Strategic Market Planning Strategic Planning 3 key areas o Managing a companys business as an investment portfolio o Assessing the business

s strength, market growth rate V/s company's position in the market o Establishing a strategy, a game plan for achieving long term objectives

4 organizational Levels o Corporate o Division o Business Unit o Product

Marketing Plan o Strategic ( lays out the target market & the value proposition) o Tactical ( specifies market tactic- pdt. Feature, promotion, merchandising, pricing, sales channels, services etc.)

Corporate & Division Strategic Planning 4 Planning Activities o Defining the Corporate Mission o Establishing SBUs o Assigning resources to each SBUs o Planning new businesses, downsizing or terminating older businesses

Defining the Corporate Mission o Charting out clear cut purpose/mission/ reason for existence o Reviewing mission at regular intervals o Questions to ask to derive the mission statement What is our business?

o o o

Who is the customer? What is of value to the customer? What will our business be? What should our business be? Sharing of Mission statement with internal as well as external customers Clear , well thought out statement shared sense of purpose, direction and opportunity Guides geographically dispersed employees to work independently yet collectively

Mission Statement 3 characteristics o Focus on limited number of goals o Stress on major policies & values the company wants to honor o Defines the major competitive scope that the company wants to operate in eg: Industry scope Products and Application Scope Competence scope Market-segment Scope Vertical Scope Geographical Scope

Mission Statement should not be revised every few years o Should be re-defined if that mission has lost credibility or no longer defines an optimal course for the company o Eg. NMIMS The Deemed University is committed to the mission of influencing the quality of management in organizations in various sectors towards greater professionalism through a new breed of managers, who combine the use of managerial skills with the understanding of the socio-cultural systems in which they have to operate as harbingers of change

Establishing SBUs o A business must be viewed as a customer satisfying process and not a goodsproducing process o Products are transient/ephemeral , but basic needs and customer groups endure forever o Companies evolving and moving from product definition to market definition Target Definition tends to focus on selling a product or service Strategic Market Definition targets specific market/need Eg: IBM (Old) Hardware and Software Manufacturer IBM ( New) Builder of Networks

Need for Evaluating SBUs o The company must: Analyse its current business portfolio and decide which businesses should receive more or less investment, and Develop growth strategies for adding new products and businesses to the portfolio, whilst at the same time deciding when products and businesses should no longer be retained.

An SBU can be a company division, a product line or even individual brands - it all depends on how the company is organized

Characteristics of an SBUs o A single business unit or collection of related businesses that can be planned separately from the rest of the company o It has its own set of competitors o Has a SBU head/manager Strategic Planning & Profit performance o Objective of Identifying SBUs Develop strategy and assign appropriate funding o Periodic Evaluation of Business Portfolio BCG Matrix GE Model

Strategy Formulation

X Axis: relative market share - this serves as a measure of SBU strength in the market Y Axis: market growth rate - this provides a measure of market attractiveness

BCG Matrix Characteristics Stars o Stars are high growth businesses or products o Relatively strong compared with the competition. o Often they need heavy investment to sustain their growth. o Eventually their growth will slow and, assuming they maintain their relative market share, will become cash cows.

Cash Cows o Cash cows are low-growth businesses or products o Relatively high market share. o These are mature, successful businesses with relatively little need for investment. o They need to be managed for continued profit - so that they continue to generate the strong cash flows that the company needs for its Stars .

Question marks o Businesses or products with low market share but which operate in higher growth markets.

They have potential, but may require substantial investment in order to grow market share at the expense of more powerful competitors.

Management have to think hard about "question marks" - which ones should they invest in? Which ones should they allow to fail or shrink?

Dogs o Refers to businesses or products that have low relative share in unattractive, lowgrowth markets. o Dogs may generate enough cash to break-even, but they are rarely, if ever, worth investing in.

Conventional Strategic thinking Build Share: Company can invest to increase market share (for example turning a "question mark" into a star) Hold: Company invests just enough to keep the SBU in its present position Harvest: Company reduces the amount of investment in order to maximise the shortterm cash flows and profits from the SBU. This may have the effect of turning Stars into Cash Cows. Divest: Company can divest the SBU by phasing it out or selling it - in order to use the resources elsewhere (e.g. investing in the more promising "question marks").

Why Companies kill brands? It costs too much to revitalize the brand compared to its ROI The brand has got such negative connotations that it is one long uphill battle to fight back to normal The brand portfolio has become too large / too widespread [such that] individual brands might have suffered Similarly, new brands in the company portfolio serve needs better than the brand in question The organization does not understand / believe in the brand (right or wrong) so back-up is slim Some Indian Examples o Toyota killed Qualis and introduced Innova. o HUL from a 1600 brand portfolio across 150 countries, reduced to 400! ( In India30 Power Brands) o Honda City in India o Coca-Cola unsuccessfully tried to kill Thumbs-up when it acquired Parle o Maruti is gradually trying to kill its entry level car Maruti 800 and making Alto etc the entry level cars o Colgate Palmolive is in the process of killing the Palmolive brand o HUL removed the brand Rexona from the deodorants category where Axe is clearly mopping up the competition. Some Global Statistics. o Diageo, the world's largest spirits company, sold 35 brands of liquor in some 170 countries in 1999. o Nestl marketed more than 8,000 brands in 190 countries in 1996. The bulk of the company's profits came from around 200 brands, or 2.5 percent of the portfolio. o Procter & Gamble had a portfolio of over 250 brands that it sold in more than 160 countries. Yet the company's ten biggest brands accounted for 50 percent of the company's sales, more than 50

GE Multifactor Business Portfolio Matrix

Two Dimensions of the Matrix Industry attractiveness o Rate of industry growth o No: of competitors in an industry o Weakness of competitors within an industry. Business strengths o Companys core competencies and capabilities o Financial position o Its good bargaining position over suppliers o Its high level of technology use.

