improving quality only in those dimensions that
produce tangible customer benefits, lower costs, or increased sales. This

focus on bottom line forces companies to ensure delivering the quality level
that customers actually want.
2.6.2 Mechanisms to control marketing implementation
All the implementation control procedures are related to:
Setting performance standards
Measuring actual performance against these standards
Taking corrective timely actions to reduce gaps between desired and actual
performances
Setting performance standards – Developing marketing plans and
controlling activities are closely linked. Statements made in the plan
document with respect to accomplishing different goals clearly determine
performance standards and provide control criteria. For example, if one of
the marketing objectives was to increase sales by 10% and this got
translated into achieving a monthly sales of ` 5,00,000, then it becomes a
performance standard.
Measuring actual performance against set standards – Actual
performance concerns not only different departments within the marketing
unit but also some outside organisations contracted or hired for providing
different goods and services such as advertising agencies, research
providers, resellers, consultants, etc. Measuring performance of individuals,
teams, or departments within the marketing unit does not pose any
problems. Performance of different departments within the marketing unit
significantly depends on the performance of outside assistance providers.
The best that the marketing control process can do, in the case of external
assistance providing firms, is to monitor their activities as closely as
possible.
Taking corrective and timely actions – For taking corrective actions to
control or reduce the gap between set standards and the actual
performance, there are a number of options available to marketing
managers. In general, they can opt for steps to improve the actual
performance, totally modify or change the performance standards by making
appropriate changes in the objectives, or develop a combination of these
two general approaches. For example, to improve the sales performance,

sales people may be given additional training in some aspect of selling, or

the sales targets can be revised.
Evaluation problems
There is an overlap between marketing activities and other business
activities and because of this, determining the costs of marketing activities
accurately by the marketing managers is nearly impossible. For example, to
measure the sales results directly flowing from advertising is a very difficult
proposition. Other problems include the cost of required information from
outside firms, unavailability of information, and the severity and frequency of
unpredictable environmental changes that can adversely affect the
controlling of marketing activities.
2.6.3 Marketing control methods
Marketing objectives are often stated in terms of sales, costs, profits,
product or brand awareness, etc. Performance evaluation always relates to
measuring the accomplishment of objectives.
Figure 2.13 depicts the three general approaches to focus on sales, costs,
and marketing audit.
Fig. 2.13: Marketing Control Methods
Let us now study the three approaches in detail.

Sales analysis – Analysis of sales is extremely important for evaluation of
marketing strategy and programmes. The sales data is conveniently
available in almost all companies and is believed to be a reliable indicator of
target market response to the company’s marketing efforts. This sales data
alone is insufficient and must be compared with the forecasted sales to
provide a useful basis for analysis. Some companies also compare the
sales data with industry sales and, more often, a particular competitor’s
sales and costs involved in achieving that sales level. For example, if the
forecasted sales was ` 5,00,000 and the actual sales in the year for which

the forecast was made was ` 5,25,000, it tells the management the level of
success of marketing strategy and programmes.
Marketing cost analysis – It is no surprise that sometimes a company
achieves its sales objectives at a higher cost than budgeted. Cost analysis
is necessary to determine the costs incurred for performing different
marketing activities. These costs can be compared with earlier costs with
respect to performing the same activities to achieve a certain sales volume.
Marketing audit – Marketing audit is the final method of marketing
evaluation and refers to a thorough, systematic, objective examination of its
objectives, strategies, organisation, and performance. The primary purpose
of audit is to identify weak areas in executing marketing activities and
recommend actions to improve performance in these areas.
14. Intended strategy is always different from realised strategy. (True/False)
15. Internal marketing refers to the communication between a company and
a target customer. (True/False)
2.7 Summary
 Marketing mix is a model of crafting and implementing marketing
strategies. It represents controllable tactical elements. The most popular
classification of marketing mix includes product, price, place
(distribution), and promotion.
 The four traditional Ps of the marketing mix are adequate for marketing
a product but they are not enough to market a service.
 For services marketing, strategists have suggested an extended mix
which includes people, process, and physical evidence, in addition to the
four Ps.
 Marketing planning is a forward-looking exercise, which determines the
future strategies of an organisation with special reference to its product
development, market development, channel design, sales promotion,
profitability, etc.
 Marketing implementation is an important function of marketing
management process. Companies follow two major approaches to
ensure proper strategy implementation. These are internal marketing

and total quality management.
 Marketing control involves establishment of performance standards,
evaluation of performance against laid down standards, and taking
corrective and timely action to reduce discrepancies between desired
and actual performance. Performance standards refer to expected levels
of performance against which performance can be compared.
 Control involves evaluation and effectiveness of marketing strategies,
sales analysis, marketing cost analysis, and marketing audits.
2.8 Glossary
Marketing audit: It refers to the analysis and evaluation of a firm's
marketing approach, activities, aims, and results achieved.
Marketing control: The process by which managers ensure that the
planned activities are completely and properly executed.
Marketing implementation: It requires organising and coordinating people,
resources, and activities.
Marketing mix: A planned mix of the controllable elements of a product's
marketing plan commonly termed as 4Ps - product, price, place, and
promotion.
Marketing plan: It is a written document that details the necessary actions
to achieve one or more marketing objectives.
Quality Function Development (QFD): QFD is applied in the early stages
of the design phase so that the customers’ wants are incorporated into the
final product.
Return On Quality (ROQ): ROQ assumes that there is a trade-off between
the costs and benefits of improving quality. The optimum quality level of
products and services maximises profits rather than maximising quality.
Strategic business unit: An autonomous division or organisational unit,
small enough to be flexible and large enough to exercise control over most
of the factors affecting its long-term performance.

SWOT analysis: It is a strategic planning method used to evaluate the

strengths, weaknesses, opportunities, and threats involved in a project or a
business.
Total Quality Management: It is the continuous process of reducing or
eliminating errors in manufacturing, streamlining supply chain management,
improving the customer experience, and ensuring that employees are up-to-
speed with their training.

1. Do you think that the argument of some theorist that the traditional Ps
are not enough for services marketing is valid? Give suitable examples
to prove your point.
2. Explain the constituents of an expanded marketing mix with the help of
suitable examples.
3. Conduct a SWOT analysis for any one automobile brand of your choice.
How will this analysis help in planning marketing strategies for the
brand?
4. What do you mean by a marketing plan? Describe the contents of a
marketing plan.
5. What are major problems associated with the implementation of
marketing departments?
6. Explain the methods of marketing control.
2.10 Answers

1. (a)
2. True
3. Neil H Borden
4. Promotion
5. Process
6. Intangibility
7. d)
8. False
9. Porter’s five forces analysis

10. Threat of substitution

11. b)
12. True
13. True
14. True
15. False
Terminal Questions
1. Services have some distinct features that render the traditional 4Ps of
marketing inadequate to market them. Therefore, additional Ps had to
be added that are more relevant for service marketing than product
marketing. For more details, refer section 2.2 and 2.3.
2. Expanded mix includes the traditional 4Ps namely, product, price, place,
and promotion and the modern 3Ps include people, process, and
physical evidence. For more details, refer section 2.2 and 2.3.
3. You can examine the strengths, weaknesses, opportunities and threats
facing any one automobile company. (You may use the following link:
http://www.freeswotanalysis.com/category/automobile). For more details,
refer section 2.4.
4. A marketing plan is a written document that details the necessary
actions to achieve one or more marketing objectives. For more details,
refer section 2.5.
5. Absence of accurate cost measurements, quality issues, and lack of
internal and external communication are some of the issues in marketing
implementation. For more details, refer section 2.6.
6. Three methods of marketing control are sales analysis, cost analysis,
and marketing audit. For more details, refer section 2.6.
2.11 Case Study

Bata’s Woes
Once upon a time, the name Bata was synonymous with footwear. The
company was a popular family destination - the whole family would buy only
Bata shoes. Then somewhere, somehow, Bata lost its way and its sheen.
The slide started sometime before 1995, when Bata changed its positioning
and decided to disengage itself from the traditional stronghold in the middle

and lower-income segment. Wanting to woo the premium segment, Bata's

entire strategy underwent a change. It backfired and the result was a huge
loss of ` 42 crore in 1995. Then came the labour problems, which still
continue to haunt the company. One of the few successful players in the
organised sector didn't really know what hit it.
Fig. 2.14: ‘Sale’ Signs are a Common Sight Outside and Inside Bata Stores
(Source:http://4.bp.blogspot.com/_XV0AB1tU1LM/TAKU0WYisTI/AAAAAAAA
B2c/shAnUxvqLPk/s1600/DSC01600.JPG)
In 1997, Bata decided to pull up its socks. The main focus was on
controlling expenditure. Led by new boss W. K. Weston, cost cutting at
various levels resulted in an increase in profits. Better financial management
yielded the results. Three years later, the financial position stabilised. With a
commercial paper worth ` 15 crore (from ` 25.5 crore in the previous year)
and a decline in cost of fund, interest charged during the year dipped to
` 6.8 crore.
To maintain its prominent position in the organised footwear market, the

company revamped its systems. In 1999, it incurred a capital expenditure of
` 21.8 crore to modernise the existing stores, to open new stores, and to
improve the work process.
If one looks at it from the profitability point of view, the return on equity in
1999 was 8.94%. This is an improvement over the 7.44% achieved in the

previous year. At the same time, Earning Per Share (EPS) went up from
` 4.7 per share to ` 5.9 per share. Dividend paid for financial year 1999
increased from ` 0.9 per share in the previous year to ` 1.5%.
During the past two years, Bata has launched shoes in the mid-price
segment. But the question is: will it be able to sustain increased profits over
a long period? In the volume game, it has not been able to introduce the
designs that can attract the upper segment. During 1999, Bata achieved a
turnover ` 774.6 crore, 4% higher than the previous year's sales. Net profit
grew by nearly 25% to ` 30.4 crore. Leather footwear accounted for 58%
gross sales, 30% came from rubber footwear, and 9% from plastic footwear.
The brand is bound to grow, especially since it has emotional value for
Indians. The labour problem also seems to be sorting out. Finally, things
seem to be falling in place.
1. What do you think led to the downfall of Bata?
(Hint: Lack of planning and failure to analyse the present trends led to
its downfall.)
2. What went against Bata?
(Hint: Growing popularity of competitors like Red Tape, Shree Leathers,
and Khadims)
(Source: Abhishek Agarwal, "The Good Old Days," A & M, July 31, 2000).
References:
 Philip, K. (2007). Marketing Management: Pearson Education.
 Ramaswami, V.S. and Namakumari, S. (2003). Marketing Management:
E-References:
 http://marketingteacher.com/lesson-store/lesson-marketing-mix.html –
Retrieved on January 23, 2012
 http://www.mindtools.com/pages/article/newSTR_94.htm – Retrieved on
January 23, 2012

 http://tutor2u.net/business/marketing/distribution_introduction.asp –
Retrieved on January 23, 2012
 http://www.financialexpress.com/news/marketing-channels-and-value-
networks/238621/ – Retrieved on January 23, 2012

Unit 3 Marketing Environment

Structure:
3.1 Introduction
Objectives
3.2 Environmental Scanning
3.3 Analysing the Organisation’s Micro Environment
The Company
Intermediaries
Public
Competitors
Suppliers
Customers
3.4 Company’s Macro Environment
Demographic environment
Political and legal environment
Economic, monetary, and natural environment
Social and cultural environment
Technological environment
3.5 Differences Between Micro and Macro Environment
3.6 Techniques of Environment Scanning
Delphi technique
Scenario building technique of environmental scanning
3.7 Summary
3.8 Glossary
3.10 Answers
3.11 Case Study
3.1 Introduction
In the previous unit we dealt with the traditional and modern components of
marketing mix, marketing planning, and marketing implementation and
control. We also analysed how to develop an effective marketing mix. Many
people believe that organisations can survive if they are sure about the
management of their internal systems like business processes, flow of
goods, and internal practices of quality and cost control. But in reality,

marketing planning, implementation, and control can only succeed if the

companies respond and adapt to the environmental changes. Though they
significantly cannot influence the external environment, they can be
responsive to larger social and other environmental changes, which are
likely to affect the business in both short and long run.
The environment consists of various forces that affect the company’s ability
to deliver products and services to its customers. The environment can
affect a company in many ways. A company can have the best
technologies, employees, and the best of suppliers but it can fail miserably if
any of the factors like exchange rate, policies of the host government,
changing needs of customers, etc. start to act against it. On the other hand,
a mediocre company can be spectacularly successful if the factors in the
external environment start favouring its strategies and policies. It is
imperative that companies keep a close watch on the environment factors
that may affect them, and prepare themselves adequately to face the
emerging challenges.
Case Let
Doordarshan – Not Changing with the Times

After years of falling revenues, in 1999-2000 Doordarshan (DD) had a
revenue growth of 50%. In 1999-2000, DD earned revenues of 6.1million
as compared to 3.99mn in 1998-99. DD showed signs of revival with the
launch of DD World (a channel for NRIs) and had relative success with
some of its regional channels.
However by the end of 2000-01, DD's success seemed to be over. In
2000-01, DD's revenues were projected to grow at 6-15% while private
channels such as Zee TV, Star, Sony had projected 40-50% revenue
growth. Analyst's felt that DD's sagging revenue was only a small part or
aspect of their problems.
DD was plagued by multiple problems, which found their roots in the
mismanagement of affairs. By the late 1990s, the private producers,
advertisers, and audience had deserted DD. Not even one car company
advertised on DD and even two-wheeler manufacturers kept a low profile.
Ads of Pepsi and Coca-Cola were found only during sports telecasts.

Only FMCG companies stuck to DD because of its terrestrial network to

reach the rural and semi-urban audience. In spite of having over 21,000
employees, DD outsourced 50% of its programmes from the private
producers. In the late 1990s, DD faced a number of allegations of large-
scale scams and irregularities. Underutilised infrastructure, improper
investments, and poor financial management plagued the performance of
DD. In 1992, when the government opened airwaves to private players,
DD faced the heat of competition from private satellite channels.
In the Cable and Satellite (C&S) homes, it was found that there were
hardly any viewers of the DD programmes. The depleting Television
Viewer Ratings (TVRs) of the DD programmes were also a cause of
concern as advertisers deserted DD due to its low viewer ratings. Analysts
felt that DD would need a budgetary support of ` 5bn. during the fiscal
2000-01 to sustain itself as its revenues would not be enough to meet its
expenditure. Analysts questioned the capacity of the government to own
DD and many felt that privatisation would be the only solution.
(Source: www.icmrindia.org)

 Why do we need to scan the environment and how is the scanning
done?
 What micro and macro environment factors affect marketing strategies
and decisions?
 What is the difference between micro and macro environment?
Objectives:
 recognise the need for environment scanning
 analyse the components of an organisation’s micro environment
 describe the components of a company’s macro environment
 differentiate between micro and macro environment
 explain the techniques of environmental scanning

3.2 Environmental Scanning

Environmental scanning refers to the careful monitoring of an organisation's
internal and external environment for detecting early signs of opportunities
and threats that may influence its present and future marketing plans. It
helps the marketer in taking decisions regarding where to compete, how to
compete, and on what to compete.
The opportunity in business can be a trend or event that could lead to a
significant upward change in sales and profit patterns, given the appropriate
strategic response. In the absence of a strategic response, a threat will
result in a significant downward departure from current sales and profits. If
the strategic uncertainty is important and urgent, marketing managers may
conduct an in-depth analysis to take an urgent decision. Environmental
scanning helps marketing managers to find out the important forces outside
an organisation, which will shape its business in relation to competitors.
Marketing managers should continually track changes in the outside world.
Some organisations have a formal marketing intelligence unit, which collects
data on external environment and feeds it into the decision-making unit of
the firm. It helps the decision makers to stretch their decision ideas by
incorporating new information into business planning. Whether the
information required is just to make the marketing managers aware about
marketing trends or to be incorporated in the marketing planning and
budgeting will decide the immediacy and accuracy level of the data collected
from the market.

1. Marketing managers should analyse the environment only when they
have to introduce a new product. (True/False)
2. ________________ helps the company to find out important forces
external to an organisation that will shape its business in relation to
competitors.
3.3 Analysing The Organisation’s Micro Environment

Micro environment is the immediate environment in which marketers have to
take decisions. The players of this environment are called actors as they
have a direct bearing on the marketing decisions.

This environment identifies the way a company does business and against
whom it stands in the market. For example, Nirma, a detergent company
has defined its competitive environment by identifying key players in
business namely, the suppliers, competitors, intermediaries, and the
customers.
You will learn about the components of a company’s micro environment,
namely the company, intermediaries, public, competitors, suppliers, and
customers in the subsequent subsections.
Figure 3.1 depicts the components of micro environment of a company.
Fig. 3.1: Components of Organisation’s Micro Environment
Let us now study the components in detail.

3.3.1 The company
Some company factors that affect the marketing decisions are:
 Culture and value system – Organisational culture can be viewed as
the system of shared values and beliefs that shape a company’s
behavioural norms. A value is an enduring preference as a mode of
conduct or an end state. The value system of the founders of the
organisation has a lasting impact on it. The value system not only
influences the working of the company and the attitude of its people but
also the choice of its business.

 Mission and objectives – The mission and objectives of the company

guide the priorities, direction of development, business philosophy, and
business policy.
 Management structure and nature – Structure is the manner in which
the tasks and sub-tasks of the organisation are related. Structure is
concerned with the hierarchical relationship and the relationship
between the management of different functional areas like the structure
of the top management and the pattern of share holding.
 Human resource – This concerns factors like manpower planning,
recruitment and selection, compensation, communication, and appraisal.
3.3.2 Intermediaries
Intermediaries are independent business units and they carry the company’s
products and services to the customers. Prominent intermediaries include
wholesalers, retailers, merchants, selling agents, brokers, etc. Their
objective of being in business is different than being in a firm, so the
intermediaries will be interested in maximising their profits. Any trade
promotion scheme will motivate them to push competitors’ product deeper
and faster.
3.3.3 Public
Positive and favourable public opinion is crucial to marketing success since
the public is the authority that permits the existence and operation of
competitive marketing systems.
This environmental factor includes the general public, its support, the
government, and the set of public who have a direct bearing on business.
These public can be classified as welcome public, sought public, and
unsought public. For example,
 Investors and financial institutions are under the category of welcome
public,
 Government and media are counted as sought public. Without their help,
it is difficult to have a positive impact on consumers and society.
 Pressure groups like consumer activists and environmental activists are
unsought public because they would create problems for the firm
through their righteous activities.

As a marketer, one must understand that the general public grants the
licence for conducting business with an expectation that the company will
practise fair play. Lack of this supportive framework as evidenced by
declining sales or adverse public opinion can lead to eventual failure of the
firm as well as the marketing system.
3.3.4 Competitors
Success or failure of an offer largely depends on how competitors react to
the company’s offer. Godrej was a successful refrigerator manufacturer.
Once competition intensified, the company started losing market share.
Today, though there is a growth in refrigerator industry, Godrej as a brand is
not growing as fast as its competitors. Figure 3.2 depicts a Godrej product
vis-à-vis Samsung and LG products, their strongest competitors in the
market.
Fig. 3.2: Godrej Refrigerator is Losing out to Competitors like LG and

Samsung
(Source: http://www.teluguone.com/commerce/telugushop/images/
smallimages/Godrej-Refrigerators-02.jpg/)

Through the years, marketing systems have become increasingly

competitive. Traditional economic analysis views competition as a battle
between companies in the same industry or between substitutable products.
Marketers, however, tend to accept the argument that all firms are
competing for a limited discretionary buying power. Though we can say that
Maruti as a car manufacturing company is facing competition from other car
manufacturers, ultimately it is the consumer’s disposable income for which
shampoos, soaps, and scooters are also competing with Maruti. A customer
is expected to allocate his disposable income optimally and in the process a
category also competes with another category to be in the active
consideration set of customers for such an allocation.
Industry has found numerous new uses for existing products, with the whole
arena of competition being expanded. While this forces business to
reassess long-established marketing practices, it also opens new avenues
of business opportunity. Emergence of computers with multimedia as a tool
of infotainment and knowledge sharing device has challenged traditional
products in the entertainment market.
3.3.5 Suppliers
Increase in the price of raw materials will have a bang on effect on the
marketing mix strategy of an organisation. As a result, the prices may be
forced up. This is the impact that the suppliers can have. Closer relationship
with suppliers is one way of ensuring competitive and quality products for an
organisation.
3.3.6 Customers
Organisations exist because of customers. No customer means, no
business. Organisations’ survival depends on how they meet the needs and
wants of the customers and provide them with maximum benefits. Failure to
do so will result in a failed business strategy.
3. A _______________ is an enduring preference as a mode of conduct
or an end state.
(a) Culture
(b) Value
(c) Mission
(d) Objective
4. _____________ is the way in which the tasks and sub-tasks of the

organisation are related.
5. ____________ are independent business units that carry the company
products and services to the customers.
3.4 Company’s Macro Environment

The macro environment consists of factors external to the company that
may have a significant impact on its marketing strategies. It can be listed as
follows:
 Demographic
 Political and legal
 Economic, monetary, and natural
 Socio-cultural
 Technological
Figure 3.3 depicts the macro environmental factors.
Fig. 3.3: Components of Company’s Macro Environment
Let us now study these factors and understand how they influence
marketing planning and strategies.
3.4.1 Demographic environment

Demography is the study of population and its characteristics. Marketers are
always interested in population related growth indices because eventual
market growth rate in the long run depends largely on the growth of
population.
Population mix
If a majority of the population is vibrant and in the work force, then they
contribute towards the country’s growth and have higher power of
consumption, but as the population ages, their demand for products and
services gets restricted.
Figure 3.4 depicts a chart that shows the age wise mobile internet usage in
India (2009 data). Such data helps the companies in building mobile internet
based applications. It can assist the mobile phone manufacturing companies
to include features in mobile sets keeping in mind the requirements of the
age group.
Fig. 3.4: Age Wise Mobile Internet Users
(Source: http://trak.in/wp-content/uploads/2011/02/image3.png)
Country market – it is based on ethnicity and language based classification

in India. Though a market can be characterised by a geographical boundary
to be called as a ‘country market’, like Indian market, in reality it is the sum
total of some sub-markets identified more closely with the ethnicity and
language based divisions in India. A consumer durable company has to
offer a festive discount program throughout the year in different parts of the
country. For example, during dussehra in east, onam in south, and diwali in
the north.

Education – Consumption patterns also vary depending on the education

level of the people. People who are educated and aware of their rights and
demands will always make a concerted decision when compared to people
who are illiterate. Example, in a country like U.S.A, where there are a large
number of educated people, consumption decisions are more on the basis
of brands, whereas in a sub Saharan African country, people will be
involved in commodity based decision making.
Household patterns – This explains the family types in a demographical
environment. Household incomes are on a rise due to both husband and
wife taking up careers. This has also led to growth in consumption and use
of products and services that provide more convenience to the working
woman. Example, market for fast food, restaurants, convenience, packaged
and processed food, and consumer durables like refrigerators, washing
machines, and vacuum cleaners are rising in India.
Shifts in population – Over the years, a large number of people have
moved out of villages and rural areas to urban India in search of a job and
better living conditions. These migrants are responsible for taking urban
brands to the rural markets and increasing the awareness level of the rural
people towards urban produce. The rural market is on a rise because for
people from villages, any urban product is a status symbol. So they will like
to posses products and services that will make them more urban.
Activity 1:
List out the mega trends that are affecting the people in the age bracket
of 20-25 and influencing their purchase decisions.
3.4.2 Political and legal environment

Legal and political environment also influences marketing decisions in a
significant way.
Government plays a great role in moderating the role of business in the
society through legislation. There has been a growth in the number of
legislations over a period of time to let the business know that before they
play the game, they should learn the rules.
There are certain legislations brought at the central government level
whereas some are practised differently in different states of India. This is a

critical issue related to sales and different kind of taxes. Though Value
Added Tax (VAT) tries to simplify them, it is not always possible to bring
uniformity in legislation across the states.
Laws like Monopoly Restricted Trade Practices (MRTP) and Foreign
Exchange Regulation Act (FERA) are dumped in order to promote growth of
free enterprise in India.
Business legislation in India can be classified into legislation covering
corporate affairs, consumer protection, employee protection, specific sector
protection like small scale industry, protection of companies against hostile
takeover bids, protection against unhealthy price, and distribution practices
related to deceptive advertising.
3.4.3 Economic, monetary and natural environment
Economic environment has the highest influence on the marketing decisions
as it affects the purchasing power of the consumer. By economic
environment we mean all those macro economic factors like income
distribution, level of saving, debt and credit available to consumers, and
stage in business cycle.
Situations in economic environment give opportunity and also generate
threats to marketers.
To illustrate, a company which sells price value products has more scope to
get higher customers in a declining economy when compared to a luxury
brand.
The economic environment is extremely complex and it includes dynamic
business fluctuations that tend to follow a cyclic pattern, generally
composed of four stages as depicted in table 3.1.
Table 3.1: Stages in Business Cycle
Stage Meaning Effect on Marketing Strategy
Consumers
Recession General slowdown Weakening of both Focus on customer
in economic activity consumer value and customer
over a period of confidence and benefits
time consumer Expand product
spending portfolio
Sales promotion
Stress on market
share

Example: in 2008-
2009, Chevrolet
promised a 3 year
free maintenance deal
with purchase of its
cars.
Depression Severe downturn Depressed Low cost of
that lasts several spending on high production and lower
years value items prices
Savings to focus Focus on company
on necessities values
Excellent services and
benefits
Some companies use
this as an opportunity
to make a cut while
rivals relax their
spending.
Example: HP began
during Great
Depression and made
its way through it
Recovery Period following a Increase in rate of Aggressive marketing
recession, during growth of to attract customers
which the GDP consumer Low/competitive
rises spending pricing
Cautious approach Sales promotion
and high Example: In 2010,
information search Toyota came up with
demonstration shows
at malls to attract high
end customers
Prosperity Condition of low- High purchasing Aggressive marketing
unemployment and power Competitive pricing
high total income More spending on Fair amount of sales
consumer promotion if
durables alternatives are many
Example: In 1908,
Ford introduced
Model T which
captured the market
within 10 years.

Inflation and its implications

Inflation is a rising price level resulting in reduced purchasing power for the
consumer. Inflation has the following effects:
 Higher inflation leads to widespread concern about public policy to
stabilise price levels and ways of adjusting personally to the reduced
spending power of consumers.
 Higher taxes mean less consumer purchasing power, which results in a
decline of sales of non-essential goods and services.
 Lower expenditure levels make the government a less attractive
customer for many industries.
 Lowered money supply means less liquidity is available for potential
conversion to purchasing power.
 Another way in which inflation affects marketing is by modifying
consumer behaviour.
 Modest increases in the general price level, often termed as creeping
inflation, go largely unnoticed by customers. But as purchasing power
continues to decline, customers become more conscious of inflation.
This leads to price-consciousness, which in turn leads to three
possibilities.
 Consumers can buy believing that the prices will increase
 Consumers can decide to reallocate their purchasing pattern
 Consumers can postpone certain purchases
Activity 2:
Identify ten product categories and find out how consumers would adjust
their consumption behavior if the inflation goes double digit in India.
Natural environment
People are more concerned about natural environment today as compared
to yesteryears.
Finite, non-renewable resources that include fuel and gasoline are heading
towards a big energy crisis for the world. If we are not able to find out
alternatives to fossil fuel consumption, it is going to reverse the process of
development and growth across the globe.

This crisis makes us rethink current allocation of energy resources. Existing

sources are being expanded. Traditional resources, like coal, are being
rediscovered. New ones are being sought. Perhaps the most important fact
is that attempts are being made to cut waste in energy utilisation.
Increased energy cost will automatically increase the cost of goods sold in
the market.
People are also getting concerned about water, sound, and air pollution
levels. The level of observation towards pollution and control mechanism to
curb the level of pollution is on a rise.
Figure 3.5 depicts a poster that urges public to control air pollution and
thereby, preserve the natural environment.
Fig. 3.5: Such Posters are Issued to Generate Awareness among People
(Source: http://www.yoodesizns.com/Images/designs/control-air-pollution.jpg)
3.4.4 Social and cultural environment

Social and cultural environment have maximum direct effect on consumers.
Social forces shape consumption habit of people.

Let us look at the processed food in Indian markets. Due to the changes in
lifestyle and more and more women taking up jobs, there is a rising demand
for processed and packaged food. Packaged brands of chicken and other
frozen foods are doing well in the Indian market. The societal environment is
the marketer’s relationship with society in general. It is an explanation of
readiness of the society to accept a marketing idea. For example, frozen,
packed chicken is an acceptable product proposition but frozen beef may
not be a good idea on the retail shelf in a large part of India.
Taste and consumer behaviour also vary from place to place. For example,
in India, brands like Dettol have a higher impact on people because of its
burning sensation, whereas Savlon does well in Europe due to its mild
nature.
Culture influences consumer’s beliefs, values, and norms. Culture includes
knowledge, belief, art, morals, laws, custom, and any other capabilities and
habits acquired by a consumer as a member of the society. It is a distinct
way of life of a group of people and their complete design of living. It is
everything that is socially learned and shared by the members of the
society.
The marketing manager needs to understand how the consumers react to
different products and marketing practices in a social setting. One of the
most tragic and avoidable marketing mistakes is the failure of marketing
managers to understand and appreciate societal differences within the
Indian market.
3.4.5 Technological environment
Technology has accelerated the pace of change in the market place.
Technological life cycles are shortening day by day and new product
introduction has become a phenomenon of the market place. Companies
are open to exploit unlimited opportunities in the field of marketing to provide
better products and services. Companies like Sony, 3M, Samsung, and
Wipro have increased their research and development budget manifold to
always be ahead of their competitors.
Nobody ever thought that revolution in the form of Internet technology will
bring e-commerce to the forefront of business and customers will find web
as an alternative channel of transaction. Companies like Priceline.com,

eBay.com, and Amazon.com are some of the successful stories in the era of
Internet revolution.
We are also seeing an increase in regulation due to technological changes.
Laws related to protection of intellectual property rights and patents, cyber
crime, and fraud on the Internet are on the rise. There is a global agreement
to control the lawbreakers and bring new technology related business into
order.

6. U.S.A’s literacy level, population structure, etc. are a part of U.S.A’s
________________ environment.
(a) Demographic
(b) Political
(c) Social
(d) Economic
7. _________________ influences beliefs, values, and norms of the
consumers.
(a) Education
(b) Society
(c) Culture
(d) Economic condition
8. Due to technological advancements, role of governments in regulating
the companies is increasing. (True/False)
9. _______________ environment has maximum direct effect on the
consumers.
10. ___________ environment has the highest influence on the marketers.
3.5 Difference Between Micro and Macro Environment

The day to day activities of an organisation are affected by many factors.
Even if the industrial relations are good, a poor condition of the economy
can incite layoffs and bad production. Macro environment factors are
external factors that affect an environment. On the other hand, micro-
environment comprises influential factors within a company, such as
employee relations or customer satisfaction. In many respects, factors in the
macro-environment have influence over decisions made on the micro-scale.

Technological advances in the macro-environment influence employment

decisions on the micro-level. The difference between the micro and macro
environment is summarised in table 3.2.
Table 3.2: Differences Between Macro and Micro Environment
Macro environment Micro environment
1. It is very large in size It is smaller than the macro
environment
2. The components of the macro The components of the micro
environment cannot be controlled environment can be controlled to some
extent
3. Macro environment is very Micro environment is not very
unpredictable and highly uncertain unpredictable and ranks low in
uncertainty
4. The components are very complex The components are comparatively
in nature simpler
5. Macro environment includes Micro environment includes customer,
political, social, cultural, technology, publics, competitors, suppliers, and
demographic, economic, and intermediaries
natural environment

11. Micro environment constitutes factors that a company cannot control.
(True/False)
12. Innovations in the macro-environment influence employment decisions
on the micro-level. (True/False)
3.6 Techniques of Environment Scanning

Environmental scanning is designed to aid the long-term planners and
strategists in the organisations. Many people criticise the environmental
scanning technique because of the diffused and general nature of its results.
Companies use various methods for environmental scanning. We will
discuss two important techniques, namely Delphi technique and scenario
building technique, in subsequent subsections.
3.6.1 Delphi technique
Delphi technique is used to increase the meaning of factual data collected
from secondary sources. This technique is an example of methods on which
we aggregate the judgments of individual experts who cannot come together

physically.
This is a qualitative research technique in which we try to collect data from
some experts and industry observers and use their interpretations to map
the emerging trends in that industry. Around twenty-five experts who have
adequate knowledge of the marketing environment are asked questions
pertaining to the marketing environment via mail, fax, email, and other
modes of communication. They are asked to rank their statements as per
importance and to explain the rationale behind such rankings. The
aggregate information is sent to all the participants to get their overall
agreement and disagreement on the aggregate data and through this
process a coherent agreement is arrived at.
3.6.2 Scenario building technique of environmental scanning
This process is futuristic and the decision-maker has to analyse his
decisions with respect to the future. The five stages of scenario building
approach are as shown in figure 3.6.
Fig. 3.6: Stages in Scenario Building Technique of Environmental Scanning
Let us now understand the stages in detail.

1. Analysis of the decision(s)
The decision-maker makes a detailed analysis of all the resources that
he/she might require to implement his/her decisions. Thus, if a financial
institution like ICICI decides to go into retail banking, then it has to take into
account the human and material resources that would be required. It could

include an analysis of the estimated distribution networks, technology and

technology support.
2. Identification of key decision factors
The service marketer identifies all those variables that influenced his/her
decision. For ICICI to go into retail banking, it would analyse the new
banking norms (government policy), market share of the existing players
(competitors), growth and potential of the market (customers), etc.
3. Identifying the socio-cultural factors
The service marketer should identify and evaluate the influence of such
social and group forces as demographic changes, social class, culture,
family and household influences, value systems, reference group influences,
and the consumer-decision-making process. ICICI would have taken into
consideration the age distribution of the market, the income and occupation
of prospects, the spread of the population in metros and other towns,
product development, and communication strategy. It would also have
analysed the banking needs of the market and their inclination towards time-
saving devices.
4. Analysis of each of the key variables separately
All the above variables are independently analysed and all other details are
collected for each of them. The sources of data are secondary as well as
primary.
5. Selection of scenario logics
The collected data are then extrapolated and projections are made. The
scenario build-up is supported with more evidence. Thus for ICICI, the
growing middle-class and the aspirations of the middle class for a better
banking climate would be relevant to the decision to go in for retail banking.
Other evidence could be the consumerism of the middle-class, their upscale
lifestyles, etc.

13. Delphi method is a _____________ technique of analysing the
environment.
14. Scenario building technique is a future oriented approach. (True/False)

15. At the end of scenario building, the collected data is extrapolated and
projections are made based on the data. (True/False)
3.7 Summary
 A marketing manager is required to observe and monitor the trend in the
external environment and incorporate the results of this observation in
business and marketing plans.
 Environmental scanning helps a marketing manager in analysing the
components of the company’s environment.
 Observation and evaluation of marketing environment helps the
marketing manager to identify opportunities and threats involved in the
business and helps in designing suitable marketing responses.
 Analysing the micro environment is very important for businesses that
include their suppliers, intermediaries, customers, shareholders, and
competitors.
 Macro environmental factors are grouped as demographical, cultural,
social, legal and political, economic, natural, and technological
environment.
 Two common environment scanning techniques used by the companies
are Delphi technique and scenario building technique.
3.8 Glossary
Actors: Players of micro environment who have a direct bearing on the
marketing decisions.
Business cycle: A predictable long-term pattern of irregular periods of
economic growth and decline that is characterised by changing
employment, industrial productivity, and interest rates.
Cultural environment: It is everything that is socially learned and shared
by the members of the society. It consists of material artefacts and non-
material components.
Country market: It is the sum total of some sub-markets identified more
closely with the ethnic and language based classifications.

Demographic environment: It includes the population and its

characteristics.
Delphi technique: A forecasting procedure in which a series of questions
and the resulting feedback are used to reach a group consensus.
Environment scanning: It refers to careful monitoring of an organisation's
internal and external environments for detecting early signs of opportunities
and threats that may influence its current and future plans.
Economic environment: All those macro economic factors like income
distribution, level of saving, debt and credit available to consumers, and
stages in business cycle.
Inflation: The overall general upward price movement of goods and
services in an economy.
Marketing environment: Refers to all the forces outside marketing that
affect marketing management’s ability to build and maintain successful
relationships with the target customers.

1. What do you mean by marketing environment? Why do managers need
to scan the environment?
2. Describe the components of the micro environment of marketing.
3. How important is public opinion in marketing of a product?
4. What factors would affect the marketing strategy of a fashion product?
5. Suppose you are the marketing manager of a banking firm. Your bank
has opened its first branch overseas. What factor do you think will affect
the choice of marketing the most and why?
6. Differentiate between micro and macro environment of marketing.
7. Describe the scenario building approach of environmental scanning with
the help of an example.

3.10 Answers

1. False
2. Environment scanning
3. (b)
4. Structure
5. Intermediaries
6. (a)
7. (c)
8. True
9. Social
10. Economic
11. False
12. True
13. Qualitative
14. True
15. True
Terminal Questions
1. Marketing environment refers to the factors that a company must
consider when it is marketing its products. For more details, refer
section 3.2.
2. A company, its competitors, intermediaries, suppliers, customers, and
public constitute the micro environment. For more details, refer
section 3.3.
3. Positive feedback from public is very important for the success of a
product or service. For more details, refer sub section 3.3.3
4. Apart from other factors, demographics would affect the marketing
strategy of a fashion product the most. For more details, refer
section 3.4.

5. Besides other factors, it is important to consider the demographics,

socio-cultural environment, political and legal environment of the
country. For more details, refer section 3.4.
6. A company can control the micro factors to an extent but it usually
cannot control the macro factors. For more details, refer section 3.5.
7. Scenario building approach consists of five stages, (1) analysis of
decisions, (2) identification of key decision factors, (3) identifying socio-
cultural factors, (4) Analysis of each of the key variables separately, and
(5) selection of scenario logics. For more details, refer
section 3.6.
3.11 Case Study
McDonald's Beef Fries in India

With more than 31,000 McDonald's restaurants in 119 countries
worldwide and 2,000 new stores opening annually, McDonald’s has
become the epitome of corporate globalisation. The fast food locations
are altered based upon the local culture and menus conform to local
culinary tastes and dietary restrictions. For example, upon entering the
Indian market, the menu evolved into a segregated vegetarian and non-
vegetarian menu, catering to the large Hindu population of the country.
The Hindu diet excludes beef altogether, often excludes pork as well, and
a significant percentage of Hindus are vegetarian.
The non-vegetarian menu uses lamb and chicken burgers and includes
items like the Chicken Maharaja Mac and Chicken McCurry Pan. The
vegetarian menu includes items such as the Veg McCurry, McAloo Tikki,
McVeggie, and the Paneer Salsa Wrap.
When the first McDonald’s opened in India in 1996, it was received by
crowds so large that barriers had to be installed. The prices were lower
than India’s only fast food chain (Nirula’s) but the food and preparation
methods were of higher quality. McDonald’s was among the first to not
only serve the lower class, but even cater to it. These ground-breaking
achievements received wide acclaim.
But in May 2001, news outlets were sharing a different side of the story.
Despite having promised to cook its “100% vegetarian” French fries in

vegetable oil, a class action law suit alleged that McDonald’s had actually
been using beef fat for the last decade. Despite issuing a conditional
apology admitting the usage of beef flavouring in the fries, angry Hindu
fundamentalist groups vandalised restaurants, causing $2 million
damages by smashing windows and smearing Ronald McDonald statues
with cow dung. Some politicians called for the company to be evicted
from India altogether.
Fig. 3.7: Sign board by McDonald

McDonald’s has placed such Signs at almost all their outlets in India
Source: http://2.bp.blogspot.com/_8wTvWJvY4hY/TOnJW3d1iqI/
AAAAAAAAAC0/ojyN2bAqfsk/s1600/mcdonalds.jpg)
Officials at McDonald's India later announced that the vegetarian products

served in India did not have any non-vegetarian content, but it was too late.
More cases arose across the United States and Canada. In addition to the
$2 million in property damages, settling the lawsuits required McDonald’s to
pay $10 million to charities that support vegetarianism and an additional
$2.4 million to the plaintiff’s attorneys. This cost, in addition to its own legal
fees and damage to reputation, was an expensive lesson in the need for
corporate globalisation efforts to follow commitments to honour local culture.
1. Did McDonald’s fail to read the culture of India?
(Hint: Yes, they tried to standardise their products and in the attempt,
didn’t pay much attention to India’s cultural beliefs.)
2. How did it hurt McDonald’s reputation?
(Hint: It did hurt its reputation initially but they managed to sustain the
interests of Indians in their products.)

3. What do you think were the main reasons for McDonald’s making it so
big in India even after initial problems?
(Hint: They were able to take advantage of the fact that Indians tried to
emulate the Western world. Also, the lack of competitors helped them.)
4. What lessons can be learnt from this case?
(Hint: A detailed study of the local culture and society is very important
before offering a product to the local people.)
(Source: http://globalizationproject.org/wiki/index.php?
title=McDonald's_Beef_Fries_in_India)
References:
 Tapan, P. K. (2010). Marketing Management, Excel Books, New Delhi
 Paul, P.J. and Jr. James, D.H. (2010). Marketing Management:
Knowledge and Skills, 10th Edition, McGraw-Hill/Irwin
 Greg, M. and Mark, J.(2009). Marketing Management, McGraw-Hill/Irwin
E-References:
 http://www.gb3group.com/marketing-environment.php – Retrieved on
January 25, 2012
 http://highered.mcgraw-hill.com/sites/dl/free/0073404721/580937/
Chapter_03.pdf – Retrieved on January 25, 2012
 http://www.learnmarketing.net/pestanalysis.htm – Retrieved on January
25, 2012
 http://www.ehow.com/how_5001707_prepare-marketing-environmental-
analysis.html – Retrieved on January 25, 2012

Unit 4 Understanding the Marketing

Information Systems (MIS)
Structure:
4.1 Introduction
Objectives
4.2 Characteristics of MIS
4.3 Benefits of MIS
4.4 Types of MIS
4.5 Components of MIS
4.6 Marketing Research
Features of marketing research
Objectives of marketing research
Marketing research process
Importance of marketing research
Advantages and limitations of marketing research
4.7 Summary
4.8 Glossary
4.10 Answers
4.11 Case Study
4.1 Introduction
In the previous unit we dealt with environmental scanning and the
techniques of environment scanning. We also discussed the organisation’s
micro and macro environment and the differences between them. The
Internet is promptly changing the way business views marketing information
systems. New business models present challenges and opportunities as
organisations seek to adopt “ebusiness” methodologies in the search for
competitive mileage. All organisations are experiencing the “ripple effect”
of Internet-enabled customers, supply chains, and competitors. This
pressure is especially intense in the marketing function where information
technology touches the customer and is significantly becoming the driving
force to create superior customer value.
The importance of marketing information is particularly evident as the
economy continues to accentuate services as a primary source of value.
Services depend on information to a great extent. Information is speedily

becoming a service in its own right. Mass customisation, often depicted as
“one-to-one” marketing or the customising of products and services for
individual customers, is heavily dependent on comprehensive and timely
customer information.
Modern marketing organisations, with their focus on the Internet,
demonstrate different characteristics as compared to “old economy”. They
create and manage the customer interface where interactions are more
virtual than face-to-face. They allow IT technology to integrate and
coordinate with consumers and business partners to quickly accomplish
remarkable business results. The stress is on the rapid conversion of
knowledge into customer value which relies on the proficiency to develop
deploy, and manages highly efficient new marketing information systems.
The key to competitive advantage counts on the firm’s ability to convert
knowledge into customer relationships and to reduce time to market and to
lower the costs. To ensure survival in highly competitive markets,
companies are required to develop the marketing function and scale it up on
“Internet time” with sales force automation, marketing communication,
market research, logistics, and product development.
Marketing information is helpful in making prudent and prompt marketing
decisions. In this unit we will deal with the important concepts of Marketing
Information System (MIS) and find out how the collected information from
the market is collated, edited and analysed. We will also discuss how
valuable insights are reported for making decisions.
Marketing managers spend most of their time in making decisions, which
influence the survival and growth of organisations. Decisions made without
collecting proper marketing information have often been found to be
detrimental to the health of organisations. There is a need for marketing
managers to collect, analyse, and evaluate information about the company’s
customers, environment, competitors, intermediaries, and sales force. An
efficient marketing manager gathers past information to understand events,
identify what is happening in the market, and to predict what may happen in
the future. Timely marketing information is an efficient marketing tool, which
reduces environmental uncertainty and risks involved in decision making.
The following case study provides better understanding of MIS concept.

Case Let
Information System in Restaurants
Fig. 4.1: A chubby child enjoying a meal at McDonald’s

(Source: http://www.google.co.in/imgres)
A waiter takes an order and enters it online via one of the six terminals
located in the restaurant dining room. The order is routed to a printer in
the appropriate preparation area: the cold item printer if it is a salad, the
hot-item printer if it is a hot sandwich or the bar printer if it is a drink. A
customer’s meal listing (bill) with the items ordered and the respective
prices are automatically generated. This ordering system eliminates the
old three-carbon-copy guest check system as well as any problems
caused by a waiter’s handwriting. When the kitchen runs out of a food
item, the cooks send out an ‘out of stock’ message, which will be
displayed on the dining room terminals when the waiters try to order that
item. This gives the waiters faster feedback, enabling them to give better
service to the customers. Other system features aid management in the
planning and controlling of their restaurant business. The system
provides up-to-the-minute information on the food items ordered and
breaks out percentages showing sales of each item versus total sales.
This helps the management to plan menus according to customers’
tastes. The system also compares the weekly sales totals versus food
costs, allowing planning for tighter cost controls. In addition, whenever an
order is voided, the reasons for the void are keyed in. This may help later
in management decisions, especially if the voids are consistently related
to the food or service. Acceptance of the system by the users is
exceptionally high since the waiters and waitresses were involved in the
selection and design process. All potential users were asked to give their
impressions and ideas about the various systems available before one
was chosen.
(Source: http://www.mbaknol.com)

 When to make a market entry with new products?
 How to modify products and service propositions to make them relevant
to the evolving consumer needs?
 When to add new product lines or launch new brands to keep customers
happy?
 How to map the customer expectations to build better products and
services?
Objectives:
 define Marketing Information System (MIS)
 describe the characteristics of MIS
 discuss the benefits of MIS
 list the types of marketing information
 identify the components of MIS
 explain the features and objectives of marketing research
 describe the process of marketing research
 recognise the key advantages and disadvantages of marketing research
4.2 Characteristics of MIS

James A. (1998) defined marketing information system as “A structured,
interacting complex of persons, machines and procedures designed to
generate an orderly flow of pertinent information, collected from both intra
and extra firm sources for use as the basis for decision-making in specified
responsibility area of marketing management.”
It is now possible for us to generalise what MIS means. As discussed in the
introduction, MIS is a system of people, equipment, and procedures to
gather, sort, edit, analyse, evaluate, and report data. It helps distribute
timely and pertinent data for marketing decision makers.

The following are the characteristics of MIS:

 Management-oriented – MIS provides information that supports the
management in the organisation for making efficient decisions.
 Management directed – By management-directed MIS we mean that it
should be directed by the management because it is the management
who specify their needs and requirements more effectively than anyone
else.
 Common data flow – As data is gathered by a system analyst from its
original source only once, the integration of different sub systems will
lead to a common data flow. This which will further help in avoiding
duplicity and redundancy in data collection, storage, and processing.
 Strategic planning – The preparation of MIS is strategic in nature as it
is not a one or two day exercise. It usually takes three to five years and
sometimes a much longer period.
 Sub system concept – MIS should be broken down into smaller
divisions or subsystems so that more attention and insight is paid to
each sub system.

1. The term _____________ refers to a programme for managing and
organising information gathered by an organisation from various
internal and external sources.
2. The preparation of MIS is ___________ in nature as it is not a one or
two day exercise.
4.3 Benefits of MIS

The benefits of MIS are as follows:
 MIS is concerned with planning and control. It allows marketing
managers to carry out the analysis, planning, implementation, and
control responsibilities more effectively. MIS includes all the ingredients
that are employed in providing information support to managers in
making planning and control decisions.
 The output of MIS is information that sub serves managerial functions.
MIS deals with information that is systematically and routinely collected

in accordance with a well-defined set of rules. This implies that a MIS is

a part of the formal information network in an organisation. It provides
marketing intelligence to the firm and helps in early spotting of changing
trends.
 MIS assesses the information needs of different managers and develops
the required information on time from the supplied data regarding
competition, prices, advertising expenditures, sales, distribution and
market intelligence, etc. It helps the firm to adapt its products and
services to the needs and tastes of the customers.
 MIS provides inputs from marketing environmental factors like target
markets, marketing channels, competitors, consumers, and other forces
for creating, changing, and modifying marketing decisions in the
formulation of relevant and competitive marketing strategies. It ensures
effective tapping of marketing opportunities and enables the company to
develop effective safeguard against emerging marketing threats.

3. MIS is concerned with planning and ____________.
4. MIS deals with information that is ____________ and routinely
collected in accordance with a well-defined set of rules.
5. MIS ensures effective tapping of marketing opportunities and enables
the company to develop effective safeguard against emerging
marketing threats. (True/False)
4.4 Types of MIS

MIS supplies three types of information, which are:
 Monitoring information
 Recurrent information
 Customised information
Let us now discuss the different types of marketing information in detail.
 Monitoring information – Monitoring information is the information
obtained from scanning external sources which include newspapers,
trade publications, technical journals, magazines, directories, balance
sheets of companies, and syndicated and published research reports.
Data are captured to monitor changes and trends related to marketing
situation. Some of these data can be purchased at a price from

commercial sources such as market research agencies or from
government sources.
 Recurrent information – Recurrent information is the information that is
generated at regular intervals like monthly sales reports; the stock
statements, the trial balance, etc. In MIS, recurrent information is the
data that MIS supplies at a weekly, monthly, quarterly, or annual
interval, which are made available regularly. It can also provide
information on customer awareness of company’s brands, advertising
campaigns, and similar data on close competitors.
 Customised information – Customised information is also called
problem-related, which is developed in response to some specific
requirements related to a marketing problem or any particular data
requested by a manager.

6. Recurrent information is the information obtained from scanning of
external sources. (True/False)
7. Recurrent information is the information that is generated at regular
intervals like the monthly sales reports. (True/False)
8. Customised information can also provide information on customer
awareness of company’s brands, advertising campaigns, and similar
data on close competitors. (True/False)
4.5 Components of MIS

The overall objective of any MIS is to provide inputs from marketing
environmental factors like target markets, marketing channels, competitors,
consumers, and other forces for creating, changing, and modifying
marketing decisions in the formulation of relevant and competitive marketing
strategies.
Figure 4.2 explains the different components of MIS.

Marketing Marketing Mix

Environment Marketing Information System Factors
*Market Potential *Product

*Target Market *Price
Internal Marketing *Place
*Competitive Record Intelligence *Promotion
System System *Packaging
Environment
*People
*Process
*Physical Evidence
*Intermediaries Analytical Marketing
Marketing Research
System System
Marketing Decisions Flowing to the Marketing Environment
Fig. 4.2: Components of Marketing Information Systems

nd
Excel Books)
As evident from the figure 4.1, a complete MIS consists of internal record
system, marketing intelligence system, analytical marketing system, and
marketing research system. Information relevant to marketing decisions is
collected from the environment, both internal and external, through the four
sub systems as illustrated in figure 4.1.
 Internal record systems – Internal record systems are available within
the company across various departments and provide relevant, routine
information for making marketing decisions. The most evident internal
record system is the purchase and payment cycle systems. It records
the timing and size of orders placed by consumers, the payment cycles
followed by consumers, and the time taken to fulfil the orders in the
shortest possible time.
 Marketing intelligence system – A marketing intelligence system is the
system of collecting and collating data. This system tries to capture
relevant data from the external environment. It collects and manages
data from the external environment about the competitors’ moves,
government regulations, and other relevant information having a direct
impact on the marketing environment of the firm.
 Analytical marketing systems – Analytical marketing systems are also
known as Marketing Decision Support Systems (MDSS). A MDSS is a
coordinated collection of data, systems, tools, and techniques with
supporting software and hardware. Using this collection, an organisation

gathers and interprets relevant information from business and
environment and turns it into a basis for marketing action. It involves
problem-solving technology consisting of people, knowledge, software,
and hardware integrated through the information technology platform
into the sales management process of the organisation.
 Marketing research systems – Marketing research systems are based
on systems and processes that help marketing managers to design,
collect, analyse, and report data and findings relevant to a specific
marketing situation facing the company. It also involves analysis of
information, which includes a coordinated collection of data, systems,
tools, and techniques with supporting software, and hardware by which
an organisation gathers and interprets the relevant data and turns it into
a basis for marketing action and tactics.
Thus MIS includes a set of procedures and methods for the continuous
analysis and presentation of information for marketing decisions.
MIS does not operate in isolation; it is closely integrated with the various
environments within which a business operates. This includes marketing
planning system, marketing organisation and implementation system, and
marketing control system. These four systems are also a part of coordinated
marketing where other departments join to achieve marketing objectives.
However, MIS is directly concerned with marketing decisions related to
product, pricing, place, promotion process, people, and physical evidence
as shown in figure 4.1.

