Marketing Chapter 1 To 2

[Principles of marketing]
Chapter one: Nature and scope of marketing
Introduction
In today’s competitive environment a lot of emphasis is laid on the marketing since marketing
deals with customers more than any other business function. We find every organization carrying
out a lot of marketing activities. This chapter deals with basic marketing concepts, its importance
and philosophies of marketing.
1.1. Definitions and core concepts of marketing

A. Definitions of Marketing
What is marketing?
Many people think of marketing as only selling and advertising. But advertising and selling is
one part of marketing. So, marketing is defined as follows:
 Marketing is the social process by which individuals and groups obtain what they need
and want through creating and exchanging value with others (Philip Kotler).
 The chartered Institute of Marketing defines marketing as the management process that
identifies, anticipates and satisfies customer requirements profitably.
 Marketing is the activity, set of institutions, and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients, partners, and
society at large (American Marketing Association).
Note that the definition of marketing focuses on the lifetime value of a customer. All the
functional areas have to take an "integrated marketing" approach and work towards the goal of
satisfying and delivering value to customers. If you do not truly care about your customers, you
are not a good marketer. Also, note the importance of all stakeholders and society at large. A
good marketer is not only concerned with making money. So, the twofold goal of marketing is to
attract new customers by promising superior value, and keep and grow current customers by
delivering satisfaction.
[HM: Ambo University, Department of marketing management] Page 1
What is marketing management?

Marketing Management:-
 Is a process of planning, organizing, directing and controlling the activities of
product planning, pricing; promotion and distribution of products to create exchange
that satisfy individuals and organizational needs.
 is an art and science of choosing target markets and building profitable relationships
with them, then it involves getting, keeping and growing customers through creating,
delivering and communications superior customer value.
In general, marketing management is a business discipline focused on the practical application of
marketing techniques and the management of a firm’s marketing resources and activities.
Marketing managers are often responsible for influencing the level, timing, and composition of
customers demand in a manner that will achieve the company’s objective.
B. Core concepts of marketing
To have more clear view about the marketing and to understand the marketing process first we
should discuss the basic concepts of marketing.
1. Needs, Wants, and Demands
Needs
The most basic concept underlying marketing is that of human needs. Human needs are a state of
felt deprivation of the basic human requirements such as food, air, water, clothing and shelter.
Humans beings have many complex needs such as:-
 Basic physical needs for food, clothing, warmth and safety;

 Social needs for belonging and affection; and
 Individual needs for knowledge and self-expression.
These needs are not invented by marketers; they are a basic part of the human make-up.
Marketers do not create needs but, they influence the demand by making the appropriate,
attractive, affordable and easily available product to target customers. Need is natural, It is not
affected by culture, and marketing has no influence in creating needs.

Wants
Wants are the form human needs take as they are shaped by culture and individual personality.
They are the forms by which people communicate their needs. They are assortments (bundles) of
products that people choose to satisfy their needs. When an Italian and an Ethiopian feel hungry
both have need for food but the (form) they choose to satisfy their need may be different. The
Ethiopian may prefer “KITFO” or “Raw Meat” but the Italian may prefer “Spaghetti”. Culture
and marketing can influence the wants of people. The closer that a product matches the
consumer’s want, the more successful the product will be.
Demands
Demands are wants for specific products that are backed up by an ability and willingness to buy
product. Wants become demands when backed up by purchasing power. Companies must
therefore, measure not only how many people want their product but, more important, how many
would actually be willing and able to buy it. Two people may have the same need for example
need for food; and may have the same want for example Spaghetti; but one may not afford the
cost of spaghetti because he can not afford it and therefore shift his demand to a cheaper food
item.
2. Products
A product is anything that can be offered to a market for attention, acquisition, use or
consumption and that might satisfy a need or want. Products are solutions to the problems of the
customer. People buy products in order to solve their problems, because of the benefit they
desire from the product. Marketers market ten main types of entities: goods, services, events,
experiences, persons, places, properties, organizations, information, and ideas.
Goods
Goods are any tangible products that can be touch and seen. Example: table, chair, refrigerators,
televisions, machines, blackboard, chalk, and etc.
Services
Service is any activity or benefit that one party can offer to another which is essentially
intangible and does not result in ownership of anything. As economies advance, a growing
proportion of their activities focus on the production of services. Services include the work of
airlines, hotels, barbers and beauticians, maintenance and repair people, and accountants,
bankers, lawyers, engineers, doctors, software programmers, and management consultants.
Events
Marketers promote time-based events, such as major trade shows, artistic performances, and
global sporting events such as the Olympics and the World Cup.
Experiences
By coordinating several services and goods, a firm can create stage, and market experiences.
Persons
Persons are also a product and marketed themselves. Example: artists, musicians, CEOs,
physicians, football players, and other professionals. Some people have done a masterful job of
marketing themselves—Messy, Saladin Seid, Almaz Ayana and others.
Places
Cities, states, regions, and whole nations compete to attract tourists, residents, and factories.
Example: the obelisk of Axum, Dire Shekena Hussein, 11 Rock-Hewn Church
Properties
Properties are intangible rights of ownership to either real property (real estate) or financial
property (stocks and bonds). They are bought and sold, and these exchanges require marketing.
Real estate agents work for property owners or sellers, or they buy and sell residential or
commercial real estate. Investment companies and banks market securities to both institutional
and individual investors.
Organizations
Organizations work to build a strong, favorable, and unique image in the minds of their target
publics. Universities, museums, performing arts organizations, corporations, and nonprofits all
use marketing to boost their public images and compete for audiences and funds.
Information
The production, packaging, and distribution of information are a major industry in a given
society. Marketers of information may include school, and universities, publishers of
encyclopedias, nonfiction books, and specialized magazines, makers of CDs, and internet web
sites.
Ideas
Every market offering has a basic idea at its core concept. Products and services are platforms
for delivering some idea or benefit to satisfy a core need. Marketers marketed their business idea
to different organizations.
3. Customer value and satisfaction
Customer perceived value: - is the customer’s evaluation of the difference between all the
benefits and all the costs of a market offering relative to those of competing offers. It is the
satisfaction of customer’s requirements at the lowest possible cost of acquisition, ownership, and
use. It is the difference between the values that the customer gains from owning and using a
product and the costs of obtaining the product. It can also be defined as a ratio between what the
customer gets and what he gives.
Value=Benefit = Functional benefit + Emotional benefit
Cost monetary costs + Time costs + Energy Costs + psychic cost
The marketer can increase the value of the customer offering in several ways:
 Raise benefits
 Reduce costs
 Raise benefits and reduce costs
 Raise benefits by more than the raise in costs
In general, since customers prefer products that offer high value, therefore businesses need to
provide a high value product.
Customer satisfaction: - is the extent to which a product’s perceived performance matches a
buyer’s expectations. It depends on the product’s perceived performance relative to a buyer’s
expectations. If the product’s performance falls short of expectations, the customer is
dissatisfied. If performance matches expectations, the customer is satisfied. If performance
exceeds expectations, the customer is highly satisfied or delighted.
Why is it important to satisfy a customer? It is more costly to attract new customers than to retain
current customers. Therefore, customer retention is more critical than customer attraction.

A satisfied customer is:-

 Stays loyal longer
 Buys more as the company introduces new products and upgrades
 Talks favorably about the company and its products
 Pays less attention to competing brands and is less sensitive to price
 Offers product /service ideas to the company
 Cost less to serve than new customers because transactions are take place on routine bases
4. Exchange and Transaction
Exchange
Marketing occurs when people decide to satisfy needs and wants through exchange. Exchange is
the act of obtaining a desired product from someone by offering something of value in return. It
is the core concept of marketing.
For an exchange to take place, several conditions must be satisfied:
a. There are at least two parties must participate

b. Each party must have something of value to the other party
c. Each party is capable of communication and delivery
d. Each party is free to accept or reject the exchange offer
e. Each party believes it is appropriate or desirable to deal with the other party
If these conditions exist there is potential for exchange, whether exchange actually takes place
depends on whether the two parties can agree on terms of the exchange that will leave them
better off before the exchange. This is the sense in which exchange is described as a value-
creating process that is; exchange normally leaves both parties better than before the exchange.
Transaction
Exchange must be seen as a process than an event whereas a transaction is marketing’s unit of
measurement. The transactions are the basic unit of exchange. Transaction is a trade of value
between two parties. One party gives X to another party and gets Y in return. A transaction

involves at least two things of value, conditions that are agreed upon, a time of agreement and a
place of agreement.
5. Relationship marketing
Relationship marketing involves creating, maintaining and enhancing strong relationships with
customers and other stakeholders. Increasingly, marketing is moving away from a focus on
individual transactions and towards a focus on building value-laden relationships and marketing
networks. It is a marketing strategy to establish, maintain, and enhance long term relationships
with customers and other partners at a profit in the way that the objectives of the parties involved
are achieved through mutual exchange and fulfillment of promises. It concerned with the long-
term and not merely to sell a product or service to a customer one time. The goal is to have a
satisfied customer and establish an ongoing and long-term relationship with them.
6. Market
A market is the set of actual and potential buyers of a product. These buyers share a particular
need or want that can be satisfied through exchanges and relationships. The size of the market
depends on the number of people (1) who have the need, (2) have resources (money) for the
exchange and (3) want to spend these resources in the exchange.
7. Marketing mix
The marketing mix is one of the dominant ideas in modern marketing. We define marketing
mix as the set of controllable tactical marketing tools that the firm blends to produce the
response it wants in the target market. It consists of everything the firm can do to influence the
demand for its product. The marketing mix includes the four P s of marketing i.e. product,
price, promotion and place.
Product: is anything that can be offered to a market for attention, acquisition, use or
consumption that might satisfy a want or need.
Price: is the amount of money charged for a product, or the sum of the values that consumers
exchange for the benefits of having or using the product.
Place: is all the company activities that make the product or service available to target
customers.

