Download Table of Contents

Chapter 1
Fundamentals of Marketing
This chapter covers the basic concepts of marketing, provides details of the main
philosophies of a marketer, and discusses the major components of strategic marketing. It
aims at equipping the student with a conceptual framework to understand modern
marketing.
Markets, Marketing and Marketability have gained in importance as the capabilities of
mankind in converting raw material into finished goods and services has improved. Led
by the technological revolution and helped by revolution in the political, social and
economic arena, the entrepreneurs and the organisations that they lead have always
aspired to create ever newer products and services as well as design ever newer methods
to make these reach those who want them, in the quantities that they want them and at
times that they want them. The people and organisations who supply products and
services have also found it worthwhile to guide people who buy or use these products and
services to find new uses, use occasions or usage methods for the same.
The formal discipline of marketing is required because there is physical, mental and
social distance between those who produce goods and services and those who consume
them. It is because of marketing that those who produce, sell, advertise can establish a
connection with the consumers. It is to the credit of marketing that a two-way dialogue is
possible instead a conflict of monologues by the sellers. The fact that the buyers and
sellers both feel that they will gain form transactions is to a large part due the use of
marketing techniques.
1.0
What is Marketing?
1.01
Definitions of Marketing.
There are many definitions of marketing. The better definitions are focused upon
customer orientation and satisfaction of customer needs.
Marketing is the social process by which individuals and groups obtain what they need
and want through creating and exchanging products and value with others
-Dr. Philip Kotler
Marketing is the management process that identifies, anticipates and satisfies customer
requirements profitably
- The Chartered Institute of Marketing (CIM)
1
The CIM definition looks not only at identifying customer needs, but also satisfying them
(short-term) and anticipating them in the future (long-term retention of customers).
The right product, in the right place, at the right time, at the right price
- Adcock
Marketing is essentially about marshalling the resources of an organization so that they
meet the changing needs of the customer on whom the organization depends
-Palmer
This is a more recent and very realistic definition that looks at matching capabilities with
needs.
Marketing is the process whereby society, to supply its consumption needs, evolves
distributive systems composed of participants, who, interacting under constraints technical (economic) and ethical (social) - create the transactions or flows which resolve
market separations and result in exchange and consumption
- Bartles
This definition considers the economic and social aspects of marketing.
1.02 The Philosophy of Marketing and the Marketing Concept.
The marketing concept is a philosophy. It makes the customer, and the satisfaction of his
or her needs, the focal point of all business activities. It is driven by senior managers,
passionate about delighting their customers.
Marketing is not only much broader than selling, it is not a specialized activity at all It
encompasses the entire business. It is the whole business seen from the point of view of
the final result, that is, from the customer's point of view. Concern and responsibility for
marketing must therefore permeate all areas of the enterprise.
- Dr. Peter F Drucker
This customer focused philosophy is known as the 'marketing concept'. The marketing
concept is a philosophy, not a system of marketing or an organizational structure. It is
founded on the belief that profitable sales and satisfactory returns on investment can only
be achieved by identifying, anticipating and satisfying customer needs and desires.
- Barwell
The achievement of corporate goals through meeting and exceeding customer needs
better than the competition.
- Jobber
Implementation of the marketing concept requires attention to three basic elements of the
marketing concept. These are: Customer orientation; an organization to implement a
customer orientation; Long-range customer and societal welfare.
- Cohen
2
Now that you have been introduced to some definitions of marketing and the marketing
concept, remember the important elements contained as follows:
1. Marketing focuses on the satisfaction of customer needs, wants and
requirements
2. The philosophy of marketing needs to be owned by everyone from within the
organization.
3. Future needs have to be identified and anticipated.
4. There is normally a focus upon profitability, especially in the corporate sector.
However, as public sector organizations and not-for-profit organizations adopt
the concept of marketing, this need not always be the case.
5. More recent definitions recognize the influence of marketing upon society.
1.1
Marketing Mix.
1.11
What is the marketing mix?
The marketing mix is probably the most famous marketing term. Its elements are the
basic, tactical components of a marketing plan. Also known as the Four Ps, the
marketing mix elements are price, place, product, and promotion.
The concept is simple. Think about another common mix – a fertilizer mix
(composite/compound fertilizer), all mix of fertilizers will contain Nitrogen, Phosphorus
and Potassium along with various micro nutrients. However depending on the crop, the
soil condition and the stage of the crop, one can alter the final composition of the mix by
altering the amounts of mix elements contained in it. For soils deficient in potassium, add
more of potash based fertilizer.
3
It is the same with the marketing mix. The offer you make to you customer can be altered
by varying the mix elements. So for a high profile brand, increase the focus on promotion
and reduce the weight given to price.
Some commentators will increase the marketing mix to the Five Ps, to include people.
Others will increase the mix to Seven Ps, to include physical evidence (such as
uniforms, facilities, office/branch ambience and printed cheque book, etc.) and process
(i.e. the whole customer experience e.g. a visit to the modern retail store). The term was
coined by Neil H. Borden in his article The Concept of the Marketing Mix in 1965.
1.111 Price
Price acts as a primary cue for the customer. It helps the customer to evaluate the worth
of the offer that the marketer is making. There are many ways to price a product
depending on the situation faced by the marketer vis-à-vis his customer or the
competition.
1.112 Place
Another element of Neil H.Borden's Marketing Mix is Place. Place is also known as
channel, distribution, or intermediary. It is the mechanism through which goods and/or
services are moved from the manufacturer/ service provider to the user or consumer.
1.113 Product
For many people, a product simply means the tangible, physical entity that they may be
buying or selling. A farmer buys a new tractor and that's the product - simple!
In formal marketing, the product may not be as simple as it may appear at first. For
example, when a farmer buys a tractor, the product is more complex than he first
thought? Like an onion, the ‘Product’ has many levels. A tractor comes bundled with
spares and accessories, after-sales service warranty and a network of support and
supplementary services. Without all of that, the tractor ownership would be such a
difficult task.
1.114 Promotion
Another one of the 4Ps is promotion. This includes all of the tools available to the
marketer for 'marketing communication'. As with Neil H.Borden's marketing mix,
marketing communications has its own 'promotions mix.' Think of it like the mix of
fertilizers, the basic ingredients are always the same. However if you vary the amounts of
one of the ingredients, the final outcome is different.
The different elements of promotion mix are: Advertisement, Sales promotion, Events
and Public Relations, Direct Marketing, Personal Selling and Internet marketing.
4
1.115 Physical Evidence
Physical Evidence is the tangible (what can be sensed with sensory organs viz. eyes,
nose, tongue, ear and skin) part of a service. Strictly speaking there are no physical
attributes to a service, so a consumer tends to rely on tangible cues. There are many
examples of physical evidence, including some of the following:
1.
2.
3.
4.
5.
Interiors and furniture of the waiting area in hospitals and banks
Cheque books pre-printed with account holder’s name
Uniform of staff in retails outlet/ hotels/ airlines, etc.
The posters, banners and other publicity material at the fertilizer and agriinput shop
The milko-tester in a dairy cooperative society
1.116 People
People are the most important element of any service or experience. Services tend to be
produced and consumed at the same moment, and aspects of the customer experience are
altered to meet the 'individual needs' of the person consuming it. The ‘Salesman’ of the
seeds company, the ‘Mechanic’ of the tractor workshop or ‘Manager’ of the bank are all
examples of the ‘people’ component of a service offering.
1.117 Process
Process is another element of the extended marketing mix, or 7Ps.There are a number of
perceptions of the concept of process within the business and marketing literature. Some
see processes as a means to achieve an outcome, for example - to achieve a 30% market
share a company implements a ‘Marketing Planning’ process.
For the purposes of the marketing mix, process is an element of service that sees the
customer experiencing an organisation's offering. It's best viewed as something that your
customer participates in at different points in time. Here are some examples to help your
build a picture of marketing process, from the customer's point of view.
Let us take the case of Ramlal, a farmer who has decided to purchase a new motorcycle
for himself and who goes to the market of the nearest town after seeking due opinion
from his friends and relatives. He enters a motor cycle dealer’s showroom. From the
moment he enters, the dealer and his sales team come into action. Right from asking him
for water to taking him around to let him see different models to letting him test drive to
making him aware about the features of different bikes, each step is a part of the process
meant to enrich Ramlal’s buying experience.
This is all part of the marketing process.
5
Like all processes, the marketing process also has many stages. At each stage of the
process, markets:




Deliver value through all elements of the marketing mix. Process, physical
evidence and people enhance services.
Feedback can be taken and the mix can be altered.
Customers are retained, and other services or products are extended and marketed
to them.
The process itself can be tailored to the needs of different individuals,
experiencing a similar service at the same time.
Processes essentially have inputs, throughputs and outputs (or outcomes). Marketing adds
value to each of the stages. In the section on Value Chain Analysis in Chapter 9, we will
consider a series of processes at work.
1.2
Marketing Plans
Successful performance of organisations, whether in Private or in the Government or
Non-Profit sector critically depends on impressing and retaining their target audience
(customers or beneficieries, as the case may be) by providing better value than the
competing offers or options available to the target audience? The choice of which kind of
target audience to serve and how to create value for them in an ever changing
environment needs to be ascertained. This involves choice of technologies/methodologies
(in a broad sense) and performance (competitive) strategies
As the environment changes, the organisations (including business organisations) must
adapt to maintain strategic fit between their capabilities and the marketplace. The process
by which the organisations (especially business organisations) analyse the environment,
decide upon a course of action and implement those decisions is called marketing
planning and the document that contains the essence of the marketing planning process is
called the marketing plan.
Marketing plans are vital to marketing success. They help to focus the mind of
companies and marketing teams on the process of marketing i.e. what is going to be
achieved and how we intend to do it. There are many approaches to marketing plans. The
key stages of the plan are covered under the popular acronym AOSTC.
ANALYSIS
OBJECTIVES
STRATEGIES
TACTICS
CONTROLS
6
1.21
Stage One - Situation Analysis (and Marketing Audit).











Marketing environment
Laws and regulations
Politics
The current state of technology
Economic conditions
Sociocultural aspects
Demand trends
Media availability
Stakeholder interests
Marketing plans and campaigns of competitors
Internal factors such as your own experience and resource availability
The tools for internal/external audit (covered later in the course):




SWOT
PEST
Porter's Five Forces
Marketing Environment
1.22
Stage Two - Set marketing objectives
Objectives should seek to answer the question 'Where do we want to go?'. The purposes
of objectives include:

To enable a company to control its marketing plan.

To help to motivate individuals and teams to reach a common goal.

To provide an agreed, consistent focus for all functions of an organization.
All objectives should be SMART i.e. Specific, Measurable, Achievable, Realistic, and
Timed.
SMART objectives:





Specific - Be precise about what you are going to achieve.
Measurable - Quantify you objectives.
Achievable - Are you attempting too much?
Realistic - Do you have the resource to make the objective happen (men, money,
machines, materials, and minutes)?
Timed - State when you will achieve the objective (within a month? By February
2010?).
7
If you don't make your objective SMART, it will be too vague and will not be realized.
Remember that the rest of the plan hinges on the objective(s). If it is not correct, the plan
may fail.
Some examples of SMART objectives follow:
1. Profitability Objectives
To achieve a 20% return on capital employed by March 2008
2. Market Share Objectives
To gain 25% of the market for wrist watches by September 2009
3. Promotional Objectives
To increase awareness of the Genetically Modified (GM) Crop in farmers of Gujarat
from 12% to 25% by June 2009.
To increase trial of Brand X soap from 2% to 5% of our target group by January
2008.
4. Objectives for Survival
To survive the current phase of anti-GM crop phase.
5. Objectives for Growth
To increase the size of our Indian operation from US$20 billion in 2007 to US$40
billion in 2010.
6. Objectives for Branding
To make Coca Cola as the preferred brand of 21-28 year olds in India by February
2008.
There are many examples of objectives. Be careful not to confuse objectives with goals
and aims. Goals and aims tend to be more vague and focus on the longer-term. They will
not be SMART. However, many objectives start off as aims or goals and therefore they
are of equal importance.
1.23
Stage Three - Describe your target market
Which segment? How will we target the segment? How should we position within the
segment?
Why this segment and not a different one? (This will focus the mind).
8
Define the segment in terms of demographics and lifestyle. Show how you intend to
'position' your product or service within that segment. Use other tools to assist in strategic
marketing decisions such as Boston Matrix, Ansoff's Matrix, Bowman’s Strategy Clock,
Porter's Competitive Strategies, etc.
1.24
Stage Four - Marketing Tactics
Convert the strategy into the marketing mix (also known as the 4Ps). These are your
marketing tactics.




1.25
Price: Will you cost plus, skim, match the competition or penetrate the market?
Place: Will you market direct, use agents or distributors, etc?
Product: Sold individually, as part of a bundle, in bulk, etc?
Promotion: Which media will you use? E.g. sponsorship, radio advertising, sales
force, point-of-sale, etc? Think of the mix elements as the ingredients of a 'fertilizer
mix'. You have nitrogenous, potassic, phosphoric along with micronutrient based
elements. However, if you alter the amount of each ingredient, you will influence
the type of mix that you finish with.
Stage Five - Marketing Controls
Remember that there is no planning without control. Control is vital.





Start-up costs
Monthly budgets
Sales figure
Market share data
Consider the cycle of control
Finally, write a short summary (or synopsis) which is placed at the front of the plan. This
will help others to get acquainted with the plan without having to spend time reading it
all. Place all supporting information into an appendix at the back of the plan.
1.3
Marketing Audit: How to conduct a marketing audit
The marketing audit is a fundamental part of the marketing planning process. It is
conducted not only at the beginning of the process, but also at a series of points during
the implementation of the plan. The marketing audit considers both internal and external
influences on marketing planning, as well as a review of the plan itself.
There are a number of tools and audits that can be used, for example SWOT analysis for
the internal environment, as well as the external environment. Other examples include
PEST and Five Forces Analysis, which focus solely on the external environment.
In many ways the marketing audit clarifies opportunities and threats, and allows the
marketing manager to make alterations to the plan if necessary.
9
We will cover the basics of the marketing audit, and introduce a marketing audit
checklist. The checklist is designed to answer the question, what is the current marketing
situation? Let’s consider the marketing audit under three key headings:



1.31
The Internal Marketing Environment
The External Marketing Environment
A Review of Our Current Marketing Plan
The Internal Marketing Environment.
What resources do we have at hand? (i.e. The FIVE 'M's):





MEN (Labor/Labour)
MONEY (Finances)
MACHINERY (Equipment)
MINUTES (Time)
MATERIALS (Factors of Production)




How is our marketing team organised?
How efficient is our marketing team?
How effective is our marketing team?
How does our marketing team interface with other organisations and internal
functions?
How effective are we at Customer Relationship Management (CRM)?
What is the state of our marketing planning process?
Is our marketing planning information current and accurate?
What is the current state of New Product Development? (Product)
How profitable is our product portfolio? (Product)
Are we pricing in the right way? (Price)
How effective and efficient is distribution? (Place)
Are we getting our marketing communications right? (Promotion)
Do we have the right people facing our customers? (People)
How effective are our customer facing processes? (Process)
What is the state of our business's physical evidence? (Physical Evidence)











1.32 The External Marketing Environment.
As a market orientated organisation, we must start by asking - What is the nature of our
'customer?' Such as:




Their needs and how we satisfy them
Their buyer decision process and consumer behaviour
Their perception of our brand, and loyalty to it
The nature of segmentation, targeting and positioning in our markets
10

What customers 'value' and how we provide that 'value?'
What is the nature of competition in our target markets?




Our competitors' level of profitability
Their number/concentration
The relative strengths and weaknesses of competition
The marketing plans and strategies of our competition
What is the cultural nature of the environment(s)?




Beliefs and religions.
The standards and average levels of education.
The evolving lifestyles of our target consumers.
The nature of consumerism in our target markets.
What is the demography of our consumers? Such as average age, levels of population,
gender make up, and so on. How does technology play a part?




The level of adoption of mobile and Internet technologies.
The way in which goods are manufactured.
Information systems.
Marketing communications uses of technology and media.
What is the economic condition of our markets?



Levels of average disposable income.
Taxation policy in the target market.
Economic indicators such as inflation levels, interest rates, exchange rates and
unemployment.
Is the political and legal landscape changing in any way?



