NMIMS GLOBAL ACCESS SCHOOL FOR CONTINUING EDUCATION

MARKETING MANAGEMENT

Answer Key
Multiple Choice Questions
1. A
2. C
3. B
4. D
5. C
6. B
7. B
8. D
9. C
10. B
11. B
12. C
13. D
14. D
15. B
16. D
17. B
18. C
19. A
20. D
21. D
22. B
23. B
24. D
25. A
26. C
27. D
28. C
29. B
30. A
31. C
32. B
33. D
34. C
35. C
36. A
37. B
38. A
39. C
40. D
41. C
42. D
43. A
44. C
45. B
46. C
47. B
48. A
49. A
50. A
51. C
52. D
53. D
54. D
55. B
56. D
57. A
58. B
59. C
60. A
61. B
62. D
63. C
64. B
65. A
66. B
67. A
68. C
69. D
70. A
71. B
72. C
73. A
74. A
75. A
76. B
77. C
78. D
79. A
80. A
 81. A
82. A
83. A
84. C
85. A
86. B
87. D
88. A
89. B
90. C

Answer Key
Descriptive
1. NEEDS, WANTS AND DEMAND
NEEDS
Human needs are states of felt deprivation. Needs are the basic requirements of human
being, without these basic requirements like food, cloths and shelter no one can live life
in this world. The extended form of needs are health and education which for sure every
on basic need in today’s world but they come after food, cloths and shelter. Marketers
play no role in creating needs, they are natural default requirements of every human
being. Organization already know the needs there is no requirement for any research
work to develop product which covers the needs of human beings.
WANTS
Wants are the form human needs take as they are shaped by culture and individual
personality. Wants are marketed by marketers in such a way that everyone feels these
wants should be mandatory part of life. We can take the examples of telephone,
Internet, different variety of foods and clothing these all come under umbrella of human
wants.
For Example, any person can eat food to feed himself, but he wants to eat fast food,
fried rice and Chinese food. Cloths are required for a person to cover himself but we can
see people wearing jeans, suit just because of culture influence.
DEMANDS
Demand is want backed by buying power, human beings have unlimited wants but
resource are limited in the world. It’s not possible that each human being get the desire
things in the world. Wants are wishes of human, buying power will convert these wants
to demand.
 For Example, willingness to buy BMW is want but if you have the buying power then it
becomes demand.

2. EVOLUTION OF MARKETING

The five marketing concepts are:

 Production concept
 Product
 Selling concept
 Marketing concept
 Societal marketing concept

The production concept

When the production concept was defined, a production oriented business dominated the
market. This was from the beginning of capitalism to the mid 1950’s.
During the era of the production concept, businesses were concerned primarily with
production, manufacturing, and efficiency issues.Companies that use the production concept
have the belief that customers primarily want products that are affordable and accessible.
The production concept is based on the approach that a company can increase supply as it
decreases its costs.Moreover, the production concept highlights that a business can lower costs
via mass production.
A company oriented towards production believes in economies of scale (decreased production
cost per unit), wherein mass production can decrease cost and maximize profits. As a whole,
the production concept is oriented towards operations.
The product concept
This concept works on an assumption that customers prefer products of greater quality and
price and availability doesn’t influence their purchase decision. And so company develops a
product of greater quality which usually turns out to be expensive.
One of the best modern examples would be IT companies, who are always improving and
updating their products, to differentiate themselves from the competition.Since the main focus
of the marketers is the product quality, they often lose or fail to appeal to customers whose
demands are driven by other factors like price, availability, usability, etc.
The selling concept
Production and product concept both focus on production but selling concept focuses on
making an actual sale of the product. Selling concept focuses on making every possible sale of
the product, regardless of the quality of the product or the need of the customer.
The selling concept highlights that customers would buy a company’s products only if the
company were to sell these products aggressively.This philosophy doesn’t include building
relations with the customers. This means that repeated sales are rare, and customer
satisfaction is not great.
The marketing concept
A company that believes in the marketing concept places the consumer at the center of the
organization. All activities are geared towards the consumer.A business,aims to understand the
needs and wants of a customer. It executes the marketing strategy according to market
research beginning from product conception to sales.
By focusing on the needs and wants of a target market, a company can deliver more value than
its competitors. The marketing concept emphasizes the “pull” strategy". This means that a
brand is so strong that customers would always prefer your brand to others’.
The societal marketing concept
This is a relatively new marketing concept. While the societal marketing concept highlights the
needs and wants of a target market and the delivery of better value than its competitors, it also
emphasizes the importance of the well-being of customers and society as a whole (consumer
welfare or societal welfare).
The societal marketing concept calls upon marketers to build social and ethical considerations
into their marketing practices. They must balance and juggle the often conflicting criteria of
company profits, consumer want satisfaction, and public interest.
Conclusion
The five marketing concepts are a good example of how marketing has changed throughout the
years. It has shifted its focus from products to users. Modern companies have to put users first,
and build not only a good product (or service), but also a good experience around it.
3. MARKETING ENVIRONMENT
Definition: The Marketing Environment includes the Internal factors (employees, customers,
shareholders, retailers & distributors, etc.) and the External factors (political, legal, social,
technological, economic) that surround the business and influence its marketing operations.
Some of these factors are controllable while some are uncontrollable and require business
operations to change accordingly. Firms must be well aware of its marketing environment in
which it is operating to overcome the negative impact the environment factors are imposing on
firm’s marketing activities.
The marketing environment can be broadly classified into three parts:

 Internal Environment – The Internal Marketing Environment includes all the factors that
are within the organization and affects the overall business operations. These factors
include labor, inventory, company policy, logistics, budget, capital assets, etc. which are
a part of the organization and affects the marketing decision and its relationship with
the customers. These factors can be controlled by the firm and include the following:
 Top Management
 Finance
 R&D
 Manufacturing
 Purchasing
 Sales Promotion
 Advertisement etc.
 Microenvironment- The Micro Marketing Environment includes all those factors that
are closely associated with the operations of the business and influences its functioning.
The microenvironment factors include customers, employees, suppliers, retailers &
distributors, shareholders, Competitors, Government and General Public. These factors
are controllable to some extent. These factors are further elaborated:

 Company’s Suppliers: Suppliers provide the resources needed by the company

to product its goods and services. They are important links in the company’s
overall customer “value delivery system”. Supplier developments can seriously
affect marketing. Marketing managers must watch supply availability – supply
shortages or delays, labour strikes and other events can cost sales in the short
run and damage customer satisfaction in the long run. Marketing Managers also
 monitor the price trends of their key inputs. Rising supply costs may force price
increases that can harm the company’s sales volume.

In business-to-business marketing, one company’s supplier is likely to be another

company’s customer and it is important to understand how suppliers, manufacturers
and intermediaries work together to create value. Buyers and sellers are increasingly co-
operating in their dealings with each other, rather than bargaining each transaction in a
confrontational manner in order to make supply chain management most effective and
value-added products are sold to the target markets.

 Marketing Intermediaries: Intermediaries or distribution channel members

often provide a valuable link between an organisation and its customers. Large-
scale manufacturing firms usually find it difficult to deal with each one of their
final customers individually in the target markets. So they chose intermediaries
to sell their products.
Marketing intermediaries include resellers, physical distribution firms, marketing
service agencies, and financial intermediaries. They help the company to promote,
sell, and distribute its goods to final buyers. Resellers are distribution channel firms
that help the company to find customers for goods. These include whole-sellers and
retailers who buy and resell merchandise. Selecting and working with resellers is not
easy. These organisations frequently have enough power to dictate terms or even
shut the manufacturer out of large markets.

 Physical distribution: Firms help the company to stock and move goods from
their points of origin to their destinations. Working with warehouse and
transportation firms, a company must determine the best ways to store and ship
goods, and safety marketing services agencies are the marketing research firms,
advertising agencies, media firms, and marketing consulting firms that help the
company target and promote its products to the right markets.

When the company decides to use one of these agencies, it must choose carefully
because those firms vary in creativity, quality, service and price. Financial
intermediaries include banks, credit companies, insurance companies, and other
businesses that help finance transactions or insure against the risks associated with
the buying and selling of goods. Most firms and customers depend on financial
intermediaries to finance their transactions.

 Customers: Consumer markets consists of individuals and households that they

buy goods and services for personal consumption. Business markets buy goods
 and services for further processing or for use in their production process,
whereas reseller markets buy goods and services to resell at a profit.

Government markets are made up of government agencies that buy goods and services
to produce public services or transfer the goods and services to others who need them.
Finally, international markets consist of the buyers in other countries, including
consumers, producers, resellers and governments. Each market type has special
characteristics that call for careful study by the seller.

 Competitors: No single competitive marketing strategy is best for all companies.

The company’s marketing system is surrounded and affected by a host of
competitors. Each firm should consider its own size and industry position
compared to those of its competitors. These competitors have to be identified,
monitored and out maneuvered to gain and maintain customer loyalty.

Industry and competition constitute a major component of the micro-environment.

Development of marketing plans and strategy is based on knowledge about
competitors’ activities. Competitive advantage also depends on understanding the
status, strength and weakness of competitors in the market. Large firms with dominant
positions in an industry can use certain strategies that smaller firms cannot afford. But
being large is not enough. There are winning strategies for large firms, but there are also
losing ones. And small firms can develop strategies that give them better rate of return
than large firms enjoy.

 Public: General public do take interest in the business undertaking. The company
has a duty to satisfy the people at large along with competitors and the
consumers. A public is defined as “any group that has an actual or potential
interest in or impact on a company’s ability to achieve its objectives. Public
relations is certainly a broad marketing operation which must be fully taken care
of Goodwill, favourable reactions, donations and hidden potential fixture buyers
are a few of the responses which a company expects from the public. Kotler in
this regard has viewed that “companies must put their primary energy into
effectively managing their relationships with their customers, distributors, and
the suppliers, their overall success will be affected by how other publics in the
society view their activity. Companies would be wise to spend time monitoring
all their publics understanding their needs and opinions and dealing with them
constructively”. Every company is surrounded by seven types of public, as shown
below:

1. Financial—banks, stock-brokers, financial institutions.

 2. Media—Newspaper, magazines, TV.
3. Government—Government departments.

4. Citizen—Consumer Organisations; environment groups.

5. Local—neighbourhood residents, community groups.
6. General—General Public, public opinions.
7. Internal—Workers, officers, Board of Directors.

