Mktg Notes.

8/3/2019 Mktg Notes.

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Strategic Market Planning

Strategic Planning

3 key areas

o Managing a companys business as an investment portfolio

o Assessing the business strength, market growth rate V/s company's position in

the market

o Establishing a strategy, a game plan for achieving long term objectives

4 organizational Levels

o Corporate

o Division

o Business Unit

o Product

Marketing Plan

o Strategic ( lays out the target market & the value proposition)

o Tactical ( specifies market tactic- pdt. Feature, promotion, merchandising,

pricing, sales channels, services etc.)

Corporate & Division Strategic Planning

4 Planning Activities

o Defining the Corporate Mission

o Establishing SBUs

o Assigning resources to each SBUs

o Planning new businesses, downsizing or terminating older businesses

Defining the Corporate Mission

o Charting out clear cut purpose/mission/ reason for existence

o Reviewing mission at regular intervals

o Questions to ask to derive the mission statement

What is our business?


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Who is the customer?

What is of value to the customer?

What will our business be?

What should our business be?

o Sharing of Mission statement with internal as well as external customers

o

Clear , well thought out statement shared sense of purpose, direction andopportunityo Guides geographically dispersed employees to work independently yet

collectively

Mission Statement 3 characteristics

o Focus on limited number of goals

o Stress on major policies & values the company wants to honor

o Defines the major competitive scope that the company wants to operate in eg:

Industry scope

Products and Application Scope

Competence scope

Market-segment Scope

Vertical Scope

Geographical Scope

Mission Statement should not be revised every few years

o Should be re-defined if that mission has lost credibility or no longer defines an

optimal course for the company

o Eg. NMIMS

The Deemed University is committed to the mission of influencing the quality ofmanagement in organizations in various sectors towards greater professionalism througha new breed of managers, who combine the use of managerial skills with theunderstanding of the socio-cultural systems in which they have to operate as harbingersof change

Establishing SBUs

o A business must be viewed as a customer satisfying process and not a goods-

producing processo Products are transient/ephemeral , but basic needs and customer groups endure

forever

o Companies evolving and moving from product definition to market definition

Target Definition tends to focus on selling a product or service

Strategic Market Definition targets specific market/need

Eg: IBM (Old) Hardware and Software Manufacturer

IBM ( New) Builder of Networks


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Need for Evaluating SBUs

o The company must:

Analyse its current business portfolio and decide which businessesshould receive more or less investment, and

Develop growth strategies for adding new products and businesses tothe portfolio, whilst at the same time deciding when products and

businesses should no longer be retained.

o An SBU can be a company division, a product line or even individual brands - it

all depends on how the company is organized

Characteristics of an SBUs

o A single business unit or collection of related businesses that can be planned

separately from the rest of the company

o It has its own set of competitors

o Has a SBU head/manager Strategic Planning & Profit performance

o Objective of Identifying SBUs Develop strategy and assign appropriate funding

o Periodic Evaluation of Business Portfolio

BCG Matrix

GE Model

Strategy Formulation

X Axis: relative market share - this serves as a measure of SBU strength in the market

Y Axis: market growth rate - this provides a measure of market attractiveness


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BCG Matrix Characteristics

Stars

o Stars are high growth businesses or products

o Relatively strong compared with the competition.

o Often they need heavy investment to sustain their growth.

o Eventually their growth will slow and, assuming they maintain their relative

market share, will become cash cows.

Cash Cows

o Cash cows are low-growth businesses or products

o Relatively high market share.

o These are mature, successful businesses with relatively little need for

investment.o They need to be managed for continued profit - so that they continue to generate

the strong cash flows that the company needs for its Stars .

Question marks

o Businesses or products with low market share but which operate in higher growth

markets.

o They have potential, but may require substantial investment in order to grow

market share at the expense of more powerful competitors.

o Management have to think hard about "question marks" - which ones should they

invest in? Which ones should they allow to fail or shrink?

Dogso Refers to businesses or products that have low relative share in unattractive, low-

growth markets.o Dogs may generate enough cash to break-even, but they are rarely, if ever,

worth investing in.


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Conventional Strategic thinking

Build Share: Company can invest to increase market share (for example turning a"question mark" into a star)

Hold: Company invests just enough to keep the SBU in its present position

Harvest: Company reduces the amount of investment in order to maximise the short-term cash flows and profits from the SBU. This may have the effect of turning Stars intoCash Cows.

Divest: Company can divest the SBU by phasing it out or selling it - in order to use theresources elsewhere (e.g. investing in the more promising "question marks").

Why Companies kill brands?

It costs too much to revitalize the brand compared to its ROI

The brand has got such negative connotations that it is one long uphill battle to fight backto normal

The brand portfolio has become too large / too widespread [such that] individual brandsmight have suffered

Similarly, new brands in the company portfolio serve needs better than the brand inquestion

The organization does not understand / believe in the brand (right or wrong) so back-upis slim

Some Indian Examples

o Toyota killed Qualis and introduced Innova.

o HUL from a 1600 brand portfolio across 150 countries, reduced to 400! ( In India-30 Power Brands)

o Honda City in India

o Coca-Cola unsuccessfully tried to kill Thumbs-up when it acquired Parle

o Maruti is gradually trying to kill its entry level car Maruti 800 and making Alto etc

the entry level cars

o Colgate Palmolive is in the process of killing the Palmolive brand

o HUL removed the brand Rexona from the deodorants category where Axe is

clearly mopping up the competition.

Some Global Statistics.

o Diageo, the world's largest spirits company, sold 35 brands of liquor in some 170

countries in 1999.o Nestl marketed more than 8,000 brands in 190 countries in 1996. The bulk of

the company's profits came from around 200 brands, or 2.5 percent of theportfolio.

o Procter & Gamble had a portfolio of over 250 brands that it sold in more than 160

countries. Yet the company's ten biggest brands accounted for 50 percent of thecompany's sales, more than 50


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GE Multifactor Business Portfolio Matrix

Two Dimensions of the Matrix Industry attractiveness

o Rate of industry growth

o No: of competitors in an industry

o Weakness of competitors within an industry.

