PRICING STRATEGY

PRICE QUALITY RELATIONSHIP

Price
High High 1- Premium (Bose) 4- Overcharging (Pricey Hotels ) 7- Skimming (Reliance Mobile) Medium 2- High value 5- Medium value 8- False economy Low 3- Penetration (Amul) 6- Good value 9- Economy (Nirma)

Quality
Medium Low

Pricing strategies for New Products 1. Skimming Pricing 2. Penetration Pricing Price Strategies for Established Products 1. Maintaining the Price 2. Reducing the Price 3. Increasing the Price Price-Flexibility Strategy 1. One-Price Strategy 2. Flexible-Pricing Strategy 1. By market, 2. By product, 3. By timing, 4. By technology Product Mix - Pricing Strategy 1. Product-line pricing, 2. Optional-feature pricing, 3. Captive-product pricing, 4. Two-part pricing, 5. By-product pricing, 6. Product-bundling pricing.

PRICE DISCOUNTS AND ALLOWANCES 1. Cash Discount 2. Quantity Discount 3. Functional Discount 4. Seasonal Discount 5. Allowance PROMOTIONAL PRICING 1. Loss-leader pricing 2. Special-event pricing 3. Cash rebates 4. Low-interest financing 5. Longer payment terms 6. Warranties and service contracts 7. Psychological discounting

DEALING WITH COMPETITION

Competitive Strategies for Market Leaders.

Expanding the Total Market NEW CUSTOMERS MORE USAGE Defending Market Share

POSITION DEFENSE FLANK DEFENSE PREEMPTIVE DEFENSE COUNTEROFFENSIVE DEFENSE MOBILE DEFENSE CONTRACTION DEFENSE
Expanding Market Share

Other Competitive Strategies Market-Challenger Strategies DEFINING THE STRATEGIC OBJECTIVE AND OPPONENT(S) -It can attack the market leader -It can attack firms of its own size that are not doing the job and are underfinanced. -It can attack small local and regional firms CHOOSING A GENERAL ATTACK STRATEGY - Frontal Attack - Flank Attack - Encirclement Attack - Bypass Attack - Guerrilla Warfare CHOOSING A SPECIFIC ATTACK STRATEGY - Price discount. - Lower price goods. - Value-priced goods and services - Prestige goods - Product proliferation. - Product innovation. - Improved services - Distribution innovation. - Manufacturing-cost reduction. - Intensive advertising promotion.

Market-Follower Strategies Because the follower is often a major target of attack by challengers, it must keep its manufacturing costs low and its product quality and services high. It must also enter new markets as they open up. The follower has to define a growth path, but one that does not invite competitive retaliation. Four broad strategies can be distinguished:
1)

2) 3) 4)

Counterfeiter Cloner Imitator Adapter

Market-Nicher Strategies Nichers have three tasks: Creating niches, 1) Expanding niches, and 2) Protecting niches. Niching carries a major risk in that the market niche might dry up or be attacked. The company is then stuck with highly specialized resources that may not have high-value alternative uses.

Because niches can weaken, the firm must continually create new ones.
The firm should "stick to its niching" but not necessarily to its niche. That is why multiple niching is preferable to single niching. By developing strength in two or more niches, the company increases its chances for survival. Firms entering a market should aim at a niche initially rather than the whole market.

SALES PROMOTION STRATEGY

CONSUMER-ORIENTED SALES PROMOTION TECHNIQUES Sampling Door-to-door, Direct-mail, In-store, and On-package approaches. Couponing Premiums Free Premiums Self-Liquidating Premiums Contests and Sweepstakes Refunds and Rebates Bonus Packs Price-Off Deals Frequency Programs

TRADE-ORIENTED SALES PROMOTIONS TECHNIQUES

1) Contests and incentives, 2) Trade allowances, Buying allowances, Promotional or display allowances, and Slotting allowances.

3) Displays and point-of-purchase materials,

4) Sales training programs 5) Trade shows, and 6) Co-op advertising.

ADVERTISING STRATEGY

SETTING THE OBJECTIVES

Informative advertising: Aims to create brand awareness and knowledge of new products or new features of existing products.
Persuasive advertising: Aims to create liking, preference, conviction, and purchase of a product or service Reminder advertising: Aims to stimulate repeat purchase of products and services. Reinforcement advertising: Aims to convince current purchasers that they made the right choice. Automobile ads often depict satisfied customers enjoying special features of their new car.