Promotion: is activities that communicate the product or service and its merits to target
customers and persuade them to buy.
4Ps 4Cs
Product Customer problem solution
Price Customer cost
Promotion Communication
Place Convenience
1.2. Evolution and Philosophies of marketing management
There are five competing concepts under which organizations can choose to conduct their
marketing activities.
1. The production concept
Production concept holds that customers will favor products that are highly available and highly
affordable. Managers of production-oriented businesses concentrate on achieving high
production efficiency, and mass distribution.
The production concept is still a useful philosophy in some situations. However, although useful
in some situations, the production concept can lead to marketing myopia. Companies adopting
this orientation run a major risk of focusing too narrowly on their own operations and losing
sight of the real objective—satisfying customer needs and building customer relationships.
The production concept is a useful philosophy in two types of situations:
 When demand for a product is greater than supply
 When the product cost is too high and improved productivity is needed to lower the
cost
2. The product concept
The product concept holds that consumers will favor products that offer the most quality,
performance and innovative (new) features. Under this concept, marketing strategy focuses on
making continuous product improvements.
Product quality and improvement are important parts of most marketing strategies. However,
focusing only on the company’s products can also lead to marketing myopia. A new or improved
product will not necessarily be successful unless it’s priced, distributed, advertised, and sold
properly. They can end up focusing just on the product and not seeing wider market trends that
may affect demand.
3. The selling concept
The selling concept holds that consumers will not buy enough of the organization’s products
unless the organization undertakes a large-scale selling and promotional efforts. Firms that
follow this philosophy focus on "pushing" the product using advertising and promotion. The
concept is largely practiced with unsold goods i.e. goods that consumers do not normally think
of buying such as insurance, or encyclopedia; and also practiced in the non-profit area like
political party that tries to get votes to support candidates.
Companies practice the selling concept when they have overcapacity/ excessive amount of
products. Their aim is to sell what they make rather than make what the market wants. Thus
marketing based on hard selling carries high risks. It focuses on short-term results -creating sales
transactions - rather than on building long-term, profitable relationships with customers.
4. The marketing concept
The marketing concept holds that achieving organizational goals depends on determining the
needs and wants of target markets and delivering the desired satisfaction more effectively than
competitors. It is based on the satisfaction of customer’s needs and wants. So, the company
should be more effective than its competitors in creating, delivering, and communicating
customer value to its chosen markets.
Slogans used in the marketing concept include:
 The customer is the ‘King, Boss”
 We are not satisfied until our customers are satisfied
What is the difference between selling concept and marketing concept?
The selling concept takes an inside-out perspective. It starts with the factory, focuses on the
company’s existing products, and calls for heavy selling and promotion to obtain profitable sales.
It focuses primarily on getting short-term sales with little concern about who buys or why. In
contrast, the marketing concept takes an outside-in perspective. The marketing concept starts
with a well-defined market, focuses on customer needs, and integrates all the marketing activities

that affect customers. In turn, it yields profits by creating long lasting relationships with the right
customers based on customer value and satisfaction.
5. The societal marketing concept
Societal marketing concept holds that the organization should determine the needs, wants, and
interests of target markets and deliver the desired satisfactions more effectively than
competitors in a way that maintains or improves the customer’s and society’s well-being. It
calls for sustainable marketing, socially and environmentally responsible marketing that meets
the present needs of consumers and businesses while also preserving or enhancing the ability
of future generations to meet their needs. The societal marketing concept is the most recent of
the five marketing philosophies.
1.3. Importance of marketing
Marketing have several importance for producers (sellers), for customers, for employees and for
the society as a whole.
As Producers or sellers marketing helps us to understand:
• Who are our customers
• What are their needs
• What are their behavior
• What products to offer
• What price to charge
• What promotion to use
• What distribution to select
• How to keep customers Satisfied
• Improve relationships and become profitable
As customers marketing will help us:
• Satisfy our needs
• Solve our problems
• What products to buy
• What price to pay
• What supplier to deal with
• Improve relationship and lead quality life

As employees marketing
• Provide us employment
• Provide rewarding jobs
• Provides variety of jobs
• Provides career opportunities (growth, development)
• Lead quality life
As a member of society marketing:
• Provide employment to members of the society
• Improves product efficiency and reduces resource depletion
• Improves quality of life
• Participates in societies economic and social development
1.4. Marketing Tasks
The set of tasks necessary for successful marketing management includes developing marketing
strategies and plans, capturing marketing insights, connecting with customers, building strong
brands, shaping the market offerings, delivering and communicating value, and creating long-
term growth. In addition to this marketers also perform the task of managing the demand of their
offerings and building profitable customer relationships.
1.4.1. Building Profitable Customer Relationship
Managing demand means managing customers. A company's demand comes from two groups:
new customers and current customers. Traditional marketing theory and practice have focused on
attracting new customers and making the sale. Today, however, the emphasis is shifting. Beyond
designing strategies to attract new customers and create transactions with them, companies are
now going all out to retain current customers and build lasting customer relationships.
Attracting new customers remains an important marketing management task. However, the focus
today is shifting towards retaining current customers and building profitable, long-term
relationships with them since the costs of attracting new customers’ costs are five times the costs
of keep a current customer.

Customer relationship management is the overall process of building and maintaining

profitable customer relationships by delivering superior customer value and satisfaction. It deals
with all aspects of acquiring, keeping, and growing customers. The key to building lasting
customer relationships is to create superior customer value and satisfaction. Satisfied customers
are more likely to be loyal customers and give the company a larger share of their business.
Customer Development Stages
1. Suspect: -is everyone who might buy the product or who think or imagine in his mind.
2. Prospect-is people who have a strong potential interest in the product and the ability to
pay for it.
3. First time customers-are qualified prospects who are converted into trying the product for
the first time.
4. Repeat customers – are satisfied first time customers converted into repeat purchase
5. Client-are people whom the company treats very specially and which goods or services are
provided and sold.
6. Members: –are clients who join the membership program that offer a whole set of benefits
or somebody belonging to a particular group.
7. Advocates: - are customers who recommend the company and its products and services to
others or customers who support or speaks in favor of about the company’s product.
8. Partners – are customers who work closely with company and who owns part of a
company or who share the asset, risk, profit etc.
1.4.2. Demand Management
The organization has a desired level of demand for its products. At any point in time, there may
be no demand, adequate demand, irregular demand or too much demand, and marketing
management must find ways to deal with these different demand states. So, marketers are
responsible for demand management. They seek to influence the level, timing, and composition
of demand to meet the organization’s objectives.

There are eight states of demand and the corresponding tasks facing managers:-
1. Negative demand
A market is in a state of negative demand if a major part of the market dislikes the product and
may even pay a price to avoid it. The marketing task is to analyze why the market dislikes the
product and whether a marketing program consisting of product redesign, lower prices, and
more positive promotion can change beliefs and attitudes.
2. No demand
No demand occurs when target markets unaware or uninterested in the product. For example:
farmers may not be interested in a new farming method, and college students may not be
interested in foreign-language courses. The marketing task is to find ways to connect the benefits
of the product with the person's natural needs and interests.
3. Latent demand
Latent demand occurs when market share a strong need that cannot satisfy by any existing
product. For example: there is a strong latent demand for harmless cigarettes, safer
neighborhoods, and more fuel-efficient cars. The marketing tasks are to measure the size of the
potential market and develop goods and services to satisfy the demand.
4. Declining demand
Declining demand implies a substantial drop in the demand for products. It is when consumers
begin to buy the product less frequently or not at all. The marketer must analyze the causes of the
decline demand and determine whether the demand can be re- stimulated by new target markets,
by changing product features, or by effective communications. Then, the marketing task must be
reverse declining demand through creative remarketing.
5. Irregular demand
Irregular demand occurred when organizations face demand that varies on a seasonal, monthly,
daily, or even hourly. For example museums are under visited on weekdays and overcrowded on
weekends. The marketing task, called “Synchro marketing”, is to find ways to adjust the pattern
of demand through flexible pricing, promotion, and other incentives.

6. Full demand
Organizations face full demand when they are pleased with their volume of business. The
marketing task is to maintain the current level of demand in the face of changing consumer
preferences and increasing competition. The organization must maintain or improve its quality
and continually measure consumer satisfaction.
7. Overfull demand
Some organization faces a demand level that is higher than they can handle. The marketing task,
called “de-marketing”, requires finding ways to reduce demand temporarily or permanently. De-
marketing seeks to discourage overall demand by the use of raising prices, and reduce promotion
and service. Selective de-marketing consists of trying to reduce demand from those parts of the
market that are less profitable.
8. Unwholesome demand
Unwholesome products will attract organized efforts to discourage their consumption. Un-
selling campaigns have been conducted against cigarettes, alcohol, hard drugs, and handguns,
etc. The marketing task is to get people who like something to give it up, using such tools as
fear messages, price hikes, and reduced availability.
In general, marketers must identify the underlying cause(s) of the demand state and determine
a plan of action to shift demand to a more desired state.

Chapter Two: Marketing Environment
Introduction
Marketing does not occur in a vacuum; rather marketing operates in a complex and changing
environment. The environment of marketing affects its growth, development, existence and
success. So, companies to succeed as long as they have to match their products to today's
marketing environment. This chapter addresses the key forces in the firm's marketing
environment and how they affect its ability to maintain satisfying relationships with target
customers.
What is marketing environment?
Marketing environment consists of the actors and forces outside marketing that affect marketing
management’s ability to build and maintain successful relationships with target customers.
Changes in the marketing environment are often quick and unpredictable which offers both
opportunities and threats to the company. A company uses environmental scanning to monitor
what is going on and to determine environmental changes and predicts future changes in the
environment. By conducting systematic environmental scanning, marketers are able to revise
and adapt marketing strategies to meet new challenges and opportunities in the marketplace.
Marketer’s have two methods (marketing research and marketing intelligence system) for
collecting information about the marketing environment. Marketing research is the systematic
design, collection, analysis, and reporting of data relevant to a specific marketing situation facing
an organization. Marketing intelligence system is the way in which marketing managers obtain
everyday information about developments in the external marketing environment from books,
news papers, trade publication, suppliers etc.
The marketing environment consists:-
 Micro-environment
 Macro-environment