Laws, for example, copyright and patents.
Levels of regulation such as quotas or tariffs.
Labour/labor laws such as minimum wage legislation.
1.33 A Review of Our Current Marketing Plan







What are our current objectives for marketing?
What are our current marketing strategies?
How do we apply the marketing mix? (Including factors covered above in (a))
Is the marketing process being controlled effectively?
Are we achieving our marketing budget?
Are we realising our SMART objectives?
Is our marketing team implementing the marketing plan effectively?
11



Levels of staffing.
Staff training and development.
Experience and learning.
What is our market share? (Total sales/trends/sales by product or customer or channel)
Are we achieving financial targets? (Profit and margins/ liquidity and cash flow/ debt:
equity ratio/ using financial ratio analysis)
1.4
Marketing Control
Measuring and monitoring the marketing planning process
There is no planning without control. Marketing control is the process of monitoring the
proposed plans as they proceed and adjusting where necessary. If an objective states
where you want to be and the plan sets out a road map to your destination, then control
tells you if you are on the right route or if you have arrived at your destination.
Figure 1.2: The marketing control process
Control involves measurement, evaluation, and monitoring. Resources are scarce and
costly so it is important to control marketing plans. Control involves setting standards.
The marketing manager will than compare actual progress against the standards.
Corrective action (if any) is then taken. If corrective action is taken, an investigation will
also need to be undertaken to establish precisely why the difference occurred.
There are many approaches to control:


Market share analysis
Sales analysis
12















Quality controls
Budgets
Ratio analysis
Marketing research
Marketing information systems (MkIS)
Feedback from customers satisfaction surveys
Cash flow statements
Customer Relationship Management (CRM) systems
Sales per thousand customers, per factory, by segment.
Location of buyers and potential buyers
Activities of competitors to aspects of your plan
Distributor support
Performance of any promotional activities
Market reaction/acceptance to pricing polices
Service levels
. . . . And many other methods of monitoring and measurement.
1.5
Internal Marketing
Internal marketing is an important 'implementation' tool. It aids communication and helps
us to overcome any resistance to change. It informs and involves all staff in new
initiatives and strategies. It is simple to construct, especially if you are familiar with
traditional principles of marketing.
If not, it would be valuable to spend some time considering marketing plans. Internal
marketing obeys the same rules as, and has a similar structure to, external marketing. The
main differences are that your customers are staff and colleagues from your own
organization.
Figure 1.3: Internal marketing process
1.51
Managing the implementation of internal marketing
13

You have seen that the process of marketing follows a familiar pattern for which
we use the acronym AOSTC - Analysis, Objectives, Strategies, Tactics, and
Control.
Let's have a look a closer look at the practicalities of internal marketing.
Figure 1.3: Detailed Internal marketing process
At this stage internal marketing meets traditional 'change management.' Firstly you
should identify your internal customers. As with your external customers, they will have
their own buyer behavior, or way of 'buying into' the changes which you are charged to
implement. The similarities in differing groups of internal customers allow you to
segment them. As Jobber (1995) explains, you can target three different segments namely
'supporters,' neutral,' and finally 'opposers.' Each group requires a slightly different
internal marketing mix in order that your internal marketing objectives can be achieved.
For example, if the change was that a seeds marketing company was to relocate closer to
its market, you could target 'supporters within the organisation' with a tailor-made
relocation video explaining about the advantages (personal as well as professional) in the
new location; 'neutral' internal customers could be targeted with incentives such as pay
increases; and 'opposers' could be coerced, or forced to accept the change regardless.
1.52




How do we plan for a change program?
Always make sure that you have thought through your approach before starting
the implementation.
Make sure that you have created a cultural climate that is willing to accept
change.
Appoint a change agent, or champion for change that will help to ease your
changes through.
Audit the skills and capabilities of your team. Train and develop as necessary.
14






Your team must be built around you with the objective as the focus for all of you.
The change must be correctly marketed to your target audience as per the
approach illustrated above.
Decide what the change will be. Give it boundaries.
Decide upon the plan.
Work out a realistic budget and stick to it.
Try to anticipate the arguments against change, and decide how to counteract
them positively.
15
Chapter 2
The Marketing Environment and Marketing Research
2.0
What is marketing environment?
A marketing oriented company has to constantly look outside of itself in order to take
advantage of small and big opportunities that keep emerging, in addition, the
organisations have to monitor and minimize the likely threats that may spoil its business.
The marketing environment surrounds and impacts upon the organization. It consists of
various forces that affect the company’s ability to deliver products and services to its
customers. The organisation’s environment can affect it in many ways. The company can
have the best of technologies, the best set of employees and the best group of suppliers
but still it may not succeed because of other factors like exchange rate, government
policies, or changing preferences of its customers. On the other hand, a company that
does not have too many apparent things going for it can actually succeed because the
environmental factors support it. There are three key perspectives on the marketing
environment, namely the 'macro-environment,' the 'micro-environment' and the
'internal environment'.
16
2.01
The micro-environment
This environment influences the organization directly. It includes suppliers that deal
directly or indirectly, consumers and customers, and other local stakeholders. Micro tends
to suggest small, but this can be misleading. In this context, micro describes the
relationship between firms and the driving forces that control this relationship. It is a
more local relationship, and the firm may exercise a degree of influence.
For example- A company like Pepsi may decide to offer higher than contracted
price for the potatoes it procures from farmers in Punjab. They may do so to
prevent the farmers switching over to Reliance retail, its aggressive competitor in
the agribusiness space. This may contribute towards shrinkage in short term profits
for Pepsi but may be necessary to protect long-term sources of supply and its profits
relative to its existing and emerging competition from big-box retailers.
2.02
The macro-environment
This includes all factors that can influence an organization, but that are out of their direct
control. A company does not generally influence any laws (although it is accepted that
they could lobby or be part of a trade organization). It is continuously changing, and the
company needs to be flexible to adapt. There may be aggressive competition and rivalry
in a market. Globalization means that there is always the threat of substitute products and
new entrants. The wider environment is also ever changing, and the marketer needs to
compensate for changes in culture, politics, economics and technology.
For example :-
Exchange rate can become a very important determinant of
business performance for a company like ITC Ltd., whose International Business
Division relies a lot on international trade of agri-produce. If rupee becomes
stronger against foreign currencies, Indian products become costlier in world
17
markets and exports suffer, on the other hand, it becomes cheaper to import leading
to flood of imported products.
2.03
The internal environment.
All factors that are internal to the organization are known as the 'internal environment'.
They are generally audited by applying the 'Five Ms' which are Men, Money, Machinery,
Materials and Markets. The internal environment is as important for managing change as
the external. As marketers we call the process of managing internal change 'internal
marketing.' You may recall that we have discussed this topic in much detail in section 1.5
of Chapter 1. You may also remember that essentially we use marketing approaches to
aid communication and change management within organisations.
There are special techniques available for auditing the external environment in more
detail. Some of these are, PEST Analysis, Michael Porter's Five Forces Analysis, and
SWOT Analysis.
2.1
Methods of Analysing an organisation’s environment
2.11
PEST Analysis
It is very important that an organization considers its environment before beginning the
marketing process. In fact, environmental analysis should be continuous and feed all
aspects of planning. The organization's marketing environment is made up of:
1. The internal environment e.g. staff (or internal customers), office technology, wages
and finance, etc.
2. The micro-environment e.g. our external customers, agents and distributors,
suppliers, our competitors, etc.
18
3. The macro-environment e.g. Political (and legal) forces, Economic forces,
Sociocultural forces, and Technological forces. These are known as PEST factors.
Political Factors
The political arena has a huge influence upon the regulation of businesses, and the
spending power of consumers and other businesses. You must consider issues such as:
1. How stable is the political environment?
2. Will government policy influence laws that regulate agriculture, food processing
and agri-business?
3. What is the government's position on practices of seed and agro-chemical
companies?
4. What is the government's policy on the employment generation in rural areas?
5. Does the government have a view on cultural and religious issues?
6. Is the government involved in trading agreements such as SAARC, WTO or
others?
Economic Factors
Marketers need to consider the state of a trading economy in the short and long-terms.
This is especially true when planning for international marketing. You need to look at:
1.
Interest rates on agricultural and non-agricultural loans
2.
The level of inflation, employment levels in different countries
3.
Long-term prospects for the economy, Gross Domestic Product (GDP) per capita,
and so on
19
Sociocultural Factors
The social and cultural influences on business vary from country to country. It is very
important that such factors are considered. Factors include:
1.
What is the dominant religion?
2.
What are attitudes to foreign products and services? What are the attitudes
towards big businesses?
3.
To what extent does the diversity in languages impact upon the diffusion of
products in the markets?
4.
How much time do consumers have for leisure? What are the leisure activities?
5.
What are the roles of men and women within society?
6.
What is the life expectancy of the population? How has the situation changed in
recent years? Are morbidity rates high? Which illnesses dominate?
7.
Do the population have a strong/weak opinion on environmental issues?
Technological Factors
Technology is vital for competitive advantage, and is a major driver of globalization.
Consider the following points:
1.
Does technology allow for products and services to be made more cheaply and to
a better standard of quality?
2.
Do the technologies offer consumers and businesses more innovative products
and services such as Internet & ATM banking, new generation mobile telephones,
etc.?
3.
How is distribution changed by new technologies e.g. the Internet, on-line
auctions, modern formats of retailing etc.?
4.
Does technology offer companies a new way to communicate with consumers e.g.
websites, e-banners, Customer Relationship Management (CRM), etc?
2.12
Five Forces Analysis
2.121 Analyzing the environment - Five Forces Analysis
20
Five Forces Analysis helps the marketer to contrast a competitive environment. It has
similarities with other tools for environmental audit, such as PEST analysis, but tends to
focus on the single, stand alone, business or SBU (Strategic Business Unit) rather than a
single product or range of products. For example, a company like Mahindra & Mahindra
would analyse the market for tractors which is one of its SBUs.
Five forces analysis looks at five key areas namely the threat of entry, the power of
buyers, the power of suppliers, the threat of substitutes, and competitive rivalry.
The threat of entry

Economies of scale e.g. the benefits associated with bulk purchasing.

The high or low cost of entry e.g. how much will it cost for the latest technology?

Ease of access to distribution channels e.g. Do our competitors have the
distribution channels sewn up?
21

Cost advantages not related to the size of the company e.g. personal contacts or
knowledge that larger companies do not own or effects of being there earlier than
the competition (learning curve effects).

Will competitors retaliate?

Government action e.g. will new laws be introduced that will weaken our
competitive position?

How important is differentiation? e.g. ‘Darjeeling’ Tea or ‘Basmati’ rice cannot
be copied in any other part of the world.
The power of buyers

This is high where there a few, large players in a market e.g. the large grocery
chains.

If there are a large number of undifferentiated, small suppliers e.g. small farming
businesses supplying the large grocery chains?

The cost of switching between suppliers is low e.g. from one fleet supplier of
trucks to another.
The power of suppliers
The power of suppliers tends to be a reversal of the power of buyers. The power of
suppliers is high when:

Where the switching costs are high e.g. switching from one agri-input dealer to
another will entail a reworking of informal credit arrangements for the farmer.

Power is high where the brand is powerful e.g. Sriram Urea, Ford Tractors,
Monsanto Seeds, Amul Butter

There is a possibility of the supplier integrating forward e.g. Dairy Farmers
Cooperative establishing Dairy Processing Plant and Marketing organisation as in
the case of ‘Amul’.

Customers are fragmented (not in clusters) so that they have little bargaining
power e.g. farmers scattered in remote places.
22
The threat of substitutes

Where there is product-for-product substitution e.g. telephone for letters by post
or where there is substitution of need e.g. better quality of diesel and engine oil in
the farm machinery reduces the need for mechanics.

Where there is generic substitution (competing for the currency in your pocket)
e.g. Cinema Halls compete with Restaurants? Malls for anyone visiting a city
from the village as both of these cater to the need for entertainment.

Where we could always do without e.g. bidis (traditional Indian rolled tobacco)
and cigarettes.
Competitive Rivalry

This is most likely to be high where entry is easy, there is the threat of substitute
products, and suppliers and buyers in the market attempt to control. This is why it
is always seen in the center of the diagram.
2.13
SWOT Analysis
Strengths, Weaknesses, Opportunities and Threats (SWOT)
SWOT analysis is a tool for auditing an organization and its environment. It is the first
stage of planning and helps marketers to focus on key issues. SWOT stands for strengths,
weaknesses, opportunities, and threats. Strengths and weaknesses are internal factors.
Opportunities and threats are external factors.
23
In SWOT, strengths and weaknesses are internal factors. For example: strength could be:

Your specialist marketing expertise.

A new, innovative product or service.

Location of your business.

Quality processes and procedures.

Any other aspect of your business that adds value to your product or service.
A weakness could be:

Lack of marketing expertise.

Undifferentiated products or services (i.e. in relation to your competitors).

Location of your business.

Poor quality goods or services.

Damaged reputation.
In SWOT, opportunities and threats are external factors. For example: An opportunity
could be:

A developing market such as the Internet.

Mergers, joint ventures or strategic alliances.

Moving into new market segments that offer improved profits.

A new international market.

A market vacated by an ineffective competitor.
A threat could be:

A new competitor in your home market.

Price wars with competitors.

A competitor has a new, innovative product or service.

Competitors have superior access to channels of distribution.

Taxation is introduced on your product or service.
24
A word of caution, SWOT analysis can be very subjective. Do not rely on SWOT too
much. Two people rarely come-up with the same final version of SWOT. TOWS analysis
is extremely similar. It simply looks at the negative factors first in order to turn them into
positive factors. So use SWOT as guide and not a prescription.
Simple rules for successful SWOT analysis

Be realistic about the strengths and weaknesses of your organization when conducting
SWOT analysis.

SWOT analysis should distinguish between where your organization is today, and where
it could be in the future.

SWOT should always be specific. Avoid grey areas.

Always apply SWOT in relation to your competition i.e. better than or worse than your
competition.

Keep your SWOT short and simple. Avoid complexity and over analysis.

SWOT is subjective.
Once key issues have been identified with your SWOT analysis, they feed into marketing
objectives. SWOT can be used in conjunction with other tools for audit and analysis,
such as PEST analysis and Porter's Five-Forces analysis. So SWOT is a very popular tool
with marketing students because it is quick and easy to learn. During the SWOT exercise,
list factors in the relevant boxes. It's that simple.
Do you need a more advanced SWOT Analysis?
Some of the problems that you may encounter with SWOT are as a result of one of its
key benefits i.e. its flexibility. Since SWOT analysis can be used in a variety of scenarios,
it has to be flexible. However this can lead to a number of anomalies. Problems with
basic SWOT analysis can be addressed using a more critical POWER SWOT.
SWOT Analysis Examples
A few SWOT analyses case studies are outlined as follows:
25
Example 1 - Wal-Mart SWOT Analysis.
-
Strengths - Wal-Mart is a powerful retail brand. It has a reputation for
value for money, convenience and a wide range of products all in one
store.
-
Weaknesses - Wal-Mart is the World's largest grocery retailer and control
of its empire, despite its IT advantages, could leave it weak in some areas
due to the huge span of control.
-
Opportunities - To take over, merge with, or form strategic alliances with
other global retailers, focusing on specific markets such as Europe or the
Greater China Region.
-
Threats - Being number one means that you are the target of competition,
locally and globally.
Example 2 – ‘GCMMF (Amul)’ SWOT Analysis.
-
Strengths - Amul is a powerful dairy brand. It has a reputation for value
for money, high quality and easy availability of all its products, right from
liquid milk to ilk powder to chocolates.
-
Weaknesses - GCMMF is India’s largest dairy products marketer and is
aspiring to make Amul a mega ‘food’ brand. This will require further
expansion of its reach and access to expertise and production technology
that could make it vulnerable in some areas.
-
Opportunities - To take over, or form strategic alliances with other players
in the food industry, increasing health consciousness prompting people to
abandon junk food and colas in favour of healthier choices including those
available with milk base.
-
Threats - Being number one means that you are the target of competition,
locally and globally.
2.2
Introduction to Marketing Research
Market research and marketing research are often confused. 'Market' research is
simply research into a specific market. It is a very narrow concept. 'Marketing' research is
26
much broader. It not only includes 'market' research, but also areas such as research into
new products, or modes of distribution such as via the Internet. Here are a couple of
definitions:
"Marketing research is the function that links the consumer, customer, and public to the
marketer through information - information used to identify and define marketing
opportunities and problems; generate, refine, and evaluate marketing actions; monitor
marketing performance; and improve understanding of marketing as a process.
Marketing research specifies the information required to address these issues, designs
the methods for collecting information, manages and implements the data collection
process, analyzes, and communicates the findings and their implications."
- American Marketing association - Official Definition of Marketing Research
Obviously, this is a very long and involved definition of marketing research.
"Marketing research is about researching the whole of a company's marketing process."
- Palmer (2000)
This explanation is far more straightforward i.e. marketing research into the elements of
the marketing mix, competitors, markets, and everything to do with the customers.
2.21
The Marketing research Process.
Marketing research is gathered using a systematic approach. An example of one follows:
1. Define the problem: Never conduct research for things that you would 'like' to
know. Make sure that you really 'need' to know something. The problem then
becomes the focus of the research. For example, why are the sales of life
insurance products from your company not picking up among the Indian farmers?
27
2. Data Collection: How will you collect the data that you will analyze to solve your
problem? Do we conduct a telephone survey, or do we arrange a focus group?
The methods of data collection will be discussed in more detail later.
3. Sampling: Select a sampling method. Do we us a random sample, stratified
sample, or cluster sample?
4. Data Analysis methods: How will we analyze any data collected? What software
will we use? What degree of accuracy is required?
5. Budget and time frame: Decide upon a budget and a timeframe.
6. Agreement with the client department/organisation: Go back and speak to the
managers or clients requesting the research. Make sure that you agree on the
problem! If you gain approval, then move on to step seven.
7. Execution of research: Go ahead and collect the data.
8. Data Analysis: Conduct the analysis of the data.
9. Error check: Check for errors. It is not uncommon to find errors in sampling, data
collection method, or analytical mistakes.
10. Report Writing: Write your final report. This will contain charts, tables, and
diagrams that will communicate the results of the research, and hopefully lead to a
solution to your problem. Watch out for errors in interpretation.
2.22
Sources of Data - Primary and Secondary
There are two main sources of data - primary and secondary. Primary research is
conducted from scratch. It is original and collected to solve the problem in hand.
Secondary research, also known as desk research, already exists since it has been
collected for other purposes.
2.23
Primary Marketing Research
Primary marketing research is collected for the first time. It is original and collected
for a specific purpose, or to solve a specific problem. It is expensive, and time
consuming, but is more focused than secondary research. There are many ways to
conduct primary research. We consider some of them:
28
1. Interviews
2. Mystery shopping
3. Focus groups
4. Projective techniques
5. Product tests
6. Diaries
7. Omnibus Studies
2.231 Interviews
This is the technique most associated with marketing research. Interviews can be
telephone, face-to-face, or over the Internet.
2.232 Telephone Interview
Telephone ownership is very common in developed countries. It is ideal for collecting
data from a geographically dispersed sample. The interviews tend to be very structured
and tend to lack depth. Telephone interviews are cheaper to conduct than face-to-face
interviews (on a per person basis).
Advantages of telephone interviews

Can be geographically spread out

Can be set up and conducted relatively cheaply

Random samples can be selected

Cheaper than face-to-face interviews
Disadvantages of telephone interviews

Respondents can simply hang up

Interviews tend to be a lot shorter

Visual aids cannot be used

Researchers cannot behavior or body language
29
However, in less developed countries, the penetration of telephone services is less than
adequate, especially in rural and remote areas This reduces the possibility of relying n
telephones for conduct of interviews.
2.233 Face-to-face Interviews
Face-to face interviews are conducted between a market researcher and a respondent.
Data is collected on a survey. Some surveys are very rigid or 'structured' and use closed
questions. Data is easily compared. Other face-to-face interviews are more 'in depth,' and
depend upon more open forms of questioning. The research will probe and develop points
of interest.
Advantages of face-to-face interviews

They allow more 'depth'

Physical prompts such as products and pictures can be used

Body language can emphasize responses

Respondents can be 'observed' at the same time
Disadvantages of face-to-face interviews

Interviews can be expensive

It can take a long period of time to arrange and conduct.

Some respondents will give biased responses when face-to-face with a researcher.
2.234 The Internet
The Internet can be used in a number of ways to collect primary data. Visitors to sites can
be asked to complete electronic questionnaires. However responses will increase if an
incentive is offered such as a free newsletter, or free membership. Other important data is
collected when visitors sign up for membership.
Advantages of the Internet

Relatively inexpensive

Uses graphics and visual aids
30

Random samples can be selected

Visitors tend to be loyal to particular sites and are willing to give up time to
complete the forms
Disadvantages of the Internet

Only surveys current, not potential customers.

