Bangladesh Institute of ManagementProgram PGDMM-2015Subject Principles of Marketing

Part -1

Course outlines

ClassesTopicsDateTime PMTeachers

1Define Market and Marketing01-03-156.30-8.00Dr. U.K.D

2Contd.

3Tasks of Marketing Management02-03-156.30-8.00Dr. U.K. D

4Contd.

5Marketing Mgt. Orientation08-03-156.30-8.00Dr. U.K. D

6Contd.

7Customer Relationship Mgt.18-03-156.30-8.00Dr. U.K D

8Contd.

9Marketing Environment25-03-156.30-8.00Dr. U.K. D

10Micro & Macro Environment

114 Ps of Marketing30-03-156.30-8.00Dr. U. K. D

12Contd.

13Marketing Segmentation05-04-156.30-8.00Dr. U.K.D

14Cont.

15Target Marketing07-04-156.30-8.00Dr. U.K.D

16Positioning for Competitive Advantage.6.30-8.00Dr. U.K. D

17What is Product12-04-156.30-8.00Dr. U.K D

18Classification and levels of Product13-04-15

19In course Examination15-04-156.30-8.00Dr. U.K.D

20Contd.

21New Product Development Process 19-04-156.30-8.00Dr. U.K.D

22Contd...

23New Product Development 21-04-156.30-8.00Dr. U.K.D

24Contd.

25Product Life cycle22-04-156.30-8.00Dr. U.K.D

26Contd.

27Pricing approaches 26-04-156.30-8.00Dr. U.K.D

28Contd.

29Importance of Marketing Channels29-04-156.30-8.00Dr. U.K.D

30Channel design Decisions.

31Marketing Communication Mix10-05-156.30-8.00Dr. U.K.D

32Contd.

33Competition Analyzing11-05-156.30-8.00Dr. U.K.D

34Contd.

35Competition analyzing17-05-156.30-8.00Dr. U.K Datta

36Contd.

Paper Leader: Dr. U. K Datta

1. What is Market?

A market is the set of actual and potential buyers of a product. These buyers share a particular need or want that can be satisfied through exchange relationships.

The Size of a market depends on: The number of people who exhibit the need,

Who have resources to engage in exchange,

Who are willing to exchange these resources for what they want.

2. What is marketing?Marketing is the planning and executing of the conception, pricing, promotion and distribution of ideas, goods and services that create exchanges to satisfy the individual and organizational goals.---American Marketing Association.

Marketing is a societal process by which individuals and groups obtain what they need and want through creating, offerings, and freely exchanging products and services of value with others. --- Philip Kotlar.

Communication

Goods/Services

Money

Information

A simple marketing system

What is Marketing Management?

We define marketing management as the art and science of choosing target markets and building profitable relationships with them. This involves getting, keeping and growing customers through creating, delivering and communicating superior customer value. Thus marketing management involves managing demand, which is turn involve managing customer relationships.

The organization has a desired level of demand for its products. At any point in time, there may be:

1) Negative demand: A market is in a state of negative demand if a major part of the market dislikes the product and may even pay a price to avoid it- vaccinations, dental work, vasectomies, and life insurance offers.

The marketing task is to analyze why the market dislikes the product and whether a marketing program consisting of product redesign, lower prices. And more positive promotion can change beliefs and attitudes.

2) No demand: Target consumers may be unaware of or uninterested in the product. Farmers may not be interested in a new farming method, and college students may not be interested in foreign- language courses.

The marketing task is to find ways to connect the benefits of the product with the persons natural needs and interests.

3) Latent dement: Many consumers may share a strong need that cannot be satisfied by any existing product. There is a strong latent demand for harmless cigarettes, more fuel-efficient cars.

The marketing task is to measure the size of the potential market and develop goods and services to satisfy the demand.

4) Declining demand: Every organization, sooner or later, faces declining demand for one or more of its products. Churches have seen membership decline; private colleges have seen applications fall. The marketer must analyze the causes of the decline and determine whether demand can be re stimulated by new target markets, by changing product features, or by more effective communication. The marketing task is to reverse declining demand through creative remarketing.

The marketing task is to reverse declining demand through creative remarketing.

5) Irregular demand: Many organizations face demand that varies on a seasonal, daily, or even hourly basis, causing problems of idle or overworked capacity. Museums are under visited on weekdays and overcrowded on weekends.

The marketing task, called synchromarketing, is to find ways to alter the partner of demand through flexible pricing, promotion, and other incentives.

6) Full demand: Organizations face full demand when they are pleased with their volume of business.

The marketing task is to maintain the current level of demand in the face of changing consumer preferences and increasing competition. The organization must maintain or improve its quality and continually measure consumer satisfaction.

7) Overfull demand: Some organizations face a demand level that is higher than they can or want to handle.

The marketing task, called demarcating, requires finding ways to reduce demand temporarily o permanently. General demarcating seeks to discourage overall demand and takes such steps as raising prices and reducing promotion and service. Selective demarcating consists of trying to reduce demand from those parts of the market that are less profitable of les in need of the product.

8) Unwholesome demand: unwholesome products will attract organized efforts to discourage their consumption. Unsealing campaigns have been conducted against cigarettes, alcohol, hard drugs, and handguns The marketing task is to get people who like something to give it up, using such tools as fear messages, price hikes, and reduced availability.

Marketing Philosophy or Concept (Marketing Orientation to the Marketing Place)

We describe marketing management as carrying out tasks to build profitable relationships with target consumers. What philosophy should guide these marketing efforts?

What weight should be given to the interests of the organization, customers and society? Very often these interests conflict.

There are six alternative concepts under which organizations conduct their marketing activities:

1. Production Concept

2. Selling Concept

3. Product Concept

4. Marketing Concept

5. Social Concept

6. Customer Concept

Marketing Functions

Functions:

1. Analysis of Marketing Environment and research

2. Analysis of consumer

3. Product Planning

4. Price Planning

5. Distribution Planning

6. Promotion Planning

7. Social Responsibility

8. Marketing ManagementBUILDING CUSTOMER SATISFACTION

VALUE AND RETENTION:

Customer Delivered Value: Customer delivered value is the difference between total customer value and total customer cost.

Total customer value is the bundle of benefits customers expect from a given product or service.

Total customer cost is the bundle of costs customers expect to incur in evaluating, obtaining, using, and disposing of the product or service.

The marketer can increase the value of the customer offering in several ways:

Raise benefits

Reduce costs

Raise benefits and reduce costs

Raise benefits by more than the rise in costs

Lower benefits by less than the reduction in costs.

The customer who is choosing between two value offerings, v1 and v2, will examine the ratio v1/ v2. she will favor v1 if the ratio is larger than one; she will favor v2 if the ratio is smaller than one; and she will be indifferent if the ratio equals one.

Customer Satisfactions

Satisfaction is a persons feeling of pleasure or disappointment resulting from comparing a products perceived performance (or out come) in relation to his or her expectations. If the performance falls short of expectations, the customer is dissatisfied. If the performance matches the expectations, the customer is satisfied. If the performance exceeds expectations, the customer is highly satisfied or delighted.

Tools for Tracking and Measuring Customer Satisfaction.

Complaint and suggestion systems

Customer satisfaction surveys

Ghost shopping

Lost customer analysis

Delivering customer value and Satisfactions.

Support ActivitiesFirm infrastructure

Human resource management

Technology development

Procurement

Inbound Logistics

OperationsOut bound LogisticsMarketing and SalesService

Primary Activities

Attracting and Retaining Customers

Todays customer are harder to please, they are smarter, more price conscious, more demanding, less forgiving, and approached by more competitors with equal or better offers.

Attracting Customers Company seeking to grow their profits and sales have to spend considerable time and resources searching for new customers.

Customer acquisition requires substantial skills in lead generation, lead qualification, and account conversion.

Computing the cost of lost CustomersThe company needs to figure out how much it would cost to reduce the defection rate. As long as the cost is less than the lost profit, the company should spend that amount to reduce the defection rate.

