CUSTOMER RELATIONSHIP MANAGEMENT

(As per Thiruvalluvar university Syllabus of II BBA)

Department of BBA
M.M.E.S women’s College
Melvisharam

UNIT I
Unit I: Introduction – Definition - Need for CRM- Complementary layers of CRM -
Customer Satisfaction - Customer Loyalty - Product marketing - Direct Marketing.
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Definition of CRM:
Customer Relationship Management (CRM) is a comprehensive strategy and process of
acquiring, retaining and partnering with selective customers to create superior value and
strong relationship with customers.

A commonly cited definition of CRM is that of CRM (UK) Ltd (2002), as follows:

“Customer Relationship Management is the establishment, development, maintenance

and optimisation of long-term mutually valuable relationships between consumers and
organizations”.

CRM is neither a product, nor service but a business strategy to learn more about
customer behaviour and requirements in order to create long term relationship with them.
CRM involves use of technology in attracting new and profitable customers while
forming tighter bonds with existing one.

Needs / objectives of CRM:

1. Enable the company to identify, contact attract and acquire new customers:
CRM allows the company to focus its limited marketing resources on the most promising
target markets with the highest potential value. This is typically done using the
information generated by CRM application which
a) Automatically generates customer and market profiles
b) Identify and target market with high revenues
c) Generates, leads, tracks marketing campaigns across a variety of media
d) Selects appropriate contact media, plans promotions and incentives
e) Manages the proposal process through negotiations to close.

2. Obtains a better understanding of the customers- their wants and needs:

CRM applications, often used in combination with data warehousing, e-commerce
applications and call centers, allow companies to gather and access information about
customers buying behavior, wants in terms of products or services provided by the
company. The information is used in planning and execution go marketing campaigns. It
enables customers to seek products and reveal their preferences in an interactive manner.

3. Defines the appropriate product and service offering and match it to the unique
needs of the customer:
CRM provides customization and personalization capabilities that gives customers the
power to view the enterprise in a way that they can relate to, there by making it easier for
them to do business with it. This includes configuration, pricing, quotation, catalog and
personal generation capabilities that harness the power of Internet while ensuring the
flexibility to respond quickly to changing technical and business conditions.

4. Manages and optimizes company’s sales cycle:

The productivity of the sale process is increased by accurating the contracting process
and improving revenue velocity. This is accompanied to capabilities such as online order
entry, credit card processing, tax calculations, auctions, billing, order status and payment
processing. CRM solutions also include tools, which provide the ability to communicate
important information from supply chain modules to the customer interface in real time.
These tools can help in determining feasibility, profitability and delivery dates, while
understanding the constraints of the entire supply production and logistics chain across
multiple channels and enterprises.

5. Increases retention of existing customers through improved sales, service and

support:
CRM applications document all post –close service and support related interaction with
customers, record customer requests and collect feedback from variety of communication
channels and use the information to anticipate the demand for service and technical
assistance and maximize customer satisfaction and retention while maximizing customer
service staff. The goal is to ensure greater customer loyalty. CRM provides capabilities
for providing online support information, online product registration to an electronic help
desk, self service support logging and tracking and integration with call centers.

6. Identifies Cross selling and up selling opportunities:

CRM can help in identifying opportunities for cross selling and up selling of higher value
added services to the existing customers, based on their past purchasing behaviour.

Complementary Layers of CRM / CRM perspectives

CRM is a term that is often referred to in marketing. However, there is no complete

agreement upon a single definition. This is because CRM can be considered from a
number of perspectives. In summary, the three perspectives are:

1. CRM from the Information Technology Perspective.

2. CRM from the Customer Life Cycle (CLC) Perspective.
3. CRM from the Business Strategy Perspective.

1. CRM from the Information Technology Perspective.

From the technology perspective, companies often buy into software that will help to
achieve their business goals. For many, CRM is far more than a new software package,
the renaming of traditional customer services, or an IT-based customer management
system to support sales people. However, IT is vital since it underpins CRM, and has the
payoffs associated with modern technology, such as speed, ease of use, power and
memory, and so on. Information Technology (IT) and CRM have three key elements,
namely Customer Touch Points, Applications, and Data Stores. This section is based
loosely upon Raisch (2001) The e-Marketplace.

Customer Touch Points are vital since your business has a marketing orientation and
focuses upon the customer and his or her current and future needs. This is the interface
between your organisation and its customers. For example you buy a new car from a
dealership, and you enter a showroom. The dealership is a contact point. You meet with a
salesperson whom demonstrates the car. The salesperson is a contact point. You go home
and look at the car manufacturer's website, and then send the company an e-mail. Both
are contact points. Other contact points include 3G telephone, video conferencing,
Interactive TV, telephone, and letters.

Applications are essentially the software and programmes that support the process.
Incidentally, this is what some would call CRM - but we know better. Applications serve
Marketing (e.g. data mining software* and permission marketing**), Sales (e.g.
monitoring Customer Touch Points), and Service (e.g. customer care).

Data Stores contain data on every aspect of the customer, and the Customer Life Cycle
(CLC). For example, an organisation keeps data on the products you buy, when you buy
them, and where they are sent. Data is also kept on the web pages that you visit and the
products that you consider, but then do not buy. Leads are stored here. Data on the life
time value of individual customers is stored here, as well as details of how and when the
customer was recruited, how - and for how long - individuals have been retained, and
details of any products that have been extended to individuals are also stored. The data is
analysed using Applications.

*Data Mining is where an organisation evaluates large Data Stores for patterns, or
relationships between groups or individuals (or segments). Applications present 'patterns'
in a format that can be used for marketing decision-making.

** Permission Marketing is where a customer elects to accept (or 'opt-in' to) marketing
material from an organisation e.g. where you buy insurance and the vendor asks if you
wish to receive further details from them, or similar organisations. It is so called because
marketers need your 'permission' to market to you. Permission marketing can occur at
any of the Customer Touch Points.