 Macro Environment- The Macro Marketing Environment includes all those factors that
exist outside the organization and can not be controlled. These factors majorly include
Social, Economic, Technological Forces, Political and Legal Influences. These are also
called as PESTLE framework. The components of a macro-environment are:

 Demographic Environment
 Economic Environment
 Physical Environment
 Technological Environment
 Political Environment
 Legal Environment
 Social and Cultural Environment
 Demographic Environment: Demography is the study of population
characteristics that are used to describe consumers. Demographics tell
marketers who are the current and potential customers, where are they, how
many are likely to buy and what the market is selling. Demography is the study
of human populations in terms of size, density, location, age, sex, race,
occupation and other statistics.
Marketers are keenly interested in studying the demography ethnic mix, educational level and
standard of living of different cities, regions and nations because changes in demographic
characteristics have a bearing on the way people live, spend their money and consume.
For example, one of the demographic characteristic is the size of family. With the number of
small families increasing in India, the demand for smaller houses and household items has
increased significantly. Similarly, the number of children in a family has reduced significantly
over the years. So, per child spending in a family has increased significantly.
According to the World Health Organisation, young people in the age group of 10-24 years
comprise 33% of the population and 42% of our population consists of age group, 0-24 years.
Teen-agers in the age group below 19 years comprise 23%. The senior citizen age group above
65 years comprise only 8% of total population. About 58% of the working population is engaged
in agricultural activities, with highest, that is 78% in Bihar and Chattisgarh and lowest 22% in
Kerala.
Since human population consists of different kinds of people with different tastes and
preferences, they cannot be satisfied with any one of the products. Moreover they need to be
divided in homogeneous groups with similar wants and demands. For this we need to
understand the demographic variables which are traditionally used by marketers, to segment
the markets.
(a) Income: Income determines purchasing power and status. Higher the income, higher is
the purchasing power. Though education and occupation shapes one’s tastes and
preferences, income provides the means to acquire that.
(b) Life-style: It is the pattern of living expressed through their activities, interests and
opinion. Life-style is affected by other factors of demography as well. Life-style affects a
lot on the purchase decision and brand preferences.
(c) Sex: Gender has always remained a very important factor for distinction. There are
many companies which produce products and services separately for male and female.
(d) Education: Education implies the status. Education also determines the income and
occupation. With increase in education, the information is wider with the customers and
hence their purchase decision process is also different. So the marketers group people
on the basis of education.
(e) Social Class: It is defined as the hierarchical division of the society into relatively distinct
and homogeneous groups whose members have similar attitudes, values and lifestyle.
(f) Occupation: This is very strongly associated with income and education. The type of
work one does and the tastes of individuals influence one’s values, life-style etc. Media
preferences, hobbies and shopping patterns are also influenced by occupational class.
(g) Age: Demographic variables help in distinguishing buyers, that is, people having
homogenous needs according to their specific wants, preferences and usages. For
instance, teenagers usually have similar needs. Therefore, marketers develop products
to target specific age groups. The youth are being targeted through advertisements and
promotional campaigns, stores are being designed with ‘youthful’ features, youth
events are being sponsored, and even new technology is developed with their tastes in
mind. The age groups that attract the attention of marketers can be classified as:

(i) Infants: The population of India is growing at an alarming rate. The rate of
infant deaths has declined considerably due to the advancement in medicine.
Although infants are consumers of products, their parents are the decision
makers. The size of a family is decreasing and the average income of family is
increasing.
(ii) School going teens: In this segment, there is a great demand for school
uniforms, bags, shoes, books, stationary, confectioneries, food, albums, bicycles
and other similar products.
 (iii) Young Adults: Marketers target the young adults in the age group 18-30
years with products like motorbikes, music systems, clothes, sports cars etc.
Two-wheeler manufacturers in India target this segment of people. In the last
five years, various companies like, Bajaj, Hero-Honda, Kinetic, TVS etc. have
introduced a large number of models to attract young adults.
(iv) Adults (35-45): Consumers, in this age group, are more health conscious and
look for stability and financial independence. The industries that are benefited
by them are: Pharmaceuticals, personal products, fitness products, gym
equipment’s, cars, home appliances, consumer durables, banks, insurance
companies, etc. Marketers push products specifically designed for this age
group.
(v) Senior Citizens: This consumer group boosts the demand for health care
services, select skin care products, financial planning etc.
(vi) Women: Women constitute nearly 50% of India’s population. They are
actively taking up professions. This shift in their role has generated a greater
demand for childcare and convenience products that save time in cooking,
cleaning and shopping.
Marketers are trying to come up with products that are easier to handle, less
heavy, convenient to use etc. The change in the role of women is paving the way
for a change in the role of men. Advertisements portray men cleaning, cooking
and caring for their children, which was unthinkable in the past.

 Economic Environment: Economic environment is the most significant

component of the marketing environment. It affects the success of a business
organisation as well as its survival. The economic policy of the Government,
needless to say, has a very great impact on business. Some categories of
business are favourably affected by the Government policy, some adversely
affected while some others remain unaffected. The economic system is a very
important determinant of the scope of private business and is therefore a very
important external constraint on business.

The economical environmental forces can be studied under the following categories:
(i) General Economic Conditions: General Economic Conditions in a country are
influenced by various factors. They are:
1. Agricultural trends
2. Industrial output trends
 3. Per capita income trends
4. Pattern of income distribution
5. Pattern of savings and expenditures
6. Price levels
7. Employment trends
8. Impact of Government policy
9. Economic systems.

(ii) Industrial Conditions: Economic environment of a country is influenced by the

prevalent industrial conditions as well as industrial policies of a country. A marketer
needs to pay attention to the following aspects:
1. Market growth
2. Demand patterns of the industry
3. Its stage in product life cycle.

(iii) Supply sources for production: Supply sources required for production determines
inputs which are available required for production. They are:
1. Land
2. Labour
3. Capital
4. Machinery and equipment etc.
Economic environment describes the overall economic situation in a country and helps in
analysis GNP per capita rate of economic growth, inflation rate, unemployment problems etc.

 Physical Environment: The physical environment or natural environment

involves the natural resources that are needed as inputs by marketers or those
that are affected by marketing activities. Environmental concerns have grown
steadily in recent years. Marketers should be aware of trends like shortages of
raw materials, increased pollution, and increased governmental intervention in
natural resources management. Companies will have to understand their
environmental responsibility and commit themselves to the ‘green movement’.
Potential shortages of certain raw materials, for examples, oil, coal, minerals, unstable cost of
energy, increased levels of pollution; changing role of Government in environment protection
are a few of the dangers the world is facing on physical environment forces. Other aspects of
the natural environment which may increasingly affect marketing include the availability and
cost of raw materials, energy and other resources, particularly if those resources and energy
come from non-renewable sources.
 Technological Environment: The technological environment is the most dramatic
force now facing our destiny. Technological discoveries and developments create
opportunities and threats in the market. The marketer should watch the trends
in technology. The biggest impact that the society has been undergoing in the
last few years is the technological advancement, product changes and its effects
on consumers.
Technology has brought innumerable changes in human lives, be it in the field of science,
medicine, entertainment, communication, and travel or office equipment. Name any field, and
one can see changes in product or efficiency and faster services.
One of the most dramatic forces shaping people’s lives in technology. Technology has released
such wonders as penicillin, open-heart surgery and birth control pill. It has released such
horrors as the hydrogen bomb, nerve gas, and the sub-machine gun. Every new technology is a
force for “creative destruction”. Transistors hurt the vacuum tube industry, xerography hurt the
carbon paper business, autos hurt the railroads, and television hurt the newspapers.
Instead of moving into the new technologies, many old industries fought or ignored them and
their business declined. Yet it is the essence of market capitalism to be dynamic and tolerate
the creative destructiveness of technology as the price of progress.
Technology essentially refers to our level of knowledge about ‘how things are done’. That is
understanding this aspect of the marketing environment is much more than simply being
familiar with the latest hi-tech innovations. Technology affects not only the type of products
available but also the ways in which people organize their lives and the ways in which goods
and services can be marketed.
Computer-aided design (CAD) and computer-aided manufacturer (CAM) have shortened the
time required for new products to reach the market and increased the variety of products that
can be produced cost effectively. The benefits of CAD/CAM are clearly evident in the car
industry. Mass production is in standardized models. Computer systems have also contributed
substantially to the growth of various forms of direct marketing such as direct mail, direct
response marketing etc.
 Political Environment: The political environment consists of factors related to
the management of public affairs and their impact on the business of an
organisation. Political environment has a close relationship with the economic
 system and the economic policy. Some Governments specify certain standards
for the products including packaging.
Some other Governments prohibit the marketing of certain products. In most nations,
promotional activities are subject to various types of controls. India is a democratic country
having a stable political system where the Government plays an active role as a planner,
promoter and regulator of economic activity.
Businessmen, therefore, are conscious of the political environment that their organisation face.
Most Governmental decisions related to business are based on political considerations in line
with the political philosophy following by the ruling party at the Centre and the State level.
Substantial number of laws have been enacted to regulate business and marketing to protect
companies from each other, to protect consumers from unfair trade practices, to protect the
larger interests of society against unbridled business behaviour. Changing Government agency
enforcement and growth of public interest groups also bring in threats and challenges.
 Legal Environment: Marketing decisions are strongly affected by laws pertaining
to competition, price-setting, distribution arrangement, advertising etc. It is
necessary for a marketer to understand the legal environment of the country
and the jurisdiction of its courts. The following laws affected business in India:
1. Indian Contract Act 1872
2. Factories Act 1948
3. Minimum Wages Act 1948
4. Essential Commodities Act 1955
5. Securities Contracts Regulation Act 1956 (SEBI Act)
6. The Companies Act 1956
7. Trade and Merchandise Act 1958
8. Monopolies and Restrictive Trade Practice Act 1969
9. The water (Prevention and Control of Pollution) Act 1974
10. The Air (Prevention and Control of Pollution) Act 1981
11. Sick Industrial Companies (Special Provisions) Act 1985
12. Environment Protection Act 1986
13. Consumer Protection Act 1986
14. Securities and Exchange Board of India Act 1992
15. Different Taxation Laws.
  Social and Cultural Environment:
Socio-cultural forces refer to the attitudes, beliefs, norms, values, lifestyles of individuals in a
society. These forces can change the market dynamics and marketers can face both
opportunities and threats from them. Some of the important factors and influences operating
in the social environment are the buying and consumption habits of people, their languages,
beliefs and values, customs and traditions, tastes and preferences, education and all factors
that affect the business.
Understanding consumer needs is central to any marketing activity and those needs will often
be heavily influenced by social and cultural factors. These cover a range of values, beliefs,
attitudes and customs which characterize societies or social groups. Changes in lifestyle of
people affect the marketing environment.
As health problems in people have increased because of significant changes in their lifestyle,
they have become concerned about their food. They prefer to eat low fat, low or no cholesterol
food. This is specially true for people above 40 years. To a great extent, social forces determine
what customers buy, how they buy, where they buy, when they buy, and how they use the
products.
In India, social environment is continuously changing. One of the most profound social changes
in recent years is the large number of women entering the job market. They have also created
or greatly expended the demand for a wide range of products and services necessitated by
their absence from the home. There is a lot of change in quality-of-lifestyles and people are
willing to have many durable consumer goods like TV., fridge, washing machines etc. even
when they cannot afford them because of their availability on hire-purchase or instalment
basis.
Culture influences every aspect of marketing. Marketing decisions are based on recognition of
needs and wants of the customer, a function of customer perceptions. These help in
understanding of lifestyles and behaviour patterns as they have grown in the society’s culture in
which the individual has been groomed. Thus, a person’s perspective is generated, groomed
and conditioned by culture.
4. CONSUMER BUYING BEHAVIOUR

 Complex Buying Behaviour: Customers go through complex buying behaviour when he\
she is highly involved in the purchase process and know the significant differences
between different brands. Consumers showcase complex behaviour pattern when they
are purchasing an expensive, infrequently bought and risky product. Such a customer
does not know much about the product but needs to learn a lot before investing.
 Dissonance-Reducing Buying Behaviour: Occasionally the consumer is highly, involved in
a purchase but he\she sees very little difference in the brands. The high involvement
shown is due to the kind of product which can be expensive, infrequent, or risky. But in
this case since the brand differences are not pronounced the buyer would buy fairly
quickly.

 Habitual Buying Behaviour: Consumers who showcase the habitual buying behaviour
have very little involvement in the product or brand category. They simply go to the
store and reach for their preferred brand. Since they keep reaching for the same brand,
this shows a habitual pattern, and not strong brand loyalty.

 Variety-Seeking Buying Behaviour: Some buying conditions are categorized by very low
consumer involvement, but see noteworthy brand differences. In this category of
buyers, it has been often observed that they switch a lot of brands. Consumer might
choose a brand for some set of beliefs, but without making much evaluation, once they
use the product they tend to evaluate it and when the next time they go out to buy the
product they would reach for some other brand out of boredom or even for a wish for
different taste. Here brand switching occurs for the sake of variety and not for
dissatisfaction.