THERE ARE FIVE SPECIFIC FACTORS TO CONSIDER WHEN SETTING THE ADVERTISING BUDGET:
1. Stage in the product life cycle - New products typically receive large advertising budgets to build awareness and to gain consumer trial. Established brands usually are supported with lower advertising budgets as a ratio to sales. 2. Market share and consumer base - High-market-share brands usually require less advertising expenditure as a percentage of sales to maintain share. 3. Competition and clutter- In a market with a large number of competitors and high advertising spending, a brand must advertise more heavily to be heard. 4. Advertising frequency - The number of repetitions needed to put across the brand's message to consumers has an important impact on the advertising budget. 5. Product substitutability - Brands in less-well-differentiated or commodity-like product classes require heavy advertising to establish a differential image.

DEVELOPING THE ADVERTISING CAMPAIGN

In designing and evaluating an ad campaign, it is important to distinguish the message strategy or positioning of an ad (what the ad attempts to convey about the brand) from its creative strategy (how the ad expresses the brand claims) and who should say (message source)

Advertisers go through three steps: 1) 2) 3) 4) Message generation and evaluation, (Message Strategy ) Creative development and execution, (Creative Strategy) Message source Legal & social issues.

CREATIVE STRATEGY Communications effectiveness depends on how a message is being expressed as well as the content of the message itself. Creative strategies can be broadly classified as involving either "informational" or "transformational" appeals. These two general categories each encompass several different specific creative approaches. Informational Appeals An informational appeal elaborates on product or service attributes or benefits. Examples in advertising are Hovland's research at Yale has shed much light on informational appeals and their relation to such issues as: Conclusion drawing, One-versus two-sided arguments, and Order of argument presentation.

Transformational Appeals A transformational appeal elaborates on a non-product-related benefit or image.

1. Negative Emotions 2. Positive Emotions 3. Comparison

MESSAGE SOURCE Three factors that underlie source credibility likability of the source are expertise, trustworthiness, and

Expertise is the specialized knowledge the communicator possesses to back the claim. Trustworthiness is related to how objective and honest the source is perceived to be. Friends are trusted more than strangers or salespeople, and people who are not paid to endorse a product are viewed as more trustworthy than people who are paid.

Likability describes the source's attractiveness. Qualities like candor, humor, and naturalness make a source more likable.
The most highly credible source would be a person who scores high on all three dimensions.

DECIDING ON THE MEDIA After choosing the message, the advertiser's next task is to choose media to carry it. The steps here are deciding on 1) 2) 3) 4) 5) Desired reach, frequency, and impact Choosing among major media types Selecting specific media vehicles Deciding on media timing; and Deciding on geographical media allocation.

Evaluating Advertising Effectiveness Good planning and control of advertising depend on measures of advertising effectiveness. Most advertisers try to measure the communication effect of an adthat is, its potential effect on awareness, knowledge, or preference. They would also like to measure the ad's sales effect.

PRODUCT STRATEGIES

PRODUCT-OVERLAP STRATEGY The product-overlap strategy refers to a situation where a company decides to compete against its own brand. There are alternative ways in which the product-overlap strategy may be operationalized. Principal among them are having

1) Competing brands, 2) Doing private labeling, and 3) Dealing with original-equipment manufacturers.

PRODUCT-SCOPE STRATEGY The product-scope strategy deals with the perspective of the product mix of a company (i.e. the number of product lines and items in each line that the company may offer). The three variants of product-scope strategy that will be discussed in this section are 1)Single-product strategy, 2)Multiple-products strategy, and 3)System-of-products strategy

PRODUCT-DESIGN STRATEGY A business unit may offer a standard or a custom-designed product to each individual customer. Standard Products: Offering standard products leads to two benefits. First, standard products are more amenable to the experience effect than are customized products; consequently, they yield cost benefits. Second, standard products can be merchandised nationally much more efficiently. Customized Products : Customized products are sold on the basis of the quality of the finished product, that is, on the extent to which the product meets the customers specifications. The producer usually works closely with the customer, reviewing the progress of the product until completion. Unlike standard products, price is not a factor for customized products. A customer expects to pay a premium for a customized product.

Standard Products with Modifications

The strategy of modifying standard products represents a compromise between the two strategies already discussed. With this strategy, a customer may be given the option to specify a limited number of desired modifications to a standard product.

