Notes of Marketing

Chapter 1: Introduction of Marketing 

Marketing: Marketing is managing profitable customer relationships. The two fold goal of marketing is to attract new customers by promising superior value and to keep and grow current customers by delivering satisfaction. Thus we can say that marketing is a process by which companies create value for the customers and build strong customer relationships in order to capture value from customers in return.

Marketing management orientations/principles

There are five concepts under which organizations design and carry out their marketing strategies as the production, product, selling, marketing and societal marketing concepts.

Production concept: The production concept says that the customers favor only those products that are available and highly affordable. The management only wants to increase the production and distribution. This is one of the oldest concepts of marketing that is made with the supply side only. This concept has not focused on the demand side of the customers and only claims that the customers will accept any products that are available and affordable. Even though it is one of the oldest concepts but this concept is still useful in some situations as in monopoly markets where there is only one seller and many buyers. For example Nepal Electricity, Nepal Petroleum etc

Product concept: This is also one of the old philosophies which portrays that the sales of the product can increase if an organization will focus highly on quality, performance and features. The organization should always focus on the continuous product improvement and it should consider that customers are highly quality conscious. This concept has also focused on the supply side only as the production concept but it has totally left the demand side of the product. The concept has one of the biggest shortcoming that in this concept, the organizations develop products without considering the demand of the customers from the marketplace.

Selling concept: The selling concept portrays that the consumers will not purchase the products of the organization unless it undertakes a large scale selling and promotion efforts. This concept holds true mainly for the unsought products when customers do not think of buying the products as insurance. As there will be aggressive selling, the production cost decreases and the company can sell the products at lower costs. The company just wants to create the sales rather than making a long term profitable relationships with the customers. This concept has also focused on the supply side of the market. The sellers assume that the buyers will like the product that is offered in the market by them. They have not also considered about the demand and desires of the customers. They believe that even if the customers don’t like the product, they will possibly forget their dis-appointment and finally purchase the product. Thus, we can say that the concept is based on false assumptions.

Marketing concept: The marketing concept says that the organization should at first understand the needs, wants and desires of the customers in the marketplace and finally they should provide the goods and services to the customers to fulfill their needs and desires than any of the other competitors do. It is a customer centered approach that is based on ‘sense and respond’ philosophy. The concept just says that the organization should not find right customers for the product but it should find the right products for the customers. This concept has at first focused on the demand side of the market and finally it says that the supply should be done in accordance with the demand of the customers. The marketing concept starts with a well-defined market, focuses on customer needs, and integrates all the marketing activities that affect customers. In turn, it yields profits by creating lasting relationships with the right customers based on customer value and satisfaction.

Societal marketing concept: The societal marketing concept says that the organization should at first understand the needs, wants and desires of the customers in the marketplace and finally they should provide the goods and services to the customers to fulfill their needs and desires than any of the other competitors do and finally they should work of the long run interest of the society. This concept has focused on the process of maintaining long run relationships with the customers and the society in which they operate. The societal marketing concept holds that marketing strategy should deliver value to customers in a way that maintains or improves both the consumer’s and society’s wellbeing. The companies should balance three considerations in setting their marketing strategies as company profits, consumer wants and society’s interests.

Marketing management cycle: Management is always very important in marketing. Managing the marketing process requires the four marketing management functions as analysis, planning, implementation and control.

Marketing analysis: This function begins with the complete analysis of the company’s external environment and internal environment. A marketer can conduct SWOT analysis to find out the organization’s strengths, weaknesses, opportunities and threats. He can find the strengths and weaknesses from the internal environment and opportunities and threats from the external environment. Strengths include internal capabilities, resources, and positive situational factors that may help the company to serve its customers and achieve its objectives. Weaknesses include internal limitations and negative situational factors that may interfere with the company’s performance. Opportunities are the favorable factors or trends in the external environment  that the company may be able to exploit to its advantage and threats are unfavorable external factors or trends that may present challenges to performance. In the process of analysis, marketer will understand about the current organizational situation.

Market planning: After analyzing the environment, the organization now makes the plans. planning is the process of thinking before doing. Marketing planning is the process of deciding on marketing strategies that will help the company to achieve its strategic goas. At first the organization will make the strategic goals for the welfare of the whole organization. After analyzing the overall goals of the organization, the marketing manager makes the tactical or marketing goals. For example: Maayos wants to increase the sales by 5%. This is the strategic goals. The marketing manager makes a marketing goal as increase the advertisement by 10% to increase the sales by 5%. This is marketing plan. A marketing strategy should basically focus on target markets, positioning, the marketing mix and marketing expenditure levels. For this the manager is responsible to construct a marketing budget also.

Marketing implementation: The process of turning the marketing strategies and plans into marketing actions in order to accomplish strategic objectives is called marketing implementation. Marketing implementation is the process of ‘doing right things’/ i.e. it means to complete the task efficiently. During the process of implementation five important things are to be done by a marketer as checklist, flowchart, schedule, assignment and allocation of resources. Without these five things, a planned scheme cannot be easily implemented. The process of implementation is always considered as one of the most important process.

Marketing control: The process of measuring and evaluating the results of marketing strategies and plans and taking corrective actions to ensure that objectives are achieved is called marketing control. There are two types of control that is basically done by the organization as operating control and strategic control. The basic thing we do in the control process is measure the results with the expected results. If the actual results is poor than the expected one then there exists a problem. Solving this problem is the process of control. In this process, we measure the results, compare them with the expected results and then take corrective actions if necessary.

Marketing challenges in the new millennium:

Due to the cause of rapid development in the technology and globalization, the world is changing quickly. The dynamic nature of the external environment has created a lot of challenges for the marketer. A marketer must understand these challenges and work properly to cope with them. Some of the marketing challenges are as follows:

Digital age: Technology has rapidly changed in this modern world. There is huge development in the communication, information and other digital technologies give a change to the companies to create more value for the customers. We can be easily connected with everyone around the world due to this technological growth. Marketers can understand about the customers and their purchasing behavior easily and quickly. There are basically two important things that have emerged and totally changed the world. They are mobile phones and internet. The internet is a vast public web of computer networks that connects users of all types all around the world to each other and to an amazingly large information repository. The managers that cannot adapt themselves according to this technological change cannot sustain the business. So, to understand the modern technology and adapt according to it is a challenge for the marketers.

Rapid globalization: Globalization is a process of making the goods and services available to the whole world. If we would recall the classical world, there are no system of globalization. The products and services available to one location could not be easily found in another location. But now the system has totally changed. The products available in one corner of the world can easily be ordered and achieved from another corner by the help of good transport, internet and mobile phones. The rapid globalization has created extra burden to the managers. The marketing managers should not only compete with the competitors of their locality or country but they will have to compete with everyone in the world. If they cannot be competitive then they can be easily thrown out from the business. So it is an issue for the marketing managers.

Ethics and social responsibility: Ethics are the moral principles or personal boundaries where as social responsibilities are the obligations that an organization must follow for the betterment of r the society. Now a days, people are always making an issue for the ethics and social responsibility. If a marketing manager is not ethical or he is not socially responsible then he will be totally discarded by the society. For example, the Nike was rejected in the western society due to the exploitation of child labors in Vietnam. Similarly Nepali Gudhpak of New Road was rejected by the Neplese society due to unethical practices. If the organization is ethical and responsible for the society, then it will also make free publicity for the organization. For example, Maayos environmental cleaning program.

The growth of Not for profit organizations: Not for profit organizations are those organizations that have a major objective of providing the services to the customers but not to make the profits. Such type of organizations are as schools, hospitals etc. Now a days there are excessive amount of such organization. A marketing manager working in such organizations should not work with a profit motive. He should work for the sake of public benefit. But now a days, such organizations have also concentrated in achieving the profit. A marketing manager should be able to show the people that they are working for the betterment of the society and also generate some profit for the sustainability of the organization. This is big challenge of the marketing manager.

Chapter 2 :  Marketing Process and Environment

Marketing process: targeting consumers and developing marketing mix

Customers are the integral part for every business activities. Thus, they always stand in the center. Every organization wants to create value for the customers and build profitable customer relationships.

In order to create this customer value and build profitable customer relationship, company makes marketing strategy. Then a question can arise as ‘which customers to serve’ and ‘how to serve those customers’. The answer for which is given by market segmentation and market targeting and how is given by differentiation and positioning.

After making a strategy, the company will develop marketing mix made up of factors under its control as product, price place and promotion. To find the best marketing strategy and marketing mix, the company develops marketing analysis, marketing planning, marketing implementation and marketing control.

Market segmentation: The process of dividing a market into distinct group of buyers who have different needs, characteristics or behaviors and who might require separate products or marketing programs is called market segmentation. A market segment consists of consumers who respond in a similar way to a given set of marketing efforts. Let us take a car example as follows:

One group of consumers do not care about price but focus on comfort, look etc.

Another group cares about price and fuel efficiency.

Market targeting: It is a process of evaluating each market segment’s attractiveness and selecting one or more segments to enter. Such segments that generate most of the profit and the greatest customer value for a longest period of time is basically selected. Most of the companies enter a new market by serving a single segment, and if this proves successful, they add more segments.

Market differentiation: After a company has targeted a particular market segment on the basis of market segment’s attractiveness, it has to differentiate its product according to the need of a segment. This process of differentiating a product according to the need and desire of a target market is called market differentiation.

Market positioning: Positioning is a process of arranging a clear, distinctive and desirable place for the offered product in comparison to the competing products in the mind of the targeted consumers. For example: Wall Mart says ‘Save money, live better’ and Fair and lovely says ‘fairness in 1 week’ etc.

Marketing mix: The set of controllable tactical marketing tools- product, price, place and promotion that the firm blends to produce the response it wants in the target market is called marketing mix. The marketing mix consists of everything that a firm can do to increase the demand of its product in the market. There are different possibilities to increase the demand but we classify it into four ways as product, price, place and promotion.

1. Product: Product means the goods and services combination the company offers to the target market. It consists of

·         Product design (shape, color, size)

·         Product variety (line and items)

·         Quality (standardization and grading)

·         Features

·         Branding, trademarks, packaging, services, warranties, product planning and development.

2. Price: Price is the amount of money that the customers must pay to obtain the product. It includes

·         List price

·         Credit terms

·         Discount

·         Allowances

·         Payment period etc.

3. Place: Place includes company activities that make the product available to target customers. It consists of

·         Types of channels/ middleman

·         Store/ distributor location

·         Storage

·         Transportation

·         Inventory

·         Logistics etc

4. Promotion: Promotion means the activities that communicate the merits of the product and persuade the target customers to buy it. It includes

·         Advertising

·         Personal selling

·         Sales promotion

·         Public relation

Marketing environment: The actors and forces outside marketing that affect marketing management’s ability to build and maintain successful relationships with target customers is called marketing environment. We study about two types of environment as

Micro-environment and Macro environment

1. Micro environment: The actors close to the company that affect its ability to serve its customers- the company, suppliers, marketing intermediaries, customer markets, competitors and publics etc is called micro environment.

·         The company: The marketing managers must work in proper coordination with the top managers, and other department as finance, R&D, purchasing, operation etc. Top managers make missions, visions, objectives and strategies for the whole company and marketing manager must work as per the strategies made by top management. But they must think about the customers before fulfilling the strategies.

·         Suppliers: Suppliers provide resources to the company to produce goods and services. Supplier’s problems directly harm over marketing. Supply shortages, or delays, labor strikes and other events can cost sales in short run and damage customer’s satisfaction in long run. Rising supply prices harm the company’s sales volume directly.

·         Marketing intermediaries: The marketing intermediaries help to promote, sell and distribute its products to final buyers. It includes resellers, physical distribution firms, marketing services agencies and financial intermediaries.

§  Resellers: Distribution channels ( resellers, whole sellers etc)

§  Physical distribution firms help the company to take goods from the point of origin to the point of sales)

§  Marketing services agencies includes research firms, advertising agencies etc

§  Financial institutions include banks, financial institutions etc

·         Competitors: The marketing concept states that to be successful, a company must provide greater customer value and satisfaction that its competitors do. Thus, marketers must do more than simply adapt to the needs of target consumers. They also must gain strategic advantage by positioning their offering strongly against competitors’ offerings in the minds of consumers.

·         Publics: Publics are the interested groups that impact the organization to achieve its objectives. There are different types of publics as follows

§  Financial publics: Banks, investment houses etc.

§  Media publics: News papers, TV, radio, etc.

