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Service marketing

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1. The document provides an overview of service marketing, including definitions of marketing, the differences between marketing services versus products, and key concepts in service marketing like managing customer perceptions. 2. It discusses the history and basic functions of markets, defining a market as a social arrangement that allows buyers and sellers to exchange goods or services. 3. Several types of markets are described, from traditional open-air markets to more complex modern institutions like stock markets. The key function of all markets is to help buyers and sellers find information and engage in voluntary exchange.

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National Institute of Business Management Master of Business Administration (MBA) Service Marketing
Chapter Title Page No. I SERVICE MARKETING 5 II MARKET RESEARCH 25 III SERVICE 35 IV PRODUCT (BUSINESS) 38 V MARKET 57 VI TARGET MARKET 66 VII MARKETING MANAGEMENT 73 VIII NEW PRODUCT DEVELOPMENT 80 IX PRODUCT LIFE CYCLE MANAGEMENT 86 X PRICING 90 XI DISTRIBUTION ( BUSINESS) 94 XII PRODUCT MANAGEMENT 101 XIII QUALITATIVE MARKETING RESEARCH 113 CONTENTS CONTENTS CONTENTS CONTENTS CONTENTS
5 CHAPTER - I SERVICEMARKETING OBJECTIVE Service marketing consists of the social and managerial processes by which products; services and value are exchanged in order to fulfill individuals or group’s needs and wants. If marketing is the distinguishingfunctionofthebusiness,thenwhatismarketingandhowisitachieved? 1. “...an organizational function and a set of processes for creating, communicating, and delivering valuetocustomersandformanagingcustomerrelationshipsinwaysthatbenefittheorganization anditsstakeholders.” 2.“Humanactivitydirectedatsatisfyingneedsandwantsthroughexchangeprocesses.” 3. “...the ongoing process of moving people closer to making a decision to purchase, use, follow, refer,upload,download,obey,reject,conform,becomecomplacenttosomeoneelse’sproducts, servicesorvalues.Simply,ifitdoesn’tfacilitatea“sale”thenit’snotmarketing.” 4.“...thethingprocessofanticipating,identifyingandsatisfyingcustomerrequirementsprofitably”. 5. “...find a limited market and seek to dominate it totally.” A comprehensive definition of marketing, applicable to both business and non-business environments,emerges: Processes,functions,exchangesoractivities–thatcreateperceivedvaluebysatisfyingneedsof thoseinvolvedinthetransaction.Theseprocessessucceedinmovingpeopleclosertomakingadecision topurchaseandfacilitatea“sale.”Afterwards,theseprocessesanticipate,identifyandsatisfycustomer requirementsprofitablyandsuccessfullymanageexistingrelationships. “Service Marketing is the ongoing process of moving people closer to making a decision to purchase,use,follow...orconformtosomeoneelse’sproducts,servicesorvalues.Simply,ifitdoesn’t facilitate a “sale” then it’s not marketingThus service marketing is be the “management process of anticipating,identifyingandsatisfyingcustomerrequirementsprofitably”.Thus,operativemarketing involvestheprocessesofmarketresearch,newproductdevelopment,productlifecyclemanagement, pricing,channelmanagementaswellaspromotion.Marketing-”takingactionstodefine,create,grow, develop,maintain,defendandownmarkets”.Anapproachtobusinessthatseekstoidentify,anticipate andsatisfycustomersneeds.Itis“war”betweencompetitors.Howeverthepublicityandhypingofthe eventforcommercialpurposesis,”thisistheprocessofplanningandexecutingtheconception,pricing, promotionanddistributionofideas, goods and services to satisfy customers.”
6 Introduction Services marketing is marketing based on relationship and value. It may be used to market a service or a product. Marketing a service-base business is different from marketing a product-base business. Thereareseveralmajordifferences,including: 1. Thebuyerpurchasesareintangible 2. The service may be based on the reputation of a single person 3. It’smoredifficulttocomparethequalityofsimilarservices 4. The buyer cannot return the service 5. ServiceMarketingmixadds3morep’s,i.e.people,physicalenvironment,processserviceand follow-througharekeystoasuccessfulventure. Whenonemarketsaservicebusiness,onemustkeepinmindthatreputation,value,deliveryof “Managing the evidence” refers to the act of informing customers that the service encounter has been performedsuccessfully.Itisbestdoneinsubtlewayslikeprovidingexamplesordescriptionsofgood andpoorservicethatcanbeusedasabasisofcomparison.Theunderlyingrationaleisthatacustomer mightnotappreciatethefullworthoftheserviceiftheydonothaveagoodbenchmarkforcomparisons. However,itisworthrememberingthatmanyoftheconcepts,aswellasmanyofthespecifictechniques, will work equally well whether they are directed at products or services. In particular, developing a marketingstrategyismuchthesameforproductsandservices,inthatitinvolvesselectingtargetmarkets andformulatingamarketingmix.Thus,TheodoreLevittsuggestedthat“insteadoftalkingof‘goods’ andof‘services’,itisbettertotalkof‘tangibles’and‘intangibles’”.Levittalsowentontosuggestthat marketingaphysicalproductisoftenmoreconcernedwithintangibleaspects(frequentlythe`product service’elementsofthetotalpackage)thanwithitsphysicalproperties.CharlesRevsonmadeafamous commentregardingthebusinessofRevlonInc.:`Inthefactorywemakecosmetics.Inthestorewesell hope.’Arguably,serviceindustrymarketingmerelyapproachestheproblemsfromtheoppositeendof the same spectrum. 1. Marketing Marketing is a social and managerial function that attempts to create, expand and maintain a collectionofcustomers.Itattemptstodeliverdemandsatisfyingoutputthroughprofitableexchanges. • Marketing(traditional),assuggestedbytheAmericanMarketingAssociationistheprocessof planning and executing the conception, pricing, promotion, and distribution of ideas, goods, andservicestocreateexchangesthatsatisfyindividualandorganizationalobjectives. • Marketing,assuggestedbytheAmericanMarketingAssociation,is“anorganizationalfunction and a set of processes for creating, communicating and delivering value to customers and for managingcustomerrelationshipsinwaysthatbenefittheorganizationanditsstakeholders”.
7 • PhilipKotler,inhisearlierbooks,definesmarketingas:“humanactivitydirectedatsatisfying needs and wants through exchange processes”. Still another marketing definition, coined by BrianNorris:“Theprocessofrepeatedlymovingpeopleclosertomakingadecisiontopurchase, use, follow, refer, upload, download, obey, reject, conform, become complacent to another person’s, society’s or organization’s value. Simply, if it doesn’t facilitate a “sale” then it’s not marketing.” • Identifying needs/wants and finding and implementing solutions that satisfy those needs and wants. • Add to Kotler’s and Norris’definitions, a response from the Chartered Institute of Marketing (CIM). The association’s definition claims marketing to be the “management process of anticipating, identifying and satisfying customer requirements profitably”. Thus, operative marketing involves the processes of market research, market segmentation, new product development,productlifecyclemanagement,pricing,channelmanagementaswellaspromotion. • Marketing-”takingactionstodefine,create,grow,develop,maintain,defendandownmarkets”. • An approach to business that seeks to identify, anticipate and satisfy customers needs. • Al Ries and JackTroutdefinedmarketingassimply“war”betweencompetitors. • Anyactivitythatconnectsproducerswithconsumers. • Atamacrolevel,marketingistheprocessofraisingthestandardsofliving,byidentifyingthe existingproblemsandunsatisfiedneedsofpeopleandthensatisfyingthatneedwithaproduct/ service thatdeliversvaluetothecustomer. 2. History of Marketing Thepracticeofmarketingisalmostasoldashumanityitself.Wheneverapersonhasanitemor is capable of performing a service, and he or she seeks another person who might want that item or service,thatpersonisinvolvedinmarketing.AMarketwasoriginallysimplyagatheringplacewhere peoplewithasupplyofitemsorcapacitytoperformaservicecouldmeetwiththosewhomightdesire the items or services, perhaps at a pre-arranged time. Such meetings embodied all the aspects of today’s marketing methods, although in an informal way. Sellers and buyers sought to understand each other’s needs, capacities, and psychology, all with the goalofgettingtheexchangeofitemsorservicestotakeplace.Openairmarketsthroughouttheworld, with buyers and sellers freely mingling, are today’s example of this basic activity.Today’s NewYork Stock Exchange had its humble beginnings as an open air market located atWall Street in NewYork City. TheriseofAgricultureundoubtedlyinfluencedmarketsastheearliestmeansof‘massproduction’ ofanitem,namelyfoodstuffs.Asagricultureallowedonetogrowmorefoodthancouldbeeatenbythe grower alone, and most food is perishable, there was likely motivation to seek out others who could use the excess food, before it spoiled, in exchange for other items.
8 3. Market A market is a social arrangement that allows buyers and sellers to discover information and carry out a voluntary exchange of goods or services. It is one of the two key institutions that organize trade, along with the right to own property.Allowing markets to arrive at a pareto efficientoutcomeis one of the key components of capitalism. In everyday usage, the word “market” may refer to the location where goods are traded, sometimes known as a marketplace, or to a street market. Function Thefunctionofamarketrequires,ataminimum,thatbothpartiesexpecttobecomebetteroff as a result of the transaction. Markets generally rely on price adjustments to provide information to parties engaging in a transaction, so that each may accurately gauge the subsequent change of their welfare.Inlesssophisticatedmarkets,suchasthoseinvolvingbarter,individualbuyersandsellersmust engageinamorelengthyprocessofhagglinginordertogainthesameinformation.Marketsareefficient when the price of a good or service attracts exactly as much demand as the market can currently supply.Thechieffunctionofamarket,then,istoadjustpricestoaccommodatefluctuationsinsupply anddemandinordertoachieveallocativeefficiency.Aneconomicsysteminwhichgoodsandservices are exchanged by market functions is called a market economy.An alternative economic system in whichnon-marketforces(oftengovernmentmandates)determinepricesarecalledplannedeconomies orcommandeconomies.Theattempttocombinesocialistidealswiththeincentivesystemofamarket isknownasmarketsocialism. Types of markets Althoughmanymarketsexistinthetraditionalsense—suchasafleamarket—therearevarious othertypesofthemandvariousorganizationalstructurestoassisttheirfunctions. Amarketcanbeorganizedasanauction,asashoppingcenter,asacomplexinstitutionsuchas astockmarket,andasaninformaldiscussionbetweentwoindividuals. In economics, a market that runs under laissez-faire policies is a free market. It is “free” in the sense that the government makes no attempt to intervene through taxes, subsidies, minimum wages, price ceilings, etc. Markets may be distorted by a seller or sellers with monopoly power, or a buyer withmonopolypower.Also,theleveloforganizationornegotiationpowerofbuyers,markedlyaffects thefunctioningofthemarket.Marketswherepricenegotiationsdonotarriveatefficientoutcomesfor both sides are said to experience market failure. Most markets are regulated by state wide laws and regulations. While barter markets exist, most markets use currency or some other form of money. Markets of varying types can spontaneously arise whenever a party has interest in a good or service that some other party can provide. Hence there can be a market for cigarettes in correctional facilities,anotherforchewingguminaplayground,andyetanotherforcontractsforthefuturedelivery ofacommodity.Therecanbeblackmarkets,whereagoodisexchangedillegallyandvirtualmarkets,
9 such as eBay in which buyers and sellers do not physically interact. There can also be markets for goods under a command economy despite pressure to repress them. a) Financial market Ineconomicsafinancialmarketisamechanismwhichallowspeopletotrademoneyforsecurities or commodities such as gold or other precious metals. In general, any commodity market might be consideredtobeafinancialmarket,iftheusualpurposeoftradersisnottheimmediateconsumptionof thecommodity,butratherasameansofdelayingoracceleratingconsumptionovertime. Financial markets are affected by forces of supply and demand, and allocate resources over time through a price mechanism such as the interest rate. Typically financial markets use a market making or a bid and ask process. Both general markets, where many commodities are traded and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested sellers in one “place”, thusmakingthemeasiertofindforprospectivebuyers.Aneconomywhichreliesprimarilyoninteractions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy that is based, such as a gift economy. InFinance,Financialmarketsfacilitate: • Theraisingofcapital(inthecapitalmarkets); • Thetransferofrisk(inthederivativesmarkets);and • Internationaltrade(inthecurrencymarkets). They are used to match those who want capital to those who have it. Typically a borrower issues a receipt to the lender promising to pay back the capital. These receiptsaresecuritieswhichmaybefreelyboughtorsold.Inreturnforlendingmoneytotheborrower, thelenderwillexpectsomecompensationintheformofinterestordividends. Thetermfinancialmarketscanbeacauseofmuchconfusion. Financialmarketscouldmean: 1.Organizationsthatfacilitatethetradeinfinancialproducts.i.e.Stockexchangesfacilitatethetrade in stocks, bonds and warrants. 2. The coming together of buyers and sellers to trade financial products. i.e. stocks and shares are traded between buyers and sellers in a number of ways including: the use of stock exchanges; directly between buyers and sellers etc. Inacademia,studentsoffinancewillusebothmeaningsbutstudentsofeconomicswillonlyuse thesecondmeaning.
10 Financial markets can be domestic or they can be international. Types of financial markets Thefinancialmarketscanbedividedintodifferentsubtypes: • Capitalmarketswhichconsistof: o Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof. o Bondmarkets,whichprovidefinancingthroughtheissuanceofBonds,andenablethe subsequenttradingthereof. • Commoditymarkets,whichfacilitatethetradingofcommodities. • Moneymarkets,whichprovideshorttermdebtfinancingandinvestment. • Derivativesmarkets,whichprovideinstrumentsforthemanagementoffinancialrisk. o Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market. • Insurancemarkets,whichfacilitatetheredistributionofvariousrisks. • Foreignexchangemarkets,whichfacilitatethetradingofforeignexchange. Thecapitalmarketsconsistofprimarymarketsandsecondarymarkets.Newlyformed(issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities thattheyholdorbuyexistingsecurities. Raisingcapital Tounderstandfinancialmarkets,letuslookatwhattheyareusedfor,i.e.whatistheirpurpose? Withoutfinancialmarkets,borrowerswouldhavedifficultyfindinglendersthemselves.Intermediaries suchasbankshelpinthisprocess.Bankstakedepositsfromthosewhohavemoneytosave.Theycan thenlendmoneyfromthispoolofdepositedmoneytothosewhoseektoborrow.Bankspopularlylend moneyintheformofloansandmortgages. More complex transactions than a simple bank deposit require markets where lenders and theiragentscanmeetborrowersandtheiragents,andwhereexistingborrowingorlendingcommitments can be sold on to other parties.Agood example of a financial market is a stock exchange.Acompany can raise money by selling shares to investors and its existing shares can be bought or sold. Thefollowingtableillustrateswherefinancialmarketsfitintherelationshipbetweenlendersand borrowers:
11 Relationship between lenders and borrowers Lenders Individuals do not think of themselves as lenders but they lend to other parties in many ways. Lendingactivitiesmaybe: • puttingmoneyinasavingsaccountatabank; • contributingtoapensionplan; • payingpremiumstoaninsurancecompany; • investingingovernmentbonds;or • Investingincompanyshares. Companies tend to be borrowers of capital. When companies have surplus cash that is not needed for a short period of time, they may seek to make money from their cash surplus by lending it viashorttermmarketscalledmoneymarkets. There are a few companies that have very strong cash flows. These companies tend to be lenders rather than borrowers. Such companies may decide to return cash to lenders (e.g. via a share buyback.)Alternatively,theymayseektomakemoremoneyontheircashbylendingit(e.g.investing in bonds and stocks.) Borrowers Individuals borrow money via bank loans for short term needs or longer term mortgages to helpfinanceahousepurchase. Companiesborrowmoneytoaidshorttermorlongtermcashflows.Theyalsoborrowtofund modernizationorfuturebusinessexpansion. Governmentsoftenfindtheirspendingrequirementsexceedtheirtaxrevenues.Tomakeupthis difference, they need to borrow. Governments also borrow on behalf of nationalized industries, municipalities,localauthoritiesandotherpublicsectorbodies.IntheUK,thetotalborrowingrequirement is often referred to as the public sector borrowing requirement (PSBR). Governmentsborrowbyissuingbonds.IntheUK,thegovernmentalsoborrowsfromindividuals by offering bank accounts and Premium Bonds. Government debt seems to be permanent. Indeed the debt seemingly expands rather than being paid off. One strategy used by governments to reduce the value of the debt is to influence inflation. Lenders Individuals Companies Financial Intermediaries Banks Insurance Companies PensionFunds MutualFunds Financial Markets Interbank Stock Exchange Money Market Bond Market ForeignExchange Borrowers Individuals Companies CentralGovernment Municipalities PublicCorporations
12 Municipalitiesandlocalauthoritiesmayborrowintheirownnameaswellasreceivingfunding fromnationalgovernments.IntheUK,thiswouldcoveranauthoritylikeHampshireCountyCouncil. Public Corporations typically include nationalized industries. These may include the postal services, railwaycompaniesandutilitycompanies. Manyborrowershavedifficultyraisingmoneylocally.Theyneedtoborrowinternationallywith the aid of Foreign exchange markets. Derivative products Duringthe1980sand1990s,amajorgrowthsectorinfinancialmarketsisthetradeinsocalled derivative products, or derivatives for short. In the financial markets, stock prices, bond prices, currency rates, interest rates and dividends go up and down, creating risk. Derivative products are financial products which are used to control risk or paradoxically exploit risk. Currency markets Seemingly, the most obvious buyers and sellers of foreign exchange are importers/exporters. Whilethismayhavebeentrueinthedistantpast,wherebyimporters/exporterscreatedtheinitialdemand for currency markets, importers and exporters now represent only 1/32 of foreign exchange dealing, according to BIS. Thepictureofforeigncurrencytransactionstodayshows: • BanksandInstitutions • Speculators • Governmentspending(forexample,militarybasesabroad) • Importers/Exporters • Tourists Analysis of financial markets Muchefforthasgoneintothestudyoffinancialmarketsandhowpricesvarywithtime.Charles Dow, one of the founders of Dow Jones & Company andTheWall Street Journal, enunciated a set of ideas on the subject which are now called Dow Theory. This is the basis of the so-called technical analysismethodofattemptingtopredictfuturechanges.Oneofthetenetsof“technicalanalysis”isthat market trends give an indication of the future, at least in the short term. The claims of the technical analysts are disputed by many academics, who claim that the evidence points rather to the random walk hypothesis, which states that the next change is not correlated to the last change. Thescaleofchangesinpriceoversomeunitoftimeiscalledthevolatility.Itwasdiscoveredby BenoîtMandelbrotthatchangesinpricesdonotfollowaGaussiandistribution,butarerathermodeled betterbyLévystabledistributions.Thescaleofchange,orvolatility,dependsonthelengthofthetime unit to a power a bit more than 1/2. Large changes up or down are more likely that what one would calculateusingaGaussiandistributionwithanestimatedstandarddeviation.
13 Financial markets in popular culture Only negative stories about financial markets tend to make the news. The general perception, for those not involved in the world of financial markets is of a place full of crooks and con artists. Big stories like the Enron scandal serve to enhance this view. Storiesthatmaketheheadlinesinvolvetheincompetent,theluckyandthedownrightskillful. TheBaringsscandalisaclassicstoryofincompetencemixedwithgreedleadingtodireconsequences. Another story of note is that of BlackWednesday, when sterling came under attack from hedge fund speculators.ThisledtomajorproblemsfortheUnitedKingdomandhadaseriousimpactonitscourse in Europe.Acommonly recurring event is the stock market bubble, whereby market prices rise to dizzyingheightsinasocalledexaggeratedbullmarket.Thisisnotanewphenomenon;indeedthestory ofTulipmaniaintheNetherlandsinthe17thcenturyillustratesanearlyrecordedexample. Financial markets are merely tools. Like all tools they have bothbeneficial and harmfuluses. Overall, financial markets are used by honest people. Otherwise, people would turn away from them en masse.As in other walks of life, the financial markets have their fair share of rogue elements. Financial markets slang • Bigswingingdick,ahighlysuccessfulfinancialmarketstrader.Thetermwasmadepopularin the book Liar’s Poker, by Michael Lewis • Geek, a Quant • Nerd, a Quant • Quant, a quantitative analyst skilled in the black arts of PhD level (and above) mathematics andstatisticalmethods • Rocketscientist,afinancialconsultantatthezenithofmathematicalandcomputerprogramming skill.Theyareabletoinventderivativesoffrighteningcomplexityandconstructsophisticated pricing models. They generally handle the most advanced computing techniques adopted by the financial markets since the early 1980s. Typically, they are physicists and engineers by training;rocketscientistsdonotnecessarilybuildrocketsforaliving. b) Stock market A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. Theterm‘thestockmarket’isaconceptforthemechanismthatenablesthetradingofcompany stocks (collective shares), other securities, and derivatives. Bonds are still traditionally traded in an informal,over-the-countermarketknownasthebondmarket.Commoditiesaretradedincommodities markets,andderivativesaretradedinavarietyofmarkets(but,likebonds,mostly‘over-the-counter’). The size of the worldwide ‘bond market’is estimated at $45 Trillion. The size of the ‘stock market’isestimatedasabouthalfthat.Theworldderivativesmarkethasbeenestimatedatabout$300 Trillion. The major U.S. Banks alone are said to account for about $100 Trillion. It must be noted thoughthatthederivativesmarket,becauseitisstatedintermsofnotionaloutstandingamounts,cannot be directly compared to a stock or fixed income market, which refers to actual value.
14 The stocks are listed and traded on stock exchanges which are entities (a corporation or mutualorganization)specializedinthebusinessofbringingbuyersandsellersofstocksandsecurities together.ThestockmarketintheUnitedStatesincludesthetradingofallsecuritieslistedontheNYSE, the NASDAQ, theAmex, as well as on the many regional exchanges, the OTCBB, and Pink Sheets. European examples of stock exchanges include the Paris Bourse (now part of Euronext), the London Stock Exchange and the Deutsche Börse. Trading Participantsinthestockmarketrangefromsmallindividualstockinvestorstolargehedgefund traders,whocanbebasedanywhere.Theirordersusuallyendupwithaprofessionalatastockexchange, who executes the order. Someexchangesarephysicallocationswheretransactionsarecarriedoutonatradingfloor,by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchangeswheretradersmayenter“verbal”bidsandofferssimultaneously.Theothertypeofexchange is a virtual kind, composed of a network of computers where trades are made electronically via tradersatcomputerterminals. Actualtradesarebasedonanauctionmarketparadigmwhereapotentialbuyerbidsaspecific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any bid price or ask price for the stock.) When the bid and ask prices match, a saletakesplaceonafirstcomefirstservedbasisiftherearemultiplebiddersoraskersatagivenprice. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thusprovidingamarketplace(virtualorreal).Theexchangesprovidereal-timetradinginformationon thelistedsecurities,facilitatingpricediscovery. The NewYork Stock Exchange is a physical exchange, where much of the trading is done face-to-face on a trading floor. This is also referred to as a “listed” exchange (because only stocks listed with the exchange may be traded). Orders enter by way of brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades.At this location, known as the trading post, there is a specific person known as the specialist whose job is to match buy orders and sell orders. Prices are determined using an auction method knownas“openoutcry”:thecurrentbidpriceisthehighestamountanybuyeriswillingtopayandthe current ask price is the lowest price at which someone is willing to sell; if there is a spread, no trade takes place. For a trade to take place, there must be a matching bid and ask price. (If a spread exists, the specialist is supposed to use his own resources of money or stock to close the difference, after some time.) Once a trade has been made, the details are reported on the “tape” and sent back to the brokerage firm, who then notifies the investor who placed the order.Although there is a significant amountofdirecthumancontactinthisprocess,computersdoplayahugeroleintheprocess,especially forso-called“programtrading”. The Nasdaq is a virtual (listed) exchange, where all of the trading is done over a computer network. The process is similar to the above, in that the seller provides an asking price and the buyer
15 providesabiddingprice.However,buyersandsellersareelectronicallymatched.OneormoreNasdaq marketmakerswillalwaysprovideabidandaskpriceatwhichtheywillalwayspurchaseorsell‘their’ stock. The Paris Bourse, now part of Euronext is an order-driven, electronic stock exchange. It was automated in the late 1980s. Before, it consisted of an open outcry exchange. Stockbrokers met in the tradingfloororthePalaisBrongniart.In1986,theCATStradingsystemwasintroduced,andtheorder matchingprocesswasfullyautomated. Fromtimetotime,activetrading(especiallyinlargeblocksofsecurities)hasmovedawayfrom the‘active’exchanges.Securitiesfirms,ledbyUBSAG,GoldmanSachsGroupInc.andCreditSuisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems.Thatshareprobablywillincreaseto18percentby2010asmoreinvestmentbanksbypassthe NYSEandNasdaqandpairbuyersandsellersofsecuritiesthemselves,accordingtodatacompiledby Boston-basedAite Group LLC, a brokerage-industry consultant. NowthatcomputershaveeliminatedtheneedfortradingfloorsliketheBigBoard’s,thebalance of power in equity markets is shifting. By bringing more orders in-house, where clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees and capture a bigger share of the $11billionayearthatinstitutionalinvestorspayintradingcommissions. Market participants Many years ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen,withlongfamilyhistories(andemotionalties)toparticularcorporations.Overtime,markets have become more “institutionalized”; buyers and sellers are largely institutions (e.g., pension funds, insurancecompanies,mutualfunds,hedgefunds,investorgroups,andbanks).Theriseoftheinstitutional investor has brought with it some improvements in market operations. Thus, the government was responsiblefor“fixed”(andexorbitant)feesbeingmarkedlyreducedforthe‘small’investor,butonly after the large institutions had managed to break the brokers’ solid front on fees (they then went to ‘negotiated’fees,butonlyforlargeinstitutions). However, corporate governance (at least in theWest) has been greatly affected by the rise of institutional‘owners.’ Importance of stock markets Function and purpose The stock market is one of the most important sources for companies to raise money. This allowsbusinessestogopublic,orraiseadditionalcapitalforexpansion.Theliquiditythatanexchange providesaffordsinvestorstheabilitytoquicklyandeasilysellsecurities.Thisisanattractivefeatureof investing in stocks, compared to other less liquid investments such as real estate. Historyhasshownthatthepriceofsharesandotherassetsisanimportantpartofthedynamics of economic activity, and can influence or be an indicator of social mood. Rising share prices, for
16 instance, tend to be associated with increased business investment and vice versa. Share prices also affectthewealthofhouseholdsandtheirconsumption.Therefore,centralbankstendtokeepaneyeon the control and behavior of the stock market and, in general, on the smooth operation of financial systemfunctions.Financialstabilityistheraisond’êtreofcentralbanks. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individualbuyerorsellerthatthecounterpartycoulddefaultonthetransaction. Thesmoothfunctioningofalltheseactivitiesfacilitateseconomicgrowthinthatlowercostsand enterprise risks promote the production of goods and services as well as employment. In this way the financialsystemcontributestoincreasedprosperity. Relation of the stock market to the modern financial system The financial system in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation.Aportion of the funds involved in saving and financingflowsdirectlytothefinancialmarketsinsteadofbeingroutedviabanks’traditionallendingand deposit operations.The general public’s heightened interest in investing in the stock market, either directlyorthroughmutualfunds,hasbeenanimportantcomponentofthisprocess.Statisticsshowthat inrecentdecadesshareshavemadeupanincreasinglylargeproportionofhouseholds’financialassets inmanycountries.Inthe1970s,inSweden,depositaccountsandotherveryliquidassetswithlittlerisk made up almost 60 per cent of households’ financial wealth, compared to less than 20 per cent in the 2000s. The major part of this adjustment in financial portfolios has gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e.g., pensionfunds,mutualfunds,hedgefunds,insuranceinvestmentofpremiums,etc.Thetrendtowards forms of saving with a higher risk has been accentuated by new rules for most funds and insurance, permittingahigherproportionofsharestobonds.Similartendenciesaretobefoundinotherindustrialized countries. In all developed economic systems, such as the European Union, the United States, Japan and other first world countries, the trend has been the same: saving has moved away from traditional (government insured) bank deposits to more risky securities of one sort or another. The stock market, individual investors, and financial risk Riskierlong-termsavingrequiresthatanindividualpossesstheabilitytomanagetheassociated increasedrisks.Stockpricesfluctuatewidely,inmarkedcontrasttothestabilityof(governmentinsured) bankdepositsorbonds.Thisissomethingthatcouldaffectnotonlytheindividualinvestororhousehold, butalsotheeconomyonalargescale.Thefollowingdealswithsomeoftherisksofthefinancialsector ingeneralandthestockmarketinparticular.Thisiscertainlymoreimportantnowthatsomanynewcomers haveenteredthestockmarket,orhaveacquiredother‘risky’investments(suchas‘investment’property, i.e., real estate and collectables). With each passing year, the noise level in the stock market rises.Television commentators, financialwriters,analysts,andmarketstrategistsareallovertakingeachothertogetinvestors’attention. At the same time, individual investors, immersed in chat rooms and message boards, areexchanging
17 questionable and often misleading tips.Yet, despite all this available information, investors find it increasingly difficult to profit. Stock prices skyrocket with little reason, then plummet just as quickly, andpeoplewhohaveturnedtoinvestingfortheirchildren’seducationandtheirownretirementbecome frightened. Sometimes there appears to be no rhyme or reason to the market, only folly. Thisisaquotefromtheprefacetoapublishedbiographyaboutthewell-knownandlongterm value oriented stock investorWarren Buffett. Buffett began his career with only 100 U.S. dollars and hasovertheyearsbuilthimselfamultibillion-dollarfortune.Thequoteillustratessomeofwhathasbeen happening in the stock market during the end of the 20th century and the beginning of the 21st. The behavior of the stock market Fromexperienceweknowthatinvestorsmaytemporarilypullfinancialpricesawayfromtheir long term trend level. Over-reactions may occur— so that excessive optimism (euphoria) may drive pricesundulyhighorexcessivepessimismmaydrivepricesundulylow.Newtheoreticalandempirical argumentshavebeenputforwardagainstthenotionthatfinancialmarketsareefficient. Accordingtotheefficientmarkethypothesis(EMH),onlychangesinfundamentalfactors,such asprofitsordividends,oughttoaffectshareprices.(Butthislargelytheoreticacademicviewpointalso predicts that little or no trading should take place— contrary to fact— since prices are already at or nearequilibrium,havingpricedinallpublicknowledge.)Buttheefficient-markethypothesisissorely tested by such events as the stock market crash in 1987, when the Dow Jones index plummeted 22.6 percent—thelargest-everone-dayfallintheUnitedStates.Thiseventdemonstratedthatshareprices canfalldramaticallyeventhough,tothisday,itisimpossibletofixadefinitecause:athoroughsearch failedtodetectanyspecificorunexpecteddevelopmentthatmightaccountforthecrash.Italsoseems to be the case more generally that many price movements are not occasioned by new information; a study of the fifty largest one-day share price movements in the United States in the post-war period confirmsthis.[2] Moreover,whiletheEMHpredictsthatallpricemovement(intheabsenceofchangein fundamentalinformation)israndom(i.e.,non-trending),manystudieshaveshownamarkedtendency for the stock market to trend over time periods of weeks or longer. Various explanations for large price movements have been promulgated. For instance, some research has shown that changes in estimated risk, and the use of certain strategies, such as stop-loss limitsandValueatRisklimits,theoreticallycouldcausefinancialmarketstooverreact. Other research has shown that psychological factors may result in exaggerated stock price movements.Psychologicalresearchhasdemonstratedthatpeoplearepredisposedto‘seeing’patterns, andoftenwillperceiveapatterninwhatis,infact,justnoise.(Somethinglikeseeingfamiliarshapesin clouds or ink blots.) In the present context this means that a succession of good news items about a company may lead investors to overreact positively (unjustifiably driving the price up).Aperiod of goodreturnsalsobooststheinvestor’sself-confidence,reducinghis(psychological)riskthreshold.[3] Another phenomenon— also from psychology— that works against an objective assessment is groupthinking.Associalanimals,itisnoteasytosticktoanopinionthatdiffersmarkedlyfromthat
18 of a majority of the group.An example with which you may be familiar is the reluctance to enter a restaurantthatisempty;peoplegenerallyprefertohavetheiropinionvalidatedbythoseofothersinthe group. In one paper the authors draw an analogy with gambling. In normal times the market behaves likeagameofroulette;theprobabilitiesareknownandlargelyindependentoftheinvestmentdecisions ofthedifferentplayers.Intimesofmarketstress,however,thegamebecomesmorelikepoker(herding behaviortakesover).Theplayersnowmustgiveheavyweighttothepsychologyofotherinvestorsand howtheyarelikelytoreactpsychologically. Thestockmarket,asanyotherbusiness,isquiteunforgivingofamateurs.Inexperiencedinvestors rarely get the assistance and support they need. In the period running up to the recent Nasdaq crash, less than 1 per cent of the analyst’s recommendations had been to sell (and even during the 2000 - 2002crash,theaveragedidnotriseabove5%).Themediaamplifiedthegeneraleuphoria,withreports ofrapidlyrisingsharepricesandthenotionthatlargesumsofmoneycouldbequicklyearnedintheso- calledneweconomystockmarket.(Andlateramplifiedthegloomwhichdescendedduringthe2000- 2002 crash, so that by summer of 2002, predictions of a DOW average below 5000 were quite common.) Irrational behavior Sometimes the market tends to react irrationally to economic news, even if that news has no real effect on the technical value of securities itself. Therefore, the stock market can be swayed tremendously in either direction by press releases, rumors and mass panic. Furthermore, the stock market comprises a large amount of speculative analysts, or pencil pushers,whohavenosubstantialmoneyorfinancialinterestinthemarket,butmakemarketpredictions andsuggestionsregardless.Overtheshort-term,stocksandothersecuritiescanbebatteredorbuoyed byanynumberoffastmarket-changingevents,makingthestockmarketdifficulttopredict. Stock market index The movements of the prices in a market or section of a market are captured in price indices called stock market indices, of which there are many, e.g., the S&P, the FTSE and the Euronext indices.Suchindicesareusuallymarketcapitalization(thetotalmarketvalueoffloatingcapitalofthe company)weighted,withtheweightsreflectingthecontributionofthestocktotheindex.Theconstituents oftheindexarereviewedfrequentlytoinclude/excludestocksinordertoreflectthechangingbusiness environment. Derivative instruments Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. Some examples are exchange traded funds (ETFs), stock index and stock options, equity swaps, single-stock futures, and stock index futures. These last two may be
19 traded on futures exchanges (which are distinct from stock exchanges—their history traces back to commoditiesfuturesexchanges),ortradedover-the-counter.Asalloftheseproductsareonlyderived from stocks, they are sometimes considered to be traded in a (hypothetical) derivatives market, rather thanthe(hypothetical)stockmarket. Leveraged Strategies Stockthatatraderdoesnotactuallyownmaybetradedusingshortselling;marginbuyingmay be used to purchase stock with borrowed funds; or, derivatives may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sale. Short selling In short selling, the trader borrows stock (usually from his brokerage which holds its clients’ shares or its own shares on account to lend to short sellers) then sells it on the market, hoping for the pricetofall.Thetradereventuallybuysbackthestock,makingmoneyifthepricefellinthemeantime or losing money if it rose. Exiting a short position by buying back the stock is called “covering a short position.” This strategy may also be used by unscrupulous traders to artificially lower the price of a stock. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur.The practice of naked shorting is illegal in most (but not all) stock markets. Marginbuying Inmarginbuying,thetraderborrowsmoney(atinterest)tobuyastockandhopesforittorise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks’ value. In the United States, the margin requirements have been 50% for many years (that is, if you want to make a $1000 investment, you need to put up $500, and there is often a maintenance marginbelowthe$500).Amargincallismadeifthetotalvalueoftheinvestor’saccountcannotsupport the loss of the trade. (Upon a decline in the value of the margined securities additional funds may be requiredtomaintaintheaccount’sequity,andwithorwithoutnoticethemarginedsecurityoranyothers withintheaccountmaybesoldbythebrokeragetoprotectitsloanposition.Theinvestorisresponsible foranyshortfallfollowingsuchforcedsales.)Regulationofmarginrequirements(bytheFederalReserve) was implemented after the Crash of 1929. Before that, speculators typically only needed to put up as little as 10 percent (or even less) of the total investment represented by the stocks purchased. Other rulesmayincludetheprohibitionoffree-riding:puttinginanordertobuystockswithoutpayinginitially (there is normally a three-day grace period for delivery of the stock), but then selling them (before the three-daysareup)andusingpartoftheproceedstomaketheoriginalpayment(assumingthatthevalue of the stocks has not declined in the interim). New issuance Globalissuanceofequityandequity-relatedinstrumentstotaled$505billionin2004,a29.8% increase over the $389 billion raised in 2003. Initial public offerings (IPOs) by US issuers increased
20 221%with233offeringsthatraised$45billion,andIPOsinEurope,MiddleEastandAfrica(EMEA) increased by 333%, from $ 9 billion to $39 billion. Investment strategies One of the many things people always want to know about the stock market is, “How do I make money investing?” There are many different approaches; two basic methods are classified as eitherfundamentalanalysisortechnicalanalysis.Fundamentalanalysisreferstoanalyzingcompaniesby their financial statements found in SEC Filings, business trends, general economic conditions, etc. Technicalanalysisstudiespriceactionsinmarketsthroughtheuseofchartsandquantitativetechniques to attempt to forecast price trends regardless of the company’s financial prospects. One example of a technical strategy is theTrendfollowingmethod,usedbyJohnW.HenryandEdSeykota,whichuses pricepatterns,utilizesstrictmoneymanagementandisalsorootedinriskcontrolanddiversification. Additionally,manychoosetoinvestviatheindexmethod.Inthismethod,oneholdsaweighted or unweighted portfolio consisting of the entire stock market or some segment of the stock market (suchastheS&P500orWilshire5000).Theprincipalaimofthisstrategyistomaximizediversification, minimizetaxesfromtoofrequenttrading,andridethegeneraltrendofthestockmarket(which,inthe U.S., has averaged nearly 10%/year, compounded annually, sinceWorld War II). Finally,onemaytradebasedoninsideinformation,whichisknownasinsidertrading.However, thisisillegalinmostjurisdictions(i.e.,inmostdevelopedworldstockmarkets c) Media market A media market, broadcast market, media region, designated market area, DMA or simply market is a region where the population can receive the same (or similar) television and radio station offerings,andmayalsoincludeothertypesofmediaincludingnewspapersandInternetcontent.They cancoincidewithmetropolitanareas,thoughruralregionswithfewsignificantpopulationcenterscan alsobedesignatedasmarkets.Conversely,verylargemetropolitanareascansometimesbesubdivided intomultiplesegments.Marketregionsmayoverlap,meaningthatpeopleresidingontheedgeofone mediamarketmaybeabletoreceivecontentfromothernearbymarketsaswell.Theyarewidelyused inratings, d) Marketplace A marketplace is the space, actual or metaphorical, in which a market operates. The term is alsousedinatrademarklawcontexttodenotetheactualconsumerenvironment,ie.the‘realworld’in which products and services are provided and consumed. Marketplaces and street markets A marketplace is a location where goods and services are exchanged. The traditional market square is a city square where traders set up stalls and buyers browse the merchandise. This kind of market is very old, and countless such markets are still in operation around the whole world.
21 • In the USAsuch markets fell out of favor, but renewed interest in local food has caused the reinventionofthistypeofmarket,calledfarmers’markets,inmanytownsandcities. • IncontinentalEurope,especiallyinFrance,streetmarkets,aswellas“marketplaces”(covered placeswheremerchantshavestalls,butnotentirestores)arecommonplace.Bothresellersand producers sell their wares to the public. • Markets are often temporary, with stalls only present for one or two days a week (“market days”), however some (such as Camden Market in London, UK) are open every day of the week.Suchmarketsarenormallyspecialist—thevariousstallsofCamdenMarket,alongwith theshopsassociatedwithit,sellavarietyofalternativelifestyleproductsrangingfromclothes and jewellery to CDs, instruments and furniture.An example of a large market is Chatuchak weekend market in Bangkok. • Some large markets have become permanent institutions comparable to shopping malls. One example is the huge Seventh-Kilometer Market near Odessa, Ukraine. TheRomantermformarket,stillinuseinarelatedsense,isforum.Themodernshoppingmall can be seen as an extension of this concept. Wholesale markets A wholesale market is a market which primarily sells to traders such as caterers and small shopkeepers,ratherthantomembersofthepublic,althoughmembersofthepublicarenotnecessarily excluded.London,EnglandhasseveralcenturiesoldwholesalemarketssuchasSmithfieldMarketand BillingsgateFishMarket. Internet Markets Thegrowingprevalenceofinternetaccesshasenablednewmarketstoemergeonline.Perhaps best known among these marketplaces is eBay, an enormous globally available auction house. The internet has also allowed less common marketplaces to thrive by connecting buyers and sellers from disparatelocations.Prosperissuchanexample.Thisserviceenablesanyonetoofferloansorgetloans fromotherpeople.AnotherexampleiseMove.comanaffiliateofuHaulthatenablesanyonetoofferor request moving or shipping services. The formations of online marketplaces often occur quickly in response to social or economic trends. For example, as gas prices were climbing through most of 2006,anonlineservicesprangupcalledRidesterthatoffersaroadtripmarketplacewherepeoplecan buy or sell rides between cities. e) Street market A street market is an outdoor market such as traditionally held in a market square in a market town, and are often held only on particular days of the week. Very similar markets, or bazaars can also be found in large enclosed spaces, instead of on a street. Some examples of street markets are: • Berwick Street Market, Camden Market, East Street Market and Portobello Road Market in London.
22 f) Market square Themarketsquare(orsometimesthemarketplace)isafeatureofmanyEuropeantowns.Itis an open area where market stalls are traditionally set out for trading, commonly on one particular day of the week known as ‘market day’. A typical English market square consists of a square or rectangular area, or sometimes just a wideningofthemainstreet.Itisalwayssituatedinthecentreofthetown,surroundedbymajorbuildings such as the parish church, town hall, important shops and hotels, and the post office, together with smaller shops and business premises. There is sometimes a permanent covered market building, and the entire area is a traditional meeting place for local people as well as a centre for trade. The largest Market Square in Europe is the Main Market Square in Kraków, Poland g) Market town Inmedievallaw,amarkettownisasettlementthathastherighttoholdmarkets(distinguishing itfromavillage,usuallysmaller)butwhichisnotalsoacity(usuallylarger,andwithadditionalrights).A town may be correctly described as a market town even if it no longer holds a market, provided the righttodosostillexist. A market town may or may not have rights concerning self-government, which is the usual meaningof“town”.InEngland,townswithsuchrightsmaybeareusuallydistinguishedwiththeadditional statusofBorough). Market towns often grew up close to fortified places, such as castles, in order to enjoy their protection. They tended to be located where transport was easiest: for example, at a crossroads or close to a river ford. The most obvious feature of the traditional market town is a very wide main street or market place, with room for stalls and booths to be set up on market days.Amarket cross often stood in the centre of the town, as a way of obtaining God’s blessing on the trade. h) Market customization Mass production no longer seems suitable for today’s market and is being replaced by mass customization. New technologies have made it possible to prepare individual designs, products and communications on a mass basis. One of the advantages of the internet is the ability to personalize content.Awebsite can now tailor information or products to the customer. In the past years, more and morepossibilitieshavebecomeavailableforconsumers.Thistrendhasprovidedcompanieswithnew possibilitiesforcreatingloyaltybonds.AccordingtoMichaelSolomon,customizationisoneofthesix basic factors that increase or decrease attention from the consumer. Tailored to the customer Some companies may be more familiar with customer relationship management which concentratesonthemethodsandtechnologiescompaniesusetomanagetheirrelationshipswithclients. Market customization goes one step further. It tailors products to a specific market or user group
23 enabling the company to present a product that appears to be designed for a specific market and to increase the experience and satisfaction for the customer. In order to achieve this, the company needs to understand the consumers that it is targeting by collecting information about preferences, passions andinterests. Researchhasshownthat75%ofAmericanadultswouldliketohavemorecustomizedproducts and70%ofthemarewillingtopaymoreforit.Thedemandforcustomizedproductsisevenhigherby people in the age group of 18-24-years old. 85% of them search for customized products with special interestsinthedomainssuchasclothing,shoes,andelectronicsandtravelservices. Rewards for the company Besides adapting to the current customer, there are also rewards for the company. Microsoft acknowledgesfouradvantages.Theyincludesatisfyingthecustomerrequirementsbyusingtheexisting frameworkandinfrastructure,usingdifferentpricingmodelsindifferentmarkets,creatingloyalcustomers and changing the perception of the company’s public image to that of a more local one. According to David Anderson] , there are three ways to customize products: - Modular Customization:tailoringaproductbyassemblingarangeofcombinationsofmodules.Aclearexample of modular customization is assembling many components in a vehicle. -Adjustable customization: thesearemechanicalorelectricaladjustmentswhicharereversible.Anexampleofthisisthepossibility of customizing software by user-defined settings or by table driven programming. - Dimensional customization:thisisthepermanentcustomizationwhichcanbeinfiniteorhaveaselectionofdiscrete choices.Thetailoringofclothingfallswithinthisdefinition. Aswellasproductcustomization,micromarketingcanbeusedformarketcustomization.Inthe extreme,micromarketingdevelopsintoindividual/customizedmarketing.Inindividualmarketing,all productsandprogrammesaretailoredtotheneedsofindividualcustomersMasscustomizationallows thecompanytoswitchfrommassmarketingtocustomizedmarketing. Pros and Cons Customizationwillalwaysbeboundtofinanciallimitsaswellastechnologicaldevelopment. Mass customization, however, can be interpreted as a threat to tailor-made customization. General customization now can be achieved at a lower cost. The extent of this menace for tailors depends on the product and social class of the customer. Products in the higher-price range, as opposed to lower- price products or commodities, are more likely to be customized as consumers are more concerned withquality.Customizationoffersthemtheopportunitytohavemoreinputandflexibility.Dellcomputers havefoundmuchsuccessincustomizingcomputersagainstmainplayerssuchasIBM.Althoughmass customizationislikelytofindnewwaysinthemarket,itisunlikelythatthemassmarketwillbe“tailor- made”.Nevertheless,justwithalltechnologicaldevelopments,theestablishedcompanieshavetocompete witheachothertomaintaintheirmarketshare.
24 SUMMARY Service Marketing is the flow of goods and services from the producer to consumer. It based on relationshipandvalue.Incommonparlanceitisthedistributionandsaleofgoodsandservices.Marketing can be differentiated as • Marketing of products, and • Marketing of services Marketing includes the servicesofallthoseindulgedmayitbethenthewholesalerretailer,Warehousekeeper,transportetc.In this modern age of competition marketing of a product or service plays a key role. It is estimated that almost 50% of the price paid for a commodity goes to the marketing of the product in US. Marketing isnowsaidtobeatermwhichhasnoparticulardefinitionasthedefinitionschangeeveryday. “Managing the evidence” refers to the act of informing customers that the service encounter has been performedsuccessfully.Itisbestdoneinsubtlewayslikeprovidingexamplesordescriptionsofgood andpoorservicethatcanbeusedasabasisofcomparison.Theunderlyingrationaleisthatacustomer mightnotappreciatethefullworthoftheserviceiftheydonothaveagoodbenchmarkforcomparisons. QUESTIONS: 1. Define Service Marketing? 2. Explain Stock Market and Trading? Why is it important? What is its function and purpose? 3. Write notes on (a) Relation of the Stock Market to the modern Financial System (b) The Stock Market, Individual Investors and Financial Risk (c) Behaviour of Stock Market (d) Margin Buying 4. Define Market Square, Market Town and Market Customization? 5. Define a Market? How does it function? What are the types of Market?
25 CHAPTER - II MARKET RESEARCH OBJECTIVE Market research is the process of systematic gathering, recording and analyzing of data about customers,competitorsandthemarket.Marketresearchcanhelpcreateabusinessplan,launchanew product or service, fine tune existing products and services, expand into new markets etc. It can be usedtodeterminewhichportionofthepopulationwillpurchasetheproduct/service,basedonvariables likeage,gender,locationandincomelevel.Itcanbefoundoutwhatmarketcharacteristicsyourtarget market has.With market research, companies can learn more about current and potential customers. Thepurposeofmarketresearchistohelpcompaniesmakebetterbusinessdecisionsaboutthe developmentandmarketingofnewproducts.Marketresearchrepresentsthevoiceoftheconsumerin a company. A list of questions that can be answered through market research: • What is happening in the market? What are the trends? Who are the competitors? • How do consumers talk about the products in the market? • Which needs are important?Are the needs being met by current products? With market research one can get some kind of confirmation that there is a market for one’s idea, and that a successful launch and growth are possible. Introduction Prior to the advent of market research, most companies were product-focused, employing teams of salespeople to push their products into or onto the market, regardless of market desire.A market-focused,orcustomer-focused,organizationinsteadfirstdetermineswhatitspotentialcustomer’s desire, and then builds the product or service. Marketing theory and practice is justified on the belief that customers use a product/service because they have a need, or because a product/service has a perceivedbenefit. Two major factors of marketing are the recruitment of new customers (acquisition) and the retentionandexpansionofrelationshipswithexistingcustomers(basemanagement). Once a marketer has converted the prospective buyer, base management marketing takes over. The process for base management shifts the marketer to building a relationship, nurturing the links, enhancing the benefits that sold the buyer in the first place, and improving the product/service continuouslytoprotectherbusinessfromcompetitiveencroachments. Marketing methods are informed by many of the social sciences, particularly psychology, sociology,andeconomics.Anthropologyisalsoasmall,butgrowing,influence.Marketresearchunderpins theseactivities.Throughadvertising,itisalsorelatedtomanyofthecreativearts. For a marketing plan to be successful, the mix of the four “Ps” must reflect the wants and
26 desires of the consumers in the target market.Trying to convince a market segment to buy something theydon’twantisextremelyexpensiveandseldomsuccessful.Marketersdependonmarketingresearch, both formal and informal, to determine what consumers want and what they are willing to pay for. Marketers hope that this process will give them a sustainable competitive advantage. Marketing management is the practical application of this process. The offer is also an important addition to the 4P’s theory. Within most organizations the activities encompassed by the marketing function are led by a ChiefMarketingOfficer,oranequivalentexecutive.MostoftentheCMOpositionreportstotheChief ExecutiveOfficer. Marketing is a Technology Is Marketing anArt or Science? Thebigdebateinthemarketingdisciplineiswhethermarketingisanartorascience.Marketing is a technology or set of technologies. Marketing can be neither an art nor a science because arts and sciences only seek to explain natural phenomena. The objective of marketing is to manipulate and influencenaturalphenomenatocreatepracticalunnaturaloutcomes,specificallytomanufacture,grow, sustain and defend markets. Marketers use their knowledge of economics, psychology, sociology, anthropologyandstrategytoarrangeandcontroltheexternalenvironmenttotheiradvantageandlock inprofit Transactional Marketing Firstassumption • Thereisalargenumberofpotentialcustomers Secondassumption • Customersandtheirneedsarefairlyhomogenous Thirdassumption • It is rather easy to replace lost customers with new ones The 3 Levels of Marketing Strategy To understand what marketing is one must understand that marketing operates on 3 different levels. A. Corporate Level Marketing Marketing at the corporate levels asks this question as ‘What business should we be in and what opportunities should we pursue?’ This is marketing before we even have a business, idea or product.This is what is known as entrepreneurship.This level of marketing strategy is where the Ted Turners,BillGates’andMichaelDellsoftheworldmakemarketchangingdecisions.Thislevelisalso
27 wherecorporatemanagementofexistingcompaniesdecidestobranchoffintonewunchartedterritories andopportunities. B.Business Level Marketing Marketingatthebusinesslevelasksthisquestionas‘Howarewegoingtocompeteagainstthe competition?’WhenJackTroutsaysthatmarketingis‘thewarbetweencompetitors’and‘theconflict betweencompanies’whatheisreallydoingisdefiningmarketingatthebusinesslevel.Businesslevel marketingdealswithhighlevelstrategicmarketingconcerns.Thisleveldealswithlongtermsustainable advantagesandbusinessmodels. C.Functional Level Marketing Marketingatthefunctionallevel(alsoknownastheoperatinglevel)askthisquestionas‘How dowecreateandkeepcustomers?’Thisleveldealswithmarketingtacticsandthe‘4ps’ofthemarketing mix. This level of marketing defines and develops products, prices them, promotes them and then distributes them in a way that helps a company create and sustain demand for their products. SmallercompanieswithoneownerorChiefExecutiveOfficerusuallymakethedecisionsonall 3levels. Four Ps Inpopularusage,“marketing”isthepromotionofproducts,especiallyadvertisingandbranding. However,inprofessionalusagethetermhasawidermeaningwhichrecognizesthatmarketingiscustomer centered. Products are often developed to meet the desires of groups of customers or even, in some cases,forspecificcustomers.E.JeromeMcCarthydividedmarketingintofourgeneralsetsofactivities. Histypologyhasbecomesouniversallyrecognizedthathisfouractivitysets,theFourPs,havepassed intothelanguage. The four Ps are: • Product:TheProductmanagementandProductmarketingaspectsofmarketingdealwiththe specifications of the actual good or service, and how it relates to the end-user’s needs and wants. • Pricing: This refers to the process of setting a price for a product, including discounts. • Promotion:Thisincludesadvertising,salespromotion,publicity,andpersonalselling,andrefers to the various methods of promoting the product, brand, or company. • Placement or distribution refers to how the product gets to the customer; for example, point ofsaleplacementorretailing.ThisfourthPhasalsosometimesbeencalledPlace,referringto the channel by which a product or service is sold (e.g. online vs. retail), which geographic regionorindustry,towhichsegment(youngadults,families,businesspeople),etc. These four elements are often referred to as the marketing mix. A marketer can use these variablestocraftamarketingplan.ThefourPsmodelismostusefulwhenmarketinglowvalueconsumer
28 products.Industrialproducts,services,highvalueconsumerproductsrequireadjustmentstothismodel. Services marketing must account for the unique nature of services. Industrial or B2B marketing must accountforthelongtermcontractualagreementsthataretypicalinsupplychaintransactions.Relationship marketingattemptstodothisbylookingatmarketingfromalongtermrelationshipperspectiverather thanindividualtransactions. As a counter to this, Morgan, in Riding the Waves of Change (Jossey-Bass, 1988), adds “Perhaps the most significant criticism of the 4 Ps approach, which you should be aware of, is that it unconsciously emphasizes the inside–out view (looking from the company outwards), whereas the essenceofmarketingshouldbetheoutside–inapproach”.Evenso,havingmadethisimportantcaveat, the 4 Ps offer a memorable and quite workable guide to the major categories of marketing activity, as well as a framework within which these can be used. Seven Ps As well as the standard four Ps (Product, Pricing, Promotion and Place), services marketing callsuponanextrathree,totalingsevenandknowntogetherastheextendedmarketingmix.Theseare: • People: Any person coming into contact with customers can have an impact on overall satisfaction.Whetheraspartofasupportingservicetoaproductorinvolvedinatotalservice, peopleareparticularlyimportantbecause,inthecustomer’seyes,theyaregenerallyinseparable fromthetotalservice.Asaresultofthis,theymustbeappropriatelytrained,wellmotivatedand the right type of person. Fellow customers are also sometimes referred to under ‘people’, as they too can affect the customer’s service experience, (e.g., at a sporting event). • Process:Thisistheprocessinvolvedinprovidingaserviceandthebehaviorofpeople,which canbecrucialtocustomersatisfaction. • Physical evidence: Unlike a product, a service cannot be experienced before it is delivered, whichmakesitintangible.This,therefore,meansthatpotentialcustomerscouldperceivegreater riskwhendecidingwhetherornottouseaservice.Toreducethefeelingofrisk,thusimproving the chance for success, it is often vital to offer potential customers the chance to see what a service would be like. This is done by providing physical evidence, such as case studies, or testimonials. Eight P’s As well as the other 7 Packaging has been added to this list by some people. The rationale is that it is very important how the product is presented to the customer, and the packaging is often the firstcontactthatacustomerhaswithaproduct.Althoughsomedisagreebecausepackagingisseenas asubfieldofpromotion. “PHILOSOPHY”isthepotential8thPofmarketing.Products(orservices)shouldreflectthe underlyingphilosophyorethosoftheorganization.Itshouldalsobeclearwhatthephilosophybehind the introduction of the particular product is, as well. In his book, “Meeting Need”, Ian Bruce explains this concept as it relates to marketing for charities. It also applies to other products and services
29 Beyond the 4 Ps Resources, Relationships, Offerings and Business Models Marketing in the past focused mainly on basic concepts like the 4 Ps, and primarily on the psychological and sociological aspects of marketing. Competitive advantage was created by directly appealing to the needs, wants and behaviors of customers, better than the competition. Successful marketing was based on who could create the better brand or the lowest price or the most hype. Marketing in the future will be based on a more strategic approach to competitive marketing success. Marketerswillconsciouslybuildandallocateresources,relationships,offeringsandbusinessmodels that other companies find hard to match. 1. Resources Companies with a greater amount of resources than their competitors will have an easier time competing in the marketplace. Resources include: financial (cash and cash reserves), physical (plant andequipment),human(knowledgeandskill),legal(trademarksandpatents),organizational(structure, competencies,policies),andinformational(knowledgeofconsumersandcompetitors).Smallcompanies usuallyhaveahardertimecompetingwithlargercorporationsbecauseoftheirdisadvantageinresource allocation. 2. Relationships Success in business, as in life, is based on the relationships you have with people. Marketers must aggressively build relationships with consumers, customers, distributors, partners and even competitors if they want to have success in today’s competitive marketplace. 3. Offerings Most companies sell a mix of products and/or services. Today’s marketplace is often too competitivefor“one-trickponies”.Companiesthatselltherightmixproductsandservicescanhavea competitive advantage over companies that sell just one product or service. 4. Business Models The concept of product vs. product in competitive marketing is dying. It’s slowly becoming business model vs. business model. Business model innovation can make the competition’s product superiority irrelevant. Business model innovation allows a marketer to change the game instead of competingonalevelplayingfield. Customer focus Mostcompaniestodayhaveacustomerorientation(alsocalledcustomerfocus).Thisimplies that the company focuses its activities and products on ever changing consumer demands. Generally
30 therearethreewaysofdoingthis:thecustomer-drivenapproach,thesenseofidentifyingmarketchanges and the product innovation approach. In the consumer-driven approach, consumer wants are the drivers of all strategic marketing decisions.Nostrategyispursueduntilitpassesthetestofconsumerresearch.Everyaspectofamarket offering, including the nature of the product itself, is driven by the needs of potential consumers. The startingpointisalwaystheconsumer.Therationaleforthisapproachisthatthereisnopointspending R&D funds developing products that people will not buy. History attests to many products that were commercialfailuresinspiteofbeingtechnologicalbreakthroughs. The next big thing is a concept in marketing that refers to a product or idea that will allow for a high amount of sales for that product and related products. Marketers believe that by finding or creatingthenextbigthingtheywillsparkaculturalrevolutionthatresultsinthissalesincrease. Product focus Inaproductinnovationapproach,thecompanypursuesproductinnovation,thentriestodevelop a market for the product. Product innovation drives the process and marketing research is conducted primarily to ensure that a profitable market segment(s) exists for the innovation. The rationale is that customers may not know what options will be available to them in the future so we should not expect them to tell us what they will buy in the future. However, marketers can aggressively over pursue productinnovationandtrytoovercapitalizeonaniche.Whenpursuingaproductinnovationapproach, marketers must ensure that they have a varied and multi-tiered approach to product innovation. It is claimedthatifThomasEdisondependedonmarketingresearchhewouldhaveproducedlargercandles rather than inventing light bulbs. Many firms, such as research and development focused companies, successfullyfocusonproductinnovation.Manypuristsdoubtwhetherthisisreallyaformofmarketing orientationatall,becauseoftheexpoststatusofconsumerresearch.Someevenquestionwhetheritis marketing. Other aspects • An emerging area of study and practice concerns internal marketing, or how employees are trained and managed to deliver the brand in a way that positively impacts the acquisition and retentionofcustomers(employerbranding). • Diffusionofinnovationsresearchexploreshowandwhypeopleadoptnewproducts,services and ideas. • A relatively new form of marketing uses the Internet and is called internet marketing or more generally e-marketing, affiliate marketing or online marketing. It typically tries to perfect the segmentationstrategyusedintraditionalmarketing.Ittargetsitsaudiencemoreprecisely,and issometimescalledpersonalizedmarketingorone-to-onemarketing. • Withconsumers’erodingattentionspanandwillingnesstogivetimetoadvertisingmessages, marketers are turning to forms of Permission marketing such as Branded content and Reality marketing.