9. The most evident internal record system is the ____________ and
payment cycle systems.
10. Marketing research systems are also known as Marketing Decision
Support Systems (MDSS). (True/False)
11. MIS operates in isolation. (True/False)
4.6 Marketing Research

Marketing research is the study of marketing problems, techniques, and
other aspects of marketing related decision-making and their
implementation. The American Marketing Association (AMA) defines

marketing research as the function which links the consumer, customer, and
public to the marketer through information used to identify and define
marketing opportunities and problems, refine and evaluate marketing
actions, monitor marketing performance and improve understanding of
marketing as a process.
Let us now study the concept of marketing research in detail.
4.6.1 Features of marketing research
Features of marketing research may be listed as follows:
 Systematic process – Marketing research has to be carried out in a
sequential and systematic manner and the entire process needs to be
planned with a clear objective.
 Objective – It is essential that the methods used and interpretation of
results is objective in nature. The research should neither be carried out
to establish an opinion nor should it be purposely matched with the
preset results.
 Multi-disciplinary – Marketing research borrows concepts from other
disciplines like statistics for obtaining reliable data and from economics,
psychology, and sociology for better understanding of buyers.
4.6.2 Objectives of marketing research
The objectives of marketing research can be divided into two parts:
 Academic objectives – These objectives can be to gain awareness
about a phenomenon or to achieve new insights into it. The academic
object of marketing research is the acquisition of knowledge and it is the
thirst for knowledge coupled with curiosity that has been the guiding
force behind a rich variety of research work, independent of any material
incentive.
 Utilitarian objectives – The primary goal of marketing research is to
understand the marketing culture, environment, and decision process
and thereby gain a greater measure of marketing control.
Activity 1:
Give some examples of research projects dealing with consumer
behaviour that might be either academic or utilitarian, depending on who
the ‘client’ of the project is.
4.6.3 Marketing research process

The process of marketing research involves the following steps:
1. Identifying the marketing problem
2. Developing marketing research plan
3. Designing marketing research strategy
4. Collection of data
5. Analysis of collected data
6. Preparation of report
Figure 4.3 represents the steps in marketing research.
Identifying the Marketing Problem or Setting the Objectives of Research
Developing a Marketing Research Plan or Studying the Old Research Findings
Designing the Marketing Research Strategy
Collection of Data from Market
Analysis of Collected Data
Preparing the Research Report
Fig. 4.3: Steps in Marketing Research
(Source: Marketing Management-Text and Cases , 2nd Edition, Tapan K

Panda, Excel Books)
However, there is no strict rule for the researcher to follow the path as
mentioned below. He/she may modify the steps depending on the
information available from the client organisation, nature of the problem, and
the type of answers he/she wishes to find from the research.
Let us now study the steps in detail.
1. Identifying the marketing problem
The first step in marketing research is identifying and understanding the
marketing problem. What is the problem? What type of information is

required to solve it? What segments of the related information are already
available? Marketing researchers also make use of the available literature
for an in-depth background study of the problem, which will help them to
define the research objectives clearly.
Once the problem is defined, a series of research objectives can be laid
down for further work. Marketing researchers often conduct preliminary
research to find out the problem and clarify the nature of the problem. This
kind of research is known as exploratory research. The objective of
exploratory research is to investigate and explore rather than provide a
conclusion. This kind of research is undertaken with an objective that other
types of research will follow and the subsequent researches will be directed
at finding out the solution to the problem.
A focus group is the most popular method of conducting exploratory
research. Focus group interviews are loosely structured interviews of six to
ten people who give their comments and reflections on the symptoms and
the ‘why’ part of the problem, so that the researcher can draw inferences
from their responses to build the program.
2. Developing marketing research plan
When the marketing problem is clearly identified and formulated, marketing
researchers should develop a plan to collect the relevant information. While
developing the research plan, they should also familiarise themselves with
the existing research findings. They can also take the help of library
sources, as well as experienced consultants, persons with practical
knowledge, etc.
The research design is a master plan that helps in the identification of
specific techniques and procedures that will be used to collect and analyse
data about a problem. The research design so formulated should be
compared with the objectives developed in the preceding stage to ascertain
that the sources of data, data collected, scheduling, and cost of collecting
data are contributing towards achievements of the research goal.
Types of data and methods of data collection
Data can be of the following two types:
 Primary data – Original data derived from a new research study and
collected at source, as opposed to previously published material.

 Secondary data – Data already gathered for one use that is then
utilised for another purpose. For example, a person researches income
distribution using data collected by the Department of Commerce.
Figure 4.4 shows the sources of secondary data.
Secondary Data Sources
Internal Sources External Sources

Customer Records Government Sources
Financial Statements Trade Association Sources
Inventory Records Commercial Sources
Research Reports Internet
Fig. 4.4: Sources of Secondary Data

(Source: Marketing Management-Text and Cases, 2nd Edition, Tapan K Panda,
Excel Books)
Alternatively, it is also possible to develop a research plan by using primary

data. Primary data is not recorded before and is not available in any report
or formatted sources. It is collected from the respondents directly for the
purpose of a specific research.
Primary data can be collected by the following four ways:
 Census – The method by which data is collected from all the members
of population is called census. Every ten years, the Government of India
conducts census to record the population and its characteristics. Though
it covers the whole population, it is a time consuming and expensive
exercise.
 Survey – To overcome problems posed by census method, many
researchers follow the survey approach. A survey is any research effort
in which data is gathered systematically from a representative sample of
population. This data can be collected by contacting respondents
through telephone, mail, e-mail, or through personal contact method.
Personal or telephonic survey methods have certain advantages, which
include direct interaction between the researcher and the respondent.
When surveys are conducted properly, they bring certain advantages in
the form of cost control, representativeness of sample, accuracy, and

timeliness of result for the benefit of the firm. However, if they are not
done properly, there is a risk of systematic bias, leading to incorrect and
worthless results. The nature of the marketing problem suggests the
kind of survey technique to be followed by the researcher.
Table 4.1 explains the advantages and disadvantages of different kinds
of survey techniques.
Table 4.1: Advantages and Disadvantages of Different Types of
Survey Techniques
Variable Door to Shopping Internet Telephone Mail in
Door Mall Survey interview questionnaire
Cost Highest Moderate Low Low to Lowest
to High Moderate
Speed of data Moderate Fast Instantaneous Very fast Researcher
collection to fast has no control
over the return
of the
instrument
Influence of the High High None Moderate None
interviewer on
answers
Possibility of Low Low High Moderate Highest – No
respondent interviewer
misunderstanding available for
clarification
Flexibility of Very Very Extremely Moderately Highly
Questioning Flexible Flexible Flexible Flexible standardized
format
Respondent Good Moderate Varies, Good Moderate –
Cooperation depending on Poorly
the nature of designed
website questionnaire
will get no
response
Length of Long Moderate Moderate Moderate Varies –
Questionnaire to Long depending on
purpose
 Observation – It is a method of collecting primary data in which

occurrences are observed. Marketers also use observational technique
for data collection; particularly when they are interested in learning the
‘how’ behaviour.

Observational techniques can be personal, mechanical, natural, or

contrived techniques. An observation by individual observers is a
personal observational technique, whereas when mechanical devices
like cameras are used, it is called mechanical observation. When the
process of taking note happens naturally, it is called natural observation,
but in many instances, the observer creates a contrived situation for the
occurrence of the event.
 Experiments – Marketing researchers conduct experiments to discover
the cause and effect relationships. An experiment allows a researcher to
change variable inputs and then measure its effect on the dependant
variable under controlled environment. The researcher can manipulate
the degree of treatment of the variable on the subject and measure the
corresponding effects on the desired variable.
Table 4.2 depicts the various techniques of probability and non-
probability sampling.
Table 4.2: Techniques of Sampling
Probability Methods of Explanation
Sampling
Simple Random Every member of the identified population has an
Sampling equal chance of selection
Stratified Random The entire population is divided into number of
Sampling stratum (exclusive groups) and random samples are
drawn from each one of the stratum
Cluster or Area Sampling The entire population is divided into mutually
exclusive groups on geographic basis so that the
researcher can draw samples from each area
Non-Probability
Methods of Sampling
Convenience Sampling The researcher chooses the most accessible
population as per his convenience.
Judgmental Sampling The researcher selects sample members from the
population who he judges as good prospects for the
desired information
Quota Sampling The researcher finds and interviews a prescribed,
pre-decided number of samples in each of the
categories.

3. Designing marketing research strategy

Marketing researchers should design the research strategy in accordance
with the requirements of the problem. They should make certain
hypotheses, the testing of which would be considered helpful in solving the
problem.
A research strategy also covers issues like the cost structure for the
research, the time and scheduling for the research, and the nature of the
contact method, like personal contact, email, telephone, etc.
Marketing researchers should also set up a research strategy chart for
smooth conduct of the proposed research. Let us now illustrate a research
strategy chart for better understanding of students, through an example of a
toothpaste brand research.
Example: A toothpaste company may design its marketing research
strategy in the manner depicted in table 4.3.
Table 4.3: Marketing Research Strategy of Toothpaste Company
Research Descriptive research
Data Sources Secondary data
Primary data
Research Approach Survey method
Research Instrument Questionnaire
Type of Questionnaire Structured non-disguised
Type of Questions Close-ended questions
Sampling Plan
 Sampling Unit Purchasers of toothpastes
 Sample Size 500 persons
 Sampling Simple random sampling
Procedure
Contact Method Personal
Mode of collecting data The respondents will be chosen randomly and requested
to grant interviews. The questions will then be asked in a
firm, determined sequence. The secondary data will be
collected from various books, journals, reports (both
published and unpublished), etc.
Data Processing i. A number of tables to be prepared to bring out the
main characteristics of the collected data.
ii. Inferences to be drawn from the data collected

4. Collection of data
Marketing researchers would either select primary methods or secondary
methods or both for data collection. Their decision depends on the nature of
study and objective, availability of financial resources and time, and the
desired degree of accuracy.
As explained in the earlier section, primary data can be collected through
experiment or survey. If researchers conduct experiments, they require
some quantitative measurements of the data, with the help of which they
examine the truth contained in the marketing research hypothesis. But in the
case of a survey, data can be collected through different contact methods.
We have explained these contact methods in the research design portion of
marketing research process.
Table 4.4 depicts the types of questions that are asked in a questionnaire.
Table 4.4: Types of Questions Used in Designing a Questionnaire
Name Description Illustration
Close ended
questions
Dichotomous A question with only What is your gender?
Questions two possible options a. Male b. Female
Multiple A question which has What is your age group?
Choice more than two options a. 20-30
Questions b. 30-40
c. 40-50
d. 50-60
Likert Scale A statement with which Government’s population planning is
the respondents shows not sufficient in controlling the
their degree of population problem in India?
agreement or 1. Strongly agree
disagreement 2. Agree somewhat
3. Neither agree nor disagree
4. Disagree somewhat
5. Disagree completely
Importance A scale that rates How important is price in selecting a
Scale importance of a factor brand of toothpaste?
1. Extremely important
2. Very important
3. Somewhat important

4. Not very important

5. Not at all important
Intention to A scale that rates In a book store, if you happen to come
Buy Scale consumer’s intention to across a book on cookery, what will be
buy a product your buying idea?
1. Definitely buy
2. Probably buy
3. Not sure
4. Probably not buy
5. Definitely will not buy
Rating Scale A scale that rates some Food quality in Jet Airways is
attributes from poor to 1. Excellent
excellent 2. Very good
3. Good
4. Fair
5. Poor
Semantic A scale connecting two Jet Airways
Differential bipolar words. The Large -------------------------------Small
Scale respondents select the Modern--------------------------Traditional
point that reflects their
Expensive---------------------Low cost
opinion
Open Ended
Questions
Completely A question that What do you think about Coca Cola?
Unstructured respondent can answer
in any way they feel
like
Word Words are presented to What is the first word that comes to
Association the respondents one at your mind when you think of the
a time and they following
respond to each word 1. Surf------------------------------
on what comes to their
mind 2. Nirma-----------------------------
3. Rin---------------------------------
Sentence A sentence is given to When I think of Horlicks, I ------------------
Completion the respondents and ----------------------------------------------------
they are asked to
complete the sentence
Story A small story is given Rita is a young woman who woks in a
Completion to the respondents and multinational firm. She has just
they are asked to completed her bath and is planning a

complete the story make up for the day as she has to

attend a party in the evening. She is
thinking about what to wear for the
day……. (Now complete the story)
Picture A picture of two
Which sedan
Interpretation characteristics is given
should I buy?
in which one is making
a statement and the
response box for the
other is free. The You should buy
respondent is asked to a…………………
identify with the other
and complete the
response box
Thematic A picture is presented
Appreciation and respondents are
Tests asked to make up a
story about what they
think is happening or
may happen in the
story
5. Analysis of collected data

Data collected from various sources are processed. They are edited for the
purpose of improving accuracy level. Editing is a process of weeding out
irrelevant information from the data. It is done to find out the consistency,
accuracy, completeness, and legibility of the responses and its usability for
the desired research. Responses found unsuitable are removed from the
sample list. Editing can be done sequentially when the responses are being
collected or at the central table after all the responses have been collected.
The researcher has two sets of data, namely
 Qualitative data analysis – It can be done by drawing inferences from
the responses or by conducting content analysis.
 Quantitative data analysis – It is classified by evaluating how many
variables are to be measured.
6. Report preparation
Keeping the objectives of the study in mind, the researcher should prepare
the study report. The findings should be written in a concise, simple, and
objective-oriented language. Graphs and examples in the main report

should be limited to those needed to convey essential facts to support the

research statement.
4.6.4 Importance of marketing research
With the change from a seller’s market to a buyer’s market, it was deemed
necessary to acquire information on the needs, preferences, and evaluation
of the consumer. The most relevant requirement was to ensure that the right
product reaches the right person at the right place at the right price.
Besides, it was also necessary to get feedback from the customers as to
whether they are getting optimum satisfaction and thus continue to make
changes in the marketing mix so that consumers remain loyal to the product.
Consequently, the whole task requires entrepreneurial flair and skill, which
ultimately calls for marketing research. Thus, marketing research is a very
useful tool in enhancing the decision-making ability of the marketer in the
dynamic environment of today.
Activity 2
Indicate whether marketing research is relevant to each of the following
organisations and if so, how each might benefit.
(a) Central Ministry in the government, (b) Retail shop, and (c) A bank
4.6.5 Advantages and limitations of marketing research

Here e lists the advantages of marketing research over other methods of
decision making on marketing problems:
 It is used to measure market potential, characteristics, and share of
markets for a particular brand or company.
 It helps in obtaining information that could lead to the formulation of
short and long-range forecasts.
 It helps in taking better advertising decisions.
However, like any other managerial tool, marketing research is not free from
flaws. Following are the limitations of marketing research:
 Although marketing research uses techniques of science, it is not exact
science. The results obtained are not accurate as compared to physical
and chemical sciences.

 Political, legal, technological, and social variables are uncontrollable

from the standpoint of the individual marketing decision maker. The
results are affected if these variables change.
 Consumers, dealers, wholesalers, retailers, etc., are the basic
constituent’s entities on whom marketing research is carried out. Human
beings act artificially when they are targeted for research work. Many
aspects of human behaviour affect the results of marketing research.

12. The ___________ object of marketing research is the acquisition of
knowledge.
13. The objective of ___________ research is to investigate and explore
rather than provide a conclusion.
14. A __________ is the most popular method of conducting exploratory
research.
15. __________ data includes the data already gathered for one use that is
then utilised for another purpose.
4.7 Summary
 Marketing success depends on making correct and timely decisions.
 Marketing managers need reliable and timely information about a large
number of external and internal factors relevant to decision areas.
Practically every decision area relevant to marketing requires the input
of information.
 The term ‘Marketing Information Systems’ refers to a programme for
managing and organising information gathered by an organisation from
various internal and external sources. Its focus is on data storage,
classification, and retrieval.
 Marketing research is a growing and widely used business activity,
because a manufacturer needs to know more about his final consumers.
 The marketing manager, using a variety of sources, obtains many types
of information on which to base his/her decisions. Certain data, such as
daily sales figures and monthly or quarterly totals are continuously and
regularly supplied.

 Other information such as consumer survey results is generated only on

special request. Other information, perhaps informally gathered
competitive information, comes to the manager on an unscheduled
basis.
4.8 Glossary
Descriptive studies: In such studies, information is collected from a
representative sample of respondents and the information collected is
analysed by using statistical methods.
Exploratory research: This includes the discovering of general nature of
the problem and to correctly understand the involved variables.
Exploratory research: This is the preliminary investigation of a marketing
problem and is undertaken in order to understand and identify the problem.
Focus group: Focus group is a popular technique for exploratory research
and brings together about eight to ten people with similar backgrounds to
meet a moderator/analyst for a group discussion.
Marketing Information Systems (MIS): MIS is a programme for managing
and organising information gathered by an organisation from various internal
and external sources.
Primary research: Original research done by individuals or organisations to
meet specific objectives is called primary research.
Research: Systematic and objective investigation of a subject or problem to
discover relevant information for principles.
Secondary data: Secondary data is any information originally generated for
some other purpose rather than the current problem under consideration
and can be either internal or external to the organisation.

1. What is Marketing Information Systems? Write down the characteristics
of MIS.
2. What are the various types of MIS?
3. Briefly explain the benefits and components of MIS.
4. Explain the six steps in a marketing research process.

5. Discuss the importance and objectives of marketing research.

6. ‘It is possible to get information about the market needs of FMCG
product’s package size’. Is the statement true or false? If yes, then what
needs to be done to get the information?
4.10 Answers

1. ‘Marketing Information Systems’
2. Strategic
3. Control
4. Systematically
5. True
6. False
7. True
8. False
9. Purchase
10. False
11. True
12. Academic
13. Exploratory
14. Focus group
15. Secondary
Terminal Questions
1. Marketing Information Systems (MIS) is a programme for managing and
organising information gathered by an organisation from various internal
and external sources. The characteristics of MIS are management-
oriented, management directed, common data flow, strategic planning,
and sub system concept. For more details, refer section 4.2.
2. MIS supplies three types of information, which are: monitoring
information, recurrent information, and customised information. For more
details, refer section 4.4
3. MIS includes all the ingredients that are employed in providing
information support to managers in making planning and control
decisions. The components of marketing information systems are:

internal records system, marketing intelligence system, marketing

research system, and analytical marketing system. For more details,
refer, section 4.3 and 4.5.
4. The marketing research process is conducted in a systematic manner
and involves six stages from identification of problems to report
preparation. For more details, refer section 4.6.
5. Marketing research is important as it links consumer to the organisation
by means of information. The objective of conducting marketing
research can be either academic or utilitarian. For more details, refer
section 4.6.
6. The statement is true. The marketing manager can conduct primary
research to ascertain what packet size customers want. For more
4.11 Case Study

It’s Not a Kids Play
What do kids think? What do they feel? How do they take decisions? It is
important for marketers to know, the answers of these questions. This is
what the millennial round of New GenerAsians, Cartoon Network's survey
on opinions, behaviour, and preferences of kids in the Asia-Pacific region
has tried to unearth. There are rather some surprising findings. Or perhaps
not surprising, for respondents were kids.
Fig. 4.5: Shopping by Kids

Kids now influence many purchase decisions. For some products like clothes and
toys, they make their own choices
(Source:
http://yourkidmatters.com/wpcontent/uploads/2007/12/kidsshopping.jpg)

Anthony Dobson, Vice President, international research and strategic

planning, Turner International Asia Pacific Ltd. says, "This survey is more
comprehensive than the 1998 one. We have added two new countries, New
Zealand and Vietnam. We also included ten cities in India and interviewed
2,045 kids in India. It is also user-friendlier and more brand-focused. I am
sure business will find it extremely useful."
Conducted by A. C. Nielsen, kids were asked open-ended questions face-
to-face. The fieldwork was conducted from October to December 1999About
7,752 kids were interviewed, across four age groups: 7-9 years, 10-12
years, 13-15 years, and 16-18 years. A region that has not been included,
however, is West Asia.
One area was optimist. When asked whether there will be no pollution by
the time the kid 'grows up', 17% of the respondents in India thought it would
'definitely/probably' happen. In the entire region, 36% thought it would
'definitely/probably' happen.
Internet access trends are interesting. In Singapore, 56% of the kids had
access to the Internet. The figure was 38% in Malaysia, 16% in Thailand,
and 2% in India (it has, however, shown commendable growth since 1998).
The survey found that kids in the entire region accessed the Internet from
school, most of the time.
Here is a look at aspirations. When asked at what age they will be able to
afford mobile phones, Indian kids put the age as 21 years. In the entire
region, the average was about 22 years. Also, in India, the latest trend (one
which is everlasting) was watching TV for boys and trendy clothes for girls.
An overwhelming majority of kids in the Asia-Pacific said the best things
about their lives were schoolwork and exams. Most agreed that achieving
good grades was very important. Do kids hate school?
For Indian kids, favourite commercial was Pepsi's, followed by Colgate,
Close-Up, Coca-Cola, and Pepsodent ads. Perhaps distribution has
something to do with it, or these ads' themes.
As far as Weekly Pocket Money (WPM) goes, an average of the kids gets
$1.5 in India, while it was $2.9 in Vietnam, and $19.4 in Hong Kong. Out of
this, Indian kids spent about 53% of their WPM. The most spendthrift are
kids in the Philippines. Chinese kids spent the least.

And the favourite jeans brand in India is 'Ruf N Tuf'. 'Action' is the favourite
sports shoe brand. Watches show the same trend. Titan is the favourite
brand. In the region, another favourite is Casio. Now, the most talked about
category - colas. Pepsi is the favourite, followed by Coke and
Thums Up.
The survey is in-depth, no doubt. But is it accurate? Have kids given
answers that parents want? Is it generic? Says Duncan Morris, director,
A. C. Nielsen Media International, "Yes, there are dangers in face-to-face
interviewing. But the size of the sample more or less evens out the
discrepancies. Moreover, the data is really indicative."
The entire survey costs $1,200. Realising most companies wouldn't want
the entire study; Turner International also offers country topline findings for
$300. And, really what do kids think?
1. What are the key benefits of the research to the Internet service
providers in India?
(Hint: The research indicates that only 2% kids had Internet access in
India, so there is huge scope for Internet service providers in countries
like India.)
2. Which is the most popular commercial ad in India.
(Hint: Pepsi's was the favourite commercial ads for Indian kids.)
(Source: Vivek Pareek, "Kids Will Be Kids," A & M, April 15, 2000)
References:
 Philip, K. (2007). Marketing Management: Pearson Education.
 Kazmi, S.H.H. (2007). Marketing Management; Text and Cases, Excel
Publication, New Delhi.
 Ramaswami, V.S. and Namakumari, S. (2003). Marketing Management:

E-References:
 http://www.netmba.com/marketing/ – Retrieved on December 29, 2011
 http://www.agecon.ksu.edu/accc/kcdc/PDF%20Files/marketing.pdf
– Retrieved on December 29, 2011
 http://marketingteacher.com/lesson-store/lesson-what-is-marketing.html
– Retrieved on December 29, 2011
 http://www.mbaknol.com/management-information-systems/case-study-
on-mis-information-system-in-restaurant/ – Retrieved on December 29,
2011

Unit 5 Consumer Buying Behaviour

Structure:
5.1 Introduction
Objectives
5.2 Characteristics Affecting Consumer Behaviour
5.3 Types of Buying Decision Behaviour: Henry Assael Model
5.4 Consumer Buying Decision Process
Problem recognition
Information search
Alternative evaluation
Purchase decision
Post-purchase behaviour
5.5 Buyer Decision Process for New Products
5.6 Buying Motives
5.7 Buyer Behaviour Models
Howard-Sheth model (1969)
Engel-Kollat-Blackwell model (1978)
5.8 Summary
5.9 Glossary
5.11 Answers
5.12 Case Study
5.1 Introduction
In the previous unit we dealt with the characteristics, benefits, types, and
components of Marketing Information System (MIS). We also analysed how
the collected information from the market is collated, edited, and analysed
and how valuable insights are reported for making decisions. We are all
consumers. We buy groceries, computers, cars, etc. We purchase services
ranging from bank accounts to college education. However, we also
experience that consumers show dissimilar buying patterns. We purchase
different attires, drive different cars, and eat different foods. Furthermore,
even the same consumer can make different decisions depending on the
circumstances. So how are we to build coherent marketing strategies?

In this unit we will analyse how and why consumers behave the way they
do. We will also explore the intuitions about our own behaviour. The term
consumer behaviour is defined as the behaviour that consumers’ display in
searching, purchasing, using, evaluating, and disposing products and
services that they expect will satisfy their needs.
We will also examine the most complex part of human behaviour i.e., how
consumers make decisions to buy a particular product or service and why
do they take such decisions. This unit also answers the two fundamental
questions about consumers. How consumers make decisions about
products and brands and why do they take the decisions the way they do?
Are there external factors which influence the decision-making process of
consumers, and if so, what are the factors in the process of making a
purchase decision? What roles do people play in a society? Organisations
and marketing managers need to understand these secrets of consumer
behaviour and develop mechanisms to measure them also.
The following case study will provide better understanding of the consumer
decision-making factors.
Case Let
Haldiram's: The Number One Choice of Consumers

Over a period spanning six and a half decades, the Haldiram's group
(Haldiram's) had emerged as a household name for ready-to-eat snack
foods in India. The company offered a wide variety of traditional Indian
sweets and snacks at competitive prices that appealed to people
belonging to different age groups. This case study deals with how the
company used the 4Ps effectively to influence consumer decision-
making.
The marketing mix
Products
Haldiram's offered a wide range of products to its customers. The product
range included namkeens, sweets, sharbats, bakery items, dairy
products, papads, ice-creams, etc.

Fig. 5.1a: Products of Haldiram’s

Haldiram's products are exported to several countries worldwide. Haldiram has
its own outlets where it sells sweets and eatables.
(Source: http://www.siliconeer.com/past_issues/2008/october2008/BIZ-
HALDIRAMS.jpg)
However, namkeens remained the main focus area for the group
contributing close to 60% of its total revenues. By specialising in the
manufacturing of namkeens, the company seemed to have created a
niche market. Haldiram's launched 'Bhelpuri,' keeping in mind the
customers residing in western India.
Pricing
Haldiram's offered its products at competitive prices in order to penetrate
the huge unorganised market of namkeens and sweets. The company's
pricing strategy took into consideration the price conscious nature of
consumers in India. Haldiram's launched namkeens in small packets of
30 grams, priced as low as ` 5. The company also launched namkeens in
five different packs with prices varying according to their weights.
Place
Haldiram's developed a strong distribution network to ensure the widest
possible reach for its products in India as well as overseas. From the
manufacturing unit, the company's finished goods were passed on to
Carrying and Forwarding (C&F) agents. C&F agents passed on the
products to distributors, who shipped them to retail outlets.
Apart from the exclusive showrooms owned by Haldiram's, the company
offered its products through retail outlets such as supermarkets, sweet
shops, provision stores, bakeries, and ice cream parlours.

The products were also available in public places such as railway

stations and bus stations that accounted for a sizeable amount of its
sales.
Promotion
Haldiram's product promotion had been low key until competition
intensified in the snack foods market. The company tied up with 'Profile
Advertising' for promoting its products. Consequently, attractive posters,
brochures, and mailers were designed to enhance the visibility of the
Haldiram's brand.
Different varieties of posters were designed to appeal to the masses. The
punch line for Haldiram's products was, 'Always in good taste.'
These are the ways in which a company can influence consumer
decision making.
(Source: http://www.scribd.com/doc/70989348/Haldiram-Case)

 What is consumer behaviour?
 What are the important types of decision-making approaches that
consumers use?
 What different decision processes are involved in buying behaviour?
 What are the models and various buying motives?
Objectives:
 identify the characteristics that affect consumer behaviour
 analyse the different types of buyer behaviour
 recognise the consumer decision-making process
 explain consumer decision process for new products
 examine the buying motives
 discuss the behavioural models
5.2 Characteristics affecting Consumer Behaviour

The consumer decision process explains the internal process as well as
individual behaviour for making product or service based decisions. The

consumption process is influenced by external factors such as cultural,

social, personal, and psychological factors.
When the marketing and other stimuli come in contact with buyers, their
decision process is initiated. The marketers have to correctly read buyers’
conscious or unconscious behaviour to generate positive response. Every
person has his/her distinct set of standards of judgment.
Figure 5.1b depicts the characteristics that affect the consumer behaviour.
Personal Factors
1. Age and
Stage in Life Cycle
Cultural Factors 2. Occupation and
1. Culture Problem Recognition Economic
2. Subculture Circumstances
3. Social Class 3. Lifestyle
Information Search 4. Personality and
Self Concept
Alternative Evaluation
Purchase Decision
Social Factors Psychological Factors
1. Reference Group 1. Motivation
2. Social Class Post Purchase Behavior 2. Perception
3. Family 3. Learning
4. Roles and Status 4. Beliefs and Attitudes
Fig. 5.1b: Factors Influencing Consumer Decision-Making Process

nd
Excel Books, New Delhi
As evident from the above figure, consumer behaviour is affected by a host

of variables, ranging from psychological factors like personal motivations,
needs, attitudes and values, personality characteristics, socio-economic and
cultural background, demographic variables like age, gender, professional
status, social influences of various kinds exerted by family, friends,
colleagues, and society as a whole, and broader cultural factors. The
combination of these variables has a deeper impact on each one of us as
manifested in our different behaviour as a consumer.

The consumers follow a decision process characterised by problem

recognition, information search, alternative evaluation, purchase decision
and post-purchase behaviour. The consumers follow a decision process
characterised by problem recognition, information search, alternative
evaluation, purchase decision, and post-purchase behaviour which we will
discuss in detail under section 5.4. Let us now discuss each of these
variables and their impact on consumer decision-making process.
 Influence of cultural factors
There is a subtle influence of cultural factors on consumer’s decision
process. Immediate subculture also influences consumer’s decision process
with which consumer identifies himself/herself as a member. Consumers
also grow in a social setting, which is characterised by the concept of social
class.
 Culture
Culture is the complex way of living of individuals. It represents the way
consumers live and grow to acquire cultural values and norms. While
studying consumer behaviour in any culture, one must recognise products
or services not only as materials produced by the culture, but also as the
culmination of abstract values, attitudes, and related symbolism associated
with the culture having a direct bearing on the consumption pattern of the
user.
 Subculture
Culture is a larger manifestation of a nation. People tend to identify
themselves with the immediate sub-cultural systems, which are reflected
through the race, religion, nationality, and geographical locations.
Subcultural factors help in providing an immediate identification and
socialisation to the consumer.
 Social class
Social class is defined as a relatively permanent and homogeneous
division(s) in the society to which individuals and families belong and they
share similar values, lifestyles, interests, and behaviour. These are very
broad groupings of individuals who hold roughly similar status levels in the
society, arranged in a hierarchy from low through middle to upper class
divisions. The following factors contribute to the social class of an individual
as given in figure 5.2.

Personal Performance
Class- Occupation
Consciousness
Individual’s
Social Class
Social
Possessions
Interactions
Value Orientations
Fig. 5.2: Factors Explaining Individual’s Social Class

 Influence of social factors

As we have mentioned, cultural factors have broader influences on
consumption choice and are subtle in their impact in shaping the
consumption choice of individuals. Social factors in turn reflect a constant
and dynamic influx through which individuals learn different consumption
meanings. The social factors influencing consumer behaviour include
reference group, family and social roles, and status. Let us now discuss
each factor in brief and understand their influence in consumer decision
process.
 Reference group
A person’s reference group has a face-to-face, direct impact or indirect
impact on his/her attitude and behaviour.
In order to become a successful Soccer player, you are required to surround
yourself with like minded people who have a high degree of Soccer
knowledge and quality skill level. This will show that your reference group is
a group in which you are motivated to gain or maintain the acceptance.
When you find that people of your group whom you are referencing, are
progressing in life, you too crave to progress like them to reach their status
and position.
 Family
Out of all the social factors, the one most important and effective in
influencing the consumption choice is the family. Aristotle in 4th B.C. defined
family as the association established by nature for the supply of man’s

everyday wants. It is defined as two or more people related by blood,

marriage, or adoption who reside together.
 Role and status
Consumers participate in different roles in different groups like family,
professional and recreational association, and formal organisations. Their
role is defined in terms of role and status. A role consists of the set of
activities a person is expected to perform in all these groups – as a father,
as an employee, or as a member of the work organisation.
Activity 1:
Explain how culture influences consumer behaviour of nations by
collecting cases from the Indian market.
 Influence of personal factors

A person’s consumption behaviour is shaped by his/her personal
characteristics. These factors include demographic factors like age, income,
language, level of education and gender factors, his/her stage in life cycle,
occupation, economic circumstances, lifestyle, personality and the self
concept.
 Psychological factors
Consumers are also influenced by the psychological factors. Internal
psychological factors subtly guide the decision-making process. These
factors are important as they influence the reason or ‘why’ of buying. These
factors are motivation, learning and perception, and attitude. Let us now
discuss each of these factors and understand how they influence the
consumer decision process.
 Motivation
Motivation leads people to move from a general level of need awareness to
pursuing a specific goal and to take action towards achieving that specific
goal. Psychology helps in understanding how the consumer learnt about a
brand and how his/her memory influences the buying habits. Various
theories are available in literature to explain the concept of motivation.
Abraham Maslow’s hierarchy of needs model explains that individuals follow
a typical pattern of need structure. In order to fulfil their needs, they follow a

hierarchical model in which once a lower order need is fulfilled, the customer
pursues the next order of need.
The human factor always moves towards satisfying certain basic needs as
explained by Maslow. Therefore, a study of why and how a consumer is
motivated to buy certain products and services helps us in understanding
consumer behaviour. Maslow classified the needs of individuals as
physiological needs, safety needs, social needs, esteem needs, and self-
actualisation needs.
Figure 5.3 depicts Maslow’s need hierarchy theory which explains human
needs from physiological to self-actualisation needs in hierarchy in terms of
the most important to the least important.
Self-Actualisation Needs
Esteem Needs
Social Needs
Safety Needs
Physiological Needs
Fig. 5.3: Abraham Maslow’s Need Hierarchy Theory

As evident from the figure 5.3, a person would first satisfy his/her
physiological needs and then move higher in the order to satisfy the higher
order needs. The physiological needs include basic needs like hunger,
thirst, and sex. Safety needs include needs related to security and
protection. Social needs include sense of belonging and love. Esteem needs
include self-esteem and recognition need. Self-actualisation need covers
self-development and realisation need. People will try to satisfy the most
pressing required need first and then move to the next level. Marketers help
in giving signals and cues to make their brand fulfil the most required need
of the consumer.

 Perception
Perception is a process through which a consumer’s mind receives,
organises, and interprets physical stimuli. It is influenced by various factors
such as colour, size, and brand. By seeing, hearing, or experiencing the
product or service, consumers will develop an image in their mind. The
message given by the company may pass through three different selection
procedures.
 Selective attention
Due to the advent of the Internet, there has also been an information
explosion. Unfortunately, the ability of consumers to process this huge
information and interest in evaluating this information is limited. Their
interest is in evaluating information, which is pertinent to their current goals
and needs. They actively search this information and process it for
developing meanings. In some cases, though they do not face a
consumption problem currently, they evaluate information passively due to
their interest or expectation that a need may arise in the future. Their
information processing is more passive and ongoing in nature. This
behaviour of consumers is called selective attention. Thus, individuals will
process that information and notice the stimuli which relate to one of their
current needs. Individuals will notice those stimuli which they expect to use
in the future. Finally, they will notice a stimulus which is largely deviating
from the conventional and traditional models of information for delivery of
physical product stimuli.
 Selective distortion
The information stimuli sent by the marketer or sender are modified and
distorted due to various external factors and the availability of previous
information with the individuals. This is called selective distortion process. It
explains the likelihood of consumers to modify and twist the information and
interpret information in a way that is different than the way the company
wanted it to be interpreted. Consumers interpret in such a way that it fits
their preconceptions better.
 Selective retention
Finally, people do not have a memory powerful enough to remember all the
information aimed at them through various marketing and communication
programmes. They are likely to reject a huge amount of the information and
prioritise what that set of information which they will retain for future use.

This process is called selective retention. Due to the process of selective

retention, individuals tend to remember only the key benefits or attributes of
products and brands and reject a major part of marketing information.
 Learning
Learning brings changes in people’s behaviour due to experience or
application of insight. Most human behaviour is learned and people acquire
new behavioural patterns and meanings through the learning process.
Learning is closely related to knowledge, skill, and intention – three basic
behavioural characteristics. It appears that knowledge and intention
acquired through experience and skills, come from practice. Learning is not
directly observed, but rather is inferred from a change in performance. This
indicates that learning and performance are related but distinct concepts
regarding the consumer.
 Attitude
Attitude is defined as a favourable or unfavourable predisposition that
people hold towards objects in the environment. Consumers develop
favourable or unfavourable attitudes towards products or brands before they
decide to buy the product or brand in the market place. Formation of positive
attitude is a necessary condition for the completion of the purchase process.

1. Which of these is a feature of psychological factors?
(a) Roles and status
(b) Motivation and learning
(c) Social class
(d) Reference group
2. The social factors influencing consumer behaviour include reference
group, family and social roles, and status. (True/False)
3. ______________ is closely related to knowledge, skill, and intention.
4. ___________ is a process through which a consumer’s mind receives,
organises, and interprets physical stimuli.

5.3 Types of Buying Decision Behaviour: Henry Assael

Model
Henry Assael has come up with an explanation to analyse why consumers
buy the goods they buy. He explained the relationship between the level of
involvement by the consumers in the purchase of goods and services and
the level at which diverse goods or services differ from one another. He
therefore came up with four different buying behaviours as explained in
figure 5.4.
High Involvement Low Involvement
Significant differences Complex Variety Seeking

between brands Buying Behaviour Buying Behaviour
Few differences Dissonance Reducing Habitual Buying

between brands Buying Behaviour Behaviour
Fig. 5.4: Buying Behaviour
Let us now study the buying behaviours in detail.

 Complex buying behaviour – Consumers are highly involved in a
purchase and aware of significant differences among brands. This is
usually the case when the product is expensive, bought infrequently,
risky, and highly self-expressive. Typically the consumers don’t know
much about the product category and have more to learn. Example:
personal computer.
 Dissonance-reducing – Sometimes, the consumer is highly involved in
a purchase but sees little differences in the brands. The high
involvement is based on the fact that the purchase is expensive,
infrequent, and risky. Example: carpet. After purchasing the carpet,
consumers might experience dissonance that stems from noticing
certain disquieting features of the carpet or hearing favourable things
about other carpets.
 Habitual buying behaviour – Many products are bought under
conditions flow consumer involvement and the absence of significant
brand differences. Considering salt, consumers have little involvement in
this product category. They go to the store and reach for a brand. If they
keep reaching for the same brand, it is out of habit and not strong brand
loyalty.
 Variety-seeking buying – Some buying situations are characterised by
low consumer involvement but significant brand differences. Here
consumers often do a lot of brand switching. Consumers do the brand
switching for the sake of variety rather than dissatisfaction. Example:
wafer potato chips.

5. According to Henry Assael,_____________.is based on the fact that
the purchase is expensive, infrequent, and risky.
6. Some buying situations are characterised by low consumer
involvement but significant brand differences. (True/False)
7. Adam Smith has come up with an explanation to analyse why
consumers buy the goods they buy. (True/False)
5.4 Consumer Buying Decision Process

After discussing the factors that influence the buying behaviour, we will
discuss the process of consumer decision making. Consumer buying
decision process is explained through a number of stages and is influenced
by one’s psychological framework comprising the individual’s personality,
learning process, levels of motivation, perception towards products and
brands, and formation of positive attitude towards the brand.

Figure 5.5 depicts the process of consumer decision-making in detail.
Learned Born
Need
Needs Needs
Specific
Non-Specific Motive
Motive
Motive
Problem Recognition
Internal External
Information Search
Search Search
Cognitive Affective
Evaluation of Alternatives
Evaluation Evaluation
Buy Later Purchase Decision Do not buy
Purchase
Satisfaction Post Purchase Behaviour Dissatisfaction
Habit Formation
Fig. 5.5: Stages in Consumer Decision-Making Process


Let us now study the stages in detail.
5.4.1 Problem recognition

A buying process starts when a consumer recognises that there is a
substantial discrepancy between his/her current state of satisfaction and
expectations in a consumption situation.
A need can be activated through internal or external stimuli. The basic
needs of common men rise to a particular level and become a drive. From
their previous experiences, they know how to satisfy these needs like
hunger, thirst, sex, etc. This is a case of internal stimulus. A need can also
be aroused by an external stimulus such as sighting a new product in a
shop while purchasing other usual products.
5.4.2 Information search

After need arousal, the behaviour of the consumer leads towards collection
of available information about various stimuli. In this case, information about
products and services are gathered from various sources for further
processing and decision-making.
The first source of consumer information is the internal source. This means
the consumer first search the information regarding the relevant product
from his/her inner memory. If the information is not available from internal
source for making a purchase decision he or she may collect information
from external sources.
External sources for desired information can be grouped into four
categories.
 Personal sources (family, friends, neighbours, and peer group)
 Commercial sources or market dominated sources (advertisements,
salesmen, dealers, and company owned sales force)
 Public sources (mass media, consumer rating organisations, and trade
association publications)
 Experiential sources (handling, examining, and using the product)
The marketer will find it worthwhile to study the consumers’ information
sources when:
 A substantial percentage of the target market engages in the search

 The target market shows some stable patterns of using the respective
information sources.
5.4.3 Alternative evaluation

Once interest in a product(s) is aroused, a consumer enters the subsequent
stage of evaluation of alternatives. Evaluation leads to formation of buying
intention that can be to either purchase or reject the product/brand. The final
purchase will however depend on the strength of the positive-intention,
which is the intention to buy.
5.4.4 Purchase decision

Finally the consumer arrives at a purchase decision. Purchase decisions
can be any one of the three - no buying, buying later, and buy now.
No buying takes the consumers to the problem recognition stage as their
consumption problem is not solved and they may again get involved in the
process as we have explained.
A postponement of buying can be due to a lesser motivation or evolving
personal and economic situation that forces the consumer not to buy now or
postponement of purchase for future period of time.
If positive attitudes are formed towards the decided alternative, the
consumer will make a purchase.
5.4.5 Post-purchase behaviour

Post-purchase behaviour refers to the behaviour of consumers after their
commitment to a product has been made. It originates out of consumers’
experience regarding the use of the product and is indicated in terms of
satisfaction. This behaviour is reflected in repeated purchases or abstinence
from further purchase. A satisfied product-use experience leads to repeated
purchase, referrals from satisfied customers to new customers, higher
usage rate, and also brand advocacy.

8. The first source of consumer information is the internal source.
(True/False)
9. Evaluation leads to formation of buying intention that can be to either
___________ or ___________ the product/brand.
5.5 Buyer Decision Process for New Products

Let us now discuss about how consumers accept the new products. A large
number of factors are examined to know the reaction of consumers
regarding adoption of a new product. The process of accepting new product
ideas by individual customers is popularly known as ‘adoption process.
The spread of this innovation across the society is known as diffusion
process.
Diffusion is the process by which the acceptance of an innovation (a new
product, a new service, new ideas, or new practice) is spread by
communication (mass media, sales people, or informal conversations) to the
members of the social systems. The key elements of diffusion process
include the degree of innovativeness of the product, the channels of
communication, the social system, and the time required for innovation.
Figure 5.6 depicts the five stages of consumer purchase or rejection
decision in an individualised adoption process.
Adoption
Trial
Evaluation
Interest
Awareness
Fig. 5.6: Adoption Process

nd
Let us now study the five stages of adoption process in detail.

1. Awareness – During the first stage of adoption process, the product

innovation is explained to the consumers. This process gives information
about the new product or service.
2. Interest – When consumers develop an interest in the product or
product category, they search for information about how the innovation
can benefit them.
3. Evaluation – The evaluation stage represents a kind of ‘mental trial’ of
the product innovation. Only if the consumers’ evaluation of the
innovation is satisfactory, they will actually try the product. In case the
evaluation is unsatisfactory, the product is automatically rejected.
4. Trial – In this stage, consumers use the product on a limited basis. Their
experience with the product provides them with the critical information
that they need to adopt or reject it.
5. Adoption – In this stage, consumers decide to make full and regular use
of the product.

10. ____________ is the process by which the acceptance of an
innovation is spread by communication to members of the social
systems.
11. At the ______________ stage consumers use the product on a limited
basis.
5.6 Buying Motives

To begin with, let us understand the different motives that consumers
pursue while initiating their decision process. Consumers have different
kinds of needs and they do not pursue all their needs at all points of time.
Whenever a need gets a direction or goal and all the energies of consumer
are targeted towards achieving the goal, it takes the shape of a buying
motive. The important types of buying motives are as follows:
 Inherent and learned buying motives
 Emotional and rational buying motives
 Psychological and social buying motives
Let us study the types of buying motives in detail.

 Inherent and learned buying motives – Inherent buying motives arise

from the basic needs of the consumers such as sex, comfort, and safety.
These are more instinctive in nature and influence the consumer the
maximum.
On the other hand, learned motives are those motives which customers
acquire or learn from the environment in which they live or from their
learning as they grow up in the society. These motives are social status,
social acceptance, economic, political achievement, fear, and security.
Both types of motives play a very important role in consumer decision
process. Out of these two motives, inherent motives are stronger, more
useful, and urgent. In satisfying the learned motives, consumers do not
care for the price of the product.
 Emotional and rational buying motives – Emotional buying motives
are affected by consumer feelings and are often judged by using
feelings or affective part of consumer’s attitude. In such motives, the
heart dominates head and mind. The motives are hunger, thirst, ego,
prestige, comfort, pleasure, love, and affection etc.
 Rational buying motives are those motives where consumers are
rational and their decisions are based on logic and justifications while
taking buying decision. In this case, the mind dominates the heart.
Before making any purchase, the consumers satisfy themselves with the
price, quality, durability, reliability, and service and then decide to
purchase the goods.
Both emotional and rational motives are important for marketers.
Marketers should decide which type of motive i.e. emotional or rational,
should be aroused in selling their product, keeping in mind the merit of
the product. While buying Over the Counter (OTC) medicine, a
consumer is more rational, whereas in the case of buying a chocolate, a
consumer is driven by emotional motive.
 Psychological and social buying motives – Psychological motives are
driven by internal psychological processes like learning, perception, and
attitude. It assumes that the buying behaviour of an individual is
influenced more by his/her personality elements and psychological
drives than social environment and is guided by the Freudian school of
thought.

Social motives are affected by the society in which you live. Men cannot
purchase any thing without the sanction and recognition of the society.
Their consumption motives are shaped by their interactions with the
members of their family and society.

12. Which of these is a rational buying motive?
(a) Which arises from the basic needs of the consumers.
(b) Where consumer’s decision is based on logic and justifications
while taking buying decision.
(c) Which is affected by the society.
(d) Which is driven by internal psychological processes.
13. Learned motives are those motives which a customer acquires or
learns from the environment. (True/False)
5.7 Buyer Behaviour Models

Models are useful in organising research studies, which provide a basis for
deeper understanding of consumer buying behaviour. In this section, we will
discuss consumer buying behaviour models.
5.7.1 Howard-Sheth model (1969)

This model is one of the most comprehensive models of consumer buying
behaviour. It uses the concept of stimulus-response in order to explain
buyer’s brand choice behaviour over a period of time. The four major
components of the model are:
 Input variables
 Output variables
 Hypothetical constructs – perceptual constructs and learning constructs
 Exogenous variables
Let us now study the components in detail.
 Input variables
The input variables are the stimuli that come from the environment.
There are three types of input variables:

 Significance stimuli – These are the actual elements constituting a

brand that the buyer confronts – e.g., price, quality, distinctiveness,
service, availability.
 Symbolic stimuli – These are created by the representation of the
products in symbolic form by the manufacturer – e.g.
advertisements, publicity, etc.
 Social stimuli – They are created by the social environment – e.g.
reference groups, social classes.
 Output variables
The output variables are:
 Attention
 Comprehension
 Attitude
 Intension
 Purchase behaviour
 Hypothetical constructs
The hypothetical constructs have been classified into two major groups –
perceptual constructs and learning constructs.
 The perceptual constructs are stimulus ambiguity, perceptual bias,
and overt search for information. Stimulus ambiguity refers to the
degree to which a buyer regulates the stimulus information flow. The
perceptual bias construct refers to the distortion or altering of
information. The overt search construct refers to the buyer’s actively
searching for information about brands and their characteristics
(alternative offers).
There are six learning constructs given in table 5.1 which deal with the
buyer’s formation of concepts. They are:
Table 5.1: Learning Constructs
Motive Specific goal
Brand Brand potential of the evoked set.
comprehension
Choice criteria Buyer’s mental rules for ranking purchase alternatives in terms
of his/her motives.

Attitude Buyer’s preference towards brands in the evoked set is

expressed as an attitude.
Inhibitors Environmental forces such as price, time, etc. may restrain the
purchase of a preferred brand.
Satisfaction This indicates the degree to which the consequences of a
purchase have been up to the expectations of the buyer.
 Exogenous variables
External variables can significantly affect buyer’s decisions. Howard and
Sheth include several such variables which they call as exogenous
variables such as social and organisational setting, social classes,
culture, financial status, etc.
Activity 2:
Conduct marketing research to find out how consumers decide to buy a
brand of shampoo in the Indian market.
5.7.2 Engel-Kollat-Blackwell model (1978)

In their model of consumer behaviour, these researchers view consumer
behaviour as a decision process and identify five activities.
They are:
 Problem recognition /Need recognition
 Information search
 Evaluation of alternatives
 Choice and
 Outcomes
Let us now study the activities in detail.
 Problem recognition
Consumers recognise a difference between their actual and ideal state.
 Information search
Consumers’ beliefs and attitudes act as the first level information. If more
information is required, they look to friends, sales people, or media ads.
 Evaluation of alternatives
Consumers respond positively or negatively on the basis of their beliefs
about alternative brands.

 Choice
Attitude of the consumers will influence their choice. There are other
influences which comprise normative compliance and anticipated
circumstance. The normative compliance includes the influence of friends
and family members on the consumers. Availability of money may also
influence their choice. This is the anticipated circumstance.
 Outcomes
A positive outcome as perceived will result in satisfaction. Otherwise,
dissonance occurs in the individual. Dissonance is a feeling of discord. At
this stage, consumers may search for more information to support their
choice.
The researchers also take into account a number of other variables which
influence the buying decision process. They classify the variables into five
general categories:
 Information input
 Information processing
 Product/brand evaluation
 Common motivating influences
 Internalised environmental influences

14. Howard-Sheth model uses the concept of stimulus-response in order to
explain buyer’s brand choice behaviour over a period of time.
(True/False)
15. ________________ refers to the degree to which a buyer regulates the
stimulus information flow.
5.8 Summary
 Consumer behavior is the study of why, how, what, where, and how
often do consumers buy and consume different products and services.
 Consumer behaviour is affected by a host of variables i.e., cultural
factors, social factors, and personal factors.

 Henry Assael has explained the relationship between the level of

involvement by the consumers in the purchase of goods and services
and the level at which diverse goods or services differ from one another.
 Consumer buying decision is influenced by one’s psychological
framework comprising the individual’s personality, learning process,
levels of motivation, perception towards products and brands, and
formation of positive attitude towards the brand.
 In an individualised adoption process, the consumer moves through five
stages to either make a purchase decision or a reject decision. The
stages are: awareness, interest, evaluation, trial, and adoption.
 Whenever a need gets a direction or goal and all the energies of
consumer are targeted towards achieving the goal, it takes the shape of
a buying motive.
 Howard-Sheth model uses the concept of stimulus-response in order to
explain buyer’s brand choice behaviour over a period of time. Engel-
Kollat-Blackwell Model view consumer behaviour as a decision process
and identify five activities which are: problem recognition /need
recognition, information search, evaluation of alternatives, choice, and
outcomes.
5.9 Glossary
Adoption process: The process of accepting new product ideas by
individual customers.
Consumer behaviour: The mental and emotional processes and the
observable behaviour of consumers during searching, purchasing, and
post -consumption of a product or service.
Diffusion process: The spread of innovation across the society is known
as diffusion process.
Exogenous variables: The variables which are not defined but are taken
as constant, such as social and organisational setting, social classes,
culture, financial status, etc.
Motivation: The driving forces within an individual produced by a state of
tension caused by unfulfilled needs, wants, and desires.

Psychological factors: These are the internal factors of individual which

influence her/his purchase behaviour..
Reference group: A group of people with whom an individual identifies
herself/himself and the extent to which that person assumes many values,
attitudes, or behaviours of group members.
Social class: Societal rank, which is one’s position relative to others on one
or more dimensions valued by the society.
Stimulus: An input to any of the five senses.
Stimulus ambiguity: It may lead to an overt search for information about
the product.

