Strategic Marketing Management

Strategic Marketing
Management
Prepared by Prof Dipesh Maitra Full Time - Sem III, July
2016
N L Dalmia Institute of Management Studies and Research
Strategic Marketing
Management Process
1. Vision / Mission
1. The vision of the organization refers to the broad

category of long term intentions that the organization
wishes to pursue. It is broad, all inclusive, & futuristic. It
is in most cases, a dream; the aspirations the
organization holds for its future; a mental image of the
future state. It might therefore be difficult for the
organization to actually achieve the vision even in the
long term, but it provide the direction & energy to work
towards it. The vision statement of NTPC is To be one
of the worlds largest & best power utilities ,
powering Indias growth. It can be seen that this
statement clearly of the organization specifies the larger
purpose.
Wipro says: Close to customer. Nokia : Connecting
people. Ford: Quality covers first, customers are the focus
of everything we do. Siemens: Where technology touches
lives. Xerox: The document company.
Strategic Marketing Management

Process
Good vision statements specify the category of intentions that are:

1. Broad, all inclusive, forward thinking.
2. Aspirations for the future ends rather than the means.
3. Mental image of the future state.
4. A dream that is shared across the entire organization.
5. Inspiring, motivating & challenging.
6. A slogan it could be encapsulated in an actionable slogan.
7. Easily communicated & shared among the whole organization & its
stakeholders.
When people talk about shared vision, it is expected that members of the
organization share a common mental image of the future, which integrates
their efforts towards the future state. The vision statement clearly & crisply
illuminates the direction in which the organization is headed. It should be
highly motivating, inspiring & challenging. Good vision statements act like
slogans that drives people towards a dream.

Process
Mission: The mission statement makes the vision statement more tangible &
comprehensive. In most cases the vision statement is just a slogan, a war
cry, or even a short phrase containing superlatives. A mission statement
clearly specifies:
(a) Why the organization exists, or the purpose;
(b) what differentiates the organization from others, or the identity; &
(c) the basic beliefs, values,& philosophy of the organization.
The key elements of a mission statement should include:
1. Obligation the firm holds to its stake holders
2. The scope of the business.
3. Sources of competitive advantage.
4. The organizations view of the future.
The purpose of an organization should typically include the various
stakeholders & its obligations towards them. Stakeholders may include
customers, employees, governments, & owners (stockholders). Even
though it is acknowledged that the organization needs to honor obligations to a
wide variety of stakeholders, the mission statement establishes the relative
priority/emphasis placed on meeting the specific requirements of
significant stakeholders, by specifying the specific value added by the
firm The sequence of statements in the mission typically signifies the relative

Process
(continued) The identity of the organization delimits the scope of the business
& identifies the key sources of competitive advantage for that business In
delimiting the scope of the business, the organization answers the question,
what business are we in? In doing so, it defines the breadth of products /
markets/ target customers served /technology applied by the firm. The
mission statement, apart from stating what the organization intends to
achieve, also describes how it is going to do it by stating the key forms &
sources of competitive advantage
Mission statements also specify the state of the future in a more tangible
way than the vision statement, & the role/position of the firm in the future state.
The anticipated state of macroeconomic environment , regulation, market
dynamics, competitive forces, & changes in customer tastes &
preferences form the basis of this mapping of the future state of the
organization, & its environment. This again helps the organization in anticipating
the broad changes in the environment & preparing its responses to deal
with them appropriately, in tune with the intended vision.
Corporate Vision
Deciding Corporate Vision. Managements vision defines what the
corporation is & what it does & provides important guidelines for managing
& improving the corporation. The founder initially has a vision about the firms
mission, & management may alter the mission over time. Strategic
choices about where the firm is going in the future choices that take into
account company capabilities, resources, opportunities, & problems
establish the vision of the enterprise. Developing strategies for
sustainable competitive advantage, implementing them, & adjusting the
strategies to respond to new environmental requirements is a continuing
process. Managers monitor the market & competitive environment. The
corporate vision may, over time, be changed because of problems or
opportunities identified by monitoring. For example, IBMs management is
placing major emphasis on consulting services as a direction of future
growth.
Early in the strategy-development process management needs to define the
vision of the corporation. It is reviewed & updated as shifts in the strategic
direction of the enterprise occur over time. The vision statement sets
several important guidelines for business operations
Corporate Vision
1. The reason for the companys existence & its responsibilities to stock
holders, employees, society & other stake holders.
2. The firms customers & the needs (benefits) that are to be met by the
firms goods or services (areas of product & market involvement).
3. The extent of specialization within each product-market area & the
geographical scope of operations.
4. The amount & types of product-market diversification desired by
management.
5. The stage(s) in the value-added chain where the business competes
from raw materials to the end user.
6. Managements performance expectations for the company
7. Other general guidelines for overall business strategy, such as
technologies to be used & the role of research & development in the
corporation.
SWOT Analysis
A scan of the internal & external environment is an important part
of the strategic planning process. Environmental factors internal
to the firm usually can be classified as Strengths (S) or Weaknesses
(W), and those external to the firm can be classified as opportunities
(O) or Threats (T). Such an analysis of the strategic environment is
referred to as a SWOT analysis.
The SWOT analysis provides information that is helpful in matching
the firms resources and capabilities to the competitive
environment in which it operates. As such, it is instrumental in
strategy formulation and selection. The diagram shows how a
SWOT analysis fits into an environmental scan.
Strengths.
A firms strengths are its resources and capabilities that can be
used as a basis for developing a competitive advantage.
Examples of such strengths include:
Patents
Strong brand names
Good reputation among customers
Cost advantages from proprietary know-how
Exclusive access to high grade natural resources
SWOT Analysis
Weaknesses
The absence of certain strengths may be viewed as a weakness.
For example each of the following may be considered weaknesses
Lack of patent protection
A weak brand name
Poor reputation among customers
High cost structure
Lack of access to the best natural resources
Lack of access to key distributor channels
In some cases, a weakness may be the flip side of a strength.
Take the case in which a firm has a large amount of manufacturing
capacity. While this capacity may be considered a strength that
competitor do not share, it also may be a considered a weakness if
the large investment in manufacturing capacity prevents the firm
from reacting quickly to changes in the strategic environment.
Opportunities
The external environmental analysis may reveal certain new
opportunities for profit and growth. Some examples include:
SWOT Analysis
An unfulfilled customer need

Arrival of new technologies
Loosening of regulations
Removal of international trade barriers.
Threats
Changes in the external environmental also may present threats to
the firm. Some examples of such threats include:
Shift in consumer tastes away from the firms products
Emergence of substitute products
New regulations
Increased trade barriers
The SWOT Matrix
A firm should not necessarily pursue the more lucrative
opportunities. Rather, it may have a better chance at developing a
competitive advantage by identifying a fit between the firms
strengths and upcoming opportunities. In some cases, the firm can
overcome a weakness in order to prepare itself to pursue a
compelling opportunity.
To develop strategies that take into account the SWOT profile, a
matrix of these factors can be constructed. The SWOT matrix (also
known as TOWS Matrix) is shown
SWOT/TOWS Analysis
S-O strategies pursue opportunities that are a good fit to the
companys strengths.
W-O strategies overcome weaknesses to pursue opportunities.
S-T strategies identify ways that the firm can use its strengths to
reduce its vulnerability to external threats.
W-T strategies establish a defensive plan to prevent the firms
weaknesses for making it highly susceptible to external threats.
The SWOT analysis template is normally presented as a grid,
comprising four sections, one for each of the SWOT headings:
Strengths, Weaknesses, Opportunities, and Threats.
Strengths and Weaknesses are mapped against Opportunities and
Threats.
To enable this to happen clearly and cleanly, and form a logical point
of view anyway when completing a SWOT analysis in most
businesses and marketing situations, Strengths and Weaknesses
are regarded distinctly as internal factors, whereas opportunities
and threats are regarded distinctly as external factors.
Here is the explanation in more detail:

the internal environment
- the situation inside the
company or organization
for example, factors relating to

products, pricing, costs,
profitability, performance,
quality, people, skills,
adaptability, brands, services,
reputation, processes,
infrastructure, etc.
factors
tend to be
in the
present
Opportuniti the external environment

es and
- the situation outside
Threats
the company or
organization
for example, factors relating to

markets, sectors, audience,
fashion, seasonality, trends,
competition, economics,
politics, society, culture,
technology, environmental,
media, law, etc.
factors
tend to be
in the
future
Strengths
and
Weaknesse
s
opportuniti
es
(external)
strengths (internal)
weaknesses (internal)
strengths/opportunities
weaknesses/opportunities
obvious natural priorities

Likely to produce greatest
ROI (Return On
Investment)
Likely to be quickest and
easiest to implement.
Probably justifying
immediate action-planning
or feasibility study.
Executive question: "If we
are not already looking at
these areas and prioritizing
them, then why not?"
potentially attractive
options
Likely to produce good
returns if capability and
implementation are viable.
Potentially more exciting and
stimulating and rewarding
than S/O due to change,
challenge, surprise tactics,
and benefits from
addressing and achieving
improvements.
Executive questions: "What's
actually stopping us doing
these things, provided they
truly fit strategically and are
realistic and substantial?"
threats
(external)
strengths/threats
weaknesses/threats
easy to defend and

counter
Only basic awareness,
planning, and
implementation required to
meet these challenges.
Investment in these issues
is generally safe and
necessary.
Executive question: "Are
we properly informed and
organized to deal with
these issues, and are we
certain there are no
hidden surprises?" - and "Since we are strong here,
can any of these threats
be turned into
opportunities?"
potentially high risk

Assessment of risk crucial.
Where risk is low then we
must ignore these issues
and not be distracted by
them.
Where risk is high we must
assess capability gaps and
plan to defend/avert in very
specific controlled ways.
Executive question: "Have
we accurately assessed the
risks of these issues, and
where the risks are high do
we have specific controlled
reliable plans to
avoid/avert/defend?"
PORTFOLIO MATRIX-BCG GROWTH-SHARE

MATRIX

MATRIX
SBUs can be evaluated by positioning them on a diagram that compares relative

market shares with market growth rates. The figure shows a portfolio matrix
developed by the Boston Consultancy Group . A logarithmic scale is used for relative
market share that goes from 1/10 to 10 times the size of the next largest competitor.
The business units located to the right of the value 1.0 are smaller than the
competition & those to the left are larger.
Portfolio matrices are often divided into four separate quadrants for analysis
purposes. In figure high growth rates would include all businesses expanding faster
than the overall economy. SBUs in corner of the portfolio matrix have sharply different
financial requirements and marketing needs.
STARS: Products that fall in the star category have strong market positions & high
rates of market growth. The primary objective with stars is to maintain their market
positions & to increase their sales volumes. Stars are key to the future because
they provide growth, technological leadership, & enhanced respect in the business
community. Although stars increase revenue to the firm, they tend to use more
money than they generate from earnings & depreciation. To maintain their high rates
of growth, stars require extra cash for expanded plant & equipment, inventories,
accounts receivable, field sales people & advertising programs. Thus stars are
both a blessing & a curse because of the strain they put on the firm to constantly
expand working capital.
Another problem with stars is that their high growth rates attracts competition. The
entry of other firms can help expand a market, but eventually the market will become
saturated , & growth rates will decline.

MATRIX
Cash Cows: Business units described as cash cows are low growth, high-relativemarket-share operations.. These products are likely to be in the mature stage of their
life cycle & do not require extensive funds for production facilities or inventory build
up. Cash cows have also established market positions & do not need large advertising
expenditures to maintain their market hares. As a result, their high earnings &
depreciation allowances generate cash surpluses that can be used to invest in other
growing products, to support R&D , or to buy into new lines of trade. Cash cows thus
provide the basic fuel on which portfolio management of business units depends.
Question marks: Products with low relative market shares in fast-growing markets
are called question marks. These products have the potential to become stars of the
future or to fade into oblivion. Because question marks have such small market
shares, they usually absorb more cash than they generate. Thus, in the short run,
question marks just eat money, & when their market growth slows, they become
dogs.
The preferred approach with question marks is to increase their relative market
shares & move them into the star category . However, this often takes a pile of cash
, sophisticated marketing plans,& a good measure of luck. If the prospects for
improving the market position of a business are not attractive the firm must consider
phasing the business out. Large multinational companies are often concerned not
only with weaker brands but also with otherwise successful brands that dont have the
potential for global reach. One popular approach is simply to sell the business to a
competitor. Another technique is to withdraw all promotional support and try to
make a few Rupees as the product withers away.