5. BUYER’S DECISION-MAKING PROCESS

Consumers go through 5 stages in taking the decision to purchase any goods or services.

a) Problem Recognition.
b) Information Search.
c) Evaluation of Alternatives.
d) Purchase Decision.
e) Post-Purchase Evaluation.
 a) Need or Problem Recognition : During need or problem recognition, the
consumer recognizes a problem or need that could be satisfied by a product
or service in the market. Problem Recognition is the first stage of the buyer
decision process. At this stage, the consumer recognizes a need or problem.
The buyer feels a difference between his or her actual state and some
desired state.
This could be a simple as “I’m hungry, I need food.” The need may have been triggered by
internal stimuli (such as hunger or thirst) or external stimuli (such as advertising or word of
mouth).
b) Information Search: Once the need is recognized, the consumer is aroused
to seek more information and moves into the information search stage. The
second stage of the purchasing process is searching for information. After the
recognition of needs, the consumers try to find goods for satisfying such
needs. They search for information about the goods they want. Consumers
can get information about goods from different sources.
 Personal sources: This includes family, friends, neighbors, acquaintance, etc.
 Commercial source: This includes advertising, salespeople, dealers, packaging, display,
etc.
 Public sources: This includes mass media, consumer rating organizations, etc. they also
become confidential to provide information.
 Experimental sources: This includes handling, examining, using, etc. Such information
becomes decisive and confidential.
c) Evaluation of Alternatives: With the information in hand, the consumer
proceeds to alternative evaluation, during which the information is used to
evaluate” brands in the choice set. Evaluation of alternatives is the third
stage of the buying process. Various points of information collected from
different sources are used in evaluating different alternatives and their
attractiveness. While evaluating goods and services, different consumers use
different bases. Generally, the consumers evaluate the alternatives on the
basis of attributes of the product, the degree of importance, belief in the
brand, satisfaction, etc. to choose correctly.
d) Purchase Decision: After the alternatives have been evaluated, consumers
take the decision to purchase products and services. They decide to buy the
best brand. But their decision is influenced by others’ attitudes and
situational factors.

e) Post-Purchase Evaluation: In the final stage of the buyer decision process,

post purchase behavior, the consumer takes action based on satisfaction or
dissatisfaction. In this stage, the consumer determines if they are satisfied or
 dissatisfied with the purchasing outcome. Here is where cognitive dissonance
occurs, “Did I make the right decision.”

Stages of Consumer Adoption process for a new product

The adoption process is the mental process through which an individual passes first hearing
about an innovation to final adoption.
A new product is a good, service or idea that is perceived by some potential customers as new.
And we define the adoption process as the mental process through which an individual passes
from first learning about an innovation to final adoption.Consumers go through 5 stages in the
process of adopting a new product.
(a) Product Awareness.
(b) Product Interest.
(c) Product Evaluation.
(d) Product Trial.
(e) Product Adoption.

(a) Product Awareness: The consumer becomes aware of the new product but lacks
information about it. Initially, the consumer must become aware of the new
product. Awareness leads to interest and the customer seeks information about
the new product.
(b) Product Interest: The consumer seeks information about the new product. Once
information has been gathered, the consumer enters the evaluation stage and
considers buying the new product.
(c) Product Evaluation: Next, in the trial stage, the consumer tries the product on a
small scale to improve his or her estimate of its value. The consumer considers
whether trying the new product makes sense.
(d) Product Trial: The consumer tries the new product on a small scale to improve
his or her estimate of its value. If the consumer is satisfied with the product, he
or she enters the adoption stage, deciding to use the new product fully and
regularly.
(e) Product Adoption: The consumer decides to make full and regular use of the new
product. The new product is a good, service or idea that is perceived by some
potential customer as new. Now we discuss the buyer decision process for new
products.

6. PARTICIPANTS IN BUSINESS BUYING PROCESS

 On an average a buying center of an organisation has the following seven members or a
group of members who play these roles:
 Initiators: Usually the need for a product/item and in turn a supplier arises from the
users. But there can be occasions when the top management, maintenance or the
engineering department or any such recognise or feel the need. These people who
“initiate” or start the buying process are called initiators.
 Users: Under this category come users of various products. If they are technically sound
like the R&D, engineering who can also communicate well. They play a vital role in the
buying process. They also act as initiators.
 Buyers: They are people who have formal authority to select the supplier and arrange
the purchase terms. They play a very important role in selecting vendors and negotiating
and sometimes help to shape the product specifications. The major roles or
responsibilities of buyers are obtaining proposals or quotes, evaluating them and
selecting the supplier, negotiating the terms and conditions, issuing of purchase orders,
follow up and keeping track of deliveries. Many of these processes are automated now
with the use of computers to save time and money.
 Influencers: Technical personnel, experts and consultants and qualified engineers play
the role of influencers by drawing specifications of products. They are, simply put,
people in the organisation who influence the buying decision. It can also be the top
management when the cost involved is high and benefits long term. Influencers provide
information for strategically evaluating alternatives.
 Deciders: Among the members, the marketing person must be aware of the deciders in
the organisation and try to reach them and maintain contacts with them. The
organisational formal structure might be deceptive and the decision might not even be
taken in the purchasing department. Generally, for routine purchases, the purchase
executive may be the decider. But for high value and technically complex products,
senior executives are the deciders. People who decide on product
requirements/specifications and the suppliers are deciders.
 Approvers: People who authorize the proposed actions of deciders or buyers are
approvers. They could also be personnel from top management or finance department
or the users.
 Gate Keepers: A gatekeeper is like a filter of information. He is the one the marketer has
to pass through before he reaches the decision makers. Understanding the role of the
gatekeeper is critical in the development of industrial marketing strategies and the
salesperson’s approach. They allow only that information favorable to their opinion to
flow to the decision makers. By being closest to the action, purchasing managers or
those persons involved in a buying center may act as gatekeepers. They are the people
whom our industrial marketer would first get in touch with. Hence, it so happens that
information is usually routed through them. They have the power to prevent the sellers
or information from reaching members of the buying center. They could be at any level
and even be the receptionists and telephone operators.
 7. STAGES IN BUSINESS BUYER DECISION PROCESS
Business buying process is quite different from the consumer buying process, because in this
case the business market is involved in different set of characteristics and demands. The
companies doing business in business markets adopt separate marketing strategies.
The business buying process is split into eight stages. The new task buying contains all of these
steps whereas the straight or modified rebuy may skip some of them. These stages are as
follows.
 Problem Recognition
 Description of General Need
 Specification of Product
 Search of Supplier
 Proposal Solicitation
 Selection of Supplier
 Order-Routine Specification
 Performance Review

 Problem Recognition
In the first stage of business buying process, a certain problem is recognized by someone in the
organization, so that it can be solved through the purchase of any new product or service. The
external or internal stimuli result in the creation of such recognized problem. In case of internal
stimuli, the management of the organization may determine to manufacture a new product or
any production machine become damaged that needs certain new parts. Another internal
reason may be that the supplier is not providing effective goods at a fair price. On the other
hand the external elements may be in the form of any new idea of a product at a trade show or
seeing new advertisements or any favorable offering by a sales person etc.

 Description of General Need

This stage starts when a clear need has been identified by the organization. In this step
description about the general need has been prepared which shows general characteristics and
the quantity of the required product. In case of simple items, this process is linear whereas in
case of complex items in the process involves a team of buyer, engineers and other
professionals who work together to agree on the desired product. The significance of reliability,
price, durability and other features are ranked for the desired product or service by the team.
  Specification of the Product
In this stage, the organization that is involved in the business buying process prepares a
detailed list of the technical specifications of the desired product through value analysis
conducted by the engineering team. In value analysis, careful studies are made to determine
the cost reduction production process for the redesigning or standardization of the desired
product or service. The professional team covers the best features and characteristics required
in purchasing the product. The selling organizations can also use this step to increase their
sales.
 Search of Supplier
In this step of the business buying process, the buying organization searches the suppliers in
order to make a purchase with the best one. For this purpose a list of competitive vendors is
prepared by the buying organization through the use of supplier directories, aid of a computer
(internet), or contacting other organization for obtaining of recommended names. The internet
is increasingly becoming a platform for such searching now-a-days as most of the organizations
are entering into this virtual world. In case of buying of new and expensive product, the more
time is consumed in searching of suitable suppliers that can best meet the specifications of the
required product. The suppliers should keep themselves enrolled on the relative directories to
make their good reputation in the market. Moreover the sales person should also target the
supplier searching organizations in the business market.
 Proposal Solicitation
In this stage the suppliers are asked to submit their proposals. In some cases, some suppliers
send only their salespersons or simple catalogs. But when the desired product is expensive and
complex than proper formal presentations and detailed written proposals are required from the
qualified suppliers. The marketers of the business organizations should also be skillful in writing
and presentation of business proposals to the buying organizations.
 Selection of Supplier
At this stage the final supplier is selected from the list of potential suppliers who have
submitted their proposals to the buying organization. The selection team of the buying
organization reviews the proposals of all suppliers and list the offered attributed on the basis of
the rank of importance. Following are some of the main attributes that serve as the basis for
the selection of potential suppliers.

 Quality of product
 Delivery time
 Ethical corporate behavior
 Reasonable price
 Honest communication
  Past performance and reputation
 Repair and maintenance services etc
 Order-Routine Specification
The order-routine specifications are prepared in this step which contains the order having a
final list of the specifications, the selected supplier, delivery time, quantity required, price and
repair and maintenance services etc.
 Performance Review
This is the last stage of the business buying process in which the performance of the supplier is
reviewed by the buying organization. For this purpose the buying organization contacts with the
customers or users of the purchased product and ask them to provide their experience of using
that product. Mainly the Consumer Behavior or the satisfaction level of users serves as the basis
of the performance reviewing factor for the product purchased from business supplier. The
performance review helps in future decision of the business buying process in the form of
straight rebuy, modified rebuy or new task buying. The selling organization also takes into
account the same factors that would affect in the performance review by the buying
organization.

8. MARKET SEGMENTATION
Market Segmentation is a process of dividing the market of potential customers into
different groups and segments on the basis of certain characteristics. The member of these
groups share similar characteristics and usually have one or more than one aspect common
among them.
The concept of market segmentation was coined by Wendell R. Smith who in his article
“Product Differentiation and Market Segmentation as Alternative Marketing Strategies”
observed “many examples of segmentation” in 1956. Present-day market segmentation
exists basically to solve one major problem of marketers; more conversions. More
conversion is possible through personalized marketing campaigns which require marketers
to segment market and draft better product and communication strategies according to the
needs of the segment.

