marketing managment book summary, Lecture notes of Marketing Management

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PHILIP KOTLER MARKETING MANAGEMENT SUMMARY PREPARED BY SUBHANK RAJGURU PGDM, BIMTECH INDEX Chapter 1 Marketing in the 21st century ................................................... 3 Chapter 2 Building Customer Satisfaction Value and Retention.............. 19 Chapter 3 Winning Markets : Market Oriented Strategic Planning......... 25 Chapter4 Gathering Information and measuring market demand ........... 31 Chapter 5 Scanning the Marketing Environment...................................... 42 CHAPTER –6 Analyzing Consumer markets & Buying Behavior ........... 55 CHAPTER 7 ANALYZING BUSINESS MARKETS AND BUSINESS BUYING BEHAVIOR ................................................................................. 63 Chapter 8 Dealing With the Competition ................................................... 69 CHAPTER 9 Identifying Market Segments and Selecting Target Markets ....................................................................................................................... 76 Chapter 10 Positioning the Market Offering Through the Product Life Cycle ............................................................................................................. 86 Chapter 11 Developing New Products ...................................................... 106 CHAPTER 13 Product & Product Mixes ................................................. 118 Chapter 14 : Designing and Managing Services...................................... 126 Chapter 15 Designing Pricing Strategies and Programs......................... 137 Chapter 16 Managing Marketing Channels............................................. 157 Chapter 17 Managing Retailing Wholesaling and Market Logistics...... 166 Chapter 18 MANAGING INTEGRATED MARKETING COMMUNICATIONS ............................................................................... 172 Chapter 19 Advertising and Sales Promotion .......................................... 189 Chapter 20 MANAGING THE SALES FORCE...................................... 198 Chapter 21 Managing Direct and Online Marketing.............................. 209 CHAPTER 22 Managing the Total Marketing Effort ............................. 221 3) Global markets: goods and services for global marketplace. They have to decide which country to enter, how to enter, has to have a fit the cultural practices etc. 4) Nonprofit and Governmental Markets: goods to nonprofit organizations like churches, universities, governmental agencies need to be priced carefully. They have to follow long government procedures to get this market.(Eg. Goods sold to the great Indian Government) Marketing Concepts and Tools: Defining Marketing: Social Definition: Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offering and freely exchanging products and services of value with others. (One marketer said that marketing’s role is to deliver a high standard of living) Managerial Definition: Often described as the art of selling. Marketing is not just selling. Selling is only the tip of the iceberg! Peter Drucker: The aim of marketing is to make selling superfluous. The aim of marketing is to know and understand the customer so well that the product or service fits him and sells itself. American Management Association: Marketing (management) is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, services to create exchanges that satisfy individual and organisational goals. Kotler: We see marketing management as the art and science of choosing target markets and getting, keeping and growing customers through creating, delivering and communicating superior customer value. Core Marketing Concepts: Target Markets and Segmentation: • Marketers can rarely satisfy everyone in the market. So they start with ‘ market segmentation’. • Identify and profile different groups of buyers. • Target segments that present the greatest opportunity – those whose needs the firm can meet in a superior fashion. • For each chosen target market, the firm develops a market offering, which is positioned as offering some central benefit. • Marketers view the sellers as constituting the industry and the buyers as constituting the market. Markets: • Need markets (the diet seeking market) Eg. VLCC • Product markets (the shoe market) Eg. Reebok, Adidas • Demographic markets (the youth market) • Geographic market (the French market) Eg. Atta Market • Other markets like voter markets, donor markets and labour markets. Marketplace v/s market space – physical v/s digital Mohan Sawhney has proposed the concept of metamarket to describe a cluster of complementary products and services that are closely related in the minds of consumers but are spread across a diverse set of industries. Metamediaries Advantages of e-commerce: Convenience Cost savings for companies Selection Personalization Information Services Gooda and services Services, money Money Resources Taxes, goods Taxes Manufacturer markets Consumer markets Intermediary markets Government markets Resource markets Marketers and prospects: Marketer is someone seeking response in the form of attention, purchase, vote and donation. The response is sought from prospect. Needs, Wants and Demand: Needs describe basic human requirements. Example need for food, air, water, education, entertainment etc. Needs become wants when they are directed to specific objects that might satisfy the need. Need for food ---> Want for a Hamburger (KFC ZINGER) Demands are wants for specific products backed by willingness and ability to pay. Marketers do not create needs. Needs preexist marketers. Marketers along with other social influencers influence wants. Product or offering: A product is any offering that can satisfy a need or want. Major typed of basic offerings: Goods, services, experiences, events, persons, places, properties, organizations, information and ideas. A brand is an offering from a known source. Value and satisfaction: Value is what customer gets and what he gives. Customer gets benefits and assumes costs. Benefits include functional and emotional benefits. Costs include monetary costs, time costs, energy costs and psychic cost. Benefits (functional and emotional benefits) Value = ----------- = --------------------------------------------- Costs (include monetary costs, time costs, energy costs and psychic cost) Value of customer offering can be increased by:
Raise benefits
Reduce costs
Raise benefits AND reduce costs
Raise benefits by MORE THAN the raise in costs
Lower benefits by LESS THAN the decrease in costs Exchange and transactions: Exchange is one of the four ways in which a person can obtain a product. Exchange is core concept of marketing. Marketing Environment Competition represents only one force in the environment in which the marketer operates. The marketing environment consists of the task environment and the broad environment. The task environment includes the immediate actors involved in producing, distributing, and promoting the offering. The main actors are company, suppliers, distributors, dealers, and the target customers. Included in the supplier group are material suppliers and service suppliers such as marketing agencies, advertising agencies, banking and insurance companies, transportation and telecommunication companies. Included with distributors and dealers are agents, brokers, manufacturer representatives, and others who facilitate finding and selling to consumers. The broad environment consists of six components: demographic environment, economic environment, natural environment, technological environment, political-legal environment, and social-cultural environment. These environments contain forces that can have a major impact on the actors in the task environment. Market actors must pay close attention to the trends and the developments in these environments and then make timely adjustments to their marketing strategies. Marketing Mix Marketers use numerous tools to elicit desired responses from their target markets. These tools constitute a marketing mix. Marketing Mix Figure 1.5 Product Product Variety Quality Design Promotion Place Features Sales promotion Channels Brand name Price Advertising Coverage Packaging List Price Sales Force Assortments Sizes Discounts Public Relations Locations Services Allowances Direct Marketing Inventory Warranties Payment Period Transport Returns Credit Terms  Marketing mix is the set of marketing tool that the firm uses to pursue its marketing objectives in the target market. McCarthy classified these tools into four broad groups that he called the four P’s of marketing: Product, Price, Place and Promotion. The particular marketing variables under each P are shown in figure 1.5. Marketing mix decisions must be made for influencing the trade channels as well as the final consumers. Fig 1.6 shows the company preparing the offering mix of the products, services and prices and utilizing a promotion mix of sales promotion, advertising, sales force, public relations, direct mail, telemarketing, and internet to reach the trade channels and the target customers. Typically, the firm can change its price, sales force size, and advertising expenditures in the short run. It can develop new products and modify its distribution channels only in the long run. Thus the firm typically makes fewer period-to-period marketing-mix changes in the short run than the number of marketing-mix decision variables might suggest. Note that the four Ps represent the seller’s view of the marketing tools available for influencing the buyer. From a buyer’s point of view, each marketing tool is designed to deliver a customer benefit. Robert Lauterborn suggested that the seller’s four P’s correspond to the customer’s four Cs. Four Ps Four Cs Product Customer Solution Price Customer Cost Place Convenience Promotion Communication Winning companies will be those who can meet customer needs economically and conveniently and with effective communication. Compan y Products Services Prices Sales Force Advertising Sales Force Public Relations Direct mails, telemarketing and Internet Distribution Channels Target Customer s Company orientation towards the market place We have defined marketing management as the conscious effort to achieve desired exchange with target markets. But what philosophy should guide a company’s marketing efforts? What relative weights should be given to the interests of the organization, the customers and the society? Very often these interest conflict. Clearly, marketing activities should be carried under a well-thought out philosophy of efficient, effective, and socially responsible marketing. However, there are five competing concepts under which organizations conduct marketing activities: the production concept, product concept, selling concept, marketing concept and societal marketing concept. The Production Concept: The production concept is the oldest concept in business. The production concept holds that consumers will prefer products that are widely available and inexpensive. Managers of production-oriented business concentrate on achieving high production efficiency, low costs and mass distribution. They assume that consumers are primarily interested in product availability and low prices. This orientation makes sense in developing countries, where consumers are more interested in obtaining the product than its features. It is also used when a company wants to expand the market. Some service organizations also operate on the production concept. Many medical and dental practices are organized on assembly-line principles, as are some government agencies (such as unemployment offices and license bureaus). Although this management orientation can handle many cases per hour, it is open to charges of impersonal and poor quality service. The Product Concept: Other businesses are guided by the product concept. The product concept holds that consumers will favor those products that offer the most quality, performance, or innovative features. Managers in these organizations focus on making superior products and improving them over time. They assume that buyers admire well-made products and can appraise quality and performance. However, these managers are sometimes caught up in a love affair with their product and do not realize what the market needs. Management might commit the “better-mousetrap” fallacy, believing that a better mousetrap will lead people to beat a path to its door. Such was the case when WebTV was launched during Christmas 1996 to disappointing results. anticipative marketer looks ahead into what needs customers may have in the near future. A creative marketer discovers and produces solutions customers didn’t ask for but to which they enthusiastically respond. Sony exemplifies a creative marketer because it has introduced many successful new products that customers never asked for or even thought were possible. Why is it supremely important to satisfy target customers? Because a company’s sales each period comes from two groups: new customers and repeat customers. One estimate is that attracting a new customer can cost five times as much as pleasing an existing one. And it might cost sixteen times as much as to bring the new customer to the same level of profitability as the lost customer. Customer retention is thus more important than customer attraction. Integrated marketing: When all the company’s departments work together to serve the customer’s interests, the result is integrated marketing. Unfortunately, not all employees are trained