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Marktng management fundamentals

What is mrktg all about?

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Industrial marketing

• Ch1.nature of IM

• What is industrial or institutional or B2B marketing?

• How do industrial mrkts differ from consumer mrkts?

• Why is demand for industrial goods is called ‘derived demand’?

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Nature of industrial mrktng

• Industrial or business or b2b mrktg is mrktng of products and services to business mrkts, or organisations

• Business organisations include• 1.Manufacturing Cos• 2.Govt undertakings• 3.PVT sector organisations• 4.Educational institutions,• 5.Hospitals• 6.Distributors/dealers

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Objectives of business organisations

• BO’s buy products /services for

• 1.Prodn of goods and services

• 2.Making profits

• 3.Reducing costs

• On the contrary ,consumer mrktng is mrktng of products/services to individuals,families and house holds.They buy them for their own consumption

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Focus of industrial/business marketer

• Selling organisations that sell steel,machinetools,computers,courier servicesand other goods/services to buying organisations need to understand

• 1.The buyers’ needs, resources,policies and buying procedures

• 2.And create value(benefits) for the buying organisation or CUSTOMERS with products/services that focus on buying organisations’ needs/objectives

• Ex.Industrial manufacturer and marketer of prcision steel tubes to bicycle manufacturers must know the needs of Hero Cycles and Atlas Cycles in terms of

• A)Quality B)Application of tubes,C)Delivery on daily or weekly basis and so on.

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Industrial vs consumer marktng

• AREAS INDUSTRIAL

• 1,mrkt characteristics-geographically concentrated and relatively fewer buyers

• 2.Product characteristics-Technical complexity and customised

• 3.Service characteristics-Service,timely delivery ,availability very imp.

• Consumer mrkts• Geographically disbursed• Mass markets

• Standardised

• Service,delivery,availability somewhat imp.

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Industrial vs Consumer---

• 4.Buyer behaviour-Involvement of various functional areas in both buyer and supplier firms

• Purchase decisions are mainly made on rational/performance basis

• Technical expertise• Stable interpersonal

relationship bet buyers/sellers

• Involvement of family members

• Purchase decisions are mostly made on physiological/social/psychological needs

• Less technical expertise• Non-personal relationship

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Industrial vs consumer---

• Channels-more direct Indirect

• Fewer intermediates/ Multiple layers

• Middlemen

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Ind vs cons ----

• 6Promotional characteristics—emphsis on personal selling

• 7.Price characteristics-competitive bidding and negotiated prices

• Emphasis on advertising

• List prices or MRP

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Sheet steel supply co(SSS co)

• Dave Jones was Director,Marktng for SSS Co and was responsible for establishing the mrktng strategy for the Co and had done so.

• There was a group of customers for the Co’s product-manufactured steel cabinets for the computer industry.Jones’s strategy for obtaining sales from this group was to offer the best Quality product at competitive price,which he was prepared to negitiate,and to place it before the customers ,primarily thro metal product distributors,supported by trade journal advertising.

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Sss co ---

• With the campaign well under way,he expected a healthy growth in sales.When the growth didn’t materialise,Jones hired a mrktng consultantto investigate and find out what was going wrong.

• One of the largest members of the target group was Infinity manufacturing Inc..The consultant visited Infinity as well as several other significant a/cs to survey customer attitudes.

• He discovered that SSS’s competitors called on these A/cs atleast once a month, using a substantial direct sales force for this effort.

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Sss co---

• The salesmen did considerable amount of customer entertaining and had large travel expenses to prove it.

• Jones and his President couldn’t understand this ‘extravagance’ and objected that if SSS adopted the tactic,it would greatly increase selling costs,thus perhaps leading to price increases to maitain satisfactory prifit margins.

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Q’s for discussion-SSS case---

• 1What is the problem?

• 2.Is SSS co’s strategy wrong?

• 3.How do competitors sell despite higher selling costs?

• What is the moral?

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Sss company case soln.• Obviously SSs co magmnt missed the point. • In this TMS, having the best product at a good price was not

enough,becaude personal selling was customary.• The buyer has developed knowledge of relationships with the salesmen who

called on them and had therfore developed a high degree of confidence in SSS co’s competitors.They know their personnel and whar could be expected of them.

• IS selling thro metal distributors right for Computer cabinets?Culture problemsexist as well as communication on availability of product.

• Total costs for Competition may be less since they save on intermediate costs.

• Purely economically rational behaviour discounts such factors.But such is not the case.

• The moral;Economic rationality may be a myth so far as controlling the buyers’behavour and even in industrial goods! Therfore not surprising if infinity is buying from SSS competitors even at a higher price the same or even slightly inferior quality!

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Industrial demand• D for ind goods/services doesn’t exist by itself.• It is derived from ultimate demand for consumer goods/services.Ind

d is therefore called derived d.D for precision steel tubes depends on prodn of cycles,motorcycles,scooters and furniture that are consumed by consumers.D for precision steel tubes is derived from forecast of D for consumer D for bicycles.MC’s,Scooters and furniture.

• D for capital goods /Equipment (M/C tools,Textile/Leather M/c) depends on D for other goods and purchases are made not only for current consumption but also in anticipation of profits from future usage.

• If business suspects recession in near future,their purchases will be drastically curtailed.But if the attitude is favorable,(upswing in business)Investment in capital goods and ind products increase.

• Sometimes the demand for ind goods is called joint D ,when the D for a product depends uponits use alongwith existence of other product/products.

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Joint demand

• JD occurs when one ind product is useful if other products also exist.Ex.A pump set wd not be useful for pumping water if electric motor or diesel engine is not available.DOT that requires a complete kit of 12 items for joining underground telecom cables can not buy only somne of the items from a supplier as it doesn’t complete the kit.

• Thus some ind products don’t have individual D but are demanded only if ‘other’ products are available.

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Cross elasticity of D

• Elasticity is change in D from a change in price.%’s are used to measure the relative changes.D is inelastic if % change in Q demanded is less than % change in price.D is unitary if the % changes are matched.D is elastic if % change in Q demanded is more than % change in price.

• This concept is useful to understand relationship bet price and D as shown in Fig.

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Cross elasticity of D• It is the responsiveness of the sales of one product to a price

change in another product.• This concept prevails in both cons and Ind mrktng but has a far

more iompact on ind mrktng strategy.Eg.The D for aluminium is related to prices of wood and steel for doors and window frames as they are close substitutes.

• Other ex.prices of steel impact use of plastics as alt packing materials in ind mrkts. Purchase decisions in construction of houses,commercial offices,factories,hotels,hospitals,etc.get influenced by cost comparison of Al with steel and wooden door and window frames,alongwith other advs of Al.

• So,Al extrusion Co’s regularly keep following costs of steel & wood & advertise benefits of Al use in lower maintenance cost,elegant looks,environ friendliness etc.Therefore imp of cross elasticity

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Mrktng implications of derived D of ind goods

• 1.Understand changes in prices of substitute products and how it influences their D

• 2.Anticipate increase or decrease in D for their products based on changes in D for their customers’ products.

• 3.Ind mrktng is more complex than consumer mrktng and success depends on understanding complexities involved.

• 4.Ind mrktng stategy has Co wide implications and is therefore more of a general mgmnt function affecting various functions and DMU comes into play and Group decisions imp.

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Ch 2.Understand ind mrkts & environ

• 1.Types of ind customers as well as goods & services

• 2.Mrktng implications of diff types of customers & products

• 3.Understand purchasing practices of ind customers.

• 4.Know types of environ.their influence on ind orgnsn and its strategies available to manage the environ.

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Types of ind customers

• 1.commercial enterprises

• 2.Govt customers

• 3.Institutional customers

• 4.cooperative societies

• See ex in TP

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Chapter 3 nature of ind buying and buy behaviour

• Learning objectives• 1.understand organisational buying objectives• 2.to gain knowledge of organisational buying

activities,including different phases in the buying decision process and the types of buying situations

• 3.to identify members of DMU or buy center• 4.to understand some of the models of org

buying behaviour• 5.to know how org buyers choose and evaluate

suppliers

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Purchasing objectives• Purchase/matla mgmnt objective is “buying the right items in the

right quantity,at the right price,for delivery at the right time and place”.What is right is to be decided by the buyer.

• Objectives• 1,delivery/availability-reliability in delivery very critical• 2.product quality-consistent with specification and use of product. It

reduces cost of inspection,interruptions in production process due to rejectionsand arranging replacement of rejected materials

• 3.Lowest price consistent with quality and availability • 4,Services-Includes prompt and accurate info,application or

technical assistance,spare parts availability.repairs and maintenance capabilityand training if required.

• 5.Supplier relationship

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Personal objectives of members of dmu

• Higher status• Job security• Salary increments• Promotions• Social considerations like friendship,mutually

beneficial relationships,and personal favors• All these also need to be fulfilled by industrial

marketers in addition to org onjectives.

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Buy phases in ind buying decision process-logical sequence

• 1.Recognition of a problem or need• 2.determination of the applicationor characteristics and quantity of

needed product• 3,development of specificationsor description of needed product• 4.Search for and qualification of potential suppliers• 5.Obtaining and analysing supplier proposals• 6.Evaluation of proposals and selection of suppliers• 7.selection of an order routine• 8.Performance feedback and post putchase evaluation• In consumer mrkts, consumers make buy decisions based on

mental stages such as problem or need recognition,information search,evaluation,purchase decisi

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Chapter4-buyer-seller relationship-learning objectives

• 1.To understand various aspects of buyer and sales rep interaction including perceptions and roles played by them.

• 2.To know the major factors which influence buyer-deller relationship

• 3.to know the methods used by ind mrkters or sellers to in fluence ind customers or buyers such as sales presentation and negotiation

• 4.To understand the special dealings bet buyers and sellers such as reciprocity,and dealing with customers’ customers ,importance of customr service .

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Buying situations-a case study

• A professional purchasing agent’s decision process is more elaborate when greater risk is involved.How would a purchasing agent be likely to behave in each of the following buying situations?

• For each situation,how likely is the buyer to get other people in the organisation involved?

• Which situation is likely to take the most time for the buyer to reach a decision?

• Which situation is a new task,which is a modified rebuy,and which is a straight rebuy?

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Buying situation case----

• A, The agent needs to purchase a custom-designed machine to manufacture steering columns for vehicles

• B.The agent is purchasing brake systems from a regular supplier.The buyer has bought brake systems from this supplier before.

• C.The agent is purchasing improved and updated mother boards for PC’s from a recognised and well-respected supplier. However this supplier did not supply the current mother boards.

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Dealing with a buying center-a case study

• You are the leader of a sales team for an industrial seller of rubber hoses.Next week, you are scheduled to meet with the buying team for Maruti –suzuki ltd.

• You have observed the following buyer behaviour on the part of the members of the buying team.

• Ajay kulkarni,the production manager-CRITICAL,PICKY,SERIOUS,ORDERLY,EXACTING,PERSISTENT.

• Sunil Deshmukh-the finance manager—• PUSHY,TOUGH,DOMINATING,EFFICIENT,DECISIVE,PRACTICAL• Dimple jones,the engineering manager—• SUPPORTIVE,RESPECTFUL,DEPENDABLE,AGREEABLE,CONFERRING

,PLIABLE.• Anand Mehta,the managing director-• ENTHUSIASTIC,EGOTISTICAL,AMBITIOUS,EXCITABLE,DRAMATIC,UN

DISCIPLINED.• Prepare a sales strategy for dealing with each member of maruti’s buying

team.Make nrcessary assumptions.

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Buyer-seller relationship-based on 2 factors-content of info and style

of exchange• Successful interaction is said to take place when

buyer and seller are compatible both in content and style.

• Content include;product features,prices,services• Style of interaction includes mannerisms and the

format used by a buyer and the seller in their interaction.

• 3 styles of interaction-1,task oriented,2.interaction oriented(social ,personal interactions),3.self oriented (pre occupied with one’s self interest)

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Buyer-seller interactions---

• It is a dyadic (two persons) interaction consisting of interaction bet buyer and seller.

• The transaction oriented buyer-seller interaction focuses on pre-sales activities and during sales activities and not on post-sales activities,The personal and organizational needs of both become the starting point of their interaction.

• Transaction based buyer-seller interactions help in creating new customers. Relationship marketing helps in retaining customers which is very important today.

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Relationship mrktng -Barry and Parasuram’s 3 approaches for

strong bond• Is the task of creating strong customer bond or loyalty• 1.Add financial benefits to the customer relationship.Ex give volume

discounts,reward with free spare part kit .These benefits can be copied and can’t become permanent differentiators

• 2.Give social benefits in addition to financial benefits. Learn buyers’ individual needs and wants and then individualise the services offered. eg. Use problem-solving language, include personal problem solving like travel and hotel booking needs etc.

• 3.Add structural ties to financial and social benefits like supplying special equipment or service ,offering training to customers’ maintenance engineers etc.

• Transaction mrktng focuses on closing a sale with a customer by a single sales person while relationship mrktng ,for large customrs Co’s move to team selling or relationship mrktng.to solve product or process related problems.

• RM focuses on managing customers. This is effective only with imp and high sales potential Acs who value good service. Decide whom to give TM and whom RM.

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Methods used to influence ind customers

• 1sales presentation 2 negotiation• 1 sales presentation-plan to find (a),who are potential Acs, (b),get

info on buying center members and © identify needs or problems of potential Acs.

• Tailor sales presentation to fit needs and expectations of Ac• Present first positive points of product,service and Co,Keep difficult

or negative points and price,payment terms etc towards the end.• Two-sided discussions effective to anticipate and negate the effects

of counter arguments.• In a competitive situation, show the buyer how our product is of

greater value than competitors.• At the end conclude and point out advantages and how they meet

customer needs to help buyer make-up his mind .• Make many sales calls over a long period to convince.• Use emotional appeals where useful;”be Indian,buy Indian”to

counter multi nationals

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2.negotiation-a process to maximise the benefit to both buyer and seller with

a long term relationship

• How to negotiate with ind buyers?• PURPOSE• collect relevant info• build an environment of trust and confidence

before.• styles of negotiation- win-win, win- lose, lose-

win, and lose-lose.are 4 styles.

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To handle “I win –u lose”customer.objective is to

increase mutual respect,change to w-w

• Tough demands/ridiculous offers

• No authority to make concessions

• Raise voices/emotional outbursts

• Don’t reciprocate concessions/stingy

• Ignore deadlines/act as if time is of no significance to them.

• Take up equally tough/strong position and present a clear but unemotional opposition to their demand

• Seek info on why they hold their position,explain why u hold ur position

• Stress the consequences of failure to resolve the issue

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Win-win style for long term healthy relations & mutual satisfaction

• Build trust & confidence,Be humble& polite• Identify problem initially rather than

solution, Agree on general statement of problem.

• Emphasise on “end-results” or needs rather than “means”

• Work together, pool resources, ideas and share info to solve the problem stated earlier.

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Win-win----

• Regular frequency of concessions (and not the size of concessions) that is conducive to this style.

• Avoid defensive posture. Be amenable (that is responsive to correction).

• If possible avoid legalistic or contractual approach.

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To handle “I win u lose” customers

• Marketing persons sometimes use this style of “I lose u win” with highly demanding cost-conscious Acs. who feel satisfied if they have driven the buyer to lose in the bargain.

• Once such approach of ind customer is known, seller creates an environment, at final stage of negotiation, that he has lost in the deal (though actually he gained) but he is accepting the terms in view of long term business relation.

• Actual situation is “both of us win” though impression given is “u win ,I lose”

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Both of us lose—adopted by unskilled negotiators or have

philosophy of war• To avoid, maintain an adult mental attitude

which in TA language means-a well-balanced, unemotional, factual attitude to other party if other party provokes u with a “child-like” emotional & immature behavior or parental, judgemental and bossy behavior.

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Important points in negotiation• PREPARE AND PLAN FOR NEGOTIATION• OPENING-BE WARM AND POSITIVE• EXPLORING• BIDDING-remember only proposals can be negotiated, If want to

argue against customer proposal, do so logically and calmly,• Aim high with ur proposal and make concessions slowly and in

small amounts.• Listen carefully, the weakest party will usually make the first

concession• If in doubt, use the power of ‘recess’. Search as many variables as u

can and use these to get more concessions• When u conclude, check what u have both agreed and ratify or

confirm by signing it.

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Ch 6.ind mrkt segmentation,target mrktng and positioning

• STP decision is an imp strategic or long term mrktng decision.

• It is a strategy used by ind mrktr to achieve objectives.• LEARNING OBJECTIVES• 1,to know segmentation, benefits, limitations

requirements and methods of effective S.• 2To identify bases or variables used in segmenting ind

mrkts.• 3.To evaluate the potential segments• 4.to learn to select the TMS and target market strategies• To learn to develop effective positioning strategies.

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Stp frame work see TP

• Procedure followed for mrkt segmentation-3 steps

• 1.Marketing research

• 2.Analysis to identify segments

• 3.Profile or outline of segments

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Segmentation procedure-1.marktng research

• 1.secondary research first-info on mrkts from Co’s past data,on-line data bases,data available on CD-ROMs,diskettes and magnetic tapes,library scanning,or the industry association

• 2.No need to do prmary data collection if secondary data enough to analyse and identify mrkt segments.

• 3.Do descriptive research or mrkt survey for collecting info on existing and potential ind buyers,on---MAJOR PURCHASING ATTRIBUTES OR FACTORS CONSIDERED BY BUYERS,BUYERS’PRESENT & FUTUREREQUIREMENTS AND PURCHASING POLICIES,COMPETITORS’ INFO SUCH AS CUSTOMERS’ PERCEPTION OF COMPETITORS’ RATING ON MAJOR PURCHASING ATTRIBUTES ,NO OF COMPETITORS,THEIR MRKT SHARE,POLICIES ON PRICING,PAYMENT TERMS,AFTER SALES SERVICE,DISTRIBUTION AND PROMOTION,BUY BEHAVIOUR OF BUYERS,BUYING PHASES AND BUYING SITUATIONS.

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2,ANALYSIS-FOR MRKT SEGMENTATION

• ANALYSE THE PRIMARY AND SECONDARY DATA USING STATISTICAL TECHNIQUES SUCH AS FACTOR ANALYSIS AND CLUSTER ANALYSIS-Factor analysis is used to remove highly correlated variables.

• Do cluster analysis then to identify different segments that are mutually exclusive and at the same time each segment is homogeneous.

• A part of this analysis is later used to evaluate the segments and for positioning.

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3-profiling for segmentation---

• Each segment is now profiled or outlined by its specific characteristics such as application of the product,volume of requirement(large,medium or low),location,type of industry,purchasing policies,major purchasing attributes,buyers’ personal characteristics,and buying behaviour.

• Do STP periodically once in 2-3 yrs since customer needs and evnviron both change with time.

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Criteria used for selecting segmentation variables

• 1,measurable—ex for steel tubes variable used is END USERS,such as bicycles,2 wheelers,furniture,boilers,bus-body builders etc.Info on sales potential,product needs,type of buying situation,and buying practices is available for the diff end user industries-info both by desk and primary research.

• 2.Differentiable.Segments should be different and respond differently to separate mrktng plansor strategies

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Criteria for segmenting---3substantial

• The segment should be large enough in sales potential and profits.To make a separate marktng plan or strategy justified.

• If u use Co size as segmentation variable,an electric motor Co can select large and medium sized customers as target mrkts.

• Purpose of segmenting is to optimally utilise available resources to maximise ROI.

• IDENTIFYING BASES-MACRO &MICRO –SEE TP

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TARGET MARKETING-EVALUATING AND SELECTING

THE TARGETS• 4 CRITERIA• 1SIZE AND GROWTH-by demand forecasting methods long

term.usually by customer by customer analysis,taking into account competition

• 2.PROFITABILITY ANALYSIS-(a)quantity and value of mrkt potential during a period,(b),sales forecast based on Co’s share out of the mrkt potential during the same period,and ©,profitability-the diff bet the revenue and the total cost of servicing and maintaining the customers in the same period.

• 3.COMPETITIVE ANALYSIS4.Co objectives and resources carryout SWOT analysis of all current and potential competitors-both domestic and foreign.-on each segment in Mnfng,R&D,Finance,Tech Service,Product Q,Dely ,Sales forc e,Adsvtng,Distrbn,Technology,and Org/mgmnt reputation.

• 4.Co objectives and Resources.Segment selected should be in line with Co’s long term objectives.Key success factors of each segment to becompared with Co’s ability to create SDA.

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Simple matrix system for selecting markt segments--seeTP

• SELECTING THE TARGET SEGMENTS• Use either advanced computerised systems

called DSS(decision Support Systems)or simple matrix systems(SMS)

• The mrktng manager of precision steel tube co selected 2 segment-automotive 2,3 and 4 wheelers and bicycle manufacturers,These 2 have large size,average to high growth rate,good profitability,less competition,and compatibility with co’s long term product-mrkt strategy.

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Target –market strategy-select out of 3 broad strategies-

• 1focussed or concentrated marketing-all mrktng efforts on a single or a few carefully defined segments.Result is a somewhat narrow range of product/service accompanied by high quality,high price,and highly selective promotional and distribution strategies.Usually done by a Co with limited resources,Slowly reputation and share of business increases

• Ex.A matl handling equipment mafrer concentrated on customers close to mfg unit to give superior pre and post sale service than competitors

• Risks—mrkt potential in chosen segment may decline,a large competitor may invade the selected segment,Therfore good to concentrate on more than one segment.

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2 differentiated mrktng• Here the ind firm decides to target several mrkt segments whose

needs,product usages,or mrkt responses are different from each other.

• Serve some and avoid other segments.• Develops separate mrktng strategies/plans for each chosen

segment• All costs increase ,but objective is to achieve higher sales volume

and a stronger position in each chosen segment.• Differentiated strategy leads to higher sales and higher costs. But

avoid over segmentation.• EX.Electric motor division of a large multi product Co decided to

enter 3 segments-OEM’s,large users and dealers for small users.Different pricing promotion and distribution strategies were developed for each.The previously used undifferentiated strategy was giving lower sales and profits and hence this change for improvement.

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Ex of 3 strategies

• 1.Undifferentiated strategy

• CMS---------WHOLE MARKET

• 2.Differentiated strategy

• CMS1-------MS1;CMS2-----MS2;-------CMS3----MS3 etc.

• 3.Concentrated marketing strategy

• CMS-----MS2

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3.Undifferentiated marketing

• Means lack of effective markt segmentation since the co ignores segment differences and develops a single mrktg plan for all segments.

• Reason ;either lack of analysis or a conscious strategic decision due to standardised products or services sold to a mrkt where there is a lack of meaningful differentiation among customers.

• ADVANTAGES• TOTAL COST LOW;ADV MR, INVENTORY ,PRODN.• But in competitive mrkts,if competitors follow

differentiated strategies,,even if products are similar,ind mrkertr should use other elements of marketing mix such as price,distrbn and promotion to differentiate them from competition..

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Criteria in choosing target market strategy

• 1.If the Co ‘s resources are limited,choose concentrated marketing strategy,

• 2.if a new product is in the introduction stage of the PLC,a firm can follow either concentrated or undifferentiated marketing strategy.for growth and maturity stages of PLC,differentiated mrktng is sensible,

• 3.If major competitors follow differentiated strategy,the ind marketer must also follow the same strategy. If competitors use undifferentiated strategy,a co will gain by using either differentiated or concentrated marketing strategy.

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Niche marketing strategy

• Mrkt segments are large customer groups in a mrkt.• A niche is a more narrowly defined customer group,that seeks

products or services tailored specially to the individual needs and preferences

• To succeed in a competitive mrkt, Niching is increasingly practiced• Objective is to reach potentially unsatisfied mrkts more effectively

and profitably than competitors.• It is a selective approach to markets to find a niche where co’s

strengths are best matched with customers’ needs.• Ex.an ad agency concentrating on ads for public issues.to meet its

profitability objective in a highly competitive advertising field.• Another ex is a co focussing its services on tailoring its training

programs to suit the needs of each of its industrial customers.

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Pre requisites for niche mrktng

• Do MR to identify the different and complex set of needs of small customer group

• Niche acs are willing to pay a premium price for satisfying spl needs.therefore profitable.

• Competition finds it difficult to attack a nicher.• In a mature mrkt,a firm should be in TOP 3 in the

industry with high volume and low cost or be a nicher to achieve profits.

• The key idea in niche mrktng is ‘specialisation’that can be achieved in several ways

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Several ways of achieving specialisation in niche strategies

• 1.geographic specialisation-some UPS makers market products locally.

• 2,end-user specialisation-IIM’s giving high Q mgmnt education to students interested in mgmnt post graduation.

• 3.customer size specialisation-small firms prefer small size customers and large firms choosing to serve large customers.

• 4.product line specialisation-a co produces only one product line.Ex in lighting industry,a small scale firm specialises in producing fittings for fluorescent tubes required by commercial firms.

• 5.customer specialisation-to one or a few major customers, auto component vendors sell their entire production to either TVS SUZUKI or HERO HONDA or escorts –Yamaha 2 wheeler manufacturers.

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Pros and cons of niche strategy

• Major adv is high profits.• Major disadv is the demand of niche mrkt

may decline or a large competitor may attack the niche market

• Generally smaller firms follow niche(small)mrkt strategy

• Larger and new firms increasingly adopt niching strategy by concentrating on multiple niche mrkts.

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Positioning-after selecting target mrkt,decide PS for each TM

• Ps should clearly differentiate the Co and its products or services from that of the competitors.

• Positioning is defined as the distinct place a product or service occupies in the minds of the target customers relative to competing products or services.

• Positioning is how the firm wants its products or services to be percieved by the target customers on important attributes or benefits.

• exInfosis technologies positioned as a leading software co in india, L&T as a leading engineering Co in India,and Tata positioned with bassociations of quality in the minds of customers.

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Developing a positioning strategy-steps to follow

• 1.Identify target customers’ needs in terms of major attributes or benefits while buying a product or service.By conducting MR to find out differentiating attributes.

• 2.Select one or more major attributes or benefits for differentiation ,based on Co’s strengths or distinctive competencies

• 3.Communicate the Co’s positioning to the target mrkt.

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Identifying major attributes for differentiating

• 1what major factors or attributes target customers consider imp while making buying decisions?

• 2.Find out customers’ perceptions regarding the various competing products with respect to the major or imp attributes.