31 • Theuseofherdbehaviorinmarketing. Inanarticleentitled“Swarmingtheshelves:Howshopscanexploitpeople’sherdmentalityto increase sales,” The Economist recently reported a recent conference in Rome on the subject of the simulationofadaptivehumanbehavior.Mechanismstoincreaseimpulsebuyingandgetpeople“tobuy more by playing on the herd instinct” were shared. The basic idea is that people will buy more of products that are seen to be popular, and several feedback mechanisms to get product popularity informationtoconsumersarementioned,includingsmart-carttechnologyandtheuseofRadioFrequency IdentificationTag technology.A“swarm-moves” model was introduced by a Princeton researcher, which is appealing to supermarkets because it can “increase sales without the need to give people discounts.”LargeretailersWal-MartintheUnitedStatesandTescoinBritainplantotestthetechnology inspring2007. Other recent studies on the “power of social influence” include an “artificial music market in whichsome14,000peopledownloadedpreviouslyunknownsongs”(ColumbiaUniversity,NewYork); aJapanesechainofconveniencestoreswhichordersitsproductsbasedon“salesdatafromdepartment storesandresearchcompanies;”a[[Massachusettscompanyexploitingknowledgeofsocialnetworking toimprovesales;andonlineretailerswhoareincreasinglyinformingconsumersabout“whichproducts arepopularwithlike-mindedconsumers”(e.g.,Amazon). Criticism of marketing Some aspects of marketing, especially promotion, are treated as the subject of criticism. It is especiallyproblematicinclassicaleconomictheory,whichisbasedontheassumptionthatsupplyand demand are independent. However, product promotion is an attempt coming from the supply side to influencedemand.Inthiswayproducermarketpowerisattainedasmeasuredbyprofitsthatwouldnot be realized under a free market. Then the argument follows that non-free markets are imperfect and lead to production and consumption of suboptimal amounts of the product. Criticsacknowledgethatmarketinghaslegitimateusesinconnectinggoodsandservicestothe consumerswhowantthem.Criticsalsopointoutthatmarketingtechniqueshavebeenusedtoachieve morallydubiousendsbybusinesses,governmentsandcriminals.Criticsseeasystemicsocialevilinherent inmarketing(seeNoLogo,BillHicks,MarxismorCommercialAlert).Marketingisaccusedofcreating ruthlessexploitationofbothconsumersandworkersbytreatingpeopleascommoditieswhosepurpose istoconsume. Mostmarketersbelievethatmarketing,likeanyothertechnology,isamoral.Itcanbeusedfor goodorevilpurposes,butthetechniqueitselfisethicallyneutral. The Observer’s survey among 1’206 UK adult consumers in 2001 highlighted some of the stark changes our society has gone through in the last two decades. This raises a question on the effectivenessoftheCIM’sdefinitionofmarketing(anticipating,identifyingandsatisfyingcustomerneeds profitably),mainlyinconsumermarketing.Therearesimilarconcernsinindustrialmarkets,alsoknown as business-to-business or B2B. Industrial market segmentation attempts to provide some answers.
32 Coremarketingelementssuchassegmentation,targetingandpositioningarestillrelevantinthe modern (or post-modern) world. However, they are complex topics that need a high level of effort, intelligentthinkingaswellasresourcestobeimplementedsuccessfully.Adefinitivestatementcannotbe madewhethertheconventionalmarketingconceptisapplicableintoday’senvironment.Itsrelevanceis very much situational and depends on many factors such as the product, the segment, time, location, politicalandeconomicconditionsandtheinnerworkingsofacompany. However,somescholarssuchasStephenBrownchallengethemarketingconceptinanextreme language.Theirstatements,thoughself-contradictingandsometimesunfair,arerelevant,whichiswhy Post Modern Marketing 2 was chosen as a key reference point for this chapter. OntheonehandBrownmakespositivestatementsaboutmarketing,e.g.“marketingisendowed with considerable personal charm and has enjoyed more than its fair share of conquests” (Brown, 1998:16); and “indeed, the increasing academic attention that is being devoted to marketing and consumption-relatedphenomenabynon-businessdisciplinessuchassociology,anthropologyandhistory; farfrombeingthesecond-handroseofthescholarship,marketingisnowsomethingofafashionleader” (p 17) On the other hand, he condemns marketing by saying “marketing has to decide whether to exposeitsintellectualnakednessorpressitselfagainstthesearingheatofpostmodernism”(p17);and using quotes such as “mid-life crisis” (p 23); “in decline; failing; anachronistic; being abandoned; no longer appropriate; in an unprecedented state of crisis; delivered nothing of value; failure; confusion; misunderstanding;occasionalinexplicablehittingofthejackpot”(p.21). This apparent love-hate relationship is proof in itself that even a skeptic Mr. Brown cannot deny the contribution that marketing has made and can make to customer satisfaction and economic value.Ithascontributedtobothcustomers’andsuppliers’qualityoflifebyselectingprofitablecustomer satisfactionasitssoleobjective.Themarketingconcept,togetherwithotherbusinessdisciplines,helped the UK to make the transition from a 19th-century manufacturing economy to a modern model of success in the service industry, creating an economic growth period never seen in UK history before. Itismarketingthathashelpedcreatevaluethroughcustomizedproducts,no-questions-asked refundpolicies,comfortablecars,environmentalattention,shopkeepers’smile,andguaranteeddelivery dates. Even some government departments address the public not as ‘the Queen’s subjects’or ‘the applicants’ any more but as ‘customers’. Of course all of the above is done for economic or political gain,forbetterorworse.Despiteallthisachievement,todismissmarketingasafailureisunfair. MarketingalsohelpscompaniesavoidunnecessaryR&D,operationalandsalescostsbyhelping to develop products because customers want them, not for the sake of innovation.Another success is the now commonly implemented value-pricing principle, whereby a product or service is sold for the pricethecustomeriswillingtopay,notonacost-plusbasis.Thisway,bothsuppliersandcustomersget a fair deal.
33 In the context of segmentation, Brown suggests that “the traditional, linear, step-by-step marketingmodelofanalysis,planning,implementationandcontrolnolongerseemsapplicable,appropriate or even pertinent to what is actually happening on the ground” (p. 23-24). If Mr. Brown had studied “the ground” before making his statement, he would have realized that companies are successful the worldoverpreciselybecausetheyimplementthismodel. They segment their markets, relate their products and services to them, define their value propositionandservetheircustomersaccordingly.ExamplesareGE,HSBC,PriceWaterhouseCoopers, SmithsAerospace, BAE Systems, BOC Edwards,Weir Group and BTto name but a few.Abrief visit to their websites can make this point clear. Promotionisonlyoneelementwithinthemarketingconcept.Thetruthisthatmarketingtoday leadsthewayinsegmentation,innovation,pricing,productmanagement,distribution,andlastbutnot least,promotion. Afterallthecontributionaswellasfurtherpotential,todenyitssuccessesandtrytoreduceitto onlypromotionisagreatinjusticetothemarketingprofessionaswellastoacademicinsight.Contrary toBrown’ssuggestioninhisfinalparagraph(p.257),weneedobjectivity,rigour,quantification,models, relationships,paradigmshiftsand(someapplicationof)science. Marketing is not full of holes, but a management process that has helped generate wealth and satisfied millions of customers for the most part of the 20th century. It can do even better in the 21st provided practitioners and scholars do not loose faith and focus. Kotler is not dead, but very much alive,andstillkicking. SUMMARY Marketresearchisdiscoveringwhatpeoplewant,need,orbelieve.Itcanalsoinvolvediscovering how they act. Once that research is complete it can be used to determine how to market your specific product. Whenever possible, try to reduce risks at the earliest possible stage. For example you could carry out market research early on and not wait until you are almost ready to enter the market. If early market research reveals that your business idea has real potential, you can use this information in planningthebuild-upofyourbusiness.Forstartingupabusinessthereareafewthingsthatshouldbe found out through market research in order to know if your business is feasible. These are things like: • Marketinformation Marketinformationismakingknownthepricesofthedifferentcommoditiesinthemarket,the supply and the demand. Information about the markets can be obtained in several different varieties andformats.Themostbasicformofmarketinformationisthebestquotationandlastsaledata,including thenumberofshares,withrespecttoaparticularsecurityatagiventime.Examplesofmarketinformation questionsare:
34 1. Who are the customers? 2. Where are they located and how can they be contacted? 3. Whatquantityandqualitydotheywant? 4. What is the best time to sell? 5. What is the long-term or historical price data over a number of years? 6. What is the expected production in the country? 7. Is there more demand for one product or another? Etc. • Marketsegmentation Market segmentation is the division of the market or population into subgroups with similar motivations.Widelyusedbasesforsegmentingincludegeographicdifferences,personalitydifferences, demographicdifferences,useofproductdifferences,andpsychographicdifferences. • Market trends The upward or downward movements of a market, during a period of time. Themarketsizeismoredifficulttoestimateifyouarestartingwithsomethingcompletelynew. In this case, you will have to derive the figures from the number of potential customers or customer segments. But besides information about the target market you also need information about your competitor, your customers, products etc.Afew techniques are: • Customeranalysis • Competitoranalysis • Riskanalysis • Product research • Advertisingresearch QUESTIONS: 1. What is happening in a Market? What are its trends? Who are the competitors? 2. How do consumers talk about the products in the Market? 3. Which needs are important? Are the needs being met by current products? 4. Is marketing an art or science? 5. Describe the three levels of Marketing Strategy?
35 CHAPTER - III SERVICE OBJECTIVE Ineconomicsandmarketing,aserviceisthenon-materialequivalentofagood.Serviceprovision hasbeendefinedasaneconomicactivitythatdoesnotresultinownership,andthisiswhatdifferentiates it from providing physical goods. It is claimed to be a process that creates benefits by facilitating a changeincustomers,achangeintheirphysicalpossessions,orachangeintheirintangibleassets. By supplying some level of skill, ingenuity, and experience, providers of a service participate in an economywithouttherestrictionsofcarryingstock(inventory)ortheneedtoconcernthemselveswith bulky raw materials. On the other hand, their investment in expertise does require marketing and upgradinginthefaceofcompetitionwhichhasequallyfewphysicalrestrictions. Providers of services make up theTertiary sector of industry. Attributes of Service Services can be described in terms of their main attributes. • • • • • Intangibility - They cannot be seen, handled, smelled, etc. There is no need for storage. Becauseservicesaredifficulttoconceptualize,marketingthemrequirescreativevisualization to effectively evoke a concrete image in the customer’s mind. From the customer’s point of view,thisattributemakesitdifficulttoevaluateorcompareservicespriortoexperiencingthe service. • • • • • Perishability-Unsoldservicetimeis“lost”,thatis,itcannotberegained.Itisalosteconomic opportunity. For example a doctor that is booked for only two hours a day cannot later work those hours— she has lost her economic opportunity. Other service examples are airplane seats (once the plane departs, those empty seats cannot be sold), and theatre seats (sales end at a certain point). • • • • • Lackoftransportability-Servicestendstobeconsumedatthepointof“production”(although this doesn’t apply to outsourced business services). • • • • • Lack of homogeneity - Services is typically modified for each client or each new situation (customized). Mass production of services is very difficult. This can be seen as a problem of inconsistentquality.Bothinputsandoutputstotheprocessesinvolvedprovidingservicesare highlyvariable,asaretherelationshipsbetweentheseprocesses,makingitdifficulttomaintain consistentquality. • • • • • Labourintensity-Servicesusuallyinvolveconsiderablehumanactivity,ratherthanprecisely determinedprocess.Humanresourcemanagementisimportant.Thehumanfactorisoftenthe key success factor in service industries. It is difficult to achieve economies of scale or gain dominantmarketshare.
36 • • • • • Demand fluctuations - It can be difficult to forecast demand (which is also true of many goods). Demand can vary by season, time of day, business cycle, etc. • • • • • Buyer involvement - Most service provision requires a high degree of interaction between clientandserviceprovider. • • • • • Client-Based Relationships - Is based on creating long-term business relationships. Accountants,attorneys,andfinancialadvisersmaintainlong-termrelationshipswiththeirclientes for decades. These repeat consumers refer friends and family helping to create a client-based relationship. Service delivery Thedeliveryofaservicetypicallyinvolvesfivefactors: • The service providers (e.g. the people) • Equipment used to provide the service (e.g. vehicles, cash registers) • Thephysicalfacilities(e.g.buildings,parking,waitingrooms) • Theclient • Othercustomersattheservicedeliverylocation • Customercontact Theserviceencounterisdefinedasallactivitiesinvolvedintheservicedeliveryprocess.Some service managers use the term “moment of truth” to indicate that defining point in a specific service encounterwhereinteractionsaremostintense. Manybusinesstheoristsviewserviceprovisionasaperformanceoract(sometimeshumorously referred to asdramalurgy, perhaps in reference to dramaturgy).The location of the service delivery is referred to as the stage and the objects that facilitate the service process are called props.Ascript is a sequenceofbehaviorsfollowedbyallthoseinvolved,includingtheclient(s).Someservicedramasare tightly scripted, others are more ad lib. Role congruence occurs when each actor follows a script that harmonizes with the roles played by the other actors. In some service industries, especially health care, dispute resolution, and social services, a popularconceptistheideaofthecaseload,whichreferstothetotalnumberofpatients,clients,litigants, or claimants that a given employee is presently responsible for. On a daily basis, in all those fields, employeesmustbalancetheneedsofanyindividualcaseagainsttheneedsofallothercurrentcasesas well as their own personal needs. UnderEnglishlaw,ifaserviceproviderisinducedtodeliverservicestoadishonestclientbya deception, this is an offence under theTheftAct 1978. Ahairstylist,anurse,andawaitresshavedifferentdegreesofcustomercontacttodelivertheir services.
37 The service-goods continuum Thedichotomybetweenphysicalgoodsandintangibleservicesshouldnotbegiventoomuch credence.Thesearenotdiscretecategories.Mostbusinesstheoristsseeacontinuumwithpureservice ononeterminalpointandpurecommoditygoodontheotherterminalpoint.Mostproductsfallbetween these two extremes. For example, a restaurant provides a physical good (the food), but also provides servicesintheformofambience,thesettingandclearingofthetable,etc.Andalthoughsomeutilities actuallydeliverphysicalgoods—likewaterutilitieswhichactuallydeliverwater—utilitiesareusually treated as services. Inanarrowersense,servicereferstoqualityofcustomerservice:themeasuredappropriateness ofassistanceandsupportprovidedtoacustomer.This particular usage occurs frequently in retailing. SUMMARY Services are defined in conventional economic literature as “intangible goods”.According to some economists, the service sector tends to be wealth consuming, whereas manufacturing is wealth producing. Wealth producing sectors in an economy such as manufacturing with the service sector which tends to be a wealth consuming sector.An economy declines as its wealth producing sector beginstoshrink.Thetertiarysectorofindustryinvolvestheprovisionofservicestobusinessesaswell asfinalconsumers.Servicesmayinvolvethetransport,distributionandsaleofgoodsfromproducerto aconsumerasmayhappeninwholesalingandretailing,ormayinvolvetheprovisionofaservice,such asinpestcontrolorentertainment.Goodsmaybetransformedintheprocessofprovidingaservice,as happensintherestaurantindustry.However,thefocusisonpeopleinteractingwithpeopleandserving the customer rather than transforming physical goods. Since the 1960s, there has been a substantial shift from the other two industry sectors to theTertiary Sector in industrialized countries.The service sector consists of the “soft” parts of the economy such as insurance, government, tourism, banking, retail and education. In soft sector employment, people use time to deploy knowledge assets, collaboration assets, and process-engagement to create productivity (effectiveness), performance improvement potential (potential) and sustainability. Typically the output of this time is content (information), service, attention, advice, experiences, and/or discussion (also known as “intangible goods”). QUESTIONS: 1. Describe the main attributes of Service? 2. Explain the factors of Service Delivery? 3. Define service?
38 CHAPTER - IV PRODUCT (BUSINESS) OBJECTIVE In marketing, a product is anything that can be offered to a market that might satisfy a want or need. It is of two types: Tangible (physical) and Intangible (non-physical). Since services have been at the forefront of all modern marketing strategies, some intangibility has become essential part of marketing offers. It is therefore the complete bundle of benefits or satisfactions that buyers perceive theywillobtainiftheypurchasetheproduct.Itisthesumofallphysical,psychological,symbolic,and service attributes, not just the physical merchandise.All products offered in a market can be placed betweenTangible (Pure Product) and Intangible (Pure Service) spectrum. A product is similar to goods. In accounting, goods are physical objects that are available in the marketplace.Thisdifferentiatesthemfromaservice,whichisanon-materialproduct.Thetermgoods isusedprimarilybythosethatwishtoabstractfromthedetailsofagivenproduct.Assuchitisusefulin accountingandeconomicmodels.Thetermproductisusedprimarilybythosethatwishtoexaminethe details and richness of a specific market offering.As such it is useful to marketers, managers, and qualitycontrolspecialists. A service is a non-material or intangible product - such as professional consultancy or an entertainmentexperience. ProductAspects There are three aspects to any product or service: 1. CoreBenefit o In-usebenefits o Psychologicalbenefits(e.g.,self-imageenhancement,hope,status,selfworth) o Problemreductionbenefits(e.g.,safety,convenience) 2. TangibleProductorService o Product attributes and features o benefitsandusabilityofmarket 3. IntangibleProductorService Classifying products Productmanagementinvolvesdevelopingstrategiesandtacticsthatwillincreaseproductdemand (referredtoasprimarydemand)overtheproduct’slifecycle.Oneusefultechniqueinunderstandinga productistheAspinwallClassificationSystem.Itclassifiesandratesproductsbasedonfivevariables: 1. Replacement rate (how frequently is the product repurchased?) 2. Grossmargin(howmuchprofitisobtainedfromeachproduct?) 3. Buyergoaladjustment(howflexiblearethebuyers’purchasinghabitswithregardtothisproduct?)
39 4. Durationofproductsatisfaction(howlongwilltheproductproducebenefitsfortheuser?) 5. Duration of buyer search behavior (how long will they shop for the product?) Types of products There are several types of products: • • • • • Specialty goods: extensive comparisons with other goods and a lengthy information search. Specialtygoodsaregenerallyitemsthatwouldfallintoanothercategory,butthesellerofthese goods has chosen a specific niche market and is extremely narrowly focused.An example would be a cigarette and tobacco shop, or a shop that only sold items with owl pictures on, or a shop that only sells books and magazines. • • • • • Unsought goods:e.g., cemetery plots, insurance. These are products that we need but which we do not actively seek out to buy. They usually require a hard sell approach by the seller. Example“whatwillhappentoyourfamilyifyoudieanddonothavelifeinsurance?”.Thefear ofleavingthefamilydestitutemakesusbuyalmostagainstourwill,eventhoughweknowthat itistheintelligentthingtodo.Certainlegalservicessuchasdrawingupawillwillalsofallinto thiscategory. • • • • • Perishable goods: goods that will deteriorate quickly even without use • • • • • Durablegoods:goodsthatsurvivemultipleuseoccasions,oftenfurthersubdividedinto‘white goods’ (refrigerators and cookers, for example) and ‘brown goods’ (such as furniture, as well aselectrical/electronicdevices) • • • • • Non-durable/consumption/consumable goods: goods that are used up in one occasion • • • • • Capitalgoods:installations,equipment,andbuildings • • • • • Parts and materials: goods that go into a finished product • • • • • Supplies and services: goods that facilitate production • • • • • Commodities:undifferentiatedgoods(e.g.,wheat,gold,sugar) • • • • • By-products: a product that results from the manufacture of another product Service economy can refer to one or both of two recent economic developments. One is the increased importance of the service sector in industrialized economies. Services account for a higher percentage of US GDP than 20 years ago. The current list of Fortune 500 companies contains more servicecompaniesandfewermanufacturersthaninpreviousdecades. Thetermisalsousedtorefertotherelativeimportanceofserviceinaproductoffering.Thatis, productstodayhaveahigherservicecomponentthaninpreviousdecades.Inthemanagementliterature thisisreferredtoastheservitizationofproducts.Virtuallyeveryproducttodayhasaservicecomponent toit.Theolddichotomybetweenproductandservicehasbeenreplacedbyaservice-productcontinuum. Many products are being transformed into services. For example IBM treats its business as a service business. Although it still manufactures computers, it sees the physical goods as a small part of the “business solutions” industry.They have foundthatthepriceelasticityofdemandfor“businesssolutions”ismuchlesselasticthanforhardware. There has been a corresponding shift to a subscription pricing model. Rather than receiving a single
40 paymentforapieceofmanufacturedequipment,manymanufacturersarenowreceivingasteadystream ofrevenueforongoingcontracts. Full cost accounting and most accounting reform and monetary reform measures are usually thought to be impossible to achieve without a good model of the service economy. Product Management Productmanagementisanorganizationalfunctionwithinacompanydealingwiththeproduct planning or product marketing of a product or products at all stages of the product lifecycle. Product Management is also a collective term used to describe the broad sum of diverse activities performedintheinterestofdeliveringaparticularproducttomarket. Fromapracticalperspective,productmanagementisanoccupationaldomainwhichholdstwo professional disciplines: product planning and product marketing. This is because the product’s functionality is created for the user via product planning efforts, and product value is presented to the buyerviaproductmarketingactivities. Product planning and product marketing are very different but due to the collaborative nature of these two disciplines, some companies erroneously perceive them as being one discipline, which they call product management. Done carefully, it is very possible to functionally divide the product management domain into product planning and product marketing, yet retain the required synergy betweenthetwodisciplines. Productplanningtypicallydealswiththeseactivities: • Definingnewproductsandgatheringmarketrequirements • ProductLifeCycleconsiderations • Productportfoliomanagement • Productdifferentiation Productmarketingtypicallydealswiththeseactivities: • Productpositioningandoutboundmessaging • Promoting the product externally with press, customers, and partners • Bringingnewproductstomarket Productmanagementtypicallydealswiththeseclosely-relatedfunctions: • Productplanning • Productmarketing • Programmanagement • Projectmanagement Service Product Marketing Ineconomicsandmarketing,aserviceisthenon-materialequivalentofagood.Serviceprovision hasbeendefinedasaneconomicactivitythatdoesnotresultinownership,andthisiswhatdifferentiates it from providing physical goods. It is claimed to be a process that creates benefits by facilitating a changeincustomers,achangeintheirphysicalpossessions,orachangeintheirintangibleassets.
41 Bysupplyingsomelevelofskill,ingenuity,andexperience,providersofaserviceparticipatein an economy without the restrictions of carrying stock (inventory) or the need to concern themselves withbulkyrawmaterials.Ontheotherhand,theirinvestmentinexpertisedoesrequiremarketingand upgradinginthefaceofcompetitionwhichhasequallyfewphysicalrestrictions. Providers of services make up theTertiary sector of industry. Attributes Services can be described in terms of their main attributes. • • • • • Intangibility - They cannot be seen, handled, smelled, etc. There is no need for storage. Becauseservicesaredifficulttoconceptualize,marketingthemrequirescreativevisualization to effectively evoke a concrete image in the customer’s mind. From the customer’s point of view,thisattributemakesitdifficulttoevaluateorcompareservicespriortoexperiencingthe service. • • • • • Perishability-Unsoldservicetimeis“lost”,thatis,itcannotberegained.Itisalosteconomic opportunity. For example a doctor that is booked for only two hours a day cannot later work those hours— she has lost her economic opportunity. Other service examples are airplane seats (once the plane departs, those empty seats cannot be sold), and theatre seats (sales end at a certain point). • • • • • Lackoftransportability-Servicestendtobeconsumedatthepointof“production”(although this doesn’t apply to outsourced business services). • • • • • Lack of homogeneity - Services are typically modified for each client or each new situation (customised). Mass production of services is very difficult. This can be seen as a problem of inconsistent quality. Both inputsandoutputstotheprocessesinvolvedprovidingservicesare highlyvariable,asaretherelationshipsbetweentheseprocesses,makingitdifficulttomaintain consistentquality. • • • • • Labourintensity-Servicesusuallyinvolveconsiderablehumanactivity,ratherthanprecisely determinedprocess.Humanresourcemanagementisimportant.Thehumanfactorisoftenthe key success factor in service industries. It is difficult to achieve economies of scale or gain dominantmarketshare. • • • • • Demand fluctuations - It can be difficult to forecast demand (which is also true of many goods). Demand can vary by season, time of day, business cycle, etc. • • • • • Buyer involvement - Most service provision requires a high degree of interaction between clientandserviceprovider. • • • • • Client-Based Relationships - Is based on creating long-term business relationships. Accountants,attorneys,andfinancialadvisersmaintainlong-termrelationshipswiththeirclientes for decades. These repeat consumers refer friends and family helping to create a client-based relationship.
42 Service delivery Thedeliveryofaservicetypicallyinvolvesfivefactors: • The service providers (e.g. the people) • Equipment used to provide the service (e.g. vehicles, cash registers) • Thephysicalfacilities(e.g.buildings,parking,waitingrooms) • Theclient • Othercustomersattheservicedeliverylocation • Customer contact Theserviceencounterisdefinedasallactivitiesinvolvedintheservicedeliveryprocess.Some service managers use the term “moment of truth” to indicate that defining point in a specific service encounterwhereinteractionsaremostintense. Manybusinesstheoristsviewserviceprovisionasaperformanceoract(sometimeshumorously referred to asdramalurgy, perhaps in reference to dramaturgy).The location of the service delivery is referred to as the stage and the objects that facilitate the service process are called props.Ascript is a sequenceofbehavioursfollowedbyallthoseinvolved,includingtheclient(s).Someservicedramasare tightly scripted, others are more ad lib. Role congruence occurs when each actor follows a script that harmonizes with the roles played by the other actors. In some service industries, especially health care, dispute resolution, and social services, a popularconceptistheideaofthecaseload,whichreferstothetotalnumberofpatients,clients,litigants, or claimants that a given employee is presently responsible for. On a daily basis, in all those fields, employeesmustbalancetheneedsofanyindividualcaseagainsttheneedsofallothercurrentcasesas well as their own personal needs. UnderEnglishlaw,ifaserviceproviderisinducedtodeliverservicestoadishonestclientbya deception, this is an offence under the TheftAct 1978. Ahairstylist,anurse,andawaitresshavedifferentdegreesofcustomercontacttodelivertheir services. The service-goods continuum Thedichotomybetweenphysicalgoodsandintangibleservicesshouldnotbegiventoomuch credence.Thesearenotdiscretecategories.Mostbusinesstheoristsseeacontinuumwithpureservice ononeterminalpointandpurecommoditygoodontheotherterminalpoint.Mostproductsfallbetween these two extremes. For example, a restaurant provides a physical good (the food), but also provides servicesintheformofambience,thesettingandclearingofthetable,etc.Andalthoughsomeutilities actuallydeliverphysicalgoods—likewaterutilitieswhichactuallydeliverwater—utilitiesareusually treated as services. Inanarrowersense,servicereferstoqualityofcustomerservice:themeasuredappropriateness ofassistanceandsupportprovidedtoacustomer.This particular usage occurs frequently in retailing.
43 Customer Acustomerissomeonewhomakesuseoforreceivestheproductsorservicesofanindividual ororganization.Thewordhistoricallyderivesfrom“custom,”meaning“habit”;acustomerwassomeone whofrequentedaparticularshop,whomadeitahabittopurchasegoodsofthesorttheshopsoldthere ratherthanelsewhere,andwithwhomtheshopkeeperhadtomaintainarelationshiptokeephisorher “custom,” meaning expected purchases in the future. The shopkeeper remembered the sizes and preferencesofhisorhercustomers,forexample.Theworddidnotrefertothosewhopurchasedthings at a fair or bazaar, or from a street vendor. Types of customers Customers can be classified into two main groups: internal and external. Internal customers work for the organization, possibly in another department or another branch. External customers are essentiallythegeneralpublic. Internal Customers • Peopleworkingindifferentdepartmentsorbranchesofthesupplier’sorganisation • Individualsordepartmentswithinanorganizationthatreceiveagoodorservicefromanother individualordepartmentwithintheorganization. External Customers • Individuals or organizations (which could be described as a party) that receive a good or serviceinreturnforcompensation,typicallymonetary. • Businessesorbusinesspeople,includingpartners,bankersandcompetitors. • NGOs,GovernmentBodies,VoluntaryOrganizations. Needs and expectations Customer needs may be defined as the facilities or services a customer requires to achieve specific goals or objectives. Needs are generally non-negotiable, but may be optional or of varying importancetothecustomer.Inanytransaction,customersseekvalue-for-money,andwilloftenconsider a range of vendors’ offers before settling on a purchase. Customer expectations are based on perceived values of facilities or services as applied to specific needs. Expectations are influenced by cultural values, advertising, marketing, and other communications, both with the supplier and with other sources. Expectations are negotiable and modifiable. Both customer needs and expectations may be determined through interviews, surveys, conversations or other methods of collecting information. Customers at times do not have a clear understandingoftheirneeds.Assistingindeterminingneedsisavaluableservicetothecustomer.Inthe process, expectations may be set or adjusted to correspond to known product capabilities or service
44 Marketer A Marketer or marketer is someone whose job it is to present a good or service to the market place in an attractive way so that others will be tempted to buy it. This may include advertising the product but also may include addressing its image in a more general way: for example, ploughman’s lunch and rock salmon are names created by marketers to sell what might otherwise be mundane or unglamorousitems. Marketing plan AMarketingPlanisawrittendocumentthatdetailstheactionsnecessarytoachieveaspecified marketing objective(s). It can be for a product or service, a brand, or a product line. It can cover one year (referred to as an annual marketing plan), or cover up to 5 years. A marketing plan may be part of an overall business plan. Solid marketing strategy is the foundationofawell-writtenmarketingplan.Whileamarketingplancontainsalistofactions,amarketing planwithoutasoundstrategicfoundationisoflittleuse. Content and presentation Practical presentation Therearemanyformatsformarketingplansandeverycompanydoesitalittledifferently,but theoutlinethatfollowsisaverycompleteformat.Usingthisformatwillproducea30to40pageplan. Many companies prefer an abridged format that would yield a 10 to 20 page plan. 1. Titlepage 2. ExecutiveSummary 3. CurrentSituation-Macroenvironment o economy o legal o government o technology o ecological o sociocultural o supplychain 4. CurrentSituation-MarketAnalysis o marketdefinition o marketsize o marketsegmentation o industrystructureandstrategicgroupings o Porter 5 forces analysis o competitionandmarketshare o competitors’strengthsandweaknesses o market trends
45 5. CurrentSituation-ConsumerAnalysis o natureofthebuyingdecision o participants o demographics o psychographics o buyermotivationandexpectations o loyaltysegments 6. CurrentSituation-Internal o companyresources § financial § people § time § skills o objectives § missionstatementandvisionstatement § corporate objectives § financialobjective § marketingobjectives § longtermobjectives o corporateculture 7. SummaryofSituationAnalysis o externalthreats o externalopportunities o internalstrengths o internalweaknesses o key success factors in the industry o oursustainablecompetitiveadvantage 8. Marketingresearch o informationrequirements o researchmethodology o researchresults 9. Marketing Strategy - Product o productmix o product strengths and weaknesses § perceptualmapping o productlifecyclemanagementandnewproductdevelopment o Brand name, brand image, and brand equity o theaugmentedproduct o productportfolioanalysis
46 § B.C.G.Analysis § contributionmarginanalysis § G.E.MultiFactorialanalysis § QualityFunctionDeployment 10. Marketing Strategy - Market share objectives o by products, o bycustomersegments, o bygeographicalmarkets 11. Marketing Strategy - Price o pricingobjectives o pricingmethod(eg.:costplus,demandbased,orcompetitorindexing) o pricingstrategy(eg.:skimming,orpenetration) o discountsandallowances o priceelasticityandcustomersensitivity o pricezoning o break even analysis at various prices 12. MarketingStrategy-promotion o promotionalgoals o promotionalmix o advertisingreach,frequency,flights,theme,andmedia o salesforcerequirements,techniques,andmanagement o salespromotion o publicityandpublicrelations o electronic promotion (eg.:Web, or telephone) 13. MarketingStrategy-Distribution o geographicalcoverage o distributionchannels o physicaldistributionandlogistics o electronicdistribution 14. Implementation o personnelrequirements § assignresponsibilities § giveincentives § trainingonsellingmethods o financialrequirements o managementinformationsystemsrequirements o month-by-monthagenda § PERTorcriticalpathanalysis o monitoringresultsandbenchmarks
47 o adjustmentmechanism o contingencies(Whatif’s) 15. FinancialSummary o assumptions o pro-formamonthlyincomestatement o contributionmarginanalysis o breakevenanalysis o Monte Carlo method o ISI:InternetStrategicIntelligence 16. Scenarios o PredictionofFutureScenarios o Plan ofAction for each Scenario 17. Appendix o pictures and specifications of the new product o resultsfromresearchalreadycompleted Measurement of Progress The final stage of any marketing planning process is to establish targets (or standards) so that progress can be monitored.Accordingly, it is important to put both quantities and timescales into the marketingobjectives(forexample,tocapture20percentbyvalueofthemarketwithintwoyears)and intothecorrespondingstrategies. Changes in the environment mean that the forecasts often have to be changed.Along with these, the related plans may well also need to be changed. Continuous monitoring of performance, against predetermined targets, represents a most important aspect of this. However, perhaps even moreimportantistheenforceddisciplineofaregularformalreview.Again,aswithforecasts,inmany casesthebest(mostrealistic)planningcyclewillrevolvearoundaquarterlyreview.Bestofall,atleast in terms of the quantifiable aspects of the plans, if not the wealth of backing detail, is probably a quarterly rolling review - planning one full year ahead each new quarter. Of course, this does absorb more planning resource; but it also ensures that the plans embody the latest information, and - with attentionfocusedonthemsoregularly-forcesboththeplansandtheirimplementationtoberealistic. Plans only have validity if they are actually used to control the progress of a company: their successliesintheirimplementation,notinthewriting’. Performanceanalysis Themostimportantelementsofmarketingperformance,whicharenormallytracked,are: Salesanalysis Most organizations track their sales results; or, in non-profit organizations for example, the number of clients. The more sophisticated track them in terms of ‘sales variance’ - the deviation from
48 the target figures - which allows a more immediate picture of deviations to become evident. `Micro- analysis’,whichisanicelypseudo-scientifictermforthenormalmanagementprocessofinvestigating detailedproblems,theninvestigatestheindividualelements(individualproducts,salesterritories,customers and so on) which are failing to meet targets. Market share analysis Relatively few organizations, however, track market share. In some circumstances this may well be a much more important measure. Sales may still be increasing, in an expanding market, while share is actually decreasing - boding ill for future sales when the market eventually starts to drop. Where such market share is tracked, there may be a number of aspects which will be followed: • overallmarketshare • segment share - that in the specific, targeted segment • relative share -in relation to the market leaders Expenseanalysis Thekeyratiotowatchinthisareaisusuallythe‘marketingexpensetosalesratio’;althoughthis maybebrokendownintootherelements(advertisingtosales,salesadministrationtosales,andsoon). FinancialAnalysis The‘bottomline’ofmarketingactivitiesshouldatleastintheory,bethenetprofit(forallexcept non-profitorganizations,wherethecomparableemphasismaybeonremainingwithinbudgetedcosts). There are a number of separate performance figures and key ratios which need to be tracked: • grosscontribution<>netprofit • grossprofit<>returnoninvestment • netcontribution<>profitonsales There can be considerable benefit in comparing these figures with those achieved by other organizations(especiallythoseinthesameindustry);using,forinstance,thefigureswhichcanbeobtained (intheUK)from‘TheCentreforInterfirmComparison’.Themostsophisticateduseofthisapproach, however,istypicallybythosemakinguseofPIMS(ProfitImpactofManagementStrategies),initiated bytheGeneralElectricCompanyandthendevelopedbyHarvardBusinessSchool,butnowrunbythe StrategicPlanningInstitute. The above performance analyses concentrate on the quantitative measures which are directly related to short-term performance. But there are a number of indirect measures, essentially tracking customerattitudes,whichcanalsoindicatetheorganization’sperformanceintermsofitslonger-term marketing strengths and may accordingly be even more important indicators. Some useful measures are: • market research - including customer panels (which are used to track changes over time)
49 • lost business - the orders which were lost because, for example, the stock was not available or the product did not meet the customer’s exact requirements • customer complaints - how many customers complain about the products or services, or the organizationitself,andaboutwhat Use of Marketing Plans Aformal,writtenmarketingplanisessential;inthatitprovidesanunambiguousreferencepoint for activities throughout the planning period. However, perhaps the most important benefit of these plansistheplanningprocessitself.Thistypicallyoffersauniqueopportunity,aforum,for‘information- rich’andproductivelyfocuseddiscussionsbetweenthevariousmanagersinvolved.Theplan,together with the associated discussions, then provides an agreed context for their subsequent management activities,evenforthosenotdescribedintheplanitself. Budgets as Managerial Tools The classic quantification of a marketing plan appears in the form of budgets. Because these aresorigorouslyquantified,theyareparticularlyimportant.Theyshould,thus,representanunequivocal projection of actions and expected results. What is more, they should be capable of being monitored accurately;and,indeed,performanceagainstbudgetisthemain(regular)managementreviewprocess. Thepurposeofamarketingbudgetis,thus,topulltogetheralltherevenuesandcostsinvolved inmarketingintoonecomprehensivedocument.Itisamanagerialtoolthatbalanceswhatisneededto be spent against what can be afforded, and helps make choices about priorities. It is then used in monitoringperformanceinpractice. Themarketingbudgetisusuallythemostpowerfultoolbywhichyouthinkthroughtherelationship between desired results and available means. Its starting point should be the marketing strategies and plans,whichhavealreadybeenformulatedinthemarketingplanitself;although,inpractice,thetwowill run in parallel and will interact.At the very least, the rigorous, highly quantified, budgets may cause a rethinkofsomeofthemoreoptimisticelementsoftheplans. Approaches to budgeting Many budgets are based on history.They are the equivalent of ‘time-series’forecasting. It is assumedthatnextyear’sbudgetsshouldfollowsometrendthatisdiscernibleoverrecenthistory.Other alternatives are based on a simple ‘percentage of sales’ or on ‘what the competitors are doing’. However,therearemanyotheralternatives: • • • • • Affordable - This may be the most common approach to budgeting. Someone, typically the managing director on behalf of the board, decides what a ‘reasonable’ promotional budget is; what can be afforded. This figure is most often based on historical spending. This approach assumes that promotion is a cost; and sometimes is seen as an avoidable cost.
50 • • • • • Percentage of revenue - This is a variation of ‘affordable’, but at least it forges a link with salesvolume,inthatthebudgetwillbesetatacertainpercentageofrevenue,andthusfollows trends in sales. However, it does imply that promotion is a result of sales, rather than the other wayround. Bothofthesemethodsareseenbymanymanagementstobe‘realistic’,inthattheyreflectthe realityofthebusinessstrategiesasthosemanagementsseeit.Ontheotherhand,neithermakes any allowance for change. They do not allow for the development to meet emerging market opportunities and, at the other end of the scale, they continue to pour money into a dying product or service (the ‘dog’). • • • • • Competitiveparity-Inthiscase,theorganizationrelatesitsbudgetstowhatthecompetitors aredoing:forexample,itmatchestheirbudgets,orbeatsthem,orspendsaproportionofwhat the brand leader is spending. On the other hand, it assumes that the competitors know best; in which case, the service or product can expect to be nothing more than a follower. • • • • • Zero-based budgeting - In essence, this approach takes the objectives, as set out in the marketingplan,togetherwiththeresultingplannedactivitiesandthencoststhemout.Differences betweenmarketingandbusinessplans. Consumer Consumersareindividualsorhouseholdsthatpurchaseandusegoodsandservicesgenerated within the economy. The concept of a consumer is used in different contexts, so that the usage and significancemayvary. Consumer in economics and marketing Typicallywhenbusinesspeopleandeconomiststalkofconsumerstheyaretalkingaboutperson as consumer, an aggregated commodity item with little individuality other than that expressed in the buy/not-buy decision. However there is a trend in marketing to individualize the concept. Instead of generating broad demographic profile and psychographic profiles of market segments, marketers are engaginginpersonalizedmarketing,permissionmarketing,andmasscustomization. In economics, a consumer is assumed to have a budget which can be spent on a range of goods and services available on the market. Under the assumption of rationality, the budget allocation is chosen accordingtothepreferenceoftheconsumer,i.e.tomaximizehisorherutilityfunction.In‘timeseries’ models of consumer behavior, the consumer may also invest a proportion of their budget in order to gainagreaterbudgetinfutureperiods.Thisinvestmentchoicemayincludeeitherfixedrateinterestor risk-bearingsecurities. Consumer in law and politics Withinlaw,thenotionofconsumerisprimarilyusedinrelationtoconsumerprotectionlaws.A typicallegalrationaleforprotectingtheconsumerisbasedonthenotionofpolicingmarketfailuresand inefficiencies, such as inequalities of bargaining power between a consumer and a business.As just abouteveryoneisaconsumer,consumerprotectionalsohasaclearpoliticalsignificance.
51 In addition, concern over the interests of consumers has spawned much activism, as well as incorporation of consumer education into school curriculums. There are also various non-profit publications,suchasConsumerReportsandChoiceMagazine,dedicatedtoassistinconsumereducation anddecisionmaking. Product lifecycle Theproductlifecyclegoesthoughmanyphasesandinvolvesmanyprofessionaldisciplinesand requiresmanyskills,toolsandprocesses.Productlifecycle(PLC)dealswiththelifeofaproductinthe marketwithrespecttobusiness/commercialcostsandsalesmeasures.ProductLifecycleManagement (PLM) deals with managing descriptions and properties of a product through its development and usefullife,mainlyfromabusiness/engineeringpointofview. Product lifecycle management Productlifecyclemanagement(PLM)istheprocessofmanagingtheentirelifecycleofaproduct from its conception, through design and manufacture, to service and disposal. It is one of the four cornerstones of a corporation’s information technology structure.All companies need to manage communications and information with their customers (CRM-Customer Relationship Management) and their suppliers (SCM-Supply Chain Management) and the resources within the enterprise (ERP- EnterpriseResourcePlanning).Inaddition,manufacturingengineeringcompaniesmustalsodevelop, describe,manageandcommunicateinformationabouttheirproducts(PLM). Documentedbenefitsinclude: • Reduced time to market • Improvedproductquality T i m e l i n e . . Development . . . Introduction Growth Mature Decline Conceive . Design . Realize . Service . . Investment . . . Cashflow POSO admin . Return Ideation . . . Advertising . Selling Sales Order processing . . . Ideation ConceptDesign DetailedDesign ToolDesign Production Planning Manufacture Maintenance Redesign Recycling . Sourcing Procurement . Purchasing Stock control Delivery Spare Parts Product life Product Marketing & cycle Lifecycle Sales Engineering Logistics Finance management Management PLC PLM
52 • Reduced prototyping costs • Savingsthroughthere-useoforiginaldata • Aframeworkforproductoptimization • Reduced waste • Savingsthroughthecompleteintegrationofengineeringworkflows ProductLifecycleManagement(PLM)ismoretodowithmanagingdescriptionsandproperties ofaproductthroughitsdevelopmentandusefullife,mainlyfromabusiness/engineeringpointofview; whereas Product life cycle management (PLC) is to do with the life of a product in the market with respect to business/commercial costs and sales measures. Phases of product lifecycle and corresponding technologies Manysoftwaresolutionshavebeendevelopedtoorganizeandintegratethedifferentphasesof aproduct’slifecycle.PLMshouldnotbeseenasasinglesoftwareproductbutacollectionofsoftware toolsandworkingmethodsintegratedtogethertoaddresseithersinglestagesofthelifecycleorconnect different tasks or manage the whole process. Some software providers cover the whole PLM range whileothersasinglenicheapplication.SomeapplicationscanspanmanyfieldsofPLMwithdifferent moduleswithinthesamedatamodel.AnoverviewofthefieldswithinPLMiscoveredhere.Itshould benotedhoweverthatthesimpleclassificationsdonotalwaysfitexactly,manyareasoverlapandmany software products cover more than one area or do not fit easily into one category. It should also not be forgotten that one of the main goals of PLM is to collect knowledge that can be reused for other projectsandtocoordinatesimultaneousconcurrentdevelopmentofmanyproducts.Itisaboutbusiness processes, people and methods as much as software application solutions.Although PLM is mainly associated with engineering tasks it also involves marketing activities such as Product Portfolio Management (PPM), particularly with regards to New product introduction (NPI). Phase 1: Conceive Imagine, Specify, Plan, Innovate The first stage in the development of a product idea is the definition of its requirements based on customer, company, market and regulatory bodies’viewpoints. From this a specification of the productsmajortechnicalparameterscanbedefined.Althoughoftenthistaskiscarriedoutusingstandard office software packages there are for the field of requirements management a number of specialized softwaretoolsavailable. Paralleltotherequirementsspecificationtheinitialconceptdesignworkiscarriedoutdefining thevisualaestheticsoftheproducttogetherwithitsmainfunctionalaspects.FortheIndustrialDesign, Styling,workmanydifferentmediasareusedfrompencilandpaper,claymodelsto3DCAIDComputer- aidedindustrialdesignsoftware.
53 Phase 2: Design Describe, Define, Develop, Test,Analyze and Validate This is where the detailed design and development of the products form starts, progressing to prototypetesting,throughpilotreleasetofullproductlaunch.Itcanalsoinvolveredesignandrampfor improvementtoexistingproductsaswellasplannedobsolescence.Themaintoolusedfordesignand developmentisCADComputer-aideddesign.Thiscanbesimple2DDrawing/Draftingor3DParametric FeatureBasedSolid/SurfaceModelling,SuchsoftwareincludestechnologysuchasHybridModeling, ReverseEngineering,KBE(Knowledge-BasedEngineering),NDT(Nondestructivetesting),Assembly construction. Phase 3: Realize Manufacture, Make, Build, Procure, Produce, Sale and Deliver Once the design of the product’s components is complete the method of manufacturing is defined.ThisincludesCADtaskssuchastooldesign;creationofCNCMachininginstructionsforthe product’spartsaswellastoolstomanufacturethoseparts,usingintegratedorseparateCAMComputer- aidedmanufacturingsoftware.Thiswillalsoinvolveanalysistoolsforprocesssimulationforoperations such as casting, molding, and die press forming. Once the manufacturing method has been identified MPM – (Manufacturing Process Management) comes into play. This involves CAPE (Computer- aidedProductionEngineering)orCAP/CAPP–(ProductionPlanning)toolsforcarryingoutFactory, PlantandFacilityLayoutandProductionSimulation.Forexample:Press-LineSimulation;andIndustrial Ergonomics;aswellastoolselectionmanagement.Oncecomponentsaremanufacturedtheirgeometrical formandsizecanbecheckedagainsttheoriginalCADdatawiththeuseofComputerAidedInspection equipment and software. Parallel to the engineering tasks, sales product configuration and marketing documentationworkwillbetakingplace.Thiscouldincludetransferringengineeringdata(geometry and part list data) to a web based sales configurator and other Desktop Publishing systems. Phase 4: Service Use, Operate, Maintain, Support, Sustain, Phase-out, Retire, Recycle and Disposal Thefinalphaseofthelifecycleinvolvesmanagingofinserviceinformation.Providingcustomers andserviceengineerswithsupportinformationforrepairandmaintenance,aswellaswastemanagement/ recyclinginformation.ThisinvolvesusingsuchtoolsasMaintenance,RepairandOperationsManagement (MRO) software. All phases: product lifecycle Communicate, Manage and Collaborate Noneoftheabovephasescanbeseeninisolation.Inrealityaprojectdoesnotrunsequentially orinisolationofotherproductdevelopmentprojects.Informationisflowingbetweendifferentpeople andsystems.Amajor part of PLM is the co-ordination of and management of product definition data. Thisincludesmanagingengineeringchangesandreleasestatusofcomponents;configurationproduct
54 variations;documentmanagement;planningprojectresourcesandtimescaleandriskassessment. For these tasks graphical, text and metadata such as product BOMs (Bill of Materials) needs to be managed.AttheengineeringdepartmentslevelthisisthedomainofPDM–(ProductDataManagement) software, at the corporate level EDM (Enterprise Data Management) software, these two definitions tendtoblurhoweverbutitistypicaltoseetwoormoredatamanagementsystemswithinanorganization. These systems are also linked to other corporate systems such as SCM, CRM, and ERP.Associated withthesesystemareProjectManagementSystemsforProject/ProgramPlanning. ThiscentralroleiscoveredbynumerousCollaborativeProductDevelopmenttoolswhichrun throughout the whole lifecycle and across organizations. This requires many technology tools in the areasofConferencing,DataSharingandDataTranslation.ThefieldbeingProductvisualizationwhich includestechnologiessuchasDMU(DigitalMock-Up),ImmersiveVirtualDigitalprototyping(Virtual reality)andPhotorealisticImaging. Product development processes and methodologies AnumberofestablishedmethodologieshavebeenadoptedbyPLMandbeenfurtheradvanced. Together with PLM digital engineering techniques, they have been advanced to meet company goals such as reduced time to market and lower production costs. Reducing lead times is a major factor as gettingaproducttomarketquickerthanthecompetitionwillhelpwithhigherrevenueandprofitmargins and increase market share. Thesetechniquesinclude:- • Concurrentengineeringworkflow • IndustrialDesign • Bottom-updesign • Top-downdesign • Frontloadingdesignworkflow • Designincontext • Modulardesign. • NPD New product development • DFSSDesignforSixSigma • DFMADesignformanufacture/assembly • Digitalsimulationengineering. • Requirementdrivendesign • Specificationmanagedvalidation Collaborative Product Development CollaborativeProductDevelopment(CollaborativeProductDesign)(CPD)isabusinessstrategy, work process and collection of software applications that facilitates different organizations to work together on the development of a product. It is also known as collaborative Product Definition Management(cPDM).
55 Althoughcompaniesworkingtogethertodevelopaproductinanextendedenterpriseisnothing newandmostofthecollaborativesoftwaretechnologybeingusedhasbeenaroundforsometime,the bringingtogetherofmethodsandsoftwareapplicationtoolsintoonedisciplineisrelativelyrecent.This has come about due to a number of factors: • Increasedglobalizationofcommerce. • Increasing number of corporations with departments in different locations needing to work closertogether. • Increased Outsourcing of tasks. • Departmentsinsamecompany(maybeduetotakeoversandmergers)withdifferenttechnology formatshavingtoworkclosertogether. • Companiesworkingwithpartnerswhomayhavespecialistknowledge. • Increasingroleof1sttiersupplierandtheirimportance. Exactlywhattechnologycomesunderthistitledoesvarydependingonwhoyouask;ithowever usually consists of the PLM areas of: Product Data Management (PDM); Product visualization; team collaboration and conferencing tools; and supplier sourcing software. It is generally accepted as not includingCADgeometryauthoringtools,butdoesincludedatatranslationtechnology. SUMMARY Aproductissomethingthatisrelativelyeasilytraded,thatcanbephysicallydelivered,andthat canbestoredforareasonableperiodoftime.Itisacharacteristicofproductionthatpricesaredetermined on the basis of an active market, rather than by the supplier (or other seller) on a “cost-plus” basis. Productsarethingsofvalue,ofuniformquality,thatwereproducedinlargequantitiesbymanydifferent producers;theitemsfromeachdifferentproducerareconsideredequivalent.Itisthecontractandthis underlyingstandardthatdefinetheproduct,notanyqualityinherentintheproduct. Ingeneral,amanufacturer’sresponsibilitytomarketsafeproducts.UnderthelawofTorts,amanufacturer is held strictly liable when one of its products, placed on the market with the knowledge that it will be used without inspection for defects, proves to have a defect that causes injury to a human being. Offeringcapableofsatisfyinganeedorawant,thatisofferedtoatargetmarketforattention,acquisition, use,orconsumption.Aproductcanbeanobject,service,activity,person,place,organization,oridea. Each product has its own benefits, styling, quality, brand name, and packaging that gives it its own identityanddistinguishingcharacteristics.Anadvertiser,though,willprimarilyconcentrateonpromoting a product’s benefits, rather than its features. In marketing, a product is anything that can be offered to a market that might satisfy a want or need. It is of two types: Tangible (physical) or Intangible (non- physical).Sinceserviceshavebeenattheforefrontofallmodernmarketingstrategies,someintangibility has become essential part of marketing offers. It is therefore the complete bundle of benefits or satisfactions that buyers perceive they will obtain if they purchase the product. It is the sum of all
56 physical,psychological,symbolic,andserviceattributes,notjustthephysicalmerchandise.Allproducts offered in a market can be placed between Tangible (Pure Product) and Intangible (Pure Service) spectrum. Aproductissimilartogoods.Inaccounting,goodsarephysicalobjectsthatareavailableinthe marketplace.Thisdifferentiatesthemfromaservice,whichisanon-materialproduct.Thetermgoods isusedprimarilybythosethatwishtoabstractfromthedetailsofagivenproduct.Assuchitisusefulin accountingandeconomicmodels.Thetermproductisusedprimarilybythosethatwishtoexaminethe details and richness of a specific market offering.As such it is useful to marketers, managers, and qualitycontrolspecialists. Aphysicalitemthatisofferedforsaleshouldnotautomaticallybeconsideredaproductifithas no market. Like 95% of patents they at best interesting diversions and at worst a waste of time. QUESTIONS: 1. What is Apinwall Classification System of Product Management? 2. What are the types of Product? 3. Define a Customer? What are the types of Customers? What are the needs and expectations of a Customer? 4. Who is a Marketer? What is a Marketing Plan? 5. What are the approaches to budgeting in Marketing?
57 CHAPTER - V MARKET OBJECTIVE A market is a social arrangement that allows buyers and sellers to discover information and carry out a voluntary exchange of goods or services. It is one of the two key institutions that organize trade, along with the right to own property.Allowing markets to arrive at a pareto efficientoutcomeis one of the key components of capitalism. In everyday usage, the word “market” may refer to the location where goods are traded, sometimes known as a marketplace, or to a street market. Function Thefunctionofamarketrequires,ataminimum,thatbothpartiesexpecttobecomebetteroff as a result of the transaction. Markets generally rely on price adjustments to provide information to parties engaging in a transaction, so that each may accurately gauge the subsequent change of their welfare.Inlesssophisticatedmarkets,suchasthoseinvolvingbarter,individualbuyersandsellersmust engageinamorelengthyprocessofhagglinginordertogainthesameinformation.Marketsareefficient when the price of a good or service attracts exactly as much demand as the market can currently supply.Thechieffunctionofamarket,then,istoadjustpricestoaccommodatefluctuationsinsupply anddemandinordertoachieveallocativeefficiency.Aneconomicsysteminwhichgoodsandservices are exchanged by market functions is called a market economy.An alternative economic system in whichnon-marketforces(oftengovernmentmandates)determinepricesarecalledplannedeconomies orcommandeconomies.Theattempttocombinesocialistidealswiththeincentivesystemofamarket isknownasmarketsocialism. Types of markets Althoughmanymarketsexistinthetraditionalsense—suchasafleamarket—therearevarious othertypesofthemandvariousorganizationalstructurestoassisttheirfunctions. Amarketcanbeorganizedasanauction,asashoppingcenter,asacomplexinstitutionsuchas astockmarket,andasaninformaldiscussionbetweentwoindividuals. In economics, a market that runs under laissez-faire policies is a free market. It is “free” in the sense that the government makes no attempt to intervene through taxes, subsidies, minimum wages, price ceilings, etc. Markets may be distorted by a seller or sellers with monopoly power, or a buyer withmonopsonypower.Also,theleveloforganizationornegotiationpowerofbuyers,markedlyaffects thefunctioningofthemarket.Marketswherepricenegotiationsdonotarriveatefficientoutcomesfor both sides are said to experience market failure. Most markets are regulated by state wide laws and regulations. While barter markets exist, most markets use currency or some other form of money. Markets of varying types can spontaneously arise whenever a party has interest in a good or service that some other party can provide. Hence there can be a market for cigarettes in correctional facilities,anotherforchewingguminaplayground,andyetanotherforcontractsforthefuturedelivery
58 ofacommodity.Therecanbeblackmarkets,whereagoodisexchangedillegallyandvirtualmarkets, such as eBay in which buyers and sellers do not physically interact. There can also be markets for goods under a command economy despite pressure to repress them Market research Market research is the process of systematic gathering, recording and analyzing of data about customers,competitorsandthemarket.Marketresearchcanhelpcreateabusinessplan,launchanew product or service, fine tune existing products and services, expand into new markets etc. It can be usedtodeterminewhichportionofthepopulationwillpurchasetheproduct/service,basedonvariables likeage,gender,locationandincomelevel.Itcanbefoundoutwhatmarketcharacteristicsyourtarget market has.With market research, companies can learn more about current and potential customers. Thepurposeofmarketresearchistohelpcompaniesmakebetterbusinessdecisionsaboutthe developmentandmarketingofnewproducts.Marketresearchrepresentsthevoiceoftheconsumerin a company. A list of questions that can be answered through market research: • What is happening in the market? What are the trends? Who are the competitors? • How do consumers talk about the products in the market? • Which needs are important?Are the needs being met by current products? Asimpleexampleofwhatmarketresearchcandoforabusinessisthefollowing.Atthecompany Chevrolettheybroughtseveraldisciplinestogetherinacross-functionalteamtodevelopaconceptfor a completely new Corvette. This team enabled the marketers to come up with an alternative concept, one that balanced 4 attributes: comfort and convenience, quality, styling, and performance. This was considered radical because comfort and convenience were not traditional Corvette values. However, market research demonstrated that consumers supported the alternative concept.As a result the new Corvette was a huge success in the market. [Burns 2001] With market research you can get some kind of confirmation that there is a market for your idea, and that a successful launch and growth are possible. Market research for business planning Marketresearchisdiscoveringwhatpeoplewant,need,orbelieve.Itcanalsoinvolvediscovering how they act. Once that research is complete it can be used to determine how to market your specific product. Whenever possible, try to reduce risks at the earliest possible stage. For example you could carry out market research early on and not wait until you are almost ready to enter the market. If early market research reveals that your business idea has real potential, you can use this information in planningthebuild-upofyourbusiness.[Ilar1998] For starting up a business there are a few things should be found out through market research inordertoknowifyourbusinessisfeasible.Thesearethingslike: • • • • • Market information Marketinformationismakingknownthepricesofthedifferentcommoditiesinthemarket,the supply and the demand. Information about the markets can be obtained in several different varieties andformats.Themostbasicformofmarketinformationisthebestquotationandlastsaledata,including the number of shares, with respect to a particular security at a given time. [Market research 2006]
59 Examplesofmarketinformationquestionsare: 1. Who are the customers? 2. Where are they located and how can they be contacted? 3. Whatquantityandqualitydotheywant? 4. What is the best time to sell? 5. What is the long-term or historical price data over a number of years? 6. What is the expected production in the country? 7. Is there more demand for one product or another? Etc. • • • • • Market segmentation Market segmentation is the division of the market or population into subgroups with similar motivations.Widelyusedbasesforsegmentingincludegeographicdifferences,personalitydifferences, demographicdifferences,useofproductdifferences,andpsychographicdifferences. • • • • • Market trends The upward or downward movements of a market, during a period of time. Themarketsizeismoredifficulttoestimateifyouarestartingwithsomethingcompletelynew. In this case, you will have to derive the figures from the number of potential customers or customer segments. [Ilar 1998] Butbesidesinformationaboutthetargetmarketyoualsoneedinformationaboutyourcompetitor, your customers, products etc.Afew techniques are: • Customeranalysis • Competitoranalysis • Riskanalysis • Product research • Advertisingresearch In the last chapter you can read how to perform market research, with interviews and questionnaires, but there is already a lot of information available. Market research firms and industry expertspublishmuchoftheirinformationonwebsites,andintradeandbusinessmagazines.Reference sites index these magazines, many offer the texts online and if not the libraries stock them. Trade associationspublishmanylistingsandstatisticsontheirwebsitesaswellasinhardcopypublications. Sothereisalreadyalotofinformationavailable. Perform market research Thischapterintroducesthestepsinvolvedinthemarketresearchprocess.Italsoprovidesyou with a brief preview of each of the steps necessary to conduct a market research effort.As you can see in figure 1, the market research process has 4 basic steps. These steps include: 1. Definingtheresearchproblem 2. Establishingtheresearchdesign 3. Collectingandanalysingdata 4. Formulatefindings Figure 1 is the meta-process model of market research. The model shows every activity that mustbeperformed.Andeveryactivityhasafewsequentialactivities.Everysequentialactivityisconnected with an arrow which implies that these activities need to be carried out in a pre-defined order.