and motivated to work for the customer. Integrated marketing takes place on two levels. First, the various marketing functions- sales force, advertising, customer service, product management, marketing research-must work together. Second, the other departments must embrace marketing; they must also think customer. Marketing is not a department so much as a company wide orientation. To foster teamwork among all departments, a company should carry out internal as well as external marketing. External marketing is marketing directed at people outside the company. Internal marketing is the task of hiring, training, and motivating able employees who want to serve the customers well. In fact, internal marketing must precede external marketing. It makes no sense to promise excellent service before the company’s staff is ready to provide it. Managers who believe the customer is the company’s only true profit center consider the traditional organisation chart- a pyramid with the president at the top, management in the middle, and front-line people and customers at the bottom-obsolete. Master marketing companies invert the chart. Profitability The ultimate purpose of the marketing concept is to help organizations achieve their objectives. In the case of private firms, the major objective is profit; in the case of nonprofit and public organizations, it is surviving and attracting enough funds. A company makes money by satisfying customer needs better than its competitors. Traditional Organizational Chart Modern Customer-oriented Organisational Chart Most companies do not embrace the marketing concept until driven by circumstances. These are 1. Sales Decline: When Sales fall, companies panic and look for answers. Today newspapers decline as people are more replying on Radio, TV and Internet for the news 2. Slow Growth: Slow sales growth leads companies to search for new markets. They realize they need marketing skills to identify and select new opportunities 3. Changing buying patterns: Many companies operate in markets characterized by rapidly changing customer wants. These companies need more marketing knowhow if they are to track buyers changing values 4. Increasing Competition: Complacent industries may be suddenly attacked by powerful competitors. AT&T was quite complacent in a regulated market-naïve Telephone Company until government allowed other companies to sell Telephone equipments. Companies in deregulated industries all find it necessary to build up marketing expertise 5. Increasing Marketing Expenditures: Companies may find their expenditures for advertising, Sales, Promotion, marketing Research and Customer Service to be poorly done. Management then decides to take a serious audit to improve its marketing Companies need to attract and retain customers through superior product offerings, which delivers the Customer satisfaction. This is also influenced by other departments who must cooperate in delivering this Customer Satisfaction Top Management Middle Management Front Line People Customers Customers Front Line People Middle Management Top Management In the course to converting into marketing orientation, a company faces 3 hurdles • Organized Resistance • Slow Learning • Fast forgetting Some company departments like R&D, Manufacturing, and Finance etc. believe a stronger Marketing department threatens their power in the organisation. Resistance is especially strong in the industries where Marketing is introduced for the first time-like law offices, colleges, deregulated industries and government offices. But in spite of resistance the Company president establishes a Marketing department, marketing talents are hired and seminars conducted, Marketing budget increased and Marketing planning and Control systems introduced. Companies face a difficult task in adapting ad slogans to International markets, many of which are interpreted wrongly SOCIETAL MARKETING CONCEPT: The Societal Marketing Concept holds that the Organizations task is to determine the needs, wants and interests of target markets and to deliver the desired satisfaction more effectively and efficiently than competitors in a way that preserves and enhances the consumers and the societies well being. It calls for social and Ethical considerations in marketing. They must balance the conflicting criteria of Company profits, consumer want satisfaction and Public Interest. In an age of environmental deterioration, resource shortage, explosive population growth, world hunger and poverty and lack of Social Services Marketers needs to be sensitive on these issues Cause-Related Marketing: Activity by which a company with an image, product or service to market builds a relationship/partnership with a cause/causes for mutual benefit. This serves an opportunity for Corporate Reputation, raise Brand Awareness, increase Customer Loyalty, Press coverage and Build Sales. DOCC…. How Businesses and Marketing are Changing? Market place is changing as a result of major societal forces like • Technological Advance • Globalization • Deregulation Customers increasingly want higher Quality, Lower Price, Service and Customization. They perceive fewer Brand Loyalty and Product differences. They can obtain Extensive Product information from the Internet and other sources and shop intelligently. Brand manufacturers are facing intense competition from domestic and foreign brands, rising promotion costs and shrinking profits. Store based retailers are suffering from an over saturation of retailing. Small retailers are succumbing to growing power of Giant retailers and category killers. Store based retailers are suffering from competition from catalog houses, Direct mail firms, TV direct to customer ads, Telemarketing, Tele-shopping etc. Nature of High Performance Businesses Stakeholders – A company should strive to perform above the minimum expectations of all of it’s stakeholders, including the employees, customers, suppliers so that this dynamic relationship ultimately leads to higher profits and hence stockholder satisfaction. Processes – The trick lies in overcoming the problems posed by departmental organization. The successful companies are those which achieve excellent capabilities in managing core business process through cross – functional teams. Core processes here could be new-prod development, customer attraction, order fulfillment, etc Resources – The major businesses are nowadays trying to own and nurture only their respective core resources and competences, while out sourcing the rest of the processes. Companies are paying increasing focus on their core competences and distinctive capabilities. One should go in for outsourcing, if through outsourcing, 1. better quality can be obtained 2. lower costs are incurred 3. If resources are less critical Core competence has 3 characteristics 1. Difficult for competitors to imitate 2. Source of competitive advantage if it makes significant contribution to perceived customer benefits 3. Potential breadth of application to a wide variety of markets Set strategies to satisfy key stakeholders Stakeholders By improving critical biz processes Processes And aligning resources and organization Resources and Organisation Organization and Organizational Culture – According to the article Built to Last, there are 3 commonalities amongst the visionary companies – 1. They all held a core value system from which they did not deviate 2. They expressed their purpose in enlightened terms 3. They have developed a vision for their future and they strive towards it. They communicated it to their employees and embrace a higher purpose beyond making money Senior mgmt must encourage fresh ideas from 3 grps wrt strategy making a. Employees with youthful perspectives b. employees away from headquarters c. employees new to the industry  Delivering Customer value and satisfaction Here are two important concepts from the customer value point of view – Value chain – Michael Porter defined 9 processes as vital to a value building network of a company, viz. Primary Activities: Inbound logistics, Operations, Outbound logistics, Marketing Sales and Service. Support Activities: Infrastructure, HRD, Technology development, Procurement. A firm’s task is to examine all costs and performance of these processes and try and improve them for better value-creation. Also a firm’s success depends upon how each of these processes is coordinated to seamlessly perform the following core business processes – - New – product realization - Inventory management - Customer acquisition and retention - Order-to-remittance - Customer service Value delivery network – A firm needs to partner with its suppliers, distributors and customers to gain significant competitive advantages by creating a superior value- delivery network.  Attracting and Retaining customers Customer Acquisition – This process is accomplished in 3 steps viz. Lead generation – to generate leads, the company develops ads and places them in media that will reach new prospects; its sales person participate in trade shows where they might find new leads and so on. All this produces a list of suspects. Lead qualification – the next task is to qualify which of the suspects are really good prospects, and this is done by interviewing them, checking for there financials, and so on. The prospects may be graded as hot warm and cool. The sales people first contact the hot prospects and work on account conversion, which involves making presentations, answering objections and negotiating final terms. Computing cost of lost customers – Too many companies suffer from high customer churn namely they gain new customer only to lose many of them. Today companies must pay closer attention to their customer defection rate (the rate at which they lose customer). The steps involved here are 1. A company must define and measure retention rate 2. The company must distinguish the causes of customer attrition and identify those that can be managed better. Not much can be done for customer who leave the region or go out of business but much can be done about the customer who leaves because of poor service shoddy products or high prices. The company needs to examine the percentages of customer who defect for these reasons. 3. Third, the company needs to estimate how much profit it loses when it loses customer. In case of an individual customer the lost profit is equal to the customers lifetime value that is the present value of the profit stream that the company would have realized if the customer had not defected prematurely. 4. Fourth the company needs to figure out how much it would cost to reduce the defection rate. As long as the cost is less than the lost profit the company should spend the amount to reduce the defection rate. The key to customer retention is customer satisfaction. A highly satisfied customer:  stays loyal longer  buys more as the company introduces new products or upgrades existing products  talk favorably about the company and its products  Pays less attention to competing brand s and advertising and is less sensitive to price.  Offers product or service ideas to the company Importance of retaining customers – The following statistics are helpful to this end 1. Acquiring new customers costs 5 times more than retaining old ones 2. A 5% reduction in customer defection can increase profits by 25% to 85% 3. Customer profit rates tend to increase over the lifetime of the customer. The two ways of retaining a customer would be – 1. To erect high switching costs customers are less inclined to switch to another supplier when this would involve high capital costs, high search costs, or loss of loyal customer discounts. 2. Deliver high customer satisfaction Relationship marketing – The task of creating strong customer loyalty is called Relationship Marketing. The steps in customer development process is Suspects -> Prospects -> First-time customers -> repeat customers -> Clients -> members -> Advocates -> Partners. There might be defections from any of these levels, in which case, relationship marketing works on customer win-back strategies. There are 5 different types of levels of investment in customer relationship marketing – 1. Basic marketing : the sales person simply sells the product 2. Reactive marketing: the salesperson sells the product and encourages the customer to call if he or she has questions comments or complaints. 3. Accountable marketing: the salesperson phones the customer a short time after the sales to check whether the product is meeting the expectation. 4. Proactive marketing: the company salesperson contacts the customer from time to time with suggestion about the improved product uses or helpful new products. 5. Partnership marketing: the company works continuously with the customer to discover ways to perform better. There are also certain marketing tools which can be used for added customer satisfaction – 1. Adding financial benefits - through frequency marketing programs and club marketing programs. Club membership programs to bond the customer closer to the company can be open to everyone who purchases the product or service, such as frequent flier or frequent diner club, or it can be limited to the affinity group. Chapter 3 Winning Markets: Market Oriented Strategic Planning Strategic planning consists of 3 actions broadly – 1. Managing a companies’ portfolios 2. Assessing each business’ strength by considering the market’s growth rate and the company’s position fit in that market. 