• 3 variables used by ind mrkter to differentiate are---(1)product variables,(2)Service variables,(3) Personnel variables and (4) Image variables

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Product and service variables

• 1,product;For ind products variations in features can be very little,but product Q or Performance can be used to differentiate;Ex ISO 9000certification is useful tool to differentiate on superior Q,

• Std features and optional features .Offer where possible optional features in addn to std as differentiators.Ex.A matl handling equipment sulplier in addn to std pallet trucks,can offer extra attachment for stacking matl upto 8-10 feet.This is a spl design and hence a differentiator since others don’t.

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• Service variables;Offer superior pre-sales(solving customer problems),During-sales services(on-time dely),and after-sales services(repair service).Service variables become key competitive adv when products offered arte similar.

• Personnel variables.Recruiting better people and training them at various levels is a key differentiators in Cos like Infosis,TISCO etc.

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Image variables-image is the buyers percieve a co.

• A Co designs its identity building programs to build or shape the buyers’ image.

• When competing offers from various firms are similar,buying firm responds favorably to supplier with a good image.eg Tata Group.

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Selecting the differentiating attributes –how many and which?

• 1.many Co’s select one benefit or attribute—”best Q’’,”best service”,”most advanced technology”

• 2.Some Co’s believe in double benefit positioning and a few in triple benefits.

• J&KTyres positioned itself by promoting multiple variables such as “no 1 in car radial Tyres”, “No 1 in Quality” “No 1 in R&D”, “No 1 in Technology”, “No 1 in Rallies”and “No 1 in Exports”

• Compaq had promoted single-benefit positioning,viz. “Better answers”It positioned that it can develop better solutions to business problems than any other Co and gave several examples as a proof of ots claim.

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3 imp considerations in developing PS thro MR

• 1which are the most imp attributes ,in the order of priority that target customers consider while deciding to place orders for a product or service?

• 2.How do the target customers percieve the Co’s product or service WRT the imp attributes?

• 3.How do the target costomers perceive the competitors’ products or services WRT the same attributes?

• Then conduct a statistical analysis leading to a technique called ‘perceptual map’that helps the ind marketer to decide on the PS.---

• See TP

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2-dimensional perceptual map for Co A vis a vis Cos B , C and D see

TP,

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Communicating the Co’s positioning

• Not only develop a PS but also need to communicate same to TMS• In consumer mrkts,PS is communicated thro advertising.• In ind mrkts,Ps is communicated thro (a)personal selling(by sales

force), (b),sales promotion(exhibition or trade shows) and © advertising(in technical or trade journals)

• If a business firm chooses “best quality “or “world class quality” as the PS,all elements of mrktg should communicate quality.

• Implementation of TQM is imp so that all activities such as submission of quotes,sales presentations,negotiations,packing, despatch,installations and after sales service display a superior quality in comparison to that of competitors.

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Ch7-product strategy and new product development

• Learning objectives• 1 to define an industrial product• 2.to understand changes in the product strategy• 3.to know PLC theory and its application to

mrktng strategy• 4.to learn how to develop product strategies for

existing products• 5.to learn managing innovation and new ind

product development.• 6.to understand mrktng strategies for ind or

business services.

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2 major objectives for developing product strategies

• 1. to ensure that the product mix ie various products marketed by the co is in line with overall co & mrktng objectives

• 2.to evolve guidelines for reviewing the performance of the existing products by using factors such as sales,profits,competition and customer acceptance.

• 3.decide product strategies based on the above,• (a)Which of the existing products should be continued,or

modified or dropped• (b) Which new products need to be developed• Let us first define an industrial product

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Definition of an ind product• It is not only a phisical entity but also a complex set of

economic(price),technical(product specs),legal(if supplier delays delivery) and (d) personal relationships(trust) between the customer and the supplier.

• What is a product from customer pt of view? Basic plus enhanced plus augmented properties

• Basic product is properties included in the generic product with fundamental benefits sought by customers

• Generic products are made differentiable by adding tangible enhanced properties such as product features ,styling and quality .

• The augmented properties include intangible benefits such as technical assistance,availability of spare parts,maintenance and repair services ,warranties,training,timely delivery ,attractive commercial/ payment terms.

• AN IND PRODUCT IS A TOTAL PACKAGE-EX CUMMINS LTD.

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CUMMINS LTD –TOTAL PACKAGE

• In addition to excellent quality diesel engines,Co gives its customers intangible benefits like

• Availability of spare parts• Technical assistance• Training and so on• These are all augmented properties in addn ro tangible

enhanced properties likeless noise level,simple or easy operation etc.

• Cummins’s product strategy is successful because it understood customers’ perceptions and offered both tangible and intangible benefits superior to competitors.

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Changes in product strategyproduct strategy is flexible &

dynamic• In ind mrktng product is a variable because of changes

in • Customer needs—increasing cost of land used for

storing raw and finished goods lead to vertical stacking of materials from 2 meters to 6 meters height to save space and money.

• Technology—jelly-filled telecom cables replaced by fiber optic telecom cables.Many firms changed from main frame to personal computers.

• Govt policies or laws—liberalisation and globalisation in 1991 opened up new opportunities.

• PLC-drop,modify or develop new products when existing products reach maturity or decline stages.

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Ind product PLC used to determine maktng strategy

• See TP

• At the dividing line bet growth and maturity profit is at its peak.at maturity stage profits fall.

• Behaviour of PLC depends on 3 factors over which firm has no control.(1)changing needs of customers (2)changes in technology (3)changing competition

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Understanding mrktsand

managing markts effectively,efficiently to be

successfulhow to do this?

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What are markets?

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• Mrkts are prospects,customers and consumers with unfulfilled needs,with a desire to fulfill the same and

• An ability to buy and willingness to buy,• An ability to pay& willingness to pay and a

willingness to be loyal as long as the marketer’s offer is perceived to be of far higher value than those of all substitute and competitive offers

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What is mrktng?

79

• Marktg is a continuous and proactive process of creating, nurturing and retaining a loyal customer base and helping them perceive that the co’s offer is far superior to those of all current and future substitute and competitive offers

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Purpose of any business-what is it?

81

• Because it’s purpose is to create a customer,a business has two and only two basic functions; marktg and innovation. Mrktg and innovation produce results; all the rest are costs.

• Mrktng is too important to leave to a mrktng department. Mrktng is so basic that it cannot be considered to be a separate function.it is the whole business seen from the point of view of its final result, that is ,from the customer’s point of view,

• Peter F Drucker’

• Concept of internal and external customers

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Types of business orientations-what philosophy guides your

business?• The producttion concept or orientation• The product concept or orientation• The selling concept or orientation• The marketing concept or orientation

• What are the differences?what are the implications?

• The elephantine electronics co case

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Elephantine case

• The engineering manager of this co one day concieved of a new computer terminal that would do every thing but peel potatoes- a slight exaggeration perhaps ,but the concept was a widely applicable, broadly compatible device.

• Since the manager enjoyed excellent rapport with the firm’s general manager,who was also an engineer,it was easy to convince the GM of the merit of the idea, and a product development program was vigorously undertaken.

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Elephantine-----

• When the prototype was complete and functionally proven,a production line was set up and manufacturing was begun. About this time,the sales manager and his sales force were called in for a product presentation. After the new device was explained and demonstrated, they were told to ”go,sell it”.

• SInce the new production line was capable of producing 500 units a month, this was established as average sales goal .The sales manager and the sales force went optimistically forth into the market, but 6 months later reported back to the general management that they were unable to move this wonderful new product in any thing approaching the target volume.

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Ele---contd

• After firing the sales manager, the gm and the engg mgr commisserated with one another about the incompetence of sales people who couldn’t sell a product that is obviously superior to anything else available and right for the markt.

• Neither of them knew quite where the mrkt was or who it was,and unforttunately even the ex sales mngr hadn’t known either.Since the mountain wouldn’t come to Mohemmad and Mohemmad didn’t know where the mountain was, so he could go to it, a lot of time and money were wasted for practically nothing.

• It was certainly too bad Elephantine was so unlucky, because,when the product design was eventually sold to Whiz-Bang computer co, it was a roaring success.

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Elephantine----Discussion questions

• 1.Does ur group think Elephantine was really unlucky? Why? Why not?

• 2.What do u think whiz-bang did to make it a roaring success? Step by step process or activities?

• 3.What is wrong with Elephantine?What is right, If any?• 4.What concept or philosophy drove Elephantine

mngmnt? Whiz-bang mngmnt?• 5.Do u think Ele– learnt any mrktng lessons? What

mrktng lessons did u learn? What is the moral of the story?

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Mrktng fundamentals

• Mrktng is ---• A rouge function---• Salesmen are cheats---they push you into buying things

that you don’t want• Advertising is a bunch of lies• Mrktng is a sheer waste. Goods cost us much less if we

don’t promote them and advertise.• Inshort, life wd be better off without this function.

• Do we agree with this? If so why? If not why not?

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Finally what is mrktg?

• It is a function• It is a process• It is a concept• It deals with understanding mrkts,effectively and

efficiently managing the same and continuously measuring the success through monitoring continuous profitable growth in sales volume,markt share,profit,customer nos and brand loyltycompared to all competitors.

• What attitudes,knowledge,skills and behaviour does mrktg need to be effective?

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Characteristics of market-oriented companies

• 1.have clear market objectives • strategic intent• Ambitious mrkt share,positioning goals

• 2.segment their mrkts• Identify growth opportunities• Tailor strategies to segments

• 3.understand customers’existing and potential needs• Get close to customers• Focus on solutions, not products

• 4create competencies to match opportunities• Develop capabilities• Integrate functions and resoutces around this task.

• 5.build competitive advantage• Beating competition• Sustainable advantages via branding and continuous improvement

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• Beating competition• Sustainable advantages via branding and continuous improvement

• 6.recognise environment changes• Existing strategies erode• Priorities to change and innovation

• 7.customer-focussed organisation• Inverting and flattening the pyramid• Prioritising service providers• Lower costs-faster response—greater motivation

• 8.monitor and bench mark customer satisfaction• Quantitative research systems• Indepth research.

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Formulating a mrktng plan• 1.situational assessment• Current performance• Background analysis• Trends and projections• Opportunity and issue analysis

• 2.objectives• Marketing• Financial• Human

• 3.positioning strategy• A.tarjet market segment(s)• B.differential advantage

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Mrktng plan

• 4.marketing mix• A.product• B.price• C.promotion• D.place

• 5 action programs

• 6.organisation and control & Recruitment of talent

• 7,budjet & Control systems in implementation.

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Key tasks of mrktg mgmt• 1.Understand broad mrkts&segment• 2.Carry out environment analysis• 3.Set goals and objectives• 4.Develop positioning strategies• A)select target mrkt segments—a.broad market b.identify bases for

segmentation c.develop profiles of segments d.measure segments’attractiveness

• B).create a differential advantage a.identify benefits sought b.measure competitor positioning c.create reason for preference

• 5.Develop appropriate mrktg mix a.product b.price c.place d.promotion

• 6.Action programs• 7.Create organisation structure &Recruit Appropriate talent• 8.Budjets and controls and implementation• 9.Learnings

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TMS DA

The essence Of marketing

Functional

Value

Self image

Availability

Service

Risk Avers ness

Product

Price

Advertising

Distribution

Servicing

Guarantees

Customer Wants Marketing MIX Variables

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• 1product• Quality-features—options—style—brand name—packaging—sizes

—services—warranties—returns• 2price• List price—discounts—allowances—payment period—credit terms• 3place• Channels—coverage—locations—inventory—transport• 4.promotion• Advertising—personal selling—sales promotion—public relations

• All addressed at target market segment

Marketing Mix

Product

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Characteristics of mrkt –oriented co’s

1have clear mrkt objectives-----have strategic intent------

have ambitious markt share and positioning goals

2segment their markets---------------identify growth opportunities-------

tailor strategiesto segments3understand customers’existing and

potentialneedsGet close to customres

Focus on solutions,not products

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Characteristics of mrkt oriented co’s

• 4.Create competencies to match opportunities

• Develop capabilities• Integrate functions and resources around

this task• 5.Build competitive advantage• Beating competition• Sustainable advantages via branding and

continuous improvement

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Charactiristics of---

• 6.Recognise environment changes• Existing strategies erode• Priorities to change and innovation

• 7. Customer-focussed organisation• Inverting and flattening the pyramid• Prioritising service providers

• 8.Monitor and bench mark customer satisfaction• Quantitative research systems• In-depth research

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The strategy of a modern airlines

• In the olden days, airlines didn’t segment their markets.It soon became clear that passengers differ in their expectations. Business travellers value convenience, comfort and service,while,leisure travellers were more interested in lower price,

• A carrier flying from London to New York, using a 300 seater plane and anticipating an average load factor of 80%, if it pursues an un-differentiated strategy-one class plane-the management can charge a highest price of $250 TO AChIEVE A 80% OCCUPANCY RATE.The variable cost for the airlines was $20 per passenger and the fixed cost is $50,000per flight.

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Airlines----contd• However to the mrktng mgmnt,it is obvious that while a price of

$250 already begins to lose the business of low budget travellers,business people and the more affluent people would be willing to pay much more for superior service and comfort.

• The result was that the airlines moved to the differentiated strategy whereby they offered 3 levels of service on the plane;economy,business and first class at very different price levels.

• To get the same 80%occupancy level,the prices are respectively $250,500,and 1000 per passenger while the variable costs are$20,40 and 100 per passenger. It is estimated that the fixed cost would go up by 10% to accommodate the changes in the aircraft to provide the desired comfort to the upper 2 classes, each of them taking 50% of the additional amount.It is also estimated that the business class pssengers wd be 3 times the number of first class and economy passengers wd be double the business class occupants at 80% plane loading factor.

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Airline---contd.• The consequences are to massively enhance the revenue and the profitability for the

airlines.In addition,the strategy better meets the needs of all customers by offering the values that the particular type of passenger prioritises

• And this example of airline segmentationis exactly analogous to the strategies pursued by most of the sophisticated cos of today!

• You are requested to calculate the profits,the profitability, the revenues and the costs incurred in both the strategies,for the full plane,for each class and per passenger in each class, assuming in both cases the plane is 80%loaded.Pl find the break even point in both.

• Discussion q’s• 1List all benefits of segmentation to all stakeholders of the airlines• 2Who all could be the beneficiaries• 3Do u think any segment is subsidising for any other segment? If so who to whom? If

not,why not?What do u understand by absolute satisfaction and relative satisfaction?Do u think that there is a possibility that any cass may feel relatively dissatisfied although absolutely satisfied, When wd that happen? How wd mgmnt prevent it?

• 4When can segmentation go wrong?How to avoid segmentation from going wrong?What precautions to take?

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What is your position?are we positioned correctly?

• A manufacturer of industrial cutting equipment was concerned about its poor market share and wondered whether its prices were the problem.

• It undertook a markt research study which identified the product and service attributes most desired by customers and evaluated how its product “ X “ & its key competitors were rated in tablebelow on a 1to 6 scale where 1 is lowest and 6 is highest.

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Table assessing price & value competitiveness

Importance wt

Quality dimensions

Competitors

a b c x

35% Precision 6 5 4 6

25% reliability 6 6 3 4

15% durability 5 3 2 5

20% service 5 3 5 1

5% Delivery 2 5 5 5

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weightedscore

A

5.5

B

4.6

C

3.7

X

4,3

Actual prices

29 K 21 K 15 K 22 K

Mrkt share%

27 45 20 8

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1.What is the problem of x In marktng jargon?

• 2.how do you solve? What srategy do u recommend? Why?

• 3. What alternates can be considered by X? Why should they be dropped?

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How to take positions? - 2 waysbased on Quality&price conscious

markets• QUALITY-CONSCIOUS MARKTS-steps• 1.find out quality dimensions,relative importance

between them and assess performance of all current players on each dimension

• 2.If there is a gap between expectations and performance tae a position

• 3. fill the position by offering the highest value than the average value provider as well as the best value provider so that no one will find a gap in value to replace u in future.

• 4 constantly monitor and defend this position thro innovation.

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Price conscious customers/markts---how to take

positions• 1.find out what price are the markets willing to

pay?• 2.find out what quality are they willing to accept

for the price they are willing to pay• 3.find put a gap if any where u can offer a higher

value for the price they are willing to pay –better than the average value privider as well as the highest value provider in the markt.

• 4defend and protect .

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Concepts of cost,price,revenue,value &

quality.how are they connected?• Adi godrej said,when asked what is important,top line or

bottom line?• REVENUE IS (read sales) vanity,PROFIT IS SANITY

and cash is reality.Cost is a fact & Value is a perception.• Value is benefit divided by price • Customer delivered value=total customer benefits(TCB)-

total customer costs(TCC).• TCB=Product benefits+Service benefits+personnel

benefits +image benefits• TCC=monetory cost+Time cost+energy cost+psychic

cost

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Quality is 2 types –Quality of conformance & quality of

performance• QUALITY OF CONFORMANCE-consistently meeting specifications

laid down batch after batch/supply after supply.—at any agreed level of quality

• Performance as per promise.supplier commits to buyer a certain level of quality features,prices and performance and delivers in practice what was promised.

• QUALITY OF PERFORMANCE-this has got to do with the level of quality Certain products promise and perform at higher level of quality and certain other products promise and perform at a lower level of quality.

• EXAMPLE.Which product has a higher quality of performance,Mercedes Benz? Or Maruti 800? Answer is the former.

• Which of the above 2 products has a higher quality of conformance/ Answer is both can have the same level or one can have a higher or loer level than the other depending on the actual percetved performance over a period of time.

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Cdv=tcb-tcc

• Compare the customer deliverd value of any 2 brands fighting with each other in the same TMS/

• Compare cdv of kinetic Honda to ladies with cdv of Hero Honda to male Youth. Which one is greater?

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Caterpiller VS komatsu how to price caterpiller’s buldozer?

• Cost to make =$30k

• Perceived worth of customers=$100k

• Added value=$70k

• Pricing options—A.Share equally,P=$65k.—B.take a higher share,P=$80k—C.Take a smaller share,

• P=$50k.

• How to decide what strategy to follow.?

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Caterpiller ‘s price strategy depends on

• 1.the Co’s goals/ambitions• 2.the competitive factors and• 3. the customers value perceptions• If the co wanta a short run high return,and

doesn’t mind losing competitive entry, price it high.

• If the co’s interest is to gain a high markt share quickly and protect it over a long term,go for a low price but a longer pay-back.

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Cdv concept of buyer decision making and its use for seller

• 3ways• 1.Caterpiller can increase total customer

value.By improving P,S,P,or I benefits• 2,Caterpiller can reduce the buyers non-

mo0netary costs By lessening the buyer’s time,energy and psychic costs.

• 3.Caterpiller can reduce buyer’s monetory cost,by lowering its price,providing easier terms,of sale,or in the longer term lowering its bulldozer’s operating or maintenance costs.

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Customer value assessment of bulldozer

• Cost of prdn to Caterpiller-$140k• Customer perception of its worth-$200k• Total added value-$60k• PRICING OPTIS• <140k—costs not covered for Caterpiller.• >200k—Customer value exceeded• $160k-20k to • $190k-50k to Caterpiller and 10k to customer.• The lower the caterpiller price,the higher the delivered

value to customer. caterpiller and 40k to customer.

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Total customer satisfaction concept

• Customer satisfaction depends on the product’s performance relative to a buyers’ expectations-

• Short of expectations-dissatisfied• Matches expectations-satisfied• Exceeds expectations-highly satisfied or delighted.• How are expectations formed?• 1,past buying experiences• 2.opinions of friends and associates• 3.marketer and competitors’info and promises• Marketers should set the right level of expectations. Holiday Inn

campaign of ‘NO SURPRISES”ran into hot weather and was withdrawn.Consistent and trouble-free services.”if u aren’t satisfied ur night’s stauy wd be free.Can u defend this ?How do u measure? Can u argue with ur customer? And still maintain a good relation?

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Implementing total quality marketing

• PIMS-Correlation between Relative product quality and profitability

• QUALITY-Fitness for use• Conformance to requirements• Freedom from variation• The tottality of characteristics and features of a

product/service that bear on its ability to satisfy stated or implied needs.Customer-centered def of Q as per American soc for QC.

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Performance q vs conformance Q

• Performance q-Refers to level at which a product peforms its function.Ex Mercedes provides higher performance Q than Volkswagen.Gives a smoother ride,handles better and lasts longer.It is more expensive and sells to upper segment.

• Conformance Q-Refers to freedom from defects and the consistency with which a product delivers a specified level of performance.

• A Mercedes and a Volkswagen offer equivalent conformance Q (each delivers consistently what it promises).

• A $ 50k car that meets all its requirements is a Q car. So is a $15k car that meets all of its requirements.

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Marketing’s role in total Q• 2 roles-• 1.Formulate strategies/policiesto win total Q excellence• 2.Must deliver marketing Q as well as Production Q .Must perform

each mrktng activity –MR,sales training, advertising, customer service and others to high standards.

• ROLES• 1.Correctly identify customer needs & communicate correctly

product design dept.• 2.Fill customer orders correctly on time and ensure customers

receive training in product application• 3.stay in touch with customers after sales to ensure they remain

satisfied.• 4,Gather and convey customer ideas for product and service

improvement to Co departments.

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Ironic research study.• Marketing people responsible for more customer complaints than

any other dept.(35%)• Marketing mistakes;• 1.Sales force orderd spl product features for customers but failed to

notify manufacturing of the same changes• 2.Incorrect order processing resulted in wrong product being made

& shipped • 3,.Customer complaints aren’t properly handled.• Marketers must be• 1. customers’ watch dogs complaining for the customer when

service is not right.• 2.spend time and effort for both external and internal marketing• 3,uphold the std of “giving the customer the best solution”

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The malcolm balridge national quality qward-Q principles applied

by MR firmCRI-custom researchinc• 1.focus on building major customer relationships• 2 organise into cross-functional client-centered

teams to get every one working toward customer satisfaction.

• 3,Develop high Q processes& procedures to get the work done ,then measure the results

• 4.Explicitly ask customers what they expect from a partnering relationship.

• 5.seek customer feed back on individual projects and overall relationship.

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Malcolm---

• 6.Hire the best people and invest ti their development

• 7.Stay flexible,agile fast moving-empower every one in the Co to ‘just do it’

• 8.Have fun with hoopla and recognition

• 9.Build Q continuously

• 10.Never be satisfied.

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Essentials for total Q marketing strategy-W.Edward Deming

• 1.Q is the eyes of the customer.• 2.Q must be reflected not just in the Co’s products but in every Co

activity.• 3.Q requires total employee commitment.• 4.Q requires high Q partners (suppliers)• 5.A Q program can not save a poor product.• 6.Q can always be improved.• 7.Q improvement sometimes in quantum leaps.• 8.Q does not cost more-’do things right the first time’-’Q is not

inspected in; it must be designed in’.These reduce the cost of salvage ,repare and redesign,not to mention losses in customer good will’

• 9.Q may be necessary but may not be sufficient.eg Singapore Air lines-Competitors reduced the percieved Q gap ,so MS reduced for SA.

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Customer loyalty,retention,relationship

marketing• The case of lost customers• Pay attention to ‘customer defection rate’-rate at which they lose

customers—and the steps to reduce it.• 4 ways of doing this• 1.Define and measure its retention rate. For a magazine renewal

rate is a good measure of retention .For a college it could be the 1st to 2nd year retention rate.

• 2.Distinguish causes of customer attrition & identify those that can be managed better .Do something about customers who leave due to poor service ,shoddy products, high prices etc., while nothing could be done about who leave the region or go out of business.

• 3.Estimate how much profit the Co loses when it loses customers. In case of an individual customer, the lost profit is equal to the customer’s life time value (CLTV)-that is the present value of the profit stream if the customer hadn’t defected prematurely.

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Cost of a lost customer• For a group of lost customers ,one transportation carrier estimated

its profit loss as follows.• 1.Co’s accounts-64k• 2.Lost 5% due to poor service this year.• 3.The average lost A/c represented a $40k in revenue per annum.• 4. The Co’s profit margin is 10%.how much is the loss for the Co

this year? How much would it be if the average no. of loyal years is 5 and the inflation in prices is just same as discounting rate for NPV calculation?

• 5.Fgure out how much would it cost to reduce the defectrion rate ? As long as the cost is less than the lost profit the Co should spend the amount to reduce the defection tate.

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Lost custom---

• The cost of attracting a new customer is estimated to be 5 times the cost of keeping a current customer happy.Traditionally we all make sales rather than build relationships, selling and pre selling becoming more important than after sales.

• Today, more Co’s recognise importance of satisfying and retaining current customers . One study indicates co’s can increase profits between 25-85% by reducing customer attrition by 5%.

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Should thios Co add new customers?

• 1.cost of an average sales call-incuding salary,commission,benefits,expenses,incentives etc.--$300

• 2.Av no. of sales calls to convert an average prospect into a customer-4. In fact this doesn’t include advert,promoting,operations,planning etc.

• 3.Co’s estimate of Av customer life time value • Annual customer revenue--$5k• Av no. of loyal years—2• Co profit margin-10%.• Q.Is customer’s LTV higher or lower than the cost of attracting a new

customer?• Q.How will u recommend this Co should do to add new customers?• The Co is clearly spending more than they are worth to attract new

customers.Unless the Co is signing up costomers with (a) fewer calls,(b)spend less per sales call,©stimulate higher new customer annual spending,(d) retain customers longer,(e)sell them higher profit products,the Co is headed for bankruptsy.

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2 ways to strengthen customer retention

• 1.To erect high switching barriers. Switching involves high capital cost, high search cost, the loss of loyal customer discounts and so on.

• 2.Better approach is to deliver high customer satisfaction .Due to this, Lower prices/switching inducements of competitors won’t be attractive enough.

• The task of creating “strong customer loyalty”is called “relationship marketing’—”To know and to serve better” all valued customers.

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The key of relationship marketing

• The customer development process• SUSPECTS----PROSPECTS----DISQUALIFIED PROSPECTS• PROSPECTS• First time customers-may buy from competitors• Repeat costomers-may buy from competitors• Clients-buy only from Co.• Advocates-word of mouth• Partners-work actively together• Every stage of customer can become inactive or EX customer due

to bakruptcy,moving out to other locations,dissatisfaction etc.• Reactivation is a challenge thro customer win back strategies.• It is easier to re attract ex customers than to win new ones.