MATRIX
Dogs: Business that fall into the low growth, low relative market share quadrant are
called dogs. These products are often in the decline phase of their life cycles & show
little prospect for gaining market position or generating much cash flow. Even
worse, dogs can become cash traps & absorb more money than they generate as
firms try to revive a lost cause. The usual approach with dogs is to sell them when the
opportunity occurs or to deemphasize marketing activities.
The most common criticism of the portfolio matrix approach is that it does not have
enough dimensions to assess a product portfolio accurately. Despite these
limitations, the terms dog, star, and cash cow have become a standard part of the
vocabulary of business planning.
GE MATRIX
GE / McKinsey Matrix
BCG & GE Matrix

Relative Position
Business Strength
Market Attractiveness
Market Growth
(Market Share)
About GE Matrix
Developed by McKinsey & Company in
1970s.
GE is a model to perform business
portfolio analysis on the SBUs.
GE is rated in terms of Market
Attractiveness & Business Strength
It is an Enlarged & Sophisticated version
of BCG.
Annual market growth
rate
Overall market size
Historical profit margin
Current size of market
Market structure
Market rivalry
Demand variability
Global opportunities
Business Strength
Current market share
Brand image
Brand equity
Production capacity
Corporate image
Profit margins relative to
competitors
R & D performance
Managerial personal
Promotional effectiveness
Strategies
Protect Position
Invest to grow
Effort on maintaining strength
Invest to Build
Challenge for leadership
Build selectively on strength
Build Selectively
Invest in most attractive segment
Build up ability to counter competition
Emphasize profitability by raising productivity
Strategies
Protect & Refocus
Manage for current earning
Defend strength
Selectivity for Earning
Protect existing program
Investments in profitable segments
Build Selectively
Specialize around limited strength
Seek ways to overcome weaknesses
Withdraw if indication of sustainable
growth are lacking
Strategies
Limited Expansion for Harvest
Look for ways to expand
withoutfor
high
risk
Manage
Earnings
Protect position in profitable segment
Upgrade product line
Minimize investment
Harvest
Sell at time that will maximize cash value
Cut fixed costs and avoid investment
meanwhile
Overview
High
Business Strengths
Low
High
Low
Attractive
Moderate
Attractive
Unattractive
GE Matrix For TATA

Business Strengths
High
High
Low
IT
Consumer
Durables
Textiles
Low
BCG v/s GE
BCG
GE
Market Growth
Market
Attractiveness
Market share
Market strength
4 cell
9 cell
Multi Products
Multi Business
Units
Primary tools
Secondary tools
Bcg vs GE/McKinsey Matrix
McKinsey developed a nine cell portfolio matrix as a tool for screening GEs large
portfolio of strategic business units (SBU). This business screen became known as the
GE/McKinsey Matrix.
The GE/McKinsey matrix is similar to the BCG growth-share matrix in that it maps
strategic business units on a grid of the industry and the SBUs position in the industry.
The GE matrix, however, attempts to improve upon the BCG matrix in the following two
ways.
The GE matrix generalizes the axes as Industry Attractiveness & Business Unit
Strength whereas the BCG matrix uses the market growth rate as a proxy for industry
attractiveness & relative market share as a proxy for the strength of the business unit.
The GE matrix has nine cells vs. four cells in the BCX matrix.
Industry attractiveness & business unit strength are calculated by first identifying
criteria for each determining the value of each parameter in the criteria, and
multiplying that value by a weighting factor. The result is a quantitative measure of
industry attractiveness & the business units relative performance in that industry.
Industry Attractiveness. The vertical axis of the GE/McKinsey matrix is industry
attractiveness, which is determined by factors such as the following.:
1. Market growth rate. 2. Market size. 3. Demand variability. 4. Industry profitability. 5.
Industry rivalry. 6. Global opportunities. 7. Macro environmental factors (PEST).
Each factor is assigned a weighting that is appropriate for the industry. The industry
attractiveness is the calculated as follows..
Industry attractiveness = Factor value1 x factor weighting1 + Factor value2 x factor
weighting2 + and so on..
Portfolio Matrix GE/McKinsey Matrix
Business Unit Strength

The horizontal axis of the GE/McKinsey matrix is the strength of the business unit.
Some factors that can be used to determine business unit strength include
1. Market share 2. Growth in market share 3. Brand equity 4. Distribution channel
access 4. Production capacity 5. Profit margins relative to competitors.
The business unit strength index can be calculated by multiplying the estimated value of
each factor by the factors weighting, as done for industry attractiveness.
Plotting the information
Each business unit can be portrayed as a circle plotted on the matrix, with the
information conveyed as follows:
1. Market size is represented by the size of the circle 2. Market share is shown by
using the circle as a pie chart. 3. The expected future position of the circle is
portrayed by means of an arrow.
Typical external factors that affect market attractiveness. 1. Market size. 2. Market
growth rate. 3. Market profitability. 4. Pricing trends. 5. Competitive intensity / rivalry. 6.
Overall risk of returns in the industry. 7. Opportunity to differentiate products and
services. 8. Demand variability. 9. Segmentation. 10. Distribution structure. 11.
Technology development.
Typical internal factors that affect competitiveness. 1. Strength of assets &
competencies.. 2. Relative brand strength (marketing). 3. Market share. 4. Market share
growth. 5. Customer loyalty. 6. Relative cost position. 7. Relative profit margins. 8.
Distribution strength & production capacity. 9. Technological or other innovation 10.
Quality. 11. Access to financial & other investment resources. 12. Management strength
Strategies in declining and Hostile

Markets
A declining market involves a fall in demand, often caused by an external event such
as the creation of a competing technology, a change in customer needs or tastes,
or a shift in government policy. Of course, a participant in a declining market will
attempt to obtain sustainable competitive advantages and compete successfully in
a market characterized by zero or negative growth, however, the options of milking
and even existing should be considered, as suggested by the portfolio models
Several strategic alternatives especially relevant to declining markets are
considered:
1. Create a growth context by revitalizing the industry so that it becomes a growth
industry or by focusing on a growth submarket.
2. Be a profitable survivor in the industry by dominating the market, thus
encouraging others to exit.
3. Milk or harvest. Withdraw resources so that they can be invested else-where.
4. Exit or liquidate. Salvage existing assets.
Hostile markets are those with overcapacity, low margins, intense competition, and
management in turmoil. Hostility has two primary causes. The first is a decline in
demand.
The second and the most important cause of hostility is competitive expansion.
During the 1980s, for example the semiconductor, airline, minicomputer industries
became hostile when industry capacity exceeded the growth of demand.
Creating Growth in Declining Industries
It is usually assumed that existing participants have fully exploited the market in
an declining industry. But if this is not true, opportunity exists to participate in
revitalizing the industry. Industry revitalizing can be created by new markets, new
products, new applications, revitalizing marketing, government-simulated
growth, and the exploitation of growth sub-markets. They are:
1. New Markets 2. New products 3. New Applications 4. Revitalized marketing 5.
Government- stimulated growth 5. Exploitation of growth of Submarkets.
1. New Markets: An obvious way to generate growth is to move into neglected or
ignored market segments but have potential for new growth. Texas instruments
designed a calculator for women a neglected market in a mature product
category despite the fact that 60% of buyers were women. The new calculator,
termed the Nuance, looked like a compact with a latch-key cover in either a
purple or soft beige. Its rubber keys were contoured for comfort and staggered
so that long nails would not create double strokes.
Some industries have seen international expansion fuel growth. Barbie, for
example found new market vitality in Europe and Japan.
2. New Products: Sometimes a dormant industry can be revitalized by a product
that makes existing products obsolete and accelerates the replacement cycle.
The consumer electronics market has seen color television, cassette tapes,
CDs, stereo television, and big screen television all generate growth spurts.
A new product variant can add interest, such as the introduction of gourmet
coffee or cranberry-based juices.
Creating Growth in Declining Industries
3. New Applications: A new application for a product can stimulate industry growth. For example a chemical
process used by oilfields to separate water from oil is used by water plants to eliminate unwanted oil from
water.
Another one is the use of baking soda as a deodorizer in refrigerator.
4. Revitalized Marketing: A product class may be revived by a fresh marketing approach , such as changing
the distribution channel by using new types of stores or direct selling, selling the product to firms to use as
giveaway promotion items, changing the price structure, or perhaps changing the advertising
5. Government-Stimulated Growth: There is an old adage : If every thing fails, change the rules of the game.
Strategically, the idea is to change the environment so that industry sales will be enhanced. A governmental
body can provide incentives for change, such as tax incentives for installing solar panels on roof-tops of
buildings for hot water or cooking purposes. Or a government may dictate that air bags be installed in all cars,
thus stimulating a new industry.
Ansoff Matrix
Prepared by Prof Dipesh Maitra
Background
Long-term business strategy is dependant on planning for
their introduction
Ansoff Matrix represents the different options open to a
marketing manager when considering new opportunities
for sales growth
Variables in the matrix

Two variables in Strategic marketing
Decisions:
The market in which the firm was going to operate
The product intended for sale
In terms of the market, managers had two options:

Remain in the existing market
Enter new ones
In terms of the product, the two options are:

selling existing products
developing new ones
Existing
Existing
MARKET
PENETRATION
New
INCREASING RISK
PRODUCT
DEVELOPMENT
Sell new products in
existing markets
MARKETS
MARKET
EXTENSION
DIVERSIFICATION
New
Achieve higher
sales/market share of
existing products in
new markets
Sell new products in new

markets
INCREASING RISK
Sell more in existing

Markets
PRODUCTS
MARKET PENETRATION
This is the objective of higher market share in existing
markets
E.g. in 2000, Mitsubishi announced a 10% reduction in prices in
the UK in order to encourage purchases
MARKET EXTENSION
This is the strategy of selling an existing product to new markets.
This could involve selling to an overseas market, or a new market
segment
Nintendo are making hand held games consoles (e.g. DS) appeal to the
adult/grey market by introducing games such as Brain Train
PRODUCT DEVELOPMENT
Least risky of all four strategies
This involves taking an existing product and developing it
in existing markets
E.g. Coca-Cola. This has been developed to have vanilla, lime,
cherry and diet varieties (amongst others) in the SOFT DRINKS
market
DIVERSIFICATION
This is the process of selling different, unrelated goods or
services in unrelated markets
This is the most risky of all four strategies
E.g. the Virgin group
Summary
Risks involved differ substantially
The matrix identifies different strategic areas in which a
business COULD expand
Managers need to then asses the costs, potential gains
and risks associated with the other options
MCKINSEYS 7S FRAMEWORK
McKinsey 7S Model
Seven Ss. Perhaps the most widely used strategy implementation framework is that
developed by one of the largest & best known strategy consulting firms McKinsey
Consulting. About 20 years ago, McKinsey discovered that many of its clients
implemented strategic plans that it recommended, things actually got worse for the
clients. McKinsey realized that having clients do worse when they follow your advice
is not the way to build a successful consulting firm. What emerged from McKinsey
efforts to unravel this mystery was the Seven S framework.
Essentially, McKinsey discovered that the reasons clients were doing worse when
they implemented the new strategies was because the strategies were being
implemented within old structures, shared values, systems, skills, styles & staff.
These old aspects of the organization were inconsistent with the new strategy. Like
a body that rejects an incompatible new organ, the old aspects of the organization
worked against, overwhelmed & in practical terms rejected the new strategy.
McKinsey consultants found out that neglecting any one of seven key factors would
make the effort to change a slow, painful, & even doomed process. Each of these
factors are equally important & interacts with all the other factors,. Any number of
circumstances may dictate which of the factors will be the driving force in the
execution of any particular strategy.
Structure. The seven S model adds a contemporary perspective to the problem of
organizational structure. The McKinsey consultants point out that in todays
complex & ever changing environment, a successful organization may take
temporary structural changes to cope with specific strategic tasks without abandoning
basic structural divisions through out the organization.
Strategy. The seven-S model emphasizes that , in practice, the development of
strategies poses less of a problem than their execution.
Systems. This category consists of all the formal & informal procedures that allow
the firm to function, including capital budgeting, training, & accounting systems.
McKinsey 7S Model
(contd) Systems. Systems can overpower expressed strategies. Thus a consumer-goods