Needs knowledge of software to set up questionnaires and methods of processing
data

May restrict visitors from your website.
2.235 Mail Survey
In many countries, the mail survey is the most appropriate way to gather primary data.
Lists are collated, or purchased, and a predesigned questionnaire is mailed to a sample of
respondents. Mail surveys do not tend to generate more than a 5-10% response rate.
However, a second mailing to prompt or remind respondents tends to improve response
rates. Mail surveys are less popular with the advent of technologies such as the Internet
and telephones, especially call centers.
2.235 Mystery Shopping
Companies will set up mystery shopping campaigns on an organizations behalf. Often
used in banking, retailing and many other customer focused organizations, mystery
shoppers will enter, posing as real customers. They collect data on customer service and
the customer experience. Findings are reported back to the commissioning organization.
There are many issues surrounding the ethics of such an approach to research.
2.236 Focus Groups
Focus groups are made up from a number of selected respondents based together in the
same room. Highly experienced researchers work with the focus group to gather in depth
qualitative feedback. Groups tend to be made up from 10 to 18 participants. Discussion,
31
opinion, and beliefs are encouraged, and the research will probe into specific areas that
are of interest to the company commissioning the research.
Advantages of focus groups

Commissioning marketers often observe the group from behind a one-way screen

Visual aids and tangible products can be circulated and opinions taken

All participants and the research interact

Areas of specific interest can be covered in greater depth
Disadvantages of focus groups

Highly experienced researchers are needed. They are rare.

Complex to organize

Can be very expensive in comparison to other methods
2.237 Projective techniques
Projective techniques are borrowed from the field of psychology. They will generate
highly subjective qualitative data. There are many examples of such approaches
including: Inkblot tests - look for images in a series of inkblots Cartoons - complete the
'bubbles' on a cartoon series Sentence or story completion Word association - depends on
very quick (subconscious) responses to words Psychodrama - Imagine that you are a
product and describe what it is like to be operated, warn, or used.
2.238 Product tests
Product tests are often completed as part of the 'test' marketing process. Products are
displayed in a mall of shopping center. Potential customers are asked to visit the store and
their purchase behavior is observed. Observers will contemplate how the product is
handled, how the packing is read, how much time the consumer spends with the product,
and so on.
32
2.239 Diaries & Omnibus studies
Diaries are used by a number of specially recruited consumers. They are asked to
complete a diary that lists and records their purchasing behavior of a period of time
(weeks, months, or years). It demands a substantial commitment on the part of the
respondent. However, by collecting a series of diaries with a number of entries, the
researcher has a reasonable picture of purchasing behavior.
An omnibus study is where an organisation purchases a single or a few questions on a
'hybrid' interview (either face-to-face or by telephone). The organisation will be one of
many that simply want to get a straightforward answer to a simple question. An omnibus
survey could include questions from companies in sectors as diverse as health care and
tobacco. The research is far cheaper, and commit less time and effort than conducting
your own research.
2.24
Secondary - Marketing Research
Secondary marketing research, or desk research, already exist in one form or another.
It is relatively cheap, and can be conducted quite quickly .However, it tends to have been
collected for reasons other than for the problem or objective at hand. So it may be
untargeted, and difficult to use to make comparisons (e.g. bank services data gathered for
the rural areas of Australia will be different from the data about the same set of banking
services in rural areas of India). There are a number of such sources available to the
marketer, and the following list is by no means conclusive:

Trade associations

National and local press Industry magazines

National/international governments

Websites

Informal contacts

Trade directories

Published company accounts
33

Business libraries

Professional institutes and organisations

Omnibus surveys

Previously gathered marketing research

Census data

Public records

National Sample Survey

Countrywide Retail Audit

NCAER’s MISH survey etc.
We have given a general introduction to marketing research. Marketing research is a huge
topic area and has many processes, procedures, and terminologies that build upon the
points above.
34
Chapter 3
Consumer Behaviour
3.0 Introduction
If a marketer can identify consumer buyer behaviour, he or she will be in a better
position to target products and services at them. Buyer behaviour is focused upon the
needs of individuals, groups and organisations. This chapter explains the model of
consumer behaviour, which consists of several variables like marketing offer,
environment, buyer characteristics, and purchase process which influence pre-purchase,
purchase and cause post-purchase experiences. It also covers the patterns of behaviour
exhibited by the buyers as well as the criteria and methods that they use to evaluate
purchase and consumption choices.
To understand human behaviour and its causes is extremely challenging. The sheer
variety of variables and their respective intensities is mind-boggling. The world-views
and backgrounds are different and so are the religions and traditions. The nationalities are
different and so are the communities. The professions are different and so are the
education levels. All these and more contribute towards making the understanding of
Once upon a time, four blind man keen to know how an elephant looks like went to a zoo
and requested the zoo keeper to take them close to an elephant. They were on different
sides of the elephant, each happy in his arrogance that he knew more than the others. By
virtue of their location relative to the elephant, each could touch a different part of
elephant’s huge body. Then one who was close to the trunk said that elephant must be like
a huge snake (just imagine!). Then, there was one who could feel elephant’s legs. He said
that elephant must be like a tree (way off...don’t you think), the third one touched
elephant’s stomach and said that elephant’s appearance must be like a huge sack. The
blind man who touched elephant’s ears was sure that elephant must surely be resembling
a fan.
behaviour a real uphill task.
35
3.1
Models of Consumer Behaviour
The basic model of behaviour that is used for analysing a consumer’s
Marketing offer
behaviour is as follows:
Product, Place,
Price, Promotion
Environment
Socio-cultural,
Technological,
Economic,
Political
Stimuli
Organism
Behaviour
Consequences
Internal &
External
Buyer
Characteristics
Decision
making,
action
Satisfaction or
Cognitive
Dissonance
Understanding the nature of the stimuli the consumer receives from the environment and
from the marketers is important. The nature of influence that each of these stimuli exerts
on the thinking and decision making process is an important determinant of what he
buys? Where from he buys? When he buys? and what he buys?
3.2
The Stimuli
The stimuli are of two types, the internal and the external. The origin of internal stimuli
is the ‘self’. Hunger, Thirst or to dress up properly, etc are examples of internal stimuli.
External Stimuli are caused by the marketing mix or by environment.
The marketing mix which acts as a stimulus consists of four Ps: Product, Price,
Promotion and Place. A combination of these activates a consumer to search, negotiate or
to buy a product or a service.
(a)
Socio-Cultural factors
The socio-cultural factors that affect an individual’s behaviour are: Culture, Social
Class, groups, family role, status and sociability
i) Culture: The traditions, the customs, the language, the beliefs, and the norms,
each one of these affects the way a person behaves.
36
ii) Social Class: The income, the occupation, the education level, the means of
leisure, the way of speaking and dressing, each one of these defines the class one
belongs to. The class plays an important role in governing the shopping and
consumption choices of individuals.
iii) Group: Whether it is the primary groups, such as family and kinship groups, the
friends circle and the neighbourhood group or it is a secondary group such as
office colleagues, political parties or clubs, etc. Each membership or lack of it
influences the way a person behaves in a consumption situation.
iv) Family: Family is one of the most important and basic economic unit. The
structure of the family and the statuses and the roles each member plays in it is a
significant determinant of the purchase decisions.
v) Role and Status: The rights (Status) and the obligations (roles) affect the way a
person perceives oneself. The conduct of each individual is shaped by the Role
set and status set that he views as acceptable and identifiable. Purchase behaviour
is no exception. A person either identifies with certain brands or aspires for
certain brands. In no case will a person like to get associated with something that
he perceives as of lower status than him.
vi) Sociability: The extent to which the group is bonded together decides the
influence that it has on the individuals comprising it. The strength and
attractiveness that each group member feels for the group that he belongs to is a
major cause of the behaviour of each one of the group members.
(b) Economic factors
The income and the occupations that one follows makes one behave in certain
manner.
(c) Political factors
The dynamics of the group and the power equations within the groups, the changes
happening in the political environment, the forces shaping the political economy all
influence the behaviour of the individuals. In rural India, the strengthening of
panchayati raj system has placed more money in the hands of villagers due to better
37
utilisation of funds. It has also made the villagers more confident about their
decisions.
(d) Technological factors
Technology has an impact on the lives of rural people. All the occupations including
those of agriculture, dairying, poultry and animal husbandry have become more
productive. New technology riding n the back of telecom and internet revolution has
boosted incomes, increased information availability and contributed towards
reduction in wastage of resources. The speed of activities has increased. All these
developments have led to change in behaviour making us conclude that the
technology that a consumer uses is a firm decider of what he would consume.
3.3 The Consumer’s Characteristics
Some of the characteristics of buyers that affect the buying process include:
1. Age
2. Life-Cycle stage
3. Economic Situation
4. Education
5. Occupation
6. Life-style
7. Personality
8. Self-Concept
9. Psychological factors
The first eight points mentioned above are self evident. However, the ninth point i.e.
Psychological factors needs explanation. The psychological factors that have an
important impact on a person’s decisions are:

Perception: The process by which people select, organise and interpret
information to form meaningful picture of the object. This makes the task
of communicating with different sets of people very challenging for a
marketer.
38

Cognition:
The information gathering and processing style and the way
people ‘learn’ is different. Therefore, the marketer has to tailor make his
offering including the communication according to the cognitive system
prevailing amongst his target audience.

Motivation: A motive is defined as the inner urge that propels a person to
action. The process of creating motives is called motivation.
3.31
Maslow’s Hierarchy of human needs
It is important to understand the relevance of human needs to buyer behaviour
(remember, marketing is about satisfying needs). The role of a human being as a
consumer is a subset of his behaviour as a human being. It is reasonable to assume that
the motives that drive a human being’s conduct in non-shopping, non-buyer role are no
different from what guide him when he acts as a buyer.
Let's look at human motivations as introduced by Abraham Maslow by
his hierarchy of needs: The hierarchy is triangular. This is because as
39
you move up it, fewer and fewer people satisfy higher level needs. We
begin at the bottom level.
Physiological needs such as food, air, water, heat, and the basic
necessities of survival need to be satisfied. At the level of safety, man
has a place to live that protects him from the elements and predators. At
the third level we meet our social and belongingness needs i.e. we marry,
or join groups of friends, etc.
The final two levels are esteem and self-actualisation. Fewer people
satisfy the higher level needs. Esteem means that you achieve something
that makes you recognised and gives personal satisfaction, for example
writing a book. Self-actualisation is achieved by few. Here a person is
one of a small number to actually do something. For example, Neil
Armstrong self-actualised as the first person to reach the Moon.
3.4
Buying decision process
There are various models of explaining how a buyer takes a decision. One of the
preliminary models is the one shown below:
Need
recognition
Information
search
Evaluation of
alternatives
Purchase
decision
Post-Purchase
behaviour
1. Need recognition: When the buyer feels the absence, the lack, the paucity,
the scarcity of something, he senses a gap between his desired state and the
actual state. This realization of a gap is the trigger for the commencement
of buying process. The trigger can be supplied by environment, the
marketer or may be internally devised by the buyer. For example, a feeling
of hunger while passing through the market triggers the search for an eating
joint.
2. Information Search: Depending on the availability of time, of resources and
the degree of importance one attaches to the purchase, the amount of
40
information that would be gathered is decided. If adequate time is available
and if the purchase is for an important product or service, more and
relevant information will be gathered. Opposite is the case for low
importance activity or when tie that is available is short. Different sources
of information like family, friends, opinion leaders, radio, Television and
newspapers etc have different degrees of credibility associated with them.
Depending on the buyer’s analysis of his purchase situation, the buyer
decides what he must do in the information search stage. The intention of
the buyer is to reduce his risk by obtaining correct information.
3.
Evaluation of Alternatives: The evaluation of purchase alternatives (to buy
or not to buy, to buy immediately or to defer it, to buy brand A or brand B)
takes place in various small steps. The buyer has to have certain set of
criteria based on which he would assesses the worthiness of each option.
The criteria may be economic or social or emotional or even a combination
of two or many. The intention is to better one’s situation through the
purchase decision the betterment could be in socio-economic domain or in
the emotional domain. Once the set of criteria is developed alternative is
subjected to these criteria. Depending on the merits of each option, a buyer
keeps moving on and taking decisions.
4. Purchase decision: All the existing brands of a product in the market make
a total set (e.g. Ford, Massey Ferguson, Eicher, Escorts, PTL and Swaraj
would form the total set for tractors). Based on the information search, the
consumer becomes aware of the presence of certain brands (e.g. Eicher,
Ford and Escorts). They form the Awareness Set. The brands which meet
the initial buying criteria. These are considered for further evaluation. They
comprise the Consideration Set. By applying all the criteria including the
final criteria, the farmer may arrive at all almost equally valid choices.
These are called the choice set. Finally only one brand is chosen for
purchase. The factors which affect any final choice are:

Attitude of others

Unanticipated situational factors
41

Perceived Risk
The final purchase decision covers the following:
1. Which brand?
2. Which dealer?
3. How much quantity?
4. When purchased?
5. What payment method?
5.
Post-Purchase Behaviour: The purchase decision marks a certain event
in the life of a buyer. Depending on its seriousness, the buyer develops
his feelings and behaviour towards the purchase once it has been made.
These can be positive (happy, satisfied, delighted) or can be negative
(anxious, disappointed, disgusted, dissatisfied). Typically, a marketer
would be interested in the following answers:

What are the feelings of the buyer after buying and using the
product?

What are his reactions when satisfied? When dissatisfied?

How does he dispose of the product after use?
The satisfaction, delight or otherwise is dependent on whether the expectations are met
by the product purchase or not.
The marketers would do well to manage the expectations of their customers as well as
make sure that once formed, the expectations are exceeded by the marketing offer.
There are other buying process models like AIDA (Awareness Intention
DesireAction) or the one proposed by Cohen. The model is a little simplistic but
introduces the concept of different consumer needs quite well.
42
To understand consumer buyer behaviour is to understand how the person
interacts with the marketing mix. As described by Cohen (1991), the marketing
mix inputs (or the four Ps of price, place, promotion, and product) are adapted
and focused upon the consumer.
The psychology of each individual considers the product or service on offer in
relation to their own culture, attitude, previous learning, and personal
perception. The consumer then decides whether or not to purchase, where to
purchase, the brand that he or she prefers, and other choices.
Marketers would do well to understand the dynamics of buying process and
consumer behaviour. Therein would lie the likelihood of business success.
43
Chapter 4
Segmentation, Targeting and Positioning
4.0
Introduction to segmentation, targeting and positioning
The organisations of today and of the future will have to identify, select, attract,
nurture and retain their market. They may have to do whatever it takes to keep their
target audience/customers hooked on to their offerings. Different pack sizes,
different formulations, different colours and perfumes, each aimed at catering to a
sharply defined category of people in the market. No longer are the companies
depending on the philosophy that consumers are human beings with little or no
differences in aspirations, preferences, actions and consequences. In reality they
are dividing the markets into attractive segments to reach them efficiently, serve
them effectively and achieve results economically. Selecting and attracting markets
involves three key decisions viz., segmenting, targeting and positioning.
To get a product or service to the right person or company, a marketer would
firstly segment the market, then target a single segment or series of segments,
and finally position within the segment(s).
4.1
Segmentation
Segmentation is essentially the identification of subsets of buyers within a
market who share similar needs and who demonstrate similar buyer behavior.
The world is made up of billions of buyers with their own sets of needs and
behaviour. Segmentation aims to match groups of purchasers with the same set
of needs and buyer behaviour. Such a group is known as a 'segment'. Think of
your market as an orange, with a series of connected but distinctive segments,
each with their own profile.
44
Segmentation is a form of critical evaluation rather than a prescribed process
or system, and hence no two markets are defined and segmented in the same
way. However there are a number of underpinning criteria that assist us with
segmentation:

Is the segment viable? Can we make a profit from it?

Is the segment accessible? How easy is it for us to get into the segment?

Is the segment measurable? Can we obtain realistic data to consider its potential?
The are many ways that a segment can be considered. For example, the auto
market could be segmented by: driver age, engine size, model type, cost, and
so on. However the more general bases include:
Geograpical Segmentation:
The variables considered while segmenting a market geographically include
zones/regions, states, districts, cities/towns/villages by size, density, climate and culture.
Demographic Segmentation:
In this case the markets are divided based on the variables such as age, life cycle, gender,
family size, income, occupation, education, religion and nationality, etc.
45
Psychographic Segmentation:
While geographic and demographic basis of segmentation offer an operational view of
the markets, the actual dynamics of the purchase can be assessed and marketing offer can
be designed only on the basis of psychographics of the people. Social class, lifestyle and
personality are the psychographic variables that can be used for segmentation.
In many parts of Punjab, the farmers have gone in for their second or even third tractor
and that too of large capacity even when their plot sizes warrant an ownership of a single,
small capacity tractor. The more than required multiplicity and the bigness of the tractors
is due to the tendency of emulating their neighbours or of reading a positive word about
their economic stature in the community.
A company will evaluate each segment based upon potential business success.
Opportunities will depend upon factors such as: the potential growth of the segment the
state of competitive rivalry within the segment, how much profit the segment will deliver,
how big the segment is, how the segment fits with the current direction of the company
and its vision.
4.2
Targeting
Targeting is the second stage of the SEGMENT-"Target"-POSITION (STP)
process. After the market has been separated into its segments, the marketer
will select a segment or series of segments and 'target' it/them. Resources and
effort will be targeted at the segment.
4.21
Evaluation of Segments
The organisation can use the following criteria for evaluating segments:
1.
Profitability
The company needs to collect relevant information about sales volume,
distribution costs promotion costs, sales revenues and profit margins. This
data would help the calculation of profits obtainable from each segment.
46
2.
Attractiveness
Marketers must know whether there is a need to design skill development
programmes for its employees to serve its markets. The most attractive
segment for a company is the one having the closest fit with the size and
the nature of the organisation.
3.
Growth Rate
It is not only important to have current profitability for determining
attractiveness of a segment but it is also important that the segment has
high profit potential and is growing rapidly towards achieving its potential.
4.
Company Objectives
The segments selected by the company to target must be in close alignment
with the objectives of the company.
5.
Limitations and Constraints
A company must examine the boundaries within which it has to operate
especially with reference to the social and cultural norms and mores, the
regulatory framework, Government policies, the general quality and
quantity of human resources in its location, etc. The segments chosen must
be accessible within the given limitations.
4.22
Segment Coverage
Organisations can have any of the three alternative strategies to suit their
segmentation approaches.
1.
Concentrated Strategy
This involves catering to a single segment with a single product. In other word,
the marketer targets a single product offering at a single segment in a market
with many segments. For example, Rolls Royce Car is a high value product
47
aimed specifically at very rich people who also have fine taste and are
respected in the society.
Concentrated Strategy
2.
Undifferentiated Strategy
The marketer could ignore the differences in the segments, and choose to aim a
single product at all segments i.e. the whole market. This is typical in 'mass
marketing' or where differentiation is less important than cost. An example of
this is the approach taken by budget airlines such as Air Deccan in India, Air
Asia in South East Asia, Easyjet in Europe etc.
Undifferentiated Strategy
48
2.
Differentiated Strategy
Finally, there is a multi-segment approach. Here a marketer will target a
variety of different segments with a series of differentiated products. This is
typical in the automobile industry. Here there are a variety of products such as
diesel, four-wheel-drive, sports saloons, and so on.
4.3
Positioning
The third and final part of the SEGMENT - TARGET - POSITION (STP)
process is 'positioning.' Positioning is undoubtedly one of the simplest and
most useful tools to marketers. After segmenting a market and then targeting a
consumer, you would proceed to position a product within that market.
Remember this important point. Positioning is all about 'perception'. As
perception differs from person to person, so do the results of the positioning
map e.g what you perceive as quality, value for money, etc, is different to my
perception. However, there will be similarities.
Positioning involves three tasks:

Identifying the differences of the offer vis-à-vis competitors’ offers.

