Marketing Material

Prepared by Dr.
Brehanu Borji Ayalew (Associate Professor in Marketing Management )
Chapter One
Marketing Management
1. Introduction:
Before we directly embark upon the discussion of basic concepts of

marketing, let’s discuss an overview of marketing for more understanding.
Today, you are here about to begin an excitingly important and necessary
undertaking: the exploration of marketing. Marketing is an exciting
discipline because it combines the science and the art of business with
many other disciplines, such as economics, anthropology, cultural
studies, geography, history, jurisprudence, statistics and demographics.
This combination will stimulate your intellectual inquisitiveness and enable
you to absorb and understand the phenomenon of market-based exchange.
The study of marketing has been compared to mountain climbing:
challenging, arduous and exhilarating.
Marketing is important and necessary because it takes place all around
us every day, has a major effect on our lives, and is crucial to the
survival and success of firms and individuals. Successful marketing
provides the promise of an important quality of life, a better society and
even a more peaceful world. After your study of marketing, you will see
what happens, understand how it happens and at some time in the
future, perhaps even make it happen. This is, of course, much better than
standing by and wondering what happened.
Before 1945, the wars broke out between different countries as a result of
scarcity of important resources to produce and market different products in
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Prepared by Dr. Brehanu Borji Ayalew (Associate Professor in Marketing Management )
order to generate income for their respective countries. Resources are scarce
and are unevenly endowed / distributed/ among the countries. As there was
no trade between the countries, some countries have been facing the
shortage of necessary inputs for their industries and consequently suffering
scarcity of very important resources and they made effort to get such
resources by force from those having them in abundance. Such actions used
to lead to different wars such as the First World War and the Second World
War. The wars were the end-results of shortage of necessary resources. There
was no trade among the countries in order to mitigate such shortages by
obtaining such raw materials through trade. Then the war broke among the
countries and devastated all resources including human resources.
However, during the postwar era, the countries came into agreement to
conduct cross-border trades to sell their abundant resource to those countries
suffering from shortage of the required resources as inputs for their
industries. Consequently, historic enemies such as Japan and the United
States of America, France and Germany have not remained enemies as they
once used to be. They have become trading partners. America gets what it
wants from Japan through trade even using credit terms. France also gets
what it requires from Germany through trade. Then, why should they
fight? Marketing, therefore, brings a more peaceful world. No more war
for resource snatching as far as the countries are open for global trade and
they are exchanging their abundant resources with the other’s abundant in
which they are facing shortage in their respective countries. Closed countries
were seen wasting their money for building huge armies and guns, whereas
open and outward looking countries invest their money on machines and
tools which may be used for manufacturing of new products to satisfy needs
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and wants of their consumers/ customers in their respective countries as well

as all over the world when trade is conducted at the international level.
Activity 1.1
1. How does marketing create peace to the society? Or how
marketing can bring about a more peaceful world? Attempt to
answer this question after continuous reading and referring many
marketing texts or books and necessary websites for getting
adequate acquaintance with the subject. Minimum requirement is
writing not less than two pages of 12 font size. If answers of any
two students are exactly the same, both the students will get zero.
Answer must not be copied from this material. 5 marks
1.1 Basic Concepts and Definitions of Marketing
What is marketing?
No one can exhaustively define the term Marketing. Why because there are numerous
definitions offered by different scholars and writers to the term. To mention some of
them for our purpose of study:
1. Marketing is the performance of business activities that directs the flow
of goods and services from the producer to consumers or final users.
Marketing is a process of transacting goods and services from the
producer to consumers.
2. Marketing is the delivery of a higher standard of living to society.
3. Marketing is a total system of interacting business activities designed to
plan, price, promote and distribute want satisfying products and
services to present and potential customers.
Of the numerous definitions offered to the term “Marketing", we can distinguish
between social and managerial definitions. A social definition shows the role
marketing plays in the society. A social definition that serves our purpose follows:
Marketing is a societal process by which individuals and groups obtain what
they need and want through creating, offering and freely exchanging
products and services of value with others.
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A managerial definition of marketing is that “Marketing is a process of

planning and executing the conception, pricing, promotion and distribution
of ideas, goods and services to create exchanges that satisfy individual and
organizational goals.
Marketing has often been described as the art of selling goods and services. But, the
most important part of marketing is not selling. Selling is only the tip of the
marketing iceberg. However, the major aim of marketing is to sense, know,
understand and satisfy the customer's needs and wants in a more superior way than its
competitors so that the product or service fits itself to him (consumer).
The biggest objective of business is customer satisfaction. However, this does not
mean that the profit motive of the business is to be sacrificed at the expense of
consumer satisfaction. It is only to mean that profits should be made by satisfying
consumer needs, because consumer is a king.
The essence of marketing is a state of mind. In making marketing decisions, the
manager has to adopt the viewpoint of the customer. Decisions, therefore, are driven
by what the customer needs and wants. The decisions made by the manager must
focus on satisfying the customer’s needs and wants. The key to success of marketing
is adopting the customer’s viewpoint.
The shortest definition of marketing is that “Marketing is managing profitable
customer relationships”. The twofold goal of marketing is to attract new customers
by promising a superior value and to keep and grow current customers by delivering
satisfaction in a more superior fashion than any other competitors.
4. Marketing is a process of getting the right goods and services:
 To the right people
 In the right place
 At the right time
 At the right price
 With the right communication and motivation.
For example, when Sony designed its walkman, when Nintendo designed a superior
video game, when Toyota introduced its Lexus automobile, these manufacturers were
swamped with orders because they had designed the right product based on careful
marketing homework and taking into consideration the above definition.
Activity 1.2
How marketing delivers better and higher standard of living to society? Give clear answer
in terms of legible handwriting and understandable language. Use marketing books as
reference and browse your website for some detailed answers. Minimum requirement is
not less than two pages of 12 font size. 5 marks
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1.2 The core concepts of Marketing
Marketing has been defined in various ways. The definition that serves our purpose
best is as follows:
Marketing is a social and managerial process by which individuals and

groups obtain what they want and need through creating, offering and
exchanging products of value with others.
This definition of Marketing rests on the following core concepts: needs, wants
and demands; products (goods, services, and ideas); Value, cost and satisfaction;
exchange and transactions; relationships and networks; markets; marketers and
prospects. This will be shown in the following diagram.
Needs,
Needs,
wants, Nee
wants, Products
Products(goods,
(goods, Value,
Value,
costcost
andand Exchange
Exchange and
and
andand
demand1.
demand services
servicesand
andideas)
ideas) satisfaction
satisfaction transaction
transaction
R/ships and
networks
Diagram 1: core concepts of marketing
Markets
Marketers
and
1. Needs, Wants and Demands prospects
Marketing starts with human needs and wants. People need food, water, air, clothing
and shelter to survive. Beyond this, people have strong desire for recreation,
education and other services. It is important to distinguish between needs, wants and
demands.
NEED. A human need is a state of deprivation of some basic satisfaction. Needs are
not created by society or marketers. They exist from the very texture of human
biology and the human condition.
WANTS. Wants are desires for specific satisfiers of needs. An American needs food
and wants a hamburger, French fries and a coke. In different society, wants can be
satisfied in different ways. For example, as an American satisfies his wants by
hamburger, an Ethiopian can satisfy his wants by eating Injera. Human wants are
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shaped and reshaped by social forces and institutions including churches, schools,
mosques, families and business corporations.
DEMANDS. Demands are wants for specific products that are backed by an ability
and willingness to buy them. Wants become demands when supported by purchasing
power. Companies must, therefore, measure not only how many people want their
product, but more importantly, how many would actually be willing and able to buy
it. As it has rightly been mentioned above, marketers cannot create needs. However,
they can influence demand by making the product appropriate, attractive, affordable
and easily available and accessible to target consumers.
2. Products (goods, services and ideas)

People satisfy their needs and wants with products. A product is anything that can
be offered to satisfy a need or want. We also use other terms for product such as
"offering" or "solution". A product or offering consists of as many as three
components: physical goods, services and ideas. For example, a fast food restaurant is
supplying goods (hamburgers, fries, and soft drinks), services (purchasing, cooking
and seating), an idea (saves me time). A computer manufacturer is supplying goods
(computer, monitor, and printer), services (delivery, installation, training,
maintenance and repair) and an idea (computational power).
The importance of physical product lies not so much in them as in obtaining the
services they render. We buy a car because it supplies transportation service. We buy
a microwave oven because it supplies a cooking service. Thus, physical products are
real vehicles that deliver services to us.
A carpenter that is buying a drill is not buying a physical drill. Rather, he is buying
holes. A physical object, therefore, is a means of packaging service. The marketers'
job is to sell the benefit or services built into physical products. Some sellers fall in
love with their products. Sellers who concentrate their thinking on the physical
product instead of the customers' needs are said to be suffering from MARKETING
MYOPIA. Myopia is shortsightedness or nearsightedness and a marketer can not be
able to see far ahead and sense, identify, understand and satisfy consumers’ needs and
wants in the market.
3. Value, Cost and Satisfaction.

Value: Value is the consumer's estimate of the product's overall capacity to satisfy
his/her needs. Value is a ratio between what the customer gets and what he gives. The
customer gets benefits and assumes costs. Benefits include functional benefits and
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emotional benefits. On the other hand, costs include monetary costs, time costs,
energy costs and psychic costs. Thus, value can be given:
Value = Benefits = functional benefits + emotional benefits

Costs monetary costs + time costs + energy costs + psychic costs.
The consumer chooses the product that produces the most value per dollar. Value is
the satisfaction of customer requirements at lower possible cost of acquisition,
ownership and use.
4. Exchange and transaction

People can often obtain products in different ways such as:
1. Self-production: People can relieve hunger through hunting, fishing and fruit
gathering. In this case, there is no market and marketing.
2. Coercion: Hungry people can wrest or steal food from others. A hungry person
can use force to get a product as in a hold-up or burglary. In this case, no
benefit is offered to the other party, fortunately if not harmed.
3. Begging: Hungry people can approach others and beg for food. They have
nothing tangible to offer except gratitude.
4. Exchange: A hungry person can obtain a desired product from some one else
by offering some thing in return. A product that can be offered in return may be
money, a good or service. Marketing emerges when people decide to satisfy
needs and wants through exchange. Exchange is the act of obtaining a desired
product from some one by offering something in return. For exchange potential
to exist, the following five conditions must be satisfied.
1. There are at least two parties.
2. Each party has something that might be of value to the other party.
3. Each party is capable of communication and delivery.
4. Each party is free to accept or reject the exchange offer.
5. Each party believes that it is appropriate or desirable to deal with the
other party.
Exchange is usually described as a value creating process b/c exchange normally

leaves both parties better off. Exchange must be seen as a process rather than as an
event. An exchange is process b/c it involves negotiation and moving toward an
agreement. When agreement is reached, we say that a transaction takes place.
Transaction: A transaction is a trade off values between two or more parties. For
transaction to take place, one party must offer something to other party and receive
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something in return. For example, Mr. A gives x to Mr. B and receives y in return.
Mr. Jones gave $400 to Smith and received a TV set in return.
Transaction, however, does not require only money as a means or medium of

transaction as there might be a barter transaction. A barter transaction consists of the
trading off goods or services for other goods or services. A transaction involves
several dimensions: at least two things of value, agreed upon conditions, a time of
agreement and a place of agreement. Transaction differs from transfer.
Transfer: In a transfer, A gives x to B but does not receive anything in return.
E.g., Gifts, subsidies, and charitable contributions are all transfer.
5. Relationships and Networks

Transaction marketing is a part of larger idea called r/ship marketing. R/ship
marketing is the practice of building long term satisfying relations with key parties-
customers, suppliers and distributors in order to retain their long tem preference and
business. Smart marketers try to build up long-term trusting, win-win r/ships with
valued customers, distributors, dealers and suppliers. They accomplish these r/ships
by promising and delivering high quality, good service and fair prices to other parties
over time. R/ship marketing results in strong economic, technical and social ties
among the parties. In most successful cases, transactions move from being negotiated
each time to being a matter of routine.
The ultimate outcome of r/ship marketing is the building of a unique company asset
called a marketing network.
A marketing Network: A marketing network consists of its supporting stakeholders:
customers, employees, distributors, retailers, ad agencies, university scientists, and
others with whom it has built mutually profitable business r/ships.
6. Markets: The concept of exchange leads to the concept of a market. A market
consists of all the potential customers sharing a particular need or wants who might
be willing and able to engage in exchange to satisfy that need or want. Thus, the size
of market depends on the number of people who exhibit the need or want, have
resources that interest others, and are willing and able to offer these resources in
exchange for what they want.
Traditionally, a market was a place where buyers and sellers gathered to exchange
their goods - such as a village square. Economists use the term to refer to a collection
of buyers and sellers who transact over a particular product or product class. E.g. the
housing market, the grain market and so on. Marketers, however, see the sellers as
constituting the industry and the buyers as constituting the market.
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Communication routinely
Industry-
Industry- collection
collection of
of Market- collection of
Sellers. Sellers. Goods/ services buyers buyers
1 Money
Information
Here, in just the above diagram, the sellers and buyers are connected by four flows.
The sellers send goods, services, and communications (ads, direct mail, and so forth)
to the market; in return, they receive money and information (attitudes, sales data,
and so forth). The inner loop shows an exchange of money for goods and services.
The outer loop shows an exchange of information.
All modern economies abound/ flourish in markets. The five basic markets and the
flows connecting them are shown in the following diagram.
Modern
exchange
market.
The above
diagram
shows the
structure of
flows in a
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modern exchange markets. Accordingly, the manufacturers go to resource markets

(raw materials, labor markets, money markets and so on), buy resources and turn
them into goods and services, and then sell finished products to intermediaries, who
sell them to consumers. Consumers sell their labor, for which they receive money
which they pay for goods and services they buy. The Gov’t uses tax revenues to buy
goods from resource, manufacturer and intermediary markets and use these goods
and services to provide public services.
7. Marketers and prospects:
A Marketer is someone seeking one or more prospects who might engage in an

exchange of values.
A prospect is someone whom the marketer identifies as potentially willing and able
to engage in an exchange of values. In the normal situation, the marketer is a
company serving a market in a face of competitors.
The American Marketing Association defines marketing as “the process of planning and
executing the conception, pricing, promotion and distribution of ideas, goods and services
to create exchange that satisfies individual and organizational goals”.
It is useful to focus on some of this definition’s components in order to fully

understand its meaning. Viewing marketing as a process highlights the idea that the
activity goes beyond a single transaction. Rather, the aim is to develop ties and
relationships that require the maintenance of systematic perspectives.
Use of the terms “planning and executing” emphasizes the marketing as a
discipline consisting of the theoretical approach as well as the practical
implementation that makes concepts come alive.
Conception, pricing, promotion and distribution then explain the variety of
marketing components that can be used in this planning and execution.
The application of marketing not just to goods but also to services and ideas makes
the field broad and useful for the producers of physical product, think tanks and
government services.
The term exchange clarifies that something is given and something is received by the
participants in the marketing process. It might not necessarily be money that is
exchanged for goods; It might just as well be performance of a service in exchange
for obtaining a good feeling and a sense of fulfillment.
The word “create” gives marketing an anticipatory dimension and emphasizes the
forward-looking approach necessary to identify future needs and wants. Satisfaction
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is a crucial component of marketing which means all the participants in the exchange
feel better after the marketing transaction has taken place.
The satisfaction of individual and organizational goals explains that individuals and
organizations are participants in the marketing process. Goal indicates the long-term
objectives to be achieved in the unspecified time in the future. Here, the time of
achieving the goal is not mentioned.
When we consider the definition of marketing, it was given many years back and it
does not involve many contemporary issues in marketing. Therefore, it should be
better expanded by adding some modifiers into the prevailing definition given by
American Association.
The expanded definition is “ marketing is the process of planning and executing

the conception, pricing, promotion and distribution of ideas, goods and services
to create and maintain exchanges that satisfy individual, organizational and
societal goals in the systematic context of a global environment”.
Marketing Tasks
Customers always have some kind of unsatisfied needs and wants. The task of
marketing is to search, sense, and satisfy unsatisfied needs and wants in a more
superior way. It has to create more satisfying solutions to the customers' needs and
wants.
The scope of marketing