§  Government publics: Taxation policy and other rules

§  Citizen action publics: Consumer organizations, environment groups etc

§  General public: People attitude towards the product

§  Internal public: Workers, managers, volunteers etc.

2. Macro environment: The external environment that operates outside the organization and cannot be controlled by the organization is called macro environment. It shapes opportunities and pose threats to the company. The macro environment of the marketing consists of

·         Demographic environment: The study of human population in terms of age, gender, size, density, location, race, occupation and other statistics is called demography. The demographic factors that directly affect over the marketing are as follows:

§  Population size: Increased population size results in the increased market size. For example large market is achieved in India, China etc.

§  Population growth: It the population growth rate is higher, size of the market will be larger resulting in increased marketing opportunities.

§  Population migration: It affects over the marketing directly. For example the increase Indian population in Nepal has resulted in the demand for wheat in Nepalese market.

§  Urbanization: When people migrate from the rural areas to the urban areas then they will follow the life style of urban people. This increases the opportunity of fashionable, durable and furnishing goods.

§  Changing family system: The change in the family system has been observed in the past few decades. Basically, in the case of developing countries like Nepal, the change has led to various outcomes. Due to the cause of attraction toward western civilization, development rate or enhancement in the education rate the family system is changing. The changed family system has changed the family from joint to nuclear system. Besides, it split rate is also increasing in the urban sectors. i.e. the society is becoming more and more individualistic. The work of the male and female in the family has also changed. Both of the people work in the office to earn money and both have their own needs and demand. The changing family system can create opportunity for a marketer. For eg. Since both male and female works, the marketer can sell the products like bikes; cars etc. or more focus can be given on readymade products.

§  Changing role of woman: The role of woman is rapidly changing since the past few decades. This is mainly due to the cause of increase in the educational rate in the women or women empowerment. Long time ago, people used to see women as slaves. They could not go out and they should look at the home and the family only. Now the situation has totally changed. The increase in the educational rate in the women has made then independent and highly ambitious. They have their own needs and demand and they directly involve in the family decision making. Due to this cause, the marketers can sell such products that are designed especially for them. For example sales of scooty pept are very high and it is in the increasing trend.

·         Economic factor: Economic factor is always considered as one of the most significant force of the macro environmental factor. It directly affects over the consumers buying power and spending patterns. The economic factor is always affected by the general economic condition of the country i.e. whether the country is in the condition of prosperity, recession, depression or recovery. If the country is in prosperity the heavy priced goods can be marketed but if the country is in the condition of recession then lower priced goods are mostly sold. The buying power of the consumers is an integral part of economic environment. The buying power of the consumers is determined by the inflation rate of the country and consumers income. Marketers should also be aware of the changing income distribution and spending patterns because income distribution and consumption pattern displays which good has a potential market and which good has no market.

·         Natural factor: Natural resources are very important for the production process. The depletion in the natural resources will cause the increase in price and the decrease in consumption. Marketers must be aware of the several trends in the natural environment as

§  Shortages of raw materials: Raw materials can be in the form of renewable or non renewable resources. Organizations that are working with non renewable resources as oil, petroleum products etc. may face problems of raw materials availability.

§  Increased pollution: The raw materials are being depleted due to the increase in the pollution as air pollution, water pollution; land pollution, sound pollution etc. The main causes of the pollution are the industries themselves.

§  Increased government intervention: The governments of different countries have shown keen interest in the natural resource management. The government exerts pressure on the industries to reduce the pollution rate and work for the environmental sustainability.

·         Technological factor: Forces that create new technologies, creating new product and market opportunities constitute the technological factor. Technological environment changes rapidly and the organization must work in proper coordination with the new technology to reduce the cost of production and increase the sales. New technologies create new market and new opportunities for the marketer. A marketer must understand the level of technology, pace of technology, Research and Development etc. to market such products that are practical and affordable.

·         Socio-cultural factors: Society is a group of people having distinct beliefs, knowledge, habits, tastes, values, culture and life cycle. Culture is the shared beliefs, values and attitudes within the members of the society.  Society changes rapidly due to the change in technology. For eg. Roads (transportation), IT etc. In the case of Nepal, people are attracted with western culture. They are focusing on individualism, small families and loose relationships. The changes are also seen in the values, beliefs and attitudes. Similarly, changes are observed in the dressing, housing, food, education and entertainment. This has directly created opportunity for the marketers. The examples of such opportunities are community housing projects, increment in the usage of bikes, cars, jewelry, mobile phones etc.

·         Political and legal factors: Political environment consists of laws, government agencies and pressure groups that influence and limit various organizations and individuals in a given society. It constitutes of

§  Laws- legal provision: For fair trade, competition, environment protection, product safety, advertising etc.

§  Government policies: Government policies are ways of doing things. They are made by the government to protect the companies and the consumers.

Please describe the political and legal factors affecting the business in the developing countries like Nepal.

(Note: The four P’s is not described well in the notes because it will be dealt in detail in later chapters)

Chapter 3: Consumer Market

Consumer market: All the individuals and households that buy or acquire goods and services for personal consumption for a consumer market.

Consumer buyer behavior: The buying behavior of final consumers- individuals and households that buy goods and services for personal consumption is called consumer buyer behavior.

There are various determinants of the consumer buyer behavior. The factors that affect over the buying process of a consumer are as follows:

Cultural factors:

§  Culture: A set of behavior, norms, values and beliefs that is learnt by a social member from family and other social institutions is culture. For eg. a cultural shift for showing greater concern toward health has produced a new market for exercise equipments, organic food and variety of diets etc.

§  Sub-culture: A group of people with shared value system based on common life experiences and situations is called sub-culture. It can be in the form of nationalities, religions, racial groups and geographic location. The religious sub-culture can be in the form of Hindus, Muslims, and Christians etc. A marketer must understand each sub-culture properly. Eg. he cannot sell beef in Hindu society but he can sell it in the Christian society.

§  Social class: Social class is relatively permanent and ordered divisions in a society whose members share similar values, interests and behaviors. Social class is determined by combination of income, occupation, education, wealth and other variables. People of same economic class show similar consumption behavior. So, marketers must understand them.

Social factors:

§  Reference groups: Two of more people who share common interests and goals form a group. Groups can be membership groups or reference group. The group where there is direct influence is a membership group. The group which does not contain you as a member but influence over your behavior is a reference group. Eg. People follow the voice of TV stars, cricketers etc as (Sachin in the boost ad or Amitabh Bachhan in the hajmola ad) etc.

§  Family: Family members can strongly influence over the buying process. The family is the most important consumer buying organization in the society and every members of a society influence over the purchase decision of a household. Eg pepsodent ad is made for the children, mayos ad is made for the women etc. mostly women make the household purchases and marketers try to motivate them for the purchase decision. Eg noodles ad, oil ad etc.

§  Roles and status: A person can be a member of different groups. Each group has its own role and status. A role consists of activities people are expected to perform according to the persons around them. Each role carries a status reflecting the general esteem given to the society.

People choose a product as per their roles and status. For eg. a working mother plays a role of house-wife, worker, mother etc. She selects such goods that suits the status of her family too.

Personal factors:

§  Age and life cycle stage: The buying habit of a person changes according to age and life cycle. As the age grows up, demand for new products is seen. Eg- a child prefers a bi-cycle and a youth prefers a bike. When different age groups are mixed together, it forms a life cycle stage as children, teen, middle aged, mature and old aged people. The demand for products also varies in different stages of life cycle.

§  Occupation: An occupation affects over the market demand too. Eg. doctors demand for more hygienic food, white collar workers demand for suits, cars etc.

§  Economic situation: If the economic situation of the country is poor and it is continual recession then low priced goods are mostly marketed whereas if the country is richer then high priced products are marketed. Eg. Rolex watch and Chinese watches.

§  Life-style: A person’s pattern of living expressed in his or her activities, interests and opinions is a life style. A person’s culture, sub-culture, social class and occupation also affect over his life style. The demand for a product also varies according to his life style. It shows the person’s whole pattern of acting and interacting in the world.

Psychological factors:

§  Motivation: Motivation is a process of influencing other people to act in a desired manner. According to Maslov hierarchy, needs can be of physiological, safety, social, esteem and self actualization needs. Marketer must understand the need that is triggered by their product and motivate people as per their need.

§  Perception: It is a process of selecting, organizing, and interpreting information into meaningful picture. How a person perceives a product always affect over the buying process. Eg. People perceive ‘Aarwot biscuit’ as a ‘sick diet’.

§  Learning: Learning is a gradual change in individual’s behavior through experience. If a person buys a Samsung mobile and find it very effective then he will again buy other Samsung products otherwise in reverse condition, he will not purchase any Samsung products.

§  Beliefs and attitudes: A descriptive thought that a person holds about something is his/her belief. If a consumer holds a right belief then a marketer tries to promote it but if he/she holds a wrong belief then a marketer tries to correct it.

Attitude is a person’s thought about something to be right or wrong. An attitude is very difficult to change. Eg. if a person has an attitude that Chinese products are weak then such person may not purchase high priced Chinese products.

Buyer decision making process: It is simply a process by which a buyer makes a decision to purchase a product. Here, buyer means individual buyer or a household that make a purchase for personal consumption. The decision making process is as follows:

·         Need recognition: This is the first stage of consumer decision process in which a consumer recognized a need or a problem. Need arouses due to internal stimuli as hunger, thirst etc or external stimuli as advertisement, public relation, sales promotion etc.

·         Information search: This is the second stage in which a consumer will search for new or more information. If the drive is very strong or a consumer already knows about the product very well then he does not search for new information but if a consumer does not know about the product then he goes for information search. Eg. If you want to purchase a bike then you will at least look at bike ads, ask the friends, visit a show-room or search inside the web sites for the bike. Sources of information can be personal (friends, family etc.); commercial (ads, sale people etc,); public (mass media, web sites etc.); and experimental (handling, using a product etc).

·         Evaluation of alternatives: A consumer uses the information to evaluate the alternative brands in the choice set. This evaluation depends upon the individual consumer and specific buying situation. Sometimes, they may use logical thinking while in other times; they may make a decision on intuition. Eg. You think that you will buy a bike of one brand from Hero-Honda, Bajaj or Yamaha. Now you will look at the price, warranties on parts, style, mileage etc of different bikes within these companies. i.e. you will evaluate all these factors before making a decision to purchase a product.

·         Purchase decision: Here, a consumer will make a decision to purchase the product. Here a consumer makes the purchase of the most preferred brand but two factors always affect over his purchase intention and purchase decision as attitude of others and un-expected situational factors. For eg. You are about to purchase a 150cc FZ bike of Yamaha. You found your friend and he said you that this model is very bad in performance. This was an attitude of others that may affect your purchase decision. Similarly, you are about to purchase the same model bike but when you went to the show-room, you found that the bike is out of stock. This was the un-expected situational factor that could affect over your purchase decision. On both cases, a consumer can change his purchase decision and purchase a different model.

·         Post purchase behavior: Behavior of satisfaction and un-satisfaction shown by a consumer after the purchase of the product is called post-purchase behavior. Un-satisfaction arises due to the gap between expectation and performance and satisfaction arises when there is no gap between expectation and performance or performance exceeds expectations. The post purchase behavior of the consumer always affect over the sales of the product. If there a lot of negative word of mouth from the consumer toward our product then our product can have lower sales quickly whereas positive word of mouth will definitely increase the sales of our product.

Business decision making process: Business markets are huge than the consumer markets. It simply describes as a buying behavior of the organizations that buy goods and services for use in the production of other product and services or to re-sell or rent them to others at profit. In this process, the business buyers determine which products and services their organizations need to purchase and then find, evaluate and choose among alternative suppliers and brands.

Determinants: Business buying process depends upon numerous factors. Some of them are as follows:

·         Environmental factors: Business buyers are always affected by various environmental factors. The country’s economic condition always affect over the purchase decision. If the economic condition of the country is very sound then the consumer purchase will increase and the business houses will also increase the purchase of commodities. Changes in technology also affect over the purchase decision. If the organization uses modern technology then the organization can increase the sales of the product in the market and the demand for commodities can increase. Political stability and law of the country also affects over the business decision making process. If the political condition of the country is sound and there is good law system governing the country then the business can flourish in such condition and this will increase the demand for commodities by the business houses.

·         Organizational factors: Every organization has its own objectives, policies, procedures, organizational structure and system. The variation in these different factors affect over the organizations purchase decision. The buying objective of any organization is different. Eg. Commercial organizations focus more on the quality of production inputs while the government organizations focus on the price of the commodities. The buying policy of the organization is also different. Some organizations can prefer the suppliers of the home country while others may focus on the suppliers from international locations etc.

