Rajan Saxena - Marketing Management (2015, MC Graw Hill India)

Marketing
Management
Fifth Edition
ABOUT THE AUTHOR
Rajan Saxena is Vice Chancellor NMIMS (Deemed-to-be-University u/s 3 of

UGC Act) since 2009 and former Director of IIM, Indore; S.P. Jain Institute of
Management and Research, Mumbai; ICFAI Business School, Gurgaon; and
Dean of Narsee Monjee Institute of Management Studies, Mumbai. He has
over 40 years of professional experience in management education, research,
consulting and institution building. He is an alumnus of Shri Ram College of
Commerce, Delhi. He did his PhD work at Delhi School of Economics in Mar-
keting and was awarded the degree by Delhi University. He has taught at XLRI,
Jamshedpur; S.P. Jain Institute of Management and Research, Mumbai; IIM,
Calcutta; IIM, Indore; and NMIMS, Mumbai. He has also taught in University
of Calgary, Canada and has been a British Council visitor at the University of Sterling, U.K. where
he was involved in the entrepreneurship program. He is a Visiting Professor at Pace University, New
York, USA.
Dr. Saxena’s teaching and research interests include Marketing Strategy, Services Marketing and
Customer Relationship Management. He is also a Fellow of the Indian Society for Training and Devel-
opment and Institute of Management Consultants of India. He is a life member of ISTD.
Dr. Saxena is widely respected in the country as an institution builder, marketing educator, strategist
and consultant. He has consulted over 50 Indian and multinational companies. Some of his well-known
clients are BSES (Now Reliance Energy), HDFC, MTNL Mumbai, Agrevo (formerly the agro chemical
division of Hoechst and now taken over by Bayer), L&T, Parle Exports, Jindal Steel, Ispat, etc. He has
published over 60 articles in Indian and Foreign journals.
Dr. Saxena has been conferred several awards by different organisations and media. Some
of these are Best Teacher of Management by Bombay Management Association in 1990;
Best Marketing Teacher in 1998; Distinguish Alumnus by Shri Ram College of Commerce in 2002;
Higher Education Forum, Dr. Suresh Ghai Memorial Award for the Outstanding Contribution to Man-
agement Leadership in 2013; Hall of Fame Award by DNA; Star Group of Industry’s Inspirational
Leadership Award by Dainik Baskar in 2010; ET NOW ‘Visionary Leadership’ Award in Education in
2013 and Leadership Award by Forum for Emotional Intelligence Learning (FEIL).
Dr. Saxena is a member of the advisory and corporate board of several institutions and companies,
some of which are Centre for Management Education, AIMA (as Chair of the Board) Army Manage-
ment Board, State Advisory Board of Education of Government of Madhya Pradesh, Indore Manage-
ment Association, Atal Bihari Vajpayee—Indian Institute of Information Technology and Management
(ABV—IIITM), Gwalior (Ministry of HRD, Government of India Institution). He was the member of
All India Board of Management Studies of AICTE (2000–2003) and was on the Executive Board of
Association of Indian Management Schools and Association of Management Development Institutions
in South Asia. He was also an Independent Director on the Board of Lodha Developers Ltd., MTNL,
Future Generali India Insurance Company Ltd. and Future Generali Life Insurance Company Ltd. He
continues to serve Anuvi Chemicals as an Independent Director. He has been the Co-Chair of FICCI
Higher Education Committee since 2011.
Marketing
Management
Fifth Edition
Rajan Saxena
Vice Chancellor and Distinguished Professor Marketing
NMIMS University
Mumbai
McGraw Hill Education (India) Private Limited

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Dedicated to my Mother
Mrs Bimla Devi Saxena
Who was also my mentor
and from whom I learnt
the values of hard work , dedication and commitment
PREFACE TO THE FIFTH EDITION
The Indian market is a market of aspirations and expectations. It is a market which is a dream for any
marketer, for it provides an opportunity to develop products and services for different market segments.
In fact, the marketer can choose to remain in one segment and still grow big. Be it the child, teenager,
young adult, adult, or even the elders segment, each of these segments is a huge wanting to be served.
The Indian market is today driven by these demographic characteristics and technology which has
made value creation and delivery far more exciting and challenging. New products and business models
have replaced the old ones. Innovations are today imperative for an emerging market like India. It is
in this context that this edition of Marketing Management has been prepared. The focus of this edition
is therefore on:
1. Changes in the Indian market and factors driving this change
3. The poor markets which require innovative solutions

4. Digital Business Models
5. Ethics in marketing
6. Big data and analytics
7. Customer engagement strategies
The revision of the fourth edition began about two years ago in 2013, based on the feedback of
students and faculty colleagues in NMIMS and other business schools. The course on Innovations in
Marketing brought interesting perspectives and case studies from MBA students. Simultaneously, PhD
scholars brought new concepts like Brand Archetypes and Brand Communications through films. As
mentioned above, Indian market provides an opportunity to develop affordable innovations and solu-
tions for customer’s needs in emerging markets.
While some of the relevant chapters have been retained, significant changes have been made in
many others to make them contemporary with new data, research inputs and concepts. For example,
a new section on Virtual Focus Groups, Customer Engagement, Affordable Innovations also termed
as ‘Jugaad’ and Social Networks, and Consumer Behaviour have been added. Most of the opening
vignettes termed as ‘In Practice’ are new. All the data in the book is reviewed and made up-to-date, i.e.
of 2014 and 2015. The book has been structured into the following six sections:
1. Section 1: The Marketing Environment
2. Section 2: Assembling the Marketing Toolbox
3. Section 3: Creating of Customer Value
4. Section 4: Communication and Deliverance of Customer Value
5. Section 5: Creating Sustainable Competitive Value and Growth
6. Section 6: Broadening Horizons
viii Preface to the Fifth Edition
Chapters in this edition have been realigned within each section accordingly. In this edition, a new
case study on Saffola Oats has been included in addition to the earlier case studies on Tata Nano,
Fabindia and Jaago Re. This book is also supported by online learning material which will have among
many other features, a quiz on each chapter and additional exercises. These can be accessed from
www.mhhe.com/saxena5e
I am confident that this edition will once again help all the students and faculty interested in studying
marketing and about markets in India.
I await your feedback which can be shared on the below mentioned id.
RAJAN SAXENA
Publisher’s Note
We value your views, comments and suggestions and hence look forward to your communication
at info.india@mheducation.com. Please feel free to report piracy issues, if any.
PREFACE TO THE FIRST EDITION
The Indian economy has finally been unchained. Archaic policies and institutions have been done
away with in order to link the economy to the world economy. India has already lost the decade of the
80s to her South East Asian neighbours and had the planners not woken up to the realities of the post
cold war era, there was every likelihood that the country would have got marginalised. The opening
up of the economy means new competition in almost all sectors. This competition is posed by foreign
companies and brands, large Indian firms and industrial houses diversifying into different sectors, and
from other small and medium sized companies. The impact of increased competition has been felt by
several companies who have lost their market leadership to newer and more effecient entrants. The
distribution channels are choked up with multiple brands in different product categories. Today there
is hardly any product, except core sector products like power, gas and petroleum, where the supplies
do not exceed market demand. In such a situation its only a marketing oriented firm that can succeed.
Customer focus is the key and Indian firms are realising that aggressive advertising and selling will no
longer help if they are not customer focussed.
This is a book on marketing in the contemporary and future India. To many it may appear just an-
other book and perhaps may even wonder at the need for yet another text. During my several years of
teaching marketing at the MBA and doctoral level and also training corporate executives in the field
of marketing, I always felt the need for a good text which will deal with contemporary marketing de-
cisions in Indian firms. My students and executives participating in my programmes shared with me
their similar concerns. Further, as I continue to delve in marketing problems of several of my client
organizations and as I looked for solutions in the books originating in North America, I realised that
most of them just would not help solve the problems of Indian companies. The reason not being that
the concepts are inapplicable or inadequate, but because the organisational culture, environment and
the Indian buyer’s behaviour and market structures differ significantly from North American firms and
markets. Hence, we need indigenisation or localisation of marketing management. This book does this
and is based extensively on my research and consultancy experiences as also on published data and
cases from Indian industry.
The book is divided into five parts.
Part 1 focuses on markets, structures and forces therein, and what a marketer needs to do in order
to understand them. This part contains 8 chapters.
Chapter 1 introduces the concept of marketing and differentiates it from selling, manufacturing
and technology orientation. It also introduces the reader to other key concepts like marketing mix and
explains how marketing orientation hepts a firm succeed.
Chapter 2 is devoted to understanding the marketing environment of the firm and provides tools and
techniques for it.
x Preface to the First Edition
Chapter 3 is on marketing planning and addresses issues in marketing opportunity analysis and
evolving a plan to seize opportunities.
Chapter 4 is on maketing research and information systems and helps the reader understand the
research process, avoiding pitfalls in marketing research and how to design an effective marketing and
intelligence system.
Chapter 5 deals with the changing profile of the Indian buyer and helps the reader understand the
motivations of buyers as also the influences that work on their decision making.
Chapter 6 takes a look at the organisational buyer’s decision making and Chapters 7 and 8 are market
segmentation and demand forecasting.
Part 2 deals with the marketing mix and has ten chapters.
Chapter 9 is on product decisions in the contemporary Indian market.
Chapter 10 is on new product decisions.
Chapter 11 is devoted to a growing concern in marketing, viz. brand equity, and through Indian il-
lustrates key concepts in brand equity.
Chapter 12 is on pricing decisions and introduces the reader to priving strategies and tactices useful
in the Indian market.
Chapters 13, 14, 15 and 16 are devoted to promotion decisions and the different elements of mix.
Chapter 17 is on sales force management in the Indian context.
Chapter 18 is on distribution management and addresses key issues in effective distribution in
Indian markets.
Part 3 is on marketing strategy and organisational issues in design, implementation and economy.
Chapter 19 is focussed on marketing strategy and helps the reader understand linkages between
strategy and core business strategy as also the strategy formulation process.
Chapter 20 is on marketing organisation. This chapter helps the reader understand the market-
ing organisation in Indian firms and also the issues that confront management in designing focussed
organisation.
Chapter 21 is on marketing performance and control.
Part 4 is on contemporary issues in marketing and chapters here deal with global marketing service,
and rural marketing.
Part 5 introduces the reader to case methodology and instrumentation in marketing. It will help the
reader to link theory to business realities. The part contains eight cases drawn from consumers, indus-
trial products and services, and instruments like marketing effectiveness measurement, marketing and
other instruments in marketing planning and product management.
This book is a departure from others as it contextualises marketing problems by citing Indian plays
and marketing instruments used by us in India. It has rich illustrations from Indian companies.
I am hopeful that management students across the country as also marketing executives will find this
useful.
RAJAN SAXENA
ACKNOWLEDGEMENTS
I am indeed grateful to all faculty members and students who adopted the book and also gave feedback
from time to time. These feedbacks have helped in the revision of this title and have truly made it a
book of Marketing in and for India—a market that is today a priority for all global and national brands.
In addition to these feedbacks, my grateful thanks to my research scholars, Dr. Hufrish Majra and
Ms. Saloni Gandhi who helped in preparing the case on Saffola Oats. Saloni also gave research inputs
on Brand Archetypes.
A book like this cannot be completed without the active support from corporate. Linopinion helped
provide ads for brands they had worked with to help elucidate concepts and communication approaches.
For this, I am grateful to Mr. Ameer Ismail, Executive Director, Linopinion and Mr. Sani Rajan, Group
Head, Linopinion. Lodha developers and Marico also helped with ads of their brands and products. My
grateful thanks to Mr. Abhinandan Lodha, Joint Managing Director, Lodha Developers and Mr. Harsh
Mariwala, Chairman Marico Industries.
My secretaries, Ms. Lizzy Gonsalves and Ms. Flora D’Souza, were of great help in compiling this
edition. They compiled the revisions for fifth edition in word document, which I would dictate on days
and times I was free. My daughter, Shruti Saxena Iyer, provided critical inputs and write-ups in sections
on Virtual Focus Groups in Chapter 5, Customer Engagement in Chapters 13 and 27—Thank you Shruti.
I would also like to express my gratitude to the team at McGraw Hill—Mr. Kaushik Bellani, Managing
Director; Ms. Vibha Mahajan, Mr. Hemant Jha, Ms. Laxmi Singh and Ms. Jagriti Kundu.
My wife Priti has not only supported me but actively encouraged me in contributing to marketing
thought, through this book and articles.
RAJAN SAXENA
V I S U A L
CHAPTER
MARKETING
MANAGEMENT TODAY
1 Learning
Objectives
Chapters begin
LEARNING OBJECTIVES
with learning
After reading this chapter, you should be able to:
objectives which
LO1 Explain the changing Indian market and innovation challenges
LO2 Describe the new marketing concepts and the significance of social networks in the outline what each
Great Indian Market chapter aims at
LO3 Distinguish between types of orientations prevalent in organisations
LO4 Describe the evolution of the contemporary marketing process
achieving and what
LO5 Explain the purpose of marketing the student should
LO6 Interpret the concept of marketing mix and its relevance in competitive advantage know on its
LO7 Explain new marketing horizons
completion.
CHAPTER
THE CUSTOMER
2
LEARNING OBJECTIVES
LO1 Analyse the customer life cycle and stages therein
LO2 Explain the factors in customer acquisition and how customer can be retained
LO3 Describe the customer value and value maximisation strategies
Opening LO4 Demonstrate the relationship between customer value and loyalty
Vignettes LO5 Categorise the financial dimensions of customer acquisition and retention
All chapters open

with a small ‘In
Practice’ case. These
are based on marketing
practices followed in
companies. The purpose of
the vignette is to help the
student/reader relate the
concept to marketing
practices as also to
introduce the
subject.
W A L K T H R O U G H
In
Practice and
Exhibits
Indian examples and cases
have been interwoven within
Exhibit 14.3 Customer Price Sensitivity the text through these boxed
items. They provide the student
an insight into the practices and
successes of Indian companies
in the domestic as well
as the international
markets.
Sales Promotion and Public Relations 433
In the introductory
stage, advertising helps
awareness creation and
brand positioning, while
sales promotion induces
trial. In the growth stage,
advertising helps competitive
Margin differentiation and market
expansion, while sales
promotions helps to create
Notes and reward loyalty.
These small boxes in the

margins contain the gist of the In the maturity stage,
advertising helps reminding
discussion in the paragraph. They customer about product

availability, while promotion
helps maintain customer
may also have definitions of important loyalty and attract new
customers.
concepts. These will be of great
help to readers in reinforcing
their learning.
Imitation on the sales

promotion front leads to
promotion wars and lowering
IN FOCUS of margins.
Often, responses to the following three key questions can help define marketing research problems:
(a) purpose of the information being sought
(b) w
(c) w
Once a problem is identified In Focus
amined. For example, in order to understand the
Box
a better understanding of the background of the problem. This could be done through the Internet and In focus box items attract and
small focus group discussions of Internet users. The Internet and Web are, today, significant enablers in
pilot research and problem definition.
Organisational intranets can help the researcher gain information relating to the problem from various
hold the reader’s attention to an
departments. It can also help the researcher understand the context of the problem. The Internet provides
an invaluable resource for searching several external sources of information. This can help direct the
important topic which is of
researcher’s attention to several search engines and websites for the desired information, and is faster
than the conventional library research.
special interest.
This type of exploration can help the researcher define the main and sub-problems and also understand
the context of the problem. Hence, good problem definition is the key to getting the most out of marketing
research, and both the researcher and the decider have a stake in it.
V I S U A L
Pedagogy
Rich in pedagogy,
each chapter begins
with learning objectives,
employs figures and tables
for a better understanding of
the concept, and ends with a
summary and power points
section that enables students
to quickly recap the
important points covered
within the chapter.
Questions
for Discussion
Application-based
questions are provided
at the end of each chapter
and are intended to assess
the student’s understanding
of concepts discussed in
each chapter.
W A L K T H R O U G H
CASE
Cases
NANO—A DREAM
CAR FOR THE POOR*
1 Four cases have
been provided at the
end of the book intended
at providing an insight into
the decision making process in
Indian market situations. Each
could be related to several
concepts discussed in various
chapters of the text.
SUBJECT INDEX
Index COMPANY INDEX

A three-
level
comprehensive
Subject Index, a
Company Index
and Author Index
would aid the
readers in locating AUTHOR INDEX
the entries in the
right context in
an accurate
manner.
CONTENTS
Preface to the Fifth Edition vii

Preface to the First Edition ix
Acknowledgements xi
Visual Walkthrough xii
Chapter 1 Marketing Management Today 1
Tata Shows The Way 1
The Great Indian Market 2
Issues and Challenges in Marketing in India 4
Marketing as a Concept 10
Marketing Orientation and How Can it be Employed in Organisations 11
Types of Orientations Prevalent in Organisations 12
Marketing Orientation vis-a-vis Selling Orientation 12
Relationship Marketing 13
Focus on Internal Customer 15
Market Driven Organisations 17
Marketing as a ‘Process’ 18
The Needs, Wants and Demands of a Customer 19
Markets, Marketplace, Virtual and Metamarkets 19
Metamarkets 20
Interactive Technology and Marketing Mix 20
Marketing as a Managerial Function 21
McDonald’s in India 21
Role of Marketing in Modern Organisations 23
Integrative Function of Marketing 23
Purpose of Marketing 24
Market Development 24
Customer Acquisition 26
Customer Retention 27
Customer Loyalty 28
Fighting Competition 28
Social Equity 28
The Marketing Mix 28
Marketing Tasks 30
xviii Contents
Three Stages of Marketing Practice 30

Entrepreneurial Marketing 30
Formulated Marketing 30
Intrapreneurial Marketing 31
Customer Equity 31
New Marketing Horizons 31
Cause Marketing 31
Summary 34
Power Points 35
Questions For Discussion 36
Annexure: Green Marketing 38
Section 1
THE MARKETING ENVIRONMENT
Chapter 2 The Customer 43
Men Makeup 90% of the Mobile Web Users 43
Customer Lifecycle and its Stages 44
Prospects 45
First Time Buyers 46
Repeat Buyers 46
Core Customers 47
Defectors 48
Customer Acquisition and Customer Retention 48
Factors that Drive Customer Acquisition 48
Altering Acquisition Rates 50
Improving Retention Rates 50
Customer Value and Value Maximisation Strategies 51
Customer Value from Customer’s Perspectives 51
Experience as a Value 52
Firm’s Perspective of Customer Value 53
Contemporary Model on Customer Value 54
Value Creation by the Firm 54
Customer Value and Relationship Marketing 55
Customer Value and Loyalty 55
Strategy for Customer Engagement 59
Financial Dimensions of Customer Acquisition and Retention 60
Costs and Profits in Customer Acquisition and Retention 60
Summary 62
Power Points 63
Questions for Discussion 66
Chapter 3 The Competition 67
Nokia Loses to Samsung 67
Significance of Competition 68
Contents xix
Factors Contributing to Enhanced Inter-Firm Rivalry 69

Low Barriers 69
Barriers to Entry and Exit in any Market 69
Stages and Forms of Competition 71
Stages of Competition 71
Forces Driving/Shaping Competition 72
Forms of Competition 73
Framework for Competitive Analysis 74
Analysing the Competitor Strengths and Weaknesses 74
Customer’s Perception of Competitors 76
How Well Entrenched in a Segment 76
Gaps Left by Competitors 76
Competitor Profile Analysis 77
Preparing a War Map 78
Competitive Arena Mapping 79
Segmentation Matrix 80
Response to Competition 82
Competition Based on Network 83
Summary 84
Power Points 85
Section 2
ASSEMBLING THE MARKETING TOOLBOX
Chapter 4 Marketing Planning 89
Tata Motors—ACE 89
Market Opportunity 90
Size of the Market 90
Extent and Quality of Services Rendered by Competitors 94
Marketing Programmes Required to Satisfy the Customer 94
Identification of Key Success Factors and Linking to Firm’s Strengths and Weak-
nesses 94
Product-Market Selection 95
Making Product-Market Choices 95
Approaches to Marketing Planning 96
Profit Impact of Marketing Strategies (PIMS) 96
Portfolio Methods 98
Structure of Marketing Plan 103
Objectives 103
Marketing Strategy 104
Implementation Programme 104
Projected Profit and Loss Statement 104
Control Systems 104
xx Contents
Process of Marketing Planning 105

Participation 105
Scheduling 105
Review 105
Monitoring 105
Summary 106
Power Points 106
Chapter 5 Marketing Research and Information Systems 108
Data and Information Key to Marketing Decisions 108
Marketing Research in Taking Marketing Decision 109
Marketing Research Process 111
Problem Definition 111
Statement of Research Objectives 114
Research Design 114
Sources of Data 115
Sampling Procedure 119
Data Collection 119
Data Analysis 131
Report and Presentation 132
Applications of Marketing Research—Some Examples 132
Retail Store Audit 132
Product Testing 133
Corporate Image Study 133
Marketing Intelligence System 133
Marketing Information Systems 135
Decision Making 137
Data Mining and Warehousing 138
Data Warehousing 138
Data Mining 139
Data Mining and CRM 140
Customer Relationship Management 140
Standard Life 141
Future Trends: Online Mining (OLM) and Web Mining (WM) 142
Big Data 142
Summary 143
Power Points 144
Chapter 6 Consumer Behaviour 146
Indian Consumer Market Likely to be World’s Largest Consumer Market by 2030 146
Indian Consumer Shaping the Market Opportunity 147
Myths About the Consumer 148
Buyer—An Enigma 150
Contents xxi
Online Buyer Behaviour 151

What Does the Customer Buy? 154
High Involvement Products 154
Low Involvement Products 155
Buying Situations 155
Buyer Motivations 156
Consumer Decision Making 161
Market Values Sought by Users 162
Market Values Sought by Decision Maker 163
Market Values Sought by Buyers 164
The Consumer Decision-making Process 164
Influences on Buyer Behaviour 168
Cultural Influences 168
Social Influence 170
Demographic Influences 171
Growth of Urbanisation in India 171
Self Concept 172
Psychographic Variables 173
Lifestyle 173
Personality 174
Tools to Study Buyer Behaviour 175
Surveys 175
Projective Techniques 175
Focus Group Discussions 175
Summary 176
Power Points 176
Chapter 7 Organisational Buying Behaviour 178
Vendor Development—The Case of Tata Motors 178
Introduction 179
How Does the Indian Industry Buy? 179
Value Maximisation in Organisational Purchase 181
Hierarchy of Customer Values 181
Organisational Buyer Versus Consumer 184
Factors Differentiating Organisational Buyer from a Household Buyer 184
Organisational Customer 186
Buying Centre 187
Buying Criterion 188
Decision Making Process 188
Buying Situations 189
Straight Rebuy 189
Modified Rebuy 190
New Task 190
Influences on Buying Decisions 190
xxii Contents
Impact of Technology on Organisational Purchase 192

Impact of ICT on Organisational Purchase Decisions 192
Summary 197
Power Points 198
Chapter 8 Segmenting and Targeting 200
Fastrack Creates a New Paradigm in Youth Fashions 200
Segmentation and its Need 201
Definition 201
Need for Segmentation 201
Basis for Segmentation 201
Bases for Segmenting the Market 201
Segmenting Industrial Markets 217
Requirements for Effective Segmentation 220
Three Stages of Market Segmentation 220
Requirements for Effective Segmentation 220
Targeting and Positioning Brand 221
Targeting and Positioning 221
Summary 224
Power Points 224
Chapter 9 Market Measurement and Demand Forecasting 226
Titan Uses Advance Planning System For Forecasting The Market Demand 226
Introduction 227
Key Terms in Forecasting 227
Markets to Study 227
Tools for Estimating Future Market Demand 230
Qualitative Tools 230
Quantitative Techniques 231
Tools for Estimating Current Demand 233
Market Potential Estimation 233
Territory Market Potential Estimation 233
Estimating Existing and Potential Customers 233
Industry Sales and Market Shares 234
Summary 235
Power Points 235
Section 3
CREATING OF CUSTOMER VALUE
Chapter 10 Product Management 239
Innovation in Product Design—The Case of Samsung 239
Significance of Innovations and Environmental Impact Analysis 240
Contents xxiii
Product Decisions 242

Product—Key Concepts 242
Product Life Cycle 253
Why Profits Peak Before Sales Do 254
PLC: Conditions and Strategies in Different Phases 256
Why Changes Occur in the Product Life Cycle 259
Locating Products or Brands in their Life Cycles 263
Emerging Issues in Product Policy 263
Adapting Products to Local Conditions 263
Threats from Duplication 264
Quality Improvement 265
Total Quality Management 267
Product Performance 268
Ethics in Product Marketing 268
Unethical Behaviour Towards Customers 268
Product Liability 269
Product Compatibility with the Environment 269
Summary 270
Power Points 270
Chapter 11 New Product Decisions 273
Tata’s Nano Car—A New Approach to Product Development 273
Indian Market and New Product Development 274
Lessons from New Product Introductions Post 2000 277
New Product 279
Factors Contributing to New Product Development 280
New Product Development Process 281
Stage I: Idea Generation 281
Stage II: Identifying Prospects and Defining Target Markets 285
Stage III: Concept Development and Testing 285
Stage IV: Feasibility Analysis 287
Stage V: Product Development 287
Stage VI: Test Marketing 291
Stage VII: Commercialisation 291
Branding Decisions 291
Manufacturer’s Brand Policy or National Brand Policy 292
Distributor’s or Store Brand Policy 293
Mixed Brand Policy 293
Positioning 293
Innovations and New Product Development 297
Sources of Innovation 298
Theory of Diffusion of an Innovation/New Product Idea 299
Innovators 299
Early Adopters 299
xxiv Contents
Early Majority and Late Majority 300

Laggards 300
Role of Opinion Leadership and Social Networks in New Product Diffusion 301
Organisation of New Products 301
Formation of Venture Groups 301
Marketing Department 301
R&D Department 302
Planning Department 302
Internet and New Product Development 302
Summary 303
Power Points 304
Chapter 12 Brand Management and Decisions 306
Managing Brands as Value Brand Assets 306
Brands Connection with the Customers 307
Factors in Brand Power 310
Brand Equity 311
Brand Valuation 311
Brand Loyalty 315
Brand Awareness 317
Brand Associations 318
Perceived Quality 319
Other Proprietary Assets 319
Brand Building Process 320
Brand Environment 320
Brand Vision 321
Brand Values 322
Brand Objectives 323
Brand Strategy 324
Implementation Plan 324
Power of Internet and Brand Management 329
Word-of-Mouth Publicity 329
Brand Archetypes 330
Summary 330
Power Points 331
Chapter 13 Customer Service 333
Creating Sustainable Value through Customer Service 333
Role and Significance of Customer Service in Corporate Strategy 334
Lessons from Service Leaders 334
Service Quality 336
Service Quality Parameters 336
Measurement of Service Quality 341
Contents xxv
Organisational Issues in Delivering Service Quality 341

Developing a Shared Service Vision 341
Planning for Service 342
Role Clarity and Empowering People 344
Customer Service and Satisfaction is a Result of Team Work 344
Performance Measurement and Reward Systems 344
Research 344
Training of People 344
Summary 344
Power Points 345
Chapter 14 Pricing Decisions 346
Strategies to Attract and Retain Price Sensitive Customer 346
Significance of Price in Marketing Decisions 348
Pricing Objectives of Different Firms 349
Maximise Current Profits and Return on Investment 349
Exploit Competitive Position 349
Survival in a Competitive Market 349
Balancing Price Over Product Line 350
Demand Estimation 350
Price Sensitivity 350
Pricing Decision Framework 352
Customer Demand 353
Costs 353
Corporate Objectives 355
Competitor Reactions 355
Government Policy 355
Barriers in the Industry 356
Pricing Methods and Procedures Used by Firms 356
Cost Oriented Method 356
Going Rate or ‘Follow the Crowd’ 357
Sealed Bid Pricing 357
Customer Oriented or Perceived Value Pricing 358
Pricing Strategies, Tactics, and Policies 359
Types of Pricing Strategies 360
Pricing Tactics 362
Ethics in Pricing Decisions 367
Consortium Pricing 367
Bid Rigging 368
Price Discrimination 368
Dumping 368
Summary 368
Power Points 369
xxvi Contents
Section 4
COMMUNICATION AND DELIVERANCE OF CUSTOMER VALUE
Chapter 15 Integrated Marketing Communications 373
Education Institutions also Need to Communicate 373
Introduction 374
Evolution of Integrated Marketing Communications 374
Factors Leading to Growth of IMC 374
Integrated Marketing Communication Process 375
Target Audience 375
Integrated Marketing Communication Models 377
Consumer Response and Integrated Communication Models 378
Communication/Presentation 380
Consumers Buy Images 385
Message Structure 391
Message Format 392
Source of the Message 392
Media Decisions 393
Measuring the Effectiveness of Marketing Communication 396
Elements of Marketing Communication 397
Elements of Marketing Communication Mix 397
Factors Guiding the Selection of a Promotion Mix 398
Integrated Marketing Planning Communication Process 398
Summary 400
Power Points 401
Chapter 16 Advertising Management 402
Advertising that Works 402
Advertising In Brand Building 403
Institutional Framework In Advertising 405
Advertising Agencies 407
The Media 409
Advertising Decisions 409
Advertising Objectives 409
Budget 412
Copy Decisions 414
Copy Testing 416
Purchase Behaviour 418
Media Selection 418
Total Number of Exposures (E) 421
Weighted Number of Exposures 421
Tools for Measuring Advertising Effectiveness 421
New Media of Advertising 422
Contents xxvii
Online Advertising 422

Mobile Advertising 422
Ethics in Advertising 423
Ethical Standards in Advertising 423
Summary 425
Power Points 426
Chapter 17 Sales Promotion and Public Relations 428
Push the Brand 428
Importance of Sales Promotion 429
Significance of Sales Promotion 430
Objectives of Sales Promotions 430
Trade Promotion 431
Sales Promotion and the Brand Life Cycle 433
Coordination Between Sales Promotion and Advertising and all Other Elements of
the Promotion Mix 433
Sales Promotion and Brand Image 433
Significance of Public Relations in Image Building 434
Public Relations 434
Tools of Public Relation 435
Publicity 435
Issues Management 435
Lobbying 436
Investor Relations 436
Public Relations Management Process 436
Stage 1: Define the PR Problem 436
Stage 2: Plan the Public Relations Problem 437
Stage 3: Execution 438
Stage 4: Evaluation 438
Conclusion 438
Summary 438
Power Points 439
Chapter 18 Managing the Sales Function 440
Selling Future Benefits 440
Challenges of Managing Sales Force 441
Role of a Sales Manager 442
Futurist 442
Strategist 442
Manager of Information 442
Leader of People 443
Sales Management Planning 443
Sales Budgets and Quotas 446
xxviii Contents
Manpower Planning 446

Organising the Sales Effort 448
Product Based 448
Territory Form 448
Sales Force Motivation 449
Monetary Compensation Plans 450
Control 451
Role of the Sales Person 452
Diagnostic 453
Analyst 453
Information Provider 453
Strategist 453
Tactician 453
Change Agent 454
Selling Theories 454
Stimulus Response Theory 454
Product Oriented Selling 455
Need Satisfaction Theory 456
Summary 457
Power Points 457
Chapter 19 Managing the Distribution Function 460
Pushing the Brand Across Geographies and Segments 460
Introduction 461
Role of the Intermediaries 461
The New Role of Intermediaries 462
Factors Influencing Distribution Decisions 467
Determining Length of Distribution Channel 467
Factors Influencing Distribution Decisions 468
Evaluation of Channel Alternatives 472
Evolution of Channels 472
Channel Management 475
Channel Conflict 476
Motivating Channel Members 478
Planning a Market Driven Distribution System 479
Steps Involved in Designing Market Driven Distribution 479
Logistic Management 480
Traditional Logistics Management Approach versus Supply Chain Management 481
Logistics Decisions 482
Third Party Logistics—An Emerging Alternative 483
Summary 484
Power Points 485
Contents xxix
Chapter 20 Retail Management 487

Indian Farmers’ Mall 487
Introduction 488
Drivers of Growth in Retailing Industry 490
Strategic Decision in Retail 490
Location Decision 490
Target Market Selection 491
Business Model 494
Merchandise Mix 495
Positioning the Retail Store 496
Wheel of Retailing 496
Why Wheel of Retailing? 497
Contemporary Challenges in Retail Industry 499
Non-store Retailers 499
Customer Service 500
Promotion Decision 500
Global Retailing 500
Information Technology and Retailing 501
Emergence of Global Retailing 501
Summary 502
Power Points 502
Chapter 21 Direct Marketing 505
Amway Alters Customer Experience 505
Direct Marketing 506
What is Direct Marketing 507
Database Development 508
Direct Marketing Mix 509
Communication Programme 509
Timing and Sequencing 510
Direct Marketing Model 510
How Does Direct Marketing Work? 510
Future of Direct Marketing In India 511
Reaching Out to Non-metro/Non-urban Markets 511
Enhancing Credibility of the Offer 511
Wider use of Debit and Credit Card 512
Emergence of Specialised Database Firms 512
Summary 512
Power Points 512
xxx Contents
Section 5
CREATING SUSTAINABLE COMPETITIVE VALUE AND GROWTH
Chapter 22 Marketing Strategy 517
Coca Cola Reinvents Itself to Stay Relevant 517
Introduction 518
Innovations and Market Share 519
Changes in the Marketing Process 519
Strategic Orientation in Marketing 521
Understanding Markets 522
Finding Market Niches 522
Product and Service Planning 522
Distribution 523
Managing for Results 524
Routes to Value Added Marketing Strategy (VAMS) 525
Segmentation 525
Mass Customisation 526
Value Addition 527
Marketing Strategy Model 531
Product Market Fit 531
Experience Marketing 534
How can a Firm Create this Experience? 535
Competition Oriented Marketing Strategies 537
Value Chain Analysis 538
Cost Leadership 540
Differentiation 541
Focus 543
Innovation Strategies 544
How Can a Firm Create Value Innovation? 545
Principles of Marketing Warfare 545
Defensive Warfare 545
Offensive Warfare 546
Flanking Warfare 547
Guerilla Warfare 547
Summary 548
Power Points 548
Chapter 23 Customer Relationship Management 550
Complaint Management—A Tool to Customer Loyalty 550
Introduction 551
Contents xxxi
Customer Loyalty as a Goal 552

Return on Customer Segment/Account as a Goal 554
Loyalty Development 554
Customer Relationship Management Process 557
Data Mining and Warehousing 557
Organisational Structure 558
Technology 559
People 560
Measuring Customer Relationship Management 560
Balanced Score Card 561
Catalytic Measure 561
Summary 562
Power Points 562
Chapter 24 Marketing Organisation 564
L’Oréal Stays Ahead of Competition Through Innovation 564
Contemporary Economic Developments Impacting Marketing Organisation 565
Outsourcing of Marketing Operations 565
Franchising Brands 565
Networked Organisation 565
Relationship Management 567
Internal Marketing 567
Global Marketing 568
Issues in Marketing Organisation Structure 568
Goals and Focus of the Strategy 568
Key Competencies 569
Controls 569
Integrating Customers 570
Characteristics of Innovative Organisation 570
Approaches to Organisational Structuring 572
Functional Organisation 573
Territorialisation 574
Matrix Form 574
Contingency Theory 575
Summary 578
Power Points 578
Chapter 25 Marketing Performance and Control 582
The Right Ingredients of Performance—For the Great Taste of Success 582
Introduction 583
Marketing Strategy And Implementation 583
Leadership 584
xxxii Contents
Framework for Cultural Change 584

Overcoming Implementation Problems 585
What to Measure in Marketing? 585
Tools of Measuring Marketing Performance 588
Annual Plan Control 588
Profitability Control 590
Efficiency Control 592
Strategic Control 593
Summary 594
Power Points 594
Section 6
BROADENING HORIZONS
Chapter 26 Global Marketing 599
Making of an Indian Global Company—The case of Dr. Reddy’s Laboratories 599
Introduction 600
Rationale and Implications of Globalisation 601
Rationale for Globalisation 601
Implications of Globalisation 603
Firm Orientation 604
Ethnocentric Orientation (E) 604
Polycentric Orientation (P) 605
Regiocentricism Orientation (R) 605
Geocentric Orientation (G) 606
Principal Driving Force in Global Marketing 606
Key Decisions in Global Marketing 607
Parameters 607
Decision Making for Global Marketing 609
Product Strategy for Global Markets 612
Rise of Global Giants from Emerging Economies 615
Understanding the Growth of Emerging Markets’ Global Firms 615
Organising for Global Marketing 617
The Role and Impact of ICT on Global Marketing 617
Summary 617
Power Points 618
Chapter 27 Service Marketing 620
Flying People . . . so the Sky’s the Limit 620
Scope and Paradigms in Services Marketing 622
What is Included in Services Marketing? 622
Paradigms in Services Marketing 624
Contents xxxiii
Characteristics of Service Marketing 629

Intangibility 629
Low Price Sensitivity 630
No Inventory 630
Value Creation Process 631
Tangibility 631
Customer Expectations and Zone of Tolerance 631
Understanding Customer Expectations and Zone of Tolerance 631
Role of Service Employees 633
Role of the Customer 634
Segmentation and Zone of Tolerance 634
Services Marketing Mix 635
Augmented Marketing Mix 635
Product Planning 636
Pricing Strategies 639
Distribution 640
Role of Communication 641
Summary 641
Power Points 642
Chapter 28 Rural Marketing 644
Technology in Rural Markets 644
Introduction 645
Importance of Rural Markets 645
Increasing Competition in Urban Markets 645
Socioeconomic Changes in Rural India 645
Information Technology Reaches Rural India 646
Income Generation through Self-Help Groups 647
Access More Important Than Ownership 647
Facts About Rural Markets 648
Size of the Rural Market 648
Rural Consumer 649
Myths about Rural Market 649
Education Profile 651
Low Income Levels 652
Occupations 652
Reference Groups 652
Media Habits 653
Brand Conscious Customer 653
Value for Money 653
Understanding the Rural Consumers 654
Marketing Mix for the Rural Markets 654
Product Decisions 654
xxxiv Contents
Pricing Decision 657

Promotion Decisions 657
Distribution 657
Relationship Management 658
Summary 659
Power Points 659
Section 7
CASES
Case 1 Nano—A Dream Car For The Poor 663
Case 2 Jaago Re! One Billion People 680
Case 3 Fabindia—Fabric of India 690
Case 4 Staying Hearty and Healthy—The Saffola Way 699
Endnotes 711
References 717
Bibliography 725
Author Index 811
Company Index 812
Subject Index 815
CHAPTER
MARKETING
MANAGEMENT TODAY
1
LEARNING OBJECTIVES
LO1 Explain the changing Indian market and innovation challenges
LO2 Describe the new marketing concepts and the significance of social networks in the
Great Indian Market
LO3 Distinguish between types of orientations prevalent in organisations
LO4 Describe the evolution of the contemporary marketing process
LO5 Explain the purpose of marketing
LO6 Interpret the concept of marketing mix and its relevance in competitive advantage
LO7 Explain new marketing horizons
In Practice
Tata Shows The Way
In the fast changing world of ours, consumers continuously want improved products at lower
prices at their doorsteps. It is here that innovation plays a significant role and can provide to
the firm the desired competitive advantage. Innovation often leads to redesigning the market
strategy.
In the last decade, Tata Group has been at the forefront of innovations and customisation of
products and services for the Indian market. Whether it was the micro-commercial vehicle like
Tata Ace or Tata Nano, the group has shown that India responds to innovative solutions which
are customised to the needs of the market.
One such example from the Tata Group is that of introduction of Swach—water purifier. The
story goes that in early 2000 scientists in Tata Consultancy Service (TCS), Material Sciences Labora-
tory in Pune discovered the purification property of rice husk ash which could be used for purify-
ing water. This development did not find any takers, until 2004 when Tsunami hit Southern India
2 Marketing Management
and TCS quickly made filters from the rice husk ash, put it in a shell and distributed it in the
affected areas. The filter held back 85% of impurities but did not kill all bacteria. The challenge
was to design it in such a way as to remove all impurities. Scientists at Tata Chemical Innovations
Centre advised use of nanotechnology with rice husk ash to kill bacteria. Titan industries, with
its precision engineering skills, made the filter switch stop working on its own once its life was
over. Thus, was born Swach—the world’s cheapest water purifier which costs less than `1000.
It has today caught the attention of the market as consumers both in urban and rural India have
started using it. By introducing water purifier at less than `1000 Tata yet again created product
category and a history. Soon Hindustan Unilever also introduced similar products and many oth-
ers also followed suite.
Innovations today are driving the renewal and growth of Tata Group. The Tata Group has
interests in diverse areas like Automobile, Information Technology, Steel, Chemicals, Hotel,
Jewellery, Watches, Telecom, Real Estate, Tea and Coffee, and Fertilizers and Pharmaceuticals.
Continuous efforts are being made today to nurture innovative ideas and create the right culture
for innovations.
THE GREAT INDIAN MARKET
LO1 Indian market offers biggest opportunity to any marketer. It is an oppor-

Explain the changing tunity for global, national, regional and even local brands. It is a market
Indian market and that simultaneously provides an attractive opportunity for premium and
innovation challenges economy brands. There are very few markets in the world that would pro-
vide such significant opportunities in each segment and product category.
Consider the example of toiletries category in the fast moving consumer goods (FMCG) industry. The
Indian market is not just for premium brands like Dove, Pears or other similar handcrafted toilet soaps
marketed by stores like Fabindia or other natural product company like Body Shop, it is also a huge
market for brands like Lifebuoy, Dettol and Nirma. Also within this category, there is a market for all
product forms in each brand be it a bar, liquid or gel. What makes this market an amazing opportunity
is the demography of Indian population. Let us consider some of major trends that make marketing in
India an interesting and exciting opportunity.
1. India is a young market: India today is primarily a young market, with almost about 550 million
consumers being in the 15 plus age group. To this has to be added 150 million consumers who
are still below the poverty line. The median age of India today is 24 years. From the perspective
of biological age, India is a young market but more important today is the youthful attitude of a
bracket of 50 years and more also considering themselves as youthful and buying brands and
products which would typically be positioned earlier for relatively younger age group (15–40
years) consumers. Brands like Fastrack or Titan Eye target the 40 plus consumers with the young
Marketing Management Today 3
-
ket. For example brands like Fastrack are estimated at a value of `500 cr and continue to grow
at a rate of 25%. The Denim market is valued at `
Chopra—Jab Tak Hai Jaan—was targeted at such youthful attitude which does not necessarily
belong to only one age group. What is required is to avoid stereotyping and creating archetypes
of consumers.
Today, market is an opportunity not only for consumer goods but also for services like educa-
tion. Over the last one decade, India has witnessed an explosion in the higher education sector
with the private sector professional colleges and Universities accounting for the largest share.
2. The 2nd and may be 3rd innings market: The opening up of the Indian market to global brands
and Indian entrepreneurship created opportunities for almost all individuals who were in the
age group of 45 plus and in some cases even 60 plus. This is a generation that is born in post-
independence India and has struggled through their early years in life for education, employment
and to improve quality of life. However, the last one decade created huge opportunities for many
to grow professionally and economically. One of the key desires of this group is to defy their age
and just feel young. A large number of products and brands today target such individuals. Be it
the hair colour, anti-ageing cream, laser treatments, bond style suits, credit cards and even the
automobiles or holiday resorts. For most consumers, especially in the middle and higher income
category, retiring rich is now more a norm rather than an exception. No wonder products are be-
ing designed for all such `seniors’. Some of the best examples are the tours organised by several
agents exclusively for seniors. These tours are not just for pilgrimage but even to some of the most
sought after destinations in the world like Switzerland, Europe or Niagara Falls, etc. Second home
in complexes only for senior citizens are also being designed by several builders near Mumbai,
Gurgaon, Hyderabad and other major cities in the country. One of the major players in this is LIC.
would prevent any accident. Doctor on call, special gyms, club, walking tracks, library, etc., are
this group, which is increasingly becoming tech savvy can communicate with their children and
grandchildren. Similarly, there are pension funds and now even the health schemes that have been
launched for the age group of 60 plus. Hence, it is far more convenient for the ‘seniors’ in India.
3. The emergence of middle class: India today is a growing middle class market. Based on the
class comprises of households whose annual income ranges between `3,40,000 and `1,700,000.
All households with an annual income of less than `1,50,000 are considered as ‘deprived’ or
below poverty line or the poor market. Households with income of `150,000 to `340,000 are
considered as ‘aspirers’ or those in the lower income group category. All those who have an
annual income of `17 lakhs and above are considered as rich and those with an income of `1
crore, as superrich. It is estimated that by 2025 almost about 50% of the Indian market will be
the middle class market and 30% will be the rich market. It is however, estimated that by 2025,
percent of despondent household or poor will decline to about less than 10% of the total number
of households and so would the aspirers whose number would decline from 38% in 2010 to 18%
of the total households in 2050.
-
ership of large category of assets ranging from homes, cars and air conditioners. It is a group
which is today the harbinger of change and most prominently visible on the Facebook, LinkedIn,
WhatsApp, etc. It is this segment whose imagination was captured by activists like Anna Hazare,
6. Urbanisation: Increasingly, population is moving from rural to urban areas. It has been estimated
that by 2031 close to 600 million people out of 1470 million will live in urban areas. This would
account for 40% of total population.
This population will account for almost 69% of India’s urban Gross Domestic Product
Technopak, etc. have pointed to the growth of not just the metro cities but also other cities in
India. This growing trend has led to development of new townships like Lavasa developed by
Hindustan Constructions Co., and Amby Valley by Sahara near Lonavala in Maharashtra and DLF
city in Gurgaon are the examples of new townships that have been developed post 2000. Mumbai
suburbs and suburban areas of all metros have grown in size. Many of these suburban areas today
house about one million people and hence have emerged as mini cities within the large ‘metro
city’.
7. Technology dominance: It is estimated that over 300 million people in India will have internet
connectivity in 2016 as opposed to 32 million people who had access to internet in 2006. Like-
wise number of smartphone users will drastically shoot up from 2 million in 2006 to 178 million
in 2016. Only 9 million people had access to Doordarshan Television in 2006 but it grew to 200
million in 2013. Digital TV alone will be owned by 364 million people in 2016. The number of
laptops and notebooks will grow to 61 million in 2016 from 2 million in 2006.
-
affordable products and make them accessible to the average Indian consumer. Hence, India is
shopper’s paradise and a dream turn reality for innovative marketers.
Issues and Challenges in Marketing in India

High Volatility in Market Indian market has become highly volatile. Though over last five
years there has been an exponential growth in demand for all products and services, the later part of
2008 suddenly saw demand for products and services declining. Volatility in prices was also one of the
visible phenomena of 2008. Market forecasting therefore has increasingly become a challenge for the
marketer. The definition of long and short term seem to have also undergone a change. In such a situa-
tion, marketing planning becomes more complex and difficult. Managing inventories in the distribution
channels in short term is yet another significant challenge of volatile markets.
Diversity and Convergence As mentioned earlier, Indian market is a highly diverse one. This
regional disparities, as also religion today makes the market interesting and highly challenging. But
there is also a convergence among all segments of the market. This convergence is on account of con-
sumption values. For example the value of convenience, clarity of voice and no call drop are values
that all customers seek in a cell phone connection. But price and features of the handset and services
change according to segment. The implication of this diversity is that the marketer has to now neces-
sarily enhance the depth of his product mix and distribution. Any large retail store will show the depth
of product mix carried by any company—be it consumer durables, non-durables or services. Not only
this, the marketer has to now make his offer available with multiple price options thereby giving the
customer choice. All this certainly creates more complexity in planning, strategy and execution.
Catering to the Affluent There is now a growing segment of affluent customers. This made
Hindustan Times organise the first ever conference on luxury, which was attended by the world’s top de-
signers, producers and marketers like Cartier, Jimmy Choo, Gucci, Villa Moda, Taj Hotels Ermenegildo.
-
terialistic aspect. It is both emotional as also experiential. Catering to this segment requires creating an
aspirational, emotional and experiential platform. Not only this it requires the marketer to continuously
innovate on product design and upgrade the product. Consider an example from the colour television
market. From the conventional television offered at a low end price of `6,000, the leading manufactur-
ers like Sony, Samsung, LG, Videocon and Onida offer LCD (liquid crystal displays) televisions priced
at the high of `1,50,000. The same is true for refrigerators, cell phones, hotels and holiday resorts and
even health care. New symbols of affluence today are common in any city and its shopping areas.
Exhibitionism of wealth is rampant through indulgence in platinum and diamond jewellery, diamond
studded watches, Mont Blanc pens and other accessories etc. Each of these are marketed through aspi-
rational and experiential marketing plan.
Poor Markets Also Need Marketing As we mentioned earlier the poor is a very important
market segment, which today no marketer can ignore. The poor customer does not exist in rural areas
alone. There are urban poor too. Hence, while evolving a marketing plan to penetrate this market, one
should not ignore urban poverty. The poor, according to the most commonly accepted definition, are
all those whose spend upto US $1 on the basis of PPP—i.e. purchasing power parity—per person per
day on consumption expenditure. Accordingly, 35% of Indian population fell in this group.
The challenge therefore lies in not only adapting the marketing programme to this segment but also
in innovation for this market. Several companies like Amul, ITC’s e-chaupal and chaupal sagars and
low price budget airlines offering air travel at low base prices less than `100 are just some commonly
airconditioned trains for this market where the fare was almost half of the normal fare. Branded as Garib
Rath (vehicle for the poor), it today runs on all major routes having almost the same running time as
that of the regular train. Likewise Tatas and all other auto majors including Nissan are all set to launch
a car at a price band of `1 lakh (Òne hundred thousand) to `1.20 lakhs (` One hundred and twenty
thousand).
Another challenge in the market is to create means for consumption. Funding for this consumption
is being arranged through self help groups and micro finance in this segment.
Significance of Rural Markets as an Important Consumption Centre Though ur-
banisation is growing, still 70% of population lives in rural India which accounts for 56% of the national
income and 64% of the total expenditure. One-third of the savings of the country are from rural India.
The rural economy is not just an agrarian economy. Several other occupations are also visible including
the services sector. Today, this segment is witnessing increased incomes, growing demand for education
and the advent of technology and global brands. Marketers are increasingly looking at tapping the rural
consumers as this is one major market opportunity which no firm can afford to ignore. The size of the
rural economy has been estimated at `16,000 billion in 2012–13. This market therefore has been ex-
do not have a cash fund problem but have cash-flow problem. Cash with rural consumers is a function
of their crop cycle. This group of consumers is not homogeneous. They are highly fragmented. Despite
such fragmentation rural market accounts for a very large percent of consumer goods consumption.
It is perhaps one of the largest markets for two wheelers. The reach of satellite television is today far
and wide having reached an average household even in rural markets. Advertisements, TV serials and
films are today changing the aspirations of not just the urban consumers but also the rural consumers.
These rural consumers are today the buyers of cosmetics, cell phones, garments including denim jeans,
Changing Consumption Values 2009 created speed breakers in the Indian consumption story.
Increasing job uncertainty, following slowdown of the domestic and world economy contributed to
reduction in demand. Consumer was now far more careful in spending money then he/she was prior
to 2008. The Indian consumer was now exercising a greater financial prudence, was spending wisely,
looking for deals and discounts cutting back and deferring purchase of products and services. The In-
dian consumer was now looking for luxury and premium products at lower price. No wonder, several
top end luxury products and high-end jewellery were now available at a lower price. For example,
brands like Tanishq, Gili, Nakshatra and others launched a range of light weight jewellery items at lower
prices, without compromising on quality and style. This consumer is now looking for individualised
products and endorsements from friends and expert advisers and information on search engines like
Google. Travel portals like TripAdvisor or Expedia offer such information on holiday resorts and hotels.
Consumers talk to each other. Today consumer voice plays a significant role in enhancing the
demand for a particular brand or service. As mentioned above, portals like TripAdvisor are very com-
monly looked at before the consumer decides to buy a holiday at a particular resort. Interestingly,
perhaps the consumer does not even know personally the individual posting the comment but he or she
is likely to believe this comment much more than the marketer’s claim. Consumer network therefore
is an important reality in the modern market.
It is now in this context one has to consider the contemporary challenges of marketing before even
going to the basics in marketing.
Engaging Customer 24x7 As was mentioned earlier technology to day makes it possible to
engage the customer 24x7. This is an important challenge keeping in view the fact that the average
attention span of a customer has decreased. This is especially so because of competition. The noise
in the media and distribution outlets is loud and often it is difficult to decipher what the marketer is
seeking to communicate. Just visit the nearest mall and observe what and how loud is this cacophony.
Not to forget the plethora of communication through television, radio channels, outdoor advertising
and print media. Engaging customer attention through all possible channels is required today. Creativ-
ity, respecting customer’s right to privacy and creating an emotional experience are fundamental to
customer acquisition and retention.
Consumer Communities Increasingly one can witness citizen groups coming together for rais-
ing their voice on social issues like rape, corruption, child abuse, etc. Technology today is one of the
biggest facilitators in the growth of consumer communities. Social networks, like Facebook, LinkedIn,
Twitter, Blogs, SMSs and WhatsApp, yahoo messenger, Google Talk are some of the technology tools
which are being used not just to communicate but also to bring flash mobs on the streets. This is not
just restricted to metro cities. Many firms and brands use these mediums to connect with these com-
munities which are principally young communities. Many of the brands today invite consumers to share
their experiences on Facebook or follow them on Twitter or on the blog. As mentioned earlier, many
of these consumers are today in their teens and twenties. Typically these social networks provide an
identity to the members. For example in actual life an individual consumer may be highly compliant,
introvert, and avoiding flamboyance, the social network image of this individual may be just opposite.
Exhibit 1.1 The Power of Facebook

Bollywood has been the active users of the social Likewise, India Against Corruption is a move-
networking platform. Many films today have Face- ment of Indian citizens led by Anna Hazare. This
book pages. Through these pages they connect movement today gained a significant traction largely
with the target customers. The latest development because it used Facebook and Twitter. The Face-
inspired by Hrithik Roshan, starring, Krrish 3 are book page of India Against Corruption had about
the special emoticons on Facebook. Hrithik Roshan 1.2 million viewers liking and following it. The
fans can download Krrish 3 emoticons in the chat Facebook page of this movement is today most
windows for free. commonly visited primarily by young consumers.
The producer hoped to create a viral community
of Krrish 3 fans even before the film was launched
in November 2013.
Enhancing Access A major problem of Indian market has been that access to products and ser-
vices was restricted mainly due to infrastructure constraints and lack of distribution network. Today
given the power of information and communication technology, it is possible to reach out to smaller
markets and customers even in the remotest area of the country. Outsourcing further enables firms to
overcome the access problem. For example universities and management schools today have multiple
campuses and use a range of internet technologies to reach out to their target markets. Pathological
-
lection agents across India to collect blood samples and send them to their authorised centres for test.
banking and other services and consumer products. Hence the marketer has to use technology, direct
marketing and network marketing to overcome access problems.
Price and Value Major Determinants in Consumption Behaviour Price is an im-
portant input in the consumer decision. But what is far more important is the value in the offer. Let us
consider the case of buying a direct to home connection (DTH) requiring the customer to either buy a
satellite dish or a desk top box for viewing television programmes. There are multiple players in satellite
dish marketing. Dominant ones are Tata (brand name Tata Sky) and Zee (DishTV). Let us assume the
name of this customer is Shashank. After seeing the ads of both Tata Sky and Zee’s DishTV, Shashank
decides to call the toll free number of Tata Sky to get details on the satellite dish. He is informed by
the customer service that he would have to call the marketing agent of the company whose telephone
number was provided to him by this call centre. When he called the marketing agent, it turned out that
the number had changed and that the call centre was not aware. Next he called a telephone number
of an agent who had sent his flyer but he was again directed to a local electronics dealer. Tired of this
search, he walked into another electronic store next to his house which sported the hoarding of Zee
DishTV. The dealer gave him a good service and sold him the DishTV at a price lower than Tata Sky.
Here if one were to examine this case, one would observe that value of service was important to price in
Shashank’s choice. This value was from convenient location of the store, ready availability of the prod-
uct, immediate installation and commissioning of the DishTV—all this at a price lower than Tata Sky.
Likewise similar instances are there in rural telephony, cellular phones and other products and services.
The marketer will have to continuously examine how to create value and retain the competitive
advantage.
New Icons Given the fact that the customer today is empowered with more information about
brands and their ambassadors, brands have a much bigger task cut out for them. For example they have
to manage their credibility on an ongoing basis. They cannot afford to sit on their laurels earned in the
past. Any adverse news about them in some media vehicle can impact their image. For example, the
land controversy surrounding Amitabh Bachchan impacted his image and perhaps his credibility as
brand ambassador. When the Indian cricket team lost badly in the 2007 World Cup, almost all brands
withdrew their contracts with Sourav Ganguly, Sachin Tendulkar and others in the team. The advertising
rates on World Cup telecast also declined. New icons therefore need not be celebrities. But they need
to be credible. An Indian idol today is young with a carefree attitude, assertive, confident, adventurous,
not bound by conventional thinking and a highly performance-centric individual.
Indian Global Brands The era of Indian global brands has arrived. Whether it is Arcelor Mittal
Kitchens of India or IITs and IIMs, Indian brands are now making waves in the world market. Though
all these brands have a long way to go to be Coca Cola or Microsoft, they are now redefining the mar-
keting rules in their product category in foreign markets. Thus a major challenge for the marketer is to
create strong Indian global brands.
Environment Sensitivity More and more products and services are going to turn green. Delhi’s
public transport system today has gone green. Samsung and others market their refrigerators as environ-
mentally safe. Hotels like Leela, Orchid and Taj claim they provide services which are environmentally
safe. All this has implications for product design and communication.
Word-of-mouth a Stronger Influence in Adoption Social channels play a significant role
in product diffusion and adoption in all markets but much more in the Indian market which is high on
social networking. The classical case is that of Biotique products which have never been advertised.
star hotel guest rooms. Frequented by the opinion leaders and affluent customers, it did not take long
for these products to enter their homes and through them to others. Likewise there are several websites
like buyandselloldbooks.com, mouthshut.com which have never used the high cost media to advertise.
Hence the challenge for the marketer is to identify the right opinion leaders and get them to try the
product. For this, new channels of marketing will have to be explored.
Need for Innovation Innovation is no more now an option. It is critical for companies to in-
novate for survival and growth. Large emerging markets like India present challenges which require
both incremental and breakthrough innovations. While it is a known fact that innovation is the key
differentiator determining a winner, the key question in large markets like India is what kind of innova-
tions succeed? We have recently seen a range of innovative products from Tata Group like Nano car,
Ace Micro Commercial Vehicle and Swach water purifier at a price of less than `1000, likewise, sev-
eral FMCG companies have innovated product and to introduced brands at a low price points. Adidas
Videocon introduced washing machine without a drier thereby offering the machine at a lower price.
Philip launched a low cost smokeless stove for the rural markets. Similarly, LG Electronics customised
one of their television models ‘Sumpurnna’ with low intensity signals. Innovation therefore, in large
markets like India is about creating frugal product or developing affordable simple solution to mediate
problems that beset everyday life of an Indian consumer. It is about ‘Jugaad’ innovations. ‘Jugaad’ is
an emergent phenomena and not a planned activity. It represents a bottom up innovation model. Unlike,
the structured innovative approach adopted by the Western multinationals, Jugaad innovations are about
flexibility, involvement of the community and not a highly resource intensive strategy.
In order to pursue the innovative path, the firm needs to develop consumer insights. For this, it is
important to study not just the existing product or service but also consider non-consumers and the
reasons for their non-consumption. Opportunity lies in this very large segment of non-consumers. For
this, firms have to not only carry out research in the market but also conduct ethnographic studies. Also
the management mindset has to be one of living the life of a consumer or a non-consumer to understand
the opportunities for either a new product development or a process improvement. Markets like India
are characterised by four major infirmities or gaps. These relate to: infrastructure, regulation, perfor-
mance and unique customer preferences which resist global brand’s intent to export its own product
configuration or mix. Let us consider some of these infirmities. Infrastructure gap is a reality. Unlike,
the rich and developed markets of the US or Europe characterised by fully built infrastructure and
even in some cases surplus infrastructure. Indian markets are characterised by poor infrastructure and
of the well-known sectors in which we witness shortages and poor quality. Indian telecom industry is a
classic example of how firms leapfrogged and bypassed the infrastructure gaps by adopting the wireless
technology. Today, cellular phones have helped in penetrating the Indian markets even in remote and
inaccessible areas. From the perspective of regulation, the laws in most cases are not yet well defined
and rigid as in the West. Hence, it is easier for new products to pass through regulatory hurdles. Many
of the products are easily accessible to a customer across a counter. Consider for example the diagnostic
services. Many a times the clinical lab performs the diagnostic without insisting a doctor’s prescription.
Likewise many drugs are sold with a physician’s prescription. From the point of view of performance,
customers in emerging market may be willing to accept low performance provided they do not have to
pay a premium price. At times, the customer may want the performance of the product to be the same
but is not willing to pay a premium price for a premium brand. In such case, the firm has to innovate
on packaging to make its brand available at a lower price. Sachets and small 5 or 10 gm packaging in
toiletries, for example, has led to deeper penetration of shampoo, hair oil, bathing soap or toothpaste.
Companies like Hindustan Unilever, Calvin Klein, Dabur, and Marico gained by innovating on unit
packaging and making the product available at a price which even low income consumer can afford.
Markets in India are characterised by strong preferences. Many of these preferences are regional
and at times even very strongly community linked. For example the consumer in the North has a strong
preference for paneer (cottage cheese) but the same is not true down South. Even the snacking habits
differ. Hence innovation efforts must take these differences into account. Pepsi is one multinational firm
that best understood this diversity in taste. Its brand Kurkure and Lays Chips respond to these Indian
preferences. McDonalds also understood the significance of these preferences and created for Indian
market chicken and vegetable burger, Aloo Tikki burger, etc. KFC worldwide sells only fried chicken
which is reflected in its name Kentucky fried chicken. But KFC in India also sell vegetarian burger and
has several other vegetarian options. The global positioning of KFC and many other such consumer
brands stands questioned in large Indian market.
Hence, innovations in Indian markets require firms to start from the scratch and forgo the tempta-
tion of making cosmetic changes in the marketing offer. Innovations in products and processes which
start from the scratch is termed reverse innovation. These reverse innovations have the potential to
impact global markets as many have the potential to migrate from poor to rich countries as reflected
by GE, portable ultrascanner V-scan example. Introduced and developed by GE in 2010, V-scan is a
cell phone size imaging device based on ultrasound which is powered by a battery. Though the product
was launched in China in 2002, very soon GE also saw the opportunity to extend the market to coun-
tries like India which had the problem of non-availability of qualified doctors in rural areas. Many of
the clinics in rural areas lacked sophisticated equipment. However, paramedics could use this portable
ultrasound machine for ultrasound imaging in ambulances and remote accident sites. Doctors could
use it in emergency rooms and even in the operating rooms. Based on India and China experience, GE
introduced this portable ultrasound machine in the US market for medical emergency and trauma cases.
Hence, the great Indian marketplace offers opportunities to firms to innovate and gain profits from
such efforts.
MARKETING AS A CONCEPT
LO2 In the context of these developments in India, it is necessary to understand

Describe the new the role marketing plays. For this purpose it is necessary to first understand
marketing concepts the concept of marketing which has three dimensions as outlined below:
and the significance of (a) Customer orientation
social networks in the (b) Competition orientation
Great Indian Market (c) Ability to respond to environmental changes
Marketing means
Ability to respond to environmental changes (changes in consumer needs, understanding and responding
competition, government policy, technology, etc.) before competition does. to customer needs.
Marketing Orientation and How Can it be Employed in Organisations

A look at successful marketing organisations in India and abroad leads us to conclude that marketing
orientation involves a six dimensional approach.
Consumer Orientation Successful marketing companies continuously monitor customer needs,
wants and preferences. Unfulfilled consumer needs drive their new product development efforts as
shown in the example of Asian Paints.
Integrated Approach to Exploiting Market Opportunities Successful marketing com-
panies integrate all elements of the marketing mix, not merely advertising and selling, into a sound
business plan that could help them to effectively fight competition. Take, for example, the launch of
and subsequent rage for Maggi noodles all over India. The company (Food Specialities Limited.) un-
derstood customer needs and also effectively serviced it by adopting an integrated marketing mix.
Lipton also launched (almost at the same time) macaroni and noodles with an intensive promotion
campaign, but failed. Marketing orientation involves a very high degree of preoccupation with the
quality of the product. Companies like Hindustan Lever, Procter and Gamble (P&G), Godrej, Johnson
and Johnson, Asian Paints have one thing in common—their passion for premium quality products.
Their marketing mix emphasises product quality as an important element of their marketing plan.
Futuristic Approach The above companies look at money spent on mar-
A successful marketing
keting not as an expenditure but as an investment. In other words, they do not
strategy integrates all
elements of marketing mix
from a three to five year perspective and hence look at maximising their returns into a sound business plan
from advertising campaigns or tactical price reductions over these years rather that could effectively fight
than in just one year. This aspect seems to be ignored by many companies. They competition.
are still not prepared to invest in market share development activities and per-
ceive any advertising campaign or price reduction as a marketing expenditure.
Highly Developed Marketing Systems Successful marketing companies have highly devel-
oped marketing systems that act as market barometers. All major marketing decisions are taken on the
basis of market information emerging from these systems. Test marketing is used effectively for making
any change in the marketing mix. Some of the more commonly used systems in these organisations
can use for enhancing their overall effectiveness, new product development and marketing strategies.
Marketing Culture Companies on the path of success have an important characteristic, that
is, in these organisations everybody, from the chief executive to the lowest level, is market oriented.
The customer is given key importance and, accordingly, his interests override organisational interests.
The entrepreneurial spirit soars high and people are encouraged to try new ideas. These service stand-
ards governed Windsor Manor’s products and quality of service. To ensure compliance with these
standards, Windsor Manor even communicated the penalty it would pay to the customer in the event
of standards not being met. This was the first organisation in the hospitality industry to set up and
communicate service standards to the customer. Soon after, these service standards became the norm
in the service industry.
Speed Another important aspect of customer orientation is the speed at which customer’s prob-
lems are resolved. Increasingly, this facet determines the competitive advantage of organisations.
Given today’s interactive technologies, including toll free phones and call centres, companies now
realise that their competitive advantage is determined by their speed of response. Institutions like
Standard Chartered Bank, HDFC Bank and ICICI Bank see their survival hinging on this particular
aspect.
TYPES OF ORIENTATIONS PREVALENT IN ORGANISATIONS
LO3 Marketing Orientation vis-a-vis Selling Orientation

Distinguish between The selling approach is more transaction based and aims at maximisation
types of orientations in the short term. As opposed to this, the marketing approach emphasises
prevalent in customer management, customised approach to winning and retaining the
organisations customer, and hence, focuses on building profits over a long term. The
selling approach, generally, undermines research. It is more intuitive. It
works well in markets that are less complex, in the sense that competition is
low and customers have very little choice. It works on the mass marketing ap- Selling approach is more
transaction-based, aims at
proach wherein customer needs are aggregated. This is opposed to the market- maximising in short term, is
ing approach which is linked the basic premise that each customer is different more intuitive and works on
and hence needs to be approached differently. Also, given the exorbitant cost mass marketing approach.
of reaching each customer, it is possible to group them according to common
measurable and definable parameters and hence create segments. Thus, the customer is the focal point
of the marketing orientation.
Marketing orientation is different from selling orientation, which tends to dominate many Indian
companies. The classic example is that of the Indian automobile industry. Until Maruti was launched
in 1984, the two giants—Hindustan Motors (manufacturers of Ambassador cars) and Premier Auto-
mobiles (manufacturers of Premier Padmini brand of cars)—hardly cared for the customer. They kept
rolling out obsolete cars at exorbitant prices and did very little either to improve the fuel efficiency or
even provide better service. Since the Indian consumer had very little choice, he had to accept whatever
was given to him.
But in 1984, when Maruti was launched and the Government of India allowed other foreign col-
laborations in this sector, both these manufacturers realised that the “golden” era was now over. Despite
their new foreign collaborations, their products did not sell. Each of them were saddled with large stocks
of unsold cars and thus were incurring loss. The dealers walked out of their agreements as the inventory
increased in their showrooms. This made Premier Automobiles offer price discounts on the Premier
car and also deliver to the customer at any place where he perceived the maximum price advantage.
-
ers and companies making power generators. As is evident, the focus of all these companies, hitherto,
had been either on their own products or on technology. Marketing orientation, as spelt out earlier, is
different from any or all of them. Marketing orientation (as opposed to selling orientation) focuses on
customer needs, values and attitudes, and in order to satisfy them, it uses an integrated marketing plan.
The ultimate aim is to maximise profits through increased customer satisfaction. In brief, this difference
may be understood from Table 1.1.
Table 1.1 Marketing and Selling Orientations

Orientation/ Focus Means Ends
Concept
Selling Product Aggressive selling and sales promotion with Maximise profits
emphasis on price variations to close the sale. ‘I through sales
must somehow hook the customer.’ maximisation
Marketing Customer Integrated marketing plan encompassing product, Maximise profits
price, promotion and distribution, backed up by through increased
adequate environmental scanning, consumer consumer
research, and opportunity analysis with emphasis satisfaction, and
on service, ‘what can we do that will make us, in hence, raise market
the customer’s eyes, better than and superior to share.
our competitors.’
Relationship Marketing
The decade of the 90s saw the ‘rebirth’ of relationship marketing. Once again
the issue of trust between customer and marketer was emphasised. Trust, as has The underpinning of
relationship marketing is
been observed, has an asymmetrical quality. It is built slowly over several trans-
customer loyalty.
actions but disappears in a flash. As can be made out, the relationship market-
ing approach emphasises on both the ‘hard’ and the ‘soft’ aspects of marketing
Table 1.2 Marketing Orientation vs Other Orientations

Dimension of Production Technology Sales Marketing
Organisation
Focus Effective utilisation R and D Sales transactions Customer
of machinery
Goal Optimal capacity Stay ahead Sale Market customer bondage
utilisation through
technology
Strategy Economies of State of the Art Price promotion Customer bonding through
scale and scope technology integration of organisation
with the customer needs
Structure Functional Task force Functional Matrix
Control Conventional (P Sale and collection Customer satisfaction,
Systems and L and budget) of outstandings index, and market share
Skills Manufacturing Research Selling and Analytical
conversational
Styles Task oriented Task oriented People oriented Team oriented
Mind set Need to push Push for the best Hook the customer What is it that we can
production product make here or source from
volumes outside to satisfy needs of
the target customer
processes, which help create reliability. The hard aspects relate to product reliability, use of interactive
technologies both at the front and back ends (i.e., integrating customers with organisational functions),
retail stores and so on. The soft aspects concern human interactions and thereby work on dependability
issues among salespersons, service personnel, intermediaries and so forth. The underpinning strength
of relationship marketing is customer loyalty. A successful relationship marketing firm leverages its
knowledge of customer needs and values which helps to determine resource allocation across differ-
ent customer groups. As one can infer from Figure 1.1, profitability of customers vary across different
groups. A Price Waterhouse Coopers (PWC) study shows an inverse relationship between the size of
the customer groups and profits. It showed that 36% of customers accounted for 80% of profits in a
telephone company. This is also true of Mahanagar Telephone Nigam Limited (MTNL) and Bharat
Sanchar Nigam Limited (BSNL); or, for that matter, in any other product group.
Figure 1.1 Relationship between Customers and Corporate Profitability

Source: Adapted from Stanley A. Brown, Customer Relationship Management, 2000 John Wiley & Sons, Canada Ltd.,
Ontario
Today, the need for customer centric organisations is increasingly being appreciated. For that, the
organisational pyramid needs to be inverted and the customer placed on top of the pyramid (Figure 1.2).
The logic is that, in any organisation, communication flows from top to bottom and, generally, the be-
haviour of an average employee is to look up not only for guidance and help but also for recognition.
The importance of recognition from the customer is far more valuable than that from the CEO of the
company. This process of inverting the pyramid is commonly seen in organisations like Scandinavian
Airlines, Jet Airways, Domino’s Pizzas, and HDFC Bank.
The relationship marketing process emphasises on continuous interactions between the firm and the
customer. These interactions lead to firms acquiring accurate, timely, and relevant information from
the customer, which helps in creating a differentiated or customised offer for each customer which, in
turn, leads to higher customer loyalty. A relationship marketer understands a customer’s lifetime value
(LTV) which gets enhanced over a period of time.
IN FOCUS
A LTV represents a stream of future profits from customer transactions discounted at an appropriate rate
back to its current net present value. The LTV of any customer is also based on:
(a) reduced acquisition costs
(b) sales revenue growth from each customer’s account
(c) cost savings resulting from efficiency in customer purchases and sales to them over a long term
(d) referrals leading to word-of-mouth publicity
(e) price premium that a retained and loyal customer is willing to pay as they are less price sensitive
LTV is difficult and costly to calculate for any particular customer. However, a rough LTV analysis is
sufficient for taking decisions that will enable a firm to build a long term relationship with the customer.
Figure 1.2 Inverting Organisational Pyramid for Customer Retention

Source: Adapted from Stanley A. Brown, Customer Relationship Management, 2000 John Wiley & Sons, Canada Ltd., Ontario
Focus on Internal Customer

In order to evolve as a customer centric organisation, it is important that the firms
take care of their internal customer also. In other words, internal customer focus Internal customer involves
each department and
is as important as the external customer focus. This is because customer satis- individual understanding the
faction is a process and not just an end product. Viewed from this perspective, needs, expectations and
it is a known fact now that customer satisfaction cannot be achieved until and problems of next-in-queue
unless all personnel within the organisation understand the importance of the department or individual.
external customer and are connected to them. Internal customer care, therefore,
involves each department and individual understanding the needs, expectations, and problems of the
next-in-queue department or individual. For example, for a marketing group, the internal customer is
the production department and all other departments that help marketers achieve their goal of customer
acquisition and retention. Conventional wisdom would imply that production people always need to lis-
ten to the marketers and, therefore, would suggest a one way flow of communication. The contemporary
understanding of customer satisfaction processes underline the importance of two way communication
and the concept of interdependence. So, when the marketing manager spots an opportunity for intro-
ducing a new product, it becomes his responsibility to market this to the production and research and
development personnel. Likewise, when research and development and production personnel develop
a new product, they need to first market it to the marketing group.
Basic requirements of an internal customer are:
● colleagues who are friendly and willing to help
● courtesy and respect
● efficient, friendly, and knowledgeable concepts
● pleasant approach
● fulfillment of expectations
Figure 1.3 reflects the needs of the internal customer and the approach to internal customer satisfac-
tion. Figure 1.4 reflects the three Cs of internal customer orientation.
Figure 1.3 Needs of the Internal Customer
Figure 1.4 The 3Cs of Internal Customer Care

Marketing organisations are different from sales, manufacturing, and technology oriented organisa-
tions, as is evident from a study of Table 1.2.
Thus, successful marketers think for today and tomorrow. Depending on the extent and application
of marketing orientation, the competitive edge and marketing strength of an organisation can be deter-
mined.
Market Driven Organisations

Market driven firms, therefore, are customer centric. They are often instrumental in creating demand
and developing market. They are innovative and offer on a continuing basis value to their customers
through better and more efficient products at a competitive price. Various studies done in India and at
a global level have shown the following characteristics of a market driven firm:
● Their products reflect customer needs and represent solution to customer’s problems as reflected
by Samsung dominance in consumer durables especially television and cell phone market.
Their product reflects customer needs and present solutions to customers’ problems as reflected
by Samsung dominance in consumer durables especially in televisions and cell phones and consum-
er markets. These products have been perceived as superior to competition. Firms like Samsung,
Apple, Tata Sons, Google, achieve their primacy in the market through new product features, better
technology, superior performance or service thus changing the price value equation in the market
● A study by Fortune of world’s best companies showed the need to invest in innovation and market
development even in the tough times. These most admired companies bring to market incremental
changes to product that are already good and hence make it better. Exhibit 1.2 shows world’s 20
best companies which are also admired for their innovations and customer responsiveness.
In addition to these 20 best companies as listed by Fortune, there are some other well-known
companies and brands in the top 50 list. These are Boeing, Singapore Airlines, Nestle, PepsiCo,
Unilever and Facebook.
Exhibit 1.2 World’s 20 best companies
Rank Name of the Company Rank Name of the Company

1. Apple 12. McDonald
2. Google 13. American Express
3. Amazon.com 14. BMW
4. Coca cola 15. Procter and Gamble
5. Starbucks 16. Nordstrom
6. IBM 17. Microsoft
7. South West Airlines 18. Nike
8. Berkshire Hathaway 19. Whole Foods Market
9. World Disney 20. Caterpillar
10. FedEx Source: Fortune 2014
11. General Electric (GE)
● These companies offer value for money. Consider the example of Apple which for six consecutive
years earned the No. 1 rank in Fortune annual poll of most admired companies. Apple, which grew
under its legendary chairman, Steve Jobs faces today the toughest challenge from tabs and phones
made on Google’s Android operating system. Apple as a company is credited for four revolution-
ary products in a decade which changed the way. We listen to music and communicate. These
products are iTunes, iPod, iPhone and iPad. With these four revolutionary products, expectations
of the market from Apple run high. Samsung is nibbling on its market share outside America.
has offered a new value paradigm. Coke has continued to grow and remain as one of the most
admired companies. It is one of the iconic brands. It has grown largely because it responds to the
diversity in the world market. IBM is another major company that has continued to be admired,
primarily because of its strong growth in data analytics, cloud computing and emerging markets.
in their operations and actions. Their strategy weaves in the following factors:
● Innovation
● Quality of products and services
● Global competitiveness
● Customer centric product design
● Differentiated products
● Product perceived as good value for money
● Opportunity to customer to individualise the offer.
The consequence of the above is that such firms come to be admired by customers and other stake-
holders.
MARKETING AS A ‘PROCESS’
LO4 The process of marketing involves an exchange

Describe the evolution transaction between the buyer and the seller. In this A transaction could be termed
as a marketing transaction
of the contemporary form, the origin of marketing can perhaps be traced to only if it could result in mutual
marketing process the first known human civilisation. The barter system satisfaction to both the buyer
is well known to us. Today, in this system, money and the seller.
has replaced the commodity. What then is the difference between marketing and
barter other than the means of exchange? The difference lies in the fact that marketing emphasises on
the mutual satisfaction of both—the buyer and the seller. In this exchange transaction, the underlying
assumption is the development of a long-term relationship between them. The buyer’s gain is the
satisfaction on the purchase and the subsequent consumption of the product, whereas the seller’s gain
is the profit that he/she makes on such a transaction. If the buyer is not satisfied, then the transaction
has been, at best, a selling transaction, and if the seller does not make a profit, then it has been a
dumping transaction. Thus, to be termed as a marketing transaction, the exchange must result in mutual
satisfaction to both the buyer and the seller. The essence of this is:
(a) Marketing is an exchange process—both buyer and seller must have something to give to each
other.
(b) Both the buyer and the seller must gain.

(c) It should result in a long term satisfying relationship between both buyer
Marketing as a process
involves understanding and
Therefore, it can be concluded that marketing as a process involves (a) under- serving customer interests
standing the customer’s interests and (b) serving them in such a way that it helps that would help the seller
the seller to fulfil its objective—profit maximisation. This definition would lead fulfil its objective—profit
many readers to re-look at various purchase situations where the salesperson or maximisation.
owner of a firm paid little attention to know what the buyer wanted. We might
have been ‘talked into’ to ‘believe’ the ‘virtues’ of the product, manufacturer, or seller. But once the
customer realises that these ‘virtues’ do not exist, he/she never goes back to repeat the choice. Not only
this, the customer even dissuades others.
The Needs, Wants and Demands of a Customer

In order to understand the consumer, it is necessary to know his needs, wants,
Needs are basic human
and demands. At times these terms are loosely used. However, for a complete
requirements, wants are
understanding of the marketing process, the terms should be clearly understood. needs directed to a product
Needs, as psychologists tell, are basic human requirements like food, security, while demand is want
clothing, and survival. Wants are the needs directed to specific products/servic- accompanied by buyer’s
es. For example, while shopping, a thirsty and tired consumer may need water. ability to pay.
But he sits down in a coffee shop, orders for bottled water and a cup of coffee.
The thirst need here becomes a want for coffee and bottled water. When a want is accompanied by the
consumer’s ability to pay, it becomes a demand. For example, a young adult who has just started his/
her career may want to buy a Toyota Lexus, Home Theatre, MP3, or MontBlanc pen but may not have
the capability for buying these products. In such a case, these remain wants only. Today the challenge
for the marketer is that of converting needs to wants to demands.
Markets, Marketplace, Virtual and Metamarkets

Also important is the distinction between markets, market place, and virtual markets. Market is a set
of existing and potential buyers for a defined product or service. It is in this context that the limits of
a market are often defined by geography and is invariably time specific. For example, a firm market-
ing fruit-based ice cream like ‘Naturals’ in Mumbai may define its market to consist of existing and
potential customers in one of the suburbs or the entire Greater Mumbai Metropolitan area. Initially, its
market consisted of ice cream buyers in and around Juhu area, a suburb of Mumbai, as its outlets were
located only there. However, as its business grew in 1990s, it opened outlets at several other places in
Mumbai, expanding its market to cover all Mumbaikars who loved ice cream. Thus market is always
defined for a product at a given time. It is also defined in geographical terms like urban/rural, regional/
national/global.
Market place is the place where one goes for shopping—such as a mall, bazaar, shopping arcade
or store. The virtual market is digital in nature. For example, when one shops at Flipkart or any other
that over a period of time more consumers will shop on the Internet or from their mobile phones. Today
more and more firms are using the virtual route (e-commerce [electronic commerce for Internet transac-
tions] and m-commerce [mobile commerce]) to convert consumer needs to wants and demand.
Metamarkets
Another major development is the convergence of suppliers of all complementary products and ser-
vices that are closely related to a product in the consumer’s mind. For example, when a consumer buys
a house, he needs finance, furnishings, household goods, interior designing, a construction firm, and
a dealer. Now, when a construction firm, dealer, housing finance firm, interior designer, furnishers,
media, and internet site come together, a metamarket is created1. While buying a house, the buyer will
get involved with many of these players, called metamediaries. Today such metamarkets are becoming
commonplace in several buying situations.
It is not uncommon today to come across firms with a presence in physical, virtual, and metamarkets.
Banks, housing finance firms, automobile firms are just some such users.
In today’s competitive world, it is, therefore, important for organisations to examine ways and means
Copulsky and Michael J. Wolf 2, the relationship marketing process incorporates the following three
main elements:
(a) Identifying and building a database of current and prospective buyers/consumers, including com-
plete details on demographics and psychographics of the target group of consumers as also their
purchasing behaviour.
(b) Based on the above, to evolve a differentiated marketing communication strategy in terms of
message content and channel selection.
(c) Monitoring each relationship to ensure continued growth in customer’s purchases.
Interactive Technology and Marketing Mix

As mentioned earlier, it is possible today to customise the marketing mix to suit target customer groups.
Interactive technologies have made it possible to continuously track consumption behaviour, brand
preferences, and even purchasing behaviour of consumers.
Market leaders have successfully used this knowledge of their target custom-
The crux of marketing ers to design their marketing mix. Several companies, like Hindustan Lever,
process is the identification have used this knowledge to adapt their products to customer needs and also to
and serving of consumer redesign their distribution strategies. They use technologies like satellite map-
needs.
ping of various markets. The web, and extranet to cover intermediaries in order
to optimise their supply chain right up to the end. As mentioned earlier, Hindu-
stan Lever, which has a vast distribution system encompassing both urban and rural markets, has set up
an extranet. The objective of this is to make its supply chain more efficient and responsive to customer
needs. Further, through its own and group company’s website, it intends to connect its customers all
over the country. It has already made progress through Pond’s interactive website, Hello Hindustan and
Mera Hindustan initiatives in the detergents business as well as in television programmes like Close up
Antakshari. On the net, interactive kiosks are being used to test Lakme and Ponds’ range of products.
These kiosks provide information on beauty products and also enable the consumer to know how he/
she will look by using these products. These kiosks guide him/her in decision making. Internationally,
Unilever has announced the joint venture with Village, a woman’s portal, and participation in several
other such interactive initiatives that will help it to connect to its customers. Thus, the crux of the
marketing process is the identification of consumer needs and serving them by provding an effective
service.
To sum up, all the above cases illustrate the following lessons in market leadership:
● Understanding customer needs on an ongoing basis through a continuous dialogue process, for
which appropriate institutional framework needs to be created.

● Differentiate on strong sustainable basis against competition and thus making imitation difficult.
This has to be through a combination of product features and delivery and service processes.
● Customise the offer—let the customer individualise the offer.
● Integrate technology to deliver value for money to the customer.
● Tight control over quality, which must be benchmarked with the world’s best.
● Create a model of scalability with world market in focus.
● Deliver what you promise.
● Expand the product range to meet the entire needs in the product category.
Marketing as a Managerial Function

Marketing as a managerial activity involves analysing the market opportunities, planning the marketing
activities, implementing marketing plans, and setting control mechanisms in such a way that organisa-
tional objectives are accomplished at minimum cost. In other words, marketing is:
(a) understanding consumer needs
(b) environmental scanning and market opportunity analysis
(c) development of a competitive marketing plan and strategy such that an organisation is able to
satisfy not only the consumer’s needs but also achieve its own objectives
(d) implementation of the marketing plan and development of tactical plans to overcome problems
at the marketplace
(e) development of control mechanisms
This perspective implies that in order to achieve competitive advantage, a firm needs to scan its
external environments to spot market opportunities. Its marketing mix needs to fit the local market
dynamics. Further, in order to ensure a high rate of customer acquisition and retention, a firm’s market-
ing ix has to be customer centric.
In Practice
McDonald’s in India
The US food chain is best known for its burgers and fries and service standards. The chain has
standardised its entire operations, right from order booking to delivery and the outlet’s layout
plan, including furniture and customer facilities. When it entered the Indian market, it under-
stood that to survive it had to be responsive to Indian sensitivities. This meant it had to
forget its beef and pork burgers. It also meant that for gaining volumes it had to come out with
a vegetarian meal as the majority of Indian population is vegetarian. Also, the prices had to be
affordable for an average middle class family. So, McDonald’s came up with chicken, lamb, and
fish burgers for the Indian non-vegetarian customer and for the vegetarian an aloo tikki (potato
chop) burger. Not only this, it developed burgers using Indian bar-be-qued tikkas. Price has
been yet another factor that has made McDonald’s succeed more than any other global food
chain in India. The food chain targets children as it hopes to make them its core customers in
the long run. So, be it birthday parties or any other occasion, today parents in Mumbai, Delhi
and other cities rush to McDonald’s. Further, the food chain has been selective in choosing cit-
ies and locations for its operations. So, while initially it started in Delhi and then expanded to
Mumbai, it has now entered markets like Pune, Jaipur, and Bangalore, and has opened an outlet
on the Delhi–Agra and other national highways. This is the only food chain that, though not
making profits at the moment, has all the right fundamentals to make it succeed in the Indian
market in the future.
Marketing management, therefore, is a critical function especially in highly competitive markets.

Good and effective management can provide the much needed competitive advantage to an enterprise,
irrespective of its size and product mix.
Marketing is not only used by firms, but also by customers. Depending on the type of their involve-
ment, Franklin Houston believed that customers, too, use various concepts like offering, buying and
selling in relating themselves to the firm. Hence, he believed buyer and marketer are roles assumed by
individuals in an exchange transaction.
For example, if a buyer is passively involved in an exchange transaction, he accepts whatever is of-
fered to him by a marketer. This corresponds to the production concept used by the marketer, a situation
that existed in most product categories in India before the era of liberalisation. Here, the buyer may have
perceived little or no value in participating in the exchange process. But when the buyer aggressively
searches for alternatives and knowledge about suppliers, compares these alternatives, and negotiates
prices and other commercial terms, he/she uses the buying concept. The seller today aggressively sells
his merchandise. The most common way of succeeding here is through differentiation and mounting
aggressive price promotion wars in the market place. As opposed to this, in the marketing concept, both
buyer and seller roles are perceived as interdependent and both seek long term relationships.
These types of relationships are summarised in Table 1.3.
Table 1.3 Defining Alternative Concepts Available to the Marketer

BehaviourÆ Role Passive acceptance Aggressive pursuit Serve needs of partners
Seller Production concept Sales concept Marketing concept
Buyer Offering concept Buying concept Marketing concept
Source: Houston, Franklin R., ‘The Marketing Concept: What it is and What it is Not’, Journal of Marketing, April 1986,
p. 85.
Marketing is, therefore, an important organisational function. The marketing concept requires an
understanding of the market and does not suggest that products be designed just to satisfy market
demand. Though satisfying the market demand is important to yield profits, any organisation has to
examine the costs and volume of market response before deciding to develop any new product.
Role of Marketing in Modern Organisations

In view of the above discussions, one observes that the role of marketing in modern organisations is
that of integrating the needs and wants of the customers with other organisational functions like produc-
performs the role of integration. Figure 1.5 shows this relationship.
Figure 1.5 Integrative Function of Marketing
Integrative Function of Marketing

An interesting feature of successful companies is the integration of objectives of all corporate functions
in a way that synergy is obtained. This is important in today’s competitive environment because the
responsibility of marketing the product and also of expanding/maintaining market share rests on every
individual in the organisation. Let us study companies where such integration does or does not exist.
A well known large sized public limited company, producing and marketing agricultural inputs like
urea, found itself in the midst of stiff competition from other local and foreign brands. The company
had been operating in a sheltered market and hence had not bothered about packaging, quality, price,
or equitable distribution. Now, in a changed situation, all these factors were as critical as selling skills
and other marketing strategies and tactics. But, the marketing and other departments continued to work
at cross purposes, leading to further deterioration in the company’s performance.
Another company, manufacturer of consumer durables, had excellent integration between all its
production, finance, and marketing. The result—an excellent cooking range, just the kind required by
Indian middle class consumers, and at the price they could afford.
The above examples illustrate that today there is no problem which is ‘purely marketing’ or ‘purely
Figure 1.6, objectives flow from corporate goals and influence every division’s objective formation.
Figure 1.6 Linkages in the Organisation between Marketing and other Functions
IN FOCUS
In addition to an integrative role, marketing functions today have to perform the role of providing a com-
petitive advantage to the organisation. They have to scan the market environment, identify the market
opportunities, and lead change within the organisation. For this, the marketing management information
system must serve corporate objectives and provide much needed diagnostic support to corporate strat-
egy formulation. Thus, marketing management functions today are critical in integrating customers with
the organisation.
Research has shown that customer and employee relationship building actions of a firm affects its
value both directly and indirectly as reflected by the customer satisfaction. It is in this context that the
role in marketing organisation needs to be relooked at. At the same time it is important to understand the
purpose of marketing.
PURPOSE OF MARKETING
Market Development
LO5 Given the current dynamics of the market, it is necessary to go beyond sales,
Explain the purpose as a purpose of marketing. Whether it is an existing product or a new one,
of marketing development of the market is an important purpose for any marketer. The
firm has to continuously invest in developing its markets. This applies to
almost all product categories. Market development involves:
There are market needs which are fairly apparent like customer
apparent because of new substitutes. But there are times when needs are at a latent level and the
customer is not able to explain. Latent needs in fact provide a path for innovation and creativity.
In most such cases, though customer is not able to explain the need, but is able to voice his or her
the market on a sustainable basis. Often this is done by using marketing research for developing
market insight. Another approach used is observation of customer behaviour in the marketplace.
Delphi or expert opinion poll is also another tool by which markets can be understood. Analysing
the competition can help understand the trends in the market. Tracking of product movement/sales
in different geographies is also a tool used for understanding market needs.
2. Product development:
required for a particular market. For example, the development of an operating system in a Deva-
nagari Script (Hindi) or in other local languages helped Google and Nokia to penetrate the rural,
Indians Hindi was the mother tongue and hence most widely spoken language. Besides there are
expect to get a phone with a keyboard in Hindi or any other regional Indian language and English.
Service organisations provide customers am opportunity to select the language in which they wish
economical commute for a middle class family in all seasons.

3. Filling the gaps: The research or an in depth study of a market would also lead to identifying
gaps in distribution. It is not uncommon to see many unserved markets by national or global
-
ing provides an opportunity to reach out to them. In fact, digital marketing today has reduced or
eliminated the distance between markets. The digital marketing here involves marketing through
internet or mobile phones. It also involves using social networks like Facebook, Twitter or SMSs
to create customer awareness and also provide them the opportunity to follow and buy the product.
-
ogy can play a singularly important role. Several studies in services marketing have shown that the
as it gives him/her an opportunity to individualise the product and hence consumption experience.
4. Push and pull strategy: While developing the market, one needs to emphasize both push and the
pull strategy. The push strategy involves aggressively selling the product to the customer. This is
competition in the marketplace by not providing an opportunity to it to place its products in the
market or in the customer’s mind. This leads to noise in the media and retail outlets.
The pull strategy in contrast refers to the customer demanding the brand in the market. This happens
when strong preferences for the brand exist in the marketplace. This perhaps is a very happy situation
for any brand. Generally, this is observed in brands with strong customer loyalty or iconic brands like
Coca Cola, IBM, Dell, Colgate toothpaste, etc.
In a highly competitive market situation firms needs to use both push and pull strategy for develop-
ing market and customer preferences for its brands.
Customer Acquisition
Another purpose and a consequence of market development is customer acquisition. Firms need to
continuously acquire new customers. Unless the customer base expands¸ the firm and the brand cannot
survive. Hence, it is not uncommon for the firms to invest majority of sales’ time in customer acquisi-
tion. In developing the strategy for customer acquisition, following issues need to be considered:
1. Segmentation v/s individualisation: Generally the marketing strategy is based on segmentation
approach. Segmentation is a process of creating homogeneous group of customers. This homoge-
neity is based on geography, demographic or psychographic (lifestyle/personality) characteristics
of the market or customer’s usage pattern, etc. Such an approach helps position a brand and de-
velops an appropriate market penetration strategy. However, more recent developments in mar-
keting relates to individualisation of customer experience. It is argued that experience can never
be aggregated even for a homogenous group of customers. Since it relates to individual likes,
dislikes, preferences and feelings, it is necessary to create a strategy by which customers get the
opportunity to individualise the product or the service. Technology today enables the customer to
individualise the offer. For example, Amazon.com offers customers a wide variety of products and
category, he/she is offered an alternative to buy a pre-used product wherever possible like books,
garments or even children toys. Should he/she decide to buy the product (new or pre-used) the re-
tailer promptly provides details of complimentary products and number of customers who earlier
other products along with the selected product. Once the customer has made up his/her mind and
put the item in his shopping cart, he/she checks out where Amazon.com offers multiple delivery
and payment options. It also offers multiple conditions in which the product could be delivered.
Likewise Flipkart, an e-retailer in India, offers multiple choices including payment on delivery
to the customer who is further assured with a returns policy. It has been found that the strategy of
2. Customer value:
value as mentioned in another chapter has multiple interpretations. From the point of view of
customer, it refers to the values that a customer looks for, at personal, esteem, utility and social
level. At the same time price-quality affect customer relationship value. Firms need to analyse
and create value for the customer at all levels and multiple price points.
3. Web-based technology: Companies need to use today web-based technology for customer data
management. Today the disruptive technologies are internet of things and mobile internet. The
internet of things refers to the connectivity built across physical objects through network sensors
and actuators. These sensors and actuators report their status, receive instructions and even take
action based on the information. Internet of things is today growing rapidly. More than 9 billion
devices around the world are currently connected to the internet, which includes computers and
-
ated large storage capacity to store this data for product development and sales. Today cloud
technologies make large data storage much more economical, and make the same available in real
time anywhere anytime. Firms need to use this data to customise their offer.
Web-based technologies can also be used to access competition and other market information.
Customer Retention
The purpose of marketing is not only to acquire customers but also to retain them (Figure 1.7). More
often than not, customers leave the firm and the brand soon after the first purchase cycle. By the time
the second and third purchase cycle gets over, firm loses 90% of its acquired customers. To retain cus-
tomers, firms need to focus on their profitable customers. This implies not all customers are going to
give the firm a good return on investment. One needs to analyse why customers become unprofitable
and what can be done to retain them. As shown in Figure 1.1 many a times either the company misun-
derstands the customer expectations or mishandles them regardless of their purchase volumes. In any
of these situations, firm needs to reassess its relationship with the customers. If the customer is inclined
to understand company’s position, he/she should be educated and firm should explore any other way
to maximise value for the customer, before abandoning the relationship.
Figure 1.7 Marketing Purpose

Customer Loyalty
Being loyal to the brand is the way by which customers reward the company. To maximise loyal custom-
ers, marketer needs to categorise customers on the basis of benefits sought by them and also on basis
of serving them. This can help in developing customer clusters which can then be used for the purpose
of evolving appropriate marketing strategy.
Fighting Competition
This involves fighting competition in the marketplace. It requires analysing the strengths and weakness
as direct and indirect competitors. It also involves going beyond the price factor and creating non-price
barriers around the brand.
Social Equity
It has been observed that brands which establish equity by linking with a social cause tend to survive
better in a highly competitive marketplace. Today, we find almost all major brands associated with one
social cause or the other. For example, one of the leading English newspapers in India `Times of India’
associates itself with multiple social causes like educating individuals who have not had the opportunity
to go to a formal school, promote peace, harmony and citizenship in India and Pakistan through several
events involving cross border cultural exchange and dialogue through artistes and other opinion leaders.
Likewise, Jet Airways promotes the cause of creating a safe and a healthy environment for children
through social cause called `Save the children’. P&G promotes its brand of sanitary towel, Whisper, by
educating consumers that for every pack sold, `1 goes for the girl child education and simultaneously
personal hygiene also gets promoted. Similarly, Tata Tea has associated itself with an NGO to promote
In short, the purpose of marketing today is not just sales—it is to develop sustainable brand and
market share.
THE MARKETING MIX
LO6 One of the major objectives of any organisation is to

become a market leader. This applies not only to com- The concept of marketing
Interpret the concept mix involves a deliberate and
of marketing mix panies, but even to non-profit making organisations
careful choice of strategies
and its relevance in like educational institutions, hospitals, management and policies for organisation,
competitive advantage institutes, etc. To be able to achieve this objective, product, price, promotion and
it is important that these organisations be able to as- place.
semble their marketing offer, called marketing mix, in a way that it gives them a
competitive edge.
The concept of marketing mix involves a deliberate and careful choice of strategies and policies for or-
ganisation, product, price, and promotion and place. Individually, each of them is important, but when all the
four elements of marketing are properly selected, culled, and mixed in the right proportion, they enhance the
product and make it attractive to the customer. In other words, the concept of marketing mix is like a recipe
for a gourmet delight. It is important that all the ingredients are mixed in the right proportion. Thus, the task
of the marketing manager is to develop the most appropriate and creative marketing mix for his organisation.
This mix has to give the organisation a competitive edge over others. Moreover, this mix has to be
constantly reviewed, as an organisation operates within an external environment that is continually
changing. For example, a new government policy or some fresh competition may sometimes make a
mix obsolete. Take for instance, the Government of India’s policy to encourage small scale companies
through excise duty and other tax rebates. Consequently, they were able to sell their products at much
lower prices than their large sized counterparts. This problem has today affected almost all large compa-
nies, whether they sell machinery or chemicals or consumer products. The irony is that since technology
is standardised, very little variation, if at all any, in product features or quality can be claimed by these
companies. Hence, today their marketing mix has got to be different. Perhaps, the single most important
element in their marketing mix has to be service—provided unstintingly.
Consumer tastes, lifestyle, and technology changes can also make the marketing mix of a company
obsolete. The classic case here is that of HMV—the goliath of the Indian music industry—which lost
to T-Series and other new music companies only because it failed to appreciate the technological shift
from long playing (LP) records to cassettes; from turn tables to two-in-ones, and this had a direct impact
on its operations. Moreover, the consumer was now also interested in ghazals and other music rather
than just the film music. All this led to HMV’s downfall and the rise of other companies like Music
India, CBS, T-Series, Venus, and Sony.
Thus, one may infer that the marketing mix of an organisation is critical for its success, and this mix
has to be formulated, keeping in mind the needs of the target customers and the environmental forces.
Figure 1.8 describes this phenomena diagrammatically.
Figure 1.8 Marketing Mix and Forces Impacting it

Apart from the above, the marketing mix varies from one organisation to another according to avail-
able resources. A company with sound financial resources may spend large amounts on advertising its
brands, launching multiple brands of the same product, and distributing it all over the country. On the
other hand, a company may heavily promote the product at the dealer outlets, and give massive incen-
tives to dealers to push its products. Hence, the choice of marketing mix depends upon:
(a) marketing environment of the organisation
(b) marketing objectives
(d) marketing organisation structure and information system
Marketing Tasks
Earlier, it was mentioned that demand generation for a product is just one of the several tasks of a
marketing manager. In fact, as shown in Exhibit 1.4, the task of the marketer is to match the demand
with the supply position of the company. Failing to do so may prove disastrous for the marketer. Philip
Kotler, in his article ‘The Major Tasks of Marketing Management’,3 has listed various levels of demand
and the corresponding tasks of a marketer. For example, a hotel marketer in a hill station may be faced
with an irregular demand—excessive during the season and hardly any occupancy during off season.
His task obviously is to promote the hotel during the lean season by offering off season discounts on
room and food tariffs, organising special events to attract tourists, promoting it as a conference venue,
and so forth. On the other hand, an oil company is faced with an ever increasing demand. The marketer
here has to depress demand for oil by educating motorists on the importance of conservation of oil.
Thus, a marketer’s task is essentially management of demand, given his organisation’s and industry’s
constraints.
THREE STAGES OF MARKETING PRACTICE

Further, an examination of different firms leads one to conclude that there are three stages through
which the marketing practice operates. Kotler4 terms them as entrepreneurial, formulated, and intra-
preneurial marketing.
Entrepreneurial Marketing
-
preneurial marketing strategies to initially market its textile fabrics under the brand Vimal and now, its
infocom services. Entrepreneurial marketing is often characterised by high risk taking and innovative
ways to reach out to the consumer. Other examples are the manner in which Karsanbhai Patel or the
late Gulshan Kumar started marketing their products, viz. Nirma washing powder and T-Series audio
cassettes. Both used either low image stores or direct selling to sell their products at half the price of
leading brands. Today, both these firms are important and dominant players in the Indian market.
Formulated Marketing
Formulated marketing is research centric and well planned. These are meticulously planned efforts.
Hence firms spend money on advertising, sales persons, marketing research, and product planning.
Intrapreneurial Marketing
Intrapreneurial marketing involves firms pushing their managers into the market, to live with their
customers, and conceptualise new ways to improve the customer’s lifestyle, or add value to customers’
lives. Marketing practices at major firms like Hindustan Lever can be categorised as intrapreneurial.
Thus today the marketer’s task is to create customer equity.
Customer Equity
Customer equity reflects a customer’s expected contribution towards a company’s fixed costs over his
expected life. This expected contribution is discounted to net present value at the company’s target rate
of return for marketing investments. To arrive at a trial figure, the marketer has to add the discounted
expected contributions of all customers. In order to develop customer equity, the marketer needs to
focus on the following:
(a) analysing customers from a value perspective and then investing in the highest value customers
(b) transforming product management to customer management.

(c) analysing the impact of add on sales and cross selling on customer equity.
(d) looking for ways to reduce acquisition costs.
(e) tracking gains and losses from customer equity against marketing programmes.
(f) relating branding to customer equity.
(g) monitoring the intrinsic reliability of customers.5
NEW MARKETING HORIZONS
LO7
Explain new been adopted for social purposes and by non-profit organisations also. One
marketing horizons finds that the Government of India has started using marketing principles
for propagating non-profit causes like family planning, child care, immuni-
sation of children against dreaded diseases like tetanus, typhoid, polio, or cholera, and abolition of
child marriages and dowry. An educational campaign aimed at correcting attitudes of people has been
launched. One can see these campaigns on Doordarshan and other television channels every day.
Cause Marketing
Another area where marketing tools are used is promotion of social causes. In a
Cause marketing implies
country like India, where ignorance and illiteracy still continue to be high, it is marketing skills to effect social
critical that the marketer lends support to the government to market these causes. changes, which would benefit
Cause marketing, therefore, has become an important area requiring expertise of the individual and the society.
the same magnitude as that of FMCG marketing. It is the use of marketing skills
to effect social changes which benefit the individual and the society. In a broad sense, this is nothing
but public service marketing. Cause marketing seeks to effect individual behaviour in several ways.
Some of the areas where marketing has been used to impact the target customer or consumer attitudes
relate to:
(a) preservation of the environment
(b) acceptance of the girl child
(c) abolishing gender bias

(d) avoiding use of plastics which are likely to damage the environment
(e) avoid or discontinue unhealthy habits, like smoking, drug abuse, or unsafe sex
(f) assisting the police in controlling crime in the neighbourhood.
Cause marketing can also help create or change public policy. It differs from conventional marketing
because of the complex psychological mindset of the consumer. It is important for us to understand that
most of the time, the target customer has a mental barrier and the reasons for that is the social structure.
The attitudes that are formed over a period of time are difficult to change overnight. Hence, one needs
to provide a strong motivation to accept the cause being marketed. Increasingly, companies are realising
that cause marketing is a good business. It not only helps improve their bottom line but also enhances
their social equity. Project Drishti launched by Procter and Gamble in collaboration with the National
Association for the Blind is one example of successful cause marketing which has helped the company
earn profit and goodwill simultaneously. Project Drishti restored the sight of over 250 blind girls, from
across the country, through corneal transplant operations. This initiative was supported by the brand
Whisper. For the period April to June 1999, for every pack of Whisper sold, one rupee went to Project
Drishti. This money was added to the first contribution of `25 lakh that was given by the company
to the National Association for the Blind. The objective of this scheme was to build public awareness
about the plight of blind girls, so that individuals could come forward to make the life of blind ado-
lescent girls better. Another initiative taken by P&G is called ‘Open Minds’, which aims to educate
working children. The customer and supplier participants of Procter and Gamble pledge their support
TV have also extended their support to communicate the cause of ‘Open Minds’ to the masses. Saatchi
and Saatchi Advertising and Kailash Surendranath have provided creative material which were used to
communicate about ‘Open Minds’. The employees of Procter & Gamble voluntarily contributed a day’s
salary towards the ‘Open Minds’ fund. According to one study in Mumbai, when price and perceived
quality are equal, charity or a social cause can strongly influence the buyer’s behaviour. According to
this research, 72% people agreed that when price and quality are equal, they are more likely to buy
products or services which help a cause. These respondents are willing to switch choices in favour of
such a brand. 51% of people agreed that they even switch their retail outlet for the same reason, while
83% of people admitted that they have a positive image of companies promoting causes.6
Cause marketing is a serious business exercise which involves selecting the right cause, negotiating
partnerships with several organisations including intermediaries, a good, proactive communications
programme, and finally an evaluation mechanism. This mechanism must take into consideration the
impact that cause marketing has had on brand image (as reflected by sales and marketing share) and
countering negative criticism, if any, against the brand and the company.
Exhibit 1.3 Corporate India and Social Charity

It is now the turn of the corporates to promote char- sen by companies often match with their business
ity. Philanthropy has become part of mainstream identities. Procter & Gamble have several social
corporate activity. The focus is not just on giving, campaigns to their credit, the biggest being Drishti,
but giving in an efficient manner that shows up (supported by the brand Whisper), Project Open
the corporate’s business identity. Across the indus- Minds and Project Poshan (supported by Whisper,
try, companies are gearing up towards organised Head & Shoulders, Ariel, Vicks, and Pantene). While
and result oriented social charity. The causes cho- Britannia Industries has chosen to support the Save
the Tiger campaign to align with its Tiger brand of and marketing oriented philanthropy seems to be
biscuits, Hindustan Lever puts its trainees through blurring. Does this brand of marketing boost sales?
Project Bharat, to familiarise them with its rural dis- Not always, but the general feeling among the cor-
tribution network. Marico has taken up the cause porate policy makers is that it definitely generates
of preventive heartcare through the promotion of a sense of ‘feel good’ among the employees and
Saffola. The line between cause related marketing helps in creating a positive image of the company.
Exhibit 1.4 Various States of Demand and the Corresponding Marketing Tasks
1. Negative Demand This occurs when a ma- during summer and winter holidays and are idle
jor part of the market dislikes the product and may during other seasons. The marketing task, called
even pay a price to avoid it. The marketing task is synchromarketing, is to find ways to alter the time
to analyse the reasons for this dislike, and to find pattern of demand through flexible pricing, promo-
out whether a marketing programme consisting of tion, and other incentives.
product redesign, price reduction, and more posi-
6. Full Demand This is an ideal situation. Or-
tive promotion could change the customer’s beliefs
ganisations face full demand when they are satis-
and attitudes.
fied with their volume of business. The marketing
2. No Demand There may be a situation where task is to maintain the optimum level of demand
the target market is disinterested or indifferent to a in the face of changing consumer preferences and
product. For example, a young couple may not be increasing competition. The organisation must keep
interested in adopting family planning. The market- up or improve its quality and continually measure
ing task is to find ways to connect the benefits of consumer satisfaction to make sure it is doing a
the product, with the person’s natural needs and good job.
interests.
7. Overfull Demand Some organisations face a
3. Latent Demand Many consumers may share demand level that is higher than they can or want
a strong need that cannot be satisfied by any exist- to handle. The marketing task, called demarket-
ing product. There is a strong latent demand for ing, requires finding ways to reduce the demand
more fuel efficient automobiles. The marketing task temporarily or permanently. General marketing and
is to measure the size of the potential market and reducing promotion and service is one way of han-
develop effective goods and services that would dling this situation. Selective demarketing consists
satisfy the demand. of trying to reduce the demand coming from those
parts of the market that are less profitable or less in
4. Falling Demand Every organisation, sooner need of the service. Demarketing does not aim to
or later, faces falling demand for one or more of
destroy demand but only reduce its level, temporar-
its products. The marketer must analyse the causes
ily or permanently.
of market decline and determine whether fresh de-
mand can be stimulated by finding new target mar- 8. Unwholesome Demand Unwholesome
kets, changing the product’s features, or developing products require organised efforts to discourage
more effective communication. The marketing task their consumption. Campaigns have been conduct-
is to reverse the declining demand through creative ed against cigarettes, alcohol, and hard drugs. The
remarketing of the product. marketing task is to help people give up the habit
by using such tools as fear communication, price
5. Irregular Demand Many organisations ex- hikes, and reduced availability.
perience demand that varies on a seasonal, daily, or
Among the non-profit organisations using mar-
even hourly basis, causing problems of idle capacity
keting concepts and principles are the police, the
or overworked capacity. Museums are deserted dur-
armed forces, educational institutions, and of late,
ing weekdays and overcrowded during weekends.
even hospitals and nursing homes.
Likewise, holiday resorts are visited more frequently
Sources: For a fuller discussion see Kotler, Philip tler, Philip and Sidney J, Levy, ‘Demarketing, Yes,
‘The Major Tasks of Marketing Management’, Jour- Demarketing’, Harvard Business Review, Novem-
nal of Marketing, October 1973, pp. 42–9 and Ko- ber–December 1971; pp. 74–80.
SUMMARY
Indian market today is significantly different from the earlier decades. It is a market which offers
the largest opportunity to any marketer, be it global, national, regional or even a local marketer. Sig-
nificant factors that influence the change are young market, a predominantly middle class market,
growing urbanisation and technology dominance.
India today offers a huge opportunity for innovation and development of affordable products. New
customers mean new consumption value and at the same time a more assertive and communicative
individual. Much of these communications are through social networks, mobile and internet leading
solutions. It is in this context that marketing concept today is based on three pillars customer, com-
petition and responsiveness to environmental changes. Hence, firms need to be innovative.
Marketing orientation is about responding to current and future needs of the consumers through
innovative marketing mix and systems developed at a speed which enables firm to remain ahead of
competition. Selling is just one component of marketing. Market driven firms therefore are com-
panies that invest in innovation, quality of products and services, global competitiveness, customer
centric product design, differentiated products, price and communicate them in a manner in which
customer perceives good value for money.
Marketing can be understood as a process or as a managerial function. As a process it is based on the
concept of exchange and has an economic perspective to it. This is further supported by the fact that
both buyer and seller must gain from economic and non-economic perspectives. It is about a rela-
tionship between marketer and the customer. Markets today are changing and new markets namely,
virtual and meta markets, are today assisting marketer in his/her task of reaching out to the consum-
ers. As a managerial function it is about the processes involved in understanding and analysing the
market opportunities, planning the marketing activities, implementing marketing plans, and setting
control mechanisms in such a way that organisational objectives are accomplished at a minimum cost.
The purpose of marketing today goes beyond sales. Market development is an ongoing task which
marketer has to perform for existing products and in any case for all the new products the firm has to
continuously invest in developing its market. Market development involves identification of market
needs. Needs may be apparent like customer dissatisfaction with the existing product, on account of
service, distribution, product feature or price. But there are times when needs are at a latent level and
the customer is not able to explain. These needs provide a path for innovation and creativity. Several
marketing research tools including Delphi or expert opinion poll can be used to understand these
needs.
Identification of distribution gaps or product features that are not in line with the market needs also
provide an opportunity for development. Technology plays an important role in market development.
Today, both push and pull strategy are required. Push strategy involves aggressive selling while the
pull strategy refers to customers demanding the brand in the market.
relevant to non-profit and social organisations as it is for profit organisations. Given a very high
degree of awareness of environment, increasingly companies have introduced green products and
Recycle, Reuse and Reduce the consumption of scarce
resources, thus leading to environmental conservation.
POWER POINTS
product or service. This is because price and promotion wars do not provide a long term sus-
tainable competitive advantage in an era of standardised product and service. (LO1)
-
tomer friendly and responsive to the customer needs in an innovative manner. (LO1)
3. Customers today communicate far more. Social networks, internet and mobile networks have
facilitated the growth of such communication. (LO2)
4. Innovation is the need of the hour. (LO2)
5. The essence of marketing is a transaction—an exchange. It is customer and competition ori-
ented and focuses on customer satisfaction. (LO3)
6. Marketing orientation is a philosophy, which has to pervade the organisation structure. (LO3)
7. Marketing orientation also involves an integrated and futuristic approach to exploit market
opportunities. (LO3)
8. Marketing is different from selling. In the latter it is the volume which is important, whereas
(LO3)
resource allocation across different customer groups. (LO3)
(LO3)
11. Internal customer care is at the core of the strategy for customer satisfaction and delight.
(LO3)
12. Needs are basic human requirements; wants are needs directed to a product and demand is a
want accompanied by buyer’s ability to pay. (LO4)
is a place where one goes for shopping. Virtual markets are different internet shopping sites
(LO4)
14. Meta market consists of suppliers of all complementary products and services that are closely
related to a product in the customer’s mind. The theme shopping malls being designed in the
country or the various dedicated exhibition and shopping events which bring together all the
-
kets. (LO4)
15. Marketing is also a managerial function involving analysis, planning and control of marketing
activities in an organisation. (LO4)
16. The purpose of marketing today goes beyond just selling. It is market development, customer
equity for the brand. (LO5)

17. Marketing mix is a concept involving the judicious selection and use of the four elements of
marketing—product, price, promotion and place. This is today further augmented to people
and pace of response. (LO6)
18. The role of marketing in an organisation today is one of integration of customer with the or-
ganisational resources. (LO6)
lifestyle and contribute to the ecological balance in the country. (LO6)

20. There are three stages of market practice:
● Entrepreneurial marketing visible in entrepreneurial firms is the characteristic of high risk
taking and innovative ways to reach to the consumer. Entrepreneurial marketers change the
paradigms in the market.
● Formulated marketing is research centric and involves well planned activities.
● Intrapreneurial marketing involves firms pushing their managers into their market to live
with their customers and innovate ways to improve customer lifestyle or add value to cus-
tomer lifestyle. (LO6)
cost or his expected lifestyle. (LO6)
cause marketing is gaining prominence because companies realise that this is one of the pillars
of sound corporate citizenship. Cause marketing requires skills to effect social changes which
(LO7)
QUESTIONS FOR DISCUSSION

1. Levis is a global leader in denim garments especially the denim jeans. Traditionally, the com-
pany has been a unisex company. Levis has been in India now for more than two decades.
Given the fact that India is primarily a young aspirational market where the women are also
now playing an assertive role, it proposes to develop a marketing plan which would help it
connect better with young and youthful market. Today, it has competition from other brands,
marketing casual wear and the ethnic garments. Given the market scenario of India, what mar-
keting plan would you develop if you were hired as Brand Manager? (LO1)
2. A well-known hotel brand in Goa had, among several customer feedbacks, a posting on
TripAdvisor which read as follows:
“The hotel is an excellent beach resort property. It has all the latest gadgetries. It provides all
comforts like no one does but its customer service is poor. Room service took about 45 minutes
to deliver to my room a simple order like hot chocolate and veg sandwich. The glass cubical
door of bath did not close properly and when told to housekeeping, I was informed that the
As General Manager of the hotel, how would you respond to this feedback on TripAdvisor?
(LO2)
3. Customer satisfaction survey of different car brands showed that the customers were excited
about the new features of one of the well-known luxury brands. It also showed that new model
of the brand used smart technologies which exceeded customer expectations. However, cus-
augmented marketing plan? (LO3 and 4)

4. Hindustan Times is a leading newspaper in North India. It is also now available in Mumbai,
which is dominated by Times of India. Some of the other newspapers in Mumbai are DNA, In-
dian Express, Free Press Journal besides there are regional language newspapers like Marathi,
Gujarati, Hindi, Tamil, and Karnataka. In addition to these newspapers, brands from other
states like The Hindu, Telegraph are also available. While these are available in the print media,
the same also has an internet and mobile version. What should be the strategy of Hindustan
Times to develop new markets in Mumbai? (LO5 and 6)
5. NGOs often are faced with resource crunch. In order to overcome this crunch, they reach out to
consumers in their home, workplace or marketplace. The volunteers have a target of achieving
a certain minimum volume of donations. A well-known NGO like HelpAge has asked you to
develop a marketing plan which can help them overcome the resource crunch in a more planned
(LO7)
ANNEXURE: GREEN MARKETING
In Practice
Television Channel Turns Green
Increasingly products and services are turning ‘green’. NDTV 24 x 7 recently created a green an-
them along with A. R. Rehman, one of the most celebrated young music directors. It announced
this to its viewers and encouraged them to download the same by sending SMSs to one of its
numbers. It also went ahead to tie-up with some of the schools, where it got the children to
sing the anthem as well as adopt it. Through this as well as campaign, the channel is trying to
create an ecologically sensitive society. Likewise, Videocon, one of the largest Indian consumer
durables manufacturers, recently announced ‘green’ television sets, the key features of which are:
Digital Sensi Eye
SVMC Technology
Selectable Sound
To communicate that these were ‘green’ products, its advertising copy was made green. Its two
taglines “Eco Logic for a Sustainable Life” and “Keeping Products Eco-Fit”, communicated
the message in a loud and clear manner. What is more interesting is that Videocon offers sub-
stantive price reduction on these products.
Earlier in 2004, Honda had introduced the hybrid car in US. It uses gasoline and electrical
power. Honda launched its Honda Civic Hybrid car in 2006 in India. It has promoted it as a
lifestyle produced and also as a symbol of responsible citizenship.
Green products and services are today increasingly being accepted by both companies and
customers. Increasingly it is being realised that the decay in the cities and rural areas can be
prevented only by maintaining an ecological balance and also by making green products and
services an integral part of one’s life. Not only that, even from the health point of view, the
customers realise that by using products made from chemicals and those that emit harmful gases
can lead to permanent disorder.
Hence, increasingly, customers are turning to green air conditioners, refrigerators and even
personal toiletries.
Ecological issues are, today, the concerns of all corporates, who are being called upon to maintain the
ecological balance by ensuring that their products are bio-degradable or they do not involve indiscrimi-
nate use of scarce natural resources. Further, environmental activism has led to legislations and hence
firms are now required to comply with the regulatory mechanism. Thus, ecological marketing, also
called ‘green marketing’, has today come of age and a marketing student needs to understand its nuances.
Increasingly, products and services are being made ecological friendly. Take the case of hotels which
pride in being eco-friendly. Several features make them so. These involve the use of natural products
like herbal toiletries, no-smoking designated rooms, stationery from recycled paper, and educating
guests on the need to protect Mother Earth by using less detergents. This they hope to do through less
frequent washing of bed and bath linens for the same guest during his /her stay. Concern for greening
the environment has led hotels to spend money on developing their gardens and forests. The Leela at
Mumbai and Taj Hotels across the country are just two of several hotels who have adopted a policy on
ecology. This is not to undermine the place of dedicated eco-hotels like Orchid in Mumbai and Delhi.
Similar is the case with the consumer durables industry where identical claims are made by manufactur-
ers. Why should firms need to be eco-friendly? Does it not go against the basic premise of competitive
marketing that firms need to continuously innovate and kill their own products to remain ahead of
competition? Do customers really care for eco-friendly products? These are just some questions that a
marketer faces whenever a discussion on eco-marketing or green marketing comes up. Following are
some of the arguments in favour of eco-marketing which makes it profitable for the firm/organisation.
Increasingly, customers are becoming aware of the causes and effects of a polluted environment.
They are aware of the damage that polyurethane bags have caused to the soil and the drainage
system. It is common to see all across India plastic bags littering streets, drains, beaches, and ag-
shopping bag. Also, shopkeepers are becoming conscious of this issue and using biodegradable
and/or recycled materials for packing/packaging. An aware customer now insists on a ‘green’
product and packaging material.
Aware customers are joining together to form interest groups which lobby for eco-friendly prod-
ucts and legislation to protect their environment. Companies are today ranked by business maga-
zines like Business Today on how effective they are on ecology protection. This has also become
a parameter of good corporate governance.
Given the choice, customers tend to buy eco-friendly products. This is especially so in cases where
products are perceived as affecting consumer’s daily life and personal/family health. Being eco-
would be perceived as just another ‘Me too’ and hence the prime mover advantage rests with the
Hence, being eco-friendly makes a firm competitive and customer friendly as well. It also makes it
a socially sensitive corporate, which is high on compliance with regulations.
GREEN MARKETING MIX AND STRATEGY

Green marketing mix or eco-marketing mix differs from traditional marketing mix in following re-
spects:
1. Ecosystems are considered to be the most critical element in the entire marketing decision-making
system. This represents the need to screen marketing strategies for environmental impact and the
payment of eco-costs.
2. The criteria for evaluating the marketing mix are (i) whether it helps in prevention of pollution
and (ii) resources recovery. The environmental impact of the marketing mix needs to be examined
deployed in the market.

3. Green marketing decisions extend beyond the immediate channel network and hence include the
total set of organisational functions and activities that make up the product system life cycle.
The two key inputs in the marketing mix relate to (i) an integrated approach
Integrated waste
to waste management and (ii) the product design. Integrated waste management management involves
involves strategies for pollution prevention and resource recovery. Another ele- strategies for pollution
ment that becomes a part of integrated waste management is the ultimate release prevention and resource
of residuals into the ecosystem. Once again, consider the example of fuel for recovery.
automobiles. The petroleum company will need to examine all these issues in all its functions—oil
exploration, refining, transportation, ware housing, and distribution to the customers. Likewise, the
product design will need to incorporate ecological attributes. The firm would also need to identify
suitable packaging material for marketing the product. Thus, the product is the starting point in deter-
mining whether the firm’s marketing mix will be green or not. one must keep in mind that the product
design determines the type of resources and manufacturing processes that can be used to create form
and function. The product design also impacts delivery systems. Hence from an ecological perspec-
tive, a firm may pursue the strategy of product improvement or reinvention. The product improvement
strategy involves making minor alterations to products (as in packaging) and manufacturing processes
and delivery systems. Some of the key issues that need to be addressed here are:
-
tion stages.
2. Waste generated during use and disposal of the product
4. Can improvements be made within the existing manufacturing system and technology which can
help produce ‘green’ products?
5. Are the suppliers ‘green’?
6. Do customers perceive the product as environmental friendly or damaging?
Thus, this strategy involves modest product process changes and additions that help clean the ex-
isting PSLC. Generally the focus of the firm is on existing technology which affects a product’s core
benefit delivery system. If these changes are driven by regulation, then this strategy is reactive.
Environmentally reinvented product strategy stems from the need to enable ecosystems to impact
new product development. Here the core benefit delivery system is altered to accommodate ecological
attributes. This requires substantive management commitment as these products, like any other new
products, are susceptible to failure. To minimise risk, firms may build strategic alliances with other
players in the supply chain, particularly with those who are outside the firm’s competencies. For exam-
ple, an aluminium can manufacturer may enter into a strategic alliance with a recycling firm who sets
up its own collection centres and recycling process.
Thus, the task of a marketer is to redirect customer choices to a reoriented marketing mix and deliv-
ery systems.
PRICE
The focus of pricing

The role of price in eco-marketing is to reflect products as services. Hence, from
strategy has to be on long- the point of view of title to goods, price strategies can explore the option of using
term life cycle costs/prices rent/lease concept. The marketer can use activity based costing to identify eco-
and life cycle value addition. costs and allocate them to the products responsible for them. The focus of pricing
strategies has to be on long term life cycle costs/prices and life cycle value addition.
MARKETING COMMUNICATION
The role of marketing communication is one of educating consumers about long-term ecological ben-
efits and values. Also, the marketer has to develop consumers decision making criteria.
Section 1
The Marketing Environment
Section Outline
Chapter 2: The Customer
Chapter 3: The Competition
T he first part of this book discusses the two segments of the environment in which
a marketer operates—the customer on one hand and the competition on the other.
This aptly prepares the backdrop for discussing marketing as a business activity, as well
as acquaints the reader with the forces a marketer has to contend with.
Chapter 2 talks about the customers and their importance for the marketer—how to
acquire and retain them, how to give them maximum value for their money and which
marketing mix is best suited during different stages of relationship with a customer. The
relevance of customer life cycle in this context is also dealt with.
Chapter 3 discusses competition and how it has impacted the evolution of the mar-
ket, as well contributed to the development of products. The customer is indeed king
now as he/she can maximise the value he/she gets for his/her money. The importance of
competition analysis and competitive intelligence is also dealt with.
CHAPTER
THE CUSTOMER
2
LEARNING OBJECTIVES
LO1 Analyse the customer life cycle and stages therein
LO2 Explain the factors in customer acquisition and how customer can be retained
LO3 Describe the customer value and value maximisation strategies
LO4 Demonstrate the relationship between customer value and loyalty
LO5 Categorise the financial dimensions of customer acquisition and retention
In Practice
Men Makeup 90% of the Mobile Web Users1
India is today the 2nd largest mobile market. The number of subscribers is expected to reach
as high as 868.47 million, thus accounting for almost 69.35% penetration in 2013. This rapid
growth in mobile subscribers has surpassed the estimates of planners. Though Government of
India had planned to reach a target of 800 million subscribers by 2015, the same was achieved
in 2011. Several factors like price of handset, call pricing, apps, value added services, etc., have
contributed to this phenomenal growth. Smartphones also contributed to this rapid growth.
Within the mobile industry, smartphones have grown at a much faster pace than any other.
From just about 2.3 million smartphones in 2009, it was reported that more than 19 million
smartphones were sold in India in 2012. This increase in sales and penetration in Indian mar-
ket was largely contributed by development of Android OS which accounts for about 50% of
the total smartphone market in India. The development of the apps ecosystem and also the
enablement of GPRS and internet including Google search on Android based smartphones
like Samsung contributed to their growth. At the same time smartphone sales growth was
driven by lowering of the price curve of most devices, be they from Samsung or Micromax
or Karbonn. The second major player in the smartphone is iPhone, followed by Blackberry.
Smartphone sales have also been driven by teens and the young market which has a strong
desire to remain connected through Facebook, WhatsApp, Google Talk, etc. Internet surfing
on the mobile has also increased. In 2011, smartphone search rate exceeded PC search rates.
An Indian smartphone user spends more time on the internet than on traditional voice calls
or SMSs. Research shows a smartphone buyer uses 72% of the time on gaming and entertain-
ment apps and internet.
A majority of the internet users are young, and belong to affluent and professional middle
class segment. They are app- savvy. Half of them have a graduate or a postgraduate degree.
Mobile web users in India are young males—these were the findings of the Mobile Internet
Consumer India 2013 report by Mobile Marketing Association and WeServe Mobi. 2 The study
also pointed out that almost 70% of the mobile internet users are from affluent families, who
frequently eat out, watch movies and go shopping indicating high disposable income. The
study also showed that these consumers love mobile advertisements that provide download-
able content followed by communications that help them learn about the brand. They enjoy
getting contents and deals through mobile advertisements.
For any firm wanting to use mobile marketing, the above helps in defining the target cus-
tomer. It can help customize communication and the offer to the mobile users in India.
CUSTOMER LIFECYCLE AND ITS STAGES
LO1 Defining the target customer for the firm/brand is starting point for any
Analyse the customer market analysis. As the above shows, the target customer needs to be de-
life cycle and stages fined across multiple parameters like geographic location, gender, age,
therein income, and the social strata. This can help the firm to understand the
target customer’s needs and the manner in which this market expresses its
needs. Given the complexity of the market, it is necessary to discriminate between a customer and a
non-customer. It is equally important to understand the motivation of customers to buy or not to buy
the product or the brand. These motivations could be both tangible and non-tangible. At times, simply
the pride of ownership can motivate customers to acquire the brand. In other situations, it could be
the opportunity of co-creation and co-ownership that can drive consumption. For example, Wikipedia
has grown over Encyclopaedia Britannica largely because individuals across the world contribute to
its compendium of knowledge. Wikipedia has defined the information industry much the same way
as Google has done.
Research in marketing shows that there is a life cycle of any customer in a firm. Typically, following
stages in customer life cycle are visible:
● Prospect
● First time buyer
● Repeat buyer
● Core buyer
● Defector
The Customer 45
Let us examine the characteristics of the above stages and the value that the customer seeks in each
stage. This will help in identifying the marketing tasks and programmes that any firm needs to consider.
Prospects
These are all those individuals who have not yet bought the firm’s product/brand. They are being tar-
geted for acquisition. There are two major issues that the firm needs to address at the prospect stage.
The first relates to awareness and the second to inducing him/her to make the first purchase. To cre-
ate awareness in the target market, firms use host of tools which includes advertising, direct market-
ing, internet, telemarketing, and even personal selling especially for corporate customers. This stage
requires huge investments in awareness creation especially when the product or the firm or brand is
new in the market. In the case of consumer products and services, the marketer has to invest in the com-
munication channels which reach the target market. Hence data relating to readership and viewership
of the print and electronic media is required for media selection. The reach and value of the internet
is also important. This stage reminds the firm that designing and producing a product or service is not
just enough. The target market has to be made aware of it.
Awareness alone is not enough. What is important is to induce purchase. For this purpose, prospect
has to be convinced that the product/brand is the best solution for his/her need. Companies use different
strategies to convince and motivate the customer to buy. Testimonial advertising showing satisfied cus-
tomers endorsing the product is one approach. The other is celebrity endorsement or at times, product
features relevant to customers needs are highlighted.
Other tools used are discounts, clearance sales and other similar customer incentive plans like
coupons, or contests. The concentration of the firm’s selling effort is on its core product or service.
Introductory price offers is a very common tool used for inducing the purchase. It is important for the
firm to concentrate on the core product only at this stage. This is because in the subsequent stages the
firm will have to increase the product range.
Customer Service has little role to play at this stage because customer has still not bought and con-
sumed the product. However, initial contacts with company’s sales personnel provide an indication of
the kind of customer service he can expect from the company.
At this stage it is important to know that prospect means a potential customer in the target market.
Hence definition of target market by the company is important. Companies use host of secondary data to
identify prospects. For example, a pharmaceutical company may use membership directory of medical
association or specialists directory to identify prospective doctors to whom presentations can be given
by the company’s medical representatives. Likewise a steel firm may use the trade directory to identify
potential customers in one of the target segments. Creation of data bank today is important to ensure
that there is focused sales effort for an assured satisfactory performance. There are customers who buy
for both price and performance. They want to maximise the value their purchase. Knowing these buying
motives is the first step in customer acquisition. But profitable and market leaders do not stop at this
stage. They go to the next level of segregating customers on the basis of their loyalty and profitability.
It is important to note that companies always wish to develop partnership with profitable customers.
They are generally those, who buy for considerations other than price or value maximisation. They
are expensive to acquire, serve and retain. This is particularly visible in business-to-business (B2B)
marketing, where suppliers or vendors are valued for their long-term commitment to the organisation
objectives. These organisations want the best and the latest products/service at the most competitive
price. Often customers involve such firms in their product development. In the context of an individual
buyer, it is generally observed that firms which give their customers an opportunity to co-create or co-
produce the product often have more loyal and profitable customers. This is reflected by the growth of
Wikipedia, an online encyclopaedia launched in January 2001, which attracts today seven billion page
views per month and has been translated in more than 10 languages of the world. Users here also post
new entries. Although cases of ‘fake entries’ have been detected, the authenticity of entries in Wikipedia
is the same as that of Encyclopaedia Britannica. More than that, it has 10 times more entries than the
conventional encyclopaedia.
First Time Buyers

Once the prospect has decided to buy, the customer enters the trial stage. The customer is now evaluat-
ing the firm, product and the entire purchase and consumption experience. The firm’s strategy should
be to create an experience for the customer to repeat his purchase. It has to continuously reassure the
customer that his decision was correct. Also, the firm needs to reinforce the customer’s belief in the
superiority of the product. In order to achieve the above objectives, the company needs to focus on
factors that create an everlasting experience. This includes the experience at product delivery with sales
and customer service personnel. Follow up customer care calls with appropriate advertising campaigns
can create a satisfied customer.
Further, the company can attempt to sell accessories to the main product. For example, cell phone
company like Vodafone may sell a handset alongwith airtime to a new subscriber thereby augmenting
its offer. Or it may offer value add services like GPRS connectivity for web surfing and email services
free for a specific time period.
At times, firms resort to aggressive sales promotions to induce repeat purchase. However, one has
to always bear in mind that such promotions should not hurt the product or brand image. Further, im-
pact of any promotions on company’s profits must always be considered. It can lead to irrecoverable
losses as it happened for Air Deccan and other low cost airlines. Sustained aggressive promotions and
discounted pricing can lead to customer developing a low reference price for the product. This can be
damaging in the long run. Hence price, which is important, is not so critical at this stage, when com-
pared to the product features. Perceived value in the offer is very important for the customer to return
to the company.
Repeat Buyers
These are the customers repeating their purchase. They are satisfied with their first experience and find
value in the current offer of the company. At this stage, firm need to keep in mind that these custom-
ers are still vulnerable to competitor poaching. Hence it needs to continuously strengthen the product
value by removing any dissatisfaction. Typically, these could be service failures or performance failure.
Today, with increasing use of technology by companies to service the customer, it should be possible to
reduce dissatisfaction on this account. But unfortunately it has not happened. On the contrary, customer
The Customer 47
dissatisfaction has increased because technology seems to have ignored the human touch in customer
service. Also structures like call centres and franchisees have further distanced the customer from the
company. Such a situation is most fertile for competition. Hence the challenge for the company is to
strengthen direct contact with the customer. This can help it to get proper feedback about faulty per-
formance, if any.
Another factor that can make customers go to the competitor is a superior product offering. Competi-
tive pricing is one such element of value.
Many companies today have a loyalty programme. They induce these customers to join it by offering
savings and other rewards on current and future purchases. One of the most significant ways to inform
the customer of the programme is to ask him/her of his/her membership of such loyalty programmes at
the time of purchase and payment.
Appreciating the customer for his/her business is an important tool in the hands of the firm. Custom-
ers value this gesture and return the same in the form of increased business. Kingfisher Airlines is an
excellent example as the customer, is personally thanked by the Company Chairman Vijay Mallya for
choosing the airline over that of his competitors. Even the flight commander repeats the gesture as the
flight lands.
Core Customers
They are the fulcrum of any company as they account for its overall profitability. Hence core customers
are very critical and precious. In most companies, they are generally about 2–3% of their total custom-
ers. Firms evolve strategies to expand this base and also to keep them happy and satisfied. Core custom-
ers are those who do not switch their brand/supplier. They perceive their switching costs to be high as
they understand the product and the brand, are familiar with sales and service personnel and know the
company better than other customers. Core customers are also those, who despite competition, prefer
to remain with the company and the product/brand. They buy not just the core product but also several
other products from the company. They also induce other customers.
Several strategies are used by companies to retain their core customers. Reward or loyalty scheme
is one such strategy. For example, today many companies have a rewards structure for their customers
with the highest or maximum meant for core customers. Airlines like Jet, Kingfisher, credit card com-
panies like Visa, Master Card, American Express and retail leaders like Shoppers Stop are some of the
examples of companies that use this approach.
Pricing is yet another area that firms need to pay close attention. Even when these customers price
sensitivity is low and propensity to stay high, companies cannot ignore the fact that they will be the
target for competition to poach. Hence prices need to remain competitive. No firm today can afford to
price its product/service at an exorbitant level for it will suffer significant losses, were its to become
complacent.
Further, the company’s strategy should be to inform these customers first of its new product launches
or promotions. The first opportunity to try should be given to them. For example, each year Shoppers
Stop organises several events. Each time, it informs and reminds its core customers to enjoy the privi-
lege of shopping even before the event is offered to other customers.
As mentioned earlier, sales and service personnel need to recognise such customers. Today compa-
nies use data warehousing technique to record the entire purchasing history of customers. This helps
identify and track core customers. Not only so, companies today train its frontline sales force and
service employees in using this data storehouse to recognise core customers. It should also help them
customise the offer.
Hence core customers need to be continuously charmed and retained for they have a direct bearing
on the company’s profits and long term survival.
Defectors
These are customers who have rejected the company’s offerings. Defection occurs across all the above
stages of customer life cycle. One needs to analyse the causes of such defection and take steps to correct
the situation. Some of the most common causes of defection are:
(a) Poor service of the company;
(b) rude, discourteous and indifferent sales personnel;
(c) lack of personal touch as the company automates all its operations and customer interfaces;
(d) delayed or no response to customer complaints;
(e) actual consumption experience is different from the promised one—i.e. actual experience is less
than the promised one;
perceived value equation;

(g) competition offers lower prices;
(h) better service from the competition.
The firm’s attempt should be to reduce defection. It should try to win back lost customers, especially
core, by removing the cause of such defection. For this, some companies offer additional incentives to
returning customers. Also such customers, especially core, are personally visited by the senior manage-
ment of the company.
To conclude, customer life cycle is an important concept that marketer need to know to plan market-
ing mix and target the marketing effort. But, this is just not enough for marketing planning and strategy.
The marketer also needs to know the factors that drive customer acquisition and retention.
CUSTOMER ACQUISITION AND CUSTOMER RETENTION
LO2 Factors that Drive Customer Acquisition

Explain the factors in Customer acquisition is a continuing process in any firm and industry. One
customer acquisition needs to understand what drives customers to a product or brand and the
and how customer can
company. Following are the factors that attract a customer to a product and
be retained
the company.
Technological Advancements Technological changes today continue to motivate customers to
review their purchasing choices to enable them to either continue with existing brands or change them.
Better features, quality of performance, and minimising scope of failure are some of the benefits that
technological changes in the industry and firm can deliver to the customer. It also lends stability with
minimal need for service at optimum prices. Let us take some examples. Mobile phones is an example
The Customer 49
of how technology can impact customer acquisition. Today the total number of mobile phone subscrib-
ers are higher than landline phone subscribers. Further, each month, the percentage increase in mobile
phone subscriber is more than the landline. The comparison does not stop here. Today, more customers
use their cell phones to make long distance calls (STD) than their landlines or the public call offices
(PCOs). Hence revenue from STD in mobile telephony has increased over that of the landlines. This
is especially so in urban areas. To encourage customers use their cell phones to make STD calls, the
call rates have been reduced and brought at par with the landline. Thus, STD from landline, as a serv-
ice, from companies like MTNL and BSNL has lost to companies like Airtel, Vodafone and Reliance.
Further, features like text and video messaging have further made cell phones attractive. Other features
like directory of contacts, ring tones, email facility and downloading of music and films on the cell
phone, has made cell phone acquisition attractive. Now with prices of cell phones falling to as low a
level as `1,200 (or USD 30) for a base model and entry level pricing of airtime for a prepaid customer
being reduced to `99 (or USD 2.50) more customers across lower income segments like maids, drivers,
plumbers, carpenters, vegetable vendors etc. becoming users of mobile phones.
Similar is the story of email service which has, today, replaced postal mails and mail by couriers.
Technological developments can have an impact of altering business models in the industry and
altering company’s relationship with customers. Hence companies need to track these developments.
Leaders in the industry invest in technology and also in building industry standards. This is what Intel,
Nokia, Sony, Pfizer and Monsanto have done in their respective fields. These changes can also impact
the minimum and maximum consumption levels of the product.
Government Policy Governments also can impact industry and firm’s customer acquisition.
Though it is an indirect influence, yet it can be significant for company’s sales and profits. Taxation
policy is one such policy that affects customer’s purchase decision. When hybrid cars were launched in
America about three years back, the American government gave a tax break to all customers of hybrid
models. This helped them acquire the car at a lower price. Savings on fuel consumption was yet another
factor that added to the cost benefit in hybrid cars.
Likewise government may ban the use of a particular product thus leading customers to switch their
choice. Sometime back government banned penicillin in the pharmaceutical industry. This made doc-
tors look for alternatives which were safer, effective and competitive priced.
Government can also make the use of a product compulsory. All two wheeler drivers and pillion
riders must wear helmet. This policy boosted the sale of helmets in India as the customer had no choice
but to wear or else get penalised.
Lifestyle Changes Lifestyle changes in the market also impact consumption and hence customer
acquisition by the industry and the firm. These lifestyle changes are influenced by education, income,
occupation profile and access to internet and satellite television. We are today witnessing significant
changes in lifestyles not just in metro cities like Delhi and Mumbai but also in smaller towns like In-
dore, Aurangabad, Nashik, Bhind, Rewari, Ranchi, Guwahati etc. This has led to growth in demand
for multiplexes, retail chains, malls, luxury cars, plasma television and fast foods like pizza, burgers,
pasta etc. Changing lifestyle of Indians had a direct bearing on PVR and Adlab’s customer acquisition
strategy. Healthcare institutions like Apollo Hospital or Wockhardt or Fortis were similarly impacted.
These lifestyle changes not only impact product choice but also frequency of purchases.
Purchasing Frequency There are items like cereals, milk, bread and garments which have a
higher purchase frequency than durables like washing machine. As a general principle, more frequent a
purchase, higher the probability of switching. Acquisition rates are higher for such product categories.
The challenge for the marketer is to build repeat purchases. Hence distribution and continuous avail-
ability at all outlets and modes of distribution, including web marketing or e-retailing is as critical as
product modification or price. Generally shorter purchase cycles also means lower volumes in each
purchase transaction. This has a bearing on firm’s cost and profits.
Innovations in Industry All product and process innovations have an impact on altering acquisi-
tion rates in the industry. For example, Tata’s Nano car has forced automobile manufacturers to revisit
their car manufacturing process. Nano, which is considered an innovation in global car manufacturing,
is set to alter acquisition rates in its favour to the detriment of two wheelers.
Altering Acquisition Rates

As can be made out from the above, investments in technology, product and process innovation or distri-
bution can have a bearing on altering acquisition rates. So can pricing, sales and service efforts change.
Improving Retention Rates

Retention of customer is dependant on the company’s orientation. As was mentioned in Chapter 1, the
company’s orientation plays a major role in determining its competitiveness. Customer orientation
was mentioned to be the objective of most successful companies. If the company is customer oriented,
customer retention becomes a natural part of its process, systems and strategy. Higher rates of retention
is possible, only if, the company pays attention to the following factors:
Customer Service Service plays a significant role in the customer’s decision to stay with the
product and the company. Research has shown that bad experience on this account has enraged custom-
ers forcing them to abandon the company. One of the key element of service is complaint management.
There are three different responses that companies can give to a complaint—(i) accept the complaint
and proactively resolve it, (ii) deny the complaint and put the blame on the customer for the product’s
failure and (iii) be indifferent towards the complaint for the reason that ‘you cannot please all’. As may
be inferred, the second and third type of response will never help retain customers. It is the proactive
approach that helps create a satisfied customer.
Further, technology should be used to facilitate customer contact and service. It should not lead to
removing the human touch which is vital in any customer interface. It should be possible for the cus-
tomer to speak to service representatives and not just to machines.
Recognition of the customer, empathising with him and responding to his needs can play a major
role in retaining a customer in an otherwise highly competitive environment.
Continuously Enhancing Value Continuous value enhancement through increasing customisa-
tion also helps enhance customer retention. This is greatly facilitated by co-opting customers in design-
ing products and other elements of marketing mix. We shall further discuss this strategy of customer
co-option in our chapters on New Product Development and Marketing Strategy.
Further value enhancement is done when the company uses its network partners to offer the desired
product or service. For example, a travel portal like travelguru.com or destinationindia.com delivers
enhanced value when it offers travel, stay and conveyance and all other services to its customers. The
The Customer 51
customer is not directed to an airline, hotel, car rental and currency dealer links. But all these are avail-
able only through this service aggregator or service portal.
One another aspect to be considered is pricing. It is important that strengthening of product or serv-
ice should take place without necessarily leading to price hike.
Keeping Abreast of Technological Changes Another way to retain a customer in today’s
time is to continuously keep pace with technology. As far as possible, the firm should lead the techno-
logical development and adoption in the industry. This will help it to continuously deliver new products
which are more efficient and in line with the changing lifestyles of the customer.
Continuous Improvement in Customer Loyalty Programme Very often customers
get tired of the same old rewards in the loyalty programme. Excitement in the programme need to be
maintained at high level. Jet Airways was the first airlines in India to develop a dynamic reward struc-
ture which automatically upgrades customers to higher levels of loyalty status (blue to platinum) with
increased benefits. Not only so, it continues to innovate on rewards by working on relationships with
various other companies and service providers. These companies offer Jet customers opportunities to
earn or double the reward points on every purchase transaction.
From the foregoing, one inference is that the goal of customer acquisition and retention can be
achieved only by understanding customer value. What values drives the consumer to a product or brand
and how these values are developed. How can the firm use this understanding for developing a strategy
for creating a loyal customer.
CUSTOMER VALUE AND VALUE MAXIMISATION STRATEGIES
LO3 Customer value can be understood from a variety of

Customer Value refers to
Describe the perspectives. All of them tend to concentrate on the
perceived value by the
customer value and customer or firm’s perspective. From the customer’s customer in an offer.
value maximisation perspective, value can be understood as what he or
strategies she is willing to pay and hence customer value refers
to perceived value by the customer in an offer. In other words, it is the value
that the customer perceives as being superior and relevant to him/her and hence is willing to pay for
the purchase and consumption of the products/services. From the firm’s perspective, it is the value of
the customer (i.e. customer lifetime value), and use of a strategy to be used to create and deliver value
to the customer.
Let us understand this term both from the customer and the firm’s perspectives as it influences re-
lationships between the company and its customers. It was mentioned in Chapter 1 that contemporary
marketing is about relationships.
Customer Value from Customer’s Perspectives

It is important to understand two terms here, namely ‘Value’ and ‘Values’. Holbrook3 suggests a frame-
work. ‘Value’ refers to preferential judgment, while ‘Values’ refer to the decision criteria that shapes
this preference. For example, when a housewife chooses a brand of microwave oven or a detergent
she is communicating that the brand is more valuable than others. But what has made her choose that
brand? Research shows that the following factors collectively influence a consumer’s decision to buy
a durable product like microwave oven and hence may be termed as ‘Values’ that customers look for:
Personal The demographics and lifestyle of the customer are personal factors that influence her to
buy a microwave oven. For example, a working woman’s need for a microwave is different from that
of a home maker and, hence, her expectations differ. This will affect her decision criteria and also the
values she looks for when buying it. For example, the value of zero defect in the product is much more
for her than for the housewife who may not mind waiting for service, in case of product failure. Hence,
personal factors play a significant role in determining customer values.
Esteem One of the significant factors in the purchase of a product or service is its status value. For
example, luxury products or premium priced products are often bought to enhance the status of the
buyer. It is important to note that status value is attached to all those products which are perceived as
aspirational by the target market. Today, many brands are bought by the customer to make a ‘statement’
to his/her reference group by flaunting the purchase.
Utility The economic perspective of a product purchase is its utility. Different target markets attach
different utility values to the same product. For example, the younger customer (age group upto 25 years)
may perceive ‘staying in continuous contact with friends as the major utility of a cell phone’. But the
customer in the higher age group of 50 years plus may perceive a cell phone’s primary utility as a means
of communication in emergencies only. Thus, a cell phone serves different needs of different groups of
customers. It is important to note that the utility of a product lies at the core of its purchase proposition.
Social Many a time a customer’s social needs drives him/her to buy the product. When this happens,
the primary value a product serves is social. Hence the marketer needs to project it in its positioning
statement. For example, a good neighbourhood/community is an important social value in the purchase
of an apartment/house. Hence, leading construction companies in the country often state the community
for whom they have planned the residential units. Some even narrate the experience of the families who
have bought apartments and live in that area. Thus affiliation, acceptance by peer group, opinion lead-
ership, friendship, etc. are some important social motives which direct a customer to a brand/service.
Price Another important value in the purchase of a product is reflected by its price tag. For exam-
ple, moderate prices and product quality draw customers to Big Bazaar, while the value of exclusivity
attached to premium priced products draw customers to designer showrooms. Average price is an im-
portant value that customers look for when buying goods and services. This is particularly true in the
context of price sensitive market segments. Researchers have established a relationship between price,
perceived quality, and perceived value. This has introduced the concept of ‘trade-off’ in marketing
literature. Invariably, customers make a trade-off between price and quality and buy the brand which
maximises value at a given price level.
Quality Like utility and price, quality is an important core value in the customer’s decision mak-
ing. As we shall learn in the subsequent chapters, quality is what a customer pays for and not what
the company wants the customer to believe in. Hence, it is the perceived quality that is important to a
customer. As was mentioned earlier, there is a relationship between price and perceived quality and,
hence, perceived value.
Experience as a Value
Another approach to understanding customer value is to examine a purchase situation as an experience.
Implicit in this are three key situations: Value in purchase, Value in consumption and Post Consump-
tion experience.
The Customer 53
Some of the key issues in Value in purchase include convenience in buying, experience in the store
and with the sales person, payment options, delivery at the point at which a customer may want, and
even comfort with technology in today’s market scenario. This is important as more and more firms
and stores are offering their merchandise on the Net. Purchase on the Internet is greatly impacted by
the customer’s sense of security with payment terms and disclosure of his/her credit card/debit card
information.
Value in use, on the other hand is a functional outcome. It is a goal that is served directly through product
consumption. Value is in the experience a customer has in consuming the product/service. In their seminal
work, ‘The Experience Economy’, B. Joseph Pine II and James H. Gilmore4 have concluded that companies
need to focus on customers’ experience with their products and services. They believe that new competi-
tion is today built around experience rather than tangible product features or intangibles, like services, etc.
Customers today pay for experience and not just for an acquisition or a service. The more positive and
rewarding an experience, higher is the price the customer is willing to pay. The modern coffee bar chains
like Starbucks, Barista, and Cafe Coffee Day focus on maximising the customer’s total experience.
Firm’s Perspective of Customer Value

From the perspective of a firm, customer value is often understood as the value
From a firm’s perspective,
of a single customer to a firm’s profit and market share. Research has today
the customer value stands for
shown that firms gain more through their retained customers and hence they value of a single customer to
(firms) need to focus on enhancing the life of a customer in their customer port- its profit and market share.
folio. Inherent in this statement is the need to prevent loss of customers. Also, it
implies understanding the profit potential of a target customer and hence the need to link the customer
pyramid to the firm’s profit pyramid. As we saw in the last chapter, the 80:20 rules also applies here.
This means that 20% customers generate 80% of profits. Firms need to focus on enhancing the life of
these customers through different value maximisation strategies.
Research by Reichheld and Sasser5 has shown that a five percentage point increase in customer reten-
tion could yield as much as 125% improvement in net present value (NPV) profits. This was calculated
by applying the principle of NPV to the profits generated by a customer over a lifetime.
We have discussed earlier that not all customer segments have the same value. Some will be profit-
able, some will break even, and some will just be loss making—a concept that was illustrated in
Chapter 1. Understanding this concept can help a firm focus its resources on the profitable and breakeven
segments and outsourcing the unprofitable segment to its marketing partners. In doing so, the firm can
put in practice the principles of one-to-one marketing. To achieve this goal, the Internet and digital
technologies can enable organisations to transform their marketing practices and programmes. Data
warehousing, intranet, and web enabled marketing are some tools which are facilitating this marketing
revolution.
In order to understand the value of a customer to the organisation, one needs to calculate the cost of
acquiring the customer (acquisition cost). This can be done by analysing the buying patterns of both
new and existing customers. This can help identify customer segments and the marketing effort required
to win over the profitable ones as also its costs. This acquisition cost can be calculated as:
Cost (direct and indirect) of selling to a customer
Acquisition Cost =
Response rate
–1
r = retention rate [r(a )
is the survival rate for year a]
i = the interest rate

AC = acquisition cost.
Now if Ma and Ca are relatively fixed across time period, the CLV (Customer Lifetime Value) can
be expressed in simpler form by assuming the economic life of the customer (n) as infinite.
M –C
CLV = - AC
1– r +i
This understanding of lifetime value can help firms reward loyalty, out source unprofitable custom-
ers, and also identify opportunities to cross sell.
Contemporary Model on Customer Value

On the other hand, contemporary thought is to involve the customer in the value creation process. Pra-
halad and Venkat Ramaswamy6 have argued that the source of competitive advantage lies in involv-
ing the customer in the value creation process. This goes beyond just market research. Suggesting a
continuous dialogue and involvement of the customer in the value creation process, the authors have
outlined a model called DART. This stands for a dialogue between the company and the customer.
Dialogue goes beyond just listening to customers. It involves a sharing of information between two
equal problem solvers who share identical concerns and have the same interests. The dialogue process
requires a forum and rules to ensure an orderly and productive interaction.
For a customer, access to a product or service is today more important than its ownership. In other
words, access to desirable experiences is more important today. This process begins with sharing in-
formation with customers and providing them with tools (for example, toll free numbers or website
address like Indian Railways Catering and Travel Corporation, IRCTC, of the Government of India
(www.indianrailways.gov.in). Continuing with the IRCTC example, the customer today has access to
a range of services including travel reservations and getting tickets delivered to his/her choice of ad-
dress. Likewise, car rental companies offer latest models of cars to customers who do not wish to own
a car for reasons of avoiding costs and hassles of parking. So in such cases customers pay according to
usage. Thus, providing access to the customer can help in improving lifestyles. Access can also help
bridge the gap between rich and poor nations and, in turn, create opportunities for the latter.
The third (R) stands for risk assessment. Risk here refers to potential harm to the customer if the
product/service is consumed. Hence, while communicating features and benefits of the product, a
company should also communicate the risks of consumption. In an environment of co-creation, the risk
should be shared between the firms and the customer. Transparency, the last letter (T), in the model
is today the epitome of any relationship-building exercise. Traditionally, firms have resisted sharing
information and the customer has to make a choice on an ‘as-is-where-is’ basis. But not so today, as
the customer wants to know the ‘why’ and ‘how’ of a product, price distribution and quality of service.
This is greatly assisted now by an open and competitive media.
The customer’s value chain
Thus, involving customer is the very logic of the new paradigms in marketing.
has been described as a
customer’s activity cycle, Value Creation by the Firm
relationship management The value creation strategy of any firm emphasises the need to view the busi-
chain, and as a constellation
ness from the customer’s perspective rather than as a set of internally oriented
of values which the customer
buys. functions. It is here that one needs to understand the Customer’s Value Chain.
This has been described as a customer’s activity cycle, relationship management
The Customer 55
chain, and as a constellation of values which customer buys. Norman and Ramiréz7 who propagated
the concept of value constellation, have concluded that the focus has to be on a Value-creating System
itself within which all economic actors (suppliers, business partners, allies, and customers) work jointly
to co-produce value. This requires a shift in the firm’s orientation to the customer and market, and
involves creating core capability of continuously innovating to deliver superior customer value. This
involves taking care of the following:
(a) Conformance quality
(b) Customer satisfaction
(c) Market-perceived quality and value relative to competition
(d) Customer value management
Subsequent literature has shown that in contemporary marketing, brands represents a set of values
that customers are willing to pay for. Typically, a marketer creates value through innovations, service,
convenience in product acquisition and use, brand imagery, and value for money propositions.
Thus, value maximisation strategy is a triad with value-based price, product quality, and service
quality being the three ends which are interdependent (Figure 2.1).
Customer Value and Relationship Marketing

It is apparent that customer value is a dynamic concept in which both the cus-
tomer and the firm actively participate. Every development on the technology Loyalty is created only when
customers perceive fairness,
front or competition alters value paradigms. It is therefore important that the equity, and transparency in
firm needs to continuously monitor these developments and innovate in order to his/her relationship with the
retain the customer. In order to deliver this value and build relationships, firms seller.
need to focus on all those players who jointly create value. Hence, the firm has
to build relationships with all of them. There are six such key partners who have been identified as
facilitating a firm’s relationship with a customer. These are:
(a) Supplier/alliance markets
(c) Manpower suppliers
(e) Internal employees

(f) Customer markets
It is important to note that each of these markets is interrelated and relationship with customers can
be strengthened only when firms pay attention to all five simultaneously.
CUSTOMER VALUE AND LOYALTY
LO4 Customer relationships are built on the basis of trust. Invariably, it has been
Demonstrate the observed that repeat business gets generated only when customers believe
relationship between their suppliers and perceive them as creating more value. Hence, loyalty is
customer value and created only when customers perceive fairness, equity, and transparency in
loyalty his/her relationship with the seller. It is in the interest of the seller to convert
more number of customers into loyal customers as they are the biggest en-
gines of growth. They generate profits, help the firm retain its high performing employees, and investors
Figure 2.1 Value Maximisation Triad
who continue to invest in it. The loyalty based business model shown in Figure 2.2 clearly indicates a
relationship between customer loyalty, employee motivation, and investor confidence.
Figure 2.2 Loyalty Based Business Model
As one can see from the above business model, the economic impact of loyalty on a firm is manifold.
Some of these are summarised below:
The Customer 57
delighted, they share their experience with their peers, and thereby add new customers to the
(b) This perceived superior value by the customer fuels growth in the organisation. This growth is
tions.
than to others. Loyal customers also further spur the growth rate.
that a motivated and loyal employee is a key resource in the value creation process and, in turn,
(f) A motivated and loyal employee also enhances productivity, which in turn leads to cost advantage.
Thus, a firm that focuses on delivering superior value to the customer has a larger portfolio of loyal
customers and hence grows at a much faster pace than its counterparts in the industry. Also, a loyal
customer impacts all business processes in the firm. Therefore, the firm needs to redirect and link them
to the principal goal of value creation. Firms like Jet Airways, HDFC, Shoppers’ Stop, Raymond’s,
and Samsung have grown in India by following this model. A frequent flyer of Jet Airways has gener-
ally remained with it, despite competition. Many of them perceive the service quality of Jet Airways
as being far superior to others. This has led to the airlines continuously winning awards, both national
and international. The same is true for MRF which successfully deflected price competition only by
focusing on creating and delivering superior value which, in turn, led to enhancing customer loyalty.
In Practice
Strategies for Customer Loyalty
How do companies create loyalty? How is customer value translated into a strategy which leads
to loyalty? Let us consider the cases of Jet Airways and Toyota Lexus.
Jet Airways’ stated mission was to alter customer experience of flying in India. It made it
known that it was not in the business of flying aircrafts. Rather its business was to fly people.
Started in 1993, when the Indian skies were partially opened to competition from the private
sector, Jet has today emerged as India’s premier airlines. It is pertinent here to mention that, at
that time, the sole airlines was Indian Airlines and almost all travellers had an extremely frustrat-
ing experience with it. The key elements in the airlines business are:
(a) Network of destinations
(b) Fleet of aircrafts
(c) Continuous maintenance and housekeeping of aircrafts
(d) Courteous and friendly staff who are empowered to solve customer problems on the spot
(e) Punctuality in flight timings
(f) Low/minimum waiting time on reservations, tele-check-ins, check-ins, security, and bag-
gage retrieval
(g) Continuous communication with the customer before, during, and after a flight
(h) In flight and ground services
Jet Airways mapped customer experiences at all the touch points starting from reservations
to baggage retrieval and came to the conclusion that while all passengers have had harrowing
experience with Indian Airlines, the most dissatisfied were the business travellers. It collected
information on them through travel agents and its own marketing team. The information col-
lected was not just on their demographic characteristics and frequency of flying, but also on the
values they looked for in an airlines and what would make their flying experience a satisfying
one.
This customer information was translated into product design. The selection of aircraft, its
maintenance, cleanliness, ambience, and congenial temperature on the ground/while flying were
all impacted by this information. Customer service training, in flight service, and ground services
were also influenced by customer values. Showing that the company cared for its customer’s
feedback, it was the first in India to introduce a customised menu on board the flight. Respect is
shown to the customer by the steward/stewardess when addressed by his/her name. The list of
customers, was always available to the crew as a part of the flight roster. Jet used it to establish
a one-to-one contact. This made the customer feel important and cared for.
Retention of business is also very important. Loyalty should be rewarded, and this reward
should be directly linked to the extent of the customer’s loyalty. Jet Airways was the first airlines
in the country to develop a dynamic frequent flyer programme in which the customer automati-
cally graduates to higher order rewards and loyalty levels depending on the number of flights
taken during a particular time period and cumulatively over his lifetime in the given company.
In order to ensure that it remains focused on the customer, Jet has created a data storehouse
and has networked all its operations in a way that each touch point gets the same information
on the customer. It uses all media channels—Internet, cellular phone, SMS, telephone, direct
mailers—to reach out to its loyal customers.
Faced with competition from no frills, low price airlines, and a price war, Jet had to re-look
at its pricing and cost structures. To meet competition on price, it offered differential fare struc-
tures depending upon the number of days in advance of the travel date the passenger booked
a seat. To reduce costs, it offered online reservations to its customers. It also offered to its loyal
customers the facility to track their mileage status and redeem it online. This helped the airline
reduce payouts on account of agent commissions and staff costs. Today, Jet’s challenge is to
alter passenger experience in the international sector. And here, it faces competition from lead-
ers like British Airways and Singapore Airlines. Despite everything, Jet in India continues to be
the customer’s preferred airlines.
Toyota did almost the same when it introduced the Lexus in the United States more than a
decade ago. It decided to treat each customer as a guest at home. For this purpose, it developed
a model of distribution which changed the paradigm in auto business. Its business model also
aimed at altering the value proposition in the industry. Hence, the company focused on:
(a) Creating a truly outstanding design, quality, and value in the car
(b) Targeting the young, fashionable and performance conscious customers
(c) Studying customer interactions with the company and its dealers
The Customer 59
(d) Making all business functions study customer interactions so as to deliver value at each
step in the customer life cycle. This showed that the primary drivers were the sale itself,
delivery of the vehicle, the driving and operating experience, service—both routine and
emergency, company communications, and the resale value of the car (should the customer
decide to sell at a later date).
(e) Developing a system to track customer satisfaction on all the above parameters
(f) Offering buyback facility to its customers and giving opportunity to its dealers to recondi-
tion and make profits on sale of pre owned cars
(g) Selectively distributing through approved dealer outlets. Screening was on the following
three criteria:
(i) financial strength and stability
(ii) demonstrated ability to earn high customer satisfaction
(iii) track record of loyalty
Once selected, Toyota spent time in creating the right ambience at the dealer outlets.
The building layout was based on the pre established sales process where the recep-
tion desk was near the door. The sales consultants were not to approach the casual
customer unless asked for by the receptionist. The sales presentation area is an open
one with three chairs and an oval desk.
(h) Focus on service: One of the keys to this system was the satellite based communications
network that connected all dealers with the national headquarters in California. Other ele-
ments of service were, tracking customer satisfaction, diagnostics training, and expert help
with problems. Satellite communication helped all dealers and service departments track
online a car maintenance history. It also helped manage inventory of spares.
(i) Online tracking of customer retention for each of its dealers.
(j) Appealing to dealer pride by comparing their performance to company targets and to the
results of top performing dealers.
Today, many other automobile companies have adopted these elements of the Lexus strategy.
We see the same happening in India. But the difference is in the manner in which all these ele-
ments of loyalty strategy are put together by the companies.
Strategy for Customer Engagement

Loyal customers are a consequence of the customer engagement strategy. In the last decade, firms
grappled with engagement strategies both in online and offline interactions with their customers. Often
it has been observed that customers are either highly positive or critical of their interactions with the
firm. It is today widely recognised that engagement is interactive in nature and an important determinant
of customer experience. Managers and researchers need to understand the constructs of this customer
engagement which can help them conceptualise their market strategy. Customer engagement goes
beyond the purchase transactions and includes word-of-mouth publicity, recommendations, blogging,
writing reviews on company websites and portals as also in other media, helping other customers under-
stand how to use a brand and participating in brand communities. Marketers today seek to understand
all these aspects both in online and offline environment which can influence the decision to purchase
and repeat the choice. Understanding customer engagement can help produce, and design the product
and retail environment. It can also help understand the influence of product, channels and other mar-
ket characteristics on customer relationship. Customer engagement, therefore, is a multidimensional

construct. Firms have access to highly micro-level observational data describing customer responses to
interactive experiences with a focal object like Radio Frequency Identification Device (RFID) which
tracks inventory movement in a store. Banks for example have customer data at a granular level through
the net-banking and ATMs used by their customers. Many firms today view customer engagement as a
route for creating and enhancing value through co-creation process.
Customer engagement behaviours go beyond transactions and specifically define as customers’
behavioural manifestations having a bearing on a firm or a brands’ market share. Researchers have
identified five dimensions8 of this engagement behaviour namely—valence, form, scope, impact and
customer goals. Valence can be classified as either positive or negative. Positive engagement leads
to financial or non-financial benefits for the firm. Positive engagements include favourable word-of-
mouth recommendation through friends and families and as mentioned above often leads to writing
reviews by customers. Form and modalities of customer engagements refer to different ways in which
they can be expressed by customers.9
The scope in customer engagement refers to temporal and geographic dimensions. The geographic
scope of customer engagement can help a firm understand how customer responds to a brand in differ-
ent geographies. At the same time the firms also need to understand that a review or a feedback posted
on a well-known website like TripAdvisor or Lonely Planet will have a global impact on market con-
sumption.
The impact of customer engagement behaviour on the firm and its consequence can be conceptu-
alised on multiple counts like intensity, breath and longevity. For example, in the above case a review
on a TripAdvisor will have long term impact as opposed to a feedback sent to the firm which may have
an immediate but limited effect. Finally, one also needs to understand customer’s purpose in engaging
with a firm. While understanding the customer’s purpose, one needs to focus on the following:
1. To whom is the engagement directed
2. To what extent is the engagement planned
Thus, to sum up, firms need to invest resources in mapping customer engagements. Today, customers
communicate far more and expect to be responded. There are multiple opportunities and tools available
to engage with the customers.
FINANCIAL DIMENSIONS OF CUSTOMER ACQUISITION AND RETENTION
LO5 Costs and Profits in Customer Acquisition and

Categorise the Retention
financial dimensions A firm has to always bear in mind the cost of acquiring and retaining a
of customer customer. This is because of the direct impact on its profits. One has to
acquisition and remember, that beyond a certain level, cost of acquiring or retaining a cus-
retention tomer exceeds the revenues he will bring in and hence lowers profits. Often
marketers forget to examine the long-term profit and loyalty potential of
customer. This leads to blindly putting in place measurements for customer acquisition and retention.
Research today shows that a company may have four type of customers as shown in the matrix in
Exhibit 2.1.
The Customer 61
Exhibit 2.1 Customer Categorisation
Source: Jacquelyn S. Thomas, Werner Reinartz and V.K. Kumar: “Getting the most out of all your customer, “Harvard
Business Review, July–August 2004.
What constitutes cost of acquisition and retention? Acquisition costs are all communication and per-
sonal contact expenses. For example, cost of email, direct marketing, catalogue marketing, telemarket-
ing, sales promotion, advertising and sales call constitute acquisition cost. In all these costs, email cost
is the least while the personal sales call is the most expensive form of acquiring a customer. Retention
cost covers cost of servicing an acquired customer, reward programmes, sales promotion costs and all
other communication costs. Since the costs on both acquisition and retention is high, management is
often confronted with the question of whether to spend on either or both. While the need is not debated,
the costs as also the amount to spend are often issues that need management consideration. The general
guideline is to overspend on retention rather than being stingy and losing out a valuable customer. The
optimal level of spend will have to be found. This varies from industry to industry and the complexity
of market environment.
One model developed for allocation of resources for customer acquisition and retention has been
called Allocating Resources for Profits10. This is a complex regression analysis in which long term
profitability is a function of:
(a) amount of money company spends on each customer’s acquisition and retention; and
in the decision.
According to the authors of this model, the challenge for the marketer is in identifying correctly
the factors in customer decision making and accurately determining their relative importance. They
suggest that these should comprise of customer demographics and psychographics (personality and
lifestyle—which we shall discuss in the Chapter 6), actual buying behaviour of such customers (like
how much they buy, frequency of buying and how much they spend as share of their wallet), and retain
these customers. All these factors differ from industry to industry and from company to company. Their
research showed the following factors driving profitability in three industries that were studied:
Acquisition profitability depends on:
● Acquisition expenses like any samples, discount coupons etc., besides other promotions.
● Number of sales calls and telephonic contacts, emails etc.
● Number of customer initiated contacts, inquiring about products or services.
● Customer demographics.
How long will the relationship last?

Several factors, as we learnt above, affect customer’s life in the organisation. Some of these factors are:
● retention expenses like reward schemes, servicing expenses etc;
● number of service calls made, either in person or through telephone or email;
● number of customer initiated contacts;
● volume of business from the customer;
● share of business in the product category from the customer (i.e. share of company’s products
bought vis-à-vis competition)

Finally, profitability depends on:
● Cost of acquisition
● Cost of retention
● All the above factors in acquisition and retention
● Estimated life of customer
SUMMARY
Customer is the focal point of marketing strategy. They go through different stages before finally
becoming a loyal or committed customer. In the beginning, all individuals in the target market are
prospects, i.e. those who have not yet bought the firm’s product/brand but are targeted for acquisi-
tion. To reach out to these prospective customers, firms need to create awareness and excite them
to try the product/brand. Once they are attracted to a product and have decided to buy it, they enter
the trial stage. Such customers are called first time buyers. Since good experience can bring back a
customer, the firm must invest in developing such experiences through its products sales, point of
sale and services. Repeat buyers or customers are the ones who repeat their purchases, once they are
satisfied with the first experience. These customers are not necessarily loyal. Repeat purchase should
never be compared with loyalty. Multiple factors lead to customer decision to repeat their choice.
Firms need to develop loyalty programs to retain such customers and to convert them into core
customers, who do not switch their brand or supplier. Such core customers should be continuously
communicated and loyalty programs must enhance their commitment but if they are not satisfied
with the company or the brand, they migrate to competition. Understanding these stages in customer
life cycle can help firms evolve strategies for customer acquisition and retention. Today, factors like
technology, shifting government policies, lifestyle changes and innovation in industries drive cus-
tomer acquisition. It is important for the firm to understand these factors which affect these target
markets. Customer retention is dependent on customer orientation and to a large extent is an outcome
of its service quality, continuous enhancement of value and augmentation of its loyalty programs.
The Customer 63
The loyalty based strategies are built around product, price, and service quality and involves loyal
employees. Firms realize that employee loyalty can enhance productivity and also help in creating
and delivering superior customer value. Investor loyalty is also important. Hence, investor loyalty
plus employee loyalty leads to enhanced customer loyalty.
It is important that the firms develop a customer engagement strategy. Customer engagement goes
beyond purchase transaction and includes word-of-mouth publicity, recommendations, portals and
other media. It is important for the marketer to understand all these dimensions of engagement both
in an online and offline environment.
Finally, marketer should not forget that customer acquisition and retention has a cost to it. Hence,
it is necessary for the marketer to understand the financial perspective of acquisition and retention.
POWER POINTS
1. Stages in customer life cycle are: (LO1)
● Prospect
● First time buyer
● Repeat buyer
● Core buyer
● Defector
(LO1)
host of tools which includes advertising, direct marketing, internet, telemarketing, and even
personal selling especially for corporate customers. This stage requires huge investments in
the case of consumer products and services, the marketer has to invest in all forms of media
which reach the target market. (LO2)
4. Companies use host of secondary data to identify prospects. Creation of data bank today is
important to ensure that there is more targeted sales effort for an assured superior performance.
(LO2)
one that he/she looks forward to repeating. It has to continuously reassure the customer that
superiority of the product. (LO2)
these customers are still vulnerable to competitor poaching. Hence, it needs to continuously
enhance the value by removing any dissatisfaction. Typically these could be service or perfor-
mance failure. (LO2)
Hence core customers are very critical and precious. Core customers need to be continuously
-
vival. (LO2)
8. Defectors are customers who have rejected the companies. Defection occurs across all the
above stages of customer life cycle. One needs to analyse the causes of such defection and take
steps to correct the situation. Some of the most common causes of defection are: (LO2)
(a) poor service of the company;
(b) rude, discourteous and indifferent sales personnel;
(c) lack of personal touch, as the company automates all its operations and customer inter-
faces;
(d) delayed or no response to customer complaints;
(e) actual consumption experience is different from the promised one—i.e. actual experience
is less than the promised one;
altering perceived value equation;

(g) competition offers lower prices;
(h) better service from the competition.
9. Altering acquisition rates is possible through investments in technology, product and process
innovation or distribution. Only then can the pricing, sales and service efforts achieve. (LO3)
10. Higher rates of retention is possible only if the company pays attention to the following factors:
● Customer Service
● Continuously enhancing value
● Keeping abreast of technological changes
● Continuous improvement in customer loyalty programme (LO3)
11. This goes beyond just market research. DART: stands for a dialogue between the company
and the customer. Dialogue goes beyond just listening to customers. It involves a sharing of
information between two equal problem solvers, who share identical concerns and have the
same interests. The dialogue process requires a forum and rules to ensure an orderly and pro-
ductive interaction. For a customer, access to a product or service is today more important than
its ownership. In other words, access to desirable experiences is more important. ‘R’ stands
for risk assessment. Risk here refers to potential harm to a customer if the product/service is
consumed. Transparency is today the epitome of any relationship building exercise. (LO3)
12. From the customer’s perspective, value can be understood as what he or she is willing to pay
and, hence, customer value refers to the perceived value of the offer in the eyes of the customer.
(LO4)
(LO4)
customer. (LO4)
15. ‘Value’ refers to preferential judgment while ‘Values’ refers to the decision criteria that shape
this preference. (LO4)
16. The approach to understanding customer value is to examine a purchase situation as an experi-
ence. Implicit in this are three key situations: ‘Value in purchase’, ‘Value in consumption’, and
The Customer 65
‘Post consumption experience’. Key issues in value in purchase include convenience in buying,
experience in the store and with the sales person, payment options, delivery at the point at which
a customer may want, and even comfort with the technology in today’s market scenario. (LO4)
17. ‘Value in use’, on the other hand, is a functional outcome. It is a goal that is served directly
through product consumption. (LO4)
18. Value is in the experience a customer has in consuming the product/service. (LO4)
(LO4)
20. To understand the value of a customer to the organisation, one needs to calculate the cost of
acquiring a customer (acquisition cost). This can be done by analysing the buying patterns of
both new and existing customers. (LO5)
21. Customer’s value chain can be described as a customer’s activity cycle, relationship manage-
ment chain, and as a package of values which the customer buys. It involves taking care of the
following:
(a) Conformance quality
(b) Customer satisfaction
(c) Market perceived quality and value relative to competition
(d) Customer value management (LO5)
are: (LO5)
(a) Supplier/alliance markets
leaders
(c) Manpower suppliers
etc.
(e) Internal employees
(f) Customer markets
23. Customer relationships are built on the basis of trust. (LO5)
24. Loyalty gets created only when customers perceive fairness, equity, and transparency in his/her
larger portfolio of loyal customers and hence grows at a much faster pace than its counterparts
in the industry. (LO5)
25. Acquisition costs are all communication and personal contact costs. Retention cost covers cost
of servicing an acquired customer, reward programme, sales promotion costs and all other
communication costs. Since the costs on both acquisition and retention is high, management
is often confronted with the question of whether to spend on either or both. While the need
is not debated, the costs as also the amount to spend are often issues that need management
consideration. The general guideline is to overspend on retention rather than being stingy and
losing a valuable customer. (LO5)
26. One model developed for allocation of resources for customer acquisition and retention has
(LO5)
(a) amount of money company spends on each customer’s acquisition and retention; and
importance in customer’s decision.

(LO5)
● Acquisition expenses like any samples, discount coupons etc., besides other promotion.
● Number of sales calls and telephonic contacts, emails etc.
● Number of customer initiated contacts inquiring about products or service.
● Customer demographics.