Factors Underlying Market Attractiveness & Business Strength Market Attractiveness o Overall Mkt. size o Annual Market growth rate o Historic Profit Margin o Competitive intensity o Technological requirements o Etc Business Strength o Market Share o Share growth o Product Quality o Brand reputation o Distribution Network o Productive Effectiveness o Managerial Personnel o Etc.

Ansoff's Product/Market Matrix Suggests that a business attempts to grow depend on whether it markets new or existing products in new or existing markets. o Market Penetration o Market Development o Product Development

Diversification

Porters 3 Generic Strategies

Cost Leadership Strategy o Efficiency o Standardized pdts o Economies of Scale o Experience Curve Effect

Differentiation Strategy o Perceived as Unique o Provide Superior value to the customer o Price elasticity of demand- reduced o More brand loyal o Premium Pricing may be required Segmentation Strategy o Concentrates on few select markets o Competitive advantage through effectiveness rather than efficiency

Program Formulation & Implementation The 7S McKinsey model

Value Delivery Process Value: the multi dimensional concept Value is low price. Value is whatever I want in a product. Value is quality 1 get for the price I pay. Value is what I get for what I give.

Lecture 2 MARKETING STRATEGIES Learning Objectives The meaning, significance & parameters of strategy & tactics The linkage of Marketing strategy to core business strategy How mktg. strategy is formulated Different approaches to marketing strategy formulation

The Indian Scenario. 2005 Price war in the retail industry o Shoprite, Giant,Big Bazaar Paras Pharmaceuticals o Moov, Ring Guard ,Krack, Livon Silky ,Borosoft, Dcold & Dermicool 1980 Nirma V/S Surf war

Challenges of Strategic Orientation Strategic thinking key to the evolution of successful marketing strategies Involves Analyses of o Understanding Markets o Finding Market Niches o Product and Service Planning o Distribution o Managing for Results

Challenges of Strategic Orientation- Understanding Markets Starting point for analysis is the Market Structural changes taken place o Demographic and lifestyle changes new opportunities o Not restricted to Urban but also rural and semi-urban markets Opening of economy enhanced competition o Strategic Alliance also represents threat of competition o Eg: Sara Lee + Godrej Industries, TOMCO+ HLL( HUL),

Parle + Coke Skilful Analysis of the trends with a long term strategic perspective

Challenges of Strategic Orientation- Finding Market Niches As markets evolve & Customer needs become more defined- Segmental Approach Niches are becoming more and more apparent o Eg: Price, service, convenience, technology & fashion Technology enables Mass Customization strategies Benefit of niche mktg. & economies of scale

Challenges of Strategic Orientation- Product & Service Planning Era of Standardized pdts undifferentiated pdts. Differentiation Offer Challenge to not just add value but redefine the Value Constellation o Involve analysis of customers analysis of the brand , competitor, points of wow, dissatisfaction etc.. o Analysis of situation when the customer uses the product o Eg: ATMs

Challenges of Strategic Orientation- Product & Service Planning Analysis Are there any new or emerging uses, use situation, or users the firm is currently not aware of? What is the position of the generic product & the brand in the life cycle? How can a brands equity be enhanced? Are brand extensions possible? What are the services the customer is looking for?

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

Challenges of Strategic Orientation- Distribution Success of a firm depends upon its ability to make the product available the right place, at the right time in the right quantities. Structural changes in inventory management affecting the distribution process in the Indian Market o Mobile distribution, teleshopping Ability top track inventory and stock positions in different markets is critical enabled thru technology o VSAT ( eg: HUL, Philips)

Challenges of Strategic Orientation- Managing for Results Pressure on costs, prices, margins necessitates effective utilization of every rupee spent in mktg. Planning to maximize ROI Important to conduct objective analysis.

STRATEGY THE CONCEPT Deliberate search for an Action Plan that will help develop a companys competitive advantage and help augment it. This search is; o An iterative process & o Begins with the recognition of where you are, what you have now, where you want to go & how much time you have to reach there. Market Forces determine strategy at times o Eg: Post 1985 entry of Japanese LCVs o Telco loses market share in 1989-90 o Market forces then determined the launch of Telcos LCVs Strategy involves developing a fit between the organization and its external environmentto gain and maintain a sustainable advantage.

Dimensions of strategy Corporate strategy at times o Goals o Significant Policies

o Major action sequence Strategy key concepts & thrust areas o Helps provide cohesion, balance & focus

Criteria for Effective Strategy Effective corporate strategy helps strengthen the organization fit into external environment and motivate people to deliver above average performance Effect. Strat. encompass and help build organizations long term viability o Setting clear and decisive objectives o Maintaining the initiative o Concentrating on allocation of resources o Flexibility in operation o Co-ordinated & Committed leadership

Value Added Marketing Strategy( VAMS) The input for value addition should emanate from customer needs Segmentation o Product Usage o Customer groups Switchers Customers with low acquisition cost (Genuine or Compulsive) Exchange Deferred Payment Plan Customer Friendly product

Customer groups High Profit Customers Customers which generate maximum return for the company Market Share Determiners May cost a lot to acquire Deliver the maximum profits because of their duration and the extent of influence Identification ; those organizations that are growing differentially faster than the industry

Mass Customization

The strategy of segmentation gives the marketer options of standardization, differentiation and niche mktg. Imperative to design marketing mix as per the customer requirement Mass customization enabled thru technology Key elements of this strategy o Computer Based Information systems o Flexible manufacturing programmes o JIT operations like production and distribution o Eg: Motorola ( 29 million different combination of pager features!) o Tata McGraw Hill Customized specialized text books Involves integration of all major functions Purchase, Manufacturing, R & D, Marketing and finance

Value Addition Customer Based marketing strategy is the art of creating value an delivering it at a profit Successful companies not only add value but reinvent it o linking 2 key resources o Knowledge & relationships Process of value creation economic actors( suppliers, distributors, customers) Density of Value- measure of the amount of information, knowledge & resources that an economic . Eg: ANZ Grindlays

Value Addition Strategic Implications

1. Value occurs not in a sequential Chain but in complex constellations eg. Hongkong bank 2. 3.
( ATM + Visa Master Cards) What is true for individual offerings is also true for entire value-creating systems The only Source of competitive advantage is the ability of the firm to conceive the entire value creating system and make it work

VAMS The Pidilite Way!