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Social actions affecting buyer-seller relations-good things

• 1.Initiate +ve phone calls• 2.Make recommendations• 3.Candor in language• 4.Use phone• 5.Show appreciation• 6.Make service suggessions• 7.Use ‘we’ problem-solving language• 8.Get to problems• 9.Use jargon/shorthand• 10.personality problems aired• 11.Talk of our-future together• 12.Routinise responses• 13.Accept responsibility• 14.Plan the future

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Bad things-affecting buyer-seller relation

• 1.Make only call-backs• 2.Make justifications• 3.Accommodative langusge• 4.Use correspondence• 5.Wait for misunderstandings• 6.Wait for service requests• 7.Use ‘owe-us’ legal language• 8.Only respond to problems• 9.Use long-winded comments• 10.Personality problems hidden• 11.Talk about making good on the past• 12.Fire-drill/emergency responsiveness• 13.Shift blame• 14.rehash the past.

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Retaining customers-CRM

• Only attract new customers? Don’t want to retain existing ones? Look at the statistics.

• !.Competition increasing vand so cost of attracting new customer is increasing.

• 2.5 times costlier to attract new customers• 3.Offensive marketing costs more than

defensive marketing. Coaxing satisfied customers away from competition is expensive.

• 4.By reducing customer defections by 5%,Co’s can improve profits from 25-85%.

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Relationship marketing

• The process of creating ,maintaining and enhancing strong, value-laden relationships with customers and other stake holders.

• All of Co’s departments work together with marketing as a team to serve the customer.

• Involves building relationships at many levels-economic,social,technical and legal-resulting in high customer loyalty.

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5 different levels of relationship as a function of profit margin and no.

of customers• 1.Basic. Sell but don’t follow up.H.J.Heinzdon’t call every ketch-up

buyer to thank.(large no. of customers and low margins)• 2.Reactive; Sell and encourage to call if any question or problem.• 3.Accountable;Check after sale if product meets expectations.Solicit

improvements, suggessions,and any specific disappointments• 4.Proactive;Sales persons and others in the Co phone customer

often with info on improved product use or new products.• 5.Partnership;Continuously work with customers to discover ways to

deliver better value.Boeing does partnership matng with United airlines to work closely in design of aeroplanes and satisfying customer requirements.

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Profit margin vs no of customers-relationship levels as a function of profit margin & no of customers

• Proft- HIGH MEDIUM lOW

• No.of Customers

• Many Accountable Reactive Basic

• Medium Proactive Accountable Basic

• FEW Partnership Accountable Reactive

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Develop strong customer bonding & satisfaction-3 value building

approaches• Financial, social and structural• 1.Financial; Adding financial benefits to

relationship .Ex.Frequent flier programs of airlines ; *room upgradesto frequent guests in hotels *P&G’s money-back guaranteeon Crest tooth paste(cavities and tartar build up ion 6 months).P&G builds up data base .Dentist certificates.

• 2,Social;Individualise and personalise the products and services ,Ritz hotels offers financial and social benefits.Refer to guests by name& give each guest a warm welcome!.Record specific guest preferences & maintain data base accessible to all hotels in chain.

• A guest wanting a foam pillow –Ritz in Montreal first and Atlanta later.

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3 value building approaches

• 3.structural ties; A business marketer helps costomers with spl equipment or computer linkages to help them manage orders ,pay roll or inventory. Ex.Mc Kesson Corp.a leading pharma wholesaler built financial,social and structural ties with customers by spending $millions in EDI to help small pharmacies manage their inventory,order entry and shelf space.Fedex has computer linkages with its customers.

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Customer profitability –the ultimate test-how to attract and keep

profitable customers?• 1.Usually 20-40% of customers are unprofitable.• 2.Most profitable A/cs aren’t the largest a/cs; but

mid-size a/cs.• 3.Largest a/cs demand high services and high

discounts,so low profits.• 4.Smallest a/cs pay full price and receive less

service ;but cost of handling high and so low profit.

• 5.Mid size a/cs paying good price and receiving good service are the most profitable. Therfore invade the middle not only the largest a/cs!

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Choose ur customer-CRM-What not to do

• 1.don’t pursue and satisfy every a/c.• 2.Don’t try to satisfy every whim.• 3,don’t provide any thing and every thing an a/c

suggests.• 4.Market focus doesn’t mean “blindly following all

suggessions that can’t be profitably undertaken”• 5.Market focus means “making disciplined choices of

which customers to serve and which specific benefits to deliver or deny”

• If PRESIDENT customers want Taj service President should say ’no’.Because providing confuses positioning of TAj and President systems.

139

What makes a customer profitable?-concept of CLV

• CLV is the amount by which revenues from a given customer overtime will exceed the Co’s cost of attracting,selling and serving that customer.

• Emphasis is on life time revenues and costs –not profits from a single transaction!

• Life time profit of Tom Peters to Fedex.Tom spends $1500/month in fedex service.=12 *1500*10 years =$180k for 10 yrs @10%profit=$18k on Tom’s life time business.So can Fedex risk poor service from a driver to Tom?

140

Customer/product profitability analysis

• Customers with varying profitability• C1(high) C2(mixed) C3(losing)• Products at varying profitability• P1(high) ++ +crosssell +• P2(ok) + +• P3(mixed) + -crosssell -• P4(losing) +crosssell - -• high p custom Mixed bag Losing a/c

141

Customer-product profitability analysis

• Co’s should actively measure individual customer value & profitability.

• 1.customer c1 buys 3 profit making products P1,p2,P3.• 2.Customer C2 gives mixed profitability buying one profitable

product P2 and one un profitable product P4• 3.Customer C3 generates losses by buying one profitable product

P1 and 2 unprofitable products P3 and P4..loss leaders.• What should the Co do about C3? 1.Rise the prices of less

profitable products or consider elimination.• 2.try to cross-sell profit making products to its unprofitable

customers• 3.If customers like C3 defect ,it may be for the good!• 4.in fact Co may benefit from encouraging its unprofotable a/cs to

switch to competitors.

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Satisfaction,value and quality (tools for building customer relationship)

• Simple and effective competitive marketing strategies of successful companies.

• Steps To consistently offer the best value to customers• STEP 1.Study and listen to customer• STEP2.Learn about consumer problems and needs;

likes and dislikes; trends, through demographic and lifestyle analysis,focus group interviews,indepth interviews and product tests.

• STEP 3.Give consumers what they want-a continuous flow of useful and high quality products.

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How to gain reputation of value and quality

• 1.Well designed and well made products• 2.Obsession for quality• 3.Innovative or new ways of serving customers• 4.New product development a religion-PERPETUITY

FACTOR 33% from products developed and launched in the last 5 years.

• 5.Base executive compensation on new product share of sales.

• 6.New product teams or venture teams-Experts from marketing,manufacturing,finance and design-live, breathe and sleep new products from idea to commercial launch.

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7.Ordinary products offer simple but elegant improvements.

• 8.strong relationship with ‘other customers’-retailers and suppliers who appreciate the Co’s high quality,larger margins,outstanding service,and strong consumer appeal.

• 9.Grab ‘vendors of the year’awards, or ‘the most reputed marketing Co’award or ‘oustanding co’ award.

• 10.Open ‘supershoppees’ or ‘rubber maid botiques’-whole sections stocking Co’s products and offering ‘complete solutions approach’to customer problems.

• 11.Competence to execute the strategy flawlessly-uncopiable by competitors.

• 12.They never run out of ideaswhen it comes to fresh and saleable new ways to serve customers.

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Being a customer-centered company

• 1.Be adept in building customers-not just building products.

• 2.The key is ‘CUSTOMER-VALUE DELIVERY SYSTEM’-EX.

• Mc Donald’s—Consumers flock to the McDonald’s system which supplies a high standard of QSCV-QUALITY,SERVICE,CLEANLINESS AND VALUE.

• Not just for the taste of hamburgers ,several others make better-tasting ones!

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Value-delivery system

• System made of value chains of the Co and its suppliers ,distributors and ultimately customers who work together to deliver value to customers.EX.

• HONDA chose DONNELLEY Corporation for supply of car mirrors for US made cars.

• Honda engineers work together with Donnelly in improving products/operations.Donnelly could reduce costs by 2% in first year.And its sales to Honda improved from 5mn $ a year to $ 60 mn in less than 10yrs.

• Honda benefited from nan efficient low cost supplier in Donnelly for quality materials

• Honda’s customers benefited from lower cost and high quality cars resulting from Honda’s partnerships with donnelly and others.

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Levi Strauss’s value-delivery system.

• ORDER FLOW-• CUSTOMER(buyer)—SEARS(Retailer)—LEVI(jeans supplier)—

MILLIKEN(fabric supplier)---DUPONT(fiber supplier)• DELIVERY FLOW---• In the opposite direction• LEVI’s Quick Response System(QRS)• 1.Every night Levi’s knows thro EDI –Electronic Data Interchange-

the sizes and styles of its blue jeans that sold thro SEARS• 2.Levi’s orders electronically more fabric from Milliken • 3.Milliken relaysan order for more fiber from Dupont.• Most current sales info is used to make what is selling.In

QRS,goods are pulled by demand –not pushed by sales/supplier!

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Traditional vs modern value-delivery processes

• Traditional process• Make product---Sell the product• Design product-Procure—make-----Price-sell-Advertise

and promote—Distribute-service

• Modern value creation and delivery sequence—CHOOSE THE VALUE-PRIVIDE THE VALUE-COMMUNICATETNHE VALUE.

• Customer segmentation-market selection focus-value position----Product development-service development-pricing-sourcingand making-distributing and servicing----personal selling-sales promos-advertising-PR-Publicity

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positionings

• Usp development—an attribute to tout as number 1—common no1 positions—best quality ----lowest price—safest---best service—best value---fastest—most customised—most convenient—most advanced technology etc.

• Examples of value propositions

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Co/product

Target customers’ profile

1 unique benefit

Percvd benefit to price ratio

Value proposition statement

Remarks—compact,artistic,punchy---

Hll/lux Geo-

Demo-

Psycho

Tcchno

The best and the firstbeauty soap

Just right price for the benefit

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4 positioning errors to avoid

• 1.Under positioning; buyers have only a vague idea of the brand.Nothing special is seen. Pepsi-Cola’s clear ‘Crystal Pepsi”, was introduced in 1993. Costomers didn’t see ‘clarity’ as important benefit in a soft drink.

• 2.Over positioning. Buyers have too narrow an ‘image’ of the brand. Consumers think ‘diamond rings’ at Tiffany’s start at $5000 while Tiffany’s now offers affordable diamond rings $900 upwards Unsuccessfully.

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Positioning errors--contd

• 3.Confused positioning; Too many changes in brand’s positioning too frequently.eg.stephen job’s sleek and powerful NeXT computer positioned first for students, then for engineers and then for business people all unsuccessfully.

• 4.Doubtful positioning; Buyers find it hard to believe the brand features.GM’s Cadillac division launched Cimarron as a luxury competitor with BMW, Mercedes and Audi. While the car featured leather seats, a large luggage rack,lots of chrome and Cadillac logo stamped on the chassis, customers saw the car as a dolled-up version of Chevy’s Cavalier and Oldsmobile’s Firenza. While the car was positioned as “more for more” customers saw “less for more”.

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Factors affecting positioning strategies

• A.Attractiveness of market• 1.Market size• 2.Mrkt growth• 3.Competitive structure• 4.Profitability• 5.Socio-political constraints

• B.Ability of Co to create a relative strength.• 1.Mrkt share & position• 2.Cost competitiveness• 3.Technical capability• 4.Mrktng and distrbn capability• 5.Future cash requirements• 6.Commncn & Branding capabilitry.

154

6 key analyses for developing positioning strategies

• 1.Mrkt analysis

• 2.Customer analysis

• 3.Competitor analysis

• 4.Trade analysis

• 5.Economic analysis

• 6.Environmental analysis

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1.Market analysis

• A.How attractive are alternate mrkts?• 1.Size• 2.Growth• 3.Competition• 4.Profitability.• 5.Socio-political issues• B.Do we have the capability to compete effectively?• 1.Mrkt share &position• 2.Cost competitiveness• 3.Technical capability• 4. Mrktg & distribution• 5.Future cash requirements.

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2.Customer analysis

• 1.How is the mrkt segmented?

• 2 What are the needs of each segment?

• 3.How are purchasing decisions made?

• 4.Who makes the key decisions?

• 5.Are there any new segments to appear or be created?

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3.competitor analysis

• 1.Who are the key competitors?intra-type?---Inter-type?---Innovative?

• 2.What are the strategies of competitors?---Aggressive?---Me-too?---Segmentation?

• 3.How are we positioned as competitors?----Where are they vulnerable?---Where are we vulnerable?

• 4.Are there any srategic windows?---New markt segmentation?----New technologies?---Market redefinition?----Channel changes?

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4.Trade analysis

• 1.What are the key channels?• 2.Are new channel opportunities likely to

develop?• 3.What are the needs of our dealers?• 4.Do we have an effective partnership to

develop our mrkt opportunities?• 5.How are we perceived relative to our

competitors?• 6.What can we add to enhanceour dealer

business?

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5.Economic analysis

• 1.Can “ROI” and “share holder value”be enhanced ?

• 2.Can costs be reduced?• 3.Can prices be revised ?up and down wards?• 4. Can the product mix be improved?• 5. Can volume be improved by investing in new

mrkts or brand enhancements?• 6. Can investment in fixed and current assets be

rationalised?• 7. Can time be taken out of the production and

marktng processes?

160

6.Environmental analysis

• 1 How are we likely to be affected by trends in the environment?----------------------

Demographic?--------------------------------------Economic?------------------------------------

• Pollution and environmental protection controls

• Technology? Political? Cultural?• 2.what contingency and crisis mngmnt

plans exist? For key vulnerabilities?

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Developing the “value proposition”USP,UBP,VP CONCEPTS

• USP—unique selling proposition• UBP—unique buying proposition• VP—value proposition• USP is an attribute to tout as No.1.

Common No.1 positions—Best Quality—Lowest Price—Safest—Best Service—Best Value—fastest—Most Customised—most Convenient—Most Advanced Technology.

162

Examples of value propositions-Step by step process

• 1. Co name? and Product name?• 2.What is target customer profile In

Geographic,Demographic,Psychographic including life style and Technosavviness parameters?

• 3.What is one unique benefit that is distinctly different from others? And a couple of other normal benefits?

• 4. What is customers perception of Benefit to price ratio? Expressed as—Too high a price for the benefit?---Moderately high price for the benefit?—Just right price for the benefit?—Moderately low price for the brenefit

• 5.Make a value proposition statement—An artistic statemennt, compact, unambiguous’ and easily understood—Neither too long nor too short- but covering the salient aspects of all the above 4 points.

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3definitions of positioning strategy

• 1 Positioning strategy is choice of target mrkt segment(TMS), which determines where the business competes and the choice of “DA” which dictates how it competes.

• 2.Positioning strategy is deciding which game to play and how better to play so that the co continues to win the game for ever

• 3.Positioning is not so much what the product actually is, but rather how the Co wants it’s target customers to perceive it. A Co can choose from a No. of different strategies.

• Match the strategy with the example.

164

Match strategy with example

• Positioning strategy• 1.Positioning by

attribute;Associating a product with a particular feature

• 2.Positioning by benefit;Associating a product with a spl customer benefit

• 3.positioning by use or application

• Example• A.”Master card is

accepted at more restaurants than any other card”

• B.”Head & Shoulders” is the best shampoo for people with dandruff.

• C.”Chevy trucks out-perform Ford trucks”

165

Matching------

• 4.Positioning by user;Associating a product with a user or class of users.

• 5.Positioning by competitorIdentifying a product by using a competitor as reference

• 6.Positioning by product category;

• 7.Positioning by quality& price

• D.“Timex watches take a licking but keep on ticking”

• E“Preference by L’Oreal.It costs a little more, but I am worth it”

• F.”7-UP is the Un-Cola.It’s lighter& more refreshing.”

• G.”A box of Arm&Hammer baking soda in your refrigerator will keep it clean-smelling”

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How do Co’s add superior value?In 3 ways

• 1By strategies adding value

• 2,by strategies reducing cost &

• 3.by developing more effective positionings.

• Let us get into details of each.

167

Drivers of utilitydrivers of cost &repositionings

• 1.Drivers of utility. Utility,usefulness,perceived value orcustomer satisfaction is a combination of rational, economic factors and subjective image dimensions—4 drivers -----.Product,Service,Personal &Image drivers

• A,Product drivers

168

Product drivers & service drivers

• Product drivers;• 1,Performance• 2.Features• 3.Reliability• 4.Conformance to specs

expected• 5.Durability• 6.Seviceability• 7.Operating costs• 8.Aesthetics.

• Service drivers;Become important as competition narrows down product differences.

• 1Credit&Finance• 2.Ordering facility• 3delivery• 4Installation• 5Training&consultancy• 6 Aftersales-service• 7 Gaurantee• 8Operating support

169

Personal & image drivers

• Personal drivers. In service- oriented Co’s, personnel become a valuable source of “DA”-since difficult to copy high quality person or service. Important traits;

• 1.Professional skill, knowledge,talent• 2.Courtesy• 3.Trustworthiness,reliability,Positive attitude• 4.Initiative• 5.Communicability etc.

170

Image drivers

• Image drivers give customers the confidence in the product.This confidence value is in socio-psychological utility of the brand or it’s economic performance or both.

• Ex.Youngsters see Coke, Levi’s jeans,Sony Walkman,Nike shoes as consistent with their life styles.

171

2 drivers of costMichael Porter’s 5 force theory&

value chain• Typical P&L of a Co• Revenue---100• Materials-----25• Manfacture---15• R&D-----------o5• Sales&Distrbn15• Corp.OHS-----20• Mrktng OHS---15• TOTAL COST—95• --------------------------• Margin-----------05

172

Cost drivers

• It is cost drivers that decide if a Co’s costs are lower or higher than it’s competitors.Eg.

• 1.Economies of scale• 2.Learning curve or Experience curve• 3.Capacity utilisation• 4.Sharing of costs with group Co’s• 5.Vertical/horizontal integration• 6,First/leader in mrkt• 7.Location,Marktng strategy advantage.

173

Value chain

174

5 forces of porter

175

3.Repositioning strategies are you positioned adequately?

• Product X is positioned wrongly in between mass & premium mrkts-where the economy and luxury segments are at the 2 extremes of the markt.

• On the Quality VS Cost or price map, there could be 3 reasons of inadequate positioning of X.

• 1.Un-attractive segment-too small in size,declining,too competitive,or unprofitable.

• 2.Quality & features don’t match the target segment.• 3.The product costs too high to allow it to be priced competitively.• IN OTHER WORDS.PRODUCT X IS TOO COSTLY FOR THE

MASS MRKT AND HAS INSUFFICIENT QUALITY TO APPEAL TO THE PREMIUM SEGMENT.

• Therefore it has TO REPOSITIOn itself

176

7 repositioning optionsreal & psychological options

• 1.Introduce a new brand. In 1990,IBM , in the PC mrkt, introduced it’s own cheap clone under AMBRA brand name to have a foot - hold in the emerging mass or economy mrkt.

• 2. Change existing brand. In contrast to IBM,Compaq solved the problem by cutting price & simplifying features offered to hold on to position in mass mrkt.

• 3.Alter beliefs about brand.; Chivas Regal scotch repositioned itself from the mass mrkt to the premium segment thus rationalising it’s higher price and quality.

• 4. Alter beliefs about competing brands; The BODY SHOP retail group has communicated that the beauty& personal care products of competitors are not environmentally friendly.

177

Repositions--contd

• 5. Alter attribute importance rates; VOLVO raised importance of safety as an attribute in choosing a car thus enhancing the value of it’s differentiation.

• 6. Introduce new or neglected attributes;Unilever successfully introduced “RADION”, a new detergent that eliminated odour-a benefit previously considered not important.

178

Repositions—contd.

• 7. Find a new mrkt segment; DUNHIL diversified from smoking accessories into mens’ clothing. Instead of getting into the crowded segments,created a new luxury segment of expensive high quality ready-to-wear suits. As the only typically British competitor in the segment,it brought a unique brand with a strong appeal to affluent executives—especially the Japanese.

179

Creating brands & nurturing them

• Why brand technology products?

• Purpose of any business?

• How do we measure success?

180

The 3 secrets of business success & survival?

181

Secrets of----

• Product image

• Service image

• Corporate image

• Channel image

182

Right Business orientation needed for success?

• Production orientation

• Product orientation

• Selling orientation

• Marketing orientation

• Customer focus/orientation

• The role of engineering/R&D in success

183

The elephantine electronics case

• What moral can we engineers draw from this story?

184

Differences between products &brands?

• Benefits of brands-

• to customers ?

• to company ?

• to society?

185

Purpose driven R&D-in commercial firms

• What goals should we have?

• Market goals

• Financial goals

• People goals

186

Segmenting markts-how will we be different & better?

• “all skills are subsidiary to the master skill of concentrated focus”• FOCUS ON THE MARKT FOR SUCCESS• 2 stages to undertake segmentation—Definition of potential

segments & selection of target segments• DEFINITION-in a lot of different ways;• FOR INDUSTRIAL MARKETS,• Geographic; ,Industry,Type of application,Customer size,Markt

served,Channels of distribution,• Demographic,Psychographic,Technographic, Behavioural etc.• FOR CONSUMER

MARKTS;_GEO,DEMO.ECONOMIC,Psyco,Techno,Behavioural—all can be used.

• When >2or3 variables are used, the process becomes complex.• SELECTION—Is easier based on MA & DA.

187

A practical approach to segmenting markts-cascade method

• Step1;what is our definable markt?Questions to ASK;POTENTIAL BENEFITS?—MAIN OVERALL NEED?—KEY CUSTOMER PROBLEMS?—KEY BUSINESS PROCESS?

• STEP2;BREAKING THE CASCADE OUT THROUGH SUPPLEMENTARY QUESTIONS

• EG:HARD COPY PRINTING

188

Cascade---

• 1.HOW MUCH?—v low—low—med—high• 2.WHAT QUALITY?—• LOW Q—LETTER QUALITY—DRAFT GRAPHICS—

BUSiness GRAPHICS• 3.HOW OFTEN?—SPORADIC NON_URGENT—

SPORADIC URGENT—UNIFORM NON-URGENT—UNIFORM URGENT

• 4.WHERE?—PERSONAL—WORK GROUP—DEPARTMENT—SITE

• 5.WHAT PRICE?--<5k--5K-25K—25K-100K-->100k

189

Step3.Defining segments by sentence

• EG.;DEPARTMENTS PRINTING LETTER QUALITYOUTPUTS SPORADICALLY &URGENTLYIN VOLUMES UPTO100K PAGES PER MONTH

• STEP4;make as many segment statements as possible.• STEP5;FIND WHICH SEGMENTS ARE CURRENTLY

OCCUPIED BY WHOM?• STEP6;FIND NICHE.• STEP7;MEASURE ATTRACTIVENESS OF THE NICHE

& OUR CO’S CAPABILITY TO CREATE “DA”

190

Guidelines for cascading

• 1.AVOID TOO NARROW/BROAD DEFINITION AT STEP1

• 2.DON’T LET PRODUCTS APPEAR ON THE CASCADE.IT IS NEED /SITUATION ANALYSIS

• 3.DEFINE “Q” TERMS WHEREVER POSSIBLE.• 4.KEEP A MAX OF 5-6 LAYERS.• 5.QUANTIFY ACROSS EACH

LEVEL.RESEARCH IF REQIUIRED DATA NOT AVAILABLE.

191

Cascade--

• 6.ANALYSE OBJECTIVELY.DON’T BE BIASED.• 7.SEPARATE SEGMENTS FROM

SELECTION.SELECTION IS NEXT STEP.• 8.ALTERNATE THE “Q”s.ELIMINATE NON_USEFUL

LREVELS.

• MYTHS OF SEGMENTATION• “we segment our mrkts”• ‘THERE IS ONE IDEAL SEGMENTATION VARIABLE”• “segments are technologies or products”• “Segments are forever”• “WE want to be in all segments” ETC.

192

Assignment on cascade method of segmenting markts

• Tke any markt u like and do follow the above swtep by step process of cascade method,

• Divide into segments,• Mention at least 3-4 segment statements,find out

if thjose sedgments were already occupied by current players,if so who and if not check attractiveness of the niche u have just discovered.

• HOW DID U DISCOVER THENICHE?

193

Plc strategies. ch- fig--

194

Product strategies-Ansoff diagram or directional policy matrix.

• 4 types of product strategies

• BCG matrix –ch fig

• GE or McKinsey matrix

195

Product strategies.HLL

• 1.product mix width strategy• 2.product mix consistency satrategy• 3.product line length strategy• 4.product depth strategy• PRODUCT MIX WIDTH measures the no of

individual(INDEPENDENT) lines of products the co carries in its product portfolio.

• For ex,HLL has roughly 3 dozens of lines of products—say,soaps,detergents,tooth pstes,toiletries,cosmetics,personal care products,ice creams,bread,shampoos,atta,salt,jams,jellies,tea,coffee etc,

196

Product stra----

• Advantages;wide mix helps• 1,growyth in bad times for some lines• 2.good customer coverage• 3.prevent competitor entry• 4develop trade interest• 5reduce overall cost• 6synergy etc.• DISADVANTAGES• 1.resources scarcely distributed• 2.lack of focus• 3.Confusion if overlap• 4.too much inventories.

197

What is optimum width?

• If mix is too narrow,vulnerability, competitors get strong if they discover & enter into new niches, and stake holders growth expectations not met,

• Optimum width depends on• 1,co’s resource capability• 2.co’s ambitions for growth with matching

capability• 3.ability to start a new line when the existing

lines can survive & grow on their own merits,

198

2.Product mix consistency strategy

• This measures how well each line is related to every other line in terms of

• 1,technical capability• 2.manufacturing skill& capability,• 3.distribution capability,4,employee talent and skills,5branding&

commncn skills• 6,customer mix etc.• Advantages of high mix consistency• 1.lower costs• 2.quicker growth• 3higher profit• Disadvantages;1inability to venture into unrelated but high

opportunity areas.ex reliance.

199

Product line length strategy

• Line length measures the no of independent products in a line.

