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Marketing Management
Prof. Rajesh Panda
SIBM, Pune.
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What is Management
Management is a practice of utilizing all available
resources to obtain a desired result.
Management is necessary because A desired result must be established
Someone must be delegated, or assume the authority,
to obtain, organize, guide, and direct those resources
toward the desired result. Someone must "manage" the entire process.
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Mission Vision and Goal Setting
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Vision
A Vision is a description of the business as
you want it to be---'a mental image
produced by the imagination'. It involvesseeing the optimal future for the business,
and vividly describing this vision. The
description might include HOW things willbe, WHERE, WHO with, WHAT you'll be
doing and HOW you'll feel.
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Mission statement defines the companys major
competitive scopes:
Industry scope
Products and applications
scope
Competence scope
Mission
A Mission is the definition of the 'special assignment'
being undertaken by the business.
Illustration-vision and mission
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Goal setting
Establishing short- or long-term objectives,
usually incorporating deadlines and
quantifiable measures SMART goals
Goal Congruence
Organizational goal vs. Individual goal anddepartment Goal
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Marketing Defined
Marketing is the process of planning and
executing the conception, pricing,
promotion, and distribution of ideas,goods, and services to create exchanges
that satisfy individual and organizational
objectives.Arthasastra-Defining Business
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Sales vs. Marketing
FactoryExistingproducts
Selling andpromotion
Profits throughsales volume
Targetmarket
Integratedmarketing
Profits throughcustomer
satisfaction
Customerneeds
Startingpoint Focus Means Ends
The marketing concept
The selling concept
Production concept and Product Concept
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Who is a Customer ?
Stake Holder
Prospect
Understanding Need, Want and Demand
Customer InitiatorThe person who first suggests or thinks of the idea of buying a particular product or service
BuyerThe person who concludes the transaction
InfluencerA person whose view or advice influences the buying decision
DeciderThe individual with the power and/or financial authority to make the ultimate choice regarding which product to buy
Client
Advisor (WOM)
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Changing Customer Globalization
BRIC Report
GDP Structure
Demographic dividend
Exposed to different Cultures
Exposed to different brands and products
Revolution in IT
Revolution in media
Emergence of Nuclear families
Children and younger mass as deciders
Changing consumer behavior (Lifestyle)
Higher expectations in terms of better service, highercompliance
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Satisfied Customer and Growth
Satisfaction: Difference between perceived value and performance
Shifting loyalty
Increased Variety seeking behavior
Satisfied customer is the key to profitability
Profitability and Growth comes from Increasing Market share
Increasing the allocation to the defined product range
Diversification
Focus on core competency
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Customer Delivered ValueCustomer Delivered Value
Product valueProduct value
Services valueServices value
Personnel valuePersonnel value
Image valueImage value
Monetary costMonetary cost
Time costTime cost
Energy costEnergy cost
Totalcustomer
value
Totalcustomer
value
Psychic costPsychic cost
Totalcustomer
cost
Totalcustomer
cost
Customerdelivered
value
Customerdelivered
value
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B2B Costomer
Movie
http://../rajesh/MDP%20academics/MM-MDP/Customer%20service.mpghttp://../rajesh/MDP%20academics/MM-MDP/Customer%20service.mpg8/8/2019 Marketing Management- Muscat
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Based on the movie Customer Service answer the
followings:
1. How is a service different from a product?
2. What is customer life time value? What is the
significance of this from marketing point of view?
3. Customer retention is critical for growth, discuss.
4. One must move from customer satisfaction to customer
delight. Explain.
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Core Concepts
Corporate strategic planning
Divisional Strategy
Product Strategy
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Nature of Strategic Planning
Strategic planning requires actions in three keyareas
Strategic planning takes place at the corporate,division, business unit and product levels
Marketing plans operate at strategic andtactical levels
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Corporate
Strategic Planning Planning activities include:
Defining the Corporate Mission
Establishing Strategic Business Units (SBUs),
and Assigning Resources to SBUs
Planning New Businesses, Downsizing Older
Businesses
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The Boston Consulting Groups
Growth-Share Matrix
3
?