1. 2. 3. 4. 5. 6.

Convenience in product use Fighting competition by influencing change at the user level Communicate & develop user loyalty Distribution Muscle Fevicol as a market leader- competitor strategy Fevicols foray into the future- future strategic options

Lecture 3 Learning Objectives Importance of new products in the corporate strategy Sources of new product ideas Process of new product development Art of positioning the product Diffusion process that affects the success of new products in different markets Importance of test marketing in new product launches

Why need new products? Market becoming liberal & Open Regulation key drivers Govt. Policies /regulations can facilitate or hinder new pdt. Development Consumer lifestyles & aspirations

New Product Launches Peter England o Ready to Wear- mid priced, price sensitive, brand sensitive market segment o Created a distinct position for itself International quality at Honest- togoodness price Levis Strauss o Dockers Premium brand of shirts , trousers & accessories Tang o Daily Dose of Vitamin C

Lessons from New Product Introduction Post- 1995 Understanding local culture & adapting the product o McDonalds , KFC and Levi Strauss Value for money is a good positioning slot o Peter England Product Availability in the lanes and by-lanes of the country o Timex Watches, NIIT, Aptech International brand can help gain entry but not guarantee success Segmentation is the key to successful product launches

India is a mature market for most consumer goods

What is a New Product? Any product perceived by the customer as being new This could involve:

1. 2. 3. 4. 5. 6.

Repositioning of existing products Offering existing products at low prices Making improvement in the existing product Adding new product in the existing product lines Taking up a product line completely new to the organization New to the world

Why develop New Product? To add to product portfolio To create stars and cash cows for the future To replace declining products To take advantage of new technology To maintain/ increase market share To defeat rivals / to keep up To maintain competitive advantage To fill market gap To bring in new customers

Defining New Products

Factors contributing to new product development Changing Consumer Lifestyles o Changing role of women, nuclear independent families, education & literacy levels, income levels, electronic media o Changing customer expectation & preferences Technological Changes o Application of chip technology in watch quartz o Expansion of TV network through INSAT 1B o PDA o Blue tooth o Embedded technology Government Policy o Can encourage & motivate firms to launch new products o Eg: Govt. policy insisting chemical firms for mandatory environment audit

New Product Development process The Process

Idea Generation An ongoing process with contributions from inside and outside the organization Top Management need to be proactively involved Sources of New product Ideas o Changing Customer Needs o Competitors o R&D Scientist o Laboratories o Foreign Markets and Media

o Employees o Trade Channels o Top Management Can identify changing needs of customers o Customer Surveys o Projective Techniques o Feedback o Suggestions o Complaints Eg: WIMCO Manufacturers of Matchbox o Introduced Carbonized matchbox o Developed match boxes that wouldnt get soggy AMWAY Convergence of technology to deliver more value o Eg: Cellular phones : Portable Music system, digital cameras & even laptops

Identifying Prospects & Defining TG Firms need to define the TG Examine the cost of reaching them Identify success factors in different product ideas o Eg: Does it require distribution strength?

Does it have strength in technology? Does sit have high brand image? Should investigate how to acquire these strength

Concept Development & Testing Theodore LevittCustomers buys concepts & not just tangible products PRODUCT IDEA A possible product that the company might offer to the market PRODUCT CONCEPT An elaborated version of the idea expressed in meaningful consumer terms

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

Concept Testing Tested on a sample of TG Visuals of the proposed product concept shown to the sample respondents Validity of the test increases if the product is shown to the customer group in the physical form Group is then asked questions related to their understanding & belief of the concept Preferable to be done by an external agency

Feasibility Analysis Market Feasibility Study o Estimation of demand in TG at different price levels o Forecasting sales based on demand and competitive analysis o Estimate the cost of serving the market segment o Based on cost & anticipated sales revenue, calculate brea-even & the sales volumes

Product Development R & D and manufacturing for the physical product Keep customers feedback in mind Ensure that the product is easy and safe to use by the customers Must be put thru rigorous functional and consumer tests

Test Marketing New product is tested on 4 parameters o Trial Purchase o First Purchase o Adoption o Frequency & Volume

Commercialization

New product is tested on 4 parameters o Trial Purchase o First Purchase o Adoption o Frequency & Volume New product is tested on 4 parameters o Trial Purchase o First Purchase o Adoption o Frequency & Volume Eg: 1985 Parle Exports Fruit based drink Maaza

Bottle Mein Aam, Maaza hai Naam

BRANDING DECISIONS What Branding decisions mean? Important strategy for differentiating a pdt. From its competitors It is a name, logo, trademark, patent, nos: or package design used to distinguish the pdt. Or services from others To the customer, it is the source of the pdt. Which lends him to associate with the brand Should be taken after due consideration to the TG, cultural influences on the market and the role the brand will play in the over all corporate strategy

BRAND DECISIONS TO BE TAKEN BY A FIRM Manufacture's name Mktg. Org/Distributors Name Adoption of combination of two Family brand name eg: Videocon Independent brand name eg: HLL

Manufacturers brand Policy or National Brand Policy Family Brand Name o When it brings +ve association to the mind of the consumer o To the customer it represents quality, reliability & assurance of meeting specific standards o Desirable as creating a complete new brand involves a lot of investment o Risk involved Brand fails Entire Family name at stake Independent Brand Name

o o o

Helps to penetrate different market segments Firm doesnt loose it original positioning Eg: HLL launched detergents in different names