60 Discussion with customer Write Draft Findings Final Findings Present Final Findings Formulate Findings Hire External Office Collect Data Cleaning Data Coding Data Tabulating Data Collection and Analyze Data Select Information Types Select Information Sources Determine Research Instrument Design Research Instrument Establish Research Design Select Research Design Figure 1: Meta-process model for Market research Define Research Problem Describe Problem Formulate Research Questions Formulate Subquestions Set Research Objectives Set Timetables
61 Before these 4 steps are discussed it is important to make a few comments about these steps. First although the list does strongly imply an orderly step-by-step process, it is rare that a research project follows these steps in the exact order that they are presented in the figure. Market research is more of an interactive process whereby a researcher, by discovering something in a given step, may move backward in the process and begin again at another step [Market research 2006] Finding some newinformationwhilecollectingdata,maycausetheresearchertoestablishdifferentresearchobjectives. In the following the different market research steps are described. Defining the research problem Thestepdefiningtheresearchproblemexistsof2mainsteps:(1)formulatingtheproblemand (2)establishingresearchobjectives. Definingtheproblemisthesinglemostimportantstepinthemarketresearchprocess.Aclear statement of the problem is a key to a good research.Afirm may spend hundreds or thousands of dollarsdoingmarketresearch,butifithasnotcorrectlyidentifiedtheproblem,thosedollarsarewasted. In our case it is obvious that the problem here is setting up a business. But even if this is clear, you still need to know what exactly you need to know to make the new business a success and what specific related to the product is difficult to find out. Problems that may be encountered are: it is unknownwhatpotentialmarketsthereare,whatcustomergroupsareinterestedinyourproducts,who the competitors are?After formulating your problem, you need to formulate your research questions. What questions need to be answered and which possible sub-questions do you have. With the problem or opportunity defined, the next step is to set objectives for your market research operations. Research objectives, related to and determined by the problem formulation, are setsothatwhenachievedtheyprovidethenecessaryinformationtosolvetheproblem.Agoodwayof settingresearchobjectivesistoask,“Whatinformationisneededinordertosolvetheproblem?”Your objective might be to explore the nature of a problem so you may further define it, or perhaps it is to determine how many people will buy your product packaged in a certain way and offered at a certain price.Yourobjectivemightevenbetotestpossiblecauseandeffectrelationships.Forexample,ifyou lower your price, how much will it increase your sales volume?And what impact will it have on your profit? Clearobjectivescanleadtoclearresults.AnexampleofthisisasituationatCamaro/Firebird. Auto manufacturers are sometimes criticized for creating expensive vehicles with unwanted features andtechnologiesthatdonotmeettheneedsofthetargetmarket.Toavoidthistrapengineeringteamof this company turned to market research to evaluate how changes in performance and fuel economy would affect sales volume and customer satisfaction. It turned out that customers were willing to pay more for greater performance if the car also offered simultaneous increases in fuel economy. [Burns 2001] The problem description, the research question, sub questions and the research objectives are partofanoveralldocumentproblemdescription. After describing and formulating the problem and the objectives, the next step is to prepare a detailed and realistic time frame to complete all steps of the market research process. If your business
62 operates in cycles, establish target dates that will allow the best accessibility to your market. For example, a holiday greeting card business may want to conduct research before or around the holiday seasonbuyingperiod,whentheircustomersaremostlikelytobethinkingabouttheirpurchases.[Market research 2006] Selecting and establishing research design The step selecting and establishing research design consists of 3 main steps: (1) select the research design, (2) identify information types and sources and (3) determine and design research instrument. Select the research design Asstatedearlier,everyresearchprojectandeverybusinessisdifferent.Still, there are enough commonalitiesamongresearchprojectstocategorizethembyresearchmethodsandproceduresused to collect and analyze data. There are three types of research design: • Exploratoryresearchdesign • Descriptiveresearch • Causal research Exploratoryresearchisdefinedascollectinginformationinanunstructuredandinformalway. For example if the owners of a new restaurant often eat out at competitor’s restaurants in order to gatherinformationaboutmenuselections,pricesandservicequality. Descriptiveresearchreferstoasetofmethodsandproceduresthatdescribemarketingvariables. Descriptive studies portray these variables by answering who, what, why and how questions. These types of research studies may describe such things as consumers’ attitudes, intentions, and behaviors, or the number of competitors and their strategies. Causalresearchdesignisconductedbycontrollingvariousfactorstodeterminewhichfactoris causingtheproblem.Itallowsyoutoisolatecausesandeffects.Bychangingonefactor,saypriceyou can monitor its effects on a key consequence such as sales.Although causal research can give you a highlevelofunderstandingofthevariableyouarestudying,thedesignsoftenrequireexperimentsthat arecomplexandexpensive. Identify information types and sources Therearetwotypesofinformationavailabletoamarketresearcher:primarydataandsecondary data. Primary data is original information gathered for a specific purpose. Secondary data refers to informationthatalreadyexistssomewhereandhasbeencollectedforsomeotherpurpose.Bothtypes of research have a number of activities and methods of conducting associated with them. Secondary research is usually faster and less expensive to obtain than primary research. Gathering secondary researchmaybeassimpleasmakingatriptoalocallibraryorbusinessinformationcenterorbrowsing the Internet. There is already a lot of statistics about different businesses that can be used for this research.
63 Information source Secondarydatahelpidentifytheproblem;betterdefineproblem;developanapprochtoproblem; formulate an appropriate research design; answer certain research questions and test some research hypotheses;Interpretprimarydatamoreinsightfully. Determining and design research instrument Afterdeterminingwhichtype(s)ofinformationareneeded,themethodsofaccessingdatamust bedetermined.Thereareseveraldifferentmethodsofcollectingdata.Thesemethodsincludetelephone surveys,mailsurveys,personalinterviewsorgroupsurveys. The actual design of the research instrument, the data collection form that is used to ask and record the information is critical to the success of the project. There are two basic methods to collect information: by asking questions or by observing. The most common research instrument is the questionnaire.Therearetwotypesofforms:structuredandunstructured.Structuredquestionnaireslist close-end questions. These include multiple choice questions which offer respondents the ability to answer“yes”or“no”orchoosefromalistofseveralanswerchoices.Close-endquestionsalsoinclude scales refer to questions that ask respondents to rank their answers at a particular point on a scale. Unstructuredquestionnaireshaveopen-endedquestions.Respondentscananswerintheirownwords. Collecting and analyzing data Datacollectionisusuallydonebytrainedinterviewerswhoareemployedbyfielddatacollection companies to collect primary data.Achoice has to be made between collecting the data yourself or hiringanexternalofficewhoarespecializedininterviews. Dataanalysisisneededtogivetherawdataanymeaning.Thefirststepinanalyzingthedatais cleaningthedata.Thisistheprocessofcheckingtherawdatatoverifythatthedatahasbeencorrectly entered into the files from the data collection form.After that the data have to be coded. This is the process of assigning all response categories a numerical value. For example males = 1, females = 2. After that the data can be tabulated, which refers to the actual counting of the number of observations that fall in to each possible response category. Data can also be collected on a smaller scale to obtain more qualitative data. One frequently usedformofqualitativedatacollectionisthefocusgroup.FocusGroupsaregenerallycomprisedofa smallselectionofthetargetaudience.Theparticipantsarethenqueriedandthediscussionsareguided byamoderator.The group is often recorded and/or viewed by the marketing team or others via a two- way mirror or closed circuit system. Focus group companies exist worldwide. Some specialize in certainindustries,suchasthelegalcommunity,whileothersprovidemoregeneralservices. Formulatefindings Afteranalyzingthedatayoucanmakeyourfindingsbasedonthisdata.Oncethefindingsabout the target market, competition and environment are finished, present it in an organized manner to the decision makers of the business. In this case report the findings in the market analysis section of your business plan. In summary, the resulting data was created to help guide your business decisions, so it needs to be readily accessible to the decision makers.
64 Marketing orientation A marketing oriented firm (also called market orientation, the marketing concept, consumer focus, or customer focus) is one that allows the needs and wants of customers and possible customers topushallthefirm’slong-termcrucialdecisions.Thefirm’scorporatecultureissystematicallycommitted to creating customer value. The rationale is that the more a company understands and meets the real needsofitsconsumers,themorelikelyitistohavehappycustomerswhocomebackformore,andtell theirfriends.Thisprocesscanentailthefosteringoflongtermrelationshipswithcustomers.Inorderto determine customer wants, the company usually needs to conduct some form of marketing research. Overall, the marketer expects that becoming marketing oriented, if done correctly, will provide the companywithasustainablecompetitiveadvantage. The concept of marketing orientation was developed in the late 1960s and early 1970s at HarvardUniversityandatahandfulofforwardthinkingcompanies,suchasMckinsey&Company.It replacedtheprevioussalesorientationthatwasprevalentbetweenthemid1950sandtheearly1970s, and the production orientation that predominated prior to the mid 1950s. Since the concept was first introducedinthelate1960s,ithasbeenmodified,repackaged,andrenamedas“customerfocus”,“the marketingphilosophy”,“marketdriven”,“customerintimacy”,“consumerfocus”,“customerdriven”, and“themarketingconcept”. Application of the concept Customer focus can be seen as a process that involves three steps. First customer wants are researched,thentheinformationisdisseminatedthroughoutthefirmandproductsaredeveloped,then finallycustomersatisfactionismonitoredandadjustmentsmadeifnecessary. The process can be applied at the individual level (called personalized marketing), the group level(calledmarketsegmentation),andoccasionallyatthemasslevel(massmarketing).Thelargerthe group size, the more difficult the concept is to apply. Techniquesthatfirmsusetounderstandthecustomerinclude: • Quantitativemarketingresearch-suchas;surveysandquestionnaires • Qualitative marketing research - such as; focus groups and advisory panels • Market research and industry research - such as; Porter 5 forces analysis • Face-to-facemeetingswithcustomers • Face-to-face meetings with frontline staff - sales reps, clerks, and receptionists • Customercomplaintsdepartment • Customer hotlines -Web and telephone • Visitstocustomers’facilities • Frequent user programs and databases • User groups - Beta testing • Conferences Amarketingorientedfirmwilltypicallyshowthefollowingcharacteristics: • Extensiveuseofvariousmarketingresearchtechniques
65 • Broad product lines • Emphasis on a product’s benefits to customers rather than on product attributes • Useofproductinnovationtechniques,suchas;brainstorming,concepttesting,andforcefield analysis. • Theofferingofancillaryserviceslikecreditavailability,delivery,installation,andwarranty • Customersatisfactionandcomplaintmonitoringprocedures,including;exitinterviews,customer complaintsdatabase,andWebandtelephoneinformationhotlines. • OrganizationalstructureinwhichthemarketingmanagerreportsdirectlytotheCEO. SUMMARY Amarketisplacewhereconsumptionincreasestheutilityoftheconsumer,forwhichthequantity demandedexceedsthequantitysuppliedatzeroprice.Marketsareusuallymodeledashavingdecreasing marginalutility.Inamarketeconomy,businessesandconsumersdecideoftheirownvolitionwhatthey will purchase and produce. Technically this means that the producer gets to decide what to produce, how much to produce, what to charge to customers for those goods, what to pay employees, etc., and not the government. These decisions in a free-market economy are influenced by the pressures of competition,supply,anddemand.Thisisoftencontrastedwithaplannedeconomy,inwhichacentral governmentdecideswhatwillbeproducedandinwhatquantities. No pure market economy exists. Thus, almost all economies in the world today are mixed economieswhichcombinevaryingdegreesofmarketandcommandeconomytraits. A true free market economy is an economy in which all resources are owned by individuals, andinwhichdecisionsabouttheallocationofthoseresourcesaremadebyindividualswithoutgovernment intervention. Generally market economies are bottom-up in decision-making as consumers convey information to producers through prices paid in market transactions. For a brief time during the 20th century,evenself-describedcapitaliststatesengagedintopdownmarketcommandwherethegovernment and or producers attempted to command and direct resources to valued uses.All states today have some form of control over the market that removes the free and unrestricted direction of resources fromconsumersandpricessuchastariffsandcorporatesubsidies.However,theterm“marketeconomy” is not exclusive to traditional capitalist ownership where a corporation hires workers as a labour commodity to produce material wealth and boost shareholder profits. QUESTIONS: 1. What is the function of a Market? 2. What are the types of market? 3. Write notes on (a) Market Research (b) Market research for business planning 4. For starting a business what are the requirements needed in order to know if your business is feasible? 5. Enumerate the techniques used by firms to understand a customer?
66 CHAPTER - VI TARGETMARKET OBJECTIVE Target market is the market segment to which a particular product is marketed. It is often defined by age, gender,geography,and/orsocio-economicgrouping. Targeting strategy is the selection of the customers you wish to service. The decisions involved in targetingstrategyinclude: • which segments to target • how many products to offer • which products to offer in which segments There are three steps to targeting: • market segmentation • target choice • product positioning Targetingstrategydecisionsareinfluencedby: • market maturity • diversity of buyers’ needs and preferences • strength of the competition • thevolumeofsalesrequiredforprofitability Targetingcanbeselective(eg.:focusstrategy,marketspecializationstrategyornichestrategy), orextensive(eg.:fullcoverage,massmarketing,orproductspecialization). Market segment Market segmentation is the process in marketing of dividing a market into distinct subsets (segments) that behave in the same way or have similar needs. Because each segment is fairly homogeneous in their needs and attitudes, they are likely to respond similarly to a given marketing strategy.Thatis,theyarelikelytohavesimilarfeelingandideasaboutamarketingmixcomprisedofa given product or service, sold at a given price, distributed in a certain way, and promoted in a certain way. Broadly,marketscanbedividedaccordingtoanumberofgeneralcriteria,suchasbyindustry or public versus private sector. Small segments are often termed niche markets or specialty markets. However,allsegmentsfallintoeitherconsumerorindustrialmarkets.Althoughithassimilarobjectives anditoverlapswithconsumermarketsinmanyways,theprocessofIndustrialmarketsegmentationis quitedifferent. The process of segmentation is distinct from targeting (choosing which segments to address) and positioning (designing an appropriate marketing mix for each segment). The overall intent is to
67 identify groups of similar customers and potential customers; to prioritize the groups to address; to understandtheirbehavior;andtorespondwithappropriatemarketingstrategiesthatsatisfythedifferent preferences of each chosen segment. The requirements for successful segmentation are: • homogeneitywithinthesegment • heterogeneitybetweensegments • segmentsaremeasurableandidentifiable • segments are accessible and actionable • segmentislargeenoughtobeprofitable These criteria can be summarized by the word SADAM: • S Substantial: the segment has to be large and profitable enough • AAccessible: it must be possible to reach it efficiently • DDifferential:itmustresponddifferentlytoadifferentmarketingmix • AActionable: you must have a product for this segment • M Measurable: size and purchasing power can be measured Currently a college student studying the marketing mix is introduced to the Four Ps of the Marketing Mix; Product, Place, Promotion, Price. Product (service) is whatever it may be that is being sold/marketed. Price refers to not only the actual price but also price elasticity. Placehasevidentlyreplaceddistributionsimplybywhereorwhatareathemarketingcampaign is going to cover, as well as what types of distribution channel (retail, wholesale, online, etc) will be used. Today the idea of place is not limited to geographic profiling but also demographics and other categorizingvariables.Thishasonlyoccurredoverthelasttenyearswiththeexpansionofinternetuse and its ability to target specific types of people and not just people in a geographic area. Promotionsimplyreferstowhatmediumwilldeliverthemessageandwhattheoverallmarketing strategyisofferingasabenefit. The variables used for segmentation include: • Geographicvariables o Region of the world or country, East,West, South, North, Central, coastal, hilly, etc. o Countrysize/countrysize:MetropolitanCities,smallcities,towns. o DensityofAreaUrban,Semi-urban,Rural. o ClimateHot,Cold,Humid,Rainy. • Demographicvariables o age o gender Male and Female
68 o sexualorientation o familysize o familylifecycle o EducationPrimary,HighSchool,Secondary,College,Universities. o income o occupation o education o socioeconomicstatus o religion o nationality/race o language • Psychographicvariables o personality o lifestyle o value o attitude • Behavioralvariables o benefitsought o product usage rate o brandloyalty o product end use o readiness-to-buy stage o decisionmakingunit Whennumerousvariablesarecombinedtogiveanin-depthunderstandingofasegment,thisis referredtoasdepthsegmentation.Whenenoughinformationiscombinedtocreateaclearpictureofa typical member of a segment, this is referred to as a buyer profile. When the profile is limited to demographic variables it is called a demographic profile (typically shortened to “a demographic”).A statisticaltechniquecommonlyusedindeterminingaprofileisclusteranalysis. Top-down and bottom-up George Day (1980) describes model of segmentation as the top-down approach: You start with the total population and divide it into segments. He also identified an alternative model which he called the bottom-up approach. In this approach, you start with a single customer and build on that profile.Thistypicallyrequirestheuseofcustomerrelationshipmanagementsoftwareoradatabaseof somekind.Profilesofexistingcustomersarecreatedandanalysed.Variousdemographic,behavioural, and psychographic patterns are built up using techniques such as cluster analysis. This process is sometimescalleddatabasemarketingormicro-marketing.Itsuseismostappropriateinhighlyfragmented markets.McKenna(1988)claimsthatthisapproachtreatseverycustomerasa“micromajority”.Pine (1993) used the bottom-up approach in what he called “segment of one marketing”. Through this processmasscustomizationispossible.
69 Price discrimination Where a monopoly exists, the price of a product is likely to be higher than in a competitive market and the quantity sold less, generating monopoly profits for the seller. These profits can be increased further if the market can be segmented with different prices charged to different segments (referred to as price discrimination), charging higher prices to those segments willing and able to pay more and charging less to those whose demand is price elastic. The price discriminator might need to create rate fences that will prevent members of a higher price segment from purchasing at the prices availabletomembersofalowerpricesegment.Thisbehaviourisrationalonthepartofthemonopolist, but is often seen by competition authorities as an abuse of a monopoly position, whether or not the monopolyitselfissanctioned. Sustainable competitive advantage Competitive advantage (CA) is a position that a firm occupies in its competitive landscape. Michael Porter posits that a competitive advantage, sustainable or not, exists when a company makes economic rents, that is, their earnings exceed their costs, especially including cost of capital. That means that normal competitive pressures are not able to drive down the firm’s earnings to the point wheretheycoverallcostsandjustprovideminimumsufficientadditionalreturntokeepcapitalinvested. Mostformsofcompetitiveadvantagecannotbesustainedforanylengthoftimebecausethepromiseof economicrentsdrivescompetitorstoduplicatethecompetitiveadvantageheldbyanyonefirm. Afirm possesses a Sustainable CompetitiveAdvantage (SCA) when it has value-creating processesandpositionsthatcannotbeduplicatedorimitatedbyotherfirmsthatleadtotheproduction of above normal rents.An SCAis different from a competitive advantage (CA) in that it provides a long-termadvantagethatisnoteasilyreplicated.Buttheseabove-normalrentscanattractnewentrants who drive down economic rents.ACAis a position a firm attains that lead to above-normal rents or a superiorfinancialperformance.Theprocessesandpositionsthatengendersuchapositionisnotnecessarily non-duplicable or inimitable. It is possible for some companies to make profits for a time above the costofcapitalwithoutsustainablecompetitiveadvantage. AkeydifferencebetweenCAandSCAisthattheprocessesandpositionsafirmmayholdare non-duplicableandinimitablewhenafirmpossessesaSCA.Henceasustainablecompetitiveadvantage isonethatcanbemaintainedforasignificantamountoftimeeveninthepresenceofcompetition.This bringsustothequestionwhatisa“significantamountoftime”.ACAbecomesSCAwhenallduplication andimitationeffortshaveceasedandtherivalfirmshavenotbeenabletocreatethesamevaluethatthe saidfirmiscreating. Analysisofthefactorsofprofitabilityisthesubjectofnumeroustheoriesofstrategyincluding the five forces model pioneered by Michael Porter of the Harvard Business School. Inmarketingandstrategicmanagement,sustainablecompetitiveadvantageisanadvantagethat one firm has relative to competing firms. The source of the advantage can be something the company does that is distinctive and difficult to replicate, also known as a core competency — for example
70 Procter & Gamble’sabilitytoderivesuperiorconsumerinsightsandimplementtheminmanagingits brand portfolio. It can also be an asset such as a brand (e.g. Coca Cola) or a patent, such asViagra. It canalsosimplybearesultoftheindustry’scoststructure—forexample,thelargefixedcoststhattend tocreatenaturalmonopoliesinutilityindustries.Tobesustainable,theadvantagemustbe: 1. distinctive,and 2. proprietary Building Sustainable CompetitiveAdvantage TherearebasicallythreetypesofassetsthathelpbuildanSCA.Thesecategoriesareexhaustive andincludeallofthecompany’sSCAs: 1. Organizationandmanagerialprocess o Coordination and integration: Coordination among teams in organization is key to organizationalsuccess.Interdepartmentalcoordinationandresourcesharingtoreacha common goal is fundamental to creating “value”. Integrating resources is key to the success of firms. Firms that are able to integrate resources see synergistic effects of resourcescomingtogether. o Learning: Organizational learning is key to the success of a firm. It determines how a firmcollects,distributes,interpretsandrespondstomarketbasedinformationcollection andchangesintheenvironment.Thesechangesintheenvironmentcouldbecustomer basedchanges,technologicaldevelopments,legalandgovernmentrestrictions.Firms havetodeveloprobustmarketsensingandspanningcapabilitiestoeffectivelycollect information. Once they collect info they have embed this knowledge in the products they produce. o Reconfiguringandtransformation: Theenvironmentforfirmsisconstantlychanging and constant reconfiguring and transformation is key to forming SCA.Adouble loop learningandtransformationiskeytoproducinginnovativeproducts.Innovativecapacity ofafirmdetermineshowitreactsandlearnsfrommarketinformation. 2. Positions: market positions are the assets of a company. Most of them are self-explanatory: o Technologicalassets o Financialassets o Reputationalassets o Structural assets: The structure of a company can determine how it performs. The hierarchyofacompanycaninfluenceitsculture,procedureandroutines. 3. Paths: o Path dependencies: At the birth of a company usually accompanied with certain orientations.Theprogenitorbringscertainorientationsandattributesthatstaywiththe companyforalongtime.Thepaththecompanytakesthendeterminesthedevelopment ofitscompetencies.
71 o Technological opportunities: technology development at a time can determine how a firm can exploit opportunities to form SCA.Very often we see the advent of several technologicalfactorsconvergingintoacapabilitythatformsaSCA.Anexamplewould betheriseofcompaniessuchasGenentechattheturnofthepreviouscenturywiththe adventofgenemapping,significantdevelopmentsintargetselectionanddatabasesof previous studies and gene pools. SUMMARY Groupofpersonsforwhomafirmcreatesandmaintainsaproductmixthatspecificallyfitsthe needs and preferences of that group.Atarget market is a group of customers with similar needs that forms the focus of a company’s marketing efforts. Similarly, target marketing involves tailoring the company’smarketingeffortstoappealtoaspecificgroupofcustomers.Selectingtargetmarketsispart of the process of market segmentation—dividing an overall market into key customer subsets, or segments, whose members share similar demographic characteristics and needs. Demographic characteristicsthatareanalyzedfortargetmarketingpurposesincludeage,income,geographicorigins and current location, ethnicity, marital status, education, interests, level of discretionary income, net worth, home ownership, and a host of other factors. The company then selects from among these segmentstheparticularmarketsitwishestotarget.“Smallbusinessesthatidentifytheneedsofspecific targetmarkets—existingandpotentialcustomerswhoarethefocusofmarketingefforts—andworkto satisfy those needs, are more effective marketers,”Atarget market is a set of buyers sharing common needsorcharacteristicsthatacompanydecidestoserve.Acompanyidentifiesatargetmarketinorder toorganizeitstasksandcopewiththeparticulardemandsofthemarketplace.Targetmarketingforms thefoundationofamodernmarketingstrategybecausedoingitwellhelpsacompanybemoreefficient and effective by focusing on a certain segment of its market that it can best satisfy. Targetingalsobenefitsconsumersbecauseacompanycanreachspecificgroupsofconsumers with offers carefully tailored to satisfy their needs. To do so, a company has to evaluate the various segmentsanddecidehowmany,andwhichone,totarget.Thereisnosinglewaytosegmentamarket. Acompanyneedstoresearchdifferentsegmentationvariablesalone,andincombinationwithothers,to finditstargetmarket.Therearefourmainvariablesthatcanbeusedinsegmentingconsumermarkets: geographic segmentation, demographic segmentation, psychographic segmentation, and behavioral segmentation. Targetmarketcanbeaparticularlyvaluabletoolforsmallbusinesses,whichoftenlack theresourcestoappealtolargeaggregatemarketsortomaintainawiderangeofdifferentiatedproducts forvariedmarkets.Targetmarketingallowsasmallbusinesstodevelopaproductandamarketingmix thatfitarelativelyhomogenouspartofthetotalmarket.Byfocusingitsresourcesonaspecificcustomer base in this way, a small business may be able to carve out a market niche that it can serve better than itslargercompetitors.
72 Identifyingspecifictargetmarkets—andthendeliveringproductsandpromotionsthatultimately maximizetheprofitpotentialofthosetargetedmarkets—istheprimaryfunctionofmarketingmanagement formanysmallercompanies.Advertisementsandpromotionscouldthenbetailoredforeachsegment of the target market. There are infinite ways to address the wants and needs of a target market. QUESTIONS: 1. Define Target Market? 2. What is Market Segmentation? What are the requirements for successful segmentation? 3. What are the variables used for Market Segmentation? 4. Explain George Day (1980) Model of top-down approach? 5. What is price discrimination?
73 CHAPTER - VII MARKETINGMANAGEMENT OBJECTIVE Marketingmanagementisabusinessdisciplinefocusedonthepracticalapplicationofmarketing techniquesandthemanagementofafirm’smarketingresourcesandactivities.Marketingmanagersare oftenresponsibleforinfluencingthelevel,timing,andcompositionofcustomerdemandinamannerthat willachievethecompany’sobjectives. Definition and scope Thereisnouniversallyaccepteddefinitionoftheterm.Inpart,thisisduetothefactthattherole ofamarketingmanagercanvarysignificantlybasedonabusiness’size,corporateculture,andindustry context. For example, in a large consumer products company, the marketing manager may act as the overall general manager of his or her assigned product category or brand with full profit & loss responsibility.Incontrast,asmalllawfirmmayhavenomarketingpersonnelatall,requiringthefirm’s partners to make marketing management decisions on a largely ad-hoc basis. In the widely used text Marketing Management (2006), Philip Kotler and Kevin Lane Keller definemarketingmanagementas“theartandscienceofchoosingtargetmarketsandgetting,keeping andgrowingcustomersthroughcreating,delivering,andcommunicatingsuperiorcustomervalue.” Fromthisperspective,thescopeofmarketingmanagementisquitebroad.Theimplicationof such a definition is that any activity or resource the firm uses to acquire customers and manage the company’srelationshipswiththemiswithinthepurviewofmarketingmanagement.Additionally,the KotlerandKellerdefinitionencompassesboththedevelopmentofnewproductsandservicesandtheir deliverytocustomers. NotedmarketingexpertRegisMcKennaexpressedasimilarviewpointinhisinfluential1991 HarvardBusinessReviewarticle“Marketingiseverything.”McKennaarguedthatbecausemarketing managementencompassesallfactorsthatinfluenceacompany’sabilitytodelivervaluetocustomers;it must be “all-pervasive, part of everyone’s job description, from the receptionists to the Board of Directors.”] This view is also consistent with the perspective of management guru Peter Drucker, who wrote:“Becausethepurposeofbusinessistocreateacustomer,thebusinessenterprisehastwo—and onlythesetwo—basicfunctions:marketingandinnovation.Marketingandinnovationproduceresults; alltherestarecosts.Marketingisthedistinguishing,uniquefunctionofthebusiness.” Butbecausemanybusinessesoperatewithamuchmorelimiteddefinitionofmarketing,such statements can appear controversial or even ludicrous to some business executives. This is especially trueinthosecompanieswherethemarketingdepartmentisresponsibleforlittlemorethandeveloping salesbrochuresandexecutingadvertisingcampaigns. The broader, more sophisticated definitions of marketing management from Drucker, Kotler andotherscholarsarethereforejuxtaposedagainstthenarroweroperatingrealityofmanybusinesses.
74 Thesourceofconfusionhereisoftenthatinsideanygivenfirm,thetermmarketingmanagement may be interpreted to mean whatever the marketing department happens to do, rather than a term that encompassesallmarketingactivities—eventhosemarketingactivitiesthatareactuallyperformedby other departments, such as the sales, finance, or operations departments.If, for example, the finance department of a given company makes pricing decisions (for deals, proposals, contracts, etc.), that financedepartmenthasresponsibilityforanimportantcomponentofmarketingmanagement—pricing. Activities and functions Marketingmanagementthereforeencompassesawidevarietyoffunctionsandactivities,although the marketing department itself may be responsible for only a subset of these. Regardless of the organizational unit of the firm responsible for managing them, marketing management functions and activitiesincludethefollowing: Marketing research and analysis Inordertomakefact-baseddecisionsregardingmarketingstrategyanddesigneffective,cost- efficientimplementationprograms,firmsmustpossessadetailed,objectiveunderstandingoftheirown business and the market in which they operate. In analyzing these issues, the discipline of marketing managementoftenoverlapswiththerelateddisciplineofstrategicplanning. Traditionally,marketinganalysiswasstructuredintothreeareas:Customeranalysis,Company analysis,andCompetitoranalysis(so-called“3Cs”analysis).Morerecently,ithasbecomefashionable insomemarketingcirclestodividethesefurtherintofive“Cs”:Customeranalysis,Companyanalysis, Collaboratoranalysis,Competitoranalysis,andanalysisoftheindustryContext. The focus of customer analysis is to develop a scheme for market segmentation, breaking downthemarketintovariousconstituentgroupsofcustomers,whicharecalledcustomersegmentsor marketsegments.Marketingmanagersworktodevelopdetailedprofilesofeachsegment,focusingon anynumberofvariablesthatmaydifferamongthesegments:demographic,psychographic,geographic, behavioral, needs-benefit, and other factors may all be examined. Marketers also attempt to track thesesegments’perceptionsofthevariousproductsinthemarketusingtoolssuchasperceptualmapping. Incompanyanalysis,marketersfocusonunderstandingthecompany’scoststructureandcostposition relativetocompetitors,aswellasworkingtoidentifyafirm’scorecompetenciesandothercompetitively distinct company resources. Marketing managers may also work with the accounting department to analyzetheprofitsthefirmisgeneratingfromvariousproductlinesandcustomeraccounts.Thecompany mayalsoconductperiodicbrandauditstoassessthestrengthofitsbrandsandsourcesofbrandequity. The firm’s collaborators may also be profiled, which may include various suppliers, distributors and otherchannelpartners,jointventurepartners,andothers.Ananalysisofcomplementaryproductsmay also be performed if such products exist. Marketing management employs various tools from economics and competitive strategy to analyzetheindustrycontextinwhichthefirmoperates.TheseincludePorter’sfiveforces,analysisof strategicgroupsofcompetitors,valuechainanalysisandothers.Dependingontheindustry,theregulatory contextmayalsobeimportanttoexamineindetail.
75 In Competitor analysis, marketers build detailed profiles of each competitor in the market, focusing especially on their relative competitive strengths and weaknesses using SWOT analysis. Marketing managers will examine each competitor’s cost structure, sources of profits, resources and competencies,competitivepositioningandproductdifferentiation,degreeofverticalintegration,historical responses to industry developments, and other factors. Marketingmanagementoftenfindsitnecessarytoinvestinresearchtocollectthedatarequired to perform accurate marketing analysis.As such, they often conduct market research (alternately marketing research) to obtain this information. Marketers employ a variety of techniques to conduct market research, but some of the more common include: • Qualitativemarketingresearch,suchasfocusgroups • Quantitativemarketingresearch,suchasstatisticalsurveys • Experimentaltechniquessuchastestmarkets • Observationaltechniquessuchasethnographic(on-site)observation Marketing managers may also design and oversee various environmental scanning and competitiveintelligenceprocessestohelpidentifytrendsandinformthecompany’smarketinganalysis. Marketing strategy Once the company has obtained an adequate understanding of the customer base and its own competitivepositionintheindustry,marketingmanagersareabletomakekeystrategicdecisionsand develop a marketing strategy designed to maximize the revenues and profits of the firm. The selected strategymayaimforanyofavarietyofspecificobjectives,includingoptimizingshort-termunitmargins, revenuegrowth,marketshare,long-termprofitability,orothergoals. To achieve the desired objectives, marketers typically identify one or more target customer segments which they intend to pursue. Customer segments are often selected as targets because they score highly on two dimensions: 1) The segment is attractive to serve because it is large, growing, makesfrequentpurchases,isnotpricesensitive(i.e.iswillingtopayhighprices),orotherfactors;and 2) The company has the resources and capabilities to compete for the segment’s business, can meet theirneedsbetterthanthecompetition,andcandosoprofitably.Infact,acommonlyciteddefinitionof marketingissimply“meetingneedsprofitably.” Theimplicationofselectingtargetsegmentsisthatthebusinesswillsubsequentlyallocatemore resources to acquire and retain customers in the target segment(s) than it will for other, non-targeted customers. In some cases, the firm may go so far as to turn away customers that are not in its target segment. The doorman at a swanky nightclub, for example, may deny entry to unfashionably dressed individualsbecausethebusinesshasmadeastrategicdecisiontotargetthe“highfashion”segmentof nightclubpatrons. Inconjunctionwithtargetingdecisions,marketingmanagerswillidentifythedesiredpositioning theywantthecompany, product, or brand to occupy in the targetcustomer’smind.Thispositioningis oftenanencapsulationofakeybenefitthecompany’sproductorserviceoffersthatisdifferentiatedand
76 superiortothebenefitsofferedbycompetitiveproducts.Forexample,Volvohastraditionallypositioned its products in the automobile market in North America in order to be perceived as the leader in “safety”, whereas BMW has traditionally positioned its brand to be perceived as the leader in “performance.” Ideally,afirm’spositioningcanbemaintainedoveralongperiodoftimebecausethecompany possesses, or can develop, some form of sustainable competitive advantage. The positioning should alsobesufficientlyrelevanttothetargetsegmentsuchthatitwilldrivethepurchasingbehavioroftarget customers. Implementationplanning After the firm’s strategic objectives have been identified, the target market selected, and the desiredpositioningforthecompany,productorbrandhasbeendetermined,marketingmanagersfocus onhowtobestimplementthechosenstrategy.Traditionally,thishasinvolvedimplementationplanning acrossthe“4Ps”ofmarketing:Productmanagement,Pricing,Place(i.e.salesanddistributionchannels), andPromotion. Taken together, the company’s implementation choices across the 4Ps are often described as themarketingmix,meaningthemixofelementsthebusinesswillemployto“gotomarket”andexecute the marketing strategy.The overall goal for the marketing mix is to consistently deliver a compelling valuepropositionthatreinforcesthefirm’schosenpositioning,buildscustomerloyaltyandbrandequity amongtargetcustomers,andachievesthefirm’smarketingandfinancialobjectives. Inmanycases,marketingmanagementwilldevelopamarketingplantospecifyhowthecompany will execute the chosen strategy and achieve the business’ objectives. The content of marketing plans variesfromfirmtofirm,butcommonlyincludes: • Anexecutivesummary • Situationanalysistosummarizefactsandinsightsgainedfrommarketresearchandmarketing analysis • Thecompany’smissionstatementorlong-termstrategicvision • Astatement of the company’s key objectives, often subdivided into marketing objectives and financialobjectives • The marketing strategy the business has chosen, specifying the target segments to be pursued andthecompetitivepositioningtobeachieved • Implementationchoicesforeachelementofthemarketingmix(the4Ps) • Asummaryofrequiredinvestments(inpeople,programs,ITsystems,etc.) • Financialanalysis,projectionsandforecastedresults • Atimelineorhigh-levelprojectplan • Metrics, measurements and control processes • Alistofkeyrisksandstrategiesformanagingtheserisks
77 Project, process and vendor management Once the key implementation initiatives have been identified, marketing managers work to overseetheexecutionofthemarketingplan.Marketingexecutivesmaythereforemanageanynumber ofspecificprojects,suchassalesforcemanagementinitiatives,productdevelopmentefforts,channel marketingprogramsandtheexecutionofpublicrelationsandadvertisingcampaigns.Marketersusea varietyofprojectmanagementtechniquestoensureprojectsachievetheirobjectiveswhilekeepingto establishedschedulesandbudgets. More broadly, marketing managers work to design and improve the effectiveness of core marketingprocesses,suchasnewproductdevelopment,brandmanagement,marketingcommunications, andpricing.Marketersmayemploythetoolsofbusinessprocessreengineeringtoensuretheseprocesses are properly designed, and use a variety of process management techniques to keep them operating smoothly. Effectiveexecutionmayrequiremanagementofbothinternalresourcesandavarietyofexternal vendorsandserviceproviders,suchasthefirm’sadvertisingagency.Marketersmaythereforecoordinate withthecompany’sPurchasingdepartmentontheprocurementoftheseservices. Organizational management and leadership Marketingmanagementusuallyrequiresleadershipofadepartmentorgroupofprofessionals engaged in marketing activities. Often, this oversight will extend beyond the company’s marketing departmentitself,requiringthemarketingmanagertoprovidecross-functionalleadershipforvarious marketing activities. This may require extensive interaction with the human resources department on issuessuchasrecruiting,training,leadershipdevelopment,performanceappraisals,compensation,and other topics. Marketingmanagementmayspendafairamountoftimebuildingormaintainingamarketing orientation for the business.Achieving a market orientation, also known as “customer focus” or the “marketingconcept”,requiresbuildingconsensusattheseniormanagementlevelandthendrivingcustomer focusdownintotheorganization.Culturalbarriersmayexistinagivenbusinessunitorfunctionalarea thatthemarketingmanagermustaddressinordertoachievethisgoal.Additionally,marketingexecutives oftenactasa“brandchampion”andworktoenforcecorporateidentitystandardsacrosstheenterprise. Inlargerorganizations,especiallythosewithmultiplebusinessunits,topmarketingmanagers mayneedtocoordinateacrossseveralmarketingdepartmentsandalsoresourcesfromfinance,R&D, engineering,operations,manufacturing,orotherfunctionalareastoimplementthemarketingplan.In order to effectively manage these resources, marketing executives may need to spend much of their timefocusedonpoliticalissuesandinter-departmentalnegotiations. The effectiveness of a marketing manager may therefore depend on his or her ability to make theinternal“sale”ofvariousmarketingprogramsequallyasmuchastheexternalcustomer’sreactionto suchprograms.
78 Reporting, measurement and control systems Marketingmanagementemploysavarietyofmetricstomeasureprogressagainstobjectives.It istheresponsibilityofmarketingmanagers—inthemarketingdepartmentorelsewhere—toensure thattheexecutionofmarketingprogramsachievesthedesiredobjectivesanddoessoinacost-efficient manner. Marketingmanagementthereforeoftenmakesuseofvariousorganizationalcontrolsystems, such as sales forecasts, sales force and reseller incentive programs, sales force management systems, and customer relationship management tools (CRM). Recently, some software vendors have begun usingtheterm“marketingoperationsmanagement”or“marketingresourcemanagement”todescribe systemsthatfacilitateanintegratedapproachforcontrollingmarketingresources.Insomecases,these effortsmaybelinkedtovarioussupplychainmanagementsystems,suchasenterpriseresourceplanning (ERP), material requirements planning (MRP), efficient consumer response (ECR), and inventory managementsystems. Measuringthereturnoninvestment(ROI)ofvariousmarketinginitiativesisasignificantproblem for marketing management.Various market research, accounting and financial tools are used to help estimate the ROI of marketing investments. Brand valuation, for example, attempts to identify the percentage of a company’s market value that is generated by the company’s brands, and thereby estimatethefinancialvalueofspecificinvestmentsinbrandequity.Anothertechnique,integratedmarketing communications (IMC), is a CRM database-driven approach that attempts to estimate the value of marketingmixexecutionsbasedonthechangesincustomerbehaviortheseexecutionsgenerate.[10] SUMMARY Understanding customers and finding better ways to provide products and services that meet theirdemandsiswhatmarketingisallabout.Marketingiswhatyouneedtomakeintelligentdecisions about customers in real time across all business units and touch points. It enables you to make better useofinboundcustomercontactsasachanneltopresentoffers,runmoretargetedoutboundcampaigns thataresensitivetocustomerpreferences,andmanageallyourmarketingresourcesmoreeffectively. Marketinghelpscompanieslikeyours: • Makeintelligentcustomerdecisionsinrealtime • Determinetheoptimalmessageforeverycustomer • Synchronizemarketingcampaignsacrossinboundandoutboundchannels • Createstronger,morevaluablecustomerrelationships • Improvecross-selling,up-selling,andcustomerloyalty Marketing is a complete, fully integrated set of solutions designed to help you manage the marketingprocessesofyourbusinessefficientlyandcost-effectively.
79 InboundMarketing—powerful,real-timecustomerdecisionsatthepointofinteraction:self-learning analytics,dynamicbusinessrules,andpersonalizedcross-sell/up-sellandretentionoffersformanaging customer-initiatedinteractionsacrossmultiplechannels Outbound Marketing — Permission-based marketing campaigns: best-of-breed campaign management,automatedglobalbusinessrules,sophisticateddatabasemanagement,integratedanalytics, built-inclosed-loopreporting,e-marketing Marketing Resource Management— a marketing activity knowledgebase: planning and financial management,productionmanagement,documentmanagement QUESTIONS: 1. Define Marketing Management? What are its activities and function? 2. What tools are employed by the management for economic and competitive strategy to analyse the industry context in which the firm operates? 3. Write notes on ( a) Marketing Strategy (b) Implementation Planning (c) Project, Process and Vender Management (d) Organizational Management leadership (e) Reporting, Measurement and Control Systems
80 CHAPTER - VIII NEW PRODUCT DEVELOPMENT OBJECTIVE Inbusinessandengineering,newproductdevelopment(NPD)isthetermusedtodescribethe completeprocessofbringinganewproductorservicetomarket.Therearetwoparallelpathsinvolved intheNPDprocess:oneinvolvestheideageneration,productdesign,anddetailengineering;theother involvesmarketresearchandmarketinganalysis.Companiestypicallyseenewproductdevelopment asthefirststageingeneratingandcommercializingnewproductswithintheoverallstrategicprocessof productlifecyclemanagementusedtomaintainorgrowtheirmarketshare. Types of new products There are several general categories of new products. Some are new to the market (ex. DVD players into the home movie market), some are new to the company (ex. Game consoles for Sony), andsomearecompletelynovelandcreatetotallynewmarkets(ex.theairlineindustry).Whenviewed againstdifferentcriteria,somenewproductconceptsaremerelyminormodificationsofexistingproducts whilesomearecompletelyinnovativetothecompany.Thesedifferentcharacterizationsaredisplayed inthefollowingdiagram. The process There are several stages in the new product development process...not always followed in order: 1. Idea Generation (The “fuzzy front end” of the NPD process, see below) o ideas for new products can be obtained from customers (employing user innovation), thecompany’sR&Ddepartment,competitors,focusgroups,employees,salespeople, corporate spy’s, trade shows, or through a policy of Open Innovation o formal idea generating techniques include attribute listing, forced relationships, brainstorming,morphologicalanalysis,problemanalysis 2. IdeaScreening o the object is to eliminate unsound concepts prior to devoting resources to them. o the screeners must ask at least three questions: § Willthecustomerinthetargetmarketbenefitfromtheproduct? § isittechnicallyfeasibletomanufacturetheproduct? § Willtheproductbeprofitablewhenmanufacturedanddeliveredtothecustomer at the target price? 3. ConceptDevelopmentandTesting o developthemarketingandengineeringdetails § Who is the target market and who is the decision maker in the purchasing process?
81 § What product features must the product incorporate? § Whatbenefitswilltheproductprovide? § How will consumers react to the product? § How will the product be produced most cost effectively? § provefeasibilitythroughvirtualcomputeraidedrendering,andrapidprototyping § What will it cost to produce it? o test the concept by asking a sample of prospective customers what they think of the idea 4. BusinessAnalysis o estimatelikelysellingpricebaseduponcompetitionandcustomerfeedback o estimate sales volume based upon size of market o estimateprofitabilityandbreakevenpoint 5. BetaTesting and MarketTesting o produce a physical prototype or mock-up o testtheproductintypicalusagesituations o conduct focus group customer interviews or introduce at trade show o makeadjustmentswherenecessary o produce an initial run of the product and sell it in a test market area to determine customer acceptance 6. TechnicalImplementation o Newprograminitiation o Resourceestimation o Requirementpublication o Engineeringoperationsplanning o Departmentscheduling o Suppliercollaboration o Resourceplanpublication o Programreviewandmonitoring o Contingencies-what-ifplanning 7. Commercialization(oftenconsideredpost-NPD) o launchtheproduct o produce and place advertisements and other promotions o fillthedistributionpipelinewithproduct o criticalpathanalysisismostusefulatthisstage Thesestepsmaybeiteratedasneeded.Somestepsmaybeeliminated.Toreducethetimethat the NPD process takes, many companies are completing several steps at the same time (referred to as concurrent engineering or time to market). Most industry leaders see new product development as a proactiveprocesswhereresourcesareallocatedtoidentifymarketchangesandseizeuponnewproduct opportunitiesbeforetheyoccur(incontrasttoareactivestrategyinwhichnothingisdoneuntilproblems
82 occurorthecompetitorintroducesaninnovation).Manyindustryleadersseenewproductdevelopment as an ongoing process (referred to as continuous development) in which the entire organization is alwayslookingforopportunities. Forthemoreinnovativeproductsindicatedonthediagramabove,greatamountsofuncertainty andchangemayexist,whichmakesitdifficultorimpossibletoplanthecompleteprojectbeforestarting it. In this case, a more flexible approach may be advisable. BecausetheNPDprocesstypicallyrequiresbothengineeringandmarketingexpertise,cross- functional teams are a common way of organizing projects. The team is responsible for all aspects of the project, from initial idea generation to final commercialization, and they usually report to senior management (often to a vice president or Program Manager). In those industries where products are technicallycomplex,developmentresearchistypicallyexpensive,andproductlifecyclesarerelatively short, strategic alliances among several organizations helps to spread the costs, provide access to a wider skill sets, and speeds the overall process. Also, notice that because engineering and marketing expertise are usually both critical to the process, choosing an appropriate blend of the two is important. Observe (for example, by looking at the See also or References sections below) that this article is slanted more toward the marketing side. For more of an engineering slant, see the Ulrich and Eppinger reference below. People respond to new products in different ways. The adoption of a new technology can be analyzedusingavarietyofdiffusiontheoriessuchastheDiffusionofinnovationstheory. Protecting new products When developing a new product many legal questions arise, including: How do I protect the innovationfromimitators?;Cantheinnovationbelegallyprotected?;Forhowlong?;Howmuchwill thiscost?.Theanswersarecomplicatedbythefactthatseverallegalconceptsmayapplytoanygiven innovation, product, process, or creative work. These include patents, trademarks, service marks, tradenames,copyrights,andtradesecrets.Itisnecessarytoknowwhichareapplicableandwheneach is appropriate. This varies somewhat from jurisdiction to jurisdiction. The advice of a lawyer that specializesinthesemattersandisknowledgeablewithyourcorporatephilosophyregardingIPprotection isessential. Generally,copyrightsarefairlyeasytoobtainbutareapplicableonlyincertaininstances.Patents on the other hand, tend to involve complex claims and approval processes, tend to be expensive to obtain, and even more expensive to defend and preserve. Fuzzy Front End TheFuzzyFrontEndisthemessy“gettingstarted”periodofnewproductdevelopmentprocesses. It is in the front end where the organization formulates a concept of the product to be developed and decides on whether or not to invest resources in the further development of an idea. It is the phase between first consideration of an opportunity and when it is judged ready to enter the structured development process (Kim andWilemon , 2002; Koen et al., 2001). It includes all activities from the
83 searchfornewopportunitiesthroughtheformationofagermofanideatothedevelopmentofaprecise concept.TheFuzzyFrontEndendswhenanorganizationapprovesandbeginsformaldevelopmentof the concept. Although the Fuzzy Front End may not be an expensive part of product development, it can consume50%ofdevelopmenttime,anditiswheremajorcommitmentsaretypicallymadeinvolving time, money, and the product’s nature, thus setting the course for the entire project and final end product.Consequently,thisphaseshouldbeconsideredasanessentialpartofdevelopmentratherthan something that happens “before development,” and its cycle time should be included in the total developmentcycletime. Koenetal.(2001,pp.47-51)distinguishfivedifferentfront-endelements(notnecessarilyina particularorder): 1.OpportunityIdentification 2.OpportunityAnalysis 3. Idea Genesis 4. Idea Selection 5. Concept andTechnology Development Thefirstelementistheopportunityidentification.Inthiselement,largeorincrementalbusiness andtechnologicalchancesareidentifiedinamoreorlessstructuredway.Usingtheguidelinesestablished here, resources will eventually be allocated to new projects.... which then lead to a structured NPPD (NewProduct&ProcessDevelopment)strategy.The second element is the opportunity analysis. It is donetotranslatetheidentifiedopportunitiesintoimplicationsforthebusinessandtechnologyspecific context of the company. Here extensive efforts may be made to align ideas to target customer groups anddomarketstudiesand/ortechnicaltrialsandresearch.Thethirdelementistheideagenesis,which isdescribedasevolutionaryanditerativeprocessprogressingfrombirthtomaturationoftheopportunity intoatangibleidea.Theprocessoftheideagenesiscanbemadeinternallyorcomefromoutsideinputs, e.g. a supplier offering a new material/technology, or from a customer with an unusual request. The fourth element is the idea selection. Its purpose is to choose if or not to pursue an idea by analyzing its potentialbusinessvalue.Thefifthelementistheconceptandtechnologydevelopment.Duringthispart ofthefront-endthebusinesscaseisdevelopedbasedonestimatesofthetotalavailablemarket,customer needs, investment requirements, competition analysis and project uncertainty. Some organizations consider this to be the first stage of the NPPD process (i.e., Stage 0). The Fuzzy Front End is also described in literature as “Front End of Innovation”, “Phase 0”, “Stage 0” or “Pre-Project-Activities”.
84 SUMMARY • Companiesfacethechallengeofhowtodeterminewhichnewproductdevelopmentprojectsto undertake and how to maximize the value of these R&D investments. The same portfolio managementconceptsusedforyearsinthefinancialfieldcanbeappliedtoproductdevelopment to maximize the value of new product development activities. The specific goals of product portfoliomanagementare:(1)maximizethevalueoftheproductportfolio,(2)seekbalancein the portfolio, and (3) keep portfolio projects strategically aligned. Learn practical methods for an integrated portfolio approach to planning new products.Product/service innovation is the resultofbringingtolifeanewwaytosolvethecustomer’sproblemthatbenefitboththecustomer and the sponsoring company.3 “New product innovation is where the source of growth and prosperity is. It is also now possible, with the range of new product innovation metrics tools available, to measure new product innovation much more precisely and intelligently.” Solve problems and invent new products in a way you never thought possible • Become a serial producer of bright ideas • Gainanunfairadvantageoveryourcompetition • Teach others how to become more creative • Wintheadmirationofyourcolleagues,superiors,andsubordinates • Improveyourqualityoflifebyinjectingcreativityintoeverythingyoudo • Product innovation always involves treading into uncertain waters.All that enterprise strategy candoistogiveyouagoodstartingpoint.Fromthere,youmustexperiment,learn,andadapt... Product roadmaps define new product and service initiatives within a market or technology context. They embody a large percentage of the corporate strategy and provide a degree of tangibilitythathelpsbringtogetherotherchoicesindirection,technology,marketingandsoforth to the surface. Furthermore, starting with product roadmaps forces people to be explicit about howtheirideastranslateintonewproductsorservices.2 Itisvitalfordevelopingproductroadmaps to discover assumptions beneath the selection of products. Successful innovation requires a seamlessintegrationofallelementsintheproductdevelopmentprocess.Firmswhicharesuccessful in realizing the full returns from their technologies and innovations are able to match their technologicaldevelopmentswithcomplementaryexpertiseinotherareasoftheirbusiness,such asmanufacturing,distribution,humanresources,marketing,andcustomerrelationships.Tolead theseexpertisedevelopmentefforts,cross-functionalteams,eitherformalorinformal,needto beformed.Theseteamscanalsofindnewbusinessesinwhitespacesbetweenexistingbusiness unitsempathyfordiversifiedconsumers’needs,evenifthoseconsumersareverydifferentfrom
85 yourself,ifyouwanttoanticipatetheirinterestsandneeds.Thebestproductsembracepeople’s differences • Developempathyfordiversifiedconsumers’needs,evenifthoseconsumersareverydifferent from yourself, if you want to anticipate their interests and needs. The best products embrace people’sdifferences QUESTIONS: 1. What are stages in the new product development process? 2. What is Fuzzy Front End? 3. How can new product be protected?
86 CHAPTER - IX PRODUCT LIFE CYCLE MANAGEMENT OBJECTIVE Theconditionsaproductissoldunderwillchangeovertime.TheProductLifeCyclerefersto the succession of stages a product goes through. Product Life Cycle Management is the succession of strategies used by management as a product goes through its life cycle. Theproductlifecyclegoesthoughmanyphasesandinvolvesmanyprofessionaldisciplinesand requiresmanyskills,toolsandprocesses.Productlifecycle(PLC)istodowiththelifeofaproductin the market with respect to business/commercial costs and sales measures; whereas Product Lifecycle Management(PLM)ismoretodowithmanagingdescriptionsandpropertiesofaproductthroughits developmentandusefullife,mainlyfromabusiness/engineeringpointofview. The stages Products tend to go through five stages: 1. New product development stage o veryexpensive o nosalesrevenue o losses 2. Marketintroductionstage o costhigh o salesvolumelow o no/littlecompetition-competitivemanufacturerswatchforacceptance/segmentgrowth o losses 3. Growthstage o costs reduced due to economies of scale o salesvolumeincreasessignificantly o profitability o publicawareness o competitionbeginstoincreasewithafewnewplayersinestablishingmarket o pricestomaximizemarketshare 4. Mature stage o Costs are very low as you are well established in market & no need for publicity. o salesvolumepeaks o increaseincompetitiveofferings o prices tend to drop due to the proliferation of competing products o branddifferentiation,featurediversification,aseachplayerseekstodifferentiatefrom competitionwith“howmuchproduct”isoffered o veryprofitable
87 5. DeclineorStabilitystage o costs become counter-optimal o salesvolumedeclineorstabilize o prices,profitabilitydiminish o profit becomes more a challenge of production/distribution efficiency than increased sales Management of the cycle The progression of a product through these stages is by no means certain. Some products seem to stay in the mature stage forever (e.g., milk). Marketers have various techniques designed to prevent the process of falling into the decline stage. In most cases however, one can estimate the life expectancy of a product category. Marketers’ marketing mix strategies change as their products goes through their life cycles. Advertising,forexample,shouldbe Market evolution Market Evolution is a process that parallels the product life cycle. As a product category matures,theindustrygoesthroughstagesthatmirrorthefivestagesofaproductlifecycle: 1. MarketCrystallization-latentdemandforaproductcategoryisawakenedwiththeintroduction of the new product 2. MarketExpansion-additionalcompaniesenterthemarketandmoreconsumersbecomeaware of the product category 3. MarketFragmentation-theindustryissubdividedintonumerouswellpopulatedcompetitive groupingsastoomanyfirmsenter 4. MarketConsolidation-firmsstarttoleavetheindustryduetostiffcompetition,fallingprices, andfallingprofits 5. MarketTermination-consumersnolongerdemandtheproductandcompaniesstopproducing it Market Identification A “micro-market” can be used to describe a market for a specific product, eg., 8-track tapes and players.A“macro-market” could thus reflect a larger scope, eg, personal media. So, whereas the market for 8-track cassette tapes and players went through a product and market evolution towards termination,themarketforpersonalmediaisreallywhatisatissue,astechnologysimplyreinterprets HOW people manage media. Thus, people want to listen to lectures, seminars, sermons and speeches on some form of personal portable media, and listen to 8-tracks, and then cassette tapes became more flexible,and,withtheadventoftheSonyWalkman,moreportable,aswellasindividuallyandprivately recordable;andthenCompactDiscs(“CDs”)broughtincreasedcapacityandCD-Rofferedindividual private recording...and so the process goes. The below section on the “technology lifecycle” is a most appropriate concept in this context.
88 In short, termination is not always the end of the cycle; it can be the end of a micro-entrant withinthegranderscopeofamacro-environment.Theautoindustry,fast-foodindustry,petro-chemical industry, are just a few that demonstrate a macro-environment that overall has not terminated even whilemicro-entrantsovertimehavecomeandgone. Technology life cycle The underlying technology subsumed within a product or product category can go though similarstages.ThisistypicallyreferredtoastheTechnologylifecycle. Lessons of the Product Life Cycle (PLC) Itisclaimedthateveryproducthasalifecycle.Itislaunched;itgrows,andmay,atsomepoint, die.Afair comment is that - at least in the short term - not all products/services die. Jeans may die, but clothes probably won’t. Legal services, medical services, may die, but depending on a social political climate, probably won’t...etc... But, on the other hand, even the dinosaurs eventually died out; though whattheythoughtoftheirlifecycleisnotonrecord! Eventhoughitsvalidityisquestionable,itcanofferauseful‘model’formanagerstokeepatthe back of their mind. Indeed, if their products are in the introductory or growth phases, or in that of decline,itperhapsshouldbeatthefrontoftheirmind;forthepredominantfeaturesofthesephasesmay be those revolving around such life and death. Between these two extremes, it is salutary for them to havethatvisionofmortalityinfrontofthem. Themostimportantaspectofproductlife-cyclesis,however,that-evenundernormalconditions - to all practical intents and purposes they often do not exist (hence, there needs to be more emphasis on model/reality mappings)! In most markets the majority of the major (dominant) brands have held theirpositionforatleasttwodecades.Thedominantproductlife-cycle,thatofthebrandleaderswhich almostmonopolizemanymarkets,isthereforeoneofcontinuity! In the most respected criticism of the product life cycle, Dhalla &Yuspeh [cite] state; “...clearly, the PLC is a dependent variable which is determined by market actions; it is not an independentvariabletowhichcompaniesshouldadapttheirmarketingprograms.Marketingmanagement itself can alter the shape and duration of a brand’s life cycle.” Thus,thelifecyclemaybeusefulasadescription,butnotasapredictor;andusuallyshouldbe firmly under the control of the marketer!The important point is that in many, if not most, markets the productorbrandlifecycleissignificantlylongerthantheplanningcycleoftheorganizationsinvolved.It, thus,offerslittleofpracticalvalueformostmarketers.EvenifthePLC(andtherelated|PLMsupport) exists for them, their plans will be based just upon that piece of the curve where they currently reside (most probably in the ‘mature’stage); and their view of that part of it will almost certainly be ‘linear’ (andlimited),andwillnotencompassthewholerangefromgrowthtodecline
89 Product life cycle management Theconditionsaproductissoldunderwillchangeovertime.TheProductLifeCyclerefersto the succession of stages a product goes through. Product Life Cycle Management is the succession of strategies used by management as a product goes through its life cycle. Theproductlifecyclegoesthoughmanyphasesandinvolvesmanyprofessionaldisciplinesand requiresmanyskills,toolsandprocesses.Productlifecycle(PLC)istodowiththelifeofaproductin the market with respect to business/commercial costs and sales measures; whereas Product Lifecycle Management(PLM)ismoretodowithmanagingdescriptionsandpropertiesofaproductthroughits developmentandusefullife,mainlyfromabusiness/engineeringpointofview. SUMMARY All products and services have certain life cycles. The life cycle refers to the period from the product’s first launch into the market until its final withdrawal and it is split up in phases. During this period significant changes are made in the way that the product is behaving into the market i.e. its reflection in respect of sales to the company that introduced it into the market. Since an increase in profits is the major goal of a company that introduces a product into a market, the product’s life cycle managementisveryimportant.Somecompaniesusestrategicplanningandothersfollowthebasicrules ofthedifferentlifecyclephasethatareanalyzedlater. The understanding of a product’s life cycle, can help a company to understand and realize whenitistimetointroduceandwithdrawaproductfromamarket,itspositioninthemarketcompared to competitors, and the product’s success or failure. For a company to fully understand the above and successfully manage a product’s life cycle, needs to develop strategies and methodologies, some of which are discussed later on.The product’s life cycle - period usually consists of five major steps or phases:Productdevelopment,Productintroduction,Productgrowth,ProductmaturityandfinallyProduct decline. These phases exist and are applicable to all products or services from a certain make of automobiletoamultimillion-dollarlithographytooltoaone-centcapacitor.Thesephasescanbesplit up into smaller ones depending on the product and must be considered when a new product is to be introduced into a market since they dictate the product’s sales performance. QUESTIONS: 1. Explain the stages in Product Life Cycle Management? 2. How can you estimate the life expecting of product Category? 3. What is Market Evaluation and Market Identification? 4. Explain Technology Life Cycle? 5. What is Product Life Cycle Management?