10x 4x 2x 1.5x 1x10x 4x 2x 1.5x 1x
20%-20%-
18%-18%-
16%-16%-
14%-14%-12%-12%-
10%-10%-
8%-8%-
6%-6%-4%-4%-
2%-2%-
00Marke
tg
row
th
rate
Relative market share
Stars
Cash cow
Question marks
Dogs
? ??
5
4
2
1
68
7.5x .4x .3x .2x .1x.5x .4x .3x .2x .1x
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SBU Turnover(00,000Rs.)
Turn over of the marketleader/ next biggestcompetitor(00,000Rs.)
Industrysize(00,000Rs.)
MarketGrowthrate(%)
MangaloreFertilizers ltd.
112 298 1200 6
Tubes India 23 459 742 17
TurriyaInformationSystems
12 121 540 30
Food RetailsLtd
67 98 900 35
Safe financeLtd.
98 88 789 25
HindustanSugar
23 12 139 12
Jaguar Steel 125 121 2100 8
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The Strategic-Planning Gap
Desiredsales
Diversification growth
Integrative growth
Intensive growth
Currentportfolio
SalesSales
Time (yearsTime (years)
Strategic-Strategic-
planningplanninggapgap
10105500
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Three Intensive Growth Strategies: Ansoffs
Product/Market Expansion Grid
1. Market-penetrationstrategy
(Diversification
strategy)
3. Product-developmentstrategy
2. Market-developmentstrategy
CurrentCurrentmarketsmarkets
NewNewmarketsmarkets
CurrentCurrentproductsproducts
NewNewproductsproducts
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Business Strategic Planning
Business Mission
SWOT Analysis: Internal
SWOT Analysis: External
Goal Formulation
Strategy Formulation
Program Formulation
Implementation
Feedback and Control
Planning Involves Eight Steps:
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Strategic Business Planning
SWOT Analysis
Opportunities andthreats stemming fromthe externalenvironment
Internal strengths andweaknesses
Monitoring key forces
for trends
For each trend, conductan MOA - Marketing
Opportunity Analysis
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Strategic Business Planning
SWOT Analysis
Opportunities andthreats stemming fromthe externalenvironment
Internal strengths andweaknesses
Brand awareness,image, reputation
Distribution, pricing,customer loyalty,
product benefits
Finance, R&D,
manufacturing
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Product strategy
Marketing Mix
Product: provides customer solution.
Price: represents the customers cost.
Place: customer convenience is key.
Promotion: communicates with customer.
Segmentation, Targeting and Positioning
Product life cycle
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Marketing Mix
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Case: Richer Sounds
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The Marketing Triangle
InternalMarketing
Interactive Marketing
ExternalMarketing
Company(Management)
CustomersEmployees
enablingpromises
keeping promises
settingpromises
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Case: Brand Reengineering
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Consumer Behavior
The field ofConsumer Behavior:
studies how individuals, groups, and
organizations select, buy, use, anddispose of goods, services, ideas, or
experiences to satisfy their needs and
desires.
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How and Why Consumers Buy
Buying behavior is influenced by:
Cultural factors
Social factorsPersonal factors
Psychological factors
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How and Why Consumers Buy
Influence Factors
Cultural Social
Personal
Psychological
Exert broadest and
deepest influence
Culture Subculture
Social classes
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How and Why Consumers Buy
Influence Factors
Cultural Social
Personal
Psychological
Reference groups
Membership
Primary vs. secondary
Aspirational vs. dissociative
Family
Social roles and statuses
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How and Why Consumers Buy
Influence Factors
Cultural Social
Personal
Psychological
Age
Stage in life cycle
Occupation
Economic circumstances
Lifestyle
Personality
Self-concept
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How and Why Consumers Buy
Influence Factors
Cultural Social
Personal
Psychological
Motivation
Perception
Learning Beliefs
Attitudes
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Maslows Hierarchy
of Needs
Psychological needs
(food, water, shelter)
Safety needs
(security, protection)
Social needs
(sense of belonging, love)
Esteem needs(self-esteem, recognition)
Self-
actualization(self-development
and realization)
1.
5.
4.
3.
2.