2.1. Micro-environment
The micro environment consists of the forces close to the company that affect its ability to serve
its customers. Marketing management's job is to attract and build relationships with customers
by creating customer value and satisfaction. However, marketing managers cannot accomplish
this task alone. Their success will depend on other actors in the company's microenvironment
which combine to make up the company's value delivery system. The micro environment
consists of six actors: the company, suppliers, marketing intermediaries, customer markets,
competitors, and publics.
1. The company
In designing marketing plans, marketing management should take other company groups, such
as top management, finance, research and development, purchasing, manufacturing and
accounting, into consideration. All these interrelated groups form the internal environment.
Top management sets the company's mission, objectives, brand strategies, and policies.
Marketing managers make decisions within the plans made by top management, and marketing
plans must be approved by top management before they can be implemented. Finance is
concerned with finding and using funds to carry out the marketing plan. The R&D department
focuses on designing safe and attractive products. Purchasing worries about getting supplies and
materials whereas, manufacturing is responsible for producing the desired quality and quantity of
products. Accounting has to measure revenues and costs to help marketing know how well it is
achieving its objectives. Since all of these departments have an impact on the marketing
department's plans and actions, marketers must work in harmony with other company
departments to create customer value and relationships.
2. Suppliers
Suppliers are organizations that provide resources needed by the organizations to produce goods
and services. Supplier problems can seriously affect marketing. Marketing managers must watch
supply availability and costs. Supply shortages or delays, labor strikes, and other events can cost

sales in the short run and damage customer satisfaction in the long run. They also monitor the
price trends of their key inputs since rising supply costs may force price increases that can harm
the company’s sales volume.
Most marketers today treat their suppliers as partners in creating and delivering customer value.
One of the skills required in managing suppliers is supply chain management. Supply chain
management refers to managing upstream and downstream value-added flows of materials, final
goods, and related information among suppliers, the company, resellers, and final consumers.
3. Marketing intermediaries
Marketing intermediaries are firms that help the company to promote, sell, and distribute its
products to final buyers. They include resellers, physical distribution firms, marketing service
agencies, and financial intermediaries.
Resellers: - are distribution channel firms that help the company find customers or make sales
to them. These include wholesalers and retailers, who buy and resell merchandise.
Physical distribution firms: - are firms that help the company to stock and move goods from
their points of origin to their destinations. By working with warehouse and transportation
firms, a company must determine the best way to store and ship goods, and balancing factors
such as cost, deliver, speed, and safety.
Marketing services agencies: - are the marketing research firms, advertising agencies, media
firms and marketing consultancies 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 the firms vary in creativity, quality, service and price. The company has to review the
performance of these firms regularly and consider replacing those that no longer perform well.
Financial intermediaries: - are 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.
Marketing intermediaries form an important component of the company’s overall value delivery
network, so the company must do more than just optimize its own performance. Thus, today’s

marketers recognize the importance of working with their intermediaries as partners rather than
simply as channels through which they sell their products.
4. Customer markets
Customers are the most important actors in the company’s microenvironment. The aim of the
entire value delivery system is to serve target customers and create strong relationships with
them. Customer markets are markets that pay money to acquire an organization’s products. The
company might target any or all five types of customer markets.
Consumer markets: - are markets that consist of individuals and households that buy goods and
services for personal consumption.
Business markets: -are markets that buy goods and services for further processing or use in their
production processes.
Reseller markets: - are markets that buy goods and services to resell at a profit.
Government markets: - are markets that consist of government agencies that buy goods and
services to produce public services or transfer the goods and services to others who need them.
International markets: - are markets that consist of those buyers in other countries, including
consumers, producers, resellers, and governments. Each market type has special characteristics
that call for careful study by the seller.
5. Competitors
Competitors are a wide range of organizations that compete with other organizations through
adding greater customer value. The marketing concept states that, to be successful, a company
must provide greater customer value and satisfaction than its competitors do. Thus, marketers
must do more than simply adapt to the needs of target consumers. They also must gain strategic
advantage by positioning their offerings strongly against competitors’ offerings in the minds of
consumers.
No single competitive marketing strategy is best for all companies. Each firm should consider its
own size and industry position compared to those of its competitors. 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 rates of return than large firms
enjoy.
Knowing competitors is critical for marketing planning and operations. Marketing should know
the following about competitors:-
 Who are our competitors?
 What are their strategies?
 What are their objectives?
 What are their strengths and weaknesses?
 What are their reaction patterns?
6. Publics
A public is any group that has an actual or potential interest in or impact on an organization’s
ability to achieve its objectives. There are seven types of publics in which the company’s
marketing environment includes:-
• Financial publics: - this group influences the company’s ability to obtain funds. Banks,
investment analysts, and stockholders are the major financial publics.
• Media publics: - this group carries news, features, and editorial opinion. It includes
newspapers, magazines, television stations, and blogs and other Internet media.
• Government publics: - management must take government developments into account.
Marketers must often consult the company’s lawyers on issues of product safety, truth in
advertising, and other matters.
• Citizen-action publics: - a company’s marketing decisions may be questioned by consumer
organizations, environmental groups, minority groups, and others. Its public relations department
can help it stay in touch with consumer and citizen groups.
• Local publics: - this group includes neighborhood residents and community organizations.
Large companies usually create departments and programs that deal with local community issues
and provide community support.
• General public: - a company needs to be concerned about the general public’s attitude toward
its products and activities. The public’s image of the company affects its buying.
• Internal publics: - this group includes workers, managers, volunteers, and the board of
directors. Large companies use newsletters and other means to inform and motivate their internal
publics. When employees feel good about the companies they work for, this positive attitude
spills over to the external publics.
2.2. Macro-environment
The macro-environment consists of the larger societal forces that affect the microenvironment. It
includes, demographic, economic, natural, technological, political, and cultural environment.
1. Demographic environment
Demography is the study of human populations in terms of size, density, location, age, gender,
race, occupation, and other statistics. The demographic environment is of major interest to
marketers because it involves people, and people make up markets.
The most important demographic factors and trends in the largest world markets that marketers
need to consider includes:-
 Changing Age Structure of a Population
 Geographic Shifts in Population
 Rising Number of Educated People
 Increasing Diversity
Thus, marketers keep a close eye on demographic trends and developments in their market. They
need to analyze changing age and family structures, geographic population shifts, educational
characteristics, and population diversity.
2. Economic environment
The economic environment consists of economic factors that affect consumer purchasing power
and spending patterns. The major factors that affect purchasing power include: Income, saving,
and credit facilities. Nations vary greatly in their levels and distribution of income. Some
countries have subsistence economies - they consume most of their own agricultural and
industrial output. These countries offer few market opportunities. Marketers must pay close

attention to major trends and consumer spending patterns both across and within their world
markets.
3. Natural environment
The natural environment involves the natural resources that are needed as inputs by marketers
or that are affected by marketing activities. Marketers should be aware of several trends in the
natural environment such as:
1. Growing shortages of raw materials.

2. Increased pollution. Industry will almost always damage the quality of the natural
environment. Industrial damage to the environment has become very serious.
3. Government intervention in natural resource management has caused environmental
concerns to be more practical and necessary in business and industry. Instead of opposing
regulation, marketers should help develop solutions to the material and energy problems
facing the world.
4. Technological environment
The technological environment includes forces that create new technologies, creating new
product and market opportunities. The technological environment is perhaps the most dramatic
force now shaping our destiny. The technological environment changes rapidly. New
technologies create new markets and opportunities. However, every new technology replaces
an older technology. Companies that do not keep up with technological change soon will find
their products outdated. They will miss new product and market opportunities. Thus,
marketers should watch the technological environment closely. The following trends are
worth watching:
 Faster rate of technological change. Products are being technologically outdated at a rapid
pace.
 There seems to be almost unlimited opportunities being developed daily. The challenge is
not only technical but also commercial - to make affordable versions of products.

 Higher research and development budgets.

 Increased regulation. Marketers’ should be aware of the regulations concerning product
safety, individual privacy, and other areas that affect technological changes.
5. Political environment
Marketing decisions are strongly affected by developments in the political environment. The
political environment consists of laws, government agencies, and pressure groups that
influence and limit various organizations and individuals in a given society. Business is
regulated by various forms of legislation such as:
1. Governments develop public policy to guide commerce - sets of laws and regulations
limiting business for the good of society as a whole.
2. Increasing legislation to:
 Protect companies from each other.

 Protect consumers from unfair business practices.
 Protecting interests of society against unrestrained business behavior.
3. Growth of public interest groups. The number and power of public interest groups have
increased during the past two decades.
4. Increased emphasis on ethics and socially responsible actions. Socially responsible firms
actively seek out ways to protect the long-run interests of their consumers and the environment.
6. Cultural environment
The cultural environment is made up of institutions and other forces that affect society’s basic
values, perceptions, and behaviors. Certain cultural characteristics can affect marketing
decision making. Among the most dynamic cultural characteristics are:
1. Persistence of cultural values. People’s core beliefs and values have a high degree of
persistence. Core beliefs and values are passed on from parents to children and are
reinforced by schools, churches, business, and government. Secondary beliefs and values
are more open to change.
2. Shifts in secondary cultural values. Since secondary cultural values and beliefs are open to
change, marketers want to spot them and be able to capitalize on the change potential.
Society’s major cultural views are expressed in:
1. People’s view of themselves. People vary in their emphasis on serving themselves versus
serving others.
2. People’s views of others. Observers have noted a shift from a “me-society” to a “we-
society”. Consumers are spending more on products and services that will improve their
lives rather than their image.
3. Peoples views of organizations. People are willing to work for large organizations but
expect them to become increasingly socially responsible
4. People’s views of society. This orientation influences consumption patterns. “Buy Ethiopian
products” versus buying abroad is an issue that will continue

Chapter Three: Understanding the market
3.1. What is a market?
The concept of exchange leads to the concept of a market. A market is the set of actual and
potential buyers of a product. These buyers share a particular need or want that can be satisfied
through exchange. Thus, the size of a market depends on the number of people who exhibit the
need, have resources to engage in exchange, and are willing to offer these resources in exchange
for what they want.
Originally the term market stood for the place where buyers and sellers gathered to exchange
their goods, such as a village square. Marketers, however, see the sellers as constituting an
industry and the buyers as constituting a market. The sellers and the buyers are connected by
four flows. The sellers send products or services and communications to the market; in return,
they receive money and information.
The relationship between the industry and the market

Types of market
There are several types of markets that marketers provide their offerings. This includes:
consumer markets (markets that consist of individuals and households that buy goods and
services for personal consumption), business markets (markets that buy goods and services for

further processing or use in their production processes), reseller markets (markets that buy goods
and services to resell at a profit), government markets (markets that consist of government
agencies that buy goods and services to produce public services or transfer the goods and
services to others who need them), and international markets (markets that consist of those
buyers in other countries, including consumers, producers, resellers, and governments). In this
chapter we focus more on consumer markets and its buying behavior, and business markets and
its buying behavior.
3.2. Consumer market and consumer buying behavior
The aim of marketing is to meet and satisfy target customers’ needs and wants better than
competitors. Marketers must have a thorough understanding of how consumers think, feel, and
act and offer clear value to each and every target consumer.
Consumer buyer behavior refers to the buying behavior of final consumers (individuals and
households that buy goods and services for personal consumption). Buying behavior is never
simple, yet understanding it is an essential task of marketing management. All of these final
consumers combine to make up the consumer market. Consumer market is a market that
consists of all the individuals and households that buy or acquire goods and services for personal
consumption.
3.2.1. Factors affecting consumer behavior
A consumer’s buying behavior is influenced by cultural, social, personal and Psychological

factors. For the most part, marketers cannot control such factors, but they must take them into
account.
1. Cultural factors
Cultural factors exert a broad and deep influence on consumer behavior. Marketers need to
understand the role played by these cultural factors which includes buyer’s culture, subculture,
and social class.
A. Culture