1. Mother Dairy is a strong and dominant player in packaged milk and milk products in northern
India, particularly Delhi. Recently it decided to expand its operations to other metro cities
like Mumbai and Hyderabad. It faces competition in all these cities, including Delhi. This
this sector is Amul, which is strong in western India. Other major players are Mahananda (in
Maharashtra) and Nestle. The unorganised sector’s milkman delivers fresh milk at the door-
steps of the customer. His value proposition is freshness and directly from the source. Mother
Dairy’s proposition, on the other hand, is that it offers fresh milk which is pasteurised, hygienic
whose composition is different, depending on the fat content. Mother Dairy wants to penetrate
the new markets and create loyalty amongst its existing and potential buyers. What strategy
should Mother Dairy adopt? (LO1, 2, & 3)
2. Shaadi.com has been wondering how it can bring back customers to its website. This is espe-
-
tomer has no reason to return. The advertising revenues of shaadi.com are linked to number of
customers the site is able to attract and retain. What strategy should this website adopt? (LO3)
3. One of the leading telecom companies is thinking of designing a customer loyalty programme
-
gramme for the company. (LO4)
4. An e-retailer had been concerned on the low repeat business from returning customers as also
on the fact that the number of such customers was not comparable to its competitors both digi-
tal and brick and mortar stores. The retailer was worried this may affect its gross merchandise
what would they be? (LO5)

CHAPTER
THE COMPETITION
3
LEARNING OBJECTIVES
LO1 Explain the significance of the competition to market evolution, product development
and good practices including those that empower customer
LO2 Summarise the factors contributing to intensity of inter-firm rivalry
LO3 Describe the stages and forms of competition
LO4 Design the framework for competitive analysis
LO5 Evaluate how firms respond to competition
In Practice
Nokia Loses to Samsung
Samsung scored over Nokia in 2012–13 with sales of `11,328 crore and 32% market share. Against
this Nokia’s market share was only 27%. In a little over decade, Finnish Telecommunication
giant—Nokia—which was once admired for its product innovation and customised handset for
the Indian market, lost out to South Korean electronics company, Samsung. We all remember
Nokia for innovations like introduction of new features which could light the back of the cell
phone or that made cell phone act as a torch. It was the first ever company to introduce ver-
nacular keypad and longer life in battery. However, it failed to respond to the challenges of the
smartphone. Initially, it was believed that BlackBerry and iPhone will not be a great success in
the Indian market, because of price barriers as also the non-customer friendly features especially
in BlackBerry. Customer had to get used to a keyboard designed much the same way as a com-
puter keyboard. But in the last 3–5 years, one has seen a significant growth in the smartphone
market. As mentioned earlier, two factors have contributed to this growth, namely, the Android
platform and the sensors which responded to human touch. Android is open source software
developed by Google unlike Apple’s IOS, or Nokia’s proprietary software. Android phones al-
low the customers and several others to develop new applications and virtually push them to
the customers. The whole ecosystem of smartphones, which includes apps, made Samsung a
hero in the market. It is the first electronic company which launched an Android based cell
phone. In addition, the company is also credited for several innovations in the product design
which had made it more user friendly than Nokia phones. For example, the touch screen along
with the keyboard which was far easier to use than BlackBerry or even Nokia, the reset button
in the centre and other features like Google search, Google Talk and even voice recognition. It
also has features like You Tube, Skype and several other navigation features. All these apps are
developed using the open source software.
Samsung intends to offer access to contents and applications in Hindi, Punjabi, Tamil, Ben-
gali, Telgu, Kannada, Marathi and Gujarati. The competition in the smartphone is now intensive
with many companies in this space including those coming from China. At the same time the
competition is from e-Tablets. Samsung today offers both smartphones and tablets at prices and
features that compete with Apple’s iPad and iPhone.
Thus, while a new entrant like Samsung in the mobile phone market gained, Nokia lost out
primarily because of the innovation and technology leap which Samsung took. In a highly
competitive market, innovation has to be a continuing process and one has to continuously
expand the product scope to bring in new concepts and ideas, for example, tablets which serve
multipurpose of voice, data and text communication. With the data traffic growing much faster,
the challenge lies in enabling products with such features. Also the challenge is in getting the
customers co-design the product and continuously lower the price bar but enhance the perfor-
mance bar.
SIGNIFICANCE OF COMPETITION
LO1 Markets are today characterised by competition in almost all product and
Explain the service categories. It is one of the forces that drive change in the market-
significance of place. As we saw in the example of Samsung above and also in other brands
the competition to like Micromax, Lava, etc., the market for smartphones and tablets grew
market evolution, exponentially. Once these companies offered prices which were affordable,
product development they brought an inspirational product in the reach of an average middle class
and good practices consumer. Prior to introduction by Samsung, Apple’s iPhone was priced
including those that high and in most cases was not easily available in India. The exponential
empower customer growth in the Indian smartphone and tablet market
got Apple to reconsider the strategy for Indian mar- As supply forces (competition)
ket. Now iPhones and iPads are available at low intensity, demand also gets
prices and not only so, the time gap between the US launch and launch in India created.
has also reduced to just a few weeks. Thus, competition helps in market
growth.
Competition can also drive the innovation agenda in many companies. In fact, today innovation is
no more a choice rather it is an imperative for a company to survive. Many of the new products today
are an outcome of such thinking. Consider for example the development of
product like ‘Livpure’ a water purifier. Livpure is a water purifier developed by Competition induces firms to
Hindustan Liver. It claims to be the first intelligent RO water purifier and revise their product portfolios
conforms to national and international standards with regard to water purifier. as also to revisit their product
markets to understand the
Soon after this introduction Eureka Forbes also developed a new range of changing market perceptions.
The Competition 69
Aquaguard which according to the company combines RO and UV process. It

Competition helps enlarge
has now developed models for every use and at every price points starting from the distribution base in any
`500 and going up to almost `28,000. Tata Chemicals introduced ‘Swach’ water industry by bringing in new
purifier which does not require electricity and hence can be used in cities and players.
rural areas where electricity is a problem. Innovation and technology are today
guiding the strategies in this and other product categories.
One of the biggest problems in marketing is that of making products and services available to
consumers across the length and breadth of the country. Infrastructure gaps so far post the problem of
distribution and enhancing customer reach. Many of the new firms in different sectors have used the
technology route, specially the wireless route, to reach out to the customers.
Banks are today the major user of technology. Online banking, mobile banking It is competition that has
and ATM have today made it possible for the banks to reach out to the customer made the rural market dream
in areas and the time at which they could not. Similarly, e-commerce and e- come true.
retailing helps the brand to reach to the markets within the country and outside.
With technology, brands have been able to develop markets by bringing non-users or non-buyers in their
fold. It has also helped them to provide services 24x7 as in most cases now it did not require a human
interface for logging the complaint or even solving the customer problem. New formats of distribution
are emerging today because of competition.
FACTORS CONTRIBUTING TO ENHANCED INTER-FIRM RIVALRY

Intensity of competition differs from one market to another. This is true for
LO2
both foreign and domestic markets. Mumbai, for example, witnesses bloody
Summarise the
competitive wars than any other town in the country. Being the largest con-
factors contributing to
suming market, it is logical for any firm in any product group to compete
intensity of inter-firm
for a share of the Mumbaikar’s wallet and mind. At the national level, the
rivalry
Indian market is far less competitive than the US, Canadian, Hong Kong,
or Singapore markets. We need to take a closer look at these markets to
understand factors contributing to intensity in competition.
Low Barriers
Low entry and exit barriers in a market are one of the key factors driving com-
petition. We have seen how lowering of barriers in India over the last decade has Low entry and exit barriers in
a market are one of the key
changed the market and product scope.
factors driving competition.
Barriers to Entry and Exit in any Market
Government Policy Restrictive government policies are the most significant entry barriers in any
market. Protection of local industry against dumping or unfair foreign competition is often the excuse
for such government interventions in the marketplace. At times even the bogey of ‘protecting local
culture’ is raised to restrict competition, especially foreign brands, in markets with a strong cultural
background. This bogey, for example, has been at the root of closing Indian markets to foreign media,
films, and several other products. Likewise, labour laws preventing firms from closing shop act as a
major exit deterrent.
These policies tend to artificially restrict the market. They also result in inefficiencies which impact
consumer prices, as firms are assured of demand. Further, these policies do not enable firms to be
competitive. As seen in the Indian market, until the 1990s there was little incentive for firms to reduce
costs, introduce new products, augment services, or even look for new market segments as they were
assured of domestic demand. High tariff walls prevented Indian consumers from shopping for efficient
solutions to their needs.
Costs Costs are yet another barrier. These can be sunk costs or operational costs, which prevent
potential competition in any market, thereby creating imperfect market conditions. A long gestation
period of a project can also reduce the intensity of inter firm rivalry in any market. High tariffs and
taxation make products and markets unattractive, and firms that are unable to achieve economies of
scale in their operations prevent others from entering such markets.
Presence of Strong Brands Strong brands deter others from entering markets. This is particu-
larly true for small firms or new and unknown brands. Presence of strong brands indicate the need for
strong competitors who have the potential to retaliate in an effective manner. However, this can also
be overcome through acquisition of brands. Coke bought Parle’s Thums Up and other relatively small
but successful brands of soft drinks in 1993. Several mineral water brands, including Evian, are eyeing
Bisleri, the largest and strongest brand in the mineral water industry. Likewise, Hindustan Lever bought
the Kissan brand of tomato ketchup from Herbertsons, the Kwality brand of ice creams from the Ghais,
and TOMCO’s brands, like Hamam, to emerge as a major player in the FMCG segment.
It is important to understand that a strong brand does not necessarily mean it is the largest selling
brand in a market. A strong brand implies high brand equity. This is created through perceived equity
in the consumer’s mind, distribution equity and through a high degree of consumer loyalty.
Customer Customers can also act as a deterrent to competition. For example, strong nationalist
feelings or pride in one’s own country often prevents customers from using or adopting foreign brands.
German consumers take great pride in their own products, especially, the ones that use indigenous tech-
nology. Likewise, the French are extremely possessive of their wines and champagne, and Scots of their
whiskey. Pride often prevents other firms from entering certain markets. The Indian liquor industry has
had difficulty in entering the European market, the largest liquor market in the world.
Customer preferences can also be a deterrent or a facilitator to competition. International food
chains had to customise their menu to suit Indian consumer tastes. For example, McDonald’s had to of-
fer vegetarian burgers, chicken tikka burgers, and vegetarian puffs to consumers in the Indian market. It
is important to note here that consumer tastes and preferences change over time. Today a larger number
of urban Indians eat out. They are consumers of Italian, Chinese, Mexican, and continental food. Even
the traditional Indian food is undergoing a change to suit the taste of the new consumer.
Adapting to suit local tastes is a trend is not just restricted to India. It is, in fact, a global phenom-
enon and extends to almost all product categories. As consumer tastes and preferences get homogenised
worldwide, the demand for global brands emerge. This helps reduce entry barriers and acts as a motiva-
tor to extend existing products to new markets.
Technology Technology is a significant barrier to competition. This is especially true when tech-
nology differences are considerable and infrastructure in the market does not exist to make it user
friendly. This will also hold true for companies that have made it simple for the customer to use tech-
nology products, as in the case of the Microsoft Windows operating system.
Lack of Credible Competition Lack of credible competitors in the market can also spin off
new competition. It may motivate more efficient firms to enter the market with better solutions which
The Competition 71
could be in the form of better product portfolio, lower prices, or a range of services hitherto unknown
to the market. A credible competitor is the one on whom the customer places his belief.
STAGES AND FORMS OF COMPETITION
LO3 Stages of Competition

Describe the As one scans the industry, one sees that firms compete for opportunity and
stages and forms of also for resources and competencies. They also compete to protect their
competition existing markets. Ghoshal, Piramal, and Bartlett observe that the dynamics
and rules differ for each of these three stages of competition. The firm’s per-
formance at each level influences, and is influenced by, performance of others at each stage. A winner
is a firm that wins at each stage (Figure 3.1).1
The ‘Opportunity’ Stage Competition for opportunity involves envisioning the future. The
more ambitious the management and leader, the more enlarged is the range of opportunities. This vision
for the future also provides a sense of purpose to an enterprise.
The modern day success stories of firms like Bharti, Reliance, Hero Honda, Infosys, HDFC Bank,
etc., reflect their vision of the future and the aggressive strategy that each has used to emerge as a win-
ner. Consider, for example, the case of Reliance Infocomm which has revolutionised the communica-
tion industry. Powered by the dream of the legendary Late Dhirubhai Ambani, promoter of Reliance,
to provide communication facilities to the common man at the price of a post card (`1), the company
introduced CDMA technology and came up with the scheme of offering a cell phone at `500 per month
to all those who subscribed to its service in a specified period. The scheme was so successful that even
Reliance did not have adequate handsets to meet the demand. The company has 9.8 million customers
as on 30 November, 2004. And this was achieved in just under three years. The company then went
a step further to offer wireless and broadband connectivity to its customers. This changed the nature
of Internet usage. It set up Internet kiosks under the brand name Reliance Web World. Summed up by
Figure 3.1 Competition and the Forces Impacting Competition

Mukesh Ambani’s ‘Kuch karke dikhana hai (we have to achieve something special)’2, it reflects the
leader’s ability to dream big and have the courage to change the rules of the game. This requires faith in
one’s self as well as the organisation. It also requires a profound understanding of the drivers of change.
Resources and Competencies Stage Prahlad and Hamel developed their famous thesis in
late 1990s which propounded that competition will increasingly become knowledge centric. Hence,
firms will compete for knowlege3. This is particularly true because the scope for differentiation on
the basis of product features and services is today minimised, and in most cases does not even exist.
Hence, the winners in such an environment are firms that possess proprietary knowledge and are able
to use it for creating a sustainable competitive advantage. This is possible only when firms have com-
petencies, resources, necessary skills. Today it is not uncommon to come across organisations who are
willing to invest in acquisition, creation, and development of knowledge. Ranbaxy is one such Indian
firm that has successfully built its position only by internalising the rules of the game in this stage
of competition. This has evolved around the key strategic concept that a firm reflects a portfolio of
resources and competencies. Hence, the winning strategy is based on a thorough analysis of a compa-
ny’s competencies and then evolving a creative process to deploy them to exploit existing and potential
market opportunities.
Competition for Existing Market Stage Competition for existing markets is where much of
the competitive wars are fought. This involves creating a differentiated position in the served markets.
As Porter4 mentions, this is based on thorough industry analysis about which we will discuss in the
subsequent paragraphs.
Forces Driving/Shaping Competition

Another way to study competition is to understand the forces driving or shaping competition. Sheth and
Sisodia mention that technology, customer, regulation, and suppliers today influence market evolution
and, hence, the competitive arena5.
Technological change affects firms not only within a particular industry but its effects cut across
different sectors. Consider the case of the telecom industry. Cellular communication has not just
impacted the opportunity for the conventional landline telecom firms but has also affected other
sectors like financial products and after sales service support in the consumer durable and engineering
industries. Today, the customer has come to expect a 24 ¥ 7 response from the service provider and is
not willing to accept the argument that the telephone lines were busy and hence contact could not be
made. Similarly, developments in the automobile industry, like the multipoint fuel injection system,
which has replaced the conventional carburettor technology, has also spurred the growth in clean fuel
technology. Similar developments are today changing the imaging and photography industry. Cameras
no more just use chemical films. They come with a microchip thus creating a new world of digital
imaging. Disruptive technological change can dramatically alter the competitive arena which can even
eliminate the market altogether or create new players.
Impact of Changing Demography and Cultural Values Changing demographic and cul-
tural values of consumers can also affect the market structure and, in turn, competition. Demographic
shifts affect the demand for products and services. A firm that fails to anticipate such shifts in consump-
tion can lose its competitive advantage even though it may have been a pioneer.
The Competition 73
Regulation and Market Opportunity Regulation, too, affects

A firm needs to win at each
market opportunity. We have seen an increasing withdrawal of the govern-
stage of competition and
ment from large sections of economic activity. Deregulation, opening up of also understand the forces
markets, lowering of tariff barriers, creating new regulations (as in the case impacting competition.
of telecom and environment), etc., affect the markets and competition for
almost all commercial players. It is therefore important for a firm to forecast such changes and plan its
strategies accordingly. A firm needs to win at each stage of competition and also understand the forces
impacting competition.
Forms of Competition
Innovative Solutions to Customers’ Problems New entrants have come out with innova-
tive products and solutions which are cost effective, more efficient, and convenient to use.
Innovation is the bedrock of most new entrants in different industries who have been successful.
This is also the route to shake the market leader and take away from him the prime mover advantage.
However, to make innovation succeed firms need to consider the following guidelines:
(a) innovation should be perceived by customers as meaningful and helping them in their daily lives;
(b) it should be simple and not too cumbersome requiring extensive learning. Customers, generally,
do not like spending too much time learning the features of innovative products or how to use
them;
(c) as far as possible, innovation should be connected to existing needs of the customers.
Launch a Price War by Offering Identical Product at a Lower Price than the
Industry Leader In a country like India, where price sensitivity is high, lowering of prices
always helps expand the market and win over the market leader’s customers. However, for this form
of competition to succeed the customer should:
(b) perceive the price difference to be substantial to switch preferences;

(c) be able to compare the two products. If lowering of price has led to a deletion of features of the
Switch Channels of Distribution Another form of competition focuses on distribution. New

players have developed new channels of distribution to reach out to their target market. This has helped
them displace market leaders. This is visible in the telecom, financial industry, and all consumer goods.
As discussed earlier, one of the factors in the growth of companies like Airtel, Tata Indicom, Reliance,
Hutch, etc., over that of state owned BSNL and MTNL are the distribution strategies adopted by them.
While the former intensified their distribution through multiple distribution points in any market, the
state firms distributed their services through their offices and telephone exchanges only. In a country
like India where most products and services have so far remained in the domain of the most affluent
and urban customers only, distribution centric strategies deliver results by developing new markets
and bringing in new customers. Enhanced access to products and services is possible only through an
innovative distribution focused strategy.
Service-based Competition Focus on service is yet another form that competition has taken in
the recent past. HDFC Bank is today India’s best bank essentially because customers perceive its service
to be better than its competitors. In fact HDFC Bank changed the banking paradigms for nationalised
banks, including State Bank of India (SBI) which has been the leader in India. SBI’s strength has been
its vast branch network. HDFC Bank overcame that through its nationwide bilingual ATM network.
Likewise, Hyundai offered competition to Maruti on the strength of superior service at dealer outlets.
Experience-based Competition Firms today compete on the basis of customer experience
with their products and services. The Barista chain of coffee shops has revolutionised the experience
of coffee drinking in India much the same way as Starbucks did in the USA. A typical Barista outlet is
bright, cosy, and comfortable where the customer gets the choice of coffee ranging from cappuccino,
mocha, espresso, etc. made from the choicest coffee seeds—Brazilian, Colombian, etc. One could play
a guitar, write a poem, or just snooze over coffee at these outlets. The entire experience costs `35 as
the minimum. This is almost ten times the price a customer pays for a cup of coffee in an ordinary
coffee shop or a stall. It is the experience for which the customer pays this price. The same is true for
Café Coffee Day.
This is also true for new generation book stores like Crossword in Mumbai and Om Book Depot in
Delhi which are more than just a book store. Modelled on the lines of Barnes and Noble in the USA
or W. H. Smith in the UK, these stores offer a serene environment to the customer to sit and read the
book, give his/her comments which are displayed, and also help the customer to get any book or title
not currently available in their store. The customer pays more here than at any other books store which
may offer a discount on the title. But it is the experience of sitting in a corner with a cup of coffee and
reading or glancing through a book, for which the customer pays a premium.
FRAMEWORK FOR COMPETITIVE ANALYSIS
LO4 Analysing the Competitor Strengths and Weaknesses

Design the framework Competition, being an important market force, needs
for competitive to be tracked, analysed, and pre-empted. Market It is not just important to know
analysis the competition by name but
leaders always have a system to help them pre-empt also critical to understand its
any competitive moves. For this, it is not just impor- strengths and weaknesses.
tant to know the competition by name, but it is also critical to understand its
major strengths and weaknesses. A competitor’s strengths may be its marketing systems, dealer loyalty,
aggressive sales force, its relationship with major external environmental variables like government
and financial institutions, or a sound financial resources base. In some cases, the size of the plant and
consequent economies of scale enjoyed by a firm may constitute its strength. In the case of one engi-
neering firm, it was found that the competitor’s strengths lay not in its product or technology, but in
the range of engineering services that it provided to its client firms. Therefore, it is important to assess
the competitor’s advantage, in terms of the key factors to success, in the given industry structure. For
example, in the case of the plain paper copier business, on site servicing is one of the key factors of
success. If a major firm in this field does not have an efficient and effective on site servicing strategy,
it will soon find itself out of business. One of the reasons for Xerox’s success is its efficient service
support. Thus, on a ten point scale, it is necessary to assess the strength of the competitor’s muscle on
all the key factors of success in the industry.
Another element of analysis is to identify a weakness in the strength of competitors. For example, a
firm may claim to have an extensive distribution network in the country, and may take pride in claiming
that it has support of 80% of the trade in the country. But a careful analysis may show the weaknesses
The Competition 75
or chinks in the distribution armoury of the competition. For example, dealers may not be satisfied with
the competitor’s supplies, its replacement policy, sales personnel, or the product mix. A few years back,
while doing a study of the music market in Kolkata, Delhi, and Mumbai, it was found that a high level of
discontent existed among the dealers of a well known company and also an undercurrent of resentment
against another music company making CDs, DVDs, VCDs, and audio cassettes. The reasons for this
discontentment were obsolete product mix (poor titles) and very poor after sales service support. Now,
if the firm had to succeed in the music market, it had to necessarily invest sizeable resources in R and
D, continuously update its library, and introduce new talent. According to Michael Porter, this analysis
needs to consider competitors’ aspirations, self image, strategy and assumptions
it has about itself and the industry. In other words, Porter’s model goes beyond The real test of strength of the
competitor lies on how well
the analysis of strengths and weaknesses. It raises fundamental questions relat- its products are perceived by
ing to competitor’s satisfaction with his existing position. If he is satisfied, he target customers.
is more likely to protect his position. But if he is not, he is more likely to be an
aggressor. He may attack to improve his position. Thus the attack or defend model is determined by a
competitor’s satisfaction level. This model is illustrated in Figure 3.2.
Figure 3.2 The Components of Competitor Analysis

Source: Adapted from Michael Porter, Competitive Strategy: Techniques for Analysing Industries and Competitors, NY:
The Free Press, 1980, p. 49.
Customer’s Perception of Competitors

The real test of the strength of the competitor is how well he and his products are perceived by target
customers. If the customer’s perceptions are negative and he feels that he has to buy the competitor’s
product only because of limited choice, then it is perhaps a very comfortable position for any new
entrant.
Further, the customer’s perception of competitors’ overall reliability also needs to be assessed. The
concept of overall reliability includes product, service, delivery, and even price dependability. It is on
these parameters that most Indian companies have lost to foreign companies.
How Well Entrenched in a Segment

In any given market segment a competitor’s market share is dependent on the
Higher market share in a
segment reflects a firm’s
customer’s perceptions. Higher market share in a segment reflects a firm’s lead-
leadership in a particular ership in that particular segment. It is necessary to note that the market share of
segment. any competitor is always to be measured in the served market. For example, a
consumer durables manufacturer may market its products in all regions other
than the east. Its market share will have to be examined in all zones other than the eastern region. Like-
wise this company may be serving only the major cities in these regions. Therefore market share will
need to be assessed in these cities only. Hence, a statement like the firm enjoys 40% market share is
meaningless.
Another area that needs to be examined relates to the relative brand power
Relative brand power of the item in its served markets. Relative brand power refers to the degree to
refers to the degree to which
which customers feel connected to the firm’s brand as opposed to its competi-
customers feel connected to
the firm’s brand as opposed
tor. Do the customers enjoy using the brand? Do they like the brand? Will they
to its competitor. miss the brand if it was not available? How long has the brand been in existence
in the served markets? Does it have more assets than liabilities? It is important
to study all these aspects because a firm with a strong brand power cannot be dislodged easily in its
served markets.
Gaps Left by Competitors

Success often blinds firms and therefore a market analysis may help a firm iden-
Market analysis helps a
tify gaps left by the competition. These gaps may be in distribution, product mix,
firm identify gaps left by the
competition. or the service policy. For example, a firm may continue to market its products to
higher income groups and do nothing to take care of other income segments who
might also be interested in buying its products. A clever firm can identify this gap and successfully take
advantage of this situation. For a long time Unilever refused to accept that there were opportunities in
the Indian market to introduce a low priced detergent powder and also in other new product categories.
Levers initially fought the Nirma onslaught through the premium quality detergent powder, Surf, in
an aggressive price promotion mode. These myopic managers could not stop the decline of Levers’
share in the detergent market and Nirma continued to ride a high crest of popularity, purely because
it was the middle class housewife’s product. It was only when Lever came up with different detergent
powders, positioned at different market segments based on an analysis of price sensitivity behaviour,
could it stop the decline.
The Competition 77
Likewise, in an industry where the dominant practice is to deliver service only at company outlets,
any firm can gain advantage if it were to reverse the practice by delivering at the customer’s end or
empowering the customer to self serve and resolve his/her problem. The strategy of installing offsite
ATMs nearer to the customer’s place of residence, work, shopping area, airports, and railway stations
has provided a definite competitive edge to ICICI Bank over all other banks. Similarly, Domino Pizza’s
strategy of a countrywide common toll free number for taking customer orders and delivering stand-
ardised or customised pizzas to customers in 30 minutes has given it a distinctive edge in the fast food
industry. This was in sharp contrast to the strategy adopted by other fast food firms and restaurants that
had no such provisions.
Competitor Profile Analysis

Another parameter of competitor analysis requires the strategist to develop a
The Sammon, Kurland
strategic profile of the principal competing firms in the industry. Like Porter’s
and Spitlanic framework
model, this framework suggested by Sammon, Kurland, and Spitlanic takes assumes that any moves by
into consideration the financial structure, perceived strengths and weaknesses, a firm are a function of its
the strength of possible retaliation, and overall performance of the competitor past and current situation and
against that of other players in the industry. The assumption in this framework perceived future.
is that any move by a firm are a function of its past and current situation and
perceived future. The past is an indicator of a firm’s growth over a period of time and also its compe-
tencies. It does indicate the firm’s relative strength in the market and the industry. The firm’s image in
the market is one such strength that any marketing strategist needs to consider. This image is based on
product/brand image, perceived fairness in transactions executed with the company, distribution equity,
and even its promoter and management background. It is also a function of corporate responsiveness
to customer enquiries, either for sale or service. Thus while one method to assess corporate image is
customer and distribution audit as well as peer firm audit, another is to look for tangible evidences that
give an indicator of the culture and values of the competitor firms. For example, if customers complain
of poor service of a major competitor and the same is borne by trade audit, then one can safely assume
that customer care is not an important value. Business reports on major competitors also provide a good
input on a firm’s background, image, culture and financial performance. Balance sheets can give infor-
mation on financial and non-financial parameters. Now with SEBI guidelines on corporate governance
demanding greater disclosures from firms, annual reports provide a peep inside the firm. Based on the
above surveys, annual report, and industry data, competitive profile can be developed.
Another approach to developing a strategic profile of a competitor is to assess its perceived fit with
customer needs and expectations. Equally important is to assess the gap between an ideal offer and
competition offer in much the same way one can assess the industry as a whole. This analysis shows
the overall weakness or strength of the firm and the industry and hence gives a direction to the new
entrant. Statistical tools like Cluster Analysis, ANOVA, and perceptual mapping can be used here to
understand the relative position of different firms on key customer decision parameters.
Figure 3.3 shows one such two dimensional perceptual map based on a market research of an indus-
trial product. As one can make out, companies B and C are perceived as poor value for money as they
are offering old technology products at non-competitive prices. Company D is perceived as a premium
product supplier.
Company A represents moderate value for money. Hence, for a new entrant the opportunity lies in
enhancing value for money through a state of the art technology product offered at a competitive price.
Figure 3.3 Two-dimensional Perceptual Mapping
In their book, Business Competitor Intelligence, William L Sammon, Mark A. Kurland, and Robert
Spitalnic recommends an outline (Exhibit 3.1) for developing a competitive profile.
Exhibit 3.1 Competitor Profile Analysis

I. Background/History Profit growth
Major events, acquisitions, divestitures, merg- Return on asset
ers, overseas investments Asset turnover
Industry reputation Operating margin
Corporate culture: past, present, continuity Net margin
II. Business/product mix Return on equity
Five year segment analysis: sales/profits/in- Debt ratio
vestments VI. Strategic assessment
Major products: market share/market growth Strengths/Weaknesses: functional and opera-
III. Major corporate objectives/strategies tional
IV. Recent trends/business developments Strategic direction/management assumptions
V. Financial analysis : Five year comparison with Expected performance/responsive capability
industry/business norm Implication to company Z and company Y
Sales growth (your company)
PREPARING A WAR MAP

Based on competitive analysis, it is necessary now to prepare a war plan. Marketing, as we have said
before, is like a war, and hence for a marketer, a battle map is as critical as it is for a military strategist.
There are different approaches to preparing business battle maps. One such is the Du Pont Profitability
Matrix. This matrix helps in establishing a financial quantitative frame of reference, using the ROA
The Competition 79
approach (return on assets). This formula states that the operating margin times asset turnover equals
return on assets (ROA). The Du Pont Profitability Matrix is shown in Figure 3.4. The horizontal axis
shows the operating margin, while the vertical axis shows the operating asset turnover. The curved lines
plotted on the matrix are lines of equal return on asset percentages which are calculated by multiplying
operating margin percentages times operating assets turnover. The direction of the arrow shows profit-
ability as ROA increases in this direction. Also plotted on the Du Pont Profitability Matrix are dash
lines, which indicate the industry average for operating asset turnover and for return on operating assets.
Figure 3.4 The Du Pont Profitability Matrix
The Du Pont Matrix does not provide solutions to the questions, nor does it describe the strategies
employed by the competitors. However, it provides direction to the analysis which may lead to an un-
derstanding of these strategies.
Besides the Du Pont approach, there are several other approaches to the war map preparation.
Following are some other well known approaches:
(a) Competitive Arena Map
(b) Segmentation Matrix Map
Competitive Arena Mapping

In Competitive Arena Mapping, the firm has to define its business in terms of the need it fills, rather
than in product terms. For example, for a South Indian food chain like Kamat’s, the definition of its
business has to be in generalised terms like food business. Likewise, the newspaper group of the Times
of India is in the business of information and communication. Once the business has been defined, it is
necessary to define the served customer groups. In the preparation of this map, the vertical axis reflects
the products and services that fill a business need and the horizontal axis reflects the various types of
customers in this arena. The firm may choose the cluster which it understands best. This approach is
best illustrated in Figure 3.5.
Figure 3.5 Competitive Arena Map
Here, one can conclude that publishing houses A and B have a presence in all product groups. They
cater to all the customer segments and hence appear to have a mass marketing strategy in place. They
also cater to special needs of select customer groups. Hence a new entrant has to decide whether it
wants to follow them or be in just a single product customer segment. The decision in this regard has
to be based on market potential estimates and the company’s understanding of the segment’s needs.
Segmentation Matrix
Another approach recommended by William E. Rothschild is the Segmentation Matrix battle map for
plotting of local or regional competitors. In the preparation of such maps, one starts with the products
and services to be analysed and then determines how these can be best described. For example, they can
be categorised on the basis of price, size, technology, quality, complexity, and versatility. This descrip-
tion of the product is put on the vertical axis. The horizontal axis describes the various segments. Now
one can plot the firm’s and its competitor’s position on this matrix.
Another method is to plot the companies based on the Future Growth Value and Market Value Matrix.
Stern Stewart provided the concept of Economic Value Added (EVA) and Market Value Added (MVA)
framework for understanding the strength of the company from a shareholder’s perspective, and to
facilitate businesses to achieve a balance between size and efficiency. MVA is the difference between
The Competition 81
investment in the business and the current value of the business, while EVA reveals how much share-
holder wealth has been created and lost by the company within a specific time span. EVA, thus, works
at a micro level within the company. The advantage of EVA is that it combines the income statement and
the balance sheet, thus revealing the real value while eliminating accounting discrepancies. The EVA/
MVA framework can be used by corporates to better understand the expectations of their shareholders
and plan growth strategies and future goals accordingly.
Stern Stewart recommended that the analysis should begin by asking what a company would be
worth if it continued to generate the current level of operating economic profits (i.e. EVA) in the future.
The sum of the future EVAs is discounted to reflect today’s value of the company’s capital costs. To this
the total economic capital employed in the business is added. This reflects the Current Operating Value
(COV). For example, if HLL continues to generate its EVA of `570 crore in the future, the perpetu-
ity value of its economic profits would be around `3,300 crore. The economic book capital is around
`3,070 crore. Thus, its COV was `6,370 crore. HLL was valued (on the basis of average share price
for the month of April, 2001) at `47,500 crore. The difference between the Market Value (MV) and the
COV is the value that reflects the future growth expectations. Stern Stewart calls this the Future Growth
Value (FGV). This matrix helps reveal the investor’s growth expectations with greater clarity. Figure
3.6 illustrates the FMCG sector analysis on the FGV/MV matrix. It can be concluded that companies
like Reckitt Benckiser (Dettol), HLL, Colgate, and ISP (International Shaving Products) have a higher
future growth, than Marico and even Nirma. Thus, one may expect greater retaliation from the former
to any competitive moves that may threaten their future growth value.
Figure 3.6 FMCG Sector Analysis

Source: C. K. Prahalad and Venkat Ramaswamy, The Future of Competition, HBS Press, 2004, p. 15.
Thus, to conclude, competition today is an integral part of any marketing strategy formulation. As the
Indian market becomes more complex because of the increasing intensity of competition, understanding
and monitoring competition will become crucial to a firm’s survival. More and more companies are
now trying to assess the strength of their relative position in the marketplace.
RESPONSE TO COMPETITION
LO5 How do firms respond to competition? Quite often they try to either achieve
Evaluate how parity or differentiate themselves on the basis of product, service, price, pro-
firms respond to motions, or distribution. Such a response can help the firm reduce customer
competition attrition but cannot help it grow. Let us understand why this will not happen.
Today customers have access to different sources of information and
hence make more informed decisions. More customers today are hooked to Internet than they were in
1990s. Millions of customers worldwide are networked and are collectively challenging the rules of the
game in all product segments. These rules so far favoured suppliers as they had more information and
could selectively share the same with customers. Also, for these customers, geography has ceased to
have any meaning. Further, Internet has made it possible to customise and experiment with new con-
cepts and ideas. In such an environment, the customer today has acquired a new role. He/she is an active
player in the exchange transaction. Hence, the firm needs to involve him/her in the value creation proc-
ess. This process is based on personalised co-creation of experiences developed through a meaningful
interaction between a network of companies and the consumer and consumer communities.6 Prahalad
and Ramaswamy mention that the new dynamics of value stems from the co-creation experience of an
individual customer, at a specific point in time, in a specific location, and in a specific context of events.
Taking the example from the wellness industry, they mention that the patient today is more empow-
ered by the information that he has and hence the role of the medical specialist and healthcare institu-
tions has changed. Today, the patient can develop his own wellness portfolio which will include health
supplements, ayurvedic products, yoga, and other fitness regimen developed along with an instructor.
The patient also communicates with his peer and, family members with similar health problems share
their experiences about different lines of treatment. Thus, the authors conclude that the patient’s well-
ness space emanates from his/her view of wellness biases, values, expertise, preferences, expectations,
experiences, finances, etc. Today this patient’s visit to the doctor is more informed. At times the doctor
may find the patient as challenging his authority. The good doctor today will need to understand the
interplay between his knowledge and patients awareness about pharmaceuticals, drugs, and alternative
therapies which include yoga, reiki, etc.
The same is true in the context of firms and customers. The new dynamics of value creation is there-
fore a joint journey between the consumer and the firms. For this purpose, firms need to overcome their
biases. The authors conclude that this new dynamics of value creation goes beyond the conventional
‘B to B’ and ‘B to C’. Every individual who interacts with the company is a ‘consumer’. The new para-
digm, as shown in Figure 3.7, is based on interactions between consumers and firms thus becoming
the locus of co-creation of value. This view is contrary to the view so far held that the firm’s R and D
engineers know what is good and of value to the customers. The new paradigm involves a new role for
the firm and its management. It must now:
processes;
-
ences;
experiences.
The Competition 83
Figure 3.7 The New Frame of Reference for Value Creation
One must keep in mind that co-creation is ‘not the transfer nor outsourcing of activities to customers nor
a marginal customisation of products and services. Nor is it a scripting or staging of customer events
around the firm’s offerings….’.7
Hence, today, the most effective way to respond to competition is to involve customers in the value
creation process (Figure 3.8). This can help firms create a formidable defence against onslaught from
competitors.
To avoid the above traps, marketers must have a complete insight in consumer behaviour. The com-
plete insightful analysis involves an understanding of physiological (body), psychological and other
mental processes that influence consumer decision in a given social and cultural context.8
Competition Based on Network

The modern competition is no more product driven; rather it is network driven. Also these networks
are global and not just restricted to the market in which a firm operates. Hence a firm’s network com-
petes with another firm’s network. This network consists of suppliers and intermediaries. If the firm
fails, then the entire network also fails and hence a total loss. This is a radical shift in understanding
competition and industry structure. Conventionally, the relationship between a firm and its suppliers or
intermediaries was seen as one involving power. Hence it was the bargaining power of each of them
that determined the profitability of the firm. Today it is not so. These relationships are seen as collab-
orative in nature. Each of them is a player as in a hockey or football team. To win the game against
competition, each player of the hockey team has to play as a member first than as an individual or as
a representative of a state or caste. The film ‘Chak de India’ amply brought out this message with the
help of the women’s hockey team. In a globalised world driven by technology, the firm’s now create
a network at the global level. This gives them the power to innovate and satisfy individual customer’s
needs. Customisation is best achieved through such global networks. Take the example of youtube.com
which is a home for video online. Started in 2005, it is the leader in online video and a prime destina-
tion to watch and share original videos worldwide through a web experience. It allows individuals to
upload and share video clips and create music through internet and mobile phones, blogs and emails.
The strength of You Tube is its ability to provide to a customer a wide variety of choice of films and
music contributed to by individuals who may be artists, film producers or directors, experts or just plain
viewer. Hence it is this ever growing network of ‘producers’ which contributes to making You Tube a
success and one of the most commonly used online video site.
For the network to succeed, it is necessary that the relationship between the firm and its network
partners is based on trust and confidence in each other’s strengths. All partners share the same goal of
maximising customer value and satisfaction. Also the firm’s effort is always on improving its network.
Smarter networks require continuous guidance, intelligence, design and a visible or invisible hand
drawing clubbing together all the diverse contributions.
We have seen the emergence of network driven competition now in India especially in automobiles,
consumer durables and service industry.
Figure 3.8 The Value Creation Process
SUMMARY
‘Competition is a necessary evil’. It is necessary for the health of the industry and spurs new product
development. Competition, being an important force, needs to be tracked and analysed and hence the
The Competition 85
need for a framework for competitor analysis, which is critical to the understanding of competitor
strengths and weaknesses. Another framework for competitor analysis, as suggested by Sammon,
Kurland and Spitlanic, takes into consideration the financial structure, perceived strengths and weak-
nesses, the strength of possible retaliation, and overall performance of the competitor against that
of the others in the industry.
Competitor analysis is complete once a business battle map has been prepared. This could be done
by using the Du Pont Profitability Matrix. This matrix provides directions to analysis which may lead
to an understanding of the strategies adopted by competitors. Some other approaches are the Seg-
mentation Matrix battle map for plotting of local or regional competitors, or Stern Stewart’s concept
of EVA and MVA framework for understanding the strength of the company from a shareholder’s
perspective and to facilitate business to achieve a balance between size and efficiency.
POWER POINTS
1. Competition in a healthy industry spurs development of new intermediation processes, new
roles for channel members, innovation, market development, and reduction in costs.
(LO 1, 2 and 3)
2. Low entry and exit barriers in a market enhance competition. Barriers to entry and exit in any
market are government policy, costs, presence of strong brands, the customer, technology, and
at times even lack of credible competition. (LO4)
3. Firms compete for opportunities, resources and competencies in the market. They also compete
for existing markets. Competition can take any or all of the following forms: (LO4)
(a) Innovative solution to customer problems
(b) Price wars
(c) Distribution wars
(d) Services based competition
(e) Experience based competitions
tool like EVA/MVA. (LO4)

-
eters like customer’s perception of competitors, evaluating how well the competitor entrenched
is in a particular market segment, and gaps left in the market by competitors. The Sammon,
strengths and weaknesses, the strength of possible retaliation, and overall performance of a
competitor against that of others in the industry. (LO4)
creating value. The other approach is based on using network of suppliers and intermediaries,
and thereby creating a unique value preposition for the customer. (LO5)
-
on assets (ROA) approach. This formula states that the operating margin time asset turnover
equals ROA. The horizontal axis shows the operating margin while the vertical axis shows
the operating asset turnover. The segmentation matrix battle map by William E. Rothschild
is used for plotting of local or regional competitors. Yet another approach is to judge plot the
companies based on the Future Growth Value and Market Value Matrix. Stern Stewart provided
the concept of EVA and MVA framework for understanding the strength of the company from
a shareholder’s perspective. (LO5)

1. ‘Commodities like milk have no competition’, commented a CEO. Do you agree? Give rea-
sons. (LO1, 2 and 3)
2. A leading American fast food company, which specializes in sandwiches and coffee, wishes
to enter the Indian market. Having engaged you as a consultant to scan the competition for
competitors? What scanning techniques would you apply to analyse competition and submit
the report? (LO4 and 5)
(LO5)
Section 2
Assembling the
Marketing Toolbox
Section Outline
Chapter 4: Marketing Planning
Chapter 5: Marketing Research and Information Systems
Chapter 6: Consumer Behaviour
Chapter 7: Organisational Buying Behaviour
Chapter 8: Segmenting and Targeting
Chapter 9: Market Measurement and Demand Forecasting
T his part discusses the tools which empower the marketer for the launching of
marketing activities. Chapter 4 deals with identification of marketing activities and
how crucial it is to do this correctly. This leads to a discussion on the evolution of an
appropriate marketing plan. Chapter 5 talks about marketing research (MR) process—the
tools required, the pitfalls to be guarded against, and, with the help of MR, the designing
of a marketing intelligence and information system. Chapter 6 is about the intriguing and
almost unpredictable consumer behaviour—the consumers’ motivations, their decision
making process and the factors influencing it. After that, the tools for studying consumer
decision making are discussed. Chapter 7 talks about organisational buying behaviour—
the importance of units and the individuals within units in the decision making process,
the decision making process in organisational purchases as well as value analysis, and the
influences (specially of the Internet) on the buying behaviour of organisations. Chapter
8 is about segmenting and targeting—its need, the meaning, the process, the bases of
segmenting consumer as well as industrial markets. The criteria for choosing a segment
and targeting strategies are also discussed. The last chapter of this part, Chapter 9, deals
with market metrics and demand forecasting, the terms used in market measurement and
techniques of forecasting demand, short term as well as long term.
CHAPTER
MARKETING PLANNING
4
LEARNING OBJECTIVES
LO1 Explain the concept of market opportunity and the framework of market opportunity
analysis
LO2 Interpret the product market fit
LO3 Demonstrate the approaches to marketing planning
LO4 Describe the structure of marketing planning
LO5 Explain the process of marketing planning
In Practice
Tata Motors—ACE*
In May 2005, Tata Motors launched a new revolution in sub 5-ton goods carrier industry namely,
ACE. Today it has changed the competitive landscape of the small commercial vehicle segment.
Existing three-wheeler market indicated an opportunity for a vehicle, which was safer and stable,
a vehicle to provide protection from weather, cleaner emissions with better operating economics
and one that gave a sense of pride to the owners of the vehicle. These needs, along with global
trends, pointed towards the development of a four-wheeled, safe, low cost and fuel efficient
small commercial vehicle.
Small commercial vehicle segment was dominated by three-wheelers. It was experiencing ex-
plosive growth. The existing three- wheeler market dominated by Bajaj, M&M, Eicher etc. were
not able to transport goods speedily, conveniently and in a cost effective manner. Also the owner
of a four-wheeler was more coveted in the marriage market than an owner of a three- wheeler.
With the growth in GDP at 8 per cent and above for the past few years, disposable incomes
have increased. So has there been an increase in consumption and hence increase in demand for
consumer goods. This also led to an increase in industrial output. Coupled with road develop-
*Compiled by Ms. Hufrish Homavazir, Assistant Professor, SVKM’s NMIMS, School of Business Management.
ment projects, Tata Motors decided to leverage its knowledge in commercial vehicles produc-
tion and marketing. Though it was a dominant player in HCV, its competitive position in light
commercial vehicle segment was always under pressure. Also, the Indian market was upwardly
mobile as reflected by declining poverty levels. Hence, poor markets and the population at the
lower strata of society offered opportunities to marketers.
Recognising a gap in the market for small commercial vehicles, Tata Motors worked towards
an innovative solution. In an era where there is a need for convenient and cost effective trans-
port facilities, providing comfort, style and easy maintenance, Tata Motors developed the Tata
Ace—India’s first mini-truck. Ideal for short, narrow village roads as well as long highway hauls,
for small bulky loads and large heavy ones, the Ace is an innovative 4-wheeler, offering all these
features for the first time in this category.
The vehicle is extremely versatile and can be conveniently used in cities as well as in rural
areas. 12 inch tyres have been used for the first time in its class, which gives higher ground
clearance and higher loading capacity—resulting in better performance on and off the road. The
performance of the engine as well as the comfortable conditions for the driver allows the ACE to
travel over 500 km in a day. Low operating costs and the versatility offered through features like
its flat, large loading area and small turning radius, offer the driver excellent maneuverability.
It meets all Indian safety norms. Its driving visibility is excellent through the large windscreen,
window glasses, large overhead rear view mirror and the large rear window. Large sized, round
headlamps with bright halogen bulbs provide excellent lighting for night driving. Rightly posi-
tioned as ‘Little Elephant’ mini truck, Tata motors sold one lakh vehicles within 20 months of its
launch in May 2005. Ace is priced at about `2,50,000.
MARKET OPPORTUNITY
LO1 Identification of market opportunity is critical before the management of a

Explain the concept firm takes a decision to launch or diversify in any product area. As shown in
of market opportunity Figure 4.1, this involves an analysis of the following:
and the framework of (a) size of the market
market opportunity (b) marketing strategies and the extent and quality of services rendered
analysis by other firms (competition) in the industry
(c) marketing programme required to satisfy market wants
(d) identification of key success factors in an industry and linking them
to a firm’s strengths and weaknesses
Size of the Market

This is the starting point of any detailed analysis for the determination of market opportunity. Factors
that determine the size of a market are:
1. Demand analysis
2. Segmentation analysis
3. Industry analysis
4. Competitor analysis
Marketing Planning 91
Figure 4.1 Framework of Market Opportunity Analysis
Demand Analysis The core aspect of market opportunity analysis is de-

Demand analysis is the core
mand analysis. The market consists of existing and potential buyers. It is im- aspect of market opportunity.
portant that these individuals should not only have the desire to buy, but also
the means to buy a product/service. This implies that the market demand will come from only those
customers who have the willingness and purchasing power to buy a product or service at a given price
level. As we shall see in Chapter 8, all other individuals will constitute market potential for a product/
service. We shall also, at that time, examine the techniques of demand analysis.
A point to be understood here, is that the market refers only to ultimate buyers and therefore demand
for any product, be it a consumer or an industrial product or service, emanates from the buyer. Hence,
a focus on the ultimate buyer is critical. For example, a firm manufacturing dyes and dyestuff for the
textile industry will need to study the textile buyers’ colour preferences and changes therein, so as to
be able to provide the right type of dyes to a textile firm. Likewise, a bank offering credit cards to its
customers will need to study their requirements and determine the credit limit for each of its potential
credit card holders. Similarly, a vegetable oil manufacturing firm will have to estimate the annual con-
sumption of vegetable oil by an average family or individual to arrive at the market size for vegetable
oil. All these examples bring to the forefront the need to go to the ultimate consumer to estimate market
size/demand. Limiting the demand analysis only to the middlemen will lead to erroneous conclusions.
Another dimension of market demand is that a mere existence of an unfulfilled want among a group
of people does not necessarily constitute a market for a product. Hence, demand
analysis must start with the description of the product/service which people Demand analysis must start
with the description of the
want and are willing to pay for. This product/service may be an existing or a product which people want
new one. Demand analysis can be done at various levels. The firm can analyse and are willing to pay for.
the aggregate demand or the demand at the industry level in which all firms are
participating. It can even analyse a segment of the total demand for a product/service. This latter step
is necessary for successfully carving out a niche.
Let us study an example. Suppose the market for credit cards is `5,000 crore per annum and is grow-
ing at the rate of 10% per annum. This refers to the aggregate demand. But if the firm wants to introduce
a credit-cum-identification card which can be used not only for buying goods and services but also as
a valid identity of the individual, then the firm will have to identify the proportion of market for such
cards. Suppose it is only 2% of the total market, then the market demand for such cards is only `100
crore. Having assessed the size of the market, the firm must now determine whether its card will be
able to capture a substantial share of all such brands of card within the specific group of customers.
Segmentation Analysis Demand analysis alone is not enough because customer requirements
vary depending upon their unique characteristics. Marketing oriented firms understand that their nir-
vana is only when they take a segmental approach to satisfying the market demand. Segmentation is
the process of dividing the market into homogeneous subunits. Homogeneity in the market is brought
about on the basis of the demographic, geographic, and psychographic characteristics of consumers.
Besides, this is also brought about on the basis of product usage. Dividing the market into segments
helps the firm to sharply focus its attention and also examine the viability of satisfying market demand.
Continuing the example of credit cards, the firm may segment its market on the basis of age, education,
occupation, income, and lifestyle of the consumer. Similarly, for an industrial product, segmentation
could be done on the basis of user firm’s size, buying characteristics, and key variables used in buying
a product of that kind.
Industry Analysis The way an industry is structured also affects the size of the market and, in turn,
the market opportunity. To analyse the industry, Michael Porter, in his book, Competitive Advantage,
mentions that barriers to entry and exit of firms and also intensity of rivalry in the industry must be
examined. Schematically, this analysis is as shown in Figure 4.2. In any specific industry, all the five
forces will not be equally important. Hence, particular structural factors that are important will differ.
Porter’s model allows a firm to see through the complexity and pinpoint those factors that are critical
to any firm’s survival and profitability.
Besides the above analysis, the firm also needs to study industry trends during the time period
covered by the market opportunity analysis (MOA). Information to be looked for is industry growth
rate in terms of sales, production, return on investment (ROI), and so forth. Industry analysis should
also identify common practices characterising the entire industry. This could relate to trade practices,
labour relations, and the like. However, it is not necessary for a firm to follow these practices if they
are not conducive to its growth. But before turning away from such a practice it is important to assess
the firm’s own strengths and preparing to actualise it.
In Practice
Deccan Air was the first low cost air carrier in India which offered to fly passengers in India at a
price as low as `500 on Mumbai Delhi sector. Further, in doing so it required the passengers to
make online reservation and check in at the airport directly with their identification and e-ticket.
Since its flight are not usually full service, passengers were served with minimum refreshments.
In order to balance its costs it invited companies to advertise on the body of its aircraft both
outside and inside. The passengers were so much enthusiastic with this low price offer that the
airlines now find it difficult to meet the demand. The low cost airlines today, have brought air
travel within the reach of Indian middle class leading to 22% rise in passenger traffic over the
last couple of years. Several other low cost airlines like Spice Jet, Air India Express, Kingfisher
have today almost eliminated the conventional travel agents channel thereby cutting down their
cost. It has also reduced the bargaining power of travel agents with the airlines.
Thus this example of Deccan Air clearly reflect that while it is important for a firm to under-
stand industry practices, it need not adopt them if it has strength to introduce new features and
change paradigms in the market.
Figure 4.2 Elements of Industry Structure

Source: Michael E. Porter. Competitive Advantage. The Free Press. 1985, p. 6.
Competitor Analysis Analysis of competition and how well the market is serviced tells us if the
market is attractive enough to enter. For example, if a market is well served and customers are satisfied
with what they are getting, then very little opportunity exists for any new entrant. In short, dissatisfac-
tion with a competitor’s products and services provides an opportunity for a firm to enter the market
and make profits.
Gajra Gears, for example, scored over TELCO only because the latter’s transmission gears were
available in major cities or transport centres where, it either, had its authorised sales and service centres
or dealers.
According to I. S. Gajra, founder of the Gajra group of companies and a respected leader in the au-
tomotive gear industry, the niche was clearly visible. Gajra Gears started selling to dealers all over the
country because it was important to the truck driver, that his vehicle be always roadworthy. If a quality
transmission gear was available at a dealer outlet near the place of breakdown, the driver would prefer
to buy that brand rather than go to a distant town to get the OE gear parts. Besides, Gajra Gears was
the first to start promotion work at garages and create brand preference at the mechanic’s level. All this
gave Gajra Gears, a position of pre-eminence in the gear industry.
Thus, it is important for a firm to analyse how the market is being served by competitors.
Extent and Quality of Services Rendered by Competitors

As mentioned earlier, the extent and quality of services rendered by the competitors need to be studied
in detail. Here, besides industry and competitor analysis, the firm also needs to go into the distribution
channel analysis. The firm needs to study the characteristics of the channel and whether it needs to
adopt the established pattern of distribution.
Marketing Programmes Required to Satisfy the Customer

The focus of this analysis is on the marketing effort required to satisfy customer needs or even gener-
ate demand for a product/service. The qualities also tries to estimate the cost likely to be incurred in
this effort. For example, the two most important elements of the marketing mix in ice cream industry
are advertising and distribution. This is because the consumer buys brands in this industry. Advertising
alone takes up almost 40% of the total sales revenue. If a firm wants to enter the ice cream industry in
a big way, then it needs to have good financial resources and willing to invest in brand building. It will
also need to invest in creation of retail network in its served markets.
Identification of Key Success Factors and Linking to Firm’s Strengths and

Weaknesses
The last phase of the MOA is to identify all key success factors and assess the extent to which the firm
has them. For example, a company in the telecom industry needs to have R & D, on site servicing, and
an extensive dealer network, as these are the key factors for success in this industry. Schematically, this
kind of analysis looks as shown in Table 4.1.
Table 4.1 Matrix to Link Key Success Factors to Company’s Strengths and Weaknesses
(Example: Telecom Firm)
Company Key success factors
strengths Technology R&D Finance Marketing Service Manpower
Personnel
R&D
Marketing
Manufacturing
capacity
Location
From the above analysis, it is apparent that this firm does not have service capability and needs to
explore the means and cost of on site servicing.
PRODUCT-MARKET SELECTION
LO2 Having identified market opportunity, it is now important to carry out a

Interpret the product product-market analysis for evolving a marketing plan. Some of the key
market fit issues that need to be addressed here are:
● What markets should be served?
● What form should the product take?
● What should the product offer?

For example, conservation of energy resulting in low electricity bills is important for marketing
of electrical consumer appliances.
● For whom is the product most important?
example, it is the housewife for whom the washing machine is the most important product. Hence,
Making Product-Market Choices

Having considered issues pertaining to the market, the marketer now needs to turn his attention to mak-
ing specific product-market choices. These relate to the following choices:
●
● Vertical Product Market Choice

Horizontal Markets or Horizontal Diversification Horizontally,
Horizontal diversification
markets can be segmented in terms of end use. For example, an airlines flying
generally starts with a
people, from one destination to another, may also decide to diversify into the technical innovation and
courier business and carry documents and cargo on these same routes. Like- involves identification of
wise, a consumer appliances firm manufacturing toasters, mixers, and geysers, market segments and
targeted at the middle income groups, may decide to diversify into high-tech product forms that will give
products like the microwave oven. This product will be used by the upper middle the desired competitive
and high income groups. advantage.
Horizontal diversification generally starts with a technical innovation or up-
gradation. It involves identification of market segments and product forms that will give the firm the
desired competitive advantage. One has seen this kind of diversification in electronic firms making
products like radios, television sets, and tape recorders. In the case of TV manufacturers, as soon as
the government started colour telecasting in 1982 it allowed firms to import colour TV kits on CKD
(completely knocked down) basis. All of them diversified into the colour TV market which was initially
targeted at upper middle and high income groups. But as technology developed, analog and digital
Plasma & LCD (liquid crystal display) TVs were also added to the product range by all firms. Similar
trends are observed in service industries like banking and airlines.
A decision to horizontally diversify is based on the following considerations:
(b) market potential in the target market, or size of the target market
(c) intensity of rivalry in the selected product market
(d) entry and exit barriers in the selected industry
(e) value addition by manufacturers or, conversely, how low is the ratio of the cost of materials and
purchased parts to the selling price
Vertical Product-Market Choice Vertical product market choice refers to the market level at
which the supplier sells. For example, a firm manufacturing and marketing gears may also start manu-
facturing and/or selling of gear cutting tools and machines. It may also add fitment gauges that are used
by mechanics for enabling gear fitment in a systematic manner.
Likewise, cigarette companies realise that the quality of their product can get adversely affected if
they use poor quality of leaf tobacco, paper, or even filter. Consequently, they have diversified into
these product groups also.
A marketer needs to ask the following questions before deciding on vertical product market choice
strategy:
● Is there a possibility that market development may get absorbed by poor product quality or by
product misuse?
● At what points in the manufacturing chain do quality risks exist?
● Can the company minimise these risks by taking the responsibility of the manufacturing process?
APPROACHES TO MARKETING PLANNING
LO3 Once the firm has made the product market choice, it is now ready for the
Demonstrate the marketing planning exercise. Different approaches have been recommended
approaches to by different authors. Porter, for example, recommends structural analysis of
marketing planning the industry, as shown in Figure 4.2.
Profit Impact of Marketing Strategies (PIMS)

It is perhaps one of the path breaking approaches to strategic planning and competitive strategy devel-
opment. The PIMS model has today come to be widely accepted in the industry, mainly because of the
‘contingent’ principles of business strategy. This principle govern relationship among the characteristics
of markets served by a business unit, its competitive position, the strategy it employs and the financial
results.
To understand the PIMS application to the strategic planning process of a firm, it is necessary to
first understand this process itself. The key elements in the strategic planning process are shown in
Figure 4.3.
The PIMS approach suggests identification of strengths and weaknesses on the basis of a firm’s ROI
analysis. Also, the firm should analyse the cash flow/investment that is normal for a business, given its
market environment, competitive position, production structure, budget allocation, and the historical
pattern of strategic moves. Strategic strengths and weaknesses are identified on the basis of the impact
of individual profit, cash flow on forecasts or ROI. This analysis will also help the firm to identify
key success factors in the industry. Another key area for analysis is the market share. The PIMS study
Figure 4.3 Strategic Planning Process
concluded that the ROI of a firm is linked to its market share. Firms which have
The PIMS study concluded
high market share enjoy high ROI. One of the major determinants of market that the ROI of a firm is linked
share is the product quality. Further, a research by Chussil and Downs (1979) to its market share.
suggested that the product value, as measured by the extent to which quality
exceeds the expected level, for a given price is particularly helpful in offsetting the disadvantages of
low market share. Further, businesses that offered high value were more likely to gain market share in
a relatively mature but growing market. Likewise, PIMS also suggests a positive impact relationship
between strategies of quality and value improvement on a firm’s market share, even at the expense of
short term earnings.
Portfolio Methods
Another approach to marketing planning is the portfolio approach. There are two major portfolio analy-
ses models that are used in marketing planning. These are:
(a) the Boston Consulting Group Approach (BCG)
(b) the General Electric Approach (GE)
Let us examine each of these models in greater detail here. We shall revert to these port-
folio models in Chapter 10. However, for applying these models, firms have to identify the
business divisions or product units which can benefit from strategic planning. General Electric, which
went through this exercise, identified 49 strategic business units (SBUs). For a product or business
unit to be categorised as an SBU, it is important that it must have the following three characteristics:
1. it should be a single business or collection of related businesses that can be planned independent
2. it has its own set of competitors
The purpose of identifying SBUs is to plan and evolve strategies for them and to identify ‘tomor-
row’s breadwinners’.
BCG Approach The Boston Consulting Group, a leading management consultant firm in the
US, developed an approach known as the growth share matrix, shown in Figure 4.4. The two variables
taken in this matrix are the market growth rate and the relative market share of an SBU. Market growth
rate, shown on the vertical axis, represented the annual growth rate of the market in which the SBU
Figure 4.4 The BCG Growth Share Matrix

operated. This varied from industry to industry. While in some fast growing industries, like consumer
electronics, the growth rate estimated could be 20% per annum, in some others, like textiles, it may not
even be 10% per annum. In the BCG model, the highest market growth rate assumed is 20% and hence
the cut off point for determining high or low growth rate was taken as 10%.
The relative market share of an SBU, represented on the horizontal axis, indicates its market share,
relative to that of its biggest competitor. It serves to define the firm’s strengths in a given SBU market.
Here, the relative market share of the SBU was drawn on the log scale so that equal distances repre-
sented the same percentage increase. The cut off point here is 1.0, the point where none of the firm’s
SBUs have a market leadership. A relative market share of 0.1 would indicate that the SBU’s sales was
only 10% of the leader’s sales volume and 1.0 meant that the firm’s SBU was a market leader having
ten times the sales of its nearest competitor. Relative market share above 1.0 was considered high and
less than 1.0 as low market share.
The BCG matrix categorised SBUs into four groups:
(a) question marks
(b) stars
(c) cash cows
(d) dogs
Question Marks These are SBUs struggling to make their presence felt in a high market growth
area. Generally, most SBUs are in this segment in the initial period after their launch. A firm has to
decide whether it should continue to invest resources in these SBUs or withdraw from the segment.
Decision making in this regard is influenced by corporate objectives, financial strength of the organisa-
tion, and the intensity of competition in this high growth market. At times, in
The Question Marks are
countries like India where subsidies have played an important role until 1991,
SBUs struggling to make their
favourable government policy offering ‘doles’ to firms also affect the decision pressure felt in a high market
of the firm. For example, small scale firms are exempted from paying excise growth area.
duty and also enjoy concessions in sales tax in some states. Consequently, they
are able to offer a product to the consumer at almost half the price of that of a firm from the large or-
ganised sector. This is evident in practically all sectors of the industry. In such situations, a large firm
often finds its SBUs struggling to survive.
The dark horse SBU is characterised by high expenditure and low revenues, thus leading to an ad-
verse financial situation for the firm. Expenditures incurred at this stage are on market development,
buying dealer loyalties through highly attractive discount structures and margins, and changing the
product to suit the needs of consumers. Sales are low because a high proportion of consumers are still
unaware of the firm’s SBU/brand and there is generally a reluctance on their part to try a new product.
In Figure 4.4, we observe that while SBU1 is still a question mark, SBU2 is graduating into the star
category. This means that while SBU1 is still struggling to establish itself, SBU2 is transcending to
market leadership.
Stars These are the SBUs in which a firm has acquired market leadership. This situation occurs only
when the firm has been able to successfully evolve strategies to convert question marks into stars.
Although, this is a very favourable situation as these generally are tomorrow’s breadwinners, it does
not necessarily ensure cash flow. This is because the firm has to continuously keep ploughing resources
into maintaining market leadership. The competition will often try to dislodge it by aggressive advertis-
ing, sales promotion, higher dealer margins, and better discount structures. The competition also offers
better products with new features, better packaging, and highly attractive price and payment terms like
hire-purchase or ‘buy now, pay later’ schemes. The market leader retaliates through an aggressive mar-
keting strategy which involves a sizeable quantum of financial resources. Thus, sales revenue generated
by star SBUs is used for maintaining them at their pre-eminent position.
Figure 4.4 indicates that this hypothetical firm has two stars—SBU3, where the market is growing
at the rate of 20% and the firm has 50% more sales volume than its nearest strongest competitor; and
SBU4, where the market is growing at 15% per annum with the firm having almost six times the sales
volume of its nearest and strongest competitor. However, in the case of SBU5, one observes that most
of it has transcended into the cash cow stage. This could be because some segments might have stopped
growing at more than 10% per annum while some others may still be growing at a higher rate. Perhaps
one may observe this dichotomy in metros, mini metros, towns, semi-urban, and rural segments in
developing countries like India. For example, while a particular brand of shampoo of a leading multi-
national firm may enter the cash cow quadrant in metros like Mumbai, Bangalore, Delhi, and Chennai,
it may still remain a star in Lucknow, Indore, Vadodra, and Kochi. One reason for this is that metros
often are the first to receive new improved versions of products and a good number of the consumers
are motivated through aggressive promotions to try these products.
Cash Cows These are the SBUs that generate the much desired cash for a company. This is because,
the market has stopped growing and the firm already occupies a market leader position. Its brands are
a household name and the firm has to do very little to market them. Consumer
Cash cows are SBUs that demand for these brands exists. Generally, the brand is the front runner in the
generate the much desired consumer’s mind and also claims reasonable brand loyalty. Cash generated
cash for the company. through these SBUs is used for R&D, converting question marks into stars,
and maintaining stars in their positions. Strategically, the more cash cows in a
firm’s product portfolio, the stronger its financial position. It should milk these cows before they go
dry.
In India, one notices most of the old established brands like Colgate, Lux, Lifebuoy, and Godrej
falling in this segment.
Often, firms try to prevent cash cows getting into the dog stage through prod-
Product modification, uct modification or relaunching them with some additional benefit. It could be
relaunching with an additional
a new pack or repositioning in a different segment, or for a new use in the same
benefit and repositioning are
some methods employed by segment. A typical example of this is Nestle’s Milkmaid brand of condensed
firms to prevent a cash cow’s milk. This brand, which at one stage was a substitute to fresh milk for tea and
decline to dog stage. coffee, found its sales dipping after the milk revolution in the country. Thanks
to the National Dairy Development Board, fresh pasteurised milk is now avail-
able through several co-operatives. To save Milkmaid becoming a dog, the company decided to reposi-
tion it as an ingredient in making desserts and sweets. Once again, the brand’s sales have picked up.
Dogs These are the SBUs that have lost their glamour. The firm has lost lead-
Dogs are SBUs that has lost
ership in a market which is not growing at a high rate. Often this stage is char-
leadership in a market which
acterised by losses, as the firm has to plough in resources to maintain the SBU.
is not growing at a high rate.
The strategy recommended here is to ‘kill the dog’ or drop the product from the
product line. However, most marketers, for emotional reasons, are hesitant to take this decision and one
does find that a loss-making SBU is allowed to continue.
Eliminating Dogs However, before taking the decision to kill or drop an SBU, Jagdish Sheth urges
marketers to take a fresh look at it from the point of view of customer segments and usage patterns.1 He
believes that often marketers, strategists, and consultants overlook the canvas, or environment, which
consist of an ‘imprecise mass of consumers and competitors’. Sheth is of the view that the decision
to get rid of a low profit, low growth product stems from myopia. Other reasons for not divesting dog
SBUs according to him are:
● High-tech Bias of the BCG Model: The criteria of 10% or higher market growth is perhaps too
-
cent (e.g., Indian economy registered a growth rate of 6.5% in 2004–05. The GNP of the US and
western Europe, in 2004 grew between three and four percent1). The criteria of a 10% and above
and computers.
Further, the model’s lower limit of 25% market share for satisfactory performance is appropri-
ate only for large companies. We do see in India and elsewhere that firms and SBUs with even
10 percent, or in some cases as low as 2% share of the total market may still be a viable business
proportion. Such is the dichotomy of large markets like India and China.
● Sizeable Economic Losses: Often the decision to divest leads to sizeable economic losses as very
● Government Barriers:
leave the industry at will. Such is the case in textiles, light commercial vehicles, and many other
government support. Even if they have loss making products or services, they just cannot exit. A
typical example is the case of Indian Airlines which has to operate even on a loss making route
because of political pressures and compulsions.
● Impact on Stakeholders: Divestment often leads to demoralisation among all external and in-
ternal stakeholders. Moreover, marketers and other employees develop an emotional attachment
to a product. Recommending starmaking strategies, Sheth urges marketers to look at their SBUs
through the market-use matrix shown in Figure 4.5.
Figure 4.5 Star Making Strategies

GE Approach The GE approach is an improvement over the BCG model as it relates market at-
tractiveness to the SBU or firm’s strengths, which will make it competitive in the marketplace. Factors
that determine market attractiveness are the state of competition, government
The GE model suggests
policy, ROI, rate of technology development, overall market size, annual market
a three- coloured screen
(green, yellow and red) and growth rate, and other environmental variables. The strengths, on the other hand,
indicates that all products of any SBU or firm may lie in R&D, finance, distribution, market share, product
may fall in any part of the quality, brand image, production capacity, and managerial personnel. Each of
coloured screen. these factors constitute market attractiveness and the SBU’s strengths are as-
signed a weight, on a five point scale, representing the importance that the
management assigns it, with one indicating very unattractive or very low, and five very attractive or
very high. Based on this analysis, the GE model suggests a three coloured screen and mentions that
products or SBUs may fall in any part of this coloured screen. The three colours are green, yellow, and
red. SBUs falling in green segment, or moderate to high market attractiveness and moderate to high
SBU strengths, require the firm to invest in it and evolve strategies that will lead it to grow. This is a
very promising segment. The firm will have to evolve aggressive strategies to effectively penetrate this
segment. From the point of view of a decision to enter a market, this situation represents a ‘go’ decision.
SBUs that fall in the red segment, or low to moderate market attractiveness and company strengths,
will require the marketer to harvest them or divest them from his portfolio. If a new business proposi-
tion falls in this segment, the firm will be better advised not to enter in it. Other SBUs falling in the
yellow segment, or low market attractiveness and low SBU strengths, moderate market attractiveness
and moderate SBU strength or high market attractiveness but low SBU strength, demand that the man-
agement use the principle of selectivity, or in other words the ‘wait and go’ strategy. Typically, the GE
model looks as shown in Figure 4.6.
Figure 4.6 GE Nine Cell

STRUCTURE OF MARKETING PLAN

Once a firm has been able to identify its market opportunity, it sets out to
LO4
evolve a marketing plan. In most Indian firms, marketing planning is an
Describe the structure
informal exercise. This is particularly evident in a
of marketing planning
family managed or a sole proprietary concern. How- The executive summary—a
ever, in large professionally managed firms, market- bird’s eye of the overall
ing planning is a formal exercise undertaken on an annual basis. There is no marketing plan—is generally
a view targetted to top
uniformity in the structures of marketing plans of different companies. However,
management.
a careful analysis of these plans shows that they generally have the following
contents:
● Executive Summary The executive summary is a bird’s eye view of the overall marketing plan.
It gives the focus of the plan and is generally targeted to the top management. Since the top man-
agement is always short of time, it is evident that no top manager will be able to go through all
the plan, the objectives to be achieved, and the overall strategy.

A marketing plan has its origin
● Situation Analysis A marketing plan has its origin in the situation analy- in situation analysis.
sis or situation audit. At this stage the following issues are raised.
❍ Where are we in terms of our sales, market share, and profitability? Answers to these should
reflect actual to planned performance on all these parameters and, as far as possible, should
be obtained on the following two basis:
(a) Product and
(b) Customer groups
❍ Where are our competitors in terms of sales, market share and profitability on the above
two parameters?
❍ What environmental factors helped or hindered our growth?
❍ What will be the environmental factors in future?
This analysis will help the marketer to identify opportunities and threats as also a firm’s strengths
and weaknesses.
Objectives
Having conducted an indepth situation analysis, the firm has to now decide on its objectives. Many a
time, firms commit a mistake by stating their objectives in terms of historical growth of sales turnover.
It is not uncommon to come across statements like ‘we have grown 50% over the last two years and
want to grow by another 50% in the next one year’. Or ‘our turnover in 2003–04 grew by 25% over
the last financial year. We want it to grow by 40% in 2004–05’. The fallacy of these objectives is that
they do not relate the company’s strengths to the market situation. For example, an industry where all
firms are growing at the rate of 25 to 30% per annum is an indicator of a growing market. If the firm
also grows at this rate then perhaps it is just coasting on a favourable wave. There could be others who
might be growing at a higher rate than this firm and hence are more competitive. Thus it is important
that objectives should reflect aspirations at the following levels:
(a) Relative market share of the SBU
(b) Sales turnover of the SBU
(d) Customer satisfaction

Clearly defined, realistic, but highly challenging objectives on these param-
The objectives should reflect eters help guide marketing and other functional teams to achieve planned per-
the relative market share, formance.
sales turnover, profit and ROI
of the SBUs, and customer
These objectives, mentioned above, should be based on market realities, and
satisfaction. be meaningful and achievable. All concerned must participate to help make
marketing objectives more realistic. This implies involving sales personnel also
in an objective setting exercise.
Marketing Strategy
The marketer now outlines the broad marketing strategy. This section contains inputs on sales growth
plan. A marketer has the following options to achieve an increase in the firm’s sales turnover:
(a) Increase in the price of the SBU
(b) Convert non-users into users
(d) Increase consumption of the SBU in existing customer groups by identifying new use situations
or new applications of the existing product
(e) Launch new products for different customer groups
(f) Improvements in service strategy
The marketing strategy should also reflect positioning of the product in the target market, pricing
policies, distribution alternatives, sales force operations, advertising and sales promotion programmes
and customer service policy.
Implementation Programme
At this point the marketer now turns to converting strategy into an action plan. In other words, now
the marketer creates deadlines to achieve certain objectives, develops action programmes, and assigns
responsibilities to individuals. This makes the entire plan more meaningful.
Projected Profit and Loss Statement

A marketing plan is meaningful to the top management only when it has a
The P and L statement has statement of projected or anticipated profit and loss. On the revenue side, it
forecasted sales and price to
contains forecasted sales in physical quantities and price to be realised. The ex-
be realised on the revenue
sides and cost of production,
penses show cost of production, distribution, and marketing. This can be made
distribution and marketing on on product and customer group bases. Once the budget is approved by the top
the expense side. management, it becomes the basis for developing plans and schedules for mate-
rial procurement, manpower planning, production scheduling, and marketing
operations.
Control Systems
In order to ensure that performance is as per planned schedule, it is necessary to evolve control systems
which can help management take mid-course corrective action, if so required. In some companies, this
involves monthly and quarterly reports from field sales managers, product managers, advertising man-
agers, and market research data. ORG (Operations Research Group) retail store audit and brand share
data on a monthly basis is an example of a useful control system. In other companies, contingency plans
are integrated in the control system. These plans become operational in emergencies like a strike in the
factory or a dealer boycott or a sudden change in the international scenario or government policy. This
is analogous to the control systems, found in modern aircrafts, which are highly automated and repre-
sent state-of-the art technology called as ‘fly by wire’ planes they are equipped with electromechanical
controls which come in operation in the eventuality of the computerised control panel failing. In case,
these also fail, the plane can be manually controlled. A good marketer is one who is able to foresee
future scenarios and prepare himself adequately.
Finally, in writing out a marketing plan, a marketer should remember to:
● establish his and/or the department’s credibility
● produce documents supporting facts
● be optimistic but always truthful
● emphasise uniqueness
● make sure that the plan is workable
● keep reviewing and updating the plan
PROCESS OF MARKETING PLANNING
LO5 After having discussed the approaches and content of marketing planning,
Explain the process of it is equally important to understand that a marketing plan can be successful
marketing planning only when it is decided how the planning is to be done. Four issues need to
be addressed here:
Participation
The key factor to be decided is that of individual(s) who will be responsible for developing the mar-
keting plan. In most firms this is the responsibility of marketing manager, who is assisted by product
managers and marketing research personnel. Today, increasingly, other departments like sales, customer
service, and finance also participate in the marketing plan evolution. Also, consultants and marketing
research agencies participate in the marketing planning exercise in most companies.
Scheduling
Here the issue is that of the frequency at which the planning exercise needs to be undertaken. Should
planning be an annual ritual, or as market development warrants. In today’s turbulent times, an annual
exercise may not be as relevant as shorter term planning will be.
Review
Who reviews and approves the proposed plan is another issue that needs to be resolved. Also, the ques-
tion of the frequency of the review needs to be addressed as well. Should it be at the end of the planning
period or at the end of a project?
Monitoring
Here the decision maker is to decide on the best mechanism to ensure that the plan is executed and
desired results are achieved.
Finally, marketing planners need to avoid three major pitfalls:
(b) systems and marketing reporting formats being overplayed at the expense of contents
(c) failure to recognise and consider alternative and creative plans of action.
It is important here to understand that a marketing plan will be successful only when it is based on
organisational needs and culture, market dynamics, employee commitment, and also considers implica-
tion of IT on a company’s response to the marketplace.
SUMMARY
Marketing planning is the basis for strategy development. We discussed in this chapter how critical
marketing opportunity identification and marketing planning exercise are to a company’s survival
in a hostile environment. Marketing opportunity is much more than just a gap between demand and
supply. It includes the extent to which market needs are met and the degree of market satisfaction
with suppliers. Often firms believe that if there is an unfulfilled demand, it represents an opportunity
for them and hence they diversify in the product group. In most cases they fail. Marketing planning
involves an analysis of product markets for which purpose the firm may use the PIMS approach or
the portfolio approach. However, while using the latter approach, the firm needs to be careful before
divesting products that are in the ‘dog’ quadrant or in the ‘red’ screen. The structure of the marketing
plan varies across firms. However, generally, this includes an executive summary, situation analysis,
marketing objectives, marketing strategy, implementation programme, and control systems.
POWER POINTS
1. Market opportunity involves an analysis of the size of the market, marketing strategies of the
industry. (LO1)
2. Factors that determine the market size for any product or service are its demand conditions
in the target market segment, intensity of competition in that product/service category, and
industry structure. (LO2)
3. Product—market selection is based on decisions on served markets, the product form, principal
use of the product, and the core customer. (LO2)
-
(LO2)
5. The GE approach links SBU’s strengths to market attractiveness. Based on this relationship
(LO3)
Impact of Marketing Strategies (PIMS). The PIMS model is based on the relationship among
the bases of ROI. (LO3)

7. Another approach is the portfolio model which refers to BCG and GE models. The BCG model
(LO4)
(a) It should be a single business or collection of related businesses that can be planned
(b) It has its own set of competitors
executive summary, a situation analysis of the brands or product orsbu, marketing and sales
the management control system. (LO4)

9. While evolving a marketing plan, marketing manager needs to consider participation from all
the key stakeholders. She/he must decide on the scheduling of the marketing plan exercise, the
review and the monitoring and mechanism of the marketing plan. (LO5)

1. Samsung recently introduced a range of their home appliances in the Indian market. It launched
its range of refrigerators, washing machines, microwave ovens, televisions and also cellular
phone handsets. These are positioned at the urban professionals in the middle and higher income
groups. Its major competitors are LG, BPL, Philips, Sony, Panasonic, Electrolux and Whirl-
pool. The company has the objective to achieve a market penetration ratio of 25% in 2005-06
and eventually be a market leader in each of the products. Analyse the market opportunity for
Samsung and evolve a marketing plan for achieving this goal. (LO1)
2. One of the erstwhile leaders in consumer electronics has hired your services as a marketing con-
(LO2)
3. The mobile payment gateway is one of the disruptive business ideas, much the same way as
Credit Card and Net Banking were. In order to expand its market and provide convenience to
market. Analyse this product and the market and advice if the company should acquire or de-
velop its own mobile payment system? (LO3)
4. The Internet gaming industry was worth over `100 crores in 2005-06. There were 36 million
mobile subscribers in India and by the end of 2005 it was expected to be 100 million. According
to some estimates, the mobile market of India was expected to grow at a compound average
rate of 40% until 2007. One of the major player in this market is India Games which is keen to
develop a marketing strategy which will make it a leader across the competition in this market.
goal. (LO4 and 5)

CHAPTER
MARKETING RESEARCH AND

INFORMATION SYSTEMS
5
LEARNING OBJECTIVES
LO1 Explain the importance of marketing research in marketing decision making
LO2 Analyse the marketing research process—sampling procedure, virtual focus groups,
and measurement and scaling in marketing research
LO3 Describe the applications of marketing research
LO4 Explain marketing intelligence and information system
LO5 Describe data mining and warehousing
LO6 Summarise customer relationship management and the tools to manage the same
LO7 Recognise big data and how it is being used by firms to track market behaviour
In Practice
Data and Information Key to Marketing Decisions
In a market characterised by knowledge based competition and a continuous on slaught the
brand’s properties, it is necessary that marketing decisions are based on research in the market.
Equally it is important that the firm has information on a continuing basis on its customers and
competition. Today this information is required at the granular level because a strategy cannot
be based on the strength of an aggregate data. Internet and mobile telephony has today created
an opportunity for individualisation of the product and the marketing offer. Big Data which is
today’s Board room talk is expected to change the way marketers evolve their response strategy.
Hence, marketing research in India has come a long way from just merely tracking consumer
behaviour in FMCG industry to providing knowledge to the marketer for decision making. The
growth of sectors like telecom, digital media, insurance and other financial services have today
created a new opportunity for marketing research. The scope and operations of a marketing
agency expands beyond the traditional mode of survey to ethnographic studies which will pro-
vide an insight in a market. Marketing research today include, data mining and warehousing,
analytics, knowledge processes, etc. Companies like IBM, McKinsey and Hindustan Unilever
Marketing Research and Information Systems 109
have in-house research divisions whose role is to provide research based services to their
respective brands. Even consulting firms like E&Y have their own research agencies. Some of
the new applications of marketing research are CRM, relationship marketing, database market-
ing, service quality, etc. This new era of technology has immense potential to provide real time
information on consumers and the ways to service them. Big Bazaar gets critical sets of informa-
tion about the buying behaviour of their consumers in its stores throughout the country with the
help of hi-end web cameras and videos besides tracking them on social media like Facebook,
Twitter, Google Plus, etc. Another application of research data is in rebranding. Rebranding
strategy is being extensively adopted as brands are losing their relevance in the changed market
scenario. Once brand that went through rebranding was Bharti when it decided to move away
from Bhartitel to Airtel. Three factors seem to have driven this rebranding exercise:
1. The need to fit in to a global identity as the brand was faced with the challenge from global
brands like Vodafone and DOCOMO.
2. The introduction of 3G spectrum in the country leading to a greater demand for mobile
internet which the customer can use to receive and share data and videos.
3. The third factor was the growing influence of social networks in the young market.
Marketer has to exercise extra care in rebranding decisions and must use the marketing data with
a great degree of care and caution. The need to stay ahead must not make companies gamble
their heritage.
MARKETING RESEARCH IN TAKING MARKETING DECISION
LO1 This chapter is devoted to one of the most important marketing tools, mar-
Explain the keting research (MR), which has over a period of time acquired a significant
importance of role in the marketing planning process of organisations.
marketing research in MR is, a key to the evolution of successful marketing strategies and pro-
marketing decision grammes. It is an important tool to study buyer behaviour, changes in con-
making sumer lifestyles, consumption patterns, brand loyalty, and also to forecast
market changes. Research is also used to study competition and analyse the
competitor’s product positioning and how to gain competitive advantage. Of late, MR is also being used
to help create and enhance brand equity. This is a new role and decidedly different from the conven-
tional one, where it was used for just studying buyer behaviour or for conducting feasibility studies. In
fact, because of this conventional role, MR, until the mid 1980s, was considered a luxury, which only
multinationals like Lever, Procter and Gamble and their ilk could afford. However, it is not so now.
This is because competition has increased manifold in all sectors since 1985, and especially after 1991.
Following liberalisation and decontrol, most firms today find that the government does not decide
strategy for them any more. Rather, the arena has now shifted to their boardrooms, and they do not
have answers to several questions. More specifically, they do not have the answer to the question: ‘How
to gain and retain competitive advantage?’ This is where MR plays an important role. Realising the
contribution that MR makes, more and more companies are now turning towards it. FMCG firms have
now realised the futility of product research without understanding the dynamics of customer decision
making. Hindustan Lever, one of the biggest users of research, has changed its approach towards re-
search, as shown in Exhibit 5.1.
Exhibit 5.1 Marketing Research: A Perspective

HLL has moved away from the brand focused re- dependable. The most commonly cited examples
search, that most companies do, to research that are where the research failed to deliver the desired
focuses entirely on the consumers. And, unlike most results or a product failed even though the research
research, which just looks at providing the manager had shown that majority of customers preferred it.
with consumer information, this programme aims at Another major uses of research have been the
getting the managers to directly interact with con- cola giants—Coke and Pepsi. However even they
sumers as well. Intensive inter firm rivalry, a more have erred by non understanding customer prefer-
demanding consumer, and aggressive media cam- ences despite research. The classical example is that
paigns have created a flux in the Indian market. of Coke, which failed to understand customers’ ex-
Most traditional forms of research, like product and pectations and went ahead to launch New Coke. Its
advertisement testing, aim only at risk minimisation, marketing research showed that 68% customers in
rather than providing an insight into changing mar- the US liked the taste of the new formula developed
ket dynamics. The biggest danger of such research by Coca-Cola Corporation. Based on this research, it
is scopism. In such researches, the world is seen launched New Coke & withdrew Coke. New Coke
through the lens of the brand and how consum- failed and in less than six months of its launch in
ers react to it. Yet, in the real world, consumers the summer of 1985, the Coke management had
do not define their lives through these brands. To to relaunch old Coke under the brand name Coke
tackle this, HLL launched a programme called Con- Classic.
sumer Windows in January 2000. It is a holistic kind This example also brings to fore a major limita-
of research that focuses on the consumer’s life in tion of most market researchers, and that is, they
general—what matters to him/her, what is his/her often respond to the ‘here and now situation’ rath-
lifestyle like, what megatrends exist, and so on. The er than taking a long term view of the market. In
company has put together a rigorous system where fact, many a time, a researcher overlooks the back-
all insights are documented on what the company ground of the problem and comes up with rec-
calls DOCKETS (Dossier On Consumer Knowledge, ommendations which are not feasible. In the Coke
Experiences and Trends), which can then be re- case, if the researcher had understood what it takes
ferred to at a later date. It has installed an online to build a brand equity of more than 90 years (to
database called CAMERA that puts the knowledge be precise 99 years) history and conducted in-store
at the fingertips of managers. The programme also experiments by keeping 7X (new formula Coke)
tries to get managers to directly interact with con- cans along with Coke or Pepsi and monitored buyer
sumers. The direct contact theme is extended to behaviour in the stores, perhaps Coke may have
get managers to interact repeatedly with consum- been saved the embarrassment of strategic failure.
ers. The programme is yielding insights that can be Obviously, the researcher ignored all this and went
applied at very basic levels, as with the importance ahead with conventional research, testing customer
of generational differences. The company is now preferences for the new formula and came up with
aware of the importance of 360 degree research. recommendations which led the Coke management
Despite the success, there are still many sceptics to strategise on the basis of ‘here and now’.
of MR. Their criticism is that MR conclusions are not
Marketing research has often been delinked from business strategy. When that happens, most
research reports become ‘academic’ in nature and are ‘filed’.
Many a time, researcher or respondent bias makes the MR exercise a waste of resources. Often, the
researcher has the temptation to conclude what the top management may like to hear. For example, most
chief executives and marketing heads would like to believe that everything about their operations is
good. The researcher may find just the opposite. For example, he may find that the firm’s distribution
policy and strategy is not competitive and channel members do not have faith in company’s policies.
The trade has switched loyalties and the company’s penetration is now reduced
In order to make MR
to only a few select outlets, who are with the company due to their long term effective, it is important
association only. Should the researcher choose to present these facts? If he or she that it should be linked
does, the management and, more so, the marketing head may not appreciate the with business strategy and
facts. It may mean an end to any other subsequent assignment or being relegated should respond to emerging
in the organisation, a dilemma that most researchers face. But a good researcher, scenarios in the marketplace.
like a good doctor, knows that it is better to present facts and let the company
decide the strategy, rather than hide it, which subsequently may even affect its survival. Therefore to
make MR effective, it is important that it has a linkage with business strategy and should respond to
future or emerging scenarios in the marketplace.
The research problem must be properly framed, and while collecting and analysing the data, re-
searcher must keep the context in mind. Also, the researcher needs to construct appropriate questions
and must have the skill to elicit responses, and sift through them. For example, in the case of the 2004
polls, if the researchers had asked voters not just, ‘What you think of the NDA government’ but also,
‘What NDA government thinks of you’, they would have got answers uncovering the voter’s mind.
Further, marketing research should be able to give conclusions at the appropriate time.
MARKETING RESEARCH PROCESS
LO2 Having considered the pros and cons of marketing research, let us now
Analyse the turn to the marketing research process itself. This process, as shown in
marketing research Figure 5.1, has seven stages, which are:
process—sampling 1. problem definition
procedure, virtual 2. defining research objectives
focus groups, and 3. working out a research design
measurement and 4. deciding on the sources of data
scaling in marketing 5. planning and deciding on data collection techniques and tools
research 6. analysing data
7. making a report and presenting it to the decision maker(s)
Let us examine each of these stages more closely in order to avoid the pitfalls at each stage.
Problem Definition
This is the starting point in the marketing research exercise. In any enterprise, there are several market-
ing issues that may require examination and, invariably, every decision maker perceives his information
need as being the most important. Consider this illustration, which was narrated by a researcher. The
marketing manager of a consumer non-durable product wanted to measure the effectiveness of the exist-
ing distribution system and compare it to a new one that the company wanted to put in operation. The
marketing manager was uncertain about the new plan and did not wish to upset the apple cart. However,
before a final decision could be taken, the researcher was advised to meet the company’s chairman,
vice-chairman, managing director, and president. Each of these top executives had their own needs.
One wanted to know the importance of packaging in the product group, another wanted to know the
customer’s perception of an ideal product and how the company’s product was rated. Yet others wanted
to know how to improve price realisation and customer’s price sensitivity behaviour. Most researchers
Figure 5.1 The Marketing Research Process
rush into accepting such tall orders and hence end up presenting a report which ultimately finds a place
in the marketing head’s shelf.
Factors to be Considered while Defining a Problem
Avoid Ambiguities In problem definition, it is important to be specific, avoiding ambiguities and
generalities. Care should also be taken not to define problems, in too narrow a field as that may distract
the researcher’s perspective. This may even affect creativity in the research. Therefore, for a specific
product group, to merely determine whether the direct or indirect distribution is more cost effective is
too narrow an approach to problem definition.
In problem definition, it is
important to be specific, avoid Agreement on Principal Problems Further, it is always advisable to have
ambiguities and generalities. an agreement on the principal problems. This becomes important when the
problem statement encompasses multiple, but related, issues. For example, in

It is always advisable to have
the distribution problem stated above, the principal component of the problem an agreement on the principal
was defined as measuring the effectiveness of the existing and proposed distri- problems as a problem
bution plans as measured by costs, profitability, and market penetration; and the statement encompasses
secondary problem was defined as the motivation of trade channel members. The multiple, but related issues.
researcher should avoid adding his prejudice here and should use probing tech-
niques to achieve a consensus on problem definition. Questions like, ‘How do you explain it? Why did/
does it happen? What if . . . ? When did it last happen? Tell me more . . . !’ are some of the probes that
can get the researcher valuable leads to problem statements. The researcher has to be a good listener.
Historical Context Another dimension which no researcher should lose sight of is that all problems
in an organisation have a historical context. Low motivation in a company’s sales force, leading to poor
market coverage, does not occur in a vacuum. It is necessary that the researcher conducts a situation
analysis at this stage and examines the how, why, when, and where of the problem. It is important that
the researcher examines company records, industry data, and scans competition data to arrive at a cor-
rect assessment of the situation. The researcher, also needs to make an informal assessment of the situa-
tion, with all parties involved in the decision making and then reach a conclusion on problem statement.
It is important to take all these steps so as to avoid confusion between a symptom and a problem.
The researcher must recognise the fact that marketing research has a cost and if it does not yield results,
then the viability of such a project will always be suspect. Marketing research problem is information
oriented, and in contrast to a management decision, a problem is narrowly and precisely defined.
IN FOCUS
Often, responses to the following three key questions can help define marketing research problems:
(a) purpose of the information being sought
(b) whether the information already exists
(c) whether the question posed by the decision maker can be researched
Once a problem is identified or recognised, it is important to understand exactly what needs to be ex-
amined. For example, in order to understand the opportunity Internet offers to business and non-business
entities, it is necessary to study the profile of Internet users and the purpose(s) for which the customer
uses the Net in India and other countries. Exploratory research can help answer some of these issues.
Generally, this is a small pilot research undertaken to help define the exact nature of the problem and gain
a better understanding of the background of the problem. This could be done through the Internet and
small focus group discussions of Internet users. The Internet and Web are, today, significant enablers in
pilot research and problem definition.
Organisational intranets can help the researcher gain information relating to the problem from various
departments. It can also help the researcher understand the context of the problem. The Internet provides
an invaluable resource for searching several external sources of information. This can help direct the
researcher’s attention to several search engines and websites for the desired information, and is faster
than the conventional library research.
This type of exploration can help the researcher define the main and sub-problems and also understand
the context of the problem. Hence, good problem definition is the key to getting the most out of marketing
research, and both the researcher and the decider have a stake in it.
Statement of Research Objectives

Once the problem is defined, the next logical step is to state what the researcher wants to achieve. This
statement is called objective. To be meaningful and help focus the researcher’s attention, these objec-
tives should be specific, attainable, and measurable. In the distribution example above, the researcher
laid down the objectives as follows:
(a) to determine the market penetration of the company and its competitors in metros and other urban
cities,
(b) to determine the ratio of brand sales to industry sales (extraction), and
(c) to assess the motivation levels of channel members and evolve an incentive plan for enhancing
it.
These three objectives emanate from problem definition. Also, these are measurable, attainable, and
specific.
The purpose of these objectives is to act as a guide to the researcher and help him in remaining
focused all through the research.
Research Design
The third stage in the marketing research process is deciding on the research design. There are three
types of research designs, namely: (a) exploratory (b) descriptive (c) causative.
Exploratory research is done

Exploratory Research Exploratory research is conducted when the re-
when the researcher does not searcher does not know how and why a certain phenomenon occurs, for example,
know how and why a certain how does the customer evaluate the quality of a bank, hotel, or airlines? While
phenomenon occurs—focus in the case of a manufactured product, quality is assessed on the basis of tangible
groups, interviewing key features, replacement policy, warranty, and so on, in the case of services there
customer groups, experts are no tangibles. To understand this phenomenon, several researchers have con-
and search for published ducted focus group discussions to identify these quality parameters. For exam-
information being some key
techniques employed for the
ple, Zeithaml, Parsuraman, and Berry1
same.
exploratory research is to know the unknown, this research is unstructured.
Focus groups, interviewing key customer groups, experts, and even search for printed or published
information are some common techniques.
Descriptive research
Descriptive Research Descriptive research is carried out to describe a
is carried out when the phenomenon or market characteristic. For example, a study to understand buyer
researcher understands the behaviour to describe the characteristics of the target market is descriptive re-
search. Continuing the above example of service quality, a research done on how
behavioural characteristics.
customers evaluate the quality of competing service institutions can be consid-
ered as an example of descriptive research. Research done on media habits and TV viewing habits is
another illustration of descriptive research. Generally, descriptive research is carried out only when the
researcher understands the phenomena or behavioural characteristics.
Causative research is done to Causative Research Causative research is done to establish a cause and
establish the cause and effect
relationship.
-
chase decisions. Here, the researcher may like to see the effect of rising income
and changing lifestyle on consumption of select products. He/she may test the hypothesis that as income
increases or lifestyle changes, more elite and state of the art products are likely to be bought. Or in other
like to test the effect of a 10% increase in its product’s prices. In causative research, unlike exploratory
or descriptive research, hypotheses are tested.
A hypothesis is a statement of predicted outcomes of research. In building up a hypothesis, it is
important that the researcher thoroughly understands the phenomena or body of research that exists on
a subject matter.
Reliability and Validity Whenever designing or evaluating any research study, care must be
taken to ensure that the research and data both are reliable and valid.
Reliability addresses whether the study results will repeat themselves irrespective of the number of
samples drawn from the population. In other words, if the study was replicated, the same results would
hold and not change depending upon the sample at hand.
Validity addresses whether the study truly answers the questions that the researcher intended to an-
swer. For example, a survey asking the customer if they were satisfied with the product cannot predict
if the customer will purchase the same product again. Repeat purchase of the product may depend upon
other factors such as price, competition, customer needs, etc.
Sources of Data
Once the research design has been decided, the next stage is that of selecting the sources of data. Es-
sentially, there are two sources of data or information—secondary and primary.
Secondary Data
Sources of Secondary Data This refers to information that has been collected earlier by someone
else. Often this includes printed or published reports, news items, and industry or trade statistics, etc.
This also includes internal documents like invoices, sales reports, payment history of customers, and
despatch records. These are important to the researcher as they provide an insight into the problem.
Often, preliminary investigation is restricted to secondary data. It needs to be understood here that often
this data includes information on competition, and customers. For example, NRS (National Reader-
ship Surveys) gives information on the media habits of Indian consumers. Likewise, a research done
on household buying behaviour and purchase decisions by the National Council of Applied Economic
Research (NCAER) is a useful source of information.
Thompson Urban and Rural Indices, constructed by Hindustan Thompson and Associates, are very
important in understanding the nature of markets in India. In fact, these are useful indices for the pur-
poses of marketing planning exercises. Similarly, journals like Business India, Business World, and
Business Today, and other economic and financial publications carry feature articles on companies,
products, industry, and markets. Likewise, there are several well known marketing research, advertising
agencies, industry associations and consulting firms like McKinsey, KSA Technopak, BCG etc. which
are today generating information and data on Indian markets. Most of their reports are available in print,
electronic (CD) and on their internet sites. Exhibit 5.2 gives some of the major sources of secondary
data which no market researcher should ignore. In fact, no marketing planner and strategist can ignore
them.
Exhibit 5.2 Select Sources of Secondary Data

1. Centre for Monitoring Indian Economy 10. Thompson Urban Index
(CMIE) 11. Thompson Rural Index
2. Bombay Stock Exchange Directory 12. NRS IV/V
3. Kothari’s Industrial Directory 13. NCAER
4. Economic Times Research Bureau 14. Census of India (www.censusindia.net)
5. Financial Express 15. R K Swamy
6. Business Standard 16. McKinsey
7. Business India 17. KSA Technopak
8. Business World
9. Business Today
There are three types of secondary data. One, as mentioned above, are organisations, journals, and
newspapers. The second is the company itself (internal databases), and now the third is the WorldWide
Web.
Internal Databases All companies have some form of internal database
The DBMS has two key
components: data warehouse;
which they use for decision making. Most of this data is computerised. Irre-
spective of computerisation, the most common source of internal database is the
and data retrieval system.
sales call report, sales territory information system, and brand score cards. These
information sources present data on customer preferences, customer loyalty, competitor activities, new
products in the market and their expected impact on the company’s sales, price sensitivity, and so on.
With increasing complexity in the marketplace due to enhanced competition, companies need to take
faster decisions. For this purpose, most companies have today created a database management system
which has two components: (a) data warehouse and (b) data retrieval system. The database manage-
ment system involves recording data in the computer, organising it for effective use, updating and
maintaining it, and retrieving the information for decision making. Generally, this data is on customers,
territories, and brands. Collecting and storing data on a computer is not a major task. Rather, the more
complex task is one of creating a proper blend of experienced personnel, hardware, and software to
make the data usable.
Today, the fastest growing usage of an internal database is database marketing, which is the crea-
tion of a large computerised file of customers and potential customers’ profiles and purchase patterns.
Specifically, database marketing can assist in:
(c) evaluation of sales territories
Database marketing can help customise the marketing effort. Companies like Shoppers’ Stop,
Citibank, Jet Airways, Vodafone, Airtel, and several other consumer products, automobile, and indus-
trial product companies are today employing this approach to effectively reach their customers.
Advantages of Secondary Data Secondary data offers the advantage of economies of time and
cost. It also offers the benefit of convenience to the researcher. In addition to these direct advantages,
secondary data may offer a solution to the research problem. This is because most problems would
have some past history. Although the solution provided in the past may not be relevant for the cur-
rent situation, it could provide a direction to thinking. Further, secondary data can also help clarify or
redefine the problem. It can also provide necessary background information and add creativity for the
research report.
Limitations of Secondary Data Despite the obvious advantages, secondary data suffers from
the problems of lack of availability, relevance, inaccuracy, and inefficiency. For example, company-
specific or brand-specific consumer responses are not within the domain of secondary data. Likewise,
often the secondary data may be expressed in units or measures that may not necessarily serve the
researcher’s needs. For example, secondary data on televisions may throw up the number of viewers
in India, while the research may actually need data on television ownership. Also, the data may be in
absolute numbers while the researcher’s objective may demand ratios and percentages. Inaccuracy is
created by factors like source and purpose of data, time when data was collected, methodology de-
ployed, type of data, and consistency of information.
IN FOCUS
The New Age of Secondary Information: The Internet and World Wide Web
The rapid development of the Internet and World Wide Web promises to eliminate the drudgery associ-
ated with the collection of secondary data. The Internet is a worldwide telecommunications network, that
allows computers and the people who use them to access data, pictures, sound, and files across the world
without being restricted by their physical location or the type of computer.
Global sites such as Yahoo, Google, Altavista, Hotbot, and Indian ones like Rediff.com, Indiainfoline,
Indiatimes, NDTV, etc. are some of the more popular websites providing information on industry and the
economy. These organisations offer search engines which allow one to search databases of their web
sites.
● Internet discussion groups and special interest groups as a source of secondary information:
A primary means of communicating with other professionals and special interest groups on the
Internet is through newsgroups. Newsgroups function much like bulletin boards for a particular
topic or interest. A newsgroup is established to focus on a particular topic. Readers visit that news-
group to read messages left by other people, post responses to others’ questions, and send rebuttals
to comments with which they disagree. With over 2,50,000 newsgroups currently in existence and
more being added everyday, there is a newsgroup for nearly every hobby, profession, and lifestyle.
● Databases on CD-ROM: A number of companies offer database packages on CD-ROM for
personal computers. Examples of these are Encyclopaedia Britannica, Manorama Yearbook, R.
K. Swamy’s Handbook, World Development Reports and Indicators, National Geography, and
CMIE and EBSCO, KSA Technopak, McKinsey, etc.
● Geographic Information Systems: A GIS typically includes a demographic database, digitised
maps, a computer, and software that enables the user to add corporate data to the mix. Companies
as diverse as Cigna Sears, Isuzu, and HLL have embraced mapping as an easier and more powerful
way to interpret data that previously could be presented in the form of mind numbing printouts,
spreadsheets, and charts.
Although, secondary data is useful and important, there are problems inherent in its usage. As
mentioned earlier, the most important limitation is that the purpose of planned research may not neces-
sarily be the same as that of the secondary researcher or research organisation. As a result, there could
be problems relating to definitions of key terms and hence the data may not be wholly useful. For
example, the definition of various income groups may vary with each marketing research. Hence, data
on percentage of households in different income groups will be helpful only to the extent that it would
provide the researcher a direction. But the cut off points for low, middle, or high income will be based
on the researcher or decision maker’s definition of the target market.
Besides, the incompatibility of objectives or data, one may even observe that the secondary data was
collected a long time back or the changes in the market have made this data obsolete. The problem with
most government statistics on the Indian market is that it is old or outdated. Many a time, the market
changes are so dramatic that statistics collected earlier are useless. The data on competition or indus-
trial structure statistics, if not updated, can soon become obsolete. Further, the secondary data may be
coloured by its researcher. Quite often, published reports get coloured by the political philosophy of
the publisher. Hence, the data may not be objective.
Primary Sources of Data To overcome the limitations of incompatibility, obsolescence, and
bias in secondary sources of data, the researcher turns to primary data. This is also resorted to when the
secondary data is incomplete. Primary sources refer to data collected directly from the marketplace—
customers, traders, and suppliers often being the major sources. These are often reliable data sources
and help in overcoming the limitations of secondary data. The problem in primary data is its cost, both
in terms of money and time, and often researcher bias also creeps in. However, notwithstanding these
limitations, primary sources are important and more than 90% of marketing research involves one or
the other part of this primary data search.
Types of Primary Data Primary data is again of two types—census and sample.
● Census: Census refers to the collecting of data from the entire population. The
Census refers to the most common form of census is the Indian population census or compilation of
collecting of data from the
voters’ list in an area. Census takes a long time and hence is not suitable for most
entire population; while
sample refers to a pie taken marketing researches. However, one may observe its usage only where custom-
from a population. ers are limited and have diverse needs. For example, for Boeing, the number of
airlines in the world are limited, and hence, census surveys may be desirable, but
not for a tyre manufacturer, or a soft drink, or a textile firm who cater to large markets. To overcome
this problem, most marketing research and consequent decisions are based on sample responses.
● Sample: Sample refers to a small unit taken from an entire population. If this unit is drawn carefully,
the conclusions can be extrapolated to the entire population and generalisations can be made. The key
then is a representative sample. Some of the decisions to be taken, are the size of the sample (number
of people to be contacted), how their responses will be tabulated, analysed or interpreted (sample strati-
fication), and how the sample will be drawn (sampling procedure).
The decision on sample size is based on the time available to the researcher and decision maker.
It is also dependent on the nature of the problem or the research design. For example, an exploratory
research involving focus groups could be done on a sample of 100–150 customers. So long as these
customers match the demographics and psychographics of the target market, conclusions from this
sample can be generalised. But a Gallup poll forecasting the success of different parties in the next
general elections is done on a much larger sample size.
Location of the sample also needs to be considered. This is often based again on the nature of the
problem, product positioning, and location of the firm. For example, to study the problems of suburban
train commuters in Mumbai, a sample drawn from the western and central suburbs can help. But to
study the problems and expectations of train commuters in India, the sample will have to be drawn
nationally, with representatives from rural and urban commuters; male and female commuters; and
travellers in different income, age, education, and occupation groups. This is because problems and
expectations are likely to differ across the length and breadth of India.
Sample stratification refers to the basis used for segregating responses. Often demographic, geo-
graphical location, and psychographic variables are used to stratify sample responses. Each cluster of
sample respondents is called a strata. This helps the researcher test differences in behavioural patterns
among different strata.
Sampling Procedure
The key to a reliable conclusion is the sampling procedure or the manner in which a sample is drawn.
The different methods are described below:
Random Random sampling refers to collecting data from a number of respondents, drawn ran-
domly. For example, the researcher may decide to collect information from every third person he
meets at Mumbai VT (CST) Station. This method helps in eliminating researcher bias and any other
respondent bias which may lead to an error in reaching the conclusion. The problem with this method,
is that it is not necessary that every third person is the target customer for the firm’s product and hence
the responses may be incoherent and not useful. Hence, this is not a very commonly used procedure.
To overcome this problem, the researcher may decide to use the purposive random sampling tech-
nique.
Purposive and Judgemental As opposed to a random sample, the purposive and judgemental
sampling procedure involves the researcher assessing a respondent and the value of information from
such a respondent. Based on this assessment the researcher decides to include a respondent in the sam-
ple. This method suffers from researcher bias and hence conclusions can never be generalised.
Here, the researcher decides on who meets the target market’s definition and then collects the data.
For example, the researcher may decide to collect information from every third women aged between
21 and 35 years, if he or she (i.e., the researcher) is doing a research on cosmetics. At other times, the
researcher may ask the question to every third person on whether he/she uses the product and based on
the reply, may either continue investigation or close it.
Many a time, the researcher may have to use his judgement in selecting a respondent. For example,
though he might have been asked to knock at the second flat of the second floor of every alternate
building on the left of the road, he may find that there are not enough buildings on the left but there
are plenty on the right hand side of the road. In such a case, he uses his judgement and considers the
purpose of the research and depression of the target market. Such a sample then, is called a purposive,
judgmental, and randomly drawn sample.
Data Collection
The researcher is now ready to take a plunge. But still he or she needs to be clear about the:
(a) Procedure of data collection
(b) Tools for data collection
Let us turn to these two decision areas now.
Procedure of Data Collection Data can be collected through any or combination of the fol-
lowing techniques.
Observation This technique involves observing what a customer is buying and doing in the store.
Also, it involves observing how a customer behaves in the shopping area, how he or she dresses up,
and what the customer says when he or she sees the product. Closed video monitoring is a very com-
mon technique being used today by major dealer showrooms and other retail outlets. The assumption
in using this technique, is that one can know about buyers’ preferences, habits, and sub-conscious
behaviour only if the marketer does not interfere. This is a useful technique, but it suffers from the
limitation of interpretation problems. Different researchers and decision makers may interpret the same
human behaviour in different ways depending on their perception. But in tracking brand movement this
is certainly a useful technique.
Experimentation This is a technique that involves experimenting with new product ideas, advertis-
ing copies and campaigns, sales promotion ideas, and even pricing and distribution strategies with the
target customer group. These experiments can be conducted in an uncontrolled environment or in a
controlled and simulated market environment.
● Uncontrolled Experimentation: The typical example of uncontrolled experimentation is test mar-
keting where a firm may test its new product and marketing strategy in a market environment with all
uncontrollable elements playing their roles. Major external elements like competition, have a critical
role to play. The advantage of such experimentation is that one can get an unbiased feedback on how
the product and marketing strategy will help the firm penetrate the market. But the problem is that the
competitor can weaken the test market results by stepping up its promotional campaign or dumping its
stocks in the market during the test market phase. In some cases, the competitor may just behave the
opposite way and thereby give the firm a mistaken feeling that all customers prefer its new product.
Because of these reasons, test marketing results have to be monitored cautiously. Besides, the cost of
test marketing is increasing. Firms have now started selecting smaller towns like Indore, Bangalore,
Pune, Lucknow, and Patna for test marketing, rather than conducting it in Mumbai.
● Controlled Experimentation: The alternative to the above is ‘controlled and simulated experimen-
tation’. Here, the external environment variables (specially competition) are controlled and customer
feedback monitored. Pre-testing advertising campaigns or with a select customer group, by showing
both the product advertisements and competition advertisements (portfolio method), are examples
of controlled experimentation. Another example, is that of marketing fairs organised by the Xavier
Labour Relations Institute, Jamshedpur, and earlier by Narsee Monjee Institute of Management Studies,
Mumbai. The marketing fair simulates the market conditions by creating true buying situations. The
firm gives a research problem and the researchers (students) create a shop/store with their competitor
brands with prices and also displaying the firm’s brands. ‘Buyers’ or customers are invited on the day
of the fair. All questions are indirectly asked using games. A carnival atmosphere is created. These
‘customers’ play the games and answer the questions that the firm wants to know. The advantage here,
is that data collection is much faster, as the researcher does not have to go from door to door to collect
the data. Also, since the competition is simulated, the marketer can get to know how the brand/new
product/strategy will deliver the results, if competition does not change the strategy. This itself is the
limitation of a marketing fair. Also, since customers are in a carefree mood, there is a possibility that
their responses may not represent their actual intentions. However, notwithstanding these limitations,
the marketing fair is an innovative approach to marketing research involving the concept of a traditional
buyer–seller meet. It also replicates the Indian concept of the rural market, or, haat where sellers and
buyers meet to negotiate the deals.
Survey The most common procedure is the survey. Here, the researcher carries out opinion polls
involving customers, sales persons, dealers, traders, and experts. Also, customer and trade surveys
are very common. In conducting these surveys, the researcher has to carefully select the instruments
and methods of surveying. These methods are postal surveys, telephone surveys, or personal contacts.
Postal surveys are often ineffective as the non-response rate is very high. The same may hold good for
telephone surveys. Personal contact method, though time consuming and costly, gets a higher response
rate and more meaningful responses.
The limitations of all surveys are high costs and more time in data collection. Also, surveys may
involve researcher and respondent bias.
Focus Groups Lately, the attention of the marketer has been on knowing the customer’s subcon-
scious self. Survey techniques help the marketer understand the conscious mind of the buyer. How does
one get to the ego of the customer? Constituting focus groups and discussing the research issues with
these customer groups is another way of data collection. This has gained momentum lately. We shall
discuss some of the techniques used in these focus groups in the subsequent section.
Virtual Focus Groups Increasing internet and mobile usage has led to an increase in online qualita-
tive studies to test and evaluate products (often mailed in advance), prototypes and consumer senti-
ments. One such popular research technique is the virtual focus groups. Virtual focus groups are much
like traditional focus groups, except they are conducted completely online. They either use real-time
virtual focus group rooms where the discussion lasts for 90 minutes or so; or online bulletin boards
where respondents post comments over a period of days.
Virtual focus groups allow market researchers to locate and reach markets that are hard to recruit, geo-
graphically dispersed and touch on sensitive topics. They also allow respondents to choose the best time
to participate and make it more difficult for someone to dominate the group. Other traditional inhibitors of
focus groups, such as age, gender, ethnicity, shyness, etc., also tend to be reduced in virtual environments.
However, virtual focus groups often require a re-thinking and re-application of qualitative design
and techniques. A well-crafted screener (will the participants be only invited or pre-screened) and an
experienced moderator are very important to ensure success in this environment. The view for the client
observers (will they interact with the participants or just take notes) and the view for the participants
(will they see every comment and how much will they know about fellow respondents—psuedoname
or real name) become important considerations.
The discussion guide development and design, though like the in-person focus groups, must be writ-
ten clearly fully in advance. The respondents must be able to clearly view and completely understand
the main topic. Additional spontaneous probes can also be inserted into the dialogue stream as the
discussion proceeds.
In the bulletin boards, a set of questions can be posted every day for the respondents to answer. The
daily questions can change depending upon the complexity of the issues, topics at hand and respondent
involvement. Additional probes can be interjected depending upon the responses received.
The analysis and reporting of the online focus group is similar to that of in-person groups with tran-
scripts and word analysis. However, since visual and verbal cues are unavailable, sentiment analysis of
words used becomes very important.
Tools for Data Collection The researcher has to decide on the appropriate tool for data collec-
tion. These tools are:
Questionnaire—used for the survey method
Interview schedule—used mainly for exploratory research
Association tests—primarily used in qualitative research
Let us study each of these tools in greater detail.
Questionnaire This is the most popular tool for data collection. A questionnaire contains questions
that a researcher wishes to ask from his respondents. It is important that these questions be put in a
language the customer understands and finds easy to answer. As far as possible, all technical terms or
words that can have multiple meanings and interpretations should be explained. This is essential so
as to have consistency in responses from all sample respondents. For example, words like ‘regularly’,
‘frequently’, ‘occasionally’, need to be explained. A question like ‘How regularly do you buy a deter-
gent powder?’ and having the choices ‘always, frequently, occasionally, sometimes, and never’, will not
get the desired response, if not explained. So the researcher may explain these words in the following
manner:
● Always : every shopping cycle
● Frequently : every alternate shopping cycle
● Occasionally : once in six shopping cycles
● Sometimes : not very often; once in a while
● Never : never buy in any of the shopping cycles
The shopping cycle means every time you go to buy groceries for the household. This could be
weekly, fortnightly, or monthly.
Exhibit 5.3 gives the steps involved in designing a questionnaire.
Exhibit 5.3 Steps in Questionnaire Design

It is important that the questions are not loaded, to (d) Are there any sensitive ‘spots’ or ‘questions’
avoid any researcher bias. It is also important that which respondents would feel uncomfortable
the information collected must be believable and with and would not want to respond to? Typi-
unbiased. Just as researcher bias has to be avoided, cally, these could be questions relating to re-
respondent bias must also be avoided. spondent’s income, age, or personal particulars.
Further, there must be a flow in a questionnaire. To avoid such drawbacks, put these questions
For example, ‘How many children do you have?’ with multiple choices in different ranges. Also,
and then asking ‘your marital status’ is improper. with regard to income, it is best to ask about the
The question on marital status should logically pre- annual family income, as it is less embarrassing.
cede the one on the number of children. (e) What is the time that an average respondent is
A questionnaire should be pre-tested before taking to complete the questionnaire? It is im-
final printing. The pre-testing should be for the portant to remember that long questionnaires
following: lead to fatigue and also puts off the respond-
(a) Are the questions clear to the respondents? ent. Non-response or inappropriate response is
(b) Is the researcher getting answers to the ques- very common in a long questionnaire. So the
tions? Or does the respondent understand key is in avoiding respondent fatigue by having
questions in the same way as the researcher a short questionnaire.
does? (f) Does the customer feel interested in the re-
(c) Are there any terms or words requiring expla- search project? Is his/her interest sustained
nation? while responding to the questionnaire?
(g) Is there a logical flow among the questions?

(h) Are the investigators able to explain the purpose and questions, if required?
Schematically these steps are as follows:
● Close-ended versus Open-ended Questions: In developing a questionnaire, it is also important to

have as many close-ended questions as possible. A close-ended question is one where the respondent
has to select a response from one among the multiple choices offered to him or her.
Exhibit 5.4 illustrates some close-ended questions developed to study marketing professionals’
perception of their job role and IT-related skills required by them. This is abstracted from a marketing
audit done by the author for a particular company.
Exhibit 5.4 Illustration of a Close-ended Questionnaire

Response Form gree. ‘5’ is just the opposite as it reflects that you
I. Given below are some of the typical marketing always behave this way or strongly agree to it. If
and sales situations which a marketing professional your behaviour is between these two ends of the
in your industry confronts. We would like you to scale (which is more likely), circle/tick the score,
read through each statement and indicate your re- which best describes you. As far as possible, avoid
sponse on the 5 point scale where ‘1’ indicates the centre of the scale i.e. 3, which indicates an
that it does not apply to you or you strongly disa- uncertain response.
II. Given below are some IT-related skills. We (b) Internet and Intranet
would like you to tick those which you feel you (c) E-commerce
know and can use in decision making. (d) Any other
(a) MS Office
1 2 3 4 5
1. My emphasis is to sell my products to the dealer.
It is his job to sell it to the customer.
2. I visit customers (end users) regularly.
3. (a) When I visit customers, I spend most of the time talking to
them about our products and services OR
(b) I spend most of the time understanding the needs of the
customer OR
(c) I listen to the customer and accept whatever response he is
willing to give me.
4. Before I visit my customers I look at the customer related data
and prepare myself accordingly.
5. There is no customer related data that exists in our organisation.
III. How frequently do you use IT skills in your daily (b) Access the Net for mail
routine? (Please tick the appropriate response). (c) Word processing, like letter writing and re-
(a) Always port productions
(b) Frequently (d) Forecast demand in the territory
(c) Sometimes (e) Territory planning and development
(d) Occasionally (f) Customer planning and development
(e) Never (g) Inventory management
IV. What is the purpose for which you use IT? Please (h) Receivables management
tick more than one, if they apply to your situation.
(a) For sending reports to the senior and top
management
The advantage of close-ended questions is the ease in tabulation and analysis. But close-ended
questions can be used only when the researcher understands a phenomenon or behaviour well. If it is
unknown and the researcher wishes to probe, open-ended questions will deliver results. For example,
a researcher wants to know the customer’s perception of an ideal product or wants to know the para-
meters on which a rural customer, as opposed to an urban customer is evaluates the quality of a bank’s
service. Here, open-ended questions will produce the results. The problem that comes up is that open-
ended questions are difficult to tabulate. Hence, their use is limited.
Measurement and Scaling in Marketing Research
● Measurement of Attitudes: Most marketing researches involve studying consumer’s percep-
tions, beliefs, preferences, and motivations. Some may involve studying the psychological dimen-
sions of the dealer, retailer, or sales person’s behaviour. In a way, most research exercises measure
attitudes of individuals. An attitudinal study involves specifying:
(a) the class of persons, objects, events, or states to be observed
(b) the environmental conditions under which the observation takes place
(c) the operations to be performed in making the observations

(d) the instruments to be used to perform the operations and
(e) the observations to be made2
Extending this concept to marketing, the attitude of a consumer towards a particular brand of a
product or service can be understood as a function of:
(a) the number of consumers of that brand
(b) at a specific time and in a given geographical area, who are
(c) personally interviewed, using a
(d) specified attitudinal scale, to obtain
(e) the response information provided by the attitude scale3
In other words, consumer attitudes towards a brand, product, or service may be understood as
numerical ratings on a like-dislike scale.
❍ Scales Employed in Measuring Attitudes: To measure these attitudes, a researcher has
to understand different scales, situations in which they may be used, or the analytical tools
that can be used to analyse the responses. Scales are of four types: (a) nominal, (b) ordinal,
(c) interval, and (d) ratio.
■ Nominal Scales These are the least restrictive of all the scales. Here, numbers are
used for identification purposes only. A typical example of this scale is telephone num-
bers allotted to subscribers. Another illustration is classification of retail outlets ‘carry-
ing brand X’ and those ‘not carrying brand X’. These scales permit only the most
elementary mathematical analysis. For example, mode is a common statistical tool used
here. Let us consider the example of different brands of toilet soaps being marketed in
a given area. On the basis of the number of shops keeping different brands of toilet
soaps, we can find out the most popular brand of soap in a particular geographical area,
or the brand sold by a maximum number of shops in that area.
■ Ordinal Scales These are the ranking scales. These scales require the customer’s
ability to distinguish between elements according to a single attribute and direction.
Consider, for example, a person who may be asked to rank dif-
Nominal scales permit
ferent brands of cars on fuel efficiency. Suppose the response is:
only the most elementary
Maruti 800 CC — 1 mathematical analysis;
Indica — 2 while ordinal scales require
Santro — 2 the customer’s ability to
Zen — 3 distinguish between elements
according to a single attribute
Esteem — 4
and direction.
Accent — 5
In this situation an ordinal scale has been used. It may be understood that mere ranking
of different brands in a product class (in the above case, car brands) does not permit the
researcher to conclude about the differences, separating brands on a specific attribute.
In the above example, the only conclusion that can be drawn is that Maruti 800 is the
most fuel efficient car in this area. But, by how much and how different it is from others
on fuel efficiency cannot be assessed by this scale.
An ordinal scale contains all the information of a nominal scale, as equivalent entities
receive the same rank. Ordinal scales lend themselves to statistical analysis like median,
quartile, percentile, and other summary statistics.
■ Interval Scales: These scales allow an individual to make meaningful statements about
differences separating two objects. However, it may be noted that the zero point of this
scale is arbitrary. The most common example of this scale is a thermometer measuring
temperatures in fahrenheit and centigrade scales. While an arbitrary zero is assigned
to each scale, equal temperature differences are found by ‘scaling’ equal volumes of
expansion of mercury.
A typical example of interval scale is the preference for a brand of perfume exhibited
by a consumer on the following scale
(a) I like it the most
Interval scales allow an (b) I like it
individual to make meaningful (c) I neither like nor dislike it
statements about differences
(d) I dislike it
separating two objects, while
all arithmetical scales are (e) I dislike it the most
possible in ratio scales. Here, each response refers to specific degree of consumer preference.
Responses measured on these scales can be analysed using statistical tools
like mean, standard deviation, and correlation of coefficient. Advanced statistical analy-
ses using t-test and f-test can also be done on responses measured on this scale.
■ Ratio Scales: These are at the top end of scaling techniques as all arithmetical opera-
tions are possible here. A ratio scale possesses a unique zero point. It contains all the
information of earlier mentioned scales.
Exhibit 5.5 summarises these scales and the possible statistical analysis each lends
itself to.
Exhibit 5.5 Measurement and Scaling in Marketing Research

Scales of Measurement
Scale Some Possible Statistical Analysis Typical Examples
Nominal Mode Numbering of football players
Contingency coefficient Assignment of type or model numbers
to classes or products
Ordinal Median Hardness of minerals or metals
Percentile Quality of leather lumber, wool, etc.
Order correlation Pleasantness of odours
Interval Mean Temperature
Average deviation (Fahrenheit and centigrade)
Standard deviation Energy
Product-moment, correlation Calendar dates
t-test
F-test
Ratio Geometric mean Length, weight,
Harmonic mean Density, resistance
Coefficient of variation Pitch scale, loudness scale
Source: Adapted from Green, E. Paul and Donald, Tull, Research for Marketing Decisions, Prentice-Hall of India,
Fourth ed., 1986, p. 169.
Having considered the choice of scales, the researcher should now understand that all attitude mea-
surement procedures are concerned with having people respond to a specific stimuli according to a
certain set of instructions. These stimuli may be advertising copy, themes, packaging, shelf display, or
even a sales person’s presentation. The response may involve, assessing attractiveness of an advertise-
ment, appeal of a package, or credibility of presentation. The respondent’s task is to express his/her
response on a scale (could be any, chosen by the researcher). An important point to be considered by
the researcher is whether the emphasis in the analysis is to be on the respondents or the stimuli, or both.
Suppose, the marketing research is on detergent powders (stimuli) and the housewives have been asked
to evaluate different brands on one attribute ‘gentleness on hands’. Now three types of scaling might
be identified.
(i) Respondent-centred approach: Here the researcher examines systematic The semantic differential
variation across respondents. is a type of quantitative
(ii) Stimulus-centred approach: Here the focus is on studying the variations judgement that results in
across different brands (stimulus) of detergents on the ‘gentleness on the scales that are often further
analysed by such techniques
hands’ (attribute).
as factor analysis.
(iii) Response approach: Here the researcher examines both (i) and (ii). Most
marketing researches have scales and analysis that measure responses
based on response approach.
In measuring attitudes, several scaling techniques are used. Some of these are Thurstones Case V,
Osgood’s Semantic Differential, Likert’s Summated Scale, and the Q-Soct. Among these, the most com-
mon are the Semantic Differential and Likert’s Summated scales. ‘The semantic differential is a type of
quantitative judgement method that results in (assumed interval) scales that are often further analysed
by such techniques as factor analysis; (the procedure) enables the researcher to probe both the direction
and the intensity of respondents’ attitudes towards such concepts as corporate image, advertising im-
age and brand image’4. The most common approach is to ask respondents to describe a firm on bipolar
adjectives on a seven point scale, as shown in Table 5.1.
Table 5.1 Customer’s Perception of Company X

Progressive – – – – X – – Traditionalist
Reliable – – – – – – X Unreliable
Strong – X – – – – – Weak
Customer – – – – – X – Non-customer
focussed focused
Responsive – – – – – X – Non-responsive
These seven points on the scale represent equal intervals. Each point measures the intensity of the
respondent’s perception or feeling and the more the respondent moves towards a particular pole, the
more positive or negative he or she feels. Specifically, the two ends of the scale represent strong feel-
ings, while the middle or the 4th point reflects indifference. The scale is quantified as being +3, +2, +1,
0, –1, –2, –3. In this example, the firm is perceived as being traditionalist, highly unreliable, strong but
non-customer focused, and non-responsive. Likewise, a firm may measure its competitive image against
its major competitors. Figure 5.2 shows a customer’s perception of firm X vis-a-vis firms Y and Z. Here,
we note that customers have a highly negative image of firm X and a highly positive image of firm Y.
Figure 5.2 Competitive Image of Firm X
Today, semantic differential scales are being used in image measurement, comparing competitive
brands and services, analysing effectiveness of advertising and other promotional inputs, and to deter-
mine the attitudinal characteristics of buyers of a particular product class or brands within a product
class. These scales are most popular in marketing research.
IN FOCUS
Summated Scale
Rensis Likert was the first to suggest the use of a summated scale (Likert’s Summated Scale) using five
equal intervals. Commonly called the five point scale, the respondent indicates the intensity of feeling by
selecting one of the following alternatives:
(a) strongly agree
(b) agree
(c) neither agree nor disagree
(d) disagree
(e) strongly disagree
Each response is given a numerical weight. Commonly this is +2, +1, 0, —1, and —2. Each respondent’s
attitude is represented by the algebraic summation of weights associated with the items checked.
This scale, again, like the semantic differential scale, is commonly used in marketing researches. But
care should be taken in interpreting responses measured on this scale as there could be two individual
respondents having identical total scores, even though their responses to individual items may be quite
different. In other words, the process of aggregating (summating) and then getting a single score ignores
details of which items were agreed with and which ones were not. Besides, the scale is sensitive to how
respondents react to descriptive intensity levels. Occasionally, respondents tend to follow a middle of the
road approach, or in other words responding to neither agree, disagree, or uncertain. Some may adopt a
more extreme approach. It is for these reasons that Likert’s scale should be used with great care.
Interview Schedule At times, a questionnaire is not able to give an insight into the rationale of a
customer’s feeling, or factors that will lead to the success of a new technology like e-mail and voice-
mail or new products that a firm may consider introducing. It is for these and several similar reasons
that an interview schedule is developed. The purpose of this schedule is to study in depth an object,
event, or a group of people. Unlike a questionnaire the responses here are unstructured.
The limitation of an interview schedule is that it does not lend itself to tabulation and, generally,
analysis of responses is difficult. It is for this reason that its use is limited and the sample size, too, is
much smaller than the one in a market survey using questionnaires.
Association Tests Of late, the researcher’s focus has been on qualitative research, or researching the
psychological dimension of consumer behaviour. We mentioned earlier, that in most direct questioning,
using a questionnaire or an interview schedule, the respondent is generally guarded and gives responses
more from the conscious part of his or her psyche. To get to the subconscious mind, marketing research-
ers are using several psychological instruments like association tests, sentence completion tests, and
thematic appreciation tests (TAT). These tests are believed to reveal the customer’s perception of a
product, brand, or firm’s image. These tests can also give information on the customer’s perception of
brand personality as also the personality and lifestyle of the target customer group.
In Practice
Story Completion
Story completion is a psychological tool commonly used by researchers. This is a logical exten-
sion of the sentence completion technique. It involves the researchers, narrating the beginning
of a situation and then asking the respondent to complete it. In a research, using this as one of
the techniques to assess customer’s perception of Mahanagar Telephone Nigam Limited (MTNL),
the researcher gave the following situation.
‘It was a bright day. A young man was enthroned as king of a vast country which lacked basic
telecommunication facilities. The young man was ambitious and wanted to improve his country
and countrymen’s lot and get into the fast lane that would take his country into the twenty-first
century. So, he created a new child which will transform telecommunication in his country. And
he named it the Mahanagar Telephone Nigam Limited (MTNL).’ A select group of respondents
that included subscribers, employees, and managers, completed this story. The image that ap-
peared was as follows:
Subscribers: ‘Good concept, great help, low failure rate, poor customer service, ruffian, bandit’.
Employees: ‘Still born child, dead on arrival, highly politicised, dependent on parents, must die’.
Management: ‘Excellent, healthy, promising. Can do better if not dependent on parents, still
a child has to learn to run’.
This feedback was used by MTNL, Mumbai for improving its marketing communication, cus-
tomer service, and even the product.
At times, some marketing research agencies ask respondents to describe a brand or service as
a human being. On other occasions they ask respondents to write an obituary for a brand that
is ‘dead’. These again reflect the subconscious part of the customer’s psyche.
Some of the other commonly used tools in qualitative research, aimed at discovering consum-
ers hidden thoughts, are the use of metaphors and stories and even asking them to recall their
experiences with a brand or any other event. Memories of experiences are often told through
a story. Consumers reconstruct them each time and use them to communicate their earlier
experiences. But memories are also communicated in a metaphoric manner. The overload of
memories, metaphors, and storytelling strongly influence consumers’ consumption experience
and behaviour. By providing particular metaphors, researchers can guide customers in weav-
ing their stories of past, current and future experiences in the marketplace. Consumers, in turn,
use their own metaphors to express their thoughts, feelings, and emotions. Stories about brands
demonstrate how brands are represented in the consumer’s mind.
Exhibit 5.6 presents an overview of some of the commonly used research methods to probe consumer
mind.
Exhibit 5.6 Qualitative Research: Some Methods

Qualitative market research has come a long way Such an interview lasts as long as an individual
from the level of free flowing discussions. It has depth interview, but a dozen or so consumers are
now emerged as a method which provides a greater interviewed at the same time. The interviewer is es-
level of insight and more actionable information to sentially a moderator, and in fact what develops is
marketers than conventional research. In the proc- a group discussion.
ess, specific techniques, methods, and analytical The major advantage of this method is that when
tools have been developed to draw on psychologi- the moderator’s level of skill is particularly high, the
cal theory and to a certain extent on the other social interaction between members of the group becomes
sciences. Some of these and their applications are a basis for the stimulation of further ideas. A good
described here. group interviewer works from a list that includes
The Depth Interview listening, thinking, probing, exploring, and framing
In depth interviews, a semi-structured questionnaire hunches and ideas as the interview proceeds.
is used to elicit information from the consumer. Group research entered the scene shortly after
A significantly different approach from that of a World War II as a part of motivation research. Group
detailed questionnaire interview, the depth inter- research is quick, relatively inexpensive, and pro-
view is designed to probe why consumers do, or vides a superb mechanism to generate hypotheses
not do, certain things. when little is known. In cases where information is
Lasting, from may be an hour to three hours, with sparse or lacking, or in the event that immediate,
the number of interviews ranging from 50 to 100, personal contact is needed with the subject to spark
the interviewer encourages the respondent to talk off thought processes, group interviews are highly
freely, maintaining an encouraging, friendly, and productive idea breeders. Group research methods
non-judgemental attitude throughout. Questions drastically reduce the distance between the respon-
tend to develop from the context of the interview. dent, who produces the research information, and
It is argued, that use of the depth interview tech- the client who uses it. Groups are an important
nique results in drawing out the real, and often focus for research studies, for the simple reason that
hidden, reasons for consumer behaviour and ac- an individual’s behaviour is influenced by others.
tion. Once these basic motivations are brought to Three important aspects of small groups are inter-
the fore, the real opportunities are analysed and an personal influence, norms, and communication.
intelligent marketing strategy emerges. Social scientists have always attempted to iden-
The principal strength of the depth interview lies tify, if an individual’s behaviour is subject to social
in the way it extends the interviewer’s grasp of and influence, which groups or individuals exert this
insight into consumer attitudes. Depth interviews, influence, in what direction, and over what range
can therefore produce a great deal of information of behaviour. The social scientist’s objective is to
that cannot be obtained from the brief interviews, define and explain the process of group influence;
that characterise the large scale questionnaire survey. the marketer must take this further, determining
how best to use this knowledge.
The Group Depth Interview
A variation on the depth interview is the group
depth interview.
Exhibit 5.7 Beware of the Limitations of Focus Groups

The Focus Group is a fundamental tool in qualita- contrived. In some cases, people who do not fit the
tive research, that probes for in-depth insights from consumer profile may take part in the focus groups,
a sample of target group of respondents, rather than thus generating misleading data.
giving out a limited questionnaire to many people, One of the reasons leading to this phenomenon
as in quantitative research. is the growing popularity of qualitative research.
However, in recent times there has emerged an Market research agencies have mushroomed eve-
entire class of professional or repeat respondents. rywhere, promising new and fresh insights into the
These focus groups are engaged professionally market. The smaller scale of qualitative research
by research agencies and often trained to answer makes it attractive to the clients, as well as the fact
the questions put to them in group discussion ses- that it can be put together more quickly and cheaply
sions. Focus groups are based on the premise that than quantitative research. The data generated can
the respondents’ answers are spontaneous, unre- be translated into actionable insights more quickly
hearsed, and natural. If, however, the respondents than the reams and reams of data generated by
have done the questions before, there is a chance quantitative methods. However, the danger of this
that the data thus obtained is compromised and data being contrived looms large.
Data Analysis
The next stage is that of data analysis. It is important to understand that raw data has no usage in
marketing research. Hence, appropriate analytical tools must be used to interpret this data. The most
elementary method is arithmetic analysis using percentile and ratios. Statistical analysis like mean,
median, mode, percentages, standard deviation, and coefficient of correlation should be used wherever
applicable. Advanced statistical tools like tests of significance, factor analysis, discriminant analysis,
regression analysis, cluster analysis, conjoint analysis and multidimensional scaling techniques can also
be used. However, most of these can be used only if the student has an access to a computer.
Further, there is today, an increasing use of marketing decision support system (MDSS) as it helps
managers make better decisions. MDSS is a system that consists of data collection and tools and
techniques for analysis with supporting software and hardware. This is used by an organisation to
gather and interpret relevant information from its environment and convert it into a basis for marketing
actions. It also consists of models and optimisation routines. Some of the more commonly used deci-
sion models used by marketers are:
Markov-process Model This helps the decision maker to understand the probability of moving
from the current state to any future state. For example, a brand manager of an FMCG company can
determine the switching and retention rate for his/her brand of toilet soap over a period of time and
based on it the brand’s ultimate share.
Queuing Model This shows the waiting time and queue length that can be expected in any system,
given the arrival and service times and the number of service channels. A retail manager can use this
model to plan his customer service strategy and check out counters on weekdays, weekends, and holi-
days. He can even use this model to plan the parking facilities on weekdays, weekends, and holidays.
Similarly, the marketing manager for a petroleum company can use it to plan his logistics.
Brand Aid Model This is a marketing mix model focused on the consumer goods industry. The
model contains submodels for advertising, pricing, and competition. The model is calibrated with a
creative blending of judgement, historical analysis, tracking, and experimentation.
Medial This is a media planning model used by advertisers. This model includes analysis of market
segments, sales potential estimation, and understanding of issues in consumer learning (like forgetting),
timing issues, and competitor media schedules.
Sales Response Models These models estimate functional relations between one or more mar-
keting variables like sales force size and resulting sales and demand levels.
Report and Presentation

The last stage is that of writing out a report and making a presentation to the decision maker. It is im-
portant that the report has a summary, called the executive summary, giving a bird’s eye view of the
research and the major recommendations. This is because, most senior managers have little time for
going through the entire report in depth. The executive summary can direct the reader’s attention to
specific issues and recommendations. Depending on his or her interest, the decision-maker goes into the
details of those issues by turning to the relevant sections in the report. This summary should generally
not exceed a thousand words.
The report should be structured and pages chronologically numbered. Generally, the structure of a
good report is as follows:
sampling procedure adopted, tools for data collection, sources of data, and data analysis tools
(d) policy implications

Often the decision maker may want the researcher to present the findings. Presentation with slides
or transparencies of major findings and narration of experiences while collecting the data is important
in such cases. But, these experiences should be relevant and support the research findings. Humanis-
ing data can often, make an interesting presentation and keep an audience tuned in to the marketing
researcher.
APPLICATIONS OF MARKETING RESEARCH—SOME EXAMPLES
LO3 Retail Store Audit

Describe the Retail store audits measure the movement of products from the retailers’
applications of shelves to the public, providing research information on inventory levels
marketing research and on retail sales trends.
The need for this flow of information becomes clear when one considers
the long chain between factory shipments and the consumer purchasing at a retail store. While ship-
ments are rising and falling, consumer purchases may also be doing the same, or they may be moving
in the opposite direction. For example, wholesalers may be enlarging or reducing their inventories in
anticipation of price changes rather than in response to immediate consumer demand.
This method has its limitations, like no information is gathered on the buying behaviour of individual
customers or families, and brand loyalties of consumers. Therefore, retail store audit has to be supple-
mented with other forms of qualitative research.
Product Testing
Pre-testing a product before its launch is a more economical approach for manufacturers.
A test that is frequently selected is that of giving a panel of buyers product samples to use and then
obtaining the reaction of the buyers to the product. Modifications may then be made to the product prior
to its launch.
Developing from this basic form of pre-testing, where the drawbacks include consumers’ subcon-
sciously comparing the product with a similar product used in the past or tending to give overly favour-
able reactions to the product being tested, are more intricate variations of test designs.
A commonly used method is to use several test products and attempt to measure relative preferences.
One product may be one that is established in the market and the other may be a new one. Or both
products may be new ones, with a significant variation between them.
Corporate Image Study

A company’s image is the net result of all the experiences, impressions, feelings, and knowledge that
people have about a company. To a greater or lesser degree, everything a company is, has, does, or says
affects its image among the public. Anything, whether it is positive, negative, or neutral, must be sorted
and arranged in a person’s mind, either consciously or unconsciously, to evolve into the development
of an image.
Research has demonstrated that images help shape a person’s behaviour towards companies. This im-
age will influence a person’s predisposition to buy the company’s products, pay attention to or believe
its communications, speak favourably of it to others, and purchase or recommend its stock.
Several different techniques are used in corporate image research. Small scale exploratory studies
are frequently used to develop hypotheses, that will later be tested in research on a larger scale. These
qualitative studies employ probing depth interviews and results are often reported in the form of re-
spondents’ comments.
MARKETING INTELLIGENCE SYSTEM
LO4 The purpose of any marketing research is to provide

Explain marketing information, at a specific time, on customers, trade, Marketing research provides
competition, and future trends in each of these information at a specific
intelligence and time on customers, trade,
information system segments. Most of these research exercises help competition and future trends
strengthen an enterprise and assist it in strategic in each of these segments.
decision making. But, marketing is a war that
requires continuous surveillance of markets (customers), competition, and other structural components
like government policy. Based on this continuous surveillance, successful enterprises evolve their
tactics to win smaller battles which help it win the war of market shares. The entire concept of market
intelligence is similar to military sciences, where it is a known fact that no army can win a war without
good, effective, and timely information on enemy forces and the terrain on which the war is going to
be fought.
Components of Intelligence System In marketing, the intelligence system has two compo-
nents:
customer intelligence
competitor intelligence
Customer Intelligence This provides useful information on a customer’s
Customer intelligence
provides useful information
business, preferences or loyalties, personal demographic details, and also ‘whims
on a customer’s business, and fancies’. A good intelligence system will even tell a marketer what to do and
preferences or loyalties, not do when, he or she, is with the customer. Like, what words to use and which
personal demographic ones to avoid, the proper dress code, habits or tendencies to watch out for, and
details, while competition so on. This information becomes useful in planning sales calls on customers. It
intelligence gives information is also useful in evolving advertising and promotion programmes. Most often,
on strengths/weaknesses of this data is collected by sales people either as a separate stand-alone exercise or
each territory, the strategy/
as a part of their regular sales call.
tactics used by them, and
how the customer procuresCompetition Intelligence This gives information on strengths and weak-
competitor brands. nesses of each competitor in the territory, the strategy and tactics being used by
them, and how the customer procures competitor brands. This also, provides
inputs on the key persons in competitor firms. This information is collected on a regular basis by sales
people and is continuously updated.
Exhibits 5.8 and 5.9 present a sample of customer and competitor intelligence formats, respectively.
Exhibit 5.8 Customer Intelligence Format

Date Company
Last Updated By Location
Designation
Customer
Period of employment:
1. Name
14. Previous position at present company:
Surname
Designation Period in last position
2. Company name and address
15. Any ‘status’ symbols in office?
3. Home address
16. Member of professional or trade associations
4. Telephone: Business
and whether office bearer in them
Home 17. What business relationship does he/she have
5. Birth date and place with others in the company?
6. Educational qualification 18. Is it a good relationship?
7. Sports Why?
8. Marital status 19. Which other people in the company know
9. Wedding anniversary the customer?
10. Children, if any, with names and ages 20. Type of connection
11. Children’s educational qualifications Nature of relationship
12. Children’s interests (hobbies, dislikes, etc.) 21. What is the client’s attitude toward his/her
13. Previous employment; (most recent first) company?
Company 22. What are his/her long-term business objec-
tives?
Location
23. On what subjects (outside of business) does
Designation
the customer have strong feelings?
Period of employment:
Lifestyle 36. What moral or ethical considerations are in-

24. Does the customer drink? If yes, what and volved when you work with the customer?
how much? 37. Does the customer feel any obligation to you,
25. If no, is he offended by others drinking? your company, or your competition?
26. Does the customer smoke? If no, does he ob- If so, what?
ject to others smoking? 38. Is he/she primarily concerned about the opin-
27. Favourite place for lunch/dinner ion of others?
28. Favourite food? 39. Is he/she very self centred? Highly ethical?
29. Hobbies and recreational interests 40. What are the key problems as the customer
What does the customer like to read? sees them?
30. Model of car (if any) owned by the customer 41. What are the priorities of the customer’s man-
31. Conversational interests agement?
32. Whom does the customer seem anxious to Any conflicts between the customer and the
impress? management?
33. What adjectives would you use to describe 42. Can you help with these problems? How?
the customer? 43. Does your competitor have better answers to
34. What do you feel is the customer’s long range the above questions than you?
personal objective?
35. What do you feel is the customer’s immediate
personal goal?
Marketing Information Systems

In an increasingly complex marketplace, competitive advantage of an enterprise is dependent on the
quality of market information it has, its utilisation for decision making, and response to the market. As
mentioned earlier, marketing research and market intelligence are two significant components of MIS
in any organisation. In addition, the following are also a part of MIS.
(a) order generation, processing, delivery, and payment cycle
trends in each market

(c) payment history
(d) orders lost/won
(e) brand monitors
(f) distribution/audit reports
(g) service monitor reports
(h) product performance reports
All the above are generally available within the organisation. The problem is, that more often than
not, it is widely scattered and the decision maker is different from information generator. Consequently,
the decision maker may not even know of the existence of information in the organisation. For example,
the marketing head or the CEO may not know of product performance reports that may be generated
by the sales team on the request of production department. Further, the decision maker may not even
utilise the internal databases and base his decision purely on his intention or his experience. When such
a situation occurs, the company loses out to the competition.
Exhibit 5.9 Competitor Intelligence System
As we mentioned earlier, internal database is a useful starting point in the development of a strong
market information system. In order to develop a coordinated marketing information system, today,
most companies use information technology. Several software solutions are available, which provide
integrated market information to the decision makers at different levels. Typically, any such system
provides a perspective at three different levels.
(a) transaction processing level

(b) managerial and operational level
(c) strategic level
While the transaction level information system is useful at the sales person level, the other two are
used at higher levels. Typically, sales call planning, sales call reports, customer account information,
and dealer reports are information at the transaction level. Reports on performance of branch, region,
and product as well as sundry debtors status, etc., form a part of managerial and operation level infor-
mation system. But national sales data, relative market share, shifts in customer preferences, compe-
tition in different product/markets, and receivables are information used at the strategic level or top
management level. Another key input in the decision is supply chain management. How the product
and information flow in the supply chain (i.e., from company to the customer and back) is today being
reviewed at senior and, in some cases, top management levels also.
Decision Making
Decision making is a five step sequence and the sophistication of any information system is based on
the number of sequences involved in the system, rather than the ones being left to the decision maker.
This five step sequence consist of:
Source This consists of the physical activities and objects which are relevant to the enterprise, like
the retail outlet.
Data Observation, measurement, and recording of data from a source (like a retail store) audit and
information systems to record information on sale by product class, and other non-sale data like the
promotional activities of competition.
Predictions and Inferences Generalisations, conclusions, and prediction of future scenarios
like comparative product sales data across competition brands will reveal customer preferences. This,
combined with price and other non-price data (like promotions over a period of time) may help the
decision maker generalise on his brands and customer preferences.
Values and Choice What are the goals, alternatives, and choices for the organisation? In the
above case what should the firm do to counter competition—reduce price, introduce new products, or
invest in merchandising and store promotions?
Action Take a course of action.
Typically, a composite information system design will look as shown in Figure 5.3.
Today, large companies like Bajaj Auto, HDFC, Bharat Petroleum, ICICI Bank, Bharat Forge, and
Eicher have company wide intranet for real time information flow and real time decision making. They
also use VSAT or leased telephone lines, to connect to their major customers. Increasingly, these lines of
communication are being opened to non-marketing personnel also, as we saw in the case of Hindustan
Lever.
Thus, market information is vital not only for marketing decisions but also for non-marketing de-
cisions. A good marketing information system can go a long way in helping a firm predict and take
decisions, which help it to retain its marketing edge.
Figure 5.3 Marketing Information System Flow
DATA MINING AND WAREHOUSING
LO5 One of the clichés of the IT era and competitive market is data mining and
Describe data mining warehousing. Database marketing, customisation, and CRM (customer re-
and warehousing lationship marketing) require effective information management. The first
organisation to use data warehousing and mining is Walmart, USA’s largest
chain of retail stores. Though, this requires application of IT concepts and tools, it is important for us to
keep in mind, that this concept is not new. If one, were to consider the example of a small retail shop, we
observe that this shopkeeper knows his customers by name, their taste and preferences, and is hence able
to customise his offer for the customer, every time he visits the shop. Although, he does not have a very
sophisticated IT system, his personal contact with each and every customer makes him remember the cus-
tomer and his/her purchasing behaviour. However, today markets are more complex and if organisations
have to grow they need to have market data stored, not in the minds of marketing people, but in computers.
Data Warehousing
Data warehouse is an IT architecture, aimed at storing and organising informa-
Data warehousing is an IT
tion in a meaningful manner. Typically, a data warehouse system consists of a set
architecture aimed at storing
of programmes, that extract data from the operational environment like reports
and organising information in
a meaningful manner. on sales call, branch and regional performance, product/brand performance/
customer complaints, service calls, and so on. The strategy of data warehousing
involves providing data to the users in a meaningful manner, thereby helping them in taking operational
and strategic decisions. Typically, successful data warehousing involves the following:
(a) Providing information to both the operational and strategic decision maker. For example, to the
salesman, a data warehouse should be able to provide information on the customers’ background,
the last sales call, the status of any customer complaint received, and so forth. To the marketing
chief, who takes strategic decisions, the data warehouse should be able to provide data on brand
movement, intensity of competition in served markets, and shifts in customer preferences. On the
strength of this information, the marketing chief would be able to take decisions relating to brand
repositioning, market penetration strategy, or strategies to enhance customer loyalty. It is important,
that data warehouse architecture should be able to separate operational and decision support func-
tionality. While maintaining this separation, it is important to keep in mind that the data warehouse
continues to represent a single image of business reality to all concerned in the organisation.
(b) Data warehouse often supports analysis of trends over a period of time and comparisons of current
and historical data.
Data Mining
The term data mining is just one of several terms, including knowledge extraction, data archaeology, in-
formation harvesting, software, and even data dredging, that actually describe the concept of knowledge
discovery in databases. Let us begin with a few basic facts to explain what data mining really means:
(a) Many organisations, both private and government, have devoted a tremendous amount of
resources to the construction and maintenance of large information databases over the recent
decades, including the development of large scale data warehouses.
(b) Frequently, the data cannot be analysed by standard statistical methods, either because there are
numerous missing records or because the data is in the form of qualitative rather than quantitative
measures.
(c) In many cases, the information contained in these databases is undervalued and underutilised
because the data cannot be easily accessed or analysed.
(d) Some databases have grown so large, that even the system administrators do not always know
what information might be represented or how relevant it might be to the questions on hand.
information or pattern that may be contained within.

(f) There are a variety of data mining methodologies, that may be used to analyse data sources in
order to discover new patterns and trends.
The idea behind data mining, then, is the non-trivial process of identifying
Data mining
valid, novel, potentially useful, and ultimately understandable patterns in data.
involves the non-trivial
On the other hand it automates the detection of relevant patterns in a database. In process of identifying valid,
the example above, tracing brand movement across various segments, typically a novel, potentially useful, and
data mining system, helps the marketer detect any shifts that may be taking place ultimately understandable
before the situation becomes too bad. However, one has to keep in mind that data patterns in data.
mining is not magic. Marketing researchers and statisticians have mined data
looking for statistically significant patterns. Data mining tools today are both well established, statisti-
cal and computing techniques, both of which help to build customer response models. Data mining and
CRM allow users to analyse large databases to solve business decision problems.
Information technology has automated the mining process today, integrating with commercial data
warehouses. Also, it should be kept in mind, that even though IT has been used for developing data
mining systems, human experience and intuition in recognising the difference between relevant and
irrelevant correlation is still essential. For, data mining to impact a business, it needs to have relevance
to the underlying business process. Data mining is part of a much larger series of steps, that takes place
between a company and its customers. The way in which data mining impacts a business depends on
the business process and not the data mining process alone. A marketing manager’s job is to understand
the market for his/her brand. With this understanding, comes the ability to interact with customers in
this market, using several channels. This includes a number of areas like direct marketing, advertising,
telemarketing, sales promotion and so forth.
Peculiarities of Data Mining vis-a-vis Other Data Driven Business Processes One
has to keep in mind the fact that the results of data mining are different from other data driven business
processes. In most standard interactions with customer data, nearly all of the results presented to the
decision maker consists of information they were already aware of. For example, a sales information
report showing the sales by product line and region is simple for the decision maker, to understand,
because he intuitively knows, that this kind of information already exists in the database. If the company
sells different products in different areas, district or city, there is no problem translating a display of
this information into a relevant understanding of the business process.
Data mining, on the other hand, extracts information from a database that the decision maker did
not know existed. Relationships, between variables and customer behaviours that are non-intuitive, is
what one should find in the data mine. And since he does not know, beforehand, what the data mining
process has discovered, it is a much bigger leap to the solution of a business problem.
Having discovered an unknown, the challenge now for the marketer is to understand the phenomena
and take a decision.
There are two parts to this problem:
(a) presenting the output of the data mining process in a meaningful way, and
(b) allowing the marketer to interact with the output, so that simple questions can be answered.
quickly ground the results in reality.
Data Mining and CRM

Data mining can also help the marketer connect better with his/her customer. Customer relationship
management (CRM) is one of the vital areas where data mining has been used successfully by institu-
tions and firms like Citibank, HDFC, ICICI, Jet Airways, Sony India, Satyam Computer Services, and
Wipro Info tech. Some examples, are illustrated below showing how based on the above analysis, ap-
propriate marketing decisions can be taken.
CUSTOMER RELATIONSHIP MANAGEMENT
LO6 Customer Relationship Management (CRM), is a process that manages the

Summarise customer interactions between a company and its customers and hence uses data
relationship manage- warehousing. Today, we have software that can help automate the process of
ment and the tools to interacting with customers. In the CRM arena, a business can evaluate and
manage the same develop a set of business intelligence rules about all aspects of its customer
interactions. A simple example is modelling the likelihood of response to a
specific solicitation of a new product or service. Based on these business rules, the business can target
its marketing campaigns for maximum response, to generate a desired level of response, revenue, or
profitability. Other typical CRM business examples would include:
(a) modelling customer acquisition (for targeted marketing and other CRM initiatives)
(b) assessing customer defection (for customer service and reclamation purposes)
(c) monitoring risk of loss (for customer scoring and credit approval decision making)
(d) abuse intervention (to reduce losses through investigation of incidence of fraud)
However, the reach of data mining technology extends far beyond CRM to encompass any process
involving the acquisition, interpretation, and acting on data (internal or external sources). In the busi-
ness domain, this would include areas, as diverse as, internal audit and expense control to research and
development for new products or services. To be successful, database marketers must first identify
market segments containing customers or prospects with high profit potential. They then build and
execute campaigns that favourably impact the behaviour of these individuals.
The first task, identifying market segments, requires significant data about prospective customers
and their buying behaviours. Massive data on customers across territories often deter marketers from
doing so. But data mining tools automate the process of searching through this mass so as to find pat-
terns that are good predictors of customer purchasing behaviour.
After mining the data, marketers can feed the results into marketing mix or campaign management
software which, as the name implies, manages the marketing campaign targeted at defined market seg-
ments.
In the past, the link between data mining and campaign management soft-
Data mining helps the
ware was mostly manual. In the worst cases, it involved creating a physical file
marketer target his/her
on magnetic tape or disk which someone then carried to another computer and campaigns more accurately
loaded into the marketing database. But this is no more the case. In fact, the data and align marketing strategies
mining software assists frontline customer service executives to customise their more closely with the needs,
response online. This, in turn creates confidence in the customer’s mind and wants and attitudes of
enhances his/her loyalty to the organisation. customers and prospects
The separation of the data mining and campaign management software in-
troduces considerable inefficiency and opens the door for human errors. Tightly integrating the two
disciplines, presents an opportunity for companies to gain competitive advantage. Thus, data mining
helps the marketer to target his/her campaigns more accurately, and align marketing strategies more
closely with the needs, wants, and attitudes of customers and prospects. This in turn can help improve
the customers’ lifetime value as it helps the marketer customise his offer.
Thus, data warehousing and mining are tools which are being used by marketers for the purposes of
strengthening their connection with target market segments. It is also important for us to understand
that these two tools have helped strengthen the value of marketing research aimed at understanding
customer behaviour, distribution, brand performance, territory performance, etc. Data mining technolo-
gies today help marketers understand the structural changes in the market by sifting through layers of
data generated by researchers and the marketing team.
Given below is yet another example of the successful case of data warehousing and mining.
Standard Life
Standard Life is one of the world’s leading mutual financial services companies. Its mutual status is a
key factor in its success. This status brings many benefits, the chief one being that there are no share-
holders to satisfy, only customers. All the firm’s actions are therefore driven by the need to benefit its
customers. The Standard Life group includes the Standard Life Assurance Company, Standard Life
Bank, Standard Life Healthcare, and Standard Life Investments.
Standard Life Bank launched its Freestyle Mortgage product in January 1999 in the UK amidst ex-
tensive TV and press advertising campaigns. Subsequently, a number of similar products were offered
by rival companies and so it was essential that Standard Life Bank both consolidate and continue to
expand its share of the mortgage market. With data mining software, Standard Life achieved with the
model, nine times greater response than that achieved by the control group and secured £33 million
(approx. US $47 million) worth of mortgage application revenue.
Future Trends: Online Mining (OLM) and Web Mining (WM)

Currently, most data warehouses are being used for summarisation based, multidimensional, online
analytical processing. However, given the recent developments in data warehouse and online analytical
processing technology, together with rapid progress in data mining research, industry analysts antici-
pate that organisations will soon be using their data warehouses for sophisticated data analysis. As a
result, a tremendous amount of data will be integrated, preprocessed, and stored in large data ware-
houses. Online Data Mining (ODM) also called OLAP mining is among the many different paradigms
and architectures for data mining systems. It integrates online analytical processing with data mining
and mining knowledge in multi-dimensional databases.
A web site creates a tremendous amount of information, much of which is useful in itself. But the real
power comes when web traffic data is combined with other corporate databases such as sales automa-
tion systems, accounting systems, and inventory systems. In correlating all of these rich data sources,
business can turn islands of information into actionable information. Key corporate data usually exists
on a number of systems, frequently on different databases, and sometimes even on different operating
systems. Therefore, a web mining system must integrate all data sources regardless of the underlying
database or hardware. Information changes by the minute, and some corporate databases may be hun-
dreds of gigabytes, so a web mining system should link with other databases as and when reports are
to be re-generated.
BIG DATA
LO7 In the recent times dramatic technological and social changes have led to
Recognise big data a far more connected world. The Internet penetration coupled with mobile
and how it is being technology reach (smart phones and tablets) has led to the dramatic increase
used by firms to track in social media and online shopping. This along with increased processing
market behaviour speeds of small computers, micro-processors and cloud computing is allow-
ing businesses to generate and store huge volumes of customer footprints.
No-touch surfaces like talking Apple “siri”, Microsoft Kinect and Google eye-glass are becoming
mainstream products.
Consumers are today massively online be it on social media, online video gaming, fitness trackers
etc. In such an environment, companies are being faced with what is often termed as the “data tsunami”.
Systems are today able and equipped to gather large amounts of data on the customer through various
touch points, almost instantaneously and run intelligent queries on the same. Computers are today
being able to process peta-bytes (fifth power of 1000), exa-bytes (sixth power of 1000), zetta-bytes
(seventh power of 1000) and now even yotta-bytes (eighth power of 1000) of data. Technologies like
‘Hadoop’ using distributed file system and map-reduce, allow merging of until-now disparate data-
bases. While exciting, this is also overwhelming for most managers who find themselves struggling to
come to grips with this sudden change in environment.
The Gartner website (www.gartner.com) defines big data as “high volume, high velocity and high
variety information assets that demand cost effective, innovative forms of information processing for
enhanced insight and decision making”.
Big data includes structured and unstructured data collected from various sources such as social
media text, cell phone locations, web browsing and search, call detail records, RFIDs, maps, traffic
data and internal company records. Methodologies such as sentiment analysis, word counts, big data
visualisation, network-analysis and multivariate testing are becoming key.
As managers and academics debate whether “big data” is simply a fad or an “inflection point” in
business, the key to successful handling of big data remains “asking the right question”. No matter how
much the data and how sophisticated the technology, nothing can replace understanding the customer
and business and being clear on the research problem the manager would like to address. At the same
time, consumer privacy concerns, ethical considerations and passing on these benefits to consumers
(e.g. monetary reimbursements for leaving digital footprints, better individualised and segmented prod-
ucts etc.) must also be debated and examined in detail.
SUMMARY
Marketing Research today has an important role in marketing decision making. It is no more now
an option which the firm can afford to ignore because of the complicity in the market caused by
changing consumer profile and intensive interim rivalry. For this purpose, the marketing research
process starts with the definition of marking problem and research objectives. Based on the nature of
problems and objectives the research design is chosen. While choosing the research design, marketer
has to exercise care so as to ensure that the research and data are both reliable and valid. The research
design also influences the decision on the source of data and the instruments for data collection and
analysis. Finally a good research is as good as its report and presentation.
While designing instrument for data collection researcher should be aware of the various measure-
ment scale and their application. Today, marketing intelligence has become as important as research.
The Marketing Intelligence acts like sensor which provides information on customer and competi-
tion on a continuing basis. This is different from Marketing Information System which essentially
captures information on brand, product or territory performance during a period of time.
Given the mass of data, it is important that the firm invests in data mining and warehousing that
can be used in developing an appropriate response to the market. One of the areas this can be used
extensive is Customer Relationship Management. Big Data is today defining the paradigms of do-
ing business and engaging with the customer both in an online and offline mode. Today as we all
know the world is which we live is interconnected and today is an era where technology has made
communication with customers and among customers much simpler process. Marketing Researches
has to take cogenesis of this change and consider the use of analytics for profiling the customer and
individualising the offer.
POWER POINTS
1. Marketing research is the key to the evolution of marketing strategies, but the researcher has
to consider the problem in its totality and the emerging trends in the marketer’s environment.
(LO1)
2. Marketing research has to be linked with business strategy. (LO1)
objectives, working out research design, deciding on data sources, data collection tools and
-
(LO2)
4. In a world marked by an increasing usage of internet and mobile there has been a growth in
online surveys and qualitative studies to test and evaluate products (often mailed in advance),
prototypes and consumer sentiments. For this virtual focus groups allow market researchers to
locate and reach markets that are hard to recruit researchers and are geographically dispersed
and are sensitive on certain topics. (LO2)
5. Attitude measurement is one of the most complex challenge that marketer faces. The consumer
attitude towards a particular brand or product or company needs to be studied. For this pur-
pose, appropriate measurement and scales have got to be used. There are four types of scales
to choose from: (LO2)
a. Nominal b. Ordinal c. Interval d. Ratio
competition analysis, trade behaviour analysis, product and brand image, retail audit, etc.
(LO3)
7. Marketing Intelligence refers to collection of information on a continuing basis on customer
and competition. While Marketing Information System is the data collected on product ter-
ritory performance during a period of time. Research and Marketing Intelligence are two
that needs to be collected relating to sales, brand intermediately, product. (LO4)

8. Database marketing, customisation, and CRM require effective information management. The
strategy of data warehousing involves providing data to users in a meaningful manner and to
help them to take operational and strategic decisions. (LO5)
9. Data mining extracts information from an unfamiliar database. The relationship between
does not know beforehand, what the data mining process will uncover, it is a much bigger leap
towards the solution of a business problem. (LO5)
10. Online data mining (ODM) also called OLAP mining is among the many different paradigms
and architectures for data mining systems. It integrates online analytical processing with data
mining and mining knowledge in multidimensional databases. (LO5)
11. Customer relationship management(CRM) involves relating company offers to customer's
consumption behaviour. This requires analysis of individual transactions. Big data is about
storing, retrieving and understanding such individual customer transactions. (LO6)
12. Big data includes structured and unstructured data collected from various sources such as social
media text, cell phone locations, web browsing and search, call detail records, RFIDs, maps,
(LO7)

1. Discuss the factors that have led to the increasing importance of marketing research in India.
(LO1)
2. Discuss different research designs and situations in which you are most likely to use them.
(LO2)
to understand the consumer and desired marketing offer. Design a marketing research plan for
(LO3)
4. Maggi noodles and other food products have recently come up under closer scrutiny of the
government agencies. Maggi had to withdraw the stocks from the market and destroy it. As a
future. Design an appropriate information and intelligence system. (LO4)

5. What issues will you consider in designing a questionnaire for assessing distribution equity
of a well known national brand of toilet soap? Design a questionnaire to measure distribution
equity. (LO5)
6. What are the different scales used in data collection? Discuss each of these scales and the situ-
ation in which you would like to use them. (LO5)
7. One of the key trends today is that organisations are becoming increasingly market driven.
Outline a market research plan and marketing intelligence system for a home appliances com-
pany that wishes to become market driven. (LO2 and 6)
8. Starbucks wishes to understand how the young customers in urban India transact and consume.
It uses customer's transaction data in US to design its offers. Advise what can be done in India.
(LO7)
CHAPTER
CONSUMER BEHAVIOUR
6
LEARNING OBJECTIVES
LO1 Describe the new Indian consumer and how this consumer is shaping the market
opportunity
LO2 Explain myths about the consumer
LO3 Analyse online buyer behaviour
LO4 Estimate what and why of customer purchase
LO5 Judge customer decision making
LO6 Summarise influences on buyer behaviour
LO7 Describe tools to study buyer behaviour
In Practice
Indian Consumer Market Likely to be World’s Largest Consumer Market
by 2030
A report by Deloitte consultancy in 2013 concluded that India would emerge as world’s largest
consumer market with aggregate spending of USD 13 trillion by 2030. This would make India
surpass China and US. The most important driver of the Indian consumer market is the growing
middle class. In fact, it is this opportunity and the market structure that has made McKinsey term
India as the ‘Bird of Gold’. The fundamental forces driving the change in the Indian market are
rapid urbanisation, rising education levels influencing consumer aspirations, growth in income
and hence the spending power. Increasingly, the differentiation between rural and urban market
is getting defused. The rural consumer is also buying same product and services as those bought
by his urban counterpart. The study by McKinsey concluded that the income levels will almost
triple and India will climb to become world’s fifth largest consumer market by 2025. McKinsey
and several other studies like NCAER and census survey 2012 concluded that Indian incomes
are on the rise influencing the income pyramid. For example 291 million people are expected
to climb the ladder from destitute level to a more sustainable life which means growth in the
low income group by 2025. The middle class is expected to swell to 583 million by 2025. More
Consumer Behaviour 147
than 23 million will feature among the country’s wealthiest citizens. A consumption analysis
showed that in 2011 food and grocery accounted for 70% of the total market and was valued
at $325 billion. This is expected to go up to $ 420 billion in 2016. Apparel was the 2nd largest
category with 35 billion dollars spent in 2011 and is expected to touch 50 billion dollar in 2016.
This is followed by jewellery and watch, consumer electronics and IT services. The total retail
sale in 2011 was valued at $470 billion which is expected to increase to $675 billion by 2016.
One of the most significant characteristic of this market is the growth in consumption of tech-
nology products like internet, smartphone, digital TV and laptops/notebooks. The implications
of this growing market are many fold. In the first place the competition to any product service
is not just merely within the category but from other categories also. For example, a college
going student with limited pocket money is today targeted equally by companies marketing cell
phones like Vodafone or Airtel, soft drinks like Coke or Pepsi, denim jeans and accessories like
Levis or even firms selling tablets.
It is this change in the consumer market which drives with an equal force the growth in the
Bollywood, financial services, telecom and IT industries.
Source: Marketing White Book, 2012
INDIAN CONSUMER SHAPING THE MARKET OPPORTUNITY
LO1 Indian market today is categorised by ever increasing consumption of goods

Describe the new and services considered as essential, which until yesterday were regarded
Indian consumer and as a luxury. Whether it is a cell phone or internet or colour television or any
how this consumer is other FMCG product in the higher price band, the demand is on the rise.
shaping the market Research today, shows that it is not just one billion people, but it is also
opportunity the change in demographics and psychographics of Indian consumers that
is contributing to the consumption trends. We are today, witnessing shifts
in lifestyles and also the co-existence of at least, three generations of consumers in the same market
or perhaps in the same family. For the purpose of understanding the Indian consumer, the following
categorisation may help decision making:
1. Individuals up to the age of 30 years (Those born in 1980’s)—Liberated: These are young
consumers who have high self esteem and are also driven by their need for self actualisation. They
are not much concerned about basic economic security, as it either has been provided to them by
their parents, or by their professional education and increasing economic opportunities in a global
economy. They believe more in making the statement through the products and services they
subscribe to. One research calls this generation as ‘Liberalised Generation’. For them, Mahatma
high degree of individuality and care for the society.

2. Post independence era (1947–1991): This generation has struggled and has seen India change
from an economy of scarcity to an economy of surplus; from a country which had little to offer to
its young people to one, which is today, full of opportunities. This generation has been a key par-
and possession of products, services and brands which they yearned for their desire and ability to
pay are now matched. While the future for their children is bright, they themselves faced a high
degree of uncertainty as they graduated. They are today, also faced with a very serious problem of
acquiring new skills for the new workplace. A large number of innovative products are retirement
plans to self learning softwares are now available for this generation. This is also the generation,
which is now wanting to live their dreams.
3. This is a generation, who is today, more than 60 years of age. They have seen
India emerge from the dark era of British Raj. They witnessed and participated in the indepen-
dence struggle led by Mahatma Gandhi, Pandit Jawaharlal Nehru, Sardar Vallabhai Patel and oth-
ers. For them, frugality is far more important than consumption. They are critical of conspicuous
consumption. They expect to be supported by their family in their old age. For them the social
system is disintegrating and individualistic behaviour is emerging. Not able to cope with change,
-
dian society. This has led to a demand for dedicated products and services like special residential
complexes, improved health services and counselling services for senior citizens.
The above categorisation of consumers, has today opened up opportunities for different products and
services, including introducing multiple variants of the same product.
It is important to understand the typographies of customers, which are today visible in the market.
For this, the marketer has to continuously research and also have a keen eye for tracking developments
in consumer demographics and lifestyles.
Till now we have been discussing the importance of understanding the buyer. As we saw in
Chapter 1, the cornerstone of any marketing strategy is the buyer. In this chapter, we shall examine the
why, what, and how of buyer behaviour.
Firms that choose, not to understand their customers’ purchasing behaviour often lose out. An excel-
lently engineered product may fail just because the customer does not identify himself or herself with
it. It is therefore, imperative that the firm understand the structural changes taking place in its market
and also the long term impact of these changes on its product and other elements of the marketing mix.
The firm must also understand the buyer’s purchasing behaviour. Specifically, it must understand how
the buyer decides in favour of one brand or product, what motivates him or her to select an alternative,
and who influences him or her to buy the brand or product.
MYTHS ABOUT THE CONSUMER
LO2 The marketer needs to focus on the ‘how’ and ‘why’

Explain myths about of the total experience consumers have with products The marketers need to focus
on the ‘how’ and ‘why’ of the
the consumer and services. Unfortunately, most marketers tend to total experience, consumers
look at only a few aspects of experience and build have with products and
the complete strategy around it. For example, one of the leading electrical ap- services.
pliances company crafted its strategy around customers’ experience at the dealer
outlet. Hence, the strategy was on developing dealer outlets, enhancing dealer productivity, and loyalty.
It failed to understand other dimensions like service, price-performance relationship, and esteem value
of the brand, which are as important in the consumer’s mental space. It influences his/her attitude to-
wards the brand. Likewise, one of the dotcom companies failed to understand that the consumer valued
security of transactions over all other dimensions of Web-based transactions. Hence, marketers need to
focus on discovering the ‘why’ of an experience. They also need to understand that large sample based
survey is no guarantee of having discovered the ‘truth’. Quantity of data does not guarantee quality.
What is needed is a deep understanding of consumer behaviour. Without such an understanding, market-
ers cannot accurately anticipate consumer responses to product designs, features, and marketing ideas.
IN FOCUS
The Zaltman ‘Traps’ that a Firm should be Cautious about
In order to have a better understanding of the consumer, Gerald Zaltman1 urges marketers to avoid the
following six traps:
1. Consumers are Rational and Think in a Linear Manner Most consumer buying situations in-
volve emotions. These are closely interwoven with reasoning processes. For example, a particular
brand of car may evoke a particular emotion that can be linked to its specific physical attribute. If his
recall of an emotion is painful, then the customer may not buy this brand, even if all other features
of the brand, including price, meet his criteria. Hence, consumer decision making hinges on the
simultaneous functioning of reason and emotion.
2. Consumers can Explain their Thought and Behaviour Once again, the marketer believes that
consumers, being rational human beings, can explain their logic for purchase. This stems from the
assumption, that consumers think and act from the conscious part of their mind. In reality it is not
so. Much of consumer behaviour emanates from the subconscious mind.
3. Culture and Society have no Relationship to Consumers’ Thoughts and Feelings Most
marketers fail to understand, that the psychological and physiological aspects of a consumer’s be-
haviour is related to his culture and society. Hence, there is an interrelationship or interdependence
among these three factors.
4. Consumers Think in Words Many marketers believe that consumers’ thoughts occur only in
words. Thus the best way to understand consumer behaviour is to interpret the words used in stand-
ard conversations or written on a questionnaire. Words, though important, do not communicate the
complete picture. A lot of experience is communicated non-verbally.
5. Consumer Memories are Sharp Another trap is that consumers remember, and they can ac-
curately recall their experiences from memory. Marketers believe that what a consumer says, he
remembers and it remains constant over time. In reality, our memories are far more creative, con-
stantly changing without us being aware of it.
6. Consumers can be Motivated to Believe and Internalise Messages the Way the Marketer
Desires The assumption of a consumer thinking only in words, leads the marketer to assume
that he can implant his ideas in the consumer’s mind. Hence, he can position his brand/product
in the customer’s mind. This obviously implies the marketer believes that the consumer is a robot
with a blank mind. Most advertising effectiveness surveys or even brand positioning studies have
their origin in such thinking. The reality is that when consumers get exposed to product concepts,
company stories or other information about the brand, they do not passively absorb messages.
Rather, they construct their own meaning and create a mental picture of the brand. Hence, the
consumer’s interpretation of a campaign and brand positioning, can be different from the one intended
by the marketer.
Buyer—An Enigma
Although it is important for the firm to understand the buyer and accordingly evolve its marketing strat-
egy, the buyer or consumer continues to be an enigma—sometimes, responding the way the marketer
wants and on other occasions just refusing to buy the product from the same marketer. For this reason,
the buyers’ mind has been termed as a black box. The marketer provides stimuli but he is uncertain of
the buyer’s response. This stimulus is a combination of product, brand name, colour, style, packag-
ing, intangible services, merchandising, shelf display, advertising, distribution, publicity, and others.
Nothing better, illustrates this enigmatic buyer than the failure of a herbal anti-cold balm launched by
Warner Hindustan some time back. Though the balm market has grown significantly and Vicks Vaporub
had been dominating the anti-cold rub segment for more than two decades now, Warner failed. Was it
the brand name? Did the customer see no significant difference between Vicks and Warner? This has
remained an enigma. Thus schematically, this enigma or black box phenomenon may be best understood
by Figure 6.1.
Figure 6.1 Consumer Mind: A Black Box
Further, today’s customer is greatly influenced by the media, especially electronic. Technological
developments in the field of information, biotechnology and genetics, and intensive competitions in all
products and services are also impacting consumer choices. Consider, for example, the case of consum-
ers who shop on the Internet for books from US-based Amazon.com, music from Sony, banking services
from HDFC Bank in India, airline services from Jet Airways, or order roses from India to be delivered
to loved ones in the US on Valentine’s day through 1-800-flowers.com. Clearly, the Internet today has
impacted the customer learning and shopping behaviour. Multiple television channels are also shaping
the customer’s values. The customer is aware, more than ever before, of the rights and choices available
to him/her. Today, the Indian customer is at crossroad—should he/she enjoy the pleasure (arising out
of such an act) of buying a consumer durable, service, a holiday or an automobile, or defer the experi-
ence? Today, the customer is demanding more value for the price that he/she pays. Social structures
like family, role models, and peer groups are under pressure largely because of the change created by
media, technology, and competition. As shown in Figure 6.2, these change drivers are today impacting
the customer’s awareness, values, social structures, and even individual customer personality.
Figure 6.2 The Customer Today
ONLINE BUYER BEHAVIOUR
LO3 India is today the world’s third largest internet population. The total num-
Analyse online buyer ber of internet users in India stood at about 74 million in March 2013. A
behaviour study title 2013 India Digital Future in Focus by comScore2 concluded that
India will overtake Japan to become the second largest country in respect
to internet population in Asia Pacific. A large number of internet users today are using mobile phones
rather than PC. As was mentioned in the earlier chapters smartphone growth in India, in the last 5 years,
have surpassed the planning estimates. Majority of the smartphone users access data via wifi. Further,
Boston Consultancy Group (BCG) estimates that there would be 331 million internet users in India by
2016. This rise in internet penetration will have a bearing on consumer’s purchase decision. The report
further concluded that 40% of India’s 90 million urban internet users use it for product research and
price comparison. It has been estimated that the digital influence which currently affects $30 billion of
urban consumer spending will accelerate over the next 4 years. Appliances in consumer electronics are
perhaps the most important category searched by internet users.3
The highest number of internet users are young in the age group of 18 to 24 (48%) and the lowest are
among the older consumers of age 55 plus. The next big internet user category is the teenagers who are
today far more tech savvy. In line with the global trends social networking today is one of the rapidly
growing activities on internet. It is perhaps un-cool if the individual does not have a Facebook account
or not active on professional networks like Linkedln. The teenager in India is the most active group as
compared to all other age groups on social networks.
The above research pointed that 32% of urban Indian users are men as opposed to only 12% women.
Men are likely to be three times more digitally influenced than women. The internet users are princi-
pally higher income level individuals but 18% of the lower income individuals also have internet access
and of these 6% are engaged in commercial activities online. Convenience for shopping from home is
the most important motivation for 37% of the internet shoppers. The next important motivation is the
product range and the prices offered online compared to what is available in a brick and mortar store.
The internet shoppers still rely on company website for detailed product information compared to third
party portals.
Given such a rapid growth across different market segment, it is not uncommon to see that almost
all companies provide access to their website to all consumers. Companies encourage consumers to
visit their website for information. These websites also offer shopping opportunity to the consumers.
Not only that manufacturers have a website but even service organisations like airlines, retail stores,
banks and insurance companies offer their product and services on the internet. Besides there is also a
growth in the online retail market which still continues to be not as developed as in developed markets.
While worldwide the penetration of web-enabled retail stood at 75%, in India it was only 61%, China
was at 84%. Among the major e-commerce companies in India are fashion and lifestyle portals like
Myntra.com. Flipkart is of the major online store that has the largest number of users who have spent the
maximum time on the site comparing and buying. Apparel continued to be the single largest category
of the product bought by the consumers online.
Next major category most commonly visited are the travel sites. Average time spent by Indian con-
sumers on travel site is 27.7 minutes. IRCTC is the largest and the most heavily visited portal site with
13.6 million unique users, each of whom spends a maximum time of 25.2 minutes on IRCTC and India
Rail Info sites. However, more recently there has been a significant growth in number of users using
portals like MakeMyTrip.com. The next major activity on internet today is blogging which has grown
by 48%. 36 million urban customers were active on blogs in 2013. 26% of the total blog traffic origi-
nates from mobile and tablet users. Another major activity of the consumers on the internet is watching
online videos.54 million Indians today watch videos online.
No wonder today technology especially internet and mobile are shaping customer choices and con-
sumption behaviour as also their engagement with the brand.
Exhibit 6.1 Google Goes Rural

The diffusion of internets in India has created new developed customised content for rural customers
market segments for internet service providers which includes updates on weather, crop patterns
(ISPs), internet enabled services like search engines and other local information of interest to rural cus-
and marketing portals. Google has decided to tap tomers. It has also launched Hindi news channel
the opportunity in the rural markets. It has now called Google Samachar. It gathers news from vari-
ous web sources and presents one page summary Yahoo has also found India as the ‘next big op-
with links to news sources. Google is also investing portunity’. It has expanded its feature to include
on developing mobile platform. This is in response beta versions of Yahoo! Our City and Yahoo! India
to higher rate of mobile penetration, as opposed to Maps. Yahoo! Our city profiles, 20 cities in India
PC penetration in India. using user generated content and editorial. The por-
Further, Google has plans to offer Orkut, the most tal provides news, photos, videos, pod casts, event
widely used social networking site, in Indian lan- information and maps and blogs of these cities in
guage, as also introduce its mobile version. Like- English and local languages. Likewise, Yahoo! India
wise, AOL launched its India portal aol.in—the first Maps is an interactive map service that has a search-
AOL portal in Asia outside USA and Europe. It also able database of 170 cities, 4785 towns and 2,20,000
offers usual features like email, instant messenger, lakh villages in India. Yahoo! India has launched
mobile features like Bollywood Gurus, cricket and seven Indian language portals in 2007.
city guide. The contents of these features will be
Source: www.asia.enet.com/blogs/technologywala
available in Indian languages.
A direct implication of the above changes in consumer lifestyles has been

The Internet has created
that customer expectations from suppliers have gone up significantly. Today, the awareness among the Indian
customer’s decision-making parameters are significantly different from those consumers about global
in earlier decades. Though an average Indian customer continues to be price quality and performance
sensitive, he is increasingly moving away from just low-priced products to qual- parameters that they can get
ity products and services, at the lowest prices. In other words, the Internet has at an affordable price.
created awareness among the Indian consumers about global quality and perfor-
mance parameters, that they can get at an affordable price. The fact that an average consumer can buy
a newly published book within a week directly from Amazon.com, or a holiday from the best known
tour operator on his (customer’s) terms through the Net, has put pressure on the Indian industry. Indus-
try has to take another look at its costs, distribution models, and even input-output ratios. Competition
has further aggravated the scenario for most Indian companies, especially the older generation firms.
One of the sectors where this change was visible was the banking sector, where new generation banks
like HDFC and ICICI snatched the lead from nationalised banks, including the State Bank of India.
HDFC Bank’s leadership today, is principally because it redefined banking paradigms for Indian con-
sumers. It was the first to offer Net banking and several other services on the Net. This made banking
convenient for the customer. The customer did not have to visit the bank but could do his/her transac-
tions on the Net. Likewise, there were developments on the industrial products and commodities front.
Disintermediation is now emerging fast in the Indian market. Time and location, seem to no longer
define customer choices, especially in metros and major urban centres. This is increasingly true for
the younger customer group which, as we saw earlier, is the major Internet user. Also, the younger
generation of consumers are less brand loyal, they are shopping for value and it is in this context that
the Internet has come as a big boon. There is another interesting paradigm that is shaping the Indian
market. Increasingly, information and ownership of products and services is no more concentrated at the
top end of the Indian market. The Internet has made it possible for all market segments to have access
to the same information and thus provide equal opportunity to all to buy products and services. Facili-
ties, like online chats have increasingly created customer communities which have, in a way, become
pressure groups. A company can no more hide poor performance or complaints in one market from its
customers in another. It is in this context that the Internet is a great leveller and facilitator that builds
relationships between buyers and sellers.
WHAT DOES THE CUSTOMER BUY?