90 CHAPTER - X PRICING OBJECTIVE Pricing is one of the four p’s of the marketing mix. The other three aspects are product management,promotion,andplace.Itisalsoakeyvariableinmicroeconomicpriceallocationtheory. Pricing is the manual or automatic process of applying prices to purchase and sales orders, basedonfactorssuchas:afixedamount,quantitybreak,promotionorsalescampaign,specificvendor quote,priceprevailingonentry,shipmentorinvoicedate,combinationofmultipleordersorlines,and manyothers.Automatedsystemsrequiremoresetupandmaintenancebutmaypreventpricingerrors. Questions involved in pricing Pricinginvolvesaskingquestionslike: • How much to charge for a product or service? This question is a typical starting point for discussions about pricing, however, a better question for a vendor to ask is - How much do customers value the products, services, and other intangibles that the vendor provides. • What are the pricing objectives? • Doweuseprofitmaximizationpricing? • How to set the price?: (cost-plus pricing, demand based or value-based pricing, rate of return pricing,orcompetitorindexing) • Shouldtherebeasinglepriceormultiplepricing? • Should prices change in various geographical areas, referred to as zone pricing? • Shouldtherebequantitydiscounts? • Whatpricesarecompetitorscharging? • Doyouuseapriceskimmingstrategyorapenetrationpricingstrategy? • What image do you want the price to convey? • Doyouusepsychologicalpricing? • Howimportantarecustomerpricesensitivityandelasticityissues? • Can real-time pricing be used? • Ispricediscriminationoryieldmanagementappropriate? • Aretherelegalrestrictionsonretailpricemaintenance,pricecollusion,orpricediscrimination? • Do price points already exist for the product category? • Howflexiblecanwebeinpricing? :Themorecompetitivetheindustry,thelessflexibilitywe have. o Thepricefloorisdeterminedbyproductionfactorslikecosts(oftenonlyvariablecosts are taken into account), economies of scale, marginal cost, and degree of operating leverage
91 o Thepriceceilingisdeterminedbydemandfactorslikepriceelasticityandpricepoints • Aretheretransferpricingconsiderations? • What is the chance of getting involved in a price war? • Howvisibleshouldthepricebe?-Shouldthepricebeneutral?(ie.:notanimportantdifferentiating factor), should it be highly visible? (to help promote a low priced economy product, or to reinforce the prestige image of a quality product), or should it be hidden? (so as to allow marketers to generate interest in the product unhindered by price considerations). • Aretherejointproductpricingconsiderations? • Whatarethenon-pricecostsofpurchasingtheproduct?(eg.:traveltimetothestore,waittime in the store, dissagreeable elements associated with the product purchase - dentist -> pain, fishmarket->smells) • What sort of payments should be accepted? (cash, cheque, credit card, barter) What a price should do Awellchosenpriceshoulddothreethings: • achievethefinancialgoalsofthefirm(eg.:profitability) • fittherealitiesofthemarketplace(willcustomersbuyatthatprice?) • supportaproduct’spositioningandbeconsistentwiththeothervariablesinthemarketingmix o price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product § price will usually need to be relatively high if manufacturing is expensive, distributionisexclusive,andtheproductissupportedbyextensiveadvertising andpromotionalcampaigns § alowpricecanbeaviablesubstituteforproductquality,effectivepromotions, oranenergeticsellingeffortbydistributors Fromthemarketer’spointofview,anefficientpriceisapricethatisveryclosetothemaximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer surplus to the producer. Definitions Theeffectivepriceisthepricethecompanyreceivesafteraccountingfordiscounts,promotions, andotherincentives. Price lining is the use of a limited number of prices for all your product offerings. This is a traditionstartedintheoldfiveanddimestoresinwhicheverythingcosteither5or10cents.Itsunderlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospectivecustomers.Ithastheadvantageofeaseofadministering,butthedisadvantageofinflexibility, particularlyintimesofinflationorunstableprices.
92 A loss leader is a product that has a price set below the operating margin. This results in a loss to the enterprise on that particular item, but this is done in the hope that it will draw customers into the storeandthatsomeofthosecustomerswillbuyother,highermarginitems. Promotionalpricingreferstoaninstancewherepricingisthekeyelementofthemarketingmix. Theprice/qualityrelationshipreferstotheperceptionbymostconsumersthatarelativelyhighpriceis a sign of good quality.Thebeliefinthisrelationshipismostimportantwithcomplexproductsthatare hard to test, and experiential products that cannot be tested until used (such as most services). The greatertheuncertaintysurroundingaproduct,themoreconsumersdependontheprice/qualityhypothesis and the more of a premium they are prepared to pay.The classic example of this is the pricing of the snackcakeTwinkies,whichwereperceivedaslowqualitywhenthepricewaslowered.Note,however, thatexcessiverelianceontheprice/quantityrelationshipbyconsumersmayleadtotheraisingofprices onallproductsandservices,eventhoseoflowquality,whichinturncausestheprice/qualityrelationship to no longer apply. Premiumpricing(alsocalledprestigepricing)isthestrategyofpricingat,ornear,thehighend of the possible price range. People will buy a premium priced product because: 1. Theybelievethehighpriceisanindicationofgoodquality; 2. theybelieveittobeasignofselfworth-“Theyareworthit”-Itauthenticatestheirsuccessand status - It is a signal to others that they are a member of an exclusive group; and 3. Theyrequireflawlessperformanceinthisapplication-Thecostofproductmalfunctionistoo high to buy anything but the best - example : heart pacemaker The term Goldilocks pricing is commonly used to describe the practice of providing a “gold- plated” version of a product at a premium price in order to make the next-lower priced option look more reasonably priced; for example, encouraging customers to see business-class airline seats as goodvalueformoneybyofferinganevenhigherpricedfirst-classoption.Similarly,third-classrailway carriagesinVictorianEnglandaresaidtohavebeenbuiltwithoutwindows,notsomuchtopunishthird- class customers (for which there was no economic incentive), as to motivate those who could afford second-class seats to pay for them instead of taking the cheaper option. ThenamederivesfromtheGoldilocksstory,inwhichGoldilockschoseneitherthehottestnor the coldest porridge, but instead the one that was “just right”. More technically, this form of pricing exploitsthegeneralcognitivebiasofaversiontoextremes. Demand-based pricing is any pricing method that uses consumer demand - based on perceived value - as the central element. These include : price skimming, price discrimination and yield management, pricepoints,psychologicalpricing,bundlepricing,penetrationpricing,pricelining,value-basedpricing, geoandpremiumpricing. SUMMARY Determining what your objectives are is the first step in pricing. When deciding on pricing objectivesyoumustconsider:1)theoverallfinancial,marketing,andstrategicobjectivesofthecompany;
93 2) the objectives of your product or brand; 3) consumer price elasticity and price points; and 4) the resourcesyouhaveavailable.Cost-pluspricingisapricingmethodcommonlyusedbyfirms.Itisused primarilybecauseitiseasytocalculateandrequireslittleinformation.Thereareseveralvarieties,but the common thread in all of them is that you first calculate the cost of the product, and then include an additionalamounttorepresentprofit.Cost-pluspricingisoftenusedongovernmentcontracts,andhas beencriticizedaspromotingwastefulexpenditures.Awellchosenpriceshoulddothreethings: • achievethefinancialgoalsofthefirm(e.g.:profitability) • fittherealitiesofthemarketplace(willcustomersbuyatthatprice?) • supportaproduct’spositioningandbeconsistentwiththeothervariablesinthemarketingmix o price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product § price will usually need to be relatively high if manufacturing is expensive, distributionisexclusive,andtheproductissupportedbyextensiveadvertising andpromotionalcampaigns § alowpricecanbeaviablesubstituteforproductquality,effectivepromotions, oranenergeticsellingeffortbydistributors Fromthemarketer’spointofview,anefficientpriceisapricethatisveryclosetothemaximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer surplus to the producer. QUESTIONS: 1. What is Pricing? 2. What questions are asked in Pricing? 3. What are things needed for a well chosen price? 4. Define effective Price?
94 CHAPTER - XI DISTRIBUTION (BUSINESS) OBJECTIVE Distributionisoneofthefouraspectsofmarketing.Adistributoristhemiddlemanbetweenthe manufacturerandretailer.Afteraproductismanufactureditistypicallyshipped(andtypicallysold)to a distributor.The distributor then sells the product to retailers or customers. Theotherthreepartsofthemarketingmixareproductmanagement,pricing,andpromotion. Explanation Traditionally, distribution has been seen as dealing with logistics: how to get the product or service to the customer. It must answer questions such as: • Should the product be sold through a retailer? • Shouldtheproductbedistributedthroughwholesale? • Shouldmulti-levelmarketingchannelsbeused? • Howlongshouldthechannelbe(howmanymembers)? • Where should the product or service be available? • When should the product or service be available? • Shoulddistributionbeexclusive,selectiveorextensive? • Who should control the channel (referred to as the channel captain)? • Shouldchannelrelationshipsbeinformalorcontractual? • Should channel members share advertising (referred to as co-op ads)? • Shouldelectronicmethodsofdistributionbeused? • Aretherephysicaldistributionandlogisticalissuestodealwith? • What will it cost to keep an inventory of products on store shelves and in channel warehouses (referred to as filling the pipeline)? The distribution channel Frequentlytheremaybeachainofintermediaries;eachpassingtheproductdownthechainto the next organization, before it finally reaches the consumer or end-user.Thisprocessisknownasthe ‘distribution chain’ or the ‘channel.’ Each of the elements in these chains will have their own specific needs, which the producer must take into account, along with those of the all-important end-user. Channels Anumberofalternate‘channels’ofdistributionmaybeavailable: • Sellingdirect,suchasviamailorder,Internetandtelephonesales • Agent,whotypicallysellsdirectonbehalfoftheproducer • Distributor(alsocalledwholesaler),whosellstoretailers • Retailer (also called dealer), who sells to end customers
95 Distributionchannelsmaynotberestrictedtophysicalproducts.Theymaybejustasimportant for moving a service from producer to consumer in certain sectors, since both direct and indirect channelsmaybeused.Hotels,forexample,mayselltheirservices(typicallyrooms)directlyorthrough travel agents, tour operators, airlines, tourist boards, centralized reservation systems, etc. There have also been some innovations in the distribution of services. For example, there has been an increase in franchising and in rental services - the latter offering anything from televisions throughtools.Therehasalsobeensomeevidenceofserviceintegration,withserviceslinkingtogether, particularlyinthetravelandtourismsectors.Forexample,linksnowexistbetweenairlines,hotelsand car rental services. In addition, there has been a significant increase in retail outlets for the service sector.Outletssuchasestateagenciesandbuildingsocietyofficesarecrowdingouttraditionalgrocers frommajorshoppingareas. Channelmembers Distributionchannelscanthushaveanumberoflevels.Kotlerdefinedthesimplestlevelthatof directcontactwithnointermediariesinvolved,asthe‘zero-level’channel. Thenextlevel,the‘one-level’channel,featuresjustoneintermediary;inconsumergoodsretailers, for industrial goods a distributor, say. In small markets (such as small countries) it is practical to reach thewholemarketusingjustone-andzero-levelchannels. In large markets (such as larger countries) a second level, a wholesaler for example, is now mainlyusedtoextenddistributiontothelargenumberofsmall,neighborhoodretailers. In Japan the chain of distribution is often complex and further levels are used, even for the simplestofconsumergoods. Channel structure Tothevarious‘levels’ofdistribution,whichtheyrefertoasthe‘channellength’,Lancasterand Massinghamalsoaddedanotherstructuralelement,therelationshipbetweenitsmembers: • ‘Conventional or free-flow - This is the usual, widely recognized, channel with a range of `middle-men’passing the goods on to the end-user. • Singletransaction-Atemporary‘channel’maybesetupforonetransaction;forexample,the saleofpropertyoraspecificcivilengineeringproject.Thisdoesnotsharemanycharacteristics withotherchanneltransactions,eachonebeingunique. • Verticalmarketingsystems(VMS)-Inthisform,theelementsofdistributionareintegrated. The internal market Manyofthemarketingprinciplesandtechniqueswhichareappliedtotheexternalcustomersof an organization canbejustaseffectivelyappliedtoeachsubsidiary’s,oreachdepartment’s,‘internal’ customers.
96 In some parts of certain organizations this may in fact be formalized, as goods are transferred between separate parts of the organization at a ‘transfer price’. To all intents and purposes, with the possibleexceptionofthepricingmechanismitself,thisprocesscanandshouldbeviewedasanormal buyer-sellerrelationship.Thefactthatthisisacaptivemarket,resultingina‘monopolyprice’,should notdiscouragetheparticipantsfromemployingmarketingtechniques. Less obvious, but just as practical, is the use of ‘marketing’ by service and administrative departments;tooptimizetheircontributiontotheir‘customers’(therestoftheorganizationingeneral, and those parts of it which deal directly with them in particular). In all of this, the lessons of the non- profitorganizations,indealingwiththeirclients,offeraveryusefulparallel. ChannelDecisions • Overallstrategy • Channelstrategy • Product (or service)<>Cost<>Consumer location Channelmanagement The channel decision is very important. In theory at least, there is a form of trade-off: the cost ofusingintermediariestoachievewiderdistributionissupposedlylower.Indeed,mostconsumergoods manufacturerscouldneverjustifythecostofsellingdirecttotheirconsumers,exceptbymailorder.In practice,iftheproducerislargeenough,theuseofintermediaries(particularlyattheagentandwholesaler level)cansometimescostmorethangoingdirect. Manyofthetheoreticalargumentsaboutchannelsthereforerevolvearoundcost.Ontheother hand, most of the practical decisions are concerned with control of the consumer.Thesmallcompany hasnoalternativebuttouseintermediaries,oftenseverallayersofthem,butlargecompanies‘do’have thechoice. However,manysuppliersseemtoassumethatoncetheirproducthasbeensoldintothechannel, into the beginning of the distribution chain, their job is finished.Yet that distribution chain is merely assumingapartofthesupplier’sresponsibility;and,ifhehasanyaspirationstobemarket-oriented,his jobshouldreallybeextendedtomanaging,albeitveryindirectly,alltheprocessesinvolvedinthatchain, until the product or service arrives with the end-user.This may involve a number of decisions on the partofthesupplier: • Channelmembership • Channelmotivation • Monitoringandmanagingchannels Channelmembership 1. Intensive distribution - Where the majority of resellers stock the ‘product’ (with convenience
97 products, for example, and particularly the brand leaders in consumer goods markets) price competitionmaybeevident. 2. Selective distribution - This is the normal pattern (in both consumer and industrial markets) where ‘suitable’ resellers stock the product. 3. Exclusive distribution - Only specially selected resellers (typically only one per geographical area) are allowed to sell the ‘product’. Channel motivation It is difficult enough to motivate direct employees to provide the necessary sales and service support.Motivatingtheownersandemployeesoftheindependentorganizationsinadistributionchain requires even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is ‘bribery’: the supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors; or a competition is offered to the distributors’ sales personnel, so that they are tempted to push the product.At the other end of the spectrum is the almost symbiotic relationshipthatthealltooraresupplierinthecomputerfielddevelopswithitsagents;wheretheagent’s personnel, support as well as sales, are trained to almost the same standard as the supplier’sownstaff. Monitoring and managing channels In much the same way that the organization’s own sales and distribution activities need to be monitoredandmanaged,sowillthoseofthedistributionchain. In practice, of course, many organizations use a mix of different channels; in particular, they maycomplementadirectsalesforce,callingonthelargeraccounts,withagents,coveringthesmaller customers and prospects. Vertical marketing Thisrelativelyrecentdevelopmentintegratesthechannelwiththeoriginalsupplier-producer, wholesalers and retailers working in one unified system. This may arise because one member of the chainownstheotherelements(oftencalled‘corporatesystemsintegration’);asupplierowningitsown retail outlets, this being ‘forward’ integration. It is perhaps more likely that a retailer will own its own suppliers, this being ‘backward’integration. (For example, MFI, the furniture retailer, owns Hygena which makes its kitchen and bedroom units.) The integration can also be by franchise (such as that offered by McDonald’s hamburgers and Benetton clothes) or simple co-operation (in the way that Marks & Spencer co-operates with its suppliers). Alternativeapproachesare‘contractualsystems’,oftenledbyawholesaleorretailco-operative, and‘administeredmarketingsystems’whereone(dominant)memberofthedistributionchainusesits position to co-ordinate the other members’ activities. This has traditionally been the form led by manufacturers.
98 Theintentionofverticalmarketingistogiveallthoseinvolved(andparticularlythesupplierat one end, and the retailer at the other) ‘control’ over the distribution chain. This removes one set of variablesfromthemarketingequations. Other research indicates that vertical integration is a strategy which is best pursued at the mature stage of the market (or product).At earlier stages it can actually reduce profits. It is arguable that it also diverts attention from the real business of the organization. Suppliers rarely excel in retail operations and, in theory, retailers should focus on their sales outlets rather than on manufacturing facilities(Marks&Spencer,verydeliberatelyprovidesconsiderableamountsoftechnicalassistanceto its suppliers, but does not own them). Horizontal marketing A rather less frequent example of new approaches to channels is where two or more non- competing organizations agree on a joint venture - a joint marketing operation - because it is beyond thecapacityofeachindividualorganizationalone.Ingeneral,thisislesslikelytorevolvearoundmarketing synergy Promotion (marketing) Promotion is one of the four aspects of marketing. The other three parts of the marketing mix areproductmanagement,pricing,anddistribution.Promotioninvolvesdisseminatinginformationabout a product, product line, brand, or company. Promotioniscomprisedofsubcategories: • Personalselling • Non-personalselling: • Advertising • Salespromotion • Publicityandpublicrelations • Tradeshows • Directselling • Productplacement The specification of these four variables creates a promotional mix or promotional plan.A promotionalmixspecifieshowmuchattentiontopaytoeachofthefoursubcategories,andhowmuch money to budget for each.Apromotional plan can have a wide range of objectives, including: sales increases, new product acceptance, creation of brand equity, positioning, competitive retaliations, or creation of a corporate image. Anexampleofafullyintegrated,long-term,large-scalepromotionisPepsiStuff.
99 Good (economics and accounting) Agood in economics is any object or service that, upon consumption, increases utility, and therefore can be sold at a price in a market. Ifanobjectorserviceissoldforapositiveprice,thenitismostlikelyagoodsincethepurchaser considerstheutilityoftheobjectorservicemorevaluablethanthemoney.Someobjectsareveryrarely traded, such as air: it can be difficult to determine if such an object is a good or not. Inmacroeconomicsandaccounting,agoodiscontrastedwithaservice.Agoodhereisdefined asaphysicalproductcapableofbeingdeliveredtoapurchaserandinvolvesthetransferofownership fromsellertocustomer,asopposedtoanintangibleservice.Inmicroeconomicsthisdistinctionisrarely made. Utility characteristics of goods Agood is an object whose consumption increases the utility of the consumer, for which the quantity demanded exceeds the quantity supplied at zero price. Goods are usually modeled as having decreasingmarginalutility.Thefirstcaranindividualpurchasesisveryvaluable;thefourthismuchless useful.Thus,intheseandsimilargoods,themarginalutilityofadditionalunitsapproacheszeroasthe quantityconsumedincreases.Assumingthatonecannotre-sellit,thereisapointatwhichaconsumer would decline to purchase an additional car, even at a price very near zero. This is the consumer’s satiationpoint. Insomecases,suchastheaboveexampleofacar,thelowerlimitofutilityasquantityincreases iszero.Inothergoods,theutilityofagoodcancrosszero,changingfrompositivetonegativethrough time. This means that what initially is a good can become a bad if too much of it is consumed. For example,shotsofvodkacanhavepositiveutility,butatsomepointforallconsumers,additionalunits make the consumer less happy and can be injurious to the consumer’s health. In economics a bad is the opposite of a good. Ultimately, whether an object is a good or a bad depends on each individual consumer, and therefore, it is important to realize that not all goods are good all the time, and not all goods are goods to all people. SUMMARY Whenitcomestogettinggoodsfromthethousandsofproductmanufacturersintothehandsof consumersworldwide,theroleofwholesaledistributorisacrucialone,becauseneithermanufacturers northebusinessesthatbuytheirproductsforresalecouldsurvivewithoutthem. Not quite sure what wholesale distributors do? Quite simply, they’re middlemen.They buy productsfrommanufacturers,themsellthemtoretailersataprofit.Thegoodnewsis,withmillionsof productsonthemarketandnewproductsbeingintroducedeveryday,thisfieldhasplentyofroomfor growth. ? ? ? ? ? determine your operating costs
100 ? ? ? ? ? raise start-up funds ? ? ? ? ?findmanufacturersandretailersinterestedinyourservices ? ? ? ? ? negotiate the best deals ? ? ? ? ?get product “exclusives” ? ? ? ? ? learn insider secrets for overcoming the competition If you have excellent people skills, a background in sales and operations, and are able to understand customer needs and learn how to serve them well, you’ll probably make a success of a wholesaledistributionbusiness. QUESTIONS: 1. What are the alternate channels of Distribution? 2. What is a zero-level channel of Kotler? 3. Discuss Channel Management? Explain the decisions on the part of the supplier? 4. What is Vertical Marketing, Horizontal Marketing, and Promotion Marketing? 5. What is a Good? What is the utility characteristics of a Good?
101 CHAPTER - XII PRODUCTMANAGEMENT OBJECTIVE Productmanagementisanorganizationalfunctionwithinacompanydealingwiththeproduct planning or product marketing of a product or products at all stages of the product lifecycle.Product Managementisalsoacollectivetermusedtodescribethebroadsumofdiverseactivitiesperformedin theinterestofdeliveringaparticularproducttomarket. Fromapracticalperspective,productmanagementisanoccupationaldomainwhichholdstwo professional disciplines: product planning and product marketing. This is because the product’s functionality is created for the user via product planning efforts, and product value is presented to the buyerviaproductmarketingactivities. Product planning and product marketing are very different but due to the collaborative nature of these two disciplines, some companies erroneously perceive them as being one discipline, which they call product management. Done carefully, it is very possible to functionally divide the product management domain into product planning and product marketing, yet retain the required synergy betweenthetwodisciplines. Productplanningtypicallydealswiththeseactivities: • Definingnewproductsandgatheringmarketrequirements • ProductLifeCycleconsiderations • Productportfoliomanagement • Productdifferentiation Productmarketingtypicallydealswiththeseactivities: • Productpositioningandoutboundmessaging • Promoting the product externally with press, customers, and partners • Bringingnewproductstomarket Productmanagementtypicallydealswiththeseclosely-relatedfunctions: • Productplanning • Productmarketing • Programmanagement • Projectmanagement Relationship marketing Relationshipmarketingisaformofmarketingthatevolvedfromdirectresponsemarketingin the1960sandemergedinthe1980s,inwhichemphasisisplacedonbuildinglongertermrelationships withcustomersratherthanonindividualtransactions.Itinvolvesunderstandingthecustomer’sneedsas they go through their life cycles. It emphasizes providing a range of products or services to existing customers as they need them.
Development of relationship marketing The origins of relationship marketing observes: “What is surprising is that researchers and businessmenhaveconcentratedfarmoreonhowtoattractcustomerstoproductsandservicesthanon how to retain customers”.The initial research was done by Leonard Berry at TexasA&M (Berry, L. 1982) and Jag Sheth at Emory, both of whom were early users of the term “Relationship Marketing”, and by marketing theorist Theodore Levitt at Harvard (Levitt, T. 1983) who broadened the scope of marketingbeyondindividualtransactions. Inpractice,relationshipmarketingoriginatedinindustrialandB2Bmarketswherelong-term contractshavebeenquitecommonformanyyears.AcademicslikeBarbaraBundJacksonatHarvard re-examined these industrial marketing practices and applied them to marketing proper[1] . AccordingtoLeonardBerry,relationshipmarketingcanbeapplied:whentherearealternatives to choose from; when the customer makes the selection decision; and when there is an ongoing and periodic desire for the product or service. Fornell and Wernerfet used the term “defensive marketing” to describe attempts to reduce customer turnover and increase customer loyalty.This customer-retention approach was contrasted with“offensivemarketing”whichinvolvedobtainingnewcustomersandincreasingcustomers’purchase frequency.Defensivemarketingfocusedonreducingormanagingthedissatisfactionofyourcustomers, while offensive marketing focused on “liberating” dissatisfied customers from your competition and generating new customers. There are two components to defensive marketing: increasing customer satisfactionandincreasingswitchingbarriers. Traditionalmarketingoriginatedinthe1960sand1970sascompaniesfounditmoredifficultto sellconsumerproducts.Itsconsumermarketoriginsmoldedtraditionalmarketingintoasystemsuitable forsellingrelativelylow-valueproductstomassesofcustomers.Overthedecades,attemptshavebeen madetobroadenthescopeofmarketing,relationshipmarketingbeingoneoftheseattempts.Marketing hasbeengreatlyenrichedbythesecontributions. The practice of relationship marketing has been greatly facilitated by several generations of customer relationship management software that allow tracking and analysing of each customer’s preferences, activities, tastes, likes, dislikes, and complaints. This powerful tool in any company’s marketingstrategy.Forexampleanautomobilemanufacturermaintainingadatabaseofwhenandhow customers repeat buy their products, the options they choose, the way they finance the purchase etc., is in a powerful position to custom target sales material. In return, the customer benefits from the companytrackingserviceschedulesandcommunicatingdirectlyonissueslikeproductrecalls. Customer retention Atthecoreofrelationshipmarketingisthenotionofcustomerretention.AccordingtoGordon relationshipmarketinginvolvesthecreationofnewandmutualvaluebetweenasupplierandindividual customer. Novelty and mutuality deepen, extend and prolong relationships, creating yet more opportunities for customer and supplier to benefit one another. 1 0 2 102
103 Studiesinseveralindustrieshaveshownthatthecostofretaininganexistingcustomerisonly about 10% of the cost of acquiring a new customer so it can often make economic sense to pay more attentiontoexistingcustomers. ItisclaimedbyReichheldandSasserthata5%improvementincustomerretentioncancause an increase in profitability of between 25 and 85 percent (in terms of net present value) depending on theindustry.HoweverCarrol,P.andReichheld,F.disputethesecalculations,claimingtheyresultfrom faultycross-sectionalanalysis. AccordingtoBuchananandGilles,theincreasedprofitabilityassociatedwithcustomerretention effortsoccursbecause: • Thecostofacquisitionoccursonlyatthebeginningofarelationship,sothelongertherelationship, the lower the amortized cost. • Accountmaintenancecostsdeclineasapercentageoftotalcosts(orasapercentageofrevenue). • Long-term customers tend to be less inclined to switch, and also tend to be fewer prices sensitive.Thiscanresultinstableunitsalesvolumeandincreasesindollar-salesvolume. • Long-termcustomersmayinitiatefreewordofmouthpromotionsandreferrals. • Long-termcustomersaremorelikelytopurchaseancillaryproductsandhighmarginsupplemental products. • Customers that stay with you tend to be satisfied with the relationship and are less likely to switch to competitors, making it difficult for competitors to enter the market or gain market share. • Regular customers tend to be less expensive to service because they are familiar with the process, require less “education”, and are consistent in their order placement. • Increasedcustomerretentionandloyaltymakestheemployees’jobseasierandmoresatisfying. In turn, happy employees feed back into better customer satisfaction in a virtuous circle. Relationshipmarketersspeakofthe“relationshipladderofcustomerloyalty”.Itgroupstypes of customers according to their level of loyalty.The ladder’s first rung consists of “prospects”, that is, people that have not purchased yet but are likely to in the future. This is followed by the successive rungs of “customer”, “client”, “supporter”, “advocate”, and “partner”.The relationship marketer’s objective is to “help” customers get as high up the ladder as possible. This usually involves providing more personalized service and providing service quality that exceeds expectations at each step. Customerretentioneffortsinvolveconsiderationssuchasthefollowing: 1. Customer valuation - Gordon (1999) describes how to value customers and categorize them accordingtotheirfinancialandstrategicvaluesothatcompaniescandecidewheretoinvestfor deeperrelationshipsandwhichrelationshipsneedtobeserveddifferentlyoreventerminated. 2. Customer retention measurement - Dawkins and Reichheld (1990) calculated a company’s “customer retention rate”. This is simply the percentage of customers at the beginning of the yearthatarestillcustomersbytheendoftheyear.Inaccordancewiththisstatistic,anincrease
104 inretentionratefrom80%to90%isassociatedwithadoublingoftheaveragelifeofacustomer relationshipfrom5to10years.Thisratiocanbeusedtomakecomparisonsbetweenproducts, between market segments, and over time. 3. Determinereasonsfordefection-Lookfortherootcauses,notmeresymptoms.Thisinvolves probingfordetailswhentalkingtoformercustomers.Othertechniquesincludetheanalysisof customers’complaintsandcompetitivebenchmarking(seecompetitoranalysis). 4. Develop and implement a corrective plan - This could involve actions to improve employee practices, using benchmarking to determine best corrective practices, visible endorsement of top management, adjustments to the company’s reward and recognition systems, and the use of“recoveryteams”toeliminatethecausesofdefections. A technique to calculate the value to a firm of a sustained customer relationship has been developed.Thiscalculationistypicallycalledcustomerlifetimevalue. Retention strategies also build barriers to customer switching. This can be done by product bundling (combiningseveralproductsorservicesintoone“package”andofferingthematasingleprice),cross selling (selling related products to current customers), cross promotions (giving discounts or other promotionalincentivestopurchasersofrelatedproducts),loyaltyprograms(givingincentivesforfrequent purchases),increasingswitchingcosts(addingterminationcosts,suchasmortgageterminationfees), andintegratingcomputersystemsofmultipleorganizations(primarilyinindustrialmarketing). Manyrelationshipmarketersuseateam-basedapproach.Therationaleisthatthemorepoints of contact between the organization and customer, the stronger will be the bond, and the more secure therelationship. The broad scope of relationship marketing Relationshipmarketinghasbeenstronglyinfluencedbyreengineering.Accordingtoreengineering theory, organizations should be structured according to complete tasks and processes rather than functions.Thatis,cross-functionalteamsshouldberesponsibleforawholeprocess,frombeginningto end,ratherthanhavingtheworkgofromonefunctionaldepartmenttoanother.Traditionalmarketingis said to use the functional department approach. This can be seen in the traditional four P’s of the marketingmix.Pricing,productmanagement,promotion,andplacementareclaimedtobefunctional silos that must be accessed by the marketer if she is going to perform her task.According to Gordon (1999), the marketing mix approach is too limited to provide a usable framework for assessing and developingcustomerrelationshipsinmanyindustriesandshouldbereplacedbyanalternativemodel where the focus is on customers and relationships rather than markets and products. Incontrast,relationshipmarketingiscross-functionalmarketing.Itisorganizedaroundprocesses that involve all aspects of the organization. In fact, some commentators prefer to call relationship marketing “relationship management” in recognition of the fact that it involves much more than that whichisnormallyincludedinmarketing. Martin Christopher,Adrian Payne, and David Ballantyne at the Cranfield Graduate school of
105 Managementclaimthatrelationshipmarketinghasthepotentialtoforgeanewsynthesisbetweenquality management,customerservicemanagement,andmarketing.Theyseemarketingandcustomerservice asinseparable. In spite of this broad scope, relationship marketing has not lost its core marketing orientation though. It involves the application of the marketing philosophy to all parts of the organization. Every employee is said to be a “part-time marketer”. The way Regis McKenna (1991) puts it: “Marketingisnotafunction;itisawayofdoingbusiness...marketinghastobeallpervasive, part of everyone’s job description, from the receptionist to the board of directors.” Becauseofthis,itisclaimedthatrelationshipmarketingisamorepureformofmarketingthan traditionalmarketing. Internal marketing Relationshipmarketingstresseswhatitcallsinternalmarketing.Thisreferstousingmarketing techniqueswithintheorganizationitself.Itisclaimedthatmanyofthetraditionalmarketingconcepts can be used to determine what the needs of “internal customers” are.According to this theory, every employee,team,ordepartmentinthecompanyissimultaneouslyasupplierandacustomerofservices andproducts.Anemployeeobtainsaserviceatapointinthevaluechainandthenprovidesaserviceto anotheremployeefurtheralongthevaluechain.Ifinternalmarketingiseffective,everyemployeewill both provide and receive exceptional service from and to other employees. It also helps employees understand the significance of their roles and how their roles relate to others’. If implemented well, it can also encourage every employee to see the process in terms of the customer’s perception of value added,andtheorganization’sstrategicmission.Furtheritisclaimedthataneffectiveinternalmarketing program is a prerequisite for effective external marketing efforts. (George,W. 1990) The six markets model AdrianPayne(1991)fromCranfieldUniversitygoesfurther.Heidentifiessixmarketswhichhe claimsarecentraltorelationshipmarketing.Theyare:internalmarkets,suppliermarkets,recruitment markets,referralmarkets,influencemarkets,andcustomermarkets. Referral marketing is developing and implementing a marketing plan to stimulate referrals. Although it may take months before you see the effect of referral marketing, this is often the most effective part of an overall marketing plan and the best use of resources. Marketing to suppliers is aimed at ensuring a long-term conflict-free relationship in which all parties understand each other’s needs and exceed each other’s expectations. Such a strategy can reduce costs and improve quality. Influence markets involve a wide range of sub-markets including: government regulators, standardsbodies,lobbyists,stockholders,bankers,venturecapitalists,financialanalysts,stockbrokers, consumerassociations,environmentalassociations,andlabourassociations.Theseactivitiesaretypically
106 carried out by the public relations department, but relationship marketers feel that marketing to all six marketsistheresponsibilityofeveryoneintheorganization. AttimesPaynesub-dividescustomermarketsintoexistingcustomersandpotentialcustomer, yielding seven rather than six markets. He claims that each market will require its own strategies and recommends separate marketing mixes for each of the seven. Influencer marketing Influencermarketingisaformofmarketingthathasemergedfromavarietyofrecentpractices andstudies,inwhichfocusisplacedonspecifickeyindividuals(ortypesofindividual)ratherthanthe target market as a whole. It identifies the individuals that have influence over potential buyers, and orientatesmarketingactivitiesaroundtheseinfluencers.Influencersmaybepotentialbuyersthemselves, or (in the case of business-to-business transactions) they may be third parties. What is “Influence”? Mostdiscussiononthegenerictopicofsocialinfluencecentresoncomplianceandpersuasion inasocialenvironment,asexemplifiedinRobertCialdini’sbook Influence:ScienceandPractice.In thecontextofInfluencerMarketing,influenceislessaboutargumentandcoerciontoaparticularpoint ofview,andmoreaboutlooseinteractionsbetweenvariouspartiesinacommunity. The history of Influencer Marketing InfluencermarketingcanbetracedtotheworkofAdrianPayneandothersatCranfieldUniversity intheUK,in1991.PayneidentifiessixmarketscentraltoRelationshipMarketing,oneofwhichisan Influence (sic) Market. Payne includes as influences a range of constituent sub-markets, including governmentregulators,standardsbodies,lobbyists,stockholders,bankers,venturecapitalists,financial analysts,stockbrokers,consumerassociations,environmentalassociations,andlabourassociations. Influencer Marketing gained a boost in 2000 with the publication of Malcolm Gladwell’s bookThe TippingPoint,inwhichheidentifieskeytypesofindividualthat,together,cancreatesocialepidemics. Gladwellsegmentstheseinfluencersinto: • Connectors:individualswithextensivenetworksofcontacts. • Mavens:expertsinspecificsubjects • Salespeople:persuasiveindividualsthatconvinceotherstochange(adoptnewproducts,change habits, etc) Gladwell’s ideas have been adopted and extended by a variety of authors. Ed Keller and Jon Berry use the same concept in their 2003 book The Influentials, backing up their analysis with considerableprimaryresearch.InUnleashingtheIdeavirus,SethGodinidentifiesSneezers,individuals withinfluencerthatspreadnewconceptsinaviralmanner(seeviralmarketing). InfluencerMarketingisemergingasausefuladditiontomoretraditionalmarketingactivities, becauseitusesinfluentialindividualstoconveymessages,ratherthanthesellingcompanyitself.There
107 is a substantial link between Influencer Marketing and word of mouth marketing.Arguably, word-of mouthworksbestwhencentredoninfluencers:influencerssupplytheinitialcredibilityandauthoritythat allowsamessagedtobeconveyedquicklyandreliablythroughword-ofmouthtechniques. Influencer marketing as a marketing discipline Influencermarketing,asincreasinglypracticedinacommercialcontext,comprisesfourmain activities: • Identifyinginfluencers,andrankingtheminorderofimportance. • Marketingtoinfluencers,toincreaseawarenessofthefirmwithintheinfluencercommunity • Marketing through influencers, using influencers to increase market awareness of the firm amongsttargetmarkets • Marketingwithinfluencers,turninginfluencersintoadvocatesofthefirm. Influencermarketingisenhancedbyancontinualevaluationactivitythatsitsalongsidethefour mainactivities. Identifyinginfluencers ThefirststepinInfluencerMarketingistoidentifyinfluencers.Influencersarespecifictodiscrete marketsegments,andareusedasconduitstotheentiretargetsegment.Whiletherearelistsofgeneric influencers(suchastheTime100)theyhavelimiteduseinmarketingprogrammestargetedatspecific segments. Market research techniques can be used to identify influencers, using pre-defined criteria to determinetheextentandtypeofinfluence.Forexample,KellerandBerry(2003)proposefiveattributes ofinfluencers: • Activists:influencersgetinvolved,withtheircommunities,politicalmovements,charitiesandso on. • Connected:influencershavelargesocialnetworks • Impact: influencers are looked up to and are trusted by others • Activeminds:influencershavemultipleanddiverseinterests • Trendsetters: influencers tend to be early adopters (or leavers) in markets Most of the literature on influencers focuses on consumer markets. There is less insight into business-to-business influencers.Akey distinction between consumer and business markets is that mostinfluencersinconsumermarketsareconsumersthemselves.Inbusinessmarketing,influencersare people that affect a sale, but are removed from the actual purchase decision. Consultants, analysts, journalists,academics,regulators,standardsbodiesareexamplesofbusinessinfluencers. Not all business influencers are equal. Some have more influence than others and some mechanismofrankingisrequired,todistinguishbetweenkeyinfluencersandlessimpactfulpeople.A modelforrankingbusinessinfluencershasbeendevelopedbyInfluencer50,thus:
108 • Market Reach – the number of people an individual has the ability to connect with. • QualityofImpact–theesteeminwhichanindividual’sviewandopinionsareheld. • Frequency of Impact – the number of opportunities an individual has to influence buying decisions. • Closeness to Decision – how near an individual is to the decision-maker. Liquid Intelligence has developed a methodology for identifying and targeting influencers throughoutthesupplychain,frommanufacturersthroughwholesalersandretailers,toconsumers. FredReichheld,aconsultantatBain&Company,hasdevelopedamethodologytodetermine theextenttowhichfirms’growthisinfluencedbycustomers’propensitytomakereferralstocolleagues. Reichheld distils his research down to a single question: how likely is it that you would recommend companyXtoafriendorcolleague?Fromanswerstothisquestion,aNetPromoterScoreisdetermined, whichcorrelatesstronglywithafirm’sgrowthrate. Business marketing Businessmarketingisthepracticeoforganizations,includingcommercialbusinesses,governments and institutions, facilitating the sale of their products or services to other companies or organizations that in turn resell them, use them as components in products or services they offer, or use them to supporttheiroperations.Alsoknownasindustrialmarketing,businessmarketingisalsocalledbusiness- to-business marketing, or b-to-b marketing, for short. Origins of business marketing In the broadest sense, the practice of one purveyor of goods doing trade with another is as old ascommerceitself.Asanicheinthefieldofmarketingasweknowittoday,however,itshistoryismore recent. In his introduction to Fundamentals of Business Marketing Research, J. David Lichtenthal, professor of marketing at the City University of NewYork’s Zicklin School of Business, notes that industrial marketing has been around since the mid-19th century, although the bulk of research on the discipline of business marketing has come about in the last 25 years. Morris, Pitt and Honeycutt, 2001, point out that for many years business marketing took a back seat to consumer marketing, which entailed providers of goods or services selling directly to households through mass media and retail channels.This began to change in middle to late1970s.A variety of academic periodicals, such as the Journal of Business-to-Business Marketing and the Journal of Business & Industrial Marketing, now publish studies on the subject regularly, and professionalconferencesonbusiness-to-businessmarketingareheldeveryyear.What’smore,business marketing courses are commonplace at many universities today. In fact, Dwyer and Tanner (2006) pointoutthatmoremarketingmajorbegintheircareersinbusinessmarketingtodaythaninconsumer marketing. Business marketing vs. consumer marketing Althoughonthesurfacethedifferencesbetweenbusinessandconsumermarketingmayseem obvious,therearemoresubtledistinctionsbetweenthetwowithsubstantialramifications.Dwyerand
109 Tanner (2006) note that business marketing generally entails shorter and more direct channels of distribution. While consumer marketing is aimed at large demographic groups through mass media and retailers,thenegotiationprocessbetweenthebuyerandsellerismorepersonalinbusinessmarketing. According to Hutt and Speh (2001), most business marketers commit only a small part of their promotional budgets to advertising, and that is usually through direct mail efforts and trade journals. Whilethatadvertisingislimited,itoftenhelpsthebusinessmarketersetupsuccessfulsalescalls. Who is the business marketing customer? While “other businesses” might seem like the simple answer, Dwyer andTanner (2006) say business customers fall into four broad categories: companies that consume products or services, governmentagencies,institutionsandresellers. The first category includes original equipment manufacturers, such as automakers, who buy gauges to put in their cars, and users, which are companies that purchase products for their own consumption.The second category,governmentagencies,isthebiggest.Infact,theU.S.government isthebiggestsinglepurchaserofproductsandservicesinthecountry,spendingmorethan$300billion annually.Butthiscategoryalsoincludesstateandlocalgovernments.The third category,institutions, includes schools, hospitals and nursing homes, churches and charities. Finally, resellers consist of wholesalers,brokersandindustrialdistributors. How big is business marketing? Hutt and Speh (2001) note that “business marketers serve the largest market of all; the dollar volume of transactions in the industrial or business market significantly exceeds that of the ultimate consumer market.” For example, they note that companies such as GE, DuPont and IBM spend more than $60 million a day on purchases to support their operations. Dwyer andTanner (2006) say the purchases made by companies, government agencies and institutions“accountformorethanhalfoftheeconomicactivityinindustrializedcountriessuchasthe United States, Canada and France.” ThefactthatthereissuchathingastheBusinessMarketingAssociationspeakstothesizeand credibilityoftheindustry.BMAtracesitsoriginsto1922withtheformationoftheNationalIndustrial AdvertisingAssociation.Today,BMA,headquarteredinChicago,boastsmorethan2,000membersin 19 chapters across the country.Among its members are new breeds of marketing communications agencies that are largely or exclusively business-to-business-oriented. They include Bader Rutter & Associates,Milwaukee;EricMowerandAssociates,Syracuse,N.Y.;Cincinnati-basedHSRBusiness- to-Business;SullivanHigdon&Sink,Wichita,Kan.;andChicago-basedSlackBarshinger. What’s driving growth in b-to-b Thetremendousgrowthandchangethatbusinessmarketingisexperiencingisdueinlargepart to three “revolutions” occurring around the world today, according to Morris, Pitt and Honeycutt (2001).
110 First is the technological revolution.Technology is changing at an unprecedented pace, and these changes are speeding up the pace of new product and service development.Alarge part of that has to do with the Internet, which is discussed in more detail below. Secondistheentrepreneurialrevolution.Tostaycompetitive,manycompanieshavedownsized andreinventedthemselves.Adaptability,flexibility,speed,aggressivenessandinnovativenessarethe keys to remaining competitive today. Marketing is taking the entrepreneurial lead by finding market segments, untapped needs and new uses for existing products, and by creating new processes for sales,distributionandcustomerservice. The third revolution is one occurring within marketing itself. Companies are looking beyond traditional assumptions and adopting new frameworks, theories, models and concepts. They’re also moving away from the mass market and the preoccupation with the transaction. Relationships, partnerships and alliances are what define marketing today. The cookie-cutter approach is out. Companiesarecustomizingmarketingprogramstoindividualaccounts. The impact of the Internet TheInternethasbecomeanintegralcomponentofthecustomerrelationshipmanagementstrategy forbusinessmarketers.DwyerandTanner(2006)notethatbusinessmarketersnotonlyusetheInternet toimprovecustomerservicebutalsotoimproveopportunitieswithdistributors. According toAnderson and Narus (2004), two new types of resellers have emerged as by- productsoftheInternet:infomediariesandmetamediaries.Infomediaries,suchasGoogleandYahoo, are search engine companies that also function as brokers, or middlemen, in the business marketing world.They charge companies fees to find information on theWeb as well as for banner and pop-up ads and search engine optimization services. Metamediaries, such asW.W. Grainger, are companies with robust Internet sites that furnish customers with multiproduct, multivendor and multiservice marketspaceinreturnforcommissionsonsales. With the advent of b-to-b exchanges, the Internet ushered in an enthusiasm for collaboration thatneverexistedbefore—andinfactmighthaveevenseemedludicrous10yearsago.Forexample,a decadeagowhowouldhaveimaginedFord,GeneralMotorsandDaimlerChryslerenteringintoajoint venture?That’s exactly what happened after all three of the BigThree began moving their purchases onlineinthelate1990s.Allthreecompanieswerepursuingtheirowninitiativeswhentheyrealizedthe economies of scale they could achieve by pooling their efforts. Thus was born what then was the world’s largest Internet business when Ford’sAuto-Xchange and GM’sTradeXchange merged, with DaimlerChryslerrepresentingthethirdpartner. Whilethisexchangedidnotstandthetestoftime,othershave,includingAgentrics,LLC,which was formed last year with the merger of WorldWide Retail Exchange and GlobalNetXchange, or GNX.Agentrics serves more 50 retailers around the world and more than 300 customers, and its members have combined sales of about $1 trillion. Hutt and Speh (2001) note that such virtual
111 marketplacesenablecompaniesandtheirsupplierstoconductbusinessinrealtimeaswellassimplify purchase processes and cut costs. Marketing orientation A marketing oriented firm (also called market orientation, the marketing concept, consumer focus, or customer focus) is one that allows the needs and wants of customers and possible customers topushallthefirm’slong-termcrucialdecisions.Thefirm’scorporatecultureissystematicallycommitted to creating customer value. The rationale is that the more a company understands and meets the real needsofitsconsumers,themorelikelyitistohavehappycustomerswhocomebackformore,andtell theirfriends.Thisprocesscanentailthefosteringoflongtermrelationshipswithcustomers.Inorderto determine customer wants, the company usually needs to conduct some form of marketing research. Overall, the marketer expects that becoming marketing oriented, if done correctly, will provide the companywithasustainablecompetitiveadvantage. The concept of marketing orientation was developed in the late 1960s and early 1970s at HarvardUniversityandatahandfulofforwardthinkingcompanies,suchasMckinsey&Company.It replacedtheprevioussalesorientationthatwasprevalentbetweenthemid1950sandtheearly1970s, and the production orientation that predominated prior to the mid 1950s. Since the concept was first introducedinthelate1960s,ithasbeenmodified,repackaged,andrenamedas“customerfocus”,“the marketingphilosophy”,“marketdriven”,“customerintimacy”,“consumerfocus”,“customerdriven”, and“themarketingconcept”. Application of the concept Customer focus can be seen as a process that involves three steps. First customer wants are researched,thentheinformationisdisseminatedthroughoutthefirmandproductsaredeveloped,then finallycustomersatisfactionismonitoredandadjustmentsmadeifnecessary. The process can be applied at the individual level (called personalized marketing), the group level(calledmarketsegmentation),andoccasionallyatthemasslevel(massmarketing).Thelargerthe group size, the more difficult the concept is to apply. Techniquesthatfirmsusetounderstandthecustomerinclude: • Quantitativemarketingresearch-suchas;surveysandquestionnaires • Qualitative marketing research - such as; focus groups and advisory panels • Market research and industry research - such as; Porter 5 forces analysis • Face-to-facemeetingswithcustomers • Face-to-face meetings with frontline staff - sales reps, clerks, and receptionists • Customercomplaintsdepartment • Customer hotlines -Web and telephone • Visitstocustomers’facilities • Frequent user programs and databases
112 • User groups - Beta testing • Conferences SUMMARY Product management is responsible for critical day-in-day-out product decisions that dictate theverysuccessofyourbusinessstrategy.Withouteffectiveproductmanagement,productdevelopment ispronetoguesswork;withworld-classproductmanagement,productandservicecompaniesproceed with product development in the knowledge that markets and customers are intimately understood. This insight into the ingredients of successful products is not without its challenges: Understanding customer needs is only one dimension of product management, which has to be considered in the context of many other internal and market factors. By gaining a holistic view of these considerations, companiescanconfidentlyidentify,defineandlaunchwinningproductstrategies. • Consolidate multiple sources of valuable market and product data to make fully-informed decisions • Balanceandprioritizeoften-conflictingmarketandproductrequirements • Reconciletop-downandbottom-upplanning • Overcomeincreasingmarket,productandorganizationalcomplexity • Uniteallstakeholdersintotheproductplanningprocesswhilereducingproductplanningcycles • Evaluatedifferentalternatives–fromcandidatesfornewproducts,downtocandidatefeatures for both new and existing products • Create a single, current repository of all the relevant customer, market, competitor, cost, and resource data • Rank requirement, product, and portfolio priorities based on strategic goals, customer commitments,costs,resources,andbenefits • Analyze trade-off decisions based on updated assumptions with on-the-fly reports • Distributetask,andstatusownershipwhilecentralizingdataandvisibility • Create alternative scenarios for side-by-side comparison in seconds, instead of weeks of spreadsheetgymnastics QUESTIONS: 1. What is Product Management? 2. Define Relationship Management? How is it developed? 3. What is Influence? Discuss its history? How is Influences identified? 4. Define Business Marketing? Explain its Origin? How is it different from Consumer Marketing? 5. Who is the Business Marketing Customer?
113 CHAPTER - XIII QUALITATIVEMARKETINGRESEARCH OBJECTIVE Qualitative research is a set of research techniques, used in marketing and the social sciences, inwhichdataareobtainedfromarelativelysmallgroupofrespondentsandnotanalyzedwithstatistical techniques.Thisdifferentiatesitfromquantitativeresearchinwhichalargegroupofrespondentsprovide datathatarestatisticallyanalyzed. The role of qualitative research Qualitativeresearchmethodsareusedprimarilyasapreludetoquantitativeresearch.Theyare usedtodefineaproblem,generatehypotheses,identifydeterminants,anddevelopquantitativeresearch designs. They are inexpensive and fast. Because of the low number of respondents involved, these exploratoryresearchmethodscannotbeusedtogeneralizetothewholepopulation.Theyarehowever, very valuable for exploring an issue and are used by almost all researchers. They can be better than quantitativeresearchatprobingbelowthesurfaceforaffectivedrivesandsubconsciousmotivations. Approaches Mostqualitativemethodsuseadirectapproach:theyclearlydisclosethepurposeofthestudy andtheorganizationthatcommissionedit.Questionsaredirectandtothepoint.Manyotherqualitative techniques use an indirect approach. The true intent of the research is disguised, either by claiming a false purpose or by omitting any reference to the study’s purpose. Some researchers have ethical misgivingsaboutthedeceitinvolvedinthisapproach.Thoseresearchersthatusethisapproachfeelthat it provides the more honest and accurate responses. If disguised methods are used, all respondents should,oncompletion,attendadebriefingsessioninwhichthetruepurposeoftheresearchisgivenand the reason for the deception explained. The main types of qualitative research are: • DepthInterviews o interview is conducted one-on-one, and lasts between 30 and 60 minutes o best method for in-depth probing of personal opinions, beliefs, and values o veryrichdepthofinformation o veryflexible o probingisveryusefulatuncoveringhiddenissues o they are unstructured (or loosely structured)- this differentiates them from survey interviews in which the same questions are asked to all respondents o canbetimeconsumingandresponsescanbedifficulttointerpret
114 o requiresskilledinterviewers-expensive-interviewerbiascaneasilybeintroduced o there is no social pressure on respondents to conform and no group dynamics o start with general questions and rapport establishing questions, then proceed to more purposivequestions o laddering is a technique used by depth interviewers in which you start with questions aboutexternalobjectsandexternalsocialphenomena,thenproceedtointernalattitudes andfeelings o hidden issue questioning is a technique used by depth interviewers in which they concentrate on deeply felt personal concerns and pet peeves o symbolicanalysisisatechniqueusedbydepthinterviewersinwhichdeepersymbolic meanings are probed by asking questions about their opposites • Focus Groups o an interactive group discussion lead by a moderator o unstructured (or loosely structured) discussion where the moderator encourages the freeflowofideas o usually8to12membersinthegroupwhofittheprofileofthetargetgrouporconsumer o usually last for 1 to 2 hours o usuallyrecordedonvideo o theroomusuallyhasalargewindowwithone-wayglass-participantscannotseeout, but the researchers can see in o inexpensiveandfast o canusecomputerandinternettechnologyforon-linefocusgroups o respondents feel a group pressure to conform o groupdynamicsisusefulindevelopingnewstreamsofthoughtandcoveringanissue thoroughly • ProjectiveTechniques o these are unstructured prompts or stimulus that encourage the respondent to project theirunderlyingmotivations,beliefs,attitudes,orfeelingsontoanambiguoussituation o they are all indirect techniques that attempt to disguise the purpose of the research o examplesofprojectivetechniquesinclude: § word association - say the first word that comes to mind after hearing a word -onlysomeofthewordsinthelistaretestwordsthattheresearcherisinterested in,therestarefillers-isusefulintestingbrandnames-variantsincludechain word association and controlled word association § sentencecompletion-respondentsaregivenincompletesentencesandasked
115 tocompletethem § story completion - respondents are given part of a story and are asked to completeit § cartoon tests - pictures of cartoon characters are shown in a specific situation and with dialogue balloons - one of the dialogue balloons is empty and the respondentisaskedtofillitin § thematic apperception tests - respondents are shown a picture (or series of pictures) and asked to make up a story about the picture(s) § role playing - respondents are asked to play the role of someone else - researchersassumethatsubjectswillprojecttheirownfeelingsorbehaviours intotherole § third-persontechnique-averbalorvisualrepresentationofanindividualand his/her situation is presented to the respondent - the respondent is asked to relate the attitudes or feelings of that person - researchers assume that talking inthethirdpersonwillminimizethesocialpressuretogivestandardorpolitically correct responses Quantitative marketing research Quantitative marketing research is the application of quantitative research techniques to the field of marketing. It has roots in both the positivist view of the world, and the modern marketing viewpointthatmarketingisaninteractiveprocessinwhichboththebuyerandsellerreachasatisfying agreement on the “four P’s” of marketing: Product, Price, Place (location) and Promotion.As a social researchmethod,ittypicallyinvolvestheconstructionofquestionnairesandscales.Peoplewhorespond (respondents)areaskedtocompletethesurvey.Marketersusetheinformationsoobtainedtounderstand the needs of individuals in the marketplace, and to create strategies and marketing plans. Industry or market research Industry or market research is the acquisition of corporate intelligence on a broad range of issuesincluding: • Macroenvironment o economy o government o law o technology o ecological
116 • MarketAnalysisandCompetitoranalysis o marketdefinition o marketsize o marketsegmentation o industrystructureandstrategicgroupings o Porter 5 forces analysis o supplychain o competitionandmarketshare o competitors’strengthsandweaknesses o market trends • ConsumerAnalysisorMarketingresearch o natureofthebuyingdecision o participants o demographics o psychographics o buyermotivationandexpectations o loyaltysegments SUMMARY Qualitative is one of the two major approaches to research methodology in social sciences. Qualitativeresearchinvolvesanin-depthunderstandingofhumanbehaviorandthereasonsthatgovern human behavior. Unlike quantitative research, qualitative research relies on reasons behind various aspects of behavior. Simply put, it investigates the why and how of decision making, as compared to what, where, and when of quantitative research. Hence, the need is for smaller but focused samples rather than large random samples. From which, qualitative research categorizes data into patterns as theprimarybasisfororganizingandreportingresults.Qualitativeresearchhastwoprimaryadvantages: 1. It allows the moderator (or interviewer) to interact with respondents, i.e., the moderator can ask questions based on previous responses. This allows for in-depth probing of issues and yieldsgreatdetailinresponse. 2. Itallowsforinteractionbetweengroupmembers.Thisinteractionoftenstimulatesdiscussion anduncoversissuesunanticipatedbythemarketingteam. Theprimarydisadvantageofqualitativeresearchmethodsisthattheyareunreliablepredictors of the population. That is, they can expand our list of possibilities, but they cannot (or should not) be usedtoidentifythebestofthepossibilities. Because of the advantages and disadvantages discussed above, qualitative research is
117 appropriate for two uses: • To generate ideas and concepts (lists of possibilities) • Touncoverconsumerlanguageinordertosubsequentlyaskconsumerstherightquestionsina waytheymostaccuratelyunderstand Itisnotappropriateforevaluatingpre-existingideas. QUESTIONS: 1.DefineQualitativeResearch? 2.WhatistheroleofQualitativeResearchinmarketing?Whatshouldbetheapproachtowards QualitativeResearch? 3. What are the main types of Qualitative Research? 4. Describe Quantitative Marketing Research? What are its advantages? 5. What is Industry Research?
MODEL QUESTION PAPER National Institute of Business Management Chennai - 020 THIRD SEMESTER MBA Subject : Service Marketing Time : 3 hours Marks : 100 Section A I Answer all questions. Each question carries 2 marks :- 1. What is Service Marketing? 2. Give a comprehensive definition of marketing, applicable to both business and non business environments? 3. Define Marketing? 4. What is a Derivative product? 5. What is whole sale market? 5x2=10 marks Section B II Answer all questions. Each question carries 6 marks :- 1. Write a brief history of Marketing? 2. What is a market and what are its functions? 3. What are the types of market? 4. Tabulate a relationship between Lender and a Borrower? 5. How to analyze a financial market? 5x6=30 marks Section C III Answer any three questions. Each question carries 20 marks :- 1. What is Financial Market? Explain the types of Financial Market? What are they used for i.e. what is their purpose? 2. What is a Stock Market? What is its importance, function and purpose? 3. Explain Trading? Who are market Participants? 4. Deduce a relation of the Stock Market to the Modern Financial System? 5. Explain the four Ps of Marketing? 3x20=60 marks

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Service marketing

  • 1. National Institute of Business Management Master of Business Administration (MBA) Service Marketing
  • 2. Chapter Title Page No. I SERVICE MARKETING 5 II MARKET RESEARCH 25 III SERVICE 35 IV PRODUCT (BUSINESS) 38 V MARKET 57 VI TARGET MARKET 66 VII MARKETING MANAGEMENT 73 VIII NEW PRODUCT DEVELOPMENT 80 IX PRODUCT LIFE CYCLE MANAGEMENT 86 X PRICING 90 XI DISTRIBUTION ( BUSINESS) 94 XII PRODUCT MANAGEMENT 101 XIII QUALITATIVE MARKETING RESEARCH 113 CONTENTS CONTENTS CONTENTS CONTENTS CONTENTS
  • 3. 5 CHAPTER - I SERVICEMARKETING OBJECTIVE Service marketing consists of the social and managerial processes by which products; services and value are exchanged in order to fulfill individuals or group’s needs and wants. If marketing is the distinguishingfunctionofthebusiness,thenwhatismarketingandhowisitachieved? 1. “...an organizational function and a set of processes for creating, communicating, and delivering valuetocustomersandformanagingcustomerrelationshipsinwaysthatbenefittheorganization anditsstakeholders.” 2.“Humanactivitydirectedatsatisfyingneedsandwantsthroughexchangeprocesses.” 3. “...the ongoing process of moving people closer to making a decision to purchase, use, follow, refer,upload,download,obey,reject,conform,becomecomplacenttosomeoneelse’sproducts, servicesorvalues.Simply,ifitdoesn’tfacilitatea“sale”thenit’snotmarketing.” 4.“...thethingprocessofanticipating,identifyingandsatisfyingcustomerrequirementsprofitably”. 5. “...find a limited market and seek to dominate it totally.” A comprehensive definition of marketing, applicable to both business and non-business environments,emerges: Processes,functions,exchangesoractivities–thatcreateperceivedvaluebysatisfyingneedsof thoseinvolvedinthetransaction.Theseprocessessucceedinmovingpeopleclosertomakingadecision topurchaseandfacilitatea“sale.”Afterwards,theseprocessesanticipate,identifyandsatisfycustomer requirementsprofitablyandsuccessfullymanageexistingrelationships. “Service Marketing is the ongoing process of moving people closer to making a decision to purchase,use,follow...orconformtosomeoneelse’sproducts,servicesorvalues.Simply,ifitdoesn’t facilitate a “sale” then it’s not marketingThus service marketing is be the “management process of anticipating,identifyingandsatisfyingcustomerrequirementsprofitably”.Thus,operativemarketing involvestheprocessesofmarketresearch,newproductdevelopment,productlifecyclemanagement, pricing,channelmanagementaswellaspromotion.Marketing-”takingactionstodefine,create,grow, develop,maintain,defendandownmarkets”.Anapproachtobusinessthatseekstoidentify,anticipate andsatisfycustomersneeds.Itis“war”betweencompetitors.Howeverthepublicityandhypingofthe eventforcommercialpurposesis,”thisistheprocessofplanningandexecutingtheconception,pricing, promotionanddistributionofideas, goods and services to satisfy customers.”