The need for customer retentionThe key to customer retention is customer satisfaction. A highly satisfied customer :

Stays loyal longer.

Buys more as the company introduces new products and upgrades existing products.

Talks favorably about the company and its products.

Pays less attention to competing brands and advertising and is less sensitive to price.

Offers product or service idea to the company.

Costs less to serve than new customers because transactions are rutinized To improve retention of customers, a company would be wise to measure customer satisfaction regularly. The company could phone recent buyers and inquire how many are very satisfied, indifferent, dissatisfied and very dissatisfied.

Relationship Marketing : The keyWe need to distinguish five different levels of investment in customer relationship building i. Basic Marketing

ii. Reactive Marketing

iii. Accountable marketing

iv. Proactive marketing

v. Partnership Marketing

What is Marketing Environment?

A Companys Marketing Environment consists of the actors and forces outside marketing that affect marketing managements ability to build and maintain successful relationships with target customers. The marketing environment offers both opportunities and threats. Successful companies know the vital importance of constantly watching and adapting to the changing environment.

The marketing environment is made up of a Microenvironment and Macro environment.

1.Microenvironment:

The microenvironment consists of the actors close to the company that affect its ability to serve its customers.

Actors in the microenvironment

The Company

Suppliers

Marketing Intermediaries

Customers

Competitors

PublicsAffected

Marketing

Ability

The Company: Marketing managers work closely with other company departments. The departments are Research and Development (R&D), purchasing accountings, operations or production. All these interrelated groups form the internal environment. Top management sets the companys mission, objectives, broad strategies and plaices. Marketing managers make decision within the strategies and policies made by top management. The interrelationship of these departments headed by top management affects the marketing ability.

Suppliers:Suppliers form an important link in the companys overall customer value delivery system. Supply shortages or delays, labor strikes and other events can cost sales in the long run. Supply costs may force price increases that can harm the companys sales volume. Most marketing today treat their supplies as partners in creating and delivering customer value.

Marketing Intermediaries:

Marketing intermediaries help the company to promote, sell and distribute its goods to final buyers. They include.

(a)Resellers:Resellers are distribution firms that help the company find customers or make sales to them. They are wholesalers and retailers.

(b) Physical Distribution

These firms help the company to stock and move goods from their production points to their destinations. These firms are warehouses transportations.

(c) Marketing Services agencies:

Marketing services agencies are the marketing research firms advertising agencies, media firms and marketing consulting firms that help the company target and promote its products to the target markets.

(d) Financial Intermediaries:

These intermediaries include banks, credit companies, insurance companies and other business that help finance transactions and insure against the risks associated with the buying and selling of goods.

Customers:Customers needs and wants and his changing attitude and belief seriously affect the management ability. There are five types of customers markets. They are:

i.Consumer markets - individuals & households

ii.Business markets- Producers

iii.Reseller markets-Wholesalers, Retailers

iv.Government markets-Government agencies

v.International markets-buyers in other countries

including consumers, produce

resellers and government.

Competitors: The marketing concept states that to be successful, a company must provide greater customer value and satisfaction than its competitors do competitive attacks affect the marketing management ability.

Publics:A public is any group that has and actual potential interest in or impact on an organizations ability to achieve its objectives. There are seven types of publics.

(a) Financial publics:

These publics the companys ability to obtain funds, Banks Investment Houses, and Stockholders are the major financial publics.

(b) Media Publics:

These include newspapers, magazines and radio and television stations that carry news features and additional opinion.

(c) Government publics:

Management must take government developments into account. Marketing must often consult the companys lawyers on issues of product safety truth in advertising and other matters.

(d) Citizen action publics:

A company marketing decisions may be questioned by consumer organizations, environmental groups, minority groups and others, Its public relations department can help it stay in touch with consumer and citizen groups.

(e) Local publics:

These include neighborhood residents and community organizations. Large companies usually appoint a community relations officer to deal with the community attends meetings answer questions and contribute to worthwhile causes.

(f) General Publics:

A company needs to be concerned about the general publics attitude toward it products and activities. The public image of the companys affects its buying.

(g) Internal publics:

These include workers, managers, volunteers and the board of directory. Large companies use newsletters and other means to inform and motivate the internal publics. When employees feel good about their company, this positives attitude spills over to external publics.

The Companys Macro environment

The company and all of the actors operate in a larger microenvironment of forces that shape opportunities and pose threats to the company. In this context, we examine these forces and show how they affect marketing plans.

The major forces in the companys microenvironment are:

1. Demographic Forces

2. Economic Forces

3. Natural Forces

4. Technological Forces

5. Political Forces

6. Cultural Forces

Demographic Environment

Demography is the study of human populations in terms of size, density, location, age, gender, race, occupation, and other statistics. The demographic environment is of major interest to marketers because it involves people, and people make up markets. The worlds large and highly diverse population poses both opportunities and challenges.

The most important demographic trends are:

1. Changing Age Structure of the Population

The Baby Boomers

Generation X

Generation Y

2. The Changing Family Life

3. Geographic Shifts in Population

4. Educated Population

1. Increasing Diversity

Economic Environment

Marketers require buying power as well as people. The economic environment consists of factors that affect consumer purchasing power and spending patterns. The major economic trends are:

1. Changes in Income

2. Changing Consumer spending Patterns.

Natural Environment

The natural environment involves the natural resources that are needed as inputs by marketers that are affected by marketing activities.

Marketers should be aware of several trends in the natural environment. The main trends are:

1. Shortages of Raw Materials

2. Increased Pollution

3. Increased Government Intervention in Natural Resource Management.

Technological Environment

The technological environment is perhaps the most dramatic force now shaping our destiny. The technological environment changes rapidly. New technologies create new markets and opportunities, every new technology replaces on older technology. Marketers should watch the technological environment closely and adopt the changing technology to win competitive advantage.

Political Environment

Marketing decisions are strongly affected by developments in the political environment. The political environment consists of laws. Government agencies and pressure groups that influence or limit various organizations and individuals in a given society. The major trends of political environment are:

1. Legislation Regulating Business increasing legislation, changing government agency enforcement.

2. Increased Emphasis on Ethics and Socially Responsible Actions

Cultural Environment

The cultural environment is made up of institutions and other forces that affect a societys basic values, perceptions preferences, and behaviors. People grow up on a particular society that shapes their basic beliefs and values. The following cultural characteristics can affect marketing decision-making.

1. Persistence of cultural Values

2. Shifts in Secondary Cultural Values

The major cultural values of a society are expressed in peoples views of themselves and others, as well as in their views of organizations, society, nature, and the universe.

Marketing Mix: Marketers use numerous tools to elicit desired responses from their target markets. These tools constitute a marketing mix. Marketing mix is the set of marketing tools that the firm uses to pursue its marketing objectives in the target market.Marketing Mix

Product

Product variety

Quality

Design

Features

Brand name

Packaging

Sizes

Services

Warranties

Returns

WHAT IS MARKET SEGMENT ?

A market segment consists of a group of customers who share a similar set of wants.

Levels of market segmentation

Segment marketing

Niche marketing

Local marketing

Individual customer marketing

There is no single way to segment a market .A marketer has to try different segmentation variables, alone and in combination, to find the best way to view the market structure, There are four major segment variables.

MAJOR SEGMENTATION VARIABLS FOR CONSUMER MARKETS

GEOGRAPHIC:

World region or country: North America, Western Europe, Middle East, Pacific China, Mexico.

Country region: Pacific, Mountain, West North Central, West South central, East North central, East South Central, South Atlantic, New England.

City or metro size: 5000-20000, 20000-50000, 50000-100000

Density:Urban, Suburban, rural.

Climate:Northern, southern.

DEMOGRAPHIC:

Age: Under 6, 6-11, 12-19, 20-34, 35-49, 50

Gender: Male, female

Family life:Young, single; young, married, no children; young married with children; older, married with children; older, married, no children under 18; older, single,

Family size:1-2, 3-4, 5 +

Income :Under $10000; $10000-$20000, $ 20000-30000, $30000-50000

Occupation:Professional and technical; managers. Officials, and proprietors; clerical; sales, craftspeople; supervisors; operatives; farmers; retired, students homemakers

Education:Grade school or less; high school, graduate; college, university

Religion:Catholic, protestant, Jewish Muslim, Hindu , Other

Generation:Baby boomer, Generation X Generation Y

Nationality:North American, South American, British, French,.