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Consumer Buying Decision Process
In addition to understanding how these
factors influence consumers, marketers
must identify and understand:Who makes the buying decision
The types of buying decisions
The stages in the buying process
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Consumer Buying Decision Process
Understand
Buying roles Buying behavior
Buying decision process
Initiator
Influencer
Decider Buyer
User
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Consumer Buying Decision Process
Understand
Buying roles Buying behavior
Buying decision process
Complex buying behavior
Dissonance-reducing buyingbehavior
Habitual buying behavior Variety-seeking buying
behavior
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Consumer Buying Decision Process
Understand
Buying roles Buying behavior
Buying decision process
Problem recognition
Information search
Evaluation of alternatives
Purchase decision
Postpurchase behavior
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Consumer Buying Decision Process
Postpurchase Behavior:
Consumers expectations are compared to
performancePostpurchase satisfaction influences future
behavior
Purchasing behavior
Word-of-mouth communications
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Communication Shopping Usage
One of the last marketing mediums that consumers are willing to be marketed from
An environment where they really want to touch, experience our brands, compare & contrast :
does this brand meet my need?
The moment of truth for consumers to exercise their belief in our brand messageif we are
relevant
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Advertisements should make a shopper pick up your brand.. But in reality does
this happen??
The answer is a BIG NO..
Unless your product stand-out at the Point of Purchase, the shopper tends to
pick up brands which he/she finds fit.
The point of purchase is the culmination of the following three elements:Channel Strategy aimed at the customer(retailer)
Brand Strategy aimed at the consumerCategory Strategy aimed at the shopper
Building Brands Through Customers
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Consumer Buying Decision Process
Marketers should attempt to influence and monitor
postpurchase behavior
Postpurchase communications reduce dissonance,returns, and order cancellations
Talk with customers to discover new uses for existing
products
Investigate methods of product disposal
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Strong Customer Bonds
Keys to Success
Adding Financial Benefits
Adding Social Benefits
Adding Structural Ties
Frequency programs
Club memberships
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Strong Customer Bonds
Keys to Success
Adding Financial Benefits Adding Social Benefits
Adding Structural Ties
Personalize customer
relationships
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Strong Customer Bonds
Keys to Success
Adding Financial Benefits Adding Social Benefits
Adding Structural Tie
Create long-term
contracts
Charge less for ongoingpurchases
Link product to long-
term service
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20 80 30 Rule
Half of your profit is lostserving the bottom 30%
of your customer base
20% of your customers
Generate 80% of your profit
30
8020
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STP
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Target Marketing
Target marketing requires marketers to take threemajor steps: Market segmentation: Identifying and profiling distinct groups of
buyers who differ in their needs and preferences. Market targeting: Selecting one or more market segments to enter.
Market positioning: Establishing and communicating the keydistinctive benefit(s) of the companys market offering to eachtarget.
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Using Market Segmentation
Mass marketing is losing popularity
Micromarketing can be undertaken at four levels:
Segment marketingNiche marketing
Local marketing
Individual marketing
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Segmenting Consumer Markets
Bases forSegmentation
Geographic
Demographic
Psychographic
Behavioral
Nation or country
State or region
City or metro size Density
Climate
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Segmenting Consumer Markets
Bases forSegmentation
Geographic
Demographic
Psychographic
Behavioral
Age, race, gender
Income, education
Family size
Family life cycle Occupation
Religion, nationality
Generation
Social class
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Segmenting Consumer Markets
Bases forSegmentation
Geographic
Demographic
Psychographic
Behavioral
Lifestyle
Activities
Interests Opinions
Personality
Core values
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Segmenting Consumer Markets
Bases forSegmentation
Geographic
Demographic
Psychographic
Behavioral
Occasions
Benefits
User status
Usage rate
Loyalty status
Buyer-readiness
Attitude
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Using Market Segmentation
Useful market segments share certaincharacteristics:
MeasurableSubstantial
Accessible
Differentiable
Actionable
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Segmenting Business Markets
Rackman and Vincentis proposed a segmentationscheme that classifies business buyers into threegroups:
Price-oriented customers: best served via transactionalselling
Solution-oriented customers: best served by means ofconsultative selling
Strategic-value customers: best served by means ofenterprise selling
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Market Targeting Strategies
Evaluating and selecting market segments requires
assessing the segments overall attractiveness in
light of companys objectives and resources.