Types of Market Segmentation

A. Demographic Segmentation:
Demographic segmentation divides the markets into groups based on variables such as age,
gender, family size, income, occupation, education, religion, race and nationality.
Demographic factors are the most popular bases for segmenting the consumer group. One
reason is that consumer needs, wants, and usage rates often vary closely with the
demographic variables. Moreover, demographic factors are easier to measure than most
other type of variables.
1. Age:
It is one of the most common demographic variables used to segment markets. Some com-
panies offer different products, or use different marketing approaches for different age
groups. For example, McDonald’s targets children, teens, adults and seniors with different
ads and media. Markets that are commonly segmented by age includes clothing, toys,
music, automobiles, soaps, shampoos and foods.
2. Gender:
Gender segmentation is used in clothing, cosmetics and magazines.
3. Income:
Markets are also segmented on the basis of income. Income is used to divide the markets
because it influences the people’s product purchase. It affects a consumer’s buying power
and style of living. Income includes housing, furniture, automobile, clothing, alcoholic,
beverages, food, sporting goods, luxury goods, financial services and travel.
4. Family cycle:
Product needs vary according to age, number of persons in the household, marital status,
and number and age of children. These variables can be combined into a single variable
called family life cycle. Housing, home appliances, furniture, food and automobile are few of
the numerous product markets segmented by the family cycle stages. Social class can be
divided into upper class, middle class and lower class. Many companies deal in clothing,
home furnishing, leisure activities, design products and services for specific social classes.
B. Geographic Segmentation:
Geographic segmentation refers to dividing a market into different geographical units such
as nations, states, regions, cities, or neighbourhoods. For example, national newspapers are
published and distributed to different cities in different languages to cater to the needs of
the consumers.
Geographic variables such as climate, terrain, natural resources, and population density also
influence consumer product needs. Companies may divide markets into regions because the
differences in geographic variables can cause consumer needs and wants to differ from one
region to another.
Geographic Market Segmentation Examples
 ZIP code
 City
 Country
 Radius around a certain location
 Climate
 Urban or rural
C. Psychographic Segmentation:
Psychographic segmentation pertains to lifestyle and personality traits. In the case of
certain products, buying behaviour predominantly depends on lifestyle and personality
characteristics.
1. Personality characteristics:
It refers to a person’s individual character traits, attitudes and habits. Here markets are
segmented according to competitiveness, introvert, extrovert, ambitious, aggressiveness,
etc. This type of segmentation is used when a product is similar to many competing
products, and consumer needs for products are not affected by other segmentation
variables.
2. Lifestyle:
It is the manner in which people live and spend their time and money. Lifestyle analysis
provides marketers with a broad view of consumers because it segments the markets into
groups on the basis of activities, interests, beliefs and opinions. Companies making
cosmetics, alcoholic beverages and furniture’s segment market according to the lifestyle.
D. Behavioural Segmentation:
In behavioural segmentation, buyers are divided into groups on the basis of their knowledge
of, attitude towards, use of, or response to a product. Behavioural segmentation includes
segmentation on the basis of occasions, user status, usage rate loyalty status, buyer-
readiness stage and attitude.
1. Occasion:
Buyers can be distinguished according to the occasions when they purchase a product, use a
product, or develop a need to use a product. It helps the firm expand the product usage. For
example, Cadbury’s advertising to promote the product during wedding season is an
example of occasion segmentation.
2. User status:
Sometimes the markets are segmented on the basis of user status, that is, on the basis of
non-user, ex-user, potential user, first-time user and regular user of the product. Large
companies usually target potential users, whereas smaller firms focus on current users.

3. Usage rate:
Markets can be distinguished on the basis of usage rate, that is, on the basis of light,
medium and heavy users. Heavy users are often a small percentage of the market, but
account for a high percentage of the total consumption. Marketers usually prefer to attract
a heavy user rather than several light users, and vary their promotional efforts accordingly.
4. Loyalty status:
Buyers can be divided on the basis of their loyalty status—hardcore loyal (consumer who
buy one brand all the time), split loyal (consumers who are loyal to two or three brands),
shifting loyal (consumers who shift from one brand to another), and switchers (consumers
who show no loyalty to any brand).
5. Buyer readiness stage:
 The six psychological stages through which a person passes when deciding to purchase a
product. The six stages are awareness of the product, knowledge of what it does, interest in
the product, preference over competing products, conviction of the product’s suitability,
and purchase. Marketing campaigns exist in large part to move the target audience through
the buyer readiness stages.
Criteria for Effective Market Segmentation
Measurable means that some form of data should be available about the market segment,
so that its size can be measured. You need to know how large the segment will be – in order to
assess its importance for you. Measurements are highly important to be able to judge the
overall attractiveness of the segment.
Accessible means that the market segment should be reachable. This refers to distribution
and communication: can you reach the market and communicate with your target customers?
If the only potential customers of your new product live in a village in Siberia, but there is no
road to that village, you will find that the segment you want to target is not really accessible
easily. Each segment needs to be able to be reached and communicated with on an efficient
basis.
Substantial refers to the segment’s size. In order to be attractive for you, the market
segment should be large enough in terms of sales and profitability. Only then, it deserves the
firm’s attention. Certainly, every company will have minimum requirements for the financial
return from the investment in the market. Therefore, it is necessary to only consider market
segments that are substantial enough to be of interest. In other words, only substantial
segments are profitable.
Actionable is to be understood as doable. Are you actually capable of serving this segment?
Does your company have the knowledge and resources to satisfy the segment’s needs? A
prerequisite for an actionable segment is of course that the other three requirements for
profitable segments are fulfilled. But even if all of those criteria are satisfied, a segment is
unsuitable for you unless your company has the resources to cater for the needs of this
segment.
Differentiable means that the segments are conceptually distinguishable and respond
differently to different marketing mix elements and programs. If men and women respond
similarly to marketing efforts for soft drinks, then they do not constitute separate segments.

9. MARKET TARGETING STRATEGIES

The purpose of evaluating market segments is to choose one or more segments to enter. Target
market selection is the choice of which and how many market segments the company will
compete in.
When selecting their target markets, companies have to make a choice of whether they are
going to be focused on one or few segments or they are going to cater to the mass market. The
choice that companies make at this stage will determine their marketing mix and positioning
plank. There are four generic target marketing strategies.
1. Undifferentiated marketing:
There may be no strong differences in customer characteristics. Alternatively, the cost of
developing a separate marketing mix for separate segments may outweigh the potential gains
of meeting customer needs more exactly. Under these circumstances a company will decide to
develop a single marketing mix for the whole market. There is absence of segmentation.
This strategy can occur by default. Companies which lack a marketing orientation may practice
this strategy because of lack of customer knowledge. It is convenient since a single product has
to be developed.
A company using an undifferentiated targeting strategy essentially adopts a mass-market
philosophy. It views the market as one big market with no individual segments. The company
uses one marketing mix for the entire market. The company assumes that individual customers
have similar needs that can be met with a common marketing mix.
The first company in an industry normally uses an undifferentiated targeting strategy. There is
no competition at this stage and the company does not feel the need to tailor marketing mixes
to the needs of market segments.
Since there is no alternate offering, customers have to buy the pioneer’s product. Ford’s Model
T is a classical example of an undifferentiated targeting strategy. Companies marketing
commodity products like sugar also follow this strategy.
Companies following undifferentiated targeting strategies save on production and marketing
costs. Since only one product is produced, the company achieves economies of mass
production. Marketing costs are also lower as only one product has to be promoted and there is
a single channel of distribution.
But undifferentiated targeting strategy is hardly ever a well-considered strategy. Companies
adopting this strategy have either been blissfully ignorant about differences among customers
or have been arrogant enough to believe that their product will live up to the expectations of all
customers, till focused competitors invade the market with more appropriate products for
different segments.
Therefore, companies following this strategy will be susceptible to incursions from competitors
who design their marketing mixes specifically for smaller segments.
Finding out that customers have diverse needs that can only be met by products with different
characteristics means that managers have to develop new products, design new promotional
campaigns and develop new distribution channels. Moving into new segments means that
salespeople have to start prospecting for new customers.
2. Differentiated marketing or multi-segment targeting:
When market segmentation reveals several potential target segments that the company can
serve profitably, specific marketing mixes can be developed to appeal to all or some of the
segments. A differentiated marketing strategy exploits the differences between marketing
segments by designing a specific marketing mix for each segment.
A company following multi-segment targeting strategy serves two or more well- defined
segments and develops a distinct marketing mix for each one of them. Separate brands are
developed to serve each of the segments.
It is the most sought after target market strategy because it has the potential to generate sales
volume, higher profits, larger market share and economies of scale in manufacturing and
marketing. But the strategy involves greater product design, production, promotion, inventory,
marketing research and management costs.
Another potential cost is cannibalization, which occurs when sales of a new product cut into
sales of a firm’s existing products. Before deciding to use this strategy, a company should
compare the benefits and costs of multi-segment targeting to those of undifferentiated and
concentrated targeting.
The car market is most clearly segmented. There are segments for small cars, luxury cars, sports
utility vehicles, etc. Most car makers like General Motors, Ford, Toyota, Honda and others offer
cars for all the segments. Though Toyota entered the US market with small cars, it eventually
chose to operate in most of the segments.
3. Focus or concentrated targeting:
Several segments may be identified but a company may not serve all of them. Some may be
unattractive or out of line with the company’s business strengths. A company may target just
one segment with a single marketing mix. It understands the needs, and motives of the
segment’s customers and designs a specialized marketing mix.
Companies have discovered that concentrating resources and meeting the needs of a narrowly
defined market segment is more profitable than spreading resources over several different
segments. Starbucks became successful by focusing exclusively on customers who wanted
gourmet coffee products.

The strategy is suited for companies with limited resources as these resources may be too
stretched if it competes in many segments. Focused marketing allows R&D expenditure to be
concentrated on meeting needs of one set of customers and managerial activities are devoted
to understanding and catering to their needs.
Large organizations may not be interested in serving the needs of this one segment or their
energies may be so dissipated across the whole market that they pay insufficient attention to
the requirements of this small segment. One danger that such niche marketers face is attracting
competition from larger organizations in the industry if they are very successful.
Companies following concentrated targeting strategies are obviously putting all their eggs in
one basket. If their chosen segments were to become unprofitable or shrink in size, the
companies will be in problem. Such companies also face problems when they want to move to
some other segments, especially when they have been serving a segment for a long time.
They become so strongly associated with serving a segment with a particular type of product or
service, that the customers of other segments find it very difficult to associate with them. They
believe that the company can serve only that particular segment.
Companies which start with concentrated targeting strategy but nurse ambitions to serve more
segments should make early and periodic forays into other segments.
The idea is to avoid being labelled as the company which exclusively serves a particular
segment. The association with one particular segment should not be allowed to become so
strong that customers cannot imagine the company doing something else.
Mercedes offers premium cars for the upper segment of the market only. It does not offer cars
for the middle and lower segments. But Mercedes segments the premium segment and offers
different cars for its different premium segments.
Some companies are focused in another way. They focus on heavy users—the small percentage
of customers that account for large share of a product’s sale.
The problem with such a strategy is that all the major players would be targeting this segment,
and hence serving this segment will involve high marketing expenditure, price cutting and low
profitability. A more sensible strategy is to target a small, less attractive segment rather than
choose the same segment that every company is after.
4. Customized marketing:
In some markets, the requirements of individual customers are unique and their purchasing
power is sufficient to make designing a separate marketing mix for each customer a viable
option. Many service providers such as advertising, marketing research firms, architects and
solicitors vary their offerings on a customer to customer basis.
They will discuss face to face with each customer their requirements and tailor their services
accordingly. Customized marketing is also found within organizational markets because of high
value of orders and special needs of customers.
Customized marketing is associated with close relationships between the supplier and customer
because the high value of an order justifies large marketing and sales efforts being focused on
each buyer.
10. VALUE PROPOSITION
A Value Proposition is the full positioning of a brand, product or service. If I were to expand on
the definition, then I would say that a Value Proposition is the full mix of benefits that the
brand, product, or service is differentiated and positioned upon. A Value Proposition answers
the question: "Why should I buy this?"

Above is a fairly standard illustration of the matrix of Value Propositions. On the top, we have
three Price categories: More, The Same, and Less. On the side, we have three Benefits
categories: More, The Same, and Less. So when we assemble a Value Proposition, we are
pairing a level of Benefit, with a level of Price. For example, I may choose to take a More for
the Same approach, meaning I'm going to offer more features and benefits than my
competitors, for the same price.