  • 4. 6 Introduction Services marketing is marketing based on relationship and value. It may be used to market a service or a product. Marketing a service-base business is different from marketing a product-base business. Thereareseveralmajordifferences,including: 1. Thebuyerpurchasesareintangible 2. The service may be based on the reputation of a single person 3. It’smoredifficulttocomparethequalityofsimilarservices 4. The buyer cannot return the service 5. ServiceMarketingmixadds3morep’s,i.e.people,physicalenvironment,processserviceand follow-througharekeystoasuccessfulventure. Whenonemarketsaservicebusiness,onemustkeepinmindthatreputation,value,deliveryof “Managing the evidence” refers to the act of informing customers that the service encounter has been performedsuccessfully.Itisbestdoneinsubtlewayslikeprovidingexamplesordescriptionsofgood andpoorservicethatcanbeusedasabasisofcomparison.Theunderlyingrationaleisthatacustomer mightnotappreciatethefullworthoftheserviceiftheydonothaveagoodbenchmarkforcomparisons. However,itisworthrememberingthatmanyoftheconcepts,aswellasmanyofthespecifictechniques, will work equally well whether they are directed at products or services. In particular, developing a marketingstrategyismuchthesameforproductsandservices,inthatitinvolvesselectingtargetmarkets andformulatingamarketingmix.Thus,TheodoreLevittsuggestedthat“insteadoftalkingof‘goods’ andof‘services’,itisbettertotalkof‘tangibles’and‘intangibles’”.Levittalsowentontosuggestthat marketingaphysicalproductisoftenmoreconcernedwithintangibleaspects(frequentlythe`product service’elementsofthetotalpackage)thanwithitsphysicalproperties.CharlesRevsonmadeafamous commentregardingthebusinessofRevlonInc.:`Inthefactorywemakecosmetics.Inthestorewesell hope.’Arguably,serviceindustrymarketingmerelyapproachestheproblemsfromtheoppositeendof the same spectrum. 1. Marketing Marketing is a social and managerial function that attempts to create, expand and maintain a collectionofcustomers.Itattemptstodeliverdemandsatisfyingoutputthroughprofitableexchanges. • Marketing(traditional),assuggestedbytheAmericanMarketingAssociationistheprocessof planning and executing the conception, pricing, promotion, and distribution of ideas, goods, andservicestocreateexchangesthatsatisfyindividualandorganizationalobjectives. • Marketing,assuggestedbytheAmericanMarketingAssociation,is“anorganizationalfunction and a set of processes for creating, communicating and delivering value to customers and for managingcustomerrelationshipsinwaysthatbenefittheorganizationanditsstakeholders”.
  • 5. 7 • PhilipKotler,inhisearlierbooks,definesmarketingas:“humanactivitydirectedatsatisfying needs and wants through exchange processes”. Still another marketing definition, coined by BrianNorris:“Theprocessofrepeatedlymovingpeopleclosertomakingadecisiontopurchase, use, follow, refer, upload, download, obey, reject, conform, become complacent to another person’s, society’s or organization’s value. Simply, if it doesn’t facilitate a “sale” then it’s not marketing.” • Identifying needs/wants and finding and implementing solutions that satisfy those needs and wants. • Add to Kotler’s and Norris’definitions, a response from the Chartered Institute of Marketing (CIM). The association’s definition claims marketing to be the “management process of anticipating, identifying and satisfying customer requirements profitably”. Thus, operative marketing involves the processes of market research, market segmentation, new product development,productlifecyclemanagement,pricing,channelmanagementaswellaspromotion. • Marketing-”takingactionstodefine,create,grow,develop,maintain,defendandownmarkets”. • An approach to business that seeks to identify, anticipate and satisfy customers needs. • Al Ries and JackTroutdefinedmarketingassimply“war”betweencompetitors. • Anyactivitythatconnectsproducerswithconsumers. • Atamacrolevel,marketingistheprocessofraisingthestandardsofliving,byidentifyingthe existingproblemsandunsatisfiedneedsofpeopleandthensatisfyingthatneedwithaproduct/ service thatdeliversvaluetothecustomer. 2. History of Marketing Thepracticeofmarketingisalmostasoldashumanityitself.Wheneverapersonhasanitemor is capable of performing a service, and he or she seeks another person who might want that item or service,thatpersonisinvolvedinmarketing.AMarketwasoriginallysimplyagatheringplacewhere peoplewithasupplyofitemsorcapacitytoperformaservicecouldmeetwiththosewhomightdesire the items or services, perhaps at a pre-arranged time. Such meetings embodied all the aspects of today’s marketing methods, although in an informal way. Sellers and buyers sought to understand each other’s needs, capacities, and psychology, all with the goalofgettingtheexchangeofitemsorservicestotakeplace.Openairmarketsthroughouttheworld, with buyers and sellers freely mingling, are today’s example of this basic activity.Today’s NewYork Stock Exchange had its humble beginnings as an open air market located atWall Street in NewYork City. TheriseofAgricultureundoubtedlyinfluencedmarketsastheearliestmeansof‘massproduction’ ofanitem,namelyfoodstuffs.Asagricultureallowedonetogrowmorefoodthancouldbeeatenbythe grower alone, and most food is perishable, there was likely motivation to seek out others who could use the excess food, before it spoiled, in exchange for other items.
  • 6. 8 3. Market A market is a social arrangement that allows buyers and sellers to discover information and carry out a voluntary exchange of goods or services. It is one of the two key institutions that organize trade, along with the right to own property.Allowing markets to arrive at a pareto efficientoutcomeis one of the key components of capitalism. In everyday usage, the word “market” may refer to the location where goods are traded, sometimes known as a marketplace, or to a street market. Function Thefunctionofamarketrequires,ataminimum,thatbothpartiesexpecttobecomebetteroff as a result of the transaction. Markets generally rely on price adjustments to provide information to parties engaging in a transaction, so that each may accurately gauge the subsequent change of their welfare.Inlesssophisticatedmarkets,suchasthoseinvolvingbarter,individualbuyersandsellersmust engageinamorelengthyprocessofhagglinginordertogainthesameinformation.Marketsareefficient when the price of a good or service attracts exactly as much demand as the market can currently supply.Thechieffunctionofamarket,then,istoadjustpricestoaccommodatefluctuationsinsupply anddemandinordertoachieveallocativeefficiency.Aneconomicsysteminwhichgoodsandservices are exchanged by market functions is called a market economy.An alternative economic system in whichnon-marketforces(oftengovernmentmandates)determinepricesarecalledplannedeconomies orcommandeconomies.Theattempttocombinesocialistidealswiththeincentivesystemofamarket isknownasmarketsocialism. Types of markets Althoughmanymarketsexistinthetraditionalsense—suchasafleamarket—therearevarious othertypesofthemandvariousorganizationalstructurestoassisttheirfunctions. Amarketcanbeorganizedasanauction,asashoppingcenter,asacomplexinstitutionsuchas astockmarket,andasaninformaldiscussionbetweentwoindividuals. In economics, a market that runs under laissez-faire policies is a free market. It is “free” in the sense that the government makes no attempt to intervene through taxes, subsidies, minimum wages, price ceilings, etc. Markets may be distorted by a seller or sellers with monopoly power, or a buyer withmonopolypower.Also,theleveloforganizationornegotiationpowerofbuyers,markedlyaffects thefunctioningofthemarket.Marketswherepricenegotiationsdonotarriveatefficientoutcomesfor both sides are said to experience market failure. Most markets are regulated by state wide laws and regulations. While barter markets exist, most markets use currency or some other form of money. Markets of varying types can spontaneously arise whenever a party has interest in a good or service that some other party can provide. Hence there can be a market for cigarettes in correctional facilities,anotherforchewingguminaplayground,andyetanotherforcontractsforthefuturedelivery ofacommodity.Therecanbeblackmarkets,whereagoodisexchangedillegallyandvirtualmarkets,
  • 7. 9 such as eBay in which buyers and sellers do not physically interact. There can also be markets for goods under a command economy despite pressure to repress them. a) Financial market Ineconomicsafinancialmarketisamechanismwhichallowspeopletotrademoneyforsecurities or commodities such as gold or other precious metals. In general, any commodity market might be consideredtobeafinancialmarket,iftheusualpurposeoftradersisnottheimmediateconsumptionof thecommodity,butratherasameansofdelayingoracceleratingconsumptionovertime. Financial markets are affected by forces of supply and demand, and allocate resources over time through a price mechanism such as the interest rate. Typically financial markets use a market making or a bid and ask process. Both general markets, where many commodities are traded and specialized markets (where only one commodity is traded) exist. Markets work by placing many interested sellers in one “place”, thusmakingthemeasiertofindforprospectivebuyers.Aneconomywhichreliesprimarilyoninteractions between buyers and sellers to allocate resources is known as a market economy in contrast either to a command economy or to a non-market economy that is based, such as a gift economy. InFinance,Financialmarketsfacilitate: • Theraisingofcapital(inthecapitalmarkets); • Thetransferofrisk(inthederivativesmarkets);and • Internationaltrade(inthecurrencymarkets). They are used to match those who want capital to those who have it. Typically a borrower issues a receipt to the lender promising to pay back the capital. These receiptsaresecuritieswhichmaybefreelyboughtorsold.Inreturnforlendingmoneytotheborrower, thelenderwillexpectsomecompensationintheformofinterestordividends. Thetermfinancialmarketscanbeacauseofmuchconfusion. Financialmarketscouldmean: 1.Organizationsthatfacilitatethetradeinfinancialproducts.i.e.Stockexchangesfacilitatethetrade in stocks, bonds and warrants. 2. The coming together of buyers and sellers to trade financial products. i.e. stocks and shares are traded between buyers and sellers in a number of ways including: the use of stock exchanges; directly between buyers and sellers etc. Inacademia,studentsoffinancewillusebothmeaningsbutstudentsofeconomicswillonlyuse thesecondmeaning.
  • 8. 10 Financial markets can be domestic or they can be international. Types of financial markets Thefinancialmarketscanbedividedintodifferentsubtypes: • Capitalmarketswhichconsistof: o Stock markets, which provide financing through the issuance of shares or common stock, and enable the subsequent trading thereof. o Bondmarkets,whichprovidefinancingthroughtheissuanceofBonds,andenablethe subsequenttradingthereof. • Commoditymarkets,whichfacilitatethetradingofcommodities. • Moneymarkets,whichprovideshorttermdebtfinancingandinvestment. • Derivativesmarkets,whichprovideinstrumentsforthemanagementoffinancialrisk. o Futures markets, which provide standardized forward contracts for trading products at some future date; see also forward market. • Insurancemarkets,whichfacilitatetheredistributionofvariousrisks. • Foreignexchangemarkets,whichfacilitatethetradingofforeignexchange. Thecapitalmarketsconsistofprimarymarketsandsecondarymarkets.Newlyformed(issued) securities are bought or sold in primary markets. Secondary markets allow investors to sell securities thattheyholdorbuyexistingsecurities. Raisingcapital Tounderstandfinancialmarkets,letuslookatwhattheyareusedfor,i.e.whatistheirpurpose? Withoutfinancialmarkets,borrowerswouldhavedifficultyfindinglendersthemselves.Intermediaries suchasbankshelpinthisprocess.Bankstakedepositsfromthosewhohavemoneytosave.Theycan thenlendmoneyfromthispoolofdepositedmoneytothosewhoseektoborrow.Bankspopularlylend moneyintheformofloansandmortgages. More complex transactions than a simple bank deposit require markets where lenders and theiragentscanmeetborrowersandtheiragents,andwhereexistingborrowingorlendingcommitments can be sold on to other parties.Agood example of a financial market is a stock exchange.Acompany can raise money by selling shares to investors and its existing shares can be bought or sold. Thefollowingtableillustrateswherefinancialmarketsfitintherelationshipbetweenlendersand borrowers:
  • 9. 11 Relationship between lenders and borrowers Lenders Individuals do not think of themselves as lenders but they lend to other parties in many ways. Lendingactivitiesmaybe: • puttingmoneyinasavingsaccountatabank; • contributingtoapensionplan; • payingpremiumstoaninsurancecompany; • investingingovernmentbonds;or • Investingincompanyshares. Companies tend to be borrowers of capital. When companies have surplus cash that is not needed for a short period of time, they may seek to make money from their cash surplus by lending it viashorttermmarketscalledmoneymarkets. There are a few companies that have very strong cash flows. These companies tend to be lenders rather than borrowers. Such companies may decide to return cash to lenders (e.g. via a share buyback.)Alternatively,theymayseektomakemoremoneyontheircashbylendingit(e.g.investing in bonds and stocks.) Borrowers Individuals borrow money via bank loans for short term needs or longer term mortgages to helpfinanceahousepurchase. Companiesborrowmoneytoaidshorttermorlongtermcashflows.Theyalsoborrowtofund modernizationorfuturebusinessexpansion. Governmentsoftenfindtheirspendingrequirementsexceedtheirtaxrevenues.Tomakeupthis difference, they need to borrow. Governments also borrow on behalf of nationalized industries, municipalities,localauthoritiesandotherpublicsectorbodies.IntheUK,thetotalborrowingrequirement is often referred to as the public sector borrowing requirement (PSBR). Governmentsborrowbyissuingbonds.IntheUK,thegovernmentalsoborrowsfromindividuals by offering bank accounts and Premium Bonds. Government debt seems to be permanent. Indeed the debt seemingly expands rather than being paid off. One strategy used by governments to reduce the value of the debt is to influence inflation. Lenders Individuals Companies Financial Intermediaries Banks Insurance Companies PensionFunds MutualFunds Financial Markets Interbank Stock Exchange Money Market Bond Market ForeignExchange Borrowers Individuals Companies CentralGovernment Municipalities PublicCorporations
  • 10. 12 Municipalitiesandlocalauthoritiesmayborrowintheirownnameaswellasreceivingfunding fromnationalgovernments.IntheUK,thiswouldcoveranauthoritylikeHampshireCountyCouncil. Public Corporations typically include nationalized industries. These may include the postal services, railwaycompaniesandutilitycompanies. Manyborrowershavedifficultyraisingmoneylocally.Theyneedtoborrowinternationallywith the aid of Foreign exchange markets. Derivative products Duringthe1980sand1990s,amajorgrowthsectorinfinancialmarketsisthetradeinsocalled derivative products, or derivatives for short. In the financial markets, stock prices, bond prices, currency rates, interest rates and dividends go up and down, creating risk. Derivative products are financial products which are used to control risk or paradoxically exploit risk. Currency markets Seemingly, the most obvious buyers and sellers of foreign exchange are importers/exporters. Whilethismayhavebeentrueinthedistantpast,wherebyimporters/exporterscreatedtheinitialdemand for currency markets, importers and exporters now represent only 1/32 of foreign exchange dealing, according to BIS. Thepictureofforeigncurrencytransactionstodayshows: • BanksandInstitutions • Speculators • Governmentspending(forexample,militarybasesabroad) • Importers/Exporters • Tourists Analysis of financial markets Muchefforthasgoneintothestudyoffinancialmarketsandhowpricesvarywithtime.Charles Dow, one of the founders of Dow Jones & Company andTheWall Street Journal, enunciated a set of ideas on the subject which are now called Dow Theory. This is the basis of the so-called technical analysismethodofattemptingtopredictfuturechanges.Oneofthetenetsof“technicalanalysis”isthat market trends give an indication of the future, at least in the short term. The claims of the technical analysts are disputed by many academics, who claim that the evidence points rather to the random walk hypothesis, which states that the next change is not correlated to the last change. Thescaleofchangesinpriceoversomeunitoftimeiscalledthevolatility.Itwasdiscoveredby BenoîtMandelbrotthatchangesinpricesdonotfollowaGaussiandistribution,butarerathermodeled betterbyLévystabledistributions.Thescaleofchange,orvolatility,dependsonthelengthofthetime unit to a power a bit more than 1/2. Large changes up or down are more likely that what one would calculateusingaGaussiandistributionwithanestimatedstandarddeviation.
  • 11. 13 Financial markets in popular culture Only negative stories about financial markets tend to make the news. The general perception, for those not involved in the world of financial markets is of a place full of crooks and con artists. Big stories like the Enron scandal serve to enhance this view. Storiesthatmaketheheadlinesinvolvetheincompetent,theluckyandthedownrightskillful. TheBaringsscandalisaclassicstoryofincompetencemixedwithgreedleadingtodireconsequences. Another story of note is that of BlackWednesday, when sterling came under attack from hedge fund speculators.ThisledtomajorproblemsfortheUnitedKingdomandhadaseriousimpactonitscourse in Europe.Acommonly recurring event is the stock market bubble, whereby market prices rise to dizzyingheightsinasocalledexaggeratedbullmarket.Thisisnotanewphenomenon;indeedthestory ofTulipmaniaintheNetherlandsinthe17thcenturyillustratesanearlyrecordedexample. Financial markets are merely tools. Like all tools they have bothbeneficial and harmfuluses. Overall, financial markets are used by honest people. Otherwise, people would turn away from them en masse.As in other walks of life, the financial markets have their fair share of rogue elements. Financial markets slang • Bigswingingdick,ahighlysuccessfulfinancialmarketstrader.Thetermwasmadepopularin the book Liar’s Poker, by Michael Lewis • Geek, a Quant • Nerd, a Quant • Quant, a quantitative analyst skilled in the black arts of PhD level (and above) mathematics andstatisticalmethods • Rocketscientist,afinancialconsultantatthezenithofmathematicalandcomputerprogramming skill.Theyareabletoinventderivativesoffrighteningcomplexityandconstructsophisticated pricing models. They generally handle the most advanced computing techniques adopted by the financial markets since the early 1980s. Typically, they are physicists and engineers by training;rocketscientistsdonotnecessarilybuildrocketsforaliving. b) Stock market A stock market is a market for the trading of company stock, and derivatives of same; both of these are securities listed on a stock exchange as well as those only traded privately. Theterm‘thestockmarket’isaconceptforthemechanismthatenablesthetradingofcompany stocks (collective shares), other securities, and derivatives. Bonds are still traditionally traded in an informal,over-the-countermarketknownasthebondmarket.Commoditiesaretradedincommodities markets,andderivativesaretradedinavarietyofmarkets(but,likebonds,mostly‘over-the-counter’). The size of the worldwide ‘bond market’is estimated at $45 Trillion. The size of the ‘stock market’isestimatedasabouthalfthat.Theworldderivativesmarkethasbeenestimatedatabout$300 Trillion. The major U.S. Banks alone are said to account for about $100 Trillion. It must be noted thoughthatthederivativesmarket,becauseitisstatedintermsofnotionaloutstandingamounts,cannot be directly compared to a stock or fixed income market, which refers to actual value.
  • 12. 14 The stocks are listed and traded on stock exchanges which are entities (a corporation or mutualorganization)specializedinthebusinessofbringingbuyersandsellersofstocksandsecurities together.ThestockmarketintheUnitedStatesincludesthetradingofallsecuritieslistedontheNYSE, the NASDAQ, theAmex, as well as on the many regional exchanges, the OTCBB, and Pink Sheets. European examples of stock exchanges include the Paris Bourse (now part of Euronext), the London Stock Exchange and the Deutsche Börse. Trading Participantsinthestockmarketrangefromsmallindividualstockinvestorstolargehedgefund traders,whocanbebasedanywhere.Theirordersusuallyendupwithaprofessionalatastockexchange, who executes the order. Someexchangesarephysicallocationswheretransactionsarecarriedoutonatradingfloor,by a method known as open outcry. This type of auction is used in stock exchanges and commodity exchangeswheretradersmayenter“verbal”bidsandofferssimultaneously.Theothertypeofexchange is a virtual kind, composed of a network of computers where trades are made electronically via tradersatcomputerterminals. Actualtradesarebasedonanauctionmarketparadigmwhereapotentialbuyerbidsaspecific price for a stock and a potential seller asks a specific price for the stock. (Buying or selling at market means you will accept any bid price or ask price for the stock.) When the bid and ask prices match, a saletakesplaceonafirstcomefirstservedbasisiftherearemultiplebiddersoraskersatagivenprice. The purpose of a stock exchange is to facilitate the exchange of securities between buyers and sellers, thusprovidingamarketplace(virtualorreal).Theexchangesprovidereal-timetradinginformationon thelistedsecurities,facilitatingpricediscovery. The NewYork Stock Exchange is a physical exchange, where much of the trading is done face-to-face on a trading floor. This is also referred to as a “listed” exchange (because only stocks listed with the exchange may be traded). Orders enter by way of brokerage firms that are members of the exchange and flow down to floor brokers who go to a specific spot on the floor where the stock trades.At this location, known as the trading post, there is a specific person known as the specialist whose job is to match buy orders and sell orders. Prices are determined using an auction method knownas“openoutcry”:thecurrentbidpriceisthehighestamountanybuyeriswillingtopayandthe current ask price is the lowest price at which someone is willing to sell; if there is a spread, no trade takes place. For a trade to take place, there must be a matching bid and ask price. (If a spread exists, the specialist is supposed to use his own resources of money or stock to close the difference, after some time.) Once a trade has been made, the details are reported on the “tape” and sent back to the brokerage firm, who then notifies the investor who placed the order.Although there is a significant amountofdirecthumancontactinthisprocess,computersdoplayahugeroleintheprocess,especially forso-called“programtrading”. The Nasdaq is a virtual (listed) exchange, where all of the trading is done over a computer network. The process is similar to the above, in that the seller provides an asking price and the buyer
  • 13. 15 providesabiddingprice.However,buyersandsellersareelectronicallymatched.OneormoreNasdaq marketmakerswillalwaysprovideabidandaskpriceatwhichtheywillalwayspurchaseorsell‘their’ stock. The Paris Bourse, now part of Euronext is an order-driven, electronic stock exchange. It was automated in the late 1980s. Before, it consisted of an open outcry exchange. Stockbrokers met in the tradingfloororthePalaisBrongniart.In1986,theCATStradingsystemwasintroduced,andtheorder matchingprocesswasfullyautomated. Fromtimetotime,activetrading(especiallyinlargeblocksofsecurities)hasmovedawayfrom the‘active’exchanges.Securitiesfirms,ledbyUBSAG,GoldmanSachsGroupInc.andCreditSuisse Group, already steer 12 percent of U.S. security trades away from the exchanges to their internal systems.Thatshareprobablywillincreaseto18percentby2010asmoreinvestmentbanksbypassthe NYSEandNasdaqandpairbuyersandsellersofsecuritiesthemselves,accordingtodatacompiledby Boston-basedAite Group LLC, a brokerage-industry consultant. NowthatcomputershaveeliminatedtheneedfortradingfloorsliketheBigBoard’s,thebalance of power in equity markets is shifting. By bringing more orders in-house, where clients can move big blocks of stock anonymously, brokers pay the exchanges less in fees and capture a bigger share of the $11billionayearthatinstitutionalinvestorspayintradingcommissions. Market participants Many years ago, worldwide, buyers and sellers were individual investors, such as wealthy businessmen,withlongfamilyhistories(andemotionalties)toparticularcorporations.Overtime,markets have become more “institutionalized”; buyers and sellers are largely institutions (e.g., pension funds, insurancecompanies,mutualfunds,hedgefunds,investorgroups,andbanks).Theriseoftheinstitutional investor has brought with it some improvements in market operations. Thus, the government was responsiblefor“fixed”(andexorbitant)feesbeingmarkedlyreducedforthe‘small’investor,butonly after the large institutions had managed to break the brokers’ solid front on fees (they then went to ‘negotiated’fees,butonlyforlargeinstitutions). However, corporate governance (at least in theWest) has been greatly affected by the rise of institutional‘owners.’ Importance of stock markets Function and purpose The stock market is one of the most important sources for companies to raise money. This allowsbusinessestogopublic,orraiseadditionalcapitalforexpansion.Theliquiditythatanexchange providesaffordsinvestorstheabilitytoquicklyandeasilysellsecurities.Thisisanattractivefeatureof investing in stocks, compared to other less liquid investments such as real estate. Historyhasshownthatthepriceofsharesandotherassetsisanimportantpartofthedynamics of economic activity, and can influence or be an indicator of social mood. Rising share prices, for
  • 14. 16 instance, tend to be associated with increased business investment and vice versa. Share prices also affectthewealthofhouseholdsandtheirconsumption.Therefore,centralbankstendtokeepaneyeon the control and behavior of the stock market and, in general, on the smooth operation of financial systemfunctions.Financialstabilityistheraisond’êtreofcentralbanks. Exchanges also act as the clearinghouse for each transaction, meaning that they collect and deliver the shares, and guarantee payment to the seller of a security. This eliminates the risk to an individualbuyerorsellerthatthecounterpartycoulddefaultonthetransaction. Thesmoothfunctioningofalltheseactivitiesfacilitateseconomicgrowthinthatlowercostsand enterprise risks promote the production of goods and services as well as employment. In this way the financialsystemcontributestoincreasedprosperity. Relation of the stock market to the modern financial system The financial system in most western countries has undergone a remarkable transformation. One feature of this development is disintermediation.Aportion of the funds involved in saving and financingflowsdirectlytothefinancialmarketsinsteadofbeingroutedviabanks’traditionallendingand deposit operations.The general public’s heightened interest in investing in the stock market, either directlyorthroughmutualfunds,hasbeenanimportantcomponentofthisprocess.Statisticsshowthat inrecentdecadesshareshavemadeupanincreasinglylargeproportionofhouseholds’financialassets inmanycountries.Inthe1970s,inSweden,depositaccountsandotherveryliquidassetswithlittlerisk made up almost 60 per cent of households’ financial wealth, compared to less than 20 per cent in the 2000s. The major part of this adjustment in financial portfolios has gone directly to shares but a good deal now takes the form of various kinds of institutional investment for groups of individuals, e.g., pensionfunds,mutualfunds,hedgefunds,insuranceinvestmentofpremiums,etc.Thetrendtowards forms of saving with a higher risk has been accentuated by new rules for most funds and insurance, permittingahigherproportionofsharestobonds.Similartendenciesaretobefoundinotherindustrialized countries. In all developed economic systems, such as the European Union, the United States, Japan and other first world countries, the trend has been the same: saving has moved away from traditional (government insured) bank deposits to more risky securities of one sort or another. The stock market, individual investors, and financial risk Riskierlong-termsavingrequiresthatanindividualpossesstheabilitytomanagetheassociated increasedrisks.Stockpricesfluctuatewidely,inmarkedcontrasttothestabilityof(governmentinsured) bankdepositsorbonds.Thisissomethingthatcouldaffectnotonlytheindividualinvestororhousehold, butalsotheeconomyonalargescale.Thefollowingdealswithsomeoftherisksofthefinancialsector ingeneralandthestockmarketinparticular.Thisiscertainlymoreimportantnowthatsomanynewcomers haveenteredthestockmarket,orhaveacquiredother‘risky’investments(suchas‘investment’property, i.e., real estate and collectables). With each passing year, the noise level in the stock market rises.Television commentators, financialwriters,analysts,andmarketstrategistsareallovertakingeachothertogetinvestors’attention. At the same time, individual investors, immersed in chat rooms and message boards, areexchanging
  • 15. 17 questionable and often misleading tips.Yet, despite all this available information, investors find it increasingly difficult to profit. Stock prices skyrocket with little reason, then plummet just as quickly, andpeoplewhohaveturnedtoinvestingfortheirchildren’seducationandtheirownretirementbecome frightened. Sometimes there appears to be no rhyme or reason to the market, only folly. Thisisaquotefromtheprefacetoapublishedbiographyaboutthewell-knownandlongterm value oriented stock investorWarren Buffett. Buffett began his career with only 100 U.S. dollars and hasovertheyearsbuilthimselfamultibillion-dollarfortune.Thequoteillustratessomeofwhathasbeen happening in the stock market during the end of the 20th century and the beginning of the 21st. The behavior of the stock market Fromexperienceweknowthatinvestorsmaytemporarilypullfinancialpricesawayfromtheir long term trend level. Over-reactions may occur— so that excessive optimism (euphoria) may drive pricesundulyhighorexcessivepessimismmaydrivepricesundulylow.Newtheoreticalandempirical argumentshavebeenputforwardagainstthenotionthatfinancialmarketsareefficient. Accordingtotheefficientmarkethypothesis(EMH),onlychangesinfundamentalfactors,such asprofitsordividends,oughttoaffectshareprices.(Butthislargelytheoreticacademicviewpointalso predicts that little or no trading should take place— contrary to fact— since prices are already at or nearequilibrium,havingpricedinallpublicknowledge.)Buttheefficient-markethypothesisissorely tested by such events as the stock market crash in 1987, when the Dow Jones index plummeted 22.6 percent—thelargest-everone-dayfallintheUnitedStates.Thiseventdemonstratedthatshareprices canfalldramaticallyeventhough,tothisday,itisimpossibletofixadefinitecause:athoroughsearch failedtodetectanyspecificorunexpecteddevelopmentthatmightaccountforthecrash.Italsoseems to be the case more generally that many price movements are not occasioned by new information; a study of the fifty largest one-day share price movements in the United States in the post-war period confirmsthis.[2] Moreover,whiletheEMHpredictsthatallpricemovement(intheabsenceofchangein fundamentalinformation)israndom(i.e.,non-trending),manystudieshaveshownamarkedtendency for the stock market to trend over time periods of weeks or longer. Various explanations for large price movements have been promulgated. For instance, some research has shown that changes in estimated risk, and the use of certain strategies, such as stop-loss limitsandValueatRisklimits,theoreticallycouldcausefinancialmarketstooverreact. Other research has shown that psychological factors may result in exaggerated stock price movements.Psychologicalresearchhasdemonstratedthatpeoplearepredisposedto‘seeing’patterns, andoftenwillperceiveapatterninwhatis,infact,justnoise.(Somethinglikeseeingfamiliarshapesin clouds or ink blots.) In the present context this means that a succession of good news items about a company may lead investors to overreact positively (unjustifiably driving the price up).Aperiod of goodreturnsalsobooststheinvestor’sself-confidence,reducinghis(psychological)riskthreshold.[3] Another phenomenon— also from psychology— that works against an objective assessment is groupthinking.Associalanimals,itisnoteasytosticktoanopinionthatdiffersmarkedlyfromthat
  • 16. 18 of a majority of the group.An example with which you may be familiar is the reluctance to enter a restaurantthatisempty;peoplegenerallyprefertohavetheiropinionvalidatedbythoseofothersinthe group. In one paper the authors draw an analogy with gambling. In normal times the market behaves likeagameofroulette;theprobabilitiesareknownandlargelyindependentoftheinvestmentdecisions ofthedifferentplayers.Intimesofmarketstress,however,thegamebecomesmorelikepoker(herding behaviortakesover).Theplayersnowmustgiveheavyweighttothepsychologyofotherinvestorsand howtheyarelikelytoreactpsychologically. Thestockmarket,asanyotherbusiness,isquiteunforgivingofamateurs.Inexperiencedinvestors rarely get the assistance and support they need. In the period running up to the recent Nasdaq crash, less than 1 per cent of the analyst’s recommendations had been to sell (and even during the 2000 - 2002crash,theaveragedidnotriseabove5%).Themediaamplifiedthegeneraleuphoria,withreports ofrapidlyrisingsharepricesandthenotionthatlargesumsofmoneycouldbequicklyearnedintheso- calledneweconomystockmarket.(Andlateramplifiedthegloomwhichdescendedduringthe2000- 2002 crash, so that by summer of 2002, predictions of a DOW average below 5000 were quite common.) Irrational behavior Sometimes the market tends to react irrationally to economic news, even if that news has no real effect on the technical value of securities itself. Therefore, the stock market can be swayed tremendously in either direction by press releases, rumors and mass panic. Furthermore, the stock market comprises a large amount of speculative analysts, or pencil pushers,whohavenosubstantialmoneyorfinancialinterestinthemarket,butmakemarketpredictions andsuggestionsregardless.Overtheshort-term,stocksandothersecuritiescanbebatteredorbuoyed byanynumberoffastmarket-changingevents,makingthestockmarketdifficulttopredict. Stock market index The movements of the prices in a market or section of a market are captured in price indices called stock market indices, of which there are many, e.g., the S&P, the FTSE and the Euronext indices.Suchindicesareusuallymarketcapitalization(thetotalmarketvalueoffloatingcapitalofthe company)weighted,withtheweightsreflectingthecontributionofthestocktotheindex.Theconstituents oftheindexarereviewedfrequentlytoinclude/excludestocksinordertoreflectthechangingbusiness environment. Derivative instruments Financial innovation has brought many new financial instruments whose pay-offs or values depend on the prices of stocks. Some examples are exchange traded funds (ETFs), stock index and stock options, equity swaps, single-stock futures, and stock index futures. These last two may be
  • 17. 19 traded on futures exchanges (which are distinct from stock exchanges—their history traces back to commoditiesfuturesexchanges),ortradedover-the-counter.Asalloftheseproductsareonlyderived from stocks, they are sometimes considered to be traded in a (hypothetical) derivatives market, rather thanthe(hypothetical)stockmarket. Leveraged Strategies Stockthatatraderdoesnotactuallyownmaybetradedusingshortselling;marginbuyingmay be used to purchase stock with borrowed funds; or, derivatives may be used to control large blocks of stocks for a much smaller amount of money than would be required by outright purchase or sale. Short selling In short selling, the trader borrows stock (usually from his brokerage which holds its clients’ shares or its own shares on account to lend to short sellers) then sells it on the market, hoping for the pricetofall.Thetradereventuallybuysbackthestock,makingmoneyifthepricefellinthemeantime or losing money if it rose. Exiting a short position by buying back the stock is called “covering a short position.” This strategy may also be used by unscrupulous traders to artificially lower the price of a stock. Hence most markets either prevent short selling or place restrictions on when and how a short sale can occur.The practice of naked shorting is illegal in most (but not all) stock markets. Marginbuying Inmarginbuying,thetraderborrowsmoney(atinterest)tobuyastockandhopesforittorise. Most industrialized countries have regulations that require that if the borrowing is based on collateral from other stocks the trader owns outright, it can be a maximum of a certain percentage of those other stocks’ value. In the United States, the margin requirements have been 50% for many years (that is, if you want to make a $1000 investment, you need to put up $500, and there is often a maintenance marginbelowthe$500).Amargincallismadeifthetotalvalueoftheinvestor’saccountcannotsupport the loss of the trade. (Upon a decline in the value of the margined securities additional funds may be requiredtomaintaintheaccount’sequity,andwithorwithoutnoticethemarginedsecurityoranyothers withintheaccountmaybesoldbythebrokeragetoprotectitsloanposition.Theinvestorisresponsible foranyshortfallfollowingsuchforcedsales.)Regulationofmarginrequirements(bytheFederalReserve) was implemented after the Crash of 1929. Before that, speculators typically only needed to put up as little as 10 percent (or even less) of the total investment represented by the stocks purchased. Other rulesmayincludetheprohibitionoffree-riding:puttinginanordertobuystockswithoutpayinginitially (there is normally a three-day grace period for delivery of the stock), but then selling them (before the three-daysareup)andusingpartoftheproceedstomaketheoriginalpayment(assumingthatthevalue of the stocks has not declined in the interim). New issuance Globalissuanceofequityandequity-relatedinstrumentstotaled$505billionin2004,a29.8% increase over the $389 billion raised in 2003. Initial public offerings (IPOs) by US issuers increased
  • 18. 20 221%with233offeringsthatraised$45billion,andIPOsinEurope,MiddleEastandAfrica(EMEA) increased by 333%, from $ 9 billion to $39 billion. Investment strategies One of the many things people always want to know about the stock market is, “How do I make money investing?” There are many different approaches; two basic methods are classified as eitherfundamentalanalysisortechnicalanalysis.Fundamentalanalysisreferstoanalyzingcompaniesby their financial statements found in SEC Filings, business trends, general economic conditions, etc. Technicalanalysisstudiespriceactionsinmarketsthroughtheuseofchartsandquantitativetechniques to attempt to forecast price trends regardless of the company’s financial prospects. One example of a technical strategy is theTrendfollowingmethod,usedbyJohnW.HenryandEdSeykota,whichuses pricepatterns,utilizesstrictmoneymanagementandisalsorootedinriskcontrolanddiversification. Additionally,manychoosetoinvestviatheindexmethod.Inthismethod,oneholdsaweighted or unweighted portfolio consisting of the entire stock market or some segment of the stock market (suchastheS&P500orWilshire5000).Theprincipalaimofthisstrategyistomaximizediversification, minimizetaxesfromtoofrequenttrading,andridethegeneraltrendofthestockmarket(which,inthe U.S., has averaged nearly 10%/year, compounded annually, sinceWorld War II). Finally,onemaytradebasedoninsideinformation,whichisknownasinsidertrading.However, thisisillegalinmostjurisdictions(i.e.,inmostdevelopedworldstockmarkets c) Media market A media market, broadcast market, media region, designated market area, DMA or simply market is a region where the population can receive the same (or similar) television and radio station offerings,andmayalsoincludeothertypesofmediaincludingnewspapersandInternetcontent.They cancoincidewithmetropolitanareas,thoughruralregionswithfewsignificantpopulationcenterscan alsobedesignatedasmarkets.Conversely,verylargemetropolitanareascansometimesbesubdivided intomultiplesegments.Marketregionsmayoverlap,meaningthatpeopleresidingontheedgeofone mediamarketmaybeabletoreceivecontentfromothernearbymarketsaswell.Theyarewidelyused inratings, d) Marketplace A marketplace is the space, actual or metaphorical, in which a market operates. The term is alsousedinatrademarklawcontexttodenotetheactualconsumerenvironment,ie.the‘realworld’in which products and services are provided and consumed. Marketplaces and street markets A marketplace is a location where goods and services are exchanged. The traditional market square is a city square where traders set up stalls and buyers browse the merchandise. This kind of market is very old, and countless such markets are still in operation around the whole world.
  • 19. 21 • In the USAsuch markets fell out of favor, but renewed interest in local food has caused the reinventionofthistypeofmarket,calledfarmers’markets,inmanytownsandcities. • IncontinentalEurope,especiallyinFrance,streetmarkets,aswellas“marketplaces”(covered placeswheremerchantshavestalls,butnotentirestores)arecommonplace.Bothresellersand producers sell their wares to the public. • Markets are often temporary, with stalls only present for one or two days a week (“market days”), however some (such as Camden Market in London, UK) are open every day of the week.Suchmarketsarenormallyspecialist—thevariousstallsofCamdenMarket,alongwith theshopsassociatedwithit,sellavarietyofalternativelifestyleproductsrangingfromclothes and jewellery to CDs, instruments and furniture.An example of a large market is Chatuchak weekend market in Bangkok. • Some large markets have become permanent institutions comparable to shopping malls. One example is the huge Seventh-Kilometer Market near Odessa, Ukraine. TheRomantermformarket,stillinuseinarelatedsense,isforum.Themodernshoppingmall can be seen as an extension of this concept. Wholesale markets A wholesale market is a market which primarily sells to traders such as caterers and small shopkeepers,ratherthantomembersofthepublic,althoughmembersofthepublicarenotnecessarily excluded.London,EnglandhasseveralcenturiesoldwholesalemarketssuchasSmithfieldMarketand BillingsgateFishMarket. Internet Markets Thegrowingprevalenceofinternetaccesshasenablednewmarketstoemergeonline.Perhaps best known among these marketplaces is eBay, an enormous globally available auction house. The internet has also allowed less common marketplaces to thrive by connecting buyers and sellers from disparatelocations.Prosperissuchanexample.Thisserviceenablesanyonetoofferloansorgetloans fromotherpeople.AnotherexampleiseMove.comanaffiliateofuHaulthatenablesanyonetoofferor request moving or shipping services. The formations of online marketplaces often occur quickly in response to social or economic trends. For example, as gas prices were climbing through most of 2006,anonlineservicesprangupcalledRidesterthatoffersaroadtripmarketplacewherepeoplecan buy or sell rides between cities. e) Street market A street market is an outdoor market such as traditionally held in a market square in a market town, and are often held only on particular days of the week. Very similar markets, or bazaars can also be found in large enclosed spaces, instead of on a street. Some examples of street markets are: • Berwick Street Market, Camden Market, East Street Market and Portobello Road Market in London.
  • 20. 22 f) Market square Themarketsquare(orsometimesthemarketplace)isafeatureofmanyEuropeantowns.Itis an open area where market stalls are traditionally set out for trading, commonly on one particular day of the week known as ‘market day’. A typical English market square consists of a square or rectangular area, or sometimes just a wideningofthemainstreet.Itisalwayssituatedinthecentreofthetown,surroundedbymajorbuildings such as the parish church, town hall, important shops and hotels, and the post office, together with smaller shops and business premises. There is sometimes a permanent covered market building, and the entire area is a traditional meeting place for local people as well as a centre for trade. The largest Market Square in Europe is the Main Market Square in Kraków, Poland g) Market town Inmedievallaw,amarkettownisasettlementthathastherighttoholdmarkets(distinguishing itfromavillage,usuallysmaller)butwhichisnotalsoacity(usuallylarger,andwithadditionalrights).A town may be correctly described as a market town even if it no longer holds a market, provided the righttodosostillexist. A market town may or may not have rights concerning self-government, which is the usual meaningof“town”.InEngland,townswithsuchrightsmaybeareusuallydistinguishedwiththeadditional statusofBorough). Market towns often grew up close to fortified places, such as castles, in order to enjoy their protection. They tended to be located where transport was easiest: for example, at a crossroads or close to a river ford. The most obvious feature of the traditional market town is a very wide main street or market place, with room for stalls and booths to be set up on market days.Amarket cross often stood in the centre of the town, as a way of obtaining God’s blessing on the trade. h) Market customization Mass production no longer seems suitable for today’s market and is being replaced by mass customization. New technologies have made it possible to prepare individual designs, products and communications on a mass basis. One of the advantages of the internet is the ability to personalize content.Awebsite can now tailor information or products to the customer. In the past years, more and morepossibilitieshavebecomeavailableforconsumers.Thistrendhasprovidedcompanieswithnew possibilitiesforcreatingloyaltybonds.AccordingtoMichaelSolomon,customizationisoneofthesix basic factors that increase or decrease attention from the consumer. Tailored to the customer Some companies may be more familiar with customer relationship management which concentratesonthemethodsandtechnologiescompaniesusetomanagetheirrelationshipswithclients. Market customization goes one step further. It tailors products to a specific market or user group
  • 21. 23 enabling the company to present a product that appears to be designed for a specific market and to increase the experience and satisfaction for the customer. In order to achieve this, the company needs to understand the consumers that it is targeting by collecting information about preferences, passions andinterests. Researchhasshownthat75%ofAmericanadultswouldliketohavemorecustomizedproducts and70%ofthemarewillingtopaymoreforit.Thedemandforcustomizedproductsisevenhigherby people in the age group of 18-24-years old. 85% of them search for customized products with special interestsinthedomainssuchasclothing,shoes,andelectronicsandtravelservices. Rewards for the company Besides adapting to the current customer, there are also rewards for the company. Microsoft acknowledgesfouradvantages.Theyincludesatisfyingthecustomerrequirementsbyusingtheexisting frameworkandinfrastructure,usingdifferentpricingmodelsindifferentmarkets,creatingloyalcustomers and changing the perception of the company’s public image to that of a more local one. According to David Anderson] , there are three ways to customize products: - Modular Customization:tailoringaproductbyassemblingarangeofcombinationsofmodules.Aclearexample of modular customization is assembling many components in a vehicle. -Adjustable customization: thesearemechanicalorelectricaladjustmentswhicharereversible.Anexampleofthisisthepossibility of customizing software by user-defined settings or by table driven programming. - Dimensional customization:thisisthepermanentcustomizationwhichcanbeinfiniteorhaveaselectionofdiscrete choices.Thetailoringofclothingfallswithinthisdefinition. Aswellasproductcustomization,micromarketingcanbeusedformarketcustomization.Inthe extreme,micromarketingdevelopsintoindividual/customizedmarketing.Inindividualmarketing,all productsandprogrammesaretailoredtotheneedsofindividualcustomersMasscustomizationallows thecompanytoswitchfrommassmarketingtocustomizedmarketing. Pros and Cons Customizationwillalwaysbeboundtofinanciallimitsaswellastechnologicaldevelopment. Mass customization, however, can be interpreted as a threat to tailor-made customization. General customization now can be achieved at a lower cost. The extent of this menace for tailors depends on the product and social class of the customer. Products in the higher-price range, as opposed to lower- price products or commodities, are more likely to be customized as consumers are more concerned withquality.Customizationoffersthemtheopportunitytohavemoreinputandflexibility.Dellcomputers havefoundmuchsuccessincustomizingcomputersagainstmainplayerssuchasIBM.Althoughmass customizationislikelytofindnewwaysinthemarket,itisunlikelythatthemassmarketwillbe“tailor- made”.Nevertheless,justwithalltechnologicaldevelopments,theestablishedcompanieshavetocompete witheachothertomaintaintheirmarketshare.
  • 22. 24 SUMMARY Service Marketing is the flow of goods and services from the producer to consumer. It based on relationshipandvalue.Incommonparlanceitisthedistributionandsaleofgoodsandservices.Marketing can be differentiated as • Marketing of products, and • Marketing of services Marketing includes the servicesofallthoseindulgedmayitbethenthewholesalerretailer,Warehousekeeper,transportetc.In this modern age of competition marketing of a product or service plays a key role. It is estimated that almost 50% of the price paid for a commodity goes to the marketing of the product in US. Marketing isnowsaidtobeatermwhichhasnoparticulardefinitionasthedefinitionschangeeveryday. “Managing the evidence” refers to the act of informing customers that the service encounter has been performedsuccessfully.Itisbestdoneinsubtlewayslikeprovidingexamplesordescriptionsofgood andpoorservicethatcanbeusedasabasisofcomparison.Theunderlyingrationaleisthatacustomer mightnotappreciatethefullworthoftheserviceiftheydonothaveagoodbenchmarkforcomparisons. QUESTIONS: 1. Define Service Marketing? 2. Explain Stock Market and Trading? Why is it important? What is its function and purpose? 3. Write notes on (a) Relation of the Stock Market to the modern Financial System (b) The Stock Market, Individual Investors and Financial Risk (c) Behaviour of Stock Market (d) Margin Buying 4. Define Market Square, Market Town and Market Customization? 5. Define a Market? How does it function? What are the types of Market?
  • 23. 25 CHAPTER - II MARKET RESEARCH OBJECTIVE Market research is the process of systematic gathering, recording and analyzing of data about customers,competitorsandthemarket.Marketresearchcanhelpcreateabusinessplan,launchanew product or service, fine tune existing products and services, expand into new markets etc. It can be usedtodeterminewhichportionofthepopulationwillpurchasetheproduct/service,basedonvariables likeage,gender,locationandincomelevel.Itcanbefoundoutwhatmarketcharacteristicsyourtarget market has.With market research, companies can learn more about current and potential customers. Thepurposeofmarketresearchistohelpcompaniesmakebetterbusinessdecisionsaboutthe developmentandmarketingofnewproducts.Marketresearchrepresentsthevoiceoftheconsumerin a company. A list of questions that can be answered through market research: • What is happening in the market? What are the trends? Who are the competitors? • How do consumers talk about the products in the market? • Which needs are important?Are the needs being met by current products? With market research one can get some kind of confirmation that there is a market for one’s idea, and that a successful launch and growth are possible. Introduction Prior to the advent of market research, most companies were product-focused, employing teams of salespeople to push their products into or onto the market, regardless of market desire.A market-focused,orcustomer-focused,organizationinsteadfirstdetermineswhatitspotentialcustomer’s desire, and then builds the product or service. Marketing theory and practice is justified on the belief that customers use a product/service because they have a need, or because a product/service has a perceivedbenefit. Two major factors of marketing are the recruitment of new customers (acquisition) and the retentionandexpansionofrelationshipswithexistingcustomers(basemanagement). Once a marketer has converted the prospective buyer, base management marketing takes over. The process for base management shifts the marketer to building a relationship, nurturing the links, enhancing the benefits that sold the buyer in the first place, and improving the product/service continuouslytoprotectherbusinessfromcompetitiveencroachments. Marketing methods are informed by many of the social sciences, particularly psychology, sociology,andeconomics.Anthropologyisalsoasmall,butgrowing,influence.Marketresearchunderpins theseactivities.Throughadvertising,itisalsorelatedtomanyofthecreativearts. For a marketing plan to be successful, the mix of the four “Ps” must reflect the wants and
  • 24. 26 desires of the consumers in the target market.Trying to convince a market segment to buy something theydon’twantisextremelyexpensiveandseldomsuccessful.Marketersdependonmarketingresearch, both formal and informal, to determine what consumers want and what they are willing to pay for. Marketers hope that this process will give them a sustainable competitive advantage. Marketing management is the practical application of this process. The offer is also an important addition to the 4P’s theory. Within most organizations the activities encompassed by the marketing function are led by a ChiefMarketingOfficer,oranequivalentexecutive.MostoftentheCMOpositionreportstotheChief ExecutiveOfficer. Marketing is a Technology Is Marketing anArt or Science? Thebigdebateinthemarketingdisciplineiswhethermarketingisanartorascience.Marketing is a technology or set of technologies. Marketing can be neither an art nor a science because arts and sciences only seek to explain natural phenomena. The objective of marketing is to manipulate and influencenaturalphenomenatocreatepracticalunnaturaloutcomes,specificallytomanufacture,grow, sustain and defend markets. Marketers use their knowledge of economics, psychology, sociology, anthropologyandstrategytoarrangeandcontroltheexternalenvironmenttotheiradvantageandlock inprofit Transactional Marketing Firstassumption • Thereisalargenumberofpotentialcustomers Secondassumption • Customersandtheirneedsarefairlyhomogenous Thirdassumption • It is rather easy to replace lost customers with new ones The 3 Levels of Marketing Strategy To understand what marketing is one must understand that marketing operates on 3 different levels. A. Corporate Level Marketing Marketing at the corporate levels asks this question as ‘What business should we be in and what opportunities should we pursue?’ This is marketing before we even have a business, idea or product.This is what is known as entrepreneurship.This level of marketing strategy is where the Ted Turners,BillGates’andMichaelDellsoftheworldmakemarketchangingdecisions.Thislevelisalso
  • 25. 27 wherecorporatemanagementofexistingcompaniesdecidestobranchoffintonewunchartedterritories andopportunities. B.Business Level Marketing Marketingatthebusinesslevelasksthisquestionas‘Howarewegoingtocompeteagainstthe competition?’WhenJackTroutsaysthatmarketingis‘thewarbetweencompetitors’and‘theconflict betweencompanies’whatheisreallydoingisdefiningmarketingatthebusinesslevel.Businesslevel marketingdealswithhighlevelstrategicmarketingconcerns.Thisleveldealswithlongtermsustainable advantagesandbusinessmodels. C.Functional Level Marketing Marketingatthefunctionallevel(alsoknownastheoperatinglevel)askthisquestionas‘How dowecreateandkeepcustomers?’Thisleveldealswithmarketingtacticsandthe‘4ps’ofthemarketing mix. This level of marketing defines and develops products, prices them, promotes them and then distributes them in a way that helps a company create and sustain demand for their products. SmallercompanieswithoneownerorChiefExecutiveOfficerusuallymakethedecisionsonall 3levels. Four Ps Inpopularusage,“marketing”isthepromotionofproducts,especiallyadvertisingandbranding. However,inprofessionalusagethetermhasawidermeaningwhichrecognizesthatmarketingiscustomer centered. Products are often developed to meet the desires of groups of customers or even, in some cases,forspecificcustomers.E.JeromeMcCarthydividedmarketingintofourgeneralsetsofactivities. Histypologyhasbecomesouniversallyrecognizedthathisfouractivitysets,theFourPs,havepassed intothelanguage. The four Ps are: • Product:TheProductmanagementandProductmarketingaspectsofmarketingdealwiththe specifications of the actual good or service, and how it relates to the end-user’s needs and wants. • Pricing: This refers to the process of setting a price for a product, including discounts. • Promotion:Thisincludesadvertising,salespromotion,publicity,andpersonalselling,andrefers to the various methods of promoting the product, brand, or company. • Placement or distribution refers to how the product gets to the customer; for example, point ofsaleplacementorretailing.ThisfourthPhasalsosometimesbeencalledPlace,referringto the channel by which a product or service is sold (e.g. online vs. retail), which geographic regionorindustry,towhichsegment(youngadults,families,businesspeople),etc. These four elements are often referred to as the marketing mix. A marketer can use these variablestocraftamarketingplan.ThefourPsmodelismostusefulwhenmarketinglowvalueconsumer
  • 26. 28 products.Industrialproducts,services,highvalueconsumerproductsrequireadjustmentstothismodel. Services marketing must account for the unique nature of services. Industrial or B2B marketing must accountforthelongtermcontractualagreementsthataretypicalinsupplychaintransactions.Relationship marketingattemptstodothisbylookingatmarketingfromalongtermrelationshipperspectiverather thanindividualtransactions. As a counter to this, Morgan, in Riding the Waves of Change (Jossey-Bass, 1988), adds “Perhaps the most significant criticism of the 4 Ps approach, which you should be aware of, is that it unconsciously emphasizes the inside–out view (looking from the company outwards), whereas the essenceofmarketingshouldbetheoutside–inapproach”.Evenso,havingmadethisimportantcaveat, the 4 Ps offer a memorable and quite workable guide to the major categories of marketing activity, as well as a framework within which these can be used. Seven Ps As well as the standard four Ps (Product, Pricing, Promotion and Place), services marketing callsuponanextrathree,totalingsevenandknowntogetherastheextendedmarketingmix.Theseare: • People: Any person coming into contact with customers can have an impact on overall satisfaction.Whetheraspartofasupportingservicetoaproductorinvolvedinatotalservice, peopleareparticularlyimportantbecause,inthecustomer’seyes,theyaregenerallyinseparable fromthetotalservice.Asaresultofthis,theymustbeappropriatelytrained,wellmotivatedand the right type of person. Fellow customers are also sometimes referred to under ‘people’, as they too can affect the customer’s service experience, (e.g., at a sporting event). • Process:Thisistheprocessinvolvedinprovidingaserviceandthebehaviorofpeople,which canbecrucialtocustomersatisfaction. • Physical evidence: Unlike a product, a service cannot be experienced before it is delivered, whichmakesitintangible.This,therefore,meansthatpotentialcustomerscouldperceivegreater riskwhendecidingwhetherornottouseaservice.Toreducethefeelingofrisk,thusimproving the chance for success, it is often vital to offer potential customers the chance to see what a service would be like. This is done by providing physical evidence, such as case studies, or testimonials. Eight P’s As well as the other 7 Packaging has been added to this list by some people. The rationale is that it is very important how the product is presented to the customer, and the packaging is often the firstcontactthatacustomerhaswithaproduct.Althoughsomedisagreebecausepackagingisseenas asubfieldofpromotion. “PHILOSOPHY”isthepotential8thPofmarketing.Products(orservices)shouldreflectthe underlyingphilosophyorethosoftheorganization.Itshouldalsobeclearwhatthephilosophybehind the introduction of the particular product is, as well. In his book, “Meeting Need”, Ian Bruce explains this concept as it relates to marketing for charities. It also applies to other products and services
  • 27. 29 Beyond the 4 Ps Resources, Relationships, Offerings and Business Models Marketing in the past focused mainly on basic concepts like the 4 Ps, and primarily on the psychological and sociological aspects of marketing. Competitive advantage was created by directly appealing to the needs, wants and behaviors of customers, better than the competition. Successful marketing was based on who could create the better brand or the lowest price or the most hype. Marketing in the future will be based on a more strategic approach to competitive marketing success. Marketerswillconsciouslybuildandallocateresources,relationships,offeringsandbusinessmodels that other companies find hard to match. 1. Resources Companies with a greater amount of resources than their competitors will have an easier time competing in the marketplace. Resources include: financial (cash and cash reserves), physical (plant andequipment),human(knowledgeandskill),legal(trademarksandpatents),organizational(structure, competencies,policies),andinformational(knowledgeofconsumersandcompetitors).Smallcompanies usuallyhaveahardertimecompetingwithlargercorporationsbecauseoftheirdisadvantageinresource allocation. 2. Relationships Success in business, as in life, is based on the relationships you have with people. Marketers must aggressively build relationships with consumers, customers, distributors, partners and even competitors if they want to have success in today’s competitive marketplace. 3. Offerings Most companies sell a mix of products and/or services. Today’s marketplace is often too competitivefor“one-trickponies”.Companiesthatselltherightmixproductsandservicescanhavea competitive advantage over companies that sell just one product or service. 4. Business Models The concept of product vs. product in competitive marketing is dying. It’s slowly becoming business model vs. business model. Business model innovation can make the competition’s product superiority irrelevant. Business model innovation allows a marketer to change the game instead of competingonalevelplayingfield. Customer focus Mostcompaniestodayhaveacustomerorientation(alsocalledcustomerfocus).Thisimplies that the company focuses its activities and products on ever changing consumer demands. Generally
  • 28. 30 therearethreewaysofdoingthis:thecustomer-drivenapproach,thesenseofidentifyingmarketchanges and the product innovation approach. In the consumer-driven approach, consumer wants are the drivers of all strategic marketing decisions.Nostrategyispursueduntilitpassesthetestofconsumerresearch.Everyaspectofamarket offering, including the nature of the product itself, is driven by the needs of potential consumers. The startingpointisalwaystheconsumer.Therationaleforthisapproachisthatthereisnopointspending R&D funds developing products that people will not buy. History attests to many products that were commercialfailuresinspiteofbeingtechnologicalbreakthroughs. The next big thing is a concept in marketing that refers to a product or idea that will allow for a high amount of sales for that product and related products. Marketers believe that by finding or creatingthenextbigthingtheywillsparkaculturalrevolutionthatresultsinthissalesincrease. Product focus Inaproductinnovationapproach,thecompanypursuesproductinnovation,thentriestodevelop a market for the product. Product innovation drives the process and marketing research is conducted primarily to ensure that a profitable market segment(s) exists for the innovation. The rationale is that customers may not know what options will be available to them in the future so we should not expect them to tell us what they will buy in the future. However, marketers can aggressively over pursue productinnovationandtrytoovercapitalizeonaniche.Whenpursuingaproductinnovationapproach, marketers must ensure that they have a varied and multi-tiered approach to product innovation. It is claimedthatifThomasEdisondependedonmarketingresearchhewouldhaveproducedlargercandles rather than inventing light bulbs. Many firms, such as research and development focused companies, successfullyfocusonproductinnovation.Manypuristsdoubtwhetherthisisreallyaformofmarketing orientationatall,becauseoftheexpoststatusofconsumerresearch.Someevenquestionwhetheritis marketing. Other aspects • An emerging area of study and practice concerns internal marketing, or how employees are trained and managed to deliver the brand in a way that positively impacts the acquisition and retentionofcustomers(employerbranding). • Diffusionofinnovationsresearchexploreshowandwhypeopleadoptnewproducts,services and ideas. • A relatively new form of marketing uses the Internet and is called internet marketing or more generally e-marketing, affiliate marketing or online marketing. It typically tries to perfect the segmentationstrategyusedintraditionalmarketing.Ittargetsitsaudiencemoreprecisely,and issometimescalledpersonalizedmarketingorone-to-onemarketing. • Withconsumers’erodingattentionspanandwillingnesstogivetimetoadvertisingmessages, marketers are turning to forms of Permission marketing such as Branded content and Reality marketing.