PRODUCT-ELIMINATION STRATEGY Marketers have believed for a long time that sick products should be eliminated. It is only in recent years that this belief has become a matter of strategy. The three alternatives in the product-elimination strategy are 1) Harvesting, 2) Line simplification, and 3) Total-line divestment. Harvesting: Harvesting refers to getting the most from a product while it lasts. It is a controlled divestment whereby the business unit seeks to get the most cash flow it can from the product. The harvesting strategy is usually applied to a product or business whose sales volume or market share is slowly declining. Line Simplification: Line-simplification strategy refers to a situation where a product line is trimmed to a manageable size by pruning the number and variety of products or services offered. It is hoped that the simplification effort will restore the health of the line. Total-Line Divestment : Divestment is a situation of reverse acquisition.

NEW-PRODUCT STRATEGY New-product development is an essential activity for companies seeking growth. By adopting the new-product strategy as their posture, companies are better able to sustain competitive pressures on their existing products and make headway. The term new product is used in different senses. For our purposes, the new product strategy will be split into three alternatives:

(a)Product improvement/modification, (b)Product imitation, and (c)Product innovation.

DIVERSIFICATION STRATEGY Diversification refers to seeking unfamiliar products or markets or both in the pursuit of growth. Essentially, there are three different forms of diversification a company may pursue: 1)Concentric diversification, 2)Horizontal diversification, and 3)Conglomerate diversification.

Diversification
Concentric Horizontal

Technology required to make the new product

Old New

Customer
New Old

Conglomerate

New

New

PORTERS FIVE FORCES MODEL

PORTERS 5 FORCES AND PROFIT Force Profitability will be higher if: Profitability will be lower if:

Bargaining power of suppliers

Bargaining power of buyers Threat of new entrants Threat of substitutes Competitive rivalry

Weak suppliers
Weak buyers High entry barriers Few possible substitutes Little rivalry

Strong suppliers
Strong buyers Low entry barriers Many possible substitutes Intense rivalry

BCG AND GE MATRIX

PRODUCT LIFE CYCLE The product lifecycle approach determines the life status of different products and whether the company has enough viable products to provide desired growth in the future. If the company lacks new products with which to generate growth in coming years, investments may be made in new products. If growth is hurt by the early maturity of promising products, the strategic effort may be directed toward extension of their life cycles.

EXHIBIT B

EXHIBIT C

EXHIBIT D

High

Low High Low

EXHIBIT E

High

Low High Low

The Industry Attractiveness-Business Position Matrix

Businesss competitive position Industry attractiveness High Medium Low High

Medium Low

1
2

2
3

3
3

1 Invest/grow 2 Selective investment/ maintain position 3 Harvest/divest

Variables that might be used to evaluate: Businesss competitive position Industry attractiveness Size Size Profitability Distribution Growth Growth Technological Technology Relative share Price levels sophistication Customer loyalty Marketing skills Competitive Government Patents Margins intensity regulations
48

DISTRIBUTION STRATEGIES

I.

Channel-Structure Strategy Direct Indirect Distribution-Scope Strategy

II.

III

Exclusive Selective Intensive Multiple-Channel Strategy

Complementary Competitive

IV. Channel-Control Strategy V. Conflict- Management Strategy

IDENTIFYING MARKET SEGMENTS AND TARGETS

Bases for Segmenting Consumer Markets Geographic Segmentation Urban and rural Demographic Segmentation AGE AND LIFE-CYCLE STAGE LIFE STAGE GENDER INCOME GENERATION SOCIAL CLASS Psychographic Segmentation Behavioral Segmentation DECISION ROLES Initiator, Influencer, Decider, Buyer BEHAVIORAL VARIABLES Occasions Benefits User Status Usage Rate Buyer-Readiness Stage Loyalty Status Attitude THE CONVERSION MODEL

Bases for Segmenting Business Markets

Business markets can be segmented with some of the same variables used in consumer market segmentation, such as geography, benefits sought, and usage rate, but business marketers also use other variables

Demographic

Industry: Which industries should we serve? Company size: What size companies should we serve? Location: What geographical areas should we serve?
Operating Variables Technology: What customer technologies should we focus on? User or nonuser status: Should we serve heavy users, medium users, light users, or nonusers? Purchasing Approaches Purchasing-function organization: Should we serve companies with highly centralized or decentralized purchasing organizations? Power structure: Should we serve companies that are engineering dominated, financially dominated, and so on? Nature of existing relationships: Should we serve companies with which we have strong relationships or simply go after the most desirable companies? General purchase policies: Should we serve companies that prefer leasing? Service contracts? Systems purchases? Sealed bidding? Purchasing criteria: Should we serve companies that are seeking quality? Service? Price?