To most of us, there appears to be an obvious answer to this question—
LO4
product/service. But this is not a comprehensive description. For, when one
Estimate what and
examines the different products or services bought by a customer, one can
why of customer
categorise them into two groups, namely:
purchase
(a) high involvement products
(b) low involvement products
As the term implies, the differentiation between products and services is created on the basis of the
customer involvement level in product selection. This is based on the extent to which the customer
perceives the product as representing his or her personality and lifestyle. For example, selection of a
car is a high involvement decision as a car represents the customer’s personality. On the other hand,
toilet soap is a low involvement product. To be able to better understand the difference between the two
product groups, let us examine the characteristics of each of them.
High Involvement Products

These have the following characteristics:
High Price Generally, these products are priced high in a particular product group. For example,
a colour TV is a high involvement product within the entertainment electronics segment, but, perhaps,
pocket transistors are not.
Complex Features High involvement products have complex features, requiring the customer to
spend more time on familiarising and internalising them. It is no wonder colour TVs, VCRs, DVD Play-
ers, cars, motorcycles, computers, washing machines, or refrigerators come with an easy-to-understand
product manual describing the features in simple terms.
Large Differences Between Alternatives If the customers perceive significant differences
between alternatives, then the product is a high involvement one. For example, if the customer perceives
major differences between Indian, Japanese, or American cars, then the car purchase decision is a high
involvement one. This is because these perceived differences enhance the need to learn about them and
evaluate each of the given alternatives against a decision criteria.
High Perceived Risks If the customer perceives a high risk in using the product, then he or
she may spend considerable time in (i) evaluating what constitutes risk, (ii) how to minimise it, and
(iii) how to avoid it. Besides, the customer may even evaluate whether the risk is worth taking. Cosmet-
ics, hair dyes, flying an airplane for the first time, and the like, are all perceived high risk situations.
Hence these are high involvement product use situations.
Reflect Self-concept of Buyer This is the single most important factor in making a product a
high involvement one. Each of us has a self image and we behave in a manner that will help us rein-
force this image for others. We buy products and services that reflect this self-concept. Choice of cars,
houses, clothes, restaurants, perfumes, cosmetics, and jewellery all reflect a customer’s self-concept.
Often, customers spend considerable time in selecting a brand in these product groups.
Low Involvement Products

The characteristics of such products are noted below:
Does Not Reflect Buyer’s Self-concept In the first place, these products are more personal
to the buyer and they do not reflect his or her self-concept. Toilet soaps and other toiletries are examples
of products that are perceived by customer as not expressing his or her image.
Alternatives within the Same Product Class are Similar The customer does not per-
ceive much difference between different brands in the same product class.
Frequent Brand Switching Behaviour Due to the perceived lack of difference between
brands, brand loyalty in these products is low.
Buying Situations
It is not only that products differ. Even the buying situation differs. Each time the buyer is to take a
purchase decision, it may or may not be the same as the previous one. The differentiation between the
two buying situations may be caused by the absence of any or all of the following factors.
(a) awareness about competing brands in a product group
(b) customer has a decision criteria
(c) customer is able to evaluate and decide on his choice
Viewed against these parameters, one may observe that it is not the product that differentiates one
buying situation from another; rather it is the time that the buyer spends in learning and evaluating the
alternatives or finally selecting one of them. Howard and Sheth have described these buying situations
as being:
(a) routinised response behaviour
(b) limited problem solving
(c) extensive problem solving
Routinised Response Behaviour or Straight Rebuy This buying situation is character-
ised by the presence of all the above three criteria. In other words, here the customer is aware of his
choices and, knows what he is looking for as the decision is based on experience of either self or others.
Generally, the customer spends little or no time in choosing an alternative. Brand loyalty is relatively
higher here. Moreover, this is a buying situation where a customer perceives low risk in buying the
product and/or the brand. Consider, the typical shopping behaviour of a housewife—she goes to the
grocer or a supermarket and spends much less time in selecting her toiletries, beverages like tea or cof-
fee and other food products because every time she generally buys the same brands.
Limited Problem Solving or Modified Rebuy This is a buying situation with a difference.
This could be, for example, introduction of a new brand or product often requiring a change in the
customer’s decision criteria. Continuing the example of the housewife, assume that in her next shop-
ping cycle, she sees a new liquid toilet soap which promises to keep her skin soft and moisturised. The
brand also promises to give her skin vitamin E, which the manufacturer claims is required in temperate
conditions.
The new liquid toilet soap is available in four fragrances. The pack can be refilled when empty. Now
this new brand is likely to change her decision and may be the choice criteria. If she spends some time
in evaluating the liquid toilet soap against the normal bar soap and then decides to try it, we conclude
that for her it was a limited problem-solving situation. As can be seen, this buying situation will often
lead to a trial purchase. The customer may even decide to continue with her current product selection.
Generally, it has been observed that brand extension strategy helps the customer to reduce the element
of newness in the purchase decision. Like, for example, Unilever deciding to introduce a liquid toilet
soap under its most popular brand name Lux. It may be remembered that the customer perceives mod-
erate risk in this situation.
Extensive Problem Solving or New Task This is a buying situation perceived to be high
on risk. This situation requires extensive learning on the part of the customer. The reason for this is
that here, the customer is not aware of available alternatives, has no decision criteria, and hence is
unable to evaluate different brands. This could be caused by relocation of the customer to a new and
unknown environment, or by the introduction of a technologically superior product. Take, for example,
the introduction of Word Perfect 5.1 replacing Word Star as the computer language for word processing
functions in early 1990s. This was a new buying situation, as it involved both intensive and extensive
learning by the buyer. Similarly, introduction of the camcorder (video camera) and cameras in cell
phone in the film and photography category represented a new task or extensive problem solving situ-
ation for a camera and cell phone buyer.
Thus, it is important to understand that not all buying situations are the same, even though a cus-
tomer may stay with his or her current brand or product. It is also important to note, that just because a
customer has bought the same brand over and over again, the buying situation does not become routine
or a straight rebuy. What is important, is to study how much time a customer spends on evaluating dif-
ferent brands in the same product category, and this will differ between market segments.
Buyer Motivations
Economic Factors The well-known economist, Adam Smith, provided the
The assumption in the
economic version of the
earliest understanding of the rationale of buyer behaviour. According to him a
buyer behaviour is that the human being is a rational individual. He or she evaluates various alternatives
lowest priced product will and will buy or select alternatives where the marginal utility is more than the
marginal price he or she paid for it. Consider the case of Priti, a housewife. After
sell as its marginal utitlity will
always be higher than others.spending a few hours on her shopping, she is tired. She walks over to a nearby
restaurant where she has the choice of either buying a fruit juice, a soft drink, a
tea, or coffee. A glass of fresh fruit juice costs her `7.50, a soft drink also costs her `7.50, while tea or
coffee costs `3.50. Now, if she decides to buy the soft drink, then the utility of this soft drink is more
than the marginal price she is paying to get it. In this case she is paying almost `4.00 more than for a
cup of tea or coffee. The utility of the soft drink, to her, at this time is more than that of tea or coffee or
fruit juice. The assumption in the economic version of buyer behaviour is that the lowest priced product
will sell, as its marginal utility will always be higher than others. Price therefore is the critical factor in
determining customer choice. Another assumption is, that all products are alike and no differentiation
is possible between them. The final factor is that the customer is aware of the alternatives available to
him or her and is in a position to make choices.
The economic model can explain human behaviour to a limited extent only, because humans are not
always rational beings. We all indulge in acts which are not necessarily rational. For example, a young
man who loves his wife very dearly and works in a different town away from his wife and family, may
make a long distance call almost everyday, not caring for the cost. But, the economist would like us to
believe that this young man will consider the marginal cost and utility of making a long distance call
and writing a letter (buying postage and stationery).
Besides, rarely or never is the information on alternatives complete. Branding is common in the
manufactured consumer goods segment, with each brand communicating a different image through
technology, features, packaging, and intangibles like guarantee or warranty. However, there are limits to
product differentiation. In today’s world of technology standardisation, there is hardly any differentia-
tion between two brands of the same product on a feature-to-feature comparison. Price then becomes
important, yet not the crucial factor. Hence, the economic model does provide limited, but useful,
insight into buyer behaviour.
Psychological Factors To get a better understanding of consumer behaviour, we need to examine
three major psychological factors. These are:
(a) motivation
(b) learning
(c) perception
Motivation The earliest explanation of human motivation was provided by the well known psycho-
analyst, Sigmund Freud. According to him, man learns from his environment. Taking the cue from a
child, Freud said that a child is uninhibited in his behaviour until the time he or she is taught the worldly
ways by his or her parents. Gradually, as the child grows he starts behaving in a manner, which is so-
cially acceptable. This, obviously means that his basic urges and instincts get suppressed and what we
see is the socially approved behaviour pattern. Freud also believed that the most basic instinct that gets
suppressed is sex and he traces much of human behaviour to this motive. But not all human behaviour
is sex motivated. Often, the need to influence or need for power is an important need guiding human
behaviour. Some products tend to give this power to individuals. Credit cards, for example, give the
individual the ability to influence others, as in most cases, it gives him/her a higher social status.
Hierarchy of Needs Theory Another understanding, and more comprehensive, view was provided
by Abraham Maslow. According to him, all individuals have needs which are placed in a hierarchy, as
shown in Figure 6.3.
According to Maslow, human beings first satisfy their lower order needs, or
basic and security needs before moving up the hierarchy to satisfy esteem and Esteem is a learned
psychological need while
self-actualisation. Applying Maslow’s theory, we find that we can have different
security is a learned
groups of customers with different needs. Consider for example, the case of a physiological need.
toilet soap. An individual, motivated by basic need, may buy just any soap so
long as it serves his core need, cleaning. At this point, price may be important to him, but an individual
who is high on affiliation or esteem may look for a premium priced soap. He or she would look for
fragrance, shape, packaging, brand name, and the like, before selecting the brand. Modern cars, do-it-
yourself kits, or learn-by-yourself are some of the products that satisfy esteem and self-actualisation
needs. It may be recalled that esteem is a learned psychological need while security is a learned physi-
ological need. Marketers often tend to invoke the esteem need of the customer. Nothing illustrates this
better than the Onida television’s initial campaign which was centred around the envy concept.
The contribution of Maslow’s theory is that it helps the marketer segment his market and develop
product marketing strategies accordingly.
Figure 6.3 Maslow’s Hierarchy of Needs
Herzberg’s Two Factor Theory Another behavioural scientist, Frederick

According to Herzberg’s
Herzberg, propounded the ‘Two Factor Theory’ of human motivation. According
two-factor theory, there are
motivators and hygiene to him, there are satisfiers and dissatisfiers in any work situation. Calling them
factors in every work as motivators or hygiene factors respectively, Herzberg said that it is the
motivator who propels individuals towards excellence. Extending the theory to
situation, the motivators
being the one which marketing, one finds that hygiene factors are product quality, packaging, product
propels individuals towards
warranty, and so forth. These are the given factors and all customers expect these
excellence.
features in all product groups. But the motivators will be factors like customer
focused sales team, good customer service, or may be the fact that the usage of
a product helps the customer create a separate identity for himself or herself. What is therefore important,
is that the marketer should identify these satisfiers in each customer group.
McClelland’s Theory of Achievement Motivation Harvard’s Professor
According to McClelland’s
theory of achievement David McClelland has provided a new insight into human motivation. According
to him, there are three motives that drive human beings to higher performance.
motivation, there are three
motives that drive human These are the need for belonging (affiliation need), need for power (need to
influence), and the need for achievement. It is the latter need which makes
beings to higher performance:
need for belonging, powerindividuals and societies excel and be creative. Extending the theory to marketing,
and achievement. some products are seen to represent achievement, while others are seen as power
symbols and yet others as products meant for satisfying the need for belonging.
Marketers have used these motives in evolving their communication programme. Consider for example,
the advertising campaigns of credit card companies which appeal to people high on achievement, and
of late, emphasise affiliation, where Master Card claims that the only thing it can not buy is emotions.
Thus, McClelland’s theory does help a firm to evolve its strategies for people motivated by different
needs. An important observation in human motivation is that as societies develop, primary motives, or
physiological needs like sex and hunger become less important. Secondary motives, like achievement
and power gain a higher degree of importance. The marketer needs to be aware of this process, because
for different communities and groups the need mix may be different, thus requiring different marketing
tasks.
Learning Theory One of the important dimensions of human behaviour is that it is learnt. One learns
at the pain of punishment and the lure of rewards. This learning could be conditioned or could be the
result of trial and error, or even just an insight. More often than not, it is conditioned learning, where
an individual comes to associate an act with some event. Proponents of the learning theory say that a
person’s learning is a result of an interplay of factors like drives, stimuli, cues, responses, and reinforce-
ment. Drives refer to energised needs. It is said, that when an individual has an energised need, he or
she will not rest until it is satisfied.
IN FOCUS
Consider, the example of a family buying a holiday plan at Goa. We will call this family–the Mathurs.
Both, Mr and Mrs Mathur work for a foreign bank in Mumbai and they have a five year old daughter. One
day, Mrs Mathur’s friend Geeta, who also works for the same bank, returned after an extended weekend
and excitedly told Mrs Mathur about her holiday in Goa, showing her the photographs. On returning home
that day, Mrs Mathur told her husband about Geeta’s trip to Goa and insisted that they too, plan a similar
holiday. Her desire for a holiday becomes a motive and will drive her to the stimulus (object)–Goa. Next
day, she sees an advertisement of the Goa Penta Hotel which offers a free one-way air ticket, Goa—Mum-
bai or Mumbai—Goa, to tourists visiting Goa and staying with them for three nights and four days any time
till September 30th. Mrs Mathur calls up the sales office of one of the five star resorts and speaks to a
sales person who tells her about the facilities they have at the resort; the games, restaurants, pool bar,
seaside bar-be-que, and a private beach. He also offers to organise their entire trips all that she had to
suggest were the dates. Here, the advertisement of the resort, the sales person, and facilities offered by it
constitute the cue. When the Mathurs specify the dates on which they wish to travel, we have a response.
Based on their experience at the resort and Goa, they either feel gratified or regret their decision. If they
feel gratified, their behaviour gets reinforced and may be in future, when they take a short holiday again,
they may like to go over to Goa and stay at the same resort. Also based on their experience, they may
generalise that Goa is a great place for a holiday.
A variant of generalisation is discrimination. On a future holiday, the Mathurs go to Goa but may stay at
another five star deluxe hotel. They find it a more luxurious and pleasurable resort with better facilities and
service, better layout, and more variety of food and drinks. They conclude, that it is superior to the earlier
resort. Now the Mathurs have learnt the difference between the two resorts and are able to generalise.
The learning theory offers a tremendous challenge to a marketer—that of guiding and sometimes
even directing human behaviour. This is done by developing stimuli and cues which will bring to the
fore the latent need in the customer. Attractive advertising, shelf displays, pack-
aging, how to use instructions, store layout, availability, and sales persons are The learning theory offers
all examples of cues that a marketer develops to drive customers to the product tremendous challenge to a
or service. An excellent customer care programme by the marketer can help a marketer—that of guiding and
customer have positive feelings about his or her experience. The marketer may sometimes, even directing
human behaviour.
also develop cues to differentiate his or her product from that of the competition.
Theory of Cognitive Dissonance In the above example, if the Mathurs had

Cognitive dissonance is
other alternatives, each one of them being equally attractive as the Goa’s Re-
generally a feature of high
sort and if, after the selection, they had lingering doubts of whether they have
involvement buying situation—
taken the right decision, then we say they suffered from cognitive dissonance,
the higher the involvement,
the higher the dissonance.or simply mental disturbance. Leon Festinger proposed this theory to marketers
of post-purchase consumer behaviour. He called this the theory of cognitive dis-
sonance. To better appreciate this theory we need to understand that all of us, for most part of our lives,
live in a state of mental equilibrium. This gets affected, when a certain event does not happen the way
we expect it to be. For example, we buy a car from a well known, leading car dealer. We expect that
this dealer will have an excellent after sales service and a good customer service cell. But when we take
the car for the first service and register our problems and find that neither they listen to us nor are they
interested in us, we often suffer from post-purchase dissonance like, ‘Did I do the right thing to buy
my car from this dealer? Should I not have gone to another? Or should I, not have bought another car
from another dealer?’ Festinger says, that this dissonance gets heightened in the following situations:
(a) when a customer has plenty of choices or alternatives to choose from
(b) each alternative is equally attractive
(c) the buying situation is a high priced-high risk situation
None of us would like to live for long in this state of disequilibrium as it is painful. Therefore, in
order to overcome this state we either:
(a) do away with the product causing us mental anxiety or dissonance
(b) collect more material on the product in support of our decision to buy the product
(c) rationalise our decision by looking around and seeing how many customers had bought the
product
The marketer has to have an interest in all the above three response behaviours. For he, needs the
customer to reject his competitor’s product or brand and rationalise his choice in favour of his product.
Testimonial advertising, for example, is one form of reducing post-purchase cognitive dissonance.
Thus, it may be observed that cognitive dissonance is generally a feature of high involvement buying
situation. The higher the involvement, the higher the dissonance.
Perceptions We live today in an over communicated society. There are companies, individuals,
social organisations, government and its agencies demanding our attention. Whether it is the morning
newspaper, radio, television, hoardings, kiosks, or roadside shops, there is an advertising blaze. But,
none of us see or hear everything that is being communicated to us by the advertiser. Behavioural
scientists tell us that human beings see or hear only what they want or anticipate. This is then called
perception. There are three different dimensions that affect human being’s perceptions. These are:
(a) selective attention
(b) selective distortion
(c) selective retention
Selective Attention As was mentioned earlier, none of us pay attention to all the stimuli directed to
us by the advertiser. Just look around and see what is typically done when ad commercials are beamed
on TV during prime time. Most adults go out to complete their work or do something else during the
commercial break. Fast forwarding a video or an audio cassette during a commercial break is yet an-
other way by which we as consumers avoid the advertiser’s stimulus. Therefore, behavioural experts
say that all human beings pay selective attention to different stimuli. This selective attention is based
on the following factors.
● Expectation: If we expect to see or hear something, then we pay attention to only such stimuli.
● If we believe that by listening to someone, reading, or seeing some-
thing will help us, then we pay attention to such stimulus. For example, every household in urban
there is one full page ad announcing the opening of a new departmental store in the town and
newspaper will get a return air ticket to Kulu-Manali, then some of us are likely to pay attention
up in most up market magazines in 1981. This was a three page advertisement. The front page had
an extremely ugly looking face of a girl. Research showed, readers just skipped this page as they
hated to see this face. But the moment they turned over they saw the same face, but this time more
beautiful. Most men and women had noticed this advertisement. Most women, not only saw the
advertisement but even recalled its contents. Therefore, a stimulus that promises to be rewarding
is more likely to be seen or heard.
Selective Distortion People do not just selectively pay attention to different stimuli, they also selec-
tively distort them. This selective distortion happens because people add their own values and beliefs
to the message. Also, since people remember only positive experiences and stimulus, they just filter
out everything else. We add to or delete from the original message.
Selective Retention Even after distorting the message, it is not that individuals are able to recall it.
Research shows that most often, human beings recall only five percent of the original verbal message.
The percentage of people recalling stimulus increases as the stimulus becomes more visual and is the
maximum when it is an audio-visual message.
Perception theory challenges a marketer’s creativity, for the challenge is how
Perception theory
the firm makes its brand and advertisements, such that they are seen and remem-
challenges a marketer’s
bered. The challenge is also one of placing the brand at the top of the customer’s creativity, for the challenge
mind. Marketers have used several strategies to make their stimuli stand out. Full is how the firm makes its
page advertisements (size), coloured advertisements in black and white maga- brand and advertisements,
zines (contrast), floats or other mobile stimuli (movement), easy to understand such that they are seen and
words (familiarity), and making a customer guess the objects or messages to remembered.
come (e.g. a teaser campaign like ‘Look out for this space tomorrow if you want
to fly Singapore FREE’); in other words, creating anticipation, are some of the most commonly used
strategies to make a stimulus perceived by the customer. Repetition (like the repetition in brand name
radio or TV commercials).
CONSUMER DECISION MAKING

LO5 Often, we find that in a consumer decision process, several individuals get
Judge customer involved. Each of them plays an influencing role. At times, more than one
decision making role may be played by one individual. These roles are:
● Initiator: This is a person who sows the seed in a customer’s mind to
buy a product. This person may be a part of the customer’s family like
a child, spouse, or parents. Alternatively, the person may be a friend, a relative, a colleague, or
even the sales person. In the earlier example of the Mathur family buying a holiday package to
Goa, Mrs Mathur’s friend, Geeta, was the initiator.
● This is a person, within or outside, the immediate family of the customer who in-
● Decider: This is the person who actually takes the decision. In a joint family, often it is the head
of the family or the elders in the family, who take a decision. But in nuclear and single families
more often than not, decisions are joint. Husband, wife, and even the entire family taking the deci-
sion, particularly on major purchases, is quite common in urban and metro areas. The decider(s)
consider both economic and non-economic parameters before selecting a brand.
● Buyer: This is the person who actually buys the product. This could be the decider himself or
herself, or the initiator.
● User: This is the person(s) who actually consumes the product. This could be the entire family
or just one person within the customer’s family.
It is important to note that the people who play these roles seek different values in the product or
service. The perception of the value is to a large extent influenced by their prior experience or that of
the experience of others, media reports, and the marketing cues created by the firm. These values, which
may also be referred to as market value, are the potential of a product or service to satisfy customers’
needs and wants.
Exhibit 6.2 Market Value

A product or service’s market values may, generally, the basic or universal reason for buying a product
be universal, personal, or both. or service or for doing business with a firm. Some
Universal values are the ones that satisfy the personal values, which may be group specific, are
needs of the customer. They pertain to the basic desired by and offered alike to a segment or a group
purpose of buying a product or service, and they of customers. Other personal values are individual
are sought alike by customers across nations and and hence, are related to one’s personal enjoyment
cultures. As such, they are the bare minimum that a or comfort. Market values differ or converge across
marketer should offer. the user, payer, and buyer groups.
Personal values are those which satisfy the wants
of the customer. These pertain to something beyond
Market Values Sought by Users

Universal Value
Performance Performance value is the quality of physical outcome of using the product or service,
(i.e. it refers to how well a product or service serves its principal function consistently). This value
resides in and stems from the physical composition of the product or from the design of the service.
It depends, therefore, on design features and manufacturing quality. When customers buy detergents,
for example, they seek such performance values as dirt and stain removal from clothing and protec-
tion against colour fading. More specifically, firms can offer superior performance value by adopting
performance enhancing measures like quality improvement techniques, product innovations, mass
customisation, and warranties and guarantees.
Personal Values It includes social and emotional values.
Social Value Users driven by social value choose products that convey an image congruent with the
norms of their friends and associates or those that convey the social image they wish to project. Social
values exist when products come to be associated with positively perceived social groups. Of course,
a product associated with a negatively perceived social group has negative social value. For example,
in India, the automobile one owns is a reflection of one’s status in society. Likewise, consumption of
alcohol is generally disapproved by society and hence liquor does not enjoy a high social image.
Emotional Value This refers to the enjoyment and emotional satisfaction that products and services
offer to their users. Many products and activities offer desired emotions. Most experiential consump-
tion offers emotional value. Experiential consumption refers to the use of a product or service where
the use itself offers value. The satisfaction and enjoyment accrues in customer participation per se as
the consumption process unfolds, for example, watching a movie or playing a sport.
Marketers offer social and emotional values through prestige pricing, limited availability, social
image-based marketing communications that focus on association with desired persons or objects or
symbols, and new exclusive offerings. Emotional value is also deliverable by emotional advertising.
Market Values Sought by Decision Maker

Universal Value
Price
acquiring a product. Judgements about the reasonableness of price and costs are always made within
perceptions in the consumer’s mind. Invariably, all are perceived as either economy or good value for
money.
The marketer can create value for the buyer by: (i) keeping the cost of purchasing and using a product
low and (ii) offering services that are useful/helpful. Prices can be kept low by: (i) using the low margin
approach and (ii) increasing productivity using economies of scale, modernised plants, automation, and
business process re-engineering techniques.
Personal Values
Credit and Financing Credit Value Credit is gaining acceptance in the Indian market as reflected
by the increasing popularity of credit cards. Besides, local retailers and stockists are known to extend
credit to their customers. Credit, therefore, is an important value that most customers, in their role as
payer, consider.
Financing Value This consists of offering terms of purchase that make the payment more affordable
by distributing the liability over an extended period of time. It consists of offering an affordable graded
payment schedule (e.g., instalment payment plan). Financing allows and often entails more ‘custom-
ised’ payment schedules designed to customers’ specific requirements.
Market Values Sought by Buyers

Universal Value
Service Service value is the assistance, customers seek in purchasing a product or service. It has
three elements:
1. Pre-purchase advice and assistance.
2. Post-purchase advice and assistance in maintaining the product’s utility value.
3. Freedom from risk of mispurchase by being able to refund or exchange the merchandise.
Pre-purchase and post-purchase assurances are benefits or values, almost all customers as buyers
would seek to some degree. Hence, the service value is a universal value for the buyer.
It may be noted that service needed specifically by the user during a product’s use is a user value
(e.g., technical advice on how to run a software on a computer, or how to take a particular medication).
Personal Values: Convenience and Personalisation
Convenience Value Acquiring a product or service requires time and effort. The effort includes the
distance the customer has to travel to acquire the product, and the ease with which the customer can
locate the merchandise. Also the ease with which the customer can acquire the product and complete
the exchange. Convenience value refers to savings in time and effort needed to acquire the product.
Similar to social and emotional values, the personal value presents an influence on the consumer’s
‘wants’. It is something that is preferred and not needed. To deliver convenience value, firms can pro-
vide convenient points of access. They can locate the distribution and retail facilities conveniently and
keep them open 24 hours. Domino’s differentiated itself by offering convenience value through home
delivery of pizzas, a pioneering practice that made a significant dent in the market leader Pizza Hut’s
market share. Another way of offering convenience is automation. Automation, such as at ATMs for
banking and telephone-based automated response systems, as used in most modern banks like IDBI,
ICICI, and HDFC, offer convenient access.
Personalisation Value Buyers may also want to be able to complete the transaction in a personalised
or individualised manner. This personalisation value has two aspects: customisation and interpersonal
relation. Customisation refers to receiving the product or service in a manner tailored to an individual
customer’s circumstances.
A business customer who needs materials and parts for the production line may desire to receive
them, as close to the production schedule and site, as possible.
The second aspect of personalisation is the desire for the transaction to occur in an environment of
pleasant interpersonal interaction. Customers seek this value in the form of positive experience in inter-
acting with the sales or customer service personnel. Employees who are personable and friendly, who
exhibit understanding and empathy, and who enjoy interacting with customers offer this value to the
buyer. Personalisation value accrues from sales and service employees, treating customers with courtesy.
The Consumer Decision-making Process

Let us now turn to the decision-making process itself. This process will vary, depending on the customer’s
level of involvement in the product. Here, the assumption is that the customer has the right to information.
High Involvement Product We mentioned earlier, that high involvement products often
demand more customer time. Hence, the decision process here can be schematically understood as
shown in Figure 6.4.
Figure 6.4 Consumer Decision-making process for High Involvement Product Purchases
Problem Identification/Need Recognition The starting point is when the customer perceives the
he or she faces in a given situation. Let us consider the case of Anil Sharma, a company executive. Anil
lives in a suburb of Mumbai and has to travel about 25 km to work. Near his workplace, there is no
suburban train station. Anil has to either travel by the company’s bus or take a BEST bus. While going
and rude or indifferent taxi drivers is also important. Anil’s wife is a medical doctor and they have two
children. Anil has often felt the need for a personal vehicle, whenever they have either gone out shop-
ping or for a late night movie or party.
Another way, by which a need may become overt is through peer pressure. Anil belongs to an execu-
tive group and all his colleagues have their own vehicles. Often, the neighbour’s wife asks Anil’s wife
why they do not have a vehicle. The friends of Anil’s children, too have vehicles in their family. Peer
influence, neighbour’s and friend’s pressures, make Anil seriously think of buying a vehicle.
Which vehicle should Anil buy? A car, a motorcycle, or a scooter? Anil and his family feel they
should buy a car. Should they buy a used or a new car? Anil thinks that a used car will lower his status
and therefore decides to buy a new car.
Thus, problem identification is important. As long as a customer does not perceive a problem, or, his
or her need is overt, no purchase proposition can ever be made. Marketers create stimulus to make this
need overt. Consider, the example of the MRF advertisement shown just before the onset of monsoons.
The company is pushing the need to change tyres before monsoon obvious, by reminding customers
that a bad tyre could cause trouble. Or, the Eno salt advertisement, which shows the person having
stomach trouble due to over eating or the Close-up advertisement, which shows a loss of friendship or
association on account of bad breath. While the marketer has no influence on the social factors, he or
she can create stimulus, which will make a customer feel the need for the product.
Development of Decision Criteria Anil is a new customer for a car. He does not know what to
look for, and how to evaluate the different brands or models available in the country. He turns to his
friend, Arun Joshi, who has been a car owner for over ten years, his brother-in-law, and a neighbour who
works for a car dealership, for advice. They tell him to look for fuel efficiency, space for passengers and
luggage, safety features, after sales service of the dealer or the manufacturer, manoeuvrability in small
areas and parking lots, driving comfort, availability of roadside repair and maintenance facilities, and
finally, the financing options. All advised him that fuel efficiency should be the most critical factor in
his choice. After reading some articles on automobiles and having talked to some more friends, Anil
prioritised these factors in the following way (Table 6.1).
Table 6.1 Decision Criteria for Buying a Car

Factors Weights
(a) Safety 7
(b) Fuel efficiency 6
(c) After sales service 5
(d) Driving comfort 4
(e) Manoeuvrability 3
(f) Financing options 2
(g) Availability of roadside repair and maintenance cost 1
In the development of decision criteria, a customer consults his or her friends, relatives, and others
whom he or she perceives to be experts in the knowledge about the product. In a way, the customer
considers them as opinion leaders. The customer may even read specialised printed material, like jour-
nals or magazines on a particular product.
Search for Alternatives Having developed a decision criteria, Anil now looks for alternative brands,
models, and dealers. He looks for advertisements in the newspaper and magazines, hoardings or bill-
boards, news articles, and also consults the yellow pages. His wife and children also talk to their friends.
They all come to the following conclusions.
(a) The oldest brand or model on road are the Hindustan Motors’ ‘Ambassador’ and the Premier
Automobiles’ ‘Premier Padmini’.
(b) Premier Automobiles does not produce cars anymore.
(c) Hindustan Motors has revamped the Ambassador, but is no more being bought by individual/
families. It has a tie up with General Motors, who have introduced Opel in two variants—Astra
for the high end market and Corsa for the middle-level market. Ford has two models, Escort and
Ikon. Honda, Hyundai, Telco, Toyota, Fiat, and Maruti Udyog are other car manufacturers.
(d) The largest number of models are from Maruti Udyog

(e) Each of these car manufacturers, have multiple dealers located in different parts of the city.
(f) There are used car dealers also, some of whom market new vehicles also. They were sub-dealers
of main dealers. Unlike the latter, who have exclusive arrangements with car manufacturers, these
sub-dealers are multi brand outlets and hence offer a wide choice to the customer.
(g) Financing is available at all dealer outlets. Various plans are being offered from instalment plans
to hire purchase or leasing.
In this case, we see that the customer is actively engaged in a search for alternatives and has used
the media or other social channels, to collect all the relevant information.
Evaluation of Alternatives Now Anil evaluates all the above alternatives on the decision criteria he
has evolved, and gives weightage to each brand and model on the parameters selected by him. Here,
Anil also considers another factor, like the resale value of the car after three years. He also keeps in
mind, his tax obligation and the monthly expenditure that he will have to incur to maintain the car. At
this juncture, Anil and his family also look for a specific colour and showroom delivery, as they do not
want to wait.
Decision After weighing all the parameters, Anil comes to the conclusion that
The Howard and Sheth’s
a dark grey Maruti Esteem VX is the car for him and his family. Theory of Evoked Set
This decision, may change at the time of purchase, either because of non- classifies customer brands
availability of a specific model and colour, change in the interest rate, or any under Awareness Set,
other change in the external environment. Howard and Sheth, have given another Consideration Set, and
dimension to this decision process. They call it the Theory of Evoked Set. An Decision Set.
evoked set, consists of the alternatives a customer is aware of and considers, in
selecting a brand. In any product group, there are numerous brands that are competing with each other.
This is the total set. It is not necessary (in fact it never does happen) that the customer is aware of all
of them. Generally, the human mind can take in only three names. This is then the awareness set. It
is not necessary that all the brands that the customer is aware of will be considered for buying. All those
brands that are considered, are a part of the consideration set and the brand decided is the decision set.
Normally, the purchase should be of this brand only. But it may change because of competition activity
at purchase outlets or due to the non-availability of the selected brand at the purchase outlet. Figure 6.5
shows this theory diagrammatically.
Figure 6.5 Theory of Evoked Set
Low Involvement Products By their very nature, low involvement products are ones, where
the customer spends least time in searching for alternatives or for that matter in evolving decision cri-
teria. The decision process here is as shown in Figure 6.6.
Since the products are low on cost and risk and do not reflect a customer’s personality, the customer
spends little time in evaluating the brands. Moreover, since there are little or no major differences
perceived among the alternatives, often the basis for evaluation are price, taste, size, and packaging.
Figure 6.6 Purchase Decision in Low Involvement Products
Consider, the example of buying toothpaste or tomato ketchup. The time that we spend in buying it is
the time taken in picking it up from the shelf.
Thus consumer decision-making processes differ across product groups.
INFLUENCES ON BUYER BEHAVIOUR
LO6 Buyer decisions are strongly influenced by variables like cultural and social
Summarise influences factors, personal factors like demographics, self concept, lifestyles, and per-
on buyer behaviour sonality (the last two are also called psychographic variables.)
Cultural Influences
Culture refers to a set of values, traditions, or beliefs which guide the individu-
Culture refers to values,
al’s behaviour. In a way, culture is normative as it prescribes norms of acceptable
ideas, attitudes, and other
meaningful symbols created
human behaviour. Put in other words, culture refers to values, ideas, attitudes,
by people to shape human and other meaningful symbols created by people to shape human behaviour and
the artefacts of that behaviour transmitted from one generation to another. It
behaviour and the artefacts
has both the abstract and material dimensions. The abstract dimensions affect
of that behaviour transmitted
from one generation to theconsumer preferences. Abstract elements of culture include values, attitudes,
other. ideas, personality types, and summary constructs like religion. Material com-
ponents, on the other hand, can be described as cultural artefacts or the material
manifestation of culture. For example, beef is not readily accepted in Hindu society and likewise pork
in Muslim society. It is important to understand, that culture influences human attitudes and behaviour.
Some of the attitudes and behaviour influenced by culture are:
● sense of self and space
● communication and language
● dress and appearance
● food and eating habits

● time and time consciousness

● relationships (family, organisations, government, and so on)
● values and norms
● beliefs and attitudes
● mental processes and learning
● work habits and practices
Values are shared beliefs or group norms internalised by individuals, perhaps

Values, shared beliefs or
with some modifications. These lay down the behaviour rules for an individual
group norms internalised by
member of the group. Values, in any culture, are developed through the process of individuals, are developed
socialisation and acculturation. Refusing beef, onions, or garlic by a Hindu buyer through the process
is a value developed through socialisation. The use of a fork or knife to eat food of socialisation and
by an Indian family is a value acquired through acculturation. acculturation.
As may be observed from Figure 6.7, values are transmitted through social
institutions like family, religious institutions, and schools, and also through early lifetime experiences.
Values and culture are not static concepts. They are dynamic. Today, values are changing in Indian society,
largely due to the influence of electronic media. Generational change is today occurring because the
younger consumers are acquiring new values and information through the Internet and foreign television
channels. On the other hand, as individuals grow old, their values too change. For example, from a risk
taker to risk aversion is a very common change that takes place as individuals grow old. In any culture,
there are sub-cultures that also exist. These are different nationalities, religious, and geographic groups.
For example, in the Indian culture, we have Hindus, Muslims, Christians, Jews, and Sikhs, existing as
religious sub-cultures. Likewise, behaviour patterns of Hindus living in the North and the South differ. A
marketer needs to be aware of these cultural and sub-cultural influences on consumer preferences. These
will affect his brand, packaging, advertising, sales promotion, and even distribution decisions.
Figure 6.7 Environmental Influences on Consumer Decision and Marketing Strategy—Internalisation

of Values
According to Sheth, Newman, and Gross, following are the five consumption values that customers
look for in any product or service:
● functional value
● conditional value
● social value
● emotional value
● knowledge value
These multiple values are considered to be independent of each other and influence consumer
choices as well as brands and other elements of consumer choice.
Social Influence
Purchase decisions are influenced by word-of-mouth communication. They are
Reference group, which
also influenced by other consumer experiences which are often shared both in
implies peers, relatives,
neighbours and friendsan online and offline mode. Today the consumers are far more communicative
than in the earlier times. One of the biggest enabler in this is ICT. Consumers
influences a man’s behaviour.
express their opinion far more freely in public domain and in person when they
share their experiences with others or with their own immediate group. Reference group today for
many consumers is extended to include the Facebook friends or those on other social networks. Social
networks today have therefore expanded the definition of reference groups. Traditionally, the reference
group consisted of peers, relatives, neighbours’ and friends whom the consumer would have known
individually. From a marketing perspective it is necessary for the firm to understand, respond and man-
age these social interactions. In recent time there has been a growing interest to understand and measure
the impact of these interactions on the brand’s market share.
Companies have also created their own Facebook page and use other social media marketing tools
to engage with their customers and create a communicate buzz around the brand. Studies have shown
that there are three important goals of companies using social media. These are:
1. Acquire contacts
2. Generate sales
3. Strengthen brand/s
These three goals are similar as they reflect different phases in consumer purchase process as shown
in the diagram below:
From a brand’s perspective firms are always interested in capturing these interactions on a continuing
basis and therefore are in search of appropriate tools of measurement.
In the context of a new product introduction, studies have pointed that the probability of success gets
substantially improved when it has the support of the target buyers, especially those who are considered
as opinion leaders in the target market. This is largely because of the fact that diffusion of an innovation
or new product in a society is conventionally a trickle down phenomena from opinion leaders to the
rest of the market.
Opinion Leadership Opinion leadership is the process through which a Opinion leadership is the
person or group, called the opinion leader, influences the actions, views, and process through which a
attitudes of others. This influence may be oral and of an informal nature, and is person/group influences the
often supported by actions that imitate those of the opinion leader. The informal actions, views, and attitudes
flow of consumer related influence between two people is called word-of-mouth of others.
communication. Word-of-mouth implies personal, face to face, or telephonic
communication. Opinion leaders are often considered, sources of highly credible and valid informa-
tion, as they are supposed to be neutral about product information. Therefore, the information that they
transfer is considered valuable.
Opinion leaders in any society could be any or all of the following.
●
● experts—professionals
● common man
● executive/employee
● spokesperson/salesman
● dealer
Opinion leaders fulfil a number of needs for opinion receivers:

● they provide new product or new usage information
● -
uct or brand
●
Today, companies have identified celebrities as their brand ambassadors. The purpose of doing
so, is to communicate brand values through individuals who are perceived by society as personally
possessing them.
Demographic Influences
An individual customer’s age, sex, marital status, income, occupation, and geographic location also
affect his or her consumption pattern. It is from this point of view that we have a child market, youth
market, teenage market, adult market, and senior (old people) market. We also have low income, middle
income, higher middle income, and higher income markets. In fact, demography has traditionally
helped the marketer evolve positioning strategies. The assumption here, is that people having common
demographic characteristics behave in an identical manner and will have the same preferences. Demo-
graphic characteristics have also served as the basis of segmenting the market.
India is a young market today. The median age of the country is 25 years and according to different
demographic surveys almost about 550 million consumers in India are in the 15 plus age group. This
excludes about 250 million who are below the poverty line. Of the 540 million consumers, 400 million
live in rural India. The 100 million youth reside in the top 100 cities. Another characteristic of this
demography is that India also has a very large percentage of people in the age group of 60 and above.
The senior citizens market is also an important segment. From income perspective also the studies have
shown that Indian incomes are growing. The middle class today is an important market segment.
Growth of Urbanisation in India

Economic growth and employment opportunities across cities in India have led to an influx of popula-
tion from rural and semi urban areas. Cities have grown exponentially. Not only that there has been an
influx from rural to urban areas, there has also been a growth in number of people moving from one city
to another and one region to another. For example, people from North have moved to cities in South
like Bangalore, Hyderabad, Chennai, Kochi and to other cities in Western India. It is not uncommon
to see diversity in the population in metros cities like Mumbai, where people from all over the country
come to work and then make it their home. The growth in urbanisation has had a sociological impact
on the state and the city. More cities today are becoming cosmopolitan. From a marketing perspective
it is an opportunity. Today the brands can have a universal appeal across the country, as increasingly
consumption values are converging across different communities, languages and religion. For example,
the appeal of Denim Jeans in the youth market is no more restricted only to the North and the Western
part of India; one can see young consumers in the South and the East also buying denim products,
including Jeans. Likewise, other traditional dresses also cut across the regional preferences to emerge
more as national preferences. Urban towns therefore are today exhibiting consumption patterns similar
to those in the metros which have traditionally been the centre of consumption of premier brands and
services. Retail chains and malls today exist in Tier I and II cities, besides being in the metros. Con-
sumers in the cities or towns spend more on leisure and products that will make them look young. For
example women in small towns are willing to pay large amounts for products like body sculpting and
removing skin imperfections. Same is true for men, who are today spending more time and money on
wellness products and services and products that will make them look young. Growth in urbanisation
has also led to the development of new towns like Greater Noida, Gurgaon, Lavasa, and AMBY Valley.
The old traditional towns like Faridabad, Ludhiana, Surat, Chennai, Bangalore and Hyderabad have
also seen the growth of new suburbs and townships which today are marketed on the promise of good
global lifestyle.
Self Concept
Each of us has a self image. This self image is based on the person(s) whom we
The self image could be an
see as our role models. We then act and behave like these role models, believ-
individual’s own perceived
image and actual image ing that we are them. This affects our dress, hair styles, and almost every other
thing including our table manners. This concept of self image has been termed
based on how others perceive
the individual. as self concept.
The self image could be an individual’s own perceived image (this may, even
be termed as ideal self image) and actual image based on how others perceive the individual. There
could, at times, be a conflict between the two. All individuals try to bring about a congruence between
these two sets of their images.
Recent researches in consumer behaviour, have concluded that a large number of products like credit
cards, automobiles, readymade garments, designerware, cosmetics, and perfumes are bought because
of this variable. Often a demographic variable like income is not important in purchase decisions for
these products.
These researches suggest that a marketer needs to study the self concept of his target buyers and
accordingly design products, packaging, and advertising strategies that will help reinforce this self
concept. Once again take a look at the Citibank credit card advertising campaign. Also take a look at
the campaigns of Shoppers’ Stop, Dinesh Suitings with Sunil Gavaskar, Raymond’s with well known
celebrity endorsements. All these campaigns are aimed at customers, who have a specific self concept
of themselves (Figure 6.8).
Figure 6.8 Major Consumer Reference Groups
Psychographic Variables
Besides self concept, today psychographic factors also play an important role in the buyer’s decisions.
These factors refer to lifestyle or personality. Psychologists, tells us that an individual’s behaviour is a
function of these two factors.
Lifestyle
Lifestyle refers to the beliefs, attitudes, interests, and opinions that an individual
has about himself, his family, and the world. Put in other words, it is the indi- Lifestyle refers to the beliefs,
attitudes, interests and
vidual’s way of living in the world, as reflected by his attitudes, interests, and opinions, that an individual
opinions. Contemporary researches, show that even though two customers may has about himself, his family,
share common demographic characteristics, the two may differ significantly in and the world.
terms of their lifestyles. Hence, a product or a brand positioned for customers
like them, may not be bought by one of the customers, because he or she may not perceive the brand
or product as suiting his or her lifestyle. Lifestyle portrays the whole person interacting with his or her
external environment. It is more than just the social class.
IN FOCUS
Understanding Consumer Lifestyles
The marketer needs to be aware of these lifestyles in his target market. He may choose to position his
product to suit a lifestyle of an achiever or royalty or as provided by the VALS framework developed by
Arnold Mitchell (‘The Nine American LifeStyles’, New York: Macmillan, 1983 of SRI International). Ac-
cording to this framework, people can be categorised into nine groups. These are:
(a) Survivors–disadvantaged people, who tend to be despairing, depressed, and withdrawn.
(b) Sustainers–disadvantaged people, who are valiantly struggling to get out of poverty.
(c) Belongers–individuals, who are conventional, conservative, nostalgic, and unexperimental, and
who would rather fit in than stand out.
(d) Emulators–ambitious, upwardly mobile, and status conscious individuals; they want to make it ‘big’.
(e) Achievers–the nation’s leaders who make things happen, work within the system and enjoy a good
life.
(f) ‘I-am-me’–people who are typically young, self engrossed, and given to whims.
(g) Experimentials–individuals who pursue a rich inner life and want to experience directly what life
has to offer.
(h) Societally conscious–those who have a high sense of social responsibility and want to improve
conditions in society.
(i) Integrate–men and women who are fully matured, psychologically and combine the best elements
of inner and outer directedness.
This categorisation of individuals is based on the assumption, that each of them goes through vari-
ous stages of development, and each stage affects their attitudes, psychological needs, and behaviour.
As mentioned earlier, while describing Maslow’s theory of the hierarchy of needs, each individual goes
through survival needs (survivors and sustainers) to affiliation and esteem (belongers, emulators, achiev-
ers) to more inner directed needs (‘I-am-me’, experimentials, and societally conscious). Very few of us
reach the integrates’ level.
Marketers direct their products and brands to the affiliation, esteem, and inner directed needs. Con-
sider, for example, the positioning of Gwalior suitings using the Nawab of Pataudi, Sharmila Tagore,
and their son. Or consider the Raymond’s suitings advertisement, showing their Managing Director,
Mr Vijayapat Singhania, wearing one of their products, after a successful solo flight. Also, the Citibank
credit card advertisement positioning the card at emulators and achievers, illustrates the use of lifestyle
in contemporary marketing.
Personality
The next psychographic variable is personality. This refers to traits that we ex-
Personality refers to
hibit in our relationship with others. It also refers to psychological characteristics
psychological characteristics
of individuals that lead them to relatively consistent and enduring responses to
of individuals that lead them
their environment. Based on these explanations, people are described as warm,
to relatively consistent and
enduring responses to theirloving, caring, outgoing, extroverts, introverts, aggressive, non-responsive,
environment. confident, and so forth. Personality, again, provides a useful understanding of
consumer behaviour and products and can be designed to suit different personal-
ity profiles. In personal selling, the salesperson has to adapt his or her selling style to the customer’s
personality.
Thus, in contemporary marketing, psychographic factors play a more important role than just the
demographic variables. In fact, tomorrow’s marketing in India is increasingly becoming lifestyle today
marketing.
Exhibit 6.3 AIO Categories of Lifestyles
Activities Interests Opinions Demographics
Work Family Themselves Age
Hobbies Home Social issues Education
Social events Job Politics Income
Vacation Community Business Occupation
Entertainment Recreation Economics Family size
Club membership Fashion Education Dwelling
Community Food Products Geography
Shopping Media Future City size
Sport Achievements Culture Stages in life cycle
TOOLS TO STUDY BUYER BEHAVIOUR
LO7 It is important for the marketer to regularly study buyer behaviour. The dif-
Describe tools to ferent tools available to him or her are:
study buyer behaviour
Surveys
This is the most common technique used in studying buyer behaviour. It involves the use of question-
naires. Different scaling techniques like Likert and Thurstone are used to measure consumer attitudes.
These have been discussed in Chapter 5. The problem with survey methodology is that it gives to the
marketer, only conscious responses of the customer. Often these responses are guarded and may even
be prejudiced.
Projective Techniques
To throw the customer off his or her conscious level and to get to know sub-conscious level responses,
projective techniques like word association, picture association, and thematic appreciation tests (TAT)
have been used. Increasingly, the marketer is turning to these qualitative techniques, as they provide
valuable information on his or her product or brand, as perceived by the target customer group, and
also about the customer’s lifestyle and self concept.
Focus Group Discussions

This is another qualitative technique used to assess how customers perceive the product and use situa-
tions. It also provides the marketer with valuable information on the target market.
SUMMARY
Customer is a reason why an organisation exists. It is important to understand the customer. For this
purpose it is necessary to first explore the myths of consumer behaviour. Since buying on internet
is gaining prominence and has become the new order, it is important to understand how and why of
online consumer behaviour. Today technology is influencing consumer choices and engagement with
the brand. Consumer’s purchases can be categorised as high involvement or low involvement. The
concept of involvement is based on the consumer’s perceived risk in purchase decision or situation.
The buying situation can therefore be categorised by either extensive problem solving or modified
problem solving or straight rebuys. Higher the involvement bigger is the perceived problem and
hence extensive is the problem solving behaviour. The motivation to buy can be categorised as eco-
nomic and non-economic. Multiple roles are visible in customer decision making. These roles vary.
It is not necessary that each of these roles is played by a different individual. It could be that two or
three roles may be played by the same individual. For example the role of a decider and buyer could
be played by a parent while initiator, influencer and user may be played by the child for whom a toy
or a game is to be bought. Each of them, especially user, decider and the buyer may seek a different
value in a purchase. These values can be categorised under two heads namely (a) universal (b) per-
sonal. The consumer decision making process involves need recognition, development of decision
criteria, search for product or brand alternatives, evaluation of these alternatives and finally decision.
Several influences impact buying decisions. These are cultural, social, opinion leadership, demo-
graphic, urbanisation, self-concept and psychographics. In order to understand the buyer behaviour,
firms can use surveys, projective techniques or focus groups discussions.
POWER POINTS
1. In order to understand the consumer buying behaviour, it is necessary to understand the devel-
opment in the market. (LO1)
2. There are myths about the consumer behaviour which need to be understood. Some such myths
are that consumers are rationale and think in a linear manner, they can explain their thought
and behaviour, their memories are sharp, that they think in words, that culture and society has
to believe the marketer’s messages. (LO2)
competition. (LO2)
social networks. They are urban males and generally fall under the high income category.
Convenience, availability of product range and prices of all competitors are motivations for
online purchases. (LO3)
5. Buyer behaviour differs across product groups and hence it is necessary to know that consumer
products can be categorised into high involvement and low involvement products depend-
ing upon the time spent by the buyer in considering the alternatives. Thus, the time factor is
dependent on whether a product represents high cost–high risk situations to the customer and
(LO4)
-
sion criteria, and his or her ability to evaluate and select on the basis of this criteria. (LO4)
7. The buyer is motivated by economic and psychological factors. Economic factors involve
understanding the marginal utility theory, while understanding the consumer’s psychology
Contemporary marketing strategies of leading consumer product companies are based on un-
derstanding these motives. (LO4)
8. A number of individuals are involved in a consumer decision process and each of them plays
is important to note, that the people who play these roles seek different values in the product
or service. These values, which may also be referred to as market value are the potential of a
product or service to satisfy customers’ needs and wants. (LO5)
9. The consumer decision making process depends on a customer’s level of involvement in the
product. High involvement products often demand more customer time. It is not necessary,
that all the brands, that the customer is aware of will be considered by him or her for buying.
All those brands that are considered are a part of the ‘consideration set’ and the brand decided
is the ‘decision set’. Normally the purchase should be of this brand only. But it may change
because of competition activity at purchase outlets or due to the non-availability of the selected
brand at the purchase outlet. In the case of low involvement products, the customer spends the
least time in searching for alternatives, or for that matter, in evolving decision criteria. (LO5)
and life style of target customers. (LO6)

11. Various tools to study buyer behaviour are surveys, projective techniques, and focus group
discussions. (LO7)

1. Samsonite has introduced a new range of luggage. Available in multiple colours and sizes, it
is targeted for urban young consumers. This range is now being introduced by Samsonite in
-
consumer. (LO1, 2 and 3)

2. Tanishq today faces competition from multiple jewellery brands like Malabar and diamond
Tanishq should know to retain its customers? (LO4)

3. Develop a decision making matrix for purchase of paint by a middle-class urban consumer.
(LO5)
4. Renault launched sometime back SUV under the brand name ‘Duster’. This was launched on
(LO6 and 7)
CHAPTER
ORGANISATIONAL BUYING
BEHAVIOUR
7
LEARNING OBJECTIVES
LO1 Describe the concept of value and value maximisation in organisational purchase
LO2 Distinguish between an organisational buyer and consumer
LO3 Interpret the buying situations
LO4 Describe the impact of technology especially ICT on organisational purchase
In Practice
Vendor Development—The Case of Tata Motors
Tata Motors have been at the forefront of innovations and creating new market segments. This
has had implications for the vendors of Tata Motors who also had to design their components.
This required understanding the vision and the strategic goals of Tata Motors as also the devel-
opments in the markets which Tata Motors served or intended to serve. For example, when Mr.
Ratan Tata announced `1 Lakh car in 2003 for an Indian middle class family, he imposed the
limits on the engineers and the development team for new product development. The engineers
at Tata Motors worked on the engine design and car engineering. The Italian design house
I.D.E.A was mandated with the styling. In making of an automobile, components play a critical
role and hence the significant role of the vendor for no company manufactures all the compo-
nents. They are generally outsourced. In the context of Tata Nano, vendors like Bosch and MRF
had to pare their margins and reduce substantively cost of production. At the most conservative
level breakeven was expected after three to four years. The vendors had to not only now look
for cost reduction exercise but also the product design itself. For example, MRF had to redesign
the tyre to bear extra weight on the rear wheels. While the steering shaft manufacturer had to
design a hallow shaft which would help Tata reduce the cost.
Another classical example is that of Bosch which developed a 35 AMP generator that weighs
11 pounds instead of the normal 40 AMP and 13 pound unit. In other words Bosch adapted a
Organisational Buying Behaviour 179
motor cycle starter for Nano which helped company economise on weight. It also shrank the
electronic chip and its housing.
Many other such developments in other components, led by different vendors, helped Tata
Motors achieve the goal of producing a `1 lakh car.
INTRODUCTION
Organisational purchases are complex decisions influenced by their markets. As we saw in the Tata
Nano case, the decision to produce a `1 lakh car was largely influenced by the surging middle class
population which wanted a safe transport to commute for work or holiday or just leisure. Besides,
rational factors like fit with their product specifications, price, payment terms and mode of payment,
availability and service also play an important role in organisational customer’s decision. Marketing
to organisations therefore require an understanding of the buyers objectives, markets in which organi-
sations operate or intend to operate, price sensitivity in these markets and other needs in respect of
product and service. In other words, understanding organisational customers and linking the product
to the organisations customer value chain can help the marketers achieve the sales as also the return
on investment. In a competitive market situation, marketers also need to have information on the cost
structures of other vendors. This is because the organisational buyer today negotiates on the strength
of such information.
This chapter will help in your understanding the dynamics of organisational purchase decisions and
in turn the marketing tasks.
How Does the Indian Industry Buy?

As was mentioned in the earlier chapters, Indian industry today faces the most significant challenge
to its survival. The industrial environment is today far more complex and uncertain than it was in the
90s. This is equally true for companies operating in different markets, all over the world. Lowering
of entry barriers has led to global competition, shrinking customer base, and declining profit margins.
Firms are today looking for opportunities to drastically cut down their costs, streamline their opera-
tions, and connect better with their customers. It is in this context, that one has to consider the changing
dynamics of organisational buying. In several researches done for different corporates, it was found
that industrial buyers today, consider the following factors (ranked according to their importance) in
their decision making.
Factors Involved in Industrial Buyer’s Decision Making Process
Continuous and Reliable Product Performance Here the emphasis is on the product performing
to the customer’s satisfaction, every time that it is used. In a way, here the customer’s concern is to
maximise his benefits from the product or, in other words, optimal utilisation of the product throughout
its life. Hence, increasingly, industrial buyers are looking at parameters like MTBF (mean time between
failures) and MTR (mean time to restore) in the case of a breakdown. Customers today demand compli-
ance with national and global standards.
Guaranteed Delivery Organisational buyers today demand that suppliers manage their deliveries.
In specific terms, organisational buyers are expecting suppliers to deliver the right product mix, in the
right quantity, as per the committed time schedule. Increasingly, Indian buyers are realising, that if they
do not manage their supply chain, they will be out of business. While at one end of this chain is the
customer, at the other end is the supplier of goods and services. The Indian buyers desire to have lower
inventories of consumables. Hence, sellers have to manage their distribution function more effectively.
Technology Fit Product obsolescence is far more rapid today, thereby reducing its life cycle. Like-
wise, technology life cycle is also short. This has an implication for new product development. Increas-
ingly, industry find that the time available for breaking even and recovering investment in new product
development is reduced and in most cases halved. This is especially true in electronic industry. The end
product also undergoes a design change. It may even happen that the market conditions of the producer
or the manufacturers, as reflected by Tata Motors example may induce a design and production process
change in the component manufacturer also. Hence, vendors have to now invest in research and devel-
opment and in most cases connect to their customers’ needs.
Price Price is an important component of decision making. Organisational buyers are now price sen-
sitive and hence look for suppliers who offer them the above three requirements, at the lowest price.
Supplier costs, credit terms, payment terms/mode, and even financial arrangements offered by them go
a long way in the buyer’s decision to place an order with the supplier. It is for this reason, that suppliers
strike an alliance with financial institutions, who offer necessary credit to the buyer. This is particularly
true in the context of large capital projects, like those in the infrastructure sector.
Service Industrial buyers now demand better quality after sales service. Service has come to have a
new meaning. It is not just repairs and maintenance of an equipment in the shortest time. It also includes
complaint management and being continuously available to the customer, like online (this includes
customer service offered through toll free 1–800 numbers in India). Also through company websites
and other company operated intranet, wide area networks (WAN). It may also mean giving guidance
to the customer in his operations.
Company Sales Force Last but not the least, Indian buyer firms expect the supplier sales force to
be knowledgeable, available, and willing to help him resolve his problems. It is in this context, that
today industrial buyers expect cross function teams from suppliers to visit them. This is particularly
useful in technology products, where supplier’s operations team can help explain product features and
also resolve application problems.
Transparency Organisational customers are today demanding greater degree of transparency from
their suppliers. They wish to understand the cost structure of their suppliers. They also want suppliers
to tell them about their operations including research and development, besides, making a disclosure
on the relationship that they may have in the organisation. Industrial groups like Tata and many other
multinational groups and now even the governments are wanting a greater degree of transparency in
their dealing with their suppliers. This is widely visible in the context of public sector undertakings
and government and semi-government organisations. This shift and a growing need for transparency
have emerged from an increasing usage of Right to Information (RTI) Act. Today all public institu-
tions are required to disclose their product requirements, suppliers and the price at which they bought
on the website or to those who seeking the information. Ethics in organisational marketing, especially
marketing to the government, semi-government and other public institutions is today critical. The law
also today requires disclosures and ethical conduct between the buyer and the seller.
VALUE MAXIMISATION IN ORGANISATIONAL PURCHASE
LO1 Hierarchy of Customer Values

Describe the concept Indian corporate buyers today are value seekers. It is
of value and value The threshold level values
important to note that competition, technology, and
maximisation in need fulfilment at the most
complexity in the customer’s environment, are con- basic level, before the
organisational stantly changing the customer’s value sets. It is in marketer is even considered
purchase this context, that one has to keep in mind, the dy- as a probable supplier.
namic character of the values sought by organisa-
tional customers. Further, these values can be arranged in a hierarchy; with the anticipated value set, at
the bottom end of this pyramid, comparable to the ‘start line’ in a cross country race. These are the
threshold level values, needing fulfillment at the most basic level, before the marketer is even consid-
ered as a probable supplier.
At the next level are desired values, which in a way reflects the customer’s Desired values reflects the
desire for the supplier to augment his offer. This is the ‘plus’ dimension of the customer’s desire for the
supplier to augment his offer
offer. Today, Indian companies and foreign firms, are increasingly working to-
while, the unanticipated
wards creating and satisfying this ‘desired value set’. Most successful companies values imply values which
do not stop here. While the customer’s anticipated and desired set of values are even the customers are not
influenced by his environment and knowledge, customised companies know consciously aware of.
only too well that they need to go beyond this level to what we call ‘unantici-
pated values’. These are values about which even the customers are not consciously aware. However,
these values exist at the latent level. The development of the Walkman by Sony, Windows by Microsoft,
and mobile communications by Motorola are examples of companies that catered to the customers’
unanticipated values. These values are shown in Figure 7.1.
Figure 7.1 Hierarchy of Customer Values

As one may infer from this pyramid, customers always first try to satisfy their anticipated values
before climbing up the hierarchy. To satisfy these values, firms re-engineer their products and processes,
perform to customer defined standards, offer attractive incentives to the decision maker, and create
a brand image. They also train their sales and service personnel to be customer friendly. The range
of these values, as mentioned earlier, are continuously getting enlarged, largely due to competition.
The most interesting aspect of this value hierarchy is that once a firm in the industry, responds to the
customer’s unanticipated value, the latter comes to anticipate the same from all other firms within the
industry. For example, a firm may pioneer a 24 hours ‘service shop’ concept such that the customer can
log in his service request, any time of the day and be serviced immediately.
This concept is based on the assumption that the customer’s service need may occur at any time of
the day, especially in the context of the industrial buyer, and he expects it to be attended to, immedi-
ately. Now, the customer comes to expect this 24 hours service shop from all vendors in the industry.
Information technology further builds up the customer’s anticipated values. In the same example, the
pioneer firm may provide on-line service support to the customer.
Thus, this value hierarchy is a continuous and evolutionary process. When a
Satisfaction of desired values firm seeks to measure how well a customer is satisfied at the anticipated level
creates a delighted customer, from its offer, it measures customer satisfaction. In a competitive environment,
but it is the unanticipated
value satisfaction which
a satisfied customer is no guarantee for future success and customer retention.
bonds the customer to the Satisfaction of desired values, creates a delighted customers, but it is the unan-
organisation. ticipated value satisfaction which bonds the customer to the organisation. The
former is an output of filling the gaps left by competitors. But the latter is a
function of innovation based on the concept of feed forward.
IN FOCUS
Feed Forward
Feed forward is different from feedback, which is more in the nature of post mortem and hence reactive.
Feed forward involves analysing structural changes in the market and their implication for the company’s
marketing mix. It is this form of analysis that drives an innovative firm’s R&D, manufacturing, vendor de-
velopments, and other elements of operations. Another route to feed forward is the analysis of customer
complaints.
Value maximisation is a process and not an end. This process has a start line but no finish line. The
quality journey, the strategy of six sigma, business process re-engineering, R&D, distribution, and
service alternatives are just some of the key milestones in this process. Research showed that Japanese
and Southeast Asian suppliers were preferred over Indian suppliers, only be-
The value maximisation
cause the former were far ahead in the value maximisation process.
process involves linking the
customer’s value hierarchy
The value maximisation process, as shown below, involved linking the cus-
with two key corporate tomer’s value hierarchy with two key corporate processes—product and service.
processes—product and These are important, because they are the principal tools by which all companies
service. reach out to their customers. As can be inferred, customerisation is a corporate
process and not just another fad. It involves top management commitment and
leadership, which believes in gaining competitive advantage through customer bondage. In other words,
the strategy of customerisation involves going back to the basics—the customer.
Exhibit 7.1 Value Maximisation Process
Corporate process
Customer values Product Service
● Anticipated Values
● Performance guarantee ● Six sigma ● Service standards
● Service penalty
● Extended service
● Consistency in performance ● Technology-oriented service ● Brand and corporate image
process
● Supply chain management ● Service provider’s
performance
● Internal linkages review and
reward processes
● Convenience in:
● Selection ● Purchasing information ● Presale guidance
● Availability ● Real time distribution ● Technology
● Empowerment of customer
personnel
● Location of service outlet
● Use ● Training ● Spare part management
● Disposal ● Elimination/upgrades ● Valuation of existing
equipment
● “door step” disposal
● Economical price ● Cost driver elimination ● Annual maintenance contract
● Regularity of service calls
● Desired Values
● Information on industry ● Product applications practices ● Newsletters and other
customer customer communication
media
● Zero down time ● Six sigma ● Customer empowerment
● Information technology
● Assistance in cost leadership/ ● Cost driver elimination R&D ● Minimise/eliminate service
differentiated leadership moments
● Unanticipated Values ● Innovation ● Innovation
ORGANISATIONAL BUYER VERSUS CONSUMER
LO2 The most critical input in the value maximisation process is a sound under-
Distinguish between standing of organisational customers, their decision making process, and
an organisational the dynamics of their environment. To better understand an organisational
buyer and consumer buyer, let us first explore the differences between such a buyer and the
household buyer.
Factors Differentiating Organisational Buyer from a Household Buyer

Buying Motives The starting point of understanding the difference between a household buyer
and an organisational buyer, are their buying motives and purposes. While the former buys for his/her
own consumption, the latter buys primarily for adding value to the product, which is then sold to an-
other customer. It is in this sense, that the organisational buyer’s demand is a derived demand. In other
words, demand of a product is based in turn, on the end user’s demand. Consider, for example, the
demand for transmission gears in the automobile industry. For the gear manufacturer, the demand for
his transmission gear is based on the automobile firms’ production plans, which
Organisational customer’s in turn is based on customers’ demand for automobiles and environmental fac-
motives are more rational tors, like government taxation and fiscal policies. The gear manufacturer’s de-
than psychological, while
mand for steel forgings, in turn, is dependent on his production plans. At times,
household customers’
buying motives are primarily the organisation buys a product for its own use. Consider, for example, the case
psychological. of office products like typewriters, computers, fax machines, franking machines,
furniture, and copiers. Here, the firm buys these products for using them to im-
prove its own efficiency and work environment. The organisational customer’s motives in buying the
product are:
(b) economy
It is in this sense, that an organisational customer’s motives are more rational than psychological.
This is just the opposite of household customers whose buying motives are primarily psychological.
Figure 7.2 shows the needs mix for the organisational buyer and household customer.
Thus, organisational purchase decisions are primarily rational. However, psychological motives are
also important. One of the most critical psychological factors, is the past experience of the buyer with
the supplier and the extent to which the supplier has taken care of the buyer’s esteem need. When all
suppliers are comparable on product specifications, technology and the level of after sales services, the
cutting edge between one supplier and another, is often who understands the buyer better and satisfies
the organisational buyer’s needs.
In B2B marketing, a more

Size of the Buyer Organisational buyers are few, but are much larger than
focussed marketing strategy household customers and they purchase in bulk. The household buyer is rela-
with an emphasis on personal tively smaller. Retail buying is common in the household segment. Generally,
selling is used, as opposed even in the case of small organisational buyers, the annual purchase budget will
to consumer marketing run into several lakh of rupees; but in the case of even large household, purchases
where trade channels and will generally never exceed a few thousand rupees.
mass communication become
important pillars of marketing Risks in Purchases As evident from the above, the risks in organisational
strategy. purchases are much higher than in household purchases. The organisational
Figure 7.2 Needs Mix in Buying Decisions
buyer always looks for alternatives that will help him reduce these risks. Previous experience with the
supplier, vendor image, and the supplier’s standing within the industry are some of the factors that help
the organisational buyer reduce risks in buying decisions.
Concentration of Buyers Organisational buyers are generally concentrated in the same geo-
graphical area, as opposed to household buyers, who are spread all over the country. Consider for
example, the case of Pitampur near Indore, in Madhya Pradesh. Invariably, all leading automobile
firms have put up their manufacturing plants there. This area was proposed to be developed as India’s
Detroit. For an automotive tyre manufacturer like MRF, all customers are located in one geographical
area. But for the same automotive tyre firm, customers for replacement tyres are spread all over India.
Car, scooter/motorcycle, truck, and tractor customers are spread all over the cities and rural areas of
India. Hence, MRF uses a direct personal selling approach for automakers and mass communication
(like advertising in mass media) and a dealer network to reach the consumer market. Thus, in business-
to-business marketing, a more focused marketing strategy with an emphasis on personal selling is used,
as opposed to consumer marketing where trade channels and mass communication become important
pillars of marketing strategy.
Organisational Purchase Decisions are Joint Since the costs and risks involved in organi-
sational purchases are high, these decisions are taken jointly and involve several individuals. As we
shall discuss in subsequent paragraphs, a number of individuals are involved in the decision making
process in an organisation. This is different from a household customer where individual decisions are
still prevalent, particularly in the case of consumer non-durables.
Adherence to Specifications Organisational buyers want suppliers to rigidly adhere to speci-
fications laid down by them. The reason is that buyer efficiency, product quality, after sales service,
market share, and ROI are greatly dependent on the supplier’s ability to adhere to specifications laid
down by him. The organisational customer does not accept deviations from these specifications. The
household buyer is not really rigid about his/her specifications. The consumer is willing to accept
substitutes. It is for this reason, that in consumer marketing, brand switching and brand substitution is
high, while in industrial product marketing vendor loyalty is relatively high.
Organisational Customer
Who Constitutes an Organisational Customer The next factor to be considered is who
constitutes an organisational customer. Are they only business firms? Today, the term organisational
customer refers not only to business firms but also to the government retail institutions, other service
institutions like universities, colleges, financial firms like banks, and social organisations like the
Red Cross, Family Planning Foundation, and others also come under this category. Thus, the scope
for marketing to institutions has been significantly enlarged and offers a challenge to the marketer.
Once again, let us consider the example of MRF. The company’s customers include, besides the above
mentioned ones, the government and its agencies which need auto tyres for their vehicles. Defence
is an important government department, needing auto tyres. Municipal corporations as well as state
transport undertakings (STUs) too need them for their vehicles. So, for MRF the challenge is not
only to remain a leader in auto manufacturers’ purchases and in the replacement market for consumer
purchases, but also for the government and its several agencies.
What is Sold to an Organisational Customer The organisational buyer purchases several
products. These can be categorised into three major groups.
(b) spare parts and components

(c) consumables like raw material, packaging material, lubricants, and so forth
We need to appreciate that the cost and risks involved varies across these product groups. It is the
maximum in capital goods and minimum in consumables. Besides, consumables are repeat purchases
and are often bought at regular intervals. But, spare parts and components are bought less frequently
and are generally ordered only when the minimum re-order level has been reached in the store. Capital
goods are bought even less frequently and are generally purchased following an expansion, diversifica-
tion, or upgrading decision. Following this pattern of purchases, one may anticipate a higher degree of
vendor loyalty in the case of consumables rather than in capital goods, where vendor credibility in
completing a project in a specified time period becomes a determining factor.
The marketer needs to be aware of the fact that in consumable purchases, the
In consumable purchases, customer will always look for substitutes that can help him reduce costs. Con-
the customer will always look
sider the case of a soft drink company, where packing cost is high because of the
for substitutes that can help
him reduce costs. usage of glass bottles and the inevitable losses due to breakage. This soft drink
firm will always be on the look out for alternatives, that will help it reduce its
packaging costs. So plastic bottles, tetrapacks, and even composite cans for juices may be considered
by the company. The glass bottle manufacturer, in his own way, will have to continuously look at ways
and means by which he can reduce the cost and pass the benefit on to the soft drink firm and other
breweries. So, the marketer here, has a dual role—(a) help the customer reduce his costs and make him
competitive, and (b) maintain excellent relations so as to know the substitutes, with which the client
firm is experimenting.
Buying Centre
We mentioned earlier, that organisational purchase decisions are joint decisions. All individuals, who
participate in decision making are referred to as the decision making unit (DMU). To be part of a DMU,
it is important that the concerned individuals have a common goal and share the responsibility for the
decisions. These individuals, may or may not be a part of the buying organisation—like an external
consultant—but play a key role in the decision making process. Also, these individuals may directly or
indirectly be involved in the decision making process. For example, a foreman in the factory may not be
directly involved in selecting a furnace or furnace oil. But his familiarity with a particular brand, make
or model, and his criterion for using the product will play an important and critical role. His view may
be expressed in the purchase committee meeting by his superior, may be the works manager.
The marketer should identify all the DMUs in the client organisation and understand the expectations
and parameters on which vendor recommendation will be done by them. All these DMUs will then
constitute the buying centre.
Roles in the Buying Centre Individuals play different roles in the buying centre. These roles
are:
Actual User Actual user is a person, who actually uses the vendor’s product.
The actual users in a
These people are typically ‘shopfloor’ individuals. They could be foremen and
buying situation are technical
workmen in a factory, lab technicians and chemists in a chemical firm, and personnel, for whom the only
programmers in a software firm. These people often lay down product specifica- considerations are hassle free
tions. They also lay down service requirements and more often than not, even the production and familiarity with
training requirements. They are technical personnel for whom the only consid- machines and processes.
erations are uninterrupted hassle free production and familiarity with machines
and processes. The actual user is also an indenter of goods and services.
Influencer Influencer is a person or persons who may or may not be part of a customer organisation,
but whose opinion is valued significantly by the customer. Within the organisation, the actual user plays
the influencer’s role. Outsiders, like consultants, also play a significant influenc-
ing role. For example, in buying a switchgear panel, a panel designer plays a Influencer is a person/s
who may/may not be part
significant role. Likewise, in a construction project, the architect plays an influ- of a customer organisation,
encing role in determining the grade of cement to be bought. but whose opinion is valued
Decider Decider is the person who actually takes the decision to buy. The significantly by the customer,
while the decider is the
decider will invariably consider both the technical and economic factors in
person who actually takes the
decision making. Thus, he will consider commercial terms like price, payment decision to buy.
options, delivery schedules, and so forth. In choosing a vendor, the general rule
is that the level at which the decision will be taken is based on cost and perceived
risks associated with a decision. For example, the higher the cost and risk, the Buyer is a part of the
higher the level at which the decision will be taken, or vice versa. purchase/materials
department, for whom on-
Buyer Buyer is the person who actually buys on behalf of the organisation. time delivery is the critical
This person or department is typically known as a purchaser or buyer. He is part factor, while gatekeeper
of the purchase or materials department. For the buyer, the most critical factor is is one who facilitates the
on-time delivery as he does not want to spend sleepless nights, due to uncertain flow of information in the
organisation.
deliveries.
Gatekeeper This is often a critical role and is played by an individual who facilitates the flow of
information in the organisation. This role could be played by a receptionist, a secretary to the DMU, or
even by a finance person. The gatekeeper is an important source of information. To him/her, technical
or economic parameters are not at all important. It is therefore critical that the marketer understands
who is playing the gatekeeper role, and make him/her his ‘salesperson’ inside the organisation.
It is important for the marketer to understand these roles, and identify individuals exhibiting such
behaviour in the course of the purchase negotiations. It is also important to understand the influence
each individual exercise in the decision making. Not all will have the same influence even though they
may be involved in the purchase process. What is also important is to note that the influence an indi-
vidual will exercise will vary depending on the purchase situation and his knowledge on the particular
subject.
Buying Criterion
We mentioned earlier, that a decider has to consider both the technical and commercial aspects of a
purchase decision. In other words, the buying criterion is based on these two critical factors. But there is
the third factor to this criterion, which is the individual. Self esteem or ego also plays an important role.
Technical criteria include factors like product performance, product life, guarantee and warranty,
after sales service, training, wherever required, vendor image and track record. Commercial factors
include price, payment options including credit terms, and delivery schedules. Each DMU looks for
one or the other or both in a buying proposition. But all share one need—esteem. The expectations of
each DMU in a buying decision are summarised in Exhibit 7.2.
Exhibit 7.2 DMU in Buying Centre—Expectations from a Vendor

& Warranties
Performance
Expectations
Consistency
Guarantees
After Sales
Consistent
from
in Quality
Terms of
Payment
Delivery
Product
Vendor
Service
Esteem
Vendor
Terms
Image
Price
DMU
Actual User
Influencer
Buyer
Decider
Gatekeeper
(Ticks [ü] indicate expectations)
Decision Making Process

The organisational buyer’s decision making is an eight stage process. These stages have even been
termed as buy phases. They are:
Need Recognition This is the stage where the customer perceives a need for a product. But the
exact specifications of the product are generally not defined at this stage. Typically, this is the stage
where the customer has a problem and is looking for an acceptable solution. These problem definitions
may emanate from concerns like cost reduction, better efficiency, and higher productivity.
Product Specification Here, the customer is more specific about what he is looking for. He lays
down specifications for the product he wants. He also spells out the service requirements.
Laying down Qualifications for Potential Vendors At times, organisational buyers lay
down the technical and commercial qualifications for potential vendors. This is one of the ways by
which buyers are able to screen out a large number of vendors, who may not be able to meet their
requirements.
Inviting Proposals from Qualified Vendors This is the stage when proposals, often sealed,
are invited from qualified vendors. This invitation is either an open tender notice for all pre-qual-
ified vendors or the supplier may float an enquiry or seek proposals from only a few pre-qualified
vendors.
Evaluating the Proposals The proposals are evaluated for their technical content and capability
to meet the customer’s requirements.
Selecting the Vendor Once the technical evaluation is complete and vendors shortlisted for
final selection, the proposal is commercially evaluated. Vendors, too, are now assessed more closely
on their competence in meeting customer requirements. This is the stage where negotiations often
take place. Having evaluated and negotiated, the vendor is then selected. In actual practice, the buyer
generally selects two vendors so as to ensure uninterrupted supplies. He apportions the order between
the two.
Determination of Order Size and Placement of Order During this stage, the buyer
determines the size of the order lot. In case, the product in question is a raw material or any other
consumable, this stage will involve determining specific quantities the customer wants at specific time
intervals. But if the customer has selected two or more suppliers, he may choose to apportion the order
among them at this stage. Actual placement of order is also a part of this stage.
Review and Feedback This is a very critical stage for the seller. Generally, the buyer reviews the
performance of the vendor/s and also obtains a feedback from all the departments using the suppliers’
products. The buyer then gives a feedback to the seller, by either repeating his purchase, reducing or
increasing the quantity of material purchased, or may float a subsequent enquiry only to those suppliers
who have lived up to his expectations. Since the repeat purchase is going to be based on these reviews,
it is important that a vendor gets a positive feedback.
BUYING SITUATIONS
LO3 Not all buying situations are identical. There are three buying situations that
Interpret the buying exist in organisational buying.
situations
Straight Rebuy
This is a buying situation, where the customer generally repeats his choice. Characterised by vendor
or source loyalty, the buyer generally repeats the order specifying product type and commercial terms.
On a closer examination, this buying situation is generally marked by ‘order size determination’ or
‘review and feedback’ buy phases.
Modified Rebuy
This occurs when customer requirements change, either in terms of quantity or product type specifica-
tion. This also occurs, when a new competitor enters the market, offering the product bought by the
customer at a price lower than that of the existing vendors or at terms more favourable than those of
existing vendors. For example, following liberalisation, a large number of suppliers from Taiwan and
Hong Kong offered a whole range of chemicals, petrochemicals, and steel at prices lower than those
of their Indian counterparts. For the customer, the buying situation is now a modified one. In modified
rebuy, customer decision goes through buy phases, from vendor qualification to review or feedback.
New Task
This buying situation is characterised by the first time purchase of a product. Since the customer does
not know the specifics of his requirements, and has yet to evolve a buying criterion, this buying situa-
tion involves considerable customer time and an extended search for alternatives. Obviously this is the
situation where all eight buy phases come into play.
A marketer has to be aware of these buy phases and buying situations as well as the relationship
between the two. For example, if the buying situation is a straight rebuy and he has been the supplier,
he must then ensure that he has a positive feedback. This will involve maintaining delivery schedules,
continuously monitoring different DMUs’ feedback, and building a cordial business relationship. But,
if the marketer is a new supplier wanting to replace the existing one, he must determine the factor(s)
on which substitution could be made. This may involve offering tangible benefits in the new product,
in the form of lower wastages, cost benefits, or giving a longer shelf life to customer’s products. In
any case, the challenge to a new marketer is to convert a straight rebuy situation into a modified rebuy
situation.
Influences on Buying Decisions

Most organisational purchase decisions are influenced by the firm’s external and internal variables. For
example, the fiscal policy of the government has a direct influence on the organisational customer’s
decision to buy a product. The Government of India’s policy of reducing import duty on consumer
goods and the emergence of a strong middle class market in the country, sent all companies, either
looking for collaborations with major brands in the world market, or diversifying/ expanding their
existing capacities. In either situation, demand for basic commodities like steel is going to increase in
the future. Further, industrial buying will change, depending on whether the economy is going through
a boom or a recessionary phase.
Variables Influencing Buyer Decisions There are four major variables influencing buyer
decisions:
(a) environmental
(b) organisational
(c) interpersonal
(d) individual
These influences are shown in Figure 7.3.
Figure 7.3 Influence on Buying Decisions
Environmental Variables A very important determinant in organisational purchases is the envi-

ronmental factor. This includes, besides economy and government policy, factors like competitive
developments in the industry, rate of technological change, and the value of money. For example, if
the buyer perceives that the government is likely to increase taxes, which will in turn increase the price
of a crucial input, the buyer may resort to buying more of the material and holding its stock. Likewise,
if the buyer anticipates new competition with better technology, he may not repeat his entire purchase
order with the existing suppliers. To avoid such problems, both buyer and seller often engage in short
term (up to 3 months) or long term (1 year) buying arrangements.
Organisational Variables Internal variables, like culture and environment of an enterprise affect
buying decisions. For example, most Indian family-owned firms have a centralised structure, where
purchase decisions often require the family’s consent. This can (and often does) delay purchases and
sometimes even affect the firm’s capability to compete in the market. As opposed to this, a decentralised
structure allows for quicker decisions. Further, purchases may be either centralised or decentralised at
even the departmental level. Policies like inventory holding and procedures like payment or bidding
also influence buyers’ decisions.
Interpersonal Variables The buying centre usually involves several individuals with varying formal
authority, status, and persuasiveness. The marketer needs to know, who exerts the maximum authority
and is able to persuade others to agree with his viewpoint. A knowledge of group dynamics helps the
marketer evolve his strategy on selling to the buying centre.
Individual Variables Even though there are several individuals, organisational factors, and environ-
mental variables affecting buyers’ decisions, at the end it is a human decision, involving the individual,
that matters. It is important that the marketer has complete personal details of all individuals who are
involved in the decision making process, because personal factors like age, income, education, job posi-
tion etc., are likely to affect individual perception, motivation, and preference. Let us take the example
of a case, where a young (20–25 years) salesperson had to deal with an elderly (55-60 years) customer.
The customer found it difficult to accept that a young boy had the knowledge and authority to explain
technical details of computers and networks. Since the buying organisation was an important client,
this young salesperson reported his problems to the marketing manager, who then called on the buyer
along with his director (50–55 years) and the salesperson. The director asked the young salesperson
to make the presentation and thereafter negotiated the deal with the buyer. They got the order because
the buyer could relate himself better to the ‘old and seasoned gentleman’ than the young, smart ‘brat’.
It is therefore important that the marketer be aware of all these buying influences. This is why ‘buyer
intelligence’ has become an important part of the industrial marketing strategy. This also proves the
importance of data mining and warehousing in industrial marketing.
IMPACT OF TECHNOLOGY ON ORGANISATIONAL PURCHASE
LO4 Impact of ICT on Organisational Purchase Decisions

Describe the impact Today, managing costs is imperative for any organisation. Increasingly
of technology the competitive position of enterprise is being challenged by firms with
especially ICT more efficient products and better cost structures. Technology, especially
on organisational Information and Communication Technology (ICT) is a focal point of most
purchase organisations’ competitive strategy. E-purchasing today has gained impor-
tance and so have e-auctions. The factor that drives the firm to e-purchasing
and even outsourcing is the need to minimise transaction costs. One of the component of transaction
cost is the information and search cost. While understanding the information and search costs involved
in purchasing decision, it is important to understand how firms leverage their IT infrastructure and use it
for decisions making. It is a known case that IT reduces transaction cost thereby enabling the emergence
of more efficient organised markets and supply chain. It also reduces the unit cost of coordination and
the transaction specificity of an investment made in the buyer-seller interactions. Since such costs get
reduced, firms are more likely to rely on the e-marketplace and hence e-auctions are likely to be more
prominently visible. Firms have already created an e-auction site for the buyers to bid. E-auctions are
negotiations conducted through an online platform. Suppliers have the opportunity to improve on the
acceptability of the proposal depending on the market feedback. E-auctions are considered the most
transparent way of engaging with the customers. Some companies like BSNL, MSTC have their own
e-auction site. For example MSTC, a Government of India firm which is in the business of selling
metals and scraps, sells scrap/ obsolete stores or spares or capital equipment worth `2000 cr per year
through e-auction. Likewise buyers may call for an e purchase and hence float tender on their website,
get vendors to bid and negotiate online.
Hence, online buying and selling have today assumed significant importance. Increasingly, the
organisational customers who are looking for information in real time find ICT as a boon. Today, the
scope of ICT also includes m-purchases.
Though, ICT has permeated in organisation purchase processes, it is important to note that the actual
buying and selling still continues to be made through a negotiated process where buyer and seller actu-
ally meet. The use of internet continues to be restricted to sourcing the buying information.
A survey showed that most organisational buyers were satisfied with the brick and mortar model.
This is in contrast to the consumer marketing where there is a growing trend of consumers buying
online. Even though, e-commerce in India continues to account for 1%, e-commerce or e-buying has
gained in the last few years and is estimated to be worth `52,000 cr which has led to an increase in a
number of e-retailers in all product categories.
Research also showed that most Indian suppliers, were now better equipped to satisfy customer needs
relating to product, delivery, price, and service.
In the context of delivery, which was the bane of Indian suppliers, research showed that chances of
untimely or under delivery, as reflected by lesser quantities, poor quality, or delay, were increasingly
becoming a rare phenomenon, especially in larger firms.
Further, research has shown that one of the factors in the competitive advan-
tage of an enterprise is the availability of quality purchasing information. How- Given the pace at which
technological changes are
ever, the study also showed that this information was sometimes not reliable, in
taking place, it is important
the sense that it was not complete and was often obsolete. for the firms to manage the
Today, the most significant sources of information for making purchase deci- obsolescence in a manner
sions are the dealer and company salesperson. This research showed that both that is cost-effective, and
lacked credibility. More customers wanted information directly from the com- hence Indian firms are looking
pany or sources authenticated by the seller. Hence catalogues and company for suppliers who have
websites were perceived as powerful sources of information. ‘exchange arrangements’.
Another concern of Indian industry relates to managing technological obso-
lescence. Given the pace at which technological changes are taking place, it is important for firms to
manage this obsolescence in a manner that is cost effective. Hence, today, most customers are replacing
their old equipment with new models. Research showed that, for this purpose, most of the customers
have an exchange arrangement with their suppliers, as amply demonstrated by computer hardware and
software suppliers. In the computer industry, even the component suppliers today, need to have such
arrangements with assemblers if their latest components have to be accepted. Hence, an increasing
number of Indian firms look for those suppliers who have such exchange arrangements. This can be
seen in Figure 7.4.
Figure 7.4 Management of Used/Obsolete/Worn Out Material

Even though the potential of the Internet is today a known fact, this research showed that a large
population of corporate customers are still not using the Internet for buying or sourcing information,
as shown in Figure 7.5.
Figure 7.5 Use of the Internet for Sourcing or Buying Information
Exhibit 7.3 Experience with the Internet

Research on Net buying indicated that the expe- the information therein. 49% respondents said that
rience was not strongly in favour of the existing brand information was available on the sites while
industrial products sites. 56% of customers were 38% were unsure on the same issue. As regards the
able to connect easily to the sites that they visited viability of a B2B site, 78% customers were undi-
but 67% were unsure of the quality and quantity of vided on the issue of considering it a one-stop ar-
information provided by the sites. While 78% were rangement for all their requirements and 49% were
indifferent to the sites, 56% were dissatisfied with unsure if they would even consider buying from a
the visual appearance of the site, and 50% were un- B2B site.
sure about navigating the site and the relevance of
Thus, it may be concluded that the organisational customer today is unsure of the quality of the
various websites. This certainly affects their decision in buying their requirements from a B2B
site.
Factors Considered Important in a Good B2B Website This study also showed that
the most critical factor in a customer’s evaluation of a B2B site is the ability of the site to guarantee
delivery of a genuine product within a specified time (Table 7.1). The next factor is the site’s capability
to offer credit. Wide brand range availability was yet another factor in site evaluation. Price advantage
and convenience of purchase were other factors considered important by buyers.
Table 7.1 Experience with the Internet

(On a scale of 5 point, where 1 means strongly disagree and 5 strongly agree)
Connectivity 2.27 disagree
Content (in depth) 1.67 disagree
Broad information available for purchase 1.60 disagree
Easy to use 1.73 disagree
Lively and attractive 1.87 disagree
Easy to navigate 1.67 disagree
Relevant information available in a few clicks 1.67 disagree
Completion of transaction in a few clicks 1.13 Strongly disagree
Interactive 1.67 disagree
Usability for purchase decisions 1.93 disagree
Brand information available 2.00 disagree
Vendor information available 1.73 disagree
Consider a B2B site as one-stop arrangement 2.27 disagree
Consider B2B site to purchase part of the requirement 1.73 disagree
Based on customer responses, we can conclude that the factors considered in the evaluation of B2B
sites, in order of their importance, are as follows (Table 7.2):
Table 7.2 Evaluation of B2B Sides

Parameters Importance ranking
Ability to deliver an authentic product I
Ability to guarantee the delivery within a specified time II
Capability to offer credit III
Availability of a wide brand range IV
Convenience of purchase built into purchase processes V
Direct linkage to the manufacturer of the product VI
Wide product range available from the site VII
Implications for Organisational Strategy In view of the above research findings, it is ap-
parent that to succeed in this era of B2B or B2C marketing, firms will have to invest significantly in
creation of a positive experience in the customer’s mind. Virtual marketing grows on the basis of the
customer’s experience. This is opposed to real marketing where the effort is to create a belief about the
brand first and then follow it up with an experience which will reinforce the belief. Internet marketing
suffers from the limitation of lack of feel, touch, and trial. Hence, brand building efforts on the Net are
essentially a function of experience, especially for the Indian customer, who is so used to shopping and
bargaining before finally settling on the specific brand/supplier.
Proof of performance, is perhaps one of the crucial components of an Internet marketing effort in
the Indian market. With customer confidence in Indian suppliers, distributors, and retailers low due
to poor experiences of the past, new players on the Net have to work to prove that they can deliver.
It is in this context that creating 100% foolproof fulfilment systems acquire a greater meaning. Firms
will have to look at their entire supply chain to ensure that they deliver the promised product at the
negotiated price, time, and place. Also, they will have to invest in creating systems for settlement of
customer complaints in real time. Alliances with complementary and other members in the value chain,
also become important for the Internet marketer.
These strategic initiatives will not only create a positive brand image but also help the Internet mar-
keter to develop a strong bondage with his market. Brand building strategy on the Net today has to be
coordinated with the firm’s real marketplace strategy.
Further, for any portal to succeed in today’s fiercely competitive marketplace and create brand eq-
uity, it will have to consider issues relating to reach, accessibility, and navigability.
Also, the brand building effort on the Net can be greatly facilitated by the presence of competitors
on the search engine. This will truly enable the customer to make an informed choice.
While today, most industrial buyers in India use the Internet for sourcing information only, future B2B
actions are likely to be more Net driven. Future Net based business will not be devoid of human interac-
tions and hence new roles for the supplier’s sales team and the intermediary can be expected to emerge.
Transparency The reason e-transactions increased in the recent past is because they provide multiple
levels of transparency to the buyers and suppliers. To the buyer, it offers transparency at the following
levels.
● Price Transparency: The buyer can compare prices across multiple suppliers and select the one
that best suits his budget. However, one must keep in mind that this can lead to commoditisation
of a product, if the buyer’s only consideration is price. The fact that a buyer can compare prices
● Availability: This implies that the buyer can know the availability of a product across different
locations and different buyers. It can also empower the customer to buy from a supplier, who
offers the shortest lead time to deliver.
● Supplier’s other Product and Services: Customers can get to know about other products and
services offered by the supplier.
Finally, the buyer is able to have a better control over his own procurement process.
To the supplier, benefits accrue on account of his inclusion in the broad banding of the markets.
He is no more restricted by geographical constraints or the lack of a sales force. As long as he is able
to develop an alliance with logistics suppliers and financial institution, offer value-added applica-
tions, centred and knowledge-centric services, he can hope to maximise his profits. Further, he can
understand customer behaviour better, forecast the demand better, and thereby plan his production
better. It can help him manage his inventory of both raw material and finished goods. Other benefits of
e-enabled industrial marketing to the supplier, include benefits from customisation and lower order
processing costs. Thus B2B transactions are anticipated to be more e-enabled.
IN FOCUS
According to Warren D Raisch1, following are the future trends of e-enabled B2B marketing:
industry-backed consortia will be on the rise
equity as a tool for locking in communities of commerce
recognition that industry expertise provides real value
current focus is on a win/win value model
vertical e-marketplaces are on the rise
value is found in collaboration
e-marketplaces will substitute information for inventory
independence and neutrality are key success factors
the blend of digital value delivery and physical value delivery
timing is everything
‘co-operative liquidity’—a strategy for survival and success
cash is still king
it’s time for e-marketplaces to deliver
mine that transaction data
tech vendors add new e-marketplace features to their software
integration with legacy systems is key
universal connectivity and interoperability are key long term success factors
Given the immense benefits that Internet has to offer, one may safely conclude that future B2B
marketers will necessarily have to be net savvy. They will have to be able to use the Net, not merely to
send information to the customer, but also to customise their offer in a more competitive manner.
SUMMARY
Organisational purchases are complex and are primarily based on rational considerations than the
psychological motives. Several researches have shown that the factors considered in organisational
purchase decisions include product performance, delivery, technology fit, price, service, sales forces
attitude and reliability and transparency in purchase. The concept of value is important. In the or-
ganisational context customer values can be placed in a hierarchy. At the base are the anticipated
values. These are by and large the industry norms which the buyer expects all bidders to adhere to.
The desired values are behaviour norms which make the customer happy but are certainly not the
ones that will determine the eligibility of a bidder or a seller. For example delivery before the due
date or enhanced service levels compared with the industry norms makes the customer happy as these
are not the ones that others may offer. Hence, when a firm gives responses to such desired values
or an organisational buyer it has an advantage over other competitors. At the top end of the value
pyramid are unanticipated values. These are value propositions which perhaps the customers even
today are not able to fathom. When a firm comes up with such value propositions, it delights the
customer and subsequently the buyer comes to expect the same from all other suppliers. This cycle
of unanticipated value becoming desired or anticipated makes marketing to an organisational cus-
tomer challenging. This requires continuous innovation at the sellers’ end. These kinds of behaviour
patterns and rationale buying motives set an organisational customer apart from the consumer. The
organisational purchases are generally joint decisions of more than one individual who may play any
one or more the role of an actual user, influencer, decider, buyer or gate keeper. Organisational pur-
chases can be categorised as straight re-buy, modified re-buy or new task. The factors that influence
organisational purchase decisions are environmental, firm related, individual and interpersonal. The
impact of technology on customer purchases is significant today. Managing costs is today impera-
tive for any organisation. Increasingly the competitive position of enterprise is being challenged by
firms with more efficient products and better cost structures. Technology, especially ICT is a focal
point of most organisations’ competitive strategy. E-purchasing today has gained importance and so
have e-auctions. The factor that drives the firm to e-purchasing and even outsourcing is the need to
minimise transaction costs.
POWER POINTS
1. Customer values can be arranged in a hierarchy with anticipated value propositions at the bot-
(LO1)
2. Desired values are the propositions that augments supplier’s offer. (LO1)
3. Unanticipated values are the ones which the organisational customer is not even able to visu-
alise at a given point in time. (LO2)
4. Organisational buyers differ from consumers on the basis of their size, buying motives, and
risks in purchases decisions. Organisational purchases are joint, the organisational buyer re-
. (LO2)
5. `Buying centre’ consist of individuals in the purchase decision process who share the respon-
sibility for it. They also have a common goal. (LO2)
6. ‘Buying criterion’ refers to the parameters the buyer considers in selecting a vendor and the
product. Most often is it the rational buying motives that determine purchase decisions. But
psychological motives, like esteem cannot be ignored. (LO2)
7. ‘Buy phases’ refers to different stages in organisational buying decisions. (LO3)
environmental, organisational, interpersonal and personal factors. (LO3)

9. Technology, especially ICT is a focal point of most organisations’ competitive strategy.
E-purchasing today has gained importance and so have e-auctions. The factor that drives the
. (LO4)
10. Some of the factors considered important in a good B2B site are ability to deliver an authentic
availability of a wide brand range, convenience of purchase built into purchase processes,
direct linkage to the manufacturer of the product, and wide product range available from the
site. (LO4)

1. Take the examples from any of the following industries:
a. Telecom switch and IT hardware industry
b. Hospital supplies
c. Capital goods company like L&T and Thermax
(LO1)
2. A University wishes to buy IT and telecom products that provide end to end solutions in voice
and data. If you represent Cisco what value proposition would you put forward to successfully
win the purchase order? Prepare a proposal to the University. (LO1)
3. Based on buying centre analysis, what marketing strategy would you suggest to an industrial
values company? (LO2)
4. Based on an understanding of organisational buyer behaviour, evolve a marketing strategy to
market a switchgear project to the Airports Authority of India. (LO2)
5. Based on buying centre analysis, what marketing strategy would you suggest to an industrial
valves company? (LO2)
the same industry, for example, petroleum? (LO3)

7. One of the factors that help enhance transparency and speed up decision is the e-tender. A large
material at competitive prices. To prevent any malpractice, it wishes to go the e-transaction

(LO4)
CHAPTER
SEGMENTING AND TARGETING

8
LEARNING OBJECTIVES
LO1 Explain segmentation and the need for segmentation
LO2 Identify the basis for segmenting the markets
LO3 Describe how to segment the market and the requirements for effective segmentation
LO4 Explain targeting and positioning brand
In Practice
Fastrack Creates a New Paradigm in Youth Fashions
The Indian market today is crowded with products and brands for the young market. Almost
each brand promises to make the young consumer look trendy and ‘cool’. It is in this highly
crowded market space that Titan industries created a brand called ‘Fastrack’. Fastrack today of-
fers trendy watches, sunglasses, bags, belts and wallets. It also offers some exclusive collections
for girls like sun glasses, summer bags, speed racer and fashion bags. Its communication is in
line with the way the young communicates. Its website today communicates energy, enthusi-
asm, youthful spirit and adventure. Besides giving the details of the products, store locators it
also encourages the customer to write or comment on the blog as also network with others on
Facebook and Twitter. It uses both these social networks as also the You Tube. In keeping with
the way this market buys online, the brand is today available at some of the well-known online
stores like Flipkart, Myntra, Jabong, Watchkart, Lenskart and Bagskart. For more details go to
www.fastrack.in.
This chapter focuses on one of the most critical areas of marketing planning and strategy, namely
segmentation and targeting.
Segmenting and Targeting 201
SEGMENTATION AND ITS NEED
LO1 Definition
Explain segmentation Market segmentation is the process of dividing a heterogeneous market
and the need for into homogeneous sub-units. Consider the Indian market, which consists
segmentation of one billion people, as per the 2001 census. For a
consumer product company making toiletries, this Market segmentation is
the process of dividing a
is a big number and hence a big market. However, not all of the one billion
heterogeneous market into
people look for the same features and buy for the same reasons. When the same homogeneous sub-units.
toiletries firm looks at the census data further, it finds that there are about 438
million men and 406 million women. 64% of the men and 39% of the women are literate. This, then
is a new insight. Should the firm make toiletries for men, or women, or both? The firm also found that
74% of the entire population lived in rural areas. Given this fact, the question then is, should the firm
launch a product for rural males or females, or both, or only for the urban customer? The firm decided
to launch the product for the urban male customer. The firm also took note of the NRS V data from
IMRB (Indian Market Research Bureau) and MARG, two leading marketing research agencies, which
showed that 21% of urban households, belonged to the highest income group and 58% to the middle
income group. Given this data, the firm decided to launch a premium range of toiletries for the urban,
high income male customer.
Thus, the total population of a given market indicates only the market size. This, however, does not
indicate anything more. To succeed, a firm needs to appreciate that the market is a heterogeneous one.
And the marketer must also identify similarities, among different groups of customers.
Need for Segmentation

Careful reading of the example given below, would make it apparent that market segmentation helps
a firm compete in a highly competitive market. A successful marketer, knows that all elements of the
marketing mix are imitable. Sooner or later, competition will catch up and, at the end of the day, it will
become a promotion and price war. To be able to overcome this threat from competition, successful
marketers always segment their markets, position themselves in a segment, they perceive they will be
able to defend against competitive attacks, and emerge as the segment leader. As Michael Porter puts
it, the competitive advantage of a firm lies in being everything, to a select few. To be everything, to
everyone is a sure recipe for a strategic failure.
BASIS FOR SEGMENTATION
LO2 Bases for Segmenting the Market

Identify the basis Although the following section is devoted to looking at commonly used
for segmenting the bases for market segmentation, in actual conditions this is based on the
markets marketer’s creativity. Also, since segments keep evolving, it is necessary
that the marketer is sensitive to this process and considers options of sub-
segmentation. These bases of market segmentation can be broadly divided into three major groups:
(a) customer based segmentation;
(b) product related segmentation;
(c) competition related segmentation.
Customer based Segmentation The three important factors in this type of segmentation are:
(a) Geographic Location of Customers;
(b) Psychographic Variables; and
(c) Buyer Readiness
Geographic Location of Customers This is generally the starting point of
Geographically-based
segmentation helps the
all market segmentation strategy. The geographic location of customers helps the
firm in planning its marketing offer. The rural and urban divide is quite common
firm in planning its marketing
in the consumer market. Another common base for segmentation are the metro or
offer as well as its distribution
function. non-metro markets. One also hears of bases like the district, mofussil, and block
markets. The assumption in using this basis for segmentation, is that people in
a particular geographic area, have similar preferences and consumption patterns. For example, it is
believed that rural markets are different from urban markets and hence products, promotions, pricing,
and even distribution need to reflect these realities. This is not so any more. With the advent of TV, video,
and now satellite TV, the rural customer is far more aware and buys the same branded products, which
his urban counterpart buys. In fact, as the satellite TV or the dish antenna’s popularity increases and rural
markets get developed, one will see the homogenisation of rural and urban needs.
Further, a research by KSA Technopak showed that urban consumers tended to behave more like
their foreign counterparts.
In rural India, however, consumers do not differentiate between occupational and personal expendi-
ture. This is because 70–80% of rural customers are farmers who are, in a way, self-employed business-
men. However, one interesting conclusion, is that villagers do little shopping at their village shops.
Geographically based segmentation, in future, will help the marketer only in planning his distribu-
tion function. As shown in Figure 8.1, even in rural households, decisions to buy a product or service
are based on factors like brand, price, product size and features. Research shows that at the lower end
of the market, brand is the most important determinant in the decision making. But as the income of
Figure 8.1 Where Kids Reign Supreme in FMCG Purchase—Case of Food Products
the household increases to middle, upper middle and high, product features gain importance in decision
making. Like their urban counterparts, price is not the most critical factor in rural consumer purchase
decisions. Hence, a geographical segmentation is just the starting point in understanding the location
of customers.
● Demographic Characteristics: The next commonly used basis for market segmentation is the
demographic characteristics of the market. Factors like age, education, income, occupation, sex,
family size, and marital status are used singly or in combination, to segment the market. In the
for arriving at its target market.

❍ Age and life stage: Most firms evolve their segmentation strategies first by looking at the
age of the population. This helps them to understand the size of the target market and its con-
sumption behaviour. Not only so, it also helps in understanding the factors that influence the
purchasing decision and product preferences. Thus, on the basis of age, Indian market can be
segmented as follows:
(a) Infant market (upto 2 years)
(b) Child market (3 to 8 years)
(c) ‘Tweenagers’ market (9 to 12 years)
(d) Teenagers market (13 to 16 years)
(e) Adolescent market (17 to 19 years)
(f) Youth market (22 to 35 years)
(g) Middle age market (40 to 50 years)
(h) Elders market (50 to 65 years)
(i) Seniors market (66 years and above)
Profiling the populations on the basis of age can help in understanding the predominant
character of the market. For example, it is now a well-known fact that India is a predominantly
young market and Europe and Japan have predominantly old and retired population. From the
perspective of age, Indian market shows two distinct categories:
(1) Youth market
(2) Growing seniors market
Age has also been used for segmenting the market on the basis of life stage. For example,
the infant market today is a highly attractive market for baby care products. Given the more
affluent lifestyles, growing incomes and one child norm gaining acceptance in the society, it is
not uncommon to see young parents splurging money to get the best of the baby care products,
toys, clothes and even furniture for their child. It was estimated that baby skin care and toilet-
ries accounted for over 80% sales of the baby care products in value terms in 2009.
■ Child market: The child market today is indeed a very interesting market. Child today has
a phenomenal pestering power and no wonder it has witnessed the maximum growth in
products like video games, motorised toys and remote control toys. The traditional toys and
games have lost out to these new age toys. This is a market which also consumes burgers
and pizzas the most.
Studies conducted by marketing research agencies give us a picture of the behaviour of
these different markets.
■ Child’s Pester Power: Children in the age group of 0–14 years account for a little over
one-third of India’s one billion population. They are today a key influencer in consumer
purchase decisions. Given the impact of television and Internet on a child’s awareness and
peer pressure, the child today, plays a key role in brand selection and even the place from
where to buy. As shown in Figure 8.1, this influence is not just restricted to kids’ products
only but extends to other products too, like computers, music systems, television, cars and
refrigerators. In the context of food products like biscuits, burgers and pizzas, fruit juice,
etc., the child makes the final call. Even, in the context of FMCG products like tooth paste
and soap, the child plays the role of a decision maker. This trend is common to all socioeco-
nomic classes (SEC). In fact the gap between SEC A and C is fast getting eroded. However,
parents still have a say over their child’s purchase decision.
■ Tweenagers market: This is an interesting segment suggested by Euro Monitor Interna-
tional. The child in this age group is still not a teenager but want to behave like a teenager.
The child also wants others to treat him or her accordingly.
This is a segment which is highly pampered by parents, grandparents, and relatives who
are willing to buy them their choice of products and services. This is a group, which for the
first time learns to manage money in the form of a pocket money allowance. This pocket
money is not large enough for them to splurge on buying expensive toys and games but
certainly adequate to let them buy all those items which are considered ‘cool’ or ‘in’. For
big ticket expenses, parents have to take decision. And this is where this tweenager now uses
the pestering power of a child. This segment is characterised by evolving preferences and
generally is determined to buy only one particular product. It is the market for online games
and video games. Sony Play Station perhaps best captures imagination of this segment.
■ Teenagers: The new age teenagers can be further segregated in three groups namely, 13
to 15, 16 to 18 and 19. The 13 to 15 years old teenagers want to be treated as an adult and
hence many of them today buy or want to buy personal grooming products like deodorants,
hairstyling gels, facial washes, etc. This group spends significant time and money on mobile
phones. Going in groups to fast food restaurants like McDonalds or KFC is an accepted
behavioural pattern. This teenager is especially conscious of his individuality and wants to
assert it through dress, hairstyle and even personal products. This group is one of the fastest
growing groups on Facebook and Skype. The teens in 16 are ones who fantasize the most,
be it about relationship, holidays, career or what they want to be known as. But the 19 age
group is the time when this group gets a little more mature and career conscious. But still
they continue to remain confused. In a way this is a generation that has often been termed
as a confused generation. Given the onslot of information, and data and opportunities in
multiple vocations and professions, it is not uncommon to see many of them moving out
of the formal degree education system to pursue their dreams and passion in as different an
area as photography, web designing or garment designing.
Across all the 3 groups of teenagers, mobile phones and especially the smartphones are
the most commonly used device. With low per second call rates and smartphones’ low
prices, urban teens find it much easier today to buy and use it.
■ Youth Market: The 2001 census and several other research studies point to the emergence
of a youth market in India. The contemporary Indian youth, as we saw in the earlier chapter
on market environment, has grown up in more financially secure

For a firm targetting the youth
times and in far more educated families than his/her counterpart of market, remaining relevant
the 1970s. Even the parents of today are far more tolerant of the ec- and contemporary is the
centricities of young persons in their family. This phenomenon is not biggest challenge.
just restricted to the urban families, rather it is a rural phenomenon
too. However, it is more pronounced in urban upper middle class India, where the parents
do not mind their young daughters dreaming of beauty titles and preparing for it, or young
boys sporting earrings and ponytails. The values of today’s Indian youth are fast chang-
ing, as reflected in Bacardi’s by line ‘Be what you wanna be’. The young market is more
experimentative and daring in clothes, eating out, and even career choices.
The trouble with the youth market is that tastes change fast as fads keep changing fre-
quently. Hence, for a firm targeting the youth market, remaining relevant and contemporary
is the biggest challenge. This is best reflected by two television channels, Channel [V] and
MTV, targeted at the youth market, as shown in Exhibit 8.1.
Exhibit 8.1 Marketing to the Young Indians

Music and youth go hand in hand. It was this gen- looking for information which no channel provided;
eralisation, based on observations, that made Akio the youth had matured in terms of tastes.
Morita, the legendary chairman of Sony Corpora- These findings made Channel [V] reduce its
tion, launch the Walkman. Television channels and music component to 50–60%. The balance were
Internet thus dedicated channels to music for the programmes dedicated to information on career,
young in keeping with the times. Television chan- fashion, ‘cool’ gadgets, and so forth. With this
nels [V], MTV, and Napster Country Music on the revamp, [V] aims to keep the wandering young surfer
Net and Planet M—the music store for the youth— hooked. Accordingly, it reoriented its programming
are the symbols of today’s youth. Channel [V] was to three main segments—teen, mainstream, and the
launched as a young western music channel. Soon young adult. This classification was based on prime
it was overtaken by MTV which reflected the Indian time for these three sub-segments of the youth
Youth’s performances in a better way, MTV brought market. The rationale for determining prime time
in the language that young people used in common for these segments was:
conversation. A combination of English and Hindi, The youth had no control over what the fami-
nicknamed ‘Hinglish’, is the lingua franca of MTV. ly watched during the family prime time (7:00
It introduced Hindi music and revelled in making pm to 10:00 pm)
fun of itself. Today’s youth are more casual and The 13–19 year old watched TV either prior
willing to take shots at themselves. In 1999, Chan- to school timing or immediately after that (i.e
nel [V] decided to fight back by positioning itself as 7–10 am and 4–7 pm)
a youth channel and dumping its previous music The young adult watched TV after 10:00 pm
channel image. The channel announced 21 new Backed with this research, [V] decided to market
programmes, 19 of which were non-music. The new itself on air, on ground, and online. On ground,
programmes were targeted at the Indian youth, who it decided to organise events, enter into tie ups
believed in substance rather than style alone. Ac- with other brands and music stores like Planet M
cording to the inhouse research of Channel [V], the (the music store with a youth image promoted by
youth of India was less swayed by music than their the Times of India group), and with ‘Catchet with
parents feared. The youth think about relationships, the youth’ merchandise. Online, it created a portal
career, sex, AIDS, and politics. This market was www.Vindia.com.
[V] also decided to continuously track the youth budget is reported to be at par with leading FMCG
market, because this is the fastest changing mar- brands. This research helps MTV gauge their brand’s
ket segment. To keep in tune with the market, the strength and also that of their VJs.
marketer has to take timely course corrections in Thus, the challenge in marketing for youth goes
the nature of a new vignette, show, or any crea- beyond a simple product development. It invloves
tive expression. Both research and adaptation are continuously researching and customising the mar-
investment driven action plans. MTV’s research keting mix on an ongoing basis.
This group of consumers has today grown up with computers and internet and hence is far
more technology savvy than their parents and others in their parents’ generation. This seg-
ment today also accounts for high rate of purchase of lifestyle goods like iPads, earphones
and music systems as also the denim Jeans and accessories. Since most of them also start
their work life in early 20s and continue to live with their parents, they have high disposable
income, much of which gets spent on eating out and shopping. 20–24 age group is one of
the most important segments in this group of young consumers. Since they are just starting
their work life, they are busy shaping up their careers and also wanting to quickly acquire all
those products which possibly their parents acquired only in their 40s or 50s. They are the
potential customers of home loans, personal loans, credit cards, insurance product, holiday
planners, etc. Given the downturn in the world economy post 2008, many of the young
customers are likely to defer their purchases and even delay the responsibility of a married
life and starting up of a family.
Personal grooming products continue to be high on demand. So do the colour cosmetics.
Given the dark skin tone of most Indians and the society preference for the fair complexion,
it is not uncommon to have both men and women buying fairness creams. Today, almost all
cosmetic companies have a presence in this market. Men’s salon have grown much the same
way as women’s beauty parlours and now we see unisex salons in metros and large cities
where both men and women are consumers of hairstyling, facials, pedicure and manicure.
People in 30s today will constitute the 3rd largest segment of India’s population in 2020.
This segment is one which is completely immersed in their career and climbing the career
ladder. Many of them have bought their house or are in the process of buying one and also
starting their married life. Starting of the family is delayed today to late 30s. A family with
no kid or with one kid is a growing urban phenomenon. However, in rural and tier II or III
cities, marriages are still at a younger age and many couples start with their families much
earlier. This urban group in 30s is also the consumer of overseas and national holiday plans
and cars. Housing, especially those that are aspirational in nature, is today a growing mar-
ket. This explains the growth of a large number of reality firms.
■ Middle age market: Middle aged adults in India have a family that consists of spouse,
teenager children or in some cases parents. This group aspires for better quality of life much
the same way as those in their mid-30s to 40s. Hence, they are the ones who buy luxury or
bigger cars, spacious houses, preferably in a community which would have similar lifestyle.
Many of the real estate firms like Lodha are today making such large townships or com-
munities which would have people with nearly identical background. They offer security,
housekeeping service, club house, swimming pools, recreation sports facilities as evidence
in communication.
Exhibit 8.2 Marketing to the new consumer

Exhibit 8.2 (Contd.)

■ Elders’ market: Children education, retirement planning, insurance products and vaca-
tions form the bulk if their purchases. This segment is not a spendthrift segment as it was
not fortunate to be born in a resources abundance era. Hence they are more conservative.
They use mobile phones for functional use and rarely use applications and services like
downloading the customised ringtones.
This market segment is today one of the biggest consumer of retirement product like
Pension Plans, and Life Insurance plans which promise an assured income post retirement.
With the age catching up, many of them also develop health related problems and are one
of the buyers of multi vitamins, natural and herbal health care products as also the organic
products. Since the families have today become nuclear especially in urban India, communi-
ties are now coming up with promise of the same lifestyle to an individual that the person
had in his younger days. Urban India has also seen this group retiring more affluent than
their earlier counter parts in 1970s or 80s.
■ Seniors’ market: Senior citizens today have lower disposable incomes and hence they
start spending lesser as they approach retirement. Those who can afford still travel luxury,
dote their grandchildren, buy toys and games, clothing and footwear and acceding to their
demands.
❍ Income: The next commonly used variable is income. It is believed that as the consumer’s
income increases, his/her consumption behaviour also changes. Research findings indicate that
expenditure on food and other basic amenities as a percentage of total expenditure declines as
consumer income increases. In other words, with an increase in income, the customer starts
buying other branded products and the so called luxuries like holiday packages, air travel,
perfumes, microwave ovens, cooking ranges, washing machines, and automobiles. Eating
out, for example, is one behaviour exhibited by a consumer that changes as his or her income
increases. While considering income, the marketer may consider either the customer’s or his
or her family’s income. A more reliable basis is family income.
On the basis of income, the Indian market shows a bulge in the middle with about 35% of the
total households categorised as middle class in 2010 which would increase to about 45–46%
by 2025. The middle class comprises of all households whose annual income ranges between
`340,000 and `17,00,000. The NCAER Survey indicated that households with an annual
income with `150,000 and categorised as ‘deprived’ will decline substantially from 20% in
2010 to less than 5% in 2005. A similar substantive decline is also visible in the ‘aspirers’ group
where the household income is between `150,000 to `340,000. The other interesting revelation
is the substantive growth in the ‘rich’ households from 10% in 2010 to 30% in 2035. These
households annual income is more than `17,00,000.
This growth in the incomes will lead to an increase in the purchasing power of an average
Indian household thereby making it one of the largest markets in the world. The growing eco-
nomic power of the middleclass is best measured by the asset ownership. For example, today
almost 50% of all cars and 53% of all air conditioners are owned by the middle class house-
holds. The power of the middleclass extends beyond the economic arena and is a harbinger of
social change.
Figure 8.2 gives the statistics of the upwardly mobile Indian market.
Figure 8.2 How Rich is the India Market?
Marketing for each of these segments requires not just the appropriate price but even cus-
tomised products. The Indian market is a price sensitive market. To cater to this market, firms
have to break away from their conventional adaptation mode to the developmental mode.
Marketing to the rich, the middleclass and the poor not only requires customisation but also
an insight of these markets. While luxury marketing has to be aimed at the rich households and
households that have been categorised as ‘crorepati’, the poorer markets requires customisation
from the perspective of price, features and access. The middleclass requires luxury products
but at lower prices. This has led to creation of the category called mass fashions and provides
an opportunity to designers to alter their packaging and thereby make it affordable. Premium
brands of perfume for example are today available in smaller packages of 10 mL. So is dia-
mond jewellery which is marketed at low prices of `3,000 to about `10,000 to 15,000. This
category of jewellery is marketed by well-known brands like Gili, Nakshatra and Tanishq. This
is targeted to middleclass young women especially those who are working. The distribution of
crorepati household in 2011 shows the largest number of more than 8000 in Mumbai followed
by Delhi with 5,400 and Bangalore with 4,600. A further segmentation of crorepati in urban
India in 2011–12 on the basis of the life stage showed that 44% of the total crorepatis in India
were married and stayed with grown-up children. 13% were from the nuclear families with
young children and 25% were those who stayed with the married children.
Irrespective of an emerging income group, poor still continue to be a major segment. As
evident from Figure 8.2, with 20% of the households categorised as deprived and with a family
of 4.5 people, it indicates that there are almost about 0.26 billion households which are poor.
Poverty is not just a characteristic of Indian market. It is the characteristics of South Asian
market and many other markets in Asia, Africa and Eastern and Central Europe. It is equally
true for South America. It was this large group of poor people in the world that got late C K
Pralhad1 to research and publish the famous Fortune at the bottom of the pyramid. He made out
a case for the opportunity that existed for marketers in the poorer markets. He argued against
the belief that this was an unprofitable segment.
These markets do not lend themselves to a single distribution solution and hence firms
have to use multiple routes to reach out to these markets. The BOP market is brand conscious.
It is also extremely value conscious, by necessity and is increasingly getting connected and
networked through telecommunication, Internet, and intranet. ‘With cellphones and TV, the
BOP consumer has unprecedented access to information as well as opportunities to engage
in a dialogue with the larger community’2. The BOP consumer today accepts technology in
much the same way as others do. Hence, there is a profitable opportunity for firms to market
their goods and services to BOP consumers. However, this requires a careful analysis of price-
performance relationship and innovative solutions. Prahlad lists 12 principles of innovation
for the BOP markets. These are:
(a) Focus on price-performance of products and services.
(b) Focus on hybrid solutions as they deliver more. Advanced and emerging technologies
need to be blended with existing and rapidly evolving infrastructures.
(c) Solutions to BOP consumer problems should be scalable and transportable across
cultures, countries, and languages. Adaptability of solutions to similar BOP markets is
important for gaining scale.
(d) Innovations should focus on conservation of resources.
(e) Functionality and not the form should be the basis for product development.
(f) Process innovations are as critical as product innovations.
(g) Deskilling work is critical. Most BOP consumers lack skills and education. Hence,
product design must take these factors into account.
(h) Customer education is also required. Innovations in educating a semi-literate group on
the use of new products can be challenging.
(i) Products should be capable of performing in a non-sanitised environment. They must
also be developed to accommodate the low quality of infrastructure.
(j) Research on how consumers interface can help firms develop customised solutions.
(k) Innovations must reach the consumer. Hence, designing methods for accessing the poor
at lowest cost is critical.
(l) Product developers must focus on the broad architecture of the system, so that new
features can be easily incorporated.
Exhibit 8.3 illustrates how some companies are trying to market their products and services
profitably to the poor in India.
Exhibit 8.3 Marketing to the Poor

Marketing to the lower end of the market requires tion be brought down in poor markets like India.
imaginative and innovative approaches. Technol- None of the foreign companies and countries will be
ogy and creation of income, that can in turn lead to able to reduce the cost of technology because even a
enhanced consumption, are the two pillars of this 50% decrease in their costs cannot help them reach
approach. The third pillar is development of chan- the masses. What is required are disruptive technolo-
nels and alliances with complementors. gies that can reduce access cost by one third—for
Technology development for income and employ- example from `30,000 to `10,000 which is the aver-
ment generation age cost of a telephone line in India. Towards this, a
Communication is the key to the development professor at IIT, Madras, an entrepreneur, Professor
of any economy. In order to diffuse communication Ashok Jhunjhunwala, and a few other academics
technology, it is necessary that the cost of introduc- created the Tel-Net (Telecommunication and Net-
working) lab in IIT Madras in 1991. One of the com- governmental organisations). SHGs provide rural
panies it incubated is Midas Communications, which women with the means to save. Individual members
along with Tel Net had introduced technology called deposit their savings with the SHG, which has a sav-
CORDECT. This technology works on a Wireless in ings account in a local bank. At the end of the year,
Local Loop (WLL) platform and costs `18,000. The the bank extends a loan to the SHG which is equal
company has given licences to telecom companies to its savings. Individual members borrow from the
likes HFCL Shyam Telecom, Crompton Greaves, and SHG to start businesses. The total number of such
others. The company’s customers are MTNL and SHGs in India is 6,00,000 with Andhra Pradesh ac-
DOT (BSNL). Tel-Net has also incubated N-Logue counting for a little more than 50%. SHGs have a
hoping to acquire an ISP (Internet Service Provider) membership of five million women and a cumula-
licence, and plans to provide the rural community tive corpus of `800 crore. Each member of a group
an Internet based communication link. Under this saves `1 a day. Members can borrow at an interest
business model N-logue, along with local service rate of 2 to 2.5% per month. To sustain its pyramid
providers (LSP), will invest in a base station at district capability, SHGs need to invest money in activities
headquarters. The LSP will identify entrepreneurs are that generate income. HLL has offered a locally-
willing to invest in Internet kiosks in neighbouring focused retailer model. Under this model, a group or
villages. N-Logue will charge `20 an hour from LSP, an individual chooses to become HLL’s local retailer
who in turn will charge `15–20 per hour per kiosk. and borrows money from the SHG. Lever supplies
The kiosk owner can charge users for training, e- them the stocks, which they sell at a retail margin
mail, downloading, and so on. of 10%. The company reaches out to SHGs through
Self-help group approach (SHG) Mutually Aided Co-operative and Thrift Societies
Another approach to develop the low end mar- (MACT), which is a federation of 15–20 SHGs. The
ket is to work through the self-help group. Hindus- success of this model depends on the viability of its
tan Lever is perhaps the first to work through such constituents. Currently, HLL has limited if dealings
SHG. It has called this project Shakti. Realising that to 12 stock keeping units (SKUs) per retailer. If the
rural demand is a function of population, income, woman retailer was to sell other company products,
consumption, and penetration, it has decided to like a bulb or a battery, alongwith HLL products, it
work on enhancing rural incomes. This is different will enhance the retailer’s income.
from the approach of other companies who follow Thus, by relating oneself to the low end market,
a penetration strategy only. The concept of SHG a firm can increase its revenues and profits. This
in India is the same as that of thrift and savings obviously involves getting to the basic, namely, en-
organisations, and comprise 15–20 members. These hancing customer incomes. (Adapted from Business
are supported by local governments or NGOs (non- Today, June 21, 2001)
❍ Gender: The male market is different from the female market. Hence, gender is used for seg-
menting the market for different products. While some products, like textiles, are exclusively
made for each segment, there are others which are not exclusively made or marketed for any
one gender. A cosmetics firm will have to take a decision whether it wants to manufacture and
market cosmetics exclusively for men or women or for both. Lately, particularly in marketing
denim jeans, the marketer is directing the product at both segments, as the product is unisexual.
The Indian woman is changing radically. The individualism exhibited in the 1980s and
1990s has almost completely disappeared. She is now confident and assertive and is seeking a
balance between home and work. Her focus is now on the family. She is traditional, but at the
same time capable of taking on the modern world. She does not want her husband to transgress
her space, but wants him to be there with her in all those situations that signify togetherness,
shared space and thinking. In short, the Indian woman of the 21st century is more feminine and
less aggressive. Aishwarya Rai perhaps best depicts the contemporary Indian woman—femi-
nine, beautiful, expansive, and with no trace of masculinity. Further, this profile of the Indian
woman, while remaining the same in general terms, differs across SEC groups on the basis
of self-denial and pleasure-seeking behaviour. It also differs across age groups, as shown in
Exhibit 8.4 on parameters of modernity, individualism, traditionalism and conservatism. Thus,
while young women seek pleasure and enjoyment, the older put family and tradition first.
Exhibit 8.4 Marketing to Women

The women’s market is a growing market. We saw awareness of international trends, employment, and
in the earlier chapter that the Indian woman is more a more tolerant and supportive family seem to have
educated, assertive, confident, economically inde- impacted the Indian woman’s decision to change
pendent, and has a mind of her own. Today, she is her wardrobe. Today, women aged 30 and upwards
being targeted by women’s portals (www.smartba- buy one western attire for every five sarees. One
hu.com, women’s section of www.rediff.com, femi- year back, this ratio was 1:20. This is the scenario
naindia.com, and others) cosmetic manufacturers, in the socioeconomic category (SEC) A and B living
garment sellers, stores, restaurants and hotels, and in the metros and other major towns. For women
even the suppliers of home fittings and furnishings. in the 18–25 years age group, the wardrobe primar-
Madura Garments, Raymond, Polki Garments, and ily consists of western outfits—mostly casuals and
several others are targeting the women’s market semi-formals. Today’s urban working woman pre-
with their formal and semi-formal range of clothes. fers formal/semi-formal western dresses to sarees
According to a study conducted by a retail con- and salwar kameez. It is this trend that has made all
sulting organisation, KSA Technopak, the Indian garment manufacturers design their products to suit
women’s dress sense and preferences are undergo- the tastes of this segment, which is modern and yet
ing a significant change. Liberalisation, education, traditional in values.
As evident, women today are an important consumer group. This is particularly true for urban
India where she has emerged as an important decision maker in the family. She is no more
now an influencer but a decider. In case of married women, she is an important decision maker
along with her husband. She beats the conventional stereotype role of a woman. These are best
reflected by 3 of the most popular Bollywood actresses Kareena Kapoor, Priyanka Chopra and
Katrina Kaif. Women are today an important buyer of not just consumer goods but technology
products also. The Indian women believe they have much more opportunities than their moth-
ers had. They are far more optimistic about future of their daughters. A study by A C Neilsen
of married women in urban India concluded that 76% of married Indian women accorded im-
portance to savings for their children’s education even when she continued to be self-indulgent.
This is particularly true in the context of working women. Television, print media and social
networks like Facebook continue to be an important influence in their decision making.
❍ Occupation: The occupation of the consumer is also an important variable in segmenting the
market. Whether a person is self-employed, works full time or part time, his/her position in
an enterprise affects the consumption behaviour. On the basis of consumption, one may find
segments like professionals (like a doctor, chartered accountant, or a consultant), traders or
shopkeepers, businessmen or industrialists, sales personnel, teachers, university professors,
self-employed people, students, housewives, and the like.
❍ Education: The education profile of the customer will also affect his or her preferences and
level of awareness. It is a known fact that as literacy increases and people get educated, they
become more aware about the environment and about different products. They also become
more aware of their rights. Based on education, the Indian market can be segmented as illit-
erates, literates, high school educated, and secondary or university educated persons. Again,
within university educated persons, the market can be segmented among the graduates, post
graduates, and post doctorates.
❍ Marital Status: Another demographic basis used for segmentation is the marital status of the
customer. The assumption is, that the behaviour and consumption patterns of single and mar-
ried people differ. For example, unmarried people are more likely to be spendthrifts and users
of packaged goods and fast food.
Married people are more conservative and are generally frugal in spending. However, they
are often the consumers of many expensive or inexpensive gift items.
❍ Family Size and Structure: Another important demographic variable is the family size or
structure. With the spread of the family planning programme and its acceptance among more
and more urban families, one finds that the average family size has been declining from a high
of five to six members per family in the 1970s to four in the late 1970s and early 1980s, and
to just three in the 1990s. One finds, that the family norm now is birth control. So today, the
marketer can segment his market into families with three or less members, families with four
members, and families with more than five members.
Further, one witnesses the splitting up of joint families. At one stage it was unthinkable that
families could split. However, with growing opportunities in different cities and an increase in
living costs, families often split. We first had the nuclear family and now we have individual
families. Nuclear families are those where parents and grown up sons and daughters with their
families live separately, but in the same town. The parent family becomes a hub and the son’s
or daughter’s family, a nuclear or a satellite family. All meet occasionally or on festivals or
holidays. But now members often go out of the city to make their living. This family, may now
be called a ‘stand alone’ family.
The marketer can use this family structure and size for evolving product
According to MRSI, the design and payment options. For example, a 360 litre refrigerator is perhaps
consumption behaviour of ideally suited for large families, while a middle size refrigerator (165 litres) is
a consumer is determined by
best suited for smaller families. The concept of multiple TV sets in the house
his/her social and economic
class, which refers to the
is also best suited for either large families or smaller families with grown up
occupation of the earning children.
member/(s) of his family. Though each of the above variables is an important basis for segmenting the
market, recent research by the Marketing Research Society of India (MRSI)
gave the marketer an important basis for understanding the Indian customer’s behaviour, and
accordingly, a basis for market segmentation. According to this research, the consumption be-
haviour of a consumer is determined by his or her social and economic class. The social class
refers to the occupation of the earning member(s) of the family. Accordingly, there are eight
socioeconomic groups of customers in the Indian market, as outlined in Figure 8.3.
Psychographic Variables Often it has been seen that two consumers with the same demographic
characteristics may act in an entirely different manner. Even though the two may be of the same age,
from the same profession, with similar education and income, each of the customers may have a dif-
ferent attitude towards risk taking, and new products and stores. As we saw in the last chapter, this
Figure 8.3 The Socioeconomic Pyramid of the Indian Population
is largely because of personality and lifestyle differences of consumers. Increasingly, marketers are
turning to psychographic variables to segment their markets. The Titan watch company, for example,
has segmented its market for Timex and Titan quartz high-priced watches on the basis of lifestyle. As
we said before, Citibank credit card has segmented the credit card market on psychographic variables.
The relaunch/repositioning of Femina, for example, earlier targetted at an older, more traditional, mid-
dle class woman to a magazine for the woman of substance, or woman with an ‘international world
view’, is also yet another example of lifestyle and personality based segmentation. This repositioning of
Femina has made it a market leader in the contemporary women’s magazine market. On the other hand,
another women’s magazine, Savvy, has also used psychographic variables to segment its market and
distance itself from all others, including Femina. The Savvy woman is identified as the highly liberated,
independent, strong woman, who has a definite place in society, is married, and has a well- managed
household, but to whom career would be extremely important. She is idolised by other women as an
aspirational role model. This entire positioning statement reflects the psychographic characteristics of
the target customer group. Such kind of strong positioning statements based on consumer lifestyle, help
in making brands leaders in the market, as target customers identify themselves with them. Brand per-
sonality is a direct outcome of the usage of psychographic variables in formulating marketing strategy.
Buyer Readiness Another variable used for segmenting the market is buyer ‘readiness’ or prepared-
ness to buy the product. At any given time, buyers are at different stages of readiness. There are unaware
buyers, people who are aware but not interested, people who are interested and are desirous to buy, and
lastly, those who will positively buy the product. The relative proportion of buyers at these different
stages will affect the marketer’s tasks.
Product Related Segmentation
Product Use Situations The marketer may also use product related bases for segmenting his or her
market. One of the important bases is product use situations. Different customers may use the same
product in different situations. Rasna, for example, is shown as being used in different situations like
a party, for unexpected guests, a drink at the end of a long and tiring working day, and so on. A mar-
keter tries to make the product versatile, so that it can be used in different situations, but the customer
may use different products and brands in different situations. For instance, a customer may buy a sports
watch for sporting activities and a jewelled watch for party wear. Thus, a product or a brand may be
selected by the customer depending on the nature of usages. Knowing these situations, helps the mar-
keter plan the positioning strategy.
Benefits Segmentation Another commonly used product related variable
Levittt argues the case for
is benefits segmentation. Here, the marketer identifies benefits that a customer
standardised products
looks for when buying a product. This has been a very effective method of
for the world market, on the
segmenting the market for watches, where a customer may buy for functional
ground that customer needs
are getting homogenisedpurposes, durability, as a gift, an accessory, or a jewellery item. In each case, the
customer need is different. And using this basis, the erstwhile market leader in
globally, due to developments
in transportation andthe watches market, HMT, claimed in its promotion that ‘if you (the customer)
communication. have the inclination, we have the time’. Titan, in one of its early commercials,
reminded the woman that ‘the next time he thinks of a gift for you, ask for Titan’.
Customers look for different benefits. Some want intangible benefits, while others look for tangible
ones. Looking attractive and pretty is very important to a woman when she buys dresses or cosmetics.
Hence, Garden Vareli used this intangible psychological benefit to segment its market.
Consumption Consumption has also been the basis for segmenting beverages (tea, coffee, soft
drinks), liquor, and cigarette markets. Accordingly, the following segments are visible.
(a) heavy users
(b) moderate users
(c) light users
The differentiation between them is based on the benchmark quantity defined by the marketer for
each segment.
Decision Criteria Another basis of segmentation is the decision criteria, a customer uses to evaluate
and buy a brand or the product. Research shows the following four parameters in consumer decision
making today:
(a) price
(b) perceived quality of the product/service
(d) technology
Customers differ in terms of sensitivity on all these parameters. For example, there are customer
clusters, who are high on price sensitivity. Likewise, there are segments that are quality, technology,
and service conscious. To market to these segments, firms need to research the most dominant decision
criteria in each segment and then evaluate its capability to deliver. This analysis can also help firms
take appropriate positioning decisions.
Competition Based Segmentation An important indicator of successful marketing of an

enterprise is the number of loyal customers it has. Customer loyalty, therefore, is an important index to
determine the competitive position of the firm. This is also used as a basis of segmenting the market,
evolving the marketing strategy for each segment, and encouraging customer loyalty. Based on loyalty,
we have the following segments:
Hard core Loyals Hard core loyals are those customers, who continue to buy the same brand over
and over again. The test here is, will the customer refuse the competing brand, if and when offered, and
insist on buying his own preferred brand? Newspaper readers, cigarette smokers, and tea drinkers are
some customer groups where such hard core loyalties are commonly visible.
Soft core Loyals Those who are loyal to two or three brands in a product group are called soft core
loyals. For example, a housewife who buys Lux, Lux, Lux, Cinthol, Cinthol, Cinthol and Pears, Pears,
Lux in her nine shopping cycles will be considered as a soft core loyal. The marketer needs to watch
such customers and motivate them to shift to the hard core loyalty segment.
Switchers Switchers are those customers who never stick to a brand. These are the customers for
whom brand switching is as easy as changing a shirt. They may switch for variety or for a special deal.
In either case, this is a slipping market segment for the marketer. The firm needs to examine why it is
losing its customers to competitor brands. This can help it to evolve marketing strategies in order to
strengthen its competitive position in the market.
While using the loyalty index to segment the market, a firm should be careful, for what may appear
to be loyalty can, in effect, be behaviour caused by indifference, habit, non-availability of competing
brands, or low price. The marketer should examine these factors carefully and see if any of them is a
factor determining customer loyalty.
Segmenting Industrial Markets

Traditionally, the segmentation strategy has been used for consumer product marketing. But, recent
developments in industrial marketing suggests that segmentation is now being used there too. Let us
look at some of the commonly used bases for segmenting the industrial product markets.
Commonly used Bases for Segmenting Industrial Product Markets
Size of the Customer This has been one of the traditional methods of segmenting industrial market.
Based on the size and purchases, we may have
(a) category customers—large buyers
(b) category customers—medium sized buyers
(c) small buyers
Generally firms have different payment terms, product packaging, and sales call frequencies for
each of these customer groups. The size of a customer can help a firm determine its sales potential and
competitive position in that customer group. This type of segmentation can also help the marketer cor-
rect any imbalances that may exist in his selling efforts.
Geographical Location The geographical location of a customer is another basis for segmenting
the industrial products market. For example, firms located in the Thane–Belapur belt constitute one
segment for a telecom firm, while firms located at Nariman Point in Mumbai constitute another market
segment or plan.
End Use Another way of segmenting the industrial market is by differentiating the end users of the
firm’s product. For a steel manufacturer, some of the end user segments include automobiles, con-
struction, office furniture, and cables. Each of these segments have their characteristics and require a
different marketing approach.
Buyer Behaviour/Motivation or Purchase Criteria Within any specific end use segment, we can
further segment the market on the basis of purchase criteria. For example, using price as an input we
can segment buyers as insensitive, sensitive and highly sensitive to price changes. We can also catego-
rise customers according to the needs of the customer—whether he wants standardised or customised
products.
Combining Purchase Criteria, Size, and Geography—Matrix form of Market Segmenta-
tion Recent researches in industrial marketing show that firms tend to combine size and buying
criteria of the customer to segment the market and also to evolve their marketing strategy. Often a firm
may even add a third dimension to it—the geographic location of the customer. The most important
dimension of this kind of segmentation is the use of buying motives along with buyer characteristics.
Let us consider the case of an electrical power pump company that wishes to segment its market. Market
survey showed that the company has the following customer segments.
● Segment 1: These are large customers with an average order size of `
20% share in these customer purchases. For example, customers want a standardised motor and
are not particularly concerned about the vendor’s service, as most have their own engineering
and maintenance departments. However, customers, want a competitively priced, quality product,
delivered on time. These buyers generally buy on the basis of facts and not just emotions. Most
of these buyers are located in western India.
● Segment 2: This segment also consists of large buyers with almost the same characteristics and
buying motives as above. The difference is that they are highly price sensitive and generally not as
quality conscious as the other group of customers. Most of these buyers are located in north India.
● Segment 3: `50,000. They
want tailor made products and are not very price sensitive. They would like to pay only what they
consider as the ‘value’ for the product, want good service from vendors, and are also particular
about vendor credibility. They also want extended credit periods and the option nets buy back by
● Segment 4: -
cellent and reliable after sales service, and delivery as per approved schedules. They generally
empathise with them and generally not insist on penalty clauses for a slight or occasional delay
`5,000. The
Having considered these segments, let’s see how the marketing tasks of vendor firm change with
each of them. Table 8.1 shows these tasks. It also brings to the fore the need for focused strategies to
penetrate different segments. It urges the marketer to forget the mass marketing approach and, instead,
adopt the niche marketing approach.
Multiple Bases for Segmentation In a highly complex market environment, no firm can pos-
sibly afford to use only one basis for segmenting the market. Today multiple bases are used to segment
Table 8.1 Applying Market Segmentation to Industrial Products—

The Matric Approach
Segment 1 Segment 2 Segment 3 Segment 4
Buyer (a) Large (a) Large (a) Medium sized (a) Small
characteristics
(b) Average order (b) Average order (b) Average order (b) Average order
and
size `2,00,000 size `2,00,000 size `50,000 size `5,000
buying
motives (c) Standard (c) Standard (c) Tailor-made (c) Tailor-made
product product product product
(d) Quality (d) Not much con- (d) Moderate on (d) After sales
conscious cerned about price sensitivity service
quality
(e) Competitive (e) Extended credit (e) Value for money (e) Price sensitivity
price-price
Marketing important
mix
(f) Delivery: crucial (f) Highly price (f) Vendor reliability (f) Spread all over
sensitive India
(g) Western India (g) North India (g) Extended credit

(h) Returns policy
(i) South India
Product quality Yes No Yes Yes
Product features No No Yes Yes
Warranties No No Yes Yes
After sales service No No Yes Yes
Financing plans No No May be Yes
Price Yes Yes Yes No
Credit terms No Yes Yes Yes
Delivery Yes May be Yes Yes
Prompt availability Yes May be Yes Yes
Personal selling May be May be Yes Yes
Direct mail May be May be May be Yes
the market. Geography, age, education, occupation, income, gender, lifestyle, loyalty status, consump-
tion behaviour, and other product attitudes are used simultaneously to segment the market and design
the marketing mix.
Further, the Internet has also impacted segment behaviour as companies realise that there are no
exclusive products and services for any segment. Almost all customers are buying all products. Inter
segment mobility seems to be facilitated by the Internet.
REQUIREMENTS FOR EFFECTIVE SEGMENTATION

Before we discuss the segmentation procedure it is important to note that in
LO3
reality the marketer applies successive variables to sub-divide and arrive at
Describe how to seg-
the target market. Lately, marketing research agencies have been devoting a
ment the market and
substantial part of their time to identifying and studying the behaviour pat-
the requirements for
terns of different market segments. The procedure adopted by them, and as
effective segmentation
mentioned by Kotler and Turner, is a three-stage process.
Three Stages of Market Segmentation

Survey Stage This is divided into two parts—(i) focus group discussions and in depth interviews
with a view to getting an insight into consumer motivation, attitudes, and behaviour and (ii) based on
this insight, developing a questionnaire which is administered to a sample group of consumers. The
objective of this questionnaire is to collect data on:
● attributes sought in a product and their priority ratings
● brand awareness and rating of different brands
● product usage patterns
● customer attitudes towards the generic product or product category itself
● demographics, psychographics, and media habits of sample respondents
Analysis Stage After collecting the data, it is analysed using factor analysis. This is used to iden-
tify factors that differentiate customer groups. Cluster analysis is now used to cluster customers into
maximally different groups.
Profiling Stage In this stage, each cluster is profiled in terms of demographics, psychographics,
media habits, attitudes, behaviour and consumption habits. The marketer can give each segment a name
based on a dominant distinguishing characteristic.
Requirements for Effective Segmentation

In order to be effective, a segment should be attractive enough. Specifically, here the marketer looks
for the following:
Accessibility The segment should be accessible, otherwise no penetration can be made. A large
part of the Northeast remains inaccessible either because of weather conditions, hostile geographical
terrain or problems of insurgency.
Measurable The segment should be measurable. It should be possible to quantify the segment as
it would help in estimating its size.
Viable It should be cost effective and profitable for the marketer.
Intensity in Competition Another parameter determining the segment’s attractiveness is the
intensity in inter firm rivalry. The higher the intensity or more the competition, the more unattractive
the segment will be for the marketer.
TARGETING AND POSITIONING BRAND
LO4 Targeting and Positioning

Explain targeting and Having segmented the market, the firm now has to choose its marketing
positioning brand strategies. There are three strategies to choose from.
Standardisation In this strategy, the firm offers the same product to different market segments.
It uses the same communication, pricing, and distribution strategies. The classical example is of soft
drinks firms like Coke and Pepsi, who retain the same flavour, advertising, and packaging across seg-
ments in different geographical areas. The obvious advantage is the economies of scale which a firm
gets in mass production and marketing. Levitt argues the case for standardised products for the world
market because customer needs are getting homogenised globally, due to developments in transporta-
tion and communication. Levitt believes that a standardised global product can make a firm competitive
in the world market.
Differentiation This is just the opposite of the above mentioned strategy. Here, the firm differen-
tiates its products, to suit different segment needs and expectations. Typically, one has the example of
an airlines that differentiates its products into three classes—first class, business
class, and economy class. Each of these classes is targeted at a specific segment, Focus is a combination
of standardisation and
whose needs are different from the other. differentiation, where the
Focus This is a combination of standardisation and differentiation. Here the core strategy remains the
core strategy remains the same but differentiation is made to take into account same, but differentiation is
made to take into account
specific customer group their requirements. For example, the Maruti 800 or Es-
specific customer group
teem has some basic features and offers specific benefits to its buyers. However, requirements.
a buyer who is looking for more features like power steering and music systems
can get the same at an additional price. In this way, Maruti is able to focus its entire strategy on both
the economy and premium segments. This strategy helps the firm enjoy the economies of scale as well
as higher market penetration, and consequently a higher market share. Therefore, the marketer has to
choose the appropriate strategy in order to achieve higher market penetration in each of his market
segments.
Exhibit 8.5 Tanishq

Two major segments of Gem and Jewellery Industry Jewellery is an important part of an Indian wom-
are gold and diamond jewellery. Gold jewellery ac- an’s life. It is considered ‘Streedhan’ or ‘woman’s
counts for 80% of the Indian jewellery market with wealth’. At a minimum, a woman at her wedding
the balance comprised of fabricated studded jewel- gets at least 2 gold bangles, a gold necklace, ear-
lery. The industry is highly unorganised and frag- rings, a ring and a nose ring. Gold jewellery and
mented. It accounts for 450,000 goldsmiths 100,000 watches are also gifted especially at ‘Dhanteras’ the
gold jewellers, 6000 diamond processing players first day of the festival of Diwali and other special
and 8000 diamond jewellers. The Indian jewellery occasions like birthdays and wedding anniversa-
market is one of the largest in the world with a ries. At the time when Tanishq was launched in
market size of 13 billion dollars. It is second only to 1996, there were no national players though there
the US market which is valued at 40 billion dollars. were many local jewellers who were well known
in their cities. For example, Tribhovandas Bhimji living in urban town, brought up by ‘liberal’ parents
Zaveri was well-known and had high credibility in and strongly identified as being ‘modern’. She val-
Mumbai. Tanishq was positioned as a brand that ued independence and achievement. She made her
delivered what it promised, i.e. 22 carat jewellery. own decision whether it related to work, marriage
It was the first to launch studded gold jewellery or dress style. She had collaborative relationship
and contemporary designs in 18 carat. But it failed with her parents and expected their support on her
to excite the market even when it was the first to decisions. Some are impatient and see no reason to
introduce carat meter to provide an assurance to the compromise. She wanted light, modern jewellery
customer on the genuineness of the jewellery. De- to wear and not ‘wealth’ to accumulate. She usually
spite the initial difficulties and customer resistance wore light gold jewellery or diamonds and had her
to the designs and light weight jewellery launched own way in the wedding jewellery with the parents
under the brand name ‘Diva’, Tanishq management support. She preferred branded jewellery, for the
decided to revive and reposition the brand. In Oc- modernity of designs and contemporary image.
tober 2005, the company completed 1 year exercise The uninvolved conformist had the same value
on brand value proposition and based on consumer system as that of sanction seeker. However, she
insights segmented the market into five psycho- differed in terms of independence. She was much
graphic segments namely the confident matriarch, more dependent and comfortable with her passive
the sanction seeker, the balancer, the individualist role, and inner convictions about ‘obeying’ her hus-
and the uninvolved conformist. Tanishq decided band and her elders. In terms of buying jewellery,
to target the confident matriarch that is the woman she was purely led by her parents’, husband’s or
who was in her mid-30s or above, typically be- in-law/s decision.
longed to a nuclear family, or lived in a joint fam- This segmentation helped Tanishq decide its tar-
ily. She believed that ‘she had earned her due’. She geting strategy. It decided to go after the confident
was home-centric and not homebound. She had matriarch and the balancer which accounted for
strong views, firm convictions, open to new ideas 57% of the market. The positioning was now done
and willing to accept the change. She desired to be around “The evolving Indian woman has a new
perceived as progressive. She was an experienced sense of self’ and accordingly the brand was per-
buyer. The sanction seeker on the other hand was sonified as a woman who believed in harmony and
an archetype of tradition bound Indian women driv- in getting her way without any rebellion. She played
en by social norms expectations and constraints by the rules to a large extent but modified them in
who toed the established line. As a bride she went a way that suited her. She played multiple roles
along with her parents’ choice of store. She par- simultaneously of mother, daughter, wife, sister but
ticipated in selection with her mother’s guidance, never got defined by any single role. She seeks ac-
even though she may have liked something else she ceptance and expression at the same time. She is
would not insist as she knew that mother’s choice proud of her tradition.
was the best. The balancer was typically a younger This understanding of the market and devel-
Indian woman who experienced a shift in her inner opment of segments on the basis of consumer
reference group, distancing herself from traditional psychographic profile helped Tanishq target and
or parental values. She identified with the `new reposition its brand. The new Tanishq commercial
age’ or working women archetype. However, she further strengthens this positioning. The commer-
had respect for traditions and was not willing to go cial that celebrates the marriage of a young woman
against the established norms. She exhibited dual “who is accompanied by a 5-year-old who calls her
personality one as a conformist and another asser- mama” stirred experts and twitter mongers. This
tive, whenever the social environment permitted. commercial attempts to reach people in a different
As a bride, she respected the tradition and went mind space. It tried to explore new facet of human
along with her mother’s choice but as a married relationship.
woman she preferred designer jewellery and want- How can Tanishq gain and consolidate market
ed good value for money. The individualist was share against local jewellers and new jewellery
fairly young, upper-class working woman, primarily brands like Gili, Nakshatra, Reliance Jewels, etc.?
Positioning Gaining competitive advantage through differentiation is the key to survival in today’s
turbulent times. This differentiation could be along any or all of the following lines.
(a) Product
(b) Service
(c) Channel
(d) Price
(e) People
(f) Image
Differentiation on account of product is indeed the most basic and commonly resorted approach to
positioning.
This differentiation is generally based on features, form, or benefits. For example, Frooti was posi-
tioned differently from other fruit juices on the basis of its tetrapack, a feature that nobody offered in
1986–87. BPL positioned its refrigerator on the basis of size, colours, and benefit (frost free refrigera-
tion).
However, in a world characterised by standardised technologies and products, product based differ-
entiation does not last long. A more defendable differentiation is created through service. Here the cred-
ible promises are built around speed, convenience, zero down time, and ready-to-use products without
having to wait for the company staff to install the product. Domino’s Pizza has taken the service route to
position its pizzas in the Indian market. It guarantees delivery at the customer’s end within 30 minutes
of receiving the order. Likewise, Maruti uses the toll free number to deliver service to its customers at
all times and ICICI Bank has made banking a convenience product through its ATM network strategy.
Competitive advantage and brand position also gets strengthened through the channel differentiation
strategy. In this strategy firms take into account channel image, location, expertise, and performance.
Premium brands fight for the shelf space of premium retailers. Likewise, Dell computers, Amway, and
the Tupperware range of products are positioned on a direct marketing and multilevel marketing ap-
proach, rather than through the conventional distribution model.
Price is another basis for competitive differentiation. Nirma, T-Series, and many other regional
brands are positioned on this basis. People and image are other bases for competitive positioning.
Increasingly, companies in India are realising the importance of trained manpower in the delivery of
brand values and building brand and corporate images.
Selecting the Positioning Platform Which of the above should the company use to position its
brand? Should it promote all differences? If not, which ones does it select. Many marketers believe that
companies should select one basis of differentiation, that the customer values most and for which he is
willing to pay the premium. Others believe that in today’s complex market a firm needs to promote as
many bases of differentiation as it has, so as to create a credible and long lasting position in customer’s
mind.
Irrespective of one or all, the firm needs to consider the following in promoting differentiation.
(a) Superior—the difference must be superior to other existing methods of need satisfaction
(b) Communicable—it can be communicated in a clear and distinctive manner
(c) Pre-emptive—it should pre-empt competition
(d) Affordable—customer can afford the product
Finally, the company has to select from any of the following positioning platforms.
Premium—better and superior value to that of the competitor for which customers are willing to pay.
For example, Jet Airways is positioned as a premium airlines as compared to other airlines, including
Indian Airlines.
Value for money—better and superior product at an affordable or low price. For example, the Indica
car is positioned as a value for money car in the small car segment.
Parity with others—Here the company offers the same product with or without additional features
at competitive prices.
Finally, the firm needs to select an appropriate media vehicle to communicate its positioning strategy.
This media choice has to be in line with the segment’s media preferences and attitudes towards different
media vehicles.
SUMMARY
Market segmentation is important as it helps the firm to get customer focused. There are different
bases that can be used to segment the consumer market, but it has to be remembered that none of
these can be used exclusively. In fact, each customer characteristic is used successively to arrive at
the target market. It is in this sense that market segmentation is a customer based strategy. The market
segmentation approach is now, also being used by industrial marketers who use size, buying motives,
end user characteristics, and geography as the bases to segment their markets. This approach has
helped industrial marketers focus their strategy more effectively. The attractiveness of a market seg-
ment is assessed on the basis of three parameters, namely accessibility, measurability, and viability.
The level of competition in a segment also determines its attractiveness. The marketer can target the
segment either through standardisation, differentiation, or focused strategies.
Based on the identification of the target market and the values it seeks in the brand, the positioning
platform and strategy can be worked out.
POWER POINTS
1. The segment refers to a homogenous group of buyers, while segmentation is the art of crating
homogeneity in a heterogeneous market. (LO1)
2. The marketer uses different bases for segmenting the market. The most important way of
developed by MRSI and also psychographic variables. (LO2)

3. Marketing segmentation is being used extensively for industrial products as well. (LO2)
4. The procedure used in segmenting the market consists of three stages – survey, analysis, and
(LO3)
focused strategies. In today's environment gaining competitive advantage through differentia-

tion is important for the survival of the brand. (LO4)

1. A designer brand for cosmetics is eager to enter the India market. This brand is a well-known
brand in the US market. Often used by the teenage girls and young girls in their 20s. The US
positioning of the brand is based on the lifestyle. India market is today highly competitive with
many of the global and Indian brands competing for customers' attention. These brands have
introduced colours and shades to suite the Indian customer and Indian weather. If you were to
advise this brand on the target market, what would it be? (LO1)
2. The new Airline Vistara was launched in early 2015. The airline is a joint venture btw Tata Sons
and Singapore airlines. It was launched on 9th January 2015. As of April 2015, it operated 197
-
ness Class, Premium Economy and Economy Class. The airline competes with Jet Airways and
Air India. If you were to advise Vistara on market penetration, what would you advise? Should
it reach out to all passengers or to a select few and if so, which and why? (LO2)
3. Assess the Tanshiq segmentation and brand positioning strategy. (LO2 and 4)
4. Critically evaluate the market segments for Titan, Rado and Rolex brand of watches. What are
the value propositions of each of these brands for different market segments? (LO3)
5. The mobile phone market is today highly competitive both in terms of the product form and
brands. Global brands like iPhone, Samsung, LG, BlackBerry, etc. face the heat from Chinese
handsets and those manufactured by Indian companies like Micromax, Lava, Gionee. iBall
has recently launched its brand of cell phone Andi whose Brand Amab is a well-known Ceni
Star Kareena Kapoor. iBall wishes to gain market share and also develop its market for its
smartphone. How would you segment the mobile handset market? Position Andi in the most
(LO3 and 4)
CHAPTER
MARKET MEASUREMENT AND

DEMAND FORECASTING
9
LEARNING OBJECTIVES
LO1 Explain the different terms used in market measurement
LO2 Elaborate the different techniques used in forecasting short term and long term market
demand
In Practice
Titan Uses Advance Planning System For Forecasting The Market Demand
Understanding the market behaviour and demand for the product has always been one grey area
in marketing planning. Very often sales force assessment or past sales data and competition data
is considered for forecasting demand. These methods have their limitations. The complexity of
forecasting increases with the number of product variants and brands in the product portfolio of
a firm. Nonetheless, the firm needs a forecast to plan their production and retail push.
Titan, the leader in watch and fashion gear industry, is no exception. A company, that was
established in 1984 as a joint venture between Tata Group and Tamil Nadu Industrial Develop-
ment Corporation, Titan today manufactures about 9 million watches and has a customer base of
over 80 million. These watches are sold through 6 different market channels which also includes
overseas markets. Titan’s depth and width of distribution can be gauged by the fact that it has
240 World of Titan show rooms, more than 100 Time Zone Outlets and over 12,000 retail outlets
which are multi-brand retail outlets. Titan needed a system that could help match its production
with market demand. The biggest challenge Titan faced was related to coordination between
supply chain and distribution. To forecast demand, the company had been using conventional
methods which often led to mismatch between customer demand and the inventory in the retail
stores. This led to 30% of the inventory not being sold or used. Such large unsold inventory has
had a bearing on the company’s bottom-line. In order to overcome this problem the company
used Advance Planning System (APS) which delivered more accurate forecast as it took into ac-
count organisation’s resource constraints also. The challenge for the company was to get the data
from the distribution channel for which it was suggested that the company improved its server
capacity from 32 bit to 64 bit. However, since APS had fewer users who were the stakeholders in
Market Measurement and Demand Forecasting 227
the business, it took time to persuade them to accept the optimised figures. But once they did,
they found that the system now worked more accurately. APS significantly reduced production
planning time from one week to three days and responded to all the new complexities. Today
the production’s alignment with the market is 85%.
Advanced Planning and Scheduling (APS) is the manufacturing process by which raw materials
and production capacity are optimally allocated to meet the demand. This system is especially
well suited to complex environments where simpler planning methods cannot address the
complicated trade-offs between competing priorities. APS is a computerised software offered by
several companies.
INTRODUCTION
The Titan example shows the complexity in marketing and strategy decisions. A wrong forecast can not
only affect the financial results of the company but can even demotivate the organisation. The problem
of forecasting further gets accentuated when a new product is introduced especially the one which is a
breakthrough product. For example, when Apple introduced its innovative product like iPod and iPad,
there was no way by which a forecast could have been made of their demand and market preference
as there was no comparable product. Likewise when a firm launches its product which may not neces-
sarily be a breakthrough product, it may find that industry estimates may not necessarily give it the
required data nor can that be used for planning purpose. Zara, a leading retailer in the fashion industry
and others face similar problems in different markets. This problem was studied by one of the MBA
students of the Sloan School of Management, MIT.1 The theses considered the developments in and
evaluated the modular system including distributional demand forecasting and dynamic programming
distribution optimisation approaches. The demand forecasting model combined similar product sales
to predict the demand for new product in a new store or customer cluster data aggregation scheme. The
study also used experts or qualitative forecasting methods to improve on the forecast. The Distribution
Optimisation Module leveraged the distribution forecast and dynamic programming to optimize the
initial shipment quantities.
The new demand forecast could help Zara reduce the forecasting error by 30% and improve the initial
sales by over 12%. This could have the potential of impacting profits of Zara.
Thus, market or demand forecast can have a bearing on the sales and profit of the product.
KEY TERMS IN FORECASTING
LO1 Markets to Study

Explain the different Whenever the issues of forecasting are discussed, the marketer is faced with
terms used in market a choice of studying it at different aggregate levels. It could be at the global
measurement level or at the existing customer’s level. At this juncture, it is necessary to
clarify a few terms commonly used in the forecasting exercise.
Market This is often confused to imply a place where buyers and sellers meet. In reality, market
only refers to a set of existing and potential buyers of a product/service. Place is only a facilitator. In
today’s marketing situation, where buyers buy on the Internet or through cell phones and get their order
delivered at home, place has ceased to even perform the facilitating role. Sellers
Potential market is a set
represent competition to the firm or the alternatives from whom the buyer buys.
of consumers who evince
interest in the marketer’s
Potential Market This is a set of consumers, who evince interest in the mar-
offer, while target market
keter’s offer. It may be noted that interest alone is not enough. They must also
refers to a market segment,
have the means (income) to buy it and the offer should be accessible to them.
which the firm chooses to
serve. For example, the potential market of luxury homes, are all consumers in the high
income and rich segment, who have the resources to buy them. Also, upper
middle income consumers, with access to consumer finance and the aspiration to acquire such a home
are the potential consumers. Now, if these homes are in constructed in most cities by several builders,
it provides an opportunity for such consumers to own such a home. Thus, today, it is the means (i.e.
resources), access, and aspiration that define a potential market for any marketing offer.
Target Market This is also called served market and refers to the market
Market penetration
ratio refers to the set of segment which a firm chooses to serve. Thus, in the above example of luxury
consumers, who are already homes, a builder may choose to target young professionals in major cities, who
the firm’s customers, to the have the resources or access to resources and also aspire to own such a house.
total number of consumers in
the target market. Market Penetration In the above example, this refers to the set of con-
sumers in the target market who have bought luxury homes. Market penetration
ratio refers to the total number of such consumers to the total number of consumers in the target market.
This ratio indicates the opportunity for growth in the target market.
The firm may choose to evolve strategies to exploit market potential or go for the opportunity in the
target market. Other marketing mix strategies will be based on this decision.
Market Potential The forecasting exercises involve understanding market potential. Consider,
the example of a product such as a TV set. To estimate the market potential for TV sets in India, we
have to know the number of households. Assuming that each household will have a TV set, we can say
that the market potential for TV sets is equal to the number of households in the country. And if we
assume that six people constitute a household, we have about 142 million households. Ideally, this is
the market. But then, we know that 25% of Indian population is below the poverty line and hence will
not be able to buy TV sets. Besides, almost 40% of Indians are in the low income group and given the
prices of TV sets, they too may not be able to afford it. So one is left with only 35% of the total popula-
tion, which is the real market that needs to be targeted. One might ask, why this is so? The answer lies
in the fact that the size of any market is based on the number of buyers, who might exist for a particular
marketing offer. These buyers need to have three characteristics:
(a) interest in the product
(b) income to be able to afford the product
(c) access to the product
Based on these characteristics, we have arrived, in the above example of television sets, at the con-
clusion that 35% of the total Indian population is the size of the total market. ‘Market potential is the
limit approached by the market demand as the industry’s marketing expenditures approach infinity, for
a given environment.’ In other words, market potential refers to the upper limit of market demand.
Three Aspects Involved in Defining Market Potential It is important for us to understand that
there are three key terms involved in defining the market potential. These are:
(b) marketing expenditure by the industry

(c) market demand
Consider, that the TV industry decides to cut its costs and that many manufacturers plan a new fi-
nancing scheme, with no cash down payment, low interest rates, and payment through 24 monthly in-
stalments. The government also decides to reduce the excise duty on TV sets and customs duty on kits
and components used in TV manufacturing, and more regional language, multiple interest channels
launched. All this, will have the effect of pushing up the market potential, as new customer groups will
now be able to afford the product. Recession, on the other hand, sees a decrease in sales. In fact, they
exit the product market and the market potential reduces. Environment, thus, plays a key role in market
potential estimation.
Market Demand Market demand refers to the ‘total volume that would be
Market demand refers
bought by a defined customer group in a defined geographical area in a defined
to the total volume that
time period in a defined marketing environment under a defined marketing pro- would be bought by a
gramme.’ It is important to note that demand among be measured in physical or defined customer group in a
monetary terms. Demand is always within a specific time frame. defined geographical area
Another important dimension to be understood, is the fact that market dein a defined time period
mand is not a fixed number but a function of specific conditions. It is for this in a defined marketing
environment under a defined
reason that it is called ‘market demand function or market response function’. marketing programme.
In the example of TV sets, as more income is generated in the Indian economy
following a higher economic growth rate, the demand for TV sets will increase.
The demand for colour TV sets boomed in 1982–4 when Doordarshan started colour telecasts, went
commercial, and beamed popular soap operas.
Market Forecast We know that at any given time, there is only one level of industry marketing
expenditure. The market demand corresponding to this level is called market forecast. Figure 9.1
illustrates the three concepts described above.
Figure 9.1 Market Potential Demand and Forecast
Company Demand This refers to a company’s share of the total market demand. It is subject to all
the determinants of market demand, plus the determinants of the company’s market share.
Company Potential Company potential is the limit approached by company demand, as its market-
ing effort increases relative to its competitors. The absolute limit to this potential is the market potential
and this will be so, only in a monopolistic situation.
Sales Forecast Sales forecast refers to the estimates of future sales of the company’s products. In a
way, this is the same as company demand. Figure 9.2 illustrates these concepts.
Figure 9.2 Basic Kinds of Market Measurement
TOOLS FOR ESTIMATING FUTURE MARKET DEMAND
LO2 There are two kinds of tools that one can use to estimate market demand.
Elaborate the different One, the qualitative (mainly surveys) and the other, quantitative. Let us
techniques used in examine these tools in greater detail.
forecasting short term
and long term market Qualitative Tools
demand Qualitative tools involve opinion surveys. Some of the more prominently
used ones are described as follows:
Survey of Buying Intention This involves surveying the buyers, to assess their intentions to
buy the product. This is very useful in estimating the market demand for consumer durables or even a
new product. This method, could also be used to measure the demand for a product, at a different level
of the marketing effort. For example, change in price and its effect on consumer demand can be studied
through this method. The purchase intention of the buyer can be measured on a seven-point scale from
a ‘definitely buy’ to a ‘definitely not buy’. The response so obtained, constitutes purchase probability
for a given product and hence an index of purchase probability can be made. This method is also suit-
able in industrial marketing. Though it is a useful method, it suffers from the same limitations as other
consumer surveys, as described earlier in Chapter 5.
Composite of Sales Force Opinion In this method, the company asks individual sales person-
nel to estimate sales of the given product, in his or her territory. These estimates, are then pooled and
a national level forecast of sales is obtained. Very few companies use this tool as, most often, sales
people are believed to underestimate sales in their territories. The reason is that they would like to show
a positive variance of sales against targets to their top management. It is for this reason, that not many
companies rely on sales force opinion polls.
Delphi Technique This involves constituting a panel of experts and asking
Delphi technique involves
them to estimate the market demand for a given product. They are also asked constituting a panel of experts
to mention their assumption, about the future market environment. Individual and asking them to estimate
experts do not know who else is on the panel. Since each expert works from his the market demand for a
or her office, the chances of him or her getting influenced by others, does not given product.
arise. Once the marketer gets the estimates, he or she isolates extreme opinions
and estimates and reverts back to the concerned expert, giving them the assumptions, which others
have made. However, the marketer does not reveal the estimate of the other experts. The objective of
sending back extreme opinions is to get a consensus. But should the extreme opinion holders, choose
not to revise their opinions, the marketer will have to leave it at that. This method can study different
scenarios and is particularly useful in estimating demand for a new product or technology.
A variant of the Delphi technique is the expert opinion poll in which a firm may interview experts in
its industry. These experts could be dealers, large buyers, marketing consultants, and trade associations.
These polls too, have the same limitations, as that of the consumer survey. Nevertheless, these polls are
commonly used by many firms, for estimating market demand and the company’s market share.
Quantitative Techniques
The quantitative techniques could further be categorised as:
(a) tools for short-term forecasting
(b) tools for long-term forecasting
Short-term Forecasting The short term forecast refers to all forecasts, upto a period of one
year. Most often sales managers are interested in this forecast. Tools commonly used here, are clubbed
as extrapolation techniques. Examples of these, are exponential smoothing, time series decomposi-
tion, and several other models. The most common is the exponential smoothing technique which is a
type of moving average that represents a weighted sum of all past numbers in the time series, with the
heaviest weight placed on the most recent information. This method involves estimating the value of
the ‘smoothing constant’ (usually designated by the symbol a) and then using it to ‘smooth’ the raw
sales data. The assumption in this method is that actual sales is a function of environmental factors and
the method helps to ‘smooth’ out these factors. The exponential smoothing method can be represented
symbolically as
St = a Xt + (1 – a) St – 1
where St refers to smoothed sales in period t

a is smoothing constant with a value between 0 and 1
Xt is actual sales in period t
St – 1 is smoothed sales in period t – 1
A major challenge is that of estimating the a value. In fact, the problem of assigning a value to a
creates a limitation in the usage of this method. A general principle used here, is that if the time series
changes very slowly, the value of a could be small to keep the effect of earlier observations. But if the
changes are rapid, the a value will have to be high, to give forecasts responsive to these market changes.
In reality, the value of a is estimated, by trying several values and making retrospective tests of the as-
sociated error function. The a value leading to the smallest error, is then chosen for future smoothing.
Long-term Forecasting Long term forecast refers to forecasts for a period of three years or
more. The methods used are
(a) Time Series Analysis
(b) Correlation
(c) Econometric models
From among these, Time Series Analysis and Correlation are of interest to decision makers.
Time Series Analysis Most firms have their own industry and sales data from previous years.
Decomposing this time series and then estimating sales for the next time period is called time series
analysis. To use this method, the marketer should have the time series for the past ten years. Two ap-
proaches to decomposing time series, are the additive and multiplicative approaches. The sales over
a time period is a function of trend, cyclicality, seasonality, and erratic factors. A common functional
form expressing it is:
O=T¥C¥S¥I
where O refers to observed sales
T is trend component
C is cyclical component
S is seasonality component
I is irregular or erratic factor
In the additive approach, sales is seen as the aggregate effect of all these variables and is symboli-
cally depicted as
O=T+C+S+I
Correlation Method It is commonly believed that sale of a product is a function of several variables
like price, advertising expenditure, distribution expenditure, personal disposable income, and so on.
This relationship is reflected by the following equation:
Y = f (X1, X2, X3, …, Xn)
where Y is the sales in volume or monetary terms X1, X2, X3, …, Xn are independent demand variables.
This method is increasingly being used today. However, a marketer needs to be wary of problems
like too few observations, too much correlation among independent variables, violation of normal dis-
tribution assumptions, two-way causations, and the emergence of new variables, not accounted for.
Today, with the increasing use of computers, one can achieve a higher level of sophistication in
demand estimation. But, one has to consider the cost and value of such an estimation in actual decision
making. This is where the probability theory helps the marketer.
TOOLS FOR ESTIMATING CURRENT DEMAND

Current market demand estimation can be done by using any of these tools: estimating total market
potential, territory market potential, and total industry sales and market shares.
Market Potential Estimation

This is the starting point of making the estimation. Market potential here, refers to the size of the cur-
rent market available to the firms and hence represents the maximum sales, all firms can achieve in a
given geographical area, at a given time and under given marketing conditions and efforts. A common
way to do this, is to estimate the total number of potential buyers and multiply it with the volume of
product bought by them, times the price. This can be expressed as:
Y=n¥u¥p
where Y is the total market potential available to all firms
n is the number of potential buyers
u is average quantity of units bought by each of them
p is the average price paid by the buyers
Another method used for estimating market is the chain ratio method. According to Kotler2, it
involves multiplying a base number by several adjusting percentages.
Territory Market Potential Estimation

Often, companies face the task of deciding on resources deployment in different markets. In the absence
of any quantitative information, this decision may be arbitrary and can lead to problems of sales force
and dealer motivation. In order to overcome these problems, the approach most often used is to estimate
the territory market potential.
Estimating Existing and Potential Customers

One method involves estimating existing and potential customers for the firm’s product/service in a
given territory, the average number of units they buy or are expected to buy, identifying competitor’s
customers and the average number of units they buy. It also involves, identifying any major trends like
migration of population from one area to another, depending on their economic activity. This method
has been termed as the market buildup method. The problem with this method, is that it is difficult to
get all this information because in most cases, industry data may not be available, especially if a large
section of it is dominated by small unorganised firms. Also, the distributor/dealer may be reluctant to
give complete information.
Multiple Factor Index Another method used is the multiple factor index. This is particularly
useful for consumer goods, where the estimation of buyers is a difficult proposition. Here, the firms
consider the proportion of a nation or state or city’s population in a defined geographical area. The
consumption of the product is often dependant on consumer incomes and retail activity in that area. The
firm can attach a weight to each of these three parameters, namely proportion of population, purchasing
power, and retail activity and then build an index of market potential in that area.
Brand Development Index A third method mentioned by Kotler3 is the brand development
index. This is the index of brand sales to the category sales in a given area. Once again, the difficulty
here is that of getting reliable data on categorywise sales as trade may be unwilling to give relevant
information.
Industry Sales and Market Shares

As the name implies, this method is based on estimating industry sales and market share of competi-
tion and the firm. In the case of the organised industry, this data is often available from the respective
industry association and several other sources like CMIE (Centre for Monitoring Indian Economy)
or CII (Confederation of Indian Industry). But the problem is with regard to data for the unorganised
industry. For example, in the case of the pharmaceutical industry, information is not easily available
for the small and unorganised sector. Even if it is, its reliability is often doubtful. Hence most market-
ers take this information’s reliability to be only 60 –70%. In the case of media or consumer goods, this
data is generally available from syndicated research like AC Nielson, ORG-MARG, KSA Technopak
(on retail industry), etc.
In Practice
Demand for Higher Education in India
The last one decade has witnessed massive expansion in Higher Education. The number of uni-
versities has grown from 256 in 2000–01 to 700 in 2012–13 and the number of affiliated colleges
from 20,000 to 33,000 in the same period. The distance education programs saw an increase in
enrolment from 1.38 million in 2000–01 to about 5 million in 2012–13. The gross enrolment ratio
in Higher Education is today around 19%. India has also seen a rapid increase in Engineering
and Management Programs as also in other professional courses. Several factors have influenced
the growth of Higher Education in India some of these are:
● Indian demography
● Increase in private sector participation. The private institution today account for 64% of the
total education industry

● Increased budgetary allocation through National Mission on Education through Informa-
tion and Communication Technology (NMEICT), and Rashtriya Uchchatar Shiksha Abhiyan
(RUSA)
● Growing international collaborations
One of the leading media firms is interested in expanding in the Higher Education space and
wishes to create a distinctively different institution of Higher Learning. It is with this in mind that
the firm engaged one of the consulting firms to do a feasibility study. As a part of this study, the
firm reported that the education sector in India would grow significantly to make India as one
of the world’s leading education destination. The factors that would support such a significant
growth would lie in the first place in its demography. The firm estimated that India would be-
come most popular country by 2030 with almost about 1461 million people. This would be more
than China which would be 1391 million. India and China would account for the largest educa-
tion market in the world. In the context of India, two significant demographic changes would
occur. While India will continue to remain a young nation, its median age will increase from
26 years to about 32 years, and the country will also have a substantial number of people in
the older age group also especially in the age group of 65 plus. The urban population of India
will grow faster than its overall population. It is estimated that 41% of India’s population will live
in urban areas in 2013. Industry and services sector would require a gross incremental workforce
of more than 250 million by 2030 and India could become a global supplier of skilled manpower.
For an average Indian, education is a passport to improve quality of life. Education has been
valued in the Indian society since the time immemorial.
The gaps that exist in Indian education today relate to faculty availability, research, innovative
programs in professional education and liberal arts. At the same time, Indian education industry
suffers from quality stigma. However, all states today are inviting investment in Higher Education
and today it occupies an important place in the state’s developmental plan.
SUMMARY
Market measurement and estimation of current and future demand is important as a number of mar-
keting decisions are based on them. Decisions like new product introductions or a change in one of
the elements of the marketing mix and the resultant impact on the firm’s sales are some of the areas
requiring demand analysis. Besides, demand estimation helps in setting performance standards and
evaluating marketing personnel. It is important to understand the key terms used in demand estima-
tion and also the different techniques or tools for estimation.
POWER POINTS
1. Market estimation involves understanding of key terms like market potential, company de-
mand and sales forecast. (LO1)
2. Market potential is the limit approached by the market demand as industry marketing expen-
(LO1)
3. Market demand is always linked to a product and estimated for a given time period, under an
assumed marketing environment. (LO1)
4. The tools for market estimation are both quantitative and qualitative. The tool for estimation
is chosen depending on the objectives of a market planner as well as the time frame. (LO2)

1. A manufacturer of toiletries is interested in estimating the demand for herbal shampoo in urban
centres of India. What factors will you consider in estimating this demand? (LO1)
2. Based on the above, estimate the market size for herbal shampoos in Mumbai, Delhi and
Chennai. (LO2)
3. Estimate demand for an information service provided like Askme. Based on this forecast
-
bile or internet enabled information service provider. (LO2)
4. Estimate the market for an environment friendly refrigerator and computer. In doing so identify
all critical factors that you think are important to understand the market. (LO2)
5. Identify the market for an electric four geared bicycle in different market segments in India.
(LO2)
6. Estimate the market size for hybrid cars. (LO2)
Section 3
Creating of Customer
Value
Section Outline
Chapter 10: Product Management
Chapter 11: New Product Decisions
Chapter 12: Brand Management and Decisions
Chapter 13: Customer Service
Chapter 14: Pricing Decisions
T his section focuses on delivering value to the customer. In a highly competitive

environment, it is important for a firm to create and deliver on a sustainable basis. The
customer must also perceive the value. The firms create such perceptions on the strengths
of its products, brands, customer service and pricing decisions. The focus of Chapter
10 is on product-related decisions, managing product life cycle and issues in product
management in emerging markets in India. Chapter 11 focuses on new product develop-
ment, positioning and diffusion. Chapter 12 focuses on brand equity and how the brand
can be built in emerging markets in India. Chapter 13 on Customer Service focuses on
the role the services play in augmenting the brand equity and building relationships with
the customer. It directs the attention of the marketer to the fact it is in services quality
which he or she may like to focus on. Chapter 14 on Pricing Decision is about the different
methods of pricing the brand or product and discusses different methods, strategies and
tactics that can be used at different stages of product life cycles.
CHAPTER
PRODUCT MANAGEMENT
10
LEARNING OBJECTIVES
LO1 Explain the significance of innovations and environmental impact analysis in product
planning and management.
LO2 Describe key concepts in product decisions including those relating to product mix and
digital products
LO3 Assess product life cycle and locate products or brands in the product’s life cycle
LO4 Identify emerging issues in product policy in India and other Asian countries
LO5 Explain ethics in product marketing
In Practice
Innovation in Product Design—The Case of Samsung
Samsung leads developments in smartphone market. Smartphone as a product has grown much
faster in India and Samsung has led the way and emerged the market leader. What made Sam-
sung the market leader is its continuous investment in product design innovation. For example,
it was the first among all to use android platform which made it far more convenient for the
customer to not only use it but also shop and download various applications designed by Sam-
sung or by a host of other designers. This in turn enhanced the value of the product. Since the
phone was an android based phone, it caught the imagination of the Indian market much faster
than Apple, which though enjoyed a high brand recognition could not penetrate the market,
primarily because of its proprietary operating system IOS. Sensor technology used by Samsung
made it easier for the customer to use than those with QWERTY keyboards.
In 2013 Samsung introduced yet another innovation in the market. This time it was a phone
with the hand gear or phone with a wrist watch. Branded as Galaxy Note III with Gear, the key
features of this product are the stylus pen, large screen of 144.3 mm fully digitalised, android
4.3 operating system (Jelly Bean) 13 megapixel BSI sensor, auto focus real camera with smart
stabilizer, pen window, multi window, group play, smart scroll, etc. The gear is especially
designed to be compatible with the Galaxy Note III only. Besides having all the features of a
phone, it comes with Bluetooth features. It also has a feature of an auto lock, search, top watch
and time. With the Galaxy gear the customer can now answer and make calls from the wrist.
It responds to touch and voice. The company promises a seamless communication between the
gear and the phone. For example, when the customer would get important notification on his
gear his phone will automatically show by picking up the phone. Like any other phone it has
features of a camera and a memo pad.
SIGNIFICANCE OF INNOVATIONS AND ENVIRONMENTAL

IMPACT ANALYSIS
LO1 Innovations make products relevant to the market. However there are many
Explain the innovations, like the current one from Samsung that may not necessarily
significance of respond to the immediate or overt need of the market. Many such products
innovations and are futuristic in nature and as the markets evolve the demand for such prod-
environmental ucts emerge. When that happens, it is a prime mover or the innovator who
impact analysis in has an edge.
product planning and Consider the example of Micromax who challenged leaders in the mobile
management. market. India is one of the largest mobile phone markets in the world. The
growth rate in mobile phone subscribers is much higher than internet. This
market has been dominated by leaders like Samsung, Nokia and Apple. However, since 2010 new firms
entered the market and gained a foothold in the price sensitive segment. These companies are HTC,
Micromax and several other Chinese unbranded phones. Micromax strategy had been to imitate and
surround leaders like Samsung and grow the business to the point where today it is 12th largest handset
manufacturer in the world. The company started in 2008 and tested the Indian market in 2012 with its
10,000 phablets identical to Samsung Galaxy Note II. Branded as Canvas A100 smartphones, these
phablets have 5 inch screen against 5.5 inch of Samsung Galaxy Note II with the resolution not half
as detailed. As against Note II four processors, Micromax Canvas 800 had one and RAM was just the
fourth of Galaxy Note II. But this was priced at `9999 as opposed to Samsung `39,900 at the time of
its formal launch. There were no guesses in the market. Micromax gained a foothold and then went
about for an improved version of the smartphone which had dual core processor, better quality and high
resolutions screen, higher RAM but still priced at `9999. The phone just turned out to be a winner. The
company seems to follow the strategy of affordable innovation. Today, the company’s portfolio consists
of 60 models ranging from feature rich dual SIM phones to QUARTE, touch enabled, smart feature
phone and 3G android. The company’s attempt is to enhance the customer’s overall experience with its
product which comes with innovative package and bundled accessories. The product is today available
across the country and in all leading retail chains like The Mobile Store, Croma, Spice, E-Zone, Vijay
Sales, Planet M Sangeetha, Reliance Digital, etc. It has service centres located across the country and
has also tied up with well-known service providers like Aircel.
It recently launched Canvas 4 for `17,999 which operates on 4.2.1 Jelly Bean OS. It has a 5 inch
touch screen, 1.2 GHZ Quad processor, dual SIM 16 GB NAND flash memory expandable up to 32 and
1 GB RAM. This was launched in July 2013. In order to make its presence felt, the company has signed
one of the well-known Hollywood actor Hugh Jackman as its new Brand Ambassador. The company
wishes to expand its footprint in the global market.
Product Management 241
This example of Micromax brings forth the importance of understanding the target market for prod-
uct development and marketing.
Marketing today is about engaging the customer. For this purpose it is necessary to develop an in-
sight of target customers. The marketer has to invest in understanding demographic and psychographic
profile of customer and his price sensitivity behaviour. It is in this context that product development
and marketing be considered. As illustrated in the example of Micromax, a firm can gain market share
only by understanding the target market. Equally important is the customer’s world view of the product
and brand perception including that of its country of origin’s image.
Some of the issues which need to be considered relate to how customer views the product category
in which the product is to be positioned; the perception of the customer of a product which may not
necessarily carry strong association or image as for example Micromax. This required a change in the
customer’s attitude towards locally produced low cost hand phones. At other times change in customer’s
consumption behaviour is required. For example, health foods like the multigrain flour or bread or the
breakfast cereal succeed only when customer’s consumption behaviour changes. The environmental
impact of product consumption also needs to be considered. Increasingly today customers have become
environment conscious and wish to use products that will not necessarily use up scarce natural resources
and thus damage the environment. Equally important are the range of services that get bundled with
the product. Even for simple products, companies have developed a returns policy. This assures the
customer, if not satisfied, the product can be returned. This is also evident in online marketing. For
example, Flipkart, the online retailer, gained foothold in the Indian market on the strength of a wide
product range, and marketing all leading brands in each product category. It offered path breaking ser-
vices like cash on delivery, a 30 day replacement policy, EMI options, free shipping and competitive
prices. The attempt of the company was to offer to the customer a memorable online shopping experi-
ence.
Hence, contemporary marketing is about innovations customised to the target market. Juggad strat-
egy, for example, which was referred to in the earlier chapters, is about developing an affordable in-
novation to fix a customer problem through ingenuity and cleverness. It is a unique way of product
design based on the art of spotting opportunities in a most adverse circumstances and resources. It is
about offering or doing more with less. Continuous innovation therefore is the way forward.
Emerging markets like India, China, Brazil, require new approaches to managing product portfolio.
Since these markets are home to the world’s largest number of poor consumers, product planning will
need to be more responsive to this segment. Hence, issues relating to product performance and position-
ing need to be carefully examined.
Further, post 2000 surveys of brands have continuously shown the dominance of technology prod-
ucts. They have also shown, that market leadership of any brand is a function of continuous product
development including category development the brand’s history has, perhaps little or no relevance.
With technology being readily available, large numbers of companies have diversified in new product
areas, including high-tech or tech products. Examples of companies like Samsung and LG illustrate this
conclusion. These were companies, that were best known for entertainment electronics and high value
consumer durables like refrigerator, television and microwave ovens. Today, they have moved up the
value chain and also diversified in products like cell phones.
PRODUCT DECISIONS
LO2 The environmental impact of the product needs to be considered in product

Describe key planning. Almost all companies today are conscious of the need to maintain
concepts in product environment and ecological balance. Service companies like airlines inform
decisions including the customer of the carbon dioxide that a particular flight will emit and give
those relating to to the customer an opportunity to pay an additional token amount to save
product mix and carbon emission. Such small increase in price enables the airlines to buy fuel
digital products which does not pollutes the environment. In a way the airline is engaging the
customer in saving the environment. Another category is the use of plastic.
Once again customer is informed of the consequences of the plastic consumption in day-to-day life.
Increasingly, companies are using biodegradable packaging material.
Disclosure of information on the constituents of the product, the situation in which the product could
be used and what not to do while using the product is also an integral part of product planning. The
customer has to be informed of the negative consequences of consumption.
Product—Key Concepts
The product is a bundle of satisfaction that a customer buys. It represents solution to customers’ prob-
lems. It is in this context that the marketing definition of a product is more than just what the manufac-
turer understands it to be. As Peter Drucker puts it, so long as a product is not
So long as a product is not bought and consumed, it remains a raw material or at best an intermediate. The
bought and consumed, it product is almost always a combination of tangible and intangible benefits. For
remains a raw material or at
example, a refrigerator is not just merely steel, plastic, freon gas, brand name,
best an intermediate.
—Peter Drucker
number of doors, and so on, but also involves factors like after sales service,
delivery and installation, assistance in purchase of the product, dealer network,
and service. It also connotes status in developing countries. It is the same with products like TV, music
systems, automobiles, personal products, and services like banks, airlines, telephone, courier, and so on.
What Constitutes a Product?
Core To understand and appreciate a product, we need to perceive it as a four-
The core implies the table
stakes of business, or what is
layer item. At the heart of it is the ‘core’ or ‘generic’ part. As Levitt puts it, this
needed to play the game of is the table stakes of business, or what is needed to play the game of market
market participation. participation. For a refrigerator manufacturer, it is the compressor, steel, freon
gas, condenser, and various other electrical or electronic components that need
to be assembled. To a five star hotel management, it is the number of rooms, restaurants, and swimming
pools. To an airlines operator, it is the aircraft. But in today’s competitive world, there is hardly any
difference between firms on the generic component of the product. Also, because of the standardisation
of technology, customers are never able to perceive any significant difference
The additional features that among ‘core’ or ‘generic’ products of competing firms in the industry.
a firm adds to its product,
along with the aesthetics Formal Product and Augmented Product To differentiate its product from
that it provides to give the all others, the firm names it (branding), packs it, puts additional features—like
product a distinctive appeal, laminated top, a stand, or a water tap on the door of the refrigerator—uses co-
differentiates a formal product lours and aesthetics to give a distinctive appeal. This makes a ‘core’ product a
from the core product.
‘formal product’ or the expectant product. But as inter-firm rivalry intensifies,
differentiation on the basis of the formal product ceases to exist. Consider the example of ceiling fans.
Today, there is no difference in the fans marketed by Crompton and others. All look alike in terms of
attributes, style, and colour. Besides, all have identical warranties making the task of a fan marketer
difficult.
It is here, that the marketer searches for possible differentiation. When tech-
The tangible component of
nology ceases to give one and it becomes a price and promotions war, the mar-
the product along with the
keter looks for the intangibles. Intangibles are services, like after sales service, formal and core components
delivery and installation schedules, and helping buyers purchase the product is called augmented product.
through low cost financing options. There is no fixed range of services, that a
marketer may offer. It is based on customer needs and the marketer’s creative
strategy to serve it. This intangible component of the product along with formal and core components
is called ‘augmented product’. Levitt believes that future competition will be in the augmented prod-
uct. The marketer keeps expanding the service component, thus enhancing the product value. Not all
customers, for all products and under all circumstances, can be attracted by this ongoing process of
value enhancement. They may prefer a low priced product to an augmented product. Some customers
may not be able to use the extra services offered by the marketer. Nonetheless, it is an irony in market-
ing, that as customers get more enlightened about the product (through the marketer’s communication
about the use of the product), the more vulnerable the marketer becomes to losing them. And this is
precisely, when the customer shops for a price. ‘At this point, it makes sense to embark on a systematic
programme of customer benefiting and therefore, customer keeping, product augmentation.’1 The firm
should also undertake cost reduction programmes, so that it can compete on the price front, too. Ac-
cording to Levitt, the augmented product is a condition of market maturity or of relatively experienced
or sophisticated customers.
The potential product consists of everything that might be done to attract and hold customers. These
offerings, differ from one market to another because of varying economic and competitive conditions.
The driving force in developing these offerings is the prime goal of any firm—retain competitive ad-
vantage. Figure 10.1 explains these product concepts. Thus, the product is the total concept that a
customer buys. As competition intensifies, markets open up, telecommunication and information net-
works improve. As the exposure of Indian families improve, firms will have to re-examine their prod-
uct concepts. For, an important fact to be kept in mind, is that these concepts keep changing, as
customers become more aware and sophisticated.
Product Mix One of the realities of business, is that most firms deal with
multiple products. This helps a firm diffuse its risks across different product The number of products
carried by a firm at a given
groups. Also, it enables the firm to appeal to a much larger group of customers
point of time is called its
or to different needs of the same customer group. So when a company, like Sam- product mix.
sung entered India with a diversified product portfolio consisting of television,
music systems, washing machines, refrigerators, microwave ovens and cell-
phones, it sought to satisfy the aspirations of the middle and upper middle income group of consumers.
Likewise, Bajaj Electricals, a household name in India, has almost ninety products in its portfolio
ranging from low value items like bulbs to high priced consumer durables like mixers, luminaires, and
lighting projects. The number of products carried by a firm at a given point of time is called its product
mix. This product mix contains product lines and product items. In other words, it is a basket of products
offered for sale by a firm.
Figure 10.1 The Total Product Concept