• For example,HLL’s soaps line has a dozen different soaps

• Jay Lux Hamam

• Breeze Liril Dove

• Lifebuoy Fair&lovely

• Rexona Pears

200

Long lines-advantages

• 1different segments• 2high sale,MS & profit• 3.prevent competition• 4.be first to open a swegment• 5overal markt leadership• 6.More satisfied customer

groups7.synergies in marktng costs• 7.satisfied trade

201

Long line-disadvantages

• Too long –unnecessary-wasted inventory

• Slow non-moving stocks

• Low ROI

• Confuse customer choice if overlap.

• Lack of focus

• Resources too thinly distributed.

202

product depth-no. of variants of same product-by

sige,packing,colors,styles etc.• Lux is available in 2 formulations,3 siges,3

colors and 2 skin types • Therefore lux’s product depth is

2.3.3.2=36• Why product depth?• To cater to subsegmental needs• To retain customers • To meet needc fragmentation in evolving

markts

203

Plc strategies. ch- fig--

204

Branding strategies

205

Creating & Nurturing Them

BrandsBrands

206

• Why brand technology products?

• Purpose of any business?

• How do we measure success?

The Agenda Today

207

The 3 secrets of business success & survival?

• Product image

• Service image

• Corporate image

• Channel image

208

Right Business orientation needed for success?

• Production orientation

• Product orientation

• Selling orientation

• Marketing orientation• Customer

focus/orientationThe role of engineering/R&D in success

209

The elephantine electronics case

What moral can we engineers draw from this story?

210

Differences between products &brands?

Benefits of brands

To customers

To company

To society

211

Purpose driven R&D-in commercial firms

What goals should we have?

1. Market goals

2. Financial goals

3. People goals

212

The Kano Model

Insufficient Sufficient

Delighting Features

Assumed Features

+

-

Expected Features

Product features

213

Emotional Relationship

Cog

niti

ve

Rel

atio

nshi

p

Commodity

Strong Brands

Eroding Brand

From Commodities to Brands

Low

Hig

hLow High

214

Brand EquityName

Symbol

Perceived qualityName

AwarenessBrand

Associations

Brand Loyalty

ProprietaryAssets

Provides value to customer by enhancing Customer’s

•Interpretation/processing of information

•Confidence in the decision

•Use satisfaction

Provides value to firm by enhancing:

•Efficiency and effectiveness of marketing programs.

•Brand loyalty

•Prices/margin

•Brand Extension

•Trade leverage

•Competitive Advantage

215

ProductUnique Me - Too

Wel

l Kno

wn

Un

know

n

Sup

plyi

ng c

ompa

ny

80%

Buy Decision

Whisper

Depends

On

Sales Efforts

80%

Not – Buy

Decision

Depends

On

Sales Efforts

“LIKELIHOOD TO BUY MATRIX”

216

Price Differentiation

Low High

Branded markets

Pro

duct

Im

age

Dif

fere

ntia

tion

Low

Hig

h

Commodity

Market

Whisper

“BEHAVIOUR OF NEGLECTED BRANDS”

217

ProductivityLow High

Low

Hig

h NicheOutstanding

Success

Commodity

MarketingCost

Leadership

Mar

keti

ng

Inno

vati

on

“Developing Competitive Position Through Innovation and Or Productivity”

218

ProductivityLow High

Low

Hig

h

Mar

keti

ng

Inno

vati

on

SWISS

Luxury

Watches

Low cost Volume Production

SEIKO

SWATCH

Fashion Based

Low cost

Production

“In Watch Industry”

219

Awareness / Familiarity with Brand

Information on Brand Attributes or benefits

Creation of Brand Image / Personality

Association of Feelings with Brand

Linkage of Brands with Peers & Experts & Group Norms

Reminder or Inducement to Brand Trial

Ad Exposure

Brand Attitude

PurchaseBehavior

220

“I am Chevrolet”

Awareness / Familiarity with the Brand

“I am Chevrolet Optra”

221

Information on Brand Attributes

• Brand of General Motors

• Brochures containing comparison with competitors

• India Specific Customization

• E-Brochures

• Online booking for Test Drive

• Advertisement showing Features

222

Creation of Brand Image• To make the brand culturally relevant to the

need of the Indian market. • To project a warm, approachable and likeable

image of Chevrolet • An Image of trust and dependability • Leverage the emotional aspects by creating

empathy for Chevrolet

Brand Personality• A Business Professional who cares for his family• If “Optra” were to be a human being:

It could be: Sachin Tendulkar

223

Association of Feelings with Brand• Luxury (“The New Name for Luxury”)• Power• Style

Linkage of Brand with Peers/Experts &

Group Norms• Luxury Seekers• Value-for-money Seekers

224

Reminder or Inducement about Brand Trial

• Online registration for Test Drives

• Invitations to Film Premieres

• Freebies like: – Car Polishing, Invitations to Rallies– Insurance– Stereo System

• Lucky Draw

225

Brand Attitude

• More Approachable

• Dependable

• Symbol of Luxury

• Great Value for Money

• Satisfaction

226

Purchase Behavior

• Great Value for Money

• The purchasing behavior of the customers is reflected thru the ever-increasing sales

• GM’s Sales growth increased 73% because of the “Optra” & now the positive image of Optra is rubbing off on the “Tavera” too.

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“I am Chevrolet Optra”

228

AD EXPOSURE

Awareness: A B-SEGMENT FAMILY CAR.

Information on Brand Attributes: TALL BOY DESIGN , INTERNATIONAL

SAFERY STANDARDS.

Creation of Brand Image: MPFI ENGINE , TECHNO SAVY VEHICLE.

Developing feelings with the Brand: STYLISH AND RELIABLE CAR

Linkage of Brands with Personalities: SHAHRUKH KHAN , PRIETY ZINTA

Reminder of inducement about Brand trial: INNOVATIVE – SANTRO ZIP AND THEN ZIP PLUS. ALSO XING , SUNSHINE

CAR…..

BRAND ATTITUDE

PURCHASE BEHAVIOUR

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What is a successful brand?

3 Acid Tests & 1 Decisive Test

1. Leading share in it’s segment and

distribution channel?

2. Commanding prices sufficient tp provide a

high profit?

230

What is a successful brand?

Contd...

3. Will it sustain its strong share of profit against emerging competition?

4. Will it induce customers to pay preferentially compared to other brands available?

231

Reduced marketing costsTrade leverage Attracting new customers

Create

Awareness

Reassurance

Anchor to which other associations can be attachedFamiliarity –LikingSignal of substance/commitmentBrand to be considered

Brand loyalty

BrandAwareness

Reason to buyDifferentiate/positionPriceChannel member interestExtensions

Brand

Associ

ations

Provides value to customers:*Interpretation/*Processing of info Mation*Confidence in purchase* Use satisfaction

Provide value to firmBy enhancing:*Efficiency/effectivenessOf marketing programs*Brand loyalty*Prices/margins*Brand extns*Trade leverage*Competitive advantage

Help process/retrieve informationDifferentiation/positionReason-to-buyCreate +ve attitude/feelingsExtensions

Perceivedquality

Competitive advantage

proprietary asstes

Brand equity

232

Core Benefit

Basic

Augmented

Potential• S

ensi

tivity

•Styling

•Brand name

•Quality

•Package

•Payback

•Operational efficiency

•Consultancy

•Installatio

n

•Tra

ining

•Guarantee

•Maintenance

•Sys

tem

A

ppro

ach

•Nam

e an

d

fam

e

•Reliability•Credibility

•Flexibility

•Responsiveness

Levitt’s Model

233

In a Project Sales

The Core Product

20% of Sales impacct

80% of price

The other three levels

80% of Sales impacct

20% of price

234

TMS DA

The essence Of marketing

Functional

Value

Self image

Availability

Service

Risk Avers ness

Product

Price

Advertising

Distribution

Servicing

Guarantees

Customer Wants Marketing MIX Variables

235

Definition of a brand

• A brand is a differentiated product with a name,a logo,a symbol,a trade mark and usually a combination of some or all of these used in communicating the superior value to the TMS and helping them percieve how the offer is more in value and why they should be preferring this product to all other substitute / competitive products.

• A brand is a trust-mark which helps customers meet some of their self-image needs by rubbing off their images on to the users of the brand-thanks to the images they acqured over a period of time due to the brand builing investment and efforts put in by the mgnt.

236

4 branding strategies

• 1.Line extensions-product category same,brand name same with a suffix or prefix.ex.lUX,LUX INTERNATIONAL soaps

• 2.BRAND EXTENSIONS-Product category different,brand name same with a suffix or prefix.ex.LUX SOAP,LUX SHAMPOO.

• 3.MULTI BRANDS-product category same,brand name different.LUX,LIRIL,LIFEBUOY soaps

• 4.NEW UNIQUE BRANDS-product category different brand name different.ex.LUX SOAP,KNORR ANNAPURNA SALT.

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4 Branding strategies based on product category/brand name

existing or new?• 1.line extensions-product category existing and

brand name existing.ex.LUX soap and LUX international soap

• 2.brand extensions-product category new,brand name existing.ex.LUX soap,LUX shampoo

• 3.multi brands-product category existing,brand name new.exLUX soap,LIRIL soap.

• 4.new unique brands.-product category new,brand name new.ex.lux soap,kn orr annapurna salt.

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Pros and cons of branding strategies

• Line extensions• Pros-possible when both

products have3 similar image and are tasrgeted to similar and close markets/segments

• Synergy in cost• Rub off effect• Quick success• Cons-failure also rubs• Confusing range • Overlap• Non moving stocks

• Brand extensions• Pros and cons similar to

line extensions

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Pros cons of multi brands/new unique brands

• Multi brands• Advs-possible when new product in same category meant for

dissimilar or distant mrkts and images dissimilar.diff features appeal to diff markts.can protect major brands thro fighter or flanking brands

• 1.create new segments and enter first,• 2.pre-empt competition• 3.segmen t leadership& overall market leadership• 4.costomer loyalty &CRM 5.failure no bad effect 6.net profits larger

even if some cannibalism occurs.• Disadvs-1.costly• 2.Risky-high failure rate• 3..line and brand extn possibilities4.resources too thinly spread.• Newbrands pros &cons similar to MBS.

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Multi branding and brand extensions

• Involve in mb to progress beyond being a narrow niche player.MB occurrs when a Co plans to target several brands into the same broad mrkt.by extending same name over the brand family or by using independent brand names

• 2 reasons for growthof mb’s—1,increasing segmentation of mrkts.in early stages od dev of mrkt,demand is homogeneous and single brand suffices,As mrkt develops,new segments are added,opportunity for MB arise.—2,As costomer needs diverge,differentiated distribution channels evolve,providing stimulus to separate branding.

• New flexible mfg techniques that lower cost of product variety and new ad media that provide access to specialised customer segments also gave momentum to MB.

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2 types of MB.-horizontal & vertical

• Horizontal—is aimed at differentiating distrbn channels rather than consumers.Increase in distrbn and MS possible by giving diff retailers or distributors specific brands.this is often low cost because brands have only cosmetic differences

• Vertical—targets diff customer groups and differentiated branding strategies.Distrbn channels may or may not be same.

• In highly segmented mrkts,single brand strategyies rarely work.Eg.Amstrad with its leading position in home computer mrkt found its image a handicap in efforts to penetrate business segment.A separate brand with an image,sales and service system geared to the corporate mrkt is a more effecctive means

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• VMB is more powerful than HMB although cost is high due to building distinct brand identities.Ford paid $2.5bn to buy jaguar brand to provide entry into executive car mrkt.Toyota invested even more to develop Lexus.

• VMB generates higher revenues but offers lesser economies of scale and shared purchasing.mrktng,distrbn and service costs.

• In serving different customr segments and channels,firm can use same or diff names.

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Growth of brand extensions & corporate brands

• 3 reasons—1.high failure rate of new products.Same name reduces , buyers percieved risk.

• 2.Building a complete new brand is expensive.Ingrocery,$30 mn required for a new product to be successful.Extension costs much less.

• 3.Cos look for economies of scale & scope in focussing resources around one umbrella brand.With too many brand names promotional resources can be fragmented and brands can be out-gunned by competitors able to concentrate support around one name.

• HLL calling 501 detergent cake as Rin advanced,Tajmahal tea sold as BRookebond Tajmakhal.Electrolux operates 5 brand names in the UK white goods mrkt-Electrolux,Janussi,Thorn,Hoover and Husquvarna .

• Together these give electrolux largest MS but, rival Hotpoint with only one brand outspends each of E’s 5 brands and is growing faster.

• In India,LG is growing faster than E although E sells refrigerators under 5 brand names.

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Umbrella brand is no panacea .• Failure of brand extensions are common.A product will fail even if backed by

a strong umbrella brand,if it offers no differential adv over existing brands.• It will fail if it doesn’t get sufficient support during launch to generate

awareness and trial.• Many extns fail because they are launched into a diff TMS from the original

brand.In the new mrkt,the brand’s associations may not be valued.• EG..Levi,a brilliant brand in jeans attempted high Q formal suits to middle

class males under Levi name but failed since TMS didn’t see the informal denim associations of Levi as adding value in this sector.

• A sharp brand position gets weakened by new category brands,Particularly with brand names that became almost generic,such as Kleenex, Perrier,Tampax

• A traditional beer brand may get weakened by associations brought by a low-alcohol brand extension.

• Cadbury’s assocn with high Q chocolate was certainly weakened by its extnsion into mashed potato and dried milk.

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Failure of brand extensions---

• Excessive extensions can lower the brand’s Q image. Use of Lacoste alligator on a wide range of clothing of varying Q eroded its image in 80’s.

• Pharma Cos are wary of umbrella branding due to danger of bad publicity arising from one brand area spilling over into other fields.

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Principles for deciding bet brand extensions & individual brands

• Based on DA----SIMILAR-----DIFFERENT• And TMS—SIMILAR---DIFFERENT• S_S---Use CO or range name---IBM etc• S_D---Use CO plus grade ID—Mercedes E class,S class

etc.• D—S---Use CO plus Brands---Maruti800,Maruti Esteem

etc.• D_D—Use Unique brand names(P&G’STide,Bold,Dreft

etc.)• The righy approach depends upon similarity of

positioning strategiesof brands.4 brand extension options are identified,

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4 brand extension options

• 1,If the brands appeal to the same TMS and have same DA,safely share same Co or range name.since there is consistency in positioning strategy.eg.IBM,SONY,DUNHILL-same name applied to diff products.

• 2.If DA is same and TMS differs,Co name can be extended because the benefit is similar.but it is imp to identify grade.Both merc 200 and 500 series offer DA’s based on Q ,but the more expensive 500 marque appeals to a much more prestige-conscious segment of mrkt.Supplemental grade ID acts to preserve the prestige positioning of the latter nmarque.

248

BE principles----

• 3.If a Co has diff DA’s ,then it should use diff brand names .It can find some synergy if brands are appealing to same TMS,by using Co name with separate brand names.Eg.different Maruti brands may be selected within the same family unit.

• 4.If both TMS and DA’s are diff,unique names are appropriate.P&G believes worth losing out on adv of common corporate name to position brands in mrkt separately-to give each brand a distinct positioning alppeal to a separate benefit segment.Eg.Toyota positioned Lexus separately.Because it wishes to position it uniquely away from its existing models.

249

Brand extns ---principles

• related

250

Revitalising,repositioning,and rationalisation

• Improving brand performance-2 ways.Explore I first.• 1Raise volumes 2.Improve productivity• 1 Raise volume by brand revitalisation (Expanding the

mrkt for the brand)or brand repositioning(Enhancing its competitive position in the mrkt.)

• 2.Improve productivity by raising prices or cutting costs.!• Over time,it is necessary to revitalise and reposition the

brand.Many factors erode a brand’s franchise and profitability---1market decline.2,New technology.3,Changing tastes.4,rising costs.5,New competition

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4 directions for brand revitalisation

• 1.Find new mrkts.McDonald’s,Coca Cola etc compensated saturation of domestic mrkt thro geographic expansion.as engine for growth.

• 2.enter new segments.Falling prices and increasing awareness facilitates identifying new segments.Texas instruments’s growth in electronic calculator mrkt came by successively pioneering technical users,then office segment,then general public,finally school’s segment.J&J’s baby shampoo was languishing until Co looked towards adults who wash their hair frequently and need a mild shampoo.

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• 3. Find new uses or applications;• Eg;make a chocolate not only tasty and fun-loving but

also nutrient therefore skip lunch and eat a chocolate’ baking soda launched as a deodorant fior refrigerators.wash basins as well as pet animalls

• 4.increase consumption rates’-• Increase lid size of a tooth paste• Incentives/awrds for higher cosumption-loyalty rewards

frequent flyer programs.’reduce prices.change packsixe ,make the use easier dip,dip, dip tea bags,instant coffee Maggie 2 min noodles brush ur teeth 3 times a day for best results!wash ur hair 3 times with shampoo in every bath for best results.

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Brand repositioning

• This focuses on increasing volume ,not by expanding the mrkt but by winning share from competitors.7 avenues to do are

• 1Real repositioning—Update by latest technology,functions or design.Hond continuously repositioned its best selling Accord to maintain its position at the forefront of quality and value.and fashion.

• 2.Psychological repositioning.Change buyers beliefs about competitiveness of brand.Sainsbury supermarket group in early 90’s used its advertising to emphasise that it had competitive prices as well as high Q merchandise.this works only if buyers truly underestimate the value of the brand.

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Repositioning----• 3.Competitive depositioning.Comparative advtng is frequently used

to seek to alter customers’ beliefs about competitors’brands and to suggest that they represent poor value.Volkswagen sed this strategy against Ford in its advertising.

• 4.Reweighing values.sometimes buyers can be persuaded to attach greater importance to certain values in which the brand excels.Volvo emphasised safety as a criterion for selecting cars.

• 5.Neglected values.Sometimes new choice criteria can be introduced to buyers.Unilever’s new Radion detergent was positioned on the claim that it removes odours as well as dirt-a value not previously thought salient in this mrkt .The Body Shop brand was founded on the then unique value that its products were not tested on animals.

255

Repositions---

• 6,Change preferences.It may be possible to switch the preferences of buyers.Buyers may be convinced to switch from low-price products to brands offering higher Q and economic value.Eg.Santro in preference to maruti 800.

• 7.Augment the brand.A brand’s competitive position may be enhanced by offering additional products and services alongside the core product.Guarantees,after-sales-service and advice can all add value.

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Brand productivity improvement

• 1.Focuses on profit rather than volume as the brand objective.Such focus is appropriate when the brand has limited mrkt potential.

• 3 ways of squeezing more profit from a static or declining brand.

• 1.costs-fixed and variable-can be cut.If this means disinvesting in the brand it will have long term consequences for the brand’s MS.

• 2.prices can be increased.In the short term this will almost always boost prifitability,even if volume declines.

• For ex,if a typical brand has a gross contbn of 50% and a net profit margin of 8%,of the selling price, then putting up prices by 10%,will it boost net profit? Or decline it?Even if volumes drop by 1o%?

257

Improving brand prifitability---

• Net profit is increased by half.

• 3.finally,profits will be boosted normally by range rationalisation.By eliminating marginal lines,costs and investments are likely to be cut by more than the volume lost.

258

Finally brand elimination• May be the final answer when the brand is no longer profitable.• Other reasons for elimination• A.If a Co has grown by acquisition,it ends up with too many brands

and portfolio may become too big to allow brand overlap and cannibalisation.

• B.Some brands may be too small to be worth supporting.• C.The Co may need to focus its resources around one or two

brands to avoid being out-gunned by competitors.• D.Globalisation may be another motive for brand rationalisation.Cos

such as Mars,Nissan,and Unilever .that have previously supported national brands ,increasingly want to standardise around regional or global brand names.

259

Problems of brand elimination.• 1.difficult to prevent many customers switching to competitors’

brands .It is also expensive to manage the switch.For ex,in US,Black& Deckeracquired GE’s small appliance business and quickly dropped the Ge brand name,4 yrs later,after spending $150 MN,promoting Black& Decker name,it was found the old GE name was still preferred by 2 out of 3 buyers.

• 2.If one needs to focus resources around fewer core brands,3 options can be explored.

• A.Look for economies that wd reduce cost of minor brand.Ex,its mnfrng,distrbn,and overheads could be merged and its mrkt identity be limited to a badging operation

• B.Instead of killing harvest the brand.by allowing the brand franchise to erode gradually rather than dropping it

• C.Amalgamate the brands under a shared brand name.Ex.When Whirlpool acquired Philips’ white goods business,the brands were marketed under a dual identity for several yrs.

260

Local,national,regional and global brands.

• 1.In the past mrkts were dominated by local brands.Big MNC’s allowed local subsudiaries greater autonomy in developing brands to suit local environ.

• 2.3 reasons for search for global or atleasr refgional brands these days.

• A.pressure to reduce costs.Many western Cos were hard hit in 70’s and 80’s by Japanese competitors ruthlessly exploiting economies of scale in research,development,mfg and mrktng to build high Q low price global brands

• B.need to acclerate the speed of innovation internationally.Cos such as GEC in telecom,and Unilever in groceries proved too slow in recent yrs in rolling out breakthrough brands and were often leap-frogged by faster competitors

• C.Growing internationalisation of tastes and buying patterns made the development of global and regional brands more feasible.

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Advantages of global and regional brands

• 1.lower dev,prodn and mrktg costs.• 2.Facilitate professionalism of brand-planning

and decision-making.• 3.Result in faster innovation by reducing delays

caused by local adaptation and policy making.• 4.They offer spin-offs in international brand

leverage. Increasingly mobile customers see the same brands in diff countries

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Constraints of global brands• 1.May fail to match local requirements• 2.By taking key decisions out of hands of local managers they can

severely affect motivation and commitment of personnel in host countries.

• GLOBALOR LOCAL? In reality,it is not whether or not brands can be global,but rather which functions and tasks should be centralised and which should be left to managers in the local mrkt.

• A brand is a core product upon which basic mrktg features , and then augmented attributes are superimposed to differentiate and add value to it. Some of these features and attributes are more amenable for standardisation across mrkts than others.The core product and the R&D that generates new products can be usually centralised

263

Global vs local

• Product functionality and use (how people listen to music and drive a bulldozer ) tend to be universal characteristics.Further,scale economies tend to be imp here as these are high investment areas.Basic brand features (design,packaging.logo and name)can also generally be standardised across countries if planned systematically.

264

Global---

• At the next layer of branding, -positioning and advertising-difficulties begin to become greater as culture,attitudes,economics and language impinge on brand’s values and make standardisation more difficult..

• The degree of standardisation possible depends on the product and the mrkt.National values and traditions are still very imp in food,but much less so in electronics.Cultural values are less imp in youth and more affluent mrkts than they are in mature and low-income ones.

265

Global---

• Moving further down the mrktg chain to selling,promotion and distrbn,these decisions are locally specified because of sharp differences that normally occur in mrkt and institutional characteristics.

• To summarise,global branding is a matter of degree.Few ,if any ,brands are marketed in an identical way across the world,or even across a region.But more brands have characteristics that are staNDARDISED ACROSS REGIONS-WITH THE PRODUCT FORMULATION AND THE BRAND NAME BEING TOWARDS THE FORE.

266

GLOBAL---DOES GLOBAL BRANDING IMPLY GREATER

HOMOGENEITY AND STANDARDISATION?

• It doesn’t.In future mrkts wd be more segmented than today.But the basis of segmentation will change .While in the past geographical boundaries were a major way of distinguishing customer groups,today segments cross goegraphical boundaries.Consumers living in london’s Knight’s bridgeor Kensington have more in common with those in midtown Manhattan or the seventh arindissement of Paris than they do with those living in London’s Hackney or Bethnal Green.

• Across both industrial and consumer mrkts,the broad economic ,social and culotural trends favoring first regional and then global brands are clear.yet there will be no simple answers.For the forseeable future, management will need to achieve a balance bet the opportunities to be had from global brands with the need to recognise and adapt to local mrkt differences.

267

268

From inter to intra segmentation

• countryA B C D

• SegmentA

• SegmentB

• segmentC

• SegmentD

• segmentE

269

Buying vs building brands• 2 routes for a Co to obtain brands-Build and develop them or

acquire them or rather acquire Cos that possess them.• Former a high risk,slow and expensive route.extra ordinarily high

failure rate in new brand dev.Less than one in 100 new product ideas make satisfactory profit in the mrkt.Also very expensive and time consuming.

• In contrst,acquisitions are a deceptively quick route to obtaining a brand portfolio.Uni lever’s acquisition of Chesebrough-Ponds made it become a leading player from nowhere in the global cosmetics mrkt.

• Accounting conventions in most countries also make perceived attractiveness of acquisitions high.While internal brand dev expenditures are treated as coststhat reduce current profitability,acquisition expenditures are not normally immediately or fully written off against profits.Instead, they are written off directly on the balance sheet.

270

Buying vs---

• While cash flow implications of internal dev and acquisitions may be identical ,the former will appear to reduce the return on shreholder funds and the latter to increase it.These adv of speed and benevolent accounting conventions have made acquisitions an increasingly popular route ,especially for British and American Cos.

• Despite attractiveness of acquisitions,evidence exists that most such acquisitions fail to generate long-term value for acquirer’s shareholders or to build lasting brand portfolios.

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4 problems why acquisitions fail

• 1.Excessive gearing; Many Cos finance acquisitions thro high levels of borrowings. later they become vulnerable when profits fail to reach their overoptimistic expectations,leaving them unable to meet interest and debt repayment obligations.

• 2.Incoherent brand portfolios. Often acquisitions leave the Co with a rag bag of brands ,with diff brand names in diff countries ,conflicting positioning strategies and no synergies with existing business.

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4 problems----

• 3.Inadequate expertise. Frequently the acquirer lacks the knowledge or capability to appraise the real value of the acquisition in advance or subsequently to add value to it.

• 4.Pay too much. Acquirers often pay too much to obtain business. Stock mrkts value fairly most Cos. However to purchase a Co, the acquirer usually ends up paying a premium of 30-50% above the pre-bid valuation to win the acceptance of target Co shareholders. Such premiums can only be justified by quite exceptional synergies bet the 2 Cos.

• Of course ,sometimes, acquiring brands rather than building them makes sense.