Marketing is typically seen as the task of creating, promoting, and delivering goods
and services to consumers and businesses. In fact, marketing people are involved in
marketing through 10 types of entities: goods, services, experiences, events, persons,
places, properties, organizations, information and ideas.
 Goods/ products- any tangible offerings, which provide functional value/
benefit to customers/ consumers.
 Services- are intangible products. As economies advance, growing
proportions of the activities are focused on the production of services. E.g.
work of airlines, hotels, car rentals firms, beauticians, maintenance and repair
people.
 Experience- by orchestrating/ arranging/ several services and goods one
can create, stage, and market experiences. There is a market for different
experiences. E.g. management contract.
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 Events- are happenings or usually something important. Marketers must

promote time-based events such as Olympics, major trade shows, sport events
and artistic events.
 Persons- Celebrity marketing has become a major business. Celebrity is
fame and honour. E.g., some one seeking fame would hire a press agent to
plant stories in newspapers and magazines. Today every film star has an agent,
personal manager and ties to a public relations agency.
 Places- cities, states, regions, and whole nations compete actively to attract
tourists, factories, company headquarters, and new residents. Nowadays, Far-
East Asia is attracting huge multinational companies, as there is cheap
resource for their business.
 Properties- properties are intangible rights of ownership of either real
property (real estate) or financial property (stocks and bonds).
 Organization- organized body of persons or organized system.
Organizations actually work together to build a strong favourable image in the
minds of their publics.
 Information - information can be produced and marketed as a product. In
today's modern markets, marketing cannot take place without reliable
information. Marketers have to know about the users of product, and
customers or consumers have to know the quality of product through
information.
 Ideas- every market offering includes a basic idea at its core. Producers
manufacture the product in the factories and they sell HOPE in the stores. The
buyer of drill is really buying a hole. Products and services are platforms for
delivering some idea or benefits. Marketers search hard for the core need they
are trying to satisfy.
Marketing Demands and tasks
There are eight different states of demands and the corresponding

tasks facing marketing managers. They are:
 Negative demand- A market is said in a state of negative demand if a
major part of the market dislikes the product and even pays a price to avoid
it. E.g. Christian meat in Muslim countries or meat generally among the
vegetarians as in India.
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The marketing task is to analyze why the market dislikes the product and
whether a marketing program consisting of product redesign, lower prices
and more positive promotion can change beliefs and attitudes.
 No demand - When there is no demand, the target consumers may be
unaware of, or uninterested in the product. The marketing task is to find
ways to connect benefits of the product with the person's natural needs and
interest. E.g., Farmers may not be interested in new way of farming or in
the package of extension.
The marketing task is to demonstrate benefits that will be driven by the
members who have been encompassed in the package.
 Latent demand - Many consumers may share a strong need that cannot
be satisfied by an existing product. There might be a strong latent demand
for completely a new product, which was not available in the market until
then. For example, harmless cigarettes, or fuel-efficient cars, or cars that use
water for their fuel.
The marketing task is to measure the size of the potential market and then
develop goods and services to satisfy the latent demand.
 Declining demand-, every organization eventually faces declining
demand for one or more of its products. For example, churches have seen
membership decline, private colleges have seen application fall. When such
is the case, the marketer must analyze the causes of decline and determine
whether the demand can be restimualated by new target markets, by
changing product features, or by more communication that is effective. The
marketing task is to reverse declining demand through creative
remarketing.
 Irregular demand- Many organizations may face demand that varies on
a seasonal, daily, or even hourly basis, causing problems of idle or
overworked capacity. For example, much mass transit equipment is idle
during off peak hours and insufficient during peak travel hours. Museums
are under visited on weekdays and overcrowded on weekends.
The marketing task, called synchromarketing, is to find ways to alter the
pattern of demand through flexible pricing, promotion and incentives.
 Full Demand - organizations face full demand when they are pleased
with their volume of business. The marketing task is to maintain the
existing level of demand in the face of changing consumer preferences and
increasing competition. The organization must maintain or improve its
quality and continually measure consumer satisfaction.
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 Over-full demand- Some organizations face a demand level that is

higher than they can handle. When demand level is higher and
overcrowded, the marketing task called demarketing requires finding
ways to reduce demand temporarily or permanently to the level it can be
handled. Demarketing can be classified into two: 1) general demarketing
and 2) selective demarketing.
General Demarketing - seeks to discourage overall demand and takes such
steps as raising prices and reducing promotion and service.
Selective demarketing consists of trying to reduce demand from those parts
of the market that are less profitable or less in need of the product.
 Unwholesome demand- some products are dangerous to society as a
whole. Such products will attract organized effort to discourage their
consumption. Unselling campaigns have been conducted against cigarettes,
alcohol, hard drugs, handguns, X-rated moves, large families and
environmental pollution.
The marketing task is to get people who like something to give it up,
using such tools as fear message, price hikes and reduced availability.
1.4 Different philosophies of marketing management

Marketing activities should be carried out under a well-thought-out
philosophy of efficient, effective and socially responsible marketing.
However, there are five concepts under which organizations conduct
marketing activities.
They are as follow:

1. The production concept
2. Product concept
3. Selling concept
4. Marketing concept
5. Societal marketing concept
1. The production concept: This is one of the oldest concepts in

business. It holds that consumers will prefer those products that are widely
available and inexpensive/low in cost.
Managers of production-oriented business concentrate on achieving high
production efficiency, low costs, and mass distribution. The assumption
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that consumers are primary interested in product availability and low price
will hold true in at least two situations:
a) This orientation makes sense in developing countries, where the
demand for a product exceeds supply. Here consumers are more
interested in obtaining the product than in its fine points
(features), and suppliers taking this advantage will concentrate on
finding ways to increase production and distribution.
b) Where the product’s cost is high and has to be decreased to expand the
market. Texas Instruments is one of the leading companies that use the
production concept with philosophy of “GET-OUT-PRODUCTION,
CUT THE PRICE”. Accordingly, TI puts all of its efforts in building
production volume and improving technology in order to bring down
costs .It uses its lower costs to cut prices and attract more consumers
and hence expand the market size.
2. The product concept: The product concept holds that the consumers
will favor those products that offer the most quality, performance or
innovative features.
Managers in these organizations focus their energy on making superior
products and improving them over time. They assume that buyers admire
well-made products and can appraise product quality and performance.
However, these managers are sometimes caught up in a love affair with
their product and do not realize what the market needs.
Product oriented company’s often design their products with little or no

customer input. They trust that their engineers can design exceptional
products. Very often they will not even examine competitor's products.
Even, whatever, quality product is produced without considering the
consumers needs, there will be no demand for the product in market.
Consumers place orders to purchase a product because there is certain
problem with them. The solution to the problem is the product. The
consumers buy the product only when there is a problem and when they
wish a solution from the product. Otherwise, no need of buying the
product even if the product is quality and provides the best performance
for other some purpose.
3. The selling concept: The selling concept holds that consumers and
businesses, if left alone, will ordinarily not buy enough of the
organizations’ product. The organization must, therefore undertake an
aggressive selling and promotion effort. This concept assumes that
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consumers typically show buying inertia or resistance and therefore must

be coaxed into buying.
The selling concept is practiced most aggressively with unsought goods-
goods that buyers normally do not think of buying, such as insurance,
encyclopedias, and funeral plots. These industries have perfected various
Sales techniques to locate prospects and hard sell them on their products
benefits.
Most firms practice the selling concept when they have overcapacity.
Their aim is to sell what they make rather than make what the market
wants. Moreover, prospects are bombarded with TV commercials,
newspaper ads, direct mail and sales calls. At every turn, someone is
trying to sell something. As a result, the public often identifies marketing
with hard selling and advertising.
Nevertheless, marketing based on hard selling carries high risks. It

assumes that customers who are coaxed into buying a product will like it,
and even if they do not like it, they will not bad-mouth it or complain to
consumer organizations and will forget their disappointment and buy it
again. These are indefensible assumptions because one study showed that
dissatisfied customers may bad-mouth the product to 10 or more
acquaintances; bad news travels fast.
* Selling focuses on the needs of the seller. Selling is preoccupied with
the seller's need to convert his product into cash through hard selling.
4. The marketing concept: The marketing concept holds that achieving

organizational goals depends on determining the needs and wants of
target markets and delivering the desired satisfaction more effectively
and efficiently than competitors do.
Market targeting is not sufficient by itself. It is not an end. After the
market is targeted, the marketers must know what the customers in that
market want. This can be obtained through market research and assessment.
In addition more attention given to consumers, companies have also

been giving more thought to the competitions. It is not enough to satisfy
customers if competitors are satisfying them just as well. It might be
very difficult to dislodge if the competitors once set their foot on the
ground in the market. What companies seek is a competitive advantage,
some thing that sets them apart from their rivals and makes their product
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more appealing to customers. In other words, they produce tailored

products to satisfy the target market.
There are, basically, two ways to establish a competitive advantage:

1) Offering the lowest possible price for a product, or
2) Offering a unique benefit that justifies an equal or higher price.
With the first approach the key to success lies in driving down costs so that a
company can produce its products less expensively than its competitors can.
A company pursuing a second approach must analyze existing and potential
customers to determine what matters most to them - delivery, service, style,
image, reliability. Then it must create and communicate that quality better
than competitors do. The marketing concept has been stated in colorful ways
such as "we make it happen for you." To fly, to serve (British Air lines);
"Going to great lengths to please you" Ethiopian Air lines; our business is
service (Total).
There is some difference b/n marketing and selling concept. These two
concepts are sometimes confused. The Selling concept takes an inside out
perspective. It starts with the factory, focuses on the company’s existing
product and calls for heavy selling and promotion to obtain profitable sales.
In contrast, the marketing concept takes an outside in perspective. It starts
with a well-defined market, focuses on customer needs, coordinates all
marketing activities affecting customers and makes profit by creating long-
term customer r/ships based on customer value and satisfaction. Under the
marketing concepts, companies produce what consumers' want thereby
satisfying consumers and making profits.
- Starting Focus Means Ends

point
Selling factory Existing Selling and Profit through sales
concept products promoting Volume
Marketing market Customer Integrated Profit through ustomer
concept needs marketing satisfaction
5.The Societal marketing concept: The Societal marketing concept holds

that the organization should determine the needs, wants and interests of target
markets and it then deliver superior value to customers in a way that maintains or
improves the customers’ and the societies’ well-being.
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The marketing concept was regarded as appropriate strategy for forward- looking
company and it was regarded socially quite acceptable because of its focus on
customer wants and satisfaction. It has, however, been now widely recognized that it
has a serious drawback – it takes into account only the short-run customer satisfaction
and company goals and it ignores the long-run societal interest. The short-run societal
interest could be in conflict with the long-run consumer welfare or the societal
interests. For example, a product, which gives short-run consumer satisfaction, may
have adverse effects in the long- run. Cigarette factories and automobile companies
are good examples for this. There are also products the production of which causes
environmental problem, ecological problem and the depletion of resources at all.
All these indicate that a socially responsible company must take into account the
long-run consumer and societal welfare. As stated earlier, the drawback of marketing
concept is that it ignores the long-run societal welfare and focuses only on the short-
run benefits. It has, therefore, been felt that the marketing concept be revised
incorporating the long-run societal welfare. Therefore, organizations must discharge
their responsibility by producing pollution- less, environment friendly products in
order to attain the long-run welfare of society thereby achieving organizational
objectives.
Marketing information system
What is marketing information system? Marketing information system (MIS)

consists of people, equipment and procedures to gather, sort, analyze, evaluate and
distribute needed, timely and accurate information to marketing decision makers.
Companies are required to study their manager’s information needs and design the
flow of marketing information system to meet those needs. Accordingly, to carry out
their analysis, planning, implementation and control responsibility (shown at the far
left in the figure), marketing managers need information about developments in the
marketing environment (shown at the far right).The role of MIS is to assess the
managers’ information needs, develop the needed information and distribute the
information in a timely fashion to the marketing managers. The needed information
is developed through internal company records, marketing intelligence activities,
marketing research and marketing decision support analysis.
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Marketing Env’t
Marketing
managers aaaawwwwwwwwwwwwwww
Developing
cccccc information
wwwwwwwwwwwwwwwww
Developing Target markets
Assessing Internal information
Mkg
wwwwwwwwwwwwwwwww
info. needs records intelligence
wwwwwwwwwwwwwwwww
ffffffffffffffffffffffffffffaaa Marketing –
Analysis wwwwwwwwwwwwwwwww channels
wwww
Distributing Mkg Mkg Competitors
Planning information decision Research
support Publics
analysis
Macroenv’tal
Implementation
forces
Control
Marketing information system diagram
Internal Records system
The most basic functional system used by marketing management is internal

records system. The internal records system includes reports on orders, sales,
prices, inventory levels, receivables, payables and so on. By analyzing this
information, marketing managers can find out important opportunities and
problems.
The order-to-payment cycle
The heart of the internal records system is the order-to-payment cycle. Sales
representatives, dealers and customers dispatch orders to the firm. The order
department prepares invoices and sends copies to various departments and
out of stock items are backordered. Shipped items are accompanied by
shipping and billing documents that are also multi-copied and sent to various
departments.
Today’s companies need to perform these steps quickly and accurately.

Consumers favor those firms that can deliver their goods on time. Sales
representatives need to send in their orders every evening, in some cases
immediately. The order fulfillment department must process these orders quickly.
The warehouse must send goods out as soon as possible. Moreover, bills must go
19
out promptly and be paid on time. Many companies are now using electronic
Data Interchange (EDI) software to improve the speed, accuracy, and efficiency
of the order-to –payment cycle. For example, retail giant Wal-mart tracks the
stock levels of its products by computer. When a product’s inventory drops to a
certain level in a particular store, the computer electronically sends an electronic
order to the vendor, which then automatically ships the merchandise to the store.
Sales Reporting system
Marketing managers need up-to-date reports of their current sales.

Computer technology has revolutionized sales representatives’ jobs by
turning the art of sales into an engineered business process. Armed
with laptop computers, sales reps now have immediate access to
information about their prospects and customers and can give their
companies immediate feedback and sales reports. Therefore, sales
managers can monitor everything in their territories and get current
sales forecasts any time.
Marketing intelligence system/ Not to be discussed here/
What is marketing intelligence system? A marketing intelligence system is

a set of procedures and sources used by managers to obtain their everyday
information about pertinent developments in the marketing environment.
Marketing managers often carry on marketing intelligence by:
 reading books, newspapers, and trade publications;
 talking to customers, suppliers, distributors and other outsiders; and
 talking with other managers and personnel within the company.
Yet if the system is too casual, valuable information could be lost or arrive
too late. When this is the case, managers might learn of a competitive
move, a new customer need of a dealer problem too late to make the best
response.
A well-run company takes four steps to improve the quality and

quantity of marketing intelligence:
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1. It trains and motivates the sales force to spot and report new
developments. Sales representatives are the company’s “eyes and
ears”, they are in an excellent position to pick up information
misused by other means yet they are very busy and often fail to
pass on significant information. For this reason, the company
must “sell” its sales force on their importance as intelligence
gatherers. Sales reps should know which types of information to
send to which managers.
2. The competitive company motivates distributors, retailers and
other intermediaries to pass along important intelligence-from
which the company can learn about end-users characteristic and
help its distributors improve their marketing programs.
Some companies even appoint specialists to gather marketing

intelligence. Retailers may send mystery shoppers to pose as real
shoppers at their stores, try out merchandise, and make purchases-all to
assess how employees treat customers. Using mystery shoppers report,
retailers improve services at their stores. Companies also learn about
competitors products by purchasing their products, attending trade
shows, reading competitors published reports, attending their
stakeholders meetings, talking to their former and present employees,
dealers, distributors, suppliers, freight agents, collecting the
competitors ads and reading The Wall Street Journal, The New York
Times, Trade association papers.
3. The company purchases information from outsiders such as the research

firms.
4. Some companies have established an internal marketing information
center to collect and circulate marketing intelligence. The staff scans
major publications, abstracts relevant news, and disseminates a news
bulletin to marketing managers. It collects and files relevant information
and assists managers in evaluating new information.
Marketing Research System
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Marketing managers often commission marketing research, formal studies of specific

problems and opportunities. They may request a market survey, a product preference
tests, sales forecast by region, or research on advertising effectiveness.
Marketing research may be defined as the systematic design, collection of data,
analysis and reporting the findings relevant to a specific marketing situation facing
the company.
Marketing research and market research should not be confused. Market research is a
research into a particular market and it is just one component of marketing research.
Suppliers of marketing research:

A company can conduct marketing research in a number of ways:
 Most large companies have their own marketing research departments. They
conduct marketing research using their own marketing research departments.
In the companies where there is the structure of marketing research
department, the marketing research manager normally reports to the marketing
Vice –president and acts as a study director, administrator, company consultant
and advocate.
 Small companies, on the other hand, do not have their own marketing research
departments, as they cannot afford its cost. They can, therefore, conduct
research in creative and affordable ways, such as:
a) Engaging students or professors to design the marketing research projects. The
students or professors conduct a marketing research on a specific problem to
the company.
b) Using online information services: Companies can obtain necessary
information from online services at a minimum cost.
c) Checking out rivals: Many small companies routinely visit their competitors to
copy from their strengths and to incorporate it into the operational activities of
their businesses. For example, Tom Coo hill, a chef who owns two Atlanta
Restaurants, gives managers a food allowance to dine out and bring back ideas.
Atlanta Jewelry Frank Majer, Jr. who often visits out-of –town rivals, spotted
and copied a dramatic way of lighting displays.
Marketing Research firms fall into three categories:
1. Syndicated Service research firms: These firms gather consumer and trade
information, which they sell for a fee. Examples of such firms are: A.C.
Nielsen, SÁMI/ Burke.
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2. Custom marketing research firms: These firms are hired to carry out specific
research projects. They design the study and report the findings.
3. Specialty-line marketing research firms: These firms provide specialized

research services. The best example of these firms is the field service firm,
which sells field-interviewing services to other firms.
The marketing research process