Source: Adapted from Theodore Levitt, Ibid.
A product line refers to aProduct Line This consists of different products that are closely related to
group of products clubbed each other, by virtue of satisfying a particular class of needs, being used together,
being distributed through the same channels, or possessing common physical
together by virtue of satisfying
or technical characteristics. In other words, a product line refers to a group of
a particular class of needs,
being used together or products clubbed together, because they have one of the above described char-
distributed through the same
acteristics, in common. The number of product lines carried by a firm at a given
channels, or possessing
point of time is a function of its resources and competitive position.
common physical or technical
characteristics.
In many cases, a firm may start as a single product line company, emerge a
winner, ‘harvest the crop’, and then add other product lines. Nirma, T-Series,
Reliance, and many other new generation entrepreneurs have followed this route.
Associated with product mix are issues like breadth, depth, and consistency. Breadth in product mix
refers to the number of product lines marketed by a firm. Depth refers to the number of product items
and variations (like size, packaging, colours, etc.) offered in each product line. Consistency in product
mix is the degree of similarity between product lines with respect to end use,
Breadth in product line refers
technology, production techniques, and distribution channels. This element of
to the number of product
consistency is based on the firm’s long term objectives, its competitive position lines marketed by a firm;
in the industry, strengths, and resource position. Some firms prefer diversity and depth, the number of product
hence inconsistency is visible in their product mix. An example of this is the items and variations; and
engineering giant Larsen and Toubro (L&T), which has diversified into cement consistency the degree of
and medical diagnostics. Likewise, ITC Ltd diversified into hotels, vegetable similarity between product
oils, exports (sea food), financial services, agro tech, and retail and now in e- lines with respect to end-
business. Some firms, on the other hand, have product lines that are consistent use, technology, production
techniques and distribution
with their main business.
channels.
The ideal product mix is an issue that varies from firm to firm and may be
hard to define and come by. The following situations may suggest that the firm
has a sub-optimal product mix:
Product Mix Decisions The dynamic market conditions require firms to evaluate the product
mix periodically. The demographic and lifestyle changes in the market are one such factor that influ-
ences the product mix decisions. The fact that Indian market is primarily a young market today many
firms have modified their product mix to include the product that best respond to this market. Titan is
one such example which introduced the range of products under the brand name Fastrack. As mentioned
earlier, the Fastrack is a bouquet of product that includes Sunglasses, spectacle frames, bags, watches
and all the other accessories for the youth market. Titan also launched watches for the child market.
Women lifestyle changes seem to have influenced Titan’s Raga series of watches as also that of 18K
gold watches under the brand name `Nebula’. The manner in which the product is used as also the situ-
ation in which the customer uses the product can influence product modification decisions. Product
use situation is one of the bases for positioning the product. Developments in Sony Play Station as
also the mobile games are also influenced by how the product is used in different situations and what
would inspire the customer to use and stay engaged with it. Environmental factors today influence
product modifications including that of packaging. Many of the conventional luxury hotels are convert-
ing themselves into eco-friendly resorts and hotels. They are also creating new brands of hotel which
are exclusively environmental friendly. Detergent powder that does not pollute is yet another example
of products developed by companies like Unilever and P&G. Another, factor that influences product
decisions is the regulatory environment. The developments in automobile fuel are influenced by the
Supreme Court decisions and accordingly the government orders to produce and market petroleum
product with less carbon contents.
Digital Products Digital marketing is the contemporary reality. It is a form of marketing which is
going to shape the future marketing strategies of all firms. They are exclusively designed for use on
computers and smartphones. For example, eBooks and eNewspapers or music videos on the You Tube
are examples of digital products. Similarly, there are software like antivirus software or Adobe which
are marketed worldwide only through internet. Many software have been developed on open source
software platform and marketed as SaaS. Another product is a tutorial website called Khan Academy.
The advantage of a digital product is that a firm does not have to pay any manufacturing or distri-
bution cost. Once a product is designed, it can be directly uploaded. These could even be the Apps
exclusively designed for smartphone. The ease with which any product designer can today upload his
product on the internet or mobile phones has led to the development of new breed of e-entrepreneurs.
Consider, for example, firms like MakeMyTrip, bookmyshow, Naukri.com, etc. All these have been
possible because of the mobile internet era.
In Practice
Khan Academy Shows the Way
‘A free world class education for anyone anywhere’ is the slogan of Khan Academy which cap-
tures the essence of this online education website which is non-profit organisation created in
2006 by a Hedge fund analyst turned educator Salman Khan popularly known in the US as Sal.
The website feature 700 micro lectures via video tutorials stored on You Tube. Salman Khan
started tutoring his cousin in mathematics in late 2004 using Yahoo, Google notepad. When oth-
ers relatives and friend also sought similar help he decided to distribute his tutor on You Tube.
These tutorials were a runaway success as reflected by student testimonials. Commenting on
Khan Academy and Salman Khan’s decision to take online education as a fulltime profession,
Bill Gates commented that this decision of Salman Khan was a good day as he had moved on
from Hedge finds as to ‘teaching many people in a leverage way category’ the Khan Academy
has significant backing from Bill and Milinda Gate Foundation besides several people had made
contributions of US $10,000. Khan Academy tutorials are today available in 23 languages in the
world which includes Swahili, Urdu, Arabic, Persian, Hindi besides English. The academy uses
the video game model for recognising achievers. Accordingly, he has introduced 6 types of
batches which reflect the accomplishments of individual learner as reflected by energy point.
The highest batch is the challenged batched which is earned when one finishes all exercises
of a certain topic. The tutorials are available on the App Stores on iTunes. These video lessons
are believed to change the rules of the game in education as it helps overcome mediocrity. The
website allows teachers and parents also to register like any other students. They could get to
know the exercises. This in turn would help them also coach the student or wards. Not only so
the fact that these are online tutorials it provides an opportunity for peer group learning. For
example, it may happen that a student in Kolkata may learn a topic in trigonometric from the
student in the US and the opposite may also be true and this progress of peer to peer learning
does not consider the social economic background of the learner. Hence in a way it is customer
to customer communication that helps to grow the market as also fine tune the product. Copro-
duction can also happen in such a situation. All these tutorials are available for free. Each of these
videos are not hi-fi 14 minutes long consisting of voice over Khan describing a mathematical
concept or explaining how to solve a problem while his hand scribbled formulas and diagrams
appear on screen. Khan is always behind the curtain. In his own words, his approach is like
someone who speaks from behind the learner counselling him and urging him to move forward.
Initially, Khan Academy was thought to be a helpful supplement for classroom instructions but
soon it became much more than that. Today, many teachers in America replace their lectures
with Khan Academy videos which students can also watch at home. In the class students work
on problem sets and they view their lectures at their own time. In a way in some schools in
America homework is now done in the school and the classroom lecture is heard at home. Khan
Academy provides teachers with a dash board application which lets them see the moment a
student gets stuck and then provide a specific point of help. Khan Academy Tutorial videos are
watched by 2 million users every month and the answer about 15 questions per second.
Khan Academy is the example of a digital product that is individualised for the target market.
Product Line Addition/Deletion A firm may add new products or delete existing ones or do both in
its existing product lines. Further, a firm may upgrade its technology and use state of-the-art technology
or decide to stretch the product line downwards, towards a more simple technology.
Adding or stretching a product line upwards or downwards is done due to structural changes in the
marketplace—the most important being customer lifestyles and demographic characteristics like rising
incomes and lower proportion of consumer income being spent on food and
Adding/stretching a product
other essential items. Developments in media, contributing to increased aware- line upwards/downwards
ness, may also motivate a firm to stretch its product line. Today we are seeing is done due to structural
the expanding role of television, with more channels and programmes. Also the changes in the marketplace—
role of the internet in creating an increased awareness of new products and ideas. the most important being
This awareness also exists in rural markets, now. It is no wonder, that more the customer lifestyles and
companies are now jumping on to the consumer goods bandwagon. They are also demographic characteristics
now developing real-time delivery modules to enhance the value of their prod- like rising incomes and lower
proportion of consumer
ucts. Competitive pressure may also drive a firm to extend its product line to income being spent on food
include hi-tech products. Cut throat competition and imitation forced firms like and other essential items.
Bajaj Electricals, Blue Star, Voltas and many others to take to hi-tech products
and vacate the low-tech product areas. Besides, a firm’s strength in the marketplace, brand image,
distribution network, and sales force strengthens its resolve to stretch product lines upwards.
The decision to stretch the product line downwards is often dictated by a firm’s desire to be present
in all market segments. Marketing capabilities, strengths in the distribution channel, and a gap in the
marketplace are some of the key factors that drive firms to do so. Many a time, competition and cus-
tomer preferences can act in combination, driving the firm to launch low priced or less sophisticated
products. This is precisely what happened, when Hindustan Lever decided to launch Surf Ultra, Rin
(blue coloured), Wheel (green), and Sunlight (yellow) detergent powders to counter the threat from
Nirma. While Surf Ultra and Rin were positioned at the middle or upper middle and high income house-
wife, the other two were targeted at a low income and price sensitive housewife. The move to launch
low priced detergent powders, was fuelled by declining sales and market share of Hindustan Lever in
the detergent market.
But, at times a firm may stretch its product line downwards because it has a brand image in a par-
ticular market segment and would now like to expand its market share in the target market. Taj Hotels
is a big name in India’s tourism industry. It perhaps represent the finest and the best service in the
hotel industry. Invariably, all its hotels, countrywide or internationally, are in the five star or five star
deluxe categories. With a boom in domestic tourism and also a large number of middle rung executives
travelling on business, Taj saw an opportunity and launched its new line of hotels called Taj Gateway.
These hotels had all the comforts of a five star hotel, but without the frills. They were, therefore, priced
lower too. A downward stretch may also be undertaken to take advantage of a brand name and market
opportunity created by changing consumer lifestyles and/or needs.
Product Abandonment This involves discontinuing or deleting either an individual product or an
entire product line.
In Practice
Product Abandonment
Automobile companies kill the brands
A large number of automobile brands were launched by different companies from 2012 onwards.
Some of them are heading for their withdrawal. Maruti Suzuki 800 and Hyundai Santro were
phased out from the Indian market from 2012 to 2014. In 2015 Tata Motors plans to phase out
Vista, Manza, Sumo Grande. Likewise Ford Motors’ Fiesta Classic whose sales dropped from
20,350 in 2012 to 5,850 in 2015 is all set to be withdraw so is Ford Figo and Maruti Suzuki’s Ritz.
Toshiba invested in the development of HD DVD which was supposed to be high definition
successor to the DVD when it was launched in 2006. But the blu-ray technology developed by
Sony overtook this development when Warner Brothers announced that it was not going to use
HD DVD but will use blu-ray for its films. Toshiba had to abundant its HD DVD efforts. Like-
wise, HP decided to withdraw its Touch Pad and its mobile OB and web OS in August 2013 as
it could not challenge the leader’s iPad.
A close look at these brands reveals that they fail to excite the customer who did not see any
distinctive value in buying them. Even though, they were positioned in the target market through
aggressive advertising and promotion the sales did not live up to company’s expectations.
Hence, products like these that are abandoned are those whose demands are low, leading
to uneconomical, short production runs or frequent and uneconomical price and inventory
adjustments. These products also consume management time not commensurate to their profit
contribution.
Product Modification Sometimes, just a cosmetic modification may be required in the existing
product line or product item. These changes, may be tangible or intangible and may be achieved by
re-formulation, redesign, changing unit sizes, and adding or removing features.
Product modification,
Pan Parag, the famous pan masala, introduced new sachet packs of different
achieved by re-formulation,
redesign, changing unit sizes, sizes and at different prices. This helped it to penetrate and expand the market.
and adding/removing features When the firm decided to add tobacco (zarda) to the pan masala, the effect was
are dictated by a firm’s a manifold increase in its market share. Most often these changes are dictated by
long-term goals, customer a firm’s long term goals, customer preferences, and competitive developments
preferences, and competitive in a particular product market.
developments in the particular
product market.
It is apparent, that product mix decisions are strategic in nature and often
aimed at enhancing a firm’s competitive advantage in the marketplace. But, how
can a firm take decisions to add or delete product lines and items? In other words, what analysis does
a firm need to do and what tools are available to a firm to conduct this exercise?
Criteria that Decides Product Addition/Deletion
Portfolio Analysis One of the tools used in analysing market scenarios and strategic decisions,
concerning product mix is the portfolio analysis. We referred to this and the two major models, BCG
and GE approach, in Chapter 4. We shall again revert to these two models and examine their strategic
implications.
BCG Model This model, called Boston Consulting Group (BCG), categorised The BCG model categorises
products into four groups—question marks, stars, cash cows, and dogs—based products into four groups—
on their market share in relation to competition and the market growth rate. An question marks, stars, cash
important assumption made by BCG is that products can be treated as strategic cows, and dogs.
business units (SBUs), provided they fulfilled the following conditions.
●
Further, the BCG model assumes a market growth rate of 10% as the cut off point. All SBUs
growing at a rate higher than 10% are in the high growth segment and those growing at a rate
lower than this are perceived to be in the low growth segment. Market growth rate is represented
on the vertical axis.
The horizontal axis represents the SBU’s market share relative to its largest competitor. The
market share is expressed in a log scale and 1.0 is taken as a cut off point. Based on these two
factors, a firm’s product items or product lines can be categorised as:
❍ Problem Child or Question Mark: This is a product growing at a Question mark is a product
rate of more than 10% and hence is in the high growth market. But, as growing at a rate of more than
its relative market share is low (lower than 1.0) the firm has to decide 10 per cent.
either to—
(i) build, or
The strategy to build a
(ii) withdraw question mark is based
The strategy, to build a question mark or problem child is based on on competitive forecasts,
competitive forecasts, market trends, and corporate objectives. Many a market trends, and corporate
time, a firm may decide to build a product not because it is getting good objectives, while withdrawal
profits but purely for maintaining an image. These products/SBUs re- is based on strategist’s
quire huge cash resources, since the firm has to keep acquiring plant and perception of a firm’s
machinery and personnel to keep pace with the high growth market. strengths and competitive
Further, these are generally new products and consequently the firm’s position.
learning cost is high, compared to the sales revenue generated by these
products. At times, some existing products of a firm may also be in this segment.
The strategy of withdrawal is mainly based on a strategist’s perception of a firm’s strengths
and competitive position. For example, if the strategist perceives a high level of inter firm
rivalry and the firm does not have the ability to stay put, the product may be withdrawn. A large
number of electronic companies have withdrawn from consumer markets, because of their
inability to survive in a competitive market.
A star is an SBU which is
❍ Star: A star is an SBU, which is a market leader in a high growth market.
a market leader in a high
Mostly, question marks go on to become stars. Just because it is a mar- growth market.
ket leader, does not mean that the star generates surplus or profits. On
the contrary, a star requires cash to maintain its leader status. These re-
sources are ploughed in as an on-going process for market development A cash cow is an SBU that
generates cash surplus, while
and fighting off competition. The strategist will have to examine which dogs are SBUs that have lost
SBUs are stars and plan a strategy of maintenance or hold for them. their position of leadership
❍ Cash Cows: The irony of the marketplace, is that after some time, it stops and are in the low growth
growing at rates higher than 10%. This happens, when the market reaches markets.
Exhibit 10.1 Innovation makes South Korean Brands Succeed

a saturation point. Once a star has been the market leader and has deployed strategies to build cus-
tomer loyalties, it usually becomes a cash cow. A cash cow is an SBU that generates cash surplus.
The stronger the cash cow, the higher the cash generation. The strategy here, is to harvest or milk
these cash cows, particularly those that are soon going to be losing their relevance by becoming
‘dogs’. Strong cash cows may be maintained but the strategist must not forget, that these SBUs are
fast becoming obsolete and customer preferences are changing towards newer or more efficient
products. Hence in the long term they may not be viable.
❍ Dogs: Dogs are SBUs or products that have lost their position of leadership and are in the low
growth markets. These are also weak cash cows. These SBUs need to be killed or divested.
Otherwise they will consume management time and scarce resources, which could otherwise
be more effectively utilised elsewhere. Figures 10.2 and 10.3 illustrate the BCG model, cash
situation and strategy in different quadrants.
Figure 10.2 The BCG Model
It is important for the marketer to appreciate, that SBUs change their positions in the growth share
matrix over a period of time. This change may be brought about by environmental factors like cus-
tomer preference, competitive activity, government policy, and so on. It should also be understood, that
a good product portfolio consists of many stars and question marks and several cash cows of varying
strengths. The success route is to modify cash cows and give them a fresh lease of life before they be-
come dogs. In fact, the marketer needs to continuously evaluate the product mix every year and exam-
ine the product’s growth rate vis-a-vis the industry and the largest competitor. Further, the marketer must
also examine market share data. In case, the performance of any product is not satisfactory, the mar-
keter should re-examine the strategy and make appropriate modifications. The most important contribu-
tion of this model is that it helps a firm to effectively plan its product mix.
The GE Approach The problem with the BCG model is that the cut off point The GE Approach maps
in market growth rate classifying high growth and low growth markets is arbi- the market attractiveness
trary; and in most cases 10% is too high a growth rate. To overcome this problem against the firm’s strengths or
competitive position.
and also to consider factors contributing to market growth and share, the GE
Figure 10.3 The BCG Model: Cash Position and Strategy
(General Electric) approach comes in handy. The two axes in the GE matrix, are market attractiveness
and a firm’s strengths or competitive position.
Market attractiveness is measured by factors like market size, annual growth rate, competitive in-
tensity, rate of technological development, government policy, and influence of other interest groups.
Competitive position is assessed by factors like market share, annual growth in market share, cus-
tomer or brand loyalty, product quality, brand image, distribution network, productivity, R&D, and
financial position. Figure 10.4 once again illustrates the GE matrix.
Figure 10.4 The GE Matrix

On examining the product portfolio of a firm, one may find that some SBUs may fall in the green
segment, some in the yellow, and some in the red segment. SBUs in green segment need to be developed
and supported. The strategies are those of protecting strategic positions and investing in these SBUs to
gain a higher strategic leverage in the marketplace. SBUs in the yellow segment require to be moni-
tored carefully and, wherever required, re-focusing or selective investing and building should be done.
However, SBUs in the red segment are to be harvested or divested for obvious reasons of moderate to
weak competitive position in an unattractive market.
Thus, in evaluating the product mix of a firm, we need to examine each product or product line from
the point of view of market attractiveness and its competitive position. Unfortunately, in many of the
product groups, a firm may not be able to correctly estimate its market share or even the market growth
rate. This is evident in industrial sectors which have a large number of small scale firms. Most often
their sales data are not available, particularly, on a unit-to-unit basis. Market share is also difficult to
estimate in industries, with a high possibility of counterfeit or duplicate products, as in the case of the
automobile components industry. In such cases, the best approach is to consider market share and sales
of firms in the organised sector (or the corporate sector) and estimate the total market demand for the
product at a given time. The difference between the demand and sales of organised sector firms can tell
us, on a rough basis, the sales of the small or unorganised sector. This is based on the assumption, that
no gap exists between demand and supply. However, there is still the problem of knowing who, among
the small firms, is a leader or is likely to pose a threat to a firm’s product. The only way to resolve this
is to conduct an opinion poll of dealers and retailers, which can help the marketer know the ratio of
sales of the firm to that of other smaller units.
Notwithstanding these and other data related limitations of the Indian market, these two models can
help a marketer plan the firm’s product portfolio.
PRODUCT LIFE CYCLE
LO3 Another approach to examining product mix is to

The PLC reflects sales and
Assess product life look at the life cycle phase of each product. Each profits of a product over a
cycle and locate product goes through a life cycle. It shows the in- period of time, and generally
products or brands troduction, growth, maturity, and decline during its they follow an established
in the product’s life period of existence. The product life cycle, reflects S-shaped curve.
cycle sales and profits of a product, over a period of time.
Generally, most products follow an established path, and when their sales
are plotted against time, one gets an S-shaped curve as shown in Figure 10.5.
However, there are exceptions when the product may not follow this path. As shown in Figures 10.6
(a) and (b), there are products, that either, show a sharp growth and then a sharp decline, or remain in
the maturity phase for a long time, and in fact may never face a decline. While fads and fashions can
be grouped in the first category, products in a closed and sheltered market or in a monopolistic market
represent the second type. In the second category one may also have commodities like steel, cement,
and food products, where the demand remain inelastic, relative to other manufactured products. In
India, Premier and Ambassador cars, refrigerators, and many other products’ sales did not experience
a decline until competition set in, following liberalisation and the opening up of the economy in 1980s
and more specifically after 1991.
Figure 10.5 Product Life Cycle
Figure 10.6 Product Life Cycle
Another factor, that has to be borne in mind, is that profits from a product peak before its sales. Prof-
its never or rarely appear in the introduction phase. The growth phase brings profits and by the time a
product enters the later part of growth or early maturity, profits start declining. Figure 10.7 shows the
relationship between sales, profit, and time.
Why Profits Peak Before Sales Do

A fact that intrigues marketers, is that sales maximisation does not mean profit
One of the reasons for profits
maturing even before sales is
maximisation. One of the reasons for profits maturing even before sales is the
the competition or intensity competition or intensity of inter firm rivalry in a product market situation. Most
of inter-firm rivalry in a competition in industry, follows the imitation route and tends to draw away
product market situation. customers from the pioneer firm with features like low price, better service,
better distribution network, or aggressive promotion. To fight back competition
Figure 10.7 Sales and Profit over a Life Cycle of a Product
and retain market share, the pioneer firm, (i.e. the firm that launched the product first in a market) has
to spend more money on media, distribution channels, and sales force. The irony is, that the firm has
to either retain its current price level or reduce it to remain competitive in the marketplace. In either
case, the sales revenue generated is not enough to meet all marketing costs. Hence profits start erod-
ing. Another reason is shifting customer preference and loyalty. As competition intensifies, better and
more efficient products are made available to the market by rival firms using state-of-the-art technol-
ogy, thereby changing the customers’ preferences. Consider for example, the watch industry—with the
introduction of quartz technology, mechanical watches faced a decline. Once Titan entered the Indian
market, the leader HMT (Hindustan Machine Tools) lost out, as it had focused primarily on mechanical
watches. For a long time, even after Titan had been launched, senior HMT executives believed that an
average Indian consumer could not afford a quartz watch priced upwards of `350. But with the intro-
duction of Swatch and later Timex quartz watches by Titan at price levels lower than `350, the market
scenario changed dramatically. Mechanical watches became outdated and HMT lost its market share
and profits. Thus customer preferences change and there is no loyalty in the market, which cannot be
bought with better technology, marketed at an affordable price.
Product Modification It is for reasons of competition and changing customer preferences, that
firms have to evolve strategies to reduce their break even time and introduction phase. The firm has to
start early in product modification and adapting to new technology, if it has to maintain a steady flow
of profits and growth rate. Most progressive and market driven firms follow this route resulting in a
product life cycle curve as shown in Figure 10.8.
Modifications could be in the packaging or form of the product, (example, antacids which were
originally available in liquid form are now available in tablet form), adding features or changing the
distribution. The sales and profits of Pan Parag, the leader in the pan masala segment, grew by more
than 25% when the firm started using sachets of different sizes to pack the product. The sales and prof-
Figure 10.8 Product Life Cycle in Market-driven Firms
its further jumped as it introduced a new flavour for tobacco addicts called Pan Parag Zarda. Rasna, a
leader in soft drink concentrates, found its sales and profits grow meteorically as it increased the number
of flavours available to customers and also extended its usage to other situations. Thus, a market driven
firm anticipates competition and evolves a strategy to pre-empt any competitive moves.
To have a better understanding of the concept of product life cycle, let us understand the conditions
prevailing in each of the four phases and the strategies available to a firm.
PLC: Conditions and Strategies in Different Phases

The Introduction phase,
Introduction Phase This phase marks the launch of the product in a mar-
where the product is ket. Organisationally, this phase is characterised by high operational costs, aris-
launched, is organisationally ing out of inefficient production levels or bottlenecks, high learning time,
characterised by high unwillingness of the trade to deal in the product, demand of higher margins or
operational costs. extended credit terms, and advertising. During this phase, a firm’s requirement
for cash is very high as all expenses have to be met. Generally, the suppliers,
media, and others are not willing to give credit, so all payments have to be made in cash.
The environment of the firm is characterised by customers, who have low or no awareness of the
product. Even those, who are aware and are willing to try the product, do so in small quantities, called
trial purchase. The trial demand is limited both in the quantity bought and the number of customers
buying it. Competition either does not exist or is limited to a few firms, who may also not be operating
The marketing task for a
at efficient levels. Much of the competition is indirect or from substitutes.
pioneer firm is to stimulate The marketing task for a pioneer firm is to stimulate demand for the new
demand for the new product product and also to reduce the break even time. For this reason, initially, the
and also to reduce the break firm offers just one or a limited product version. It offers tangible benefits and
even time. reasons for the customers to switch over from existing products to the new one.
Invariably the firm adopts a strategy of high price and active promotion. But this is not the only strategy
available to the firm. Depending on its objectives, the firm may choose its introduction strategy from
any of the four illustrated in Figure 10.9 and discussed thereafter.
Figure 10.9 Introductory/Market Entry Strategies for New Products
Introduction Strategies
Rapid Skimming This strategy of high price and high promotion works ef-
Rapid skimming involves
fectively, only when customer awareness for the product is not very high, or for
high price and high
those who are aware, willingness to buy at any price is high. This strategy also promotion.
works, when the market size for the product is large and the threat from competi-
tion is imminent. Most consumer electronics and non-durables can be classified in this group. This is
the reason why most consumer electronics like TV, VCR, music systems, and video games, and even
in publishing industry new products are initially priced high and then gradually reduced to maintain
market share. Since the threat from competition is real, the pioneer firm always tries to rapidly skim
the cream off the market, as it will help to reduce the firm’s break even time and earn more profits. This
strategy also works in situations where the firm’s objective is profit maximisation in the short term or
where the firm’s basic strategy is to fight a guerilla war.
While we shall learn more about it in the Chapter 22, it is sufficient to say here that a guerilla always
exists before the going gets tough for him or her. A large number of dye manufacturers, specifically of
H-acid, used in textiles and leather garments, adopted this strategy when dyes were included in the
export priority list, when chemical firms were vacating this sector in the developed countries. Most of
these firms, went out of business in five years, as their plants got totally corroded and firms with more
efficient and low cost production facilities came into the business. They also exited, because more
environmental friendly substitutes were developed.
Slow Skimming This strategy is based on the assumption that a firm has suf-
ficient time to recover its pre-launch expenses. This happens, when the technol- Slow skimming (high price,
low promotion) works under
ogy being used by the firm is highly sophisticated and competition will have the assumption that a firm has
to invest substantial resources to acquire this technology. Further, since most sufficient time to recover its
competitors may not have the required resources, competition may be limited to pre-launch expenses.
just one or two large companies. Another environmental characteristic support-
ing this strategy, is that the market size for the product is limited and those who are aware are willing
to pay any price to acquire it. Many industrial products, more specifically renewable energy resources,
laser technology, or petrochemicals, may fall in this category. In consumer products, this strategy may
work in a closed and protected market, such as India had been until recently.
Rapid Penetration Strategy The strategy of rapid penetration is based on

Rapid penetration (low price,
the same assumptions and environmental conditions, as the ones mentioned
high promotion), works if the
objective is market shareunder the rapid skimming strategy. The only difference between rapid skimming
and penetration is the firm’s long term objectives. If the objective is market share
and profit maximisation in
the long run, and the market
and profit maximisation in the long run and the market is characterised by inten-
is characterised by intensive
sive competition or other entry barriers, a firm may choose to enter the market
competition or other entry
with this strategy. Japanese firms adopted this strategy to launch their products
barriers.
in North America and Europe. Later, South Korean, Taiwanese, and Hong Kong
based firms used the same strategy to uproot Japanese and other local competitor
firms from these markets. The same strategy is now being used by Southeast Asian firms to penetrate
the Indian market. The leading examples of Indian firms having adopted this strategy are Nirma and
T-Series. Both these firms have successfully used high promotion and low price strategies to grow in
the price sensitive Indian market.
Slow Penetration Strategy This strategy delivers results, when the threat
Slow penetration (low
price, low promotion)
from competition is minimal, market size is large, the market is predominantly
delivers results when the price sensitive, and majority of the market is familiar with the product. The
threat from competition isfirm’s objective is to maximise sales or profits in the long run.
minimal, market is large and Thus, some of the considerations at the introduction stage revolve around
predominantly price sensitive,
pricing and promotion levels. As we discussed earlier, a firm offers only a
and majority of the market is
limited version of the product at this stage. Consider, the example of Maruti.
familiar with the product.
Initially the firm, Maruti Udyog, offered only one version of the Maruti 800 cc
car, which though not priced at the common man’s level sold on tangible benefits
of fuel efficiency and safety compared to other existing models. With the unprecedented success which
followed, the firm’s initial production levels could not meet the demand generated in the market.
Growth Phase Once a product crosses the introduction phase, it enters the
95% of the products fail at the
growth phase, the successful growth phase. As we shall learn in Chapter 11, the introduction phase is indeed
5%, meet with a more the most crucial one, because more than 95% of products fail at this phase.
strengthened and increased However, the 5% of successful products that enter the growth phase, meet with
competition. a more strengthened and increased competition. This competition, now offers
greater choice to the customer in the form of different product types, packaging,
and prices. The market base expands, as more customers buy the product. More trade channels are now
willing to keep the product and one generally observes softening of prices.
Organisationally, the pioneer firm now operates at economical levels. There are lesser production
bottlenecks and hence costs are lower now. To remain competitive over a period of time, the pioneer
firm initiates a product improvement or modification programme. Sales and profit grow exponentially,
but profits taper off at the end of this phase.
The marketing task now is that of cultivating selective demand. This involves, in some cases, niche
marketing and in others, focused marketing strategies. Whatever be the ultimate choice of the strategist,
it is clear that the growth phase also marks an end to standardisation or the mass marketing approach.
The growth phase involves a strategy of product modification, enlarging distribution and service
network, and maintaining a competitive price level. The strategy also involves extending the product
to different use situations and considering new packaging alternatives to attract more and more new
customers.
Maturity Phase Most products that survive the heat of competition and Maturity phase is marked
gain customers’ approval enter the maturity phase. This phase is characterised by slowing of growth rates
by slowing of growth rates of sales and profits. In fact, a decline in profits seems in sales and profits and cut
to appear now. This phase is also marked by cut throat competition, which often throat competition.
tends to narrow down to a price and promotion war. As mentioned earlier, it
is an irony that when the firm has established its product and generated customer preferences for its
brand, competition intensifies and the firm has no other alternative but to invest resources in service
augmentation and also simultaneously undertake the task of cost reduction and, hence, price reduction.
The maturity phase also sees a boom in market demand as more and more customers are now willing
to accept the product.
Internally, the firm derives benefits of economies of scale in production and distribution. The prod-
uct modification programme is at a much higher level and the firm also introduces a modified product
during this phase. As was mentioned earlier, profits and margins are low now, in fact on the decline, as
the firm continues to invest resources to maintain its competitive position in the marketplace.
The marketing task is one of adopting a segmental approach. In fact, for carving a niche, even
within a specific market segment, service augmentation, image marketing, and creating a new value
image are critical tools to retain the competitive edge. Strengthening the brand through repositioning
or making changes in the channels of distribution (e.g. moving from indirect to direct or shortening the
length of the channel) now become imperative, for while the firm has to fight competition and take its
product nearer to the customer, it has to also make adequate profits to remain in the business.
Decline Phase This is the phase when sales decline, because customer
The declining phase is
preferences have changed in favour of more efficient and better products. The
characterised by sales
number of competing firms, also gets reduced and generally the industry now decline, since customer
has limited product versions available to the customer. Customer’s value per- preferences have changed in
ception of the product, also undergoes a change. However, the firm may see a favour of more efficient and
rise in its profit curve, largely coming from people, who will be willing to pay better products.
a higher price to possess it either for its antique value or because they resist any
change. The marketing task becomes one of diverting and gradual withdrawal of the product. To cater
to a small niche, a firm may consider generating primary demand for the product, rather than the brand
demand. Nonetheless, products having entered a decline phase need to be pruned.
Why Changes Occur in the Product Life Cycle

As may be evident, the most important factors leading to changes in a product’s life cycle are:
(a) changing customers’ needs
Changing Customer Needs The most fundamental of all the environmental factors that shapes
the product’s life cycle over a period of time is the customers’ needs. These needs change as custom-
ers become more aware and have higher disposable incomes, leading to a change in their lifestyles
and aspirations. Today, we are noticing this change occurring all over the country, largely because of
the wider reach of the television—a single source of mass media, that has revolutionised markets and
products. Satellite communication, dish antenna, cable TV, cell phones, multimedia messaging service
and other telecommunication products are influencing customers’ needs and expectations all over India
and consequently, many of the products that saw their sales stagnating, now find a spurt in their sales,
coming largely from hitherto unexplored markets. While customers in the metros are looking for more
sophisticated products, other urban and rural customers are seeking basic product versions. Firms, that
are sensitive to these changing customer needs, are able to incorporate them in product strategies. The
most interesting example is provided by Sony’s Chairman Akio Morita in his book, Made in Japan.
Giving the example of Walkman’s development, Morita says that he got a product idea from his young
daughter, for whom music was more important than being with him and his wife. He had seen a large
number of people in New York hang large portable music systems on their back with music blaring from
them. The same sight was visible in all world capitals and major towns. So, Sony decided to develop a
personal portable music system—now known to world generically as the Walkman.
Further, needs develop over time as the customer uses the product and finds that there are other situ-
ations too in which he or she can use it.
Better and More Efficient Product Today, technology offers phenomenal opportunities to
firms, to develop more user-friendly, low priced, and attractive products. A case in point is Parle Bot-
tling, which used developments in packaging to successfully launch their mango drink, Frooti. The
tetrapack did wonders for Frooti, making it convenient, easy to use and carry, and also more attractive
than other mango drinks in bottles. The product caught the customers’ fancy and was hugely success-
ful. Today, tetrapack is the most widely used packaging in food industry. Likewise, computers and user
friendly packages in retail banking made Hong Kong Bank and other banks’ automated teller machines
(ATM) successful in all major cities in India. We find that the success of many products, be it agricul-
tural like nitrogen based fertilisers or more urban products like credit cards, can be explained by the
technology, that has been used to serve customers more efficiently.
PLC—A Critical Assessment PLC is an important strategic tool in marketing. However, in
their article, ‘Forget the Product Life Cycle’, Dhalla and Yuspeh3 have argued that the concept was es-
sentially descriptive and if the management used it as a perceptive tool, it would be making a grievous
mistake. Some of the blunders committed, due to dependence on PLC are:
1. Too much emphasis on new product development, as against continuing the revitalisation process
of existing brands. As we mentioned earlier, more than 95% of new products fail. Hence, pursuing
the path of new product development at the cost of building current brands can be a costly and
risky affair. Besides, all new products are going to have shorter lives, as competitors catch up with,
trap.
the decline phase. Stagnation or negative growth rates in sales, may lead managements to believe
so. What is important is to look at the background or backdrop of the product, or the market,
Levitt4, however, believes that PLC is a planning tool and not just a descriptive tool. To view the
concept of PLC as a fixed pattern, for all product types or brands is an error in marketing thinking. It
should be seen as a trend of sales over a period of time, that suggests different opportunities during
different phases of a product’s existence. The goal of the marketer should be to alter the shape and
duration of the life cycle curve by:
(a) promoting more frequent usage of the product among existing customers
(b) developing more uses or varied usage of the product among current users
(c) creating new users for the product by expanding the market
Defending the strategy of new product development or extension strategy, Levitt believes that plan-
ning for the extension should begin at the pre-launch stage itself, because such planning can be useful
in three ways:
(i) it generates a proactive rather than a reactive product policy
(ii) it lays out a long term plan, designed to infuse new life into the product at the right time, with the
right degree of care, and with the right amount of effort
Thus, PLC is indeed an important planning tool and firms need to use it. As already discussed, PLC
should be seen as providing opportunities to a firm. To do so, it is important for the marketer to exam-
ine his or her brand’s fit with the industry’s product life cycle, as it is not necessary that the brand be
in the same phase of its life cycle as the industry’s product. Exhibit 10.2 shows how to use PLC as an
indication of opportunities.
Exhibit 10.2 PLC: Indication of Opportunities
Product’s
Position
Strategic Options
Brand’s
Position Growth Maturity Decline
Growth (a) Market Development (a) Category Repositioning Build Brand Image
(b) Differentiation (Identify new uses,
reasons to buy, and
new customers)
Maturity (a) Brand Proliferation (a) Product Line (a) Category
Extension and Product Repositioning
Modification
(b) Flank Clones
(b) Price Promotion Warfare
Decline (a) Repositioning, Revision (a) Reposition/Revision (a) Quit
of brand, and Promotion
Strategy
Thus the final decision to dump the brand, should be taken only when the brand and the products are
in the decline phase.
Let us consider a few examples to illustrate the above matrix.
In Practice
Product Life cycle–lesson from Leaders
Kellogg
Kellogg as a breakfast cereal has continued to grow in its target markets. One of the earliest
breakfast cereals from Kellogg was cornflakes. Despite the fact that it has had competition from
several national and local brands, Kellogg continued to grow. As a category, Kellogg has grown
through modifications in its product mix. For example, in India it introduced wheat flakes which
were a huge success. Also keeping in line with the changing lifestyle of the consumers who
wants to remain energetic, young and slim, it launched a cereal under the brand name ‘Special’,
which shows the women on their slimness and at the same time the calories required by them
to carry out the day’s work. Nutri grain is another product introduced by Kellogg. These were
designed to meet the needs of busy people, who missed their breakfast, and aimed to provide
a healthy breakfast in a portable and convenient manner. Kellogg also introduced Oats. For
the child market it has introduced chocos. Today Kellogg is available in different flavours, like
honey, strawberry, honey and almond, banana and apple. Such innovations in cornflakes have
kept Kellogg alive and one of the most sought after in its breakfast cereal range.
Apple from iPod to iPad
The Apple case study indicates the strength of iPhone and iPad today and over the next few
years. iPod took 5 years to break the 30 million units per annum sales mark. But iPhone took 4
years and iPad just 2 years from the time of its launch. Sony Walkman a competitor to iPod could
never make it to 3 million targets over the 10 years. What is it that has made Apple’s product life
cycle extent? As can be made out, innovations in product design hold the key to a continuous
growth. Competitors fall apart only when a firm is able to stream innovations successively in the
marketplace. Another factor that has contributed to Apple’s growth is its understanding of the
demographic structure of its market including the lifestyle changes. It is company that has not
only followed the lifestyle changes but also influenced the change in the consumers’ lifestyle.
Following Steve Jobs, Apple continued to make its products insanely simple to use. Steve Job
was a believer in simplicity and in the concept of ‘brand bank’. In other words a brand works
like a bank account. When the company does good things it is deposited in the bank, when the
company experiences a setback, it makes a withdrawal.” A health bank balance reflects loyal
customers will to ride out the rough times.
Heinz
Heinz is a name, popular in India. Heinz India offers variety of food products like Ketchup,
sports energy drinks, nutritional beverages and other sauces like soya sauces and sandwich
spreads and salad creams. Faced with the mature markets and decline sales in the US markets,
Heinz decided to enter the India market. It customised its products to the India market tomato
chill sauces also it initiated a new campaign to build its rebrand Heinz brand. It also positioned
its brand in the wellness markets through products like Complan, Glucose and Nickel.
Thus, by being sensitive to the changes in the marketplace, a firm can effectively use PLC in its
strategic planning. We will now see how a firm can locate its brand in the PLC.
Locating Products or Brands in their Life Cycles

The approach to locating a product or brand in its life cycle involves environmental scan and trend
analysis. Specifically, this involves the following procedures:
(a) analysis of historical sales and growth trends in the brand and industry per se
regarding the number of competitors; and their strengths the quality, performance and perceived
the brand product enjoys over competitors in the marketplace

(c) analysis of development of short-term tactics of competitors
(d) analysis of historical information regarding life cycles of similar and related products
(e) based on the above analysis, project brand or product sales
(f) estimate probable years remaining for the brand or product
5
Levitt6 suggests the strategy of ‘feed forward’ when he says that to identify the stage a product or
brand occupies in its life cycle, is to try to foresee the next stage and work backwards. This strategy of
‘feed forwarding’ helps an enterprise to:
(i) continuously look ahead in order to remain competitive
(ii) provide a context to the current decisions or a ‘perspective to the present’
(iii) help predict the future environment based on ‘effective capitalisation on knowledge about the
present. . . .’7
EMERGING ISSUES IN PRODUCT POLICY
LO4 Having discussed concepts in product management, let us now turn to some
Identify emerging of the major issues that confront management in Indian firms and in other
issues in product parts of Asia.
policy in India and
Adapting Products to Local Conditions
other Asian countries
One of the prerequisites in marketing strategy is that the products should
meet local market conditions. As the Indian economy opens up, more and more foreign collaborations
are being signed up and many multinational brands are entering or re-entering the market. There is a rush
among Indian firms to grab brands and products. Without giving adequate thought and conducting mean-
ingful research, these firms have either launched or are launching these products in the Indian market.
In Practice
Indianisation of Kentucky Fried Chicken(KFC)
KFC is a fast food restaurant chain specialising in fried chicken and is headquartered in Louis-
ville, Kentucky, United States. It is the world’s 2nd largest restaurant chain after McDonalds. It
has 120 outlets in India. KFC first opened its two storied outlet at the most popular and fashion-
able Brigade Road in Bangalore in June 1995 but faced huge opposition from Anti Foreign
Investment Farmers Association in the country. Besides there were several other issues relating
to environment and onslaught of consumerism, etc. which led to the KFC outlet getting repeat-
edly ransacked. In spite of police protection the outlet had to be closed in September 1995.
However, the company persisted in its drive to penetrate in the Indian market. Hence opened
an outlet in Delhi but again had to close due to health reasons. Delhi outlet closed permanently.
However, it was post 2004 that KFC started menu which was perhaps the most extensive first
ever meat-free menu. It introduced the vegetarian menu that included rice meals, wraps and
side dishes and served eggless mayonnaise and sauces. According to the marketing Director,
KFC, Mr. Unnat Varma, it has made KFC more relevant brand to a majority of Indians. KFC also
started using Indian spices and cooking techniques to localise its chicken dishes. By 2008–09,
KFC operated outlets in all major cities. In 2013 the total number of outlets of KFC were 296.
Pizza Hut, another company, also had to customise the menu to Indian need.
Adaption to large Indian market is today a necessity and it is for this reason that companies
like McDonalds, Domino’s Pizza, internet service providers and search engines like Yahoo! and
Google also adapted their products to Indian market. Today, Google, for example, offers its
search facilities to Indians in local regional languages like Bengali, Tamil, Telugu, etc., besides
offering the Hindi service.
Adapting to the customer’s tastes, value systems, lifestyle, language and perceptions is important.
While this is true universally, the Indian market being culturally different from Europe and North
America and also culturally heterogeneous, product planners have a greater challenge to indigenise
products and communications to suit Indian customers.
Threats from Duplication

Another serious issue in product planning unique to India, and other Asian economies, is the threat
from counterfeits or duplicate products. It is not uncommon, to see toothpaste in an identical pack and
branded ‘Coalgate’, being marketed as the well known brand Colgate in semi-urban and rural markets
and also at railway and bus stations. Piracy affects designer brands all over the world today.
Piracy is so common, that in 1993 the US had to force the Thai government to destroy thousands of
pirated American pre-recorded video cassettes. Indian video libraries, also mainly stock pirated cas-
settes. Today, the Indian film industry, as well as several software, spare parts, and consumables mar-
keters in the computer and automobile industries are investing resources, to educate consumers on the
perils of piracy. They even reward informers and penalise customers, engaged in encouraging piracy.
The film industry has created a task force, under the leadership of erstwhile chief of Mumbai Police.
The problem of counterfeiting, is not limited to consumer products, video and audio cassettes, and
books, but is also rampant in the automobile components industry. According to the manufacturers’
association, the incidence of duplication in the industry is at least 40%, if not more. One can today, get
duplicates of leading brands of auto components in the market and it is not only small retailers who are
the culprits; large dealers and wholesalers also trade in them.
To fight this threat, the product planner or the strategist has to examine two issues: (a) how serious
is the threat from duplicates; and (b) the strengths of the firm. To fight duplicators, the firm needs to
be strong in technology, finance, and marketing. Some of the strategic options available to a firm are
discussed below and illustrated in Figure 10.10.
Figure 10.10 Strategies to Fight Duplication
Quality Improvement
One of the serious limitations of big Indian firms was poor product quality. Although there are national
quality standards for most products, it is not uncommon to come across instances, where products with
quality certification from a national agency fail or are found unsafe for use. Indian consumers have
served poor quality products for long until mid 1990s. However, this did not last for ever and firms had
to seriously examine their product quality. The reasons were:
(b) consumer movement gaining ground in the country, especially after the Consumer Protection Act
has been legislated, and consumer courts regularly hear cases of unethical marketing practices or
consumer injuries caused by a bad product
Quality is the pre-requisite to market leadership. Until 2000, most Indian firms used the statistical
concept of quality, like number of rejects or returns. Based on this, they claimed high quality standards.
Most of these standards, related to the product. But increasingly, firms realised that good product quality
is not a statistical function, but a function of processes and human resources and their attitude towards
quality, raw material, plant and machinery, work environment in the organisation, hierarchies in the
firm, relationships with the trade channels and suppliers, and a host of similar activities and relation-
ships. Hence, firms are adopting the concept of Total Quality Management (TQM). We shall discuss
this concept and the steps involved, later in this chapter.
PIMS on Quality The importance of quality in market leadership is best brought out by the PIMS
study8. According to this study, quality is an effective tool to fight competition.
Quality has two overtones:
(a) Perceived quality

for service that meet customer needs better than competitors’.
(b) Conformance quality
machinery, patents, and the like.
Both these dimensions of quality contribute together to create a positive image of the firm in the cus-
tomer’s mind. Hence, these two dimensions are not mutually exclusive, as can be seen in Figure 10.11.
Figure 10.11 Quality and Perceived Image of Firm
Benefits of Superior Quality The PIMS study shows that high quality ensures higher profit-
ability. A firm can charge a higher price for superior quality perception and this premium can positively
affect its bottomline. This premium can also be invested in research and new product development.
Alternatively, the firm can change the value perception of the customer by offering a higher perceived
quality product at competitors’ price level. This can bring competitors’ customers to the firm’s fold.
High conformance quality, helps the firm, to ensure lower costs of operation than its rivals, as rejects
and replacements are fewer. Besides, in a customer’s decision making process, particularly industrial
and overseas buyers, quality is a key variable.
Therefore, the benefits of superior, perceived and conformance quality are:
(a) stronger customer loyalty
(b) more repeat purchase
(c) less vulnerability to price wars
(d) product is able to command higher price without affecting its market share
(e) lower marketing costs
(f) improved market share
The value perceptions of customers, of products offered at different prices and quality levels, are
illustrated in Figure 10.12.
Figure 10.12 Value Map: Five Generic Product Positions

Source: Buzell and Gale, ibid.
It is obvious, that a firm should avoid getting trapped in ‘worse value perception’ and ‘average value
perception’. In the first case, it is a sure loser strategy, while the second, may never help the firm in
maximising its market share and profitability. Managements will have to evolve a strategy to improve
their product quality and the winning strategy is one, which is value based.
Total Quality Management

To achieve total quality, firms are moving towards the goal of Total Quality Management (TQM). Much
of this movement, fuelled by the European Community’s insistence on ISO 9000 standards, is being met
by Indian exporters. Besides, today there is a growing concern among the local industry on the threat
to its domestic market share from foreign firms.
In a survey carried out by IMRB for Business Today on top managements’ perception of the status
of quality in Indian firms, it was found that 57% of them felt that quality was extremely important for
them and gave it a score of 10 on the ten-point scale, and another 17% gave a score of 9. The average
score on the importance of quality was 8.5. Interestingly, this research also indicated that the prime
motivators for quality movement in the industry, were rising consumer awareness of quality products
and increasing competition. Though the market share of companies is still not under any severe threat,
CEOs seem to be using the quality drive as a pre-emptive measure. The CEOs’ poll also admitted that
Indian firms’ quality was not world class.9
How, then, can the quality be improved? Many Indian firms have initiated the ISO 9000 exercise
to improve quality standard. In an interview with Business Today, Joseph M. Juran, the well-known
quality guru said, ‘Certification for ISO 9000 does not mean that a company has become a world-class
company … It has merit, but what it tries to do is to define a system for control, not for improvement
… Control is avoiding adverse change and improvement is creating beneficial change .’ … 10 Juran
and other quality gurus, namely Edward Deming, Philip B. Crosby, Kaoru Ishikawa, Genichi Taguchi,
and Shigeo Shingo have advocated Total Quality Management as an approach to make companies truly
world-class and also competitive, in a globalised economy. The reasons for advocating this approach
are not very difficult to identify. The TQM process demands that the firm always maintain a customer
focus. It calls for total corporate commitment involving all employees, levels, and departments. Figure
10.13 presents the sixteen building blocks of TQM.
The TQM approach also involves creating a learning organisation and benchmarking against the
best company or organisation within the industry. Here, the firm need not necessarily look for the best
within the country. In global competition, national borders and nationalities of firms become obsolete.
TQM emphasises the process more than just creating a zero defect product or keeping the rejection
rates within a defined limit. This process, in a way, integrates the customer with the organisation.
Product Performance
While product performance is important in all markets, in countries like India it assumes higher signifi-
cance in consumer’s purchase decision. Firms need to appreciate, that these markets have infrastructure
constraints which have a bearing on product delivery and performance. Products have to be more rug-
ged, able to stand the heat and dust of Indian distribution outlets, once in the consumers homes it should
still retain the power to excite and delight the consumers. In automobiles, this has meant engineering
airconditioning system and suspensions, so that the drive is comfortable on the rough Indian roads and
also during the peak of summer, when temperature crosses 40°C mark. For computers and telecom, it
has meant providing long duration power backups and UPS, that can stand wild fluctuations of power.
Not only this, product performance should also be examined at different price points, so that large, low
income and poor consumers can also afford to buy.
To sum up, product planners have tasks, which are demanding in nature and require a more creative
strategy, than what they have adopted till now. Product management groups, have to be sensitive to the
Indian environment and respond accordingly, for it is not necessary, that a successful brand or product
in North America will succeed in the Indian market.
ETHICS IN PRODUCT MARKETING
LO5 Ethical marketing is no more a matter of choice. Consumer and environmen-

Explain ethics in tal activists today demand the marketer to be far more ethical and responsive
product marketing to the culture and social sensitivities. There are 3 major areas that demand
the attention of the marketer namely product, pricing and marketing com-
munications. In this chapter we will look at the ethical issues that are involved in product marketing.
Some of the ethical issues that require a marketer’s response are listed as follows.
Unethical Behaviour Towards Customers

This is a common problem that one comes across most widely in the market. Often the customers com-
plain about poor quality of the product or the non-performance of the product in their environment.
This indicates that something has gone wrong in the manufacturing process. It is not uncommon to see
companies cutting corners on the quality without necessarily informing the customers. They push the
product in the marketplace in the hope that the unaware customer would in any case buy the product.
The customer complaints also arise when marketers mislead customers on product features or de-
liberately under bids initially to add costs subsequently in the name of service or additional features.
Caught unaware, especially when the job is midway or the customer has started consuming the product
or the service, he perhaps is left with no other alternative but to pay for it. This often happens in ser-
vices when the service provider starts demanding an additional price for everything which the customer
would have otherwise expected to be included in the product design.
Inability to deliver the product on time or not honouring the product guarantee and warrantee are yet
other areas that cause customer’s frustrations leading to customer anger.
Product Liability
Today the marketers are required to make the product safe for consumption and also at the same time
inform them of its composition, the situations in which it can be used and should not be used. Also the
negative consequences of consumption are required to be communicated. In specific terms, here are
some of the issues that require attention of the marketers:
● Is the product safe to use as intended by the customer?
● Is the product safe if misused in a forcible manner?
● What precautions the customer takes if accidentally the product is misused? For example, in the
LPG marketing the oil companies tell the customers on what to do in case there is a leakage of
gas. Likewise many food products today contain warnings.
● Is there any copyright violation of competitive product? Today this is yet another area that must
draw the attention of the marketers. For example, Apple fought for a case against and won the
case against Samsung Galaxy II and the Tablets. Apple’s plea was that Samsung had copied the
design including the reset button in the centre of the phone from its iPhone. Samsung Galaxy
II and iPhone were touch based phones along with the faulty keyboard. Hence, Samsung had to
remove the reset button on the Galaxy II model.
Product Compatibility with the Environment

Today it is important to maintain the ecological balance. It is for this reason that marketer owes the
responsibility to the society to ensure that the use of its products do not cause pollution or harm to the
environment. As a responsible marketer many firms today use recycled material, especially for packag-
ing purposes. Disposal of the product post consumption also requires a special focus. It is the marketer’s
responsibility to guide the consumer on the disposal, especially that of its packaging material. It is for
this reason today, there are two trash bins kept in public places, one for those that can be recycled and
the other for disposal. Auto makers are required to conform to the Euro norms on pollution control.
Hence all vehicles need to be calibrated accordingly. Inability to do so leads to penalties. However,
today there is no auto manufacturer who does not conform to Euro norms.
To ensure that the products conform to the environmental and other disclosure norms the Govern-
ment of India has legal framework in place. So do consumer forums and activities groups ensure that
the product marketer understands the ethical side of its role.
SUMMARY
Product plays a significant role in marketing strategies. Innovations today are driving customer
engagement strategies of firms. For this the understanding of the target market is significant. What
is important here is the understanding of the customers’ world, view product and brand perception
including that of its country origin image. Green products are another consideration today in product
management decisions as also the extent to which product consumption is likely to impact the envi-
ronment. In product decisions one must understand key concepts like the core, formal and augmented
products; also one has to understand product mix and product line decisions. For this purpose tools
like portfolio analysis have to be considered. Product life cycle is one of the tools to examine the
product mix. Each product goes to a life cycle which consists of introduction, growth, maturity and
decline phases over a period of time. This is visible in product sales and profits. Multiple factors
contribute to the product life cycle. These are customer preferences, technologies development and
intensity of competition in the industry. Before a product reaches maturity and decline phase firms
can benefit by modifying the product either in form or packaging or by adding new features to the
existing product. Product life cycle is an important planning which directs firm’s attention to the
strategic options available at different stages in the product or brand’s life cycle. Large markets like
India require adaptation and customisation to the regional requirements. One of the challenges that
the firms in India face is a threat from duplicates or lookalikes. Firms need to consider its strengths
in Marketing, Finance and Technology as it considers strategic options. Quality improvement on
a continuing basis is yet another challenge for Indian firms. Ensuring that the product performs in
customer’s environment is yet another challenge in product management. With consumerism and
environmental activism, firms realise the need to be more ethical and responsive to the local culture
and social sensitivities. Ethics in product marketing is therefore the need of the hour. Some of the
ethical issues requiring marketers’ response are marketing personnel’s behaviour towards customers,
making product safe to be used and compatible with the environment.
POWER POINTS
1. Technology driven innovations, changing markets and consumption behaviour, and the emer-
gence of new market are driving the product development. (LO1)
2. Environment needs to be considered in product management. Many companies today are eco-
friendly and are taking necessary steps to make the product environment friendly. (LO1)
Product line consists of products that are closely related to each other, in the sense that they
satisfy a particular class of needs, or are used together, or are distributed through the same
channels, or possess common physical or technical characteristics. (LO2)
in a product mix refers to the number of product lines, depth refers to number of items and the
variations offered in each product line, and consistency is the degree of similarity between
product lines in and use, technology, production techniques, or distribution channels. (LO2)
5. The decision to add, modify, or delete a product from the product mix is based on an analysis
analysis here is the portfolio analysis using either BCG or GE metrices. (LO2)
most products follow an established path and the PLC curve in their case is S-shaped. Shift-
help explain the characteristic of S-shaped curve. PLC of any product consists mainly of four
phases: introduction, growth, maturity and decline. (LO3)
cultures. Customer tastes, value systems, lifestyles, language and perceptions are important
factors in product adaptation. (LO4)
8. One of the biggest threats to brands and products in Asian markets is from duplicates or loo-
kalikes. Infringements of copyrights, patents development and marketing, and lookalikes are
examine two issues: (1) how serious is the threat from duplicates; and (2) the strengths of the
(LO4)
important factors that need to be considered: (1) conformance quality that is the quality that
perceives the quality of the product and service. Product design, technology and delivery pro-
characteristics, expectation and perception of competition. (LO4)

10. Performance of product in customer’s environment is important hence products have to stand up
to the heat and dust of Indian distribution outlets and be resilient to overcome infrastructure gaps.
(LO4)
11. Ethics in product marketing is now an essential condition to succeed in any markets. For this
friendly and safe to use. (LO5)

1. A table manufacturer wishes to make tables environmental friendly. What should the company
do to make its products green? (LO1)
2. A food product (biscuits/cookies) brands is today facing severe competition from global and
regional brands. It is been facing a continuous decline in its market share. If you are the
trajectory? (LO2)
you consider or recommend for this analysis? Elaborate on them. (LO2)

4. Following are the sales statistics of a leading brand of soft drink and the industry.
Year Brand Sales Industry Sales
(‘000 cases) (‘000 cases)
1 4,500 6,000
2 5,750 7,552
3 6,825 8,000
4 7,000 8,500
5 7,250 8,750
6 7,500 9,000
7 7,300 12,000
8 7,000 12,500
9 7,100 15,000
10 6,750 15,500
What conclusions do you derive? If you were the brand manager, what strategy would you use
for next 3 years? (LO3)
(LO3)
6. Critically evaluate the model for combating duplicate or grey products, and identify industries
where it can be successfully used. (LO4)
7. A leading publishing house wishes to launch web based books, periodicals and magazines.
What should be its strategy? (LO1, 3 and 4)
8. Examine the ethical issues in marketing of Facebook and other social networks. (LO5)
CHAPTER
NEW PRODUCT DECISIONS

11
LEARNING OBJECTIVES
LO1 Describe the Indian market and new product development
LO2 Explain the concept of new product and factors contributing to new product
development
LO3 Summarise the new product development process
LO4 Describe branding decisions
LO5 Explain innovations and new product development
LO6 Analyse the theory of diffusion of an innovation/new product
LO7 Demonstrate the organisation of new products
LO8 Define internet and new product development
In Practice
Tata’s Nano Car—A New Approach to Product Development
The dream project of Mr. Ratan Tata to develop `1 Lakh car got the shape when Tata Motors
launched Tata Nano Car in January 2008. Mr. Tata wanted to develop a local transport for middle
class families who use two wheelers for commuting individually as also with the family. The two
wheeler mode is relatively an unsafe mode of transportation. Tata Motor engineers decided to
go beyond the conventional cost reduction exercise. As Mr. Tata said only countries like India
and Pakistan can make such a low cost vehicle primarily because of the ingenuity of the people
and the fact that India is one of the largest two wheeler markets. The engineers worked to re-
design the car engine as also the very design and the style of the car. Institute of Development
in Automotive Engineering (I.D.E.A.) was mandated with the styling. I.D.E.A. is a design house
that had earlier designed Tata Motor’s Indica.
After several promotions, the engineers finally built a 624 cc engine with a bhp of 34, as this
was the optimal design. For the first time the high pressure die cast engine was made in India.
Compared to Maruti 800 which delivered 37 bhp, Nano’s engine was more optimal with a
multi-point fuel injection system developed by Bosch.
To meet the final price of `1 lakh, Tata also had to pair their margins and produce at sub-
stantially low cost. They also got prepared for a longer breakeven. All component manufactures
redesigned their components to meet the Tata Nano’s requirements. For example, the steering
shaft was made hallow thereby reducing the cost and weight. MRF redesigned the tyre to bear
extra weight on the rare wheels. Tata Nano car also conforms to the stiffest pollution control
norms and passed through all crash tests. It has a four-speed manual gearbox and high on fuel
efficiency.
The car was lauded internationally as a new paradigm in affordable or frugal innovation and
one that herald a new era in small car manufacturing in India. It put the Third World on wheels
and had far reaching implications for the whole world. Commenting on this development, Chief
Designer of the Ford Motor Company J. Mays said, “For the first time in the world history of auto
industry there is a generation that is connected globally. They see an iPod or a Nokia phone or
a 1200 dollar women’s hand bag and think just because it is small does not mean that it can’t
be fantastic”. And very belief will now guide them to buy low cost small cars like Nano.
We have learnt about the need for product policy in the last chapter. In this chapter, we will focus on
the process of development of a new product.
INDIAN MARKET AND NEW PRODUCT DEVELOPMENT
LO1 Let us evaluate the factors contributing to new product introductions. The
Describe the Indian last decade has witnessed the introduction of several new products and serv-
market and new ices, positioned in different target segments. These introductions have been
product development in all product categories, ranging from food to telecom, automobiles, and
civil aviation. Many of these introductions in telecom, computers, consumer
electronics, and industrial electronics have been fuelled by technological
developments. Some of these consumer goods like Black Berry, Nokia 6600 or 6652, and correspond-
ing models of Samsung, LG, Motorola, Siemens, Philips, and Sony are not just high technology based,
but also aspirational and lifestyle driven. So have been the introduction of Porsche and Rolls Royce
cars and modular branded kitchens in India. In 2001, we saw the introduction of CDMA and WLL
technology in the cellphone industry, in 2003 the introduction of plasma technology and in 2007 LCD
technology in colour televisions.
The opportunities in the New Economy have been so significant, that even the old guard found it
profitable to diversify and add on new products and services. The classic example, is of WIPRO which
was a vegetable oil and FMCG company until mid 1990, but today it is a well respected IT company.
So much so, that it is one of the country’s top three IT giants.
The old Indian firms have diversified into fields like information technology, bussiness process
outsourcing (Bharat Forge put up a BPO at Pune), telecom (e.g. Tatas and Reliance), insurance (e.g.
Tata with AIG, Bajaj with Allianz, and Birla with Sunlife), and lifestyle products (e.g. Titan in jewellery
products under the brand Tanishq). Nearly 47% of total sales turnover of these companies came from
new products in 2004. This is expected to increase to 60% by 2007. This story of sales from new prod-
New Product Decisions 275
Exhibit 11.1 Old India Inc. finds New Product Opportunities in New Sectors. Bajaj
& Allianz in Insurance Sector. Product Targetted at Successful Indian
Professional.
uct accounting for substantive portion of a company’s sales, is not just true for large groups, but even
for smaller companies like Archies, which is known for its greeting cards business. Today, Archies sells
gifts and stationary items, besides greeting cards. This new product portfolio (gifts and stationary) ac-
counted for 56% of its sales in 2004.
One of the reasons as discussed earlier, is the changing market environment,
Regulation is one of the
which has become far more liberal and open. Regulation is one of the drivers of
drivers of new product
information.
new product introduction. Today, global trade is governed by WTO provisions
and, hence, foreign products and services are now easily available in the Indian
market, at lower import duty and hence at lower prices. This is true not just for manufactured goods,
but also for services like software, education and films, insurance, management consultancy, and hos-
pitality. Government policies and regulations can be an opportunity or hindrance for new products. For
example, the insurance sector was opened to global competition post 2001. Thereafter, one has noticed
the emergence of foreign insurance companies with new products, targeted at different market seg-
ments. This forced Life Insurance Corporation of India to develop similar products and a new marketing
plan to retain its market leadership.
Besides the regulation, consumer lifestyles and aspirations have impacted new product development,
especially in the last five years. Let us, take the example of the automobiles industry, which has had
a spurt in sales in the last five years. Most of this growth has been in the middle and premium range,
thereby motivating firms like Hyundai to launch higher end version of its cars like Elantra and Sonata.
Similar developments have occurred in cellular phones, readymade garments, and wellness industries.
However despite the above, it is not uncommon to come across product failures. In fact, high failure
rate often makes marketing management and top management ponder about the correct path to new
product development.
Although techniques for new product introductions have become far more sophisticated, giving a
better degree of assurance to the companies, the environmental changes have also been far more rapid.
The true benefits of these techniques have really not been tested by organisations. Some of the more
popular new product launches in the Indian market post 2010 are shown in Exhibit 11.2.
Exhibit 11.2 New Product Launches Post 2010

The demographic and lifestyle changes in Indian hotels, the demand for similar services came up in
market have profiled companies to develop product the Indian market. Initially, the spas were housed
for different market segments and use situations. in the 5 star hotels, but today they are in the mar-
This has been facilitated by the developments in ketplaces and airports. The launch of spa and other
science and technology. Today, we make it possible such services as also new products is not restricted
for companies to offer state-of-the-art product to to metro or tier one cities but they extend to all cit-
the consumers. The developments have taken place ies. Let us look at some of the examples of some of
in all product categories be they fast moving con- the more talked about product launches since 2010.
sumer goods (FMCG) or cell phones, automobile,
Dove Elixir
garments, home product, consumer entertainment
or services. One of the most interesting examples Since 1993, Dove has been positioned in the Indian
of the service relates to the launch and diffusion of women market with the promise of skin care and
Thai Spas or just even the Spa. Spa was never a part beautiful skin. Among the several products that it
of the Indian lifestyle. However, with the growing launched were Dove bar and skin cleansing, hair
traffic of Indians travelling abroad or on holidays care range in the form of a shampoo and anti-per-
and experiencing Spa and massages in overseas spiring deodorants as also unique moisturizers. In
2013, Dove launched premium hair oil named Dove tion. With this fingerprint, the customer can also
Elixir. With this product Dove entered the large approve purchases from iTune stores and the App
and growing market segment with its new range of stores. The A7 chip gives CPU and graphics perfor-
precious hair oils. The range includes three variants mance which is much faster than the A6 chip. This
namely rose and almond oil, lavender, olive oil, extremely useful for playing games, taking photo-
hibiscus and argon. Through these variants Dove graphs which shows the near reality. The iPhone 6S
Elixir seeks to transform Indian consumers’ hair oil- comes in gold, silver and grey colours.
ing experience into a delightful experience with
Peter England
evolved benefits premium sensorial and innovative
formats. According to the positioning statement of Peter England is positioned in the mid-priced shirt
Dove Elixir, it is the oil targeted to women who segment in India. Peter England garments were in-
believe in the goods of oil and do not use because troduced in 1997 by Madura Garments, to take on
of lack of time and application being messing and low priced ready to wear shirts and exploit the op-
sticky. portunities in this price sensitive and brand sensi-
tive market segment.
iPhone 6
The product is available in roughly 1800 multi-
Apple introduced iPhone 6S in the Indian market brand retail outlets across the country, as well as
in 2014. Apple as a company has been one of the 100 odd exclusive Peter England outlets. The brand
most innovative and forward looking. Continuing has already created a distinct position in consumer
its innovations in iPhone, it launched its iPhone minds, with its promise of ‘International quality at
5S. It offers technology which can be useful and honest-to-goodness prices’.
what can the consumer do next with the iPhone.
Levi Strauss
It is thin, light design iPhone built with touch id,
A7 chip with 64 bit architecture and an impressive Levi Strauss India Pvt. Ltd, a wholly owned subsid-
built in camera. It is powered by the IOS 7, one of iary of Levi Strauss and Company, San Francisco, has
the most advanced version software developed by introduced the Dockers brand of premium shirts,
Apple. With the touch id, the iPhone 6 has done trousers, and accessories throughout the country.
away with the need to enter the password each time This premium khaki brand is available in four broad
the individual uses it. Now the touch id is a new categories—business casuals, smart casuals, active
fingerprint identity sensor. The customer has now to wear, and accessories. Initially launched in Mum-
put the finger on the button and the phone recog- bai, Dockers has gradually expanded to Bangalore,
nises the individual and also unlocks. Fingerprints Pune, Kolkata, Hyderabad, Vijayawada, Panaji,
are considered the most secured form of identifica- Chennai, and the North.
Lessons from New Product Introductions Post 2000

We have mentioned in the earlier chapters, that technology is today driving change in the world market
and India too. Also, the demographic advantage, because of the sizeable young population has created
multiple opportunities for new products and services. Significant shifts in occupations, employments
and incomes as a result of the growing Indian economy, has also meant opportunities for new products
and business ideas. As a consequence of these changes, the Indian market has witnessed a spurt in new
product introductions. As the economy entered a long term growth trajectory, new markets opened
which covered rural markets also. New demand and intensive competition meant no marketer could
take the customer for certainty. Many new products succeeded. But an equal number or perhaps more
failed or continue to struggle in the introduction phase only. The lessons from these new product intro-
ductions are summarised below:
Innovations always hold attention of the customer, especially when they relate to his or her
life and, the customer perceives value in adopting it. Innovation is not a static process. It is a
developed innovative solutions for different market segments and priced them at multiple price
points. Its entry level model, exclusively developed for the Indian market, was priced at about
`2,000. With features like backlit torch and Hindi or regional language keyboard, Nokia was
quickly able to penetrate the bottom end of the market. But it did not stop at that point. It came
with an innovative solution for the high end of the market. The models include navigator and
also the application server that housed several softwares, making the cell phones more than just
a simple communication tool for high end customers. These products are priced at `20,000 and
above. All these innovations have kept Nokia far ahead of all other competitors, which includes
Samsung, LG, Sony, Philips, Motorola and Siemens. It was voted as India’s No. 1 trusted brand
in the 2008 most trusted Brand Survey of Economic Times.
Integration of technology is today paramount for the purpose of communicating product and
brand values. Success of a new product is dependent on how well all the media vehicles are
integrated. This includes television, radio, internet, mobile and other Out of home (OOH) media
vehicles. In today’s time, it is important to integrate the outdoor media or out of home media for
the purpose of communicating product and brand value. Consider, for example the case of mobile
payment system launched by Airtel in partnership with ICICI bank in 2008. The advertisements
showing convenience of making payment for utilities at any time or from anywhere, is shown not
only, on television but also through print media and out of home media.
Involving the customer in product development and continuous upgradation has also contrib-
uted to the success of new products. The best example, is that of news channel launched by Mr.
-
of India’s news telecast, that a news channel involved the viewer in content development. From
passive viewing, the viewer now became an active viewer and hence his stake in the product suc-
Managing alliances and network is as important as new product development. No company

today has the complete wherewithal to successfully market the new product to customers in dif-
ferent markets. Hence it needs to develop alliances with suppliers and distribution channels
Understanding local culture and adapting the product to it, holds the key to success, as borne
out by the successful operations of McDonald’s, KFC and Levi Strauss.
In a price sensitive market like India, value for money is a good positioning platform available
to marketers, as evidenced from Peter England, Spicejet and Big Bazaar examples.
The key to success in the Indian market lies in making the product available in the lanes and
by lanes of the country, both in urban and rural areas, as evident from the success of NIIT, Timex
watches, LG, Videocon, Reliance Mobile and Airtel.
Global brands cannot guarantee success.
Segmentation is key to successful, new product launches in the Indian market too. Hence one
needs to study each segment independently to identify opportunity.
For most consumer goods, the Indian market has leapfrogged several decades of market
development and is today a mature market.
NEW PRODUCT
LO2 A new product is any product, which is perceived by the customer as being
Explain the concept new. This could involve repositioning of existing products or offering the
of new product and existing products at low prices, or making improvements in the existing
factors contributing product, or adding new product items to the existing product line, or for that
to new product matter, taking up a product line which is totally new to the organisation or
development new to the world. Further, research shows that in 70% cases, a new product
involves changes within current product lines of a firm and in 30% cases,
these are new to the organisation as shown in Figure 11.1.
Figure 11.1 Defining New Products
One of the most outstanding aspects of the definition of a new product is that today only 10% of new
products, arising out of technological breakthroughs, can really be termed as new, as they are the ones
which are not exposed to the world or the market. Examples of such breakthroughs are television,
videocassette recorder and player, portable music systems including walkman, video camera and quartz
watches, which have revolutionised the world market, during the last two dec-
Only 10% of the new
ades. In India, several products, hitherto unknown to the Indian market have
products, arising out of
been launched, since the beginning of 1991. Some of them are revolutionary in technological breakthroughs,
nature and demand change in customers’ habits. A typical example of this, are can really be termed as
water purifiers and filters launched by Eureka Forbes and Ion Exchange. Like- new, as they are the ones
wise, several hi-tech products are now being introduced in the Indian market for which are not exposed to the
the first time. In 20% cases, products are known to the customer, but perhaps the markets.
organisation has added them now to its existing product lines. For example, even before Videocon
launched automatic and semi-automatic washing machines with Matsushita’s collaboration, Indian
customers, particularly in the high income and upper middle income group were familiar with these
machines. They had seen them in use at their friends’ and relatives’ homes abroad or had been aware
of them through the international media. So, though it was known to Indian consumers, for Videocon
it was a new product line and hence a new product from the company. Likewise, introduction of laptops
by Sony and PCs by LG are new product lines from the company, but known to the consumers for
several decades. But, in 70% cases, a new product represents modifications in existing product lines.
For example, when Hindustan Lever launched a bigger cake of Lux soap, it was called New Lux only
because it was a revision in the existing product. Likewise, when Videocon launched its music system,
the company only added a new product to its existing line. Condensed milk branded as Milkmaid, when
repositioned as a dessert ingredient, became a new product. In fact, this repositioning gave a new lease
of life to Milkmaid.
Factors Contributing to New Product Development

Changing Consumer Lifestyle Several factors contribute to new product development. While
most are related to external environmental variables, the most important internal factor in new product
development is the surplus capacity that a firm may have at any given time. Although, firms should not
pick up products to fill their surplus capacities, the fact is that many do. Consider, the example of Go-
drej Soaps that once launched a series of new brands of toilet soaps, mainly to fill its existing surplus
capacity, when Ponds walked out of Godrej’s manufacturing programme. However, there are several
environmental factors contributing to the development of new products.
As mentioned earlier, consumer lifestyles have today created several new
The most important internal product categories. One such is wellness products. The pharmaceutical com-
factor in new product
panies today, find a lucrative opportunity in producing and marketing health
development is the surplus
supplements, herbal and ayurvedic products, hair and skin care products, etc.
capacity that the firm may
have at a given point of time.
Companies like Dabur, Johnson and Johnson, Himalaya, CavinKare, and Paras
(Moov brand of pain balm) have found new product opportunities in this mar-
ket segment and have launched new products. So much so, that Dabur has today got none other than
Amitabh Bachhan to endorse its Chavanprash.
Seizing this opportunity, many of the hospitals have now created Wellness Departments and the ap-
proach of the doctor today is on the general wellness of the patient. Hence, he/she prescribes several
health supplements, exercise regimes, and even herbal/ayurvedic products. This has also spurred the de-
velopment of pharmacies, which are today looked upon as wellness stores. In fact, it has been estimated,
that in the case of modern pharmacies like 98.4, Health and Glow, Apollo, Life spring, CRS Health,
40–45% of their sales turnover is from these and other new range of FMCG products like L’Oreal’s
range of hair colour and cosmetics. Thus, consumer lifestyle is one of the most significant factors in
new product development.
Changing Customer Preferences The driving force in new product development as men-
tioned above is changing customer Lifestyles, leading towards a change in the customers’ preferences
and expectations. The changing role of women, growth in the nuclear and stand alone families, increase
in education and income levels, and a manifold increase in the electronic media, also contributes to-
wards changing customers’ expectations and preferences. Most of today’s new products, be it garments,
footwear, leatherwear, perfumes, designer wear, appliances and other durables and even credit cards,
are the result of this change in consumer lifestyles and preferences.
Technological Changes Another factor is the technological change in the industry and the mar-
ket. For example, if Mrs. Indira Gandhi’s government had not decided to expand the television network
to cover 70% of the Indian population, launched its own Satellite INSAT 1B and started colour telecast
in 1982, it is extremely doubtful if many of today’s products would have seen the light of day in the
Indian market. As an example, Maggi noodles would not have been so successful. Application of chips
technology to the watch making industry gave us a quartz watch—an innovation that Titan watches
have successfully used to shake up the Indian market.
Technological developments have now made it possible, to send text and multi media messages on
the cell phone, which is today more a PDA (i.e. personal digital assistant) than a phone. The introduc-
tion of Blue Tooth technology has now made it possible to communicate messages without having to
use a dial-up Internet connection or any other dial-up communication tool. The application of Blue
Tooth technology to consumer durables, home security systems and cars will truly make them smart,
thus giving to the customer, the power to communicate across product groups. Likewise, Smart card
technology has changed the entire personal identification industry, including the credit card and debit
card industry. Embedded technologies, digital technologies, and the semiconductor industry are today
impacting new product development.
To take advantage of the technological changes and remain competitive, the firm has to have a closer
relationship with technological institutes, universities, and R&D labs.
Government Policy Government policy, also can encourage or foster new product development
processes. For example, a government policy encouraging competition and entrepreneurship can moti-
vate firms to launch new products. A case in point here is, how after the Government of India allowed
broadbanding in its industrial licensing policy and Maruti became a rage with Indian consumers, Hin-
dustan Motors and Premier Automobiles analysed means to improve their own market position. They
launched two new products, each of which was targeted at the higher end of the market (Hindustan
Motor’s Contessa and Premier’s 118 NE were a result of the government policy encouraging competi-
tion in the automobile sector). Similarly, government policy insisting on chemical firms conducting
environmental audit, has led to a growth in the demand for pollution control equipment.
Thus, environment—external and internal—contributes towards the development process of new
products.
We have repeatedly mentioned, that though new products are an important source of growth, the
entire strategy is fraught with the risk of failure. Notwithstanding this risk, it is an important clearity.
Let us now turn to the new product development processes itself.
NEW PRODUCT DEVELOPMENT PROCESS
LO3 The process of new product development may vary from one firm to another
but, generally, one can see stages as outlined in Figure 11.2.
Summarise the new
product development Stage I: Idea Generation
process
The process of new product development starts with the search for product
ideas. To be successful, it is important that this search should not be casual. Top management should
spell out the corporate mission and objectives for new products. Also, it should spell out the role of
new product development in the firm’s growth strategy. Until now, in most Indian companies, the new
product development process has been casual and ad hoc. In these firms, new product development is
Figure 11.2 New Product Development Process
a top management prerogative and often reflects the chairman, chief executive, or owner’s perspective
of the market and the firm.
However, notwithstanding this skewed direction of new product idea generation, we find that there
are different sources of new product ideas.
Common Sources of New Product Ideas
(a) changing customer needs and trends in consumer markets
(b) competitors
(c) R&D scientists
(d) laboratories
(e) foreign markets and media
(f) employees
(g) trade channels
(h) top management
The most important and relevant of all the sources are developments in the market, specifically,
changes in geographic, demographic, and psychographic characteristics of the market. These develop-
ments affect customer needs and wants. Also, customers’ exposure to media affects their needs and
expectations. For example, as the urbanisation process expands and increasing numbers of rural con-
sumers get exposed to satellite television and video, the demand for the latest products available in
urban and world markets would also increase. While customers in metro and urban centres would want
products which their counterparts in North America and Europe use, the rural customers expect prod-
ucts which urbanites use.
Firms can identify the changing needs of customers through customer sur-
veys, projective techniques, and from customers responses in the form of sug- Firms can identify the
changing needs of
gestions and complaints. Perhaps, many new product ideas come from customers
customers through
describing their problems in using the product. WIMCO, the only firm from the customer surveys, projective
organised sector in the safety match industry, and also a key player in it, intro- techniques, and feedback in
duced carbonised match sticks, when customers complained about fire hazards the form of suggestions and
in using match boxes. WIMCO also developed match, boxes that would not get complaints.
soggy winter and during the monsoons. Both these developments, in match,
boxes happened because WIMCO focused on customer needs. Thus, when a firm listens to its custom-
ers’ problems and expectations, it can come up with ideas, which would be successful in the long run.
But it is not always, that customers know what they want. It is up to the manufacturer to gauge the latent
or unarticulated needs of the customer.
The reason for this is simple. Customers are not experts or informed enough. Therefore, in order to
make information from customers meaningful, they should be probed only for outcomes, i.e. what they
want from the new product rather than on solutions.
IN FOCUS
Customer Involvement in Innovations
Five steps that companies can follow to gather meaningful information from customers
(a) Develop an interview style that makes customers focus on outcomes and make interviewers listen
to customers. Customers only know what they have experienced. They cannot imagine what they
do not know about emergent technologies, materials, and other consumables. While listening to
customers, one must continue to keep the holistic picture arising, form an interface of technology
and competition, on the product. Too much focus on customers may lead to incremental changes
and not bold product developments.
(b) Conduct interviews, and in doing so, go beyond the ‘lead users’, i.e. customers who have an
advanced understanding of a product and are experts in its use. Further, plan outcome based
interviews. For this, the firm must deconstruct, step by step, the underlying process or activity as-
sociated with the product or service. Once the process has been defined, carefully select custom-
ers for probing. It is advisable to narrow down the choice of consumer groups to be interviewed.
(c) Organise the information: weed out vague statements, anecdotes, and other irrelevant comments.
Also, remove duplicates.
(d) Rate the outcomes for importance of satisfaction.
(e) Use the outcomes to kick off an innovation programme.
At this stage, more companies are now converging on technologies to deliver more value to the
consumer. This has led to the product also being used for purposes other than the core. For example,
the cellular phones compete with portable music systems, digital cameras and even laptops. So when
Nokia offered its higher version of cellphones combining the above features, its product development
team was working on the concept of convergence of technologies. Likewise, Microsoft, launched its
Windows XP Media Centre PC in 2005 in India. This software offered to consumers, features like
digital video recorder, radio, DVD player, TV and of course the usual MS Office. It also offered the
consumer the facility to record a live programme and view it in an asynchronous mode at his/her con-
venience. In developing this product the Microsoft team has worked on the concept of convergence and
thereby enhanced the use of its software.
Follow the Leader Another source of new ideas is a successful competitor firm which makes
profits from a new product. A firm may be motivated to test this product idea. It might look for un-
fulfilled market needs or gaps, that competitors may have left in this product market. For example,
following the successful launch of washing machines by Videocon, several other consumer product
companies picked up this product idea and launched their own machines. Most of these were in col-
laboration with leading foreign brands. A south India based group, TVS, diversified to launch washing
machines and other appliances in collaboration with Whirlpool of USA, and BPL introduced a wash-
ing machine in collaboration with Sanyo of Japan. Therefore, competitors can also act as catalysts in
the generation of new product ideas. Often, trade channel members and the company’s sales force are
sources of information on developments in competing firms. Published news items in trade journals
and business magazines on competitors’ activities, is a good source of information on future products.
Professionals Scientists, engineers, experts working in universities and R&D labs, employees, and
channel members are other sources that a firm may turn to, for new product ideas. It is not uncommon
to see companies turning to the IITs and Mumbai University’s Department of Chemical Technology
for new product ideas. Today, a common trend among more progressive companies, is the creation of
quality circles and introduction of an employee suggestion scheme. Many of these employee schemes
have paid rich dividends to the companies. The Ford Motor company in the US, claims that as a result
of their sustained employee training, employees have come up with ideas to improve Ford cars. This
has helped Ford to not only improve the product, but also maintain its position in the market. Toyota
claims that two million ideas are generated annually by its employees. Of these, the company imple-
ments about 85% ideas. Godrej and Thermax have worked along similar lines in India.
Internet Today, another important source for new product decisions is the Internet. The web and
Internet technologies, are powerful tools for acquiring and disseminating knowledge, in any society
and organisation. Websites of various research laboratories and research agencies can give the product
management a lot of information on the possibilities, for new product development. In fact, today it has
become possible to speed up the process of new product development because of the Internet. Compa-
nies use this medium to collect consumer feedback and even research new lifestyles. They also use it
to announce their upcoming new product introductions.
Not all Sources are Productive Though a company may turn to different sources for new
product ideas, all are not equally productive. It has been found that the most productive sources (in
order of importance) are customers, R&D, unsolicited customer feedback, observing competitors, and
company sales representatives. Other productive sources are the top management and university labo-
ratories. The least productive sources are inventors, commercial laboratories, industrial consultants,
and patent attorneys. Table 11.1 categorises these sources from the point of view of their productivity
or importance in generating new product ideas.
Table 11.1 Productivity of Sources of New Product Ideas

Most Productive Sources Other Productive Sources The Least Productive Sources
(in order of importance)
Customers Top management Inventors
R&D University laboratories Commercial laboratories
Unsolicited customer feedback Industrial consultants
Watching competitors Patent attorneys/Lawyers
Company sales representatives
Techniques for Generating New Ideas The stage of generating new ideas is characterised
by creativity. Hence, to generate these ideas, group creativity techniques like brain storming, synectics,
need/problem identification, and attribute listing could be used. Most firms use the last two mentioned
techniques.
Stage II: Identifying Prospects and Defining Target Markets

The second stage is that of identifying prospects or target customer groups. It is important that the firm
defines its target customer group in specific terms. It should also examine the cost of serving this group.
These factors are important, as they will help the firm narrow down its decision field.
At this stage, the firm should also identify success factors in different product ideas. For example,
some ideas may require strength in the distribution network, others may require strength in technology,
and yet others may demand a high brand image. If the firm does not have the required strength, it should
investigate how it can acquire the same and whether the pursuit of the new product ideas will result in
adequate profits.
Stage III: Concept Development and Testing

Having defined the target group, the next stage is that of developing product concepts and testing them.
Many firms skip this stage in the belief, that if they have great ideas, customers will pick them up by
themselves. Nothing can be farther from the truth. As Theodore Levitt1 puts it, customers buy concepts
and not just the tangible product. To better appreciate this stage, let us understand three key terms,
namely (a) product idea, (b) product concept, and (c) product image
Kotler2 defined these terms as:
(a) Product Idea: A possible product that the company might offer to the market
(b) Product Concept: An elaborated version of the idea expressed in meaningful consumer terms
(c) Product Image: The particular picture that consumers acquire of an actual or potential product
We shall now discuss concept development and its testing.
As mentioned above, a concept is an elaborated version of a product idea. Consider, the example of
a leading soft drink manufacturer in the country, which wanted to stretch its product line by adding a
new range of fruit juices. To convert this product idea into a product concept, the firm must define its
target customers (as discussed above), the primary benefits it will offer, and the possible uses. Follow-
ing these definitions, some concepts like the following may emerge:
● Concept I: Fresh fruit juice for children and adolescents, as a health supplement at breakfast time.
● Concept II: Fresh bottled fruit juice for the young as a fun, thirst quenching, refreshing, and
nutritious health drink, to be had at any time.
● Concept III: Fresh bottled mango juice for the young and the grown ups as a fun, thirst quencher,
and refreshing beverage to be had at any time.

● Concept IV: Fresh bottled mango juice for adults as a health supplement.
Each of these concepts helps the firm define the product category segment for positioning purposes.
In the first concept, the fruit juice falls in the health drink category like brown beverages (Bournvita,
Horlicks, Nutramul); in the second concept, the product falls in the category of milk product like
Energee; in the third concept, the product category is soft drinks; and in the last concept, it includes all
fresh fruit juices and brown beverages.
Assume, that the third concept looks to be promising, then the next issue is to decide how the new
product will differ from the existing soft drinks. The firm may consider two product attributes—taste
and packaging. The firm may position it on other attributes too. Accordingly, the positioning of the new
drink may emerge as illustrated in Figure 11.3. The firm can also position the brand against competing
ones, on several features like use, price, calories, and convenience. The moment it does so, the product
concept now becomes a brand concept.
Figure 11.3 Product Positioning of New Product
After the product and brand concepts have been developed, the stage is now set for testing them.
These concepts are tested on a sample of target customer groups. Most often, at this stage, visuals of
proposed product concepts are shown to the sample respondents. However, the validity of tests increas-
es, if the product is shown to the customer group in the physical form, that is a prototype or sample.
The group is asked questions related to their understanding and belief of the concept, the extent
to which the new product will satisfy customer needs and problems, the uses price in relation to the
perceived value, purchase intentions at a given price level, and the most common outlet at which they
hope to see the product and buy it. The responses are tabulated and analysed against industry norms
and the final decision is taken by the management, keeping in mind its strengths in the industry and
growth objectives.
At times, firms may also use their sales force to test new concepts. But the problem with this ap-
proach is the sales personnel’s bias. It is therefore important, that firms use independent marketing
research groups or product management teams to do these concept tests.
Stage IV: Feasibility Analysis

Once the product concepts have been tested, the next step is to conduct a market feasibility study. This
study involves the following:
(a) estimation of demand in the target market, at different price levels
(b) forecasting sales, based on demand estimation and competitive analysis
(c) estimating the cost of serving the market segment, taking into account cost of transportation,
warehousing, margins required by the trade to market the new product, promotion expenses, and
salesforce cost (if additional salesforce is required)
(d) based on the cost and anticipated sales revenue, calculating the break-even price and the sales
volume (more about break-even price is given in Chapter 14 on Pricing).
Once the product concept is found to be feasible, the firm takes the concept to the next stage—that
of product development.
Stage V: Product Development

This is the stage where the product ideas now move from the concept and design boards to R&D and
manufacturing for physical development. Both these departments should keep the customer feedback
in mind, while developing the physical version of the product. Also, they must ensure that the product
is easy and safe to use by the customer. This becomes all the more important in durables and other in-
dustrial products where the user may not have the same level of knowledge and understanding as the
R&D scientists. As an illustration, consider the example of a toy computer made for a 10–12 year old
child. If the child has to depend on his/her parents’ assistance to understand, use it and play on, then
the product is a failure. The product form (like the keyboard and the software) should be simple enough
for an average child to use, without having to take assistance from his/her parents. This is one area,
where market driven firms take a step forward, ahead of the others.
Quality Function Deployment QFD involves the customer and sug-
gests that all product development/improvements be based on customer feed- QFD is a systematic way of
ensuring that the product
back. QFD has been defined as a systematic way of ensuring that the development features and specifications
of product features, characteristics, and specifications, as well as the selection as well as the selection and
and development of process equipment, methods, and controls, are driven by the development of process
demands of the customer or the marketplace. Schematically, the QFD process equipment, methods and
appears as shown in Figure 11.4. control are driven by the
As one may infer from Figure 11.4, QFD uses the response of the customer, demands of the customer/
to help determine important product attributes. Based on this, a product can be marketplace.
designed to match target values and thus reduce variation between customer
expectations and product performance. It also helps in ensuring consistently high performance, from
product to product and throughout the product’s lifetime.
The various tools used in QFD are competitive benchmarking, Failure Mode and Effects Analysis
(FMEA), Fault Tree Analysis (FTA), Reverse Fault Tree Analysis (RFTA), Taguchi methods and ro-
Figure 11.4 Quality Function Deployment
bust design, Pugh Concept Selection, and Value Analysis and Value Engineering (VAVE). Under QFD,
product development objectives are broken down into actionable, specific team assignments that cut
across departmental loyalties.
Phases in QFD Process QFD is a four-phase process. Phases one and two relate to product plan-
ning and design, and phases three and four to process planning and shop floor activities. In phase one,
which is most crucial, the QFD exercise involves making a house of quality, as shown in Figure 11.5.
This matrix depicts customer needs, company measures, target values, and competitive product evalu-
ations. In other words, this matrix responds to three major questions in product planning and design:
(a) What does the customer want?
(b) How can the product be made to satisfy these needs?
(c) How much
and provide means of objectively assessing progress?
Whenever possible, these items should be measurable.
Further, an element of competitive evaluation can also be introduced in the house of quality
(Figure 11.6). This evaluation can be made for all three issues outlined above. Here, the items reflect the
customers’ competitive assessment of the company’s product. This is based on the customer’s perceptions
and other information provided by him. Technical, competitive evaluation using engineering generated
information helps in responding to the ‘how’ issues. Both the customer and technical information can
be used to competitively position the product in the marketplace.
The next phase in QFD applies some of the company AQ measures, identified during of quality
phase to the subsystem or parts level (Figure 11.7). As a result of this, a design deployment matrix is
Figure 11.5 House of Quality
Figure 11.6 Competitive Assessment in QFD

Figure 11.7 House of Quality—Illustration
developed and this becomes the basis for all preliminary design activities. It is important that not all
the company measures need to be deployed. Only the high risk (new, difficult, or extremely critical)
are taken up for further analysis. This matrix resembles the house of quality matrix. In this phase, cus-
tomer requirements and company measures are described in precise engineering terms. It uses VAVE,
FTA or RFTA, FMEA, design optimisation, process optimisation, cost analysis and parts selection for
reliability assurance. This phase leads to the development of part characteristics, that are critical to the
execution of company measures.
Design deployment phase is followed by process planning and production planning phases. The
various phases of QFD are shown in Figure 11.8.
After the product has been developed, it must be put through rigorous functional and consumer tests.
Functional tests are performed under laboratory and field conditions, to make sure the products deliver
on promises. Tyre manufacturers conduct intensive stress tests to ensure that their tyres perform under
the most difficult conditions. Pharmaceutical companies conduct clinical trials before they give out the
product to their medical representatives.
Figure 11.8 Four Phases in QFD
Consumer testing is done in several ways: one of them is by offering samples to target customer
groups and then following it up. Pharmaceutical companies and publishers are some of the major users
of this approach. In both these cases, their sales representatives leave samples of the new product with
doctors and professors or avid readers respectively, and then after a specified period, seek their feed-
back. This is then transmitted to the product management group, which then takes corrective decisions,
if required. The other approach is test marketing.
Stage VI: Test Marketing

The new product is now tested on four parameters: trial, first purchase, adoption (repeat purchase)
frequency, and the volume bought each time. As we mentioned in the Chapter 5, a marketer has to be
careful in avoiding pitfalls.
On account of the risks involved in test marketing, most companies avoid it. But those who do it,
know that it can yield valuable information about customers, dealers, marketing mix, and strategy.
Stage VII: Commercialisation

Once the test marketing is completed and the firm has favourable results, it is then ready to com-
mercialise the product or, in other words, launch the new product. The launch plan must consider the
following:
(a) timing
(b) place
(c) strategy
BRANDING DECISIONS Branding, an important

strategy for differentiating a
LO4 Branding is an important strategy for differentiating product from its competitors,
Describe branding a product from its competitors. It is a name, logo, represents, to the customer,
trade mark, patent number, or package design that the source of the product
decisions which leads him to associate
is used to distinguish the firm’s products or services
from others. It represents, to the customer, the source of the product which leads with the brand.
him to associate with the brand. In taking brand decisions, the firm has to consider the target market,
cultural influences on the market, and the role the brand will play in its business strategy. For example,
a brand name which is culturally alien, will find difficulty in getting accepted in the market, like in
the case of the Kiss and Tell brand of cosmetics that failed in the Indian market. Besides, a firm has
to ensure that a brand name is not banned because it represents either a national leader or the country.
The brand decisions a firm has to take are:
(a) manufacturer’s name (whether to have its own name on all products);
(b) marketing organisation/distributor’s brand name; or
(c) adopt a combination of the two
Also, brand decisions have to be taken relating to the following:
(i) Family brand name: extending the family name to new products like Videocon did to its other
products like washing machines, music systems, and refrigerators.
adopted for its toiletries and other personal products.

Let’s consider each of these brand policy options before a firm.
Manufacturer’s Brand Policy or National Brand Policy

This policy is based on the assumption that the manufacturer has built a reputation in the market, has
strength in distribution, and the firm has adequate financial resources to establish a new product in the
market. Customer confidence in the firm is the prime factor, in deciding to brand the product in the
manufacturer’s name. When the firm markets this product in its own name nationally, this may also be
called the national brand policy. Common examples, are all leading national brands of all well known
firms in India.
The options available to a firm here are:
(i) Family brand name; or
(ii) Independent brand name.
Family Brand Name The strategy of family brand name works, when the name brings positive
associations in the mind of the consumer. To the customer, it represents quality, reliability, and assur-
ance of meeting specific standards. Moreover, the use of a family brand name is desirable, as the cost
of creating a new brand is extremely high. Several millions of rupees are spent to create a brand and if
it fails this investment has to be written off. The risk in the family brand strategy, is that, if the product
is not accepted by the customer, the entire family name stands to lose.
Independent Brand Name The strategy of an independent brand name is, therefore, advisable.
This can also help to penetrate different market segments which may buy the firm’s product for different
reasons. This strategy can also ensure that the firm does not lose its original position. For example, if
Hindustan Lever would have introduced different detergent powders under the name of Surf for dif-
ferent market segments and differentiated them only on the basis of price, it could have run the risk
of losing even the original positioning of an economical detergent powder to an economy conscious
middle-class housewife.
Even in the same market segment, a firm may offer different brands of the same product but with
different benefits and appeal. Consider for example, Hindustan Lever’s Liril and Lux brands of toi-
let soaps in the premium market. Lux has traditionally been positioned as a beauty soap, while Liril
offers benefits, of lemon. Thus, an independent brand offers extensive benefits, without endangering
the corporate image.
Distributor’s or Store Brand Policy

An alternative to the manufacturer’s brand policy, is the distributor’s brand policy. This is useful when
the firm does not have strength in marketing, adequate financial resources to build a brand, and compe-
tition in the industry is high. As a result of the latter, retail shelf space is at a premium. The distributor
or the marketing organisation has strengths in the market, customers have confidence in it, and hence
his bargaining power with the manufacturer is high. In such a situation it may be advisable to market
the product under the distributor’s brand name.
Several small manufacturers market their products under well known brand names like Bajaj, Voltas,
Akbarally’s, and so forth. In fact, it is not uncommon to see readymade garments and other accessories
being marketed under the store name or the store’s created brand name. For example, a large number
of readymade garments ranging from formal to casual, for the family are marketed under the brand
STOP, which is the brand of Shopper’s Stop. Similarly, cosmetics and perfumes are marketed under the
store brand by leading departmental stores like Harrod’s in London. Same is true, for a large number of
products marketed by discounts stores, hyper-markets and departmental stores. As competition intensi-
fies, this fight for shelf or retail space will become severe. More retail chains created nationally, will
also put pressure on the manufacturer to let them market products under their (retail firm’s) name.
The risks in this strategy are:
(a) loss of control over the product’s marketing
(b) if the product succeeds, the premium may go to the distributor and not to the manufacturer
(c) it may lead to cherry picking
(d) the distributor may not extend the desired marketing support to the brand
Consider the example of Rasna, a brand worth several crores of rupees today. It was earlier a low
image, low volume product marketed by Voltas under their name.
Mixed Brand Policy

An alternative to the above two options, is for the firm to enter into a strategic alliance with a well
known marketing firm and let it market the product under its brand name in a defined geographical area.
The manufacturer also continues to market the product under his own name nationally. This is done
to fight regional competition. This strategy allows the firm to benefit from both the options discussed
earlier.
Brand decisions are central to new product launches and have to be carefully taken. These represent
investments in the future and also the degree of control the manufacturing firm wants over its marketing
operation.
Positioning is the act of
Positioning communicating company’s
Another decision in the commercialisation of a new product is how to differenti- offer so that it occupies a
ate it in the midst of the already over, communicated society of ours, where an distinct and valued place in
average consumer screens out most messages. The strategy to differentiate the the customer’s mind.
brand or product is to place it in an appropriate cell of the human mind, so that whenever the customer
recalls the product, the firm’s brand is the first to be recalled. This strategy is called Positioning. Po-
sitioning ‘is the act of communicating company’s offer so that it occupies a distinct and valued place
in the customer’s mind’3.
The concept of positioning was first advocated by Al Ries and Jack Trout, two advertising execu-
tives, in their article titled ‘The Positioning Era: A view ten years later’ in the Advertising Age in 1972,
and later in their book, Positioning: The Battle for your Mind, in 1982.4 According to them, ‘Positioning
is not what you do to a product. But what you do to the mind of the prospect. That is, you position the
product in the mind of the prospect’.5
Ries and Trout believe that marketing is like a war, which is fought in the mind of consumers.6
They advocate that the marketer should perceive each consumer to mentally have a product ladder.
The customer often knows brands in the form of this ladder. There is a brand on the top of the ladder
(brand leader) and there are others that occupy the second and third steps in this ladder. Sometimes the
top slot may be vacant and at other times there may be two or three brands vying for this prestigious
slot in the customer’s mind. The rush for the top slot is understandable as people remember the number
one. Illustrating this, Ries and Trout ask ‘who was the first person to successfully fly alone over the
Atlantic Ocean’?, and the answer is ‘Charles Lindbergh’, but we are not able to recall the second or the
third person. Firms, therefore, attempt to achieve this number one position by some valued attribute,
not necessarily by size.
Ways to Position the Brand The ways to position the brand are:
(a) Use situations; (b) Emphasising tangible benefits; (c) Linking to uses; (d) Head on competitive
positioning; (e) Lifestyle positioning, and (f) Benefits offered.
Use Situations The marketer can identify use situations for his brand or product and analyse cus-
tomer perception of existing competitor brands in different use situations. Based on this analysis the
firm can position its brand.
Consider, the example of Rasna, the soft drink concentrate. None of the soft drink brands offer the
convenience, economy, and range of flavours that Rasna does. Hence, its positioning as a soft drink
when one is fatigued after shopping or a day’s work, when there is a party, when guests arriving sud-
denly or when one feels thirsty. The brand’s claim is that it is so simple to make, that even a child can
do it. Rasna was the first brand of soft drink concentrate to position itself in this manner. Many other
brands subsequently tried to penetrate Rasna’s market share, but could not succeed.
Emphasising Tangible Benefits The brand may even be positioned on the basis of tangible benefits
that it offers to customers. These are in the form of specific features and sometimes through its price and
distribution. Consider, the example of Ariel that offers the specific benefit of cleaning even the dirtiest
of clothes, because of the micro cleaning system in the product. Colgate offers benefits of preventing
cavities and ensuring fresh breath. Promise, Balsara’s toothpaste, could break Colgate’s stronghold by
being the first to claim that it contained clove oil, a feature that differentiated it from the leader. Nirma
offered the benefit of low price over Hindustan Lever’s Surf to become a success. Maruti Suzuki offers
benefits of maximum fuel efficiency and safety over its competitors. This strategy helped it to capture
60% of the Indian automobile market.
Several automobile brands use this positioning platform. However, it may be emphasised that posi-
tioning on tangible benefits alone, cannot provide a long-term sustainable advantage in today’s highly
competitive marketplace. Hence, firms use several dimensions of the product and target market profile
to position their brands.
Linking to Uses A third approach to position a brand, is to identify the possible uses which the firm’s
brand can be put to. In a way it may appear to be the same as use situations, but it is different here, as
we are talking about all the possible uses of a product or brand. For example, video cassette recorders
(VCR) could be used for playing, recording, and regulating the pace at which different scenes can be
watched (like pause, fast forward). Most customers saw it as a distinct development over the video
cassette player and the demand for the VCR boomed.
Head on Competitive Positioning This is the strategy of placing a firm’s
The head-on competitive
brand next to the leader in the market and trying to uproot it on a specific tangible
positioning places a firm’s
variable. Ries and Trout give the example of AVIS, the auto rental agency, which brand next to the leader in the
knew it was number two in the business, but made a strong point about it. ‘We market and tries to uproot it
are number two. We try harder’. Onida was positioned against the giants in the on a specific tangible variable.
television industry through this strategy, Onida colour TV was launched with
the message, that all others were clones and only Onida was the leader. (Today, Onida has been able to
uproot all of yesteryear’s leaders in the TV market.) Likewise, the Wheel brand of detergent powder
took a head-on position with Nirma and claimed that it was better, as it washed whiter (because of the
lemon component in it) and was gentle on the hands, a claim which Nirma counters by showing the
user using a spoon to take out washing powder from the bag. Kinetic Honda adopted this strategy to
uproot the Bajaj scooter, when it claimed that it offered more mileage to a litre of petrol than the leader
and supported it with road test results.
Lifestyle Positioning A firm may even position the brand as a lifestyle concept—contemporary or
futuristic. Many of today’s new kitchen appliances (like the microwave oven), ready made garments,
textiles and, watches are positioned accordingly.
One of the dimensions of lifestyle is aspirations. Given the upward mobility of the Indian market,
it is not uncommon for the marketer to use aspirations for positioning his brand. In order to do so, the
brand has to communicate an exclusive image, which the consumer is willing to pay for. Also, it should
reflect the aspirations of the target market. Longines range of watches or Nakshatra brand of diamonds
or range of diamond jewellery, is today endorsed by beauty icons. Likewise, luxury homes and villas
by DLF and Unitech are positioned as aspirational products.
Aspirational and other lifestyle based positioning is today more sustainable than tangible benefit
positioning.
Benefits Offered Another way to position a brand is to highlight the benefits that customers get by
using the product. Emotional relationship is one of the strong reasons to buy a brand. Master Card has
successfully used this positioning platform when its campaign emphasises that the only thing that the
consumer cannot buy using Master Card is ‘emotions’. Consider for example the case of Asian Paints
which claims that every home reflects the personality and the lifestyle of its resident. It has used this as
a platform to build a storyline to promote its brand. The title line of the television commercial is “har
ghar kuch kheta hai” that is, every house has a story. Often these stories involve emotions of love, care,
belongingness and achievement.
These are some of the possible options in positioning. A creative marketer can use a combination of
these alternatives and arrive at an interesting and meaningful positioning strategy.
IN FOCUS
Brand Positioning Errors
The marketer has to ensure that having successfully created a specific position in the customer’s mind,
he should not try to alter it. Sometimes there is pressure to do so. But one should not give in. Otherwise,
there could be a confusion in the customer’s mind which can be exploited by the competition. Kotler says
that a firm should avoid four major positioning errors, namely:
(a) Under positioning This occurs when buyers know very little or nothing about the brand.
(b) Over positioning Occurs when buyers have too narrow a view of a firm, product, or brand.
(c) Confused Positioning Buyers may have a confused image of the brand. This can happen as a
result of frequent changes in the positioning statement.
(d) Doubtful Positioning Occurs when buyers doubt the veracity of the claims made by the firm.7
How to Position the Brand To position the brand, a technique called Perceptual Mapping is
commonly used. This technique involves studying the consumer’s perception of
Perceptual mapping involves the product and competitor’s brands, and identifying vacant slots based on this.
studying the consumer’s Specifically, this involves the following:
perception of the product (a) Studying the ideal product perception by studying both tangible and
and competitor’s brands, and intangible attributes, that a customer looks for while buying a product.
identifying vacant slots based
on this.
Among the tangibles are product features, performance levels, style and
aesthetics of the product, packaging, product components and even price and
distribution. The intangibles will include services that a customer looks for—after sales service,
(b) Get the customers to rank these attributes in the order of importance to them.
(c) Customer’s knowledge of the competitor’s brands.
(d) How do the competitor’s brands fare on the ideal product map? Here, the customers are asked
to assess competitor’s brands and specify how close or far they are on each attribute to the ideal
product.
(e) Based on the customer’s assessment of competitor’s brands on the ideal product map, product
important to note here that if an attribute sought by a customer is not high on his/her priority, and
perceptions is a long drawn out strategy involving substantial resources.

After this perceptual mapping is done, the marketer uses statistical techniques like cluster analysis
and multiple dimensional scaling to arrive at a position (Exhibit 11.3 shows brand positioning based
on perceptual mapping).
Communicating the Brand’s Positioning Strategy It is not just important to arrive at a
positioning strategy; it is equally important to communicate it in a meaningful and convincing manner
to the customer. This involves developing appropriate product form, packaging, instructional material
(if required), use of colours, stationery, distribution outlets, and pricing strategy. Consider the case of
Raymonds. When the firm decided to position itself not merely as a firm producing quality woollen
textiles, but as a fashion firm for the upper middle and high income, professionally successful male,
Exhibit 11.3 Perceptual Map of a Beer Market
it diversified into other products which this customer would look for. Hence the firm created the new
brand, Park Avenue, and started marketing premium quality readymade shirts, trousers, suits, and
accessories under this label. To support its new position, the firm renovated its retail outlets to give
them an elite look. The company trained its sales personnel in marketing fashion goods which were all
premium priced. Thus, to communicate a positioning strategy, a firm has to not only advertise but also
make appropriate changes in other elements of its marketing mix.
INNOVATIONS AND NEW PRODUCT DEVELOPMENT
LO5 It was mentioned earlier, that innovative products and solutions to customer
Explain innovations needs have been one of the important factors that has contributed to the suc-
and new product cess of new products, especially post 2003. Wikip, dia describes innovations
development as the process of both radical and incremental changes in ideas, products,
processes or in services. Often, innovation is confused with invention. As
long as the idea remains in the product development laboratory it is invention. But when it gets out in
the market it is referred to as innovation.
Innovations should lead to increase value—customer value or producer value. The goal of innovation
is positive change, to make someone or something better. Innovation leading to increased productivity,
is the fundamental source of increasing wealth in an economy and change in market structure.
Sources of Innovation
There are several sources of innovation. Traditionally, it has been the recognised responsibility of the
manufacturer to innovate. This is where an agent (person or business) innovates in order to remain com-
petitive. Another source of innovation, only now becoming widely recognised, is end user innovation
or one that involves customer. This is where an agent (person or company) develops an innovation for
their own (personal or in-house) use because existing products do not meet their needs. Eric von Hip-
pel of MIT has identified end user innovations as, by far the most important and critical in his classical
work ‘Democratising Innovations’.
According to him, developments in Computers and Communication technology8 are facilitating
users to develop their own new products and services. These innovating users (both individual and
organisers) often freely share their innovations with others, creating user-innovation communities and
intellectually rich other individuals who may be non-users. Open source code facilitates this user driven
innovation.
Non-availability of customised products or services in the market, is one of the reasons why users
innovate. Further, their willingness and ability to pay a premium for such products, only helps in de-
velopment of customer centric innovations. It is also interesting to note that though segmentation helps
firms focus on market needs, it does not help individualise the product. This is now possible, through
such user-centric innovation processes.
Firms that understand the above process can change factors affecting lead user innovation and hence
alter its rate and directions in ways enhancing customer value. The toolkit for this, involves dividing
product—development and service development projects into solution-information-intensive subtasks
and need-information-intensive subtasks. Need intensive subtasks are then assigned to users along with
a toolkit which enables them to execute these tasks. The resultant co-location of sticking information
and problem-solving activity makes innovation within the solution space offered by a particular toolkit
cheaper for users.
The classical examples is the semi-conductor industry. Another example of such user centric innova-
tions is Wikipedia and use of open source code used by MIT, USA. Likewise there are several internet
enabled products and services which involve customers.
Innovations, especially ones where customers are co-producers, thus help companies gain competi-
tive advantage.
A firm can unlock its innovative potential by following the six principles mentioned below—
1. Anticipate and Exploit Early Information Through “Front - Loaded’ Innovation Processes.
2. Experiment Frequently but Do Not Overload Your Organisation.
3. Integrate New and Traditional Technologies to Unlock Performance.
4. Organise for Rapid Experimentation.
5. Fail Early and Often but Avoid ‘Mistakes’.
6. Manage Projects as Experiments.
THEORY OF DIFFUSION OF AN INNOVATION/NEW PRODUCT IDEA

Marketing literature today, suggests that new product ideas or innovations
LO6
take time to diffuse and get adopted in the marketplace. The pace at which
Analyse the theory
they diffuse differ from one market to another, depending on factors like the
of diffusion of an extent to which an economy is open to new products, media, transportation,
innovation/new warehousing, and the distribution network. It also depends on customer
product awareness and knowledge.
The theory and the process of diffusion of new products/innovations was
first propounded by Everett M Rogers9. According to this theory, people differ in terms of their risk
taking ability and attitude towards change. This affects their willingness to try and adopt a new product.
Based on these two parameters and the time they take to try a new product, customers can be grouped as:
1. Innovators 2. Early adopters 3. Early majority
4. Late majority 5. Laggard
This is illustrated in Figure 11.9.
Figure 11.9 Categorisation of Adopters on the Basis of Time

Source: Everertt M. Rogers, Diffusion of Innovation, New York: Free Press, P. 162.
Innovators
Innovators in any product market situation, are 2.5% of the total market. These individuals are high on
risk taking and hence more open to change. They are more aware and are perceived as opinion leaders
in the market. In fact, they hold the same opinion about themselves. Others look upto them for guidance
and recommendation. They are brand switchers. Once the innovators have bought the new product or
brand and feel satisfied, they talk about it to their friends, neighbours, relatives, and peer group.
Early Adopters
Immediately, next in buying the new product are the early adopters who constitute 13.5% of the total
market. They have the same characteristics as innovators, but take a little more time to buy and adopt
the new product.
Early Majority and Late Majority

They constitute 68% and hence represent a significant proportion of the market. These customers wait
for positive recommendations from innovators and early adopters, who are perceived as opinion leaders
by them. They are moderate on risk taking.
Laggards
These constitute 16% of the total market and display high resistance to change. They are averse to
risk taking and until it is 100% safe to use the product, they generally do not buy it. They are loyal to
existing brands and products.
The marketer needs to understand the characteristics of the target market and accordingly plan com-
munication strategies for each of these groups. It may also be remembered that the S-shaped curve of
PLC, as described in the last chapter, can also be explained to a large extent by this theory.
This theory also suggests that a firm should research the demographic, psychographics, and media
habits of innovators and early adopters and direct its effort to making them its advocates.
This categorisation is applicable in industrial marketing and rural marketing too.
The firm should pay attention to its product characteristics and communication strategy. For exam-
ple, how to use the product can play an important role in product diffusion. In a market like India, where
awareness levels and literacy rates are still low, this is a useful strategy to diffuse the new product. For
example, Maggi Noodles’ ‘How to Prepare’ instructions on the pack played a key role in its diffusion.
The firm should also be wary of the fact that personal influence plays a key role in product diffusion,
as it works more for the late majority and laggards. Also, one may observe personal influence more in
high involvement (high cost/high risk) product situations.
IN FOCUS
Diffusing Innovations
According to Kotler, five characteristics influence the rate of adoption of an innovation.
(i) Innovation’s relative advantage–It is important to appreciate that the higher the perceived advan-
tage of an innovation over the existing alternatives or products, the faster is the pace of its adop-
tion and diffusion. This advantage has to be tangible. For example, personal computers are being
adopted faster because of their multiple advantages to the user-word processing, computations
and financial planning, Internet, to name just a few. In industrial marketing, the cost advantage
that PET bottles and tetrapacks offered over metal cans and glass bottles made them a common
packing material for liquids like edible oil, soft drinks, and milk.
(ii) Innovation’s compatibility–This refers to the extent to which an innovation is compatible to users’
values and experiences. Consider the example of personal computers, again, which match the
values and experiences of the professionals–a growing segment in India.
(iii) Innovation’s complexity –The more complex and difficult to understand the innovation is, the more
time it will take to get diffused in society.
(iv) Innovation’s divisibility–This is the degree to which an innovative product can be used on a multiple
basis. The more the users and purchase options available, the faster the diffusion of the innovation.
(v) Innovation’s communicability–This refers to the degree to which benefits of an innovation can be
observed and communicated to others. For example, if a cardiac surgeon observing a remarkable
improvement in a patient being treated with a new technique called angioplasty, communicates
this with his colleagues, the diffusion of this innovation in treating angina will be faster.
Other factors contributing to the success of a new product are costs, risk and uncertainty, scientific
credibility, and social and cultural acceptance. Consider, the case of Hawkins Instamatic—the anti-
pressure cooker concept. The product offered the benefit of freedom from the kitchen, to the housewife.
This automatic cooker considerably reduced cooking time, thereby easing the burden of morning chores
for the housewife and working woman. But, despite the significant time advantage and freedom the
product offered, it failed. This was because the perceived advantages were not proportionate to the cost
to be paid. The product was priced at `900, which was considered too high in 1980s. Thus, Instamatic
failed in 1985 despite its benefits. Cultural, social, and cost factors all contributed to its failure and
subsequent withdrawal.
Today, the same issues confront microwave oven marketers. Unlike the West, Indian food habits
are different and microwave cooking cannot help make the food that an average Indian family is used
to. The only advantages seen in microwave ovens are in case of preparing tea and rice or baking. The
marketer has to research all these factors because new products run a much higher risk of failure.
Role of Opinion Leadership and Social Networks in New

Product Diffusion
The theory of diffusion in innovation is based on the principle of opinion leadership and its significance
in the society. Social networks today are an important source for diffusing a product or an idea in the
target market. Research also indicated today that besides opinion leaders and social networks heavy
users of a product can also influence its consumption among the light users. This is based on the role
the peer group plays in adoption of a product or a service. Hence from the point of marketing, it is im-
portant for the firm to identify the extent of significant role an individual consumer plays in influencing
the opinion of target market.
ORGANISATION OF NEW PRODUCTS
LO7 There are various organisational alternatives to new product development.

Demonstrate the A few of them are explained as follows:
organisation of new
Formation of Venture Groups
products
Some companies assemble a group of executives from production, R&D,
and marketing to develop a new product. These persons come together for a specific purpose and after
achieving it, return to their parent departments. These groups are called venture groups. The marketer
provides market feedback on new technologies developed by R&D, who then adopts them to customers
needs. Production executives provide feedback on the amount of time it will take to make the product
and the bottlenecks they may face. In some companies, finance executives are also a part of this group,
to provide the financial dimensions of new product development. This is useful as it helps the marketer
to arrive at a price for the new product.
Marketing Department
In most firms, new product development is the responsibility of the marketing group. And within this
group, it is the task of the product management group. The limitation of this organisational structure
is that, at times new product development may not be able to consider organisational resources and
constraints. Hence, cooperation from other departments may not come through and the new products
may never be able to take off.
R&D Department
Some firms assign the task of new product development to their R&D department. The limitation of
this structure is that many a time R&D scientists may come up with excellent research products, but
the market may not accept them. The assumption that the ‘best product wins the day’ may not hold
good in the marketplace.
Planning Department
Few firms have a corporate planning department. It may be named in any manner, but the firm assigns
this department the task of environmental scanning and developing new products. This has the advan-
tage of a specific group of executives being responsible for evolving strategies to meet environmental
uncertainties. The limitations here too, are senator in the case of new product development being as-
signed to marketing or R&D department.
To conclude, new products are important to an organisation’s sustained growth and in some cases,
even revival The firm should be able to effectively manage this function to get higher returns on its
investment.
INTERNET AND NEW PRODUCT DEVELOPMENT
LO8 Internet today can help accelerate new product development by organisa-
Define internet tions. Combined with flexible manufacturing technology, the Internet can
and new product enable the marketer to take the new product from concept to commercial
development stage, in a much shorter time period than through the conventional method
of product development. The Internet and the Web work especially well for
online products, as the Net allows for quick sampling and feedback from consumers. Companies that
have used the Internet for new product development, have reduced the time frame by using the follow-
ing key ideas:
(a) Flexibility
(b) Modular Approach
(c) Rapid feedback
Flexibility permits new product development to respond quickly and effectively to the market condi-
tions.
Modular approach allows the product management team to work independently and non-sequential-
ly. Since most products are online, customers can provide feedback online.
The computer industry was the first to discover the principles and benefits of modular design. Modular
design breaks new product development into various process and sub systems. Each of these is called a
module. It allows for different teams to work on various modules simultaneously. This helps to reduce
the total time taken to launch the new product. In order to break down the new product development pro-
cess into modules, it is necessary to divide the product into clearly defined design features. If this is not
done, modular design approach will not help and will not work. In order to do so, one must have visible
design rules and hidden design parameters. Visible design rules reflect the critical information that all
teams working on new products must understand. These rules clearly describe how and where the various
modules integrate and, hence, define the performance parameters and quality expected in each module.
The hidden design parameters, on the other hand, are the internal working of each module. These also
reflect the process that each team would follow in the module and are based on market feedback.
The Internet also helps to get an early feedback on new product development. The most powerful
form of connecting with the customer is e-mail. For customers to use e-mail for providing feedback on a
company’s new products or launches, it is necessary that the customer should feel sufficiently motivated
to do so. For this purpose, companies can provide a feedback to them on the suggestions that have been
used by the product development team in the development of new products. In order to make e-mail
effective and ensure a good response rate, the company’s current customer base provides the starting
point. An e-mail survey of existing customers can give a good feedback about the new product. In order
to accelerate the process of product launch, a company may decide to follow a two-tier approach to get
a feedback from the market.
One tier consists of internal employees who are also, in a way, a customer of these products and
services. These employees may be asked to sign a non-disclosure agreement whereby they agree not
to share any information about the product outside the organisation. Employees like to participate in
such feedback sessions because it provides to them an opportunity to understand the future direction of
the company. The next tier is the customer outside the company. The goal at this stage is to test widely
and continue refining the product. Generally, participation from customers is obtained free of cost or
at a minimal price. Product give-aways or free sampling continues to be a powerful way of obtaining
feedback on the Net from the customer.
While selecting consumers, especially for technology driven new products, it is necessary that the
marketer draws a sample consisting of early adopters and also the early majority. This will help the
marketer prevent any bias occurring in his decision. Thus, the Internet today can help the marketer
shop for ideas and involve customers in new product development right from the concept to the com-
mercialisation stages. It can also help him or her decide on key issues of branding.
SUMMARY
New product does not necessarily mean technological breakthroughs only. A product is new as long
as customer perceives it to be so. In a highly competitive market, new product strategy is one of the
internal growth strategies. To make new products, successful, the marketer should understand the
process of new product development and also that of diffusion of new product, ideas, or innovation
in a given market. Cultural and social background, costs, risks, and perceived benefits go a long way
in determining whether a new product will succeed.
“Social networks play a significant role in the diffusion of a new product in the market. The role of
opinion leadership continues to be significant but today instead of it being a trickle down phenom-
ena, social network helps in communicating information about new products in the target market at
a much faster pace. Hence, opinion leadership is today widely spread in society and thus diffusion
process is much faster than earlier times. One needs to re look at trickle down theory in this con-
temporary reality.” To communicate differentiation of a new product from competitors, a firm has
to competitively position it. In an over-communicated society like ours, positioning helps in placing
the product or band upper most in the customer’s mind. The marketer should not only know how to
do but also understand its strategic role and contribution to the firm’s bottom line.
POWER POINTS
technology integration and customer involvement are critical to the successful new product
introductions. (LO1)
2. Adoption of local cultures, working through alliances and networks to make the new product
available across the length and breadth of Indian market and segmental analysis can further
(LO1)
3. Value for money is a good brand positioning platform. (LO1)
4. A new product is may product that is perceived by the customer as being ‘new’. The newness
-
tion has been made on it, or even offered in a new packaging. (LO2)
5. 70% of all new products are just changes within existing product lines of an organisation and
only 10% are absolutely new. (LO2)
environment, as also the organisation’s mission and long-term goals. A product manager’s
personal goals also contribute to the new product development process. (LO2)
7. The new product development process is a seven-stage process, starting with idea generation.
(LO3)
8. Branding is an important strategy for differentiating a product in a marketplace. To the com-
pany it is a name, logo, trademark, patent number or package design but to the customer it is
association with the product. (LO4)
brand the product. (LO4)

10. Brand positioning helps to communicate products core value proposition so that it occupies a
distinct and value place in the customer’s mind. (LO4)
(LO4)
value. (LO5)
13. Innovations that involve customers as co-producers have better opportunities of succeeding.
(LO5)
14. Diffusion theory suggests that any product introduction takes time before it is adopted by al-
most 80–90% market. This is primarily because markets differ on parameters like availability
of media, distribution channels, transporting and warehousing facility and customer awareness.
(LO6)
15. The target customers can be categorised on the basis of their risk taking ability and attitude
towards change as innovators, early adopters, early majority, late majority and laggard. (LO6)
16. Organisational alternative for new product development includes: (a) formation of venture
groups, (b) marketing department, (c) R&D department, (d) planning department. (LO7)
17. In new product development, the Internet has reduced the time frame by following the key
(LO8)
18. Today the Internet can help accelerate new product development by organisations. Combined
-
uct from concept to commercial stage in a much shorter time period than through conventional
methods. In new product development, the Internet has reduced the time frame by following
(LO8)

1. What factors contribute to the success or failure of a new product? (LO1)
2. If you were the marketing manager of a cellular phone company, what steps would you take to
diffuse a new product in the Indian market? (LO2 and 4)
3. What is a new product? Outline the various stages in new product development. (LO3)
4. A company in the consumer durables industry has just added an electronic cordless broom to
its product line and has approached you for its positioning. The product is targeted at middle
income households and is priced at `2,200. The company is a leader in its other product lines.
Work out a positioning strategy and its rationale for this wonder product.
5. A consumer product company wishes to enter snack food market. If you were the product
manager, what would you do to develop a product in this category? (LO3)
6. Co-production is considered as one of the successful ways of product design. If you were a
marketing manager for an educational product like Test Prep for Test Publishing Co. How
would you go about in the new product development? (LO5 and 6)
develop innovative products. (LO7)
new consumption behaviour in India to grow their business. Study any of them to identify
success factors and lessons for a new online banking services. (LO8)
CHAPTER
BRAND MANAGEMENT
AND DECISIONS
12
LEARNING OBJECTIVES
LO1 Explain how brands connect with customers?
LO2 Describe the concept of brand equity
LO3 Summarise brand building process
LO4 Explain the power of internet and brand management
LO5 Identify brand archetypes
In Practice
Managing Brands as Value Brand Assets
Interbrand is a marketing research and consulting firm which started in 1974 with the goal of
assessing the value of a brand, so that the brand owner firm can manage it as valuable assets.
It is the world’s largest consultancy with the broadest geographical presence. Each year it con-
ducts branding studies for different markets and at the global level. Interbrand brands valuation
methodology takes a strategic view of the brand and is in compliance of ISO 10668 international
standards for monetary requirements for brand valuation. The brand value is the function of
following three factors:
1. Financial analysis, i.e., the economic profits from the brand which is the post text operating
profit of the brand.
2. Demand analysis
3. Competitor analysis
These three parameters impact the brand earning which in turn determines the brand value
which is nothing but the net present value of the brand earnings.
Another company that assesses the world’s most valued brand is Forbes Magazines. Like
Interbrand, Forbes also produces list of world’s most valued brands and also the same across
different countries. The Forbes approach is also to determine the brands earnings. Unlike Inter-
brand, Forbes considers earnings before interest in taxes.
Brand Management and Decisions 307
BRANDS CONNECTION WITH THE CUSTOMERS
LO1 Brand is a strategic tool and an asset that need to be managed well by the
Explain how firm. Brand valuation becomes important from the perspective of any future
brands connect with sale or mergers and acquisitions. It also provides to the firm the power to
customers? bargain with suppliers and intermediaries. At the same time it also provides
the confidence to the investors and shareholders in the future of the brand.
This in turn can lead to a higher degree of investment in the brand. Perhaps
the quantum of investment that a firm with high brand valuation can command is much more than the
brand which is not valued at a premium level. Just as Interbrand and Forbes do the exercise of brand
valuation at the global level and select markets, Economic Times in India have been carrying out a
study on India’s top brands. These studies are based on surveys of urban consumers in Sec A, B & C.
The brand is evaluated on the following parameters:
1. Extent to which customer feels connected
2. Perceived popularity
3. Quality perception
4. Uniqueness of the brand
5. Value for money
6. Repurchase intent
The survey is conducted in Metros and class 1 and 2 towns. This study is based on Interbrand methodol-
ogy of valuing best global brands.
A comparison of top 10 brands in India and across the world reveals the following (Tables 12.1 and
12.2):
1. Connect with the consumer: The top brands always connect with their customers. Pre-audit re-
searches, development of consumer insights also understanding the lifestyle of the target consum-
er group is a way that these brands connect with their consumers. For example, Tata has grown
over a period of time because of the pride the community takes owing a Tata brand. In the brand
building exercise, community is not just another stakeholder but in fact the very purpose of its
existence. The core values of Tata’s integrity, understanding, excellence, unity and responsibility
have made Tata a global conglomerate. Today the brand encompasses steel, energy, automobile,
with the customers across multiple segments and geographies. Today Apple designs, manufac-
tures and markets mobile communications and media devices, personal computers and several
other software services and peripherals. Apple stores are an example of experience marketing.
The consumer is able to feel, touch, understand and play around with the apple products without
being disturbed by any salesperson. Should the consumer want assistance, he or she has to just
call for it. These stores also provide an insight in consumer behaviour.
2. Building consumer community: Brands today invest resources in inviting the consumers to con-
nect with them through Facebook and Twitter or WhatsApp, etc. They also run loyalty programs.
themselves and with the brand managers their experience. This is true today for companies like
Hindustan Unilever where each brand has its own community of consumers. Same is true for
Apple or Google. Service brands use consumer communities extensively for the purpose of cus-
tomising their offer. It also helps to co-create the offer.
3. Society as a stakeholder:
establishing linkages with the society. Sustainability of brand over a period of time is dependent
on the pride society has in the brand and how it as a part of their day-to-day life.
4. Innovations: Innovations are a corner stone for sustainability. Companies like Apple have contin-
ued to invest in technology thus creating an ecosystem of innovative products and solutions for the
target market. Starting with personal computers and Mac Notebooks, the company has continued
iPhone, iPad and now iPad air are the innovations that have been launched successively by Apple.
No wonder, it is today world’s top leading brand. Same is true for groups like Tata which have
successively launched innovative products which are affordable solutions for the large Indian
and Tata Sky in the Satellite television business have created a history in the Indian market. Same
is true for Hindustan Unilever which has continued to make its brand relevant on the strength of
innovation in product design, packaging or communication.
In Practice
Innovative Communications Create New History for Lifebuoy
Lifebuoy has today become synonymous to hygiene. In order to ensure that the brand continues
to grow, Hindustan Unilever launched the lifebuoy hand wash and extended it to the rural areas
In doing so, the brand used ‘Breakthrough in Germ Protection’ ACTIVE Natural Shield. Accord-
ing to the company this has 10 times germ protecting power than other germ protection soaps.
This technology has been developed at its Research Centre at Bangalore. Developing the product
on this technology, Lifebuoy now promises to protect the consumers against germs through:
(a) Faster and better reduction of wide range of germs.
(b) Superior germ reduction from the skin
(c) Longer lasting protection to reduce germ re-growth on the skin and
(d) Prevent skin damage
In order to communicate this to the vast mass of consumers and making them aware of the
need to wash their hands before and after the consumption of food, HUL undertook a major
communication campaign in educating people and children. The company’s goal was to change
the hand washing behavior of 1 billion people by 2015. In order to reach out to the mass it
created an innovative “Roti” reminder. Kumbh Mela is the world’s largest religious festival held
in India every 3 years. It attracts over 100 million people. 2012 Kumbh Mela was considered to
be the biggest Kumbh Mela. Lifebuoy partnered 100 restaurants and cafés at Allahabad to create
awareness for good hand wash for every food order placed. The first “roti” carried the message
‘Lifebuoy se haath dhoye kya?” Did you wash your hands with Lifebuoy? These words were heat
stamped on to the baked roti without the use of ink to ensure it was completely edible. This
reminder came just at the time when the consumer needs it the most. More than 2.5 million
branded “rotis” were reported to have been eaten by the end of the month long campaign. The
company also placed Lifebuoy soap in the washrooms in each of the eateries and used banners
and bill boards to reach millions more people with the hand washing message.
By using festival and food, the brand broke the clutter in advertising communication and the
media and reached out directly to the consumers.
5. Consistent brand value: It is important to maintain core values of the brand over a period of
time even when changes are made in its form, packaging or communication. The more value
propositions must remain the same across media vehicles. Consider the example of Samsung. This
South Korean brand has maintained its core value of customer facing innovations and making its
products available across all segments.
6. Perceived Competitive Differentiation: The customer must perceive competitive differentiation
at an affordable price of `1000. Similar is the value proposition of Tata Ace and Tata Nano. These
value propositions are perceived by customers as strong differentiators.
7. Consistency in Communication: The brand communication must be perceived as consistent.
This applies to all possible medium that the brand may use to communicate its value—be it the
electronic or print media or its packaging to musical jingles or even the colours.
Table 12.1 Top 10 brands in India in 2013

Rank Brand Brand Value (US Million Dollar)
1 Tata Group 10907
2. Reliance Industries 6247
3. Airtel 6220
4. SBI 3838
5. Infosys 3797
6. HDFC Bank 3277
7. Mahindra & Mahindra 2576
8. ICICI Bank 2571
9. Godrej 2456
10 Larsen & Toubro 2320
Table 12.2 World’s top 10 brands (2013)

Rank Interbrand (brand value million $) Forbes (billion $)
1 Apple (98316) Apple (104.3)
2. Google (93291) Microsoft (56.7)
3. Coca Cola (79213) Coco Cola (54.9)
4. IBM (78808) IBM (50.7)
5. Microsoft (59546) Google (47.3)
6. GE (46947) McDonald’s (39.4)
7. McDonald’s (41992) General Electric (34.2)
8. Samsung (39610) Intel (30.9)
9. Intel (37257) Samsung (29.5)
10 Toyota (35346) Louis Vuitton (28.4)
In the last two chapters we saw that branding is one of the most effective and competitive tools and,
to maintain their leadership. There has been a growing interest in the area of branding, more so, because
brand represents the goodwill of the firm. In corporate take overs or mergers, often the value offered to
buy out a firm is much more than the book value of its land, plant and machinery, inventory of finished
and semi-finished products, and the market value of its shares. The difference between the book value
plus market value and the price offered for the takeover can be attributed to the intangibles. One such
extremely important intangible, is the firm’s brand equity. This subject of brand equity is a relatively
new one and research on it is still underway. The interest in studying brand equity is reflected by the
growing number of research seminars and papers in leading international journals.
Brand is a powerful differentiator in a highly competitive marketplace. It provides the company the
power to deflect competitive moves. A strong brand rings trust, confidence, comfort, and reliability in
the customer’s mind. It enables the customer to create beliefs, around brand values. Any break or dis-
tribution in beliefs, creates dissonance in the customer’s mind. The fact that customers live by brands is
amply demonstrated by the habitual behaviour of the housewife, who continues to buy the same brands
of toiletries, detergents, and food products in her shopping cycles. She does so without making any
conscious effort. Any attempt to distort this, creates dissonance in her mind and she seeks to rationalise
it. Brand, therefore, is an integral part of consumer life.
To the company, a strong brand provides credibility and respect among its peers. It certainly gives
the company the power, to bargain with its intermediaries, suppliers, interest groups, and even govern-
ment bodies. A strong brand means higher market share and return on investment and, hence, higher
shareholder value. It even creates a positive motivational climate in the organisation, as employees take
pride in remaining associated with it. Companies with strong brands attract the best talent and respect
among industry professionals.
Factors in Brand Power

Despite the apparent benefits of high brand equity, some firms do not protect their brands from los-
ing markets, hence contributing to the erosion in their brand’s value. The classical case is that of
Amrutanjan multi purpose pain balm, which held sway in the Indian market till Vicks Vaporub was
launched by the then Richardson Hindustan Limited (RHL) (now called Procter and Gamble) in the
1960s. Positioned close to Amrutanjan and yet in a distinctive niche, Vicks Vaporub took the stance
of a remedy for cold, by communicating to the target market, that it was an anti-cold rub for external
use on the chest, back, throat, and around the nose. The menthol in the product helped to decongest
and also gave much needed relief, especially to children. RHL saw the marketing task clearly—that as
a rub, it could be confused with Amrutanjan, the only rub at that time, and wanted to avoid a head on
confrontation with the leader. But as time passed, Vicks Vaporub became a household name in India
and a brand which was around for about 50 years slowly got destroyed. Internal management problems
and family feuds also contributed to Amrutanjan’s decline. While Vicks Vaporub was extended to the
adult market and also offered in smaller tin packs at affordable prices, Amrutanjan failed when it tried
to do the same. By 2004, Amrutanjan balm had given way to other relatively new entrants like Zandu
balm, Moov balm from Paras, and Iodex. The relative position of brands’ equity in 2004 in this product
category is shown in Table 12.3.
Table 12.3 Death of a Brand

Relative Rank Brand Overall
1 Vicks 9
2 Zandu 17
3 Moov 30
4 Iodex 37
5 Amrutanjan 55
Thus brands fail when they are unable to read market preferences. They also fail, when they are not
able to maintain quality and customer service. At the global level, besides the above factors, too much
of fixation on cultural differences in the market also leads to their decline. Today, with markets get-
ting homogenised following the rapid penetration of satellite television, mobile communication, and
Internet, global brands need to extend their core values and business models to the world market.
BRAND EQUITY
LO2 To understand the dynamics of brands, David Aaker

Brand equity provides
Describe the concept provides a framework called brand equity. It refers value to a firm in the process
of brand equity of price premium, trade
its name and symbol that add to or subtract from the leverage, or competitive
value provided by a product or service to a firm and advantage.
or to the firm’s competitors’.1 In other words, brand equity provides (or sub-
tracts) value to a firm in the form of price premium, trade leverage, or competitive advantage.
A brands’ assets can be categorised in five groups, as listed below:
1. brand loyalty
2. brand name awareness
3. brand’s perceived quality
4. brand association in addition to the perceived quality
5. other proprietary brand assets like patents, trademarks, channel relationships, and so on.2 Aaker
As mentioned earlier, a strong brand equity enhances the brand’s value which, in turn, affects share
prices of its parent firm. This valuation is used for buying and selling of firms. Valuation of a brand is also
important, as it represents investment of a firm’s resources in creating and augmenting brand equity. In
fact, lately, some firms are talking of including their brand’s value in their balance sheets. This is indeed
futuristic, but it does represent a growing interest in a brand’s valuation, particularly today, when we are
moving towards a global market and global brands—an era that is going to be
characterised by mergers, acquisitions, strategic alliances, and joint ventures. Brand value is a function of
the customer’s perception,
his/her attitude towards it, and
Brand Valuation the economic value or price
It is difficult to value a brand accurately. A brand’s value is a function of the cus- that the customer attaches to
tomer’s perception, his/her attitude towards it, and the economic value or price the brand.
Figure 12.1 Constructs of Brand Equity
that he or she attaches to the brand. As we shall see in the next chapter on pricing, a brand’s price reflects
the customer’s perceived value. If the customer perceives a higher value in the brand, then he or she
will be willing to pay a premium to buy it. In 2000, the Dabur brand was valued at `5,000 crore, taking
into account market capitalisation, sales, and goodwill. The Infosys brand was once valued at `1,727
crore, and a few years ago the Vicks brand was valued at `186 crore. While these brand valuations are
given by the brand owners, the sums paid for acquisitions are better indicators of value. For example,
Godrej bought the Good knight range of mosquito repellants for `12 crore and Smithkline Beecham
paid `42 crore for Crocin. Lakme was sold to HLL for `110 crore. Thus, brand is an important asset
which should not be mismanaged. Increasingly, Indian marketers are understanding its significance and
one can see investments in brand building being enhanced.
It is important to understand the different approaches that can be used to value a brand. Exhibit 12.1
sums up these approaches.
Exhibit 12.1 Approaches to Brand Valuation

1. Price premium that a name or brand supports 3. Replacement value, i.e., what it will cost to
in a competitive market replace the existing brand
2. Impact of the name or symbol on customer 4. Stock or market price of the firm’s shares
preferences 5. Earning power of the brand
Price Premium Aaker suggests, that one of the most effective approaches
Value of the brand = Price
to valuation of a brand is the premium that it commands in the market. According
premium ¥ Number of units
sold. to him, if the price premium for a brand can be obtained, then the value of the
brand in a given year will be the price differential (premium) times the number of
units sold. For example, if a firm’s brand commands a premium of `5 per unit and it has sold 2,50,000
units, then the brand’s value is `12,50,000.
Different Approaches to Assess the Price Premium on a Brand
Observe Price Levels in the Market One approach is to observe the price levels of different com-
peting brands or a firm’s brand and study how these differences are associated with the brands. It is also
worthwhile to study how a brand responds to a firm’s own price changes or to those initiated by com-
petitors.
Research to Assess Preferences or Purchase Likelihood One of the most
The dollarmetric scale
commonly used approaches, is to assess customer preferences or purchase like-
implies asking customers the
lihood at different levels. If research shows that the customer is likely to buy a price they will pay for various
firm’s brand at a price higher than its competitor’s or higher than its current lev- features of the product,
el, then the brand’s equity is high. Many a time, a brand’s price may not reflect including the brand name.
its strength. In a recent research, for a consumer product company making low
involvement products, it was found that one of its brands was underpriced. The housewife perceived
the price of this brand and the pack to be at least 50% more, than what the company was charging at
pack and the confidence in the brand. It is important, that a firm accepts research data with honesty. It
is not worthwhile for a firm to say that it is the best. It is the customer who has to say it and what better
way than to buy it at a premium price.
Another variant of the above research, is to ask customers the price they will pay for the various
features of a product (one of these being the brand name). This survey has been termed by Aaker as
blind taste test was done on a new brand of cigarettes, that was yet to be introduced. In the blind test,
the blend in the cigarette came out very well and the customers were willing to pay a premium price
of `30 for a pack of 20 cigarettes. The focus group customers were then asked to name the brand, if
they thought it was there in the market and also name the company. More than 60% of the respondents
named it as one of the premium brands from a well known cigarette company. It may be worthwhile
mentioning here, that customer panels were premium brand smokers—the brands here being Classic,
India Kings, Chancellor, and imported or foreign brands like 555, Rothmans, Benson and Hedges, and
Dunhill. But when the customers were told the name of the company, their perceptions and brand’s
value changed and the price they were now willing to pay was just `15 for 20 cigarettes—half the price,
that was quoted earlier. This meant that the customers’ perception of the manufacturer and his brands
did not command a good equity in the market.
Conjoint Analysis or Trade Off In this approach, customers are asked to make trade off judgements
about brand attributes. For example, in doing a study on white goods—mainly refrigerator, washing
machine, and microwave oven—for a leading industrial house, certain common product attributes like
prompt after sales service provided by the manufacturer (not the dealer), dealer network, price (top of
the line, middle, or lower end of the line), and brand name—Indian, foreign or hybrid, or a combina-
tion of the two—were selected and customers were asked to determine the relative value of the various
options. Some of these are listed below:
(i) foreign brand, prompt after sales service, and excellent national level dealer network
(ii) Indian brand, prompt after sales service, excellent national level dealer network
(iii) hybrid brand name and after sales service with all India dealer network
(iv) foreign brand name and after sales service but dealer network in metros only
(v) Indian brand name, after sales service, and availability in all major towns
(vi) hybrid brand name, after sales service, and availability in all major towns
The customer was asked which of these alternatives she was willing to buy
In conjoint analysis,
at a premium price. The research showed that the customer was willing to pay a
customers are asked to make
trade off judgements about premium price for alternatives (i) and (iii).
brand attributes. As mentioned earlier, the price differential that a customer is willing to pay
for the brand multiplied by the number of units sold or likely to be sold, gives
us an indication of the brand’s value, and when discounted over a time period, it provides an approach
to brand valuation.
Impact of Name on Customer Preferences The above example illustrates the impact of
the brand name on customer preferences. Brand name is a powerful tool and the above research supports
the hypothesis that in developing countries, foreign brands have higher equity than national brands,
especially in consumer durables. The value of the brand is the marginal value of the extra sales (market
share) that the brand name supports. In the above example, it was estimated that a foreign brand name
will give the firm an extra sale of 15% in the washing machine market. Again, this extra sale gradu-
ally diminished as we moved from well known Japanese and American brand names to lesser known
Japanese, South Korean, American, and European names. This further supports the parameter of name
awareness in brand equity.
Replacement Cost This is the cost that a firm will have to incur in establishing a comparable
name and business. For example, it might be worthwhile to consider the cost of replacing the Godrej
brand name in the refrigerator market. Or the cost of replacing Lux soap bar in the premium beauty
soap market. Perhaps this will run into several crore of rupees.
Stock Price Movements Another approach outlined by Aaker, based on
The market price of a firm’s
the theory propounded by Professors Carol J. Simon and Harry W. Sullivan of
stock reflects its intrinsic
worth and one of the key the University of Chicago, is stock price movements. The assumption is that the
market price of a firm’s stock reflects its intrinsic worth and one of the constitu-
constituents of this is brand
equity. ents of this, is brand equity. A firm’s value is nothing but the market value of its
stock times the number of shares. From this, the replacement cost of tangible
assets like plant and machinery, inventories, cash, and so on are deducted. The balance is, apportioned
over intangibles like R&D, HR (human resources), value of brand equity, and the value of industry
factors like competition, government policy, and so on. Brand equity, here, is assumed to be a function
of the brand’s age and its order of entry in the market (earlier the better), the cumulative and current
share of industry advertising.
Illustrating this model through an example of the soft drink industry, Aaker shows how marketing
actions can affect brand equity. Referring to Coke’s case, he mentions that when Coca-Cola Corporation
introduced Diet Coke in 1982, the brand equity for Coke went up by 65% without affecting Pepsi. But
when the company introduced New Coke in April 1985, the brand equity for Coke declined by 10%
and Pepsi equity went up by 45%.
Future Earnings Brand valuation by using future earnings with discounted cash flow methods
is another method used for brand valuation. This approach uses the long range plan of the brand and
discounts anticipated profits by a factor. Alternatively, one can estimate current earnings of a brand and
apply an earnings multiplier. If current earnings are subject to fluctuations, then the trend of earnings
of the past few years is taken into account. If the fluctuations or low earnings are correctable, then an
estimate (based on industry norms) of profit as a percentage of sales can be taken.
Having considered the different approaches to brand valuation, let us now turn to the specific
dimensions of brand equity.
Brand Loyalty
The starting point for understanding brand equity is the extent to which a brand enjoys customer loyalty.
It is important to discriminate between habitual buying and brand loyalty. For example, a housewife
who repeatedly buys brand X of detergent powder may not necessarily be loyal to it. She might be
buying either because competitor brands are not available, or she does not find parity between brand
X and competition, or she may be buying just out of habit. Many a time such repeat purchases are
mistaken for brand loyalty. The real issue in brand loyalty is whether the customer is a committed one
and the real test is if he or she will take the extra effort to get it. In other words, will the customer go to
another shop and ask for it or will he or she leave with the substitute being offered by the shopkeeper
or vendor? If the customer is indifferent to the brand and buys for features, price, or convenience, there
is little equity in the brand. In today’s market, where no brand can distinctively claim differentiation
on features (as all use, by and large, the same technology and inputs) and invariably all brands are
available in all markets—even in the remotest areas—price becomes the deciding factor. And that is
where price wars begin. It is important for the firm to assess its committed customer base. Customers
can be grouped under five categories, depending on their attitude towards the brand. These categories
are illustrated in Figure 12.2.
A research was conducted on a firm, which was in the business of manufacturing consumer non-
durable goods, for over five decades. Surprisingly, it was found that the brand did not have a committed
buyer segment. More than 80% of the customers interviewed fell in the two lower segments and about
20% were in the third segment of the loyalty pyramid. It was no wonder that the company’s brand had
lost market share to a large number of smaller firms. In fact, this product group hardly had any distinc-
tive brand, other than that of this firm. This was the reason for the firm’s brand being caught in a price
war, where smaller firms scored over it.
Measuring Brand Loyalty There are different approaches for measuring brand loyalty. One is
observational—or considering actual buyer behaviour, and the other involves creating economic and
psychological barriers to brand switching. To understand this better, let us discuss these approaches in
more detail.
In the forced choice
Buyer Behaviour One of the methods is to observe actual buying behaviour method, the researcher
as represented by customers’ repeat purchases; one brand, as a percentage of makes available only a
last few purchases, and the number of brands purchased by an average target particular brand at selected
retail outlets for a fixed period
of time.
choice method’. Here, the researcher makes available only a particular brand at
Figure 12.2 The Pyramid of Brand Loyalty
selected retail outlet(s) for a fixed period of time. Customer’s buying behaviour is then monitored. Does
the customer accept what is being offered or does he or she refuse and go to the next store to buy his
or her preferred brand; what percent of customers do that; and when the freedom of choice is restored,
conducted only in a limited area and period of time. The only longitudinal studies are repeat purchases,
brands bought, and percent of purchases. ORG (Operations Researches Group), one of the better known
marketing research agencies in the country, does retail store audits and maintains a panel of customers
whose purchase preferences are regularly monitored and brand shares data collected. Many pharmaceu-
tical firms and consumer product companies have used this data in their marketing planning exercises.
The problem with these observational approaches is that they are expensive and have limited diag-
nostic utility. For example, why did the customer shift from brand A to brand B of a colour TV? Was
it that brand B was more heavily promoted, or pushed by the dealer, or the customer’s reference group
had bought it. These questions remain unanswered in this approach.
Psychological and Economic Barriers This is another approach in studying barriers to brand
switching. The most important barrier is economic, or high switching costs. These could be in the nature
of initial investment in the equipment or the product, learning, and the perceived high risk in changing.
For example, a firm that may have bought Dell’s servers, may resist buying another brand of servers,
as it may mean that the two may be incompatible and the buyer will have to invest large resources to
change the entire hardware. Likewise, a firm that wishes to market its integrated computerised food
processor to a housewife, already having a domestic mixer may face resistance and low market share.
Because, buying the new computerised food processor will involve her having to do away with her
mixer (that investment may have to be written off) and learn how to operate the new system. To an
average upper middle income or higher income housewife it is a complex task. Hence, the food proces-
sor brand’s inability to diffuse in the Indian market. Buy back and exchange schemes are some of the
commonly used methods to either lower, or enhance switching costs. For example, when a computer
company promises to upgrade customers’ computing system at a reasonable cost and thereby give them
state-of-the art technology, provided they buy its brand only, the firm has enhanced customers’ switch-
ing costs. Also, this company may train the user on its machine and keep him or her posted on product
developments. This will further enhance the customers’ switching cost to competitors.
Among the psychological barriers are customer satisfaction, customers’ liking for the brand, and
commitment to buy the preferred brand. Customer satisfaction surveys carried out periodically are a
common tool.
Needless to say that the firm should enhance its top end of the loyalty pyramid. For this will help it
to derive economies of scale in manufacturing and marketing, give it a trade leverage, attract new cus-
tomers, and gain time to respond to competition. This requires the firm to be market driven or customer
focused as we had seen in Chapter 1.
Brand Awareness
Another factor contributing to brand equity is brand awareness. It is the ability
Brand awareness is the
of a potential buyer to recognise or recall, that a brand is part of a product cat- ability of a potential buyer to
egory. In other words, the customer should be able to identify a firm’s product recognise/recall that a brand
in the retail stores or be able to recall its brand whenever he or she thinks of the is part of a product category.
an uncertain feeling that a brand is recognised to a belief that it is the only one in the product class’. At
the top end of this continuum is the brand that exists uppermost in the customer’s mind. This is the most
desired condition that any marketer seeks. The next level is of all the other brands that are recalled by
the customer in an unaided form. The customer is asked to recall as many brands, as he or she is able
to whenever one thinks of a product. As we mentioned in the last chapter, an average customer is able
to recall upto ten names.
Brand recognition is the third and, perhaps, lowest level. Here customers are aided in recalling or
recognising brands or associating brands with a product class. This is important at the point of purchase.
Figure 12.3 sums up this continuum and also its implication on the brand equity of the firm.
The contribution of awareness to building up an equity for the brand can be gauged by the fact that
high awareness creates associations in the customer’s mind. He or she is able to associate different
images with the brand and this in turn can help generate a customer’s liking for it. It can also lead to a
large base of committed customers and all these benefits in turn will help the firm have more leverage
in the marketplace.
Researches today support the conclusion that a strong name anchored by high recognition is an
enormous asset to the firm3. Further, the asset gets stronger over a period of time, as the number of
exposures and customer experiences grow. Hence, a challenger brand may have a tough task ahead to
position itself effectively.
Figure 12.3 The Awareness Continuum and Brand Equity
IN FOCUS
Steps for Creating High Awareness
To achieve high awareness, Aaker suggests the following communication tasks:
(a) be different and memorable
(b) involve a slogan or jingle
(c) expose the brand symbol
(d) get into the press as a news item, or publicise the brand
(e) sponsor major events
(f) consider extending brand to other products
(g) use cues of either the product class, the brand, or both
(h) repeat yourself constantly
The A&M Study on Brand Power referred to earlier in this chapter, also showed that none of the 62
most powerful brands in India had achieved 100% awareness. The highest state of awareness was that
of Colgate and Lifebuoy at 99%.
Brand Associations
Invariably all brands come to acquire a meaning in the mind of the customer. Customers associate dif-
ferent dimensions of the product, including its use and use situations, to the brands. Brand association,
has been associated in the customer’s mind with Thums Up. Surf is linked with the economy minded
-
ciations that exist with a brand, but also know the strength of these associations. For example, the name
Tata is associated with quality. It is important to know how strong this association is and for a family
name like this, which are the products with which this association is the strongest.
Based on these associations (which are also developed as a result of customer’s experience and
exposure with and to the brand), customers form an image of the brand. This should generally support
the positioning platform which the marketer has taken. A well positioned brand can help in creating an
appropriate brand image.
IN FOCUS
Brand Association is Important for a Brand
Brand association helps build brand equity by:
(a) helping a customer to process and quickly retrieve product information
(b) differentiate the brand from the competition
(c) providing the customer a reason to buy
(d) helping in creating positive attitudes or feelings towards the brand
(e) providing the basis for product line extensions
Among the type of associations that a brand may develop, are:
(i) country or geographic area, or the home of the brand (particularly useful in global marketing)
(ii) product attributes like a herbal beauty cream, tooth paste, or tooth powder associated with the Vicco
brand or Himalaya brand
(iii) intangibles, like the image of prompt after sales service or customer service with international banks
like HSBC, Citibank and national private banks like HDFC and ICICI
(iv) customer benefits–these could even be psychological
(v) relative price-premium price brands, in different product groups reflect customer’s perception of their
quality
(vi) use or application
(vii) user or customer
(viii) celebrity or person–‘The beauty soap of the film stars’
(ix) lifestyle or personality
(x) product class
(xi) competitors
Perceived Quality
One of the desired associations, a firm seeks for its brand is the customers’ per-
Perceived quality is the
ception of high quality. For, if the brand is perceived to be of premium quality,
benchmark by which the
the customer will be willing to pay a premium for it. The firm will have greater customers evaluate different
trade leverage and channel members would have greater interest in dealing in brands on quality.
such brands. A high quality brand also provides an adequate reason for the cus-
tomer to buy it. It is important to note that perceived quality, is not necessarily the same as manufactur-
ing quality or product based quality. Perceived quality is how customers evaluate different brands on
quality and hence need not be as objective as the other two are. High perceived quality, as brought out
in the earlier chapter, means higher returns on investment.
Other Proprietary Assets

Other proprietary assets of a brand include its name, patent, channel relationship, and so on. It is impor-
tant to note that a good and cordial relationship with channel members can always help enhance brand
equity, because of the interest channel members will have in the firm’s brands. Developing exclusive
relationships, dealer councils, and rewarding high performing dealers are some of the ways, by which
these relationships can be strengthened.
Finally, a marketer has to consider the issue of extending the brand name to other products. In de-
ciding for or against it, the marketer should consider whether the new product will enhance the core
brand’s equity and whether the brand name aids the extension process. The worst that could happen is
the new product creating an association or image, that is harmful to the parent brand. A marketer needs
to be careful to avoid such a crisis, when developing his new product decisions.
BRAND BUILDING PROCESS
LO3 Having understood the basis of brand equity, let us now turn to the brand
Summarise brand building process. As we saw earlier, brands are built over a period of time.
building process It requires a strategic perspective to create strong brands. It also requires
visionary leadership and marketing efforts. As we analyse several success-
ful brands, like Titan, we observe that the brand building process involves:
(a) analysis of brand environment
(b) setting the brand vision
(c) determining brand values
(e) crafting appropriate brand strategy

(f) developing an effective implementation plan
Let us understand each of the above six steps which are, to a large extent, interdependent and mutu-
ally reinforcing.
Brand Environment
One has to start by analysing the environment of the brand. This environment, is
The internal environment
of the brand involves
both external and internal to the brand. While the external environment analysis
understanding the degree oftypically follows Porter’s five forces model, or now the six forces model dis-
commitment and confidence cussed in the chapter on marketing environment, the internal environment of
employees have in the brand.the brand involves understanding the degree of commitment and confidence,
employees have in the brand. This analysis also involves a study of interfunc-
tional communication, coordination, and conflict resolution processes in the organisation. It is vital to
appreciate that a brand cannot be built, if departments are at loggerheads with each other. In fact, even if
the brand has strong proprietary characteristics, it will lose out in the marketplace only on this account.
Consider, for example, the case of a water treatment company which had the best of the talents working
in the organisation. The company has strong associations in the consumer’s mind, especially industrial
customers’, with water treatment equipments, processes, and consumables like resins. This company
launched a tap water filter for the household segment. Though technologically it was superior to all
tap filters and candle filters being used by the consumer in 1980s, the company failed to build a strong
brand and lost out to competition, which emerged in the mid 1990s. A look inside the brand revealed
that there was no coordination among departments, a conflict between the industrial projects and con-
sumer products divisions, lead to shifting priorities and, above all, there was no concern for customer
complaints. As against this, are the cases of successful brands like Titan, Dettol, and HDFC Bank, where
such inter departmental conflicts are resolved in the shortest time and, in any case, resolved keeping in
mind customer perspective and winning in the marketplace. Internal customer satisfaction, delight, and
pride are as crucial as external customer loyalty. Hence, it is necessary to periodically assess internal
customer commitment to the brand, their beliefs and perceptions about the brand, and changes they
wish to have if they were to buy it from the retail outlet.
Internal audit should also include intermediaries’ commitment and beliefs about the brand. Market
intermediaries (distributors, dealers, retailers) are a powerful link between the company and the cus-
tomer. They also contribute to developing the market for the brand. Hence their perceptions, expec-
tations, beliefs, confidence, and commitment in the context of the brand should also be periodically
assessed. One must also understand their perceptions and beliefs about competitor brands. Experience
in successful brand building process, shows that companies that, are alive to such market feedback are
able to continuously expand their brand’s life cycle. Their brands remain relevant.
Among the external environment forces, the most significant is the customer’s lifestyle preferences,
product use situation and process, importance of the brand in his/her life (e.g., does brand use lead to
enhancing his/her self esteem), price sensitivity, and the key values that he/she looks for at the pre-
shopping stage, consumption and post consumption stages.
A firm that is able to understand the customer, will be successful in creating a strong brand.
In Practice
Creating a Strong Brand—The Fevicol Way
Pidilite entered the market by approaching carpenters and created an emotional bond with them,
even though the cost of adhesive is only a small portion, in the total cost of furniture making.
Also, continued efforts were made to strengthen this emotional appeal with the carpenters,
whereas the competitors pushed their products through retail channels like hardware stores
and timber marts. Pidilite has built an extensive database of upto one lakh carpenters which is
updated every two to three years. About 1975, Pidilte launched a bi-monthly magazine Fevicraft
which showcases furniture designs. This magazine is mailed to the carpenters, at their shops or
residences.
As one can make out, the Indian customer is price sensitive, but at the same time quality sen-
sitive too. Literacy levels being low in the Indian market, marketers have to often resort to the
customer education route. Also, Indian markets need to be developed for new, innovative, and
especially, technology products, as displayed in the case of mobile phone companies. By link-
ing a mobile phone to utility rather than status, reducing prices of airtime use, and offering the
widely available, prepaid SIM card facility, cell phone companies have created a most powerful
form of communication in rural and semi-urban Indian markets. Escotel, Vodafone, Airtel, and
among others BPL, are creating strong brands in mobile telephony.
Brand Vision
The brand’s environment analysis helps to identify opportunities and threats. Based on such identifica-
tion, brand strategists need to decide where they see the brand over a period of time—say 10 years.
Vision is dreaming of a position over this time period. While defining this vision, one has to keep in
mind that a dream alone is not enough. It has to be backed by an action plan. To achieve this vision,
all employees within the organisation must become a part of it and hence internal communication is
an integral part of the vision exercise. Contribution from the employees at the bottom of the hierarchy,
is as important as the top man communicating his dream. Often sales conferences, management meet-
ings, and even informal get togethers can help create a shared vision of the brand. It is imperative that
even non-marketing employees contribute to the development of a brand vision. In today’s globalised
markets, this vision has to go beyond just the local or national markets.
Brand Values
There are tangible and intangible beliefs, that a marketer wishes to create about a brand. For example,
if a tangible value is technology leadership in the product category, then the brand has to continuously
leap frog and be the first to introduce the latest technology features in the product. But if the tangible
value is value for money, then the brand needs to incorporate and improve upon all the features and
offer it at the lowest price in the market. Intangible values relate to convenience, comfort, service, self
esteem, and so on. In determining which values to incorporate and communicate, the marketer needs
to understand the customer’s value hierarchy and also the competition’s offer. It is important that the
brand’s values conform to the customers’ value system. Though the Indian market is large and diverse,
where customers’ values differ according to their culture, demography, and geographic location, in-
creasingly we find that the electronic media is facilitating homogenisation of consumption values. Thus,
the customer for Lux and Colgate seeks similar values across different markets. But the same is not
necessarily true for a large number of other consumer products where regional brands (Exhibit 12.2)
give a tough fight to national and global brands.
Exhibit 12.2 Regional Brands

The Indian market is today a melting pot where Ice Creams Ltd, owner of the brand, this success can
brands are fighting for survival. For a marketer it be attributed to a combination of the above three
is important to know the factors that contribute to factors, which has kept national brands like Kwal-
brand equity. It is equally important for him to unity at bay and ensured that he makes profits, even
derstand the impact of competition on his brand when HLL is making operating losses. He is now
power. In large markets, like India which exhibit a even considering diversifying into packaged milk
high degree of heterogeneity in terms of language, and biscuits.
lifestyle, values, demography, and culture, no single Retailing and distribution, therefore, appear to
brand can claim a dominant position in all markets. be key aspects governing competition. Competitive
Like in the US, regional brands are today posing a distribution systems have given the regional brands
significant challenge to the survival of national and a boost to take further initiatives.
multinational brands. Hatsun, south India’s largest ice cream manu-
Regional brands have scored on the strength of facturer, has its strength in innovative marketing.
their distribution structure, their closeness to retail- Hatsun has launched various innovative marketing
ers, and their knowledge of the consumers’ tastes. programmes and promotional campaigns like ‘eat-
Regional brands like Haldiram, Bikaneri, and Akash all-you-can’ ice cream melas, home delivery service,
brands of snack foods are offering a significant chal- telemarketing campaigns, and introduced new fla-
lenge to growth of Pepsi’s range of snack foods. vours and ‘flavour of the month’.
Some examples of strong regional brands in the ice Regional brands have also demonstrated the
cream market are Pastonji in western India, Natural ability to change. Some regional brand owners at-
ice creams in Mumbai, Have-More in Ahmedabad tribute their success to their constant evolution to
and Gujarat, and Hatsun in south India. keep pace with technological change and customer
A typical example of such success is Pastonji demands. A typical example of this is Hasmukhrai
ice creams, which are very popular in the western and Company, who have been in the tea business
states of Maharashtra, Gujarat, Goa, and Rajasthan. for the past 65 years. The company was the first
According to Suleman V Hafizi, proprietor of Kings tea company in the world to market tea in plastic
jars. Tata Tea followed suit. Realising the tremen- 2. Strong distribution networks, especially their
dous strength of regional brands, MNCs themselves ability to leverage their low cost and location
have sometimes nurtured regional brands of their with the local retailers at the tiniest unit level
own. HLL has eight brands of tea. One of its popu- of the market.
lar regional brands, Brooke Bond Three Roses has 3. Ability to change and take advantage of tech-
been successfully revamped and launched as the A1 nological development in the marketplace at
brand. a much faster pace, than large MNCs because
These regional brands have set the stage for ac- of the differences in their decision making
tive and vibrant vernacular advertising. They have processes. While multinationals have a more
necessitated specialised regional language ad- structured decision making process, regional
vertisements. To fight the competition, MNCs are brands are more proprietary and hence faster
also advertising extensively in regional languages. decision making is possible.
Therefore, there has been an increase in vernacular 4. Emergence of strong regional media vehicles
publications and readership too. have also contributed to the success of these
Thus, as is evident from above, the factors contrib- brands. The print media and availability of
uting to the success of regional brands in India are: FM channels in different parts of the country
1. Customisation to local/regional customer has also contributed to creating a demand for
tastes and preferences, as illustrated by the these regional brands. Today, these brands
large number of regional ice cream brands in are effectively utilising regional media vehi-
the market. cles, as the cost of advertising here is much
lower than at the national level.
As mentioned in Exhibit 12.2, a regional brand’s success is linked to two key values—low or
affordable price and availability at the street corner stores in cities and villages. To counter such threats
from regional brands, larger firms and MNCs have adopted a different strategy. This is illustrated by the
example of Britannia’s Tiger biscuit. In the category of bakery products, especially in the most generic
form, i.e., glucose biscuits, Britannia launched a low price product and branded it as Tiger glucose
biscuit. Packed in a bright red colour and priced at `4 for a 100 gm pack, it is made available at each
and every street side shop.
Defining brand values within the organisation and regularly communicating the same to all employ-
ees ensures, that the brand remains on track. In the service industry, communicating service guarantees
to internal and external customers helps strengthen brand values. Also, it puts a pressure on internal
customers to live upto the value statement.
Brand Objectives
The vision statement also helps the strategist to define short, medium, and long term brand objectives.
While the long term objective of any brand should be to emerge as the most sought after and credible
brand in the marketplace, the short and medium term objectives will relate to brand awareness, market
penetration, and even communicating proprietary or unique characteristics to the target market. Cre-
ation of distribution equity is also a medium to the long-term objective. The market penetration here,
refers to both the coverage or the number of outlets stocking and selling the brand across the country,
as also the sales from these outlets. In the context of multiple variants of the brand, as in the case of
Lifebuoy, Lux, Sunsilk, and Dettol, the firm has to ensure that outlets stock all these variants. This will
help expand the brand’s reach across various market segments. Also, the sale of each variant across each
outlet in different markets, can help refine the brand’s sales and market share objectives.
Brand Strategy
The above stages lead us to define brand strategy. Strategy is a set of actions
Brand strategy is a set of
actions deliberately chosen
deliberately chosen, after a careful evaluation of alternatives, to help the strate-
after a careful evaluationgist actualise his vision and achieve the brand’s long term objectives. Strategy is
required because there are multiple alternatives to achieving brand vision. The
of alternatives, to help the
brand strategy could be a leader strategy, a follower, or a niche strategy.
strategist actualise his vision
and achieve brand’s long term Let us consider the case of Surf. We have mentioned earlier that Surf has been
objectives. a leader in the detergents market in India. Even when P&G’s Ariel launched
an attack on Surf, the brand was able to effectively counter it and maintain its
leadership. A brand leader aims to develop the market for the product category; customise the product
to different use situations through multiple variants; and ensure continuous availability at all outlets in
the country, thus offering convenience to the customer, and creating innovative ways of marketing the
brand. The leader also responds in a powerful manner to protect his turf from getting impregnated by
competition. HLL did precisely the same to fight Ariel’s onslaught. Surf, Surf Ultra, Surf Excel, and
Surf Excelmatic are some of the variants of Surf targeted to the different use situation of customers.
Today, HLL has also set up laundries in major cities like Mumbai, where customers can be developed
for regular use of Surf. Distribution equity has also enabled Surf to fight Ariel. Thus, a brand leader
strategy is an aggressive protection of market position, while the market follower strategy is a strategy
the price sensitive segment.

Niche could be in the price, technology, service, features, or even premium market. A brand strategy
could be to emerge as a niche leader. Most premium brands, like Mont Blanc pens, Nina Ricci perfumes,
Implementation Plan
An implementation plan refers to the development of an integrated set of cues
The implementation plan
refers to the integrated set
which reinforce the brand’s image in the target market. Often the best of brand
of cues which reinforce the strategies may fail, if the implementation plan is ineffective. Conflicting cues
brand’s image in the target can lead to a brand’s failure. Hence the marketer has to develop an integrated
market. cue set. This includes the following:
Packaging Packaging communicates the brand’s personality and values.
Besides providing convenience, package can be an important educational and utility tool in a market
like India. As we mentioned earlier, Maggi Noodles’ diffusion in the Indian market is attributed to the
cooking instructions on the pack. Likewise, PET bottles helped edible oil producers to communicate the
of the pack as also the lettering on it are strong brand communicators.