Business strengths

o Companys core competencies and capabilities

o Financial position

o Its good bargaining position over suppliers

o Its high level of technology use.

Factors Underlying Market Attractiveness & Business Strength

Market Attractiveness

o Overall Mkt. size

o Annual Market growth rate

o Historic Profit Margin

o Competitive intensity

o Technological requirements

o

Etc

Business Strength

o Market Share

o Share growth

o Product Quality

o Brand reputation

o Distribution Network

o Productive Effectiveness

o Managerial Personnel

o Etc.

Ansoff's Product/Market Matrix

Suggests that a business attempts to grow depend on whether it markets new orexisting products in new or existing markets.

o Market Penetration

o Market Development

o Product Development


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Value Delivery ProcessValue: the multi dimensional concept

Value is low price.

Value is whatever I want in a product.

Value is quality 1 get for the price I pay.

Value is what I get for what I give.

Lecture 2

MARKETING STRATEGIES

Learning Objectives

The meaning, significance & parameters of strategy & tactics

The linkage of Marketing strategy to core business strategy

How mktg. strategy is formulated

Different approaches to marketing strategy formulation

The Indian Scenario.

2005 Price war in the retail industry

o Shoprite, Giant,Big Bazaar

Paras Pharmaceuticals

o Moov, Ring Guard ,Krack, Livon Silky ,Borosoft, Dcold & Dermicool

1980 Nirma V/S Surf war

Challenges of Strategic Orientation

Strategic thinking key to the evolution of successful marketing strategies Involves Analyses of

o Understanding Markets

o Finding Market Niches

o Product and Service Planning

o Distribution

o Managing for Results


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Challenges of Strategic Orientation- Understanding Markets

Starting point for analysis is the Market

Structural changes taken place

o Demographic and lifestyle changes new opportunities

o Not restricted to Urban but also rural and semi-urban markets

Opening of economy enhanced competition

o Strategic Alliance also represents threat of competition

o Eg: Sara Lee + Godrej Industries, TOMCO+ HLL( HUL),

Parle + Coke

Skilful Analysis of the trends with a long term strategic perspective

Challenges of Strategic Orientation- Finding Market Niches

As markets evolve & Customer needs become more defined- Segmental Approach

Niches are becoming more and more apparent

o Eg: Price, service, convenience, technology & fashion

Technology enables Mass Customization strategies Benefit of niche mktg. &economies of scale

Challenges of Strategic Orientation- Product & Service Planning

Era of Standardized pdts undifferentiated pdts.

Differentiation Offer

Challenge to not just add value but redefine the Value Constellation

o Involve analysis of customers analysis of the brand , competitor, points of wow,

dissatisfaction etc..

o Analysis of situation when the customer uses the product

o Eg: ATMs

Challenges of Strategic Orientation- Product & Service Planning Analysis

Are there any new or emerging uses, use situation, or users the firm is currently notaware of?

What is the position of the generic product & the brand in the life cycle?

How can a brands equity be enhanced?

Are brand extensions possible?

What are the services the customer is looking for?


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Are there any new packaging technologies that can help the product look better?

Challenges of Strategic Orientation- Distribution

Success of a firm depends upon its ability to make the product available the right place,at the right time in the right quantities.

Structural changes in inventory management affecting the distribution process in theIndian Market

o Mobile distribution, teleshopping

Ability top track inventory and stock positions in different markets is critical enabled thrutechnology

o VSAT ( eg: HUL, Philips)

Challenges of Strategic Orientation- Managing for Results

Pressure on costs, prices, margins necessitates effective utilization of every rupee spentin mktg.

Planning to maximize ROI

Important to conduct objective analysis.

STRATEGY

THE CONCEPT

Deliberate search for an Action Plan that will help develop a companys competitiveadvantage and help augment it. This search is;

o An iterative process &

o Begins with the recognition of where you are, what you have now, where you

want to go & how much time you have to reach there.

Market Forces determine strategy at times

o Eg: Post 1985 entry of Japanese LCVs

o Telco loses market share in 1989-90

o Market forces then determined the launch of Telcos LCVs

Strategy involves developing a fit between the organization and its external environment-to gain and maintain a sustainable advantage.

Dimensions of strategy

Corporate strategy at times

o Goals

o Significant Policies


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o Major action sequence

Strategy key concepts & thrust areas

o Helps provide cohesion, balance & focus

Criteria for Effective Strategy

Effective corporate strategy helps strengthen the organization fit into externalenvironment and motivate people to deliver above average performance

Effect. Strat. encompass and help build organizations long term viability

o Setting clear and decisive objectives

o Maintaining the initiative

o Concentrating on allocation of resources

o Flexibility in operation

o Co-ordinated & Committed leadership

Value Added Marketing Strategy( VAMS)

The input for value addition should emanate from customer needs

Segmentation

o Product Usage

o Customer groups

Switchers Customers with low acquisition cost (Genuine orCompulsive)

Exchange

Deferred Payment Plan Customer Friendly product

Customer groups

High Profit Customers

Customers which generate maximum return for the company

Market Share Determiners

May cost a lot to acquire

Deliver the maximum profits because of their duration and theextent of influence

Identification ; those organizations that are growing differentiallyfaster than the industry

Mass Customization


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The strategy of segmentation gives the marketer options of standardization,differentiation and niche mktg.