manufacturer might find it impossible to implement a new portfolio strategy if its
management information system is not adjusted to produce the necessary cost data by
segment, because there would be no way to compare the different segment, of the
business.
Style. Style refers not to personality, but to the pattern of substantive & symbolic
actions undertaken by top managers. It communicates priorities more clearly than
words alone, & may profoundly influence performance.
Staff: Successful organizations view people as valuable resources who should be
carefully nurtured, developed, guarded, & allocated. Top managers devote time &
energy to planning the progress & participation of existing managers, & use job
assignment policies to actively foster the development of the new managers. Similarly,
the new hires are given jobs in the mainstream of the organization, whether that be
marketing or new product innovation. Talented individuals are assigned mentors, put
into fast track programs, exposed to top management, & rapidly moved into positions
of real responsibility.
Skills: The term skills refer to those activities organizations do best are for which they are
known. For example, Du Pont is known for research, Proctor & Gamble for product
management, ITT for financial controls, & HP for innovation & quality. Strategic changes
may require organizations to add one or more new skills. Strategic initiatives that require
the dismantling or revising of old skill pose even more difficult implementation problems.
Superordinate goals. This refers to guiding concepts, values, & aspirations that unite an
organization in some common purpose. Superordinate goals are often captured in a
mission statement, but they can also be phrased as a simple slogan, such as new
products at 3M. Superordinate goals have deep meaning within the organization. They
provide a sense of purpose & a certain stability as other, more superficial characteristics
of the organization change. In the case continuation, we will see how some of these 7-S
work at Sega.
SUPPLIER POWER
Porters Five Force Model
Supplier concentration
Importance of volume to supplier
Differentiation of inputs
Impact of inputs on cost or
differentiation
Switching costs of firms in the
industry
Presence of substitute inputs
Threat of forward integration
Cost relative to total purchases in
industry
PORTERS FIVE
FORCE MODEL
BARRIERS
TO ENTRY
Absolute cost advantages
Proprietary learning curve
Access to inputs
Government policy
Economies of scale
Capital requirements
Brand identity
Switching costs
Access to distribution
Expected retaliation
Proprietary products
THREAT OF
SUBSTITUTES
-Switching costs
-Buyer inclination to
substitute
-Price-performance
trade-off of substitutes
BUYER POWER
Bargaining leverage
Buyer volume
Buyer information
Brand identity
Price sensitivity
Threat of backward integration
Product differentiation
Buyer concentration vs. industry
Substitutes available
Buyers' incentives
DEGREE OF RIVALRY
-Exit barriers
-Industry concentration
-Fixed costs/Value added
-Industry growth
-Intermittent overcapacity
-Product differences
-Switching costs
-Brand identity
-Diversity of rivals
-Corporate stakes
Porter Five Force Model
One of the most important factors that determine the performance is the structure of the industry the
firm operates in. There are some industries that are inherently attractive, whereas others are
relatively difficult. There are two theories of economics theory of monopoly & theory of perfect
competition that represent two extremes of industry structure. In a monopoly context, a single firm
is protected by barriers to entry, & has an opportunity to appropriate all the profits generated out of the
value creation activity. On the other end of the spectrum, is perfect competition, where there are
many firms supplying an identical product/service with little or no barriers to entry, & therefore,
the returns from the business for a firm falls to a state just above the firms cost of capital. In reality,
industries fall somewhere in between these two extremes.
However, the number of competitors & the resultant entry barriers are not the only determinants of the
industry; the industry structure is determined by a set of factors including the number of
competitors, the relationship of the firms with the buyers & sellers, & the threats from potential
new entrants & substitute products & services.
(a) Threat of new entrants/Barriers to entry: 1. Highly capital intensive industries,

such as aero space have significantly high barriers to entry. High barriers to entry
could exist due to high capital requirements in the industry, or the cost structure in
the industry that creates high minimum efficient scale of entry. It might also be
possible that the industry demand for that particular product/service is limited to a
certain level, the industry might have to make do with a defined number of profitable
players. For example, Indian Aviation Industry too many players, survival at
stake. 2. It is possible that access to a specific resource is essential to survive /
perform in a particular industry it could be access to cheap source of funds,
specific types of raw materials, specific information, or even specialized human
resources. The more such specialized resources are required in the industry , the
higher are the barriers to entry in the industry. 3. Another significant barrier to entry
arises out of product differentiation. In an industry where products are heavily
differentiated on various parameters, it is important for a new player to enter with a
unique selling proposition. On the contrary, in the commodity markets that are not
differentiated, it would be far easier to enter the market. Product differentiation also
provides the existing players in the industry with some degree of brand loyalty which
the new entrants have to invest in building. Higher levels of brand loyalty indicate
very high switching costs for the consumers from their current brands to the new
entrants brands/product/services. For example Xerox. 4. Another relevant barrier to
entry is the incumbents learning curve in the industry. The incumbents knowledge
about the products, processes, & customer preferences in the industry offers a major
barrier. In industries where such
Industry knowledge is gained out of years of experience, it would take a substantial
investment in terms of time/effort cost for the new entrant to acquire such knowledge
about the industry.
(b) Threat of substitute Products: It is important to define what constitute substitute

products in a particular industry. Substitute are those products which could replace a
particular product in the market. They could be the substitutes because they satisfy
the same need, beer, coke & water thirst. A particular industry could be threatened
by the existence of substitute products when the substitute products performance
with reference to that particular need are comparable with each other. We also need
to appreciate the role of technology branding in product substitution. As a
substitute product is positioned as being technologically superior the consumer
perception of performance is shaped appropriately. In such a case, the threat from
substitute products is significantly higher.
(c) Bargaining power of buyers & sellers: Buyers bargaining power can arise due
to relative concentration of the buyers industry- when there are numerous firms
selling their products to limited set of buyers, or to a set of concentrated buyers, the
buyers can command significant bargaining power. Buyers bargaining power is
also a product of their buying behavior- buyers who buy in large quantities have
significant bargaining power than those who buy in small quantities, as sellers
prefer to reap economies of scale & scope of selling..
Sellers could reduce the bargaining power of buyers through product
differentiation & branding. Branding generates loyalty among buyers, & therefore,
strengthens the relative position of the sellers, as buyers prefer a particular brand, &
would not mind paying a premium for it. When sellers create significant product
differentiation, the buyers bargaining power is limited as sellers do no not
compete on the same basis.
Porter Five forces model
(c) (Continued): Another factor to impact the relative bargaining power of buyers &
sellers is the criticality of the product to the buyer. Consider, for instance a case
where the product being sold is a critical ingredient in the buyers final output, & is a
key determinant of the buyers product quality. In such a case, the buyer is likely to
choose the seller with utmost care, using criteria such as quality capabilities, & be
willing to pay a premium to the sellers for maintaining consistent quality. The
criticality of the product under question could arise due to unique design of the end
product or a critical end-product in itself like food, food products, drugs.
Another significant factor to determine the relative bargaining power of buyers &
sellers is the extent of unique capabilities required to be in the business. If the
buyer could be easily backward integrate into the sellers business, the sellers are
expected to have much less bargaining power over the buyers. Similarly in cases
where the sellers could easily forward integrate into the buyers business, the
buyers are expected to have less bargaining power.
Similarly the switching costs of buyers & sellers could also impact their bargaining
powers. When the buyers could easily switch from one seller to another, in terms of
time/effort/cost buyers would have higher bargaining power. Likewise, when the
sellers could switch from one buyer to another with little time/effort/cost, it is likely
that the sellers would possess significant bargaining power.
Availability or non availability of substitute products could also become critical in
determining the relative bargaining powers of the buyers & sellers. When the buyers
have an option of choosing from multiple products with similar price performance
ratios, they wield high bargaining power over the sellers. Similarly, as sellers
have options to sell their products to a variety of buyers across different
segments/industries, they wield significant bargaining power as well.
(d) Intensity of Competitive Rivalry: In an industry with few competitors, firms enjoy greater latitude to raise
their prices & earn extra-normal profits, as opposed to an industry with a lot of competitors competing intensely.
The intensity of competitive rivalry in a particular industry is a function of the structure of the industry
(industry concentration, fixed cost, & product differentiation), the industry growth rates, & exit barriers in the
industry. One of the prime factors to define the industry structure is its concentration the number & size
distribution of companies in the industry. An industry which is dominated by a large number of small & medium
players in terms of market share, & where few or no players have the capacity to dominate the industry is called
a fragmented industry. For example, the fast moving consumer goods industry in most markets would have a few
large players, with a huge number of small & niche players. On the other hand, an industry that is dominated by a
few firms (an oligopoly), is called a concentrated or consolidated industry. An extreme case of consolidation is
an industry dominated by one firm the monopoly. Infrastructure services like railways, roads, postal services are
typical examples of monopolies. Industries that are protected by heavy patenting regimes could also become
monopolies, like Xerox. Industry concentration is measured using the concentration ratio, where the concentration of
an industry is determined by the market share held by the top 4 or 5 competitors called as CR4 or CR5. A CR4 of
65% & a CR5 of 80% are considered to be very highly concentrated industries, whereas industries with CR5
less than 30% are considered to be fragmented industries.
(continued) Generally fragmented industries are characterized by low entry barriers & undifferentiated products
& services, whereas concentrated industries are characterized by high entry barriers in the form of high fixed
costs, high brand building costs, standard industry practices, set consumer preferences, or high levels of product
differentiation. The fragmented industries have the potential to attract more & more firms to enter the industry, &
create excess capacity. With excess capacity, price wars & product differentiation begin. In an industry where
the product or services is treated as a commodity, price wars could be detrimental, leading to closure of
capacities & bankruptcies of financially weak firms. Gradually the industry capacity balances out with the
demand, & the industry stabilizes. On the other hand concentrated industries make firms interdependent on
each other. Competitive actions of one firm directly effect every other firm in the industry, forcing a response
from them. These competitive forces ensure that the industry margins are minimal, product differentiation is high, &
price wars common.
The diversity of competitors is another factor that determines the intensity of rivalry in the industry. When the firms
with similar origins, objectives, cost structures, & strategies compete against each other, they tend to avoid price
competition. As the diversity of competitors increase, the various firms would differentiate their products / services to
gain competitive advantage.
Business Level Strategies (Porters Generic

Strategies)
Michael Porter views having a low cost structure & differentiating as two
fundamentally different approaches to obtaining a competitive advantage. He calls
them cost leadership strategy & differentiation strategy respectively. To this he added
the issue of the number of customer segments served, or the scope of business
narrow versus broad - & defined three generic business level strategies, cost
leadership, differentiation, & focus.
These strategies are called generic strategies because they may be used in any
industry, & by any type of firm whether it is a service or manufacturing or even a
non profit organization. Each of these strategies results from a consistent choice of
decisions through all the areas of the organizations operations. Properly
implementing any of these strategies allows an organization to obtain above average
returns.
Cost Leadership strategy: It is based on a firm having a cost structure that allows it
to offer a comparable product at a lower unit cost than its rivals. This low cost
structure allows the firm to offer the products at a lower price. It is very important to
recognize that the firm does not just offer a low price with a cost structure comparable
to its rivals; instead, it has a cost structure that is lower than that of its rivals. It is this
low cost structure, & just not a low price, that allows the firm to gain competitive
advantage, & earn above average returns.
Cost leadership typically offer standard, no frill products or services to a wide group of
customers. To be successful, the product has to be of a good to acceptable quality.
This strategy does not recommend poor quality.. The aim of this strategy is to keep
costs below the industry average, & to attract the customer on the basis of an
acceptable product at low prices. The following are some key sources for an
organization to obtain a low cost structure.
Business Level Strategies (Porters