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Buying vs building brandsBUILD BUY

• 1Mrkt attractiveness• A.mrkt growth –high• B.strength of competitors----

weak• C.retailer power-weak• 2.relative cost of acquisition-• A.industry attractiveness—high• B.valuation of Co-full• C.restructuring potential-low• D.brand’s potential-realised

• Low

• Strong• Strong

• Low• Undervalued• High• unrealised

274

Build vs buy---

• 3.acquisition’s potential synergy

• A,cost redn potential-low

• B.mrktg competence-unchanged

• C.complementarity-low

• D.relevent mgmnt expertise-low

• High

• Increased

• High• transfers

275

Build vs buy---

• 4.brand’s strategic opportunity

• A.product performance-breakthrough

• B.positioning concept-new

• C.mrkt opportunity-high• 5.corporate situation• A.growth potential-high• B.cash situation-average• Mrktng R&D capability-

strong

• Me-too

• Mature• Low

• Low

• Abundant• weak

276

Build vs buy---• 1.acquisitions are likely to pay off if • A.it is a low growth ,unattractive mrkt,building a new brand may cost

too much• B.it is generally cheaper to buy competition and a competitor’s

distributive space than to beat out well entrenched brands.that is why Cos focus their acquisition strategies on dull,mature mrkts

• C.the relative cost of acquisition is low often stock mrkts under value these apparently boring Cos and there is substantial restructuring potential in selling parts after acquisition

• D.Acquisitions work when the acquirer can reduce joint costs or improve mrktng competence by coming together

• E.If the Co’s current products are me-too,if it has limited skills,but abundant cash spun off from its portfolio of mature products.

277

Building brand is attractive when

• It is better to develop and build on the co’s own brands

• 1,if these are operating in growth mrkts,

• 2,if the co possesses potentially strong brands,

• 3 and if there are strong mrktng and development skills within the co.

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Are u an effective brand manager?be a 8/8 B M not a 3/8

• A true BM concentrates on all 8 elements of mrktng.He/she should have his/her feet on the ground and be humble and learn new things

• EffectiveBMs are those who have workedphysically in the mrkt place along with sales people and regularly visit mrkt place as well.

• Good BMs are those who are in touch with their consumers and understand their needs and aspirations aswell as their joys and despairs.

• An effective BM looks at the mrkt place not from the Co’s point of view but also from the consumers’ point of view.

• Finally a good BM should be professional in his approach not only thro systems but also thro attitude!

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8/8 BM

• A BRAND MGMT MODULE;

• Availability X Affordability X Acceptance X Awareness = Effective brand mrktng plan

• Emphasis here is given not only to product but to acceptance,not only to price but to affordability and finally not onlt to promotion and advertising but also to awareness and image which are relevent.

280

8/8 BM

• Young sters aspire to grow from a mgmt trainee to brand executive and on to brand mgr in due course.

• A BM is responsible for a product or brand and the position is similar to that of a corporate planner-who is not a line executive but an expert in BM.

• The task is to advise and assist the line sales and mrktg colleagues to be more effective in brands profitable growth consistently.

• The 8 elements of MM that need to be handled are:1,Product & its ingredients,2.Packaging,3.Advertising,4.Sales promotion,5.Costing,6.Pricing,7.Sales and 8,Distribution

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8/8 BM

• Out of the 8 elements of the mix(clubbed as 4 P’s of MM),unfortunately,today’s Bm is good and keen on only 3 of the functions.-thereby the BM’s function doesn’t receive the justice that it deserves.

• 1.THE PRODUCT & IT’s INGREDIENTS:Interested in the overall aesthetic appeal of the product,Bm may not go into the depth of understanding of the composition of ingredients.May be imp specially in case of import substitution,higher effectiveness and even lower RM cost.The BM leaves it to PRODN or R&D incharge to work these out.than take interest in it himself.

282

8/8 BM----

• 2.Packaging. The BM is deeply interested in the design, color and aesthetics and spends lot of time with AD agency on shades of colors that should appear on the packaging. He is also reasonably good in researching the consumer and this element is well handled.

• 3.Advertising. Spends a major time in advertising, segmenting , positioning,as well as in production of artworks and POS materials. He enjoys this element ,loves coordinating with agency and printers He also handles research function of advertising in coordination with MR agency.

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8/8 BM---

• 4.Sales promotion. The BM is keen on development schemes, trade promos,consumer promos and incentives to sales to help his brand sell more!

• 5.Costing. Reduction of cost is responsibility of every BM, without compromising on quality or perceived value-change of RM base, or improved technology or merely due to an increase in volumes. But very little emphasis is given to this function. He prefers to leave this to the cost accounting dept to handle.

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8’8 BM---

• 6.Pricing.Here too BM is weak in understanding and implementing the pricing practices. He leaves it to the finance dept as his mind is more on advertising, packing and promos!

• 7.Mrktg vs sales.Today’s BM considers sales function downscale compared to mrktg function. MBA’s are reluctant to work in sales because mrktng people are considered to be superior people to sales people. Strong sales background is infact necessary to BMs.

285

8’8 BM---

• 8.Distribution.In terms of visibility,width and depth in distrbn, BM hesitates to work in mrkt place on a regular basis, understand stockist administration, motivation or to work out distrbn strategies by physically moving in the mrkt. BM feels this is best left to the sales and depot in-charge to handle and hence there is lack of genuine knowledge and ‘feel’ of mrkt.

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BM8/8------

• Of the 8 elements of MM,BM is totally involved only in 3-packaging and design,sales promos and advertising.The other 5 are considered to be responsibility of finance,production and sales depts and hence avoided by BM.

• In a few well managed Co’s a BM has well rounded personality with all 8 elements under his control.These are exceptions ,

• Unfortunate today’s BM has reduced himself to just 3/8 of what he should be ideally capable of achieving.

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Brand valuation—buying a stock-at what price should we buy a stock?-

a million $ question!• 4 important parameters• Current market value(cmv)• *Present value(PV)• *Future value(FP)• *Rate of return(IRR)• An investor wanting higher returns than another

wd like to purchase the security at a lower price than the other

• So, investor wd like to know PV of the security to compare it with the current market value (CMV)

288

Buying a stock---

• If CMV is less than PV, buy it ; Since the investment wd give a higher return than the one used to discount, Otherwise,No.

• So,understand the rate of return!• Say,an investor expects a 14% RR per annum• 100 today=Expected 114 after I year100x1.14• =130 after 2 years 100x1.14x1.14• =148 after3 yrs100x1.14x1.14x1.14• This process is called compounding• The opposite is called discounting •

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Buying a stock---

• PV, the present value of initial invest of 100,r is the required rate of return in % terms,,and n is the no of yrs of investment,and FV is future value of initial investment.

• FV=PV x (1+r) to the power of n.• Discounting is the method of working out the PV

which one should invest, from the future value ,which is realisable after a particular period of time,to get his required rate of return.

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Buying a stock---

• If a particular security is known to hit Rs 129.96(130) after 2 yrs,at what price should he buy the security today to get a RR of 14%?

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Answer is 100.

• Compounding is a series of multiplications .Discounting is a series of divisions.

• If one knows the FV, PV can be worked out from formula PV=FV divided by (1+r)to the power of n.Where ‘r’ is the required rate of return,and ‘n’ is the no. of yrs after which FV will be realised.

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Equity valuations

• Dividend capitalisation method is a sound one conceptually.

• PV of the share is worked out by discounting the stream of dividends and the selling price at the end of holding period ,with the required rate of return.

• If expected next 3 yr dividends are D1,D2,D3,& P the expected selling price at end of 3 yrs,the price at which the share could be bought to get r return is

• Purchase price=D1/(1+r) + D2/(i+r) square +D3/(1+r)cube +P/(1+r)cube

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Buying a stock---

• But the difficulty in practice is how to estimate future dividend and the price after 3 yrs.

• This involves lots of subjectivity though not impossible.

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Can I buy a HLL stock today at Rs 140?

• Let us say in HLL,our holding period is 3 yrs,and required return is 20% per annum.

• HLL’s dividends have been growing at 20% per annum.The final dividend of HLL for the latest financial year is rs 1.5 per share of face value re1.U can safely assume a growth rate of 20% per yr for dividend for next 3 yrs.

• The EPS average growth rate has been 5% per annum latest yr EPS for HLL was Rs 4 for a re1 share.

• The analysis of HLL’s P/E ratio historical shows an average P/E of 30.You know mrkt price P can be worked out by P = P/E x EPS

• Should we buy HLL share at the current mrkt price of rs 140 a share?

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HLL share---

• EPS after 3 yrs is 4(1.05) to the power 3• Expected HLL’s share price after 3 yrs is 30x EPS• Dividends D1,D2 and D3 can be calculated from current

dividend of rs 1.5 knowing the expected dividend growth rate for next 3 yrs.

• PV=FV/1.2 to the power of n =D1/1.2 + D2 /1.2square +D3/1.2cube +P/1.2cube where P is expected share price after 3 yrs.

• DECISION—If PV>Rs140.Buy the stock otherwise NO!

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Future forecasts for dividend,EPS and FV depend on factors many

• 1.SWOT of HLL & key competitors• 2.New products of HLL & their strength in mrkt• 3.Tech leadership of HLL• 4.Service capability of HLL vs competition• 5.Brand strength of HLL’s products vs competition• 6.general stock mrkt health in India• 7.general stock mrkt health global mrkts• 8.political, religious and environmental threats any

where.etc,• 9substitutes and tech obsolescence.• 10.projected B/S for next 3 yrs.• Acquisitions and sell off if any in next 3 yrs

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Valuing brands-why?

• Some cos want to place brand values on their balance sheets to emphasise the co’s asset strength

• 2.if prices are not put to brands, then a co can easily be undervalued by the stock mrkt and become a takeover target

• 3.brands are also sold or licensed ,so buyers and sellers need to place a value on them

• 4.if cos are to invest in brands, it is imp to see how their values change over time in order to judge whether the investment pays off.

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5 main methods of valuing brands

• 1,price premium valuation.Where successful brands obtain price premium over unbranded products ,then discounted value of these future premiums can be the basis of brand valuation

• 2.incremental sales valuation.if the value of the brand appears in higher mrkt shares rather than premium prices,incremental sales over an unbranded product can be used to estimate the value of the brand.

• 3.replacement cost value.the estimated cost of developing a brand with comparable statureto the current brand can be used for valuation

• 4.stock market valuation.for some cos it is possible to break down stock mrkt valuation into its components;physical assets,industry factors,and other intangible assets.the value of this brand can then be estimated as the residual.

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Valuing brands---

• 5.future earnings valuation.the most satisfactory approach is to estimate the discounted present value of future earnings attributable to the brand.essentially this amounts to determining the multiple to be applied to current brand earnings-stronger brands achieving higher multiples.RHM,one of the first Cos to value brands on the balance sheet ,estimated brand strength from an analysis of brand’s rankings interms of leadership,brand support,mrkt attractiveness,international appeal and brand protection.

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Valuation methods-inaccuracy

• All methods are approximate.because• 1future mrkt conditions and hence long-term brand

earnings are difficult to predict.• 2.brands are often stand-alone.Where brands are

marketed under corporate names,it is virtually impossible to separate the specific earnings attributable a single brand.

• 3.brand values are entangled with other intangible assetseg staff,patents,mrkt entry barriers etc.the value of an ad agency brand can be substantially changed by a walk-out of senior personnel.these and other factors make all such estimates of value hazardous.

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Buying a stock

• Which firm’s stock would u buy? prefer?

• GM• SALES----166BN $• ASSETS---229BN$• PROFITS—7BN$

•

• COCA COLA• 19BN$• 17BN$• 4BN$

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Coke vs GM

• In Jan 98,Coke had >4 times market value of GM partly because Coke’s brand value is twice that of the value of entire GM firm.

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Grand metropolitan• At Grand Metropolitan,we believe our brands• 1,to be our most valuable assets• 2,are all about our businessin foods,drinks and retailing• 3,are used to add value to our food and drinks products and to our

retail outlets.• 4,encourage consumer loyalty and confidence.• 5,allow us to earn enhanced profits with benefits to share holders

and staff alike.• 6,are the core of our business,• 7,provide the profits of today & gaurantee profits of tomorrow and

future• 8,provide us a combination of premium prices ,significant and

reliable volume & a low cost base –translating into substantial and predictable profits and cash flow.

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Grand metropolitan

• “We believe that the cost of purchased brands ,which does not go through the P&L A/c,should also appear on the B/S—provided it is below market value.This is in line with the way in which we treat other substantial assets.Each year we verify that the value of those purchased brand assets is above the cost shown in our B/S.”Sir Allen Sheppard.Chairman & group CE,GM plc.

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American definition of an asset

• (a).It involves a probable future benefit that provides a capacity,singly or in combination with other assets,to contribute directly or indirectly to future net cash flows

• (b)It requires that a particular entity can obtain the benefit and control others’ access to it.

• (c)It specifies that the transaction or other event giving rise to the enterprise’s right to or or control of the benefit must already have occurred.

• In short an asset must be likely to earn money & should be owned by you.

• Therefore there is little doubt that a brand is an asset.But how to represent that value on the B/S?

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By considering the factors in the order given below

• 1. The position of the brand in the market• 2,The position of competitors in the market• 3,the finantial strength and commitment of competition• 4.The diversity of the products covered by the brand • 5,The volatility of the market • 6,the degree of technological change associated with the product• 7,The level of public awareness of the brand• 8,The level of recent marketing support for the brand(to indicate any

future downturn in demand)• 9,The impact of Govt & other regulatory & pressure groups on the

brand• 10. The internationality of the brand

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Chris macrae’s method of brand valuation-a world class brand

classification system• 1.Is brand world class?• A=Global; B=International with limits to

expansion; C=Local• 2.Is the brand expandable? A=Above average;

B=average; C=Below average• 3.does brand have dependable marketing edge?

A=Pre-Emptive; B=Average; C=Below average• *chris Macrae rates Disney,Hilton,Sony,Lacoste

& Benetton As brands AAA• He views BCB & BCC brands as being difficult

for MNC’s to manage

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Principles of brand evaluation

• According to Farquhar,Han and Ijiri,• 1,Define that which is to be evaluated.Key

questions to be asked for the valuation analysis are (a)what exactly is the brand? (b)what is the target market? (c)what are the intended uses of the brand? (d) what is the context of ownership of the brand?

• 2,Establish the value premise.The basis for value might be incremental profitability,total value,discounted cash flow,royalty rate,income momentum or some other measure.

309

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Principles of brand---

• 3.Separate the brand from other sources of value.The brand’s value can be intertwined both with the tangible product and related physical resources and with other intangible assets,such as human resources,know-how,Co image and soforth.

• 4.Forecast the brand’s future uses and value.A brand’s value depends not only on its existing uses but also on a forecast of possible extensions,portfolio effects,new markets,licensing activities and other future uses.This forecast must make explicit assumptions of the level of future marketing support and ownership.

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Principles of ---

• 5.Assure reliability of brand valuation .The subjective judgements made/used in brand valuation must be consistent across different individuals,assets ,companies and time.

• 6. Check for validity and auditability.The brand valuation method must provide both checks on the validity of its assumptions and a process that can be audited for reasonable certainity.

• Allen Sheppard.”when people ask me whether I look for long term or immediate profits,I simply say ‘yes”because clearly I must look for both.What other answer is there? Grand Met is not a short term business.But we do not forsake the profits we can make today for profits in the future.”

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Brand valuatio-2 stages

• 1.To calculate after-tax profit or cash flow attributable brand

• 2. To roll this up in some way into a capital sum .In practice these 2 stages may be intertwined as one affects the other.

• 3 methods of establishing annual benefits brought to brand owners by brands

• (A) Premium earnings• (B) Equivalent or notional royalties• (C) Brand earnings/alternative return on assets

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3 methods of establishing annual benefits brought by brands

• 1, premium earnings approach• Focusses on the differences between the brand and the

equivalent unbranded cash flows. Price,volumes ,steadiness of volumes and resultant cost savings, However sometimes it is difficult to establish the difference. Unlike Smirnoff and other lesser vodkas!

• 2. Notional Royalties approach.Simple.Smirnoff-in drinks division ,IDV was paying royalties to Hublein,before GM’s acquisition.GM had access to data and could easily calculate /valuate brands.

• Problems;(a) As Co’s become global,they are less willing to license 3rd parties ,so no data will be available. (b) many countries resist royalties for exchange control and tax teasons.

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3 methods of ---• 3.Brand earnings/Alternate return on investments.• 1.Cash flow is isolated from the brand and then separatd from the generic

equivalent.• 2.The above is in turn calculated as the opportunity rate of return on the

capital (that is the assets excluding the brand itself) employed in producing the product.The reminder is the cash flow that can be attributed to the brand asset.

• In all cases once the annual benefit is established, brand valuation is done either by

• (A) discounting future cash flows or (B) applying an earnings multiplier to average historic cash flows or to the first year estimated figure. And some do both.

• Discounted cash flows are sensitive to interest and growth rates and terminal values.

• Earnings multiplier ;Can be found in market place as Co’s brands change hands.-Most familiar to investors, corporate finance people and share holders.

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The interbrand method

• They feel market place multipliers are inadequate and too rarely available to be used as bench marks.

• So felt better to create a theoretical model and assign multiples to brand cash flows according to an analysis of RELATIVE BRAND STRENGTH. Calculated applying 7 key factors—1,leadership,2.brand stability, 3.market stability,4.internationality,5.trend.6.marketing support,7.protection(trade mark security)

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Interbrand--

• The brand is assessed on each of thease factors and an overall brand strength score is calculated.

• It is this that determines the discount rates for future cash flows.

• A brand should only be valued when its name/TM are protected by law or other similar means in atleast its major markets.

• If the above is done,the brand strength and and hence an appropriate multiple should be decided

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Infosis corporate brand valuation and how they place on B/S

• Valuing the brand by infosis; “ A brand is much more than a logo.It is a trust mark-a promise of quality and authenticity that clients can rely on. Brand equity is the value addition provided to a product or company by its brand name.It is the financial premium a buyer is willing to pay for the brand over a generic or less worthy brand.

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Infosis---

• Brand equity is not created overnight.It is the result of relentless pursuit of quality in manufacturing,selling,service,advertising and marketing.It is the integral of client experiences in dealing with the Co and its services over a sustained period.”

• The most widely used method for estimating brand value is the earnings multiple method. Financial World magazine used a variant of this method in July 96 issue and evaluated the Microsoft brand at $5.63 Bn while its market cap was $60 Bn on the date of brand valuation.

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Infosis brand valuation--goodwill

• Goodwill is a nebulous accounting concept that is defined as the premium paid to tangible assets of a company It is an umbrella concxept that transcends components like brand equity and human resources and is the result of many corporate attributes including core competency,market leadership,,copy rights,trade marks,brands,superior earning power,excellence in management,outstanding work-force,competition,longevity and so on.

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Michael birkin’s brand valuation method –book ‘brand

valuation”edited by John Murphy• 3 steps• 1.determine brand earnings.To do this,• (a) determine brand profits by eliminating the non-brand profits from

the total profits of the Co.• (b) Restate the historical profits at present day values• (c)provide for the remuneration of capital to be used for purposes

other than promotion of the brand• (d) adjust for taxes.• 2.determine the brand –strength or brand –earning multiple.It is a

function of a multitude of factors like leadership,stability,market,internationality,trend,support and protection.these factors have been evaluated on ascale of 1 to 100 internally by MGMT based on info available within Co.

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Infosis valuation---• Compute the brand value by multiplying the brand earnings with the multiple derived in step 2

above. RS.CRORES• YR ended Mar 31 2000 99 98• PBIT 325 156 66• Less nonB income 35 4 2• Adj profit 290 152 64• Inflation Comp factor at 8%-1 1.087 1.18• PV of profits for brand290 166 75• Weightage factor 3 2 1• Weighted profits 872 331 75• 3 yr Av weighted profit 213 • Remuneration of capital• (55 of Av capital employed)• 35• Brand related profits 178• Tax @38,5% 69• Brand earnings 109• Multiple applied 48• Brand value 5246

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Infosis brand value• Assumptions• 1.total revenue excluding the other income after adjusting for cost of

earning such income is brand revenue ,since this is an exercise to determine the brand value of Infosis as a Co and not for any of its products or services.

• 2.Inflation is assumed at 8% per annum• 3.5% of the average capital employed is used for purposes other

than promotion of the brand.• 4,Tax rate is at 38.55.• 5.The earnings multiple is based on the ranking of Infosis against

the industry average based on certain parameters .(exercise undertaken internally and based on available information.

• 6.the figs above are based on Indian GAAP financial statements.MCap of Infosis as on 31-3-00 was Rs 59,338 Crs.while brand value alone was Rs 5246 crs.

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Infosis data• 1.EPS rs 5 each-01 02 03 04• 95 121 145 164• 2.P/E . 00 --90 60 40 16• Brand value5246-5400-7250-7488-8185• Net FA 207---560 720• People value2237-5100-9500• Sales 921—1960—2603• MCap 59340-26900-24654-26847-32909• Entprse value58830-26320-23624• Entpre value=mcap-cash+debt• BSTR multiple48---22 ----18---- ----14—• EVA 129---389---510---

• VA 723---1563—2239• Brand earnings109-- --- ---535• BV as % of MCAP10—20---30—29—25--

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The myth of market share --buy the way-4 situations-same MS

• 1st time repeat units frequency Tot units Tot mrkt MS of Br• 100 - - - 100 1000 10%• 20 20 4 - 100 1000 10%

• 50 10 5 100 1000 10%

• 50 25 2 - 100 1000 10%

•

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MYTH OF ms---

• Major strategic implications for future

• Case1-get repeat buyers

• Case2-increase trials

• Case3-increase repeat buyers

• Case4-increase usage by repeaters

• All cases-increase frequency of purchases

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Myth of MS

• Traditional approach to MS ignores these Q’s• 1.Consider the 4 competitors each with a 10% MS. Who

gets higher profit?Whose sale is more assured? Who is to grow more?

• To give MS figure any meaning,one needs to look at • (A) trial pattern• (B)repeat buying• © and consumption pattern decided by frequency of

buying and quantity bought and consumed in each buying visit.

• SOME MORE DETAILS NEEDED• 1How is the market divided?• 2.Where is the market headed?

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Where is the mrkt headed?

• Coca-cola today looks at the potential of the total global mrkt for beverages-including coffee,tea,and water.

• Instead of looking at ways of competing with pepsi,it should now ask how it can replace British ‘tea-time’ with a ‘coke-time’ or substitute a ‘coke-break’ for a ‘coffee-break’.

• Should we follow or lead markets?• Should we challenge,follow or lead competitors?• Who is our competition?• Who are our markets?• REDEFINE OUR STRATEGY<OUR COMPETITORS

AND OUR MARKETS.

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Crm and brand mgmnt• The core of CRM-NOT OLY BE CUSTOMER-CENTRIC but also be

PROFIT-CENTRIC• Therefore develop strong value propositions in terms of better

products/servicesso that strategies are both customer and profit centric.

• BRAND SHARE,BRAND PROFIT and CRM• Crm extends itself from customer acquisition to customer retention.It

is a 4 step process• 1,Target customer identification-who is my target customer?• 2.Customer attraction-Who is coming to my store?• 3.Customer acquisition-who is buying at my store?• 4.customer retention-Who is buying again at my store?• Most Co’s CRM efforts are limited to steps 3 and 4.So they lose

significantly on lost customer opportunity.

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Lost custom opportunity How to gain?

• 1.Retailers in India make a wrong estimate in identifying right customers. Only about 15-20 %of so called target customers walk into the store. 80-90 % do not even enter the store.

• 2.Among those who go to store only 1/3rd end up buying and 2/3rd go to shop next door! A case pf poor merchandise and service. So target customer base of 100 got reduced to a buyer base of 5.

• 3. Of these 5 ,2 or 3 come to buy again.• WALK-INS-15; CUSTOMERS-5 ; REPEAT-2 or 3.• STEP 1 LOSS—80-90%--target customer stage1 loss; only 15%

enter.• STEP 2 LOSS—60-70%--FOOT FALL BASE- 15.-5 out of 15 buy.• STEP 3 LOSS—40-50%--CUSTOMER BASE -5.—2 of 5 repeat

buy.• STEP 4 LOSS—50%--REPEAT CUSTOMER BASE—2 or 3.

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Repeat customer base is low--

• Many retailers miss the big picture.Instead of looking at target customer base of 100,they look at maximising their share out of 5.

• THERE FORE MINIMISE LOSS AT EACH STEP.

• Look at gains and efforts at each step.The gain/effort ratio reduces exponentially from step 1 to step 4.

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Gain and effort index---

• 1.Efforts are minimal and unusually low and one time in step 1 and 2 and gains are much higher.

• 2.In step 3 and 4,it takes a lot of effort on almost an ongoing basis and gains are disproportionately low.

• 3.Therefore it is important to get act right in step 1.

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Gain/effort index-GI,EI and G/E in each step

• Step 1 2• Ta identify cust.attract• GI 100 80• EI 20 50• G/E 5 1.6

• Step 3 4• Cust acqui custretain• 30 10• 80 100• 0.4 0.1

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Reinforce brand loyalty-no longer 0 defects-0defections!

• Financial value of a brand-amount of future expected returns+ degree of risk on these returns.

• Strong brand assures strong supply of loyal customers ,with assurance and client satisfaction.

• From offence to defence;abundance of offers makes clients jump from offer to offer,from one manufacturer to another.

• The value of life-time client; Loyal clients are• 1,more profitable2,large business-5 times more than

next best• 3,less sensitive to price,4.spend more and more• 5,give positive word of mouth,6.5 times less costly.

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Reinforce brand loyalty--

• Lowering defection rate of clients by 5% leads to benefit increase of 25-85%

• 97% of French ‘Canal plus’pay TV channel’s 6 mn clients are loyal .Yearly subscription costs 2028 Francs .If loyalty drops by 1%,revenue loss 75 mn Francs.

• Strong brands have loyalty programs;1.service is adapted to clients.2,defensive actions give customer no reason to defect from brand or Co. 3,offensive –to create a personalised relationship with client-more intimate therefore more involved bond.

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Concept of costomer bond

• Defensive side—Identify cause of dissatisfactionor disloyalty.Have as many dissatisfied voices as possible.A silent dissatisfied customer is much worse.

• Offensive side—A brand must become land mark of personal attention. Become ‘a loving Co’-interested not in the client but the person.

• That is end of anonymous mrktng’attention has to be customised if it is to be efficient.