Social class:Lower lowers, upper lowers, working class, middle class, upper middles, lower uppers, upper uppers

PSYCHOGRAPHICS:

Life style:Achievers, strivers, strugglers

Personality:Compulsive, gregarious, authoritarian, ambitious

BEHAVIORAL :

Occasions:Regular occasions special occasion.

Benefits:Quality, service, economy, convenience, speed.

User status:Nonuser, ex-user, potential user, first- time user, regular user.

User rates:Light user, medium user, heavy user.

Loyalty status: None, medium, strong, absolute.

Readiness stage: Unaware, aware, informed, interested, desirous, intending to buy.

Attitude toward product: Enthusiastic, positive, indifferent negative, hostile,

Requirements for effective segmentation: There are many ways to segment a market, but not all segmentations are effective. To be useful market segments must be:

Measurable: The size, purchasing power, and profits of the segments can be measured.

Accessible: The market segments can be effectively reached and served.

Substantial: The market segments are large or profitable enough to serve.

Differentiable: The segments are conceptually distinguishable and respond differently to different marketing mix elements and programs.

Actionable: Effective programs can be designed for attracting and serving the segments.SELECTING THE MARKET SEGMENTS

Having evaluated different segments, the company can consider five patterns of target market selection shown in following figure :

Single Segment Concentration

M1M2M3

P1

P2

P3

Selective Specialization

M1M2M3

P1

P2

P3

Product Specialization

M1M2M3

P1

P2

P3

Market Specialization

M1M2M3

P1

P2

P3

Full Market Coverage

M1M2M3

P1

P2

P3

TARGET MARKETING1. Evaluating Marketing Segments : In evaluating different market segments, a firm must look at three factors :

Segment size and growth.

Segment structural attractiveness.

Company objectives and resources.

2. Selecting Target Market Segments : After evaluating different segments, the company must now decides which and how many segments it will target.

A target market consists of a set of buyers. Who share common needs on characteristics that the company decides to serve.

3. Target Marketing Strategies :

Targeting broadly

Targeting narrowly

i) Undifferentiated (Mass) Marketing : A market-Coverage strategy in which a firm decides to ignore market segment differences and go after the whole market with one offer.

ii) Differentiated (Segmented) Marketing : A market-coverage strategy in which a firm decides to target several market segments and designs separate offers for each.

iii) Concentrated (Niche) Marketing : A market-coverage strategy in which a firm goes after a large share of one or a few segments or niches.

iv) Micro-marketing : The practice of tailoring products and marketing programs to the needs and wants of specific individuals and local customer groups includes local marketing and individual marketing.

Local marketing : tailoring brands and promotions to the needs and wants of local customer groups, cities, neighborhoods and even specific stores. Individual marketing : Tailoring products and marketing programs to the needs and preferences of individual customers-also labeled Markets of one marketing, customized marketing and one-to-one marketing.4. Choosing a target Marketing Strategy :

The best choosing a target marketing strategy depends on company resources. When the firms resources are limited, concentrated marketing makes the most sense. The best strategy also depends on the degree of product variability.

POSITIONING FOR COMPETITIVE ADVANTAGE Product position : The way the product is defined by consumers on important attributes the place the product occupies in consumers minds relative to competing products.

Choosing a Positioning Strategy :1. Identifying Possible competitive Advantages : An advantage over competitors gained by offering consumers greater value, either through lower prices or by providing more benefits that justify higher prices. A company or market offer can be differentiated along the lines of product, services, channels, people, or image.

2. Choosing the Right Competitive Advantages : Company must decide how many differences to promote and which ones.

How many differences to promote ?

Which Differences to promote ?

Company must carefully selects the differences that it satisfies the following criteria.

(i) Important;

(ii) Distinctive;

(iii) Superior;

(iv) Communicable;

(v) Preemptive;

(vi) Affordable;

(vii) Profitable;

3. Selecting on Overall Positioning Strategy : The full positioning of a brand is called the brands value proposition the full mix of benefits upon which the brand is positioned.

There are five winning value propositions.

Product Benefits/QualityPrice

MoreThe sameLess

More1. More for more2. More for the same3. More for less

Same Same for moresame for same4. The same for less

Less Less for moreLess for the same5. Less for much less

Possible value propositions

4. Developing a Positioning Statement : A statement that summarizes company or brand positioning it takes this form : to (target segment and need) our (brand) is (concept) that (Point-of-difference)

5. Communicating and Delivering the chosen Position : Once it has chosen a positions, the company must take strong steps to deliver and communicate the desired position to target consumers.

PRODUCT : CONCEPT & CLASSIFICATION

1. What is a Product ?

We define a product as anything that can be offered to a market for attention, acquisition, use, or consumption and that might satisfy a want or need.

Products include more than just tangible goods. Broadly defined, products include physical objects, services, events, persons, places, organizations, ideas or mixes of these entities.

2.What is Services ?

Services are a form of product that consists of activities, benefits, or satisfactions offered for sale that are essentially intangible and do not result in the ownership of anything. Examples are banking, hotel, airline, and home repair services.

Figure : Three levels of product.

Product Classifications1. Consumer Products and services bought by final consumer for personal consumption.

Consumer product include

a) Convenience products

b) Shopping products

c) Specialty products

d) Unsought products

b) Convenience products are consumer products and services that the customer usually buys frequently, immediately, and with a minimum of comparison and buying effort.

c) Shopping products are less-frequently purchased consumer products and services that customers compare carefully on suitability, quality, price and style.

d) Specialty products are consumer products and services with unique characteristics or brand identification for which a significant group of buyers is willing to make a special purchase effort.

e) Unsought products are consumer products that the consumer either does not know about or knows about but does not normally thing of buying.

2. Industrial products are those purchased for further processing or for use in conducting a business.

a) Materials and parts

b) Capital items

c) Suppliers and services.

Organizations often carry out activities to Sell the organizations itself.

Person marketing consists of activities undertaken to create, maintain or change attitudes or behavior towards particular people.

Place marketing involves activities undertaken to create, maintain or change attitudes or behavior toward particular places.

Ideas : Idea can also be Marketed. In one sense, all marketing is the marketing of an idea, whether it be the general idea of brushing your teeth or the specific idea that create tooth pastes Create smiles everyday.

Managing Product Lines and BrandsThe Product and the Product Mix

The Product : A product is anything that can be offered to a market to satisfy a want or need products that are marketed include physical goods, services, experiences, events, persons, places, properties, organizations, information, and ideas.

Product levels : In planning companys offerings, the marketer needs to think through five levels of the product.

Five product levels

i) Core benefit : The fundamental service or benefit that the customer is really buying.

ii) Basic product : The marketer has to turn the core benefit into a basic product.

iii) Expected product : A set of attributes and conditions buyers normally expect when they purchase a product. iv) Augmented product : The marketer prepares an augmented product that exceeds customer expectations.v) Potential Product : Companies search for new ways to satisfy customers and distinguish their offer. Successful companies add benefits to their offering that not only satisfy customers but also surprise and delight them. Delighting customers is a smaller of exceeding expectations.Product hierarchy : Each product is related to certain other products. The product hierarchy stretches from basic needs to particular items that satisfy those needs. We can identify six levels of the product hierarchy.

i. Need family : The core need that underlies the existence of a product family.ii. Product family : All the product classes that can satisfy a core need with reasonable effectiveness.iii. Product class : A group of products within the product family recognized as having a certain functional coherence.iv. Product line : A group of products within a product class that are closely related because they perform a similar function, are sold to the same customer groups, are marketed through the same channels, or fall within given price ranges.v. Product type : A group of items within a product line that share. One of several possible forms of the product.vi. Item : A distinct unit within a brand or product line distinguishable by size, price, appearance, or some other attribute.vii. Brand : the name, associated with one or more items in the product line, that is used to identify the source or character of the items. Product Mix : A product mix (also called product assortment) is the set of all products and items that a particular seller offers for sale.