Generic Strategy)
(a) Product or service offered: A product or service is often designed for the
average customer. Although organizations serve numerous segments, often there is
not sufficient market segmentation to justify differentiated offerings to each segment.
This is because differentiation & customizing to various segments add cost. Cost
leaders do not attempt to offer a very differentiated product or service with a lot of
additional features.
(b) Economies of scale: A cost leader attempts to have a large customer base & to
exploit economies of scale. Economies of scale result when an increase in output
generates a drop in the average cost per unit. This decrease in average costs occur
till a point (called the minimum efficient scale), after which diseconomies of scale set
in, & average cost increase.
Economies of scale occur in manufacturing for many reasons. Large volumes often
justify the purchase of specialized machines that are more efficient. Process
industries like chemicals, petroleum, steel, paper, & others often use technologies
that costs less per unit as production volume in a location increases. Further
economies of scale result from (a) the spreading of fixed or overhead costs over
larger volumes, & (b) the increase in employee specialization that is possible with
large volumes.
Although we often associate economies of scale with manufacturing, it is important to
understand that economies of scale occur quite frequently even outside of
manufacturing. Many firms selling consumer products, from soaps to soft drinks to
restaurant chains, are able to spread their advertising cost, giving larger firms a much
lower advertising cost per unit of sales. Large retail firms, like Wal-mart in the U.S. ,
are able to gain considerable bargaining power over their suppliers, & get products at
prices that small firms are unable to obtain

Strategy)
(c) Research & Development: R&D can play important role in lowering costs. Firms pursuing cost
leadership do not aim to offer the most innovative products or to come up with new products.
Instead, they focus on making an acceptable quality product at the lowest cost. So R&D
expenditures targeted towards product innovation & development are often minimal. However, such
firms need to have state-of-the-art facilities for production, materials & inventory management,
distribution & other processes. Consequently, their R&D expenses are primarily at process &
information technology, & other means to keep their organization very efficient.
(d) Product Design: Firms can cut down costs considerably by the design of the product. Product
may be designed with lower cost inputs, fewer components, or fewer stages in the manufacturing
process. Project impact, a company that sells cheap hearing aids manufactured by Aurolabs,
designed its products with the intention of keeping manufacturing costs down.
(e) Capacity utilization: In the short & medium run, plant capacity is fixed, & the expenses incurred
on setting up the plant & equipment entail largely fixed costs. When the plant is operating at full
capacity, its per unit cost will be lower than when there is any unused capacity. When there is
unused capacity , a firms fixed costs are spread among fewer units, which is detrimental to
efficiency. Thus, cost leadership :requires paying close attention to making full use of capacity.
(f) Organizational structure: A key component of the cost leadership is an all permeating
organizational culture that values efficiency & low costs. Most successful cost leaders are firms
where the push to cut costs comes from the top managers.
(g) Organizational structure & processes: Firms successful in cost leadership have lean
organizational structures.. They use systems providing considerable financial & operational control,
& adopt compensation structures that provide incentives to keep costs down.
Cost leadership strategy is not without risks. 1) The biggest threat to cost leadership is that
other firms might be able to lower their costs below that of the cost leader. This might happen
because of shifts in technology with the current low cost players locked into less efficient process.
2) Another threat to cost leadership is that competitors might imitate a cost leaders sources of low
cost.. This often happens when low costs are based on product features, or process technology that
can be copied quickly. Sometimes cost leaders loose sight of customer needs & cut back on product
features or allow quality to slip. These are dangerous practices. to loose customers.

Strategy)
Differentiation Strategy: The objective of differentiation strategy is to offer a product

or service that is perceived by customers as being different or distinctive in ways
important to them. Differentiators might have higher costs than industry averages.
But because they are perceived to be offering something additional that is valuable
to the customers, they are able to charge higher prices for the products. What the
firm offers to be considered valuable is very wide it goes far beyond the physical
characteristics of a product. It encompasses psychological aspects, service, ease
of use, & includes the overall way a firm does business with its customers.
Differentiators cater to a wide range of customers. While some companies might offer
the same product mix to the whole market, most firms are likely to segment their
market & customize offerings to various segments. Market segments consists of
customers with similar needs & purchasing power. Many consumer product firms,
including those in consumer electronics & automobile industry, offer many models at
various prices for different segments.
A firm can differentiate itself on tangible & intangible dimensions like size, weight
shape, color, technology etc. It may also include ease of use, increased features,
better performance, greater reliability, speed, safety etc.
Firms often differentiate their products in intangible ways. Examples of such products
include cars made by Mercedes Benz, & watches by Rolex. The value consumers
attach to these products goes beyond their & often include an appeal to
psychological needs; for example use of the product might provide a sense of
exclusivity or status.

Strategy)
Focus strategy: The final generic strategy proposed by Porter describes firms that
focus on best meeting the needs of a unique market niche. The success of this
strategy depends on finding a niche a segment that has unique needs - &
positioning the firm to best serve the needs of customers in that niche. Firms might
serve the customers by offering products specially differentiated for them. Example
of this may include launching products that appeal to teenagers, or making food
products specifically for people with special dietary needs, such as diabetic ice
cream.
The focused company does not attempt to compete with cost leaders &
differentiators across the large market segments. Instead, focusers identify
segments whose needs are not being properly met & try to meet those needs. The
more unique the needs of the segment , the greater are the chances that the focused
company will be protected from differentiators & cost leaders who compete industry
wide. Their small size & closeness to the customers help such firms to be
innovative & flexible in meeting customer needs.
Focus strategy is often used to enter a market with strong competitors. Wal-mart
entered the retail market initially by locating itself in these under served rural
location. Success followed by subsequent expansion has made it the largest retail
organization in the world.
Focuses do face risks. A major threat is that their niches may cease to exist one
day customer tastes might change or new technology might make the product or
service provided obsolete. Flexible manufacturing technology has been making it
cost effective for broad industry competitors to serve small niches. And as in the
case of both cost leaders & differentiators, imitation is a very real threat.
Analysis
Strategic Gap
What is Gap Analysis?

We should simply ask two questions where we are now? And where we want to
be? The difference between the two is the Gap that is how you are going to get
there? Take a look at the diagram. The lower line is where you will be if you do
nothing. The upper line is where you want to be.
GAP
ANALYSIS
Marke
t
Share
Using Ansoff Model

Where do you
want to be?
Market
Penetrati
on
Product
Developme
nt
Market
Developme
nt
Diversificat
ion
The GAP
If we do
nothing
Time
Analysis
Gap Analysis
Strategic Gap
Gap analysis is very useful tool for helping marketing managers to decide upon marketing
strategies and tactics. Again, the simple tools are most effective. There is a straight
structure to follow. The first step is to decide upon how you are going to judge the gap
over time. For example, by market share, by profit, by sales, by productivity, and so on.
Strategic Gap Analysis

The evaluation of the difference between desired outcome and an actual outcome. This
difference is called a gap. Strategic gap analysis attempts to determine what a
company should do differently to achieve a particular goal by looking at the time
frame, management, budget, and other factors to determine where shortcomings lie. After
conducting this analysis, the company should develop an implementation plan to eliminate
the gaps.
Breaking Down Strategic Gap Analysis
We will answer above through an example. If an mom and pop restaurant wanted to
become a top tourist destination but currently only served locals, a strategic gap
analysis would look at the changes required for the restaurant to meet its goals. These
changes might include relocating to an area where more tourists visit, altering the menu
to appeal to out-of-town visitors, hiring more staff so the restaurants hours become
more convenient
Strategic Gap Analysis

Market
Development
Market
Penetration
Marke
t
Share
Diversification
Product
Development
Using Ansoff Model
Time
Analysis
Strategic Gap
for travelers, and so on. The analysis would also determine how to make these
changes happen. If a business does not know where it stands in relation to its
goals, it is not likely to achieve them.
Tactical Gap Analysis

You can close the gap by using tactical approaches. The marketing mix is ideal
for this. So effectively, you modify the mix so that you get to where you want to
be. That is to say change price or promotion to move from where you are today.
In fact, you can change any or all of the elements in the marketing mix.
The tactical gap analysis diagram indicates how to close the gap by deciding on
strategies and tactics and that is the outcome of gap analysis.
Price
TACTICAL GAP
ANALYSIS
Place
Marke
t
Share
Product
Promotion
People
Process
Physical
Evidence
Time
Using the 7 Ps of
marketing
Product Life
Cycle
Most product life-cycle curves are portrayed as bell-shaped. This curve is typically divided
into four stages: Introduction, growth, maturity and decline.
1. Introduction: - A period of slow sales growth as the product is introduced in the

market. Profits are non-existent because of the heavy expenses of product introduction.
2. Growth A period of rapid market acceptance and substancial profit improvement.
3. Maturity A slowdown in sales growth because the product has achieved acceptance
by most potential buyers. Profits stabilize or decline because of increased competition.
4. Decline Sales show a downward drift and profits erode.
The PLC concept can be used to analyze a product category (liquor), a product form (white
liquor), a product (vodka), or a brand (Smirnoff). Not all products exhibit a bell-shaped PLC.
Three common alternate patterns are shown.
After the PLC curve in next slide, figure shows a growth-slump-maturity pattern, often
characteristic of small kitchen appliances such as hand-held mixers and bread makers. Sales
grow rapidly when the product is first introduced and then fall into a petrified level that is
sustained by the late adopters buying the product for the first time and early adopters
replacing the product.
PRODUCT LIFE
CYCLE
Cycle
Product Life
The cycle-recycle pattern often describes the sales of the new drugs. The pharmaceutical
company aggressively promotes its new drug, and this produces the first cycle. Later
sales start declining and the company gives the drug another promotion push, which
produces a second cycle (usually of smaller magnitude and duration).
Another common pattern is the Scalloped PLC . Here sales pass through a succession of life
cycles based on the discovery of new product characteristics, uses, or users. The sales of
nylon, for example, show a scalloped pattern because of the many new uses
parachutes, hosiery, shirts, carpeting, boat sails, automobile tires that continue to be
discovered over time.
Style, Fashion, and Fad Life Cycles
We need to distinguish three special categories or product life cycles styles, fashions,
and fads. A style is a basic and distinctive mode of expression appearing in a field of
human endeavor. Styles appear in homes, (colonial, ranch, Cape Cod); clothing (formal,
casual, funky); and art (realistic, surrealistic, abstract). A style can last for generations
and go in and out of vogue. A fashion is currently accepted or popular style in a given field.
Fashion pass through four stages: distinctiveness, emulation, mass fashion, and
decline.
Common Product Lifecycle Patterns
Style, Fashion and Fad Life

Cycle
Cycle
Product Life
The length of a fashion cycle is hard to predict. One point of view is that fashions
end because they represent a purchase compromise, and consumers start
looking for missing attributes. For example, as automobiles become smaller,
they become less comfortable, and then a growing number of buyers start
wanting larger cars. Furthermore, too many consumers, adopt the fashion, thus
turning others away. Another observation is that the length of a particular
fashion cycle depends on the extent to which the fashion meets a genuine
need, is consistent with the other trends in the society, satisfies societal
norms and values, and does not exceed technological limits as it develops.
Fads are fashions that come quickly into public view, are adopted with great
zeal, peak early, and decline very fast. Their acceptance cycle is very short
and they tend to attract only a limited following of those who are searching for
excitement or want to distinguish themselves from others. Fads do not
survive because they do not normally satisfy a strong need. The marketing
winners are those who recognize fads early and leverage them into products
with staying power.
GrowthStrategiesForFMCG
PROF DIPESH MAITRA