2. CRM from the Customer Life Cycle (CLC) Perspective.

The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle
(PLC). However, CLC focuses upon the creation of and delivery of lifetime value to the
customer i.e. looks at the products of services that customers need throughout their lives.
It is marketing orientated rather than product orientated. Essentially, CLC is a summary
of the key stages in a customer's relationship with an organisation.

The Customer Life Cycle (CLC) has obvious similarities with the Product Life Cycle
(PLC). However, CLC focuses upon the creation of and delivery of lifetime value to the
customer i.e. looks at the products or services that customers NEED throughout their
lives. It is marketing orientated rather than product orientated, and embodies the
marketing concept. Essentially, CLC is a summary of the key stages in a customer's
relationship with an organisation. The problem here is that every organisation's product
offering is different, which makes it impossible to draw out a single Life Cycle that is the
same for every organisation.
Let's consider an example from the Banking sector. HSBC has a number of products that
it aims at its customers throughout their lifetime relationship with the company. Here we
apply a CLC. You can start young when you want to save money. 11-15 year olds are
targeted with the Livecash Account, and 16-17 year olds with the Right Track Account.
Then when (or if) you begin College or University there are Student Loans, and when
you qualify there are Recent Graduate Accounts.

When you begin work there are many types of current and savings account, and you may
wish to buy property, and so take out a mortgage. You could take out a car loan, to buy a
vehicle to get you to work. It would also be advisable to take out a pension. As you
progress through your career you begin your own family, and save for your own
children's education. You embark upon a number of savings plans and schemes, and
ultimately HSBC offer you pension planning (you may want to insure yourself for funeral
expenses - although HSBC may not offer this!).

This is how an organization such as HSBC, which is marketing orientated, can recruit and
retain customers, and then extend additional products and services to them - throughout
the individual's life. This is an example of a Customer Life Cycle (CLC).

Another important point is that a lifetime CLC is made up many shorter CLC's. So, for
example, Volkswagen Cars retains a customer for many years and one can predict the
products that meet a customers needs throughout his or her family lifetime. However the
purchase of each car, will in itself be a CLC with many Customer Touch Points. The
consumer may need a bigger vehicle as his or her family expands - so they visit VW's
website and register.

The customer reviews models and books a test-drive with her or his local dealer. He or
she decides to buy the car and arranges finance. The car is then delivered from the
factory, and returns every year for its annual service. Then after three years, the customer
decides to trade in his or her car, and the cycle begins again. The longer-term life cycle is
simply the shorter-term life cycles viewed consecutively.

3. CRM from the Business Strategy Perspective:

The Business Strategy perspective has most in common with many of the lessons and
topics contained on this website, and indeed within the field of marketing itself. The
diagram below shows the Marketing Teacher Model of CRM and Business Strategy. Our
model contains three key phases - customer acquisition, customer retention and customer
extention, and three contextual factors - marketing orientation, value creation and
innovatove IT.

We now consider the Business Strategy Perspective on CRM. Here, we propose a model,
which is a hybrid, and typical of many of the models and diagrams of CRM that you will
find on The Internet and in popular books on the topic of eMarketing/eCommerce. The
model has three key phases and three contextual factors:

Three key phases:

• 1. Customer Acquisition.
• 2. Customer Retention.
• 3. Customer Extension.

Three contextual factors:

• 4. Marketing Orientation.
• 5. Value Creation.
• 6. Innovative IT.
1. Customer Acquisition - This is the process of attracting our customer for the first
their first purchase. We have acquired our customer.

Growth - Through market orientation, innovative IT and value creation we aim to

increase the number of customers that purchase from us for the first time.

2. Customer Retention - Our customer returns to us and buys for a second time. We
keep them as a customer. This is most likely to be the purchase of a similar product or
service, or the next level of product or service.

Growth - Through market orientation, innovative IT and value creation we aim to

increase the number of customers that purchase from us regularly.

3. Customer Extension - Our customers are regularly returning to purchase from us. We
introduce products and services to our loyal customers that may not wholly relate to their
original purchase. These are additional, supplementary purchases. Of course once our
loyal customers have purchased them, our goal is to retain them as customers for the
extended products or services.

Growth - Through market orientation, innovative IT and value creation we aim to

increase the number of customers that purchase additional or supplementary products and
services.

4. Marketing Orientation - means that the wholes organisation is focused upon the
needs of customers. Customer needs are addressed by the Three Levels of a Product
whereby the organisations not only supplies the actual, tangible product, but also the core
product and its benefit, and also the augmented product such as a warranty and customer
service. Marketing orientation will focus upon the needs of consumers for all three levels
of a product. (N.B. 'market' orientation and 'marketing' orientation are not the same).

5. Value Creation - centres on the generation of shareholder value based upon the
satisfaction of customer needs (as with marketing orientation) and the delivery of a
sustainable competitive advantage.

6. Innovative IT - is exactly that - Information Technology must be up-to-date. It should

be efficient, speedy and focus upon the needs of customers. Whilst IT and/or software are
not the entire story for CRM, it is vital to its success. CRM software collects data on
consumers and their transactions. Huge databases store data on individuals and groups of
individuals. In some ways, CRM means that an organisation is dealing with a segment of
one person, since every consumer displays different purchasing habits and preferences.
Organizations will track individuals, and try to market products and services to them
based upon similar buyer behavior seen in other individuals (e.g. When Amazon tells you
those customers that viewed/bought the same product as you, also bought another
product).
Customer Satisfaction:
Oliver defines Customer satisfaction as follows “Satisfaction is the customer fulfillment
response. It is a judgment that a product or service feature, or the product or service
itself provides a pleasurable level of consumption related fulfillment.”
Satisfaction can be viewed as contentment. Satisfaction may also be associated with some
sense of happiness. For those services that really surprise in the positive way, satisfaction
may mean delight. And in some situations, where the removal of negative aspect leads to
satisfaction, the consumer may associate a sense of relief with satisfaction.
Retention in competitive markets is generally believed to be a product of customer
satisfaction. Satisfaction is a psychological process of evaluating perceived performance
outcome based on predetermined expectations.