The combinations in the matrix that are green represent the most favorable approaches to take
with your Value Proposition. Those in red are rarely profitable, and tend to lead to problems or
a loss of focus down the road.
  More for More
When we tout a "More For More" value proposition, we are telling the consumer that we are
providing them the best possible product or service, and we are charging a higher (some would
say "premium") price to cover the costs of giving you the "best".
In the real world, it is easy to see who the "More For More" players are. One of my favorites is
Apple. They are not shy about "More For More". Apple gives you the best design, the best
quality, the best experience, at a price that meets their corporate goals for gross margins and
profits. When a company truly stands behind this value proposition, giving the consumer a
premium product, with premium service and an experience that is consistent over time (the
Macintosh has been around for 30 years), then it can be very successful.
In order to compete in a "More For More" market segment, you are going to have to find a
product or service category that is under-serviced. If there is a void in the market segment for a
premium product, and if the market segment has consumers that can afford a premium
product, then you can consider moving in to that area. However, there are cons to following a
"More For More" value proposition. When you have a premium product, there will always be
imitators that will produce a similar product or service, and claim that it has the same quality
for a lower price. Amazon has been marketing it's Kindle Fire HD as a higher quality, lower
priced alternative to Apple's iPad Air tablet. "More For More" brands, products and services
will always be under fire by those who use a "More For The Same" or "The Same For Less" value
proposition.
 More For The Same
How do you counter a "More for More" competitor? You present a "More for The Same" value
proposition. A "More for The Same" value proposition entails offering a product, service or
brand with comparable quality, at a lower price. Depending on the costs associated with
producing your product or service, you may have the same margins as a "More for More"
competitor, or you have smaller margins, which you are hoping to make up for with a higher
volume of sales.
What does "More for The Same" look like in the marketplace? The auto industry is a great
example. Lexus, Infinity, Kia and Hyundai are perfect examples. Lexus and Infinity were the first
to attempt to uproot major luxury "More for More" brands such as Mercedes, BMW and
Cadillac. Offering more car, for the same (and usually lower price), these brands were able to
take away more and more market share. As a result, Mercedes and BMW realized that there
were more customers available at lower price points. More recently, Hyundai and Kia have
followed the same approach, introducing their Genesis and Cadenza models to the
marketplace. However, "More for The Same" can fail, if you are not backing up your value
proposition with the quality and features that you claim you are providing the consumer.
 The Same for Less
Probably the most powerful Value Proposition is "The Same for Less". Why? Because we all
love getting a great deal. Great product? Lower price? Yes please! Need a high-quality PC for
less? Get a Dell. Need great quality food, clothes, and electronics? Go to Costco. Want door
busting deals on name brand electronics? Go to Best Buy or Fry's Electronics. Need name
brand groceries for much less? Go to Winco. You get the idea.
 Less For Much Less
If you remember my discussion of social and economic groups, then you know the reality of the
consumer: few people want, need, or can even afford the very best products and services. As a
result, there will always be a market for value products. "Less For Much Less" is summed up
with a definition of "offering a brand, product, or service of less quality, for a lower price". In
most cases, the reality of a consumer's monthly budget forces a consumer to stick with "needs"
over "wants" during the buyer decision process.
This means you are going to provide a lower "performing" product (less quality and features), at
a much lower price. This also means that you are usually relying on a higher volume of sales to
make up for much lower margins.
 More for Less
I'm going to briefly touch on one Value Propositional tactic that we see fairly often in the
marketplace. "More for Less". That's what we all want, right? More features, more product,
more value, for a really low price. We typically see "More for Less" when a new brand is
entering a target market with established players. Many claim to offer "More for Less" today.
At first, it's easy to do. You are ripe with new investment capital, or you are a large company
that has just budgeted a large amount of money towards a new product segment. So, you
market your product, and sometimes sell it at a loss, offering more features, for a better price.
However, over time, it becomes very hard to maintain a "More for Less" value proposition.
Companies will typically fall into this trap: losing focus. With each new generation of your
product, you will add more features. All of this product development, all of this marketing,
costs money. Lots of it. And unless you have other products in your stable that are selling well
and creating profits, you will have to raise the price of your product in order to cover the costs
associated with bring it to market. If you don't, you lose money. Not only are you losing
money, but your product and your brand become so "busy" and "cluttered", you begin to lose
out to your competitors, who are more focused, and have a more focused product and
message. In essence, you eventually confuse your consumers, and once your prices go up, they
look elsewhere during the buying decision process. Stay away from "More for Less", unless you
can keep your focus, and you can manage your bottom line.
11. COMPETITIVE ADVANTAGE AND DIFFERENTIATION
Competitive Advantage: The main challenge for business strategy is to find a way of achieving a
sustainable competitive advantage over the other competing products and firms in a market.
A competitive advantage is an advantage over competitors gained by offering consumers
greater value, either by means of lower prices or by providing greater benefits and service that
justifies higher prices.
Differentiation: Approach under which a firm aims to develop and market unique products for
different customer segments. Usually employed where a firm has clear competitive advantages,
and can sustain an expensive advertising campaign.
Basis for Differentiation
Product Differentiation
Product Differentiation refers to differentiating the market offer based on features,
performance, style or design. A sandwich-maker could differentiate itself by offering healthy,
low-fat products. A car manufacturer might use extremely large engine as a point of
differentiation. Thus, your product is better, faster, cheaper, healthier, greener etc.
Service Differentiation
Service Differentiation is based on aspects such as speedy or careful delivery, opening hours,
customer care etc. Thus, the service is differentiated. For instance, an airline could differentiate
itself by means of extraordinary customer care and very attentive and graceful stewardesses.
This type of differentiation may then become experience differentiation.
Channel Differentiation
A firm can also gain competitive advantage by channel differentiation. This means that the firm
differentiates itself by differentiating their channel’s coverage, expertise and performance. So
how does the firm get goods to the customer? It might be through a smooth-functioning,
speedy direct channel.
People Differentiation
Companies can also differentiate themselves by people differentiation. People differentiation
means nothing else than hiring and training better people than competitors do. Staff can be
more friendly, competent, courteous etc. Certainly, this mainly appeals to customer contact
staff.
Image Differentiation
Image Differentiation refers to the image a company or a brand has in consumers’ minds. The
development of a strong and distinctive image requires creativity and a lot of work. Only over a
long period, an image in consumers’ minds can be attained. If you want to differentiate your
company by high quality, this image must be supported by absolutely everything your company
does. An aid for image differentiation are symbols, such as the Nike swoosh or Apple’s logo.
These provide a strong brand recognition and thereby contribute to image differentiation. Also,
famous persons may be of help. For instance, H&M built a brand around a famous person,
David Beckham, to develop its image differentiation. The chosen symbols, characters or other
elements such as colour associated with a brand must be promoted and communicated
through advertising.
12. ELEMENTS OF PRODUCT/SERVICE
Three Levels of a Product.
Consumers often think that a product is simply the physical item that he or she buys. In order to
actively explore the nature of a product further, let’s consider it as three different products –
the CORE product, the ACTUAL product, and finally the AUGMENTED product. This concept is
known as the Three Levels of a Product.

The CORE product is NOT the tangible physical product. You can’t touch it. That’s because the
core product is the BENEFIT of the product that makes it valuable to you. So with the car
example, the benefit is convenience i.e. the ease at which you can go where you like, when you
want to. Another core benefit is speed since you can travel around relatively quickly.

The ACTUAL product is the tangible, physical product. You can get some use out of it. Again
with the car, it is the vehicle that you test drive, buy and then collect. You can touch it. The
actual product is what the average person would think of under the generic banner of product.
The AUGMENTED product is the non-physical part of the product. It usually consists of lots of
added value, for which you may or may not pay a premium. So when you buy a car, part of the
augmented product would be the warranty, the customer service support offered by the car’s
manufacturer and any after-sales service. The augmented product is an important way to tailor
the core or actual product to the needs of an individual customer. The features of augmented
products can be converted in to benefits for individuals.
13. CLASSIFICATION OF CONSUMER PRODUCTS
A consumer product is a product bought by final consumers for personal consumption. But
not every consumer product is the same. There are four different types of consumer
products. Marketers usually classify consumer products into these 4 types of consumer
products:
 Convenience products
 Shopping products
 Specialty products
 Unsought products.
These 4 types of consumer products all have different characteristics and involve a different
consumer purchasing behaviour. Thus, the types of consumer products differ in the way
consumers buy them and, for that reason, in the way they should be marketed.
Convenience products
Among the four types of consumer products, the convenience product is bought most
frequently. A convenience product is a consumer product or service that customers
normally buy frequently, immediately and without great comparison or buying effort.
Examples include articles such as laundry detergents, fast food, sugar and magazines. As
you can see, convenience products are those types of consumer products that are usually
low-priced and placed in many locations to make them readily available when consumers
need or want them.
Shopping products
The second one of the 4 types of consumer products is the shopping product. Shopping
products are a consumer product that the customer usually compares on attributes such as
quality, price and style in the process of selecting and purchasing. Thus, a difference
between the two types of consumer products presented so far is that the shopping product
is usually less frequently purchased and more carefully compared. Therefore, consumers
spend much more time and effort in gathering information and comparing alternatives.
Types of consumer products that fall within the category of shopping products are:
furniture, clothing, used cars, airline services etc. As a matter of fact marketers usually
distribute these types of consumer products through fewer outlets, but provide deeper
sales support in order to help customers in the comparison effort.
 Specialty products
Number three of the types of consumer products is the speciality product. Speciality
products are consumer products and services with unique characteristics or brand
identification for which a significant group of consumers is willing to make a special
purchase effort. As you can see, the types of consumer products involve different levels of
effort in the purchasing process: the speciality product requires a special purchase effort,
but applies only to certain consumers.
Examples include specific cars, professional and high-prices photographic equipment,
designer clothes etc. A perfect example for these types of consumer products is a
Lamborghini. In order to buy one, a certain group of buyers would make a special effort, for
instance by travelling great distances to buy one. However, speciality products are usually
less compared against each other. Rather, the effort must be understood in terms of other
factors: Buyers invest for example the time needed to reach dealers that carry the wanted
products. To illustrate this, look at the Lamborghini example: the one who wants one is
immediately convinced of the choice for a Lamborghini and would not compare it that much
against 10 other brands.
Unsought products
The 4 types of consumer products also include unsought products. Unsought products are
those consumer products that a consumer either does not know about or knows about but
does not consider buying under normal conditions. Thus, these types of consumer products
consumers do not think about normally, at least not until they need them. Most new
innovations are unsought until consumers become aware of them. Other examples of these
types of consumer products are life insurance, pre-planned funeral services etc. As a
consequence of their nature, unsought products require much more advertising, selling and
marketing efforts than other types of consumer products.
Below are the relevant marketing considerations for each of the 4 types of consumer
products:

Types of Consumer Products

Marketing
consideration
Convenience Shopping Specialty Unsought

Customer Frequent Less frequent Strong brand Little product

buying purchase, little purchase, much preference and awareness and
 effort (planning loyalty, special
effort (planning,
and comparison purchase effort,
comparison), knowledge or
behaviour of brands on little comparison
low customer little interest
price, quality, of brands, low
involvement
style etc.) price sensitivity

Price Low price Higher price High price Varies

Widespread Exclusive
Selective
distribution, distribution in
Distribution distribution, Varies
convenient only one or a
fewer outlets
locations few outlets

More carefully Aggressive

Advertising and
Promotion Mass promotion targeted advertising and
personal selling
promotion personal selling

Luxury goods
Toothpaste,
Television, (e.g. Rolex Life insurance
magazines,
Examples furniture, watch), or pre-planned
laundry
clothing designer funeral service
detergent
clothing

14. BRANDING
Branding is a process which involves creating a specific name, logo, and an image of a particular
product, service or company. This is done to attract customers. It is usually done through
advertising with a consistent theme. Branding aims to establish a significant and differentiated
presence in the market that attracts and retains loyal customers.
A brand is a name, term, symbol, or other feature that distinguishes an organization or product
from its rivals in the eyes of the customer. Brands are used in business, marketing, and
advertising.

Features of Branding
Targetability
Branding should be planned according to the targeted audience. No business firm can target
the entire population. Business owners should identify the type of people who are buying their
products and services. Research should be done on the basis of age, gender, income, the
lifestyle of their customers, etc.
Awareness
The percentage of people who are aware of a brand is known as brand awareness. Well
established companies have the benefit of a high level of brand awareness. Brand awareness
can be increased with the help of advertisement on TV, radio, newspaper or social media
marketing and advertising. Logos also help companies build brand awareness, as people often
recognize brands by these symbols or diagrams.
Loyalty
Brand loyalty is the highest achievement or apex of any company. A customer who buys the
product of a particular company extensively is known as a brand loyalist. Many consumers
prefer using certain brands of clothing, deodorants or tubes of toothpaste, for example. They
like how these brands benefit them. Brand loyalty can be build by staying in touch with the
customers, asking them for their reviews.
Consistency
Consistency is necessary for a brand. A brand must remain consistent. Small businesses make
numerous promises in commercials and ads about their brands, and consumers expect
companies to continue living up to these promises. Their products should also be effective.