Sem IV - Dec 2015
FMCG
Fast-moving consumer goods (FMCG) or consumer

packaged goods (CPG) are products that are sold quickly
and at relatively low cost.
Examples include non-durable goods such as soft drinks,
toiletries, and grocery items.
Though the absolute profit made on FMCG products is
relatively small, they generally sell in large quantities, so the
cumulative profit on such products can be substantial.
Introduction
The success of an FMCG depends greatly on its

marketing strategy.
Typically a marketer pursues a wide combination of
strategies.
For instance when prices are competitive the company
would use an extensive distribution network, design
suitable advertising and sales promotion schemes for time
to time.
1.MultibrandStrategy
A company often nurtures a number of brands in the same
category. There are various motives for doing this.
The main rationale behind this strategy is to capture as
much of the market share as possible by trying to cover as
many segments as possible, as it is not possible for one
brand to cater to the entire market.
This also enables the company to lock up more distributer
shelf space.
Example : Hindustan Lever . It has Dove in the ultra
premium segment, Lifebuoy for the economy segment and
brands like Rexona, Liril, Lux, Le Sancy for the intervening
segment.
2.ProductFlanking
Refers to the introduction of different combinations of
products at different prices, to cover as many market
segments as possible.
It is basically offering the same product in different sizes
and price combinations to tap diverse market opportunities.
The idea behind this concept is to flank the core product by
offering different variations of size and price so that the
consumer finds some brand to choose from.
Example: Vicks the cough and cold relieving medicine is
now available in small containers and also as inhalers,
cough drops and cough syrups.
3.BrandExtensions
Companies make brand extensions in the hope that the extensions will
be able to ride on the equity of successful brands, and that the new
brand will stand in its own right in the course of time.
A well respected brand name gives the new product instant recognition
and easier acceptance.
It enables the company to enter new product categories more easily.
Example: Amul. With the success of its first product, Amul milk powder,
the company came out with Amul ghee, Amul butter, Amul cheese,
Cheese spread, and finally added Amul chocolates to its portfolio.
4.BuildingProductLines
Some companies add related new product lines to give the
consumer all the products he/she would like to buy under one
umbrella.
Example: Britannia has adopted a similar strategy. It has
introduced different kinds of biscuits and baked foods in the past
few years. By adding a number of flavours in each product line
the company grew in the industry.
5.NewProductDevelopment
A company can add new products through the acquisition of other
companies or by devoting ones own efforts on new product
development.
With the help of new products a company can enter a growing
market for the first time, and supplement its existing product lines.
Example: Dove by HLL is an example of creating an entirely new
premium segment. For the first time in India, a soap with Onefourth moisturiser was offered to the consumer.
It has been positioned for the super premium segment as a skin
care product not as a soap.
6.InnovationsinCoreProducts
In the FMCG market, the life of a product is short.
Marketers continually try to introduce new brands to offer
something new and meet the changing requirements of
customer.
It is prudent for a marketer to innovate from time to time
both by technological expertise as well as from the
consumers or dealers feedback.
Such innovations are tried out around the core products of
a company.
7.Longtermoutlook
Many companies adopt a long term outlook towards growth in an

FMCG market. In the process, short term gains which might adversely
affect the long term prospects of the company are sacrificed.
Example: Kelloggs in India.
The concept of cornflakes for breakfast promoted by Kelloggs is
entirely American in nature and in India which is culturally so different
from America, could not accept.
Kelloggs with its long term outlook took 28 years before finally
breaking even. Today is the market leader in the breakfast cereals
market, enjoying an unparalleled monopoly.
8.ExtendingthePLC
Economic conditions change, competitors launch new assaults, and the

products encounters new types of buyers and new requirements are
situations in which a FMCG company try to extend the PLC.
In the mature stage of the PLC, some companies abandon their weaker
products. They prefer to concentrate their resources on their more
profitable products and quickly develop new products.
Example: Existing models in products like automobiles, motorcycles,
watches and cameras in India have experienced a good demand
whenever new options were offered.
9.Expandingmarketsbyusage
A company usually expands the market for its brand in two ways,
either to increase the number of customers or by encouraging more
consumption per intake.
The usage rate of the consumers can be increased in 3 ways :
1) It may try to educate or persuade customers to use the product
more frequently.
2) The Company can try to induce users to consume more of the
product on each occasion.
3) The company can try to discover new product uses and convince
customers to use the product in more varied ways.
10.Widedistributionnetwork
A very simple way of increasing FMCG companys market share

is by developing a strong distribution network, preferably in terms
of more locations.
An extensive distribution system can be developed over time, or
the company many acquire another company which has an
extensive distribution network.
Example: Brooke Bond, Asian Paints, Hindustan Lever, Union
Carbide have developed a good distribution network.
11.Monitoringthepulseoftheconsumers
Companies spend considerable effort to find out the what,

where, how and when of their consumers.
Well known companies frequently undertake marketing
research to find out more about their consumers and how
to satisfy their needs and wants in a better manner.
It helps them to monitor the pulse of their buyers.
Example: We may cite here the famous Marketing
Research about instant coffee.
12.AdvertisingandMediacoverage
Advertising is required to build awareness about an FMCG or brand
which is available in the market but not many people might know about
it.
Informative advertising figures heavily in the pioneering stage of a
product category, where the objective is to build primary demand.
Persuasive advertising becomes important in the competitive stage
where the objective is to build a selective demand for a particular
brand.
Reminder advertising is quite common with mature products.
Example: Expensive four colour Coca-Cola ads in magazines tries to
remind people to purchase it.
13.Salespromotion
Sales promotions offer a direct incentive to buy more in the

short term.
They are designed to stimulate quicker and/or greater
purchase of particular products by consumers or the trade.
Example : Pepsi has been doing a large amount of
promotions since the time it entered India. Pepsi cassettes
and T-shirts have been offered to young people all over the
country.
New Product Strategies.
Companies need to grow their revenue over time by developing new products & services and expanding into
new markets. New product development shapes the companys future. Improved or replacement products &
services can maintain or build sales ; new-to-the-world products & services can transform industries &
companies and change lives. But the low success rate of new products & services point to the many challenges
involved. More & more companies are doing more than just talking about innovation. They are fundamentally
changing the way they develop their new products & services.
New Product Options. A company can add new products through acquisition or development. The acquisition
route can take 3 forms. The company can buy other companies, it can acquire patents from other companies, or
it can buy a license or franchise from another company. Tata tea increased its presence in the international
market through acquisition of the Tetley brand. Coca-cola acquired Thums Up, a soft drink brand owned by
Parle, to increase its market share in India. Hindustan Unilever acquired Dollops, Kwality, & Milkfood brands of
ice-cream to increase its market share in the ice-cream sector.
But firms can successfully make only so many acquisitions. At some point, there becomes a pressing need for
organic growth the development of new products from within the company. For product development, the
company can create new products in its own laboratories, or it can contract with independent researchers or
new- product development firms to develop specific new products or provide new technology.
New Product Strategies
Types Of New Products. New products range from new-to-the-world products that
create an entirely new market at one end, to minor improvements or revisions of
existing product at the other. Most new-product activity is devoted to improving
existing products. At Sony, over 80% of new-product activity is modifying &
improving existing products. Likewise, after the successful launch of the new model
of the petrol car Swift, Maruti Suzuki introduced the diesel variants of the same
model.
In many categories, it is becoming increasingly difficult to identify the blockbuster
products that will transform a market; but continuous innovation to better satisfy
customer needs can force competitors to play catch up. Continually launching new
products as brand extensions into related product categories can also broaden the
brand meaning. Nike started as a running shoe manufacturer but now competes
in the sports market with all types of athletic shoes, clothing & equipment.
Product innovation & effective marketing programs have allowed these firms to
expand their market footprint. Example: Bharat Petroleum Speed. Petrol was
essentially a commodity product in India until BP introduced the high performance
petrol with multifunctional additives that promised to improve engine
performance & fuel efficiency & reduce emission & maintenance cost. This
product was given the brand name speed and was promoted through an
endorsement from Narain Karthikeyan, the well known formula one driver from
India. This led to the introduction of branded fuel with additives by other petroleum
companies in India.
Fewer than 10% to 15% of all new products are truly innovative and new to the
world. These products incur the greatest cost & risk because they are new to both
the company & the marketplace. Radical innovations can hurt the companys
bottom line in the short run, but the good news is that success can create a greater
sustainable competitive advantage than more ordinary products.
Example: Probiotic ice-cream. Gujarat Cooperative Milk Marketing Federation Ltd

(GCMMF) which owns the well known Amul brand gave a boost to its growing ice-cream
business with the launch of two innovative ranges of ice-creams. One of the products was
Amul ProLife Probiotic Wellness Ice-Cream , that encapsulated the benefits of probiotic
culture, which aids digestion, targeted at the growing segment of health & calorie
conscious consumers. Realizing the exponential growth in the number of diabetic patients
who crave for ice-cream , over 60 million by 2007, the company specially created sugar
free, low fat diabetic products where sugar was replaced with low-calorie sweeteners.
This product contains about 50% less fat & half the calories of the normal ice-cream.
Additionally the sugar free range was supplemented with probiotic culture to aid
digestion & health improvement.
Companies that fail to develop new products put themselves at risk. Their existing
products are vulnerable to changing customer needs & tastes, new technologies,
shortened product life cycles, & increased domestic & foreign competition .
New Product Success. Most established companies focus on incremental innovation.
Incremental innovation can allow companies to enter new markets by tweaking products for
few customers, use variations on a core product to stay one step ahead of the market, &
create interim solutions for industrywide problems. Example: South West Airlines.
Newer companies create disruptive technologies that are cheaper and more likely to alter
the competitive space. Established companies can be slow to react or invest in these
disruptive technologies because they threaten their investment Then they suddenly find
themselves facing formidable new competitors & many fail.
New Product Success (Contd). New product specialists Cooper & Kleinschmidt
found that the number one success factor is a unique, superior product . Such
products succeed 98% of the time, compared to products with a moderate
advantage (58% success) or minimal advantage (18% success).
Another key factor is a well defined product concept. The company carefully
defines & assesses the target market, product requirements, & benefits before
proceeding. Other success factors are technological & marketing synergy, quality
of execution in all stages, & market attractiveness.
It was also found that domestic products designed solely for the domestic market
tend to show a higher failure rate, low market share, & low growth. In contrast,
products designed for the world market or at least to include neighboring
countries- achieve significantly more profits, both at home & abroad. Yet only 17%
of the products in their study were designed with an international orientation. The
implication is that companies should adopt an international focus in designing &
developing new products.
New-Product failure. New product development can be quite risky. New
products continue to fail at a disturbing rate. Recent studies put the rate as high as
50% & potentially as high as 95% in the US & 90% in Europe. In the Indian context,
a study based on a sample of 112 new products launched between 1994 & 1995
indicated that the success rate in a benign competitive market was about 53%, & the
success rate of new products with new brand names was about 36%.
New products can fail for many reasons: ignored or misinterpreted market
research; over estimates of market size; high development costs; poor design;
incorrect positioning, ineffective advertising, or wrong price; insufficient
distribution support; & competitors who fight back hard.
Some additional factors hindering new product development are:

Shortage of important ideas in certain areas. There may be very few ways left to
improve some basic products such as steel or detergents.
Fragmented markets. Companies must aim their new products at smaller market
segments, & this can mean lower sales & profits for each product.
Social & Governmental constraints. New products must satisfy consumer safety
& environment concerns.
Cost of development. A company typically must generate many ideas to find just
one worthy of development & often faces high R&D, manufacturing & marketing
costs.
Capital shortages. Some companies with good ideas cannot raise the funds
needed to research & launch them.
Shorter required development time. Companies must learn how to compress
development time by using new techniques, strategic partners, early concept
tests, & advanced market planning.
Shorter product life cycles. When a new product is successful rivals are quick to
copy it. Sony used to enjoy a three year lead on its new products. Now
Matsushita will copy the product within six months, barely leaving time for Sony
to recoup its investment.
Additional reasons. Marketing failure. 1. Small size of the potential market 2. No
clear product differentiation.3. Poor positioning. 4. Misunderstanding of
customer leads Financial failure. Low return on investments. Timing failure. 1.
Late in the market. 2. Too early market not yet developed. Technical failure. 1.
product did not work. 2. Bad design. Organizational failure. Poor fit with culture / no
support..
New Product Development Process
There are eight major steps in the process

1. Idea Generation. New product development starts with idea generation the
systematic search for new product ideas. A company typically has to generate many
ideas in order to find a few good ones. According to one management consultant, on
average, companies will run through 3000 ideas before they hit a winner. Major
sources of new-product ideas include internal sources & external sources such as
customers, competitors, distributors & suppliers & others.
Internal Idea Sources. Using internal sources, the company can find new ideas
through formal research & development. It can pick the brain of its executives,
scientists, engineers, manufacturing staff & sales people. Every one in the
company can contribute good new product ideas. Some companies have developed
successful intrapreneurial programs that will encourage employees to think up &
develop new product ideas. For example, 3Ms well known 15% rule allows
employees to spend 15% of their time bootlegging working on projects of
personal interest, whether or not those projects directly benefit the company.
External idea Sources. Good new product ideas also come from customers. The
company can analyze customer questions & complaints to find new products that
better solve consumer problems. Or company engineers or sales people can meet
with & work alongside customers to get suggestions & ideas.
Beyond customers, companies can tap competitors who can be a good source of
new product ideas. Companies watch competitors ads to get clues about their new
products. They buy competing new products, take them apart to see how they work,
analyze their sales, & decide whether they should bring out a new product of their
own.
Distributors & suppliers can also contribute many good new-product ideas.
Distributors are close to the market & can pass along information about new-product
possibilities.