Imperative to design marketing mix as per the customer requirement

Mass customization enabled thru technology

Key elements of this strategy

o Computer Based Information systems

o Flexible manufacturing programmes

o JIT operations like production and distribution

o Eg: Motorola ( 29 million different combination of pager features!)

o Tata McGraw Hill Customized specialized text books

Involves integration of all major functions Purchase, Manufacturing, R & D, Marketingand finance

Value Addition

Customer Based marketing strategy is the art of creating value an delivering it at a profit Successful companies not only add value but reinvent it

o linking 2 key resources

o Knowledge & relationships

Process of value creation economic actors( suppliers, distributors, customers)

Density of Value- measure of the amount of information, knowledge & resources that aneconomic .

Eg: ANZ Grindlays

Value Addition Strategic Implications

1. Value occurs not in a sequential Chain but in complex constellations eg. Hongkong bank

( ATM + Visa Master Cards)

2. What is true for individual offerings is also true for entire value-creating systems

3. The only Source of competitive advantage is the ability of the firm to conceive the entire

value creating system and make it work

VAMS The Pidilite Way!

1. Convenience in product use2. Fighting competition by influencing change at the user level

3. Communicate & develop user loyalty

4. Distribution Muscle

5. Fevicol as a market leader- competitor strategy

6. Fevicols foray into the future- future strategic options


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Lecture 3

Learning Objectives

Importance of new products in the corporate strategy

Sources of new product ideas

Process of new product development

Art of positioning the product

Diffusion process that affects the success of new products in different markets

Importance of test marketing in new product launches

Why need new products?

Market becoming liberal & Open

Regulation key drivers

Govt. Policies /regulations can facilitate or hinder new pdt. Development

Consumer lifestyles & aspirations

New Product Launches

Peter England

o Ready to Wear- mid priced, price sensitive, brand sensitive market segment

o Created a distinct position for itself International quality at Honest- to-goodness price

Levis Strauss

o Dockers Premium brand of shirts , trousers & accessories

Tang

o Daily Dose of Vitamin C

Lessons from New Product Introduction Post- 1995

Understanding local culture & adapting the product

o McDonalds , KFC and Levi Strauss

Value for money is a good positioning slot

o Peter England

Product Availability in the lanes and by-lanes of the country

o Timex Watches, NIIT, Aptech

International brand can help gain entry but not guarantee success

Segmentation is the key to successful product launches


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India is a mature market for most consumer goods

What is a New Product?

Any product perceived by the customer as being new

This could involve:

1. Repositioning of existing products

2. Offering existing products at low prices

3. Making improvement in the existing product

4. Adding new product in the existing product lines

5. Taking up a product line completely new to the organization

6. New to the world

Why develop New Product?

To add to product portfolio

To create stars and cash cows for the future

To replace declining products

To take advantage of new technology

To maintain/ increase market share

To defeat rivals / to keep up

To maintain competitive advantage To fill market gap

To bring in new customers

Defining New Products


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Factors contributing to new product development

Changing Consumer Lifestyles

o Changing role of women, nuclear independent families, education & literacy

levels, income levels, electronic media

o Changing customer expectation & preferences Technological Changes

o Application of chip technology in watch quartz

o Expansion of TV network through INSAT 1B

o PDA

o Blue tooth

o Embedded technology

Government Policy

o Can encourage & motivate firms to launch new products

o Eg: Govt. policy insisting chemical firms for mandatory environment audit

New Product Development process

The Process

Idea Generation

An ongoing process with contributions from inside and outside the organization Top Management need to be proactively involved

Sources of New product Ideas

o Changing Customer Needs

o Competitors

o R&D Scientist

o Laboratories

o Foreign Markets and Media


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o Employees

o Trade Channels

o Top Management

Can identify changing needs of customers

o Customer Surveys

o Projective Techniques

o Feedback

o Suggestions

o Complaints

Eg: WIMCO Manufacturers of Matchbox

o Introduced Carbonized matchbox

o Developed match boxes that wouldnt get soggy

AMWAY

Convergence of technology to deliver more value

o Eg: Cellular phones : Portable Music system, digital cameras & even laptops

Identifying Prospects & Defining TG

Firms need to define the TG

Examine the cost of reaching them

Identify success factors in different product ideas

o Eg: Does it require distribution strength?

Does it have strength in technology?

Does sit have high brand image?

Should investigate how to acquire these strength

Concept Development & Testing

Theodore Levitt-

Customers buys concepts & not just tangible products

PRODUCT IDEA

A possible product that the company might offer to the market

PRODUCT CONCEPT

An elaborated version of the idea expressed in meaningful consumer terms


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PRODUCT IMAGE

The particular picture that consumers acquire of an actual product or potential product

Concept Testing

Tested on a sample of TG

Visuals of the proposed product concept shown to the sample respondents

Validity of the test increases if the product is shown to the customer group in the physicalform

Group is then asked questions related to their understanding & belief of the concept

Preferable to be done by an external agency

Feasibility Analysis

Market Feasibility Study

o Estimation of demand in TG at different price levels

o Forecasting sales based on demand and competitive analysis

o Estimate the cost of serving the market segment

o Based on cost & anticipated sales revenue, calculate brea-even & the sales

volumes

Product Development

R & D and manufacturing for the physical product

Keep customers feedback in mind

Ensure that the product is easy and safe to use by the customers

Must be put thru rigorous functional and consumer tests

Test Marketing

New product is tested on 4 parameters

o Trial Purchase

o First Purchase

o Adoption

o Frequency & Volume

Commercialization


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o Trial Purchase

o First Purchase

o Adoption



o Trial Purchase

o First Purchase

o Adoption


Eg: 1985 Parle Exports Fruit based drink Maaza

Bottle Mein Aam, Maaza hai Naam

BRANDING DECISIONS

What Branding decisions mean?