HLL Lux (positioned as a beauty soap) V/s Liril ( positioned for the benefits of lemon) Distributor or Store Brand Policy Useful when o Firm does not have its own strengths in mktg. o No adequate financial resources o Competition is high Distributor has strengths, customers confidence , bargaining power with manufacturer is high Risk o Loss of control over the pdt. Mktg. o If product succeeds, premium goes to the distributor o Distributor may not extend the desired mktg. support

Eg: Shoppers Stop STOP Rasna ( earlier sold under the Voltas brand) POSITIONING DEFINITION The Art of Communicating Companys offer so that it occupies distinct & valued place in the customers mind

Al Ries & Jack Trout ( 1972)

Positioning is not what you do to the product. But what you do to the minds of the prospect Ways to Position a Brand

1. USE SITUATIONS
o Marketer can identify use situations for his brand/product & analyze customer perception of existing competitor brands in different use situations

Eg: RASNA Soft drink concentrate ( positioning) Convenience Economy Range of flavors Uses When one is fatigued When you a party When you have an unexpected guest Brand Claim Even a child can make it

2. EMPHASIZING TANGIBLE BENEFITS

o Positioned on the basis of tangible benefits Special Feature Thru price and distribution Eg:ARIEL Micro cleaning system in the product

COLGATE Prevents cavities & fresh breath PROMISE Clove Oil NIRMA Low price MARUTI SUZUKI Fuel efficiency & Safety * Tangible benefits alone cannot provide a long- term sustainable advantage !

3. LINKING TO USES 3.
o Positioned on the basis of uses which the firms brand can be put to o Eg:VIDEOCON VCP V/S VCR HEAD ON COMPETITIVE POSITIONING o o Tries to place a firms brand next to the leader in the market and tries to uproot it on a specific tangible benefit Eg: AVIS No: 2 Auto Rental Agency

KINETIC HONDA More mileage than the leader Supported by road tests

5. LIFESTYLE POSITIONING
o o o Position the brand as a lifestyle concept- contemporary or futuristic Eg: Kitchen Appliances, ready- made garments, textiles, watches One of the dimensions of lifestyle is Aspiration

o o

Brand should communicate an exclusive image which the consumer is willing to pay for Eg: Longines Watches, Nakshatra Diamonds

6. BENEFITS OFFERED
o o o Highlight the benefits that Customer gets buy using the product Emotional relationship Eg: Master Card Emotions is the only thing that money cant buy, for everything else there is MasterCard Chevrolet Optra Karva Chauth ad

How to Position a Brand? Perceptual Mapping Involves studying the consumers perception of the product & Competitors brands & Identifying vacant slots based on this Studying tangible as well as intangible benefits that a customer always looks for

Tangible Pdt. Features Performance levels Style Aesthetics Packaging Pdt. Components Price & Distribution

Intangible Services o After Sale service o Training on usage of Pdt. o Financing assistance

Perception Mapping Perception Mapping

Communicating the Brand Positioning Strategy Positioning Strategy needs to be effectively communicated Developing appropriate Product Form, packaging, instructional material, use of colors, stationery, distribution outlets & pricing strategy

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

Park Avenue Not just advertise but also make necessary changes in the Marketing Mix THEORY OF DIFFUSION OF INNOVATION EVERETT M. ROGERS People differ from each other. o Risk taking attitude o Willingness to adopt new products

Adopter Categorization on the Basis of Innovativeness Innovators -2.5 % o High risk taking & hence more open to change o More aware & are perceived as opinion leaders o Others look upto them for guidance & recommendation o Brand Switchers

Early Adopters -13.5 % o Same characteristics as innovators o Take a little more time to buy and adopt a product

Early majority & late majority -68% o Significant portion of the market o These wait for +ve recommendations from innovators and early adoptors who are perceived as opinion leaders by them o They are moderate on risk taking

Laggards -16 % o Display high resistance to change o Averse to risk taking until it is 100% safe to use the product o They are loyal to exiting brand and products

Organization of New Product

1. 2. 3. 4.

Formation of Venture Group Marketing Dept. R& D Department Planning Department

Lecture 4 Pricing Decisions Learning Objectives The Meaning & Significance of price in Mktg. decisions Pricing Objectives Pricing methods & Procedures Pricing Strategies, tactics & Policies How to determine price

Importance of Pricing Diminishing product differentiation o Technologies are standardized o Differentiation among firms diminishing o Brands transcending to commodity situation Inter-firm rivalry o Intensity of firms rivalry increases as exit & entry barriers are lowered o Impacts cost of operation ( more mktg.bucks) o Need to develop new products ( high cost low margins) o Wrong price decision can be fatal Mature products and markets o In a mature market, only way to differentiate is to augment service or price cuts o Price cuts erode a companys bottom line & hence critical to embark upon nonprice strategies

Customer Value perception o Customers perception about the products current & potential value Inflation in the economy Challenge of price management o Affects pricing in 2 ways Maximize current profits & return on investment Exploit Competitive Position Survival in a competitive market Balance price over product line Increases costs because of more input cost

Price - Meaning Manufacturer Represents the quantity of money recd. by the firm or the seller for its products Customer Represents a monetary sacrifice; hence its perception of the value of the product

Price = Quantity of money recd. by the seller Quantity of goods & services recd. By the buyer

Price Change the customers value perception of the product eg: Modifying the presentation of the product Change the quantity of money or goods & services to be paid by the buyer eg: Savings on buying more Change the quality goods & services offered Price changes thru changes in sales promotion & discounts By making changes in; o Time & place of transfer of ownership o Place & time of payment o Acceptable form of payment

Pricing Objectives Maximize current profits & return on investment Exploit Competitive Position Survival in a competitive market Balance price over product line Maximize current profits & return on investment

Estimate current demand and costs associated with alternative prices and then select the price that ensures maximum current profits, ROI or cash flow o Does not consider the influence of other marketing mix variables on the customer demand Exploit Competitive Position o Presupposes firm is a leader in the market o May adopt a skimming , penetrating or geographic pricing policy Survival in a competitive market o Happens when firm loses its distinctiveness or products are in a maturity stage, shifting customer preferences & undifferentiated offers o May need to resort to discounting/ consider running promotion etc . to liquidate stocks Balancing price over product lines o To maximize long term profits o Balance among high demand and low demand products o