Product Line decisions

A product mix consists of various product lines. In offerings a product line, companies normally develop a basic platform and modules that can be added to reed different customer requirements.

Product Line Analysis : Product line managers need to know the sales and profits of each item in their line in order to determine which items to build, maintain, harvest, or divest. They also need to understand each product lines market profile.

i) Sales and profits :

Product-Item contributions to a product lines total sales and profits.

The figure shows a sales and profit report for a five item product line.

ii) Market Profile : The product line manager must review how the line is positioned against competitors line. The product map is useful for designing product-line marketing strategy. It shows which competitors items are competing against company items.

After performing a product-line analysis, the product-line manager has to consider decisions on product line length, line modernization, line featuring, and line pruning.

Product Line Length : Product-line managers are concerned with length. A product line is too short if profits can be increased by adding items; the line is too long if profits can be increased by dropping items.

A company lengthens its product line in two ways : by line stretching and line filling.

i) Line Stretching : Every companys product line covers certain part of the total possible range. Line stretching occurs when a company lengthens its product line beyond its current range. The company can stretch its line down-market; up-market, or both ways.

Down market stretch : A company positioned in the middle market may want to introduce a lower price line for any of three reasons :

i. The company may notice strong growth opportunities in the down market as mass retailers.

ii. The company may wish to tie up lower-end competitors who might otherwise try to move up market.

iii. The company may find that the middle market is stagnating or declining.

Up market Stretch : Companies may wish to enter the high end of the market for more growth, higher margins, or simply to position themselves as full-line manufacturers.

Two-way Stretch : Companies serving the middle market might decide to stretch their line in both directions.

Line filling : A product line can also be lengthened by adding more items within the present range. There are several motives for line filling, reaching for increment profits, training to satisfy dealers who complain about lost sales because of missing items in the line, trying to utilize excess capacity trying to be the leading full-line company and trying to plug holes to keep out competitors.

High

High

High

Price

Price

Price

Low

Low

Low

Low Quality High Low

Quality High Low Quality High

Line Modernization : Product lines need to be modernized. In rapidly changing product markets, modernization is carried on continuously.

Companies plan improvements to encourage customer migration to higher valued, higher-priced items.

Line featuring and line pruning : The product-line manager typically selects one or a few items in the line to feature. Sometimes a company finds one end of its line selling well and the other end selling poorly. The company may try to boost demand for the slower sellers especially if they are produced in a factory idled by lack of demand.

Product line manager must periodically review the line for pruning.

PRODUCT MIX AND INDIVIDUAL PRODUCT DECISIONS

A product mix (also called product assortment) is the set of all products and items that a particular seller offers for sale.

Product Mix with

Product line lengthPhilips T.V.

Model No. 1102

Model No. 1103

Model No. 1104

Model No. 1105

Model No. 1106Philips Radio

Model No. 2201

Model No. 2202

Model No. 2203

Model No. 2204Philips Camera

Model No. 3001

Model No. 3002

Model No. 3003Philips bulb

200 WT

100 WT

60 WT

40 WT

0 WT

A companys product mix has a certain width length, depth and consistency.

Width : The width of a product mix refers to how many different product lines the company carries.

Length : The length of a product mix refers to the total number of items in the mix.

Depth : the depth of a product mix refers to how many variants are offered of each product in the line.

Consistency : The consistency of the product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way.

These four product mix dimensions permits the company to expand its business in four ways :

It can add new product lines, thus widening its product mix.

It can lengthen each product line.

It can add more product variants to each product and deepen its product mix.

Finally, a company can pursue more product-line consistency.

Individual Product decisions

Developing a product or service involves defining the benefits that it will offer. These benefits are communicated and delivered by product attributes such as quality, features, and style and design.

1. Product Quality : The ability of a product to perform its functions; it includes the products overall durability, reliability, precision, case of operation and repair, and other valued attributes.

Product quality is one of the marketers major positioning tools. quality has a direct impact on product or service performance; thus, it is closely linked to customer value and satisfaction.

In the narrowest sense, quality, can be defined as freedom from defects. But most customer centered companies go beyond this narrow definition. Instead, they define quality in terms of customer satisfaction.

The American Society for quality defines quality as the characteristics of a product or service that bear on its ability to satisfy stated or implied customer needs.

These customer focused definitions suggest that quality begins with customer needs and ends with customer satisfaction.

Total quality management (TQM) is a approach in which all the companys people are involved in constantly improving the quality of products, services, and business processes.

Product quality has two dimensions level and consistency.

i. Quality level : In developing a product, the marketer must first choose a quality level that will support the products position in the target market. Here product quality means performance quality.ii. Quality consistency : Beyond quality level, high quality also can mean high levels of quality consistency. Here, product quality means conformance quality freedom from defects and consistency in delivering a targeted level of performance. All companies should strive for high levels of conformance quality.Many companies today have turned customer driven quality into a potent strategic weapon. They create customer satisfaction and value by consistently and profitably meeting customers needs and performances for quality.

2. Product features : A product can be offered with varying features. A stripped down model, one without any extras, is the starting point. The company can create higher level models by adding more features. Features are a competitive tool for differentiating. The companys product from competitors products, Being the first producer to introduce a needed and valued new feature is one of the most effective ways to compete.

For the identification of new features and decide which ones to add to its products, company should periodically survey buyers who have used the product and ask these question :

How do you like the product ?

Which specific features of the product do you like most ?

Which features could we add to improve the product ?

The answers provide the company with a rich list of feature ideas. The company can then assess each features value to customers versus its cost to the company, features that customers value little in relation to costs should be dropped; those that customers value highly in relation to costs should be added.

3. Product Style and Design : Another way to add customer value is through distinctive product style and design. Design is a larger concept than style. Style simply describes the appearance of a product. Styles can be eye catching or yawn producing. A sensational style may grab attention and produce pleasing aesthetics, but it does not necessarily make the product perform better. Unlike style, design is more then a skin deep it goes to the very heart of a product. Good design contributes to a products usefulness as well as to its looks.

Good style and design can attract attention, improve product performance, cut production costs, and give the product a strong competitive advantage in the target market.

DEVELOPING NEW MARKET OFFERINGSA company can add new products through acquisition or development. The acquisition route can take three forms.

i. The company can buy other companies,

ii. It can acquire patents from other companies,

iii. It can by a license or franchise from another company.

The development route can take two forms.

i. The company can development new products in its own laboratories.

ii. It can contract with independent researchers or new product development firms to develop specific new products.

There are six categories of new products :

i. New-to-the-world products

ii. New product lines

iii. Additions to existing product lines

iv. Improvements and revisions of existing products

v. Repositioning

vi. Cost reductions

Challenges in new Product Development :Companies that fail to develop new products are putting themselves at great risk. Their existing products are vulnerable to changing customer needs and tastes, new technologies, shortened product life cycles, and increased domestic and foreign competition. New technologies are especially threatening. Most established companies focus on incremental innovation. Newer companies create disruptive technologies that are cheaper and more likely to alter the competitive space.

New product development is risky. It continue to fail at a disturbing rate. Recent studies put the failure rate of new consumer products at 95 percent in the united states and 90 percent in Europe.

Why does new product fail? A high-level executive pushes a favorite idea through in spite of negative market research findings.

The idea is good, but the market size is overestimated.

The product is not well designed.

The product is incorrectly positioned in the market, not advertised effectively, or overpriced.

The product fails to gain sufficient distribution coverage or support.

Development costs are higher than expected.

Competitors fight back harder than expected.