Selecting the differences that have greater competitive advantage

Communicating such advantages effectively to the target audience.
The marketing offer may be differentiated along the following lines:

Product

Services

People, or

Image
Products or services are 'mapped' together on a 'positioning map'. This allows
them to be compared and contrasted in relation to each other. This is the main
49
strength of this tool. Marketers decide upon a competitive position which
enables them to distinguish their own products from the offerings of their
competition (hence the term positioning strategy).
Take a look at the basic positioning map template below:
The marketer would draw out the map and decide upon a label for each axis.
They could be price (variable one) and quality (variable two), or Comfort
(variable one) and price (variable two). The individual products are then
mapped out next to each other. Any gaps could be regarded as possible areas
for new products.
The term 'positioning' refers to the consumer's perception of a product or
service in relation to its competitors. You need to ask yourself, what is the
position of the product in the mind of the consumer?
Trout and Ries suggest a six-step question framework for successful
positioning:
1. What position do you currently own?
2. What position do you want to own?
3. Whom do you have to defeat to own the position you want?
50
4. Do you have the resources to do it?
5. Can you persist until you get there?
6. Are your tactics supporting the positioning objective you set?
Look at the example below using the auto market.
Product: Skoda Octavia, Hyundai Sonata, Maruti Baleno, Honda City, Hyundai
Santro, Maruti Wagon R and Maruti 800.
Positioning Map for Cars
The seven products are plotted upon the positioning map. It can be concluded
that products tend to bunch in the high price/low economy(fast) sector and also
in the low price/high economy sector. There is an opportunity in the low price/
low economy (fast) sector. Maybe Hyundai or Maruti could consider
51
introducing a low cost sport saloon. However, remember that it is all down to
the perception of the individual.
52
Chapter 5
Product, Brand and Innovation Management
5.0
Introduction to Product Management
The most common decisions that Marketing Manager has to take pertain to product
strategy. The multi-product firms are faced with challenges and they do exercise
choices in the product arena to gain a competitive advantage. It is through
continuous re-jigging of product mixes that a company improves its performance in
the marketplace.
5.1
Three Levels of a Product
For many people, a product is simply the tangible, physical entity that they
may be buying or selling. You buy a new tractor and that's the product simple! In marketing, we do not consider it so simple. When one buys a
tractor, is the product more complex than one first thought? In order to actively
explore the nature of a product further, let’s consider it as three different
products - the CORE product, the ACTUAL product, and finally the
AUGMENTED product.
These are known as the 'Three Levels of a Product.' Let us see what is the
difference between the three products, or more precisely 'levels?'
53
The CORE product is NOT the tangible, physical product. You can't touch it.
That's because the core product is the BENEFIT of the product that makes it
valuable to you. So with the tractor example, the benefit is productivity i.e. the
ease with which the farming operations can be performed. Another core benefit
is the transportation since you can carry farm produce and construction
material around relatively quickly.
The ACTUAL product is the tangible, physical product. You can get some use
out of it. Again with the tractor example, it is the vehicle that you test drive,
buy and then collect.
The AUGMENTED product is the non-physical part of the product. It usually
consists of lots of added value, for which you may or may not pay a premium.
So when you buy a tractor, part of the augmented product would be the
54
warranty, the customer service support offered by the tractor manufacture, and
any after-sales service.
Another marketing tool for evaluating PRODUCT is the Product Life Cycle
(PLC).
5.2
The Product Life Cycle (PLC)
The Product Life Cycle (PLC) is based upon the biological life cycle. For
example, a seed is planted (introduction); it begins to sprout (growth); it shoots
out leaves and puts down roots as it becomes an adult (maturity); after a long
period as an adult the plant begins to shrink and die out (decline).
In theory it is the same for a product. After a period of development it is
introduced or launched into the market; it gains more and more customers as it
grows; eventually the market stabilises and the product becomes mature; then
after a period of time the product is overtaken by development and the
introduction of superior competitors, it goes into decline and is eventually
withdrawn.
However, most products fail in the introduction phase. Others have very
cyclical maturity phases where declines see the product promoted to regain
customers.
5.11
Strategies for the differing stages of the Product Life Cycle.
55
Introduction
The need for immediate profit is not a pressure. The product is promoted to
create awareness. If the product has no or few competitors, a skimming price
strategy is employed. Limited numbers of product are available in few
channels of distribution.
Growth
Competitors are attracted into the market with very similar offerings. Products
become more profitable and companies form alliances, joint ventures and take
each other over. Advertising spend is high and focuses upon building brand.
Market share tends to stabilise.
Maturity
Those products that survive the earlier stages tend to spend longest in this
phase. Sales grow at a decreasing rate and then stabilise. Producers attempt to
differentiate products and brands are key to this. Price wars and intense
competition occur. At this point the market reaches saturation. Producers begin
to leave the market due to poor margins. Promotion becomes more widespread
and uses a greater variety of media.
Decline
At this point there is a downturn in the market. For example more innovative
products are introduced or consumer tastes have changed. There is intense
price-cutting and many more products are withdrawn from the market. Profits
can be improved by reducing marketing spend and cost cutting.
5.12
Problems with Product Life Cycle.
In reality very few products follow such a prescriptive cycle. The length of
each stage varies enormously. The decisions of marketers can change the stage,
for example from maturity to decline by price-cutting. Not all products go
56
through each stage. Some go from introduction to decline. It is not easy to tell
which stage the product is in. Remember that PLC is like all other tools. Use it
to inform your gut feeling.
5.2
Diffusion of Innovation
In modern businesses, innovation is the name of the game. Whether it is products
or distribution channels or advertising, the field of marketing is agog with
innovation.
As new products are placed in the market, buyers show different degrees of
readiness to adopt them.
5.21
The Adoption Process
The Adoption Process (also known as the Diffusion of Innovation) is more
than forty years old. It was first described by Bourne (1959), so it has stood the
test of time and remained an important marketing tool ever since. It describes
the behaviour of consumers as they purchase new products and services. The
individual categories of innovator, early adopters, early majority, late
majority and laggards are described below.
57
Innovators are the first to adopt and display behaviour that demonstrates that
they likely to want to be ahead, and to be the first to own new products, well
before the average consumer. They are often not taken seriously by their peers.
The often buy products that do not make it through the early stages of the
Product Life Cycle (PLC).
Early adoptors are also quick to buy new products and services, and so are
key opinion leaders with their neighbours and friends as they tend to be
amongst the first to get hold of items or services.
The early majority looks to the innovators and early majority to see if a new
product or idea works and begins to stand the test of time. They stand back and
watch the experiences of others. Then there is a surge of mass purchases.
The late majority tends to purchase the product later than the average person.
They are slower to catch on to the popularity of new products, services, ideas,
or solutions. There is still mass consumption, but it begins to end.
Finally, laggards tend to very late to take on board new products and include
those that never actually adopt at all. Here there is little to be made from these
consumers.
There are a number of examples of products that have gone through the
adoption process. They include wrist watches, chemical fertilisers, chemical
pesticides, formal banking, crop insurance, kisan credit card and now
modern-day retail format. Initially only a small group of younger or
informed, well off people bought into these products. Opinion leaders or the
early adoptors then buy the product and tend to be a target for marketing
companies wishing to gain an early foot hold. The early majority is slightly
ahead of the average, and follow. Then the late majority buys into the product,
followed by any laggards. New adoption process or curves begin all the time.
Who knows what will happen with solid state technology or Internet purchases
of media?
58
5.3
Product Strategy
Product strategy helps in achievement of marketing goals by facilitating improved
decisions with respect to products, product line and product mix.
Product strategy covers within its scope, decisions at three levels:

Product Mix

Product line and

Product item
The typologies of decisions that are taken with respect to each level are mentioned
as follows:
Level
Product Mix
Product strategy typology
Width extension- New Product lines
Length extension- New Product items
Depth extension- New Product variants
Product Line
Stretching- Upward, downward, both ways
Line pruning, line modernisation
Product Item
Quality, features, design, brand and package
Augmentations
5.4
Introduction to Brands
5.41
Brands and Branding.
Branding is a strategy that is used by marketers. ‘Pickton and Broderick’
describe branding as Strategy to differentiate products and companies, and to
build economic value for both the consumer and the brand owner. Brand
occupies space in the perception of the consumer, and is what results from the
totality of what the consumer takes into consideration before making a
purchase decision.
So branding is a strategy, and brand is what has meaning to the consumer.
There are some other terms used in branding. Brand Equity is the addition of
the brand's attributes including reputation, symbols, associations and names.
59
Then the financial expression of the elements of brand equity is called Brand
Value.
There are a number of interpretations of the term brand. They are
summarized as follows:

A brand is simply a logo e.g. McDonald's Golden Arches.

A brand is a legal instrument, existing in a similar way to a patent or copyright.

A brand is a company e.g. Coca-Cola.

A brand is shorthand - not as straightforward. Here a brand that is perceived as
having benefits in the mind of the consumer is recognised and acts as a shortcut to
circumvent large chunks of information. So when searching for a product or
service in less familiar surroundings you will conduct an information search. A
recognised brand will help you reach a decision more conveniently.

A brand is a risk reducer. The brand reassures you when in unfamiliar territory.

A brand is positioning. It is situated in relation to other brands in the mind of the
consumer as better, worse, quicker, slower, etc.

A brand is a personality, beyond function e.g. Apple's iPod versus just any MP3
player.

A brand is a cluster of values e.g. Google is reliable, ethical, invaluable,
innovative and so on.

A brand is a vision. Here managers aspire to see a brand with a cluster of values.
In this context vision is similar to goal or mission.

A brand is added value, where the consumer sees value in a brand over and above
its competition e.g. ICICI over Dena Bank, and Maruti over ‘Ambassador’ despite similarities.

A brand is an identity that includes all sorts of components; depending on the
brand e.g. ‘TATA’ encapsulates ethics, environmentalism and political beliefs.

A brand is an image where the consumer perceives a brand as representing a
particular reality e.g. MRF Tyres are tough.

A brand is a relationship where the consumer reflects upon him or herself through
the experience of consuming a product or service.
60
5.42
Four Branding Alternatives
5.421 A Branding Strategy Based upon Brand Franchise Extension
A marketing tool that a marketer can employ for branding decision-making is the Four
Branding Alternatives (Tauber 1981). Four Branding Alternatives is a strategic marketing
communications technique. It is a fun and creative approach for all those who would like
to understand brands and how they could be innovatively developed. It is used when an
organization considers adding a product to its portfolio and its associated brand name.
The two variables for this matrix are Product Category (Existing or New) and Brand
Category (Existing or New).

New Product - a new product is developed with a series of new brand ideas and
meanings to the consumer.

Flanker Brand - a new brand is introduced into a category where the
organization already has established products.

Line Extension - a current brand name is introduced into a category where the
organization already has established products.

Franchise Extension - a familiar brand is taken to a product category where it is
unknown.
61
Here's an example. Firstly let's recall that Four Branding Alternatives is a strategic tool,
so you need to base it upon a very large organisation which is likely to own a number of
brands.
Examples would include car manufacturers, large IT companies, and conglomerates. You
get the idea.
5.5
The Loyalty Ladder
5.51
Turning a prospect into an advocate
The loyalty ladder is a tool for marketing communicators. The idea is that
consumers can be moved along a continuum of loyalty using a number of
integrated marketing communications techniques (it is also referred to as a
branding ladder). Essentially, consumers become loyal to a brand which has
meaning to them in relation to a product, service, solution or experience.
As with continuums of behaviour such as UACCA - Unawareness, Awareness,
Comprehension, Conviction, Action, or AIDA - Awareness, Interest, Desire,
Action, the loyalty ladder begins from a point where the consumer has Not Yet
62
Purchased, then he or she buys the product for the first time (Trialist), if the
trial has been a success he or she returns to buy again and again (Repeat
Purchaser) and finally the consumer buys no other brand (Brand Insistent).
At the Not Yet Purchased Stage the consumer is merely a Prospect. As he or
she trials they become a Customer. The Repeat Purchaser is a Client since he
or she is becoming loyal. Finally, the consumer becomes an Advocate (i.e.
activist or campaigner) since he or she is Brand Insistent. At this point the
brand is difficult to dislodge since it has so much meaning to the consumer.
Great brands such as M&M, ITC, TATA, Birla, and Phillips are in this highly
desirable position.
The marketing manager needs to decide or select integrated marketing
communications that move the consumer from Not Yet purchased to Brand
Insistent (i.e. from Prospect to Advocate). Once at Brand Insistent, the
marketing manager should attempt to keep the level of customer loyalty at this
point, again by using integrated marketing communications.
References
Edward M. Tauber, 'Brand Franchise Extension: New Product Benefits from Existing
Brand Names,' Business Horizons, vol. 24 (March-April 1981), p37.
63
Chapter 6
Pricing Strategy
6.0
Introduction
Price is the most obvious representation of the value that the marketer wants the
consumer to perceive. To a significant extent, a high price does convey a ‘premium’
image and a low price does communicate an image of brand for ‘mass consumption’. The
significance of pricing has increased with the technology of manufacturing and marketing
becoming easily available at almost the same price to the competitors and also, the
information of competitors’ offerings becoming easily available to the consumers. The
segments becoming more numerous and smaller and markets becoming saturated have all
contributed to make the price competition extremely intense. The lack of pace at which
new ideas of value-addition are implemented by the marketers has led to heightened
degree of price competition.
A price can be expressed in monetary and non-monetary terms. Many words are used as
surrogates of price: Commission, fee, rate, charges, salary, rent, wages, dividend, and
interest. A price contains all the terms of purchase: discounts, packing, handling and
shipping charges, credit charges and other forms of interest and late payment penalties.
Prices are quantitative, unambiguous and unidimensional, whereas other characteristics
like quality, image, customer service, promotion and similar factors are qualitative,
ambiguous and multi-dimensional. It provides a basis of not only economic comparison
but also social comparison.
6.1
Pricing Objectives
(i)
Profit as objective
Two major types of profit objectives may be observed:
64
1. Profit maximisation, and
2. Target return
‘Maximisation of profit’ as an objective assumes that the breakup of entire
cost and revenue details is available to the organisation. This may not be true
in most cases. Therefore, most companies settle for the objective of a ‘target
rate of return’ for their shareholders. This is mostly represented as target
‘Return on Investment (ROI)’ which actually is indicative of what is
considered to be a ‘satisfactory’ profitability rather than maximum
profitability.
(ii)
Sales-objectives
The pricing objectives can also be looked at from the perspective of sales.
Typically this would be represented as:
a. Growth in sales volume/revenue
b. Growth in market share- due to growth in market or due to growth in sales
of the firm
c. Survival-minimum sales necessary to survive
d. Maintenance of a sales volume or market share
(iii)
Competition Objectives
Some firms set pricing objectives in relationship to the actions of their
competitors. These may be:
a. To meet the challenge from competition
b. To block the entry of the competition
c. To destroy competition
When the market has several competitors and their relative strengths are
similar, the nature of the market is very close to being a ‘free’ competition. In
65
such cases, the price wars seem to be the order of the day with each
competitor trying to outbid the other for getting a higher market share. When
there is an oligopoly, the pricing is relatively rigid and joint pricing by the
industry is common, e.g. Indian tyre market. When there is one or few major
big players and rest a re small competitors, the pricing is such that the big
players lead the price-pack with the rest following suit (unwillingly at times).
The intention of under-pricing by the large players is to finish off the smaller
competition by making their businesses unviable. Such a pricing strategy is
called ‘predatory’ pricing.
(iv)
Market development objectives
The markets do have a tendency of getting saturated as the competitors pump
in products at lower and lower prices. In such situations, the marketer has to
pursue market development objectives.
a. Finding new users or increasing usage quantity of the product among the
existing users
b. Entering new markets. The two strategies available while entering new
markets are- ‘Penetration’ (i.e. price low to grab as many new users as is
possible) and ‘Skimming’ (i.e. price high to create a premium image
among those users who pride themselves as ‘pioneers’ and ‘early
adopters’.
6.2
Pricing decision framework
The pricing decision requires consideration of at least four factors:
1. Pricing situations- identification of situations that require pricing decisions
2. Influences that govern a pricing decision
3. Choice of the appropriate approach to pricing- cost plus, what the market
can bear and competition driven
4. Selecting the method of price determination
66
(i)
Pricing Situations
a. Product- Stages of Product Life Cycle (PLC)
b. Competition levels- high and low
c. Stage of evolution of Consumer
d. Stage of evolution of Consumer
e. Type of customer
f. Product portfolio- one, many or few products
g. Target location
h. Types of channels and profile of channel members
(ii)
Pricing Influences
The internal influences on pricing decision are cost architecture, product portfolio and
marketing strategy. The external influences are- demand (price elasticity of demand),
competition, channels, politico-legal system.
(iii)
Pricing Approaches
The marketers overcome the pricing dilemmas by relying on
cost, competition and demand as the basis for formulation of their pricing approaches.
(iv)
Pricing Methods
Finally, the marketer has to settle for a pricing method from among
a.
Cost based- Cost plus or Mark Up, Marginal Cost or contribution, Target
return, Payback method and/or learning curve
b.
Demand
based-
Differential
pricing,
perceived
value
pricing,
psychological pricing and value based pricing
c.
Competition based- Leader pricing, Competitive pricing, Follow the
leader, Sealed bid pricing.
The pricing method finally followed can be a combination of the above. Let's have a look
at some of them and try to understand the best policy/strategy in various situations.
67
1.
Premium Pricing
Use a high price where there is uniqueness about the product or service. This approach is
used where a substantial competitive advantage exists. Such high prices are charged for
luxuries such as big premium cars, high-end television sets, feature laden mobile handsets
or even a pesticide which claims to kill a pest causing widespread destruction in a
particular season, the high yielding and disease resistant GM Crop seeds also have
premium pricing.
2.
Penetration Pricing
The price charged for products and services is set artificially low in order to gain market
share. Once this is achieved, the price is increased. This approach is used by many
FMCG product marketers like those in the toothpaste, bathing soap, detergent powder/
soaps and shampoo categories.
3.
Economy Pricing
This is a no frills low price. The cost of marketing and manufacture are kept at a
minimum. Departmental Stores and showrooms often have economy brands for soaps,
motorcycles, cars, toothpaste, etc.
68
4.
Price Skimming
One can charge a high price because one has a substantial competitive advantage.
However, the advantage is not sustainable. The high price tends to attract new
competitors into the market, and the price inevitably falls due to increased supply.
Manufacturers of digital watches and computers used a skimming approach in the 1980s.
Once other manufacturers were tempted into the market and the watches were produced
at a lower unit cost, other marketing strategies and pricing approaches are implemented.
5.
Psychological Pricing.
This approach is used when the marketer wants the consumer to respond on an emotional,
rather than rational basis. For example, 'price point perspective' of the kind, the footwear
marketer ‘Bata’ practices wherein the merchandise is priced at X rupees and 95 paise.
This gives a feeling that it is cheaper though the difference with respect to next rupee is
just five paise. The satchets being priced at Re. 1 or Fast foods joints pricing full meal at
Rs. 20, etc.. The intention is to make the price cheaper.
6.
Product Line Pricing.
Where there is a range of product or services the pricing reflect the benefits of parts of
the range. For example, tractor servicing X Rs., Tractor washing Y Rs. and minor repair
labour charges Z Rs. However, if the entire package is taken, the customer is charged at a
rate less than X+Y+Z Rupees.
7.
Optional Product Pricing.
Companies will attempt to increase the amount customer spend once they start to buy.
Optional 'extras' increase the overall price of the product or service. For example, The
accessories that one gets installed in the car or on the motor cycle are charged extra.
69
8.
Captive Product Pricing
Where products have complements, companies will charge a premium price where the
consumer is captured. For example a razor manufacturer will charge a low price and
recoup its margin (and more) from the sale of the only design of blades which fit the
razor.
9.
Product Bundle Pricing.
Here sellers combine several products in the same package. This also serves to move old
stock. Consumer durable manufacturers have been bundling Television and DVD Players
along with DVDs at attractive prices. The food retailers have bundled the related indian
spices in one bundle and selling it at an attractive price. Restaurants offer meal combos,
which is again a form of bundled pricing.
10.
Promotional Pricing.
Pricing to promote a product is a very common application. There are many examples of
promotional pricing including approaches such as BOGOF (Buy One Get One Free).
11.
Geographical Pricing.
Geographical pricing is evident where there are variations in price in different parts of the
world. For example rarity value, or where shipping costs increase price. The biscuit
makers like Britannia and Parle or the Newspaper Publishers like industan Times and
Times of India price their offerings according to the place where these are sold.
12.
Value Pricing.
This approach is used where external factors such as recession or increased competition
force companies to provide 'value' products and services to retain sales e.g. Happy Price
Menu at McDonalds.
70
6.3
Pricing Sensitivity
Price sensitivity of customers determines the extent of freedom that the companies will
have in changing the price of its offering. An organization must know the price
sensitivity of its customers and the factors that influence the prices. The thumb rules
related to the price sensitivity are as follows:
1.
A customer’s price sensitivity is high if it is he who is individually bearing the
cost.
2.
A customer is less price sensitive when he buys on credit/instalment rather than
cash payment.
3.
A customer is more price sensitive when the item that he is buying consumes a
significant percentage of his expenditure/income/available money.
4.
A customer is more price sensitive when he has to resell the product in a
competitive market.
5.
The customer is likely to be more price sensitive if he is knowledgeable about the
product category or the brand in question.
6.
The customer is likely to be more price sensitive if he can easily shop around and
gather information about alternatives and competing brands.
7.
The customer is likely to be more price sensitive if he has enough time to make
the purchase.
8.
The customer is likely to be more price sensitive if he can change brands/
suppliers easily without incurring an additional cost.
6.4