Satisfaction drivers:

Cumby and Barnes suggest that driver exist on five levels and, that these generally
involve progressively more personal contact with the service supplier:
1. Core product or service
2. Support service and systems
3. Technical performance
4. Elements of customer interaction
5. Affective dimension of services

1. Core Product or service: this is the basic product or service provided by the company
and probably provides the supplier with the least opportunity to differentiate or add value.

2. Support services and systems: These include the peripheral support services that
enhance the provision of the core product or services. The customer may well receive an
excellent core product or service from the supplier but are dissatisfied with the supplier
because of inferior support service and systems.

3. Technical Performance: The level of “customer satisfaction model” deals with

whether the service provider gets the core product or whether service and the support
services and systems are in place but they do not get them right on every occasion.

4. Elements of customer interaction: This level relates to the way the service provider
interacts with the customer either face-to –face or through technology based contact.

5. Affective dimensions of service: Beyond the basic interaction of the company are the
messages, sometimes subtle and often unintentional, that companies send to their
customers that leave them with positive or negative feelings towards them. A
considerable amount of dissatisfaction has nothing to do with core products and services.
Indeed the customer may be satisfied with more aspects of interaction. The problem may
lie with “little things” that may not be noticed by the staff.
It is quite possible for the supplier to get things right on the first four levels and to
dissatisfy the customer because of something that happens on the fifth level. This
emphasize the importance of ‘critical episode’ in the exchange process

Customer Satisfaction Process:

At the heart of any successful strategy to ‘manage’ customer satisfaction is the ability to
“listen to the customer”. They suggest five categories of approach.
1. Customer satisfaction indices
2. Feedback
3. Market research
4. Front-line personnel
5. Strategic activities

1. Customer Satisfaction Indices:

Customer satisfaction indices are among the most popular methods of tracking or
measuring customer satisfaction. Indeed, business of all sorts now divert consider
energies into tracking customer satisfaction in this way.
2. Feedback:
Feedback in this context includes comments, complaints and questions ,It may be among
the most effective means of establishing what the customer regards as a satisfactory level
of performance and whether ‘dissatisfiers’ exist within the operation as it is based on
actual performance rather than contrived situations.
3. Market Research:
In addition to research among customers and non-customers into potential ‘satisfiers’,
‘dissatisfiers’ and ‘customer expectations’, market research can be used as customer
entrance (to establish drivers which bought the customer to the company) and customer
exit (to establish those factors which cause the customer to go elsewhere).Again more
valuable information may be achieved in the latter rather than the former as it is based on
actual behavior rather than the perception.
4. Frontline Personnel:
Direct contact with staff can provide a good means of listening to the customer. As it is
frequently suggested that many customers, rather than making a formal complaint to the
company, will simply break the relationship. Frontline staff provides an opportunity for
less formal sounding on complaints which might to otherwise not be heard. The crucial
factor here is how this information is fed back into the decision-making process.
5. Strategic activities:
Actively involving in the customer in the company decision making may be means of
pre-empting potential “dissatisfiers” and establishing potential “satisfiers”.

Benefits of Customer satisfaction

Many companies adopt strategies to improve customer satisfaction with the perceived
objectives of strengthening bonds and achieving customer loyalty. Great claims are made
regarding higher satisfaction levels. It is suggested that customer satisfaction:
 Increases customer loyalty
  Reduces price elasticity
 Insulates market share from competitors
 Lowers transaction cost
 Reduces failure rates and cost of attracting new customers
 Improves the firm’s reputation in the market place

Customer Customer Customer

satisfaction Retention profitability

Simple return on Relationship model

Except in a few rare cases, customer satisfaction is the key of securing customer loyalty
and to generating superior long-term financial performance.

Customer Loyalty:

Definition of Loyalty:

Loyalty may be defined as “The biased behavioral response, expressed over time by some
decision making unit with respect to one out of a set of processes resulting in brand
commitment”.
Loyalty must be seen as “biased repeat purchase behavior” or repeat patronage
accompanied by a favorable attitude. Loyalty can originate from factors extrinsic to the
relationship such as the market structure in which the relationship exists, but also in
intrinsic factors such as relationship strength and handling of critical episodes during the
relationship.

Advantages for setting up Loyalty:

1. Building lasting relationships with customers by rewarding them for their patronage.
2. Gathering high profits through extended product usage and cross-selling
3. Gathering customer information
4. Decommodifying brands i.e., differentiating from crowds.
5. Defending market position
6. Planning against competitive activity.

Classification of customers with reference to Loyalty:

There are six classifications of customers in respect of loyalty:

 1) Current loyal customers who will continue to use the product or service
2) Current customers who may switch to another brand
3) Occasional customers who would increase consumption of the brand if the
incentives were right.
4) Occasional customers who would decrease consumption of the brand if
competitor offered the right incentive.
5) Non-users who could become customers.
6) Non- users who could never become customers.
It is important to distinguish between loyalty to the generic product, the brand and
particular supplier. Many people drink coffee as beverage. Those who drink considerable
quantity of coffee can be described as having a product loyalty. Within the group, there
will be some that buy just the cheapest coffee or drink whatever available. They are
product loyal but not brand loyal. They are not disloyal as that implies that there has been
a loyalty, but they have no loyalty at all to a particular brand. Those who have a
particular brand loyalty, they always buy a particular brand or at least a brand from the
same product.

Types of Customer Loyalty:

1. Supplier Loyalty:

Many customers are not only loyal to a particular brand, but also loyal to particular
supplier, a type of customer known as hostage i.e., somebody who has no choice but to
be a customer of a particular brand or supplier. Such a situation could occur in a small
village community where there is only a shop selling perhaps just one brand of bread. A
customer who is without transport could be forced, if they really want bread beans, to be
loyal to that one brand and that one supplier. The term introduced for this is PSEUDO-
LOYALTY.