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

Demand Estimation Estimating Customer Demand at different price levels & measuring the existence of price sensitivity Demand for some products is inelastic to price change eg: Food items Whereas demand for some is elastic eg: branded products

Factors Contributing to Price Sensitivity

1. Unique Value effect More Unique less price sensitive 2. Substitute Awareness Effect Buyers Price sensitivity is high
3. Difficult comparison Effect Price sensitivity is low 4. Total Expenditure Effect Less price sensitivity 5. End Benefit Effect Buyers less price sensitive when total benefit of the end product is more than total cost of the product 6. Shared Cost Effect Buyer less prone to price sensitivity 7. Sunk Investment Effect Price sensitivity is low 8. Price Quality Effect Higher the perceived quality, lower the price sensitivity 9. Inventory Effect If the product cannot be stored, the buyer will be less price sensitive

Pricing Decision Framework

Customer Demand

Price elasticity of Demand = % Change in Quantity Demanded % change in price

A. Availability of substitute and or competitors products B. Customer resistance to change C. Price Quality Perception D. Buyers do not perceive or notice higher prices

Costs Marketer needs to determine the cost of Manufacturing & the marketing cost Different firms within the same industry operate at different levels of efficiency reflecting through cost structures Reasons for high cost structure higher reject rates, lack of coordination, sub-optimal utilization of plant capacity

Types of Costs Fixed Costs or Sunk Costs o Do not change over production volumes o Eg: Rent, Salary, depreciation, Plant & Machinery Cost, R& D, payment for utilities etc Variable Costs o Vary directly in proportion to the volumes of product produced/manufactured o Eg: Raw materials , wages etc.. Partly Fixed , Partly Variable o Eg: Advertising Cost o Cost of Producing a campaign fixed artwork, Film production, copy writing etc o Cost of an insertion in a media/frequency is variable Semi Fixed Costs o Remain fixed upto a certain level of operation and thereafter change o Eg: Royalty payment for the use of a brand name Total Costs o Sum of Fixed & Variable Costs

Corporate Objectives An important decision to be taken by the top management

Will reflect the philosophy of the principal owners /shareholders & their perception of the external environment No pricing decision can be taken in the absence of corporate decision

Competitor Reactions Anticipate competitor reaction to pricing decisions Competitor can react either by either following the leader or ignoring the leader

Government Policy Fiscal Policy contributes towards pricing policy Taxation, Customs & Import Duties, sales taxes etc If govt. regulates a particular industry then the finished product price will also be high eg: Steel and Cement Controlled regime to regulated regime eg: TRAI

Barriers in the Industry Entry & Exit barriers High barriers always encourage inefficiency, high costs and high prices

Pricing Methods

I. II. III. IV.

Cost Oriented Method 1. Full cost or mark up pricing 2. Marginal Cost or Contribution Pricing Going rate or Follow the Crowd Sealed bid Pricing Customer Oriented or Perceived Value Pricing 1. Acquisition Value 2. Transactional Value

I.

Cost Oriented Method 1. Full cost or mark up pricing Most elementary method of pricing Estimate Cost of production + Margin

Mark up price = / 1-r Unit Cost ( Fixed+ Variable) r Expected Return on Sales expressed as a % Full cost or mark up pricing- Advantages Easy to calculate Minimal information requirements Easy to administer Tends to stabilize markets - insulated from demand variations and competitive factors Insures seller against unpredictable, or unexpected later costs

Full cost or mark up pricing- Dis-advantages Method ignores customer perception & competitor reaction Ignores the fact that the firm might not be able to sell all its merchandise Tends to ignore the role of competitors Use of historical accounting costs rather than replacement value Use of normal or standard output level to allocate fixed costs Inclusion of sunk costs rather than just using incremental costs Ignores opportunity costs Contractors may not focus on performance because the cost is always covered by the client

Pricing Methods

I.

II.

Cost Oriented Method 2. Marginal Cost or Contribution pricing Recover marginal cost and get a contribution towards its overheads Works well when the market is dominated by a giant & objective is to get a foothold in the market Works when the firm wants to liquidate its stocks Sparks price war Going rate or Follow the Crowd o Competition oriented o Prices pegged at the same level as the competitor o Assumes that there will be no price war in the industry o Commonly used in Oligopolistic market o Flaws Leader may not be operating efficiently o Collective decision need not be the best/right decision Sealed Bid pricing

II.

II.

o Suppliers are asked to submit quotations in closed tenders o Eg. Industrial Mktg., Marketing to Governments, suppliers Customer oriented or Perceived Value Pricing o o o o Increasingly being used Takes into account all elements of the marketing mix Helps in reducing threats of price wars Keys is estimation of customer perception of value avoid over estimation

Acquisition ValuePerceived benefits & sacrifice made by the customer to get it Transactional ValueDetermined by comparing the buyers reference price to the actual price that he/she pays PRICING STRATEGIES Factors influencing Pricing strategy Corporate Goals and Objectives Customer Characteristics Intensity of inter-firm rivalry Phase of the PLC

Skimming Strategy Skim the market by selling at a premium price Works o When the TG associated quality of the product with price and high price is perceived to be high quality o Customer is aware and willing to buy the product at a higher price just to be an opinion leader o When the product is perceived as enhancing the customers status is society o When competition is non-existent o When the product represents technological break- thru is perceived as a high technology' product Objective Achieve early break-even point and maximize profits in shorter time

Penetration Pricing Strategy

Objective Gain foothold in a highly competitive market ; attain market share or market penetration Firm prices its product lower than competition Works o When the size of the market is large and it is a growing market o When the firm uses it as a entry strategy o When market is highly price sensitive o When Production and distribution costs fall as sales volume increases o When low price must help keep out the competition o When price quality association is weak