Idea Screening. Screening new-product ideas in order to spot good ideas & drop
poor ones as soon as possible. Product development costs rise greatly in later
stages, so the company wants to go ahead only with the product ideas that will turn
into profitable products.
Many companies require their executives to write up new-product ideas on a
standard form that can be reviewed by a new-product committee. The write up
describes the product, the target market, & the competition. It makes some rough
estimates of market size, product price, development time & costs, & rate of
return. The committee then evaluates the idea against a set of general criteria.
The new product committee asks certain questions such as:
1. Is the product truly useful to consumers & society.
2. Is it particularly good for our company?
3. Does it mesh well with the companys objectives & strategies?
4. Do we have the people, skills, & resources to make it succeed?
5. Does it deliver more value to customers than do competing products?
6. Is it easy to advertise & distribute ?
Many companies have well designed systems for rating & screening new-product
ideas.

2. Concept Development & testing. An attractive idea must be developed
into a product concept. It is important to distinguish between concept and product

idea. A product concept, & a product image. A product idea is an idea for a possible
product that a company can see itself offering to the market. A product concept is a
detailed version of the idea stated in meaningful consumer terms. A product image
is the way consumers perceive an actual or potential product.
3. Concept Testing. This calls for testing new-product concepts with groups
of target consumers. The concepts may be presented to consumers
symbolically or physically. For some concept tests, a word or a picture
description might be sufficient. However, a more concrete & physical presentation
of the concept will increase the reliability of the concept test. Consumers then may
be asked to react to the concept by answering questions Answers help the
company identify concepts having strongest appeal. .

4. Marketing Strategy Development. The marketing strategy statement
consists of 3 parts.
1. The first part describes the target market, the planned product positioning; & the
sales, market share, & profit goals for the first few years.
2.The second part of the marketing strategy statement outlines the products
planned price, distribution, & marketing budget for the first year.
3. The third part of the marketing strategy statement describes the planned long-run
sales, profit goals, & marketing mix strategy.
5. Business Analysis. Once management has decided on its product concept &
marketing strategy, it can evaluate the business attractiveness of the
proposal.
Business analysis involves review of the sales, costs, & profit projections for a new
product to find out whether they satisfy the companys objectives. If they do, the
product can move to the product development stage.

To estimate sales, the company might look at the sales history of similar products & conduct surveys of
market opinion. It can then estimate minimum & maximum sales to assess the range of risk. After preparing the
sales forecast, management can estimate the expected costs & profits for the product, including marketing,
R&D, operations, accounting, & finance costs. The company then uses the sales & cost figures to analyze the
new products financial attractiveness.
6. Product Development. So far, for many new product concepts, the product may have existed only as a
word description, a drawing, or perhaps a crude mock up. If the product concept passes the business test, it
moves into product development. Here,
R&D or engineering develops the product concept into a physical product. The product development step,
however, now calls for a large jump in investment. It will show whether the product idea can be turned into a
workable product.
The R&D department will develop & test one or more physical versions of the product concept.
R&D hopes to design a prototype that will satisfy & excite consumers & that can be produced quickly & at
budgeted costs. Developing a successful prototype can take days, months or years..
7. Test Marketing. If the product passes concept & product tests, the next step
is test marketing, the stage at which the product & marketing program are
introduced into more realistic market settings. Test marketing gives the marketer
experience with the marketing the product before going into the great expense of
full introduction. It lets the company test the product & its entire marketing
program- positioning strategy, advertising, distribution, pricing, branding &
packaging, & budget levels.
The amount of test marketing needed varies with each new product. Test
marketing costs can be high, & it takes time that may allow competitors to gain
advantages. When the cost of developing & introducing the product are low, or
when management is already confident about the new product, the company may
do little or no test marketing. In fact, test marketing by consumer goods firms
has been declining in recent years. Companies often do not test-market simple
line extensions or copies of successful competitor products.
However, when introducing a new product requires a big investment, or when
management is not sure of the product or marketing program, a company may do
lot of test-marketing.
Although test-marketing costs can be high, they are often small when compared
with the costs of making major mistake. Still, test marketing doesnt guarantee
success
When using test marketing, consumer product companies usually choose one of
the Three approaches
1. Standard Test Markets ,
2. Controlled Test Markets or
3. Simulated Test Markets.

Standard Test Markets. Using standard test markets, the company finds a
small number of representative test cities, conducts a full marketing campaign

in these cities, & uses store audits, consumer & distributor surveys, & other
measures to gauge product performance. The results are used to forecast national
sales & profits, discover potential product problems & fine tune the marketing
program.
Standard test markets have some draw-backs. They can be very costly &
they may take a long time some last as long as 3 to 5 years. Moreover,
competitors can monitor test market results or interfere with them by cutting their
prices in test cities, increasing their promotion, or even buying up the product
being tested. Finally, test markets give competitors a look at he companys new
product well before it is introduced nationally. Thus competitors may have time to
develop defensive strategies, & may even beat the companys product to the
market. Despite these disadvantages, standard test markets are still the most
widely used approach for major in-market testing . However many companies today
are shifting toward quicker & cheaper controlled & simulated test marketing
methods.
Controlled Test Markets. Several research firms keep controlled
panels of stores that have agreed to carry new products for a fee. Controlled test
marketing systems such as AC Nielsens Scantrack & Information Resources
Inc.s (IRI) Behaviorscan track individual customer behavior for new products from
the television set to the check out counter.
In each BehaviorScan market, IRI maintains a panel of shoppers who report all of
their purchases by showing an identification card at check-out in participating
stores & by using a hand held scanner at home to record purchases at non
participating stores.

Controlled test markets (Contd). Within test stores, IRI controls such factors
as shelf placement, price & in-store promotions for the product being
tested. IRI also measures TV viewing in each panel household & sends special
commercials to panel member television sets. Direct mail promotions can also be
tested.
Detailed scanner information on each consumers purchases is fed into a central
computer, where it is combined with the consumers demographic & TV viewing
information & reported daily. Thus, BehaviorScan can provide store-by-store , week
by week reports on the sales of tested products. Such panel purchasing data
enables in depth diagnostics not possible with retail point of sale data alone,
including repeat purchase analysis, buyer demographics, & later more accurate
sales forecasts after just 12 to 14 weeks in market. Most importantly, the system
allows companies to evaluate their specific marketing efforts.
Controlled test markets, such as BehaviorScan, usually costs less than
standard test markets. Also, because retail distribution is forced in the first
weeks of the test , controlled test markets can be completed much more quickly
than standard test markets. As in standard test markets, controlled test markets
allow competitors to get a look at the companys new product. And some
companies are concerned that the limited number of controlled test markets used
by the research services may not be representative of their products markets or
target consumers. However, the research firms are experienced in projecting test
market results to broader markets & can actually account for biases in the test
markets used.

Simulated Test Markets. Companies can also test new products ion a
simulated shopping environment. The company or research firm shows
ads & promotions for a variety of products , including the new product being
tested , to a sample of consumers. It gives consumers a small amount of money &
invites them to a real or laboratory store where they may keep the money or
use it to buy items. The researchers note how many consumers buy the new
product & competing brands.
This simulation provides a measure of trial & the commercials
effectiveness against competing commercials. The researchers then ask
consumers the reasons for their purchase or non purchase. Some weeks later ,
they interview the consumers by phone to determine product attributes, usage,
satisfaction, & repurchase intentions. Using sophisticated computer models, the
researchers then project national sales from results from the simulated test
market.
Simulated test markets overcome some of the disadvantages of standard &
controlled test markets. They usually cost much less, can be run in eight weeks,
& keep the new product out of competitors view. Yet, because of their small
samples & simulated shopping environments, many marketers do not think that
simulated test markets are as accurate or reliable as larger, real world tests.
Still, simulated test markets are used widely often as pretest markets.
Because they are fast & inexpensive , they can be run to quickly to asses a new
product or its marketing program. If the pretest results are strongly positive, the
product might be introduced without further testing. If the results are very poor,
the product might be dropped or substantially redesigned & retested. If the
results are promising but indefinite, the product & the marketing program can be
tested further in controlled or standard test markets.

8. Commercialization. Test marketing gives management the information
needed to make a final decision about whether to launch the new product. If the
company goes ahead with commercialization introducing the new product into
the market it will face high costs. The company may have to build or rent a
manufacturing facility . And in the case of a major new consumer packaged
goods, it may spend million of Rupees for advertising, sales promotion, & other
marketing efforts in the first year.
The company launching a new product must first decide on introduction timing.
Next, the company must decide where to launch the new product in a single
location , a region, the national market, or the international

market. Few companies have the confidence, capital & capacity to launch new
products into full national or international distribution. They will develop a

planned market rollout over time. In particular, small companies may enter
attractive cities or regions one at a time. Larger companies, however, many
quickly introduce new models into several regions or into the full national
market. Companies with international distribution systems may introduce new
products through global rollouts.
CUSTOMER-CENTERED NEW-PRODUCT DEVELOPMENT. Above all, new
product development must be customer centered. When looking for & developing
new products, companies often rely too heavily on technical research in their
R&D labs. But like every thing else in marketing , successful new product
development begins with a thorough understanding of what consumers need & value.
Customer centered- new product-development focuses on finding new ways to
solve customer problems & create more customer-satisfying experiences.
One recent study found that the most successful new products are ones that are
differentiated , solve major customer problems , & offer a compelling customer
value proposition. Thus for products ranging from bathroom cleaners to jet engines,
todays innovative companies are getting out of the research lab & mingling with
Pricing Strategy
OVER VIEW: Finding the right pricing strategy & implementing it well can be critical to
a companys success- even to its survival. Companies today face a fierce & fast
changing pricing environment, increasing customer price consciousness has put many
companies in a pricing vise. Yet, cutting prices is often not the best answer.
Reducing prices unnecessarily can lead to lost profits & damaging price wars. It
can signal to customers that the price is more important than the customers value a
brand delivers. Instead companies should sell value, not price. They should
persuade customers that paying a higher price for the companys brand is justified
by the greater value they gain. The challenge is to find the price that will let the
company make a fair profit by getting paid for the customer value it creates.
WHAT IS A PRICE? In the narrowest sense, price is the amount of money
charged for a product or service. More broadly, price is the sum of all the values that
customers give up in order to gain the benefits of having or using a product or
service.1. Price still remains one of the most important elements determining a firms
market share & profitability.2. Price is the only element in the marketing mix that
produces revenue; all other elements represent costs.3. Price is also one of
the most flexible marketing mix elements.4. Pricing is the number one
problem facing many marketing executives, & many companies do not handle
pricing well. 5.One frequent problem is that the companies are too quick to reduce
prices in order to get a sale rather than convincing buyers that their products greater
value is worth a higher price. 6. Other common mistakes include pricing that is
too cost oriented rather than customer value oriented & pricing that
does not take the rest of the marketing mix into account.
Pricing Strategy
Value based pricing. This type of pricing uses buyers perceptions of
value, not the sellers cost, as the key to the pricing. Value based pricing means that
the marketer cannot design a product & marketing program & then set the price.
Price is considered along with the other marketing mix variables before the
marketing program is set.
Cost based pricing is product driven. The company designs what it considers
to be a good product, adds up the cost of making the product, & sets a price that
covers costs plus a target profit. Marketing then must convince buyers that the
products value at that price justifies its purchases. If the price turns out to be too
high, the company must settle for lower markups or lower sales, both resulting in
disappointing profits.
Value based pricing reverses this process. The company sets its target price
based on customer perceptions of the product value. The targeted value & price
then drive decisions about product design & what costs can be incurred. As a result,
pricing begins with analyzing consumer needs & value perceptions, & price
is set to match consumers perceived value. It is important to remember that good
value is not the same as low price. A company using value- based pricing must
find out what value buyers assign to different competitive offers. However,
companies often find it hard to measure the value customers will attach to its product.
For example, calculating the cost of ingredients in a meal at a fancy restaurant is
relatively easy. But assigning a value to other satisfactions such as state,
environment, relaxation, conversation, & status is very hard. And these values will
vary both for different consumers & different situations. Still consumers will use these
perceived values to evaluate a products price, so the company must work to measure
them. Sometimes companies ask consumers how much they would pay for a
basic product & for each benefit added to the offer.
Pricing Strategy
Value based pricing Vs cost based pricing
Value based pricing
Customers value price cost - product
Cost based pricing.
Product cost price value customers
Good value pricing. During the past decade marketers have noted a
fundamental shift in consumer attitudes toward price & quality. Many companies
have changed their pricing approaches to bring them into line with changing
economic conditions & consumer price perceptions. More & more, marketers have
adopted good-value pricing strategies offering just the right combination of
quality & good service at a fair price.
In many cases, this has involved introducing less expensive versions of
established brand name products. For example, fast food products like McDonalds
offer kid portions, & also mini burgers (I am loving it) Good value pricing has
involved redesigning existing brands to offer more quality for a given price or the
same quality for less.
An important type of good value pricing at the retail level is everyday low pricing
(EDLP) . This involves charging a constant , every day low price with few or no
temporary price discounts. In contrast, high-low pricing involves charging higher
prices on an everyday basis but running frequent promotions to lower prices
temporarily on selected items. In recent years, high-low pricing has given way to
EDLP in retail settings.
Pricing Strategy
Value-Added Pricing. In many companies business to business
marketing situations, the challenge is to build the companys pricing power- its
power to escape price competition & to justify higher prices & margins without
loosing market share. To retain pricing power, a firm must retain or build the value
of its market offering. This is specially true for suppliers of commodity products,
which are characterized by little differentiation & intense price competition.
To increase their pricing power, many companies adopt Value-Added pricing
strategies. Rather than cutting prices to match competitors, they attach value
added features & services to differentiate their offers & thus support higher prices.
Target Profit Pricing. Another cost-oriented pricing approach is break-even
pricing or target profit pricing. The firm tries to determine the price at which it will
break even or make the target profit it is seeking. This pricing method is also used
by public utilities, which are constrained to make a fair return on their investment.
Remember the big picture, profitability is not the only prism through which you
should view pricing. Other important perspectives include:
Volume: Too many firms fails to account for the effects of price on volume & of
volume on costs. In a recession, trying to recover these costs through a price
increase can be fatal.
Impact on customer relationships. Sucker pricing is the term used for the
excessive pricing that occurs when companies have locked in customers through
contracts or proprietary implementations. This creates ill will & tarnishes your
brand.
Impact on the industry. Price cuts not backed by cost reduction often lead
to competitive counterattacks, which erode profitability.
Pricing Strategy
Premium Pricing. Use a high price where there is a uniqueness about the
product or service. This approach is used where a substantial competitive