Important strategy for differentiating a pdt. From its competitors

It is a name, logo, trademark, patent, nos: or package design used to distinguish the pdt.Or services from others

To the customer, it is the source of the pdt. Which lends him to associate with the brand

Should be taken after due consideration to the TG, cultural influences on the market andthe role the brand will play in the over all corporate strategy

BRAND DECISIONS TO BE TAKEN BY A FIRM

Manufacture's name

Mktg. Org/Distributors Name

Adoption of combination of two

Family brand name eg: Videocon

Independent brand name eg: HLL

Manufacturers brand Policy or National Brand Policy

Family Brand Name

o When it brings +ve association to the mind of the consumer

o To the customer it represents quality, reliability & assurance of meeting specific

standards

o Desirable as creating a complete new brand involves a lot of investment

o Risk involved Brand fails Entire Family name at stake

Independent Brand Name


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o Helps to penetrate different market segments

o Firm doesnt loose it original positioning

o Eg: HLL launched detergents in different names

HLL Lux (positioned as a beauty soap)

V/s

Liril ( positioned for the benefits of lemon)

Distributor or Store Brand Policy

Useful when

o Firm does not have its own strengths in mktg.

o No adequate financial resources

o Competition is high

Distributor has strengths, customers confidence , bargaining power with manufacturer is

high Risk

o Loss of control over the pdt. Mktg.

o If product succeeds, premium goes to the distributor

o Distributor may not extend the desired mktg. support

Eg: Shoppers Stop STOP

Rasna ( earlier sold under the Voltas brand)

POSITIONING

DEFINITION

The Art of Communicating Companys offer so that it occupies distinct & valued place inthe customers mind

Al Ries & Jack Trout ( 1972)

Positioning is not what you do to the product. But what you do to the minds of the prospect

Ways to Position a Brand

1. USE SITUATIONS

o Marketer can identify use situations for his brand/product & analyze customer

perception of existing competitor brands in different use situations


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o Eg: RASNA Soft drink concentrate ( positioning)

Convenience

Economy

Range of flavors

Uses

When one is fatigued

When you a party

When you have an unexpected guest

Brand Claim

Even a child can make it

2. EMPHASIZING TANGIBLE BENEFITS

o Positioned on the basis of tangible benefits

Special Feature

Thru price and distribution

o Eg:ARIEL Micro cleaning system in the product

COLGATE Prevents cavities & fresh breath

PROMISE Clove Oil

NIRMA Low price

MARUTI SUZUKI Fuel efficiency & Safety

* Tangible benefits alone cannot provide a long- term sustainable advantage !

3. LINKING TO USES

o Positioned on the basis of uses which the firms brand can be put to

o Eg:VIDEOCON VCP V/S VCR

3. HEAD ON COMPETITIVE POSITIONING

o Tries to place a firms brand next to the leader in the market and tries to uproot it

on a specific tangible benefit

o Eg: AVIS No: 2 Auto Rental Agency

KINETIC HONDA More mileage than the leader Supported by road tests

5. LIFESTYLE POSITIONING

o Position the brand as a lifestyle concept- contemporary or futuristic

o Eg: Kitchen Appliances, ready- made garments, textiles, watches

o One of the dimensions of lifestyle is Aspiration


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o Brand should communicate an exclusive image which the consumer is willing to

pay for

o Eg: Longines Watches, Nakshatra Diamonds

6. BENEFITS OFFERED

o Highlight the benefits that Customer gets buy using the product Emotional

relationshipo Eg: Master Card Emotions is the only thing that money cant buy, for everything

else there is MasterCard

o Chevrolet Optra Karva Chauth ad

How to Position a Brand?

Perceptual Mapping Involves studying the consumers perception of the product &

Competitors brands & Identifying vacant slots based on this

Studying tangible as well as intangible benefits that a customer always looks for

Tangible

Pdt. Features

Performance levels

Style

Aesthetics

Packaging

Pdt. Components

Price & Distribution

Intangible

Services

o After Sale service

o Training on usage of Pdt.

o Financing assistance

Perception Mapping

Perception Mapping


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Communicating the Brand Positioning Strategy

Positioning Strategy needs to be effectively communicated

Developing appropriate Product Form, packaging, instructional material, use of colors,stationery, distribution outlets & pricing strategy

Eg: Raymond Tried to position itself as a fashion firm for the upper middle and highincome professionally successful male

Park Avenue

Not just advertise but also make necessary changes in the Marketing Mix

THEORY OF DIFFUSION OF INNOVATION

EVERETT M. ROGERS

People differ from each other.

o Risk taking attitude

o Willingness to adopt new products

Adopter Categorization on the Basis of Innovativeness

Innovators -2.5 %

o High risk taking & hence more open to change

o More aware & are perceived as opinion leaders

o Others look upto them for guidance & recommendation

o Brand Switchers

Early Adopters -13.5 %

o Same characteristics as innovators

o

Take a little more time to buy and adopt a product

Early majority & late majority -68%

o Significant portion of the market

o These wait for +ve recommendations from innovators and early adoptors who are

perceived as opinion leaders by them

o They are moderate on risk taking


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Laggards -16 %

o Display high resistance to change

o Averse to risk taking until it is 100% safe to use the product

o

They are loyal to exiting brand and products

Organization of New Product

1. Formation of Venture Group

2. Marketing Dept.

3. R& D Department

4. Planning Department

Lecture 4

Pricing Decisions

Learning Objectives

The Meaning & Significance of price in Mktg. decisions

Pricing Objectives

Pricing methods & Procedures

Pricing Strategies, tactics & Policies

How to determine price

Importance of Pricing

Diminishing product differentiation

o Technologies are standardized

o Differentiation among firms diminishing

o Brands transcending to commodity situation

Inter-firm rivalry

o Intensity of firms rivalry increases as exit & entry barriers are loweredo Impacts cost of operation ( more mktg.bucks)

o Need to develop new products ( high cost low margins)

o Wrong price decision can be fatal

Mature products and markets

o In a mature market, only way to differentiate is to augment service or price cuts

o Price cuts erode a companys bottom line & hence critical to embark upon non-

price strategies


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Customer Value perception

o Customers perception about the products current & potential value

Inflation in the economy Challenge of price management

o Affects pricing in 2 ways

Maximize current profits & return on investment

Exploit Competitive Position

Survival in a competitive market

Balance price over product line

Increases costs because of more input cost

Price - Meaning

Manufacturer Represents the quantity of money recd. by the firm or the seller for itsproducts