Vehicles Transport vehicles also help reinforce brand image. Soft drink companies, mineral water
producers, and other consumer product companies like GE use their vehicles to communicate brand
image and values.
Point of Purchase (POP) Material Appropriate use of POP material is also required to com-
municate a brand’s value to the customer. Merchandising and visual display, also help in reinforcing
brand image.
Retail Outlet The most common place where the customer comes in con-
In integrated
tact with the brand is the retail outlet. Be it the road side or street corner shop
communication, the
or a large retailer like Shopper’s Stop or Big Jo, the fact is that the attractive approach is to develop a
presence, at eye level, holds the key to the brand’s success. Hence, today, the real common ‘strategy, look and
brand wars are fought on retail shelves. Joint promotions, attractive incentives theme’, but in convergent
for retailers, and even outright purchase of retail shelf space in large retailers like communication, the common
elements are modified to suit
at retail outlets, is also sought to be done through brand sponsored carry bags the medium’s capability to
communicate benefit.
and attractive merchandising, including the use of focused illuminations and
panel advertising.
Marketing Communications Increasingly, brand builders have realised that brand image is
not built only through smart advertising, but also through effective integration of all tools of com-
munication like public relations, publicity, sales promotions, direct marketing, sales messages, and so
on. Even the branch or office ambience plays a role in communicating brand image. Today, integrated
marketing communication includes the use of retail store audit data, consumer usage research, and
database management to weave together advertising, sales promotion, and other forms of promotion,
into a single fabric of marketing mix.
Lately, the concept of convergent communications has emerged. This concept combines the best of
the old and new integrated communications programmes. This form of communication concentrates on
presenting the overall brand identity to the customer, keeping his/her needs in mind. Hence convergent
communications are strategic. The difference between integrated communications mix and convergent
communications is not just in the rationale but even in the approach. In traditional integrated commu-
-
nications the common elements are modified to suit the medium’s capability to communicate benefit.
Table 12.4 presents this contrast between convergent and integrated communications:
Table 12.4 Convergent and Integrated Communications for Brand Building

Integrated Convergent communication
communication
Rationale Coordinate different elements of Create an impact making, customer-
communication mix centric campaign
Approach Integrated communication strategy, Common elements modified to the
‘ambience’, and theme medium’s capability
Tools Consistent advertising, sales promotion, Mix of advertising, sales promotion,
PR, direct marketing, sales messages, PR, direct marketing, sales messages,
interactive campaigns interactive campaigns
End result Integrated communications mix Impact making, customer centric
programme communications
Use of Converging Technologies In order to build a brand, it is important to communicate

brands positioning through all possible media vehicles. Given the fact that the customer has access to
in all these media vehicles. Also the growth in out of home media has created a new opportunity for the
marketer. The convergence of technologies today, offers the marketer phenomenal opportunity to reach
out to the customers in a most economical and effective manner.
Employee Employees are also brand ambassadors. Their responsiveness, courtesy, empathy, and
mannerisms go a long way in creating customer confidence in a brand. The service industry realised
this long time back. It is now the manufacturing firms and others, who have started appreciating this
fact and accordingly, several training programmes are conducted.
Event Management and Sponsorship In an environment of a highly fragmented media
audience, an effective way of ensuring a captive audience is event management and sponsorship. The
Economic Times ET Brand Quiz, which is directed at the
corporate world—the major customer group for ET. Likewise, MRF, ITC’s (tobacco major) Wills and
Classic brands, and several others sponsor sports, films, theatre, musical, and youth events. So much
so, that celebrity dresses and tools (e.g. Sachin Tendulkar and MRF) are sponsored by brands.
Co-branding Another form of managing customer contacts to build brand image is co-branding.
Today, brands are coming together to create a powerful image in the customer’s mind. Jet Airways and
Citibank Master Card have joined together to offer a co-branded credit card to their customers. Similar
efforts are visible in all product categories. Co-branding leads to logistical and financial benefits to
partner organisations. But often the debate is whether co-branding leads to losing a brand’s unique
identity. To avoid this situation, it is important that brands coming together must have:
(i) shared vision and values
(ii) similar passion to serve customers
(iii) similar approach to product and service quality
Finally, none of the brands should try to overshadow or in any way dilute each
The single most successful
other’s equity. We have seen how Godrej Soap’s (Cinthol, Crowning Glory, etc.)
co-branding effort in today’s
marketing area, is that of Intel
brand equity got lost after their unsuccessful tie up with Proctor and Gamble.
and computer manufacturers Similar instances, can be seen in other foreign and Indian brand tie ups. To make
around the world, which co-branding succeed, both partners must commit to maintaining the identity of
created a strong brand the other. The single most successful co-branding effort in today’s marketing
awareness and identity for area, is that of Intel and computer hardware manufacturers around the world,
Intel. which created a strong brand awareness and identity for Intel.
Thus, the brand building process is both strategic and tactical. Indian mar-
keters are now realising the importance of building strong brands. This realisation has dawned on all
product marketers including Bollywood—the Indian film industry—which has lately bounced back
after the initial threat of extinction from the television, and video boom. Exhibit 12.3 tells us how the
Indian film industry is today building a brand not just in India, but even globally. It may emerge as a
strong competitor to Hollywood.
Exhibit 12.3 Brand Building: The Bollywood Blockbuster Way

Today, Indian films are representative of a power- vergence multimedia. Bollywood is one of its most
ful form of change that is brought about by their powerful products, popular even in South Asia and
deep-rooted impact. The entertainment industry is the Middle East.
witnessing sweeping changes in technology, with According to a study by FICCI (Federation of
the arrival of DTH, digital engineering, and con- Indian Chamber of Commerce & Industry) and Price
Waterhouse Coopers, size of Indian Entertainment Good choreography and music have created
& Media Industry was `5.3 billion in 2007. It grew blockbusters like Taal and Dil to Paagal Hai,
at the rate of 17 per cent which was more than the where the songs and dances alone, have con-
projected growth of 15 per cent. The sector also tributed to the success of these films, so much
attracted foreign direct investment of `8.5 billion so that choreography is one of the most sought
in 2007. This report has projected an 18 per cent after careers and some of the industry’s best
cumulative growth by 2012 when it is expected to choreographers like Saroj Khan, Farah Khan,
be worth `1.157 trillion. and Shyamak Davar command a premium.
The key to the growth of this industry in In- The star cast has also influenced the success
dia will be generation of digital content, which is of Hindi film. However, the audience has al-
growing globally at a rapid pace today. The factors ways appreciated good story lines and honest
contributing to this increased spending in the enter- characterisations. Lagaan, once again, serves
tainment sector can be attributed to— as an outstanding example of this. Other than
(a) increase in the number of multiplexes actor producer Aamir Khan, there are no big
(b) improvement in the quality of films under lo- names associated with this movie. However,
cal production the film is distinguished by its remarkable
(c) curb on piracy professionalism and discipline.
(d) growing DVD market Distribution channels—A filmmaker’s job is
What makes popular Indian films like Lagaan, not restricted to production and post produc-
Kuch Kuch Hota Hai, Gadar, and Hum Aapke Hain tion finishing of the film alone. Distributing
Kaun and Black such successful products? it all over the country and overseas through
Some of the factors contributing to success of theatres, multiplexes, and DVD’s is an impor-
these blockbusters are: tant aspect. India had around 21,000 screens
The core product or the story line, should be by 2005, as compared to 13,400 in 2000. DVDs
contemporary, should relate to the masses, are further expected to boost the market along
and touch an emotional chord within people. with increased availability of software and fall-
The audience simply wants to enjoy a good ing hardware prices. Nowadays, film produc-
film. Lagaan, for instance, produced by actor ers are able to sell the rights of their films at
Aamir Khan is a period drama set in the 1890s the inception stage. The Internet has allowed
and portrays the revenge of the proletariat. Its the independent producer, an opportunity to
effect on Indian cinema is only comparable to achieve broad distribution of his product at
that of Star Wars on Hollywood. This film has little or no cost. Soon, movie houses shall be
triggered a change in Indian cinema, from the able to distribute their films via satellite.
stereotyped film making, to more bold and Technology contributes significantly to the suc-
socially relevant themes. cess of a film. In recent years, the production
Music in Indians films also contributes, in a of independent films and videos has greatly
major way, to the success of a film. For most increased due to many contributing technolo-
people, music is a form of entertainment or gies, like the use of multimedia for animation
a means of distraction from daily worries. effects. Disney movies, for instance, have been
Lagaan’s music, though contemporary but hugely popular for decades, and each new
with nostalgic tones, has been composed release showcases vastly improved animation
and recorded using the latest DVD technol- techniques and increasingly realistic charac-
ogy. Some other musical blockbusters include ters and locations. This trend has crept into
Kuch Kuch Hota Hai, Hum Aapke Hai Kaun, Bollywood too. Movies like Raju Chacha and
etc. Although mass media (cinema, radio, animated films like Pandavas, Alibaba and
television) has changed popular tastes and the Forty Thieves, Sindbad, and the Story of
introduced many foreign and modern aspects Buddha illustrate this point. Animation has
to Indian films, music is still the mainstay of become more precise and lifelike, and com-
Indian films. puter generation and digital enhancement
techniques, have replaced live action and ani- Role of Media

matronics as a means of making better movies. Media—The success of movies like Lagaan
DV camcorders, decks, and non-linear ed- and Gadar or even classics like Sholay can be
iting systems, make it possible to create high attributed to a great extent to effective media
quality final productions at a fraction of the relations, advertising, and public relations.
cost of similar system used just two years ago. Advertising is actually brand building
In fact, this new format is so popular that ma- through effective communication and is es-
jor studios are now supporting DV production. sentially a service industry. It requires the help
Bollywood’s fight against piracy: It is esti- of media to reach a wider audience. News-
mated that the film industry loses over 60% papers, magazines, and radio are the media
of its legitimate income due to cable piracy.
vehicles most commonly used, to reach out
Distributor N.N. Sippy says that ‘a day’s clo-
to the masses. New delivery platforms like TV
sure would amount to heavy losses for the
channels, webcasts, road shows and sponsor-
industry, but the loss caused by the video
sharks was much more.’ One of the major fac- ships in metros, also offer huge potential for
tors which has thrown the film industry into advertising. Taal earned `1 crore from Coke
deep crisis is the menace of cable operators by way of sponsorship, while BPL, Kenstar,
screening new releases. and Manikchand together paid `1 crore. TV
channels like ZEE and Sony regularly hold
Role of Theatres in Enhancing Value for talk shows, music countdowns, and film pre-
Customers mieres to publicise films.
Theatres—Cinema is the main entertainment The entertainment sector has now been
of the Indian masses, and has been so since
formally recognised as an industry and,
1930s. It has created archetypes, myths, icons,
hence, is eligible for bank finance.
and legends which have dominated the Indi-
an psyche for the last fifty years. It is a major Thus, brand building has arrived even in
source of collective fantasy. the Indian film industry. This was hitherto
The other important aspect of Indian cinema is that known only in Hollywood, where the pro-
it caters to the needs of a population uniquely diverse ducers, directors, and the media have played
in language, religion, and culture. Indian cinema has a significant role in creating brand icons.
become over the past fifty years, despite its many Walt Disney, for example, is a very strong
distortions and contradictions, a major instrument of brand in the entertainment industry. It is well
national consolidation—true unity in diversity. known their Walt Disney is an American brand
Film is an experience and film going adds to the in the entertainment sector, not just restricted
experience. Contrary to the belief of sceptics, that to theme parks, but with a considerable pres-
TV would replace theatres as a medium of watch- ence in film production as well. So are stu-
ing films, theatres to date remain the most preferred dios like Universal, Columbia, 20th Century
medium of watching films. Indeed the experience Fox, who are known to produce good quality
of watching films in theatres has been further en- blockbusters. Just as the film stars and pop
hanced by technological developments like Dolby singers are brands in Hollywood, so are our
effects, multiplexes, and clean theatres. own Indian cine artists. Amitabh Bachchan is
In cities like Mumbai, Delhi, Gurgaon, Indore, a mega brand worth several crore of rupees,
Bangalore, etc. small theatres and multiplexes are so are younger film stars like Aamir Khan,
the order of the day as they are clean, professionally Hrithik Roshan, Karishma Kapoor, Aishwarya
managed, and watching a movie there is a pleasant Rai, and Madhuri Dixit.
experience. Today, no Indian film can possibly succeed if
Film distribution in India therefore, assumes an producers and directors, do not pay attention to the
important role. The distributor’s ability to put the brand building process.
film in major theatres, where people enjoy watch-
ing, plays an important role in making it a success.
POWER OF INTERNET AND BRAND MANAGEMENT
LO4 Internet is today a powerful tool in brand management. It has the power
Explain the power to impact a brand’s equity. Almost all companies and brands have an as-
of internet and brand signed domain name, which are generally accessible through several portals
management or search engines like Yahoo!, Google, and Netscape. To understand how
Internet can help brands grow, one has to consider the framework of brand
equity, as proposed by Aaker. The starting point is the decision relating to
domain name.
Domain strategy is closely related to a firm’s branding and positioning strategy. It acts as a tool for
marketing communication strategy and hence in creation of a brand’s awareness. Also, it is an address
to which customers can direct their queries and hence, in a way, is a bridge between the customer and
the brand. Once determined, a web address should not be changed. While it is possible to modify it, it
gets increasingly expensive and difficult, the more ingrained it is in the consumer mind. Net strategy
has to be a part of the overall marketing strategy of a firm. Hence, the domain name should accomplish
the following:
(b) Reinforce brand values

(c) Anticipate consumer problems
(d) Empower the customer to solve his/ her problem online
The starting point in brand building on Internet is the decision on domain name, because it provides
an easy means to remember the method to access the Internet by consumers. Each domain name must
lead the consumer to the same Internet address, even when a firm may have more than one registered
domain name. For example, getting to the home page of General Motors, a consumer can either go
through www.generalmotors.com <http://www.generalmotors.com> or www.gm.com <http://www.
gm.com> or through any of its brands. The domain name should be subjected to the consumer usability
test and should involve recall tests in a variety of settings and imagery.
Further, it should be approachable through multiple search engines and must be attractive enough
to hold consumer attention and interest. Most companies and brands, therefore, give information on
their brand campaigns, testimonials, and several other informations which can help to shape consumer
attitudes.
In multi brands companies like P & G, Nestle, Dabur, HLL, or General Motors, management of
brand system is important. The brand system, represents the totality of the brands of the company. These
brands need to work together and reinforce each other. From the online perspective, one has to study
the brand hierarchy in the company. Brands at each level have a defined role to play within the brand
system. These hierarchies complicate the connection, between domain and brand. The firm has to de-
cide what the level of brand hierarchy Web domains should reflect. For example, should the company’s
website give details of all brands and even sub-brands or should it only restrict itself to main brands.
However, a firm’s domain strategy should be consistent with branding—flexible and innovative.
Word-of-Mouth Publicity
The Internet is a powerful tool of diffusing information from company brand to the consumer and vice
versa, as also from one consumer to another/group of buyers. This occurs through e-mails, chat groups,
industry portal discussion, and online and traditional media coverage of the Net. Since information
travels fast, Internet has to also understand this medium’s potential of creating negative publicity. A
dissatisfied customer can spread dissatisfaction among other existing users and thereby wean away a
large number of potential buyers. Such communication can have a significant negative impact on a
brand’s equity and even a firm’s financial leverage. Intel learnt this lesson at a great loss. The early
version of Pentium chip in the 1990s contained a bug, that made some mathematical calculations go
wrong. This was first discovered by Thomas Nicely, a maths professor at Lynchburg College. When
his e-mails pointing out the problem were rebuffed by Intel, he decided to post his feedback on the
CompuServe support bulletin. Quickly, a chat group got created and several mails now appeared on
this bulletin. This created an adverse reaction from IBM also, which notified Intel of its decision to not
use Pentium chips in its machines. Intel’s share value went down and its brand image of a tech savvy,
customer friendly firm took a nose dive. Thus, mishandling of customer complaints on the Internet can
have a negative impact on brand’s equity.
However, Internet can also help create a favourable word-of-mouth publicity. This can be done
through a well designed e-mail campaign targeted at opinion leaders in the target market.
Thus Internet today, is a powerful medium for communicating brand values and developing a strong
customer community, which is committed to the brand. The challenge is to understand not just the brand
values, but even the sociology of human networks.
BRAND ARCHETYPES
LO5 What distinguishes a winner brand from those that vanish overnight or over
Identify brand a period of time is that winners remain relevant to the target markets like
archetypes Vicks or Coca Cola or McDonald’s. Relevance does not mean that the firm
should reinvent itself each year. What is required is to understand the need to
develop, nourish and continuously reinterpret unique identity or its meaning
that resonates deeply with the market. Brands achieve their iconic status by staying true to themselves
like Nike, Reebok and Harley Davidson. It is for this reason that they invest to create archetypes.
Brand archetype is a psychological concept developed by Swiss Psychologist, Carle Junk. Brand ar-
chetype is routed in the universally recognised symbol that becomes identified with the specific brand.
For example, Nike’s “tick” logo represents the wing of goddess associated with victory. Even the name
Nike is the name of a Goddess. This, when carried into Nike, communicates the persona of a hero and
an achiever.
In the contemporary market environment where increasingly products are becoming commodities
and brands are losing their value preposition, it is crucial to leverage archetypal meaning across every
channel including the frontline. This helps in strengthening the brand.
SUMMARY
Brand equity is today a powerful strategic marketing tool. Brand is a powerful differentiator in a
highly competitive marketplace. It provides the company the power to deflect competitive moves. It
certainly gives bargaining power to the company with its intermediaries, suppliers, interest groups,
and even government bodies. A strong brand means higher market share, ROI, and hence higher
shareholder value. Firms therefore need to learn how to create, augment, and manage it. Brand eq-
uity provides value to a firm in the form of price premium, trade leverage or competitive advantage.
The brand’s assets can be categorised in five groups as brand loyalty, brand name, brand awareness,
brand’s perceived quality, and brand association and other proprietary brand assets like patents,
trademarks, channel relationships, and so on.
Internet is an important tool in brand management. Many brands are today powered by internet
and other social networks. The changing behaviour of the customers who spent a considerable time
surfacing website and communicating to their group through the social networks, internet has made
it mandatory for companies to not only have their portals but also ensure their brands presence on
various search engines and social networks. While building the brands on internet, one has to study
the brand hierarchy in the company. Brands at a level have a defined role to play in this system.
Internet and social networks like Facebook play significant word-of-mouth publicity.
POWER POINTS
1. Winner brands connect with their customers by remaining relevant and integrating customer
insights in brand development and communication. (LO1)
2. Successful brands also invest in building consumer communities and continuously innovate.
(LO1)
3. Brand equity refers to a set of assets and liabilities linked to the brand, its name and symbol
competitors. (LO2)
4. Brand’s assets generally are: (LO2)
(a) Customer loyalty: The starting point in understanding brand equity is the extent to which
a brand enjoys customer loyalty.
(b) The real issue in brand loyalty is whether the customer is a committed one and the test
is if he or she will make that extra effort to get it.
(c) Awareness in the target market: It is the ability of a potential buyer to recognise or recall
that a brand is a part of a product category.
(d) Perceived quality: If the brand is perceived to be of premium quality, the customer will
be willing to pay a premium for it. Perceived quality is how customers evaluate different
brands on the basis of quality.
(e) Brand’s association in addition to the quality: Customers associate different dimensions
of the product including its use and use situations to brands. Brand association, therefore
is anything linked to the memory of a brand.
(f) Other proprietary assets are patents, trademarks, channel of distribution, and so on.
5. Approaches to brand valuation range from price premium to accounting methods like market
(LO2)
6. Brand building process involves: (LO3)
(a) Analysis of brand environment
(b) Setting the brand vision
(c) Determining brand values
(d) Defining brand objectives

(e) Crafting appropriate brand strategy
(f) Developing an effective implementation plan
7. Internet and social networks are an important tool in managing brand equity. Internet today not
preferences. (LO4)
8. Branch archive type is a psychological concept which helps the brand remain relevant over a
period of time. (LO5)

1. Perform a brand analysis using Surf as an example. (LO1)
2. Evaluate various methods of brand valuation in the Indian context. (LO2)
3. Study the brand power of four major brands in your area and evolve a marketing strategy to
enhance their power. (LO2)
4. Could there be a situation where a brand may have low state of awareness but high brand value?
If so, identify and analyse such brands and the reasons for the same.
(LO3, 4 and 5)
CHAPTER
CUSTOMER SERVICE
13
LEARNING OBJECTIVES
LO1 Describe the role and significance of customer service in corporate strategy
LO2 Explain what constitutes quality service?
LO3 Describe how to measure the quality of service in a firm and level of customer
satisfaction?
LO4 Identify organisational issues in delivering service quality
In Practice
Creating Sustainable Value through Customer Service
All products and services need to be supported by a good customer service. Competitive ad-
vantage is more than just technological supremacy. It cannot be retained through patents and
government support only. Xerox Corporation learned this lesson early in 1970s when it started
losing significant market share to domestic and Japanese companies like Toshiba, Canon and
Sharp. These companies made photocopiers which were much less experience for low volume
markets, i.e. those customers who required 5000 or less copies per month. This market witnessed
explosive growth in 1980s in U.S. and Europe mainly due to industry growth and the emergence
of small office/home office concept. Xerox was out-priced in this market. The company decided
to fight back. On a detailed analysis it found it could not compete with Japanese on the price
front. However, it could regain its lost market share in the high volume segment by ‘leadership
through quality’ strategy and by making customer satisfaction its first corporate priority. These
were the drivers in Xerox’s push towards gaining market share since 1987. All efforts of the
company towards customer satisfaction enabled it to win the Malcolm Baldrige National Quality
Award for the company in 1989. To enhance its customer satisfaction, the company invested
significantly in the pre- and post-sale customer service. To enhance customer service, the com-
pany invested resources in following areas:
1. Making product performance exceed customer expectations
2. Ensuring timely and correct delivery
3. Making installation process more reliable (this included time to install, time line between
delivery and installation)
4. Support activities like user training, manual and documentation, ease of contacting Xerox
Corporation.
Dissatisfaction on all these parameters were addressed by the company’s various processes.
The focus of the company had been to ensure that the product did not fail and to make service
available at a shortest time period.
Likewise today all companies have invested resources for enhancing service to the customer.
For example Samsung, like any other consumer durable firm, has a dedicated toll-free telephone
line for taking customer service calls which are then directed to the service agents. The company
also offers to the customer the facility to log on to its website and register complaints. The
customer is informed the time within which his/her problem would be resolved by the service
engineer. After the service has been provided, the company follows up with him/her on
satisfaction with the person, process and the outcome.
ROLE AND SIGNIFICANCE OF CUSTOMER SERVICE IN CORPORATE

STRATEGY
LO1 One effective strategy used in differentiating an offer from that of the com-
Describe the role petitors, is to excel in delivering quality service to the customer. One hears
and significance of a lot about a firm’s goal being to deliver service to the customer. ‘Service
customer service in before self’ is more a cliche with many Indian firms. Their strategy, actions,
corporate strategy and organisation show a half-hearted attempt to provide service to custom-
ers. More often than not, the attempt is to avoid or ‘somehow get over’
with the customer. In some firms, the finance or manufacturing personnel’s focus on cost comes in the
way of servicing the customer. However, as a rule, a firm’s profits and long term growth comes from
providing competitively excellent service to the customer. This chapter focuses on this important fact
of corporate marketing.
Customer service is the key to market penetration and growth. All firms know it but most of them,
in India, make a half hearted attempt to service their customers. They are bogged down by the weight
of their own organisations and finances and usually avoid the customer. This results in loosing market
share, poor leadership, and decreasing profits. Indian Airlines, Air India, and Hindustan Motors are some
organisations facing this situation today. They have fewer customers and are left grappling with unused
capacity, a large inventory of finished goods, large financial losses, demoralised employees, with finan-
cial institutions and investors losing confidence in them. Can they turn around? It is a difficult propostion,
but definitely possible, if they learn from their mistakes and from the service leaders in the industry.
Lessons from Service Leaders

One study1 found that service leaders or firms who excelled in service quality had the following char-
acteristics.
Service Vision Service leaders believe that service quality is crucial for gaining a competitive
advantage and for corporate growth. These leaders see service as a never ending journey which has to
be kept in mind always by everyone in the organisation.
High Standards Service leaders set high, at times even legendary, standards for service. They
believe that good service alone may not be enough to differentiate them from competitors. They are
interested even in the smallest and most trivial of issues of service. They are zealous about doing the
service right the first time and they value the goal of zero defect, while striving continuously to improve
reliability of their service.
In the Field Leadership Style It has been seen that service leaders do not lead their teams
from their glass chambers. They go out where the action is, are visible to their people, coach them, ap-
preciate their efforts, show them the correct way of doing things, and also observe, probe, and listen to
them. They believe in a two-way communication process, are team builders, and challenge everyone
in the organisation to excel.
Integrity These men and women are examples of high personal integrity. The best service leaders
value doing the right thing—even when it is inconvenient or costly. They believe in being fair, honest,
sincere, consistent, and truthful. These are the tenets for building trustworthy relationships, and trust is
the only basis of the supplier-customer relationship.
Besides the above, our research in Indian firms showed that firms like the Housing Development
Finance Corporation (HDFC), HDFC Bank, ICICI Bank, Hong Kong and Shanghai Bank, and Jet
Airways, which are considered service leaders, showed the following additional characteristics.
Concern for Customers These organisations place customers over and above everything else in
the organisation. They believe in encouraging customers to give feedback and listening to it. From this
feedback, they are able to learn and understand more about customer expectations and problems. This
helps them to be more competitive and satisfy customer needs. They have performance benchmarks
culled from the best service firms in the world market and penalise themselves if they are not able to
meet these benchmarks. The classical case was of Windsor Manor Hotel in Bangalore which was the
first to define service standards and communicate the same to the customers.
Use Technology to Promptly Serve Customer Research shows that true service leaders use tech-
nology not just to reduce their cost of operations but also to serve customers promptly. For example,
today banking, airlines, travel and retail industries are the major users of technology. A study shows
that customers are increasingly using technology tools like ATM machines, touch screens, internet and
mobile banking to effect their transactions. They have found an overall improvement in the service
quality of these institutions.
Involve Customers in Organisation Growth As mentioned earlier, service leaders actively solicit
feedback from their customers and use it to smoothen out the rough corners in the organisation that
cause them inconvenience. They do not seek feedback mechanically but put their heart in it and let
customers know that they genuinely believe in acting on them.
Flat Organisations These firms are flat and do not show signs of tall hierarchical structures. Since
they are relatively flat in their structures, they are able to respond faster to customer needs. Also, be-
ing decentralised organisations, they encourage individual employees to take risks. They value the
individual employee’s autonomy and encourage interdependence rather than dependence on the top
management for problem solving. These characteristics in service leader firms help them empower
their employees and create a highly motivated team of people who share the organisation’s goal of
customer happiness.
Training of Employees Service leaders use training strategies to create a shared value of 100%
customer satisfaction. They invest sizeable resources in training their employees on how to use tech-
nology and management systems to create a satisfied customer. Training inputs are given to individual
employees to improve inter-personal skills.2
Thus, leaders in customer service are those who make this an integral part of their corpo-
rate strategy. They reach out to achieve 100% customer satisfaction. They create an organisational
climate which fosters excellence in customer service. As we shall see in the subsequent sections, they
value people who create and help retain a satisfied customer.
SERVICE QUALITY
LO2 Assume that you go to buy a computer. What is it that

Customer satisfaction
Explain what you look for? You look for tangible features like the is a function of customer
constitutes quality memory, drive, expandability, software compatibili- expectation from the firm and
service? ty, and may be other less important features like the the actual performance by
monitor and keyboard, and certainly brand or vendor the firm.
credibility. Over and above all this, you look for service support in the form of
training and after sales service, which will ensure zero down time. Now, you know that you can get all
the tangible features from any computer company. But are all suppliers the same on service support?
Your own experience or the experience of your peers will help shape your expectations and image of
different suppliers—both the known ones like HCL, Wipro, IBM, and so on as well as the assemblers.
If the performance of the product—both the tangible and the intangible aspects of it—live up to your
expectations, you will be satisfied and recommend it to your friends and peers. Thus, to begin with,
customer satisfaction is a function of customer expectation from the firm and the actual performance
by the firm. Expectations shape a customer’s perception of the product/firm’s performance.
Thus,
é Actual performance by the firm ù When the positive perceptions
Customer satisfaction = ê ú
ë Customers expectations û about a firm/product are
not confirmed by the actual
Another way to examine this is that when positive perceptions are not con- performance of the firm, a
firmed by the actual performance of the firm, a gap occurs, and this has been service quality gap occurs.
called the service quality gap.
As we mentioned above, customer perceptions of the firm and its offer are shaped by:
(a) word-of-mouth publicity—like recommendations from friends, relatives, neighbours, and peer
group at workplace
(b) personal experience on the part of the customer
(c) personal needs of individual customers
other corporate communications
Service Quality Parameters

The study by Zeithaml et al3 and our study as well, also showed that customers assessed the service of
a firm on the following five parameters:
1. Tangibles, or the appearance of physical facilities, equipment, personnel, and communication

material.
2. Reliability, or the ability to perform the desired service dependably and accurately.
3. Responsiveness, or the willingness to help customers and provide prompt service.
the service provider), and the extent to which the customer feels secure.
Our research showed that Indian customers perceived reliability, assurance,

tangibility, responsiveness, and empathy—in that order—as determining the Delivering quality service is
service quality of a firm. This is different from Zeithaml’s study as it showed that a combination of people and
reliability, responsiveness, assurance, and empathy were rated higher by custom- technology strategy.
ers than the tangible dimensions of service. Perhaps the reason is that in India
firms have yet to incorporate state-of-the-art technology in their products and services. They still have
a long way to go in terms of improving their atmospherics and communications. Hence the customer
believes that a service company should show higher priority in upgrading its facilities, equipment, and
communication. Once all firms are at par on this dimension, may be the Indian customer too will be
like his or her Western counterpart, placing least weightage on the tangible factor.
One thing that stands out is that delivering quality service is a combination of people and technology
strategy. The latter affects all factors of the organisation and service delivery points which can help the
firm achieve 100% customer satisfaction.
Exhibit 13.1 presents a conceptual framework of how customers perceive service quality of a firm.
Exhibit 13.1 The Customers’ View of Service Quality
Source: Valaire A. Zeithaml, A. Parasuraman, and Leonard L. Berry, Delivering Quality Service, Free Press, 1990,
p. 23.
It is evident that the customer’s perception of service quality is based on his/her encounters with the
firm. Every time he/she encounters the firm or the service provider (which includes front line personnel)
and its communication and other technologies, a service moment is created. Jan Carlzon, CEO of SAS
(Scandinavian Airlines System), called these moments as ‘moments of truth’.4 This is best illustrated
as seen in Figure 13.1.
Figure 13.1 ‘Moments of Truth’—The Service Encounter
This concept of ‘moments of truth’ helps us to understand the opportunities

Every service moment is an
that the firm has to win or lose the customer. Carlzon estimated that in a recent
opportunity to gain market
share and profit. year whenever each of the 10 million SAS customers came into contact with
five SAS employees which lasted for an average of 15 seconds each time, 50
million ‘moments of truth’ were created. The issue to be considered here is how did they manage these
moments. Were they truthful? Could they be depended upon? Every service moment is an opportunity
to gain market share and profit.
IN FOCUS
(a) The quality of service or customer satisfaction = Service quality delivered — Service expected
(b) The value of a service to a customer = Service quality (both the results realised and process by
which they are achieved) ¸ Price and other customer costs of acquiring the service
(c) Potential profit ‘leverage’ in providing the service = Value to the customer — Cost to the service
provider.
(d) The profitability of a service to its provider is = Margin ¥ Repeat Usage ∏ investment.5
Figure 13.2 illustrates these generalisations.

It is important to note that these service encounters or ‘moments of truth’ are a dynamic force with
a potential to fuel self-reinforcing relationships. Increased value through high quality service leads the
customer to increased usage of the firm’s service, relative to competition. Increased usage means more
sales volume, lower costs, and higher margins for the firm and an enhanced price-quality relationship
for the customer. This relationship affects the firm’s linkages with its suppliers, investors, and creditors,
and even helps attract the most talented individuals. All in all, its a win-win situation for the customer,
firm, employees, and other stakeholders.
Figure 13.2 The Service Encounter as a Set of Trade Offs and Self-reinforcing Relationships
Source: Haskett, James L., et al, Service Breakthroughs, New York: Free Press, 1990, p. 4.
To create this self reinforcing process, one has to understand the two important players in corporate
profitability—the customer and the firm itself. Figure 13.3 helps in understanding this cycle of self
reinforcing service in a better way. As can be seen, a firm has to invest higher resources in improving
its service quality. Specific mention has to be made of the development of customer oriented policies
like guarantees, warranties, replacements, refund, and exchange policies. Unfortunately, many firms
in India still drag their feet on these issues while claiming that they are customer oriented. We need to
appreciate that these customer friendly policies motivate and empower people to serve customers and
thereby deliver premium quality service, which helps the firm increase sales volume, secure a premium
price, and maximise profits and market share. The following example illustrates this contention. In
Calgary, Canada, Consumers Distributing, a leading retail chain in North America, deals in consumer
durables and jewellery. The advantage the customer has here is that he/she gets the product at the lowest
price in the market. This holds good even for the leading brands retailed by it. One customer bought a
high performance music system of a lesser known brand in November 1993 from them. But this system
gave her trouble and due to inertia and a hope that one day it may give her a better performance, she
delayed reporting it to the Consumers Distributing until February 1994. But when she did go back with
the music system the store was willing to exchange it with ‘no questions asked’. She bought a Sony
system by paying an additional CDN $120 and her friend bought another Sony music system paying
Figure 13.3 The Self-reinforcing Service Cycle

Source: James L. Heskett, W. Earl Sasser, Jr. and Christopher W.L. Hart, Service Breakthrough, New York: Free Press,
1990, p. 12.
another CDN $104. Who gained in this transaction? Both the customer and the firm. The latter had
more money in its cash box. Compare this to any Indian firm. One does not expect large electronics
dealers or departmental stores to provide such services. Smaller firms, as in the case of the automo-
bile components industry, are gaining ground over large ones only because of their customer friendly
policies. In south India, the TVS group’s strength is its customer oriented policies. Increasingly many
more companies and retail outlets have started providing such service to their customers. There is an
increasing use of call centres and toll-free numbers to respond to customers service request 24 ¥ 7. Also
leading stores like Shoppers’ Stop have a well defined returns policy and customer service standards.
To deliver such customer service, firms will need to invest resources in upgrading technology, service
delivery systems, human resources, and ‘genuine’ marketing, rather than just sales and promotion.
MEASUREMENT OF SERVICE QUALITY
LO3 In order to measure service quality, one has to assess customer expecta-
Describe how to tions and his or her actual experience with the service provided by the firm,
measure the quality based on the five dimensions of service quality spelled out earlier. The gap
of service in a firm between the two will indicate whether the service quality is high or low on
and level of customer each of these variables. It is equally important to assess the service pro-
satisfaction? vider’s perception of the service delivered to the customer and what they
perceive to be organisational factors that facilitate or hinder their ability to
deliver quality service. Often one may find a gap between the customer’s expected level of service and
service provider’s perception of it. It is these gaps that need to be closed through appropriate organi-
sational interventions in technology, systems, policies, human resources development, and marketing.
A useful tool here is SERVQUAL, developed by Zeithaml and others.6 This is further discussed in the
section on Marketing Instruments.
In measuring the customer’s perception, one may ask the customer to first rank the five dimensions
of service quality in their order of importance to him/her. Subsequently, he/she may be asked the at-
tributes that he/she expects in an ideal or excellent similar product firm. This exercise helps provide
customer perceptions. He/she may then be asked to rank the firm’s service quality on the basis of his/
her actual experiences, on the basis what he/she thinks, or on the basis of others’ experiences and cor-
porate communications. This provides customer expectations from the firm or the perception of actual
service delivered by the firm, Now, one can create a SERVQUAL score on each variable or on the firm
as a whole given as follows.
The SERVQUAL = (Perception of an ideal company as measured by the rating given by the cus-
tomer on the ten-point scale for each variable) – (Expectation or actual service provided by the firm as
measured by the rating given by the customer on the ten point scale for each variable in the firm).
After calculating this SERVQUAL score for the customer, one can calculate the same for service
providers also. By subtracting the customer’s average SERVQUAL score from that of the service pro-
vider’s, one can determine the SERVQUAL gap for each variable or for the firm as a whole.
While assessing perceptions regarding the quality of service they think they deliver, it is important
to study all employees across the organisational hierarchy. In other words, the study should measure the
perceptions of contact personnel, like sales and service executives, as also those of the top management.
An analysis of responses at different levels in the organisation can lead to strategic options to help close
the gap and also ensure shared vision and values.
ORGANISATIONAL ISSUES IN DELIVERING SERVICE QUALITY
LO4 We mentioned earlier that service quality is a deliberate strategic choice

Identify exercised by winner firms. Now, the firm which aims to deliver service
organisational issues quality has to focus on the following critical areas.
in delivering service
Developing a Shared Service Vision
qualityv
The starting point is that of developing a shared service vision in the organi-
sation. From the earlier examples of HDFC, Windsor Manor Hotel, and Jet Airways, it is obvious that
all of them have a service vision, a service concept, and operating strategy which they communicated
to everyone in the organisation.
Through open communication, HDFC has continued to refine its service concept. By understanding
what their target customers want and how they perceive HDFC’s competitors, HDFC has been able to
successfully position itself in the customer’s mind as an epitome of good quality service. The firm has
achieved its goal through strategy and system integration, wherein HRD (human resources develop-
ment), upgradation of technology, and service delivery points have played a pivotal role. As mentioned
earlier, training and decentralisation of decision making, and accessibility of top management by
contact personnel and customers has helped HDFC emerge a winner in the financial services industry.
Figure 13.4 illustrates the steps involved in developing a shared service vision in a firm.
Figure 13.4 Developing a Service Vision

Source: James L. Heskett, W. Earl Sasser Jr., and Christopher W.L. Hart, Service Breakthroughs, New York: Free Press,
1990, p. 26.
Planning for Service

It is not only important to have a service vision, but it is equally critical to plan and implement a service
quality strategy. Here the firm has to set before itself the goal of 100% customer satisfaction. Though
on the face of it, this looks impossible, in reality it has been found to be a motivating, challenging and
even an achievable goal. If the firm does not have this goal and is satisfied with 95% of customer satis-
faction, the 5% dissatisfied customers are enough to negatively affect the company’s market share and
profits. Dissatisfaction is as contagious as satisfaction, and therefore the firm should work to achieve
100% customer satisfaction. Some strategic options in this regard are:
Locating Service Points Near the Customer Taking service to the customer is one of the
useful tools in improving service quality. This option demands that instead of the customer having to
seek out service outlets, the firm’s service centres should seek out the customer. Service which is done
at hand, at the time customer wants it, is the premise of this option. Today, one finds more companies
adopting a strategy of providing mobile service to their customers. Philips realised its mistake of having
only one service centre in downtown Mumbai, to serve all its customer in Greater Mumbai. The firm
had to expand its service network and train dealers and other technicians in servicing Philips products.
Thus, either the firm can have its own service outlets or train its dealers to provide excellent service to
customers or create third party service outlets.
Making Delivery Points User Friendly The next element in service planning and a strategic
choice is that of making service delivery points user friendly. Clean, friendly and courteous people,
warm hospitality shown both verbally and non-verbally, and using technology can make the service de-
livery point customer friendly. Consider, once again, the example of Jet Airways. Its check-in counters
at airports are aesthetically designed. It has friendly traffic staff who promptly checks the customer,
the aircrafts are clean, fresh smelling, and air cooled so that people do not perspire in the aircraft while
waiting to take off. Even the smallest and most mundane things are attended to. Thus, Jet did not just
give good food and drinks on its flights, but also took care of almost every thing the customer came in
contact with. The same is now true for Kingfisher and the rest as also for several other service institu-
tions like HDFC Bank, ICICI Bank, Shoppers’ Stop, etc.
Reducing the Time Gap between Service Sought and Delivered A firm should work
to reduce the time gap between the customer asking for service and it being delivered. Windsor Manor
Hotel was the example of this strategy. Further, the firm should aim at providing any service to the
customer in the least possible time. In the banking industry, automatic teller machines (ATMs) help a
bank deliver service to their customers at any time of the day, seven days a week, and 365 days a year.
This provides considerable freedom to the customer as he/she does not have to rush to the bank dur-
ing its working hours. This also helps the bank as the number of customers required to be personally
serviced by its employees gets reduced. The average transaction time in these bank thus gets reduced
substantially vis-à-vis those which do not have totally computerised operations and ATMs.
Product Design The firm should also take a close look at its product design and examine how
technology can help better serve customers, as in the case of HDFC using computer technology to
provide online customer service. Some time back, Air India acquired new state-of-the-art aircrafts, the
Boeing 757s, to serve its North American route. The aircrafts had GPS (Global Positioning System)
enabled screens on which passengers could get the flight details and the details of the flight path. Per-
sonal televisions in business and first class, specially developed cuisine by the best chefs in India, and
more comfortable seats on the aircraft were thought to make Air India competitive. However, it could
not do so because it could not improve its service delivery points and service providers. Technology,
today, offers opportunities to the firm to provide a highly dependable, zero defect product.
Unconditional Guarantee The firm must also plan to give unconditional guarantee to its
customers, especially when commitment to customer services is pledged by, none else than the Chief
Executive of the firm. Customer confidence in the firm and its product goes up. Khaitan’s success in
the fan industry was attributed to this strategy.
Role Clarity and Empowering People

Role clarity and inter role linkages help motivate service providers to deliver good quality service to
the customer. Often when the role of an individual employee is not clearly defined and role overlaps
are a common phenomenon in the organisation, confusion occurs. This also leads to ‘passing the buck’.
Further, individuals have to appreciate that without support from other individuals or departments, it is
difficult to achieve 100% customer satisfaction.
Customer Service and Satisfaction is a Result of Team Work

Decentralising decision making, encouraging two way communication, and letting the individual
employee take calculated risks is important. Organisations will need to be flat so as to enable them to
respond faster to customer needs and problems.
Performance Measurement and Reward Systems

To create excellence in service quality, it is necessary to reinforce the positive behaviour of service
providers. Their performance should be assessed on the basis of their contribution in creating a satisfied
customer. Corporate reward systems should encourage such employees and the firm should showcase
them so that others, too, feel motivated to deliver quality service.
Research
A firm needs to continuously monitor customer satisfaction and for this it needs to have a customer
feedback and intelligence system in place. It should also occasionally conduct market research to un-
derstand changing customer perceptions and expectations.
Training of People
Firms need to educate and train their employees in delivering quality service. It is necessary to appreci-
ate that individual employees have to have a positive attitude towards the customer. They have to be
sensitive to customer needs and expectations. Employees will also have to be educated or trained in
using state-of-the-art technology to service customers.
SUMMARY
Customer service and delivering quality service will be the major issues determining the competitive
edge of organisations. Service leaders invest in technology, human resources, policies and systems,
and marketing to excel in every service encounter that the customer has with its employees or deliv-
ery points. They are customer focused and have a strategic service vision. Although a narrow sighted
firm looks at the immediate cost of delivering service, a customer focused firm looks at the returns
it is going to get in the long run through a satisfied customer. To measure service quality, one has to
study customer perceptions and expectations from a firm and also understand the service provider’s
perception. To deliver quality service, a firm needs to have a service vision, plan for customer
friendly service and create an organisational culture that fosters excellence. It should also encourage
inter role linkages and educate or train its employees to deliver quality service.
POWER POINTS
-
(LO1)
-
ness, assurance and empathy. (LO2)
(LO3)
like leadership, location of service points, customer friendly services, providing service when
sought and people management. (LO4)

1. A consumer durable company is contemplating to introduce some guarantee for its product. In
this context, it wonders whether it should introduce product performance guarantee, service
guarantee or money back guarantee. What recommendation would you like to give? What are
the factors the company needs to consider in taking the decision? (LO1 and 2)
2. Design an instrument to measure service quality of online taxi aggregator services or a mobile
(LO3)
3. One of the leading banks has set up a call centre to respond to the service calls of its customers.
Its hope was that the customer satisfaction will increase. However, a recent survey showed a
decline in customer satisfaction. The call centre personnel were found to be rude, non-respon-
sive and ones who did not understand the product and the customer. What advise will you give
to the bank to enhance its customer service? (LO3 and 4)
4. A telecom company was faced with the problem of customer churn which was higher than
provided by its various customer service centres. What strategy would you suggest to reduce
the churn in this telecom company? (LO4)
CHAPTER
PRICING DECISIONS
14
LEARNING OBJECTIVES
LO1 Explain the meaning and significance of price in marketing decisions
LO2 Explain the pricing objectives of different firms
LO3 Describe the pricing decision framework
LO4 Analyse the pricing methods and procedures used by firms
LO5 Distinguish the pricing strategies, tactics, and policies used across different products
and product life cycles
LO6 Explain the ethics in pricing
In Practice
Strategies to Attract and Retain Price Sensitive Customer
Indian economy is an example of contradictions while it has continued to grow in the last two
decades, albeit at a moderate rate of 6.7% and there are large numbers of consumers who are
moving up the socioeconomic pyramid. Still India continues to remain a price sensitive market.
This explains the introduction of small unit packaging most often priced at less than `10. Be it a
chocolate bar, shampoo, soup or toilet soap or toothpaste. Whenever a price rise in a commod-
ity is expected, there is a tendency of the consumer to buy it in a larger quantity, so that impact
of the price hike could be felt at a later date. Nobody understands it better than Big Bazaar.
Wednesday of each week, Big Bazaar run a special price promotion offering a flat discount of 5%
on all its products. Wednesday sees the largest number of footfalls of housewives in Big Bazaar
across all its stores in the country. To further soften the impact of high prices, Big Bazaar has
launched its own brands to offer customer an opportunity to buy unpackaged and unbranded
staple foods like wheat, rice, sugar and pulses.
Price sensitivity is not unique to India. Consumers all over the world exhibit price sensitivity
for different products and brands. Also the price sensitivity differs based on the time of consump-
tion. For example airlines have responded to price sensitive buyers by offerings to them lower
Pricing Decisions 347
fares. In order to keep themselves afloat, the airlines in India had to cut down on the freebees
including the free baggage allowance, meals, in-flight entertainment and even the newspapers.
Today all airlines ask customers to pay for the meal on board and for self-selection of the seat,
especially, those that are considered to be the premium namely the front rows and the isle and
the window seats. Though initially low cost airlines like GoAir, Indigo and SpiceJet offered no
frill flights, today even the full service flights like those of Jet Airways and Air India also had to
adopt no frill strategy as they did not want to lose the price sensitive customers. Same is true
with Tata which designed the water purifier ‘Swatch’ for the price sensitive Indian market.
Though competitors should drive price down, in such cases they join hands to fix the price and in
turn assured profits.
Pricing is one of the most important elements of the marketing mix, but lately, it has come to occupy
centre stage in marketing wars. The reasons for this are:
(a) Diminishing Product Differentiation As technologies get standardised, differentiation among firms
on the basis of the product is diminishing. More products and brands will transcend to a commodity
situation. This is not a healthy sign, as commodities are always subject to price fluctuations and price
wars. In such a situation, the only way to differentiate between brands is the price. Knowledge of what
constitutes price and its meaning to the customer, can make pricing decisions more meaningful and
help firms fight the price war.
(b) Inter-firm Rivalry The intensity of inter firm rivalry increases, as entry and exit barriers in the in-
dustry are lowered. With an increase in this rivalry, we find that a firm’s cost of operation also increases
as it now has to spend more money to lure customers and middlemen. It has to also invest money in
new product development. But these strategies are all imitable, thus giving a firm very little leverage.
If it is already a high overhead and low margin company, a wrong pricing decision can cause havoc for
it in the market. Hence, firms have to be cautious in making pricing decisions.
(c) Mature Products and Markets When products and markets enter the maturity stage, the only way
to differentiate various offers is on the basis of augmented service or price cuts. Many firms opt for the
latter and then find their bottomlines getting eroded. Once again, pricing decisions become relevant as
leverage with firm is low unless it embarks upon non-price strategies.
(d) Customer’s Value Perception Another factor contributing to the importance of pricing decisions,
is the customer’s perception of the product’s current and potential value. To a customer, price always
represents the product’s value. Many a time, this perception may not necessarily be in line with its price.
There are instances when the product is overpriced, because the value perception is lower than the price
tag on it, and vice versa. For a marketer, it is important that products are priced correctly. Another major
challenge to the marketer is to assess the customer’s perception of the future value of his or her product.
This can again be met by taking correct pricing decisions at the right time.
(e) Inflation in the Economy Pricing decisions become important in an inflationary economy. Inflation
affects pricing in two ways–one, it lowers the purchasing power of the customer and hence a search for
low priced substitutes and, two, it increases a firm’s costs, because of inputs costing more. This forces
the price of a product upwards. The firm now finds itself in a dilemma; if it passes the increase in input
costs to the customer in the form of a price increase, and there are equally attractive alternatives avail-
able at lower prices, the firm may lose the customer. And if it does not increase the price, it may incur
losses or find a reduction in profit margins. The challenge of price management is also higher when
the firm realises that there are other firms in the industry that operate at a more efficient level, even in
an inflationary economy.
SIGNIFICANCE OF PRICE IN MARKETING DECISIONS
LO1 To a manufacturer, price represents the quantity of money (or goods and
Explain the meaning services in a barter system) received by the firm or seller for its products.
and significance of To a customer, it represents a monetary sacrifice; hence his perception of
price in marketing the value of the product. Conceptually, it is:
decisions Quantity of money received by the seller1
Price =
Quantity of goods and services received by the buyer
In this equation, both the numerator and the denominator are important for price decisions. Typi-
cally, for example, if the buyer gets 5 kilograms of basmati rice for `125, then to the seller the price is
`125 and to the buyer it is 5 kilograms of basmati rice. The seller can change this ratio of `25 for 1 kg
basmati rice in different ways listed below:
Changing the customer’s value perception of the product: The seller can change the custom-
er’s value perception of the product by modifying the presentation of the product. For example, a
seller, who has till now been marketing basmati rice as a commodity and selling it in bulk to the
wholesaler, decides to clean, pack, and brand the product. He also decides to provide a recipe of
different pulaos and biryanis
different, and the seller is now investing resources to create brand equity for his brand of basmati
rice. He may charge a premium of a rupee or two per kilogram, but will the customer pay this
differential? The answer to that will be in knowing how the customer perceives these changes in
the product.
Change the quantity of money or goods and services to be paid by the buyer: Another ap-
proach is to change the quantity of money or goods and services to be paid by the buyer. For
example, the buyer has to pay `
`160, thus making a saving of 50 paise per
kilogram for the buyer. Another approach is to increase or reduce the price per kilogram of edible
oil, without the customer having to necessarily buy a bigger pack.
Change the quality of goods and services offered: If the quantity ratio does not change but the
quality of the goods and services deteriorates, then for the buyer, the real price has increased.
Price changes through changes in sales promotion or discounts: Sales promotions serve to
reduce the actual price paid by the buyer. So does a discount, which is linked to quantity varia-
tions. This is particularly true if the quantity ratio remains constant.
By making changes in any of the following:
(i) time and place of transfer of ownership
(ii) place and time of payment

(iii) acceptable form of payment—like accepting credit card and debit card, as a mode of pay-
ment. In the case of credit card, customer gets a credit for four to six weeks (in some cases
even more). The debit card eliminates the need to carry additional cash in the wallet and
hence a more secure way of payment. The customer also has the option of paying over a
period of time through monthly instalments.
Thus, price is a complex decision that has a direct bearing on the company’s profitability, and the
marketer needs to know the cost function and also the customer perception of his and his competitors’
product value at different price levels. To arrive at a good price strategy, the marketer should be able
to decide on the price objectives.
PRICING OBJECTIVES OF DIFFERENT FIRMS
LO2 A firm may choose its pricing objectives from any of the following:
Explain the pricing (a) maximise current profits and return on investment
objectives of different (b) exploit competitive position
firms (c) survival in a competitive market
(d) balance price over product line.
Let us consider each of these in greater detail.
Maximise Current Profits and Return on Investment

Many firms set a price in order to maximise their current profits and returns on investments. They esti-
mate the current demand and costs associated with different alternative prices and then select the price
that ensures maximum current profits, returns on investment, or cash flow. This objective presupposes
the firm’s knowledge of cost and demand function. In reality, it may be difficult to precisely estimate
the demand function, or even the cost functions. Besides, this objective does not consider the influence
of other marketing mix variables on the customer’s demand.
Exploit Competitive Position

Another pricing objective is to exploit the firm’s competitive position in the marketplace. This presup-
poses that the firm is a leader in the market. This leadership may arise from the customer’s perception
of its product quality or technology. Being the leader, a firm may adopt either a skimming, penetrating,
or geographic pricing policy and strategy. We shall discuss these strategies later in the chapter.
Survival in a Competitive Market

Some firms face difficulties surviving in the marketplace. This problem gets worse when the firm loses
its distinctiveness and/or its products are in the maturity phase, when the customer has a choice from
among more efficient and contemporary substitutes. A firm caught in the web of a matured market,
shifting customer preferences, and undifferentiated offers, has to have a pricing strategy that will help
it to stay afloat. This firm may resort to discounting its product or even consider running a promotion
to liquidate its stocks. For example, this firm may randomly discount its products to customers, who
may have a high search cost. Many computer software and hardware companies randomly discount their
products to their select customers and periodically, say in August, September or March, offer discounts
to all potential buyers. Discounting, in general, has a sales enhancing effect probably because consum-
ers overweigh the savings on a deal.
Balancing Price Over Product Line

Product line pricing to maximise long term profits, is another pricing objective. The product line of a
firm may have high popular and low image product items. Further, there may be fast selling product
items and not so fast selling items. A pricing strategy has to consider all these different categories
of products. Firms have to resort to strategies to achieve maximisation of profits, on their particular
product line(s).
These are just some pricing objectives. In reality, a firm may pursue more than one objective at a
given point of time.
Demand Estimation
An important task in pricing decision is estimating customer demand, at different price levels and meas-
uring the existence of price sensitivity. It is important to understand that the demand for some products
is inelastic to price changes. Typically, food and other essential commodities, will form a part of this
product group. But the demand for most branded products, is elastic to price changes.
Price Sensitivity
This is a customer behaviour that confronts a marketer. At what price level does the customer become
sensitive to price changes? Which customers are highly price sensitive? How to measure price sensitiv-
ity? These are the difficult questions that a marketer has to answer.
IN FOCUS
Price Sensitivity
Nagle2 has identified nine factors that contribute to price sensitivity and has also presented various meth-
ods or techniques to measure them. These factors are:
1. Unique Value Effect–The more unique the product, the lower is its price sensitivity.
2. Substitute Awareness Effect–If buyers are aware of substitutes and these perform the same
function, then the buyer’s price sensitivity will be high.
3. Difficult Comparison Effect–Price sensitivity will be low if the buyer has difficulty in comparing two
alternatives.
4. Total Expenditure Effect–If the expenditure on the product represents a low proportion of the
consumer’s income, then the price sensitivity will be less visible for such a product.
5. End Benefit Effect–Buyers are less price sensitive, where the expenditure on the product is low
compared to the total cost of the end product.
6. Shared Cost Effect–If the cost of the product is shared by another party, the buyer will be less
prone to price sensitivity.
7. Sunk Investment Effect–Price sensitivity is low in products which are used along with assets
previously bought.
8. Price Quality Effect–The higher the perceived quality of the product, the lower the price sensitivity.
9. Inventory Effect–If the product cannot be stored, the buyer will be less price sensitive.
Techniques to Measure Price Sensitivity One of the techniques used to measure price sen-
sitivity is controlled experimentation. Here, we assume that competition does not change and there will
be no qualitative difference in its strategy. In this experiment, customers are of-
fered different brands at different prices. Customers’ responses are collected. In controlled
experimentation, it is
Next, the firm’s brand prices are changed and customers’ response at each price assumed that the competition
level is recorded. The price level at which the demand starts declining is the point does not change and
at which price sensitivity sets in. This level will vary depending on the nature of there will be no qualitative
the product and buyer characteristics. The problem with this approach is that in difference in its strategy.
reality competition does change its price and other variables to fight the leader.
The issue of measuring price sensitivity assumes further significance if we
The price band of any
were to understand the concept of price band. The price band for any product or
product or service represents
service represents the minimum and the maximum price, the customer is willing the minimum and maximum
to pay. A price lower than the minimum is as much unacceptable as one that is price the customer is willing
above the maximum limit. We mentioned earlier that price denotes value to the to pay.
customer. What should be the most appropriate price in this price band which
maximises customers’ value? The following section describes a few methods available to a marketer:
Direct Probing In this method, customers are asked the minimum and maximum price, they would
be willing to pay for a product or service. This is a very simple technique, but has the potential problem
of being too direct. One can get loaded responses and hence is certainly not free from respondent bias.
Also it communicates to the customer that there are two ends of the price band—the lower and the
upper. This approach is convenient, but does not provide sufficient information to understand whether
the price that maximises the percentage between minimum and maximum price curves is the price that
buyers find most acceptable. Further, each respondent only provides two levels. A better alternative
is to provide to the customer several price levels or prices of the product/service and ask him/her to
select the prices most acceptable to them. The customer can also be asked to select unacceptable prices
which can act as a check.
A variant of the above is called the price sensitivity meter, which assesses customers’ response to
the following:
(a) price level below which the value is suspect and hence customer will not buy at all
-
digms in the offer
(c) maximum price that customer will pay to get the current offer
(e) acceptable price

This technique takes into account the fact, that just as there is a minimum and maximum end of the
price band, there are price levels at which customers will never buy. Thus, a Mercedes car offered at
`50 lakh will not find many customers nor will it find a customer at a price lower than `20 lakh. The
minimum and maximum price will have to be between these two limits. The acceptable price is gener-
ally the level at which there is maximum clustering of response.
These responses can be collected through the survey technique. However, as mentioned earlier, these
techniques suffer from respondent, and even researcher, bias. These techniques determine the willing-
ness of buyers to pay a particular price for a product or service. For existing products or new product
introduction, the marketer faces another concern. It is the degree to which demand will be sensitive to
price changes/differences. To estimate this sensitivity, the following techniques can be used.
In sequential preferences,
Sequential Preferences Here, the customer is asked to select a brand at
used in telephone surveys, different price levels. This approach can be used in telephone surveys, mail
mail surveys, or personal surveys, or personal interviews. In doing so, the first task is to establish each
interviews, the customer isrespondent’s preference, when prices are equal. Then while holding the price
asked to select a brand atconstant for one brand, the price of another brand is systematically changed by
different price levels. corresponding amounts and respondents’ reaction to these changes is monitored.
This simple approach can only help a marketer estimate the price difference
needed to induce switching from the preferred brand to another, in the product category. Moreover, it
does not indicate the strength or relative intensity of customer preferences for the brand. To overcome
this, the marketer can use a four point scale (strongly preferred to indifferent or no preference answers).
This additional data can provide sufficient information on the relative size of loyal-to-brand switcher
segments. The no preference response indicates the differential price premium that one of the brands
might successfully use in the market. To avoid the problem of bias, the order of the brands, price ma-
nipulations, and the reference brand should be randomly varied over the respondents. A statistical test
of difference can be used to determine whether there are significant differences in preferences, across
the price differentials and the level at which it is most significant.
PRICING DECISION FRAMEWORK
LO3 For appropriate pricing decisions, the marketer has to know his firm’s cost
Describe the pricing function and the influence of external environmental variables, like com-
decision framework petitor reaction and government policy, besides knowing how demand var-
ies across different price levels. While customer demand and the firm’s
cost functions serve to provide the boundaries of price decision (maximum and the minimum limits of
pricing), environmental forces tend to have an upward or downward moving effect on the prices. For
example, absence of competition in the market has an effect of pushing up product prices. On the other
hand, if the market is truly free (in the sense that there are no entry or exit barriers), it encourages free
competition, then in an ideal condition, prices will decline. Likewise, higher government intervention
in pricing through taxes and duties, will have an effect of pushing up prices. Thus, conceptually, a price
decision framework appears to be like the one shown in Figure 14.1.
Figure 14.1 Price Decision Framework
Let’s analyse each of these factors in detail.

We have already discussed some aspects of customer demand, but it is important for us to measure
elasticity of demand, at different price levels.
Customer Demand
As mentioned above, a marketer for manufactured products needs to assess price elasticity of demand.
Price elasticity of demand refers to the changes in demand in response to price changes. Specifically,
this price elasticity of demand is given by the following formula:
Percent change in quantity demanded
Price elasticity of demand =
Percentage change in price
For example, if the firm is to consider changing the price of its product by 5%, and the demand for
its product is likely to go down by 10%, then, the price elasticity of demand for this product is –2. In
assessing the price elasticity of demand, the marketer has to consider the following factors:
Availability of Substitutes and/or Competitor Products If there
Lack of substitutes or
are substitutes or competitors, which are perceived by the customer to be identi- competitor products will
cal or comparable, then the price elasticity of demand will be high. It is important mean low price elasticity of
to note, that the customers’ perception of compatibility of competing products demand.
to satisfy the need is more relevant here than compatibility on tangible features.
For example, if the customer perceives that he or she can quench thirst by either a soft drink or a fruit
juice, then any change in price of any of these products is bound to affect its demand. On the other
hand, lack of substitutes or competitor products will mean low price elasticity of demand. Again, the
price elasticity of food products like wheat, rice, and edible oil is lower than manufactured products
like soft drinks or television.
Customer Resistance to Change If customers are resistant to new product ideas and gener-
ally do not go shopping for prices, then the price elasticity of demand for such products is going to be
low. Today, mail order and teleshopping are built around this assumption and communication is directed
to motivate customers against price shopping.
Price-quality Perception Generally, the quality of a product is associated with its price. The
thumb rule is that customers perceive premium quality in the product, if it is priced at a higher level. If
the target customer group has this perception of the product, then its price elasticity of demand is going
to be low. Many marketers seek to change a customer’s attitude towards this direction.
Buyers do Not Perceive or Notice Higher Prices If buyers are willing to buy the product
ignoring its prices, then the price elasticity of demand for such a product is going to be low.
Thus, the nature of the product, competition, and buyers’ value perception play an important role in
shaping the elasticity of demand for the product at different price levels.
Costs
Another major determinant, in fact the limit to pricing, is the firm’s cost structure. It is important for
marketers to estimate the costs of manufacturing and marketing the product. It is also important to know
how costs behave over a period of time and the quantities produced.
Another factor to be considered is that different firms, within the same industry, operate at different
levels of efficiency, reflecting their cost structures. Figures 14.2(a), (b), and (c) illustrate these concepts.
Note: As time elapses, costs go down because the firm learns how to manufacture and
market the product more efficiently.
Note: More the quantity produced, lower is the cost. This brings into play the importance
of large scale production. The rule is that as a firm’s production level reaches its optimum,
it gets the benefits of economics of scale of operation, which the firm can pass in the form
of lower costs. The firm may pass this benefit to the customers in the form of lower price.
Many transnationals use this strategy to compete in the world market.
Note: Here the total cost within the industry to produce 4000 units is `150. Firm A’s cost
to produce the same number of units is `300, i.e. 0.07 paise per unit. Whereas Firm
‘B’ is operating at the industry’s norm, i.e. it costs `150 to produce 4000 units by it or
0.03 paise per unit. Hence firm ‘B’ is more efficient than Firm ‘A’ and this is likely to get
reflected in the price and profitability of these two firms.
Figure 14.2 (a) Costs and Time (Learning Costs) (b) Cost and Quantity Produced
(c) Efficiency Levels of Firms in the Industry
Figure 14.2(c) is indeed very relevant in determining competitive price or competitive advantage. A
firm may have a higher cost structure than the industry average on account of several variables, some
of them being higher rejection rates, lack of coordination between different departments, sub-optimal
utilisation of plant capacity, and so on. The top management needs to correct this situation if it wishes
the firm to remain competitive.
In learning about the costs, the marketer should know the following:
(a) Some costs do not change over production volumes. These are rents, salaries, depreciation, plant
and machinery cost (if acquired for the project), payments for utilities, R&D, and so on. These
costs are called or sunk costs.
(b) Some costs vary directly in proportion to the volume of the product produced or manufactured.
These are raw material and wages and are called variable costs.
of an insertion in the media or the cost of the frequency of a campaign (or the number of times
an advertisement is repeated in the media during a period of time) is variable.
These are called . A typical example is royalty payment for the use of a brand name.
total cost
Corporate Objectives
As we mentioned, in pricing decisions, an important issue to be decided by the top management is their
corporate objectives. These will reflect the philosophy of the owners or principal shareholders and also
their perception of the external environment. The objective could be to skim the cream from the market
or to penetrate the market and establish leadership or to balance the profits across product lines. No
pricing decision can be taken in the absence of these corporate objectives.
Competitor Reactions
Competition also affects price decisions. If a firm is the leader, it can set a price and let the competi-
tion set its price level. But even the leader firm has to anticipate a competitor firm’s reaction to a price
change. As we shall learn later in the chapter, competition can react by either following the leader or
deciding to ignore it and retain or lower its price. Thus, in deciding the price strategy, a marketer has
to anticipate the competitor’s reactions.
Government Policy
The government’s fiscal policy also contributes towards pricing decisions. Here, the marketer has to
consider taxation, and customs and import duties, if any, on his product and on the inputs used by the
firm. For example, if the firm uses a product which attracts a higher rate of sales tax or whose prices are
controlled by the government (as in the case of steel and cement until recently), then its finished product
price will be high. Even if the firm wants to reduce the end price for the customer to generate demand,
it may not be able to do so mainly due to government policies. This is true today for several products
in India as the excise duty, sales tax, and other duties form a large proportion of the final product
price.
Regulatory Regime and Pricing As the government opened up different sectors of the econ-
omy to competition, it also moved from a controlled regime to a regulated economy. For this purpose,
the government has created regulators. One such regulator is the Telecom Regulatory Authority of India
(TRAI). Among its several functions are the ones relating to ensuring consumer benefit and protecting
customer interests. For this purpose, it has the authority to decide, among several others, on the terms
and conditions of a license to the service provider, efficient management of the available spectrum,
ensuring competition in all telecom circles, and access deficit charges payable by private sector com-
panies to BSNL (Bharat Sanchar Nigam Ltd.). The impact of decisions in these areas is reduction in
the price payable by the consumer. These decisions keep getting evolved and, hence, today no price
can be considered fixed. Thus, in deciding pricing strategy, one has to now consider the impact of the
regulator’s decisions on the firm’s costs and customer demand. For this purpose, one needs to have a
complete understanding of the regulatory authority, its powers and functions, and also of the industry.
One must also keep in mind that a customer or a group of customers’ representation against a firm’s
pricing structure can motivate the regulatory authority to probe and pass necessary orders. It can also,
on its own, probe the pricing structure of a service provider to ensure fair competition.
Barriers in the Industry

Entry and exit barriers in the industry not only affect a firm’s prices, but also that of its competitors.
High barriers always encourage inefficiency, high costs, and high prices.
Thus, a price decision is complex and a marketer needs to be wary of all the influences on his deci-
sions.
PRICING METHODS AND PROCEDURES USED BY FIRMS
LO4 Costs, demand, and competition define different

In the mark up pricing, the
Analyse the pricing pricing methods that a firm may adopt. Let us turn
total cost of production is
methods and to these methods and see the benefits that each of estimated and a mark up
procedures used by them offers. or the margin that the firm
firms wants is further added, while
Cost Oriented Method in the contribution pricing,
the company works on the
There are two pricing methods under this group. One is based on the full cost,
premise of recovering its
the other on variable cost. marginal cost and getting
Full Cost or Mark up Pricing In this method, the marketer estimates a contribution towards its
overheads.
the total cost of producing or manufacturing a product and then adds a mark up
or the margin that the firm wants. This is indeed the most elementary pricing
method and many services and products are priced accordingly. To arrive at the mark up price, one can
use the following formula
α
Mark up price =
(1 − r )
where
a = Unit cost (fixed cost + variable cost)
r = Expected return on sales expressed as a percent
For example, if the fixed costs for making 10,000 shirts is `1,50,000 and the variable cost per shirt is
`30, then cost per shirt is `45. Now the firm expects 30% return on sales. Keeping this figure in mind,
the mark up price will be
Mark up price = 45/(1 – 0.3) = 45/0.7 or `64.28
This approach, ensures that all costs are recovered and the firm makes a profit. Indeed it satisfies the
finance oriented executives, but this method ignores the fact that it is not necessary that the firm is able
to sell its entire merchandise at this price. It does not consider customer’s value perception and also the
competitor’s reaction. Some firms use this as a launch strategy, but this could prove fatal if competition
already exists within the industry. It may be a useful method, if everyone in the industry adopts it, for
this can minimise price wars.
Marginal Cost or Contribution Pricing Here, the company may work on the premise of
recovering its marginal cost and getting a contribution towards its overheads. This method works well
in a market already dominated by giant firms or characterised by intense competition and the objective
of the firm is to get a foothold in the market. In the example of shirts discussed earlier, the variable
cost is `30 per shirt. As long as the firm is able to recover this cost and get a contribution towards its
overheads, it is an acceptable pricing method. This will also work when the firm has an inventory of
finished goods and it wants to liquidate it. At that time the prime concern is to recover the direct costs.
The problem with this method, however, is that it often sparks price wars, which is not beneficial to
any firm in the industry.
Going Rate or ‘Follow the Crowd’

While the above two methods are cost oriented, this is a method which is com-
petition oriented. In this method, the firm prices its products at the same level In the ‘going rate’ method,
the firm prices its products
as that of the competition. This method assumes that there will be no price war at the same level as that of
within the industry. This is a method commonly used in an oligopolistic market. the competition, while in
Despite its advantage of preventing price wars, the method suffers from serious sealed bid pricing, suppliers
limitations. The first is that it is not necessarily true, that all firms or the leader are asked to submit their
firm is operating efficiently. In case it is not, it will mean that the follower firm quotations as part of a tender.
will also adopt a price level which reflects the leader’s inefficiency, rather than
its own efficiency. Besides, it is not always true that a decision taken in collective wisdom is the best.
It may certainly not be so, from the customer’s point of view.
Sealed Bid Pricing

Another form of competition oriented pricing is the sealed bid pricing. In a large number of projects,
industrial marketing, and marketing to the government, suppliers are asked to submit their quotations
as part of a tender. The price quoted reflects the firm’s cost and its understanding of competition.
If the firm was to price its offer only at its cost level, it may be the lowest bidder and may even
get the contract, but may not make any profit out of the deal. So, it is important that the firm uses
expected profits at different price levels to arrive at the most profitable price. This can be arrived at
by considering the profits and profitability of getting a contract at different prices. Table 14.1 gives an
illustration.
Table 14.1 Sealed Bid Price

Company’s bid Company’s profit Probability of getting the Expected profit
price (`) (`) contract at the bid price (`)
9,600 100 0.81 81
10,000 600 0.36 216
10,500 1100 0.09 99
11,000 1600 0.01 16
Source: Adapted from Kotler, Philip, Marketing Management, Analysis, Planning and Control, Prentice-Hall of India.
This method obviously assumes that the firm has complete knowledge or information about the
competition and the customer.
Customer Oriented or Perceived Value Pricing

There is an increasing trend to price the product on the basis of the customer’s perception of its value.
This method takes into account all other elements of the marketing mix and the positioning strategy
of the firm, as the value of the product is a function of all these variables. This method helps the firm
in reducing the threat of price wars. In fact, it can help the firm steer out of the ugliest of price wars.
But the key to this method is to correctly understand customer’s perception of product value and not to
overestimate the firm’s product value. Marketing research can play an important role here.
It is important for the marketer to understand the constituents of perceived value of a product, which
is based on:
(i) Acquisition value
(ii) Transaction value
Acquisition Value Acquisition value refers to the perceived benefits and
Acquisition value refers
to the perceived benefits
the sacrifice made by the customer to get it. The marketer needs to research
and sacrifice made by the how the customer perceives this sacrifice. Accordingly, the acquisition value of
customer to get it, while a product is:
the transaction value is
Perceived Benefits/Perceived Sacrifice The perceived benefits in a product
determined by comparing the
buyer’s reference price toseen by a buyer, sacrifice a function of the buyer’s judgement about the product
quality and performance. This is based on the buyers’ experience, or experience
the actual price the customer
pays. of his or her reference groups and the publicity or news items appearing about
the product. For example, Air India has a low perceived value when compared
to other airlines. This is contributed by an image of unreliability and indifferent and discourteous cabin
crew. So, when the customer decides to buy an Air India ticket, though it may be the lowest priced, he
or she is paying much more.
Transaction Value The transaction value is determined by comparing the buyer’s reference price
to the actual price that he or she pays, or in other words it is—
(Pref – Pactual)
So, in the Air India example, if the passenger is comparing it to Singapore Airlines and the latter is
charging `65,000 as against full fare of `80,000 for a India–US round this ticket, with a complimen-
tary stay at Singapore on return from the US and Air India costs `62,000, then the transaction value is
favourable to Air India by `3,000. But when this is combined to the acquisition value, it turns out to be
negative as illustrated below:
Pv = V1(AV) + V2(TV)
or V1(Pmax – P) + V2(Pref – P)
where V1 and V2 = Subjective weights placed by buyers
40,000
Now, suppose acquisition value for Air India is
62,000
80,000
or 0.65, and for Singapore Airlines it is , or 1.23
65,000
Further if the buyer attaches 60% importance to the acquisition value and 40% importance to the
transaction value, putting these facts together we find that:
Perceived value of Air India = (0.6 ¥ 0.65) + (0.4 ¥ 3000) = 3.90 + 1200 = 1203.90
Since the perceived value of Air India’s flight is low compared to its price differences, the customer
will always resist paying for it.
To measure perceived value, a marketer may use any of the following methods.
Direct Price Rating Method Here, the customers are asked to estimate the price of each brand or
model of the product, which is demonstrated to them.
Direct Perceived Value Rating Here, the buyers are asked to allot a point scale, say from 0 to
100 points, to all the competing brands. The brand having the highest points has the highest perceived
value.
Diagnostic Method Here, the buyers are asked to evaluate competing brands on different attributes,
which they first prioritise. By multiplying the importance weights against each company’s ratings , we
can find the brand that has the highest perceived value.
Economic Value to the Customer This is calculated by comparing a product’s total cost against
the benefits of the product that the customer is currently using, also called the reference product. This
method can be used by a firm, to decide which market segments to be targetted for its products3.
PRICING STRATEGIES, TACTICS, AND POLICIES
LO5 Having looked at pricing methods, we now turn to strategies. It is important

Distinguish the to note that the choice of a pricing strategy is dependent on:
pricing strategies, (a) Corporate goals and objectives
tactics, and policies (b) Customer characteristics
used across different
products and product (d) Phase of the product life cycle
life cycles We have already discussed earlier, that corporate objectives affect price
decisions. While considering customer characteristics, it is important to re-
search whether customers spend time in searching for alternatives. This is because for some customers,
the cost of this search is high but for others it is low. If the search cost is low for the customer, then he
or she will be shopping for bargains and will look for discount sales. But the same is not true for the
first group of customers. Another characteristic to look for is brand loyalty. As we saw in Chapter 12,
customers can be categorised under four groups, starting with brand switchers. To evolve a price strat-
egy, it is important to assess the loyalty of customers to the brand. If it is high, it gives the firm a greater
degree of leverage, but not so when it is low. Thus, customer characteristic plays an important role in
selecting price strategies. We shall look at these strategies in the subsequent section.
Intensity of inter firm rivalry within an industry, also determines the leverage a firm has in pricing
its product. Low intensity in competition, at times, results in a monopolistic market, encouraging a firm
to price the product or the brand, at a premium. Many Indian products have been priced high primarily
because Indian industry does not have a high level of competition. But if the intensity of inter firm
rivalry is high, a firm has very little leverage and generally has no alternative, but to price at a level
which ensures survival.
Price strategies also vary across the product life cycle and for the marketer it is important to know
where his product is, in its life cycle.
Having considered the factors influencing the choice of strategy, let us now turn specifically to dif-
ferent strategies.
Types of Pricing Strategies

Skimming Strategy One of the most commonly discussed strategies is
A skimming strategy refers
to a firm’s desire to skim
the skimming strategy. This strategy refers to a firm’s desire to skim the market
the market by selling at by selling at a premium price. This strategy delivers results in the following
a premium price, while in situations:
penetration strategy, where (a) when the target market associates quality of the product with its price, and
prices are kept lower than its high price is perceived to mean high quality of the product
competition, the firm aims at (b) when the customer is aware and willing to buy the product at a higher
gaining a foothold in a highly price, just to be an opinion leader
competitive market. (c) when the product is perceived as enhancing the customer’s status in society
(d) when competition is non-existent or the threat from potential competition
exists in the industry because of low entry and exit barriers
technology’ product
In adopting the skimming strategy the firm’s objective is to achieve an early breakeven point and to
maximise profits in a shorter time span or seek profits from a niche.
Penetration Pricing Strategy As opposed to the skimming strategy, the objective of penetra-
tion price strategy is to gain a foothold in a highly competitive market. The objective of this strategy is
to attain market share or market penetration. Here, the firm prices its product lower than the others in
competition. This strategy delivers results in the following situations:
(a) when the size of the market is large and it is a growing market
(b) when customer loyalty is not high; customers have been buying the existing brands more because
(c) when the market is characterised by intensive competition
(e) where price quality association is weak

A large number of south east Asian firms have used this strategy to enter foreign markets. The 1970s
saw Japanese firms using this strategy to gain a foothold in European and North American markets. In
India, we have been witnessing the launch of several products, that have deliberately been priced lower
than the leader firm.
The problem with this strategy is that it often heralds a price war within the industry which could,
in turn, prove fatal to all firms.
Differential Pricing Strategy This strategy involves a firm differentiat-
In differential pricing
ing its price across different market segments. The assumption in this strategy strategy, the firm prices its
is that different market segments do not communicate or have different search products across different
costs and value perceptions of the product. In other words, heterogeneity in the market segments, while
market motivates a firm to adopt this strategy. Consider, the example of passen- geographic pricing strategy
ger seats sold by an airline. A business executive buys a seat on a full fare basis, seeks to exploit economies of
while an individual or family going on a holiday pay a discounted fare. While scale, by pricing the product
the first is termed as full economy fare, the latter is termed as excursion fare. below the competitor’s in
one market, and adopting
Service firms like consulting, accounting and banks, and medical professionals
a penetration strategy in
are frequent users of this strategy. another.
The differential pricing strategy may not work, if customers in one segment
communicate with their counterparts in other segments and also if customers do not have search costs.
Geographic Pricing Strategy This strategy seeks to exploit economies of scale by pricing the
product below the competitor’s in one market and adopting a penetration strategy in another. The former
is termed as second market discounting. This second market discounting is a part of the differential
pricing strategy, where a firm either dumps or sells below its cost in the market to utilise its existing
surplus capacity. So, in geographic pricing strategy, a firm may charge a premium in one market, pen-
etration price in another market, and a discounted price in the third. The essential requirement of this
strategy is that the markets should be separated by transportation costs. Besides there are three general
principles on which this strategy is based:
Product Line Pricing Strategies These are a set of price strategies which a multi-product
firm can usefully adopt. An important fact to be noted, is that these products have to be related, in
other words, belonging to the same product family. For example, the firm may have different types of
shampoos—normal, conditioner, egg, or medicinal. Within each of these, it may have different brands.
Or a restaurant that has different cuisines—Mughlai, Chinese, Continental, and so on—with fluctuating
demand. Faced with multi-products and fluctuating demand, the firm may adopt a combination of the
following strategies to effectively manage its product line or maximise its profits, across the product
line.
Price Bundling This strategy is used by a firm to even out the demand for its product. This is a useful
strategy for perishable, time-barred products like food, hotel room, or a seat on a flight, and for prod-
ucts that cannot be substituted, like the package of stereo music system. In the latter case, stereo music
equipment like the disc player, turntable, equaliser, speakers, and amplifier may be sold at different
prices individually, which when taken together may amount to more than what a customer has to pay,
if he or she were to buy it as a composite music system. Similarly, a restaurant may charge a lower rate
for a buffet meal than an a la carte meal. Off season discounts and season tickets for music festivals,
are other examples of price bundling strategy. This is a passive strategy, aimed at correctly bundling
the prices of related items, so that the firm is able to maximise its profits.
Premium Pricing This strategy is used by a firm that has heterogeneity of demand for substitute
products, with joint economies of scale. Consider, the example of a colour television set. There are dif-
ferent models available with different features, like the one with a remote control and another without
it. Either can be substituted and yet satisfy the customer’s needs. But the firm may opt to premium price
the first model and position it at the top of the product line for high income or upper income group of
This strategy is also used in retail marketing, where a merchandise may be offered at a higher price
in a premium store and at a lower or market price in a relatively low image store, catering to the mass
market. Premium price strategy applies to complementing products also.
Image Pricing This strategy is used when consumers infer quality from the prices of substitute mod-
els or competing products. The firm varies its prices over different brands of the same product line. This
strategy is commonly used in textiles, cosmetics, toilet soaps, and perfumes.
Complementary Pricing This strategy is used by a firm that has customers with high transaction
costs for one or more of its products. Transaction costs are all those costs that a customer has to incur
to buy the product, like the registration fees that a buyer has to pay in order to be the legal owner of a
house or the processing fees, that the bank may charge to give a credit card to a customer.
Captive Pricing Strategy Here a special price deal is offered to loyal customers or to those who
are regularly buying one of the products of the firm. A typical example, is the Gillette shaving system,
which offers two twin blades free, with its razor to induce the buyer to purchase its blades. Kodak
adopted this strategy when it offered a film roll free, to all those who bought its camera. As may be
observed, this is a strategy aimed at building customer loyalty.
Loss Leader Strategy This is another example of complementary pricing strategy. This strategy
involves dropping the price on a well known brand to generate demand or traffic at the retail outlet.
Two Part Pricing This strategy is used by products that can be divided into two distinct parts. For
example, membership of a video library has two parts—one is the membership fee, which is annual,
and the other is the rent for each time frame, for which a video cassette is rented. As may be observed,
the price has two components—the fixed fee and the variable usage fee.
Exhibit 14.1 sums up these strategies and relates them to the firms objectives and customer charac-
teristics.
Pricing Tactics
Tactics, like strategies, play an equally important role in getting an order. Pricing tactics become im-
portant in industrial product marketing, where the firm has to bid for a contract. If it bids too high it
gets the order and also makes a profit, the firm has to consider the customer’s price sensitivity and the
transparency of price action to the competition. It has to also consider its share in a particular customer
account and its cost position.5 Transparency of price action to competition, refers to the extent to which
the customer discloses a firm’s price to other competitors. For example, in the case of a customer
advocates the use of a high price tactic to mislead competition. He feels that this tactic should be
adopted even at the risk of losing an order.
Exhibit 14.1 Taxonomy of Pricing Strategies
Objective of Firm
Characteristics of Vary Prices Among Exploit Competitive Balance Pricing over
Consumers Consumer Segments Position Product Line
Some have high search Random discounting Price signalling Image pricing
costs
Some have low Periodic discounting Penetration pricing Price bundling
reservation price Experience curve Premium pricing
pricing
All have special Second market Geographic pricing Complementary
transaction costs discounting pricing
Source: Tellis, Gerald J., ‘Beyond the Many Faces of Price: An Integration of Pricing Strategies’, Journal of Marketing,
50, October 1986, p. 148.
Exhibit 14.2 Telecom Rates Slashed—Customer Wins Again

The mobile subscriber’s bill on ISD charges went by HFCL, and Shyam were the major losers, as they
11–24%, while the STD call rates declined by 16% will not get any ADC under the new regime. Cur-
and 27% in 2005. This followed TRAI’s decision to rently, they get ADC on incoming long distance
reduce access deficit charges (ADC) on ISD calls by calls terminating in their network. TRAI reduced
41% and on STD calls by 61% in January 2005. Since ADC on long distance calls between 40% and 60%.
the private operators passes on the benefits on re- Under the new regime, ADC on ISD calls were re-
duced ADC to subscribers, ISD charges got reduced duced to `2.50 per minute on outgoing calls and to
by 11% and STD charges by 16%. For example, `3.25 per minute on incoming ISD calls. The story
BSNL passed on the ADC cut to subscribers, and did not stop here. With effect from March 1, 2006,
ISD charges got reduced by 24% and STD charges MTNL and BSNL announced a further reduction in
by 27%. The ADC rates were applicable from 1 Feb- ISD rate under the India One Plan. These are now
ruary 2005. Bharti also said that it will pass on the priced at `1 per minute.
benefits due to ADC cut to the subscribers. Private Source: Economic Times, 7 January 2005.
fixed line operators such as Reliance, Bharti, Tata,
Based on customer characteristics and the firm’s cost position, and its share in the customer account,
a firm may either match competition or price its product higher or lower than competition. These tactics
are shown in Exhibit 14.3.
Exhibit 14.3 Customer Price Sensitivity

In the evolution of pricing strategies and tactics, Ross believes that only a proactive approach can generate
profits for the firm. The basis for this approach, is timely and correct information on customers, competi-
tion, price data for each product, and an honest assessment of a firm’s capabilities and weaknesses. The
information system has to be flexible, responsive, and must form part of all strategy decisions. The quality
of people who collect this information is also vital.
Another tactical approach to fighting price wars, is to assess the customer’s sensitivity to price and concern
for quality. A firm needs to adopt a value added marketing approach to get an order from a customer who
exhibits high concern for quality and price sensitivity. A value added approach would involve doing an
economic value analysis for the customer on the lines discussed earlier. On the other hand, for a customer
who is low on price sensitivity, but concerned about quality needs to be treated in a different manner. Here,
it is important that a firm maintains its commitments and does not give an opportunity to the customer to try
a competitor’s product. In the case of a customer who is highly price sensitive and has little or no concern
for quality, the firm needs to educate him on how good quality input can affect the quality of his finished
goods, which in turn can help him get higher market shares and returns on his investment 6*.
Internet and Pricing Internet, as we have said earlier, has today made time and distance ir-
relevant in consumer decision making. It has also enhanced competition. A customer is able to shop
at multiple sites, get to know the prices and discounts available, and then take the decision to buy.
Consider, the case of a buyer of books who, after visiting a book store and selecting the titles, visits
Amazon.com and shops for these titles. If the price charged by the bookstore is less than price charged
by Amazon.com, the shopper is likely to buy from the bookstore. In calculating this benefit, one has to
consider, additionally, the freight cost and the cost of time the customer has to wait to get the delivery
from Amazon.com. Internet has certainly made customers more price sensitive and at the same time
hungry for information.
* Tactics that involve profit making firms that do not base their strategy on price factors, are summarised in Exhibit 14.5.
Exhibit 14.4 Pricing Moves in a Competitive Market
Exhibit 14.5 Tactics to Fight Price Wars
In selecting a pricing strategy, one needs to assess this impact of internet on consumer behaviour.
Even though Internet enhances the customer’s price sensitivity, companies can realise a higher price
only if they understand the factors contributing to it. Earlier in the chapter, price sensitivity factors, as
laid out by Nagle, were mentioned. Let us now consider some of these and also how Internet can be
used by the marketer to his and the customer’s benefit.
Unique Value Effect The first factor is the unique value effect of the product. As we mentioned
earlier, if the customer’s perception of the value of a company’s product is at par with competition,
he will be price sensitive. The uniqueness lowers price sensitivity. Companies that offer true value on
the Net and can convince the customer about it, will benefit singularly. One of the effective ways to
prove uniqueness and make customers pay more is to provide hard facts, solid testimonials, hands-on
a range of multi-media products, and digital imaging of products. Automobile companies, computer
games, software designers, and even the real estate companies today use it effectively, to communicate
uniqueness about their offer. This communication of uniqueness may be difficult if a third party is in
control of the information. For example, it may be difficult to communicate uniqueness of Honda City
or Jet Airways service, when its information is only available on information portals of newspapers
or magazines. To overcome this, most companies give a hyperlink, which, when the customer clicks
is taken to the company or product’s website. A customer can use a third party information portal to
compare two identical products. While he/she may be able to compare on tangible parameters, the
uniqueness of the product/offer may be difficult to be communicated.
Substitution Effect Another factor enhancing price sensitivity, is the substitution effect. Internet
creates awareness about the substitute and hence enhances price sensitivity. Many retailers fear the
internet, as customers may be unwilling to pay more, if the brand selected is available to the customer
at his/her doorstep the next day. This concern is today more pronounced because of the emergence of
online services that list best prices available for products (e.g. www.1-800-flowers.com <http://www.
flowers.com> or www.rediff.com <http://www.rediff.com> or www.indiatimes.com <http://www.in-
diatimes.com>)
Budgetary Limits Yet another factor contributing to price sensitivity, is the consumer’s budgetary
limit which comes into play, when the total expenditure on the product to be bought is high. Various
websites can help consumers manage his budget. For the marketer, it is necessary to keep his informa-
tion available on all such third party websites. It should also be possible for the marketer to create an
alliance with the financing institution and make the customer aware about it. Further, today, discount
websites are emerging and budget sensitive customers do visit these sites before selecting a product.
Shared Cost Effect Shared cost effect is another factor in price sensitivity; there are customers
who do not mind sharing the cost with others, while there are other who believe in exclusivity. This is
today visible in the travel and tourism industry. For example, there are tour operators on whose websites
one can shop for a discounted tariff for a hotel room or airfare (e.g. priceline.com). But there are hotels
that have rewards programmes for business travellers, who may not offer their rooms on these sites. So
a business executive who believes in exclusivity and is willing to pay for it, visits this hotel’s website
directly and negotiates the rates.
Thus, companies need to examine which factors drive price sensitivity in their case and then use the
Internet and Web for effectively managing it.
e-Auctions Another commonly used pricing method on Internet is auction (www.bazeee.com
<http://www.bazeee.com> or www.ebay.com <http://www.ebay.com>). Online auctions are powerful
methods of real-time pricing. Auctions work well on the Internet because of the availability of in-depth
information to all bidders, who may be anywhere in the world. Internet has today overcome the prob-
lem of getting enough bidders together in the same place at the same time. As we all know, in Internet
bidding, bidders need not be physically present. This reduces the participant’s costs and increases the
total number of bidders. This, in turn, raises bid prices and profitability of the seller.
Internet is also being used effectively by airlines (www.jetairway.com <http://www.jetairway.com>

and www.airdeccan.com <http://www.airdeccan.com>) to sell their seats and thereby enhancing yield
on their routes. This helps both the business and leisure traveller to buy a ticket at his price. So is the
case with hotels and tour operators. Yield management is an important tool to assess profitability of
service companies.
Finally, marketers are today using Internet even in bundling of their products and services. For ex-
ample, a single subscription to a paid service of a media organisation like Times of India, Hindustan
Times or NDTV gives to the customer access to all their products and services.
ETHICS IN PRICING DECISIONS
LO6 Pricing decisions are often a subject of close scrutiny by consumer groups,
Explain the ethics in competitors, government and even the antitrust authorities. Often the con-
pricing troversies arise either on account of lack of full disclosure of information
or favouring a particular bidder or discriminating against some firms or
group of consumers. In the context of scarce national resources like coal, water, electricity, spectrum
or public land, these issues draw the attention of not only the common consumer but also policy maker.
The classical example is of 3G auction where the Comptrollers and Auditor General of India (CAG)
highlighted the notional loss of `33,000 cr to the country’s exchequer in the 3G Spectrum Pricing. It
was argued that the license price determined by the government was lower than the market price and
it was done to favour some telecom firms. Pricing decisions therefore are subject to close scrutiny.
Governments have often enacted laws to curb fraudulent pricing strategies and practices. Though one
may view pricing from a legal and cost point of view, very often ethics and price decisions are a balance
between legality of a decision and the fairness to the stakeholders. More often than not, issue of ethics
arise because balance of power is tilted in favour of the producer or the firm. The consumer is often at
a receiving end. Firms need to ensure that they avoid predatory pricing, i.e. pricing extremely low to
drive competitor out of the market. It is difficult to prove predatory pricing because many a time it is
seen as a natural response of a firm to a highly competitive market situation. On such occasions it is
argued that in order to maintain the market share, the firm had to resort to price reduction. One rupee
pricing for a flight from Mumbai to Delhi is the example of predatory pricing. Although, the marketing
logic given by the firm was that it sold its excess capacity, it worked on the strategy of loss reduction
or loss minimisation. However, there are couple of pricing practices that a firm needs to avoid as they
border ethics and legality.
Consortium Pricing
This occurs when a group of firms or people on the same side of the market decides to buy or sell a
product or a service at a fixed price. Though competition should drive price reduction, they in such
cases join hands to fix price and in turn assured stream of profits. Imagine for example, Pepsi and Coke
together decide to offer Cola at a price of `25 for a 200 mL pack. The consumer would have no choice
other than to buy the Cola at this price unless he or she decides to buy the substitute soft drink or fruit
based drink or just plain water. This form of price collusion is the worst form of collusion which can
occur at the horizontal level. It is for this reason that such pricing if banned is considered as an unfair
trade practice. The firm therefore needs to understand the market without getting into a relationship
with competitors to take advantage of the consumers.
Bid Rigging
This is another form of unethical practice. Bid rigging is an example of favouritism where it is portrayed
that all bidders are equal but yet there are some who are not. This practice hurts consumers considerably
because it has no guarantee that the best producer would receive the work order. This is very common
in government contracts and is the reason why industrial groups like Tata or L&T are more careful in
their dealings with the government. Bid rigging is also a form of collusion. Hence to avoid bid rigging,
buyers need to put all information in public so that all have an equal opportunity.
Price Discrimination
At times a group of consumers are discriminated and made to pay more than the rest. Often the market-
ing logic is either in the form of volume of consumption or paying capacity of the consumer. But the
hidden objective is to discriminate one group or segment of consumers from other. For example a firm
may decide not to charge low income consumer or a senior citizen but charge a premium to the others.
This decision borders on good practice and ethics in pricing. Unless the logic is communicated and
perceived fair by the consumers, it can bring the firm into a trouble.
Dumping
Faced with large unsold inventory of products, a firm may decide to offer them at the rock bottom price
thereby creating an imbalance in the market. On another occasion, this strategy may be used to enter
the market and disturb the equilibrium. Once again dumping is generally not seen as a good practice
and a marketer needs to avoid.
SUMMARY
Price is an important variable that needs top management’s mind. This is not only because of mar-
ket characteristics, competitions and firm’s cost structure but also because of the ethical concerns.
Price helps firms to create a differentiation in customer’s mind. Conceptually, price is the amount
of money received by the seller for the quantity sold by him. From the customer’s point of view it is
the quantity of sold and services received by him at the price charged by the seller. This price equa-
tions can be changed by the firm by changing customer’s value perception of the product, quantity
of money or the goods and services to be paid for by the buyer or alter the quality of goods and
services. The seller can also alter the customer perception of the price by making change in time and
place of transfer of ownership, place and time of payment or forms of payment. Pricing objectives
could be any or more of:
(b) Exploit competitive position

(c) Survival in a competitive market
(d) Balance price over product line
In determining the price to be charged firms need to estimate the demand for its product and price
sensitive. Pricing decision therefore need to consider consumer demand, firm’s costs and objec-
tives, competitor reaction, Government policy and barriers in industry. Pricing methods are either
cost based or perceived value based or competition driven. The firm may choose the strategy of
skimming the market or penetrating the market. It may even decide to choose a differential pricing
strategy or have a price or a have a price discriminated on the basis of geography. Product line pric-
ing strategies are:
(a) Price bundling
(b) Premium pricing
(c) Image pricing
(d) Complimentary pricing
(e) Captive pricing strategy
(f) Loss leader strategy
(g) Two part pricing
Pricing decisions should also consider pricing tactics in order to be in the market share.
Firms need to pay a special attention to ethical concerns in pricing.
POWER POINTS
1. Price, to a manufacturer or supplier, represents quantity of money (or goods and services in a
hence it is the value attached to the product by the customer. (LO1)

2. Price of a product can be changed either by changing the consumer’s value perception of the
product or by changing the quantity of the product for which it is being charged, or by altering
the quality of goods and services or by changing any of the following: (LO1)
(a) time and place of transfer of ownership
(b) time and place of payment
(c) acceptable form of payment
3. There are four main objectives of any pricing decision: (LO2)
(a) maximise current profits and returns on investment
(b) exploit brand’s or firm’s competitive position
(c) survival in a competitive market
(d) balance price over the product line
4. Price sensitivity for a product is based on: (LO2)
(a) uniqueness of the product
(b) substitute awareness
(c) difficulty of comparison among alternatives
(d) total expenditure on a product by the consumer
(e) the benefits in a product
(f) shared cost effect
(g) sunk investment
(h) price-quality perception
(i) inventory effect
5. Techniques to measure price sensitivity—the issue of measuring price sensitivity further as-
any product or service represents the minimum and the maximum price a customer is willing
to pay for it. (LO2)
Direct probing
Price sensitivity meter
Sequential preferences
6. Pricing decisions are based on a careful analysis of: (LO3)
(a) demand for the product
(b) government policy
(c) competitor reaction
(d) costs
(e) barriers in the industry
(f) corporate objectives
7. Pricing methods range from cost driven to market oriented. (LO4)
8. The choice of pricing strategies is primarily between skimming or penetration. Other strate-
gies used are differential pricing, geographic pricing, and product line pricing. (LO5)
9. Pricing decisions are often a subject of close scrutiny. Lack of full disclosure of information
and interest or favouring a particular bidder can lead to problems. Firms need to ensure trans-
parency, avoid predatory pricing and discriminating customers. (LO6)

1. In recent years, discount sales have been on the rise and several discount stores have come
festive seasons. Yet, there are many designer brands who do not have such discount sales and
yet record large sales turnover. Why? (LO1 and 2)
2. What is price elasticity? How is it measured? What factors determine price elasticity? (LO2)
3. What are the factors that should always be considered while making pricing decisions? Would
these change in the case of a new product? Why? (LO3)
4. What is a sealed bid? Where and how is it used? (LO4)
5. A mobile phone manufacturer wishes to add smartphones and tablets along with other wear-
able devices such as wrist watch or wrist band. The market which is highly competitive is also
witnessing exponential growth. What will be your objectives in pricing new products? What
strategy and tactics will you adopt to penetrate Indian urban market especially Tier 1 and 2
cities? (LO2, 3 and 5)
6. How can you enhance transparency in brand's pricing decisions? (LO6)
371
Section 4
Communication and
Deliverance of Customer
Value
Section Outline
Chapter 15: Integrated Marketing Communications
Chapter 16: Advertising Management
Chapter 17: Sales Promotion and Public Relations
Chapter 18: Managing the Sales Function
Chapter 19: Managing the Distribution Function
Chapter 20: Retail Management
Chapter 21: Direct Marketing
T his section deals with communication and delivery of value to the customer.
These tasks are as important as value creation. The first chapter, Chapter 15, in this
section is focused on the need to develop an integrated approach to brand communica-
tions. It is based on the premise that advertising alone is inadequate. We need to have
the brand seen by the customer in all his or her situations. Chapter 16 on Advertising
Management focuses on copy, media and budgetary decisions. It also brings forth issues
of ethics and hence presents standards as laid down by Advertising Standards Council
of India. This is followed by sales promotion and public relations, sales management
function, distribution management, retail and direct marketing. All these are the tools
used by marketer to make the brand known, preferred and available to the customer.
CHAPTER
INTEGRATED MARKETING
COMMUNICATIONS
15
LEARNING OBJECTIVES
LO1 Explain integrated marketing communications and its evolution over a period of time
LO2 Describe linkage between marketing communication and brand image
LO3 Develop models that explain how integrated marketing communication works
LO4 Describe the elements of marketing communication mix
LO5 Explain the integrated marketing planning communication process
In Practice
Education Institutions also Need to Communicate
Brand building, as we discussed in the earlier chapter, is today one of the most challenging task
in marketing. To build a brand, the marketer has to create and communicate a credible story
so that the customer feels confident in accepting the brand. Many a times it is believed that ag-
gressive advertising alone can help create brand awareness and its credibility in the market. It
could even lead to more trials and repeat purchases. But in reality this may not happen. Consider
for example a large number of private education institutions which spent a huge amount of
money post 2005 on mass advertising. Many of these brands were visible in electronic and print
media. Full page advertisements, advertisement on prime time on Indian television and even
co-branding events with the media was a most common form to build an institution’s brand in
education. But 2011 onwards, many of these institutions started losing out. Today many of them
have either closed their operations or are on the verge of closure. Communication for brand
building therefore requires a new approach which integrates all forms of communication and
media vehicles.
It is in this context that one has to consider the importance of integrated marketing commu-
nication in all sectors of the economy.
INTRODUCTION
Demographic and lifestyle changes in the market together with the diffusion of information and com-
munication technology have today created a challenge for brand communication. One of the most sig-
nificant changes relates to consumption preferences. Today there is global convergence of consumption
value and preferences. Be it the personal toiletries or garments or communication tools, invariably the
Indian and world consumer tend to buy the same brands and products. Take the example of smart-
phone which is one of the most popular hand-held communication devices. Consumers all over the
world including India use either an Android based smartphone like Samsung, LG, HTC or IOS based
iPhone. Tablets are today being bought by Indian consumers much the same way as in other markets.
From a brand manager’s perspective the challenge lies in communicating the brand’s core values in a
meaningful manner across the world. Apple for example uses its icon ‘Apple’, its signatory tune, same
advertising and other communication messages all over the world. Similar messages today get pushed
to the consumer across multiple media vehicles, both mass and individual. Competition has also made
communication task more challenging.
A brand’s or firm’s value proposition has to be communicated to the target consumer through mul-
tiple media vehicles and tools. This includes mass media that is print, digital and outdoors, television
channels and the radio and individualised medium like SMS or WhatsApp, Facebook, Twitter, etc.
Integrating all these media vehicles and designing the communication programs in a manner that is
meaningful to the customer is yet another challenge. Integrated marketing communication therefore
is the development of creative marketing communication that weaves together advertising, public
relations, sales promotions, personal selling, social media, events and owned assets. The goal of this
exercise is to communicate in a coherent and credible manner brand’s overall story. Another objective
is to integrate brand with the customer’s life by connecting it to places and use situations in which he
or she wishes to see the brand. The components of integrated marketing communication are:
1. Organisational culture
2. Other elements of marketing mix product, price and place
3. Advertising
4. Direct marketing
5. Public relations
6. Online/internet marketing/mobile marketing
7. Marketing using social media tools like Facebook, Twitter, LinkedIn, Google Plus, You Tube
8. Sales promotions
9. Personal selling
10. Events management
11. Cause marketing
EVOLUTION OF INTEGRATED MARKETING COMMUNICATIONS
LO1 Factors Leading to Growth of IMC

Explain integrated The factors leading to the growth of IMC are changing consumer demo-
marketing communica- graphics, intensity of competition, and the emergence of new medium like
tions and its evolution the Web, Internet, short messaging (SMS), and multimedia messaging
over a period of time (MMS). Another factor that has contributed to the growth of IMC is new
Integrated Marketing Communications 375
media buying practices. At the same time, developments in packaging, store displays, and growing
importance of semiontics in communication, have also contributed to IMC’s growth in the last five
years. The client (i.e. the marketer) today feels more comfortable in dealing with integrated marketing
communication agencies, rather than just stand alone advertising, PR, or direct marketing agencies.
Noise in the media has reduced the message impact and even the opportunity to build credible com-
munication; this is further compounded by a reduction in the attention span of an average customer.
As mentioned above as also in the earlier chapter, customer today is far more tech-savvy and wants
information on his hand-held device which could be a smartphone or a tablet. The search engines today
have reduced the cost of data search and also the data storage. Consequent to this behaviour and the
decrease in the cost of database, the marketer has the opportunity to customise the marketing offer. This
information not only has made customers more aware but also given them the expertise to evaluate
the brand’s value proposition. Technology, consumer lifestyle changes, fragmentation of the consumer
segments, competition and mergers and acquisitions in communication agencies across the world have
led to exponential growth of integrated marketing communication.
INTEGRATED MARKETING COMMUNICATION PROCESS
LO2 The Integrated marketing communication process has five major compo-
Describe linkage nents, as illustrated in Figure 15.1. To understand this model, we have to
between marketing take a planning view rather than the flow perspective. Here we have to start
with the receiver or target audience.
communication and
brand image Target Audience
The first step is to know the target audience or in this case the target customer group. Here, the marketer
has to know the following before evolving a communication mix or strategy.
Figure 15.1 The Integrated Marketing Communication Process

Demographic and Psychographic Profile The demographic and psychographic charac-

teristics of the target audience are important in deciding the message. For example, education levels
among the target audience will influence the content of the message. To further illustrate this, it has
been observed that customers who are low on education need to be told the full story, complete with
the conclusion. But the same is not true, when the marketer is communicating with a more literate and
informed customer. Thus, while it is important to explain fully the benefits of agricultural chemicals to
an uneducated farmer, the same is not true when the same marketer has to deal with the farmer’s son,
who may have taken a degree in agriculture.
Likewise, the age of the receiver affects his or her learning ability. A child needs to be told the story
in a more appealing manner, full of emotion, joy and fun, but an adult viewer may be given just the
cold facts.
Similarly, the target audience’s lifestyle, personality, and geographic location will affect the choice
of the message as also the media. For example, it has been found that a new media like video-on-wheels1
has been effective in taking a marketer’s message to rural areas. This is reflected by the size of the
audience, that sees its programmes and the number of companies supporting it.
Media Habits The next characteristic to be studied is the media habits of
An analysis of the media
the target audience. It is not just important to know the most popular media with
habits can help in selecting
right the medium and also the target audience, but equally important to note the frequency with which a
placing the message at an media is being patronised by them, and the comparative effectiveness of dif-
appropriate slot in it.ferent media. For example, it is important to study whether the target audience
watches TV, listens to the radio, or reads the daily newspapers and magazines. It
is also important to study the frequency with which these are being watched, listened to, or subscribed.
For example, does the target audience see the TV programmes daily, every alternate day, on weekends,
or as and when the individual gets the time. When does the individual watch the programmes? Which
channels does he or she watch? For what length of time is each channel watched? Which programmes
are watched? Likewise, does the individual read the newspaper daily or twice a week, or during the
weekend; which newspaper does he or she subscribe to; does he or she just read the headlines, or scans
through the paper, or reads some sections in depth; which are these and how much time does the target
customer spend on the newspaper. An analysis of media habits can help in selecting the right medium
and also placing the message at an appropriate slot in it.
Level of Awareness It is also important to study the level of the target audience’s awareness
of the product and the organisation. A corollary to this is to assess the image of the organisation and
its product. A target market that is unaware of the product or brand or the organisation, will require
extensive and intensive communication. For a manufactured product, or a new product concept like
the microwave oven, the marketer has to have a long sustained communication programme, aimed at
creating awareness about microwave cooking. Likewise, if the target audience has a negative image of
the product or brand and the organisation, then the firm has to invest substantial resources over a fairly
long time to change this perception. Japanese products had an inferior image in 1960s and early 1970s.
The image was so low and negative that they were the benchmarks of inferiority. It is not so today. In
about two decades, Japanese firms have been able to change their image and have swung the pendulum
completely to the other end, where they represent the best in quality. Same is now true for South Korean
brands, which today find a place in World’s top 100 brands.
For the purpose of measuring the image, an organisation may carry out consumer research and as-
sess its image using the semantic differential scale. For assessing the level of awareness, once again
the organisation may use either Likert’s five point scale or measure it on the seven point scale where
the extreme points on the scale represent ‘not at all aware’, ‘completely aware’, or ‘know very well’.
It may so happen that the firm’s or organisation’s perceived image may not be the same as the desired
image. As was mentioned with the Japanese example, it takes time and resources to correct customers’
perceptions. The organisation has to be prepared for such an investment.
INTEGRATED MARKETING COMMUNICATION MODELS
LO3 The purpose of marketing is to maximise customer experience and value.

Develop models IMC model has to consider these goals. The planning of IMC, as mentioned
that explain how above has to start with the customer and understanding how the customer
integrated marketing perceives the brand in different situations. For example, how does the cus-
communication works tomer see a sports brand in the sports field, running tracks, or while jogging
or on a hike? What are the other corollary products which, when carrying the
brand name, will strengthen the brand’s image in the customer’s mind besides
enhancing experience. All sport brands like Nike, Reebok, Adidas or Puma not only brand the footwear
but have also developed footwear for specific use situations like running, walking and jogging. Since
these activities are undertaken both by men and women, these footwear are designed for each of these
segment keeping in mind its unique colour preferences. In additions to footwear these companies also
brand other sportswear and gears like shorts, tracks, T-shirts, wrist brands, caps, sunglasses, water bottles,
backpacks, etc. To enhance the customer experience these companies demand their retailers to create
an identical store ambience which will strengthen the brand’s image and communicate the same value
across different geographies. Even the print, television and internet advertising carry the same messages
and images—same is true for outdoors. These brands are associated with well-known sports event like
Wimbledon, baseball, football, World Cup, etc. Thus, the IMC Model has two stages as follows:
1. Understanding the local market:
cultural, political, and regulatory environment which affects the demand as also the marketing
approach.
2. Integration:
(a) Brand image integration: Firm needs to create a message which is consistent with the
brand image. Also the organisational symbol must support the brand image.
(b) Integration of marketing and communication mix: This involves development of in-
tegrated approach to value creation. Hence, while the product has to be in line with the
customer expectations, pricing must enhance its perceived value. So is the case with dis-
tribution. The marketing communication mix that needs to be selected should consider the
brand’s image and the target market’s demography, lifestyle and consumption preferences.
It is important that the consumer segment perceives the same value across all media tools
and distribution channels.
(c) Relationship building: When the customer comes in contact with the brand, it must en-
hance the relationship. Customer must feel engaged with the brand. It is here that the sales
material, sales and service personnel as also the service policies and processes play a sig-
nificant role.
Integrated marking communication model is as shown in Figure 15.1.
Consumer Response and Integrated Communication Models

The AIDA model suggests AIDA Model The most commonly used model is the ‘AIDA’ model as
that before actually taking the illustrated in Figure 15.2.
purchase decision, the target
customer has to be aware of
the brand or the product.
Figure 15.2 AIDA Model of Hierarchy of Consumer Response

Source: E.K. Strong, The Psychology of Selling, New York: McGraw-Hill,1925, p. 9.
This model suggests that before actually taking the purchase decision, the target customer has to be
aware of the brand or product. Awareness is expected to generate interest which in turn will lead to a
desire to buy or possess the brand or product. This model has been successfully used in marketing
consumer non-durables like ice cream, soft drinks, and even semi-durables like textiles. Consider, for
example, the advertising of ice creams which visually communicate the flavour and taste of the differ-
ent ice creams marketed by firms. This advertising campaign has created awareness, interest, desire,
and shadier purchase behaviour among the target market. The AIDA model is also useful in personal
selling, where the sales person’s task is to first make the customer aware and then lead him to the action
stage, or purchase decision.
The L and S model, useful in

The Levidge and Steiner Model A variant of the AIDA model, and
very useful in marketing of consumer durables, office products and other indus-
all high involvement product
purchase situation, lookstrial products, is the one proposed by Levidge and Steiner2. This model intro-
at the marketing decisionduces three more elements before the customer takes the purchase decision—one
at the cognitive, another at the affective, and the third at conative levels. At the
from three levels—cognitive,
affective and connative.cognitive level, the authors have added the knowledge stage, in between aware-
ness and interest stages. The interest stage is further split into the liking and
preference stages, or liking leading to a preference. According to the authors, preference should lead
to conviction in purchase decisions. Figure 15.3 sums up this model.
To illustrate this model, consider the case of a washing machine purchased by Mrs Mathur, a
housewife. Mrs Mathur sees an advertisement of LG washing machine in TV commercials, hoardings,
newspapers, flyers and internet. She becomes inquisitive about it and goes to the city’s leading appliances
dealer, where the salesman gives her a demonstration. She compares other brands of washing machines
and also goes through the product manual. This enhances her knowledge about washing machines
Figure 15.3 Levidge and Steiner’s Hierarchy of Consumer Response Model

Source: Levidge Robert J. and Gary A. Steiner, ‘A Model for Predictive Measurements of Advertising Effectiveness,
Journal of Marketing, 1961, p. 61.
available in the market. She visits her friend who has recently bought a LG and nodal listens to her
positive experiences. Based on all this information, she develops a liking for LG washing machine and
prefers it over the other brands, because of the features and the price. One day, her maid goes to her
hometown and does not return. She is now convinced that she needs to buy a washing machine and goes
to the appliances store to buy a LG washing machine. Thus, the media helped in creating awareness,
the salesman and the product manuals helped in providing knowledge and developing an interest, while
her friend helped Mrs Mathur decide in favour of LG (preference). The problem of the maid servant
convinced her to buy a washing machine.
This model helps direct the marketer’s task and brings to the fore the role of different elements of
the promotion mix—advertising, personal selling, product manuals, and so on. The role of the social
channel or ‘word-of-mouth’ publicity in the consumer durables selection is also important. In fact, this
model is useful in all high involvement product purchase situations.
Information Processing Model Another hierarchy of the response
model is suggested by William McGuire3 (Figure 15.4). This model, called the The IP model, considers
the issue of retention, or the
information processing model, considers the issue of retention, or the receiver’s
customer’s ability to retain
(customer’s) ability to retain that segment of the message that he/she accepts as that segment of the message
valid or being relevant to his/her environment. This issue is critical from a mar- that he/she accepts as valid
keter’s perspective because most communications aim to facilitate the internali- or being relevant to his/her
sation of the message, so that the customer is able to use it at a subsequent time environment.
when he/she buys the product. In today’s competitive promotion war, retention
of message by a customer is a challenge for most firms, as all of them fight for the customer’s attention.
Several strategies are used to create this retention. At times a core brand value may be communicated
through a highly credible source. Consider the case of Clinic Shampoo, which is positioned as an anti-
Figure 15.4 McGuire’s Response Model

Source: William McGuire, ‘An Information Processing Model of Advertising Effectiveness’, Behavioural and Manage-
ment Science in Marketing, ed. Harry J. Davis & Alwin J. Silk, New York: Ronald/Wiley, 1978, pp. 156–80, and E. Belch &
Michael A. Belch: Advertising & Promotion: An Integrated Marketing Communications Perspective, 4th ed., McGraw-Hill
(International Edition), 1998, p. 147.
dandruff shampoo. To communicate this core value (anti-dandruff) the brand’s communication strategy
uses Shahrukh Khan, Preity Zinta and others who are symbol of the young, ambitious, enthusiastic,
and energetic customer group, throwing a challenge to a look-alike and other brands of shampoo. The
dandruff on the look-alike’s dress lets the cat out. As can be made out, this communication’s goal is to
position Clinic shampoo by claiming a USP (unique selling proposition) which others do not have. As
we shall see subsequently, several approaches to message construction and advertising appeal, can be
used to create this retention in the customer’s mind.
Communication/Presentation
Over the last two decades, several researches in marketing and behavioural sciences (particularly in
consumer behaviour) have questioned the validity of this hierarchy of response models for determin-
ing the communications objective. A more contemporary view is that of considering purchase situa-
tions (high involvement/low involvement), dissonance/attribution, learning processes, and behaviour
(whether rational or emotive).
Communication Models Two main researches and models that persuade marketers to define
their communication programmes accordingly are of Michael Ray4 and Foote, Cone, and Belding
(FCB).5
Michael Ray Model In most purchase situations, the consumer goes through the response proc-
ess mentioned in the previous models. Ray calls this a standard learning process or learn-feel-do se-
quence. This is possible only when the customer is highly involved and significant differentiation exists
among competing brands in a product category. Consumer durables, automobiles, and property come
closest to this category and hence it is not uncommon to come across such forms of communication
in these product categories (Exhibit 15.1). Detailed communication messages from advertisers try to
create an appropriate learning and feel about their brand. However, there are buying situations where
consumers have to choose between two alternatives that are similar in quality but are incomplete in
communicating facts, and may have hidden or unknown attributes (in instances the communication
entices the customer to a product through attractive price and distribution, but with some conditions
attached, which the customer gets to know only at a later date). The customer may buy the product/
brand through word-of-mouth publicity and then try to reduce post purchase dissonance through a
rationalisation process. This, as we discussed in the Chapter 6, involves attitude development through
a post purchase communication strategy. Dissonance will always be a defining characteristic of a high
involvement purchase situation.
However, in the context of a low involvement buying situation, the model gets modified to a
learn Æ do Æ feel sequence. In such situations, advertising is the key to bringing about an action. But
in high involvement personal selling, direct marketing and social channels play an equally important role
as that of advertising. Ray’s model, which explains this buying behaviour, is illustrated in Figure 15.5.
Exhibit 15.1 Learn-Feel-Do Sequence of Learning
Courtesy: Reproduced with permission FCB-Ulka, Brand Building Advertising: Concepts & Cases;
Parmeswaran, M.G., Tata McGraw-Hill Publishing Co. 2001.
Figure 15.5 Michael Ray’s Model
FCB Model As mentioned earlier, FCB, an advertising agency, has come out with a communication
model that has guided communications programmes of the agency in the US and
The FCB model links the in India (FCB-Ulka). The model is based on the work done by Richard Vaugh
behavioural responses
and Associates. The model considers the right/left brain theory. According to this
associated with the right/
left brain theory to purchase theory the right side of the brain reflects the emotional side of human behaviour,
situations. while the left implies rational and more cognitive thinking. The model links
these behavioural responses to the purchase situation (i e. high or low) and sug-
gests the following strategies.
(a) informative for the high involvement thinking quadrant
(b) affective for high involvement—feeling quadrant
(c) habit formation for low involvement—habit formation
(d) satisfaction model for low involvement—satisfaction quadrant
The FCB model and illustrative product categories are shown in Figure 15.6.
Figure 15.6 The FCB Model

Source: Parasuraman, A., FCB-Ulka: Brand Building Advertising Concepts and Cases. (Ibid)
This grid is a useful tool for advertising planners and even brand managers, as this helps to custom-
ise the communication to a product and customer situation. It is embedded in research on consumer
behaviour. Some communications developed by FCB-Ulka using this grid appear in Exhibits 15.2 and
15.3.
Exhibit 15.2 Sundrop Sunflower Oil

Press Advertisement ‘What makes Sundrop, the healthy oil for healthy people…’
Courtesy: Reproduced with permission Parmeswaran, M.G.: Ibid.

Exhibit 15.3 Hero Mileage
Theory of Diffusion of Innovation The third model is provided by Everett Rogers in his Theo-
ry of Diffusion of Innovation. A product innovation or a new product idea is very different from a
known product or service. An innovation has to be first understood and then assimilated or adopted.
Even the buyers are different. Therefore, it is necessary to consider this model. Generally, in the
case of an innovation, as we have seen in the Chapter 11, adoption is slow. The buyer generally
evaluates innovative ideas and then gives them a try. If their experience is positive and reinforces
their knowledge, they adopt it. Consider, the case of an organisation that has been informed that
computerisation will help it cut its operational costs by 25% and speed up its response to customers,
thus making it more competitive. The decision makers and the union still have their reservations, but
are willing to accept computers in a limited way. So, they decide to buy one personal computer for the
accounts department and computerise the pay roll. On seeing the positive results and how accurately,
efficiently, and fast the pay roll section now worked, the organisation decided to extend computerisa-
tion to all its other departments. In doing so, the costs and benefits of computerisation are considered.
Perhaps the same is true for all new product situations—be it industrial, consumer, or services. Thus,
the Rogers model splits the affective stage into two components, namely interest and evaluation and
behavioural, or connative, in trial and adoption. The key to successful adoption of new product ideas
is trial. The marketer has to lead the customer to this stage. Samples play a key role in the trial and if
the buyer is satisfied with them he adopts the new product. The Everett Rogers model is summed up in
Figure 15.7.
Figure 15.7 Everett M. Rogers Model of Hierarchy of Consumer Responses (Innovation—Adoption

Model)
Source: Everett M. Rogers, Diffusion of Innovations, New York: Free Press, 1962, pp. 79—86.
The contribution of all these models, is that they help the marketer focus his attention on different
response stages and identify the element(s) of a promotion mix that can help achieve the desired con-
sumer response. In some cases like soft drinks, ice creams, tea, coffee, and textiles advertising, point of
purchase material, and location and ambience of retail outlets often lead buyers to buy a brand. In other
cases—like washing machines, computers, new packaging material, and new fast food—advertising,
personal selling, product literature, and samples can lead the buyer to buy and adopt the product. So,
depending on target customer characteristics and the nature of the product, a marketer has to decide his
communication objectives.
Consumers Buy Images

The challenge for a marketer is to design an appropriate message for different media vehicles, sales
team and channel partners. Also important is the product and service manual especially so in the context
of consumer durables. The technology convergence demands that the message across all vehicles is just
the same. While in the print media and company website marketer has more space to communicate the
brand proposition, the same is not true for television or mobile phones. Marketer has to decide on the
message strategy. This strategy and the structure of the message should effectively communicate the
positioning statement and the reasons why customer should buy the brand. Consider for example the TV
advertisement of Lifebuoy a version of which appears in the print and which is available on the Face-
book, Google and You Tube. Lifebuoy traditionally has been positioned as personal hygiene soap. This
positioning statement has remained unchanged. However, in order to remain relevant to the market, the
brand also altered its communication. Their research showed that one of the most important factors that
caused diarrhoea and pneumonia is the hand washing habits of individuals. This research also showed
that a simple habit of washing hands before and after meals with soap can prevent diarrhoea. Lifebuoy
reached out to 130 million people across the country to teach them healthy hand washing habits. It has
worked in a Tamil Nadu village which has the highest rate of diarrhoea in India. Most children here
do not even reach the age of 5 because they suffer from diarrhoea. Hence the campaign ‘Help a child
reach Five’ was created. The communication ends with a call for action when it says “Take the pledge
on Facebook.com/Lifebuoy and save lives”. This is followed by a Lifebuoy symbol written with the Red
Cross and the colour red all around it—the colour with which Lifebuoy has always been associated. Its
competitor Dettol has used animated characters to communicate the war on germs. Traditional Dettol
has been used as an antiseptic lotion. There is no family in India which did not have the experience
with Dettol. Dettol moved from an antiseptic lotion to create a range of products like soaps, handwash,
shower gels and now kitchen cleaning soaps. Dettol enjoys more than 80% of the market share and
is ranked no. 4 in the soap market and over 50% in the liquid hand wash market. It has consistently
communicated its core brand value of ‘be 100% sure’. Exhibit 15.4 shows Lifebuoy communication.
Hence while designing the message, marketer will have to consider the following:
1. Target market
2. Environment of the target market which also includes target competition
3. Positioning statement
4. Media choices
One of the most useful ways for understanding the above is to develop insights in the target market
using ethnographic and sociological studies.
Thus, an integrated communication today is the key to reaching target markets. What is said, how it
is said, and who says it makes a world of a difference to any communication’s effectiveness, more so
when it comes to marketing communications. The marketer has to penetrate through the target audi-
ence’s perceptual veil. It is important to note that not everything that is said is grasped and retained in
the consumer’s mind. All individuals selectively listen or see the messages. Selective attention, distor-
tion, and retention occurs every time a person is exposed to a message. Consider a case of a TV serial,
in which many commercials are telecast during the commercial breaks. It is doubtful if all are seen by
target audiences. Of those that are seen, not every part is remembered. People even add or subtract from
this message. This is called the perceptual veil in the human mind.
In deciding the message, the marketer has to consider its content, structure, format, and source.
Message Content In deciding the right content, the marketer has to choose words and appeal, a
theme, idea or any other unique proposition that, will make the message stand out in the noise created
by the competition in the media and penetrate the perceptual veil.
Words play a key role. It is important that the marketer uses words which
It is important that the convey the same meaning to the target audience as to the marketer. This is
marketer uses words which particularly relevant because the same word may have different connotations in
convey the same meaning to
different cultures and with different customer groups. Hence, in communication,
the target audience as to the
marketer. it is necessary to use words which are understood by the target audience in the
same way as the communicator.
Likewise, Kinetic Zing communicated its competitive superiority to the young (Gen X) market
through the idea Baaki Sab Ki Hawa Nikaal De (i.e. others get deflated in the midst of competition from
Kinetic Zing.) The concept was taken to its literal level, to mean that anyone without a zing will feel
deflated. And this was visually communicated to the target market. The ad was bold and funny. Similarly,
Coca-Cola has used the commonly used colloquium Thanda in its campaign. It shows Aamir Khan ask-
Exhibit 15.4 Effective Communication of Brand Use Situations

ing for Thanda and then explaining Thanda matlab Coca-Cola (‘Cold’ means Coca-Cola). Thus, today,
most advertisers are using local words and Indian situations to communicate to the target market.
To better understand the symbolic meaning communicated by a message, researchers today focus on
semiotics, which studies the nature of meaning and how human beings create a meaning out of words,
gestures, myths, products/services, and theories. However, one must keep in mind that the meaning of
an advertising message or any other communication, is dependent on the people who see and interpret
it. Further, consumers behave on the basis of the meanings they ascribe to marketplace stimuli. Hence
the marketer needs to consider the meaning the target market attaches to various signs and symbols.
Appeal There are different forms of appeal that a marketer can use to communicate his ideas. To a
large extent, the choice of appeal depends on the nature of the product. For example, a serious issue like
AIDS or cancer requires a more serious treatment than soft drinks or butter or any other non-durable
product. The options here are:
(a) Humour
(b) Fear
(c) Emotion
(d) Rational
(e) Ethics
Humour helps in getting the

Humour It is a common style, adopted by several consumer product com-
panies. The marketer may either use humourous characters or play with words,
attention, but it is doubtful
whether the audience using a pun in the message. Consider, the example of the Strepsils advertisement
remembers the message, that showed at one stage, a lion that could not roar because of a sore throat and
while fear creates dissonance
how with a Strepsil tablet he regained his lost power. Or the Amul advertise-
in the minds of target
ments that use puns and draw heavily on contemporary issues.
audience with respect to their
current behaviour pattern.
Research6 indicates that humourous appeal helps in achieving the goal of get-
ting attention, but it is doubtful if the audience remembers the message. In other
words, humour attracts good attention but has poor retention value. In using humour, it is important
to consider the customer’s characteristics. The customer’s attitude towards humour and whether he or
she can appreciate it is relevant for decision making. Among semi-urban or less literate consumers, the
Amul advertisements may draw a blank or a response, which the marketer is not looking for. Likewise,
a sales person may appear to be clowning and may draw a negative reaction from a prospective buyer,
who does not appreciate humour and expects all sales people to be serious.
Fear Appeal Fear appeal’s aim is to get consumer action through dissonance creation. Many of
us would have seen an anti-tobacco campaign in cinema theatres just before a feature film begins. This
campaign is about consumption of tobacco leading to cancer. While educating the consumers on the
adverse effect of tobacco consumption, it shows an actual case of a patient with a throat cancer. The
cancer, specialist mentions that he could not save the patient because of his throat cancer, which was
a consequence of his Gutka (Tobacco powder) consumption. Fear appeal is based on any one of the
following or combination of the following:
1. Loss of property or physical belongings
2. Loss of the audience health
3. Loss of more subtle but very meaningful
Insurance companies, toothpaste manufacturers, state governments and its agencies, like the police,
use fear appeal (see Exhibit 15.5 for understanding fear appeals used by a marketing communicator).
Exhibit 15.5 Fear Appeal

An important consideration is how much fear should be used in a message. If too much fear is
instilled, it may take away the target customer from the product or the source and if too less fear is
used, it may not create a sufficient level of dissonance in the customer’s mind to motivate him or her
to examine his or her current product beliefs. Extensive research has been done to assess the impact
of fear appeals.7 One of the major and earliest reported research findings are that of Ray and Wilkie.8
According to them, moderate fear appeals are more effective in getting the desired responses from the
consumer, than extremes of inter end. According to them, too much fear creates a defensive reaction
in customers. The customer may reject the appeal or selectively distort it. For example, a compulsive
smoker seeing a person contracting cancer and having a painful death, all because of smoking, may
turn away and say to himself ‘it cannot happen to me’, or may come up with a rationale that not all
smokers get cancer, or all those who do get cancer are not smokers, and so on. Thus, a marketer has to
be cautious in using the right dosage of fear appeal.
Emotional Appeal Connecting with human emotions is one of the effective ways of storytelling.
If one were to listen to a powerful story teller, one would know how he is able to make us cry, laugh,
shout and feel amazed. Marketers have often used humour, love, sympathy, jeal-
Emotional appeals relate
ously and pride to connect with the target customers. Let us take an example of
to ethos or pathos, while
rational appeals are directed Saffola, a brand that promotes healthy life. The tag line is to keep individual’s
at the rational thinking and heart young. One of their television campaigns as visible in Exhibit in 15.6,
evaluation of the customer. shows a young family where the woman is concerned about her husband’s couch
potato behaviour. She tries to convince him to eat healthy and to exercise regu-
larly. He responds to do so later. The brand urges the housewife to be smart and use Saffola Gold for
Exhibit 15.6 Emotional Appeal

all cooking and to start it immediately. The campaign ends by letting the woman know that the way to
protect her love was by adopting Saffola Gold oil immediately. This commercial focuses on the emo-
tions of love and affection. The same campaign appears on the You Tube, Saffola, Facebook and print.
Rational Appeal These are the appeals that are directed at the rational thinking and evaluation
of the customer. Facts are presented in a convincing manner and benefits from buying the marketer’s
brand of products are shown. Computer companies and automobile firms are some of the users of this
appeal. Many consumer companies including FMCG brands like Sensodyne toothpaste use rational
appeal to communicate brand features with its customers.
Ethical Appeal Lately, a popular method used by the marketer is to present the customer with the
ethical or moral approach to problem resolution. Statements like if it is not fair to you, it is not to us
too, are used by sales people to present their package in an ethical manner to the customer.
Message Structure
The next consideration in a message is its structure. This refers to the body of the message. Specifically,
the marketer has to address himself or herself to whether the message will draw a conclusion for the
target customer group. Will it be one sided, or tell only the marketer’s part of the story or a two sided,
and compare with competition.
Conclusion drawing messages are those which raise an issue or question and then answer it as well.
This type of a message, as mentioned earlier, works well in a market which is either unaware of the is-
sue or the product, or the issue is complex and an average buyer cannot understand it with ease. Issues
like AIDS awareness, fight against drug abuse, or technology products require messages that draw the
conclusion for the customer.
However, conclusion-drawing messages do not work in the following situations:
(a) where the product or issue is perceived to be personal
(b) where the product or issue is simple or the target audience is intelligent enough to understand it
(c) where the communicator is perceived as untrustworthy, or the sender or source of communication
lacks credibility.
One- or two-sided arguments refer to whether it is advisable for the marketer to talk only about his or
her product or service or also compare it with competition. The effectiveness of these messages remain
unresolved and so far nothing can be said on whether a one-sided argument works or the two-sided.
Some guidelines apply in this context:
(a) Two-sided argument works where the target audience is aware and educated.
(b) Two-sided arguments work with the target audience that is exposed to counter propaganda.
(c) In India, in using a two-sided argument, a marketer has to be careful to use only those arguments
that can be supported by facts.
(d) One-sided arguments work when the customer is favourably predisposed towards the marketer.
The next issue in message structure is the order of presentation, or what should be said at the begin-
ning and at the end. For example, should the company tell the target audience that it is the first to get
the ISO 9000 international quality certification at the beginning or the end of the message. Research is
still unclear, but one conclusion based on the learning theory in consumer behaviour, is that the message
must start and end with the pros in the product or the company. Strong positive points do not belong to
the middle portion of the story. Remember what is said first and last are always remembered, the rest
is often forgotten.
Message Format
Message format is the
The marketing communicator has to now decide on the format of his message.
In a way, message format is the creative part of marketing communication and
creative part of marketing
involves decisions like headlines, text, colour, and visuals for a print copy. In the
communication, and involves
decisions like headlines, text,
case of audio messages, an announcer with a good voice can make the product
colour, and visuals for a print
or brand stand out in the midst of competition. In audio or radio commercials,
copy.
the words have to be chosen and said in such a manner that the listener is able
to mentally visualise the brand and gets motivated to buy it. This is a challenge
for all consumer non-durable products, and is of significant importance to food marketers. They have
to communicate taste through the right choice of words and voice. Television has helped marketers
overcome this problem to a large extent as the customer is able to see the product. In producing a televi-
sion commercial, the marketer’s concerns are the looks of the model, the background or settings against
which the commercial is shot, and other aspects like the music and words.
Source of the Message

In communication, the source or the person communicating the message is of
An excellent message
communicated by a weak
great importance. As reflected in the philosophies of great advertising men of
man would cause no our times, David Ogilvy, William Bernbach, and Leo Burnett, credibility of the
‘tremors’. source is as important to the success of a message, as its contents.
David Ogilvy has advocated the use of celebrities to communicate the mes-
9
sage. Leo Burnett was for using the ‘common man’ approach to communicate a message, as he be-
lieved that a common customer associates himself or herself with the ‘next door neighbour’.10 Bernbach
strongly advocated the use of a credible communicator when he wrote that, ‘what you say is not so
important as how you say it.’11 Illustrating his philosophy, he said that an excellent message delivered
by a weak person would cause no ‘tremors’. But the same message, put forward by a strong person,
can rock the world.
The source of the message thus plays a key role in determining its effectiveness. The source’s cred-
ibility is built up by the customer’s liking for it, belief in it, and the extent to which it is perceived as an
expert’s trustworthy opinion. For example, in a TV commercial for a shampoo, it is necessary to show a
woman with long flowing hair. A model with blonde hair may not be able to successfully communicate
all the key benefits of the shampoo to an Indian woman, who treasures her long dark hair.
Likewise, a dental floss or toothpaste ‘that fights cavity and prevents decay’ is best believed when
communicated by a dentist. Likability reflects source attractiveness to the target market and hence rep-
resents the source’s ability to capture and hold the undivided attention of the target audience. Factors
like softness, naturalness, humour, and candour make the source likable to the target audience. This
explains the use of celebrities in textile advertising.
It should be remembered that in marketing communications, the source of the message has to play
the role of an opinion leader. The target audience tends to associate itself with and/or establish a role
relationship with the source. Sometimes, it may so happen that the text of the message and source’s
credibility may not be congruent. In other words, the audience may not perceive the source as an opinion
leader or credible enough to recommend a product. When there is an incongruency between the mes-
sage and the source, Osgood and Tannenbuum12 hypothesis that the customer will try to bring about
congruency between the two, by either disbelieving the opinion leader but having faith in the message
or vice versa. The principle of congruity states that communicators can use their good image to reduce
target customers’ negative feelings towards the brand, even though it might reduce their own image in
the target audiences’ mind.
Media Decisions
Once the firm has researched its target market and developed the message, it has to decide on the
appropriate channel or media. It is important to note that the choice of the right channel or media is
important for wider acceptance of the product or diffusion of the product in a market. One has to also
consider the noise on different channels—the noise created by competition—and how to overcome it.
Basically the choice is between personal and non-personal channels of communication.
Personal Channel of Communication This refers to a one-to-one communication and in-
volves one or two persons addressing a group of people. Here, there are three distinct types of personal
channels.
Expert
Advocate
Social
Expert Channel The expert channel consists of acknowledged individuals— experts—promoting
the company’s products. Pharmaceutical companies often get leading medical experts to talk about a
new product, to other doctors in a medical conference. Likewise, a firm manufacturing pollution control
equipment may get a leading expert on environment to speak to decision makers on pollution control
and how the firm’s equipments can help in controlling pollution. The government’s family planning
department has had gynaecologists and obstetricians travel to different parts of the country, to promote
family planning and management among Indian women.
Advocate Channel The advocate channel, a very commonly used channel, is one where a person
hired by the company advocates its cause or product. Personal selling falls in this category. All indus-
trial products, direct marketers, consumer goods and services use this channel to counter competition
and sell their products.
Social Channel The social channel refers to the word-of-mouth communication that takes place
among persons, friends, neighbours, and relatives. This is obviously a difficult channel but marketers
have tried to often intervene in this channel too. Typically, one way is to identify an opinion leader
in a market segment and through him or her penetrate this segment. The well known cosmetic firm,
Revlon, has successfully used this channel to penetrate the working woman segment for its Charlie
brand of perfumes. What the firm did in the initial years, was to get an attractive looking young girl use
the Charlie perfume at a dinner hosted by her, which was attended by her friends and colleagues. The
scent of the perfume was strong enough for them to ask this girl about it and she named Charlie—an
unconventional name for a woman’s perfume. This strategy paid off and Charlie became a successful
brand among the working women segment.
Personal channels of communication are effective in the following product market situations:
(a) Where the product is costly and hence the risk associated with its purchase is high or it is pur-
chased infrequently like consumer durables, industrial products, or airlines marketing.
Personal channels therefore have an important role to play in high involvement product marketing.
Non-personal Channels of Communication These channels are mass communication ones
and communicate the desired message, without a personal interaction with the target customer group.
Traditionally, this has included the media, which consists of print (newspapers, magazines, etc.) audio
(radio lately, now even audio cassettes), television and video (video casettes and video discs) and In-
ternet. The last four are referred to as electronic media.
Noise If one were to just open a magazine, or newspaper or switch on a television, one will find that
there are so many advertisements, that not every advertisement is noticed. This is referred to as the
noise in the media.
Exhibit 15.7 Growth of Media in India

Media developments in India have kept pace with had limited hours of broadcasting. However, post
changes in the market and technology. The regu- 1965 number of hours increased. Today with FM
latory framework has also been in line with the radio, which started in 1993 radio broadcast is for all
changes in post independent India. Initially the me- 24 hours and 7 days a week. In 1997 Prasar Bharati
dia was all about print whose primary role was to was created by the Government of India as an au-
disseminate news and views. One of the oldest print tonomous body for the development of the state
media is the Times of India which started in India owned televisions Doordarshan and Akashvani. The
on 3rd November in 1838 as the Bombay Times and Prasar Bharati radio broadcasts are at three levels
the Journal of Commerce. This was an intermedi- National, Regional and Local. Over 97% of India’s
ate period between the Moghul Raj and the British population has an access to radio broadcast. Today,
Raj. After the Independence the ownership of the besides the Akashvani, there are more than 10 FM
paper passed on to Dalmias and subsequently to channels across India broadcasted 24x7. Even the
Sahu Jain. The growth of this newspaper into an All India Radio FM Channel broadcasts 24x7. Satel-
‘omnipotent’ media happened only in the 21st cen- lite radio was introduced in June/July 2005. It of-
tury with the advent of Internet, social networks like fers 35 channels to Indian consumers. Same is true
Facebook, Television, and FM Radio. Demography for the radio on the internet. Television started in
changes and urbanisation contributed to the growth India in 1957 under the state ownership. Initially,
of Times of India as an omnipotent media. Today, the telecast was more for education purposes. Real
there are 30 newspapers in the country which in- growth came post 1984 with coloured telecast. It
cludes both English and vernacular newspapers. also heralded the era of Soap Operas. Today there
Same is true for magazines which can be catego- are family dramas, reality shows, news, sports, de-
rised on the basis of language, content and market votional and spiritual programs, etc., which are
segment. In the electronic channel, radio is the old- telecast 24 hrs for all 365 days a year on Indian
est. Radio broadcasting started in 1927 but became Television. Multiple television channels from Star,
a state monopoly only in 1930s and in 1937 it was Zee and Sony along with regional channels like
named All India Radio. Since 1957 it came to be ATN, Asiaset, ETV, etc., have further facilitated the
known as Akashvani. In the initial years the radio penetration of television in India. Not only so, com-
munity channels and the telecast through the cable exceeds those on the internet. Mobile internet to-
operators have also enhanced the television viewer- day is changing the way consumer communicates
ship. Direct to home (DTH), cable, satellite, internet and also chooses an entertainment product. Smart-
protocol television (IPTV) and digital telecast are phones and tablets are some of platforms which
the drivers of change in this media. Internet has are commonly used today for entertainment and
today created a new paradigm and offers a new communication.
media to communicate. Radio, television and social The plethora of media vehicles has today led to
networks are today powerful electronic media ve- fragmentation of target audience. Consequently the
hicles. Increasingly there is greater degree of traffic biggest challenge for the firm relates to maximisa-
on social networks. tion of OTS. This requires the presence of the brand
Convergence of technology has today led to the in all media vehicle 24x7, leading to exponential
development of mobile communications. Today, growth in communication budget.
the number of customers on the mobile phones
To overcome this noise and communicate the desired message to the target audience, the marketer
has been exploring newer channels. Two such channels are atmospherics and events management.
Atmospherics This refers to the packaged environment that creates or rein-
Atmospherics refers to the
forces the buyers perception of the firm and its products. For example, a firm like packaged environment that
Johnson and Johnson maintains excellent, clean gardens and has a pure white creates or reinforces the
building in Mulund, Mumbai. The entire atmospherics and environment there buyers’ perception of the firm
reinforces Johnson and Johnson’s image of care, tenderness, and health. Event and its products.
management refers to occurrences or special events created to communicate the
desired message to the target customer group. In event management, the communicator gets undivided
attention for his product, brand, or message.
Some of the leading examples of event managements in India so far have been Michael Jackson’s
show in Mumbai, the Miss World contest at Bangalore, and the Femina Ms India and Mr India contests.
Each of these events were heavily promoted and sponsored by leading consumer companies. Musical
concerts, film festivals, youth festivals, and sports are sponsored by several leading consumer product
companies like Parle, the UB group, Reliance, ITC, and so forth. Likewise, television channels are now
a major player in this segment, as reflected in the Indian Idol programme organised by Sony TV.
Finally, it should be remembered that, generally, personal communication channels are more ef-
fective than mass communication (Figure 15.8). The mass media does help bring about an attitudinal
change in the target customer group. This is achieved through a two-step flow of communication
ideas, where the message is sought to be communicated through opinion leaders. This has a three fold
dimension. In the first place, mass media does not have a direct influence on the target audience. This
is mediated by opinion leaders. Second, an average customer will tend to believe more a person, whom
he or she considers an opinion leader. This person could be a celebrity, an expert, or just the ‘man on
the street’. This challenges the hypothesis that consumption of a product or diffusion of a product
trickles down from higher status classes or groups of consumers. Third, the effectiveness of a message
is higher when it is directed at opinion leaders and through them to others. As was discussed earlier,
pharmaceutical companies direct their new product communications to doctors, who are perceived by
their colleagues as opinion leaders.
Figure 15.8 Growth in the Number of People who have access* to Television, the Number of People
who Watch Television, and the Number of Television Sets in India
*Those who live in a geographical area where a television signal can be received.
Source: Singhal and Rogers(1999): http//www.ddindia/net/.
It is important for the marketer to understand the significance of opinion leaders in any society.
Identification of the right opinion leaders for a product holds the key to effective mass communication.
Measuring the Effectiveness of Marketing Communication

Finally the marketer has to know whether the communication has been effective. In order to do so,
marketing communication has to be measured on cognitive, connative, and behavioural levels. At the
cognitive level, recall, recognition, and association tests are conducted to assess the change in the target
audiences’ awareness of the product or brand. The recall tests are unaided, while recognition tests are
aided in nature. The marketer may even want to know where the customer had seen or heard the mes-
sage. This helps in knowing the effectiveness of different channels of communication. The marketer
may even further probe customers on whether they tried the product or brand, if so their experience or
satisfaction with it, and also whether they would recommended it to others. This helps in assessing the
change that takes place at the affective and behavioural levels. The marketer may like to compare these
results against the competition or pre-communication stage, provided he or she had done research at
that stage too. The difference between the pre- and post-communication periods can reveal the changes
at the cognitive, connative, and behavioural levels.
ELEMENTS OF MARKETING COMMUNICATION
LO4 Elements of Marketing Communication Mix

Describe the elements Firms select a mix of promotional tools to effectively communicate with
of marketing their target customer group. The different elements of this mix are:
communication mix (a) Advertising
(b) Personal selling
(c) Sales promotion
(d) Public relations
Not each element is helpful or effective in all product market situations. For example, while adver-
tising is known to deliver results in the soft drinks industry, personal selling is found to be effective
in selling personal computers and software. Thus, while in consumer non-durables, advertising has
a bigger role to play, personal selling is of significant importance in consumer durables, industrial
products, and services marketing. Sales promotion and publicity have an equal significance in all type
of products. Figure 15.9 illustrates the importance of each of these elements of the promotion mix in
different product groups.
Figure 15.9 Significance of Elements of Promotion Mix in Consumer and Industrial Products
Factors Guiding the Selection of a Promotion Mix

The factors that guide a marketer’s decision in selecting a promotion mix are:
Nature of the Product Market That is, whether it is a consumer or industrial product.
Overall Marketing Strategy That is, whether the firm wishes to ‘push’ the product or create
a ‘pull’ for the product. The ‘push’ refers to selling the product through the marketing network and
hence involves the critical function of managing distribution channels. In this strategy the emphasis is
on personal selling and trade promotion. But in the ‘pull’ strategy, the firm creates consumer demand
for its product or brand, such that the customer demands the brand at the retail outlet. Advertising and
consumer promotion go a long way in creating the desired pull for the brand. Often the marketing
strategy of a company is a combination of both these strategies. In such situations, its often a choice
of proportion that the firm may like to spend on advertising and sales promotions and other incentive
programmes for its dealer network.
Buyer Readiness Stage The choice of different elements of the promotion mix is also dependent
on the buyer’s readiness and awareness of the brand. The promotion mix can be assembled depending
on where the buyer is in the hierarchy of response models. Like, advertising will play a major role
in creating awareness, demonstration and samples will help bring about a change at the affective and
behavioural levels in personal selling.
Product Life Cycle Stage This will also play an important role in deciding the promotion
mix. For example, in the introduction stage, advertising and publicity are found to have a significant
role, and are cost effective in creating awareness, desire, and finally the trial. Even samples play a key
promotional role in industrial products. But in the maturity stage, sales promotion and personal selling
steer the product through the competition maze. Thus, it is important to know where the product is in
its life cycle.
INTEGRATED MARKETING PLANNING COMMUNICATION PROCESS
LO5 We mentioned earlier that each aspect of marketing communicates a value

Explain the integrated to the customer and hence all these need to be integrated. The promotion
marketing planning tools also need to be integrated. For this to happen and to make IMC effec-
communication tive there needs to be a plan and a strategy in place. An IMC plan, as shown
process in Figure 15.10, has its roots in the firm/product/brand’s marketing plan.
The marketing promotion plan is an integral part of marketing strategy. The
planner should therefore know the role each element of the promotion mix will play in the marketing
programme. This review of marketing plan, should lead the planner to conduct a situation analysis. Like
in any other planning exercise, situation analysis has to cover both the internal and external environment
of the firm/brand. The internal analysis will include analysis of firm’s competencies in the promotion
area, agency evaluation, and selection procedure, as also the review of earlier promotional programmes.
Yet another aspect of internal evaluation, is the assessment of a firm’s strengths and weaknesses from an
image perspective. This image has a bearing on the firm’s promotional programme. A firm with a strong
Situation Analysis
Environmental Analysis—Its impact on brand
Marketing Plan Review
Role of marketing promotions in brand building and corporate image
SWOT Analysis
Analyse internal capabilities of marketing organisation from the point of view of promotion capabilities
Agency evaluation and selection; Review of earlier promotional plans
Target market behaviour analysis; Market segmentation and positioning alternatives
Analysis of Communication Process

Analysis of target market’s response processes and how source, message, and channel are perceived
Establish communication goals
Budget Determination
Develop Integrated Marketing Communication Programme—Advertising, including online advertising, Sales

promotion , Direct Marketing, Public Relations and Personal Selling
Implement IMC Programme
Monitor, Measure and Control Integrated Marketing Communications Programme
Figure 15.10 The Role of IMC in Marketing
image has a different promotional challenge compared to those with low or negative image. Likewise,
a product/brand’s unique assets will have a bearing on the promotional programme.
The external analysis involves an analysis of customer behaviour and competition. It also involves an
analysis of other external environment factors like government regulation, interest groups, technology,
and their impact on promotional plan and strategy. All these analyses will lead the planner to analyse
communication processes and tasks, the costs involved in marketing communications, and the decisions
on different elements of the promotion mix. Finally, the plans need to be implemented, monitored, and
evaluated periodically to ensure that the objectives are achieved.
SUMMARY
A brand’s or firm’s value proposition has to be communicated to the target consumer through mul-
tiple media vehicles and tools. This includes mass media that is print, digital and outdoors, television
channels and the radio and individualised mediums like SMS or WhatsApp, Facebook, Twitter, etc.
Integrating all these media vehicles and designing the communication programs in a manner that is
meaningful to the customer is yet another challenge. Integrated marketing communication therefore
is the development of creative marketing communication that weaves together advertising, public
relations, sales promotions, personal selling, social media, events and owned assets. The goal of
this exercise is to communicate in a coherent and credible manner the brand’s overall story. Another
objective is to integrate brand with the customer’s life by connecting it to places and use situations
in which he or she wishes to see the brand. The components of integrated marketing communication
are:
1. Organisational culture
2. Other elements of marketing mix product, price and place.
3. Advertising,
4. Direct marketing
5. Public relations
6. Online/internet marketing/mobile marketing
7. Marketing using social media tools like Facebook, Twitter, LinkedIn, Google plus, You Tube
8. Sales promotions
9. Personal selling
10. Events management
11. Cause marketing
The factors that have led to the growth of marketing communication and promotions are changes in
consumer demographics, intensity of competition, emergence of multiple television channels in all
regional and national language, 24x7 radio broadcast including the one on internet, social networks
and internet, and other multimedia messaging and other Out Of Home (OOH) advertising in buses
and public transport.
In order to evolve the appropriate marketing communication strategy, the marketer should know
buyer characteristics and how communication works. These characteristics are demographic, psy-
chographic, and media habits. They also include the stage of readiness. Based on this study, the
marketer has to decide on the message which has to be attractive, likable, and believable. This mes-
sage has to be put in the appropriate channel of communication. The sender of the message has to
be perceived as credible. Finally, the promotion mix of a company consists of advertising, personal
selling, sales promotion, publicity, and public relations. The relative importance of these elements
in promotion is dependent on the nature of the product market, the overall marketing strategy, and
the product life cycle stage, besides buyer’s characteristics.
POWER POINTS
multiple media vehicles and tools. (LO1)

2. The integrated marketing communication process involves an analysis of the target audience,
development of communication objectives, deciding on the message content and the style of
execution, as also its structure. It also involves the appropriate medium of communication.
(LO1)
3. The integrated marketing communication objectives focus on cognitive, or the knowledge
aspect, affective, or the feelings dimension, and conative, or the behavioural part of human
personality. These are broadly described in the AIDA model. (LO1)
(LO2)
5. An important dimension of marketing communication is the source of communication. This
source should be attractive, credible, and believable. (LO3)
6. The two stages of IMC model are (a) understanding the local market (b) integration of message
and marketing and communication mix with the brand image. (LO3)
public relations. The importance of each of these will vary depending on the product group.
(LO4)
8. Take IMC planning process starts with situation analysis, includes SWOT analysis, analysis of
communication process, budget determination, program development, implementation of the
program and monitoring and controlling the program. (LO5)

(LO1)
2. A company wishes to launch new toothpaste which can effectively prevent cavities and tooth
decay. But the toothpaste market is highly crowded with multiple brands. Assume you were to
evolve a marketing communication strategy. Which appeal will you use and why?
(LO1, 2 and 3)
3. What types of consumer response should the marketer aim at in the communication strategies
for the following: (LO3)
(a) Life insurance
(b) Mutual funds
(c) Microwave oven
(d) Cellular phones
(e) Personal computers
4. Apply the four major elements of promotion mix to market Child Relief and You (CRY) or a
family planning programme in the country. (LO5)
CHAPTER
ADVERTISING MANAGEMENT
16
LEARNING OBJECTIVES
LO1 Describe the role of advertising in brand building
LO2 Interpret institutional framework in advertising
LO3 Formulate advertising decisions
LO4 Demonstrate the tools for measuring advertising effectiveness
LO5 Explain new media of advertising
LO6 Describe ethics in advertising
In Practice
Advertising that Works
Each year advertising agencies create outstanding campaigns for their client brands. These
campaigns are seen in print, television, social networks like Facebook and You Tube. These
campaigns are recalled, liked and watched the most and have led to brand successes. Some of
these ads in 2013 were:
Cadbury’s “I love you” campaign. We have seen this ad on the television where a wife asks
her husband the last time he had expressed his love for her. He gives her a confused look and
then gets up from the dining table to give her the Dairy Milk Chocolate and mentions he does
so every day without saying in so many words as “I love you”.
Another ad remembered the most is Airtel’s “Har ek friend zaroori hota hai”. The campaign
focused on youth and communicates how every friend was important in his or her way—how-
soever the person was big or small for his specific abilities. This youth friendship campaign
value each relationship in life. It related most to its target market as it reflected its behaviour and
beliefs. Another campaign most widely recalled was the Vodafone ZooZoo campaign which
tickled the ribs of viewers. The lovely ZooZoo ad was created to launch Vodafone 3G services
in India. The ZooZoos turned superman performing unearthly tasks to denote the speed of
Vodafone 3G internet. The campaign’s main aim was to educate audiences about Vodafone on
3G services.
Advertising Management 403
Who can ever forget “No Idea”!, “Get Idea”! Campaign of Idea Cellular. The ad developed
by LOWE showed Abhishek Bachchan in different situations coming out with smart solutions
to different problems. The ‘Get’ idea campaign has surely hit the gold. It won the best brand
campaign at the World Brand Congress in 2013. One such ad has a lady angrily waiting for her
boyfriend in a restaurant who informs her, on the mobile, that he would be late by 40 minutes.
Abhishek Bachchan, as a waiter, asked what she would do for the next 40 minutes. She angrily
responds ‘no idea’. Abhishek Bachchan presents the cell phone with the idea SIM Card and tells
she can communicate with her boyfriend without having to bother about its bill. The commu-
nication line stops with ‘Get the Idea’. This campaign successfully marketed Idea prepaid sim
card’s features—internet, SMS, and social networks.
ADVERTISING IN BRAND BUILDING
LO1 Advertising is a powerful tool in brand building exercise as also in creating

Describe the role of brand imagery. A good creative campaign successfully placed in the target
advertising in brand media can deliver outstanding results. These campaigns are the ones that are
building recalled the most as they appeal to the consumers’ feelings and emotions.
Advertising industry has radically changed since 1990s. Explosion in
media and emergence of new media like internet, mobile and interactive television has made the task
of advertising planning and management more challenging and demanding. Visualise this situation
of a family in which each member has his or her own media and programme choice. Its early morn-
ing 6.00 a.m and Mr and Mrs. Ramaswamy aged 65 and 62 years respectively turn on the TV to the
spiritual channel Aastha as they sip their first cup of tea and glance over India’s leading national daily
The Times of India of the day. Their executive son and daughter-in-law, Amit and Radha, aged 35 and
33 respectively, also get started for the day at the same time. While Amit is off to gymnasium for his
workout with his iPod, Radha is busy getting their six year old daughter, who is interested in watch-
ing cartoon channel, ready for school as she herself gets ready. But her grand parents are insistent on
their Aastha programme. A silent war ensues on who can watch the television. Later in the day, Amit
and Radha interact with their friends and colleagues through SMS and mobile phones; they also access
their mails on internet and Amit watches news on the interactive NDTV online, while Radha, in her
free time, shops online.
Both, while returning home cross huge outdoor advertisements mounted on mobile vehicles. This
is today’s media scenario. Given this, the task of any brand manager becomes challenging. What to
communicate and how to do it are just some of these challenges. But the bigger question is cost and
efficacy of ad spends.
Advertising is important for brand building and its successful marketing. It is important for tangible
products like mobile phones, refrigerator, television and computers. It is equally important for services
like hotels, holiday resorts, airlines, and even state tourism. The same is true for ideas and causes.
This chapter focuses on advertising tasks and management and the role it plays in brand building and
marketing.
Exhibit 16.1 The Dream Sellers

The goal of advertising is to sell a dream and cre- media and technology has also contributed to the
ate a hope. For this to happen, all constituents of growth of the industry. Integration of print, video,
the industry like advertising agencies, media and television, web technology, internet, SMS and au-
entertainment must reflect healthy growth trends. dio is a reality which no media planner can afford
Indian advertising industry has come a long way to ignore. Simultaneously the social networks like
even though it contributes only 1% to India’s GDP Facebook, LinkedIn, and Twitter are also increas-
as compared to 2.3% in USA. The media and the en- ingly being used by media houses to reach to their
tertainment industry which plays a significant role target customers. All this has enlarged the scope
in communication is poised to double in size by of advertising and the medium that can be used to
2017. According to a FICCI KPMG report released reach the target customers.
at FICCI frames 2012, the industry was expected to Advertising industry is also being asked to de-
touch `166,100 cr (`1661 billion) by 2017. The size liver the desired results. No more now the industry
of the advertising industry in India was estimated can take a cover under the old marketing proverb
as `36,200 cr with print media accounting for a that 50% of money spent on advertising delivers
large share of 44% followed by television at 33.2%. results. But no one knows which 50% delivered
By 2017 the Indian advertising industry would be result. Advertising productivity is today one of the
`63,000 cr with both print and television having prime concern of any client firm. Besides productiv-
20–30% share each. Digital advertising is estimated ity, creativity continues to be an issue specially so
to have a 32% growth and is expected to grow to with small and medium agencies. However, some
`8,720 cr from `2,170 cr in 2013. of the advertising works have made jaws drop and
The above change is influenced by sustained set eyeballs gazing like the one mentioned for Cad-
growth of the Indian economy in the last two de- bury Dairy Milk Chocolate, Vodafone’s ZooZoos
cades which has created a yearning for a better and Idea “get the idea sir” or even the Tanishq ad
lifestyle. This yearning has also led to an increase of Amitabh Bachchan offering a diamond necklace
in consumerism. Advertising industry has played to his wife Jaya Bhaduri. These ads have stood out
the role of catalyst in this process. Development in for their innovative approach.
In the last chapter, we mentioned that the marketer has to choose the customer’s response level to
direct his or her communication. One of these levels is connative or behavioural. Obviously, all market-
ers want consumers to buy their brand. Firms advertise with just this objective in mind. But one has to
remember that the final sale is dependent on many other factors.
Advertising plays a significant role in awareness creation and attitude forma-
A marketing plan should be tion. It can even generate a trial and purchase, as long as all other elements of
based on specific problems/ the marketing mix play a contributory role. Thus, it has to be appreciated that
opportunities uncovered by
advertising has a limited role in marketing strategy. A marketing plan and strat-
situation analysis done by the
brand manager.
egy takes into account several marketing tools to achieve marketing objectives.
These are product, packaging, customer service, pricing, sales promotion, and
channel relationships.
A marketing plan should be based on specific problems or opportunities, uncovered by situation
analysis done by the brand manager. The marketing mix and allocation of resources across different
elements, should reflect this perception of opportunities and threats. In other words, the marketing
budget should reflect this market reality. Conceptually, the marketing budget should be split in such a
way that the marginal value of an extra budget increment is the same across all elements of the market-
ing mix and hence money is put in that element which will produce maximum incremental sales. This
is more so for advertising. Any increment in the advertising budget should be carefully examined since
there is no direct relationship between the firm’s sales and advertising expenditure. This is in contrast
to distribution and personal selling or even customer service, where one can establish a direct relation-
ship between any of them and sales.
Hence, the role of advertising is limited to communication—awareness cre-
ation or providing information and favourable attitude development. While its Personal selling is
role is limited, the marketer has to compare the costs of different elements of comparatively the most
expensive route to
his or her communication mix. One such yardstick is the cost per exposure per communicate with the target
thousand people. This is the lowest in advertising. Personal selling is compara- audience.
tively the most expensive route to communicating with the target audience.
Finally, we must also bear in mind that people are generally biased against advertising and many
still believe it to be a waste of organisational resources, particularly in a country like India.
Hence, advertising is important but it is as significant as any other element in the marketing mix.
INSTITUTIONAL FRAMEWORK IN ADVERTISING
LO2 Before we turn to advertising decisions, let us consider the institutions in-
Interpret institutional volved in the advertising function. Aaker, Batra, and Myer1 opine that the
framework in advertiser’s decisions are influenced by controlling and facilitating institu-
advertising tions, as also by markets and consumer behaviour.
At the centre of an advertising campaign is the advertiser. The advertiser
here refers to the organisation that is interested in communicating its ideas and changing the attitudes
of the target audience. Besides the corporate sector, which includes both public and private sectors, the
government, non-profit organisations like educational institutions, UNICEF, cooperatives, and even
political parties are advertisers. The more recent entrants to this industry are religious institutions,
spritual gurus/leaders, healthcare and even publishing industry and NGOs (non-governmental organisa-
tions). The corporate sector, the most important and the largest spender in advertising, includes manu-
facturing and services firms. The latter consists of banks, the hospitality industry, airlines, and
telecommunications like the MTNL and BSNL, as well as cellphone companies like Airtel, Orange,
BPL, and Escotel, Tata Indicom and Reliance Infocomm. Over the last few years, the government has
emerged as a large spender of money trying to change peoples’ values and attitudes towards issues like
family planning, health care, immunisation, the female child, and even national integration. The gov-
ernment and its agencies have been buying prime time slots on television and solus spaces in the print
media.
The advertiser’s role is to determine the communication objectives. These
Among the major factors
have to be in line with the overall organisational goals and strategy. Often, in
influencing the communication
determining these objectives, industry conditions play a major role. Specifically, decision are the industry
the intensity of inter firm rivalry and demand and supply conditions within the conditions, the intensity of
industry, play a major role in determining communication goals and strategy. inter firm rivalry and demand
For example, in the oil industry where demand outstrips supply, the goal of any and supply conditions, and
oil company is to de-market oil and this involves educating customers on the government policy.
need to conserve oil and save energy. But the same is not true in the case of the
hospitality and air travel industries, which have to even out the demand fluctuations. Hence, demand
creating advertising in the lean period and slack hours, becomes important for these firms.
Table 16.1 The Dream Sellers

Top Advertisers in India
1. Hindustan Unilever Ltd.
2. Cadbury
3. Reckitt Benckiser India Ltd. (brands like Dettol, Strepsils, etc.)
4. ITC
5. P&G
6. Colgate Palmolive
7. Ponds India
8. Coca India
9. Samsung India Electronics
10. Marico Ltd.
Table 16.2 Top advertisers on social media

1. Kotak Mahindra (campaign save with subbu)
2. MTV and Tata Nano partnership
3. Reliance 3G (Twit a Tab Context)
4. Bombay High (Twee bid campaign)
5. Home shop 18 (land of luck campaign)
6. Samsung Galaxy Note (incredible art piece campaign)
7. Surf Excel (fulfill a wish)
8. Radio KFC (RJ Hunt)
9. Cadbury (India celebrates)
10. Louis Philippe (mystery of the stone wardrobe campaign)
Source: www.socialsamosa.com./2011-12
Table 16.3 India’s leading advertising agencies

Rank Agency Well-known brand
1 O&M (Ogilvy and Mather) Cadbury, Asian Paints, Vodafone , Fevicol
2. McCann Erickson India Mastercard and Coca Cola
3. Lowe Lintas Idea Cellular, ICICI Prudential, LG, Bajaj Auto
4. JWT Pepsico, Unilever Home & ersonal Care, Ford
5 Leo Burnett McDonald, Heinz, Complan, Bajaj, HDFC Std. Life & Samsung, Times Now
6. Mudra McDonald, Godrej gp, Reliance ADAG,
7. Grey Worldwide ONGC, ITC Foods
8 FCB Ulka Tata Motors, Tata Tele Services, Whirlpool, Hero Honda, ICICI Bank
9. Contract Advertising Shoppers’ Stop, Dabur India
10. Redifussion D Y R Bharti Infotel, Coke
Source: Economic Times
The advertiser’s goals and strategy are influenced by government policy. For example, cigarette and
liquor cannot be advertised in the mass media and hence companies making them find a new media
or indirectly advertise the brand. Besides playing a regulatory role, the government can also play a
facilitating role when it decides to give prime time on its TV channel to companies advocating social
issues like campaigns against AIDS, drugs, or dowry. It may even sponsor news or films, made by the
corporate sector, on television. Hence, government rules and regulations and electronic media (TV,
video, cable TV, and radio) policies play a dominant role in the advertiser’s decision making.
The advertiser is facilitated by advertising agencies and the media in translating its goals into ac-
tion. Market research, in turn, assists institutions like the advertiser, the advertising agencies, and the
media. Within the advertiser’s organisation, it is the product manager or the brand manager (as in soft
drinks and personal products) whose task it is to coordinate between the advertising agencies and the
organisation. In fact, in many multinationals and large Indian firms, a product or brand manager is a
strategist, who is responsible for developing communication goals for the product or brand and evolving
a marketing plan and strategy for it. The advertising campaign, which is a part of this overall market-
ing strategy, is often decided by the product manager. Where the product management structure does
not exist, it is the marketing manager’s job to evolve the advertising strategy and also liase with the
advertising agencies.
While all large advertisers depend on advertising agencies to develop the campaign, smaller
advertisers, have to depend on their own internal resources or take the services of freelance advertising
personnel. Again, in a large advertiser, the marketing personnel are involved in the advertising
campaign’s development, but in smaller firms it is the owner or the entrepreneur who has to decide on
it. Thus, when we refer to an advertiser, it is necessary to understand the decision making process in
these organisations, as also the controlling influence of government and competition, for this will affect
the quality of the advertising campaign.
Let us now turn to the facilitating institutions.
Advertising Agencies
Source or Origin of the Agency An advertising agency can be differentiated on the basis of
its source that is whether it is home grown or a global agency. Mudra is an example of a home grown
agency in India. There are several global agencies that are operating in India like O&M, JWT, McCann,
etc. In the recent past we have also seen a marriage between India born agencies and global agencies.
Some of the well-known names are Trikaya which merged with Grey WorldWide, Redifussion got
married to DYR. R K Swamy got married to BBDO and Ulka to FCB. Understanding the source can
help the firm know the creative resources and network that an agency will be able to bring to fore in
building brands.
Role An advertising agency’s major role is purchase of media time and space. Besides, it is directly
responsible for development of an advertising copy and/or the commercial. It should be noted that in
both these tasks—purchase of media time and space and copy development—the advertising agency is
greatly assisted by market research. Many large advertisers like Hindustan Lever, Procter and Gamble,
ITC have their own internal marketing research departments. With increasing competition and buyer
behaviour and decision processes becoming more complex, many large industrial houses and compa-
nies are creating their own internal marketing research departments. Even large advertising agencies
and media have their own research departments or affiliates.
In areas like copy development and media buying, generally, advertising agencies act independently.
In an increasing number of cases, agencies are going beyond their traditional role to get involved in a
client firm’s marketing planning and brand strategy development. The growing feeling among agen-
cies is that since advertising plays an important role in attitude formation, they should take a strategic
perspective of the brand and hence their involvement in brand strategy.
Structure Organisationally, agencies have three groups of people working within them. One is
the creative group whose job is to create advertising campaigns. As the nomenclature suggests, it is the
creative wing of the agency. The single most important factor in agency evaluation is its creativity. It
is no wonder then that copy writers, art personnel, and their like are the ‘blue eyed’ boys and girls of
the advertising industry. The other group consists of account managers. These people are the client’s
product manager, brand manager, or marketing manager’s counterpart in an advertising agency. This
group also performs the ‘selling’ task, as they liase with client firms. It is their responsibility to ensure
that a particular account grows with them and also that the client remains satisfied. Over a period of
time, client servicing and account management have come to acquire a significant position in the agen-
cies’ organisation structure. The third group comprises the media executives. As media options increase
and clients relook at the productivity of their money spent in advertising, media planning is going to
become a complex task. Computer based media planning models are increasingly being used to enhance
the yield of every rupee spent in advertising. There is a fourth group emerging now, mainly because of
the changing role of advertising agencies. This is the marketing services group whose task is to exam-
ine and recommend the use of other communication tools to help the client achieve the brand’s goals.
Compensation In terms of compensation, most agencies generally work on a commission and
fee basis. They get a 15% commission from the media in which advertisements are placed. On ‘non-
commissionable’ services like brochure development and printing, agencies usually mark up the sup-
plier’s invoice cost. The agencies also charge fees for creative copy development or, to put in commonly
used term, art work. A growing area of interest in agency compensation is whether agencies could be
made to commit to a marketing goal in terms of market share or sale and then be given an incentive
in the form of a bonus, once that goal has been achieved. This may help create advertising that works.
Strategic Repositioning Another interesting development, following globalisation and a free
market economy, is the increase in mergers, acquisitions, and strategic alliances of leading advertis-
ing agencies across the world. For example, Mudra has a strategic alliance with DDB Needham and
Trikaya with Grey Advertising. Some of the reasons for this ‘mega corporatisation’ of advertising
agencies is that their clients are also on a roller coaster in the game of mergers and acquisitions. Many
of them are already operating in the world market and some of them are even market leaders in their
spheres. To service these clients worldwide, agencies also need a worldwide network. Moreover,
advertising agencies are evolving into full communication agencies, as they realise that advertising is
just one part of the client’s communication mix. Other elements that are important and perhaps equal,
are direct marketing, sales promotion, and public relations. Today, there is a growing movement in this
direction. More and more agencies see their role in the total communication strategy of their client
firms.
The Media
The media is another facilitating institution. Media refers to daily newspapers, magazines, technical
journals (called print media), hoardings, billboards, neon signs (called outdoor media), and cinema,
television, video, cable TV, and radio (called electronic media). Media in India has come a long way
from advertising processions, wall and roof paintings and also shop paintings, as is shown in Exhibit
16.2 on media developments. The media choices have multiplied with the advent of colour television,
commercialisation of Indian TV, cable TV, and the launch of STAR, Zee and other Hindi and regional
language channels. Since rural markets are important to any advertiser, rural communications form an
important part of an advertising agency’s task. And this is where rural promotion vans play a major role.
Today, Indian TV covers almost 82.5% of the Indian population and the radio reaches to almost 95%
of Indians. Among the private channels in India, Zee TV has the maximum reach.
All these developments herald a more complex task, even for the media. Today, large media houses,
like the Times of India Group, help advertisers buy the optimal media mix. Media marketing is going
to be on the increase as the target audience gets fragmented over multiple media choices. Figure 16.1
sums up these advertising institutions and their relationships in advertising management.
Figure 16.1 Institutional Framework for Advertising
ADVERTISING DECISIONS
LO3 Advertising Objectives

Formulate advertising The starting point in any planning exercise, is one of setting goals or objec-
decisions tives. In evolving an advertising plan, objectives have to be set as they help
in measuring the performance of an advertising campaign. It is important
for the strategist, to know how the strategy fared and the only way to know is how far did it go towards
achieving the objectives. Objectives or goals, are also necessary to justify the financial resources that
are required for an advertisement campaign. The only way to counter skeptics is to state what it would
cost to achieve a specific objective, like a 20% increase in awareness in the target audience.
Objectives are also required for coordination purposes. As we have mentioned earlier, advertising is
one of the communication tools and to achieve the desired marketing objective of sale or market share,
all elements of the communication mix must be coordinated. Each element should have both, a short-
term and a long term goal.
So, to be meaningful, advertising objectives have to be measurable and communicated. Measurabil-

ity is important or else performance cannot be evaluated.
Let us now consider a few objectives for advertising.
Sales Objectives The prime objective of marketing is to increase the firm or brand’s sales, mar-
ket share, and profits. Hence, marketing activities have to be directed towards this goal. By the same
logic, the advertising goal should also be to increase sales. This goal gives credibility to advertising
expenditure and may even subdue the complaints that 50% of advertising expenditure is a waste of
money, but this goal has a problem. As discussed in Chapter 12, sales is a function of a firm’s marketing
mix, competition activity, and consumer behaviour. Hence, to attribute increase or decrease in sales to
advertising alone is like attributing success or failure in a game of football to just a single player, when it
is really a team game. Besides, the effect of advertising on sales is an extended one, in the sense that an
advertisement may continue to have a demand pull, even after it has been withdrawn. Sales never start
and end, immediately after the campaign has got off the ground or comes to an end. In other words, the
impact of an advertising campaign may not be known for certain, until considerable time has passed.
According to researcher2 Clake, in the case of frequently purchased consumer non-durable products
like soft drinks, tea, coffee, toiletries, and so on, the effect of an advertising exposure can take upto
nine months to get dissipated.
Typically, an advertising campaign may attract new customers to the brand, it might help develop
more positive attitudes in the target market towards the brand, or it may even generate trial purchases.
All these together, will lead to an increase in the brand sales. Isolating these effects and conclusively
showing that the advertising campaign has led to an increase in sales is a difficult proposition.
In the case of financial instruments advertising, direct marketing campaign or even individual clas-
sified advertisements—the kind one often sees in the print media—the results are more tangible.
But for the above situations, it is perhaps incorrect to define advertising goals in terms of sales.
Behavioural Goals More meaningful advertising goals are ones, aimed at changing the target
market’s attitudes and behaviour towards the brand. For this purpose, it is necessary to identify the
target market in the most meaningful manner possible. For example, besides defining the demographic
and psychographic characteristics, it is necessary to define in terms of whether the target customer is a
buyer of premium brands or popular brands. The next stage is knowing the ultimate desired behaviour,
like trial purchase from potential customers, or enhancing loyalty among existing users or enhancing
pleasant experiences with a brand’s usage. In other words, the benefit of creating a ‘lifetime value for a
customer’ for the firm has to be considered by the advertising personnel. This can become an effective
goal for advertising.
Another criterion or step in defining advertising goals in behavioural terms, is an analysis of the
communication and decision process, that will affect desired buyer behaviour. This involves measur-
ing factors that intervene between stimulus (advertising) and the ultimate behavioural response. These
intervening variables are brand awareness, brand comprehension, emotional feelings, and attitude
towards the brand. The latter could be liking or association with a brand or even seeing one’s self in
the brand or the brand as representing the individual buyer’s personality (also called brand personality).
Thus, advertising could be aimed at any of these or a combination of these intervening variables.
Communication Related Goals Another way to define advertising goals, is to do so from a
communication perspective. Since advertising is a communication tool, this appears to be the logical
goal. The earliest such goal was the one emerging from the AIDA model (described in Chapter 14) of
the hierarchy of consumer responses or attitudinal change.
Subsequent to DAGMAR, several other approaches have been developed, to help define advertising
goals. However, the fact is that there is a growing pressure on the advertising industry to quantify its
contribution to the advertiser’s growth. This will put pressure on the advertiser to define advertising
goals in measurable terms. The Advertising Club, Mumbai, used to hold an annual workshop titled
‘Advertising that Works’ where advertising agencies present cases, in which advertising had delivered
positive results to client firms. (See a few cases presented at the end of the last workshop in 1999).
IN FOCUS
DAGMAR Model
In 1961, Russell H. Colley wrote a book called Defining Advertising Goals for Measured Advertising Re-
sults (DAGMAR).3 This was the first attempt to define advertising objectives in measurable terms. “An
advertising goal is a specific communication task, to be accomplished among a defined audience, in a
given period of time”4. The communication task in DAGMAR is based on a specific communication process
as summarised in Fig. 16.2. This model suggests that an individual buyer goes through different mental
stages before accepting a brand. For example, the individual starts by being aware of the brand. This in
turn leads him or her to know more about the brand–its characteristics, appeals, associated images and
feelings, its competitive position, and the target market. The third step is the attitude which intervenes
between comprehension and the final action of trying the brand or visiting a retail outlet to buy or seek
more information.
Figure 16.2 Hierarchy of Effects Model of the Communication Process

The DAGMAR model made advertising goals more specific like ‘X’ percent increase in brand awareness
in the target market; 40% of ‘X’ percent to know about the brand, and so on. The important assumptions in
the DAGMAR model are that advertisers will have a benchmark to compare post-advertising effect. The
target market, too, is defined in clear terms. Besides, DAGMAR makes advertising goals time specific and
written.
It is not that DAGMAR has ended all controversy on advertising goals. In fact, DAGMAR has been
challenged. Its critics feel that it is difficult to implement the model (e.g., difficulty in selecting the level in
the hierarchy of the response model). Besides, there are problems of measurement and the noise in the
communication model. Further, DAGMAR seems to inhibit the concept of ‘great idea’, as all firms in the
industry do the same research and many may come up with almost similar campaigns. DAGMAR being
a rational planned approach to advertising, guides creative people and this can inhibit their creativity.
Exhibit 16.2 Future of Advertising

Internet, especially mobile internet will shape the but did not buy. Whenever this customer would be
communications in this century. Innovations in inter- on any of the website in the Amazon network, the
net started soon after its privatisation in 1999. It was cookie would pop up with the advertisement of
only in 2013 that the internet became integral to mar- the overlooked product and provide him the op-
keting. Four companies have played a significant role portunity to buy. Google on the other hand has
in internet marketing. Google today dominates online emerged as an undisputed leader in online adver-
advertising; Amazon.com is a leader in online retailing tising even though the display advertising has not
while Facebook is synonymous to the social network. been so popular on Google. Rather it has been more
Apple set the standard for interface devices which popular on Facebook. Google developed Android
were often referred as remote controls for many peo- mobile operating system which expanded the world
ples’ digital lives. Even though each had a distinctive of apps. Today 75% of apps outside America are
domain to operate, today all of them compete with based on Android. They serve as basis for advertis-
each other for dominance in online advertising. ing and connecting with the customer in much more
Consider the case of Amazon whose business effective manner than otherwise. Apple on the other
model is solely based on marketing and advertising. hand is also growing on the strength of its apps
Elements like collaborative filtering tool, could tell which originally was its unique proposition until it
that “customers who bought product X also bought was challenged by Google’s Android.
product Y”. In 2011 Amazon launched an advertis- Thus, from an advertising perspective it would
ing network which was described by AdWeek as be interesting to watch the evolution of the new
“advertising’s sleeping giants”. Tracking cookies was medium. It is a fact that social network websites like
another important element of Amazon’s business. Facebook will dominate the global conversations
This cookie tagged the product ad in the browser of among consumers and this would be most facili-
a visitor who showed interest in a particular product tated by smartphone or other hand-held devices.
Budget
Once the goals have been set, the advertiser has to decide on the budget. How much should a firm spend
on advertising its brand or services? Most firms have their own norms, but there appears to be some
common guidelines that influence budget decisions. We shall now discuss these guidelines.
Percentage of sales method Percent of Sales One of the most common methods in an advertising
is the most popular approach budgeting exercise is determining the percentage of sales. Past sales or projected
to budgeting in advertising. future sales is used as the base. For example, a firm may spend 2% of its sales
on advertising its brands. If this firm’s sales turnover for the year 1999–2000 was `100 crore, then it
would have spent `2 crore on advertising its products and services. Now, if the same firm anticipates
a sales turnover of `500 crore in 2000–1, then its advertising budget will be `10 crore. Percentage of
sales method is the most popular approach to budgeting in advertising.
This method, based on guidelines for budgeting, provides comfort to finance oriented executives,
who believe that advertising should be resorted to only if the firm can afford it. Furthermore, this
method helps prevent advertising wars within the industry.
The limitation of this method, is that it does not believe that advertising can influence sales. In fact,
here sales or estimates of sales seem to influence advertising expenditures. Imagine the impact of this
method on brands that are market leaders and enjoy high customer loyalty, and brands which have just
been introduced. While the former have a liberal, and often excessive, advertising budget, the latter
may not have an adequate budget and consequently may suffer in the long run.
Hence, the percent of sales method needs to be revised to respond to market dynamics, where a brand
may have to be strengthened, maintained, or built.
Affordability Another approach to advertising budgeting is affordability. In this method, the
firm first allocates its financial resources to other unavoidable heads like manufacturing, R&D, trade
discounts, and so on and whatever is left is allocated to advertising. By doing so, the decision maker
ensures that there is no excessive spending on advertising or that resources are not being wasted. Once
again, this method satisfies finance oriented executives and also assumes that sales are independent of
advertising.
Competitive Parity The third approach to the advertising budgeting process is maintaining
competitive parity, or in other words, ‘follow the crowd’. The logic is that collective wisdom is better
than an individual firm’s ideas or a brand manager’s beliefs. This will lead to a near optimal advertising
budget. Further, this method ensures that advertising wars do not occur in the industry.
The limitation of this approach, is that there is no guarantee that everyone will operate at the optimal
level of spending. Even so, a firm may effectively and more productively utilise the money it is spend-
ing on advertising, by a better media plan and more creative copy. Further, differences in size given
firm does not support this principle.
Objectives and Tasks This is a more proactive approach than the ones discussed earlier. In this
method, as the name suggests, an advertising objective is determined in specific terms. Subsequently,
tasks are identified that will help achieve this objective. Finally, the decision maker estimates the costs
of each of these tasks and the total of all these costs becomes the advertising budget. Exhibit 16.3
illustrates this method.
Exhibit 16.3 Objective and Task Approach to Advertising Budgeting

Illustration Indian lifestyle and according to some experts, it is
Alpha Ltd., a leader in confectionery, wants to intro- growing at the rate of 2% per annum. The health
duce diet ice creams for diabetics. According to the conscious segment is estimated to be 1% of India’s
company’s research, there are one million Indians population, or about 10 million, mostly located in
who suffer from diabetes. This disease has been the four metros and two mini metros. The firm de-
on the increase largely because of the changing cides that advertising should generate awareness
among 70% of the target market and a trial rate of Based on the rates applicable to different time
40% in the first year of its launch. and space slots of different media and the length
Tasks required are advertising on TV at prime and size of the commercial and advertisement copy
time on Star Plus and other channel programmes respectively, the firm can now estimate what the
commonly watched by the target audience, print cost will be to achieve the objective. The firm comes
advertising in daily newspapers and magazines with to the conclusion that it will require `1 crore to
high national readership statistics, and outdoors like achieve the desired advertising objective.
billboards in metros and mini metros, atmospherics
in ice cream parlours, and so on.
This method is logical as it assumes a causal flow from advertising to sales.