• Divide customers into big,med and small and develop programs for big customers –who also are loyal.Recognise loyal customers & focus attention on them.this is RELATIONSHIP MARKETING.

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From brand equity to customer equity

• Brand loyalty -3 facets• 1.potential loyals,2.pseudo loyals and 3.active committed loyals• Managing customer equity;(a).many customers have favorable

attitudes vis-à-vis particular brands .Their loyalty is insufficient to inhibit switching within a repertoire of brands.

• These customers are potential loyals only if a tailor-made program is devised to increase the rate of purchase of a particular brand.

• (b) Some repeat buyers are actually pseudo loyals. They don’t have strong attitudes reg the brand .They buy the brand because of price or availability .To increase their brand preference,they require reinforcement of their choice and an increased perception of the brand’s superiority .

• ( C).Active and committed loyals should be induced to to try more and more new products –both line and brand extensions

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3 facets of brand loyalty

• Y axis---brand preference9ATTITUDE0• X ---Axis----product repeat purchase• Z Axis---Trial of line extensions or brand extensions• Potential loyals have an attitude but insufficient to prevent

switching ,therefore increase thre rate of purchase of a particular brand.

• Pseudoloyals are repeat buyers but without any strong preference or attitude ,therefore their choice to be reinforced with an increased perception of its superiority

• That means both potential and pseudo loyals can be converted to active committed loyal thro appropriate sytrategies.

• Active committed loyals should be taken thro Z axis by inducing trial of more and more new products-line and brand extensions.

• POTENTIAL LOYALS TO BE TAKEN THRO X-AXIS; PSEUDO LOYALS TO TAKEN THRO Y-AXIS. And ACTIVECOMMITTED LOYALS THRO Z AXIS.

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Potential,pseudo and active committed loyals--

• Look at Sony’s situation.

• Committed loyals are 19% of Sony’s entire customer franchise

• Potential loyals-4%

• Pseudo loyals-35%

• Each group needs a specific marketing proposition.

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Brand capital vs customer capital-matching preferences and

purchase behavior• Brand capital is percieved superiority• Customer capital is USAGE• Brand capital and customer capital—both ‘yes’---19% for

Sony.they are committed loyals• Potential loyals are 4 %-costomer capital ‘no’ but brand

capital ‘yes’• Pseudo loyals are 35%-customer capital ‘yes’,but brand

capital “no”• Balance 42% customers of sony are having neither

customer nor brand capital—that is they are at the origin.theyneed to be taken thro all 3 axes.

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Myth of MS--

• Managements must ask the right strategic questions.• When measuring MS Cos should ask questions such as • 1 what is the market?• 2.What is MS by units? Value?• 3.should Co look at the share of total market?or the

share of mind,body and heart and wallet?• 4.should the Co compete with intra-competitors?or inter-

competitors? Or innovative competitors?• 5.is there a fight amongst categories?If so how to tackle?

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Interbrand valuation of global brands---tp

• India’s biggest wealth creators---tp

• Pat VS eva----tp

• Beyond the asset test ---tp

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Fournier’s 15 relations that brands establish with users

• Fournier is a psycho analyst and studied the various relations that brands maintain with their users.

• All relations can be broadly classified under (1)LOVE (2)hate and (3)in-between

• 1.committed partnership.Long term and voluntary relationship like the one between a man and his bicycle

• 2.marriage of convenience.long term bond springing from a chance encounter.A woman Fournier studied became fan of a brand of salad dressing after a friend of her left a sample of it with her.

• 3.arranged marriage.Long term commitment arising out of intervention of a 3rd party.Ex expert recommendation

• 4.casual friendship.Purely temporary,low in intimacy,occassional interraction,and few expectations.ex breakfast cereals

•

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Fournier----

• 5.close friendship.Voluntary union based on a sense of shared intimacy and rewards.A consumer believes a brand of sneakers is a comrade in hand in daily sports activities.

• 6.compartmentalised friendship.A highly specialised friendship often dependent on the situation ,characterised by low intimacy.A woman, Fournier examined, used different brands of perfumes for different activities.and different dresses for different occassions.

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Fournier---

• 7.kinship.This is an involuntary union of the sort associated with a family. A cook feels obligated to use the same kind of flour that his mother was using .

• 8.rebound relationship.A union based on desire to replace prior partner.Eg,Enemy’s enemy is a friend. A woman, Fournier had interviewed, has stopped using a particular brand of mayonnaise because she did not want to use the brand her ex husband was using.

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Fournier---

• 9.childhood friendship. Affectionate relation of infrequent interaction dating back to childhood. A man buys a brand of instant dessert because he remembers eating it in his childhood.

• 10.courtship. Period of testing before deciding on a committed partnership. Fournier saw a woman experimenting with 2 brands of perfumes before deciding on one.

• 11.dependency.Obsessive attraction that results in suffering when the partner is unavailable. A consumer is upset when her favourite brand of butter is out of stock. eg Amul butter.

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Fournier---

• 12.fling.A short term engagement with great emotional reward. A man tastes another brand of coffee out of compulsion at a friend’s place, but feels guilty (although enjoys it) because of attachment with and loyalty to his favorite brand of coffee.

• 13.adversarial relationship. Intense relation characterised by negative feelings and a desire to inflict pain. A man refuses to buy a brand of computer he hates,buying another computer out of spite.

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Fournier---

• 14.enslavement.Involuntary relationship governed exclusively by the partner’s wishes or desires. Eg Ambassador during 70’s .

• 15.secret affair. Highly emotional private affair. Relationship is considered risky. A consumer hides his favorite brand of frozen dessert in a refrigerator and sneaks some late at night when nobody observes him.

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Thinking smallwhy wd a consumer select smaller,

newer brand?• Top 10 Co’s By growth of sales-

2003of Co’s >100 cr• COMPANY

• !.Parakh foods—• 2.Haldiram• 3.Anchor Health• 4.Dhara Veg Oils&foods• 5.Perfetti India• Kanpur Detergents• CavinKare• Marico Industries• Godrej Hicare• Cadbury’s

• YOY GROWTH RATE

• 32.4%• 26.9%• 21.4%• 14.5%• 14.1%• 14.5%• 13.3%• 11.6%• 7.9%• 6.5%• sourceAc Nielsen Connect2003

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Why wd a consumer select a small Co over an old established brand?

• According to CAN’s Winning brand research,there are 3 reasons for this

• 1Consumers discern between brands based on a few general criteria rather than specific rational comparisons between brands

• 2.The 2 biggest factors that account for 66% of variance in brand equity accounted by brand associations tend to be a,assessment of product Q and or b,general affirmations of brand reliability

• 3.More specific imagery attributes account for less variation in brand equity.

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Asia pacific –distribution of brand equity indices-as on Sep 2002

• 1710cases in 14 countries were studied by AC Nielsen.The winning brand normative data base demonstrate that the mean brand equity across asia pacific is 1.87 on a 0-10 scale where 0 is effectively a generic product or service with no brand value.

• 1.5% of FMCG brands have BEI’s (BRAND EQUITY INDEXES) above 5 and 9% between 3 and 5.

• Many brands are little better than generic via-a vis FMCG brands across Asia- Pacific

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Secrets of small brand success

• 1,SOV(share of voice) low but firmer handshake with retailers and consumers

• 2.Retailers act as brand endorsers.Give personal gaurantee to take back.

• 3.Small town consumers not as individualistic as in big town.Go by peer endorsement.

• 4.WOM.Housewives discuss these.• 5.Small brands look at simple consumer need

gaps.EG,Anchor—vegetarian: Ghadi—works in hard water.

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4 directions---

• 3.Find new applicationsArm and Hammer baking soda sale increased from $15mn in 70 to $400mn in 90 by finding new uses primarily as a deodoriser for fridges,sinks.animals etc.

• 4.Increase brand usage rate.Raise frequency of consumption.---Make it easy to use(instant tea),provide incentives to use(Frequent flier discounts),Reducing disincentives to use(Decaffeinated coffee)or finding new ways to increase the quantity used(large bottles)

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Brand extensions and brand stretching

• Brand extns.using a brand name successfully established for one segment or channel to enter another one within the same broad mrkt.eg.Coca Cola added Classic Coke,Coke Lite,Cherry Coke etc to Coke,

• Brand stretching means transferring the successful brand name to quite diff mrkts.eg Successful Porsche name extended to sunglasses. Yamaha was extended to pianos,hi-fi products and skis

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Glow case• Sri Krishna Ranganathan,the VP-sales &maktng at Angar limited is

fighting a losing battle.His R&D has developed a soap with an anti-infection ingredient ,which Mr Ranganathan felt, had a potential niche mrkt at that point of time and that it could easily outperform the Co’s mother brand GLOW.in terms of sales volume

• Confronted with severe resourse constraints in finance and faced with an organisation structure ill-suited for launch of an altogether new brand,Ranganathan found himself in a dilemma.His CEO Mr Manubhai Shah strongly felt that extension of a brand that is synonimous with beauty & complexion care into health soap segment would do more harm than good.However,Mr R wouldn’t like to let go of this wonderful opportunity, come whatever constraints may!Aren’t they solvable? If only he could get a solution?

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Glow contd

• “Glow! It cares for you” became a catchy campaign making Glow another name for beauty & complexion care. Since inception in 1984, Glow has had 6 brand extensions on the beauty and complexion care platform, all put together, accounting to a leading MS of 45% in the segments with a total sale value of Rs 250 crores per annum.

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Glow –discussion Q’s

• 1.Why does R have a dilemma while his boss doesn’t have one?

• 2.What is R’s dilemma?• 3.Do u agree with R’s decision of launching Glow

extension? Why? Why not? Justify?• 4.Should R go ahead with line or brand extension,how

do u help him convince his boss and minimise/eliminate the risk of brand erosion? What positioning strategy wd u recommend?

• 5.In case R wants to go ahead and launch as a multi brand, how can he get over the resourse constraints?

• 6.What is the moral of this story? In terms of brand mgmnt?

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Sugandha mouth freshners• SMF Ltd.has been a major player in the national market.Theit

tobacco based product by name “Khushboo”is very popular and enjoys a leading 505 share of the mrkt for the last 5 yrs,

• Recently,they introduced a non-tobacco mouth freshner ,by name “SUGANDHA”.This is being received well,especially by the youth segment.

• Recently the Govt has launched an Ad campaign asking the people to give up tobacco consumption.The Co is at present facing 2 problems.1,fear of drop in sales of tobacco based Khushboo and 2,people’s growing belief that even Sugandha has some tobacco.

• Pl advise the Co on1,product positioning of Sugandha and khushboo and 2,customer education and awareness building.

• If u were to be the MD of this Co, What would u do to put the Co on an assured growth path simultaneouslybeing socially responsible corporate citizen.

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Product mix decisions

• 1.add new product lines&widen the product mix ,new lines build on Co’s reputation in other lines.

• 2.lengthen existing product line to become a more full-line Co.

• 3.add more product versions of each product&deepen it’s product mix.

• 4.pursue more product line consistency or less depending on whether it wants a strong reputation in a single field or in several fields.

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Pricing decisions-why is price p is the most imp of all p’s of M.MIX?

Premium strategy Good value strategy

Over charging strategy

Economy strategy

higher

lower

quality

higher lower

Price

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Price is the only p that gets revenue all others add to cost!

• Prem strategy—High Q,High P—ROLEX• Economy Strategy—Low Q, LowP-Timex• Usually coexist,since markt consists of atleast 2

groups of buyers—Those seeking Q and those seeking P.

• Good Value strategy---A way to attack premium pricer.”we have high Q but at a low P.If really true,and Q sensitive buyers believe this,they buy and save money.---Un less the premium product offers more status or snob appeal.

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Over charging strategy

• Over price the product in relation to Q.In long run, customers may feel “taken”,will stop buying & may complain to others.So avoid this strategy.

• PRICING AN INNOVATIVE PATENT PROTECTED PRODUCT.How to price first time? Choose between 1,Market-skimming pricing and 2,Market-penetration pricing.

• MARKET SKIMMING PRICING• 1.Set a high price to skim maximum profit from

the segment willing to pay the high price.Fewer but,more potential sales

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Pricing an innovative patent protected product first time

• Choose between• A.market skimming pricing• B.market penetration pricing• 1.market skimming pricing.---set a high price to get a

high profit per unit from the segment willing to pay a high price---fewer but more profitable sale.

• Conditions for success• 1.quality & image must match the high price.• 2.cost of production of small volume can not be so high

as to cancel out the high price.• 3.competitive entry barriers should be high—not to enter

& under-cut.

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2market penetration pricing

• Set a small price in order to attract a large number of buyers and a large market share deeply & quickly.Ex

• 1.Dell & Gatreway used penetration pricing for high quality computers through lower cost mail-order channel.Their sales increased substantially when IBM,COMPAQ & APPLE sold thro retail stores & could not match their prices.

• HOME-DEPOT & WALLMART & other discount retailers charge low prices for high volumes leading to low costs to allow keep prices low!

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Conditions for setting low price

• 1.markt to be highly price-sensitive.so,low price leads to more sales and growth.

• 2. production & distribution costs fall as sales volume increases.

• 3.low price must help keep out competition-otherwise price advantage may be purely temporary.Dell & Gateway faced problems when IBM & Compaq established their own direct distribution channels.

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3.skimming layer by layer

• Some firms that are highly innovative use a hybrid strategy whereby they set a high price to begin with to skim maximum profit from the top most segment and then reduce price continuously to skim profit layer by layer from the segments willing to pay the high price.Ex.

• Intel charges the highest price for the computer chip “pentium”.When it first brought it out,they charged $1000 each so that computer producers priced first pentium computer at $3500,attracting innovative & serious first buyers

• Later, Intel cut pentium prices by 30% per year to eventually allow the pentium PC prices to drop into the price range of home buyers. ..

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Choice between penetration and skimming strategies.

• Penetration• 1.Objective-long run markt

share;risk taking• 2.demand-price elastic;few

markt segments• 3.competition-deter new

competitors;few barriers to entry

• 4.product.-image seen as unimportant,long product life cycle

• 5.price-pressure for prices to fall,need to move fast

• Skimming-• Short run profit• Risk-avert

• Price elastic,multiple markt segments

• Accept new competitors,high barriers to entry

• Seeks prestige and image,short PLC

• Prices can be sustained,fewer pressures in markt.

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Skim-penetrate-------

• Penetration• Promotion-customers

understand product• Distribution-existing

system• Production-high scale

economies,experience curve effects

• Skim strategy• Unfamiliar product

• Unfamiliar channel

• Few scale economies and experience curve effects.

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Price problem • Case 1. A toaster marketer has the cost and pricing structure as

below.• Fixed cost;$300,000• Price/unit;$20• Variable cost/unit;$10• Q1.What is the break-even volume in units and value in $• Q2.The Co invested $10,00,000 and wants a 20% return on

investment (ROI).How much should the Co sell in units and value?• Q3.At an expected unit sale of 50’000 what is the total

manufacturing cost per unit?• Q4.At the above manufacturing cost per unit,what should be the

selling price • A,to earn a mark-up of 20% on cost?• B,to earn a margin of 20% on selling price?

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Price problem case-2

• Setting a price to Government A’c is quite tough.In a sealed-bid pricing,the firm needs to set a price based on how it thinks competitors will price rather than on its costs or demand.Both “high price “ & “low price”setting strategies are undesirable.One needs to strike a balance.Suggest your pricing strategy with following data.

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What is the best price?

• Co’s bid & profit in $

• 9,500 &100

• 10,000 &600

• 10,500 &1100

• 11,000 &1600

• Assumed probability of winning

• 0.81

• 0.36

• 0.09

• 0.01

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EVC-Economic value To Customercentral concept in pricing in

industrial products• The markt leader is selling a machine tool

(product X) at a price of Rs.30,000.The customer will also have to cover start-up costs of rs.20,000-(installation,initial training etc.)and post-purchase costs over the life of the machine with a present value of rs.50,000-(labor,maintainance,power and other operating costs).Thus the total LIFE CYCLE COST of the m/c is Rs100,000.In other words,the price is under 1/3rd of the total cost of employing the m/c.

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By developing an offer with high EVC ,a Co can charge significantly

higher prices and stll offer its• Customers a superior value.The higher vpriced

product may offer value because (a),it generates more output thanits competitor or

• (b),because the operating costs associated with it (mint,labor,depreciation etc)are lower over its economic life.

• If a competitor wants to dislodge the markt leader ,it must offer superior EVC.One way is simply to price-cut.But this is not likely to be a decisive strategy here,because,even if the m/c price is cut by 20%,the savings to customer of Rs.6000 is only 6% of total cost.

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There are 2 other better ways.For ex,a new product Yis shown as

reducing the start-up cost• By Rs.10,000 and post-purchase cost by

Rs 20,000.What do u think is the highest price the customer will be willing to pay for product Y,assuming both X & Y would have the same life cycle cost and productivity?This represents the EVC that Y offers to the customer and below the EVC it would be rational for the buyer to switch to Y ,provided that all other things were equal between the 2 suppliers.

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Assume a new product Z is available which ,besides lowering

• The customer’s cost ,may enhance its revenues also.Z actually turns out more finished product for the customer or products with superior quality Product Z has the same start-up cost as X ,but post-purchase costs are Rs 10,000 lower and offers a NPV of Rs 30,000 extra contribution margin,arising from enhanced output of higher quality for which demand exists.Find out the EVC or the maximum price customers are willing to pay for Z?

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Questions on evc case

• If you are the market leader with X and developed Y and Z for the first time what marketing strategy would u adopt for success?

• If u are the unsuccessful competitor for the leader X and fortunately developed both Y and Z,what marketing strategy wd u adopt to challenge the leader and displace him?

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Evc case solution

• Using the EVC concept, the firm can target those mrkt segments where the evc is the highest.

• In such segments the product is more attractive and so here the firm can get the highest prices.

• In this eg, it may pay the firm to launch 2 new products.

• A high price brand Zto the quality-oriented customersand a low priced Y brand to the cost-oriented segment of the brand mrkt.

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Firm’s pricing policy setting

• 1.selecting pricing objectives• Survival• Max current profit• Max current service• Max sales grwth• Max markt skimming• Product-quality leadership• Other pricing objectives

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2.Determining demand-price elastic demand & price-inelastic demand

• 3.estimating costs;Demand sets the sealing & cost sets the floor for product pricing

• 4.analysing competitors’costs prices &offers• 5.selecting aq pricing method.select the price based on 3

C’s---Customers’ demand schedule,cost function & competitive prices.

• LOW PRICE costs• competitors prices/substitutes• Customers assessmnt of unique product features• HIGH PRICES• If price is lower than cost, no profit• If price higher than customers’assessment of value,no

possible demand exists.

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Various pricing methods

• A.mark-up pricing

• B.target-return pricing

• C.perceived value pricing---value in use price

• D.value-pricing---fairly low price for a high quality product ex.Toyota LEXUS

• E.going rate pricing

• F.sealed-bid pricing

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Perceived value pricing or value-in-use pricing

• Increasingly companies are basing prices on buyers’ perception of quality and value,not on the seller’s cost.

• They use other marketing mix elements,such as advertising,packing,sales force,and promotion to build-up perceived value in buyer’s mind.

• Eg.Dupont,when it developed its new synthetic fiber for carpets,it demonstrated to carpet makersthat they could afford to pay Dupont as much as $1.4 per pound for the new fiber and still make their target profit.

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Dupont calls this $1.4 the value-in-use price.

• Dupont sets a price lower than $1.4 to induce carpet makersto adopt the new fiber,since at &1.4,the customers are indifferent.

• Dupont didn’t use its manfng cost to set the price,but only to judge whether there was enough profit to go ahead in the first place.The key to perceived value pricing is to determine the markt’s perception of the offer’s value accuraely.

• Sellers with an inflated view of their offer’s value will over-price their product.Sellers with an under estimated view will charge less than they could both are undesirable,

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Perceived value pricing contd.

• When a customer asks Caterpiller’s dealer why he should pay$10000 more,the dealer answers;

• $90k is the tractor’s price if it is only equivalent to the competitor

• $7k is the price premium for Caterpiller’s superior durability.

• &6k is the price premium for Caterpiller’s superior reliability

• $5k is the premium for superior service• $2k is premium for larger variety on parts.• $110k is the normal price to cover Caterpiller’s superior

value.• Minus $10k discount is equal to final price.

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Value pricing• Here sellers chargea fairly low price for a high quality offering,such

that the price should represent a high value offer to the consumers.• Value pricing is not a matter of simply setting lower prices on one’s

products compared to competitors.• It is a matterof reengineering the co’s operations to become a low

cost producer without sacrificing quality and lowering prices significantly to attract a large no of value-conscious customers.

• An imp type of value pricing is every day low pricing(EDLP) at the retail level.High-low pricing is resorted to by promotion oriented competitors. Here the retailer charges higher prices on every day basis but then runs frequent promos in which prices are temporarily lowered to below EDLP levels.

• As super mrkts face increasing compttn,from counterparts and alternate channels,the key to success is using a combination of high low and EDLP strategies with increased ad promos!

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6.Selecting the final priceconsider addnl factors

• A.psychological pricing

• B.influence of other MM elements on price.

• C.company pricing policies

• D.impct of price on other parties.

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Adapting the price.Co’s don’t set a single price,they follow a pricing

structure that reflects• A variations in geographical

demands/costs• B.markt segment requirements• C.purchase timing• D.order levels• E.delivery frequency• F.guarantees• G.service contracts

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Price discounts & allowances

• Cash discounts-prepayment

• Quantity discounts

• Functional discounts

• Seasonal discounts

• Allownces-trade-in allowances

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Promotional pricing stimulates early purchases

• Loss-leader pricing• Spl-event pricing• Cash rebates• Low-interest financing• Longer payment terms• Warranties & service contracts• Psychological discounting-was $359, now $299 only.• Promotional strategies are usually a zero-sum game!• if they work,competitors copy easily.• If they don’t work,waste of money!

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Discriminatory pricingsame product at diff prices

• Customer segment pricing-eg.museums-low price for students&sr citizens

• Product form pricing-diff pack sizes

• Image pricing-diff names,diff prices,diff images

• Location pricing-Tagj charges differently at diff cities.

• Time pricing-season,day or hour.

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Product mix pricing

• Product line pricing-price steps one sneaker to another

• Optional feature pricing• Captive product pricing-camera & films• 2-part pricing-fixed fee plus variable usage fee• Bye-product pricing• Product bundling pricing-season tickets. Total

cost less than sum of individual products

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Initiating & responding to price changes

initiating price cuts• Ex; excess plant capacity

• Declining markt share

• Drive to dominate markt thro lower costs

• Risks of price cuts

• Low-quality trap

• Fragile-merkt share trap-high priced competitors may cut prices& can withstand due to deep pockets

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Initiating price changes

• Normally pressure exists on co’s to reduce prices.Experience curve,competition and rising customer price sensitivity as markets evolve,all encourage falling real price levels.

• Inflation,stock markets expectations of growing profits and possibility of new and improved products/brands encourage enterprising managers to consider ways of increasing prices and margins.

• Cost reduction is another obvious way of rising margins.But price increase has a better impact.

•

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Techniques to reduce customer sensitivity to price rise

• 1.TRADING-UP• 2.LINE EXTENSIONS• 3.UNBUNDLING• 4.MULTIPLE BRANDING• 5.OPPORTUNISTIC PRICING• 6.REPOSITIONING• 7.ESCALATOR CLAUSES• 8.REDUCTION IN DISCOUNT• 9.COST PLUS FORMULAS

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1.trading-up.Quality improvement is the basis.alongwith commncn to customers.a better Q for high P

• Ex.Rin,rin shakti etc.• 2.LINE EXTENSIONS.New features is the basis to pass price increase on

to less price sensitive customers• 3.UNBUNDLING.Initial price plus charge extra for elements that were

previously supplied free.ex delivery,installation,warranties,training.• 4.MULTIPLE BRANDING.Introduce FIGHTER brands to match competitors

if they are forcing prices down,and simultaneously rise the price of current version.Price-sensitive customers can select fighter brand and less price-oriented buyers may take the premium version.

• 5OPPORTUNISTIC PRICING.Changes in environment and customer circumstances may reduce buyers sensitivity to a price.Ex.industrial buyers more interested in total cost of obtaining,operating and servicing the product over its life rather than just price.

• Eg rise in price of oil would increase economic value of a fuel-efficient engine.and thereby helping in a price incresase.

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6.REPOSITIONINg.Reposition a product to get higher

prices.Eg.Chivas regal scotch.• In early 80’s, scotch whiskey was increasingly sold on price to boost

flagging volumesGuinness succeeded well in in repositioning many of the brands as premium products taking advantage of increasin g affluence and snob appeal of these established brand names.

• 7.Escalator clauses.with long term contracts and long gestation periods,escalation clauses will allow producers pass on cost increases to buyers.

• 8.Reduction in discount.Most Co’s erode their basic price with bcash discounts for pre payment,quantity trade discounts,seasonal and pomo allowances,or trade-in.Many of them can be dropped or reduced without significant customer dissatisfaction.

• 9.Cost plus price formuylas.Offer to meet new customer needs on basis of cost plus pricing.thus introduce enhanced products with the buyer guaranteeing the margin.

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Product mix pricing

• 1.Product line pricing-a range of products at various prices for buyers to choose from.Castrol GTX at low price to more expensive GTX2,GTX3 so on uptoGTX7 to exploit different price elasticities amongst consumers and distributors and encourage customers to trade up to higher margin brands

• Select price points to signal clear quality differences between the brands.

• 2.FOLLOW ON PRODUCTS.Some products require subsequent purchases.eg.cmera and film. Computer and software.Initial product might be priced low to stimulate demand and make profit on subsequent products.

• Supplier needs to be dominant or specialist to prevent competitor to enter wirh lower priced substitutes.

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3.BLOCKING PRODUCTS.Sell at an economic price to block

competitive entry.• Eg.cross-subsidise sales in one segment or geographical area to

dissuade competition.• 4.BUNDLED AND OPTION PRicing.Advertise the product at a low

stripped-down price and at POP,encourage to add high margin features.merc price Rs 20 lacs and Rs 5 lacs on options.

• In contrast Japanese competitors bundle a comprehensive range of features into the sticker price to offer superior value proposition.