Several factors tend to hinder new product development: Shortage of important ideas in certain areas

Fragmented markets

Social and governmental constraints

Cost of development

Capital shortages

Faster required development time

Shorter product like cycle

Marketing challenges arising at each of the eight stages of the new-product development process

Managing the development process : Ideas

1. Idea generation : The systematic search for new-product ideas.

Interacting with others : Ideas for new products can come from

i. Customers

ii. Scientists

iii. Competitors

iv. Employees

v. Channel members

vi. Top managementCreativity techniques : Here is a sampling of techniques for stimulating creativity in individuals and groups.

i. Attribute listing

ii. Forced relationships

iii. Morphological analysis

iv. Reverse assumption analysis

v. New contexts

vi. Mind-mapping

2. Idea screening : Screening new product ideas in order to spot good ideas and drop poor ones as soon as possible.

A company should motivate its employees through rewards to submit their new ideas to an idea manager whose name and phone number are widely circulated. Ideas should be written down and reviewed each week by an idea committee. The company then sorts the proposed ideas into three groups :

Promising ideas

Marginal ideas

Reject ideas

Each promising idea is researched by a committee member, who reports back to the committee. The serving ideas then move into a full-scale screening process. In screening ideas, the company must avoid two types of errors :

Drop-error : A drop error occurs when the company dismisses an otherwise good idea.

GO-error occurs : GO error occurs when the company permits a poor idea to move into development and commercialization.Most companies require new-product ideas to be described on a standard form that can 6 reviewed by a new product committee. The descriptions states :

The product idea

The target market

The competition

Roughly estimated market size

Product price

Development time and costs

Manufacturing costs

Rate of return

The executive committee then reviews each idea against a set of criteria.

Does the product meet a need ?

Would it offer superior value ?

Can it be distinctively advertised ?

Does the company have the necessary know how and capital ?

Will the new product deliver the expected sales volume, sales growth and profit ?

The surviving ideas can be rated using a weighted index method like that in the following table :

Product-Idea Rating Device

Product Success RequirementsRelative weight Product ScoreProduct Rating

(a)(b){C = a ( b}

Unique of Superior product .40.8.32

High performance to cost ratio.30.6.18

High marketing dollar support.20.7.14

Lack of strong competition.10.5.05

.69

As the idea moves through development, the company will constantly need to revise its estimate of the products overall probability of success, using the following formula:

Overall Probability of success=Probability of technical completion (Probability of commercialization given technical completion (Probability of economic success given commercialization

For example, if the three probabilities are estimated as .50, .65, and .74, respectively, the overall probability of success is .24. The company then has to judge whether this probability is high enough to warrant continued development.

3. Managing the development process : (concept to strategy) concept development and testing.

Concept development :

Attractive ideas must be refined into testable product concepts. A product idea is a possible product the company might offer to the market. A product concept is an elaborated version of the idea expressed in meaningful consumer terms.

A product idea can be turned into several concepts. A few questions are necessary to build some concepts.

Who will use the product ?

What primary benefit should this product provide ?

Why will use or consumer the product ?

When will people consume the product ?

By answering these questions, a company can form, several concepts. Letter companies have to create a product positioning map in a competitive market. Next, the product concept has to be turned into a brand concept.

Concept testing : Concept testing involves presenting the product concept to appropriate target consumers and getting their reactions. The concepts can be presented symbolically or physically.

Company has to ask some questions testing :

1. Communicability and believability : Are the benefits clear to you and believable? If the scores are low the concept must be refined or revised.

2. Need level : Do you see this product solving a problem or filling a need for you ? The stronger the need, the higher the expected consumer interest.

3. Gap level : Do other products currently meet this need and satisfy you ? The greater the gap, the higher the expected consumer interest. A high need-gap score means that the consumer sees the product as filling a strong need that is not satisfied by available alternatives.

4. Perceived value : Is the price reasonable in relation to the value ? The higher the perceived value, the higher the expected consumer interest.

5. Purchase intention : would you (definitely, probably, probably not, definitely not) by the product ? This would be high for consumers who answered the previous three questions positively.

6. User targets, purchase occasions, purchasing frequency, who would use this products, and when and how often will the product be used ?

Conjoint analysis : Consumer preferences for alternative product concepts can be measured through conjoint analysis, a method for deriving the utility values that consumers attach to varying levels of a products attributes. Respondents are shown different hypothetical offers formed by combining varying levels of the attributes.

4. Marketing Strategy : Designing an initial marketing strategy for a new product based on the product concept.

The marketing strategy statement consists of three parts :

(i) The first part describes

the target market;

the planned product positioning;

the sales;

market share; and

profit goals for the first few years,

(ii) The second part of the marketing strategy statement outlines the products

Planned price,

Distribution

Marketing budget for the first year.

(iii)Third part of the marketing strategy statement describes

the planned long-rum sales, profit;

profit goals,

marketing mix strategy

5. Business Analysis :

A review of sales, costs and profit projections for a new product to find out whether these factors satisfy the companys objectives.

After management develops the product concept and marketing strategy, it can evaluate the proposals business attractiveness.

Estimating total sales : Total estimated sales are the sum of estimated first-time sales, replacement sales, and repeat sales.See figures :

(a) One time purchased product

(c) Frequently purchased product

Sales

Sales

Time

Time

(b) Infrequently purchased product

Time

Estimating costs and profits : Costs are estimated by the R & D, manufacturing, marketing and finance departments.Companies use other financial measures to evaluate the merit of a new-product proposal. The simplest is break-even analysis, in which management estimates how many units of the product the company would have to sell to break even with the given price and cost structure.

Managing the development process : Development to commercialization

6. Product development :Developing the product concept into a physical product in order to ensure that the product idea can be turned into a workable product.

Up to now, the product has existed only as a word description, a drawing, or a prototype. This step involves a large jump in investment that dwarfs. The costs incurred in the earlier stages. At this stage the company will determine whether the product idea can be triangulated into a technically and commercially feasible product.

R & D department will develop one or more physical various of the product concept. Its goal is to find a prototype that embodies the key attributes described in the product concept.

Statement, that performs safely under normal use and conditions, and that can be produced within the budgeted manufacturing costs. When the prototypes are ready. They must be put through rigorous functional tests and customer tests.

7. Market Testing :

The stage of new product development in which the product and marketing program are tested in more realistic market settings.

After management is satisfied with functional and psychological performance, the product is ready to be dressed up with a brand name and packaging, and put into a market test. The new product is introduced into an authentic setting to learn how large the market is and how consumers and dealers react to handling using, and repurchasing the product.

Consumer = Good Market Testing : In testing consumer products, the company seeks to estimate four variables : trail, first repeat, adoption and purchase frequency. The company hopes to find all these variables at high levels.

There are four major methods of consumer-goods market testing :

i. Sales-wave Research ii. Simulated test Marketing iii. Controlled test Marketing : iv. Test Markets : 8. Commercialization : Introducing a new product into the market. When the company goes ahead with commercialization introducing the new product into the market it will face high costs. The company will have to build or rent a manufacturing facility. And it may have to spend, in the case of new consumer packaged good, a large amount for advertising, sales promotion, and other marketing, efforts in the first year.

Where ? The company must decide where to launch the new product in a single location, a region, the national market, or the international market. Few companies have the confidence, capital, and capacity to lunch new products into full national or international distribution. They will develop a planned market rollout over time. In particular, small companies may enter attractive cities or regions one at a time. Larger companies, however, may quickly introduce new models into several regions or into the full national market.

When ? (Timing) : Favorable environment should essential for introducing a new product. An example, if the economy is down, the company may wait until the following changed economy. If a new product replaces an older product, the company might delay the introduction until the old products stock is drawn down. If the product is seasonal, it might be delayed until the right season arrives,

to Whom ? (Target-Market prospects) : Within the rollout markets, the company must target its initial distributions and promotion to the best prospect groups. Presumably, the company has already profiled the prime prospects. Who would ideally have the following characteristics : the would be early adopters, heavy users, and opinion leaders, and they could be reached at a low cost. The company should rate the various prospect groups on these characteristics and target the best group.How ? (Introductory market strategy) : The company must develop an action plan for introducing the new product into the rollout markets. To coordinate the many activities involved in launching a new product, management can use network-planning techniques such as critical path scheduling. Critical path scheduling (CPS) calls for developing a master chart showing the simultaneous and sequential activities that must take place to launch the product. By estimating how much time each activity takes, the planners estimate completion time for the entire project. Any delay in any activity on the critical path will cause the project to be delayed. If the launch must be completed earlier, the planner searches for ways to reduce time along the critical path.