·         Interpersonal factors: There can be different participants in the business centre who influence each other for the purchase decision. It is quite difficult to understand which buying center participant influences the most. Buying process depends upon various factors as authority, status, persuasiveness, interests and empathy. Authority is the power given to the buying group for the purchase of a commodity to the organization. The authority affects directly over the price of purchase that the member is interested in. Members in the buying group cannot go beyond the authority. The interest of the purchase committee also affect over the purchase decision. For eg. a operational manager may be interested in the purchase of best quality goods while a finance manager may be just interested in the purchase of lower priced goods. The status of the worker also affects over the selection of suppliers in the organizational buying. The organization does not want to go beyond the status. So, sometimes, a lot of suppliers are not selected because they do not match the status of the organization. The empathy or favor due to relationships also affect over the purchase decision. If the organization or the purchase committee favors some suppliers due to old relation or other factors then they can purchase from the same supplier even if his/her price is little higher or quality is litter lower.

·         Individual factors: The individual judgments for the selection of sellers heavily affect over the purchase decision making. The factors as age, income, education, job position, personality, risk attitudes etc affect over the decision making directly. Buyers may have different ways of dealing. Some make in depth analysis of products while others like to get the best deal during the purchase. If the age of the buyer is young then he will take more risks and even try to build good relation with the suppliers whereas older buyers tend to maintain relationships and do not want to take risks. The income of the buyers also affect over the buying process. If the income of the buyer in business houses is very low then he can take bribe from the suppliers to make a decision in his favor. This mainly happens in government purchases. The personality of a buyer also affects over the purchase decision. Some buyers can engage in heavy negotiation and some can engage in light negotiation depending upon the personality that the buyer bears.

Business buying process: Business consumers are totally different than the individual consumers. So, the business buying process is also different than the consumer decision making process. The business decision making process is as follows:

1.      Problem recognition: It is the first stage in the business decision making process. Here a person in the business house recognizes a problem. For eg. a company makes markers. An operational manager finds out that the stock of markers is depleting. The stock depletion is a problem in this case and this is a problem recognized.

2.      General need description: After problem is faced by the operation manager that the stock of markers is depleting in the market, he makes a description of need. He will simply describe about the quantity and characteristics of the materials that is essential for him for the production process. i.e. in this stage, just a general need needed to resolve the problem is described.

3.      Product specification: This is the third stage of the decision making process. Here an organization will specify the actual quantity and quality of the product essential for the operation process. In general need description, only the quantity that is essential for the production is listed but in this stage the amount and quality of each product is specified on the basis of product value analysis and technical characteristics of the needed product. Product value analysis is done to find out which product best serves the organization at lowest cost.

4.      Supplier search: Buyer tries to find the best vendors. Buyer can search the suppliers through old records, asking other companies for recommendations and internet searches. The process for supplier search becomes very difficult when the task is new, complex and costly.

5.      Proposal solicitation: Business buyer invites qualified suppliers to submit their proposals. If the project is less costly and easy then the suppliers can just submit a catalogue of the price but if the project is large (huge) then buyers demand for a detailed proposal and formal presentations.

6.      Supplier selection: Buyers review the proposals and a supplier or a group of suppliers for the purchase of raw materials or commodities. Supplier selection is also determined by product and service quality, reputation, delivery time, communication and competitive prices.

7.      Order routine specification: Buyer specifies the final order and the route of the delivery here. The order regarding to the quantity, technical specifications, warranties, discounts etc is specified and the route as transport medium, return policies etc is also clarified. This is a formal document given by the buyer to the supplier. The supplier should act according to this document and make the order and routine as specified.

8.      Performance review: Buyer assesses the performance of the supplier and decides to continue, modify or drop the arrangement. If the expectation of the buyer is higher than the performance of the product then the buyer can drop the arrangement or modify it, but if the expectation is higher or equal to the performance then the buyer will continue the arrangement.

Marketing information system: People and procedures for assessing information needs, developing the needed information and helping decision makers to use the information to generate and validate actionable customer and market insights is called marketing information system.

Diagram needed here

 Assessing information needs: The marketing information system first assesses the information needs. The MKIS primarily serves the company’s marketing and other managers to easily access the information from the older records. They can find out the essential information that can facilitate them to make a decision. Similarly the MKIS can also provide information to the external partners as suppliers, resellers or marketing service agencies about the new product of product lines, cost of products, locations of availability etc. Even though MKIS helps to provide information to both the internal and external users but the information sharing made to each group may vary due to the use of fire-walls. 

2.      Developing marketing information: Marketers can obtain information from the internal data, marketing intelligence and marketing research.

·         Internal data: Electronic collection of consumer and market information obtained from the data source within the company network is called internal data. Internal data can come from various sources. The marketing department may collect data about consumer behavior, customer transactions, demographics and psychographics. The accounting department can collect information about cost, sales and cash flows. The information is collected from all the departments in the internal databases. Internal databases can be assessed very quickly and cheaply but it also has some limitations. Since it was collected for different problems, the actual information may not be present in such databases. Besides, the information may be incomplete or information may lead to different purposes.

·         Marketing intelligence: A systematic collection and analysis of publicly available information about consumers, competitors and developments in the market place is called marketing intelligence. The main mission of marketing intelligence is to understand the consumer external environment, accessing and tracking competitor actions and making goods SWOT analysis for strategic decision making.

·         Marketing research: The systematic decision design, collection, analysis and reporting of data relevant to a specific marketing situation facing an organization is called marketing research. The process of marketing research is shown as follows

Defining the problem and research objectives

Interpreting and reporting the findings

Developing research plan and collecting information

Implementing the research plan-collecting and analyzing the data

 

·         Analyzing and using marketing information: Gathered information from internal databases, marketing intelligence and marketing research needs to be extra monitored and analyzed. For example- statistical analysis can be done to find out the relation between the data. Once the information has been processed and analyzed, it is made available to the right decision makers at the right time.

Components of marketing information system: The MKIS has various components. The two basic components of MKIS are as follows:

·         Information need assessment system

·         Information development system

(Describe it as above)

After describing write: These systems must work in proper coordination in order to help the marketing and other users to analyze and use the information as per their needs.

Chapter 4:  Market segmentation and targeting:

Market segmentation and targeting:

Market segmentation: The process of dividing a market into distinct group of buyer who have different needs, wants, characteristics or behavior and who might require separate products or marketing programs is called market segmentation. A market segment consists of consumers who respond in a similar way to a given set of marketing efforts.

Bases for segmenting consumer markets:

·         Geographic segmentation: It is a process of dividing a market according to the geographical locations as nations, cities, states, regions or even neighborhoods is called geographic segmentation. A company can decide to operate in one or few or all the geographical locations at the same time. Many companies are focusing on geographical segmentation. They are designing their products, advertisings, sales promotion, and sales efforts as per the need of individual region, cities or even neighborhood. For example: the marketing campaign of coke that is done in India and Nepal are totally different.

                Mc. Donald’s provide different variety of products as per the geographic location etc.

·         Demographic segmentation: It is a process of dividing a market based on variables as age, gender, family size, family life cycle, income, occupation, education, religion, race, gender and nationality.

§  Age and life cycle: It is a process of dividing a market into different age and life cycle groups. For example: close up segments market as per the age and target youths. Pepsodent does the same but targets children. HDFC standard life pension plan targets retired people.

§  Gender: It is a process of segmenting a market according to the gender. For example: Pleasure targets the girls as says “ Hum bhi Karen jo chaahe hum, why should boys have all the fun” or Mountain dew targets the young men and says “Darke Age Jeet Hai”.

§  Income: Marketers basically in the business of automobiles, clothing, cosmetics, travel etc have used income segmentation. For example: Compare the two ads of Maruti cars and BMW cars. The BMW car ad talks about the design, model, color, comfort etc while the Maruti car ad talks about mileage as “Kitna deta hai”.

·         Psychographic segmentation: Segmenting consumer market on the basis of social class, life style or personality characteristics is called psychographic segmentation.  The segmentation can be done as follows”

Social class: upper uppers, upper lowers, working class, middle class etc

Life style: Achievers, strivers, survivors etc

Personality: Compulsive, gregarious, authoritarian, ambitious etc.

For example: Marlbro ad displays a masculine picture of a horse rider and portrays to the users as it is a product that gives a masculine feeling. Blackberry ad focus on the upper uppers class of people.

·         Behavioral segmentation: It is a process of dividing buyers into groups based on their knowledge, attitudes, uses or responses to a product. It can be done as follows:

§  Occasions: Products can be segmented according to occasions as Dassain, Tihar, Holi etc. For example: Cadbury’s ad “Kuch Meetha Ho Jaye” in Tihar or Greetings card made for local festivals as Dassain, Tihar etc.

§  Usuage rate: Market can be segmented as light, medium and heavy users. Heavy users are lower in number but higher in consumption. Companies can segment the market as per the behavior of users too. For example if NTC will say that if a consumer will finish a recharge of Rs. 100 in 3 days then he/she will get Rs. 10 extra in the next Rs.100 recharge, then NTC is segmenting the market according to the usuage rate.

Segmenting Business markets: Business buyers can be segmented geographically, demographically (industry, company size), or by benefits sought, user status, usage rate and loyalty status. Besides these factors, business markets can also be segmented by additional variables as operating characteristics, purchasing approaches, situational factors and personal characteristics.

·         The marketing company has to determine two variables as size of the buyer company and its type of business before making demographic segmentation. Besides this segmentation also depends over the location of the buyer company and its usuage rate.

·         Operating variables: Marketers must understand some important variables as technology, usuage rate and service requirement. They can segment the business markets on the basis of technology used by the business buyers as modern technology or old technology; usuage rate of the business buyers as the number of times the buyers ask for the orders from our organization and service requirement as the number of times they claim for the warranty, guaranty, after sales services etc.

·         Purchasing approaches: Purchasing approaches may vary in three different ways as

§  Power structured: A firm can segment its market on companies that are engineering dominated, financially dominated or marketing dominated.

§  Existing relationships: Firm can segment its market on the basis of companies that a firm has strong relationships or weak relationships.

§  General purchase policies: Firm can segment its market deciding whether these companies prefer leasing, service contracts or segment purchases.

·         Situational factors: Situational factors as urgency, specific application, size of orders etc also help the marketing firm in segmenting industrial markets. Modern companies focus on JIT technology and favor such organizations that can provide any order size quickly. So, a firm can segment a market on the basis of situational factors too.

·         Personal characteristics: Industrial segmentation heavily depends over the personal characteristics of buyer and seller. It should also access the attitude of customers/buyer companies toward risk, loyalty of buyer companies etc. For example if a firm wants to segment its market on the basis of attitude toward risk then it must find out whether the buying company is risk bearer or risk taker.

Market targeting: After properly segmenting the markets, one can understand about the opportunities and threats present in any market segment. Targeting is a process of selecting one or more segments and serving a set of buyers who share common needs or characteristics.

Process of market targeting:

·         Evaluating the market segments: A firm must analyze three factors for evaluating market segments as size and growth of segments, structural attractiveness of segments and firm’s objectives and resources.                                                                                                    To analyze the size and growth of segments, one should analyze about the current segment sales, growth sales and expected profitability. After that comparison is done between the segments. Finally, the firm has to determine the right size and growth characteristics. Similarly, a segment seems attractive if there exists no substitute products, no strong competitors and less bargaining power of buyers. The firm’s long term objective also determines the selection of target market. Besides, a firm should also think whether it has sufficient skill and resources to provide superior value and benefit to the customer before selecting a target market.

·         Selecting target market: The target market can be selected by using four different strategies.

§  Undifferentiated (mass) marketing: It is a process in which a firm does not differentiate its product and goes after the whole market with one offer. It focuses on the common needs of the consumers than different needs. A firm decides to ignore the market segment differences here. For example: Maruti cars.

§  Differentiated (segmented) marketing: A market coverage strategy in which a firm decides to target several market segments and designs separate offers for separate markets strategy launched by a firm. It will increase the cost but adds extra value to the product tool. For example: Dabur Nepal provides different products to different markets.

§  Concentrated marketing (Niche marketing): Under this strategy, a firm goes after a large share of one or few segments or niches. Through this marketing strategy, a firm achieves strong market position in smaller markets. Niches attract few smaller competitors and thus a firm can be overlooked by a competitor. For example: Nirma Started to sell detergent from rural and semi-urban areas and now it is one of the leading industries in India.