Selecting the Market Segments After evaluating different segments, the company can consider five patterns of target market selection. Single segment concentration

Selective specialization

Product specialization

Market Specialization

Full market coverage

Segment- by- segment invasion plan

A company would be wise to enter one segment at a time. Competitors must not know to what segment(s) the firm will move next

DIFFERENTIATION

Product Differentiation Brands can be differentiated on the basis of a number of different product or service Dimensions: Product form, Features, Performance, Conformance, Durability, Reliability, Reparability, Style, and Design,

Service dimensions as Ordering ease, Delivery, Installation, Customer training, Customer consulting, and Maintenance and repair.

Product differentiation is based on - Tangible product attributes. 1) Ingredient and formula 2) Functional Features

3) Differentiation based on Additional features .

4) Differentiation on Packaging 5) Differentiation through product design/Styling

6) Differentiation on product quality/ Technology

7) Differentiation on customer care and service

Product differentiation is based on - Intangible product attributes.

1) Prestige/ Status
2) Sentiments 3) Beliefs Image Differentiation

Marlboro's "macho cowboy" image has struck a responsive chord with much of the cigarette-smoking public. Wine and liquor companies also work hard to develop distinctive images for their brands.

Identity and image need to be distinguished. Identity is the way a company aims to identify or position itself or its product. Image is the way the public perceives the company or its products.

Personnel Differentiation 1. McDonald's people are courteous, 2. IBM people are professional, and Disney people are upbeat. 3. The sales forces of such companies as General Electric, Cisco, Frito-Lay, Northwestern Mutual Life, and Pfizer enjoy an excellent reputation. 4. L&T, the engineering firm, recruits engineers with excellent qualification & claims superiority on executing projects. 5. Singapore Airlines enjoys an excellent reputation in large part because of its flight attendants.

Better-trained personnel exhibit six characteristics: 1) 2) 3) 4) 5) 6) Competence: They possess the required skill and knowledge Courtesy. They are friendly, respectful, and considerate Credibility. They are trustworthy Reliability. They perform the service consistently and accurately Responsiveness: They respond quickly to customers' requests and problems Communication: They make an effort to understand the customer and communicate clearly

Channel Differentiation

Companies can achieve competitive advantage through the way they design their distribution channels' coverage, expertise, and performance. Caterpillar's success in the construction-equipment industry is based partly on superior channel development. Its dealers are found in more locations than competitors' dealers, and they are typically better trained and perform more reliably. Catterpillar , the global leader in earth moving equipment, made a mark through its distribution efficiency and top class maintenance service. Dell in computers and Avon in cosmetics distinguish themselves by developing and managing high-quality direct-marketing channels

POSITIONING

A number of positioning strategies might be employed in developing a promotional program. Positioning by

Product attributes, Price/quality, Use, Product class, Users, and Competitor. Positioning by cultural symbols.

PORTERS GENERIC STRATEGY

Generic Strategy Framework

Low cost Differentiation

Broad

Cost leadership Ryan Air, Walmart,, Dell computers, Deccan Airways

Differentiation McDonalds, BMW, Apple, Nike, Mercedes

Strategic Scope

Narrow

Cost focus South West Airlines

Differentiation focus Ferrari, Rolls Royce

MARKETING STRATEGY

Corporate Strategy At the corporate level, managers must coordinate the activities of multiple business units. Decisions about the organization's scope and resource deployments across its divisions or businesses are the primary focus of the corporate strategy. The essential question at this level are 1) What business(es) are we in? 2) What business(es) should we be in? and 3) What portion of our total resources should we devote to each of these businesses to achieve the organization's overall goals and objectives?

Thus, top-level managers at IBM decided to pursue future growth primarily through the development of Web-based services and software rather than computer hardware. They shifted substantial corporate resourcesincluding R&D expenditures, marketing and advertising budgets, and vast numbers of salespeopleinto the corporation's service and software businesses to support the new strategic direction. Attempts to develop and maintain distinctive competencies at the corporate level focus on 1) Generating superior human, financial, and technological resources. 2) Designing effective organizational structures and processes. 3) Seeking synergy among the firm's various businesses. Synergy can provide a major competitive advantage for firms where related businesses share R&D investments, product or production technologies, distribution channels, a common sales-force, and/or promotional themes as in the case of IBM.