1. Explain the various characteristics that affect the consumer buying
behaviour.
2. Briefly explain the Henry Assael model of consumer’s buying decision
behaviour.
3. Discuss the buying decision process. Explain buying decision process
for new products.
4. Discuss various buying motives. What are the influences of these
motives on the purchase process?
5. Discuss the salient features of Howard-Sheth model.
5.11 Answers

1. (b)
2. True
3. Learning
4. Perception
5. High involvement
6. True
7. False
8. True
9. Purchase, reject

10. Diffusion
11. Trial
12. (b)
13. True
14. True
15. Stimulus ambiguity
Terminal Questions
1. Consumer behaviour is affected by cultural factors, social factors, and
personal factors. For more details, refer section 5.2.
2. Henry Assael explained the relationship between the level of
involvement by the consumers in the purchase of goods and services
and the level at which diverse goods or services differ from one another.
For more details, refer section 5.3.
3. Consumer buying decision process is explained through a number of
stages and is influenced by one’s psychological framework. For more
details, refer section 5.4 and 5.5.
4. The important types of buying motives are: inherent and learned,
emotional and rational and psychological and social. For more details,
refer section 5.6.
5. Howard-Sheth model uses the concept of stimulus-response in order to
explain buyer’s brand choice behaviour over a period of time. For more
5.12 Case Study

Wahaha – Taking the Fizz out of the Giant Cola Brands
When Zong Qinghou, a Chinese farm worker, started a company of
beverages and ice creams with two retired teachers in 1987, hardly anyone
could have imagined that this company could give sleepless nights to global
giants such as Coca-Cola and Pepsi Co. But the new company, Wahaha,
the pride of many contemporary Chinese consumers, has managed to do
just that.
Wahaha, one of the leading home grown Chinese beverage brands, had
revenues of US$1.37 billion (11.4 billion Yuan) and profits of US$162.7
million (1.34 billion Yuan) in 2004.

Wahaha, which is meant to mimic the sound of a baby laughing, clearly

demonstrates what great brand stories are made of. The company started
small, and in 1991, it merged with the state-owned Hangzhou Canning
Factory. The 1996 joint venture with the Danone group gave foreign
investments to the company to an extent of US$45 million. After dabbling in
many product categories, it launched its trademark brand the ‘Future Cola’
in 1998 to compete against the global cola giants. Today, Wahaha’s product
portfolio includes milk and yogurt drink, purified and mineral water,
carbonated soft drink, fruit and vegetable juice, sports drink, and iced tea
including cognee (rice porridge), canned food, and health products.
Wahaha has been careful in its strategy to compete against the global cola
and food giants. As the fashion conscious Chinese consumers seem to
prefer the global colas in the larger coastal Chinese cites, Wahaha has till
now focused on rural and semi-urban Chinese areas. Further, the Wahaha
brand has generously used native celebrities for the promotion of all its
products. This is in line with its overall strategy to position Wahaha as a
patriotic company and to tap into the patriotic fervour of the Chinese
consumers.
By projecting Wahaha’s products as China’s own, the Wahaha brand has
carved out a clear positioning in the market against the global brands. But
whether this strategy will work in the long run is a million dollar question.
This will require constant efforts to balance the brand promise and its careful
delivery in a hostile and increasingly competitive Chinese market-place.
1. What aspects of consumer behaviour have been discussed in this case?
(Hint: Chinese consumers are fashion conscious and patriotic.)
2. What is likely to be the adoption process of Wahaha products among
consumers?
(Hint: Wahaha focused on rural and semi-urban Chinese areas. It
tapped into the patriotic fervour of the Chinese consumers.)
3. Discuss the positioning strategy of Wahaha.
(Hint: Wahaha brand has generously used home grown celebrities for
all its products.)
(Source: S H H Kazmi (2007), Marketing Management; Text and Cases,
Excel Publication)
References:
 Paul, P.J. and Jr. James, D.H. (2010). Marketing Management:
Knowledge and Skills, 10th Edition, McGraw-Hill/Irwin.
 Marshall, Greg, and Johnston (2009), Mark, Marketing Management,
McGraw-Hill/Irwin.
E-References:
 http://marketingteacher.com/lesson-store/lesson-consumer-buyer-
behaviour.html – Retrieved on February 1, 2012
 tutor2u.net/business/marketing/buying_introduction.asp – Retrieved on
February 1, 2012
 http://www.slideshare.net/mehmetcihangir/consumer-markets-and
consumer-buyer-behaviour-presentation – Retrieved on February 1,
2012
 http://www.learnmarketing.net/consumer.htm – Retrieved on February 1,
2012

Unit 6 Business Buyer Behaviour
Structure:
6.1 Introduction
Objectives
6.2 Characteristics of Business Markets
6.3 Differences between Consumer and Business Buyer Behaviour
6.4 Buying Situations in Industrial/Business Market
6.5 Buying Roles in Industrial Marketing
6.6 Factors that Influence Business Buyers
Environmental variables
Organisational variables
Interpersonal variables
Individual variables
6.7 Steps in Business Buying Process
6.8 Summary
6.9 Glossary
6.11 Answers
6.12 Case Study
6.1 Introduction
In the previous unit we dealt with the aspects of consumer buying
behaviour. We analysed the characteristics affecting consumer behaviour,
the types of buying decision behaviour, consumer buying decision process,
buyer decision process for new products, and buyer behaviour models.
Organisational buying is similar to individual consumer buying in a few ways
because it is not the organisation that makes the buying decisions but
people at different levels of the organisation are involved in the buying
process. In this unit, we will deal with identifying the noteworthy elements of
business buyer behaviour. We will also analyse the buying situations,
buying roles, influencing factors, and buying processes of
organisational/business buyer.
Organisations buy products and services for their corporate use and also
use them in their production process to build a final product or service for

end consumers. Organisational buying is also called institutional buying and

when the products are used in their own production process, the buying
process is called industrial buying. We will refer to all the situations of
buying, whether for the consumption by the enterprise or for their own
manufacturing or service process as organisational buying. The
organisational systems and procedures as well as the people involved in the
purchase process play a role in the organisational decision-making process.
Organisational buying or institutional buying or Business-to-Business (B2B)
buying is defined as a process by which a company or organisation
establishes a need for purchasing products, collects information, and
evaluates product and services with competing brands and suppliers to take
a final purchase decision.
Case Let
“Total Quality Management” SKF – The International Industrial

Suppliers
SKF is the world renowned manufacturer and supplier of industrial goods
and services. It was founded in 1907 in Sweden by Sren Winguist, a bright,
young Swedish engineer. SKF was the first to introduce self-aligning ball
bearings in the world. In the past 90 years, it has emerged as a global
leader in ball and roller bearings, linear motion products, precision
bearings, spindles, and seals. It has an unbeatable reputation for high
quality bearings throughout the world.
Fig. 6.1: SKF has a reputation for manufacturing high quality bearings
(Source: www.skf.com/)

What makes SKF number one?

The company believes that number one is good but that should not lead to
the danger of complacency. As a leader, it believes in:
 Customer value
 Developing employees
 Creating shareholder value
In the Indian auto industry, SKF has emerged its reputation for quality
bearings and it has met customer demands at all times. SKF’s factory
located at Bangalore is one of the best in the world. The other factory is
located at Pune. Both the SKF’s Indian factories produce 120 types of
bearings.
Total quality management
SKF strongly believes in Total Quality Management (TQM). It believes that
only people who make changes will be winners. It is confident of its
competence and determination to accomplish TQM. The first step in this
direction has been SKF’s SWOT analysis to identify the company’s
strengths and weaknesses.
SKF restructured sales and marketing in terms of the following market
segments:
 Passenger cars
 Trucks
 Tractors
 Two-wheelers
 Electrical and industrial needs
SKF’s customer service team comprising of representatives from all the
divisions is the best and is responsible for its reputation. The concept it
adopts is “providing customers with value for money”. After careful
analysis, SKF identifies specific products, customer needs, and sets a
team on each within the attached time frame.
(Source: www.skf.com/)
 What are the prevalent and specific characteristics of business markets?
 What are the buying situations and buying roles in the organisation?
 What are the various factors that affect the purchasing decision of
business buyers?
 What are the systematic steps in the procedure of business buying?
Objectives:
 describe the characteristics of business markets
 differentiate between consumer and business buyer behaviour
 analyse the different types of buying situations involved in the
industrial/business market
 explain the buying roles in industrial marketing
 analyse the factors that influence the business buyers
 identify the steps in business buying process
6.2 Characteristics of Business Markets

Organisations buy buildings, plants, office equipment, furniture, and provide
services as insurance, financing, consulting and transportation. Most of
these organisational purchases are indirectly linked to the economy’s
purchases of satisfying consumer demand.
Organisational buyers purchase a larger volume of products and services
than individual consumers as their demand is influenced by final consumer
demand. For this reason, demands for industrial products are called derived
demand. There are multiple transactions involved in the buying process
between the organisational buyer and the set of suppliers.
Organisational purchases also involve more than one person in the
purchase process who plays a significant role in buying. B2B marketing
involves developing an exchange process in which products and services
are sold for any use other than personal consumption. The buyer can take
any form, namely, manufacturer, reseller, government, non-profit institution,
or any organisation other than an individual consumer.
Organisations buy raw materials, component parts, equipments,
consumables, supplies, and services. Manufacturing companies need raw
materials, component parts, consumable, and supplies for making finished

goods for the consumer markets. Wholesalers and retailers need products
and goods for the purpose of re-buy.
Buying in organisations is a complex process as it involves many people.
The buying agents collect purchase data, market prices, and delivery
schedules followed by different players and supply them to the purchase
department. Buyers in business markets prefer to buy directly from
manufacturers or producers. This preference comes from the desire to buy
large quantities and to avoid intermediaries in order to get a better price and
save the additional cost of using intermediaries.
Buyers in business markets have adequate expertise in making purchase
decisions. Their purchases are more scientific in nature as they arrive at a
purchase decision by evaluating the alternatives, using objective evaluation
criteria, and keeping the long-term horizon of a relationship in mind.
Business markets have scope for repeated market transactions. The focus
of business market transactions has shifted from the single buyer-seller
transaction to overall buyer-seller relationships through relationship
marketing programmes.
From the above discussion we can draw the following characteristic of
business markets as shown in figure 6.2.
Expertise in Buying Global Competition Geographically

Concentrated
Business
Market
Relatively Preference for Focus on

Few Customers Direct Buying Relationship Marketing
Fig. 6.2: Major Characteristic of Business Markets

B2B market is a global marketing activity. Due to the advent of the Internet,
buyers can source their requirements from any part of the world. So a B2B
marketer’s competition may arise from across the industry and geographic
boundary. It is important to look at the international strategy of buyers to
estimate the intensity of competition. The characteristics of the business
market as explained above do not apply to all markets. The list of
characteristics is not exhaustive, but it helps in developing a set of
guidelines for the purpose of understanding business markets. Business
markets have fewer buyers who are concentrated in specific geographic
areas and prefer to deal directly with suppliers, often requiring personal
selling. The complexity of the product, level of technicality involved, and
expertise of buyers demand a professional sales force with expertise in the
selling process, negotiation skills, and also adequate knowledge of products
and services of the company.

1. The demands for industrial products are called __________________.
(a) Elastic demand
(b) Derived demand
(c) Elastic supply
(d) Derived supply
2. Organisational purchases involve more than one person in the
purchase process who plays a significant role in buying. (True/False)
3. Business markets have fewer_____________, concentrated in specific
geographic areas and prefer to deal directly with suppliers, often
requiring personal selling.
6.3 Differences between Consumer and Business Buyer

Behaviour
We have discussed the characteristics of business markets and have
understood that business market differs from consumer market in many
ways. While there are a large number of customers in consumer markets
with varied demand patterns (with different demand elasticity for different
segment), there are a few business customers concentrated in specific
geographic areas and with huge demand for each one of them.

Contrary to this, consumer markets show distinct characteristics from

business markets. The following table 6.1 shows the key difference between
business and consumer markets.
Table 6.1: Difference Between Consumer and Business Markets
Decision Variables Organisational Marketing Consumer Marketing
Appeal Rational Dramatic
Platform Logical Emotional
Brand Excitement Not Desired Imperative
Below the Line Activity None Necessary
Brand Personality Mostly Corporate Essential and for Both
Product and Corporate
Pre-launch Research Not Vital Vital
Span of Distribution Narrow Wider
Control
Number of Orders Small Large
Size of the Order Large Very Small
Cost of Order Low High
Processing
To summarise, organisational buying behaviour is a functional involvement

in which buyers at different capacity in different functional departments
objectively evaluate the possible options. They have rational and task
motives, which predominate the behaviour of the consumer. The consumer
market behaviour is more family-oriented and social and psychological
motives dominate purchase decision of consumers. Organisational
customers have technical expertise and both buyers and sellers establish a
long-term relationship. In consumer markets, the relationship is more non-
personal and through established intermediaries in the market for
information dissemination and delivery of products and services. The seller
has to make multiple sales calls for closing a sale, whereas the consumer
makes number of trips to dealers and retailers for a purchase. Business
buyers go for direct purchase from sellers for better relationship and
bargain. Business buyers often select suppliers and vendors who also buy
from them. This is called reciprocity in business market buying and is not
often seen in consumer markets. Many industrial buyers lease instead of
buying and investing heavily. The leasing gains include conserving capital,

getting the latest product, receiving better service, and also gaining tax
advantage for the firm.

4. Organisational customers have technical expertise and both buyers
and sellers establish a long-term relationship. (True/False)
5. Business buyers often select suppliers and vendors who also buy from
them. This is called ____________ in business market buying.
6.4 Buying Situations in Industrial/Business Market

The business buyer has to take many decisions while making a purchase
decision. The number of decisions depends on different buying situations.
Therefore, in this section we will discuss the different situations involved in
business buying. Three types of buying situations are popular among
business buyers. They are:
1. Straight re-buy
2. Modified re-buy
3. New buy
 Straight re-buy: This type of situation is found when there is repetitive
or routine order processing which is given by buyers to long-term
suppliers. There can be various reasons for a straight re-buy situation,
which includes an additional small order to the existing supplier,
satisfaction with the present suppliers, and shortage of ordering time.
This also gives opportunities for outside suppliers to step in and even
supply the real orders. This gives them an entry into the buying
organisation by offering something new or the same product at a
differential cost to take any benefit of dissatisfaction with the current
suppliers.
When a company faces a shortage of computer stationery, it places an
order with the old suppliers of computer stationery from an approved list.
This kind of order is placed with an approved list of buyers who have a
specified quality and service assurance. This also saves re-ordering
time. Very often, out-suppliers try to get a small order and then enlarge
their order size.

 Modified re-buy: This situation occurs when buyers want to modify any
purchase, i.e., improvement in product specification, price reduction, and
change in terms and conditions. This poses a threat and opportunity to
in-suppliers. Out- suppliers can consider this situation as a good chance
to make an entry by meeting this modified expectation.
For example, a branch of a bank uses a data server of 100GB capacity
and with the new business expanding to non-retail sector of banking, it
needs to modify its order to a higher memory server, let’s say 500GB.
The suppliers of memory server are often in time pressure and incur
extra expenses for such modified orders. They should keep a cushion in
their profit or a provision to add the additional costs to their bills for the
forthcoming modified demand.
 New buy: This is a situation when a new buyer purchases for the first
time. The customer perceives a higher risk if the product or service is of
high value and demands more technical understanding. Hence, more
and more people are involved in the buying centre. They collect more
information about the alternatives, their cost structure, and service
requirements. In a typical new buying situation, the customers are likely
to pass through different stages like awareness, interest, evaluation,
trial, and adoption.
The effectiveness of various marketing and communication tools will
vary from stage to stage. The sales people play a major role in making
customers move from awareness to choice stage. Buyers do not have
any previous knowledge, information, or data to compare. Hence,
buyers take a lot of time to decide about the purchase. The first supplier
becomes the benchmark for the next purchase. Buyer’s advantage of
learning curve does not exist.
Following table 6.2 illustrates the different phases of business buying
decision and the duties of sales person in each of the buying situations.

Table 6.2: Different Stages of Business Buyer Buying Decisions and

Role of Suppliers
Buying Decision New Modified Straight
Phases Task Re-Buy Re-Buy
1. Problem Anticipate problem, In-supplier: In-supplier:
recognition use advertising and Maintain Maintain close
creative sales quality service relationship of users
people to convince standards. and buyers.
buyers of problem Out-supplier: Out-supplier:
solving capabilities Watch for Convince firms to
developing recognise
trends alternatives
2. Solution Provide technical In and out- same as a phrase 1
determination assistance and supplier: stress
information capability,
reliability, and
problem
solving
capabilities
3. Determining Provide detailed Same as same as a phrase 1
needed item product/service phase 2.
information to
decision-maker
4. Searching for In-supplier: In supplier: same as a phrase 1
and qualifying maintain watch for
supplier dependability problem
Out-supplier: Out supplier:
demonstrate ability demonstrate
to perform task ability to
perform task
5. Analysing Understand details Understand Make timely
proposals of customer details of proposals
problems/ needs customer
Make timely problems/
proposals needs Make
timely
proposals

Activity 1:
Prepare a report on the success of Bharat Forge in expanding its business
operations in global environment.

6. Which type of situation is found when there is repetitive or routine order
processing which is given by buyers to long-term suppliers?
(a) Straight re-buy
(b) Modified re-buy
(c) New buy
(d) None of the above
7. _______________ is a situation that occurs when buyers want to
modify any purchase, i.e., improvement in product specification, price
reduction, and change in terms and conditions.
8. New buy is a situation when a new buyer purchases for the first time.
(True/False)
6.5 Buying Roles in Industrial Marketing

A major task of an industrial marketer is to identify those individuals who are
in any way involved in purchasing decision process. These decision-making
units are called buying centres. Buying centres can be an individual, a
department, or a group of individuals from different departments in the
organisations.
Buying centre has common goals to achieve, which also includes sharing
the risks arising from the purchase decision. It’s not unusual to encounter
groups consisting of 15 to 20 individuals as members of buying centres.
These are informal, cross department decision-making units in which the
primary objective is the acquisition, import, and processing of relevant
information. Buying centres play seven roles.
1. Initiators – These are the people who request for something to be
purchased. They may be users or others in the organisation.
2. Users – They use the products and thus initiate the purchase process.
They report on the product’s performance. E.g., worker.

3. Influencers – Individuals in the organisation influence the decision-

making process by providing information on the criteria for buying. E.g.,
research and development specialist inside the organisation and
consultants outside the organisation.
4. Deciders – Organisational members with decision-making power who
decide about the purchase. E.g., engineers deciding specifications or
vice-president (finance) who decides in favour of the purchase.
5. Gatekeepers – People in the organisation who have the power to
prevent sellers or information from reaching the members of buying
centres. E.g., purchasing agents, receptionist, secretaries, and
telephone operators.
6. Approvers – People in the organisation who authorise the proposed
actions of deciders or buyers.
7. Buyers – People who have formal authority to select the suppliers and
arrange the purchase terms. Buyers help in product specifications,
selection of suppliers, and negotiating purchases and include senior
people in the purchase department.
Role of various functional departments in the purchase process
Different departments within the organisation play various roles as
mentioned in the above discussion. We are briefly presenting a few roles
played by these departments.
 Marketing – Purchasing decision has an effect on the marketability of a
firm’s product, such as altering the products, materials, packaging or
price. Marketing people become active influencers in purchase decision
process. Since they are closest to the business markets, they can collect
information as well as initiate purchase process with higher precision
level.
 Production and operations – These departments are responsible for
determining the feasibility and economic considerations of producing
end-products. Engineering decision on specification of parts and
materials are confirmed in this department. These departments provide
continuous feedback on changes in equipment costs and their impact on
current production schedules to the purchase department.

 Research and development – This department takes care of initial

development of products and processes and sets specifications for
components and material requirements for use in the end-product
design. Marketers also get involved in the process of research and
development and final design of the product. Marketers are also
involved in deciding what components should be incorporated as per
customer requirements. They provide information on inputs, which will
give direction to customer orders.
 Purchase department – Contrary to the belief that purchasing
department does not play a central role in organisational decision, it is
one of the key centres for business customers. They are negotiation
experts, who dominate in straight re-buy, and have high influence on
negotiations done under uncertain environmental conditions.
9. __________________ are the people who request for something to be
purchased.
10. Approvers are the people in the organisation who have the power to
prevent sellers or information from reaching the members of buying
centres. (True/False)
11. Individuals in the organisation influence the decision-making process
by providing information on criteria for buying. (True/False)
6.6 Factors that Influence Business Buyers

Though the method of buying and reasons for buying among business
consumers is different from individual consumers, there are various factors
that influence organisational buying decisions. Organisational purchase
decisions are influenced by the firm’s external and internal variables. There
are four major variables influencing business buyer’s decisions namely
environmental variables, organisational variables, interpersonal variables,
and individual variables. Following is a short discussion on the influence of
these variables on business buyer decisions.
6.6.1 Environmental variables
Among the various environmental variables, the influence of the state of
economy and other economic factors including government policy is the
most important variable in organisational buyer behaviour.

As we have already explained in the preceding sections, demand of

business market is derived demand; all those factors affecting the individual
consumers discussed in previous chapters also influence business markets
indirectly. The ultimate demand for products and goods comes from the
demands in consumer markets. If there is a fluctuation in the consumer
market demand, it is likely to affect the derived demand of business market
also. The direct influence on business markets comes from the changes in
the economic factors in a market.
The technological environment also influences the business markets. It not
only influences by lowering cost structure of firms but also develops
alternative models of business. The advent and usage of the Internet in e-
commerce has helped many business markets to unlock value, which was
not possible in the past. Applications of SAP, ERP, and other packages
have also contributed to an efficient system of logistics and distribution
management between suppliers and business customers.
Concerns for society and environment have also given opportunity for new
industries to boom and some of the traditional businesses to further their
investments to make themselves more society and environmental friendly.
The recent success of a company like Suzlon Technology is an example of
how socially and environmentally concerned companies can create new
business opportunities across the globe.
Activity 2:
Conduct a study on a the influence of the economic environment in
creating new opportunities in the automobile component sector.
6.6.2 Organisational variables

Internal variables like culture and environment of an enterprise affect buying
decisions. Every organisation follows systems and procedures for business
buying. These systems and procedures have developed over a period of
time reflecting the culture, policies and practices, processes, structures, and
objectives of the enterprise. A business marketer needs to understand these
influences while making transactions as they are most likely to have direct
influence on the purchase processes.

If one glances the business process reengineering in most of the large

organisations in ‘80s and ‘90s, it is interesting to observe that the purchase
department has played a strategic role in achieving the goals of enterprise.
The department has not only taken strategic long-term decisions on cost
management but also developed long-term relationships with vendors and
suppliers. This has led to the lowering of inventory cost and smooth flow of
raw materials with minimal bottlenecks. It has also secured a higher level of
information integration through the application of information technology and
sharing of valuable information among the supply chain networks for
organisations. These steps have brought attractive results for business
buyers both at the top level as well as bottom level.
Purchasing is more of a cross-functional issue these days due to the
involvement of people across different departments. A decision to buy is
more strategic and team oriented and involves more responsibility. Cross-
functional orientation makes purchasing an enterprise orientation rather than
a departmental initiative. This has led purchasing to be a centralised
function in the corporate rather than a distributive function in multi-division
and multi-location companies. Now companies are globally sourcing raw
materials for their business operations in different parts of the world. It
provides substantial savings and convenience to companies. Location or job
specific, low value purchases are now handled at the local level through
decentralised purchasing. This is possible by empowering employees to
purchase these small ticket items.
Another revolution in organisational practices is in the form of purchases
made over the Internet. Many suppliers have online presence and many of
the firms have started dealing with online customers and transactions are
happening over the Internet. Across the globe, the success of e-commerce
is seen more in B2B context than in B2C context. Both buyers and suppliers
have developed web platforms and e-agents for transactions over the
Internet. Though security of the transaction is a concern, the trend is moving
more towards online buying for many business houses like Walmart and K-
mart.
Companies are also going in favour of long-term contracts rather than piece
meal contracts. Long-term contracts benefit both the supplier and the buyer.
The supplier is benefited by being assured of a future flow of revenue. The

buyer is benefited by being assured of a regular supply of raw materials,

smooth flow of goods and services and proper raw material cost control on a
long run basis. The performance of the members of buying centre and the
purchase managers will be evaluated on the basis of preset goals for people
in the department e.g., reduction in costs in certain percentages,
improvements in raw material and other supply qualities, and linking these
goals with the incentive schemes and professional development
programmes of the company.
6.6.3 Interpersonal variables
The marketers need to know who exerts the maximum authority and who
would be able to persuade others to agree with their viewpoint. Knowledge
of group dynamics helps the marketers to evolve their strategy on selling to
the buying centre. Buying centre is a collection of different kinds of
participants with different attitude levels and power dynamics among each
other. The roles, responsibilities, and hierarchies within the buying centre
also influence the decision process. Each buyer has his/her personal
motivation and interpersonal relationships with others in the buying centre.
6.6.4 Individual variables
Even though there are several individuals, organisational factors, and
environmental variables affecting the buyer’s decisions, at the end, it is the
human decision involving individuals which matters the most. People carry
their motivations, perceptions, market knowledge, and preferences while
making purchase decisions. Decision-making is also influenced by
demographic variables like age, income, occupation, position in the
company, and perception of risk involved in decision-making. These factors
have a direct bearing on the organisational buyer’s decisions. It is therefore
important for the business marketers to be aware of all these buying
influences and develop their sales and marketing pitch accordingly.

12. Organisational purchase decisions are influenced by the firm’s external
variable only. (True/False)
13. Internal variables like culture and _____________ of an enterprise
affect buying decisions.

6.7 Steps in Business Buying Process

While organisational buying is best viewed as a decision process, the steps
that make up the process differ across companies and products. Steps
needed in a new task or modified re-buy decision may not be necessary in
straight re-buy decisions. Over a period of time, each organisation evolves
its own procedures for making purchase decisions. However, we can
develop steps for generalisation of decision process for better
understanding of organisational decision process as shown in figure 6.3.
Recognising an Organisational Need
Determining Products Specifications
Identifying Suppliers
Searching for Information and Evaluating Suppliers
Negotiating a Purchase Order
Evaluating P performances of the Product and Supplier
Fig. 6.3: Organisational Buying Process

nd
Let us now discuss each of these stages and their impact on organisational
decision-making process.
1. Step 1: Recognising an organisational need
Organisational purchasing starts with the identification of demand for
products and services. While there are different kinds of needs, most
needs arise out of situations related to the operation of the business.

Need recognition is not always as complicated or involved as it is in new

task and modified re-buy decisions. It becomes a routine, particularly in
a straight re-buy situation. A large construction company may negotiate
a contract with a steel beam supplier to replenish inventory on demand.
Purchase orders are automatically written and sent to the supplier when
the inventory reaches a pre-specified mark. Such routine buying
situations offer the best opportunities to use computer based database
management systems.
2. Step 2: Determining product specifications
Subsequent to identification of the responsibility centre, the purchase
manager also specifies exact product and service descriptions for
procurement. It is also necessary to estimate the exact quantity required
and the period in which these quantities need to be delivered. An
estimate of other associate services required for the purchase of
specified goods and services is also necessary.
3. Step 3: Identifying suppliers
If there are many suppliers on the list, a screening procedure that bases
its decisions on certain predefined criteria is needed. The information
gathered enables the organisational buyer to quickly look for suppliers
who can meet minimum requirements. These requirements might be
delivery time, capacity to meet the buyer’s quantity needs, and breadth
of the product line. Failure to meet a minimum requirement usually
means that a supplier will not be included in the list of acceptable
suppliers, no matter how well that supplier stacks up on other criteria.
Because of a good past service to the company, a purchasing agent
may, for example, put a supplier on the list though he/she does not meet
the minimum requirements.
At this stage, the buying centres search for different suppliers and try to
find out their qualification or eligibility by collecting information on their
performance and capability from various sources. It then notifies or
requests for proposals from possible suppliers and sends these
proposals for evaluation to the standing committee on purchase.
4. Step 4: Information search and supplier evaluation
A buying centre may have to evaluate several product types for a
particular use before suppliers can be selected. If products are

complicated, technically trained people sort through the alternatives to

recommend those that meet previously developed product
specifications. For instance, many companies deal with the rapidly
changing technology of computer products (both hardware and
software) by creating task forces that keep themselves abreast of
current product developments. A task force recommends product types
that are suitable for particular applications.
5. Step 5: Negotiation of purchase orders
An organisational buyer may negotiate a contractual agreement with a
supplier. An agreement of this kind can cover a single purchase of a
product or repurchase of the product over a period of time. Contracts are
commonly used in straight re-buy situations. The buying centre of a
large supermarket chain enters into contracts for purchases of frequently
sold products like soap, toothpaste, and peanut butter for a year or
more. Buying centres negotiate terms of payment, credit, and delivery
during this stage to arrive at a specified order routine, which the supplier
is required to honour under the negotiated agreement. Normally a term
of contract is signed between both the parties.
6. Step 6: Evaluation of supplier performance
Organisational buyers usually want to know how well suppliers comply
with the purchase agreement. Thus, an important part of organisational
purchasing is evaluation of suppliers after purchase. This task is
typically assigned to the purchasing department. The criteria used for
supplier selection become the performance standards for this
evaluation.
Information is collected on the performance of the product or service in
use. A questionnaire may be sent to users of the product to obtain their
input. Other technical measures of performance may also be devised. A
manufacturer who purchases aerosol packaging, for instance, may
select a sample of the packaging and test it for pressure and evenness
of application. The buying centre develops a provision for feedback and
evaluation on a continuous basis. It also develops systems and
procedures to have a regular communication with the suppliers.


14. Organisational ___________ starts with the identification of demand for
products and services.
15. An important part of organisational purchasing is evaluation of
suppliers after purchase. (True/False)
6.8 Summary
 The organisational market consists of businesses, non-profit
organisations, government and its departments, and other non-
consumer organisations like resellers and marketing organisations.
 A variety of influences and factors add to this complexity. The behaviour
of organisational buyers differs significantly from individual buyers.
There are several differences between the organisational buying
behaviour and consumer buying behaviour.
 Organisational buying behaviour is a functional involvement in which
buyers at different capacity in different functional departments
objectively evaluate the possible options.
 Three types of buying situations are popular among business buyers.
They are - straight re-buy, modified re-buy, and new buy.
 Buying centres play seven roles i.e., initiators, users, influencers,
deciders, gatekeepers, approvers, and buyers.
 Organisational buying behaviour is also influenced by various factors
i.e., environmental, organisational, individual, and interpersonal
variables.
 There are several stages or steps in business buying process. They
are - problem recognition, need recognition, product specification,
supplier search, proposal solicitation, supplier selection, order routine
specification, and performance review.
6.9 Glossary
Approvers: They are the people in the organisation who authorise the
proposed actions of deciders or buyers.

Buyers: Buyers are individuals or groups who finally procure by placing an

order with the necessary specifications.
Buying centre: In organisational marketing, the buying centre is made up of
persons who are responsible for purchase decision-making in an
organisation.
Gatekeepers: The people in a buying centre within a firm who control the
flow of purchasing information within the organisation as well as between
the buying firm and potential vendors.
Influencers: People who provide the information required to evaluate the
vendors and their products.
Modified re-buy: In this stage, the buyers want product modification, price
modification, terms modification, or suppliers’ modifications.
New task: This is the stage in which an organisation is purchasing a major
product for the first time.
Organisational buying behaviour: Organisational buying behaviour is a
multi-stage process in which the buyers recognise their organisational need
and then develop exact specifications of the product, its quality, and
schedule of requirements through intra-department and within the buying
centre deliberations.
Straight re-buy: In this situation, an organisation follows the routine step of
informing sellers about their requirements and supply specifications.

1. How do organisational markets and their behaviour differ from those of
final consumers?
2. What are the various buying situations? What should a sales manager
do in each of these situations?
3. What is a buying centre? What roles do people play in buying centre?
4. What environmental factors influence the organisational decision-
making?
5. What are the steps in business buying process?

6.11 Answers

1. (b)
2. True
3. Buyers
4. True
5. Reciprocity
6. (a)
7. Modified re-buy
8. True
9. Initiators
10. False
11. True
12. False
13. Environment
14. Purchasing
15. True
Terminal Questions
1. Organisational customers have technical expertise and both buyers and
sellers establish a long-term relationship. In consumer markets, the
relationship is more non-personal and through established
intermediaries in the market for information dissemination. For more
2. Three types of buying situations are popular among business buyers.
They are - straight re-buy, modified re-buy, and new buy. For more
3. Buying centres can be an individual, a department, or a group of
individuals from different departments in the organisations. Buying
centres play seven roles. For more details, refer section 6.5.
4. The environmental factors like interest rate, inflation, regulatory policy,
credit policy of government, technological life cycle, and cultural context
prevailing in the country influence the organisational buying. For more

5. Steps in business buying process are problem recognition, need

recognition, product specification, supplier search, proposal solicitation,
supplier selection, order routine specification, and performance review.
6.12 Case Study

Purchase of Performances in Swedish Theatre Association
Vattede is a chief municipality in a sparsely populated rural district in
northern Sweden. Many years ago, the Vattede association organised
performances of different kinds in at least three other places. Nowadays, the
association is languishing. This was partly due to the aging population of the
municipality and the fact that the school was no longer in a position to give
the students free tickets to the performances. During the palmy days of
1980s, the association had a grant of approximately €15,000. The amount
was lowered and was no longer forthcoming by the end of 1990s. But there
was a small economic buffer and there were some possibilities to organise
performances.
Fig. 6.4: A Swedish woman performing in a play

(Source: http://www.swedishscene.com)
Some performances were not arranged via the association, as the

producers went directly to the community centres; they were supposed to be
the target group and could apply for money for activities of that kind.
Sometimes, the association joined as a partner in such projects.
Vattede – buying centre and buying process

There is some doubt as to whether there was a planned buying process in
the association. A board was formed and a president was selected, but this
board was more active on paper than in practice. Any activity that took place
was initiated by community centres in need of economic support. On those

occasions, the President was always contacted, and he decided on the

contributions.
Quality meant a lot of things to the President. Content had to be true in
some respect. It could be intellectual, but at the same time, it must evoke
imagination. It must not be foreseeable. Well-known actors could be
important for the size of the audience, and plays from Riksteatern could be
regarded as a guarantee of good quality. But Riksteatern’s larger
performances were far too expensive for the Vattede association.
1. What does the buying process of Swedish Theatre Association look
like?
(Hint: The buying process seems to be much more informal and
perhaps intuitive than that indicated by the theory.)
2. Which buying criteria could be found in Swedish Theatre Association?
(Hint: There is not much formal evaluation, but rejection criteria and
cues are definitely being used. Prices were considered in some way due
to stagnating grants.)
(Source: http://neumann.hec.ca/aimac2005/PDF_Text/Wahlberg_Rickard.pdf)
References:
 Kazmi, S. H. H. (2007). Marketing Management; Text and Cases, Excel
 Paul, P.J., Paul and Jr. James, D. H. (2010). Marketing Management:
 Marshall, Greg, and Johnston (2009). Mark, Marketing Management,
McGraw-Hill/Irwin.
E-References:
 http://www.web-books.com – Retrieved on February 3, 2012
 http://www.slideshare.net – Retrieved on February 3, 2012
 http://www.marketing91.com – Retrieved on February 3, 2012
 http://www.knowthis.com – Retrieved on February 3, 2012

Unit 7 Segmentation, Targeting and Positioning

Structure:
7.1 Introduction
Objectives
7.2 Concept of Market Segmentation
7.3 Benefits of Market Segmentation
7.4 Requisites of Effective Market Segmentation
7.5 The Process of Market Segmentation
7.6 Bases for Segmenting Consumer Markets
Geographic segmentation
Demographic segmentation
Psychographic segmentation
Behavioural segmentation
7.7 Targeting (T)
Types of target marketing strategies
7.8 Market Positioning (P)
Steps for positioning a product
7.9 Summary
7.10 Glossary
7.12 Answers
7.13 Case Study
7.1 Introduction
In the previous unit we dealt with the characteristics of business markets,
the differences between consumer and business buyer behaviour, the
various factors that affect the purchasing decision of business buyers, and
the systematic steps in the procedure of business buying. We also
discussed the buying situations and buying roles in organisations. To begin
with, let us define the term market.
A ‘market’ can be defined as a group of customers who exhibit similar needs
and have the ability to satisfy those needs. Market can also be defined in
terms of the benefits sought by the customer, not in terms of particular
products or technical specifications. In this unit, we will discuss ways in
which the marketing strategists can enhance their product or service

position in the mind of the targeted customer. We will also analyse the
important concepts of a series of possible foundations for effective
segmentation and mechanisms for developing action plans for reaching
those segments. We will also explore the process of segmentation,
targeting, and positioning.
We know that consumers are of two different kinds i.e., final consumers and
business buyers. In other words, we have broken down a broad,
heterogeneous group of customers into two or more homogeneous
segments. This implies that you can be more specific about directing
marketing activities to meet the needs and wants of the two groups. In short,
you have segmented the market.
After deﬁning the concept of market segmentation, this chapter commences
with an exploration of the process and bases of market segmentation. This
helps to clarify the underlying strategies of segmentation. Consideration is
also given to the techniques and issues concerning market segmentation
within consumer and business-to-business markets.
The method by which markets are subdivided into different segments is
referred to as the STP process. STP refers to the three activities that should
be undertaken, usually sequentially, if segmentation has to be successful.
These are segmentation, targeting, and positioning, and this chapter is
structured around these key elements.
The following case study will provide better insights about segmentation,
targeting, and positioning concept.
Case Let
Titan Industries
Titan Industries is a joint venture between the Tatas and Tamil Nadu
Industrial Development Corporation (TIDCO) and was incorporated in
1986. It is one of the largest integrated watch and jewellery manufacturer
in the world with over 5.5 million units of watches and clocks and 1,
50,000 pieces of jewellery manufacturing annually. Headquartered in
Bangalore, India, Titan has offices in Singapore, London, and Dubai. The
Singapore office handles sales and marketing for countries in the Asia

Pacific region. The London office coordinates the Pan-European

management, marketing, and distribution. The Middle East and Africa is
centrally managed from Dubai.
Fig. 7.1a: Advertisement of Titan

Titan Industries, best known as India's pioneering manufacturer of quartz
watches has also made its foray into eyewear, launching Fastrack eyewear and
sunglasses, as well as prescription eyewear.
(Source: titanworld.com/)
Titan has been instrumental in revolutionising the watch market in India
with its quartz watches. Over the years, it has brought out watches that
have been fulfilling the requirements of customers across different
segments - mass market, youth, mid-premium, and luxury. The Sonata
range was aimed at the mass market while the Titan range catered to the
rest. The Titan range includes sub-brands like FasTrack, Raga, Nebula,
Edge, Dash, and FLIPS for customers across the spectrum. FasTrack
was positioned for the youth, Edge for the technology-conscious segment,
Nebula for the luxury segment consumers who demand value at high
prices, and the FLIP range of contemporary-styled watches for upper
premium (luxury) segment. Today, Titan is the undisputed leader in the
Indian watch market. Ever since it launched its first watch in 1987, Titan
has constantly innovated styles and designs to suit different moods and
personalities. Titan has also create a new segment of market by making
dashboard clocks for car manufacturers in Europe and America.
Source: titanworld.com/

 What is segmentation?
 What are the benefits and processes of segmenting consumer market?

 What are the methods of selecting target market for a given segment?
 How to position the product in the mind of consumer?
Objectives:
 analyse the concept of market segmentation
 explain the benefits of market segmentation
 explain the requisites of effective segmentation
 describe the process of market segmentation
 identify the bases for segmenting consumer markets
 develop and discuss positioning strategies
 analyse positioning strategies on the basis of the companies’ product
differentiation
7.2 Concept of Market Segmentation

One of the critical aspects of the study of marketing is segmentation.
Figure 7.1b depicts that segmentation is the basis for developing effective
targeted groups.
Fig. 7.1b: Segmentation
(Source: http://perceptionofthecustomer.blogspot.in/2009/10/blah-blah.html)
Figure 7.1b shows that segmenting is where the marketer splits the market
into groups (segments) and targets the relevant group. Before we learn the
meaning of segmentation, let us discuss the need for market segmentation.

Why should someone segment a market? The answer is not very simple. All
those who feel segmentation is not necessary are of the opinion that if
customers have a need, they will always search for the product.
So, it can be inferred that market segmentation is the segmentation of
markets into homogenous groups of customers, each responding in a
different manner to the promotion, communication, pricing, and other
variables of the marketing mix. Market segments should be created in such
a way that the differences between buyers within each segment can be
brought down. Thus, every segment can be addressed with an individually
targeted marketing mix.
The importance of market segmentation is established by the fact that the
buyers of a product or a service do not belong to the homogenous group. In
reality, every buyer has got specific needs, preferences, resources, and
behaviours. Since it is almost impossible to cater to every customer’s
individual characteristics, marketers group customers to market segments
on the basis of the variables they have in common. These common
characteristics enable them to develop a standardised marketing mix for all
customers in this segment. Through segmentation, marketers can examine
the differences carefully among the customer groups and decide on the
appropriate strategies or offers for each group.

1. _____________ is the process of dividing a potential market into
distinct sub-markets of consumers with common needs and
characteristics.
2. Future wants of the customer should be analysed before identifying the
segments. (True/False)
7.3 Benefits of Market Segmentation

Do you know the advantage of does market segmentation over the non-
segmented, undifferentiated marketing models? Market segmentation allows
a marketer to take a heterogeneous market, heterogeneous is a market
consisting of customers with diverse characteristics, needs, wants, and
behaviour, and divide it up into one or more homogeneous markets which
are made up of individuals or organisations with similar needs, wants, and

behavioural tendencies. In order to capture this heterogeneous market for

any product, you need to divide or disintegrate the market into a number of
sub-markets or segments and this process is known as market
segmentation.
As in the case of differentiated marketing strategy, unless there is a
substantial difference among the segments, it will be a duplication of efforts
and wastage of resources to launch differentiated marketing programmes
for each of the segments. When a clear distinction exists between
segments, the marketing manager can use the resources in an efficient
manner by spending more on the segment with higher potential and then
building other segments for the future.
Mass marketers need to create a differentiation among their customers and
then make their product proposition fit each of the segments so that they
can understand the homogeneous customers’ needs and their evolution
better than an undifferentiated marketer. It also helps in better
understanding of the competitive situation in each of the segments. As the
degree of competition will vary across segments, marketing managers need
to spend accordingly. They can accurately identify, measure their marketing
goals in terms of market share and mind share in each of the segments, and
regulate their company’s performance in each of the segments.
Learning from segmentation is based on the fact that customers do vary and
it is possible to group them or classify them on the major dimensions and
develop differentiated product offers for each of the segments than trying to
sell a product to anybody in the market. Segmentation not only helps in
identification of customers with substantial similarity but also helps in
profiling them and their need structure. This helps the marketers to develop
an appropriate offer for each identified segment.
Activity 1:
Discuss major market segmentation variables for the toothpaste market,
highlighting benefit segments.
From the above discussion we can infer the following benefits of market
segmentation.
1. It helps to distinguish one customer group from another within a given
market.
2. It facilitates proper choice of target market.

3. It facilitates effective tapping of the market.
4. It helps to divide the markets and conquer them.
5. It makes the marketing effort more efficient and economic.

3. ___________ market is a market consisting of customers with diverse
characteristics, needs, wants, and behaviour.
4. Market segmentation facilitates proper choice of target market.
(True/False)
5. Segmentation not only helps in identification of customers with
substantial similarity but also helps in profiling them and their need
structure. (True/False)
7.4 Requisites of Effective Market Segmentation

As a student of marketing, you need to understand what makes a good
segmentation so that in the event of segmentation in your work place, you
can test your decisions on these grounds. These six criteria include identity;
accessibility, responsiveness, size, measurability, and nature of demand.
Let us now discuss the six criteria in detail.
 Identity – The marketing manager must have some means of identifying
members of the segment i.e., some basis for classifying an individual as
being or not being a member of the segment. There must be clear
differences between segments. Members of such segments can be
readily identified by common characteristics as they display similar
behaviour.
 Accessibility – It must be possible to reach the different segments in
regard to both promotion and distribution. In other words, the
organisation must be able to focus its marketing efforts on the chosen
segment. Segments must be accessible in two senses. First, firms must
be able to make segmented customers aware of products or services.
Second, they must get products to them through the distribution system
at a reasonable cost.

 Responsiveness – A clearly defined segment must react to changes in

any of the elements of the marketing mix. For example, if a particular
segment is defined as being cost-conscious, it should react negatively to
price rises. If it does not, this is an indication that the segment needs to
be redefined.
 Size – The segment must be reasonably large to be a profitable target. It
depends upon the number of people in it and their purchasing power.
For example, makers of luxury goods may appeal to small but wealthy
target markets whereas makers of cheap consumption goods may sell to
a large but relatively poor target markets.
 Nature of demand – It refers to the different quantities demanded by
various segments. Segmentation is required only if there are market
differentiation in terms of demand. The marketing manager should not
only be able to find out the total demand and the differences in demand
patterns in each of these segments.
 Measurability – The purpose of segmentation is to measure the
changing behavioural pattern of consumers. For example, the segment
of a market for a car is determined by a number of considerations, such
as economy, status, quality, safety, comforts, etc.

6. Segmentation is required only if there is market _________ in terms of
demand.
7. A clearly defined segment must react to changes in any of the
elements of the marketing mix. (True/False)
7.5 The Process of Market Segmentation

Segmentation is more likely to be successful if a step-by-step approach is
used. Segmentation strategy is not a simple process. It is the result of
applying a systematic and analytical process to the crucial decisions about
product market entry. Figure 7.2 highlights the step-by-step process of
market segmentation.

Form The Segments

The Marketing Manager Decides the Basis for
Forming the Segments
Profile The Segments

The Marketing Manager Obtains Detailed Buyer Profile Information
for Each Segment of Interest
Evaluate The Segments

The Marketing Manager Evaluates Segments by Means of Financial
and Strategic Criteria
Target Market Selection

The Marketing Manager Selects the Segment and Targets the
Segment
Fig. 7.2: Segmentation Process

nd
Figure 7.2 shows the four-step process followed by the marketing manager
for segmenting the market.
Step 1: Forming market segments
This is the beginning of the market segmentation process. The marketing
manager follows two approaches for identifying market segments. They are
called build-up and breakdown approach. While the former approach is
more appropriate for business-to-business markets or industrial buyers, the
latter is used in the context of business-to-consumer or individual market
segments. By looking at the similar demand pattern across a number of
buyers in business-to-business markets, the marketing manager can build
segments.
As individual customer’s demand in a business market does not justify each
one of them to be called a segment, so by looking at similar demand
patterns one can build up segments with worthwhile demand. The
breakdown approach looks at large heterogeneous markets and breaks

them into homogeneous segments with similar demand patterns to be called

as market segments.
Step 2: Profile segments
After market segments have been formed, the marketing manager analyses
the segments to understand the profile of customer in each segment. A
profile is built for each segment by searching for relationships among
segmentation basis variables and descriptive characteristic variables.
Although a segmentation basis should clearly classify customers into
segments, customers in different segments do not have to score differently
on every profile variable. But if total profiles are too similar across segments,
they will give the marketing manager little additional insight into how to
serve each segment with a specific marketing mix.
Step 3: Evaluate market segments
Once segments have been formed and profiled, marketing managers
evaluate the profit contribution expected from each segment. Several kinds
of information are needed, starting with the demand potential within each
segment. The marketing manager measures the demand of each customer
and the number of customers in each segment.
Step 4: Select target markets

The selection of target markets helps the marketer to correctly identify the
markets and the group of target customers for whom the products or
services are produced. In these days, market targeting is used for all types
of markets, including developing and emerging markets. The firm can select
one or more patterns from the following patterns as given in figure 7.3.

M1 M2 M3 M1 M2 M3 M1 M2 M3
P1 P1 P1
P2 P2 P2
P3 P3 P3
Single-segment Concentration Selective Specialisation Product Specialisation
M1 M2 M3 M1 M2 M3
P1 P1
P2 P2
P3 P3
Market Specialisation Full Market Coverage
Fig. 7.3: Target Market Patterns

(Source: Adapted from Derek F. Abell, “Defining the Business: The Strategic
Point of Strategic Planning” (Englewood Cliffs, N.J. Prentice Hall, 1980),
Chapter 8, pp. 192-96.)
Note: P – product, M – Market segment.
From figure 7.3, it is evident that a product can be targeted for a single
segment through single segment concentration strategy. The company can
also decide to select few products and target each of these product
alternatives for specific market segments. The marketing manager can
decide a single product for all the market segments and use product
specialisation. The market specialisation strategy allows marketing
managers to offer different products in a single segment. A full-scale product
market strategy allows marketing managers to launch all types of products
for all types of market segments.
8. Which of the following is the beginning of the market segmentation
process?
(a) Evaluating market segments
(b) Forming market segments
(c) Profile segments

(d) Selecting target markets
9. The marketing manager follows two approaches for identifying market
segments. They are called _________ and ___________ approach.
10. The market specialisation strategy allows marketing managers to offer
different products in a single segment. (True/False)
7.6 Bases for Segmenting Consumer Markets

Marketers use more than one base to segment the market and identify the
target market. The method of segmentation will vary in a business-to-
business market than in individual consumer markets. Following are the
common bases of marketing segmentation.
7.6.1 Geographic segmentation

This is the simplest form of segmenting the market. Here, the marketer
divides the target market into different geographical units such as nations,
states, and regions. He/she may decide to operate in one or more than one
geographical areas. Segmentation of customers based on geographic
factors is as follows:
 Region – Segmentation by continent/country/state/district/city.
 Size – Segmentation on the basis of size of a metropolitan area as per
its population.
 Population density – Segmentation on the basis of population density
such as urban/sub-urban/rural, etc.
 Climate – Segmentation as per climatic condition or weather.
7.6.2 Demographic segmentation

While it is easy to find and group people living in one geographic location,
there may be a large variation in their demographic characteristics. Since
consumer needs, wants, and demand patters are directly linked with
demographical variables, this method of segmentation is popular among
marketers. Segmentation of customers based on demographic factors is as
follows:
 Age (dominant factor) – The age of a person is one of the basis of
segmentation. For example, the product segmentation is done by Titan

according to different age groups of people. Titan designed a sub-brand,

Fastrack. These watches are basically for young, vibrant, and cool
outgoing young generation. While for older person and professional it
has created the steel series watches, Sonata.
 Income (dominant factor) – Income level of a person is also a basis of
segmentation. For example, Titan watches offered Aurum and Royale in
the gold/jewellery watch collection with the price ranging between
` 20000 to `1 lakh for upper class segment.
Titan offered Exacta range in stainless steel, aimed at resisting the

rigours of daily life for the middle segment. This range offers 100 models
with the price ranging between ` 500 to ` 700.
Titan presented the Sonata range for the third segment. The price range
was between ` 350 to ` 500.
 Purchasing power (dominant factor) – Purchasing power of the buyer

is one of the significant basis for segmentation. Examples of various car
segments on the basis of purchasing power are as follows:
 Budget car segment – This segment is the biggest in the Indian
market. The entry level of this segment begins from ` 1.5 to 3 lakh.
Maruti 800 and Omni are the leading players in these segments. The
viewpoint of this segment has changed with the launch of Tata Nano
with a price range of 1 lakh. Small car segment is another name for this
segment. In Indian market, there is highest competition in this segment.
 Compact car segment – This segment lies among budget car and
family car. The price range preference is between ` 3 to 4.5 lakh. Maruti
Zen, Fiat Uno, Tata Indica, and Santro is some of the leading players of
this segment.
 Family car segment – The buyer’s purchasing power in this segment is
rather higher than the budget and compact car segment. The price
range of this segment is between ` 4.5 to 6 lakh. Maruti Esteem, Daewoo
Cielo, and HM Contessa comes under this segment. In India, cars that

are sold under the head ‘budget car’ and ‘compact car’ do not meet their
purpose, especially in terms of space shifts to ‘family car segment’.
 Premium car segment – The purchaser who wants a true world class
luxury car comes under this segment. Price range of this segment is
between ` 6 to 8 lakh. A few main cars of this segment are Ford Escort,
Honda City, Mitsubishi Lancer, Audi 1800, Opel Astral, etc.
 Super luxury saloon segment – This segment consists of buyers who
look for a real, super premium car. Some of the major cars of this
segment are Mercedes Benz E229, E-250, Rover Montego, Audi 6,
BMW. In Indian market, this is a small segment.
1. Occupation
2. Gender - Goods may be segmented for male and female
3. Family size
4. Family life cycle
5. Nationality
6. Religion
7. Education - Primary, high school, secondary, college, and
universities
A lot of the above stated variables comprise standard categories for their
values. For instance, family lifecycle is generally expressed as bachelor,
married with no children, full-nest, empty-nest, or solitary survivor.
7.6.3 Psychographic segmentation

Other than the demographic methods of market segmentation,
segmentation on the basis of psychography is another popular method
among marketers. Psychographics is the study of lifestyle of individuals. It
involves developing sub-group identification on the basis of psychographical
characteristics. Lifestyle is a way of living. It reflects a person’s living as a
combination of his actions, interests, and opinions.
Activity 2:
A company plans to launch a new brand of summer cool deodorant. How
will you segment the market?
7.6.4 Behavioural segmentation

In the case of behavioural segmentation, the market is divided on the basis

of purchase decision and product or brand usage made by consumers.
Dividing the market on the basis of variables such as use occasion, benefits
sought user status, usage rate, loyalty status, buyer readiness stage, and
attitude is termed as behaviouristic segmentation. Buyers can be identified
according to the use occasion when they develop a need and purchase or
use a product.