§  Micro marketing: It is a process of targeting the market as per the needs and wants of local customer group and specific individuals through local marketing and individual marketing.

Ø  Local marketing: Tailoring brands and promotions to the needs and wants of local customer groups, cities, neighborhoods and even specific stores

Ø  Individual marketing: Tailoring products and marketing programs to the needs and preferences of individual customers is called individual or one to one or customized marketing.

·         Choosing a targeting strategy: A company chooses a right targeting strategy based on various factors as company resources. If a firm has lower resources, niche marketing strategy is suitable. Besides, choosing a right strategy also depends upon product variability. If product is of uniform nature then mass marketing strategy can be used but if product changes in short period as cameras or electronic devices then differentiation strategy can be used. A lot of factors determine a strategy as well such as product life cycle, market variability, competitors strategy etc.

Positioning: Positioning is a way the product is defined by consumers on important attributes i.e. the place the product occupies in consumers’ mind relative to competing products. It is simply a process by which a company tries to create a brand in the mind of consumers. For example: Apple computers are positioned as user friendly computers. ‘Rupa” is positioned as a vest and underwear for comfort etc.

Positioning maps: There can be different buying dimensions for a consumer as price, look, after sales service, discounts etc. the consumers may have different perceptions on these dimensions. Some may focus on one dimension and others on another.

Positioning maps show consumer perceptions for different brands on important buying decisions. An organization prepare such maps to understand the perception of a consumer for their brand versus competing products on different buying dimensions. Perceptual map can be as follows:

In the given perceptual map, circles represent the relative market shares of various cars. Hummer H1 is highly priced and very high in performance but lower in market share. Range Rover is also high in performance but lower in price than Hummer H1. It shares higher market share than Hummer. Escalade has balance in performance and luxury and its price is also lower in comparison to the previous brands. It has the highest market share. Navigator focus on more luxury and it is weaker in performance. It has also got huge market share.

Positioning implementation/ choosing a differentiation and positioning strategy

Choosing a right differentiation/ positioning strategy consist of three basic steps as

·         Identifying possible value difference and competitive advantages

·         Choosing the right competitive advantages and

·         Overall positioning strategy

Finally, a company must effectively communicate and deliver the chosen position to the market.

·         Identifying possible value differences and competitive advantages: The advantage that our company gains over the competitors gained by offering greater customer value, either through lower prices or by providing more benefits that justify higher prices is called competitive advantage. Competitive advantage can be achieved by differentiating the products fro the competitors. Differentiation can be done along the product lines, services, channels, people or image. So, it is very necessary for a company to identify how it can differentiate its products to gain competitive advantage.

·         Choosing the right competitive advantage: After identifying the possible areas here a company can gain competitive advantage, it will build its positioning strategy. Now, a company decides how many differences it has to promote and which ones.

§  How many differences to promote: An organization should decide how many benefits it wants to provide to the customers. Many marketers think that an organization should aggressively promote one benefit to the target market. For example: Wall Mart promotes lower prices and Burger King promotes personal choices. Other marketers have a contradictory view and say that a company should promote more than one benefit. Today, organizations are focusing on micro marketing and they must provide more than one benefit to gain competitive advantage.

§  Which differences to promote: Not all brand differences are valuable to a customer. A brand difference must satisfy following criteria as

v  Important

v  Distinctive

v  Superior

v  Communicable

v  Pre-emptive

v  Profitable

Selecting an overall positioning strategy: There are five different types of positioning strategy as follows:

·         More for more: ‘More for more’ positioning involves providing the most upscale product or service and charging a higher price to cover the higher costs. For example: Rolex watch, Mercedes automobile etc. They do not only provide higher quality but also provide prestige to the buyers. This positioning strategy is also vulnerable because it often invite imitators who claim the same quality but at lower prices.

·         More for same: Positioning strategy that focus to provide more benefits at lesser cost is called ‘more for same’ strategy. For example Toyota introduced its Lexus line with ‘more for the same strategy to compete with Mercedes and BMW.

·         The same for less: Under this strategy an organization provides more benefits at lower costs. For example Wall Mart, Big Bazaar etc follow this strategy. They don’t provide different products to the customers but instead they will provide the same products that customers can get from department stores but at deep discounts.

·         Less for much less: There is always a huge market for this strategy. Many customers want to use the products and pay very little for them. For example Chinese goods. The market can be very big like Maruti 800 which has lower space and very few benefits but people like it due to cheapness.

·         More for less: Under this strategy an organization provides more benefits at lesser cost. For example: Tata Indica claims to provide more benefits at lesser cost as fuel efficiency, better service etc. Such strategy can be very useful in short run but not in long run.

Developing a positioning statement: Company and brand positioning should be summed up in a positioning statement. The statement can take the following form: To (target segment and need) our (brand) is (concept) that (point-of-difference). This can be shown by an example of Black Berry. Black Berry has the following ad as “To busy, mobile professionals who need to always be in the loop, Black Berry is a wireless connectivity solution that gives you an easier, more reliable way to stay connected to data, people and resources while on the go.”

Communicating and delivering the chosen position: Once the position is chosen by the organization, it must take strong steps to deliver and communicate the desired position to the target customers. It is often easier for an organization to come up with a good positioning strategy than to implement it. It always takes a longer time for a company to make a good position in the market. Once a company has built the desired position, it must take care to maintain the position through consistent performance and communication. The basic thing that is to be done by an organization in this stage is that it should first deliver the position (better quality, service etc) to the customers and finally it should support the positioning strategy with marketing mix (product, price, place and promotion).

Chapter 5: Product

Product: Anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy a need or a want is called product. The product are not only the goods with tangible nature but it also include the services, events, persons, places, organizations, ideas or all of these entities. The product always affect over the market offering. A company’s market offering includes a blend of products and services. Sometimes, it can only contain products with tangible nature as soap, toothpaste, salt etc or sometimes, it can only contain services with tangible nature as doctor’s examination, financial services etc.

Levels of product and services

Figure:

The most basic level is the core customer value, which addresses the question what the customer is really buying? For example if a person is buying a pen then the most valuable thing for him is that it should write. The actual product is the second level. The product planners must turn the core product into an actual product that consists of brand name, features, design, quality, packaging etc. For example Nokia consist of good blend of brand name, features, design, quality, packaging etc to increase customer core value.

Finally, product planners must provide augmented product around the core product and actual product to offer extra customer service and benefits to the customers. For example Nokia provides warranty to different models and even makes on hand delivery if needed. Thus, we can say that the marketers must develop a core product and then add actual product and augmented product to it.

Product classifications: Product can be divided into two parts as consumer products and industrial products.

1. Consumer product: Consumer products and services are those products and services that are bought by final consumers for personal consumption. Consumer products are of four types as follows:

·         Convenience products: These products are frequently purchased by a consumer with little planning, little comparison or shopping effort and low customer involvement. Such products are lower in price and easily available everywhere. Mass promotion is used by the producer to make the product available to the consumers. For example toothpaste, magazines etc.

·         Shopping products: These products are less frequently purchased by a consumer with much planning and shopping effort. The customers make some comparison during the purchase of such products in terms of price, quality, style etc. Such products are higher in price and found in selective outlets. Promotion is done by advertising and personal selling by producer and resellers. For example clothing, furniture etc.

·         Specialty products: These products are purchased by a significant group of customers who have strong brand preference and brand loyalty to any product. Such products are highly priced and they have many distribution outlets per market area. Marketers focus a lot for the promotion of such products. They use a perfect blend of advertising and public relation for it. For example Rolex watches, refrigerators, television etc.

·         Unsought products: Consumers have little product awareness and knowledge for such products of if they have some awareness ten they have no intention of purchasing the product. Such products require a lot of advertising, personal selling and other marketing efforts. For example life insurance, donations for charity etc.

2. Industrial products: A product bought by individuals and organization for further processing or for use in conducting a business is called industrial product. Industrial products consist of three groups as follows:

·         Material and parts: Material and parts include raw materials and manufactured materials and parts. Raw materials can be farm products (wheat, cotton etc) or natural products (fish, iron ore etc). Manufactured materials and parts consist of component materials (iron, yarn, cement etc).

·         Capital items: Capital items include installation items as factory, building, generator, computer servers etc that are essential for the installation of a company and accessory equipments as hand tools, lift trucks, computers, desks etc.

·         Supplies and services: Supplies are the operating supplies that are essential for the daily work of the organization as lubricants, paper, pencil etc. They are similar to the convenience products in the consumer segment.

Business services can be window cleaning, computer repair, legal services, consulting etc that are essential to operate the business in an efficient manner.

Product life cycle: A stage of product development followed by introduction, growth, maturity and decline is called product life cycle. There are basically five stages in a product life cycle as follows:

Figure:

·         Product development: Product development begins when the company identifies a basic idea to develop a product. During the product development stage, sales are zero and the company’s costs are very high.

·         Introduction: Introduction is a period of slow sales growth as the product is introduced in the market. Profits are not present in this stage because the firm has to make a lot of marketing efforts to launch the product. This will increase the costs and decrease profits. In this stage, the distribution and promotion expenses are very high in the introduction phase. This is the basic cause for lower profits.

·         Growth stage: It is the third stage in the product life cycle when the product’s sales start climbing quickly. It is a period of rapid market acceptance and increasing profits.

In this stage, the production increases and cost per unit decreases. This will increase the revenue and profits. The organizations always try to increase this stage for a long time by improving the quality and adding new features to the product.

·         Maturity stage: This is the fourth stage in the product life cycle when the sales growth slows or levels off. After the product is available in the market for many years, it becomes saturated. Most of the buyers will already have accepted it causing to decrease the sales or leveling of the sales. The profits are lower because an organization will spend more in marketing efforts to save its product from competition.

·         Decline stage: This is the fifth stage in product’s life cycle when the sales of a product start to decline. In this stage, the sales fall off and profits drop significantly. The decrease in sales is due to various reasons as technological advances, changes in consumer’s taste and preferences, increased competition etc. As the sales and profit decline, a lot of firms will shut down their business. The remaining ones will also cut off the promotional and distribution costs and just remain at break even if possible.

New product development process: In order to develop a new product, a company must understand its consumers, markets and competitors. Besides, it should develop such products that would enhance the customer value and maintain long term profitable relations with them. The major steps that would take in this process are as follows:

1.      Idea generation: This is the first step in which a company makes a systematic research for new product ideas. A company develops a lot of ideas through internal idea sources as formal research and development, employees’ brainstorming, intrapreneurial programs (employees are encouraged to think up and develop new ideas) etc. or through external idea sources as suppliers, distributors, competitors, customers etc.

2.      Idea screening: After a lot of ideas are collected, the company will spot good ideas and drop poor ones as soon as possible. If the poor ideas are not dropped quickly, product development costs can get very high. So the company will only select such ideas what will turn into profitable products in the future. Ideas are screened on the basis of three questions as ‘is it real?’, ‘Can we win?’ and ‘Is it worth doing?’

3.      Concept development and testing: Product concept is a detailed version of the new idea stated in meaningful consumer terms. Suppose a company is manufacturing electric cars. It can develop various product concepts as

·         1. Focus on looks, space and mileage

·         2. Focus on cheapness and make appeal to old generation people

·         3. Focus on looks and appeal to young singles and couples

·         4. Focus on environmental consciousness and appeal to environmental conscious people

After developing various concepts, it is to be tested with a group of target customers. Testing can be done by questionnaire development and field survey. The answers to the questions will help the company to understand which concept has the strongest appeal to the customers.

4.      Marketing strategy development: After concept testing, an initial marketing strategy is to be designed for the new product. The marketing strategy statement should describe about the target market, the sales and profit goals for first few years in the first part; product’s planned price, distribution and marketing budget in its second part and planned long run sales, profit goals and marketing mix strategy in its third part.

5.      Business analysis: In this step, the company will review the sales, costs and profit projections for a new product to find out whether these factors satisfy the company’s objectives or not. If they do, the next step of product development is undertaken by the company.

6.      Product development: In this stage, the company will develop a physical product and offers it to the market. Here, R&D or engineering will actually develop the product with a large amount of investment. Here, a prototype version of a product is initially developed to understand about the customer responses. If the prototypes will exite the customers then the production is quickly started in a cost effective manner. Development of a successful prototype can take a lot of time. Finally, products are tested by the company inside or outside the organization to find out whether the product can be launched in the market or not.