2. Supra-Loyalty :
Supra-loyalty is a term that can be applied to those who are extremely loyal to an
organization, product or service. In the case of loyalty to an organization, that have
normally build up a personal relationship with the organization over a period of time or in
these of product/service, their identify themselves with it. It is as if they have internalized
relationship and consider themselves almost part of the organization instead of being a
customer.

3. De-loyalty:
A customer who makes a deliberate decision to move to another organization because he
or she has been let down by an organization that they were previously loyal can be
described as being DE-LOYAL. This is not same as disloyalty, which suggests that it is
the customer who is doing something wrong. In the case of de-loyalty, it is the
organization which has let the customer down. There is evidence that people are willing
to forgive one mistake or one case of poor service. Customer loyalty can be retained even
after a mistake provided that rectification (an apology) is speedily forthcoming. However,
if a super-loyal customer becomes disenchanted, they may take their business else where,
in effect becoming de-loyal. if they are very disappointed they may become ANTI-
LOYAL, seek retribution against the organization.

4. Disloyalty:
It is a mute point as to whether a customer can actually be disloyal. Customers owe
nothing, in terms of loyalty to suppliers. Many customers may feel that they are being
disloyal if they go else where but feeling disloyal is not the same as being disloyal. The
only obligation actually placed on the customer is to render payment for the product or
service provided by payment of monetary and other terms.
Organizations, having a responsibility to their customers, can be disloyal too. Disloyalty
is not providing a product or service deliberately to a previously loyal customer. An
example of this would be an organization that treated a new customer better, deliberately
or unintentionally than the existing customers. In this case, the organization would be
being disloyal to relationship that had been built up. If the existing customer decides to
go elsewhere, then they would be making a perfectly valid and proper decision.
Disloyalty implies an act and not the customer is capable of such an act. The customer
may be a – loyal, de-loyal or even anti-loyal but never disloyal

Comfort Zones:

Tice has developed the concept of comfort zone in which people operate. Change of any
type even if for the better, can be very uncomfortable. People become frozen into a
particular situation and whilst it may not be the better situation available, the effort and
uncertainty of changing can inhibit even a change for the better. Any movement away
from the zone of comfort is it for better or worse is resisted.
In terms of relationship between customer relations and loyalty, the concept of comfort
zones can be used to explain why customers stay loyal to an organization or product even
if another is convenient. Customers tend to stick to what they know. This form of loyalty
is termed as Comfort Loyalty.
Linked to the effect of comfort zones is the cost of customer of switching to no other
supplier or product. In the case of everyday house hold goods (FMCG) ,there may be no
cost. However, switching, say computer operating systems may require a purchase of
new software, Changing to another make of a car may require building up a relationship
with a new supplier and dealer and these costs can be perceived as too high. They may
not be monetary at all, often they are time and effort consuming and costs the consumer
never the less.

Customer Life Time Value:

Customer lifetime value has intuitive appeal as a marketing concept, because in theory it
represents exactly how much each customer is worth in monetary terms, and therefore
exactly how much a marketing department should be willing to spend to acquire each
customer. In reality, it is difficult to make accurate calculations of customer lifetime
value. The specific calculation depends on the nature of the customer relationship.
Customer relationships are often divided into two categories. In contractual or retention
situations, customers who do not renew are considered "lost for good". Magazine
subscriptions and car insurance are examples of customer retention situations. The other
category is referred to as customer migrations situations. In customer migration
situations, a customer who does not buy (in a given period or from a given catalog) is still
considered a customer of the firm because she may very well buy at some point in the
future. In customer retention situations, the firm knows when the relationship is over.
One of the challenges for firms in customer migration situations is that the firm may not
know when the relationship is over (as far as the customer is concerned).
Most models to calculate CLV apply to the contractual or customer retention situation.

These models make several simplifying assumptions and often involve the following
inputs:
Churn rate The percentage of customers who end their relationship with a company in a
given period. One minus the churn rate is the retention rate. Most models can be written
using either churn rate or retention rate. If the model uses only one churn rate, the
assumption is that the churn rate is constant across the life of the customer relationship.

Discount rate The cost of capital used to discount future revenue from a customer.
Discounting is an advanced topic that is frequently ignored in customer lifetime value
calculations. The current interest rate is sometimes used as a simple (but incorrect) proxy
for discount rate.

Retention cost The amount of money a company has to spend in a given period to retain
an existing customer. Retention costs include customer support, billing, promotional
incentives, etc.

Period The unit of time into which a customer relationship is divided for analysis. A year
is the most commonly used period. Customer lifetime value is a multi-period calculation,
usually stretching 3-7 years into the future. In practice, analysis beyond this point is
viewed as too speculative to be reliable. The number of periods used in the calculation is
sometimes referred to as the model horizon.

Periodic Revenue The amount of revenue collected from a customer in the period.

Profit Margin Profit as a percentage of revenue. Depending on circumstances this may

be reflected as a percentage of gross or net profit. For incremental marketing that does
not incur any incremental overhead that would be allocated against profit, gross profit
margins are acceptable.

Product Marketing:

Marketing is any business activity that is designed to plan, place, promote, distribute
want satisfying products, services and ideas to target markets so that an organization can
achieve its objectives.
* IDENTIFY CUSTOMERS
* ATTRACT THEIR ATTENTION
* SATISFY WANTS

Product Marketing: - Definition

"The essential element of marketing is customer want satisfaction. The customer’s want
satisfaction is the economic and social reason for an organisation’s existence."

The Marketing Plan: - Definition

".... a document prepared for the purpose of providing guidelines for a business units
marketing programmes and allocations over a prescribed planning period."

Marketing Planning - Definition:

Marketing planning is vital for all successful companies because the business
environment is highly complex, dynamic, and competitive. Marketing and market
planning is relevant to large and small organisations in both public and private sectors.