  • 29. 31 • Theuseofherdbehaviorinmarketing. Inanarticleentitled“Swarmingtheshelves:Howshopscanexploitpeople’sherdmentalityto increase sales,” The Economist recently reported a recent conference in Rome on the subject of the simulationofadaptivehumanbehavior.Mechanismstoincreaseimpulsebuyingandgetpeople“tobuy more by playing on the herd instinct” were shared. The basic idea is that people will buy more of products that are seen to be popular, and several feedback mechanisms to get product popularity informationtoconsumersarementioned,includingsmart-carttechnologyandtheuseofRadioFrequency IdentificationTag technology.A“swarm-moves” model was introduced by a Princeton researcher, which is appealing to supermarkets because it can “increase sales without the need to give people discounts.”LargeretailersWal-MartintheUnitedStatesandTescoinBritainplantotestthetechnology inspring2007. Other recent studies on the “power of social influence” include an “artificial music market in whichsome14,000peopledownloadedpreviouslyunknownsongs”(ColumbiaUniversity,NewYork); aJapanesechainofconveniencestoreswhichordersitsproductsbasedon“salesdatafromdepartment storesandresearchcompanies;”a[[Massachusettscompanyexploitingknowledgeofsocialnetworking toimprovesales;andonlineretailerswhoareincreasinglyinformingconsumersabout“whichproducts arepopularwithlike-mindedconsumers”(e.g.,Amazon). Criticism of marketing Some aspects of marketing, especially promotion, are treated as the subject of criticism. It is especiallyproblematicinclassicaleconomictheory,whichisbasedontheassumptionthatsupplyand demand are independent. However, product promotion is an attempt coming from the supply side to influencedemand.Inthiswayproducermarketpowerisattainedasmeasuredbyprofitsthatwouldnot be realized under a free market. Then the argument follows that non-free markets are imperfect and lead to production and consumption of suboptimal amounts of the product. Criticsacknowledgethatmarketinghaslegitimateusesinconnectinggoodsandservicestothe consumerswhowantthem.Criticsalsopointoutthatmarketingtechniqueshavebeenusedtoachieve morallydubiousendsbybusinesses,governmentsandcriminals.Criticsseeasystemicsocialevilinherent inmarketing(seeNoLogo,BillHicks,MarxismorCommercialAlert).Marketingisaccusedofcreating ruthlessexploitationofbothconsumersandworkersbytreatingpeopleascommoditieswhosepurpose istoconsume. Mostmarketersbelievethatmarketing,likeanyothertechnology,isamoral.Itcanbeusedfor goodorevilpurposes,butthetechniqueitselfisethicallyneutral. The Observer’s survey among 1’206 UK adult consumers in 2001 highlighted some of the stark changes our society has gone through in the last two decades. This raises a question on the effectivenessoftheCIM’sdefinitionofmarketing(anticipating,identifyingandsatisfyingcustomerneeds profitably),mainlyinconsumermarketing.Therearesimilarconcernsinindustrialmarkets,alsoknown as business-to-business or B2B. Industrial market segmentation attempts to provide some answers.
  • 30. 32 Coremarketingelementssuchassegmentation,targetingandpositioningarestillrelevantinthe modern (or post-modern) world. However, they are complex topics that need a high level of effort, intelligentthinkingaswellasresourcestobeimplementedsuccessfully.Adefinitivestatementcannotbe madewhethertheconventionalmarketingconceptisapplicableintoday’senvironment.Itsrelevanceis very much situational and depends on many factors such as the product, the segment, time, location, politicalandeconomicconditionsandtheinnerworkingsofacompany. However,somescholarssuchasStephenBrownchallengethemarketingconceptinanextreme language.Theirstatements,thoughself-contradictingandsometimesunfair,arerelevant,whichiswhy Post Modern Marketing 2 was chosen as a key reference point for this chapter. OntheonehandBrownmakespositivestatementsaboutmarketing,e.g.“marketingisendowed with considerable personal charm and has enjoyed more than its fair share of conquests” (Brown, 1998:16); and “indeed, the increasing academic attention that is being devoted to marketing and consumption-relatedphenomenabynon-businessdisciplinessuchassociology,anthropologyandhistory; farfrombeingthesecond-handroseofthescholarship,marketingisnowsomethingofafashionleader” (p 17) On the other hand, he condemns marketing by saying “marketing has to decide whether to exposeitsintellectualnakednessorpressitselfagainstthesearingheatofpostmodernism”(p17);and using quotes such as “mid-life crisis” (p 23); “in decline; failing; anachronistic; being abandoned; no longer appropriate; in an unprecedented state of crisis; delivered nothing of value; failure; confusion; misunderstanding;occasionalinexplicablehittingofthejackpot”(p.21). This apparent love-hate relationship is proof in itself that even a skeptic Mr. Brown cannot deny the contribution that marketing has made and can make to customer satisfaction and economic value.Ithascontributedtobothcustomers’andsuppliers’qualityoflifebyselectingprofitablecustomer satisfactionasitssoleobjective.Themarketingconcept,togetherwithotherbusinessdisciplines,helped the UK to make the transition from a 19th-century manufacturing economy to a modern model of success in the service industry, creating an economic growth period never seen in UK history before. Itismarketingthathashelpedcreatevaluethroughcustomizedproducts,no-questions-asked refundpolicies,comfortablecars,environmentalattention,shopkeepers’smile,andguaranteeddelivery dates. Even some government departments address the public not as ‘the Queen’s subjects’or ‘the applicants’ any more but as ‘customers’. Of course all of the above is done for economic or political gain,forbetterorworse.Despiteallthisachievement,todismissmarketingasafailureisunfair. MarketingalsohelpscompaniesavoidunnecessaryR&D,operationalandsalescostsbyhelping to develop products because customers want them, not for the sake of innovation.Another success is the now commonly implemented value-pricing principle, whereby a product or service is sold for the pricethecustomeriswillingtopay,notonacost-plusbasis.Thisway,bothsuppliersandcustomersget a fair deal.
  • 31. 33 In the context of segmentation, Brown suggests that “the traditional, linear, step-by-step marketingmodelofanalysis,planning,implementationandcontrolnolongerseemsapplicable,appropriate or even pertinent to what is actually happening on the ground” (p. 23-24). If Mr. Brown had studied “the ground” before making his statement, he would have realized that companies are successful the worldoverpreciselybecausetheyimplementthismodel. They segment their markets, relate their products and services to them, define their value propositionandservetheircustomersaccordingly.ExamplesareGE,HSBC,PriceWaterhouseCoopers, SmithsAerospace, BAE Systems, BOC Edwards,Weir Group and BTto name but a few.Abrief visit to their websites can make this point clear. Promotionisonlyoneelementwithinthemarketingconcept.Thetruthisthatmarketingtoday leadsthewayinsegmentation,innovation,pricing,productmanagement,distribution,andlastbutnot least,promotion. Afterallthecontributionaswellasfurtherpotential,todenyitssuccessesandtrytoreduceitto onlypromotionisagreatinjusticetothemarketingprofessionaswellastoacademicinsight.Contrary toBrown’ssuggestioninhisfinalparagraph(p.257),weneedobjectivity,rigour,quantification,models, relationships,paradigmshiftsand(someapplicationof)science. Marketing is not full of holes, but a management process that has helped generate wealth and satisfied millions of customers for the most part of the 20th century. It can do even better in the 21st provided practitioners and scholars do not loose faith and focus. Kotler is not dead, but very much alive,andstillkicking. SUMMARY Marketresearchisdiscoveringwhatpeoplewant,need,orbelieve.Itcanalsoinvolvediscovering how they act. Once that research is complete it can be used to determine how to market your specific product. Whenever possible, try to reduce risks at the earliest possible stage. For example you could carry out market research early on and not wait until you are almost ready to enter the market. If early market research reveals that your business idea has real potential, you can use this information in planningthebuild-upofyourbusiness.Forstartingupabusinessthereareafewthingsthatshouldbe found out through market research in order to know if your business is feasible. These are things like: • Marketinformation Marketinformationismakingknownthepricesofthedifferentcommoditiesinthemarket,the supply and the demand. Information about the markets can be obtained in several different varieties andformats.Themostbasicformofmarketinformationisthebestquotationandlastsaledata,including thenumberofshares,withrespecttoaparticularsecurityatagiventime.Examplesofmarketinformation questionsare:
  • 32. 34 1. Who are the customers? 2. Where are they located and how can they be contacted? 3. Whatquantityandqualitydotheywant? 4. What is the best time to sell? 5. What is the long-term or historical price data over a number of years? 6. What is the expected production in the country? 7. Is there more demand for one product or another? Etc. • Marketsegmentation Market segmentation is the division of the market or population into subgroups with similar motivations.Widelyusedbasesforsegmentingincludegeographicdifferences,personalitydifferences, demographicdifferences,useofproductdifferences,andpsychographicdifferences. • Market trends The upward or downward movements of a market, during a period of time. Themarketsizeismoredifficulttoestimateifyouarestartingwithsomethingcompletelynew. In this case, you will have to derive the figures from the number of potential customers or customer segments. But besides information about the target market you also need information about your competitor, your customers, products etc.Afew techniques are: • Customeranalysis • Competitoranalysis • Riskanalysis • Product research • Advertisingresearch QUESTIONS: 1. What is happening in a Market? What are its trends? Who are the competitors? 2. How do consumers talk about the products in the Market? 3. Which needs are important? Are the needs being met by current products? 4. Is marketing an art or science? 5. Describe the three levels of Marketing Strategy?
  • 33. 35 CHAPTER - III SERVICE OBJECTIVE Ineconomicsandmarketing,aserviceisthenon-materialequivalentofagood.Serviceprovision hasbeendefinedasaneconomicactivitythatdoesnotresultinownership,andthisiswhatdifferentiates it from providing physical goods. It is claimed to be a process that creates benefits by facilitating a changeincustomers,achangeintheirphysicalpossessions,orachangeintheirintangibleassets. By supplying some level of skill, ingenuity, and experience, providers of a service participate in an economywithouttherestrictionsofcarryingstock(inventory)ortheneedtoconcernthemselveswith bulky raw materials. On the other hand, their investment in expertise does require marketing and upgradinginthefaceofcompetitionwhichhasequallyfewphysicalrestrictions. Providers of services make up theTertiary sector of industry. Attributes of Service Services can be described in terms of their main attributes. • • • • • Intangibility - They cannot be seen, handled, smelled, etc. There is no need for storage. Becauseservicesaredifficulttoconceptualize,marketingthemrequirescreativevisualization to effectively evoke a concrete image in the customer’s mind. From the customer’s point of view,thisattributemakesitdifficulttoevaluateorcompareservicespriortoexperiencingthe service. • • • • • Perishability-Unsoldservicetimeis“lost”,thatis,itcannotberegained.Itisalosteconomic opportunity. For example a doctor that is booked for only two hours a day cannot later work those hours— she has lost her economic opportunity. Other service examples are airplane seats (once the plane departs, those empty seats cannot be sold), and theatre seats (sales end at a certain point). • • • • • Lackoftransportability-Servicestendstobeconsumedatthepointof“production”(although this doesn’t apply to outsourced business services). • • • • • Lack of homogeneity - Services is typically modified for each client or each new situation (customized). Mass production of services is very difficult. This can be seen as a problem of inconsistentquality.Bothinputsandoutputstotheprocessesinvolvedprovidingservicesare highlyvariable,asaretherelationshipsbetweentheseprocesses,makingitdifficulttomaintain consistentquality. • • • • • Labourintensity-Servicesusuallyinvolveconsiderablehumanactivity,ratherthanprecisely determinedprocess.Humanresourcemanagementisimportant.Thehumanfactorisoftenthe key success factor in service industries. It is difficult to achieve economies of scale or gain dominantmarketshare.
  • 34. 36 • • • • • Demand fluctuations - It can be difficult to forecast demand (which is also true of many goods). Demand can vary by season, time of day, business cycle, etc. • • • • • Buyer involvement - Most service provision requires a high degree of interaction between clientandserviceprovider. • • • • • Client-Based Relationships - Is based on creating long-term business relationships. Accountants,attorneys,andfinancialadvisersmaintainlong-termrelationshipswiththeirclientes for decades. These repeat consumers refer friends and family helping to create a client-based relationship. Service delivery Thedeliveryofaservicetypicallyinvolvesfivefactors: • The service providers (e.g. the people) • Equipment used to provide the service (e.g. vehicles, cash registers) • Thephysicalfacilities(e.g.buildings,parking,waitingrooms) • Theclient • Othercustomersattheservicedeliverylocation • Customercontact Theserviceencounterisdefinedasallactivitiesinvolvedintheservicedeliveryprocess.Some service managers use the term “moment of truth” to indicate that defining point in a specific service encounterwhereinteractionsaremostintense. Manybusinesstheoristsviewserviceprovisionasaperformanceoract(sometimeshumorously referred to asdramalurgy, perhaps in reference to dramaturgy).The location of the service delivery is referred to as the stage and the objects that facilitate the service process are called props.Ascript is a sequenceofbehaviorsfollowedbyallthoseinvolved,includingtheclient(s).Someservicedramasare tightly scripted, others are more ad lib. Role congruence occurs when each actor follows a script that harmonizes with the roles played by the other actors. In some service industries, especially health care, dispute resolution, and social services, a popularconceptistheideaofthecaseload,whichreferstothetotalnumberofpatients,clients,litigants, or claimants that a given employee is presently responsible for. On a daily basis, in all those fields, employeesmustbalancetheneedsofanyindividualcaseagainsttheneedsofallothercurrentcasesas well as their own personal needs. UnderEnglishlaw,ifaserviceproviderisinducedtodeliverservicestoadishonestclientbya deception, this is an offence under theTheftAct 1978. Ahairstylist,anurse,andawaitresshavedifferentdegreesofcustomercontacttodelivertheir services.
  • 35. 37 The service-goods continuum Thedichotomybetweenphysicalgoodsandintangibleservicesshouldnotbegiventoomuch credence.Thesearenotdiscretecategories.Mostbusinesstheoristsseeacontinuumwithpureservice ononeterminalpointandpurecommoditygoodontheotherterminalpoint.Mostproductsfallbetween these two extremes. For example, a restaurant provides a physical good (the food), but also provides servicesintheformofambience,thesettingandclearingofthetable,etc.Andalthoughsomeutilities actuallydeliverphysicalgoods—likewaterutilitieswhichactuallydeliverwater—utilitiesareusually treated as services. Inanarrowersense,servicereferstoqualityofcustomerservice:themeasuredappropriateness ofassistanceandsupportprovidedtoacustomer.This particular usage occurs frequently in retailing. SUMMARY Services are defined in conventional economic literature as “intangible goods”.According to some economists, the service sector tends to be wealth consuming, whereas manufacturing is wealth producing. Wealth producing sectors in an economy such as manufacturing with the service sector which tends to be a wealth consuming sector.An economy declines as its wealth producing sector beginstoshrink.Thetertiarysectorofindustryinvolvestheprovisionofservicestobusinessesaswell asfinalconsumers.Servicesmayinvolvethetransport,distributionandsaleofgoodsfromproducerto aconsumerasmayhappeninwholesalingandretailing,ormayinvolvetheprovisionofaservice,such asinpestcontrolorentertainment.Goodsmaybetransformedintheprocessofprovidingaservice,as happensintherestaurantindustry.However,thefocusisonpeopleinteractingwithpeopleandserving the customer rather than transforming physical goods. Since the 1960s, there has been a substantial shift from the other two industry sectors to theTertiary Sector in industrialized countries.The service sector consists of the “soft” parts of the economy such as insurance, government, tourism, banking, retail and education. In soft sector employment, people use time to deploy knowledge assets, collaboration assets, and process-engagement to create productivity (effectiveness), performance improvement potential (potential) and sustainability. Typically the output of this time is content (information), service, attention, advice, experiences, and/or discussion (also known as “intangible goods”). QUESTIONS: 1. Describe the main attributes of Service? 2. Explain the factors of Service Delivery? 3. Define service?
  • 36. 38 CHAPTER - IV PRODUCT (BUSINESS) OBJECTIVE In marketing, a product is anything that can be offered to a market that might satisfy a want or need. It is of two types: Tangible (physical) and Intangible (non-physical). Since services have been at the forefront of all modern marketing strategies, some intangibility has become essential part of marketing offers. It is therefore the complete bundle of benefits or satisfactions that buyers perceive theywillobtainiftheypurchasetheproduct.Itisthesumofallphysical,psychological,symbolic,and service attributes, not just the physical merchandise.All products offered in a market can be placed betweenTangible (Pure Product) and Intangible (Pure Service) spectrum. A product is similar to goods. In accounting, goods are physical objects that are available in the marketplace.Thisdifferentiatesthemfromaservice,whichisanon-materialproduct.Thetermgoods isusedprimarilybythosethatwishtoabstractfromthedetailsofagivenproduct.Assuchitisusefulin accountingandeconomicmodels.Thetermproductisusedprimarilybythosethatwishtoexaminethe details and richness of a specific market offering.As such it is useful to marketers, managers, and qualitycontrolspecialists. A service is a non-material or intangible product - such as professional consultancy or an entertainmentexperience. ProductAspects There are three aspects to any product or service: 1. CoreBenefit o In-usebenefits o Psychologicalbenefits(e.g.,self-imageenhancement,hope,status,selfworth) o Problemreductionbenefits(e.g.,safety,convenience) 2. TangibleProductorService o Product attributes and features o benefitsandusabilityofmarket 3. IntangibleProductorService Classifying products Productmanagementinvolvesdevelopingstrategiesandtacticsthatwillincreaseproductdemand (referredtoasprimarydemand)overtheproduct’slifecycle.Oneusefultechniqueinunderstandinga productistheAspinwallClassificationSystem.Itclassifiesandratesproductsbasedonfivevariables: 1. Replacement rate (how frequently is the product repurchased?) 2. Grossmargin(howmuchprofitisobtainedfromeachproduct?) 3. Buyergoaladjustment(howflexiblearethebuyers’purchasinghabitswithregardtothisproduct?)
  • 37. 39 4. Durationofproductsatisfaction(howlongwilltheproductproducebenefitsfortheuser?) 5. Duration of buyer search behavior (how long will they shop for the product?) Types of products There are several types of products: • • • • • Specialty goods: extensive comparisons with other goods and a lengthy information search. Specialtygoodsaregenerallyitemsthatwouldfallintoanothercategory,butthesellerofthese goods has chosen a specific niche market and is extremely narrowly focused.An example would be a cigarette and tobacco shop, or a shop that only sold items with owl pictures on, or a shop that only sells books and magazines. • • • • • Unsought goods:e.g., cemetery plots, insurance. These are products that we need but which we do not actively seek out to buy. They usually require a hard sell approach by the seller. Example“whatwillhappentoyourfamilyifyoudieanddonothavelifeinsurance?”.Thefear ofleavingthefamilydestitutemakesusbuyalmostagainstourwill,eventhoughweknowthat itistheintelligentthingtodo.Certainlegalservicessuchasdrawingupawillwillalsofallinto thiscategory. • • • • • Perishable goods: goods that will deteriorate quickly even without use • • • • • Durablegoods:goodsthatsurvivemultipleuseoccasions,oftenfurthersubdividedinto‘white goods’ (refrigerators and cookers, for example) and ‘brown goods’ (such as furniture, as well aselectrical/electronicdevices) • • • • • Non-durable/consumption/consumable goods: goods that are used up in one occasion • • • • • Capitalgoods:installations,equipment,andbuildings • • • • • Parts and materials: goods that go into a finished product • • • • • Supplies and services: goods that facilitate production • • • • • Commodities:undifferentiatedgoods(e.g.,wheat,gold,sugar) • • • • • By-products: a product that results from the manufacture of another product Service economy can refer to one or both of two recent economic developments. One is the increased importance of the service sector in industrialized economies. Services account for a higher percentage of US GDP than 20 years ago. The current list of Fortune 500 companies contains more servicecompaniesandfewermanufacturersthaninpreviousdecades. Thetermisalsousedtorefertotherelativeimportanceofserviceinaproductoffering.Thatis, productstodayhaveahigherservicecomponentthaninpreviousdecades.Inthemanagementliterature thisisreferredtoastheservitizationofproducts.Virtuallyeveryproducttodayhasaservicecomponent toit.Theolddichotomybetweenproductandservicehasbeenreplacedbyaservice-productcontinuum. Many products are being transformed into services. For example IBM treats its business as a service business. Although it still manufactures computers, it sees the physical goods as a small part of the “business solutions” industry.They have foundthatthepriceelasticityofdemandfor“businesssolutions”ismuchlesselasticthanforhardware. There has been a corresponding shift to a subscription pricing model. Rather than receiving a single
  • 38. 40 paymentforapieceofmanufacturedequipment,manymanufacturersarenowreceivingasteadystream ofrevenueforongoingcontracts. Full cost accounting and most accounting reform and monetary reform measures are usually thought to be impossible to achieve without a good model of the service economy. Product Management Productmanagementisanorganizationalfunctionwithinacompanydealingwiththeproduct planning or product marketing of a product or products at all stages of the product lifecycle. Product Management is also a collective term used to describe the broad sum of diverse activities performedintheinterestofdeliveringaparticularproducttomarket. Fromapracticalperspective,productmanagementisanoccupationaldomainwhichholdstwo professional disciplines: product planning and product marketing. This is because the product’s functionality is created for the user via product planning efforts, and product value is presented to the buyerviaproductmarketingactivities. Product planning and product marketing are very different but due to the collaborative nature of these two disciplines, some companies erroneously perceive them as being one discipline, which they call product management. Done carefully, it is very possible to functionally divide the product management domain into product planning and product marketing, yet retain the required synergy betweenthetwodisciplines. Productplanningtypicallydealswiththeseactivities: • Definingnewproductsandgatheringmarketrequirements • ProductLifeCycleconsiderations • Productportfoliomanagement • Productdifferentiation Productmarketingtypicallydealswiththeseactivities: • Productpositioningandoutboundmessaging • Promoting the product externally with press, customers, and partners • Bringingnewproductstomarket Productmanagementtypicallydealswiththeseclosely-relatedfunctions: • Productplanning • Productmarketing • Programmanagement • Projectmanagement Service Product Marketing Ineconomicsandmarketing,aserviceisthenon-materialequivalentofagood.Serviceprovision hasbeendefinedasaneconomicactivitythatdoesnotresultinownership,andthisiswhatdifferentiates it from providing physical goods. It is claimed to be a process that creates benefits by facilitating a changeincustomers,achangeintheirphysicalpossessions,orachangeintheirintangibleassets.
  • 39. 41 Bysupplyingsomelevelofskill,ingenuity,andexperience,providersofaserviceparticipatein an economy without the restrictions of carrying stock (inventory) or the need to concern themselves withbulkyrawmaterials.Ontheotherhand,theirinvestmentinexpertisedoesrequiremarketingand upgradinginthefaceofcompetitionwhichhasequallyfewphysicalrestrictions. Providers of services make up theTertiary sector of industry. Attributes Services can be described in terms of their main attributes. • • • • • Intangibility - They cannot be seen, handled, smelled, etc. There is no need for storage. Becauseservicesaredifficulttoconceptualize,marketingthemrequirescreativevisualization to effectively evoke a concrete image in the customer’s mind. From the customer’s point of view,thisattributemakesitdifficulttoevaluateorcompareservicespriortoexperiencingthe service. • • • • • Perishability-Unsoldservicetimeis“lost”,thatis,itcannotberegained.Itisalosteconomic opportunity. For example a doctor that is booked for only two hours a day cannot later work those hours— she has lost her economic opportunity. Other service examples are airplane seats (once the plane departs, those empty seats cannot be sold), and theatre seats (sales end at a certain point). • • • • • Lackoftransportability-Servicestendtobeconsumedatthepointof“production”(although this doesn’t apply to outsourced business services). • • • • • Lack of homogeneity - Services are typically modified for each client or each new situation (customised). Mass production of services is very difficult. This can be seen as a problem of inconsistent quality. Both inputsandoutputstotheprocessesinvolvedprovidingservicesare highlyvariable,asaretherelationshipsbetweentheseprocesses,makingitdifficulttomaintain consistentquality. • • • • • Labourintensity-Servicesusuallyinvolveconsiderablehumanactivity,ratherthanprecisely determinedprocess.Humanresourcemanagementisimportant.Thehumanfactorisoftenthe key success factor in service industries. It is difficult to achieve economies of scale or gain dominantmarketshare. • • • • • Demand fluctuations - It can be difficult to forecast demand (which is also true of many goods). Demand can vary by season, time of day, business cycle, etc. • • • • • Buyer involvement - Most service provision requires a high degree of interaction between clientandserviceprovider. • • • • • Client-Based Relationships - Is based on creating long-term business relationships. Accountants,attorneys,andfinancialadvisersmaintainlong-termrelationshipswiththeirclientes for decades. These repeat consumers refer friends and family helping to create a client-based relationship.
  • 40. 42 Service delivery Thedeliveryofaservicetypicallyinvolvesfivefactors: • The service providers (e.g. the people) • Equipment used to provide the service (e.g. vehicles, cash registers) • Thephysicalfacilities(e.g.buildings,parking,waitingrooms) • Theclient • Othercustomersattheservicedeliverylocation • Customer contact Theserviceencounterisdefinedasallactivitiesinvolvedintheservicedeliveryprocess.Some service managers use the term “moment of truth” to indicate that defining point in a specific service encounterwhereinteractionsaremostintense. Manybusinesstheoristsviewserviceprovisionasaperformanceoract(sometimeshumorously referred to asdramalurgy, perhaps in reference to dramaturgy).The location of the service delivery is referred to as the stage and the objects that facilitate the service process are called props.Ascript is a sequenceofbehavioursfollowedbyallthoseinvolved,includingtheclient(s).Someservicedramasare tightly scripted, others are more ad lib. Role congruence occurs when each actor follows a script that harmonizes with the roles played by the other actors. In some service industries, especially health care, dispute resolution, and social services, a popularconceptistheideaofthecaseload,whichreferstothetotalnumberofpatients,clients,litigants, or claimants that a given employee is presently responsible for. On a daily basis, in all those fields, employeesmustbalancetheneedsofanyindividualcaseagainsttheneedsofallothercurrentcasesas well as their own personal needs. UnderEnglishlaw,ifaserviceproviderisinducedtodeliverservicestoadishonestclientbya deception, this is an offence under the TheftAct 1978. Ahairstylist,anurse,andawaitresshavedifferentdegreesofcustomercontacttodelivertheir services. The service-goods continuum Thedichotomybetweenphysicalgoodsandintangibleservicesshouldnotbegiventoomuch credence.Thesearenotdiscretecategories.Mostbusinesstheoristsseeacontinuumwithpureservice ononeterminalpointandpurecommoditygoodontheotherterminalpoint.Mostproductsfallbetween these two extremes. For example, a restaurant provides a physical good (the food), but also provides servicesintheformofambience,thesettingandclearingofthetable,etc.Andalthoughsomeutilities actuallydeliverphysicalgoods—likewaterutilitieswhichactuallydeliverwater—utilitiesareusually treated as services. Inanarrowersense,servicereferstoqualityofcustomerservice:themeasuredappropriateness ofassistanceandsupportprovidedtoacustomer.This particular usage occurs frequently in retailing.
  • 41. 43 Customer Acustomerissomeonewhomakesuseoforreceivestheproductsorservicesofanindividual ororganization.Thewordhistoricallyderivesfrom“custom,”meaning“habit”;acustomerwassomeone whofrequentedaparticularshop,whomadeitahabittopurchasegoodsofthesorttheshopsoldthere ratherthanelsewhere,andwithwhomtheshopkeeperhadtomaintainarelationshiptokeephisorher “custom,” meaning expected purchases in the future. The shopkeeper remembered the sizes and preferencesofhisorhercustomers,forexample.Theworddidnotrefertothosewhopurchasedthings at a fair or bazaar, or from a street vendor. Types of customers Customers can be classified into two main groups: internal and external. Internal customers work for the organization, possibly in another department or another branch. External customers are essentiallythegeneralpublic. Internal Customers • Peopleworkingindifferentdepartmentsorbranchesofthesupplier’sorganisation • Individualsordepartmentswithinanorganizationthatreceiveagoodorservicefromanother individualordepartmentwithintheorganization. External Customers • Individuals or organizations (which could be described as a party) that receive a good or serviceinreturnforcompensation,typicallymonetary. • Businessesorbusinesspeople,includingpartners,bankersandcompetitors. • NGOs,GovernmentBodies,VoluntaryOrganizations. Needs and expectations Customer needs may be defined as the facilities or services a customer requires to achieve specific goals or objectives. Needs are generally non-negotiable, but may be optional or of varying importancetothecustomer.Inanytransaction,customersseekvalue-for-money,andwilloftenconsider a range of vendors’ offers before settling on a purchase. Customer expectations are based on perceived values of facilities or services as applied to specific needs. Expectations are influenced by cultural values, advertising, marketing, and other communications, both with the supplier and with other sources. Expectations are negotiable and modifiable. Both customer needs and expectations may be determined through interviews, surveys, conversations or other methods of collecting information. Customers at times do not have a clear understandingoftheirneeds.Assistingindeterminingneedsisavaluableservicetothecustomer.Inthe process, expectations may be set or adjusted to correspond to known product capabilities or service
  • 42. 44 Marketer A Marketer or marketer is someone whose job it is to present a good or service to the market place in an attractive way so that others will be tempted to buy it. This may include advertising the product but also may include addressing its image in a more general way: for example, ploughman’s lunch and rock salmon are names created by marketers to sell what might otherwise be mundane or unglamorousitems. Marketing plan AMarketingPlanisawrittendocumentthatdetailstheactionsnecessarytoachieveaspecified marketing objective(s). It can be for a product or service, a brand, or a product line. It can cover one year (referred to as an annual marketing plan), or cover up to 5 years. A marketing plan may be part of an overall business plan. Solid marketing strategy is the foundationofawell-writtenmarketingplan.Whileamarketingplancontainsalistofactions,amarketing planwithoutasoundstrategicfoundationisoflittleuse. Content and presentation Practical presentation Therearemanyformatsformarketingplansandeverycompanydoesitalittledifferently,but theoutlinethatfollowsisaverycompleteformat.Usingthisformatwillproducea30to40pageplan. Many companies prefer an abridged format that would yield a 10 to 20 page plan. 1. Titlepage 2. ExecutiveSummary 3. CurrentSituation-Macroenvironment o economy o legal o government o technology o ecological o sociocultural o supplychain 4. CurrentSituation-MarketAnalysis o marketdefinition o marketsize o marketsegmentation o industrystructureandstrategicgroupings o Porter 5 forces analysis o competitionandmarketshare o competitors’strengthsandweaknesses o market trends
  • 43. 45 5. CurrentSituation-ConsumerAnalysis o natureofthebuyingdecision o participants o demographics o psychographics o buyermotivationandexpectations o loyaltysegments 6. CurrentSituation-Internal o companyresources § financial § people § time § skills o objectives § missionstatementandvisionstatement § corporate objectives § financialobjective § marketingobjectives § longtermobjectives o corporateculture 7. SummaryofSituationAnalysis o externalthreats o externalopportunities o internalstrengths o internalweaknesses o key success factors in the industry o oursustainablecompetitiveadvantage 8. Marketingresearch o informationrequirements o researchmethodology o researchresults 9. Marketing Strategy - Product o productmix o product strengths and weaknesses § perceptualmapping o productlifecyclemanagementandnewproductdevelopment o Brand name, brand image, and brand equity o theaugmentedproduct o productportfolioanalysis
  • 44. 46 § B.C.G.Analysis § contributionmarginanalysis § G.E.MultiFactorialanalysis § QualityFunctionDeployment 10. Marketing Strategy - Market share objectives o by products, o bycustomersegments, o bygeographicalmarkets 11. Marketing Strategy - Price o pricingobjectives o pricingmethod(eg.:costplus,demandbased,orcompetitorindexing) o pricingstrategy(eg.:skimming,orpenetration) o discountsandallowances o priceelasticityandcustomersensitivity o pricezoning o break even analysis at various prices 12. MarketingStrategy-promotion o promotionalgoals o promotionalmix o advertisingreach,frequency,flights,theme,andmedia o salesforcerequirements,techniques,andmanagement o salespromotion o publicityandpublicrelations o electronic promotion (eg.:Web, or telephone) 13. MarketingStrategy-Distribution o geographicalcoverage o distributionchannels o physicaldistributionandlogistics o electronicdistribution 14. Implementation o personnelrequirements § assignresponsibilities § giveincentives § trainingonsellingmethods o financialrequirements o managementinformationsystemsrequirements o month-by-monthagenda § PERTorcriticalpathanalysis o monitoringresultsandbenchmarks
  • 45. 47 o adjustmentmechanism o contingencies(Whatif’s) 15. FinancialSummary o assumptions o pro-formamonthlyincomestatement o contributionmarginanalysis o breakevenanalysis o Monte Carlo method o ISI:InternetStrategicIntelligence 16. Scenarios o PredictionofFutureScenarios o Plan ofAction for each Scenario 17. Appendix o pictures and specifications of the new product o resultsfromresearchalreadycompleted Measurement of Progress The final stage of any marketing planning process is to establish targets (or standards) so that progress can be monitored.Accordingly, it is important to put both quantities and timescales into the marketingobjectives(forexample,tocapture20percentbyvalueofthemarketwithintwoyears)and intothecorrespondingstrategies. Changes in the environment mean that the forecasts often have to be changed.Along with these, the related plans may well also need to be changed. Continuous monitoring of performance, against predetermined targets, represents a most important aspect of this. However, perhaps even moreimportantistheenforceddisciplineofaregularformalreview.Again,aswithforecasts,inmany casesthebest(mostrealistic)planningcyclewillrevolvearoundaquarterlyreview.Bestofall,atleast in terms of the quantifiable aspects of the plans, if not the wealth of backing detail, is probably a quarterly rolling review - planning one full year ahead each new quarter. Of course, this does absorb more planning resource; but it also ensures that the plans embody the latest information, and - with attentionfocusedonthemsoregularly-forcesboththeplansandtheirimplementationtoberealistic. Plans only have validity if they are actually used to control the progress of a company: their successliesintheirimplementation,notinthewriting’. Performanceanalysis Themostimportantelementsofmarketingperformance,whicharenormallytracked,are: Salesanalysis Most organizations track their sales results; or, in non-profit organizations for example, the number of clients. The more sophisticated track them in terms of ‘sales variance’ - the deviation from
  • 46. 48 the target figures - which allows a more immediate picture of deviations to become evident. `Micro- analysis’,whichisanicelypseudo-scientifictermforthenormalmanagementprocessofinvestigating detailedproblems,theninvestigatestheindividualelements(individualproducts,salesterritories,customers and so on) which are failing to meet targets. Market share analysis Relatively few organizations, however, track market share. In some circumstances this may well be a much more important measure. Sales may still be increasing, in an expanding market, while share is actually decreasing - boding ill for future sales when the market eventually starts to drop. Where such market share is tracked, there may be a number of aspects which will be followed: • overallmarketshare • segment share - that in the specific, targeted segment • relative share -in relation to the market leaders Expenseanalysis Thekeyratiotowatchinthisareaisusuallythe‘marketingexpensetosalesratio’;althoughthis maybebrokendownintootherelements(advertisingtosales,salesadministrationtosales,andsoon). FinancialAnalysis The‘bottomline’ofmarketingactivitiesshouldatleastintheory,bethenetprofit(forallexcept non-profitorganizations,wherethecomparableemphasismaybeonremainingwithinbudgetedcosts). There are a number of separate performance figures and key ratios which need to be tracked: • grosscontribution<>netprofit • grossprofit<>returnoninvestment • netcontribution<>profitonsales There can be considerable benefit in comparing these figures with those achieved by other organizations(especiallythoseinthesameindustry);using,forinstance,thefigureswhichcanbeobtained (intheUK)from‘TheCentreforInterfirmComparison’.Themostsophisticateduseofthisapproach, however,istypicallybythosemakinguseofPIMS(ProfitImpactofManagementStrategies),initiated bytheGeneralElectricCompanyandthendevelopedbyHarvardBusinessSchool,butnowrunbythe StrategicPlanningInstitute. The above performance analyses concentrate on the quantitative measures which are directly related to short-term performance. But there are a number of indirect measures, essentially tracking customerattitudes,whichcanalsoindicatetheorganization’sperformanceintermsofitslonger-term marketing strengths and may accordingly be even more important indicators. Some useful measures are: • market research - including customer panels (which are used to track changes over time)
  • 47. 49 • lost business - the orders which were lost because, for example, the stock was not available or the product did not meet the customer’s exact requirements • customer complaints - how many customers complain about the products or services, or the organizationitself,andaboutwhat Use of Marketing Plans Aformal,writtenmarketingplanisessential;inthatitprovidesanunambiguousreferencepoint for activities throughout the planning period. However, perhaps the most important benefit of these plansistheplanningprocessitself.Thistypicallyoffersauniqueopportunity,aforum,for‘information- rich’andproductivelyfocuseddiscussionsbetweenthevariousmanagersinvolved.Theplan,together with the associated discussions, then provides an agreed context for their subsequent management activities,evenforthosenotdescribedintheplanitself. Budgets as Managerial Tools The classic quantification of a marketing plan appears in the form of budgets. Because these aresorigorouslyquantified,theyareparticularlyimportant.Theyshould,thus,representanunequivocal projection of actions and expected results. What is more, they should be capable of being monitored accurately;and,indeed,performanceagainstbudgetisthemain(regular)managementreviewprocess. Thepurposeofamarketingbudgetis,thus,topulltogetheralltherevenuesandcostsinvolved inmarketingintoonecomprehensivedocument.Itisamanagerialtoolthatbalanceswhatisneededto be spent against what can be afforded, and helps make choices about priorities. It is then used in monitoringperformanceinpractice. Themarketingbudgetisusuallythemostpowerfultoolbywhichyouthinkthroughtherelationship between desired results and available means. Its starting point should be the marketing strategies and plans,whichhavealreadybeenformulatedinthemarketingplanitself;although,inpractice,thetwowill run in parallel and will interact.At the very least, the rigorous, highly quantified, budgets may cause a rethinkofsomeofthemoreoptimisticelementsoftheplans. Approaches to budgeting Many budgets are based on history.They are the equivalent of ‘time-series’forecasting. It is assumedthatnextyear’sbudgetsshouldfollowsometrendthatisdiscernibleoverrecenthistory.Other alternatives are based on a simple ‘percentage of sales’ or on ‘what the competitors are doing’. However,therearemanyotheralternatives: • • • • • Affordable - This may be the most common approach to budgeting. Someone, typically the managing director on behalf of the board, decides what a ‘reasonable’ promotional budget is; what can be afforded. This figure is most often based on historical spending. This approach assumes that promotion is a cost; and sometimes is seen as an avoidable cost.
  • 48. 50 • • • • • Percentage of revenue - This is a variation of ‘affordable’, but at least it forges a link with salesvolume,inthatthebudgetwillbesetatacertainpercentageofrevenue,andthusfollows trends in sales. However, it does imply that promotion is a result of sales, rather than the other wayround. Bothofthesemethodsareseenbymanymanagementstobe‘realistic’,inthattheyreflectthe realityofthebusinessstrategiesasthosemanagementsseeit.Ontheotherhand,neithermakes any allowance for change. They do not allow for the development to meet emerging market opportunities and, at the other end of the scale, they continue to pour money into a dying product or service (the ‘dog’). • • • • • Competitiveparity-Inthiscase,theorganizationrelatesitsbudgetstowhatthecompetitors aredoing:forexample,itmatchestheirbudgets,orbeatsthem,orspendsaproportionofwhat the brand leader is spending. On the other hand, it assumes that the competitors know best; in which case, the service or product can expect to be nothing more than a follower. • • • • • Zero-based budgeting - In essence, this approach takes the objectives, as set out in the marketingplan,togetherwiththeresultingplannedactivitiesandthencoststhemout.Differences betweenmarketingandbusinessplans. Consumer Consumersareindividualsorhouseholdsthatpurchaseandusegoodsandservicesgenerated within the economy. The concept of a consumer is used in different contexts, so that the usage and significancemayvary. Consumer in economics and marketing Typicallywhenbusinesspeopleandeconomiststalkofconsumerstheyaretalkingaboutperson as consumer, an aggregated commodity item with little individuality other than that expressed in the buy/not-buy decision. However there is a trend in marketing to individualize the concept. Instead of generating broad demographic profile and psychographic profiles of market segments, marketers are engaginginpersonalizedmarketing,permissionmarketing,andmasscustomization. In economics, a consumer is assumed to have a budget which can be spent on a range of goods and services available on the market. Under the assumption of rationality, the budget allocation is chosen accordingtothepreferenceoftheconsumer,i.e.tomaximizehisorherutilityfunction.In‘timeseries’ models of consumer behavior, the consumer may also invest a proportion of their budget in order to gainagreaterbudgetinfutureperiods.Thisinvestmentchoicemayincludeeitherfixedrateinterestor risk-bearingsecurities. Consumer in law and politics Withinlaw,thenotionofconsumerisprimarilyusedinrelationtoconsumerprotectionlaws.A typicallegalrationaleforprotectingtheconsumerisbasedonthenotionofpolicingmarketfailuresand inefficiencies, such as inequalities of bargaining power between a consumer and a business.As just abouteveryoneisaconsumer,consumerprotectionalsohasaclearpoliticalsignificance.
  • 49. 51 In addition, concern over the interests of consumers has spawned much activism, as well as incorporation of consumer education into school curriculums. There are also various non-profit publications,suchasConsumerReportsandChoiceMagazine,dedicatedtoassistinconsumereducation anddecisionmaking. Product lifecycle Theproductlifecyclegoesthoughmanyphasesandinvolvesmanyprofessionaldisciplinesand requiresmanyskills,toolsandprocesses.Productlifecycle(PLC)dealswiththelifeofaproductinthe marketwithrespecttobusiness/commercialcostsandsalesmeasures.ProductLifecycleManagement (PLM) deals with managing descriptions and properties of a product through its development and usefullife,mainlyfromabusiness/engineeringpointofview. Product lifecycle management Productlifecyclemanagement(PLM)istheprocessofmanagingtheentirelifecycleofaproduct from its conception, through design and manufacture, to service and disposal. It is one of the four cornerstones of a corporation’s information technology structure.All companies need to manage communications and information with their customers (CRM-Customer Relationship Management) and their suppliers (SCM-Supply Chain Management) and the resources within the enterprise (ERP- EnterpriseResourcePlanning).Inaddition,manufacturingengineeringcompaniesmustalsodevelop, describe,manageandcommunicateinformationabouttheirproducts(PLM). Documentedbenefitsinclude: • Reduced time to market • Improvedproductquality T i m e l i n e . . Development . . . Introduction Growth Mature Decline Conceive . Design . Realize . Service . . Investment . . . Cashflow POSO admin . Return Ideation . . . Advertising . Selling Sales Order processing . . . Ideation ConceptDesign DetailedDesign ToolDesign Production Planning Manufacture Maintenance Redesign Recycling . Sourcing Procurement . Purchasing Stock control Delivery Spare Parts Product life Product Marketing & cycle Lifecycle Sales Engineering Logistics Finance management Management PLC PLM
  • 50. 52 • Reduced prototyping costs • Savingsthroughthere-useoforiginaldata • Aframeworkforproductoptimization • Reduced waste • Savingsthroughthecompleteintegrationofengineeringworkflows ProductLifecycleManagement(PLM)ismoretodowithmanagingdescriptionsandproperties ofaproductthroughitsdevelopmentandusefullife,mainlyfromabusiness/engineeringpointofview; whereas Product life cycle management (PLC) is to do with the life of a product in the market with respect to business/commercial costs and sales measures. Phases of product lifecycle and corresponding technologies Manysoftwaresolutionshavebeendevelopedtoorganizeandintegratethedifferentphasesof aproduct’slifecycle.PLMshouldnotbeseenasasinglesoftwareproductbutacollectionofsoftware toolsandworkingmethodsintegratedtogethertoaddresseithersinglestagesofthelifecycleorconnect different tasks or manage the whole process. Some software providers cover the whole PLM range whileothersasinglenicheapplication.SomeapplicationscanspanmanyfieldsofPLMwithdifferent moduleswithinthesamedatamodel.AnoverviewofthefieldswithinPLMiscoveredhere.Itshould benotedhoweverthatthesimpleclassificationsdonotalwaysfitexactly,manyareasoverlapandmany software products cover more than one area or do not fit easily into one category. It should also not be forgotten that one of the main goals of PLM is to collect knowledge that can be reused for other projectsandtocoordinatesimultaneousconcurrentdevelopmentofmanyproducts.Itisaboutbusiness processes, people and methods as much as software application solutions.Although PLM is mainly associated with engineering tasks it also involves marketing activities such as Product Portfolio Management (PPM), particularly with regards to New product introduction (NPI). Phase 1: Conceive Imagine, Specify, Plan, Innovate The first stage in the development of a product idea is the definition of its requirements based on customer, company, market and regulatory bodies’viewpoints. From this a specification of the productsmajortechnicalparameterscanbedefined.Althoughoftenthistaskiscarriedoutusingstandard office software packages there are for the field of requirements management a number of specialized softwaretoolsavailable. Paralleltotherequirementsspecificationtheinitialconceptdesignworkiscarriedoutdefining thevisualaestheticsoftheproducttogetherwithitsmainfunctionalaspects.FortheIndustrialDesign, Styling,workmanydifferentmediasareusedfrompencilandpaper,claymodelsto3DCAIDComputer- aidedindustrialdesignsoftware.
  • 51. 53 Phase 2: Design Describe, Define, Develop, Test,Analyze and Validate This is where the detailed design and development of the products form starts, progressing to prototypetesting,throughpilotreleasetofullproductlaunch.Itcanalsoinvolveredesignandrampfor improvementtoexistingproductsaswellasplannedobsolescence.Themaintoolusedfordesignand developmentisCADComputer-aideddesign.Thiscanbesimple2DDrawing/Draftingor3DParametric FeatureBasedSolid/SurfaceModelling,SuchsoftwareincludestechnologysuchasHybridModeling, ReverseEngineering,KBE(Knowledge-BasedEngineering),NDT(Nondestructivetesting),Assembly construction. Phase 3: Realize Manufacture, Make, Build, Procure, Produce, Sale and Deliver Once the design of the product’s components is complete the method of manufacturing is defined.ThisincludesCADtaskssuchastooldesign;creationofCNCMachininginstructionsforthe product’spartsaswellastoolstomanufacturethoseparts,usingintegratedorseparateCAMComputer- aidedmanufacturingsoftware.Thiswillalsoinvolveanalysistoolsforprocesssimulationforoperations such as casting, molding, and die press forming. Once the manufacturing method has been identified MPM – (Manufacturing Process Management) comes into play. This involves CAPE (Computer- aidedProductionEngineering)orCAP/CAPP–(ProductionPlanning)toolsforcarryingoutFactory, PlantandFacilityLayoutandProductionSimulation.Forexample:Press-LineSimulation;andIndustrial Ergonomics;aswellastoolselectionmanagement.Oncecomponentsaremanufacturedtheirgeometrical formandsizecanbecheckedagainsttheoriginalCADdatawiththeuseofComputerAidedInspection equipment and software. Parallel to the engineering tasks, sales product configuration and marketing documentationworkwillbetakingplace.Thiscouldincludetransferringengineeringdata(geometry and part list data) to a web based sales configurator and other Desktop Publishing systems. Phase 4: Service Use, Operate, Maintain, Support, Sustain, Phase-out, Retire, Recycle and Disposal Thefinalphaseofthelifecycleinvolvesmanagingofinserviceinformation.Providingcustomers andserviceengineerswithsupportinformationforrepairandmaintenance,aswellaswastemanagement/ recyclinginformation.ThisinvolvesusingsuchtoolsasMaintenance,RepairandOperationsManagement (MRO) software. All phases: product lifecycle Communicate, Manage and Collaborate Noneoftheabovephasescanbeseeninisolation.Inrealityaprojectdoesnotrunsequentially orinisolationofotherproductdevelopmentprojects.Informationisflowingbetweendifferentpeople andsystems.Amajor part of PLM is the co-ordination of and management of product definition data. Thisincludesmanagingengineeringchangesandreleasestatusofcomponents;configurationproduct
  • 52. 54 variations;documentmanagement;planningprojectresourcesandtimescaleandriskassessment. For these tasks graphical, text and metadata such as product BOMs (Bill of Materials) needs to be managed.AttheengineeringdepartmentslevelthisisthedomainofPDM–(ProductDataManagement) software, at the corporate level EDM (Enterprise Data Management) software, these two definitions tendtoblurhoweverbutitistypicaltoseetwoormoredatamanagementsystemswithinanorganization. These systems are also linked to other corporate systems such as SCM, CRM, and ERP.Associated withthesesystemareProjectManagementSystemsforProject/ProgramPlanning. ThiscentralroleiscoveredbynumerousCollaborativeProductDevelopmenttoolswhichrun throughout the whole lifecycle and across organizations. This requires many technology tools in the areasofConferencing,DataSharingandDataTranslation.ThefieldbeingProductvisualizationwhich includestechnologiessuchasDMU(DigitalMock-Up),ImmersiveVirtualDigitalprototyping(Virtual reality)andPhotorealisticImaging. Product development processes and methodologies AnumberofestablishedmethodologieshavebeenadoptedbyPLMandbeenfurtheradvanced. Together with PLM digital engineering techniques, they have been advanced to meet company goals such as reduced time to market and lower production costs. Reducing lead times is a major factor as gettingaproducttomarketquickerthanthecompetitionwillhelpwithhigherrevenueandprofitmargins and increase market share. Thesetechniquesinclude:- • Concurrentengineeringworkflow • IndustrialDesign • Bottom-updesign • Top-downdesign • Frontloadingdesignworkflow • Designincontext • Modulardesign. • NPD New product development • DFSSDesignforSixSigma • DFMADesignformanufacture/assembly • Digitalsimulationengineering. • Requirementdrivendesign • Specificationmanagedvalidation Collaborative Product Development CollaborativeProductDevelopment(CollaborativeProductDesign)(CPD)isabusinessstrategy, work process and collection of software applications that facilitates different organizations to work together on the development of a product. It is also known as collaborative Product Definition Management(cPDM).
  • 53. 55 Althoughcompaniesworkingtogethertodevelopaproductinanextendedenterpriseisnothing newandmostofthecollaborativesoftwaretechnologybeingusedhasbeenaroundforsometime,the bringingtogetherofmethodsandsoftwareapplicationtoolsintoonedisciplineisrelativelyrecent.This has come about due to a number of factors: • Increasedglobalizationofcommerce. • Increasing number of corporations with departments in different locations needing to work closertogether. • Increased Outsourcing of tasks. • Departmentsinsamecompany(maybeduetotakeoversandmergers)withdifferenttechnology formatshavingtoworkclosertogether. • Companiesworkingwithpartnerswhomayhavespecialistknowledge. • Increasingroleof1sttiersupplierandtheirimportance. Exactlywhattechnologycomesunderthistitledoesvarydependingonwhoyouask;ithowever usually consists of the PLM areas of: Product Data Management (PDM); Product visualization; team collaboration and conferencing tools; and supplier sourcing software. It is generally accepted as not includingCADgeometryauthoringtools,butdoesincludedatatranslationtechnology. SUMMARY Aproductissomethingthatisrelativelyeasilytraded,thatcanbephysicallydelivered,andthat canbestoredforareasonableperiodoftime.Itisacharacteristicofproductionthatpricesaredetermined on the basis of an active market, rather than by the supplier (or other seller) on a “cost-plus” basis. Productsarethingsofvalue,ofuniformquality,thatwereproducedinlargequantitiesbymanydifferent producers;theitemsfromeachdifferentproducerareconsideredequivalent.Itisthecontractandthis underlyingstandardthatdefinetheproduct,notanyqualityinherentintheproduct. Ingeneral,amanufacturer’sresponsibilitytomarketsafeproducts.UnderthelawofTorts,amanufacturer is held strictly liable when one of its products, placed on the market with the knowledge that it will be used without inspection for defects, proves to have a defect that causes injury to a human being. Offeringcapableofsatisfyinganeedorawant,thatisofferedtoatargetmarketforattention,acquisition, use,orconsumption.Aproductcanbeanobject,service,activity,person,place,organization,oridea. Each product has its own benefits, styling, quality, brand name, and packaging that gives it its own identityanddistinguishingcharacteristics.Anadvertiser,though,willprimarilyconcentrateonpromoting a product’s benefits, rather than its features. In marketing, a product is anything that can be offered to a market that might satisfy a want or need. It is of two types: Tangible (physical) or Intangible (non- physical).Sinceserviceshavebeenattheforefrontofallmodernmarketingstrategies,someintangibility has become essential part of marketing offers. It is therefore the complete bundle of benefits or satisfactions that buyers perceive they will obtain if they purchase the product. It is the sum of all
  • 54. 56 physical,psychological,symbolic,andserviceattributes,notjustthephysicalmerchandise.Allproducts offered in a market can be placed between Tangible (Pure Product) and Intangible (Pure Service) spectrum. Aproductissimilartogoods.Inaccounting,goodsarephysicalobjectsthatareavailableinthe marketplace.Thisdifferentiatesthemfromaservice,whichisanon-materialproduct.Thetermgoods isusedprimarilybythosethatwishtoabstractfromthedetailsofagivenproduct.Assuchitisusefulin accountingandeconomicmodels.Thetermproductisusedprimarilybythosethatwishtoexaminethe details and richness of a specific market offering.As such it is useful to marketers, managers, and qualitycontrolspecialists. Aphysicalitemthatisofferedforsaleshouldnotautomaticallybeconsideredaproductifithas no market. Like 95% of patents they at best interesting diversions and at worst a waste of time. QUESTIONS: 1. What is Apinwall Classification System of Product Management? 2. What are the types of Product? 3. Define a Customer? What are the types of Customers? What are the needs and expectations of a Customer? 4. Who is a Marketer? What is a Marketing Plan? 5. What are the approaches to budgeting in Marketing?
  • 55. 57 CHAPTER - V MARKET OBJECTIVE A market is a social arrangement that allows buyers and sellers to discover information and carry out a voluntary exchange of goods or services. It is one of the two key institutions that organize trade, along with the right to own property.Allowing markets to arrive at a pareto efficientoutcomeis one of the key components of capitalism. In everyday usage, the word “market” may refer to the location where goods are traded, sometimes known as a marketplace, or to a street market. Function Thefunctionofamarketrequires,ataminimum,thatbothpartiesexpecttobecomebetteroff as a result of the transaction. Markets generally rely on price adjustments to provide information to parties engaging in a transaction, so that each may accurately gauge the subsequent change of their welfare.Inlesssophisticatedmarkets,suchasthoseinvolvingbarter,individualbuyersandsellersmust engageinamorelengthyprocessofhagglinginordertogainthesameinformation.Marketsareefficient when the price of a good or service attracts exactly as much demand as the market can currently supply.Thechieffunctionofamarket,then,istoadjustpricestoaccommodatefluctuationsinsupply anddemandinordertoachieveallocativeefficiency.Aneconomicsysteminwhichgoodsandservices are exchanged by market functions is called a market economy.An alternative economic system in whichnon-marketforces(oftengovernmentmandates)determinepricesarecalledplannedeconomies orcommandeconomies.Theattempttocombinesocialistidealswiththeincentivesystemofamarket isknownasmarketsocialism. Types of markets Althoughmanymarketsexistinthetraditionalsense—suchasafleamarket—therearevarious othertypesofthemandvariousorganizationalstructurestoassisttheirfunctions. Amarketcanbeorganizedasanauction,asashoppingcenter,asacomplexinstitutionsuchas astockmarket,andasaninformaldiscussionbetweentwoindividuals. In economics, a market that runs under laissez-faire policies is a free market. It is “free” in the sense that the government makes no attempt to intervene through taxes, subsidies, minimum wages, price ceilings, etc. Markets may be distorted by a seller or sellers with monopoly power, or a buyer withmonopsonypower.Also,theleveloforganizationornegotiationpowerofbuyers,markedlyaffects thefunctioningofthemarket.Marketswherepricenegotiationsdonotarriveatefficientoutcomesfor both sides are said to experience market failure. Most markets are regulated by state wide laws and regulations. While barter markets exist, most markets use currency or some other form of money. Markets of varying types can spontaneously arise whenever a party has interest in a good or service that some other party can provide. Hence there can be a market for cigarettes in correctional facilities,anotherforchewingguminaplayground,andyetanotherforcontractsforthefuturedelivery
  • 56. 58 ofacommodity.Therecanbeblackmarkets,whereagoodisexchangedillegallyandvirtualmarkets, such as eBay in which buyers and sellers do not physically interact. There can also be markets for goods under a command economy despite pressure to repress them Market research Market research is the process of systematic gathering, recording and analyzing of data about customers,competitorsandthemarket.Marketresearchcanhelpcreateabusinessplan,launchanew product or service, fine tune existing products and services, expand into new markets etc. It can be usedtodeterminewhichportionofthepopulationwillpurchasetheproduct/service,basedonvariables likeage,gender,locationandincomelevel.Itcanbefoundoutwhatmarketcharacteristicsyourtarget market has.With market research, companies can learn more about current and potential customers. Thepurposeofmarketresearchistohelpcompaniesmakebetterbusinessdecisionsaboutthe developmentandmarketingofnewproducts.Marketresearchrepresentsthevoiceoftheconsumerin a company. A list of questions that can be answered through market research: • What is happening in the market? What are the trends? Who are the competitors? • How do consumers talk about the products in the market? • Which needs are important?Are the needs being met by current products? Asimpleexampleofwhatmarketresearchcandoforabusinessisthefollowing.Atthecompany Chevrolettheybroughtseveraldisciplinestogetherinacross-functionalteamtodevelopaconceptfor a completely new Corvette. This team enabled the marketers to come up with an alternative concept, one that balanced 4 attributes: comfort and convenience, quality, styling, and performance. This was considered radical because comfort and convenience were not traditional Corvette values. However, market research demonstrated that consumers supported the alternative concept.As a result the new Corvette was a huge success in the market. [Burns 2001] With market research you can get some kind of confirmation that there is a market for your idea, and that a successful launch and growth are possible. Market research for business planning Marketresearchisdiscoveringwhatpeoplewant,need,orbelieve.Itcanalsoinvolvediscovering how they act. Once that research is complete it can be used to determine how to market your specific product. Whenever possible, try to reduce risks at the earliest possible stage. For example you could carry out market research early on and not wait until you are almost ready to enter the market. If early market research reveals that your business idea has real potential, you can use this information in planningthebuild-upofyourbusiness.[Ilar1998] For starting up a business there are a few things should be found out through market research inordertoknowifyourbusinessisfeasible.Thesearethingslike: • • • • • Market information Marketinformationismakingknownthepricesofthedifferentcommoditiesinthemarket,the supply and the demand. Information about the markets can be obtained in several different varieties andformats.Themostbasicformofmarketinformationisthebestquotationandlastsaledata,including the number of shares, with respect to a particular security at a given time. [Market research 2006]
  • 57. 59 Examplesofmarketinformationquestionsare: 1. Who are the customers? 2. Where are they located and how can they be contacted? 3. Whatquantityandqualitydotheywant? 4. What is the best time to sell? 5. What is the long-term or historical price data over a number of years? 6. What is the expected production in the country? 7. Is there more demand for one product or another? Etc. • • • • • Market segmentation Market segmentation is the division of the market or population into subgroups with similar motivations.Widelyusedbasesforsegmentingincludegeographicdifferences,personalitydifferences, demographicdifferences,useofproductdifferences,andpsychographicdifferences. • • • • • Market trends The upward or downward movements of a market, during a period of time. Themarketsizeismoredifficulttoestimateifyouarestartingwithsomethingcompletelynew. In this case, you will have to derive the figures from the number of potential customers or customer segments. [Ilar 1998] Butbesidesinformationaboutthetargetmarketyoualsoneedinformationaboutyourcompetitor, your customers, products etc.Afew techniques are: • Customeranalysis • Competitoranalysis • Riskanalysis • Product research • Advertisingresearch In the last chapter you can read how to perform market research, with interviews and questionnaires, but there is already a lot of information available. Market research firms and industry expertspublishmuchoftheirinformationonwebsites,andintradeandbusinessmagazines.Reference sites index these magazines, many offer the texts online and if not the libraries stock them. Trade associationspublishmanylistingsandstatisticsontheirwebsitesaswellasinhardcopypublications. Sothereisalreadyalotofinformationavailable. Perform market research Thischapterintroducesthestepsinvolvedinthemarketresearchprocess.Italsoprovidesyou with a brief preview of each of the steps necessary to conduct a market research effort.As you can see in figure 1, the market research process has 4 basic steps. These steps include: 1. Definingtheresearchproblem 2. Establishingtheresearchdesign 3. Collectingandanalysingdata 4. Formulatefindings Figure 1 is the meta-process model of market research. The model shows every activity that mustbeperformed.Andeveryactivityhasafewsequentialactivities.Everysequentialactivityisconnected with an arrow which implies that these activities need to be carried out in a pre-defined order.