3. Formulating a game plan for each of its businesses to achieve long-term objectives. Strategic Planning is done in 4 levels – 1. Corporate Strategic Plan – It decides what resources to allocate to which business and what businesses to diversify into 2. Division Plan – It decides how much funds to allocate to the SBUs. 3. SBU Plan – 4. Product Plan –  Corporate and Division Strategic Planning This basically subsumes 4 activities – 1. Defining corporate mission 2. Establishing SBU 3. Assigning resources to each SBU 4. Planning new businesses, downsizing older ones Defining the Corporate Mission – A good mission statement provides employees with a shared sense of purpose, direction and opportunity. A good mission statement has 3 characteristics – 1. They focus on a limited number of goals 2. They stress on major policies and values the company wants to honor 3. They define the major competitive scope within which the company will operate. Some of such scopes are : industry scope, products scope, geographical scope, etc Establishing SBUs – Companies should define business units in terms of needs, not products. A business can de defined in terms of three dimensions – Customer groups, Customer needs and Technology. Characteristics of an SBU are – 1. It is independent in terms of the policies it needs 2. It has its own set of competitors Assigning Resources to each SBU – The BCG Approach (Growth-share matrix) – Plots the Market growth rate (%, Y-axis, 0 – 20%) against Relative market share (fraction, X-axis, 10 – 0.1). The area of the circle denotes the volume of the business. Based upon the position in the chart, the businesses are classified as – 1. Question marks 2. Stars 3. Cash cows 4. Dogs After plotting the matrix, the company can judge the health of its portfolio and can take one of the following 4 actions to determine the budget to assign to each SBU– 1. Build – to increase market share, at the expense of short-term earnings, if necessary. Done on dogs 2. Hold – to preserve market share. Done on cash cows 3. Harvest – to increase short term flow, regardless of long-term effect. This generally diminishes the value of the SBU. Done so that the costs are reduced at a faster rate than the fall in sales. Done on losing cash cows, dogs and question marks 4. Divest – to liquidate the business. Done on question marks and dogs The General Electric Model – Plots the Market Attractiveness (Y-axis, 1 – 5) against the Business Strength (X-axis, 5 – 1). For each business the two dimensions are calculated after setting the values for the parameters under each of the two, and then using their weightage. The area of the circle is the size of the market, shaded part being the business’s share. The 9 cells are divided into 3 zones – 1. 3 cells on top left – strong SBUs in which the company should invest and grow 2. 3 diagonal cells – medium in overall effectiveness 3. 3 cells in bottom left – weak SBUs. Divest or harvest these. Planning new Businesses, Downsizing old ones – The company can try one the following 3 strategies to increase its business – 1. Intensive growth – a review of whether any opportunities exist for improving the existing business performance. This can be achieved in 4 ways (Anshoff’s Model) – a) Market penetration b) Market development c) Product development d) Diversification 2. Integrative growth – By backward Integration, Forward Integration, or Horizontal integration. 3. Diversification growth – Exploiting opportunities in new businesses.  Business Strategic planning The unit strategic planning for a business consists of the following steps- 1. Business Mission – Each business unit needs to come up with a mission within the broader company mission. 2. SWOT analysis This is further carried out into parts Opportunity and threat analysis (External Environment analysis) In general companies need to identify the major macroeconomic forces (demographic, economic, technological, socio-cultural, etc.) and the major microeconomic forces (customers, competitors, suppliers, distributors, etc) that have an effect on its profitability. Further, they need to trace trends in these factors then identify which can be their opportunities and weaknesses. A marketing opportunity is an area of buyer need in which a company can perform profitably. A threat is a challenge posed by an unfavorable trend which, in absence of marketing action would lead to fall in profitability. A company needs to chalk out a strategy for dealing with these threats. After the opportunity and threat analysis is done, a business’s overall attractiveness can be identified. Strengths and Weaknesses analysis (Internal Environment Analysis) A company’s internal strengths and weaknesses in various departments need to be identified periodically. 3. Goal Formulation Goals are developed to facilitate the management in planning, implementation and control of achieving the targets. Most businesses pursue a variety of objectives, which should ideally meet the following criteria - the objectives must be placed hierarchically, in decreasing order of priorities - they should be stated quantitatively - the goals should be realistic - the goals should be consistent with each other 4. Strategic formulation Strategy is the roadmap for achieving the envisaged goals. Porter defined strategy as “creation of a unique and valuable position involving different set of activities” Strategy can be formulated into 3 generic types – Overall cost leadership – here a business aims at delivering its products at the lowest prices in the market and wins a large market share. Such businesses require to be good at engineering, purchasing, manufacturing and distribution. A disadvantage of this strategy is that some other company will eventually emerge with still lower costs. Differentiation – here a business aims at achieving superior performance in an important customer area valued by a large chunk of the market. It could strive to be the service leader, the quality leader, the style leader or technology leader. Focus – Here a firm concentrates on one or more narrow market segments. It first identifies such a segment and then pursues either cost leadership or differentiation in them. Strategic Alliances Companies are discovering that to achieve leadership they need to form strategic alliances with domestic or multinational companies that complement or leverage their capabilities and resources. The strategic alliances could be in the form of marketing alliances in the following ways – - objectives – defines the plan’s financial and marketing goals in terms of sales volume, market share and profit - marketing strategy – presents broad approach to be used to meet the objectives - Action programs – presents the marketing programs to be used to meet business objectives. - projected profit and loss statement – forecasts the plans expected financial outcomes - control – indicates how the plan will be monitored Chapter4 Gathering Information and measuring market demand The marketing environment is changing at an accelerating rate. Given the following changes, the need for real time market information is greater than at any time in the past: • From local to national to global marketing • From buyer needs to buyer wants • From price to non price competition Components of a modern marketing information system Marketing information system consists of people, equipment and procedures to gather, sort, analyse, evaluate and distribute needed, timely and accurate information to marketing decision makers. Internal records system • The order to payment system cycle Sales reps dispatch orders to firm. Sales dept prepare invoices and transmits copies to various departments. Out of stock items are back ordered. Shipped items are accompanied by shipping to various depts. Most of these are being automated lately. • Sales information system Provides upto minute information on sales, current accounts & customers. provides feedback and reports. Marketing intelligence system is a set of procedures and sources used by managers to obtain everyday information about developments in the marketing environment. Steps taken to improve quality of marketing intelligence: 1)Train and motivate sales force 2)Motivate distributors, retailers and other intermediaries 3)Learn about competitors by purchasing products, tradeshows 4)Setup customer advisory panel of largest or important customers 5)purchase information from outside suppliers like AC neilsen 6)Establish marketing information center to collect marketing intelligence Marketing Research is the systematic design and collection, analysis and reporting of data and findings to a specific marketing situation facing the company. Suppliers of marketing research: 1) inhouse marketing research dept 2) engage b-school students or professors to design and carry out projects 3) use the internet for public domain informationat low cost 4) checking out rivals through products, advts etc 5) Companies also purchase research from : • Syndicated service research firms : they gather research and sell for a fee • Custom research firms : They design and carry out specific projects customized for the company concerned • Speciality line marketing research firm :provide specialised research services.Eg: field service firm does only interviews. Marketing research process The Marketing Research Process Step 1: Define the Problem and Research Objectives Management must not define a problem too broadly or too narrowly. Example of an ideal problem definition: “Will offering an in-flight phone service create enough incremental preference and profit for American Airlines to justify its cost against other possible investments American might make?” Specific research objectives: 1) What are the main reasons that airline passengers place phone calls while flying? 2) What kinds of passengers would be the most likely to make calls? Define a problem and research objectives Develop the research plan Collect the information Analyze the information Present the findings Name Description Dichotomous 2 possible answers (Yes/No) Multiple-choice 3 or more answers Likert scale Agreement/disagreement scale (1 for strongly disagree, 5 for strongly agree) Semantic differential Scale connecting two bipolar words-the respondent selects the point that represents his or her opinion. American Airlines: Large --------------------------Small Importance scale Scale that rates the importance of some attribute (1 for extremely important, 5 for not at all important) Rating scale Scale that rates some attribute from “poor” to “excellent” Intention-to-buy Scale that describes the respondent’s intention to buy Scale Open-end Questions - Useful in exploratory research Name Description Completely unstructured “What is your opinion of American Airlines?” Word association “What is the first word that comes to your mind when you hear the word TRAVEL?” Sentence completion Respondents complete an incomplete sentence Story completion Respondents complete an incomplete story Picture A picture of 2 characters is presented, with one making a statement. Respondents are asked to identify with the other and fill in the empty balloon. Thematic Apperception Test (TAT) A picture is presented and respondents are asked to make up a story about what they think is happening or may happen in the picture. Mechanical Instruments Mechanical devices are occasionally used in marketing research. Galvanometers measure the interests emotions aroused by exposure to a specific ad or picture. An audiometer is attached to TV sets in participating homes when the set is on and to which channel it is tuned. A tachistoscope may also help. This is continuation of STEP 2 : Develop the research plan Sampling plan after deciding on the research approach , the marketer researcher needs to draw up a sampling plan. For this he needs to make 3 decisions 1. sampling unit – who is to be surveyed..? the target population to be surveyed so as to have the right kind of population representation 2. sample size – how many people to be surveyed…large samples gives more accurate results but it may not always be feasible to sample the total population 3. sampling procedure – how should the sample be selected to have the right kind of representation. Probability sampling methods with confidence intervals for sampling errors contact methods how to contact the subject (ppl to be surveyed) ∗ mail questionnaire ∗ telephone interviews ∗ personal interviewing ∗ arranged interviews ∗ online interviewing Attached with such interviews are incentives that should be given to respondents to attract them to answer such questions STEP 3. collect the information Collecting the information is most expensive and prone to error. However technology (computers etc) are making things easier and enhancing the process of data collection and analysis. STEP 4 Analyse the information Develop frequency distributions, averages, measures of dispersion etc to analyse the information collected STEP 5 Present the findings Present the main findings to the marketing decision makers. Overcoming barriers to the use of marketing research – why companies fail to use it sufficiently or correctly 1. narrow conception – they see it as a fact finding process. 2. uneven caliber of marketing researchers – hiring unprofessional and less competent workers to do market research leads to unsatisfactory results resulting in disappointment. 3. late and erroneous finding by market research – managers look for quick results…they are disappointed with high costs and the time required for such researches.. 