Strategic Planning Gap

Figure illustrates the strategic-planning gap for a major manufacturer of blank compact disks called Musicale (name disguised). The lowest curve projects the expected sales over the next five years from the current business portfolio. The highest curve describes desired sales over the same period. Evidently, the company wants to grow much faster than its current businesses will permit. How can it fill the strategic-planning gap?

Current Products Market Penetration Strategies

New Products Product development strategies

Product Improvement Product line extension New product for the same markets

Increase market share

Current Markets
Increase product usage Increase frequency of use Increase quantity used New application

Market development strategies New Markets

Expand Markets for existing products

Diversification Strategies
Vertical Integration Integrative Forward integration Growth strategies Backward integration Horizontal integration Diversification into related business ( Concentric diversification) Diversification into unrelated business ( Conglomerate diversification)

Geographic expansion Target new segment

Business-Level Strategy How a business unit competes within its industry is the critical focus of business-level strategy. What distinctive competencies can give the business unit a competitive sustainable advantage? And which of those competencies best match the needs and wants of the customers in the business's target segment(s)? For example, a business with low-cost sources of supply and efficient, modern plants might adopt a low-cost competitive strategy. One with a strong marketing department and a competent sales force may compete by offering superior customer service. Another important issue a business-level strategy must address is appropriate scope: how many and which market segments to compete in, and the overall breadth of product offerings and marketing programs to appeal to these segments. Finally, synergy should be sought across product-markets and across functional departments within the business.

Business Unit Strategic Planning

The Business Mission SWOT Analysis Goal Formulation Strategic Formulation Program Formulation and Implementation Feedback and Control

Marketing Strategy The primary focus of marketing strategy is to effectively allocate and coordinate marketing resources and activities to accomplish the firm's objectives within a specific product-market. Therefore, the critical issue concerning the scope of a marketing strategy is specifying the target market(s) for a particular product or product line. Next, firms seek competitive advantage and synergy through a well-integrated program of marketing mix elements (primarily the 4 Ps of product, price, place, promotion) tailored to the needs and wants of potential customers in that target market.

BENCHMARKING

Firms Use Certain Tools in Diagnosing and Building CA (Competitive advantage ) Two useful tools in identifying and building competitive advantage are: (i) Benchmarking (ii) Value chain analysis Benchmarking Benchmarking can be described as the process of improving one's performance by locating benchmarks/ standards in other firms and replicating them in one's own organization. It is a learning process, by which a firm seeks to identify best practices that produce superior results in other firms, and to replicate them to enhance its own competitive advantage.

McKinsey & Co views benchmarking as a skill, an attitude and a practice that ensures excellence, instead of mere improvement.

Benchmarking has larger scope than inter-firm comparison Benchmarking is larger than inter-firm comparison. First, benchmarking does not stop with comparison. It helps the firm secure a model for emulation. Second, in benchmarking, companies go a step beyond inter-firm comparison and trace the best practices across industries and across countries, gathering still higher standards for emulation. Third, unlike with inter-firm comparison, with benchmarking, firms encourage their internal departments to benchmark against one another and upgrade their performance. Analyzing other players and locating the best practices is the first task in benchmarking. The firm then identifies and quantifies the performance gap .The gap between its own performance and the benchmark. And, then, it bridges the gap. This externally oriented approach makes people in the firm aware of the distance they have to travel in achieving excellence. It has an eye-opening effect on them.

Types of benchmarking

Firms resort to four different types of benchmarking:

1) 2) 3) 4) Internal, Functional, Competitive Generic.

The distinction among them lies essentially in the scope of comparison. Internal benchmarking means comparisons within the organization, typically, between related divisions, site-to-site and department-to-department comparisons. Functional benchmarking refers to comparison of the firm's performance in a specific functional area with other firms. Competitive benchmarking is the comparison of a company's performance against the best in the same industry, i.e. against direct competitors. Generic benchmarking refers to comparison across companies and industries on the universal level; here, the firm's performance in a universal work process (example: billing) is compared with that of the best anywhere in the world, in any industry.

BEST OF LUCK