Culture is the set of basic values, perceptions, wants, and behaviors learned by a member of
society from family and other important institutions. It is the most basic cause of a person’s
wants and behavior. Every group or society has a culture, and cultural influences on buying
behavior may vary greatly from country to country. A failure to adjust to these differences can
result in ineffective marketing or embarrassing mistakes.
B. Subculture
Each culture contains smaller subcultures. Subculture is group of people with shared value
systems based on common life experiences and situations. It includes nationalities, religions,
racial groups, and geographic regions. Many subcultures make up important market segments,
and marketers often design products and marketing programs tailored to their needs.
C. Social class
Almost every society has some form of social class structure. Social classes are society’s
relatively permanent and ordered divisions whose members share similar values, interests, and
behaviors. Social class is measured as a combination of occupation, income, education, wealth,
and other variables. Marketers are interested in social class because people within a given social
class tend to exhibit similar buying behavior.
2. Social factors
A consumer’s behavior also is influenced by social factors such as reference groups, family, and
social roles and status.
A. Reference groups
Reference groups are all the groups that have a direct or indirect influence on their attitudes or
behavior. Groups having a direct influence are called membership groups. Some of these are
primary groups with whom the person interacts fairly continuously and informally, such as
family, friends, neighbors, and coworkers. People also belong to secondary groups, such as
religious, professional, and trade-union groups, which tend to be more formal and require less
continuous interaction.
People are also influenced by groups to which they do not belong. Aspirational groups are
those a person hopes to join; dissociative groups are those whose values or behavior an

individual rejects. Where reference group influence is strong, marketers must determine how to
reach and influence the group’s opinion leaders.
B. Family
Family members can strongly influence buyer behavior. The family is the most important
consumer buying organization in society, and it has been researched extensively. Marketers are
interested in the roles and influence of the husband, wife, and children on the purchase of
different products and services.
C. Social roles and status
The person’s position in each group can be defined in terms of both role and status. A role
consists of the activities people are expected to perform according to the people around them.
Each role carries a status reflecting the general esteem given to it by society. People usually
choose products appropriate to their roles and status.
3. Personal factors
A buyer’s decisions also are influenced by personal characteristics such as the buyer’s age and
life-cycle stage, occupation, economic situation, lifestyle, and personality and self-concept.
A. Age and life-cycle stage
People change the goods and services they buy over their lifetimes. Tastes in food, clothes,
furniture, and recreation are often age related. Buying is also shaped by the stage of the family
life cycle—the stages through which families might pass as they mature over time. Life stage
changes usually result from demographics and life-changing events—marriage, having children,
purchasing a home, divorce, children going to college, changes in personal income, moving out
of the house, and retirement. Marketers often define their target markets in terms of life-cycle
stage and develop appropriate products and marketing plans for each stage.
B. Occupation
A person’s occupation affects the goods and services bought. Marketers try to identify the
occupational groups that have an above-average interest in their products and services. A
company can even specialize in making products needed by a given occupational group.
C. Economic situation
A person’s economic situation will affect his or her store and product choices. Marketers watch
trends in personal income, savings, and interest rates.
D. Lifestyle
People coming from the same subculture, social class, and occupation may have quite different
lifestyles. Lifestyle is a person’s pattern of living as expressed in his or her psychographics. The
lifestyle concept can help marketers understand changing consumer values and how they affect
buying behavior. Consumers don’t just buy products; they buy the values and lifestyles those
products represent.
E. Personality and self-concept
Personality refers to the unique psychological characteristics that distinguish a person.
Personality is usually described in terms of traits such as self-confidence, dominance, sociability,
autonomy, defensiveness, adaptability, and aggressiveness. Personality can be useful in
analyzing consumer behavior for certain product or brand choices.
4. Psychological factors
A person’s buying choices are further influenced by four major psychological factors:
motivation, perception, learning, and beliefs and attitudes.
A. Motivation
A person has many needs at any given time. Some are biological, arising from states of tension
such as hunger, thirst, or discomfort. Others are psychological, arising from the need for
recognition, esteem, or belonging. A need becomes a motive when it is aroused to a sufficient
level of intensity. A motive is a need that is sufficiently pressing to direct the person to seek
satisfaction.
B. Perception
A motivated person is ready to act. How the person acts is influenced by his or her own
perception of the situation. All of us learn by the flow of information through our five senses:
sight, hearing, smell, touch, and taste. However, each of us receives, organizes, and interprets

this sensory information in an individual way. Perception is the process by which people select,
organize, and interpret information to form a meaningful picture of the world.
C. Learning
When people act, they learn. Learning describes changes in an individual’s behavior arising
from experience. Learning theorists say that most human behavior is learned. Learning can
influence a consumer’s response to his or her interest in buying the product.
D. Beliefs and attitudes
A belief is a descriptive thought that a person has about something. Beliefs may be based on real
knowledge, opinion, or faith and may or may not carry an emotional charge. Marketers are
interested in the beliefs that people formulate about specific products and services because these
beliefs make up product and brand images that affect buying behavior. If some of the beliefs are
wrong and prevent purchase, the marketer will want to launch a campaign to correct them.
People have attitudes regarding religion, politics, clothes, music, food, and almost everything
else. Attitude describes a person’s relatively consistent evaluations, feelings, and tendencies
toward an object or idea. Attitudes put people into a frame of mind of liking or disliking things,
of moving toward or away from them.
3.2.2. Types of consumer buying decision behavior
Consumer decision making varies with the type of buying decision. More complex decisions
usually involve more buying participants and more buyer deliberation. The consumer buying
decision behavior is classified into four types based on the degree of buyer involvement and the
degree of differences among brands. This are: complex buying behavior, dissonance-reducing
buying behavior, habitual buying behavior, and variety-seeking buying behavior.
1. Complex buying behavior

Complex buying behavior is a consumer buying behavior in situations characterized by high
consumer involvement in a purchase and significant perceived differences among brands.
Consumers involve in complex buying behavior when the product is expensive, risky, purchased
infrequently, and highly self-expressive. This buyer will pass through a learning process, first
developing beliefs about the product, then attitudes, and then making a thoughtful purchase
choice. Marketers of high involvement products must understand the information-gathering and
evaluation behavior of high-involvement consumers and help buyers to learn about product-class
attributes and their relative importance by differentiate their brand’s features. Marketers need to
influence the consumers final brand choice.
2. Dissonance-reducing buying behavior
Dissonance-reducing buying behavior occurs when consumers are highly involved with an
expensive, infrequent, or risky purchase but see little difference among brands. In this case,
because perceived brand differences are not large, buyers may shop around to learn what is
available but buy relatively quickly. They may respond primarily to a good price or purchase
convenience. After the purchase, consumers might experience post purchase dissonance (after-
sale discomfort) when they notice certain disadvantages of the purchased brand or hear favorable
things about brands not purchased. To counter such dissonance, the marketer’s after-sale
communications should provide evidence and support to help consumers feel good about their
brand choices.
3. Habitual buying behavior
Habitual buying behavior occurs under conditions of low-consumer involvement and little
difference among brands. For example, take table salt. Consumers have little involvement in this
product category—they simply go to the store and reach for a brand. If they keep reaching for the
same brand, it is out of habit rather than strong brand loyalty. Consumers appear to have low
involvement with most low-cost, frequently purchased products.
4. Variety-seeking buying behavior
Variety-seeking buying behavior is a consumer buying behavior in situations characterized by
low consumer involvement but significant perceived brand differences. In such cases, consumers
often do a lot of brand switching. In such product categories, the marketing strategy may differ
for the market leader and minor brands. The market leader will try to encourage habitual buying
behavior by dominating shelf space, keeping shelves fully stocked, and running frequent
reminder advertising. Challenger firms will encourage variety seeking by offering lower prices,
special deals, coupons, free samples, and advertising that presents reasons for trying something
new.
3.2.3. The buyer decision process in consumer market
There are five stages that buyers pass through to reach a buying decision. Clearly, the buying
process starts long before the actual purchase and continues long after. This encourages the
marketer to focus on the entire buying process rather than just the purchase decision since
consumers pass through all five stages with every purchase.
Stage 1 Need recognition
It is the first stage of the buyer decision process in which the consumer recognizes a problem or
need. The need can be triggered both by internal stimuli and external stimuli. The marketer can
identify the stimuli that most often trigger interest in the product and can develop marketing
strategies that involve these stimuli.
Stage 2 Information search
It is the stage of the buyer decision process in which the consumer is aroused to search for more
information. The consumer may simply have heightened attention or may go into an active
information search. The consumer can obtain information from any of several sources: personal
sources (family, friends, and neighbors), commercial sources (advertising, salespeople, dealers,
packaging, and displays), public sources (mass media, consumer-rating organization) and
experiential sources (handling, examining, and using the product). The marketer should identify
consumers' sources of information and design its marketing mix to make prospects aware of and
knowledgeable about its brand.
Stage 3 Evaluation of alternatives

It is the stage of the buyer decision process in which the consumer uses information to evaluate
alternative brands in the choice set. The consumer ranks brands and forms purchase intentions.
Marketers should study buyers to find out how they actually evaluate brand alternatives. If
marketers know what evaluative processes go on, they can take steps to influence the buyer’s
decision.
Stage 4 Purchase decision
It is the stage of the buyer decision process in which the consumer actually buys the product. A
consumer's decision to change, postpone or avoid a purchase decision is influenced heavily by
perceived risk. Many purchases involve some risk taking. The marketer must understand the
factors that provoke feelings of risk in consumers and must provide information and support that
will reduce the perceived risk.
Stage 5 Post purchase behavior
It is the stage of the buyer decision process in which consumers take further action after purchase
based on their satisfaction or dissatisfaction with a purchase. If the product falls short of
expectations, the consumer is disappointed; if it meets expectations, the consumer is satisfied; if
it exceeds expectations, the consumer is delighted. This suggests that sellers should promise only
what their brands can deliver so that buyers are satisfied.
3.3. Business markets and business buying behavior
The business marketer needs to know: who are the major participants? In what decisions do they
exercise influence? What is their relative degree of influence? What evaluation criteria does each
decision participant use? The business marketer also needs to understand the major
environmental, interpersonal, and individual influences on the buying process.
Business buyer behavior refers to the buying behavior of the organizations that buy goods and
services for use in the production of other products and services that are sold, rented, or supplied
to others. Business market is a market that comprises all the organizations that buy goods and

services for use in the production of other products and services that are sold, rented, or supplied
to others.
3.3.1. Characteristics of business markets
In some ways, business markets are similar to consumer markets. Both involve people who
assume buying roles and make purchase decisions to satisfy needs. However, business markets
differ in many ways from consumer markets. The main differences include:
A. Market structure and demand

The business marketer normally deals with far fewer but far larger buyers than the consumer
marketer does. Business demand is derived demand—it ultimately derives from the demand for
consumer goods. Many business markets have inelastic demand; that is, the total demand for
many business products is not much affected by price changes, especially in the short run.
Finally, business markets have more fluctuating demand. The demand for many business goods
and services tends to change more and more quickly than the demand for consumer goods and a
service does. A small percentage increase in consumer demand can cause large increases in
business demand.
B. Nature of the Buying Unit
Compared with consumer purchases, a business purchase usually involves more decision
participants and a more professional purchasing effort. Often, business buying is done by trained
purchasing agents who spend their working lives learning how to buy better. Therefore,
companies must have well-trained marketers and salespeople to deal with these well-trained
buyers.
C. Types of Decisions and the Decision Process
Business buyers usually face more complex buying decisions than do consumer buyers. Because
the purchases are more complex, business buyers may take longer to make their decisions. The
business buying process also tends to be more formalized than the consumer buying process.
Large business purchases usually call for detailed product specifications, written purchase
orders, careful supplier searches, and formal approval.