Concluding thoughts
Initial prices of any product must be established after analysing the cost structure
of the company, gauging the costs of the competitors, and understanding the value
propositions desired by the customers in the intended market. Pricing is a
dynamic decision and must undergo changes as the business situation changes.

Pricing is a strategic decision and can be used to signal many things to the
customers and the competitors. However, in real life, the pricing is done by
71
almost anyone, right from accounts clerk in some companies to the CEO in
others. Formal pricing department has not emerged for companies cutting across
sectors and industries.

Each business development has an implication for the pricing strategy of the firm.
For example, technological advancement of a product or packaging, promotional
expenditure, distribution coverage, etc. impact the final prices at which the
products are sold to the consumers. Therefore, the pricing should never be done in
an ad-hoc manner but flow from strategic decisions of the company.
72
Chapter 7
Distribution and Retailing
7.0
Introduction
The chapter on distribution and retailing covers the approaches followed, the
problems faced and the emerging alternatives in the vital area of distribution and
retailing. This refers to one of the major Ps of marketing, viz. Place.
Product and service distribution and retailing has developed into a highly
specialised activity. However, with the changing dynamics of availability of new
technologies as well as need to be available timely even in ever new places has
resulted in a virtual revolution in distribution channel design and management.
7.1
Place, distribution, channel, or intermediary.
A channel of distribution comprises a set of institutions which perform all of
the activities utilised to move a product and its title from production to
consumption.
- Bucklin - Theory of Distribution Channel Structure (1966)
Channel, distribution, or intermediary is the mechanism through which goods
and/or services are moved from the manufacturer/service provider to the user
or consumer.
7.2
Functions of channel intermediaries
1.
Satisfying the needs of producers and consumers at the same time: Channel
intermediaries perform several specialised functions that enable manufacturers to
make their goods available to their consumers at the right place and at the right
time. Manufacturers produce a large quantity (for capturing economies of scale)
of limited range of products whereas customers usually want only a limited
quantity of wide range of goods. Channel members reconcile these conflicting
73
situations. A related function is breaking bulk. A wholesaler buys large quantities
from a manufacturer and then sells smaller quantities to retailers.
2.
Improve efficiency of the marketing transactions: The channel members improve
the efficiency of the entire chain by reducing the number of transactions and by
creating a bulk for transportation.
3.
Improved Accessibility: The physical distances and the gap between the time of
production and time of purchase is bridged by the channel intermediary.
4.
Providing Specialist Services: Channel intermediaries have expertise in areas such
as selling, servicing and installation. Producers can specialise in manufacturing
and allow distributors to these functions.
7.3
Six basic 'channel' decisions
1.
Do we use direct or indirect channels? (e.g. 'direct' to a consumer, 'indirect' via a
wholesaler)?
2.
Do we use Single or multiple channels?
3.
What should be the cumulative length of the multiple channels?
4.
Which types of intermediary (see later) should we use?
5.
What should be the number of intermediaries at each level in a geographical area
(e.g. how many retailers in Southern India)?
6.
Who should we choose as intermediaries to avoid 'intrachannel conflict' (i.e.
infighting between local distributors)?
7.4
Types of Channel Intermediaries
There are many types of intermediaries such as wholesalers, agents, retailers, the Internet,
overseas distributors, direct marketing (from manufacturer to user without an
intermediary), and many others. The main modes of distribution are looked at in more
detail in the following paragraphs:
74
1.
Wholesalers
Wholesalers break down 'bulk' into smaller packages for resale by a retailer. They buy
from producers and resell to retailers. They take ownership or 'title' to goods whereas
agents do not take the title. They provide storage facilities. For example, mango farmers
sell their produce even before it is fully ripe to a wholesaler who stores it, lets it ripen and
eventually resells to a retailer. Wholesalers often reduce the physical contact cost
between the producer and consumer e.g. customer service costs, or sales force costs. A
wholesaler often takes on some of the marketing responsibilities. Many produce their
own brochures and use their own telesales operations.
2.
Agents
Agents are used in international as well as domestic markets. An agent typically secures an order
for a producer and takes a commission. They do not tend to take title to the goods. This means
that capital is not tied up in goods. However, a 'stockist agent' holds consignment stock (i.e. will
store the stock, but the title will remain with the producer. This approach is used where goods
need to get into a market soon after the order is placed e.g. foodstuffs). Agents can be very
expensive to train. They are difficult to keep control of due to the physical distances
involved. They are difficult to motivate.
3.
Retailers
Retailers have a much stronger personal relationship with the consumer. The retailer will
hold several other brands and products. A consumer will expect to be exposed to many
products. Retailers will often offer credit to the customer e.g. travel agents, the local
grocer, etc. Products and services are promoted and merchandised by the retailer. The
retailer will give the final selling price to the product. Retailers often have a strong 'brand'
themselves e.g. McDonald and WalMart in the USA, and Big Bazar and Reliance Retail
in India. The retailer is a primary point of contact with the end-customer. By virtue of
their position in the distribution chain, they are a source of credibility and trust, their
views about products and brands are believed to be true by customers especially in
markets where product/brand awareness levels are low. Traditionally, the retailers were
75
relationship marketers. He caters to a set of buyers with whom his relationship may
extend for several years and even through generations. Retailer is the main source of
point of sale information and opinion. He can be used to bring about change in tastes and
preferences of the customers.
4.
Weekly markets, Bazaars, Haats and Shandies
The haats or the weekly markets are the oldest outlets to purchase household goods and
for trade. The shopkeepers have pre-assigned places to sell their wares in these markets.
A typical markets are usually in a large open space (or on the roadside pavements) with
adequate space for product display. These markets offer convenience of a on-stop
shopping option. These markets are also attractive whether in Bangalore or in Bangkok in
the sense that besides shopping, these also offer entertainment. It is a place to find all
kinds of bargains mostly in a vast array of product categories.
5.
Melas and Fairs
Melas and Fairs offer are mostly associated with religio-cultural occasions and in that
sense they have a very long past. Their historical moorings and the consequent familiarity
of the customers makes them a happy huning grund for marketers of all kinds. The
participation in melas varies from a few thousand to many lakhs of people. The large
melas in India, e.g. the Kumbh do actually attract some of the largest number of people n
the world at a single place. These melas offer a large number of opportunities to sell, both
for manufactured goods as well as agricultural produce. The melas need little prepublicity because their regularity over large number of years has ensured for them a
permanent place in the calendar of different places. The timing of most of the fairs is
around the time when the target population is in a mood to celebrate and indulge in. It can
be Christmas, Diwali, Baisakhi or Pongal. In India, most fairs are held around the harvest
time. The mood is festive and the pocket is full, a ripe combination to make a sale.
Some of the famous melas and fairs in India are Kumbh (Allahabad, Ujjain, Nasik and
Haridwar), Pushkar (near Ajmer), Dussehra (Kullu), Cattle fair (Sonepur-Bihar), Makar
76
Villaku (Kerala), Great Carnival (Goa), etc. According to IMRB, there are more than 800
melas of more than a reasonable size that are held every year in India. The number of
melas of smaller size may run into thousands.
6.
Unofficial Channels
The un-served or under-served areas, certain unofficial channels develop. For example, in
the Indian villages, one has seen the mechanics doubling up as retailers for two-wheeler
automobiles like motorcycles. The local grocer performing the role of a chemist by
stocking and selling certain Over-the-counter drugs.
7.
Petrol Pumps and Convenios
The petrol, diesel and gas dispensing (petrol pumps or petrol bunks) stations have
become multi-purpose outlets. The Kisan Seva Kendras (Indian Oil Corporation Ltd.) or
the convenios (of other petrol marketing companies) are serving as outlets for a wide
variety of products ranging from packaged food to frozen food to snacks to magazines
and books to music and movie CDs to agricultural inputs. This is a new channel and is
frequented by people who are passing through the petrol/diesel dispensing station.
8.
NGOs
NGOs and other civil society organisations have emerged as a possible channels of
distribution specially for products or markets that otherwise have certain diffiuties
associated with them. NGOs command a certain degree of respect and influence among
the target audience and the targeted beneficieries. Companies and NGOs have been able
to forge win-win relationships wherein the companies take advantage of the grassroots
level infrastructure of the NGOs as well as the positive image that they carry. NGOs on
the other hand have been able to make a variety of products reach their targted
beneficieries and have also used the expertise as well as exposure to the markets to sell
the produce of their beneficieries into distant markets. In this process, employment has
got generated for local residents.
77
9.
Modern format retailers
In the recent years the retailers have grown in size. Growth in retailer size means that it
has become economic for manufacturers to supply directly to retailers rather than through
wholesalers. Supermarket chains and corporate retailers exercise considerable power over
manufacturers because of their enormous buying capabilities. Wal Mart uses its
enormous retail sales to pressurize manufacturers to supply products at frequent intervals
directly to their store at concessional prices.
There are many types of retail formats like discount stores, supermarkets, convenience
stores and department stores, etc. These retail store formats vary from each other on the
basis of their product assortment (product depth and width), price and location. Retail
store formats can be classified on the basis of the number of products sold by the retailer
and the range of products in each category. Speciality Stores, Category Killers,
Departmental Stores and Hypermarkets are some such divisions.
What is common to all the modern store formats is that they emphasize on improving the
‘Total Customer Experience’ and for this the deploy modern methods of customer
tracking, supply chain management, merchandise planning, etc. The modern retail
formats are challenging the dominance of traditional channels and in many developing
countries this conflict has assumed violent proportions.
10.
Internet
Internet marketing is also referred to as cyber-marketing. It is the latest in the series of
direct retailing innovations like catalogue marketing, special-interest mail order,
telemarketing and television shopping. Internet is becoming and important channel much
faster than any other channel. The Internet has a geographically dispersed market. The
main benefit of the Internet is that niche products reach a wider audience. There are low
barriers to entry as set up costs are low. Use e-commerce technology (for payment,
shopping software, etc). There is a paradigm shift in commerce and consumption which
benefits distribution via the Internet. However, certain problems remain in shopping via
78
the internet- the areas of low internet penetration are insulated from any internet
marketing effort, there are very few codified rules for shopping in cyberspace-this leads
to problems in enforcing commitments, the delivery systems for goods bought over the
internet still remains a major issue, logistics have to improve if internet marketing has to
dominate, many a times the customers may like to touch, feel and experience a product
before buying it, internet marketing presupposes familiarity with working on the
computers- it may not be true in certain geographies. However, the world of business
seems to believe that internet marketing will keep growing at a rapid rate in the coming
years. Rediff shopping, Indiatimes shopping, e-bay, Amazon, etc. are some of the major
players in the internet marketing space.
7.5
Channel Integration
There is no standard rule for the degree or the extent of integration that is
appropriate for a channel. It varies widely, depending on industries and
geographies. The manufacturer can own the channel as part of forward integration,
e.g. LG’s company showrooms or Bata’s company owned outlets. On the other
hand the channel might be comprising of members who are quite independent and
totally beyond the control of the manufacturer.
7.51
Conventional Marketing Channels
The independence of channel intermediaries means that the manufacturer has little or no
control over them. The traditional marketing channels occasionally witness hard
bargaining and channel conflicts, e.g. the retailer may want to display brand A on the
shop front counter whereas the manufacturer of brand B may want him to display brand
B at the same place and with increased prominence. Though the channel intermediary
may want to appropriate the role of customer-contact to itself, the manufacturer has to
ensure that he stays in touch with customers. The relationship between the manufacturer
and the intermediaries is governed by the balance of power between the two parties. A
manufacturer who dominates the market through its size and strong brands may exercise
considerable power over intermediaries though they are independent. However, with the
emergence of retail chains the balance has shifted. Now, retail chains like Big Bazar,
79
Reliance Fresh, Spencer’s, etc. enjoy enormous powers because of their ability to buy in
large quantities and to attract large number of customer footfalls.
7.52
Franchising
A franchise is a legal contract in which the manufacturer or the producer and the
intermediary agree to each member’s rights and obligations. The intermediary
receives marketing, managerial, technical and financial services from the producer
in return for a fee. Franchise operations give the manufacturer a certain degree of
control because the agreement provide for a certain level of formal coordination
and integration of marketing and distribution activities between the manufacturer
and intermediaries. Franchising occurs at four levels:
i. Manufacturer and retailer- Car Showrooms
ii. Manufacturer and wholesaler- Coca Cola and Pepsi
iii. Wholesaler and retailer- Computer Hardware, Share issues
market, insurance
iv. Retailer and retailer- Benneton, McDonald’s, Insurance
products
In franchising, it is important that the profit and responsibility sharing is equitable for a
long-term sustainable relationship.
7.53
Channel Ownership
Total control over distributor activities comes with channel ownership by the
manufacturer or an intermediary. The forward integration by owning the sales
outlets lets the channel leader control the purchasing, production and marketing
activities of these outlets. In particular, control over purchasing means a captive
outlet for your products. However, the advantage of control has to be weighed
against the high price of acquisition and the danger that the move into retailing will
spread their managerial resources too thinly.
80
7.6

Selection of a distributor
Market segment - the distributor must be familiar with your target consumer and
segment.

Changes during the product life cycle - different channels can be exploited at
different points in the Product Life Cycle (PLC).

Producer - distributor fit - Is there a match between their policies, strategies, image,
and yours? Look for 'synergy'.

Qualification assessment - establish the experience and track record of your
intermediary.