advantage exists. Such high prices are charging luxuries such as cruises, resorts &
first class fights.
Penetration pricing. The prices charged for products & services is set
artificially low in order to gain market share. Once this is achieved, the price is
increased.
Economy pricing. This is a no frill low price. The marketing & manufacture
expenses are a minimum. Supermarkets often offer economy brands for soaps,
noodles etc.
Price skimming. Charge a high price because you have a substantial
competitive advantage. However, if the advantage is not sustainable, the high
price tends attract new competitors into the market, & the price inevitably falls
due to increased supply. Manufactures of digital watches used a skimming
approach in the 1970s.
Psychological pricing. This approach is used when the marketer wants the
consumer to respond on an emotional, rather than rational basis. For example
Dollar shops. Other examples are selling a product at Rs. 95 rather than at Rs 100..
Optional Product Pricing. Companies will attempt to increase amount of customer
spend once they start to buy. Optional extras increase the overall price of the
product or service. For example airlines will charge an optional extras such as
guarantying a fixed date seat.
Captive product pricing. Where products are complimentary, companies will
charge premium when the consumer is captured, example a razor manufacturer
will charge a low price & recoup its margin (& more ) from the sale of only design
blades which fits the razor.
Pricing Strategy
Product Bundle Pricing. Here sellers combine several products in the same
package. This also sets to move the old stock. Grocery packs of mostly used items
adopt this policy.
Promotional Pricing. Pricing to promote a product is a common application. There
are many examples of promotional pricing such as Buy one get one free.
Geographical Pricing. This is evident when there are variations in different parts of
the world. For example, rational value or shipping costs increase price.
Competition-based Pricing. This pricing is based on 3 types of competitive
product: 1. Products have distinctiveness from competitors product. Here we
can assume (a) The product has low price elasticity (b) The product has low cross
elasticity (c) The demand of the product will rise. 2. Products have perishable
distinctiveness from competitors product, assuming the product features are
medium distinctiveness. 3. Products have little distinctiveness from competitors
product, assuming that: (a) The product has high price elasticity (b) The product has
some cross elasticity (c) No expectation that demand of the product will rise.
Predatory Pricing. Aggressive pricing intended to drive out competitors
from a market. It is illegal in some places.
Tender pricing. Many contracts are awarded on a tender basis. Firms submit their
price for carrying out this work.. Purchaser then chooses which represents best value.
Mostly done in secret..
Loss leader pricing. Goods/services deliberately sold below cost to encourage sales
elsewhere. Typical at super-markets e.g. at Diwali, selling products at low cost in the
hope that people will be attracted to the store and buy other things. Purchase of other
items more than covers loss on items sold, e.g. free mobile phone when taking on a
contract package.
Pricing Strategy
Absorption / Full cost pricing.
Full cost pricing Attempting to set price to cover both fixed and variable
costs.
Absorption cost pricing Price set to absorb some of the fixed costs of
production.
Marginal cost pricing
The cost of producing one extra or one fewer item of production
- Marginal cost allows flexibility
- Particularly relevant in transport where fixed costs may be relatively
high.
Example:
Aircraft flying from India to New York Total Cost (including normal profit) =
Rs. 15000 out of which Rs. 13000 is fixed costs.
No of seats 160, average price = Rs 15000/160 = Rs 93.75
Marginal cost of each passenger 2000/160 = Rs 12.50
If flight is not full, better to offer passengers chance of flying at Rs 12.50 and fill
the seat than not to fill it at all.
Pricing Strategy
Contribution margin
Contribution margin is also called gross profit is the sales price
received minus the variable cost.
Example:
If you sell a CD at Rs 25 on the internet and promote it as no postage or
packaging the contribution margin will be:
Sale price:
Rs 25
Purchase price of CD
Rs 18.75
Packaging and padded envelope
Rs 1.00
Postage
Rs 2.00
----------Total cost
Rs 21.75
Contribution Margin:
Rs 3.25 (13%)
This calculation shows each time you sell a CD at Rs 25, you still have Rs. 3.25
left. This has to cover expenses other than those related directly to purchasing,
packing and dispatching the CD. This amount is called the contribution
margin or gross profit.
Pricing Strategy
Contribution Ratio:
Contribution Ratio = Contribution margin /Sale price x 100
Example:
In the above CD example
Contribution ratio = 3.25/25 x 100 = 13%
New Product Pricing Strategies

You have only one chance to get new product pricing right
Some insights in pricing new products (McKinsey Research).

How much should you charge for a new product? Charge too much and it wont sell a problem that
can be fixed relatively easily by reducing the price. Charging too little is far more dangerous a
company not only foregoes significant revenues and profits but also fixes the products market
value position at a low level. And as companies have found time and again, once price hits the
market it is difficult, even impossible, to raise them. In our experience, 80% - 90% of all poorly
chosen prices are too low.
Companies consistently undercharge for products despite spending million or billion Rupees to
develop or acquire them. It is true that businesses and private consumers alike are demanding
more or less, the prices of personal computers, for example, have been pushed downward
despite their higher processor speeds and additional memory. Global competition, increased
pricing transparency , and lower barriers to entry in many of the most attractive industries have
contributed to the trend. But these are not the only problems. Many companies want to make a
quick grab for market share or return on investment, and with high prices both objectives can be
harder to achieve.
These concerns encourage companies to take an incremental approach to pricing: they use
existing products as their reference point. If a new offering costs 15% more to build than the older
version does, for instance, they charge about 15% more for it. Particularly in consumer markets,
they may set the price slightly higher or lower than that of the main competitor.
The incremental approach often underestimates the value of new products for customers. One of
the first makers of portable bar code readers, for example, calculated how much more
quickly its customers would be able to assemble their own products if they used portable readers.
The company then took the price of the older, stationary readers and raised it proportionately,
solely to account for the time saving. This strategy also fit in with the companys desire to
penetrate the market quickly.
But by using an existing product as the reference point, the company undervalued a
revolutionary product. The portable reader not only improved existing processes but also
enabled companies to redesign their supply chains. Portability and instant access to
information prepared the way for real-time inventory control, vastly improved logistics, planning,
and just-in-time deliveries, thus eliminating the need for large inventories. Buyers quickly recognized a
bargain and flocked to the low-price product. The company which couldnt keep up with demand not
only failed to capture the full value of its reader but also set the markets price expectations at a very
low level. A single bad decision easily erased Rs 1 billion or more in potential profits for the industry.
Analyses based on cost differences and process improvements are parts of the puzzle, and so is an
understanding of the competitive landscape. But good pricing decisions are based on an expansive
rather than an incremental approach. Before zeroing on a price that promise the greatest longterm profitability, companies must know both the highest and the lowest prices they
could charge. Price-benefit analyses should begin early in the development cycle, when the

for it only shows companies whether price barriers might make products unfeasible but can also guide their
development by indicating which attributes customers are willing to pay for.
Exploring the full range of pricing options
For products that replicates others on the market (me-too products) or that offer small
improvements (evolutionary products), the room to maneuver is relatively narrow, and incremental
approaches may come close to optimal price. Even then, however, a lot money can be left on the
table. Charging just 1% less than optimal price for a product can mean forfeiting about 8% of its
potential operating profit. And more the novel a product may be, the more important it is for companies
to take a broader view of the pricing possibilities.
The highest price (launch position)
Since incremental approaches tend to focus on the lower end of the price range, companies should
start by defining the opposite end of the spectrum. Such a price ceiling based on a products
benefits, may ultimately prove to be unrealistic: there may not be sufficient market at that level , it
may leave too much room for competitors, or customers may be strong enough to demand a greater
share of the value the product creates. But establishing this ceiling will ensure that each and every
potential price point is brought up for discussion.
To establish a price ceiling, a clear understanding of a products benefits for its customers is
essential. The value of some benefits, such as savings on raw materials, can be measured easily. But
others, particularly process and relationship benefits such as on- line purchasing options or brand
reputation, must be evaluated through market research.
Advanced marketing tools for instance - , conjoint analysis and perceptual mapping can
assess how much value each benefit offers to customers. But companies must see to it that their
research does more than make comparison with known reference points. Many suppliers rely too
heavily on their internal perceptions, which sometimes unintentionally skew their efforts to probe
the market. While formulating the research and writing the questions for a marketing test, a company
should, therefore, ensure that they cover a broad image of possibilities; otherwise the work may serve
merely to confirm the benefits claimed by the products developers or anecdotal information brought
back by the sales force.
To take an accurate measure of the benefits a product offers and thereby, finds its true price
ceiling market research and must be designed to elicit more open-ended feedback that can
usually be acquired through multiple choice questionnaire or trade off techniques, both of which can
limit responses. For example, a control makers revolutionary high-pressure steam valve for
nuclear power plants, significantly increased the reliability and reduced the complexity of their
water-management system. At first, trade-off techniques were used to research the market: the
company described the technical benefits of the new valve and tried to find out how much would
customers pay to the company

If with a valve of another application. Most of them felt that a 20-25 percent premium was justified.
The company later redid its research to broaden the outlook , this time asking more open-ended
questions to establish how much value the valve would deliver to the business systems of its
customers. Instead of first asking them to compare the new valve with an existing one, the company now
sought to evaluate to cost of planned maintenance, shutdowns and the role of new valve could play
in reducing their number. Now that the company had a fuller picture of the new benefits a picture
based on its customers economics it asked how much it customers would be willing to pay for them.
This time the customer gave a figure that was several times the price of the existing valve. The
supplier had a more accurate picture of its pricing options.
The floor
Cost plus pricing is often de-rided as weak, but it plays an essential role in settling the floor for a
companys pricing options. An accurate analysis of costs per unit, plus a margin in representing a
minimally acceptable return on investment reveals a new products lowest reasonable price level. If
the market cant bear it, the company must rethink the products viability.
Although the cost plus model is well known, companies often trip up in two areas when they use it to
analyze their cost. First, surprisingly, they dont account for all costs that should be allocated to
products, there is a tendency, for example, to overlook R&D expenses associated with a product
category (including

expenses for incomplete projects) and goodwill linked to acquisitions that lead directly to new
products. As a necessary part of any development program, there are legitimate items to bring into
the cost calculation. Second, overly optimistic market projections can create false estimates of
costs, particularly fixed one.
The range of pricing options is usually smallest for me-too products. Companies using them to
play catch-up must, therefore, be particularly careful to assess their cost correctly and to understand
their assumptions underlying these conditions; a small error can permanently prevent products from
becoming profitable. If a products viability relies on cost savings generated by economies of scale,
for instance, a false estimate for the size of the market or of a customer segment would be
disastrous.
The size of the market