Effective marketing research involves the five steps, which are shown as
follows:
1. Define the problem and research objective.
Here management must define the problem and research objective very
clearly. Management must not define a problem too broadly or too narrowly.
If the problem is defined too broadly, a lot of unnecessary information will
be collected and it is likely to be very difficult to screen the relevant and
vital information from unnecessary ones. On the other hand, if the problem
is defined too narrowly, the necessary information will not be incorporated
and the decision-making will be very difficult as there is the lack of
information. A well-defined problem is half-solved problem. The nature
of the problem will determine whether the research is Exploratory,
Descriptive or Causal.
1. Exploratory research: The type of research conducted to clarify
and define the nature of a problem. The goal of exploratory
research is to gather preliminary data to shed light on the real
nature of the problem and to suggest possible solutions or new
ideas. This research may help to crystallize a problem and
identify the information needed for future research.
2. Descriptive research: The major purpose of descriptive research,
as the name implies, is to describe characteristics of a population
or phenomenon. Descriptive research seeks to determine answers
to who, what, when, where, and how questions.
3. Causal research: Research conducted to identify cause and effect
r/ships among variables. Exploratory and Descriptive research
normally precede cause and effect r/ships. In causal studies,
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researchers typically have an expectation about the r/ship to be

explained, such as predicting the influence of price, packaging,
advertising and the like on sales.
As far as the type of research is concerned, it can be basic/ pure research or

applied research.
Basic research is the research conducted to expand the limits of the boundaries
of knowledge itself; conducted to verify the acceptability of a given theory.
Applied research is the research undertaken to answer questions about specific
and immediate problems or to make decisions about particular courses of action.
Step 2. Develop the research plan.
The second stage of marketing research calls for developing the most efficient
plan for gathering the needed information. The marketing manager needs to know
the cost of the research plan before approving it.
Designing a research plan calls for decisions on the data source, research
approaches, research instruments, sampling plan and contact methods.
A. Data sources: The research plan can call for gathering primary data,
secondary data or both. Primary data are data gathered for specific purpose or for
a specific research project.
Primary data sources are sources from which to collect data afresh and for the
first time and thus happens to be an original in character. For example,
government agencies, firms, trade associations, etc.
Secondary data: are data that were collected for another purpose and already
existing somewhere. Researchers usually start their investigation by examining
secondary data to see whether their problem can be partly or wholly solved
without collecting costly primary data. Hence, secondary data provide a starting
point for research and offer the advantages of low cost and ready availability.
When the needed data by the researcher do not exist, or are outdated, inaccurate,
incomplete, or unreliable, the researcher will have to collect primary data. Most
marketing research projects involve some primary data collection.
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B .Research Approaches: Primary data can be collected in four ways

using different data collection methods as follows: observation, focus groups,
survey and experiments.
1. Observation Research: Fresh data can be collected by closely observing
the relevant actors and settings. Observational research is the part of
exploratory research.
2. Focus group research: A focus group is a gathering of six to ten people
who are invited to spend few hours with skilled moderator to discuss about
a product, service, organization, or other marketing entity. The moderator
needs to be objective, knowledgeable on the issue, and versed in group
dynamics and consumer behavior. Crucial information may be obtained
through focus-group research. However, researchers must avoid
generalizing the reported feedings of the focus group participants to the
whole market, since the sample size is too small and the sample is not
drawn randomly.
3. Survey research: While observation and focus groups are best suited for
exploratory research, surveys are best suited for descriptive research.
Companies undertake surveys to learn about people’s knowledge, beliefs,
preferences, satisfaction and to measure these magnitudes in general
population.
4. Experimental research: The most scientifically valid research is
experimental research. Best suited for causal research, experimental research
calls for selecting matched groups of subjects, subjecting them to different
treatments, controlling extraneous variables and checking whether observed
response differences are statistically significant. The purpose of experimental
research is to capture cause-and-effect r/ships by eliminating competing
explanations of the observed findings.
C. Research Instruments: Marketing researchers have a choice of two

main research instruments in collecting primary data, namely questionnaires and
mechanical devices.
Questionnaires: A questionnaire contains a set of questions presented to
respondents for their answers. Because of its flexibility, the questionnaire is by far
the most common instrument used to collect primary data. Questionnaires need to
be carefully developed, tested and debugged/ corrected/ before they are
administered on a large scale. One can usually spot several errors in a casually/
carelessly/ prepared questionnaire.
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In preparing a questionnaire, the professional marketing researcher carefully

chooses the questions and their form, wording, and a sequence. A common error is
including questions that cannot, would not, or need not be answered and omitting
questions that should be answered. Merely interesting questions should be dropped
because they may exhaust the respondents’ patience.
In addition, the form of question asked can influence the response. Marketing
researchers distinguish between open-end and closed-end questions.
Closed-end questions specify all the possible answer, and respondents make a
choice among them. Open-end questions allow respondents to answer in their own
words. Closed –end questions provide answers that are easier to interpret and
tabulate. Open-end questions often reveal more because they do not contain
respondents’ answers. Open-end questions are especially useful in the exploratory
stage of research, where the researcher is looking for insight into how people think
rather than in measuring how many people think a certain way. Finally,
questionnaire designer should exercise care in wording and sequencing of
questions. The questionnaire should use simple, direct, unbiased wording and
should be presented with a sample of respondents before it is used. Difficult or
personal questions should be asked towards the end of the questionnaire so that the
respondents should not become defensive early. Finally, the questions should flow
in a logical order.
Mechanical instruments: Mechanical devices are used less frequently in marketing

research. For example, Galvanometers are used to measure the subject’s interest or
emotions aroused by the exposure to specific advertising or picture. Tachistoscope
flashes advertising to a subject with an exposure interval that may range from less
than one-hundredth of a second to several seconds. Eye cameras are used to study
the respondents’ eye movement to see where their eyes land first, how long they
linger on a given item and so on. The Audiometer is attached to TV sets in
participating homes to record when the set is on and to which channel it is turned.
D. Sampling plan: This plan calls for three decisions:
1) Sampling unit: who is to be surveyed? The marketing researcher must define the
target population that will be sampled. Who should be the sampling unit of business
organizations? This may be either husbands, or wives or both. Or it can be
households, teenagers, professionals and the like. Once the sampling unit is
determined, a sampling frame must be developed so that everyone in the target
population has an equal chance of being sampled.
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2) Sample size: How many people should be surveyed? Large samples give more
reliable results than small samples. However, it is not necessary to sample the entire
target population or even the substantial portion to achieve reliable results. Samples
of less than 1% of a population can often provide good reliability, given a credible
sampling procedure.
3) Sampling procedure: How should the respondents be chosen? To obtain a

representative sample, a probability sample of population should be drawn.
Probability sampling allows the calculation of confidence limits for sampling error.
Probability sampling: The following are examples of probability sampling.
1. Simple random sample: Every member of population has an equal chance of

selection.
2. Stratified random sample: The population is divided into mutually exclusive
groups (such as age groups) and random samples are drawn from each group.
3. Cluster / area Sample: The population is divided into mutually exclusive
groups /such as city blocks /, and the researcher draws a sample of the groups to
interview.
When the cost or time involved in probability sampling is too high, marketing
researchers will take non- probability samples. There are three types of non-
probability samples:
1. Convenience sample: The researcher selects the most accessible population
members from which to obtain information.
2. Judgment sample: The researcher uses the judgment to select population
members who are good prospects for accurate information.
3. Quota sample: The researcher finds and interviews a prescribed number of
people in each of several categories.
The shortcoming of non-probability sampling is that they do not allow measuring
the sampling error.
E. Contact methods: Once the sampling plan has been determined, the
marketing researcher must decide how the subject should be contacted. There are
various alternatives as the contact method. They are mail, telephone, or personal
interviews.
1. The mail questionnaire: This is the best way to reach people who would not
give personal interviews or whose response might be biased or distorted by the
interviewers. Mail questionnaires require simple and clearly worded questions.
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However, the response rate is usually low and/ or slow. For mail questionnaire,
clarification is not possible if the respondent is not clear with the questionnaire.
2. Telephone interviewing: This is the best method for quick gathering of

information. The response rate is higher than in the case of mailed questionnaires.
The advantage of it is that the interviewer is able to clarify questions if the
respondents do not understand them. Its main drawback is that the interviews have
to be short and not too personal
.
3. Personal interviewing: is the most versatile of three methods. The interviewer
can ask more questions and can record additional observations about the
respondent, such as dress and body language. Personal interviewing is the most
expensive methods and requires administrative planning and supervision than the
other two methods. It is also subject to interviewer bias or distortion.
In arranged interviews, respondents are randomly selected and either telephoned or

approached at their homes or offices and asked for an interview. Often a small
payment or incentive is given to respondents in appreciation for their time.
Interceptive interviewers: Involve stopping people at shopping mall or busy street
corner and requesting an interview. Interceptive interviews have the drawback of
being non-probability samples, and the interviews must not require too much time
from the interviewee.
Step 3. Collect the information.
The data collection phase of marketing research is generally the most expensive and
the most prone to error. In the case of surveys, four major problems arise:
1. Some respondents will not be at home and must be recontacted or replaced.
2. Other respondents will refuse to cooperate.
3. Still others will give biased or distorted answers.
4. Finally, some interviewees will be biased or dishonest.
Step 4. Analyze the information.
At this stage, the researcher will have to analyze all collected data. The researcher
tabulates the data and develops frequency distributions. Averages and measures of
dispersion are computed for the major variables. The researcher will also apply
some advanced statistical techniques and decision models in the hope of
discovering additional findings.
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Step 5. Present the findings
At the last step in marketing research, the researcher presents his/ her findings to the
relevant parties. The researcher should present major findings that are pertinent to
the major marketing decisions facing management. A well defined marketing
research project and its findings would help managers make a better decision than
they would have without research.
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CHAPTER TWO
The marketing environment
The environment may be internal and /or external. The external environment consists
of all the factors outside the organization that provide opportunities or pose threats to
the organization. On the other hand, the internal environment refers to all the factors
within an organization, which impart strengths or cause weaknesses of a strategic
nature. The environment in which an organization exists can be, therefore, described
in terms of the opportunities and threats operating in the external environment apart
from the strengths and weaknesses existing in the internal environment. The
systematic approach to understanding the environment is the SWOT analysis.
Business firms undertake SWOT analysis to understand the external and internal
environment. SWOT is the acronym for strengths, weaknesses, opportunities and
threats.
Internal environment are controllable because they are under the control of the firm’s
management. For example:
1. Human resource: The characteristics of the human resources like skills,
quality, morale, commitment, attitude, etc. could contribute to the strength or
weakness of an organization.
2. Company image and brand equity: the image of the company matters
while raising finance, forming joint ventures or other forms of alliances, soliciting
marketing intermediaries, entering purchase or sales contracts, launching products,
etc.
3. R&D and technological capabilities are among other things that
increasingly determine a company’s ability to innovate and compete in the market.
4. Marketing mix: These are the company’s 4 P’s.
External environment analysis (Opportunities and threats

analysis)
A major purpose of environmental scanning is to discern new marketing opportunities
and an environmental threat.
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A marketing opportunity: is an area of buyer need in which a company can perform

profitably. Opportunities can be classified according to their attractiveness and their
Success probability. The best performing company will be the one that can generate
the greatest customer value and sustain it over time.
Success probability
High Low
1 2
High
Attractiveness
Low
3 4
Opportunity matrix
1. The best marketing opportunities are listed in cell # 1. Therefore, management

should pursue these opportunities.
2. The opportunities that are situated in cell #4 are too minor to consider.
Therefore, ignore them.
3. The opportunities in cell # 2 and # 3 should be monitored in the event that any
improve may result in their attractiveness and success probability.
An Environmental Threat: is a challenge posed by unfavorable trend or

development that would lead, in the absence of defensive marketing action, to
deterioration in sales or profit. Threats should be classified according to
seriousness and probability of occurrence.
Probability of occurrence
High Low
High 1 2
Seriousness
3 4
Low
Threat matrix
1 The threats in cell # 1 are major threats, because they can seriously hurt the co and
have a high probability of occurrence. To deal with these threats, the co needs to
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prepare contingency plans that spell out changes the co can make before or during the
threat.
2. The threats in the cell # 4 are minor and can be ignored.
3. The threats in the cells # 2 & # 3 do not require contingency planning, but need to
be monitored in the event that they grow more serious.
The external marketing environment may be classified as:

1. Microenvironment 2. Macro environment
Macroenvironment Physical
Technological
Microenvironment
Legal/
Polit.
Customers Organizatio
Legalpolitic Marketing n
Sociocultural
Publics
Suppliers competitors
International
Demographic Natural
Economic
Figure 2.1: Internal and external environment
Micro Environment: The microenvironment consists of the actors in the

company’s immediate environment that affects the performance of the company.
These include the suppliers, marketing intermediaries, competitors, customers and
the publics.
i) Suppliers: They are those who supply the inputs like raw materials and
components to the company. Developments in the suppliers’ environment can have a
substantial effect on the company’s marketing operation. To smooth the functioning
of the business, there must be a reliable source of supply. Uncertainty regarding the
32
supply or other supply constraints often compels companies to maintain high

inventories causing cost increases. For example, factories in India maintain
indigenous stocks of 3-4 months and imported stocks of 9 months as against an
average of a few hours to two weeks in Japan. In order to minimize supply costs,
nowadays companies find it advantageous to integrate backward or forward (vertical
integration). Backward- integration is when a company acquires one or more of its
suppliers to gain more control on strategic resources and generate more profit.
Forward - integration is when the business acquires some wholesalers or retailers
especially if they are highly profitable.
The supply management assumes more importance in a scarcity environment.
Company purchasing agents must establish win-win r/ships with suppliers. Company
purchasing agents must know how to wine and dine “suppliers” to obtain favorable
treatment during periods of shortages. It is very risky to depend on a single supplier
because a strike, lockout, and other events can interfere with the fulfillment of
delivery promise to customers and lose sales in the short –run and damage customer
goodwill in the long run. Hence, multiple sources of supply often help reduce such
risks.
ii) Customers: As it is often exhorted, the major task of a business is to create and
sustain customers. A business exists only because of its customers. As a marketing
concept clearly puts it forward, “customer is a king.” Without customer, there will not
be demand. Without demand, there will not be a business because a firm produces its
product for market, not for consumption by itself. Monitoring customer sensitivity is,
therefore, a prerequisite for the business success.
A company may have different categories of consumers like individuals, households,

industries, and other commercial establishments and governments and other
institutions. Just as it has been said for suppliers, depending on a single customer is
often too risky because it may place the company in a poor bargaining position, apart
from the risks due to the customer’s switching over to the competitors of the
company.
In general, customers are group of people that purchase the product of a firm
repeatedly. They affect the sales volume of the firm through their changing preference
and tastes. Customers can force the firm to reduce prices and improve the quality of
the products.
iii) Competitors: The firm’s competitors include not only the other firms that
produce and market the same or similar products, but also all those who compete for
discretionary income of the consumers. For example, the competition for a
company’s TV set may come not only from TV manufacturers, but also from two
33
wheelers, refrigerators, cooking ranges, stereo sets and so on. If the consumer decides
to go in for one of the above items, obviously he is not going to buy a TV set. The
competitors pricing policy also may affect demand for the company’s product.
iv) Marketing intermediaries: are the firms that aid a company in

promoting, selling and distributing its goods to final buyers. The marketing
intermediaries are the middlemen such as agents and merchants who help the
company find customers.
 Physical distribution firms such as warehouses and transportation firms assist
the company in stocking and moving goods from their origin to their
destination.
 Marketing service agencies such as ads agencies, marketing research firms,
media firms and consulting firms assist the company in targeting and
promoting its products to the right markets.
 Financial intermediaries such as banks and insurance companies finance
marketing activities and insure business risks.
Marketing intermediaries are, therefore, necessary links between the company and
the final consumers. A dislocation or disturbance of this link, or the wrong choice of
the link, may cost the company very heavily. Retail Chemists and druggists in India
once decided to boycott the products of the leading company on some issue such as
poor retail margin. For this, the company would, perhaps, have been in trouble.
v) Publics: A company may encounter certain publics in its environment. A public

is any group that has an actual or potential interest in or impact on an organization’s
ability to achieve its objectives. Media publics, citizens’ action publics, and local
publics are some examples.
Such publics seriously affect some companies. For example, some companies, which
do not produce their products according to their promise on their ads, are under attack
by media public. Media public may enforce the companies to bring down the share
price of the company by tarnishing its image. Local publics also affect many
companies. Actions by local publics on this issue have caused these companies to
suspend operations and/or take pollution abatement measures.
However, it is wrong to think that all publics are threats to business. Some publics are
opportunities for business. For example, media public may be used to disseminate
and communicate useful information about the business and its products. There must
be, therefore, fruitful cooperation between a company and local publics so that there
should be mutual benefit.
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Macro environment: The microenvironment consists of larger societal forces

that affect all the actors in the company’s microenvironment. Macro environmental
forces include the demographic, economic, physical environment, technological,
political, and cultural forces. The macro forces are, generally, more uncontrollable
than the micro forces.
1. Demographic Environment: The first environmental factor of interest to
marketers is population, because people make-up markets. Demographic factors
such as size of population, population growth rate, age composition, life
expectancy, family size, spatial dispersal, occupation status, employment pattern
etc. affect the demand for goods and services. Marketing with growing population
and income are growth markets. However, the decline in the birth rates in
developed countries has affected the demand for the product. A rapidly increasing
population indicates a growing demand for many products. High population
growth rate also indicates an enormous increase in labor supply. In developed
countries, labor shortage and rising wages encouraged the growth of labor saving
technologies and automation. They should therefore, follow capital-intensive
technology. Nevertheless, most developing countries of today are expressing a
population explosion and a situation of labor surplus. The governments of
developing countries encourage labor-intensive technology of production in their
respective countries. Capital –intensive methods, automation and even
rationalization are opposed by labor and many sociologists, politicians and
economists in these countries. The population growth rate, thus, is an important
environmental factor, which affects business if supported by purchasing power.
2. Physical and Technological environment: Physical factors such as

geographical factors, weather and climatic condition may call for modifications in
the product etc. to suit the environment because these environmental factors are
uncontrollable. For example, ESSO adapted its gasoline formulations to suit the
weather conditions prevailing in different markets.
Business prospects depend on the availability of certain physical facilities. The

sale of TV set is limited by the extent of coverage of the telecasting. Similarly,
the demand for refrigerators and other electrical appliances is affected by the
extent of electrification and the reliability of power supply. The demand for
LPG gas stoves is affected by the rate of growth of gas connections.
Technological factors some times pose problems. A firm that is unable to cope
with the technological changes may not survive. Furthermore, the differing
35
technological environment of different markets or countries may call for

product modifications. For example, many appliances and instruments in the
USA are designed for 100 volts but this needs to be converted to 240 volts in
countries, which have that kind of power system. The demand for some
products can also increase with the development of technology. For example,
voltage stabilizers help the sale of electrical appliances in markets
characterized by frequent voltage fluctuations.
3. Natural Environment: Geographical and ecological factors such as natural

resource endowments, weather and climatic conditions, topographical factors,
location aspects in the geographical context, port facilities, etc. are all relevant to
business. Differences in geographical conditions between markets may some
times call for changes in marketing mix. Geographical and ecological factors also
influence the location of certain industries. For example, industries with high
material index tend to be located near raw material sources. The location of some
industries is affected by the climatic and weather conditions. The example is the
cotton textile industries. Topographical factors may affect the demand pattern. For
example, in hilly areas with a difficult terrain, Jeeps may be in greater demand
than other cars.
4. Economic Environment: Economic conditions, economic policies and
economic system are the important external factors that constitute the economic
environment of a business.
The economic conditions of a country – for example the nature of economy, the
stage of development of the economy, economic resources, the level of income,
the distribution of income and assets, etc.-are the very important determinants of
business strategies.
In a developing country, the low income may be the reason for the very low
demand for a product. The sale of a product for which the demand is income –
elastic naturally increases with an increase in income. Nevertheless, the firm is
unable to increase the purchasing power of the people to generate a higher
demand for its product.
The only thing the firm can do is that to reduce the price of the product to
increase the demand and sales. To reduce the price of the product, there must be
reduction in the cost. The reduction in the cost of production may have to be
effected to facilitate price reduction. It may be necessary even to invent or
develop a new low cost product to suit the low-income market. For example,
Colgate company designed a simple, hand-driven, inexpensive ($10) washing
36
machine for low-income buyers in less developed countries. National Cash