Advertising budgets have to be responsive to market conditions and hence, old thumb rules which
have been cost and finance oriented, cannot help the firm in getting the most out of their advertising
campaigns. More and more firms are now accepting this fact and moving towards the objective and
task method.
Copy Decisions
We now move into the most creative and visible area of advertising decision, or copy decisions. In the
chapter on promotional decisions, we looked at different approaches adopted in message development,
like whether the message was rational or emotional. We also looked at different structures like one sided
or two sided conclusion drawing statements. We shall now examine different creative styles, used in
advertising and also the methods used in copy testing. As we noted earlier, the most important parameter
in an advertising agency evaluation is its creative wing. Different agencies use different creative styles
to communicate the desired message to the target audience. Most of these creative styles are influenced
by the agency chief’s orientation, particularly when he or she happens to have roots in copy writing.
For example, Alyque Padamsee’s orientation has influenced advertising copies and campaigns created
at Lintas, Subroto Sengupta’s orientation influenced the work at Clarion, Subhash Ghosal’s at HTA and
RK Swamy’s at RK Swamy and Associates.
Furthermore, when one examines various advertisements from these advertising agencies and sev-
eral others, one can find certain basic philosophies. These have been the ones of the great masters in
Advertising—David Ogilvy, William Bernbach, Leo Burnett, and Rosser Reeves.
David Ogilvy David Ogilvy, founder of the now famous Ogilvy and Mather (O&M)which is now
a part of WPP, is perhaps one of the most widely read advertising professional. Ogilvy’s emphasis
has been on creating and retaining high brand image. He believes that a high image is to the firm’s
advantage in the long run. If we accept the fact that each advertising exposure helps in creating and
reinforcing a brand image in the consumer’s mind, then Ogilvy argues that a low image brand will face
an uphill task, if the marketer tried to change it to an upscale high image brand. In such situations it is
perhaps advisable that the marketer creates a fresh brand.
Ogilvy also believes in creating distinctive brand personalities to counter competition from ‘me too’
brands. He has used celebrities in his advertising campaigns in the belief that the source adds his or
her personality to the brand and thus gives credibility to it and to the message. Ogilvy has been a firm
believer in research.
IN FOCUS
In his famous book titled Confessions of an Advertising Man5 first published in 1964, Ogilvy urges his
agency to follow eleven principles.
These are:
Content of the message rather than its execution is important.
Search for a great idea or else the campaign may fail.
Talk straight to the customer. Do not treat him or her as a moron.
Do not create boring or dull copies.
Avoid clowning.
Create contemporary advertising.
If you have created a great campaign and it ‘pulls’ target audience to the brand, keep it so long as
it does so.
Be honest in advertising. Avoid fluff and telling lies in the copy.
Brand and its image is most important–create a brand personality, distinctive from others.
Do not be an imitator.
Creativity is always individual specific–committees do not create campaigns.
Much of Ogilvy’s copies reflect this philosophy.
William Bernbach William Bernbach held a diametrically opposing view to that of Ogilvy, in
the sense that he emphasised execution of the message. In his words, ‘execution can become content,
it can be just as important as what you say . . . a sick guy can utter some words and nothing happens;
a healthy vital guy says them and they rock the world.’6
Bernbach, the founder of the well known advertising agency Doyle Dane Bernbach (now known
as DDB Needham, part of the Omnicom group), respected his audience and avoided puffery in his
advertising copies. He also avoided cliches and heavy repetition. He has always been straight, clean,
honest, and direct in his approach. He believed in the need to create a distinctive advertising copy, that
makes the brand stand out amid competition from ‘me too’ brands. Bernbach has used humour to gain
target audiences attention. And finally he de-emphasises research, believing that it leads to generating
too many ‘me too’ advertisements.
Rosser Reeves What makes Promise toothpaste different from all others? It is the clove content.
How many of us can think of Promise without the clove? Though it is not as if the other brands do not
use it, the fact is that Balsara’s Promise was the first to make the claim and hence it became its Unique
Selling Proposition (USP) which helped it to position itself against the giant Colgate in the toothpaste
market. This concept of USP came from Rosser Reeves of the Ted Bates agency (now a part of the
Saatchi group). Reeves believed that an advertisement needs to sell and not just merely be a work of
art or aesthetics.
Unique selling proposition makes the brand stand out in the crowd. Even though others have the
same features, if you are the first to claim it, it becomes your USP. In the development of USP, three
factors contribute to it:
(b) it should be unique in the sense that no one else has yet claimed it
(c) it must sell
As may be inferred, development of a USP requires research and experimentation. Reeves believed
that once an advertising copy has been created using a USP, then it should not be changed.
However, in today’s contemporary world marked by standardisation of technology and brands
transcending into commodity situations, it is doubtful if any brand can claim a USP. Even if it does,
perhaps it may be short lived. Today, technological developments, homogenisation of customer needs
across different markets, and developments in communication pose a challenge to the concept of USP
as a brand building strategy.
Leo Burnett Leo Burnett, like Bernbach, has been diametrically opposed to David Ogilvy. While
Ogilvy has advocated the use of celebrities in creating high image brands, Leo Burnett advocates the
use of the common man in advertising. He believed that an average customer was more likely to believe
the ‘man in the street’ rather than the high profile celebrity. The key words that describe his copies are
‘warm’ and ‘believable’.
Thus, we see that from Ogilvy to Burnett, one thing which is common to all of them, is that they
have tried not to be copy cats. They have tried to build brands and be distinct from the crowd. These
styles should be seen in continuum from ‘what you say’ to ‘how you say’. Today, many agencies use a
combination of these styles to create strong brand personalities. It is difficult to say that only one style
dominates the agency’s art work.
Copy Testing
Prior to operationalising the campaign, it is necessary to test the advertising copy with the target audi-
ence. The purpose of testing the copy, is to know how the potential buyer or target audience will react.
Testing a copy, before and after the campaign, helps in ensuring advertising effectiveness. However,
many in advertising agencies object to this testing, largely on the ground that most tests tell only, what
is working rather than giving information on why one advertising copy is effective and not the other.
It has also been criticised on the ground that creativity cannot be tested.
Notwithstanding these criticisms or objectives to testing, many advertising
Desirabiltiy, exclusiveness, agencies and advertisers continue to test advertisement copies. Testing which is
and believability are the done before the launch of the campaign is called pre-testing and the one done
three parametres on which after the campaign is called post-testing.
an advertising copy has to be The parameters on which an advertising copy has to be evaluated or tested, are
evaluated.
desirability, exclusiveness, and believability7. Or in other words, any advertising
copy should be likeable and interesting to the target audience. It should stand
out in the clutter of noise created by competition and finally the target audience should believe in the
claims made by the copy, in other words, the copy should be credible.
To test the copy on the first two dimensions of desirability and exclusiveness, recognition and recall
tests are conducted. For the third dimension, namely believability, the copy is tested on persuasiveness
and purchase behaviour of the target customer.
Recognition This is the first prerequisite to a successful advertising campaign. However, it should
be kept in mind, that a high recognition score is not necessarily an indicator of successful advertising,
because recognition requires least effort on the part of the target audience. Recall tests require a higher
degree of information retrieval and to a large extent can reveal whether the advertising copy is able to
filter through the perceptual veil.
Recognition Tests This suggests involve the buyer being able to recognise an advertisement as
belonging to a brand or a firm and/or as one that he or she has seen earlier. This
test is commonly used for television and radio commercials. In print advertising, Recognition tests suggests
three measures are generated for each advertisement copy. These are called the buyer being able to
recognise an advertisement
‘noted’, ‘seen associated’, and ‘read most’. as belonging to a brand, while
Noted, refers to the number of respondents or percentage of readers of the recall refers to the proportion
issue, who remember having seen the advertisement. Seen associated is the of the target audience that
percentage of readers, who remember seeing any part of the advertisement that can recall an advertisement
clearly shows the brand, service, the firm’s name, and so on. Read most is the and its contents.
percentage of respondents who read half or more of the copy.
Recall This refers to the proportion of the target audience that can recall an advertisement and its
contents. There are two types of recalls—unaided and aided. In the former, the respondent is asked
to recall as much, as he or she is able to, of the copy content of a specific brand. The respondent may
recall the model, the situation, headlines, some features of the product, just the music, or any other
dimension of the copy. At times, this recall is either not possible or is negligible. On such occasions,
the researcher aids the respondent by asking a question such as, ‘Did you see a TV commercial showing
Aamir Khan?’ And if the respondent replies positively, then the researcher may ask the next question
‘Which product is he shown giving to his friend?’, and so on. Alternatively, in TV and radio commer-
cials, the background music or jingle may be played and customers asked to identify the brand and tell
more about the advertisement.
Recall tests measure comprehension and also to a large extent, attractiveness of the copy. Psycholo-
gists tell us that human beings remember only those stimuli, which are rewarding and attractive. How-
ever, these tests have been criticised, because they do not measure the effectiveness of an emotional
commercial.
Persuasion tests refer to the proportion of target audience who show a distinctive attitudinal shift
towards the brand after seeing its advertisement.
A commonly used method here is theatre testing, aimed at studying forced exposure brand perform-
ance change8. In the theatre testing method, a group of respondents are invited to preview television
programming. They respond to demographic and brand or product usage questions that appear on the
TV screen. Then they view a half hour variety programme. In the middle of the programme, com-
mercials are placed. These commercials also include the test copy. After the audience reactions to the
programme, an unaided brand recall question is asked. This forms the basis of clutter or awareness score
(the percentage of people who recalled the brand advertised). The test commercials are then exposed a
second time, surrounded by programme material. Attitude shift is now measured by asking respondents
to select brands in a product class if they were to go shopping. In advertising for durables and services
the pre- and post- preference is measured by determining:
(a) the favourite brand
(b) the next preferred alternative
(c) brands that would not be considered
(d) brands towards which the customer is indifferent
Besides the above, respondents are probed about the following:
(e) comprehension of a message or slogan
(f) communication of secondary copy ideas
(g) evaluation of demonstrations, spokespersons, or message

(h) perception of brand uniqueness
(i) irritating or confusing elements
(j) viewer involvement
A modified version of this theatre test is conducted for testing radio commercials.
Purchase Behaviour
The final test of a copy or commercial is whether it really moves the customer to buy the brand in a real
world market situation. Two well known tests here, are ones involving coupons to stimulate purchasing
and those involving split cable testing.
Furthermore, other methods for testing print copies are:
(a) Direct rating method which asks consumers to rate alternative advertisements on attractiveness,
believability, and exclusivity.
(b) Portfolio tests asking consumers to view and/or listen to a portfolio of advertisements and then
ask them to recall all the advertisements and their content. This could be unaided or aided recall.
(c) Laboratory tests using equipment to measure the consumer’s psychological reactions to an
advertisement.
Besides the above, lately, marketers and advertising agencies have been doing longitudinal studies to
monitor the impact of an advertising campaign over a period of time. These studies are called tracking
studies.9
Media Selection
A highly creative advertising copy may not be able to deliver results, if there is an improper selection
of media or a poor media plan and strategy. In evolving a media plan, decisions have to be taken with
respect to the following media factors.
Media Class This refers to the type of medium, which is most appropriate to the product and copy.
This includes newspapers, magazines, television, radio, billboards, and direct
Flighting is useful in products
mail.
whose demand is seasonal,
continuous for products Media Vehicles They provide the immediate environment for the adver-
whose demand is not limited tisement. For example, within newspapers, The Times of India is a media vehicle,
to specific seasons; while in television Zee TV’s Antakshari is the vehicle.
pulsing will work with
products that are seasonal, Media Option This refers to the size (full or half page), length (30 or 60
but would not touch the zero seconds), colour or location (like front page, bottom right, or prime time 9.00
sales level in the lean period. p.m.) of the advertisement in the media vehicle.
Scheduling and Timing This refers to how media options are scheduled over a period of time.
The strategic options here are—
(i) Flighting: That is, periods of total inactivity
(ii) Continuous: That is, even distribution of advertising during a time period
(iii) Pulsing: That is, a continuous base augmented by intermittent bursts of heavy advertising
Flighting is useful in products whose demand is seasonal. After the season, the demand for these
products ceases to exist. A typical example is that of desert coolers in states, such as Uttar Pradesh,
Madhya Pradesh, Rajasthan, Haryana, Punjab, Bihar, and Delhi. The demand for such coolers emerge
during the summer months of April to July and declines soon after the monsoon sets in. Hence, it pays
to advertise desert coolers or its components like exhaust fans and pumps during the summer months
only and then discontinue until the subsequent year. So for products whose demand is seasonal, the
flighting strategy works well.
Continuous advertising is a good strategy for products like textiles, toiletries, and so on, whose de-
mand is not limited to specific seasons. Here the objective of the firm is to retain its brand(s) uppermost
in the customers’ mind and hence continuous visibility, through reminder advertisements and other such
tactics.
Pulsing works with products like soft drinks and ice creams, whose demand is high during summer
months and after that the demand does decline, but not to the zero sales level. The demand swings
between two extremes, which is between lean demand and peak demand. The objective of advertising
is to ensure brand preference, even when the demand is minimum, and during peak time to ensure
higher sales volume and market share.
Quantitative Factors in Media Selection In the evolution of a media
One of the quantitative
plan, both quantitative (like circulation or viewership statistics, costs, etc) and
criterion used in selecting
qualitative (like profile of the target audience and the mood created by media the media is cost per
vehicles) factors have to be considered. While data on circulation or viewership thousand, or cost per
is available from sources like Audit Bureau of Circulation (ABC), National thousand people reached
Readership Survey (NRS), Indian Newspaper Society (INS), and even the dif- by a particular advertising
ferent publishing houses, cost of inserting an advertisement is available from the vehicle.
publisher, Doordarshan, AIR or the respective television channel offices. The
qualitative factors for each media is to be collected through market research. One of the quantitative
criterion, used in selecting the media is cost per thousand, or cost per thousand people reached by a
particular vehicle. This is calculated by dividing the reach of the vehicles by the cost of an advertis-
ment carried in it. Suppose the reach (readership) of newspaper A is 1,20,00,000 persons and the cost
of a full page advertisement in it is `10,000 then cost per thousand of advertising in this paper is `0.83
only. But in another newspaper whose readership may be only 70,00,000 persons, the cost of the same
advertisement may be `1.42. Considering cost per thousand (which is `0.83), we find that advertis-
ing in newspaper A is a better alternative. That is why, one finds a larger number of advertisements in
newspapers and magazines, that have high circulation and programmes which enjoy high viewership
and listenership. At one time, when Doordarshan was telecasting Ramayana, Mahabharata, and Hum
Log, almost the entire nation used to watch these programmes. These programmes enjoyed the highest
viewership, and hence the clustering of advertisements immediately before the programme.
While cost per thousand is an important consideration, one has to also examine the quality of reader-
ship and viewership and whether the audience goes through the entire newspaper or magazine or waits
and watches the entire programme. In other words, though cost per thousand in a newspaper like The
Times of India may be the lowest, if research shows that most readers just glance through the headlines
or through the newspaper, then actually the cost is much higher as the effective readership may be lower.
The same holds good for TV or video advertising.
Another factor that prevents heavy emphasis on the cost per thousand factor, is the quality of the
audience and whether it matches the firm’s definition of the target audience. Some programmes on tel-
evision like ‘The News Tonight’ on Doordarshan had a different viewership profile from the Saturday or
Sunday movie on Star Plus. Researches on viewership have shown that the former had a more upscale
or elite audience, while a feature film had mass appeal.
Qualitative Factors in Media Selection Media vehicles create a mood in the target audience.
This could be romantic or serious or sporty or comical. Marketing Research has suggested that often
the mood created after reading an article or viewing a program on a television channel gets transferred
to the product being advertised in that media vehicle. For example a sports channel like ESPN gets
the viewer in a sporting mood. He cheers or jeers or feel depressed on a player’s performance. As he
cheers the player, brands endorsed by the player and visible in the stadium tend to get placed in viewer’s
mind. Leading consumer and other brands have taken an advantage of some of the well-known sports
events like IPL to build their brand equity. Likewise, the FTV or the MTV create an entirely different
mood.
Hence, in selecting the media, one has to determine the desired number of exposures to the target
audience in the appropriate vehicle. The number of exposures is based on the advertiser’s objective. It
could be a trial which is based on increased awareness. Assume the rate of trial increases at a diminish-
ing rate with the level of audience awareness as shown in Fig. 16.3.
Figure 16.3 Relationship between Product Trial and Awareness
If the advertiser seeks a trial rate of T*, he needs to have a brand awareness at level A*. How many
exposures, or E*, will help achieve this level of awareness, is now the key issue which is resolved by
an understanding of the three key terms and the interrelationship among them. These are:
Reach It is the number of persons or households exposed to a media schedule at least once, during
a specific time period.
Frequency This implies the number of times within a specific time frame, that an average person or
household is exposed to the message.
Impact This is the qualitative value of an exposure through a given medium. (e.g. an advertisement
for clothing for a modern and elegant woman in Savvy, Society, or Femina will have a higher impact
than in Woman’s Era).
The relationship among these variables is summarised below:
Total Number of Exposures (E)

This is the reach times frequency, or E = R ¥ F. This gives us the key term used
in media planning, namely Gross Rating Point (GRP) for TV or radio and OTS Total number of exposures
(E) = Reach (R) ¥ Frequency
(opportunity to see) in print media. This is the basic unit used for buying time (F)
on television or radio, before or after a programme, and space in the print media.
Thus, if 80% of the target audience for a computer software firm sees and listens to news in English on
Doordarshan at least 5 times a week, then the GRP for English news is 80 ¥ 5 = 400. In the context of
television advertising, particularly on the national network, one of the terms used is HUT, or households
or homes using television. This will always be lower than the number of homes owning television and
hence HUT is always expressed as a percent of the latter, while GRP for any programme will differ
regionally or across different market segments.
For example, suppose on Saturdays, 300 million TV sets are on to watch the film between 5.30 p.m.
and 8.30 p.m. and we assume that there are 600 million TV sets in the country, then the HUT for the
Saturday film is 50% for that day and time period. Suppose, on a Saturday, an Amitabh Bachchan film
had 270 million households watching it, then the share for Amitabh Bachchan’s film is 90% (270 mil-
lion divided by 300 million) and its rating is 45 (i.e., 270 million divided by 600 million). Mathemati-
cally, a programme’s rating equals its share multiplied by the HUT.
Weighted Number of Exposures

This refers to the reach times average frequency times average impact, or
Weighted number of
WE = R ¥ F ¥ I.
exposures = R ¥ F ¥ I
Generally, a media plan is a trade-off between reach and frequency. One of (Impact)
the factors that has to be kept in mind is the ‘forgetting’ that occurs in any human
learning situation. Since most advertising aims at educating and bringing a desired response, repetition
(and hence frequency) is important. The decision about the level of repetition is based on the extent of
forgetfulness associated with a brand, product category, or message.
Thus, advertising management consists of decision sets aimed at creating appropriate consumer at-
titudes, which will help create brand image and personality. As media choices multiply and inter firm
competition increases, strategic decision-making in advertising will become more complex and demand
skills of a much higher magnitude, than the ones used today. The advertiser and advertising agencies
will have to use technology to help them to achieve their goals.
TOOLS FOR MEASURING ADVERTISING EFFECTIVENESS
LO4 Effectiveness of advertising is an issue that has been debated over the years.
Demonstrate the Despite this, the extent of fundamental research in this area continues to be
tools for measuring abysmally low. Most effectiveness studies deal with specific ads and cam-
advertising paigns. Considerable money is spent on pre-testing an ad copy. But in order
effectiveness to get the maximum yield, campaign effectiveness should be tested on the
following parameters:
(a) Brand awareness
(b) Knowledge about the brand
(c) Preference for the brand
(d) Sales effect
Experimental design Sales Effect Research The sales effect of advertising is generally harder
involves tracking consumerto measure than the communication effect. This is because sales are impacted by
several other factors like price, payment terms, brand availability, store ambi-
purchases linked to specific
advertising. ence, sales person and customer’s past experience, etc. The sales impact is, how-
ever, easily measurable in interactive form of campaigns and Internet advertising.
In all other media and campaigns, researchers try to measure the sales impact by analysing either
historical or experimental data. The historical approach involves correlating past sales to past advertis-
ing expenditures using advanced statistical techniques.
Experimental design involves tracking consumer purchases linked to specific advertising. For this
purpose, consumer panels are created and their purchases tracked to their advertising recalls and televi-
sion viewing of a commercial. In store tests are also conducted to assess the effectiveness of promo-
tions, displays, store ambience, packaging, and other consumer deals in operation.
Thus, advertising today is far more demanding and challenging than it was earlier. The most criti-
cal task of advertising, is to keep the brand relevant to the changing market demographics. Liril has
remained relevant over a period of time, even when communications have changed. However, it kept
the core value of ‘freshness’ constant in all its communication campaigns.
NEW MEDIA OF ADVERTISING
LO5 Online Advertising

Explain new media of As was mentioned earlier, online advertising has come of age in India. No
advertising more is a Web address limited to a few well known companies. Today, this
segment of the advertising industry is growing at nearly 30%. The factors
contributing to the growth of this segment are a mix of cutting edge technology and creativity. To make
Internet advertising deliver, firms need to leverage the strategy of multi channel delivery and message
to maximise share of voice at a given point of time.
To appreciate online advertising, one needs to understand its dynamics. The most important form of
online advertising is the banner ad, which is a graphic image that is often animated and is ‘clickable’.
This ‘click’ takes the viewer to another Web location. The banners appear at the top or side panels or at
the bottom of the Web page. However, they can be placed anywhere including the centre of the page.
Various pricing models are adopted by the websites. As was mentioned earlier, the rates vary between
`100 and `600 on a CPM (cost per metric) basis. CPM also reflects cost per thousand impressions.
Focused sites like naukri.com or shaadi.com, or other popular sites like indiatimes.com may charge rela-
tively higher rates than others. Barter arrangements are very common in online advertising. For example,
two websites may agree to run banner ads for each other. This can lead to traffic building at both the sites.
Banner ads include direct marketing capabilities. Each banner carries with it a unique identifier. This
allows a website to track the effectiveness of the ad in generating traffic and direct promotions.
Thus, to conclude, the task of advertising is to grab consumer attention at all times and everywhere.
The challenge lies in effectively using all possible channels, media vehicles, including Internet, and
short messaging services on cell phones.
Mobile Advertising
With the growth and high penetration of mobile phones in India, mobile marketing and advertising is
fast catching up. Mobile advertising is the advertising on mobile phones. Multiple types of advertis-
ing are possible on mobiles. One of the most common is the SMS advertising which is estimated to be
over 90% of mobile marketing revenue worldwide. Other forms include MMS advertising, advertising
within mobile games and videos, etc. The effectiveness of a mobile media ad campaign can be measured
either through the cost per impression or cost per click. However, in view of the demand for productivity
and more objective measurement, conversion rates like click to call rates are being used to assess the
effectiveness of mobile advertising. Mobile media can be operative on a mobile webpage or within a
mobile application. Since a mobile phone is an interactive mass media similar to the internet, advertis-
ers are hoping to make use of viral marketing methods in which the recipient of an advertisement of a
mobile can forward it to his friends.
ETHICS IN ADVERTISING
LO6 Ethical Standards in Advertising

Describe ethics in Advertising Standards Council of India has laid down a Code of Conduct
advertising for advertisers, agencies and the media. This code calls for self-regulation.
The primary objective of this code is to ensure that no advertisement is false
and make claims which the advertiser never intended to fulfil. At the same time the code also requires
the campaign to be transparent and such which should not abuse the trust of the consumer or exploit
the lack of experience or knowledge. Nor should it be offensive to any cast, community, gender, race,
colour or nationality. The detailed code of conduct of the Advertising Standards Council of India is
shown in Exhibit 16.4.
Exhibit 16.4 Advertising Standards Council of India: Code of Conduct

● Ensure the truthfulness and honesty of represen- to produce such substantiation as and when
tations and claims made by advertisements and called upon to do so by the ASCI.
safeguard against misleading advertising. Specifi- ❍ Where advertising claims are expressly stat-
cally, please ensure the following: ed to be based on or supported by inde-
❍ Advertisements shall not, without permis- pendent research or assessment, the source
sion from the person, firm or institution un- and date of this should be indicated in the
der reference, contain any reference to such advertisement.
person, firm or institution which confers an ❍ Advertisements shall neither distort facts nor
unjustified advantage on the product adver- mislead the consumer by means of implica-
tised or tends to bring the person, firm or tions or omissions. Advertisements shall not
institution into ridicule or disrepute. If and contain statements or visual presentation
when required to do so by the ASCI, the which directly or by implication or by omis-
advertiser and the advertising agency shall sion or by ambiguity or by exaggeration
produce explicit permission from the per- are likely to mislead the consumer about
son, firm or institution to which reference is the product advertised or the advertiser or
made in the advertisement. about any other product or advertiser.
❍ Advertisements must be truthful. All descrip- ❍ Advertisements shall not be so framed as
tions, claims and comparisons which relate to abuse the trust of consumers or exploit
to matters of objectively ascertainable fact their lack of experience or knowledge. No
should be capable of substantiation. Adver- advertisement shall be permitted to contain
tisers and advertising agencies are required any claim so exaggerated as to lead to grave
or widespread disappointment in the minds ❍ Advertisements shall not propagate prod-

of consumers. ucts, the use of which is banned under the
❍ Obvious untruths or exaggerations intended law.
to amuse or to catch the eye of the con- ❍ Advertisements for products whose
sumer are permissible provided that they advertising is prohibited or restricted by
are clearly to be seen as humorous or hy- law or by this code must not circumvent
perbolic and not likely to be understood as such restrictions by purporting to be
making literal or misleading claims for the advertisements for other products the
advertised product. advertising of which is not prohibited or
❍ In mass manufacturing and distribution of restricted by law or by this code. In judging
goods and services it is possible that there whether or not any particular advertisement
may be an occasional, unintentional lapse is an indirect advertisement for product
in the fulfilment of an advertised promise whose advertising is restricted or prohibited,
or claim. Such occasional, unintentional due attention shall be paid to the following:
lapses may not invalidate the advertisement ■ Visual content of the advertisement
in terms of the Code. must depict only the product being ad-
● Ensure that advertisements are not offensive to vertised and not the prohibited or re-
generally accepted standards of public decency. stricted product in any form or manner.
● Ensure to safeguard against the indiscriminate ■ The advertisement must not make any
use of advertising for the promotion of products direct or indirect reference to the pro-
which are regarded as hazardous to society or hibited or restricted products.
to individuals to a degree or of a type which is ■ He advertisement must not create any
unacceptable to society at large. nuances or phrases promoting prohib-

❍ No advertisement shall be permitted which: ited products.
■ Tends to incite people to crime or to ■ The advertisement must not use partic-
promote disorder and violence or in- ular colours and layout or presentations
tolerance. associated with prohibited or restricted
■ Derides any race, caste, colour, creed products.
or nationality. ■ The advertisement must not use situ-
■ Presents criminality as desirable or di- ations typical for promotion of pro-

rectly or indirectly encourages people, hibited or restricted products when
particularly minors, to emulate it or con- advertising the other products.
veys the modus operandi of any crime. ● Ensure that advertisements observe fairness in
■ Adversely affects friendly relations with competition so that the target consumer needs to
a foreign State. be informed on choices in the marketplace and
❍ Advertisements addressed to minors shall the canons of generally accepted competitive
not contain anything, whether in illustration behaviour in business are both served.
or otherwise, which might result in their ❍ Advertisements containing comparisons
physical, mental or moral harm or which with other manufacturers or suppliers or

exploits their vulnerability. with other products including those where
❍ Advertisements shall not, without justifiable a competitor is named are permissible in the
reason, show or refer to dangerous practices interests of vigorous competition and public
or manifest a disregard for safety or encour- enlightenment provided.
age negligence. ■ It is clear what aspects of the adver-
❍ Advertisements should contain nothing tiser’s product are being compared

which is in breach of the law nor omit any- with what aspects of the competitor’s
thing which the law requires. product.
■ The subject matter of comparison is not trade mark or symbol of another firm or
chosen in such a way as to confer an its product or the goodwill acquired by its
artificial advantage upon the advertiser advertising campaign*.
or so as to suggest that a better bargain ❍ Advertisements shall not be similar to any
is offered than is truly the case. other advertiser’s earlier run advertisements
■ The comparisons are factual, accurate in general layout, copy, slogans, presenta-
and capable of substantiation. tions, music or sound effects, so as to sug-
■ There is no likelihood of the consumer gest plagiarism*.
being misled as a result of the compari- * Complaints of plagiarism of advertisements re-
son, whether about the product adver- leased earlier abroad will lie outside the scope
tised or that with which it is compared. of this Code except in the undermentioned cir-
■ The advertisement does not unfairly cumstances:
denigrate attack or discredit other prod- ❍ The complaint is lodged within 12 months
ucts, advertisers or advertisements di- of the first general circulation of the adver-
rectly or by implication. tisements/campaign complained against.
❍ Advertisements shall not make unjustifi- ❍ The complainant provides substantiation
able use of the name or initials of any other regarding the claim of prior invention/us-
firm, company or institution, nor take unfair age abroad.
advantage of the goodwill attached to the
SUMMARY
Advertising is a powerful tool in brand building exercise as also in creating brand imagery. A good
creative campaign successfully placed in the target media can deliver outstanding results. These
campaigns are the ones that are recalled the most as they appeal to the consumers’ feelings and
emotions. Over the years advertising industry has radically changed primarily because of the expo-
nential growth in consumer industry leading to multiple brands. Growth in print, digital and mobile
media has further contributed to the changes in advertising industry. In India the size of advertising
industry was estimated as `36,200 cr with print media accounting for 44% followed by television
at 33%. By 2017 advertising industry would be `63,000 cr. And digital advertising would have had
a 32% growth and would be `8700 cr. Advertising industry comprises of advertiser, advertising
agency and media which also includes digital and mobile. Advertising decisions relate to objec-
tives, budget ad copy and media choice. It is imperative to evaluate the effectiveness of advertising.
Several approaches are used for the purposes of assessing the effectiveness of an ad. These relate to
consumer awareness, recognition, and comprehension and consumer preference for the brand. It is
also about measuring sales effect of an advertisement. Online advertising and mobile advertising is
today gaining prominence primarily because of the growth of social networks and mobile internet.
Advertisers and advertising agency both must adhere to the code of conduct as laid down by the
Advertising Standards Council of India. It is a code which is based on the principle of self-regulation
and demand that advertisement must be truthful. All descriptions, claims and comparisons must be
capable of being substantiated.
POWER POINTS
1. Advertising is a powerful tool in brand building exercise as also in creating brand imagery.
(LO1)
2. Over the years advertising industry in India has grown by leaps and bounds and expected to
be 63,000 cr by 2017. (LO1)
(LO1)
4. The institutional framework of advertising management includes the advertiser, advertis-
ing agencies, and the media. An advertising agency’s major role is purchase of media time
and space. Besides, it is directly responsible for development of advertising copy and/or the
commercial. Another interesting development is the ‘mega corporatisation’ of advertising
agencies through mergers and acquisitions. (LO2)
5. Media refers to daily newspapers, magazines, technical journals (called the print media),
hoardings, billboards, neon signs, etc. (called outdoor media) cinema and television, video,
cable TV and radio (called the digital and mobile media). (LO2)
6. Marketing research agencies facilitate advertising decisions in all these three institutions. The
of competition within the industry. (LO2)

7. Advertising objectives range from generating sales to creating awareness and brand prefer-
ences. Advertising objectives have to be measurable and communicable in order to to evaluate
performance. Communication is also the major goal of advertising. (LO3)
(LO3)
9. The manager must know what to spend. It is here that he or she may choose between methods
like percent to sales, affordability, competitive parity, and objectives and tasks. Increasingly,
(LO3)
10. Advertising copy decisions are the creative man’s forte. Increasingly, it has been observed
that the agency chief’s philosophy has guided creative strategy development. (LO3)
11. The advertising copy needs to be pre tested on parameters like desirability, exclusiveness,
and believability. The common methodologies used here are recognition, recall, persuasion,
and purchase behaviour tests. (LO3)
12. Media decisions involve the choice of media class, media vehicle, media option and schedul-
ing, and timing of an advertisement. (LO3)
13. Factors considered in choosing the media are its reach, frequency, impact, nature of the prod-
uct, and sometimes even media costs. (LO3)
14. Advertising effectiveness is measured on parameters like brand awareness, knowledge about
the brand and preference of the brand, and sales effect of the brand. (LO4)
15. Advertising through search engines like Google, Yahoo, social networks, aggregators’ portals
and mobile phones have today gained prominence. Mobile advertising is through SMS, MMS,
Mobile games and videos and mobile internet. This is the medium of future. (LO5)
16. Advertisements have got to be true and must not abuse the trust of the consumer or exploit
the lack of experience or knowledge nor should it be offensive for any section of the society.
(LO6)
each of these with appropriate examples. (LO1)

2. What are the goals of advertising? In which situation can sales and behavioural change in the
target audience be considered an advertising goal? (LO2)
3. A leading European departmental store is all set to enter the Indian market. You have been
retained as an advertising consultant. Evolve an advertising strategy for this store. You may
spell out your assumptions and clearly mention objectives, copy platform, and media choices.
(LO3)
4. It is said that advertising is a waste of scarce resources in a developing country like India. Do
you agree? Substantiate your arguments with appropriate examples. (LO4)
age young professionals. You have been hired to develop a communication strategy which will
communication plan for the launch. (LO4, 5 and 6)

CHAPTER
SALES PROMOTION AND

PUBLIC RELATIONS
17
LEARNING OBJECTIVES
LO1 Describe the importance of sales promotion
LO2 Explain the objectives of sales promotion
LO3 Demonstrate the sales promotion and the brand life cycle
LO4 Demonstrate sales promotion and brand image
LO5 Predict the significance of public relations in image building
LO6 Describe the tools of public relations
LO7 Outline the public relations management process
In Practice
Push the Brand
In a highly competitive environment it is not uncommon for companies to use almost all tools in
their armour to get a share of the market. Increasingly, one of the major problems that organisa-
tions face relates to getting an undivided attention of consumers. Various consumer researches
have shown that the average span of attention of any consumer is not more than 2–3 minutes.
Consider for example the rapid speed at which consumers change the channels on their televi-
sion during the commercial break. Now with the DTH (Direct-to-home) firms like Tata Sky offer-
ing the facility of record, play and fast forward, the threat to an advertiser has further enhanced.
How can a firm create awareness? How can it get the consumers to try their brands and stay with
it over a period of time? Companies use public relations and sales promotions as two additional
tools to reach out to their consumers. These are in addition to advertising and personal selling.
Let us consider some examples of companies that have extensively used these tools. One such
company is Airtel. In order to promote its brand aggressively, Airtel extensively uses integrated
marketing communication strategy. It has sponsored some of the well-known television shows
like Big Boss, Kaun Banega Crorepati, etc. It also offers complimentary ringtones to the cus-
tomers on a trial basis. Should a customer like a particularly ring tone, he/she is encouraged to
download and make it his or her ringtone by paying a price. Airtel has also sponsored some
of the management events and offered scholarship program and funded a Centre for Telecom-
munication Management at IIT Delhi. Besides, it is co-branded with Apple iPhones. Airtel offers
special prices to its subscribers in the form of cashback. This helps in promoting both Apple’s
iPhone and Airtel.
Faced with the 2G spectrum controversy, Airtel Management was worried about the impact
it would have on its brand. It had to manage the perception of both its external and internal
stakeholders. For this purpose, Airtel stories appeared in the media on its growing market share,
innovations in the company, good practices, the next technology leap in 4G, etc. The company’s
top leadership was more visible in the media.
Another company that has used sales promotion is Dell. It is a known fact that festival is the
time when Indian consumers buy products for themselves and for gifting. Dell India also joined
this festive season in 2013 by launching interesting festive offers for consumer like special dis-
counts on warranty extensions for its customers so that they could continue to enjoy the peace
of mind on their products for an extended duration. It also offered gifts and made a special
offer to individual personal computer buyer. These gifts were given to every Dell Inspiron, XPS
or Alien ware purchase above `35000. The campaign called “Celebrate Dell SE” was in keeping
with the Dell festive television commercial which aided to spread the concept of gifting to their
loved ones.
IMPORTANCE OF SALES PROMOTION
LO1 The fast growing Indian market, increasing competition among brands, and
Describe the the maturing and standardisation of products puts a pressure on the marketer
importance of sales to be innovative in his strategy. Though there have been substantial devel-
promotion opments in the media since the beginning of the 1990s, the noise created
by different brands, makes it doubtful for any of the communications to be
heard by the consumer. How do you motivate the consumer? It is here that sales promotion can help.
Our world is today characterised by intensive promotion wars, fought in the media and retail shelves.
Trial coupons, discounts coupons, contests, festival sales, etc. all try to grab the consumer’s mind, heart,
and wallet. Most television and radio programmes, including current affairs programmes, have become
interactive and reward all those who join them. These promotion programmes are now also run on the
Internet. Separate websites, like Contest 2 Win, have been created which reward all those who visit
them. These promotions are not just focused on customers. Many are even targeted at the intermediar-
ies or middlemen. All these promotions aim at enhancing the sales of a brand or creating awareness
about it, in a given market.
Sales promotion, collectively comprises the tools used to promote sales in
a given territory and time. These are primarily short term in nature and are Sales promotion collectively
comprises the tools used
designed to quickly stimulate sales. While advertising creates awareness and
to promote sales in a given
provides to the target consumer the rationale to buy a product, sales promotion territory and time. They are
induces him/her to try/buy the product. In this sense, sales promotion is an incen- short term in nature, and are
tive to buy. While discount coupons, price offs, prizes, and free trials are directed designed to stimulate quick
at the final consumer, there are several promotions like merchandise allowance, sales.
incentive for shelf space, shelf display contests, joint promotions, and other schemes, which are directed
at the trade. In today’s environment, both these types of promotions are necessary. Broadly, consumer
promotions’ objective is to create consumer pull for the brand and trade promotions’ objective is to
push the brand in the marketplace.
Significance of Sales Promotion

The growing significance of sales promotion can be attributed to the following:
(a) Growing consumerism in India and an upwardly mobile Indian market.
(c) Trade’s resistance to invest additional resources in the product mix, of different companies. This
resistance is mainly because of most consumer companies enlarging their product mix to preempt
competition and also to satisfy different consumer needs. Since the trade has limited resources,
incentives for any additional investment.

(d) Fragmentation of viewers and readers arising out of multiple television channels, newspapers,
and magazines.
effective alternative.
-
ed and price wars have now become a reality in most consumer goods.
Sales promotion budgets, therefore, are getting larger all the time and still show no signs of having
peaked. It is not surprising that sales promotion is growing because it:
(i) helps in securing trial and defending shelf space against competition
minimised
(iii) provides opportunities to manufacturers to reach out to market segments with differing price
sensitivity
(iv) adds excitement to the in-store merchandising of consumer goods
(v) motivates the trade to keep more and push more of those brands that are on promotion.
OBJECTIVES OF SALES PROMOTIONS
LO2 As mentioned earlier in the chapter, the broad objective of any sales promo-
Explain the objectives tion programme, is to induce trial and purchase of a product. As we consider
of sales promotion several consumer promotion programmes of different organisations, we can
conclude that their objectives are any one or all of the following:
(a) generate consumer interest, which should lead to trial
(b) generate inquiries from the target customer group
(d) motivate customers to repeat their choice

(e) increase the rate of purchase.
Table 17.1 presents the objectives of consumer promotion and the different sales promotion vehicles
used to achieve these objectives.
Table 17.1 Objectives of Consumer Promotion and Vehicles Used to Achieve Them
Consumer promotion objectives Vehicles used
(a) Generate Trial Coupons
(i) New products Discount sales
(ii) Related products Free samples
(iii) Brand switchers Contests, demonstrations
(b) Enquiries Gifts
Mail-in coupons
Catalogue offers
(c) Repurchase On-pack coupons
Mail-in coupons
Continuity promotions
(d) Traffic building Special events
Annual sales
Festival sales
Retailer coupons
(e) Increased rate of purchase Multipacks
Special price for twos
Information on new usage situations
Trade Promotion
The prime objective of trade promotion is to push the product through marketing
Trade promotion helps in
intermediaries and also to get them to market the product aggressively. We men-
pushing the product through
tioned earlier that as inter firm rivalry intensifies, more and more manufacturers market intermediaries and get
will seek support of traders, to aggressively market their product. The trader, too, them to market the product
has become selective and wiser and hence demands substantial incentives from aggressively.
manufacturers, to push their brands in the market.
If we were to scan various promotional tools like shelf display contest, merchandise allowance,
returns allowance, or joint promotions, we will find that there are two objectives that explain their use:
Encouraging Trade to Build Inventory Any promotional tool, designed to motivate trade to
invest and build inventory of a particular brand at the expense of a competing brand, is a good tactical
weapon to preempt competition. This is also useful when marketers develop consumer oriented promo-
tions to boost their sales, as they do during the festive season.
During such occasions, it is necessary to prevent any stockouts in the retail market. Thus, manufac-
turers may offer special margins or extra merchandise, at no additional cost or even offer allowances for
additional shelf space or pay rent for additional godown space for a limited period. The manufacturer
may also offer to promote specific retail outlets, for those who join his trade promotion programme.
In the case of new products, manufacturers may offer the trader additional margins, pay for promo-
tions, part pay the wholesaler/retailer’s salesmen salaries, or may even offer cash incentives.
Exhibit 17.1 Bundling Strategy Illustrated
Participation of distributor/
Getting Trade’s Cooperation in Promotions Often the manufac-
wholesaler in promotionalturer wants the distributor/wholesaler to participate in his promotional activi-
ties. One reason for this is, because it can help lower promotion costs of the
activities helps heighten the
manufacturer. Another reason is, it helps heighten the interest and motivation of
interest and motivation of the
the distributor in the company’s brand/products. It also helps get a commitment
distributor in the company’s
brand/products. from the distributor. Here advertising, consumer promotions, and sales contents
conducted jointly among retailers in the territory, are some of the commonly
used vehicles. Generally, in such situations, a major proportion of the promotional expenditure is borne
by the manufacturer.
Table 17.2 outlines the objectives of a trade promotion and the vehicles commonly used to achieve
them.
Table 17.2 Objectives and Vehicles in Trade Promotions

Objectives Vehicles
(a) Inventory building Higher margins
Allowance for additional shelf space and merchandising
Returns allowance
(b) Promotional support Joint promotions
Sales contents
Merchandise allowances
Subsidy for promotional budgets
SALES PROMOTION AND THE BRAND LIFE CYCLE
LO3 Promotions have a different role, at each stage in the

In the introductory
Demonstrate the sales brand or product life cycle. The respective roles of
stage, advertising helps
promotion and the advertising and sales promotion vary, across each awareness creation and
brand life cycle stage. In the introduction stage, while the role of ad- brand positioning, while
vertising is creation of awareness and positioning the sales promotion induces
brand, the role of sales promotion is to induce trial. Hence, the firm may use trial. In the growth stage,
sampling and couponing to achieve this objective. As the brand enters the growth advertising helps competitive
stage, advertising’s role is to create competitive differentiation and also expand differentiation and market
the market, wherever possible, to include non-users. Further, advertising has to expansion, while sales
promotions helps to create
have a reminder value. The goal of sales promotion here, will be to create and and reward loyalty.
reward loyalty. It will also be to enhance per capita consumption and encourage
existing customers to introduce new ones. Hence, redemption points, bonuses, price cuts for new in-
troductions, or bundling of products and services are common tools used at this stage.
The maturity stage brings with it, the slowing down of market growth rate
In the maturity stage,
and alignment of preferences to specific brands. The role of advertising here, is
advertising helps reminding
to remind the customer and also inform him/her about availability. Consumer customer about product
oriented promotions like coupons, discounts, premiums, and bonus packs may availability, while promotion
be used by firms to maintain customer loyalty, attract new users and also protect helps maintain customer
the turf against competition. Firms may also indulge in trade promotions, to get loyalty and attract new
a larger share of retail shelf space. customers.
Coordination Between Sales Promotion and Advertising and all Other

Elements of the Promotion Mix
In order to ensure that a brand achieves its objectives, sales promotion inputs should be coordinated
with other elements of the promotion mix. These sales promotion tools should attempt to communicate
the brand’s core values and reinforce the sales message or campaign theme.
SALES PROMOTION AND BRAND IMAGE
LO4 Sales promotion is now no more a tactical tool in the

Imitation on the sales
Demonstrate sales hands of a marketer. It is being used in a strategic
promotion front leads to
promotion and brand manner to reward loyalty, expand customer base, and promotion wars and lowering
image fight competitive wars in retail shelves. However, the of margins.
marketer needs to always be wary of the negative fall
out of a sustained use of sales promotion programmes. For, if a brand is constantly promoted, it may lose
its perceived value. Further, a firm may get into a sales promotion spiral which occurs when all firms
or major competitors in the industry get on to the promotion brandwagon. Often, competitors follow
the pioneer firm whose promotions may have been successful. Imitation leads to promotion wars and
lowering of margins, imitation thus creating an exit barrier for everyone within the industry. Consider,
the example of a price discount which may be introduced by one firm. Invariably all firms do the same
and then there is no end until all bleed. The dilemma faced by a firm is shown in Figure 17.1.
Figure 17.1 The Sales Promotion Spiral
Thus, marketers need to be wary and consider both the short term and long term impact of promo-
tions on brand equity. The ease with which competitors can copy and retaliate, must also be kept in
mind, while designing a sales promotion programme. The marketer needs to consider other elements
of marketing communication and marketing mix in countering competition.
SIGNIFICANCE OF PUBLIC RELATIONS IN IMAGE BUILDING
LO5 Public Relations

Predict the Stakeholder’s perception management is one of the significant corporate
significance of public challenges. For them it is no more now just the external customers but also
relations in image policy planners, activists and law makers who are equally important. Even
building the judiciary has today become an important stakeholder because many a
time organisations are faced with legal battles. The internal stakeholders
namely the employees, shareholders and even the top management or the owners have to be commu-
nicated facts. Companies use different approaches to communicate with their stakeholders. Besides
advertising they also use advertorial and news inserts in both the electronic and print media. They also
extensively use the social network sites to communicate their perspective on a particular issue. Let us
consider the example of Sahara which came under a severe criticism and pressure from SEBI and Su-
preme Court for some of the irregularities committed by the group. In order to contest the claim Sahara
not only came with an aggressive advertising strategy which put its perspective in the public domain,
it also used a PR agency for getting some favourable news in the media.
Public relations work not just for organisations and agencies but also for individuals. Politicians,
celebrities like film actors, sports persons, etc., are extensive user of this tool. Some of the most effec-
tive users are Narendra Modi, Prime Minister of India, Amitabh Bachchan and Sachin Tendulkar.
A good public relations campaign can help enhance goodwill. Firms realize that developing goodwill
of consumers towards a brand is not a one-time activity. It requires a sustained presence and viability in
the media. Yet this alone is not enough. Internal stakeholders are also the consumers and ambassadors
of the brand. Hence, it is necessary to develop the attitude of employees, local community, shareholder,
distributors and suppliers, etc. Very often firms do not understand the value of a goodwill or good cor-
porate image and hence see no value in planned public relations exercise. Perhaps the firms realise only
when they find themselves in a controversy which starts hurting their brand image. It is not uncommon
today that even the most prestigious brands come under a severe attack of the media and activist groups.
Coca Cola, KFC, Vodafone, Unitech, DB Group and Kingfisher are just some of the brands which
were attacked by media activists, law makers and judiciary for all wrongful reasons. Ability to manage
adversity without losing the brand is the contribution that a good PR campaign can make. Hence, it is
important to understand what public relation is and how it works in the organisational context. Public
relation is defined in different ways. But almost all definitions converge on the following:
1. Public relation manages the relationship between organisations and its public.
2. It helps build attitudes, opinions and behavior both within and outside the organisation.
3. It helps to project organisation’s views and position to the stakeholders including law makers.
4. It establishes and maintains two way communications between the organisation and its public.
5. It results in enhancing brand credibility. Hence, public relation is a managerial function that es-
on whom its future depends.
TOOLS OF PUBLIC RELATION
LO6 Today a public relations exercise involves the following activities and tools.
Describe the tools of
Publicity
public relations
Much of the news and information from government and non-governmental
organisations emanate from public relation sources. Since this information placement in the media is
not paid for, organisations have very little or no control on whether the information at all will be dis-
seminated and even if it was and in what manner will it be done. A good public relations executive or
an agency can help organisation understand the news worthiness of a particular information item. This
is largely because they work very closely with editorial teams and media houses. Today the tools for
publicity are varied ranging from print, television, radio to web and social media.
Issues Management
It is a part of the public affairs. Public affairs typically relates to public relations effort aimed to influ-
ence public policy and create an image of good responsible corporate citizenship. Corporate public
affairs relationship servers as liaison with government, communities, political parties, etc.
Issues management becomes critical when an organisation is faced with an adversity or a negative
public opinion. It is important that firms identify the potential impact of an issue on an organisation
and evolve its response strategy which can then influence the public policy and perceptions of the
decision makers. It is also important when a policy that can affect firm’s future business is expected
to be formulated. For example, recently Government of India made changes in its policy on Foreign
Direct Investment in Civil Aviation. This allowed foreign airlines to invest or enhance their equity in
Indian companies. Jet Airways and Tatas played a pivotal role in putting forth issues and facts to guide
policy formulation. The goal of issue management therefore is to protect market, reduce risk, create
opportunity and manage image as an organisational asset.
Lobbying
It is a special part of public relations that build and maintains relations with government and other po-
litical leaders and policy makers primarily for the purpose of influencing legislation and regulations.
Many a time lobbying has been criticized as it is seen as an unwarranted approach to influence policy
formulation. Many a time this has led to charges of corruption. Companies have gone about lobbying
and justifying the expenditure under different terms like education. However, a good lobbyist is a one
who presents to law makers different perspective, including scenarios, in case legislations was made
in a particular way. Even he or she can even provide a lot of relevant information and guide policy
formulation.
Investor Relations
Today companies are interested in maintaining good relations with their investors. Investor relations
specialists work to enhance the value of a company’s share and reduce the cost of capital by increasing
shareholder confidence and making the stakes attractive to individual investors, financial analysts and
institutional investors. Annual reports, emailed earnings report, analysts report, etc., are major strategies
for disseminating timely information to investors and financial press.
PUBLIC RELATIONS MANAGEMENT PROCESS
LO7 Development of a public relations strategy in a company is a four step

Outline the public process very much akin to corporate strategy formulation. It is shown in
relations management Figure 17.2.
process
Define the Plan the public

public relations relations program
problem and strategy
Evaluate the
effectiveness of Execute
the campaign
Figure 17.2 Public Relations Process
Stage 1: Define the PR Problem

The starting point of any corporate communication is the recognition of the problem, most of the time
the problem is hidden in the symptom. Hence, it is critical to sift through the symptoms and arrive at the
correct problem. Let us take the example of an educational institution. This institution may be recog-
nised in the country for a particular discipline but as it becomes a university, it may want to diversify
in other disciplines and domains. The institution’s board does decide to get into all the domains and
simultaneously continue to invest significantly in the discipline it earned its goodwill. Though now the
institution may have ten disciplines and a university structure, but the market may still perceive it to be
primarily in the same old discipline for which it is known in the market. The university identification
cannot be created by just having the name. What is important is that the relevant markets must perceive
it accordingly. Hence, from a communication point of view the problem is creating an awareness of the
university identity and the disciplines in which the institution now operated besides its original disci-
pline. This requires an understanding of the markets and other stakeholder perception and how other
established institutions were positioned. This also requires understanding of the external and internal
environment of the institution. One of the important parameters that need to be studied at this point of
time is the enrolments in different programs along with their history.
Stage 2: Plan the Public Relations Problem

The above identification problem must also lead the PR expert to perform a SWOT analysis of the or-
ganisation and its each program. It must also lead towards identifications of alternative media relevant
to the target market. This can happen only when the PR analyst/expert have studied the media habits of
the target audience. As we mentioned in the Chapters 15 and 16, no media plan can be worked out in the
absence of a media research. Here one needs not only the readership or viewership data of the media but
also how the target audience related to it. For example, Times of India newspaper relates extensively to
the older generation but its Mumbai Mirror in Mumbai is most widely read by the younger generation. A
data on an aggregate basis therefore for Times of India circulation for example is of little consequence.
What is needed is the circulation data of each of its properties in the target market.
At this stage it is necessary to also understand the costs of communication. Even when the publicity
may have no direct cost, it is important to understand the indirect cost that a firm may have to incur in
a publicity campaign. Also the firm may have to plan the costs for the advertorials—lobbying. Hence,
the understanding of the cost and long term benefits of a public relations campaign is important to as-
sess before working out the final plan.
Once the above analysis has been done, the PR plan and the programs need to be prepared. The plan
must have clearly defined and measurable objectives. It must also mention the timelines for delivering on
each objective and finally it must also contain the parameters on which its effectiveness can be measured.
Besides putting the plan together, the firm must also plan its public relations strategy. More often
than not, firms do not consider investing resources in creating a public relations strategy. The strategy’s
objective may be to create a distinctive identity for the brand. Accordingly, it may decide to adopt a
differentiation strategy. It may want PR campaign to accordingly create a differentiated image of the
organisation in the target market through appropriate tools. For example, a consumer brand may like to
be positioned as a socially relevant brand. To achieve this objective, the PR program has to be woven
around the social initiatives with which the brand is associated. It will also involve putting in public
domain through print and electronic media the brand involvement in community activities. From a lob-
bying perspective this may involve developing special dossiers on various community issues and the
role played by the brand. Even the advertorials could be planned accordingly. This may lead towards
creating a brand’s image as a socially sensitive brand. But this cannot happen overnight nor can it hap-
pen in just 1 year. It requires a sustained PR and communication exercise for at least 3–5 years and in
some cases even more.
Stage 3: Execution
This is the stage of implementation. Once the campaign has been finalised, it needs to be implemented.
Here the PR expert/analyst has to develop the linkages with the media, editorial staff and the policy
planners and the law makers. This also requires continuity of efforts and also required is a periodic
assessment of how well the campaign is working.
Stage 4: Evaluation
This is the stage where the campaign is assessed for its effectiveness. Generally this assessment is
done at the end of the year against the objectives agreed upon at the commencement of the campaign.
One of the important measures used to assess the PR effectiveness, particularly the print media, is the
equivalent value if the PR campaign is not undertaken. This will provide to the firm an opportunity
to know that if it had not undertaken a PR campaign, then to achieve the same objective how much
amount of money the firm would have to spend if it was to buy the same space in the print media or
electronic media.
Conclusion
Brand building requires more than just advertising. The brand manager has to incentivize consumer and
the trade and at the same time need to be seen in a more authentic manner than otherwise. It also needs
to consider strategy to negotiate with the policy makers and the law makers as also with the activist
group. It is from all these perspectives that the firm has to integrate the sales promotion and public
relations campaign with its advertising and sales campaign.
SUMMARY
The market environment today is characterised by advertising clutter. Increasingly, firms are ques-
tioning today the advertising campaigns especially in the mass media but because of their reach,
firms continue to use them. Sales promotion helps motivate the consumer to buy the brand. These
promotions are short-term in nature and design to quickly stimulate sales. The primary goal of the
sales promotion is to incentivize either the customer or the dealer so that the brand sales increase.
Consumer promotions goal is to create a pull while trade promotions goal is to push the brand. The
role of sales promotion varies across the brands’ life cycle stages.
The firm needs to choose its strategic options in the context of industry’s strategic response to the
market environment.
Stakeholder perception management is one of the significant corporate challenges today. Stakehold-
ers are not just the shareholders but include customers, policy planners, activities and law makers.
Internal employees are also important stakeholders today. A good public relation campaign can help
enhance goodwill. The tools of public relations are publicity, issue management, lobbing and inves-
tor relations management. The PR management process is a four step process, starting with defining
the problem, planning, execution and finally measure its effectiveness.
POWER POINTS
in the immediate future. (LO1 and 2)

2. There are two types of sales promotions—consumer promotion and trade promotion. (LO2)
3. The broad objective of consumer promotion is to create pull for the brand while for trade pro-
motion it is to push the brand through the market intermediaries. (LO2)
4. Other objectives of consumer promotions are to (a) generate trial sales; (b) generate enquires
rates; and (e) increase rate of purchase. (LO2)

5. Trade promotion objectives are to motivate market intermediaries to invest in the brand and
aggressively push sales. (LO2)
6. Promotion plays a different role at each stage of product life cycle. (LO3)
wars in retail shelf. (LO4)

8. The role of public relation is to manage stakeholder perceptions. (LO5)
9. Public relations manages relationship between organisations and its stakeholders, help build
attitudes, opinions and behavior both within and out the organisation and help to project or-
ganisation view and position to stakeholder including law makers. (LO5)
10. Today the tools of public relations involve managing publicity that is managing news, issues
management, lobbying and creating instruments to enhance investor relations. (LO6)
(LO7)

1. What could be the sales promotion objectives for: (a) a newly opened restaurant; (b) Nescafe
instant coffee; (c) a beachside hotel during the monsoon season; (d) a premium brand of toilet
soap; and (e) a new Internet Service Provider? Justify your response. (LO1 and 2)
2. Which type of sales promotion vehicles will you use to promote the sale of a premium brand
of men’s toiletries? Why? (LO2)
3. What could be the sales promotion plan for a web based news magazine? (LO3 and 4)
would you give to him to improve the image of Air Asia. (LO5, 6 and 7)
CHAPTER
MANAGING THE SALES FUNCTION

18
LEARNING OBJECTIVES
LO1 Explain the challenge of managing sales force today
LO2 Describe the role and functions of a sales manager
LO3 Assess the role of the sales person
LO4 Explain selling theories
In Practice
Selling Future Benefits
Selling an insurance product is always a challenge. The insurance sales person's task is to sell
benefits in distant future and that too linked to some unfortunate event occurring in the life of
the insured. Also the tax benefits to a tax payer is something which many may find hard to com-
prehend. Besides insurance is still a product that has substantial negative image in a customer's
mind. Insurance companies have tried to overcome these negative beliefs through positive com-
munication campaigns like the one from ICICI Prudential where a woman gives a blessing to her
man "Jeete raho"(live long). Today the complexity of selling the insurance has further increased
with competition from more than a dozen companies some of whom are in partnership with the
banks. The insurance portal which enables customers to compare the insurance term and the
price further makes the task challenging for an insurance person.
Here is what the CEO of one of the private sector insurance companies said when asked by
the Board why the company’s market share was not growing and above all why it is that they
were not having a large number of retained customers who went beyond the first premium. The
CEO’s response was that the competition was incentivizing the customer when the first premium
was paid by the company sales personnel out of his commission. Also there was a heavy discount
which was a norm in the industry and the company as a policy did not offer a price discount
or the incentive by paying the first premium. Further the market was still concentrated in the
metro cities like Mumbai and Delhi. Other markets were slow to respond. Awareness about the
insurance and the brand was yet another problem that a life insurance sales person faced.
Managing sales today therefore involves managing people, business, brand and profits.
Managing the Sales Function 441
CHALLENGES OF MANAGING SALES FORCE
LO1 Managing the sales force today involves the following:

Explain the challenge (a) Planning sales force operations
of managing sales (b) Organising sales force operations
force today (c) Directing the sales force, which includes motivation
(d) Reviewing and correcting the salesperson’s performance
Today, this task has become more complex and will perhaps be, still more challenging in the future.
This is because of the following reasons:
● Changing Demographics of the Sales Personnel: New salespeople join-
The younger sales generation
believes in the loyalty to their
in urban areas. More and more women are joining the sales teams of dif- career and profession, while
ferent companies. A younger sales group implies a value system different, loyalty to the company comes
from their older counterparts in the team. The latter emphasised loyalty to at the bottom end of the
the company, developing friendships with their customer groups and, in loyalty structure.
their profession and career, and the company comes right at the bottom end of the loyalty structure.
These people believe in making customers their business partners. They want to go up the organisa-
tional and social ladder fast and hence feel uncomfortable with the parental kind of sales leadership.
● More Opportunities to Salespeople—Thanks to Competition: As the economy opens up, trade
are either entering the market or expanding their operations. This obviously implies more jobs in
the number of advertisements for sales jobs appearing in leading newspapers and business maga-
zines. Hence, there is competition even in the job market. This is different from earlier decades.
As this trend continues (and in fact accelerates), two things will become important in attracting
● The Challenge of Technology: Developments in technology, have affected the sales operations
in as much as they have affected manufacturing and corporate functions. Computers, fax, VSAT,
Internet, web, and mobile phones are some of the major developments, that help sales managers
speed up their response to the market. Today, a sales manager can get to know of sales in different
territories, customerwise collection and outstandings, and the extent of competition that exists,
all on his computer which may be linked to different regions in the country. As telecommunica-
tions and transport systems improve in the country, the territory managers will be able to get the
same information from their sales personnel in real time. Hence, the time required to respond to
market forces is now getting shorter. Sales managers will have to learn to respond faster, so that
● Better Trained Competitor Sales Team:

threat from the competitor’s sales force, which may be better trained. This is true for all transna-
It is a well known fact that a well trained and motivated army always wins the war. This is true for
marketing too, which is a war for the customer’s mind. Sales managers, who do not invest sufficient
resources in developing their sales team, may find that they have lost their competitive edge.
The need for training will also arise because customers are changing. They are demanding more rea-
sons why they should buy firm A’s product and not its competitor’s. The sales management information
system will undergo a change to reflect market realities and also the impact of technology. If the sales
force is not trained to sell competitively to the changing customer and in the new sales management
systems, a firm may soon become obsolete.
Faced with these challenges, let us take a look at the changing role of the sales manager.
ROLE OF A SALES MANAGER
LO2 Futurist A visionary sales manager

Describe the role of a Tomorrow’s sales manager should be a futurist. In would go beyond his
sales manager other words, these will be the managers who will immediate job description,
be able to analyse current trends in the market and crystal gazing the changes
identify the future scenario. This will help them to prepare better to respond, in the marketplace, thereby
becoming agents of change
within the organisation.
sales managers today, are of the latter kind, and hence, may even be called fire
fighters. They are fighting for collecting their payments, market shares, and sales
volumes rather than planning for territory development. A visionary sales manager is able to forecast the
changes and evolve an organisational mechanism and strategy to respond to any crisis, without loosing
his business. Being a visionary sales manager takes more than just having a role definition. As a matter
of fact, there is no defined role. Visionary sales managers go beyond their immediate job descriptions,
crystal gazing the changes in the marketplace to become agents of change within their organisation.
They are able to bring forth the ramifications of these changes on products, pricing, promotion, and
distribution decisions. This in turn, helps the firm evolve a proactive marketing strategy. For example,
the firm does not wait for the competition to change its channel of distribution to improve customer ser-
vice. It takes the lead and modifies or adapts distribution to match the customer’s service expectations.
Strategist
A visionary or futurist role does not mean that sales managers are just day dreamers. On the contrary,
they are strategists and tacticians. They know that the bottom line is the competitive edge in the market-
place, resulting in higher sales volume, higher price realisation, low debtors, and a higher market share.
Hence, based on the information on market trends, they are able to evolve strategies, which will help
them penetrate different customer accounts. As a matter of tactics they know which customers to go for
and which to underplay. This is reflected in their sales call frequency norms on different customers and
prospects given to the sales people. The sales appeals evolved by them are yet another example of tactics.
Manager of Information
Information will be the key source of a sales managers’ powers. As we discussed earlier, technology
has made access to information much simpler and tomorrow’s powerful sales manager will not be one
with fat expense accounts, limousines, and luxurious apartments, but one who has information ahead
of others in the industry, because time will be the basis of competitive advantage.
Leader of People
Besides the above, sales managers will be leaders. They will not be just simple managers (see Exhibit
18.1 to understand the difference between managing and leading human resources). Tomorrow’s sales
managers will be the developers of human resources. We will see them playing the role of a coach.
These managers will emphasise on team spirit, the spirit that will bind their sales team and also help it
to team up with other departments within the firm, to service the customers better. This aspect of the
role will help reduce friction between sales and other corporate functions like manufacturing, finance,
and so forth. This may even help firms become more market driven.
Exhibit 18.1 Leadership Transition Model
From a style of managing others To a style of leading others
Directing others Guiding/developing
Competing Collaborating
Using hierarchy Using network
Consistency/sameness Diversity/flexibility
‘Slow’ decision ‘Fast’ decision
Making/requiring permission Making/using judgement
Risk averse Risk taking
Individual contributor Team player
Being managed Self management
People as an expense People as asset
Sales Management Planning

The starting point in any management task is planning. One cannot think of a good strategy in the
absence of a plan. Furthermore, one cannot evaluate how well one has done, if there is no plan. The
process of sales management is summed up in Figure 18.1.
Analysis This phase is best described as situation analysis. The questions that need to be answered
are where the firm stands vis-à-vis the competition, and what are the market trends. Specifically, the
sales manager has to analyse the developments in different products, territories, and customer accounts
in terms of sales, market share, and profitability in comparison to the competition. He also has to ana-
lyse market evolution over a period of time, structural changes in the market arising out of technological
Figure 18.1 Sales Management Planning Process
groups (like unions, environmentalists, and consumer movements). Further, he also has to examine new
initiatives being taken by competitors and, in the light of the firm’s strengths and weaknesses, identify
new opportunities that the firm can profitably seize. The sales managers can use the Boston Consult-
ing Group (BCG) business portfolio matrix or the General Electric (GE) strategic business screen to
analyse the product market scenario, as also different customer accounts, as shown in Figure 18.2(a)
and (b) and Figure 18.3.
Figure 18.2 (a) BCG Matrix (b) GE Strategic Business Screen
It is evident that the firm’s position is not necessarily the same across different territories and cus-
tomer accounts. This kind of analysis helps in determining specific goals vis-à-vis territory, product,
and customer. Also, it helps evolve a focused strategy and tactics to ensure better utilisation of scarce
corporate resources.
Figure 18.3 Customer Analysis Using the BCG Matrix
Sales Objectives/Goals Based on this analysis, the sales manager can now determine the sales
objectives or goals. In the first place, these represent the management’s expectations from the sales
team itself, and these flow from corporate and marketing objectives. These objectives can be classified
into two main groups: (a) Quantitative and (b) Qualitative.
Quantitative Objectives These objectives are related to sales volume, market share, and profitabil-
ity. Other quantitative goals are acquisition of a specific number of accounts, completion of a certain
number of calls in a day, and recruiting a given number of new salespeople. The latter arises out of
the attrition rate in the sales team (or the rate at which individuals leave the sales team on account of
retirement or for taking up jobs outside, or any other reason), and the market growth rate. A change in
the corporate strategy, like switching from indirect distribution to direct marketing, may also mean a
greater number of sales people.
Qualitative Objectives The most important qualitative objective is customer satisfaction. Unfor-
tunately, in the heat of sales targets, this objective gets missed and it is not uncommon to come across
customers who have strong, negative feelings for the salesperson. They buy the product, not because
of the salesperson, but because of other product or distribution related reasons. Sales managers need
to be wary about this, as this dissatisfaction can make customers switch loyalties, if the competitors’
salespersons do a better job in enhancing customer satisfaction. Other qualitative objectives for the sales
team, include information collection and account servicing. The latter involves regularity in calling
upon different customer accounts, providing them with service, and so on.
Sales Strategies Sales strategies are the blueprints for action, that marshal and reconcile the sales
function’s resources with environmental constraints. Most of these emanate from corporate marketing
strategies. For example, strategic choices in distribution based on corporate and product objectives
need to be made. This involves identification of intermediaries in different locations, based on the dis-
tribution strategy (exclusive, intensive, or selective) adopted by the company. A sales manager has to
decide on market penetration, concentration, and a segmental strategy. Another strategic choice, is that
of differentiation versus standardisation in different territories and customer accounts.
Tactical Decisions Unlike strategies, tactics are short term in nature. They are designed for imme-
diate results. Thus, sales tactics fill in the operational details of a strategy and specifically spell out each
individual’s responsibilities. Some of these relate to discounts and discretion that different individuals
in the sales team have to give, to get a specific customer account and activities and events that require
sponsorship and help enhance the brand equity.
Implementation A sales plan’s success is dependent on how it has been implemented. For this,
it is important that the plan be communicated to the entire sales team. This is generally achieved at
annual sales conferences. The sales manager will need to design an incentive plan to ensure the sales
plan’s success. At times, additional training may become necessary. For example, when the role of a
salesperson is being changed from inventory management to competitive selling in the territory, the
firm may have to plan a training session to equip its sales force adequately.
Review and Feedback or Control Phase The sales manager needs to review with his/her
sales team, how well they have done. He/she has to investigate the reasons of variance, like studying
the actual performance against the plan, with a view to ensure that, in future, this does not occur. It
is important to understand that this variance may arise due to external or sales person-related factors.
While the sales manager may have no control over the former, he/she needs to microscopically examine
the latter issue.
Sales Budgets and Quotas

Sales budgets are the financial aspects of the sales plan. Typically, this includes
A sales budget is a balance
projected sales and the revenue for the year. It then considers the costs required
sheet between the projected
sales and revenue on the one
to achieve the sales revenue. This includes both fixed and the variable costs.
end, and the cost requiredFixed costs here, refer to rent of the branch and warehouse premises, deprecia-
tion on equipment used in sales offices (like computers, typewriters, furniture
to achieve the sales on the
other. and other fixtures), and salary of sales and non-sales personnel, etc. Variable
selling costs are salesperson travel costs, entertainment expenses, a salesper-
son’s daily boarding and lodging expenses while in the territory, commissions if any, and so on. A sales
budget ensures that costs are controlled and that no activity which unnecessarily drives up selling costs
is undertaken. Often, this sales budget is broken down territorywise or branchwise. Some firms have
found that a monthly or quarterly review of the budget has helped them achieve their profit goals.
Sales quotas are individual targets of salespersons. The quota emanates from
The sales quota—individual regional sales objectives and invariably has all the dimensions mentioned under
targets of sales persons—
should be quantitative and
the sales objectives. The quota spells out sales, market share, new customer
challenging. account, profit contribution, and customer satisfaction index. Quotas have to
be quantitative in nature because individual salesperson performances will be
evaluated on this basis. They have to be ambitious enough to challenge the individual’s potential. In
other words, they have to be motivating. Often, sales people are consulted in determining their quotas.
But sales managers use their judgement to finally arrive at the quota.
Manpower Planning
The next issue that the sales manager has to address, is one of manpower planning. How many sales
sales organisation is represented by:

(a) The number of customers and prospect accounts and their importance, in terms of their buying
potential
(b) The frequency at which, each account or prospect needs to be called upon by the salesperson.
The first factor or the number of customers or prospects and their importance, involves ABC analy-
accounts. It is important to note, that it is the buying potential and not the actual purchases that deter-
mine the category and, thereby, their relative importance in the firm’s customer portfolio.
This categorisation involves a degree of discretion on the part of the sales manager. The relative
importance of each customer or prospect account is also reflected by the time the sales force spends on
each of them. Normally, the A category will demand more time than the C category accounts. This is
reflected by the second factor, call frequency norms which is developed by the sales manager. The third
factor to be considered in workload analysis, is the average individual daily task or what an average
individual salesperson can achieve in a day as well as the number of working days in a year. This also
reflects the coverage plan and is to a large extent influenced by the nature of the product and market
characteristics. For example, a highly technical product requires more time for presentation and closing
a deal, compared to a simple routine product like a soft drink. Hence, in the first case the number of
sales calls a salesperson makes in a day is less than in the second case.
IN FOCUS
An individual’s workload is determined by:
(a) daily call norm
(b) number of working days, or number of days excluding of holidays, leave, meetings, conferences,
and training.
Now, based on the above information, the sales manager can determine the size of the sales force as
being:
S (C + P ) ⋅ F
x=
Cn ⋅ S (d )
where x = Number of salespersons required
S(C + P) = Total number of actual customers and prospects
F = Frequency of calls on each category of customer/prospect account.
Cn = Daily call norm
S(d) = Total number of working days in a year.
Illustration: Let us consider an example. Suppose a firm has 1000 customers and there are another 300
prospective buyers. On the basis of an analysis of the buying potential, the sales manager concludes
that 30% of his customer and prospects belong to A category, 20% are C category, and the rest are B
category. In view of the competitive position in the market and brand objectives, the sales manager
feels that all A category customers and prospects should be called upon twice a week, B once a week,
and C once a fortnight. An average salesperson can make no more than 6 calls in this firm’s situation
and the number of working days in 1994–95 will be 250.
Here, first we will calculate the customer and prospect accountwise workload as follows:
S(C ¥ P) Call Frequency (F) Number of weeks Workload

(a) (b) (c) (d = a ¥ b ¥ c)
A 390 2 52 40,560
B 650 1 52 33,800
C 260 0.5 52 6,760
Total Workload = 81,120 calls in a year
81,120 81,120
x= = = 54.08
6 × 250 1,500
or 54 sales people are required in this firm. Now if the sales manager already has a sales team, then
the number of sales people required should be equal to the present number. A deviation reflects over
or understaffing in the organisation.
Organising the Sales Effort

The next task of the sales manager is to organise the resources in such a way, that it helps him/her to
achieve the sales objectives. One of the most important resources that he/she has are the sales people.
The prime goal of the sales manager is to organise them in such a way, that their maximum potential
is used and also the brand’s objectives are achieved at the lowest cost. Some of the possible forms of
organising the sales force are discussed below. A more detailed analysis of sales and marketing organi-
sations, appears in Chapter 25.
Product Based
Here, the sales manager may organise the sales team on the basis of an individual product. This form
of organisation is commonly seen in multiproduct companies like Larsen and Toubro. The advantage
here is, that each product gets the required attention of the individual salesman. It also enables the
management to determine the profit contribution from each product. But the disadvantage is that the
same customer may be called upon by different salespeople selling different products. This raises the
cost of serving each customer. Also, if the customer is not satisfied or has a problem with one product,
he/she may express it to other salespeople from the company. In fact, the salesperson may not be aware
of the problem, thus further antagonising the customer. Some companies have tried to resolve this
through their sales reporting systems which may go up to the group manager, as in the case of Larsen
and Toubro.
Territory Form
The most common way to organise the sales force is on the basis of territory. Here, an individual
salesperson is assigned a sales territory and it is his/her responsibility to achieve sales objectives
in the territory. Here, the salesperson sells all company products to the same customer. This system
helps in overcoming the disadvantages of product based sales organisation. A sales territory represents
a continuous set of customers and prospect accounts bounded by geographical limits. Some of the
common forms of territory design are clover leaf, circular, and straight line. These also reflect the
routing plan of the salesperson.
It is necessary, that each territory be large enough to motivate sales people and must possess equal
opportunities for earning. Also, the need for salespeople to spend as much time at home, as possible
should be considered. This is important to the individual’s motivation as well as with a view to econo-
mising operations.
Today, the sales manager has access to computer based models and quantitative information that can
help him/her to design most profitable sales territories. The limitation of this form of organisation is
that the salesperson may not give adequate or equal time to all the products. Many a time, it has been
observed that salespeople spend more time selling fast moving products or those that help them earn
more commission. Also, they may not spend adequate time on all customer accounts. In reality, they
Customer or Segment-based Organisation Another form of sales organisation is cus-

tomer or segment based. Here, the salesperson is allotted a market segment or customers in a particular
industrial group. For example, in a packaging firm, the sales force may be organised linked to the prod-
uct line being food and beverages, petroleum, and other light engineering group. This helps the firm to
focus on a single market segment and its specific requirements. It also enables the firm to maintain a
lean sales organisation, keeping costs low. But the problem here is, that if a segment or customer has
not been served well by the salesperson, it can affect the future of the organisation itself.
Matrix Structures A more complex sales organisation is one that considers product, territory,
and segment together and allocates sales efforts accordingly. This sales organisation helps overcome
the limitations of all the above forms.
Sales Force Motivation

Leading the sales force involves motivating them to achieve and even surpass
Sales force motivation
their sales quotas. Motivation is intrinsic, but it is the task of the sales manager to
involves creating a climate
motivate his/her sales team. This involves creating a climate in which everyone where everyone could give
gives his/her best performance. While one aspect of this is creating challenging his/her best performance.
territories, the other is the leadership style and compensation packages. Sales
managers have to be people and task oriented. According to Blake and Mouton’s leadership grid1, they
should have 9.9 style or in other words, should be high on task and people orientation. They have to be
team builders and team leaders. They have to be good listeners and exhibit empathy, while demanding
performance. We can see the changing role of sales managers as leaders of the sales team in Exhibit
18.1.
Sales force compensation is an important tool to motivate the team. This compensation has two
parts—one, monetary and the other, non-monetary. It is important for us to understand that money by
itself has little role in motivating people. But it is the power of money, or what one can do with money,
that makes it a powerful tool in motivation. Money helps an individual acquire status in society, besides
enabling him/her feel more secure. But beyond a point, money ceases to have this value and that is
where the non-monetary incentives come into play.
Monetary Compensation Plans

Straight Salary The most common form of rewarding a salesperson is to
The straight salary plan
put him/her on a straight, fixed monthly salary. This ensures that the salesperson
is useful in capital goods,
industrial consumables, takes home a fixed income every month and hence he/she can plan his/her living
accordingly. It also ensures that the firm knows its financial commitment and
spares and project marketing
where the sale is a one time
that even the non-selling jobs like information gathering and customer service
occurrence, or one that would
get adequate attention. The salesperson will not necessarily put all his/her efforts
take a long time to close.
in selling fast moving items.
This form of compensation is useful in capital goods, industrial consum-
ables, spares, and project marketing, where either the sale is a one time occurrence (as in projects) or
is one which takes a long time to close. But once the customer has bought and adopted the product,
the salesperson has to only follow up for payments and collect repeat orders (as in case of consumable
like chemicals or packaging material, etc). Servicing customers and ensuring higher levels of customer
satisfaction become the subsequent call objectives.
The limitation of this type of compensation package is that it can breed complacency in the sales
team. It can create piggy back riders and salesperson may not necessarily complete the sales call norm,
nor may they work for market development. Hence, straight salary plans have serious limitations in
sales force motivation. This is also explained by the fact that both high achievers and non-performers,
take home the same income every month and, thus, this plan may fail to create a motivational climate
in the sales team.
Commissions Generally, it is believed that rewards should be commensurate with one’s efforts.
Hence, another approach is to compensate sales people with only commissions. For every sale made,
the salesperson gets a commission, which generally in many organisation is no more than 3% of the
total sales made in the month. This method ensures that high performers are rewarded adequately and
that the selling cost is linked to the sales revenue. This method, though meritorious for rewarding high
performers, suffers from serious limitations. In the first place, the salesperson is uncertain of his/her
monthly earnings. It may so happen, that in one month the person takes home a fat monetary packet
and in the next, earn nothing or very little, for the ultimate sale is a function of a host of variables, most
of which are beyond the salesperson’s control. Further, this method will foster a trend of pushing fast
moving items to only a select customer group, who may have a positive feeling towards the salesperson.
Prospecting or penetration in customer accounts may become a victim of this plan. Non-selling tasks
may not be done to the sales manager’s satisfaction. Further, the salesperson may not put in the effort
for higher price realisation, even though an opportunity may exist. To overcome the limitation of
higher price realisation, some firms now link commission to not only sales, but also to the price
realised. The higher the price realised higher the commission.
Combination Plans The limitations of the above two methods of com-
The combination plan
involves a base salary that pensation are sought to be overcome through combination plans. In these plans,
a sales person takes home a base salary is determined which the sales person will carry home each month,
each month, along with a no matter what the sale or profits are during that month. This enables him/her to
commission linked to sales plan monthly living expenditures. Normally, this is adequate for taking care of
and price realisation. the essential needs of the salesperson like food, clothing, children’s education,
and his/her other financial commitments, a third element. The second part of this plan is commission
which is linked to sales and price realisation. The firm may even add a third element by way of fringe
benefits like a motorcycle, a car, a paid holiday, or club membership for high achievers. This plan offers
several advantages, the first being flexibility. The plan responds to market conditions and a salesper-
son’s abilities. It ensures that non-selling jobs, prospecting, market penetration, and slow moving items
get adequate attention. It also satisfies the salesperson’s desire for a stable monthly income. However,
these plans fail to motivate seniors within the team. They may find that youngsters earn the same money
in the way of creating winning teams, as the salesperson may not feel a part of the organisation. Flight
to other greener pastures is not rare, particularly if achievers do not perceive opportunities for career
growth within their organisation. To adequately reward and challenge each individual’s potential, the
sales manager also uses non-monetary incentives like contests, sales meetings, conventions at holiday
resorts and training.
Control
Finally, the sales manager has to ensure that goals are achieved. This involves performance review and
thus a productivity analysis of the salesperson. In the performance review, the sales manager has to
review whether the targets, in terms of sales, market coverage, new customer development, and profit,
have been achieved. This is done through sales invoices, sales reports, interviews with customers, and
a structured performance appraisal format. The sales manager has to be careful in rechecking with
customers, about the quality of service provided by the salesperson and their satisfaction with him/her.
It can backfire, if he/she does not discuss customer’s evaluation with the sales person.
This could make the salesperson vindictive and can affect future deliveries to dissatisfied or com-
plaining customers. This could surely affect customers who are greatly dependent on the firm. To avoid
this situation, it is best to discuss customer feedback in aggregate, or as feedback from the territory
as a whole. The sales manager must then advise and help the salesperson to overcome any negative
feedback.
IN FOCUS
Productivity refers to the cost and profit contribution analysis. In sales management, this is measured by
the return on the time invested in the territory by the salesperson, or ROTI. This ROTI is calculated for
each salesperson and for each group of customer accounts in his/her territory, as in A, B, and C customer
groups. It is also calculated for the sales team as a whole. The thumb rule is, that if ROTI is less than one,
the sales efforts are unproductive. If it is 1, it is productive. The method to calculate ROTI is
Gross margin
ROTI =
Cost of sale
Illustration: Let us illustrate this with the earlier example of manpower planning. Suppose the firm
has the following additional data:
Customer Groups Sales Revenue ` Gross Margin (10%)

A 5,00,00,000 50,00,000
B 8,00,00,000 80,00,000
C 10,00,00,000 1,00,00,000
Total sales revenue 23,00,00,000 2,30,00,000
Cost per call is ` 150

Cost of calling on—
A category customers 150 ¥ 40560 = 60,84,000
B category customers 150 ¥ 33800 = 50,70,000
C category customers 150 ¥ 6760 = 10,14,000
Total cost of calls = ` 1,11,54,000
2,30,00,000
ROTI = = 2.06
1,11,54,000
Hence, the sales force is productive. Likewise, ROTI can be calculated for each customer group and
conclusions drawn as to which account groups are more productive than others. This is where sales-
people are focusing. But the limitation here is data. Data on gross margins and what constitutes selling
costs in the firm may be hard to come by. If a sales manager wants to compare his/her team with the
others in the industry, the lack of data may seriously hamper his/her effort.
Nonetheless, in the absence of a better measure, this is perhaps the most useful method.
ROLE OF THE SALES PERSON

In the beginning of this chapter, we discussed the importance of a sales-
LO3
person to society and to the organisation. Let us now further elaborate and
Assess the role of the
examine the role, that he or she plays or is expected to play in the con-
sales person
temporary market situation. At the outset, it is necessary to note that the
salesperson has an obligation to the customer and his organisation. Hence, we see his role as shown in
Figure 18.4.
Figure 18.4 Role of a Salesperson

Let us examine each of these roles in further detail.
Diagnostic
This involves a salesperson probing and finding the cause of a problem. Like an expert doctor, a sales-
person diagnoses the needs of his/her customers. He/she also diagnoses the competitive forces present
in the territory and their impact on his or her product’s share. He/she also diagnoses the strengths and
weaknesses of the competitor’s sales team and distribution in the territory. Furthermore, he/she also
diagnoses major developments in the territory and their implications to his/her firm’s marketing.
salesperson is able to perceive and also understand its implications on his or her organisation.
Analyst
Having diagnosed the market forces, the salesperson needs to analyse customer needs and market trends
and identify the linkages, if any. For example, he/she needs to analyse the customer situation and its
implications for his/her organisation. Likewise, he/she needs to analyse the trends in the market share
of competitors and his/her organisation’s over the last several time periods.
Information Provider
The salesperson is expected to play the role of an intelligence agent. In this role, he/or she is expected to
keep the management posted on any significant developments in the territory. For instance—has there
upon salespeople to provide them with these and several other such customer and competitor information.
The customer also wants the salesperson to provide information on the product, competition, new
developments in the product area, and so on. Thus, the customer wants to keep abreast of developments
and sees salespersons as a provider of information in all those areas.
Strategist
in command’, has to evolve a strategy, that can help him/her be a market leader. Since all other elements
of the marketing mix are outside his/her decision arena, the only elements that he/she can control, are
time and route planning. For example, a salesperson may time the announcement of a price change in
his/her territory in such a way that it will give the firm maximum benefit. Likewise, evolving a strategy
to sell to an aggressive customer is the role of a salesperson.
Tactician
A salesperson is also a tactician in the sense, that he/she evolves tactics to win over the customer or to
enhance dealer satisfaction. Tactics are short term action plans, flowing from strategy, which is a long
much and when to give in while negotiating a sale. So a salesperson has to be good at tactics, if he or
she wants to succeed.
Change Agent
Finally, we see a salesperson as an agent of change in the market or territory in which he/she operates.
For it is he/she who introduces new product ideas and influences the lifestyles and consumption pat-
terns, by making new products and services available in the territory and influencing opinion leaders,
to accept them and recommend the same to others. As we said earlier, modern society owes a lot to
salespeople, for it is they who help upgrade lifestyle and quality of living.
Thus, the role of a salesperson in today’s world is much more than just the conventional role of an
order taker.
SELLING THEORIES
LO4 To further understand what makes an effective salesperson, let us examine

Explain selling selling theories which can help us explain his/her approach to the prospect.
theories There are three theories that can describe much of a salesperson’s behaviour.
These are:
(a) Stimulus response theory
(b) Product oriented selling
(c) Need satisfaction theory
Stimulus Response Theory

The stimulus response theory states that if the salesperson uses the right stimulus of an appropriate
strength, the prospect will respond the way the salesperson wants him to—in this case, buy the product.
Some of the stimuli that the salesperson has a control over are:
● Self: Physical appearance, mannerism, tone or modulation of voice, and interpersonal skills
exhibited by the salesperson.
● Price Concessions: Normally salespeople have limited discretions to give price concessions, to
the most promising and large prospects.
● Announcement of Price Changes: Salespeople can choose their own timing to announce changes
in the price.
● Preferential Treatment to Important Buyers: Customers who buy in large volumes, make
payment on time, and are willing to help the salesperson in liquidating his stocks, are given
preferential treatment.
This theory presumes a passive role of the prospect in the entire selling proc-
The stimulus response ess. Like a robot, the prospect will follow the salesperson. Unfortunately, in
theory emphasises the most cases this does not work. In situations where it does work, it often leaves
physical appearance of the
sales person, and his/her
the customer in a state of post purchase dissonance, because the customer is not
conventional skills, while it convinced about the purchase. In a particular moment of weakness, the customer
presumes a passive role of may gave in to the salesperson, or the customer may be cheated into buying from
the prospect in the entire the salesperson. This theory works in organisations which have a selling orienta-
selling process. tion and believe in pushing sales at all costs.
The stimulus response theory saw firms emphasising the physical appearance
of the salesperson and his/her conversational skills. It also saw firms, giving leverage to their sales-
people to finalise orders at any cost. Hence, there have been instances where the salespeople made the
sale for the firm, but it was unprofitable because they lowered their prices or allowed extended period
of credit to the prospect, which had a negative effect on the firm’s bottom line. Further, as markets
become competitive, the thrust will be on relationship management. More and more salespeople will
need to have both internal and external focus, if he or she has to be an agent of change in the territory.
Internally, it is the salesperson who provides relevant information to all departments and coordinates
with them in order to ensure high customer satisfaction.
In the stimulus response theory, the principal contact in the buying organisation is the purchase
department. This single point contact and the role of the salesperson in the stimulus response theory is
summed up in Figures 18.5(a) and (b).
Figure 18.5 Role of Salesperson in the Stimulus Response Theory
Product Oriented Selling

Product oriented selling, commonly visible in pharmaceutical and other technol-
The product oriented
ogy products marketing, is based on the assumption that the buyer is not aware
selling, which assumes that
of new technological or scientific developments, does not know how scientific the buyer is not aware of the
advancement can help him or her, and is also not aware of his or her needs. It technological and scientific
is, therefore, the responsibility of the salesperson to make the prospect aware developments, emphasises
of these developments and also show how these developments will help the on presentation and
prospect. It is hoped, that in doing so, the prospect will be motivated to buy or explanation skills.
use the product. Since this theory involves explaining new developments, firms
emphasise on presentation and explanation skills. Most of the time, unlike in the stimulus response
theory which is aggressive in style, the salesperson is expected to apply subtle pressure, like the image
of the prospect in the peer group, or testimonials from opinion leaders, to close the sale. The role of the
customer prospect and the salesperson is shown in Figure 18.6.
Figure 18.6 Roles of Salesperson and Prospect

As this figure shows, more than 80% of the time is taken by the salesperson in presenting his or
her ideas to the prospect. This kind of selling approach, as mentioned earlier, is commonly visible in
pharmaceutical, computer, and projects marketing.
Once again, as the market gets complex, due to increased competition and higher degrees of cus-
tomer awareness of direct and indirect substitutes, this theory seems to leave behind dissatisfied and
non-committed customers. If the salesperson is not able to relate the product or new product concepts to
the buyer’s situation, he/she is confronted with the price objection or a prospect with no brand loyalty.
This clearly puts the salesperson at a disadvantage.
Need Satisfaction Theory

Unlike the earlier two theories, the need satisfaction theory is based on the
The need satisfaction
theory assumes that the interactive approach. The selling process is seen as one, that involves mutual
salesperson should identifysatisfaction wherein both the buyer and the seller are satisfied. Also this theory,
the prospect’s needs beforeunlike the stimulus response theory, is based on a win-win assumption.
he/she presents the product The theory states that the salesperson should explore and identify the pros-
and closes the deal. pect’s needs and expectations before he/she presents the product and closes the
deal. This theory also says the salesperson should actively listen to the buyer’s
objections and then answer them, keeping the customer’s needs in mind. It is believed, that unless the
salespeople know their prospects’ needs, they can never sell to or create or retain a satisfied customer.
On taking a look at Figure 18.7, which illustrates this theory, one finds that in the need satisfaction
theory, the buyer or prospect plays a much bigger role than the salesperson. For almost 80–85% of the
salesperson’s time, it is the buyer who does the talking and the salesperson listens. It is only after this
that the latter makes a full fledged sales presentation, linking his product features to the prospect’s or
buyer’s needs and shows how they are going to benefit the latter. This figure also tells us that there are
three stages in the need satisfaction theory:
(i) Need development
(iii) Need satisfaction
Figure 18.7 Need Satisfaction Theory

Need Development Stage The need development stage demands the salesperson to probe
have to be used at this stage. As we shall see in the subsequent section on probing, an open-ended
probe, or for that matter all other probes, help the prospect to get over his/her anxieties, concerns, and
tensions, and even tell the salesperson, things which he may not otherwise know. It also reassures the
prospect, that the salesperson is not selfish and interested in detailing the product, in a way that will
benefit the former.
Need Identification Stage An alert salesperson will be able to identify the prospect’s needs,
even before the latter does. But an effective salesperson knows that only when the prospect, himself or
herself, identifies the needs will he/she be able to truly understand the benefits offered by the salesper-
son. So, in the need identification stage, the salesperson probes, listens, and sums up what he/she has
heard. Summing up and giving a feedback to the prospect is important as it ensures a mutual understand-
ing of needs.
Need Satisfaction Stage The need satisfaction stage sees the salesper-
In today’s competitive
son making a presentation on product features and how they will benefit the
market situation, it is need
prospect. He is then able to answer the latter’s objections much more convinc- satisfaction theory and
ingly than otherwise. Presentation and explanation skills are visible at this stage relationship management
of selling, besides of course, probing, listening, and responding skills. that can make a salesperson
Since this approach focuses on the customer, this methodology is also termed effective.
as customer focused selling or consultative approach. This approach emphasises
relationships and leads to a happy and satisfied customer. Theodore Levitt examines the selling process
and activities that can help salespeople build good customer relationships.
SUMMARY
Selling is an important aspect of marketing. Customers get to know the firm and the product through
the salesperson. The image is created or tarnished by the quality of selling demonstrated in the field
by the sales people. They could be order takers (when they adopt the stimulus-response theory or
product-oriented approach) or problem solvers, consultants or a person held in esteem by the pros-
pect. This happens when the salesperson uses the need-satisfaction approach and does things that
help him or her build a positive relationship.
POWER POINTS
1. The importance of sales management in the contemporary environment arises from changing
demographics of new sales personnel, more opportunities for salespeople, technology develop-
ment, and trained sales teams of competitors. (LO1)
2. The role of the sales manager is that of a futurist, strategist, information manager, and leader.
(LO2)
3. The sales management planning process involves analysis, goal setting, strategy and tactics
development, issues in implementation, and also controlling of sales efforts. (LO2)
4. The analysis phase involves the use of portfolio methods for deciding on the sales force. (LO2)
5. Sales objectives include increase in sales product mix selling, customer satisfaction, and en-
hancement of the return on time invested in the territory. (LO2)
by the individual salesperson and territory. (LO2)

7. A sales team can be organised either on the basis of product, territory, customer groups, or a
combination of these. (LO2)
8. The compensation plans used by sales managers are straight salary, commissions only, or a
combination of these two. (LO2)
9. The role of a salesperson is that of a diagnostic, analyst, information provider, strategist, tacti-
cian, and agent of change. (LO3)
10. The selling approaches are stimulus response, product oriented, and need satisfaction or con-
sultative. (LO4)

1. Discuss the role of a sales manager in a consumer durable, consumer non-durable, and service
industry. (LO1)
you were the sales manager of a leading consumer products company, how would you like to
(LO2)
3. The sales manager of a company had often wondered if he had the right number of sales people.
In a recent review of operations, he came under severe criticism for not being able to deeply
penetrate the various market segments. To his explanation, that he was understaffed, he was
told to take a fresh look at whether the sales territory had been designed appropriately and also
whether each salesperson had adequate work load. He looked at his database and found that the
sales force serviced 6000 dealers nationally. Of these, 20% belonged to A category, 20% to B
category, and the balance to C category. On the whole there were 10,000 dealer outlets servic-
ing the industry, of which 20% belonged to A category, 20% B, and the balance to C category.
The salesmen made 10 calls a day as per details given below:
1. A category twice a week
2. B category once a week
3. C category once a month
For the up country markets the norms were as follows:
All A and B category customer’s were visited once a fortnight and all C category customers
once a month. 40% of the total dealers operated in the branch headquarter town and the balance
in the up-country markets. In 1994–95, sales manager had 300 working days.
The total number of sales personnel he had were 60. Comment on whether the sales manager
is under staffed or otherwise. Also discuss the various alternatives for determining the number
of sales personnel required by the company. (LO2)
4. (a) What factors would you consider in designing the sales territory for a new processed foods
(LO2)
5. Compensation plays a key role in motivating the sales force. Discuss the role of monetary and
non-monetary factors in motivating the sales force. (LO2)
merits and demerits of the quota system and also that of involving dealers and the sales team
in its determination. (LO2)
7. Why is it that a consultative style of selling is considered to be superior to other selling ap-
(LO3)
8. A company decides to improve its relationships with its customers. What steps should it take
(LO4)
CHAPTER
MANAGING THE
DISTRIBUTION FUNCTION
19
LEARNING OBJECTIVES
LO1 Describe the role of the intermediaries
LO2 Assess the factors influencing distribution decisions
LO3 Evaluate the channel alternatives
LO4 Summarise channel management
LO5 Plan a market driven distribution system
LO6 Explain logistic management
In Practice
Pushing the Brand Across Geographies and Segments
Post 2000 India has witnessed a significant growth in urbanisation. Urban India’s population
has grown exponentially and could possibly account for 40% of total population by 2030. The
number of metropolitan cities with population of 1 million plus increased from 35 in 2001 to
50 in 2011 and could increase to 87 by 2030. The growth of Indian cities will happen in many
cases through a process of peripheral expansion with smaller municipalities and large villages
surrounding the core city becoming part of large metropolitan area. This has happened in cities
like Bangalore, Lucknow, Chennai and even Delhi which has today become a mega metropolis
with neighbouring areas in the states of Haryana and UP getting clubbed to form NCR. The non-
metro urban markets are also growing today.
New housing complexes including townships like Pallava of Lodha near Kalyan in Mumbai
or Lavasa or Amby Valley are the harbingers of lifestyle and consumption changes.
While there is a lifestyle change, the Indian market continues to remain young. This market
today exhibits strong individual preferences. It is also not necessarily loyal to any single brand.
What is significant is whether the brand connects with them. The same holds good with respect
to store where the brand is available.
In order to reach out to this market, companies have to adopt both direct and indirect distri-
bution strategies. For example, it has to necessarily use the direct marketing channels to reach
Managing the Distribution Function 461
to the consumers at their workplace or homes. Not only so, the companies have to necessar-
ily make the brands available through the e-retailing or mobile retailing. For this purpose, the
companies and their brands have to make their presence felt in the e-retail portals like Flipkart,
Jabong or Myntra.com. In addition to these e-retail portals, company’s websites also act as e-
commerce sites where the customers can transact the business. Coming to the physical format
the organised and the unorganised retail has grown significantly. Today, the brand has to be
available in a store like Central or Big Bazaar or Lifestyle and at the same time has to be available
in the neighbourhood shop. Some of the brands like Van Heusen, Park Avenue, Arrow, Titan,
etc., also have their own dedicated showrooms.
Thus, all in all today, marketer’s attempt is to make the brand available to the consumers
at any place and time the consumer wants it to. It is the combination of physical distribution,
direct marketing, e-retailing and mobile marketing which today makes the task of reaching the
consumer interesting and challenging.
INTRODUCTION
Distribution decisions are critical in nature, as they affect the viability of the firm and the product.
These decisions affect the market share of the firm and hence great care has to be taken in selecting
distribution alternatives.
Several sections of this book refer to the size and diversity of the Indian market. The heterogeneity
is not just on account of culture and demographic profile of the population, but also due to the infra-
structure existing in the country.
This diversity, in terms of accessibility of markets today, poses a major marketing challenge.
Increasingly, marketers realise, that if they were to make their brands available in the right size, at the
right time, and at the right price, the Indian consumer can be motivated to buy and consume them. The
experience of the telecommunication industry and of FMCG leaders like HLL and Colgate only help
to reinforce the hypothesis, that an aggressive supply strategy can help the marketer not only garner a
good market share, but also to develop the total market for the product category. Reaching out to the
market, therefore, holds the key to the competitive advantage of firms. The same is true even for a
nation’s competitive advantage in the world market. Reach is also important for growth and profitability
of an enterprise. When markets shrink, it is only the firms with a vast reach that survive. Reaching out
to the market involves planning and strategising at two levels—distribution structure and logistics. The
distribution structure refers to the channel design and structure, and management of channels. Logistics
refers to the physical aspect of distribution. In this chapter we shall first study about the distribution
structure and then about logistics in the second part.
ROLE OF THE INTERMEDIARIES
LO1 Besides making the product available to the customer, middlemen perform
Describe the role of several other roles and functions. Some of these key roles are summarised
the intermediaries as follows:
● Information: Middlemen have a role in providing information about the market to the manufac-
turer. Developments, like changes in customer demography, psychography, media habits, entry of
a new competitor or a new brand, and changes in customer preferences, are some of the informa-
tion that all manufacturers want. Since these middlemen are present in the marketplace and close
to the customer, they can provide this information, at no additional cost.
● Price Stability: Maintaining price stability in the market is another function a middleman per-
forms. Many a time, the middleman absorbs an increase in the price of the products and continues
to charge the customer the same old price. This is because of the intra middlemen competition.
The middleman also maintains price stability, by keeping his overheads low.
● Promotion: Promoting the product/s in their territory is another function, that middlemen per-
form. Many of them design their own sales incentive programmes, aimed at building customer
● Financing:
capital, in the form of advance payments for goods and services. The payment is in advance even
though credit may be extended by the manufacturer, because it has to be made even before the
products are bought, consumed and paid for by the ultimate consumer.
● Title: Most middlemen take the title to the goods, services, and trade in their own name. This
helps in diffusing the risks between the manufacturer and the middlemen. This also enables
middlemen to be in physical possession of the goods, which in turn enables them to meet customer
demand at the very moment it arises.
Thus, the role and functions of any marketing channel can be viewed from five different perspectives
or marketing flows as shown in Figure 19.1.
Viewed from the above perspective, one can also conclude that the definition of a channel member
goes beyond the traditional one of middlemen. Today, it has come to include even suppliers of inputs
(like raw materials, components, capital, and even labour) and other institutions like transport compa-
nies and banks that facilitate the distribution process. It is in this sense that marketing channels have
to be ‘viewed as sets of interdependent organisations involved in the process of making a product or
service available for use or consumption’.1
The New Role of Intermediaries

The role of intermediaries is fast undergoing a change. Impacted by Internet and mobile communication
technologies, intermediaries find that their conventional role of selling the goods in their possession
and competing on the basis of price, does not hold good anymore. They are also realising that they can
no longer afford to remain content by satisfying the needs of an average customer. Today, since the
customer can access any intermediary anywhere in the world, the middleman’s role is to compete on
the basis of experience, customer has with the service. Hence the middleman has to have access to the
full range of products and services required by the customer. In view of the intensity of rivalry in the
distribution channels, each middleman will have to do a cost driver analysis and ruthlessly eliminate
all activities driving up the cost. He should also enter into strategic tie ups with firms who are comple-
mentary and, hence, can help to expand the network so as to deliver a total customer experience.
Brand Building Intermediaries today also play a significant role in enhancing the value of the
brand. For this purpose, they participate in awareness creation and incentivising the customer, who
could be an individual as in the case of Big Bazaar or other retailers or large buyers as in the case
Figure 19.1 Marketing Flows in Marketing Channels for a Typical Consumer Product Company
of Metro which is a cash and carry wholesale outlet. The brand needs to be strengthened by the
intermediary by making it available at the time when the consumer wants it.
In some breakthrough products like Tata Nano car, intermediaries have to be prepared for a longer
gestation period. The payback period in all such cases is bound to be longer.
Type and Nature of Middlemen There are three types of middlemen, that facilitate the flow
of goods and services from the manufacturer to the customer.
● Merchant Middlemen: These are the intermediaries who take title to the goods and services and
resell them. We know them as dealers, wholesalers, and retailers. These middlemen get margins
and bonuses as compensation. They share the risk with manufacturers, when they take title and
physical possession of the goods.
● Agents: These are intermediaries who do not take title to the goods and services, but help in iden-
tifying potential customers and even in negotiations. The typical example is that of C&F agents,
brokers, and jobbers, who act on behalf of the producer only to the limited extent of prospecting,
warehousing, and redistributing the products. They do not share risk with the manufacturers, as
they do not take the title to goods and services. Agents earn a commission and are reimbursed for
all expenses by the manufacturer.
Table 19.1 Changing Role of Middlemen

Conventional Role Contemporary Role
Transact discrete products or services Link benefits to produce a superior customer
experience in new ‘market spaces’
Sell what they have, or what is in stock Access and get to customers the full range of products
and services they need for this experience
Cut costs to compete on price of products Get rid of non-value addition activities, waste,
and services duplications
Focus on discrete core items Concentrate on value-added services.
Gear offerings to average customer Personalize offerings to suit unique individual needs
Work as an independent channel member Involve and integrate relevant players and expand the
electronic network so as to deliver a total customer
experience
● Facilitators:
from the producer to the customer without taking a title to them or negotiating for them on behalf
of the producer. Transport companies, banks, and independent warehouses are examples of these
institutions. These institutions are paid their service charges, as in the case of a transporter who
charges freight; a banker who is paid service charges; or warehouses, cold storages, and godowns
which earn rent.
Channel Levels One of the important decisions that firms have to often take, is regarding the num-
ber of channel levels required, to serve a given market. Channel levels represent channel members who
have a specific role to play. From as low as zero, or in other words, directly from the manufacturer to
the customer, one can have as high as 4 to 5 levels involved in distribution. Typically, zero level exists
in most industrial product marketing, particularly in capital equipment or project marketing. Internet
today, has made it possible to extend such distribution plan to consumer products and services too.
For example, a firm like Ion Exchange, that specialises in water treatment, has its own sales force to
directly market water treatment plants. Likewise, airlines offer to the customers the facility of on line
reservation, thus eliminating the role of travel agents. This type of distribution works well in product
markets characterised by a few or many customers concentrated in a specific geographical area or when
market becomes comfortable with technology. These customers want prompt service and are considered
to have high service expectations. In such cases most products require service support and the point of
differentiation between competing firms, is the quality of service. Furthermore, the industrial custom-
ers buy in large lots, or in other words, their average order size in value terms is high and hence these
purchase decisions have high perceived risk. To reduce any post purchase dissonance in the customer’s
mind, the firm uses direct marketing or zero level of distribution. In the case of consumer products and
services sold on line, the customer values time, convenience and flexibility in decision making. Hence,
internet, automated retailing and mobile commerce today offer the firm the option of disintermediation
and direct contact with customer all over the world.
When the number of customers is high and they are concentrated in specific geographical areas
without any uniform pattern in their order lot size, that is some buy in small volumes and others in bulk,
the firm adopts a one channel level of distribution. Here the firm sells its goods to a wholesaler or large
dealer or transfers them to an agent. This channel member then distributes the product in his area. An
example of this pattern of distribution is visible in industrial chemicals. A firm in this industry markets
its products, say dilute nitric acid, to dealers in Ahmedabad, Baroda, Mumbai, Delhi, and so on, who
then sell the acid to the users in their area. Most of the buyers, who have small steel rolling mills, buy
in small lots like a full carbouy, or about fifty litres or even lesser at times. Hence, it is economical
for the company and the buyer to deal through middlemen. The customer’s prime requirement in such
cases, is the ready availability of the product in the desired lot size.
Many a time, as in the case of consumer products, customers are spread all over the country and the
market is large. To reach out to such a vast market, a firm has to necessarily increase the length of the
channel and one finds two, three, and even four levels of distribution. The firm may sell or transfer its
goods to a wholesaler or agent, who in turn sells the goods to a retailer, and through the retailer the
goods finally reach the customer. In other cases, the firm may appoint a distributor or franchise the ter-
ritory to another business firm. This distributor or franchisee sells to a wholesaler, who in turn sells the
goods to retailers. At times, some retailers appoint sub retailers in smaller or rural markets, to distribute
the product. In most consumer goods, their prompt availability often becomes the reason to buy them.
Since the firm cannot directly reach out to all its markets, it has to depend on this form of distribution.
Alternatively or alongside, it has to develop an IT infrastructure and network with other agencies, like
transport companies or couriers for on line selling.
The Indian market has undergone a significant change with the emergence of middle class consumers
all over the country. Even in rural markets, there has been an increase in income levels and the demand
for branded and packaged goods is on the increase. Not only incomes, but even customer awareness
levels are on the increase, following the spread of satellite and cable television and internet. These
changes necessitate a firm to assess its distribution system. Traditionally, most firms transported their
goods from the factory to state capitals, which had earlier been the major markets. Wholesalers would
buy their requirements from this point (also called as HUB) and then redistribute the goods in different
towns. Normally, the wholesaler would have his sales force or direct contact with some major retailers
and would sell through them. This often left gaps in the market as, many a time, the wholesaler would
sell to retailers, not necessarily because of market demand, but because the retailer was financially
sound and could pay the wholesaler immediately. If the product demand was more than the supply,
the wholesaler or retailer would ask for a premium. This would lead to speculative trading as well as
uneven distribution in the market. Gaps were exploited by new competitors and smaller firms, who
served these niches. To overcome this problem and respond to market conditions, more hubs need to
be created in different parts of all states and from these hubs, spokes, or small retailers and commission
agents, should reach out to smaller markets.
This obviously implies, increasing the width of the channel, or identifying multiple members at the
same level to serve the market. Increasing the width will ensure regular availability of the firm’s brands
all over the country and hence strengthen its competitive position in the market.
Figure 19.2 sums up the concept of length and width of the distribution system. Figure 19.3 presents
the concept of the hub and spoke distribution system for a consumer product company.
Figure 19.2 Length (I) and Width (II) of Channel of Distribution
As one can observe, increasing the length of the distribution channel often distances the customer
from the manufacturer. This can affect the quality of feedback, that the latter may want from the mar-
ketplace. To overcome this problem of feedback, most firms now insist on their channel members to
give information on customer preferences and expectations. Some of them even directly contact opinion
leaders among customers to get a direct feedback. In consumer product companies, this problem is
Figure 19.3 Hub and Spoke Pattern of Distribution of a Soft Drink Firm
overcome through periodic market researches, consumer panels, and the like. Feedback is also solicited
through mobile communication and internet.
FACTORS INFLUENCING DISTRIBUTION DECISIONS
LO2 Determining Length of Distribution Channel

Assess the factors From the above discussion, it may be concluded that following factors will
influencing distribu- determine the length of the channel of distribution.
tion decisions
● Size of the Market: The larger the market size, the more economical it
is to indirectly serve the market and hence the longer the channel. Con-
versely the smaller the market, smaller the channel.
● Order Lot Size: If the average order lot size is small, it is better to have a longer channel than
when the average order is in bulk or if a container load is bought.
● Service Requirements: If the product and the market require a high level of service and it is a
or one level only.

● Product Variety:
ensures the availability of its product range at all outlets selling complementary and substitute
products. Hence, this pushes the demand for a wider channel of distribution. For example, a car
buyer would prefer to buy from a dealer who offers him or her a choice of brands as well as the
full range of car accessories. Hence, for the car manufacturer and the accessories manufacturing
Factors Influencing Distribution Decisions

Distribution patterns, channel objectives, and constraints are influenced by a host of variables. These
are explained in the following section.
Market Characteristics Market characteristics play an influencing role in distribution deci-
sions. For example, if the customer wants a high level of service, manufacturers will have to ensure that
its channel members are able to provide it or else the firm will have to provide it. The latter alternative
may be costly, but it may ensure a high level of customer confidence. In an automobile dealership,
for example, the automobile manufacturer insists on investment in tools, equipments, and manpower
training ensuring a high level of precision in servicing. Therefore, the manufacturer trains the dealer’s
employees in servicing the automobiles. Likewise, firms have today opened call centres which respond
to customer’s service calls on a 24/7 basis. Not only that to they have appointed independent service
agents who receive these calls in a seamless manner.
Customer characteristics, also imply the attitude towards waiting time, expectations with regard to
special conveniences, and preference for buying in comfortable and more relaxed environments.
Company Characteristics The next variable is company characteristics and objectives. The
channel design is influenced by the company’s long term objectives, financial resources, manufacturing
capacity, marketing mix, and even its corporate philosophy. For example, if the firm’s manufacturing
capacity can only meet 25% of the total market demand, it may be well advised to either follow
(a) selective distribution by distributing only through selected outlets in few markets or (b) adopt
intensive distribution by catering to all outlets in a given geographical market or (c) distribute it
exclusively all over the country.
Product Characteristics The next important variable influencing the distribution decision is
product characteristics. Here, the key issues for analysis are product value, perceived risk, and the na-
ture of the product. If the product value and, hence the perceived risk, is high, as in the case of capital
equipment or precious stones and gems, a shorter channel or direct marketing is the most preferred
alternative. Here the firm sells the product through its own sales force. Likewise, if the product is per-
ishable in nature, direct distribution or a shorter channel is advisable. For example, milk, bread, eggs,
fruits, and flowers require direct or short channels to reach the customer. Hence, a dairy supplies milk
in bulk to wholesalers or distribution point who then redistribute it directly to the customer, either from
their outlets or through their own delivery boys. But this is not so in the case of non-perishable goods
like textiles, footwear, toiletries, and so on, hence the longer channel. The next product related factor to
be considered is whether its standardised or non-standardised. The latter demands direct distribution.
For example, a suit tailored to fit a specific customer’s size and fashion preference will demand direct
marketing by the tailoring firm. But when the same firm makes shirts in different collar sizes, colours,
and styles so as to appeal to different customer groups, it can adopt a longer channel of distribution,
because this product is standardised. The product volume will also determine the length of the chan-
nel. Bulky products, like construction material, chemicals, or soft drinks require shorter channels, to
economically reach the customer. Lastly, the desired brand image sought by the firm, will determine
the distribution structures.
Middleman Characteristics This refers to middlemen’s aptitude for service, promotion and
handling negotiations, storage, contract and credit. Channel design reflects the strength and weakness
of different intermediaries.
Intensity of Competition The nature and intensity of competition in the industry will determine
the distribution pattern adopted by a firm. Some firms may adopt an intensive distribution strategy and
be indifferent to multiple brand outlets. Here, these firms aim at getting the highest share from such
outlets. Other firms may have the policy of exclusive distribution—insisting that the intermediary deals
in no other brand.
Environmental Characteristics Environmental characteristics like government policy, statu-
tory provisions, state of the economy, and technological and infrastructure developments, also affect
distribution decisions in the firm.
Impact of Internet on Distribution As can be made out from pre-
Disintermediation and
ceding pages, internet technologies have a significant impact on distribution of re-aggregation are two
goods and services. One such impact is, it makes the intermediary redundant as important consequences of
the customer is able to directly place the order with the producer/manufacturer. Internet on distribution.
He is able to plan his delivery directly from the manufacturer and hence, to that
an extent, customisation becomes easier and feasible. Disintermediation and re-aggregation are there-
fore important consequences of Internet. The classic example, is that of shopping at Amazon.com or
now buying an airline ticket on the Net. In both the cases, trade has been made redundant. Not only so,
even the check-in counters have been made redundant in countries like the USA following e-check-in.
Several companies have now come up with web based catalogue of their products, thereby taking away
yet another role of information providing from conventional channel members.
One can see the effect of Internet on distribution channels, if one were to examine the consequences
of Internet, namely making time, distance and location redundant against the three functions of inter-
mediary—sorting, searching and routinisation. This can also help identify opportunities for using Web
or Net-enabled distribution channels. Further, it assists in identifying competitive threats by allowing
management to concentrate on areas where other firms might use technology to perform distribution
functions more effectively. For example, a bank can use this analysis to identify threats to its business
from competitors who use Internet or mobile banking. Leyland Pitt, Pierre Berthon, and Jean-Paul
Berthon2 discussing the impact of Internet on distribution channels, present an analytical matrix, as
shown in Figure 19.4, for decision making.
Each of the above nine cells provides an opportunity for the marketer to
The key difference between
redraw either the distribution plan or reconfigure the role of channel members. the distribution media and
The authors concluded, that in the future, distribution media will replace distribution channel is the
distribution channel. The key distinction between media and channel is the issue of interactivity.
issue of interactivity. Internet is interactive and hence encourages consumers
to actively participate in the production and supply of goods and services. Another effect of Internet
on channel functions could be a rise in commoditisation, as channels have a diminished effect on the
marketer’s ability to differentiate the product or services. Customisation grows with the Internet. Finally,
Figure 19.4 The Internet Distribution Matrix
disintermediation and re-intermediation are other effects. Disintermediation occurs when the customer
buys directly from the firm using Internet technology. Re-intermediation occurs for reasons, other than
fulfillment of traditional channel function. For example, companies today encourage customers to lodge
their complaints on the Net or send queries on the Net. These queries and complaints are received at
the company’s website and then redirected to another site, where they are dealt with immediately and
in a seamless manner.
Thus, Internet today is impacting distribution functions in both manufacturing and service industries.
In Practice
Jet Airways Reaches Out to its New Customers
Internet and mobile marketing are the new ways to reach out to the consumers. Several compa-
nies today have their own website which also acts as the retailing site and their brands are also
available on the e-retailers stores like Flipkart, etc. It is not just the physical product but also
service brands like airlines, hotels, car rentals and experience products like theme park, movies,
and theatre which are also marketed through internet and mobile. Consider for example the
case of MakeMyTrip.com, BookMyShow.com and TripAdvisor.com. MakeMyTrip is a travel portal
which allows the customers to plan their trip. The customer can make a travel booking, book
a taxi or a car, reserve a hotel and if required can also make a train reservation. This is one of
the most commonly used travel portals. BookMyShow.com on the other hand markets plays,
musical and dance performances and movies and other events in different cities. Through this
portal customer gets to know the happenings in a particular city on a given date and is also able
to make a booking should he decide to go for one. The TripAdvisor on the other hand provides
information to the consumers on different places, hotels, resorts and how other consumers felt
when they visited a particular location or stayed in a hotel or a resort.
Jet Airways, India’s leading airlines today, markets its services to the consumer through its
website as also through the mobile platforms. The consumer is able to make their bookings for
the jet flights, tele check-in and perform all tasks through its website Jetairways.com from his
computer or hand-held device. This site is also available on mobile platforms. At the same time
Jet Airways sells its flights through the travel portals like MakeMyTrip.com.
Thus, on one hand, internet and mobile marketing have flattened distribution structure leading
to disintermediation; on the other hand it has also simultaneously helped in creating new forms
of aggregators like MakeMyTrip.com and BookMyShow.com. In either case, the customer gets
the benefits of convenience and lower cost.
Identifying Major Distribution Alternatives We have mentioned the three distribution

alternatives in the preceding sections, namely intensive, selective and exclusive. We shall now discuss
them in greater detail here.
Intensive Distribution his alternative involves all the possible outlets that can be used to distribute
the product. This is particularly useful in products like soft drinks where distribution is a key suc-
cess factor. Here, soft drink firms distribute their brands through multiple outlets to ensure their easy
availability to the customer. Hence, on the one hand these brands are available in restaurants and five
star hotels and on the other hand, they are also available through countless soft drink stalls, kiosks,
sweetmarts, tea shops, and so on. Any possible outlet where the customer is expected to visit is also an
outlet for the soft drink.
Selective Distribution This alternative is the middle path approach to distribution. Here, the firm
selects some outlets to distribute its products. This alternative helps focus the selling effort of manu-
facturing firms on a few outlets, rather than dissipating it over countless marginal ones. It also enables
the firm to establish a good working relationship with channel members. Selective distribution can help
the manufacturer gain optimum market coverage and more control, but at a lesser cost than intensive
distribution. Both existing and new firms are known to use this alternative.
Exclusive Distribution When the firm distributes its brand through just one or two major outlets
in the market who exclusively deal in it and not all competing brands, we say that the firm is using an
exclusive distribution strategy. This is a common form of distribution in products and brands that seek
a high prestigious image. Typical examples are of designer wear, major domestic appliances, and even
automobiles. By granting exclusive distribution rights, the manufacturer hopes to have control over the
intermediary’s price, promotion, credit inventory, and service policies. The firm also hopes to get the
benefit of aggressive selling by such outlets.
Terms and Responsibilities of Intermediaries The commercial policy of a manufacturer
often lays down the terms and conditions and responsibilities for its intermediaries. Generally these
include price policies, mode or terms of payment, returns policy, territorial rights, and so on.
● Price Policy: This sets out the price at which middlemen will get the product from the manu-
facturers and the discount schedule. It also mentions the price at which middlemen may sell the
product. Generally, the company is required by law to stipulate the maximum retail price. The
middlemen have to ensure that everyone involved gets a fair and equitable deal.
● Payment Terms: -
of the goods sent to the latter. The middleman has to then replenish the deposit by the required
insist on payment reaching them on the day the intermediary takes physical possession of the
goods. Others may accept a letter of credit as a mode of payment. Credit policy of the manufac-
turer stipulates the period by which the payment should be made.
● Returns Policy: This indicates the warranty that the manufacturer extends to the intermediary.
time to settle these claims. A distribution policy should lay down the conditions related to returns
and refunds, precisely outlining the responsibility of the manufacturer and intermediary. Failure
● Territorial Rights: The manufacturer should spell out the territorial jurisdiction of each of the
distributors to avoid any territory jumping. This will also help in the distributor’s evaluation.
● Mutual Services and Responsibilities: These should be spelt out clearly, particularly in the case
of franchised and exclusive agency channels. For example, both Pepsi and Coke have laid down
the role of their franchises in quality control, distribution, promotion, and selling. They give these
franchises promotional inputs, training, and other administrative support. Such a manual helps
EVALUATION OF CHANNEL ALTERNATIVES
LO3 The distribution or channel alternatives have to be evaluated from the point
Evaluate the channel of view of the cost of distribution, the degree of control the manufacturer
alternatives gets over the market through an alternative, and the flexibility that the manu-
facturer has in responding to market needs.
Evolution of Channels
As discussed earlier, the distribution strategy of any manufacturing firm should respond to market
changes. As markets evolve, products mature, and competition intensifies, the distribution plan of the
firm has to be modified. One cannot assume that a distribution plan, once evolved, will continue to
deliver results for the entire period of the product’s life. This is because of changing buyer behaviour
and characteristics of customers, who adopt the product at different time intervals. While in the intro-
duction and early growth phases customers (innovators and early adopters) are willing to pay any price
and go to any place to buy it, at the later stages of growth and early maturity, customers (or the early
majority) demand convenience in buying it. But as products enter the later part of maturity, customers
(late majority) become price and convenience sensitive. They shop for low prices, discounts, and even
lower priced brands. Reflecting these changes in the distribution channels over the product’s life cycle,
Milind Lele suggests that in planning the distribution strategy, a firm should consider value addition by
the channel and market growth rate. Based on this (adaptation of BCG model to distribution planning),
Lele has developed a grid3 as shown in Figure 19.5.
Figure 19.5 Marketing Channels Across Product Life Cycle
According to this distribution grid, at the introductory stage, value addition by the channel member
is expected to be high. They are believed to attract innovators and early adopters. Specialist channels,
like boutiques in fashion goods are a common example. As the market expands, customer interest in
the product grows and higher volume channels like speciality stores or stores dedicated to only one
product group appear. Computer Point and Computer World were examples of such stores. Shopper’s
Stop is another example of a dedicated store for ready made garments and all other fashion goods and
accessories. Once the product enters the maturity phase, low cost channels are required to keep the firm
floating and finally in the decline phase, the product is seen being traded in discount stores and discount
sales counters in leading stores.
Changes in the marketplace have led to the evolution of vertical and horizontal marketing systems.
Vertical Marketing System Often one finds that the manufacturer,
The VMS achieves
wholesalers, and retailers are locked in an unproductive conflict. This is because,
economies of scale though
each of them conventionally acts as independent business units pursuing a profit their size, bargaining power,
goal even though, at times, it may work against the others. In this conventional and elimination of duplicates
distribution structure, each tries to control the other but in reality neither of them services.
have any substantial control over the other members. The vertical marketing
system holds the promise to overcome such unproductive conflicts. In this system, all the three act as
parts of a unified system, like one of them owning the other, franchising the others or have the power
to makes, them all cooperate. Vertical marketing systems achieve economies of scale through their size,
bargaining power, and elimination of duplicated services. VMS is relatively a new concept in the Indian
market and not many examples are visible. But in the North American market, VMS serves between
70% and 80% of the total market.
Types of Vertical Marketing Systems Vertical marketing systems are of three types, corporate,
administered, and contractual. These are briefly described below.
● Corporate Vertical Marketing Systems (VMS): In the corporate vertical marketing systems,
successive stages from production to distribution are under single ownership of any of the channel
members. Vertical integration is achieved through forward or backward integration. For example,
Bata and Woodlands own their shoe shops across the country, while also manufacturing footwear.
Likewise, Raymonds owns some retail stores across the country, while also producing textiles
and woollens.
● Administered VMS: Unlike the corporate VMS, administered VMS seeks to control successive
stages from production to distribution not through ownership, but through the size and power of
cooperation. Firms like Hindustan Lever, Lipton, Proctor and Gamble, Nestle, TELCO, Maruti,
and others are able to get shelf space, promotional support, and also support for price policies
from the trade, mainly because their brands are market leaders.
● Contractual VMS:
distribution, integrating their programmes on a contractual basis, to obtain larger economies of
scale and, or sales impact which they might not achieve alone. Some are wholesaler sponsored
voluntary chains, like the ones in vegetable and food markets; others are retailer sponsored like
Apna Bazaar in Mumbai (retail cooperatives); and still others are franchises, like Pepsi or Coke
This form of VMS has a great future as synergies are possible. In fact, the success of Parle (Ex-
ports)—Brands—Thums Up, Gold Spot, Limca, Citra, and Maaza—in late 1980s is attributed to its
strong franchisee network across the country and overseas markets. Likewise, many computer training
companies like NIIT, Aptech, SSI, etc. grew through this model.
Horizontal Marketing System Another contemporary marketing system that challenges the
conventional one is the horizontal marketing system. This reflects the readiness or willingness of two
or more non related companies to put together resources, to exploit an emerging market opportunity.
An interesting example of this was the tie-up between TVS-Whirlpool and Onida to market washing
machines. The former manufactured washing machines in collaboration with the leading American
firm Whirlpool and Onida advertised and sold them through its distribution channel. By doing so, both
were able to take advantage of the emerging opportunity in the Indian market. Adler calls this form of
marketing symbiotic marketing4.
This is an option that holds tremendous potential for the future.
Multichannel Marketing Systems Lately, firms have been realising that one single system or
channel system is not always able to deliver the desired results. For one, the Indian market has grown
dramatically over the last one decade with the emergence of the middle class, working couples, and
single child families. This growth is not just restricted to metros but has spread across the country to
towns and even rural areas. A single distribution system alone cannot meet this opportunity. Even if it
does, the cost of distribution will become highly prohibitive and restrict the growth of the multichannel
marketing system. Here, the firm uses two or more channels to reach one or more market segments.
Consider, the example of Larsen and Toubro’s (L&T) standard switchgear products. This division has
its own sales force to generate demand among switchgear panel builders and serve other major national
accounts. It also has a dealer network who sell to the same segments. Both, the company sales force and
the dealers depend on each other to successfully fight competition. For example, if the L&T salesperson
finds that the chief engineer of a major project is looking for things beyond his reach, he introduces the
dealer who may be able to take care of it. Or, if the dealer finds that a large and an important prospect
has objections that are technical in nature and he cannot answer them, he gets the company’s sales
engineer to do the job.
This arrangement, though ideal in theory, has several built-in conflicts. For example, when a large
national account has been obtained as a result of the effort of the dealer and the company’s salesperson,
can the dealer get the commission? Who gets the credit? This conflict is resolved through ownership
of multiple channels by the same company.
CHANNEL MANAGEMENT
LO4 Just as no single distribution plan can remain static in the midst of mar-
Summarise channel ket changes, channel members’ expectations also change. At one stage,
management channel members used to take pride in mentioning their relationship with
well known national and multinational firms like Godrej, Hindustan Lever,
TOMCO, and so on. In fact, a firm like Godrej and Boyce required its dealer to be a respected and
important citizen of his town. Individuals who were members of the Lions Club or Rotary Club were
preferred. Petroleum and gas agencies were given to ex-servicemen and widows of armed forces men
by oil companies, because these individuals were respected in their neighbourhood. With the manufac-
turing base in all products having expanded significantly by 1990 (in practically all consumer goods,
barring petroleum based items, supply exceeds demand), channel members now had a larger choice. A
Hindustan Lever stockist no longer depended only on Lever for vegetable oil; today he is a stockist for
ITC, WIPRO, Godrej, Ahmad Oomerbhoy (Postman), Marico, and many other regional firms. Hence,
Lever’s control over its stockists weakened. Further, Lever’s own product portfolio has expanded
considerably. In each product group, the company has introduced multiple brands at different prices,
to serve different market segments. Moreover, the company has introduced several new products, like
liquid soap, herbal products, food products & toiletries in gel forms to take advantage of the growth
in the consumer market. All this puts a heavy demand on the stockist’s finances, for his investment in
Lever’s products has gone up by more than 200% over the last one decade.
The above scenario is not just restricted to Hindustan Lever and its associate companies. The same
holds good for other consumer product firms like Proctor and Gamble, Godrej Soaps, ITC, Nirma
Chemicals, Videocon, Onida, BPL Sanyo, and even cigarette and liquor companies.
Manufacturing companies today demand much greater selling efforts from their middlemen. The
former also want to be provided timely market information, more warehouse space, and competitive
advantage. Faced with these demands from manufacturers and the fact that they do not perceive returns
on their investment to be adequately commensurate, many stockists of well-known firms are up in arms.
Many of the stockists are signing out of their contracts. This problem of an uprising is also fuelled by
the new firms entering the market, who are giving more lucrative incentives to the middlemen to stock
and distribute their products in order to get a foothold in the marketplace. Higher discounts, higher
margins, extended credit period, reimbursements for sales promotion, advertising, marketing research,
and even salesmen’s wages are just some of the terms offered by these new entrants in the industry.
Trips to holiday resorts and exotic places within the country and outside for high performers are some
other incentives that these new entrants offer to the middlemen.
It is not that the competition has intensified only at the manufacturers end. It
Pressure on margins is
has even intensified at the distribution level. The number of wholesalers, stock-
an inevitable element in an
intrachannel competition.
ists, and retailers has increased substantially all over the country. This implies
that in order to distribute products in his territory, the wholesaler has to give
more incentives to the retailer, who in turn has to keep his prices competitive, if he wants his goods to
be sold faster than others. Pressure on margins is thus inevitable in an intrachannel competition.
All these issues make the task of channel management a demanding one. To effectively manage
channel members, the marketer has to
(b) motivate channel members
Channel Conflict
To manage channel conflict the marketer must understand
(a) the type
(b) the nature or cause
He should also appreciate that conflict cannot be totally eliminated. It can only be minimised.
Type of Conflict In any channel arrangement there can be three types of conflict—
The Vertical Level Conflict Vertical level conflict occurs when the channel member at one level, is
in conflict with another member at the next higher or lower level. For example, a conflict between the
wholesaler and the manufacturer is a vertical level conflict. Or the major retailers in the town conflicting
with the distributor over entitlements, is another example of vertical level conflict. Another example of
vertical conflict is the non-cooperation and boycott of pharmaceutical companies by their wholesalers
and chemists during 1989–90.
Horizontal Level Conflict Conflict at the same level between channel members is called horizontal
level conflict. Hence, inter stockist conflict or conflict at the retail level among retailers on issues like
pricing and territory jumping are examples of horizontal level conflict.
Multichannel Level Conflict Sometimes, the middlemen come in conflict with the manufacturer,
using both direct and indirect means of distribution. Such a conflict is called multichannel level conflict.
For example, a firm may have its own franchise outlet or its own shop in an area, where it may also
be distributing the product through established middlemen. The former is direct distribution, while the
latter is indirect distribution. The conflict may occur when the franchise prices its products lower than
the middlemen, wholesaler, or dealer, or when the firm retails a larger range of products through its
own outlet than through the wholesaler or stockists. Likewise, conflict occurs when an order has been
obtained with the joint efforts of the company’s sales force and dealer.
Nature or Causes of Conflict Channel conflict occurs largely due to financial and non-finan-
cial reasons. These in turn may be traced to the following causes:
Goal Incompatibility A major factor causing conflict between manufacturers and wholesalers is the
perceived goal incompatibility between them. For example, while the manufacturer perceives his goals
to be market share and profit maximisation in the long run, wholesalers perceive their goal to be sales
maximisation and thereby profit maximisation. The latter even prefer to work at higher margins and
on short term profitability. This makes the manufacturer accuse the wholesaler of being ‘fair weather
partners’ and the wholesaler accuses the manufacturer of squeezing his margins. This is typically what
happens, with all large manufacturers and their channel members today.
Role Ambiguity Many a time, conflicts occur because of role ambiguity. This is a common cause of
conflict in multichannel conflict. For example, the role of the manufacturer’s sales force and that of the
dealer in selling products to major accounts or institutional customers in the territory, is often unclear
in some companies. This often creates conflict in these companies’ relationship with the channel.
A well known automobiles component manufacturer had such a conflict when one of its distributors
started selling directly to retailers bypassing large wholesalers in the territory. The wholesalers revolted
and started pushing the competitors’ products. Lack of role clarity of any of the channel members can
be a source of potential conflict.
Difference in Perception of the Market Different perceptions of the market and economy may
also create a conflict between the manufacturer and middlemen. For example, a manufacturer may per-
ceive an opportunity in the booming Indian middle class market and introduce new products, multiple
brands, and even appoint wholesalers in distant areas. The existing dealers of this firm may not see the
picture this way and may perceive the appointment of multiple dealers and downsizing their (former
dealers) territory as dilution of their control over the market.
Magnitude of the Conflict This refers to the seriousness of conflicts. At times, the conflict may
not be of a magnitude demanding the manufacturer’s attention, for example, inter-dealer conflict in the
territory over prices or territory jumping. But when the conflict assumes significant magnitude (this is
often reflected by the impact the conflict has on the manufacturer’s sales and market share in the terri-
tory), the manufacturer must take the initiative to resolve it, for ultimately it is the manufacturer who
is the leader of the channel. Moreover, a serious conflict will affect his market share in the territory.
Managing the Conflict To minimise the conflict, the manufacturer may take the following steps:
Communication An effective way to minimise channel conflict is to have regular communication
between the manufacturers and the channel members. Most Chief Executives today spend time with
their channel members to understand market dynamics and communicate the brand’s positioning strate-
gies. These meetings are also used to resolve channel members’ problems. These issues are resolved
at times through informal meetings or discussed in in-house newsletters which they send to all their
major dealers.
This newsletter informs channel members of happenings in the marketplace and also the company’s
perspective of the products and markets.
Dealer Councils Another way to resolve conflict is through formation of dealer councils. Such
councils can resolve issues in horizontal level conflicts and even vertical conflicts. The manufacturer
continues to play the key role in these councils. Often the criticism or fear voiced in this regard, is that
such councils can provide a platform for dealers to jointly voice their grievance against the manufac-
turer. These councils unite dealers. But, if the manufacturer can keep the councils focused on market
leadership and maximisation of returns on investment, and is also willing to accept constructive sug-
gestion, the dealer council can become an effective tool for intervening in the marketplace.
Superordinate Goals Another way to resolve channel conflict is to evolve superordinate goal of
maximising customer satisfaction. If the channel members can be motivated to perceive customer sat-
isfaction as the ultimate goal of all members in the leading to profit maximisation for all concerned,
then much of the conflict can be resolved. Often superordinate goals development is easier, only when
the threat from the other firms is high.
Arbitration and Mediation Often, the conflict among channel members may be resolved only
through arbitration and mediation. Generally in intramiddlemen conflict—horizontal or vertical
(wholesaler versus retailers)—the manufacturer may arbitrate or mediate. But, when it is between the
manufacturer and dealers, arbitration or mediation may be done by independent individuals or institu-
tions like a court or government agency, like the drug controller mediating between pharmaceutical
companies and their stockists.
Motivating Channel Members

Another major challenge to a marketer today, is to keep channel members moti-
Financial rewards include
vated so that they give their best performance. Motivation of channel members
higher margins, extended
credit time, bonuses, andis often achieved through financial and non-financial rewards. Financial rewards
reimbursement of expenses, include higher margins, extended credit time, bonuses, and reimbursement of
while non-financial rewardsexpenses. The problem with most financial rewards, particularly higher margins
include contests, publicand bonus, is that the wholesalers use them to reduce prices for their customers.
recognition, paid holidays and
The net effect is that effectively their profits never go up. So any increase in
training.
margins is hardly retained by dealers. The manufacturers will always be under
pressure to further enhance margins. Hence, when the financial rewards are not
going to be retained by dealers, non-financial rewards assume importance.
The non-financial rewards are contests, public recognition for higher performance through mo-
mentos, paid holidays at company expense at holiday resorts in India and abroad, and training. Bajaj
Electricals, Parle (Exports), Philips, and several others are known to publicly acknowledge their high
performing dealers or franchises at their annual get togethers.
Companies like Reliance, Videocon, and others are known to sponsor holidays for their high perfor-
mance dealers at foreign destinations like Bangkok, Pattaya, Singapore, Hong Kong, and so on. Larsen
and Toubro’s standard switchgear product division brings its high performing dealers to a training
programme at company expense. The programme focuses on issues that are perceived to be highly im-
portant to these dealers. Typically, this programme has inputs in finance, human resource management,
and sales and territory management. The company also uses this training programme as an opportunity
to brief stockists or dealers on its plans and policies.
Some other non-financial motivation schemes, aimed at making channel members partners, are regu-
lar and multilevel sales calls by manufacturer’s representatives. The manufacturer’s salesperson, may
sometimes spend a day with dealer’s representatives in the market and jointly work on ‘breaking-in’
major or tough customers.
Increasingly, today, the task of motivating channel members is becoming complex and demands an
innovative approach to making channel members partners in corporate growth.
PLANNING A MARKET DRIVEN DISTRIBUTION SYSTEM
LO5 We began this chapter with a case of a consumer product company that lost
Plan a market driven its competitive edge because of an obsolete distribution system. We also
distribution system subsequently mentioned the changes in the Indian market. In any market
situation, if the distribution system of a firm is not customer focused or
market driven, it risks losing its market share. Louis W. Stern and Frederick D. Sturdivant suggest an
eight step process to create a customer focused distribution system.5 According to them, this process
will help marketers give substance to the corporate rhetoric ‘market driven firm’. In the development
of this system, the authors have brought to the fore the critical role of marketing research. They argue
that research till now, has been used for more tangible purposes like product decisions and communi-
cations decisions. The distribution area has been neglected as it is not as glamorous as the other two.
Yet, the fact is that success of any product is dependent on how effectively and efficiently it has been
distributed. The authors suggest that consumer research will throw up ideal distribution alternatives
and executive judgement should be used to financially decide on the alternative.
Steps Involved in Designing Market Driven Distribution

The eight steps in designing the market driven distribution are:
Know What Customers Want The starting point in the evolution of market driven strategies is
getting to know what your customers want. In the context of distribution, it is the service. This service
can be categorised in five groups:
(a) Lot size: Unit of purchase most preferred by the customers.
(b) Market decentralisation: Whether customer prefers to buy at a shop round the corner or is willing
to travel a distance to buy the product.
(c) Waiting time: Do customers want immediate delivery or are they willing to wait?
(d) Product variety: Do customers prefer to have a variety of related products from an outlet or prefer
the outlet to specialise? For example, a consumer prefers to buy petrol from an outlet where he
can get full range of service for his/her car and also shop for his/her daily conveniences.
(e) Service backup: What is the type and quality of service that customers want from the outlet?
Decide on the Outlet Based on the above and the trade-off that the customer gets for one service
benefit against another, the marketer can develop clusters or segments that value different services in a
particular way and whose prioritisation of services is similar. Based on this clustering, the marketer will
have to consider alternatives like high image outlets (Shopper’s Stop, Benzer, etc.) for readymade and
branded garments and textiles versus low image discount outlets (for example, Babubhai Jagjivanram
for textiles). It is important that the marketer should not be hamstrung by industry experience. Unfor-
tunately, in reality it is mostly true.
Determine the Costs Once the alternative has been selected, the marketer should now deter-
mine what the costs will be. This may be done with the help of either inhouse corporate executives or
with outside professionals. The marketer should also determine the support required from other channel
members,’ like suppliers, for any hypothetical outlet suggested by the research. Cost projections should
be made on an incremental basis starting with the existing distribution system. Stern and Sturdivant
state that the bottomline in evaluating alternatives is the additional market share required to offset added
costs of the new distribution system.
Bind the ‘Ideal’ The authors further mention that the ‘ideal’ alternative should be tested against
(b) effectiveness, especially in market share

(c) adaptability or ability of capital invested to accept new products or adjust to new technologies.
Compare the Alternatives The next stage is to compare the existing and proposed distribution
alternatives against an ‘ideal’ distribution plan. Here, one must compare these alternatives with the ex-
isting one on parameters like functions performed by various channel participants, costs and discounts,
and so on. Also, one must examine volume flows by channels as well as by margins, functions, and
value addition at each level.
Review Assumptions in the Light of Research
Confront the Gap between the ‘Ideal’ and the Actual Distribution System
Implement Changes in the System, if Required This process helps the marketer take
decisions on whether the existing distribution system needs a change and also lower his risk in an
eventuality, that it does need to be changed.
LOGISTIC MANAGEMENT
LO6 Logistics management involves two distinct but in-

An efficient supply chain
Explain logistic tegrated functions. One is of materials management
management calls for
management and the other is physical distribution management. better materials planning,
This, in other words, represents the value chain of the inventory management,
firm where, at the start is the procurement function and at the end of the chain, management of transportation
is the customer. Increasingly, companies have realised that management of this and warehouses, as also
entire chain is far more important than just making standalone corrections in information management.
individual functions. This focus on the integrated chain has led to the emergence
of the concept of supply chain management and integrated logistics. Several leading firms today, focus
on managing their entire supply chain rather than on transportation and warehousing decisions alone,
which were the main focus of logistics decisions earlier. Technological developments, especially in
information technology, have facilitated the growth of this concept. Increased use of computers, point
of sale scanners, bar coding systems, satellite tracking, electronic data interchange (EDI), and elec-
tronic fund transfers have facilitated the emergence of advanced systems of order processing, inventory
control management, and transportation management. Thus, the focus of supply chain management is
on removing inefficiencies and blocks in fulfilling customer demand in real time, or the time when it
occurs. This obviously requires materials planning, inventory management of transportation and ware-
houses, as also information management. It is in this context that the supply management approach
differs from the traditional logistics management approach. Table 19.2 elaborates this difference.
Table 19.2 Comparison of Traditional and Supply Chain Management Approaches

Approach
Element Traditional Supply Chain
Inventory management approach Independent efforts Joint reduction in channel
inventories
Total cost approach Minimise firm costs Channel wide cost efficiencies
Time horizon Short term Long term
Amount of information sharing As required for planning and Limited to needs of current
and monitoring transaction monitoring processes
Amount of coordination of levels Single contact for the channel Multiple contacts between
in multiple levels in the channel transaction between firms
and levels of channel
Joint Planning Transaction-based Ongoing
Compatibility of corporate Not relevant Compatible at least for keys
philosophies relationships
Breadth of supplier base Large to increase competition Small to increase coordination
and spread risk
Channel leadership Not needed Needed for coordination focus
Amount of sharing of risks the Each on its own Risks and rewards shared over
and rewards long term
Speed of operations, information, “Warehouse” orientation (storage, “Distribution Centre” orientation
and inventory interconnecting safety stock) interrupted by (inventory velocity) flows; JIT,
flows barriers to flows; Localised to Quick response across the
channel pairs channel
Source: Martha C. Cooper and Lisa M. Ellram, ‘Characteristics of Supply Chain Management and Implication for
Purchasing and Logistics Strategy’, The International Journal of Logistics Management, Vol. 4, No. 2 (1993), p. 16.
Traditional Logistics Management Approach versus Supply Chain

Management
Just as manufacturers and marketers are now focusing on their supply chain,
Forecasting demand for
there are logistics providers (conventional role played by freight forwarders
raw materials and other
and transporters) who have taken over the role of providing integrated logistics inputs is the key to materials
services. Today, firms like AFL provide these services. Essentially, an integrated planning.
logistics provider operates at both ends of the value chain of the firm, integrates
all modes of transportation to suit customer needs, provides information to the customer, and even
takes on the warehousing functions. The evolution of integrated logistics marks the growth of customer
service.
As mentioned earlier, logistics management includes two cycles—one of materials management and
the other of physical distribution. The materials management cycle focuses on efficient acquisition,
delivery, control, and application of all inputs, finished or semi finished goods and services, used for
the internal operation of the firm. This obviously involves all inbound operations of transport, ware-
housing, and vendor management. Forecasting demand for raw materials and other inputs is the key to
materials planning. This projection is possible only when there is a proper market projection.
The term physical distribution refers to the outbound logistics, or to the flow
Physical distribution or of products, services, and information from the firm to the customer through
in other words outbound a defined network of transportation links, distribution nodes, and a dedicated
logistics, ties the firm to an
individual customer or to other
network of computers linking the firm to the customer. This network may tie
firms that may either use the firm to an individual customer or to other firms that may either use the
the product for further value product for further value addition or to distribute it to a larger market. Thus, the
addition or distribution to a distribution cycle is often likely to represent the materials management cycle
larger market. to the buyer firm and is often repeated several times in any marketing channel.
The distribution cycle is influenced by the nature of the product, demand condi-
tion, and competitive activity in the marketplace. For example, perishable products require a different
network of transportation, warehouses, and information flow than non-perishable ones. Also, the cycle
will differ between seasonal and non-seasonal demand.
The distribution cycle is a cost service orientation backed by an integrated physical distribution
network whose goal is to minimise the cost of distribution at a given level of customer service. This
concept involves the following:
(a) understanding of total costs of physical distribution
(b) taking a total systems perspective of the distribution
(c) zero sub optimisation of goals—distribution goals to be set up with the realisation that attainment
of goals in one area may affect another area. For example, lowering warehousing cost by lower-
service levels.
(d) channel integration—this involves developing channel partnerships and strategic alliances
The purpose of this, is to streamline physical information channel flows by reengineering the distri-
bution process. This reengineering is achieved through the deployment of information and telecom-
munication technologies.
The focus in channel integration is on return on investment. Today, we see
The focus in channel
such channel integration taking place in the Indian market. Kodak, for example,
integration is on return on
investment.
now has a strategic partnership with well known photography studios. Here, the
company and the partners have invested resources in providing services to the
customer in the minimum time. For this purpose, a digital service, developing and printing labs, and so
on have been set up throughout the country. In order to achieve channel integration, firms must design
and implement a logistics system that coordinates the different parts of the entire distribution system,
so as to enhance customer value at the lowest cost.
Logistics Decisions
Major distribution decisions impacting customer value are transportation, warehousing, and inventory.
Lets take a closer look at each of these decisions.
Transportation Decisions Transportation can impact a firm’s ability to exploit a market op-
portunity. Inadequate transport services, uncertain transit time, and inadequate preparation for trans-
portation, like non-availability of transport permits can lead to a mismatch in demand and supply and
hence lead to firms stocking large inventories of finished products. This has been the scenario so far,
in a large number of Indian firms. All this leads to increased costs, poor customer service, and missed
product sales opportunities. Consequently, selection of transportation modes and the transport compa-
nies are the key to customer value enhancement. Should the product move through railways, roads, sea,
river, or air will be dependent on the nature of the product and market conditions.
The decision maker should also consider the following in selecting a transporta- Intermodal transportation
tion mode: combines two or more modes
of transportation, Container
(a) Costs
Corporation of India being an
(b) Dependability of the mode example.
(c) Transit loss and damage
(d) Reach of the mode
Increasingly, companies are using intermodal transportation to reach to their markets. Intermodal
transportation combines two or more modes of transportation. Container Corporation of India is one
such intermodal transporter of products in the country. The firm containerises the cargo and transports
it from the manufacturer to the market through road, rail, and ship. The company has invested in the
development of dry docks and has strategic partnerships with leading road transporters.
Warehousing A firm can choose to either have its own dedicated network
An own network of
of warehouses or share space with others in third party operated warehouses.
warehouses enables a firm
The former offers greater flexibility in design to meet product characteristics greater flexibility in design
and storage needs, greater control over warehouse operations, effective mar- and storage needs, control
ket feedback, and lower cost per unit as opposed to a third party arrangement. over warehouse operations,
However, third party warehouses require no fixed investment by the firm. Also, and lower cost per unit
flexibility in location and space utilisation make this an attractive alternative. while a third party owned
Customer service can be improved significantly through this approach. These warehouse has flexibility in
are also called distribution centres. Whether a firm uses its own or a third party location and space utilisation.
warehouse, it has to take following decisions:
(a) Number of warehouses and their location
(b) Level of customer service required to be provided to gain a competitive edge
(c) Cost of distribution
(d) Technology to be deployed—automated warehousing is now the order of the day
Inventory Management Inventory levels also impact the competitive advantage of a firm.
Here, the marketer has to maintain a fine balance between stockouts and stockpiles. Many companies
are trying to manage this function through JIT (Just in Time) processes. But given the infrastructural
constraints in India, it is still too early to ensure JIT in all markets.
Third Party Logistics—An Emerging Alternative

Today, there are several third party logistics providers in the country. Safexpress, GATI, and even AFL
are some such providers. These firms specialise in the development and application of new and innova-
tive methods of packaging, handling, transportation, and freight management. These third party logis-
tics providers can be segmented into three broad categories.
Third party logistics provide
based like a transport company moving into logistics (example Patel Trans- more speed and consistency
port or Transport Corporation of India) or established freight forwarders for just-in-time (JIT)
like AFL operations
(c) Customised to a client

Third party logistics providers add value to the distribution channel by offering speed and consis-
tency for just-in-time operations without having to move existing manufacturing and warehousing
facilities closer to the customer.
IN FOCUS
Third Party Logistics
There are reasons why third party logistics is gaining prominence. Some of the major ones are:
(a) firms are able to concentrate on their core competencies and hence there is a better focus in their
operations
(b) it eliminates staffing and internal system development costs
(c) reduces initial start up distribution costs
(d) customizes the offer to market needs better than the manufacturer
(e) controls costs and improves customer service across markets
In selecting a third party logistics, the supplier firm neds to focus on:
(a) compatibility in approach, attitude, and culture
(b) quality of services to be provided by the supplier
(c) experience in a particular industry
(d) performance track record
(e) flexibility
(f) financial muscle
(g) brand image
Thus, logistics decisions today, are more complex and demand considerable time from the decision
maker. Brand equity can be enhanced through a good logistics decision.
SUMMARY
Distribution is one of the key marketing decisions in any market, more so in the Indian market
where infrastructure, like roads, means of transportation, and warehousing, is not as developed as it
is in the West. Yet, since the middle class market is now in its boom period all over the country, it is
necessary for the marketer to ensure availability of his or her brands across the length and breadth
of the country. This is also important for the survival of the firm as intensity in inter firm rivalry is
increasing, following the opening up of the Indian economy.
The marketer has to then understand the task of the intermediaries, as that will help him or her
plan, manage, and control market driven distribution functions in the firm. The marketer has to also
understand the emerging issues in retail marketing, as these represents the end of a long tunnel, or
in other words, distribution. Leading firms today, focus on managing their entire supply, rather than
on transportation and warehousing decisions alone, which were the main focus of logistics decisions
earlier.
Logistics management involves two distinct but integrated functions of materials management
and physical distribution management. This, in other words, represents the value chain of the firm,
where at the start is the procurement function and at the end of the chain, is the customer.
POWER POINTS
1. The role of market intermediaries is to provide market information, maintain price stability,
the goods and services. (LO1)

2. A middleman may be a merchant, an agent, or just a facilitator. (LO1)
lot size, service requirements, and product variety. (LO2)

-
teristics, consumer characteristics, middlemen characteristics, and intensity of competition in
the industry. (LO2)
5. The alternative methods of distribution are intensive, selective, or exclusive. Intensive distribu-
tion refers to distributing the product through all available outlets. Exclusive distribution refers
to distributing the product through a few well known major retail outlets. Selective distribution
is the combination of these two alternatives. (LO2)
6. The channel is evaluated on the basis of the cost of distribution, the degree of control desired,
(LO3)
7. Just as products evolve over a period of time, distribution channels also evolve. In view of this, the
(LO3)
system. One of them owns the other or has the power to demand cooperation from the other
two. Horizontal marketing system is one where two or more non-related companies put to-
gether the resources required to exploit an emerging market opportunity. (LO3)
wholesaler, and retailer. It also occurs because of role ambiguity and differences in perceptions
members to accept the superordinate goal of customer satisfaction. (LO4)

-
tion and warehousing decisions, earlier the main focus of logistics decisions. Logistics man-
agement involves two distinct but integrated functions of materials management and physical
procurement function is at the start and at the end of the chain, is the customer. Thus the focus
demand in real time, or the time when it occurs. (LO5)

11. Third party logistics is today an emerging alternative. There are several third party logistics
specialise in the development and application of new and innovative methods of packaging,
handling, transportation, and freight management. These third party logistics providers can be
segmented in three broad categories.
(a) Diversified
(b) Product specific
(c) Customised
Logistics decisions today are more complex and demand considerable time from the decision
maker. Brand equity can be enhanced through a good logistics decision. (LO6)
stocks, and bank products, you are interested in developing a distribution channel to enlarge
your market. What role would intermediaries play in your strategy besides enlarging the market
reach? (LO1)
of designer garments and accessories. What factors will you consider in developing the distri-
bution channel? What factors will you consider to assess an intermediary? (LO2)
these alternatives? (LO2)

4. Discuss the future of vertical and horizontal marketing systems in India. (LO3)
dealers walked out over the issue of margins offered by the company and investments required
by it in its product mix. They complained of low distribution equity. If you were the manager,
how will you handle this situation? (LO4)
6. As marketing director of Kellogg’s, evolve a market driven distribution system for the Indian
market. (LO5)
CHAPTER
RETAIL MANAGEMENT
20
LEARNING OBJECTIVES
LO1 Explain strategic decisions in retail
LO2 Describe wheel of retailing
LO3 Identify the contemporary challenges in retail industry
LO4 Explain global retailing
In Practice
Indian Farmers’ Mall
It was 2002, the then Chief Minister of Madhya Pradesh, Digvijay Singh, had a meeting with ITC
Chairman, Yogi Deveshwar. The two were committed to bringing a change in rural Madhya
Pradesh. Earlier, the Chief Minister had initiated a major IT- led change in one of the backward
districts of the state. This was an intranet-driven initiative, in which the farmers could access land
records from an Internet kiosk operated by a young educated person from the village. This con-
cept was extended by ITC to several villages and district towns in Madhya Pradesh. This initiative
was e-chaupal. (Chaupal, in the village, is a central place where residents congregate, exchange
information, and even collectively take decisions on several issues. Chaupal is therefore an integral
part of rural India). Under the e-chaupal programme, ITC set up Internet kiosks to be managed by
farmers, who were selected from within the community and trained. These kiosk managers were
called sanchalaks, that is managers. These sanchalaks helped farmers access different agricultural
websites that ITC created in the local language. Through these sites, farmers learnt about best
agro practices, prevailing prices and price trends for crops in Indian and world markets, nuances
of risk management, and got information on local weather conditions and forecasts. The farmers
could order agri-inputs online. The aggregation of such demand, effectively reduced costs of these
inputs, bringing the power of scale to even the smallest of farmers. The e-chaupal has a `2 lakh
(`0.2 million) infrastructure, which includes a computer, a UPS, and a telephone line for logging
on to the Internet. A room in the house of a medium-level farmer serves as the e-chaupal. The ex-
periment started with four e-chaupals. Today, there are 1,700 of these in 26 districts of the country.
Heartened by the success of e-chaupal, ITC took the next logical step of setting up a rural mall.
This was named Chaupal Sagar. The first such mall was opened in October 2004 in Rafiqganj, about
four kilometers from Sehore town in Madhya Pradesh. The mall is on an eight acre plot, with a shop-
ping area of 7,000 square feet. It stocks FMCG items like soaps, detergents, and toothpaste, and
consumer durables like televisions, DVD players, pressure cookers, room heaters, sewing machines,
etc. and consumables like cigarettes. The rural buyer can also buy motorcycles or even tractors. ITC
has launched its own rural range of clothing and shoes, too, at prices the rural buyer can afford.
ITC’s concept is to create a one stop destination for farmers. The scenario envisaged by ITC is post
harvest, when the farmer has a crop to sell and the money to buy goodies for his home. Typically,
the farmer will drive to Chaupal Sagar with his family in his tractor and the crop loaded in the
trolley. His crop is unloaded, weighed, and sold. Meanwhile, his family shops in the mall with the
money the farmer earns from the sale. Gradually, the chaupal will provide banking and insurance
products. Thus, Chaupal Sagar and e-chaupal may, in a way, replace the traditional money lender.
Government of Gujarat has also taken initiatives to create model fair price shops described as Mi-
cro Rural Mall where villagers can shop for all their needs 24x7. About 1000 such malls have already
come up all over the rural areas in Gujarat where people can buy grains, fortified flour, edible oils
and other essential commodities, mobile recharge coupons, fertilizers and other package goods. All
major consumer product companies like ITC, HLL, and telecom companies like Tata, BSNL, etc., sell
their products at these malls.
Corporate groups also find rural India as a potential market opportunity. According to some estimate
this opportunity is worth US $27 billion. Companies like Tata Chemicals, Mahindra, Shriram Group,
Godrej, Reliance and even Airtel are the ones who are revolutionising these markets through their retail
stores. Like Tata Kisan Sansar is a network of 421 one stop shops providing everything from inputs to
knowhow to loans. Shrirams group have the rural mall under the brand names ‘Hariyali Kisan Bazar’.
Modern retail has therefore reached even the rural markets.
INTRODUCTION
Retail industry today makes the world economy move. One of the indicators of how economy does in
a given point of time is the retail sales. The fact that retail industry is one of the most dominant seg-
ments of the world economy is best evidenced by the fact that Walmart stores continue to be ranked
no. 2 in a global listing of Fortune 500 firms in 2013. Its revenues were US $469.2 billion with a profit
of US $16999 million. The fact that retail firms like Walmart have grown over a period of time and the
consumers buy not just a product but an experience, many firms have set up their own retail stores to
provide to the consumer not just a complete range of their products and services but also an experience
with the brand. The best example in this regard is that of Apple stores which provide a unique experi-
ence to the customer. Each of these stores displays the entire product range. Consumer is encouraged
to experience an Apple product. In case the customer wants any help, the same is available. Apple’s
team is especially trained to guide customers empathically. Telecom firms like Airtel, Vodafone, etc.,
have likewise set up their retail outlets in India. Starbucks and McDonalds are some of the major retail
firms in food and beverage industry. The US retail industry alone accounted for US $5 trillion in sales
in 2012. The global retailers today see a major opportunity in the emerging market.
A T Kearney has developed a Global Retail Development Index (GRDI) which is based on several
macroeconomic parameters and retail specific parameters. It ranks 30 developing countries on a 0 to
100 point scale. Higher rank indicates the attractiveness of a country from a retail perspective and hence
urgency of the retailer to enter the country. The countries are selected on three criteria namely, country
risk: 35 or more in the Euromoney country risk score; population of 2 million or more; and wealth a
minimum GDP per capita of US $3000. The GRDI is based on following four factors:
Retail Management 489
1. Country and business risk
3. Market saturation
4. Time pressure
Based on the GRDI, a window of opportunity analysis was done by A T Kearney which shows that
India is a market that offers a significant opportunity to the retailers. The opportunity is still growing.
India is ranked no. 14 with a GRDI of 55. However, within the BRIC region Brazil and China are the
most attractive retail markets with a respective GRDI score of 69.5 and 66.1. The BRIC markets con-
tinue to remain ‘the magnificent monsters’ for global retail firms.1
The Indian retail industry accounts for over 20% of GDP and contributes 8% to total employment.
India’s high rank on the GRDI makes it an attractive retail market. Currently the industry is valued
at about US $500 billion and is expected to reach 1.3 trillion US dollars by 2020. The Indian retail
industry is categorised as organised and unorganised. The conventional kirana stores, roadside mini
departmental stores at the panwala shop or the neighbourhood stores are the example of unorganised
retails which constitute a substantive part of retail industry. However the modern retail is more or-
ganised with a primary focus on enhancing consumer’s shopping experience. The malls, retail stores,
global and Indian brand stores, banks, restaurants are all examples of today’s modern retail focusing
on consumer experience. Shopping bonanzas, extensive use of technologies and an organisation of
events and festivals at the malls further enhances the shopping experience. Organised retail is not just
restricted to metro towns but is today spread across the country in Tier 2 and Tier 3 towns like Nashik,
Allahabad, Lucknow, Meerut, Pune, Baroda, Surat, Trichy, Goa, etc. The organised retail industry is
at the moment only 5% of the total retail market. It is expected to grow at 25% to reach a size of US $
200 million by 2020. Key players in Indian retail market are shown in Table 20.1.
Table 20.1 Key Players in the Indian Retail Markets

Pantaloon retails
Big Bazar
Shoppers Stop
Lifestyle retail
Spencer’s retail
Bharati
Reliance
Aditya Birla–More
Tata Trent
Some of the major foreign players that have entered the Indian retail are shown in Table 20.2.
Table 20.2 Major Foreign Retailers in India

Name of Stores Country of Origin
Carrefour—Cash and Carry France
Metro—Cash and Carry Germany
Tesco—PLC UK
Marks and Spencer UK
Drivers of Growth in Retailing Industry

The growth of organised retail has its roots in the changing Indian market and the convergence of tech-
nology. Some of the key factors that have driven this growth are:
● Primarily a young Indian market
● Higher incomes contributing to an increase in the purchase of essential and non-essential products
including luxury products

● New technology and the convergence of technology
● Aspirational lifestyle across all socioeconomic segments of the society
● Growth in urbanisation
● Increase in rural incomes
● Growth in nuclear families specially in metro cities and new townships
● Growth of modern trait formats like hyper markets, factory outlets, online shopping, etc.
● Growth of organised retail urban India that is Tier 1 cities and towns.
STRATEGIC DECISION IN RETAIL
LO1 Having understood the difference between retail and ‘wholesale’, let us
Explain strategic now focus on the strategic issues, which a retailing firm has to necessarily
decisions in retail respond to. These include:
(a) Location Decision (d) Merchandise Mix
(b) Target Market Selection (e) Positioning the Retail Store
(c) Business Model
Location Decision
One of the most strategic decisions relates to location of a retail enterprise. This is because of the inten-
sity of competition in this sector and the fact that the consumer today has the option of shopping from
home. Invariably, location analysis should consider the following:
(b) Availability and size of the target market in the area

(c) Threat from competition—consider both direct and indirect competitors in the area; their expan-
sion and modernisation plans, if any
(d) Positioning of competition in the target market
(e) Real estate development in the area
(f) Business climate in the area
In addition to the above, the following factors affect a site’s attractiveness.
At the macro level, Accessibilityof a site is the ease with which a customer may get into and
out of it. At the macro level, accessibility analysis involves infrastructure analy-
accessibility refers to the
sis. Here, the firm has to consider issues like availability and quality of road
infrastructure analysis, while
infrastructure, power, and public transport facilities in the area.
at the micro level it calls for
an analysis of factors that In a country like India, these infrastructure issues can become a major bot-
impinge store visibility, store
tleneck in the growth of the retail business. Also, one has to examine the barriers
traffic and vehicle parking.
(natural or man made) that can affect a site’s accessibility. Man made barriers,
like city or state borders, railroad tracks, or road dividers can affect a site’s attractiveness. Realising
this, many of the local municipalities in the NCR (national capital region of Delhi) abolished rules that
required an inter state transport permit to drive between New Delhi and Gurgaon or New Delhi and
Noida. These rules now exist only for commercial vehicles. Also, the entire NCR was integrated to
make it a single telephone district. This obviously made it easier for people to call home from a shop-
ping mall in Gurgaon or Noida without having to incur long distance call charges.
At the micro level, this calls for an analysis of factors that impinge store visibility, store traffic, and
even simpler issues like parking facilities. Visibility refers to the customer’s ability to see the store and
enter the parking lot safely. For stores with established image and loyal customers, visibility is not a
significant factor. Yet all national stores chains like Shoppers’ Stop, Big Bazaar, Pantaloon, Lifestyle,
McDonalds, Pizza Hut, Tanishq, etc. ensure that they and their names are visible to the customer from
the roadside. Traffic flow is another major factor that is considered in evaluating a site’s attractiveness.
The store should draw an adequate number of footfalls everyday, even when the experience so far has
been that weekends and festivals are the time when a store gets the maximum footfalls. Amount and
quality of parking is yet another factor of a site’s attractiveness. One of the direct consequences of the
Indian consumer’s upward mobility is the increase in the ownership of automobiles, especially in urban
India. This obviously puts a pressure on roads and parking facilities in commercial areas.
Non-availability of parking space can deter the shopper. On the other hand, if there are large vacant
lots, the shopping centre or mall may be perceived as a failure. It is hard to assess how many parking
spaces are enough, but a rule of thumb used by industry is 5.5:1000 [(i.e. five and a half spaces per
thousand square feet of space).] Parking also has to be available for store owners and their employees.
Exhibit 20.1 Garment and Accessory Brands Reach Out to Customers

Garment and accessory brands like Louis Philippe, streets in Bangalore, Linking Road in Mumbai and
Van Heusen, Arrow, Biba today reach out to cus- Connaught Place in New Delhi. With the advent of
tomers through multiple retail concepts. Today all e-retailers like Flipkart and Amazon these brands
these and other brands are available in departmen- are also now available in these retailing formats.
tal stores like Shoppers Stop, Lifestyle, Central and Today, it has become imperative for a brand to
Spencer. They are also available in specialty stores. be available in all retail formats because the custom-
In addition to the above, they have their own dedi- er today buys in a departmental stores, a specialty
cated stores in almost all malls in the country and store/brand’s own stores and also on the internet.
in the shopping streets or Plazas like commercial
Location Advantage within the shopping centre or mall, is another issue that the stores need to
consider. Better locations like, at the entrance or near the escalator, in a mall cost more. Hence, retailers
must consider the relative importance of different locations in the shopping area. Another consideration
is to locate the stores that appeal to the same target markets close together. This is because customers
want to shop where they will find a good mix of merchandise. This is based on the principle of cumu-
lative attraction, in which a cluster of similar and complementary retailing activities will generally have
more customer drawing power, than in isolated stores that engage in the same retailing activities. This
is why food stalls in shopping malls, construction material outlets, and garment stores do better when
they are located in one area.
The target market decision is
Target Market Selection based on both demographic
Retail also has to take into account another important factor—the target market. and psychographic
parameters.
In fact, this decision will affect its business model as also its positioning. For
example, should the store target only the most affluent, i.e. ‘the rich and powerful’, or should it target
the middle and upper middle income or the lower income consumers. This targeting decision has to be
based on both demographic and psychographic parameters. For examples, Harrods in the UK or Macy
or Nordstorm in the USA, target the ‘rich and powerful’ or the most affluent global consumer, while
Marks and Spencer draws upper middle and higher income group consumers. Likewise, Big Bazaar
targets the price sensitive, economy minded consumers in urban India, and Shoppers’ Stop, the high
end of the socioeconomic category of Indian buyers, who have an international orientation. Stores like
Fabindia are positioned in the niche market which values ethnic products. However, given the fact that
India is a young market who is increasingly acquiring the Western tastes and habits, Fabindia recently
decided to introduce Western clothes line. This is being done because Fabindia’s research showed that
the image of its traditional Kurta is that of an old individual and one worn on special occasions only.
The young today wear more of western style dresses on a regular basis. Hence, Fabindia decided to
give its stores a global image.
Target market selection will then affect a store’s location decision. Thus, while all stores targeted at
the middle or higher income groups are likely to be located in upmarket areas, the discount stores may
not necessarily find it profitable to do business from these areas.
Types of Retail Stores
Speciality Stores Speciality stores, as the name implies, are ones that carry
Speciality stores carry a
narrow product line with a
a narrow product line, with a deep assortment within that line. Typical exam-
deep assortment of products ples are jewellery stores like Tribhovandas Bhimji Zaveri in Mumbai and New
within that line. Delhi; watch stores and garment or apparel stores like In Style and Chirag Din
in Mumbai; sporting goods stores, book stores, and so on. These stores can be
further sub-classified on the basis of the degree of narrowness in their product lines. Consider the ex-
ample of garments.
A store like Shopper’s Stop that retails readymade garments for the family is called a single-line
store. A Raymonds showroom that retails only men’s clothing and accessories is known as a limited-line
store, and stores that retail designer clothes for men like Chirag Din, Louis Phillip, and Van Heusen are
known as super speciality stores. According to some marketing theoreticians, the future scenario
belongs to super speciality stores as they provide increasing opportunities for market segmentation,
focused marketing, and creation of brand equity. One is already observing the trend gaining ground in
the Indian market, particularly in the clothing and fashion goods industry—be it products, for men,
women, teenagers, or children.
Department Stores A department store carries several product lines, in-
A departmental store carries
several products lines,
variably all that is required by a typical household. These lines include food,
clothing, appliances and other household goods, home furnishings, and gifts and
invariably all that is required
by a typical household. curios. In a typical department store, each product line is managed independ-
ently by specialist buyers or merchandisers. In India, these stores are still at the
introduction phase and they are mainly located in metros like Mumbai, Delhi, and Chennai and other
cities like Bangalore and Hyderabad. The closest to the concept of a department store is Akbarally’s
which has three stores in Mumbai.
In the US market, department stores are believed to be in the decline phase of the retail life cycle
mainly because of increased rivalry among them; increase in competition from other types of retail stores
like discount stores; and major demographic changes in cities making shopping less of a pleasure. How-
ever, these stores are fighting for survival and have accordingly evolved several strategies. Some have
regular and weekend discount sales, private brands of their own to enable lower costs of operations,
changed their interiors, created boutique corners, expanding to new residential areas, and added several
new services. Cheque encashing, return or exchange without any questions, mail order services, and
even courtesy parking are just some of the new services, that a department store offers to its customers.
Supermarket This is a large, low cost, low margin, high volume, self service
Supermarkets are large,
operation designed to serve the customer’s need for food, laundry, and house-
low cost, low margin,
hold maintenance products. Once again, one does not see these supermarkets in high volume, self service
the true sense of the term in India, but some examples are Foodland and Gar- operation designed to serve
ware’s in Mumbai and similar stores in New Delhi and other major cities. How- the customer’s need for
ever, we believe that much of the future development is likely to take place in food, laundry and household
this type of retail outlet. This is largely because customers will have very little maintenance products.
time to shop around. With more women being employed, shopping around or
even just buying from a corner shop is going to lessen. Another reason, is that the customer is more
assured of product quality and freshness, when he/she buys his/her requirements from a store like
Foodland. Moreover, the wide range of product mix carried by these stores make them a favourite retail
outlet.
Convenience Stores These are generally food stores that are much smaller
Convenience stores are
in size than supermarkets. They are conveniently located near residential areas generally food stores,
and have long hours of operations, seven days a week, and carry a limited line much smaller in size than
of high turnover convenience products. In the Indian context, the old and faithful supermarkets.
street corner grocery store or cold storage or food store, are the ones that can be
called convenience stores. These stores serve a very useful purpose. Due to a high degree of person-
alised service and home delivery by store clerks, these stores fill in a very important need of a house-
wife—that, of not having to carry her purchases back home and also of not having to wait at the store.
Typically, she hands over her weekly or monthly requirements list to the owner, who then organises the
delivery. Since these stores are opened long hours, around 10–12 hours, every day of the week and are
used mainly for ‘fill in’ purchases, they occupy a niche position in retail marketing. In India, conve-
nience stores have been in existence for the longest time.
Discount Stores As the name implies, discount stores are the ones that sell
Discount stores sell
standard merchandise at lower prices than conventional merchants or stores, by standard merchandise at
accepting lower margins but pushing for higher sales volumes. A true discount lower prices, by accepting
store has four characteristics: lower margins, but pushing for
(a) It regularly sells its goods at a discounted price higher sales volumes.
(b) It carries national or reputed brands to enhance its image
(c) It keeps its operational costs to the minimum by emphasising on self service and ‘no frills’ inte-
riors
(d) Its location tends to be in low rent areas, and it draws customers from even distant locations
The best known and the biggest discount store in the US is Walmart. The nearest to this concept
were at one time, textile stores like Babubhai Bhawani (BB) and Babubhai Jagjivanram (BJ) in Mumbai.
Today, Big Bazaar and several other hypermarkets are delivering merchandise to consumers at low
prices. In fact, Big Bazaar’s strategy is to deliver best value at the lowest price, in the region in which
its store is located.
Again, we see the growth of these stores in India because more and more customers are going to be
price conscious and look for discount sales. As a matter of fact, these stores serve the middle class and
lower middle class consumers’ need to buy national brands, but at a low price. Hence, the future in the
Indian market belongs to the discount stores.
Besides the above, other types of retail stores seen in the North American market are off price re-
tailers—those who buy leftovers from others and sell at a lower price; factory owned outlets selling
surpluses; and catalogue showrooms, where the customer can select merchandise; from a catalogue and
order it or else drive up to the showroom, see, select, and order the product. Consumers Distributing in
Canada is an example of this type of outlet.
Another factor that a marketer has to consider, is that all types of retail stores have a life cycle, which
is analogous to the concept of the product life cycle.2 In other words, retail stores after being introduced
by a pioneer firm in a market, grows, matures, and then declines. One of the reasons is provided by the
concept of ‘wheel of retailing’3. According to this proposition, old conventional stores offer several
services at different prices, to cover the cost of these services. This provides an opportunity to other
stores to offer the same range of services, but at a lower price than the conventional ones (for example,
discount stores challenging the supremacy of department stores). The customer shops at conventional
stores and buys the product from the new, more efficient, and low priced store. Gradually, as the cus-
tomer traffic picks up at these new stores, they offer more services and upgrade their facilities. All this
has an effect on their cost structure and these stores now increase their prices to cover these increased
costs. They now resemble conventional stores and become vulnerable to more efficient, lower cost,
lower margin types of retail stores that spring up to challenge their supremacy.
Besides, the concept of the retail life cycle is also explained by changing customer demographics
and lifestyle, leading to change in preferences for service levels and specific services. For example, in
metro cities, this has meant preference for shopping in those stores that provide parking space for their
customers.
Business Model
Typically, a business firm may pursue a goal of high profit margins and low inventory turnover or low
profits but high inventory turnover. The first alternative, comes with a bundle of personalised services,
but the second one has few services. Today, both these models are visible in retailing. But given the
developments in information technology, microprocessors, and laser technology, more retail firms to-
day are moving towards the goal of efficiency in inventory management and personalised customer
service. These firms do not charge premium prices. Rather, they offer the merchandise at the most
competitive price nationally and, in some cases like Big Bazaar, even at the lowest price in the market.
In fact, the Big Bazaar model is based on high volume turnover, low profit margin, and optimal mix of
customer services. Such retailers globally enjoy high returns on capital employed principally because
of the deployment of information technology to their asset management.
The model of low margin high turnover is based on the maxim of generating high operational ef-
The model of low margin
ficiency and passing to the customer the savings that eventually arise. However,
high turnover is based on these savings passed to the customer should be viewed as a transfer of costs
the maxim of generating high (opportunity as well as effort cost) rather than its total elimination. For example,
operational efficiency and when the customer selects his own merchandise, carts them to the payment
passing to the customer the counter, and thereafter to his vehicle, the retail firm has eliminated the costs of
savings that eventually arise. salesmen and several other service personnel. But in reality, it has transferred
this cost to the customer. Same is true in money dispensation and other banking services offered by a
bank through its ATM network or net banking. In sum, this business model is based on costs (repre-
sented by marketing functions) that some customer segments are willing to absorb in certain buying
situations. A McKinsey study in the USA, shows that economic drivers and operating drivers differ
across retail types. In a discount store like Walmart, the economic drivers are high inventory turnovers
and low operating expense. Given these drivers, the operating drivers are merchandise management,
cost management, and management of sales productivity. Another economic driver is high fixed asset
productivity. To achieve this, the firm’s operating driver is low investment but high sales productivity.
Similarly, in department stores like Federated in the USA (Lifestyle in India), the economic driver is
high gross margin and its operating driver is merchandise management. Essentially, any retail firm’s
operating drivers are merchandise management, cost and price management, and sales productivity
management.
The management choice of its business model is based on its perception of the organisation’s best
chance to achieve its financial goal. One way to do so, is to pursue the strategic profit model which is:
Net profit Net sales Net profit Total assets Net profit
= = × =
Net sales Total assets Total assets Net worth Net worth
As can be inferred, the above equation is a financial leverage that management can use to evaluate
a firm’s performance.
Measures of Financial Performance Retailers use three interrelated financial measures of
performance. These are:
1. Gross Margin Return on Inventory Management (GMROI): This measure combines margin
management and inventory management. Hence, this can be used for product classes, stock keeping
units (SKU), markets, stores, and firms. Since this measure evaluates inventory on the return on in-
vestment (ROI), the firm generates not just the gross margin percentage, it implies that GMROI often
considers items with widely varying gross margin percentages as equally profitable.
2. Gross Margin per Employee (GMRE): Retailers attempt to optimise this return. As sales per square
foot increases, not all fixed costs increase in proportion. In fact they decline. Should the firm have more
sales person as sales go up? Or should it have more back office full time employees? This question will
need to be answered by the management.
3. Gross Margin per Square Foot (GMROS): This measure permits an assessment of how well retail-
ers are using their most unique asset—namely shelf or floor space.
Merchandise Mix
Planning the merchandise mix is yet another managerial decision that the store management has to take.
This decision is important, as this will reflect the store’s positioning platform. The areas for consider-
ation in this context are the breadth and depth of merchandise. Breadth reflects the product lines while
depth refers to the number of items (brands or models) in each product line. For example, Lifestyle’s
men’s section has garments and accessories. Within garments, it stocks shirts, trousers, suits, and den-
ims. These are the product lines. Within shirts, it stocks well known brands like Louis Phillipe, Van
Heusen, Park Avenue, Zodiac, etc. These brands reflect the depth of its shirts line. The decision on
merchandise mix is implemented by functionaries called buyers. The buyer’s role is to choose specific
products or brands. Because of this role, their significance in a retail operation becomes large. They
play a key role in vendor selection and profit generation through negotiation for better deals and allow-
ances. Typically, the following factors are considered by buyers in selecting products/vendors:
(a) Consumer demand (demonstrated or projected)
Merchandise mix planning (b) Anticipated sales volume
is important as it will reflect (c) Anticipated gross margin
the store’s positioning (d) Merchandise stability
platform. (e) Price and terms for payment
(f) Services offered by supplier
(g) Vendor’s reputation
(h) Quality of the brand
(i) Vendor’s distribution policy
(j) Promotional assistance offered by the vendor
(k) Previous experience with the vendor, if any
The buyer may assign importance weights to each of the above variables in decision criteria and then
evaluate each vendor on these parameters. The vendor with the highest score will generally be the one
with whom he/she may like to establish a business relationship.
Positioning the Retail Store

One of the strategic decisions that a marketer or retail marketer has to take is one concerning the po-
sitioning of the store. The choice is whether to locate it at the low or high end of the retail continuum.
The two parameters taken to determine this continuum are the breadth of product line and value addition
provided by the store through a range of services offered by it. On the basis of these two factors, the
retail store may be positioned in any of the four quadrants shown in Figure 20.1.
Figure 20.1 Positioning Retail Firms
WHEEL OF RETAILING
The theory of wheel of retailing explains the life cycle concept in retail
LO2
industry. According to this theory most innovations in retail formats occur at
Describe wheel of
the low end where the innovator enters the market with low cost, all bare store
retailing
format. The profit margin in such cases is also low. This is the introduction
or the embryonic stage in the retail store’s life cycle. Such formats draw two
types of customers—one, who are price sensitive and are looking for low cost alternative to buy their
merchandise and the other, who are suffering from fatigue with existing formats or are dissatisfied with
their service. As time passes and the innovative retail format attracts more customers, gains market
share, it adds on to its product and service mix. Improvements in retail ambience and improvements
in delivery processes now occur. All this start adding to the cost and thus keeps pushing up the prices
in the store. Profit margins also improve. However it is not long when this store starts innovating and
delivering services which in a way resemble the retail store displaced by this innovative concept. The
store now adds to its facilities and services and targets upscale customers who are willing to pay higher
prices for the merchandise. At this stage, this store now resembles a fat duck which can be easily
targeted by competition. This stage is also the one, when the store has matured.
Figure 20.2 The Wheel of Retailing
As a low end retailer upgrades its strategy to increase sales and profit margins, a new form of dis-
counter takes its place.
Why Wheel of Retailing?

The need to innovate in retailing is driven by intensity of competition within the industry, changes
in consumer lifestyles, and customer price sensitivity behaviour and developments in technology.
Consider the emergence of organised retail in fast food industry. Technology has today significantly
facilitated the growth of the fast food chains like Domino’s Pizza, McDonalds, Starbucks, etc. Domino’s
Pizza created a new paradigm in food industry when it guaranteed hot and freshly cooked pizza within
30 minutes of the order. This guarantee of service puts a pressure on other fast food firms to make
changes in their operations which would enable them to serve the customer in a shorter period of time
than 30 minutes. The retail operations in these cases show that it is the application of the technology
at all stages of order to deliver value chain. Standardisation of product and operations further enabled
these firms to not only obtain economies of scale and scope but also reduced their prices and delivery
time. However, it is to be kept in mind that whenever a fast food chain has converted itself into a sit-
down restaurant, the cost of the production and delivery has gone up.
In India we have seen the emergence of Big Bazaar with low cost and low price strategy. The store
started in Mumbai at the Phoenix Mills area in Parel. As it grew and located its stores across India, at
multiple locations it altered its merchandise mix, to respond to the segments it served through a par-
ticular location. Today, it has all the characteristics of a full departmental store with wide product mix
and range of services, including alliances with credit card issuing banks like ICICI Bank.
It must be remembered, that even when market grows, there will always be certain customers who
will buy only on the basis of price, while others will buy for non-price reasons like convenience, status
or self image. While Food Bazaar and Subhiksha have been introduced as low price stores, Food Land
has adopted a high end strategy.
Today, technology has created a new opportunity for firms to reach their customers or target mar-
kets. Internet and mobile phones enabled retail are today challenging the brick and mortar models. The
technology driven ratil initiative has changed the way the airlines, banks, travel companies, mini stores
market their products. Even Indian railways have joined them. These innovations offer to customers
the benefit of convenience and cost.
It is important to note, that as retailers move up the wheel, they do so by increasing their sales through
a wider product and service mix. In the process, their cost of operations go up and they are left with
no option but to pass on these costs to the customer. Further, the medium strategy as shown in the Fig-
ure 20.2 on ‘wheel of retailing’ could get into difficulty, as the firm may not have any distinctive value
to offer to the customer. The high end customers may get siphoned off to premium stores or niche stores,
while price sensitive ones may be lost to hyper markets and discounters. Hence, firms have no other
option but to either push back and continuously follow low price strategy or push up to the premium end.
The ‘wheel of retailing’ further cautions established firms against adding products and services mix
because price sensitive customers are not loyal. Hence the threat for the firm will be losing its customer
base. It may not be perceived as premium store by the high end customers. Hence the firm may lose its
competitive advantage. We have seen this happening to catalogue marketing stores.
Thus the choice for the retail firm is to either adopt a low end or high end strategy. Exhibit 20.2
summarises the strategic choice for a retail firm.
Exhibit 20.2 Retail Strategy Mix Alternatives
Low Value High Value

● Roadside/street corner location with low rent/ ● Located in high rent prime location with typically
overheads high overheads, located in the shopping hub
● Minimal fixtures/furniture ● Luxurious ambience as reflected by
● Simple organisation often owner employee airconditioning, in local area in-store music, high
usage of technology, etc.
● Emphasis on price and personalised service ● Service intensive—like exchange, returns,
like free home delivery
● Crowded store/shop complex of organisation ● Demonstrations/In-store credit, gift-wrapping,
etc.
● Most merchandise in the shop front ● Promotions and events management
CONTEMPORARY CHALLENGES IN RETAIL INDUSTRY
LO3 Organised retail industry in India is today at an interesting stage in its evo-
Identify the lution. While the consumer demographics has created abundance of oppor-
contemporary tunities in this sector, resistance from existing middlemen, suppliers (for
challenges in retail example, farmers in the case of agri produce) and political groups, rising
industry costs and hence pressure on margins at a time, when most stores and malls
are still in the red, are just some challenges that managements of retail stores
and malls have to respond. We saw violent agitations against Reliance Fresh from existing vegetable
and fruit vendors, as also by farmers. The extent of opposition to Reliance was so severe in Uttar
Pradesh that the State government banned Reliance Fresh from opening its stores in the state. This
spread to other cities and states thereby putting a question on Reliance Fresh’s future.
In order to face the above challenges, managements may have to revisit their business model. Part-
nership with suppliers which can help the firm share risks can help. Today, the new value creation model
is based on such partnership(s) that a firm is able to create, with its suppliers and core customer groups.
This can not only soften the political resistance, but also help the firm defray its costs through effective
management of inventory. The partnership should be such where risks and gains are shared. Suppliers
must feel that if the retail firm fails they all lose. Hence their profits and growth must get intertwined
to retail firm’s destiny.
Another approach that can help overcome resistance, especially from hawkers selling fruits and
vegetables is to adopt shop-in-shop model. Food Bazaar has adopted this approach, to sell fruits and
vegetables in its stores.
One of the strategy for responding to rising costs, is to source locally or get suppliers to also open
up their operations near the store. This can help reduce transport costs. Also, there has to be a better
coordination between marketing and operations of the retail store as otherwise there could be losses on
account of either excessive inventory or inadequate supplies. Further, price hikes should not be done
for all merchandise together. Rather it should be gradual across product categories.
Continuous communication with customers and engaging them by creating meaningful experience
is another approach to attracting and retaining customers.
Non-store Retailers
Although more than 80% of retail marketing is done through retail stores, non-store retailing is also
now round the corner, and gradually gaining popularity in the Indian market. Some of these non-store
retailing options are:
Automatic Vending Machines These are very common in Europe and North America for sell-
ing food products, soft drinks, newspapers, candy, and cigarettes. These are coin operated machines
and are found in all those areas that have a high density of consumer traffic. An extension of these are
automatic tellers in banks which allow customers to perform any banking transaction, 24 hours a day
and seven days a week. Today, we see automatic vending machines selling hot beverages, soups, soft
drink, chocolates, and magazines at major airports and commercial centres in the country. Automatic
tellers are being used by major foreign banks like Hong Kong and Shanghai Banking Corporation and
Citibank and many of the Indian banks as well.
Since automatic vending machines provide freedom to the customer, these are likely to be more
commonly used in the future.
Direct Selling Direct selling is another form which is going to re-emerge. The predecessors to
modern direct selling are the itinerant peddlers, who sold their goods at the customer’s doorstep. Today,
direct selling is taking goods like cosmetics and personal hygiene products to homes and offices. In
India, the originator of this concept is Eureka Forbes, who was the first to sell its vacuum cleaners on
a door-to-door basis. Though this is an expensive alternative (as salespersons get high commissions),
it has been preferred to store retailing, primarily because the firm is able to compete more effectively
in the marketplace, without having to give into the trade’s demands.
A buying service is a
Buying Services A buying service is a storeless retailer serving specific
client groups, usually employees of large organisations like companies, govern-
storeless retailer, serving
ments, universities, hospitals, etc. The organisation’s members become members
specific client groups,
of the buying service and are entitled to buy from a selective list of retailers who
usually employees of large
have agreed to give discounts to the buying service members. Several consumer
organisation, like companies,
governments, hospitals, etc.
durables companies like TVS-Whirlpool, Sony Orson (now non-existent), Bajaj
Electricals and autodealers like Autoriders have had such arrangements with
major industrial groups and universities.
Customer Service
Given the fact that today, almost all stores keep identical merchandise, the differentiation between
stores rests on the quality of their customer service. Invariably, all major innovations in organised
retailing are based on customer service initiatives. These include returns policy, delivery modes, loyalty
programmes, creation of consumer panels including Ombudsmen, and deployment of technology to
service customers in a seamless manner. For example, the use of bar coding technology on product
packaging and scanners at the payment counters has helped reduce customer time at the checkout
counters. Similarly, offering financing facility to consumers is yet another service initiative taken by
retail stores.
Promotion Decision
This is yet another managerial decision that a store management has to take. The choice here is between
a pull and push strategy or a combination of the two. The pull strategy refers to creation of consumer
demand through extensive usage of mass media, electronic, and outdoor media. On the other hand, the
firm can choose to offer discounts, run deals on its merchandise, and offer several other promotions
(like discount coupons) from time to time. Consider the strategy of Big Bazaar and Shoppers’ Stop.
The former deploys a push strategy by offering its merchandise at the lowest prices and discounts on
its existing product lines. The basic strategy of the store is to sell on the basis of price. Shopper’s Stop,
on the other hand uses all possible media vehicles to create its image of an exclusive store. The promo-
tion strategy will be influenced by the positioning and targeting decisions of the store management.
GLOBAL RETAILING
LO4 One of the major global trends in retailing is the growing polarity of retail
Explain global trade. On the one end is the growth of boutiques or highly focused speciality
retailing stores such as Body Shop and Gap, and on the other are mass merchandisers
like Walmart. The first are categorised as boutiques because they service
customer needs on a ‘personalised’ basis. These are also termed as ‘high touch’
Boutiques serve customer
retail stores. The second trend is the growth of large stores (in terms of square needs on a personalised
footage), like Walmart and Target, who rely on warehouse technology and self basis, while mass
service to sell large volumes at very low margins. (Big Bazaar is the Indian ex- merchandisers rely on
ample.) Although Walmart and Target have been viewed as high tech retailers, warehouse technology and
there are others today, who are more high turnover/low margin/massive volume self service to sell large
retailers. Examples of such types, are Home Depot and Costco in the USA. Both volumes at lower margins.
these trends (boutique or ‘high touch’ and mass merchandisers or ‘high-tech’) in
retailing are being impacted by prospects of anticipated rates of growth and profitability. The wheel of
retailing is today visible in all its manifestations in more matured markets like the US.
Another trend is the increasing power of retailers in the marketing channels for packaged goods (i.e.
packaged foods and beverages and branded health and beauty aids). Today retailers’ power exceeds
that of the manufacturers of these products, who include well known names like Colgate, Proctor and
Gamble, Unilever, etc. This is because of intensity of competition at the retail level. Given the fact that
competitive wars are wiping away profit margins, these retailers have turned to ways and means to
enhance them, either through more negotiated deals with manufacturers or by stocking lesser known
brands that offer them higher margins. They have even developed their own store brands. Another
reason is that the ‘retail buyers’ are now treated by their management as profit centres. Hence, they are
now responsible for capital management, service levels, sales turnover, retail margins, shelf space and
position, operating costs etc. In order to achieve their profit targets, these buyers look for suppliers to
give them good price discounts and promotion and service supports.
Information Technology and Retailing

Information technology, today, can impact a firm’s competitiveness for this can help fine tune the sup-
ply chain to customers’ needs. One of the major reasons of Walmart’s success is its investment in state-
of-the-art information technology. This includes (1) front end scanners that track sales by stock keeping
units (SKU) and supply on store shelves, (2) beaming of the store’s orders via satellite to a computer
at its headquarters in Arkansas, (3) scheduling of shipments to its distribution centres by its vendors,
(4) movement of merchandise from distribution centre into Walmart trucks, (5) shelf placement within
36 hours of store’s order, and (6) communication via satellite about vendor discounts on merchandise.
As one can see, IT is used by Walmart for speed and virtually, automatic replenishment of merchandise.
Today, a retailer needs to continuously track customer demand and ensure that he does not go out of
stock at any given point of time. At the same time, the retailer cannot afford to have huge inventories,
thereby increasing his costs and reducing profit margins. Today, the IT tools being used relate to:
● Bar coding, scanning, and electronic data interchange (EDI)
● Supply Chain management
● Customer Relationship Management
● Inventory Management
Emergence of Global Retailing

With globalisation now having become a reality, it is not uncommon to see well known US and
European retail chains, setting up their operations in different parts of the world. Marks and Spencer
has already opened its store in India and so have some others like Benetton, McDonalds, Pizza Hut,
Domino’s etc. Likewise, Lifestyle, a Dubai based chain, has opened its store in India. Similar trends
are visible all over the world. The reasons for this development are:
(a) Increased foreign travel by consumers
(b) Satellite television which has created a global customer
(c) Declining entry barriers all over the world
(d) Saturation of domestic markets
Coopers and Lybrand4 have identified ten country markets for retailers focus. These have been
grouped as follows:
● The Formidable Four: Brazil, Russia, India, China (BRIC). This group has a rapidly expanding
middle class, which is hungry for quality consumer goods and services. This group, however, is
high in political and economic risk and also retail infrastructure.
● The Torrid Three: Mexico, Turkey, and Argentina. These economies have a rapid but volatile
economic growth (Argentina suffered a crash just a few years back) and have an undeveloped
retail sector.
● The Tough Three: This group consists of Italy, South, Korea and Japan. These are strong econo-
mies with large middle income consumers. However, local restrictions have limited the degree of
concentration of retailing and entry of foreign groups.
SUMMARY
Retailing in India is undergoing a revolution. It is said to grow because of the expansion in the mar-
kets across the country and organised retailing accounting for an abysmally low proportion in the
Industry. Several factors in the country are contributing to this revolution, which is also touching the
lives of farmers. The principal drivers of growth are higher disposable incomes and informed cus-
tomers, with access to multiple television channels and internet. Competition in different products
and services is yet another important driver. Retail involves all activities, that contribute to selling
goods/services to ultimate consumers for their personal consumption. The strategic decision in retail
relates to location, target market selection and the business model to be adopted. The managerial
decision in retailing involves planning the merchandise mix, customer service and marketing promo-
tions. Global retailing is today the order of the day and over the next couple of years. We shall see
large multinational chains operating in India and large Indian chains operating in the world market.
There are three groups of markets which will lead the retailing revolution in this decade. These are
‘formidable four’ of Brazil, Russia, India and China, the ‘torrid three’ which includes Mexico, Tur-
key and Argentina and the ‘tough three’ consisting of Italy, South Korea and Japan.
POWER POINTS
1. Boom in organised retailing has its roots in the changing Indian market kaleidoscope, Most
competition and continuous developments in information and communication technology.

(LO1)
2. Location analysis should consider the following: (LO1)

(a) Demographic and psychographic profile of the population.
(b) Availability and size of the target market in the area.
(c) Threat from competition—consider both direct and indirect competitors in the area; their
expansion and modernisation plans, if any.
(d) Positioning of competition in the target market.
(e) Real estate development in the area.
(f) Business climate in the area.
3. Accessibility of a site is the ease with which a customer may get into and out of it. At the macro
level, accessibility analysis involves infrastructure analysis. At the micro level, this calls for
parking facilities. (LO1)

4. Locational Advantage within the shopping centre or the mall is another issue that the store
needs to consider. (LO1)
5. Target Market Selection: Retail also has to decide on the target market. In fact this decision
will affect its business model as also its positioning. (LO1)
6. Planning the merchandise mix is another managerial decision that the store management has
product lines while the depth refers to the number of items (brands or models) in each product
line. (LO1)
services but the second one has few services. The model of low margin high turnover is based
that eventually arise. However, these savings passed to the customer should be viewed as
a transfer of costs (opportunity as well as effort cost) rather than its total elimination. The
management choice of its business model is based on its perception of the organisation’s best
(LO2)
8. The differentiation between stores, rests on the quality of their customer service. Invariably,
all major innovations in organised retailing are based on customer service initiatives. These
include returns policy, delivery modes, loyalty programmes, creation of consumer panels
including Ombudsman position and deployment of technology, to service customers in a seam-
less manner. (LO3)
9. Promotion is another managerial decision that store management has to take. The choice here
is between a pull and push strategy or a combination of the two. (LO3)
10. One of the major global trends in retailing is the growing polarity of retail trade. On one end is
the growth of ‘boutiques’ or highly focused specialty stores such as Body Shop and the Gap and
on the other are mass merchandisers line Walmart. Information technology today can impact
(LO4)
11. IT tools being used, relate to: (LO4)
● Bar coding, scanning and electronic data interchange (EDI);
● Supply Chain Management;
● Customer Relationship Management;
● Inventory Management.