PRODUCT LIFE-CYCLE MARKETING STRATEGY

The course of a products sales and profits over its life time. It involves five distinct stages; product development, introduction, growth, maturity, and decline.

To say that a product has a life cycle is to assert four things :

1. Products have a limited life

2. Product sales pass through distinct stages, each posing different challenges, opportunities and problems to the seller.

3. Profits rise and fall at different stages of the product life cycle.

4. Products require different marketing, financial manufacturing, purchasing and human resource strategies in each life-cycle stage.

The product life-cycle has five distinct stages :

1. Product development begins when the company finds and develops a new-product idea. During product development, sales are zero and the companys investment costs mount.

2. Introduction is a period of slow sales growth as the product is introduced in the market. Profits are nonexistent in this stage because of the heavy expenses of product introduction.

3. Growth is a period of rapid market acceptance and increasing profits.

4. Maturity is a period of slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits level off or decline because of increased marketing outlays to defend the product against competition.

5. Decline is the period when sales fall off and profits drop.

Sales and

Profits

0

Losses

Investment Sales and profit life-cycles

Style, Fashion, and Fad life cycle

Style : A basic and distinctive mode of expression.

Style

Sales

Time

Fashion : A currently accepted or popular style in a given field.

Fashion

Sales

0

Time

Fad : A fashion that enters quickly is adopted with great zeal, peaks early, and declines very quickly.

Fad

Sales

Time

Marketing Strategies : Introduction stage

The product life-cycle stage in which the new product is first distributed and made available for purchase. Because it takes time to roll out a new product and fill dealer pipelines, sales growth tends to be slow at this stage. Profits are negative or low in the introduction stage because of low sales and heavy distribution and promotion expenses. Much money is needed to attract distributors. Promotional expenditures are at their highest ratio to sales because of the need to -

i) Informed potential consumers

ii) Induce product trial

iii) Secure distribution in retail outlets.

In launching a new product, marketing management can set a high or a low level for each marketing variable (Price, promotion, distribution product quality). Considering only price and promotion, management can pursue one of four strategies.

Promotion

HighLow

High

Price

1. Rapid skimming2. Slow Skimming

Low

3. Rapid Penetration4. Slow Penetration

1. Rapid Skimming : Launching the new product at a high price and a high promotions level. This strategy makes sense when a large part of the potential market is unaware of the product; those who become aware of the product are eager to have it and can pay the asking price; and the firm faces potential competition and wants to build brand preference.

2. Slow Skimming : Launching the new product at a high price and low promotion. This strategy makes sense when the market is limited in size; most of the market is aware of the product; buyers are willing to pay a high price; and potential competition is not imminent.

3. Rapid penetration : Launching the product at a low price and spending heavily on promotion. This strategy makes sense when the market is large, the market is unaware of the product, most buyers are price sensitive, there is strong potential competition, and the unit manufacturing costs fall with the companys scale of production and accumulated manufacturing experience.

4. Slow penetration : Launching the new product at a low price and low level of aware of the product is price sensitive, and there is some potential competition.

Marketing Strategies : Growth stage

If the new product satisfies the market, it will enter a growth stage, in which sales will start climbing quickly. The early adopters will continue to buy, and later buyers will start following their lead, especially if they hear favorable word of mouth. Attracted by the opportunities for profit, new competitors will enter the market. They will introduce new product features, and the market will expand.

During this stage, the firm uses several strategies to sustain rapid market growth as long as possible.

i) It improves product quality and adds new product features and improved styling.

ii) It adds new models and flanker products i.e. products of different sizes, flavors and so forth that protect the main product.

iii) It enters new market segments.

iv) It increases its distribution coverage and enters new distribution channels.

v) It shifts from product-awareness advertising to product-preference advertising.

vi) It lowers prices to attract the next layer of price-sensitive buyers.

Marketing Strategies : Maturity Stage

At some point, the rate of sales growth will slow, and the product will enter a stage of relative maturity. This stage normally lasts longer than the previous stages, and poses formidable challenges to marketing management. Most products are in the maturity stage of the life cycle and most marketing managers cope with the problem of marketing the mature product.

The maturity stage divides into three phases :

1. Growth : In this phase, the sales growth rate, starts to decline. There are no distribution channels to fill.

2. Stable : Sales flatten on a per capita basis because of market saturation. Most potential consumers have tried the product, and future sales are governed by population growth and replacement demand.

3. Decaying maturity : The absolute level of sales starts to decline, and customers begin switching to other products and substitutes.

A company can follow three strategies at this stage :

Market Modification : The company might try to expand the market for its mature brand by working with the two factors that make up sales volume.

Volume = number of brand users ( usage rate per the company can try to expand the number of brand users in three ways :

i) Convert nonusers : The key to the growth of air freight service is the constant search for new users to whom air carriers can demonstrate the benefits of using air freight rather than ground transportation.

ii) Enter new market segments : Johnson & Johnson successfully promoted its baby shampoo to adult users.

iii) Win competitors customers : Pepsi-Cole is constantly tempting Coca-Cola users to switch.

Volume can also be increased by convincing current brand users to increase their usage of the brand. There are three strategies :

i) The company can try to get customers to use the product more frequently.

ii) The company can try to interest users in using more of the product on each occasion : A shampoo manufacturer might indicate that the shampoo is more effective with two applications than one.

iii) The company can try to discover new product uses and convince people to use the product in more varied ways;

Product Modification :Manager also try to stimulate sales by modifying the products characteristics through quality improvement, feature improvement, or style improvement.

i) Quality improvement aims at increasing the products functional performance its durability, reliability, speed, taste. A manufacturer can often overtake its competition by launching a new and improved product.

ii) Feature improvement aims at adding new features (for example, size, weight, materials additives, accessories) that expand the products versatility, safety or convenience.

iii) Style improvement aims at increasing the products aesthetic appeal.

Marketing-Mix Modification :Product managers might also try to stimulate sales by modifying other marketing mix elements. They should ask the following questions :

Prices : Would a price cut attract new buyers ?

Distributors : Can the company obtain more product support and display in existing outlets ?

Advertising : Should advertising expenditures be increased ?

Sales promotion : Should the company step up sales promotion trade deals, cents off coupons rebates, warranties, gifts and contests ?

Personal selling : Should the number or quality of sales people be increased ?

Should the basis for sales force specialization be changed ? Should sales territories be revised should sales force incentives be revised ? Should sales force incentives be revised ? Can sales-call planning be improved ?

Services : Can the company speedup delivery ?

Can it extend more technical assistance to customer ? Can it extend more credit ?

Marketing Strategies : Decline stage

The sales of most product forms and brands eventually decline. might be slow, sales may plunge to zero, or they may petrify at a low level.

Sales decline for a number of reasons, including technological advances shits in consumer tastes, and increased domestic and foreign competition.

As sales and profits decline, some firms withdraw from the market. Those remaining may reduce the number of products they offer. They may withdraw from smaller market segments and weaker trade channels and they may cut their promotions budget and reduce their prices further.

Unfortunately, most companies have not developed a well thought-out policy for handling their aging products. Sentiment often plays a role:

Logic may also play a role, Management believes that product sales will improve when the economy improves, or when the marketing strategy is revised, or when the product is improved. Or the weak product may be retained because of its alleged contribution to the sales of the companys other products. Or its revenue may cover out of pocket costs, even if it is not turning a profit.