Customer Represents a monetary sacrifice; hence its perception of the value of the

product

Price = Quantity of money recd. by the seller

Quantity of goods & services recd. By the buyer

Price

Change the customers value perception of the product eg: Modifying the presentation ofthe product

Change the quantity of money or goods & services to be paid by the buyereg: Savings

on buying more Change the quality goods & services offered

Price changes thru changes in sales promotion & discounts

By making changes in;

o Time & place of transfer of ownership

o Place & time of payment

o Acceptable form of payment

Pricing Objectives




Balance price over product line



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o Estimate current demand and costs associated with alternative prices and then

select the price that ensures maximum current profits, ROI or cash flowo Does not consider the influence of other marketing mix variables on the customer

demand


o Presupposes firm is a leader in the market

o May adopt a skimming , penetrating or geographic pricing policy


o Happens when firm loses its distinctiveness or products are in a maturity stage,

shifting customer preferences & undifferentiated offerso May need to resort to discounting/ consider running promotion etc . to liquidate

stocks

Balancing price over product lines

o To maximize long term profits

o Balance among high demand and low demand products

A firm may pursue one of more pricing objectives at any given point in time

Demand Estimation

Estimating Customer Demand at different price levels & measuring the existence of pricesensitivity

Demand for some products is inelastic to price change eg: Food items

Whereas demand for some is elastic eg: branded products

Factors Contributing to Price Sensitivity

1. Unique Value effect More Unique less price sensitive

2. Substitute Awareness Effect Buyers Price sensitivity is high3. Difficult comparison Effect Price sensitivity is low4. Total Expenditure Effect Less price sensitivity

5. End Benefit Effect Buyers less price sensitive when total benefit of the end product is

more than total cost of the product

6. Shared Cost Effect Buyer less prone to price sensitivity

7. Sunk Investment Effect Price sensitivity is low

8. Price Quality Effect Higher the perceived quality, lower the price sensitivity

9. Inventory Effect If the product cannot be stored, the buyer will be less price sensitive

Pricing Decision Framework

Customer Demand


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Price elasticity of Demand = % Change in Quantity Demanded

% change in price

A. Availability of substitute and or competitors products

B. Customer resistance to change

C. Price Quality Perception

D. Buyers do not perceive or notice higher prices

Costs

Marketer needs to determine the cost of Manufacturing & the marketing cost

Different firms within the same industry operate at different levels of efficiency reflectingthrough cost structures

Reasons for high cost structure higher reject rates, lack of coordination, sub-optimalutilization of plant capacity

Types of Costs

Fixed Costs or Sunk Costs

o Do not change over production volumes

o Eg: Rent, Salary, depreciation, Plant & Machinery Cost, R& D, payment for

utilities etc

Variable Costs

o Vary directly in proportion to the volumes of product produced/manufacturedo Eg: Raw materials , wages etc..

Partly Fixed , Partly Variableo Eg: Advertising Cost

o Cost of Producing a campaign fixed artwork, Film production, copy writing

etc

o Cost of an insertion in a media/frequency is variable

Semi Fixed Costs

o Remain fixed upto a certain level of operation and thereafter change

o Eg: Royalty payment for the use of a brand name

Total Costs

o Sum of Fixed & Variable Costs

Corporate Objectives

An important decision to be taken by the top management


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Will reflect the philosophy of the principal owners /shareholders & their perception of theexternal environment

No pricing decision can be taken in the absence of corporate decision

Competitor Reactions

Anticipate competitor reaction to pricing decisions

Competitor can react either by either following the leader or ignoring the leader

Government Policy

Fiscal Policy contributes towards pricing policy Taxation, Customs & Import Duties,sales taxes etc

If govt. regulates a particular industry then the finished product price will also be high eg:Steel and Cement

Controlled regime to regulated regime eg: TRAI

Barriers in the Industry

Entry & Exit barriers

High barriers always encourage inefficiency, high costs and high prices

Pricing Methods

I. Cost Oriented Method

1. Full cost or mark up pricing

2. Marginal Cost or Contribution Pricing

II. Going rate or Follow the Crowd

III. Sealed bid Pricing

IV. Customer Oriented or Perceived Value Pricing

1. Acquisition Value

2. Transactional Value


1. Full cost or mark up pricing

Most elementary method of pricing

Estimate Cost of production + Margin


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Mark up price = / 1-r

Unit Cost ( Fixed+ Variable)

r Expected Return on Sales expressed as a %

Full cost or mark up pricing- Advantages

Easy to calculate

Minimal information requirements

Easy to administer

Tends to stabilize markets - insulated from demand variations and competitive factors

Insures seller against unpredictable, or unexpected later costs

Full cost or mark up pricing- Dis-advantages

Method ignores customer perception & competitor reaction

Ignores the fact that the firm might not be able to sell all its merchandise

Tends to ignore the role of competitors

Use of historical accounting costs rather than replacement value

Use of normal or standard output level to allocate fixed costs

Inclusion ofsunk costs rather than just using incremental costs

Ignores opportunity costs

Contractors may not focus on performance because the cost is always covered by theclient

Pricing Methods


2. Marginal Cost or Contribution pricing

Recover marginal cost and get a contribution towards its overheads

Works well when the market is dominated by a giant & objective is to geta foothold in the market