11. In psychographic segmentation, the marketer divides the target market
into different geographical units. (True/False)
12. In____________segmentation, buyers are divided into different groups
on the basis of lifestyle or personality and values.
13. In the case of___________, the market is divided on the basis of
purchase decision and product or brand usage made by consumers.
7.7 Targeting (T)

The study of target marketing helps you to take a decision on which
market(s) to enter out of all the available markets. Depending on the
available resources, experience and competency of the marketer, and the
time available, the marketer will decide which market to target. While
segmentation explains whom to target, targeting explains how to target
these markets.
A target market is defined as a set of buyers sharing common needs or
characteristics that the company decides to serve. It is very important to
select the target market, which the company decides to serve, because
knowledge about how the consumers decide, what are the criteria of buying
products, and what are the characteristics and lifestyle of the targeted
customers help the marketers to develop a suitable marketing strategy.
7.7.1 Types of target marketing strategies

So far, we have discussed the meaning of target marketing, let us now look
at the different types of target marketing options available to the marketing
planner.

The targeting strategy largely depends on the kind of product market

coverage that the firm plans for the future. The product market coverage
strategies are broadly classified as undifferentiated marketing, concentrated
marketing, and differentiated marketing strategies.
 Undifferentiated marketing strategy or mass marketing strategy
In the absence of a proper mechanism to classify the market into a number
of market segments and analyse their potential, many firms decide on the
mass marketing strategy. In this case, the marketer goes against the idea of
a differentiated market and decides to sell the product to the whole market.
Here the marketing manager ignores the idea of segment characteristics
and differences, and develops a unified marketing programme for the entire
market. This strategy keeps the overall marketing costs low and makes it
easier to manage and track the market forces uniformly. The marketer tries
to find out commonalities across various segments rather than focusing on
the differences between segments.
 Concentrated marketing strategy
In the second alternative strategy, the marketing manager decides to enter
into a selected market segment instead of all the available market
segments. When resources and market access are limited and the company
has to face intense competition, the marketing manager has to stretch the
budget for market coverage. In this case, the company is likely to follow the
concentrated marketing strategy.
 Differentiated marketing strategy
Many marketers choose to target several segments or niches with a
differentiated marketing offer to suit each market segment. Maruti is the
leading automobile company, which has the distinction of having different
products for different market segments.

14. A ____________ is defined as a set of buyers sharing common needs
or characteristics that the company decides to serve.
15. In mass marketing strategy, the marketing manger decides to enter into
a select market segment instead of all the available market segments.
(True/False)

7.8 Market Positioning (P)

Segmentation, Targeting, and Positioning (STP) constitute the fundamental
pillars of any marketing function. So far we have discussed segmentation
and targeting. The marketing manager needs to decide which segment to
enter and how to target that segment with a product offer through the
selection of market segment and target marketing strategy. The next step is
to decide the company’s product offer and then decide which image the
company would like its customers to develop. The challenge is to decide
what position the company wants its products to occupy in the selected
segment(s).
We will learn about the concept of market positioning in detail in the
subsequent paragraphs.
A product’s position is the definition that a consumer gives to a product
based on its important attributes. Positioning is an act of developing the
company’s offerings and image to occupy a distinct place in the minds of the
target market. Positioning is a consumer driven strategy in which the
objective is to occupy a unique place in the customer’s mind and maximise
its potential benefit for the firm. Each brand must thus be ‘positioned’ in a
particular class or segment. Example, Mercedes is positioned for luxury
segment and Volvo is positioned for safety.
The position of a product is the sum of those attributes normally ascribed to
it by the consumers – its standing in the market, its quality, the type of
people who use it, its strengths, its weaknesses, its price, the value it
represents, and any other unusual or memorable characteristics it may
possess.
7.8.1 Steps for positioning a product

Dibb et al. recommend the following steps for determining and implementing
the positioning of a product. Although they focus on new product
development, these steps are applicable to re-launch a product with new
features or for repositioning an existing product.
1. Define the segments in a particular market.
2. Decide which segments to target.
3. Understand what the target consumers expect and believe to be the
most important considerations when deciding on the purchase.
4. Develop a product (or products) that cater specifically to these needs

and expectations.
5. Evaluate the positioning and images, as perceived by the target
customers of competing products in the selected market segments.
6. Evaluate the market leader’s position; leading brand that occupies a
special position in the consumer’s mind (Cadbury’s in chocolates); other
brands have to necessarily relate themselves in some way to the
leader’s position.
7. Select an image that sets the product apart from the competing
products, thus ensuring that the chosen image matches the aspirations
of the target customers.
8. Inform target customers about the product (promotion).
Activity 3:
Ajanta Pharmaceutical is planning to launch a range of lifestyle stores.
Which markets should it target for? Who should be its target customers?
Profile them and suggest positioning options.
7.9 Summary
 Segmentation is a scientific process in which the marketing manager
identifies the bases or variables on which the market is to be divided,
forms segments, profiles them, and then launches marketing
programmes for each segment.
 Requisites of effective market segmentation include identity,
accessibility, responsiveness, size, measurability, and nature of
demand.
 The marketing manager follows four-step process for segmenting the
market - form the segments, profile the segments, evaluate the
segments, and target market selection.
 There are a few common bases, which are used in segmentation e.g.,
demographic, economic, psychographics, etc.
 Marketers use three strategic options in target marketing. They are
undifferentiated marketing, differentiated marketing, and concentrated
marketing.

 Once the segment is identified and target market decision is made, the
marketer needs to position the offer in the market.
 Positioning is an act of designing the company’s product offering and
image to occupy a distinctive place on relevant dimensions in the minds
of customers.
7.10 Glossary
Behavioural segmentation: In behavioural segmentation, buyers are
divided into groups on the basis of their knowledge or attitude towards the
use of a product or response to a product.
Concentrated marketing: It is a market coverage strategy in which
company follows ‘one product-one segment’ principle.
Demographic segmentation: In demographic segmentation, the market is
divided into groups based on variables such as age, family size, family, etc.
Differentiated marketing: It is a market coverage strategy in which the
company goes for proper market segmentation as depicted by its analysis of
the total market.
Geographic segmentation: In this type of segmentation, the market is
divided into different geographical units such as nations, states, regions,
cities, or neighbourhoods.
Market segmentation: It is the process of dividing a potential market into
distinct sub-markets of consumers with common needs and characteristics.
Positioning: It is a process of creating an image of goods and services in
the consumers’ mind.
Psychographic segmentation: In psychographic segmentation, buyers are
classified into different groups on the basis of lifestyle or personality and
values.
Target marketing: It involves breaking a market into segments and then
concentrating the marketing efforts on one or a few key segments.
Undifferentiated marketing: It is a market coverage strategy in which the
company treats the target market as one and does not consider the market
segments that exhibit uncommon needs.


1. Define market segmentation and discuss the benefits of market
segmentation.
2. What are the requisites of market segmentation?
3. Discuss the process of market segmentation.
4. Explain the bases of market segmentation for markets?
5. What is target market? What are the types of target marketing
strategies?
6. What is positioning? What are the various steps in positioning process?
7.12 Answers

1. Market segmentation
2. True
3. Heterogeneous
4. True
5. True
6. Differentiation
7. True
8. (b)
9. Build-up, breakdown
10. True
11. False
12. Psychographic
13. Behavioural segmentation
14. Target market
15. False
Terminal Questions
1. Market segmentation is the segmentation of markets into homogenous
groups of customers, each of them reacting differently to promotion,
communication, pricing, and other variables of the marketing mix. For
more details, refer section 7.2 and 7.3.

2. Requisites of market segmentation include identity; accessibility,

responsiveness, size, measurability, and nature of demand. For more
3. The marketing manager follows four-step process for segmenting the
market - form the segments, profile the segments, evaluate the
segments, and target market selection. For more details, refer
section 7.5.
4. Bases which are used in segmentation are demographic, economic,
psychographics, etc. For more details, refer section 7.6.
5. A target market is defined as a set of buyers sharing common needs or
characteristics that the company decides to serve. There are three types
of target marketing strategies. They are undifferentiated marketing,
differentiated marketing, and concentrated marketing. For more details,
refer section 7.7.
6. Positioning is a consumer driven strategy in which the objective is to
occupy a unique place in the customer’s mind and maximise its potential
benefit for the firm. For more details, refer section 7.8.
7.13 Case Study

Soyabean Milk Company
Dr. S. Chakrabarty was domiciled in Los Angeles, U.S.A for the last eight
years. After completing his Masters’ in Food Technology from University of
California, he had obtained a Ph. D. in the same subject specialising in ‘high
protein products.’ After completing his education, he joined a company,
HyPro Inc., where he was the Director (R&D). The company had developed
different types of high protein products, which were marketed through a
large number of departmental stores throughout the US. The company was
enjoying a good reputation.
Dr. Chakrabarty was seriously thinking of returning to India and settling
down in his hometown, Bangalore. For the last 2 to 3 years, he was toying
up with the idea of setting up a plant to produce a few high protein products
in India. During his earlier visits, after talking to different people, he had
noticed the availability of soyabean in abundance. He had carried out
several experiments in his laboratory and had developed what he called as

“Soyabean Milk”. He felt that for a poor country like India, with majority of
the children being undernourished, this would be an ideal product.
Soyabean milk would have some percentage of normal milk, water, and
different other different raw materials added to give it a high protein value. It
will be pasteurised, so refrigeration would not be essential and will have
almost same or better life than average milk. Soyabean milk would cost
about 15% more than the regular milk, which he felt, was justified due to its
high protein values. To obtain the same proteins, other substitutes or
medicines, he felt would be ten times more costly.
As he was 15,000 miles away from his potential market, he first wanted to
ascertain the feasibility of this project. He had several questions on which he
wanted to get the answers. Some of these were:
 Whether the tradition bound Indian population would accept a new
concept like soyabean milk?
 In which town should he set up his plant? And of what capacity?
 In which form should he introduce this soyabean milk– as a substitute to
normal milk or by adding different flavours, as a competitive product to
already existing soft drinks?
 What sort of distribution arrangement he should have?
Technically he was confident about the production of this soyabean milk.
Marketing-wise and commercially whether such a project would be viable or
not was his main doubt. His friends had informed him that recently two
companies had already introduced soyabean milk in India which was,
however, very costly in the market. This did not bother him much as he felt
that his product would be superior. He also sensed that with such a large
population in India, even a dozen competitors should do reasonably good
business.
1. What type of information should Dr. Charkrabarty collect to decide on
the setting up of this project?
(Hint: Dr. Charkrabarty must collect information about the market,
segmentation of milk and milk products, preference of targeted segment,
and the marketing strategy information in order to position his product
for targeted segment.)

2. What strategy would you recommend him for marketing soyabean milk
in India?
(Hint: The marketing strategy of soyabean milk is based on value
proposition alternatives like buying more for more money, more for the
same, etc.)
(Source: Dutta Bholanath; Marketing Management; 2nd Edition: Excel
Books, New Delhi)
References:
 Tapan, P. K. (2010). Marketing Management: Excel Books, New Delhi.
 Kazmi, S.H.H. (2007). Marketing Management; Text and Cases, Excel
 Paul, P.J., and Jr. James, D.H. (2010). Marketing Management:
McGraw-Hill/Irwin.
E-References:
 http://nptel.iitm.ac.in/courses/IITMADRAS/Management_Science_II
– Retrieved on February 04, 2012
 http://www.consumerpsychologist.com/cb_Segmentation.html
 http://www.londremarketing.com/documents/STP10082008 – Retrieved
on February 04, 2012
 http://isbm.smeal.psu.edu/professional-development/segmentation
targeting-and-positioning-with-me-xl – Retrieved on February 04, 2012

Unit 8 Product Management: Decisions,

Development and Lifecycle Strategies
Structure:
8.1 Introduction
Objectives
8.2 Levels of Products
8.3 Classification of Products
Classification on the basis of durability and tangibility
Consumer goods classification
Industrial goods classification
8.4 Product Hierarchy
8.5 Product Line Strategies
8.6 Product Mix Strategies
8.7 Packaging and Labelling
8.8 New Product Development
8.9 Product Life Cycle (PLC)
8.10 Summary
8.11 Glossary
8.13 Answers
8.14 Case Study
8.1 Introduction
In the previous unit we dealt with the concept, benefits, requisites, and the
process of market segmentation. We also analysed the bases of market
segmentation which help in clarifying the underlying strategies of
segmentation. The marketing strategies to target these markets were also
discussed. We developed an insight about how to place or position the
product in the customer’s mind. To begin with, let us understand the term
product.
You may define product as a collection of physical, psychological, service,
and symbolic attributes that collectively yield satisfaction, or benefit, to a
buyer or user. The marketing identified a product as anything presented to a
market to satisfy a want or need. This unit helps you to get familiarised with
the significant concepts concerning product management. Product

management is an organisational lifecycle function within a company

involving the planning or marketing of a product or products at every stage
of product lifecycle. We will discuss the levels and classifications of
products, and the strategies of product line and product mix. We will also
analyse the important steps to be considered in the new product
development process.
Case Let
Starbucks Becomes a Public Company

Starbucks Corporation is an international coffee company and
coffeehouse chain based in Seattle, Washington. Starbucks is the largest
coffeehouse company in the world.
Product Line
Starbucks stores offered a choice of regular or decaffeinated coffee
beverages, a special "coffee of the day," and a broad selection of Italian-
style espresso drinks.
Fig. 8.1: Starbucks Coffee

(Source:http://www.businessandleadership.com/marketing/item/26106-
starbucks-and-loreal-trial)
In addition, customers could choose from a wide selection of fresh-
roasted whole-bean coffees (which could be ground on the premises and
carried home in distinctive packages), a selection of fresh pastries and
other food items, sodas, juices, teas, and coffee-related hardware and
equipment.
In 1997, the company introduced its Starbucks Barista home espresso
machine featuring a new portafilter system that accommodated both
ground coffee and Starbucks' new ready-to-use espresso pods. Power
Frappuccino – a version of the company's popular Frappuccino blended
beverage, packed with protein, carbohydrates, and vitamins – was tested
in several markets during 1997; another promising new product being

tested for possible rollout in 1998 was Chai Tea Lattè, a combination of
black tea, exotic spices, honey, and milk.
Fig. 8.2 : Products of Starbucks

(Source: http://media4.onsugar.com/)
In recent years, the company began selling special jazz and blues CDs,
which in some cases were special compilations that had been put
together for Starbucks to use as store background music. The idea for
selling the CDs originated with a Starbucks store manager who had
worked in the music industry and selected the new "tape of the month"
Starbucks played as background in its stores.
The company was constantly engaged in efforts to develop new ideas,
new products, and new experiences for customers that belonged
exclusively to Starbucks. Schultz and other senior executives drummed in
the importance of always being open to re-inventing the Starbucks
experience.
Product Supply
Starbucks entered into fixed-price purchase commitments in order to
secure an adequate supply of quality green coffee beans and to limit its

exposure to fluctuating coffee prices in upcoming periods. When

satisfactory fixed-price commitments were not available, the company
purchased coffee futures contracts to provide price protection.
(Source:
http://www.mhhe.com/business/management/thompson/11e/case/starbucks
-2.html)

 What is the prevalent and specific classification of products?
 What are the strategies in product line and product mix?
 What is the meaning of new product development?
 What different strategies are adopted by marketers in product lifecycle?
Objectives:
 analyse how products are classified
 explain the product line and product mix strategies
 describe the product lifecycle
 discuss the stages involved in the new product development
8.2 Levels of Products

A product has different layers or levels like an onion and each layer
contributes to the making of the product. As a marketer, you are required to
analyse the product at different levels. The identified layers are:
 Core layer
 Basic product layer
 Expected product layer
 Augmented product layer
 Potential product layer
Let us study the layers in detail.
1. Core layer – The core layer of the product explains the reasons for
which the customer is making the purchase. This layer explains the ‘why’
of buying the product.

2. Basic product layer – At the second layer, the consumer looks at the
basic utilities, like physical features and tangible elements of the
product.
3. Expected product layer – The expected layer is a set of attributes and
conditions that buyers normally expect out of the product. The basic
product is the ‘given thing’ in the product. In expected level, consumers
use their anticipations and utility expectations for defining the product.
4. Augmented product layer – The augmented part of the product is the
associated services and cues, which help the product to deliver beyond
the expectation level of the consumer. Brand positioning and
competition starts at farm level when all the products in a market look
similar. In developing nations, the competition originates at the level of
expected product.
5. Potential product layer – The last layer is the potential layer of the
product in which the offer may undergo all the possible augmentations
and transformations in the future. Here the marketer is always on
constant search for new methods and processes to differentiate the offer
on the basis of product features and services that will satisfy the
customer and create the desired differentiation.
The levels of the products are used to explain the concept of value hierarchy
in which the product manager can plan the level at which the basic product
is proposed and the level at which differentiation is to be made.

1. At the second layer, the consumer looks at the ______________.
2. The last level or layer of the product is augmented product layer.
(True/False)
8.3 Classification of Products

Products can be classified on the basis of three essential characteristics
namely, durability, tangibility, and user type. While durability explains the
average life of the product available for consumption, tangibility explains the
physical attributes of the product, and user type classifies products into
consumer products and industrial products.

Figure 8.3 depicts a typical product classification.

Classification of Products
(1) Durability and (2) Consumer goods (3) Industrial goods

Tangibility
(a) Convenience goods (a) Material and parts
(a) Non-durable goods (b) Shopping goods (b) Capital items
(b) Durable goods (c) Specialty goods (c) Supplies and
(c) Services (d) Unsought goods business services
Fig. 8.3: Classification of Products
Let us now study about the classification of products in detail.
8.3.1 Classification on the basis of durability and tangibility

Products can be classified on the basis of durability and tangibility. On the
basis of durability they can be grouped as non-durable and durable
products. On the basis of tangibility, they can be classified as physical
products and services.
 Non-durable goods – Non-durable goods are tangible goods normally
consumed in one use or a few uses. They are purchased frequently and
also consumed very often. Most of the fast moving consumer goods are
members of this class. Examples include detergents, food items, and
household consumption goods.
 Durable goods – Durable goods are tangible goods that can normally
be used for many years. These products need more personal selling and
after sales service. They offer higher margin and are often backed by
guarantee and warranty programmes. Examples include colour TV,
refrigerators, washing machines, and vacuum cleaners.
 Services – On the basis of tangibility, products can be classified as
physical products and services. Services are intangible, inseparable,
variable, and perishable products. Services need a good amount of
quality control, credibility of the supplier, and adaptability to variable
consumption behaviour. Examples include airlines, insurance, and
banking services.

8.3.2 Consumer goods classification

Consumer goods can be classified on the basis of their shopping habits.
They are grouped as convenience goods, shopping goods, specialty goods,
and unsought goods. Consumer goods are targeted for consumption of
either individuals or family members.
 Convenience goods – These are goods frequently purchased by
consumers. Consumers often buy them in frequent consumption
situations and they are purchased immediately with minimum efforts.
Examples include toiletries, soaps, cigarettes, and newspapers. These
goods can be further classified as:
 Staple goods – Consumer purchases on regular basis. There is a
high level of routinised response behaviour for this kind of products.
Toothpastes and soaps fall under this category.
 Impulse goods – Consumer purchases without any planning or
searching effort. Purchase of a magazine or a chocolate candy is an
example of situation in which customers buy on impulse.
 Emergency goods – Consumer purchases on urgent need. There is
no previous decision to buy them but consumer is forced to buy due
to the emerging situation. These include purchasing of umbrellas,
antiseptic creams like Burnol, or the purchase of knives to cut down
trees during the rainy season.
 Shopping goods – These are goods purchased by the customer after a
comparative process of selection and purchase on bases such as price,
psychological fitment, suitability, style, and quality. Examples include
furniture, electrical appliances, home furnishings, and clothing. Shopping
goods can be classified as:
 Homogeneous goods – These goods are similar in quantity but differ
in price levels, justifying a pricing comparison by the buyer.
 Heterogeneous goods – These goods differ in product features and
services and these differences are more important than price for a
decision.
 Specialty goods – These are goods with unique characteristics or
brand identification for which the buyers need to make a special
purchasing effort. Examples include music systems, televisions, cars,
and men’s clothing. There is hardly any comparison in specialty goods

as each brand is unique and different than others. The buyer is ready to
spend more time and effort while making a purchase decision for this
kind of goods.
 Unsought goods – These are goods that the consumer does not know
about or does not normally think of buying. These goods need
advertising and more personal selling efforts for making a sale. These
include life insurance products, coffins, and fire alarms.
8.3.3 Industrial goods classification
Many goods coming out of a firm enter another firm’s production process, so
that the final goods can be made ready for consumption by individuals or
family consumers. Many of these products go to the production process as
raw materials and spare parts; some of them also enter as capital items for
augmenting the finished goods and the rest as consumables or supplies.
These are ably supported by services targeted towards business class
customers.
Figure 8.4 depicts the industrial goods classification process.
Final
Production
Output of Output
Factory-I process of
factory-I from
Factory -II
Factory-II
For consumption in B2C

(Consumer) Markets.
Fig. 8.4: Industrial Goods Classification Process
Following is the classification of industrial goods applicable for the purpose

of product management.
 Materials and parts – These are goods that enter the manufacturer’s
product completely. They are of two types namely, raw materials and
manufactured materials. Raw materials can be farm products like rice,
maize, cotton, starch or natural products like fish, petroleum, gas, iron,
and aluminium ore. Manufactured materials can be classified as

component materials like iron, steel, zinc, and component parts like
motors, printed integrated circuits. The component materials are further
fabricated like from alumina to aluminium, pig iron to steel, and yarn to
cloth. Components enter the final product without being changed or
modified. In this case, price, quality, and service are important factors
while making a decision.
 Capital items – These are long-lasting goods that facilitate developing
or managing the finished product. They include two groups: installations
and equipment. Examples of installation include buildings, shades,
offices, and shop floors and heavy equipments like earthmovers, trucks,
drillers, servers, and mainframe computers. Equipments include hand
tools and office equipments like personal computers and laptops. These
equipments are not permanent and they need to be replenished at
different periods of time.
 Supplies and business services – These are short-term goods and
services that facilitate managing or developing the finished product
supplies. They can be of two kinds namely maintenance and repair
items and operating supplies.
 Maintenance supplies include painting and nailing. Operating
supplies include writing papers, consumables for computer,
lubricants, and coal.
 Business services can be classified as maintenance service like
copier repair, window and glass cleaning, and business advisory
services include consultancy, advertising, and legal services.

3. Materials and parts are type of:
(a) Consumer goods
(b) Convenience goods
(c) Industrial goods
(d) Staple goods
4. Staple goods are a type of convenience goods. (True/False)

8.4 Product Hierarchy

Each product is somehow linked to certain other products. The product
hierarchy embraces both the basic needs and the items that satisfy that
need. The seven levels of product hierarchy can be listed as follows:
1. Need family – The core need that is the foundation for the existence of
a product family. Example: security.
2. Product family – All the product classes that can gratify a core need
with fair effectiveness. Example: savings and incomes.
3. Product class – A group of products within the product family
acknowledged as having a certain functional coherence. Example:
financial instruments.
4. Product line – A group of product within a product class, which shows
resemblance due to functional similarity, is sold to the same customer
group and marketed through the same channels. Example: life
insurance.
5. Product type – A group of items within a product line that share one of
the numerous possible forms of a product. Example: term life.
6. Brand – The name linked to one or more items in the product line that is
employed to recognise the source or character of item(s). Example:
prudential help in recognising the source or character of an item of a
product line.
7. Item (also known as stock keeping unit or product variant) – A
distinct unit within a brand or product line that can be distinguished by
the size, price, appearance, or by some other attribute. Example:
prudential renewable term life insurance. A brand or product line unit
which can be distinguished by looks, price, or any other characteristic.

5. ____________ is the product group inside the product family
acknowledged as having specific usage consistency.
8.5 Product Line Strategies

A product line is a group of products for essentially similar use, and
technical and marketing considerations. Colgate product line includes

Colgate Dental Cream, Colgate Gel, Colgate Total, Colgate Herbal, etc. In
this section, we will analyse the different types of product line strategy.
Major product line strategies are:
 Expansion of product mix
 Contraction of product mix
 Alteration of existing product
 Development of new uses for existing product
 Trading-up and trading-down
 Product differentiation and market segmentation
Let us now study the product line strategies in detail.
 Expansion of product mix: Expanding may be a valid decision if it is in
an area in which consumers traditionally enjoy a wide variety of brands
to choose from and are accustomed to switching from one to another; or
if the competitors lack a comparable product or have already expanded
into this area. However, the main limitation in expansion is the
availability of sufficient finance, time, and equipment.
 Contracting or dropping the product: This is more difficult because
money has already been invested and therefore, as long as possible,
products are allowed to linger on until a loss is incurred. When a
decision on contraction is taken, various alternatives are available to the
marketers. The product may be consolidated with several others in the
line so that fewer styles, sizes, or added benefits are offered. If the
product fails even after this pruning, the company may stop it altogether.
 Alteration of existing products: Sometimes experience may show that
improving an existing product may be more profitable and less risky than
developing and launching a new product. Alterations may be made in
the design, size, colour, texture, flavour, package, use of raw materials,
advertising appeal, or the brand manager may bring a change in the
quality level.
 Development of new uses for existing products: The company or
people may find new uses of the existing products. For example, a
detergent being used for cleaning clothes, floors, utensils, and even
glass products.

 Trading-up and trading-down:

 Trading-up – It refers to the adding of a higher priced, prestige
product to the existing lines with the intention of increasing sales of
the existing low-priced product. Under trading-up, the seller
continues to depend upon the older, low-priced product for the major
portion of the sales. Ultimately he/she may shift the promotional
emphasis to the new product so that larger share of sales may go to
the new product.
 Trading-down – It refers to the adding of low priced items to the line
of prestige products, with an expectation that the people who cannot
buy the original product may buy these new ones because they carry
some status of the higher priced goods.
 Product differentiation and market segmentation:
 Product differentiation – Product differentiation involves “developing
and promoting an awareness of difference between the advertiser’s
product and competitor’s product.” When product differentiation
strategy is used, it enables a company to come out of price
competition so that it may compete on a non-price basis. The
company may show that its product is different from or even better
than the competitor’s products. It is possible to differentiate on
quality, design, brand, or packaging. This strategy works in markets,
which are reasonably homogeneous in their wants, and the products
are standardised.
 Market segmentation – Under market segmentation strategy, the
seller knows that the total market is made of many smaller
homogeneous units, each of which has different wants and
motivations. To meet these different demands, different products can
be developed. The product managers can tailor-make products to
suit the segments. This strategy attempts to penetrate a limited
market in depth, whereas the product differentiation seeks breadth in
a more generalised market.

6. A ___________ is a group of products for essentially similar use, and
technical and marketing considerations.

7. Trading-down refers to the adding of a higher priced, prestige product

to the existing lines. (True/False)
8.6 Product Mix Strategies

Product mix is the total number of products that a company markets.
Product mix consistency means how closely related different product lines
are in end-use, production requirements, distribution, etc. A company may
have many product lines in its product mix. The term product mix width
refers to the number of product lines a company has. Product line length
means the number of product variants available in a company’s product line.
The efficient fulfilment of the marketer’s goal to supply goods and services
to the consumers for satisfaction of their needs can be possible if due
attention is given to the three issues which govern the product mix, namely
sales growth, sales stability, and profits.
Sales growth can be achieved either by increasing its share in existing
markets or by finding new markets. Following are the four ways in which
product mix can be adjusted to achieve organisational goals.
 Market penetration – Market share is increased by expanding sales of
the present products in existing uses.
 Market development – Markets are expanded by creating new uses of
present products.
 Product development – Market share is increased by developing new
products to satisfy existing needs.
 Diversification – Market is expanded by developing new products to
satisfy new consumer needs.
Sales stability – Stable sales allow for more efficient planning in all phases
of production and distribution. It is also desirable to maintain a proper
balance in total sales and product mix so that a product losing the market
share can be counteracted by another product picking-up the market share.
Profits are determined by the components of the product mix. Some items
are usually more profitable than others. Low profit items may be performing
a valuable part in helping to sell company’s more profitable products. They
may also serve as insurance against an unforeseen failure in profitable
products. Theoretically speaking, though one should keep only highly
profitable products, one needs to also understand the cross linking between
products within a product mix.

8. Product mix is the _____________ number of products that a company
markets.
(a) Limited
(b) Partial
(c) Total
(d) Specific
9. Sales growth can be achieved either by increasing its share in existing
markets or by finding ___________ markets.
8.7 Packaging and Labelling

Packaging includes all the actions that involve the development of a
container and a graphic design for a product. A package may have three
levels; the primary package is the container of the product such as a bottle,
jar, or tube, the secondary package is the box of cardboard or some other
material containing the primary package; and the last is shipping package
that contains more units of secondary package.
Packaging considerations
A variety of packaging materials, processes, and designs are available.
Marketer’s primary concern is to consider the costs involved. The question
is how much money consumers are willing to pay. Research can be used to
determine this.
Companies also need to consider how much consistency they desire among
packages of the firm’s products. If the aim was to promote an overall
corporate image, the company would prefer to have similar packages or
include one major design characteristic. Some companies prefer to use
family packaging for different product lines. The package’s promotional
aspect includes symbol, contents, features, uses, advantages, and
precautions. The package design, colour, texture, shape, etc., also
communicate a product’s desirable images and associations. An expensive
perfume cannot communicate the image of luxury and exclusiveness if its
package is ordinary or cheap looking.

Marketers should carefully study this aspect while choosing packaging

colours. Pastel colours are viewed as feminine and dark colours as
masculine. The need to create a tamper proof packaging would depend on
the nature of product and extent of its necessity. The package should be
convenient for transportation, storage, and handling. A cumbersome
package may sometimes discourage resellers from stocking and displaying
a product.
Labelling
Labelling is closely related to packaging and is used in many different
informational, legal, and promotional ways. A label may be a part of
package or it may be a tag attached to the product. Depending on the
product category and specific laws of the country, the label might include
only the product’s brand name or more detailed information desired by the
marketer, or information conforming to the legal requirements. The label can
facilitate product identification by presenting the brand and a distinct graphic
design. The labels perform a descriptive function relating to a product’s
source, its contents, important features and benefits, instructions for use,
cautions or warnings, storage instructions, batch number, date of
manufacture, and date of expiry.
Many product labels contain a Universal Product Code (UPC). It consists of
a series of thin and thick lines that identify a product, and provide pricing
and inventory information. An electronic scanner reads this UPC information
at the retail check counter that is used by retailers and marketers for
inventory and price control purposes.

10. The cost involvement is one of the primary considerations in
packaging. (True/False)
11. The label can facilitate product identification by presenting the brand
and a _______________.
8.8 New Product Development

Many companies follow different types of new product development system.
Standard new product development system is explained in the following
section:

1. Concept generation and market structure identification

Idea generation
The first stage of new product’s evolution begins with an idea for the
product. Hence this stage is also termed as ‘idea generation’. Ideas may
originate from the following sources:
 Sales personnel
 Marketing personnel
 Research and development department
 Top management executives
 Production department
 Customer service decisions
 Employee suggestion system
 Customers
 Competitive products
 Foreign products
Market structure analysis

The next step in the process of new product development process is to
implement a market structure. This process delineates the consumer’s
perception of market by building a map outlining the critical consumer
dimensions, positioning existing brands on the perceptual map, and
indicating favourable new product opportunities.
Sales potential
In this step, the potential of a new product entry into the market structure is
estimated. The purpose of developing such a model helps in establishing a
rough estimate of the size of the business potential. It also helps in
establishing a base case for using this model for continuous monitoring of
the sales forecast and its advances throughout the new product
development process.
Concept screening
At this stage, the ideas collected are scrutinised to eliminate those
inconsistent with the product policies and objectives of the firm. The main
intention of this phase is only to eliminate unsuitable ideas as quickly as
possible.

2. Advertising development
This stage of new product development involves the development of
advertising and formulation of the product. All the advertising and technical
developments of the product concept have a greater focus due to the results
from the earlier stages. This stage typically involves two activities, viz.
development of advertising strategy and product formulation.
The main objective of advertising is to create advertising copy, which can
reflect the product’s points of difference to the consumer. Asking the client
servicing and creative team to observe the focus group discussion helps in
initiating advertising strategy development process. Both the teams get a
chance to look at the real consumers and listen to their opinion about the
product category and product proposition.
3. Product formulation and testing
The product formulation happens in the laboratory. During this stage, the
‘idea-on-the-paper’ is turned into a ‘product-on-hand’. In other words, the
idea is converted into a product that can be produced and demonstrated.
This stage is also termed as technical development. It is during this period
that all developments of the product, from idea to final physical form, take
place.
The final decision whether a product should be developed on a commercial
scale or not is decided at this stage because the time-lag required to attain
this stage is long and it is possible that some adverse developments might
have taken place during this period.
4. Testing the product
In this stage of product testing, the new product manager can check the
feasibility and accuracy of product performance. Thus, commercial
experiments are necessary to verify earlier business judgments. The
objective of this stage is to assess whether the product meets the technical
and commercial specifications developed at various levels of concept
development for ascertaining product acceptability.
5. Commercialisation and final launch
In this stage, the product is submitted to the market and thus commences its
lifecycle. Commercialisation is also the phase where marketing is most
active in connection with the new product. This stage is considered to be a
critical one for any new product and should therefore be handled carefully.
For instance, it should be checked whether advertising and personal selling

have been done effectively and whether proper outlets have been arranged
for the distribution. Despite the care with which the previous development
stages have been planned, unforeseen events can impair commercialisation
seriously. The following activities are usually undertaken during this stage:
 Completing final plans for production and marketing
 Initiating coordinated production and selling programs
 Checking results at regular intervals
All the stages explained above stress the fact that the development of a new
product must pass through certain logical stages. Innovation is necessarily
an orderly and predictable process and can be performed only in a
sequence. For example, commercialisation cannot precede the
development stage of a product.

12. The first stage of the new product development is____________
(a) Product formulation
(b) Idea generation
(c) Commercialisation
(d) Product testing
13. The product formulation happens in the_______________.
8.9 Product Life Cycle (PLC)

Products follow certain kinds of lifecycle patterns. Let us discuss the
different stages in the lifecycle of products.
Figure 8.5 depicts a product lifecycle consisting of four stages of
introduction, growth, maturity, and decline.
Sales
Introduction Growth Maturity Decline
Fig. 8.5: A Typical Product Lifecycle

Let us discuss each stage of product lifecycle in detail.

Introduction stage
Research or engineering skill leads to new product development. The
product is submitted to the market at the stage of commercialisation. The
concept of product lifecycle starts from the ‘commercialisation’ stage of new
product development. At this stage, product awareness and acceptance
among prospective customers are minimal. As the sales are low, there are
high promotional costs. This is due to the fact that the company has to
spend money for advertising, sales promotion, and other forms of
promotion.
The major obstacle to rapid market penetration at this stage is poor
distribution strategy. Many retailers will not support a new product launch
and will wait till they hear positively about the brand. Many companies prefer
regional roll outs in which the new product is introduced market-by-market,
region-by-region. This system of new product introduction often brings
physical distribution and logistics problems to the forefront.
Growth stage
The product begins to make rapid sales gains because of the cumulative
effects of introductory promotion, distribution, and word-of-mouth influence.
There is a sharp rise in profits at this stage. However, for sustained growth,
consumer satisfaction must be ensured at this stage. This stage begins
when demand grows rapidly. In the case of repeated buying situation, the
innovators move from trial purchase to adoption stage. If the innovators are
satisfied with the products, they influence other buyers through word-of-
mouth and referral communication.
Maturity stage
Sales growth continues, but at a diminishing rate, because of the declining
number of potential customers who remain unaware of the product or who
have taken no action. The last of the unsuccessful competing brands will
tend to withdraw from the market. For this reason, sales are likely to
continue to rise while the survivors mop up the customers for the withdrawn
brands.
Decline stage
Eventually, sales start declining due to multiple reasons. Changes in
customer preferences, competitive structure in the market, technology and
other environmental forces lead to the decline of sales. Sales begin to

diminish absolutely as the customers begin to get bored with the product. If
the decline is for the product category, the marketer may decide to prune
the product portfolio and drop the declining brands or may plan to re-
introduce brands with product modifications.

14. The concept of product lifecycle starts from the _____________ stage
of new product development.
15. Maturity stage is the last stage of product lifecycle. (True/False)
8.10 Summary
 A product is the offer that the consumer ultimately owns in the exchange
process. Each product offers some level of core, tangible, and
augmented benefit to consumers.
 A product has different layers or levels like an onion and each layer
contributes to the make of the product. The identified levels are: core
layer, basic product layer, expected product layer, augmented product
layer, and potential product layer.
 Products can be classified on the basis of three essential characteristics
- durability, tangibility, and user type.
 Product mix is an assortment of all related and unrelated products that
the company offers in the market place. Product mix has got four
important elements like width, depth, length, and consistency.
 Product line decisions are related to the length and depth of each
product line and the decisions that the marketer should take for each
product’s market segment.
 Many companies follow different types of new product development
system which are concept generation and market structure identification,
advertising development, product formulation and testing,
commercialisation, and final launch.
 Products follow certain kinds of lifecycle patterns. The stages of product
lifecycle are introduction stage, growth stage, maturity stage, and
decline stage.

8.11 Glossary
Convenience products: These products satisfy the needs but one isn’t
willing to spend time or effort to shop for them.
Durable goods: These are the goods that survive many uses by
consumers.
Industrial products: Products that are used in producing other products.
Non-durable goods: These are the goods, which are consumed in one
instance or a few uses.
Product: A product is anything which is offered to the market to satisfy
consumer needs and wants.
Product line: A set of individual products that are closely related.
Product width: It explains how many different product lines a company
carries.
Product depth: It explains the number of products that a product line has in
its overall product mix.
Shopping products: The consumers compare the features and buying
criteria of these products with the competing brands before making a choice.

1. Define a product. What are the various levels of a product?
2. Explain classification of a product with suitable examples.
3. Distinguish between consumer products and industrial products. Also
explain various classifications of industrial products.
4. Explain the stages in the new product development process.
5. A product lifecycle is the market’s response to a new product launch in
the market. Explain the stages of product lifecycle.
8.13 Answers

1. Basic utilities
2. False

3. (c)
4. True
5. Product class
6. Product line
7. False
8. (c)
9. New
10. True
11. Distinct graphic design
12. (b)
13. Laboratory
14. ‘Commercialisation’
15. False
Terminal Questions
1. A product is a set of complex tangible and intangible attributes. The
various levels of a product are core, basic product, expected product,
augmented product, and potential product layer. For more details, refer
section 8.2.
2. Products can be classified on the basis of three essential characteristics
- durability, tangibility, and user type. For more details, refer section 8.3.
3. Consumer goods are targeted for consumption by either individuals or
family members. Industrial goods come out of a firm and enter another
firm’s production process. For more details, refer section 8.3.2 and 8.3.3.
4. The stages in new product development process are concept generation
and market structure identification, advertising development, product
formulation and testing, commercialisation, and final launch. For more
5. The stages of product lifecycle are introduction stage, growth stage,
maturity stage, and decline stage. For more details, refer section 8.9.

8.14 Case Study
New Products Introduction in Pharmaceutical Companies

The company-wise number of new products introduced, and sales
generated, is given below:
Company No. of New Volume Sales/Average
Products generated by New Product/Year
Introduced new products (In crore)
incl. line extn.(In
crore)
Cipla 123 28.7 0.23
Ranbaxy 78 25.0 0.32
Glaxo 5 4.3 0.86
Nicholas 31 10 0.32
Sun Pharma 25 9.6 0.38
Alkem 57 13.5 0.24
Dr. Reddy’s Lab 17 9.8 0.58
Zydus Cadilla 39 8.1 0.20
Boots 2 1.3 0.65
Novartis 14 2.9 0.21
Industry 1621 362.2 0.22
From the above it is quite surprising to note that many products introduced
could not get listed in ORG as top 300 products or even cross 1 crore in
sales. Year-wise performance of new products is given below:
Year No. of New Products Listed Among Top 300
During The First Year Of Launch
1999 7
2000 3
2001 NIL
2002 3
From the above it is quite disturbing to note that the number of products
listed in Top 300 is going down day by day. Why are the new products
introduced by pharmaceutical companies not doing well? What could be the
reasons?

Compatibility with company’s product mixes

Many times, new products are selected irrespective of their compatibility
with product mix, e.g., a company that is strong in selling Antibiotics and B-
complex, suddenly decides to introduce cardiac range products with their
existing field force. The success rate becomes less because of the different
mindsets of medical representatives. The compatibility is very important.
During 2002, many new products could not register more sales because of
this compatibility problem and mindset of representatives.
Many companies introduce products because they have to do so. They have
no proper planning as well as no follow-up. With more new products being
introduced, field force also gets confused and is unable to increase sales.
Company No. of New Products New products
incl. line extn. (Per Month)
Cipla 123 10
Ranbaxy 78 7
Sun 25 2
Alkem 57 5
Nicholas 31 3
Thus, from the above table it is clearly visible that we should re-look at our
strategy, at our working norms, working patterns. New product requires
money. New product requires time to take root. Haphazard introduction of
new products lead to wastage of these two prime resources. Therefore, to
improve the above, a strategy formulation should be planned with proper
market research.
Faulty strategy formulation

Many times, its seen that companies are launching new products but not
launching the brand. Company’s strategy should be to develop the brand,
not the product. Companies often develop a product, thereby creating a
market for others to get their share. Therefore, efforts should be to launch a
brand, not a product. How many of us are doing these? By selling a product
we are getting some share of the prescriptions but by creating a brand, we
are getting a share of the mind as well as prescriptions.

Lack of market research

It is saddening to know that market research department is losing its impact
and place in pharmaceutical industry. Many pharmaceutical companies are
not doing research on the impact of the promotional thrust, concept taste,
product taste, etc. These lacks of research which may be due to time
constraint have led to faulty introduction of many new products and colossal
loss to the company.
1. Analyse the causes of new product failures in the Indian drug
companies.
(Hint: There would be a haphazard introduction of new products and
many pharmaceutical companies are not researching.)
2. How can companies overcome the problem of new product failures?
(Hint: A strategy formulation with proper market research should be
planned.)
(Source: Dr. R.K. Srivastava, Marketing Consultant, on Internet)
References:
 Tapan, P. K. (2010). Marketing Management: Excel Books,
New Delhi.
 Paul, P. J., and Jr. James, D. H. (2010). Marketing Management:
 Marshall, Greg. and Johnston (2009). Mark, Marketing Management,
McGraw-Hill/Irwin.
E-References:
 http://marketingteacher.com
 http://www.learnmarketing.net
 http://www.marketing91.com/

Unit 9 Product Management:

Brand and Branding Strategy
Structure:
9.1 Introduction
Objectives
9.2 Brand and Branding
Advantages and disadvantages of branding
9.3 Brand Equity
Brand loyalty
Brand awareness
Perceived quality
Brand associations
9.4 Brand Positioning
9.5 Brand Name Selection
9.6 Brand Sponsorship
9.7 Brand Development
9.8 Summary
9.9 Glossary
9.11 Answers
9.12 Case Study
9.1 Introduction
In the previous unit we dealt with the important concepts of a product
management which is an organisational life cycle function within a company
dealing with the planning or marketing of a product or products at all stages
of the product lifecycle. We analysed the levels, classification, hierarchy
packaging, and labelling of products. We also discussed the product line
and product mix strategies and the Product Life Cycle (PLC). In this unit, we
will deal with the important brand and branding strategy.
Brands are everywhere in our life. A product is anything that can be offered
to a market for attention, use, or consumption that might satisfy a need or
want. A product is a physical good, service, retail store, person,
organisation, place, or idea. A brand helps the customer to distinguish the
goods of one producer from another. Let us understand the conceptual
meaning of the term brand.
A person is known by a name. Likewise, a product is known by a brand
name, which enables the consumers to distinguish it from other products.
A brand name of a product or service means many things to a consumer.

It may mean a symbol of quality or it may be associated with his/her life-
style. In fact, consumers buy brand images rather than products. Certain
brands strike a chord as soon as the product is announced. For example,
'Coke' or 'Pepsi' as a soft drink, 'Vicks vaporub' as a solution for cold, 'Dettol'
as an antiseptic for everyday scratches and cuts.
These are a few illustrative examples to signify the role of brands in
consumer buying behaviour. Some brand images remain in the consumers’
mind forever and they come to stand for an entire range of ideas,
sentiments, etc. This helps you to specify, reject, or recommend brands.
The present unit covers the concept of brand equity, which is a set of assets
linked to a brand‘s name and symbol that increases the value of the product
or service. You will also be able to know how the image of the product
should be created or positioned in the minds of consumers. You will also be
familiarised with the selection of brand name and its development.
Case Let
Indigo Nation: Branding Saga

Indigo Nation and Schullers, brands owned by Indus-League clothing
have achieved remarkable feat in the tough ready-to-wear Indian market.
Within a short span, the brands have achieved national brand status with
availability in over 850 stores and 44 exclusive outlets. The fashion
magazine Images conferred the ‘Hall of Fame’ honour to Indigo Nation in
the Product Launch of the Year (2000) category.
Fig. 9.1: Brands of Indus League

(Source: http://www.indus-league.com/image/splash1.jpg)

Indigo Nation and Schullers brands have been very carefully positioned in
order to get instantly connected with the target customers. The key idea
driving the positioning was to instill some values in the brands which
would differentiate them from rest of the competitors. When products can’t
be made much different, it is differentiation through intangibles that has to
be achieved. The company targeted people who were change agents, at
the cutting edge of technology and in touch with the other parts of the
world. These were the Indian global consumers. Indigo Nation was
targeted at the typical young executive and professional who aspired to
be a global citizen, while Schullers is positioned more as a brand with
adventure and high spirit values. It is given sporty associations, American
Sports. The brand reflects American values. Hence the cut, quality and
pricing is also in line with its positioning.
How are Indigo Nation and Schullers brands different from others? The
key difference lies in the organisation format. Indus League has been able
to achieve an extraordinary feat because of its hollow or virtual
organisation format. It is the power of brand. The company outsources
just about everything. The key team at the company concentrates on the
function of outsourcing – production, logistics, distribution. With brands
not tied up in these conventional functions, the team concentrates on
brand building. This gives Indus-League enormous opportunity to be
flexible and highly responsive to the marketplace.
(Source: Sujit John, Indigo Nation: A Brand Building Saga, The Times of
India, May 7, 2001)

 What is a brand?
 What are the advantages and disadvantages of branding?
 How to select a brand name of a product?
 How to position and sponsor a brand?
 What precautions should be taken while making a brand development
decisions?
Objectives:
 analyse the concept of brand and brand equity

 assess the component of brand equity

 describe the brand name selection
 explain the brand sponsorship and brand development
9.2 Brand and Branding

A traditional definition of brand stands as a name, word, mark, symbol,
device, or a combination thereof, used to identify some product or service of
one seller and to differentiate them from those of the competitors. The
definition clearly focuses on the function of a brand, that is, to identify,
irrespective of the specific means employed for the identification. A modern
definition talks about the brand as a vehicle for delivering a certain value to
the consumers. Hence, a brand is a mental patent and set of associations
that delivers a set of functional and emotional value to the consumer in a
unique way as compared to others in the business.
Creating a brand is the ultimate aim of marketing endeavour. The AMA
defines it as “A brand is a name, term, sign, symbol, or design, or a
combination of them, intended to identify the goods or services of one seller
or group of sellers and to differentiate them from those of competitors.” A
brand is a name, term, design, symbol, or any other feature that identifies a
seller's good or service as distinct from those of other sellers. There are
three aspects of this definition. Firstly, it focuses on ‘what’, of the brand.
Secondly, it emphasises on what the brand ‘does’. A brand can be a
combination of name, symbol, logo, or trade mark. Brands do not have fixed
lifetimes. Under the trademark law, the users are granted exclusive rights to
use brand names in perpetuity.
Figure 9.2 depicts what a brand is and what it does.
A brand is a name, symbol, design, or a combination thereof.
McDonald’s: is a name
Golden Arches: is a symbol or sign
which is trade marked (it is the
exclusive property of McDonald
McDonald’s Corporation)
Combination: a unique art work that
TM combine all elements of brand
Fig. 9.2: Example of Branding

Figure 9.2 shows that any outlet that displays this sign achieves two
objectives immediately in the prospect’s mind. The objectives are:
i. The prospect can easily identify that this outlet is of McDonald’s
Corporation. Hence he/she knows what to expect from this outlet.
ii. The brand differentiation. The prospect, upon seeing the above sign, will
be able to differentiate this outlet from the others which also sell similar
kind of products or services (it is not Wimpy’s).
A brand name is a word or a combination of words or letters that is
pronounceable e.g., Promise toothpaste, Rexona soap, etc. Brand as a logo
is unique to that product as a product design and signage. Examples of
brands that are easily identifiable include the unique shape of Coca-Cola
bottle, the distinctive rainbow mark of Wipro, the golden arches of
McDonald’s, and a part of an eaten apple of Apple Macintosh. A brand mark
can be a design, a distinctive logotype, a colouring scheme, a picture, etc. In
other words, it is not a name but a means of identification.
Let us now learn the advantages and disadvantages of branding.
9.2.1 Advantages and disadvantages of branding
Advantages
The following are the advantages of branding.
(a) A brand promises and delivers a high level of assurance to
consumers.
(b) A brand serves as an assurance to the customer about the product
performance. A brand helps customers to identify the product on the
shelf and helps in making an informed choice.
(c) A brand as a symbol of status and social significance gives you
psychological satisfaction.
(d) The brand speaks about the product's attributes and how they
perform, about the brand name and what it stands for and about the
company associated with a brand. Hence, for a consumer, the brand
aids decision making by building trust, familiarity, and assurance of a
certain standard.
The brand also provides benefits to the company. It develops a loyal
customer base e.g., brands like Starbucks coffee, Harley, Lux, Kellogg's,
and Horlicks have a strong loyal consumer base.

Disadvantages
The following are the disadvantages of branding.
(a) Branding is not free from the critique of creating disadvantages to the
customer.
(b) Brand building is an expensive process because of which the average
cost of the product goes higher and in many instances the consumer
has to bear the cost.
(c) Brand building involves a huge expenditure by the firm and, if this fails,
the brand cannot sustain the pressure of additional expenses.
(d) Once the brand is perceived in a particular way, it is difficult to position
it in an alternate way, though a need may arise due to changes in
macro economic environment.
(e) Expenditure on brand promotion is considered a social waste. Such
wasteful expenditure will increase the cost of production, leading to
higher price of the brand.

1. Creating a brand is the ultimate aim of marketing endeavour.
(True/False)
2. A brand is a mental patent and set of associations that delivers a set of
functional and emotional value to the consumer in a unique way.
(True/False)
3. A _____________ is a word or a combination of words or letters that is
pronounceable.
4. Brand building is an expensive process because of which the
____________ of the product goes higher.
9.3 Brand Equity

Brand equity is the added value that the consumer assigns to the products
and services. It is an arrangement of brand assets and liabilities linked to a
brand, its name, and symbol that put in or subtract the value provided by a
product or service to an organisation and/or to that organisation's
customers. These equity components can be grouped into the following
categories.
1. Brand loyalty

2. Brand awareness
3. Perceived quality
4. Brand associations
Let us now study the components of brand equity in detail.
9.3.1 Brand loyalty

Brand loyalty is the situation in which consumers repeatedly prefer and
continue to purchase the same brand within a product or service category.
Brand loyalty is one of the important bases of equity creation. When
customers show allegiance to the brand, it creates equity. Loyalty is at the
heart of equity. Six distinct conditions are necessary for brand loyalty. Brand
loyalty is the (i) bias, (ii) behavioural reaction, (iii) expressed over time,
(iv) by any decision-making unit, (v) in relation to one or more alternative
brands, and (vi) is a functional task of psychological processes.
9.3.2 Brand awareness

Brand awareness is the ability to identify a brand under different conditions.
It includes brand recognition and brand recall. Brand recognition is known
as the capacity to verify prior exposure (“yes, I’ve seen it earlier”) and recall
is the capacity to consider the brand when a product category is thought
about. This type of awareness is necessary for a brand to be included in the
decision process.
9.3.3 Perceived quality

The quality may be objective or perceived. The objective quality indicates
the actual superiority of a product or service though the perceived quality is
perception of excellence of a product or service in relation to its intended
function. Perceived quality is customer based. Various people value
different things. It engrosses judgement concerning what is valued by the
customers. Quality also requires to be distinguished from satisfaction.
A customer may still be satisfied with poor quality. Satisfaction is determined
by expectations. On the whole, perceived quality is an overall feeling that a
customer tends to have about a brand. It is generally based on some
underlying quality dimensions (product attributes or benefits) on which the
customer perceives the product’s performance or delivery.