The Marketing Plan:

1. Market Research: - Situation Analysis

 A situation analysis is broken down into several different areas. These are: SWOT
Analysis, Customer Analysis (to establish a target market), Competitor Appraisal,
and Resource Analysis.

 The business must make a Situational Analysis based on the influences of the
Macro environment, as well as the proximate environment

 Market Segmentation (target market) involves dividing up groups of people into

buyers of certain products/services

A. Customer Analysis:

A target market can be established by looking at the following factors:

 Where it is accessible (both the product and message)
 The demography (the population in a group or area(s)) of an assortment of
places
 What size should the market be - In numbers (Sizeable?)- And in boundaries
(Measurable)
 What are the identifiable factors of this market (how it differs to other target
markets)
 Psycho graphically - Lifestyle based/image of the target market
 Geographically - Which regions/areas
 Benefit - Focus on the benefit the product provides, for this target market, not
on the customer characteristics
  Size - Frequency of use/level of demand in the target market, being either
heavy, medium, or light
Using the above factors in formulating a group which satisfy all of the above points, you
have now established a target market

B. Competitor Appraisal:
Once a target market has been established you must then analyse the competition (if
any). There two three types of competition a company can have:

1. Direct Competition - When one business approaches the customers of another

business and attempts to win them over. This only happens when two or more companies
are producing the same product

2. Substitute Products - Another type of competition which can come from one
company producing a substitute product of another companies product line

Competitor Monitoring:

This is a vital part of the market research. The best form of competitor monitoring, is to
calculate their market share by estimating the total value of the market. If a competitor is
gaining a greater market share, it is time for the company to re-organise their marketing
plan.
Competitive advantage refers to all things an organisation can do better than its
competitors.

C. Resource Analysis:
Once you have completed a competitor appraisal you must then do a resource analysis.
The businesses resources are broken down into three areas, these are:

1. Staff - The marketing plan should analyse the skills of every employee involved in
marketing. Your staff should be promoting the image you wish the public to think of the
company. They should be well trained in areas such as the art of selling, good customer
relations, and more. The people should have the following skills: Alertness, good
knowledge of product, good appearance, good communication skills, and dedication to
maintain the product in a competitive environment.

2. Finance- Finance is needed for different methods of advertising or promoting the

product. These needs vary according to the life cycle of the business. Finance is
necessary for the promotion or development of new products

3. Assets - The fixed assets of a business will determine the capacity of the production
system. A successful product can be stopped from greater production if resources are at
full usage. The marketing plan should recognize:
• The availability of assets
• The degree of utilization of assets
D. SWOT Analysis:
This needless to say means an analysis of the:
Strengths - which areas a business excels compared to its competitors
Weaknesses - which areas other businesses has to improve on in relation to its
competitors
Opportunities - All things which benefit the business
Threats - All things which can threaten a businesses survival, or a product's survival

Aspects which influence a SWOT analysis are:

- Market share - Sales - Profits

- Competition - Advertising - Size of customer base
- Pricing - Innovative potential.
- Product characteristics (company reputation, price, design, colour uniqueness, quality,
warranty, packaging, sales support, and positioning in market)

2. Objectives and Strategies:

A. Specific Objectives:
Establishing objectives it is usually thought of as the most important feature in the
planning process. The success and failure of a marketing plan are determined by how
well the marketing objective reflects the organisations needs. Therefore it is vital
objectives are set based around the companies overall goals. This is reflected in the
diagram below:
Goals
|
Opportunities | Resources
|________ Marketing ________|
Objectives
____________ | ____________ Diagram of the
| Marketing Strategies | Objectives of a
| (Marketing program) | Business
|--------------------------|
| Selection | Development |
| & analysis | of Marketing|
| of target | Mixes |
| market | |
|____________|_____________|

- Essential marketing objectives include the following:

 Increasing market share
 Expanding product range
 Targeting the geographical representation
 And expansion of marketing opportunities
1. Market share: An increase in a companies market share shows how the company is
gaining on competitors. To attain greater market share, the following strategies, which
are generally thought of as sure winners include:

 More aggressive pricing (lowering price or providing discounts)

 Search for new outlets to distribute your products to
 A change in some features of your products, to open up to a possibly wider
market

2. Product Range: By expansion of a company’s product range, a company can attract

a wider market than it's initial market, and maybe also expand into other markets

3. Geographical Representation: Some geographical markets offer greater market

potential than others, and is in the interests of the firm to invest there to reach these
markets whether they be regional, national or international. This allows a company to
maximise on it's profits.

4. Expansion: (I) Through exporting

(II) Maximizing customer service

B. Strategies to achieve objectives:

Marketing strategies are the way marketing objectives are achieved. Development of a
strategy involves:
- Selecting and analyzing a target market
- Creating and maintaining a marketing mix
- Creation of advertising and promotional ideas

When properly implemented, the firm achieves objectives.

1. Selection and analyzing of Target market: This area must be separated into three
areas, as different areas have different needs, these areas are:
(I) Retail market
(II) Wholesale market
(III) Industrial market

2. Creating and maintaining of Marketing Mix: This broken down into the four P's,
they are:

Marketing Mix - Breakdown:

PRODUCT: PRICE: PROMOTION:
Quality R.R.P. (List Price) Advertising
Features Bulk Discounts Personal/DirectSelling
Options Other Discounts/Offers?? Sales Promotions
Style Allowances Publicity
Brand Name Payment Period
 Packaging Credit Terms PLACE:
Sizes Transport
Service Channels
Warranties Coverage
Returns Locations
Positioning Inventory

An additional part of the marketing mix now exists, it is called 'Service'. Factors here
include:

 Customer Needs
 Installation, Maintenance, and repairs
 Guarantees/Warranty period
 After-sales Service
 Complaints & returns procedures
 Comparison to competitors
 Credit offered

3. Creation of Advertising and Promotions: Once the marketing mix has been
established, the company’s promotional aspects have now to be completed; these can be
made up of plans to do:
 Advertising
 Personal or direct selling
 Sales Promotion
 Publicity (Public relations)
 Packaging and design

4. Staff Motivation: The effectiveness of the companies market will depend heavily
upon the staff, and their degree of motivation.