1. Walmart is today considering setting up its operations in India. You have been appointed as a
consultant. Develop a strategy which can help it to successfully enter the Indian market. (LO1)
2. Internet is a powerful medium. Evolve a plan to set up a grocery and food mall on the net.
(LO1)
a customer are increasing every day.’ Given this situation many retail stores seem to be closing
their shops in the malls. If you were to advise Pizza Hut, which is one such retail outlet, what
advice will you give? What advice will you give to mall management? (LO1, 2 and 3)
4. Amazon.com entered the India market in 2014 and made a splash with several consumer brands
specially garments partnering with the e-stores. The company competed with Flipkart for the
consumers mind, market share and loyalty. Flipkart, on the other hand, returned the Amazon
online retail player who is also growing and is competing with both these e-retailers. What
should Amazon do to expand its reach in the Indian market? (LO1 and 3)
5. Walmart has been eager to put its footprint in India. Why do you think it would want to enter
India? What should be the retail model this company should adopt for India market? (LO4)
CHAPTER
DIRECT MARKETING
21
LEARNING OBJECTIVES
LO1 Explain direct marketing
LO2 Describe direct marketing mix
LO3 Describe direct marketing model
LO4 Explain future of direct marketing in India
In Practice
Amway Alters Customer experience
Amway is one of the world’s largest selling businesses which has been promoted by Steve Van
Andel and Doug DeVos. The company was setup in USA in 1959. The Amway Business Model
is based on the power of relationships. Initially the company started by selling liquid organic
which was the first concentrated biodegradable and environment friendly cleaner. Since then
Amway has expanded its product mix and markets. It is a global leader in all categories in home
products, health and beauty. By 2010 Amway became synonymous to direct selling. A case study
in business schools by 2010, it impacted the lives of people around the world using new com-
munication technologies and social media tools. It also opened a 2000 seat entertainment and
events centre in down town Orlando, Florida, USA. In 2013, the company launched US $375
million manufacturing and R&D centres in United States, India, China and Vietnam.
The Business Model of Amway as mentioned above is based on relationship. It is also an
example of multilevel marketing. Individuals are encouraged to join the business. The company
provides training to its business partners called independent business owner. Independent busi-
ness owner sells products and sponsors other individuals to join the chain. The reward is the
combination of income from retail profit, monthly performances bonuses, monthly and annual
leadership bonuses and other cash and business incentives based on individual and group per-
formance. Amway supports its individual business owners through training and the advertising,
sponsorships and events. Amway is today present on Facebook, Twitter, You Tube and Google
Plus. Amway’s brands today are Nutrilite which is a nutrition product, Artistry a brand in skin
care and makeup product, eSpring a brand in water purifier, Satinique shampoo and condi-
tioner and also the iCook brand in kitchenware.
Amway business owners are perhaps our next door neighbours.
DIRECT MARKETING
LO1 The growth of direct marketing in India can be attrib-

The enhanced competition in
Explain direct uted to environmental complexities and the concept all product markets, customer
marketing of bargaining power. We have mentioned earlier, that lifestyle, globalisation of
the Indian market is today much more competitive markets, Internet, and
than it was in the beginning of 1990. In several product categories, one can ob- the need to increase
serve saturation, especially in urban markets. With enhanced competition, the manufacturer’s bargaining
firm’s cost of reaching out to the market has also increased. Today, the cost of a power are some of the
retail shelf at outlets in major cities is prohibitive. Fragmentation of media and reasons for the growing
focus on direct marketing.
audiences, also necessitate higher advertising budgets. With customer loyalty
on the wane and costs of marketing increasing, firms’ margins have come under
pressure. Productivity of marketing resources is now as much of a concern, as that of any other resource.
Direct marketing helps companies to focus their marketing efforts, and therefore to that effect, more
focused and targeted, than conventional or general marketing.
Further, customer lifestyles have changed especially in metros and large cities. Today’s customer
looks for convenience in shopping and getting the product or service delivered in the comfort of his/
her home. Teleshopping, home shopping channels, catalogue marketing, and online shopping are some
of the tools that enable companies to cater to this core customer value.
Globalisation of markets and the Internet have also further facilitated the growth of direct marketing.
Today, a firm need not have operations in all its markets but can still cater to the world demand. Dell
computers and Amazon are two leading examples of successful direct marketing around the world.
In Practice
Direct Marketing—The Dell and Amazon.com Story
Dell initially marketed its computers directly to end users through direct-response advertising
in selected computer magazines. Later, it took to telemarketing activities and still later, sold
through direct sales force. As a PC manufacturer, Dell competes against IBM and Compaq. To
fight competition, Dell has increased its media expenditure. Direct response print advertisements
are used to build brand awareness, generate leads, and even sell products through newspapers
like USA Today, Wall Street Journal, and IT magazines like PC Week, PC World, and so on. The
company established a catalogue, Dellware, in 1992 and mailed to 7,50,000 names, six times
a year, in addition to special editions. This encouraged repeat purchases, broadened product
penetration, and optimised lifetime value. Dell also started taking advantage of direct channels
like interactive kiosks at Best Buy and Sam’s, and online services such as Prodigy, Compuserve,
and America Online.
Amazon.com, on the other hand, heralded the era of online retailing. Amazon.com retails
only through the Internet. At the firm’s website, customers can search for a specific book, topic,
or author, or they can browse through the book catalogue featuring 40 subjects, or search for
music albums. Customers can browse, fill up a virtual shopping basket, and then complete the
sale by entering their credit card information. Customer orders are processed immediately. Books
in stock are packaged and mailed the same day. Once the order has been shipped, customers
are notified by e-mail. Also, the company provides up to 40% discount on bestsellers and 10%
on other books. Due to low cost structures, the firm is able to provide such discounts. Thus the
firm provides its customers four value propositions, namely convenience, selection, service, and
substantial discounts. Amazon.com is thus a pioneer in online book retailing.
Likewise, today, one is able to order consumer products and services, including flowers, from any-
where in the world. Globalisation of markets and information technology (especially the Internet) have
made the location of a firm, irrelevant to the customer’s ordering process. Direct marketing is a low
cost solution to reaching out to customers around the world.
Finally, as competition intensifies, the war for the retail shelf also gets bloodier. The intermediar-
ies now find themselves in a position to bargain for better incentives and higher commissions from
manufacturers who have very little choice. This also becomes a source of potential conflict as each of
the two parties (intermediary and manufacturer) tries to maximise its bargaining power. To avoid this
intermediary trap and reach out to the customer, companies use the direct marketing route.
Thus the growth of direct marketing in India can be attributed to:
(a) enhanced competition in all product markets
(b) changing customer lifestyle
(c) globalisation and emergence of the Internet as a powerful tool of communication and business
(d) need to increase the manufacturer/producer’s bargaining power
However, the constraint in realising the full potential of direct marketing in India is poor infrastruc-
ture and large markets, which still remain incommunicable and beyond reach due to political distur-
bances and poor transportation facilities.
What is Direct Marketing

Direct marketing is an interactive mode of marketing, through which the marketer reaches out to his
target market at any location. The Direct Marketing Association of USA has defined direct marketing
as ‘an interactive system of marketing which uses one or more advertising media to effect a measurable
response and/or transaction at any location’1. An analysis of this definition brings out three key ele-
ments, namely:
(a) It is an interactive system in the sense that there is a two way communi-
Three aspects of direct
cation between the marketer and his/her target market; the response or marketing—interactive system,
non-response of the customer completes the communication loop in the measurability of response,
and not location specific.
response coupon in an advertisement or a catalogue and mails it, he/she
communicates to the marketer and hence completes the communication loop.
(b) Another element is measurability of response—As mentioned above the number of coupons re-
ceived indicates the response rate to the marketer’s communication.
-
cally interact with the marketer; he/she can establish a contact through mail, phone, fax, or the
Internet.
As mentioned above, direct marketing is an efficient way to promote, and sell products and serv-
ices, in a highly competitive market. The goal of direct marketing is to always get a response from the
customer. Direct marketing has also been known by other terms like direct selling, mail order selling,
or catalogue selling.
Today direct marketing uses all these tools and is based on a customer database. In fact, the key to
successful direct marketing is the development of this database.
Database Development
Database marketing is the most effective way to customise the marketing mix
Database Marketing—an
interactive approach to
to suit target markets. This helps not only in customising the offering but also
marketing, employing all its delivery. Given the developments in the area of information technology
communication tools and (softwares like geographical information system—GIS), today, it is possible
media vehicles to reach theto deliver the right product with the right message, at the right time to the right
target market. person. This presupposes the creation of customer’s purchase and other related
information. It also includes the development of a database of potential custom-
ers. Database marketing, therefore, is an interactive approach to marketing, that uses all communication
tools and media vehicles to reach to the target market. It is also the basis of all relationship marketing
efforts of the company. The information stored in the database is used to develop customer loyalty and
to identify all potential buyers for any new product or service. It also helps in identifying the most cost
effective media and delivery vehicles.
Characteristics of a Good Database Although each firm may decide to develop its own
database, there are certain characteristics that help enrich it. These are:
(a) Each customer or prospect should be treated as an individual entity and hence a separate record
for him/her should exist in the marketing database. Market segments are an agglomeration of such
individual customers.
(b) Each such marketing record should contain all the relevant information and access details like
name, address, telephone numbers, frequency of product use, experience with the product, indus-
try and decision making units for organisational customer, response to any earlier direct marketing
campaign, and so on.
(c) This information should be available to all departments and employees of the company, involved
in the direct marketing programme to enable them to be customer friendly.
(d) The aim of the organisation should be to replace routine usage surveys with this database.
(e) Information technology tools should be used to strengthen this database and also develop corpo-
rate responses to the customer. These tools can also be used to identify opportunities and threats
in the customer environment and craft appropriate responses, which will help the marketer to
exploit opportunities and neutralise threats. The use of these tools should also help in optimum
resource utilisation.
Increasingly, firms are realising the importance of database in targeting and creating competitive
advantage. Today, several organisations are also using this database for their customer relationship
management programmes. Cross selling can also be effectively managed through database marketing.
This is especially true, for firms operating in several products/businesses that require the same database.
Citibank, for example, uses its credit card customer database to market several other financial products,
including banking services.
IN FOCUS
Strengths of Database Marketing
According to Shaw and Stone2, the strengths of database marketing are:
(a) Measurability Unlike conventional marketing, direct marketing responses can be measured. This
helps firms redefine their marketing programme, if required and also to customise it to segment
needs.
(b) Testable The effectiveness of different elements of a marketing programme can be tested.
(c) Customisation As mentioned earlier, the database provides the firm with an opportunity to custom-
ise its communication with the target market.
Once again, information technology has further augmented these strengths. Database management,
therefore, is a key to the development of an effective direct marketing programme.
DIRECT MARKETING MIX
LO2 Marketing mix in the direct marketing mode, by and In a direct marketing
Describe direct large, remains the same except for communication model, refusal to accept a
marketing mix programme and customer service, which have ac- customer claim without a
quired a new meaning. For example, if the marketer question can prove costly
guarantees delivery of the product, within a defined time frame and promises to as there is always a greater
take it back, in case it fails to live up to customer expectations and return his/her chance of losing not only the
money, then the customer service executive cannot refuse a claim. This is op- existing customer but even
subsequent prospects as well.
posed to general marketing practices, where marketing can put several disclaim-
ers and refuse to pay the customer any compensation. In direct marketing,
refusal to accept a customer claim without any question, may cost the marketer significant losses, as
he not only loses that customer but subsequent prospects as well. In general marketing, the loss can be
contained through other elements of the marketing mix. In addition to marketing mix decisions, the
direct marketer has to pay special attention to the following factors in decision making.
Communication Programme Communication programme

This involves (both) creative and media decisions. The creative decisions centre involves both creative and
media decisions.
around the copy platform, graphic design elements, mailers, stickers, and so on.
Consider, for example, the campaigns of Orange Vodafone, a cellular phone
service provider in the country. These were not only crisp, but also helped in positioning Orange as one
of the most customer friendly cellular services in India. The communication of its various products,
like the prepaid Sim card (Just Talk), roaming facilities, and various airtime packages shared the same
colours and motivated customers to buy the service.
The media used by direct marketers are mailers, telephone, television, and the Internet. Direct re-
sponse print and television advertising are particularly effective in generating response to the offer,
especially if it is complex to understand. Also, the direct marketer today uses various outdoor retail
panels (Just Talk and Tata DOCOMO brands of prepaid Sim cards in Mumbai) and even stickers to
retain the brand in the customer’s mind. These also serve the purpose of a reminder.
Customer Service
As mentioned earlier, customer service is a key input in direct marketing. In direct marketing, physi-
cal contact with the customer is low and it is the quality of service that facilitates customer decision
making. Service, therefore, is an investment and cannot be ignored. The customer service mix today
involves the following:
Speed and Accuracy of Order Fulfilment This includes the speed at which the customer
is able to complete the order form and the organisation’s ability to acknowledge and execute the order.
This involves the development of an appropriate order fulfilment process in which speed and accuracy
hold the key, to purchase and retention. In online order procurement, the company will have to pay
special attention to its bandwidth and server capacity. The same holds true for marketers who use call
centres to book, deliver, and service customers’ orders.
Immediate Customer Complaint Resolution Today, customers demand on-the-spot reso-
lution of complaints. Given the Internet and call centres, customers look for seamless complaint man-
agement.
Other Important Elements of Customer Service Toll free telephone numbers (1–800),
money back guarantees, multiple modes of payment (credit cards, cheque, money order, VPP and so
on) are giving customers flexibility.
The Jet Airways in flight shopping mall (now withdrawn) offered all these modes, thereby making
it easy for customer to buy a product. Dettol, a brand of Reckitt Benckiser of India, has launched the
‘Healthy Home Careline’. Consumers can reach the company by dialing a toll free number and their
queries are answered instantly. This, in turn, builds the image of RB as a caring company, increases
the company’s interaction with customers, and also gives it access to the names and phone numbers of
consumers, thus expanding its consumer database.
Timing and Sequencing

This factor involves determination of whether the product or service is offered once, as a part of the
campaign, or continuously. This will obviously involve campaign decisions like whether to have bursts,
pulsing, or a continuous campaign.
DIRECT MARKETING MODEL
LO3 How Does Direct Marketing Work?

Describe direct Direct marketing follows a model of network marketing and multilevel
marketing model marketing. Network marketing refers to a distribution system of a firm but
a multilevel marketing is a compensation plan. Typically in the model of
multilevel marketing, the sales force is compensated for his or her direct selling efforts and also for
the sales of other people they recruit. Sales people are expected to sell products directly to consumers.
This sale is based on relationships and based on these relationships a salesperson develops referrals.
The strength of this direct sales chain lies in the relationships and the referrals.
In a world of internet marketing, customers are encouraged to visit the firm’s website and regis-
ter. This helps them to get an access to not only the product catalogue but also the deals. Should the
customer decide not to register, he would still continue as a guest and select the product. Once he has
selected the product category, he is directed to a virtual display of all products and brands in the chosen
product category. The customer can then compare the features, price and other customer’s experiences
before selecting a particular brand. He is then prompted to look at other complementary products. This
is where the firm cross sells other products. After having made the selection the customer checks out
by selecting the appropriate date, time and mode of delivery. Amazon.com is a successful example of
Online Direct Marketing. The company not only sells but also continues to push other products to the
consumers in its database through tracking cookies. Through this cookie, which is tagged to custom-
ers’ browser, Amazon is able to follow the customer to push the product he saw but did not buy. Thus
the models of Direct Marketing are multilevel marketing, telemarketing and internet marketing. Now
mobile marketing is also a way of reaching out to the customers directly. In fact mobile marketing holds
the future of marketing as more number of customers use mobile phones to do their transactions.
FUTURE OF DIRECT MARKETING IN INDIA
LO4 The future of direct marketing in India is dependent on the following:

Explain future of
Reaching Out to Non-metro/Non-urban Markets
direct marketing in
India As metro and urban markets get saturated by prod-
The key to success in the
ucts and services, promoted in both general and direct
Indian market lies in the
marketing models, the key to any direct marketing campaign lies in expanding firm’s ability to access rural
its reach to rural and semi-rural markets. Infrastructural constraints have so markets.
far come in the way of the direct marketer. But with rural cyber cafes, satellite
television reaching rural areas, telecom booths, and mobile telephony gaining popularity, it should be
possible for marketers to reach out to their target market in these areas. Post offices are located in the
farthest corners of India and service villages, with a population as low as 20 households. These offices
can be used as an effective medium to communicate, deliver, and even service the rural customer. IDBI,
ICICI, SBI, and other financial institutions are today directly marketing their mutual funds and other
financial products through the Indian postal system. Thus, the key to success in the Indian market lies
in the firm’s ability to access rural markets.
Enhancing Credibility of the Offer

The Indian customer generally does not buy a product or service until he/she
has seen it, touched it, and experienced it. Therefore, these are key ingredients The customer’s experience
with the product is a key
in the customer’s selection process and the direct marketer has to enhance his aspect in direct marketing.
credibility, as he cannot offer these benefits. He thus needs to pay special atten-
tion to ensuring that the customer’s experience with the product exceeds his/her expectations. Also, he
needs to focus on service to ensure speedy settlement of any claims. Credibility is the key to success
in direct marketing.
Wider use of Debit and Credit Card

Direct marketing’s success in India will be dependent on the wider use of debit and credit cards, as mode
of payment by both the customer and the marketer. This involves a shift of transactions from cash to
non-cash modes and hence a change in the customers’ and sellers’ mindset.
Emergence of Specialised Database Firms

Another key factor in the success of direct marketing is the evolution of specialised database firms. It
is an expensive proposition both in terms of money and time to create a customer database. This makes
direct marketing feasible only for large firms. A very large component of the Indian economy consists
of small and medium sized firms, who cannot afford to create this database. Hence, the emergence and
evolution of firms specialised in database management, will contribute to the success of direct market-
ing in India.
To conclude, direct marketing has arrived in India, but is still an urban and metro phenomenon. It is
gradually reaching out to non-urban areas too. It is important to remember, that competitive marketing
strategies involve using a combination of general and direct marketing approaches.
SUMMARY
Direct marketing is an interactive mode of marketing through which the marketer reaches out to
his target market, at any location. Direct marketing helps companies to focus their marketing ef-
forts and, hence, to that effect is more focused and targeted than conventional or general marketing.
Teleshopping, home shopping channels, catalogue marketing, and online shopping are some of the
tools that enable companies to cater to this core customer value. Therefore, database marketing is
an interactive approach to marketing, using all available communication tools and media vehicles
to reach to the target market.
Cross selling can also be effectively managed through database marketing. This is especially true
for firms operating in several products/businesses and requiring the same database. The strengths
of database marketing are its ability to be measured, tested, and customised. The future of direct
marketing in India is dependent on factors like reaching out to non-metro/non-urban markets, en-
hancing credibility of an offer, wider use of debit and credit cards, and the emergence of specialised
database firms.
POWER POINTS
1. Direct marketing helps companies to focus their marketing efforts. Teleshopping, home shop-
ping channels, catalogue marketing, and online shopping are some of the tools that enable
companies to cater to this core customer value. Globalisation of markets and the Internet have
out to the customer, companies use the direct marketing route. (LO1)
2. Direct marketing is an interactive mode of marketing through which the marketer reaches out to
his target market, at any location. There are three key elements to this, namely it is an interac-
tive system with measurability of response(s) and direct marketing activities are not location
(LO1)
3. Database marketing is the most effective way to customise the marketing mix to suit target
markets. This helps to customise both the offering and its delivery. It is also the basis of all
relationship marketing efforts of the company. The strengths of database marketing are its
ability to be measured, tested, and customised. (LO2)
4. Marketing mix in the direct marketing mode remains the same by and large, except for the com-
munication programme, customer service, and timing and sequence which require considerable
attention. (LO3)
compensation plan. (LO3)

6. The future of direct marketing in India is dependent on factors like (LO4)
● ability to reach non-metro/non-urban markets
● enhancing credibility of the offer
● wider use of debit and credit cards
7. Direct marketing model is based on network marketing and multilevel marketing. (LO4)

1. What is database marketing? How can it be used to strengthen the sales of cosmetic products
for both male and female markets? (LO1 and 2)
2. How can database marketing be used for segmentation and marketing strategy development?
(LO1)
3. What are the major factors that have contributed to growth in direct marketing? (LO1)
4. In the Indian context, which are the most appropriate media for reaching out to target markets?
(LO1, 2 and 3)
(LO4)
Section 5
Creating Sustainable
Competitive Value and
Growth
Section Outline
Chapter 22: Marketing Strategy
Chapter 23: Customer Relationship Management
Chapter 24: Marketing Performance and Control
Chapter 25: Marketing Organisation
T his part deals with the different ways in which firms go about creating competitive
advantage for their products and services. The first chapter is Marketing Strategy—its
meaning, significance and parameters, the connect between the marketing strategy and
core business strategy and formulation of marketing strategy and different approaches
thereto. Chapter 23 is Customer Relationship Management (CRM). Here we talk about
the key concepts and measurement tools for customer loyalty, the processes and
measurements in CRM and how it is linked with value drivers of a firm. Chapter 24 of
this part is Marketing Performance and Control. It talks about the issues that might crop
up in implementation of strategy. Subsequently it tells us how to ensure that strategy is
implemented. It tells us what to look for while evaluating marketing performance and
what tools we can use to measure it. Marketing Organisation covered in Chapter 25 is
the next part dealt with. The topics covered here are the characteristics of successful
organisations, the developments that have taken place in marketing and the resultant
challenges in and approaches to organisational design and the core values that determine
marketing organisation culture.
CHAPTER
MARKETING STRATEGY
22
LEARNING OBJECTIVES
LO1 Explain how firms innovate to penetrate the markets and retain their customer
LO2 Describe strategic orientation in marketing
LO3 Analyse value added marketing strategy
LO4 Develop marketing strategy models
LO5 Explain experience marketing
LO6 Formulate competitive marketing strategy
LO7 Design innovation strategy
LO8 Explain marketing warfare
In Practice
Coca Cola Reinvents Itself to Stay Relevant
The goal of marketing strategy is to make a brand sustainable in a competitive market environ-
ment. Marketing strategy also aims at fighting competition, and making the brand continuously
relevant to the changing market environment. Today this change is being driven by technol-
ogy and internet. In a way, internet has today become a leveller among markets. Today there
are no markets which can be categorised as information deficient markets. Internet has also
democratised the innovation process. Individuals today feel empowered to share their ideas on
Facebook or You Tube and Google Plus which are the outcomes of internet era. Innovation
is the key to success. The market is also today categorised by people or community power.
Increasingly, individuals want responses which are individualised. Coca Cola’s Chief Marketing
and Commercial Officer, Joe Tripodi, mentioned that Coca Cola’s brand reinvention strategy was
based on the concept of individualisation. The millennial generation has different consumption
values. Hence, Coke focused its innovations in packaging, partnership, products and equip-
ment, consumer provocations and cultural leadership. In the context of packaging the contour
shaped bottle underwent change. Customisable packing solutions replaced Coke’s ubiquitous
contour shaped bottle. This customisation is based on youth behaviour in different cultures. For
example, in Australia Coke urged the teenagers to call, order and drink Coke as ‘Mike’ ‘Dave’
or ‘Suzan’. In Japan it partnered with Sony so that its customers could download free songs that
were tied with their birth year.
Mobile apps also led customers to connect with Coke and develop a new partnership. It pro-
vides significant database on product, consumer engagement and new dispenser opportunities.
In India, Coca Cola has gone beyond its aerated drinks to launch fruit juices, mineral bottle water;
Georgia Gold range of tea and coffee, etc. Coke is marketed in multiple pack forms including
200 mL bottle at `10.
Coke has been endorsed by youth icons like Kareena Kapoor, Imran Khan and even some of
the other well-known celebrities. Coke has also developed partnership with NGOs to project its
social image.
Further, innovations in Indian market are today providing an impetus to global brands in
the world market. Continuing this trend, Coca Cola has decided to take the Indian campaign of
Fanta and Thums Up to other parts of the world. The Fanta campaign is the part of the Coca
Cola global theme “More Fanta, Less Serious”. The Indian campaign’s tagline is “Zyada Fanta,
Zyada Fun”. It also uses two animated Fanta characters especially during festivals like Holi and
Diwali. Some of the other innovations are musical initiative “Coke’s Studio”.
Thus, marketing strategy today rests on company’s power to continuously innovate to meet
the challenge of change and to remain relevant to the changing market scenarios.
INTRODUCTION
Tomorrow never happens by chance. It is planned. And those who are prepared, benefit the most. To
succeed in a futuristic environment, one requires a strategy. This is true for an organisation— profit
or non-profit—in as much, as it is for an individual. The art of planning action to achieve a specific
goal is called strategising and the action plan is called a strategy. This chapter is devoted to marketing
strategy—a key area of interest.
Many a time, a brand may be so dominant in the market that it can become a barrier to any new en-
trant. On such occasions, a clever and proactive firm may enter this market through a strategic alliance
with the dominant firm, such that the former brand rides piggy back on the latter. That is precisely what
Coke did to gain a successful entry into the Indian market when it entered into a strategic alliance with
the dominant firm Parle.
These examples help to highlight the challenges that marketers face as markets and production get
globalised, trade barriers get reduced or eliminated, and structural changes take place in markets. An
era of new competition and new customers with different value systems is now a stock reality facing
marketers. To face up to this challenge, firms will need to have a strategic orientation and engage
themselves in planning and implementing marketing strategies.
Innovation is today the key to creating an opportunity and, in, turn competitive edge. Price wars are
an indication of opportunities that exist at different price points in the Indian market.
INNOVATIONS AND MARKET SHARE
LO1 For any firm to succeed innovation is imperative. Markets today consist of
Explain how firms new generation of customers. As mentioned in the Coca Cola case, a new
innovate to penetrate generation of consumers born in an internet and mobile era today dominate
the markets and retain markets. This generation is called millennial generation and has new values
their customer and an entirely different approach to brand acquisition, consumption and
loyalty. They perceive brands differently than previous generations. The
millennials are far more expressive and spend more time in the virtual space than the real world. Today,
research shows that customers who have access to computers and other mobile devices like smart-
phones and iPad spend 86% time on internet. They are either on mail or web chatting or engaging with
their friends and families on Facebook or other interest group networks or searching for their preferred
products or solutions to problems. They are also contributing to the evolution of an idea and hence play
an important role in innovations and co-creation of a product. It is this change coupled with technology
that has altered the marketing process. Let us look at some of these changes in the marketing process.
Changes in the Marketing Process

One to One Personalisation Today, with the help of technology, a firm is able to create per-
sonalised offer. This requires identification of target customer and tracking his purchase behaviour. It
is towards this end that the customer’s individual transaction data can help a firm innovate and create
new customer experience. Facebook and other online social engagement tools enable such innovations
in experience creation. Tracking customers on the online games can also provide significant inputs in
new product design and approach to customer engagement.
Group Buying It was mentioned earlier in Chapter 1 that increasingly customers communicate
their experiences not just to their friends and families but also to many others whom they may not
necessarily know or would have met. We as consumers buy a product based on such experiences and
recommendation of unknown customers. Also when we like a brand or the experience we vote for it on
its Facebook page and also push it to our friends and family. This pushing is done through internet and
mobile phones. This provides an opportunity to the marketer to reach out to a community of consumers
through such satisfied consumers. For this purpose, brands develop cookies which get pushed within the
community by one simple mail. Amazon has developed a collaborative filter tool which tells customers
about the purchasing behaviour of other customers. For example, it tells the customer who would have
bought a book on strategy that another customer’s preferred another author’s book on the same subject.
This encourages the customer to evaluate both titles before finally making a choice. This tool provides
an opportunity to Amazon to cross sell other products also. Hence, group buying has been facilitated by
social networking tools and the other technology tools like collaborative filtering that encourage firms
to use inbound customer interaction as an opportunity to cross sell and up sell.
The social networks and other sharing platforms like You Tube today provide an opportunity to the
customer to share an idea, experience, or opinion and thus create his/her own sphere of influence.
Retargeting Today, marketing communication can follow customers in web-based marketing.
Brands or stores create tracking cookies which can be tagged to the customers’ browser. Later when
the customer is visiting any of the related websites, these cookies pop up the advertisement of the
brand that the customer may have visited but not bought. Technologies like GPRS and bluetooth also
facilitate location-based marketing. When a customer is in a particular area then all his devices which
are bluetooth enabled get messages of all the stores and brands present in that area. Bluetooth is one
of the most effective tools for location-based marketing. The GPRS on the other hand can help the
customer locate a particular store or a brand in the neighbourhood. Location-based marketing is now
shaping customer experiences even when customers have been concerned about their privacy.
Open source technology also provides opportunities to customers to co-create a product or contrib-
ute to an idea. It helps in sharing and if effectively utilised by the marketer, the marketing mix can
be designed in a uniquely different way which suits a group of customers who are contributing to the
evolution of a particular idea. Wikipedia, You Tube and Android mobile operating system are the best
tools that encourage co-creation.
Marketing strategy therefore is about creating an ecosystem of innovative products and speeding
their adoption beyond an individual’s natural social speed of adoption. In order to do so, marketer needs
to understand the laggard behaviour in the target market. For this purpose, it is necessary to get the
laggard to tear off innovations. This can help marketer identify ‘performance to cost’ or ‘performance
to availability’ gaps. Many a times an innovation may fail only on account of performance, cost and
availability. Hence, marketer needs to work on these parameters to enhance diffusion of an innovation
at a faster pace. For this, brand analysis vis-à-vis competitors’ products, including substitutes, on all
the above parameters is required.
Window of Innovation Opportunity Today, innovation opportunity exists in all products and
markets. Many a times a firm may continue to invest in improving the performance of the product on
one dimension or another dimension. Such changes are termed incremental innovations. For example,
a laptop manufacturer may work to reduce the weight of the notepad or the laptop. It may even work
towards enlarging its memory or making it wifi enabled. Each of these developments is important
to the customer. However, such developments do not provide a sustainable competitive advantage
because other manufacturers soon catch up with the innovator firm. The alternative approach to this
is to consider a third dimension, not yet explored in product evolution by anyone. This may lead to
market turbulence and bring new customers who have so far stayed away from its use. Let’s consider
the example of Apple. Apple came to be recognised for its Mac notebook and PCs. Between 1996 and
2004 Apple’s market capitalisation had grown to $8 billion. However, in a much shorter period of time
of 5 years from 2009 to 2013, Apple’s capitalisation grew from $75 billion to $600 billion which made
it the most valuable US company of all times. What made Apple a dominant player in US and world
economy was its suite of products best suited to the internet economy. From 2004, company started
investing big time on two product development namely iPhone and iPad which were launched in 2007
and 2010 respectively. Both these products lifted the fortunes of Apple as it enabled the customer to
transact his business and communicate in a seamless manner. The iTune and the iPod music player
launched in 2001 did not materially lift sales revenue of Apple but it was the iPhone and iPad which
has created a new paradigm in marketing. Customers are encouraged to develop apps for iPhone and
iPad. The IOS operating system is easy to use software and thus the customer can today create apps for
different situations and use. Many companies today have apps for iPhone and iPad. For example, Tata
Sky has developed an app which gives an opportunity to the customers to get all programs on Tata Sky
Channels on his or her iPhone or iPad. Tata Sky is the first DTH firm to do so. Similarly, many other
media firms and stores have created their apps.
By developing new products and benefits, Apple developed a new market that did not use internet
or computers. Now the convenience of accessing information on the go through iPad and iPhone got
many consumers like housewives, young children and others hooked to the iPad or iPhone. Facebook,
BIGFlix and several online games have apps exclusive for iPad or iPhone.
Thus, the innovation opportunity does not rest in technology alone but in the market as shown in
Figure 22.1.
Figure 22.1 The Innovation Opportunity

Source: ELIE–OFEK: Marketing Input and Innovation Strategy; Harvard Business School, March 27, 2008.
In order to successfully launch such innovative products it is necessary for the marketer to understand:
(a) Emerging market segments
(b) Switching behaviour of target market
(c) Competitive landscape
(d) Speed-to-market as against learn-the-market approach
Based on the above understanding, the firm needs to pretest its new product launch plans.
STRATEGIC ORIENTATION IN MARKETING
LO2 In the context of the above market changes, marketer needs to build a stra-
Describe strategic tegic perspective in products and brands. This can happen by analysing the
orientation in marketing following:
(a) Understanding Markets

(b) Finding Market Niches
(c) Product and Service Planning
(d) Distribution
(e) Managing for Results
Understanding Markets
The starting point of analysis is the market. Today, one witnesses structural
Strategic perspective of
changes taking place in the Indian market. Demographic and lifestyle changes
the market requires skilful
in the country present new opportunities for marketers. These changes are not
analysis of the trends and
how they affect the marketjust restricted to metropolitan cities like Mumbai, Delhi, Kolkata, and Chennai,
but are taking place in all cities and even in rural areas. The demand for pack-
size and demand for the firm’s
product. aged goods has been on the rise, even in rural areas. Strategic perspective of the
market requires skilful analysis of these trends and how they affect the market
size and demand for the firm’s product.
The opening up of the economy has meant enhanced competition in the industry. This emanates not
only from foreign brands, which are eagerly looking forward to entering the Indian market, but even
from local, large, medium, and small firms. The latter today, poses a serious threat to some of the giants
in the industry, only because of their ability to serve customers better and offer lower prices. A threat
of competition also emanates from new strategic alliances or mergers being forged by giants in the
industry. Consider, for example, the strategic alliance between Sara Lee and Godrej Industries, the
merger of TOMCO with Hindustan Lever, and Parle’s brand purchase by Coke, and Pepsi’s purchase
of the Dukes brand of soft drinks in Mumbai and Hutchison-Essar’s purchase of BPL Mobile in the
country. All these changes in inter firm rivalry alter the structure of the industry and present a new set
of opportunities and threats to Indian firms. It is important for a strategic marketer to cast off his or her
inertia and take a fresh look at the market. In fact, the marketer needs to take a long term view of the
market.
Price, service, convenience, Finding Market Niches

technology and fashion are
some of the niches in Indian
As the market evolves and customer needs become more defined, the marketer
market. needs to adopt a segmental approach. Carving niches in the market, penetrating,
and protecting them from competitive onslaughts will be the games played by
tomorrow’s marketers. Today, these niches are becoming more and more apparent. Price, service,
convenience, technology, and fashion are just some examples of niches in the Indian market. Today,
technology enables firms to adopt mass customisation strategies, which can give them the benefit
of niche marketing and also economies of scale. The challenge is whether
Product and Service the firm can identify these niches and adopt a mass customisation strategy to
Planning involves an analysis simultaneously serve most of them without compromising on quality.
of the customer’s perception
of the brand, both of the firm Product and Service Planning
and the competitor, besides
an analysis of the situation in As we enter an era of standardised technology, we embrace more and more
which the customer uses the undifferentiated products. The tangible differences between one brand and the
product. other will get diminished and, in fact, eliminated. Products are going to become
intangibles. The basis of differentiation between one firm and the other will continue to be their offer.
If we were to perceive a product as a bundle of tangible and intangible benefits or as representing solu-
tions to customer’s problems, the challenge for the marketer then, is to not only add value but reinvent
the value package for the customer. This involves an analysis of the customer’s perception of the firm’s
brand or that of the competitor’s and the areas in which the customer is dissatisfied with the firm’s brand
and the competitor’s. It also involves analysing situations in which the customer uses the product and if
there are any situations which the marketer is not aware of. Consider, for example, the introduction of
automated teller machines (ATM) by foreign banks and most Indian banks for many urban customers.
ATMs have solved the problem of conducting banking transactions within the limited banking hours.
Through the ATM, the customer can now conduct banking transactions 24 hours a day, seven days a
week, and even on public holidays. This is a great boon and thus foreign banks, like HongKong Bank
and Citibank have reinvented value constellation for the urban customer. Obviously, ATMs may not
have the same success in semi-urban or rural markets, because customers there are less knowledgeable
and, in any case, perceive a visit to the bank as an outing.
Specifically, then, product and service analysis involves the following:
of?
(b) What is the position of the generic product and the brand in the life cycle?
(c) How can a brand’s equity be enhanced?
(d) Are brand extensions possible and what are its limits?
(e) Is the brand positioning valid? Is the message still effective in motivating customers? In other
words, will consistency in brand positioning help strengthen the brand?
(f) Should the product be killed? If so, when and what should replace it? Will the new product enable
enable it to competitively satisfy the customer?

(h) Are there any new packaging technologies available that can help make the product look more
price?
These are just a few issues that must hold the marketer’s attention, for these will enable the develop-
ment of an interactive marketing strategy.
Distribution
The success of a firm in India depends upon its ability to make the product
Structural changes in
available at the right place, at the right time, and in the right quantities. Today,
inventory management,
distribution patterns are changing. New alternatives like mobile distribution mobile distribution, and
are available in far flung markets. Technology will make a greater impact on teleshopping are some
distribution, than one can visualise today. With satellite communications and of the key factors that are
telecommunications in the country developing, perhaps it will be much easier for going to affect the distribution
firms to keep track of their inventory positions in different markets. Companies process in the Indian market.
like Hindustan Levers, Phillips, and others are already using VSAT to monitor
and plan their stocks in different markets. Technology will also, perhaps, eliminate many of the existing
channel members. Consider the example of teleshopping, which is going to be an important channel of
selling consumer products. Structural changes in distribution is another item on the agenda of strategic
marketers.
Managing for Results

With pressure on costs, prices, and margins, marketers will have to make effective utilisation of every
rupee spent in marketing. This will involve planning marketing investment in such a way that the return
on it is maximised. This is another area where a strategic marketer has to use his/her analytical skills.
Highlighting the importance of strategic analysis, a well known strategist and thinker, Kenichi
Ohmae, asks the strategist to think strategically. According to him, it is a ‘strategic and inquisitive mind’
that can frame the right questions, so as to conduct an objective situation analysis. Ohmae believes that
an analysis done for vindicating one’s own preconceived notions does not lead to creative solutions and
also intuition alone does not ensure profitable business plans.1
Kenichi provides a framework of strategic thinking. One of the methods described by him for stra-
tegic analysis is issue analysis. This is the same approach as the one using decision trees for decision
making.2
Thus, before any business strategy and marketing strategy is evolved, it is necessary that the strate-
gist thinks it through and takes a strategic perspective of the market.
MARKETING STRATEGY
LO3 As one would infer, the goal of marketing strategy is to increase the brand’s
Analyse value added market share. In today’s environment this is achieved by the value creation
marketing strategy process. It is imperative that the customer should perceive value in buying
the company’s brand over that of the competitor’s brand. This is sought
to be achieved by either adding new features to the product or making it more efficient to use or by
improving its availability or reducing the cost and hence the price. Let us consider the example from
the Telecom Sector. Nokia had been an uncontested leader in the Indian mobile phone market almost
until 2009–10 when it started losing market share to smartphone launched by Samsung, iPhone and
Blackberry. Nokia’s leadership in the Indian market was based on its continuous innovation in product
design and pricing which was embedded in its understanding of the Indian market. Customer saw value
in buying a Nokia phone for the features that it provided. For example, when Nokia introduced the
backlight feature, it served the purpose of a torch. Soon thereafter new markets or customers like truck
drivers, rural consumers and those living in cities which had a perennial power shortage found this
model of Nokia a very useful product. But Nokia still failed, which was due to the fact that it failed to
see that the young consumer was now increasingly getting hooked to smartphones especially those op-
erating on the Android operating system. Samsung’s Galaxy handset delivered features which were far
superior than that of Nokia. Based on the principle of recognising human touch the smartphones from
Samsung were sleek and easy to use. Besides it provided the customer the internet facilities. Now the
customer could search or download data information or even access his mails on the phone. Certainly
now the phone was no more a telecom piece but became a hand-held-computer which customer used for
communication and doing all other transactions which he would otherwise do it on his PC or Laptop.
The Android operating system created a new world of apps and now customers could download the
Facebook Apps or any mobile games apps without having to use the computer. In addition to the above,
the phone came with some preloaded apps like those of weather, news, You Tube, Google Maps, etc. It
also worked as an electronic reader. Now the customer could download a book and read it on his Sam-
sung smartphone. Nokia just could not keep pace with these developments. It also did not realise that
the world had moved to open operating systems like Android. Hence, its own mobile operating system
Symbian had become outmoded. Nokia tried to recapture the market by developing new products, and
new features like dual-sim but the market had definitely moved away to smartphone. Today, the Sam-
sung smartphone has been challenged by phablets which is an amalgam of a smartphone and a tablet.
Value creation therefore is not a one-time activity and hence marketing strategy has to be dynamic.
Let us examine how firms formulate value added strategy and enhance the brand’s value to the cus-
tomers.
Routes to Value Added Marketing Strategy (VAMS)

Value addition could be achieved through a combination of different routes.
However, all these routes emanate from one source—customer needs. To win the The inputs of value addition
should emanate from
market without having to compete, firms should set out to understand customers’ customer needs.
inherent needs and then rethink regarding what a product category is all about.3
In other words, VAMS starts with taking a close look at customers’ needs and problems and then think
deeply about the product.
Segmentation
One of the basic elements in marketing strategy is segmentation. VAMS is based
Market Segmentation,
on segmental analysis and using the segment information for product design. Mar-
which help focus corporate
ket segmentation can help focus corporate resources, much more sharply than resources more sharply, could
otherwise. As brought out in Chapter 8, there are two major methods of segmenting be done on two ways—on the
the market—one on the basis of product usage and the other on the basis of cus- basis of product usage or
tomer groups. Segmentation can also help provide leverage for marketing resourc- on the basis of customer
es on the more productive customer groups. One approach to this is to target groups.
customers, who are dissatisfied with their existing supplies and suppliers. These are
the customers who do not perceive significant value in their current purchases and hence are vulnerable to
change to a supplier who delivers more value. This is an important customer segment for a firm desirous
of entering a market or launching a product in a market dominated by other brands. The dissatisfaction
could be on any count—delayed delivery, damaged delivery, poor after sales service, no consistent brand
image, obsolete technology offered at high prices (as in the case of Premier car in 1990s), and so on. The
firm needs to examine the points of dissatisfaction and also their magnitude. Based on customers’ percep-
tions and expectations of existing brands or suppliers, the target market may be grouped as: (a) Switchers;
(b) High profit net worth customers and (c) Market share determiners.
Switchers These are customers with low acquisition costs. Here, a firm should be watchful and
not just go after all those who are brand switchers. The marketer should differentiate between genuine
switchers and the compulsive ones who switch to low price or discounted brands and suppliers at the
drop of a hat. A marketer should beware of those who are always looking for a discount sale. However,
genuine switchers are those who are willing to buy a new brand or better product only because it helps
them either improve their self image in their reference group or boost efficiency.
Genuine switchers are those
The new entrant can make his or her product acquisition low on cost through willing to buy the new brand
several ways. Some of these are: to improve self-image in the
● Exchange: reference group or boost
efficiency.
brand of refrigerator can be targeted at this group by offering to exchange the customer’s old
refrigerator for a new one and thus offering it at a lower price than otherwise.
● Deferred Payment Plan: Customers may be offered a deferred payment plan, thus inducing
them to change.
● Customer friendly Product: Making a product more user friendly than the competitor’s can also
reduce the acquisition cost.
High Profit Customers This is a group of customers which generates the maximum returns or
profits for the company.
Market share determiners

Market Share Determiners These are customers who contribute to the
deliver the maximum profitsfirm and its brand’s long term growth. They may cost a lot to acquire, but they
deliver the maximum profits because of the duration and extent of their influ-
because of their duration and
extent of their influence.ence. One way to identify such customers in organisational or industrial market-
ing is to find those organisations that are growing differentially faster than the
industry. For example, if the speciality clothing store sales are showing a higher growth rate than others,
then it is advisable for a dress maker or garment manufacturer to position his/her brands in these stores.
Other types of share determiners are demographic groups with particular values, distribution channels,
professional influences like doctors or specialists, and assemblers4.
Further, depending on the product or brand’s life cycle phase, the firm can target any of these cus-
tomer groups and carve out a niche for itself. For example, at the introduction stage, a firm should target
customers who can generate high profits because they are less sensitive to price. But in the growth and
maturity phases, the marketer should target the share determiners and switchers respectively. However,
the firm should try not to penetrate the competitor’s loyal customers at any of the life cycle phases as
more often than not it is counter productive. Figure 22.2 shows this targeting strategy.
Figure 22.2 Target Customers according to Life Cycle Phase
Mass customisation Mass Customisation

involves customers in a two
way communication process The strategy of segmentation gives the marketer options of standardisation,
and hence is more customer differentiation, and niche marketing. If one were to go back to the basics of
focussed. marketing, it becomes imperative to design the marketing mix as per the needs
of an individual customer. This was earlier not possible, if the customer base for any company was
too large and moreover it involved sizeable resources. However, today this is possible mainly due to
advancements in technology. Today, computers make it possible to profitably design a product spe-
cifically for a particular customer. This strategy is termed mass customisation. It is based on the idea
of tying computer based information systems together with new modes of operation, such as flexible
manufacturing and just in time production and then using these systems to make it possible to provide
each customer with the attractive, tailor made benefits of the pre-industrial craft era at the low cost of
modern mass production. Thus, the key elements of this strategy are:
(a) computer based information systems
(c) just in time operations like production and distribution

Several companies in the world are adopting this strategy to gain a competitive advantage. Some of
the leaders are Motorola—which offers more than 29 million different combinations of pager features,
such that each pager is designed around the specific needs of a customer and McGraw-Hill and other
publishers, who customise specialised textbooks in quantities of hundred or less. Larsen and Tourbo
(L&T) is one of the first few engineering companies in India to adopt flexible manufacturing technologies.
One of the advantages of mass customisation over traditional segmentation strategy is that the former
involves customers in a two way communication process and hence is more customer focused. This
shift in communication (customer to supplier) will have an impact on the more traditional supplier to
customer marketing communications too. For one, suppliers and firms will no more define themselves
in product terms. Rather, the focus will be on capabilities and hence the cutting edge in an intense
competitive environment, will be on how effectively a firm can satisfy its customers’ needs.
It is believed that the initial impact of mass customisation is on products and services that are feature
rich and information intensive. For example, insurance, banking, credit cards, computers, textbooks,
and even industrial plant and machinery are the users of this strategy. To succeed in this strategy, mar-
keters have to investigate and resolve the following issues.
or service?
5
As one may observe, the strategy of mass customisation involves integration of all major functions
of a firm—purchase, manufacturing, R&D, marketing, and finance—so that it is able to profitably
develop, build, and deliver different products for each unique customer.
We will see Indian firms moving to this strategy in the near future as markets become more complex
and competitive.
Value Addition
Customer based marketing strategy is the art of creating value and delivering it
Successful companies
at a profit. One school of thought professes that successful companies do not just
do not just add value, but
add value, they reinvent it6. And they do this, by linking together their two key they reinvent it through the
resources—knowledge and relationships, or their competencies and customers. linkage of two key resources—
In the process of value creation, firms work together with other ‘economic knowledge and relationships,
actors’ like suppliers, distributors, and customers with a view to reconfigure their or their competencies and
roles and relationships, such that value is created in new forms and by new customers.
players. Today, this is increasingly becoming possible, once again due to the advancement in technology
and lowering of trade barriers between nations. For example, today it is much easier to procure raw
materials, components, and accessories from sources that produce the best and at the most economical
price and then assemble them to deliver a new offer to the customer. A direct implication of this, is that
the distinction between tangibles and intangibles will no longer be valid as the customer’s decision will
be made on the basis of a firm’s total offer and not just the product.
The authors of this strategy have cited examples of IKEA, the world’s larg-
Density of value is the est retailer of home furnishings, Danish pharmacies, French concessionaires,
measure of the amount of
and ATMs (Automated Teller Machines). All these examples lead us to believe
information, knowledge and
resources that an economic
that the concept of value has become more dense, than it was earlier for any of
actor has at hand, at any these firms and services. Density of value is to be perceived ‘as a measure of the
moment in time, to leverage amount of information, knowledge, and other resources that an economic actor
his/her own value creation. has at hand at any moment in time to leverage his or her own value creation’7.
In Practice
Raymond Creates New Customer Experience
Raymond as a company is well-known for its suiting and suit-lengths. The Raymond group was
incorporated in 1925 and has become synonymous to some of the best tailored suits, trousers,
blazers and suit lengths. In fact, at one stage one of the gifts in the wedding to the bride groom
was a Raymond suit-length. The company today owns multiple brands and ready to wear gar-
ments like Park Avenue, Colour Plus and Parx, and markets accessories like ties, scarves, cuf-
flinks, belts, wallets, etc. Though, initially a brand for men, today, Park Avenue ready to wear
suits and trousers are also positioned in women market. In order to reach out to consumers and
create a new experience for the customers, Raymond has set up the retail shops under the brand
name ‘The Raymond Shop’. These stores are experience stores. They offer complete wardrobe
solutions for men, which includes top of the line brands like Raymond, Raymond Premium
Apparel, Park Avenue, Colour Plus, Parx and Notting Hills. Each of these stores offers custom-
ers the opportunity to either get a custom-tailor made garment or made-to-measure garments.
The Raymond made-to-measure collection is crafted to reflect the individual’s personal sense
of style. It’s a range of business, casual and ceremonial collections feature versatile pieces of
outstanding production. The customer is able to select the style including the trims, accessories
and special finishing touches like his initials. Each store’s ambiance and the music communicate
style and elegance.
Thus, a Raymond Shop’s value proposition does not lie only in textile marketing. Rather its
value proposition emerged from the range of ready to wear garments and accessories, tailoring
options and the loyalty club. It also emerges from its store ambience which is attractive, stylish
and elegant. The store music further adds to the value proposition of “The Complete Man”.
In order to retain the customer, the company has developed a royalty scheme called as ‘Pre-
mium Circle’. It provides customers an opportunity to earn points on every `100 spent in the
store. Based on the purchase history, the benefits and entitlements also vary for each segment.
The made-to-measure and the Loyalty Club has today altered the customer experience.
Raymond has also developed Apps on Facebook, Twitter and Google Plus.
From both these illustrations, one may agree with Norman and Ramirez that the new logic of value
has three strategic implications for a marketer:
● Value Occurs not in a Sequential Chain but in Complex Constellations: Hence, the goal of
for themselves. Thus, Hong Kong Bank by offering ATMs and Visa and Master cards (which can
also be used as an ATM card) has enabled its customers to either shop through the card, or alter-
natively withdraw cash at any time and at any of their listed centres in the country, thus reducing
the customer’s anxiety. Hong Kong Bank, Shoppers’ Stop, Big Kids Kemp, or any of the other
compete for the customers time, attention, and money.

● What is True for Individual Offerings is also True for Entire Value Creating Systems: For
example, the relationship of Hong Kong Bank with telecommunications companies, computer
suppliers, member establishments, employees and even customers, becomes crucial if its Visa
-
tionship that the former fosters among its ‘economic actors’.
● The Only Source of Competitive Advantage is the Ability of the Firm to Conceive the Entire
Value Creating System and Make it Work: To go on winning, a company must create a system
for on going dialogue with its customers. Also, they win when they make their customers, distribu-
tors, and suppliers even more intelligent.
(i) reconsider the business potential of their chief assets, the company’s knowledge base, and
its customer base
(ii) based on this analysis, reposition or reinvent the company’s offerings to create a better fit
between its (company’s) competencies and the value creating activities of its customers
(iii) make new business arrangements or alliances, including social and political (!), to make
these offerings feasible and efficient
Thus, the strategy of value creation is based on a continuous process of building a better fit between
the company’s customers and its knowledge base. The knowledge base includes technology, product,
market structures (which involves competition and distribution), and the customer. It is towards this
end that once again technology can be effectively utilised. Two key areas here, that can be profitably
be used by a marketer are telecommunications and computer based information systems.
Exhibit 22.1 Value Added Marketing Strategy—The Pidilite Way

Fevicol is the flagship brand of Mumbai based Pi- Fevicol, with a 60 to 65% market share in the
dilite Industries, which is a `518 crore family man- `400 crore white glue segment, contributes around
aged business. Pidilite’s portfolio consists of about 50% to Pidilite’s turnover. Fevicol was launched
650 stock keeping units (SKUs) in adhesives, seal- way back in 1959, when there was a niche market
ants and polymer emulsions, art materials, paint segment for white glue in India. Pidilite’s turnover
chemicals, textile resins, and organic pigments. The is split between branded consumer products and
strongest among these is the `240 crore synthetic the unbranded speciality industrial chemicals seg-
resin adhesive, Fevicol. ment. By 2001–2, the share of the branded segment
reached 69%. This is because the branded segment, Communicate and develop customer loy-
with a growth rate of eight to 10%, has been grow- alty: In the mid-seventies to eighties when
ing at double the rate of the unbranded segment. there was a marked change in consumer life-
The components of the value added marketing styles, with more and more furniture being
strategy of the company were: made in homes, shops, or offices, the com-
Convenience in product use: Fevicol was pany increased its advertising outlay to boost
the first Indian synthetic resin adhesive when its marketing efforts. Its immensely popular
animal based resins or starch based glue were ‘dum lagake haisha’ campaign unleashed a
commonly used to bond furniture. Fevicol spiel of creative energy on the brand.
scored over these resins because of its ready As a part of its marketing efforts, Pidilite re-
to use property while the animal based resins cently formed a carpenter’s club, Fevicol Cham-
had to be first boiled. Pidilite also launched pion Club, which meets three times a year and
another easy to use brand, Prime Eazy Tear includes information dissemination sessions
adhesive tape, which allows the users to tear and presents awards for the best designs to
off the adhesive with fingers, instead of using carpenters. It has also introduced books and
scissors to cut the cellophane tape. cassettes containing fables of Vishwakarma,
Fighting competition by influencing the artisan god worshipped by the carpenters.
change at the user level: Fevicol faced com- These marketing strategies have created an
petition primarily from two fronts, when it emotional bonding between the carpenters and
entered the market. One was the small scale the product and more so with the company.
sector consisting of about 50 small enterpris- Fevicol’s distribution muscle: Wide avail-
es in places like Jaipur, Nasik, and Tirupati ability of a product increases its sales. Fevicol
that started manufacturing synthetic resin was available at hardware stores and timber
based adhesives in the sixties. At the other marts. The company increased the presence of
end, Fevicol faced competition from multi- Fevicol with its innovative packaging. Fevicol
nationals like the German Hoechst Dyes and was introduced in collapsible 30g tubes. This
Chemicals, which has been in this product raised the brand to the level of an all purpose
market internationally, since the 1940s with glue and gave Pidilite an entry into the house-
it’s Movicol brand white glue. Also present in hold segment and also increased brand reach
the market at that time was a Sarabhai group and brand recognition so much so, that the
company with its Calibond brand launched in household segment became the image driver
collaboration with a UK based company. for the Fevicol brand. The other brand ex-
Pidilite entered the market by approaching tensions like Fevicol MR and Fevikwik were
carpenters and creating an emotional bond subsequently introduced in the market. These
with them, even though in the ultimate reck- brands further strengthened the mother brand.
oning the cost of adhesive is only a small Pidilite industries has followed a user
portion in the total cost of furniture making. driven policy of distribution expansion. Its
While Pidilite continued efforts in strengthen- acquisition of the Ranipal brand, a fabric
ing this emotional appeal with the carpenters, whitener brand from Mafatlal (promoted by
competitors pushed their products through Indian Dyestuff Industries), gave the Fevi-
retail channels like hardware stores and tim- col brand an access to nearly 50,000 retail
ber marts. Pidilite has built an extensive da- outlets and kirana stores, which in turn en-
tabase of upto one lakh carpenters which is hanced the visibility and availability of the
updated every two to three years. Around brand and brought it closer to the customer.
1975, Pidilte launched a bi-monthly magazine Today, Pidilite’s strong distribution network
Fevicraft, which showcases furniture designs. encompasses 40,000 dealers and distributors
This magazine is mailed to the carpenters at and covers more than 4,00,000 retail outlets.
their shops or residences. Fevicol as a market leader—competitor
strategy: The company has been proactive
in fighting competition. Small-scale players by the company include art materials for stu-
had an unassailable price advantage of 10 to dents, like Tempera, and a ready to use liquid
15% and the organised sector was marked by colour brand that is touted as a product that
the presence of cash rich players like Vam will replace tablet, tube, and poster colours
Organic’s Vamicol and white glue brands like by selling at half the price.
Kitply’s Kitcol and Century Plywood’s Centu- The company also plans to extend the portfolio
rycol. of ‘Mr Fixit’, acquired from Mahindra’s which has
Pidilite, as a part of its strategy to protect been renamed as ‘Dr Fixit’ to beef up its con-
the flagship brand, has launched two ‘fight-
struction and paint chemicals segment. Even the
er’ white glue brands, Parcol and Bulbond,
Ranipal fabric whitener portfolio is being strength-
which are priced at par with the competition.
ened, as two or three fabric care brands will be
Also, it is strengthening its existing distribu-
tion network as most plywood majors have added in the next two months.
a well entrenched distribution system of ply- Pidilite Industries has launched 10–12 new
wood dealers across the country and piggy- products every year in sub-categories for the past
back their white glue distribution through the 15 years and the casualty rate has been five to ten
same channels. percent once every two years, while the products
Fevicol’s foray into the future—future launched in the last five years contribute about
strategic options: New products introduced 10–15% to sales.
MARKETING STRATEGY MODEL
LO4 Product Market Fit

Develop marketing Another way of strengthening the product market fit is to examine the prod-
strategy models uct’s usage in existing as well as new markets. Sheth8 advocates that a firm
can win markets if it were to focus its attention on the existing and possible
new uses of its products, by its current and potential customers. The matrix examining this is shown
in Fig. 22.3.
Figure 22.3 Strengthening Product Market Fit
The matrix demands the marketer examine his/her product against the background of the customer’s
usage behaviour. Sheth argues that an insightful analysis of customers and the way a product is used,
can help firms evolve marketing strategies that will help them win their markets and remain competi-
tive. In the following sections, we shall review some strategies which a marketer can use profitably.
Existing Users–Existing Uses This is essentially a strategy of deeper penetration in the market.
This can be achieved by the following strategies:
Making Consumption Mandatory When a firm works towards making consumption of its prod-
ucts mandatory or compulsory by its target customer groups, it is able to expand its market share. Con-
sider, a Government of India directive to all its officials to fly only state air carriers and to stay only in
India Tourism Development Corporation (ITDC) or other state owned hotels. In doing so, Air India,
Indian Airlines, and government owned hotels are able to penetrate the executive market. Likewise, an
agreement between a hotel and an airline (domestic or foreign) that enables the former to exclusively
provide boarding and lodging to the airlines’ crew and passengers can help the hotel improve its market
share. Similar arrangements exist between suppliers of several goods and services and hospitality and
aviation firms.
Another way of making product consumption mandatory, is by motivating decision makers or influ-
encers to adopt the firm’s product standards for comparing competitive bids or even motivating them to
notify competitors, that the firm’s products and brands are the benchmark. Several industrial products
suppliers work towards this goal and are thus able to block the entry of competitors.
Switching Intermediaries Changing the pattern of distribution can further enhance the product
market, by bringing the firm closer to its customers. For example, the firm can switch from direct mar-
keting to indirect marketing or vice versa. Titan watches, for example have used both these strategies to
penetrate the watch market. The firm used the conventional channel of watch dealers and also created
a chain of exclusive boutiques (company owned or franchised) across the country. This strategy, has
given Titan a significant edge over its principal rival, HMT. Not only did Titan create state of the art
and more upbeat boutiques, it motivated prime customer groups (usually major credit card holders) to
visit them and shop for an exclusive range of watches at a special price.
Finding new outlets to distribute the product is the key to deeper penetration. The success of Frooti, for
example, in the mid 1980s is attributed to its tetrapack and new retail outlets like sweetmarts, groceries,
chemists, and even gift shops. In other words, following the customer and making the product available
at all the possible places of customer congregation, can ensure a firm’s competitive fit with the market.
Existing Uses–New Users Finding new users who will use the product in the same way or will
look for current benefits in the product is yet another strategic alternative. This could be done through
any of the following strategies:
Internationalisation Finding customers for the product in overseas markets is one of the obvious
routes available to products in the maturity phase in the current domestic market or ones that face severe
competition from clones or look alikes. Within the Indian context, this strategy also implies developing
markets in hitherto unexplored areas like semi urban or rural areas. Today, with the reach of television,
satellite communication, and a more developed market infrastructure, this strategy is within the reach
of most firms. This explains the demand and hence distribution of branded and packaged consumer
goods across the length and the breadth of the country.
Turning to internationalisation, many engineering firms, particularly light engineering firms making
products like sewing machines, fans, handtools, and so on turned to new and emerging markets like the
Middle East in 1980s, for successfully marketing their products. The decade of 2000 is seeing many
Indian companies going global. Besides information technology firms, auto component manufacturers
like Bharat Forge, pharmaceutical companies like Ranbaxy and Dr Reddys are today major players in
the global market. Even consumer entertainment electronics and automobile firms like Onida, Bajaj
Auto, and Maruti Udyog have found lucrative foreign markets for their products. But the key to success
in foreign markets lies in delivering quality products on the customers’ terms, that is on time delivery
and products that suit specific customer needs.
Positioning Many a time an indepth research on how a customer uses a product can help find a new
customer group. For example, Pears soap, which had traditionally been used for bathing children (be-
cause its glycerine content suited their soft skin), was later positioned as a beauty aid for young women
too. This was the result of research findings that indicated growing skin care concerns among the latter
group, a large marketing segment for the firm. This strategy of positioning Pears paid rich dividends
to Hindustan Lever, even in the face of competition from several new brands of premium toilet soaps.
New Uses–Existing Users A successful marketer knows that the process of winning the market
is not a one time affair; it is an ongoing process. Continuously broadening product horizons to better
serve existing markets is one strategic alternative. Product horizons can be broadened through:
Change in Packaging In the 1980s, Hindustan Lever, and later others, introduced sachet packaging
in the shampoo market. This strategy helped the firm to position the product as a trial purchase and
also as a convenience pack for travellers. Interestingly, it also helped the company find new customer
groups, like hotels who now provide it as additional toiletry in guest rooms.
New Benefits and Hence New Use Situations Offering new benefits can help the firm find new
use situations for customers. Convenience in carrying the pack and not having to worry about dam-
ages or returns, was one of the many benefits offered for the first time by tetrapacked Frooti and hence
customers found it more convenient to carry while travelling or shopping—a benefit that the bottled
soft drink did not offer.
Likewise, Nestle found a new use for its branded condensed milk (Milkmaid). Faced with a decline
in its sales following the white revolution, the company found that Milkmaid could be used in prepar-
ing desserts and Indian sweets like gajjar ka halwa, coconut laddoos, seviyan, and so on. The company
repositioned Milkmaid accordingly and in order to strengthen its brand equity, provided the recipe of
a dessert on the reverse side of the label. No two packs would have the same dessert recipe and hence
the housewife found it useful to buy not one but perhaps several packs at one time or rebuy it every
month and look for another recipe. This strategy of repositioning Milkmaid put the product back on the
shopping list of the middle class urban housewife.
Another way of finding new uses, is to add a new feature to the product, thus providing a new reason
to the customer to stay with it and use it more frequently. Usage of herbs or ingredients that prevent
hair loss, can make a brand of shampoo more preferred, than the competitor’s and thereby used more
frequently.
New Uses—New Markets This is a strategy that involves both product and market develop-
ment. Ansoff9 terms this as diversification. But a closer look at this strategy will reveal that this is a
strategy of broadening product and market horizons. Critical issues here are the same.
Who is using my product? How is my product being used? Can I do anything to have a better fit
between customer needs and my product?
The development of the Walkman by Sony illustrates this strategy. Akio Morita, Chairman of Sony
Corporation realised the need to develop a personal portable music system, when he found that his
teenage daughter and many young people often carried big portable two-in-one music systems along
with them, wherever they went. The need for personal music was strongly felt in this age group. Morita,
being sensitive to this need, asked his R&D executives to develop a product for this market segment.
Launched with just a play back option, Walkman became a roaring success. Others followed suit and
new features were then added to the Walkman.10
The Walkman offered the teenage and youth market a new reason for buying music systems—port-
ability, freedom, and convenience. Later, the market expanded to even include business travellers.
Today, the product has been modified further to even include the discman.
Thus, the product market fit can be strengthened only when the marketer is fully aware of his market
and receptive to customer requirements and changing trends.
Customer Service A customer driven marketing strategy presupposes the firm’s ability to deliver
quality customer service to the customer. As mentioned earlier under value creation, the difference
between tangibles and intangibles is gradually diminishing and the focus is now on service. Invariably,
the customer has an expectation from the firm and he/she evaluates the firm’s offer on its ability to deliver
expected performance. Indian industry is painfully learning this lesson today and so are service firms, like
Indian Airlines. The quality of customer service is measured against the following parameters.11
(a) tangible dimensions, like tools and technology, used in promptly servicing customers
(b) reliability of service
(d) assurance that customers get the best

(e) empathy of employees to the customer’s problems and needs
EXPERIENCE MARKETING
LO5 One of the most effective customer centric strategy relates to experience
Explain experience marketing. In the previous chapters, we have mentioned that contemporary
marketing marketing is all about experience creation. Consider for example, the experi-
ence that we have in going for a movie at PVR or Fame Adlabs or watching
20–20 Cricket match or IPL cricket matches or buying and driving a Honda Civic car. Each of these is
an experience which we as customers value and hence repeat our choice, even when the competition
may be intensive in that product category. In the book ‘The Experience Economy’ B. Joseph Pine II and
James H. Gilmore mentioned that experience creation can help a firm fight the threat of commodisation
in its industry.
Giving an example from the coffee industry, the authors mentioned that the price of coffee beans may
be around one dollar per pound. This translates into one or two cents per cup when the manufacturer
grinds, packages and sells them in stores. The price to the consumer shoots up by five to 25 times per
cup. But when it is offered in the form of a cup of coffee at one of the coffee chains like that of Café
Coffee Day or Starbucks, the price per cup shoots up by almost about 100%. We, as customers do not
mind paying this price. The research, on reasons of this buyer behavior showed, that we pay for the
experience of drinking a cup of coffee, along with our friends and near and dear ones in such coffee
shops. In fact, Starbucks developed the market for coffee drinking out of home and office and grew in
USA, mainly through its experience creation strategy. The firms that focus on climbing the experience
curve will always command a premium as shown by this coffee example.
Today competition, therefore, is fought on the basis of innovative and superior experience for the
customer as embedded in the exchange transactions between customer and companies. Individuals
engage on an emotional, physical, intellectual or spiritual level with a firm, product or service. Hence
the task of the firm is to create brand image which emphasises such experience surrounding the
purchase, consumption and ownership of the product.
How can a Firm Create this Experience?

At this point of time, it is important to note that experience creation is not about entertaining the cus-
tomer. Rather it is about engaging the customer. This engagement can be on multiple dimensions. In the
above mentioned study, authors took two dimensions, namely that of customer’s level of participation
in a transaction and the kind of connection or environmental relationship that connects customers with
an event or performance of the product. From this perspective, customer may either actively participate
or passively participate. For example, when the customer just listens to sales presentation he is pas-
sively participating but in the same presentation when he asks questions and seeks clarifications on his
doubts, we say he has actively participated. Similarly, when we sit in our room and watch the televi-
sion, we passively participate but when we join the debate on the television in a talk show, then it can
be considered active participation in experience creation. The environmental relationship spectrum has
absorption (occupying the person’s attention by bringing the experience into mind) on one end and on
the other end is immersion. This is where customer is physically or virtually a part of the experience
creation. As shown in Exhibit 22.2 there are four kinds of experiences that can emerge on the basis of
these two dimensions, that is participation and relationship. These are
(a) entertainment (b) educational (c) aesthetic (d) escapist
Exhibit 22.2 The Experience Realms

Entertainment experience Entertainment experience is one of the oldest forms of experience

with which we have all been familiar. The firms attempts to create this entertainment through humour,
music or in multiple other ways. In this form of experience, customers are passively participating. The
performance absorbs the individual and tell such time the performance is being enacted, the customer
is completely hooked on. He or she smiles, laughs or cries.
Educational experience Unlike entertainment, educational experience involves active partici-
pation of the individual. This can take place at intellectual or physical level or both. Educational systems
compete on the basis of creating such educational experience. For example, in management education it
is a well known fact that this experience is created not just by classroom interaction but also by several
non-classroom activities. Hence, the forward looking schools like IIMs and SP Jain spend consider-
able time on creating such non-classroom learning experience for their students. Internet has further
made the creation of this experience more interesting and challenging. Firms use multiple tools which
includes internet, company literature, product catalogues, interactive voice response systems and even
conferences and training programmes for customers to create an educational experience.
Escapist In the escapist experience, the customer actively participates in an immersive environ-
ment. For example, when we visit theme parks like Disney Land or Casinos we are actually indulging
in an escapist experience. Today, firms use multiple tools like motion simulators or multimedias to get
the customer actually engaged in experience creation. In such experience creation process, customers
usuals a voyage to some specific destination and activity, worthy of their time. Sony Play Station is yet
another example of such experience creation.
Aesthetic experience In the aesthetic experience, customers remain passive even when they
immerse themselves in it. For example, while visiting an art exhibition or a history museum, we remain
passive even when we get immersed in the exhibits.
It is important to understand that there are no artificial experiences. Hence, firms need to be very
careful in designing customers’ experience. Following issues need to be considered.
to remain connected?
2. What is it that the customer knows about the product or service?
3. What is it that he or she wants to learn?
4. What information will keep him or her engaged?
5. How can it be delivered in a way by which customer feels involved?
Ambience is one of the tools in creation of aesthetic experience. Once the customer has come inside
the firm, or has been attracted to the product, the firm must focus on tools which will encourage the
customers to participate. For example: Reality television shows, news and debates involve the customer
through several interesting and innovative manners.
The firm needs to consider all these issues and move the customer across these experiences. Most
firms start from one or the other end and finally lead the customer towards the aesthetic or educational
experience.
COMPETITION ORIENTED MARKETING STRATEGIES
LO6 Marketing has often been termed as a warfare. The battlefield is the cus-
Formulate tomer’s mind and the rival forces are competitor firms. It is imperative that
competitive marketing the firm also considers principles of this warfare that will give it a competi-
strategy tive edge and hence market leadership. In this section, we shall focus our
attention on competition based strategies.
A good starting point is the market and the company’s market share in it. A detailed analysis of these
two may reveal possible strategic options to a firm in gaining competitive advantage. For example, this
analysis may reveal that a certain proportion of the market does not buy the firm’s product only because
it does not find the product or model satisfying its needs. The firm may even find that not all potential
customers are being covered by the company’s sales force or distribution outlets. Figure 22.4 presents
these possible sources of competitive differentiation.
Figure 22.4 Winning Markets
The point to be noted here is that a firm may lose its market share to competition because of any or
all of the following reasons:
(a) product/model not offered or not perceived by target customer group as satisfying needs
(b) customers not being covered by the company’s sales force and distribution outlets
or product becoming obsolete or more expensive.

To gain a foothold or win back lost customers, the firm has to expand its product mix, distribution
coverage, ensure a more disciplined sales call pattern, train marketing and service personnel in cus-
tomer care, evolve innovative pricing and payment plans to suit customer’s needs, and build the brand
or corporate image.
As far as market share is concerned, a portion of this comes from customers, who buy the firm’s
product not because the latter made an attempt to get them but because of other factors like emotional
attachment to a brand, usage within the family for a long time or non-availability of the competitor
brand, at the time when the customer wanted to buy it. For example, in the case of a customer wanting
to buy a Maruti 800 cc car, non-availability of the product of his or her preferred colour for a specific
time period could make him or her to buy a second hand car or a new Maruti van, if available, or shift
preference to Indica, Hyundai Getz, Ford Fusion, or any other brand in small car segment. Assume that
the customer opts for Indica. Now Tata Motors have acquired this customer by default. The company
now needs to build a positive relationship with this customer, through a continuous follow up pro-
gramme. This may even involve a call by the company’s sales and service personnel to check the car
and reaffirm that the customer is satisfied. To retain him or her, the firm may announce schemes of free
checkups even after the warranty period, replacement of any defective compo-
The effectiveness of a firm’s nent at factory price, and even offering new models or brands at a reduced price.
competitive marketing can
be gauged by the ratio of its
It is important to create and retain a satisfied customer. And the way to do it is
market share to the total size through a relationship marketing strategy which will enhance the customer’s
of its served market. trust in the firm’s product and also reduce any post purchase dissonance. The
effectiveness of any firm’s competitive marketing can be gauged by the ratio of
its market share to the total size of its served market. The competitiveness of the firm is indicated by
this ratio. One way of enhancing the competitive edge is through a value chain analysis of the firm.
In Practice
Why Firms Lose Markets
Alpha Limited is a well known consumer product company whose brand is a household name.
The company is vertically integrated to its principal raw material source. It has the capability
to produce a quality product. Within the industry, it is a trend setter and even the price leader.
It has an extensive distribution network and a sales force of more than 100 people to cover
the entire country. However, the morale of its sales force has been low, largely because of
poor compensation, lack of promotional opportunities and disparities in wage structure of
marketing personnel across different regions in the country. Consequently, there has been a high
turnover among the younger and more capable marketing personnel and those left behind, are
mostly below average performers, who are not able to comprehend or fight competition in the
marketplace. Lack of human resource management in the marketing function has thus affected
the ability and willingness of the marketing personnel to fight competition. Over a period of
time, due to these reasons, the firm has lost its competitive position in the market.
Value Chain Analysis

Michael Porter, in his famous work titled Competitive Advantage, recommends
Michael Porter views the
total economic system in
the construction of a value chain for a firm, as it can provide generic strategies
an industry as a value systemto fight competition. Following these strategies, a firm can evolve functional
strategies. He views the total economic system in an industry as a value system
with the supplier’s value chain
supporting the manufacturing with the supplier’s value chain supporting and adding value to the manufacturing
firm. firm. This firm adds value to the intermediaries’ value chain which in turn con-
tributes to the buyer’s value system. ‘The value chain disaggregates a firm into
its strategically relevant activities in order to understand the behaviour of costs and the existing poten-
tial sources of differentiation.’12 Depending on its history, strategies, and success at implementation,
the value chain of one firm differs from others within the industry, though it may differ in terms of its
competitive scope. For example, it may be narrowly focused in terms of its geographical segments or
may just form around a specific customer group. Widening this scope could affect the value chain of
this firm and hence, its competitive advantage. Further, the extent of integration in its activities, also
affects the competitive advantage of the firm. Competing in related industries with coordinated value
chains can also help the firm gain a competitive advantage through inter-relationships. For example, a
fertilizer firm can gain significant competitive advantages through low costs, if it is able to process and
market its by-products. Likewise, a sugar firm can gain competitive advantage, if it is able to success-
fully process sugarcane molasses into liquor and market the same. As one may infer, this leads to a
widening of the competitive scope of the firm. Often the firm may not have enough strengths to suc-
cessfully compete in related areas. It may then find it advantageous to enter into a coalition or forge
strategic alliances with other firms.
The objective of any
Turning back to the value chain, each firm is a collection of activities that it corporate strategy should be
performs to develop, manufacture, market, deliver, and service its products. All in competitively adding value
these activities may be put together in Porter’s conception of a value chain, as to the buyer at a profit.
shown in Fig. 22.5.
Figure 22.5 Wheel of Value Creation

Porter advocates that the relevant level for constructing a firm’s value chain is the industry in which
it competes for market share. Thus, for a courier firm like Blue Dart, the relevant industry is the logis-
tics industry. Likewise, for a firm like Indian Airlines, it is the aviation industry, and for Larsen and
Toubro’s (L&T) packaging division, the packaging industry. In other words, in a single product firm,
the relevant industry consists of all firms manufacturing and marketing similar products. But in multiple
product or business division firms, as in the case of L&T or Hindustan Lever, the value chain has to be
constructed separately for each business division.
Here, it may be worthwhile to understand the meaning of the term ‘value’. Simply put, value is the
amount or price, buyers are willing to pay for the firm’s product or services. As long as this price ex-
ceeds the firm’s cost of manufacturing and servicing the product, the firm is profitable. The objective
of any corporate strategy is to competitively add this value to the buyer at a profit.
Porter divides a firm’s activities into two major groups.
● Primary:
or creation of the product, its sale, transfer and service.

● Support: These are activities that help in effectively performing primary activities. The impor-
by the following example of a company whose name has been disguised.

Value activities are therefore discreet building blocks that determine the firm’s competitive advan-
tage. Comparing the firm’s value chain with those of the competitors’ can help determine core business
strategy—cost leadership, differentiation or focus.
Cost Leadership
This strategy is one, in which a firm sets out to be the low cost manufacturer or
In the cost leadership
strategy, the cost advantage producer, within its industry. Normally, the competitive scope of such a firm is
may accrue from factors broad, as it serves several market segments at the same time and may even oper-
like economies of scale in ate in related industries. In this strategy, existence of multiple market segments
production and distribution, is important for the firm, enabling it to seek a cost advantage position in the
preferential access to raw industry. This cost advantage may accrue from several factors, like economies
material sources as also of scale in production and distribution of the product, preferential access to raw
to intermediaries, patents,
material sources as also to intermediaries, patents, linkages within the value
linkages within the value
chain, product mix and so on.
chain, product mix and so on. Generally, low cost products sell a standard, basic or
no frills product and place considerable emphasis on reaping scale or absolute
cost advantage from all sources. For example, a typical low cost detergent powder manufacturer will
not use expensive composite packaging or LDPE material (plastic moulded packs) but will use low cost
basic packaging material, like a cheap plastic bag, to pack the product. Likewise, a low cost TV manu-
facturer will not invest resources in setting up its own elaborate service centres equipped with tools and
service personnel all over the country. Rather it may ask its dealers to provide this service. Also,
manufacturers of these low cost products will not look for expensive dealers, but will engage those who
do not necessarily have a large space, but are willing to work at low margins.
To remain competitive in
Such a manufacturer may not even spend financial resources on advertising the
the market, it is imperative
that the firm is the cost leader, brand in the expensive mass media–newspapers and television–but may use low
and not a cost leader and its cost promotional inputs like handbills, posters and point of purchase material.
products are identical or near Thus, a low cost seeker cannot and should not attempt at doing things that may
identical to that of other firms increase its cost structure in any of its primary or support activities. Rather it
within the industry. should aim at deriving economies of scale in both these activities.
If a firm is able to achieve cost leadership and sustain it over a period of time and also able to com-
mand prices at or near the industry average, it would be an above average performer with a healthy
bottom line—both in terms of sales and profits. However, to emerge and remain competitive, it is
important that the firm is the cost leader and not a cost leader and that its products are perceived as
identical or nearly identical to that of other firms within the industry. In other words, parity on the basis
of differentiation vis-à-vis its competitors is important, if the firm has to have a higher market share,
sales, and profitability within the industry. In the case of the television manufacturer, if other firms’
brands are preferred or differentiated on the basis of service, quality, and technology, then the former
cannot derive competitive advantage over others just on the basis of low cost. This will become more
critical if the target market gave higher weightage to these two factors than to the cost (price) of the
television set. This may be further compounded, if other firms are vertically integrated to the source of
principal raw materials, which means the picture tube, the circuit board and hence the manufacturing
cost is low. Some of these firms may even be deriving economies in their R&D, distribution, or even
transportation and warehousing (outbound logistics) through factories located near major markets.
IN FOCUS
The strategy of cost leadership may not be sustainable if:
(a) Competitor firms imitate (which is much more possible today)
(b) Technology changes occur, leading to changes in customer preferences and to manufacturing
processes, thereby giving a competitive advantage to firms that take a technology jump.
(c) Other bases like linkages in the value chain or proprietary technology for cost leadership get
eroded. In the marketing area, if the low cost channel ceases to exist because of environmental
factors or even channel member’s motivation, then the firm’s strategy of cost leadership may
become unviable, as it will have to either give higher margins to the channel member or spend
resources to create brand pull.
(d) The firm loses proximity in differentiation. Proximity in differentiation refers to the price discount
necessary to achieve an acceptable market share that does not offset the cost leader’s cost
advantage. Now the firm may lose this proximity if other firms offer greater discounts to their
customers or higher margins to intermediaries.
(e) The firm’s product is not perceived by customers to be on par with others either because of
technology, features, or service.
(f) There are other firms (cost focusers, like small scale firms) that achieve even lower costs in the
served market segment.
Furthermore, it may be noted that the strategy of cost leadership alone is often short lived as firms
today have access to technologies, that can help them achieve significant cost advantages and yet dif-
ferentiate their products from others. We have seen in earlier sections that technology today is making
it possible for firms to adopt mass customisation strategies. Perhaps this strategy may make firms more
competitive and help them retain their market shares.
Differentiation
The next competitive strategy arising out of value chain analysis is the strategy of differentiation. A firm
may seek to differentiate its product or service through any or a combination of the following factors:
Product Mix If other firms are offering a narrow product mix to satisfy customer needs and the
customer has to look for other products elsewhere, then a firm that offers all the products that satisfies
the core needs of the customer, may be perceived to be different from others. Hence, it may gain a com-
petitive advantage. Consider, the example of beauty products. If a firm was to offer the entire product
range in this industry, compared to others who may just be offering cosmetics or perfumes, then it will
have a competitive advantage over others.
Brand Equity13 If a firm has a higher brand equity, then it stands to gain a competitive advantage
over others.
After Sales Service
Distribution Network
Pricing Strategy and Policies
The firm can achieve and

Customer Education or Training It is important to note that differen-
tiation is sought on an attribute which is widely valued by the customer and is
sustain differentiation if the
premium that the customer isreflected by his or her willingness to pay a premium to get this attribute. The
means for differentiation differ from one industry to another. For example, in
willing to pay is able to cover
high tech industries, like computers and telecommunications, customer educa-
its costs of differentiation.
tion or training in using and even in reducing any downtime is an important at-
tribute, for which customers may be willing to pay a premium. This may be an important determinant
in the customer’s brand selection. But in industries like soft drinks, food products, and beverages, depth
and width of distribution becomes important. Parle could gain a competitive advantage over its rivals,
including Pepsi, only because of its strength in distribution. The firm will be able to achieve and sustain
differentiation, if the premium that the customer is willing to pay is able to cover its costs of differen-
tiation or if the customers prefer the product for its unique features. To augment its profit position, the
differentiator has to ensure that its costs are on par or in close proximity of its competitors.
Once again the strategy of differentiation is gradually but definitely loosing ground. In fact, differen-
tiation based on technology or product features is no longer sustainable in the long run. This is because
of standardised technology. As a consequence of this, today we are witnessing products becoming com-
modities and even having shorter life cycles, particularly in urban or international markets. Risk in the
differentiation strategy may also arise, if customers no longer attach value to the basis of differentiation
as they perceive almost all brands on par. This strategy will also not deliver results, if there are other
firms that can achieve greater differentiation in the segments or when the differentiator’s cost position
becomes inferior.
IN FOCUS
The strategy of differentiation may not deliver results in the following situations:
(a) competitor firms imitate the leader
(b) buyers no longer attach value to the bases of differentiation
(c) all firms have access to the same technology and manufacturing processes, making brand
differentiation difficult leading to products becoming commodities
(d) the leader firm loses cost proximity to followers
(e) there are other focused firms that are able to achieve even greater differentiation in the served
market segments.
Focus
Focus is a strategy adopted by firms that have a narrow competitive scope. This
Focus, a strategy adopted
is different from cost leader and differentiation strategies which are targeted at by firms that have a narrow
a broader scope. In a way, focus strategy is a niche strategy. Typically, a niche competitive scope, could be
strategist selects a market segment which it can best serve, given its competen- cost based or based on
cies. It then tailors its strategy to serve only this segment. For example, a textile differentiation.
firm may decide to serve customer groups in a specified geographical area, or
may opt to serve the high income customer group, or the market for children or the market for women.
The focus strategy could be cost based or based on differentiation.
The best example of focus strategy is provided by designer clothes like Chirag Din shirts or Louis
Philippe or Park Avenue range of men’s wear. In all these firms, one thing is common; the focus on a
narrow market segment, defined in terms of demography and psychography.
The focus strategy, like the earlier ones, has its limitations. Some of these limitations are:
● Threat from imitation: For example, Chirag Din has to keep reminding customers that it is
located only at Colaba in Mumbai and has no branches and also that no one has been authorised
to sell Chirag Din shirts. The initial advantage that Chirag Din had in men’s shirts was lost fol-
lowing the entry of Louis Philippe, Van Heusen, Park Avenue, Arrow, and other brands. Through
company owned or franchised shops across the country and leading departmental stores, these
over the country. Likewise, Nirma lost its cost focused advantage to other small washing powder
● The target segment becomes structurally unattractive: This may happen if the structure erodes
or the demand disappears. This may happen due to economic or technological changes occurring
in the marketplace. For example, as incomes rise, customers may become less price sensitive and
● Broadly, Targeted Competitors Overwhelm the Segment through Increasing the Product
Line or Narrowing the Differences Between Segments: Consider, the strategy of Videocon
which offers audio systems at different prices, depending on the features that customers choose.
From as low as below `1000 to over `20,000, Videocon offers a wide price and product range, to
attract different market segments. However, it maintains the same level of customer service sup-
● If New Firms Emerge in the Industry and are able to Further Sub-segment it, the Focus
Strategy will no Longer Deliver the Results: Thus, focus strategy is also not free from erosion.
As one may infer, all these competitive strategies are really short term in nature. This is largely
because of the technological and economic changes that are sweeping the markets, thus creating
new competitive and customer forces. To survive in this turbulent environment, it is necessary for
the firm to have a good market surveillance system, that can not only provide information about
these changes but can also predict them in advance, so that the firm is able to plan its strategies
to hold and expand its market share.
Market surveillance is as important as military surveillance in a warfare. Marketing wars are as in-
tensely fought as any other war. Marketing warfare is important to protect and expand one’s market.
One component of this surveillance is customer watch and the others are com-
Customer watch, competitor petitor intelligence and technology and economic forecasting systems. Increas-
intelligence and technology,
ingly it is realised that customer watch is the most critical arm of surveillance.
and economic forecasting
systems are the key Traditional market research tools like market surveys with close ended options
components of the market will not be able to prepare the firm for future shocks from the customer. In order
surveillance system. to develop competencies in the firm to respond to these shocks, it is necessary
that firms use more qualitative market research like thematic appreciation tests
(TAT), story writing, and even brand obituary writing to understand changing customer perceptions
about its brand and that of the competitor’s. In depth interviews and observations are some useful
techniques, that a marketer can use to understand or forecast future trends in customer preferences,
lifestyles, and their implications on the company’s products and services.
INNOVATION STRATEGIES
LO7 Another approach to fight competition is to focus on creating value inno-

Design innovation vation. Value innovation gives equal importance to value and innovation.
strategy Value without innovation leads to value creation on incremental basis, but it
is innovation that makes the firm leap several stages ahead of competition.
However, innovation which is not driven by value tends to be technology centric, market pioneering
or futuristic which buyers may not necessarily be ready to accept and pay for. Value innovation oc-
curs when firms align innovation with utility price and costs. According to W. Chan Kim and Renée
Mauborgne value innovation is the new approach of strategy planning and execution and it defies one
of the most commonly accepted dogmas of competition based strategy namely, the value cost trade off.
Further, it may be noted that value innovation occurs in the region where a company’s actions favour-
ably impact both its cost structure and buyer value proposition as shown in Fig. 22.6.
Figure 22.6 Value Innovation

How Can a Firm Create Value Innovation?

In order to identify the areas for value innovation it is necessary that the firm develops a strategy can-
vas. The strategy canvas is an analytical framework which captures the current state of affairs in the
known market space. It allows the firm to understand the focus of the current competition, especially as
it helps the firm to understand where the competition was investing, factors on which the competition
is fought in terms of product, service and delivery and finally the competitive offering to the customer.
For this purpose the firm needs to develop an understanding of the following:
1. Which are the factors that can be eliminated and which industry takes it for granted?
2. Which are the factors that can be reduced below the industry standards?
3. Which factors can be raised well above the industry standards?
4. Which factors should be created that the industry has never offered?
Let us now take a look at the principles of marketing warfare.
PRINCIPLES OF MARKETING WARFARE
LO8 Al Ries and Jack Trout14 believe that the true nature
Defensive marketing
Explain marketing of contemporary marketing is outwitting, outflanking warfare is played by the
warfare and outfighting the competition. This is a different market leader, who wants to
approach as compared to Kenichi Ohmae’s which hold on to his market share.
believes in a customer focused approach. Ries and Trout perceive an industry to
consist of a leader, challenger and ‘guerillas’ or ‘nichers’. In this section, we will review some principles
of marketing warfare.
Defensive Warfare
Defensive marketing warfare is played by the market leader, who wants to hold
A defensive warfare
on to his market share. One of the best options before the leader is to continu- involves examining the
ously attack its own self. This involves questioning whether its existing product customer satisfaction levels of
portfolio is competitively satisfying customer needs or are there any new needs the existing product portfolio
that are emerging, which the current portfolio does not help to satisfy; is its cur- and the effectiveness of the
distribution plan to meet
rent distribution plan effective enough to meet emerging market segments and emerging market segments,
needs or is a change required. Likewise, defensive warfare would demand that blocking any strong
the firm re-examine its desired and actual market positioning, pricing strategies, competitor moves, holding
policy, and promotional programmes. This implies that the market leader firm some strategic decisions in
can maintain its leadership only, as long as it sheds its myopia. Unfortunately reserve to surprise the enemy
forces, and retraining from
marketing success often breeds complacency and inertia among firms leading inuses that can increase its
to loss of market supremacy. legal exposure.
Defensive marketing warfare also demands that the leader firm block any
strong competitive moves. For example, launch of a new and ‘better’ product by a competitor firm can
be effectively blocked, if the leader firm increases its promotion (both consumer and trade) budget, fills
up retail outlets with its brand or offers special bonuses to intermediaries, for providing additional shelf
space and pushing its brand during the competitor brand’s launch period. In the past, Nestle adopted
this strategy to effectively block the launch of competitor brands, like Bru in the instant coffee market.
The market leader should always keep something in reserve. As in a game of poker, the leader should
never expose all its aces in a single shot. For example, in Nestle’s case, the company did not introduce
its new product in the instant coffee market at the time it mounted its promotion and distribution thrust
for its Nescafe brand of instant coffee. It is always advisable to hold some strategic decisions in reserve,
so as to surprise the enemy forces and also to use it only as a second line of defense, when the first set
of moves have not been able to effectively block competitor moves.
Finally, the market leader should not indulge in activities that can increase its legal exposure. For
example, going after small firms can bring a charge of monopoly against the market leader. If it were
to happen, public sympathies are always for smaller firms. The outcry against the market leader can
create negative publicity for it—something which no firm, least of all the market leader, can afford.
Offensive Warfare
This is the war fought by the market challenger or the firm that is vying for the
Offensive marketing
warfare is meant for firms
number one position in the market. The challenger has to consider the leader’s
vying for number one position strengths and identify weaknesses in this strength. Until Gajra Gears entered the
in the market. transmission gears market, the OEMs, mainly TELCO or Ashok Leyland in the
HCV market, were the leaders in the spare part replacement market. The strengths
of these OEMs were quality, compatibility with the vehicle’s gear box and
countrywide availability.
The weaknesses in the OEMs strengths were non-availability of transmission
In the offensive warfare, the gears in smaller markets and also because spare parts manufacturing was not
challenger has to identify the the principal goal of these vehicle manufacturers. Gajra Gears attacked these
leader’s weakness, attack the
weaknesses by appointing countrywide dealers, dedicating its plant capacity
leader on as narrow a front as
possible, and should not close
to the replacement market, and simultaneously ensuring the OEMs quality and
its eyes to the weakness in its compatibility to Tata or Leyland vehicle gear boxes. This strategy of finding a
own strengths. weakness in the leader’s strength and then mounting an attack on it can help
challenger firm achieve market supremacy.
Another principle is that of concentration in attack, or attacking the leader on as narrow a front as
possible. Nirma’s attack on Hindustan Lever was on the price front only. It never attacked it on product
quality or on other perceived strengths of Levers. The rationale behind this principle is that the con-
centration strategy helps the firm pursue its goal, without having to dissipate its resources on fighting
wars on other fronts.
Finally, a challenger firm should not close its eyes to the weakness in its own strengths. For, doing
so could be suicidal as the market leader will always attack this front only. Nirma could not understand
the weakness in its own strength—low price. This weakness emanated from its inability to make its
product less harmful to the users’ hands. Hindustan Lever exploited this by offering a safe and more
powerful detergent powder on par with Nirma, in terms of price, Nirma lost its competitive advantage
to Sunlight and Wheel detergent powders.
Exhibit 22.3 Pantene Shampoo Ambushed by Dove Shampoo

Marketing war between Unilever and P&G are Hindustan Unilever was upfront and sugges-
not uncommon. Both companies’ brands fight tive. This campaign went national within 24
in the streets for customers’ business. Whether hrs from the time Unilever gave its briefing to
it is in detergent or hair shampoo, both com- its adverting agency Ogilvy and Mather (O&M).
panies’ brands are very often eye-to-eye with Hindustan Unilever’s such prompt response
each other. Each tries to overpower the oth- was partly the outcome of its CEOs empower-
er. July 23, 2010 Mumbaikars woke up to the ing managers to take on the spot decisions
hoardings that shouted “A mystery shampoo! to counter competition. P&G commented on
80% women say is better than anything else”. It this retaliation and said “One of our interna-
riddled the average consumer. There were all tional competitors has been consistently trying
guesses on the brand. It was found that P&G to denigrate our brands by either disparaging
was planning to launch its Pantene shampoo advertising or unsubstantiated claims across
on August 1. Hindustan Unilever smelt and categories.
quickly outsmarted the P&G when on July Ambush marketing is new to Indian mar-
28 it surprised the Mumbai customers by a keting. We have seen earlier similar kinds of
hoarding which claimed “There is no mystery. ambush marketing between Jet and Kingfisher
Dove is the no. 1 Shampoo”. The hoarding and Coke and Pepsi.
came up even when P&G’s hoarding stood tall.
Flanking Warfare
This is a strategy that involves flanking the leader in areas that are uncontested.
Flanking warfare implies
This could be in product mix, distribution, or even pricing. Consider the example
flanking the leader in areas
of T-Series audio cassettes. T-Series could outflank leaders like CBS, Music that are uncontested.
India Limited (MIL), or HMV by offering low priced audio cassettes and by
expanding the product mix to include bhajans, ghazals, and even light music by new singers. The firm
expanded the distribution to non-conventional outlets like cigarette kiosks and other small vendors,
while CBS, MIL, or HMV were distributed only through speciality stores. These flanking strategies
enabled T-Series to successfully challenge MIL which had earlier successfully outstripped HMV by
expanding the product mix. Flanking warfare assumes an element of surprise and continuous pursuit
of the goal. T-Series pursued the goal of market supremacy by bringing in new music and sponsoring
new singers so much so, that it would not be untrue to say that some of today’s top playback singers
and musicians owe their growth and prominence to T-Series.
Guerilla Warfare
This is a strategy for niche leadership. This involves carving out a market niche,
Guerilla warfare involves
large enough to be defended by a firm’s capabilities. The niche leader should
carving out a market niche
never act like a mass leader as it may lead to its unviablity. Also, the niche leader large enough to be defended
or the guerilla should be able to vacate a niche without severe losses. by a firm’s capabilities.
Thus, marketing warfare principles are the ones that have been based on
military warfare. It obviously presupposes that all competing firms are vying for the customers’ top of
the mind awareness and hence money. A firm’s position in the market and its competencies can help it
determine the game it needs to play.
SUMMARY
In today’s competitive market, firms have to innovate on a continuing basis and understand the con-
sumption values of the market. These values continue to change with time. Today’s consumers are far
more expressive and spend more time in the virtual space than the real world. The marketing process
therefore has to adapt itself to the needs of personalisation and group buying. Today marketers can
follow customers. In the context of web-based marketing brands track consumption through cookies
which are tagged to the customers’ browsers. GPRS help customer locate the store or the brand in
the neighbourhood. Marketing strategy is therefore about creating ecosystem of innovative product
and accelerating their adoption beyond individual’s natural social speed. The window of innovation
opportunity exists in all products and markets. The challenge today is in creating a new dimension
or benefit proposition, rather than adding just features to the existing product. The challenge of stra-
tegic orientation in marketing is that of understanding the markets, creating market niches, planning
product and services to meet the needs of the customers, enhancing the access and finally managing
for results. Marketing strategy today is therefore all about value creation process. To evolve an ap-
propriate marketing strategy, it is necessary to examine the product market fit from the point of view
of users and customers. With the standardisation, product has seized to be the basis for competitive
advantage. It is now about the customer experience. The customer centric strategy therefore revolves
round experience marketing. Experience creation in not about entertaining the customer, it is about
engaging the customer, both online and offline. To fight competition, the firm has to differentiate
itself on the basis of product mix, brand equity, service, distribution network, pricing strategy and
tactics. Value innovation is yet another way of fighting competition. Here the firms attempt is to drive
the costs down and enhance customer value. Marketing warfare is about tactics.
POWER POINTS
1. In a highly competitive market, innovation is the way forward. The new generation of con-
product or service. (LO1)
communication with customer on an ongoing basis, following the customer on a continuing

basis. (LO1)
3. Marketing strategy is about creating an ecosystem and accelerating to their adoption. (LO1)
4. Marketer needs to identify performance to cost or performance to availability gaps. (LO1)
-
ments, switching behaviour of the target market, competitive landscape and the phenomena of
speed to market. (LO1)
niches, planning product, services, distribution and managing performance. (LO2)

7. Marketing strategy is also seen as a combination of the three Cs—customer, competition, and
company. (LO2)
8. Value Added Marketing Strategy (VAMS) starts by taking a close look at customers’ needs and
needs. (LO3)
9. Mass customisation is a strategy that combines differentiation with mass marketing. This
manufacturing programmes to provide each customer with an attractive, tailor made product
at a low cost. (LO3)
the company’s customers and its knowledge base. (LO4)

11. Experience marketing refers to consumption experience of customers. Experience creation
goes beyond entertaining a customer and involves developing an engagement strategy both in
(LO5)
-
stand the behaviour of costs and the existing and potential sources of differentiation. (LO6)
(LO6)
14. Strategies for gaining competitive advantage are cost leadership differentiation and focus.
(LO6)

1. Air Asia launched its services in India in 2014. It faces competition from Air India, Jet Airways
and now recently introduced Vistara from Tatas who are in partnership with Singapore Airlines
besides it also faces competition from other low cost carriers. If you were the Marketing Direc-
tor of Air Asia, what would be your approach to penetrate the market. (LO1 and 2)
2. Narayan Hridayalaya has created a history by offering low cost cardiac surgeries. Today the
demand for cardiac surgery has increased primarily because of the consumer lifestyle. Today,
there are many other hospitals that have come up whose specialisation is in cardiology. These
are super specialization like Asian Heart in Mumbai or Medicity in Gurgaon. If you were to
advise Narayan Hridayalaya, what your advice would be? (LO5)
(VAMS). (LO4)
4. Discuss the strategy of mass customisation and the product market situation and where it can
be used. (LO4)
CHAPTER
CUSTOMER RELATIONSHIP
MANAGEMENT
23
LEARNING OBJECTIVES
LO1 Describe customer relationship management (CRM) as a corporate goal
LO2 Define strategies for loyalty development
LO3 Explain customer relationship process
LO4 Measure CRM
In Practice
Complaint Management—A Tool to Customer Loyalty
Development of customer loyalty is a primary goal of all companies. In order to do so, sev-
eral of them have developed customer loyalty programmes, which encourage customers to
buy more of their products and services and get rewarded accordingly. Frequent Flier Clubs
in Airlines like Jet Airways, Kingfisher Airlines and Air India are most common. Retail stores
like Shoppers’ Stop, Lifestyle and others today have Store Loyalty Cards. In order to encourage
customers to enroll for it, they not only offer benefits on purchases made from their stores,
but also incentivise customers to earn points by using their credit card which they offer along
with leading banks like Citibank or ICICI Bank. A customer also gets benefited by using these
co-branded credit cards across multiple products and services organisations. But no company
can develop customer loyalty through such cards and incentives only. Customer complaint man-
agement is a very important tool in loyalty development. The experience of customers in one
of the consumer durable companies was that their complaints were never attended to despite
their repeated follow ups. In contrast to this, there was another competitive firm which not only
resolved customer complaints in a defined time period, but also followed it through subsequent
monitoring of levels of customer satisfaction.
Customer Relationship is all about creating and retaining the customer throughout his or her
entire lifetime.
INTRODUCTION
All along, in this book, the emphasis has been on understanding the customer. Today, firms have
realised that their ability to compete is dependent on the relationship with their target customers. Cus-
tomer relationship management (CRM), therefore, is a buzzword today. There is nothing new in this
concept, as we have seen how our street corner grocery shop owner knows his customers by name, their
preferences and behaviour, as also their usage experience with different brands. Based on this under-
standing, he is able to customise his offer in such a way that the customer finds more value in buying
from him rather than the neighbouring shop or a large retail store. It is this concept of understanding
and tracking customer behaviour and experiences to customise the offer, that forms the basis of any
CRM programme in a large company. The difference between the street corner shopkeeper and a large
firm’s CRM practice, is the use of technology, people and fulfillment processes by the latter firms. The
first known organised attempt at CRM was that at WalMart, USA’s largest chain of departmental stores
selling economy priced items. In India, we see its usage in Jet Airways, HLL, new generation private
sector banks like HDFC and ICICI, and cellular phone companies like Hutchison Max Touch Limited.
CRM, as one can make out, is linked to the company’s goals and the priority it accords to different goals.
CUSTOMER RELATIONSHIP MANAGEMENT
LO1 We all know, that corporate goals are generally spelt out as sales, market
Describe customer share, profit, and return on investment. Each of these goals has a different
relationship implication for marketing strategy. For example, if the company’s priority is
management (CRM) sales maximisation then the strategy revolves around aggressive selling. It is
as a corporate goal presumed that the route to customer acquisition and retention is aggressive
salesmanship, low prices, attractive payment terms, advertising, and sales
promotion. The value drivers, as perceived by the company, are low price,
incentives to customers and salesmen. But, if the corporate priority is market share, then the strategy is
that of competitive differentiation. Here, the company allocates its resources to creating this edge on an
on going basis in R&D, competitive advertising, pricing, distribution models, and after sales service.
The assumption here is that the firm, in order to remain a leader or retain its position, in the market-
place, has to continuously differentiate its offer. The customer is believed to value this differentiation
and is hence willing to pay a premium or a higher price to such an enterprise. The entire value creation
process is seen from the brand or company’s perspective.
In a highly competitive and complex market, these goals and value drivers do not help. Even the
strategy of customer retention does not ensure growth. This is because of the type of customer, who
often gets retained in the organisation.
IN FOCUS
The four categories of customers in any organisation’s portfolio are:
(a) Those who are resistant to change (‘laggards’)/‘hate’ trying another brand or source and are
comfortable with their current purchases. These are customers who disbelieve any new product
development. There are still customers who believe Premier and Ambassador cars are good value
for money. But they are minuscule in number now.
(b) Those who perceive the company’s product as being good value for money, at its existing price.
This segment buys the product for the price factor.
(c) Customers who perceive the company’s offer, as better value for money than competition. Here,
the customers are evaluating the total offer of the firm against similar offers of the competition.
(d) Customers who like the company and its offer, because they see it as reflecting their needs and
aspirations and meeting their expectations. This group perceives the company’s offer as custom-
ised to their situation. Hence, the basis of their consistent loyalty is not the product/brand but the
fact that the company understands their needs, values, aspirations, and expectation which are
then connected to the brand/product/offer’s values.
Generally, most successful companies ignore such understanding and their management is comfort-
able with the continuity of sales and market share statistics. This is dangerous because 80% of com-
pany’s sales may be coming from the first segment and 20% from second. If this is the situation, then
the company’s growth and survival are threatened.
To avoid the above situations, market leaders focus on the following goals:
(a) enhancing customer loyalty
(b) maximising returns on customer segments or customer accounts (for example, in the case of B to
B marketing)
(c) creating strong interdependence between the customer and the company
Let us review each of these corporate goals.
Customer Loyalty as a Goal

Each organisation professes to encourage customer loyalty. Most of them fail,
perhaps because they either do not understand the concept of loyalty or do not The basis for the continuity
of relationship between the
know how to develop it within the organisation. Loyalty is an outcome of the company and the customer
customer’s faith or confidence in the company’s offer. The customer believes over a period of time is value
and continues to buy or select it for the reason that he/she sees it reflecting his/ maximisation.
her values. As one may observe, the basis for continuity in relationship between
the company and the customer over a period of time is value maximisation.
Figure 23.1 leads us to the conclusion that value maximisation is a good strategy leading to customer
loyalty. Value creation and maximisation holds the organisation/business together. Loyal customers
ensure growth and continued profits, which in turn attract high performing employees and promote
investor confidence. In a way, the business model here now looks as shown in Figure 23.2.
IN FOCUS
Loyal customers are more profitable because:
(a) They are willing to pay a premium as they perceive the offer to be superior in value. For example,
Jet Airways’ frequent flyer customers are willing to pay a premium as they perceive more value in
its offer.
(b) Loyal customers help in acquiring new business. The farming concept applies here. A loyal
customer farms out to other prospects. New business development is facilitated through word-of-
mouth and walk in business is not uncommon.
(c) Cost savings take place. For example, new companies do not have to unnecessarily spend on
promotions.
(d) Acquisition cost of new business also goes down.
(e) Generally a loyal customer’s basket of products from the same source expands over a period of
time.
Thus customer loyalty is a good business goal to pursue.
Figure 23.1 Customer’s Loyalty and Perceived Value
Figure 23.2 Loyalty-based Business Model

Return on Customer Segment/Account as a Goal

This goal helps in focusing on maximising returns over a period of time, in a customer segment/account.
This is based on the assumption that over a period of time it is possible to maximise profits from a
customer segment or account only if the company pursues a loyalty-based business model. This goal
also recognises the relationship between lifetime value of the customer and profits. As was discussed
in Chapter 1, profits from a customer account has a direct relationship to his/her life in the organisation.
Reichheld’s1 study showed that cumulative profits from a customer account retained for a longer pe-
riod of time, is more than those for shorter periods. Taking the credit card industry as an example, he
showed that a customer who has stayed with the company for twenty years will generate net profits of
US$2,104 and for 10 years US$760. This profit calculation has been done taking into account acquisi-
tion cost, base profit, revenue growth, operation costs, referrals, and price premium. If this profit is
discounted at a standard rate of 1.5%, then the net present value of this 10 year cumulative profit of US
$760 becomes US $304.
The simplest way to understand the average customer tenure is by calculating
The simplest way to customer attrition rate and inverting the fraction. The way to do it, is to count the
understand the average number of customers who defect over say three months/six months, then annual-
customer tenure is by
ise it and express it as fraction of the base number of customer’s at the beginning
calculating customer attrition
rate and inverting the fraction.
of the year. While working out the customer retention value, one must keep in
mind that attrition rates are generally high in the early years of relationship. But
as the customer’s life increase, attrition rates go down. Also, one must analyse movement of customer
segments being acquired and those leaving the company portals.
LOYALTY DEVELOPMENT
LO2 As mentioned earlier, customer loyalty is more than just customer retention.
Define strategies for It is, therefore, necessary to understand the strategies for loyalty develop-
loyalty development ment. We need to appreciate that loyalty is built over a period of time. In
fact, there are three stages in the development of customer loyalty by any
organisation. They are:
(a) customer acquisition
(b) customer retention
(c) strategic customer care
It is to be noted that strategic customer care is right at the top and generally is a strategy, which
proactive marketers use with customers and customer groups, who have stayed with the organisation
for a long period of time. Typically, one would expect that strategic customer care would enhance cus-
tomer loyalty in the organisation. As shown in Fig. 23.3, the three stages of CRM, in ascending order,
are directly linked to the average lifetime value of customers and customer loyalty.
In the acquisition stage, the focus of the company is generally on transactions and the product mix
sold to each customer account. The measurement of preference at this stage is the total number of
customer acquisitions over a period of time. Sales turnover is one of the measures used. Profitability
is assessed by the inventory of the unsold product mix at a given point in time and the profit margin
generated in various sales transactions. In the customer retention phase, loyalty is assessed through
measurement tools like, customer satisfaction surveys and the development of satisfaction indices.
Figure 23.3 CRM Pillars and Customer Lifetime Value
Generally, profitability is assessed on the basis of a product or brand’s share

In the acquisition stage
in the customer’s total purchases. As opposed to the earlier two stages, the the focus of the company is
strategic customer care stage involves integrating information on customer on transactions and product
needs, aspirations, and expectations in corporate processes like new product mix sold to each customer
development, product upgradation or modification, and distribution chang- account, in the retention
es. In a way, this information is used for the purpose of making corporate phase loyalty is assessed
processes more customer centric. The measure of profitability is generally through tools like, customer
satisfaction surveys and
considered as the share of company’s brands in the purchases, made over
development of satisfaction
the lifetime of the customer. Hence the issue of building up preferences and indices, while the strategic
making them available at the right time, at the right place, at the right price, stage calls for integration of
and in the right size, have to be the focal point of a strategist’s thinking. customer needs, aspirations
Now, this is possible only if the company has been able to use CRM proc- and expectations in product
esses, which measure not just the quantitative, but also the qualitative aspect development, upgradation,
of consumption. and distribution changes.
The strategies for loyalty development concentrate on segmentation
analysis. Typically, one may observe that there are four segments of customers, each requiring a very
different kind of treatment if one were to consider loyalty and profitability of each customer group.
This is shown in Fig. 23.4.
This model helps the strategist to focus on the CRM process. It is equally important for the company
to understand the value drivers in any customer group. Generally, the value drivers impact purchase
decision and vary with the size of the customer or the value of the business generated by the customer
group. As shown in Fig. 23.5 below, one could possibly have four sets of customers. The focus of the
company has to be on the top end of this matrix or on customers who are seeking high value proposi-
tions in the marketer’s offer. In practice, most companies tend to ignore this aspect and hence generally
concentrate on the size of the customer or the value of the business, without taking the value proposi-
tions into consideration. Hence, it is not uncommon to see the focus of customer retention strategy on
retaining each customer without considering their value proposition.
Figure 23.5 also forces the marketer to consider the strategy of customisation. This is not possible
unless and until the company has deployed a strategic CRM process. Another strategy is to strengthen
Figure 23.4 Profitability and Loyalty Enhancement Strategies
Figure 23.5 Customer Value Management
inter dependency between the customers and the organisation. In a way this involves creating depen-
dency of the customer on the organisation and its processes, and this cannot survive in the absence of
the patronage of the right customer group. One of the important inputs to developing this inter depen-
dency is the investment in and use of technology. Today, companies are investing sizeable resources
in information technology, with a view to acquire information about their customer’s needs, for the
purpose of integrating the customers with the organisation. Some of the technological tools being used
are interactive voice response, intelligent call routing, document imaging, geographical information
systems, call centers, e-mail response management systems, problem tracking software or help desk,
etc. Today, all organisations who are operating in the strategic customer care phase realise that
(a) not all customers are the same and do not require or deserve same level of services
(c) the organisation may not necessarily have all the necessary resources to service different segments
of customers and yet may not like to lose any of them.
It is therefore necessary that strategic alliances be created with organisations which can provide
the same level of service to customers and thereby strengthen the brand in the marketplace. Companies
also realise that appropriate use of technology for strategic customer relationship include the following:
(a) Development of marketing information systems which help identify customers who are most
receptive to new value propositions and offers of the company
(c) Creation of a knowledge management system that helps the company to collect, analyse, and dis-
seminate information related to the customer groups
force, customer support, service quality, competition, and customer intelligence.
CUSTOMER RELATIONSHIP MANAGEMENT PROCESS
LO3 Customer relationship management, as we can see, is a process whose objec-

Explain customer tive is to enhance customer loyalty. This process consists of the following:
relationship process (a) Creation and management of data mining and warehousing
(b) Development of appropriate organisational structures
(c) Investment in technology
(d) People development
This CRM process is shown in Fig. 23.6.
Figure 23.6 The CRM Process
Data Mining and Warehousing

The growing significance of data mining and warehousing in customer satisfaction and business de-
velopment has been touched upon in Chapter 5. In order to be effective, data mining has to be more
intelligent and offer information on the customer in real time. This data mining should help to dissemi-
nate information on customers to everybody in the organisation, which in turn should facilitate each
person’s functioning and also make him or her customer responsive. Companies have used data mining
to support their sales and service staff, in particular. They have also supported their sales and service
staff with advanced technology, which has helped them use the data for the purpose of developing a
customised offer. The additional benefits of customer data warehousing (CDW) in CRM processes are
shown in Fig. 23.7.
Figure 23.7 Benefits of Data Warehousing in CRM
While developing the data warehouse, a company needs to consider the costs that are going to be
involved in it. Generally these costs are:
● Initial Investment Costs: This will include both hardware and software as well as resources
(internal and external) to build the database.

● Running or Operational Costs: The CDW must be constantly updated with current information
and practices. Without it, the investment will be outdated and ineffective.
● Enhancement Costs: A CDW contains more than names and addresses. It must contain demo-
graphics, purchase habits, and preferences. There is a cost to obtain and populate the database
with this information.
● Workforce Costs:
marketing, IT, and sales departments.2

These costs must be estimated at the start of the CRM process. Cost analysis could possibly lead
the company to ask some fundamental questions on whether it needs to create its own database or buy
from other sources or outsource it.
One of the key issues in
Organisational Structure organisational, structuring
is the development of
One of the key issues in organisational, structuring is the development of inter interfunctional processes
functional processes which would ensure that customer-related problems are which would ensure that
resolved by all the departments, that have a role in it. Invariably, all departmental customer related problems
heads should be involved in the CRM process. We must also remember that the are resolved by all the
success of the process depends on the active involvement of all managers and departments that have a role
employees. Each one of them should respect the interfaces of their functions in it.
with that of others and be able to use the data appropriately.
Some of the other issues in the organisational structure will relate to developing strategic alliances
with other companies or intermediaries. Call centres are one example of a strategic alliance that a
company may develop with an organisation that has set up a large customer service centre. Today,
companies in the US, like General Motors, GE, airline companies all over the world, and even telecom
companies have entered into strategic alliances with call centres that have been set up in India and other
parts of the world. Another very commonly used structure is the direct sales agents or independent
marketing groups, which are more concentrated in the financial services segment and the cellular phone
industry. The firm needs to look at the issues of motivation and creating a commitment among these
alliance partners, which will help them to deliver the same level of service that it would have given,
had it delivered it on its own.
Technology
One of the key inputs in CRM is the use of technology for data mining and also for responding to
the customer in real time. Some commonly used technological tools are the telephone, the Internet,
computers, fax, and electronic data interchange. In his book, Customer Relationship Management,
Stanley Brown has mentioned that there are three Ws of technology which seek to address the issues
of the integration of organisational processes, technology, and the corporate. Integration of the Web,
workflow management, and data warehousing have lead to the creation of electronic customer relation-
ship management (ECRM)—the process by which companies can understand customers in a seamless
manner. Smart cards are an example of the customer sharing his data with the organisation. Consider,
for example, the case of a customer who wants to make an airline reservation. He calls a dedicated
number which is that of a call centre. It is through the call centre that he gets connected to the airlines’
reservation staff, but he does not want to repeatedly answer queries regarding his name, address and
other necessary travel details. The call centre, which in this case is the centre of relationship, should
reflect the entire organisation and should be able to add value to the customer relationship management.
Each of these technologies performs a distinct role. Together they contribute to the system working
in an efficient manner. The Web has been compared to the eyes, ears, and mouth of the CRM process, as
it collects and presents the information to the user. The data warehouse servers are like a brain and cen-
tral nervous system. Its principle task is to assimilate the information passed to it by the Web and then to
formulate the response based on current, external, and historical information. Workflow management
systems automate the procedure by which documents, information, and all relevant tasks are distributed
among participants. It follows the normal rules of the division of labour and sequencing of activities.
This provides a strong framework for developing customercentric business processes like order cycle
management and customer services. The seamless flow of work allows employees in the organisation
to route customers’ communications through a virtual folder that combines documents, voice messages,
e-mails, faxes, and so on, to be delivered to the nearest customer service points, at the right time to
ensure a single point resolution of any customer complaint or enquiry. Another common technological
tool used is voice mail. Combined with the call centre and third party service provider, it could help
the organisation deliver the same level of services to different segments of customers, irrespective of
their size and volume of business. These technological tools could also help the organisation decide
on which customers to cross sell or upsell. Consider, for example, a customer for a basic long distance
call. He could also be the right customer to buy internet access. The value of the offer is determined
by the customer’s need, based on segments, usage pattern, and response to similar contacts previously
made by the organisation. Cross sell or upsell campaigns work because the customer already has a
relationship with the organisation. Jet Airways offers in-flight shopping and encourages its frequent
flyers to buy various products on offer. Jet flyers do not perceive the in-flight shopping as a commodity
and hence even when they may not have necessarily seen the product, they may be willing to place an
order and pay for it, because they trust Jet Airways. The sale certainly helps Jet Airways improve its
profitability.
An organisational process being used extensively is supply chain management. Today, SCM is in-
creasingly becoming IT enabled. SCM (efficient focused optimising tool), ERP, and CRM packages
are today being marketed by ERP vendors. One software which is being used extensively for CRM is
provided by SIEBAL which has vertical specific functions. This software could be integrated in most
back office solutions like SAP and Oracle. SIEBAL today has solutions for automotives, communica-
tions, consumer goods, apparel and footwear, health care, finance, technology, and energy sectors.
People
Even though technology today, is extensively being used for the purpose of strengthening the linkage
of the organisation with the customer, one must not forget that behind all these technologies, is the hu-
man being. Unless the human beings have been empowered, have the knowledge, and the right skills
as well as a customer friendly attitude, the CRM process will just not work. In fact, it is one area where
companies are realising increasingly that they need to have the type of people who have the necessary
perspective and understanding of their function, products, organisation, and a desire to be customer
responsive. Take for example, a customer who has called up a credit card company’s service centre.
His call is first attended to, by an interactive voice response mail which, for the first 10 seconds, charts
out the route the customer may take depending on his/her need. After listening to the detailed menu, if
the customer is still unable to make contact with the customer service executive for the resolution of
his problem, then the call centre has not properly done its exercise on the technology front. This could
be sorted out on an immediate basis. But what happens when the customer gets the customer service
executive, who takes a long time to understand the customer’s problem, gives a stereotype response
which in any case the customer is aware of, because it has already been put down in the contract which
he had signed earlier. The customer requires an early response to why he has been charged interest on
a very small outstanding amount in the last bill and how this amount is more than that outstanding at
the end of the current month? If the customer service executive explains the process of revolving credit
and tries to justify the interest charged to the customer, then the credit card company is not customer
centric, rather, it is product centric and organisation centric. Now, if the customer persists and chal-
lenges the customer service executive and the executive is still not able to satisfy the customer, then the
entire purpose of creating a call centre and the service centre is defeated. It is, therefore, necessary that
the people in the call centre need to have service orientation. They need to appreciate that responsive-
ness (speed and quality of the response), reliability, empathy, and assurance are important skills, that
customers are looking for when they are interacting with organisations. If these are not met, then the
earlier stages in CRM have no meaning.
MEASURING CUSTOMER RELATIONSHIP MANAGEMENT
LO4 From the above example, it is clear that if the organisation has to move up
Measure CRM on CRM, it needs to continuously measure how well it is doing. Measure-
ment is important because it helps the organisation to understand not only
what they are doing but also how well they are doing and the areas that need improvement. The Price-
WaterhouseCoopers study of senior executives in the US and Europe reported that customer focus and
innovation, in particular product innovation, are perceived as key drivers of future growth by corpo-
rate executives3. Even though these are the drivers of growth, most executives who were interviewed
mentioned that they failed to measure these important strategic drivers of change effectively. There are
several approaches to measure improvements, in of the organisation.
Balanced Score Card

One of the techniques used in measuring the organisation’s performance is the
The logic behind the
balanced score card. The balanced score card is a performance measure provided
balanced scorecard is
by Robert Kaplan and David Norton in their famous article that appeared in the that financial resources,
Harvard Business Review in January–February 1992. The logic of the balanced though unambiguous, do not
score card is that financial measures, though unambiguous, do not show less show less quantifiable, but
quantifiable but extremely critical measures of performances. Hence, firms need extremely critical measures of
to assess the performance by looking both towards the future and also to the performance.
past. According to the authors, the balanced score card could be used for crafting
future strategies too. The authors have suggested that companies could create unique score cards based
on the following key parameters:
committed to the organisation

(c) organisational analysis with a view to identifying the process in which the organisation has ex-
celled and the ones where it is weak
(d) is the organisation a learning organisation and what has it learnt over a period of time
(e) what are the knowledge management processes in the organisation.
Evaluating the organisation on the basis of such a score card could help it develop a cause and effect
business strategy.
Catalytic Measure
The other measure that has been suggested is the catalytic measure. This measure
The catalytic measure
focuses on organisation’s efforts on identifiable changes4. The implementation
focuses on organisation’s
of such measures facilitates and speeds up the change in any area that the or- efforts on identifiable
ganisation wants. According to Brown, the best catalytic measures are those that changes—the implementation
are considered credible by both customers and staff. Consider, for example the of which would facilitate the
communication at the back of a school bus which tells people that it is carrying change in any are a that the
school children and is being driven safely. It also gives the telephone number organisation wants.
of the principal of the school. This announcement places pressure on the driver
to be more cautious and induces change in driving behaviour. It is important that the catalytic measure
empowers and convinces people to achieve results and at the same time has been developed through
consultative processes, thus enhancing the esteem of the people.
There are four steps that have been identified in implementing the catalytic measure. These are5:
1. identifying the area needing change
2. creating a relevant yardstick of performance
3. developing the measurement approach through a consultative process

4. communicating and implementing the programme
Thus, today, CRM has a significant role in creating strong customer bondage. It is an organisational
process which includes people, infrastructure, performance measures and controls, organisational
alignment to the environment, and new strategic patterns.
SUMMARY
Market leaders focus on the goals of enhancing customer loyalty, maximising returns on customer
segments or customer accounts (for example in the case of B to B marketing), and creating strong
interdependence between the customer and the company. Customer relationship management, is a
process whose objective is to enhance customer loyalty. It consists of the creation and management
of data mines and warehouses, development of appropriate organisational structures, investment in
technology, and people development.
POWER POINTS
1. Market leaders focus on the following corporate goals: (LO1)
enhancing customer loyalty
maximising returns on customer segments or customer accounts (for example in the case
of B to B marketing)
creating strong interdependence between the customer and the company.
(LO2)
customer acquisition
customer retention
strategic customer care
3. Customer relationship management, therefore, is a process whose objective is to enhance cus-
tomer loyalty. This process consists of the following: (LO3)
creation and management of data mines and warehouses
development of appropriate organisational structures
investment in technology
people development
4. CRM is an organisational process which includes people, infrastructure, performance measure
and controls, organisational alignment to the environment, and new strategic patterns. (LO3)
5. There are several approaches to measure CRM. One of the techniques used in measuring the
organisation’s performance is the balanced score card. Evaluating the organisation on the basis
of such a score card helps the organisation to develop a cause and effect business strategy.
(LO4)
6. The other measure is the catalytic measure. This measure focuses the organisation’s efforts on
in any area that the organisation wants. (LO4)


1. As a leading organisation in the hotel industry, what standards and goals must you set to
achieve the highest levels of customer loyalty? (LO1)
competing on personal service rather than price? Also, how can you personalise your service
to improve customer service? (LO2)
3. The synergy between telephone, computer, and other technologies have provided the customer
with great choice and access; however, organisations need to balance the remoteness brought
about by technology and the need for the customer to feel a valued individual. What steps
would you take as a manager to bridge this gap? (LO3 and 4)
CHAPTER
MARKETING ORGANISATION
24
LEARNING OBJECTIVES
LO1 Explain contemporary developments and marketing organisation
LO2 Describe issues in marketing organisation structure
LO3 Define approaches to structuring
In Practice
L’Oréal Stays Ahead of Competition Through Innovation
Research and innovation is a key to success not just for technology products but also for cos-
metics and skincare products. L’Oréal which is today considered as one of the major players in
cosmetics and skincare business has stayed ahead of competition on the strength of research
and innovation. It has developed 130 molecules over the last 40 years. This has given the group
an exceptional ability to patent major active ingredients well ahead of competitors. L’Oréal has
organised its research around six regional platforms (Europe, United States, Japan, China, Brazil
and India). In each major region of the world, these hubs integrate research, development ex-
pertise and market fundamentals. The mission is to understand habits, needs and consumption
criteria of the local market. It is because of such interaction between research and marketing
that L’Oréal is able to offer cosmetic products that are adapted to different skin types, hair types
and culture. The company is today endowed with a portfolio of international brands which are
unique and cover all lines of cosmetic, hair care, hair colouring, skin care, makeup and per-
fumes. These brands are managed within the group by divisions that have strengths or expertise
in their own distribution channels. This is a strength that makes L’Oréal responsible to every
consumer’s expectations according to his or her lifestyle and also to adapt to local distribution
anywhere in the world.
Thus, L’Oréal has built its leadership on the basis of understanding and listening to different
groups of people worldwide. Its innovation strategy is based on understanding the diversity
of types of beauty and skin around the world. Its Chicago Research Centre is dedicated to the
ethnicity of skins and hair types around the world thus reflecting its customer focus.
Marketing Organisation 565
CONTEMPORARY ECONOMIC DEVELOPMENTS IMPACTING MARKETING

ORGANISATION
LO1 Developments like the one mentioned above, have a bearing on marketing
Explain contemporary organisation structure. In order to understand the issues in marketing organi-
developments sation design, it is important to reflect on some of the major developments
and marketing in marketing and the challenges they pose to a marketer.
organisation Major developments in marketing area:
Outsourcing of Marketing Operations

Outsourcing in marketing is not a new phenomena. Companies have been known to outsource their
advertising and other communication task to creative agencies. They have also used direct market-
ing to market their products and services directly to the customer. What is new now, is that besides
these, there, are several other marketing functions which are now being outsourced. These relate to
marketing operations like call centre management, website management, database management and
direct mail and e-mail management and logistics. In some companies like American Express, it is also
data analytics which includes programme performance analysis, customer behaviour and even brand
analytics. Yet there are companies which outsource integration and management of customer experi-
ence. Hence companies are today increasingly outsourcing a lot of critical planning and customer
interface management to specialist organisation. This gives them time to concentrate on factors that
drive their competitive advantage and strategy. For example, the leadership and the marketing team
could gainfully use this time to maximise their interface with customers. A more customer focused
culture could then emerge. Key customer account management can help firms retain their profitable
customers.
Franchising Brands
In a globalised marketing environment, franchising of brand is one of the strategies that some firms
pursue. This franchising is most commonly visible in services and retail industry. What gets the firm
to franchise its brand? Besides the host country regulatory environment, it also provides the firm
significant cost advantages. It does not have to invest in creating infrastructure, brand building and
distribution—all of which is performed by the franchisee. The franchisee brings with him strengths
like knowledge of local market, access to customers and distribution channels. The franchiser firm
has to ensure franchisee commitment to brand’s core values. Hence development of franchisee teams
understanding of brand and its core values is a task that the firm has to perform. Also development of
performance measures beyond the sales and market share holds the key to ensure that brand equity
does not get diluted. Hence monitoring of brand health in a franchisee organisation is important or has
to become a key task of franchise manager or country manager.
Networked Organisation
Thomas Friedman1 treatised that the world today is no more round but flat. In building up this theory,
he laid significant emphasis on the role of information technology, especially internet and the impact
it had on organisations, world polity and human lives. Convergence of technology, globalisation of
markets, and new forms of competition have transformed the way we work. Supply chains are no more
national but global. Geography and time have ceased to be relevant in decision making and corporate
operations. Companies can today outsource their manufacturing, customer service and other business
processes around the globe and thus create loyal customers in real time.
In this flat world, new paradigm that govern organisation structure and strategy is networking and
co-production. Involving customers in producing and modifying products is today’s need. Consider
for example the case of Google, Facebook and Wikipedia or any other product developed using the
open source code. These firms know that their competitive advantage comes not through proprietary
know-how but through innovations jointly created by product teams and customers around the world.
Democratisation of innovation is today one of the realities of the flat world.
Another major impact of technology convergence is the crumbling of hierarchies in organisations.
Increasingly, organisations have become flat and one where communication does not necessarily follow
the pre-determined vertical and horizontal path. Rather, one can see a network of communications in
the organisations. For example, today a customer can communicate not just merely to the sales person
or service personnel but also with design engineers, production personnel and finance department all at
one go. Not only so, customer can also communicate directly with all levels in the organisation across
all functions. Hence the primacy that marketing had in linking the customer with the organisation no
more holds good. Similarly, we find communication flowing back and forth within the organisation and
across all the functions.
Technology has also forced organisations to become more transparent. This has had an impact on the
bargaining power of firms. For example, the bargaining power the buyer firm has vis-a-vis the supplier
firm or channels of distribution is today significantly affected by information technology.
No more now strategic leverage of the firm is determined by its bargaining power with its suppli-
ers, distributors and customers. Rather it is determined by the network that it creates of its suppliers,
channel partners and firms at the horizontal level. The leadership played by the firm in creation of this
network will determine how well it succeeds against competition. The war today is between networks
of organisation. So if the firm succeeds, all partners in the network succeed.
This has been called Globalisation 3.0. In the network organisations, all players in the global supply
chain are considered as team members sharing the same goal, namely, optimising value for customers.
This is different from the traditional mindset which perceived players and the firm in an adversarial role.
The message of network organisation is that the firm by itself cannot succeed; but it is the entire chain
that can make it succeed. Co-operation and collaboration are therefore crucial. Smarter networks require
continuous guidance, intelligence sharing, assistance in design and an invisible or visible hand of the
firm drawing together all the diverse contributions. In doing so, improved customer focus and increased
responsiveness can help create an atmosphere of trust and relationship. In India the best example is that
of Nano car’s development. Tata Motors developed a network of component suppliers, design engineers,
design specialist etc who have committed their resources for the successful development of Nano. Tata
Motors is now in the process of creating a similar network of distributors who will not only perform
the distribution role, but also play an entrepreneurial role which may involve even assembling the car
at their end. It proposes to share the risk of this innovation across its entire supply chain.
Marketing, therefore in such organisation assumes different role. For example, the marketing com-
munication and the brand strength will be built by strength of this network/global supply chain. Hence
supply chain manager and marketing manager will have to work in a ‘Silo-less’ structure. Breaking the
silos in any organisation is a major challenge. Within marketing, breaking the barriers between sales
and product management is important.
Relationship Management
Another significant development in marketing is the emergence of relationship management. It is
no more an art now. At one stage, marketer’s mannerisms, courtesy, friendship and other personality
traits were considered to be the corner stone of the relationship building exercise. But no more so now.
Today it is both a science and an art. The science is in data mining and warehousing. It is in creating
customised marketing offers and response. It is in creation of 24 x 7 customer service, based on the
appropriate structural design and technology convergence. But not all can be left to technology. This
is where the human touch comes in. Today, companies use a combination of technology, human touch
and organisation structure to reach out to the customer.
The months of October and November, 2008 were some of the most turbulent times for ICICI Bank.
For it saw a run on its deposits and share prices as the word went around that the bank was perhaps
not solvent and would collapse any moment. Collapse of Lehman Brothers, Goldman Sachs and Merill
Lynch in U.S.A. was the trigger to this word-of-mouth publicity and news items. The information
that went around was that the bank had exposure to the sub-prime loans and hence was as vulnerable
as Lehman. The aggressive character of the bank only lent credit to this belief. However, ICICI bank
management dug its heal and used all information tools, including getting a response from RBI and the
Finance Minister of India to reassure customers that ICICI bank was safe. Its CEO, Mr. K.V. Kamath,
CFO and Jt. Managing Director Mrs. Chanda Kocchar, Executive Director Mr. K.Vaidyanathan and
many other members of the senior management team gave wide ranging interviews to media. They
responded to all charges and clarified all doubts in the market on its solvency and international opera-
tions. The bank also launched an SMS campaign and customer education campaign in the print media
to counter this negative impression and inform its customers, investors and all other stakeholders that
ICICI Bank was sufficiently capitalised. The management also instructed all its branches to give the
money to customers in the proportion he/she wanted even if that meant the customer withdrawing his/
her complete deposit from the bank. Sufficient cash was kept in the branches as also in ATM machines.
Customer Relationship Executives, Branch Managers and other individuals handling key customer ac-
counts were trained to manage this crisis and restore customer confidence in the bank. The bank used its
customer information to relate itself to the key target customers. All these strategies, including celebrity
endorsement like the one by Shahrukh Khan helped ICICI Bank. Customer confidence in the bank did
not suffer much and the brand usage renamed strong. Relationship Management therefore involves use
of technology, communication channels and development of personnel to respond to customers at all
times including bad times.
Internal Marketing
Customer confidence can be won only when its employees feel committed. This involves developing an
employee first culture in the organisation. Opening communication channels and breaking the ‘silos’ in
the organisation so that employees can communicate with their counterpart across various departments
and functions helps in creating employee first culture. Cooperation, trust and collaboration are the hall
mark of such culture. Employee first would also mean developing a more humane approach to solving
problems. Virgin Atlantic and South West Airlines were the two airlines in USA that showed the way
to others in the industry at a time when the airline industry went through a slump in early 2000 soon
after 9/11 attack on the Twin Towers in New York. Rather they reworked their business model and
even hired more employees. An internal study at P&G to rebuild marketing strength showed that the
marketing revamp plan was based more on intuition of a few individuals at corporate headquarters
than on the basis of data. The study showed that even when P&G was perceived to be a high priest
in marketing, internally the actions of the management lead to devaluation of marketing function.
Marketing employees reported that since training was coordinated and led by centralised corporate
marketing group, which had been downsized in 1998, the training programme fell apart. Hence
marketers felt ill equipped to do their job. P&G employees also felt there was no link between rewards
and promotion with the results of the employee initiatives. Also, there was a disconnect with the market
place. A culture of cynicism, conflict and mistrust had got developed in the company. Based on these
findings P&G worked out a plan for renewal, which focused on education and training, developing a
common language, creating centres of expertise etc. Most Indian organisations, by contrast, seem to
have a culture which is apathetic to the employee. Marketing is considered as only sales. The most
interesting example is that of the Jet Airways which off loaded its 1,800 crew members soon after it
had signed an alliance agreement with Kingfisher Airlines in October 2008. The crew members were
taken by surprise. They had no other option but to come out on the street in protest. The media covered
their protest and the pressure got built on the management from the government, political leaders and
the general public. In about 72 hours, the company took a ‘U’ turn with its Chairman withdrawing the
lay off order and asking all the employees to revert back to work. In this entire exercise, Jet Airways
did show lack of concern for the employees. Crew members are the face of the organisation and seeing
so many of them on the road is certainly not a very comforting thought for the customer. Neither is it
good for brand value.
Employee first therefore involves keeping them informed of the developments in the organisation
and making them a partner in its growth. It also involves continuous development of the marketing
employees, competencies, developing a common language within the organisation and creating a focus
in marketing roles. For this, the key is to ensure that no job rotation takes place during the time the
initiative taken by marketing groups deliver results.
Global Marketing
Markets are today globalised. Nothing more can better illustrate this fact than the current global melt-
down, which has occurred primarily because of the credit problems in America. Global markets require
a global mindset but in order to succeed the Manager needs to always keep in mind the local perspective
also. Hence thinking global and acting local has today become a global mantra. This is because even
after markets becoming global, heterogeneity in the market continues to be a reality. This heterogeneity
requires a localised marketing solution.
ISSUES IN MARKETING ORGANISATION STRUCTURE
LO2 The above developments require the marketer to have a strategic, holistic
Describe issues and an integrative approach to organisation structure. Some of the issues that
in marketing need to be focused are as follows:
organisation structure
Goals and Focus of the Strategy
The marketer needs to consider the goals and focus of the strategy. For example, if the goal of the
strategy is to create a space in a highly competitive market through the strategy of operational excel-
lence, then the issue that needs to be considered is whether a particular level in the hierarchy or form
of organisation will add any value or will it add to the cost only. Also, firms will have to take a decision
on what will be the best approach to market the product. Should the firm go through the established
channels of distribution or reach out to the customer directly through web based marketing. If it decides
to go for web-based marketing or e-marketing, then the role of some slots like Channel Manager or
Territory Manager or Sales Manager will need reexamination.
Hence depending on the focus of the strategy, which could either be the customer or product leader-
ship or operational efficiency, organsational structure should be decided. This connect with the strategy
is extremely important if the organisation has to achieve the desired results.
Key Competencies
Firms will have to identify the key competencies that need to be promoted. These competencies
change with passage of time and with the evolution of markets. Hence competency identification and
development has to become an integral part of the Marketing Manager. Several initiatives by well-
known brands like L’Oreal, P&G, Motorola, Unilever, Kingfisher Airlines etc reinforce the perspec-
tive of continuous development of key competencies of marketing personnel. For example L’Oreal
and P&G spend considerable resources on educating the marketing team on brand building and brand
management.
Controls
This requires the marketer to consider the type of control that it needs to develop. The types of control
that the CEO or the marketer has to choose are as follows:
Panoptic Control This is perhaps one of the most common form of control visible in market-
ing. It has gained popularity and is fast replacing the bureaucratic form because panoptic controls are
perceived to be more flexible and empowering employees. This is achieved by removing the role of
the supervisor through effective surveillance. The panoptic control is an all pervasive eye. Hence even
when no one is personally supervising the work or employee, results are still achieved; perhaps bet-
ter, because employees feel more responsible and committed to achieve the results. Deflections from
target behaviour are noticed and taken into account while reviewing the performance of the individual
and the group. In today’s context information technology and other technology gadgets help ensure
that results are achieved without being effectively supervised on a daily basis. Close Circuit Television
(CCTVs) & Radio Frequency Identification Device (RFID), internet, company wide intranet, cellular
communication are today used to monitor the entire marketing operations including customer care and
customer movements in real time. Likewise, tracking technologies are today being used in the logistic
business. The panoptic controls are more effective because they leave few places or no place to hide as
everything is visible online and can be viewed simultaneously at different levels within the organisation.
Further the data can be recalled and reviewed subsequently until the time the organisation has identi-
fied the precise sequence of events leading to an error. The panoptic controls are often resisted by the
managers as they perceive their power going out of their hand.
Bureaucratic Control The Bureaucratic Control demands adherence to rules, procedures and
bye-laws. It involves direct supervision. The Bureaucratic Control has been found reliable largely be-
cause of the reason that they have been in existence from the time we learnt about formal organisations.
The limitations of such control is insincerity and the tendency of the individual to bypass the rules.
Rules define the maximum, which again become questionable in an interconnected world where tech-
nology has opened up vast bundles of opportunities Also, in a transforming markets such controls can
never help organisations achieve results. Bureaucratic controls are also perceived as iron-cage reducing
innovation and creativity in the organisation.
Bounded Emotionality Bounded Emotionality is based on the argument that the organisation
needs to foster employee well being and not just maximise efficiency or performance. This is a feminist
view of the organisation. This form of control works remarkably well in services marketing, especially
in retail marketing where the link between employee morale, customer satisfaction, repeat purchase
and referral rate are increasingly recognised.
Control in Network Organisation Network organisation is different from bureaucratic or-
ganisation. The controls in the network organisation are based on the principles of equality and partner-
ship. It involves creating flexibility and a flat organisation structure. This form of control works very
well only when the marketing leader is a charismatic leader.
Integrating Customers
Marketing’s purpose is to acquire and retain the customer in a highly competitive market place. For this
it needs a strategy and an organisation that listens and responds to customers in real time, if possible.
In order to achieve this goal, firms have brought customer representatives on their board of directors.
Some have even created customer advisory councils or boards. NCR, a technology company in Ohio,
USA, felt that such customer boards help in creating value for customers3. Such boards or advisory
councils are of particular use in the following situations:
boards or even corporate boards can boost loyalty and commitment and hence strengthen supplier-
customer relationship management.
(b) In a transforming market, such boards can generate useful information on emerging market seg-
ments, customer preferences, customer reaction to regulations, impact of government regulations
on consumptions and brands, customer response to technology etc.
(c) If the buying decision process is becoming more complex and includes new participants, customer
expertise in buying goods and services. This is especially true for large projects or capital goods
purchase. But this is also true in simple products like cosmetics and other lifestyle products.
To plan and execute customer advisory boards the firm needs to:
(a) Gain and align commitment of all internal stakeholders to the process including all marketing,
sales and service personnel.
all internal and external participants. For example, such board meetings should never be used to
promote a brand. These are not sales promotion meets.
(e) Continuously communicate with board members.
Characteristics of Innovative Organisation

Companies like Apple, Google, L’Oreal, Samsung and Dell have emerged a global leader on the
strengths of their innovations. A closer look at their organisation culture and processes show that they
have been able to succeed mainly because they were able to create a facilitative structure and environ-
ment. The characteristics of such organisations are:
● They pursue mission that matters and is meaningful to all stakeholders. In doing so, they not only
keep the customers’ perspective in mind but also focus on developments that have potential to
change human life. These organisations communicate their mission in a meaningful manner to all
internal and external stakeholders.
● Leadership and culture: Innovative organisations always have leaders who encourage risk tak-
ing and are tolerant to failures. Google founders Larry Page and Sergey Brin created a culture
of work and fun going together. In 2001 they brought Erich Schmidt as Executive Chairman of
Google. Erich discovered that 60% of searches were made from outside US. This got him to build
markets in non-US markets. The company takes extra care in recruiting people. It is one company
that has gone beyond the known parameters of recruitments when it did not recruit people only
from Computer Science stream but from other non-related discipline too. For example, Google
recruited neurosurgeon for boosting performance of its network of servers. In Google fun is taken
seriously.
● Portfolio of innovations: Innovation is not a one-time activity in these organisations. They are
characterised by a stream of innovative products. More often than not, these innovations create
a product system which provides a one stop solution to the customer’s problem. They create an
ecosystem and hence a new value proposition. Consider the case of Apple whose product today
span the entire range of personal computers to entertainment devices. Within this range it has
today created product accessories as also software. For example, Apple created a personal por-
table music player in iPod and to operationalize it, created iTunes from where the customer could
software called iOS.

● Avoid ‘best practices trap’: Instead of following best practices in the industry, they ask questions
like ‘what are the circumstances in which current model is competitively critical and when can
the new model succeed?’ They also spend time in understanding factors that would lead to new
product’s success. These organisations have developed the competencies to navigate unpredict-
able circumstances.
● Aiming for individual’s creative instincts: Creativity is at the heart of any innovation. It is
therefore necessary for companies to aim to actualize individual’s create instincts. Google, for
example, allows its developers 20% of their time or one day a week when they could work on a
project of their choice. They encourage people to share the projects they are working on through
intranet, or over meetings or lunch. The companies offer both freedom and resources so that in-
dividuals can follow their creative instincts.
● Philosophy: These organisations have philosophy to serve the world in a better way. For example,
Steve Jobs once urged all at Google to do what they wish to do, when he said
. These famous words of Steve Job captured the philosophy of Google and hence
it is no surprise that Google today has emerged a house of some of the most innovative solution
starting from search algorithms to all the software that can help an individual navigate this world,
be it Google maps, Google scholars, You Tube, G-Talk or Android.
● Tolerance for failure: Innovative companies exhibit high degree of tolerance for failure.
● Talent management: It is all about managing talent. These companies hire, develop and retain
the best performers.
IN FOCUS
Characteristics of Innovative Organisations
Tom Peters and Robert Watermans Jr, mention eight attributes that characterised their excellent and
innovative companies2.
1. Bias for Action Excellent companies, though analytical in decision making, have a high degree of bias
for action or implementation.
2. Close to the Customer These firms learn from their customer and provide unmatched quality, service,
and reliability to their target market.
3. Autonomy and Entrepreneurship Innovative firms foster creative thinking. They encourage practical
risk-taking and support good efforts.
4. Productivity through People Excellent and innovative firms believe in people being an asset and at the
root of quality and productivity gains. Respect for the individual characterises the corporate atmosphere.
5. Hands on Value Driven All excellent firms have a basic philosophy that guides their course of action.
6. Stick to the Knitting Another characteristic of excellent firms is that they diversify only in those product
markets that they know best.
7. Simple Form and Lean Staff Lean staff (support functionaries) and simple organisational structures
have been the hallmark of excellent companies.
8. Simultaneous Loose and Tight Properties Finally, excellent companies are both centralised and
decentralised. They are decentralised as they have pushed autonomy down to the shop floor level or
the lowest level in decision making. But they regulate their functioning around the few core values they
consider critical for their growth.
APPROACHES TO ORGANISATIONAL STRUCTURING
LO3 Today, and in the times to come, the marketer and

In the functional form of
Define approaches to managements will be confronted with the question
organising, sales, product
structuring of how to competitively satisfy customer needs and management, distribution,
hence which form of marketing organisation will best and promotions are given
serve this goal. There are different approaches to organisational structure and equal importance, and the
design, each with its own advantages and disadvantages. Before we proceed possibilities of conflicts (like
to discuss these approaches, it is necessary to understand that the firm’s goals production man. versus
sales) minimised; profits are
and resources will invariably determine the appropriateness of the marketing
considered on an aggregate
organisation. For example, if the customer wants immediate service, perhaps the basis; while it ignores the
best way to provide it is to have an in-house service department. However, if the possibilities of market
firm’s resources are not large enough to enable it to have one, the firm will have segments emerging as profit
to contract it outside to specialist agencies. The same holds good for the sales centres.
force. The firm may have to adopt a direct selling route through direct marketing
organisations or work through a distributor or stockist sales force. With this constraint in mind, let us
now understand the different approaches to structuring the marketing function.
Figure 24.1 Creating an Excellent Organisation

Source: Based on Tom Peters and Robert Waterman, In Search of Excellence.
Functional Organisation
The simplest and still more efficient form of organising marketing activities is the functional form. Tom
Peters and Robert Watermans conclude that excellent companies have been functionally organised com-
panies. They believe that simple form and lean staff have made their sample companies more responsive
to market complexities than the matrix form of organisation.4 In the functional form of organising, sales,
product management, distribution, and promotions are given equal importance and the possibilities of
conflicts like product management versus sales are minimised or even eliminated. Since all functions
are coordinated by the chief of marketing, this organisational form allows everyone to pursue a single
goal—market share and profitability. Sales is still a major function and one does find staff specialists
getting frustrated as very often sales people may carry the day. Some service functions like marketing
research may be contracted outside and product management may be left with only the coordination
of these researches or briefing advertising agencies on sales goals. Much of the product management’s
time may be spent on evaluating new packaging alternatives and designing new products along with
factory personnel. But since the product manager has no control over quality and even R&D, it is not
uncommon to come across several frustrated product managers.
In a functional form, profits are considered on an aggregate basis. In other words, there is no profit
centre management visible. The firm as a whole is a profit centre. All functions are cost centres. Some
firms may deviate from this by making their factories, business divisions, or even marketing into profit
centres. In such cases, accounting systems reflect how well the profit centre has done.
The functional form of organising ignores the possibilities of market segments emerging as profit
centres. It has been seen that this form is less receptive to environmental complexities.
Territorialisation
Another form of organising marketing is to treat geographically defined market
The concept of
territorialisation works segments as profit centres. Here, the regional or branch offices become the
under the assumption that profit centres. Regional heads now supervise sales, product management,
environmental complexities distribution, advertising strategies, and customer service. The assumption in
differ across regions in this form of structuring is that environmental complexities differ across regions
the country and hence in the country and hence each region requires to be monitored closely. This form
each region requires to be
makes marketing more responsive to customer needs in the region. Since the
monitored closely.
regional head is responsible for generating profits, he or she is able to change
strategies and tactics to ensure that the firm remains competitive in the region.
Coordination at the factory level is perhaps much easier now than under the functional form. This is
further aided if the firm decides to set up factories in each region to meet demand and respond to the
uniqueness of that region.
The problem often seen in this form is that, at times, the factory may come under heavy pressure
from different regions demanding different products almost at the same time. Prioritising region-wise
demand on the basis of criticality often becomes a matter of organisational policy and interpersonal
relationships of regional heads with the factory chief. This problem gets worse when the firm has just
one factory to feed national and foreign markets.
Another problem in this system relates to human resource management. Since
Prioritising region-wise each region is a profit centre, it may not be uncommon to come across sales and
demand on the basis of
marketing people in different regions with different emoluments and benefits
criticality; HRM-related issues
pertaining to motivation, depending upon the region’s resources. This creates a severe motivational prob-
attracting the best talent lem in the sales and marketing teams, particularly when they interact with their
in different regions are counterparts in different regions. Yet another related problem is that of attracting
some of the drawbacks of the best talent in different regions. Since each region has its own costs and profits
territorialisation. and hence pay and benefits, one comes across a widely divergent group of skills
and talents within the same company. One region may have highly talented and
skilled people, perhaps the best available in the region, and another may have just the opposite. This
severely affects the firm’s ability to fight competition in different markets and one may come across
patches where the firm may be the market leader or, conversely, just one of several competing firms
with a small market share.
Nonetheless, territorialisation is a step in the direction of adopting the segmental approach to market-
ing and hence responding to environmental complexities.
In the matrix form, products

Matrix Form
are profit centres and each Integrating specialist functions of product management with the line function of
product manager relates with sales is a major challenge to the top management. Often, this is achieved through
each zonal sales manager.
a matrix form of organisation which appears as shown in Fig. 24.2.
Figure 24.2 Matrix Organisation
As may be inferred here, products are profit centres and each product manager relates with each
zonal sales manager. This helps in pushing each product across the country and also in evolving prod-
uct strategies for different geographical areas. In fact, tactical changes are apparent in pushing products
across different regions without diluting the core product and communication strategy. This form in-
duces competition among product managers.
The problem often faced here is that of prioritising. Often the sales manager
does not know which product he or she should push. This obviously creates room Prioritising, and the difficulty
to reconcile objectives like
for politicking. Also, as one sales manager remarked on how he settled the is- profit across products,
sue of prioritisation, ‘I listen to the product manager who makes the maximum segments or regional sales
noise’. It is not uncommon to come across such situations. are some of the drawbacks
Another problem of a matrix organisation is that it is difficult to reconcile of the matrix form.
objectives like profit across products, segments, or regional sales. One may add
several dimensions but it only makes organisations more complex, thus diluting the principle of ac-
countability in management hierarchy. Somewhere, the organisation may lose sight of its basic goal—
customer satisfaction.
The Contingency Model
Contingency Theory suggests that effectiveness
Another approach to organising the marketing function is to consider the exter- of an organisational structure
depends on the organisation’s
nal environment and then decide on which form of organisation will best help the
external environment, and
firm achieve its objectives. The contingency theory and model suggest that the the manufacturing technology
effectiveness of an organisational structure is dependent on the organisation’s used by it.
external environment and the manufacturing technology used by it. It is in this
sense that there appears to be no good approach to organisation structuring.
The contingency theory is based on an information processing viewpoint. In any organisation design,
the principal objective is to facilitate this flow of communication between or within the units. This
contingency model of organisation design and effectiveness is shown in Fig. 24.3.
Figure 24.3 Contingency Model of Organisational Effectiveness

Source: Barton Weitx and Erin Anderson, “Organising the Marketing Functions in Berman, Barry and Evans”, Joel R.,
Readings in Marketing Management, A Strategic Perspective, John Wiley and Sons, Inc. 1984, p. 28.
Let us consider in detail some aspects of this model.

Environmental Characteristics The environment of a firm is often characterised by three
factors.
(a) Complexity
(b) Unpredictability
(c) Inter-connectedness
Markets differ from time to time on these three counts.
Complexity in the Environment This refers to the number of product mar-
The complexity refers to the
number of product marketskets served by the firm at a given point of time. More the product markets
served, the more difficult it is for orderly and effective organisational func-
served by the firm at a given
point of time. tioning. Proactive marketing organisations differentiate their offers in different
markets. So an effective marketing organisation’s response to complexity in its
environment is differentiation in strategy and design.
Marketing organisations become complex in design, as they need to decentralise marketing efforts
right upto the grass root level, thus creating internal units to match the critical components in the
environment. So the more complex an environment, the higher the degree to which an organisation is
decentralised. For example, product market managers may become decision-making units in a complex
market environment as they know the situation the best. Likewise, regional sales managers may be
vested with the authority to take decisions which help the firm relate better to complexities in regional
markets.
The unpredictability is Unpredictability in the Environment The unpredictability factor is contrib-
contributed by the rate at uted to by the rate at which the environment for the firm undergoes a change.
which the environment for the From a marketing perspective, this is assessed by the rate at which new products
firm undergoes a change. are introduced in a market. The entry and exit barriers there will determine the
number of competing firms in a given market. One of the methods of increasing predictability is the
and the other is to develop long term relationships with the customers. This
could also be done by increasing the switching costs for the customer, like having to change the entire
system if the buyer were to adopt competitor technology.
Environmental Interconnectedness This refers to the degree to which key
The interconnectedness
elements of the components of the environment are organised and interrelated.
refers to the degree to
This factor refers to linkages within the components of the external environ- which the environmental
ment. For example, the competitive environment of a firm is greatly dependent components are organised
on government policy and distributor control over a product market. Some of and interrelated.
the organisational forms that can help improve marketing effectiveness here are
product management, market management, matrix form, venture team, task force, and so on. Essen-
tially, this involves developing structural mechanisms for coordinating and integrating activities within
the marketing organisation. While vertical and horizontal differentiation may help the firm respond to
environmental interconnectedness, both conventional and non-conventional mechanisms may be used
to integrate activities within the marketing organisation. Conventional mechanics are the familiar meth-
ods of coordinating and controlling like plans, policies, regulations, meetings and referring problems
to superiors, and so forth. The non-conventional ones are venture teams, product management, market
management, and creation of an integrated organisational culture that empowers people to perform their
best and to better their best.
Figure 24.4 shows the different structure options a management has to cope with the external
environment.
Figure 24.4 Structure-Environment Match

Source: Barton Weitx and Erin Anderson Ibid.
Thus in organising marketing function, the firm should not accept or reject a structure without
considering its relationship to the external environment. The key question here is which organisation
structure will best help the firm achieve its goal—market leadership through a satisfied customer.
SUMMARY
Structure of marketing organisation is influenced by the developments in the industry, technology
and competition. Competition today has made necessary for firms to develop relationship with cus-
tomers on an ongoing basis. Markets are globalised and hence require global mindset but execution
which is localised to meet the needs of the local market. In order to structure the marketing organisa-
tion one needs to have a strategic, holistic and integrated approach. One needs to consider the focus
of company’s strategy, key competencies, the control systems in place and those that are required
and must help integrate customers.
Structuring the organisation on the basis of the marketing functions is one of the approaches used.
Matrix form is another form of structuring. Another approach is to consider the external environment
and decide on the form of organisation.
POWER POINTS
1. Marketing organisation structure and design contingent on development in market and market-
ing area. (LO1)
2. Major developments in marketing area having impact on marketing organisation structure
design: (LO1)
Outsourcing of marketing operations
Franchising brands
Networked Organisation
Internal Marketing
Global Marketing
3. Issues in Marketing Organisation Structure: (LO2)
Goals and focus of the strategy
Key competencies
Controls choice between:
(a) Panoptic Control
(b) Bureaucratic Control
(c) Bonded Emotionality
(d) Control in network organisation
4. The characteristics of successful, innovative, and excellent organisations are:
(a) bias for action
(b) closeness to the customer
(c) autonomy and entrepreneurship
(d) productivity through people

(e) hands on, value driven
(f) stick to the knitting
(g) simple form and lean staff
(h) possess simultaneously loose and tight properties.
5. Innovative organisations are the ones that pursue mission that matters and is meaningful to all
stakeholders and are led by individuals who encourage risk taking and are tolerant to failures.
(LO2)
6. Innovative organisations are characterised by a stream of innovative products. They create an
ecosystem and provide a one stop solution to the customer’s problems. (LO2)
7. They avoid best practices trap, aim for individual’s creative instincts and pursue philosophy to
serve to make world a better world. (LO2)
8. The marketing organisation design may be functional, or the marketing function can be or-
ganised on the basis of territory. Matrix form is yet another structural choice which a marketer
may have. (LO3)
9. One approach to marketing organisation is the contingency theory which bases organisation
design decisions on the complexity, predictability, and interconnectedness of external environ-
mental factors. The marketer needs to create structure to integrate customer. For this purpose
customer advisory board is recommended. (LO3)

1. A leading consumer products company, namely ABC Company, has had a decline in its market
share. The company markets consumer durables like washing machines, mixers, food proces-
sors, audio products, and lately had entered the air conditioners and refrigerators market. ABC
has had a market share of about 40% in home appliances. Lately, this share has declined to un-
der 30%. The company, has been worried about the situation. The managing director reviewed
this situation with the sales and marketing teams. In this review, the following observations
were made: (LO1 and 2)
(a) The Indian middle class market is expanding and today consists of 300 million people,
which is more than 1/3rd of the total population of India. Another 90 million consumers
belong to the high income group. The growth rate and the purchasing power of these
groups have been increasing and the entire market today is on an upward swing.
(b) Customers want good quality products with high brand image, backed by good after sales
service.
(c) The market for the low priced product in the lower middle class is also expanding,
although, this is a highly price sensitive market.
(d) The intensity of competition in the industry has increased substantially following the
entry of multinational firms like Sony, GE, LG, and so on, in the market. The intensity
of inter-firm rivalry is also accentuated by a large number of small scale firms who are
offering substantial incentives to market intermediaries to sell their products. Large
Indian companies and multinationals like Philips are redefining their product horizons
and enlarging the depth of their distribution.
(e) Price, discount, and advertising wars are common in the industry.
(f) In view of this, the company should take a fresh look at its organisational structure and
the role of different functions in the marketing area including that of sales.
Given the above comments, what would you like to suggest to the managing director
to help him win back market share. Specifically discuss the possible marketing organi-
sation, role of sales personnel, and planning and control systems that you may like to
suggest.
2. With the recently liberalised economic policy of the government, a large number of multina-
tional companies are relooking at India as the star market for their products. ABC, a major
-
ternational brand leader of soft drinks, for a number of strategic marketing advantages. (LO3)
The total market for soft drinks in India is estimated at 120 million cases (one case contains
24 bottles), or `1,200 crore and is estimated to be growing at the rate of 5% annually. Product
wise contribution to sales is: cola 30%, lemon 25%, mango 20%, orange 10%, and others 15%.
Per capita consumption of soft drinks in India barely works out to 3 bottles, while in neighbour-
ing Bangladesh, it is 12 bottles.
ABC has over 60% of the total domestic market with 60 franchise bottling plants in the
country. Under the negotiated terms, CCA will market ABC brands along with their own in-
ternational brands in the domestic as well as the world market.
You are the vice president, marketing of this new alliance. At the next board meeting, you
have to present your marketing plans and strategies, highlighting the following points:
(a) Total growth in the volume of business ABC is expected to have to be at least 100% in
the domestic market. Where would your thrust be to achieve this?
(b) Advertising/promotion budget of `120 crore is to be allocated among the major media,
business and consumer publications. Expenses on TV, radio, merchandise incentive, and
outdoor displays should be such that sales/advertising expenses ratio is at least 30 : 1.
(i) In view of the modified Packaged Commodity Act and intense competition, what
should be the range of pack sizes to ensure optimum advantage in sales.
(ii) Identify the key tasks and positions to ensure organisational effectiveness.
3. Traditional brand management in many organisations is undergoing a change. Brand managers
allocate budgets, and develop new brands and the category. What advantages/disadvantages
do you see in this situation? (LO3)
4. A few years ago, an enterprising venture set up a business to market the ‘holy water’ of the river
Ganga. The product did not click in the market. Now, years later, another enterprise engaged
in the bottling of soft drinks, after a careful evaluation of the business prospects, has decided
to launch the ‘holy water’ collected straight from the Himalayan peak ‘Gangotri’. The product
is positioned as pure, safe, drinkable water packed in plastic pouches/bottles. The MRP of the
product is `8 per litre.
The total market for mineral water is estimated at `600 million annually and is projected
to be growing at the rate of nearly 50% per annum. The four metro cities account for nearly
50% of the total volume of sales while the rest is spread out. The market leader is Bisleri with
a market share of nearly 90% while the rest is divided among Bailey and several others.
You are appointed as the new marketing controller and you have to present your marketing
plans and strategies to the Board of Directors. Critically evaluate the marketing opportunities
and submit your plan highlighting among other things—
(a) first five years sales and operating profits estimates
(b) the marketing organisation, indicating the key positions
5. M/s Alpha Limited, leaders in the TV industry, have decided to diversify into refrigerators,
cordless telephones and microwave ovens. The market potential estimated for each of these
(LO1, 2 and 3)
Product Market Potential (`) Annual Growth Rate

Refrigerator 750 crore 15%
Cordless telephone 500 crore 20%
Microwave oven 500 crore 10%
A look at different zones indicates that the North accounts for 30%, West 40%, South 20%,
and East 10% of the market potential. In the refrigerator market, intensity of competition is
very high with well established brands like Godrej, Kelvinator, BPL, Samsung, and LG in the
fray. Price and advertising wars are common in this industry and increasingly dealer margins
are under pressure.
However, this is not the case in respect of the other two products.
The company’s marketing research indicates that there are 3,500 dealers all over India. Of
these, 30% are in the North, 40% in West, 20% in South, and balance in the East. Further,
there are 30% dealers in A category, 30% in B category, and balance in C category. Dealers are
insisting on a margin of 15% which is far higher than the industry average and the company is
not favourably inclined towards this demand.
— If you were the chief of marketing of this company, what kind of marketing organisation
would you like to evolve?
— How many marketing people will you require?
— Evolve a marketing strategy to successfully launch your products.
— Please note that the company works for 300 days in a year.
CHAPTER
MARKETING PERFORMANCE
AND CONTROL
25
LEARNING OBJECTIVES
LO1 Explain the linkages between strategy and implementation
LO2 Describe factors in marketing performance assessment
LO3 Describe the tools to measure marketing performance
In Practice
The Right Ingredients of Performance—For the Great Taste of Success
An annual marketing conference of a leading consumer firm was held in Kullu–Manali in April 1993.
The firm had launched a new brand of snack food in 1991, with an aggressive advertising, sales
promotion, and distribution strategy. But the results thus far showed that the company had obtained
only 2% market share and a sale of just `2 crore. This fell short of the targeted performance of 5%
market share and a sale of `5 crore within two years of the launch. The vice president, Marketing,
was worried and so was the product manager who had planned to introduce several snack foods
which would revolutionise the market. The branch sales managers, who had just completed their
presentations, were of the view that the major competition was from home-made snack foods and
freshly made traditional Indian snacks like samosas and vadas sold by sweet marts, and that the
company needed to give more discounts to the trade for pushing the brand at the retail level. They
also needed more merchandising and point of purchase material to remind the customer of their
brand. But marketing research showed that 70% of the target market could recall the brand without
being aided, had tried it, but did not find anything exciting about it. The product manager was
contemplating adding new flavours to this snack food of potato chips. He thought that flavouring
it—lemon, garlic, and typical Indian chaat—may push up sales and so may a variety of pack sizes.
But initial sales had dampened his spirits and the management did not seem too excited to put in
more money in a product, that faced competition from home made items and other small brands.
Likewise, in 1986, Parle had to withdraw their Big Bite from the market, despite an aggressive
and successful launch, high brand awareness, and trial in the target market. Low repeat sales and a
continuous decline in the sales prompted the company to withdraw from the food market. Research
showed that wide variation in product quality at different fast food outlets had contributed to nega-
tive perceptions.
Marketing Performance and Control 583
In both these cases, new products did not succeed not because of strategy but somewhere down
the line the firms had failed to appreciate implementation issues or perhaps could not translate strat-
egy into action. As these cases bring out, it is not just necessary to have a good strategy; it is equally
important to have a well thought out implementation plan and continuous monitoring of how well
the firm and the brand are doing against the targeted performance. What happened in these two
cases is not unique only to these firms, but is commonly seen in many other firms. Very little thought
is given to the so called ‘nuts and bolts’ aspect of marketing planning, strategy, and structure.
INTRODUCTION
Until now, we have focused on planning, strategy, and issues of structure in marketing management.
We now turn to the administrative aspect of the marketer’s function. An excellently planned strategy
could fail to deliver results if the marketer has not worked out its implementation or if people within
the marketing organisation fail to implement it. The marketer may not be able to plan for the future if
he/she does not know how to measure performance. In any managerial task, performance measurement
and control is one side of the coin, the other is planning.
In this chapter we shall focus on the issues of these implementation, performance, and control.
MARKETING STRATEGY AND IMPLEMENTATION
LO1 Marketing strategy and implementation are the two ends of a continuum and
Explain the linkages it is difficult to draw a line of distinction between the two. For example, a
between strategy and problem of morale in the sales force is both a problem of strategy and imple-
implementation mentation. It is a matter of strategy and policy when a compensation issue
has to be decided, when issues in career development have to be considered,
or territory management dilemmas have to be solved. But territory alloca-
tion and sales person performance review and counselling are implementation problems. Hence, it is
necessary to understand that marketing strategy and implementation affect each other and, in turn, the
firm’s performance in the marketplace, as shown in Fig. 25.1.
Figure 25.1 Linking Advertising/Marketing Expenditure to Brand Values

The link between strategy and implementation is today increasingly appreciated by companies,
organisations and even governments. Companies today, look for not just a strategist but for profession-
als who excel in execution. Execution is a discipline and integral to strategy. It is the most significant
component of the CEO’s role. Mr. K.V. Kamath CEO of ICICI Bank once stated that execution creates
differentiation among firms. This is most unlike the earlier belief, when strategy was believed to create
the difference. Today strategy is a ‘commodity’, for all companies within an industry are likely to adopt
any of the strategies of customer intimacy, product leadership or operational excellence.
In order to develop a strong execution plan1, the firm needs to focus on the following:
Leadership
Development of leadership committed to execution is of essence to execution excellence. The execu-
tional style of leadership involves knowing one’s people and also understanding the business of the
firm. It is the task of the leader to develop clear goals and priorities. Facing reality is important. Most
people avoid facing the reality because it is uncomfortable. Leaders who excel in execution are the ones
who do not live in the denial mode but always confront realities and prepare action plan to convert a
reality into an opportunity. A good leader is one who is able to take proactive steps. The leader has to
follow through his plans to ensure that performance is on target and he/she must reward the performers.
He need to build on people capabilities.
Delegation always help achieve results. It also releases quality time to leader who can then concen-
trate on more critical components of his/her role.
Framework for Cultural Change

Organisations need to develop a culture of execution. This requires a change in the way the organisation
works and thinks. The elements of this change involve a plan to change or modify people’s behaviour
so that they deliver results. This involves letting them know what the management wants from them
i.e. what results the management is looking for? It is important to discuss with the employees how to
achieve these results and wherever needed, coach them and reward them for performance. Performance
alone should determine the reward structure. Non-performers should be first given an opportunity to
change and deliver, failing which they should be asked to leave the organisation.
Hence execution excellence is based on leadership, people quality and defining operations in clear
terms so that all employees are able to deliver the desired results. Execution is today fundamental to
leadership.
Further, implementations problems in firms can be attributed to the following factors2.
(a) Functions
(b) Programmes
(c) Systems
(d) Policy directives
Marketing functions considered by Bonoma are the grassroot ones like selling, trade promotions,
and distributor management. Most firms have difficulty in handling these functions because they fail
to pursue them in a determined way. Generally, the top management believes that these functions will
be performed by someone else in the hierarchy and thus ignore them until a full blown crisis confronts
them. Problems in marketing functions may also arise due to structural issues, like direct versus indirect
marketing, and the failure of managements to pick one function for special concentration and compe-
tence. Rather, they try to do everything and thus emerge as ‘globally mediocre’ firms.3
At the programmes level, firms have to appreciate that until their marketing and non-marketing
programmes blend, an excellent marketing strategy may fail to deliver results. In fact, a lack of coordi-
nation between marketing and non-marketing programmes can become an excuse for non-performance
by the marketing team.
The marketing systems problem is indeed a serious one, particularly when it comes to the grassroot
level like sales reporting systems. Rituals, politicisation, and unavailability characterise this system’s
problems. In fact, because of these problems it is not uncommon to come across managements that have
dumped these systems. But they too have not benefited.
Problems relating to policies occur when the organisation lacks a marketing culture and hence every-
thing other than the customer occupies centre stage in the management’s thinking. Words like ‘customer
is king’ become hollow and fail to give a direction to the organisation and hence the marketing team
feels discouraged about putting in its best performance.
Overcoming Implementation Problems

Most of the implementation problems can be overcome through a focused approach and working to
create a core organisational value of customer care. Much of this problem is sorted out by mission
statements and interactions. Continuous interaction, formal and informal, can sort out the problem of
coordination among marketing and non-marketing programmes.
Training and development of marketing personnel and distributors in key marketing functions can
also help in developing their skills and providing a focus to their approach to the product market.
Planning involving everyone (from the lowest level right up to the top) and gaining commitment
from all concerned to meet targets, can also help solve problems of implementation. Good leadership
is another key to overcoming implementation problems.
WHAT TO MEASURE IN MARKETING?
LO2 Traditionally, marketing performance has been measured in terms of mar-

Describe factors ket share, sales, and profits. Hence, most control measures or performance
in marketing measurement tools have been designed with these parameters in mind. But
performance the contemporary view of marketing demands other performance indicators.
assessment For example, increasingly, firms are realising that customer satisfaction is
important for a pre-eminent place in the market. Since competition is in-
creasing, it is important for the marketer to know what the customer is buying, why is he or she buying
a specific brand, and also his/her perception about it. Since firms face a resource crunch, marketing
expenditure will increasingly be subjected to closer scrutiny and hence marketing effectiveness will be
an issue that the marketer will have to assess and work for. As the environment becomes more complex
and competitive, products become commodities because of standardised technology and the ‘me too’
phenomena. Further, as international trade barriers give way to free trade across countries, manage-
ments will have to continuously assess the marketing fit of their firms. Key questions like opportunities
and threats to the firm and whether the organisations objectives, strategies, tactics, and structure can
help it to meet them must be answered by management teams. Thus, specifically, the marketer needs
to measure the following:
(a) Customer satisfaction
(c) Market share

(d) Sales
(f) Marketing effectiveness

(g) Preparedness of marketing organisation to respond to external environmental challenges
Measurement in marketing is critical to establish marketing credibility. For this purpose, new disci-
pline called Marketing Analytics is today gaining ground. Conventionally, it has been believed that in
order to understand marketing performance, one needs to research the market, sales and the distribu-
tion functions. Marketing analytics goes beyond research. It is today a combination of data, analytical
tools and technology. Marketing analytics today greatly benefits from data mining and warehousing
technologies. The earliest form of relating to the customer was data based marketing. However, soon
it got replaced by direct marketing and customised marketing which extensively used data mining and
warehousing technologies. Data mining and warehousing was used for Customer Relationship Manage-
ment. However, the twenty first century view is to use this entire information for understanding how
well the firm’s marketing mix performed. Marketing analytics, according to Hitachi Consulting, fo-
cuses on coordinating every marketing touch point to maximise customer’s experience with the brand.
Hence, one needs to understand how the customers move from awareness to interest to considering the
purchase and making the purchase decision. The firm needs to measure at each stage.
Marketing analytics thus requires more than running a data base. It mandates a marketer to under-
stand the meaning of different elements of the database. Putting them in the context of the company
goals or marketing campaign is the most important aspect of the entire process. Marketing analytics
not only demands a good data but also mandates a good understanding of it.
One of the ways to understand how marketing is doing is termed ‘Customer DNA profile’. Yahoo is
one the major users of customer DNA profiling technique. It uses this profile to segment the market on
the basis of internet demographics, product interest and browsing patterns. This information is shared
by Yahoo with its business customers. This helps them to develop customised communication and
products. Likewise Google does the same4.
The significance of measurement becomes far more critical when planning marketing budgets
especially relating to marketing communications. The recent research 5 introduced the concept of
advertising turn over ratio. This ratio measures the efficiency and effectiveness of the firm in converting
its advertising expenditure into a brand value. This ratio presumes an understanding of the brand values
and availability of advertisement expenditures in public domain. This ratio is calculated using the
following formula:
Advertising turnover Ratio = Brand Value/Advertising Expenditure.
The same analytic can be extended to marketing expenditure and hence a market efficiency ratio can
be calculated by using the formula.
Marketing Efficiency Ratio = Brand Value/Marketing Expenditure
In order to further understand how well the brand is doing, it is important that advertising expenditure
or marketing expenditure is made available on a brand basis and not aggregate basis.
In order to understand the brand value, one of the suggested approach is using Interbrand Methodol-
ogy for brand valuation or using the financial analyst to assess the value on regular basis.
Based on this understanding of advertising turnover ratio or marketing efficiency ratio, following
four scenarios may emerge.
Brand value and advertising expenditure have increased over a period of time. But the rate at
which brand value has increased is much more than that of the advertising expenditure. One infer-
ence of this could be that the brand is pulling in the market and the advertising is ensuring that it
does not slip in the consumer’s awareness and preferences.
Brand value is increasing but the advertising expenditure is on the decline. This could happen
when the brand has a strong hold on the market and the management sees no value in advertising.
In a highly competitive market, this perhaps may not be sustainable on a long term basis and,
hence, could create problems for the brand in future. Hence, the above mentioned research terms
such situations as being brands with uncertain future, as one does not know how long this market
situation can last.
Brand value is decreasing but the advertising expenditure is increasing. This clearly shows brand
decay and, perhaps, to a large extent, insensitivity on the part of brand management. This needs
to be corrected immediately.
Both brand values and advertising expenditures are decreasing. This is also a case of brand
neglect. There have been several consumer brands in the past that have suffered with similar
neglect and have died over a period of time6.
Thus measurements in marketing today, are critical not only for diagnosing and understanding how
well the firm is doing but also for predictive planning. Hence the use of predictive analytics7 in market-
ing measurements.
Kotler8 refers to four types of controls, observable in marketing as shown in Fig. 25.2. These controls
have different objectives and tools and are used by different levels in the management hierarchy.
Figure 25.2 Marketing Strategy and Implementation Problems Diagnosis

Source: Thomas V. Bonoma, ‘Making Your Marketing Strategy Work’, ibid., p. 459.
To measure these, there are four types of controls in place in most successful marketing firms. As
shown in Exhibit 25.1, these controls have different objectives and tools. Also, each of these controls
exist at different levels in the management hierarchy. The four types of control, as mentioned by Kotler9
are:
1. Annual Plan Control: Used by the top or middle management to evaluate actual performance
against targeted performance and analyse variances, if any. The tools used here are sales analysis,
territory, customer segment, trade channel, and order size.