Since the brand delivers values higher than the commodity, perceived
quality is a critical decision. The brand manager should take a decision on
what kind of attributes and what quality level he/she should offer in his/her
product to satisfy his/her consumers. Developing a matrix of such desirable
attributes helps in positioning both the product and brand. A marketer has
the option to position his/her brand at any segment of the market: top,
bottom, or the intermediate.
9.3.4 Brand associations

The customer associates the attribute of the brand with his/her belief.
Attributes are descriptive features which are used to characterise a product
or service. For instance, how is a refrigerator described? It can be described
as a cooling machine, normally available in white colour, comes in different
sizes, meant for homes or offices, expensive, runs on electricity, has a
compressor, etc. The attributes may be differentiated on the basis of how
directly they are associated with the performance of the product or service.

5. Which of the following is the set of brand assets and liabilities linked to
a brand?
(a) Brand marks
(b) Brand equity
(c) Brand image
(d) Brand identity
6. Brand awareness is an overall feeling that a customer tends to have
about a brand. (True/False)
7. ____________ is the attribute of the brand that customer associates
with his/ her belief.
9.4 Brand Positioning

Brand positioning denotes the positioning of the brand vis-à-vis the
competing brands in the chosen product category.
After deciding brand identity, which corroborates with the expected brand
image, the brand manager's task of implementing the branding strategy
begins. He/She needs to establish communication objectives and plan the

creative execution strategy. The beginning of an execution strategy is the

brand position statement. Brand position is that part of brand identity and
value proposition that is to be actively communicated to the target audience
which depicts the advantages of the brand over the competitors. Once the
brand position decision is made, brand identity and value proposition can be
translated into a suitable execution strategy in the form of an integrated
advertising campaign.
There are three places within the brand identity system, which help in
identifying the brand positioning statement. These statements are the core
identity of the brand, which explain the central, timeless essence of the
brand. The most unique and valuable aspects of the brand are often
represented in the core identity. Hence, brand position should include the
core identity so that the brand communications do not stray away from the
brand's essence. A brand position can be based on the point of leverage,
which may not necessarily be in the core identity. Sub brands, features, or
service can become a point of leveraging. A customer related benefit is a
part of the value proposition and forms a basis for brand customer
relationship.
For example, the positioning statement of Titan as a 'Tata product' explains
the core identity in the form of a brand position statement whereas the brand
positioning statement of DHL couriers explains the service component with
'nobody delivers like us'. The BPL washing machine with fuzzy logic
technology explains higher value proposition as compared to other washing
machines and that serves as a positioning statement.

8. ___________ denotes the positioning of the brand vis-à-vis the
competing brands in the chosen product category.
9. Brand position can be based on the point of leverage, which may not
necessarily be in the core identity. (True/False)
9.5 Brand Name Selection

The selection of a brand name is closely related to the desired positioning
and a number of total considerations. Giving a brand name is one of the
crucial decisions in brand management. This is a crucial decision resting on

two dimensions. Firstly, the name should satisfy several marketing criteria
and secondly, the name should not be in use by other firms. This
necessitates extensive consumer research and mapping of consumer
interest.
A brand is defined as a composite set of beliefs and associations in the
mind of consumers. So a brand name is believed to indicate the product's
benefits, be memorable, and help in reinforcing the belief and associations
in the consumer's psyche. The name has to be unique so as to rise above
the clutter. However, when unique names become run of the mill, suddenly
a simple name becomes a hit and people remember this name. Decision on
branding a product should be done in such a way that it helps in 'de-
cluttering' the brand.
A good brand name should basically possess qualities of distinctiveness.
That is, it should be short, noticeable, impressive, easy-to-remember, and
should stand out among a host of competing names. For example, names
like Usha, Lux, Rin, Vim, etc. satisfy the condition of being short and easy to
remember. Brand names like Hotshot, VIP, Amul, etc. have earned a
reputation for quality. In selecting a brand name, managers should ask
themselves what they want to achieve from it. Should it be descriptive,
reassuring, evocative, or should it convey certain qualities or benefits
derived for using their products?
There is no hard and fast rule to the selection of a brand name. However,
through extensive research and past experiences, brand marketers have
developed the following principles, which should be followed while selecting
the brand name.
1. A brand name must reflect directly or indirectly some features of the
product, like benefits and functions. For example, Ezee means that it is
easy to use; Good Knight, a mosquito repellent, means that one can
have a good sleep at night, and PUMA conjures up the celebrated
speed of a ‘cheetah.’
2. A brand name should be distinctive, especially if there is a higher clutter
in the category e.g., a name like “chancellor” for a cigarette portrays
status, power, and an opulent lifestyle.

3. A brand name should be easy to pronounce and remember. Some of the

classic examples are Vimal, Taj, Onida, Bajaj, MRF, Fem, Lux, Thums
Up, etc.
4. A brand name should be legally protective.
5. A brand name should be acceptable to the social settings.
6. A brand name should be easy to memorise and recall.
A brand name is also expected to generate favourable associations. In order
to make it suggestive and descriptive, it needs marketing investment
through a brand communication strategy. A brand name can be classified
as:
 Descriptive brand name, for example, Handyplast
 Suggestive brand name, for example, Kamasutra and Denim
 Free standing brand name, for example, Kodak, which does not
communicate any information immediately to the consumer.

10. Decision on branding a product should be done in such a way that it
helps in _____________ the brand.
11. A brand name should reflect directly or indirectly some aspects of the
product, like benefits and functions. (True/False)
12. A good brand name should basically possess qualities of
distinctiveness. (True/False)
9.6 Brand Sponsorship

The brand sponsorship decision involves whether it should be a
manufacturer's brand (also known as a national band) or a private brand
(also known as private label) or partly manufacturer's brand and partly
private brand. In most developed countries, where large chain or
departmental stores dominate the retail distribution system, retailers buy the
products from manufacturers and sell under their own brand. This is a
growing phenomenon in the Indian context as we see the emergence of a
large number of super bazaars and chain stores coming up with different
product categories.

Mother Dairy, Amul, Food Bazaar from Pantaloon, BPL Garage, Kids Kemp,
and Cross Roads are some of the upcoming supermarkets and chain stores
marketing exclusive product categories. Thus the brand sponsorship
decision involves the decision of using the brand manufacturer's name or
the retailer's name. The decision largely depends on who has more power in
the value network.

13. ____________________ decision involves the decision of using the
brand manufacturer's name or the retailer's name.
9.7 Brand Development

The brand development decision involves a set of decisions to add or to
maintain the number of brand elements to its product portfolio. Whether to
brand a product or not is a decision which can be taken only after
considering the nature of the product, the type of outlets envisaged for the
product, the perceived advantages of branding, and the estimated costs of
developing the brand.
Historically, it is observed that brand development is closely related to the
increase in disposable income, level of sophistication of distribution system,
and increase in estimated size of the national market. We are experiencing
a situation similar to the above in the current Indian market.
The concept of branding is applicable to commodities like rice, flour, and oil
in India. Firms like ITC and HLL have achieved success in such commodity
markets. One of the important factors for successful branding strategies in
the food and commodity categories is the willingness of consumers to pay
more for better quality product through the value promise of brands. When
customers buy a branded product, they get the same quality in whichever
retail shop they go. Many other commodities such as spices are also now
being branded. There is no doubt that this trend is going to stay for long in
the Indian market and we are going to see more and more brand building
initiatives in the market.
In brand development, as a part of branding strategy decision, the brand
manager can decide to create new brand elements for the new products,
apply some of the existing brand elements to the new product, or use a

combination of existing and new brand elements to the existing and new
products.
When a firm uses an established brand to introduce a new product, it is
called brand extension. When a brand manager combines elements of an
existing brand with a new brand, it is called sub-brand. If an existing brand
name is used for a new product category, then the existing brand is called
parent brand or master brand. If the parent brand is associated with multiple
products through brand extensions, it is called family branding. There are
two kinds of brand extension, namely vertical extension and horizontal
extension.
 When the same brand name is taken to products very similar to the
current offer, higher or lower in the same product line, it is called vertical
extension or line extension. Line extension can be step up or step down
extensions also. A step up line extension occurs when the brand
manager moves up in the price quality dimension with the same brand
name.
 A step down model occurs when a current brand name is used to launch
a low value product. The horizontal extension is a process of taking an
existing brand name to a newer product category. This is also known as
category extension. In this case, the parent brand name is used to enter
into a newer product category. A brand line means a set of products sold
under the same brand name.
A brand line can have similar as well as dissimilar products in its line. A
brand mix is the set of all the brand lines that a multi-product firm offers to
the market. Companies can also launch branded variants in which they have
a range of specific brands for specific distribution channels or specific
product-market situations. The brand variants are available in the market
due to excessive pressure of retailers to deliver specific brands in the
marketplace. We have seen LG having specific brands for specific
distribution channels in the market. The distributed retailer brands are
different than the set of brands available in LGeasybuy.com sites.
Companies use different branding strategies for their range of products.
They can be categorised into the following three types.

1. Individual branding – In this case, the company adopts a separate

brand name for each product it offers. For example, Hindustan Lever
markets its range of toothpastes by different brand names such as
Close-up, Pepsodent, Pepsodent-G, and New Pepsodent. Likewise, it
offers bathing soaps in different brand names such as Liril, Rexona, Lux,
Lifebouy Plus, and Lifebouy Gold. The major advantage of individual
branding is that if one brand loses its market, the others may offset sales
in the particular product category. However, the company has to spend
a lot of money and pursue enormous promotional efforts to position each
brand in the consumer’s mind. Large multinationals such as Hindustan
Lever, Proctor and Gamble, etc. follow individual branding strategy.
2. Family branding – This is another type of branding strategy followed by
some companies which have developed their family names. For
example, Godrej is a family name used for all its products. Likewise,
Ponds uses its name for all products that include shampoos, talcum
powders, and creams. The major advantage of using family name for
products is that it minimises advertising and other promotional costs.
But, if one product in the group is perceived negatively in terms of
quality, or in other aspects, by consumers, it may pull down the entire
range of products. Hence, companies which use family names for
branding must be cautious.
3. Corporate umbrella branding – Companies such as Tata, Coke, and
Pepsi are not only using individual brand name for the range of products
they market but also use a corporate umbrella cover for their brands. It is
the corporate logo, symbol, or trademark which provides protection to
the individual brand. The idea is that the corporate name symbolises
trust and confidence to the buyers.

14. When a firm uses an established brand to introduce a new product, it is
called ______________.
15. Individual branding is the set of all the brand lines that a multi-product
firm offers to the market. (True/False)

9.8 Summary
 Brand is a name, word, mark, or a combination thereof, used to identify
some product or service of one seller and differentiate it from the
competitors. Branding has both pros and cons.
 Brand equity is the added value that the consumer assigns to the
products and services. Components of brand equity are brand loyalty,
brand awareness, and perceived quality.
 Brand position is that part of brand identity and value proposition that is
to be actively communicated to the target audience which depicts
advantages of the brand over competitors.
 A brand name is believed to indicate product's benefits, be memorable
and help in reinforcing the belief and associations in the consumer's
psyche. A brand name can be classified as descriptive, suggestive, and
free standing brand name.
 The brand sponsorship involves whether a brand should be a
manufacturer's brand, private brand, partly manufacturer's brand, or
partly private brand.
 The brand development decision involves a set of decisions to add or
maintain a number of brand elements to its product portfolio. It involves
brand extension, sub-branding, master branding, and family branding.
9.9 Glossary
Brand: The name, word, symbol, or a combination intended for identifying
seller’s product or service and distinguish them from other rivals.
Brand name: That brand part consisting of a word, letter, or group of words
or letters that can be expressed.
Brand equity: Brand equity is the total accumulated value or worth of a
brand.
Brand image: The perception about a brand as reflected by the
associations held in the consumer memory.
Brand position: The component of brand identity and value proposition
demonstrating advantage over competing brands and used to communicate
to the target audience.


1. What is a brand?
2. What are the advantages of branding? What value does the organisation
and customers get out of the branding process?
3. What are the disadvantages of branding? How do these disadvantages
affect the consumers?
4. What do you understand by brand sponsorship?
5. Explain the conception of brand development.
9.11 Answers

1. True
2. True
3. Brand name
4. Average cost
5. (b)
6. False
7. Brand associations
8. Brand positioning
9. True
10. De-cluttering
11. True
12. True
13. Brand sponsorship
14. Brand extension
15. False
Terminal Questions
1. Brand is a name, word, symbol, or a combination used to identify some
product or service. For more details, refer section 9.2.
2. A brand promises and delivers a high level of assurance to consumers.
For more details, refer section 9.2.1.

3. Branding is an expensive process because of which the consumer has

to bear higher cost of products. For more details, refer section 9.2.1.
4. Brand sponsorship involves decision about whether a brand may
become a manufacturer's brand or a private brand. For more details,
refer section 9.6.
5. Brand development involves a set of decisions regarding addition or
maintaining number of brand elements to product portfolio. For more
details, refer section 9.7
9.12 Case Study

Haier Brand
Haier is the world’s 4th largest white goods manufacturer and one of China’s
Top 100 electronics and IT companies. Haier has 240 subsidiary companies
and 30 design centers, plants and trade companies and more than 50,000
employees throughout the world. Haier specialises in technology research,
manufacture, trading and financial services. Haier’s 2005 global revenue
was RMB103.9 billion (USD12.8 billion).
Fig. 9.3: Advertisement of Haier

(Source: http://saleraja.com/wp-content/uploads/2010/10/haier.png)
Guided by business philosophy of CEO Zhang Ruimin, Haier has

experienced success in the three historic periods – brand building,
diversification and globalisation. At the 21st anniversary of founding of the
Haier Group December 26, 2005, Haier announced its 4th strategic
development stage of Global Brand Building. In 1993, Haier brand was
officially recognised as a famous brand and in 2005 valued at RMB70.2
billion. Since 2002, Haier has consecutively been ranked first in the row of

China’s most valuable brands for manufacture of 15 products, including

refrigerators, air-conditioners, washing machines, televisions, water heaters,
personal computers, mobile phones and kitchen integrations. Haier was
ranked first of China’s Top 10 Global Brands by China State Bureau of
Quality and Technical Supervision (CSBTS) for refrigerators and washing
machines. On August 30, 2005, Haier was ranked 1st of China’s Top 10
Global Brands by the Financial Times.
Haier has been widely recognised as a leader of 9 products in terms of
domestic market shares and the 3rd player of 3 products in the world market
and world-class company in the fields of home integration, network
appliances, digital and large-scale integrated circuits and new materials.
Haier has long attached significance to innovation in satisfying the demands
of worldwide consumers and realising win-win performance between Haier
and clients. Haier has currently obtained 6,189 patented technology
certificates (819 for inventions) and 589 software intellectual property rights.
Haier has hosted and taken part in modification of about 100 China’s
technological standards. Haier invented technology, incorporated in the safe
care water heaters and dual-drive washing machines, has been proposed to
the IEC Criteria.
Haier’s “OEC”, “Market-chain” and “Individual-goal combination”
management performances have been recognised worldwide. Haier’s
experiences have also been introduced into case studies of business
mergers, and to financial management and corporate cultures of many
foreign educational institutes, including Harvard University, University of
Southern California, Lausanne Management College, the European
Business College and Kobe University. Haier’s “Market-chain” management
practice has also been recommended to the EU for case studies, and its
“iIndividual-goal combination” management concept has been recognised by
worldwide management researchers as a feasible solution of commercial
over stocks and accounts overdue.
Facing fierce global market competition, Haier has launched the global
brand building strategy and updated the spirit, “Create resources, worldwide
prestige” and work style “Individual-goal combination, swift action and
success”, with an aim to gain global recognition and sustainable
development.

Haier is an example of how an Asian company can build a brand and take it
beyond its national market. Haier brand which is built on quality and a
commitment to offer innovative products at a competitive price, exports to
over 150 countries around the world, has 13 factories spreading from
Philippines to Iran to the US and recently became the no. 1 refrigerator
maker in the world, overtaking Whirlpool.
Haier traces its history back to the Qingdao General Refrigerator factory,
which was founded in 1958 as a cooperative to repair and assemble electric
appliances. Till Chinese entrepreneur Ruimin Zhang took charge of the
factory in 1984, the company struggled with its quality and incurred huge
losses. Haier attracted tremendous publicity when Zhang smashed faulty
refrigerators with a sledgehammer, to send out a message about his
commitment to quality. Today, Haier commands approximately over 30%
share of the Chinese market in white goods and had revenues of US $9.7
billion as of 2003.
True to that event, Haier has built its brand on quality. Haier’s strategy has
been to establish a leadership position in the domestic market before
venturing into global markets. Unlike most players who concentrate on the
low end of the market by offering cheap products, Haier has focused on
offering innovative products at a competitive price and the brand is starting
to see results. A case in point is that Haier is the leading brand in the US in
mini-refrigerator category.
Haier’s commitment to quality and innovation is evident by the 18
international product design centers that it has established in Los Angeles
and Tokyo which are in turn supported by production facilities in US, Japan
and Italy.
Though it is common to see charismatic CEOs such as Sir Richard Branson,
Steve Jobs, and Bill Gates leading the brands in the western world, it is
hardly the case in Asia. Many Asian executives shy away from publicity.
Ruimin Zhang has set an example to many Asian companies about how the
CEO can take charge of the brand and be the chief brand ambassador.
Zhang’s aggressiveness to build his brand, his commitment to quality, and
his business acumen has attracted much deserved global accolades.

Ruimin Zhang was placed nineteenth among the twenty-five most powerful
people in business outside the US by Fortune magazine in 2003 and Haier
was ranked the most admired Chinese brand in 2004 by a Financial
Times/Price waterhouse Coopers survey.
1. Analyse the Haier case and identify significant issues.
(Hint: The significant issues in Haier case is that the company is
focusing on brand percieved quality and line extension)
2. Discuss Haier’s branding strategy.
(Hint: The branding strategy used by Haier is family branding in which
parent brand is associated with multiple products.)
(Source: Kazmi, S H H (2007), Marketing Management; Text and Cases, Excel
Publication, New Delhi)
References:
 Tapan, P.K. (2010). Marketing Management: Excel Books,
New Delhi.
 Kazmi, S.H.H. (2007). Marketing Management; Text and Cases,
Excel Publication, New Delhi.
 Paul, P. J., and Jr. James, D.H. (2010). Marketing Management:
McGraw-Hill/Irwin.
E-References:
 http://www.brandidentityguru.com/brand_strategy.htm – Retrieved on
February 07, 2012
 http://www.marketingminds.com.au/branding/brand_is.html – Retrieved
 www.isb.edu/isbinsight/ISBInsight_March2006.pdf – Retrieved on
February 07, 2012
 www.brandingstrategyinsider.com/brand_identity/ – Retrieved on
February 07, 2012

Unit 10 Pricing
Structure:
10.1 Introduction
Objectives
10.2 Factors Affecting Price Decisions
Internal factors
External factors
10.3 Cost Based Pricing
Cost-plus or full-cost pricing
Mark-up price
Break-even pricing (target return price)
Marginal cost pricing
10.4 Value Based and Competition Based Pricing
10.5 Product Mix Pricing Strategies
10.6 Adjusting the Price of the Product
10.7 Initiating and Responding to the Price Changes
Initiating a price change
Reacting to a competitive price change
10.8 Summary
10.9 Glossary
10.11 Answers
10.12 Case Study
10.1 Introduction
In the previous unit we studied the important concepts of product
management. We discussed how brand equity, brand name selection, brand
sponsorship, and brand positioning affects the product management and
how brand development process is carried out. We, as a consumer, pay a
particular price for any product that we purchase. We buy different products
at different prices. Our buying pattern to a large extent depends upon the
price range of the product or service we intend to purchase. So how can the
pricing strategies for any product be determined?
In this unit, we will deal with the key aspects and strategies related to pricing
of any product or product category. We will also explore the conception of

price adjustment of any product as per the changing situations in the

market. We will also examine the most complex part of marketing
management i.e., how organisations make decisions to fix the price of a
particular product and service and why do they take such a decision.
Organisations and marketing managers need to understand these secrets of
pricing and develop mechanisms to ensure that the pricing of any product is
suitable in relation to its beneficial value and market norms.
The following case-let will give you a better understanding of the pricing
factors.
Case Let
Fair Glow Saffron: Godrej India Ltd.

Godrej Consumer Products Ltd., (GCPL) a leading player in the FMCG
industry in India, has launched ‘Fair glow Saffron’ a fairness soap with the
goodness of saffron New Fair Glow Saffron fairness soap targets young
women who understand the need to look good, care for their complexion,
and prefer a natured product to enhance their beauty.
Fig. 10.1: FairGlow Soap from Godrej

(Source: http://lakshyaonlineshoppee.net/logos/thumb_images%20(27).jpg)
Godrej has launched Fair Glow Saffron in Andhra Pradesh and Karnataka
at ` 12/- a 75 g pack. As an introductory offer, Godrej soap’s division has
offered ` 3/- off on the purchase of each Fair Glow Saffron Cake.
(Source: http://www.godrejindia.com)
 What are the factors affecting price determination?

 What are the important types of pricing approaches that organisations

apply?
 What are the different forms in relation to product mix pricing strategies?
 What are the traits connected to price adjustment of any product?
Objectives;
 determine the factors that influence the pricing strategies
 describe the various approaches to pricing
 analyse the pricing strategies adopted by marketers
 explain the situations when marketers should initiate the price cuts
10.2 Factors Affecting Price Decisions

A firm's price decision is influenced by many internal and external factors.
Internal factors are the factors that include elements within the
organisation’s boundaries. On the other hand external factors are the factors
that happen outside the business. The internal factors are cost of
production, pricing policy, pricing objectives, and marketing strategy. The
external factors include customers, suppliers, middlemen, competitors, and
government regulatory agencies. Let us now discuss each factor in detail.
10.2.1 Internal factors
Costs
There are two types of costs- fixed costs and variable costs. Fixed costs
are also known as overhead costs. They do not vary with production or
sales level whereas, variable costs vary directly with the production level.
These costs include raw material costs, components and packaging, and
other inputs to be included in the product itself. They are called variable
costs because they vary with the output level. Fixed costs and variable
costs make up the total cost of production of a product.
Pricing policy, pricing objectives, and marketing strategy

The pricing policy provides a general guideline to the divisional and
product line managers with regard to the price to be charged for the product
or service offered to the target market.

The pricing strategy delineates the pricing objectives in terms of its role in
the overall marketing strategy of the firm. The pricing strategy should cover
the extent to which the price of the product will be used to compete in the
target market place vis-à-vis the other strategic variables of mix.
A firm identifies its target market and approaches with a tailor-made
marketing mix of variables. The combination of strategic variables (product,
price, promotion, and place) is the marketing strategy of the firm with
respect to the specific target market and this strategy will vary from one
market segment to another. The marketing strategy of a firm consists of
several pricing strategies which are as follows:
Survival price
A company sets survival price as its pricing objective when there is intense
competition and changing consumer wants in the target market. Typically, a
survival price is a low pricing strategy to maintain demand for the firm's
product.
Current profit maximisation price

This price is contradictory to the survival price. Under this, the firm charges
high price that will amplify current profit of the firm. This is achievable for a
company when there is good demand for its products.
Market share price

An organisation which holds a high market share in the market may enjoy
lowest costs and maximum long-term profits. A market share leader in the
market can charge a low price to maintain and to enlarge its market share.
Product quality price

A firm possibly will charge a high price to make an impact on quality of the
product. Usually, customers link 'high price' with quality. The price is used
as a factor of quality of the product.
10.2.2 External factors

There are numerous factors that influence the company but are not
controlled by the company. These factors heavily impact the pricing decision
of the company. Hence, it becomes utmost important for the marketers to
understand these factors and conduct research to know what is coming off
in each market that the company serves as the effect of these factors

significantly differs from market to market. The important external factors

that act upon the pricing decision of a firm can be listed as follows:
 Customers
 Suppliers
 Channel members
 Competitors
 Government agencies
Customers
The customer’s loyalty allows the company to sell their products and ensure
deeper market penetration. The customers stay loyal as long as the price
charged to them is reasonable and acceptable. If the firm wants to initiate a
price change, particularly, an increase in the existing price level, it should be
able to predict the reactions of its customers.
Suppliers
They ensure hassle-free supply of raw materials, components, spares, etc.
and they closely monitor the price charged for the products. Even a slight
increase in the existing price by a company would certainly invite reactions
from the suppliers of raw materials. They may demand a higher price for
their raw materials.
Channel members
They are the wholesalers, retailers, dealers, and distributors. A firm has to
take into account the reaction of the channel members while taking price
decisions. Generally, the channel members work on a commission basis.
When a firm charges a higher price for its products, they may respond
negatively.
Competitors
A firm has to consider how competing firms would react to its price. The
competitors' reaction depends upon how the market has been structured.
Government agencies
There are many government regulatory agencies both at the central and at
the state level that monitor price fluctuations, particularly, when the product
is an essential item. These agencies generally react in public interest.

Essential commodities such as sugar, edible oils, drugs, etc. come under
the vigilance of government agencies.

1. ______________ are also known as overhead costs; they do not vary
with the production or sales level.
2. A firm which holds a high market share in the market may enjoy lowest
costs and highest long-term profits. (True/False)
3. A firm has to take into account the reaction of the channel members
while taking price decision. (True/False)
10.3 Cost Based Pricing

The pricing decisions are affected by various internal and external factors.
On the basis of these factors, the organisations adopt various methods of
pricing. Let us now discuss the various cost-oriented pricing methods.
10.3.1 Cost-plus or full-cost pricing
This is the most common method used for pricing. Under this method, the
price is set to cover costs (materials, labour, and overhead) and pre-
determined percentage or profit. Let us discuss the factors determining the
normal profit. Generally, margins charged are highly sensitive to the market
situation. However, they may be inflexible in the following cases:
 They may become merely a matter of common practice.
 Mark-ups may be determined by trade associations either by means of
advisory price lists or by actual lists of mark-ups distributed to members.
 Profits sanctioned under price control as the maximum profit margins
remain the same even after the price control is discontinued. These
margins are considered ethical as well as reasonable.
10.3.2 Mark-up price
This is the simplest method of setting the price of a product. In this method,
the final price of a product includes the unit cost of the product and a mark-
up as profit margin. Suppose, a gas lighter producer has the following costs
and sales expectations:
Variable cost ` 35

Fixed cost ` 100,000

Expected sales 10,000 units
The unit cost of the gas lighter can be calculated as follows:
Fixed cost 100,000

Unit cost = Variable cost + = 35 + = ` 45
Sales units 10,000
Assume that the gas lighter producer decides to earn 25% as his/her mark-
up on each unit sale. Hence, the sale price of his/her product will be:
Unit Cost 45
Mark-up price = = = 60 `
1- Desired return on sales 1- 0.25
Hence, the producer charges ` 60 per gas lighter and he/she earns ` 15 as
his/her profit.
10.3.3 Break-even pricing (target return price)

This is another method of cost-oriented pricing and is also called target
profit pricing. It uses the concept of break-even chart, which exhibits the
total cost and total revenue expected at different levels of sales volume. The
firm achieves break-even when the total revenue is just equal to the total
costs. Break-even chart is a managerial tool that establishes the relationship
between the three key decision variables- cost, price, and sales volume.
We will examine the application of break-even chart in the case of an
entrepreneur who has invested ` 100,000 to produce ladies handbags. This
investment of ` 100,000 is his/her fixed cost. He/She incurs ` 35 as materials
cost and another ` 15 as his/her administrative and selling expenses.
Table 10.1 depicts the break-even volume and profit/loss at

different output/sales unit level.
Table 10.1: Break-even Volume and Profit/Loss at
Different Output/Sales Units Level
Decision variables Output level

A B C D
2000 units 3000 units 4000 units 5000 units
Revenue from sales 150,000 2,25000 300,000 3,75000
Total variable costs 100,000 1,50,000 200,000 2,50,000
Total fixed costs 100,000 100,000 100,000 100,000
Profit or loss 50,000 Loss 25,000 No loss no 25,000
Loss profit profit
Combining the material and administrate costs, his/her variable cost is ` 50.
Further, assume that he/she decides to earn a profit of ` 25 on each item.
Therefore, his/her sale price is ` 75 per unit. To obtain the break-even point
(at which the entrepreneur experiences neither gain nor loss), he/she has to
estimate costs at various levels of output and the units are multiplied by
sales price. He/She attains the break-even point when the total costs are
just equal to total revenue.
From table 10.1, it is possible to understand that the entrepreneur
experiences neither gain nor loss at the output level of 4000 units at the sale
price of ` 75 per unit. In other words, he/she should either achieve sales
revenue of ` 300,000 or a sale of 4000 units at the price of ` 75 per unit.
Figure 10.2 depicts that the same data can be used to draw a break-even
chart.

Total Revenue
Sales revenue/costs in lakhs of rupees
Total Cost
4
Fixed Cost
1000 2000 3000 4000 5000

Output/sales units in 1000’c
Fig. 10.2: Break-even Chart

Figure 12.5 Break-even Chart
Figure 10.1 depicts the break-even chart. We have taken output/sales on X
axis and revenue and cost on Y axis. The intersection point of total revenue
and total cost depicts the break-even point. The line corresponding to X axis
meets Y axis at the value of 3 lakh and shows the break-even cost and
revenue. The line corresponding to Y axis meets X axis at the level 4000
and depicts the break-even output/sales.
While applying break-even pricing, a firm cannot claim as making profits just
by selling a few units or achieving a few thousands as sales revenue until it
recovers the entire fixed costs (total investment). It has to use the profit
margin to recover the fixed costs. In our hypothetical example, the
entrepreneur's profit margin is ` 25 per unit. In order to recover the fixed
cost, either he/she has to sell 4000 units or achieve a sales revenue of
` 300,000.
Break-even point can be calculated as follows:
Price–variable cost = Contribution, ` 75- ` 50= ` 25

Fixed costs ` 100,000

BEP = Contribution = ` 25 = 4000 units
Large companies in India apply break-even analysis while determining

prices. For example, Tata Engineering has achieved cash break-even for its
'Indica' model in the fiscal year ended March 2002 with a cumulative sale of
64,035 units. The company has invested ` 1,700 crore in the 'Indica' project
and has managed to achieve a cash profit situation only in the third year.
The notion of contribution (profit margin) plays a vital role in break-even
point. Higher the contribution, lower will be the break-even point and vice
versa.
10.3.4 Marginal cost pricing
In both full-cost pricing and the rate-of-return pricing, prices are based on
the total costs comprising fixed and variable costs. Under marginal cost
pricing, fixed costs are ignored and prices are determined on the basis of
marginal cost. The firm uses only those costs that are directly attributable to
the output of a specific product. A pricing decision involves planning into the
future, and as such it should deal solely with the anticipated and, therefore,
estimated revenues, expenses, and capital outlays. All past outlays which
give rise to fixed costs are historical and shrunk cost.
With marginal cost pricing, the firm seeks to fix its prices so as to maximise
its total contribution to fixed costs and profit. Unless the manufacturer's
products are in direct competition with each other, this objective is achieved
by considering each product in isolation and fixing its price at a level, which
is calculated to maximise its total contribution. There are two assumptions
behind the use of such a method - the firm is able to segregate its markets
so that it is able to charge higher price in some market and lower price in
others, and there are no legal restrictions.

4. Under ______________ method, the price is set to cover costs
(materials, labour, and overhead) and pre-determined percentage or
profit.
5. In ___________________ method, the final price of a product includes
the unit cost of the product and a mark-up as profit margin.

6. Under full-cost pricing, fixed costs are ignored and prices are
determined on the basis of marginal cost. (True/False)
10.4 Value Based and Competition Based Pricing

Today, many companies are witnessing swift changes from cost-based
pricing to value-based pricing. Value-based pricing facilitates the marketers
to develop a better insight of the following factors:
 How much those differences are really going to affect your consumer?
 How much price premium (if any) should you be able to sustain over the
competitors?
 What betterments to your product would contribute the most value from
the customers ‘perspective’?
 How should you position and promote your product in order to obtain
professional mileage?
 Value-based pricing explains the tools that customers value and use to
facilitate companies to obtain a comprehensive, coherent approach for
assessing their customer perceived value versus rival brands and
executing value-based pricing.
In the current scenario, a lot of companies have adopted value based
pricing in which they charge a fairly low price for a high-quality offering.
Value pricing states that the price must represent a high-value offer to
consumers. Let us now discuss the perceived-value pricing approach which
is based on value based pricing and focuses on the customer’s perception
or supposition about the value of a product or service.
Perceived-value pricing
Several companies apply perceived-value pricing. In this methodology, the
price is based on customer’s perceived value of a product or service. The
company have to deliver the promised value proposition, which corresponds
to its target customers. Certainly, it is significant that customers must
perceive this value. Marketers must use promotion mix to communicate
successfully and increase customers’ perception of product perceived value.
Competition-based pricing

Competition-based pricing is also identified as going rate pricing. In such

pricing approach, the costs and revenues become secondary considerations
and main focus is on competitors’ prices.
The price of company product which can be higher, lower, or same as the
nearest competitors depends on the level of product differentiation. In this
approach, prices vary frequently, though this approach helps to keep prices
stable in the industry. An important form of competition based pricing is
sealed-bid pricing.
Let us now discuss sealed-bid pricing in detail.
Sealed-bid pricing
In case where companies seal bids for jobs, competitive-oriented pricing is
common. The key base of price depends upon expectations of competitors’
price instead of rigid relation of firm’s costs or demand. In order to win the
contract, the firm must submit a lower price than the competitors. At the
same instant, the firm cannot put its price below cost without worsening its
position.

7. In ______________ pricing approach, the price is based on customer’s
perceived value of a product or service.
8. Competition-based pricing pushes the costs and revenues as
secondary considerations and the main focus is on the competitors’
prices. (True/False)
10.5 Product Mix Pricing Strategies

In various corporations where a range or line of products is sold, the price of
individual item must consider the prices of other products in the range. The
several forms of product mix pricing are as follows:
(a) Product-line pricing – In this method, the prices of different products in
a product line are being set on the basis of cost differences among
products, various features assessment by customers, and competitor’s
prices. The price steps must consider cost differences among products
in the line, various features assessment by customer, also competitor’s
prices. For example, a soap manufacturer makes two different types of
soaps. The second soap needs more labour cost but less material cost
per cake than the first soap. Also the second soap takes more overhead
than the first one. Table 10.2 depicts the specific costs per cake for both
the soaps.
Table 10.2: Product-line Cost Structure
Cost Structure Soap 1 (in `) Soap 2 (in `)
Materials Cost 2.00 1.00
Labour Cost 1.00 1.50
Overhead Cost 0.50 1.00
Full Cost (1 + 2 + 3) 3.50 3.50
Incremental Cost (1 + 2) 3.00 2.50
Conversion Cost (2 + 3) 1.50 2.50
Table 10.3 depicts the alternative product-line prices.

Table 10.3: Alternative Product-line Prices
Mark-up Soap 1 (in `) Soap 2 (in `)
Full Cost Pricing 10% 3.85 3.85
Incremental Cost Pricing 20% 3.60 3.00
Conversion Cost Pricing 90% 2.85 4.75
(b) Optional features pricing – It focuses on pricing of additional aspects

with the main products, e.g., pricing of air conditioners, personal
computers, automobiles, etc. These supplementary aspects or features
a purchaser may or may not prefer to add to the main product
purchased. The main stripped-down product holds a low price, while
additional components’ margin is higher. E.g., various computer and
auto companies keep a lower price for the basic model while for further
parts such as LCD monitor, larger RAM, power windows, power
steering, etc., are charged extra.
(c) Captive-product pricing – Products that require the use of ancillary
products are produced by certain companies e.g, razors, inkjet or laser
printers. Various types of razors are manufactured by Gillette and for
each type the company has special blades that fit a particular type of
razor. The razor price is low, however, the margins on blades are high.
Manufacturers of inkjet or laser printer sell printers at low initial price but
their ink or toner cartridges prices are higher for earning higher margins.

(d) Two-part pricing – This method is widespread among service providing

companies. For providing basic service, they charge a fixed price and a
variable usage rate. E.g., a monthly fixed price is charged by telephone
service providers and variable per call charges for calls beyond a
specific number.
(e) By-product pricing – It is setting a price for by-products for making
main product’s price more competitive. In this, the producer will seek a
market for the by-products and usually accept any price that is higher
than the cost of storing and delivering them. E.g, processed meat meant
for individual consumption produces by-products, which can be destined
for cats or dogs. The manufacturer of meat may seek market for these
by-products and might accept price for them which covers storage and
delivering
(f) Product-bundling pricing – In this pricing, a bundle combining several
products is being offered at a reduced price. The theatres and sports
teams where season tickets are sold at less than the cost of single
tickets popularly use this type of pricing.

9. Which of the following refers to the pricing of additional features with
the main products?
(a) Two-part pricing
(b) Optional features pricing
(c) By-product pricing
(d) Captive-product pricing
10. Two-part pricing charges a fixed price for providing the basic service
plus a variable usage rate. (True/False)
11. ________________ is setting a price for by-products in order to make
the main product’s price more competitive.
10.6 Adjusting The Price Of The Product

Companies are required to adjust their base prices due to fierce competition
and also based on the situations. The various price adjustment options
adopted by the companies may be listed as follows:
 Psychological pricing

 Discounts and allowances

 Geographic pricing options
 Predatory pricing
Let us now analyse the price adjustments in detail.
1. Psychological pricing
The concept of psychological pricing states that certain prices are more
appealing than others. The psychology of prices is considered instead of
simple economics. The price is applied to say something regarding the
product.
One special form is reference pricing in which there are prices that a buyer
carries in his/her mind and considers that when buying a given product. As a
measure of quality, image pricing or prestige pricing is used.
The practice of odd pricing is choosing prices such as $19.95, $.99, or
$99.99. Prior to the usage of cash register, odd pricing was required to force
clerks to make correct changes. Currently, the usage of odd pricing is to
emphasise low prices. It puts the emphasis on the first digit. The inference is
that the retailer is trying to protect consumer’s money. High-end retailers like
Nordstrom choose price in even numbers, which provide an aura of quality
to the product.
2. Discounts and allowances
For rewarding customer responses e.g., paying early or promoting products,
the discount and allowance pricing has an effect of reducing prices.
Everyday low pricing is a recent pricing issue, where the retailer charges a
constant, low price for all times, with no short-term price discounts.
Everyday low pricing trend is being led by Wal-Mart.
 Price discounting is a flexible pricing policy.
 Price reductions to buyers who pay their bills promptly are known as
cash discounts. For instance would be 2/10, net 30 where a 2%
discount is given if the bill is paid within 10 days, if not, the whole bill is
due in 30 days without penalty.
 Due to economies of purchasing huge quantities, quantity discounts are
given. The cost savings are passed on to the purchaser.

 Price reductions to buyers who buy merchandise or services out of

season are known as seasonal discounts. E.g., coats purchased in
summer or swimsuits purchased in winter.
 Price reductions allowed on the price of new product, when an old used
item is given as a part of the transaction is known as trade in
allowances. E.g., when we purchase a new car by giving our old car to
the dealer, we get a discount on the price of the new car.
 In order to promote their products, the price paid by manufacturers to
retailers for an agreement to feature the manufacturer’s products in
some way is known as promotional allowances. In promotional pricing,
the company has to decide on various issues such as special-event
pricing, cash rebate, low interest financing, longer terms of payment,
warranties, service contracts, psychological discounting, and loss-leader
pricing. To attract customers to the store with a hope that they will buy
other items at normal mark-up, certain products are priced lower. This is
known as loss reader pricing.
3. Geographic pricing options
Geography impacts the price in which the company decides on how to price
the distant customers. Geographical pricing options include various pricing
options which are as follows:
 Free on board
 Uniform-delivered pricing
 Averaging method
 Zone pricing
 Basing-point pricing
 Freight-absorption pricing
Let us now study the options in detail.
 Free on board – It is a geographical pricing strategy where sellers are
required to deliver goods on board a carrier or ship selected by the
purchaser. The purchaser pays the actual freight from the factory to the
destination. Supporters believe that this technique is the fairest way to
assess freight charges since the customer picks up its own cost.
 Uniform-delivered pricing – It is the geographical pricing strategy
under which the company charges the same price plus freight to all
customers, despite their location. This is the reverse of free on board

pricing. It is fairly easy to administer this method and advertise

nationally.
 Averaging method – It facilitates distant customers but sometimes
discriminates against local or close customers.
 Zone pricing – It is the geographical pricing strategy in which different
areas pay different prices on freight but all customers within the same
area pay the same freight charges.
 Basing-point pricing – All purchasers are charged freight from a
specified billing location.
 Freight-absorption pricing – All shipping costs are paid by the seller
for getting desired business.
4. Predatory pricing
The illegal practice of forcing competitors out of business by setting
unreasonably low prices is known as predatory pricing. Predatory pricing
is covered by the Sherman Act and the Federal Trade Commission Act in
U.S.A..
The aim of reducing competition through price discrimination is forbidden.
Different prices are being charged by marketers in case of cost differentials
justified prices; representing a good-faith effort to match competitors’ prices
instead of reducing competition; and indicate changing market conditions.
Deceptive pricing which is the pricing that misleads and deceives
customers by hiding true or final price for the product is being forbidden by
the Federal Trade Commission Act. Examples include advertising a price
lower than a fraudulent ‘regular’ price and the bait and switch method, in
which one product is priced very low to attract customers to a store and later
they are pressured to purchase a more expensive product. The misleading
promotion of a product at a bargain price when bought with the same or
another product is also an example of deceptive pricing.
Different countries are having different laws and regulations that govern
pricing. The country’s currency value is constantly changing, resulting in the
exchange rate for a product to vary. A product may become less attractive in
a local market due to currency fluctuations, but more attractive in a foreign
market. The practice of pricing products in host countries below the cost or
less than their price in the marketer’s home country is known as Dumping.
Almost every country outlaws dumping.

12. Which of the following are price reductions to buyers who pay their bills
promptly?
(a) Quantity discounts
(b) Seasonal discounts
(c) Promotional allowances
(d) Cash discounts
13. Predatory pricing is the illegal practice of setting unreasonably low
prices to force competitors out of business. (True/False)
10.7 Initiating and Responding to the Price Changes

One of the key pricing decisions revolves around initiating price change and
responding to price changes. We will discuss the issue of initiating a price
change by analysing the reasons for such a change.
10.7.1 Initiating a price change
The marketing manager initiates a price change for various reasons. These
reasons include a change in cost or an attempt to bring about a change in
cost by changing the overall volume; a desire to increase market share; a
desire to penetrate a new market or reach a new level of the existing
market; an attempt to use a price change in one product to increase sales of
another one in a product line; a change in the general market situation, and
an attempt to discourage a competitor or competitors from entering the
market. The marketing manager should ask the following questions before
initiating a price change.
1. If we reduce the price, how many more physical units must we sell to get
the same or more gross or net profit? Can we sell them?
2. If we increase the price, can we sell enough physical units to gain the
same or higher cash inflow or profit?
3. Is price the primary factor influencing customer patronage for the
product, or can we reach our goal more cheaply by manipulating some
factors other than the price?
4. If we change the price, will the competitors follow suit or retaliate by
improving upon our change?

5. If it is a price cut, which we intend, are we a price leader that competitors

will feel they must follow but not exceed our cut? If we are not, how
strong is our financial reserve?
6. What effect will a price change for this product have on customer‘s
goodwill and our sales of other products?
In all pricing situations, the essential task of a businessman is to predict the
reactions of customers or potential consumers to their price, the reaction of
their trade channels to different alternative prices, and competitor's reaction
to the pricing moves.
10.7.2 Reacting to a competitive price change
The marketing manager should try to find out the reasons for competitor's
price changes. If he/she can figure out what objective a competitor is trying
to achieve by a price change, he/she can plan well and decide his/her
response strategy. He/She should also take note of the implications of
competitor's increase as well as decrease in price levels.
If it is an increase then he/she stands to lose only possible additional profits
and may gain physical volume sitting tight with his/her present price. If it is
a cut, he/she stands to lose volume, market position, and profits. If it is a
short-run move, to clear out an overstock, for example, he/she can probably
ride it out without drastic action. If the trade is highly price conscious, the
marketing manager cannot wait to see what happens and should react
quickly. If the competitor outweighs heavily on financial strength, the firm
may not be able to afford the risks of a price war with him/her, although
he/she probably will not take drastic action if the marketing manager merely
meets his/her new price. He/She should try to find out answers to the
following questions before responding to a competitor's price change.
1. Why did the competitor change his/her price?
2. Is the competitor's change an increase or decrease in price?
3. Is this change a long run or a short run affair?
4. How price conscious is the trade with respect to the product?
5. If we allow ourselves to be at a price disadvantage on this product, will
this affect the sale of our other products?
6. If we meet or go below the competitor's new price, what will he/she do
about it?

7. How strong is the competitor financially, production-wise, and market-

wise in comparison to our firm?
8. If we do not meet a competitor's new price, how much physical volume
are we apt to lose and what will this do to our costs?
9. How much is the competitor making of his/her price change publicity-
wise and sale promotion-wise?

14. In all pricing situations, the prediction of reactions of customers or
potential consumers to his/her price and competitor's reaction to the
pricing moves is not essential. (True/False)
15. Marketing managers are required to take note of the implications of
competitor's increase as well as decrease in price levels. (True/False)
10.8 Summary
 Price is the exchange value of a product. It is the amount of money or
other products needed to acquire a product.
 A firm's price decision is influenced by many internal factors (production,
pricing policy, pricing objectives, and marketing strategy) and external
factors (customers, suppliers, middlemen, competitors, and government
regulatory agencies).
 Under cost-plus method, the price is set to cover costs and pre-
determined percentage or profit. Mark-up price is the simplest method of
setting the price of a product. The firm achieves break-even when the
total revenue is just equal to the total costs. Under marginal cost pricing,
fixed costs are ignored and prices are determined on the basis of
marginal cost.
 Value pricing says that the price should represent a high-value offer to
consumers. Competition-based pricing pushes the costs and revenues
as secondary considerations.
 Competition has forced companies to adjust their base prices according
to the situations.

 One of the key pricing decisions revolves around initiating a price

change and responding to price changes.
10.9 Glossary
By-product pricing: It refers to the pricing of by-products for the
consumers seeking to purchase the by-products.
Cash discount: These are price reductions based on promptness of
payment that are used to overcome bad credit risk.
Dumping: In international trade, it is the practice of pricing products less in
host countries than their price in home country.
Going rate pricing: In this method, the firm adjusts its own pricing policy to
the general pricing structure in the industry.
Mark-up pricing: When a retailer follows the practice of fixing the price
such that it covers the costs and leaves a reasonable profit margin, it is
known as a mark-up policy.
Product-bundling pricing: Sellers often bundle their products and features
at asset price.
Quantity discount: Quantity discounts are price reductions related to the
quantities purchased as it depends on the size of the order, measured in
terms of physical units of a particular commodity.
Reference pricing: Pricing strategy in which prices are set as per the
customer’s perception and consideration while glimpsing at a given product.
Sealed-bid pricing: In this method, the firms submit bids in sealed covers
for the price of the job or the service. This is based on firm’s expectation
about the level at which the competitor is likely to set up prices rather than
on the cost structure of the firm.

1. Discuss the factors that influence price decisions.
2. Write a note on cost based pricing.
3. Explain value based and competition based pricing.
4. How should organisations adjust the prices of their product?
5. Write a note on product mix pricing strategies.

10.11 Answers

1. Fixed costs
2. True
3. True
4. Cost-plus or full-cost pricing
5. Mark-up price
6. False
7. Perceived-value
8. True
9. b
10. True
11. By-product pricing
12. d
13. True
14. False
15. True
Terminal Questions
1. A firm's price decision is influenced by many internal (production, pricing
policy,) and external factors (customers, suppliers, middlemen). For
2. Cost-oriented pricing methods include cost-plus or full-cost pricing,
mark-up price, target return price (break-even pricing), and marginal cost
pricing. For more details, refer section 10.3.
3. Value pricing means that the price should represent a high-value offer to
consumers. Competition-based pricing is also called going rate pricing
and pushes the costs and revenues as secondary considerations. For
4. Organisations adjust the prices of their product by psychological pricing,
discounts and allowances, geographic pricing options, and predatory
pricing. For more details, refer section 10.6.
5. Product mix pricing may take forms of product-line pricing, optional
features pricing, captive-product pricing, two-part pricing, by-product

pricing, and product-bundling pricing. For more details, refer

section 10.5.
10.12 Case Study
Procter & Gamble Tries New Pricing Strategy

Seven consumer goods firms, including Kraft, General Food, Quaker
Oats Co., and Colgate-Palmolive are experimenting with pricing strategies
that appear to achieve the same goals as everyday low pricing. But most of
these firms deny they are initiating everyday low pricing strategies. Not to be
confused with everyday low pricing by retailers like Wal-Mart Stores, the
strategy used by manufacturers, eliminates the varying prices they offer
retailers as a part of trade promotion deals. Proctor & Gamble, however, did
use everyday low pricing, when it reduced the listed prices on many of its
best-selling brands.
Fig. 10.3: P&G Products

(Source: http://indolinkenglish.files.wordpress.com/2011/07/0090-
procterandgamble.jpg)
The goal of Proctor & Gamble’s everyday low pricing strategy is to give
better value to consumers who have suffered through a recession. But
although the strategy is designed to give greater value to consumers, many
retailers have openly protested. Vice President of corporate affairs by Big Y
Foods said, “We are not happy with P&G’s everyday low pricing
programme. It takes away our flexibility as a retailer. Basically, P&G is

saying we have one option – take it or leave it. We are therefore leaving it
when we can.”
Most warehouse clubs and mass merchandisers prefer to everyday low
pricing. On the other hand, many supermarket chains, including Jewel Food
Stores and Supermarket General’s Path mark, have publicly or privately
expressed dissatisfaction regarding Proctor & Gamble’s policy. Those
retailers who operate with a “high-low” prices with frequent specials are
particularly upset.
Proctor & Gamble has felt the pressure but says it will not back out. The firm
believes that, the programme will benefit everyone – Proctor & Gamble,
retail stores, and consumers – because it results in lower operating costs
and lower prices. In theory, the strategy frees trade promotion money for
additional promotional spending directed toward consumers. Proctor &
Gamble put the Tide and Cheer detergent brands under the everyday low
pricing programme; the entire laundry detergent line is now under the plan.
Most other packaged goods marketers are watching Procter & Gamble and
silently applauding its efforts. They also favour everyday low pricing as an
alternative to expensive trade promotions, but do not have the resources to
weather the potential backlash from retailers. Many companies are testing
pricing programmes with different names but all designed for the same
reason, to reduce trade promotion spending and increase promotion to the
final consumer. Meanwhile, the entire industry is hoping that P&G is
successful.
1. Study the case and determine the significant issues in the case.
(Hint: The significant issue is low pricing strategy by P&G.)
2. Examine the pricing practice of P&G. Do you think it can spoil P&G’s
relation with retailers and harm the company in the long-run?
(Hint: No, the pricing strategy of P&G does not affect the relation with
retailers as in the long run it will reduce promotional operations
expenses.)
(Source: Marketing, 2nd ed. by Steven J. Skinner)
References:


 Paul, P. J., and Jr. James, D.H. (2010). Marketing Management:
McGraw-Hill/Irwin.
E-References:
 http://marketingteacher.com/lesson-store/lesson-pricing.html-
 http://www.netmba.com/marketing/pricing/-
 http://tutor2u.net/business/gcse/marketing_pricing_strategies.htm

Unit 11 Distribution Management

Structure:
11.1 Introduction
Objectives
11.2 Need for Marketing Channels
11.3 Decisions Involved in Setting up the Channel
11.4 Channel Management Strategies
Selection of channel members
Managing and motivating channel members
Evaluating channel members
Modifying channel arrangements
11.5 Introduction to Logistics Management
11.6 Introduction to Retailing
Characteristics of retailing
Functions of retailing
Types of retailing
11.7 Wholesaling
Functions of wholesalers
Types of wholesalers
11.8 Summary
11.9 Glossary
11.11 Answers
11.12 Case Study
11.1 Introduction
In the previous unit we dealt with the important concepts of pricing. We
discussed the various factors that affect price determination and the concept
of value based and competition based pricing and adjusting the price of
product with respect to prevailing conditions. We also analysed product mix
pricing strategies, adjusting the price of the product, and initiating and
responding to the price changes. Once the product is developed and priced,
the marketing manager should plan to develop distribution strategy and
design distribution channels to reach customers.

Every marketing activity starts and ends with the customer. The customer is
the ultimate target for a marketer. The availability of the product in the
market depends on the efficacy of the distribution channel. Therefore, the
distribution channel plays a significant role in the marketing activities. The
success of a company’s marketing effort depends upon its command on the
distribution network. The company can reach customers either directly
through its own sales force (called direct marketing) or through a set of
intermediaries and channel members (called indirect marketing). Each of
these alternatives has advantages and disadvantages.
In this unit we will discuss how the company selects channel members,
designs distribution channels, and decides what function each member of
the channel performs in the market place. Management of distribution is
called third ‘P’ (place) in marketing. This involves processes to place the
finished goods from a manufacturer to a customer for final consumption and
usage. This encompasses flow of goods and ownership from manufacturer
to the customers.
In this unit, we will understand that it is significant in marketing to make
goods available at customer points not only in good numbers but also at the
right time. Here, right time means the time when the customer is ready to
buy the product. We will also discuss the significant aspects of logistics,
retailing, and wholesaling and their functions in distribution management in
order to make the goods easily available to the nearest place of consumer
accessibility.
The following case-let will provide better understanding of the distribution
management.
Case Let
Deming Prize Winner – The TVS Motor Company Ltd.