Differential Pricing Strategy Differentiating price across different market segments Heterogeneity in the market motivates a firm to adopt this strategy

Geographical Pricing Strategy Seeks to exploit economies of scale by pricing the product below the competitors in one market and adopting a penetration strategy in the another Firm may charge premium pricing in one market, penetration in another market and a discounted price in the third market Markets should be separated by transportation costs Principles on which strategy is based o A firm should not discriminate between competing buyers in the same region o A firms strategy should not appear to be predatory o A firm should not attempt to fix prices among competitors for basing point or zone pricing

Product Line Pricing Strategies Adopted by a multi-product firm Products have to be related belonging to the same product family A. Price bundling eg: Music player, equalizer. B. Premium pricing eg: Colour TV with/without remote C. Image pricing eg: Textiles, cosmetics, toilet soaps & perfumes D. Complementary pricing Customers with high transaction costs eg: registration of house, processing fee etc E. Captive Pricing - Special price deal for loyal customers eg: Gillette razor with blades, Kodak film with camera

Lecture 5 Distribution Strategy Learning Objectives Role & task of intermediaries Type & nature of intermediaries Motivating & resolving conflicts within the channel of distribution Planning a market-driven distribution system Retailing & Retail Management Logistics Management

Distribution Challenges Critical in nature affect the viability of the firm & the product Affects market share Diversity in terms of accessibility of market Reaching out the market ( right size, right time, right place) key to competitive advantage

Distribution Involves planning & Strategizing o Distribution Structure o Logistics Distribution Structure o Refers to channel design & Structure & Mgt. of channels Logistics o Refers to physical aspect of distribution

Need for establishing Marketing Channels Producers lack financial resources necessary for direct marketing Direct marketing is not feasible for many offerings Using channels frees money for investment in main business Intermediaries are more efficient

Role of Middlemen/ Intermediaries Forward flow functions: o Develop / disseminate communication o Store and move the physical products o Oversee transfer of ownership Backward flow functions: o Place orders with manufacturers o Facilitate payment of bills Information o About market to manufacturer changes in customer demography, psychography, media habits, entry of competitors, changes in customer preferences Price Stability o Middleman absorbs an increase in the price of products ( intra-middlemen competition) Promotion o Design their own sales incentive programmes aimed at building customer traffic at their outlets Financing o Finance manufacturers operations by providing working capital in the form of necessary advance payments or goods & services Title o Most middlemen take the title to the goods , services and trade in their own name o Helps in diffusing the risk between the manufacturer and the middlemen o Enables physical possession of the goods which help satisfy customer demand at any point in time

Marketing Flows in Marketing Channels New Role of Intermediaries Conventional Role o Transact discrete products or services o Sell what they have, what is in stock o Cut cots to compete on price of pdt. & services o Focus on discrete core items o Gear offerings to average customer o Work as an independent channel member Contemporary Role o Link benefits to product superior mktg. experiences o Access and get to customers the full range of pdts. & services o Get rid of non-value activities, waste & duplications o Concentrate on value added services o Personalize offerings to suit unique individual needs o Involve and integrate relevant players & expand the electronic network so as to deliver complete customer experience

Types & Nature of Middlemen Merchant Middlemen o Take the title of the goods & services and resell o Eg: Dealers, wholesalers & retailers o Margins & bonuses as compensation o Share risk with manufacturers Agents o Do not take possession but help in identifying customers & even negotiate on behalf of the producers o Eg: C& F agents , brokers o Donot share risk only prospect, warehouse and re-distribute o Earn commission & are reimbursed for any expenses incurred Facilitators o Independent Business Units that facilitate flow of goods & services from the producer to the customer o Eg: Transport companies, banks independent warehouse . o Paid service charge, warehouse charges, rent etc.

Channel Levels Level 0 o o o o

Industrial Product Marketing Internet had made possible Eg: Ion Exchange, Airlines online booking Works well in Product Market where few or many customers are concentrated in specific geographical areas Market is comfortable with technology Customers want prompt service support Value of the Order size is large

Level 1 o No: of customers is high & they are concentrated in specific geographic areas without any uniform pattern in their order lot size o Buy in small volumes o Firms sell goods to a wholesaler or large dealer Level 2 or more o Customers spread out nationally o Market is large o Need reach and hence increase level of distribution

Factors determining the length of the channel Size of the market o Larger Market ___________ Channel? o Small Market ___________ Channel? Order lot size o Large order Size ___________ Channel? o Small order Size ___________ Channel? Service requirements o High level of service ___________ Channel? o Low level of service ___________ Channel? Product Variety o More Variety ___________ Channel? o Less Variety ___________ Channel?

Length of Channel of Distribution

Width of Channel of Distribution

Factors Influencing Distribution Decisions Market Characteristics o Service levels required Company Characteristics o Companys long term objectives, financial resources, manufacturing capacity, mktg. Mix, corporate philosophy Product Characteristics o Product Value, Perceived risk, nature of the product Middlemen Characteristics o Aptitude for service, promotion and handling negotiations, storage , contract & credit Intensity of Competition Environmental Characteristics o Govt. Policy, statutory provisions, state of the economy, technological and infrastructural developments

Identifying Major Distribution Alternatives Exclusive distribution o Severely limited distribution o Products and Brands that seek high imageries o Eg: Designer wear, major domestic appliances, automobiles etc. Selective distribution o Some intermediaries willing to carry good are selected

o Enables manufacturers to develop good working relationships Intensive distribution o Offering is placed in as many outlets as possible o Eg: Soft drinks

Terms & Responsibilities of Intermediaries Price policies o Price list and schedule of discounts o MRP Conditions of sale o Payment terms and guarantees o Deposit/LOC etc Returns policy o Warranty, Spot replacements o Returns & Refunds Territorial rights o Define territory / terms Services to be performed by party