3.3.2. Major types of business buying situations
There are three major types of business buying situations. This are:
1. Straight rebuy situation
A business buying situation in which the buyer routinely reorders something without any
modifications. It is usually handled on a routine basis by the purchasing department.
2. Modified rebuy situation

A business buying situation in which the buyer wants to modify product specifications, prices,
terms, or suppliers.
3. New task situation
A business buying situation in which the buyer purchases a product or service for the first time.
In such cases, the greater the cost or risk, the larger the number of decision participants and the
greater the company’s efforts to collect information.
3.3.3. Participants in the Business Buying Process
 Users: - are members of the buying organization who will actually use the purchased
product or service.
 Influencers: - are people in an organization’s buying center who affect the buying
decision. They often help define specifications and also provide information for
evaluating alternatives.
 Buyers: - are people in an organization’s buying center who make an actual purchase.
 Deciders: - are people in an organization’s buying center who have formal or informal
power to select or approve the final suppliers.
 Gatekeepers: - are people in an organization’s buying center who control the flow of
information to others.

3.3.4. Major Influences on Business Buyers

Business buyers are subject to many influences when they make their buying decisions. They
affected by environmental, organizational, interpersonal, and individual factors.
Environmental Organizational Interpersonal Individual

The economy Objectives Influence Age/education
Supply condition Strategies Expertise Job position
Technology Structure Authority Motives
Politics/regulation Systems Dynamics Personality
Competition Procedures Preferences
Culture and customs Buying style
3.3.5. The Business Buying Process
There are eight stages of the business buying process. Buyers who face a new-task buying
situation usually go through all stages of the buying process. Buyers making modified or straight
rebuys may skip some of the stages.
Stage 1 Problem recognition
The first stage of the business buying process in which someone in the company recognizes a
problem or need that can be met by acquiring a good or a service.

Stage 2 General need descriptions

It is the stage in the business buying process in which a buyer describes the general
characteristics and quantity of a needed item.
Stage 3 Product specification
It is the stage of the business buying process in which the buying organization decides on and
specifies the best technical product characteristics for a needed item.
Stage 4 Supplier search
It is the stage of the business buying process in which the buyer tries to find the best vendors.
Stage 5 Proposal solicitation

The stage of the business buying process in which the buyer invites qualified suppliers to submit
proposals.
Stage 6 Supplier selection
It is the stage of the business buying process in which the buyer reviews proposals and selects a
supplier or suppliers.
Stage 7 Order-routine specifications
The stage of the business buying process in which the buyer writes the final order with the
chosen supplier(s), listing the technical specifications, quantity needed, expected time of
delivery, return policies, and warranties.
Stage 8 Performance review
The stage of the business buying process in which the buyer assesses the performance of the
supplier and decides to continue, modify, or drop the arrangement.

Chapter Four: Market Segmentation, Targeting and Positioning

Introduction
A market can be seen as people or organizations with needs to satisfy, and the willingness to
spend money. However, within a total market, there is always some diversity among the buyers.
For example, not all consumers want the product at the same time. What we are seeing here is
that within the general market, there are groups of customers with different wants, buying
preferences, or product use behavior. This chapter deals with market segmentation, market
targeting and positioning.
4.1. Market segmentation
Markets consist of buyers, and buyers differ in one or more ways. They may differ in their
wants, resources, locations, buying attitudes and buying practices. Companies today recognize
that they cannot appeal to all buyers in the market place in the same way because, buyers are
too numerous, widely scattered, varied in their needs and companies also vary widely in their
abilities to serve different segments of the market. This needs the company to design strategies
to build the right relationships with the right customers. This can be done by identifying bases
for segmenting the market and develop segment profiles. Market segmentation is dividing a
market into smaller groups of buyers with distinct needs, or behaviors who might require
separate marketing mixes. Through market segmentation, companies divide large,
heterogeneous markets into smaller segments that can be reached more efficiently with

products and services that match their unique needs. A market segment consists of a group of
customers who share a similar set of needs and wants.
4.1.1. Levels of market segmentation
Market segmentation can be carried out at many different levels. Companies can practice no
segmentation (mass marketing), complete segmentation (micromarketing) or something in
between (segment marketing or niche marketing).
1. Mass marketing (undifferentiated marketing)
Here a firm attempts to serve all customers groups with all the products that they might need.
Mass marketing is a plan of action under which an organization treats its total market as a single
segment that is, as one market whose members are considered to be similar with respect to
demand for the product and thus develops a single marketing mix to reach most of the customers
in the entire market. Single marketing mix consists of:
 One pricing strategy
 One promotional program aimed at everybody
 One type of product with little/no variation
 One distribution system aimed at entire market
2. Segmented/differentiated/ marketing
Segmented marketing is a market coverage strategy in which a firm decides to target several
groups of market segments and designs separate offers for each. Here the firm selects a number
of segments, each objectively attractive and appropriate, given the firm’s objectives and
resources. There may be little or no synergy (interaction, agreement, cooperation) among the
segments, but each segment promises to be a moneymaker. These multi segment coverage
strategies have the advantage of diversifying the firm’s risk, even if one segment becomes
unattractive, the firm can continue to earn money in other segments. Developing a stronger
position within several segments creates more total sales than mass marketing across all
segments. But segmented marketing also increases the cost of doing business. Developing
separate marketing plans for the separate segments requires extra marketing research,
forecasting, sales analysis, promotion planning, and channel management. Segment marketing
offers several benefits over mass marketing. The company can market more efficiently, targeting
its products or services, channels and communications programmes towards only consumers that
it can serve best. The company can also market more effectively by fine-tuning its products,
prices and programmes to the needs of carefully defined segments.
3. Niche marketing
Market segments are normally large, identifiable groups within a market. Niche marketing
focuses on subgroups within segments. A niche is a more narrowly defined group, usually
identified by dividing a segment into sub segments or by defining a group with a distinctive set
of traits that may seek a special combination of benefits. Niche marketers aim to understand their
customers’ needs so well that customers willingly pay a premium. an attractive niche involves:
customers that have a distinct set of needs; they will pay a premium to the firm that best satisfies
them; the niche is fairly small but has size, profit, and growth potential and is unlikely to attract
many competitors; and the niche gains certain economies through specialization.
4. Micro marketing
Micro marketing is the practice of tailoring products and marketing programs to suit the tastes of
specific individuals and locations. Micromarketing includes local marketing and individual
marketing. Local marketing involves tailoring brands and promotions to the needs and wants of
local customer groups - cities, neighborhoods and even specific stores. Individual marketing
involves tailoring products and marketing programmes to the needs and preferences of individual
customers. Individual marketing has also been called markets-of-one marketing, customized
marketing and one-to-one marketing.
4.1.2. Segmenting consumer markets
There is no single way to segment a market. A marketer has to try different segmentation
variables alone and in combination. The major variables used in segmenting consumer markets
include geographic, demographic, psychographic and behavioral variables.
1. Geographic segmentation

Geographic segmentation is dividing a market into different geographical units such as

nations, countries, state, cities, density, climate etc. A company may decide to operate in one
or a few geographic areas or operate in all areas but pay attention to geographic difference in
needs and wants.
2. Demographic segmentation
Demographic segmentation divides the market into groups based on variables such as age,
gender, family size, family life cycle, income, occupation, education, religion, race, and
nationality. Demographic factors are the most popular bases for segmenting customer groups
because consumer needs and wants often vary closely with demographic variables and
demographic variables are easier to measure than most other types of variables. Even when
market segments are first defined using other bases, such as benefits sought or behavior, their
demographic characteristics must be known in order to assess the size of the target market and to
reach it efficiently.
Some of demographic segmentations are:
A. Age and life cycle segmentation
Age and life cycle segmentation consists of offering different products or using different
marketing approaches for different age and life-cycle groups. Consumer needs and wants change
with age. The marketer must identify these age and life cycle stages to know their interest toward
the product they buy. Some companies use age and life cycle segmentation, offering different
products or using different marketing approaches for different age and life-cycle groups.
B. Gender segmentation
Gender segmentation divides a market into different groups based on sex. Men and women have
different attitudes and behave differently, based partly on genetic makeup and partly on
socialization. This segmentation form has long been used for clothing, cosmetics, toiletries, and
magazines.
C. Income segmentation

Income segmentation divides a market into different income groups. Marketers must remember
that they do not always have to target the affluent. Other income groups are also viable and
profitable market segments.
D. Occupation segmentation
Occupation segmentation refers to dividing a market based on the activities of the customers,
such as professional and technical, managers, officials, clerical, supervisors, sellers, operatives,
students, craft people, farmers, home makers, …etc
3. Psychographic segmentation
Psychographic segmentation divides a market into different groups based on social class,
lifestyle, or personality characteristics. People in the same demographic class can exhibit very
different psychographics characteristics. It includes social class segmentation, lifestyle
segmentation, and personality segmentation. As previously seen in, lifestyle also affects people’s
interest in various goods, and the goods they buy express those lifestyles. Personality variables
can also be used to segment markets. Marketers will give their products personalities that
correspond to consumer personalities.
4. Behavioral segmentation
Behavioral segmentation refers to dividing a market into groups based on consumer knowledge,
attitudes, uses, or responses to a product. Many marketers believe that behavioral variables can
include: Occasions, Benefits, User status, User rates, Loyalty status, and Readiness stage
segmentations.
A. Occasion segmentation
Occasion segmentation consists of dividing the market into groups according to occasions when
buyers get the idea to buy, actually make their purchase, or use the purchased item. Occasion
segmentation can help firms build up product usage.
B. Benefit segmentation
Benefit segmentation involves dividing the market into groups according to the different benefits
the consumers seek from the product. It requires finding the main benefits people look for in the

product class, the kinds of people who look for each benefit and the major brands that deliver
each benefit.
C. User status segmentation
User status segmentation divides the market into non-users, ex-users, potential users, first-time
users and regular users of a product. Potential users and regular users may require different kinds
of marketing appeal.
D. Usage rate segmentation
Markets can be segmented into light, medium, and heavy product users. Heavy users are often a
small percentage of the market but account for a high percentage of total consumption.
Marketers usually prefer to attract one heavy user rather than several light users, and they vary
their promotional efforts accordingly. Product users were divided into two halves, a light-user
and a heavy-user half, according to their buying rates for the specific products.
E. Loyalty status segmentation