7.      Test marketing (Marketing in limited areas): If the product passes the product tests, then test marketing is to be done. The product and marketing programs are now tested in realistic market settings. It lets the company to test the product and its entire marketing program before going to the great expense of introduction. Test marketing varies according to the nature of the product. The costs for test marketing can be very high and success is not even guaranteed by it. It even gives a chance for the competitors to gain success but this strategy can be useful if the company is not sure of the product or marketing programs.

8.      Commercialization: It is a process of introducing a new product into the market. If the result for test marketing seems viable, the company will launch the product in the market. For this, it will increase its manufacturing capacity and marketing efforts. This is the final step in the new product development process.

Individual product decisions:

1.      Product attributes: The benefits that can be achieved form the consumption of a product is called product attributes. A product attribute consists of following:

·         Product quality: Quality simply means ‘freedom from defects’. Product quality is one of the characteristics of a product that helps to satisfy the stated or implied customer needs. Product quality has two dimensions as level and consistency. The product quality must be of higher level i.e. a product must be able to perform all its functions and the product must maintain a consistency in quality for a long period of time.

·         Product features: Product features are the competitive tools that differentiate the company’s products from the competitors’ products. A product can be offered with various features and a company should always try to provide more features in a product to increase the customer value. In order to add feature, a company must make a customer survey and find out which of the features are more important for the customers.

·         Product style and design: Customer value can be increased by focusing more on product style and design. Style means the appearance of a product. It is used to grab user’s attention. A good style product should not necessarily perform better. Design also portray about the look of a product but it also focus over the product’s usefulness as well as its looks.

2. Branding: A brand can be a name, sign, symbol, design or a combination of these that identifies the products or services of one seller or group of sellers and differentiates them from those of competitors. Customers always develop a kind of relationship with the brands or they simply get attached with a brand. For example, customers mostly view ‘caterpillar’ brand for toughness. Let us take a caterpillar shoe. Customers think the shoe is very tough but the customers may not perceive the same quality un-branded shoe in a similar manner. So, we can say that a brand has a very big role in convincing a customer to make a purchase decision.

3. Packaging: The activities involved in designing and producing the container or wrapper for a product is called packaging. Packaging can also be taken as an important marketing tool that help to attract the customers, grab their attention, describe the products to them and enhance the sales directly. A good packaging can make immediate consumer recognition of the brand. So, we can say that a good package itself act as an important promotional medium. A poorly packaged product can give a headache to the customers and decrease the sales for a product. So the companies are focusing on innovative packaging that could provide the company an advantage over the competitors.

4. Labeling: Labeling can range from tags to complex graphics that are a part of the package. There are various functions of labeling. A good label identifies a product or a brand. For example: we can recognize a ‘can Pepsi’ from its label. Besides, a label help a customer to understand various things about a product as ‘who made it’, ‘when was it made’, its contents, how to use it safely etc. Thus, we can say that a good labeling helps in the promotion of a brand, support in the product positioning and make a connection with the customers.

5. Product support services: Company offers some support services with the sale of a product which can be a major or a minor part of the total offering. Product support services simply mean the extra services that are provided by an organization to the customers to increase the customer value. So, many organizations make continuous customer survey to find out whether the current services are valuable to the customers or not. Besides, they want to grab an idea about the new services that customers might value highly. Many companies are now using a sophisticated mix of phone, email, fax, internet and interactive voice and data technologies to provide support services that were not possible before.

Product line and mix decisions:

Product line decisions: A product line constitute a group of products that are closely related to each other because they function in a similar manner, are sold to the same customer groups, are marketed through the same type of outlets or fall within a given price range. For example Nike has a long product line of athletic shoes and apparel.

The major product line decision involves product line length i.e. the number of items in the product line. A manager should regularly analyze about the product line to find out how each product contributes in the overall performance of the product line. The length is too small if the profits are increased by increasing the product line and the length is too big if profits are increased by decreasing the product line. The length of the product line depends upon the company objectives and resources too. A company can expand its product line by filling or by stretching. Product line filling means adding more items in the present range of product line. Product line stretching occurs when a company lengthens its product beyond its current range. Stretching can be done downward, upward or both ways.

Product mix decisions: A product mix (Product portfolio) consists of all the product lines and items that a particular seller offers for sale. For example Sony has a diverse portfolio as Sony electronics, Sony games, Sony pictures entertainment and Sony financial services.

A company’s product mix has four dimensions as width, length, depth and consistency. Width refers to the number of product lines the company carries whereas length refers to the total number of items with the product lines. Product mix depth means different versions of each product in the line. Consistency means how different product lines are marketed to the final consumers. This can be given by the following example of Sony.

Width: Wide range of product lines as TV’s, play stations, semi-conductors etc.

Length: Sony has various products in the camera and camcorder line as digital cameras, camcorders, photo printers, memory media etc.

Depth: Sony provides various versions of TV’s as tube, flat panel, rear projection, HD or low resolution etc in different sizes.

Consistency: Sony is fairly consistent in that they perform similar functions for buyers and go through the same distribution channels.

Managing a product mix requires a lot of skills. Proper management of the product portfolio is very essential for achieving the objectives of an organization in an effective and efficient manner.

Branding strategy: Building strong brands

Brand equity: Brands are not just the names or symbols. They play a key role to maintain a long term relation with the customers. Brands equity is a brand’s ability to capture customer preference and loyalty. A brand has positive brand equity if consumers react favorably to it than the competitor’s products and a brand has negative brand equity if consumers react negatively to it than the competitor’s products. Some brands are able to maintain very good brand equity or years as coke, Nike, MC Donald’s etc while others are trying to enhance the brand equity as Google, You Tube, Apple etc. High brand equity is a very valuable asset to the organization. Every brand has a value in the market in financial terms. For example the brand value for Google is $86 billion and Coke is $58 billion. So, we can say that brand equity is a very important tool for an organization and an organization always try to build strong brands.

Building strong brands: Major brand strategy decisions include four steps as follows:

1.      Brand positioning: Brand positioning is a process of designing the company’s offering and image in such a way that it occupies a distinctive place in the mind of the target customers. Brand can be positioned in three levels as follows. At the lowest level, an organization can position a brand by focusing on product attributes. For example pampers in its early days focused only of fluid absorption, fit and disposability. A brand can also be positioned by associating its name with desirable benefits. Pampers later focused on desirable containment and skin health benefit from dryness. A brand can be best positioned by focusing on strong beliefs and values i.e. by dealing with customers in a deep emotional level. Brand positioning is a very difficult process. A brand is a company’s promise to deliver a specific features, benefits, services and experiences to the buyers. A brand promise must be simple and honest.

2.      Brand name selection: A good name always affect over the success of a product. A perfect brand name cannot be easily found but it is always determined by a careful research done in the target market. Brand name selection is a part of science, art and instinct. A desirable brand name may consist of products qualities and benefits; easy to pronounce, recognize and remember; distinctive; extendable etc.

3.      Brand sponsorship: A manufacturer has four brand options as follows:

National brand: An organization sells their output under their own brand names. For example Sony, Kellog etc.

Store brand: A brand created and sold by a reseller of a product or service is called store brand. Example: Big Bazaar promotes their own brands in competition with other national brands.

Licensing: Companies take a license of the established brands and manufacture products under the name of same brand. For example: Powerpuff stores, Dostana swim wear etc.

Co-branding: The process of using the established brand names of two different companies on the same product is called co-branding. For example: Citi Bank and Big Bazaar branded together to give Citi Big Bazaar credit card.

      4. Brand development or brand development strategies: A company has four choices to develop a brand as follows:

Figure:

·         Line extension: A company extends the existing brand by introducing new forms, colors, sizes, ingredients or favors in an existing product category. This is called line extension. For example: Bata, a premium foot wear product extended the product line by introducing regular shoes, premium shoes, sport shoes, sandals, socks and several others like mansoon wear.

·         Brand extension: Brand extension is a process of extending an existing brand name to new product category. For example: Nestle has extended the Maggie brand by introducing several new lines as Maggie noodles, Maggie tomato ketchup and Maggie soups.

·         Multi brands: It is a process of introducing new brand for existing products. For example Procter and Gamble markets many different brands in each of their product category. This process can establish different features and appeal to different buying motives but there is also a main drawback as each brand obtains only a small market share and none may be very profitable.

·         New brands: It is a process of introducing new product category with a new brand name. it is mostly done when the existing brand name is not suitable for the new product or its market value is in depleting condition. For example Tata motors introduced a new Ace brand and targeted to small transporters.

Services marketing: Any type of activity that is intangible, inseparable, variable and perishable that might satisfy a need or a want is called service. There are four basic characteristics of service as follows:

1.      Intangibility: Services cannot be seen, tasted, felt, heard or smelled before purchase. For example: You went to a doctor for medical checkup. This is a type of service. You cannot see or feel the service before but you can experience it and feel its quality. A good marketer should always work to make the service tangible. For example: A hospital can use such ambience and technology that can convince the patients and guarantee good quality to them in their minds.

2.      Inseparability: Services cannot be separated from the providers. For example: Teaching cannot be separated from a teacher or counseling cannot be separated from a doctor. It simply means that service is produced and consumed at the same time.

3.      Variability: The service is of variable nature. Their quality may vary greatly depending on who provides them and when, where and how they are provided. For example: Noble college has 3 receptionists. The service provided by them is always different.

4.      Perish-ability: Services cannot be stored for later sales or use. For example you cannot store a teacher’s service for later use or you cannot store a doctors counseling and use it for later days. The perishable nature of a service is not a problem when demand is steady but it is a very big problem when demand is fluctuating. For example: Restaurants hire more part-time workers during peak periods.

Marketing strategies for service firms: Due to the cause of some nature of service firms as intangibility, inseparability, variability and perishability; service firm requires different marketing strategies that products market as

1.      The service profit chain: In the case of service organizations, employees are equally important as customers because they are the ones who deliver the service. Service profit chain is a process of linking service firm’s profit with employee and customer satisfaction. This chain consist of five links as:

·         Internal service quality: Superior employee selection and training, a quality work environment and strong support for those dealing with customers.

·         Satisfied and productive service employees: More satisfied, loyal and hard working employees.

·         Greater service value: More effective and efficient customer value creation and service delivery

·         Satisfied and loyal customers: Satisfied customers who remain loyal, repeat purchase and refer other customers

·         Healthy service profits and growth: Superior service fir performance

Service marketing need more than external marketing using the four P’s, but it also requires internal marketing and interactive marketing. This can be explained by the given figure as:

Internal marketing is a process of orienting and motivating customer contact employees and supporting service people to work as a team to provide customer satisfaction. Interactive marketing is a process of training employees in the fine art of interacting with customers to satisfy their needs. (External marketing is same as 4 P’s that we have discussed before)

A service organization must focus on internal marketing. It must make its employees happy and motivate them to work for the benefit of an organization. Similarly, the employees must be trained enough to encourage the customers and motivate them for a purchase decision. Today, competition is very high. A service organization must understand what the customer really wants. So, it must make the service sophisticated and three major marketing tasks must be performed by it as service differentiation, service quality and service productivity.

2.      Managing service differentiation: There is always a big problem for the service marketers to differentiate a service. Customers focus more on price than the providers who provide the service. So, there is intense competition in prices. The solution to price competition is to develop a differentiated offer, delivery and image.

·         Offer: Provide innovative offers than competitors. For example: A hotel can provide car rental services, banking services, internet services etc to the customers.

·         Delivery: Design a superior delivery process. For example: Grocery chains provide on-line shopping and home delivery to customers.

·         Images: Differentiate images through symbols, branding. For example: Red bull’s bull, MGM’s lion etc.

3.      Managing service quality: A service organization can enhance the customer value by providing better service quality than its competitors. For this, one must identify the target market and its need at first.

Service quality is difficult to define and judge than products quality. For example, you cannot describe the quality of hair cut but you can describe the quality of hair dryer. We have to judge the quality of a service by customer satisfaction and retention. A service organization must focus on ambience, service recovery and empowerment of front line service employees to enhance the quality of service.

4.      Managing service productivity: To maintain good quality and increase the productivity of service is a big challenge for the service firms. This can be done by training or recruiting (hiring) new employees or increase the quantity of service by giving up some quality. Besides, the organization can even focus on adding new technologies and standardize the production. But, it should also be remembered that one should not push productivity very hard and reduce the quality in greater extent. So, a company should always try to increase customer value and increase production of service.