Five patterns of target market selection can then be
considered.
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Market Targeting Strategies
Single-segmentconcentration
Selective
specialization
Productspecialization
Market
specialization
Patterns of Target Market Selection
Full market coverage
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Market Targeting Strategies
Targeting multiple segments may result in cost
economies
Supersegment targeting may be appropriate
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PLC
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IntroductionIntroduction GrowthGrowth MaturityMaturity DeclineDecline
TimeTime
Sales
Sales &
profits
&
pr
ofits
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Stages of the Product Life Cycle
PLC Stages
Introduction Growth
Maturity
Decline
Low sales
High costs percustomer
Negative profits
Innovator customers
Few competitors
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Stages of the Product Life Cycle
PLC Stages
Introduction Growth
Maturity
Decline
Rising sales
Average costs
Rising profits Early adopterscustomers
Growing competition
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Stages of the Product Life Cycle
PLC Stages
Introduction Growth
Maturity
Decline
Peak sales
Low costs
High profits Middle majoritycustomers
Stable/declining
competition
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Stages of the Product Life Cycle
PLC Stages
Introduction Growth
Maturity
Decline
Declining sales
Low costs
Declining profits Laggard customers
Declining competition
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Objectives and Strategies for the
Product Life CyclePLC Stages
Introduction Growth
Maturity
Decline
Objective: to create awareness
and trial
Offer a basic product
Price at cost-plus Selective distribution
Awareness dealers and early
adopters
Induce trial via heavy sales
promotion
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Objectives and Strategies for the
Product Life CyclePLC Stages
Introduction
Growth
Maturity
Decline
Objective: maximize marketshare
Offer service, productextensions, warranty
Price to penetrate Intensive distribution
Awareness and interest massmarket
Reduce promotions due to heavy
demand
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Objectives and Strategies for the
Product Life CyclePLC Stages
Introduction
Growth
Maturity
Decline
Objective: maximize profit whiledefending market share
Diversify brands/items
Price to match or beat competition
Intensive distribution Stress brand differences and
benefits
Increase promotions to encourageswitching
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Objectives and Strategies for the
Product Life CyclePLC Stages
Introduction
Growth
Maturity
Decline
Objective: reduce costs and milkthe brand
Phase out weak models
Cut price
Selective distribution
Reduce advertising to levels neededto retain hard-core loyalists
Reduce promotions to minimallevels
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Product
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What is a Product?
Goods
Services
Experiences
Events
Persons
Places
Properties
Organizations
Information
Ideas
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The Product and Product Mix
The customer value hierarchy:
Core benefit
Basic productExpected product
Augmented product
Potential product
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The Product and Product Mix
Product
Classifications
Durability and
tangibility
Consumer goods
Industrial goods
Classified by shopping
habits:
Convenience goods
Shopping goods
Specialty goods
Unsought goods
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The Product and Product Mix
Product
Classifications
Durability and
tangibility
Consumer goods
Industrial goods
Materials and parts
Farm products
Natural products
Component materials
Component parts Capital items
Installations
Equipment
Supplies and business services
Maintenance and repair
Advisory services
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The Product and Product Mix
Product mix dimensions:
Width: number of product lines
Length: total number of items in mixDepth: number of product variants
Consistency: degree to which product lines are
related
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Product-Line Decisions
Product-Line Analysis
Product-Line Length
Line stretching
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Brand Decisions
The AMA definition of a brand:
A name, term, sign, symbol, or design, or
a combination of these, intended toidentify the goods or services of one
seller or group of sellers and to
differentiate them from the competition.
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Brand Decisions
Brand identity decisions include:Name
Logo
Colors
Tagline
Symbol
Consumerexperiences create brand bonding, brandadvertising does not.
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Brand Decisions
Marketers should attempt to create or facilitate
awareness, acceptability,preference, and loyalty
among consumers.
Valuable and powerful brands enjoy high levels of
brand loyalty.
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Brand Decisions
Brand equity refers to the positive differential effect
that a brand name has on customers.