A market can be segmented by consumer loyalty patterns. According to loyalty, buyers can be
divided into four groups: Hard-core loyal (consumers who buy one brand all the time), Split
loyal (consumers who are loyal to two or three brands), Shifting loyal (consumers who shift
from favoring one brand to another), and Switchers (consumers who show no loyalty to any
brand).
F. Buyer-readiness stage segmentation
A market consists of people in different stages of readiness to buy a product: Some are unaware
of the product, some are aware, some are informed, some are interested, some desire the product,
and some intend to buy. The relative numbers make a big difference in designing the marketing
program. Marketers segment the market by taking into consideration this stage of buyer-
readiness.
4.1.3. Segmenting business market

We can segment business markets with some of the same variables we use in consumer markets,
such as geography, benefits sought, and usage rate, but business marketers also use other
variables. Major segmentation variables for business markets include:
A. Business customer demographic variables
 Industry: Which industries should we serve?
 Company size: What size companies should we serve?
 Location: What geographical areas should we serve?
B. Operating Variables
 Technology: What customer technologies should we focus on?
 User or nonuser status: Should we serve heavy u, medium, and light users, or
nonusers?
 Customer capabilities: Should we serve customers needing many or few services?
C. Purchasing Approaches
 Purchasing-function organization: Should we serve companies with highly

centralized or decentralized purchasing organizations?
 Power structure: Should we serve companies that are engineering dominated,

financially dominated, and soon?
 Nature of existing relationships: Should we serve companies with which we have

strong relationships or simply go after the most desirable companies?
 General purchase policies: Should we serve companies that prefer leasing? Service
contracts? Systems purchases? Sealed bidding?

 Purchasing criteria: Should we serve companies that are seeking quality? Service?
Price?
D. Situational Factors
 Urgency: Should we serve companies that need quick and sudden delivery or service?
 Specific application: Should we focus on certain applications of our product rather than
all applications?
 Size of order: Should we focus on large or small orders?
E. Personal Characteristics
 Buyer-seller similarity: Should we serve companies whose people and values are
similar to ours?
 Attitudes toward risk: Should we serve risk-taking or risk-avoiding customers?
 Loyalty: Should we serve companies that show high loyalty to their suppliers?
4.1.4. Requirements for effective segmentation
Even after applying segmentation variables to a consumer or business market, marketers must
realize that not all segmentations are useful. To be useful, market segments must be:
1. Measurable: The size, purchasing power, and characteristics of the segments can be
measured.
2. Substantial: The segments are large and profitable enough to serve. A segment should be the
largest possible homogeneous group worth going after with a tailored marketing program.
3. Accessible: The segments can be effectively reached and served.

4. Differentiable: The segments are conceptually distinguishable and respond differently to

different marketing mixes. If two segments respond identically to a particular offer, they do
not constitute separate segments.
5. Actionable: Effective programs can be formulated for attracting and serving the segments.
4.2. Market targeting
Market targeting is the process of evaluating each market segment‘s attractiveness and
selecting one or more segment to enter the market. Once the firm has identified its market-
segment opportunities, it has to decide how many and which ones to target. There are two
steps in the market targeting:-evaluating market segments and selecting target market
segments.
1. Evaluating market segments
In evaluating different market segments, the firm must look at two factors: Segment’s overall
attractiveness and company’s objectives and resources.
A. Segment’s overall attractiveness
Segment attractiveness must be in the size, growth, profitability, scale economies, low risk
and so on. The company should target consumers who will spend a lot on the category, stay
loyal and influence others. Does it have characteristics that make it generally attractive, such
as size, growth, profitability, scale economies, and low risk? So the company must first collect
and analyze data on current segment sales, growth rates, and expected profitability for various
segments.
B. Company’s objectives and resources
Even if a segment has the right size and growth and is structurally attractive, the company must
consider its objectives and resources for that segment. Company’s objectives may be in the short
time or long time based on the company’s purpose toward the given activities. Even if the

segment fits the company’s objectives, the company must consider whether it possesses the skills
and resources it needs to succeed in that segment.
2. Selecting and entering market segments
Having evaluated different segments, the company must decide which and how many
segments to serve. In other words, it must decide which segments to target. After evaluating
different segments, the company can consider the following five patterns of target market
selection.
1. Single segment concentration
With single-segment concentration, the firm markets to only one particular segment. Through
concentrated marketing, the firm gains a strong knowledge of the segment's needs and achieves a
strong market presence. Furthermore, the firm enjoys operating economies through specializing
its production, distribution, and promotion. If it captures segment leadership, the firm can earn a
high return on its investment. However, there are risks. A particular market segment can turn
sour or a competitor may invade the segment. For these reasons, many companies prefer to
operate in more than one segment.
2. Selective specialization
A firm selects a number of segments, each objectively attractive and appropriate. There may
be little or no synergy among the segments, but each promises to be a moneymaker. This
coverage strategy has the advantage of diversifying the firm’s risk, even if one segment
becomes unattractive, the firm can continue to earn money in other segments. However,
segmented marketing also increases the cost of doing business. Developing separate marketing
plans for the separate segments requires extra marketing research, forecasting, sales analysis,
promotion planning, and channel management. In addition, trying to reach different market
segments with different advertising increases promotion costs. Thus, the company must weigh
increased sales against increased costs when deciding on a differentiated marketing strategy.
3. Product specialization

The firm makes a certain product that it sells to several different market segments. An example
would be a microscope manufacturer who sells to university, government, and commercial
laboratories. The firm makes microscopes for the different customer groups and builds a strong
reputation in the specific product area. The downside risk is that the product may be
supplanted by an entirely new technology.
4. Market specialization
The firm concentrates on serving many needs of a particular customer group. An example
would be a firm that sells an assortment of products only to university laboratories. The firm
gains a strong reputation in serving this customer group and becomes a channel for additional
products the customer group can use. The downside risk is that the customer group may suffer
budget cuts or shrink in size.
5. Full market coverage
The firm attempts to serve all customer groups with all the products they might need. Only
very large firms can undertake a full market coverage strategy. Large firms can cover a whole
market in two broad ways: through-undifferentiated marketing or differentiated marketing.
A. Undifferentiated marketing
The firm ignores segment differences and goes after the whole market with one offer. It designs
a marketing program for a product with a superior image that can be sold to the broadest number
of buyers via mass distribution and mass communications. Undifferentiated marketing is
appropriate when all consumers have roughly the same preferences and the market shows no
natural segments.
B. Differentiated marketing
The firm sells different products to all the different segments of the market. Differentiated
marketing typically creates more total sales than undifferentiated marketing. However, it also

increases the costs of doing business. Because differentiated marketing leads to both higher sales
and higher costs, no generalizations about its profitability are valid.
4.3. Positioning
All marketing strategy is built on STP Segmentation, Targeting, and Positioning. A company
discovers different needs and groups in the marketplace, targets those needs and groups that it
can satisfy in a superior way, and then positions its offering so that the target market
recognizes the company's distinctive offering and image. In marketing, positioning has come
to mean the process by which marketers try to create an image or identity in the minds of their
target market for their product, brand, or organization. Positioning is the battle for your mind.
It is the act of designing the company's offering and image to occupy a distinctive place in the
mind of the target market.
The positioning task consists of the following steps:

1. Identifying a set of possible competitive advantages upon which to build a position,
2. Choosing the right competitive advantages,
3. Selecting an overall positioning strategy, and
4. Communicating and Delivering the Chosen Position
Chapter Five: Product

Introduction
In this chapter we will be concentrating on one of marketing mix product. The main focus of
discussion will be product. Initially, we will start with the meaning of product and then moving
on to different levels of product, classification of product, new product development, product life
cycle and finally it will be followed by product attributes and brands. So, in this chapter, we’ll
study how companies develop and manage products and brands.
5.1. What is product?

Product is anything that offered to a market for attention, acquisition, use, or consumption that
might satisfy a want or need. It is a bundle of physical and intangible attributes that have the
potential to satisfy present and potential customer wants. Broadly defined, products can include
physical goods, information, experiences, events, services, places, properties, organizations,
persons and ideas. Product is a complex concept that must be carefully defined. As the first of
the four marketing mix variables, it is often where strategic planning begins. Product strategy
calls for making coordinated decisions on individual products, product lines, and the product
mix.
5.2. Levels of product
Products have five levels. Marketer needs to address five product levels since each level adds
more customer value, and the five constitute a customer-value hierarchy. These are:
Level1. Core benefit: It is the fundamental level of a product. Core benefit is the service or
benefit that the customer is really buying. A hotel guest is buying rest and sleep. Marketers must
see themselves as benefit providers.
Level2. Basic product: It is product parts that deliver the core benefit. For example bed,
restroom etc. to generate sleep & rest.
Level3. Expected product: It is a set of attributes and conditions that buyers normally expect
when they purchase this product. Hotel guests minimally expect a clean bed, working lamps, and
a relative degree of quiet.
Level4. Augmented product: At this stage the competition is around after sales service,
warranties, delivery and so on. For example, Feyisa a retail departmental store offers free five
year guarantee on purchases of his Television sets, this gives their ‘customers the additional
benefit over five years.
Level5. Potential product: Encompasses all the possible augmentations and transformations the
product or offering might undergo in the future. Here is where companies search for new ways to
satisfy customers and distinguish their offering.
5.3. Classification of product