4. personality and presentational differences - differences in the style of line managers and marketing researchers often get in the way of productive relationships… Seven characteristics of a good marketing research 1. scientific method 2. research creativity 3. multiple methods 4. independence of models and data 5. value and cost of information 6. healthy skepticism 7. ethical marketing Mktng Decision Support Systems- is a coordinated collecn of data,systems, tools and techniques with supporting software and hardware bu which an orgn gathers and interprets relevant infofrom business and environ. And turns it into basis for mktng action eg brandaid, callplan,detailer etc Diff types of Statistical tools – 1. Multiple regression - same as QM 2. Discriminant Analysis - ---do--- 3. Factor Analysis – technique used to detrmine a few underlying dimensions of a larger set of correlated variables 4. Cluster anal . – separating objects into mutually exclusive groups of specified no. such that they are relatively homogenous 5. conjoint anal. – respondents rank preferences for each attribute… 6. multidimensional scaling – techniques to produce perceptual maps of competitive products/brands Types of Models – 1. Markov process Model – shows probability to move frm current state to a future state 2. queuing model – shows waiting times and queue lengths 3. new product pretest models- estimates functional relations between customer attributes in a pretest situation of a marketing offer 4. sales response models – estimate relations b/w one or more mktng variables Optimization routines – Multiple factor index method: Like business marketers even consumer marketers also have to estimate the area market potentials. But the consumers of consumer companies are too numerous to be listed. Thus the most common method is the straightforward index method. Industry sales and Market shares. Identifying competitors and estimating their sales do this. The industry trade association will often collect and publish total industry sales, using this information each company can evaluate its performance against the whole industry. Another way to estimate is to buy reports from a marketing research that audits total sales and brand sales. These audits can give a company valuable information about its total product its total product category sales and its brand sales. It can compare its performance to the total industry and/or any particular competitor to see whether it is gaining or losing market share. Business marketers have typically harder time in estimating sales than consumer goods manufacturers do. ESTIMATING FUTURE DEMAND Very few products lend themselves to easy forecasting. In most markets total demand and company demand are not stable. Good forecasting becomes a key factor in company’s success. The unstable the demand the more critical is forecast accuracy and the more elaborate is forecasting procedure. A three-stage procedure is used to prepare a sales forecast. They prepare a macro economic forecast, followed by a industry forecast then by a company sales forecast. Firms develop their forecasts internally and externally as: Market research firms, specialized forecasting firms and futurist research firms. All forecasts r built on three information bases : what people say, what people do and what people have done. Survey of buyers intentions Forecasting is the art of anticipating what buyers r likely to do under a given sat of conditions. The survey looks inquires into the purchase intentions of consumer, their present and future personal finances and their expectations about the economy.This can be analysed and major shifts in consumer preferences can be anticipated and production schedules and marketing plans changed accordingly. Composite of sales force opinions. Where buyer interviewing is impractical there companies ask their salespersons to estimate their future sales. Each of them estimates how much each current and prospective customer will buy of each of the company’s products. To encourage better estimating the company could supply certain aids or incentives to sales force.the benefits are : 1) Better insights into developing trends 2) Greater confidence in sales reps and more incentive to achieve targets. 3) Provides detailed estimates broken down by product, territory, customer and sales reps. But some sales reps may use their for ther advantage llike setting smaller forecasts forlow targets and sometimes they r not aware of the recent major economic developments. Expert opinion Companies also obtain forecasts from experts including dealers,distributors,suppliers marketing consultantsa and trade associations.Dealer estimates r subject to the same merits and demerits of sales reps estimates.the expets estimates r done by group discussion method or pooling of individual estimates method or Delphi method where every estimate is refined nad re-refined. Past sales analysis Sales forecasting is also done on the basis of past sales. Time series analysis (breaking down the the past data into trend,cycle,seasonal and erratic) ,exponential smoothing (combining the past sales and recent ones by giving more weight to the latter) ,statistical demand analysis ( impact level of each set of casual factors eg…income, price, marketing expenditure etc…) and economic analysis. Chapter 5 Scanning the Marketing Environment “Today you have to run faster to stay in the same places” Successful company take inside out view of the their business. They recognize that environment is constantly spinning new opportunities and threats and understand the importance continuously monitoring the and adapting to the environment. The major responsibility for identifying significant marketplace changes falls to the company’s marketers. They must be trend trackers and opportunity seekers. Marketers have 2 advantages. • They have disciplined methods – marketing intelligence and market research. • They also spend more time with customers and more time watching competitors. Analyzing Needs and trends in the macro environment Successful companies recognize trend and respond profitably to unmet needs and demands. • A trend is a direction or sequence of events that have some momentum and durability We can draw distinction between fads. Trends, and megatrends. A fad is unpredictable, short and without social, economic and political significance Trends are more predictable and durable. It reveals the shape of the future – has longevity, is observable across several market areas and consumer activities, and is consistent with significant indicators occurring or emerging at the same time. Megatrends have large social economic political and economical changes that are slow to form, and once in place they influence us for some time A new product is more likely to be success if it is in line with the strong trends than otherwise. Identifying and responding to the major macroeconomic forces. Companies and their suppliers, marketing intermediaries, customers, competitors and public all operate in a macroeconomic environment of forces and trends that shape opportunities and pose threats. These forces represent “noncontrollables” which a company must monitor and respond to. In the economic arena, companies and consumers are increasingly affected by global forces. These include: • World trade enablers • Asian economic power • Rise of trade blocs • International monetary crises • Use of barter & countertrade • Move towards market economies • “Global” lifestyles countries are good markets for extractive equipment, tools and supplies, material- handling equipment, and trucks. Depending on the number of foreign residents and wealthy native rulers and landlords, they are also a market for Western-style commodities and luxury goods. 3. Industrializing economies: Manufacturing accounts for 10 to 20 percent of GDP. Examples include Egypt, India and Philippines. As manufacturing increases, the country relies more on imports of raw materials, steel, and heavy machinery and less on imports of finished textiles, paper products, and processed foods. Industrialization creates a new rich class and a small but growing middle class, both demanding new types of goods. 4. Industrial economies: Major exporters of manufactured goods and investment funds. They buy manufactured goods from another and also export them to other types of economies in exchange for raw materials and semifinished goods. The large and varied manufacturing activities of these nations and their sizable middle class make them rich markets for all sorts of goods. Marketers often distinguish countries with five different income-distribution patterns: very low incomes; mostly low incomes; very low, very high incomes; low, medium, high incomes; mostly medium incomes. Market for Lamborghinis that cost more than $150,000 would be very small in countries with the first or second type income patterns, the largest would be third type (Portugal), which is one of the poorer countries in Western Europe, but one with enough wealthy families to afford expensive cars. Since 1980, the wealthiest fifth of the U.S. population has seen its income grow by 21%, while wages for the bottom 60% have stagnated or dipped. According to the Census Bureau Statisticians, the 1990s have seen a greater polarization of the income in the United States than at any point since the end of World War 2. This is leading to a 2-tier U.S. market, with affluent people buying expensive goods and working-class people spending more carefully, shopping at discount stores and factory outlet malls, and selecting less expensive store brands. Conventional retailers who offer medium-price goods are most vulnerable to these changes. Companies that respond to the trend by tailoring their products and pitches to these two very different Americas stand to gain a lot. Examples: 1. The Gap: At Gap’s Banana Republic stores, jeans sell for $58. Its Old Navy stores sell a version for $22. Both chains are thriving. 2. The Walt Disney Company: Owns the rights to A.A.Milne’s Winnie-the-Pooh and his make-believe fiends and markets two distinct Poohs. The original line-drawn figures appear on the china, pewter spoons, and expensive kid’s stationery found in upscale specialty stores like Nordstrom and Bloomingsdale. The downscaled Pooh sells at Wal-Mart and other discount stores. 3. The National Basketball Association sells front-row seats in New York’s Madison Square garden for $1000 apiece. But fearing the loss of fans who cant afford the typical $200 for a family night out at a sports event, NBA marketers have launched an array of much more affordable merchandise and entertainment properties such as traveling basketball exhibitions. Savings, Debt and Credit Availability Consumer expenditures are affected by consumer savings, debt, and credit availability. Japanese save about 13.1% of their income and Americans save 4.7%. The result is that Japanese banks were able to loan money to Japanese companies at a much lower interest rate than the U.S. banks could offer to U.S. companies. Hence, Japanese companies expanded faster. U.S. consumers have a high debt-to-income ratio, which slows down further expenditures on housing and large-ticket items. Credit is available in the U.S. but at high interest rates, especially to lower-income borrowers. Marketers must pay attention to major changes in incomes, cost o living, interest rates, savings, and borrowing patterns because they can have a high impact on business, especially for companies whose products have high income and price sensitivity. Natural Environment: The deterioration of the natural environment is a major global concern. In many cities, air, chemical and water pollution have reached dangerous levels. Chemicals create hole in the ozone layer and cause ‘green-house effect’. In Europe, ‘green’ parties have pressed for public action to reduce industrial pollution. In the U.S. watchdog groups like Sierra Club and Friends of the Earth carried these concerns into political and social actions. Steel companies and public utilities have had to invest billions of dollars in pollution- control equipment and more environmentally friendly fuels. The auto industry has had to introduce expensive emission control in cars. Soap industry has had to increase it’s product biodegradability. Marketers need to be aware of the threats and opportunities associated with four trends in the natural environment: the shortage of raw materials, the increased cost of energy, increased pollution levels, and changing roles of governments. Shortage of raw Materials: Earth’s raw materials consist of the infinite, the finite renewable, and the finite non-renewable. Infinite resources such as water and air pose no immediate problem. Environmental groups have lobbied for a ban on certain propellants used in aerosol cans because of the potential damage they can cause to the ozone layer. Water shortages and pollution are already major problems in some parts of the world. Finite renewable resources like forests and food must be used wisely. Forestry companies are required to reforest timberlands in order to protect the soil and to ensure sufficient wood to meet future demand. Because the amount of arable land is fixed and the urban areas are constantly encroaching on farmland, food supply can also be a problem. Finite non-renewable resources-oil, coal, platinum, zinc, silver- will pose a serious problem as the point of depletion approaches. Firms making products that require these increasingly scarce minerals face substantial cost increases. They may not find it easy to pass these cost increases on to customers. Firms engaged in R&D have an excellent opportunity to develop substitute materials. Increased Energy Costs One finite nonrenewable resource, oil , has created serious problems for the world economy. Oil prices shot up from $2.23 a barrel in 1970 to $34 a barrel in 1982, creating a frantic search for alternative energy forms. Coal became popular again and companies searched for practical means to harness solar, nuclear, wind, and other forms of energy. In the solar energy field alone, hundreds of firms introduced first generation products to harness solar energy for heating homes and other uses. Other firms searched for ways to make a practical electric automobile, with a practical electric automobile, with a potential prize of billions for the winner. The development of alternative sources of energy and more efficient ways to use energy and the weakening of the oil cartel led to a subsequent decline in oil prices. Lower prices had an adverse effect on the oil exploration industry but considerably improved the income of oil using industries and consumers. In the mean time, the search continues for alternative sources of energy. Increased Pollution Levels Some industrial activity will inevitably damage the natural environment. Consider the dangerous mercury levels in the ocean, the quantity of DDT and other chemical pollutants in the soil and food supply, and the littering of the environment with bottles, plastics, and other packaging materials. Research has shown that about 42 percent of U.S. consumers are willing to pay higher prices for green products. This willingness creates a large market for pollution control solutions such as scrubbers recycling centers and landfill systems. It leads to a search for alternative ways to produce and package goods. Smart companies are initiating environment friendly moves to show their concern. 