Register Company also took an innovative step by developing a crank –operated
cash register that would sell at half the cost of the modern cash register and this
was well received in a number of developing countries. In general, in countries
where investment and income are steadily and rapidly rising, business prospects
are generally bright, and further investments are encouraged.
The Economic policy: The economic policy of the government has a very great
impact on business. Some types or categories of business are favorably affected
by government policy, some adversely affected, while it is neutral in respect of
others. For example, a restrictive import policy, or a policy of protecting home
industries, may greatly help the import competing industries. On the other hand,
the liberalization of the import policy may create difficulties for such industries.
An industry that falls within the priority sector in terms of government policy
may get a number of incentives and other positive support from the government,
whereas those industries, which are regarded as inessential, may have the odds
against them.
The government’s policy about the concentration of economic power may be to
the core sector, the heavy investment sector, the export sector and backward
regions. For example, an industrial undertaking may be able to take advantage of
external economies by locating itself in a large city. However, the government
policy may be to discourage industrial location in large cities and constrain or
persuade industries to go to the backward areas. From the point of view of an
industrial undertaking, a backward area location may have many disadvantages.
Nevertheless, the incentives available for units located in these backward areas
may compensate them for these advantages.
Economic System: The scope of private business depends, to a large extent, on

the economic system. There are different economic systems in the world. They
are the free market economy or capitalist economies, centrally planned
economies, and the mixed economies.
5. Political and Government Environment: Political environment has a
close r/ship with the economic system and economic policy. In most countries,
apart from those laws that control investment and related matters, there are a
number of laws that regulate the conduct of the business. The laws cover such
matters as standards of product, packaging, promotion, etc. In many counties,
with a view to protecting consumer interests, regulations have become stronger.
Regulations to protect the purity of the environment and preserve the ecological
balance have assumed great importance in many countries. Some governments
37
specify certain standards for the products (including packaging) to be marketed in

the country. Some governments even prohibit the marketing of certain products.
In most nations, promotional activities are subject to various types of controls.
For example, a media ad is not permitted in Libya. Several European countries
restrain the use of children in commercial ads. In Muslim countries, the ad of
alcoholic liquir is prohibited. Ads of cigarette must carry the statutory warning
that cigarette smoking is injurious to health. Ads of baby food must necessarily
inform the potential buyers that breast-feeding is the best.
6. Socio-cultural Environment:
The socio-cultural fabric is an important environmental factor that should be
analyzed with formulating business strategies. The cost of ignoring the customs
and traditions, taboos, tastes and preferences, etc., of people could be very high.
The buying and consumption habits of the people, their language, beliefs and
values, customs and traditions, tastes and presences, education are all factors that
affect business.
For a business to be successful, its strategy should be the one that is appropriate
in the socio-cultural environment. The marketing mix will have to be designed as
best to suit the environmental characteristics of the market. For example, in
Thailand, Helene Curtis switched to black shampoo because Thai women felt that
it made their hair look glossies. Nestle, a Swiss multinational company, today
brows more than forty varieties of instant coffee to satisfy different national
tastes.
When people of different culture use the same basic product, the mode of
consumption, conditions of use, purpose of use or the perception of the product
attributes may vary so much so that the product attributes, method of
presentation, positioning, or method of promoting the product may have to be
varied to suit the characteristics of different markets.
The difference in language some times poses a serious problem, even

necessitating a change in a brand name. Chevrolet’s brand name “Nova” in
Spanish means, “it does not go”. In Japanese, 3M’s slogan “sticks like crazy”
translates as “sticks foolishly”. In some languages, Pepsi cola’s slogan “come
alive” translates as “come out of the grave”. Therefore, before placing
advertisement abroad, the language of that country must be fully known.
38
The values and beliefs associated with color vary significantly between different
cultures. For example, Blue considered feminine and warm in Holland, is
regarded as masculine and cold in Sweden.
Green is a favorite color in the Muslim world, but in Malaysia, it is associated
with illness.
White indicates death and mourning in China, Korea, Eritrea, but in some
countries, it expresses happiness and is the color of wedding- dress of the bride.
E.g., in Ethiopia
Black indicates death and mourning in some countries such as Ethiopia, but in the
Muslim world, women folks cover their body including their faces with the black
cloth. Red is the popular color in communist countries; many African countries
have national distaste for red color.
Social inertia and associated factors come in the way of the promotion of certain
products, services or ideas. We come across such social stigmas in the marketing
of family planning ideas; use of biogas for cooking, etc. in such circumstances,
the success of marketing depends, to a very large extent, on the success in
changing social attitudes or value system.
7. International Environment: The international env’t is very important from

the point of view of certain categories of business. It is particularly important for
industries directly depending on imports or exports and import competing
industries. For examples, a recession in a foreign marketing, or the adoption of
protectionist policies by foreign nations, may create difficulties for industries
depending on exports. On the other hand, a boom in the export market or
relaxation in the protectionist policies may help the export- oriented industries. A
liberalization of imports may help some industries, which use imported items, but
may adversely affect import competing industries.
39
CHAPTER THREE
4. STRATEGIC MARKETING
4.1 STRATEGY
What is the term “strategy?”
Definition: The term strategy is derived from a Greek word “Strategos”

which means generalship. Literally, therefore, the word strategy means the art
of general. In business parlance (speaking), there is no definite meaning
assigned to strategy. It is loosely used to mean a number of things.
According to Alfred D. Chandler (1962), he defined strategy as “The

determination of the basic long-term goals and objectives of an enterprise
and adoption of the course of action and the allocation of resources
necessary for carrying out these goals.”
Here, we can note that Chandler refers to three aspects:
 Determination of basic long-term goals and objectives.
 Adoption of courses of action to achieve these objectives; and
 Allocation of resources necessary for adopting the course of action.
According to William F. Glueck (1972), “A unified, comprehensive and integrated
plan designed to assure that the basic objectives of the enterprise are achieved.”
According to Arthur Sharplin (1985), “A plan or course of action which is of vital,

pervasive or continuing importance to the organization as a whole.”
According to Ansof (1984), “Basically a strategy is a set of decision making rules

for guidance of organizational behavior.”
In general, strategy is a game plan that helps achieve the organizational goals or
objectives. Strategy is a means to an end. The organization can achieve its goals or
objectives using different strategies (game plans). For example, if the goal of the
organization is to increase its market share (sales volume), it should set the
following strategies in order to achieve its goal.
1. Price reduction
2. Increased spending on ads.
3. Increasing the size of sales force.
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4. Increasing distribution network/channels

5. Increasing sales promotion.
6. Product differentiation.
The goal of growth of sales volume (market share) can be achieved only by
increasing expenditure or lowering profit margins per unit.
4.2strategic marketing planning (Business strategic planning)
1 Mission
From very beginning, when an organization is established, it has to set its
mission. Organizations relate their existence to satisfying a particular need of
the society. They do this in terms of their mission statement. Mission is a
statement, which defines the role that an organization plays in the society.
Each business unit needs to define its specific mission within the broader
company mission. For example, the faculty of social sciences sets its specific
mission within the broader University mission. The mission of the faculty of
social science is “To produce highly qualified personnel who could yield
professional service to the society in the competitive market.
After formulating its mission statement, the next step is the SWOT analysis.
For SWOT analysis, the business follows “The business strategic planning
process.” The Business strategic planning process is as follows:
1 4 5 6 7 8
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1. Business mission
2. External Environment (Opportunities and threats) analysis.
3. Internal Environment (strengths and weaknesses) SWOT
4. Goal Formulation analysis
5. strategy formulation
6. Program Formulation
7. Implementation
8. Feed -back and Control.
2. External Environment Analysis /opportunity & Threat Analysis/.
Once the business unit has formulated its mission statement, the business
manager needs to monitor the external and internal environment to achieve its
goals. As far as the external environment is concerned, a business unit has to
monitor key external macro environment forces (demographic, economic,
technological, political legal, social/cultural that affect its ability to gain
profits). For details, see chapter 2.
Opportunities: A major purpose of environmental scanning is to discern new

marketing opportunities.
* A marketing opportunity is area of buyer need in which a company can

perform profitably.
Opportunities may be classified according to their attractiveness and their

success probability. The company’s success probability depends on whether its
business strengths not only match the key success request for operating in the
target market but also exceed those of its competitors.
The best performing company will be the one that possesses a core competence
and a competitive advantage.
* Core competence:- Refers to areas of special technical and production

expertise.
* Competitive advantage: - accrues to companies that possess distinctive
capabilities. Competitive advantage is a company’s ability to perform in one or
more ways that competitors cannot or will not match
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a) Opportunity Matrix
Success probability
High low
1 2 High
Attractiveness
3 4
Lo w
In the above opportunity matrix, the best marketing opportunity facing a

company are listed in the upper left cell (#1); Management should pursue this
opportunities. The opportunities listed in the lower right cell (# 4) are too
minor to consider. The opportunities in the upper right cell (# 2) and lower –
left cell (# 3) should be monitored in the event that any of them improve in
their attractiveness and success probability.
Threats: Some developments in the external environment represent threats. An

environmental threat is a challenge posed by an unfavorable or development
that would lead, in the absence of defensive marketing action, to deterioration
in sales or profits.
Threats should be classified according to their seriousness and probability of
occurrence.
b) Threat matrix
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Probability of Occurrence
HIGH LOW
S
E
R High
I
1 2
O
U
S
N
E
Low
SS 4
3
The threats in the upper-left cell (# 1) are major threats, since they can seriously
hurt the company and have a high probability of occurrence. To deal with these
threats, the company needs to prepare contingency plans that spell out what
changes the company can make before or during the threat’s occurrence. The
threats in the lower-right cell (# 4) are minor and can be ignored. The threats in
the upper- left and lower-left cells do not require contingency planning, but need
to be carefully monitored in the event that they grow more serious.
Once the management has identified the major opportunities and threats facing a
specific business unit, it can characterize that business’s overall attractiveness.
Four outcomes are possible.
1. An ideal business is high in major opportunities and low in major

threats.
2. A speculative business is high in both major opportunities and threats.
3. A mature business is low in major opportunities and low in threats.
4. A troubled business is low in opportunities and high in threats.
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3. Internal Environment Analysis/ strengths and weaknesses

analysis/
It is one thing to discern attractive opportunities in the environment; it is another to

have the competencies needed to succeed in these opportunities. Thus, each
business needs to evaluate its internal strengths and weaknesses periodically. It can
do so by using a form called a checklist for performing strengths/ weaknesses
analysis. Management or an outside consultant – reviews the business’s
marketing, finance, manufacturing and organizational competencies and rates
each factor as a major strength, minor strength, neutral factor, minor
weakness, or major weakness. The business should appreciate its strengths and
eliminate its weaknesses in order to exploit the external opportunities. The big
question is whether the business should limit itself to those opportunities where it
possesses the required strengths or should consider better opportunities where it
might have to acquire or develop certain strengths.
4. Goal formulation
The overall evaluation of a company’s strength, weaknesses, opportunities, and
threats is called SWOT analysis. Once the company has performed its SWOT
analysis, it can proceed to develop specific goals for planning period. This stage
of the business strategic planning process is called goal formulation. Managers
use the term goals to describe open-ended attributes that denote the future states or
outcomes. When goals are elaborated and expressed as operational and
measurable, they become objectives.
Objectives: Objectives are close- ended attributes, which are precise and
expressed in specific terms. Objectives are measurable in terms of time. Very few
businesses pursue only one objective. Rather most business units pursue a mix of
objectives including profitability, sales growth, market share improvement,
risk containment, innovativeness, and reputation and so on. The business units
set these objectives and manage by objectives (MBO). For an MBO system to
work, the business unit’s various objectives must meet four criteria.
1. Objective is arranged hierarchically from the most to the least important.

For example, the business unit’s key objective for the period may be to
increase the rate of return on investment. This can be accomplished by
increasing the profit level and/or reducing the amount of invested capital.
45
Profit itself can be increased by increasing revenue and/or reducing

expenses. Revenue is increased in turn by increasing market share and/or
prices. By producing this way, the business can move from broad objectives
to specific objective for specific developments and individuals.
2. Objective should be stated quantitatively whenever possible. The objective
“Increase the return on investment (ROI)” is better stated more specifically
as “Increase return on investment to 15%” or even better, “Increase ROI to
15% within two months.”
3. Objectives should be realistic. They should arise from an analysis of the
business unit’s opportunities and strengths, not from wishful thinking.
4. The company’s objective must be consistent. It is not possible to maximize
both sales and profits simultaneously.
5. Strategy formulation
Goals indicate what a business unit wants to achieve. Strategy is a game plan for
how to get there. In other words, goals indicate the destination to reach, whereas
strategy shows the way to reach the destination. Every business must tailor a
strategy for achieving its goals. Although many types of strategies are available,
Michael Porter has condensed them into three generic types that provide a good
starting point for strategic thinking.
They are:
1. Overall cost leadership
2. Differentiation
3. Focus
1. Overall cost leadership: Here the business works hard to achieve the
lowest production and distribution costs so that it can price lower than its
competitors in order to attract more price sensitive buyers and win a large
market share. Firms pursuing this strategy must be good at engineering,
purchasing, manufacturing, and physical distribution. The problem with this
strategy is that other firms will usually emerge with still lower prices and
hurt the firm that rested its whole future on being low cost. The key here is
to achieve the lower costs among those competitors adopting similar
differentiation and focus strategy.
2. Differentiation: Here the business concentrates on achieving superior
performance in an important customer benefit area valued by a large part of
the market. The firm can strive to be the service leader, the quality leader,
the style leader, the technology leader, and so on, but it is not possible to be
46
all of these things at the same time. The firm cultivates those strengths that
will give it a competitive advantage in one or more benefits. Thus, the firm
seeking quality leadership must make or buy the best components, put them
together expertly, inspect them carefully, and so on.
3. Focus: Here the business focuses on one or more narrow market segments
rather than going after a large market. The firm gets to know these
segments’ needs and pursues either cost leadership or a form of
differentiation within the target segment.
According to porter, those firms pursuing the same strategy directed to the same
target or segment constitute a strategic group. The firm that carries off that
strategy best will make the most profits. Thus, the lowest cost firm among those
pursuing a low- cost strategy will do the best. Firms those do not pursue a clear
strategy are called middll-of-the-roaders. They do the worst to a business.
Middle-of-the-roaders try to be good on all strategic dimensions. Nevertheless,
since strategic dimensions require different and often inconsistent ways of
organizing the firm, these firms end-up being not particularly excellent at any
thing.
Companies are discovering that they might need to be strategic partners if they
hope to be effective. Even giant companies such as AT&T, IBM, Philips,
Siemens, and the like could not achieve leadership, either nationally or globally,
without forming strategic alliances with domestic and/or multinational
companies that compliment or leverage their capabilities and resources. Doing
business in another country may require the firm to license its product, form a
joint venture with a local firm, buy from the local suppliers to meet “domestic
content” requirements, and so on. As a result of these complexities, many firms
are rapidly developing global strategic networks. Moreover, victory is going to
those who build the better global network. Many strategic alliances take the
form of marketing alliances. Marketing alliances fall into four major categories,
namely:
1. Product and/or service alliances: One company licenses another to
produce its product, or two companies jointly market their complimentary
products or a new product. For instance, Apple joined with Digital Vax to
co-design, co-manufacture, and co-markets a new product.
2. Promotional alliances: One company agrees to carry a promotion for
another company’s product or service.
3. Logistics alliances: One company offers logistical support services for
another company’s product. For example, Abbott laboratories warehouses
47
and delivers all of 3 M’s medical and surgical products to hospitals across
the United States.
4. Pricing collaborations: One or amore companies join in special pricing
collaboration. It is common for hotel and rental car companies to offer
mutual price discounts.
Here, Companies need to give creative thought to finding partners who might
complement their strengths and offset their weaknesses. Well-managed alliances
allow companies to obtain a greater sales impact at less cost. In generally,
marketing alliances flourish when alliance partners have complementing
capabilities, resources, and leverage (advantage) on them.
6. Program formulation:
Once the business unit has developed its principal strategies, it must work out
detailed supporting programs. A program is a broad term, which includes goals,
policies, procedures, rules and steps to be taken in putting a plan into action. A
program could be major as well as minor. An example of minor program could be
a one-week training program for supervisory development.
If the business has decided to attain technological leadership, it must plan
programs to strengthen its R&D department, gather technological intelligence,
develop leading edge products, train technical sales force, develop ads to
communicate its technological leadership, and so on.
Once the programs are tentatively formulated, the marketing people must evaluate
the program costs. Activity-base costing should be applied to each marketing
activity to determine whether the activity is likely to produce sufficient results to
justify the cost.
7. Implementation
A clear strategy and a well thought –out supporting program may be useless if the
firm fails to implement them carefully. A good strategy coupled with supporting
programs is only one element of business success. According to McKinsey’s 7-S
framework, the hardware of success include strategy, structure, and systems in a
company while the software of success include style, skills, staff, and shared
values in a company.
The first Soft element, Style, means that company employees share a common way
of thinking and behaving. The second, Staff, means that the company has hired the
48
able people, trained them well, and assigned them to the right jobs. The third, Skill,
means that the employees have the skills needed to carry out the company’s
strategy. The forth, Shared values, means that the employees share the same guiding
values. When these soft-elements are present, companies are usually more
successful at strategy implementation.
8. Feedback and Control