  • 58. 60 Discussion with customer Write Draft Findings Final Findings Present Final Findings Formulate Findings Hire External Office Collect Data Cleaning Data Coding Data Tabulating Data Collection and Analyze Data Select Information Types Select Information Sources Determine Research Instrument Design Research Instrument Establish Research Design Select Research Design Figure 1: Meta-process model for Market research Define Research Problem Describe Problem Formulate Research Questions Formulate Subquestions Set Research Objectives Set Timetables
  • 59. 61 Before these 4 steps are discussed it is important to make a few comments about these steps. First although the list does strongly imply an orderly step-by-step process, it is rare that a research project follows these steps in the exact order that they are presented in the figure. Market research is more of an interactive process whereby a researcher, by discovering something in a given step, may move backward in the process and begin again at another step [Market research 2006] Finding some newinformationwhilecollectingdata,maycausetheresearchertoestablishdifferentresearchobjectives. In the following the different market research steps are described. Defining the research problem Thestepdefiningtheresearchproblemexistsof2mainsteps:(1)formulatingtheproblemand (2)establishingresearchobjectives. Definingtheproblemisthesinglemostimportantstepinthemarketresearchprocess.Aclear statement of the problem is a key to a good research.Afirm may spend hundreds or thousands of dollarsdoingmarketresearch,butifithasnotcorrectlyidentifiedtheproblem,thosedollarsarewasted. In our case it is obvious that the problem here is setting up a business. But even if this is clear, you still need to know what exactly you need to know to make the new business a success and what specific related to the product is difficult to find out. Problems that may be encountered are: it is unknownwhatpotentialmarketsthereare,whatcustomergroupsareinterestedinyourproducts,who the competitors are?After formulating your problem, you need to formulate your research questions. What questions need to be answered and which possible sub-questions do you have. With the problem or opportunity defined, the next step is to set objectives for your market research operations. Research objectives, related to and determined by the problem formulation, are setsothatwhenachievedtheyprovidethenecessaryinformationtosolvetheproblem.Agoodwayof settingresearchobjectivesistoask,“Whatinformationisneededinordertosolvetheproblem?”Your objective might be to explore the nature of a problem so you may further define it, or perhaps it is to determine how many people will buy your product packaged in a certain way and offered at a certain price.Yourobjectivemightevenbetotestpossiblecauseandeffectrelationships.Forexample,ifyou lower your price, how much will it increase your sales volume?And what impact will it have on your profit? Clearobjectivescanleadtoclearresults.AnexampleofthisisasituationatCamaro/Firebird. Auto manufacturers are sometimes criticized for creating expensive vehicles with unwanted features andtechnologiesthatdonotmeettheneedsofthetargetmarket.Toavoidthistrapengineeringteamof this company turned to market research to evaluate how changes in performance and fuel economy would affect sales volume and customer satisfaction. It turned out that customers were willing to pay more for greater performance if the car also offered simultaneous increases in fuel economy. [Burns 2001] The problem description, the research question, sub questions and the research objectives are partofanoveralldocumentproblemdescription. After describing and formulating the problem and the objectives, the next step is to prepare a detailed and realistic time frame to complete all steps of the market research process. If your business
  • 60. 62 operates in cycles, establish target dates that will allow the best accessibility to your market. For example, a holiday greeting card business may want to conduct research before or around the holiday seasonbuyingperiod,whentheircustomersaremostlikelytobethinkingabouttheirpurchases.[Market research 2006] Selecting and establishing research design The step selecting and establishing research design consists of 3 main steps: (1) select the research design, (2) identify information types and sources and (3) determine and design research instrument. Select the research design Asstatedearlier,everyresearchprojectandeverybusinessisdifferent.Still, there are enough commonalitiesamongresearchprojectstocategorizethembyresearchmethodsandproceduresused to collect and analyze data. There are three types of research design: • Exploratoryresearchdesign • Descriptiveresearch • Causal research Exploratoryresearchisdefinedascollectinginformationinanunstructuredandinformalway. For example if the owners of a new restaurant often eat out at competitor’s restaurants in order to gatherinformationaboutmenuselections,pricesandservicequality. Descriptiveresearchreferstoasetofmethodsandproceduresthatdescribemarketingvariables. Descriptive studies portray these variables by answering who, what, why and how questions. These types of research studies may describe such things as consumers’ attitudes, intentions, and behaviors, or the number of competitors and their strategies. Causalresearchdesignisconductedbycontrollingvariousfactorstodeterminewhichfactoris causingtheproblem.Itallowsyoutoisolatecausesandeffects.Bychangingonefactor,saypriceyou can monitor its effects on a key consequence such as sales.Although causal research can give you a highlevelofunderstandingofthevariableyouarestudying,thedesignsoftenrequireexperimentsthat arecomplexandexpensive. Identify information types and sources Therearetwotypesofinformationavailabletoamarketresearcher:primarydataandsecondary data. Primary data is original information gathered for a specific purpose. Secondary data refers to informationthatalreadyexistssomewhereandhasbeencollectedforsomeotherpurpose.Bothtypes of research have a number of activities and methods of conducting associated with them. Secondary research is usually faster and less expensive to obtain than primary research. Gathering secondary researchmaybeassimpleasmakingatriptoalocallibraryorbusinessinformationcenterorbrowsing the Internet. There is already a lot of statistics about different businesses that can be used for this research.
  • 61. 63 Information source Secondarydatahelpidentifytheproblem;betterdefineproblem;developanapprochtoproblem; formulate an appropriate research design; answer certain research questions and test some research hypotheses;Interpretprimarydatamoreinsightfully. Determining and design research instrument Afterdeterminingwhichtype(s)ofinformationareneeded,themethodsofaccessingdatamust bedetermined.Thereareseveraldifferentmethodsofcollectingdata.Thesemethodsincludetelephone surveys,mailsurveys,personalinterviewsorgroupsurveys. The actual design of the research instrument, the data collection form that is used to ask and record the information is critical to the success of the project. There are two basic methods to collect information: by asking questions or by observing. The most common research instrument is the questionnaire.Therearetwotypesofforms:structuredandunstructured.Structuredquestionnaireslist close-end questions. These include multiple choice questions which offer respondents the ability to answer“yes”or“no”orchoosefromalistofseveralanswerchoices.Close-endquestionsalsoinclude scales refer to questions that ask respondents to rank their answers at a particular point on a scale. Unstructuredquestionnaireshaveopen-endedquestions.Respondentscananswerintheirownwords. Collecting and analyzing data Datacollectionisusuallydonebytrainedinterviewerswhoareemployedbyfielddatacollection companies to collect primary data.Achoice has to be made between collecting the data yourself or hiringanexternalofficewhoarespecializedininterviews. Dataanalysisisneededtogivetherawdataanymeaning.Thefirststepinanalyzingthedatais cleaningthedata.Thisistheprocessofcheckingtherawdatatoverifythatthedatahasbeencorrectly entered into the files from the data collection form.After that the data have to be coded. This is the process of assigning all response categories a numerical value. For example males = 1, females = 2. After that the data can be tabulated, which refers to the actual counting of the number of observations that fall in to each possible response category. Data can also be collected on a smaller scale to obtain more qualitative data. One frequently usedformofqualitativedatacollectionisthefocusgroup.FocusGroupsaregenerallycomprisedofa smallselectionofthetargetaudience.Theparticipantsarethenqueriedandthediscussionsareguided byamoderator.The group is often recorded and/or viewed by the marketing team or others via a two- way mirror or closed circuit system. Focus group companies exist worldwide. Some specialize in certainindustries,suchasthelegalcommunity,whileothersprovidemoregeneralservices. Formulatefindings Afteranalyzingthedatayoucanmakeyourfindingsbasedonthisdata.Oncethefindingsabout the target market, competition and environment are finished, present it in an organized manner to the decision makers of the business. In this case report the findings in the market analysis section of your business plan. In summary, the resulting data was created to help guide your business decisions, so it needs to be readily accessible to the decision makers.
  • 62. 64 Marketing orientation A marketing oriented firm (also called market orientation, the marketing concept, consumer focus, or customer focus) is one that allows the needs and wants of customers and possible customers topushallthefirm’slong-termcrucialdecisions.Thefirm’scorporatecultureissystematicallycommitted to creating customer value. The rationale is that the more a company understands and meets the real needsofitsconsumers,themorelikelyitistohavehappycustomerswhocomebackformore,andtell theirfriends.Thisprocesscanentailthefosteringoflongtermrelationshipswithcustomers.Inorderto determine customer wants, the company usually needs to conduct some form of marketing research. Overall, the marketer expects that becoming marketing oriented, if done correctly, will provide the companywithasustainablecompetitiveadvantage. The concept of marketing orientation was developed in the late 1960s and early 1970s at HarvardUniversityandatahandfulofforwardthinkingcompanies,suchasMckinsey&Company.It replacedtheprevioussalesorientationthatwasprevalentbetweenthemid1950sandtheearly1970s, and the production orientation that predominated prior to the mid 1950s. Since the concept was first introducedinthelate1960s,ithasbeenmodified,repackaged,andrenamedas“customerfocus”,“the marketingphilosophy”,“marketdriven”,“customerintimacy”,“consumerfocus”,“customerdriven”, and“themarketingconcept”. Application of the concept Customer focus can be seen as a process that involves three steps. First customer wants are researched,thentheinformationisdisseminatedthroughoutthefirmandproductsaredeveloped,then finallycustomersatisfactionismonitoredandadjustmentsmadeifnecessary. The process can be applied at the individual level (called personalized marketing), the group level(calledmarketsegmentation),andoccasionallyatthemasslevel(massmarketing).Thelargerthe group size, the more difficult the concept is to apply. Techniquesthatfirmsusetounderstandthecustomerinclude: • Quantitativemarketingresearch-suchas;surveysandquestionnaires • Qualitative marketing research - such as; focus groups and advisory panels • Market research and industry research - such as; Porter 5 forces analysis • Face-to-facemeetingswithcustomers • Face-to-face meetings with frontline staff - sales reps, clerks, and receptionists • Customercomplaintsdepartment • Customer hotlines -Web and telephone • Visitstocustomers’facilities • Frequent user programs and databases • User groups - Beta testing • Conferences Amarketingorientedfirmwilltypicallyshowthefollowingcharacteristics: • Extensiveuseofvariousmarketingresearchtechniques
  • 63. 65 • Broad product lines • Emphasis on a product’s benefits to customers rather than on product attributes • Useofproductinnovationtechniques,suchas;brainstorming,concepttesting,andforcefield analysis. • Theofferingofancillaryserviceslikecreditavailability,delivery,installation,andwarranty • Customersatisfactionandcomplaintmonitoringprocedures,including;exitinterviews,customer complaintsdatabase,andWebandtelephoneinformationhotlines. • OrganizationalstructureinwhichthemarketingmanagerreportsdirectlytotheCEO. SUMMARY Amarketisplacewhereconsumptionincreasestheutilityoftheconsumer,forwhichthequantity demandedexceedsthequantitysuppliedatzeroprice.Marketsareusuallymodeledashavingdecreasing marginalutility.Inamarketeconomy,businessesandconsumersdecideoftheirownvolitionwhatthey will purchase and produce. Technically this means that the producer gets to decide what to produce, how much to produce, what to charge to customers for those goods, what to pay employees, etc., and not the government. These decisions in a free-market economy are influenced by the pressures of competition,supply,anddemand.Thisisoftencontrastedwithaplannedeconomy,inwhichacentral governmentdecideswhatwillbeproducedandinwhatquantities. No pure market economy exists. Thus, almost all economies in the world today are mixed economieswhichcombinevaryingdegreesofmarketandcommandeconomytraits. A true free market economy is an economy in which all resources are owned by individuals, andinwhichdecisionsabouttheallocationofthoseresourcesaremadebyindividualswithoutgovernment intervention. Generally market economies are bottom-up in decision-making as consumers convey information to producers through prices paid in market transactions. For a brief time during the 20th century,evenself-describedcapitaliststatesengagedintopdownmarketcommandwherethegovernment and or producers attempted to command and direct resources to valued uses.All states today have some form of control over the market that removes the free and unrestricted direction of resources fromconsumersandpricessuchastariffsandcorporatesubsidies.However,theterm“marketeconomy” is not exclusive to traditional capitalist ownership where a corporation hires workers as a labour commodity to produce material wealth and boost shareholder profits. QUESTIONS: 1. What is the function of a Market? 2. What are the types of market? 3. Write notes on (a) Market Research (b) Market research for business planning 4. For starting a business what are the requirements needed in order to know if your business is feasible? 5. Enumerate the techniques used by firms to understand a customer?
  • 64. 66 CHAPTER - VI TARGETMARKET OBJECTIVE Target market is the market segment to which a particular product is marketed. It is often defined by age, gender,geography,and/orsocio-economicgrouping. Targeting strategy is the selection of the customers you wish to service. The decisions involved in targetingstrategyinclude: • which segments to target • how many products to offer • which products to offer in which segments There are three steps to targeting: • market segmentation • target choice • product positioning Targetingstrategydecisionsareinfluencedby: • market maturity • diversity of buyers’ needs and preferences • strength of the competition • thevolumeofsalesrequiredforprofitability Targetingcanbeselective(eg.:focusstrategy,marketspecializationstrategyornichestrategy), orextensive(eg.:fullcoverage,massmarketing,orproductspecialization). Market segment Market segmentation is the process in marketing of dividing a market into distinct subsets (segments) that behave in the same way or have similar needs. Because each segment is fairly homogeneous in their needs and attitudes, they are likely to respond similarly to a given marketing strategy.Thatis,theyarelikelytohavesimilarfeelingandideasaboutamarketingmixcomprisedofa given product or service, sold at a given price, distributed in a certain way, and promoted in a certain way. Broadly,marketscanbedividedaccordingtoanumberofgeneralcriteria,suchasbyindustry or public versus private sector. Small segments are often termed niche markets or specialty markets. However,allsegmentsfallintoeitherconsumerorindustrialmarkets.Althoughithassimilarobjectives anditoverlapswithconsumermarketsinmanyways,theprocessofIndustrialmarketsegmentationis quitedifferent. The process of segmentation is distinct from targeting (choosing which segments to address) and positioning (designing an appropriate marketing mix for each segment). The overall intent is to
  • 65. 67 identify groups of similar customers and potential customers; to prioritize the groups to address; to understandtheirbehavior;andtorespondwithappropriatemarketingstrategiesthatsatisfythedifferent preferences of each chosen segment. The requirements for successful segmentation are: • homogeneitywithinthesegment • heterogeneitybetweensegments • segmentsaremeasurableandidentifiable • segments are accessible and actionable • segmentislargeenoughtobeprofitable These criteria can be summarized by the word SADAM: • S Substantial: the segment has to be large and profitable enough • AAccessible: it must be possible to reach it efficiently • DDifferential:itmustresponddifferentlytoadifferentmarketingmix • AActionable: you must have a product for this segment • M Measurable: size and purchasing power can be measured Currently a college student studying the marketing mix is introduced to the Four Ps of the Marketing Mix; Product, Place, Promotion, Price. Product (service) is whatever it may be that is being sold/marketed. Price refers to not only the actual price but also price elasticity. Placehasevidentlyreplaceddistributionsimplybywhereorwhatareathemarketingcampaign is going to cover, as well as what types of distribution channel (retail, wholesale, online, etc) will be used. Today the idea of place is not limited to geographic profiling but also demographics and other categorizingvariables.Thishasonlyoccurredoverthelasttenyearswiththeexpansionofinternetuse and its ability to target specific types of people and not just people in a geographic area. Promotionsimplyreferstowhatmediumwilldeliverthemessageandwhattheoverallmarketing strategyisofferingasabenefit. The variables used for segmentation include: • Geographicvariables o Region of the world or country, East,West, South, North, Central, coastal, hilly, etc. o Countrysize/countrysize:MetropolitanCities,smallcities,towns. o DensityofAreaUrban,Semi-urban,Rural. o ClimateHot,Cold,Humid,Rainy. • Demographicvariables o age o gender Male and Female
  • 66. 68 o sexualorientation o familysize o familylifecycle o EducationPrimary,HighSchool,Secondary,College,Universities. o income o occupation o education o socioeconomicstatus o religion o nationality/race o language • Psychographicvariables o personality o lifestyle o value o attitude • Behavioralvariables o benefitsought o product usage rate o brandloyalty o product end use o readiness-to-buy stage o decisionmakingunit Whennumerousvariablesarecombinedtogiveanin-depthunderstandingofasegment,thisis referredtoasdepthsegmentation.Whenenoughinformationiscombinedtocreateaclearpictureofa typical member of a segment, this is referred to as a buyer profile. When the profile is limited to demographic variables it is called a demographic profile (typically shortened to “a demographic”).A statisticaltechniquecommonlyusedindeterminingaprofileisclusteranalysis. Top-down and bottom-up George Day (1980) describes model of segmentation as the top-down approach: You start with the total population and divide it into segments. He also identified an alternative model which he called the bottom-up approach. In this approach, you start with a single customer and build on that profile.Thistypicallyrequirestheuseofcustomerrelationshipmanagementsoftwareoradatabaseof somekind.Profilesofexistingcustomersarecreatedandanalysed.Variousdemographic,behavioural, and psychographic patterns are built up using techniques such as cluster analysis. This process is sometimescalleddatabasemarketingormicro-marketing.Itsuseismostappropriateinhighlyfragmented markets.McKenna(1988)claimsthatthisapproachtreatseverycustomerasa“micromajority”.Pine (1993) used the bottom-up approach in what he called “segment of one marketing”. Through this processmasscustomizationispossible.
  • 67. 69 Price discrimination Where a monopoly exists, the price of a product is likely to be higher than in a competitive market and the quantity sold less, generating monopoly profits for the seller. These profits can be increased further if the market can be segmented with different prices charged to different segments (referred to as price discrimination), charging higher prices to those segments willing and able to pay more and charging less to those whose demand is price elastic. The price discriminator might need to create rate fences that will prevent members of a higher price segment from purchasing at the prices availabletomembersofalowerpricesegment.Thisbehaviourisrationalonthepartofthemonopolist, but is often seen by competition authorities as an abuse of a monopoly position, whether or not the monopolyitselfissanctioned. Sustainable competitive advantage Competitive advantage (CA) is a position that a firm occupies in its competitive landscape. Michael Porter posits that a competitive advantage, sustainable or not, exists when a company makes economic rents, that is, their earnings exceed their costs, especially including cost of capital. That means that normal competitive pressures are not able to drive down the firm’s earnings to the point wheretheycoverallcostsandjustprovideminimumsufficientadditionalreturntokeepcapitalinvested. Mostformsofcompetitiveadvantagecannotbesustainedforanylengthoftimebecausethepromiseof economicrentsdrivescompetitorstoduplicatethecompetitiveadvantageheldbyanyonefirm. Afirm possesses a Sustainable CompetitiveAdvantage (SCA) when it has value-creating processesandpositionsthatcannotbeduplicatedorimitatedbyotherfirmsthatleadtotheproduction of above normal rents.An SCAis different from a competitive advantage (CA) in that it provides a long-termadvantagethatisnoteasilyreplicated.Buttheseabove-normalrentscanattractnewentrants who drive down economic rents.ACAis a position a firm attains that lead to above-normal rents or a superiorfinancialperformance.Theprocessesandpositionsthatengendersuchapositionisnotnecessarily non-duplicable or inimitable. It is possible for some companies to make profits for a time above the costofcapitalwithoutsustainablecompetitiveadvantage. AkeydifferencebetweenCAandSCAisthattheprocessesandpositionsafirmmayholdare non-duplicableandinimitablewhenafirmpossessesaSCA.Henceasustainablecompetitiveadvantage isonethatcanbemaintainedforasignificantamountoftimeeveninthepresenceofcompetition.This bringsustothequestionwhatisa“significantamountoftime”.ACAbecomesSCAwhenallduplication andimitationeffortshaveceasedandtherivalfirmshavenotbeenabletocreatethesamevaluethatthe saidfirmiscreating. Analysisofthefactorsofprofitabilityisthesubjectofnumeroustheoriesofstrategyincluding the five forces model pioneered by Michael Porter of the Harvard Business School. Inmarketingandstrategicmanagement,sustainablecompetitiveadvantageisanadvantagethat one firm has relative to competing firms. The source of the advantage can be something the company does that is distinctive and difficult to replicate, also known as a core competency — for example
  • 68. 70 Procter & Gamble’sabilitytoderivesuperiorconsumerinsightsandimplementtheminmanagingits brand portfolio. It can also be an asset such as a brand (e.g. Coca Cola) or a patent, such asViagra. It canalsosimplybearesultoftheindustry’scoststructure—forexample,thelargefixedcoststhattend tocreatenaturalmonopoliesinutilityindustries.Tobesustainable,theadvantagemustbe: 1. distinctive,and 2. proprietary Building Sustainable CompetitiveAdvantage TherearebasicallythreetypesofassetsthathelpbuildanSCA.Thesecategoriesareexhaustive andincludeallofthecompany’sSCAs: 1. Organizationandmanagerialprocess o Coordination and integration: Coordination among teams in organization is key to organizationalsuccess.Interdepartmentalcoordinationandresourcesharingtoreacha common goal is fundamental to creating “value”. Integrating resources is key to the success of firms. Firms that are able to integrate resources see synergistic effects of resourcescomingtogether. o Learning: Organizational learning is key to the success of a firm. It determines how a firmcollects,distributes,interpretsandrespondstomarketbasedinformationcollection andchangesintheenvironment.Thesechangesintheenvironmentcouldbecustomer basedchanges,technologicaldevelopments,legalandgovernmentrestrictions.Firms havetodeveloprobustmarketsensingandspanningcapabilitiestoeffectivelycollect information. Once they collect info they have embed this knowledge in the products they produce. o Reconfiguringandtransformation: Theenvironmentforfirmsisconstantlychanging and constant reconfiguring and transformation is key to forming SCA.Adouble loop learningandtransformationiskeytoproducinginnovativeproducts.Innovativecapacity ofafirmdetermineshowitreactsandlearnsfrommarketinformation. 2. Positions: market positions are the assets of a company. Most of them are self-explanatory: o Technologicalassets o Financialassets o Reputationalassets o Structural assets: The structure of a company can determine how it performs. The hierarchyofacompanycaninfluenceitsculture,procedureandroutines. 3. Paths: o Path dependencies: At the birth of a company usually accompanied with certain orientations.Theprogenitorbringscertainorientationsandattributesthatstaywiththe companyforalongtime.Thepaththecompanytakesthendeterminesthedevelopment ofitscompetencies.
  • 69. 71 o Technological opportunities: technology development at a time can determine how a firm can exploit opportunities to form SCA.Very often we see the advent of several technologicalfactorsconvergingintoacapabilitythatformsaSCA.Anexamplewould betheriseofcompaniessuchasGenentechattheturnofthepreviouscenturywiththe adventofgenemapping,significantdevelopmentsintargetselectionanddatabasesof previous studies and gene pools. SUMMARY Groupofpersonsforwhomafirmcreatesandmaintainsaproductmixthatspecificallyfitsthe needs and preferences of that group.Atarget market is a group of customers with similar needs that forms the focus of a company’s marketing efforts. Similarly, target marketing involves tailoring the company’smarketingeffortstoappealtoaspecificgroupofcustomers.Selectingtargetmarketsispart of the process of market segmentation—dividing an overall market into key customer subsets, or segments, whose members share similar demographic characteristics and needs. Demographic characteristicsthatareanalyzedfortargetmarketingpurposesincludeage,income,geographicorigins and current location, ethnicity, marital status, education, interests, level of discretionary income, net worth, home ownership, and a host of other factors. The company then selects from among these segmentstheparticularmarketsitwishestotarget.“Smallbusinessesthatidentifytheneedsofspecific targetmarkets—existingandpotentialcustomerswhoarethefocusofmarketingefforts—andworkto satisfy those needs, are more effective marketers,”Atarget market is a set of buyers sharing common needsorcharacteristicsthatacompanydecidestoserve.Acompanyidentifiesatargetmarketinorder toorganizeitstasksandcopewiththeparticulardemandsofthemarketplace.Targetmarketingforms thefoundationofamodernmarketingstrategybecausedoingitwellhelpsacompanybemoreefficient and effective by focusing on a certain segment of its market that it can best satisfy. Targetingalsobenefitsconsumersbecauseacompanycanreachspecificgroupsofconsumers with offers carefully tailored to satisfy their needs. To do so, a company has to evaluate the various segmentsanddecidehowmany,andwhichone,totarget.Thereisnosinglewaytosegmentamarket. Acompanyneedstoresearchdifferentsegmentationvariablesalone,andincombinationwithothers,to finditstargetmarket.Therearefourmainvariablesthatcanbeusedinsegmentingconsumermarkets: geographic segmentation, demographic segmentation, psychographic segmentation, and behavioral segmentation. Targetmarketcanbeaparticularlyvaluabletoolforsmallbusinesses,whichoftenlack theresourcestoappealtolargeaggregatemarketsortomaintainawiderangeofdifferentiatedproducts forvariedmarkets.Targetmarketingallowsasmallbusinesstodevelopaproductandamarketingmix thatfitarelativelyhomogenouspartofthetotalmarket.Byfocusingitsresourcesonaspecificcustomer base in this way, a small business may be able to carve out a market niche that it can serve better than itslargercompetitors.
  • 70. 72 Identifyingspecifictargetmarkets—andthendeliveringproductsandpromotionsthatultimately maximizetheprofitpotentialofthosetargetedmarkets—istheprimaryfunctionofmarketingmanagement formanysmallercompanies.Advertisementsandpromotionscouldthenbetailoredforeachsegment of the target market. There are infinite ways to address the wants and needs of a target market. QUESTIONS: 1. Define Target Market? 2. What is Market Segmentation? What are the requirements for successful segmentation? 3. What are the variables used for Market Segmentation? 4. Explain George Day (1980) Model of top-down approach? 5. What is price discrimination?
  • 71. 73 CHAPTER - VII MARKETINGMANAGEMENT OBJECTIVE Marketingmanagementisabusinessdisciplinefocusedonthepracticalapplicationofmarketing techniquesandthemanagementofafirm’smarketingresourcesandactivities.Marketingmanagersare oftenresponsibleforinfluencingthelevel,timing,andcompositionofcustomerdemandinamannerthat willachievethecompany’sobjectives. Definition and scope Thereisnouniversallyaccepteddefinitionoftheterm.Inpart,thisisduetothefactthattherole ofamarketingmanagercanvarysignificantlybasedonabusiness’size,corporateculture,andindustry context. For example, in a large consumer products company, the marketing manager may act as the overall general manager of his or her assigned product category or brand with full profit & loss responsibility.Incontrast,asmalllawfirmmayhavenomarketingpersonnelatall,requiringthefirm’s partners to make marketing management decisions on a largely ad-hoc basis. In the widely used text Marketing Management (2006), Philip Kotler and Kevin Lane Keller definemarketingmanagementas“theartandscienceofchoosingtargetmarketsandgetting,keeping andgrowingcustomersthroughcreating,delivering,andcommunicatingsuperiorcustomervalue.” Fromthisperspective,thescopeofmarketingmanagementisquitebroad.Theimplicationof such a definition is that any activity or resource the firm uses to acquire customers and manage the company’srelationshipswiththemiswithinthepurviewofmarketingmanagement.Additionally,the KotlerandKellerdefinitionencompassesboththedevelopmentofnewproductsandservicesandtheir deliverytocustomers. NotedmarketingexpertRegisMcKennaexpressedasimilarviewpointinhisinfluential1991 HarvardBusinessReviewarticle“Marketingiseverything.”McKennaarguedthatbecausemarketing managementencompassesallfactorsthatinfluenceacompany’sabilitytodelivervaluetocustomers;it must be “all-pervasive, part of everyone’s job description, from the receptionists to the Board of Directors.”] This view is also consistent with the perspective of management guru Peter Drucker, who wrote:“Becausethepurposeofbusinessistocreateacustomer,thebusinessenterprisehastwo—and onlythesetwo—basicfunctions:marketingandinnovation.Marketingandinnovationproduceresults; alltherestarecosts.Marketingisthedistinguishing,uniquefunctionofthebusiness.” Butbecausemanybusinessesoperatewithamuchmorelimiteddefinitionofmarketing,such statements can appear controversial or even ludicrous to some business executives. This is especially trueinthosecompanieswherethemarketingdepartmentisresponsibleforlittlemorethandeveloping salesbrochuresandexecutingadvertisingcampaigns. The broader, more sophisticated definitions of marketing management from Drucker, Kotler andotherscholarsarethereforejuxtaposedagainstthenarroweroperatingrealityofmanybusinesses.
  • 72. 74 Thesourceofconfusionhereisoftenthatinsideanygivenfirm,thetermmarketingmanagement may be interpreted to mean whatever the marketing department happens to do, rather than a term that encompassesallmarketingactivities—eventhosemarketingactivitiesthatareactuallyperformedby other departments, such as the sales, finance, or operations departments.If, for example, the finance department of a given company makes pricing decisions (for deals, proposals, contracts, etc.), that financedepartmenthasresponsibilityforanimportantcomponentofmarketingmanagement—pricing. Activities and functions Marketingmanagementthereforeencompassesawidevarietyoffunctionsandactivities,although the marketing department itself may be responsible for only a subset of these. Regardless of the organizational unit of the firm responsible for managing them, marketing management functions and activitiesincludethefollowing: Marketing research and analysis Inordertomakefact-baseddecisionsregardingmarketingstrategyanddesigneffective,cost- efficientimplementationprograms,firmsmustpossessadetailed,objectiveunderstandingoftheirown business and the market in which they operate. In analyzing these issues, the discipline of marketing managementoftenoverlapswiththerelateddisciplineofstrategicplanning. Traditionally,marketinganalysiswasstructuredintothreeareas:Customeranalysis,Company analysis,andCompetitoranalysis(so-called“3Cs”analysis).Morerecently,ithasbecomefashionable insomemarketingcirclestodividethesefurtherintofive“Cs”:Customeranalysis,Companyanalysis, Collaboratoranalysis,Competitoranalysis,andanalysisoftheindustryContext. The focus of customer analysis is to develop a scheme for market segmentation, breaking downthemarketintovariousconstituentgroupsofcustomers,whicharecalledcustomersegmentsor marketsegments.Marketingmanagersworktodevelopdetailedprofilesofeachsegment,focusingon anynumberofvariablesthatmaydifferamongthesegments:demographic,psychographic,geographic, behavioral, needs-benefit, and other factors may all be examined. Marketers also attempt to track thesesegments’perceptionsofthevariousproductsinthemarketusingtoolssuchasperceptualmapping. Incompanyanalysis,marketersfocusonunderstandingthecompany’scoststructureandcostposition relativetocompetitors,aswellasworkingtoidentifyafirm’scorecompetenciesandothercompetitively distinct company resources. Marketing managers may also work with the accounting department to analyzetheprofitsthefirmisgeneratingfromvariousproductlinesandcustomeraccounts.Thecompany mayalsoconductperiodicbrandauditstoassessthestrengthofitsbrandsandsourcesofbrandequity. The firm’s collaborators may also be profiled, which may include various suppliers, distributors and otherchannelpartners,jointventurepartners,andothers.Ananalysisofcomplementaryproductsmay also be performed if such products exist. Marketing management employs various tools from economics and competitive strategy to analyzetheindustrycontextinwhichthefirmoperates.TheseincludePorter’sfiveforces,analysisof strategicgroupsofcompetitors,valuechainanalysisandothers.Dependingontheindustry,theregulatory contextmayalsobeimportanttoexamineindetail.
  • 73. 75 In Competitor analysis, marketers build detailed profiles of each competitor in the market, focusing especially on their relative competitive strengths and weaknesses using SWOT analysis. Marketing managers will examine each competitor’s cost structure, sources of profits, resources and competencies,competitivepositioningandproductdifferentiation,degreeofverticalintegration,historical responses to industry developments, and other factors. Marketingmanagementoftenfindsitnecessarytoinvestinresearchtocollectthedatarequired to perform accurate marketing analysis.As such, they often conduct market research (alternately marketing research) to obtain this information. Marketers employ a variety of techniques to conduct market research, but some of the more common include: • Qualitativemarketingresearch,suchasfocusgroups • Quantitativemarketingresearch,suchasstatisticalsurveys • Experimentaltechniquessuchastestmarkets • Observationaltechniquessuchasethnographic(on-site)observation Marketing managers may also design and oversee various environmental scanning and competitiveintelligenceprocessestohelpidentifytrendsandinformthecompany’smarketinganalysis. Marketing strategy Once the company has obtained an adequate understanding of the customer base and its own competitivepositionintheindustry,marketingmanagersareabletomakekeystrategicdecisionsand develop a marketing strategy designed to maximize the revenues and profits of the firm. The selected strategymayaimforanyofavarietyofspecificobjectives,includingoptimizingshort-termunitmargins, revenuegrowth,marketshare,long-termprofitability,orothergoals. To achieve the desired objectives, marketers typically identify one or more target customer segments which they intend to pursue. Customer segments are often selected as targets because they score highly on two dimensions: 1) The segment is attractive to serve because it is large, growing, makesfrequentpurchases,isnotpricesensitive(i.e.iswillingtopayhighprices),orotherfactors;and 2) The company has the resources and capabilities to compete for the segment’s business, can meet theirneedsbetterthanthecompetition,andcandosoprofitably.Infact,acommonlyciteddefinitionof marketingissimply“meetingneedsprofitably.” Theimplicationofselectingtargetsegmentsisthatthebusinesswillsubsequentlyallocatemore resources to acquire and retain customers in the target segment(s) than it will for other, non-targeted customers. In some cases, the firm may go so far as to turn away customers that are not in its target segment. The doorman at a swanky nightclub, for example, may deny entry to unfashionably dressed individualsbecausethebusinesshasmadeastrategicdecisiontotargetthe“highfashion”segmentof nightclubpatrons. Inconjunctionwithtargetingdecisions,marketingmanagerswillidentifythedesiredpositioning theywantthecompany, product, or brand to occupy in the targetcustomer’smind.Thispositioningis oftenanencapsulationofakeybenefitthecompany’sproductorserviceoffersthatisdifferentiatedand
  • 74. 76 superiortothebenefitsofferedbycompetitiveproducts.Forexample,Volvohastraditionallypositioned its products in the automobile market in North America in order to be perceived as the leader in “safety”, whereas BMW has traditionally positioned its brand to be perceived as the leader in “performance.” Ideally,afirm’spositioningcanbemaintainedoveralongperiodoftimebecausethecompany possesses, or can develop, some form of sustainable competitive advantage. The positioning should alsobesufficientlyrelevanttothetargetsegmentsuchthatitwilldrivethepurchasingbehavioroftarget customers. Implementationplanning After the firm’s strategic objectives have been identified, the target market selected, and the desiredpositioningforthecompany,productorbrandhasbeendetermined,marketingmanagersfocus onhowtobestimplementthechosenstrategy.Traditionally,thishasinvolvedimplementationplanning acrossthe“4Ps”ofmarketing:Productmanagement,Pricing,Place(i.e.salesanddistributionchannels), andPromotion. Taken together, the company’s implementation choices across the 4Ps are often described as themarketingmix,meaningthemixofelementsthebusinesswillemployto“gotomarket”andexecute the marketing strategy.The overall goal for the marketing mix is to consistently deliver a compelling valuepropositionthatreinforcesthefirm’schosenpositioning,buildscustomerloyaltyandbrandequity amongtargetcustomers,andachievesthefirm’smarketingandfinancialobjectives. Inmanycases,marketingmanagementwilldevelopamarketingplantospecifyhowthecompany will execute the chosen strategy and achieve the business’ objectives. The content of marketing plans variesfromfirmtofirm,butcommonlyincludes: • Anexecutivesummary • Situationanalysistosummarizefactsandinsightsgainedfrommarketresearchandmarketing analysis • Thecompany’smissionstatementorlong-termstrategicvision • Astatement of the company’s key objectives, often subdivided into marketing objectives and financialobjectives • The marketing strategy the business has chosen, specifying the target segments to be pursued andthecompetitivepositioningtobeachieved • Implementationchoicesforeachelementofthemarketingmix(the4Ps) • Asummaryofrequiredinvestments(inpeople,programs,ITsystems,etc.) • Financialanalysis,projectionsandforecastedresults • Atimelineorhigh-levelprojectplan • Metrics, measurements and control processes • Alistofkeyrisksandstrategiesformanagingtheserisks
  • 75. 77 Project, process and vendor management Once the key implementation initiatives have been identified, marketing managers work to overseetheexecutionofthemarketingplan.Marketingexecutivesmaythereforemanageanynumber ofspecificprojects,suchassalesforcemanagementinitiatives,productdevelopmentefforts,channel marketingprogramsandtheexecutionofpublicrelationsandadvertisingcampaigns.Marketersusea varietyofprojectmanagementtechniquestoensureprojectsachievetheirobjectiveswhilekeepingto establishedschedulesandbudgets. More broadly, marketing managers work to design and improve the effectiveness of core marketingprocesses,suchasnewproductdevelopment,brandmanagement,marketingcommunications, andpricing.Marketersmayemploythetoolsofbusinessprocessreengineeringtoensuretheseprocesses are properly designed, and use a variety of process management techniques to keep them operating smoothly. Effectiveexecutionmayrequiremanagementofbothinternalresourcesandavarietyofexternal vendorsandserviceproviders,suchasthefirm’sadvertisingagency.Marketersmaythereforecoordinate withthecompany’sPurchasingdepartmentontheprocurementoftheseservices. Organizational management and leadership Marketingmanagementusuallyrequiresleadershipofadepartmentorgroupofprofessionals engaged in marketing activities. Often, this oversight will extend beyond the company’s marketing departmentitself,requiringthemarketingmanagertoprovidecross-functionalleadershipforvarious marketing activities. This may require extensive interaction with the human resources department on issuessuchasrecruiting,training,leadershipdevelopment,performanceappraisals,compensation,and other topics. Marketingmanagementmayspendafairamountoftimebuildingormaintainingamarketing orientation for the business.Achieving a market orientation, also known as “customer focus” or the “marketingconcept”,requiresbuildingconsensusattheseniormanagementlevelandthendrivingcustomer focusdownintotheorganization.Culturalbarriersmayexistinagivenbusinessunitorfunctionalarea thatthemarketingmanagermustaddressinordertoachievethisgoal.Additionally,marketingexecutives oftenactasa“brandchampion”andworktoenforcecorporateidentitystandardsacrosstheenterprise. Inlargerorganizations,especiallythosewithmultiplebusinessunits,topmarketingmanagers mayneedtocoordinateacrossseveralmarketingdepartmentsandalsoresourcesfromfinance,R&D, engineering,operations,manufacturing,orotherfunctionalareastoimplementthemarketingplan.In order to effectively manage these resources, marketing executives may need to spend much of their timefocusedonpoliticalissuesandinter-departmentalnegotiations. The effectiveness of a marketing manager may therefore depend on his or her ability to make theinternal“sale”ofvariousmarketingprogramsequallyasmuchastheexternalcustomer’sreactionto suchprograms.
  • 76. 78 Reporting, measurement and control systems Marketingmanagementemploysavarietyofmetricstomeasureprogressagainstobjectives.It istheresponsibilityofmarketingmanagers—inthemarketingdepartmentorelsewhere—toensure thattheexecutionofmarketingprogramsachievesthedesiredobjectivesanddoessoinacost-efficient manner. Marketingmanagementthereforeoftenmakesuseofvariousorganizationalcontrolsystems, such as sales forecasts, sales force and reseller incentive programs, sales force management systems, and customer relationship management tools (CRM). Recently, some software vendors have begun usingtheterm“marketingoperationsmanagement”or“marketingresourcemanagement”todescribe systemsthatfacilitateanintegratedapproachforcontrollingmarketingresources.Insomecases,these effortsmaybelinkedtovarioussupplychainmanagementsystems,suchasenterpriseresourceplanning (ERP), material requirements planning (MRP), efficient consumer response (ECR), and inventory managementsystems. Measuringthereturnoninvestment(ROI)ofvariousmarketinginitiativesisasignificantproblem for marketing management.Various market research, accounting and financial tools are used to help estimate the ROI of marketing investments. Brand valuation, for example, attempts to identify the percentage of a company’s market value that is generated by the company’s brands, and thereby estimatethefinancialvalueofspecificinvestmentsinbrandequity.Anothertechnique,integratedmarketing communications (IMC), is a CRM database-driven approach that attempts to estimate the value of marketingmixexecutionsbasedonthechangesincustomerbehaviortheseexecutionsgenerate.[10] SUMMARY Understanding customers and finding better ways to provide products and services that meet theirdemandsiswhatmarketingisallabout.Marketingiswhatyouneedtomakeintelligentdecisions about customers in real time across all business units and touch points. It enables you to make better useofinboundcustomercontactsasachanneltopresentoffers,runmoretargetedoutboundcampaigns thataresensitivetocustomerpreferences,andmanageallyourmarketingresourcesmoreeffectively. Marketinghelpscompanieslikeyours: • Makeintelligentcustomerdecisionsinrealtime • Determinetheoptimalmessageforeverycustomer • Synchronizemarketingcampaignsacrossinboundandoutboundchannels • Createstronger,morevaluablecustomerrelationships • Improvecross-selling,up-selling,andcustomerloyalty Marketing is a complete, fully integrated set of solutions designed to help you manage the marketingprocessesofyourbusinessefficientlyandcost-effectively.
  • 77. 79 InboundMarketing—powerful,real-timecustomerdecisionsatthepointofinteraction:self-learning analytics,dynamicbusinessrules,andpersonalizedcross-sell/up-sellandretentionoffersformanaging customer-initiatedinteractionsacrossmultiplechannels Outbound Marketing — Permission-based marketing campaigns: best-of-breed campaign management,automatedglobalbusinessrules,sophisticateddatabasemanagement,integratedanalytics, built-inclosed-loopreporting,e-marketing Marketing Resource Management— a marketing activity knowledgebase: planning and financial management,productionmanagement,documentmanagement QUESTIONS: 1. Define Marketing Management? What are its activities and function? 2. What tools are employed by the management for economic and competitive strategy to analyse the industry context in which the firm operates? 3. Write notes on ( a) Marketing Strategy (b) Implementation Planning (c) Project, Process and Vender Management (d) Organizational Management leadership (e) Reporting, Measurement and Control Systems
  • 78. 80 CHAPTER - VIII NEW PRODUCT DEVELOPMENT OBJECTIVE Inbusinessandengineering,newproductdevelopment(NPD)isthetermusedtodescribethe completeprocessofbringinganewproductorservicetomarket.Therearetwoparallelpathsinvolved intheNPDprocess:oneinvolvestheideageneration,productdesign,anddetailengineering;theother involvesmarketresearchandmarketinganalysis.Companiestypicallyseenewproductdevelopment asthefirststageingeneratingandcommercializingnewproductswithintheoverallstrategicprocessof productlifecyclemanagementusedtomaintainorgrowtheirmarketshare. Types of new products There are several general categories of new products. Some are new to the market (ex. DVD players into the home movie market), some are new to the company (ex. Game consoles for Sony), andsomearecompletelynovelandcreatetotallynewmarkets(ex.theairlineindustry).Whenviewed againstdifferentcriteria,somenewproductconceptsaremerelyminormodificationsofexistingproducts whilesomearecompletelyinnovativetothecompany.Thesedifferentcharacterizationsaredisplayed inthefollowingdiagram. The process There are several stages in the new product development process...not always followed in order: 1. Idea Generation (The “fuzzy front end” of the NPD process, see below) o ideas for new products can be obtained from customers (employing user innovation), thecompany’sR&Ddepartment,competitors,focusgroups,employees,salespeople, corporate spy’s, trade shows, or through a policy of Open Innovation o formal idea generating techniques include attribute listing, forced relationships, brainstorming,morphologicalanalysis,problemanalysis 2. IdeaScreening o the object is to eliminate unsound concepts prior to devoting resources to them. o the screeners must ask at least three questions: § Willthecustomerinthetargetmarketbenefitfromtheproduct? § isittechnicallyfeasibletomanufacturetheproduct? § Willtheproductbeprofitablewhenmanufacturedanddeliveredtothecustomer at the target price? 3. ConceptDevelopmentandTesting o developthemarketingandengineeringdetails § Who is the target market and who is the decision maker in the purchasing process?
  • 79. 81 § What product features must the product incorporate? § Whatbenefitswilltheproductprovide? § How will consumers react to the product? § How will the product be produced most cost effectively? § provefeasibilitythroughvirtualcomputeraidedrendering,andrapidprototyping § What will it cost to produce it? o test the concept by asking a sample of prospective customers what they think of the idea 4. BusinessAnalysis o estimatelikelysellingpricebaseduponcompetitionandcustomerfeedback o estimate sales volume based upon size of market o estimateprofitabilityandbreakevenpoint 5. BetaTesting and MarketTesting o produce a physical prototype or mock-up o testtheproductintypicalusagesituations o conduct focus group customer interviews or introduce at trade show o makeadjustmentswherenecessary o produce an initial run of the product and sell it in a test market area to determine customer acceptance 6. TechnicalImplementation o Newprograminitiation o Resourceestimation o Requirementpublication o Engineeringoperationsplanning o Departmentscheduling o Suppliercollaboration o Resourceplanpublication o Programreviewandmonitoring o Contingencies-what-ifplanning 7. Commercialization(oftenconsideredpost-NPD) o launchtheproduct o produce and place advertisements and other promotions o fillthedistributionpipelinewithproduct o criticalpathanalysisismostusefulatthisstage Thesestepsmaybeiteratedasneeded.Somestepsmaybeeliminated.Toreducethetimethat the NPD process takes, many companies are completing several steps at the same time (referred to as concurrent engineering or time to market). Most industry leaders see new product development as a proactiveprocesswhereresourcesareallocatedtoidentifymarketchangesandseizeuponnewproduct opportunitiesbeforetheyoccur(incontrasttoareactivestrategyinwhichnothingisdoneuntilproblems
  • 80. 82 occurorthecompetitorintroducesaninnovation).Manyindustryleadersseenewproductdevelopment as an ongoing process (referred to as continuous development) in which the entire organization is alwayslookingforopportunities. Forthemoreinnovativeproductsindicatedonthediagramabove,greatamountsofuncertainty andchangemayexist,whichmakesitdifficultorimpossibletoplanthecompleteprojectbeforestarting it. In this case, a more flexible approach may be advisable. BecausetheNPDprocesstypicallyrequiresbothengineeringandmarketingexpertise,cross- functional teams are a common way of organizing projects. The team is responsible for all aspects of the project, from initial idea generation to final commercialization, and they usually report to senior management (often to a vice president or Program Manager). In those industries where products are technicallycomplex,developmentresearchistypicallyexpensive,andproductlifecyclesarerelatively short, strategic alliances among several organizations helps to spread the costs, provide access to a wider skill sets, and speeds the overall process. Also, notice that because engineering and marketing expertise are usually both critical to the process, choosing an appropriate blend of the two is important. Observe (for example, by looking at the See also or References sections below) that this article is slanted more toward the marketing side. For more of an engineering slant, see the Ulrich and Eppinger reference below. People respond to new products in different ways. The adoption of a new technology can be analyzedusingavarietyofdiffusiontheoriessuchastheDiffusionofinnovationstheory. Protecting new products When developing a new product many legal questions arise, including: How do I protect the innovationfromimitators?;Cantheinnovationbelegallyprotected?;Forhowlong?;Howmuchwill thiscost?.Theanswersarecomplicatedbythefactthatseverallegalconceptsmayapplytoanygiven innovation, product, process, or creative work. These include patents, trademarks, service marks, tradenames,copyrights,andtradesecrets.Itisnecessarytoknowwhichareapplicableandwheneach is appropriate. This varies somewhat from jurisdiction to jurisdiction. The advice of a lawyer that specializesinthesemattersandisknowledgeablewithyourcorporatephilosophyregardingIPprotection isessential. Generally,copyrightsarefairlyeasytoobtainbutareapplicableonlyincertaininstances.Patents on the other hand, tend to involve complex claims and approval processes, tend to be expensive to obtain, and even more expensive to defend and preserve. Fuzzy Front End TheFuzzyFrontEndisthemessy“gettingstarted”periodofnewproductdevelopmentprocesses. It is in the front end where the organization formulates a concept of the product to be developed and decides on whether or not to invest resources in the further development of an idea. It is the phase between first consideration of an opportunity and when it is judged ready to enter the structured development process (Kim andWilemon , 2002; Koen et al., 2001). It includes all activities from the
  • 81. 83 searchfornewopportunitiesthroughtheformationofagermofanideatothedevelopmentofaprecise concept.TheFuzzyFrontEndendswhenanorganizationapprovesandbeginsformaldevelopmentof the concept. Although the Fuzzy Front End may not be an expensive part of product development, it can consume50%ofdevelopmenttime,anditiswheremajorcommitmentsaretypicallymadeinvolving time, money, and the product’s nature, thus setting the course for the entire project and final end product.Consequently,thisphaseshouldbeconsideredasanessentialpartofdevelopmentratherthan something that happens “before development,” and its cycle time should be included in the total developmentcycletime. Koenetal.(2001,pp.47-51)distinguishfivedifferentfront-endelements(notnecessarilyina particularorder): 1.OpportunityIdentification 2.OpportunityAnalysis 3. Idea Genesis 4. Idea Selection 5. Concept andTechnology Development Thefirstelementistheopportunityidentification.Inthiselement,largeorincrementalbusiness andtechnologicalchancesareidentifiedinamoreorlessstructuredway.Usingtheguidelinesestablished here, resources will eventually be allocated to new projects.... which then lead to a structured NPPD (NewProduct&ProcessDevelopment)strategy.The second element is the opportunity analysis. It is donetotranslatetheidentifiedopportunitiesintoimplicationsforthebusinessandtechnologyspecific context of the company. Here extensive efforts may be made to align ideas to target customer groups anddomarketstudiesand/ortechnicaltrialsandresearch.Thethirdelementistheideagenesis,which isdescribedasevolutionaryanditerativeprocessprogressingfrombirthtomaturationoftheopportunity intoatangibleidea.Theprocessoftheideagenesiscanbemadeinternallyorcomefromoutsideinputs, e.g. a supplier offering a new material/technology, or from a customer with an unusual request. The fourth element is the idea selection. Its purpose is to choose if or not to pursue an idea by analyzing its potentialbusinessvalue.Thefifthelementistheconceptandtechnologydevelopment.Duringthispart ofthefront-endthebusinesscaseisdevelopedbasedonestimatesofthetotalavailablemarket,customer needs, investment requirements, competition analysis and project uncertainty. Some organizations consider this to be the first stage of the NPPD process (i.e., Stage 0). The Fuzzy Front End is also described in literature as “Front End of Innovation”, “Phase 0”, “Stage 0” or “Pre-Project-Activities”.
  • 82. 84 SUMMARY • Companiesfacethechallengeofhowtodeterminewhichnewproductdevelopmentprojectsto undertake and how to maximize the value of these R&D investments. The same portfolio managementconceptsusedforyearsinthefinancialfieldcanbeappliedtoproductdevelopment to maximize the value of new product development activities. The specific goals of product portfoliomanagementare:(1)maximizethevalueoftheproductportfolio,(2)seekbalancein the portfolio, and (3) keep portfolio projects strategically aligned. Learn practical methods for an integrated portfolio approach to planning new products.Product/service innovation is the resultofbringingtolifeanewwaytosolvethecustomer’sproblemthatbenefitboththecustomer and the sponsoring company.3 “New product innovation is where the source of growth and prosperity is. It is also now possible, with the range of new product innovation metrics tools available, to measure new product innovation much more precisely and intelligently.” Solve problems and invent new products in a way you never thought possible • Become a serial producer of bright ideas • Gainanunfairadvantageoveryourcompetition • Teach others how to become more creative • Wintheadmirationofyourcolleagues,superiors,andsubordinates • Improveyourqualityoflifebyinjectingcreativityintoeverythingyoudo • Product innovation always involves treading into uncertain waters.All that enterprise strategy candoistogiveyouagoodstartingpoint.Fromthere,youmustexperiment,learn,andadapt... Product roadmaps define new product and service initiatives within a market or technology context. They embody a large percentage of the corporate strategy and provide a degree of tangibilitythathelpsbringtogetherotherchoicesindirection,technology,marketingandsoforth to the surface. Furthermore, starting with product roadmaps forces people to be explicit about howtheirideastranslateintonewproductsorservices.2 Itisvitalfordevelopingproductroadmaps to discover assumptions beneath the selection of products. Successful innovation requires a seamlessintegrationofallelementsintheproductdevelopmentprocess.Firmswhicharesuccessful in realizing the full returns from their technologies and innovations are able to match their technologicaldevelopmentswithcomplementaryexpertiseinotherareasoftheirbusiness,such asmanufacturing,distribution,humanresources,marketing,andcustomerrelationships.Tolead theseexpertisedevelopmentefforts,cross-functionalteams,eitherformalorinformal,needto beformed.Theseteamscanalsofindnewbusinessesinwhitespacesbetweenexistingbusiness unitsempathyfordiversifiedconsumers’needs,evenifthoseconsumersareverydifferentfrom
  • 83. 85 yourself,ifyouwanttoanticipatetheirinterestsandneeds.Thebestproductsembracepeople’s differences • Developempathyfordiversifiedconsumers’needs,evenifthoseconsumersareverydifferent from yourself, if you want to anticipate their interests and needs. The best products embrace people’sdifferences QUESTIONS: 1. What are stages in the new product development process? 2. What is Fuzzy Front End? 3. How can new product be protected?
  • 84. 86 CHAPTER - IX PRODUCT LIFE CYCLE MANAGEMENT OBJECTIVE Theconditionsaproductissoldunderwillchangeovertime.TheProductLifeCyclerefersto the succession of stages a product goes through. Product Life Cycle Management is the succession of strategies used by management as a product goes through its life cycle. Theproductlifecyclegoesthoughmanyphasesandinvolvesmanyprofessionaldisciplinesand requiresmanyskills,toolsandprocesses.Productlifecycle(PLC)istodowiththelifeofaproductin the market with respect to business/commercial costs and sales measures; whereas Product Lifecycle Management(PLM)ismoretodowithmanagingdescriptionsandpropertiesofaproductthroughits developmentandusefullife,mainlyfromabusiness/engineeringpointofview. The stages Products tend to go through five stages: 1. New product development stage o veryexpensive o nosalesrevenue o losses 2. Marketintroductionstage o costhigh o salesvolumelow o no/littlecompetition-competitivemanufacturerswatchforacceptance/segmentgrowth o losses 3. Growthstage o costs reduced due to economies of scale o salesvolumeincreasessignificantly o profitability o publicawareness o competitionbeginstoincreasewithafewnewplayersinestablishingmarket o pricestomaximizemarketshare 4. Mature stage o Costs are very low as you are well established in market & no need for publicity. o salesvolumepeaks o increaseincompetitiveofferings o prices tend to drop due to the proliferation of competing products o branddifferentiation,featurediversification,aseachplayerseekstodifferentiatefrom competitionwith“howmuchproduct”isoffered o veryprofitable
  • 85. 87 5. DeclineorStabilitystage o costs become counter-optimal o salesvolumedeclineorstabilize o prices,profitabilitydiminish o profit becomes more a challenge of production/distribution efficiency than increased sales Management of the cycle The progression of a product through these stages is by no means certain. Some products seem to stay in the mature stage forever (e.g., milk). Marketers have various techniques designed to prevent the process of falling into the decline stage. In most cases however, one can estimate the life expectancy of a product category. Marketers’ marketing mix strategies change as their products goes through their life cycles. Advertising,forexample,shouldbe Market evolution Market Evolution is a process that parallels the product life cycle. As a product category matures,theindustrygoesthroughstagesthatmirrorthefivestagesofaproductlifecycle: 1. MarketCrystallization-latentdemandforaproductcategoryisawakenedwiththeintroduction of the new product 2. MarketExpansion-additionalcompaniesenterthemarketandmoreconsumersbecomeaware of the product category 3. MarketFragmentation-theindustryissubdividedintonumerouswellpopulatedcompetitive groupingsastoomanyfirmsenter 4. MarketConsolidation-firmsstarttoleavetheindustryduetostiffcompetition,fallingprices, andfallingprofits 5. MarketTermination-consumersnolongerdemandtheproductandcompaniesstopproducing it Market Identification A “micro-market” can be used to describe a market for a specific product, eg., 8-track tapes and players.A“macro-market” could thus reflect a larger scope, eg, personal media. So, whereas the market for 8-track cassette tapes and players went through a product and market evolution towards termination,themarketforpersonalmediaisreallywhatisatissue,astechnologysimplyreinterprets HOW people manage media. Thus, people want to listen to lectures, seminars, sermons and speeches on some form of personal portable media, and listen to 8-tracks, and then cassette tapes became more flexible,and,withtheadventoftheSonyWalkman,moreportable,aswellasindividuallyandprivately recordable;andthenCompactDiscs(“CDs”)broughtincreasedcapacityandCD-Rofferedindividual private recording...and so the process goes. The below section on the “technology lifecycle” is a most appropriate concept in this context.
  • 86. 88 In short, termination is not always the end of the cycle; it can be the end of a micro-entrant withinthegranderscopeofamacro-environment.Theautoindustry,fast-foodindustry,petro-chemical industry, are just a few that demonstrate a macro-environment that overall has not terminated even whilemicro-entrantsovertimehavecomeandgone. Technology life cycle The underlying technology subsumed within a product or product category can go though similarstages.ThisistypicallyreferredtoastheTechnologylifecycle. Lessons of the Product Life Cycle (PLC) Itisclaimedthateveryproducthasalifecycle.Itislaunched;itgrows,andmay,atsomepoint, die.Afair comment is that - at least in the short term - not all products/services die. Jeans may die, but clothes probably won’t. Legal services, medical services, may die, but depending on a social political climate, probably won’t...etc... But, on the other hand, even the dinosaurs eventually died out; though whattheythoughtoftheirlifecycleisnotonrecord! Eventhoughitsvalidityisquestionable,itcanofferauseful‘model’formanagerstokeepatthe back of their mind. Indeed, if their products are in the introductory or growth phases, or in that of decline,itperhapsshouldbeatthefrontoftheirmind;forthepredominantfeaturesofthesephasesmay be those revolving around such life and death. Between these two extremes, it is salutary for them to havethatvisionofmortalityinfrontofthem. Themostimportantaspectofproductlife-cyclesis,however,that-evenundernormalconditions - to all practical intents and purposes they often do not exist (hence, there needs to be more emphasis on model/reality mappings)! In most markets the majority of the major (dominant) brands have held theirpositionforatleasttwodecades.Thedominantproductlife-cycle,thatofthebrandleaderswhich almostmonopolizemanymarkets,isthereforeoneofcontinuity! In the most respected criticism of the product life cycle, Dhalla &Yuspeh [cite] state; “...clearly, the PLC is a dependent variable which is determined by market actions; it is not an independentvariabletowhichcompaniesshouldadapttheirmarketingprograms.Marketingmanagement itself can alter the shape and duration of a brand’s life cycle.” Thus,thelifecyclemaybeusefulasadescription,butnotasapredictor;andusuallyshouldbe firmly under the control of the marketer!The important point is that in many, if not most, markets the productorbrandlifecycleissignificantlylongerthantheplanningcycleoftheorganizationsinvolved.It, thus,offerslittleofpracticalvalueformostmarketers.EvenifthePLC(andtherelated|PLMsupport) exists for them, their plans will be based just upon that piece of the curve where they currently reside (most probably in the ‘mature’stage); and their view of that part of it will almost certainly be ‘linear’ (andlimited),andwillnotencompassthewholerangefromgrowthtodecline
  • 87. 89 Product life cycle management Theconditionsaproductissoldunderwillchangeovertime.TheProductLifeCyclerefersto the succession of stages a product goes through. Product Life Cycle Management is the succession of strategies used by management as a product goes through its life cycle. Theproductlifecyclegoesthoughmanyphasesandinvolvesmanyprofessionaldisciplinesand requiresmanyskills,toolsandprocesses.Productlifecycle(PLC)istodowiththelifeofaproductin the market with respect to business/commercial costs and sales measures; whereas Product Lifecycle Management(PLM)ismoretodowithmanagingdescriptionsandpropertiesofaproductthroughits developmentandusefullife,mainlyfromabusiness/engineeringpointofview. SUMMARY All products and services have certain life cycles. The life cycle refers to the period from the product’s first launch into the market until its final withdrawal and it is split up in phases. During this period significant changes are made in the way that the product is behaving into the market i.e. its reflection in respect of sales to the company that introduced it into the market. Since an increase in profits is the major goal of a company that introduces a product into a market, the product’s life cycle managementisveryimportant.Somecompaniesusestrategicplanningandothersfollowthebasicrules ofthedifferentlifecyclephasethatareanalyzedlater. The understanding of a product’s life cycle, can help a company to understand and realize whenitistimetointroduceandwithdrawaproductfromamarket,itspositioninthemarketcompared to competitors, and the product’s success or failure. For a company to fully understand the above and successfully manage a product’s life cycle, needs to develop strategies and methodologies, some of which are discussed later on.The product’s life cycle - period usually consists of five major steps or phases:Productdevelopment,Productintroduction,Productgrowth,ProductmaturityandfinallyProduct decline. These phases exist and are applicable to all products or services from a certain make of automobiletoamultimillion-dollarlithographytooltoaone-centcapacitor.Thesephasescanbesplit up into smaller ones depending on the product and must be considered when a new product is to be introduced into a market since they dictate the product’s sales performance. QUESTIONS: 1. Explain the stages in Product Life Cycle Management? 2. How can you estimate the life expecting of product Category? 3. What is Market Evaluation and Market Identification? 4. Explain Technology Life Cycle? 5. What is Product Life Cycle Management?