Similar research is needed to gauge the size of the market or market segments that the lower the
price, the higher the demand, but that is always isnt true. Mid-range prices, for instance, might put
a product in the dead zone too cheap for quality conscious customers and too expensive for
bargain hunters.
One company, for example, offered a new data-management system that it claimed could save large
companies hundreds of million dollars per year. but to penetrate the market quickly, it realized the
core software with an enterprise license fee of less than $ 100,000. potential customers wouldnt
take the companys claim seriously, if the claims were true, the software should have been priced in
the same range as other enterprise-resource planning (ERP) packages, which cost $1 million or
more.
Estimating the size of a market at various price points classifies the range of pricing options,
suggest which price model to use at any price and volume point, and increase the accuracy of
estimates of profitability along the spectrum and of the unit-cost calculations needed to define
the price floor.
Reference price
Penetration pricing
The release price minus any discounts or other incentives establishes the markets first reference point
for the products true value as judged by its maker. More than any press release, sales pitch, or a
catalog description, the reference price tells the market what a company really thinks a new
product is worth. An excessive low reference price can handicap its long term profitability the
low price may hasten its penetration in the market, but the resulting lower margins force forgo the
future profits a higher price would have captured once a customer base has been established. A low
reference price is particularly damaging if it conflicts with the value proposition the company is
trying to establish or if market demand has been underestimated.
Competitors Reactions
Especially for evolutionary products, a low price that noticeably shifts market share will probably
trigger a destructive price war competitors usually cant reach immediately by improving the benefits of
their own products, so they often cut across instead. A higher reference price, by contrast suggests that a
company is targeting profits rather than market share and might, therefore, generate few if any
immediate reactions from competition.

Life Cycle Strategy
If an early adopter segment is willing to pay a premium for a product, the company that makes it may
wish to consider a high release to capture the extra-value, with planned reduction down the road to
attract late- comers. Along with capturing more revenue over the life of a product, this strategy can
also help companies match demand to production capacity for a new product.
Cannibalization
Companies must also carefully consider how new wares will affect the current ones. If an older
product remains viable, a company may try to manage the cannibalization problem by giving its
new product a higher release price targeting a smaller segment of customers. By contrast, if a
product line is retired, a lower release price for a new offering may be appropriate to shift consumers
to it as quickly as possible.
Going to Market
Presenting a price to the market requires both astute communication with it and patience. It can be
especially hard to explain the value and benefits of revolutionary products to often-skeptical buyers,
but whatever conditions a new product may face, a faulty pricing strategy shouldnt be allowed to
undermine its value message.
A products fortune during the first six months to a year after it hits the market have a critical
influence on its value position. Especially during this period, companies must keep firm control of
their pricing operations, all the way down to individual transactions. For instance, discounting,
which could be routine for continuing product lines, might sabotage a new products reference

If managers must push a product quickly, however, they can do so without sacrificing its reference price or
the markets perception of its value. The common technique is to offer consumers free samples or
give the product to small groups of customers with a high profile or a significant market influence.
Another is to offer it to customers for a free trial period. Both approaches speed up the market
penetration of the product without cutting the reference price. Standard discounts or rebates are
usually a mistake, however, since they do cut it and also provoke doubts about the products
benefits.
The answer to questions about the price of new products cant wait for the end of the development
cycle; the questions re intricate part of the process of developing them, and the answers are needed to
assess their ultimate profitability. At present the companies routinely overlook the higher reaches of
their pricing potential. Basing release prices on credible market research and cost analysis can give
managers the confidence to ride out the initial turbulence that usually surrounds new products and
to claim their true value.

To summarize you have two options:
Set prices too high and loose valuable market opportunities
Set prices too low and leave money on the table
Selling prices for new products doesnt need to be a guessing game. Sound market information combined
with a strong pricing strategy will hit the mark every time. And while setting prices for new products is
critical, every new product must have a pricing strategy that considers pricing over the life cycle of
the product.
Three Key New Product Considerations:
You must consider all the factors when addressing new product pricing.
Cost what does it cost to produce this product? How will cost be used to set floor pricing?
Perceived value what does the market really think of our product? How do they value it?
Competitive positioning how are our competitors positioned in the marketplace and how are
their product lines valued by customers?
Understanding true costs is a key factor in setting price floors floors that prevent you from selling
products and services at a loss or at minimum margins.
While costs are often easier for companies to measure a challenge for most firms lies in the ability to
measure perceived value with accuracy.
Market research and survey is undertaken to identify value perception and pricing thresholds. If
you knew exactly how customers value delivery versus product, performance versus price, how
would it change the way you set prices? When you know precisely how customers value your
product and services, you are able to set appropriate prices.
Competitive positioning is always a factor. We must assess competitive value through the eyes of
your customer. Knowing how customers perceive your competitors products and services
enables you to accurately position your product in the marketplace.
Value mapping techniques facilitate the integrated evaluation of costs and perceived value in
the identification of pricing targets.
In the end, you will know precisely , where to set new product prices, have a pricing strategy
over the product life cycle and be prepared to respond to competitive moves. (See slide on the
next page).
Value Equivalency Graph

Target Price
Existing Products
New Product
Perceived
Price
Perceived Benefits
The Marketing Audit

The marketing audit and the marketing plan systematically takes a stock of an organizations marketing
health and plans the direction and scope of marketing activities.
Definition this means by which a company can understand how it relates to the environment in which it
operates the means by which a company can identify its own strengths and weaknesses as they relate
to opportunities and threats.
The marketing plan serves as a roadmap that guides the context and scope of marketing activities.
Characteristic of marketing audit
Comprehensive the marketing audit covers all the major marketing activities of a business, not
just a few trouble spots as in a functional audit, i.e. must cover all marketing areas.
Systematic the marketing audit is an orderly examination of the organizations macro and micro
marketing environments, marketing objective and strategies, marketing systems and specific
activities, sequential diagnostic steps.
Independent self audits, in which managers rate their own operations, lack objectivity and
independence.
The Marketing Audit

Internal and External Auditors:
Periodic Firms typically Initiate marketing audits only after failing to review their marketing operations
during good times, with resulting problems. A periodic marketing audit can benefit companies in good
health as well as those in trouble performed at regular intervals.
Other Characteristics
Environment the circumstances or conditions surrounding the agency, both within or without.
Objective working towards or striving for measurable objectives
Strategies plan of action
Activities specified and supervised fields of action
Resources an available supply that can be drawn on when needed
Problem areas situation that present uncertainty, perplexity or difficulty.
Marketing Audit Procedure / Components (PFESOS)
Marketing environment audit
Marketing strategy audit
Marketing system audit
Marketing productivity audit
Marketing functional audit
Marketing excellence review
The Marketing Audit

Ethical and Social Responsibility Review
Marketing and audit issues
Internal audit
Macro-environment (PESTLE)
Task environment (competitions, channels, customers)
Market strategic issues (segmentation, positioning, competitive advantage)
Marketing mix ( 7Ps)
Marketing organizational structure and organization
Internal Audit (Example)
Coca-Cola strategic objectives
Accelerate carbonate soft drinks growth, led by Coca-Cola
Broaden the family of products, whatever appropriate e.g. bottled water, tea, coffee, juices, energy
drinks.
Grow system profitability and capability together with the bottler.
The Marketing Audit

Internal Audit
This is your opportunity to put your own business under the microscope do you know as much about
your own situation as you should?
Sales ( total - split by geography, industry, customer, product)
Market shares
Profit margins
Costs
Marketing information research
Effectiveness of marketing mix
Positive effect of Internal Audit
Creatively serve customers (e.g. retailers) to build their businesses.
Invest intelligently in market growth
Drive efficiency and cost effectively by using technology and large scale production to control costs
Enabling our people to achieve extraordinary results everyday.
The Marketing Audit

How to plot the Portfolio Matrix: Internal Audit
The BCG matrix assesses the general level of growth in the products market
Measure the market share relative to the largest competitor in the industry.
Decide whether there are enough strong products to support weak ones
Is the portfolio balanced between existing strength and emerging opportunity
External audit
External factors can be split broadly into three groups
The economic environment
The competitive environment and
Your own market environment
Consider these areas from your own business point of view will any changes have an impact on
your business, will they affect your competitors, will they allow you to compete where you could
not, or inhibit your ability to compete. If the answer is YES, then the factors should be included in
the audit.
The Marketing Audit

The Economic Environment
Environment: Affect your business or environment green credentials
Political and government actions, tax levels, privatization, school policy etc.
Economic income levels, employment levels, rate of inflation, rate of economic growth
Social and cultural demographics (population growth / distribution, age), lifestyles and cultural values
(changing beliefs, skills, family values)
Technological IT, internet, home shopping
Legal (Example) - Zimbabwean Law (health and safety, employment law, store opening etc.), SADC
Law (Southern African Development Community)
Competitive Environment
How competitive is your market? What are your competitors doing, or likely to be doing? Evaluate
the following
The threat of new entrants to your industry
The threat of substitute products
The Marketing Audit

The bargaining power of customers
The bargaining power of suppliers
The rivalry amongst current competitors
Who are your competitors?
Who are your major competitors, how big are they, what is their market share?
What reputation do they have?
How do they distribute their products, what are this production capabilities?
What is their marketing like do they diversify?
What are their key strengths and weaknesses?
The Market Environment
Total market size growth and trends
Market characteristics, , growth and trends
Products, prices
Physical distribution channels
Customers / consumers
Industry practices
Segmentation Strategy
There are many ways in which a market can be

segmented. A marketer will need to decide which strategy
is best for a given product or service.
Sometimes the best option arises from using different
strategies in conjunction.
Approaches to segmentation result from answers to the
following questions: where, who, why and how?
Approaches to subdivision of a market or population into

segments with defined similar characteristics.
Market Segmentation Strategies
How a market is segmented is based on variables used
for segmentation; behavioral, demographic,
psychographic and geographical differences.
Five major segmentation strategies are
Behaviour segmentation,
Benefit segmentation,
Demographic segmentation,
Geographic segmentation, and
Psychographic segmentation
Behavioural Segmentation:
Behavioural segmentation is based on the customer's needs and
subsequent reaction to those needs or toward the purchase of
intended products and/or services.
This study is conducted on all variables that are closely related to
the product itself, like loyalty to a particular brand, cost
effectiveness in terms of benefits and usage, circumstances
responsible for the purchase, whether the customer is a regular, a
first timer or and has the potential to become a customer, and
whether the readiness to buy is linked to status.
Psychographic Segmentation
Segmenting people according to their lifestyles and values, and
how they translate into consumption or purchases of products of
services is what psychographic segmentation is all about.
How one's interest, opinions, values, attitude and the activities they
perform, all affects how and why a group of people would lean
towards one product more than others.
A high status would translate into an expensive air-conditioned first
class train journey habit, while a thrift value will translate into an
ordinary second class train journey.
Geographical Segmentation
Geographical segmentation is done by dividing people
(markets) into different geographical locations.
The country, state, or neighborhood, the king of gentry,
climate, size of a place segmented into size of its age wise
population, etc. all play a role in devising market strategies.
This helps the producer and the marketers to understand
what will sell and what won't, for example, a market for
winter wear would definitely not work in warm regions.
Demographic Segmentation
Demographic segmentation refers to a wide study of the potential
customers. While marketing a product many variables like age, gender,
education, income, size of the family, occupation, socioeconomic status,
culture and religion, language and nationality are taken into account.
There are many instances where such a segmentation has worked very
profitably, toys and clothes for every age group, certain food products
that do well in certain counties and don't in some, either due to cultural or
religious reasons.
Demographic segmentation plays a vital role in determining whether a
product can be mass marketed or designed for specific clientele.

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Strategic Marketing

1. The vision of the organization refers to the broad