The TVS Motor Company is a part of the TVS group operating business in
the two-wheeler market for more than two decades since 1980. It’s annual
turnover has exceeded over ` 1800 crores and it offers a range of two-
wheelers including motor cycles, scooters, mopeds etc. As on date, it has
more then 5 million happy customers. In the year 1980, TVS rolled its first
TVS 50 on the Indian roads. TVS mopeds are very popular among the

users, particularly the lower income segment. Today, the moped segment
is looking not only for low priced vehicles but also for a good combination
of other elements such as power, mileage, low maintenance and
reliability.
Fig. 11.1: TVS Motor Bike

(Source: http://newsmotorcycle.com/wp-content/uploads/2011/10/TVS-TVZ-
Max4-R-Indias-new-motorcycle-2011.jpg)
TVS formed a joint venture with the Japanese Suzuki Motor Company in
1983 and it was the first company to launch 100 cc motor cycles in the
Indian two–wheeler market. TVS-Suzuki was a well-known brand in the
motorcycle segment. However, the two companies (joint venture partners)
parted ways in Sep’2001. TVS’s recent market launching are TVS victor
and TVS Fiero.
TVS is the third Indian company won the “Deming prize” which has been
instituted by the Union of Japanese Scientists an Engineers and TVS
motor company is the world’s first motorcycle company to be awarded the
prize. As for the TVS group Deming prize has been awarded for the third
time. Sundaram Clayton Ltd., and Sundaram Brake Linings Ltd have been
already awarded the “Deming Prize”.
What is this Deming Prize?
Deming Prize is an ultimate confirmation of TVS’s commitment to quality
control. The Quality of TVS mopeds and other vehicles- TVS Scooty, TVS
Victor, TVS Fiero etc. are the functional value to the customer and the two
important factors which place their vehicles at the top are right products
and service network. Deming Prize is a recognition for TVS’s quality
products.
To counter competition and expand market, TVS considers right products,
good service network and hire-purchase facilities. It is continuously

upgrading its service network to meet customer needs and its market
research enables it to improve product quality and relevant features of
product.
TVS’s operating philosophy is to provide fulfillment and prosperity for
employees, dealers and vendors apart from serving the customers. It
believes that the business should be a win-win for all – employees,
dealers, vendors and shareholders.
(Source: www.tvsmotors.co.in)
Objectives:
 recognise the need for marketing channels
 describe the decisions involved in setting up the channel
 explain the channel management strategies
 describe the concept and functions of logistics management
 identify the characteristics and function of retailing
 analyse the concept of wholesaling and types of wholesalers
11.2 Need for Marketing Channels

A marketing channel is a system of relationships existing among businesses
that participate in the process of buying and selling products and services.
Channel intermediaries are those organisations, which connect the
manufacturer with the customers and help in the distribution of the product.
The intermediaries are involved in taking physical ownership of the product,
collecting payments, and offering after sales service. All these activities
involve large amount of risk and producers should suitably compensate the
channel members for these activities.
The arena for competition in a free market system is the marketing channel.
It is the marketing channel that determines the success or failure of an
enterprise or of an individual initiative.
Functions of marketing channels

A marketing channel moves goods from producers to consumers. It
overcomes the major time, place, and possession gaps that separate goods

and services from those who use them from those who make them.
Marketing channel members perform many functions: buying, carrying
inventory, selling, transporting, financing, promoting, negotiating, conducting
marketing research, and servicing.
Table 11.1 depicts the functions of marketing channels and a smooth
management of these functions will enable products to flow from producers
to consumers in a timely and efficient manner.
Table 11.1: Functions Performed by Marketing Channels
Functions Description
Buying Purchasing a broad assortment of goods from the
producer or other channel members.
Carrying Inventory Assuming the risks associated with purchasing and
holding an inventory.
Selling Performing activities required for selling goods to
consumers or other channel members.
Transporting Arranging for the shipment of goods to the desired
destination.
Financing Providing funds required to cover the cost of channel
activities.
Promoting Contributing to national and local advertising and
engaging in personal selling efforts.
Negotiating Attempting to determine the final price of goods and the
terms of payment and delivery.
Marketing Research Providing information regarding the needs of customers
(Information)
Servicing Providing a variety of services, such as credit, delivery,
and returns.

1. Channel intermediaries are the organisations, which connect the
manufacturer with the customers and help in the ____________ of the
product.
2. A marketing channel moves goods from consumers to producers.
(True/False)

11.3 Decisions involved in Setting up The Channel

The most important task in channel management is the design of an
effective and efficient channel for the smooth flow of products, titles,
payments, and information and promotion programmes. A systematic
approach should be followed for designing a distribution channel by
analysing the demands of customers.
A typical channel design decision involves the following steps:
1. Analysing customer’s desired service output levels
2. Establishing channel objectives
3. Identifying major channel alternatives
4. Evaluating the major alternatives
Let us discuss each of these steps in detail.
Analysing customer’s desired service output level

Analysing the customer’s service output level is a difficult task because of
two reasons. First, the expectations of each segment will vary from one
another and second, the product-market situation will vary for each of the
market segments. The marketer needs to understand the service output
levels desired by the target customers. The number of products in each
product line and variety of sub brands available in the marketing channel
helps the customers to prefer a channel with larger assortments. Customers
will prefer channels, which provide them multiple services like financing and
credit, faster delivery, installation, repair, and maintenance. The greater the
service back up, the higher is the chance of preference of the channel by
consumers.
Establishing objectives and constraints

After analysing the service output level expectation of consumers, the next
task is to establish the objectives and constraints. The channel objectives
should be explained in terms of desired service output expectations from
each of the channel members. The objectives of channel design are heavily
dependent upon the marketing and corporate objectives. The objectives
include:
 Availability of product in the target market
 Smooth movement of the product from the producer to the customer

 Cost effective and economic distribution

 Information communication from the producer to the consumer.
Channel objectives will vary depending on the nature and characteristics of
the product. For a consumer perishable, the channel has to be short and
inventorying function. For non-standardised and customised products, the
company prefers to have direct marketing network than indirect distribution.
Identification of major channel alternatives

Once the desired service output level is decided and objectives and
constraints of designing the channels are decided, the marketing manager
should identify alternative channels. While evaluating channel alternatives,
there are three issues to be addressed. They are the overall business
environment, types and number of intermediaries needed, and the terms
and responsibilities of each channel member.
Types of intermediaries
Marketing manager should identify different types of intermediaries to carry
out their channel work. The common types of intermediaries include
company sales force, middlemen, agent or broker, wholesaler, retailer,
distributor, dealer, and Carrying and Forwarding (C&F) agents.
Number of intermediaries
Marketing managers should decide how many intermediaries they should
use for distributing their products. The decision on the number of
intermediaries should largely depend on the distribution strategy followed by
the firm. There are three kinds of distribution strategies. They are:
 Intensive distribution – A channel strategy that seeks to make
products available in as many appropriate places as possible.
 Selective distribution – A channel strategy that limits availability of
products to a few carefully selected outlets in a given market area.
 Exclusive distribution – An extreme case of selective distribution in
which only one outlet in a market territory is allowed to carry a product or
a product line.
Evaluating major channel alternatives

Once the list of alternative channels is selected, the marketing manager
should evaluate each channel alternative to arrive at a final decision. The

channels should be evaluated on the basis of three criteria - economic

criteria, control criteria, and adaptive criteria.

3. Establishing channel objectives is the ___________ step of channel
design decision.
(a) First
(b) Second
(c) Third
(d) Last
4. For a consumer perishable, the channel has to be short and
inventorying function. (True/False)
5. A channel strategy that limits availability of products to a few carefully
selected outlets in a given market area is known as ….……………..
distribution.
11.4 Channel Management Strategies

Once the channel is selected after careful evaluation, the channel manager
should develop channel management strategy for the selected channels.
The channel management decisions involve selecting, training, motivating,
evaluating channel members, and modifying channel arrangements.
Figure 11.2 depicts the different channel management decisions.
Selecting Channel Members
Training Channel Members
Motivating Channel Members
Evaluating Channel Members
Modifying Channel Arrangements
Fig. 11.2: Channel Management Decisions
Let us now discuss the steps in channel management decision in detail.

11.4.1 Selecting channel members

The ability to recruit and use intermediaries varies from producer to
producer. The elements that managers examine as they define channel
strategies can be grouped into market factors, product factors, and producer
factors.
Market factors
Analysing and understanding the target market is the first step in selecting
marketing channels. The several factors that an analysis of the market
should explore, ranging from customers to types of competitive presence.
Product factors
Even products that end up at the same retail location may need different
intermediaries earlier in the channel. The product related factors that
influence the channel selection decision include lifecycle, product value,
product size and weight, consumer perceptions, etc.
Producer/Manufacturer factor
The producer factors influencing channel selection includes company
objective, company resources, and desire for control.
11.4.2 Managing and motivating channel members
Training channel members

In order to manage channel members, an important task is to train the
channel members. The training programmes can be on selling skills,
business processes, and other soft skills required to serve the end
customer. The training programmes should cover customer contact and
interaction management, selling skills, relationship building skills, and
business development skills. The company should undertake a continuous
training calendar for its employees.
Motivating channel members

Channel motivation involves developing compensation management
programmes and also giving non-fringe benefits for building long-term
loyalty. The idea of developing a channel motivational programme is to build
their capability to perform better and take additional responsibility. The most
challenging aspect is gaining intermediaries’ cooperation for which one
needs to use positive motivational tools like higher margins, cash discounts,

quantity discounts, cooperative advertising, advertising allowances, and

point of purchase displays. Many marketing managers also use negative
tools, like slowing down of distribution and reduction in cash allowance and
credit period to threaten them to commit for higher sales.
However, with the changing competitive landscape, marketers are more
towards relationship building through Partner Relationship Management
(PRM) programmes, permitting vendor integration with organisational supply
chain system, and motivating intermediaries for quality function deployment
(QFD) in their business processes. Under PRM initiatives, companies have
started setting up departments known as distributor relationship
management to take care of the evolving needs of customers and
intermediaries. Today, companies are dealing with distributors as customers
and planning joint merchandising goal setting, inventory management,
space and visual merchandising plans and retail sales training programmes
with them. The company must motivate the channel members to realise
their potential.
11.4.3 Evaluating channel members

The next task is to evaluate the performance of channel members on a
periodic basis. The marketing manager may set up standard evaluation
benchmarks like sales quota, market share, average inventory carrying
level, customer response and delivery time, usage and management of
unused, unusable, and damaged goods, co-operation in sales promotion
and, channel employee training programmes organised by the company.
While the company should reward the exceptional, it should also guide,
goad, re-motivate, and terminate the underperformers. It should ensure that
the intermediaries are able to achieve the Economic Order Quantity (EOQ)
in their transactions with the company.
11.4.4 Modifying channel arrangements

Management of distribution channel is a continuous and dynamic process.
Marketing managers should follow a six-step approach to keep their
distribution strategy perfect at any point of time.
 The marketing manager should research customer’s value perception,
needs, and desires regarding service expected from the channel
members.

 Compare and contrast the existing distribution system of the company

with its competitors with respect to customer requirements.
 Find out the service output gaps that need immediate attention for
correction.
 Identify the organisational and market based constraints that will limit
possible corrective actions.
 Develop a new or modified channel solution.
 Implement and monitor the modified distribution channel.

6. Channel motivation involves developing compensation management
programmes and also giving non-fringe benefits for building long-term
loyalty. (True/False)
7. Channel modification is the______________ decision in channel
management.
(a) Initial
(b) Last
(c) Primary
(d) Secondary
8. The training programmes for channel members should cover customer
contact and interaction management, selling skills, relationship building
skills, and ______________ skills.
11.5 Introduction to Logistics Management

Logistics has always been a central and essential feature of all economic
activities. The concept of logistics as an integrative activity in business has
developed within the last twenty years.
Logistics management is a process of strategically managing the movement
and storage of materials, parts, and finished inventory from the supplier
through the firm and on to the customers.
Logistics is thus concerned with the management of physical distribution of
materials. It begins from sources of supply and ends at the point of
consumption. It is, therefore, much wider in its reach than simply a concern
with the movement of finished goods – a commonly held view of physical
distribution.
Logistics deals with all the activities that facilitate product flow from the point
of raw material acquisition to the point of final consumption. It also facilitates
information flow that sets the production in motion for the purpose of
providing adequate levels of customer service at a reasonable cost.
Major logistics functions

Logistics management involves two functional issues. They are:
 Movement of raw materials to the plant known as physical supply or
material management.
 Flow of finished products from the plant to the customers, known as
physical distribution.
Logistics management functions can be grouped as primary and secondary
activities.
Table 11.2 depicts a list of logistics functions which are categorised under
the head of primary activities and secondary activities.
Table 11.2: Major Logistics Functions
Primary Activities Secondary Activities
1. Transportation 5. Product Packaging
2. Warehousing 6. Product Handling
3. Order Processing 7. Acquisition
4. Inventory Maintenance 8. Product Scheduling
9. Information Maintenance
Physical distribution is the process of making the end product reach the
customers and it encompasses all the activities in the physical flow of
products from producers to customers. To provide the appropriate level of
customer service, physical distribution managers must make decisions
concerning warehousing, inventory management, and control and
transportation system.

9. Logistics is concerned with the management of __________
distribution of material.
10. Logistics management functions are grouped as significant and non-
significant activities. (True/False)

11.6 Introduction to Retailing

Retailing is the final connection in the marketing channel that brings goods
from manufacturers to consumers. In other words, retailing is the
combination of activities involved in selling or renting consumer goods and
services directly to ultimate consumers for their personal or household use.
In addition to selling, retailing includes different diverse activities like buying,
advertising, data processing, and maintaining inventory. Retailing is the final
stage in marketing channels for consumer products. Retailers provide the
important link between the producer and the ultimate consumer.
11.6.1 Characteristics of retailing

Retailing is the set of business activities that adds value to the products and
services sold to consumers for their personal or family use. It is responsible
for matching supplies of manufacturers with the demand of consumers. The
retailer performs many activities like anticipating and forecasting consumer
requirements, developing an ideal assortment of products, acquiring and
processing marketing information, bulk breaking to suit individual customer
requirements, and sometimes performing the financing function.
Retailing differs from marketing in the sense that it refers to only those
activities, which are related to marketing goods and/or services to final
consumers for personal, family, or household use. Marketing, however, is an
integrative process of planning and executing the conception, pricing,
preservation, and distribution of ideas, goods, and sources to create
exchanges that satisfy individual and organisation objectives.
Retailing is an intrinsic part of our daily lives. We cannot survive in a mass
produced, mass distributed, and mass consumed world without retailing. A
strong retail network provides easy access to a variety of products, gives
freedom of choice to consumers at one point, and augments higher levels of
consumer service.
There can be different kinds of retailing formats depending on their size,
number of lines, merchandise product policy, nature of promotion, and
expense control measures.
11.6.2 Functions of retailing
In general, retailers perform four distinct functions. They participate in the
sorting process by collecting an assortment of goods and services from a
wide variety of suppliers and offer them for sale. They provide information to
consumers advertising displays and signs and sales personnel. Marketing
research support is given to other channel members. They store
merchandise, mark prices on it, place items on the selling floor, and
otherwise handle products. Generally, they pay suppliers for items before
selling them to final consumers. They complete transactions by using
appropriate store locations and hours, credit policies, and other services.
Figure 11.3 depicts the four distinct functions of retailing which are being
performed by the retailers.
Collect product assortment

and offer them for sale
Provide information
Retailers
Mark prices and pay for goods
Conclude transactions with

final consumer
Fig. 11.3: Function of Retailing
11.6.3 Types of retailing

There are various types of retail formats seen in the Indian retail
environment. They can be listed as follows:
Mom and pop stores and kirana stores

Mom and pop stores are the traditional independent stores, which are
spread across the country and cater to a large chunk of population. The real
growth in Indian retailing is happening in these kinds of stores. Such stores
are found everywhere in India and mostly in small towns in India.
Department stores
These kinds of stores are found in U.S.A. Examples of such stores include
JC Penney, Sears, and Montgomery Ward that dominate malls and
downtowns. A department store must have at least 2500 square meters of
space. It must offer a product range that is both wide and deep in several
product categories.

Discount stores
These are big stores like Wal-Mart, which is the biggest retailer in the world.
These big stores achieve economy of scale and hold substantial power in
the market. Their capacity and technology usage are so high that they
control more of the marketing network than the manufacturer.
Category killers
These retailers dominate one area of merchandise like sports goods, office
depots, etc. These category killers buy such a huge quantity that they can
offer prices at abysmally low levels, which even manufacturers cannot
match.
Specialty stores
These stores include Body Shop, Crate and Barrel, and Victoria Secrets.
These stores concentrate on one type of merchandise and offer in a manner
that makes it special. Some of these stores are high-end stores like
Tiffany’s. Many of these stores also cater to price conscious customers.
Superstores and hyper markets

These stores are situated outside traditional shopping centres and enjoy
greater accessibility by car, greater economies of scale, and the benefits of
being built for a special purpose. They become anchor stores of retail
warehouse parks and of many partnership schemes such as Spencer-
Tesco. While a super store is around 25000 square feet of selling space, a
hypermarket has around 50000 square feet of selling space. These are
large stores primarily selling groceries in some countries.

11. Retailing is responsible for matching supplies of manufacturers with the
demand of consumers. (True/ False)
12. ____________ retailers dominate one area of merchandise.
(a) Category killers
(b) Department stores
(c) Discount stores
(d) Kirana stores
13. A department store must have at least –––––––– square meters of
space.

11.7 Wholesaling
Wholesaling is concerned with the activities of those persons or
establishments which sell to retailers and other merchants, industrial,
institutional, and commercial users, but who do not sell in significant
amounts to ultimate consumers.
11.7.1 Functions of wholesalers
According to Harry G. Miller, effective functioning of wholesalers as a part of
marketing channel, especially in developing countries, contributes directly to
the economic potential and growth by providing links to an extended market
base.
Table 11.3 depicts the various functions performed by the wholesaler under
the two main categories i.e., the function for producers and function for
customers.
Table 11.3: Functions of Wholesaler
Functions for Producers Functions for Customers
Market Coverage Product Availability
Sales Contacts Assortment Convenience
Inventory Holding Bulk-Breaking
Order Processing Credit Facility and Finance
Market Information Customer Service
Customer Support Technical Support
The functions performed by wholesalers for producers consist of market

coverage, sales contracts, inventory holding, order processing, market
information, and customer support. The functions performed by wholesalers
for customers consist of product availability, assortment convenience, bulk
breaking, credit facility and finance, customer service, and technical support.
11.7.2 Types of wholesalers

There are many different kinds of wholesalers who differ in product
categories handled as well as in specific marketing functions performed.
The three basic types of wholesale institutions - merchant wholesalers,
agent wholesalers, and manufacturers’ sales branches and offices are
shown in Table 11.4.

Table 11.4: Types of Wholesalers

Merchant Wholesalers Agents Manufacturer’s Sales
and Branch Offices
Full Function or Service Manufacturer’s Agent Sales Offices
Wholesalers
Limited Function Service Brokers Branch Offices
Wholesalers
Commission Merchants
Selling Agents
Auction Companies
Let us now study the types of wholesalers in detail.

 Merchant wholesalers – Merchant wholesalers take ownership of
goods in which they deal. Merchant wholesalers are independently
owned; separate from suppliers on one hand and from the retailers on
the other hand. Merchant wholesalers are of two general classes. They
are:
 Full function or service wholesalers – This type of wholesalers is also
referred to as a distributor or a jobber. Generally, this type of
wholesaler specialises in a narrow range of goods. The extent of
product line specialisation depends on the particular needs and
wants to the wholesalers’ target market by taking ownership of the
products into account.
Full function wholesalers, through the physical possession flow,
maintain inventories of their product line. From these stocks,
customers’ orders are filled and delivered. Personal selling,
advertising, and sales promotion are some of the ways in which
these wholesalers perform the promotion function in the marketing
channel.
 Limited function wholesalers – These merchant wholesalers perform
only some of the functions typically associated with wholesaling. The
more common limited function wholesalers are cash and carry
wholesalers, drop shippers, track wholesalers, mail order
wholesalers, and producers, retail co-operatives, and rack jobbers.

 Cash and carry wholesalers offer their small business customers

no credit or delivery. They generally operate in small business
markets.
 Drop shippers do not take possession of the goods they handle.
Natural resources like coal are typically marketed through drop
shippers. Truck wholesalers perform limited functions because
their inventories are carried on their trucks. They provide their
customers with a high degree of location convenience.
 Mail order wholesalers operate similar to mail order retailers.
These wholesalers serve the business, governmental, and
institutional markets.
 Producers and retail co-operatives and rack jobbers are
independent farm producers who band together to market their
output jointly and to buy the farm implements and supplies at
quantity discounts.
 Agent wholesalers – They are primarily involved in the buying and
selling of goods and services. They typically negotiate sales as
representatives of other firms and do not take title to merchandise. They
also participate in the collection of market information, promotion, and
ordering. Agents receive a commission for performing these functions.
The different types of agents are manufacturers’ agents, brokers,
commission merchants, selling agents, and auction companies.
Let us now study the types of agents in detail.
 Manufacturers’ agents – They are independent firms which typically
handle non-competing lines of a variety of manufacturers and are
often used in place of a manufacturer’s own sale force. New
companies use manufacturers’ agents when they have neither the
expertise nor the resources to develop their own sales force.
Established firms rely upon manufacturers’ agents when they wish to
concentrate upon manufacturing and prefer to subcontract their
distribution activities or when they wish to enter in new markets.
Manufacturers’ agents are generally more familiar with the market
and can provide more immediate representation than the producer
by developing their own sales force.

 Brokers – They are commonly used in the real estate industry where
they negotiate the buying and selling of property as well as negotiate
its rental and leasing. They are the middlemen whose primary
activity is to establish contact between the buyer and the seller. They
negotiate and facilitate sales and are compensated by a fee or
commission. They do not take title of merchandise. Brokers play a
key role in the distribution of food products as well. Many small food
wholesalers rely heavily upon food brokers to provide them with
outlets for their products and sources of supply respectively.
 Commission merchants – They are sometimes called ’factors’; they
receive products on consignment basis and then sell them on a
commission basis. They typically operate on an autonomous basis.
They often participate in the physical possession, promotion,
negotiation, financing, risk-taking, ordering, payment, and market
information flow. They are most often used in distribution channels
for farm produce, lumber products, etc. where the manufacturers’
identity is relatively unimportant to the buyer.
 Selling agents – They differ from manufacturers’ agents and brokers
in that they normally carry a supplier’s entire product line. Unlike
manufacturers’ agents and brokers, they usually set prices and
terms of sale, and also undertake promotional activities. Thus selling
agents, in effect, act as the manufacturers’ sale force. As with other
agent wholesalers, selling agents do not take title or possession of
the goods they handle.
 Auction companies – They invite buyers and sellers to a single
physical location, either at the seller’s location or at the auction
company’s site. In addition to bringing buyers and sellers together,
auction firms promote the goods they handle and actively negotiate
the sale of those goods. These wholesalers participate to a less
degree in the other marketing flows, except for ownership. Their
participation in a channel is typically limited to facilitating a transfer of
ownership. They are often used in marketing channels for products
such as real estate, household goods, used automobiles and
equipment, and machineries of all kinds. These firms also play a key
role in the marketing of some commodities such as tobacco.

 Manufacturer’s sales branches and sales office – Branches,

sometimes called captive distributors, are wholesaling operations owned
and operated by a manufacturer and maintained separately from the
producing plant to sell and market its products. The sales branches
include a warehouse with inventory, whereas sales offices don’t have
any inventory. Manufacturers’ branch stores that sell to consumers and
individual users are classified within retail trade.
Manufacturers use sales branches and offices for a variety of reasons,
particularly when:
 Independent wholesalers are unable to provide technical support to
the customer;
 These intermediaries cannot handle the quantities involved;
 The manufacturer wishes to achieve more control over the promotion
and physical possession activities of marketing; and
 Wholesaling operations provide the manufacturer with additional
profit opportunities.

14. __________ wholesalers take ownership of goods in which they deal.
15. Limited function wholesalers, through the physical possession flow,
maintain inventories of their product line. (True/False)
11.8 Summary
 A marketing channel moves goods from producers to consumers. It
overcomes the major time, place, and possession gaps. Marketing
channel members perform many functions such as buying, carrying
inventory, selling, transporting, financing, promoting, negotiating,
conducting marketing research, and servicing.
 For setting up a channel, a channel design decision involves the steps of
analysis of customer’s desired service output levels, establishing
channel objectives, identifying major channel alternatives, and
evaluating the major alternatives.

 After the selection of channels, the channel manager should develop

channel management strategy for the selected channels. The channel
management decisions involve selecting, training, motivating, evaluating
channel members and modifying channel arrangements.
 Logistics management is concerned with the management of physical
distribution of material. Logistics functions are grouped as primary and
secondary activities which include warehousing, inventory management,
product packaging, acquisition and control, and transportation system.
 Retailing is the final connection in the marketing channel that brings
goods from manufacturers to consumers. The various types of retail
formats are kirana stores, department stores, discount stores, category
killers, specialty stores, superstores, and hyper markets.
 Wholesaling is concerned with the activities of selling to retailers and
other merchants, but not to ultimate consumers. The different kinds of
wholesalers are merchant wholesalers, agent wholesalers, and
manufacturers’ sales branches and offices.
11.9 Glossary
Agent: Intermediaries with legal authority to market goods and services and
to perform other functions on behalf of the producer are called agents or
brokers.
Distribution channel: A distribution channel for a product is the route taken
by the title to the goods as they move from the producer to the ultimate
customer.
Logistics: It is a commercial planning basis to administer material, service,
information, and capital flow.
Middlemen: Middlemen refer to just about anybody acting as an
intermediary between the producer and the consumer.
Retailer: As the last link in many marketing channels, retailers are the last
link marketing channels and sell directly to final customers.
Wholesaler: Wholesalers are organisations that buy from producers and
sell to retailers and organisational customers.


1. What is meant by marketing channel? What are the important functions
of marketing channels?
2. Explain the various steps involved in the design of a distribution channel.
3. What factors influence the selection of channel members?
4. What is retailing? Briefly describe the most important types of retailing.
5. What is logistics management? What are the various functions of
logistics system?
6. Explain the concept of wholesaling and briefly discuss the different types
of wholesalers.
11.11 Answers

1. Distribution
2. False
3. (b)
4. True
5. Selective
6. True
7. (b)
8. Business development
9. Physical
10. False
11. True
12. (a)
13. 2500
14. Merchant
15. False
Terminal Questions
1. A marketing channel is a relationship system among businesses
participating in the buying and selling process. The important functions
are buying, carrying, and selling. For more details, refer section 11.2.

2. The steps of channel design decision are analysing customer’s desired

levels, establishing channel objectives, identifying, and evaluating major
alternatives. For more details, refer section 11.3.
3. The factors influencing selection of channel members are market
factors, product factors, and producer factors. For more details, refer
section 11.4.
4. Retailing is a business activity that sells products to final customers. The
important types of retailing are kirana stores, department stores, and
discount stores. For more details, refer section 11.6.
5. Logistics management is a process managing movement and storage of
materials. The logistics activities include transportation and
warehousing. For more details, refer section 11.5.
6. Wholesaling is concerned with activities of selling to retailers and other
merchants, but not to ultimate consumers. The types of wholesalers are
merchant wholesalers and agent wholesalers. For more details, refer
section 11.7.
11.12 Case Study

Super Dolls Toy Manufacturing Company
Super Dolls is a toy manufacturing company which is in the business for the
past two decades. The manufacturing unit is situated in Mumbai, while its
sales and marketing are spread over a large geographical area, especially
in the major cities across the country.
Fig. 11.4: Super Dolls

(Source: http://img.alibaba.com/wsphoto/v0/471179352_1/Free-shipping-by-
EMS-Super-Mario-Bros-Kart-Pull-Back-Car-Cartoon-Figure-Doll-Toy-5.jpg)

Over the years, a number of competitors have sprung in the field. Far from
child’s play, the company found that the toys sector is a tough business.
Some of the problems faced by it are:
 There is a massive sale during the festival seasons. If the company’s
product is delayed, the valuable market is missed.
 ‘Fashion’ or ‘cult’ status products influence the market. Any wrong
decision in this matter means loss of sales and build-up of unwanted
inventory.
 There are high marketing and promotional costs. If these programmes
go out, the sales drop massively.
 Any misjudge of the market can also mean closing down of the
company.
 The company has problems regarding stock holding at its distribution
centers. This is mainly due to wrong inputs from feedbacks and improper
surveys.
 The company relies mainly on hired fleet of road transport. The services
are not up to the mark in terms of delivery schedules, safety of goods
from pilferage/theft, and mishandling of product.
 Marketing strategies are far from adequate. They are not effective
enough to counter the strategies adopted by the competitors.
1. You are called upon by the management of Super Dolls to head their
logistics operations. On what matters should you guide the company.
(Hint: The matters on which the company is to be guided are
warehousing, alternatives to hired fleet of transport, and inventory
planning.)
2. Give suggestions to counter competitors’ strategies.
(Hint: To counter competitors’ strategies the company must focus on
reducing marketing costs, adopting effective marketing strategies, and
arranging warehousing at distribution centres.)
(Source: Dutta Bholanath; Marketing Management; 2nd Edition: Excel Books,
New Delhi)

References:
 Tapan, P. K. (2010). Marketing Management: Excel Books, New Delhi
Publication, New Delhi
 Paul, P. J. and Jr. James, D.H. (2010). Marketing Management:
Knowledge and Skills, 10th Edition, McGraw-Hill/Irwin
McGraw-Hill/Irwin
E-References:
 http://catalystconnector.com/asian-channels/feb-2011/best-
practices/basic-channel-management-strategies – Retrieved on
February 14, 2012
 http://www.ideatodays.com/miscellaneous/major-logistics-functions.html
 http://www.publishyourarticles.org/knowledge-hub/business-
studies/who-is-a-retailer-what-are-the-characteristics-functions-and-
services-of-a-retailer.html – Retrieved on February 14, 2012
 http://bizcovering.com/marketing-and-advertising/the-ten-types-of-
wholesalers-understanding-their-functions-strategies-and-the-role-they-
play-in-the-distribution-system – Retrieved on February 14, 2012

Unit 12 Promotion Management: Managing

Non-Personal Communication Channels
Structure:
12.1 Introduction
Objectives
12.2 Integrated Marketing Communications (IMC)
12.3 Communication Development Process
Preparing target customer profile
Identifying promotion objectives
Designing a message
Selecting the channels of communications
Selecting the message source
Targeting customer feedback
12.4 Budget Allocation Decisions in Marketing Communications
12.5 Introduction to Advertising
Types of advertisements
Decisions involved in developing advertisement programmes
12.6 Fundamentals of Sales Promotion
Tools and techniques
12.7 Basics of Public Relations and Publicity
Objectives of public relations programme
Publicity
12.8 Summary
12.9 Glossary
12.11 Answers
12.12 Case Study
12.1 Introduction
In the previous unit we dealt with the need for marketing channels, decisions
involved in setting up the channel, and channel management strategies. We
also examined the significant aspects of logistics management, retailing,
and wholesaling. The functions of wholesalers and retailers in distribution
management were also discussed.
In this unit, we will deal with the fourth ‘P’ of marketing, which is promotion.
Our earlier understanding of elements of marketing mix has brought us to
the fourth ‘P’ of marketing. Marketing managers need to communicate and
promote the final product to consumers through various channels of

communication. They have to ensure that all the channels and methods of
communication present a unified message about the product or service of
the firm. About twenty years ago, the idea of ‘integrated marketing
communication’ emerged in management literature. It is necessary to
develop marketing communication strategy to obtain a competitive strategic
position for the company.
The following case-let provides better understanding of MIS concept.
Case Let
Airtel Hits the Right Note Again

'Dil jo chaahe paas laaye' has a new twist, with 'Har ek friend zaroori hota
hai'. The latest commercial for Airtel aims to make the brand trendier for
the youth, while attempting not to alienate its older target audience set.
The brand is in the news again, this time for a campaign that takes its
positioning 'Dil jo chaahe paas laaye' to the next level. In December 2010,
Airtel had made headlines with its rebranding effort, underwent several
strategic changes, and launched initiatives such as the 'name the symbol'
contest.
In what is the first thematic brand campaign after that effort, Airtel is now
positioned as the brand that embodies friendship, and helps all sorts of
friends connect with one another. The line that encapsulates this thought
goes 'Har ek friend zaroori hota hai'.
Fig. 12.1a: Airtel Commercial

(Source: http://www.newindianmodels.com)

The commercial has vignettes of different kinds of friends one has, and
how the presence of each one is necessary in some way or the other. The
ad has the story of different categories of friends, such as the one who
wakes one up during the wee hours for help, or another who may give you
company during your financial crunch days.
Then, there are friends who are forced, effortless, classroom friends, bike-
ride friends, shopping and 'exam hall copying' friends, movie buddies, the
'hi-bye' variety of friends, etc. The jingle ends with 'Har ek friend zaroori
hota hai', and with the message that Airtel keeps one connected to their
friends.
Fig. 12.1b: Advertisement of Airtel

(Source: http://www.bestmediainfo.com/)
The task here was to make the brand more contemporary and youthful
without alienating or compromising on Airtel's older audience set. The
communication, although zestful in its tonality, doesn't attempt to alienate
its older generation of users, as friendship and the need for different kinds
of friends is something that could perhaps be age-agnostic.
(Source: www.afaqs.com)

 What do you mean by promotion mix?
 What is the process of integrated marketing communications?
 How the consumer sales promotion techniques are used in the Indian
market?
 How the major decisions affect advertisement management?
 How to make sales promotion and public relation?

Objectives:
 explain the importance of integrated marketing communication
 describe the stages involved in developing effective communication
 analyse budget allocation decisions in marketing communication
 identify the fundamentals of advertising and sales promotion
 discuss the role of Public Relation (PR) in marketing communication
12.2 Integrated Marketing Communications (IMC)

In the early 1980s, the concept of integrated marketing communications was
an unacknowledged paradigm and refuted in one voice by eminent
professionals and academicians. They were of the opinion that each
marketing communication function should perform with respective degree of
autonomy. Advertising, sales promotion, and publicity were talked about in a
fissiparous way and as an individual discipline. IMC tries to unite,
incorporate, and synergise elements of the communications mix as the
strengths of one are employed to countervail the flaws of others. Many
organisations are of the opinion to integrate their communications
disciplines to one strategic marketing communications function, specifically
IMC. The reason is that publicity and advertising back up each other and
impact potently in a cost-effective manner. IMC approaches have been
significantly recognised by the organisations as a tool for effective
marketing. The budget allocation for mass media advertising also witnessed
radical changes as IMC turned out to be a potent answer for media
fragmentation and enhanced segmentation of consumer tastes and
preferences. According to The American Marketing Association, IMC is “a
planning process designed to assure that all brand contacts received by a
customer or prospect for a product, service, or organisation are relevant to
that person and consistent over time.”
Characteristics of integrated marketing communication programmes
An IMC programme can be defined from two points - continuity and strategic
orientation. Campaign continuity means that all messages communicated in
different media through different marketing communication tools are
interrelated. It involves marketing both the physical and psychological
elements of a marketing communication campaign consistently. Physical
continuity refers to the consistent use of creative elements in all marketing
communications. Psychological continuity refers to a consistent attitude
towards the firm and its brand. It is referred to as the company’s voice and
personality for the consumers.
The second point is strategic orientation. This means marketing

communication will be effective as it is designed to achieve long-term
corporate and marketing goals of the firm. The focus of an integrated
marketing communication programme is not to develop a unified campaign
or theme that simply attracts people’s attention but to develop a long-term
communication programme to achieve strategic goals in terms of sales,
market share, and profit.

1. __________________ is a planning process designed to assure that all
brand contacts received by a customer are relevant to that person and
consistent over time.
2. Psychological continuity means that all messages communicated in
different media through different marketing communication tools are
interrelated. (True/False)
12.3 Communication Development Process

Development of communication process directly or indirectly influences
individuals, groups, and organisations to facilitate exchanges by informing
and persuading one or more audiences to accept a company’s products
and/or services. Communication process involves both interdependent and
interrelated elements to achieve a desired outcome of development.
Figure 12.1c depicts the development of integrated marketing
communication process.
Preparing target customer profile
Identifying promotion objectives
Designing a message
Selecting channels of communication
Selecting the message source
Targeting customer feedback
Fig. 12.1c: Communication Development Process

The development of integrated marketing communication process can be

listed as:
1. Preparing target customer profile
2. Identifying promotion objectives
3. Designing message
4. Selecting channels of communication
5. Selecting message source
6. Targeting customer feedback
Let us now study the communication development process in detail.
12.3.1 Preparing target customer profile
It is necessary to identify the target audience before developing any IMC
programme. It should include current customers, target customers, potential
customers, past users, influencers, and general public at large.
12.3.2 Identifying promotion objectives
The next task is to determine the communication objectives. Firms have
different kinds of communication objectives depending on the
communication tool used and the stage of the product life cycle that the
current brand is passing through. The marketer aims to communicate
information about products and brands in such a way that it influences
consumer’s mind, develops positive attitude towards products and brands,
and prompts consumers to act in favour of the brand.
12.3.3 Designing a message
The next stage involves designing a communication message. The
message should be developed in a way that it has the ability to integrate a
common theme from the awareness stage to the stage of purchase and
satisfaction. The message formulation involves message content (what to
say), message structure (how to put the message), message format (how to
say it symbolically), and message source (who should say it).
12.3.4 Selecting the channels of communications
After the message decision is taken, the marketing manager searches for
the appropriate media for communicating with the customers.
Communication channels are of two types. They are personal
communication channels and non-personal communication channels.

Personal communication channel

The personal communication channel involves direct interaction and
communication between two or more people. It can be in the form of one
person speaking to an audience, to a group, or with another person.
Non-personal communication channels
The non-personal communication channels include all those conventional
channels used by marketing communicators known as mass media
channels. The non-personal communication channels include media,
atmosphere, and events.
12.3.5 Selecting the message source
Marketing managers have to decide the source of the message. Messages
from attractive sources are able to break the clutter and catch attention of
the audience. Many companies use celebrities to telling effects for higher
attention and recall of the message.
12.3.6 Targeting customer feedback
Feedback helps marketers to evaluate the effectiveness of marketing
communication. It is difficult in most cases to determine the effect of
advertising alone on consumer purchase behaviour. Due to this reason,
marketers determine whether the ad results in exposure, attention,
comprehension, message acceptance, and retention.
1. Measurement of audience-exposure – Exposure to a message can be
measured by taking into account the circulation figures of print media
and programme rating for broadcast media.
2. Measurement of audience-attention – These figures are measured by
recognition of a message by the audience. Consumers are asked
whether they have seen a particular message and if they can associate
it with a brand or manufacturer.
3. Measurement of audience-comprehension – This is measured with
the help of aided or unaided recall tests for specific message points in
the communication.
4. Measurement of audience's message acceptance – Consumers'
attitude towards the brand is a good indicator of message impact. This
can be done by measuring their attitudes towards the brand before and
after the exposure to the ad message.

5. Measurement of audience's message-retention – Average

consumers are likely to retain a message in their memory if it was
successful in making an impact.

3. Which of the following will not be considered while formulating a
message?
(a) Message content
(b) Message format
(c) Message source
4. The non-personal communication channel involves direct interaction
and communication between two or more people. (True/False)
12.4 Budget Allocation Decisions In Marketing Communications

As is evident from the above discussion, marketing managers have a choice
to make between various forms of media. Use of each of the media invites
media cost and hence the marketing manager needs to decide the total
communication budget.
The most traditional method is to look at the sales performance of the
previous year and correlate with the communication expenditure. If the sales
target is known, then the marketing manager can find out the percentage of
sales as a method to arrive at the final communication budget.
Many companies follow a method called ‘affordable method’ in which the
company does not use any rationality and decides the budget on the level of
surplus available and what the firm can afford. This method ignores
promotion as an investment and companies only treat this as an expenditure
from their surpluses.
Some companies identify their competitors in the market and benchmark
their marketing communication spending by building parity in the spending
pattern of their competitors. This method helps in rationalising the spending
on marketing on the basis of industry averages. Such a method also helps
in preventing the promotion war.
The most popular and scientific method is called objective and task method.
In this method, the marketing budgets are decided on the basis of
converting objectives into tasks. For each task, the marketing manager can
come up with a cost structure and spending details. This will help in
determining the budget by summing up all the expenses for achieving all the
tasks.

5. _____________ is the method in which the company does not use any
rationality and decides the budget on the level of surplus available and
what the firm can afford.
6. The most popular and scientific method is called objective and task
method. (True/False)
12.5 Introduction to Advertising

Advertising is a paid form of communication in which the sponsor or the
brand owner has made payments to the media to carry the message
through their set of media vehicles.
The Oxford Dictionary explains advertising as 'to make an announcement in
a public place, describe or present goods publicly with a view to promoting
sales.' Advertising is a public announcement, formerly by town criers, now
usually by newspapers, posters, television, or radio. The word advertising is
derived from a Latin word Advertere which means to turn the mind. Broadly
speaking, advertising does turn the attention of people to a commodity or
service.
The American Marketing Association defined advertising as "any paid form
of non personal persuasion and promotion of ideas, goods or services, by
an identified sponsor."
12.5.1 Types of advertisements
Advertising can be classified into various forms as mentioned below.
Brand advertising – This is the most popular form of advertising. All
possible media including television is flooded with brand advertising. Brands
like Surf Excel, Pepsi, and Coke in India are shown more frequently on
Indian televisions.
National advertising –These advertisements are uniform across the nation
and are released through national media covering the nation.

Figure 12.2 depicts the national advertising of tourism.
Fig. 12.2: Incredible India Ad: Promoting Tourism
(Source: www.s3.amazonaws.com)
Local advertising – These advertisements are carried out in local and

vernacular media to promote the product in a local region.
Retail advertising – These advertisements are brought out to promote
retail outlets and dealer points.
Nation and destination advertising – These advertisements are brought
out to promote a nation as a tourism destination. These are also used for
promoting states, cities, and tourist attractions.
Political advertising – These advertisements are done for political parties,
politicians, and individual candidates during elections and referendums.
Social advertising – These advertisements are brought out for a social
cause like against AIDS, sexual exploitation, women trafficking, child labour,
and other critical issues in a society.

Figure 12.3 depicts the example of social advertising.
Fig. 12.3: Social Ad
(Source: www.adoholik.com)
Directory advertising – These advertisements are done in directories and

yellow pages and followed by people while collecting a telephone number or
a home address.
Direct response advertising – These advertisements are used in any
medium that tries to stimulate sales directly. The consumer can respond by
mail, telephone, or the Internet.
Business-to-business advertising – These advertisements are carried out
by targeting business and organisational marketers. These messages are
directed towards retailers, wholesalers, and distributors. Figure 12.4 depicts
the example of B2B advertisements.

Fig. 12.4: B2B Advertisements
Institutional advertising – Institutions like colleges, universities, missionary

of charities, and large corporate bring out these advertisements. When
these are brought out by large corporate, we call them corporate
advertising.
Public services advertising – Government and government-sponsored
institutions bring such advertisements for the benefit of general public. They
communicate a message on behalf of some good cause.
Interactive advertising – These are typical Internet based advertisements,
which are delivered to individual consumers who have access to the World
Wide Web. Advertisers use web pages, banner ads, spots, pop ups, and
email programs to reach the target audience.
Outdoor advertising – These are advertisements in which the marketer
uses out of the home media like wall paintings, billboard, hoardings,
bulletins, kiosks, and mobile vans for communicating with the audience.
Figure 12.5 depicts the billboard advertising of Ponds face cream.

Fig. 12.5: Outdoor Advertising
(Source: www.adoholik.com)
Electronic advertising – These advertisements use electronic media like

television, radio, video and audiocassettes, electronic display boards, and
CD-ROMs for promotion of products and services.
In film advertising – These are new forms of advertisements in which
actors are shown using the products in the movie in order to increase its
usage among the audience.
Unconventional media – These forms of advertising are of recent origin
and use traditional art forms like jatra, puppet dance, and other local dance
forms to communicate about products and services to the audience.
12.5.2 Decisions involved in developing advertisement programmes
As an advertising manager, you need to know how to decide and design an
effective advertising campaign. Advertising decisions will guide the
advertising manager in designing an advertising campaign covering a
considerable period of time.
Deciding on advertising objectives
A set of guidelines for the formulation of advertising objectives is as follows:
 It should reflect the areas of accountability for those who implement the
advertising programme.
 It should define target audience and define its accuracy level.
 The advertising goals should be expressed in quantitative terms.
 It should have a statement of time constraints.
Determining the advertising budget

The most commonly used advertising budgets are mentioned below.
Unit of sale method – Consumer durable firms make use of this method as
a variant of sales percentage. While it mostly works as a sales percentage
method, the firm puts an amount of advertising expenses on the unit as an
add on.
Competitive parity method – The firm should analyse competitor's
information on sales, distribution pattern, and advertising expenditure. It will
provide the correlation between the competitive sales and advertising effort.
Historical method – In this method, last year's advertising budget is
adopted for the year with a belief that practically no change has taken place
in the market or the market growth is slow, justifying no addition to the
previous budget. Last year's budget could be multiplied by a factor to cover
an increase in media cost.
Total group budget – In case of multi location and multi product line firms,
a total amount is decided as advertising budget and each strategic business
unit receives a share according to its needs.
Percentage of anticipated turnover – This method is useful in dynamic
markets and one can fix the budget on estimated demand pattern rather
than on the current year sales.
Elasticity method – This method takes into account the seasonality of
business and the periodicity of consumer purchase. This method considers
the demand and supply situation and is often used in industrial product
advertising.
Operational modelling – Market research gives advertising expenses,
market response, and sales per advertising figures. An advertising manager
can develop complex linear programming and structural models for arriving
at a final budget.
Deciding on advertising message

In this section, advertising managers have to decide the message for their
product or brand. The central idea of any advertising message is referred to
as advertising appeal. The purpose of the advertising appeal is to inform the
potential customers what the product offers and why the product should
appeal to them.

Deciding on media mix

After the message is developed, the next important task is to select the
channel through which the message should reach the target audience.
Media decision involves selection of the communication channel for the
message. The media selection strategy must take into account the message
that the advertiser wishes to transmit, the target audience profile, the
desired effect, and the available advertising budget to support media
decisions.
Deciding on measuring advertising effectiveness

We can measure advertising effectiveness through two methods - pre-
testing and post-testing methods.
Pre-testing methods
You can conduct pre-testing from the stage of ideation to the stage of copy
and message development. The concept around which the advertisement is
built can be tested by this method. The key constituents of the body copy
including the headline, slogan, and body text can also be tested. The
advertising managers can show them to the sample audience and test
appeal, believability of the claim and authenticity of the proposed message
from the sample audience. Focus group discussions, in-depth interviews,
and experiments are done to pre-test the likely effect of an advertising
campaign. Consumer jury test, portfolio test, and thematic appreciation test
are some of the popular methods of pre-testing campaign.
Post-testing methods
Once an advertisement is run in a selected media, the advertiser can
conduct post-testing to determine whether the advertisement has met the
desired objectives.
There are two kinds of recall tests, namely unaided and aided recall test. In
an unaided test, the interviewer does not give any clue about the brand
whereas in an aided recall test, category clues are given to derive the brand
name.
Let us now study the various types of media in detail.

12.5.3 Characteristics of major media

The various types of media are as follows:
1. Print media – Print medium comprises newspapers and magazines. Let
us now discuss the distinct features of newspapers and magazines.
Newspapers
 These are published in different languages and are widely and
regularly read by the educated public.
 Newspapers published in regional languages also have wide
circulation, sometimes covering more than one state. As a medium
of advertising, newspapers reach a very large number of people.
 Newspaper advertising is relatively cheaper than other media like
radio and television.
 The advertising space can be decided in accordance with the need
and cost.
 Since the general public read newspapers, this is found to be a
suitable media for mass consumption goods.
 The life of a newspaper is very short as people read the newspapers
in the morning and put them aside.
Magazines
 Magazines are also called periodicals as they are published at
certain periodical intervals like weekly, fortnightly, monthly, etc.
 Different types of magazines are published for different categories of
readers.
 Since magazines are generally read over a period of time, they have
a longer life than newspapers.
 The cost of advertising in magazines is relatively cheaper as
compared to other media like radio and television.
 Magazines have lack of flexibility in the choice of size and design of
the advertisement. The design cannot be changed as quickly as in
the case of a newspaper.
2. Direct media – Direct response advertising is a type of interactive
promotion that solicits a direct response from the prospect (target
audience) without intervention of a third party. It is a two-way
communication between the advertiser and the target audience. Direct

advertising media is the channel through which advertisers

communicate directly with the target audience. Major direct media
includes direct mail and advertising specialties.
3. Direct mail – Sending personalised letters by post to the prospective
customers is a method of advertising, which often pays. These
communications are mostly in the form of circulars and sometimes
accompanied by catalogues or price lists. The idea behind mailing
circulars is to approach the customers directly with the advertising
message and to arouse their interest in the product or service with a
detailed explanation in a convincing manner.
4. Advertising specialties – These are free gifts like diaries, key rings,
purses, paperweights, pens, calendars, and T-shirts imprinted with a
message along with the advertiser's name and address. Since they bear
the name of the advertiser, they serve as reminders.
5. Out of home media – Outdoor media of advertising refers to the media
used to reach people when they are out doors or travelling rather than at
home or office.
6. Interactive media – The Internet is now used as an alternative media for
communication and dissemination of product information. Interactive
media allows an individual to seek information, ask questions, and get
answers without any human assistance.
7. Email – Use of email advertising as a promotional medium is gaining
prominence day by day. Email as an advertising medium offers
advantage of personification, speed, and interactivity.

7. _______________ is any paid form of non-personal persuasion and
promotion of ideas, goods or services by an identified sponsor.
8. Local advertisements are carried out in local and vernacular media to
promote the product in a local region. (True/False)
9. _____________ advertisements are used in any medium, which tries to
stimulate sales directly.
10. Interactive advertising is a form of advertising in which the marketer
uses out of the home media like wall paintings, billboard, and hoardings.
(True/False)
12.6 Fundamentals Of Sales Promotion

Sales promotion programmes are short-term programmes aimed at
maximising sales in a period of time. What is most important to remember is
that the sales promotion programme should be designed in such a way that
it does not affect the overall brand image of the firm and its product.
12.6.1 Tools and techniques
We will discuss this under three heads - sales promotions directed at
consumer, sales promotions directed at trade partners, and sales
promotions directed at sales force.
Sales promotions directed at consumers
We present herewith a selected list of consumer promotion tools.
 Free samples – Free samples are generally used to introduce a new
product and as a sales tool to attract the attention of prospective buyers.
 Catalogues – Catalogues are largely used when a firm manufactures
different types of products with distinguished size, shape, and other
features.
 Price-off – A price-off is simply a reduction in the price of the product to
increase sales and is very often used in introducing a new product.
 Refund – A refund may consist of straight cash, coupon values, or a
product offered to the consumer in return for a proof of purchase of a
specified product or service. Refund is also an effective tool of sales
promotion.
 Coupons – These are certificates entitling the owner of the certificate to
a stated saving on the purchase of a particular item. The coupon can be
with the product, attached to the product, with the advertisement, or can
be sent by mail.
 Premiums – These are merchandise offered at a lower cost or free as
an incentive to purchase a particular product. A premium is a product
accompanied inside or on the package.
 Free trials – These trials invite prospects to try the product without any
cost with a hope of closing the sale in the future.
 Patronage awards – These are the value in cash or in other forms that
are proportional to patronage of a certain vendor or group of vendors.

Sales promotions directed at trade partners

Following are some of the popular trade promotion schemes used in India.
 Sales competition – In this case, the dealers are motivated to
participate in the trade promotion programme with a reward linked to
their performance. For dealers, sales competition is arranged, prizes are
announced or special offers are made if they show a substantial
progress in sales.
 Price-off – If tradesmen purchase a certain number of units within an
announced period, they obtain a straight price-off or discount on the
quantity purchased.
 Free merchandise – These are the free goods given to intermediaries
who buy a desired quantity of the product. The intermediaries are free to
sell these goods or use for personal consumption.
 Allowances – Many companies provide different kinds of trade
allowances in the form of advertising allowances and display
allowances.
 Tradeshows and conventions – These are the tradeshows and
conventions organised by industry associations and government within
and outside the country.
 Specialty advertising – These are advertisements consisting of useful,
low cost items bearing the company’s name and address that people in
the trade give to the prospects and customers.
Sales promotions directed at sales force

The other key player in product and brand promotion is the sales force,
which also carries the message and the product to the end consumer.
Companies organise sales force promotion programmes to motivate
consumers to support the company’s offerings. The tools used for sales
force promotion include sales and contests, conferences and seminars,
higher commissions and bonus, and international tours. Many of the trade
promotion tools are also used for sales force promotion.