  • 88. 90 CHAPTER - X PRICING OBJECTIVE Pricing is one of the four p’s of the marketing mix. The other three aspects are product management,promotion,andplace.Itisalsoakeyvariableinmicroeconomicpriceallocationtheory. Pricing is the manual or automatic process of applying prices to purchase and sales orders, basedonfactorssuchas:afixedamount,quantitybreak,promotionorsalescampaign,specificvendor quote,priceprevailingonentry,shipmentorinvoicedate,combinationofmultipleordersorlines,and manyothers.Automatedsystemsrequiremoresetupandmaintenancebutmaypreventpricingerrors. Questions involved in pricing Pricinginvolvesaskingquestionslike: • How much to charge for a product or service? This question is a typical starting point for discussions about pricing, however, a better question for a vendor to ask is - How much do customers value the products, services, and other intangibles that the vendor provides. • What are the pricing objectives? • Doweuseprofitmaximizationpricing? • How to set the price?: (cost-plus pricing, demand based or value-based pricing, rate of return pricing,orcompetitorindexing) • Shouldtherebeasinglepriceormultiplepricing? • Should prices change in various geographical areas, referred to as zone pricing? • Shouldtherebequantitydiscounts? • Whatpricesarecompetitorscharging? • Doyouuseapriceskimmingstrategyorapenetrationpricingstrategy? • What image do you want the price to convey? • Doyouusepsychologicalpricing? • Howimportantarecustomerpricesensitivityandelasticityissues? • Can real-time pricing be used? • Ispricediscriminationoryieldmanagementappropriate? • Aretherelegalrestrictionsonretailpricemaintenance,pricecollusion,orpricediscrimination? • Do price points already exist for the product category? • Howflexiblecanwebeinpricing? :Themorecompetitivetheindustry,thelessflexibilitywe have. o Thepricefloorisdeterminedbyproductionfactorslikecosts(oftenonlyvariablecosts are taken into account), economies of scale, marginal cost, and degree of operating leverage
  • 89. 91 o Thepriceceilingisdeterminedbydemandfactorslikepriceelasticityandpricepoints • Aretheretransferpricingconsiderations? • What is the chance of getting involved in a price war? • Howvisibleshouldthepricebe?-Shouldthepricebeneutral?(ie.:notanimportantdifferentiating factor), should it be highly visible? (to help promote a low priced economy product, or to reinforce the prestige image of a quality product), or should it be hidden? (so as to allow marketers to generate interest in the product unhindered by price considerations). • Aretherejointproductpricingconsiderations? • Whatarethenon-pricecostsofpurchasingtheproduct?(eg.:traveltimetothestore,waittime in the store, dissagreeable elements associated with the product purchase - dentist -> pain, fishmarket->smells) • What sort of payments should be accepted? (cash, cheque, credit card, barter) What a price should do Awellchosenpriceshoulddothreethings: • achievethefinancialgoalsofthefirm(eg.:profitability) • fittherealitiesofthemarketplace(willcustomersbuyatthatprice?) • supportaproduct’spositioningandbeconsistentwiththeothervariablesinthemarketingmix o price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product § price will usually need to be relatively high if manufacturing is expensive, distributionisexclusive,andtheproductissupportedbyextensiveadvertising andpromotionalcampaigns § alowpricecanbeaviablesubstituteforproductquality,effectivepromotions, oranenergeticsellingeffortbydistributors Fromthemarketer’spointofview,anefficientpriceisapricethatisveryclosetothemaximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer surplus to the producer. Definitions Theeffectivepriceisthepricethecompanyreceivesafteraccountingfordiscounts,promotions, andotherincentives. Price lining is the use of a limited number of prices for all your product offerings. This is a traditionstartedintheoldfiveanddimestoresinwhicheverythingcosteither5or10cents.Itsunderlying rationale is that these amounts are seen as suitable price points for a whole range of products by prospectivecustomers.Ithastheadvantageofeaseofadministering,butthedisadvantageofinflexibility, particularlyintimesofinflationorunstableprices.
  • 90. 92 A loss leader is a product that has a price set below the operating margin. This results in a loss to the enterprise on that particular item, but this is done in the hope that it will draw customers into the storeandthatsomeofthosecustomerswillbuyother,highermarginitems. Promotionalpricingreferstoaninstancewherepricingisthekeyelementofthemarketingmix. Theprice/qualityrelationshipreferstotheperceptionbymostconsumersthatarelativelyhighpriceis a sign of good quality.Thebeliefinthisrelationshipismostimportantwithcomplexproductsthatare hard to test, and experiential products that cannot be tested until used (such as most services). The greatertheuncertaintysurroundingaproduct,themoreconsumersdependontheprice/qualityhypothesis and the more of a premium they are prepared to pay.The classic example of this is the pricing of the snackcakeTwinkies,whichwereperceivedaslowqualitywhenthepricewaslowered.Note,however, thatexcessiverelianceontheprice/quantityrelationshipbyconsumersmayleadtotheraisingofprices onallproductsandservices,eventhoseoflowquality,whichinturncausestheprice/qualityrelationship to no longer apply. Premiumpricing(alsocalledprestigepricing)isthestrategyofpricingat,ornear,thehighend of the possible price range. People will buy a premium priced product because: 1. Theybelievethehighpriceisanindicationofgoodquality; 2. theybelieveittobeasignofselfworth-“Theyareworthit”-Itauthenticatestheirsuccessand status - It is a signal to others that they are a member of an exclusive group; and 3. Theyrequireflawlessperformanceinthisapplication-Thecostofproductmalfunctionistoo high to buy anything but the best - example : heart pacemaker The term Goldilocks pricing is commonly used to describe the practice of providing a “gold- plated” version of a product at a premium price in order to make the next-lower priced option look more reasonably priced; for example, encouraging customers to see business-class airline seats as goodvalueformoneybyofferinganevenhigherpricedfirst-classoption.Similarly,third-classrailway carriagesinVictorianEnglandaresaidtohavebeenbuiltwithoutwindows,notsomuchtopunishthird- class customers (for which there was no economic incentive), as to motivate those who could afford second-class seats to pay for them instead of taking the cheaper option. ThenamederivesfromtheGoldilocksstory,inwhichGoldilockschoseneitherthehottestnor the coldest porridge, but instead the one that was “just right”. More technically, this form of pricing exploitsthegeneralcognitivebiasofaversiontoextremes. Demand-based pricing is any pricing method that uses consumer demand - based on perceived value - as the central element. These include : price skimming, price discrimination and yield management, pricepoints,psychologicalpricing,bundlepricing,penetrationpricing,pricelining,value-basedpricing, geoandpremiumpricing. SUMMARY Determining what your objectives are is the first step in pricing. When deciding on pricing objectivesyoumustconsider:1)theoverallfinancial,marketing,andstrategicobjectivesofthecompany;
  • 91. 93 2) the objectives of your product or brand; 3) consumer price elasticity and price points; and 4) the resourcesyouhaveavailable.Cost-pluspricingisapricingmethodcommonlyusedbyfirms.Itisused primarilybecauseitiseasytocalculateandrequireslittleinformation.Thereareseveralvarieties,but the common thread in all of them is that you first calculate the cost of the product, and then include an additionalamounttorepresentprofit.Cost-pluspricingisoftenusedongovernmentcontracts,andhas beencriticizedaspromotingwastefulexpenditures.Awellchosenpriceshoulddothreethings: • achievethefinancialgoalsofthefirm(e.g.:profitability) • fittherealitiesofthemarketplace(willcustomersbuyatthatprice?) • supportaproduct’spositioningandbeconsistentwiththeothervariablesinthemarketingmix o price is influenced by the type of distribution channel used, the type of promotions used, and the quality of the product § price will usually need to be relatively high if manufacturing is expensive, distributionisexclusive,andtheproductissupportedbyextensiveadvertising andpromotionalcampaigns § alowpricecanbeaviablesubstituteforproductquality,effectivepromotions, oranenergeticsellingeffortbydistributors Fromthemarketer’spointofview,anefficientpriceisapricethatisveryclosetothemaximum that customers are prepared to pay. In economic terms, it is a price that shifts most of the consumer surplus to the producer. QUESTIONS: 1. What is Pricing? 2. What questions are asked in Pricing? 3. What are things needed for a well chosen price? 4. Define effective Price?
  • 92. 94 CHAPTER - XI DISTRIBUTION (BUSINESS) OBJECTIVE Distributionisoneofthefouraspectsofmarketing.Adistributoristhemiddlemanbetweenthe manufacturerandretailer.Afteraproductismanufactureditistypicallyshipped(andtypicallysold)to a distributor.The distributor then sells the product to retailers or customers. Theotherthreepartsofthemarketingmixareproductmanagement,pricing,andpromotion. Explanation Traditionally, distribution has been seen as dealing with logistics: how to get the product or service to the customer. It must answer questions such as: • Should the product be sold through a retailer? • Shouldtheproductbedistributedthroughwholesale? • Shouldmulti-levelmarketingchannelsbeused? • Howlongshouldthechannelbe(howmanymembers)? • Where should the product or service be available? • When should the product or service be available? • Shoulddistributionbeexclusive,selectiveorextensive? • Who should control the channel (referred to as the channel captain)? • Shouldchannelrelationshipsbeinformalorcontractual? • Should channel members share advertising (referred to as co-op ads)? • Shouldelectronicmethodsofdistributionbeused? • Aretherephysicaldistributionandlogisticalissuestodealwith? • What will it cost to keep an inventory of products on store shelves and in channel warehouses (referred to as filling the pipeline)? The distribution channel Frequentlytheremaybeachainofintermediaries;eachpassingtheproductdownthechainto the next organization, before it finally reaches the consumer or end-user.Thisprocessisknownasthe ‘distribution chain’ or the ‘channel.’ Each of the elements in these chains will have their own specific needs, which the producer must take into account, along with those of the all-important end-user. Channels Anumberofalternate‘channels’ofdistributionmaybeavailable: • Sellingdirect,suchasviamailorder,Internetandtelephonesales • Agent,whotypicallysellsdirectonbehalfoftheproducer • Distributor(alsocalledwholesaler),whosellstoretailers • Retailer (also called dealer), who sells to end customers
  • 93. 95 Distributionchannelsmaynotberestrictedtophysicalproducts.Theymaybejustasimportant for moving a service from producer to consumer in certain sectors, since both direct and indirect channelsmaybeused.Hotels,forexample,mayselltheirservices(typicallyrooms)directlyorthrough travel agents, tour operators, airlines, tourist boards, centralized reservation systems, etc. There have also been some innovations in the distribution of services. For example, there has been an increase in franchising and in rental services - the latter offering anything from televisions throughtools.Therehasalsobeensomeevidenceofserviceintegration,withserviceslinkingtogether, particularlyinthetravelandtourismsectors.Forexample,linksnowexistbetweenairlines,hotelsand car rental services. In addition, there has been a significant increase in retail outlets for the service sector.Outletssuchasestateagenciesandbuildingsocietyofficesarecrowdingouttraditionalgrocers frommajorshoppingareas. Channelmembers Distributionchannelscanthushaveanumberoflevels.Kotlerdefinedthesimplestlevelthatof directcontactwithnointermediariesinvolved,asthe‘zero-level’channel. Thenextlevel,the‘one-level’channel,featuresjustoneintermediary;inconsumergoodsretailers, for industrial goods a distributor, say. In small markets (such as small countries) it is practical to reach thewholemarketusingjustone-andzero-levelchannels. In large markets (such as larger countries) a second level, a wholesaler for example, is now mainlyusedtoextenddistributiontothelargenumberofsmall,neighborhoodretailers. In Japan the chain of distribution is often complex and further levels are used, even for the simplestofconsumergoods. Channel structure Tothevarious‘levels’ofdistribution,whichtheyrefertoasthe‘channellength’,Lancasterand Massinghamalsoaddedanotherstructuralelement,therelationshipbetweenitsmembers: • ‘Conventional or free-flow - This is the usual, widely recognized, channel with a range of `middle-men’passing the goods on to the end-user. • Singletransaction-Atemporary‘channel’maybesetupforonetransaction;forexample,the saleofpropertyoraspecificcivilengineeringproject.Thisdoesnotsharemanycharacteristics withotherchanneltransactions,eachonebeingunique. • Verticalmarketingsystems(VMS)-Inthisform,theelementsofdistributionareintegrated. The internal market Manyofthemarketingprinciplesandtechniqueswhichareappliedtotheexternalcustomersof an organization canbejustaseffectivelyappliedtoeachsubsidiary’s,oreachdepartment’s,‘internal’ customers.
  • 94. 96 In some parts of certain organizations this may in fact be formalized, as goods are transferred between separate parts of the organization at a ‘transfer price’. To all intents and purposes, with the possibleexceptionofthepricingmechanismitself,thisprocesscanandshouldbeviewedasanormal buyer-sellerrelationship.Thefactthatthisisacaptivemarket,resultingina‘monopolyprice’,should notdiscouragetheparticipantsfromemployingmarketingtechniques. Less obvious, but just as practical, is the use of ‘marketing’ by service and administrative departments;tooptimizetheircontributiontotheir‘customers’(therestoftheorganizationingeneral, and those parts of it which deal directly with them in particular). In all of this, the lessons of the non- profitorganizations,indealingwiththeirclients,offeraveryusefulparallel. ChannelDecisions • Overallstrategy • Channelstrategy • Product (or service)<>Cost<>Consumer location Channelmanagement The channel decision is very important. In theory at least, there is a form of trade-off: the cost ofusingintermediariestoachievewiderdistributionissupposedlylower.Indeed,mostconsumergoods manufacturerscouldneverjustifythecostofsellingdirecttotheirconsumers,exceptbymailorder.In practice,iftheproducerislargeenough,theuseofintermediaries(particularlyattheagentandwholesaler level)cansometimescostmorethangoingdirect. Manyofthetheoreticalargumentsaboutchannelsthereforerevolvearoundcost.Ontheother hand, most of the practical decisions are concerned with control of the consumer.Thesmallcompany hasnoalternativebuttouseintermediaries,oftenseverallayersofthem,butlargecompanies‘do’have thechoice. However,manysuppliersseemtoassumethatoncetheirproducthasbeensoldintothechannel, into the beginning of the distribution chain, their job is finished.Yet that distribution chain is merely assumingapartofthesupplier’sresponsibility;and,ifhehasanyaspirationstobemarket-oriented,his jobshouldreallybeextendedtomanaging,albeitveryindirectly,alltheprocessesinvolvedinthatchain, until the product or service arrives with the end-user.This may involve a number of decisions on the partofthesupplier: • Channelmembership • Channelmotivation • Monitoringandmanagingchannels Channelmembership 1. Intensive distribution - Where the majority of resellers stock the ‘product’ (with convenience
  • 95. 97 products, for example, and particularly the brand leaders in consumer goods markets) price competitionmaybeevident. 2. Selective distribution - This is the normal pattern (in both consumer and industrial markets) where ‘suitable’ resellers stock the product. 3. Exclusive distribution - Only specially selected resellers (typically only one per geographical area) are allowed to sell the ‘product’. Channel motivation It is difficult enough to motivate direct employees to provide the necessary sales and service support.Motivatingtheownersandemployeesoftheindependentorganizationsinadistributionchain requires even greater effort. There are many devices for achieving such motivation. Perhaps the most usual is ‘bribery’: the supplier offers a better margin, to tempt the owners in the channel to push the product rather than its competitors; or a competition is offered to the distributors’ sales personnel, so that they are tempted to push the product.At the other end of the spectrum is the almost symbiotic relationshipthatthealltooraresupplierinthecomputerfielddevelopswithitsagents;wheretheagent’s personnel, support as well as sales, are trained to almost the same standard as the supplier’sownstaff. Monitoring and managing channels In much the same way that the organization’s own sales and distribution activities need to be monitoredandmanaged,sowillthoseofthedistributionchain. In practice, of course, many organizations use a mix of different channels; in particular, they maycomplementadirectsalesforce,callingonthelargeraccounts,withagents,coveringthesmaller customers and prospects. Vertical marketing Thisrelativelyrecentdevelopmentintegratesthechannelwiththeoriginalsupplier-producer, wholesalers and retailers working in one unified system. This may arise because one member of the chainownstheotherelements(oftencalled‘corporatesystemsintegration’);asupplierowningitsown retail outlets, this being ‘forward’ integration. It is perhaps more likely that a retailer will own its own suppliers, this being ‘backward’integration. (For example, MFI, the furniture retailer, owns Hygena which makes its kitchen and bedroom units.) The integration can also be by franchise (such as that offered by McDonald’s hamburgers and Benetton clothes) or simple co-operation (in the way that Marks & Spencer co-operates with its suppliers). Alternativeapproachesare‘contractualsystems’,oftenledbyawholesaleorretailco-operative, and‘administeredmarketingsystems’whereone(dominant)memberofthedistributionchainusesits position to co-ordinate the other members’ activities. This has traditionally been the form led by manufacturers.
  • 96. 98 Theintentionofverticalmarketingistogiveallthoseinvolved(andparticularlythesupplierat one end, and the retailer at the other) ‘control’ over the distribution chain. This removes one set of variablesfromthemarketingequations. Other research indicates that vertical integration is a strategy which is best pursued at the mature stage of the market (or product).At earlier stages it can actually reduce profits. It is arguable that it also diverts attention from the real business of the organization. Suppliers rarely excel in retail operations and, in theory, retailers should focus on their sales outlets rather than on manufacturing facilities(Marks&Spencer,verydeliberatelyprovidesconsiderableamountsoftechnicalassistanceto its suppliers, but does not own them). Horizontal marketing A rather less frequent example of new approaches to channels is where two or more non- competing organizations agree on a joint venture - a joint marketing operation - because it is beyond thecapacityofeachindividualorganizationalone.Ingeneral,thisislesslikelytorevolvearoundmarketing synergy Promotion (marketing) Promotion is one of the four aspects of marketing. The other three parts of the marketing mix areproductmanagement,pricing,anddistribution.Promotioninvolvesdisseminatinginformationabout a product, product line, brand, or company. Promotioniscomprisedofsubcategories: • Personalselling • Non-personalselling: • Advertising • Salespromotion • Publicityandpublicrelations • Tradeshows • Directselling • Productplacement The specification of these four variables creates a promotional mix or promotional plan.A promotionalmixspecifieshowmuchattentiontopaytoeachofthefoursubcategories,andhowmuch money to budget for each.Apromotional plan can have a wide range of objectives, including: sales increases, new product acceptance, creation of brand equity, positioning, competitive retaliations, or creation of a corporate image. Anexampleofafullyintegrated,long-term,large-scalepromotionisPepsiStuff.
  • 97. 99 Good (economics and accounting) Agood in economics is any object or service that, upon consumption, increases utility, and therefore can be sold at a price in a market. Ifanobjectorserviceissoldforapositiveprice,thenitismostlikelyagoodsincethepurchaser considerstheutilityoftheobjectorservicemorevaluablethanthemoney.Someobjectsareveryrarely traded, such as air: it can be difficult to determine if such an object is a good or not. Inmacroeconomicsandaccounting,agoodiscontrastedwithaservice.Agoodhereisdefined asaphysicalproductcapableofbeingdeliveredtoapurchaserandinvolvesthetransferofownership fromsellertocustomer,asopposedtoanintangibleservice.Inmicroeconomicsthisdistinctionisrarely made. Utility characteristics of goods Agood is an object whose consumption increases the utility of the consumer, for which the quantity demanded exceeds the quantity supplied at zero price. Goods are usually modeled as having decreasingmarginalutility.Thefirstcaranindividualpurchasesisveryvaluable;thefourthismuchless useful.Thus,intheseandsimilargoods,themarginalutilityofadditionalunitsapproacheszeroasthe quantityconsumedincreases.Assumingthatonecannotre-sellit,thereisapointatwhichaconsumer would decline to purchase an additional car, even at a price very near zero. This is the consumer’s satiationpoint. Insomecases,suchastheaboveexampleofacar,thelowerlimitofutilityasquantityincreases iszero.Inothergoods,theutilityofagoodcancrosszero,changingfrompositivetonegativethrough time. This means that what initially is a good can become a bad if too much of it is consumed. For example,shotsofvodkacanhavepositiveutility,butatsomepointforallconsumers,additionalunits make the consumer less happy and can be injurious to the consumer’s health. In economics a bad is the opposite of a good. Ultimately, whether an object is a good or a bad depends on each individual consumer, and therefore, it is important to realize that not all goods are good all the time, and not all goods are goods to all people. SUMMARY Whenitcomestogettinggoodsfromthethousandsofproductmanufacturersintothehandsof consumersworldwide,theroleofwholesaledistributorisacrucialone,becauseneithermanufacturers northebusinessesthatbuytheirproductsforresalecouldsurvivewithoutthem. Not quite sure what wholesale distributors do? Quite simply, they’re middlemen.They buy productsfrommanufacturers,themsellthemtoretailersataprofit.Thegoodnewsis,withmillionsof productsonthemarketandnewproductsbeingintroducedeveryday,thisfieldhasplentyofroomfor growth. ? ? ? ? ? determine your operating costs
  • 98. 100 ? ? ? ? ? raise start-up funds ? ? ? ? ?findmanufacturersandretailersinterestedinyourservices ? ? ? ? ? negotiate the best deals ? ? ? ? ?get product “exclusives” ? ? ? ? ? learn insider secrets for overcoming the competition If you have excellent people skills, a background in sales and operations, and are able to understand customer needs and learn how to serve them well, you’ll probably make a success of a wholesaledistributionbusiness. QUESTIONS: 1. What are the alternate channels of Distribution? 2. What is a zero-level channel of Kotler? 3. Discuss Channel Management? Explain the decisions on the part of the supplier? 4. What is Vertical Marketing, Horizontal Marketing, and Promotion Marketing? 5. What is a Good? What is the utility characteristics of a Good?
  • 99. 101 CHAPTER - XII PRODUCTMANAGEMENT OBJECTIVE Productmanagementisanorganizationalfunctionwithinacompanydealingwiththeproduct planning or product marketing of a product or products at all stages of the product lifecycle.Product Managementisalsoacollectivetermusedtodescribethebroadsumofdiverseactivitiesperformedin theinterestofdeliveringaparticularproducttomarket. Fromapracticalperspective,productmanagementisanoccupationaldomainwhichholdstwo professional disciplines: product planning and product marketing. This is because the product’s functionality is created for the user via product planning efforts, and product value is presented to the buyerviaproductmarketingactivities. Product planning and product marketing are very different but due to the collaborative nature of these two disciplines, some companies erroneously perceive them as being one discipline, which they call product management. Done carefully, it is very possible to functionally divide the product management domain into product planning and product marketing, yet retain the required synergy betweenthetwodisciplines. Productplanningtypicallydealswiththeseactivities: • Definingnewproductsandgatheringmarketrequirements • ProductLifeCycleconsiderations • Productportfoliomanagement • Productdifferentiation Productmarketingtypicallydealswiththeseactivities: • Productpositioningandoutboundmessaging • Promoting the product externally with press, customers, and partners • Bringingnewproductstomarket Productmanagementtypicallydealswiththeseclosely-relatedfunctions: • Productplanning • Productmarketing • Programmanagement • Projectmanagement Relationship marketing Relationshipmarketingisaformofmarketingthatevolvedfromdirectresponsemarketingin the1960sandemergedinthe1980s,inwhichemphasisisplacedonbuildinglongertermrelationships withcustomersratherthanonindividualtransactions.Itinvolvesunderstandingthecustomer’sneedsas they go through their life cycles. It emphasizes providing a range of products or services to existing customers as they need them.
  • 100. Development of relationship marketing The origins of relationship marketing observes: “What is surprising is that researchers and businessmenhaveconcentratedfarmoreonhowtoattractcustomerstoproductsandservicesthanon how to retain customers”.The initial research was done by Leonard Berry at TexasA&M (Berry, L. 1982) and Jag Sheth at Emory, both of whom were early users of the term “Relationship Marketing”, and by marketing theorist Theodore Levitt at Harvard (Levitt, T. 1983) who broadened the scope of marketingbeyondindividualtransactions. Inpractice,relationshipmarketingoriginatedinindustrialandB2Bmarketswherelong-term contractshavebeenquitecommonformanyyears.AcademicslikeBarbaraBundJacksonatHarvard re-examined these industrial marketing practices and applied them to marketing proper[1] . AccordingtoLeonardBerry,relationshipmarketingcanbeapplied:whentherearealternatives to choose from; when the customer makes the selection decision; and when there is an ongoing and periodic desire for the product or service. Fornell and Wernerfet used the term “defensive marketing” to describe attempts to reduce customer turnover and increase customer loyalty.This customer-retention approach was contrasted with“offensivemarketing”whichinvolvedobtainingnewcustomersandincreasingcustomers’purchase frequency.Defensivemarketingfocusedonreducingormanagingthedissatisfactionofyourcustomers, while offensive marketing focused on “liberating” dissatisfied customers from your competition and generating new customers. There are two components to defensive marketing: increasing customer satisfactionandincreasingswitchingbarriers. Traditionalmarketingoriginatedinthe1960sand1970sascompaniesfounditmoredifficultto sellconsumerproducts.Itsconsumermarketoriginsmoldedtraditionalmarketingintoasystemsuitable forsellingrelativelylow-valueproductstomassesofcustomers.Overthedecades,attemptshavebeen madetobroadenthescopeofmarketing,relationshipmarketingbeingoneoftheseattempts.Marketing hasbeengreatlyenrichedbythesecontributions. The practice of relationship marketing has been greatly facilitated by several generations of customer relationship management software that allow tracking and analysing of each customer’s preferences, activities, tastes, likes, dislikes, and complaints. This powerful tool in any company’s marketingstrategy.Forexampleanautomobilemanufacturermaintainingadatabaseofwhenandhow customers repeat buy their products, the options they choose, the way they finance the purchase etc., is in a powerful position to custom target sales material. In return, the customer benefits from the companytrackingserviceschedulesandcommunicatingdirectlyonissueslikeproductrecalls. Customer retention Atthecoreofrelationshipmarketingisthenotionofcustomerretention.AccordingtoGordon relationshipmarketinginvolvesthecreationofnewandmutualvaluebetweenasupplierandindividual customer. Novelty and mutuality deepen, extend and prolong relationships, creating yet more opportunities for customer and supplier to benefit one another. 1 0 2 102
  • 101. 103 Studiesinseveralindustrieshaveshownthatthecostofretaininganexistingcustomerisonly about 10% of the cost of acquiring a new customer so it can often make economic sense to pay more attentiontoexistingcustomers. ItisclaimedbyReichheldandSasserthata5%improvementincustomerretentioncancause an increase in profitability of between 25 and 85 percent (in terms of net present value) depending on theindustry.HoweverCarrol,P.andReichheld,F.disputethesecalculations,claimingtheyresultfrom faultycross-sectionalanalysis. AccordingtoBuchananandGilles,theincreasedprofitabilityassociatedwithcustomerretention effortsoccursbecause: • Thecostofacquisitionoccursonlyatthebeginningofarelationship,sothelongertherelationship, the lower the amortized cost. • Accountmaintenancecostsdeclineasapercentageoftotalcosts(orasapercentageofrevenue). • Long-term customers tend to be less inclined to switch, and also tend to be fewer prices sensitive.Thiscanresultinstableunitsalesvolumeandincreasesindollar-salesvolume. • Long-termcustomersmayinitiatefreewordofmouthpromotionsandreferrals. • Long-termcustomersaremorelikelytopurchaseancillaryproductsandhighmarginsupplemental products. • Customers that stay with you tend to be satisfied with the relationship and are less likely to switch to competitors, making it difficult for competitors to enter the market or gain market share. • Regular customers tend to be less expensive to service because they are familiar with the process, require less “education”, and are consistent in their order placement. • Increasedcustomerretentionandloyaltymakestheemployees’jobseasierandmoresatisfying. In turn, happy employees feed back into better customer satisfaction in a virtuous circle. Relationshipmarketersspeakofthe“relationshipladderofcustomerloyalty”.Itgroupstypes of customers according to their level of loyalty.The ladder’s first rung consists of “prospects”, that is, people that have not purchased yet but are likely to in the future. This is followed by the successive rungs of “customer”, “client”, “supporter”, “advocate”, and “partner”.The relationship marketer’s objective is to “help” customers get as high up the ladder as possible. This usually involves providing more personalized service and providing service quality that exceeds expectations at each step. Customerretentioneffortsinvolveconsiderationssuchasthefollowing: 1. Customer valuation - Gordon (1999) describes how to value customers and categorize them accordingtotheirfinancialandstrategicvaluesothatcompaniescandecidewheretoinvestfor deeperrelationshipsandwhichrelationshipsneedtobeserveddifferentlyoreventerminated. 2. Customer retention measurement - Dawkins and Reichheld (1990) calculated a company’s “customer retention rate”. This is simply the percentage of customers at the beginning of the yearthatarestillcustomersbytheendoftheyear.Inaccordancewiththisstatistic,anincrease
  • 102. 104 inretentionratefrom80%to90%isassociatedwithadoublingoftheaveragelifeofacustomer relationshipfrom5to10years.Thisratiocanbeusedtomakecomparisonsbetweenproducts, between market segments, and over time. 3. Determinereasonsfordefection-Lookfortherootcauses,notmeresymptoms.Thisinvolves probingfordetailswhentalkingtoformercustomers.Othertechniquesincludetheanalysisof customers’complaintsandcompetitivebenchmarking(seecompetitoranalysis). 4. Develop and implement a corrective plan - This could involve actions to improve employee practices, using benchmarking to determine best corrective practices, visible endorsement of top management, adjustments to the company’s reward and recognition systems, and the use of“recoveryteams”toeliminatethecausesofdefections. A technique to calculate the value to a firm of a sustained customer relationship has been developed.Thiscalculationistypicallycalledcustomerlifetimevalue. Retention strategies also build barriers to customer switching. This can be done by product bundling (combiningseveralproductsorservicesintoone“package”andofferingthematasingleprice),cross selling (selling related products to current customers), cross promotions (giving discounts or other promotionalincentivestopurchasersofrelatedproducts),loyaltyprograms(givingincentivesforfrequent purchases),increasingswitchingcosts(addingterminationcosts,suchasmortgageterminationfees), andintegratingcomputersystemsofmultipleorganizations(primarilyinindustrialmarketing). Manyrelationshipmarketersuseateam-basedapproach.Therationaleisthatthemorepoints of contact between the organization and customer, the stronger will be the bond, and the more secure therelationship. The broad scope of relationship marketing Relationshipmarketinghasbeenstronglyinfluencedbyreengineering.Accordingtoreengineering theory, organizations should be structured according to complete tasks and processes rather than functions.Thatis,cross-functionalteamsshouldberesponsibleforawholeprocess,frombeginningto end,ratherthanhavingtheworkgofromonefunctionaldepartmenttoanother.Traditionalmarketingis said to use the functional department approach. This can be seen in the traditional four P’s of the marketingmix.Pricing,productmanagement,promotion,andplacementareclaimedtobefunctional silos that must be accessed by the marketer if she is going to perform her task.According to Gordon (1999), the marketing mix approach is too limited to provide a usable framework for assessing and developingcustomerrelationshipsinmanyindustriesandshouldbereplacedbyanalternativemodel where the focus is on customers and relationships rather than markets and products. Incontrast,relationshipmarketingiscross-functionalmarketing.Itisorganizedaroundprocesses that involve all aspects of the organization. In fact, some commentators prefer to call relationship marketing “relationship management” in recognition of the fact that it involves much more than that whichisnormallyincludedinmarketing. Martin Christopher,Adrian Payne, and David Ballantyne at the Cranfield Graduate school of
  • 103. 105 Managementclaimthatrelationshipmarketinghasthepotentialtoforgeanewsynthesisbetweenquality management,customerservicemanagement,andmarketing.Theyseemarketingandcustomerservice asinseparable. In spite of this broad scope, relationship marketing has not lost its core marketing orientation though. It involves the application of the marketing philosophy to all parts of the organization. Every employee is said to be a “part-time marketer”. The way Regis McKenna (1991) puts it: “Marketingisnotafunction;itisawayofdoingbusiness...marketinghastobeallpervasive, part of everyone’s job description, from the receptionist to the board of directors.” Becauseofthis,itisclaimedthatrelationshipmarketingisamorepureformofmarketingthan traditionalmarketing. Internal marketing Relationshipmarketingstresseswhatitcallsinternalmarketing.Thisreferstousingmarketing techniqueswithintheorganizationitself.Itisclaimedthatmanyofthetraditionalmarketingconcepts can be used to determine what the needs of “internal customers” are.According to this theory, every employee,team,ordepartmentinthecompanyissimultaneouslyasupplierandacustomerofservices andproducts.Anemployeeobtainsaserviceatapointinthevaluechainandthenprovidesaserviceto anotheremployeefurtheralongthevaluechain.Ifinternalmarketingiseffective,everyemployeewill both provide and receive exceptional service from and to other employees. It also helps employees understand the significance of their roles and how their roles relate to others’. If implemented well, it can also encourage every employee to see the process in terms of the customer’s perception of value added,andtheorganization’sstrategicmission.Furtheritisclaimedthataneffectiveinternalmarketing program is a prerequisite for effective external marketing efforts. (George,W. 1990) The six markets model AdrianPayne(1991)fromCranfieldUniversitygoesfurther.Heidentifiessixmarketswhichhe claimsarecentraltorelationshipmarketing.Theyare:internalmarkets,suppliermarkets,recruitment markets,referralmarkets,influencemarkets,andcustomermarkets. Referral marketing is developing and implementing a marketing plan to stimulate referrals. Although it may take months before you see the effect of referral marketing, this is often the most effective part of an overall marketing plan and the best use of resources. Marketing to suppliers is aimed at ensuring a long-term conflict-free relationship in which all parties understand each other’s needs and exceed each other’s expectations. Such a strategy can reduce costs and improve quality. Influence markets involve a wide range of sub-markets including: government regulators, standardsbodies,lobbyists,stockholders,bankers,venturecapitalists,financialanalysts,stockbrokers, consumerassociations,environmentalassociations,andlabourassociations.Theseactivitiesaretypically
  • 104. 106 carried out by the public relations department, but relationship marketers feel that marketing to all six marketsistheresponsibilityofeveryoneintheorganization. AttimesPaynesub-dividescustomermarketsintoexistingcustomersandpotentialcustomer, yielding seven rather than six markets. He claims that each market will require its own strategies and recommends separate marketing mixes for each of the seven. Influencer marketing Influencermarketingisaformofmarketingthathasemergedfromavarietyofrecentpractices andstudies,inwhichfocusisplacedonspecifickeyindividuals(ortypesofindividual)ratherthanthe target market as a whole. It identifies the individuals that have influence over potential buyers, and orientatesmarketingactivitiesaroundtheseinfluencers.Influencersmaybepotentialbuyersthemselves, or (in the case of business-to-business transactions) they may be third parties. What is “Influence”? Mostdiscussiononthegenerictopicofsocialinfluencecentresoncomplianceandpersuasion inasocialenvironment,asexemplifiedinRobertCialdini’sbook Influence:ScienceandPractice.In thecontextofInfluencerMarketing,influenceislessaboutargumentandcoerciontoaparticularpoint ofview,andmoreaboutlooseinteractionsbetweenvariouspartiesinacommunity. The history of Influencer Marketing InfluencermarketingcanbetracedtotheworkofAdrianPayneandothersatCranfieldUniversity intheUK,in1991.PayneidentifiessixmarketscentraltoRelationshipMarketing,oneofwhichisan Influence (sic) Market. Payne includes as influences a range of constituent sub-markets, including governmentregulators,standardsbodies,lobbyists,stockholders,bankers,venturecapitalists,financial analysts,stockbrokers,consumerassociations,environmentalassociations,andlabourassociations. Influencer Marketing gained a boost in 2000 with the publication of Malcolm Gladwell’s bookThe TippingPoint,inwhichheidentifieskeytypesofindividualthat,together,cancreatesocialepidemics. Gladwellsegmentstheseinfluencersinto: • Connectors:individualswithextensivenetworksofcontacts. • Mavens:expertsinspecificsubjects • Salespeople:persuasiveindividualsthatconvinceotherstochange(adoptnewproducts,change habits, etc) Gladwell’s ideas have been adopted and extended by a variety of authors. Ed Keller and Jon Berry use the same concept in their 2003 book The Influentials, backing up their analysis with considerableprimaryresearch.InUnleashingtheIdeavirus,SethGodinidentifiesSneezers,individuals withinfluencerthatspreadnewconceptsinaviralmanner(seeviralmarketing). InfluencerMarketingisemergingasausefuladditiontomoretraditionalmarketingactivities, becauseitusesinfluentialindividualstoconveymessages,ratherthanthesellingcompanyitself.There
  • 105. 107 is a substantial link between Influencer Marketing and word of mouth marketing.Arguably, word-of mouthworksbestwhencentredoninfluencers:influencerssupplytheinitialcredibilityandauthoritythat allowsamessagedtobeconveyedquicklyandreliablythroughword-ofmouthtechniques. Influencer marketing as a marketing discipline Influencermarketing,asincreasinglypracticedinacommercialcontext,comprisesfourmain activities: • Identifyinginfluencers,andrankingtheminorderofimportance. • Marketingtoinfluencers,toincreaseawarenessofthefirmwithintheinfluencercommunity • Marketing through influencers, using influencers to increase market awareness of the firm amongsttargetmarkets • Marketingwithinfluencers,turninginfluencersintoadvocatesofthefirm. Influencermarketingisenhancedbyancontinualevaluationactivitythatsitsalongsidethefour mainactivities. Identifyinginfluencers ThefirststepinInfluencerMarketingistoidentifyinfluencers.Influencersarespecifictodiscrete marketsegments,andareusedasconduitstotheentiretargetsegment.Whiletherearelistsofgeneric influencers(suchastheTime100)theyhavelimiteduseinmarketingprogrammestargetedatspecific segments. Market research techniques can be used to identify influencers, using pre-defined criteria to determinetheextentandtypeofinfluence.Forexample,KellerandBerry(2003)proposefiveattributes ofinfluencers: • Activists:influencersgetinvolved,withtheircommunities,politicalmovements,charitiesandso on. • Connected:influencershavelargesocialnetworks • Impact: influencers are looked up to and are trusted by others • Activeminds:influencershavemultipleanddiverseinterests • Trendsetters: influencers tend to be early adopters (or leavers) in markets Most of the literature on influencers focuses on consumer markets. There is less insight into business-to-business influencers.Akey distinction between consumer and business markets is that mostinfluencersinconsumermarketsareconsumersthemselves.Inbusinessmarketing,influencersare people that affect a sale, but are removed from the actual purchase decision. Consultants, analysts, journalists,academics,regulators,standardsbodiesareexamplesofbusinessinfluencers. Not all business influencers are equal. Some have more influence than others and some mechanismofrankingisrequired,todistinguishbetweenkeyinfluencersandlessimpactfulpeople.A modelforrankingbusinessinfluencershasbeendevelopedbyInfluencer50,thus:
  • 106. 108 • Market Reach – the number of people an individual has the ability to connect with. • QualityofImpact–theesteeminwhichanindividual’sviewandopinionsareheld. • Frequency of Impact – the number of opportunities an individual has to influence buying decisions. • Closeness to Decision – how near an individual is to the decision-maker. Liquid Intelligence has developed a methodology for identifying and targeting influencers throughoutthesupplychain,frommanufacturersthroughwholesalersandretailers,toconsumers. FredReichheld,aconsultantatBain&Company,hasdevelopedamethodologytodetermine theextenttowhichfirms’growthisinfluencedbycustomers’propensitytomakereferralstocolleagues. Reichheld distils his research down to a single question: how likely is it that you would recommend companyXtoafriendorcolleague?Fromanswerstothisquestion,aNetPromoterScoreisdetermined, whichcorrelatesstronglywithafirm’sgrowthrate. Business marketing Businessmarketingisthepracticeoforganizations,includingcommercialbusinesses,governments and institutions, facilitating the sale of their products or services to other companies or organizations that in turn resell them, use them as components in products or services they offer, or use them to supporttheiroperations.Alsoknownasindustrialmarketing,businessmarketingisalsocalledbusiness- to-business marketing, or b-to-b marketing, for short. Origins of business marketing In the broadest sense, the practice of one purveyor of goods doing trade with another is as old ascommerceitself.Asanicheinthefieldofmarketingasweknowittoday,however,itshistoryismore recent. In his introduction to Fundamentals of Business Marketing Research, J. David Lichtenthal, professor of marketing at the City University of NewYork’s Zicklin School of Business, notes that industrial marketing has been around since the mid-19th century, although the bulk of research on the discipline of business marketing has come about in the last 25 years. Morris, Pitt and Honeycutt, 2001, point out that for many years business marketing took a back seat to consumer marketing, which entailed providers of goods or services selling directly to households through mass media and retail channels.This began to change in middle to late1970s.A variety of academic periodicals, such as the Journal of Business-to-Business Marketing and the Journal of Business & Industrial Marketing, now publish studies on the subject regularly, and professionalconferencesonbusiness-to-businessmarketingareheldeveryyear.What’smore,business marketing courses are commonplace at many universities today. In fact, Dwyer and Tanner (2006) pointoutthatmoremarketingmajorbegintheircareersinbusinessmarketingtodaythaninconsumer marketing. Business marketing vs. consumer marketing Althoughonthesurfacethedifferencesbetweenbusinessandconsumermarketingmayseem obvious,therearemoresubtledistinctionsbetweenthetwowithsubstantialramifications.Dwyerand
  • 107. 109 Tanner (2006) note that business marketing generally entails shorter and more direct channels of distribution. While consumer marketing is aimed at large demographic groups through mass media and retailers,thenegotiationprocessbetweenthebuyerandsellerismorepersonalinbusinessmarketing. According to Hutt and Speh (2001), most business marketers commit only a small part of their promotional budgets to advertising, and that is usually through direct mail efforts and trade journals. Whilethatadvertisingislimited,itoftenhelpsthebusinessmarketersetupsuccessfulsalescalls. Who is the business marketing customer? While “other businesses” might seem like the simple answer, Dwyer andTanner (2006) say business customers fall into four broad categories: companies that consume products or services, governmentagencies,institutionsandresellers. The first category includes original equipment manufacturers, such as automakers, who buy gauges to put in their cars, and users, which are companies that purchase products for their own consumption.The second category,governmentagencies,isthebiggest.Infact,theU.S.government isthebiggestsinglepurchaserofproductsandservicesinthecountry,spendingmorethan$300billion annually.Butthiscategoryalsoincludesstateandlocalgovernments.The third category,institutions, includes schools, hospitals and nursing homes, churches and charities. Finally, resellers consist of wholesalers,brokersandindustrialdistributors. How big is business marketing? Hutt and Speh (2001) note that “business marketers serve the largest market of all; the dollar volume of transactions in the industrial or business market significantly exceeds that of the ultimate consumer market.” For example, they note that companies such as GE, DuPont and IBM spend more than $60 million a day on purchases to support their operations. Dwyer andTanner (2006) say the purchases made by companies, government agencies and institutions“accountformorethanhalfoftheeconomicactivityinindustrializedcountriessuchasthe United States, Canada and France.” ThefactthatthereissuchathingastheBusinessMarketingAssociationspeakstothesizeand credibilityoftheindustry.BMAtracesitsoriginsto1922withtheformationoftheNationalIndustrial AdvertisingAssociation.Today,BMA,headquarteredinChicago,boastsmorethan2,000membersin 19 chapters across the country.Among its members are new breeds of marketing communications agencies that are largely or exclusively business-to-business-oriented. They include Bader Rutter & Associates,Milwaukee;EricMowerandAssociates,Syracuse,N.Y.;Cincinnati-basedHSRBusiness- to-Business;SullivanHigdon&Sink,Wichita,Kan.;andChicago-basedSlackBarshinger. What’s driving growth in b-to-b Thetremendousgrowthandchangethatbusinessmarketingisexperiencingisdueinlargepart to three “revolutions” occurring around the world today, according to Morris, Pitt and Honeycutt (2001).
  • 108. 110 First is the technological revolution.Technology is changing at an unprecedented pace, and these changes are speeding up the pace of new product and service development.Alarge part of that has to do with the Internet, which is discussed in more detail below. Secondistheentrepreneurialrevolution.Tostaycompetitive,manycompanieshavedownsized andreinventedthemselves.Adaptability,flexibility,speed,aggressivenessandinnovativenessarethe keys to remaining competitive today. Marketing is taking the entrepreneurial lead by finding market segments, untapped needs and new uses for existing products, and by creating new processes for sales,distributionandcustomerservice. The third revolution is one occurring within marketing itself. Companies are looking beyond traditional assumptions and adopting new frameworks, theories, models and concepts. They’re also moving away from the mass market and the preoccupation with the transaction. Relationships, partnerships and alliances are what define marketing today. The cookie-cutter approach is out. Companiesarecustomizingmarketingprogramstoindividualaccounts. The impact of the Internet TheInternethasbecomeanintegralcomponentofthecustomerrelationshipmanagementstrategy forbusinessmarketers.DwyerandTanner(2006)notethatbusinessmarketersnotonlyusetheInternet toimprovecustomerservicebutalsotoimproveopportunitieswithdistributors. According toAnderson and Narus (2004), two new types of resellers have emerged as by- productsoftheInternet:infomediariesandmetamediaries.Infomediaries,suchasGoogleandYahoo, are search engine companies that also function as brokers, or middlemen, in the business marketing world.They charge companies fees to find information on theWeb as well as for banner and pop-up ads and search engine optimization services. Metamediaries, such asW.W. Grainger, are companies with robust Internet sites that furnish customers with multiproduct, multivendor and multiservice marketspaceinreturnforcommissionsonsales. With the advent of b-to-b exchanges, the Internet ushered in an enthusiasm for collaboration thatneverexistedbefore—andinfactmighthaveevenseemedludicrous10yearsago.Forexample,a decadeagowhowouldhaveimaginedFord,GeneralMotorsandDaimlerChryslerenteringintoajoint venture?That’s exactly what happened after all three of the BigThree began moving their purchases onlineinthelate1990s.Allthreecompanieswerepursuingtheirowninitiativeswhentheyrealizedthe economies of scale they could achieve by pooling their efforts. Thus was born what then was the world’s largest Internet business when Ford’sAuto-Xchange and GM’sTradeXchange merged, with DaimlerChryslerrepresentingthethirdpartner. Whilethisexchangedidnotstandthetestoftime,othershave,includingAgentrics,LLC,which was formed last year with the merger of WorldWide Retail Exchange and GlobalNetXchange, or GNX.Agentrics serves more 50 retailers around the world and more than 300 customers, and its members have combined sales of about $1 trillion. Hutt and Speh (2001) note that such virtual
  • 109. 111 marketplacesenablecompaniesandtheirsupplierstoconductbusinessinrealtimeaswellassimplify purchase processes and cut costs. Marketing orientation A marketing oriented firm (also called market orientation, the marketing concept, consumer focus, or customer focus) is one that allows the needs and wants of customers and possible customers topushallthefirm’slong-termcrucialdecisions.Thefirm’scorporatecultureissystematicallycommitted to creating customer value. The rationale is that the more a company understands and meets the real needsofitsconsumers,themorelikelyitistohavehappycustomerswhocomebackformore,andtell theirfriends.Thisprocesscanentailthefosteringoflongtermrelationshipswithcustomers.Inorderto determine customer wants, the company usually needs to conduct some form of marketing research. Overall, the marketer expects that becoming marketing oriented, if done correctly, will provide the companywithasustainablecompetitiveadvantage. The concept of marketing orientation was developed in the late 1960s and early 1970s at HarvardUniversityandatahandfulofforwardthinkingcompanies,suchasMckinsey&Company.It replacedtheprevioussalesorientationthatwasprevalentbetweenthemid1950sandtheearly1970s, and the production orientation that predominated prior to the mid 1950s. Since the concept was first introducedinthelate1960s,ithasbeenmodified,repackaged,andrenamedas“customerfocus”,“the marketingphilosophy”,“marketdriven”,“customerintimacy”,“consumerfocus”,“customerdriven”, and“themarketingconcept”. Application of the concept Customer focus can be seen as a process that involves three steps. First customer wants are researched,thentheinformationisdisseminatedthroughoutthefirmandproductsaredeveloped,then finallycustomersatisfactionismonitoredandadjustmentsmadeifnecessary. The process can be applied at the individual level (called personalized marketing), the group level(calledmarketsegmentation),andoccasionallyatthemasslevel(massmarketing).Thelargerthe group size, the more difficult the concept is to apply. Techniquesthatfirmsusetounderstandthecustomerinclude: • Quantitativemarketingresearch-suchas;surveysandquestionnaires • Qualitative marketing research - such as; focus groups and advisory panels • Market research and industry research - such as; Porter 5 forces analysis • Face-to-facemeetingswithcustomers • Face-to-face meetings with frontline staff - sales reps, clerks, and receptionists • Customercomplaintsdepartment • Customer hotlines -Web and telephone • Visitstocustomers’facilities • Frequent user programs and databases
  • 110. 112 • User groups - Beta testing • Conferences SUMMARY Product management is responsible for critical day-in-day-out product decisions that dictate theverysuccessofyourbusinessstrategy.Withouteffectiveproductmanagement,productdevelopment ispronetoguesswork;withworld-classproductmanagement,productandservicecompaniesproceed with product development in the knowledge that markets and customers are intimately understood. This insight into the ingredients of successful products is not without its challenges: Understanding customer needs is only one dimension of product management, which has to be considered in the context of many other internal and market factors. By gaining a holistic view of these considerations, companiescanconfidentlyidentify,defineandlaunchwinningproductstrategies. • Consolidate multiple sources of valuable market and product data to make fully-informed decisions • Balanceandprioritizeoften-conflictingmarketandproductrequirements • Reconciletop-downandbottom-upplanning • Overcomeincreasingmarket,productandorganizationalcomplexity • Uniteallstakeholdersintotheproductplanningprocesswhilereducingproductplanningcycles • Evaluatedifferentalternatives–fromcandidatesfornewproducts,downtocandidatefeatures for both new and existing products • Create a single, current repository of all the relevant customer, market, competitor, cost, and resource data • Rank requirement, product, and portfolio priorities based on strategic goals, customer commitments,costs,resources,andbenefits • Analyze trade-off decisions based on updated assumptions with on-the-fly reports • Distributetask,andstatusownershipwhilecentralizingdataandvisibility • Create alternative scenarios for side-by-side comparison in seconds, instead of weeks of spreadsheetgymnastics QUESTIONS: 1. What is Product Management? 2. Define Relationship Management? How is it developed? 3. What is Influence? Discuss its history? How is Influences identified? 4. Define Business Marketing? Explain its Origin? How is it different from Consumer Marketing? 5. Who is the Business Marketing Customer?
  • 111. 113 CHAPTER - XIII QUALITATIVEMARKETINGRESEARCH OBJECTIVE Qualitative research is a set of research techniques, used in marketing and the social sciences, inwhichdataareobtainedfromarelativelysmallgroupofrespondentsandnotanalyzedwithstatistical techniques.Thisdifferentiatesitfromquantitativeresearchinwhichalargegroupofrespondentsprovide datathatarestatisticallyanalyzed. The role of qualitative research Qualitativeresearchmethodsareusedprimarilyasapreludetoquantitativeresearch.Theyare usedtodefineaproblem,generatehypotheses,identifydeterminants,anddevelopquantitativeresearch designs. They are inexpensive and fast. Because of the low number of respondents involved, these exploratoryresearchmethodscannotbeusedtogeneralizetothewholepopulation.Theyarehowever, very valuable for exploring an issue and are used by almost all researchers. They can be better than quantitativeresearchatprobingbelowthesurfaceforaffectivedrivesandsubconsciousmotivations. Approaches Mostqualitativemethodsuseadirectapproach:theyclearlydisclosethepurposeofthestudy andtheorganizationthatcommissionedit.Questionsaredirectandtothepoint.Manyotherqualitative techniques use an indirect approach. The true intent of the research is disguised, either by claiming a false purpose or by omitting any reference to the study’s purpose. Some researchers have ethical misgivingsaboutthedeceitinvolvedinthisapproach.Thoseresearchersthatusethisapproachfeelthat it provides the more honest and accurate responses. If disguised methods are used, all respondents should,oncompletion,attendadebriefingsessioninwhichthetruepurposeoftheresearchisgivenand the reason for the deception explained. The main types of qualitative research are: • DepthInterviews o interview is conducted one-on-one, and lasts between 30 and 60 minutes o best method for in-depth probing of personal opinions, beliefs, and values o veryrichdepthofinformation o veryflexible o probingisveryusefulatuncoveringhiddenissues o they are unstructured (or loosely structured)- this differentiates them from survey interviews in which the same questions are asked to all respondents o canbetimeconsumingandresponsescanbedifficulttointerpret
  • 112. 114 o requiresskilledinterviewers-expensive-interviewerbiascaneasilybeintroduced o there is no social pressure on respondents to conform and no group dynamics o start with general questions and rapport establishing questions, then proceed to more purposivequestions o laddering is a technique used by depth interviewers in which you start with questions aboutexternalobjectsandexternalsocialphenomena,thenproceedtointernalattitudes andfeelings o hidden issue questioning is a technique used by depth interviewers in which they concentrate on deeply felt personal concerns and pet peeves o symbolicanalysisisatechniqueusedbydepthinterviewersinwhichdeepersymbolic meanings are probed by asking questions about their opposites • Focus Groups o an interactive group discussion lead by a moderator o unstructured (or loosely structured) discussion where the moderator encourages the freeflowofideas o usually8to12membersinthegroupwhofittheprofileofthetargetgrouporconsumer o usually last for 1 to 2 hours o usuallyrecordedonvideo o theroomusuallyhasalargewindowwithone-wayglass-participantscannotseeout, but the researchers can see in o inexpensiveandfast o canusecomputerandinternettechnologyforon-linefocusgroups o respondents feel a group pressure to conform o groupdynamicsisusefulindevelopingnewstreamsofthoughtandcoveringanissue thoroughly • ProjectiveTechniques o these are unstructured prompts or stimulus that encourage the respondent to project theirunderlyingmotivations,beliefs,attitudes,orfeelingsontoanambiguoussituation o they are all indirect techniques that attempt to disguise the purpose of the research o examplesofprojectivetechniquesinclude: § word association - say the first word that comes to mind after hearing a word -onlysomeofthewordsinthelistaretestwordsthattheresearcherisinterested in,therestarefillers-isusefulintestingbrandnames-variantsincludechain word association and controlled word association § sentencecompletion-respondentsaregivenincompletesentencesandasked
  • 113. 115 tocompletethem § story completion - respondents are given part of a story and are asked to completeit § cartoon tests - pictures of cartoon characters are shown in a specific situation and with dialogue balloons - one of the dialogue balloons is empty and the respondentisaskedtofillitin § thematic apperception tests - respondents are shown a picture (or series of pictures) and asked to make up a story about the picture(s) § role playing - respondents are asked to play the role of someone else - researchersassumethatsubjectswillprojecttheirownfeelingsorbehaviours intotherole § third-persontechnique-averbalorvisualrepresentationofanindividualand his/her situation is presented to the respondent - the respondent is asked to relate the attitudes or feelings of that person - researchers assume that talking inthethirdpersonwillminimizethesocialpressuretogivestandardorpolitically correct responses Quantitative marketing research Quantitative marketing research is the application of quantitative research techniques to the field of marketing. It has roots in both the positivist view of the world, and the modern marketing viewpointthatmarketingisaninteractiveprocessinwhichboththebuyerandsellerreachasatisfying agreement on the “four P’s” of marketing: Product, Price, Place (location) and Promotion.As a social researchmethod,ittypicallyinvolvestheconstructionofquestionnairesandscales.Peoplewhorespond (respondents)areaskedtocompletethesurvey.Marketersusetheinformationsoobtainedtounderstand the needs of individuals in the marketplace, and to create strategies and marketing plans. Industry or market research Industry or market research is the acquisition of corporate intelligence on a broad range of issuesincluding: • Macroenvironment o economy o government o law o technology o ecological
  • 114. 116 • MarketAnalysisandCompetitoranalysis o marketdefinition o marketsize o marketsegmentation o industrystructureandstrategicgroupings o Porter 5 forces analysis o supplychain o competitionandmarketshare o competitors’strengthsandweaknesses o market trends • ConsumerAnalysisorMarketingresearch o natureofthebuyingdecision o participants o demographics o psychographics o buyermotivationandexpectations o loyaltysegments SUMMARY Qualitative is one of the two major approaches to research methodology in social sciences. Qualitativeresearchinvolvesanin-depthunderstandingofhumanbehaviorandthereasonsthatgovern human behavior. Unlike quantitative research, qualitative research relies on reasons behind various aspects of behavior. Simply put, it investigates the why and how of decision making, as compared to what, where, and when of quantitative research. Hence, the need is for smaller but focused samples rather than large random samples. From which, qualitative research categorizes data into patterns as theprimarybasisfororganizingandreportingresults.Qualitativeresearchhastwoprimaryadvantages: 1. It allows the moderator (or interviewer) to interact with respondents, i.e., the moderator can ask questions based on previous responses. This allows for in-depth probing of issues and yieldsgreatdetailinresponse. 2. Itallowsforinteractionbetweengroupmembers.Thisinteractionoftenstimulatesdiscussion anduncoversissuesunanticipatedbythemarketingteam. Theprimarydisadvantageofqualitativeresearchmethodsisthattheyareunreliablepredictors of the population. That is, they can expand our list of possibilities, but they cannot (or should not) be usedtoidentifythebestofthepossibilities. Because of the advantages and disadvantages discussed above, qualitative research is
  • 115. 117 appropriate for two uses: • To generate ideas and concepts (lists of possibilities) • Touncoverconsumerlanguageinordertosubsequentlyaskconsumerstherightquestionsina waytheymostaccuratelyunderstand Itisnotappropriateforevaluatingpre-existingideas. QUESTIONS: 1.DefineQualitativeResearch? 2.WhatistheroleofQualitativeResearchinmarketing?Whatshouldbetheapproachtowards QualitativeResearch? 3. What are the main types of Qualitative Research? 4. Describe Quantitative Marketing Research? What are its advantages? 5. What is Industry Research?
  • 116. MODEL QUESTION PAPER National Institute of Business Management Chennai - 020 THIRD SEMESTER MBA Subject : Service Marketing Time : 3 hours Marks : 100 Section A I Answer all questions. Each question carries 2 marks :- 1. What is Service Marketing? 2. Give a comprehensive definition of marketing, applicable to both business and non business environments? 3. Define Marketing? 4. What is a Derivative product? 5. What is whole sale market? 5x2=10 marks Section B II Answer all questions. Each question carries 6 marks :- 1. Write a brief history of Marketing? 2. What is a market and what are its functions? 3. What are the types of market? 4. Tabulate a relationship between Lender and a Borrower? 5. How to analyze a financial market? 5x6=30 marks Section C III Answer any three questions. Each question carries 20 marks :- 1. What is Financial Market? Explain the types of Financial Market? What are they used for i.e. what is their purpose? 2. What is a Stock Market? What is its importance, function and purpose? 3. Explain Trading? Who are market Participants? 4. Deduce a relation of the Stock Market to the Modern Financial System? 5. Explain the four Ps of Marketing? 3x20=60 marks