Works when the firm wants to liquidate its stocks

Sparks price war

II. Going rate or Follow the Crowd

o Competition oriented

o Prices pegged at the same level as the competitor

o Assumes that there will be no price war in the industry

o Commonly used in Oligopolistic market

o Flaws Leader may not be operating efficiently

o Collective decision need not be the best/right decision

II. Sealed Bid pricing
http://en.wikipedia.org/wiki/Sunk_costshttp://en.wikipedia.org/wiki/Sunk_costshttp://en.wikipedia.org/wiki/Opportunity_costhttp://en.wikipedia.org/wiki/Sunk_costshttp://en.wikipedia.org/wiki/Opportunity_cost


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o Suppliers are asked to submit quotations in closed tenders

o Eg. Industrial Mktg., Marketing to Governments, suppliers

II. Customer oriented or Perceived Value Pricing

o Increasingly being used

o Takes into account all elements of the marketing mix

o Helps in reducing threats of price wars

o Keys is estimation of customer perception of value avoid over estimation

Acquisition Value-

Perceived benefits & sacrifice made by the customer to get it

Transactional Value-

Determined by comparing the buyers reference price to the actual price that he/she pays

PRICING STRATEGIES

Factors influencing Pricing strategy

Corporate Goals and Objectives

Customer Characteristics

Intensity of inter-firm rivalry

Phase of the PLC

Skimming Strategy

Skim the market by selling at a premium price

Works

o When the TG associated quality of the product with price and high price is

perceived to be high qualityo Customer is aware and willing to buy the product at a higher price just to be an

opinion leader

o When the product is perceived as enhancing the customers status is society

o When competition is non-existent

o When the product represents technological break- thru is perceived as a high

technology' product

Objective Achieve early break-even point and maximize profits in shorter time

Penetration Pricing Strategy


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Lecture 5

Distribution Strategy

Learning Objectives

Role & task of intermediaries

Type & nature of intermediaries

Motivating & resolving conflicts within the channel of distribution

Planning a market-driven distribution system

Retailing & Retail Management

Logistics Management

Distribution Challenges

Critical in nature affect the viability of the firm & the product

Affects market share

Diversity in terms of accessibility of market

Reaching out the market ( right size, right time, right place) key to competitive advantage

Distribution

Involves planning & Strategizingo Distribution Structure

o Logistics

Distribution Structure

o Refers to channel design & Structure & Mgt. of channels

Logistics

o Refers to physical aspect of distribution

Need for establishing Marketing Channels

Producers lack financial resources necessary for direct marketing

Direct marketing is not feasible for many offerings

Using channels frees money for investment in main business

Intermediaries are more efficient


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Role of Middlemen/ Intermediaries

Forward flow functions:o Develop / disseminate communication

o Store and move the physical products

o Oversee transfer of ownership

Backward flow functions:o Place orders with manufacturers

o Facilitate payment of bills

Informationo About market to manufacturer changes in customer demography,

psychography, media habits, entry of competitors, changes in customerpreferences

Price Stability

o Middleman absorbs an increase in the price of products ( intra-middlemen

competition)

Promotion

o Design their own sales incentive programmes aimed at building customer traffic

at their outlets Financing

o Finance manufacturers operations by providing working capital in the form of

necessary advance payments or goods & services

Title

o Most middlemen take the title to the goods , services and trade in their own name

o Helps in diffusing the risk between the manufacturer and the middlemen

o Enables physical possession of the goods which help satisfy customer demand

at any point in time

Marketing Flows in Marketing Channels

New Role of Intermediaries

Conventional Role

o Transact discrete products or services

o Sell what they have, what is in stock

o Cut cots to compete on price of pdt. & services

o Focus on discrete core items

o Gear offerings to average customer

o Work as an independent channel member

Contemporary Roleo Link benefits to product superior mktg. experiences

o Access and get to customers the full range of pdts. & services

o Get rid of non-value activities, waste & duplications

o Concentrate on value added services

o Personalize offerings to suit unique individual needs

o Involve and integrate relevant players & expand the electronic network so as to

deliver complete customer experience


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Factors determining the length of the channel

Size of the market

o Larger Market ___________ Channel?

o Small Market ___________ Channel?

Order lot size

o Large order Size ___________ Channel?

o Small order Size ___________ Channel?

Service requirements

o High level of service ___________ Channel?

o Low level of service ___________ Channel?

Product Variety

o More Variety ___________ Channel?

o Less Variety ___________ Channel?

Length of Channel of Distribution

Width of Channel of Distribution


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Factors Influencing Distribution Decisions

Market Characteristics

o Service levels required

Company Characteristics

o Companys long term objectives, financial resources, manufacturing capacity,

mktg. Mix, corporate philosophy

Product Characteristics

o Product Value, Perceived risk, nature of the product Middlemen Characteristics

o Aptitude for service, promotion and handling negotiations, storage , contract &

credit

Intensity of Competition

Environmental Characteristics

o Govt. Policy, statutory provisions, state of the economy, technological and

infrastructural developments

Identifying Major Distribution Alternatives

Exclusive distributiono Severely limited distribution

o Products and Brands that seek high imageries

o Eg: Designer wear, major domestic appliances, automobiles etc.