Chapter 6: Pricing

Pricing: The amount of money charged for a product or service, or the sum of the values that customers exchange for the benefits of having or using the product or service is called pricing. Price is the only element in the marketing mix that produced revenue; all other elements represent costs. Pricing is an act of determining an exchange value for the goods and services from the customers. It is determined by considering the cost of a product, value of the product and competition present in the external environment.

Factors affecting price determination:

Internal factors (Controllable factors):

·         Pricing objectives: Pricing differs according to the objectives of an organization. If an organization wants to gain maximum profit then it can charge higher price to the products/service. This strategy is useful for the pioneers (new-comers) in the business. If an organization wants to increase the size of sales then it can remain in breakeven or charge minimum profit. This is useful in perfect competition.

·         Marketing mix: Pricing is affected by the other marketing mix as product, place and promotion. For example: if a new product is introduced in a market then pricing can be higher than the existing product. Similarly, pricing also change as per the length of the distribution channels. If the length is small, then prices can be lowered and vice-versa. Finally, we can also say that higher promotion can be backed by higher prices.

·         Structure of pricing: The flow of authority and responsibility also affects the pricing. For example: if price is set by the top management then price differentials is merely seen between the models and brands. If the brand manager sets a price then prices are differentiated as per the market to create brand image and implement good positioning strategy.

·         Costs: The cost is the expense made by an organization to manufacture the product/service. Organization cannot sell below costs. Pricing is always affected due to the cause of costs and a strategy of an organization to maintain profit. Costs can be in the form of product cost, selling cost and promotion cost etc.

External or uncontrollable factors:

·         Market demand: When demand for a product is higher then higher prices can be charged by an organization to gain maximum profit. Prices highly fluctuate in luxury goods than in necessity goods. So an organization can gain maximum benefit in luxury goods due to the increase in demand.

·         Prevailing market price: If an organization does not have any differentiated products then it has to sell the products in prevailing prices but if an organization has differentiated products then the price setter can go far beyond the prevailing prices.

·         Competition: If there si intense competition in the market and close substitutes are readily available, then prices have to be lowered but in the case of monopoly market where competition is not present, prices can be set very high.

·         Government control: Government heavily controls the prices of necessity goods as rice, sugar, wheat, bread etc. Besides, some control is done by the government in other goods to control the monopoly creation in the market.

New product pricing strategy: The process of pricing the new product is always a difficult process and it always varies as per the structure of the market. If the market is monopoly, then price of commodities can be made higher and if the market is in perfect competition then the prices of the commodities cannot exceed the prevailing market price. Basically, there are two different types of product pricing strategies as follows:

1.      Market skimming strategy: Under this strategy, an organization will develop and new product or introduce a new product in the market and charge very high price for it. The introduction of a new product in the market creates an artificial monopoly in the market and the sellers can charge very huge amount for the product. Skimming is just like a process of taking out the cream from the curd. In this process, the marketers at first try to target the higher income groups and make them purchase the product. After this group is saturated, the organization will now lower the price of the commodities and target lower income groups. The duration and amount of profit also depends over the market condition and future intensity of competition. A lot of marketing expenses is essential to launch this strategy in the market because people may not be aware of such products. For example: When NTC first introduced the sim-card then the price of per sim was very higher i.e. about Rs. 75000. Slowly, it began to decrease the price due to market saturation and increased competition by Mero-Mobile in later days.

2.      Market penetration strategy: Under this strategy, an organization will now enter/penetrate into a market where competition is readily available. This strategy is more difficult than the market skimming strategy because under this strategy, an organization must understand about the market conditions and even the moves of the competitor. If our organization tries to lower the price then the competitor will reduce the price more than us or if we try to increase the marketing expenses then the competitor will do the same. So, an organization must make a clear plan to penetrate into the market. It can either use guerilla strategy where the organization does not know whether a new player has entered into the market or not or it can directly enter into a market with a bang and challenge the competitor. Guerilla strategy is mostly useful in such condition when an organization lacks sufficient funds and the later one is useful when the organization has sufficient funds. For example: Mero Mobile used this market penetration strategy to enter into the Nepalese market which was already taken by NTC. The basic strategy that was used by this organization is that it launched 1 paisa/ 1 minute sale promotion strategy. This strategy settled Mero- mobile in the Neplese market. So, one thing must be clear that under this strategy, an organization must use high expense in marketing and operation activities.

Product mix pricing:

1.      Product line pricing: Companies usually produce a lot of products at the same time than individual products. Product line pricing is a process of setting the price steps between various products in a product line based on cost differences between the product, customer evaluations of different features and competitors’ prices.

2.      Optional product pricing: The pricing of optional or accessory product along with the main product is called optional product pricing. For example: When you buy a car, you demand for GPS navigation system and blue tooth wireless communication. Pricing these options is a sticky problem for an organization.

3.      Captive product pricing: Setting a price for products that must be used along with the main product is called captive product. Without the use of captive product, the main product becomes useless. For example: blades for a razor or film for a camera.  The organizations basically charge lower prices for the main product and they charge higher prices for the captive products. For Gillette razor can be found free too but the price of the blades is very high.

4.      By-product pricing: The product that can be manufactured from the waste of the main product is called by product. Setting a price for the by-product in order to make the main product’s price more competitive is also a marketing challenge. For example: Wai-Wai produced 1 k.g. bhujiya packet and sold it in very low cost. This is a by- product which has a good market and it can even sustain the market of the main product during the time of lower sales for Wai-Wai.

5.      Product bundle pricing: It is a process of combining several products and offering the bundle at reduced price. For example: In restaurants, reduced rate is achieved when customers order different variety of products. The departmental stores purchase a lot of products in a bulk and get heavy discounts on it etc.

Price adjustment strategies: Price is adjusted by the companies as per the customer differences and changing situation. There are different price adjustment strategies as

1.      Discount and allowance pricing: Discount is a straight reduction in price on purchases during a stated period of time. Allowance is promotional money paid by manufacturers to retailers which is achieved by reducing certain amount form the list price. It can be given if retailers participate in promotional campaign or any other reason. Discounts and allowances motivate the customers to purchase the product.

2.      Segmented pricing: Under segmented pricing, a company changes different prices in different product segments even if the costs are same. It can be done as per customer segment, product form, location, time etc.

3.      Psychological pricing: Under this pricing, a company charge prices as per the psychology of a person. It is said that people consider higher priced products to be of higher quality, if they lack of right information. But price becomes one of the most important determinants if people are conscious about the product. Organization can change the prices as per the customer psychology and availability of information in them.

4.      Promotional pricing: It is a process of temporarily lowering the price below the list price or even below the cost to increase the short run sales of the product. For example Mayos sold on packet in Rs. 5 when it was in introduction phase.

5.      Geographical pricing: Pricing the commodities to customers as per the geographical location is called geographical pricing. For example the price of mobiles, fans, sarees etc is different in Kathmandu and Birjung.

6.      Dynamic pricing: It is a process of adjusting prices continually to meet the characteristics and needs of individual customers and situations is called dynamic pricing. There is no fixed price in dynamic pricing and pricing of the same commodity can vary as per the seller. For example, in internet selling, e-bay and amozon have different prices than the local sellers.

7.      International pricing: Different multinational companies use different pricing policies for example Boeing sells jet liners at about the same price every-where as uniform pricing policy. Most of the multinationals sell product at different prices in different countries. For example coke, Cadbury etc.

Pricing approaches: The way in which an organization determines the price of the commodities is called pricing approach. There are basically there different types of pricing approaches as follows:

1.      Cost based pricing: Cost based pricing is a process in which an organization will at first design a product after a proper discussion with top management. They will then set a price for the product as per the costs incurred for the product development. After determining the cost, the organization will now convince the buyers to make a purchase decision. The cost based pricing happens in this manner:

Figure:

This approach is considered as a wrong method because product development is done before the customers’ value analysis. The cost based pricing can be done in different ways but the best ways are as follows:

·         Cost plus pricing: This is the simplest method in which an organization will add the total cost that is incurred during the production and then add some profit on it and determines the price. For example: construction companies determine the total cost, add profits and submit a bid. Let us take an example of copy manufacturer:

Variable cost = Rs. 3

Fixed cost = Rs. 300000

Expected sales = 30000

Unit cost= 3+ 300000/30000 = Rs. 13

If the manufacturer wants to gain 20% mark up on sales then

Mark up price= Unit cost/(1- desired return on sales) = Rs. 13/0.8 =Rs. 16.25

The manufacturers will now charge Rs. 16.25 to the dealers and the dealers will again repeat the same process. This process is continued till it get to the hands of ultimate buyers.

·         Break even analysis and target profit pricing: Another pricing approach is break even pricing (target profit pricing). The breakeven point (BEP) is a point where the total cost (TC) is equal to the total revenue (TR) i.e. no profit or loss situation. The break even volume is calculated by an organization as follows:

Variable cost= Rs. 3

Fixed cost = Rs. 300000

Price = Rs. 16.25

BEP (volume) = Fixed cost /Price –variable cost= 300000/ (16.25- 3)= 22642 units

Organization will gain break even if ti sells 22642 units. If an organization wants to gain target profit, it must sell more than the calculated amount. This strategy is basically used by the big organizations. GE motors uses this strategy where it sets a BEP volume and then estimates a target profit. Based on these factors, it determines the price.

2.      Value based pricing: Under this pricing strategy, basic focus is given to the customers. At first, an organization will assess customer needs and value perceptions. Then, it will set a price as per the perceived value of the customers. If customers value for a product is higher, higher price can be charged and vice-versa. Then, it will determine costs that will incur to design that product and finally it will design such product that can match the perceived value of the customers at target price. This can be given by a chart as follows:

Figure:  Value based pricing

Value based pricing can be done in two ways as good value pricing and value added pricing. Good value pricing is a process of offering just the right combination of quality and good service at a fair price where as value added pricing is a process of providing extra value added features in the product to differentiate it from the competitors and charging higher prices to it.

3.      Competition based pricing: Pricing is always affected by the competition. If the intense of competition is very high and substitute goods are readily available then price of the commodities should always be lowered. Besides, one must provide higher customer value and best pricing strategy to reduce the intense of competition. Finally, one thing should always be considered that competition will be lower if any organization will take smaller margins. i.e. follow low price, low margin strategy.

Price changes:

Initiating price changes: Before initiating a price change i.e. either price cut or price increase, an organization must anticipate possible buyer and competitors’ reaction.

a)      Initiating price cuts: Organization can cut its price due to excess capacity, falling demand, excessive production etc. In such situations, an organization can cut the prices to increase sales. Such strategy can be more effective if it is backed with good promotional activities. Only price cuts can be an in-effective strategy because it can lead to intense price war between competitors.

b)      Initiating price increase: Increasing the price of the commodities is one of the most difficult things that the marketers must face. If the price increase is not done with proper research, then it can negatively affect the sales of the product leading to the decrease in market share of the product. So, a company must back the price increase by the sense of fairness surrounding any price increase. Besides, price increase must be supported by good communication between the organization and the customers. Different reactions are shown by the buyers and the competitors depending upon the situation during price increase.

c)      Responding price changes:

 Chapter 7: Distribution:

Distribution channel or marketing channel: A set of interdependent organizations that help to make a product or service available to the consumers or business users for use or consumption is called distribution channel. A distribution is a process by which goods and services are made available to the users.

Every organization has its own supply chain. An organization’s supply chain consists of suppliers, resellers and customers. Supply chain management is a process of making good relation with these groups and work in proper coordination with them. This supply chain consists of upstream and downstream partners. Upstream partners are the suppliers who supply raw materials, finances, expertise etc to the firm whereas downstream partners are those as whole-sellers, retailers, distributors etc who make the product or service available to the customers. These downstream partners are called marketing channel or distribution channel.

Functions of distribution channel

The basic function of distribution channel is as follows:

1.      Information: Distribution channels collect information from the external marketing environment through marketing research and market survey.

2.      Promotion: They persuade the customers to make a purchase decision through promotional activities as sales promotion, advertisement, personal relation etc.

3.      Contact: They increase the contact with the prospective buyers by finding them through market survey and communication effectively.

4.      Matching: They even involve in the activities as grading, assembling, packing etc and try to match the products with the need of customers.

5.      Negotiation: They negotiate on price and other terms of offer with the channel members to transfer the right of possession or ownership.

6.      Physical distribution: They help in the transportation and ware housing activities to make the goods available to the customers.

7.      Financing: Distribution channels acquire and use the funds to cover the costs of channel works.

8.      Risk trading: They take the risk on the behalf of manufacturers to make the products available to the customers. The risk can be financial risk, image risk etc.