3M runs a pollution prevention pays program that has led to a substantial reduction in pollution and costs. Dow built a new ethylene plant in Alberta that uses 40% less energy and releases 97 percent less wastewater. AT&T uses a special software package to choose the least harmful materials, cut hazardous waste, reduce energy use, and improve product recycling in its operations. McDonald’s and Burger King eliminated their polystyrene cartons and now use smaller, recyclable paper wrappings and paper napkins. New concern over the toxic nature of dry cleaning solvents has opened up opportunities for a new breed of green cleaners although theses new businesses for an uphill battle. See the marketing for the Millennium “ A new guard of green cleaners vies for concerned customers.” Changing Role of Governments Governments vary in their concern and efforts to promote a clean environment. For example, the german government is vigorous in its pursuit of environmental quality, partly because of the strong green movement in germany and partly because of the ecological devastation in the former east germany. Many poor nations are doing little about pollution largely because they lack the funds or the political will. It is in the richer nations’ interest to help the poorer nations control their pollution, but even the richer nations today lack the necessary funds. The major hopes are that companies around the Varying R&D Budgets The United States leads the world in annual R&D expenditures ($74 billion) but nearly 60% of these funds are still earmarked for defense. There is a need to transfer more of this money into research on material science, biotechnology, and micro mechanics. Japan has increased its R&D expenditures much faster than has the US and is spending it mostly on non-defense related research in physics, biophysics, and computer science. A growing portion of U>S R&D expenditures is going into the development side of R&D raising concerns about whether the US can maintain its lead in basic science. Many companies are content to put their money into copying competitors products and making minor feature and style improvements. Even basic research companies such as Dupont bell laboratories and Pfizer are proceeding cautiously. Much of the research is defensive than offensive. And increasingly research directed toward major breakthroughs is being conducted by consortiums of companies rather than by single companies. Increased Regulation of Technological change As products become more complex the public needs to be assured of their safety. Consequently government agencies powers to investigate and ban potentially unsafe products have been expanded. In the US the federal food and drug administration must approve all drugs before they can be sold. Safety and health regulations have also increased in the areas of food, automobiles, clothing, electrical appliances and construction. Marketers must be aware of these regulations when proposing developing and launching new products. POLITICAL – LEGAL ENVIRONMENT Marketing decisions are strongly affected by developments in the political and legal environment. This environment is composed of laws, government agencies, and pressure groups that influence and limit various organizations and individuals. Sometimes these laws also create new opportunities for business. Mandatory recycling laws have given the recycling industry a major boost and spurred the creation of dozens of new companies making new products from recycled materials: Wellman – in 1993, Wellman introduced Ecospun post consumer recycled fiber (PCR), made from recycled soda bottles and sold 800000 pounds in that first year alone. Today, wellman boasts 15m pounds in sales and is partnering with domestic fabric mills like Milliken & Company, Malden and Dyersburg. At the outdoor retailer winter market in 1998, wellman introduced its new EcoSpun squared fiber, which has moisture- management properties and was designed specifically for a performance apparel market anxious to jump aboard the recycling bandwagon. LEGISLATION REGULATING BUSINESS Business legislation has three main purposes: To protect companies from unfair competition To protect consumers from unfair business practices To protect the interests of the society from unbridled business behavior Major purpose of business legislation and enforcement is to charge businesses with the social costs created by their products or production processes. Laws have been on an increase over the years. Example being: Norway bans several types of sales promotion-trading stamps, contests, premiums-as unfair instruments In India food companies special permission to launch brands that duplicate what already exists in the market Central concern: At what point of time do the costs of regulation exceed the benefits? Each law may have legitimate rationale but may sap initiative and retard economic growth. Marketers must have good knowledge of the major laws protecting competition, consumers and society. Companies generally establish legal review procedures and promulgate ethical standards to guide their marketing standards. As more and more business takes place in cyberspace marketers must establish new parameters for doing business ethically. America Online has been highly successful but has lost millions due to consumer complaints regarding unethical marketing tactics. In 1998 America Online agrees to pay 2.6 Million dollars penalty and revamp its business practices to settle deceptive marketing complaints brought by 44 state attorney generals. GROWTH OF SPECIAL INTEREST GROUPS Numbers of special interest groups have increased. Political Action Committee (PACs) lobby with the government for various issues.eg minority rights, consumer and women rights. Companies have established departments to deal with such groups. Important force affecting business – Consumerist movement Organized movement to strengthen rights and powers of buyers in relation to sellers. Companies in turn have set up consumer affairs departments to help formulate policies and respond to consumer complaints. Whirlpool Corporation is one of the companies to have established toll free numbers for its consumers. These groups have put more restraints on marketers. Marketers have to clear their plans with the legal, public relations, consumer affairs and public affairs departments. SOCIAL CULTURAL ENVIRONMENT Society shapes our beliefs, values and norms Views of themselves: In 1960-70 “pleasure seekers” sought fun, change and escape. They bought dream cars, dream vacations etc. Today, people are more conservative in behaviors and ambitions. More cautious and value driven. Views of others: People are concerned more about homeless, crime and other social problems. At the same time people are seeking there “own kind” and avoiding strangers. These trends portend a growing market for social support products and services that promote direct relations between human beings such as health clubs, cruises and religious activity. They also suggest a growing market for “social surrogates”, things that allow people who are alone to feel that they are not. E.g. Television, chat rooms on the Internet, video games. Views of organizations: People vary in their attitudes towards organizations They are willing to work for them in spite of being critical about them There has been overall decline in organizational loyalty People see work as a chore required for money and not as a source of satisfaction This outlook has several marketing implications: Companies need to find new ways of generating employee and customer confidence. Need to make sure that they are good corporate citizens and that their consumer messages are honest. Hence companies are turning to social audits and public relations to improve their image. Views of society: Attitudes towards society can be as follows Preservers- who defend it CHAPTER –6 Analyzing Consumer markets & Buying Behavior Model of consumer behaviour Major Factors influencing Buying Behaviour Cultural Factors • Culture : values, perceptions, preferences and behaviours. • Subculture : nationalities, religions, racial grps & geographic regions. • Social Class : homogeneous & enduring divisions, hierarchically ordered, members share common values. Indicated by occupation, income, education, etc. Social Factors • Reference Groups : all groups that have a direct (membership groups) or indirect influence on attitudes or behavior. These groups 1. expose us to new behaviors & lifestyles 2. influence attitudes & self concept 3. create pressures for conformity that influence brand choice • Family : Most important & influential primary reference group. Family of orientation – parents & siblings Family of procreation – spouse & children Roles and Statuses A person participates in many groups – family, clubs, and organizations. The person’s position in each group can be defined in terms of role and status. A role consists of the activities that a person is expected to perform. Each role carries a status. People choose products that communicate their role and status in society. Thus CEOs drive Mercedes, etc. Marketers are aware of the status symbol potential of products and brands. PERSONAL FACTORS A buyer’s decisions are also influenced by personal characteristics. These include the buyer’s age and stage in the life cycle, occupation, economic circumstances, lifestyle and personality and self-concept. Age and stage in the life cycle People buy different goods and services over a lifetime. Consumption is shaped by the family life cycle. Marketers often choose life cycle groups as their target market. Yet target households are not always family based: there are also single households, gay households and co-habitor households. Marketing stimuli Product Price Place Promotion Other stimuli Economic Technological Political Cultural Buyer’s characteristics Cultural Social Personal Psychological Buyer’s decision process Problem recognition Information search Evaluation Decision Buyer’s decisions Product choice Brand choice Dealer choice Purchase timing Purchase amount Some recent work has identified psychological life cycle stages. Adults experience certain passages or transformations as they go through life. Marketers pay close attention to changing life circumstances – divorce, widowhood, remarriage – and their effect on consumption behavior. Occupation & economic circumstances Occupation also influences a consumption pattern. A company can even specialize its products for certain occupational groups. Product choice is greatly affected by economic circumstances: spendable income (level, stability, time pattern), savings and assets (including the % that is liquid), debts, borrowing power, and attitude towards spending Vs saving. Marketers of income- sensitive goods pay constant attention to trends in personal income, savings and interest rates. If economic indicators point to a recession, marketers can take steps to redesign, reposition, and re price their products so they continue to offer value to target customers. Stages in the Family Life Cycle 1. Bachelor stage: young, single not living at home Few financial burdens Fashion opinion leaders Recreation oriented. Buy:basic home equipment, furniture, cars, vacations 2.Newly married Couple: Young no children Highest purchase rate & highest average purchase of durables Cars, appliances, furniture, vacations 3.Full nest I: youngest child under 6 Home purchasing at peak. Liquid assets low Interested in new products, advertised products Buy: washers, dryers, TV, baby food, vitamins, dolls, 4. Full Nest II: youngest child 6 or over Financial position better Less influenced by advertisements Buy larger sized packages, multiple unit deals Buy: cleaning material, bicycles, piano 5. Full Nest III: older married couple with dependent children Financial position still better Less influenced by advertising High average purchase of durables Auto, boats, dental services, magazines 6. Empty Nest I: older married couple, no children living with them, head of house in labor force Home ownership at peak Interested in travel, recreation, self education Not interested in new products Buy: vacations, luxuries, home improvements 7. Empty Nest II: older married couple, no children living with them, head of house retired Drastic cut in income Keep home Buy: medical appliances, medical care products 8. Solitary survivor: in labor force Income still good but likely to sell home 9. Solitary survivor: retired Same medical and product needs as other retired group Drastic cut in income Special need for attention, affection, security Psychological Factors: 4 major psychological factors that influence a person’s buying choices: 1. Motivation: A person has many needs at a given time – i. Biogenic Needs – Arising from psychological states of tension such as hunger, thirst, discomfort. ii. Psychogenic needs – Arising from psychological states of tension such as need for recognition, esteem or belonging. iii. Motive: A need becomes a motive when it is aroused to a sufficient level of intensity causing a person to act.  