In handling its aging products, a company faces a number of tasks and decisions.

i) To establish a system for identifying weak products. Many companies appoint a product-review committee for identifying weak products. The product review committee makes a recommendation for each dubious product-leave it alone, modifies its marketing strategy, or drops it.

ii) Management may decides to maintain its brand without change in the hope that competitors will leave the industry. Or management may decide to reposition or reformulate the brand in hopes of moving it back into the growth stage of the product life cycle.

iii) Management may decide to harvest the product, which means reducing various costs (plant and equipment maintenance, R & Dc advertising, sales force) and hoping that sales hold up. If successful, harvesting will increase the companys profits in the short run.

iv) Management may decide to drop the product from the line. It can sell it to another firm or simply liquidate it at salvage value.

PACKAGING AND LABELINGMany companies have called packaging a fifth P. along with pricing product, place and promotion. Most marketers, however, treat packaging and labeling as an element of product strategy.

Packaging : We define packaging as follows :

Packaging includes the activities of designing and producing the container for a product.

The container is called the package, and it might include up to three levels of materials.

i. Primary package

ii. Secondary package

iii. Shipping package

Packaging has become a potent marketing tool well designed packages can create convenience and promotional value. various factors have contributed to packaging growing use as a marketing tool.

i. Self-service

ii. Consumer affluence

iii. Company and brand image

iv. Innovation opportunity

Developing an effective package for a new product.Developing an effective package for a new product requires several decisions.

The first task is to establish the packaging concept.

Defining what the package should basically be or do for the particular product.

Decisions must now be made on additional elements size, shape, materials, color, text, and brand mark.

Decisions must be made on the amount of text, on cellophane or other transparent films, on a plastic or a laminate tray, and so on.

Decisions must be made on tamperproof devices. The various packaging elements must be harmonized. The packaging elements must also be harmonized with decisions on pricing, advertising, and other marketing elements.

After the packaging is designed, it must be tested.

Engineering tests

Visual tests

Dealer tests

Consumer tests

LEVELINGLabels may range from simple tags attached to products to complex graphics that are part of the package.

Labels perform several functions.

The label identifies the product or brands.

The label might also describe several things about the product who made it, where it was made,

When it was made,

Its contents,

How it is to be used and how to use it safely.

The label might promote the product through attractive graphics.

Label shows the rules and regulation act.

The Nutritional labeling and Educational Act of 1990 requires sellers to provide detailed nutritional information on food products and recent sweeping actions by the food and Drug Administration regulate the use of health related terms such as low fat, light, and high-fiber, sellers must ensure that their contain all the required information.

PRICING CONSIDERATION

AND PRICING STRATEGIES

What is Price ?

The amount of money charged for a product or service, or the sum of the values that consumers exchange for the benefits of having or using the product or service.

FACTORS TO CONSIDER WHEN SETTING PRICES

Internal Factors Affecting Pricing Decisions

Marketing Objectives

Survival

Current profit maximization

Market share leadership

Product quality leadership

Marketing Mix Strategy

Costs

Type of costs

i) Fixed costs

ii) Variable costs

iii) Costs at different levels of production

iv) Costs as a function of production experience

Organizational Considerations

External Factors Affecting Pricing Decisions

The Market and Demand

Pricing in different types of markets

Consumer Perceptions of price and value

Analyzing the price demand relationship

Price elasticity of demand

Competitors Costs, Prices and Offers

Other External Factors

GENERAL PRICING APPROACHES

1. Costs-Based Pricing

The simplest pricing method is cost plus pricing-adding a standard markup to the cost of the product.

Major considerations in setting price

Product costsCompetitors prices and offerConsumer perceptions of value

Price floorInternal & external factorsPrice celling

No profits below this priceNo-demand above this price

To illustrate markup pricing, suppose a toaster manufacturer had the following costs and expected sales :

Variable cost

-Tk. 10

Fixed costs

-Tk. 300,000

Expected unit sales -Tk. 50,000

Then the manufacturers cost per toaster is given by :

Unit Cost = Variable Cost+

Now suppose the manufacturer wants to earn a 20 percent markup on sales. The manufacturers markup price is given by :

Mark up Price =

The manufacturer would charge dealers Tk. 20 a toaster and make profit of Tk. 4 per unit. If dealers want to earn 50 percent on sales price they will marks up the toaster to Tk. 40 (Tk. 20 + 50% of Tk. 40).

BREAK-EVEN ANALYSIS AND

TARGET PROFIT PRICING

Target return price =Unit Cost +

=

Break-even Volume =

Break-even chart for determining target price

1200target revenue

1000target profit

(Tk. 200,000)

Cost in Taka800total cost

(thousand)600

400Fixed cost

200

0

1020304050

Sales volume in units (thousands)

2. Value Based Pricing

Value-based pricing uses buyers perceptions of value not the sellers cost, as the key to pricing.

3.Competition-Based Pricing

Competition-based pricing is going rate pricing in which a firm bases its price largely on competitors price, with less attention paid to its won costs or to demand.

Nine Price Quality Strategies

Price

HighMediumLow

High1. Premium Strategy2. High Value Strategy3. Super Value Strategy

Medium4. Over changing Strategy5. Medium Value Strategy6. Good Value Strategy

Low7. Rip off Strategy8. False economy Strategy9. Economy Strategy

1. New Product Pricing Strategies

Market Skimming Pricing : Setting a high for a new product to skim maximum revenues layer by layer from the segments willing to pay the high price; the company makes fewer but more profitable sales.

Market Penetration Pricing : Setting a law pricing for a new product in order to attract a large number of buyers and a large market share.

2. Product Mix Pricing Strategies Product Line Pricing : Setting the price steps between various products in a product line based on cost differences between the products, customer evaluations of different features, and competitors prices.

Optional Product Pricing : The pricing of optional or accessory products along with a main product.

Captive Product Pricing : Setting a price for products that must be used along with a main product, such as blades for a razor and film for a camera.

By Product Pricing : Setting a price for by products in order to make the main products price more competitive.

Product Bundle Pricing : Combining several products and offering the bundle at a reduced price.

3. Price Adjustment Strategies Discount and Allowance Pricing : A straight reduction in price on purchases during a stated period of time.

i) Cash Discount

ii) Quantity Discount

iii) Functional Discount

iv) Seasonal Discount

v) Allowance

Segment Pricing : Selling a product or service at two or more prices, where the difference in prices not based on differences in costs.

4. Psychological Pricing

A pricing approach that considers the psychology of prices and not simply the economics; the price is used to say something about the product.

Reference Price : Prices that buyers carry in their minds and refer to when they look at a given product.

5. Psychological Pricing

Temporarily pricing products below the list price, and sometimes even below cost, to increase short-run sales.

6. Geographical Pricing

FOB Origin Pricing : A geographical pricing strategy in which goods are placed free on board a carrier; the customer pays the freight from the factory to the destination. Uniform delivered Pricing : A geographical pricing strategy in which the company charges the same price plus freight to all customers, regardless of their locations. Zone Pricing : A geographical pricing strategy in which the company sets up two or more zones. All Customers within a zone pay the same total price; the more distant the zone, the higher the price. Basing Point Pricing : A geographical pricing strategy in which the seller designates some city as a basing point and charges all customers the freight cost from that city to the customer. Freight absorption Pricing : A geographical pricing strategy in which the seller absorbs all or part of the freight charges in order to get the desired business. 7. International Pricing

Companies that market their products internationally must decide what prices to charge in the different countries in which they operate.

Price changes : After developing their pricing structures and strategies, companies often face situations in which they must initiate price charges or respond to price charges by competitions.

1. Initiating Price Cuts

Excess capacity

Falling market share

To gain market share

2. Initiating Price Increases

Rising costs

Over demandMarketing Channels and Supply Chain Management

Marketing channels or distribution channels are sets of interdependent organizations involved in the process of making a product or service available for use or consumption.

Supply chains : Producing a product or service and making it available to buyers requires building relationships not just with customers, but also with key suppliers and resellers in the companys supply chain. This supply chain consists of upstream and downstream partners, including suppliers, intermediaries, and even intermediarys customers.

Value delivery network : The network made up of the company, suppliers, distributors and ultimately customers who partner with each other to improve the performance of the entire system.

The Nature and Importance of Marketing Channels : A companys channel decisions directly affect every other marketing decision.