11. Sales promotion programme should be designed in such a way that it
does not affect the overall brand image of the firm and its product.
(True/False)
12. A ____________is simply a reduction in the price of the product to

increase sales and is very often used in introducing a new product.
13. A coupon is a product accompanied inside or on the package.
(True/False)
12.7 Basics of Public Relations And Publicity

Public relation is a group of people with whom the company or organisation
has to interact in creating and delivering value. Public relations focus on
organisation’s relationship with its public.
12.7.1 Objectives of public relations programme
Professional public relation programmes help business organisations to
accomplish their objectives. They can fulfil some of the objectives listed
below.
 Presenting a favourable image and its benefits
 Promoting of products or services
 Detecting and dealing with its public
 Preventing and providing solution for labour problems
 Goodwill of the stockholders or constituents
 Forestalling attacks
 Goodwill of suppliers
 Goodwill of the government
 Goodwill of the rest of the industry
 Attracting the best personnel
 Goodwill of customers or supporters
 Directing the course of change
12.7.2 Publicity
Publicity is defined as the non-personal stimulation of demand for a product,
service, or business unit. It is obtained by planting commercially significant
news about a product, service, or business unit in a published medium or by
providing favourable presentation in the radio, television, or on stage that is
not paid for by the sponsor. Negative publicity can damage the company’s
or product’s image, resulting in reduced demand for the product.

The salient features of this definition include the following:

 Non-personal/mass media – Like advertising, publicity also reaches a
very large number of people at the same time through mass media such
as newspapers, magazines, radio, TV, etc (hence, non-personal).
 Commercially significant news – This is one of the features that
distinguish publicity from advertising. When information about a product
or company is considered newsworthy, mass media tends to
communicate that information free of cost.
 No sponsor – Since the information originates from the media, there is
a sponsor, which means the messages are unsigned. This is another
point of difference between advertising and publicity.
 Not paid for this – Since the sponsor is not identified in publicity and
the information is not disseminated at his/her behest, he/she does not
pay for it. This is an additional feature that differentiates publicity from
advertising.
 Purpose (demand stimulation) – In some situations where publicity is
properly planned, it may lead to the creation or reinforcement of a
favourable impression about the company and its products in the minds
of people receiving the message.

14. ____________ is a group of people with whom the company or
organisation has to interact in creating and delivering value.
15. Negative publicity can damage the company’s or product’s image,
resulting in reduced demand for the product. (True/False)
12.8 Summary
 An integration marketing communication programme can be defined
from two points - continuity and strategic orientation.
 Advertising is a paid form of non-personal communication by an
identified sponsor through non-personal and mass media to inform,
persuade, and influence an identified audience.
 Sales promotion involves demonstrations, contests, prices-off, coupons,
free samples, special packaging, and money refund offers.
 Public relations are a diverse field incorporating a wide variety of

activities in support of both corporate and brand goals.
 In publicity, the media, rather than the company, becomes the
information source.
12.9 Glossary
Advertising: Any paid form of non-personal persuasion and promotion of
ideas, goods, or services by an identified sponsor.
Integrated marketing communication: Synergistic approach to achieving
the objectives of a marketing campaign through a well co-ordinated use of
different promotional methods.
Public relations: A promotion intended to create goodwill for a person or
institution.
Publicity: It refers to getting media news coverage.
Sales promotion: Sales-stimulation achieved through contests,
demonstrations, discounts, exhibitions or trade shows, games, giveaways,
point-of-sale displays and merchandising, special offers, etc.

1. What is integrated marketing communication? Explain the integration
marketing communication development process.
2. Are advertisements the most effective medium of communication?
Justify your answer.
3. Discuss the various types of advertisement. Explain the decisions
involved in developing advertisement programmes.
4. Briefly explain the tools and techniques of sales and promotion.
5. Define the term public relation. Explain the objectives of public relations.
12.11 Answers

1. Integrated marketing communication
2. False
3. (d)
4. False
5. Affordable method
6. True
7. Advertising
8. True
9. Direct response
10. False
11. True
12. price-off
13. False
14. Public relation
15. True
Terminal Questions
1. Communication development process includes six steps starting from
preparing target customer profile. For more details, refer section 12.2
and 12.3.
2. Advertising does turn the attention of people to a commodity or service.
3. Two types of advertisements are brand advertising and national
advertising. For more details, refer section 12.5.1 and 12.5.2.
4. These are explained under sales promotions directed at consumer,
sales promotions directed at trade partners, and sales promotions
directed at sales force. For more details, refer section 12.6.
5. Public relations focus on an organisation’s relationships with its public.
12.12 Case Study

Promotions at Pizza Hut
Fig. 12.6: Logo of Pizza Hut

(Source: www.pizzahut.co.in/)

In the summer of 2000 in New Delhi, Pizza Hut launched its innovative
Pizza Pooch menu as well as a Birthday Party package exclusively for kids
in the 6 – 10 years age group. Senior marketing manager, Tricon
Restaurants International said, “There is a specific reason to cater to this
segment. Though, at this age children are under their parents’ guidance,
they perceive themselves to be teenagers and have the ability to choose or
demand a particular brand of their own choice.”
The largest number of Pizza Hut outlets is in Paris, followed by Moscow and
Hong Kong. Pizza Hut started operations in India nearly seven years ago
with just a single outlet. It has realised the cultural differences in India and
importance of religion in the consumption pattern of certain sub-cultures.
Today it has spread in several cities and it also has a 100 per cent
vegetarian restaurant in Ahmedabad.
Fig. 12.7: Pizza Products

(Source: www.pizzahut.co.in/)
Innovative promotional activities and a popular logo have helped Pizza Hut
expanding. The senior marketing manager said, “Our focus is not just on
offering a great pizza but also on providing excitement and good customer
service.” The manager further emphasised on the customer focused
operations and intensive research done to find customer needs and
satisfaction. Besides, Pizza Hut conducted in-house research on

psychographics of Indian consumer that led to the use of cartoon characters

in campaigns. The Indian Market Research Bureau (IMRB) also carries out
regular surprise checks at different outlets to monitor the quality of service.
Moreover, a regular test, CHAMPS (Cleanliness, Hospitality, Accuracy of
order, Maintenance, Product quality and Speed of service) is conducted in-
house.
The company says that its Pizza Pooch birthday package is full of fun and
excitement. What is unique in the package is the nominal price of ` 125 per
child that offers much more than only goodies in the main menu. The
birthday party includes a well-decorated area within the Pizza Hut outlet with
several gifts for the children. Moreover, the party is conducted by a trained
host with lots of games, prizes and a special gift for the birthday child. Pizza
Hut, better known as a family restaurant, takes the onus of relieving parents
of the cumbersome job of clearing up the mess after the kiddies have
enjoyed themselves thoroughly.
The Pizza Pooch menu, on the other hand, includes a wholesome delicious
meal and a gift for the child. The menu has been intricately designed with
pictorial games. A free set of crayons is provided to keep the children
occupied while their parents dine. The campaigns created by HTA are eye-
catching with cartoon characters on the mailers, hoardings and print
advertisements where the cartoon characters are aimed at matching varying
moods of kids. The birthday part concept is not entirely original – local fast
food major Nirula’s has been doing it for years as does KFC.
1. Do you think the promotion by Pizza Hut is successful? Give your
reasons.
(Hint: Pizza Hut’s success has been the menu that has constantly
evolved and expanded to cater the changing needs and preferences of
customers. It builds an emotional bond with the customer.)
2. Suggest one alternative promotion to Pizza Hut. Why do you think this
would be successful?
(Hint: Pay more attention to the untapped segment of senior citizens.)
(Source: A&M, August 15, 2000)

References:
 Tapan, P. K. (2010). Marketing Management: Excel Books,
New Delhi.
 Kazmi, S. H. H. (2007). Marketing Management; Text and Cases,
Excel Publication, New Delhi.
McGraw-Hill/Irwin.
E-References:
 tutor2u.net/business/marketing/promotion_pushpull.asp
 www.learnmarketing.net/promotion.htm
 mclennan.mbs.edu/classroom/.../Promotion_Management.pdf
 books.google.com/books/about/Promotion_Management.html?id

Unit 13 Personal Communication Channels

Structure :
13.1 Introduction
Objectives
13.2 Personal Selling
Nature of personal selling
Personal selling approaches
Advantages and disadvantages of personal selling
13.3 Sales Management Basics
13.4 HR Practices in Sales Management
Recruiting
Selecting
Training
Training programme
Training methods
13.5 Personal Selling Process
13.6 Direct Marketing
Advantages of direct marketing
Disadvantages of direct marketing
Types of direct marketing programmes
13.7 Summary
13.8 Glossary
13.10 Answers
13.11 Case Study
13.1 Introduction
In the previous unit we dealt with the fourth ‘P’ of marketing, which is
promotion. We analysed Integrated Marketing Communications (IMC),
communication development process, advertising, sales promotion
techniques, public relations with customers, and publicity. We also
discussed about budget allocation decisions in marketing communications.
As discussed in the previous unit, companies are encouraging word-of-
mouth communication and viral marketing. They are concentrating on
enhancing the effectiveness and efficiency of their sales force. All

organisations have to sell something or the other for their survival and
growth. Sale is an important activity which involves selling products or
services in return for money or other compensation. It may be a product
(shampoo, steel, and toothpaste), service (airline, insurance), idea
(patriotism), concept (family planning), destination (India, Brazil), and person
(politician).
In this unit, we will deal with personal selling, which involves the
communication technique in which sales people build the personal
relationship with customers to generate the value for the organisation. We
will understand the significant role of sales force management, which
involves procuring, training, developing, and managing sales force for the
purpose of achieving more customers or sales. We will also analyse the
concept of direct marketing in which the company directly sells its products
to the final consumer.
The following case-let provides better understanding of personal selling and
direct marketing concept:
Case Let
Amway India
Amway India is the country’s leading direct selling FMCG-company which
manufactures and sells world-class consumer products. It’s business
opportunity and all its products are covered 100 per cent money back
guarantee'. If not completely satisfied with the product, the consumer can
return it for a refund.
Fig. 13.1: Amway

(Source: www.amwayindia.com/)
Fighting the likes of Avon, Modicare, Herbal Life and Tupperware,

Amway India has a wide portfolio of 110 product lines – including home
care (14 products), nutrition and wellness (26), cosmetics (50), personal

care (14) and six great value products developed for India, and priced on
par with local leaders.
Traditionally, direct selling companies do not use advertising in a big way;
but Amway, a strong believer in brand building, has put aside so many
crore’s this year for communication on television, print and out of home
advertising.
Amway India is a member and currently heading the chair of the Indian
Direct Selling Association (IDSA). The IDSA is an industry regulatory
body, which several reputed international and Indian Direct Selling
companies as members.
Direct selling companies such as Skybiz, Gold quest and Quest Net have
had numerous run-ins with the police for not giving their agents the
commissions promised or taking advances without giving the requisite
stock. There are instances of companies that have simply changed their
names and moved to other cities to restart their businesses. In the
meantime, Amway sees the direct selling market opening up as
consumers start to see the difference between direct selling and door-to-
door sales, and that between the long haulers and the fly-by-night
operators.
(Source: Financial Express, Malvika Chandan; Posted online: Mar 03, 2009
at 0028 hrs)

 What is personal selling?
 What are the sales management techniques?
 What is the process followed by a personal selling company?
 How is direct marketing useful?
Objectives:
 define personal selling
 analyse the sales management techniques
 identify the process of personal selling
 explain direct marketing

13.2 Personal Selling

Personal selling is an activity which involves a face-to-face interaction with
the customers wherein there is a quick response and personal
confrontation. This allows for more specific adjustment of the message.
Here, the communication message can be adjusted as per the customer’s
specific needs or wants. It offers you the opportunity to develop long-term
familiarity and relationship.
The salesman becomes the representative of the company. The emphasis
accorded to personal selling varies across companies depending on a
variety of factors such as the nature of the product or service and the type of
industry. Marketers of B2B products generally place more emphasis on
personal selling and it plays a nominal role in companies selling low-priced
consumer non-durables.
In personal selling, the focus in on ‘personal’ or ‘one to one’ selling. It is the
art of successfully persuading prospects or customers to buy products or
services from which they can derive suitable benefits thereby increasing
their total satisfaction, i.e., delight.
So, in this sense, we can say that the salesperson is not only selling
products and services but he/she is selling a value proposition to the
customer. It is the responsibility of the salesperson to create enduring
relationship with the customer that benefits both in the long-term.
13.2.1 Nature of personal selling
The nature of personal selling are:
 Personal confrontation: It involves an alive, immediate, and interactive
relationship building between two or more persons.
Each party is able to observe the other’s needs and characteristics at
close hand and make immediate adjustment.
 Cultivation: It permits plenty of relationships to spring up, ranging from
a matter-of-fact selling relationship to deep personal friendship.
Effective sales representatives will normally keep their customers best
interest at heart if they want to maintain long-term relationship.
 Response: It puts the buyer under some obligation for having listened
to the sales talk.

The buyer has a greater need to attend and respond, even if the
response is a polite “thank you”.
These distinctive qualities come at a cost. A sales force represents a greater
long-term cost commitment than advertising.
13.2.2 Personal selling approaches
The approaches in personal selling are as follows:
1. Stimulus response selling – In stimulus response selling approach,
salesperson provides the stimulus and expects the response from the
buyer. This process will continue till the purchase decision has been
made.
2. Need satisfaction selling – In need satisfaction selling approach, sales
executive identifies the need of the product by the customer and
confirms it. He/She provides the various offerings for the customer to
choose and continues this process till the purchase has been made.
3. Problem solving selling – Problem solving selling approach is used
when the customer faces the purchasing problem. In this approach,
sales executive defines the problem of the customer, generates the
alternative solution, and evaluates them. Then he/she works with the
particular solution till the customer makes a purchase.
13.2.3 Advantages and disadvantages of personal selling
The advantages of personal selling are:
 It gets higher customer attention and the message can be customised.
 It is a two-way communication. In selling situations, the message sender
(e.g., salespersons) can adjust the message as they gain feedback from
message receivers (e.g., customer). So, if a customer does not
understand the initial message (e.g., doesn’t fully understand how the
product works) the salesperson can make adjustments to address
questions or concerns.
 The interactive nature of personal selling also makes it the most
effective promotional method for building relationships with customers,
particularly in the B2B market.
 The sales person has the opportunity to close the sale.
 It is the most practical promotional option for reaching customers who
are not easily accessible through other methods.
The disadvantages of personal selling are:

 Reach of personal selling is limited.
 It is cost ineffective. High cost has to be incurred on training the sales
force and meeting their expenses like travelling expenses, telephone
expenses, etc.
 Personal selling can be a frustrating job.
 Personal selling is highly misunderstood by people. Most people have
had some bad experiences with salespeople who they perceive were
overly aggressive or even downright annoying.

1. Personal selling is the art of successfully persuading prospects or
customers to buy products or services. (True/False)
2. ____________ involves an alive, immediate, and interactive
relationship building between two or more persons.
3. Stimulus response selling approach is used when the customer faces
the purchasing problem. (True/False)
4. In which of the following approaches, does the sales executive identify
the need of the product by the customer and confirm it?
(a) Problem solving selling
(b) Stimulus response selling
(c) Need satisfaction selling
13.3 Sales Management Basics

The basic function and role of selling is to generate sales and earn revenue
for the organisation. The job of a sales manager is to take care of both the
selling and the human resource management function. As leaders, they
have to guide and lead their sales staff to achieve sales targets. The
function of the sales manager can be grouped as a combination of personal
selling and sales management.
Personal selling is the communication between the seller and the buyer for
the purpose of determining and satisfying buyer’s current and latent needs.
It involves an individual salesman or a sales team establishing and building

a profitable relationship with customers over a period of time. In the

relationship building process, the salesperson must determine the buyer’s
need and persuade the buyer to purchase his/her product with an assurance
that the product or service will satisfy him/her. When the transaction is
analysed on utility value, the salesman has to take into account both the
buyer and the end user. The consumer is the ultimate end user of the
product.
Sales management is more strategic and long-term in nature as it involves
planning, organising, directing, and controlling all the selling activities of the
organisation. Management of sales force demands attention towards the
emerging roles and functions of the salespeople. This trend includes
integration of technology with sales function, changes in approaches to
selling, evolution of customer expectations, and composition of sales force
on the basis of gender and qualification.
The role of sales managers in organisations has turned to be strategic and
formidable. Their job is a combination of that of an accountant, planner,
personnel manager, and marketer at the same time. However, their prime
responsibility is to boost the sales force in augmenting the selling process.
The specific duties and responsibilities of sales managers are summarised
below:
 Determining sales force objectives and goals
 Organising sales force, size, territory, and quota finalisation
 Forecasting and budgeting sales
 Selecting, recruiting, and training sales force
 Motivating and leading the sales force
 Designing compensation plan and control systems
 Designing career growth plans and building relationship strategies with
key customers

5. In the __________ process, the salesperson must determine the
buyer’s need and persuade the buyer.
6. Sales management involves planning, organising, directing, and
controlling all the selling activities of the organisation. (True/False)

13.4 HR Practices in Sales Management

The management first develops a set of qualifications that each applicant
must satisfy because it is important for companies to employ and maintain
an effective sales force. In order to make sales management more effective
and efficient, the organisation includes the following HR practices.
13.4.1 Recruiting
Recruitment of sales force is an important aspect of sales management. It
involves recruiting the right people for the right job. The two basic things that
need to be considered are:
1. Job description
2. Job specification
Job description
Job description is a blue print for job specification. The sales management
should prepare a detailed job description before initiating the recruitment
and selection process. In preparing the job description, it may consider the
following factors:
 Title and position of the job
 Responsibilities and duties
 Reporting procedures
 Territory or geographical region to be covered and managed
 Degree of autonomy for decision making
Job specification
Job specification enables you to determine the kind and quality of persons
to be recruited in terms of educational and other professional skills:
 Educational qualifications – Technical or non-technical degree,
diploma, postgraduate, etc.
 Communication skills – Local (regional) or foreign languages
 Personality – Pleasant or good looking
 Business sense – Risk taking, entrepreneurial skills
 Motivation – Intrinsic and extrinsic motivations
 Intelligence – Knowledge skills
 Confidence – Self-confidence
 Product knowledge – Knowledge on competing brands
 Integrity – Reliability and honesty

 Initiative – Efforts to start a work
 Character- self discipline – Conduct and sociability
 Empathy – Psychological power to identify oneself
 Social and relational skills – Friendliness and interaction with people
13.4.2 Selecting
Selection process involves elimination of unsuitable persons at several
stages right from receiving applications to the final appointment. Whatever
be the recruitment and selection process, it should satisfy the company
needs to ascertain specific information about the potential candidates.
Experience endows the companies with expertise and confidence in a
recruitment and selection procedure that has been found to be more
appropriate for a particular company. Recruitment and selection of
salespeople is an ongoing activity and not just one-time decisions. As things
keep changing in the marketing environment, companies develop different
marketing strategies accordingly, and salespersons with the required new
skills should be available.
The concept of attitude can be defined as a stable predisposition leading to
a favourable or unfavourable response towards an object or behaviour
(Fishbein and Ajzen 1975). The attitude is primarily a way of being towards
or against things. In selling context, much of the gut feeling in salesperson
comes from attitude. While selecting the salesperson, more details about
attitudes and previous work experience can be explored.
13.4.3 Training
In some companies, it is not uncommon to send the selected candidates to
the field without any formal training. This often leads to salespeople having
bad experiences and some decide to leave the job. This also causes waste
of money to the companies. The main purpose of sales force training is to
improve performance efficiency. Training supplements job experience and
the trained salespersons can achieve high performance standards and
better results.
13.4.4 Training programme
Well-managed companies arrange training programmes for newly selected
salespersons. The training period may range between a few weeks to a few
months. The training programme for fresh salespeople is generally

comprehensive. The course contents might cover company policies and
procedures, job responsibilities, company products, their benefits, and
applications, problems, services, warranties, terms and conditions,
distribution, selling skills, and methods.
To design a training programme, the management focuses on determining
the following training-related issues:
 Aim of the training programme
 Course content
 Methods to be used
 Who should conduct the training
 The place where training will be conducted
 Duration and time of training
 Training evaluation
Sales force compensation
Sales force compensation programmes vary considerably across industries
and also within the same industry. Before determining the compensation
programme, the company must examine the importance and value of
salespersons to the company’s selling efforts based on objectives, tasks,
responsibilities, and required qualifications and experience. The company
should develop a compensation plan that would attract, motivate, and retain
top-quality sales persons. It should give adequate income security, incentive
for achieving more, freedom, and allow management of the necessary level
of control. The compensation should be fair, flexible, economical to the
company, and easy to administer and understand by the salespersons. The
company should also consider what is generally the going rate in the
industry.
Companies ensure to reimburse sales persons for selling expenses, offer
certain employee benefits, and provide an adequate income. Basically,
compensation programmes use one or more of the three basic approaches.
 Straight salary plan: Under this system, salespersons receive a
specified monetary payment per month or per week. The salary may be
raised at specified intervals (every year, every two years, etc.).

 Straight commission plan: In case of straight commission plan, a set

percentage of sales or different levels of percentage on different levels
of sales are used.
 Combination approach: Under combination approach, salespersons
are paid a fixed salary and a commission on sales volume. Most
companies use a combination compensation plan. The reason for this
plan’s popularity is that it provides all that is required for a good system
of compensating salespeople, both, financial security and incentive for
higher than average performance. In addition to salary and incentive,
some companies provide additional perks such as car, telephone, and
laptop to their salespeople.
13.4.5 Training methods
Companies use a wide range of training methods depending on the training
objectives and may include lectures, role-plays, demonstrations, case
method, videotapes and films, on-the-job training, etc. The training
programme may be conducted by the managers for salespeople, senior
salespeople, technical experts within the company, or outside experts.
There are several types of sales training methods.
Figure 13.2 depicts the three most common sales training methods.
Training
Methods
On-the-job Business Company’s own

training schools training division
Fig. 13.2: Training Methods
Let us now study the training methods in detail.
On-the-job training
This is a 'coach-and-pupil method'. A newly recruited salesperson is
assigned to a senior person and the latter coaches him/her. The new
salesperson is allowed to attend actual calls of the coach to enable him/her
to learn everything practically.

Business schools
This is another method for training salespersons. The newly recruited
salespersons can be asked to undergo training in reputed business school
for a specific period of time. For example, leading business management
institutions such as IIMs, XLRI, etc. organise management development
programmes for business executives in India.
Company's own training division

Suppose, if a company has its own training division (e.g., staff training
college), the newly recruited salespersons can be trained for a specific
period of time. Lecture, case study discussion, demonstrations, role playing,
business games, etc can form the content of the training course.
13.4.6 Evaluation of training
Evaluation of any business activity is ideally related to preset objectives and
standards. The areas of performance evaluation with respect to
salespersons generally focus on some combination of knowledge, skills,
performance, and personal characteristics. The evaluation criteria vary
across industries and from one company to another. Well-managed
companies establish standards for evaluating sales performance and also
the intervals at which this would be formally done.
Johnson, Kurtz, and Scheuing mention some generally accepted principles
for evaluating salespeople. They are:
 Must be realistic and reflect territories, competition, experience, and
sales potential etc.
 Salesperson must know when and how performance is evaluated.
 The evaluation must show a salesperson, what needs improvement and
how to do it.
 It must motivate and stimulate the salesperson to improve.
 It must furnish useful information about a salesperson and the work
territory.
 The salesperson must be involved in her/his evaluation.
 It must be based on objective evaluation standards and not opinions.
 It must take into consideration the changing market conditions.
 It must be specific to fit the company and the salespeople.
 It must be economical.


7. ___________ process involves elimination of unsuitable persons at
several stages right from receiving applications to the final
appointment.
8. Under straight salary system, salespersons are paid both fixed salary
and commission on sales volume. (True/False)
9. On-the-job training is also called as coach-and-pupil method.
(True/False)
13.5 Personal Selling Process

Process or steps in personal selling include the following:
1. Prospecting – This is the beginning of sales process, which covers
searching for customers with potential demand.
2. Targeting – This is the process of deciding how to allocate sales time
among prospects and existing customers.
3. Pre-approach – In this step, the salesperson plans methods to
approach the customers and to collect company and customer
information.
4. Communication and approach – This is the process of communicating
and contacting the customers. It involves developing a system to greet
the customers and meet them for the sale. Homer B. Smith has
recommended different approaches. The following are some proven
techniques:
 Ask questions – Questions should preferably be relevant to sales
presentation.
 Use a referral – Someone favourably known to the potential
customer.
 Offer a benefit or service – This can be quite effective if relevant to
customer’s need.
 Complement the prospect – It is a good way to establish rapport if
there is anything that the prospect has achieved.
5. Presentation and demonstration – In this stage, the salesperson gives
a sales presentation and if required demonstrates features, advantages,
and benefits and value propositions of the product.

6. Customer objection handling – Customers always pose objections

during presentations or when asked to order. Psychological resistance
and logical resistance are the two types of resistance seen at this stage.
The psychological resistance includes resistance to interference,
preference for established brands, apathy, reluctance to give up
something, etc. The logical resistance includes objections to price,
delivery schedule, or certain companies.
7. Closing – Some salespeople do not get to this stage or do not do it well.
The salespeople try to close sales after handling the customer
objections.
8. Follow up and maintenance – The salesman does follow up and
retains the relationship with customers to obtain repeated orders and
referrals and ensures customer satisfaction and repeated business. In
the case of consumer durables, salespeople take care of maintenance.
Activity 1:
Prepare a list of brands that you wish to sell and list their uniqueness and
value propositions by collecting articles and news clippings published in
newspapers and magazines, visit their websites and then rate them as to
how easy it is to sell their products and services. Give reasons for your
heading.

10. Prospecting involves searching for customers with potential demand.
(True/False)
11. ___________ and _____________ are the two types of resistance
seen at customer objection handling stage.
12. The salespeople try to close sales after handling the customer
objections. (True/False)
13.6 Direct Marketing

Direct Marketing means getting the message directly to the customer
without using any intermediaries. Direct marketing is an interactive system
of marketing, which uses one or more advertising media to affect a
measurable response and transaction at any location. Direct marketing has

a historical perspective and has served the marketer in many forms like mail
order marketing, direct mail marketing, and personal selling and direct
response advertising.
Direct marketing is an efficient way to promote and sell products and
services because it has a record of proven profitability. It helps in
responding to the return on the marketing investments and gives efficient
systems that help in reaching fragmented and distributed markets. While
direct marketing helps in identifying prospects and generating desired sales
responses, it also helps the customer either to go for a trial or at least seek
product information. General advertising seeks to increase awareness and
has more communication orientation in relation to direct marketing
advertising. We list herewith a set of advantages and disadvantage of direct
marketing.
13.6.1 Advantages of direct marketing
Advantages of direct marketing are:
1. Focused approach – It is possible to identify a specific target market
using direct marketing techniques. This makes it a very useful
promotional tool for niche products because it is possible to target only
those who are likely to respond to the promotion, leading to lesser
wastage of marketing efforts and resources.
2. Cost effective – Although the cost per thousand people may be high as
compared to other mass marketing promotional techniques, direct
marketing can be very cost effective for niche products. Companies are
also able to remove the non value-adding intermediaries from the
channel and serve the customers with a profit. There is a direct
reduction on cost to serve customers due to less number of
intermediaries in the value network.
3. Measurable and attributable - It is possible to link a particular sale as
being a response to a particular direct marketing activity. This is very
useful information since over a period of time it is possible for an
organisation to build up a picture of the kind of marketing messages to
which a particular group of customers is more likely to respond. A
marketing manager can measure the benefits of direct marketing
programme and identify attributes responsible for the success or failure
of the programme.

4. Immediate and flexible – Some promotional activities can take a great

deal of time to develop from the first idea to the final execution like
television advertising. Direct marketing is flexible and there is a short
lead-time associated with its use. Direct marketing often has an
immediate impact on customer responses. The adaptability of direct
marketing programme to the changing environment is high, making it
more flexible and instant result oriented activity for the organisation.
5. Ability to test, retest, and measure the impact of single variables –
Its flexibility also means that a number of pilot versions of a direct
marketing campaign can be run before the final version is rolled out on a
large scale. Since this is more company controlled and has objective
goals, ability to test and retest the impacts of single variables are
possible for different kinds of direct marketing programmes.
6. Easy international reach – It is relatively easy to adapt a direct
marketing campaign to an international target market. Most of the
multinational companies adapt to a host country environment quite
easily as compared to adaptation of other forms of marketing
communications. Internationalisation of brand communication through
personal selling and promotion helps in penetrating new territories faster
than other methods of marketing communication.
7. Tailored messages – Direct marketing also offers greater opportunities
for developing tailor-made messages for particular groups of consumers.
This is the biggest benefit as there is lesser involvement of mass media
while communicating with identified segments. Marketers can undertake
behavioural research to find out the ‘benefit sought’ of the target
segment and tailor the message to appeal to the audience.
8. Alternative distribution channel – Many organisations are realising
that direct marketing not only offers the opportunity to communicate with
customers but it is also a means of getting their products to the
customer. In other words, it is a mechanism for distribution as well as
promotion.
9. Opportunity to build a database – Over time, the direct marketing
company is able to develop a database of customers, which includes
information on what they bought, when, and how they bought. Many
companies use such customer database to do mail order marketing.

13.6.2 Disadvantages of direct marketing

Though the marketer finds it comfortable to use direct marketing for market
and brand promotion, still there are a set of problems associated with direct
marketing. The following are the problems associated with direct marketing.
1. Competition to existing intermediaries – Practice of direct marketing
may upset marketing intermediaries as sales through direct marketing
can take away sales from them. In effect, one may end up competing
with one’s own customers at different customer interaction points.
2. Intrusive marketing – Many customers perceive direct marketing as an
intrusion in their life and work. Especially door-to-door and tele-
marketing practices are often found to be intruding the customers and
creating irritation among them.
3. Costs – Initial customer acquisition costs are high. If cost per reach is
analysed then the high cost per thousand reach and the cost of
developing a customer database is found to be prohibitive for many
companies. Companies following personal selling have found the cost of
maintaining sales force to be very high and one of the strongest reasons
for indirect marketing is this prohibitive cost.
13.6.3 Types of direct marketing programmes
There are different forms of direct marketing. Let us now discuss the
different forms of direct marketing programmes.
 Direct mail marketing – Direct mail is used to build customer
relationships in the long run. Direct mail can alert dealers about future
customer promotions, educate them on service problems, and survey
them concerning their needs. Direct marketing can also be used to build
company morale. Internal newsletters and other employee
communications are often used to personalise large corporations. It can
be used to introduce salespeople, promote other forms of advertising, or
announce a product’s introduction. It can also be used to make a sale.
 Telemarketing – This is the second most used direct marketing tool.
Effective communication is vital to corporate survival and success. Due
to the widespread use of mobile and fixed landline networks, telephone
has become the most important part of the marketing communication
strategy. In many areas, it is replacing post and personal contact as the
most efficient way to send, receive, and process information. The

combination of database information and effective telemarketing

techniques help to develop a powerful competitive edge for the firm.
Many companies have recognised that telemarketing can help them
make the most effective use of the telephone by increasing revenue,
reducing costs, and improving customer service.
 Direct selling – Direct selling identifies the unfulfilled needs of ordinary
customers. Amway, Avon, Modicare, Modi Telstra, Eureka Forbes, and
Hindustan Lever Limited are a few companies using direct selling and
adding values to build customer satisfaction. In this method, it only takes
a minute to clinch a sale by choosing the right minute to contact the
customer or may involve a day’s work for a direct marketer.
 Internet based selling – Internet revolution has developed as an
alternate way of living for us. Online buying has become one of the
alternative living patterns in the 21st century. People are showing higher
interest in online marketing as it provides a real time, interactive, and
personalised environment for the marketers to transact on online
storefronts.
Activity 2:
Direct mail is a successful model in India but with limited applications.
Explain the direct mail marketing programme of Reader’s Digest
magazine and develop a generalised model for direct mail marketing
programme for a multinational personal care company.

13. __________ is an efficient way to promote and sell products and
services because it has a record of proven profitability.
14. There is a direct reduction on cost to serve customers due to less
number of intermediaries in the value network. (True/False)
15. The combination of ____________ and effective telemarketing
techniques help to develop a powerful competitive edge for the firm.

13.7 Summary
 Personal selling is an activity that involves a face-to-face interaction with
the customers. The basic function and role of selling is to generate sales
and earn revenues for the organisation.
 Basic human resource practices in sales management are recruiting,
selecting, training, and evaluating training.
 Process or steps in personal selling involves prospecting, targeting, pre-
approach, communication and approach, presentation and
demonstration, customer objection handling, closing, and follow up and
maintenance.
 Direct marketing is an efficient way to promote and sell products and
services because it has a record of proven profitability.
13.8 Glossary
Direct marketing: This is the method of passing the message to
prospective customers through direct channels without any mass media and
intermediaries.
On-the-job training: This is also called 'coach-and-pupil method'. Under
this method, a new salesperson is placed under an experienced or senior
salesperson who trains him/her.
Personal selling: It is the process of communicating and presenting
products and services to customers on face-to-face personal dialogue.
Recruiting: Recruitment is a process of finding candidates who are
encouraged to apply.
Sales management: It is a process of recruiting and selecting sales force;
training sales representatives, supervising and motivating them, and finally
evaluating their performance against the preset goals and standards.
Selection: Selection is a process of choosing or short-listing some suitable
candidates out of many those who have applied.
Straight commission plan: In this salesperson compensation plan, a set
percentage of sales or only a percentage of the sales volume is paid, but no
fixed salary is paid.

Straight salary system: This is a system in which salesperson would get

monetary payment per month, per week, or at specified intervals (every
year, every two years, etc.).

1. What is personal selling? Discuss the advantages and disadvantages of
personal selling.
2. Define sales management. Also write down the duties and
responsibilities of a sales manager.
3. What HR practices do organisations include to make sales management
more effective and efficient?
4. Explain in brief the process involved in personal selling.
5. What is direct marketing? Briefly discuss the various types that can be
used for direct marketing?
13.10 Answers

1. True
2. Personal confrontation
3. False
4. c
5. Relationship building
6. True
7. Selection
8. False
9. False
10. True
11. Psychological resistance, logical resistance
12. True
13. Direct marketing
14. True
15. Database information

Terminal Questions
1. Personal selling is an activity that involves a face-to-face interaction with
the customers. It is a two-way communication. Personal selling can be a
frustrating job. For more details, refer section 13.2.
2. Sales management involves planning, organising, directing, and
controlling all the selling activities of the organisation. The duties and
responsibilities of a sales manager include sales forecasting and
budgeting. For more details, refer section 13.3.
3. Basic human resource practices in sales management are recruiting,
selecting, training, and evaluation of training. For more details, refer
section 13.4.
4. Process or steps in personal selling involves prospecting, targeting,
pre-approach, communication and approach, presentation and
demonstration, customer objection handling, closing, and follow up and
maintenance. For more details, refer section 13.5.
5. Direct marketing is an efficient way to promote and sell products and
services because it has a record of proven profitability. There are
different forms of direct marketing, which are direct mail marketing,
telemarketing, direct selling, and Internet based selling. For more
13.11 Case Study

From Direct Selling to Direct Marketing
For years Avon lady was a fixture in American neighbourhoods. Selling
door-to-door built Avon into the world’s largest manufacturer of beauty
products. Avon operates in 135 countries and besides the cosmetics it also
sells jewellery, home furnishings, and baby-care products. Avon pioneered
the idea of hiring housewives for direct selling cosmetics in the
neighbourhood.

Fig. 13.3: Avon Products

(Source: www.in.avon.com/ - United States)
But in 1980s, as millions of women began to work outside the home, the
cosmetics maker’s pool of customers and sales representatives dwindled,
and its sales faltered. By 1985, its profits were half what they had been in
1979.
Consumer research showed that many women thought Avon’s make-up was
“stodgy,” its gifts products overpriced, and its jewellery old-fashioned. So the
company created a more contemporary line of jewellery, lowered the prices
of its giftware to offer more items under $15, and expanded its lipstick and
nail polish colours.
On the selling side, recruiting sales people had become problematic, much
as it had for other direct sellers like Mary Kay Cosmetics and Premark
International’s Tupperware division. To attract sales representatives and

boost productivity, Avon improved incentive-compensation plans and offered

free training programmes for recruits. As a result, Avon’s direct-sales
business – which accounts for 70 per cent of sales and 85 per cent of
operating profits – experienced a dramatic turnaround. Within a year sales
rose 17 per cent, to $2.9 billion, and profits jumped as much as 25 per cent.
Today more than 450,000 sales representatives work for Avon and fill out
some 50,000 orders daily. Sales exceed $3.5 billion a year. Nonetheless,
Avon estimates that at least ten million women in the US who are interested
in buying from Avon are unable because no sales representative is calling.
To win back some of the customers and attract new ones, the company has
begun mailing catalogues directly to potential customers nationwide. The
move represents growing concern at Avon that its core market has matured.
The growing number of women joining work force means that fewer of them
have time to meet with Avon representatives. Although Avon remains the
nation’s largest direct seller of beauty products, supermarkets and discount
stores are stealing market share. Avon hopes that mail-order catalogues will
help to reach “stranded” customers.
The plan is to send catalogues to people who have moved or who no longer
are active buyers. They can then order directly through the company or
through a salesperson. Initial expectations are modest. Avon hopes
catalogue sales will reach $25 million the first year. In the long run, Avon
hopes to penetrate major cities and suburbs, the places where much of the
female work force is absent at prime selling times. Avon is also increasing
the use of toll free numbers in conjunction with this strategy.
1. What are the significant issues in the case of Avon?
(Hint: Women in the US who are interested in buying from Avon are
unable to buy because no sales representatives are calling.)
2. Do you think Avon’s approach in response to changing conditions is
right for products that need personal contact by salesperson?
(Hint: Mail-order catalogues will help to reach “stranded” customers.)
(Source: Pat Sloan, “Avon Looks Beyond Direct Sales,” Advertising Age,
February 22, 1993)

References:
McGraw-Hill/Irwin.
E-References:
 www.knowthis.com › Marketing Tutorials › Personal Selling – Retrieved
 www.marketing91.com/sales-management/ – Retrieved on February 10,
2012
 www.direct-marketing.net/ – Retrieved on February 10, 2012

Unit 14 Customer Relationship Management

and Other Contemporary Issues
Structure:
14.1 Introduction
Objectives
14.2 Relationship Marketing Vs. Relationship Management
14.3 Definitions of Customer Relationship Management (CRM)
14.4 Forms of Relationship Management
Continuity marketing
One-to-one marketing or individual marketing
Co-marketing
14.5 Managing Customer Loyalty and Development
Strategies to prevent defection and recover lapsed customers
14.6 Reasons Behind Losing Customers by Organisations
14.7 Significance of Customer Relationship Management
14.8 Social Actions Affecting Buyer-Seller Relationships
14.9 Rural Marketing
14.10 Services Marketing
14.11 E-Marketing or Online Marketing
14.12 Summary
14.13 Glossary
14.15 Answers
14.16 Case Study
14.1 Introduction
In the previous unit we dealt with the personal communication channels
used by an organisation to reach their target audience. We analysed
personal selling, sales management basics, HR practices in sales
management, personal selling process, and direct marketing. It is crucial for
an organisation to use the channels effectively to create and maintain a
good relationship with its customers.
Changes in customer expectations can be spotted throughout the globe.
Customer Relationship Management (CRM) strategies have become

progressively crucial worldwide due to these changes in customer

expectations as well as changes in the nature of markets.
CRM is a managerial philosophy that relies on building long-term
relationships with customers. CRM can be defined as “the development and
sustenance of mutually beneficial long-term relationships with strategically
significant customers.“
The implementation of CRM is desired by companies due to the benefits
associated with these strategies among their customers, such as greater
loyalty and profits. The CRM strategy embraces acquisition, retention, and
overall customer profitability of a particular group of customers.
In this unit, you will deal with the concept of CRM. In the recent years,
however, several factors have contributed to the rapid development of direct
interaction between producers and customers. The concept of CRM as a co-
operative and collaborative process has thus tended to be more common.
Its purpose is mutual value creation on the part of the marketer and
customer. CRM solutions provide customer-oriented services for planning,
developing, maintaining, and expanding customer relationships, with special
attention paid to the new possibilities offered by the Internet, mobile devices,
and multi-channel interaction.
In this unit, we will comprehend the concept of rural marketing, services
marketing, and e-marketing. A few years ago, the rural market in India was
an unknown territory and many companies were not interested in entering
the rural markets of India, as the demand pattern was fragile, seasonal,
purchasing power was scantly distributed among a few wealthy landlords.
But now, everyone is looking at rural markets as the next growth driver in
Indian market. The service sector has come to stay as one of the key drivers
of modern economic systems. The service sector has become more
competitive and is posing more challenges to marketing managers to apply
marketing principles and strategies to achieve success in the service sector.
E-marketing or online marketing is comparatively new, but is growing at a
fast pace and has become an essentially important aspect of strategic
marketing implementation. Today, in many organisations, it is considered as
a functional aspect of marketing strategy.

Case Let
CRM at Wells Fargo

Wells Fargo is one of the world’s largest banks in terms of market
capitalisation. “CRM is a hot topic”, says Clyde Ostler, executive Vice-
President of the Internet services group at Wells Fargo. “We have
databases of customer profiles that help us with the next best cross sell.
We have statistics that will determine what kind of products that customer
has and what behavior they will exhibit in the future. The Internet enables
you to do all that and a little bits more.”
Wells Fargo has about 1.8 million Internet banking customers and is
adding roughly 100,000 customers a month. Finding ways of tracking
these customers is increasingly important.
One example of e-CRM at Wells Fargo is the bank’s system of dealing
with 4000 e-mails from its two customer service centres. To enhance
service inquiries, the bank bought a system that uses modelling language
to understand what is really meant by each incoming inquiry. The system
watches how customer service agents respond to customer inquiries and
creates a database of answers that are then developed into responses
that can be sent automatically or after approval. The result is that Wells
Fargo has been able to handle twice as many e-mail inquiries with greater
accuracy and without increasing staffing.

 What is CRM?
 What are the forms of CRM?
 Why is it important to manage customer loyalty?
 Why have rural marketing, services marketing, and e-marketing gained
importance of late?
Objectives:
 define customer relationship management and
 describe the forms of CRM
 explain the importance of creating and maintaining customer loyalty

 identify why organisations lose customers

 analyse the significance of CRM
 explain the growing relevance of rural marketing
 examine the significance of service marketing
 explain the growing relevance of online marketing
14.2 Relationship Marketing Vs. Relationship Management

CRM is a comprehensive approach that provides seamless integration of
every area of business that touches the customer – namely marketing;
sales, customer service, and field support – through the integration of
people, process, and technology, taking advantage of the revolutionary
impact of the Internet. CRM creates a mutually beneficial relationship with
the customers. In the rapidly expanding world of e-commerce, there is a
new generation of empowered customers emerging who demand immediate
service with the personalised touch.
Relationship marketing is a term often used in marketing literature. We
sometimes use it interchangeably with CRM. Relationship marketing has
been defined more popularly with the focus on individual or one-to-one
relationship with customers integrating data-base knowledge with long-term
customer retention and growth strategy. Some writers have taken a strategic
view and shifted the role of marketing to genuine customer involvement
(communicating shared knowledge) rather than manipulating the customer
(telling and selling). Overall, the core of CRM and relationship marketing
focuses on co-operative and collaborative relationships between the firm
and its customers and for other marketing factors. It must, however, be
noted that CRM programmes now envisage a wider spectrum of efforts
other than data-based one-to-one relationship with customers, which
characterises relationship marketing.

1. The foundation of CRM is based on ________________relationship.
2. Relationship marketing focuses on maintaining ______________
relationship.

14.3 Definitions Of Customer Relationship Management (CRM)

CRM refers to the holistic approach that an organisation can take to manage
their relationships with customers, including policies related to contact with
customers, collecting, storing, and analysing customer information and the
technologies needed to perform these tasks. You should think of CRM as a
strategic process that will help you understand your customer's needs and
how you can meet those needs and enhance your bottom line at the same
time. CRM is a comprehensive strategy and process of acquiring, retaining,
and partnering with selective customers to create superior value for the
company and the customer. The basic objective of CRM is to increase
marketing efficiency and effectiveness. It is the co-operative and
collaborative processes that help in reducing transaction costs and overall
development costs of the company.
CRM can be defined as an alignment of strategy, processes, and
technology to manage customers and all customer-facing departments and
partners. CRM, in short, is about effectively and profitably managing
customer relationships throughout the entire lifecycle.
Most CRM initiatives begin with a strategic need to manage the process of
handling customer related information more effectively. For beginners, it
could simply mean better lead management capabilities or sales pipeline
visibility. However, as organisations mature in their CRM initiatives, they
shall visualise CRM as a tool to acquire strategic differentiation. It includes
adoption of IT related systems, training of employees, and amendments in
business processes related to customers. It is not just software but an
approach to update and enhance business methods to improve customers’
relationship with the organisation.

3. The general objective of CRM is to increase marketing efficiency and
effectiveness. (True/False)
4. CRM can be used by the organisations as a strategic differentiator.
(True/False)
5. CRM can be defined as an alignment of strategy, processes and
_________________.

14.4 Forms of Relationship Management

It is possible to distinguish between three main types of CRM programmes,
which actually have variations attempted by innovative marketers. The three
main forms of CRM programmes are:
1. Continuity marketing
2. Individual marketing
3. Co-marketing
Figure 14.1 depicts the three forms of CRM
Continuity
Marketing
Forms of
CRM
Co- Individual
marketing Marketing
Fig. 14.1: Forms of CRM
Let us now study the three forms in detail.

14.4.1 Continuity marketing
These programmes are generally aimed at retaining customers and
enhancing their loyalty. The basic premise is that of offering long-term
special services with potentiality of increased mutual value. For end-users in
mass markets, an attempt is made to offer rewards to consumers by way of
membership and loyalty-cards with a variety of rewards, which may include
privileged services, discounts, and cross-purchased items.
14.4.2 One-to-one marketing or individual marketing
These programmes aim at meeting individual customer’s needs, which are
fully satisfying and uniquely customised. In the mass markets, information
on individual customers becomes the basis of individual customer
interactions. An attempt is made to fulfil the unique needs of each as well

as develop frequency marketing, interactive marketing, and after sales

programmes for high yielding customers. Advancement in information
technology has made it possible to use customer information at low cost.
Customer business development is the form of individual marketing vis-à-vis
distributor customers. A large manufacturer may be able to offer expert
advice based on his/her knowledge from across many markets and also
offer resources to build the business of distributors.
14.4.3 Co-marketing
Co-marketing has long been used in individual marketing by way of key
account management programmes. It involves appointment of separate
teams by marketers to decide on the use of company resource to be used to
meet individual customer needs. If necessary, joint planning with customers
is done at the national as well as global levels.

6. Which of these is a technique used in continuity marketing?
(a) Point-of-purchase display
(b) Loyalty cards
(c) Publicity
(d) Window display
7. Customer business development is the form of __________marketing.
8. ____________ attempts to engage customers directly in the marketing
process.
14.5 Managing Customer Loyalty and Development

Managing customer loyalty is the basic platform of relationship formation. In
a highly competitive and challenging business environment, organisations
are really blessed if they are fortunate to have loyal customers in their
customer inventory. With the backup of loyal customers, the organisation
could enjoy a number of advantages. In short, having loyal customers will
serve as a sustainable competitive edge to the organisation concerned in
the present day context. Therefore, organisations should keep “managing
customer loyalty” as their prime agenda.

Customer loyalty is a company's ability to retain satisfied customers.

Maintaining customer loyalty is one of the toughest challenges for any
marketing department in a business enterprise, since the wants of a
customer are modified at much faster rate than their needs. A customer
loyalty programme is based on a simple premise - as a company develops
stronger relationships with their best customers, those customers will stay
longer with the company and become more profitable. For example, many
companies issue loyalty and membership cards to their regular customers
that give them a few advantages like discounts, reward points, free home
delivery of products, etc.
Figure 14.2 depicts the loyalty and membership cards used by various
companies.
Fig. 14.2: Examples of Loyalty and Membership Cards

(Source: http://www.plasticcards-india.in)
Let us now study the strategies used to prevent defection and recover
lapsed customers.

14.5.1 Strategies to prevent defection and recover lapsed customers

The below mentioned strategies are considered for managing the faith of the
customers:
 Total knowledge about customer behaviour – The organisation
should have complete knowledge regarding the behaviour and migration
patterns of the target customers.
 Interactive communication system: – It is essential to develop
transparent and interactive communication system.
 Special promotion campaign – Whenever the signals of customer
defection are noticed, it is essential to come out with the specially
designed promotions to attract the attention of likely defectors.
 Developing barriers to exit – The organisation should carefully evolve
barriers to exit, which includes the following:
 Emotional appeal
 Conformation to specification
 Durability
 Lifetime utility
 Social relationship
 Flexibility
 Added value
 Concessional price schemes
 Commitment
 Innovative approach
 Reducing risk
 Avoiding threat
 Holistic care
For example, Jet Airways uses emotional appeal combined with rational
appeal in its advertisements to keep the target audience interested.
Figure 14.3 depicts one such Jet Airways advertisement.

Fig. 14.3: Jet Airways Ad

(Source: http://img237.imageshack.us/img237/9930/ad0070804yp3.png)
 Knowledge about lifestyle and life cycle – Lifestyle of the target
customers has to be studied. The lifestyle represents the activities,
interests, and opinions of the customers. Knowledge about the lifecycle
stage is equally important. Organisations should match their offerings to
the lifestyle and lifecycle stages and this approach would prevent
defection.
 Customer specific approach – The approach to prevent defection
must be customer specific. It must be in tune with the customer
categories, contribution towards revenue generation of the organisation,
and also with specific personality traits of the customers such as
aggrieved customers, annoyed customers, and frustrated customers,
etc.
 Customer win-back programmes – The organisation must introduce
reward-based customer win-back programmes. Employees involved in
customer win back programmes should be given suitable incentives and
every win-back should be celebrated and documented.
 Building customer care team – A customer care team specially
focusing attention on defection drivers should be formed. The team can
devote attention to identify causes for defection and rectify the same.
 Improvement of value delivery system – Value delivery system
consists of the entire process right from the time a customer has
expressed a need to the stage customer receives the required service or
product. The value path in the value delivery system should be

constructed effectively so as to exceed the expectations of the

customers. Such an approach would prevent defection.

9. _______________ is a company's ability to retain satisfied customers.
(a) Brand perception
(b) Competitive edge
(c) Customer loyalty
(d) Brand building
10. Companies should avoid using emotional appeals in their ads if they
want to increase customer loyalty. (True/False)
11. Companies should not try to win-back customers who have left them as
it is cost ineffective and time consuming. (True/False)
14.6 Reasons Behind Losing Customers by Organisations

If customers perceive that a company has a deficiency in any of the factors
that positively contribute to customer loyalty, they may be less loyal. Such
factors include customer service, customer attention, product quality,
promises, and competition.
 Customer service – It is expected from occasionally dissatisfied
customers. Even if you have the best customer service team and you
resolve problems at the earliest, some customers will have problems.
Leaving this case aside, customer service is one the major reasons why
organisations lose customers.
 Customer attention – It is one the major reasons why a customer,
specially a business customer, decides not to deal with an organisation.
You must have noticed that people move to other restaurants if the
restaurant that they first visited is full and they are left unattended by
their executives. Customers can even sacrifice quality for speed.
 Product quality – It is obvious that any company that compromises on
product quality is likely to lose its customers. Though some customers
might stay if the price is low, in the long run the company is bound to
have less, loyal customers.

 Failure to keep promises – The companies must live up to the

promises made in their communication. If an ad says “customers will get
40% flat discount on all items”, then it must give them the same
(provided the “conditions” were not stated). Similarly, if an executive of a
B2B company tells a business customer that his/her products will be
delivered within 7 days, it must do it within that time frame. A customer
who trusts a company is more likely to be loyal.
 Competition – When the offerings of different organisations are not
differentiated, competitive parity exists. Competitive parity here means
that there is equality or essential equivalence between the competitors.
If customers perceive that brands are identical, perceived risk is low and
there is a greater tendency for brand switching as the likelihood of
loyalty toward the product declines.
Activity 1:
Conduct a secondary research to find out why Nokia’s market share has
been falling in recent times. Also suggest some strategies to Nokia for
overcoming this phase.

12. Some customers are never satisfied. Marketers should try repeatedly to
satisfy those customers. (True/False)
13. Customer loyalty does not always depend on product quality.
(True/False)
14.7 Significance of Customer Relationship Management

The significance of CRM lies in the host of benefits that it provides. The
following are the benefits of CRM:
 It allows organisations not only to retain customers, but also enables
more effective marketing. It creates intelligent opportunities for cross
selling and opens up the possibility of rapid introduction of new brands
and products.
 Keeping the customer happy is obviously one way of ensuring that they
stay with the organisation. However, by maintaining an overall
relationship with the customer, companies are able to unlock the

potential of their customer base and maximise the contribution to their

business.
 The strategic benefits of CRM allow companies to reduce the cost of
customer acquisition and give established players the ability to react like
a new market entrant, the very people they are battling against.
Ironically, the costs of customer acquisition are increased and the
potential of customers can then be capitalised through cross selling of
other products and services.