Brand equity: is related to many factors.
allows for reduced marketing costs.
is a major contributor to customer equity.
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Brand Decisions
Key Challenges
To brand or not
Brand sponsor
Brand name
Brand strategy
Brand repositioning
Advantages of branding: Facilitates order processing
Trademark protection
Aids in segmentation
Enhances corporate image
Branded goods are desired byretailers and distributors
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Brand Decisions
Key Challenges
To brand or not
Brand sponsor
Brand name
Brand strategy
Brand repositioning
Options include: Manufacturer (national)
brand
Distributor (reseller,store, house, private)
brand
Licensing the brand name
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Brand Decisions
Key Challenges
To brand or not
Brand sponsor
Brand name
Brand strategy
Brand repositioning
Strong brand names: Suggest benefits
Suggest product qualities
Are easy to say, recognize, andremember
Are distinctive
Should not carry poormeanings in other languages
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Brand Decisions
Key Challenges
To brand or not
Brand sponsor
Brand name
Brand strategy
Brand repositioning
Line extensions
Brand extensions
Multibrands Co-branding
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Brand Decisions
Key Challenges
To brand or not
Brand sponsor
Brand name
Brand strategy
Brand repositioning
A brand report cardcan beused to audit a brandsstrengths and weaknesses.
Changes in preferences orthe presence of a newcompetitor may indicate aneed for brand repositioning.
Case-Santoor
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by knowing where customers are
moving & staying ahead of them!
Branding is about creating
the right experiences,
associations & impressions
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Brand
What is a brand?
ReputationHow others perceive us
=
Identity
What we believe in
What we stand for
Our personality &
how we express it
+ Behaviour
How we act and
behave
The relationships we
form and experiences
people have of us
+ Performance
What we do and how
we deliver it
The value we deliver
B di i f MR P d t d l t
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Branding is a consequence of- MR, Product development,
Product differentiation, Market segmentation, Positioning,
Pricing, Advertising etc.
Brand image is a consequence of Positioning
Brand identity comes out of product differentiation
Brand equity= brand asset- (cost of branding, cost of
invested capital)
Brand equity is built up upon all the marketing and
branding effort that you put.
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Functional
Concrete, Rational
Describes What
Generic
Limited life span
Transaction oriented
Easy to copy
Products
Emotional/Functional
Conceptual, Perceived
Describes What &Who
Unique, Distinct
Unlimited life span
Relationship oriented
Cant be copied
Brands
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APPLEAPPLE OPPOSESOPPOSES
IBMIBM SOLVESSOLVES
NIKENIKE EXHORTSEXHORTS
VIRGINVIRGIN ENLIGHTENSENLIGHTENS
SONYSONY
DREAMSDREAMS
BENETTONBENETTON PROTESTSPROTESTS
BRANDS ARE NOTBRANDS ARE NOT NOUNS BUT VERBSNOUNS BUT VERBS
WHATWHAT FEELINGFEELING
DOES YOURDOES YOUR
BRAND EVOKES??BRAND EVOKES??
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HOW DOES YOUR BRANDHOW DOES YOUR BRAND
SMELL, TASTE, TOUCH, HEAR & FEEL ??SMELL, TASTE, TOUCH, HEAR & FEEL ??
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You cant miss the Singapore ExperienceYou cant miss the Singapore Experience
-Signature Smell Perfume, hot towels-Signature Smell Perfume, hot towels
-Signature Look- Colours, Interiors, Hostess-Signature Look- Colours, Interiors, Hostess
-Signature Voice: Scripted Welcome Messages-Signature Voice: Scripted Welcome Messages
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STRATEGIC SHIFTSTRATEGIC SHIFT
HOW??
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PRE
PURCHASE
EXPERIENCES
AT THE TIME OF
PURCHASEEXPRERINCES
POST
PURCHASE
EXPERIENCES
360 BRAND EXPERIENCE BRAND WHEEL
HOW??