As it implements its strategy, the firm needs to track the results and monitor new
developments in the internal and external environment. Some environments are
fairly stable from year to year. Other environments evolve very slowly in a fairly
predictable way. Still other environments change rapidly in major and
unpredictable ways. Nevertheless, the company can count on thing: the
environment will eventually change. Moreover, when it does, the company will
need to review and revise its implementation, programs, strategies or even
objectives. Otherwise, the company would fail to respond to a changed
environment. Once an organization fails to respond to a changed environment, it
becomes increasingly hard to restore its lost position.
The nature and content of a marketing plan
Product level (product line, brand) within a business unit must develop a
marketing plan for achieving its goals. Marketing plan is one of the most
important outputs of the marketing process. Marketing process consists of four
steps:
a. analyzing marketing opportunities,
b. developing marketing strategies,
c. planning marketing programs, which entails choosing marketing mix (the
four ps of product, price, place, and promotion), and
d. Organizing, implementing, and controlling the marketing effort. As may be
seen here under, marketing plans have several sections.
1. Executive summary and table of contents: This presents a brief
overview of the proposed plan in a few pages of the plan’s main
goals and recommendations. The executive summary permits the
higher management to grasp quickly the plan’s major thrust. A table
of contents should follow the executive summary.
2. Current marketing situation: Presents relevant background data on
the market, product, competition, distribution and macro-
environment. The data are drawn from a product fact book
49
maintained by the product manager. Current marketing situation

consists of the following situations:
a. Market situation: Here the data of past several years are presented on the
target market. Data on consumer needs, perceptions, and buying -behavior
trends are also presented.
b. Product situation: Here the sales, prices, contribution margins, and net
profits are shown for each major product in the line for several past years.
c. Competitive situation: The major competitors are identified and described in
terms of their size, goals, market share, product quality, marketing strategies,
and other characteristics that are needed to understand their intentions and
behavior.
d. Distribution situation: This section presents data on the size and importance
of each distribution channel.
e. Macro- environment situation: This section describes broad macro-
environment trends – demographic, technological, political/legal,
social/cultural- that bear impact on the product line’s future.
3. Opportunity and issue analysis: Identifies the main opportunities/

threats, strengths/ weaknesses, and issues facing the product line.
Issue analysis: In this section of the marketing plan, the product
manager uses the strengths/weaknesses analysis to define the main
issues that the plan must address.
4. Objectives: After the product manager has summarized the issues
involved with product line, he must decide on the plan’s objectives.
Two types of objectives must be set: Financial and Marketing.
 Financial objectives: The organization wants each business unit to
deliver a good financial performance. The product manager sets the
following financial objectives.
o Earn an annual rate of return on investment over next 5 years
o Produce net profits of ________ in 2004/06
o Produce a cash flow of _______ in 2004/06
 Marketing objectives: The financial objectives are converted to
marketing objectives. The following marketing objectives can be set:
*Achieve total sales revenue of ____ million in ___ year.
*Expand consumer awareness of the brand from 15% to 20 %
over the planning period.
* Expand the number of dealers by 10 percent and so on.
Therefore, objective defines the plan’s financial and marketing goals in
terms of sales volume, market share and profit.
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5. Marketing Strategy:
The product manager outlines the broad marketing strategy or game plan that
he will use to accomplish the plan’s objective. The marketing strategy consists
of the following lists: target market, positioning, product line, distribution
outlets, sales force, service, advertising, sales promotion, research and
development, marketing.
In developing the strategy, the product manager needs to talk with purchasing
and manufacturing people to make sure they are able to buy enough material
and produce enough units to meet the needed sales-volume levels. He also
needs to talk with the sales manager to obtain the planned sales force support,
and to the financial officer to make sure enough ads and promotion funds will
be available.
6. Action Programs: The marketing plan must specify the broad

marketing programs designed to achieve the business objectives.
Each marketing strategy element must be elaborated to answer: What
will be done? When will it be done? Who will do it? How much will
it cost?
7. Projected profit- and –loss statement : Action plans allow the
product manager to build a supporting budget. Forecasts the plans
expected financial outcomes.
8. Controls: Indicates how the plan will be monitored. Some control

section include contingency plan. A contingency plan outlines the
steps that the management would take in response to specific adverse
developments such as price wars or strikes.
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CHAPTER FOUR
TARGET MARKETING
A company that decides to operate in a broad market recognizes that it normally

cannot serve all customers in that market. The customers are too numerous and
diverse in their buying requirements and consequently one can find varied buyer
behaviors. Instead of competing everywhere, the company needs to identify the
market segments that it can serve more effectively. To choose its markets and serve
them well, many companies are embracing target marketing. In target marketing,
sellers distinguish major market segments, target one or more of these segments and
develop products and marketing programs tailored to each segment. Instead of
scattering their marketing effort (a “short-gun” approach), they can focus on the
buyers whom they have the greatest chance of satisfying (a “rifle” approach).
Target marketing involves three major decisions:
1. Market segmentation: Identify and profile distinct groups of buyers who

might require separate products and/or marketing mixes.
2. Market targeting: Select one or more market segments to enter.
3. Market positioning: establish and communicate the products’ key

distinctive benefits in the market.
1. Market segmentation
Market consists of buyers and buyers differ in many ways. Market can be
segmented in a number of ways to satisfy different needs and wants in different
segments. Here under segmentation topic we will examine levels of
segmentation, patterns of segmentation, market segmentation procedure,
basis for segmenting consumer and business markets, and requirements for
effective segmentation.
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Market segmentation Mkt. targeting Mkt. positioning

Identify 3. Evaluate the 5. Identify possible
segmentation attractiveness of positioning concept
variables and each segment. for each target
segment the segment.
market.
Develop profiles of 4. Select the
resulting segments. target segments. 6. Select, develop
and communicate
the chosen
positioning concept.
Figure 5.1 steps in market segmentation, targeting, and positioning
Levels of market segmentation
Market segmentation can be carried out at four levels: segments, niches, local areas,
and individuals. Before starting discussion about these four levels, we need to say a
word about mass marketing.
Mass marketing: In mass marketing, the seller engages in the mass production,
mass distribution, and mass promotion of one product for all buyers. For example,
coca cola sells one type product in the same type container. The traditional
arrangement for mass marketing is that it creates the largest potential markets,
which leads to the lowest costs, which in turn can translate into either lower or
higher margins. However, many critics point to the increasing splintering of the
market, which makes mass marketing more difficult.
The proliferation of ads and distribution channels is making it difficult to practice

“one size fits all” markets. No wonder some have claimed that mass marketing is
dying. Not surprisingly, many companies are retreating from mass marketing and
turning to micromarketing at four levels.
53
Segment marketing: A market segment consists of a large identifiable group within

a market. A company that practices segment marketing recognizes that buyers differ
in their wants, purchasing power, geographical locations, buying attributes, and
buying habits. A market segment is a group of individuals or organizations within a
market that share one or more common characteristics. Market segmentation,
therefore, is the process of dividing a broad market into small segments. In other
words, market segmentation is the process of dividing the total market into several
homogeneous groups, where any group can be selected as a target market that can
be reached with a distinct marketing mix. The basic assumption under market
segmentation is that market is heterogeneous and must be segmented into
homogeneous groups.
Thus, segmentation is a mid point between mass marketing and individual

marketing. The consumers belonging to a segment are assumed to be quite similar
in their wants and needs. Yet they are not identical. Some segment members will
want additional features and benefits not included in the offer, while other would
gladly give up some thing that they do not want very much. For example, Hilton
Addis targets affluent guests and provide many amenities in their rooms. Yet some
guests may want to find more items in their room, such as fax machines, while
others may prefer fewer amenities and a lower price. Thus, segment marketing is
not as precise as individual marketing but much more precise than mass marketing.
Advantages of segment marketing:
1. The company can create a more fine- tuned product or service offer and price it
appropriately for the target audience.
2. The choice of distribution channels and communications channels becomes
much easier.
3. The company may face fewer competitors if fewer competitors are focusing on
this market segment.
Niche marketing: Market segments are normally large identifiable groups within a
market. For example, nonsmokers, occasional smokers, regular smokers and heavy
smokers can easily be identified. A niche is more narrowly defined group, usually
identified by dividing a segment into sub- segments or by dividing a group with a
distinctive set of traits who may seek a special combination of benefits. A niche is a
more narrowly defined group, typically a small market whose needs are not being
well served. Marketers usually identify niches by dividing a segment into sub-
segments or by defining a group with a distinctive set of traits who may seed a
special combination of benefits.
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While segments are fairly large and thus normally attract several competitors,
niches are fairly small and normally attract only one or a few competitors. Niches
typically attract smaller companies. Larger companies normally do not go for
niches. As a defense, however, some larger companies have turned to niche
marketing.
An attractive niche is characterized as follows:
1. The customers in niche have a distinct and a complete set of needs.
2. They will pay a premium to the firm best satisfying their needs.
3. The nicher has the required skill to serve the niche in a superior fashion.
4. The nicher gains certain economies through specialization.
5. The niche is not likely to attract other competitors, or the niche can depend on
itself.
6. The niche has sufficient size, profit, and growth potential.
Local marketing: Target marketing is increasingly on the character of regional

and local marketing, with marketing programs tailored to the needs and wants of
local customer groups (trading areas, neighborhoods, even individual stores). In
other words, at the local level marketers are customizing their campaigns for
trading areas, neighborhoods, and even individual stores. For example, the
branches of the same bank that are located in different localities can provide
different mixes of banking services depending on the bank’s neighborhood
demographics.
Those in favor of localizing a company’s marketing, point to the pronounced

regional differences in communities’ demographics and life style. They see
national advertising as wasteful because it fails to address local target groups. They
also see powerful local retailers who are demanding more fine-tuned product
assortments for their neighborhoods.
On the other hand, those against local marketing argue that it drives up
manufacturing and marketing costs by reducing economies of scale. Logistical
problems become magnified when companies try to meet different regional and
local market’s requirements. Moreover, a brand’s overall image might be diluted if
the product and message differ in different localities.
Individual Marketing: The ultimate level of segmentation leads to “segments of

one,” “customized marketing” or “one-to-one marketing.” The prevalence of mass
marketing has obscured the fact that for centuries customers were served as
individuals: the cloth tailor made the suit for individual, the cobbler designed shoes
for individual, and so on. At the individual level, companies are practicing both
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individual and mass customization. The future is likely to see more self-marketing,
a form of individual marketing in which individual consumers take more
responsibility for determining which products and brands to buy. Today, much of
business-to –business marketing is customized, in that a manufacturer will
customize the offer, logistics, and financial terms for each major account.
It is a new technologies- specially computers, databases, robotic production, and

instant communication media such as e-mail, and fax – that are permitting
companies to consider a return to a customized marketing or what is called “mass
customization.” Mass customization is the ability to prepare on a mass basis
individually designed products and communications to meet each customer’s
requirements.
Self-marketing: Self-marketing is a form of individual marketing in which the

individual customer takes more responsibility for determining, which products and
brands to buy. Consider two purchasing agents with two different purchasing
styles. The first may see several sales people who each try to persuade him to buy
their product. The second sees no salespeople but rather logs onto the internet,
looking up information about and evaluations of the available product or service
offers; dialogs electrically with the various suppliers, users and product critics; and
in the end makes- up his own mind about the best offer. The second purchasing
agent is taking more responsibility for the marketing decision process, and
traditional marketers have less influence over his final decision. As the trend
toward more interactive dialogue and less advertising monologue continues, self-
marketing will grow in importance. We will see a growing number of shoppers
who look up consumer reports, who join electronic product-discussion forums,
land who place orders via phone or computer. Marketers will still influence the
process but in new ways. They will need to set up toll-free phone numbers (clearly
listed in ads and on their products) to enable potential and actual customers to
easily reach them with questions, suggestions, and complaints. They will involve
customers more in the product development process so that new products are
virtually co-designed by the producer and representatives form the target groups.
They will place their companies on an internet home page that provides full
information about their company, product, and guarantees and so on. These steps
will increase individual buyers’ ability to practice self-marketing, that is, to carry
on their own search for the best product offer.
Patterns of market segmentation: Market segments can be built up in many. We

can segment it based on preference segments. Three different patterns can emerge:
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1. Homogeneous preferences: This shows a market where all the consumers have
roughly the same preference. The market shows no natural segments. The
existing brands would be similar and cluster around the middle of the scale.
… ……...
::::::::::::::::
::::::::::::::::
:::::::::::::::
Homogeneous preference
2. Diffused preference: At the other extreme, consumer preferences may be

scattered throughout the space indicating that the consumers vary greatly in
their preferences. The first brand to enter the market is likely to position in the
center to appeal to the most people. A brand in a center minimizes the sum of
total consumer dissatisfaction. A second competitor could locate next to the first
brand and fight for market share. Or it could locate in a corner to attract a
customer group that was not satisfied with the center brand. If several brands
are in the market, they are likely to position throughout the space and show real
differences to match consumer-preference differences.
……………………………
……………………………
……………………………
……………………………
……………………………
……………………………
……………………………
……………………………
……………………………
Diffused preference
Clustered Preferences: This might reveal distinct preference clusters called

natural market segments. The first firm in this market has three options.
 It might position in the center, hoping to appeal to all groups.
 It might position in the largest market segment (concentrated
marketing).
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 It might develop several brands, each positioned in different

segment. If the first firm developed only one brand, competitors
would enter and introduce brands in other segments.
::::::::::::
::::::::::::
::::::::::::
:::::::::::::
:::::::::::
:::::::::::
::::::::::::::
::::::::::::::
:::::::::::::
Clustered Preference
Bases for segmenting consumer markets
There are four commonly used bases for segmenting consumer markets as
discussed very briefly here-under. They are:
1. Geographic segmentation
2. Demographic segmentation
3. Psychographic segmentation
4. Behavioral segmentation
1. Geographic segmentation: Geographic segmentation is the process of

dividing the market into different geographical units such as nations, states,
regions, counties, cities or neighborhoods. The company can decide to
operate in one or a few geographic areas or, operate in all but pay attention
to local variations in geographic needs and preferences. For example, Kraft
General Foods’ Maxwell House ground coffee is sold nationally, but
flavored regionally. Its coffee is flavored stronger in the west than in the
east. Campell’s soup company recently appointed local area market
managers and gave them budgets to study local markets and to adapt
Campell’s products and promotions to local conditions. Some companies
even subdivided major cities into smaller geographic areas. For example,
RJR has subdivided Chicago into three distinct submarkets. In the North
store area, Reynolds promotes its low-Tar brands because residents are
better educated and concerned about health. In the blue –collar Southeast
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area, Reynolds promotes Winston because this area is conservative. In the

black south side, Reynolds promotes the high menthol content of Salem,
using the African-American press and billboards heavily.
Examples of Geographic segmentation
Region: North Ethiopia, south Ethiopia, East Ethiopia, West Ethiopia,

Central Ethiopia, highland, lowland and so on.
City or Metro size: under 4,999, 5000- 19,999, 20,000- 49,999, 50,000-
99,999, 100,000- 249,999 and so on.
Density: Urban, suburban, rural
Climate: Northern, southern and so on.
2. Demographic Segmentation: Demographic segmentation is the process of

dividing the market into groups on basis of demographic variables such as
age, family size, family life cycle, gender, income, occupation, education,
religion, race, generation, nationality or social class. Demographic variables
are the most popular bases for distinguishing customer groups. One reason
is that consumer wants, preferences and usage rates are often highly
associated with demographic variables. Another is that demographic
variables are easier to measure than most other types of variables that have
been used to segment markets.
Age and life cycle stage: Consumer wants and abilities change with age.
This means that baby food is different from that of adults’. However, age
and life cycle can be tricky variables. For example, the Ford motor
company used buyers’ ages in developing its target market for its Mustang
automobile. Then the car was designed to appeal to young people. who
wanted an expensive sporty automobile. Nevertheless, Ford found that all
age groups were purchasing the car. It then realized that its target market
was not the chronologically young but the psychologically young.
Gender: Gender segmentation has long been applied in clothing, hair

styling, cosmetics, and magazines. Consider the cigarette market, where
most brands are smoked by both men and women. But some brands like
Eve and Virginia Slims have been introduced, accompanied by appropriate
flavor, purchasing and advertising cues to reinforce a female image. Today,
therefore, it is unlikely that men will smoke Virginia Slims. Automobile
industries are also undertaking gender segmentation thereby designing cars
that would appeal either to men or to women.
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Income segmentation: Income segmentation is another longstanding

practice in such product and service categories as automobiles, boats,
clothing, cosmetics, and travel. Medium price and expensive cars tend to be
purchased by the over- privileged segments of each social class. However,
income does not always predict the best customers for a given product. For
example, blue-collar workers were among the first purchasers of color TV
sets.
Generation: The idea is that each generation is profoundly influenced by

the milieu in which it grows up – the music, movies, politics, and events of
the time.
Social class: Social class has a strong influence on a person’s preference in

cars, clothing, home furnishings, leisure activities, reading habits, retailers
and so on. Therefore, companies design their products/services for specific
social classes. Like most other segmentation variables, the taste of social
classes can change with years.
3. MARKET TARGETING
It is obvious and logical that a single firm can not serve the overall market
by its products and services. To this effect it has to segment the market into
different segments and after evaluating the segment’s attractiveness, it can
select one or more segments that it can serve aggressively more than any
other competitors.
Evaluating the market segments
In evaluating different market segments, the firm must look at two factors:
1. The overall attractiveness of the segment,
2. Company’s objectives and resources.
First of all the firm must ask whether a potential segment has the
characteristics that make it generally attractive, such size, growth, profitability,
scale of economies, low risk and so on. It also take into consideration how easy
will it be to persuade the members of the segment to shift their purchases. The
company should not target loyals of other brands or deal- prone shoppers. Rather,
it should go after dissatisfied shoppers and those who have not become firmly
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brand loyals of any competing company. The company should focus on targeting
those who will spend a lot on the category, stay loyal, and influence others.
Second, the firm must consider whether investing in the segment makes sense
given the firm’s objectives and resources. Some attractive segments could be
dismissed because they do not mesh with company’s long-run objectives. Even if
the segment fits the company’s objectives, the company must consider whether it
possesses the skills and resources it needs to succeed in that segment. The
segment should be dismissed if the company lacks one or more necessary
competences and in no position to acquire them. But even if the company
possesses the requisite competences, it needs to develop some superior
advantages. It should enter only market segment s in which it can offer superior
value than its competitors.
Selecting the market segments
Having evaluated different segments, the company must decide which and how
many segments to serve. It must decide which segments to target based on the
evaluation results above. There are five patterns of target market selection.
1. Single segment concentration: After segmenting the market into different
segments, the company selects only one the most attractive segment in this case.
Advantage:
a. Through concentrated marketing, the firm gains strong knowledge of the
segment’s needs and achieves a strong market position in the segment.
b. The firm enjoys operating economies through specializing its production,
distribution, and promotion.
c. When the firm captures leadership in the segment, the firm can earn a high
return on its investment.
Limitations:
a. Concentrated marketing involves higher risks than normal risks.
b. A particular market segment turn sour if other competitors invade the
segment.
c. When consumers preference/ taste/ changes, they will switch over to
other brands.
Therefore, it is better for the company to operate in more than one
segment depending on its skills, availability of resources and the
operating capacity of the firm.
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Single-segment concentration
M1 M2 M3
P1
P2 :::::::::: ;;; ::
:::::::::: ;
P3
P= Product M= Market
2. Selective Specialization: Here the firm selects a number of segments, each