Brand Development Strategies

When it comes to brand development, there are four main brand approaches, as shown in the
following diagram.
This diagram is a matrix built around the two attributes of existing/new product category and
existing/new brand name. This then determines one of the four boxes, namely:
 Product line extension
 Multi-brand
 Brand extension
 New brand
Please note that the top axis refers to the product category – that is, a set of products – not an
individual product. Therefore, if Toyota was to introduce a new car, then that would still be
considered to be an existing product, because they already offer and market cars.
Product line extension
A product line extension is introducing a new product – that is similar to what the company
already offers (that is, within an existing product line/category) that is targeting an existing
market by using the current brand name.
This is a very common approach in marketing. This is because the existing brand name has a
customer following, and new products/variations will tend to be relatively well received by
these loyal customers.
We frequently see this approach with product sold through supermarkets channels, where you
variations of tastes/flavors and packaging sizes have some appeal with the marketplace.
Multi brand
A variation of the product line extension above, is to run a multiple brand strategy within the
same market. As you can see from the matrix, a multi-brand strategy involves having more than
one brand competing in the same product category.
Again this is a relatively common approach for large companies. For example, a manufacturer
of frozen vegetables may have multiple brands – that to the consumer appeared to compete
against each other – but have the same corporate ownership.
The main reasons for this is that these brands can have different positioning in the market,
dominate the overall shelf space, and reduce opportunities for competitors to enter the market
or to win market share.
The disadvantage of this multi brand strategy (as opposed to a product line extension strategy)
is the cost and time of developing a new brand name successfully in the marketplace.
Brand extension
A brand extension involves broadening the market’s understanding of the brand. This is
achieved by offering more products (of a different nature/category) under the existing brand
name.
An example of this in recent years would be McDonald’s competing in the gourmet coffee
product category – effectively broadening the positioning of McDonald’s from fast food only to
being perceived as also competing against Starbucks to some extent.
Brand extensions they usually approached with care, as the market may not fully accept the
brand’s expertise in another product category. As a hypothetical example, consider if the Coca-
Cola brand was extended to shampoos and detergents – the market would see little connection
and the overall brand would be damaged.
Therefore, brand extensions work best if the new product category has some relationship to
the brand’s existing product category and perceived area of expertise.
New brand
The final brand development strategy is a new brand. A new brand occurs when the firm is
expanding is offering – by developing a new product line that they haven’t not offered before –
and as a result, need to build a new brand.
15. PRODUCT MIX
Product mix, also known as product assortment, refers to the total number of product lines
a company offers to its customers. For example, your company may sell multiple lines of
products. Your product lines may be fairly similar, such as dish washing liquid and bar soap,
which are both used for cleaning and use similar technologies. Or your product lines may be
vastly different, such as diapers and razors.
The four dimensions to a company's product mix include width, length, depth and
consistency.
Width: Number of Product Lines
The width, or breadth, of a company's product mix pertains to the number of product lines
the company sells. For example, if you own EZ Tool Company and have two product lines –
hammers and wrenches – your product mix width is two.
Small and upstart businesses will usually not have a wide product mix. It is more practical to
start with some basic products and build market share. Later on, the company's technology
may allow the company to diversify into other industries and build the width of the product
mix.
Length: Total Products
The product mix length is the total number of products or items in your company's product
mix. For example, EZ Tool has two product lines, hammers and wrenches. In the hammer
product line are claw hammers, ball peen hammers, sledge hammers, roofing hammers and
mallet hammers. The wrench line contains Allen wrenches, pipe wrenches, ratchet
wrenches, combination wrenches and adjustable wrenches.
Thus, EZ Tool's product mix length would be 10. Companies that have multiple product lines
will sometimes keep track of their average length per product line. In this case, the average
length of your company's product line is five.

Depth: Product Variations

Depth of a product mix pertains to the total number of variations for each product.
Variations can include size, flavor and any other distinguishing characteristic. For example, if
your company sells three sizes and two flavors of toothpaste, that particular line of
toothpaste has a depth of six. Just like length, companies sometimes report the average
depth of their product lines; or the depth of a specific product line.
If the company also has another line of toothpaste, and that line comes in two flavors and
two sizes, its depth is four. Since one line has a depth of six and the second line has a depth
of four, your company's average depth of product lines is five (6+4=10, 10/2=5).
 Consistency is Relationship
Product mix consistency describes how closely related product lines are to one another – in
terms of use, production and distribution. Your company's product mix may be consistent in
distribution but vastly different in use. For example, your company may sell health bars and
a health magazine in retail stores. However, one product is edible and the other is not.
The production consistency of these products would vary as well, so your product mix is not
consistent. Your toothpaste company's product lines, however, are both toothpastes. They
have the same use and are produced and distributed the same way. So, your toothpaste
company's product lines are consistent.

Product Market Mix Strategy

Small companies usually start out with a product mix limited in width, depth and length;
and have a high level of consistency. However, over time, the company may want to
differentiate products or acquire new ones to enter new markets. They may also add to
their lines similar products that are of higher or lower quality to offer different choices and
price points.
This is called stretching the product line. When you add higher quality, more expensive
products, it's called upward stretching. If you add lesser quality, lower priced items, it's
called downward stretching.
16. CHARACTERISTICS OF SERVICE
The American Marketing Association defines services as - “Activities, benefits and satisfactions
which are offered for sale or are provided in connection with the sale of goods.”
The defining characteristics of a service are:

 Intangibility: Services are intangible and do not have a physical existence. Hence
services cannot be touched, held, tasted or smelt. This is most defining feature of a
service and that which primarily differentiates it from a product. Also, it poses a unique
challenge to those engaged in marketing a service as they need to attach tangible
attributes to an otherwise intangible offering.

 Heterogeneity/Variability: Given the very nature of services, each service offering is

unique and cannot be exactly repeated even by the same service provider. While
products can be mass produced and be homogenous the same is not true of services.
eg: All burgers of a particular flavor at McDonalds are almost identical. However, the
 same is not true of the service rendered by the same counter staff consecutively to two
customers.
 Perishability: Services cannot be stored, saved, returned or resold once they have been
used. Once rendered to a customer the service is completely consumed and cannot be
delivered to another customer. eg: A customer dissatisfied with the services of a barber
cannot return the service of the haircut that was rendered to him. At the most he may
decide not to visit that particular barber in the future.
 Inseparability/Simultaneity of production and consumption: This refers to the fact that
services are generated and consumed within the same time frame. Eg: a haircut is
delivered to and consumed by a customer simultaneously unlike, say, a takeaway burger
which the customer may consume even after a few hours of purchase. Moreover, it is
very difficult to separate a service from the service provider. Eg: the barber is necessarily
a part of the service of a haircut that he is delivering to his customer.
Types of Services
 Core Services: A service that is the primary purpose of the transaction. Eg: a haircut or
the services of lawyer or teacher.
 Supplementary Services: Services that are rendered as a corollary to the sale of a
tangible product. Eg: Home delivery options offered by restaurants above a minimum
bill value.

17. BRAND EQUITY AND BRAND VALUE

A brand is not just a name, logo, design, symbol or combination of them, that helps the
consumer in identifying the origin of the product, but it is much more than that. A brand
is a promise, feeling, expectation and experience. A point to ponder, relating to the
brand is that Brand equity is not equal to brand value.
Brand equity is consumer focused, as its value is derived from consumer’s perceptions,
experiences, memories and associations concerning the brand.

On the other hand, brand value is something that decides the monetary value created by the
brand for the company in the market.
Brand Equity isn’t inbuilt, it is created or developed by the company over a period of time,
through their products, which are not easily replaceable. Indeed, the brand is recognized as the
second name for the item itself, because of the quality and reliability. As against, Brand value is
an important element for the measurement of goodwill and the value of the company.
 BASIS FOR
BRAND EQUITY BRAND VALUE
COMPARISON

Meaning Brand Equity is the worth of Brand Value is the

the brand that a firm earns economic worth of the
through consumer brand, wherein the
consciousness of the brand customers are readily
name of the specific product, willing to pay more for a
instead of the product itself. brand, to get the product.

What is it? Attitude and Willingness of Net present value of

the consumer towards the forecasted cash flows
brand.

Derived from Customers Product and Service

Quality, Channel
relationships, Availability,
Price and Performance,
Advertising, etc.

Indicates Success of the brand Total financial value of

the brand.

18. STAGES OF NEW PRODUCT DEVELOPMENT

The eight stages or process or steps involved in the development of a new product are as
follows:
1. Idea generation
The first step in new-product development is idea generation.
New ideas can be generated by:
 Conducting marketing research to find out the consumers' needs and wants.
 Inviting suggestions from consumers.
  Inviting suggestions from employees.
 Brainstorming suggestions for new-product ideas.
 Searching in different markets viz., national and international markets for new-product
ideas.
 Getting feedback from agents or dealers about services offered by competitors.
 Studying the new products of the competitors.
2. Idea screening
Most companies have a "Idea Committee." This committee studies all the ideas very carefully.
They select the good ideas and reject the bad ideas.
Before selecting or rejecting an idea, the following questions are considered or asked:
 Is it necessary to introduce a new product?
 Can the existing plant and machinery produce the new product?
 Can the existing marketing network sell the new product?
 When can the new product break even?
If the answers to these questions are positive, then the idea of a new-product development is
selected else it is rejected. This step is necessary to avoid product failure.
3. Concept testing
Concept testing is done after idea screening. It is different from test marketing.
In this stage of concept testing, the company finds out:
 Whether the consumers understand the product idea or not?
 Whether the consumers need the new product or not?
 Whether the consumers will accept the product or not?
Here, a small group of consumers is selected. They are given full information about the new
product. Then they are asked what they feel about the new product. They are asked whether
they like the new product or not. So, concept testing is done to find out the consumers'
reactions towards the new product. If most of the consumers like the product, then business
analysis is done.
4. Business analysis
Business analysis is a very important step in new-product development. Here, a detailed
business analysis is done. The company finds out whether the new product is commercially
profitable or not.
Under business analysis, the company finds out...
 Whether the new product is commercially profitable or not?
 What will be the cost of the new product?
  Is there any demand for the new product?
 Whether this demand is regular or seasonal?
 Are there any competitors of the new product?
 How the total sales of the new product be?
 What will be the expenses on advertising, sales promotion, etc.?
 How much profit the new product will earn?
So, the company studies the new product from the business point of view. If the new product is
profitable, it will be accepted else it will be rejected.
5. Product development
At this stage, the company has decided to introduce a new product in the market. It will take all
the necessary steps to produce and distribute the new product. The production department will
make plans to produce the product. The marketing department will make plans to distribute
the product. The finance department will provide finance for introducing the new product. The
advertising department will plan the advertisements for the new product. However, all this is
done as a small scale for Test Marketing.
6. Test marketing
Test marketing means to introduce the new product on a very small scale in a very small
market. If the new product is successful in this market, then it is introduced on a large scale.
However, if the product fails in the test market, then the company finds out the reasons for its
failure. It makes necessary changes in the new product and introduces it again in a small
market. If the new product fails again the company will reject it.
Test marketing reduces the risk of large-scale marketing. It is a safety device. It is very time-
consuming. It must be done especially for costly products.
7. Commercialization
If the test marketing is successful, then the company introduces the new product on a large
scale, say all over the country. The company makes a large investment in the new product. It
produces and distributes the new product on a huge scale. It advertises the new product on the
mass media like TV, Radio, Newspapers, and Magazines, etc.
8. Review of market performance
The company must review the marketing performance of the new product.
It must answer the following questions:
 Is the new product accepted by the consumers?
 Are the demand, sales and profits high?
 Are the consumers satisfied with the after-sales-service?
 Are the middlemen happy with their commission?
  Are the marketing staffs happy with their income from the new product?
 Is the Marketing manager changing the marketing mix according to the changes in the
environment?
 Are the competitors introducing a similar new product in the market?
The company must continuously monitor the performance of the new product. They must
make necessary changes in their marketing plans and strategies else the product will fail.