C. Cost/Benefit Analysis:
As plans and objectives are developed, statements should be produced which should say
what the marketing strategy is to accomplish. There are two ways of evaluating the actual
performance of these plans, these are sales analysis and cost analysis.

1. Sales Analysis: Sales is usually the best way to measure the performance of a
marketing plan. This analysis should be broken down into:
 Marketing area (geographical)
 Company decision
 Individual/Groups of sales representatives (Quota of sales Vs Individual/Group's
sale)
2. Cost Analysis: This is a detailed study of the business' operating section of the
organisation's profit and loss statement. With cost analysis costs which occurred as a
result of the marketing sector of a business are declared as profitable or unprofitable. This
can be broken down into:
(I) Research costs
(II) Order-getting costs (Promotional costs)
(III) Order-filling costs (Distribution and insurance costs)

Marketers use different tools in order to get the desired response from the customer or
best satisfy their needs. These tools are know n as The Marketing Mix. Marketing Mix
is probably the most famous term in marketing.

Marketing Mix
Marketing Mix is a combination of marketing tools that a company uses to satisfy their
target customers and achieving organizational goals. McCarthy classified all these
marketing tools under four broad categories:

• Product
• Price
• Place
• Promotion

These four elements are the basic components of a marketing plan and are collectively
called 4 P’s of marketing. 4 P’s pertain more to physical products than services. Below
is an illustration for marketing mix.

Product

Price Target Place

customers

Promotion
The important thing to note is that all these four P’s (variable) are controllable, subject
to internal and external constraints of marketing environment. Marketers, using different
blends of these variables, can target different group of customers having different needs.
So, a customer may call marketing mix “the offering”.

Product
Product is the actually offering by the company to its targeted customers which also
includes value added stuff. Product may be tangible (goods) or intangible (services).

While formulating the marketing strategy, product decisions include:

• What to offer?
• Brand name
• Packaging
• Quality
• Appearance
• Functionality
• Accessories
• Installation
• After sale services
• Warranty

Price

Price includes the pricing strategy of the company for its products. How much
customer should pay for a product? Pricing strategy not only related to the profit margins
but also helps in finding target customers. Pricing decision also influence the choice of
marketing channels. Price decisions include:

• Pricing Strategy (Penetration, Skim, etc)

• List Price
• payment period
• Discounts
• Financing
• Credit terms

Using price as a weapon for rivals is as old as mankind. but it’s risky too. Consumers are
often sensitive for price, discounts and additional offers. Another aspect of pricing is that
expensive products are considered of good quality.

Place (Placement)

It not only includes the place where the product is placed, all those activities performed
by the company to ensure the availability of the product tot he targeted customers.
Availability of the product at the right place, at the right time and in the right quantity is
crucial in placement decisions.

Placement decisions include:

• Placement
• Distribution channels
• Logistics
• Inventory
• Order processing
• Market coverage
• selection of channel members

Promotion

Promotion includes all communication and selling activities to pursuade future prospects
to buy the product. Promotion decisions include:

• Advertising
• Media Types
• Message
• Budgets
• Sales promotion
• Personal selling
• Public relations
• Direct marketing

As these costs are huge as compared to product price, So it’s good to perform a break-
even analysis before allocating the budget. It helps in determining whether the new
customers are worth of promotion cost or not.

It often takes time and requires market research to develop a successful marketing mix.
You should not depend on one mix always try new mixes. While designing the mix,
make changes to all mixes in such a way that all conveys the same message. Don’t
confuse your customers by just changing one variable and keeping the rest same.

Limitation of Marketing Mix

Marketing mix (4 P’s) was more useful in early 19’s when production concept was in
and physical products were in larger proportion. Today, with latest marketing concepts,
marketing environment has become more intergrated. So, in order to extend the
usefulness of marketing mix, some authors introduced a fifth P and then seven P’s
(People, Packaging, Process). But the foundation of Marketing Mix still stands on the
basic 4P’s.
Seven phases to new product development Process:
Only a few ideas are good enough to reach commercialization. Ideas can be generated by
chance, or by systematic approach. Need a purposeful, focused effort to identify new
ways to serve a market. New opportunities appear from the changes in the environment.

Idea Generation: Continuous systematic search for new product opportunities.

 Marketing oriented sources--identify opportunities based on consumer needs, lab
research is directed to satisfy that research.
 Laboratory oriented sources--identify opportunities based on pure research or
applied research.
 Intrafirm devises--brain storming, incentives and rewards for ideas are given.
Ideas should not be criticized, no matter how off-beat they are.

Product Screening and Evaluation

 New product check list; list new product attributes considered most important and
compare each with these attributes. Check list is standardized and allows ideas to
be compared.
General characteristics, Marketing Characteristics and Production Characteristics.
 Ideas with the greatest potential are selected for further research.
 Do they match the organizations goals (DuPont and ICI have many patents that
they have not exploited for this very reason.)
 Look at companies ability to produce and market the product.
 Need to look at the nature and wants of the buyers and possible environmental
changes.

Concept Testing
Sample of potential buyers is presented with the product idea through a written or oral
description to determine the attitudes and initial buying intentions. This is done before
investing considerable sums of money and resources in Research and Development.
This help to better understand product attributes and the benefits. Customer’s opinion on
the product is most important on the following aspects:
 Would they like to buy the product?
 Would they replace your current brand with the new product?
 Would this product meet real needs?

Business Analysis
Analyze potential contribution to sales, costs and profits.
 Does the product fit into the current product mix?
 What kind of environmental and competitive changes can be anticipated?
 How will these changes effect sales etc.?
 Are the internal resources adequate?
 Cost and time line of new facilities etc.?
 Is financing available?
 Is there Synergies with distribution channel etc.
  MIS to determine the market potential sales etc.
 Find out if it is technically feasible to produce the new product.
If you can produce the new product at a low enough cost so as to be able to make a
profit.