objectively attractive and appropriate, given the firm’s objectives and resources.
Each segment should promise to be a money maker.
Advantages:
 It helps for diversifying the firm’s risk. In other words, if one segment
becomes unattractive, the firm can continue to earn money in other
segments. E.g. Radio broadcasting to both older and younger listeners.
Selective specialization
M1 M2 M3
P1 :::::::::::::
:::::::::::::
P2 :::::::::
::::::::::
P3 :::::::::::::
::::::::::::
3. Product specialization: Here the firm concentrates on making a certain

product that it sells to several segments. An example would be a microscope
manufacturer that sells its microscopes to University laboratories, Gov’t
laboratories, and commercial laboratories. The firm makes different microscopes
for these different customer groups, but does not produce other instruments that
laboratories might use.
Advantage: Through a product specialization strategy, a firm builds a strong
reputation in the specific product area.
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Limitation: The product may be supplanted by an entirely new technology which

might be serious risk for the firm which has specialized only on a single Product.
Product Specialization
M1 M2 M3
P1
P2 :::::::::::::::::::::::::::::::::::::::: :::::::::::
::::::::::::::::::::: ::::::::::::::::: ::::::::::::
P3
4. Market Specialization: Here the firm concentrates on serving many needs

of a particular customer group. An example would be a firm that sells an
assortment of products for University laboratories, including microscopes,
oscilloscopes, Bunsen burners, and chemical flasks.
Advantage: A firm gains strong reputation for specializing in serving this

customer group and becomes a channel for all new products that the
customer group could feasibly use.
Limitations: The customer group on which the firm is depending may have
its budget cut and the firm can not sell its products as it wishes.
M1 M2 M3
P1 ::::::::::::::::
::::::::::::::::
P2 :::::::::::::::
::::::::::::::::
P3 :::::::::::::::
:::::::::::::::::
5. Full Market coverage: Here a firm attempts to serve all customers with all
the products that they might need. Only very large firms can undertake a
full market coverage strategy. Example includes IBM (computer market),
General motors (vehicle market), and Coca-cola (soft drink market).
P1
M1 M2 M3
P2
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P3
:::::::::::::: :::::::::::::::: ::::::::::::::::::::::::

:::::::::::::: ::::::::::::::: ::::::::::::::::::::::::
::::::::::::::::::::::::::::::::::: :::::::::::::::::::::::
:::::::::::::::::::::
::::::::::::::::: :::::::::::::::::::::::::
:::::::::::::::::::::::::::::::::: ::::::::::::::::::::::::::
::::::::::::::::::::::::::::::::: ::::::::::::::::::::::::::
Large firms can cover a whole market in two ways

1. Through undifferentiated marketing
2. through differentiated marketing
Undifferentiated marketing: In this market the firm ignores market segment
differences and goes after the whole market with one market offer/ product. In this
market the firm assumes that all individual customers have similar needs for a
specific kind of products. Therefore, it attempts to satisfy the most customers with
a single marketing mix. This marketing mix consists of product with little or no
variation, one price, one promotion program aimed at everyone, and distribution
system to reach all customers in the total market. A prominent example is Coca-
Cola Company that offers the same coca-cola in different markets.
Advantage:
 Mass production reduces production cost.
 Mass ads program keeps down ads costs.
 The absence of segment research and planning lowers the cost of marketing
research and product management.
 The company can turn its lower costs into lower prices to win the price
sensitive segment of the market.
Disadvantage: It is rarely possible for a product or a brand to be all things to all
people. Many marketers have expressed strong doubts about application and
implementation of this strategy.
Differentiated marketing: In differentiated marketing the firm operates in
several market segments and designs different market programs for each segment.
For example, IBM offers many hard-ware and Soft-ware packages for different
segments in the computer market.
Advantage: This market creates more total sales than undifferentiated marketing.
Limitation: It increases the cost of doing business. E.g. product modification
costs, R & D and production costs, administrative costs, inventory costs,
promotion costs and so on.
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Companies can differentiate their market offerings along five dimensions such as
product differentiation, service differentiation, personnel differentiation, channel
differentiation, and image differentiation.
DEVELOPING POSISIONING STRATEGY
What is positioning?
Positioning is the act of designing the company’s offering and image so that they
occupy a meaningful and distinct competitive position in the target consumer’s
minds. In order to position a brand, it must have a reasonable difference from the
competitors’ product / brand. If a brand does not have a substantial difference
according to the following criteria, positioning of it is not necessary.
Important: The difference should deliver highly valued benefits to sufficient
number of buyers.
Distinctive: The difference either is not offered by others or is offered in a more
distinctive way by the company.
Superior: The difference should be superior to other ways of obtaining the same
benefit.
Communicable: The difference should be communicable and visible to buyers.
Pre-emptive: The difference can not easily copied by competitors.
Affordable: The difference should be in such a way that the buyers can afford to
pay for them.
Profitable: The Company should find it profitable to introduce the difference.
What should be positioned to the target market?

The most commonly promoted number –one positionings are: best quality, best
service, lowest price, best value, safest, fastest, most customized, most
convenient, and most advanced technology. When companies promote and
position their products or brands they should avoid the four major positioning
errors such as under-positioning, over-positioning, confused positioning, and
doubtful positioning.
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CHAPTER FIVE
CONSUMER BUYING BEHAVIOR
The aim of marketing is to meet and satisfy target customers’ needs and wants. To
satisfy their needs and wants, their behavior should be studied. The field of
consumer behavior studies how individuals, groups, and organizations select, buy,
use, and dispose of goods, services, ideas or experiences to satisfy their needs and
desires.
The stimulus-response model: As it may be drawn here below, marketing and

environmental stimuli enter the buyer’s consciousness and leads to the buyer’s
characteristics and decision process. The buyer’s characteristics and decision
process lead to certain purchase decisions. The marketer’s task is to understand
what happens in the buyer’s consciousness between the arrival of outside stimuli
and the buyer’s purchase decisions. Here, they must answer two questions:
1. How do the buyer’s characteristics – cultural, social, personal, and
psychological – influence buying behavior.
2. How does the buyer make purchasing decision?
Marketing Other Buyers Buyer’s Buyers

stimuli stimuli characteristics decision process decision
Product Economic Cultural Problem recognition
Price Political Information search
Place Technological Social Evaluation
promotion cultural Decision
Personal Post purchase
Psychological
MAJOR FACTORS INFLUENCING BUYING BEHAVIOR
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The buyers purchasing choice will be influenced by many cultural, social,

personal and psychological factors.
Cultural Factors: cultural factors exert the broadest and deepest influence on
consumer behavior. The role played by the buyers culture, subculture, and social
class are particularly important.
1. Culture: Culture is the most fundamental determinant of a person’s wants and

behavior. The growing child acquires a set of values, perceptions, preferences
and behaviors through his or her family and other key institutions. A child
growing up in United States is exposed to culture and values of the same.
Therefore, his purchasing behavior reflects his upbringing in a technological
society. The differences in language some times pose a serious problem, even
necessitating a change in a brand name. E.g. Chevrolet’s brand name “NOVA”
in Spanish means “it does not go.” Therefore the sale of the car declined in
Spanish speaking countries. In Japanese, again, 3M’s slogan “sticks like
crazy” translates as “sticks foolishly.”
2. Subculture: Each culture consists of smaller subcultures that provide more
specific identification and socialization for its members. Subcultures include
nationalities, religions, racial groups, and geographical regions. Many cultures
make up important market segments, and marketers often design products and
marketing programs tailored to their needs. The buyer’s buying behavior will
be influenced by his/ her sub-culture identifications. They will influence his/
her food preferences, clothing choices, and recreation and career aspirations.
3. Social classes: are relating homogeneous and enduring divisions in a society,
which are hierarchically ordered and whose members share similar values,
interests, and behavior. Social classes reflect income, occupation, education,
and area of residence. Social classes differ in their dresses, speech patterns,
recreational preferences and many other characteristics which are not
mentioned here.
The Characteristics of social classes
1. Persons within each social class tend to behave more alike than persons
from two different social classes.
2. Persons are perceived as occupying inferior or superior positions according
to their class.
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3. A person’s social class will be indicated by social stratification such as

upper uppers, Lower uppers, Upper middles, Middle class, Working class,
Upper lowers, and lower lowers.
4. Individuals can move up and down form one social class to another. In
some countries like India because of cast system such up and down
movements are not possible.
Social Factors
A consumer’s behavior is also influenced by social factors such as reference

groups that have a direct (face-to-face) or indirect influence on the person’s
attitudes or behavior. Groups having a direct influence on a person are called
membership groups. Some membership groups are primary groups, such as
family, friends, neighbors and co-workers, with whom the person interacts fairly,
consciously and informally. People also belong to secondary groups, such as
religious, professional and trade union groups - which tend to be more formal and
require less continuous interaction. Reference groups pose influence on buyer’s
behavior at least in three ways:
1. They expose an individual to new behaviors and lifestyles.
2. They also influence the person’s attitudes and self-concept.
3. And they create pressure for conformity that may affect actual product and
brand choice.
Persons are also influenced by groups in which they are not members, but they
would like to belong. The groups a person would like to belong are called
aspiration groups.
E.g. A teen-ager may hope one day to play basketball for the Chicago Bulls.
A Dissociative Group: are those whose values or behavior an individual may

want to avoid any r/ship with such a group. Marketers try to identify their target
customers’ reference groups and try to influence their customers by producing and
marketing brands tailored to satisfy needs and wants of members of that specific
reference group. The reference groups have their own opinion leader. The task of
manufacturers is to reach and influence the opinion leaders in the reference group.
An opinion leader is a person in informal product related communications who
offers advice or information about specific product or product category, such as
which of several brands is best or how a particular product may be used. Opinion
leaders are found in all strata of society. A person can be an opinion leader in
some product areas and an opinion follower in other areas.
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Family: The family is the most important consumer-buying organization in

society. Family members constitute the most influential primary reference group.
We can distinguish b/n two families in the buyer’s life: the family of orientation
and the family of procreation.
The family of orientation consists of one’s parents and siblings (brothers and
sisters). From parents a person acquires an orientation toward religion, politics
and economics, a sense of personal ambition, self –worth and love. Even if a
grown person is interacting with his parents, the parents influence the buyer’s
behavior. In countries like India where parents live with their grown up children,
their influence can be substantial.
The family of procreation: Consists of one’s spouse and children. The family of
procreation can insert a more direct influence on everyday buying behavior.
Marketers are interested in the roles and relative influence of the husband, wife
and children in the purchase of products and services, and place targeted
advertisement to attract an influential person from the family.
Roles and status: The person’s position in each group can be defined in terms of
role and status.
A ROLE consists of the activities that a person is expected to perform. For
example, with her parents, Yeshi plays the role of daughter; in her family, she
plays wife and mother; in her company, she plays sales manager. Each of Yeshi’s
roles will influence some of her buying behavior.
A STATUS: Each role carries a status. A status is a position engaged by a person
in society. A sales manager has more status than an office clerk. People choose
products that communicate their role and status in society. Marketers are aware of
the status symbol potential of products and brands.
Personal Factors: A buyers decisions are influenced by personal characteristics.
These include the buyers’ age and stage in the lifecycle, occupation, economic
circumstances, life style, and personality and self-concept.
Age and stage in lifecycle: People buy different goods and services over their life
time. Their purchasing behavior varies from time to time over their age. Peoples
taste in clothes, furniture, food and recreation is age related.
Consumption: consumption is also shaped from time to time over the person’s
age. People’s buying behavior is influenced by family lifecycle. (Take more notes
on this from Kotler 9th edition).
Lifestyle: People coming from the same sub-culture, social class and occupation
may exhibit different lifestyles. The person’s lifestyle is the person’s pattern of
living in the world as expressed in the person’s activities, interests and opinions.
Lifestyle portrays the “whole person” interacting with his or her environment.
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Personality and self-concept: Each person has a distinct personality that

influences his/ her buying behavior. Personality is a person’s distinguishing
psychological characteristics that lead to relatively consistent and enduring
responses to his/her environment. Related to personality is a person’s self-concept.
Self-concept may be classified as actual self concept (how one views oneself, an
ideal self concept (how one would like to see himself, and others self-concept
(how one thinks others see him). As far as Psychological concept is concerned,
read motivation theory of different writers.
Occupation: A person’s occupation influences his/her consumption pattern.

Economic conditions: Product choice is greatly affected by one’s economic
circumstances.
Buying Roles: We can distinguish five roles people might play in a buying
decision:
1. Initiator: A person who first suggests the idea of buying the product or
service.
2. Influencer: A person whose view or advice influences the decision.
3. Decider: A person who decides on any component of a buying decision-
whether to buy, what to buy, how to buy, and where to buy.
4. Buyer: The person who makes the actual purchase of the product or service.
5. User: A person who consumes or uses the product or service.
BUYING BEHAVIOR
Based on the degree of buyer involvement and the degree of differences among
brands, we can distinguish four types of consumer buying behavior. They are:
1. Complex buying behavior: Consumers engage in complex buying
behavior when they purchase complex and expensive products in order
to learn significant differences among brands. This is the case when the
product is expensive, bought infrequently, risky, and highly self-
expressive. Complex buying behavior involves a three-step process,
namely:
a) The buyer develops beliefs about the product
b) The buyer develops attitude about the product
c) The buyer makes a thoughtful purchase choice.
The marketer of a high involvement product must understand high-involvement
consumers’ information gathering and evaluation behavior. Then the marketer
needs to develop strategies that assist the buyer about the product’s attributes and
the relative importance of the company’s brands. The marketer needs to
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differentiate the brand’s features, use print media to describe the brand’s benefits,
and motivate store sales personnel and the buyer’s acquaintances to influence the
final brand choice.
2. Dissonance-reducing buyer behavior: Some times the consumer is highly
involved in a purchase but sees little difference in the brands. The high
involvement is based on the fact that the purchase is expensive, infrequent, and
risky. In this case, the buyer will shop around to learn that what is available but
will buy fairly quickly, perhaps responding primarily to a good price or purchase
convenience. After purchase, the consumer might experience post-purchase
dissonance that stems from noticing certain disquieting features of the product,
hearing favorable things about other product of same category. Here the marketer
should furnish sufficient information to consumers before they made purchase
decision and be involved in purchase of certain product in order to eliminate or
minimize post-purchase dissonance/dissatisfaction in the purchased product.
3. Habitual Buying Behavior: When the product is of low cost, frequently
purchased, less risky and when there is no significant brand differences, the
involvement of consumers will be low. They will go to the store and reach for the
brand without making hard effort. If they keep reaching for the same brand, there
will not be a strong brand loyalty. In this case, consumers do not search
extensively for information about brands, evaluate their characteristics, and make
a weighty decision on which brand to buy. Instead, they are passive recipients of
information as they watch TV or see print ads. Ad repetition creates brand
familiarity rather than brand conviction. Consumers do not form a strong attitude
toward a brand; rather, they select it because it is familiar. After purchase, they
may not even evaluate the choice because they are not highly involved with the
product.
Marketers of low-involvement products with few brand differences find it
effective to use price and sales promotion to stimulate product trial, since buyers
are not committed to any brand.
4. Variety-seeking Buying Behavior: Some buying situations are

characterized by low-consumer involvement but significant brand differences. In
this case, consumers often do a lot of brand switching. Here consumers have
some beliefs about the product. Chooses a product without much evaluation, and
evaluate the product during consumption. But next time, the consumer may reach
for another brand out of boredom or a wish for a different taste. Brand switching
occurs for the sake of variety rather than dissatisfaction.
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The Stages of the Buying Decision Process:

There are five stages of buying decision process. Consumers pass
sequentially through all five stages in buying high-involvement product.
But this is not the case, especially with low-involvement purchases.
Consumers may skip or reverse some stages when they are not highly
involved in the search for the product.
Consumer passes through five stages: problem recognition, information

search, evaluation of alternatives, purchase decision and post purchase
behavior.
1. Problem recognition: The buying process starts when the buyer
recognizes the problem or need. The need can be triggered by the
internal or external stimuli. In the case of the internal stimuli, one
of the person’s normal needs- hunger, thirst, and sex- rises to a
threshold level and becomes a drive. In the case of external
stimuli, a need is aroused by external stimuli. For example, if a
person passes a bakery and sees freshly baked bread, it stimulates
his hunger. Marketers need to identify the circumstances that
trigger a particular need. They can come to know this by
gathering information from consumers. By the help of gathered
information, marketers can identify the most frequent stimuli that
spark and interest in a product category. They can then develop
marketing strategies that trigger consumer interest.
2. Information search: An aroused consumer will be inclined to
search for more information. This information can be obtained
from various sources such as books, friends, visiting stores to
learn about the desired product. Consumer information sources
fall into four groups:
a) Personal sources: family, friends, neighbors, acquaintances
b) Commercial sources: Ads, salespersons, dealers, packaging,
displays,
c) Public sources: Mass media, consumer rating organizations.
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d) Experiential sources: Handling, examining, uses the

product.
Each information source performs a different function in
influencing the buying decision.
3. Evaluation of alternatives: There is no single evaluation process
used by all consumers or by one consumer in all buying
situations. There are several decision evaluation processes. Take
note on this from Kotler.
4. Purchase decision: In the evaluation stage, the consumer forms
the preferences among the brands in the choice set. The consumer
may also form an intention to buy the most preferred brand.
However, two factors can intervene b/n the purchase intention
and the purchase decision.
The first factor is the attitudes of others. The extent to which
another person’s attitude reduces one’s preferred alternative depends on
two things:
1. The intensity of the other person’s negative attitude toward the
consumers preferred alternative: - The more intense the other
person’s negativism and the closer the other person is to the
consumer, the more the consumer will adjust his/ her purchase
intention. The converse is also true. The buyer’s preference for
the brand will increase if some one he or she respects favors the
same brand strongly. The influence of others becomes complex
where several people close to the buyer hold contradictory
opinions and the buyer would like to please them all.
2. The consumer’s motivation to comply with the other person’s
wishes.
The second factor is unanticipated situational factor that may
erupt to change the purchase intention. If somebody loses his job
accidentally, all purchase intentions may be avoided or dropped. A
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consumer’s purchase decision will be modified, postponed, or

avoided if there is serious perceived risk.
5. Post purchase behavior: After purchasing the product, the consumer
will experience some level of satisfaction or dissatisfaction. The marketer’s
job does not end up when the product is bought but continues into post
purchase period. Marketers must monitor post-purchase satisfaction, post-
purchase actions, post-purchase product use, and disposal.
Post-purchase satisfaction: What will determine that the

buyer is highly satisfied, somewhat satisfied or dissatisfied
with a purchase?
The buyer’s satisfaction is a function of the closeness between the buyer’s
product expectation and the product’s perceived performance. If the
product’s performance falls short of customer expectations, the customer is
disappointed; if it meets expectations, the customer is satisfied; if it
exceeds expectations, the customer is delighted.
Consumers form their expectations on the basis of messages received form

sellers, friends, and other information sources. If the seller exaggerates the
benefits, consumers will experience disconfirmed expectations, which will
lead to dissatisfaction. The larger the gap between expectations and
performance, the greater will be the consumer’s dissatisfaction. When
marketers introduce their products in the market, they must communicate
to the users of their product the products likely performance without
exaggeration.
Post-purchase action: The consumers’ satisfaction or

dissatisfaction with product will influence subsequent behavior. If the
consumer is satisfied, he or she will exhibit a higher probability of
purchasing the product again. If the consumer is dissatisfied, he may
abandon the product, he may take public action such as complaining the
company, going to a lawyer, or complaining to consumer organizations.
He also bad- mouth the product to his friends. He also returns the
product to the organization and claims refund. These all can tarnish the
goodwill and image of the organization. For these reasons companies
must work to ensure consumer satisfaction at all levels of the buying
process.
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Post-purchase use and Disposal: Marketers should monitor how the

buyers use and dispose the product. If the consumers are using up their
products soon after purchase, the product might be a good product. If
they store it for long time, the product might be not a good one. If
consumers are not interested in the product, they will throw it. If the
container of the product is not recyclable material, it will pollute the
environment. Therefore, marketers must take care not to produce the
product that pollutes the environment. They should use environment
friendly packages as a container for their products not to pollute the
environment.
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CHAPTER SIX
Product management
6.1. Product classification.

What is Product? A product is anything that can be offered to a market to satisfy
a want or need. Marketers have traditionally classified products on basis of
varying product characteristics: durability, tangibility, and use (consumer or
industrial). Each product type has an appropriate marketing strategy.
Durability and tangibility: Products can be classified into three groups according
to their durability and tangibility.
 Nondurable goods: Nondurable goods are tangible goods that normally are
consumed in one or a few uses. Examples are beer, soap and salt. Since
these goods are consumed quickly and purchased frequently, the
appropriate strategy is to make them available in many locations, charge
only a small mark-up, and advertise heavily to induce trial and build
preference.
 Durable goods: Durable goods are tangible goods that normally survive
many uses. Examples include refrigerators, machine tools, and clothing.
Durable products normally require more personal selling and service,
command a higher margin, and require more seller guarantees.
 Services: Services are intangible, inseparable, variable, and perishable. As

a result they normally require more quality control, supplier credibility,
and adaptability. Examples include haircuts and repairs.
Goods may be classified as consumer goods or industrial goods.
Consumer goods classification: Consumers buy a vast array of goods. These

goods can be classified on the basis of consumer shopping habits. Accordingly,
they are: convenience, shopping, specialty, and unsought goods.
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 Convenience goods: are goods that the consumer usually purchases

frequently, immediately and with a minimum of effort. Examples include
tobacco products, soaps, bread, and news papers. Convenience goods can be
further divided into staples, impulse, and emergence goods.
Staples: are goods that consumers purchase on a regular basis. For

example, one buyer can routinely purchase Teff, tooth paste and the like.
Impulse goods: are purchased on impulse basis without any planning or

search effort. These goods are usually displayed widely. Thus, candy bars
and magazines are placed next to checkout counters because shoppers may
not have thought of buying them until they spot them.
Emergency goods: are purchased when a need is urgent- umbrellas during

rainstorm, boots and shovels during the first winter snowstorm.
 Shopping goods: are goods that the consumer, in the process of selection
and purchase, characteristically compares on such bases as suitability,
quality, price, and style. Examples include furniture, clothing, used cars,
and major appliances. Shopping goods can be divided into homogeneous
goods and heterogeneous goods. Homogeneous shopping goods are goods
the buyer sees as similar in quality but different enough in price to justify
shopping comparisons. The seller has to “talk price” with the buyer.
Heterogeneous shopping goods: In these goods, product features are often
more important than the price. The seller of these goods must therefore
carry a wide assortment to satisfy individual tastes and must have well-
trained salespeople to provide information and advice to customers.
 Specialty goods: are goods with unique characteristics and /or brand
identification for which a significant group of buyers is habitually willing to
make a special purchasing effort. Examples include specific brands and
types of fancy goods, cars, stereo components, photographic equipment,
and men’s suits. A Mercedes is a specialty good because interested buyers
will travel far to buy one. Specialty goods do not involve the buyer in
making comparisons; buyers invest time only to reach dealers carrying the
wanted products. The dealers do not need convenient locations; however,
they must let the prospective buyers know their locations.
 Unsought goods: are the goods the consumer does not know about or
knows about but does not normally think of buying. New products such as
smoke detectors and food processors are unsought products until the
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consumer is made aware of them through advertising. The example of

unsought products is life insurance, cemetery plots, gravestones,
encyclopedias and so on. Unsought goods require substantial marketing
effort in the form of advertising and personal selling.
INDUSTRIAL - GOODS CLASSIFICATION.
Industrial goods may be classified in terms of how they enter the production
process and their relative costliness. There are three groups of industrial goods:
material and parts, capital items, and supplies and business services.
1. Materials and parts: are goods that enter the manufacturer’s product
completely. They fall into two classes: 1. Raw materials and 2.
Manufactured materials and parts.
Raw materials fall into two major classes: farm products (e.g. wheat,
cotton, livestock, fruits and vegetables) and natural products (e.g. fish,
lumber, crude petroleum, iron ore). Each is marketed somewhat differently.
Farm products are seasonal and perishable. Their perishable and seasonal
nature gives rise to special marketing practices. Farm products are supplied
by many producers, who turn them over to marketing intermediaries, who
provide assembly, grading, storage, transportation and selling service. Their
commodity character results in relatively little advertising and promotional
activity, with some exceptions.
Natural products: are highly limited in supply. They usually have great
bulk and low unit value and require substantial transportation to move them from
producer to user. The producers of natural products market them to industrial
users.
Manufactured materials and parts: are divided into two categories: 1)

component material (E.g. iron, yarn, cement, wire) and component parts (E.g.
small motors, tires, castings). Component materials are usually fabricated further-
for example, pig iron is made into steel, and yarn is woven into cloth.
Standardized nature of component materials usually means that price and supplier
reliability are the most important purchase factors. The component parts enter the
finished product completely with no further change in form, as when small motors
put into vacuum cleaners, and tires are put on automobiles. Most manufactured
materials and parts are sold directly to industrial users.
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Capital items: are long-lasting goods that facilitate developing and/or managing
the finished product. They include two groups: Installations and Equipment.
Installations consist of buildings (e.g. factories and offices) and Equipment (e.g.
generators, drill presses, mainframe computers, elevators). Installations are major
purchases. They are usually bought directly from producer, with typical sale
preceded by long negotiation period. Ads may be used but much less important
than personal selling.
Equipment comprises portable factory equipment and tools (e.g. hand tools, lift
trucks) and office equipment (e.g. personal computers, desks). These types of
equipment do not become part of finished product. They simple help in the
production process. They have a shorter life than installations but a longer life
than operating supplies. Even though some manufacturers sell it directly, more
often may use marketing intermediaries, because the market is geographically
dispersed, the buyers are numerous and the orders are small. Quality, features,
price, and service are major considerations in vendor selection. The sales force
tends to be more important in this type of sales although ads can be used
effectively.
Supplies and Business services are short lasting goods and services that facilitate
developing and/or managing the finished product. Supplies are of two types,
namely, operating supplies (e.g. lubricants, coal, writing paper, pencils) and
maintenance and repair items (e.g. paint, nails, brooms). Supplies are the
equivalent of convenience goods in the industrial field. They are purchased with
minimum effort on a straight rebuy basis. They are normally marketed through
intermediaries because of their low unit and great number and geographical
dispersion of customers.
Business services include maintenance and repair services (e.g. window cleaning
and typewriter repair) and business advisory services (e.g. legal, management
consulting, and advertising). Maintenance service is often provided by small
producers, and repair services are often available from the manufacturers of the
original equipment.
PRODUCT MIX
Product mix (assortment): is the set of all products and items that a particular
seller offers for sale to buyers. Product mix consists of various product lines.
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Product line: A product line is a group of products that are closely related because
they perform similar function, are sold to the same customer groups, are marketed
through the same channels, or fall within given price ranges.
For example:
1. Kodak’s product mix consists of two strong product lines: information

product and image products.
2. NEC’s (of Japan) basic product mix consists of communication products

and computer products.
3. Michelin has three product lines: tires, maps, and restaurant rating services.
4. At Debub University there are separate academic Deans for separate

product lines such as Faculty of social sciences, faculty of Natural sciences,
College of Agriculture, Faculty of Technology, faculty of medical sciences,
and so on.
A company’s product mix has a certain width, length, depth, and consistency.
1. Width: refers that how many different product lines the company is carrying in
its product mix. E.g. hair care products, health care products, food, beverage, etc.
2. The length of product mix: refers to the total number of items in its product
mix. This can be obtained by dividing total length by the number of lines.
3. The depth of product mix: refers to how many variants are offered of each
product in the line.
4. The consistency of the product mix: refers to how closely relate the various
product lines are in end use, production requirement, distribution channels, or
some other way.
Product line decision: A product line is a group of products that are closely
related, because:
1. they perform similar function,
2. are sold to the same customer groups,
3. are marketed through the same channels, or fall within given price ranges.
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Each product line is usually managed by a different executive. In General

Electronics’ Consumer Appliance Division, there are products’ line managers for
refrigerators, stoves, washing machines and other appliances.
Product Line Analysis: Product line managers need to know the sales of each
item in their line in order to determine which items to build, maintain, harvest, or
divest. They also need to understand each product’s market profile.
Product lines sales and profits: The product manager needs to know the
percentage of total sales and profits contributed by each item in the line.
50 Sales
=== Profits
40
30 = =
= =
20 = =
= =
= =
=
10 = =
=
= = =
= = =
=
0 2 = 3 = 4 5= -
=
=
1 2 3 4 5
Figure 6.1: Sales and associated profits in product line
The above figure shows a sales/profit report for five item product line. The
first item accounts for 50% of total sales 30% of total profits. The first two
items account for 80% of total sales and 60% of total profits. If these two
items were suddenly hurt by a competitor, the product lines sales and
profitability could collapse. A high concentration of sales in a few items
means line vulnerability. These items must be carefully monitored and
protected.
At the other end, the last item constitutes only 5% of the product line’s sales
and profits. The product line manager may consider dropping this slow-
selling item from the line unless it has strong growth potential.
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Product line market profile: The product line manager must also review
how the product line is positioned against competitors’ product lines. To this
effect, the product manager prepares the product map which he uses to draw
and monitor the activities of competing products in the market. This product
map is useful for designing product line marketing strategy. It also identifies
the market segments.
Product line length: An issue facing product line managers is optimal

product line length. A product line is too short if the manager can increase
profits by adding items; the line is too long if the manager can increase
profits by dropping items.
Company objectives influence product line length. Companies seeking high
market share and market growth will carry longer lines. They are less
concerned when some items fail to contribute to profits. Companies that
emphasize high profitability will carry shorter lines consisting of carefully
chosen items.
Product lines tend to lengthen over time. Excess manufacturing capacity puts
pressure on product line manager to develop new items. The sales force and
distributors also pressure the company for a more complete product line to
satisfy their customers. The product line manager will add items in pursuit of
greater sales and profits.
But as items are added, several costs will rise: design and engineering costs,
inventory carrying costs, manufacturing change over costs, order processing
costs, transportation costs, and new item promotional costs. Eventually
someone calls a halt to the manufacturing product line. Top management
may freeze things because of insufficient funds or manufacturing capacity.
The controller may question the lines profitability and call for a study, which
will probably show a large number of money-losing items. A pattern of
product line growth followed by massive product pruning and may repeat
itself many times.
A company can enlarge the length of its product line in two ways: by line
stretching and line filling.
Line stretching: Line stretching occurs when a company lengthens its
product line beyond its current range. The company can stretch its line
downward, upward, or both ways.
Downward stretch: Many companies initially locate at upper end of the

market and subsequently stretch their line downward. Companies often add
models to the lower end of their line in order to advertise their brand as
starting at a low price. Downward stretching is to produce and market low
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price items in the market. Lower end products are products of low price. The
firm positions its product at lower end in order to attract price sensitive
buyers in the market. They are used to draw customers in. In making a
downward stretch, the company faces risks. The new low-end item might
cannibalize higher end items- that is, sales of lower priced items might take
away from sales of higher priced items.
A company might stretch downward for any of the following reasons:

 The company is attacked by a competitor at the high end and decides
to counterattack by invading the competitor’s low end.
 The company finds that slower growth is taking place at the high end.
 The company initially entered the high end to establish a quality
image and intended to roll downward.
 A company adds a low-end unit to plug a market hole that would
otherwise attract a new competitor.
In addition, the low end item may provoke competitors to move into the
higher end. Or the company’s dealers may not be willing or able to
handle the lower end products because they are less profitable or dilute
their image.
Example: A major miscalculation of U.S. companies has been their
failure to plug holes in the lower end of their markets. General motors
resisted building smaller cars, and Xerox resisted building smaller
copying machines. Japanese companies spotted a major opening and
moved in quickly and became profitable in low end market.
Upward stretch: companies in the lower end of the market might

contemplate enter the higher end. They might be attracted by a higher
growth rate, higher margins, or simply the chance to position themselves
as full-line manufacturers. When the company adds the new brand in the
higher end, the market is called upward stretch.
An upward stretch decision is risky. Its disadvantages may be:
1. The high-end competitors may be well entrenched/ rooted/ and may
counterattack by going down-market.
2. Prospective customers may not believe that the lower-end company
can produce high quality products.
3. The company’s sales representatives and distributors may lack the
talent and training to serve the higher-end of the market.
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Two way stretch (Both way stretch)
Companies serving the middle market might decide to stretch their line in
both directions. In other words, when a company can add new lines
simultaneously both downward and upward is called two-way or both way
stretch. Usually companies use both way stretch.
Example: Texas Instruments (TI) introduced its first calculators in the
medium price / medium quality end of the market. Gradually, it added
calculators at lower end, taking market share away from Bow mar and it
introduced high quality calculators selling at lower prices than Hewlett
Packard calculators.
Line Filling: A product line can also be lengthened by adding more items
within the line’s present range. There are several motives for line filling:
1. Reaching for incremental profits,
2. Trying to satisfy dealers who complain about lost sales because of
missing items in the line,
3. Trying to utilize excess capacity
4. Trying to be the leading full-line company
5. And trying to plug holes to keep out competitors.
Line filling is overdone if it results in cannibalization and customer

confusion. The company needs to differentiate each item in the consumers
mind. Each item should possess a just-noticeable difference.
Line Modernization: Even when product line length is adequate, the line
might need to be modernized. This is the decision where the company feels
the extension line is sufficient and no need of addition on new line but some
of the lines (brands) need modernization in terms of quality, technology and
features in existing products.
A line modernization can take place in the following two ways:
1. Aggregate / entire line, full model, all at once/ modernization: The
Company modernizes the entire line of the product at the same time.
2. Piece-meal modernization: is a single line modernization. The entire line
modernization is difficult and risky. Therefore, the firm should take
piecemeal modernization. A piecemeal approach allows the company how
the customers and dealers take to the new style. It is also less draining on the
company’s cash flow, but it allows the competitors to see changes and to
start redesigning their own lines. In rapidly changing product markets,
product modernization is carried on continuously.
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Line featuring decision: Featuring is a policy of company for

advertisement and other promotional processes for a particular line. The
product line manager typically select over a few items in the line to feature.
Some times managers feature promotional models at the lower end of the
line to serve as traffic builders’ advertisement. The marketers first announce
low price items to attract people and once the customers arrive, sales people
try to influence them to buy at high end of the line. At other times, the
manager will feature a high -end items to lend prestige to the product line.
This helps to create better image of the product of the company. If any
feature of the product is important, it is better to use different methods of
advertisement. There is no better way of advertisement to all products.
Line Pruning: Line pruning is the process of cutting unprofitable products

from product lines. Product line managers must periodically review items
which require pruning. The line manager has to decide which of the items is
not performing well. The items which are not performing well are candidates
for pruning. There are two occasions for pruning:
1. When the product line includes dead -wood that is decreasing profit,
weak items can be identified by sales and cost analysis and then may
be pruned if they are not profitable.
2. When the company lacks capacity to produce all of the items
demanded in their desired quantity. In this case weak items with weak
profit margin are to be pruned. The items demanded for are: 18%,
15%, 20%, 13%, and 8%. As the company has no sufficient capacity
to produce all these items in the line, then it prunes the least profitable
item, whose profit margin is only 8%.
Product Life Cycles Strategies (PLC)
What is product? A product is a bundle of physical, service and symbolic

attributes designed to produce consumer want satisfaction. An important
feature of many products is the product warranty. Warranty is the guarantee
to the buyer that the manufacturer will replace the product or refund its
purchase price if it proves defective during a specified period of time.
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Product Life Cycle