Selective distributiono Some intermediaries willing to carry good are selected


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o Enables manufacturers to develop good working relationships

Intensive distribution

o Offering is placed in as many outlets as possible

o Eg: Soft drinks

Terms & Responsibilities of Intermediaries

Price policieso Price list and schedule of discounts

o MRP

Conditions of saleo Payment terms and guarantees

o Deposit/LOC etc

Returns policy

o Warranty, Spot replacements

o Returns & Refunds Territorial rights

o Define territory / terms

Services to be performed by party

Criteria for evaluating Channel Alternatives

Marketing Channels across PLC


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Channel Evolution

Vertical Marketing Systems

o Corporate VMS

Successive stages from Production to distribution under a single identity Vertical integration Forward & backward Integration

eg: Bata, Woodland, Raymond

o Administered VMS

Seeks to control not thru ownership but thru size & power of one of thechannel members

Brand/market leaders able to garner trade co-operation

eg: HLL, P& G, Nestle, Maruti, TELCO etc..

o Contractual VMS

Independent firms at different levels of production & distributionintegrating their programmes on a contractual basis to obtain largereconomies of scale

Eg: NIIT, Aptech, SSi

Horizontal Marketing Systems

o Contemporary Marketing system

o 2 or more unrelated companies pool resources to exploit marketing opportunity

o Eg: TVS- Whirpool Onida Market Washing Machines


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Multichannel Marketing Systems

o A single distribution system may/may not deliver desired results

o Firm uses 2 or more channels to reach one or more markets segments

o Eg: L& T standard switch gear Own force+ Extensive Dealer network

Managing The Channel

Channel Conflicts- Type of Conflict

o Vertical Level Conflict

Between levels above and below in the distribution chain

Eg: Conflict between a Manufacturer & a wholesaler

Conflict between retailers and a distributor

o Horizontal Level Conflict

At the same level

Eg: Inter stockist conflict, conflict among retailers pricing, territoryjumping

o Multichannel Level Conflict

Conflict between Franchise (indirect distribution) and company owneddistribution ( Sales force/company owned showroom)

Channel Conflicts- Causes of Conflict

o Goal Incompatibility

Eg: Manufacturers goal Market Share & long term profit maximization

Wholesalers goal Sales maximization & short term profitability

o Role Ambiguity

Common cause of conflict in Multichannel

Eg: Role and Territory of Sales force clashing with that of dealer

o Difference in perception of the market

Different perceptions of the market and economy may also cause conflictbetween manufacturer & middlemen

Channel Conflicts- Managing Conflict

o Communication

Frequent meets between the manufacturer and channel partners


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Chief executives interact with channel partners to understand marketdynamics & communicate brand positioning strategies

In-house newsletters

o Dealer Councils

Formation of councils to resolve horizontal & vertical level conflicts

Manufacturer should be willing to accept and act upon constructive

feedback received thru such forumso Superordinate Goals

Customer satisfaction supreme

o Arbitration & Mediation

Independent individuals or institutions like court

Motivating Channel Partners

Financial Rewards

o Higher margins, extended credit period, bonuses & reimbursement of expenses Non- Financial Rewards

o Contest, public recognition, paid holidays, training

Market Driven Distribution

1. Know what your customers want

2. Decide on the outlet

3. Determine the costs

4. Bind the ideal5. Compare the alternatives

6. Review assumptions in the light of research

7. Confirm the gap between the ideal and the actual distribution system

8. Implement changes in the system, if required.

Lecture 6

Advertising & Media Planning

AMA- American Marketing Association

Any paid form of non- personal presentation and promotion of ideas, goods & services by anidentified sponsor


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Advertising is ;

o Paid form of mass communication

o Non-personal

o Significant contributor in awareness creation & attitude formation

Functions of Advertising

Identifies products and differentiates them from others

Communicates information about the product, its features, and its location of sale

Induces customers to try new products and suggest reuse

Stimulates the distribution of a product

Increases product use

Builds value, brand preference, and loyalty

Lowers the overall cost of sales `

5 Ms of Advertising

Economic Impact of Advertising

Effect on;

o Value of Products

o Prices


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o Competition

o Consumer demand

o Consumer choice

o Business cycle.

Social Aspects of Advertising

Educates Consumers

Improves standard of living

Affects happiness & General well- being

Ethical Issues of advertising

Advertising must be truthful

Advertising must be sensitive to religious and political sensitivities

Advertising must not promote undesirable products declared illegal by law i.e. drugs

Advertising must not promote accepted social ills

Areas of advertising Regulation

The content of advertisementso Deception and Unfairness

o Poor taste

Competitive Issues

o Vertical Co-operative advertising

Manufacturer & retailer share the cost of advtg.

Comparison Advertisements

o Legal, must be substantiated, no unfair comparisons

Advertising Regulation

Regulatory agents Government, ASCII

The Trade commission

Industry Self - Regulation

Consumers as Regulatory agents

Consumerism- acts of individuals to exert power over the marketplace

Consumer Organizations


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o Various groups organized by product or geographic region

Relaunch of Rasna A success Story

Brand Launched as Jaffe in 1976

Renamed as Rasna in 1979

1982- sales dip

1983 Turning point for the Brand

o Market Scenario

o Research

o Advtg. Objective

o TG

o Influencer

o Creative Strategy

o

Media Strategy

Types of agencies

Full Service Agencies

Creative Boutiques

Media buying services

Interactive agencies

In-house agencies

Media Objectives, Strategies and Planning

Major Factors in Creating and Building a Media Plan

Media Questions

Two basic processes:

Planning media strategy, including the specific types of consumers/audiences the

messages will be directed to. Selecting and Buying media vehicles.

Media planning is both an art and a science.

An essential part of the advertising business.

Where should we advertise?


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Which media vehicles?

When during the year?

Should we concentrate our advertising?

How often should it run?

What opportunities are there to integrate our media planning with other Promotion orCommunication tools?


Planners direct the messages to the right people at the right time in the rightenvironments.

TV: Networks, syndication, local, cable, satellite.

National, Regional and Local issues

Non traditional: In flights, parking meters, blimps, shopping carts, milk cartons, littercans, taxis, sponsorships.