Criteria for evaluating Channel Alternatives Marketing Channels across PLC

Channel Evolution Vertical Marketing Systems

Corporate VMS Successive stages from Production to distribution under a single identity Vertical integration Forward & backward Integration eg: Bata, Woodland, Raymond Administered VMS Seeks to control not thru ownership but thru size & power of one of the channel members Brand/market leaders able to garner trade co-operation eg: HLL, P& G, Nestle, Maruti, TELCO etc.. Contractual VMS Independent firms at different levels of production & distribution integrating their programmes on a contractual basis to obtain larger economies of scale Eg: NIIT, Aptech, SSi

Horizontal Marketing Systems o Contemporary Marketing system o 2 or more unrelated companies pool resources to exploit marketing opportunity o Eg: TVS- Whirpool Onida Market Washing Machines

Multichannel Marketing Systems o A single distribution system may/may not deliver desired results o Firm uses 2 or more channels to reach one or more markets segments o Eg: L& T standard switch gear Own force+ Extensive Dealer network

Managing The Channel Channel Conflicts- Type of Conflict o Vertical Level Conflict Between levels above and below in the distribution chain Eg: Conflict between a Manufacturer & a wholesaler Conflict between retailers and a distributor Horizontal Level Conflict At the same level Eg: Inter stockist conflict, conflict among retailers pricing, territory jumping Multichannel Level Conflict Conflict between Franchise (indirect distribution) and company owned distribution ( Sales force/company owned showroom)

Channel Conflicts- Causes of Conflict o Goal Incompatibility Eg: Manufacturers goal Market Share & long term profit maximization Wholesalers goal Sales maximization & short term profitability Role Ambiguity Common cause of conflict in Multichannel Eg: Role and Territory of Sales force clashing with that of dealer Difference in perception of the market Different perceptions of the market and economy may also cause conflict between manufacturer & middlemen

Channel Conflicts- Managing Conflict o Communication Frequent meets between the manufacturer and channel partners

o o

Chief executives interact with channel partners to understand market dynamics & communicate brand positioning strategies In-house newsletters Dealer Councils Formation of councils to resolve horizontal & vertical level conflicts Manufacturer should be willing to accept and act upon constructive feedback received thru such forums Superordinate Goals Customer satisfaction supreme Arbitration & Mediation Independent individuals or institutions like court

Motivating Channel Partners Financial Rewards o Higher margins, extended credit period, bonuses & reimbursement of expenses Non- Financial Rewards o Contest, public recognition, paid holidays, training

Market Driven Distribution

1. 2. 3. 4. 5. 6. 7. 8.

Know what your customers want Decide on the outlet Determine the costs Bind the ideal Compare the alternatives Review assumptions in the light of research Confirm the gap between the ideal and the actual distribution system Implement changes in the system, if required.

Lecture 6 Advertising & Media Planning AMA- American Marketing Association Any paid form of non- personal presentation and promotion of ideas, goods & services by an identified sponsor

Advertising is ; o Paid form of mass communication o Non-personal o Significant contributor in awareness creation & attitude formation

Functions of Advertising Identifies products and differentiates them from others Communicates information about the product, its features, and its location of sale Induces customers to try new products and suggest reuse Stimulates the distribution of a product Increases product use Builds value, brand preference, and loyalty Lowers the overall cost of sales `

5 Ms of Advertising

Economic Impact of Advertising Effect on; o Value of Products o Prices

o o o o

Competition Consumer demand Consumer choice Business cycle.

Social Aspects of Advertising Educates Consumers Improves standard of living Affects happiness & General well- being

Ethical Issues of advertising Advertising must be truthful Advertising must be sensitive to religious and political sensitivities Advertising must not promote undesirable products declared illegal by law i.e. drugs Advertising must not promote accepted social ills

Areas of advertising Regulation The content of advertisements o Deception and Unfairness o Poor taste Competitive Issues o Vertical Co-operative advertising Manufacturer & retailer share the cost of advtg. Comparison Advertisements o Legal, must be substantiated, no unfair comparisons

Advertising Regulation Regulatory agents Government, ASCII The Trade commission Industry Self - Regulation Consumers as Regulatory agents Consumerism- acts of individuals to exert power over the marketplace Consumer Organizations

Various groups organized by product or geographic region

Relaunch of Rasna A success Story Brand Launched as Jaffe in 1976 Renamed as Rasna in 1979 1982- sales dip 1983 Turning point for the Brand o Market Scenario o Research o Advtg. Objective o TG o Influencer o Creative Strategy o Media Strategy

Types of agencies Full Service Agencies Creative Boutiques Media buying services Interactive agencies In-house agencies

Media Objectives, Strategies and Planning Major Factors in Creating and Building a Media Plan Media Questions Two basic processes: Planning media strategy, including the specific types of consumers/audiences the messages will be directed to. Selecting and Buying media vehicles.

Media planning is both an art and a science. An essential part of the advertising business. Where should we advertise?

Which media vehicles? When during the year? Should we concentrate our advertising? How often should it run? What opportunities are there to integrate our media planning with other Promotion or Communication tools?

Media Objectives, Strategies and Planning Planners direct the messages to the right people at the right time in the right environments. TV: Networks, syndication, local, cable, satellite. National, Regional and Local issues Non traditional: In flights, parking meters, blimps, shopping carts, milk cartons, cans, taxis, sponsorships. Increasing media choices and options Audience fragmentation Costs and rate hikes Multimedia, and interactive Diverse audiences And more

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Major Factors: 1. Target Market. Whom are you going to sell to? o Demographic, geographic and psychographics characteristics

2. Where is product or service distributed? o Local, regional, national or selected markets

3. What is Budget? o Percentage of sales o Share of market and Share of Voice o Objective and Task

o o o o o

Unit of Sales Competition Test Market Experimental Affordable and Available Funds

4. What is Competition Doing? o Budgets o Which Media? o Which Schedules? o And more

5. Nature of Message? o Electronic/Broadcast o Print o Color/B&W o Demonstration o Simple Statements

6.