Product like individuals passes through a series of stages. Successful
products progress through four stages, namely: introduction, growth
maturity and decline as shown in figure
Sales /
Profits
Sales curve
I II III IV curvecurve
Introduction Growth Maturity Decline
Profit curve
Time
Figure: Product Life Cycle
Stage I: Introduction The firm’s objective in the early stage of the

product life cycle is to stimulate demand for the new product. Since product
is not familiar to the public, promotional campaign stresses information
about its features. The basic features are as listed below:
 Customers are hesitant in buying the product

 Productivity is low since demand is low
 Sales volume is low
 High amount of money is placed in advertisement
 Expenses are high
 Therefore it is the least profitable stage.
Stage II: Growth: Sales volume rises rapidly during the growth stages
as new customers make initial purchases. The basic characteristics of the
growth stage are listed below:
 This stage has the highest growth rate
 Customers are now familiar with the merits and demerits of
the product
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 Accordingly, sales volume increases very rapidly

 A proportional rise in profits occurs
 In this stage, competitors enter the market bringing about
imitation of the product
 Promotional campaign is still very high.
Stage III: Maturity: Sales continue to grow during the early part of the
maturity Stage. This stage can be summarized as:
 Large number of competitors have entered market
 Available products exceed customer demand
 Sales increase levels out into a plateau reaching its
highest peak.
 Reduction in prices may occur in this stage.
Stage IV: Decline: In the final stage, shifting consumer preferences

brings about decline in sales. Important trends that
follow are:
 Sales show downward trends,
 Profits decline, in some cases actually becoming
negative,
 It necessitates product differentiation, that is having
different uses for the same product,
 Or a totally new product may have to be introduced.
Product life cycle predicts that profits assume and go through certain
pattern. The length of the life cycle is considerably different from one
product to another. A new fashion may have a total life span of one
calendar year, with an introductory stage of two months. But the
automobile has been in maturity stage for more than twenty years
BRADING
BRAND DECISIONS
In developing a market strategy for individual product, the seller has to

confront the issue of branding. Branding can add value to product, and
therefore it is an intrinsic aspect of product strategy.
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The first decision of the company is whether the company should put a
brand name on its products. This means whether the specific product should
carry the brand name or not. If the first decision is that the product should
carry the brand name, the second decision is whose brand name? The
company’s brand name or others brand name? This decision is called brand
sponsorship decision.
Brand Equity: If a company has better brands, it has more market value.
Some brands have more value and some others have less value. Companies
try to make their brands more valuable in the markets. However, decisions
related to brands should be made very carefully.
Brand: Brand is a name, term, sign, symbol, design, or combination of them
which is intended to identify the goods or services of one seller or group of
sellers and to differentiate them from those of competitors. A brand
identifies the seller or maker. It can be a name, trade mark, logo, or other
symbol.
Brand Name: The part of a brand which can be vocalized or easily uttered
or easily adapted.
Brand Mark: The part of brand which can be recognized, but not vocalized,
such as a symbol, design, distinctive coloring or lettering.
Trade name: A brand or part of a brand that is given a legal right

(protection) because it is capable of exclusive rights to use the brand name
and /or the brand mark.
Advantages of brand: Brand name or branding gives the seller several

advantages. Some of them are as follows:
1. The brand name makes it easier for the seller to process orders and to
track down problems,
2. The sellers’ brand name and trademark provide legal protection of
unique product which the competitors otherwise be likely to copy.
3. Branding gives the seller the opportunity to attract loyal and profitable
set of customers.
4. Branding helps the seller segment markets.
5. Strong brands help build the corporate image, making it easier to
launch new brands and gain acceptance.
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Brand sponsor decision
The manufacturer has several options with respect to brand sponsorship.

1. The product may be launched with a manufacturer’s brand also called
as a national brand.
2. The manufacturer may sell the product to the middlemen who put on a
private brand (also called middlemen brand, distributor brand, or
dealer brand).
3. The manufacturer may produce some output under its own brand
names and some under private levels.
Family Brand Decision (Brand name decision)
Manufacturers who brand their product face several further choices. At least
four brand name strategies can be distinguished:
1. Individual brand name
2. Blanket family name for all products
3. Separate family name for all products
4. Company trade name combined with individual product names.
1. Individual brand name: A major advantage is that the company does

not tie its reputation to the product’s acceptance. If the product fails or
appears to have low quality, the company’s name or image is not
likely to be hurt. A manufacturer of good-quality product like Seiko
watches can introduce low- quality line of watches without diluting
the Seiko brand name. The individual brand names strategy permits
the firm to search for the best name for each new product. A new
name permits the building of new excitement and conviction.
2. A blanket family name for all products: The advantage of this is
that the development cost is less because there is no need for ‘name’
research or heavy ads expenditures to create brand name recognition.
Sales of the new product are likely to be strong if the manufacturer’s
name is good. Where company produces quite different products, it is
not desirable to use one blanket family name.
3. Separate family name for each product: when products are easily
going the company gives different brand names for all products. E.g.
cigarette and tooth paste. This time, the products of the same company
compete each other under different brand names. The advantage of
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giving the same items different brand names is that a company can get
much shelf space in different retailers shop.
4. Company trade name combined with individual product names:
some manufacturers tie their company name to an individual brand
name for each product. The company name legitimizes, and the
individual name individualizes, the new product.
Brand strategy decision
A company has five choices when it comes to brand strategy. The company
can introduce line extensions (existing brand name extended to new sizes or
flavors in the existing product category), brand extensions (brand names
extended to new product categories), multi brands (new brand names
introduced in the same product category), new brands (new brand name for a
new category product), and co-brands (brand bearing two or more well-
known brand names.
Line Extension: Line extensions consist of introducing additional items in

the same product category under the same brand name. The advantage of
line extension is that they have a much higher chance of survival than to
brand new products. The disadvantage is that the brand name may lose its
specific meaning. They also may be fueled by fierce competition in the
market.
Brand extensions: A company may use its existing brand name to launch its
new products in other categories. E.g. Honda uses its company name to
cover such different products as automobiles, motorcycles, snow blowers,
lawn movers and so on. The advantage of brand extension is that they have
much higher chances of survival. The risk is that the new product may
disappoint buyers and damage their respect for the company’s other
products. The brand name may lose its special positioning in the consumer’s
mind through overextension. A brand is stronger the more narrow its focus.
Multi brands: A company will often introduce additional brands in the same
product category. Some times the company is trying to establish different
features of appeal to different buying motives. The advantage is that a multi
branding strategy enables the company to lock up more distributors’ shelf
space and protect its major brand by setting up flanker brands. A major
pitfall in introducing multibrand entries is that each might obtain a small
market share and none may be particularly profitable.
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New brands: When the company launches products in a new product

category, it may find that none of its current brand names are appropriate.
Hence it offers new brand names to new products.
Co-brands: Cobaranding is also called dual branding. In cobranding one or
two known brands are combined in an offer to strengthen preference or
purchase intention.
PACKAGING AND LABELING DECISIONS
Packaging is concerned with creating and developing the container to keep

the product. We define packaging as the activity of designing and producing
the container or wrapper. The packaging may include three levels:
1. Primary package: is the product’s immediate container.
2. Secondary package: refers to materials that protects the primary
package and which is discarded when the product is consumed or
used.
3. Shipping package: refers to packaging necessary for storage,
identification, or transportation.
Packaging has become a patent marketing tool. Well-designed packages can
create convenience and promotional value. Various factors have contributed
for development of packaging use:
1. Self-service: A well-packaged products are sold on a self-service
basis.
2. Consumer affluence: Rising consumer affluence means consumers
are willing to pay a little more for the convenience, appearance,
dependability, and prestige of better packages.
3. Company and brand image: Package contributes to instant
recognition of a company or brand.
4. Innovation opportunity: Innovative packaging can bring large
benefits to consumers and profits to producers.
Labeling: Labeling is a part of packaging and consists of printed

information that describes the product, appearing on or within the package.
Labeling is a subset of packaging that can be used for promotional,
informational, and legal purposes. The label might convey only the brand
name or a great deal information. Various regulatory agents require that
the product be labeled or marked with warnings, instructions,
certifications, nutritional information, and the manufacturer
identification. Labels can have several functions like identifying the
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product, grading the product, describing the product, and promoting the
product.
THE NEW PRODUCT DEVELOPMENT PROCESS
One of the major challenges in marketing planning is to develop ideas for

new products and to launch them successfully. The company will have to
find replacements for its products that have entered the declining stage.
There is the product need in the market- which means the customers want a
new product. There is demand for new product from customers. If the
company does not supply them in required time, the competitors will do
their best to supply them. That does mean the loss of one’s market share. The
new product planning gap can be filled in two ways:
1. Acquisition, or
2. New product development.
The acquisition route can take three forms:
1. The company can buy other companies.
2. The company can acquire patents from other companies.
3. The company can buy a license or franchise from another company.
The new product dev’t route can take two basic forms:
1. The company can develop new products in its own laboratories (in its
own research department).
2. Or it can contract with independent researchers or new-product-dev’t
firms to dev’p specific new products.
There are six categories of new products:
1. New – to –the-world products: New products that create an entirely
new market.
2. New product lines: New products that allow a company to enter an
established market for the first time.
3. Additions to existing product lines: new products that supplement a
company’s established product lines.
4. Improvements and revision of existing products: New products that
provide improved performance or greater perceived value and replace
existing products.
5. Cost reductions: New products that provide similar performance at
lower cost.
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Challenges in new product dev’ts.
Companies that fail to dev’p new products are putting themselves at greater
risk. Their existing products are vulnerable to changing customer needs and
tastes, new technologies, shortened product life cycles, and increased
domestic and foreign competition.
At the same time new product dev’t is risk because new products continue to
fail at disturbing rate. Why do new products fail?
 Higher level executive pushes a favorite idea through in spite of
negative market research findings.
 The idea is good but the market size is overestimated.
 The product is not well-designed.
 The product is incorrectly positioned in the market, not advertised
effectively, or overpriced.
 Dev’t costs are higher than expected.
 Competitors fight back harder than expected.
In addition, several other factors hinder new-product dev’t.
 Shortage of important ideas in certain areas.
 Fragmented markets: smaller markets mean small sales and profits for
each product and it is not attractive.
 Social and governmental constraints: New products have to satisfy
consumer safety and environmental concern.
 Costliness of the dev’t process: if the idea requires high dev’t cost.
 Capital shortages: Some companies with good ideas may lack
research and dev’t fund and can not launch them.
 Faster required dev’t time: companies that can not dev’p new products
quickly will be at a disadvantage.
 Shorter product life cycles: When new products are successful, rivals
are quick to copy them.
The stages of new product development.
1. Idea generation
2. Idea screening
3. concept dev’t and testing
4. marketing strategy dev’t
5. Business analysis
6. Product dev’t physically
7. market testing
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8. Commercialization.
1. Idea Generation
The new product dev’t starts with search for ideas. The company may
encourage more and more product ideas so that more people may come up
with new ideas of product dev’t. New product idea may come from several
sources. The sources may be categorized into two: internal and external
sources.
Internal sources: this source includes executives, employees, scientists,
sales persons, top management, etc.
External sources: Include customers, distributors, dealers, competitors, and
other institutions.
Apart from this some organizations use idea generation techniques
/creativity such as Brain Storming. This group may range from 6-10. They
flow the new ideas for the company.
2. Idea Screening: The purpose of idea generation is to create large number

of ideas. Not all ideas are used in new product dev’t. The purpose of idea
screening is to reduce the number of ideas. Hence the first idea pruning stage
is screening. In screening stage two types of errors must be avoided. They
are:
1. Drop Error: is an error which occurs when the company dismisses
good idea. If the company makes so many drop errors, its standard is too
conservative.
2. A go-error: is an error which occurs when company permits a poor
idea to move into dev’t and commercialization. We can distinguish three
types of product failures:
a) An absolute product failure: loses money, sales do not cover variable
costs.
b) Partial product failure: loses money, but sales cover variable costs.
c) Relative product failure: profit is less than targeted rate of return.
So, the purpose of screening is to drop poor ideas as early as possible.
3. Concept dev’t and testing: At this stage, surviving idea must now be
developed into product concepts. It is important to distinguish the product
idea, a product concept, and a product image.
A product idea is a possible product that a company can offer to the market.
A product concept: is an elaborated version of the idea expressed in
meaningful consumer terms.
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The product image: is the particular picture that consumer acquires of an

actual or potential product.
Product concepts dev’t follows after a clear understanding of the above.
The dev’d Product concepts will be tested on a sample of target consumers
using prototypes of new products. The sample group of target customers is
asked questions related to their understanding and belief of the concept, the
extent to which new product will satisfy customer needs and problems, the
use situation, price in relation to the perceived value, purchase intentions and
so on.
4. Marketing strategy dev’t: After concept dev’t and testing, the new
product manager must dev’p a preliminary marketing strategy plan for
introducing the new product into the market.
The marketing strategy plan consists of three parts:
The first part describes the target market’s size, structure and behavior; the
planned product positioning; and the sales, the market share, and profit goals
sought in the first few years.
The second part of the marketing strategy outlines the product’s planned
price, distribution strategy, and marketing budget for the first year.
The third part of the marketing strategy plan describes the long-run sales
and profit goals and marketing mix strategy over time.
Marketing strategy formulation
First part Second part Third part

Target Likely Sales mkt II III
market positioni share, Planne Distn Mkg
ng Profit d price strategy budget
Margin
For 5 yrs.
Long run Profit goals

Sales
(Goals)
Long run Long run

mkg objectives
strategy
95
5. Business Analysis
After management develops the product concept and marketing

strategy, it can evaluate the proposals’ attractiveness. Management
needs to prepare sales, cost, and profit projections to determine
whether they can satisfy the company’s objectives.
6. Product development: This stage is the actual product development
stage. If the product concept passes the business test, it moves to R&D
and/ or engineering to be developed into physical product. Up to this
point of time, it has existed only as a word description, a drawing or a
prototype. Prototype product is physical product that is manufactured
as per the idea of new product to test it in the market. It is to get feed
back about the reaction of consumers, dealers, competitors, and so on.
If the image on the new product is good, then the next step is to
launch the product as per to the plan. At this stage, the company will
determine whether the product idea will be translated into a
technically and commercially feasible product.
7. Market testing:
After management is satisfied with the product’s functional and

psychological performance, the product is ready to be dressed up with a
brand name, packaging and preliminary marketing program. The goals
are to test the new product in some authentic consumer settings and to
learn how large the market is and how consumers and dealers react to
handling, using and repurchasing the actual product. Market testing
yields valuable information about buyers, dealers, marketing program
effectiveness, market potentials and other related matters. Market testing
is the stage where the product and marketing program are introduced into
more realistic market settings.
8. Commercialization (launching):
Market testing presumably gives management enough information to

make a final decision about whether to launch the new product. If the
decision is to commercialize the new product, the manufacturer should
take into consideration those aspects such as when (timing), where
(geographical strategy), to whom (target market prospects), and how
(introductory market strategy).
96
CHPTER SEVEN
7.1 PRICING
Read this chapter and take your own notes and acquaint yourself with the
pricing know how.
WISH YOU ALL THE BEST!!!!
97

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Prepared by Dr.

Brehanu Borji Ayalew (Associate Professor in Marketing Management )

Before we directly embark upon the discussion of basic concepts of

and wants of their consumers/ customers in their respective countries as well

1.1 Basic Concepts and Definitions of Marketing

A managerial definition of marketing is that “Marketing is a process of

1.2 The core concepts of Marketing

Marketing is a social and managerial process by which individuals and

2. Products (goods, services and ideas)

3. Value, Cost and Satisfaction.

Value = Benefits = functional benefits + emotional benefits

4. Exchange and transaction

Exchange is usually described as a value creating process b/c exchange normally

Transaction, however, does not require only money as a means or medium of

5. Relationships and Networks

modern exchange markets. Accordingly, the manufacturers go to resource markets

7. Marketers and prospects:

A Marketer is someone seeking one or more prospects who might engage in an

It is useful to focus on some of this definition’s components in order to fully

The expanded definition is “ marketing is the process of planning and executing

The scope of marketing

 Events- are happenings or usually something important. Marketers must

Marketing Demands and tasks

There are eight different states of demands and the corresponding

 Over-full demand- Some organizations face a demand level that is

1.4 Different philosophies of marketing management

They are as follow:

1. The production concept: This is one of the oldest concepts in

Product oriented company’s often design their products with little or no

consumers typically show buying inertia or resistance and therefore must

Nevertheless, marketing based on hard selling carries high risks. It

4. The marketing concept: The marketing concept holds that achieving

In addition more attention given to consumers, companies have also

more appealing to customers. In other words, they produce tailored

There are, basically, two ways to establish a competitive advantage:

- Starting Focus Means Ends

5.The Societal marketing concept: The Societal marketing concept holds

Marketing information system

What is marketing information system? Marketing information system (MIS)

Marketing information system diagram

Internal Records system

The most basic functional system used by marketing management is internal

The order-to-payment cycle

Today’s companies need to perform these steps quickly and accurately.

Sales Reporting system

Marketing managers need up-to-date reports of their current sales.

Marketing intelligence system/ Not to be discussed here/

What is marketing intelligence system? A marketing intelligence system is

A well-run company takes four steps to improve the quality and

Some companies even appoint specialists to gather marketing

3. The company purchases information from outsiders such as the research

Marketing Research System

Marketing managers often commission marketing research, formal studies of specific

Suppliers of marketing research:

Marketing Research firms fall into three categories:

3. Specialty-line marketing research firms: These firms provide specialized

The marketing research process

1. Define the problem and research objective.

researchers typically have an expectation about the r/ship to be

As far as the type of research is concerned, it can be basic/ pure research or