Theories related to Motivation: i. Freud’s Theory:  Psychological forces shaping a persons behavior are largely unconscious.  “Laddering” can be used to trace a person’s motivations from the stated instrumental ones to the more terminal ones.  This helps the marketer decide at what level the message/appeal is to be developed.  Motivation researchers collect consumer interviews for insights using techniques like word association, sentence completion, picture implementation & role playing. Motivational positioning: The whisky example – Whisky can attract someone who seeks social relaxation, status or fun. Hence whisky brands have specialized in these three kinds of appeals. 4) Prescriptive process: Ask customers the ideal way to buy the product Five stage Process of Consumer Buying Decision Problem Recognition The buyin process starts when the customer feels the need for the product Information Search: An inclined customer wud look for more information. At the first level it is called heightened attention. He simply becomes more receptive for information At the next level is the active information search lookin for more information from friend, reading material, etc. • Sources of information for the customer: • Personal Sources: family, friends • Commercial sources: Ads, sales people • Public sources: Mass media • Experimental sources: Handling, examining Successive sets involved in consumer Buyin decision process: Postpurchase Behaviour Purchase Decision Eval Of alternatives Information search Problem Recognition Evaluation of IDEAS The consumer is tryin to satisfy his needs , get some benefits and finally look at the product as a bundle of benefits. The consumer wud give weightages to the various attributes to the product and find out the total points to the product. Some methods which can help change the consumers perception of the product 1) Real repositioning: redesign the product 2) Psychological repositioning: Alter the belief of the brand 3) Competitive repositioning: Alter belief about the competitor’s brand Purchase Decision Awareness Set The brands that the consumer is aware of Considerati on Set: Some initial brands that meet basic requirements Choice Set: Strong Contenders Decision: ???? Total Set All the possibles choices Postpurchase behaviour: Postpurchase Satisfaction: the customer may either be satisfied, delighted or dissatisfied after the purchase. these feelings make a lot of difference to the customers perception and behaviour towards the company. Postpurchase actions: the customer may take different actions depending upon his satisfaction level. The dissatisfied customer may stop buying ( exit opition) or the customer may be tell his friends not to buy the product ( voice option) Postpurchase use and disposal: Marketers need to monitor what the consumer does with the product after purchase and how it is disposed off to maintain environmental friendliness of the product. Evaluation of alternatives Purchase Intention Unanticipated factors Attitudes of others Purchase decision The Buying Center The Buying center is composed of all those individuals and groups who participate in the decision making process, who share some common goals and risks arising from the decisions.  Initiators: Those who request that something be purchased.  Users: Those who will use the product or service.  Influencers: People who influence the buying decision. They help define specifications and provide information about alternatives.  Deciders: People who decide on product requirements or on supplies.  Approvers: people who authorize the proposed actions of deciders and buyers.  Buyers: People who have formal authority to select the supplier and arrange the purchase terms.  Gatekeepers: People who have the power to prevent sellers or information from reaching the buying center. When a buying center includes many participants the business marketer will not have the time or resources to reach all of them. Small sellers concentrate on reaching the key buying influencers whereas the large sellers go for multilevel in depth selling to reach as many participants as possible. Major Influences The major influences on buying behavior are: Environmental, Organizational, Interpersonal and individual. Environmental factors: Business marketers can do little to stimulate total demand in this environment. They can only fight harder to maintain or gain market share. Organizational factors: Every organization has specific purchasing objectives, policies, procedures, organizational structures and systems. Environmental - Level of demand - Economic outlook - Interest rate - Rate of tech. Change - Political and regulatory developments - Competitive developments - Social responsibility concerns Organizational - Objectives - Policies - Procedures - Organizational structures - Systems Interpersonal - Interest - Authority - Status - Empathy - Persuasivene ss Individual - Age - Income - Education - Job Position - Personalit y - Risk attitudes - Culture Business Buyer Interpersonal factors: Buying centers have several participants with different interests, authority, status, empathy and persuasiveness. Whatever information the marketer can discover about personalities and inter personal factors will be useful. Individual factors: Each buyer carries personal motivations, perceptions, preferences as influenced by his age, income, education, job position, personality attitudes towards risk and culture. 3. The Purchasing/Procurement Process: Business buyers buy goods and services to make money or to reduce operating costs or to satisfy a social or legal obligation. Business buyers try to obtain the highest benefit package relation to a market offering’s costs. There are three company-purchasing orientations: 1. Buying- discrete transactions, relations are arms-length and adversarial, buyer focus is short term and tactical. Buyers assume that “value pie” is fixed, and they must bargain hard to maximize benefits. Buyers use two tactics: commoditization and multi-sourcing. 2. Procurement- Buyers seek quality improvements and cost benefits. More collaborative with smaller no of suppliers working in close cooperation with customers. The goal is to establish win win relationship. 3. Supply management- Purchasing is more of a strategic value adding operation. Focus is on improving value chain from raw materials to end-users. Buyer behaves as a lean enterprise operating under demand pull rather than supply push. Stages in the process 1. Problem recognition: Most common events leading to problem recognition: company decides to develop new product, machine breaks down, purchased material turns out to be defective, purchases senses opportunity to obtain materials at cheaper price. 2. General need description: Determination of needed item’s general description and characteristics (viz reliability, durability, price) & quantity. Marketers may assist buyers in this stage. 3. Product specification: Buying organization will develop technical specifications for the product and assign a product value analysis (PVA) engineering team to the project. PVA is an approach to cost reduction in which components are carefully studied to determine if they can be redesigned or standardized or made by cheaper methods of production. 4. Supplier search: Identify the most appropriate suppliers. Suppliers who lack the required production capacity or suffer from a poor reputation get rejected. Those who qualify may be visited by the buyer’s agents, who will inspect supplier’s manufacturing sites. After this stage, buyer will end up with a short list of qualified suppliers. 5. Proposal solicitation: Buyer invites proposals from suppliers. After evaluating proposals, buyer will invite a few suppliers to make formal presentations. 6. Supplier Selection: Buyer will first specify desired supplier attributes like price, reputation, reliability, flexibility and assign weightages according importance. They will be rated then and the best will be identified. Another decision to make is how many suppliers to have 7. Order – Routine specification: After selecting supplier, buyer lays the purchase conditions related to final order, tech specs, delivery etc. a blanket contract is signed for supplier to keep ready stock with the buyer over a specified period of time 8. Performance review: Buyer periodically reviews its suppliers using any of 3 methods • Ask end users for feedback • Evaluation suing weighted score method • Find out cost of poor performance and adjust price accordingly Buy Flow map describes major steps in the business buying processes. 4. Institutional and Government Markets Institutional markets consist of schools, hospitals, nursing homes, prisons and other institutions that must provide goods n services to people in their care. These are characterized by low budgets and captive clienteles. The focus here is on quality and cost minimization and profit are not objectives. 7. Degree of globalization Compete on a global basis in order to achieve economies of scale and keep up with the latest advances in technology 8. Competitor analysis Once the primary competitors are analyzed, the company needs to ascertain the characteristics, i.e. strategies, objectives (what is each company seeking in the marketplace – history, management, financial situation, expansion plans etc.), strengths, weaknesses, reaction patterns of the competitors. A strategic group is a group of firms following the same strategy in a given target market. Six competitive positions of a firm in its target market – dominant, strong (can take independent action without endangering its long term position regardless of competitors’ actions), favourable (more than average opportunity to improve), tenable (satisfactory enough to continue, but improvement opportunity is less than average), weak (change or exit), non-viable (divest). Three variables to monitor while analyzing its competitors – Share of market, share of mind, share of heart. Reaction patterns of competitors – Laidback competitor, Selective competitor (reacts to certain types of attacks), Tiger competitor (reacts to every move), Stochastic competitor (no predictable behaviour) Competitive equilibrium (Bruce Henderson) : If competitors are nearly identical and make their living in a similar way, then their competitive equilibrium is unstable as differentiation is hard to maintain. If a single factor (e.g. a cost breakthrough or technical advancement achieved by one firm) is the critical factor, then competitive equilibrium is unstable as competitors can defend their share only at a great cost. If multiple factors may be critical factors, then it is possible for each competitor to have some advantage and be differentially attractive to some customers. The more factors that may provide a competitive advantage, the more competitors can coexist. The fewer the number of critical factors, the fewer the number of competitors. A ratio of 2 to 1 in market share between any two competitors seems to be the equilibrium point at which it is neither practical nor advantageous for either competitor to increase or decrease share. At this level, the costs of extra promotion or distribution would outweigh the gains in market share. 