Marketers classify products based on different characteristics like tangibility and intangibility,
and their use.
I. Product Classification Based on Tangibility and Intangibility
A. Durable goods: Durable goods are tangible goods that normally survive for many years.
Durable products normally require more personal selling and service, and require more seller
guarantees. Examples include refrigerators, machine tools, and clothing.
B. Non-durable goods: None-durable goods are tangible goods that normally consumed in
one or a few uses. Since these goods are consumed quickly and purchased frequently, the
appropriate strategy is to make them available in many locations, charge only a small markup,
and advertise heavily to induce trial and build preference. Examples are beer, soap, food etc.
C. Services: Service is any act or performance that one party can offer to another that is
essentially intangible and does not result in the ownership of anything. A service business is one
that provides an intangible product for its consumers. As a result, they normally require more
quality control, supplier credibility, and adaptability. Examples: include haircuts and repairs.
Characteristics of Service: Services are intangible, inseparable, variable, and perishable.
Intangibility is a major characteristic of services they cannot be seen, tasted, felt, heard, or
smelled before they are bought. Inseparability refers to services are produced and consumed at
the same time and cannot be separated from their provider. Variability refers quality in service
may vary greatly depending on who provides them and when, where & how. Perishablity refers
services cannot be stored for latter sales or use.
II. Product Classification Based on use:
Based on use product can be classified into consumer and industrial product.
Consumer product Classification
Consumer products are products bought by final consumers for personal consumption. Marketers
usually classify these products further based on how consumers go about buying them. Based on

the shopping habit of consumers consumer products are classified into four groups: convenience,
shopping, specialty and unsought products.
1. Convenience product
Convenience products are consumer products that customers usually buy frequently,
immediately, and with minimal comparison and buying effort. Example includes laundry
detergent, candy, magazines, and fast food. Convenience products are usually low priced, and
marketers place them in many locations to make them readily available when customers need or
want them. They are widely available at many outlets and purchased with a minimum effort.
Convenience goods can be divided into staples, impulse, and emergency goods.
A. Staple goods:
Staple goods are goods that consumers purchase on a regular basis and include milk, bread, eggs,
soap, pasta, butter which are bought routinely because the family regularly consumes them. The
decision to buy these products is programmed after the first time when the consumer puts them
on his list of regular items.
B. Impulse goods:
Purchases of Impulse products are absolutely unplanned exposure to the product triggers they
want. Examples are chewing gums, lottery, and magazines. They are widely distributed and
displayed because shoppers may not have thought of buying them until they spot them.
C. Emergency goods:
Purchases of emergency products result from urgent and compelling needs. Emergency goods
are purchased when a need is urgent. For example umbrella bought during a rainstorm and
candles during blackouts. Manufacturers of emergency goods will place them in many outlets to
capture the sale, when the customer needs them.
2. Shopping product
Shopping products are less frequently purchased consumer products that customers compare
carefully on suitability, quality, price, and style. When buying shopping products, consumers
spend much time and effort in gathering information and making comparisons. Examples include
furniture, clothing, etc. Shopping products marketers usually distribute their products through
fewer outlets but provide deeper sales support to help customers in their comparison efforts.
3. Specialty product
Specialty products are consumer products and services with unique characteristics or brand
identification for which a significant group of buyers is willing to make a special purchase effort.
Consumer will make a special effort to buy these products and have strong convictions as to
brand, style, or type. Examples include specific brands cars, photographic equipment etc.
4. Unsought product
Unsought products are consumer goods that the consumer either does not know about or knows
about but does not normally think of buying. Most major innovations are unsought until the
consumer becomes aware of them through advertising. Other examples of known but unsought
goods are life insurance, home security systems etc. By their very nature, unsought goods require
a lot of advertising, personal selling and other marketing efforts.
In general, marketers use widespread distribution for convenience products, selective distribution
in fewer outlets for shopping products, exclusive distribution in only one or few outlets per
market area, and vary distribution system for unsought products.
Industrial product classification
Industrial products are those products purchased for further processing or for use in conducting a
business. Thus, the distinction between a consumer product and an industrial product is based on
the purpose for which the product is purchased. We classify industrial goods in terms of their
relative cost and how they enter the production process into three groups: materials and parts,
capital items, and supplies and business services.
1. Materials and parts

Materials and parts are goods that enter the manufacturer’s product completely. They fall into
two classes: raw materials and manufactured materials and parts.
A. Raw materials includes farm products (wheat, cotton, livestock, fruits, and vegetables)
and natural products (fish, lumber, crude petroleum, iron ore).
B. Manufactured materials and parts include component materials and component parts.
Component materials are usually fabricated further-for example, pig iron is made into steel,
and yarn is woven into cloth.
Component parts enter the finished product with no further change in form, as when small
motor are put into vacuum cleaners, and tires are put on automobiles.
2. Capital items
Capital items are long-lasting goods that facilitate developing or managing the finished product.
They include installations and equipment:
A. Installations consist of major purchases such as buildings (factories, offices) and fixed
equipment (big generators, large computer systems, elevators).
B. Equipment includes portable factory equipment and tools (hand tools, lift trucks) and
office equipment (computers, fax machines, desks). They have a shorter life than
installations but a longer life than operating supplies. It simply aid in the production
process.
3. Supplies and business service
Supplies and services are short-lasting goods and services that facilitate developing or managing
the finished product.
A. Supplies include operating supplies (lubricants, coal, paper, pencils) and repair and
maintenance items (paint, nails, brooms). Supplies are the convenience products of the
industrial field because they are usually purchased with a minimum of effort or
comparison.
B. Business service includes maintenance and repair services (e.g. car repair, computer
repair) and business advisory services (e.g. legal, management consulting, and
advertising). Such services are usually supplied under contract.
5.4. New products
Given the rapid changes in consumer tastes, technology, and competition, companies must
develop a steady stream of new products. By new products we mean the development of original
products, product modification, and new brands that the firm develops through its own research
and development efforts. New products are the lifeblood of an organization. Once a company has

carefully segmented the market, chosen its target market, identified their needs and determined
its market positioning, it is better able to develop new products. Marketers play a key role in the
new product development process, by identifying and evaluating new product idea and working
with R&D and others in every stage of development. New product development shapes the
company’s future.
A firm can obtain new products in two ways. One is through acquisition—by buying a whole
company, a patent, or a license to produce someone else's product. The other is through new
product development in the company's own research and development department.
New products are important to both customers and the marketers who serve them. For customers,
they bring new solutions and variety to their lives. For companies, new products are a key source
of growth. Even in a down economy, companies must continue to innovate. New products
provide new ways to connect with customers as they adapt their buying to changing economic
times.
Why do new products fail?
There are several reasons for the failure of new products. These are:
 The idea may be good, but the company may overestimate market size
 The actual product may be poorly designed
 The product might be incorrectly positioned, launched at the wrong time, priced too high,
or poorly advertised
 A high-level executive might push a favorite idea despite poor marketing research
findings
 Sometimes the costs of product development are higher than expected
 Sometimes competitors fight back harder than expected
What can a company do to develop successful new products?
To develop successful new products a company needs to have:
1. a better understanding of customer needs;
2. a higher performance-to-cost ratio;
3. a head-start in introducing the product before competitors;
4. a higher expected contribution margin;
5. a higher budget for promoting and launching the product; more use of cross-functional
teamwork; and stronger top-management support.
5.4.1. New product development process
To create successful new products, a company must understand its consumers, markets, and
competitors and develop products that deliver superior value to customers. It must carry out
strong new-product planning and set up a systematic, customer-driven new product development
process for finding and growing new products. There are eight steps of new product
development: Idea generation, idea screening, concept development and testing, marketing
strategy development, business analysis, product development, test marketing &
commercialization.
1. Idea generation
New-product development starts with idea generation. Idea generation is the systematic search
for new product ideas. A company typically has to generate many ideas in order to find a few
good ones. Major sources of new-product ideas include internal sources and external sources.
Internal idea sources: Many new-product ideas come from internal sources within the
company. The company can find new ideas through formal research and development. It can also
pick the brains of its scientists, executives, engineers, designers and manufacturing people. The
company's salespeople are another good source of ideas because they are in daily contact with
customers.
External idea sources: Companies can also obtain good new-product ideas from any of a
number of external sources. It includes:
 Customers
The most important source of new-product ideas is customers themselves. The company can
conduct surveys to learn about consumer needs and wants. The company can analyze customer
questions and complaints to find new products that better solve consumer problems. It can invite
customers to share suggestions and ideas.
 Competitors

Competitors are important source. Companies watch competitors’ advertising to get clues about
their new products. They buy competing new products, take them apart to see how they work,
analyze their sales, and decide whether they should bring out a new product of their own.
 Distributors, suppliers and others
Distributors and suppliers can contribute ideas. Distributors are close to the market and can pass
along information about consumer problems and new-product possibilities. Suppliers can tell the
company about new concepts, techniques, and materials that can be used to develop new
products. Other idea sources include trade shows, magazines, seminars; government agencies;
advertising agencies; marketing research firms; university and commercial laboratories; and
inventors.
2. Idea screening
Idea screening is a new product development stage which helps to spot good ideas and drop poor
ones as soon as possible. Product development costs rise greatly in later stages, so the company
wants to go ahead only with those product ideas that will turn into profitable products. Most
companies require new-product ideas to be described on a standard form that can be reviewed by
a new-product committee. The new-product committee then reviews each idea against criteria
such as: Does the product meet a need? Would it offer superior value? Will the new product
deliver the expected sales volume, sales growth, and profit? The ideas that survive this screening
move on to the concept development stage.
3. Concept development and testing
Concept development: An attractive idea must be developed in to a product concept. It is

important to distinguish between a product idea, product concept and a product image. A product
idea is an idea for a possible product that the company can see itself offering to the market. A
product concept is a detailed version of the idea stated in the meaningful consumer terms. A
product image is the way consumers perceive an actual or potential product.
Concept testing: Concept testing involves presenting the product concept to appropriate target
consumers to find out if the concepts have strong consumer appeal and getting their reactions.
The concepts may be presented to consumers symbolically or physically. In the past, creating

physical prototypes was costly and time consuming, but computer aided design and
manufacturing programs have changed that. Today firms can design a number of prototypes via
computer and then create plastic models to obtain feedback from potential consumers.
4. Marketing strategy development
Following a successful concept test the new product manager that develops a preliminary
marketing strategy plan for introducing the new product into the market. The plan consists of
three parts. The first part describes the target market’s size, structure, and behavior; the planned
product positioning and the sales, market share, and profit goals sought in the first few years.
The second part outlines the planned price, distribution strategy, and market budget for the first
year. The third part of the marketing strategy plan describes the long-run sales and profit goals
and marketing mix strategy over time.
5. Business analysis
Business analysis involves a review of the sales, costs, and profit projections for a new product
to find out whether they satisfy the company’s objectives. It can evaluate the proposal’s business
attractiveness. If they do, the product can move to the product development stage. To estimate
sales, the company might look at the sales history of similar products and conduct market
surveys. It can then estimate minimum and maximum sales to assess the range of risk. After
preparing the sales forecast, management can estimate the expected costs and profits for the
product, including marketing, R&D, operations, accounting, and finance costs. The company
then uses the sales and costs figures to analyze the new product’s financial attractiveness.
6. Product development
Up to now, the product has existed only as a word description, a drawing, or a prototype. It is a
product development stage in which companies develop the product concept into a physical
product to ensure that the product idea can be turned into a workable market offering.
7. Test marketing