Number of channel levels:

The basic function of a distribution channel is to make the products and services available to the final customers. A channel level is a layer of intermediaries that performs some work to make a product and its ownership closer to the final buyers. A channel level can be direct marketing channel with no intermediaries or indirect marketing channel containing one or more intermediaries.

The channel level varies for the customer marketing channels and for the business marketing channels.

(Please describe the channel levels as shown in the class)

Consumer marketing channels

Channel 1: Producer              Consumer

Channel2: Producer                  Retailer             Consumer

Channel 3: Producer            whole seller             Retailer             Consumer

Business marketing channels:

Channel 1: Producer         Business customer                                                           

Channel 2: Producer       Business distributor        Business customer

Channel 3: Producer      Manufacturers’ representative or sales branch       business distributor        business customer

The channel level always varies as per the size of organization and its nature. Besides, the complexity of the distribution channel is affected by the physical flow of products, the flow of ownership, the payment flow, the information flow and the promotion flow.

Channel design decisions: Designing channels is never an easy process. It must be ideal and practical. An organization operating in smaller market can just convince one or two intermediaries to handle the line. As organization begins to grow the channel design decision gets more and more complex. The channel design decision can be done in this way:

·         Analyzing customer needs: A marketing channel is a customer value delivery network. It helps to add customer total value. So, while designing a channel, an organization must analyze what the target customers want from a channel. For example Do consumers prefer to purchase from near- by locations or they prefer to travel while purchasing a product or just purchase it form electronic media (phone, internet etc). Some consumers focus on swift delivery while other can wait. An organization must analyze different such needs while designing a channel. Every channel cannot be perfect in terms of delivery, services or physical assortment but it must be able to increase consumer value.

·         Setting channel objectives: The basic objective of a channel is to provide higher customer service. A company may have different market segments and customers of each segment might have different service desires. A channel cannot fulfill all the desires and even if it does, the overall cost will be very high. So, an organization must design a channel in such a way that it minimizes the overall cost and meet maximum customer service requirements. Besides, the objectives of the channel are also influenced by the nature of company, its products, its marketing intermediaries, its competitors and the environment.

·         Identifying major alternatives: After defining the channel objectives, the company should identify the major channel alternatives in terms of types of intermediaries, number of intermediaries and the responsibility of channel members.

                                I.            Type of intermediaries: A company must decide on the types of channel members available to carry the channel work. It can either sell directly to the consumers through internet and personal contacts or use different resellers. If resellers are used, a company may have huge market coverage but on the other side increases difficulty in management and cost.

                             II.            Number of marketing intermediaries: There are three strategies by which a company decides number of channel members as

v  Intensive distribution: Stock the product in as many outlets as possible. For example: toothpaste, cigarettes etc

v  Exclusive distribution: Giving a limited number of dealers the exclusive right to distribute the company’s products in the territories. For example: Rolex watch

v  Selective distribution: The use of more than one but fewer than all of the intermediaries who are willing to carry the company’s product. For example Sony, whirlpool etc.

                           III.            Responsibilities of channel members: The producer and intermediaries need to agree on the terms and responsibilities of each channel member. They should agree on price policies, conditions of sale, territorial rights etc. Responsibility basically varies as per the nature of channel member.

·         Evaluation of major alternatives: Evaluation of the best is done on the criteria of economy, control and adaptive criteria. A company looks at the sales, cost and profitability of different channel alternatives during the evaluation through economy. Similarly, organization can evaluate the channel members on the basis of their control on the marketing activities of a product or evaluation can be done on the basis of the adaptation power of the channel members as per the changes in the environment.

Channel management decisions: After the process of channel design, a company implements and manages a channel. The management of a channel is done by selecting, managing and motivating individual channel members and evaluating their performances over time.

·         Selecting channel members: The producers must have a good idea to attract qualified marketing intermediaries. Some producers can get good channel members. For example: when Toyota introduces its Lexus line in US, it easily attracted good dealers. On the other hand, some producers find it extremely difficult to find good channel members. For example Timex could not attract jewelry shops to sell in expensive watches. Selecting intermediaries is a difficult process and an organization must evaluate each channel member on the basis of experience, growth and profit, cooperativeness and reputation.

·         Managing and motivating channel members: Continuous management and motivation is essential for proper functioning of a channel member. Management of a channel member always starts with a harmonious relation between the producers and intermediaries. Producers must be able to show benefit and growth of the channel members if they work together. For example: Procter and Gamble works closely with Big Bazaar and Wall Mart to increase customer value. Motivation of the channel members can be done by providing training programs, special seminars and conferences. High performing reseller partners can be rewarded with discount promotions, bonuses and sales awards. For example Samsung does the same to motivate the resellers.

·         Evaluating channel members: Producers have to check the performance of the channel members in terms of sales, average inventory levels, customer delivery time, services to the customers, treatment of damaged and lost goods etc. Producers must compare the work of channel members and reward them properly if they are meeting or exceeding the standards of the company. The poor performers must be assisted or replaced as per the need of an organization.

Marketing logistics and supply chain management: Marketing logistics or physical distribution is a process of planning, implementing and controlling the physical flow of materials, final goods and related information from points of origin to the points of consumption to meet the customer requirements at a profit. It helps to make the right products available to the right customers at right time. Now a day people have focused on the use of customer centered logistics i.e. working on the basis of customer wants and desires. Marketing logistics involve outbound distribution ( moving products from the factory to reseller and finally to consumers); inbound distribution ( moving products and materials from suppliers to factory) and reverse distribution ( moving broken, unwanted or excess products returned by consumers or resellers). Thus we can say that the whole process of supply chain management i.e. managing upstream and downstream value added flows of materials, final goods and related information among suppliers, the company, resellers and final consumers.

Figure:

Now days, companies are giving greater emphasis on logistics for different reasons.

·         Companies can gain a powerful competitive advantage by using improved logistics to give customers better service or lower prices.

·         Improved logistics increases cost savings for both customers and company.

·         The explosion of product variety has created a need for the improved logistics management.

Goals of logistics system:

The major goal of the logistic system is to provide maximum customer service at the least cost. But it is impossible for any logistics system to maximize customer service and minimize distribution costs. The customer service can be enhanced if there is rapid delivery, large inventories, liberal returns, policies and other services. All of these increase the distribution costs for an organization. On the other side, if the distribution cost is to be lowered then it implies slower delivery, smaller inventories i.e. lower level of overall service.

Major logistics functions: The basic functions of the logistics are as follows:

1.      Warehousing: A company must decide on how many and what types of warehouses it needs and where they will be located. The company might use either storage warehouses or distribution centre. Storage warehouses store goods for moderate to long periods. Distribution centers are designed to move goods rather than just store them. For example, Wal-Mart operates a network of 112 huge U.S. distribution centers and another 57 around the globe. Now a day, company are basically focusing on the just in time management where no inventory is kept by the organizations are basically design and manufacture the goods as per the order.

2.      Inventory management: Inventory management also affects customer satisfaction. Here management must maintain the delicate balance between carrying too little inventory and carrying too much with too little stock the firm risk not having product when customers want to buy. To remedy this firm may need costly emergency shipments and production. Carrying too much inventory results is higher than necessary. Inventory carrying cost and stock obsolescence. Thus, in managing inventory firm must balance the cost of carrying larger inventories against resulting sales and profit. Many companies have greatly reduced their inventory and related cost through just in time logistics system. New stock arrives exactly when needed rather than storing in inventory until being used. Just in time system requires accurate forecasting along with fast frequent and flexible delivery so that new supplies will be available when needed. Marketers are always looking for new ways to make inventory management more efficient. In the not too distant future, handling inventory might even become fully automated.

3.      Transportation: The choice of transportation carries affects the pricing of products, delivery performance, and condition of the goods when they arrive- all of which will affect customer satisfaction. In shipping goods to its ware-houses, dealers, and customers, the company can choose among five main transportation modes: truck, rail, water, pipeline and air along with an alternative mode for digital product- the internet.

Trucks : 35%

Railroads: 31%

Water carries: 11%

Pipelines: 16%

Air: 5%

4.         Logistics information management: Companies manage their supply chains through information. Information can be shared and managed in many ways but most sharing takes place through traditional or internet-based electronic data interchange (EDI), the computerized exchange of data between organizations. Wal-Mart, for example, maintains EDI links with almost all of it 91000 supplies. Many large retailers- such as Wal-Mart and Home Depot- work closely with major suppliers such as Procter and Gamble or Black and Decker to set up vendor managed inventory systems or continuous inventory levels with the supplier. Using VMI, the customer shares real time data on sales and current inventory levels with the supplier. The supplier then takes full responsibility for managing inventories and deliveries.

Integrated logistics management: Integrated logistics management is the logistics concept that emphasizes teamwork, both inside the company and among all the marketing channel organizations, to maximize the performance of the entire distribution system. The company must integrate its logistics system with those of its suppliers and customers to maximize the performance of the entire distribution network.

·         Cross functional teamwork inside the company: Most companies assign responsibility for various logistics activities to many different departments- marketing, sales, finance, operations and purchasing. Too often, each function tries to optimize its own logistics performance without regard for the activities of the other functions. This creates a basic problem inside the organization and even increases the cost. The decisions must be coordinated to achieve better overall logistics performance. The supply chain management can be integrated to achieve harmonious relation among departments by creating permanent logistics committees, creating supply chain manager positions or using sophisticated, system wide supply chain management software.

·         Building logistics partnerships: Companies must work closely with other channel members to improve the distribution system. Every channel member has a motto to enhance the customer value and maintain long term profitable relation with them and their success depend upon the performance of the whole supply chain because all of the channel members are closely linked with each other. Now a days, companies have started to build strong partnerships with suppliers and customers to improve customer service and reduce channel costs and even created cross functional and cross company teams. For example: Procter and Gamble work closely with Wall Mart and it has hired a lot of sales representatives in Wall Mart to conduct the sales operation. Some companies have even started to work for shared projects in the distribution system.

·         Third party logistics: Companies basically like to produce and sale the products only but they hate the work of logistics as bundling, loading, unloading, sorting, storing, reloading, transporting, customers clearing etc. In order to be safe from this tedious work, some of them have started to outsource some or all of their logistics to third party logistics (3PL) providers. We can take an example of Whirlpool in US market. Whirlpool’s distribution system in US was poor and customers had a lot of complaints about it. Whirlpool hired United States Ryder to conduct the work of logistics and now the work of logistics is very sound.

Chapter 8: Promotion

Promotion

The marketing communication process:

Communication is a process of delivering the information from the source to the target. To communicate effectively, marketers need to understand how communication works. The communication process can be summarized by an example of Dew i.e. ‘do the dew’ displayed on television ad. The communication process includes nine elements as follows:

·         Sender: The party who sends the information to another party is the sender. For example Mountain Dew is the sender in this case.

·         Encoding: Encoding is a process in which a sender puts thought into symbolic form. For example Mountain Dew’s advertisement agency assembles words, sounds and visualizations into an advertisement to convey the intended message.

·         Message: The set of symbols that the sender transmits is called message. For example Dew’s ad is a message.

·         Media: The communication channel through which a message moves from a sender to the receiver is called media. For example Dew conveys the message through television ads.

·         Decoding: Decoding is a process by which a receiver assigns meaning to the symbols encoded by the sender. For example consumer watches the dew ad and interprets the words and images.

·         Receiver: The party who receives the conveyed information is a receiver. For example every person who watches the dew ad is a receiver.

·         Response: The reaction that is shown by a receiver after decoding the message is called response. There can be hundreds of responses given by a receiver as they may like to involve in adventure, they may like to drink dew more or simply they may not show any response.

·         Feedback: A part of receiver’s response provided back to the company is called feedback. It can be achieved through market research or consumer writings/emails to the company.

·         Noise: The unplanned distortion during the communication process by which a receiver gets different response than the one intended by the sender. For example the consumer if distracted while watching the commercial misses the key points.

Communication process will be effective when the sender’s encoded message is decoded by a receiver as intended by the sender. The message will be more effective if the message involves familiar words and symbols to the receiver.

The promotion mix strategy: There are basically two types of promotion mix strategies as follows

·         Push strategy: Push strategy is a process of pushing the product through marketing channels to the final consumers. In this process a seller will attract the channel members by trade promotion, personal selling etc. and make them push the product in the market. The channel members will also push the product to the customers through personal selling, advertisement, sales promotion etc and make the customers purchase the product. This strategy is very handy for new products because consumers do not have any experience about the product and they must be pushed to make a purchase decision.