9. Four main steps to designing a competitive intelligence system: Setting up the system Collecting the data Evaluating and analyzing the data Disseminating information and responding 10. Selecting competitors to attack and to avoid Customer value analysis – to reveal the company’s strengths and weaknesses relative to various competitors Identify the major attributes customers value Assess the quantitative importance of the different attributes Assess the company’s and competitors’ performances on the different customer values against their rated importance Examine how customers in a specific segment rate the company’s performance against a specific major competitor on an attribute-by-attribute basis Monitor customers’ values over time 11. Classes of competitors Strong vs. weak Close vs. distant (companies should avoid trying to destroy their closest competitor – Porter) Good vs. bad (do not play by the rules, set unreasonable prices, try to buy share rather than earn it, take large risks, invest in overcapacity, upset the industrial equilibrium) 12. Competitive Strategies A. Market Leader Strategies Defending market share – Position defence (build an impregnable fortress around one’s territory), Flank defence (erect outposts, i.e. new products/ alternatives) to protect a weak front or serve as an invasion base for counterattack, e.g. Starbucks coffee launching non- coffee products like tea and juice (‘teazzi’), Counteroffensive defence (hit back to counter the competitor’s price cut or promotional blitz), Mobile defence (stretch your domain over new territories that can serve as future centres for defence and offence. Defend reactively Improve added value Win loyalty More usage Defend proactively Improve product mix Win competitors New uses Defend staticly Improve costs Win customers New users Defend position Improve productivity Win market share New demand Market broadening – shift focus from the current product to the underlying generic need. Do not carry this too far lest you fault upon the two fundamental military principles – the principle of the objective (pursue a clearly defined, decisive and attainable objective) and principle of mass (concentrate your efforts at a point of enemy weakness.) Market Diversification – shift focus to unrelated industries. Eg: Tobacco companies moving into beer, liquor, soft drinks, etc, as a result of curbs on the cigarette industry. Contraction Defense – Planned contraction by large companies (strategic withdrawal) – giving up weaker territories and assigning resources to stronger territories – concentrate competitive strength – pruning of product lines – Eg: GE, Heinz, etc. Expanding Market Share – to improve profitability as it rises with its relative market share of the served market. Eg: GE – No. 1 or No. 2 in every market. Some industries have a V-shaped relationship curve between market share and profitability – Few large profitable firms – many small focused profitable firms – many medium-sized low profitable firms – Looks at total market and not market segments Increase in costs as a result of increase in market share beyond a point (say 50%). This is due to cost of legal work, public relations and lobbying. Pushing for higher market share not justified as a result of few scale or experience economies, unattractive market segments, high exit barriers, etc. Share Gaining companies outperform competitors in:
New Product activity
Relative product quality
Market expenditures Ways to protect and increase market shares derived from P&G and Caterpillar: P&G:
Customer Knowledge
Long term outlook
Product innovation
Quality Strategy
Line-extension strategy
Brand-extension strategy
Multi-brand Strategy
Heavy Advertising & Media pioneer
Aggressive sales force
Effective sales promotion
Competitive toughness 1. End user specialist – customized computer hardware and software. 2. Vertical level specialist- copper firm producing raw mat or comp or finished prod 3. Customer size spec- small customer neglected by others 4. Specific customer spec- selling entire output to GM or Sears 5. Geographic spec – selling in one particular location 6. Product line spec – lenses of microscope or ties 7. Job shop spec – customizing for individuals , Customized cars 8. Quality price spec – HP operated on high price and high quality 9. Service spec – bank accepting loans on phone and hand delivery of money 10. Channel spec – soft drink selling thru only gas stations Operating in one niche is dangerous so either shud continuously create new niches or multiple niches operation. Companies can be Competition oriented or Customer oriented Competitor oriented – Constant watch on competitor and actions are more reactive. Customer oriented – identify new opportunities and make strategy , more proactive. CHAPTER 9 Identifying Market Segments and Selecting Target Markets A Company cannot serve all customers in a broad market – customers are too numerous and diverse in their requirements. The company needs to identify the market segments that it can serve more effectively. Many companies embrace target marketing where sellers distinguish the major market segments, target one or more of those segments, and develop products and marketing programmes tailored to each. Instead of scattering the marketing effort (shotgun approach) they focus on the buyers the have the greatest chance of satisfying (Rifle approach). Target marketing requires three steps:  Identify and profile distinct group of buyers who might require separate products or marketing mixes – market segmentation.  Select one or more market segments to enter – market targeting.  Establish and communicate the products’ key distinctive benefits to the target market – market positioning. Levels and Patterns of Market Segmentation Levels of market segmentation Market segmentation is an effort to increase a company’s precision marketing. Mass marketing: In this sellers engages in mass production, mass distribution and mass promotion of one product for all buyers. Model T-ford, Coca-Cola etc are example of mass marketing. Mass marketing creates a large potential market, which leads to the lowest cost, which in turn can lead to lower prices or higher margins. But with the increasing splintering of the market, mass marketing gets more difficult. Four levels of marketing:  Segment Marketing: A market segment consists of a large identifiable group within a market with similar wants, purchasing power, geographical location, buying attitudes or buying habits. For example, for an auto company might have four broad segments: customers seeking basic transportation or high performance or luxury or safety. Each segment buyers are assumed to be quite similar in needs and wants. Anderson and Narus urge to present flexible market offering instead of a standard offering (“one size fits all”) to all members within the segment. A flexible market offering consists of two parts: o Naked Solution: Product and service element that all segment members value o Options: That some segment members value, each option carries extra chrge. For example seat, food and drinks offered to the economy class passenger of an airline are naked Solution while extra amount charged for an alcoholic beverage/ Internet facility to those who are ready to pay for it would be option. Benefits of Segment Marketing are: o The company can create more fine tuned product or services offering and price it appropriately for target audience o Choice of distribution channel and communication channel becomes much easier o The company also may face fewer competitions in a particular segment.  Niche Marketing: A niche is more narrowly defined group, typically a small market whose needs are not well served. Marketers usually identify niches by dividing a segment into sub segments or defining a group seeking a distinctive mix of benefits. Niches are fairly small and attract very few competitors. Large companies loose pieces of their market to nichers and Dalgic has labelled this confrontation as “Guerrillas against gorillas”. Niche marketing requires more decentralization and changes in the way normal business is done. Niche marketers understand their customers so well that customer’s willingly pay a premium. Attractive niches are characterized as: o Customers in the niche have a distinct set of needs o They will pay a premium to the firm that best satisfies their needs o The niche is not likely to attract other competitors o The nichers gain certain economies trough specialization o The niche has size, profit and growth potential Linneman and Santon, “There are riches in the niches” Blattberg and Deighton, “Niches too small to serve profitably today will become viable as marketing efficiency improves.” The low cost of setting up shop on the Internet is a key factor on making it more profitable to serve even more seemingly miniscule niches.  Local Marketing: Marketing programmes being tailored to the needs and wants of local customer groups – trading areas, neighbourhood, individual stores. Disadvantages of local marketing are – it drives up the manufacturing and marketing cost by reducing the economies of scale, logistical problems become magnified and a brands overall image may be diluted if the product and message differ in different localities.  Individual Marketing: Ultimate level of marketing – “segment of one”, “customised marketing”, “one-to-one marketing”. Tailors, cobblers etc. B2B marketing today is customised. Mass customisation is the ability to prepare on a mass basis individually designed products and communication to meet each customer’s requirements. New technologies such as computers, Internet, databases, robotic production, email, fax etc. permit companies to adopt mass customisation. For mass customisation marketers need to set up – toll free phone number and email ids for customers suggestions, complaints, feed back, involve customer more during the product specification process, sponsor web pages containing full details about the products and services offered, guarantees and locations etc. Demographic Age Family size Family life cycle Gender Income Occupation Education Religion Race Generation Nationality Social class Psychographics Life style Personality Behavioural Occasions Benefits User status Usage rate Loyalty status Readiness stage Unaware, aware, informed, interested, desirous Attitude towards product Enthusiastic, positive, indifferent Age and life cycle stage: consumer wants and abilities change with age. Gerber realized this and began expanding beyond its baby food lines. Nevertheless age and life cycle can be tricky variables. Gender: gender segmentation has been applied to clothing hairstyling cosmetics and magazines. Other marketers also noticed opportunity for gender segmentation for eg the cigarette market where brands like Virginia slims was launched to reinforce female image. Income: it is a long standing practice in such product and service categories e.g. Automobile, clothing and cosmetic and travel. Generation:
Baby boomers born between 1946-64
Generation X born between 1964-84 – more sophisticated in evaluating products, turn off by advertising that has too much hype or takes itself too seriously
Cohort segmentation: cohorts are groups of people who share experiences of major external events that have deeply affected their attitudes and preferences. Members of cohort groups feel the bonding with each other for having shared the same major experiences. Advertising to a cohort group should be done using icons and images prominent in their experiences. Social Class: has a strong influence on preference in cars clothing home furnishing, leisure activities reading habits and retailers. The taste of social class can change with years. Psychographic segmentation: Buyers are divided into different groups based on personality and values. People within the same demographic group can exhibit very different psychographic profiles. Lifestyle: people generally exhibit more lifestyle than are suggested by social classes generally the goods they consume express their lifestyle such as cosmetics, alcoholic beverages, furniture etc. Personality: Marketers can use personality variables to segment markets. They endow their products with brand personalities that correspond to consumer personalities. Values: some marketers segment by core values, the belief systems that underlie consumer attitudes and behaviours. Core values go much deeper than behaviour or attitude and determine at a basic level people’s choices and desires over long term. Marketers who segment by values believe that by appealing to people’s inner selves it is possible to influence their outer selves- their purchase behaviour. Behavioral Segmentation Buyers are divided into groups on the basis of their knowledge of, attitude toward, use of, or response to a product. Starting points for constructing market segments Ocassions: Distinguish buyers according to the occasions they develop a need, purchase a product, or use a product Benefits: Buyers classified on the basis of the benefits they seek User status: Market segmentation into non-users, ex-users, potential users, first time users and regular users of a product. Usage rate: Market segmented into light, medium and heavy product users. Loyal status: Consumers can be divided into 4 groups according to the brand loyalty status:  Hard-core loyals – one brand all the time  Split loyals – loyal to 2 or 3 brands  Shifting loyals – consumers who shift from one brand to another  Switchers – no loyalty to any brand Markets  Brand loyal markets – high % of hard-core brand loyal buyers A company can learn a great deal by analyzing degrees of brand loyalty Analysis of:  Hard-core loyals: the company can identify products’ strengths  Split loyals: company can pinpoint which brands are most competitive with its own.  Shifting loyals: company can learn about its marketing weaknesses and attempt to correct them. Buyer readiness stage: A market consists of people in different stages if readiness to buy a product. Stages of readiness:  Aware of product  Informed about product  Interested in product  Desirous of buying the product  Intention to buy product Attitude: Five attitude groups can be found in the market:  Enthusiastic  Positive  Indifferent  Negative  Hostile Multi-Attribute segmentation (geoclustering) Marketers no longer talk about the average consumer or even limit their analysis to only a few market segments. Increasing trend towards combining several variables in an effort to identify smaller, better defined target groups. Answers to the following questions for multi-attribute segmentation  Which clusters contain our most valuable customers?  How deeply have we already penetrated these segments?  