19. PRODUCT LIFE CYCLE

Like human beings, products also have a limited life-cycle and they pass through several stages
in their life-cycle. A typical product moves through five stages, namely—introduction, growth,
maturity, decline and abandonment. These stages in the life of a product are collectively known
as product life-cycle.
The length of the cycle and the duration of each stage may vary from product-to-product,
depending on the rate of market acceptance, rate of technical change, nature of the product
and ease of entry. Every stage creates unique problems and opportunities and, therefore,
requires a special marketing strategy.
A brief description of each stage and the marketing strategy required for it is given ahead:
Stages of PLC:
1. Introduction Stage:
In the first stage, the product is introduced in the market and its acceptance is obtained. As the
product is not known to all consumers and they take time to shift from the existing products,
sales volume and profit margins are low. Competition is very low, distribution is limited and
price is relatively high.
Heavy expenditure is incurred on advertising and sales promotion to gain quick acceptance and
create primary demand. Growth rate of sales is very slow and costs are high due to limited
production and technological problems. Often a product incurs loss during this stage due to
high startup costs and low sales turnover.
The following strategies may be adopted to introduce a product successfully:
(а) ‘Money back’ guarantee may be offered to encourage the people to try the product.
(b) Attractive gift as an ‘introductory offer’ may be offered to customers,
(c) Attractive discount to dealers.
(d) Some unique feature built into the product.
2. Growth Stage:
As the product gains acceptance, demand and sales grow rapidly. Competition increases and
prices fall. Economies of scale occur as production and distribution are widened. Attempt is
made to improve the market share by deeper penetration into the existing market or entry into
new markets. The promotional expenditure remains high because of increasing competition
and due to the need for effective distribution. Profits are high on account of large scale
production and rapid sales turnover.
During the growth stage, following strategies may be adopted:
(a) New versions of the product may be introduced to satisfy the requirements of different
types of customers.
(b) Brand image of the product is created through advertising and publicity.
(c) The price of the product is made competitive.
(d) Customer service is enhanced.
(e) Distribution channels are strengthened to make the product easily available wherever
required.
3. Maturity Stage:
During this stage prices and profits fall due to high competitive pressures. Growth rate becomes
stable and weak firms are forced to leave the industry. Heavy expenditure is incurred on
promotion to create brand loyalty. Firms try to modify and improve the product, to develop
new uses to the product and to attract new customers in order to increase sales.
In order to prolong the maturity stage, a firm may adopt the following strategies:
(a) The product is differentiated from the rival products.
(b) Brand image of the product may be emphasised.
(c) Lifetime or longer period maturity is offered.
(d) New markets may be developed.
(e) New uses of the product are developed.
(f) Reusable packaging is introduced.
4. Decline Stage:
Market peaks and levels off during saturation. Few new customers buy the product and repeat
orders disappear. Prices decline further due to stiff competition and firms fight for retaining
market share or replacement sales. Sales and profits inevitably fall unless substantial
improvements in the products or reduction in costs are made.
The product is gradually displaced by some new products due to changes in buying behaviour of
customers. Promotion expenditure is drastically reduced. The decline may be rapid and the
product may soon disappear from the market. However, decline may be slow when new uses of
the product are created.
In order to avoid sharp decline is sales, a firm may adopt the following strategies:
(a) New features may be added in the product.
(b) The packaging may be made more attractive.
(c) Economy packs or models may be introduced to revive demand.
(d) Selective distribution may be adopted to reduce costs.
5. Abandonment Stage:
Ultimately, the firm abandons the product in order to make better use of its resources. As
preferences of customers change, new and more innovative products replace the abandoned
product. When the decline is rapid, the product is abandoned. New products with unique
features may be introduced. Some firms cannot bear the loss and sell out.

20. COST BASED PRICING V/S VALUE BASED PRICING

Businesses have methods by which to price their products and services. Two common methods
are cost-based pricing and value-based pricing. When a company uses cost-based pricing, the
company sets a price at a percentage above the cost it incurs to manufacture the product or to
provide the service. Value-based pricing takes a different approach, considering the potential
value the product or service will bring to its customers.
Cost-Based Pricing
Cost-based pricing uses manufacturing or production costs as its basis for pricing. The cost-
based pricing company uses its costs to find a price floor and a price ceiling. The floor and the
ceiling are the minimum and maximum prices for a specific product or service; they serve as a
price range. If the market conditions are such that the going competitive price is under the
price floor, the company may price at the floor or attempt to lower its costs to lower the floor.
But ideally, the company should price somewhere in between the floor and the ceiling,
according to the McDonough School of Business. Many companies that produce in masses use
this pricing strategy, such as companies that produce textiles, food products and building
materials.
Value-Based Pricing
A value-based pricing company considers the value of its product or service, as opposed to the
cost the company incurred to create and produce it. To do this, the company determines how
much money or value its product or service will generate for the customer. This value could
originate from factors such as increased efficiency, happiness or stability. Companies or
individuals that produce medications, chemicals and computer programs and software and
artwork often use this pricing strategy.
Focus
Cost-based pricing focuses on the company’s situation when determining price. In contrast,
value-based pricing focuses on the customers when determining price. A value-based pricing
company develops a means by which to calculate the potential value their product or service
may bring customers and prices accordingly. Some companies use computer software to
determine the value a product or service can offer.
Prices
When a company uses cost-based pricing, it prices between the price floor and the price ceiling.
The market conditions dictate where, between the floor and the ceiling, the company sets its
pricing. If it uses value-based prices, the company sets its pricing in a range determined by what
customers are willing to pay. Generally, the value-based price is higher.
Benefits
Cost-based pricing generally results in competitive prices. Companies that use this strategy may
attract consumers who are looking for inexpensive products and services. Value-based pricing
companies often earn high profits on each item sold, but some consumers may not be willing to
pay the high price and purchase from a competitor.
21. SHORT NOTES
a. Competition Based Pricing: Competition-based pricing is a pricing method that
makes use of competitors' prices for the same or similar product as basis in
setting a price.

This pricing method focuses on information from the market rather than production costs (cost-
plus pricing) and product's perceived value (value-based pricing).
The price of competing products is used a benchmark. The business may sell its product at a
price above or below such benchmark. Setting a price above the benchmark will result in higher
profit per unit but might result in less units sold as customers would prefer products with lower
prices.
On the other hand, setting a price below the benchmark might result in more units sold but will
cause less profit per unit.
In a perfectly competitive market, sellers almost have no control over prices. It is solely
determined by the supply and demand, and products are sold at the market price or going rate.
 b. Market Skimming Pricing: Price skimming sees a company charge a higher price
because it has a substantial competitive advantage. However, the advantage
tends not to be sustainable. The high price attracts new competitors into the
market, and the price inevitably falls due to increased supply.
Manufacturers of digital watches used a skimming approach in the 1970s. Once other
manufacturers were tempted into the market and the watches were produced at a lower unit
cost, other marketing strategies and pricing approaches are implemented. New products were
developed and the market for watches gained a reputation for innovation.
c. Market Penetration Pricing: The price charged for products and services is set
artificially low in order to gain market share. Once this is achieved, the price is
increased. This approach was used by France Telecom and Sky TV. These
companies need to land grab large numbers of consumers to make it worth their
while, so they offer free telephones or satellite dishes at discounted rates in
order to get people to sign up for their services. Once there is a large number of
subscribers, prices gradually creep up. Taking Sky TV for example, or any cable or
satellite company, when there is a premium movie or sporting event prices are
at their highest – so they move from a penetration approach to more of a
skimming/premium pricing approach.
d. Captive Product Pricing: Where products have complements, companies will
charge a premium price since the consumer has no choice. For example, a razor
manufacturer will charge a low price for the first plastic razor and recoup its
margin (and more) from the sale of the blades that fit the razor. Another
example is where printer manufacturers will sell you an inkjet printer at a low
price. In this instance the inkjet company knows that once you run out of the
consumable ink you need to buy more, and this tends to be relatively expensive.
Again, the cartridges are not interchangeable and you have no choice.
e. Psychological Pricing: Psychological pricing Strategies is an approach of
gathering the consumer’s emotional respond instead of his rational respond. For
example, a company will price its product at Rs 99 instead of Rs 100. The price of
the product is within Rs 100 this makes the customer feel that the product is not
very expensive. For most consumers price is an indicating factor for buying or
not buying a product. They do not analyze everything else that motivates the
product. Even if the market is unknown to the consumer, he will still use price as
a purchase factor. For example, if an ice cream weighted 100 gms for Rs 100 and
a lesser quality ice cream weighted 200 gms is available at Rs 150, the consumer
will buy the 200 gms ice cream for Rs 150 because he sees profit in buying the
ice cream at lower cost ignoring the quality of the ice cream. Consumers are not
aware price is also an indicator of quality.
22. NEED FOR MARKETING CHANNELS
Marketing channels serve many functions, including creating utility and facilitating exchange
efficiencies.
Although some of these functions may be performed by a single channel member, most
functions are accomplished through both independent and joint efforts of channel
members. When managed effectively, the relationships among channel n embers can also
form supply chains that benefits all members of the channel, including the ultimate
consumer.
1) Information Provider:
Middlemen have a role in providing information about the market to the manufacturer.
Developments like changes in customer demography, psychography, media habits and the
entry of a new competitor or a new brand and changes in customer preferences are some
of the information that all manufacturers want. Since these middlemen are present in the
market place and close to the customer they can provide this information at no additional
cost.
2) Price Stability:
Maintaining price stability in the market is another function a middleman performs. Many a
time the middlemen absorb an increase in the price of the products and continue to charge
the customer the same old price. This is because of the intra-middlemen competition. The
middleman also maintains price stability by keeping his overheads low.

3) Promotion:
Promoting the product/s in his territory is another function that middlemen perform. Many
of them design their own sales incentive programmes, aimed at building customers traffic at
the other outlets.
4) Financing:
Middlemen finance manufacturers’ operation by providing the necessary working capital in
the form of advance payments for goods and services. The payment is in advance even
though the manufacturer may extend credit, because it has to be made even before the
products are bought, consumed and paid for by the ultimate consumer.
5) Title:
Most middlemen take the title to the goods, services and trade in their own name. This
helps in diffusing the risks between the manufacturer and middlemen. This also enables
middlemen to be in physical possession of the goods, which in turn enables them to meet
customer demand at very moment it arises.
6) Help in Production Function:
The producer can concentrate on the production function leaving the marketing problem to
middlemen who specialize in the profession. Their services can best utilized for selling the
product. The finance, required for organising marketing can profitably be used in
production where the rate of return would be greater.
7) Matching Demand and Supply:
The chief function of intermediaries is to assemble the goods from many producers in such
a manner that a customer can affect purchases with ease. The goal of marketing is the
matching of segments of supply and demand.
The matching process is undertaken by performing the following functions:
i) Contractual: Finding out buyers and sellers.
ii) Merchandising: Producing goods that will satisfy market requirements.
iii) Pricing: Process of attaching value to the product in monetary terms.
iv) Propaganda: Sales promotion activities.
v) Physical Distribution: Distribution activities.
vi) Termination: Settlement of contract, i.e., paying the value and receiving the goods.