360 BRAND EXPERIENCE BRAND WHEEL
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PRE
PURCHASE
EXPERIENCES
AT THE TIME OF
PURCHASEEXPRERINCE
POST
PURCHASE
EXPERIENCES
360 BRAND EXPERIENCE BRAND WHEEL
Sales
PersonStore &
Shelf
Placements
P.O.P
Display
Packaging
Product
Performance
Customer
Service
Newsletters
Loyalty
Prog
Advertising
Deals &
Promotions
Coupons &
Incentives
Direct Mail
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Positioning and differentiating
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Positioning and Differentiation
Two views of positioning:Ries and Trout: products are positioned in the
mind of prospect
Treacy and Wiersema: positioning via valuedisciplines
Product leader firm
Operationally excellent firm
Customer intimate firm
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Positioning and Differentiation
Positioning statements:
To (target group and need) our(brand) is (concept) that
(point-of-difference)
Example: To young, active soft-drink consumers who have littletime for sleep, Mountain Dew is the soft drink that gives you
more energy than any other brand because it has the highest
level of caffeine.
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Positioning and Differentiation
Differentiatedproducts feature meaningful and
valuable differences that distinguish the companys
offering from the competition.
Differences are stronger when they are important,
distinctive, superior, preemptive, affordable, and
profitable.
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Positioning and Differentiation
Ordering ease
Delivery
Installation
Customer training
Customer consulting
Maintenance and
repair
Miscellaneous
Services Differentiation Tools
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Positioning and Differentiation
Competence
Courtesy
Credibility
Reliability
Responsiveness
Communication
Personnel Differentiation Tools
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Very satisfied
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Did it wellDid not
do it well
Very dissatisfied
Basic
Performance
Excitement
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What is their positioning?
Ikea
Sony
Panasonic
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Santoor : A Case of Mistaken
Identity
Santoor : A Case of Mistaken
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Identity
Launched as a Sandal + Turmeric soap by Wipro in 1986
Attractively priced and a good product offering
Conceived as an affordable soap with the goodness of
Sandal
Till then sandal seen as a high value ingredient only
available in Mysore Sandal soap
Vicco making a success of sandal + turmeric cream
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Santoor : Phase I Promotion
Advertised as a sandal + turmeric soap
Offering age old beauty secrets of India
Price flagged off at the end
Traditional imagery of woman in sari, temple,
sandal paste
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Santoor : Phase I Results
Brand attracted decent volumes : 2,500
tonnes
Got a core group of Value oriented
consumers to try and remain with the brand
But growth stopped in Year 2
No new users coming into brand !
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Santoor : The Challenge
Need to retain the traditional users
Need to rapidly attract new users
Need to provide image values that will
build the brand for future growth
Santoor : The Brand
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Santoor : The Brand
Interrogation Sandal and turmeric traditional beauty aids in India What are their roles in skin care?
Searched literature for finding how sandal and
turmeric are useful for beauty care The Secret: Skin Care
Both are great skin care aids
In fact help reduce wrinkles and impart a youthfulglow
Santoor : The Ingredient Vs The
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Santoor : The Ingredient Vs The
Benefit Santoor selling ingredients to a set of believers But not many knew of the benefits the brand
and its ingredients offered
Why not move away from ingredient based
advertising to benefit based advertising?
What if the core users moved away thinking the
brand has changed?
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Santoor : Finding the Balance
New advertising needed to present the brand in
a new light to attract new users
But old users should not get alienated either! The answer : Benefit based advertising rooted
in the ingredients
Santoor cares for your skin because itcontains the goodness of sandal and turmeric
Santoor : Skincare to Younger
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Santoor : Skincare to Younger
Looking Skin Skin care, too broad an offer
Narrowed down to younger looking skin
Based on product interrogation
Delivering the younger looking skin story
Mistaken identity
A common occurrence
Based on a consumer insight
Santoor : The Growth Path
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Santoor : The Growth Path
New advertising broke in 1989 - the brand sales
have climbed consistently over the last years
Santoor has outperformed the market constantly
Built a brand without
Mega media budgets
High-power sales force
Major technological innovations
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What should be Santoors moves now in building a strong brand?