Whichh markets, performance sites and promotional media provide us the best opportunities for growth?  Inventory costs  Promotion costs Additional considerations: 3 other considerations must be taken into account in evaluating and selecting segments:  Ethical choice of target markets  Segment interrelationships and supersegments  Segment-by-segment invasion plans  Intersegment cooperation Chapter 10 Positioning the Market Offering Through the Product Life Cycle Companies are constantly trying to differentiate their market offering from competitors’. They dream up new services and guarantees, special rewards for loyal users, new conveniences and enjoyments. How to differentiate It is a 3-step process: 1. Defining the customer value Model: The Company first lists all the product and service factors that might influence the target customers’ perception of value. 2. Building the customer value hierarchy: 4 factors come under this head. Consider a fine restaurant a. Basic: the food is edible and delivered in a timely fashion. b. Expected: there is good china and tableware, a linen tablecloth and a napkin etc (These factors make the offering acceptable but not exceptional) c. Desired: the restaurant is pleasant and quiet and the food is especially good and interesting. d. Unanticipated: the restaurant serves a complimentary sorbet between the courses and places candy on the table after the last course is served. 3. Deciding on the customer value package: now the company chooses that combination of tangible and intangible items, experiences, and outcomes designed to outperform competitors and win the customers’ delight and loyalty. Differentiation Tools Differentiation is the act of designing a set of meaningful differences to distinguish the company’s offerings from competitors’ offerings. The BCG competitive Advantage Matrix: The Boston consulting group has distinguished four types of industries on the number and available competitive advantages and their size. Here we will examine how a company can differentiate its market offering along five dimensions: product, services, personnel, channel and image. Product differentiation Product differentiation can be made on the basis of form, features, Performance, conformance, durability, reliability, reparability, style, and design. Form It essentially means differentiating on the basis of size, shape, physical structure. Although aspirin is essentially a commodity, it can be differentiated by dosage size, shape, coating, action time, and so on. Features These are characteristics that supplement the product’s basic functions. Japanese car companies often manufacture cars at three “trim levels”. This lowers manufacturing and inventory costs. Each company must decide whether to offer feature customization at a higher cost or a few standard packages at a lower cost. Performance Quality It refers to the level at which the product’s primary characteristics operate. Study shows a significantly positive correlation between relative product quality and ROI. Three strategies are available: Volume Fragmented Stalemated Specialized Size of the Advan tage Small Large Number of Approaches to Achieve Advantage Few Many Companies can gain strong competitive advantage through having better trained people. Better-trained personnel exhibit 6 characteristics:  Courtesy: Respectful, friendly and considerate  Competence: Skill and knowledge  Credibility: Trustworthy  Reliability: perform service consistently and accurately  Responsiveness: Quick response to customer problems  Communication: Make an effort to understand the customer and communicate clearly. CHANNEL DIFFERENTIATION: Companies can gain competitive advantage through the way they design their distribution channels’ coverage, expertise and performance. IMAGE DIFFERENTIATION: Buyers respond differently to company and brand images. Identity and Image need to be distinguished. Identity is the way the company aims to identify or position itself or its product. Image is the way the public perceives the company and its products. An effective image does 3 things:  Establishes product character and value proposition  Conveys the character in distinctive way so as not to confuse it with competitors’  Delivers and emotional power beyond mental image. The image must be communicated for it to work. The communication can be through:  Symbols: Logos  Media: to convey a story, a mood, a claim-something distinctive.  Atmosphere: Physical settings  Events: By sponsoring of events DEVELOPING AND COMMUNICATING A POSITIONING STRATEGY All products can be differentiated to some extent. But not all differences are meaningful or worthwhile. A difference is worth establishing to the extent that it satisfies the following criteria:  Important: the difference delivers a highly valued benefit to a sufficient number of buyers.  Distinctive: the difference is delivered in a distinctive way.  Superior: the difference is superior to other ways of obtaining the benefit.  Preemptive: the difference cannot be easily copied by competitors.  Affordable: the buyer can afford to pay the difference.  Profitable: the company will find it profitable to introduce the difference. Failures The Westin Stanford hotel in Singapore advertises that it is the world’s tallest hotel. But a hotel’s height is not important to many tourists. Success Brands can sometimes differentiate on irrelevant attributes. P&G differentiates its Folger’s instant coffee by its “flaked coffee crystals” created through a “unique patented process”. Positioning is the act of designing the company’s offering and image to occupy a distinctive place in the target market’s mind. The end result of positioning is the successful creation of a market-focused value proposition, a cogent reason why the target market should buy the product. Positioning According to Ries and Trout: Positioning starts with a product. A piece of merchandise, a service, a company, an institution, or even a person……..but positioning is not what you do to a product. Positioning is what you do the mind of the prospect. That is, you position the product in the mind of the prospect. A competitor has three strategic alternatives: 1. the first is to strengthen its own current position in the consumer’s mind. Avis acknowledged its second position in the rental cars business and claimed: “ We’re number two. We try harder.” 2. grab an unoccupied position. United Jersey Bank, noting that giant banks were usually slower in arranging loans, positioned itself as “the fast-moving bank” 3. Ries and Trout argue that, in an over advertised society, the mind often knows brands in the form of product ladders, such as Coke-Pepsi-RC Cola. The top firm is remembered best. The marketer should identify an important attribute or benefit that a brand can convincingly own. 4. the fourth strategy is the exclusive club strategy. Eg. – the idea that it is one of the big three. Ries and Trout essentially deal with communication strategy for positioning or repositioning a brand in the consumer’s mind. Yet they acknowledge positioning requires that every tangible aspect of product, price, place and promotion must support the chosen positioning strategy. How many Differences to Promote Each company must decide how many differences (eg., benefit, features) to promote to its target customers. Many marketers advocate promoting only one central benefit - a company should develop a unique selling proposition(USP) for each brand and stick to it. Each brand should select an attribute and tout itself as “number one” on that attribute. Number-one positioning include  best quality  best service  lowest price  best value  safest  fastest  most customized  most convenient  most advanced technology not everyone agrees that single-benefit positioning is always best. Double-benefit positioning may be necessary if two or more firms claim to be best on the same attribute. There are even cases of successful triple-benefit positioning. Smith Kline Beacham promotes its Aquafresh toothpaste as offering three benefits: anticavity protection, better breath, and whiter teeth. The challenge is to convince consumers that the brand delivers all three. In doing this, Beecham “countersegmented”; that is, it attracted three segments instead of one. The companies must avoid 4 major major positioning errors: 1. Under Positioning: some companies discover that buyers have only a vague idea of the brand. The brand is seen as just another entry in a crowded marketplace. 2. Over Positioning: buyers have too narrow an image of the brand. Eg. – consumer might think that diamond rings at Tiffany start at $5,000 when in fact tiffany now offers affordable rings starting at $1,000 3. Confused Positioning: confused image of the brand resulting from the company making too many claims or changing the brand’s positioning too frequently. 4. Doubtful Positioning: buyers may find it hard to believe claims in view of the product’s features, price or manufacture. Cycle-Recycle pattern: Typically characteristic of pharmaceutical companies, it often describes the sale of new drugs. The company promotes its new drug and this produces the first cycle. Later sales start declining and the company gives the drug another promotion push, which produces a second cycle which of smaller magnitude and direction. Scalloped PLC: Sales pass through a succession of life cycles based on the discovery of new-product characteristics, uses or users. E.g Sales of Nylon products because of its many uses – parachutes, hosiery, shirts, etc that continue to be discovered over time. Style, Fashion and Fad Life Cycles Style: Basic and distinctive mode of expression appearing in a field of human endeavour. Styles appear in homes (colonial ranch), clothing (formal, casual, funky) and art (realistic, abstract). Style can last for generations Fashion: Currently accepted or popular style in a given field. Fashion pass through four phases: distinctiveness, emulation, mass fashion and decline Fads: Fads are fashions that come quickly into public view, are adopted with great zeal, peak early and decline very fast. Their acceptance cycle is very short and tend to attract only a limited following of those who are searching for excitement want to distinguish themselves from others. E.g. tattoos and body piercing MARKETING STRATEGIES: INTRODUCTION STAGE Sales growth tends to be slow at this stage because it takes time to roll a new product and fill dealer pipelines. The key reasons are: • Delays in the production capacity • Technical problems • Delays in obtaining adequate distribution through retail outlets • Customer reluctance to change established behaviours • Product complexity • Fewer buyers Profits are negative or low in the introduction stage because of low sales and heavy distribution and promotion expenses because much money is needed to attract distributors Promotional expenditures are at the highest ratio to sales because: • Need to inform potential consumers • Induce product trial • Secure distribution in retail outlets Prices tend to be high because costs are high due to: • Relatively low output rates • Technological problems in production • High required margins to support the heavy promotional expenditures Strategies that can be pursued: • Rapid skimming: Launching a new product at a high price and a high promotional level. This strategy makes sense when a large part of the potential market is unaware of the product; those who become aware of the product are eager to have it and can pay the asking price; and the firm faces potential competition and wants to build brand preference • Slow skimming: Launching the new product at a high price and low promotional. This strategy makes sense when the market is limited in size; most of the market is aware of the product; buyers are willing to pay a high price; and potential competition is not imminent. • Rapid promotion: Launching the product at a low price and spending heavily on promotion. This strategy makes sense when the market is large, the market is unaware of the product, most buyers are price sensitive, there is strong potential competition, and the unit manufacturing costs fall with the company scale of production and accumulated manufacturing experience • Slow penetration: Launching the new product at a low price and low level of promotion. This strategy makes sense when the mkt is large, is highly aware of the product, is price sensitive, and there is some potential competition. Pioneer advantage Speeding up innovation time is essential in the age of shortening product life cycles. Companies that first reach practical solutions will enjoy “first-mover” advantages in the market. Most studies indicate that being market pioneer gains the most advantage – Amazon.com, Campbell, Coca-Cola. Sources of pioneer’s advantage • Consumers often prefer pioneers brands. • Pioneers brand also establishes the attributes of the product class should possess • Economies of scale • Technological leadership • Ownership of assets Disadvantages of a pioneer • Products too crude • Improperly positioned • Product development costs exhausted innovator’s resources • Lack of resources to compete against a big firm • Managerial incompetence Inventor: First to develop patents in a new product category Product Pioneer: First to develop a working model Market Pioneer: First to sell in new-product category Long Range product expansion strategy MI M2 M3 PI P2 P3 P= product M=market The pioneer should analyse the profit potential of each segment as shown above singly or in combination and decide on a market expansion path.