8) Pricing:
In pricing a product, the producer should invite the suggestions from the middlemen who
are very close to the ultimate users and know what they can pay for the product. Pricing
may be different for different markets or products depending upon the channel of
distribution.
9) Standardizing Transactions:
Standardizing transactions is another function of marketing channels. Taking the example of
the milk delivery system, the distribution is standardized throughout the marketing channel
so that consumers do not need to negotiate with the sellers on any aspect, whether it is
price, quantity, method of payment or location of the product.
By standardizing transactions, marketing channels automate most of the stages in the flow
of products from the manufacturer to the customers.
10) Matching Buyers and Sellers:
 The most crucial activity of the marketing channel members is to match the needs of buyers
and sellers. Normally, most sellers do not know where they can reach potential buyers and
similarly, buyers do not know where they can reach potential sellers. From this perspective,
the role of the marketing channel to match the buyers’ and sellers’ needs becomes very
vital. For example, a painter of modern art may not know where he can reach his potential
customers, but an art dealer would surely know.

23. VERTICAL MARKETING SYSTEM:

A Vertical Marketing system (VMS) comprises of the main distribution channel partners- the
producer, the wholesaler and the retailer who work together as a unified group to serve the
customer needs.
In conventional marketing system, the producer, wholesaler and the retailer worked separately
with the intention to maximize their profits even at the expense of one another. This led to the
unending conflicts between the channel partners resulting in less profits for the business as a
whole.
In order to overcome these conflicts, several firms have started using a vertical marketing
system wherein producers, wholesalers and retailers have joined hands with each other and are
working in unison towards the accomplishment of the business objective as a whole. This has
led to the increased profits for each involved in the channel of distribution.
Vertical Marketing System is further divided into three parts which are explained below:

a. Corporate Vertical Marketing System– In Corporate VMS, one member of the

distribution channel be it a producer, a wholesaler or a retailer Owns all the other
Members of the Channel, thereby having all the elements of production and distribution
channel under a single ownership. For example, Amway is an American cosmetic
company, which manufactures its own product range and sell these products only
through its authorized Amway stores. Here the ownership of production and
distribution is with the company itself.
b. Contractual Vertical Marketing System– In Contractual VMS, every member in the
distribution channel works independently and integrate their activities on a Contractual
Basis to earn more profits that are earned when working in isolation. The most common
form of Contractual VMS is Franchising. In franchising, the producer authorizes the
distributor to sell its product under the producer’s name against some annual license
fee. For example, Mc-Donald’s, Dominos, Pizza Hut, etc. are all forms of the franchise
which are working on a contractual basis.
c. Administered Vertical Marketing System– Under Administered VMS, there is no
contract between the members of production & distribution channel but their activities
 do get influenced by the Size and Power of any one of the members. In simple words,
any powerful and influential member of the channel dominate the activities of other
channel members. For example, Big brands like HUL, ITC, Procter& Gamble, etc.
command a high level of cooperation from the retailers in terms of display, shelf space,
pricing policies, and promotional schemes.
Thus, through a vertical marketing system, the channel partners establish a close contact with
each other and work in unison towards the accomplishment of common objectives thereby
enjoying more profits which they would have been earning when working alone.

24. TOOLS OF SALES PROMOTION

The two types of sales promotion tools consumer are as follows:
A. Consumer-oriented Promotion Tools
B. Trade-oriented Sales Promotion.

Sales promotion is generally defined as those marketing activities that provide extra
values or incentives to the sales force, the distributors, or the ultimate consumer and
can stimulate immediate sales. Sales promotion is generally broken into two major
categories—consumer-oriented and trade-oriented activities.

A. Consumer-oriented Promotion Tools:

The consumer-oriented promotion tools are aimed at increasing the sales to existing
consumers, and to attract new customers to the firms. It is also called pull strategy. The
consumer can take the benefit of promotion tools either from the manufactures or from
the dealer, or from both.
In general, some of the commonly used consumer-oriented promotion tools are as
follows:

1. Free samples:
In this case, small units of free samples are delivered door to door, sent through direct
mail, attached to another product, or given along with the purchase of some other
product (e.g., soaps, soft drinks, detergents or other items). Free samples are normally
provided during the introductory stage of the product.

2. Coupons:
This involves offering price reduction or saving to customers on the purchase of a spe-
cific product. The coupons may be mailed or enclosed along with other products, or
inserted in a magazine or newspaper advertisement.

3. Exchange scheme:
In this case, the customer exchanges the old product for a new one. The old product’s
exchange value is deducted from the price of the new product. This sales promotion
tool is used by several companies for consumer durables. For instance. Philips came up
with five-in-one offer. The offer consisted of Philips TV, two-in-one, iron, mixer-grinder,
and rice cooker at an attractive price.

4. Discounts:
It refers to reduction in price on a particular item during a particular period. It is
common during festival season or during off-season period. It is very stimulating short-
term sales, especially when the discount provided is genuine one. For instance, the
Hawkins pressure cooker manufacturer announced an attractive price reduction, up to
Rs.150 off, on a new Hawkins in exchange for any old pressure cooker. The
advertisement specified that the offer was open only up to a particular date.

5. Premium offers:
These can be extra quantities of the same product at the regular price. Premium offers
are used by several firms selling FMCG goods such as detergents, soaps and food items.
For instance, Colgate offered 125 g in a tube for the price of 100 g.
6. Personality promotions:
This type of promotion is used to attract the greater number of customers in a store and
to promote sale of a particular item. For instance, a famous sports personality may be
hired to provide autographs to customers visiting a sports shop.

7. Installment sales:
In this case, consumers initially pay smaller amount of the price and the balance amount
in monthly installments over a period of time. Many consumer durables such as
refrigerators and cars are sold on installment basis. For example, Washotex came up
with a scheme to pay 20 per cent now and take home Washotex washing machine. The
consumers were offered the facility of paying the balance in 24 equal monthly
installments.

B. Trade-oriented Sales Promotion:

Trade-oriented sales promotion programmes are directed at the dealer network of the
company to motivate them to the sell more of the company’s brand than other brands.
It is also known as push strategy, which is directed at the dealer network so that they
push the brand to the consumers by giving priority over other competitor brands.

Some of the important trade-oriented promotion tools are as follows:

1. Cash bonuses:
 It can be in the form of one extra case for every five cases ordered, cash discounts or
straight cash payments to encourage volume sales, product display, or in support of a
price reduction to customers.

2. Stock return:
Some firms take back partly or wholly the unsold stocks lying with the retailers, and
distribute it to other dealers, where there is a demand for such stocks.

3. Credit terms:
Special credit terms may provide to encourage bulk orders from retailers or dealers.

4. Dealer conferences:
A firm may organize dealer conferences. The dealers may be given information of the
company’s performance, future plans, and so on. The dealers can also provide valuable
suggestions to the company at such conferences.

5. Dealer trophies:
Some firms may institute a special trophy to the highest-performing dealer in a
particular period of time. Along with the trophy, the dealer may get a special gift such as
a sponsored tour within or outside the country.

6. Push incentives:
It is a special incentive given to the dealer in the form of cash or in kind to push and
promote the sale of a product, especially a newly launched product.

25. PERSONAL SELLING

Personal selling happens when companies and business firms send out their salesmen to use
the sale force and sell the products and services by meeting the consumer face – to – face.
Here, the producers promote their products, the attitude of the product, appearance and
specialist product knowledge with the help of their agents. They aim to inform and encourage
the customer to buy, or at least trial the product.
For example, salesmen go to different societies to sell the products. Another example is found
in department stores on the perfume and cosmetic counters. A customer can get advice on how
to apply the product and can try different products. Products with relatively high prices, or with
complex features, are often sold using personal selling. Great examples include cars, office
equipment (e.g. photocopiers) and many products that are sold by businesses to other
industrial customers.
Characteristics of a good salesman
The success of a business undertaking largely depends upon the efficiency of its salesman. In
the modern age of cut throat competition, a person possessing desired qualities can prove to
be a successful salesman.
(1) Personality:
A good salesman should possess a good personality. What fragrance is to a flower is personality
to an individual. It is the ability to impress others. A charming personality always creates a good
impression. He should possess good health, attractive appearance and impressive voice. He
should not suffer from physical handicaps like stammering and limping etc.
(2) Cheerful Disposition:
He should have a smiling face. It is rightly said that ‘a man without a smiling face must not open
a shop. In order to impress upon the customers he should always be cheerful and sweet
tempered. He should be properly dressed as the dress greatly enhances the personality.
(3) Mental Ingredients:
An individual cannot be a successful salesman unless he possesses certain mental qualities like
imagination, sound judgment, presence of mind, foresightedness, initiative and strong memory.
These qualities are of great help to a salesman in dealing with customers having different
nature and temperament. He can successfully tackle the customers. The mental qualities are
very helpful in creating permanent customers for the product.
(4) Courtesy:
A salesman should always be polite and courteous towards his customers. It costs nothing but
wins permanent customers for the product. He should help the customers in making the right
choice or in selecting the products. This will definitely help in winning over the confidence of
the customers.
(5) Patience and Perseverance:
A salesman comes across different type of customers. Some of them purchase nothing but
waste time by asking irrelevant questions about the products. Under such circumstances, he
should not loose temper but give patient hearing to the customers.
He should not get tired with his customers soon. He should try time and again to convince the
customers. Customer is supreme for him and he should not leave any stone unturned to give
full satisfaction to the customers.
(6) Complete Knowledge About The Self, Product, Company And The Customer:
A salesman should clearly know about himself. He should try to find out his limitations and
make constant efforts to overcome them. At the same time, he should know his strong points.
While dealing with the customers he should exhibit his plus points and avoid displaying the
weaknesses. He can remove his weaknesses by undergoing proper training. There is no denying
the fact that salesmen are made and not born.
He should possess the full knowledge about the product so that he may properly answer the
questions of the customers at the time of sale. The buyer depends to a great extent on the
salesman especially in case of a new product.
He should know about the design, colour, contents, materials used, labour employed and
production technique etc. He should be conversant with the distribution channels employed to
sell the product.
A successful salesman must know every detail about the history of the concern, its
achievements, standing etc… He should also clearly know about the sales organisation and
distribution policies adopted by the undertaking. All this information will be of great help to the
salesman in initiating his selling effort.
He should also have full knowledge about the customer. The success of a salesman lies in
creating permanent customer for the product. He should try to understand the nature, buying
habits and motives of the customers.
He should properly assess the requirements of the customers and should be capable of tackling
the customers having different nature. He should show decent behaviour to the customers.

26. REASONS FOR THE GROWTH OF INTEGRATED MARKETING COMMUNICATION

1. The growth of innovative promotional tools and need to integrate them.
2. Specialized media vehicles for niche target customers.
3. Growth of retailer dominated market and passing of control from manufacturer
to the customer.
4. Growth of database marketing.
5. Wider geographical coverage through internet.
6. Higher accountability and performance linked compensation schemes.

27. SIGNIFICANCE OF CRM

(a) Reduction in customer recruitment cost.
(b) Generation of more loyal customers.
(c) Expansion of customer base.
(d) Reduction in advertisement and other sales promotion expenses.
(e) Increase in the number of profitable customers.
 (f) Easy introduction of new products.
(g) Easy business expansion possibilities.
(h) Increase in customer partnering.
(i) The customers are also benefited by relationship marketing in terms of improved
service quality, personalized care, reduction of customer stress, increased value for
money, customer empowerment, etc.

28. ADVANTAGES OF INTERNATIONAL MARKETING

(a) International marketing provides growth opportunities for the companies whose
domestic market is maturing. For example, General Motors focuses its strategies
on the emerging markets like India
(b) It brings the major portion of sales and profits to the company. For example,
Unilever’s major revenue comes from the Asian markets.
(c) It generates employment: Indian textile sector which exports majority of the
product produced is a large employer after agriculture and retail.
(d) International market also acts as survival place for the companies. If one market
becomes unattractive, either they establish their operations in another country or
outsource the major functions to streamline the businesses.
(e) It helps in improving the standard of living in the country.