Brand Extentions
Advertising
Promotions
k i d b li
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Packaging and Labeling
Packaging includes:The primary package
The secondary package
The shipping package
Many factors have influenced the increaseduse of packaging as a marketing tool.
k i d b li
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Packaging and Labeling
Developing an effective package:
Determine the packaging concept
Determine key package elements
Testing:
Engineering tests
Visual tests
Dealer tests
Consumer tests
P k i d L b li
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Packaging and Labeling
Labeling functions:Identifies the product or brand
May identify product grade
May describe the product
May promote the product
Legal restrictions impact packaging for
many products.
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S i h P i
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Setting the Price
Pricing Procedure
Select pricing objective
Determine demand
Estimate costs
Analyze competition
Select pricing method
Select final price
Survival
Maximize current profits Maximize market share
Penetration strategy
Market skimming
Skimming strategy
S i h P i
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Setting the Price
Pricing Procedure
Select pricing objective
Determine demand
Estimate costs
Analyze competition
Select pricing method
Select final price
Understand factors thataffect price sensitivity
Estimate demand curves
Understand price elasticityof demand Elasticity
Inelasticty
S i h P i
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Setting the Price
Pricing Procedure
Select pricing objective
Determine demand
Estimate costs
Analyze competition
Select pricing method
Select final price
Types of costs and levels of
production must be considered
Accumulated production leads to
cost reduction via the experience
curve Differentiated marketing offers
create different cost levels
S tti th P i
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Setting the Price
Key Pricing Terms:
Fixed costs: do not vary directly with changes in level
of production
Variable costs: vary with production
Total costs: sum of fixed and variable costs a given
level of production
Average cost: cost per unit at a given level of
production
S tti th P i
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Setting the Price
Pricing Procedure
Select pricing objective
Determine demand
Estimate costs
Analyze competition
Select pricing method
Select final price
Firms must analyze the
competition with respect to:
Costs
Prices
Possible price reactions
Pricing decisions are also
influenced by quality of offering
relative to competition
S tti th P i
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Setting the Price
Pricing Procedure
Select pricing objective
Determine demand
Estimate costs
Analyze competition
Select pricing method
Select final price
Select method:
Markup pricing
Target-return pricing
Perceived-value pricing
Value pricing
Going-rate pricing
P t ti P i i
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Penetration Pricing
Price set to penetrate the market
Low price to secure high volumes
Typical in mass market products chocolate bars,food stuffs, household goods, etc.
Suitable for products with long anticipated life
cycles
May be useful if launching into a new market
M k t Ski i
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Market Skimming
High price, Low volumes
Skim the profit from the market
Suitable for products that have
short life cycles or which will
face competition at some pointin the future (e.g. after a patent
runs out)
Examples include: Playstation,
jewellery, digital technology,
new DVDs, etc.Plasma Screens: Currently athigh prices but for how long?
Title: Thin-shaped television. Copyright: Getty Images,available from Education Image Gallery.
V l P i i
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Value Pricing
Price set in accordance
with customer perceptions
about the value of the
product/service. Examples include status
products/exclusive
products
Companies may be able to
set prices according toperceived value.
Title: BMW At The Frankfurt Auto Show. Copyright:Getty Images, available from Education Image Gallery.
L L d
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Loss Leader
Goods/services deliberately sold below cost
to encourage sales elsewhere
Promotes cross selling Purchases of other items more than covers
loss on item sold
e.g. Free mobile phone when taking oncontract package
P h l i l P i i
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Psychological Pricing
Used to play on consumer perceptions
Classic example - 9.99 instead of 10.99!
Links with value pricing high value goodspriced according to what consumers
THINK should be the price
G i R t (P i L d hi )
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Going Rate (Price Leadership)
In case of price leader, rivals have difficulty in competing
on price too high and they lose market share, too low and
the price leader would match price and force smaller rival
out of market May follow pricing leads of rivals especially where those
rivals have a clear dominance of market share
Where competition is limited, going rate pricing may be
applicable banks, petrol, supermarkets, electrical goods find very similar prices in all outlets
Destroyer/Predatory Pricing
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Destroyer/Predatory Pricing
Deliberate pricecutting or offer offree gifts/products to
force rivals (normallysmaller and weaker)out of business or
prevent new entrants
Anti-competitive andillegal if it can be
proved
Microsoft have been accused of predatorypricing strategies in offering free software aspart of their operating system InternetExplorer and Windows Media Player - forcing
competitors like Netscape and Real Player outof the market.