• 5.PARALLEL IMPORTS.Increasingly pricing is becoming international problem with differences in living stds and distribution systems.countries differ in price responsiveness and therefore set prices differently in diff countries but legl restrictions and parallel imports are making such strategies difficult .

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Product mix pricing strategies

• Product line pricing-diff products at diff prices in a range each offering more features than previous one.Kodak royal gold and kodak fun time –high and low price versions.

• 2optional product pricing-Basic price+accessories• 3.Captive product pricing—In products razors,cameras

and computers, in services,the strategy is 2 part pricing-a fixed fee plus charges for the calls made beyond a numberas a variable vusage rate.

• 4.By-product pricing.Set a price for byproduct to make the main product’s proice more competitive.

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Customer types based on price and perceived value.VALUE OF

MONEY vs VALUE OF DIFFRNCN.• 1.PRICE BUYERS OR CREDIT BUYERS OR

COMMODITY BUYERS-diff low and vom high.Suppliers develop multiple vendors and encourage them into kamikaze price wars.Scream loudest and dictate price,credit and selling strategies.Profits so low attn unjustified but provide volume sale.

• 2.VALUE BUYERS OR VALUE LOVERS• Best position to be as customers.Want lower

prices,longer credit where possible,more efficient operations,superior features or services

• And wd pay faster for superior value where justified.• From marktg pt of view,firms that attract value customers

get the loyal buyers as part of the bargainand sell to the price buyer only when profitable and reasonable,

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• LOYAL BUYERS_lovers of the care from suppliers.

• Less concerned about price or credit.Often have a single supplier and don’t intend to qualify others.

• COMFORT BUYERS –lovers of convenience• Don’t care who is supplying,what price,what

credit,as long as readily available.Most profitable segment,but unfortunately have little brand loyaltyand offer no SDA.

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Cost based vs value based pricing

• COST BASED PRICING-setting price based on buyers’perception of value.

• Product---cost---price---value---customer

• VALUE BASED PRICING-Setting price based on seller’s cost

• Customers—value---price---cost---product

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Place-the 3rd p of mmixphysical distribution & channel

mgmt• Physical distribution/marktg logistics-Physical distribution

is process of delivering product to marktng channels &consumers.Logistics has a higher scope –covers PD plus part of task of mrktg channels

• PD takes care of transportation,ware housing and inventory mgmt to facilitate flow of product while channels connect the firm with its customers and thus bring in greater value addition in delivery chain

• SCM has even higher scope encompassing the materials mgmt task as well. Has all 5 primary activities of value chain-both front end and back end of the process to spread value and develop competitive edge.

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Physical distribution-importance

• Ensures physical flow of product

• Confers place &time utility on products

• Helps build clientele

• Where production locations and markets are distanced,PD becomes crucial

• A promising area of cost reduction.PD costs are high and second only to materials-a neglected area of cost control.

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Component functions of PD/logistics

• Planning the overall PD system

• In-plant warehousing• Transportation• Field warehousing• Receiving• handling

• Secondarytransportation,secondary handling &subdistribition

• Inventory mgmt at each level in chain

• Order processing/execution

• Accounting/record keeping

• communication

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Designing a physical distribution system-5 steps

• 1.articulate distrbn objectives,specify the minimum desirable service level in product delivery

• 2.find out what customers want in product delivery

• 3.Find out what competitors do• 4.Keep the costs of the system as low as

possible,without sacrificing the guaranteed minimum service level

• 5.keep the system sufficiently flexible.

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Main tasks in transportation mgmt

• 1.Assessment of transportation requirement

• 2.Choosing the mix of transportation modes

• 3.Decide the routing

• 4.Develop operational plans

• 5.Implement/Review

• 6.control transportation costs

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Role &importance of warehousing

• 1.Like transportation,warehousing too vests the product with time and place utility

• 2.In some commoddities,warehousing vests the product with form utility as well

• 3.A certain level of storage is inescapable in marketing of most products.Storage needed in large scale for seasonal products.

• 4.sub-distribution realities also necessitate extra storage.• 5.Storage reduces the need for instant transportation which is

difficult 7 costly.• 6.storage is a competitive adv ,since better storage leads to better

servicing of channel and consumer.• 7.Storage also helps in balancing demand and supply and ion

stabilising prices• 8In some products storage by itself acts as a stimulant of demand.

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Elements of inventory costs

• 1.Interest on capital tied up in the inventory• 2.Warehouse rent,3.Staff salaries• 4.Insurance,Rates and taxes,5.Stationery• 6.Postage& cmmncn charges,7.Administrative

OH’S• 7,costs of handling,unloading & stacking• 8.Loss of damages &deterioration on storage

9.Cost of order processing /record leeping/accounting

• Optimum inventory is a compromisebetween cost & service.

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Outsourcing logistics

• Volvo-GM outsourcesmarktg logistics tying up withFedEx. Dealers when requre spares in an emergency call FedEx on a toll fgree no and FedEx supplies parts by air the same night either at dealer’s shop or at roadside at the breakdown site.A central warehouse was set up andsome of traditionalregional warehouses&reduced overall inventory csotsby 15%.

• In India AFL, Elbee,& Bluedart are some of the Airexpress Cos collaborating with manufacturers for outsourcing

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Marketing channel magmt.Functions performed

• 1.Facilitate selling by being physically close to customers.

• 2.Provide distribution efficiency by bridging the manufacturer with the user,efficiently and economically

• 3.Break the bulk and cater to the tiny requirements of buyers

• 4.Assemble products into assortments to meet buyers needs;match ‘segments of supply ‘ with ‘segments of demand’

• 5.look after a part of physical distribution/marktg logistics;subdistribution—a.Reselling,b,Retransport. C,Handling and d,Accounting---STOCK HOLDING-a,Providing warehouse space. B,Storing the stocks. C,bearing risks and d,Transforming static stocks intooperational stocks,thereby aiding the sales process

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Channel functions----

• 6.Share the financial burden of the principal;Provide deposits;Finance the stocks till they are sold to the ultimate consumers;Extend credit to retailers/consumers

• 7.Provide salesmanship• 8.Provide pre and after sales service• 9.assist in sales promos• 10.Assist in merchandising

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Channel functions---

• 11.Assist in introducing new products• 12.Assist in implementing the price

mechanism;assist in price negigotations• 13.Assist in developing sales forecasts/sales

plans for the territory.• 14.provide markt intelligence & feedback.• 15.Maintain records,16,take care of laison

needs17.Helpdiffuse innovationsamong consumers,act as ‘change agents’and generate demand

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Alternative channel patteens

• 1Manf----M’s salesmen---User• 2.Manf—M’s showrooms/Depots—User• 3.Manf—Retailer—User• 4.Manf—Franchisees—User• 5.M—Wholesaler(stockist)/Distributor—R—User• 6.M—W(s)/D—Semi-wholesaler—R—U• 7.Manf—Markter—W(S)/D—SW—R---U• 8.M—Soleselling agent—W(S)/D---SW---R--U

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Steps in designing channel system

• 1.Formulating channel objectives• 2.Identifying fubctions to be performedby the channel• 3.Analysing the product & linking the channeldesign to

the product characteristics• 4,evaluatingthe distribution environment,including legal

aspects• 5Evaluating competitor’s channel design• 6.Evaluating Co resourcesand matching channel design

to resources• 7.Generating alternate designs,evaluating and selecting

the one that suits the firm best.

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Objectives firms seek from channels

• 1.Effective coverage of the target market• 2.Efficient & cost effective distribution• 3.ensuring that consumers incur minimum

exertion in procuring the product.• 4.Helping the firm to carry on

manufacvturing uninterrupted ,confident that channels will take care of sales

• 5.Partnering the firm in financing and sub distribution tasks.

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Types of marketing intermediates

• 1.Sole selling agent• 2.Marketer• 3.C&F Agent(CFA’s)• 4.Redistribution stockists• 5.Stockist/Whole saler/Distributor• 6.Semi wholesaler• 7.retailer/dealer 8.Broker 9.Franchisees• 10Authorised reps 11Commission agents• 12.jobbers

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Linkage bet channel objectives & channel design

• Channel objectives• 1.Castrol india-Locational

convenience,Choice of product &Strong reach;Speedy dely;Fill orders from outlets in 24 hrs.

• 2.reliance textiles(VIMAL)-Create exclusive image for VIMAL,Cater to urban markts,as per position.Build barriers to comptn.

• Channel design• Vast net work of outlets—

backed by CFA’s/Stockists/warehouses/delivery facility,1800 SKU’s,variety,packsizes.---Multi-tier design .

• 2.Exclusive showrooms-200nos-in all cities and jumbo showrooms in metros.outlet communicates.—

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Channel design---

• 4.Archies gifts &greetings—Proximity to customers,convert low involvement purchase inti HighIP,Make purchase an enjoyable experience.

• 4.Outlets close to upper echelons of society,the TMS.Go for exclusive shops/shop-in-shops;Trendy interior design and peppy ambience.—Wide range of appealing merchandise

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Channel design----

• 5,BBLIL(premerger with HLL)—Strong reach,Provide choice of brand,place&time utility—Fresh stocks to consumers always.

• 5.embrace all types ofshops,super mrkts,grocery stores&kirana shops.A 3-tier channel with CFA’s,RS’s and R’s.Provide for proper inventory/dely backup.At each level minimise distance bet issuing & receiving points.

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Channel obj’s & design----

• 3.Philips(appliances ,Pers care )—Cover mrkts intensively<extensively;After sales servoice integral part of channels--,Build barriers to competitors.

• 3.Have a 3-tier channel of CFA’s,distributors& retailers(22ooR’s).Authrised Philips Service Centers(100 APSC’s) and 4 CRC’s(consumer response centers).60 engineers laise with APSC’s.—Motivate channel with guaranteed 30%ROI toAPSC’s.—Make all strong dealers philips dealers.

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Channel design-----

• 6.Louis Philippe—Promote as a complete & premium wardrobe line,with shirts,trousers,ties,socks,blazers,belts etc.

• Cover the TMS(well-to-do gents) adequately.

• Maintain an edge over comptn by competing on quality,service,image & value.

• 6.Go for exclusive show rooms,ensure full line at all outlets.Go for multi brand outlets and for shop-in-shop in super stores like Akbar alis where spl areas are provided as shop in shops.

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Channel design--

• 7.ITC tobacco division,-ensure easy availability of cigarettes.

• Build brands through advertising.

• Go for CFA’s and wholesalers who distribute resell to retailers(8000)

• Go for different types ofretailers,branded,traditional and non traditional.

• Have branded retailers and franchisee retailers who sell only ITC cigarettes and not other brands

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The promotion P—marketing communication

• The mrktng commncn mix• Product communicates• Price communicates• Place,point of sale communicates• Promotion communicates• -----advertising communicates• -----personal selling communicates• -----sales promotion communicates• ------publicity communicates

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Product communicates

• Product personality as a whole communicates.produc t personality constitutes various elements such as

• The physical features,the material,the size,shape,design,the finish etc

• The package,its color,size,design &labeling• The brand name,the co name.• IN SHORT,THE PRODUCT SENDS OUT

MULTI-PRONGED MESSAGES

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Mrktng commncn through price cues

• Price conveys something more than price

• Price-quality equation

• Price-status equation

• Price,an indicator of technological superiority

• Consumers’ concept of a ‘reasonable price”

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Place as a component in marktng commncn.

• “I buy only from X store” Why?---”they have a big choice”: “It is a lovely place to shop in”;”the service is good”;”it is cheap”;It has a good location”;”they sell quality products”.

• THE STORE IMAGE• STORE LEVEL MERCHANDISING-display &

service;store is a display unit attracting high consumer traffic.

• STORE,A POWERFUL COMMNCN INSTRUMENT;particularly for image-led products and brands—aesthetic display of Baccarose Cosmetics in an aristocratic store environment –the color of the wood,the glass fittings.etc imp.

• STORE CHOICE IS LINKED TO STORE IMAGE.

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Promotion as a component in mrktng commncn.

• PS,ADV,SP AND PUBLICITY and DM• PERSONAL SELLING & its communicative role• Sales man and his qualities in his role as a

communicator---• Product knowledge &technical expertise• Customer-salesman relatability in

age,culture,language,dress style etc.• One who listens,communicates better• Right sa;les message leads to effective

commncn.

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Publicity-a potential tool of mrktng commncn.

• Oversee & influence the stories/news that appear in media and conduct publicity campaignsaround some innovations within co or some topics of public interest like environment,health,social welfare etc.

• SPONSORSHIP & EVENT MANGMNT are 2 most sought after tools for creating wide publicity.

• Sponsorship-when news worthy events take place,firms associate with such events as sponsors

• DIVERSE WAYS OF SPONSORING EVENTS • Title sponsorship,cosponsorship,official supplier status for getting a

host of benefits & rights. Such as signage,tickets,hospitality,product category exclusivity and the right to advertising,promotion & publicity.Intention is to remain part of the news –creating eventand reap the best of exposure to the firm.

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Event management-a new addition to publicity tools

• Making an event spectacular through a variety of commncn and display techniquesis crux of event mangmnt.

• The event can be product launch,an exhibition,a contest, a stage show,or a sport event.idea is to capitalise on the opportunity by converting the event itself into a grand display.

• Event mngmnt firms do conceptualisation,program design,logistics planning,technical planning 7 venue mngmnt.

• To make the event spectacular,lighting,sound and spl effects arte creatively used.to nleave a lasting impression on the audience.

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Pr-management of reputation

• Pr accomplishes the task of explaining to the outside world about the issues that are going on within the co.

• Good corporate reputation makes selling easier & cheaper.It saves on advertising,and renders every activity easier.

• Pr is more vigorous in in bad times ;for ex,in recession,large cos often cut the ad budjet and spend part of it on PR.

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Advertising mangmnt

• “advertising” originates from the latin “adverto”which means to turn round.

• Therefore advertising denotes the means used to draw attention to to any object or purpose.

• In marktng, advertising is defined as “any paid form of non-personal presentation and promotion of ideas,goods,or services by an identified sponsor”

• Popularisation of products is basic aim of advertising and hence rests on a thorough understanding of the buying process-and influencing the purchase behaviour of consumers in a way favorable to the advertiser.---

• ATTENTION<AWARENESS<INTEREST<DESIRE<ACTION<SATISFACTION <LOYALTY.

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How does advertising influence /persuade the buyer?

• 1.Should be of interest to the buyer• 2.The audience should interpret the

message in the intended manner• 3.the advertisement should influence the

audience/ buyer.eg.attitude change is a central theme in advertising.

• Traditional theories of attitude suggest that it is made up of 3 interrelated components-cognitive,affective and conative.

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Attitudes created by advertising---

• 1cognitive component of attitude deals with cognition or knowledge.It is the faculty of knowing,or percieving or concieving ideas.It is the sphere dealing with knowledge.

• 2.The affective component deals with affections /emotions.For ex feelings of likes and dislikes towards objects are dealt on the affective plane.

• 3.The conative component deals with behavior or action.these 3 components together shape what is known as attitude.

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Theories of attitude

• Consistency theory.Man seeks consistency ,balance or harmony in his belief system.He tries to resolve inconsistencies or imbalances because he cannot tolerate them for long.

• When inconsistencies occur between existing belief system and new information,to which he gets exposed,the given attitude will tend to change, so that the inconsistency will get resolved.

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Factors in advtng that accomplish audience persuasion

• 1.Source/endorser of message

• 2The message structure and the message appeal

• 1.THE SOURCE or THE ENDORSER

• A)the credibility of source

• B)Likability or attractiveness of source

• C)The source’s approach to the views and disposition of audience.

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2.The message in the ad.the message structure and the appeal

• 1.Message structure• A)the message sidedness• B).order of presentation• C)climax order,anti-climax order,pyramidal order• D)message conclusion.• 2.Message appeal-rational and emotional• RATIONAL APPEALS.• Physical feature-oriented,Function oriented,Brand to brand

comparisons• EMOTIONAL APPEALS• LOVE,AFFECTION,ENJOYMENT<FUN &HUMOR<SENSE OF

PRESTIGE<YEARNING FOR DISTINCTIVENESS &LUXURY<FEELING OF ENVY,FEAR OF UNCERTAINITIES etc.

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Advertisements using celebrities as source/endorsers

• Amitab bachhan-icici bank campaign,for its retail banking.”makes life easier”

• Mansoor AliKhan Pataudi for Gwalior suitings-well known cricketer• Sachin Tendulkar for visa,Pepsi,and Philips• Sunil Shetty endorses Colgate dental powder• Sharukh Khan for Mayur suitings• LUX uses film stars • THE intention is to win over audience thro prestige and

attractiveness of endorser.• MRF uses names of famous cars that are users of its tyres.The

copy showed Opel Astra,Ford Escort,and Fiat Uno.The message”These cars ride only on MRF radials,” MRF radials-India’s answer to world class cars.”

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Rational appeal –ITC sundrop and Zodiac shirts

• SUN DROP;”New Sundrop super refined oil offers not just one but 4 imp health benefits-easy food absorption,energy,heart care and vitamins.Food cooked in Sundrop retains its natural flavour’.Copy highlighted each of the 4 benefits

• Energy-9 k cals per gram• Food absorption-helps the body absorb food faster as

the free fatty acid content is below 0.2%.• Heart care-Keeps the heart strong as it contains over

60%poly unsaturated fats.• Vitamins-Contains A, D and E.

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Rational appeal-zodiac shirts.• Why Zodiac makes the best shirts in india?• 1.Fabrics-best,including,soft,light,long staple european 7 Egyptian

cottons,in Chambrays,Oxfords and Twills• 2.Stitching-computerised M/cs create an almost invisible 21 stitches

per inch for max strength,others stop ay 16• 3.Buttons-Genuine mother-of pearl,hand picked & matched.Others

use plastic buttons.• 4.Collars use imported lining for durability.State-of –the-art fusing

eliminates warping & creasing• 5.Style & comfort,6.collar/cuffs,7Button holes• 8.Customer satisfactionEach Zodiac shirt reflects our chairman’s

obsession with quality and carries his personal guarantee.AMONG THE BEST IN THE WORLD_ZODIAC.

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Examples of rational appeal

• Sun drop,Zodiac• 2.Brand to brand comparisons to convince

audience.highlight specialities,claiming superiority,name of competing brand may be specified or implied.Eg.New Pepsodent compared with Colgate.The claim is it is 102% SUPERIOR TO CDC.HLL compares its product with the “leading tooth paste”Colgate Ad jingle in the background sufficient to relate it to Colgate.

• ASCI specifies that comparative advertising –direct and indirect, is permissible if 1.the aspects compared are clear,2.comparisons do not confer artificial advantages on the advertiser,3.it is factual,can be substantiated,4.consumer is unlikely to be mislead and5. there is no unfair denigration of the competing products.

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Examples of emotional appeal

• Jenson & Nicholson ad creates a romantic setting to drive home the elegance of J&N paints----Love at first sight,Love ever after,Colors are like love,----J&N colors---excitingly---beautifully---Give your home this wonderful romance through J&N colors—

• Humour appeals-very common today,certainly attract attention.an imp clutter breaker.Pause,read,capture the current of fun and enjoythe message.Whether it brings about an attitude change is debatable.It may sometimes even distract from the central theme of message.In addn, people tend to take such messages too lightly.But many copywriters do use humour in their messages

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Emotional appeal in ads

• Newsweek;Headline of a TIME magazine Ad reads .”If ur ad in TIME magazine,change your ad agency”.Headline of a subsequent Ad for NEWSWEEK;”if ur advertising doesn’t work in TIME magazine,don”t change ur agency,place it in NEWSWEEK”

• FORD;Subtly takes a dig at Japanese car makers,highlighting the superiority of its cars.s.es,ofcourse,Japanese cars are excellent—AfterallFord motor Co taught them to make cars.In 1927,Ford started operations in Japan and installed the first conveyors assembly line in all Asia.In fact for many years,the Japanese word for automobiles is FORDO---”

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Fear appeal in advertising• Failure to use the advertised product might result in great

loss/damages in terms of money,health ,prestige etc.• This fear appeal serves as stimulus for the receiver,creating a

favorable attitude towards the product.• It may also induce the receiver to learn more about the product and

encourage him to get more info about the issue.May also create a feeling of hostility in receiver .

• Be careful of 3 things;!Understand nature of product advertised 2,Understand attitudinal frame of target audience and 3,extent of fear in hidden in the copy,

• Banks and insurance cos use fear appeal to evoke concern.UNITED INDIA INSURANCE;”Today—a picture of safety---tomorrow---an invitation to disaster.UR protection is our concern,take cover under United India; Tonight—sleep better thsan ur neighbor.It costs so little to insure ur household belongings”

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Ad objectives—models that link buyers attitude change and purchase with advertising

• Some useful models;• 1.AIDA-the 4 stage model proposed in 1920’s for any impersonal sales

presentation• 2.5-stage & 6-stage models;proposed in 1930’s by rural socialogists

studying the process of innovation-adoption.There are 5 stages in any adoption process-Awareness,Interest,Evaluation,trial and Adoption.Then came 6-stage model;Awareness,Knowledge,Liking,Preference,Conviction and Purchase.—divided into 3 main components;cognitive component(Knowledge component-First two),Affec tive component(emotions component-next two), and lastly conative component(Action component-last two)

• All these mod.els belong to a class called “hierarchy of effect”models• 3.DAGMAR..Looks at advertising as performing a commncn task and not a

sales task.• What is required is a balancing act-advtng can not be loaded with the sales

task making it totally responsible for bringing in sales; nor can it be totally exempted from a sales-related responsibility.

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4 broad themes ad objectives revolve around

• 1.The behavioural constructs-generating trial purchase and store visits

• 2.Attitude-ATTITUDE CHANGE AND ATTITUDE MEASUREMENT

• 3.Awareness-Creating awareness of new products/brands/new ideas

• 4.Product positioning and brand building

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Main decision areas in advertising

1 deciding the advertising objectives2.deciding the budget3.deciding the copy

4.deciding the media.Deciding objectives—Should they include sales growth? Or should it

have only commncn goals because ad is essentially a commncn task?

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Areas where ad objectives can be set

• 1.introduction of new products• 2.expansion of mrkt for existing & new products• 3.building a long term consumer franchise for

the firm• 4.countering competition• 5.reminding customers• 6.reassring customers by removing post-

purchase dissonance.• 7.building up brand image and co image

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Ad obj’s

• 8.aiding total selling function by taking customer thro steps in purchase process-from awareness to purchase

• 9.closing an immediate sale-’clincher ads’• 10.supporting other sales promotion activities• 11.stimulating ‘impulse buying’• 12.enthusing the channel to stock the product• 13.supporting &supplementing sale’s selling

effort and dealers’ selling effort.

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Deciding ad budget• 1.Competitive parity• 2.Affordability• 3.A fixed % of turnover• 4.Budget based on functions to be performed• 5.Regression analysis;An advanced quantitative technique to arrive

at budget.Done based on Historical data-either time series data or cross-se4ctional data

• Time series data are records of past ad expenditures and sales over time.Cross-sectional data are records of ad expenditure and sales for a specific period over different markets.The aim is to predict the dependent variable –sale or market share.Advertising expenditure level would be one of the independent variables.The regression coefficient crresponding to the advertising variable serves as a measure of the short-term response to advertising.

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Ad budget-the adaptive control modeladds sophistication to budget

decision• Ad budget decisions need updating because the relation

between advertising and sales changes over time with the changes in makt conditions.

• The adaptive control model starts with a sales response curve and locates an optimum level of ad expenditure.The firm will now experiment advertising at non –optimum levels in selected test mrktsto get more knowledge about the sales response curve originally set.The new info coming out of the experimental marktng is added to the sales response function for arriving at the current optimal advertising expenditure rate.

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The compromise in ad budget setting.consider basic q’s like

• 1.Which is the audience intended to be reached by advertising?• 2.What is its size,location etc?• 3.What are the media available for delivering the ad message?• 4.Of the available media,which combination of media is likely to be

most cost effective?• 5.To meet the given objectives,What kind of campaign is required?

What are its features?What type of endorsers are required?What is the cost there of?

• 6.Does the campaigninvolve single release of an ad or repeat releases?What is the frequency of releases proposed?IN OTHER WORDS<BUDGET DECISION IS CLOSELY LINKED TO AD OBJS <MEDIA AND COPY DECISIONS.THESE 4 INTERACT AMONST THEM AND INFLUENCE EACH OTHER.One gets modified and reshaped by the other.

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Deciding the copy-copy refers to all that appear in an ad –written

matter,pictures,labels,logo,and designs

• To decide ‘copy platform’or a precise statement of the ‘ad story’,

• 1,close interaction between advertiser and ad agency

• 2,clear-cut ad objectives by advertiser• 3,knowledge of market & consumer

characteristics,• 4,nature of competition• 5,profile of competing brands/products.

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Major tasks in copy development-1.fact finding stage and 2,idea

finding stage –alex osborn• ‘the big idea’ in Advertising• 1.All effective commercials have a ‘big

idea’.Says Roser reeves;The big idea in itself is a USP.Get a big idea and say it in a simple style.

• 2.David Ogilvy says;Unless ur campaign contains a big idea,it will pass like a ship in the night.

• 3.Says Leo Burnett;Not only is great copy deceptively simple,so are great ideas.And if it takes a rationale to explain an ad,then it is too complicated---

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Ad copy-keep message simple and short.Jack Trout

• POSITIONING-How does the mind work as it takes in,stores or rejects ur message? The 5 elements to positioning process are

• 1.Minds are limited—too much info indigestion• 2.Minds hate confusion.Best way to enter minds is to oversimplify ur

message,so it can slice thro all noise.Powerful mrktng commncns focus on a single word;Crest-Cavities;Volvo-Safety.

• 3.Minds are insecure; So,use testimonials.Polls and panels create a ‘bandwagon effect’eg.Honda Accord advertises’In the 8 yrs Car & Driver magazine has presented its 10 best list,only one car has been chosen every time.’

• 4.Think simple..Focus on onme idea and drive into the mind.Eliminate anything that others could claim as well as u can.Forget anything that requires a complex analysis to prove.

• 5.Never ignore the obvious;Obvious ideas tend to be powerful ideas,because they will be obvious to the markets as well.

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Testing the ad copy-2 types –post tests;after product

launch and pre-tests before

• 3 copy testing methods-1,lab tests,2,tests that attempt to simulatethe natural reading or viewing environment and3,tests done in the real/natural environment,called market tests.