Test marketing is the stage at which the product and its proposed marketing program are
introduced into realistic market settings. Test marketing gives the marketer experience with
marketing a product before going to the great expense of full introduction. It lets the company
test the product and its entire marketing program i.e. targeting and positioning strategy,
advertising, distribution, pricing, branding and packaging, and budget levels. Test marketing
gives management the information needed to make a final decision about whether to launch the
new product.
8. Commercialization
Commercialization is introducing a new product into the market. Here, markets fully promote,
distribute, and sell their new products. The company launching a new product must first decide
on introduction timing. Next, the company must decide where to launch the new product i.e. in a
single location,01 a region, the national market, or the international market.
5.4.2. Product lifecycle stage
After launching the new product, management wants the product to enjoy .a long and healthy
life. Although it does not expect the product to sell forever, the company wants to earn a decent
profit to cover all the effort and risk that went into launching it. Management is aware that each
product will have a life cycle, although the exact shape and length is not known in advance.
Product life cycle is the course of a product’s sales and profits over its lifetime. It is a
generalized model of profit and sales trends for a product class or category over a period of time.
It involves four distinct stages: introduction, growth, maturity, and decline. A company’s
products are born, grow, mature, and then decline, just as living things do. To remain vital, the
firm must continually develop new products and manage them effectively through their life
cycles.
1. Introduction stage
Introduction stage is the PLC stage in which a new product is first distributed and made available
for purchase. Introduction takes time, and sales growth is to be slow. In this stage, as compared
to other stages, profits are negative or low because of the low sales and high distribution and
promotion expenses.
Marketing strategies marketers may use at introduction stage:

i. Rapid skimming strategy
It involves launching the new product with a high price and high promotion spending. It helps
the firm to skim rapidly the price-insensitive end of the market in the early stages of the new
product's launch.
ii. Slow skimming strategy
It involves launching the new product with a high price and low promotion spending. The high
price helps recover as much gross profit per unit as possible, while the low promotion spending
keeps marketing spending down.
iii. Rapid penetration strategy
A company might introduce its new product with a low price and heavy promotion spending. It
makes sense when the market is large, potential buyers are price sensitive and unaware of the
product.
iv. Slow penetration strategy
A company might introduce its new product with a low price and low promotion spending.
2. Growth stage
Growth stage is the PLC stage in which a product’s sales start climbing quickly. It is a period of
rapid market acceptance and increasing profits. Attracted by the opportunities for profit, new
competitors will enter the market. Profits increase during the growth stage as promotion costs are
spread over a large volume and as unit manufacturing costs decrease.
Marketing strategies marketers may use at growth stage:
 Improves product quality and adds new product features and models
 Enters new market segments and new distribution channels
 Shifts some advertising from building product awareness to building product preference
and purchase
 Lowers prices at the right time to attract more buyers
3. Maturity stage
Maturity stage is the PLC stage in which a product’s sales growth slows or levels off. It is a
period of slowdown in sales growth because the product has achieved acceptance by most
potential buyers. Competitors begin marking down prices, increasing their advertising and sales
promotions, and upping their product development budgets to find better versions of the product.
These steps lead to a drop in profit. Some of the weaker competitors start dropping out, and the
industry eventually contains only well-established competitors.
Marketing strategies marketers may use at maturity stage:
i. Modifying the market
The company tries to increase consumption by finding new users and new market segments for
its brands. The manager may also look for ways to increase usage among present customers and
convert the non-users to users.
ii. Modifying the product
The company might also try changing product characteristics such as quality, features, style, or
packaging to attract new users and inspire more usage. It can improve the product’s styling and
attractiveness. It might improve the product’s quality and performance like its durability,
reliability, speed, and taste.
iii. Modifying the marketing mix
Product managers can try to stimulate sales by modifying other marketing-mix elements such as
prices, distribution, advertising, sales promotion, personal selling, and services.
4. Decline stage
Decline stage is the PLC stage in which a product’s sales decline. The sales of most products
eventually decline for a number of reasons, including technological advances, shifts in consumer
tastes, and increased domestic and foreign competition. All of these factors lead ultimately to
overcapacity, increased price-cutting, and profit erosion. As sales and profits decline, some firms
withdraw from the market. Those remaining may reduce the number of products they offer. They
may withdraw from smaller market segments and weaker trade channels, and they may cut their
promotion budget and reduce their prices further.
Marketing strategies marketers may use at decline stage:

 Increasing the firm’s investment (to dominate the market or strengthen its competitive
position);

 Maintaining the firm’s investment level until the uncertainties about the industry are
resolved;
 Decreasing the firm’s investment level selectively, by dropping unprofitable customer

groups, while simultaneously strengthening the firm’s investment in lucrative niches;
 Harvesting (“milking”) the firm’s investment to recover cash quickly and
 Divesting the business quickly by disposing of its assets as advantageously as possible
5.4.3. Target market assessment for new products
Target market is the group of potential customers selected for marketing. If you are looking to
segment the market, you need to determine the different target markets for each segment. For
new products, there is a theory that you will have different groups of people each class has
different risk tolerances. Different classes of prospects are grouped into five groups: innovators,
early adopters, early majority, late majority, and laggards based on adoption of innovation.
1. Innovators
Innovators are adventurous: they try new ideas at some risk. Genuine innovators are those who
are prepared to take risks and like having new products simply because they are new. These
groups account for a very small proportion of the population.
2. Early adopters
Early adopters are guided by respect: they are opinion leaders in their community and adopt new
ideas early but carefully. These groups are purchasers to take off the new product into growth
stage. Even though prices are too high, early adopters buy new products, as there are new
features either from competitors or the same marketer. In addition, early adopters own such
products bearing in mind they are still fashionable, socially acceptable and, successful.
3. Early majority

The early majority is deliberate: although they are rarely leaders, they adopt new ideas before the
average person. These groups share behavior of early majority but at later points of the growth
stage. They want to be fashionable but are followers rather than leaders.
4. Late majority
The late majority is skeptical: they adopt an innovation only after most people have tried it. They
think that they tend to be old fashioned and skeptical. They are deliberate pragmatists who adopt
the new technology when its benefits are proven and a lot of adoption has already taken place.
5. Laggards
Laggards are tradition hound: they are suspicious of changes and adopt the innovation only when
it has become something of a tradition itself. At last stage of maturity and decline stage, some
consumer, buy in bulk and old-fashioned products as the goods and services are out of the
market’s majority preference. These groups might be acquired at lowest price and everywhere.
5.5. Product mix decisions

Product mix is the set of all products and items a particular seller offers for sale. It is also known
as a product assortment. It includes various product lines. Product line is a group of products that
are closely related because they function in a similar manner, are sold to the same customer
groups, marketed through the same types of outlets, or fall within given price ranges. The major
product line decision involves product line length—the number of items in the product line.
A company’s product mix has four important dimensions: width, length, depth, and consistency.
 The width of a product mix refers to how many different product lines the company
carries.
 The length of a product mix refers to the total number of items in the mix.
 The depth of a product mix refers to how many variants are offered of each product in
the line.
 The consistency of the product mix describes how closely related the various product
lines are in end use, production requirements, distribution channels, or some other way.

These four product mix dimensions permit the company to expand its business in four ways. It
can add new product lines, thus widening its product mix. It can lengthen each product line. It
can add more product variants to each product and deepen its product mix. Finally, a company
can pursue more product line consistency.
5.6. Product branding, packaging, and labeling
A. Brand
Brand is a name, term, sign, symbol or special design or some combination of these elements
that is intended to identify the goods or services of one seller or a group of sellers. A brand
differentiates these products from those of competitors.
A brand includes:
Brand name is that part that can be spoken, including letters, words and numbers
Brand mark is elements of the brand that can not be spoken
Trade mark is legal designation that the owner has exclusive rights to the brand or part of a
brand. After companies identify their trademark, they entail a term “TM” or “R”.
Trade name is the full legal name of the organization.
Requirements of a good brand
A good brand must be:-
-easy to pronounce -legally protectable
-easy to remember -easy to recognize
-distinctive -suggest product benefit and attract attention
B. Packaging
Packaging is a marketing activities concerned with the design and production of the container or
wrapper for a product. The container or wrapper is called the package. In the recent times

packaging has become a potential marketing tool because it can create convenience value for the
consumer and promotional value for the producer or seller.
Importance of packaging
 Packaging serves several safety
 It is an important method of communication with the customer
 Well-packaged product may increase profit possibilities
 It stimulates customers to pay more just to get the special package.
 Can increase ease of handling or reduction in damage or losses.
C. Labeling
Labeling is a part of a product that carries verbal information about the product of a seller. It
expresses some features of the product such as ingredients, weight, measure, size, warning,
performance and sometimes if also includes advertising messages. The label may be a simple
teamed to the product or an elaborately designed graphic that is part of the package.
Functions of label
 It identifies the product or brand

 It might grade the product
 It might describe the product, which made it, where it was made, when it was made, what
it contains, how it is to be used, and how to use it safely.
 It might promote the product through its attractive graphics.
Chapter Six: Pr

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[Principles of marketing]

Chapter one: Nature and scope of marketing

1.1. Definitions and core concepts of marketing

What is marketing management?

 Basic physical needs for food, clothing, warmth and safety;

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A satisfied customer is:-

For an exchange to take place, several conditions must be satisfied:

a. There are at least two parties must participate

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• Improve relationship and lead quality life

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Customer relationship management is the overall process of building and maintaining

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Chapter Two: Marketing Environment

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1. Growing shortages of raw materials.

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 Higher research and development budgets.

2. Increasing legislation to:

 Protect companies from each other.

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Chapter Three: Understanding the market

3.1. What is a market?

The relationship between the industry and the market

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3.2. Consumer market and consumer buying behavior

A consumer’s buying behavior is influenced by cultural, social, personal and Psychological

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1. Complex buying behavior

3.2.3. The buyer decision process in consumer market

Stage 1 Need recognition

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Stage 4 Purchase decision

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A. Market structure and demand

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3.3.2. Major types of business buying situations

1. Straight rebuy situation

2. Modified rebuy situation

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3.3.4. Major Influences on Business Buyers

Environmental Organizational Interpersonal Individual

3.3.5. The Business Buying Process

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Stage 2 General need descriptions

Stage 5 Proposal solicitation

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Chapter Four: Market Segmentation, Targeting and Positioning