Title: Bill Gates speaks at UNIX convention. Copyright:Getty Images, available from Education Image Gallery.
Marginal Cost Pricing
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Marginal Cost Pricing
Marginal cost the cost of producing ONE extra or ONE
fewer item of production
MC pricing allows flexibility
Particularly relevant in transport where fixed costs may berelatively high
Allows variable pricing structure e.g. on a flight from
Mumbai to Delhi providing the cost of the extra
passenger is covered, the price could be varied a good dealto attract customers and fill the aircraft
Contribution Pricing
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Contribution Pricing
Contribution = Selling Price Variable (direct
costs)
Prices set to ensure coverage of variable
costs and a contribution to the fixed costs
Similar in principle to marginal cost pricing
Break-Even analysis might be useful insuch circumstances
Target Pricing
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Target Pricing
Setting price to target a specified profit
level
Estimates of the cost and potential revenueat different prices, and thus the break-even
have to be made, to determine the mark-up
Mark-up = Profit/Cost x 100
Cost Plus Pricing
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Cost-Plus Pricing
Calculation of the average cost (AC) plus a
mark up
AC = Total Cost/Output
Captive-Product Pricing
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Pricing products that must be used with the
main product High margins are often set for supplies
Services: two-part pricing strategy
Fixed fee plus a variable usage rate
Captive Product Pricing
Setting the Price
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Setting the Price
Pricing Procedure
Select pricing objective
Determine demand
Estimate costs
Analyze competition
Select pricing method
Select final price
Requires consideration of
additional factors:
Psychological pricing
Gain-and-risk-sharing pricing
Influence of other marketingmix variables
Company pricing policies
Impact of price on other parties
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Differential pricing helps when
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Differential pricing helps when-
Place
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Place
Channels
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Channels
Distributor
Dealer
Retailer C & F
Stockist
Factory
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C&F Agent
(2-3%)
Retailers(8-12%)
Stockist/Distributor(4-6%)
Wholesaler
Retailers-Small
- Upcountry
Typical FMCG Distribution Structure (Margin)
Issues
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Issues
Proper selection of Dealers or distributors
Growing power of retailers
POP influence Data collection and demand forecasting
Integrated Marketing
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Communication
Marketing Communications
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Marketing Communications
Advertising
Sales Promotion
Personal selling
Communications Platforms
Sales Promotion
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Sales Promotion
Samples
Coupons
Cash refunds (rebates)
Premiums
Prizes (contests, sweepstakes, games)
Patronage awards
Free trials
Product warranties
Tie-in promotions Cross-promotions
Point-of-purchase displays anddemonstrations
Major Consumer-Promotion Tools
Public Relations
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Public Relations
Public relations activities promote or protect theimage of a firm or product
Public relations functions:
Press relations Product publicity
Corporate communications
Lobbying
Counseling
Public Relations
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Public Relations
Marketing Public Relations (MPR) Plays an important role in
New product launches
Repositioning of mature brand
Building interest in product category
Influencing specific target groups
Defending products with public problems
Building the corporate image
Public Relations
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Public Relations
Speeches
Public-service activities
Identity media
Major Public Relations Tools
Direct Marketing
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Direct Marketing
Direct marketinguses consumer-direct channels to
reach and deliver offerings to consumers without
intermediaries.
Direct marketing is growing and offers consumerskey benefits.
Firms are recognizing the importance of integrated
direct marketing efforts.
Direct Marketing
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Direct Marketing
Face-to-face selling
Direct mail
Catalog marketing
Telemarketing
Direct-responseTV marketing
Kiosk marketing
E-marketing
Major Direct Marketing Tools
Indian culture
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Indian culture
Frugality- Relaince(99 paisa per min)
Hierchy- Hyundai Accent
Tangible value- McDonalds Face 1st -Ponds
Self respect- HDFC
Kids first
Marketing-sub topics
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Marketing sub topics
Market forecasting
Sales force management
Retailing
Rural Marketing
Innovations in marketing-Videos
Basics of market research
Mathematical metrics in Marketing