Reach vs. Frequency vs. Continuity (Continuous Schedule)

Media Objectives, Strategies and Planning

Reach (Cume) The number of different or unduplicated households or persons that are exposed to a television program or commercial at least once during the average week for a reported time period.

Frequency

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

Continuity/Continuous Schedule Advertising runs steadily and varies little. Flighting and Pulsing with scheduling Rating (RTG or %): o The estimate of the size of a television audience relative to the total universe, expressed as a percentage. o The estimated percent of all TV households or persons tuned to a specific station. In the example, three of the 10 homes in the universe are tuned to channel 2. That translates to a 30 rating.

RATING = households tuned in to a given program all households with television SHARE = households tuned in to a given program all households tuned in to TV at that time (HUT) (more simply: share measures the percentage of all TV sets in use watching a particular program) Here's an example: Your show is aired in a market that has 1 million television households; 400,000 are tuned in to you. Therefore: 400,000 1,000,000 = .40, or a rating of 40

At the time your show airs, however, there are only 800,000 households using television. Therefore, your share of the available audience is Share = 400,000 800,000 = .50, or a rating of 50

7. Media Mix o Combination of different media, and o Which Media? o Which Schedules? o And more

size of ads

8. Seasonality and Length of Schedule? o Hot tea vs. Cold tea?

o o o o

Snow blowers, toothpaste, coffee. Morning Drive and Evening Drive Flighting Pulsing

9. Tie-ins with Merchandising and Sales Force? o o o Coupons, Contests, Trade Deals, Sales Calls, Displays, Budgets. Which Media? Events Cricket Film Awards Etc Which Schedules? And more

o o

10. Flexibility

11. Cost Efficiencies o Which Media? o Which Schedules? o Which Vehicles?

Advertising is an investment in future sales. Its greatest powers are in short-term promotions and its cumulative long-range effects.

Lecture 7 Sales Management & Selling Process Learning Goals 1. Understand the role of a companys salespeople in creating value. 2. Know the six major sales force management steps. 3. Understand the personal selling process, and how to distinguish between transaction-oriented marketing and relationship marketing.

Personal Selling The Nature of Personal Selling o Salesperson covers a wide range of positions from order taker to order getter responsible for relationship building

Salespeople Have Many Names Agents Sales Consultants Sales Representatives Account Executives Sales Engineers District Managers Marketing Representatives Account Development Representatives

The Role of the Sales Force

o o o o o

Two-way personal communication More effective than advertising in complex selling situations The sales force plays a major role in most companies The sales force represents the company to customers They also represent the customers to the company

Definition Sales Force Management The analysis, planning, implementation, and control of sales force activities

Managing the Sales Force Sales Force Strategy and Structure o Sales Force Structure Territorial sales force structure Product sales force structure Customer sales force structure Complex sales force structure

Sales Force Strategy and Structure o Sales Force Size Many companies use the workload approach to set sales force size Other Issues Outside and inside sales forces Team selling

Recruiting and Selecting Salespeople o Careful recruiting can: Increase overall sales force performance Reduce turnover Reduce recruiting and training costs

Traits of Successful Salespeople Intrinsic motivation Disciplined work style The ability to close a sale

Ability to build relationships with customers

Training Salespeople o o o o Training period can be anywhere from a few weeks to a year or more Training is expensive, but yields strong returns Training programs have many goals Many companies are adding Web-based sales training programs

Compensating Salespeople o o Compensation elements: salary, bonuses, commissions, expenses, and fringe benefits Basic compensation plans: Straight salary Straight commission Salary plus bonus Salary plus commission Compensation plans should direct the sales force toward activities that are consistent with overall marketing objectives.

Supervising Salespeople o Effective supervisors provide direction to the sales force Annual call plans and time-and-duty analysis can help provide direction Sales force automation systems assist in creating more efficient sales force operations The Internet is the fastest-growing sales technology tool

Supervising Salespeople o Effective supervisors also motivate the sales force Organizational climate Sales quotas Positive incentives Sales meetings, sales contests, rewards & recognition etc.

Evaluating Salespeople o Several tools can be used Sales reports Call reports Expense reports

Stages in the personal selling process

Stages and objectives of the personal selling process

Techniques for handling objections

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

Its purpose is to give management a detailed

picture which indicate ways of improving the overall marketing effectiveness of the business or organization. Areas Covered Under Mktg. audit Marketing Environment Marketing Activity Marketing System

Marketing Environment Business and Economic Environment (STEEP) Social - what social changes are happening that will affect my business - e.g. more flexible working, more parents who share the child care? Technological - what technological changes are happening that will affect your business - e.g. faster and easier access to information through broadband Economic - what economic changes are happening that will affect your business? e.g. How does the Euro/Dollar affect your business? Environmental - What the new environment legislation affect your business, packaging regulations, producer end of life responsibility, stopping landfill of hazardous chemicals? Political - What changes in the political arena will affect you? e.g. Taxation, duty increases, regulatory constraints Market Environment Market size, growth, and trends for: o o o o o o Products Price Physical Distribution Channels Communication Industry Practices

Competitive Environment Industry Structure o o o o o o o o o o Make up of companies in the industry Market standing /reputation Extent of excess/under capacity Production ability Distribution ability Marketing methods New entrants Mergers Acquisitions/diversification trends Bankruptcies

International links

Industry Finances o o o o o o o Financial barriers to entry & exit Industry profitability Operating costs/raw material prices Investment Effect on return on investment of price changes Volume Source of Industry profits

Marketing Activity o o o o o o Sales (total by geography, sector, customer, product) Market shares Profit margins Channels to market Product life cycle Marketing mix

Marketing System o o o o o o o o o Marketing objectives Marketing strategy Structure Information Systems Planning Systems Control Systems Functional Efficiency Profitability analysis Cost effectiveness analysis