14. CRM allows companies to ____________ cost of customer acquisition.
15. CRM enables a company to _____________ customers and enhances
opportunity of cross selling.
14.8 Social actions affecting Buyer-Seller Relationships

Buyer-seller relationships are not only affected by the commercial
transactions between them but also by their social actions. Table 14.1
depicts the social actions that affect the buyer-seller relationships.
Table 14.1: Good Things and Bad Things That Affect Buyer-Seller
Relationships
(Source: www. ba.nccu.edu.tw/aihwa/CH03.ppt)

14.9 Rural Marketing

The rural areas are where the markets of the future lie. Urban markets are
becoming increasingly competitive and saturated for many products. On the
other hand, rural markets offer growth opportunities for firms caught up in
intensive battle in urban and metro markets. Marketing gurus describe rural
markets as the market of the new millennium. According to them, marketers
have to understand the rural customers before they can make inroads into
rural markers.
The size of the rural market is fast expanding. Britannia ventured into basic
items such as biscuits, with their brand called ‘Tiger’. This brand is steadily
gaining market share and also creating new markets. LG has ventured into
the rural market, selling black and white TVs with great success and hopes
to further penetrate the markets in the near future with colour televisions.
ITC's e-chaupal initiatives to equip the rural farmers, HLL's Project Shakti to
empower rural women consumers through income generation projects are
some of the examples, which have opened new vistas in rural marketing.
Figure 14.4 depicts some products that have done really well in the rural
markets of India.
Fig. 14.4: Products that are a Success in Rural Markets of India

A sound understanding of rural consumer behaviour and customer demand

patterns will help the rural marketer to creatively serve the rural market with
ample success.
Rural marketing should not be considered as an expense but as an
investment. Of course, the initial costs for distribution and communication
are high and returns come after a long period of gestation, yet it is an
investment worth making. For success, the following points must be
considered:
 An efficient countrywide distribution network must be created so that
company's products are available to the farmers at their doorstep.
 Advertising communication and servicing must be evolved in tune with
rural needs and in ways different from what is effective in larger towns
and cities.
 There should be a strong research and development team to produce
products specifically for rural areas.
 Role of trade in distribution and communication must be strengthened.
 Pricing of products should be in line with the economic competence of
villagers.
 Packaging should be simpler and more functional than ornamental.
In rural marketing, institutional promotion is more important than brand
advertising. To a marketer, this is another hurdle because he/she may
promote the institution and some other brand may be bought. Inability of the
smaller retailers to carry stocks without adequate credit facilities is an
impediment for growth of retail in rural areas. Rural markets have also
inadequate warehousing, which leads to delay in replenishments of stocks.
Marketers must overcome all these barriers to successfully market their
product in the rural market.

16. Marketing experts see _____________ market as a market of the new
millennium.
(a) Rural
(b) Urban
(c) Kid’s
(d) Women’s
17. In rural markets,_____________ advertising is more important than

product advertising.
(a) Brand
(b) Institutional
(c) National
(d) Local
14.10 Services Marketing

Service sector is one of the key contributing factors for the growth of our
economy and civilisation. Though marketing literature is dominated by
manufacturing and product-centric business practices, service marketing
constitutes a strategic area, which has propelled growth and success for
many organisations. Pure services and products are hypothetical extremes
as every product today is associated with some level of service.
Alternatively, physical evidences are created for augmenting services and
reducing customer’s perception of risk. Service is defined as any activity or
benefit that one party can offer to another, which is essentially intangible
and does not result in an ownership. Its production may or may not be tied
to a physical product. The level of intangibility makes us develop a
continuum for services as pure services, associated services accompanying
a manufactured product, services accompanied by minor products and pure
tangible products.
Services have distinct characteristics of intangibility, inseparability,
perishability, variability and lack of ownership.
The marketing mix for manufactured products is insufficient to explain the
special nature of services and hence the 4Ps concept developed in product
marketing is extended in service marketing by addition of people, process,
and physical evidence (you have already learned this in unit 2).
Service quality is an important issue in marketing of services due to the fact
that both production and consumption of services occur at the same time.
Since services cannot be standardised, it is very difficult to present services
on quality dimensions. The various service quality dimensions include
reliability, responsiveness, assurance, and empathy. The quality of a service
will delight a customer when it exceeds the service expectations of the
customers.

There are five types of service quality gaps that a service marketer should
try to bridge through an effective service-marketing programme.
Figure 14.5 depicts the four producer gaps and one consumer gap.
Fig. 14.5: Gaps Model of Service Quality

(Source: www.ausweb.scu.edu.au)
Let us now study the gaps model in detail.
1. The first gap exists between customer expectations and management
perception of what the consumer expects.
2. The second gap exists between management perception and service
quality perception.
3. The third gap exists between service quality perception and service
delivery.
4. The fourth gap exists between service delivery and external
communications to the consumers.
5. The last gap exists between perceived service and expected service by
the consumer.
An effective quality management programme should try to develop
strategies to fill the gaps and create customer delight.
Activity 2:
How do the top service marketing companies manage the service quality?
Conduct a secondary research to find out the service quality management
practice of Jet Airways.
Hint: Refer service quality management practice in Jet Airways website.


18. There is nothing like a pure service or a pure product. (True/False)
19. Traditional 4Ps are sufficient to market a service. (True/False)
14.11 E-Marketing or Online Marketing

Internet revolution has developed as an alternate way of living. Online
buying has become one of the alternative living patterns in the 21st century.
People are showing increased interest in online marketing as it provides a
real time, interactive, and personalised environment for the marketers to
transact on online storefronts.
We can think of the Internet as a worldwide means of exchanging
information and communicating through a series of interconnected
computers. This wonderful technology provides marketers with faster,
efficient, and powerful ways to handle designing, promoting, and distributing
products, doing research, and collecting loads of market information almost
instantly.
The commercial application of the Internet became possible with the
creation of World Wide Web and several other tools to access websites.
These include browsers, directories, and portals. Firms create their
corporate website and post vast amount of information on it that includes
product description, operating instructions, invitation to suppliers to submit
bids on company’s planned purchases, and contacting sales people.
Use of the Internet permits companies to collect marketing research
information at reduced costs and manpower involvement. Wherever
feasible, companies have shortened distribution channels to reach the
customers and are using variety of methods to minimise any possibility of
channel conflict or sales force complaints.
Internet marketers have to make their websites attractive to the right target
audience so that they are motivated to visit their specific websites.
Depending on the product category and the company’s marketing objectives
for the Internet, a website can just be a simple source of information about
the company and its products or a powerful tool to build brand image, a
means to offer samples, or generate sales leads.

Types of Internet advertising

An organisation uses a variety of online tools for e-marketing. Some of them
are ad banner, website, ad button, sponsorship, interstitial, classified ads
and e-mail.
 Ad banner – Ad banner is the most basic type of Internet advertising. It
is like a billboard that appears across the top or bottom of a web page
and when clicked upon by the user, it sends him/her to the advertiser's
site. The size of the banner is about four and half by one and half
inches. Other names given to banners include side panels, skyscrapers,
and verticals.
 Website – A website is a location on the Internet where anyone can find
out about the company, its products and/or services. It is used as a
brochure to promote the company's products or services. There are
some companies which use their websites as a source of information
and entertainment and encourage the Internet users to visit often. Some
other companies use the Web as an online catalogue store, conducting
business right on the Internet.
 Ad button – An ad button is a smaller version of the banner that often
looks like an icon and usually serves to provide a link to the advertiser's
home page.
Figure 14.6 depicts ad banner and ad buttons on NDTV’s website.
Fig. 14.6: Ad Banner and Ad Buttons on NDTV’s Website

(Source: www.ndtv.com )

 Sponsorship – Internet advertising of this form is becoming popular.

Companies sponsor all the sections of a publisher's web page, or
sponsor single events for a contracted period of time. Companies get
considerable recognition on the website in the form of integrating
sponsor's brand with the publisher's content as an advertorial, or with ad
banners and buttons on the web page, in exchange for their
sponsorship.
 Interstitial – This is a relatively more recent form of Internet advertising
and is also referred as the intermercial. This is an animated ad that pops
up on the computer screen while downloading a website. Advertising
Age has reported that this type of ad is twice as effective as ad banners
at generating higher levels of brand awareness.
 Classified ad – This type of Internet advertising offers an excellent
opportunity for local advertisers and is becoming popular among
advertisers. Many of the classified websites offer free classified
advertising opportunities as ad banners of other advertisers already
support these sites. A classified ad is quite similar to the ones that are
seen in the newspapers.
 E-mail – Many Internet advertisers send e-mails that contain text and
video, streaming video, newsletters, and news releases.

20. A __________________ is not an ad but a location on the Internet that
provides information about a company and its products.
(a) Interstitial
(b) Sponsorship
(c) Classified
(d) Website
21. According to Advertising Age,________________ is twice as effective
as ad banners at generating higher levels of brand awareness.
(a) Ad button
(b) Sponsorship
(c) Interstitial
(d) E-mail

14.12 Summary
 CRM is a comprehensive approach that provides seamless integration
of every area of business that touches the customer – namely
marketing; sales, customer service, and field support – through the
integration of people, process, and technology, taking advantage of the
revolutionary impact of the Internet.
 CRM creates a mutually beneficial relationship with customers. In the
rapidly expanding world of e-commerce, there is a new generation of
empowered customers emerging who demand immediate service with
the personalised touch.
 The term customer loyalty refers to a customer’s commitment or
attachment to a brand, store, manufacturer, service provider, or other
entity based on favourable attitudes and behavioural responses, such as
repeated purchases.
 An organisation needs to study the needs of various market segments
and design the marketing programmes tailor made to suit the segments.
Customer anticipates several things from the company in addition to the
product; which the firm has to study well to bridge the gaps between
customer expectations and firm’s delivery.
 In recent years, rural markets have acquired significance, as the overall
growth of the economy has resulted in a substantial increase in the
purchasing power of the rural communities.
 Services have become an integral part of any economy's infrastructure
and have become indispensable to urban life. Services marketing is
marketing based on relationship and value. It may be used to market a
service or a product that has a service element attached to it.
 E-marketing (or online marketing) is the marketing of products or
services over the Internet. The Internet has brought many unique
benefits to marketing, one of which is lower costs for the distribution of
information and media to a global audience.
14.13 Glossary
Ad banner: A form of online advertising that entails embedding an
advertisement into a web page.

Classified ad: Small messages grouped under a specific heading

(classification) such as automobiles, employment, and real estate, in a
separate section.
Competitive parity: The perceived equality or essential equivalence
between the competitors.
Continuity marketing: These programmes are generally aimed at retaining
customers and enhancing their loyalty.
Customer relationship management: It is a comprehensive approach
which provides seamless integration of every area of business that touches
the customer.
Intermercial: Attractive, lively commercials that run while people are waiting
for web pages to download.
Relationship marketing: Marketing activities that are aimed at developing
and managing trust and long-term relationships with larger customers.

1. Define CRM. What is the significance of CRM?
2. Describe the different forms of relationship management.
3. What is the relevance of managing customer loyalty in marketing?
4. Why is rural market important? What should marketers keep in mind
when catering to this market?
5. Explain the core concepts of marketing. Define service and explain its
relevance in modern society.
6. How is e-marketing better than traditional forms of marketing?
14.15 Answers

1. Mutually beneficial
2. One-to-one
3. True
4. True
5. Technology
6. (b)
7. Individual
8. Co-marketing
9. (c)
10. False
11. False
12. False
13. True
14. Reduce
15. Retain
16. (a)
17. (b)
18. True
19. False
20. (d)
21. (c)
Terminal Questions
1. CRM offers long-term changes and benefits to businesses that chose to
use it. The reason is that it allows companies to interact with their
customers on a whole new level. For more details, refer section 14.3
and 14.7.
2. Different forms of CRM are continuity marketing, individual marketing,
and co-marketing. For more details, refer section 14.4.
3. Customer loyalty creates customers commitment or attachment to a
brand, store, manufacturer, service provider, or other entity that is
beneficial for the parties in the long run. For more details, refer section
14. 5.
4. Rural market is important because of its considerable size. Marketers
should not target this market with the same marketing mix designed for
the urban market. For more details, refer section 14.9.
5. A service is an intangible offering that may be offered independently or
attached to a physical product. Service sector is a largest contributor to
the country’s GDP. For more details, refer section 14.10.
6. E-marketing enables a firm to target the global audience. For more

14.16 Case Study

Future Group Goes Digital in a Big Way
Kishore Biyani’s Future Group will launch a slew of digital commerce
initiatives in the next few years as India’s largest retailer moves to sell a
wide range of products from bedspreads to treadmills through the Internet,
mobile phones, television and dedicated kiosks. “We were not satisfied with
our digital presence, and now we have decided to enter that space in a big
way,” said Kishore Biyani, CEO of the ` 9,000 crore group.
Fig. 14.7: A Still from Future Group’s Official Website
(Source: www.futurebazaar.com)
While the group’s online retail arm, Future E-commerce, already operates
an e-commerce portal, it will launch new initiatives such as SMS short
codes, tele-shopping, proximity marketing through mobile phones and virtual
shopping through manned kiosks in the coming weeks. “Most people in
urban areas spend 8 to 10 hours in a day on one of the four screens we are
targeting. This translates into huge sales potential,” said Mr Biyani.
The initiative will make Future Group one of the first modern retailers to
move into digital commerce in a big way. It will compete with portals such as

eBay.com, Indiatimes.com and Rediff.com, as well as with websites of

Shoppers Stop and Landmark, on the Internet. E-retailing is yet to take off in
a big way in India and it’s not at all comparable with mature markets. The
size of online retailing in India is estimated at about Rs 500 crore a year and
that of teleshopping is estimated at Rs 900 crore. That makes a total of just
over $300 million. In comparison, a recession-hit US recorded $131 billion
retail e-commerce in 2009, according to Emarketer.com. Mr Biyani hopes to
change that with his new initiative.
“We will sell across four screens and we hope the scale of what we bring will
completely transform that space,” he said. He targets sales of Rs 300 crore
from digital commerce in the first year after the new initiatives are rolled out
fully. The company is in talks to acquire a small IT company with about 150
personnel to develop and maintain content and websites, he said, but
declined to identify the target. Mr Biyani himself is incubating the new
business unit that will be part of Future E-commerce, where venture capital
firms Kleiner Perkins Caufield & Byers and Ram Shriram’s Sherpalo
Ventures together hold 15% stake.
Its online store, FutureBazaar.com, will increase the number of products
available online significantly. At present, about 4,000 SKUs, or stock
keeping units, are available at FutureBazaar.com compared with 1.6 lakh
SKUs that an average Big Bazaar store stocks. SKU is the most basic
accounting unit of a product. Two sizes or two flavours of the same product
will be accounted as different SKUs.
“Whatever we sell through the digital platforms will be cheaper by 5% to
20%, compared with the prices in the shop,” Mr Biyani said. The cost of
selling a product is much lower when it goes from a godown directly to a
consumer’s home without taking up shelf space in a retail store that is
expensive to run. The website will also add more information about the
products, including videos.
As for tele-shopping, Future Group plans to buy airtime in bulk on TV
channels. But Mr. Biyani ruled out launching a dedicated channel for that. In
what will be an entirely new initiative, Future Group also plans to erect
manned kiosks where customers can browse through products and access
information as well as videos on a screen and even place an order and pay
cash. The company will extensively promote its SMS short codes and will

also carry out proximity marketing using Bluetooth and cell tower-based
technologies.
Every week, three or four products from a particular category will be heavily
promoted across all the digital platforms, Mr. Biyani said.
1. How will this digital marketing help Future Group?
(Hint: It will help Future Group in targeting a wider range of customers.)
2. How will the customers benefit from this initiative?
(Hint: Customers will get to shop for different products at reasonable
prices without physically visiting their stores.)
(Source: www.manzeal.com)
References :
 Tapan, P. K. (2010). Marketing Management: Excel Books, New Delhi
 Ramaswami, V.S., and Namakumari, S, (2003). Marketing Management:
Macmillan Publishers
 Zikmund, W.G.., Raymund, Faye, M. Jr., and Gilbert, W. (2003).
Customer Relationships Management, Wiley
E-References:
 http://www.crmforecast.com/strategy.htm – Retrieved on February 16,
2012
 http://www.world-agriculture.com/agricultural_marketing/rural_marketing.php
 http://www.learnmarketing.net/servicemarketing.htm – Retrieved on
February 16, 2012
 http://www.focus.com/briefs/what-online-marketing/ – Retrieved on
February 16, 2012

Unit 15 International Marketing Management

Structure:
15.1 Introduction
Objectives
15.2 Nature of International Marketing
15.3 International Marketing Concept
The strategic concept of marketing
15.4 International Market Entry Strategies
15.5 Approaches to International Marketing
15.6 International Product Policy
15.7 International Promotions Policy
Advertising
Direct mailing
Personal selling
Sales promotion
Trade fairs and exhibitions
15.8 International Branding
15.9 Country of Origin Effects
15.10 International Pricing
15.11 Summary
15.12 Glossary
15.14 Answers
15.15 Case Study
15.1 Introduction
In the previous unit we dealt with the contemporary concepts in marketing
like CRM and Internet marketing. We analysed rural and services marketing,
the definitions, forms, and significance of customer relationship
management. In this unit, we will deal with another modern concept that has
gained popularity in the last two decades-international marketing. The study
of international marketing is intended to provide marketers with a systematic
methodology and intellectual framework to understand and work in the
global marketplace. It also helps marketers to learn and harness the
fundamental integrity that exists within diverse business laws found in

different countries. International business embraces areas such as

outsourcing, third country manufacturing, and manpower deployment in
different countries. International trade covers the areas of imports and
exports, including technology transfer and international financing for
projects. International marketing includes various functions like researching
international market, selecting products, pricing, distributing channels,
advertising, and promoting in selected countries.
International marketing may be distinguished from local marketing as it is
governed by the rules and regulations of the host countries. It also deals
with the cultural diversities that exist between nations as companies attempt
to get benefited by these various cultures, by promoting ethnic products that
have remarkable value for the host-country buyers. Multinational
Corporations (MNCs) need to understand the work pattern of business in
different countries. They may opt for multi-domestic operations where each
host country has got separate and unique work system as desirable and
useful to the host country. Indian business establishments enjoy several
advantages in international markets due to low-cost labour, availability of
raw materials, and skilled manpower. International marketing has become
significant from the last decade as most countries have preferred
globalisation and encompassed the market economy. With changing
landscape, India witnessed dramatic changes since 1991 in marketing, with
the onslaught of international players, offering better brands and
comparatively better products. International marketing can be defined as
‘marketing carried on across national boundaries spanning a number of
countries’. It is the performance of business activities that direct the flow of
goods and services to consumers or users in more than one nation. It is
different from domestic marketing as the exchange takes place beyond the
frontiers, thereby involving different markets and consumers who might have
different needs, wants, and behavioural attributes in their respective
countries.
The international marketer sets up his own sales subsidiary and participates
in developing the entire marketing strategy for foreign markets. International
marketing companies need to decide how their internationalisation strategy
can be adopted within the overall marketing strategy, including their
marketing programmes of sales, advertising, and sales promotion in both
domestic and international markets. The firm also needs to understand the
different international marketing environments that the company plans to

operate in. Understanding different cultural, social, and political
environments becomes part of the internationalisation process, leading a
firm to operate in various foreign markets. International marketing helps in
understanding different marketing environments and managing the
differences across the markets in tune with its domestic operations.
Case Let
Indian Carpet Industry

In this era of globalisation, every company and every industry wants to go
global. India also wants to sell carpets to the foreign markets. This can
only be done through exports when the profits in the exports increase we
go in for International Marketing, which lead to international trade and
international business. How it happens? This happens only when our
company becomes international, multinational and transnational.
The carpet industry at present is passing through international marketing
stage.
The carpets that are exported follow the concept of Ethnocentricity. It
means they see only similarities in markets and assume the products and
practices that succeed in the home country will, due to their demonstrated
superiority, be successful anywhere In order to make the carpet industry
an MNC the export of carpets have to increase to more than $ 100 million
turnover per annum. This can only happen in case this industry is properly
organised and given more incentives by the Government being a labour
intensive industry.
The question of its becoming transnational cannot arise unless this
industry falls in the hands of MNC itself and a large number of carpet
weavers are trained on a large scale through Carpet Management
Schools which is a far of dream. However, effort should be made to give
more incentives to the carpet weavers so that the child labour in this
industry is completely abolished and the objection of the importers on the
use of child labour is removed.
(Source: International Marketing-3rd Edition, PK Vasudeva, Excel Books)


 What is the nature and concept of international marketing?
 How can companies enter the international market?
 Why companies want to enter the international market?
 How do companies operating in international market decide their product
mix, promotion mix and prices?
Objectives:
 describe the nature of international marketing
 define the concept of international marketing
 explain the international market entry strategies
 analyse the approaches to international marketing
 realise the international product and pricing policy
 explain the international promotion policy
 analyse the international branding policy
 describe the concept of ‘country of origin effects’
15.2 Nature of International Marketing

International marketing, with its certain distinctive characteristics, is
functionally very similar to domestic marketing. What is dissimilar in
international marketing is the scope of the product market situation and
strategies followed by players to cater to the international markets.
Marketing can be conceived as an integral part of two processes. They are:
1. Technical
2. Social
In technical process, domestic and international marketing are identical. The
technical process includes non-human factors such as product, price, cost,
brand, etc. The basic principles regarding these variables are of universal
applicability.
The social aspect of marketing is unique in any given stratum, because it
involves human elements, namely, the behavioural pattern of consumers
and the given characteristics of a society, such as customers, attitudes,

values, etc. It is obvious that international marketing, to the extent it is

visualised as a social process, will be different from domestic marketing.
International marketing has to take care of such barriers to free trade, which
may be both visible and invisible. Even when there is complete free trade,
logistics may create problems totally different from those experienced in
domestic operations.
Since human needs and wants will have different attributes in foreign
markets, perception of these needs will require an overall appreciation of the
environment, and the social and individual value systems will be prevalent in
each country.

1. International marketing is very similar to domestic marketing, only the
products are modified according to cultures. (True/False)
2. Price is a part of the ____________ process that forms a part of
marketing.
15.3 International Marketing Concept

During the past three decades, the concept of marketing has changed
dramatically. It has evolved by focussing on the product to make it a “better”
product, where better was based on internal standards and values. The
objective was profit, and the means to achieve that objective was selling or
persuading the potential customer to exchange his/her money for the
company’s product.
15.3.1 The strategic concept of marketing
By the 1990s, it was clear that the “new” concept of marketing was outdated
and the times demanded a strategic concept. The strategic concept of
marketing, a major evolution in the history of marketing thought, shifted the
focus of marketing from the customer or the product to the customer in the
context of the broader external environment. To succeed, marketers must
know the customer in a context including the competition, government policy
and regulation, and the broader economic, social, and political macro forces
that shape the evolution of markets. In International marketing, this may
mean working closely with home-country government trade negotiators and

other officials and industry competitors to gain access to a target-country

market.
The strategic concept of marketing focuses more on stakeholders’ benefits
than profit for the company. Stakeholders are individuals or groups who
have an interest in the activity of a company. They include the employees
and management, customers, society, and government, to mention only the
most prominent.

3. If a foreign company wants to succeed in India, it has to work closely
with the Indian government. (True/False)
4. Earlier, the objective of marketing was generating profits but the focus
has shifted to stakeholder satisfaction. (True/False)
15.4 International Market Entry Strategies

There are two methods to entry into foreign markets. They are indirect
exporting and direct exporting. In the first method, the manufacturers take
the help of merchant exporters to get products exported to foreign markets.
In direct exporting, the manufacturers decide to export themselves. Thus,
the manufacturers have to decide, whether they will go directly for exports or
take the help of merchant exporters who are very often recognised as export
houses, trading houses, etc. Some government trading organisations like
State Trading Corporation, MMTC, and National Small Industries
Corporations also act as trading houses.
There are two specific reasons for why a manufacturer may resort to direct
exporting:
1. Success in foreign markets can boost the manufacturer’s image in the
domestic market.
2. There are a number of benefits available to exporters as, for example,
exemption from income tax for export profits.
Apart from direct and indirect exporting, the other popular methods of
entering international markets are:
 Joint ventures
 Strategic alliances

 Direct investment
 Contract manufacturing
 Franchising
Joint venture
A joint venture is a strategic alliance where two or more parties, usually
businesses, form a partnership to share markets, intellectual property,
assets, knowledge, and profits. A joint venture differs from a merger, in the
sense that there is no transfer of ownership in the deal.
For example, Best Price Modern Wholesale is a joint venture between Wal-
Mart and Bharti Enterprises. American retail giant Wal-Mart chose this route
to enter the Indian market.
Figure 15.1 depicts the first best price modern wholesale store that was
opened in Amritsar, Punjab
Fig. 15.1: Best Price Modern Wholesale Store in Amritsar

(Source: http://www.eurobrandsindia.com/blog/wp-
content/uploads/2009/08/newsmlmmd-4bd3c2be31ce8d8a514158a4166495cc-
111_india-s-bharti-wal-mart-best-price-modern-wholesb.jpg?w=300)
Establishing a joint venture with a foreign firm has long been a popular
mode for entering a new market. The most typical joint venture is a 50/50
venture, in which there are two parties, who hold a 50% ownership stake
and contribute a team of mangers to share operating control.

Strategic alliance
A strategic alliance is formed when two or more businesses join together for
a set period of time. The companies, generally, are not in direct competition,
but have similar products or services that are directed towards the same
target group. For example, Tata Motors and Fiat entered into a strategic
alliance to cooperate in areas like research and development, and
marketing.
In the new economy, strategic alliances enable business to gain competitive
advantage through access to a partner's resources, including markets,
technologies, capital, and people. Choosing a strategic alliance as the entry
mode will overcome some of those problems like established competition,
hostile government regulations, and operating complexity. In the process, it
will help reduce the entry cost.
Direct investment
Through Foreign Direct Investment a firm invests directly in facilities to
produce and/or market a product in a foreign country. For example, in the
early 1980’s, Honda, a Japanese automobile company, built an assembly
plant in Ohio and began to produce cars for the North American market.
These cars were substitutes for imports from Japan. Once a firm undertakes
FDI, it becomes a Multinational Enterprise (The meaning of Multinational
being “more than one country”).
Contract manufacturing
Contract manufacturing is a process that establishes a working agreement
between two companies. As part of the agreement, one company will
custom produce parts or other materials on behalf of their client. In most
cases, the manufacturer will also handle the ordering and shipment
processes for the client. As a result, the client does not have to maintain
manufacturing facilities, purchase raw materials, or hire labour in order to
produce the finished goods.
Companies like D-Link, TVS Electronics, and WeP Peripherals offer contract
manufacturing services.
Franchising
Franchising is basically a specialised form of licensing in which the
franchiser not only sells intangible property (normally a trademark) to the

franchisee, but also insists the franchisee to abide by strict rules with
respect to how business is done. The franchiser will also often assist the
franchisee to run the business on an ongoing basis.
While licensing works well for manufacturers, franchising is often suited to
the global expansion efforts of service and retailing. McDonald’s, Tricon
Global Restaurants (the parent of Pizza Hut, Kentucky Fried Chicken, and
Taco Bell), and Hilton Hotels have all used franchising to build a presence in
foreign markets.

5. Future Generali is a joint venture between Future Group of India and
Generali of______________
(a) Germany
(b) USA
(c) Italy
(d) Japan
6. Maruti Suzuki is an example of __________________
(a) Joint venture
(b) Strategic alliance
(c) Contract manufacturing
(d) Franchising
7. In ___________method exporting, there are no merchants involved.
8. The Body Shop has entered India through the ___________route.
15.5 Approaches to International Marketing

In this section, you will learn about the various approaches to international
marketing, from domestic marketing to global marketing practice. The
following are the various approaches:
 Domestic marketing
 Export marketing
 Multinational
 Multi-regional marketing
 Global marketing
Let us now study the various approaches in detail.

 Domestic marketing – It is referred to as marketing aimed at a single

market in which the firm faces a single set of competitive, economic, and
market issues and must deal with customers defined by geographic
boundary. This is essentially a single country marketing strategy.
 Export marketing – The definition and scope of export marketing starts
when a firm decides to undertake marketing activities beyond its
domestic market or from its base market. This is a situation when
products are shipped from one country to another country for the
purpose of marketing. The company not only concentrates on business
in the domestic market but also markets on business in different
countries.
 Multinational marketing – The multinational marketing results in the
development of MNCs like Unilever, Kodak, Procter and Gamble. They
operate in many countries and have developed assets abroad and
market products and services across many geographic boundaries.
They compete by developing multi-domestic strategies for each country
to suit their business operations to that country’s marketing conditions.
 Multi-regional marketing – It leads to multi-regional marketing. As you
have seen above, multinational marketing often leads to individualised
marketing strategies for host country adaptability. It is also wastage of
scarce resources leading to diseconomy of scale of operation. So
companies are looking at multi-regional marketing for achieving their
economies of scale and higher productive utilisation of resources.
Country operations are now grouped region wise, depending on the
similarity of product market situations. Strategies for multi-regional
marketing cover many similar regions like South East Asia, Pan Pacific
regions, European markets, etc. Such integrations are based on either
similar product market situations or on the basis of liberal trade pacts
between two countries.
 Global marketing – A global marketing strategy is the creation of a
single marketing strategy at a global scale. It involves creation of a
single strategy for a product or service or a corporation for the entire
global market, which encompasses many markets at the same time and
is aimed at leveraging the commonalities across many markets. While in
other cases, marketing strategies were tailored to the specific product

market situation in that country, global marketing strategies serve as a

guideline throughout the world market.
Activity 1:
Liberalisation has helped Indian companies to go global. Conduct a study
on what policy changes in the Indian market has led to increase in global
marketing.

9. If a company sells its product only in the Indian sub-continent, it is
involved in ___________ marketing.
(a) Domestic
(b) Multinational
(c) Multi-regional
(d) Global
10. Unilever follows a global marketing strategy to sell its products and
services. (True/False)
11. In export marketing, the product is adapted as per the culture of the
recipient country. (True/False)
15.6 International Product Policy

The demand patterns and benefits sought by consumers vary across
different product markets in the context of an international market. A
marketing manager planning to go global has to:
1. Identify the need for product planning
2. Take a decision about product adaptation versus standardisation
Need for product planning
Consumers will buy only what suits them. This may not be what the
company is presently manufacturing. What is acceptable in India may not be
accepted in foreign markets. Again, what is acceptable in Germany may not
be acceptable in the UK. Tastes may differ. This may be important
especially in the case of manufactured food products. There are
100 varieties of Nescafe to suit the tastes of people in different countries.
Thus, export marketers need a different approach to product planning.

Product adaptation
A product that is perfectly good for one market may have to be adapted for
another. There can be many reasons for this. Physical conditions may be
different. Functional requirements may vary from market to market. People
in different places may use products differently or for different purposes. The
outdoor garden furniture would require a different type of finish as compared
to furniture used indoors. Again, a manufacturer of men’s suits has to take
into account that the arms of Frenchmen tend to be longer in proportion to
the rest of their bodies than those of Germans. In some cases, cultural
factors are very important. A very simple and visible example can be seen in
case of automobiles. American automobile majors like Ford and GM
manufacture left hand drive vehicles while they also manufacture right hand
drive vehicles for India. Figure 15.2 depicts a Ford car with steering on the
left side and figure 15.3 depicts a Ford car with steering on the right side-the
model that is sold in countries like India.
Fig. 15.2: Ford Car with Left Hand Drive

(Source:
http://imganuncios.mitula.net/used_2010_ford_focus_c_max_for_sale_
94982815419174805.jpg)

Fig. 15.3: Ford Car with Right Hand Drive

(Source: http://www.autoindiaforum.com/wp-content/uploads/2009/03/ford-
ikon-2.jpg)
Product standardisation
Even though product adaptation becomes inevitable in the case of certain
products, it should be realised that there is sound economic logic behind a
product policy, which suggests uniformity in all markets. There are various
factors in favour of international product standardisation as per the following:
 Economies of scale in production – When only one standard version
is marketed in all the areas, it will be possible to have larger production
runs, which will result in lower manufacturing costs.
 Economies in product research and development – Similarly,
product standardisation will allow recovery of the costs incurred in
product research and development from the entire sales. This will
reduce the recovery period and also lower the break-even point.
Moreover, additional expenditure on adapting product to each individual
market can be avoided.
 Consumer mobility – Consumers are becoming increasingly more
mobile and transcontinental travel is now fairly common. A consumer,
who is loyal to a particular brand in his/her home market, is more likely
to remain loyal even in a foreign country when the product is the same.
 Made-in-image – When the name of a country is associated with a high
standard of quality in the minds of the consumers, a product
manufactured in that country may enjoy a psychological premium in the
foreign markets.

 Impact of technology – Industrial products generally tend to have

standard specifications and do not require much adaptation for foreign
markets, unless climatic and similar considerations call for it.
The basic argument in favour of uniform multinational product strategy is
that it is least costly, in terms of both manufacturing and marketing costs for
the company. Pepsi and Coca-Cola are two outstanding examples, which
offer the same product and follow identical promotional themes in all the
markets. Therefore, the question before the management would be to find
out how far uniformity would be feasible, and at the same time, a profitable
strategy.
Figure 15.4 depicts an image of Samsung 3D LED television. Samsung sells
the same product without any changes throughout the world.
Fig 15.4: Samsung Sells the Same 3D LED TV Across the Globe
(Source: http://www.samsungtvrepair.biz/wp/wp-content/uploads/home-tv-
repair-samsung.jpg)

12. Tide sells detergent jars in the western market but sachets and packets
in India. It is an example of product ________________.
13. Increasing globalisation can be one of the reasons of opting for product
standardisation. (True/False)
15.7 International Promotions Policy

In case a firm wants to export directly, it will have to bring its product to the
notice of potential buyers. But this is a more difficult task than the

corresponding task in domestic marketing for three main reasons. They are:
 The exporter does not have sufficient information as a basis for making
promotional decisions
 Customer abroad has no previous knowledge of the firm and its
products
 Only limited effort is possible because of resource constraint
Various elements of the promotion mix used in international marketing are
discussed in the following subsections.
15.7.1 Advertising
The basic difference between domestic and international advertising and
promotion is essentially a cross cultural communication and, therefore,
international promotion will have to take into account the social customs,
attitudes, beliefs, and other similar factors. Of the various means of
promotion, such as advertising, direct mailing, point of purchase displays,
trade fairs and exhibitions, advertising is the most susceptible to such
sociological differences.
Figure 15.5 depicts a Volkswagen Jetta’s print ad published in India. It has
been made keeping the Indian audience in mind.
Fig. 15.5: Volkswagen Jetta Ad
(Source:
http://files.coloribus.com/files/adsarchive/part_1482/14820905/file/volkswagen
-jetta-ravan-small-61179.jpg)
In the case of designing a campaign for the international market, the

advertiser will have to closely work with the advertising agency appointed to

do the job. Three specific questions are to be answered in this connection.

They are:
1. What to communicate?
2. Whom to communicate?
3. How to communicate?
What to communicate depends on the corporate objective related to the
advertising campaign. The objective may be to increase sales, establish the
brand name, indicate market presence, etc.
Market segment identification is what is meant by the question of target
audience. The segmentation base for consumer products may be age, sex,
income, and other relevant marketing variables.
How to communicate concerns the choice of media. There are various
media available, especially in the developed countries, such as TV, radio,
specialised journals, and cinemas.
15.7.2 Direct mailing
One of the most cost effective methods of promotion is the direct mailing
method. Two distinctive features of direct mailing method are:
1. It is selective
2. It is personal
It is selective because the approaches are made directly to only those who
have been identified as the target audience.
It is personal because the letter and other publicity materials are mailed
either by name or by designation to the identified receiver.
The cost involved in direct mailing is the lump sum cost of producing the
publicity material, plus the cost of each letter, envelope, and the postage.
Considering that all letters will not be responded to, the real cost should be
calculated on cost per response.
15.7.3 Personal selling
Though the oldest method, it continues to be the most widely used and
effective means of reaching the buyers. This involves an alive, immediate,
and interactive relationship between two or more persons.
Personal selling can also cultivate long-term personal relationship with the
customer. Personal selling can also be used mainly in industrial markets for
selling technical goods, such as machinery and equipment.
15.7.4 Sales promotion

Another increasingly popular method is stores promotion where a country’s
merchandise is promoted by a chain or a department store. India had earlier
arranged such promotion in association with Bloomingdales in U.S.A. and
Gallerie Laffaitte in Paris. The most important event in the category of stores
promotion for Indian products, however, was the ‘Expedition India’
organised by one of the largest US Chain Stores, J.C. Penny, along with
their Indian associate Banaras House. Air India and Government of India
Tourist Office also collaborated in this venture.
15.7.5 Trade fairs and exhibitions
Fairs and exhibitions constitute the means of presenting goods and services
in an attractive manner with the aid of colour, light, and motion, in order to
catch the imagination of the visitors, attract their attention, and get them
interested in the objects displayed. They help reach the public which may
not be reached in any other way or which by nature would disregard other
media of publicity. Fairs are more useful for industrial products where
demonstration is very effective.
The India Trade Promotion Organisation participates in nearly 40
international fairs and encourages participation by Indian parties. ITPO
organises India International Trade Fair that is held in New Delhi every year.
Businesses from different countries display their products in the event.
Figure 15.6 depicts a snapshot of India International Trade Fair.
Fig. 15.6: A Snapshot of Indian International Trade Fair, New Delhi

(Source:
http://2.bp.blogspot.com/_BJSXUuHCCvM/SwOdY9ZV8XI/AAAAAAAAANk/
Z4kB_Lf_gUM/s1600/Pragati_Maidan,_inside_hall_18_(3).JPG)

Activity 2:
What are the various export promotion councils in India and how do they
help in promoting opportunities for Indian marketers across the globe?
Prepare a report on this.

14. The most important part of international advertising is ______________
communication.
(a) Product
(b) Cross-cultural
(c) Quality
(d) Benefits
15. Direct mailing is a non-personal and secretive method of product
promotion. (True/False)
16. India International Trade Fair is organised by the _______________.
15.8 International Branding

The traditional orientation of branding suggests that brand name is a part of
the brand consisting of words or letters that form a means to identify and
distinguish a firm's offer. A brand mark is the symbol or pictorial diagram
that helps in the identification of the product.
There are generic brand names that have become a generically descriptive
term for a class of products like Nylon, Aspirin, Kerosene, and Zipper.
A trademark is a brand mark to which the owner legally claims exclusive
access. Trademark protection confers the exclusive right to use brand name
with any trademark, logo, slogan, or product name aberrations.
Branding strategies
There are four recognised branding strategies:
1. Corporate umbrella branding
2. Family branding
3. Range branding
4. Individual branding
Let us now study the four recognised branding strategies in detail.

1. Corporate umbrella branding – It is used by firms such as Heinz,

Kellogg's, and Cadbury’s. The corporate name is used as the lead name
for all their products, for example Kellogg's Healthwise, Kellogg's
Frosties, Kellogg's Corn Flakes.
2. Family umbrella – Names are used to cover a range of products in a
variety of markets. For example, Marks and Spencer use their St
Michael brand for food, household goods, and toiletries.
3. Range branding – It is used for a range of products with a particular link
in a specific market. For example, GlaxoSmithKline uses brand Horlicks
for its range of health foods.
Figure 15.7 depicts the range of Horlicks products that includes health
drinks for adults, teenagers, women, and kids, and biscuits.
Fig. 15.7: Range of Horlicks Products
(Source: http://2.bp.blogspot.com/-OdfSnK_Dnk0/TMXOQ3I_-
BI/AAAAAAAACck/txvSKr1rdv0/s1600/horlicks+megabrand.jpg)
4. Individual brand – Names are used with individual products in a

particular market, with different weights, colours, flavours, and pack
sizes. Procter & Gamble and Unilever use individual brand names such
as Clinic Plus, Ariel, and Ponds with no reference to the corporate
name.
Brand piracy
One of the most difficult challenges for brand management is dealing with
brand piracy. Research suggests that the problem of forgery of famous
brand names is increasing and many fake products have been found to
originate in developing countries, mainly the developing countries of Asia.
The issue of brand piracy is clearly costing international companies vast
revenues and the United States has led the way in insisting that

governments crack down on the companies undertaking the counterfeiting.

The music industry has particularly suffered from illegal practices. A report
published by the International Federation of the Phonographic Industry
(IFPI) in 2003 showed that the illegal music market was worth USS4.6bn
(£2.8bn) globally. The myth of music piracy was of a victimless crime but the
IFPI reported that the money was going to support criminal gangs as well as
sucking out money from the legitimate music industry.

17. BMW uses ____________ branding policy.
(a) Corporate family umbrella
(b) Family umbrella
(c) Range
(d) Individual
18. Pampers and Rejoice are individual brands of ________________.
15.9 Country of Origin Effects

Various factors like brand image, brand personality, brand associations, and
promotional messages influence the perception of customers about the
quality of a brand. One such factor that influences an individual’s perception
towards brands is the country where it is made. This is referred to as the
country of origin effects.
For example, Italian and German cars are world renowned, Japanese
electronics products and Swiss chocolates are popular among people.
Factors that contribute to the country image are:
 Economy of the country
 Technology
 Wealth index
 Regulatory mechanisms
 Government
 Business history
Let us now study the factors that contribute to the image of a country in
detail.

 Economy – The level of economic growth acts as a key alternate for the
country’s other activities. You can see that all the countries mentioned
above as examples are highly industrialised and developed countries.
 Technology – This factor is generally, directly related to the level of
economic growth of the country. Higher the technological capability of a
country, more trusted will be its products, especially technical products.
 Wealth index – This refers to the perceived or actual overall wealth of a
country as indicated by the number of millionaires and billionaires, level
of consumption, size of the luxury and leisure industries, etc.
 Regulatory mechanisms – With the increasing popularity of
international marketing, the existence and competence of regulatory
mechanisms (like anti-piracy laws) have become a critical factor in
creating the image of a country.
 Government – Reputation of the government and its corporate
governance – how bureaucratic, transparent, corrupt or efficient is a
country’s government is instrumental in building the image of the
country.
 Business history – This refers to the development of business in a
country and what a country has specially been known for traditionally.
For example, India has always been known as agriculture based
country.

19. Technical products from India might not sell in U.S.A. as compared to
those from South Korea. (True/False)
20. Watches from Switzerland are considered to be one of the finest across
the globe. (True/False)
15.10 International Pricing

Pricing is a critical issue in international marketing, as the value of the
product will vary from market to market. For fixing export prices, the
minimum to be charged for exports is provided by direct costs and the
maximum is determined by ‘what the traffic will bear’. The following sources
may be utilised for finding out the level, which the traffic can bear.

 Previous files, if the firm has exported in the past, with suitable
adjustment for the possible inflation in the target market.
 Average unit price realised for exports made to different markets from
the Monthly Bulletin of Foreign Trade Statistics – Exports.
 Average unit price paid by importers in the target market to the various
suppliers from its import statistics.
 A visit to trade fairs.
 A reference to the departmental store catalogues which give the retail
prices of the various goods sold by them.
Another point to be noted while pricing for exports is that like domestic
marketing, price is only one element of international marketing mix. Some
non-price factors to be considered in international marketing include the
following:
 Very often, importers do not have adequate confidence in the quality of
goods produced in India and other developing countries. For example,
Indians had to sell their storage batteries 10% cheaper in Saudi Arabia
than U.S. and European batteries, even though the quality was
comparable.
 If products are well differentiated and they have built up a brand image
for themselves, manufacturers are in a position to charge comparatively
higher prices. Brand names like Dunlop, HMT, Bata, GKW, Lucas, L&T,
Kirloskar, etc. have already built up a good image and these products
are able to realise a much higher price.
 People may be willing to pay a very high price, if the particular goods
catch their fancy. This applies particularly to handicrafts manufactured
by developing countries.
 It may be useful to note that it is easier to sell in developed countries
with a higher price tag but in developing countries, a lower price may
help in increasing sales. In general, price constitutes a barrier to
demand when it is too low just as much as when it is too high.

21. As _____________ of a product will vary in different markets, pricing
decisions are important in international marketing.
22. Price of a product is often linked to the image of the brand and
___________.
15.11 Summary
 International marketing is the process of focusing the resources and
objectives of a company on marketing opportunities at international
level.
 The main approaches to international marketing include export
marketing, multinational marketing, and global marketing.
 Exporting is a mode of entry into international markets. Exporting to a
foreign country can be direct or indirect. Apart from this, other entry
strategies include joint venture, strategic alliance, direct investment,
contract manufacturing, and franchising.
 Multinational companies operate in different countries with a marketing
programme which can either be adaptable to a specific country’s market
situation or by standardising the offer across the globe.
 The international marketing programme takes into account issues like
product planning, pricing decisions, mode of entry, and promotion mix
decisions for international market entry.
 The basic difference between domestic and international promotion is
that the latter is essentially a cross cultural communication.
15.12 Glossary
Brand piracy: The act of naming a product in a manner which can result in
confusion with other better known brands.
Contract manufacturing: A firm that manufactures components or
products for another "hiring" firm.
Domestic marketing: It is a form of marketing in which the firm faces only
one set of competitive, economic, and market issues.
Global marketing: The performance of business activities that direct the
flow of goods and services to consumers or users in more than one nation.
International marketing: It is the performance of marketing across two
different countries.
Multinational marketing: It is the marketing activity of MNCs, done through
direct investment and asset creation across geographic boundaries.

Stakeholders: A person, group, or organisation that has direct or indirect

stake in an organisation because it can affect or be affected by its actions,
objectives, and policies.

1. How is international marketing different from domestic marketing?
2. List the factors that influence the product mix in international marketing.
3. “The use of media requires global adaptation.” Do you agree? Justify
your answer by giving suitable examples.
4. Will the pricing and product policy of a multinational firm be different in a
developed and an underdeveloped country? Justify your answer.
5. Design strategies for international market place for a company
marketing Indian handicrafts.
6. Describe the Country of Origin effects.
15.14 Answers

1. False
2. Technical
3. True
4. True
5. (c)
6. (b)
7. Direct
8. Franchising
9. (c)
10. False
11. False
12. Adaptation
13. True
14. (b)
15. False

16. India Trade Promotion Organisation

17. (a)
18. P&G
19. True
20. True
21. Value
22. Quality
Terminal Questions
1. Domestic marketing focuses on a single nation whereas international
marketing focuses on more than one nation. For more details, refer
section 15.2 and 15.5.
2. The target audience, their needs, government regulations, culture, etc
influence international product mix. For more details, refer section 15.6.
3. The social and cultural system of every country is different, hence
adaptation is required. For more details, refer section 15.7.
4. Yes, the strategies will differ because of the differences in purchasing
power. For more details, refer section 15.6 and 15.10.
5. Product needs to be standard, priced, and promoted as per the country.
For more details, refer section 15.6, 15.7 and 15.10.
6. Consumer’s perception towards a brand is influenced by its country of
origin. For more details, refer section 15.9.
15.15 Case Study
Microsoft Re-Thinks its Unified Pricing Strategy

Microsoft is studying ways to offer its software at different price points
around the world, signaling a possible departure from its unified global
pricing practice.
Although it has already made pricing concessions in some isolated cases,
such as Thailand, where competitive pressure from open source products
had been mounting, the Redmond, Washington-based vendor has generally
stuck to a system where its products are priced the same around the world.

Now, facing pressure for change from some customers, particularly in

emerging markets, Microsoft is working with governments in those countries
to price its software in a way that is relevant to that market, Martin Taylor,
general manager of platform strategy at Microsoft, said in a conference call
with financial analysts on Friday.
"From a pricing perspective, I think one of the most difficult challenges that
we work on is to really understand, let's call it this 'Big Mac' index, in terms
of how much does a Big Mac cost in India versus in New York versus in
Taipei, and how do you map a similar Big Mac index to software? It's a very
difficult problem," Taylor said, according to a transcript of the call.
Fig. 15.8: One of Microsoft’s Most Popular Products
(Source: http://pimisc.priceindia.in/software/wp
content/uploads/2008/10/microsoft-office-2007.jpg )
The Big Mac index is an annual listing of prices for Big Mac hamburgers in
several countries compiled by The Economist magazine.
One problem for Microsoft is that, unlike hamburgers, software doesn't spoil,
which makes it easier for buyers to shop around for a better deal and buy
their software from another country. To address this, Taylor suggested that
Microsoft could offer different prices for the different language editions of its
products.
"English speaking is an area that we have to really think about," he said.
"When you have markets where you have specific languages then it's a little
bit easier to do."
Microsoft is working with several unspecified governments to tailor its
offerings, Taylor said. "We've got quite a few different initiatives that we're

beginning to work on that we'll be announcing in the coming months," he

said. Taylor didn't provide specifics.
The problem Taylor and his company are facing is a tough one, said Laura
DiDio, a senior analyst at Boston-based The Yankee Group.
"I can absolutely see and sympathise with what he is grappling with. What
can you do? You want to make your products affordable, particularly to
companies in the Pacific Rim, because they just don't have the money, and
then what do you say to your customers in established markets such as
North America and Western Europe?" DiDio said.
DiDio expects Microsoft to come up with a solution for its woes. Not only will
it negotiate on pricing or offer tailored version of its software for various
countries, it will also talk to governments about jobs the company has
created in their region, bring in Chairman and Chief Software Architect Bill
Gates for some star power, and the Bill and Melinda Gates Foundation may
even contribute to a local cause, she said.
"I don't want to suggest that Bill Gates is using his charity as leverage to get
Windows in anywhere, but it certainly does help," she said.
Paul DeGroot, an analyst at Directions on Microsoft Inc. in Kirkland,
Washington, doesn't expect Microsoft to change its global pricing strategy
overnight, but does see some changes happening at the local level.
Discussion Question:
1. Why does Microsoft want to rethink its unified pricing strategy?
(Hint: Due to increasing pressure from environmental conditions in
different countries, Microsoft wants to do away with its unified strategy.)
(Source: infoworld.com)
References:
 Vasudeva, P.K. (2006). International Marketing, 3rd Edition, Excel Books,
New Delhi.
 Cateora and Graham (2007). International Marketing, McGraw Hill.

E-References:
 http://worldacademyonline.com/article/23/111/nature_of_international_
marketing.html – Retrieved on February 18, 2012
 http://en.reingex.com/Product-Policy.shtml – Retrieved on February 18,
2012
 http://en.reingex.com/Export-Prices.shtml – Retrieved on February 18,
2012
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Marketing Management Unit 1

Unit 1 Introduction to Marketing Management

Manipal University Jaipur B1629 Page No. 1

Eventually, customer satisfaction became an inseparable function of

Marketing Management at Apple Computer

Manipal University Jaipur B1629 Page No. 2

every Apple product - the iPod, Macintosh desktops, laptop computers,

This unit provides answers to the following questions:

1.2 Market and Marketing

Manipal University Jaipur B1629 Page No. 3

geographical place. Thus, market may be defined as a set of consumers,

Manipal University Jaipur B1629 Page No. 4

Marketing managers must know the target customers, their location,

Manipal University Jaipur B1629 Page No. 5

(b) Imperfect market – In a market category where individual firms

Fig. 1.1: Types of Imperfect Market

Manipal University Jaipur B1629 Page No. 7

Paul Mazur defines marketing as:

1.3 The Exchange Process

Manipal University Jaipur B1629 Page No. 8

(Goods, Service, Ideas, etc.)

(Money, Credit, Goods, Labour)

Fig. 1.2: The Concept of Exchange

You must note that an exchange is not an event. It is a process of

Manipal University Jaipur B1629 Page No. 9

1.4 Core Concepts of Marketing

Needs, Value Exchange Markets

Fig. 1.3: Core Concepts of Marketing

Let us now study the concepts in detail.

Physical Needs Social Needs Individual Needs

Fig. 1.4: Types of Human Needs

Manipal University Jaipur B1629 Page No. 11

Performance < Expectation → Dissatisfaction

 Exchange, transaction, and relationship – (The concept of exchange

1.5 Functions of Marketing

Manipal University Jaipur B1629 Page No. 12

Fig. 1.5: Functions of Marketing

Let us now study the functions in detail.

5. Sales operations – This is concerned with transferring of products to

1.6 Importance of Marketing

Manipal University Jaipur B1629 Page No. 14

 Importance of marketing for the consumer

1.7 Marketing Orientations

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Fig. 1.6: Marketing Orientations

Companies conduct their marketing activities around five concepts. These

Philosophy Quality products at affordable prices sell themselves

Objective Minimise costs to lower prices, keep quality high.

Focus on Production & Distribution Efficiency to

Fig. 1.7: Production Concept

Manipal University Jaipur B1629 Page No. 16

1.7.2 The product concept

Fig. 1.8: The Total Product Concept

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Objective Maximise sales revenue

How? Aggressive promotion to create demand

Fig. 1.9: Selling Philosophy

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Fig. 1.10: Marketing Concept

This concept is an elaborative attempt to explain the phenomenon that rests

Manipal University Jaipur B1629 Page No. 19

Fig. 1.11: Pillars of Marketing Concept

1. Companies, instead of spending on a mass, undifferentiated market,