Product Development
 Develop a prototype, working model, lab test etc.
 Attributes that consumers have identified that they want must be communicated
through the design of the product.

Test Marketing
 Test Marketing helps to observe actual consumer behavior. Limited introduction
in geographical areas chosen to represent intended market. It aims to determine
the reaction of probable buyers.It is the sample launch of the Marketing Mix.
 Determine to go ahead, modify product, modify marketing plan or drop the
product.

PROS are:
 Lessens the risk of product failure.
 Reduces the risk of loss of credibility or undercutting a profitable product.
 Can determine the weaknesses in the MM and make adjustments.
 Can also vary parts of the MM during the test market.
 Need to select the appropriate MM and check the validity.

CONS are:
 Test market is expensive.
 Firm's competitors may interfere.
 Competitors may copy the product and rush it out..
Alternatively , can use a simulated test market. Free samples offered in the mall, taken
home and interviewed over the telephone later.

Commercialization
 Corresponds to introduction stage of the Product Life Cycle.
 Plans for full-scale marketing and manufacturing must be refined and settled.
 Need to analyze the results of the test market to determine any changes in the
marketing mix.
 Need to make decisions regarding warranties etc (reduces consumers risk).
 Warranties can offer a competitive advantage.
 Spend a lot on advertising, personnel etc. Combined with capital expenditure
makes commercialization very expensive.

Product Life Cycle :

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's 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.

Strategies for the differing stages of the Product Life Cycle.

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 use 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.
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 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.

Product Line:
A product line is a group of products that are closely related because they function in a
similar manner, are sold to the same customer groups, are marketed through the same
types of outlets, or fall within given price ranges. For example, Nike produces several
lines of athletic shoes, Motorola produces several lines of telecommunications
products, and AT&T offers several lines of long-distance telephone services.

Product Mix :

A product mix (or product assortment) consists of all the product lines and items that a
particular seller offers for sale. Avon’s product mix consists of four major product lines:
cosmetics, jewelry, fashions, and household items. Each product line consists of several
sublines.

A company’s product mix has four important dimensions: width, length, depth, and
consistency. Product mix width refers to the number of different product lines the
company carries. For example, Procter & Gamble markets a fairly wide product mix
consisting of many product lines, including paper, food, household cleaning, medicinal,
cosmetics, and personal care products. Product mix length refers to the total number of
items the company carries within its product lines. Procter & Gamble typically carries
many brands within each line. For example, it sells eleven laundry detergents, eight hand
soaps, six shampoos, and four dishwashing detergents.

Product line depth refers to the number of versions offered of each product in the line.
Thus, Procter & Gamble’s Crest toothpaste comes in three sizes and two formulations
(paste and gel). Finally, the consistency of the product mix refers to how closely related
the various product lines are in end use, production requirements, distribution channels,
or some other way. Procter & Gamble’s product lines are consistent insofar as they are
consumer products that go through the same distribution channels. The lines are less
consistent insofar as they perform different functions for buyers.

Customer Segmentation :

Customer segmentation is the practice of dividing a customer base into groups of

individuals that are similar in specific ways relevant to marketing, such as age, gender,
interests, spending habits, and so on. Using segmentation allows companies to target
groups effectively, and allocate marketing resources to best effect.
Customer segmentation procedures include: deciding what data will be collected and how
it will be gathered; collecting data and integrating data from various sources; developing
methods of data analysis for segmentation; establishing effective communication among
relevant business units (such as marketing and customer service) about the segmentation;
and implementing applications to effectively deal with the data and respond to the
information it provides

Direct Marketing:

Definition:

Direct Marketing is an interactive Marketing system that uses one or more advertising
media to affect a measurable response and / or transaction at any location.

Today, many direct marketers see direct marketing as a broader role, that of building a
long-term relationship with the customer (Direct Relationship Marketing). Direct
Marketers occasionally send birthday cards, information materials or small premiums to
select numbers in their customer database. Airlines, hotels and other business build strong
customer relationship through frequency award programmes and club programmes.

Advantages of Direct Marketing:

The following are the advantages of Direct Marketing-

1) Delivers near-perfect solutions to customer’s problems
2) Gives individual attention to customers
3) Facilitates finalizing of offers through interaction with the manufacturers,
wholesalers or retailers as the case may be.
4) Offers customized products as per the preference of the customers.
5) Helps achieve excellence in products/services
6) Eliminates the hassles of going through marketing channels / stores.
7) Facilitates sharper segmentation and targeting, ultimately each individual
becomes a specific target market.
8) Facilitates relation building with the customers
9) Is better measurable, compared to mass marketing
10) Is more cost effective
11) Saves channel costs for the most part
12) Saves advertising cost almost totally
13) Is a versatile form of marketing, helps being selective in treating customers and
pay special attention to large accounts.
14) Benefits the customers too by enabling them to shop by sitting at homes save their
precious time
15) With every development in IT, Direct marketing’s efficiency keeps increasing,
cost keeps decreasing.

Differences between Conventional/Traditional marketing and Direct

Marketing (DM):
 Conventional Marketing Direct Marketing
1 Conventional marketing is mass DM is de-massified marketing, it
. marketing deals with customers one-to-one
2 Conventional marketing deals DM deals with them directly
. with customers indirectly
3 Conventional marketing is a one
DM is interactive marketing, with
. way activity two-way communication between
the firm and each one of the
customers
4 Conventional marketing relies DM is Channel-less
. heavily on marketing
channels/stores
5 Conventional marketing relies DM does not involve them
. heavily on advertising/ mass
promotion

Forms of Direct Marketing:

Direct Marketing has several forms as it incorporates a variety of media. Direct –Mail
Marketing is one form of Direct Marketing. Customized Mailing through databases and
“Mail Merge” of word processing is the medium used here. Telemarketing is another
form of Direct Marketing. Here, the phone is the medium used. Today, Direct Marketing
uses the new age tools such as Computers, Mobile phones and the Internet for reaching
prospects customers individually. Their availability at a low-cost and high-reach has
substantially enlarged the Direct Marketing Opportunities.