Figure:

·         Pull strategy: It is a promotion strategy in which a producer spends a lot on advertising and consumer promotion to induce final consumers to buy the product. The consumers will demand the product to the retailers and whole sellers and they will in turn demand with the producer.

Figure:

It is very difficult to say which strategy is better because both strategies are equally important. Large organizations use a blend of both strategies. For example Amul uses heavy promotion to induce the buyer to demand for the product while it has also a huge sales force to push the product through the channels. Basically, it is seen that business to business markets rely on push strategy and business to consumer marketers rely on pull strategy.

Personal selling: Personal selling is a process of personal presentation by the firm’s sales force for the purpose of making sales and building customer relationships. Sales force is the most essential unit to make personal selling. So, sales force must be well educated, well trained professionals who add value for customers and maintain long term customer relationships. They should listen to their customers, assess customer needs and organize the company’s efforts to solve customer problems.

Nature:

·         Personal selling is personal communication: There are two parties involved in personal selling as buyers and sales person. The sales person is a sender and buyer is a receiver. The process of encoding, message, media and decoding happens between them. Finally, buyer shows a response and provides feedback. So, personal selling is a medium of communication.

·         Personal selling involves informing and persuading: Sales person provides a lot of information to the buyer involving its characteristics, quality, price, way of using etc. He/she also uses his interpersonal skills to persuade the buyers and induce them for a purchase decision.

·         Personal selling is basically used in business to business selling. It is also useful in push strategy when an organization wants to push its products through the marketing channels.

·         Personal selling happens in a process that involves seven stages as prospecting, pre-approach, approach, presentation, meeting objections, closing the sale and follow-up.

Role of personal selling: Personal selling has an important role in marketing. The importance/role of personal selling can be given as follows:

·         Personal contact: Personal selling is very handy when market size is small. Organizations sales force. For example: Sale of Rolex watch, high tech televisions etc.

·         Stimulate buyer’s needs: Personal selling is more useful when the buyer’s have unique problems to solve and demand such products that could satisfy their needs. For example: health care services, beauty care services etc.

·         Link the company with the customers: Personal selling links the company with the customers with the help of sales force. The sales force will at first represent the company to the buyers and  the same time represent the customers to the company.

·         Work as per the buyer’s characteristics: Personal selling is more useful when the buyers have different demographic and psychographic characteristics. Personal selling can understand such characteristics of buyers and work as per their characters.

·         Overcome buyer’s resistance: Buyer is basically resistant to purchase high price luxury products. Strong personal selling is required by an organization to overcome such resistance.

Sales promotion: Sales promotion is a process of providing short term incentives to encourage the purchase or sales of a product or service. For example Rs. 20 off in a pack of Every day or 1 Sunsilk pouch free with a packet of 500 ml.

Objectives:

·         To encourage the customers for making a purchase decision

·         To encourage the resellers to carry new items and more inventory, promote the company products and give them more shelf space

·         To use it together with other marketing tools as advertising, personal selling, direct marketing etc. i.e. sales promotion cannot be used alone and it must be linked with other tools to achieve effective results.

·         To re-enforce the products position and build long term customer relationships. It must be used properly and linked effectively with other marketing tools to build short term excitement and long term customer relationships.

Tools: Major tools used for the sales promotions are as follows:

1.      Consumer promotion tools: Consumer promotion includes a wide range of tools as follows:

·         Samples: Samples are offers of a trial amount of a product. Some samples are free whereas some are provided for a little cost. For example: Norton Anti-virus can be downloaded free for 30 days pack.

·         Coupons: Coupons are certificates that provide a discount to the buyers during the purchase of specified products. For: if you purchase a product form Shrestha tailoring then you can get a coupon. You can show this coupon to the tailoring on your next purchase and get a discount.

·         Cash refunds:  Cash is refunded if the product cannot deliver the intended performance. For example: ‘Shree Yantra’, ‘Yoko height’ etc says to refund the purchase price if results are not effective.

·         Price pack: Direct reduction on price of a product is done in this scheme. For example: Rs. 5 off in Colgate pack or get one product free when you purchase next product but the products are related. For example: Tooth brush free with tooth paste.

·         Premiums: Premiums are goods offered for the purchase of a product. It can either be given free or at minimum cost. For example: A badminton racket free with every boost pack.

·         Contest and games: A contest calls for consumers to submit an entry in the form of jingle, suggestions etc judged by a panel. Games include bingo, missing letters etc that can be played by consumers.

·         Event marketing: Sponsoring some events as holi, tihar, football etc or participating sponsor events.

2. Trade promotions: Sales promotion tools used to induce resellers to get bigger shelf space involve them in promotional activities and make them push a product through the channel. Price offs, allowances, payback guarantees or free foods are offered to the resellers to involve them in promotional activities. Manufacturers can either push the money or push specialty advertising items to carry the company’s name such as pens, pencils, calendars etc.

3. Business promotion: Business promotion is a sales promotion tool that is used to generate business leads, stimulate purchases, reward customers and motivate sales people. It basically uses the same tools as in consumer and business promotion. Some additional tools can be as follows:

·         Conventions and tradeshows: Vendors show their products at trade shows and conventions. For example: CAN

·         Sales contest: Sales contest is a contest for sales people or dealers to motivate them to increase their sales performance over a given period. It provides trips, cash prizes etc to the good performers or the company.

Advertising: Advertising is a non personal presentation and promotion of goods, services, ideas etc by a certified sponsor. It is considered as one of the best methods for the promotion activities because it can reach a lot of viewers at the same time. There are four things that must be considered while developing an advertising ad as

·         Setting advertising objectives

·         Setting the advertising budget

·         Developing advertising strategy (message decision and media decision) and

·         Evaluating advertising campaigns

1.      Setting advertising objectives: This is the first step where a marketer develops advertising objectives. The objectives are made on the basis of past decisions about the target market, positioning, and the marketing mix which define the job that the advertising must do in the total marketing program. The basic objective of the advertisement is to inform, persuade or remind. Informative advertisement is used to provide information to the customers and show them how the product works. This ad just provides information to the customers. For example: When DVD player was first launched in the market, the producing company used to make the consumers aware that DVD has more storage capacity that the CD players and the video quality of the product is also very good. Persuasive ads just persuade the customers that their product is the best in the market and convince the buyers to purchase their products. Thus, persuasive ads can also become comparative. For example: Sony ads that its DVD player is the most effective one that is available in the market and no other competitors stand on the race. Reminder ads are more important for mature products because such ads are used to maintain customer relationships and keep consumers thinking about the product. For example: The coca cola is in the maturity stage and it always tries to do the same for its television advertisements.

2.      Setting advertisement budget: After determining advertising objectives, the company next sets its advertising budget. The advertising budget of any product is dependent over the product life cycle and the market share. Advertisement budget is basically huge in the introduction phase and lowest in the maturity phase and in between during the decline phase. Heavy advertisement budget is essential for building market share. i.e. if an organization wants to build a big market share then it has to increase its promotional activities. The intensity of competition in the market, the availability of close substitutes etc all affects over the advertisement budget.

3.      Developing advertising strategy: The strategy by which the company accomplishes its advertising objectives is called advertising strategy. It consists of two major elements: creating advertising messages and selecting advertising media.

·         Creating advertising message: Modern days customers are bombarded with a lot and lot of ads. Ads are seen every time the customers open the TV. On one hand, these ads are ruining the interest of customers toward the serials and on other hand, they are increasing the cost to the producers.

v  Message strategy: It is the first step where the marketer develops a message. It must always be considered that the message has to be creative (Big idea that will bring the advertising message strategy to life in a distinctive and memorable way). Besides the message must be distinctive (different from the competitors), meaningful and believable. It is also said that the message must be simple to understand by the normal viewers. Any strategy can be followed but the organization must consider these important facts.

v  Message execution: The advertiser now turns the big idea into an actual ad execution that will capture the target market’s attention and interest. The execution styles are as follows:

      Slice of life: Showing normal people in normal circumstances. For example mayos noodles ad

      Lifestyle: Showing a particular lifestyle of a person. Eg Siya Ram’s job interview ad

      Fantacy: Creates a fantasy world around the product or its use. For example Axe deodorant

      Mood or image: Refreshes the mood of the customers. For example Malaysia truly Asia

      Musical: Shows people or cartoon characters singing about the product. For example Britania (Tin Tin Ti Tin)

      Personality symbol: Create a character that represents the product. For example Juju for Hutch

      Technical expertise: Shows company’s expertise in making the product. For example Mechi tea ad, Jagadamba ad etc

      Scientific evidence: Presents survey or scientific evidence that the brand is better than others. For example colgate ad

      Endorsement: Using highly believable or likable source to endorse the product. For example Amitabh Bachhan in Hajmola ad

·         Selecting advertising media:

      Deciding on reach, frequency and impact

      Choosing among major media types

      Selecting specific media vehicles

      Deciding on media timing

·         Evaluating advertising effectiveness

Public relations: It is a process of building good relations with the company’s various publics by obtaining favorable publicity, building up a good corporate image, and handling or heading off unfavorable rumors, stories and events. Public relation is used to promote products, people, places, ideas, activities, organizations and even events.  This tool is basically used by the companies maintain and build sound relation with the consumers, investors, the media and the community. Public relation activities are focused on establishing, maintaining, and enhancing a favorable image of the firm and its products/services among its various publics- customers, shareholders, employees, local people, and government officials. For this an organization must maintain good relation with the media, associated groups (employee groups, community groups etc) and important people (legislators, government officials, social leaders etc) to influence their individual opinion in favor of the firm and its products.

Objectives:

·         To build market place excitement before product launch by using media to announce new product with its unique features and benefits.

·         To build, maintain and enhance the firm’s relationship with the customers to win customers loyalty towards the firm’s products and brands.

·         To build direct relationships with the customers

·         To build relationships with the opinion leaders and leaders who are likely to influence the sales of the firm’s product and the firm’s public image.

Tools of public relation: The major public relation tools are as follows:

·         News: PR professionals find or create favorable news about the company and its products or people. Sometimes news stories occur naturally and sometimes the PR person can suggest events or activities that would create news.

·         Speeches: Speeches can also create product and company publicity. Increasingly, company executives must field questions from the media or give talks at trade associations or sales meetings, and these events can either build or hurt the company’s image.

·         Special events: Special events ranging from news conferences, press tours, grand openings, and fireworks displays to laser shows, hot balloon releases, multimedia presentations, or educational programs designed to reach and interest target publics.

·         Written materials: Public relation people prepare written materials to reach and influence their target markets. These materials include annual reports, brochures, articles, and company newsletters and magazines.

·         Audiovisual materials: The materials as slide and sound programs, DVDs and online videos are being used increasingly as communication tools

·         Corporate identity materials: The corporate identity materials as logos, stationery, brochures, signs, business forms, business cards, buildings, uniforms, and company cars and trucks also affect over PR.

Relationship marketing: Relationship marketing is the practice of building long term satisfying relations with the key parties- customers, suppliers and distributors in order to retain their long term preference and businesses. If properly implemented, relationship marketing results in strong economic, technical and social ties among the parties.

·        

Suspects

Customer development process: Customers are not automatically made; the marketers develop them. However attracting and keeping customers is actually a difficult task.

Prospects

First time customers

Partners

Repeat customers

Clients

Advocates

 

P\

	Disqualified customers
			Inactive or ex- customers

 

           

Figure: Customers development process

The above diagram shows that the main source of customer is prospect; the main source of prospect is the suspect. Suspects consist of everyone who might conceivably buy the product or service; they lack actual need for the company’s product. They become prospects only when the actual need is created in their mind for the product and the ability to pay for it. All suspects cannot be converted into prospects; some of them convert into disqualified prospects, which have no interest on the product, any money to spend and lack of willingness to spend it; while some of the suspects are converted into qualified prospects. The company usually rejects disqualified prospects because of their poor credit profile or would be unprofitable for the company. If the qualified prospects could be motivated properly they may become the first time customers, repeat customers, clients, advocates and partners respectively. Repeat customers may continue to buy goods from the competitors as well. But the clients buy only from the company in the relevant product categories. If they are fully satisfied with the company and its products, they become advocates, who become loyal to the company and praise the company and encourage others to buy from it. Lastly, the advocates may convert into partners, who work actively with the marketer for common goal. However, at every stage of customer development process, some of the customers may convert into inactive or drop out, for reasons of bankruptcy, moves to other locations, dissatisfaction, and so on.