The companys pricing depends on whether it works with national discount chains, uses high quality specialty stores, or sells directly to consumers via the web.

The firms sales force and communications decisions depend on how much persuasion, training, motivation and support its channel partners need.

Whether a company develops or acquires certain new products may depend on how well those products fit the capabilities of its channel members.

Many companies have used imaginative distribution systems to gain a competitive advantage.

How a Marketing Intermediary reduces the number of channel transactions.

1.Number of contacts without a distributor P ( C = 3 ( 3 = 9

P = Producer, C = Consumer2.Number of contacts with a distributor

P + C = 3 + 3 = 6

P = Producer, C = Consumer

Store = Distributor

Channel functions and Marketing channels Information : Gathering and distributing marketing research and intelligence information about actors and forces in the marketing environment needed for planning and aiding exchange.

Promotion : Developing and spreading persuasive communications about an offer.

Contact : finding and communication with prospective buyers.

Matching : Shaping and fitting the offers to the buyers needs, including activities such as manufacturing, grading, assembling and packaging.

Negotiation : Reaching an agreement on price and other terms of the offer so that ownership or possession can be transferred.

Other help to fulfill the completed transactions

Physical distribution : Transporting and storing good.

Financing : Acquiring and using funds to cover the costs of the channel work.

Risk taking : Assuming the risk of carrying out the channel work.

Consumer and business marketing channels

Channel-1ManufacturerConsumer

Channel-2ManufacturerRetailerConsumer

Channel-3ManufacturerWhole sellerRetailerConsumer

Channel-4ManufactureWhole sellerRetailerConsumer

A. Consumer Marketing Channels

Channel-1ManufacturerIndustrial customer

Channel-2ManufacturerBusiness distributorIndustrial customer

Channel-3ManufacturerManufacturers representatives or sales branchIndustrial customer

Channel-4Manufacturers representatives or sales branchBusiness distributorIndustrial Customer

B. Business Marketing Channels

Channel Behavior and Organization

Channel Behavior : A marketing channel consists of firms that have banded together for their common good. Each channel member depends on the others. The channel will be most effective when each member is assigned the tasks it can do best. But they often disagree on who should do what and what rewards. Such disagreements over goals, roles and rewards generate channel conflict.

Horizontal conflict : Horizontal conflict occurs among firms at the same level of the channel.

Vertical conflict : Vertical conflict occurs between different levels of the same channel.

Vertical Marketing Systems

Conventional distribution channel : A channel consisting of one or more independent producers, wholesalers, and retailer, each a separate business seeking to maximize its own profits, even at the expense of profits for the system as a whole. A conventional marketing channel comprises an independent producer, wholesaler(s), and retailer(s). Each is a separate business seeking to maximize its own profits.

A vertical marketing system (VMS) : A distribution channel structure in which producers, wholesalers, and retailers act as a unified system. One channel member owns the others, has contracts with them, or has so much power that they all cooperate.

There are three types of VMS :i) Corporate VMS : A vertical marketing system that combines successive stages of production and distribution under single ownership channel leadership is established through common ownership.

ii) Contractual VMS : A vertical marketing system in which independent firms at different levels of production and distribution joint together through contracts to obtain more economics or sales impact than they could achieve alone. There are three types of contractual VMS.

Wholesaler sponsored voluntary chains.

Retailer cooperatives.

Franchise organizations : A channel member called a franchisor might link several successive stages in the production distribution process. Framechising has been the fastest growing retailing development in recent years. Although the basic idea is an old one, some forms of franchising are quite new. There are three types of franchise.

i) Manufacture sponsored retailer franchise.

ii) Manufacturer Sponsored wholesaler franchise.

iii) Service firm sponsored retailer franchise.

iii) Administered VMS : A vertical marketing system that coordinates successive stages of production and distribution, not through common ownership or contractual ties, but through the size and power of one of the parties.A Horizontal Marketing Systems : A channel arrangement in which two or more companies at one level joint together to follow a new marketing opportunity

A Multi-channel Distribution Systems : A distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments.

Catalogues, Telephone, Internet

Sales force

Channel Design Decisions

A new firm typically starts as a local operation selling in a limited market, using existing intermediaries. If the firm is successful, it might branch into new markets. It might have to use different channels in different markets. In large markets, it might sell through distributors.

In managing its intermediaries, the firm must decide how much effort to devote to push versus pull marketing.

A push strategy involves the manufacturer using its sales force and trade promotion money to induce intermediaries to carry, promote, and sell the product to end users.

Push strategy is appropriate where there is low brand loyalty in a category, brand choice is made in the store, the product is an impulse item and product benefits are well understood.

A pull strategy involves the manufacturer using advertising and promotion to induce consumers to ask intermediaries for the product, thus inducing the intermediaries to order it.

Pull strategy is appropriate when there is high brand loyalty and high involvement in the category, when people perceive differences between brands, and when people choose the brand before they go to the store.

Designing a channel system involves four steps:

1. Analyze customers desired service output levels:

In designing the marketing channel, the marketer must understand the service output levels desired by target customers. Channels produce five service outputs.

Lot size

Waiting time

Spatial Convenience

Product variety

Service backup

2. Establish objectives and constraints :Companies should state their marketing channel objectives in terms of targeted levels of customer service. Usually, a company can identify several segments wanting different levels of service. The company should decide which segments to serve and the best channels to use in each case, in each segment, the company wants to minimize the total channel cost of meeting customer service requirements.

The companys channel objectives are also influenced by of

The nature of the company.

The products

Marketing intermediaries

Competitors

The environment

3. Identify major channel alternatives :When the company has defined its channel objectives, it should next identify its major channel alternatives in terms of types of intermediaries, the number of intermediaries, and the responsibilities of each channel member.

Types of intermediaries: Company sales force

Manufacturers agency

Industrial distributors

Number of marketing intermediaries:

Companies must also determine the number of channel members to use at each level. Three strategies are available :

Intensive distribution: Stocking the product in as many outlets as possible.

Exclusive distribution: Giving a limited number of dealers the exclusive right to distribute the companys products in their territories.

Selective distribution: The use of more than one, but fewer than all, of the intermediaries who are willing to carry the companys products.

Responsibilities of channel members:

The producer and intermediaries need to agree on the terms and responsibilities of each channel member. They should agree on price policies, conditions of sale, territorial rights and specific services to be performed by each party. The producer should establish a list price and a fair set of discounts for intermediaries. It must define each channel members territory and it should be careful about where it places new resellers.

4. Evaluate the major alternatives :Suppose a company has identified several channel alternatives and wants to select the one that will best satisfy its long-run objectives. Each alternative should be evaluated against economic, control, and adoptive criteria.

The value adds versus costs of Different channels

High

Value add of sales

Low

Cost per transaction

Break-even cost chart for the choice between a company sales force and a manufacturers sales agency.

Selling costs

Company

sales force

Level of sales

Channel-management decisionsChannel management calls for selecting, managing, and motivating individual channel members and evaluating their performance over time.

1. Selecting channel members : When selecting intermediaries, the company should determine what characteristics distinguish the better ones. It will want to evaluate each channel members years in business, other lines carried growth and profit record, cooperativeness and reputation. If the intermediaries are sales agents, the company will want to evaluate the number and character of other lines carried and the size and quality of the sales force. If the intermediary is a retail store that wants exclusive or selective distribution, the company will want to evaluate the stores customers, location and future growth potential.2. Training channel members : Companies need to plan and implement careful training programs for their intermediaries, because they will be viewed as the company by end users.3. Motivating channel members : Channel members must be continuously managed and motivated to do their best. Producers very greatly in skill in managing distributors. They can draw on the following types of power to elicit cooperation. Coercive Power

Reward Power

Legitimate Power

Expert power

Referent Power

Most producers see the main challenge as gaining intermediaries, cooperation. The often use positive motivators, such as :

Higher margins

Special deals

Premiums

Cooperative advertising allowances

Display allowances

Sales contests

They will also apply negative sanctions, such as :

Threatening to reduce margins

Slow down delivery

Terminate the relationship

4. Evaluating