• 1.lab tests-use phisiological measuring techniques with aids like eye-camera,polygraphs etc.

• 2.simulated environment tests include intercept research,mobile trailers,fixed facility research,and in-home interviewing.

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Ad copy testing-markt tests

• Markt tests also utilise several techniques.The folio test is normally used in print media.TV commercials are tested thro the in-home projector vtest ,or live telecasts/on-the-air-techniques

• The DAR test for TV commercials-The Day-after Recall technique.The day after a TVC goes on air,in a normal viewing situation,a sample of thre viewers of the program is made.Those who saw the test commercial are interviewed to find out their ability to recall the commercial..Based on certain steps,a ‘recall score‘is also made

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Testing criteria in copy tests

• When a copy is put to test what is actually tested?It’s ability to ensure a recall? Or its ablity to ensure ‘recognition? Or its ability to ensure ‘persuasion’? Or someother factors?

• Same conflicts arise here as in ad objective setting.

• A majority of tests centre on ‘attention’,’recognition’and ‘recall’ factors.The tests are mostly concerned with commncn effectiveness of the copy.

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Deciding media-major ad media

• 1.print media

• News papers,magazines,trade journals,direct mail

• 2.audio/visual/audio-visual/electronic media

• Radio,television,internet,cinema,cassettes-audio and video,outdoor.

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Commonly used outdoor media vehicles

• Hoardings ,posters• Neon signs and other illuminations,• Transit advertising(railways ,Other transport• Fairs and exhibitions• Amusement parks• Dance,drama and puppet shows• Loud speaker announcements• Ballooons and sky writings

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Internet advertising-unilever,revlon &pond’s

• Unilever-had a 3yr vdeal with america Online Incto advertise scores of its brands online.It also signed a separate deal with microsoft Corp to advertise on Microsoft’s online servicesand to develop new interactive soft ware for advertising,

• Revlon;Its website has an interactive page;’Virtual faces-Try A new Look’where a customer can try out different shades(from Revlon’s latest Laven Dare and Fleshtones collections)on virtual faces on the screen and choose suitable shades.The person is then given a personal color consultation,a print out of which can be taken to the retail store and pick up the products recommended.

• Another web page is ;Revlon Give Aways.Customers fill in a questionnaire and offers coupons for select products.Revlon also offers self-care tips (on manicure etc )and info on fragrances.

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Pond’s website

• Pond’s interactive site is positioned as a one-stop site for skin-care tips and Pond’s products.While other sites concentrate on co-specific product oriented info,pond’s attempted to give general info and advice on common skin-care problems to make it universal.

• Pond’s took 1 yr and invested more than Rs 1 crore in the project to start with.

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Advertising thro cassettes-electrolux’s venture with Venus

Tapes• The co tied up with music & film producing co Venus

Tapes & Records for promoting its brands• Alwyn,Voltas,Maxclean,& Kelvinator.• The Rs 2.5 crore deal enables the co to advertise its

brands thro audio,video cassettes & CD’s produced by VENUS

• The tie-up will ensure insertion of E’s audiojingles in each and every Venus cassette..Venus will also insert E’s TVC in its video cassette and VCD’s for a total duration of 5 minutes

• Scope wide since e’s Ads can be carried on a minimum of 40 mn cassettes & CD’s during the contract.

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Measuring TV viewership(TRP)

• Television Rating Point (TRP) is ca measure of the viewership level of the program.It reveals % of audience tuned to a program.

• TRP system involves collection of viewership data on a weekly basis from a panel of TV viewers in select market territories,Viewership figs are presented as % of total tv audience with 1 TRp representing 1% of audience.

• EG.A serial on ZEE TV has a viewership of 11.5%among a sample of men of age 25 plus in Mumbai’s C&S homes While Zee News had just 0.2%viewership.That means the serial has a TRP of 11.5 and Zee News has a TRP of 0.2.

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GRP=TRP*No of times the spot is aired

• $ spots on a program with a TRP of 20 yield a GRP of 80.Programs are compared on basis of cost per rating point=ad tariff divided by TRP.

• TRP measurement; Diary system,people meter and Laser meter.• Diary system is the most common,It is a system of program recall by panel

members who are supposed to keep a diary on what they watch.• The people meter is a mechanical device ,which records when the tV set is

on and which member of the family is watching at a particular point.The viewer has to clock in by pressing a button.

• The Laser meter is a more advanced device.It automatically records the no of people present in aroom thro heat sensors

• Laser meter overcomes the limitations of both the previous devices.which demand the active and timely participation of panel members.If the viewer forgets to clock in or make timely notingsin the diary,then projections become unreliable in case of people meter and diary system respectively.

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Competitive strategies-building competitive advantage/edge or

differential advantage• CA or CE is an advantage over

competitors gained by offering consumers greater value,either through lower prices or by providing more benefits that justify higher prices.

• Marketing strategies must consider (1) not only the needs of target consumers (2) but also the strategies of competitors

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2 steps for building CA

• 1.competitor analysis-identifying and assessing key competitors

• 2,developing competitive marketing strategies that strongly position the Co against competitors and give it the greatest possible competitive advantage.

• COMPETITOR ANALYSIS-the process of identifying key competitors,assessing their objectives,strategies,strengthe and weaknesses and reaction patterns and selecting which competitors to select or avoid.

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Steps in analysing competitors

• 1,identifying the Co’s competitors

• 2,determining competitors’ objectives

• 3,identifying competitors’ strategies

• 4,assessing competitors strengths and weaknesses

• 5,estimating competitors’ reactions

• 6,selecting competitors to attack and avoid.

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1.Identifying Co’s competitors

• A.Co’s offering similar products and services to same customers at same places and similar prices—Eg,Coca Cola vs Pepsi Cola; For Buick Ford is a major competitor not Mercedes

• B.competition at a wider level-All firms making the same product or class of products.Eg.Buick competes with all other auto makers

• C. competition at a more broader level—Even co’s that supply same service such as makers of trucks,motor cycles,even bicycles

• D.Even more broadly,Competitors might include all Co’s that compete for the same consumer dollars.Eg Buick’s competitors can include all Co’s that sell major consumer durables ,new homes et

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Well-behaved or disruptive competitors

• Benefits of competition-1.Increase total demand ,2.Share costs of market and product development 3,Legitimise new technology 4,May serve less attractive segments 5,lead to more product differentiation 6,Improve bargaining power against labor.

• WELL –BEHAVED COMPETITORS—1,Play by rules 2,Favor a stable and healthy industry,3.Set reasonable prices in relation to costs 4,motivate others to lower costs & improve differentiation 5,Accept reasonable levels of MS & profits.

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Disruptive competitors

• 1.break the rules• 2.buy shre rather than earn3.take large risks• 4,in general shake-up the industry• Eg.American Airlines finds Delta & United to be

well-behaved,but finds TWA,Continental & America westdisruptive since they de stabilise airline industry thro continued heavy price discounting and wild promotional schemes.

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Competirive strategies-M Porter’s 3 winning competitive strategies

• Over-all cost leadership-Texas Instruments & Wall Mart• 2.Differentiation-Highly different product line-IBM and Caterpiller• 3.Focus.Serve a few markt segments well.Glass maker

AFGIndustries makes 70% of glass for microwave oven doors,and 75% of glass for shower doors(TEMPERED AND COLORED GLASS)

• Cos pursuing a clear strategy (one of the above) perform well.Middle-of –the-roaders like Sears,Chrysler,& International Harvester suffered the worst as they didn’t stand out as 1,the lowest in cost,or 2,highest in percieved value

• Or 3,best in serving some market segments.• Middle-of –the-roaders try to be good on all strategic counts but end

up not being very good at anything.

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Disruptive competitors

• 1,Break the rules• 2,Buy share rather than earn• 3,take large risks• 4.In general shake-up the industry.• EG,American Airlines finds Delta & United to be

well-behaved,but finds TWA,Continental & america West disruptive since they destabilise airline industry through continued heavy price discounting & wild promotional schemes

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Competitive strategies-michael Porter’s 3 winning comp strategies

• 1.Over all cost leader ship-Texas Instruments and Wall mart

• 2,Differentiation-highly differentiated product lines –IBM,Caterpiller,Lever etc.

• 3,Focus-Serve few market segments well.Glass maker AFG Industries makes 70% of glass for micro wave oven doors,and 75% of glass for shower doors(tempered and colored glass)

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Comp strategies---

• Co’s persuing a clear strategy (one of the above) perform well.Middle-of-the-roaders like sears,Chrysler & International harvester suffered the worst because they didn’t stand out as the

• Lowest in cost• Or highest in perceived value • Or best in serving some market segments.• Middle-of-the-roaders try to be good on all

stategic counts but end up being not very good at anything.

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Competitor myopia

• Kodak was worried of Fuji. But real competition was from film less cameras sold by Cannon & Sony that take video still pictures that can be shown on a TV set turned into hard copy

• IDENTIFY COMPETITORS • BY linking industry• And by market analysis by mapping out product/maket

segments• 1.From industry point of view-Coke’s competitors are

Pepsi,7-Up,Dr pepper• 2.From market point of view-Coke’s competitors are

“thirst quenchers” such as iced tea,friit juice,bottled water etc,

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Customer segmentation

• children/teens• Plain tooth paste

CP,P&G• Tp with fluoride-

CP,PG• GEL-CP,PG,LEVER

• STRIPED-Beecham• Smoker’s TP----------

• Age19-35 36+• CP&P&G CP&P&G

• CP&PG CP,PG

• CP,PG,LEVER andcp,pg,lever

• Beecham beecham• Topol topol

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Identifying competitors---

• P&G with several versions of Crest & Gleam and CP with Colgate occupy 9 of the segments

• Lever Bros with Aim occupy 3 segments,Beecham one(AquaFresh) and Topol two.

• If Topol wants to enter other seg bments it must estimate the market size of each segment,the shares of current competitors,and their current capabilities,objectives and strategies.

• Each product/Markt segment poses different competitive problems and opportunities.

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2.Determine competitors’ objectives

• What drives each competitor’s behaviour? A,short term vs long term profits? B,satisfactory profits or maximise profits?

• C what goals beyond profits?• Know relative impotance of each competitor for

a,current profitability,b.MS growth c.cash flow,d.tech leadership.f.service leadership and other goals.

• Judge competitive actions-Likely to pursue Low-cost production strategy?or Ad promotion strategy?

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3.Identify competitors’ sytrategies

• Strategic group-A group of firms in an industry following same or similar strategy.Ex.GE,Whirlpool,Maytag in home appliances industry form a strategic group offering a full line of medium price appliances plus good sevices.

• Sub-Zero and Kitchen Aid belong to a different group-offering a narrow line of higher quality at a higher price.but with a higher level service.

• If a Co enters one of the groups, it becomes a member of others key competitors,

• It can succeed conly if it develops some strategic advantage over these competitors.GE now offers a premium quality premium price line to compete with Kitche Aid and Sub-Zero.

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Look at all dimensions of competitors’ strengths

• Know each competitors’• Product quality• Features & mix.• Customer services• Pricing policy,• Distrbution coverage• Sales force strategy,• Ad &sales promo programs.Also study each

competitor’s R&D,Manufacturing,Purchasing,Financial,Manpower & other strategies.

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4 assessing competitors’strengths & weaknesses

• What can our competitors do? Find their goals,strategies,& performance over last few years

• Collect info from secondary data,personal experience & hearsay.

• Bench mark compare vyr Co’s products ,services and processes to those of competitors or leading firms in other industries to find ways to improve Q and performance.

• BENCH MARKING iS A POWERFULTOOL FOR INCREASING A CO’S COMPETITIVENESS.

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5 estimating competitors’ reactions

• What will our competitors do? SWOT analysis can help us know their recations or actions.

• Each has a philosophy,a culture,guiding principles and beliefs

• Each competitor reacts differently• Some don’t react quickly/strongly.Some react only to

price-cuts,others only to Ad promos!• Some competitors don’t show any predictable reaction

pattern.• P&G is a fierce reactor.No new competitor wd like to

fight directly with P&G,who doesn’t let a new comer into the detergent mrkt.

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6,selecting competitors to attack and avoid.(A).Strong or weak

(B)Close or distant competitors• 1.Strong or weak.Assess strength by “customer

value analysis”-what benefits target customers value and how they rate the relative valueof various competitors ‘offers.

• The key to gaining competitive adv is to take each customer segment and examine how the the Co’s offer compares with that of its major competitor.If Co’s offer exceeds that of major competitor,on all key attributes,Co can charge higher prices and earn higher profits or charge same prices and get higher share,

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2.Close or distant competitors

• Most want to compete with competitors who resemble them most.Eg.Chevrolet competes more with Ford than Jaguar

• A Co may also want to avoid trying to destroy a close competitor.Eg. Bausch7 Lomb attacked othersoft lens manufacturers but these were forced to sell out to larger ones such as Revlon & Johnson& Johnson.B&L now faced larger competitors like J&J and faced the consequences.

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Hypothetical market structure

• Mrkt leader-40%• Challenger-30%• Follower-20%• Nicher-10%• MARKET LEADER STRATEGIES• Competitors focus on the leader as a Co to

challenge,imitate or avoid.• Leaders keep • A constant watch

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Leaders’ strategies

• A product innovation may come along and hurt the leader .Ex.Tylenol’s non-aspirin pain killer took the lead from baeyer”s aspirin .

• The leading firm might grow fat & slow ,losing against new & peppier rivals.Xerox’s share came down from 80% to 35%,when Japanese producers challenged with cheaper & more reliable copiers.

• SOME BEST KNOWN LEADERS ARE• GM in autos,Kodak in photography,IBM in

computers,COCA Cola in soft drinks,WaLL MART in retailing,Mc Donald’s in fast food,And Gillette in razors and blades.

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3 actions for leader to remain no 1-

• 1.Expand total market• 2.Protect MS thro defensive and offensive actions• 3.Expand MS further even if mrkt size remains same or even

declines.• 1.EXPANDING THE TOTAL MARKET• A.Find new users.Some customers are still unaware and some

resist on price or features.Ex Revlon’s perfume.Opened virgin mrkt by convincing women who don’t use perfumes, and also looked at other demographics by producing cologne for men,and geographically by selling perfumes in other countries.

• Johnson’s baby shampoo Ad campaign aimed at adults and it soon became a leading brand total shampoo market.

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Leader’s actions---

• B.Find new uses.Eg.Dupont’s Nylon• Fiber for parachutes• Womens’ stockings• Major matl in shirts/blouses• Automobile tyres• Upholstery and carpeting• ARM&HAMMER baking soda as refrigerator

deodorant-by heavily advertising to put an open box of baking soda in Fridge,

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Leader’s 3 actions

• C.more usage;Convince people to use more often or more per occasion.Eg.Colgate tooth paste.Head & Shoulders shampoo;more effective with 2 applications instead of one per shampoo.

• Michelin began rating French restaurants on a 3 star system .Many of the best restaurants are in south of France leading many Parisians to take week end drives to South.It encouraged car qwners to drive more miles per year.

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Leader’s 3 actions---2,protecting MS thro defensive & offensive

actions• Coke against Pepsi,Gillette against Bic,Mc

Donald’s against Wendy’s,GM VS Ford.HOW?• 1.Prevent weaknesses that provide opportunities

to competitors :keep costs down and price proportional to value customers see in the brand.

• 2.Plug holes so competitors don’t jump in.• 3.The best defense is a good offense & the best

response is a continuous innovation.• It takes the offensive and sets the pace and

exploits competitors’weaknesses

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3 actions of leaders----6 defense strastegies that mrkt leaders use

• 1.position defense.the most basic defense-builds fortifications around its current poszition.But it rarely works.You must continuously improve and adapt to changing customer needs –and develop new brands.Coca-Cola,despite its dominant 40 % MS in US,aggressively extends its beverage lines and has diversified into desalination equipment and plastics.

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Actions of leaders----2.flanking defense

• Smart competitors attack leaders’weaknesses-like the Japanese entered the US small car mrkt.Since US auto makers left a gaping hole in that sub markt.

• Using a flanking defense,the Co carefully checks its flanks and protects the weaker ones.

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• 3.pre emptive defense-By contrast, the leader may employ a more aggressive preemptive defense striking competitors before they can move against the Co.

• Ex when threatened in mid 80’s,by the impending entry of the Japanese into US,Cummins slashed its prices by 1/3 rd to save its No 1 position in the 2 bn $ heavy duty truck engine mrkt.

• Ex cummins now has a 50% MS in North America .Not a single Us built Tractor-trailer Truck has a Japanese engine.

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• 4.counter offensive defense.When a leader is attacked despite its flanking or preemptive efforts,it can launch a counter offensive defense.

• Ex.When Fuji attacked Kodak,in the Us film makt,Kodak counteracted by greatly increasing its promotion and introducing several innovative film products.

• Ex.When Clorox’s detergent with bleach attacked it,P&G responded with tide with bleach which enabled it capture a 17% share of all Us detergent sale!

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Leader strategies---5.Mobile defense

• Involves more than aggressively defending a current mrkt position

• The leader stretches to new mrkts that can be serving as future bases for defense and offense.Ex Armstrong Cork redefined its focus from “floor covering” to “decorative room covering”(including walls and ceiling) and expanded into related businesses that were balanced for growty and defense.

• Ex Wall mart is mustling its way into grocery business with new “Wall Mart Super Centres-huge combo grocery &discount stores

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Compttve ---6 contraction defense

• If a large Co finds that its resourses are spread too thin and competitors atre nibbling away on several fronts,it prunes its portfolios to concentrate its forces or resourses

• Ex.ITT,Georgia pacific,and General Mills,now serve fewer mrkts ,but serve them much better.

• 3.EXPANDING MARKET SHARE• Usually industry break-up is:One or a few highly

profitable large firms,several profitable and focussed firms,and a large no of medium –sized firms with poorer profit performance.

• On an average,MS increase leads to profit increase.(PIMS).But this is not automatic.

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• MS increase leading to profit increase depends on the share increase strategy.There are many high share Cos with low profit and low share Cos with high profit.THE COST OF BUYING HIGH SHARE MAY EXCEED THE RETURNS.

• Highe shares tend to produce higher profits only when unit costs fall with increased share, or when the Co offers a superior quality product and charges a premium price that more than covers the cost of offering higher quality!

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Leader strategies---

• Profitability increases as business gains shre relative to competitors in “its served markt”preferably at a highr price,

• Not surprising why Cos like GE want to be atleast NO1 or2 in each of its mrkts or get out!It shed its computer,AC,& TV businesses sinse it couldn’t achieve “the top dog position here.

• Mercedes has a small share of total car mrkt,but earns high profit because it is a high share Co in its luxury car segment.

• And it achieved a high share because it does many things right such as producing high Q,giving good service,and holding down its costs!

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Markt challenger strategies

• Firms that are No 2 or 3 or lower such as Colgate,Ford,Avis,Westinghouse,and Pepsico which are quite large, can opt one out of 2 strategies-

• Challenge in an aggressive bid to increase MS, (MARKET CHALLENGER) or

• Play along with competitors and not rock the boat.(MRKT FOLLOWER)

• Competitive strategies of mrkt cghallenger• First define the the strategic objective—Profit increase

by increase in MS• Second decide which competitors the Co will challenge

before deciding first.

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Challenger stra----

• 2 options• 1.Attack the mrkt leader-obj being not to topple

but just wrest a certain mrkt share increase as in BIC vs GILLETTE; OR take over on leader as IBM in PC’s

• Or2,to avoid the leader and challenge firms its own size or smaller local and regional firms

• 1.Attacking the market leader---High risk but potentially high gain strategy;Makes sense if leader not serving mrkt well and attacker has some SDA-a cost adv leading to lower prices or ability to prov

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Attacking leader

• In construction equipment industry, komatsu challenged Caterpiller by offering same quality at much lower prices .Kimberly Clark’s Huggies grabbed from P&G a big share of disposable diaper mrkt by offering a better fitting diaper with reusable fasteners

• UJAAlA vs RobinBlue;MOOV vs IOdex• ATTACING THE SMALLER FIRMS• Either under-financed Cos or those that are not serving

their customers well.Several big Cos of today grew to their present size not by challenging large competitors but by gobbling up small local or regional competitors.The obj being to put the small player out of business!

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Choosing an attack strategy for mrkt challenger-5 possible

strategies• Full frontal attack.Challenger matches all 4 P’s of competitor• Attacks competitors’ strengths rather than weaknesses.Outcome depends

on who has greater strength and endurance• If challenger has fewer resourses than the competitor,a frontal attack makes

little sense.• Lever Bros in US trail behind P&G in detergent mrkt.Great size and strength

may not be to challenge a resourseful competitor successfully.Unilever has twice the worldwide sales of P&G and 5 times sales of Colgate Polmolive!

• Lever launched a full frontal attack on P&Gin detergent mrkt.Lever’s WISK was already the leading liquid detergent.In quick succession, it added a barrage of new products-SunLight dish washing detergent,Snuggle fabric softener,Surf laundry powder and backed them with aggressive promotion& distribution efforts.

• P&G spent heavily to defend its brands and held on to most of its business. And it counter attacked with liquid Tide which came from nowhere in just 17 months to run neck and neck with Wisk.LEVER did gain MS but most of it came from smaller competitors.

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Attacker strategy—2.flanking attack

• Rather than attacking head-on,concentrate yr strength on competritor’s weaker flanksor on gaps in in competitors’ markt coverage.

• Flank attacks make good sense when the co has fewer resourses than competitors.

• For Ex during 60’s and 70’s when German &Japanese auto makers didn’t directly compete with US auto makers in producing large,flashly gas-guzzling autos.

• They found an unserved consumer segment that wanted small fuel-efficient cars and moved to fill this hole.

• To their satisfaction and Detroit’s surprise,the segment grew to be a large part of the mrkt.

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Attacker stra—4.encirclement attack.

• Involves attacking from the front ,sides and the rare at the same time

• Makes sense when the challenger has superior resourses and believes that it can break the competitor’s holdon the mrkt quickly.

• Ex,Seiko attacked 1,by gaining distribution in every major watch out let and 2,constantly changing variety.In US alone,it offers 400 models but makes and sells 2300 models worldwide.

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Attacker –4bypass attack

• The challenger bypasses the competitor and targets easier mrkts.

• It might diversify into unrelated products ,move into new geographic mrkts or leap-frog into new technologiesto replace existing products.

• Ex MiNOLTA toppled Cannon from the lead in the 35 mm SLR camera mrkt with its technologically advanced auto-focussing Maxxum camera,Cannon’s MS came down 20% while Minolta’s went up 30%It took Cannon 3 yrs to introduce matching tech.of course in digital cameras story is different and Cannon took the lead.

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Attacker str---5.Guerilla attacks

• 1.Smaller or poorly financed challengers mount these attacks

• 2.these are small periodic attacksto harass and demoralise the competitorwith the goal of eventually establishing permanent footholds.

• 3.The challenger uses(a) price cuts selectively,(b)goes on executive raids, and (c) engages in intense promotional outbursts,(d)takes assorted legal actions

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Mrkt follower strategies• 1.challengers never taken lightly by leader• 2.leader has more staying power than others in an all-out battle for

customersA hard fight might leave both worse-off.• 3.If challenger’s lure is lower prices,improved service,or additional

product features,the leader can quickly match these to diffuse the attack.

• A FOLLOWER’S ADVANTAGES• 1.Leader bears huge expenses of developing new

products,mrkts,expanding distribution.and educating the mrkt.A follower can copy or improve on leader’s performance with much less investment Ex Dial corp. makers of Dial,Tone,Pure and Natural hand soaps ,Armour Star canned meats,Purex laundry products(1/3rd in price of Tide of P&G.)

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Follower’s adv

• 4Following isn’t the same as being passive or a carbon copy of the leader .Each follower brings in distinctive adantages to its target mrkt –location,services,financing etc.

• 5.The follower is often the major target of attack by challengers.Therefore folloer must keep mfg cost lowand product and service Q high.It must also enter new mrkts as they emerge.

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Mrkt nicher strategies

• Insread of pursuing the whole mrkt or even large segments,these firms target subsegments or niches

• 2.Nichers are often smaller firms with limited resourses• 3.Smaller divisions of larger firms also may pursue

niching strategies• 4.Firms with low shares of total mrkt can be highly

profitablethro smart niching• 5.All highly successful mid-sized Cos niched within a

larger mrkt rather than going after the whole mrkt.Ex AT CROSS which niches in the high priced pen and pencil mrkt makes famous gold writing instruments that many executives own or want to own.CROSS made high growth and profit thro this niche.

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Why is niching profitable?

• 1.Knows TMS better & meets their needs better than other casual sellers

• 2.Chances are they charge a high price (mark up over cost high)for added value

• 3.Mass mrkter acheives high volumes,nicher high profit.• 4.Nichers try 7 find one or more mrkt niches that are safe

& profitable.• 5.An ideal niche is big enough to be profitable and has a

growth potential and is one the firm can serve effectively.• 6.the niche is of little interest to major competitors & firm

to be able to build skills and custiomer goodwill to defend itself against a major competitor a(s the niche grows and beccomes more attractive.

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Nicher

• Ex.A law firm specialises in civil,criminal or business law mrkts-particularly those neglected by majors.

• ---selling their entire output to a single Co such as TATAMOTORS,WalMart Or GM.

• ---Sell in a certain locality ,region of the world.• --operate at the low or high end of the mrkt.eg,HP

specialises in high Q-high Price end of hand calculator mrkt

• --offers services not available from other firms.eg,a bank taking loan request over phone and hand deliver the money to customers.RTC reservations.

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nichemanship

• The key idea in nichemanship is specialisation• A mrkt nicher can specialise along any of several

mrkt,customer,productor marketing mix lines.• For ex,• ONE TYPE OF END USER—law firm• Custm size groups—small,med • One or a few specific costomers—telco,walmart etc.• Geographical nichers---• Q-P nichers---low or high end• Service nichers—bank ex prev slide.

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Risks of niching

• The mrkt niche may dry-up.• 2.may grow to the point that attracts larger

competition• 3.So,practise multiple niching by developing 2 or

more niches ,the co improves chances of survival.

• 4,Even some large firms prefera multiple niche strategy to serving the total mrkt.HLL.One large law firm developed national reputation in the 3areas of Mergers & acquisitions,Bankruptsies,& Prospectus development and little else!