7.7
How much training and support will your distributor require?
Managing Channel Conflict
Various members of the distribution channel have different goals. These goals may be at
variance with each other and may be divergent. The goal divergence becomes a source of
conflict when one member of the distribution channel perceives that some other member
is preventing the first member from achieving its goals. The intensity of conflict can vary
from minor disagreements to major disputes leading to severance of relationships.
The sources of channel conflict can be differences in goals, differences in desired product
lines, existence of multiple distribution channels and inadequacies in performance from
any quarter. Some methods of avoiding the channel conflicts are- developing a
partnership approach, training your staff in effective negotiations and conflict handling,
proper division of territories among channel members, occasional coercion and lastly and
most importantly, improving individual performance.
81
Chapter 8
Integrated Marketing Communication
8.0
Introduction to Marketing Communication
Marketing communications is a subset of the overall subject area known as marketing.
Marketing has a marketing mix that is made of price, place, promotion, product (know as
the four Ps), that includes people, processes and physical evidence, when marketing
services (known as the seven Ps).
How does marketing communications fit in? Marketing communications is 'promotion'
from the marketing mix.
Why are marketing communications 'integrated?' Integrated means combined or
amalgamate, or put simply the jigsaw pieces that together make a complete picture. This
is so that a single message is conveyed by all marketing communications. Different
messages confuse your customers and damage brands. So if a TV advertisement carries a
particular logo, images and message, then all newspaper advertisements and point-of-sale
materials should carry the same logo, images or message, or one that fits the same theme.
Coca-Cola uses its familiar red and white logos and retains themes of togetherness and
enjoyment throughout its marketing communications.
Marketing communications has a mix. Elements of the mix are blended in different
quantities in a campaign. The marketing communications mix includes many different
elements, and the following list is by no means conclusive. It is recognised that there is
some cross over between individual elements (e.g. Is donating books and school bags to
children in a village school, by asking shoppers to purchase a particular brand of
detergent, public relations or sales promotion?)
82
Here are the key of the marketing communications mix.
1.
Personal Selling
2.
Sales Promotion
3.
Public Relations (and publicity)
4.
Direct Marketing
5.
Trade Fairs and Exhibitions
6.
Advertising (above and below the line)
7.
Sponsorship
8.
Packaging
9.
Merchandising (and point-of-sale)
10.
E-Marketing (and Internet promotions)
Integrated marketing communications means that the elements of the communications
mix are 'integrated' into a coherent whole. This is known as the marketing
communications mix, and forms the basis of a marketing communications campaign.
The elements of the marketing communication mix are integrated to form a coherent
campaign. As with all forms of communication, the message from the marketer follows
83
the 'communications process' as illustrated above. For example, a radio advertisement is
made for a tractor manufacturer. The tractor manufacturer (sender) pays for a specific
advertisement which contains a message specific to a target audience (encoding). It is
transmitted during a set of commercials from a radio station (Message / media).
The message is decoded by a radio (decoding) and the target consumer interprets the
message (receiver). He or she might visit a dealership or seek further information from a
web site (Response). The consumer might buy a tractor or express an interest or dislike
(feedback). This information will inform future elements of an integrated promotional
campaign. Perhaps a direct mail campaign would push the consumer to the point of
purchase. Noise represents the thousands of marketing communications that a consumer
is exposed to everyday, all competing for attention.
8.1
Components of the Promotion (Marketing Communication) Mix
Let us look at the individual components of the promotions mix in more detail.
Remember all of the elements are 'integrated' to form a specific communications
campaign.
8.11
Personal Selling.
Personal Selling is an effective way to manage personal customer relationships. The sales
person acts on behalf of the organization. They tend to be well trained in the approaches
and techniques of personal selling. However sales people are very expensive and should
only be used where there is a genuine return on investment. For example, salesmen are
often used to sell those models of motorcycles or brand of pesticides where the margin is
high.
8.12
Sales Promotion
Sales promotion tends to be thought of as being all promotions apart from advertising,
personal selling, and public relations. For example, the BOGOF promotion, or ‘Buy One
Get One Free’ is very common. Others include couponing, money-off promotions,
competitions, free accessories (such as free blades with a new razor), introductory offers
84
(such as buy digital TV and get free installation), and so on. The cost of sales promotion
should be carefully estimated and compared with the next best alternative.
8.13
Public Relations (PR)
Public Relations is defined as 'the deliberate, planned and sustained effort to establish
and maintain mutual understanding between an organization and its publics' (Institute of
Public Relations). It is relatively an inexpensive way of reaching out. Successful
strategies tend to be long-term and plan for all eventualities. Most companies exploit PR;
just watch what happens when there is a controversy regarding their products or business
practices. The pre-planned PR machine clicks in very quickly with a very effective
rehearsed plan.
8.14
Direct Mail
Direct mail is very highly focussed upon targeting consumers based upon a database. As
with all marketing, the potential consumer is 'defined' based upon a series of attributes
and similarities. Creative agencies work with marketers to design a highly focussed
communication in the form of a mailing. The mail is sent out to the potential consumers
and responses are carefully monitored. For example, if you are marketing fertilisers, you
would use a database of progressive farmers as the basis of your mail shot.
8.15
Trade Fairs and Exhibitions
Such approaches are very good for making new contacts and renewing old ones.
Companies will seldom sell much at such events. The purpose is to increase awareness
and to encourage trial. They offer the opportunity for companies to meet with both the
trade and the consumer. Kisan Melas, Gram-Shilp Melas, and even the religious and
seasonal fairs have a permanent place in the lives of villagers. These occasions are
excellent opportunities for marketers to establish a connection with the target customers
in rural areas.
8.16
Advertising
There are many advertising 'media' such as newspapers (local, national, free, trade),
85
magazines and journals, television (local, national, terrestrial, satellite) cinema, outdoor
advertising (such as posters, bus sides).
8.17
Sponsorship
Sponsorship is where an organization pays to be associated with a particular event, cause
or image. Companies will sponsor sports events such as local sports competition in
villages, Bullock Cart or bicycle race or even Olympics. The attributes of the event are
then associated with the sponsoring organization.
The elements of the promotional mix are then integrated to form a unique, but coherent
campaign
8.18
The fundamentals of Advertising
Advertising is an important element of the marketing communications mix. Put simply,
advertising directs a message at large numbers of people with a single communication. It
is a mass medium.
Advertising has a number of benefits for the advertiser. The advertiser has control over
the message. The advertisement and its message, to an extent, would be designed to the
specifications of the advertiser. So the advertiser can focus its message at a huge number
of potential consumers in a single hit, at a relatively low cost per head. Advertising is
quick relative to other elements of the marketing communications mix (for example
personal selling, where an entire sales force would need to be briefed - or even recruited).
Therefore an advertiser has the opportunity to communicate with all (or many of) its
target audience simultaneously.
86
Table 8.1
Advertising Media
Outdoor
(Posters
or
transport)
Newspapers (Local and
National)
Radio
8.19
New Media Mobile
devices
New Media Internet websites and search
engines
Television
Magazines
Cinema
Others . . .
Planning for advertising
Advertising agencies and their clients plan for advertising. Any plan should address the
following stages:

Who is the potential TARGET AUDIENCE of the advertisement?

WHAT do I wish to communicate to this target audience?

Why is this message so IMPORTANT to them?

What is the BEST MEDIUM for this message to take (see some of the possible
media above)?

What would be the most appropriate TIMING?

What RESOURCES will the advertising campaign need?

How do we CONTROL our advertising and monitor success?
There are two key categories of advertising, namely 'above-the-line' and 'below-the-line'.
The definitions owe a lot to the historical development of advertising agencies and how
they charge for their services. In a nutshell, 'above-the-line' is any work done involving
media where a commission is taken by an advertising agency, and 'below-the-line' is
work done for a client where a standard charge replaces commission. So TV advertising
is 'above-the-line' since an agency would book commercial time on behalf of a client, but
placing billboards and hoardings at different locations within the city is 'below-the-line,'
87
because hoarding space owners tend to apply their own costing approach where no
commission is taken by the agency i.e. instead the agency charges the client a transparent
fee.
8.20
Working of an advertising agency?
The Client Agency Relationship
An advertising agency handles part or all marketing communications activities on behalf
of a client organization. The agencies themselves tend to vary in size from small, perhaps
a handful of people, to vast - where many thousands of employees make up the company.
A commission is generally taken by the agency which tends to be taken from the media
purchases of the client organisation.
The agency may also take payment from the media owners (i.e. sometimes take a
discount and do not pass it on to the client). More transparent means of payment are
becoming more popular, with some agencies being paid-by-results.
There are many types of agency, but it is generally accepted that the main ones are
include full-service agency, a la carte agency, or specialist agency. A full-service agency
will take on the whole project or campaign. An a la carte agency will offer some aspects
of a campaign such as media buying, rather like buying items from a menu. A specialist
agency tends to be small and more focused on a specific aspect of marketing
communications and/or a specific market such as Internet Marketing.
A Full-Service Agency will offer:

Account management

Creative Services

Media planning, booking and management

Traffic and production related services

Account planning

Account management
Account managers work for an agency with the client (an agency's customers are called
'clients'). Very often they will spend a lot of time with the client working as part of their
88
marketing team. This is one way in which an agency works closely with its client and
why the 'chemistry' between a client and its agency needs to be right. The account
manager makes sure that the correct information is passed from the client to the other
members of the agency. He or she is a co-ordinator and time manager. The account
planner will work on a brief that is fed back to the agency team.
8.221 Creative Team
The first internal agency team members to see the brief tend to be the creatives and the
media planners. The brief contains a 'proposition' that the client wishes to communicate
to the target audience. The creative team will transform the proposition into something
exciting and attractive to the target audience. The creative team decide upon the 'creative
concept.' This will be a motivational idea. The words used to express the creative concept
are called 'copy.' The images, pictures and diagrams are created i.e. the 'design' or
'layout.' This is done by 'designers' and 'copywriters.' Beware some creatives! Creatives
tend to be artistic and innovative. Hence their advice should be highly regarded and any
criticism should be constructive.
8.222 Traffic and Production Team
The traffic and media team are in charge of the production of the physical and artistic
output, i.e. the marketing communication. In the case of a TV advertisement, they would
commission scripts, recruit actors, film crews and supporting activities (such as costumes
and catering). All ads are different and so the specifics will vary. In the case of print
advertising, the traffic and production team would commission and sign-off all printed
advertising material such as direct marketing materials, magazine ads or posters.
8.223 Account Planning Team
The account planning team work on the 'customer's' perspective, and take an outward
look at the world. They support the creative teams by supplying data and opinion on what
I actually occurring in the marketing in which advertising is to be placed. They tend to
use secondary data to support decisions, and would rarely commission original research.
89
However, with material supplied my organisations such as IMRB, AC Nielsen, etc. - the
account planning team can build an image of segments to help the creatives.
8.224 Media Team
The media team will organise the timing and scheduling of the marketing
communications campaign. They will look at the range of media to be exploited, and then
look at the best slots in which to run advertising. They will help a client to decide upon
the duration of and individual slot, and how many of them to run. Here the expense and
return to the client are key factors that influence decision-making. The two main skills of
the media team are media planning and media buying. Today there is a wealth of data on
which media buying can be based. There is software for planning and simulation.
8.30
Fundamentals of Sales Promotion
As stated earlier, Sales promotion is any initiative undertaken by an organisation to
promote an increase in sales, usage or trial of a product or service (i.e. initiatives that are
not covered by the other elements of the marketing communications or promotions mix).
Sales promotions are varied. Often they are original and creative, and hence a
comprehensive list of all available techniques is virtually impossible (since original sales
promotions are launched daily!). Here are some examples of popular sales promotions
activities:
(a) Buy-One-Get-One-Free (BOGOF) - which is an example of a self-liquidating
promotion. For example if a loaf of bread is priced at Rs. 10, and costs Rs. 2 to
manufacture, if you sell two for Rs. 10, you are still in profit - especially if there is a
corresponding increase in sales. This is known as a PREMIUM sales promotion tactic.
(b) Customer Relationship Management (CRM) incentives such as bonus points or
money-off coupons. There are many examples of CRM, from banks to petroleum and
diesel marketing companies as well as restaurants.
(c) New media - Websites and mobile phones that support a sales promotion.
90
(d) Merchandising additions such as dump bins, point-of-sale materials and product
demonstrations.
(e) Free gifts e.g. many tea companies give a glass or cup-saucers with packets of tea.
(f) Discounted prices e.g. Budget airline such as SpiceJet and GoAir, e-mail their
customers with the latest low-price deals once new flights are released, or additional
destinations are announced.
(g) Joint promotions between brands owned by a company, or with another company's
brands. For example fast food restaurants like McDonalds often run sales promotions
where toys, relating to a specific movie release, are given away with promoted meals.
(h) Free samples (also known as sampling) e.g. tasting of food and drink at sampling
points in supermarkets. For example, Amul routinely puts up kiosks and stalls to enable
the customers to taste their new flavours of flavoured milk, sweets as well as milk
beverages like Cold Coffee.
(i) Vouchers and coupons, often seen in newspapers and magazines, on packs.
(j) Competitions and prize draws, in newspapers, magazines, on the TV and radio, on
The Internet, and on packs.
(k) Cause-related and fair-trade products that raise money for charities, and the less
well off farmers and producers, are becoming more popular.
(l) Finance deals - for example, 0% finance over 3 years on selected vehicles.
Many of the examples above are focused upon consumers. Don't forget that promotions
can be aimed at wholesales and distributors as well. These are known as Trade Sales
Promotions. Examples here might include joint promotions between a manufacturer and
a distributor, sales promotion leaflets and other materials (such as T-shirts), and
incentives for distributor sales people and their retail clients.
8.40
Fundamentals of Direct Marketing
Direct marketing is a channel-free approach to distribution and/or marketing
communications. So a company may have a strategy of dealing with its customers
'directly,' for example banks (such as State Bank of India) have no channel intermediaries
i.e. distributors, retailers or wholesalers. Therefore - 'direct' in the sense that the deal is
done directly between the manufacturer/ service provider and the customer.
91
As mentioned above, 'direct' also in the sense that marketing communications are targeted
at consumers by the manufacturers. For example, a brand that uses channels of
distribution would target marketing communications at wholesalers/distributors, retailers,
and consumers, or a blend of all three. On the other hand, a direct marketing company
could focus upon communicating directly with its customers. Direct marketing and direct
mail are often confused - although direct mail is a direct marketing tool.
There are a number of direct marketing media other than direct mail. These include (and
are by no means limited to):

Inserts in newspapers and magazines

Customer care lines (telemarketing)

Catalogues

Coupons

Door drops

TV and radio advertisements with free phone numbers or per-minute-charging.

. . . and finally - and most importantly - The Internet and New Media.

SMS marketing
The Internet and New Media (e.g. mobile phones or PDAs) are perfect for direct
marketing. Consumers have never had so many sources of supply, and suppliers have
never had access to so many markets. There is even room for even niche marketers.
Many companies use direct marketing, and a current example of its use, as part of a
business model, is the way in which it is used by low-cost airlines. There is no
intermediary or agent, customers book tickets directly with the airlines over The Internet.
Airlines capture data that can be used for marketing research or a loyalty scheme.
Information can be processed quickly, and then categorise it into complex relational
databases.
Then, for example, special offers or new flights destinations can be communicated
directly to customers using e-mail campaigns. Data is not only collected on markets and
92
segments, but also on individuals and their individual buyer behaviour. Companies such
as Amazon are wholesalers of books (i.e. they do not write or publish them) - so they use
Customer Relationship Management and marketing communications targeted directly at
individual customers - which is another, slightly different example of direct marketing.
8.50
Fundamentals of Public Relations(PR)
Public Relations (PR) is a single, broad concept that includes any purposeful
communications between an organisation and its publics that aim to generate goodwill.
Publics, put simply, are its stakeholders. PR is proactive and future orientated, and has
the goal of building and maintaining a positive perception of an organisation in the mind
of its publics. This is often referred to as goodwill.
Even though it is difficult to see the difference between marketing communications and
PR since there is a lot of crossover. This makes it a tricky concept to learn. Added to this
is the fact that PR is often expensive, and not free, as some definitions would have you
believe. PR agencies are not cheap. Below are some of the approaches that are often
considered under the PR banner.
1.
Interviews and photo-calls
It is important that company executives are available to generate goodwill for their
organisation. Many undertake training in how to deal with the media, and how to behave
93
in front of a camera. There are many key industrial figures that proactively deal with the
media in a positive way for example, Sunil Mittal of Bharati Telecom Group or Anil
Ambani of Anil Dhirubhai Ambani group.
Interviews with the business or mass media often allow a company to put its own
perspective on matters that could be misleading if simply left to dwell untended in the
public domain.
2.
Speeches, presentations and speech writing
Key figures from within an organisation will write speeches to be delivered at corporate
events, public awards and industry gatherings. PR company officials in liaison with
company managers often write speeches and design corporate presentations. They are
part of the planned and coherent strategy to build goodwill with publics. Presentations
can be designed and pre-prepared by PR companies, ultimately to be delivered by
company executives.
3.
Corporate literature e.g. financial reports
Corporate literature includes financial reports, in-house magazines, brochures,
catalogues, price lists and any other piece of corporate derived literature. They
communicate with a variety of publics. For example, financial reports will be of great
interest to investors and the stock market, since they give all sorts of indicators of the
health of a business. A company Chief Executive Officer CEO will often write the
forward to an annual financial report where he or she has the opportunity to put a
business case to the reader. This is all part of Public Relations.
8.60
Fundamentals of Personal Selling
Personal selling occurs where an individual salesperson sells a product, service or
solution to a client. Salespeople match the benefits of their offering to the specific needs
of a client. Today, personal selling involves the development of longstanding client
relationships. In comparison to other marketing communications tools such as
advertising, personal selling tends to:
94

Use fewer resources, pricing is often negotiated.

Products tend to be fairly complex (e.g. financial services or new cars).

There is some contact between buyer and seller after the sale so that an ongoing
relationship is built.

Client/prospects need specific information.

The purchase tends to involve large sums of money.
There are exceptions of course, but most personal selling takes place in this way.
Personal selling involves a selling process that is summarised in the following Five Stage
Personal Selling Process. The five stages are:
1. Prospecting,
2. Making first contact,
3. The sales call,
4. Objection handling,
5. Closing the sale
8.61
A Five Stage Personal Selling Process.
8.611 Stage One - Prospecting.
Prospecting is all about finding potential new customers. Prospects should be 'qualified,'
which means that they need to be assessed to see if there is business potential, otherwise
you could be wasting your time. In order to qualify your prospects, one needs to:

Plan a sales approach focused upon the needs of the customer.

Determine which products or services best meet their needs.

In order to save time, rank the prospects and leave out those that are least likely to
buy.
8.612 Stage Two - Making First Contact.
This is the preparation that a salesperson goes through before they meet with the client,
for example via e-mail, telephone or letter. Preparation will make a call more focused.
95

Make sure that you are on time.

Before meeting with the client, set some objectives for the sales call. What is the
purpose of the call? What outcome is desirable before you leave?

Make sure that you've done some homework before meeting your prospect. This
will show that you are committed in the eyes of your customer.

To save time, send some information before you visit. This will wet the prospect's
appetite.

Keep a set of samples at hand, and make sure that they are in very good condition.

Within the first minute or two, state the purpose of your call so that time with the
client is maximised, and also to demonstrate to the client that your are not wasting
his or her time.

Humour is fine, but try to be sincere and friendly.
8.613 Stage Three - The Sales Call (or Sales Presentation)

It is best to be enthusiastic about your product or service. If you are not excited
about it, don't expect your prospect to be excited.

Focus on the real benefits of the product or service to the specific needs of your
client, rather than listing endless lists of features.

Try to be relaxed during the call, and put your client at ease.

Let the client do at least 80% of the talking. This will give you invaluable
information on your client's needs.

Remember to ask plenty of questions. Use open questions, and avoid closed
questions i.e. questions that will only give the answer 'yes' or the answer 'no.' This
way you can dictate the direction of the conversation.

Never be too afraid to ask for the business straight off.
8.614 Stage Four - Objection Handling.
Objection handling is the way in which salespeople tackle obstacles put in their way by
clients. Some objections may prove too difficult to handle, and sometimes the client may
just take a dislike to you (also known as the hidden objection). Here are some approaches
for overcoming objections:
96

Firstly, try to anticipate them before they arise.

'Yes but' technique allows you to accept the objection and then to divert it. For
example, a client may say that they do not like a particular colour, to which the
salesperson counters 'Yes but X is also available in many other colours.'

Ask 'why' the client feels the way that they do.

'Restate' the objection, and put it back into the client's lap. For example, the client
may say, 'I don't like the taste of X,' to which the salesperson responds, 'You don't
like the taste of X,' generating the response 'since I do not like garlic' from the
client. The salesperson could suggest that X is no longer made with garlic to meet
the client's needs.

The sales person could also tactfully and respectfully contradict the client.
8.615 Stage Five - Closing the Sale.
This is a very important stage. Often salespeople will leave without ever successfully
closing a deal. Therefore it is vital to learn the skills of closing.

Just ask for the business! - 'Please may I take an order?' This really works well.