1. Direct Mail Marketing:

Direct Mail Marketing is similar to Mail Order Marketing / Catalogue Marketing.
Usually, when a trading house markets various products by mail order, it is referred to as
Mail Order Marketing and when a manufacturer practices the same method it is known
as Direct Mail Marketing. Certain softwares allow creation of personalized letters,
messages and offerings. In direct mail marketing, not only letters / brochures are mailed
to the prospects, but product samples, gifts and complaints are also mailed, depending on
the context.
Example: Mother Care India does Direct Mail Marketing .It targets the mothers who buy
items meant for kids.

2. Direct Response Marketing:

Direct Response Marketing is another expression of direct marketing. Direct Response
Marketing uses different media (including letters / mailers), like telephone, radio, TV and
Internet. Some direct response marketing campaign, rely totally on television
“infomercials” (Commercials which give information about products, benefits and usage
aspects and obtain responses). Toll-Free telephones too serve as a useful tool of direct
response marketing. Toll free telephones help better ordering by the customer, better
dialogue between the customers and the company and better service to the customer.
Example: Dell Computers is one Company that heavily relies on toll free numbers to
elicit customer responses.

3. Database Marketing:
Data base Marketing is yet another expression in direct marketing. Although all forms of
direct marketing are data base-driven, some experts treat database marketing as distinct
form of direct marketing.

4. Tele-Marketing:
Telemarketing is yet another form of direct- marketing tool. Hence, the marketer goes
direct to the customer using telecom / IT facilities. Telemarketing is less expensive as
compared to most other forms of selling. Moreover, it can be used in respect of different
types of products. It suits industrial products, services and consumer durables.
Telemarketing is usually done through special campaigns. Contact is established with
hundreds of prospects in a campaign that normally runs through a few days. Several tele
callers are hired for the tele-call operations. The Call Centre is the real operation theatre
in telemarketing.

5. Tele-shopping /Home Shopping:

Tele-shopping, alternately known as home shopping is yet another of direct marketing.
One of the major characteristic of Teleshopping is that it is a low cost retailing system.
Here, the marketer hawks the products on air and the consumer watches it on his TV
screen at home, phone up the marketer and buys his requirement. With tele-shopping, in
addition to the convenience, discounts, gift offers are also given to the customers.
Example: Doordarshan, for example allowed its channel for tele-shopping by Dee’s
network on a profit sharing basis. DD gained a share from every item sold by the
network.

6. Face to Face Selling:

The original and oldest form of direct selling is the field sales call. Today most industrial
companies rely heavily on a professional sales force to locate prospects, develop them
into customers, and grow the business or to hire the manufacturers representative agents
to carry out the direct selling task. In addition, many consumer companies use a direct
selling force. Insurance agents, stock brokers and distributors working for direct sales
organizations such as Avon, Amway, Mary kay and Tupperware.

7. Email marketing:
Email marketing is also a direct marketing tool. A major concern is spam, which actually
predates legitimate email marketing. As a result of the proliferation of mass spamming,
ISPs and email service providers have developed increasingly effective email filtering
programs. These filters can interfere with delivery of e-,mail marketing campaigns, even
if the person has subscribed to receive them as legitimate email marketing can possess the
same hallmarks as spam.
8. Door to Door Leaflet marketing:
Leaflet distribution services are used extensively by the fast food industries, and many
other business focusing on a local catchments business to consumer business model.
similar to direct marketing, this method is targeted purely by area, and costs a fraction of
the amount of a mailshot due to not having to purchase stamps, envelopes or having to
buy address lists and the names of home occupants.

9. Voice Mail Marketing:

Another type of direct marketing which has emerged is personal voice mail boxes and
business voice mail systems. Voice mail marketing is a cost effective means to reach
people with warmth of human voice. More recently, business has utilized guided voice
mail (an application where pre-recorded voice mails are guided by live callers) to
accomplished personalized business-to- business marketing formerly reserved for
telemarketing. As there are abundance of “voice spam”, jurisdictions have passed many
laws for regulating consumer voice mail marketing.

10. Multi level Marketing:

Multi level marketing is a modified version of direct selling .Some times, it is referred to
as network marketing, member to member marketing and affiliate marketing. Only
firms which do not mind experimenting in reading customers practice it. The Process
begins with sales person cum distributors introduced to the company by a sponsor. Each
distributor picks up a product worth a certain sum and sells directly .After they have sold
first consignment, they are allowed to pick up next. The distributor can recruit a second
ring of distributor. The distributor earns commission at two levels and the process goes so
on. Amway, Avon, Oriflame are the largest MLM outfits in the world. The Indian firm
Modi care also sell its range of house hold and personal care products.

11. Online Marketing:

As many people find way onto Internet, the cyberspace population is becoming more
mainstream and diverse. As a whole, Internet population is younger more affluent and
better educated, they are more likely to use Internet for entertainment and socialising.
Marketers are doing on-line marketing by creating an electronic presence on the Internet,
placing ads online, participating in forums, newsgroups, bulletin boards and web
communities, and using e-mail and web casting.

Other direct selling forms:

Some direct marketers also use media such as door hangers, coupons, package inserts,
magazines, newspapers, radio, television, email, internet banner ads, digital campaigns,
pay per click ads, billboards, transit cards etc.

Direct Marketing in India:

While direct selling has thrived in India all along in the Insurance business, in other
businesses, it has been catching up in the country only in recent years. But the progress
has been rapid in the short period. Amway, Avon, Oriflame, Tupperware are all present
in India. And Modi care has been using the method for selling its homecare and personal
care products. Hindustan Unilever has also set up in more schemes, its direct selling
outfit for its Aviance range of cosmetics.

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