Increasing media choices and options

Audience fragmentation

Costs and rate hikes

Multimedia, and interactive

Diverse audiences

And more

Major Factors:

1. Target Market. Whom are you going to sell to?

o Demographic, geographic and psychographics characteristics

2. Where is product or service distributed?

o Local, regional, national or selected markets

3. What is Budget?

o Percentage of sales

o Share of market and Share of Voice

o Objective and Task


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o Unit of Sales

o Competition

o Test Market

o Experimental

o Affordable and Available Funds

4. What is Competition Doing?

o Budgets

o Which Media?

o Which Schedules?

o And more

5. Nature of Message?o Electronic/Broadcast

o Print

o Color/B&W

o Demonstration

o Simple Statements

6. Reach vs. Frequency vs. Continuity (Continuous Schedule)


Reach (Cume)

The number of different or unduplicated households or persons that are exposed to atelevision program or commercial at least once during the average week for a reportedtime period.

Frequency


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Average number of times a household or a person viewed a given television program,station or commercial during a specific time period.

Continuity/Continuous Schedule

Advertising runs steadily and varies little.

Flighting and Pulsing with scheduling

Rating (RTG or %):

o The estimate of the size of a television audience relative to the total universe,

expressed as a percentage.o The estimated percent of all TV households or persons tuned to a specific

station. In the example, three of the 10 homes in the universe are tuned tochannel 2. That translates to a 30 rating.

RATING = households tuned in to a given programall households with television

SHARE = households tuned in to a given programall households tuned in to TV at that time (HUT)

(more simply: share measures the percentage of all TV sets in use watching aparticular program)

Here's an example: Your show is aired in a market that has 1 million televisionhouseholds; 400,000 are tuned in to you. Therefore:

400,0001,000,000 = .40, or a rating of 40

At the time your show airs, however, there are only 800,000 households usingtelevision. Therefore, your share of the available audience is

Share = 400,000800,000 = .50, or a rating of 50

7. Media Mix

o Combination of different media, and size of ads

o Which Media?

o Which Schedules?

o And more

8. Seasonality and Length of Schedule?

o Hot tea vs. Cold tea?


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o Snow blowers, toothpaste, coffee.

o Morning Drive and Evening Drive

o Flighting

o Pulsing

9. Tie-ins with Merchandising

and Sales Force?

o Coupons, Contests, Trade Deals, Sales Calls, Displays, Budgets.

o Which Media?

o Events

Cricket

Film Awards

Etco Which Schedules?

o And more

10. Flexibility

11. Cost Efficiencies

o Which Media?

o Which Schedules?

o Which Vehicles?


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Advertising is an investment in future sales.

Its greatest powers are in short-term promotions and its cumulative long-rangeeffects.

Lecture 7

Sales Management & Selling Process

Learning Goals

1. Understand the role of a companys salespeople in creating value.2. Know the six major sales force management steps.

3. Understand the personal selling process, and how to distinguish between

transaction-oriented marketing and relationship marketing.

Personal Selling

The Nature of Personal Selling

o Salesperson covers a wide range of positions from order taker to order

getter responsible for relationship building

Salespeople Have Many Names

Agents

Sales Consultants

Sales Representatives

Account Executives

Sales Engineers

District Managers Marketing Representatives

Account Development Representatives

The Role of the Sales Force


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o Two-way personal communication

o More effective than advertising in complex selling situations

o The sales force plays a major role in most companies

o The sales force represents the company to customers

o They also represent the customers to the company

Definition

Sales Force Management

The analysis, planning, implementation, and control of sales force activities

Managing the Sales Force

Sales Force Strategy and Structure

o Sales Force Structure

Territorial sales force structure

Product sales force structure

Customer sales force structure

Complex sales force structure

Sales Force Strategy and Structure

o Sales Force Size

Many companies use the workloadapproach to set sales force size

o Other Issues

Outside and inside sales forces

Team selling

Recruiting and Selecting Salespeople

o Careful recruiting can:

Increase overall sales force performance

Reduce turnover

Reduce recruiting and training costs

Traits of Successful Salespeople

Intrinsic motivation

Disciplined work style

The ability to close a sale


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Ability to build relationships with customers

Training Salespeople

o Training period can be anywhere from a few weeks to a year or more

o Training is expensive, but yields strong returns

o Training programs have many goals

o Many companies are adding Web-based sales training programs

Compensating Salespeople

o Compensation elements: salary, bonuses, commissions, expenses, and

fringe benefits

o Basic compensation plans:

Straight salary

Straight commission

Salary plus bonus

Salary plus commissiono Compensation plans should direct the sales force toward activities that are

consistent with overall marketing objectives.

Supervising Salespeople

o Effective supervisors provide direction to the sales force

Annual call plans and time-and-duty analysis can help providedirection

Sales force automation systems assist in creating more efficientsales force operations

The Internet is the fastest-growing sales technology tool

Supervising Salespeople

o Effective supervisors also motivate the sales force

Organizational climate

Sales quotas

Positive incentives

Sales meetings, sales contests, rewards & recognition etc.

Evaluating Salespeople

o Several tools can be used Sales reports

Call reports

Expense reports


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Stages in the personal selling process

Stages and objectives of the personal selling process

Techniques for handling objections

Marketing Audit- Definition

MA is a thorough and systematic review of the companys marketing environment,internal marketing system and specific marketing activities.

Its purpose is to give management a detailed

picture which indicate ways of improving the overall marketing effectiveness of the

business or organization.

Areas Covered Under Mktg. audit

Marketing Environment

Marketing Activity

Marketing System


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o International links

Industry Finances

o Financial barriers to entry & exit

o Industry profitability

o Operating costs/raw material prices

o Investment

o Effect on return on investment of price changes

o Volume

o Source of Industry profits

Marketing Activity

o Sales (total by geography, sector, customer, product)

o Market shares

o Profit margins

o Channels to market

o Product life cycle

o Marketing mix

Marketing System

o

Marketing objectiveso Marketing strategy

o Structure

o Information Systems

o Planning Systems

o Control Systems

o Functional Efficiency

o Profitability analysis

o Cost effectiveness analysis

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