Look for buying signals (i.e. body language or comments made by the client that
they want to place an order). For example, asking about availability, asking for
details such as discounts, or asking for you to go over something again to clarify.

Just stop talking, and let the client say 'yes.' Again, this really works.

The 'summary close' allows the salesperson to summarise everything that the
client needs, based upon the discussions during the call. For example, 'You need
product X in blue, by Friday, packaged accordingly, and delivered to your wife's
office.' Then ask for the order.

The 'alternative close' does not give the client the opportunity to say no, but forces
them towards a yes. For example 'Do you want product X in blue or red?' Cheeky,
but effective.
So this is the Five Stage Personal Selling Process.
97
Chapter 9
Competitive Marketing Strategy
9.0
Introduction
Satisfying customers may not guarantee success. Customer preference will depend
on creating more value than competition. This extra value is brought about by
establishing a competitive advantage. Corporate performance is a function of how
well the customer has been satisfied. How much more value has been created as
compared to the competition. By understanding competitors, a firm can better
predict their reaction to any marketing initiative that the firm might make and
exploit any weakness that they might possess.
There are various models to understand and hone competitive strategy. A few of
these are described below:
9.1
The Arthur D Little (ADL) Strategic Condition Matrix
Although now slightly dated at first glance, The Arthur D Little (ADL) Strategic
Condition Matrix offers a different perspective on strategy formulation. ADL has two
main dimensions - competitive position and industry maturity.
Competitive position is driven by the sectors or segments in which a Strategic Business
Unit (SBU) operates. The product or service which it markets, and the accesses it has to a
range of geographically dispersed markets that are what makes up an organization's
competitive position i.e. product and place.
Industry maturity is very similar to the Product Life Cycle (PLC) and could almost be
renamed an 'industry life cycle.' Of course not only industries could be considered here
but also segments.
98
It is a combination of the two aforementioned dimensions that helps us to use ADL for
marketing decision-making. Now let's consider options in more detail. Competitive
position has five main categories:
1. Dominant - This is a particularly extraordinary position. Often this is associated with
some form of monopoly position or customer lock-in e.g. LIC of India is a dominant
player in the Indian life insurance market.
2. Strong - Here companies have a lot of freedom since position in an industry is
comparatively powerful e.g. Maruti Suzuki Ltd. is a strong player in the Indian car
market.
3. Favourable - Companies with a favourable position tend to have competitive strengths
in segments of a fragmented market place. No single global player controls all
segments. Here product strengths and geographical advantages come into play.
4. Tenable - Here companies may face erosion by stronger competitors that have a
favourable, strong or competitive position. It is difficult for them to compete since
they do not have a sustainable competitive advantage.
5. Weak - As the term suggests companies in this undesirable space are in an unenviable
position. Of course there are opportunities to change and improve, and therefore to
take an organization to a more favourable, strong or even dominant position.
99
From here the strategic position of an organisation can be established. Managers then
need to decide upon the best strategic direction for the business. For example they might
use a Gap Analysis. According to ADL, there are six generic categories of strategy that
could be employed by individual SBUs:

Market strategies.

Product strategies.

Management and systems strategies.

Technology strategies.

Retrenchment strategies.

Operations strategies.
9.2
Ansoff's Matrix - Planning for Growth
This well known marketing tool was first published in the Harvard Business
Review (1957) in an article called 'Strategies for Diversification'. It is used by
marketers who have objectives for growth. Ansoff's matrix offers strategic
choices to achieve the objectives. There are four main categories for selection.
Ansoff's Product/Market Matrix
9.21
Market Penetration
Here we market our existing products to our existing customers. This means increasing
our revenue by, for example, promoting the product, repositioning the brand, and so on.
However, the product is not altered and we do not seek any new customers.
100
9.22
Market Development
Here we market our existing product range in a new market. This means that the product
remains the same, but it is marketed to a new audience. Exporting the product, or
marketing it in a new region, are examples of market development.
9.23
Product Development
This is a new product to be marketed to our existing customers. Here we develop and
innovate new product offerings to replace existing ones. Such products are then marketed
to our existing customers. This often happens with the auto markets where existing
models are updated or replaced and then marketed to existing customers.
9.24
Diversification
This is where we market completely new products to new customers. There are two types
of diversification, namely related and unrelated diversification. Related diversification
means that we remain in a market or industry with which we are familiar. For example, a
soup manufacturer diversifies into cake manufacture (i.e. the food industry). Unrelated
diversification is where we have no previous industry nor market experience. For
example a soup manufacturer invests in the rail b usiness.
Ansoff's matrix is one of the most well known frameworks for deciding upon strategies
for growth.
9.3
The Boston Consulting Group's Product Portfolio Matrix
Like Ansoff's matrix, the Boston Matrix is a well known tool for the marketing manager.
It was developed by the large US consulting group and is an approach to product
portfolio planning. It has two controlling aspect namely ‘Relative Market Share (meaning
relative to your competition)’ and Market Growth’.
You would look at each individual product in your range (or portfolio) and place it onto
the matrix. You would do this for every product in the range. You can then plot the
products of your rivals to give relative market share.
101
This is simplistic in many ways and the matrix has some understandable limitations that
will be considered later. Each cell has its own name as follows.
9.31
Dogs.
These are products with a low share of a low growth market. These are the canine version
of 'real turkeys!'. They do not generate cash for the company, they tend to absorb it. Get
rid of these products.
9.32
Cash Cows
These are products with a high share of a slow growth market. Cash Cows generate more
more than is invested in them. So keep them in your portfolio of products for the time
being.
9.33
Problem Children
These are products with a low share of a high growth market. They consume resources
and generate little in return. They absorb most money as you attempt to increase market
share.
9.34
Stars
These are products that are in high growth markets with a relatively high share of that
market. Stars tend to generate high amounts of income. Keep and build your stars.
102
Look for some kind of balance within your portfolio. Try not to have any Dogs. Cash
Cows, Problem Children and Stars need to be kept in a kind of equilibrium. The funds
generated by your Cash Cows is used to turn problem children into Stars, which may
eventually become Cash Cows. Some of the Problem Children will become Dogs, and
this means that you will need a larger contribution from the successful products to
compensate for the failures.
9.35

Problems with The Boston Matrix
There is an assumption that higher rates of profit are directly related to high rates
of market share. This may not always be the case. When TAFE launches a new
tractor in India, it may gain a high market share quickly but it still has to cover very
high development costs

It is normally applied to Strategic Business Units (SBUs). These are areas of the
business rather than products. For example, Mahindra’s tractor division is an SBU
not a single product.

There is another assumption that SBUs will cooperate. This is not always the case.
The main problem is that it oversimplifies a complex set of decision. Be careful.
Use the Matrix as a planning tool and always rely on your gut feeling.
9.4
The General Electric Business Screen
The General Electric Business Screen was originally developed to help
marketing managers overcome the problems that are commonly associated
with the Boston Matrix (BCG), such as the problems with the lack of credible
business information, the fact that BCG deals primarily with commodities not
brands or Strategic Business Units (SBU's), and that cashflow if often a more
reliable indicator of position as opposed to market growth/share.
The GE Business Screen introduces a three by three matrix, which now
includes a medium category. It utilizes industry attractiveness as a more
inclusive measure than BCG's market growth and substitutes competitive
position for the original's market share.
103
So in come Strategic Business Units (SBUs). A large corporation may have
many SBU's, which essentially operate under the same strategic umbrella, but
are distinctive and individual. A loose example would refer to Mahindra’s
tractor division, Teelecom division (MBT), automotive division, Hotels and
leisure division, etc.
Growth/share are replaced by competitive position and market attractiveness.
The point is that successful SBUs will go and do well in attractive markets
because they add value that customers will pay for. So weak companies do
badly for the opposite reasons. To help break down decision-making further,
you then consider a number of sub-criteria:
For market attractiveness:

Size of market

Market rate of growth

The nature of competition and its diversity

Profit margin

Impact of technology, the law, and energy efficiency

Environmental impact
104
. . . and for competitive position:

Market share

Management profile

R&D

Quality of products and services

Branding and promotions success

Place (or distribution)

Efficiency

Cost reduction
At this stage the marketing manager adapts the list above to the needs of his
strategy. The GE matrix has 5 steps:
1.
Identify your products, brands, experiences, solutions, or SBU's.
2.
Answer the question, What makes this market so attractive?
3.
Decide on the factors that position the business on the GE matrix.
4.
Determine the best ways to measure attractiveness and business position.
5.
Finally rank each SBU as either low, medium or high for business strength, and
low, medium and high in relation to market attractiveness.
Now follow the usual words of caution that go with all boxes, models and matrices. Yes
the GE matrix is superior to the Boston Matrix since it uses several dimensions, as
opposed to BCG's two. However, problems or limitations include:

There is no research to prove that there is a relationship between market
attractiveness and business position.

The interrelationships between SBUs, products, brands, experiences or solutions is
not taken into account.

This approach does require extensive data gathering.

Scoring is personal and subjective.

There is no hard and fast rule on how to allocate weights to different elements.
105

The GE matrix offers a broad strategy and does not indicate how best to implement
it.
Generic Strategies - Michael Porter (1980)
Generic strategies were used initially in the early 1980s, and seem to be
even more popular today. They outline the three main strategic options
open to organization that wish to achieve a sustainable competitive
advantage. Each of the three options are considered within the context of
two aspects of the competitive environment:
Sources of competitive advantage - are the products differentiated in any
way, or are they the lowest cost producer in an industry? Competitive
scope of the market - does the company target a wide market, or does it
focus on a very narrow, niche market?
The generic strategies are: 1. Cost leadership, 2. Differentiation, and 3. Focus.
9.51
Cost Leadership
The low cost leader in any market gains competitive advantage from being able to many
to produce at the lowest cost. Factories are built and maintained; labour is recruited and
trained to deliver the lowest possible costs of production. 'cost advantage' is the focus.
Costs are shaved off every element of the value chain. Products tend to be 'no frills.'
106
However, low cost does not always lead to low price. Producers could price at
competitive parity, exploiting the benefits of a bigger margin than competitors. Some
organizations, such as Maruti, are very good not only at producing high quality
automobiles at a low price, but have the brand and marketing skills to use a premium
pricing policy.
9.52. Differentiation
Differentiated goods and services satisfy the needs of customers through a sustainable
competitive advantage. This allows companies to desensitize prices and focus on value
that generates a comparatively higher price and a better margin. The benefits of
differentiation require producers to segment markets in order to target goods and services
at specific segments, generating a higher than average price. For example, fertilizer
companies differentiate their offerings.
The differentiating organization will incur additional costs in creating their competitive
advantage. These costs must be offset by the increase in revenue generated by sales.
Costs must be recovered. There is also the chance that any differentiation could be copied
by competitors. Therefore there is always an incentive to be innovative and continuously
improve.
9.53
Focus or Niche strategy
The focus strategy is also known as a 'niche' strategy. Where an organization can afford
neither a wide scope cost leadership nor a wide scope differentiation strategy, a niche
strategy could be more suitable. Here an organization focuses effort and resources on a
narrow, defined segment of a market. Competitive advantage is generated specifically for
the niche. A niche strategy is often used by smaller firms. A company could use either a
cost focus or a differentiation focus.
With a cost focus a firm aims at being the lowest cost producer in that niche or segment.
With a differentiation focus a firm creates competitive advantage through differentiation
within the niche or segment. There are potentially problems with the niche approach.
107
Small, specialist niches could disappear in the long term. Cost focus is unachievable with
an industry depending upon economies of scale e.g. telecommunications.
The danger of being 'stuck in the middle.'
Make sure that you select one generic strategy. It is argued that if you select one or more
approaches, and then fail to achieve them, that your organization gets stuck in the middle
without a competitive advantage.
9.6
Gap Analysis
Gap analysis is a very useful tool for helping marketing managers to decide upon
marketing strategies and tactics. Again, the simple tools are the most effective. There is a
straightforward structure to follow. The first step is to decide upon how you are going to
judge the gap over time. For example, by market share, by profit, by sales and so on.
This will help you to write SMART objectives. Then you simply ask two questions –\
1.
where are we now? and
2.
where do we want to be?
The difference between the two is the GAP - this is how you are going to get there. Take
a look at the diagramme below. The lower line is where you'll be if you do nothing. The
upper line is where you want to be.
What is Gap Analysis?
108
Your next step is to close the gap. Firstly decide whether you view from a strategic or an
operational/tactical perspective. If you are writing strategy, you will go on to write tactics
- see the lesson on marketing plans.
The diagram below uses Ansoff's matrix to bridge the gap using strategies:
You can close the gap by using tactical approaches. The marketing mix is ideal for this.
So effectively, you modify the mix so that you get to where you want to be. That is to say
you change price, or promotion to move from where you are today (or in fact any or all of
the elements of the marketing mix).
This is how you close the gap by deciding upon strategies and tactics - and that's gap
analysis.
109
9.7
Balanced Scorecard (Kaplan and Norton, 1992)
The Balanced Scorecard is an approach that can be used by strategic marketing managers
to control, and keep track of, key performance indicators. In fact the scorecard itself is
designed to be wholly strategic since it contains long-term outcomes and drivers of
success. There are four zones in a balanced scorecard namely financial, customers,
business processes (or simply processes), and learning and growth. Each measure is part
of a longer chain of cause and effect, and all of the measures eventually lead to outcomes.
So the scorecard is 'balanced' in that outcomes are in balance with each other.
The benefit of the scorecard is that it overcomes short-term quick fixes, and gives the
strategic marketing manager a straightforward overview of the organisation. In fact, a
scorecard should ideally fit onto a single sheet of paper. In fact Kaplan and Norton
(1992), the originators of Balanced Scorecard, describe it as the dials in an airplane
cockpit.
9.71
Learning and Growth
Learning and Growth deals with measures of corporate success in relation to how it
learns as it develops over time. So if the company makes mistakes in any way, then it
110
must learn from them and there must be mechanisms in place to make sure that happens.
Growth also includes the way in which it generates leaders for the future and equips
employees with the necessary skills that will ultimately sustain its business. Examples
include skills sets, employee relations and satisfaction, and staff competences.
9.72
Internal Business Processes
Internal business processes include all operations within the organisation. The measures
would cover whether or not value is being delivered to target segments, and the value
chain is tracked. Innovation and new product development would also be measured.
Examples of internal business processes include Information Technology, manufacturing,
marketing operations such as customer service, procurement and quality processes.
9.73
Customers
As marketers we are very concerned with our customers. We need to make sure that they
are satisfied with every aspect of their experience with our organisation. We need to
make sure that we not only recruit more new customers, but that we also retain them and
extend new products and services to them. We also need to make sure that we are
meeting the needs of our target segments. So here, examples of customer measures
include customer retention and recruitment, their satisfaction and so on.
9.74
Financial
Financial measures are vitally important for any business. A note of caution here, since
traditional measures of financial success such as Return On Investment (ROI), and made
secondary to 'shareholder value.' Shareholder value is the natural measure of success, and
so it is prioritised. Information on customers, markets and technology is far more widely
available today, so don't bogged down with old fashioned financial measures.
Resources, individuals and teams within a business are then aligned with the scorecard
objectives, measures, targets and initiatives for each of the four areas of measurement.
111
9.8
Core Competencies
A core competence is the result of a specific unique set of skills or production techniques
that deliver value to the customer. Such competences give an organization access to a
wide variety of markets.
Core competencies are interesting from a traditional marketing point of view since it
could be argued that they take a product or production orientation rather than a market
orientation. If you focus on production techniques and skills then aren't you looking at
your business from an internal point of view? The answer is yes. However, the core
competences give a business a competitive advantage in a number of markets, markets
where customers perceive a benefit from the product. So if needs are being met better
than the competition, there is an argument that core competences are indeed marketoriented. There are at least three tests of a core competence.
9.81
Three tests of core competence:-
1.
Provides potential access to a wide variety of markets.
2.
Should make a significant contribution to the perceived customer benefits of the
end product.
3.
Should be difficult for competitors to imitate.
For example, Bayer has expertise in many agrochemicals. Customers perceive many
benefits in relation to different kinds of products from Bayer. For a variety of reasons,
including unique skills, it is difficult for competitors to imitate Bayer’s core
competencies.
112
When trying to identify a core competence, it is often easy to mistake them for scarce or
unique resources i.e. resources rather than skills or production technologies. Also often
skills and production technologies do not amount to a core competence or resource
because they do not comply with one or more of the three tests. They are the thresholds
that the organization must achieve to remain competitive. Threshold competences and
scarce resources may not provide access to a variety of markets, may not be so
significant to customers and may be less difficult to imitate.
In summary there are core competences and scarce resources, and threshold
competences and threshold resources.
113
In order to be competitive an organization needs material resources such as premises, a
factory or offices - depending on the nature of business of course. Material resources tend
to be the most straightforward to achieve. Then an organization needs to achieve the right
balance between Human Resources, training and recruitment. This state is more difficult
to achieve. Intangible resources, including core competences are the most difficult and
challenging to achieve. This is depicted in the diagram above. In fact they drive
competitive advantage.
9.9
Value Chain Analysis
The value chain is a systematic approach to examining the development of competitive
advantage. It was created by M. E. Porter in his book, Competitive Advantage (1980).
The chain consists of a series of activities that create and build value. They culminate in
the total value delivered by an organisation. The 'margin' depicted in the diagram is the
same as added value. The organisation is split into 'primary activities' and 'support
activities.'
9.91
Primary Activities
9.911 Inbound Logistics
Here goods are received from a company's suppliers. They are stored until they are
needed on the production/assembly line. Goods are moved around the organisation.
114
9.912 Operations
This is where goods are manufactured or assembled. Individual operations could include
room service in an hotel, packing of books/videos/games by an online retailer, or the final
tune for a new car's engine.
9.913 Outbound Logistics
The goods are now finished, and they need to be sent along the supply chain to
wholesalers, retailers or the final consumer.
9.914 Marketing and Sales
In true customer orientated fashion, at this stage the organisation prepares the offering to
meet the needs of targeted customers. This area focuses strongly upon marketing
communications and the promotions mix.
9.915 Service
This includes all areas of service such as installation, after-sales service, complaints
handling, training and so on.
9.92
Support Activities
9.921 Procurement
This function is responsible for all purchasing of goods, services and materials. The aim
is to secure the lowest possible price for purchases of the highest possible quality. They
will be responsible for outsourcing (components or operations that would normally be
done in-house are done by other organisations), and ePurchasing (using IT and webbased technologies to achieve procurement aims).
9.922 Technology Development
Technology is an important source of competitive advantage. Companies need to
innovate to reduce costs and to protect and sustain competitive advantage. This could
include production technology, Internet marketing activities, lean manufacturing,
115
Customer
Relationship
Management
(CRM),
and
many
other
technological
developments.
9.923 Human Resource Management (HRM)
Employees are an expensive and vital resource. An organisation would manage
recruitment and selection, training and development, and rewards and remuneration. The
mission and objectives of the organisation would be driving force behind the HRM
strategy.
9.924 Firm Infrastructure
This activity includes and is driven by corporate or strategic planning. It includes the
Management Information System (MIS), and other mechanisms for planning and control
such as the accounting department.
116
Chapter 10
Special Topics in Marketing
10.0
Introduction
Marketing is an evolving field. The sheer dynamism of the discipline makes it fascinating
and at the same time ever changing. The practicing mangers have to be constantly
updated about emerging areas and concepts as the society and technologies change
around them. The marketing practice will be effective only when it takes into account the
latest developments in the field and is based on sound theoretical concepts. It is with this
in view that this chapter tries to capture the essence of some important topics in
marketing which will make the knowledge base of the managers contemporary.
10.1
Services Marketing and the Extended Marketing Mix (7Ps).
A service is the action of doing something for someone or something. It is largely
intangible (i.e. not material). A product is tangible (i.e. material) since you can touch it
and own it. A service tends to be an experience that is consumed at the point where it is
purchased, and cannot be owned since it quickly perishes. A person could go to a
restaurant one day and have excellent service, and then return the next day and have a
poor experience. So often marketers talk about the nature of a service as:
1.
Inseparable - from the point where it is consumed, and from the provider of the
service. For example, you cannot take the live performance of a folk dancer home
to consume it (a DVD of the same performance would be a product, not a
service).
2.
Intangible - and cannot have a real, physical presence as does a product. For
example, life insurance policy may have a certificate, but the financial service
itself cannot be touched i.e. it is intangible.
117
3. Perishable - in that once it has occured it cannot be repeated in exactly the same
way. For example, once an on-farm training programme for farmers has been
conducted, there will be not other for some time to come and even then it may be
held in a different place.
4. Variability- since the human involvement of service provision means that no two
services will be completely identical. For example, returning to the same
mechanic time and time again for a service on your tractor might see different
levels of customer satisfaction, or speediness of work.
5. Right of ownership - is not taken to the service, since you merely experience it.
For example, an engineer may service your agricultural pump set, but you do not
own the service, the engineer or his equipment. You cannot sell it on once it has
been consumed, and do not take ownership of it.
Service sector is dominating the economies around the world. Therefore the four Ps (born
in the manufacturing era) based marketing mix has seen an extension and adaptation into
the extended marketing mix for services, also known as the 7Ps - physical evidence,
process and people.
Lets now look at the remaining 3 Ps:
a.
People
An essential ingredient to any service provision is the use of appropriate staff and people.
Recruiting the right staff and training them appropriately in the delivery of their service is
essential if the organisation wants to obtain a form of competitive advantage. Consumers
make judgements and deliver perceptions of the service based on the employees they
interact with. Staff should have the appropriate interpersonal skills, aptitude, and service
knowledge to provide the service that consumers are paying for.
118
b.
Process
Refers to the systems used to assist the organisation in delivering the service. Imagine
you walk into a tractor mechanics shop and he takes out the entire history of past repairs
on your tractor. What was the process that allowed you to obtain this kind of service
delivery?
c.
Physical Evidence
Where is the service being delivered? Physical Evidence is the element of the service mix
which allows the consumer again to make judgements on the organisation. If you walk
into a restaurant your expectations are of a clean, friendly environment. Physical
evidence is an essential ingredient of the service mix, consumers will make perceptions
based on their sight of the service provision which will have an impact on the
organisations perceptual plan of the service.
To certain extent managing services are more complicated then managing products,
products can be standardised, to standardise a service is far more difficult as there are
more input factors i.e. people, physical evidence, process to manage then with a product.
10.2
Customer Relationship Marketing (CRM)
CRM is about the systems (IT and non – IT systems) that are employed that help an
organisation manage its relationships with it customers.
CRM employed systems can help an organisation in a number of ways:

By using simple databases CRM can help the organisation in segmenting their
most profitable customers.

Help the organisation in targeting specific products at certain customers groups by
looking at their past purchase patterns.

Help identify light and medium users, and employing strategies to try and convert
them into heavy users.
119

CRM can provide employees with all the necessary information that they need to
know about the customer they are dealing with, ensuring that the customer is dealt
with in an efficient manner and ensuring personlisation for the customer.
Customer Relationship Marketing tries to ensure that customer information can be
accessed at any point within the organisation. A truly marketing oriented organisation
would make sure that this would happen and that this system will put the customer first.
10.3
International Marketing
The world is becoming a smaller place because of technology (the internet) and social
mobility, that is, people are travelling more and are seeing familiar brands around the
world. Competition within the individual national markets are becoming too intense so
marketers decide to push sales in overseas markets.
10.31 Entering global markets
There are a number of steps that need to be taken before you decide to enter international
markets. Analyze the international marketing environment. A PEST/STEP analysis needs
to be conducted on the market you enter, to assess whether it is worthwhile or not. Some
factors that may influence an international decision are Political factors, Economical
Factors, Social Factors and Technological factors.
10.32 Market entry methods
Prior to you entering an overseas market there are six factors that need to be considered:
1.
Speed – How quickly do you wish to enter your selected market?
2.
Costs- What is the cost of entering that market?
3.
Flexibility – How easy is it to enter/leave your chosen market?
4.
Risk Factor – What is the political risk of entering the market? What are the
competitive risk? How competitive is the market?
5.
Payback period – When do you wish to obtain a return from entering the market?
Are there pressures to break even and return a profit within a certain period?
120
6.
Long- term objectives- What does the organisation wish to achieve in the long
term by operating in the foreign market? Will they establish a presence in that
market and then move onto others?
1.
Direct export
The organisation produces their product in their home market and then sells them to
customers overseas.
2.
Indirect export
The organizations sells their product to a third party who then sells it on within the
foreign market.
3.
Licensing
Another less risky market entry method is licensing. Here the Licensor will grant an
organisation in the foreign market a license to produce the product, use the brand name
etc in return that they will receive a royalty payment.
4.
Franchising
Franchising is another form of licensing. Here the organisation puts together a package of
the ‘successful’ ingredients that made them a success in their home market and then
franchise this package to overseas investors. The Franchise holder may help out by
providing training and marketing the services or product. McDonalds is a popular
example of a Franchising option for expanding in international markets.
5.
Contracting
Another of form on market entry in an overseas market which involves the exchange of
ideas is contracting. The manufacturer of the product will contract out the production of
the product to another organisation to produce the product on their behalf. Clearly
contracting out saves the organisation exporting to the foreign market.
121
6.
Manufacturing abroad
The ultimate decision to sell abroad is the decision to establish a manufacturing plant in
the host country. The government of the host country may give the organisation some
form of tax advantage because they wish to attract inward investment to help create
employment for their economy.
7.
Joint Venture
To share the risk of market entry into a foreign market, two organisations may come
together to form a company to operate in the host country. The two companies may share
knowledge and expertise to assist them in the development of company, of course profits
will have to be shared out also.
The International Marketing Mix- When launching a product into foreign markets
should we standardise or adapt your marketing mix to the foreign market? A company
can adopt to use a standardised marketing mix around the world or an adapted marketing
mix in each country. International Marketing Strategy decision is mainly between
Standardisation Vs Adaption. In international markets ,we have to take into consideration
consumers cultural background, buying habits, levels of personal disposable income etc
in order to deliver a tailored marketing mix programme to suit their needs. The arguments
however for standardisation suggest that if you go through the process of adapting the
product to local markets it does little but add to the overall cost of producing the product
and weakens the brand on the global scale. In today’s global world, where consumers
travel more, watch satellite television, communicate and shop internationally over the
internet, the world now is becoming a lot smaller. Because of this there is no need to
adapt products to local markets. Brands such as Coca-Cola, MTV, Nike, Levis are all
successful global brands where they have a standardised approach to their marketing mix,
all these products are targeted at similar groups globally.
We can argue that standardisation is better for the organisation because it reduces cost,
however many organisations will have to ‘think global, but act local’ if they are to
successfully establish them selves in foreign markets. The same applies to International
122
Promotion Strategy, we can either adapt or standardise their promotional strategy and
message. The use of certain colours may also need to be thought about. In India red is the
colour worn by the bride in weddings, white is the colour for mourning in Japan. The
level of media development has to also be taken into account. What is the level of
television penetration? How much control does the government have over advertising on
TV and radio? Is print media more popular then TV?
Pricing on an international scale is difficult. It has to take into account traditional price
considerations. The organisation needs to consider the costs of transport, any tariffs or
import duties that may be levied on their product(s) when they are sold on the
international scale. Also what currency do you expect to be paid in? Will it be home or
international currency? Exchange rate fluctuation will also impact profitability and
influence pricing decisions. The internet is now making pricing more transparent for
consumers. Goods can be purchased online from any overseas organisations at local
currency prices.
In an overseas market there may well be more intermediaries involved. In your
international market, is it dominated by major retailers or is the retail sector made up of
small independent retailers? Is internet distribution common for your product.
10.4
eMarketing
eMarketing is essentially part of marketing. Therefore eMarketing by its very nature is
one aspect of an organizational function and a set of processes for creating,
communicating and delivering value to customers and for managing customer
relationships in ways that benefit the organization and its stakeholders. This also helps us
to differentiate between eMarketing and E-commerce, since E-Commerce is simply
buying and selling online.
10.41 What is the difference between eMarketing and Internet Marketing?
There is no real difference between eMarketing and Internet Marketing. However, with
the arrival of mobile technologies such as PDA's and 3G mobile phones, as well as
123
Interactive Television, both terms tend to be stretched to include these new media
technologies.
10.42 What are the eMarketing tools?
The Internet has a number of tools to offer to the marketer.
 A company can distribute via the Internet e.g. rediffshopping.com.
 A company can use the Internet as a way of building and maintaining a customer
relationship.
 The money collection part of a transaction could be done online e.g. electricity
and telephone bills.
 Leads can be generated by attracting potential customers to sign-up for short
periods of time, before signing up for the long-term.
 The Internet could be used for advertising e.g. Google.
 Finally, the web can be used as a way of collecting direct responses e.g. as part of
a voting system for a game show.
10.43 Internet Advertising
External sources of Internet Advertising
Pay-Per-Click Advertising, e.g. Google Adwords.Google Adwords is a cost-perclick (CPC) online advertising programme. Essentially that means that you
decide upon a keyword that relates closely to your product or service. Using
Google's tools, you price how much it would cost your per-click for your chosen
keyword - this could be 10 cents, $1.50 or more, depending on the popularity of
the keyword. So the keyword - 'marketing' - would be more expensive than the
keyword - 'marketing cheese china' - because of its level of popularity. You then
allocate a budget, and pay Google by credit card. You can control the length of
your campaign, or end it as soon as the money runs out.
Advertisements appear alongside Google search results - so go to Google
and search for 'marketing.' The advertisements appearing along side the main
124
search results are CPC. You only pay for advertisements that get clicked not for page views - so you pay nothing if your advert is simply viewed.
There is also an opportunity for 'Smart Pricing' whereby you pay more for
the advert if a sale is guaranteed. Adwords text ad running on the 'same
page,' then clicks on it - and buys from the advertiser.
Search Marketing, Overture and Yahoo!- Overture is the Yahoo equivalent of
Google's Adwords. Now known as Yahoo! Search Marketing, Overture has a
series of sub-products that make up its Internet marketing programme. Here are
some examples:
(a) Sponsored search - displays your advert at the top of the search engine
results. So your potential customers search for a 'keyword' and your advert
appears at the top of the results page (this is very similar to Adwords).
Again, as with Adwords, the advertisers bid against each other to obtain the
position that will generate the most convertible traffic to their site. Popular
keywords will cost more - obviously.
Local Advertising - gets your business listed in Yahoo's business directory.
So if you wish to promote products in specific regions next to specific search
keywords, this is a very targeted geographical service.
Affiliate Marketing- Affiliate Marketing is where an organization offers and
incentive to other web-based organizations to market the products or services
that it offers. Put simply - affiliate marketing is a basic agency arrangement.
There is rarely any pay-per-click cash, but affiliates tend to take a commission
on any goods sold as a result of the click. What does it look like? Affiliate
marketing sees a banners advert or a text advert placed upon an affiliate's
website. When the advert attracts a click, the visitor is taken through to the site
that originated the affiliate programme. No cash changes hands until there is a
sale, but affiliate rewards tend to be higher than regular pay-per-click.
125
10.5
Network Marketing or Multi Level Marketing (MLM)
Network Marketing is a subset of direct selling and is also known as “multilevel
marketing”, “structure marketing” or “multilevel direct selling”. Network marketing can
best be described as a direct selling channel that focuses heavily on its compensation plan
because the distributors (members of the network) may receive compensation in two
fundamental ways. First, sales people (distributor) may earn compensation from their
personal sales of goods and services to the consumers (non-member of the network).
Second, they may earn compensation from sales to or purchase from those persons whom
they have personally sponsored or recruited into the network (down lines), these down
lines continue sponsoring or recruiting to the network sharing the benefits with their
sponsors or recruiters (up lines). Hence, the network marketing organization can be
defined as “those organisations that depend heavily or exclusively on personal selling,
and that reward sales agents for (a) buying products, (b) selling products, and (c) finding
other agents to buy and sell products”.
Network marketing distributors purchase products at wholesale prices, and may either use
discounted products themselves or retail the products to others for a profit. Suggested
mark up usually ranges from 20% to 50%. In addition, distributors receive a monthly
commission for their ‘personal volume’, which is the value of every product they
personally buy or sell. Further, the distributors receive a net commission on the sales of
those they recruit into the network.
The sales developed from network marketing are not developed solely from sales created
by retailing, but also developed through recruiting or sponsoring independent distributors.
Thus, as distributors continue to recruit or sponsor new distributors to expand their
network, the new distributors will contribute new sales to the network and gain
commission in return. The multiplying effect on network marketing will expand
when these distributors continue their recruiting or sponsoring efforts. This multiplying
effect, an important element in the recruiting or sponsoring function, makes the network
marketing quite different from other types of direct selling involving paid sales persons.
126
10.6
Experiential Marketing (XM)
Experiential marketing defined as "a fusion of non-traditional modern marketing
practices integrated to enhance a consumer's personal and emotional association with a
brand". "Experiential marketing" is the antonym of "product centric marketing," which
makes "customer centric marketing" somewhat synonymous with "experiential
marketing." .The idea of experiential marketing reflects a right brain bias because it is
about fulfilling consumers’ aspirations to experience certain feelings – comfort and
pleasure on one hand, and avoidance of discomfort and displeasure on the other.
In contrast, traditional product centric marketing reflects a left brain bias because it
generally seeks to persuade consumers by invoking rational factors that position the
advertised brand as better than competing brands. Product centric marketing presumes a
degree of rationality in consumers’ decision-making that contemporary brain science
refutes. Consumers’ decisions are much more influenced by emotionally generated
feelings than by their rationally derived thoughts.
Some myths of XM:

Companies that send instant messages with games or music promoting their
brands are doing experiential marketing.

Experiential marketing is made up solely of events, mobile tours, and sports or
entertainment marketing programmes.

Experiential marketing can include advertising copy that is written to connect
with the senses.

Experiential marketing consists of product sampling, bar and nightclub
promotions, street teams, and diversity marketing (not sure why they threw that
in there!).
It is a mindset. A focus on creating fresh connections between brands and consumers out
in the world where things happen. Connections in the form of experiences that are
personally relevant, memorable, interactive and emotional. Connections that lead to
increased sales and brand loyalty.
127
Experiential marketing is about interacting in person and bringing your brand alive. It's
important to point out that simply creating a live encounter between a person and a brand
does not mean you've succeeded at being an experiential marketer. Good experiences
take time, money, good information and clear objectives to develop.
10.7
Viral Marketing
Before we understand the reasons for effectiveness of viral marketing, we have to learn to
admire the virus. He has a way of living in secrecy until he is so numerous that he wins
by sheer weight of numbers. He piggybacks on other hosts and uses their resources to
increase his tribe. And in the right environment, he grows exponentially. A virus don't
even have to mate -- he just replicates, again and again with geometrically increasing
power, doubling with each iteration:
1
11
1111
11111111
1111111111111111
11111111111111111111111111111111
1111111111111111111111111111111111111111111111111111111111111111
In a few short generations, a virus population can explode.
Viral marketing describes any strategy that encourages individuals to pass on a marketing
message to others, creating the potential for exponential growth in the message's
exposure and influence. Like viruses, such strategies take advantage of rapid
multiplication to explode the message to thousands, to millions.
Off the Internet, viral marketing has been referred to as "word-of-mouth," "creating a
buzz," "leveraging the media," "network marketing." But on the Internet, for better
or worse, it's called "viral marketing."
128
The classic example of viral marketing is Hotmail.com, one of the first free Web-based email services. The strategy is simple:
1. Give away free e-mail addresses and services,
2. Attach a simple tag at the bottom of every free message sent out: "Get your
private, free email at http://www.hotmail.com" and,
3. Then stand back while people e-mail to their own network of friends and
associates,
4. Who see the message,
5. Sign up for their own free e-mail service, and then
6. Propel the message still wider to their own ever-increasing circles of friends and
associates.
Like tiny waves spreading ever farther from a single pebble dropped into a pond, a
carefully designed viral marketing strategy ripples outward extremely rapidly.
Some viral marketing strategies work better than others, and few work as well as the
simple Hotmail.com strategy. But below are the six basic elements you hope to include in
your strategy. A viral marketing strategy need not contain ALL these elements, but the
more elements it embraces, the more powerful the results are likely to be. An effective
viral marketing strategy:
1. Gives away products or services
2. Provides for effortless transfer to others
3. Scales easily from small to very large
4. Exploits common motivations and behaviors
5. Utilizes existing communication networks
6. Takes advantage of others' resources
10.8
Cause-related Marketing
Cause-related marketing is defined as the public association of a for-profit company with
a nonprofit organization, intended to promote the company's product or service and to
129
raise money for the nonprofit. Cause-related marketing is generally considered to be
distinct from corporate
philanthropy because the corporate dollars involved in Cause-related
marketing are not outright gifts to a nonprofit organization, hence not tax-deductible.
The phrase "cause-related marketing" was first used by American Express in 1983 to
describe its campaign to raise money for the restoration of the Statue of Liberty.
American Express made a one-cent donation to the Statue of Liberty every time someone
used its charge card; the number of new card holders soon grew by 45%, and card usage
increased by 28%.
In their efforts to diversify and enhance their funding base nonprofits have embraced
Cause-related marketing.
The practice has evolved to include a wide range of activities
from simple agreements to donate a percentage of the purchase price for a particular item
or items to a charity for a specific project, to longer, more complex arrangements.
Corporations too have been drawn to Cause-related marketing due to the competition of the
expanding global marketplace and the need to develop brand loyalty. A number of recent
studies have documented that consumers carefully consider a company's reputation when
making purchasing decisions and that a company's community involvement boosts
employee morale and loyalty.
130