Used by both line and staff executives or marketing controller to assess the
effectiveness of money spent on sales force, advertising, sales promotion, and distribution.
Used by top management to examine whether the company and marketing
alignment with the external environment is perfect. Tools used here are marketing effectiveness
analysis is conducted.
Let us now examine the tools for measuring marketing performance.
Exhibit 25.1 Types of Marketing Control
Type of Prime Purpose of Control Approaches

Control Responsibility
I. Annual plan Top management To examine the variance between Sales analysis
Middle management planned and actual performance Market share analysis
Sales to expense ratio
Financial Analysis
Attitude tracking
II. Profitability Marketing Chief To examine the sources of profit Profitability by: Product/
and loss territory, customer group/
trade channel, order size
III. Efficiency Marketing Chief To evaluate and improve Efficiency of: Sales
the efficiency and impact of force advertising, sales
marketing expenditure promotion, and distribution
IV. Strategic Top management To examine whether the company Relationship Barometer
goals is pursuing market goals and Marketing audit
products and channels objectives
Source: Adapted from Philip Kotler, ‘Marketing Management’, Analysis, Planning, Implementation and Control,
p. 730.
TOOLS OF MEASURING MARKETING PERFORMANCE
LO3 Annual Plan Control

Describe the tools to This is, by far, the most common control mechanism that exists in all firms.
measure marketing This helps the firm settle the following issues:
performance (a) What did we set out to achieve? (objectives)
(b) How far have we been able to achieve it? (actual performance)
(c) What contributed to our performance? (performance diagnosis)

(d) How do we correct the situation, if so required?
(e) Where do we go from here? (future planning)
As shown in Exhibit 25.1, the marketer uses five tools to assess plan performance—sales analysis,
market share analysis, sales-to-expense ratio, financial analysis, and customer attitude tracking studies.
Sales Analysis This refers to measuring actual sales as compared to targeted sales. As one com-
pares actual to target sales, one may observe a variance. For example, though the target sales for 2003–4
for a company may be `100 crore, actually it might have sold goods worth `80 crore only, thus leading
to a variance of 20%. It may find that though it planned to sell 1,20,000 units, actually it sold only
80,000 units, thus leading to a variance of 40,000 units, or 33.3%. Why did this variance occur? A de-
tailed analysis of competition and customer buying behaviour in different territories may provide some
answers. An analysis of individual sales person’s performance may also throw some light on where the
variance was the maximum. Also, the firm may consider relooking at its forecasting techniques. It is
important that the firm does an analysis of sales variance so as to help it correct the situation in future.
Sales analysis refers to measuring actual sales as compared to targeted sales.
Market Share Analysis Often sales analysis does not reveal how a firm has done relative to
competition. Many a time, change in sales may occur due to factors outside the firm’s control. For
example, a shutdown in a competitor’s plant may lead to an increase in the firm’s sales. Or improved
economic conditions may lead to market growth which will positively affect all firms’ sales and not
just that of one firm alone. The marketer needs to analyse his/her firm’s relative market share. If it has
increased, then the firm is gaining a competitive edge.
The trouble with this analysis is the lack of data in many industries. This is
The presence of the
because in most industries small-scale firms and the unorganised sector play a
unorganised sector is a major
major role and there is hardly any data on their market share. In such a situation stumbling block in getting a
one has to make a guess about how much of the industry sales can be attributed proper market share analysis
to them. The marketer of a large firm may be considering his/her firm’s share done.
only among large organised sector firms. He/she should also perform a product-
wise, segment-wise, and region-wise market share analysis.
Marketing Expense to Sales Analysis How can the management be certain that they are not
overspending on marketing? This is a question that bothers almost all firms. One useful way is to look
for the marketing expense to sales ratio. When expense is further analysed, a marketer may be able to
calculate:
advertising to sales ratio
sales promotion to sales ratio
sales force cost to sales ratio
distribution expenses to sales ratio
sales administration to sales ratio
In companies that spend significant resources on marketing research, it may be worthwhile to know
the marketing research to sales ratio as well.
The marketer needs to keep a close watch on these ratios. Variations over a period of time should be
investigated and corrective measures taken. At times, industry practice serves as a basis for a benchmark
in marketing expense to sales ratio. If a firm has a variance against this benchmark, then it needs to be
investigated.
Financial Analysis Often a good financial analysis can silence the marketing critics. A marketer
needs to analyse all the factors that affect the firm’s rate of return, return on assets, as also the firm’s
financial leverage. A marketer should look at ways and means of improving the firm’s financial lever-
age in the market.
Customer Attitude Tracking The above measures are quantitative and do not reflect the more
critical aspect of customer satisfaction. Today, increasingly, research is pointing to the need to track
customer satisfaction and attitudes. There are three ways to track customer satisfaction.
Customer Surveys This is an old and established way of assessing customer satisfaction. Some
firms send out a questionnaire or call the customer to know how satisfied he/she is with the purchase.
Japanese firms like Nissan carry out this survey periodically with their customers immediately after
the purchase and once more after six to eight weeks of the purchase.
A feedback to the sales force on customer satisfaction helps in building its morale to fight
competition.
Customer Panels Some firms today have customer panels who agree to communicate their attitudes
periodically either through a questionnaire, through an investigator, or over telephone.
Feedback and Suggestion Systems Customer feedback is an important source for improvement.
Market driven companies actively solicit feedback, complaints, and suggestions from their customers
and reward them for the same. Customer feedback is one sure way of knowing how he/she perceives
the firm’s offer relative to competition. How firms react to these feedbacks determine whether they are
proactive or reactive in their approach to customer satisfaction.
Profitability Control
With increasing competition, firms are finding their profit margins reducing. They look for profit
making strategies and increasingly the marketer will be called upon to determine profit from products,
territories, and even trade channels. Some leading firms have already moved towards a system of
assessing region-wise profits. In order to develop a system for profit control, Kotler suggests three
steps.10
Identify the Functional Expenses This stage involves identifying all functional expenses
incurred in selling a product in a defined territory or through a channel. Typically, in a region, these
expenses are salaries, office rent, warehousing cost, insurance cost, taxes, transportation and conveyance,
travelling, commissions, advertising and sales promotion, entertainment, and packing, if any. From the
total sales revenue generated in the region, the cost of goods sold (or all costs incurred by the head office
until the time goods reach the branch or the territory) is deducted. This gives gross contribution on
goods sold. From this, all regional expenses are deducted to arrive at profit contribution from the region.
Let us illustrate with an example. Suppose, a firm had a sales turnover of `1,00,000 in the western
region. The cost of goods transferred from a factory to the region was `50,000. The regional office had
the following expenses:
(Rs)
Salaries 10,000
Rent 3,000
Travelling 2,000
Advertising 2,000
Now, gross and net profit contribution to the firm’s profit from the western region will be as follows:
Total sales 1,00,000
Less: cost of goods sold 50,000
Gross contribution 50,000
Less:
Salaries 10,000
Rent 3,000
Travel 2,000
Advertising 2,000
Total expenses 17,000
Net profit contribution from western region 33,000
Likewise, this exercise could be done at the corporate level to determine marketing’s contribution
to overall profits. This can also be done across channel types.
Assign the Functional Expenses to Marketing Entities The next stage is to assign these
functional expenses to marketing entities. This becomes important when expenses are incurred on non-
marketing entities too. For example, assume that in the western region office of the above firm, there is
an accountant, a secretary, and a peon who do not perform any marketing activity. Their salaries account
for 30% of the salary bill. Also, rent needs to be apportioned to marketing even if the premises are being
used for other corporate functions too. And so also for travelling. Now, the picture looks as follows:
Gross contribution from western region `50,000.
Selling Advertising Non selling

Salaries 5,000 2,000 3,000
Rent 1,500 — 1,500
Travelling 1,000 500 500
Advertising — 2,000 —
7,500 4,500 5,000
Now, we know that about 29% of western region’s expenses are non-selling and only 44% of the
total expenses are on selling.
Prepare a Profit and Loss Statement for Each Marketing Entity Now, the marketer
can prepare a profit and loss statement for each marketing activity. For selling activity in the western
region, it may look as shown below:
(Rs)
Total cost of selling 7,500
Expense per unit sold 0.75
Expense per call 7.50
Total sales revenue 1,00,000
Cost of goods sold 50,000
Gross profit contribution 50,000
Less:
Expenses 7,500
Selling 4,500
Advertising 12,000
Net profit contribution from marketing in the western region 38,000
Number of sales calls made in the period 1000
Number of units sold 10,000
This type of exercise can be done on the basis of products and trade channels also.
This exercise helps the marketer focus on some key issues like:
(i) Identifying loss making territories, products, segments, or even channel types
to differentiate between direct costs and full costs because it will be necessary for determining
whether all costs should be absorbed by marketing; that is, are there costs which are directly trace-
able to marketing and the others that cannot be traced or allocated to marketing? For example,
an advertising cost has to be recovered over a period of time. But should the advertising cost be
equally apportioned to all regions? An analysis may reveal that it is unwise to do so. For example,
a portion of the advertising costs may be incurred on corporate and product advertisements placed
and accounting principles dictate that this portion should not be added to regional costs and only
Efficiency Control
These mechanisms help the marketer determine if there are better ways of performing a task. These
mechanisms or systems exist in determining sales force, distribution, advertising, and sales promotion
efficiency. We have discussed most of these systems in earlier relevant chapters. They are now listed
below.
Sales Force Efficiency Indicators
1. Average number of sales calls per sales person per day
2. Average number of sales calls per sales person per customer group (as in A, B, and C category of
customers)
3. Average time spent per customer
4. Average time spent on travel
5. Return on time invested on different customer groups
6. Number of new customers added
7. Number of customers lost
8. Volume of potential business lost to competition
9. Average cost per sales call
10. Sales force cost as a% of total sales
Advertising Efficiency Indicators
1. Advertising cost per thousand target customers reached by the media
2. Advertising recall as a percentage of the total target market reached by the campaign
3. Top of the mind awareness of the brand
4. Number of enquiries generated by an advertisement
5. Cost per enquiry
The last two are relevant in direct marketing and industrial product advertising.
Distribution Efficiency
1. Market reach of the channel member as measured by the number of customers served by it.
2. Sales extraction from the channel member as measured by the brand’s sale to the total product
sales by channel members.
Strategic Control
These systems help the management determine the alignment between the firm’s marketing and the
external environment. They specifically help resolve issues of obsolescence in strategies, structure,
policies, programmes, and systems.
There are two tools that can help management in their control functions. They are the customer rela-
tionship barometer and marketing audit. These instruments are discussed in the marketing instruments
section.
The relationship barometer aims to assess how well a customer is integrated in the organisation. It
provides inputs on the following parameters:
1. Core values of the organisation and their internalisation. Here what is sought to be assessed is
whether the organisation cares for its customer. Is “customer” just a cliche? Do the actions of the
organisation support customer primacy?
2. Organisation structure—decision making for customer primacy
3. Organisational policies
4. Organisation systems
5. People skills, attitudes, and knowledge
6. Technology
7. Strategy for customer retention
Marketing Audit Marketing audit is a ‘comprehensive, systematic, independent and periodic
examination of a company’s—or business unit’s—marketing environment, objectives, strategies and
activities with a view to determine problem areas and opportunities and recommending a plan of action
to improve the company’s marketing performance.’
It is necessary to conduct this marketing audit regularly and not just during a crisis. As far as pos-
sible, firms should take outside help to conduct this audit as it can give the management an unbiased
perspective. Although Indian firms have yet to formally institute the system of marketing audit, infor-
mally, this exercise is undertaken at the time of annual marketing review. But since it is done internally
by marketing people, it does not have high credibility with top management. It is not a very long way
off when more and more firms in India will put this system in place.
SUMMARY
‘Execution/Implementation is a discipline and integral to the strategy and also is a differentiator.
Execution excellence is based on leadership, people quality and defining operations in clear terms
so that all employees are able to deliver the results.’
Marketing implementation, performance review, and control are issues as important as those of anal-
ysis, planning, strategising, and organising. Marketers need to understand the strategy implementa-
tion continuum and the fact that good implementation is critical to the success of marketing strategy.
Customer satisfaction has to be another performance measure besides more traditional ones like
market share, sales, and profits. Further, marketing effectiveness should also be assessed. Marketing
Analytics goes beyond research. It combines data, analytical tools and technology of data mining
and warehousing. It focuses on coordinating every marketing touch point to maximise customer
experience with the brand. Customer DNA profile is one of the most commonly used tool today.
Similarly, there are other analytical tools like that of marketing efficiency ratio that can help the firm
connect brand performance with marketing expenditure. Firms use several tools at different levels
of management. Annual plan controls is an operational tool used by middle and senior management
to determine where the firm is, why it is there and what can be done to improve its performance.
Profitability control is a measure to assess marketing’s contribution to the firm’s overall profits.
Efficiency control measures efficiency of key marketing tasks like selling, distribution, and promo-
tion, while strategic control systems help strengthen the firm’s linkage with its external environment.
POWER POINTS
1. Marketing implementation problems in most organisations can be tracked to (a) marketing
function, (b) marketing programmes, (c) marketing systems, and (d) marketing policy direc-
tives. (LO1)
2. Execution is a discipline and integral to strategy. (LO1)
terms so that all employees are able to deliver the desired results. (LO1)
4. Marketing analytics focuses on coordinating every marketing touch point to maximise

customer’s experience with the brand. (LO2)
5. One needs to understand how the customer’s move from awareness to interest to considering
the purchase and making the purchase decision. (LO2)
6. Marketing Analytics requires more than running a database. (LO2)
7. The tools used in annual plan control are (a) sales analysis, (b) market share analysis, (c) sales
(LO3)

-
ance products for different market segments and a well thought out strategy for Indian market
it has not grown. Its market share continues to be under 10%. The company is backed by an
company products as no one had approached them. How will you turn around the situation in
this company? (LO1)
2. Vodafone recently acquired Hutch share in Hutch Essar for a value of $11.1 billion. Some
analysts feel that it was high. If you were to advise Vodafone on whether it was a right value,
what approach would you take and why? (LO2)
3. Tata Motors acquired Jaguar and Land Rover for a price of $2.3 billion. Tata Motors now
wishes to turn around these luxury brands. What marketing measures it should use to under-
stand the brands performance in the world luxury market? (LO2 and 3)
channel strategies? (LO2)

5. Use Marketing Audit for assessing marketing performance of one of the companies of which
you are familiar. (LO3)
Section 6
Broadening Horizons
Section Outline
Chapter 26: Global Marketing
Chapter 27: Service Marketing
Chapter 28: Rural Marketing
T he last part of the text of this book deals with the current issues in marketing.
In Chapter 26, we begin with a discussion on global marketing—the imperatives
of globalisation and its implications and go on to the differences between exporting,
international marketing and global marketing, the decision areas in the global market,
and conclude with information and communication technology and its role and impact
on global marketing, and global firms from emerging economies. Chapter 27 deals with
Service Marketing—how it is different from consumer marketing, how, here, the marketing
mix is influenced by consumer expectations, how the marketing mix can help enhance
customer loyalty and, lastly, how brands are built in the service industry. Chapter 28 on
Rural Marketing deals with the differences between rural and urban markets and the
importance of the different elements of the marketing mix for the rural markets. The last
chapter of this part and the book is ‘green marketing’. Here we deal with the significance
of ecology in taking marketing decisions, the difference between conventional and eco-
logical marketing and, lastly the dynamics of ecological marketing.
CHAPTER
GLOBAL MARKETING
26
LEARNING OBJECTIVES
LO1 Explain the rationale and implications of globalisation
LO2 Describe firm orientation for global markets
LO3 Formulate global marketing decisions
LO4 Evaluate growth and strategies of global firms from emerging economies
LO5 Explain organising for global markets
In Practice
Making of an Indian Global Company—The case of Dr. Reddy’s Laboratories
Dr. Reddy’s is today India’s first major global pharmaceutical company which has grown on
the strength of acquisition, research and development, proprietary knowledge, market devel-
opment and global partnerships. It is just in a span of 3 decades that Dr. Reddy’s is today one
of the foremost players in generics business. It aspires today for leadership in key markets in
generics business. The strategy that company would be adopting is that of improving its depth
in key market through portfolio expansion and excellence in supply chain. It also aspires to
emerge as a partner of choice by leveraging its intellectual property, adoption of latest tech-
nology and achieving cost leadership. The company established a drug discovery program in
1893. As early as in 1987 it obtained its first US FDA approval for producing Ibuprofen API and
started its formulations operations. It became the first Pharma company to export Norfloxacin
and Ciprofloxacin to Europe and far East in 1999. It was in 1995 that the company filed its first
patent in the US. In 1999 the company acquired American Remedies business in India. 2005 saw
Dr. Reddy’s acquiring Roche’s API business in Mexico and in 2008 it acquired BASF formulation
unit in Louisiana USA and DowPharma’s small molecule business at Mirfield and Cambridge,
UK. In 2013, the company acquired Netherlands based Octoplus—NV, a specialty Pharmaceu-
tical company. In terms of partnership the company has developed relationship with Merck,
Scerono, for development and commercialisation of bio similar, GSKs for emerging markets,
Merck, Proscar® and Zocor®.
Today the company’s turnover is `117 billion. The company is poised to emerge as a leader
in the Pharmaceutical industry.
Similar to Dr. Reddy’s story is that of several other companies from emerging markets which
are today the world leaders. The strategies used are a combination of affordable innovations,
acquisitions, development of proprietary products, collaborations and partnerships. Some of the
companies from emerging economies which are well-known are Haier, Lenovo, Huawei tech-
nologies from China, Tata group companies, Bharat Forge, Jindal Steel, Infosys from India and
SABMiller from South Africa.
These companies and the economic power of emerging economies indicate a global shift of
power, where it is not just the US and the OECD countries that will determine the future of the
world economy. Consumption and production are today as much a characteristic of emerging
markets as that of US and other developed country markets. The 21st century is marked by a
shift in the global power equations. The new global power structure is not bipolar or unipolar
rather it is multipolar in which six economies—US, China, India, Brazil, Russia and South Africa
(BRICS)—are playing the leading role in world economy. Example of this is the establishment
of BRICS bank which will focus on needs of these economies—China, India and bloc of South
Africa, Brazil and Russia. In a way 21st century is marked by a large number of markets each vy-
ing for the top slot. Companies would now have to develop their strategies for the world market
which will also have to take into consideration their presence in web world. In a way therefore,
entry strategies would go beyond the known routes of licensing, exporting or acquisitions or set-
ting up of subsidiaries for manufacturing and marketing purposes. It will also necessarily include
internet and mobile marketing strategies.
INTRODUCTION
All along in this book there is mention of a turbulence in the marketplace. Today, this turbulence is
being witnessed across the world. Fuelled by lowering of entry barriers, advancement of information
and communication technology (ICT), and increasing homogenisation of consumption values, firms are
realising that the distinction between domestic and foreign markets is getting blurred and hence they
have to plan their operations for global markets. This is true for all firms, irrespective of their size and
hence, this chapter on Global Marketing.
A glance over Table 26.1 would show that 4 of the top 10 India’s global companies are from the Tata
Group. In fact, the group has emerged as India’s most global industrial group in the last one decade.
The group has been aggressive in terms of acquisitions, partnering and innovations. For example, Tata
Steel which is today ranked 2nd in most global Indian companies, emerged as a global player on the
strength of its acquisition of Corus, which is now called Tata Steel Europe. Also today it is among
the top 10 global steel companies in the world with annual crude steel capacity of 28 million tons
per annum. It is today world’s most diversified steel producer with operations in 26 countries and
commercial presence in over 50 countries. Tata Global Beverages emerged on the global scene again
on the basis of its acquisition of James Finlay, Tetley and other brands including Himalayan brand in
mineral water. It has partnered with Starbucks, a leading US coffee chain. Same holds good for Tata
Motors and Tata Communications. Another perspective that the data in Table 26.1 reveals is that global
Indian companies are primarily in commodity and services sector.
Table 26.1 Most Global Indian Companies

Rank Company Sector Revenues from % of Revenue from
foreign operations foreign operations to
(Rupees Billion) total revenues
1. ONGC Oil and hydrocarbon 221 97%
2. Tata Steel Steel 977 73.5%
3. Tata Global Beverages Beverages 46 69.7%
4. Motherson SUMI Systems Auto Component 105 70.5%
5. HCL Technologies Information Technology 199 96%
6. Tata communications 107 75%
7. Hindalco Companies Ltd. Aluminum 618 76.5%
8. Suzlon Energy Energy & Power 133 63%
9. Tata Motors Auto Mobile 1115 67%
10. Dr. Reddy’s Laboratories Pharmaceuticals 80 82.5%
Source: Based on www.rediff.com, July 17, 2013.
RATIONALE AND IMPLICATIONS OF GLOBALISATION
LO1 Rationale for Globalisation

Explain the rationale The last decade of 20th century witnessed acceleration of globalisation. This
and implications of was mainly fuelled by developments in communication technologies and
globalisation lowering of entry barriers across the world. The direct implications of this
are homogenisation of consumption and increased inter firm rivalry at the
global level. Competition is no more restricted to one form or type of firms. A customer in India, for
example ordered wares from Amazon.com even before it entered Indian market in 2014. Likewise s/he
would buy global brands even if they did not have operations in the country. The gap between developed
and developing world got reduced primarily due to internet, mobile phones especially smartphones and
tablets and satellite television and direct to home (DTH) telecast. Let us review the rationale of and
implications for firms of this significant change.
Political Rationale Since 1990s world has witnessed significant political developments which
have had an impact on markets and consumer lifestyles. One major change was that of lowering of
entry barriers. Countries opened up their markets to global firms and encouraged their home firms to
raise their standards and compete with global firms. The focus of economic policies was to attract for-
eign direct investments and brands. Retail policies in many countries changed to bring global brands
to their markets.
Another shift visible was with regard to technical standards. Increasingly countries adopted compat-
ible technical standards. This was most widely visible in electronics and mobile phones.
Likewise is the case of internationally standardised freight containers. This standard has enabled
all the components of a transport system—railways, air and sea transport, highways, and packages to
interface efficiently. The standardised documents accompanying the cargo identify sensitive or danger-
ous cargoes and makes international trade cheaper, faster, and safer.
Similarly, ISO, standardisation of the format and size of banking cards, credit cards, and telephone
cards, same symbols for automobile controls in cars all over the world are some other examples of
internationally accepted standards.
This push for compatible standards will continue to grow in all sectors of industrial activity because
of its ability to reduce or eliminate the ambiguity in business transactions.
The need for common marketing regulations is also today driving the change. More countries
are accepting this need and hence a push for regionalisation of trade. NAFTA and EC are two such
examples.
Economic Factors The most significant economic change in the last one decade besides lowering
of entry barriers was the softening of duties and taxes on imported goods. This reduced the final price
to the consumer and helped in creating demand for global brands across the world. It was not just India
where this happened. It happened in almost all Asian and South American countries.
Low cost centres in Asia also attracted investment from global firms who now set up their produc-
tion and back office operations in these countries. In a way it was the era of capital, technology and
jobs migrating from US and Europe to these countries. This migration of resources created employment
opportunities in Asia especially China, India and Vietnam. Employments led to generation of incomes
which in turn fuelled demand for products and services. For example, HSBC set up a back office opera-
tions in Sri Lanka and Mumbai. So did Goldman Sachs and others. Likewise manufacturing firms set
up their production facilities in these countries and used them for exporting their products to the world
market. The third party manufacturing now gained prominence. Also outsourcing grew exponentially,
as a result of which today there is not one single product which can claim to be made in totality in one
single country. This today has raised the issue of whether ‘made in’ label has any significance.
In addition to the above there has been tectonic demographic shift.
Today, countries like China and India have a distinctive advantage primarily because of the size
of their population. In addition to this, it is a fact that India is the youngest nation in the world. This
demographic change has resulted in economic power shifting from the North to the South and hence
firms found it much cheaper to produce and market in these markets itself. Today a global firm would
have multiple production centres in BRICS economies because they are large consumption centres. No
wonder then brands that had so far not started their operations in India have done so and are keen to
enter this market.
Technological Changes A major factor that has contributed to a push towards globalisation is
the technological change that has revolutionised communication. Satellites have made this possible. It
is because of satellite communication that there is no time gap now between an event and its news. The
Gulf War of 1991, the disintegration of the Soviet Union, the signing of GATT or NAFTA, the Sept 11,
2001 (9/11) attack on the World Trade Centre in New York, and subsequent US action in Afghanistan
the World Cup, sports, beauty contests were seen live across the world. News channels like CNN, ABC,
and BBC have now brought these events directly into the life of individuals round the world. Asia saw
the emergence of Star TV, which offered to its viewers 24 hours of news, sports, music, and entertain-
ment programmes through five channels. Star is a Hong Kong based telecommunication firm which
telecasts its programmes through its own satellite.
Satellite communication made people, or rather the world customer, aware

Satellite communication has
not only of political and economic developments but even of lifestyle and made people aware not only
consumption patterns in different parts of the world. The customer in Asia and of the political and economic
elsewhere yearned for an international lifestyle. The customer in Asia now wants developments but also of
the latest in fashion and is aware of international brands. Today, product news lifestyle and consumption
travels much faster than it did in the 1980s and hence there is pressure towards patterns in different parts of
the world.
creating global brands or products for the world market.
Since communication has improved significantly, product technologies and
ideas now transcend national borders much more quickly. Today, we are witnessing an era of technology
standardisation, thus diffusing differentiation between brands. In the developed countries of Europe
and North America, brands have become commodities. The customer is no longer able to differentiate
between brands or among product categories. All this makes firms look for new markets. This also
enables firms to transfer technology much more effectively.
Technological developments have not just been restricted to television. Computers and telecom-
munications have also had their share of developments. Electronic mail and facsimile transmissions
(FAX), answering machines, cellular telephones, and pagers have all ensured that nobody is missed or
misses a call. Business deals are concluded much faster today than they were a decade ago, and these
developments have reduced the need for frequent business travel.
But, nonetheless, more and more people are travelling internationally to become aware of other
markets. Aircraft manufacturers use computers for accurate takeoffs or landings, even in the worst
weather conditions, making them safer and more comfortable to travel in. Tourism is the big gainer in
this exercise. International travel and tourism means demand for international brands or global brands
that are known for a specific quality or product benefit.
Globalisation of business then is the logical outcome of all these technological changes occurring in
different parts of the world.
Social Changes The new customer has now arrived. He is more aware, literate, and price sensi-
tive or, rather, with a high concern for value for his or her money. Asian economies are witnessing the
emergence of middle class and higher income families. This customer wants the latest and the best
available in the world market. As we mentioned earlier, the lifestyle of an average customer in Asia,
Europe, or North America is truly becoming global, and so is born a world customer who lives in India,
China, Malaysia, Hong Kong, Indonesia, Saudi Arabia, Turkey, Greece, Mexico, USA, Canada, UK
or anywhere else. To satisfy the needs of this world customer one needs a global product, a brand, and
hence, global marketing.
Implications of Globalisation
The critics of globalisation believe that it will lead to the hegemony of the US and Western powers in the
world market. They believe that the new forces of imperialism are the global companies, most of whom
have their headquarters in the western hemisphere. Exploitation of labour, denial of life-saving drugs to
the poor, widening of the gap between the rich and the poor in the name of environment and intellectual
property rights, and the dominance of the market by the top three companies in any product group is the
line of argument taken by these critics. The proponents of globalisation do not believe so. They believe
that globalisation of markets is the most acceptable way of improving the lifestyles of consumers
around the world. Without going into the merits of either of the arguments one has to keep in mind that
globalisation is not a one way street. The last five years have witnessed Indian companies taking steps
to significantly improve their cost structures to bring them in line with the international firms, remove
inefficient/obsolete operations in their organisations, and scale them to the global demand. Many of the
Indian companies like Bharat Forge (which is one of the major producers of forging in the world and
the largest producer of Sharp picture tubes), Bajaj Auto, Ranbaxy, Dr Reddy’s Labs, and others have,
over the last five years, had only one agenda—to win in the world market. This has certainly benefited
Indian customers, too, as they get better quality and more dependable products at a price which is lower
than what they have paid pre-1995. Thus, the most significant implications of globalisation are:
form of lower prices.

(b) Improved quality and, hence, the customer is assured of quality products and services (we have
witnessed strong TQM and ISO 9000 movement in the country), as also large number of IT
companies like TCS, Infosys, and Wipro working towards acquiring Capability Maturity Model
(c) Availability of new products to the Indian consumer and the world consumer simultaneously. It is
a fact today that most companies launch their products and services worldwide at the same time
and possibly the same day. Towards the end of 2001, Microsoft launched XP all over the world,
and India was no exception.
Another implication of globalisation is the increasing concern among firms and consumers of
maintaining the ecological balance. Hence, today, one can see companies marketing environmentally
safe products and services. Orchids Hotel in Mumbai was the first ‘green’, that is eco-friendly, hotel
in the country. Taj introduced a large number of eco-friendly products in its room service and some of
its hotels acquired the ‘eco-friendly’ label. Automobile companies are today marketing vehicles that
subscribe to the mandatory Euro 2/Bharat II anti-pollution norms. All this was unheard of in the pre-
1995 era.
In short, the society, the consumer, and the industry—all have benefited from globalisation; hence,
it is a win-win strategy.
FIRM ORIENTATION
LO2 From what we have discussed, it follows that a firm needs to have an ap-
Describe firm propriate orientation for the world market. While looking for orientation it
orientation for global is important to understand the EPRG framework.
markets
Ethnocentric Orientation (E)
Ethnocentric Orientation (E) refers to home country orientation. Here, the firm’s
When a firm is ethnocentric,
reference point is the home market. Generally, when a firm is ethnocentric, it
it aims at selling the surplus of
looks for foreign markets to sell its current product or, at best, surpluses. There its own product in the foreign
is hardly any or very minimal product adaptation for foreign markets. Some mi- market with minimal product
nor changes may be made in the product to suit the host or importing country’s adaptation.
legal requirements—as in packaging, where the firm may have to comply with
statutory declarations. It is obvious that, this orientation leads to exporting the product. Hence, the
most common market entry strategy is export. The firm’s objective is to seek overseas customers for
its existing product line. The firm may do so either through bidding for an export order, or sell to an
export house or to an overseas buyer or his representative. At times, the overseas buyer may give his
requirements, as in the case of readymade garments, to the firm, which then makes it and delivers it
to the customer. For gaining competitive advantage in exports, a firm will have to ensure that it meets
the buyer’s specifications in terms of features, quality, and delivery. The issue of pricing and payment
terms is also important. Normally a firm may have to work on a marginal cost method to price its
products and get paid through a confirmed irrevocable letter of credit. Should there be a problem in
product clearance or selling in the importing country, the firm may, at times, have to either get it back,
destroy it, or accept any other cuts in its price. An ethnocentric firm always looks for help from the
home country government.
Polycentric Orientation (P)

Polycentric (P) is when a firm exports to not just one market but to several
The difference between
markets. It looks for customers in different foreign markets but is still interested the ethnocentric and
in selling its existing product in the existing form. Its reference point is still its polycentric approach lies in
home country. The difference between an ethnocentric and polycentric firm is the number of foreign markets
the number of foreign markets served and the fact that the latter is more actively being served and the degree
of involvement in soliciting
involved in soliciting overseas buyers. Exporting is a more serious business here
overseas buyers.
than in an ethnocentric firm, where it is done on an ad hoc basis. A polycentric
firm may even expand its capacity or put up a new line for foreign markets.
Manufacturing is still done only in the home country.
Regiocentricism Orientation (R)

Regiocentricism (R) occurs when a firm has focused on a specific region, for
Regiocentrism calls for
example, Europe, North America, or Asia Pacific. Here, the firm researches
homogenisation of the
these markets, understands customers and competition in the region, and evolves product according to the
competitive strategies. It may examine several market entry strategies but the requirements of a specific
common ones are joint ventures or subsidiary operations in the target region. For region.
example, a firm targeting Europe may set up a manufacturing base in one of the
European countries to bypass EU’s requirements or quota restrictions. It may homogenise the product
for the EU. Homogenisation may involve making the product environment friendly, or even develop a
special feature in the product to enable it to suit local weather or other conditions. For example, this may
mean giving a fur lining to leather boots and having shoe lowers that are rugged, so that the customer
is able to walk comfortably on the streets in the cold European winter. This will make the leather shoe
firm’s products more acceptable. For an automobile firm this homogenisation may involve providing
safety belts, air cushions for protecting the driver in a collusion, or even converting the vehicle from
left hand to right hand drive, and from standard to automatic transmission. It is here that international
marketing takes shape.
Geocentric Orientation (G)

Geocentric (G) firms are those that consider the world as their home market.
Geocentric firms consider
These firms evolve strategies to globally maximise their resources. They are not world as their home market,
interested in the market shares of just one market but in keenly pursuing goals and they evolve strategies to
of global market leadership. Hence, for them, market entry strategy is a choice maximise their resources in a
from among a myriad possibilities. Some of them, besides being exports, joint global manner.
ventures, and overseas subsidiaries, are strategic alliances, acquisitions, merg-
ers, brand franchising, manufacturing in low cost centres, and so on. These are global firms. Erstwhile
multinational firms have now realised that they cannot survive in the world market if they do not change
their orientation and objectives. Until recently, multinational firms had looked at Asian, African, Latin
American, and other markets only from the point of view of selling their products and brands. They
did not consider these economies worthy of investment. Their prime goal had been to earn maximum
profit with least investment in these economies. The boards of most transnationals continued to be
dominated by home country nationals. A global firm has a global board, giving adequate representation
to local aspirations. It is the local or country managers who provide the local perspective to a firm’s
strategy thereby, to an extent, localising the global strategy. To understand the difference between a
multinational and a global firm, let us take the example of Coke. In 1977, Coke left India when asked
to dilute its equity. It felt that it could not risk losing the Cola formula that had made Coke ‘the real
thing’. Besides, at that time it had not accepted the idea of joint ventureship or a minority role for
the firm anywhere in the world. It had 100% owned subsidiaries in different parts of the world and
India was no exception. Further, it had not done anything to either develop the soft drinks market or
industry and most Coke bottlers operated slow speed bottling plants. But in the 1990s, Coke was dif-
ferent. It considered local markets, local government aspirations, and competition when deciding its
market entry and marketing strategy. So, in 1993, Coke re-entered India not as a fully-owned subsidi-
ary of its Atlanta parent, but through a strategic alliance with Parle. The same is true of IBM, which
re-entered India in 1992 in joint collaboration with the Tatas. So, today’s global firms, some of which
are yesterday’s multinationals, have the dream of responding to the world customer through myriad
strategies.
A global firm sources its inputs from different countries with the prime concern of getting them at
the lowest cost. It processes them, adds value, or manufactures finished goods in countries where it can
derive the maximum economies of scale, so that it can pursue a low cost differentiated strategy in the
world market. As we shall see in the subsequent sections, this strategy is the most viable one as markets
around the world become price sensitive and competitive.
Thus, it is a geocentric orientation that can make a firm succeed in today’s and tomorrow’s market.
Indian firms will have to fast change their current ethnocentric orientation as otherwise they will be out
of business. For one, in tomorrow’s market there will be nothing like a ‘home market’ for any firm, and
the Indian economy cannot ignore this fact. It has to be a mainstream player in the global economy.
Principal Driving Force in Global Marketing

Customers and economies today are reaching out to cost reducing global firms. Understanding the
global customer and competition is the first step in challenging a global competitor. ‘While the pattern
of cross subsidisation and retaliation describes the battle, world brand dominance is what the global
(marketing) war is all about.’1 Several Japanese, South Korean, US, and European companies have
realised this and are actively pursuing this strategy. For they know, that their only salvation now lies
in creating and competitively retaining a satisfied global customer. They can ill afford to ignore world
markets. They also know that the only way to fight price wars at a global level is to have the presence
of a global brand in the marketplace. Otherwise, their products will not be in the shopping plaza but
only in the ‘dollar street’.
KEY DECISIONS IN GLOBAL MARKETING
LO3 It is important to note first the key parameters in global marketing before
Formulate global we come to the decision areas and strategy.
marketing decisions
Parameters
Several dimensions go into decision making. Here we shall consider some of the pertinent ones.
Corporate Functions One of the first areas that can be globalised is corporate functions, or in
other words, where standardisation is easier. Among all the corporate functions, marketing is the most
complex and difficult area for standardisation. This is because cultural differences limit the scope of
standardisation of the marketing mix in different countries. Manufacturing, finance, and purchase are
more easily standardised. Firms can adopt standard manufacturing technology, practices, policies, and
procedures in different parts of the world. Hence, it is not uncommon to come across headquarters fully
controlling functions other than marketing. Further, post 2000 corporate functions that can be digitised
and broken into components can be outsourced and hence globalised. For example, customer service
has been outsourced in most global corporations. These service centres operate in different parts of
Asia especially India.
Products In selecting products for the world markets, the marketer should know that the ones that
enjoy high economies of scale and are not culture bound, can be globalised much more quickly. Though
local cultures are under attack from external influences resulting in a more homogeneous global culture,
there are still some core beliefs which customers in different countries are not willing to compromise.
For example, the US fast food chains, Burger King and McDonalds, had difficulty in entering the Indian
market. For Indians, mainly the Hindu majority, beef is not acceptable as it goes against their religious
belief. This is true for the educated and elite Hindu customer as well as his or her less educated low
income counterpart. As mentioned earlier, McDonald’s and other fast food chain outlets like Domino’s
Pizza or Pizza Hut do not use beef or margarine that uses animal tallow. In India, they use vegetable
oil for making their products.
In examining cultural and scale barriers, the marketer may be able to rank markets from low to high.
A country or market’s place on this scale can help the marketer decide whether to pursue a standardi-
sation or a differentiation strategy. While Levitt talked of the very rigid structure of strategic choice
ranging between standardisation and differentiation, the contemporary global markets, especially large
markets like India and China, bring to the fore another perspective in product strategy, Customisation to
suit the local lifestyle and market conditions has helped a large number of foreign firms expand their op-
erations in these markets. Levis, known worldwide for making denim jeans and accessories, brought out
exquisitely designed women apparel—the denim kurta and the fashionably designed denim jeans—for
its consumers. Automobile companies like Ford and Hyundai studied the weather and road conditions
in India to design the air-conditioning system and shock absorbers for their vehicles. Hindustan Lever
developed low price detergent powders like Sunlight and Wheel and took them to the world market,
especially to the other poorer markets of the world. Thus, today, product design for the world market
involves adapting the features and, may be, adding new ones to suit the local market conditions.
Another factor to be considered is the brand and headquarter country’s image in different markets.
Once again, this varies not only across markets but even over a time period. Nothing illustrates this fact
better than Japanese products. In the 1960s and early 70s, Japanese products were the benchmark for
inferior or low quality products. But today the pendulum has swung to the other end in favour of
Japanese products. Today, they are the final word in quality and reliability. Japanese cars,
telecommunication and other similar products have beaten American products so much so, that an
average American too does not perceive these (US) products as reliable and dependable. Image change
is a difficult, time consuming, and expensive proposition. Today, the same change is visible for India.
Indian IT firms are considered to be truly world class. Several engineering and pharmaceutical
companies are recognised for their product excellence and world class processes. Indian fashion and
food today has found place in the world’s leading stores and food plazas respectively. All this is
changing perceptions about India.
In marketing communication,
Marketing Communication Another dimension in decision making is
the theme can be that of marketing communication. Global firms know that communication is
standardised for the highly culture specific. A word or a symbol may have different meanings in dif-
world market, while ferent cultures. Also, some visuals in TV commercials may offend local cultures.
implementation, both in Pepsi adapted its TV commercial to the Indian market to include Indian idols
creative execution media will
and situations.
have to be localised.
One of the TV commercials of Pepsi brought the two mega stars of India,
Amitabh Bachchan and Sachin Tendulkar, together in a kite flying contest. Kite
flying is one of the few events that is recognised nationally. Earlier, some of the premium brands like
Longines brand of watches, Microsoft, and Omega watches have used more commonly recognisable
and respected Indian individuals as brand ambassadors. Increasingly, companies are realising that
market communication has to be customised to the Indian context. In doing so, they often face a
challenge as the Indian market is highly pluralistic and the diversity across the country is a very strong
reality. This diversity is reflected in the language, cultural values, and religious and educational profile
of Indian buyers, thus making it difficult for the marketer to identify the common thread among all
factors. Also, the task of identifying a universally acceptable brand ambassador is difficult. In such a
situation, the marketer’s effort is to identify the common values that will impact consumption in all
regions and use local language to communicate the idea.
Thus, today, communication strategy cannot be seen from the two extreme views of standardisation
and differentiation. This is particularly true for a large market like India.
So, while in marketing communication the theme can be standardised for the world market, imple-
mentation both in creative execution and media will have to be localised.
Distribution Distribution differs across countries both in terms of availability of channels and
infrastructure like transportation, warehousing, and telecommunications. While markets in North
America (mainly the US and Canada) or the western parts of Europe are similar in the above dimensions
of distribution planning, the same is not true for other countries. Hence the marketer will have to decide
whether to adopt a standardised or a differentiated strategy in distributing a product. In the distribution
area, companies today have to consider opportunities created by the Internet. Direct marketing and
e-commerce are some of the most probable distribution routes available to any marketer in the global
market. The Internet today has made it possible even for small companies to market their products and
services worldwide. The biggest contribution of the Internet is that it makes the sise and financial
capabilities redundant in marketing products and services in the world market.
Countries For a global firm, it is not necessary that its affiliates are equally
A global firm is more likely to
effective in all country markets. If this were to happen, it will have its implication decentralise decision making
on the firm’s structure in terms of decision making authority. A global firm is to markets where its affiliates
more likely to decentralise decision making to markets where its affiliates are are effective rather than
effective rather than where they are not. For example, Maruti Udyog has shown where they are not.
to Suzuki that they are effective and can manufacture cars and vans to match
Suzuki’s tough quality standards. Today, a satisfied Suzuki has given greater decision making power
to Maruti than to any of its other affiliates. So much so that Maruti is allowed to be marketed outside
India in Europe and Asia.
Another factor that the global firm has to consider is, that large markets with strong local
managements are less likely to accept global programmes. Yet, these markets represent the highest
corporate investments. A global strategy will have to consider the needs of larger markets than of
smaller markets. British American Tobacco (BAT) has accepted deviations in corporate strategy from
its Indian affiliate, ITC, mainly because India is too big a market for BAT to lose.
A global firm will also have to take into account national priorities of its major country markets and
their governments. To this extent, global strategy will need to be localised.
Decision Making for Global Marketing

One decision that the marketer has to take relates to entry strategies in different markets. Today, a
company has a choice ranging from exporting to setting up a 100% ownership company in different
parts of the world. In addition to this commonly known approach to entry into the world market,
more recently, brand acquisitions as well as company acquisitions and mergers are becoming the
order of the day. Tata Tea acquired the Tetley brand of tea towards the end of 2000, thereby, giving it
a strong position in the global tea industry. As shown in Exhibit 26.1, Tetley is Tata Tea’s engine for
globalisation. Likewise, earlier, Coca-Cola acquired Parle’s brands Thums Up, Gold Spot, Limca, Citra,
and Maaza Mango. These gave Coke an entry in the Indian market. It provided a network of franchisees
and distribution outlets, which Coke has used to fight Pepsi in the Indian market. Similarly, Ranbaxy
acquired Eli Lilly in the US to build its global operations. Bharat Forge, likewise, acquired the customer
list of one of the European forging manufacturers. This gave Bharat Forge the much required strength
to penetrate European markets. Therefore, today, brand acquisition, corporate mergers and acquisition,
and even buying the buyers list from weaker competitors are some of the more commonly used market
entry strategies.
Exhibit 26.1 Brand Acquisition for Global Dominance: The Case of Tata Tea
Towards the end of 2000, Tata Tea made history by The company also feels that the global brand image
acquiring controlling interest in UK’s Tetley group. of Tetley will help it expand its market share in In-
The Tatas paid £270 million or approximately `1,900 dia to 30–35%. Once the company is able to achieve
crore to acquire this well known international brand this critical mass, it proposes to use Tetley as an
in the global tea industry. This strategy of acquir- umbrella brand in India. The company undertook
ing an international brand was unheard of in the the task of refurbishing and repackaging its brands
global tea industry where brand building exercises in January 2002 and introduced products at various
are lengthy and indigenous. Tata Tea saw its future price points.
in the global market and the Tetley acquisition was The acquisition of Tetley also meant Tata Tea
perceived as transforming Tata Tea from a domestic strengthening its quality, for Tetley was recognised
packaged tea manufacturer to a global player by as the premium leaf brand portfolio. Tetley was also
making itself available in over 35 markets of the used as a vehicle to carry Tata Tea’s brands in the
world where Tetley was present. Tetley provided premium segment of the Indian market.
the needed leverage to Tata Tea in the global tea Thus, the purchase of Tetley made Tata Tea an
business. The company projects that two-thirds of MNC in the FMCG sector. It helped it to gain market
its future revenue would come from world markets. share in the domestic as well as world markets.
Another major decision in global marketing is that of standardisation as opposed to differentiation

and localisation of the marketing mix.
Standardisation Standardised marketing mix involves developing a stand-
Standardised marketing
mix involves developing
ard product and marketing it across the national border with the same commu-
a standard product and nication, pricing, and distribution strategy. With the advent and standardisation
marketing it across the of technology and more specifically that of communications, customer needs
are globally getting homogenised.2 This process of homogenisation of needs
national border with the same
communication, pricing and is getting accelerated, as trade barriers are breaking one after another leading
distribution strategy. to globalisation of markets. Worldwide communication has raised customers’
expectations and demands for better living standards, work life, and entertain-
ment. This cuts across cultures and religions.3 Nothing confirms this better than the success of brands
like Coke, Pepsi, Levis, Benetton readymade garments, Sony and Panasonic electronic items, and even
Hollywood films and soap operas made in the US and different parts of the world, that have diverse
cultures and religions. These commonalities in customer preferences lead conclusively to the stand-
ardisation route in corporate strategy.
Standardisation helps the firm not only reduce its costs but also to ensure superior quality and
consistent brand image across the world market. It helps the firm achieve economies of scale which is
not possible in any other approach.4 Japanese firms have relentlessly pursued this strategy and gained
substantial scale economies, often at the expense of their rivals. Global firms compete in different na-
tional markets through a standardisation strategy and offer appropriate volume—the best combination
of price, quality, reliability, and delivery of products.
However, there are pitfalls in this decision. A study shows that the success of a global firm is based
on how global decisions are conceptualised, refined, internally communicated, and implemented across
the world market. It concludes that firms which lose out in the global marketing warfare are the ones
that insufficiently used marketing research, had a tendency to over standardise, did poor follow up, and
had a narrow global perspective.5
Differentiation Opposed to standardisation is the differentiation strategy.

Differentiation involves
This involves responding to differences in customer preferences arising out of
responding to differences in
cultural, social, and religious barriers that divide nations. This strategy does help customer preferences arising
in building up sales volumes, but the cost is prohibitive when done at a global out of cultural, social and
level. Imagine Levis, Benetton, Coke, McDonald’s, Burger King, and Tacobell religious barriers that divide
having to differentiate their marketing mix to suit different cultural preferences. nations.
They will not be able to derive economies of scale and hence their cost of opera-
tions in a market will be much higher. This will push up prices for consumers or else they will be out
of business. Further, these global firms will never be able to ensure identical brand image across the
world market. This goes against the thesis of globalisation.
Nonetheless, local preferences and conditions will need to be woven into the marketing mix. The
more acceptable route is that of localising the marketing mix. This involves decentralising decision
making at the local affiliate level. This is useful especially when it comes to areas like marketing com-
munication, distribution, and to a limited extent, in the packaging area. For example, Sunsilk shampoo
from Unilever could achieve a higher penetration in the toiletries market in South Asia only when it
introduced sachet packs for single use and priced it at an affordable level of Re 1 in India and at a com-
parable level in other South Asian countries as well. Maggi noodles, marketed by Nestle, could achieve
a resounding success only when it included cooking instructions in its TV commercials and on the pack
and also added taste makers to suit Indian taste buds. However, these and other successful global firms
do not leave critical decisions like brand image, brand identity, product focus or positioning to local
affiliates.
A study showed that two successful global firms, Nestle and Coca-Cola, standardised their product
decisions but adapted their advertising, sales promotion, distribution, and customer service to suit lo-
cal country preferences and conditions6. The authors of this study maintain that local aspirations and
strong managements in major country markets must be respected and persuaded to accept standardised
products. Even the headquarters needs to listen to local managers and not rigidly implement their
standardised marketing mix in countries showing distinctive customer preferences or needs.7 The suc-
cess of global marketing is based on gaining cooperation from affiliates’ managers in implementing the
strategy. The approach of the headquarters towards affiliates has to focus on both the means and the
ends; and also has to decide its level of intervention for each business function, product communica-
tion, and other elements of the marketing mix in country markets. Global marketing can be localised
through the following five decisions:
giving such managers a seat on their global board of directors.
brands. In other words, approach the planning process from a bottom up perspective rather than
using a top down approach.
3. Maintain a product portfolio that includes—wherever scale economies permit—local, regional,
and global brands. Hindustan Levers in India now has such a portfolio in its detergent products.
-
spond to local customer preferences and competition.
Therefore, localising global marketing through respecting local markets and affiliates is more likely
to help a global firm succeed and win rather than one that gives no autonomy to its local affiliates and
rigidly adopts a standardisation strategy.
Product Strategy for Global Markets

We shall now discuss the most important element in global marketing, namely product decisions and
strategy options, since products are globalised and other elements of the marketing mix follow suit.
Here we shall consider decisions like product development and brand vis-a-vis generic strategy options.
Product Development
Lead Country Model Global marketing rests on the concept of a universal
In the lead country model,
product idea. In developing a universal product, one of the principal routes is the
the firm identifies its lead
country markets which ‘lead country model’. Here, the firm identifies its lead country markets which
differ in terms of customer differ in terms of customer preferences and government policies but still demand
preferences and government the same product. These are generally those markets which will account for 80%
policies, but still demand the
of the firm’s sales. The best way to visualise this process is to consider Nissan’s
same product.
strategy for the US, Europe, and Japan. Here is what Mr Yutaka Kume, President
of Nissan, had to say:
‘Developing lead country car models has helped Nissan halve the number of basic models needed to
cover the global markets and at the same time, to cover 80% of our sales with cars designed for specific
national markets. Not to miss the remaining 20%, however, we also provided each country manager
with a range of additional model types that could be adapted to the needs of the local segment . . .
(helped in) . . . our resources on each of our target core markets and, at the same time, provide a part of
supplemental designs that could be adapted to local preferences . . . Main challenge was to avoid the
trap of pleasing no one well by trying to please everyone half way.’8
The success of Nissan’s Maxima, 240 SX, and Pathfinder in the US confirmed that the lead market
model strategy was successful.
IN FOCUS
The development of a lead market model involves the following steps:
(a) Identify the major markets where the firm wishes to compete
(b) Research customer preferences, local laws, and other environmental conditions that are going to
affect product diffusion in these markets
(c) Carefully analyse competitor products and particularly that of the market leader in these markets
(d) Incorporate these local market conditions in the product design
(e) Allow for customer choices in terms of colours and other aesthetic preferences
The lead market model helps the marketer understand the fact that marketing in a borderless world
is not the game of averages. Customer tastes in most product categories are not universal and hence
localising the product is important. However, there are certain product categories where one may have
a universal product because customer needs are identical. Dry cell batteries and battery powered
products like watches, cameras, pocket calculators, and even entertainment electronics like VCRs,
video games, and television sets can be standardised. But again, entertainment electronics like high
performance music systems, microwave ovens, and even white goods like washing machines are
designed after considering not only customer preferences but even individual lifestyles in different
countries. So, Sony offers both kinds of music systems—one that has large speakers that rise from the
floor of living rooms and dens (like the structural columns) for the American market and the other which
is more compact and portable, for Asian and European markets where people have a space constraint.
This strategy has paid rich dividends to Sony.
Insiderisation Another route to developing a global product has been termed
The Insiderisation strategy
‘insiderisation’.9 There are products like Coke, Levi jeans, Reebok sneakers, involves having a ‘local mask’
and many others, which are universal products. When one examines their strat- to disguise the ‘global face’.
egy, one finds that these firms have tried to push their products by developing a
worldwide distribution network in each country. These firms became ‘insiders’ in understanding how
the distribution systems worked in each of their target markets and then adapted their systems to suit
each market requirement without changing their product design or composition. The reason for the
success of Coke is the up front investment that it makes in its markets, in route sales force, vans, fran-
chises, and franchised vending machines in Asian markets. By involving local bottlers and using their
capital, Coke has been able to re-create the kind of sales force and distribution it uses in the USA. It is
through this network that the company can now successfully market other products like, fruit juices,
in different markets.
The process of ‘insiderisation’ demands playing a series of ‘domestic games’ against well-defined
global and local competitors in different markets. It calls on the firm to outbeat competition by using
‘local cues’ in distribution, promotion, and even pricing. Hence, this strategy involves having a ‘local
mask’ to disguise the ‘global face’.
However, there are niche products, like fashion products (designerwear), where a marketer can mar-
ket them in a standardised manner across the world market. Because these products satisfy the same
need (status) of a small but core elite customer group across different markets, who are willing to pay
a premium price. But for this, one needs a strong brand image. Branding is critical and so are other
parameters of brand equity like brand awareness, brand positioning, brand extension in complimentary
product categories (e.g. Yves St Laurent’s range of cosmetics or garments and footwear), and brand
image.
Brand versus Generic Strategy Should the firm adopt a brand or a generic product strategy
and promote the product in the world market on other attributes like the firm’s competencies and
country image? Until now we have built up the case for global branding strategy. Though global brand
dominance is the key to global marketing, the marketer is confronted with the daunting task of creating
a global brand. Today it is an expensive proposition particularly, when one considers the costs and the
tasks involved in it. Today, the cost of creating a global brand can run into millions of dollars. To this
is added another dimension of media, where one finds customer fragmentation occurring with multiple
print media and TV channels. Increasingly, the marketer finds that there is no single media vehicle and
option that can deliver the goal of helping him or her reach the top-of-the-mind awareness. Besides,
global brands are under increasing pressure from private and store brands in countries like US, Canada,
Europe, and even Japan. Store or shelf space is at a premium and retail organisations in these countries
gain bargaining power over the manufacturers. Added to this is the fact that the customer is becoming
indifferent to the brand as brand equity is getting diffused. Life cycles of brands are also getting shorter
as technology progresses and competitors gaining access to the same technology in the world market.
Today, China, Taiwan, and Hong Kong, with garment and tea exporters from India and Sri Lanka
have shown a way out of this through the strategy of generic product. This strategy is based on the
following competencies of the firm:
(a) adherence to buyer’s time schedule
(b) ability to be in the market when the buyer wants the product
-
tions
The generic product strategy succeeds only when the firm and the country have been able to create
a credible image in the customer’s mind. This will also succeed when there is no conflict of interests
between the buying organisation and the manufacturing firm and the latter has been able to estab-
lish inroads into retail organisations in target markets. Generic strategy works only when the market
is characterised by product as opposed to brand loyalty, as in the case of commodities like tea and
coffee.
This strategy will deliver results in highly price sensitive but brand indifferent markets. For example,
the customer wants to buy an office wear shirt or crockery and cutlery sets for his home. These are not
feature based products and one finds that customer awareness of brands here is low and often price
becomes the basis for purchase. In such situations, the most important watchword for the marketer is
‘deliver quality and performance at the lowest price’. Strong inter-relationships with retail chains the
world over is another key component in generic strategy.10
Finally, we turn to the global competitive strategy.
Global Competitive Strategy A global competitive marketing strategy is based on the stra-
tegic intent of a global firm. Hamel and Prahlad11 found that their sample firms had three strategic
intents, as mentioned below:
(a) building a global presence
(b) defending a domestic position
(c) overcoming national fragmentation
The authors studied the world television industry and found that Japanese firms focus on building
a global presence, US firms defend their domestic position in the US market against the Japanese on-
slaught, and European firms fight to overcome national fragmentation. They also found that in each
of these firms the different strategies were like a loose brick, each of which helped them achieve their
goal.
In developing a global competitive marketing strategy, a firm needs to adopt an innovative approach
to valuing the market share in different countries. Competitiveness of a firm will vary in different
markets. Hence the firm needs to expand its concept of a product line. Hamel and Prahlad12 want the
marketer and the firm to redefine the relevant product family—‘one that is continuous in distribution
channels and shares a global brand franchise’. The firm can then map all competitive offers in the
channels and evolve either a frontal attack, retaliatory, or defensive strategy. It can also help the firm
understand resources requirement to build competitive muscle in the market.
RISE OF GLOBAL GIANTS FROM EMERGING ECONOMIES
LO4 We mentioned in the opening vignette that today’s world market is not
Evaluate growth and just a story of transnationals or global firms from the West and Japan, i.e.
strategies of global the triad economy (US, Europe and Japan). It is a story being scripted by
firms from emerging global giants from emerging market economies. Chinese giants like Huawei
economies Technolgies, Lenovo, Haier, South Korean firms like LG, Samsung and
Hyundai, Indian IT firms and industrial groups like Tatas, Mahindras, L N
Mittal, and firms like Dr. Reddy’s, Ranbaxy and Bharat Forge are just some of the few who are today
rewriting the rules of world market. What led to their growth and what is the strategy adopted by them?
Understanding the Growth of Emerging Markets’ Global Firms

Overcoming Intensive Competition in Home Market Emerging market economies saw
their competitive structure getting altered as they opened their economies to foreign direct investment
in late 1980s and 1990s. A large number of firms from triad economies entered these markets and local
firms found their competitive advantage getting eroded. Customer was now showing a marked prefer-
ence for foreign products. Chinese firms realised that their cost advantage was lost as soon as European
or US firm located its manufacturing facility in China. It could now get the same cost advantage of low
cost of labor as its Chinese counterpart earlier had. Not only this, it could now market the product at
low cost worldwide. Hence global competition as also local competition motivated many firms in these
economies to look for opportunities in the world market.
Blunting the Competitive Advantage of Western Multinationals However these
firms have also blunted the advantage of their triad economy counterparts through their expertise in
managing institutional voids that exist in the emerging economies. These voids are absence of special-
ised intermediaries, regulatory systems and contract enforcing mechanisms. Further, firms in rapidly
emerging economies are used to working under imperfect conditions including those of infrastructure
and governance. This gives them a competitive strength to face competition from their western coun-
terparts not only back in their home market but also in world market.
Understanding Local Product Markets Emerging market firms have become world class
companies through their understanding of local product markets. They have adapted to the special needs
of customers and business ecosystem. They have also exploited similarities in geographies proximate
to their home economy. Chinese consumer durable giant Haier gave a tough fight to American giants
like GE, Whirlpool and Electrolux and succeeded by developing products suited for Chinese custom-
ers. For example, it found that rural customers used washing machines to clean vegetables. Hence it
modified its design accordingly. Humid weather required Chinese to change their clothes frequently
especially in Shanghai and Shenzhen. Haier developed small machines which used less electricity and
water than a regular machine. Today, Haier has developed products for different customer needs. This
has certainly expanded its product mix but has given it an edge which none of the western multinational
can counter. In its global foray, Haier first entered Asian markets which were similar to China and then
entered Yugoslavia, Germany and subsequently US in 1999. It is today in price sensitive segments and
is an important player in compact refrigerators(found in college dormitories and hotel rooms) and low
cost wine cellars.
Institutional Gaps as Opportunities These firms from emerging economies consider institu-
tional voids not as limitations but as opportunities for filling in gaps left by government. This explains
the rise of NDTV which filled in the gap of good quality independent news coverage in real time, which
urban India, especially the middle class, wanted. The government controlled Doordarshan failed in this
regard. NDTV also brought in world class technology and thereby delivered to customers, viewing
experience of a quality available on CNN or BBC.
Strategies of the Global Giant from Emerging Economies A study of these firms re-
veal that they have pursued one of the following or a combination of them to win in the world market:
(a) Customer Acquisition
(b) Brand Acquisition
(d) Product Leadership strategies

Tata Motors aggressively pursued the strategy of acquiring Jaguar and Land Rover. Earlier, Tata
Tea acquired Tetley, a strong brand name in the packaged tea market. The Tata group has been one of
the few Indian groups that have been aggressively acquiring companies and brands, thereby making
it one of the top global players in the product group where it acquired the brand or the company. Tata
Consultancy Services (TCS), on the other hand, went about acquiring customers in U.S. and European
Markets. It leveraged the low cost of trained Indian engineers and managers to acquire accounts in U.S.
and Europe. This cost advantage was not just restricted to TCS but was available to all IT companies.
Likewise Huawei, which is today China’s largest networking and telecommunication suppliers, is pres-
ently one of the world leaders in the telecommunication industry. Huawei today serves 35 of the top 50
telecommunication operators worldwide and invest 10% of its revenue. Each year it conducts research
and development in twelve centres, across seven Chinese cities, Bangalore and Silicon Valley, Dallas, in
USA, Stockholm in Sweden, and Moscow in Russia. It has successfully won contracts from Vodafone,
Reliance, France Telecommunication and BT(British Telecommunication). Recognising its presence in
the world, Forbes magazine accepted it as one of the Most Respected Companies in the world in 2007.
Groups like L.N. Mittal and Bharat Forge have acquired companies in their respective areas prin-
cipally with a view to benefit from the economies of scale. Both are today, one of the top three global
players in their respective product markets. In case of Bharat Forge, the company also pursued aggres-
sively the strategy of customer acquisition and has today diversified from just a forging manufacturer
for automobile industry to forging manufacturer for other customer segments also.
Thus today no discussion on global marketing can be complete without understanding this phe-
nomena of globalisation of firms from emerging economies. These firms today are going to rewrite
the history of global marketing and global business. Each of these firms do not follow the prescribed
multinational business strategies. Neither do two firms from the same country have identical strategies.
However, these firms will have to now learn lessons in delegation and institution building from their
American counterparts. For their sustainability, over a period of time, will only come when they are able
to think long term and develop organisations that will transcend generations without having to depend
on the family or the promoters.
ORGANISING FOR GLOBAL MARKETING
LO5 We have so far been discussing the roles of headquarters and local affiliate
Explain organising management teams. Winners in global marketing reveal that while central
for global markets product management is useful in directing a global marketing programme
and ensuring universal brand appeal, the problem is that often it is far re-
moved from ground realities of the local market. Local initiative and decision making can help the
firm overcome these problems. And the best way is to let local product managers decide on product
promotion in their respective countries. Also, listening to their ideas can help the central product man-
agement teams to come up with either a more aggressive global marketing strategy or a new global
product, both of which can help the global firm achieve higher market penetration. Therefore, striking
a balance between central control and the local affiliate’s autonomy is important to succeed in a highly
competitive world market.
The Role and Impact of ICT on Global Marketing

As discussed earlier, the Internet has added a new dimension to global marketing. It is today being used
not only for distributing products but also for customising the product to suit the lifestyles of consum-
ers across the world. Technology, today, is used for inviting tenders and price bids. The Internet and
e-commerce have changed marketing paradigms that enable any company, small or big, with a web-
site to market globally. Today, consumers can order books, CDs, get the feel of the latest models of
automobiles, and even newly designed and furnished homes, through the Internet. Many of the world’s
best known transnationals have invested huge resources in building portals through which they could
transact business with their customers. We have already talked about this in the earlier chapters. The
Internet is today being used not only by manufacturers but also by large departmental stores and retail
outlets like Amazon.com, Toys ‘R’ US, and Dell Computers, and by other similar products and service
providers for expanding their operations in the global market.
Thus, from the organisational perspective, ICT today offers an opportunity to any firm or entrepre-
neur to take his product or service across different markets.
SUMMARY
The world is getting smaller day-by-day. Lower trade barriers, communication technologies, and
international travel, have made the world a smaller place. Customer needs across the world are
homogenised. Global marketing is the only way to satisfy these needs. Global marketing differs
from export and international marketing in terms of focus, goals, and content. In global marketing,
the firm’s focus is the world marketplace, thus making difference between home or domestic and
foreign markets redundant. The goal is to maximise efficiency and returns on investment in the world
market. The strategy is dictated by local country market conditions like customer preferences, laws
and competition. In evolving a global marketing strategy, the firm has to consider alternatives like
standardisation (full or partial), differentiation (full or partial), localisation or niche market creation.
Lead market model and insideration are important tools for developing a global product. The head-
quarters should involve local management teams for an effective marketing strategy for gaining
higher market penetration in different country markets. Global markets today are also dominated by
firms from emerging economies, many of whom have become leaders in their respective product
markets. They have aggressively pursued the strategy of customer acquisition, brand acquisition, and
efficiency improvement through scale economies or product leadership. Today, they are a challenge
to western multinationals.
POWER POINTS
1. Globalisation of business is being fuelled by developments on the political, technological,
economic, and social fronts all over the world, including India. (LO1)
orientation. Ethnocentric is the home market orientation for foreign markets and a polycentric
(LO2)
-
balised. Likewise, it has to decide on the product(s) to be globalised and closely analyse mar-
keting communication and distribution. (LO3)
4. Global marketing strategies are standardisation, differentiation, and localisation. (LO3)
5. An effective product strategy for the world market is the strategy of developing lead country
preferences and government policies, but still demand the same product. (LO3)
systems and consumer preferences. (LO3)

7. The alternative to brand strategy is the generic product strategy which has been effectively
used by all developing countries, including India. (LO3)
world market. (LO4)

9. Firms from emerging markets follow multiple approaches. China mostly uses its cost advan-
tage for penetrating the world market. Firms from emerging markets like India use their experi-
ence of managing institutional voids to penetrate similar markets in the world. (LO4)
or a combination of them to win in the world market: (LO4)

(a) Customer acquisition
(b) Brand acquisition
(c) Efficiency seeking strategies
(d) Product leadership strategies
it market. (LO5)
of them with examples. (LO1)

2. In evolving a global marketing strategy for leatherware, what factors would you consider?
(LO1 and 2)
3. Using lead market model, develop a global marketing strategy for a publishing house that has
(LO3)
4. What are the three objectives of global competitive marketing strategy? How could each of
(LO3)
5. Study the marketing strategy of Mahindra and Mahindra’s SUV and Tractor for the world
market? What lessons can you draw from this strategy? (LO2 and 3)
6. One of the challenges that Indian IT industry faces is that of retaining its competitive advantage
in the midst of the emergence of other low cost centres likes China, Vietnam and some of the
other countries in South America. If you were retained as a consultant to advise, what strategy
would you like to suggest and why? (LO3 and 4)
(LO5)
CHAPTER
SERVICE MARKETING
27
LEARNING OBJECTIVES
LO1 Analyse the scope and paradigm in service marketing
LO2 Describe the characteristics of service marketing
LO3 Predict customer expectation and zone of tolerance
LO4 Explain services marketing mix
In Practice
Flying People . . . so the Sky’s the Limit
Jet Airways, one of India’s leading domestic airlines, was started in May, 1993. In just ten years
it is, today, one of the most preferred airlines, and has won several awards within this short
period. The parameters used in judging the airline were excellence in hospitality, performance,
and inflight and ground services. This meteoric rise to success can be attributed to the vision of
the top management, in this case, the promoter Mr Naresh Goyal and his team.
Today, Jet Airways is a far more valued service than Indian Airlines, which over a period
of time has slipped to being one of the inferior airlines in the country, offering sub standard
products and services. Jet Airways, on the other hand, chose to emerge as the most preferred
air carrier in India. This was achieved through its high degree of services reliability and efficient
operations. The management realised that to get a sizeable share of the Indian market, it was
necessary to be consistently profitable besides developing employees’ commitment to deliver
quality service. The management made it abundantly clear to its employees and to the travelling
public that they do not fly an aircraft, rather they fly people.
Jet Airways targeted the business traveller as it realised that a very high percentage of the In-
dian domestic air traffic comprised of this class of passengers. This led to development of product
and service designs aimed at world class norms in efficient professional service, which began
with the choice of the aircrafts itself. The development of a reliable and high quality product
was possible, not only because of modern aircrafts but also because of a properly trained fleet
Service Marketing 621
of pilots and engineers. The company sought to achieve this objective by getting its pilots
and engineers trained at one of the best-known training centres, Ansett, in Australia. An airline
often gets a bad name due to its inflight services and also due to the quality of services rendered
by the various employees handling ground operations. Appreciating this fact, the management
decided to get Speedwing, a British Airways subsidiary, to conduct a programme on customer
service excellence for the staff at all levels. Reservations had been yet another major headache
in the airline industry in India. Since the extent of computerisation in Indian Airlines in the late
1980s and early 90s was low, it was often difficult for passengers to get confirmed reservations.
To ensure an accurate and efficient reservation systems, Jet Airways tied up with SABRE, one of
the world’s best reservation systems. Another major concern was that of managing all customer
contact points. Today, the company has been able to efficiently use technology like interactive
voice response systems, the Web, and even mobile telephony to deliver a value added product
to the customer. It has also been able to cut down on baggage retrieval time and the turnaround
time of the aircraft. In fact, it is not very uncommon for the passengers’ baggage to be on the
conveyor belt even before they arrive at the terminal.
In addition to this, the company was the first to introduce the Frequent Flyers programme
called Jet Privilege. This programme initially offered free mileage to all those who subscribed
to it. However, subsequently, the Jet Privilege programme entered into strategic alliance with a
large number of product and service suppliers. This helped the company offer to its Frequent
Flyers more value for money. Subsequently, this Frequent Flyers programme became a three-
tiered programme. While at the entry level the benefits were more generic and targeted to hold
the customer, at the higher lever, i.e. at the top end, it was the premier customer who was
enrolled as a Gold Card member. It offered a substantially improved range of services to these
members. Some of these are, separate counters for check-in; special lounge at the airport close
to the security hold; complimentary snacks and drinks in the lounge; and, above all, confirmed
economy class booking even at the last minute. This created a very high degree of confidence
in the customer’s mind which thus made many prefer Jet Airways to other airlines. For Business
Class customers, it offered an augmented inflight service when it introduced the trolley services
on the metro routes. The trolley services offered the customers an a-la-carté menu from pre-
selected food items. It also offered its other Jet Privilege customers the opportunity to choose
their food while flying from one destination to another. For example, a strict vegetarian could
ask for vegetarian food; likewise special food could be ordered for a child or a low fat diet for
health conscious passengers.
In 2003, Jet joined the price war by offering discounted tickets on all sectors. Though limited
number of seats were offered on these flights which were limited, increasingly passengers first
started shopping for these fares which came to be commonly known in the industry as Apex
Fares. The Airline also started contests in collaboration with various consumer product compa-
nies and contests 2 win.com. Further, it also displayed flight information relating to its services
and frequent flier club on the internet. This empowered the passengers who could now track
the flight and also their mileage prices that they could earn, if they were the member of frequent
flier club. The Company also modified its frequent flier scheme and added a fourth layer called
Platinum which was essentially aimed at rewarding its most loyal customers. The Platinum
offered several benefits which even included last minute reservation and a confirmed seat in the
economy or club class. In 2005, the company faced competition from no frills airlines like Air
Deccan, Spice Jet and Kingfisher. In order to fight back competition, it decided to offer multiple
tiered fare structure to the passengers. In this scheme the passengers could even buy the ticket
at a discounted fare, even just a couple of hours before the flight is scheduled to depart. This
definitely enabled the company check the decline in its number of passengers, who thought of
migrating to other low cost airlines.
In 2005, the Government of India changed its aviation policies. It allowed Jet and Sahara Air-
lines to fly on international destinations which included Nepal and Sri Lanka in South Asia and
Singapore and Malaysia in South East Asia. They were also allowed to fly to London and US.
Jet Airways launched its first International flight to Singapore in the middle of 2005 and in the
second half of the same year it launched its service to London. By the end of 2005, it launched
its flight to USA. The company has entered into lease agreements to acquire wide bodied Boeing
aircrafts for its flight to Europe and USA. It also placed orders with the Boeing corporation for
purchase of these aircrafts. In order to meet the financial requirements it went public and also
raised funds in overseas markets. On the international sector, it is today facing competition from
all the major foreign Airlines, who have decided to fight out the war with Jet for their Indian
traffic.
The task before Jet Airways is to create brand equity in the foreign markets and enhance it
in India in the midst of strong competition from no frills and low cost airlines, all of whom are
determined to break the hegemony of the full service airline and also enlarge the entire category
of air passengers. They are determined to take away passengers from Railways and entire other
price sensitive customers.
Regular communication with customers through direct mailers, personal visits by its market-
ing team to high value customers, punctuality of flights, clean and modern aircrafts, customer
friendly crew and staff, user friendly technologies, and real time response to customers’ needs
seem to make Jet Airways India’s best domestic airline. As mentioned above, Jet today also flies
on selected international routes.
The above case of Jet Airways brings to light the significance of customer centric marketing
strategies in the service industry. It also reconfirms the fact that a market strategy which aims to
integrate the customer by incorporating his/her expectations in the service, product design, and
delivery will be successful.
SCOPE AND PARADIGMS IN SERVICES MARKETING
LO1 What is Included in Services Marketing?

Analyse the scope and We have seen how HDFC Bank in India has emerged as India’s best bank in
paradigm in service a very short period of time. It has taken less than seven years for the bank to
marketing emerge as India’s leading bank leaving the State Bank of India, the largest
bank in the country, far behind. Service marketing is based on very different paradigms. Since services
are highly intangible, its benefits are felt over a period of time and not immediately. The task of the
marketer is to create confidence in the customer’s mind that the delivered benefits will, at the least, be
the same as that of the promised ones. Two categories of products are included in the range of services
marketing. These are:
(a) Products which are 100% intangible and truly fall in the category of services. Typical examples
of these are banking, health care, insurance, airlines, hospitality, restaurants, management con-
sultancy, education, and so on.
(b) Services in manufacturing industry are different from the service industry, as here the emphasis
is more on providing a range of services which the customer is looking for when he buys a manu-
factured product. Services here helps in augmenting the product and, hence, creates a new set of
values for the customer.
Since services are highly intangible, its benefits are felt over a period of time and not immediately.
Viewed, therefore, from the tangible and intangible perspectives, products can be put on a con-
tinuum. At the one end, are products which are bought principally for their tangible benefits. Here the
customer is not willing to compromise. Typical examples of this category are industrial products like
plant and machinery, equipments, and high value products like aircrafts or a limousine (luxury car). At
the other end, are products that primarily offer intangible benefits, like medical care. In between the two
ends of this continuum are products and services which have both tangible and intangible components.
For example, consumer durables are products that are bought for both tangible and intangible benefits.
Hence services in such a category assume a very different meaning.
Similarly, the hospitality sector in the service industry offers both tangible and intangible benefits
to the customer. The tangible features are properly equipped rooms matching the lifestyle of the target
customer, air conditioning, facilities like television, Internet connectivity, facsimile machines, bar,
refrigerator, and other benefits like health care service, swimming pool, and so on. The intangible
dimensions are the services provided by the people in housekeeping, room service, engineering, and/
or restaurant services. Thus, as shown in Fig. 27.1, on the one end of the continuum are services in the
manufactured products segment and on the other are the pure services.
Figure 27.1 Significance of Services Marketing

Service industry has grown over a period of time and plays a significant role in global economy. Let
us consider the case of India. According to World Bank, GDP of India in 2014–15 was $2308 trillion.
It grew by 11.5% over previous year. Sector wise contribution was agriculture-13.7% followed by
industry-21.5%. Services contributed to 64.8% of GDP in the same period.
The significance of the service industry will only increase over time. Thanks to information technol-
ogy, today, companies realise that they should not concentrate only on the manufacturing sector. By
offering a range of services to the customer, in the real time on the Internet, they can move up the value
chain much faster than if they remain only in manufacturing. Further, with tremendous boost to trade
and the market being flooded by a variety of products, the manufacturing sector has come to realise that
the key differentiation comes from services rather than the physical product. Hence, most companies
here also use their services to attract and retain customers and then upsell or cross sell other products
to the customer. For example, today GE offers insurance products as well as a range of consumer and
industrial products and Internet enabled services like call centres. Thus the customer who is initiated
to GE through the insurance or call centre route could be sold other products of GE as well. For GE,
delivering 100% quality in service is as crucial, as it is in any manufactured product. This is reflected
in the philosophy of Six Sigma propagated by GE’s legendary CEO, Jack Welch. This implied that the
customer was guaranteed a zero defect product and delivered in the customer defined time span. This
clearly involves a change in the mindset of the service marketer.
Thus, new paradigms in service marketing demand a passion for understanding customer expec-
tations and perceptions and linking them to product design and delivery as well as to operational
planning. Jet Airways, HDFC, international food chains like Domino’s Pizza, McDonald’s, and Pizza
Hut, and leading hospitality firms like Taj and Oberoi Hotels integrate the customer’s perspective in
a far more comprehensive manner than others and hence are able to succeed in the midst of intensive
competition.
Paradigms in Services Marketing

In service marketing, since Service as a Process In service marketing today, service brand is built by
customers are often involvedtaking the process perspective. This means that unlike manufacturing, differen-
in the production of services,
tiation between operations and marketing is blurred in the services industry.
marketers need to understandInternal customer focus is as important as external customer orientation. Further,
the nature of the service
since customers are often involved in the production of services (for example,
process and the stages in this
process that are exposed tothe customer in a food chain wherein he places the order, picks up the order
customers. himself, and then, after finishing clears the table), marketers need to understand
the nature of the service process and the stages in this process that are exposed
to customers. The process is a special method of operation wherein several steps or activities are per-
formed in a defined sequential manner. Consider for example, the case of the customer who may want
to travel by air from Mumbai to Delhi. It is important to know the steps that this customer would go
through—starting from reservations, ticketing, getting baggage screened, checking in, waiting at the
airport lounge for the flight to be announced, security checking, boarding of the aircraft; inflight serv-
ices like being ushered to the seat, safety announcements, food service, and finally checking out from
the airport terminal with retrieved baggage. At each of these stages the cus-
It is important for the service
tomer comes in contact with the airline staff and its various equipments and marketer to understand
technologies. Every time that the customer comes in contact with the organisa- each of the moments of
tion a moment of truth is created. It is important for the service marketer to truth involved in the service
understand each of these moments of truth because the service brand will be process because the service
brand will be developed only
developed only when each of them have been managed in an honest and sincere when each of them have been
manner. Each of these steps or stages differs in terms of its complexity and cred- managed in an honest and
ibility in customer decision making. For example, the significance of check in sincere manner.
counters is entirely different from that of the customer enquiry process. While
in both cases the customer does not want to wait, it is much more so in the case of enquiries, where the
customer wants an immediate response. Thus it is important for the marketer to map all these stages in
service operations and delivery.
It is important to understand that in the service industry there is no difference
The experience of service
between back and front office operations. The experience of service leaders has leaders has shown that they
shown that they tend to bring the back office to the front, so that the customer tend to bring back office to
is able to know the operations and is able to give feedback on service design the front so that the customer
improvements. For example, in a restaurant, it is not uncommon for the chef to is able to know the operations
and provide feedback on
be available during the peak lunch hour to personally supervise the entire food
service design improvements.
display and get a direct feedback from customers. Some restaurants have even
designed ‘open’ kitchens which are visible from the dining area, thus bringing the kitchen directly to
the customers. ‘Bukhara’ in Delhi, for example, has followed this strategy for the purpose of building a
strong brand in the non-vegetarian and tandoori foods in India and outside. Even though this restaurant
is in the 5 star deluxe hotel, namely ITC Welcome Group’s Maurya Sheraton in Delhi, it has come to
acquire a very distinct brand identity among customers who enjoy tandoori food. It is no wonder that
the restaurant has been endorsed by opinion leaders across the world.
It is obvious that people and objects are two major inputs processed in the service industry. In most
cases, customers are important inputs in the service process, as reflected by the restaurant, airline, or
beauty salon businesses. In other cases, the key input is an object that needs to be either produced or
repaired. For example, a burger is an object to be produced by McDonalds’ in a defined manner and
time so as to ensure consistent quality, production, and delivery. In another case, like the computer
hardware industry, a malfunctioning computer is an object that requires service support.
Keeping in mind the category of inputs and whether the action required is at the tangible or intangible
level, one can have a four-way classification of services as shown in Fig. 27.2.
Classification of Services Quadrant ‘A’ is categorised as people processing services, quadrant
‘B’ as product or possession processing, while quadrant ‘C’ is mental stimulus processing, and the last,
quadrant ‘D’, is information processing.
A marketer involved in
People Processing Services These services are targeted at customers them- people processing services
selves. In order to receive these types of services the customer must physically tries to create a new set of
values in the industry for the
enter the service system or the service factory. An example, is an aircraft where
customers.
Figure 27.2 Classification of Services
both people and equipment or technology, or either of them, create and deliver service benefit. Today,
it is possible that the service producer may come to the customer with the necessary tools of his trade.
The goal of this service provider is to create a new set of values in the industry for the customers. For
example, a banker may walk up to the customer and complete all the necessary transactions that the
customer may want to do at his/her place of work or residence, at a time most convenient to him/her.
From the marketing perspective, it is important to think about these processes and their impact on
customers, as it will help identify the benefit package that needs to be created. These benefits are ex-
pressed in both financial and non-financial terms.
Product/Possession Processing Services In product processing or posses-
In the product/possession
processing services, the sion processing services, customers are less physically involved. In most such
customer evaluates the cases, customer involvement is usually limited to calling for the services, ex-
service on the basis of plaining the problem, and subsequently making the payment. The pre- and after-
tangible promises being sales service here will involve issues relating to customer response management.
delivered within a defined
time period at a pre- From the marketing viewpoint, these are a range of services, which are going
negotiated price. to add value to the customer and, hence, the marketer needs to understand the
entire value chain process of the customer. For example, the logistics services
provider needs to understand the role of his services in the value creation process of an exporter or of
the shares department of a large industrial house. It is important to note here that the customer evalu-
ates such services on the basis of tangible promises being delivered within a defined time period and
at a pre-negotiated price. Thus the marketer has to ensure that there are no problems in delivering the
promised service. Also, he needs to examine all the stages in the customer’s operations, to identify op-
portunities for his products.
Mental Stimulus Processing Services that are categorised under mental

The mental stimulus
stimulus processing include education, entertainment, and management processing services impact
consultancy. It also includes religious services offered by a large number of the consumer mind and have
religious ‘gurus’ and their ashrams. These services impact the consumer mind the potential to shape their
and have the potential to shape their attitudes, behaviour, and lifestyle. In a way, attitudes, behaviour and
lifestyle.
this relationship of the marketer with the customer is one of dependency, where
the customer is dependent on the ‘guru’. This can often lead to problems relating
to manipulation, extortion, and even unethical behaviour or practices. To avoid such a negative image,
such organisations and individuals need to evolve a code of conduct acceptable to the customer and
create high ethical standards. The customer must feel that he or she is not being cheated. Ethical
marketing in such cases is a prerequisite. Equally important from the marketing perspective is the
principal of repetition in consumer learning. These services need to be offered on a repetitive basis, so
as to provide the customer the opportunity to use it at a convenient time and place. For example, today
there are dedicated television channels like ZED for education, and ‘Aastha’ for religion—which
telecast programmes on Indian television 24 hours a day. This provides the customer the opportunity
to see the programme or programmes at a time and for a duration that is convenient to him/her.
Information Processing Services In the context of information processing
services, the marketer has to understand that information is the most intangible In the information processing
services, the marketer should
form of service output and, in today’s context, most vital from the point of understand that information
view of the customer’s own competitive advantage. In this era of information is the most tangible form of
technology, customers shop for information in areas as diverse as accounting, service output, mostly vital
legal research, medicine, insurance, and financial products. The customer’s from the point of view of
customer’s own competitive
involvement in these situations is very high and hence are categorised as high advantage.
involvement purchase decisions. From the customer’s viewpoint, these are high
cost (both financial and non-financial) and high risk service situations. Hence
the customer tries to avoid going into the service factory to shop for the service product. From a
marketer’s perspective, this poses a challenge to bring the customer to the factory and motivate him to
buy and consume such services.
Thus, service as a process has to be viewed in the context of the different stages and categories
that have been referred to above. It is equally important to understand that unless and until each of
these stages is performed for 100% quality results, one cannot have a 100% service product. There
is no room for a 99.9% service quality product. It is, therefore, necessary that the marketer plans his
service factory to ensure a high degree of customer satisfaction and also identify appropriate means of
service delivery, both through the physical and the electronic media. He needs to integrate information
technology to ensure that each stage is connected totally to customer expectations. It is important for
the marketer to balance supply and demand forces to avoid losses, for unlike a manufactured product,
service production and consumption are two sides of the same coin. For example, a flight on a particular
sector is a service product. It needs to be totally sold out before it takes off. If not, it is a loss which
cannot be recovered subsequently.
Do it Right the First Time Since there is no 99% quality in the service product, there is no
question of reworking or repairing of a bad service product. This is because, unlike the manufacturing
sector, there are no inventories in the service industry as there is zero time gap
A bad service delivery not between the production and consumption of a service. Hence it is extremely
only creates a dissatisfied
customer, but also severely
important that each and every employee involved in service production and
impacts the brand equity. delivery does his/her job right the very first time. A bad service delivery not only
creates a dissatisfied customer, but also severely impacts the brand equity. In the
manufacturing sector, one can still make amends by repairing or replacing defective products, but not
so in the service sector.
Speed! Speed!! Speed!!! Speed in responding to the customer holds the key to brand planning
in the service industry. It is, therefore, important that the service strategist pushes for speed and
accuracy everywhere. For example, in the case of the courier industry, pick up
Speed holds the key to of the package or parcel from the customer’s premises, taking it to the collection
brand planning in the service point, and then to the airport are crucial moments in creating a credible brand.
industry. Likewise, on reaching the destination, the same speed has to be maintained up
to the point at which the package or parcel is to be delivered. Speed in providing
correct and accurate information on the status of the delivery is yet another critical moment. This
clearly means that the marketer needs to reduce the time gap between two successive stages in the
service process. He needs to benchmark each of these stages in terms of time and evaluate the variance
that may come about between the customer’s defined time standard and the actual time taken for the
product to be delivered. This is possible through the development of a standardised service design and
simplified processes. This is also possible through the application of state of the art technology for each
successive stage, such that the employee interface is reduced to the bare minimum. This is important
because often people tend to bring in their own perceptions and prejudices into service delivery. Human
behaviour cannot be standardised or predicted and, in fact, human interactions create multiple levels
and types of responses. Increasingly, it is being felt in the service industry that in order to ensure that
customers get the desired brand value, services should be standardised and delivered in a consistent
manner. Technology helps achieve this vision. Many service providers today involve their customers
in producing the desired service thus helping the customer choose his time and pace and also create a
customised product. The Internet and other computer technologies, as well as telecommunication help
the marketer achieve this goal, thereby creating customer loyalty. For example, a customer may get
varying responses at different times in a bank, if it does not have ATM facility. The response of the
banker is a function of his/her perception and attitude towards customer service and understanding of
the situation. Though the bank may have spelled out behavioural norms, it is extremely difficult for the
management to standardise its human response. But if the bank has ATMs, it could programme them
to deliver a defined message in a defined manner and time and feel reassured that the machine will
perform. The customer also feels empowered as he is no more bound by the bank’s working hours.
He/she chooses his/her time, pace, and place to complete the banking transaction. The same applies to
Internet enabled shopping. The role of the customer service executive is to provide special services,
for which necessary training should be imparted. Hence the use of technology in an innovative manner
holds the key to planning a strong brand in the service industry.
Keeping Customer Perspective Always Service marketing cannot succeed without always
maintaining the customer’s perspective at all levels of the organisation.
CHARACTERISTICS OF SERVICE MARKETING
LO2 Based on the above paradigms, one could conclude that service marketing
Describe the differs substantially from manufactured product marketing. This difference
characteristics of is not merely cosmetic; rather it is structural. These characteristics are
service marketing discussed in the following sections.
Intangibility
As mentioned earlier, unlike manufactured products, the service sector cus-
In service marketing,
tomer in most cases cannot touch, feel, or see the product. Here the customer
the customer decision is
decision is completely dependent on his understanding of the service product at completely dependent on his
a given point of time and his belief in the marketer’s promise of future perfor- understanding of the service
mance. In many cases, the results of such services are unknown to the customer product at a given point of
at the time of taking the decision. This creates a dissonance in the mind of the time and his belief in the
customer with regard to, both pre- and post-purchase decision making. Before marketer’s promise of future
the decision is taken, the consumer may spend considerable time in the evalua- performance.
tion of alternatives, especially if it is a highly complex service product with
substantially high cost and risks. For example, even in a simple service situation (from the technology
perspective) like a beauty salon, the customer may spend considerable time evaluating various salons
before finally selecting one because it reflects his personality. As it is a high risk buying situation,
customers look for comfort zones, familiarity with the service provider, and the product help in the
selection process. The role of communication is therefore substantially high in the service industry.
Given the varying credibility of different channels of communication, it is important for the service
marketer to identify the most credible medium of communication. More than the mass media, it is the
social channels and customer’s own prior experience with the service organisation that holds the key
to acceptance of the product. For example, the customer and his/her reference group’s experience with
life insurance policies and organisations like Life Insurance Corporation of India play a much more
significant role than advertising or an intermediary in the selection of the product offered by the or-
ganisation. Though agents have played an important role, it is necessary to understand that today,
customers do not necessarily believe in the communication being churned out by insurance agents. This
has implications for insurance companies, from the point of view of designing the product and also
determining the role of intermediaries in their marketing programmes.
It is equally important to understand that even a small untoward incident or
In service marketing, the
the slightest bad publicity could impact the sales of the service product much
slightest bad publicity could
more than one would expect with manufactured products. For example, if a impact the sales of the
nursing home or a hospital has not handled one case properly, it could have a service product much more
ripple effect in the market and lead to customers moving away to the competitor, than one would expect with
inspite of being referred here by their medical consultants. Even though these manufactured products.
consultants are important opinion leaders, they have to respect the voice of the
customer. They, therefore, have an internal role of strengthening hospital systems, making them cus-
tomer centric and offering a 100% quality product at all times, to all customers. Failure to do so can even
lead to consultants losing their opinion leadership role. For them, it is an issue of retaining credibility
and hence important to understand how opinion leadership works in target markets.
Low Price Sensitivity

Price sensitivity in the service industry is relatively low. Here, customers are willing to pay a higher
price, as long as they feel reassured that they are going to get a 100% quality product. In other words,
they are willing to pay a higher price for a zero defect service product. Consider again the case of medi-
cal services or the barber and the beauty salon where the customer’s perception of the risks attached
with the various alternatives is high. He/she is willing to pay a higher price in order to minimise or
eliminate the risk.
If one were to look across the various categories of services and consider two critical parameters in
customer decision making, namely price sensitivity and performance expectations, one can identify a
product continuum with one end consisting of services, where the customer is willing to accept lower
performance as long as prices are not high. The other end of this continuum reflects products where
the customer’s expectation of performance is high and he/she wants 100% conformance to specifica-
tion and is hence willing to pay a higher price. In other words, performance and price sensitivity are
inversely related. The higher the performance expectation the lower the customer’s price sensitivity,
and vice versa. For example, medical services and airlines are in the category of low price sensitive
and high performance expectation products. However, car rentals, transportation, warehousing, and
retailing are service products where the customer’s level of performance expectation is not significantly
high but price sensitivity is high. In these cases his tolerance to imperfection is higher than in medical
services and airlines. Figure 27.3 reflects this product continuum.
Performance and price sensitivity are inversely related.
Figure 27.3 Price Sensitivity in Services Marketing
Profitability and viability No Inventory

are extremely critical if the
service provider is to deliver We have mentioned earlier, that in the service industry there is zero time gap
exemplary service to the between production and consumption. Services have to be consumed as they are
customer. produced. This has to be kept in mind while planning operations. It is equally
important to understand its implications from the point of view of demand and
supply. It is extremely important for the marketer to balance these forces as otherwise he may have
excess capacity, leading to loss and thus creating an unviable product. Profitability and viability are
extremely critical, if the service provider is to deliver exemplary service to the customer. Jet Airways,
for example, states that its objective is to ensure consistent profitability and to deliver healthy long term
returns to the investor. Only when the services are profitable, can the surplus be deployed for upgrada-
tion and enhancing service quality as well as for innovating new products and designs. Similarly, the
marketer has to consider the issue of distribution in the service industry. It is not uncommon to observe
‘happy hours’ in the food industry. This is the time zone when customer traffic is low and restaurants
sell their excess capacity at discounted prices. Today, ‘happy hours’ has become a common feature in
most restaurants.
Value Creation Process

The value creation process in the service industry is through people, processes, proof of performance,
and the pace at which the service is delivered. Most often marketers tend to ignore these four Ps and
concentrate more on the conventional four Ps or product, price, promotion, and place. A value service
product, therefore, is created through an integrated marketing mix of all the eight Ps.
Tangibility
Tangibility is provided to the service product by the service provider, communi-
Tangibility is provided to the
cation, and speed at which the service is delivered. The ambience of the service service product by the service
product helps in creating an appropriate set of beliefs which will help reassure provider, communication
the customer. In the context of Internet enabled services like call centres, or and the speed at which the
dedicated websites like Shaadi.com or Contest2win.com, etc. both the people service is delivered.
behind the operations as well as the technology are critical for creating tangible
expectations. Also, the bandwidth of the Internet service is an important enabler in the value creation
process for an ISP. Further, the connection or the integration of the ISP with basic telephone services
could go a long way in creating an appropriate image for the service provider. For example, in Bharti
Tel’s ISP services, the value creation process is dependent on its bandwidth, international gateway,
linkage between the Internet and basic and mobile telephony, and the people who market the service.
Creating tangibility could help make customers feel comfortable about his or her decision.
Having understood the characteristics of service marketing and the fact that the customer’s perspec-
tive has to always be kept in mind, it is now necessary for us to understand how the consumer decision
making process works in the service industry.
CUSTOMER EXPECTATIONS AND ZONE OF TOLERANCE
LO3 Understanding Customer Expectations and Zone of

Predict customer Tolerance
expectation and zone For maintaining customer perspective at all times, it is necessary to under-
of tolerance
stand customer expectations and integrate them with service design and
delivery. In Chapter 6, we learned how customer expectations are developed
over a period of time. In the context of the services industry, these expectations are influenced by the
experience of the customer and his/her immediate reference groups. These are also shaped by commu-
nications from and about the service provider. While understanding these expectations, one must bear
in mind that most customers have an ideal image of a service product and organisation. These desired
services are an ideal image, influenced by the customer’s personal needs and by the developments in
other service products. For example, response time and use of interactive technology to respond to
customer needs in real time in one service sector, like airlines, influences customer expectations from
other service products like medical services, hospitality, and even power utility.
The gap between the desired
These expectations from other sectors have been categorised as being derived
and adequate service is
called the zone of tolerance, expectations.
which varies inversely across According to Zeithaml and Parasuraman1, the personal service philosophy of
decision criteria, depending the customer also influences his expectations from service organisations. The
on the criticality of the criteria, desired service expectation, which is an ideal product, is influenced by service
competition, price and unique providers’ communication, social channels, and other parameters like price and
features of the service
product.
tangible benefits associated with the product. However, most customers under-
stand the realities and do realise that their image of the service world may not be
compatible with real life, as organisations have resource constraints and environmental factors (like im-
pact of government policy on organisational performance). These considerations influence service ex-
pectations and the minimum level of service expected or, in other words, the threshold level of service is
termed as adequate service. The gap between the desired and adequate service has been called the zone
of tolerance. This is the variation customers are willing to tolerate in any service situation (Fig. 27.4).
Figure 27.4 Customer Expectation and Zone of Tolerance

Any performance that falls below the adequate or threshold level of service is going to create customer
dissatisfaction. But if the actual service delivered exceeds this level, the customer is satisfied. The
closer this delivery gets to the desired level, higher the customer satisfaction. Furthermore, the customer
feels delighted when there is no gap between the delivered service and desired service. This zone of
tolerance varies inversely across decision criteria, depending on criticality of the criteria, competition,
price, and unique features of the service product.
The zone of tolerance can be measured on a continuum ranging from low to high, depending on the
criticality of a parameter in the customer’s decision making. For example, punctuality and safety are
the most critical factors in a customer’s evaluation and selection process of an airline. Hence, here the
zone of tolerance will be the least and the customer will not be willing to accept poor performance. This
is not the same in the context of lounge or valet services where the zone of tolerance will be higher as
it is not as critical as the earlier situation. Understanding the zone of tolerance and decision criteria can
help the marketer design the service product. This relationship between zone of tolerance and criticality
of decision criteria is shown in Fig. 27.5.
Figure 27.5 Decision Criteria and Zone of Tolerance
Role of Service Employees

Service employees play a key role in the successful production and delivery of services. In most sectors,
they are inseparable from the service itself. For example, a successful haircut cannot take place without
the actual hairdresser or a flight cannot take off without the pilots.
As discussed in others sections, this also leads to individual variability, which firms are trying to
overcome by means such as technology and implementing standardised processes. Firms like McDon-
alds require their employees to wear uniforms and also headgears to ensure hygiene and also a standard
look. Consulting organisations require individual consultants and teams to maintain detail records
which are recorded in standard formats to ensure similar service delivery and quality by the organisa-
tion even if individual consultants move on different projects or leave the organisation.
This inseparability also makes it imperative that firms focus and manage their employee recruit-
ment and training. Research shows that employee internal emotions, work group mood and the service
environment positively influences service outcomes.2 Frontline employees are especially critical in any
service industry. Often least paid and often underappreciated, these employees represent the organisa-
tion and service brand far more to the customer than any other mass marketing initiative. Customer
impressions of the frontline employees tend to “spillover” to other service quality and experience out-
comes.3 Care must be taken to ensure that these employees are truly customer oriented, adept at ‘surface
and deep acting’ and their interpersonal values match that of the organisation.4
Role of the Customer

Just as the employee is inseparable from the actual service offering, the customer also needs to be
present for the service outcome to be produced. In our previous examples, just as the hairdresser needs
to be present in the production of the service, so does the customer. The hairdresser cannot produce
the haircuts in advance or in a separate production unit isolated from the end customer. This presents
unique challenges and opportunities for the firm. While on one hand, co-operative and loyal customers
can be immensely helpful to the firm and frontline employees; disruptive and unruly customers (e.g.
a wailing child on an airplane or restaurant) can create a poor outcome for themselves and even other
customers in the service environment. The firm must not only acknowledge this presence of customers
but also try to factor this when designing service environments, employee training, etc. By having self-
checkout lanes open during busy shopping hours, several grocery stores world-over use their customers’
presence to their advantage. Companies like IKEA have self-checkout as a norm in their stores, thereby
treating customers as employees and passing on the cost-savings through lower prices.
When trying to understand how best to use the customer’s presence in the service environment,
the firm must recognise that customer behaviours falls in three broad categories—in-role behaviour
(behaviours that are usually expected from the customer and without which the service outcome will
not be complete, e.g. waiting in line, making the payment, etc.); extra-role behavior (behaviours that
are discretionary and that the customers don’t ‘have’ to do, e.g. pick up a broken piece of glass on floor,
help another customer, inform the store if an item on shelf has expired, etc.); and information sharing
(information that the customer shares regarding their preferences to help the employees better cater to
the customer’s tastes). Once the firm managers have identified these behaviours, elements in the service
design (physical aspects such as store layout, posters on walls; and employee scripts and training) can
be customised to ensure higher customer satisfaction and efficient use of the firm resources.
Segmentation and Zone of Tolerance

The zone of tolerance differs across customer groups and products. It is, therefore, necessary to seg-
ment the market, in much the same way as it is in consumer product marketing. One useful way of
segmenting the market is establishing the zone of tolerance across different customer decision criteria
like price, performance, and service quality. For example, based on price sensitivity, customers can
be segmented into low, moderate, and high price sensitive segments. Each of these segments will
have different expectations of desired and adequate service and perception of service products deliv-
ered. The service organisation may target any of these segments and position its services accordingly
(Fig. 27.6).
Figure 27.6 Performance and Sensitivity
For example, a customer segment which is low on price sensitivity but high on performance sensitiv-
ity requires a product that guarantees performance and in the eventuality of performance not coming
upto the adequate level, the organisation’s promise to compensate him. Explicit service guarantees
and performance standards hold the key to customer retention. Value addition through such guarantees
ensures the future growth of the product and organisation. Likewise, customer loyalty can be the basis
for segmentation.
SERVICES MARKETING MIX
LO4 Augmented Marketing Mix

Explain services Service marketing differs from consumer marketing
marketing mix Creation of an environment
as it combines the conventional four Ps with the other in which individuals feel
four Ps, that is, people, process, proof of delivery, empowered to deliver
and the pace at which the service is delivered to the customer. It is important for services to the customer, in
the service marketer to appreciate that the value creation process in the service the customer’s defined time
standard can go a long way in
industry is a result of integrating all eight Ps. Hence, in the service industry, building customer loyalty.
internal customer care is as important as external customer care because, as
mentioned earlier in Chapter 1, external customer satisfaction cannot take place with a demotivated
employee. Creation of an environment in which individuals feel empowered to deliver services to the
customer, in the customer’s defined time standard, can go a long way in building customer loyalty.
Jet Airways and other service organisations like Apollo Hospitals have created an environment in
which individual employees feel sufficiently motivated and empowered to deliver the services that the
customer wants and in the defined time period. Rarely does one have to approach senior executives in
these organisations as in most cases, problems are sorted out at the customer service executive level
itself. The employees in these organisations share the vision of the top management and are trained to
deliver breakthrough service products to customers.
Proof of delivery is required to make the customer feel reassured that the organisation has been able
to deliver on the explicit promise that it made while marketing the product to the customer. This also
helps in reducing dissonance in the customer’s mind. The courier industry has so far used this concept
successfully. Proof of delivery could even be the testimonials that the marketer has received from its
satisfied and delighted customers. While talking about proof of delivery, it is important to note that
statistics, like ‘99% on time performance’, have very little meaning to the customer. This is because so
far as the customer is concerned, his is a total experience and therefore, for him, a particular encounter
with the service provider represents the entire universe. Thus, while working out the proof of delivery,
the marketer needs to measure not only quantitative but also qualitative dimensions which result in the
quality of delivery rather than statistics.
Product Planning
As discussed earlier, service products are mostly intangible. As with consumer products, the product
planners for the service industry also need to consider three components in the design of the service
offering.
Key Components in the Design of Service Offering
Core Product At the heart of the service offer is the core value proposition of service. Here the mar-
keter has to ask basic questions like: What business is the service organisation in? What is the product
that the customers are really purchasing? The core product provides the solution to the central problem.
For example, when the customer is hiring a car from a taxi service, at the core is the timely and safe
transportation need. Therefore, the core benefit that the customer is looking for is the convenience of
travelling safely from one place to the other.
Service Delivery Process The second component of the product planning relates to the service de-
livery process, or how the core product is delivered to the customer. The marketer has to consider the
extent and nature of the customer’s role in this delivery process and the prescribed level and style of
service to be offered. As mentioned above, there are four core service delivery processes, namely people
processing, product or possession processing, mental stimulus processing, and information processing,
each of which have different implications as regards customer involvement, operational planning and
procedures, degree of customer contact, etc.
Augmented/Supplementary Services The third component is the range of augmented or supple-
mentary services that help augment the core product. This helps in enhancing the value of the product.
It is important to note that each of these supplementary elements requires their own delivery system,
which may or may not be a part of the core product and prescribed service level. For example, today,
most five star hotels have created dedicated hotel wings for their top end elite customers. The Oberoi
in Mumbai has two wings. The new wing, called The Oberoi, is dedicated to CEOs and other elite
customers who would like to receive special treatment. This wing has conference room facilities in
each room, personalised valet service, and several other features which are valued by CEOs and other
members of the elite society. The entire delivery process of these exclusive services is different from
the delivery process in the regular Oberoi hotel.
Figure 27.7 Service Product Design
Delivery Sequence Another component of the service product design relates to the delivery se-
quence over a period of time. It is important to note that neither the core service nor the supplementary
elements are delivered continuously throughout the duration of the service performance. This under-
standing can help the marketer appreciate the role that time plays in process scheduling and determina-
tion of the potential cost of services for customers. It also helps resolve the resource allocation issue
for the service provider. From the service design point of view, it is important to study how much time
the customer is expected to spend on different service elements and what he/she does at any defined
moment. In a way, it helps understand the difference between expected and actual performance across
the time parameter. Depending on the criticality of the service situation, the customers define their time
expectations.
Since most of these are intangible parameters, the task of the service design becomes far more com-
plex than in consumer product marketing. In order to design a product which is valued by the customer,
it is necessary to map these customer values and expectations and develop a flowchart based on this
information. These flowcharts are based on the identification of all expectations and/or the desired
services encounter sequence. Based on this understanding, the marketer can translate these service
encounters into behaviour norms, actual norms, or product feature norms. This could also help in terms
of selecting norms for defining standards, both at the hard and the soft levels. The hard level refers to
tangible features of the service product. For example, the cleanliness of the room, air conditioning,
the lobby and restaurants, and room ambience in the hotel, all reflect the hard standards. The response
time by the employees is an example of soft standards. The important aspect of this flowcharting is the
marketer’s ability to distinguish and establish a link between customer experience at the front office and
the back office activities of the employees, which are not visible to the customer. As mentioned earlier,
service leaders tend to blur the difference between front office and back office operations by ensuring
implementation of similar standards at both ends of the organisation. Marriott Hotels, for example, has
found that four of the five factors that contribute to customer loyalty come into play during the first
10 minutes of the service delivery. Hence, the hotel spends considerable resources, both on time and
manpower, to train every individual in the hotel to manage their first 10 minutes with each customer,
effectively. The hotel has also made all the service encounter points customer friendly.
It is important not only to set service standards but equally to develop a feedback mechanism. This
feedback mechanism could help the marketer understand how well the service products are delivered
and whether the customer is satisfied. The hard service standards are measured by regular audit or by
the operating data. For example, whether the air conditioning is as per the defined standard or room
cleanliness is as per the norms of the organisation is assessed on a regular basis, through periodic audits
from the customer feedback data. So far as soft standards are concerned, these are measured by transac-
tion based surveys. Figure 27.8 describes the process of mapping customer expectations and converting
them into standards as well as measurement tools for assessing whether these standards are achieved.
Figure 27.8 Standards for Service Design
Supplementary Services One of the key issues in service design relates to supplementary service
which, as mentioned earlier, helps in augmenting the product. These supplementary services can be
categorised into two major groups namely:
(a) facilitating supplementary services
(b) enhancing supplementary services
Facilitating supplementary services are essential components and generally include typical services
relating to order taking, billing, and payment. Enhancing supplementary serv-
ices are those that add extra value to the customer. This typically includes serv- Facilitating supplementary
ices like consultation, hospitality, safekeeping, and even other services that services are essential
components, while
generally fall outside the normal or routine service delivery. Service leaders enhancing supplementary
anticipate such exceptions and develop contingency plans and guidelines in services are those that add
advance. This ensures that employees do not feel helpless or taken by surprise extra value to the customer.
when the customer asks for special assistance. Consider, for example, a passen-
ger on a flight who asks for a special meal or requires special handling due to some emergency on board.
The airline staff should be able to handle such special requests even at the last minute. Jet Airways, for
example, gives the passengers the option to pre-book food of his/her choice. Indian Airlines carry extra
food and lets the passengers know that it is available on request. The fact that Jet Airways asks its pas-
senger to send in their requirement in advance, at the time of reservation, has created a high degree of
customer preference for the Jet Airways services. Likewise, when the service has not been performed
to the total satisfaction of the customer, the customer expects to be compensated. This compensation
may take the form of refunds or an offer of free service or payment in kind.
The management needs to keep an eye on the level of such exceptional requests, as too many may
imply a need for revamping standard operating procedures. It has been suggested that a flexible ap-
proach be assumed towards such exceptional cases as it helps in responding to customer needs in real
time.
From the marketing point of view, it is important to understand that not every core product requires
to be surrounded by a large number of supplementary services. While people processing services are
most demanding in terms of supplementary services, product or possession processing services place
high demand on enhancing levels of supplementary services like safekeeping. However, some other
services like, telephone service, may require only the facilitating range of supplementary services.
Branding is also an important strategy in the service industry. This is so, because today most service
organisations offer similar products and, as in manufactured products, the service industry too is now
offering ‘commodities’. Branding helps in creating a differentiated position for the service provider.
Most firms, today, brand their products and market them as either standalones or under an umbrella
name. For example, Barista Coffee Company has opened a range of coffee shops under the brand name
Barista. These coffee shops are different from the conventional Indian Coffee House which is perceived
as a low image, low price outlet. Likewise, Taj has branded their hotels as Luxury, Leisure, and Busi-
ness hotels. Each of them has a different product but offered under the umbrella brand name, Taj.
Likewise, BSES offers Internet services in the city of Mumbai under the brand name Powersurfer.net.
Jet Airways offers two distinct brands of air travel products, namely Club Premier (Business Class) and
the regular Economy class. Indian Airlines offers the Metro Shuttle brand of services between Delhi
and Mumbai. Brand, therefore, is not only a way of differentiation but also the means of reflecting the
value which an organisation wants the customer to believe and experience.
Today, technology is being used for the purpose of researching the customer
In the service industry, it is
and also integrating customer’s needs in product planning.
value-based pricing rather
than cost based pricing
Pricing Strategies that enhances sales and
Pricing strategies, as discussed earlier in Chapter 14, are based on the company’s maximises returns on
objectives, customer characteristics, intensity of competition in the marketplace, investment.
and product characteristics. Price reflects value to the customer. In the service industry, it is necessary
to understand that more than cost based pricing, it is value based pricing that enhances sales and maxi-
mises returns on investment. It is not necessary that low prices alone will contribute to sales turnover. In
fact, price wars fought between state owned telecom companies and private sector firms in the cellular
phone industry did not make a dent in the market share of the latter. This is because these private cel-
lular operators offered a much wider range of services, which are valued by the customers much more,
than just the low price. Similarly, the Jet Airways passenger was not sufficiently motivated to go back
to Indian Airlines, even when Indian Airlines offered a substantial price discount on some of its major
routes. Thus, value based pricing is one of the most appropriate pricing strategies in the service industry.
Distribution
Services are required to be made available to the customer in real time. Intermediaries, therefore, play
an important role in acquiring and creating value for the customer. Today, services can be delivered
either in a physical format or through electronic channels. While the physical channels include brick
and mortar, intermediaries like agents, franchises, and strategic partners, the electronic channels are
Internet and telecommunication enabled call centres or Internet enabled retailers like Amazon.com,
Fabmart.com, and so on. In designing the services delivery process, the marketer must start with the
core product and should also consider delivery of each of the different supplementary elements. The
following systems need to be addressed in designing service delivery:
(a) nature of contract between the service provider and the customer
(b) sequencing of the various stages in the service delivery process
(c) location and schedule of the delivery
(d) imagery, atmosphere, and experience that the marketer wants the customer to have in the physical
service delivery alternatives
(e) bundling or unbundling of service elements
should any other priority system be created

Technological development in the last decade has had an impact on the way services are produced and
delivered. Amazon.com is an outstanding example of cyber space retailing. Likewise, travel agents using
the Internet for the purpose of delivering services to the customer in a customised manner is yet another
example of how travel services could be changed by using the Internet and telecommunication technol-
ogy. The implication of these technological developments is that, as mentioned earlier, customers have
now become a co-provider of services and, to that extent, are now independent of the employees in the
organisation. This provides an opportunity to the service organisation to reduce customer dissatisfaction
and also to the customer to save time and get, in an uninterrupted manner, the quality of services that
he/she wants. Over a period of time, the development of smart mobiles, telephonic voice recognition
technology, smart cards, and the Internet will only further change the landscape for service delivery.
Notwithstanding the above, brick and mortar intermediaries like Shoppers’ Stop, Akbarally’s, Kids
Kemp, Spencers, or Jainsons will continue to play a key role in creating value for the customer. This
is because they offer to the customer the benefit of touch and sight. Franchising, as seen in the context
of Titan and food chains like Domino’s Pizza and McDonald’s, will continue to play a dominant role.
This is the most effective way to expand delivery of an effective service concept to multiple locations
without high capital investment. Following are some of the factors that the marketer needs to consider
in designing franchise arrangements:
(a) nature of the service

(b) geographic territory in which the franchisee can offer the service
(c) revenue to be generated by the franchisee and paid to the franchiser
(d) length of the agreement (usually it is 5–10 years with options to renew)
(e) up-front fee for the franchise
(f) Standard Operating Procedures (SOP) to be followed by the franchisee (this has to include price,
quality, reliability of service, advertising, etc.)
(g) explicit stipulation that the franchisee will not act as intermediary for any direct competitor (this
technically distinguishes franchisees from dealers and agents)
(h) promotional support to be given to the franchisee to improve the value of franchised brands
(i) administrative and technical support to be provided by the franchiser
(j) process of termination of contract
Role of Communication
In the service industry, communication has a dual role. One is to educate the customer and the other
to build a brand. Customer education is one of the most important roles because the customer needs
to be informed about the features and benefits of a service product being offered to him. For example,
when a bank sends the customer a mailer on phone or Internet banking facilities, it includes step by
step instructions which the customer has to follow in order to use the service. If the direct mailer does
not have the instructions and was only to create an image about the benefits of phone banking or about
the bank as a customer-friendly bank, then it will not be serving its purpose.
Thus, in the service industry, communication has a very distinctive role to play. As in consumer
marketing, all channels of communication are used for both customer education and brand building.
SUMMARY
New paradigms in service marketing demand a passion for understanding customer expectations and
perceptions and linking them to product design and delivery, as well as to the operational planning.
A service brand is built by taking the process perspective of the service. Since customers are often
involved in the production of services, marketers need to understand the nature of the service process
and the stages of this process that are exposed to customers. Services are categorised under people
processing, object processing, mental stimulus processing, and information processing. Each of these
categories of services have different marketing tasks. It is, therefore, necessary that the marketer
understands these tasks and plans his service factory to ensure a high degree of customer satisfaction
as well as identify appropriate ways for service delivery through both the physical and the electronic
medium. Facilitating supplementary services are essential components and generally include typical
services relating to order taking, billing, and payment. Enhancing supplementary services are those
that add extra value for the customer. This typically includes services like consultation, hospitality,
safekeeping, and even other services that generally fall outside the routine of normal service delivery.
Speed in responding to the customer holds the key to brand planning in the service industry. Some
characteristics of service marketing are intangibility, relatively low price sensitivity, zero inventory,
value creation through an inherent marketing mix which includes people, process, proof of delivery,
and pace of response besides the conventional 4 Ps. Tangibility, to otherwise intangible services, is
provided by the service provider, his communication, and the speed at which they are delivered. The
gap between the desired and adequate service has been called the zone of tolerance. This refers to
the variation customers are willing to tolerate in any service situation. The service product has three
layers, the core product, service delivery process, and supplementary services. Value based pricing
is the most appropriate pricing strategy in the service industry. Services are required to be made
available to the customer in real time, therefore, intermediaries play an important role in acquiring
and creating value for the customer. Communication has a very distinctive role to play in the service
industry. Communication in services is used for both customer education and brand building.
POWER POINTS
1. Paradigms in services marketing includes: (LO1)
Service as a process, that is, internal customer focus is as important as external customer
orientation. Further, since customers are often involved in the production of services,
marketers need to understand the nature of the service process and the stages of this
process exposed to customers.
-
vice product and no question of reworking or repairing of a bad service product. There
is almost zero time gap between production and consumption of a service. Hence it is
extremely important that each and every employee involved in service production and
Speed and accuracy in responding to the customer holds the key to brand planning in the
service industry.
2. Some characteristics of service marketing are: (LO2)
intangibility
low price sensitivity
zero inventory
value creation process
tangibility
3. The minimum level of service the customer expects represents the threshold level of expecta-
tions. The gap between the desired and adequate service has been called the zone of tolerance.
This is the variation customers are willing to tolerate in any service situation. Any performance
that falls below the adequate or threshold level of service will create customer dissatisfaction.
(LO3)
4. Augmented marketing mix in service marketing combines the conventional four Ps with the
other four Ps, that is, people, process, proof of delivery, and the pace at which the service is
delivered to the customer. The value creation process in the service industry is a result of the
integration of these eight Ps. Hence, in the service industry, internal customer care is as im-
portant as external customer care as the external customer situation cannot take place with a
demotivated employee. (LO4)
5. As in the case of consumer products, product planners for the service industry need to address
three systems or components in the design of the service offering. These are the core product,
core service delivery processes (which includes people processing, product or possession
processing, mental stimulus processing, and information processing.), range of augmented
or supplementary services that help augment the core product, and delivery sequence over a
period of time. (LO4)
6. Pricing strategies are based on the company’s objective, customer characteristics, the intensity of
(LO4)
7. Distribution is also an important aspect as services are required to be made available to the cus-
tomer in real time. Intermediaries, therefore, play an important role in acquiring and creating
value for the customer. Today, services can be delivered either in a physical format or through
electronic channels. In designing the services delivery process, the marketer must start with the
core product and should consider the delivery of each of the different supplementary elements.
(LO4)
8. Communication in the service industry has a dual role. One is to educate the customer and the
other to build a brand. (LO4)
it; commenting on the sequence, your expectations at each stage, and encounters with other
people (staff and customers). (LO1)
2. Interview customers who are currently participating in loyalty programmes with one or more
service businesses (note that some individuals may belong to more than one loyalty programme
purchasing/usage behaviour in any way, (c) whether it has made them less likely to use com-
peting suppliers, (d) what they think of the rewards available, (e) whether membership in the
of the rewards, and (g) whether they have yet been able to redeem any of these rewards? On the
basis of these interviews, what can you conclude about the effectiveness of these programmes?
Also, based on the responses you receive, what additional research would you like to conduct
if you were the manager responsible for each of these programmes, and why? (LO2)
on the strength of its partners and professional associates and held ethics over and above any
writing to the company chairman. The chairman has now desired to set the service standards.
(LO3)
4. Distinguish between core product and supplementary service elements. Which of these pro-
vides most opportunities for competitive advantage? Why? (LO4)
5. Study a large distance education programme and document its activities. To what extent are
physical channels used to supplement the use of electronic channels? (LO1, 2 and 4)
CHAPTER
RURAL MARKETING
28
LEARNING OBJECTIVES
LO1 Explain growth and significance of rural markets in India
LO2 Describe the rural consumer
LO3 Describe marketing mix for the rural markets
In Practice
Technology in Rural Markets
Rural markets are today as significant if not more as urban markets. This is not just for Agri
inputs, and FMCG products, but it is equally true for technology products like smartphones and
services like Insurance and Banking. The cuss of inflation and lower economic growth got the
urban middle class to cut back on their spending and brand acquisitions. Faced with the de-
cline in their sales, all FMCG companies doubled their efforts to penetrate their rural markets.
For example, Hindustan Unilever renewed its efforts in project ‘Shakti’. This project equipped
rural women with basic entrepreneurial skills and facilities needed to setup and market FMCG
products. Typically the women workforces in this project Shakti are called ‘Shakti Amma’. HUL
provided to 40,000 Shakti Ammas a basic smartphone which had customised business software.
It enabled a Shakti Amma to take and bill orders, manage inventory and receive updates on
promotional schemes offered by the company. This improved their efficiency and also their
reach in the market.
Further, HUL’s distribution today reaches out to 2 million outlets. To improve its connectivity
with distributors, HUL has setup a helpline.
Dabur India on the other hand launched its ‘sample campaign’ and got rural folks to sample
its products and connect with consumers. It believed in getting the word-of-mouth advertising.
The company was most prominently visible in fairs and malls around harvest time. It also con-
ducted school health camps to boost its toothpaste and chyawanprash, and organised beauty
show to showcase its ayurvedic beauty products. Its rural sales force is equipped with phones
and maps showing the demographic and market potential of each locality. This helped them to
improve the rural coverage. Dabur’s rural strategy delivered results as reflected by the fact that
the number of villages under its coverage doubled to 30,000.
Rural Marketing 645
INTRODUCTION
Increasingly, more companies are turning to rural markets to expand the scope of their operations and
also to pre-empt competition. Rural markets are tomorrow’s markets and the marketer should know
how to penetrate these markets. This is not just because 70% of India’s population still lives in rural
areas, but because of the sweeping changes that are occurring here. Let us examine the reasons for the
growing interest of marketers in the rural markets.
IMPORTANCE OF RURAL MARKETS
LO1 Increasing Competition in Urban Markets

Explain growth and Urban markets are increasingly becoming competitive
significance of rural and in many products, perhaps, even getting saturated. Rural markets today offer
markets in India growth opportunities to firms
Consider the case of toiletries, packaged tea, dry cell
caught in intensive inter-firm
batteries, and even electronics and entertainment rivalry in urban and metro
products. For most of them, the demand seems to have reached a saturation markets.
level. All that one sees is brand switching behaviour. Limited new demand seems
to be getting generated. In such a situation, one of the growth strategies is to find new markets for
existing products. Rural markets are the new markets which are opening up for most packaged goods.
Companies that have expanded in these areas find that they are able to ward off competition, generate
new demand, and, in turn, increase their sales or profits. Companies like Hindustan Lever, Lipton,
Brooke Bond, Union Carbide (Eveready batteries), Geoffrey Manners (Anacin), and Colgate-Palmolive
realised much earlier the potential for their products in these areas and have penetrated these markets.
They expanded their distribution network and even employed cycle salesmen, who would go out in
these areas and motivate rural consumers to use their products. Today, many more firms are entering
these markets. Products being promoted range from television and two-in-ones to toiletries, packaged
goods, financial instruments, and even products like condoms. Rural markets today offer growth
opportunities to firms caught in intensive inter-firm rivalry in urban and metro markets.
Socioeconomic Changes in Rural India

The sudden lure of rural India can be attributed to the socioeconomic changes sweeping rural areas
today. These changes can be linked to an increase in productivity in farming. Following the agricultural
revolutions, green and white, the yield per acre land and animal has increased substantially. This was
largely due to the application of technology and use of modern farming methods. Formation of coopera-
tives in western and southern India also helped the farmer increase farm productivity.
Increased productivity meant more income in the hands of the farmer who now wanted to buy the
same products as his/her urban counterpart did. The rural electrification programme also brought a new
hope in these areas, as did the irrigation and rural development programmes.
The process of income generation and creating hope for better standards of living was also accel-
erated by companies and banks adopting villages for integrated rural development programmes. So,
while fertilizer companies’ interest in adopting villages lay in increasing consumption of their prod-
ucts, companies like Tata Steel, Tata Motors, and ITC, made it a part of their social commitment. The
Integrated Rural Development Programme encompasses education, health, modern farming practices,
land development, and cooperative marketing of produce. Development of village industry and craft is
another component of this programme.
The rural consumer income has continuously been increasing, though at a slower pace than the urban
incomes. This growth in incomes is due to the increase in procurement prices (the minimum price the
farmer earns on the produce sold to the government), a series of good harvest following good monsoons
in the last couples of years, government increase in rural spending, policy measures, like waiver of
agricultural loans and Mahatma Gandhi National Rural Employment Guarantee Scheme which guar-
antees 100 days of employment to one member of every rural household. The official minimum rate
under NREGS is about `100. All this accounted for a growth in the rural income of more than 7%. No
wonder the rural consumption today goes beyond the survival mode. Increasingly, rural consumers want
tailored products at highly affordable prices.
All these changes meant more income, higher aspirations, and changing lifestyles in rural India.
Significantly, these changes cut across caste or religious barriers. The social change has also been
fuelled by the reach of television and radio in these areas. We know that today the radio programmes
reach almost 95% of the Indian population and the reach of television programmes is as high as 85%.
Television and satellite communication have created the maximum change in rural areas, something
which was hitherto unheard of in these areas. So, today, Zee TV, ETV and other regional television
channel programmes are received by community dish antennae and the rural consumers watch them
on the community TV set or their personal television sets. They also watch Doordarshan programmes
and, perhaps, also know what is going on all over the world. To add to this change is the video and
DVD culture, which has come to stay in the rural areas. Further, cybercafes, telecom and organised
rural retailing are impacting rural consumer lifestyle in much the same way as that of the urban
consumer.
Another major technology that has influenced socioeconomic change in rural India is the Gobar
Gas Project. This is a project, which recycles all the waste in the village including human or animal
excreta into a fuel which is piped to the houses to be used as cooking gas, to light the village streets,
and provide power to village industries. This project has changed the quality of life for people in an
average village. For example, the rural woman does not have to spend several hours finding fuel and
then lighting a fire, to cook food for the family. Today, she has more time to help her husband and also
to look after her children. She has more leisure.
All these socioeconomic changes, largely fuelled by technology, government policies, corporate
strategies, and satellite communication, mean more demand for consumer goods. Higher awareness of
brand names in these products, as also that of financial instruments and social products mean a better
pull for these products in rural markets.
The project e-chaupal

Information Technology Reaches Rural India
launched by ITC in Madhya One of the most significant change drivers in rural India, after television, is the
Pradesh called for setting spread of information technology. This change is being led by both government
up of an Internet kiosk for
and private sector firms. State governments, like the Madhya Pradesh govern-
giving information on crop
prices, soil conditions, ment, have created intranet at the district level to help farmers with their land
weather forecast, and other records and other agriculture related inputs. The project, called ‘Gyandoot’, was
information which could help aimed at providing information to the farmer and employment to the educated
soya farmers of the state. unemployed youth in these districts. This scheme, which did not require much
financial investments from the state government, won international laurels and
Rural Marketing 647
created a new community of rural India which was more informed and empowered. Likewise, ITC, the
tobacco giant, launched a similar experiment under the name e-Chaupal in Madhya Pradesh. This is
an Internet kiosk created for giving information on crop prices, soil conditions, weather forecast, and
other information which could help soya farmers in the state. The project, started in 2001 in a modest
manner, is expected to be made operational in 1,00,000 villages, thus affecting the lives of 10 million
farmers. The e-Chaupal model, as mentioned in Chapter 20, comprises a battery powered computer
with Internet connection powered by VSAT. It is operated by a ‘Sanchalak’ (manager) the local, edu-
cated young person, from his home. He helps farmers access all relevant information. This model has
overcome major infrastructure bottlenecks in rural India, viz., electricity and irregular telephone con-
nectivity. Similar experiments are today being carried out by several other companies. This revolution
will change the face of rural India by 2020.
Income Generation through Self-Help Groups

One of the factors that has impacted consumption of products in rural markets is
lack of income. Several companies, like ITC and Hindustan Lever have created Project Shakti of Hindustan
Lever Limited (HLL) utilises
a community of self help groups. Typically, the self help group (SHG) consists self help groups (SHGs)
of 20 women in each village out of which one of them is the leader. They have for developing rural women
no family relationship nor any formal involvement in business/trade. They have entrepreneurs’ direct-to-home
no incentive to trust each other. The SHG members are taught the basics of sales force.
trade, finance, and cooperative management. This team jointly guarantees any
financial dealings with a bank. The SHGs understand the basic dimensions of transaction governance
capacity. The erstwhile Bank of Madura was the first to initiate the development of SHGs.
Likewise, Hindustan Lever Limited (HLL) uses SHGs to distribute its products, including the io-
dine rich Annapurna Salt. This project is called Shakti and utilises SHGs for developing rural women
entrepreneurs’s direct-to-home sales force. The task of the members is to educate rural consumers on
health and hygiene benefits of HLL brands and nurture customer relationships. Besides marketing
HLL’s products, the goal of project Shakti is to catalyse rural affluence. In a typical SHG, 15 women
deposit Re 1 each, daily, into a joint account. These monies are loaned internally to group members
at the rate of 2 to 3%. The default rate is much lower in these SHGs because of peer pressure. This
funding helps members start new enterprises. A Shakti dealer called ‘Shakti Amma’, works as an HLL
direct-to-consumer distributor and invests `15,000–20,000 for training and inventory. She also relies
on small distributors, retailers, and consumers to supplement her business1.
Involvement by erstwhile Bank of Madura, ICICI Bank, and HLL in these projects are, today,
shaping a new, more empowered rural India.
Access More Important Than Ownership

Another important characteristic of the rural market is that access rather than ownership of a service is
more important in its consumption. This is evident from experiments like e-Chaupal, where Internet
at home was not important to gain access to information. In reality, when an Internet connection was
provided to a single computer, the entire village stood to benefit. This was also apparent when BSNL
created roadside telecom booths, which could be used for making long distance calls, both within India
and outside. Access to consumer finance has also helped increase penetration of consumer durables in
these markets because the farmer has never been averse to taking credit.
Facts About Rural Markets

27% of a rural customer’s income is spent on groceries. This is followed by about 13% on agri inputs,
8% on medicines and health care, and 7% on apparels and footwear. Thus, the primary expenditure of
a rural consumer is on satisfying daily physiological needs. The consumption survey has also showed
that groceries are bought in the village shop itself but apparels, consumer durables, and even agri-inputs
are bought in nearby towns or cities.
Furthermore, there are 6,800 mandis, agricultural markets set up by state governments to procure
agricultural produce directly from farmers. They are located in high production centres and serve as a
good promotion place for all products and brands. Consumer research is also carried out here. There
are about 47,000 haats, which are a major rural market system in India. These are congregations of
buyers and sellers held at an appointed or customary location at regular time intervals. They are the
nerve centres of socioeconomic and cultural activities in rural India.
In addition to the above, 25,000 melas or fairs are held each year, usually at festival time at a holy
place. Table 28.1 gives some details about the number of mandis, haats and melas in India.
Table 28.1 Promotion and Distribution Medium in Rural India

Medium Total number
Mandis 6,800
Haats 47,000
Melas 25,000
Also, Life Insurance Corporation of India sells 55% of its policies annually in rural India and 50%
of BSNL’s mobile phone connections are in rural India.
Size of the Rural Market

The magnitude of the rural market can be gauged from Tables 28.2 and 28.3. As one will observe, the
rural market today is not just for products like fertilizers and pesticides but offers significant oppor-
tunities for all consumer goods. The most interesting aspect is that the rural market is growing at an
astounding rate of 25% per annum. It is this opportunity that all marketers now want to grab.
To penetrate the rural markets, the marketer needs to know the rural customers’ characteristics and
the marketing mix. Let us first understand the rural buyer’s behaviour.
Table 28.2 Size of the Rural Market

Packaged consumer products more than `2,000 crore
Market for non-food items `20,000 crore–growing at 2.5% per annum
Consumption of pesticides 68,000 tonnes–growing at 12% per annum
Consumption of fertilisers 9 million tonnes–growing at 10% per annum
Tractors 1,00,000 nos per year–growing at 15% per annum
Pumps and tube wells growing at 11% per annum
Rural Marketing 649
Table 28.3 Rural consumption of some of the major FMCG products

Product Market share as % of all India market
Shampoos 33%
Toilet /soaps 55%
Washing cakes 76%
Washing powered 55$
Source: Business World, the Marketing White Book 2012–13
RURAL CONSUMER
LO2 Myths about Rural Market

Describe the rural There are several myths about rural markets, which need to be studied.
consumer
Myth No. 1: All Villages are Equally Populated The first myth
is that all markets look alike and that all villages are equally populated. Hence, market opportunities
across villages of India are alike. However, population statistics as per the 2001 census does not support
this myth. About 37% of Indian villages have a population of up to 500 persons and only 17% account
for a population of between 2,000 and 10,000 persons. This creates an imbalance in distribution. Thus,
the latter, i.e., 17% of total villages in India account for 50% of the rural population and 60% of the
rural wealth2. Consequently, these villages have a cluster of distribution outlets but 37% of villages
hardly have any distribution outlet.
Myth No. 2: Rural Consumers are a Homogenous Lot This myth is identical to the one
MNCs had for a long time for a large market like India. They believed that the Indian market, being a
developing one, is homogeneous and, hence, mass marketing strategies will deliver results. However,
subsequent research on consumption showed that India was as heterogeneous as any other developed
market and, hence, each segment needed to be researched thoroughly and marketing mix planned
accordingly. Much the same way now, marketers hold the view that rural markets are homogeneous.
According to research, there are 600,000 villages and 5,000 cities in India with 166 million
households and a total population of 815 million people. The average household annual income in
rural India is estimated at `150,000. Households are categorised on the basis of their earnings or
income, as low to super-rich. The low income households are those whose earnings are `75,000 per
annum. The low middle income households are those with annual income of `75,000 to `150,000. The
middle income are the ones with an earning of `150,001 to `300,000 and the upper middle income
households are those with an income or `300,001 to `500,000. The rich households are those with an
annual of `500,001 to `1,000,000 while the super-rich are with earnings more than `1,000,000. As can
be made out from Figure 28.1 the largest numbers of households are the low income households. The
middle income households are growing. This change, which is today visible, is largely due to increase
in income contributed by different factors as outlined earlier in this chapter.
Fig. 28.1 Income Distribution in Rural India

Source: Based on BusinessWorld: The Marketing Whitebook 2012-2013, page 112
Myth 3: Being Illiterate, Rural Consumer is Not Able to Discriminate Between

Products and Brands The rural literacy rate has increased from 36% in 1981 to 59% in the 2001
census. Children and the youth in the family are being educated and are the source of information on new
products and brands in the family and the village. Rural buyers are as much conscious of products and
brands as their urban counterparts. This awareness has been created through cable and satellite television.
Hence the rural consumer’s aspirations are quite like his urban counterpart’s. For example, the young
rural girl is today a customer of cosmetics, shampoos, beauty soaps and fashion garments.
Myth 4: Only Low Priced Products will Sell in Rural India Being price sensitive is
different from being a buyer of only low priced products. This marketing reality is missed by marketers
when they conclude that a rural buyer buys only on the basis of price. Actual experience and research
shows that to a rural buyer functionality and availability of a product from a reliable vendor are
more important than price. So, even when he continues to be price sensitive, he does not miss out on
functionality. The rural buyer is also tech savvy as reflected by his adoption of new farming techniques
and the success of rural intranet and other Net based initiatives like e-Chaupal.
Myth 5: Rural Markets are not the Consumer Durables Market Often it is believed
that because of the income and infrastructure constraints, primarily arising out of lack of electricity and
roads, rural India is not a great market for consumer durables. However, that is not so. Based on the
market share and the sales data of consumer durables in rural market, it has been estimated that these
rural markets accounts for 35% of the total sales of all categories of consumer durables. In fact, the rural
markets are expected to post much faster growth than urban markets in the near future primarily due to
the increase in the rural incomes, minuscule penetration of most consumer durables increasing degree of
customisation by companies like Godrej which today sell refrigerator “Chotukool” that could survive
power fluctuation and outages. It is designed to run on a battery or an invertor. It has no compressor.
Unlike regular refrigerators that has compressor to cool, “Chotukool” works on thermoelectric or
Rural Marketing 651
Peltier cooling. In some countries in the West, thermoelectricity has been used by barbeques to cool
beer. Also the refrigerator size was also customised and so was the price. However the rural demand
for vehicles or means of transportation, television sets, fans and other low cost items continue to be
more than any other durable. Further, rural consumers, especially women, are more brand conscious
and are exhibiting preference identical to their urban counterparts. This is particularly true in healthcare
products, processed food, beverages and toiletries.
Further, analysis shows that 52 product categories account for 98% of rural FMCG sales. The cat-
egory analysis shows that it is both essential and non-essential products consumption which is growing
today. Figure 28.2 gives the details of rural consumption.
Fig. 28.2 Rural Contributions to category sales-FY2010-11

Source: Nielsen (http://in.nielsen.com/news/20110711.shtml, accessed on 24th September 2011)
Thus, today’s rural customer shows distinctive characteristics, which makes him/her different from
urban buyers and also more challenging.
Education Profile
Even though literacy has improved, a large segment of rural India still remains illiterate. This is particu-
larly true for rural women. Generally, the maximum education among the rural population is up to the
primary or high school level. Though rural literacy programmes have made significant headway, there
are many who are still illiterate. This comes in the way of the marketer using print media and handbills
to promote a product. Visual displays and phonetics become important in promoting the product in the
rural areas. Hence, mass audio visual media, and van mounted audio visual promotions have a major
role in shaping consumer attitudes.
Demonstration on product usage becomes integral to the marketer’s promotion strategy. The sales
person of a leading consumer product firm, Bajaj Electricals, once recounted how he sold the company’s
diesel pump sets in a rural area. Recalling his experience, he mentioned that people in this rural area
did not believe him or the product. Being an agricultural science graduate, he used another tack to sell
the product. He asked the headman of the village how the farmers in that village protected their crop
from pests, and insects. He was told that they used kerosene but obviously suffered significant losses.
The salesperson educated them about the benefits of pesticides and insecticides. This established his
credibility and helped him sell his own product too. Hence, demonstration is often important in these
markets.
Low Income Levels

Though rural incomes have grown manifold in the last decade, an average rural consumer still has a
much lower income than his/her urban counterpart. A large part of this income goes to provide basic ne-
cessities, leaving a smaller income to be spent on other consumer goods. This makes the rural consumer
much more price sensitive and value seeker than the urban consumer. Marketers have evolved various
strategies to lower their final prices. One such strategy is designing special products, as reflected by
Hindustan Lever’s strategy of developing Sunlight detergent power, and the other is reducing the size
of the product, as illustrated by the example of toilet soaps where companies have reduced the size of
the soap cake to make it affordable to the customer.
Another aspect of this low income is that an average rural customer buys a single unit of the product
and not in bulk. One of the market researchers mentioned that an average customer goes to the rural
pharmacy or grocery shop in the morning, gives 25 paise to get one spoonfull of cough syrup and again
in the evening repeats the transaction. This process goes on till he is cured. He cannot buy the full bottle
of cough syrup that may be priced around `5, as he cannot afford it. But he can afford 50 paise every
day. This has an implication for the marketer in packaging.
Occupations
Typically, in a rural area one finds that the principal occupation is farming besides, trading, crafts, and
other odd jobs like plumbing, electrical work, and so on. One also finds primary health workers and
teachers in rural areas. Since farming, animal husbandry, and poultry farming are the principal occupa-
tions we find that there are different types of farmers. The basis for differentiation is obviously their
size and ownership of land. There are big and small farmers and farm workers too. Though each of
them is associated with farming occupations, their consumption patterns differ mainly because of their
income levels. For example, a large or a big farmer will have almost everything that an urban consumer
will have, like a TV, refrigerator, gas stove, furniture, and other home appliances and will be a user of
branded, packaged goods. He is an affluent farmer and represents the highest end of the rural income
continuum.
Reference Groups
Typically, in a rural area, the reference groups are the primary health workers, doctors, teachers, and
the panchayat members. One may even observe that the village trader or the grocery shop owner,
commonly called the baniya or mahajan, may also be an important influencer in the rural customer’s
decision making. This is because the trader extends credit to villagers. Yet another person who is con-
Rural Marketing 653
Table 28.4 Estimated Distribution of Rural Households by Income Groups in 1999 (%)
Occupation of the Head Households (’000)s % Distribution
Housewife 1,271 1.01
Cultivation 51,171 40.86
Wage earner 44,192 35.28
Salary earner 14,132 11.28
Professional 919 0.73
Artisan 4,271 3.41
Petty shopkeeper 6,228 4.97
Businessman 579 0.46
Others 2,481 1.98
Total 1,25,244 100.00
Source: NCAER: India Market Demographics Report, 2002.
sidered an agent of change is the rural bank’s officer or manager. The marketer needs to be aware of
these influencers who can effect a change in the rural customer’s consumption patterns.
Media Habits
The rural customer is fond of music and folklore. In Maharashtra, the rural theatre, called tamasha,
has held sway over the people, recounting brave deeds of their hero Shivaji and several other known
and unknown warriors. Likewise, rural Uttar Pradesh is entertained by nautanki in which the artists
are a part of the audience. Today, television, radio and video are important forms of media which have
replaced traditional forms of entertainment and hold the attention of rural folk.
As we mentioned earlier, because of low education levels, print media does not have as much of an
impact as the audio and the audio visual media do.
Brand Conscious Customer

The rural consumer is today aware of brands. As discussed earlier, this awareness has been created by
the mass media. Many national and regional brands are today building a strong rural base without much
advertising support. For example, Ghadi detergent powder is today the third largest brand in rural India.
Likewise, Chik Shampoo is reported to be the second largest shampoo brand.
Value for Money

Rural consumers are shoppers for products with high value for money. They do not buy cheap products,
but buy products and brands which promise to deliver higher value. Functionality, rather than aesthet-
ics alone, is more important to rural buyers. Further, rural buyers do not buy from sellers whom they
do not trust. Hence, as was mentioned about the places from where rural customer buys products, one
can conclude that for daily needs the village shopkeeper is trusted, but not for consumer semi-durables
and durables.
Understanding the Rural Consumers

Though rural consumers today exhibit similar consumption patterns as their urban counterparts yet
there are fundamental differences between the two groups of consumers. This difference arises from
income and awareness levels of the two groups of consumers. It also arises from the differences in
occupation options which have a direct impact on income levels and flows. A high level of interdepen-
dency affects the dynamics of rural community behaviour. Hence, rural consumer behaviour is different
from that of urban consumers.
To understand this behaviour, conventional market tools may not be easily understood by villagers.
Hence, the research tool which involves pictorial depiction rather than a structured scale can deliver
a better result. So can films and storytelling. Observational technique is also a useful way of under-
standing the rural consumption behaviour. MART, a rural marketing agency has designed innovative
approach to research rural consumers. One of the tools they have used is the Participatory Rural Ap-
praisal (PRA). PRA is a combination of approaches and methods that enable the rural community to
share, enhance and analyse knowledge of their immediate environment and life. It is a pictorial process
of understanding community interactions and behaviour. In this process, it is a community that draws
the picture. Since this is being done by the community, validation of the data is automatic. The role
of a moderator is that of a facilitator. PRA has been used for drawing up the social and resource map,
understanding income flow and expenditure pattern in different communities and occupation, assess-
ment of needs and the mapping of all the daily economic and social life of an individual.
MARKETING MIX FOR THE RURAL MARKETS
LO3 We now turn to the marketing mix for the rural markets. At the outset we
Describe marketing should note that the marketer will need to adapt his/her marketing mix to
mix for the rural suit rural conditions and the maximum adaptation will have to be in the
markets distribution and media mix.
Product Decisions
Products for the rural markets will have to be simpler, and easy to use, service,
Products for the rural markets
will have to be simpler, and
and maintain. Consider the example of tractors. One of the reasons for Eicher’s
easy to use, service, and success in the tractor market has been the ease with which the tractor can be
maintain. serviced and maintained in rural areas. This has been different from Escorts
which marketed the Fergusson brand of tractors that were more sophisticated
and posed difficulties in servicing or maintenance to rural mechanics. A Fergusson tractor owner had
to call a mechanic from the nearby city to service it. Though it was rated as a superior product in terms
of technology and better than Eicher’s model, the latter was easier to use, service, and maintain, and
has hence been more successful.
The product literature has to be simple and well illustrated for the rural cus-
The product literature
should be simple, and tomer to understand easily. This will help in faster diffusion of the product in
well-illustrated for the rural rural society.
customer. Besides, it should Further, the product should be dispensable in single units. For example, a
be dispensable in single units. typical rural buyer buys one unit of match box unlike an urban consumer who
Rural Marketing 655
may buy a full pack of ten or twelve match boxes. Likewise, a rural smoker may either buy a packet of
bidis or just a single cigarette stick. Product packaging needs to be functional and capable of dispensing
smaller units of the product. Sachet packaging is one alternative which has been successfully used by
tea, shampoo, toothpaste, pan masala, and even tomato ketchup manufacturers to penetrate rural mar-
kets. Today, one finds that a typical rural kiosk stores sachets and smaller sised products of well known
brands like Colgate toothpaste, Lifebouy, Lux, Liril, and Cinthol toilet soaps, Parachute Coconut hair
oil, Pan Parag, Sunsilk shampoo, and so on. A typical kiosk, which earlier sold only cigarettes, bidis,
and paan is a mini departmental store today, serving the daily needs of consumers in rural areas.
Brand identity in rural markets is often created through the visual logo of a
product, the colour of the product, or the taste of the product. For example, in Brand identity in rural
markets is often created
one rural market survey, a buyer of Thums Up recognised it through its logo and
through the visual logo of
mentioned it as sweet black water that came in a bottle. The generic name was a product, the colour of the
‘soda water’. But he did not want just any aerated soda but Thums Up that had product, or the taste of the
a fizz in it and hence he called it ‘soda water’. product.
Likewise, Coca-Cola’s ‘Thanda’ campaign with Aamir Khan delivered bet-
ter results than any other slick advertising campaign. Further, price-performance relationship of the
product needs to be closely examined. The marketer must attempt to maximise performance in the rural
customer’s environment without sacrificing any feature which is available to the urban customers. LG
has now come out with a refrigerator with battery powered backup of 12 hours. This has helped the
brand overcome the infrastructure constraint of power in rural India. Same is true for colour televisions
from ONIDA.
Thus, the marketer has three strategic options, namely:
(a) Extension
(b) Adaptation
(c) Innovation
Extension This refers to the strategy of extending the product from urban
Extension refers to the
to rural markets without any modification. This is possible when the rural cus-
strategy of extending the
tomer’s awareness about products and their benefits is high and he expects product from urban to
similar experience from consumption as his urban counterpart. Hence, some of rural markets without any
the well known urban brands like Parle-G, Lifebuoy Active, Lux, and Brooke modification.
Bond Red Label Tea are sold in the rural markets without any modifications. The
basket of high volume consumables—toilet soap, detergents, biscuits, packaged tea etc.—is identical
in both urban and rural markets.
Adaptation However, since income and seasonality continue to impact
Adaptation, which implies
rural demand, the marketer has to adapt his product to suit the rural buyer’s
customising the product
demography. This adaptation could be in product benefits or even distribution. to suit the rural buyer’s
As mentioned earlier, small packs (sachet, for example) is one form of product demography, is required
adaptation. CavinKare, for example, has found that its strategy of offering its since income and seasonality
brand of shampoo in a sachet has paid off. However, a small pack in itself is not continue to impact rural
a guarantee of success. Recent research in the rural market by A.C. Nielson has demand.
shown that the rural urban divide on packaging is fast getting eroded. In product
categories like biscuits, jams, sanitary napkins, milk powder, etc. a small pack size does not provide
any significant advantage to the marketer. But in the case of razor blades and shampoos, small is still
beautiful.
Innovation The innovation strategy delivers results when product awareness is low or the product
is low in the customer’s priority. It also delivers when infrastructure constraints make the product pur-
chase redundant. Electronics and electrical items that can be operated even
Innovation is required when without power will be more readily accepted. Also, if it is easy for the farmer to
product awareness is low maintain a product, then the product diffusion will be faster. Further, the product
or the product is low in the
must be perceived by the customer as meeting his/her needs and being good
customer’s priority.
value for money.
Exhibit 28.1 Rural Markets

Companies are now tapping rural markets to widen and more rural consumers insist on buying brands
their consumer base and gain volumes. They are tai- rather than merely products.
loring brands specifically for rural markets. A 1996 However, advertisers have to follow the princi-
NCAER survey showed that a chunk of lower priced pal of ‘thinking global and acting local’ and even
goods like monocassette recorders (80%) and B and brand ambassadors have to be picked judiciously
W TVs (54%) were purchased by rural households. for reaching out to the rural consumer. That is one
According to D. K. Bose, Director Ogilvy Rural reason why the Govinda advertisement boosted
Communication Network, rural consumers ought to sales of Mirinda in rural areas.
be classified based on sociocultural outlook unlike Arvind Mills had successfully tapped the market
the socioeconomic classification used for the urban with its ready-to-stitch jeans when their research
population. revealed that for a rural consumer even the cheap-
This is backed by market research being con- est brand of jeans was beyond his means. As a re-
ducted in the area and companies like ORG-MARG, sult, they introduced this product priced at `195, as
MICA, RK Swamy and HJA are collecting data about against the unorganised sector’s range of `150–350.
these potential markets which could be used by The kit included a denim trouser length with spe-
companies to penetrate these markets. MICA, for cific tailoring instructions, branded zipper, rivets,
instance, is collecting data on the number of shops and buttons that distinguish jeans from mere denim
in a district, the number of LPG connections, the trousers in the consumer’s mind. Later, they suc-
presence of doctors, and also whether there are cessfully introduced the Ruff and Tuff brand for the
proper road linkages with the villages. They are more evolved consumer.
using digital maps which include railway lines, mo- Companies will however have to establish strong
torable roads, district headquarters, and the location distribution networks and grapple with unwieldy
of village haats or festivals right down to the tehsil logistics as there are not enough dealers or dis-
level. tributors with access to rural markets and no proper
At present there is minimal media presence in retail outlets.
the interiors and knowledge of these haats, like Reasonable pricing would have to be the key
when and where they are held and on what days, factor. Companies would have to concentrate more
as it could be a useful way to reach out to the rural on ‘no-frill products’ for the rural consumer. In oth-
consumers. Another factor that could possibly drive er words they have to offer good quality functional
this change is the burgeoning of region specific products although it may not be equipped with
satellite channels in these areas. There are approxi- features present in high end models. For example,
mately 700 million people in rural areas and more Captain Cook Superwhite from DCW is a basic salt,
than one-third of them are exposed to television in with the free flowing property, that is advertised in
some form or other. Big players like HLL are laying urban areas.
thrust on building brands in these markets as more
Rural Marketing 657
Pricing Decision
As mentioned earlier, the rural consumer is price sensitive mainly because of his/her relatively lower
income level. The marketer will have to examine methods by which he/she can make the product more
affordable for the rural consumer. In the case of consumer durables, one way is to work through rural
banks and offer hire purchase terms to the customer. Tractors, pump sets, and even televisions have
been marketed through this approach.
Another way is to offer a smaller unit or pack size, at a lower price. Toiletries are marketed in rural
areas in smaller unit sizes, thus making them more affordable. While in the urban stores Lux toilet
soap is available in 25 gm or even bigger sizes, in rural markets the same brand is available in 5 or 10
gm sizes at almost half the price. A firm may even consider buying the product from smaller firms and
marketing it in rural markets. This strategy can help a large firm pass on the benefits of lower costs of
a small firm to the customer in the form of lower prices.
Promotion Decisions
While no significant change in the advertising copy may be required, it is important to note that well
known film stars and models representing the common men, or the man next door, are able to success-
fully communicate the message. Jingles, folklore, and music can combine to make a message and the
brand name memorable. Visual copy has a much greater appeal than just the audio or the print. In terms
of the media, television, radio, wall paintings, and even roof paintings are effective. So are bus panels
and hoardings. Wall hangings and other point of purchase material like stickers and shelf display are
also effective in getting the marketer’s message through to rural consumers.
Rural sports, like kabaddi, kho-kho, bullock cart race, and rural fairs and haats have a special place
in the rural consumer’s life. Firms like Bajaj Electricals, Hindustan Lever, Parle, ITC, and others have
successfully used them to promote their brands. Gujarat Bottling, earlier a Parle and now a Coke fran-
chisee in Ahmedabad, used to sponsor rural Navratri shows in October through a breathtaking display
of the company’s brand of soft drinks.
Personal selling is also important here. But it does not have to be through a flashy, flamboyant, and
aggressive salesperson. Research shows that a simple and subtle salesman can deliver better results
here. Hence, many companies use local young people to sell the product.
Distribution
Distribution is the key to penetrating rural markets. It is here that the firm has to deploy a mobile distri-
bution strategy. The firm may either have its own fleet of vans or hire the services of a distributor having
one. This is crucial because, today, a firm can no longer afford to wait for the rural buyer to come to the
city to buy his/her requirements. Competition is driving firms to reach out to the buyer. And since no
single village can consume the entire van load of products, the firm can derive economies by covering
several villages in a single van cycle.
Another key to effective distribution is the weekly rural market or haat. It is important that the firm’s
products are available here either through small petty traders or through its van.
The firm should also link the village grocer with the nearest wholesale distributor so that the market
is not starved at any given time.
Further, the marketer can even consider using the 1,38,000 post offices, 3,80,000 ration (public
distribution) shops, and about 32,000 bank branches available in rural areas for distributing his products.
The rural postman and postal vans or vehicles can even be considered for marketing purposes.
However, the marketer cannot afford to ignore the development of organised retail stores like ITC’s
Chaupal Sagar, Mahindra and Mahindra’s Shubh Labh Stores, Escort’s rural stores and Warnabazaar in
Maharashtra, and Marginfree Stores in South India for distribution of his products. These developments
may mark the end of the rural dealer (mahajan) era.
The marketers need to break the paradigm that urban and rural retail outlets differ in terms of number
of product categories stocked by them. The only difference between the two is that urban outlets are
serviced by more number of companies as opposed to rural markets.
Given the fact that 41 million kisan credit cards have been issued so far, the marketer needs to consider
evolving a relationship management programme for rural India, the constructs of which should be to
reward each transaction and long term relationship with the company. Most rural buyers look for im-
mediate benefits. Hence, a CRM initiative must take this into consideration. Further, CRM initiatives
are, today, much more possible given the fast pace at which Net based initiatives are getting diffused
in rural India.
Thus, the rural market has today arrived and seeks to challenge the marketer’s creativity. Ignoring
this opportunity would only mean that a firm has perhaps not been able to perceive a profitable
opportunity at the bottom of the market pyramid.
Exhibit 28.2 Innovation for the Rural Markets

Rural markets today require out of the box thinking Tanishq’s launch of gold jewellery under the brand
on product, communication, distribution and price Gold Plus are examples of some such customised
fronts. In order to make product or solutions more solutions from corporate India for rural markets.
affordable, innovators and firms have used locally Another example of frugal innovation developed
produced raw materials and components, involved by a local for his community is the clay refrigerator
local community and worked on solutions that fo- called Mitticool (mitti is earth). Mansukh Prajapati
cus on the poor and low income consumers and in Gujarat who is a Potter by trade developed this
respond to the infrastructure gaps so commonly clay refrigerator. The Mitticool is a terracotta box
observable in the rural markets. These innovations made entirely of clay, except for a glass door and
are frugal with the scarce resources. In order to a plastic faucet at the bottom. It does not work
encourage such innovations, Prof. Anil Gupta at In- on electricity neither on battery. It works only on
dian Institute of Management, Ahmedabad has pro- clay. In this model, the water poured in the upper
moted a non-profit organisation called Honey Bee chamber seeps through the side walls cooling the
Network. This network cross-pollinates grassroot lower food chamber through evaporation. It is 100%
innovations across India. This network has popu- biodegradable, and produces zero waste during its
lated a database of over ten thousand inventions lifetime. Such innovations are colloquially referred
of grassroots entrepreneurs who have created local to as ‘Jugaad’ which is an improvised solution born
solutions for the socioeconomic problems for their from ingenuity and cleverness. Likewise, Coca Cola
local communities. The Chotukool—a nano refrig- provided low cost ice boxes to overcome the rou-
erator that operates on both battery and electric tine power outage in the rural markets. It also used
mains from Godrej, or Tata’s water purifier ‘Swa- cycle rickshaws to distribute the products.
ch’ that requires no electricity or running water or
Rural Marketing 659
SUMMARY
Rural markets are today important for all consumer product companies. This is because most urban
markets are getting saturated. The intensity in competition in these markets impact the profitability
of firms. The rural markets have also gained prominence because of the socioeconomic changes,
which are sweeping rural India. These changes are being fuelled by the cable and satellite televi-
sion as also by the internet and telecommunication. This has enhanced rural consumer’s awareness
and aspirations. Also concerted attempts are being made by self help groups to generate incomes
in the poor areas, which, in turn is helping create demand for products and services. For the rural
consumer, access to product or service is more critical than just its ownership. Rural marketing
therefore requires an innovative approach. It involves changing the value paradigm by altering the
product’s price performance relationship. It also involves designing products that can deliver in sub
optimal conditions and despite infrastructural constraints. The marketer has three strategic options,
namely extension of urban strategy to rural markets; adaptations of urban strategy to rural markets
and finally innovate for rural market success. The challenge today lies in developing relationship
marketing programme for rural buyers especially since 41 million kisan cards have already been
issued by various banks.
POWER POINTS
1. Growth opportunities in rural markets are driving companies to them. (LO1)
2. Socioeconomic changes are sweeping the rural India. These changes are attributed to rising
incomes both in the farm and in the non-farm sector. (LO1)
3. Socioeconomic changes mean more income, higher aspirations and changing lifestyles in rural
India. (LO1)
4. Information and communication technology are also the drivers of change in these markets.
Companies like ITC, and ETV are at the forefront of driving this change. (LO1)
5. The infrastructure support for distribution and communication is provided by mandis (mar-
kets), haats (rural shopping events) and melas (fairs). (LO1)
6. The rural consumer shops for grocery, apparels, consumer durables and agri-inputs in nearby
urban shops. (LO2)
7. However he/she trusts the rural shop only for grocery purchase. (LO2)
8. Mandi/semiurban markets are trusted for agri-inputs and apparels. (LO2)
9. There are several myths or predispositions when it comes to rural markets. Among them are:
all villages are equally populated and hence same market potential exists everywhere; that
rural buyers are a homogenous lot; rural buyer is not able to discriminate between products
and brands; and that only low priced products sell in these markets. Research and experience
contradicts these myths. (LO2)
10. Marketing mix decisions revolve around whether to extend, or adapt urban marketing strategy
to suit rural markets. Or should the company innovate on its product price performance rela-
tionship or supply chain or communication. (LO3)
and Gujarat. Identify the target customer groups in the rural areas of these states and also their
location. Evolve a marketing strategy for LG which will help the company gain 25% penetra-
(LO1, 2 and 3)
the young daughter-in-law. She is today an important buyer of cosmetics and even the latest
products in rural markets. Evolve a marketing plan for the launch of Revlon brand of cosmetics
in these markets. (LO2 and 3)
3. Evolve a customer relationship management programme for Maruti Udyog and Bharat Petro-
leum for their rural consumers. (LO3)
Section 7
Cases
Section Outline
Case 1: Nano—A Dream Car for the Poor
Case 2: Jaago Re! One Billion People
Case 3: Fabindia—Fabric of India
Case 4: Staying Hearty and Healthy—The Saffola Way
T he last part of this book comprises of four cases. These are a diverse mix of corpo-
rate world stories that have been read and commented upon for a long time, as well
those which talk about something as new as Nano. While the former reinforces concepts
which are as valid today as they were a decade back, the latter talks about new devel-
opments that are path breaking in nature. A case could be dealing with an enterprise
that is completely local in nature (Natural Ice Cream); another could be talking about a
corporation that is truly international. While on one hand a brick-and-mortar business is
discussed, on the other you have something as happening as an online social site. While
one case may deal with some issue related to maximisation of profits, the other takes up
a venture that is completely not-for-profit but more crucial to the society (Jaago Re...).
As described in the case grid given overleaf, there are cases touching upon every aspect
of marketing management. The students of this subject will get plenty to mull over and
discuss from each of these.
Case Related to Chapter
1. Nano—A Dream Car for the Poor Market Planning, New Product Decisions and Pricing
Decisions
2. Jaago Re! One Billion People Brand Management and Decisions
3. Fab India–Fabric of India Marketing Environment, Market Planning, Brand

Management and Decisions, Retail Management
4. Staying Hearty and Healthy: The The Customer, Consumer Behaviour, Segmentation and
Saffola Way Targeting, New Product Decisions, Brand Management and
Decisions
CASE
NANO—A DREAM
CAR FOR THE POOR*
1
INTRODUCTION
The year 2007 saw record number of road accidents in Delhi involving Blue Line buses. One such ac-
cident involved a two-wheeler scooter in which both the driver and the pillion rider died on the road
even before they could be taken to the hospital. This led to protests and violent demonstrations against
Blue Line buses. The Supreme Court of India stepped in to ask the Delhi Government on the action it
took against the erring bus drivers and owners. Two wheeler accidents are quite common in India. A
study at Apollo Hospitals in India showed that 1,20,000 head injury deaths occurred annually in the
country from two-wheeler accidents alone and that such head injuries were the sixth leading cause of
death in India (one death every 4 minutes). However, these statistics never reveal the agony and misery
faced by the family when the breadwinner is critically injured or dies. This study also showed that two
wheeler riders were five times more likely to be killed in an accident than car or bus passengers.
Earlier in 2003, Mr Ratan N. Tata (or RNT as he is affectionately called) Chairman Tata Group,
described one of the regular sights on Mumbai roads. A family of four—husband, wife and two chil-
dren—precariously balanced on a two-wheeler, driving on Mumbai’s roads especially during the mon-
soons. He often wondered about their safety and what he and his Tata Motors could do to give them a
safe vehicle. The two-wheelers are a relatively unsafe mode of transporting a family. This two-wheeler
image got Mr Tata thinking on safer forms of personal transport. Further, he always had an unconscious
urge to do something for the large majority of Indians. Development of a personal, affordable, safe
transport was the obvious option because of Tata Motors presence in automobile industry.
Also as urbanisation gathered pace, personal transport was to become a major issue because mass
transport was either not available or was of poor quality in all cities including metros. In an interview
to Financial Times at the Geneva Motor Show in 2003 Mr Tata talked of his dream of producing a low
cost car. When asked how much it would cost, the indicative price given was about `1 Lakh (`1,00,000
or USD 2,500 assuming exchange rate as being USD1 = `40). The next day Financial Times carried a
headline to the effect that Tatas were to produce a `1,00,000 car.
Initially Mr Tata thought of rebutting the new item but then he took it as a target. The skeptics
laughed at the idea and wondered whether it would be another modified three-wheeler. They dismissed
*Developed by Dr Rajan Saxena, Sr Advisor to Chancellor and Distinguished Professor of Marketing, SVKM’s NMIMS
University, Mumbai, India. The author acknowledges with gratitude the support from Ms Hufrish Homavazir, Research
Associate, SVKM’s NMIMS University, Mumbai, India and Ms Vrushali Rane, Librarian, SVKM’s NMIMS University.
This case is to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of
an administrative/business situation. This case is based on published data/information on different websites including
that of Tata Motors. This is the first in the two-part series case on Nano, being developed by the author.
the idea. The competitors ridiculed the thought. The Indian press too initially reacted cynically to the
proposition. Notwithstanding such criticism and skepticism, Mr Tata decided to go ahead with his
project. He committed his technical team with this announcement for reaching it.
DEVELOPMENT OF A ONE LAKH CAR

Soon after this announcement, a team of engineers got together to actualise this dream. At that time they
did not realise that the next four years of their lives would be totally spent on this project. They were
not allowed to share with anyone, even their wives, the developments on the project. Several ideas were
explored. Initially, the thought was to make a low-end ‘rural car’, probably without doors or windows
and with plastic curtains that rolled down—a four-wheel version of the auto rickshaw.
As Jai Bolar, Senior Manager for development at Tata Motors Engineering Research Centre recalled,
they considered all low cost modes of transport, which included two wheelers, auto rickshaws, and
the company’s own low priced Indica car. They had no clue as to what they were supposed to do. So
the engineers decided to ask RNT, who exhorted them to dream of building a low-cost car that would
cost marginally more than the two wheelers which would revolutionise personal transport in India. ‘Go
beyond just the usual cost reduction exercise. Show the world the ingenuity of Indian engineers’ said
RNT urging them to include him in their team. ‘Only countries like India or Pakistan can make such a
low cost car in the world’, concluded RNT.
These words of RNT had a far reaching impact on the product development team. Over the next 18
months or so, the team had little or no breakthroughs. It tried to globally source components and even
toyed, as mentioned above, with the idea of an open car with plastic or canvas sheet for protection.
In all their ideation, they were still working on making the two-wheeler a safe drive. ‘No brief and
benchmarks only made the challenge tough’, commented Bolar. At this time in August 2004, Girish
Wagh, a 35 year old engineer with a track record of in worth on joined the team. He had earlier success-
fully produced a ‘mini truck’, Ace within a very tight cost schedule. Wagh was known for his unusual
approach of involving customers in product development. Recalling his Ace experience, Wagh
remembered how he talked to customers who were mainly three wheeler drivers covering rural areas
and towns carrying poultry, vegetables and other groceries. All of them wanted a cheap, dependable
truck that could go from village to market carrying the produce. One night, reminisces Wagh, as sunset
approached, he persisted with one rickshaw driver on probing why he needed a four-wheeler when the
same purpose was achieved with the three-wheeler. After a long persistent query, this driver said ‘If I
had a four-wheeler, I would have better marriage prospects in my village. Three-wheeler drivers are
looked down upon in my village’. Wagh got his response—four wheels had emotional and social appeal
and not just the rational appeal.
In May 2005, when Tata Motors launched this ‘mini truck’ branded ‘Ace’ at just by $5,100 it became
a roaring success. The company sold 1,00,000 vehicles in the first 20 months.
So, Wagh told the car team that Indians wanted to graduate from two wheelers to four wheelers for
emotional reasons. And the ‘average Indian’ cannot afford expensive four-wheelers. Wagh joined the
team when the first ‘mule,’ was ready. In automobile manufacturing, ‘mule’ is a vehicle that comprises
the engine and transmission, driving a mock-up addled with electronic sensors. It moves like a vehicle
but only for testing purposes. The first ‘mule’ had a marine engine with 20 bhp (brake horse power).
The team wanted to know if such an engine worked. Another pioneer on the team was Narendra Jain
who is credited with the first gasoline engine made by Tatas. Jain searched globally for an engine that
Case 1: Nano—A Dream Car For The Poor 665
could fit a small car. He even contemplated the engine of the two-wheeler but discarded the thought, as
it did not produce RNT’s dream car for the average Indian. He then started designing the engine afresh.
His first product was one that delivered 20 bhp but that was not sufficient. He increased the engine’s
capacity to 554 cc, which delivered 27 bhp. But it still did not have the required power. The process
went on till the capacity of 586 cc was reached. The engine appeared to have the strength/power to
satisfy all parameters including low cost and acceptable performance and conformed to all current and
potential regulatory requirements. The product development team had now swelled to 500 as new tasks
were incorporated.
While Tata engineers worked on the engine design and car engineering, Italian design house I.D.E.A*
was mandated with the task of styling. This design house had earlier designed Tata’s Indica. RNT was
personally involved in styling. As Wagh mentioned, RNT even made last minute changes to the style,
as his concern was always the customer.
In December 2005, the second mule was tested and by mid 2006 the first prototype or Model Alpha
was ready. After testing it on the 586 cc engine, the team found the car below par. It needed more length.
RNT also wanted changes in styling, which involved body design and increased safety performance.
The team was back at the drawing board.
No benchmark was making the task difficult and often frustrating. The top leadership, involving
Mr Ravikant, Managing Director, was tasked to continuously motivate the team. He mentioned that the
company continuously exposed the team to competitor products from all over the world. In designing
a breakthrough product, sometimes the work can become repetitive and tedious. For example, in the
task of engine designing Jain did 150 thermodynamic simulations, each of them stretching from eight
to ten hours. Another expert, R.G. Rajhans, had built the body of Indica and by this time built about
10 different floors for this dream car. And finally in October 2006, Jain built a 624 cc engine with a
bhp of 34. This was an optimal design. ‘First time a high pressure die cast engine was made in India’,
said Jain. Compared to the first Maruti 800, which delivered 37 bhp, Jain’s engine was more optimal.
It was cast into a real engine in January 2007 when it was first tried. It had a multipoint fuel injection
system developed by Bosch. The heart of the dream car was now ready.
But the company had still to cover considerable distance. Components were critical and vendors
play a significant role, in determining costs of any automobile. Tata’s Head of Sourcing was one
E. Balasubramaniam, who was greatly respected by vendors. He used his speed relationship to negotiate
with the vendors for getting the maximum less benefit.
This involved vendors having to pare their margins and produce at substantially low cost. The ven-
dors needed to invest in processes and methods to reengineer their products to specifications rigidly
guided by cost. Breakevens were expected only after two or three years. Another problem was getting
vendors to put up a shop in Singur** in West Bengal where Tatas had decided to make this car. The
vendors at this time were clustered in and around Delhi, Mumbai, Pune and Chennai. Further it was
not just the costs but all components including seats and batteries that required reengineering.
This obviously increased the investment of a component manufacturer, in some cases by about
40–50%. But the results of this creative thinking were amazing. For example, Tata Engineers found
*Institute of Development in Automotive Engineering.

**Singur is predominantly an agricultural backward area in West Bengal, which is in the eastern India. The Left govern-
ment rules West Bengal. There were violent protests against West Bengal Government’s decision to give land to Tata
Motors. Despite violent protests and opposition, RNT stood his ground to locate the new factory at Singur.
that the door handle had 70% less parts than one of the cheapest European cars. Another major compo-
nent is the steering shaft. Hollow steering shafts reduced further costs and weight. MRF, a leading tyre
manufacturer, redesigned the tyre to bear extra weight on the rear wheels. Thus at every stage the goal
was to cut costs by reducing the number of parts that went into each component.
As some managers mentioned, they were amazed how in some cases costs dropped as high as
60 percent just by reengineering and out of the box thinking. The team now was seeing the dream come
through. But outside the factory criticism and skepticism persisted. Concerns about pollution, the qual-
ity of roads and clogging up of cities in India were the major issues that critics raised. But Tata was
undeterred. He wanted his car to conform to the stiffest pollution control norms in the world. He firmly
believed that his car would not only create and develop the Indian market but also provide a solution
to the harassed low income class and those at the cusp of middle class who suffered daily the agony of
undependable public transport and/or unsafe two wheeler ride.
Finally, in January 2008 the car named Nano (because of its size and cost) was ready to be showcased
to the world. Some vital statistics of Nano are shown below:
Nano’s Key Statistics

Parameters Statistics
Total investment `1,700 crores* or `17,000 million
Engine 624 cc, 34 bhp rear mounted
Design Four-door monocoque
Fuel efficiency 20 kpl
Top speed 105 kmph
Gearbox Four-speed manual
Length 8 per cent smaller than Maruti 800
Inner space 21 per cent larger than Maruti 800
Safety Survived frontal crash at 48 kmph
Emission Bharat III and Euro IV complaint
The Last Mile

Manufacturing the low cost car was just not enough. Efficiencies in distribution and service were also
required. Cost of transportation of cars to all markets was also an important issue. Logistics is the last
bastion of cost reduction. Tata Motors have come up with an idea of converting their distributors into
entrepreneurs. The plan is to develop an assembly kit for distributors who would stock completely
knocked down (CKD) kits of the car at warehouses and assemble them at the site. Transporting cars in
a CKD condition is much less expensive than a fully assembled car. To enable cheaper assembly at the
distributors end, some parts of the car would be glued together than being welded.
*1 crore = 10 million
The Launch
9th of January 2008. The venue was the Auto Expo, Delhi. A huge crowd and the global media had as-
sembled at the Tata Motors stall. There was much speculation and debate among the assembled crowd
about the design of the vehicle. Will it be a scooter, an auto rickshaw or a half car? As excitement ran
high, RNT entered the stall driving the Nano. Thunderous applause welcomed Nano. The world looked
at this beauty from all sides. It was truely a real car as it had four wheels. It could accommodate a fam-
ily of four and also had space for keeping the luggage. What is more, RNT had kept his promise of
delivering the car at `1 lakh (`1,00,000) and not more. This was despite the fact that the price of steel,
rubber and other inputs had gone up since 2003. RNT’s mellowed voice in the pavilion was heard by
one and all when he said, ‘A promise is a promise’. ‘Nano had passed all crash tests, and complied to
Euro IV and Bharat III Auto pollution norms’, he said. This was when these norms were still not ap-
plicable for any car here in India. It had a four-speed manual gearbox and was high on fuel efficiency
as reflected by the fact that it gave 20 km per litre. It had a lower emission than an average motorcycle.
In the background, music from Stanley Kubrick (2001), film Space Odyssey played. Very often RNT
deviated from his prepared text to take a dig at his critics namely competitors, environmentalists and
even the media. Among the audience were Maruti Suzuki’s Managing Director, Mr. Jagdish Khattar,
and the car racing star Mr. Narayan Kartikeyan.
The international and national media were reporting live this innovation. CNBC, BBC and all others
were reporting live from Delhi, the launch of world’s lowest price car by none other than Tatas.
Speaking on the sidelines, the component suppliers talked of their experience of working with Tata
Motors on this project. One of the supplier Delphi which has developed the low cost centrally main-
tained instrument cluster of Nano, felt that the biggest learning was innovative thinking of cutting cost,
meeting time schedules and eliminating wastages. What Delphi did was to make the basic instrument
cluster with just a speedometer, odometer and turn indicator signals. It also eliminated screws and
replaced them simply with panels and parts that just clipped firmly. Clear plastic panel covering the
display was curved at an angle to eliminate reflections and glare—a simple solution compared to the
usual anti-glare coatings. Another major supplier Bosch mentioned that substantial fundamental con-
ceptualisation had taken place for designing components for Nano. Like them, there were 100 vendors
who made this dream possible.
The customer on the street welcomed Nano. A young sales executive in Delhi remarked, ‘Thank God,
I can now own a car’. A housewife in the middle class colony of Delhi remarked that she did not have
to worry now about the safety of her husband and children who daily went to work and school on her
husband’s motorcycle. Similar comments were heard all over the country. It was not just that the Indian
customers wowed Tatas, but Tatas also received calls from Latin America, Europe and other countries
in Asia. Each caller either wanted to buy the car or start its distributorship or wanted RNT to set up a
plant in their country.
The world was now knocking on Tata Motors door. The launch of Nano was a big talk at Detroit Auto
Expo being held almost the same time in USA. Nano’s development was compared to Ford’s model ‘T’.
Nissan Renault’s CEO, Carl Ghosn remarked that Nano was a major innovation and perhaps the first
major breakthrough after the world saw the introduction of the first automobile by Henry Ford under
the name model ‘T’. He believed that Nano went beyond the concept of frugal engineering. It was a
story of a new mind set. Carlos was the only person who believed in RNT’s ability to make a low cost
car.
Bajaj Auto Ltd, India’s largest two wheeler makers had earlier unveiled an indigenous low cost car
at this Auto Expo. But this model would require four years to bring it to the Indian road. Bajaj runs
the highest risk of loosing its buyers of two wheelers and three wheelers. Mr. Rajiv Bajaj, the young
Managing Director of Bajaj Auto, declined to discuss Tata’s Nano even though he called it a cute car
on the CNBC TV 18 channel, while Pawan Goenka, President, Mahindra and Mahindra Ltd compli-
mented RNT for making Nano a very impressive demonstration of Indian engineering. ‘Maruti Suzuki
now has a serious challenge for its 800 cc car’ said S. Ramnath Vice President, SSKI Securities Ltd.
Hyundai Motors, another major car manufacturer in India, has also decided to make India a global hub
for manufacturing small cars.
In fact a number of carmakers, which include the Renault Nissan, Toyota, Ford Motor India and
Maruti Suzuki, have shifted squarely to small fuel efficient space saving cars.
Newsweek, in a special report on Nano in its February 25, 2008 issue, mentioned that the world’s
future car was small, often risky, cool at times and was going to be available at an amazingly low cost.
The magazine mentioned that even before Nano hit the road it was changing the rules of the road for the
auto industry and the society as a whole. Millions of emerging market consumers can now own four-
wheel transportation thereby creating unheard of mobility for the masses. It will put the Third World on
wheels and will have far reaching implications for the whole world. Commenting on this development,
Chief Designer of the Ford Motor Company, J. Mays said, ‘For the first time in the world history of
auto industry there is a generation that is connected globally. They see an iPod or a Nokia phone or a
1200 dollar women’s hand bag and think just because it is small does not mean that it can’t be fantastic’.
And this very belief will now guide them to buy low cost small cars like Nano. The magazine hoped
that this development will accelerate research and development on alternative fuel vehicles. Recom-
mending to the auto manufacturers, the magazine wrote that the more features automakers can stuff
into small cars—be it safety, style, stereos—better it is for the bottom line. Japan and Europe are using
this formula to develop a lucrative small car market.
Antecedents of Nano
Wikipedia defined a micro car as an extremely small automobile. Various definitions exist of defining
such a car on the basis of length and engine capacity. Another name for micro car is a station car where
the intended use is to travel from a suburban home to an inter urban transit station or Park and Ride
lot where the vehicle remains until the owner returns from the commute to and from the workplace.
Europe has been home to such micro and mini cars. France and Germany have been in the lead. The
most popular such car is SMART with a weight of 730 kg. The reason for the success of micro/small
cars is the economy of its operations, easier norms for driving (in some countries no driving licence is
required for such cars), and ease of parking.
These cars are either battery/electric operated or use gasoline. Some of the various micro car makers
are:
Chatenet[1] (http://www.automobiles-chatenet.com/):Barooder S2, Barooder X2 MUST Barood-
er Sport (diesel, 4 kW), Barooder X4 and Speedino (gasoline, 15kW).
Grecav [2] (http://www.grecav.it/index.en.php): Eke (berlina, pickup, van and SW) and Porter
(truck). It also sells agriculture produce.
Aixam
Ligier
Microcar make
Piaggio
Simpa-JDM [3] (http://www.simpa-jdm.com/): Albizia basic, club and confort.
Micro-Vett (Ydea electric). [4] (http://www.micro-vett.it/english/ydeaing.html)
Bellier [5] (http://www.bellier.fr/)
Townlife [6] (http://www.townlife.it/)
Casalini [7] (http://www.ydea.it/)
Smart
Opportunities for Nano

India today is one of the two rapidly growing economies of the world. The growth rate of the Indian
economy has averaged eight percent during the last three years. Today its gross domestic product has
exceeded the trillion dollar mark and will exceed the next trillion dollar mark by 2025, if the economy
continues to grow at eight percent and above. This has obviously increased demand as it has put more
money in the hands of most segments of the Indian population. According to one Mckinsey’s Global
Institute, about 54% of India’s population had an annual household income of less than `90,000, 41%
had an annual income of `90,000 to `2,00,000 and four percent had a household income of `200,000 to
500,000 annually. This data showed that 103 million people moved out of abject poverty in the course
of just one generation. This is true across India. This is all the more impressive if we keep in mind that
India’s population grew by 352 million between 1995–2005. In effect there were 431 million fewer
poor people in India, today then there would have been if poverty rate remained at its 1985 rate of 93%.
Also since 1991, when India started its liberalisation process, there has been a sizeable growth in
the middle class. Because of all these changes and a predominantly young market, India is expected
to become the fifth largest market by 2025. This is due to a combination of rapidly rising household
incomes and a robust, growing young population.
As one can make out, the income growth will be one of the biggest drivers of increasing consump-
tion, far outweighing population growth or any change in the savings behaviour. About 80 per cent
of consumption growth comes from rising incomes, while 16% of the increase is due to growth in the
number of households. Only 4% from changes in India’s household saving rate.
As incomes grow, the class structure of consumption will change significantly as well. Consump-
tion today is dominated by the lowest and low income segments, which together control 75 per cent of
spend. By 2025, however, the highest income segment will wield 20 per cent of total spending and the
new middle class will come to dominate, controlling 59 per cent of India’s consumption power.
The second big change resulting from continued income growth will be the long-awaited emergence
of a large Indian middle class.
Not only will the magnitude of socio-economic change be great, its speed will also be far greater
than experienced so far before. Poverty Post 1991 more individuals come out of the poverty net has
long dominated India. The low and low middle-income class segments have witnessed a steady growth
between 1991 to 2008.
Spending power will also shift by income bracket as the middle class begins to bulge. By 2015 In-
dia’s middle class will control the largest block of income in the country at 19 trillion Indian rupees, or
44 per cent of total income. By 2025 it is expected to grow to 51.5 trillion rupees—11 times the level
of 2007 or 58 per cent of total income.
As one would observe from the above story, the Indian market is getting pulled upwards and that
the consumer aspirations have also changed. This is largely because of the migration of population
from one occupation to another, principally from very low paying wages to high paying wages, and
the mobility of labour across the region and cities mainly because of the economic opportunities. The
social image of an average Indian has also changed. Today education and employment are taken as two
important criteria of determining the individual’s image in the society. This is a significant change from
the time when only income was considered for determining the status of an individual in the society.
The change in the aspirations is also fueled by information, communication and telecommunication
revolution in India. Satellite television, mobile phones, local language software and internet are just
some factors that have driven this change. Development of small towns on the strength of the retail
revolution, BPOs, service entrepreneurs and education has also influenced consumer aspirations.
Globally also, poor consumers in the low income market represent a substantive opportunity. These
consumers are not just located in India and China but are also found in Latin America, USA, former East
Europe and Asia. These markets today call for innovative solutions. This has led to the development
of new category of products and processes. For example, Nokia presently makes low priced cellular
phones in India, only for India and other poor markets of the world. In India the entry level phone is
available for as low as US $15. Likewise, India also saw in 1990s the development of low priced de-
tergent powder under the brand name NIRMA and pre-recorded music cassettes under the brand name
T-Series. They heralded a new approach to creating new market spaces. Nano-isation appears to be the
future for exploiting this opportunity at the bottom of the pyramid.
AUTOMOBILE INDUSTRY IN INDIA

The Indian Automobile Industry has come a long way since 1991 when it produced only two million
automobiles. In 2006 it produced almost eleven million vehicles. The total number of cars produced
in 1991 was 1,78,930 as opposed to 2006 when the total production was 1.2 million. The total number
of two wheelers in the same period increased from 1.6 million to 8.4 million. Between 2003–2007 the
total number of cars produced grew from 7,70,771 in 2003 to 1.2 million in 2006 and the two wheelers
grew from 5.4 millions to 8.4 millions in the same period. The three-wheeler production also increased
from 3,32,095 to 53,33,595 as shown in the table below:
Production of Vehicles
Two wheelers
Year Cars Scooters Motor- Mopeds Electric Total Total
cycles Two Two Three
Wheelers Wheelers Wheelers
2003 7,70,771 8,75,569 41,96,154 33,7018 54,08,741 3,32,095
2004 10,05,205 9,92,879 49,44,696 34,8665 62,86,240 3,69,169
2005 10,68,535 9,93,283 59,36,689 36,6228 72,96,200 4,13,330
2006 12,61,775 9,44,238 70,69,807 37,0688 22,472 84,07,205 5,33,595
Commercial Vehicle Sales (Domestic) and Market Share
Sales (Inclusive of Exports)

Likewise the Sales (inclusive of Exports) of the Vehicles have Increased as Indicated in the Table Below:
Two wheelers
Year Cars Scooters Motor- Mopeds Electric Two Total Two Total Three
cycles Wheelers Wheelers Wheelers
2003 8,09,426 8,88,164 41,51,272 3,28,514 53,67,950 3,28,306
2004 10,28,460 9,99,675 49,96,863 3,47,829 63,44,367 3,69,474
2005 10,86,065 9,70,409 59,51,221 3,67,894 72,89,524 4,11,860
2006 12,89,340 9,66,855 70,15,137 3,84,852 22,421 83,89,265 5,29,657
Passenger Vehicle Sales (Domestic) and Market Share
As can be made out from the data above almost 78% of total automobile sales in India is accounted
for by two wheelers in which motorcycles form the largest share.
Categorisation and Market share of different passenger car manufacturers

A1: Mini–(Upto 3,400 mm) A4: Executive (4501—4700 mm)
Maruti Suzuki India Ltd Daimler Chrysler India Pvt.Ltd
General Motors India Pvt.Ltd
Hindustan Motors Ltd
Honda Siel Cars India Ltd

Hyundai Motor India Ltd
SkodaAuto India Pvt.Ltd
Toyota Kirloskar Motor Pvt.Ltd
A2: Compact (3401—4000mm) A5: Premium (4701—5000 mm)
Fiat India Automobiles Pvt.Ltd. Daimler Chrysler India Pvt.Ltd
General Motors India Pvt.Ltd Ford India Pvt Ltd
Hyundai Motor India Ltd Honda Siel Cars India Ltd
Maruti Suzuki India Ltd Hyundai Motor India Ltd
Tata Motors Ltd SkodaAuto India Pvt Ltd
A3: Mid-size (4001—4500 mm) A6: Luxury (5001 mm and above)
Fiat India Automobiles Pvt. Ltd. Daimler Chrysler India Pvt.Ltd
Ford India Pvt.Ltd.
General Motors India Pvt.Ltd.
Hindustan Motors Ltd.
Honda Siel Cars India Ltd
Hyndai Motor India Ltd
Maruti Suzuki India Ltd
Tata Motors Ltd
Source: The Indian Automobile Industry, Statistical Profile 2007—2008. SIAM (Society for Indian Automobile Manufactur-
ers)
Within the mini segment Maruti Suzuki holds the sway. No car manufacturer has so far been able
to unseat Maruti 800. Although its total market share over a period of time has got reduced, it still has
50.38% market share. Tata Motors has 17% market share in the passenger car market as shown in the
table below.
Product Mix (Volumes)

Profits
R and D Expenditure as a percentage of Net Turnover

Turnover EBIDTA and PAT as a Percentage of Turnover

Market Share of Passenger cars in 2006-2007

(%)
BMW India Pvt Ltd 0.01
Daimler Chrysler India Pvt Ltd 0.19
Fiat India Automobiles Pvt Ltd 0.21
Ford India Pvt Ltd 3.91
General Motors India Pvt Ltd 1.42
Hindustan Motors Ltd 1.42
Honda Siel Cars India Ltd 5.33
Hyundai Motor India Ltd 18.13
Maruti Suzuki India Ltd 50.38
Skoda Auto India Pvt Ltd 1.19
Tata Motors Ltd 17.00
Toyota Kirloskar Motor Pvt Ltd 0.80
Source: The Indian Automobile Industry, Statistical Profile 2007—2008. SIAM (Society for Indian Automobile Manufac-
turers)
As mentioned above, in the category of Maruti 800, no company has so far been able to unseat Maruti
Suzuki. It is this market that Nano is targeting.
The other issues impacting the growth of automobile industry in India continues to be rising oil
prices, poor road quality and absence of proper parking facilities in both residential and commercial
districts, and increasing pollution in cities. High taxation of automobiles particularly the four wheeler
continue to adversely affect the growth of this industry.
At the micro level the problems remain in the areas of service and distribution. Poor service and
absence of trained service personnel across the country also affect the growth of automotive vehicles,
especially those of passenger cars.
Tata Motors is one of the significant players in this industry. It has principally been a manufacturer
of commercial vehicles where it has had a dominant market share of over 60%. It first entered the
passenger car market in the year 2000 with its small car, Indica. Over the last seven years, it notched
16% market share in this mini compact car segment. It has also recently bid to acquire Jaguar from Ford
Motor Company. The company’s financials are shown in Annexure 1.
Tata Motors was bleeding until March 2003. It suffered a severe loss in 2000. Soon thereafter the
transformation began when the entire company started working on cost control and reduction. By 2007,
the company partnered with other manufacturers around the globe. It improved its efficiency signifi-
cantly. For example, now it takes 12–15 minutes to change a die on the passenger car assembly line.
This is down from the earlier time taken of 2 hrs. Its breakeven for capacity utilisation is now one of
the best in the industry worldwide. Tata Motors is also listed on the New York Stock Exchange.
CONCLUSION
As the euphoria on Nano’s launch subsides, the team of Tata Motors got together to put a plan to
mass produce and market this wonder, first successfully in India and then later in the world. As RNT
mentioned, business plans to produce 2,00,000 cars had very little meaning when the demand was in
millions. The concern was how to scale up the operations to meet this latent and overt demand. What
innovations could be considered for successfully marketing this little wonder of India? After all, as RNT
said, it was still a car. He wondered if this innovation could be extended to other products and processes.

1. Innovative thinking process at Tata Motors.
2. The process of innovation and evaluation of Nano from the innovation point of view.
3. Development and motivation of the project team and the company’s partners.
4. Market opportunity in poor markets of the world—need for innovative approach.
5. Does Nano has the potential to initiate a global shift in corporate strategy?
CASE
JAAGO RE!
ONE BILLION PEOPLE*
2
May 22, 2008, Mumbai: A low key voter response was witnessed on Thursday in the Lok Sabha by
election at Thane in Maharashtra, with workers of the Shiv Sena and the Nationalist Congress Party
(NCP) trying hard to ensure maximum possible turnout. Moderate size queues of 50 to 60 voters were
seen at most of the 3,163 polling centres in the first four hours after balloting began at 8.00 a.m. The
turnout was as low as eight to 10 voters at some booths in the country’s largest Lok Sabha constituency,
comprising six assembly segments and over 3.5 million voters.
Indo Asian News Service
November 27, 2008, Bhopal: The assembly elections for Madhya Pradesh, which is among the four
Hindi heartland states going to polls in staggered phases, concluded yesterday with just about 45 per
cent of the over 36 million voters turning up to exercise their franchise. There were indeed long queues
of voters in urban constituencies, but the response was subdued in vast rural areas. Balloting was slug-
gish throughout the day with the turnout being only 31 per cent at the end of first six hours of voting.
It picked up only marginally later.
www.gulfnews.com
December 24, 2008, Srinagar: Low voter turnout, scattered protests and a huge presence of security
forces marked the seventh and final phase of state assembly elections in India’s Jammu and Kashmir
state on Wednesday. Election Commission officials said the turnout in Srinagar district was about
13% till late afternoon, while the combined turnout in Jammu and Samba was 30 to 35 per cent.
South Asia News
‘Agar aap voting wale din vote nahi kar rahe hain to aap so rahe hain’ (if you are not voting on election
day, you are sleeping) says the model in an advertisement to a group of young people to which the girl
asked ‘Kisko vote dein’? (for whom should I vote?) The model turns a green glass in his hand with a
logo TATA TEA, the message goes ‘Jaago Re One billion Votes’. This campaign has today caught the
attention of almost all Indians, especially in the urban areas.
Election Day is considered as a holiday by most Indians. Instead of going out to vote for a suitable
candidate, most prefer to be at home watching television. Some even prefer to go out and watch a movie
*This case is based on the project work of Mahabir Banka, Kshitij Shukla, Neeraj Gupta, Nishant Kumar and Shambhavi
Pandey, students of MBA (2008–10) batch of SVKM’s NMIMS University.
Case 2: Jaago Re! One Billion People 681
instead of voting. But later, as a citizen, individuals never miss to criticise the Government when they
fail to deliver. At that time they tend to forget that it was because of their fault that the government be-
ing criticised came to power. ‘We just tend to ignore our voting rights in a democratic country which
claims to be the largest democracy in the world’ said one of the political analysts. ‘The problem we face
is our blatant apathy towards all these issues. We just refuse to make the effort to bring about a positive
change,’ continued this analyst.
ELECTIONS IN INDIA
Since independence, elections in India have come a long way. All along elections have been a sig-
nificant cultural aspect of Independent India. In 2004, Indian elections covered an electorate of 670
million people which twice is the size of the largest European Parliament elections. The expenditure
on conducting the elections trebled since 1989 to almost US $300 million. It used more than 1 million
electronic voting machines. This huge size of the electorate mandates that elections are conducted in a
number of phases (there were four phases in 2004 General Elections).
Elections in India are events which involves political mobilisation and organisational complexity on
an amazing scale. It involves mobilising financial and human resources by all political parties as also by
the State. Perhaps it is one of the most expensive exercise. It is not just national elections that involve
such mobilisation, elections to State Assemblies and municipal bodies also involve resource mobilisa-
tion. Elections in India are governed by the Peoples’ Representation Act, 1951. Election Commission
of India, an independent statutory body, oversees the elections in India. Normally, elected representa-
tives must have a clean track record. However, over the last two decades, Indian politics has seen the
emergence of money and muscle power, such that individuals with criminal track record have been
elected to State Assemblies and the Indian Parliament. They have also been sworn in as Cabinet Minis-
ters and State Chief Ministers. There has been a crying need to cleanse the election system by making
appropriate changes in the Peoples’ Representation Act. There have been demands for transparency in
political and administrative decision, which led to the enactment of the Right to Information Act in the
year 2005. Various Supreme Court decisions unseating elected representatives on the grounds of crimi-
nal involvement and corruption have only strengthened the need for election reforms. The emergence
of a powerful media has also created awareness among the people to exercise their voting rights with
caution. The shadow of guns and violence has kept the average urban middle class and higher income
voter away from the election process. Indian politics has become communalised, caste driven and is
dominated by parochial interests of groups of people or a community.
Notwithstanding the above, the fact is that India is home to over one billion people living in rural
and urban areas. The highly diverse population makes India an interesting nation. The country has a
demographic advantage in the sense it is predominantly young. Almost about 65% of India’s population
is today young and shall remain so for the next three to four decades. Channelising the youth power
is one of the biggest challenge that all organisations and governments have today. It has been realised
that the only way to cleanse the political system is to get more and more young people to vote and
participate in the political process.
Several corporates, NGOs, media organisations have today come forward to create this kind of a
movement among the young, urban middle class youth. Several causes have today been identified. An
innovative approach, has been designed to encourage youth to join the movement for fighting for their
cause be it corruption, people power, women rights, child rights or terrorism or for that matter health
related issues like AIDS and cancer. Increasingly there is a network of NGOs, corporates and media
which is today fighting for these causes. It is perhaps another form of freedom movement that we see
occurring in the twenty first century India.
One such network is of JANAAGRAHA, TATA Group and Yahoo! India that is trying to create a
mass movement to awaken the urban Indian voter on his voting rights and responsibilities.
Janaagraha
Janaagraha is a not-for-profit institution started in December 2001 by Ramesh and Swati Ramanathan.
From a movement to include people’s participation in public governance, it has now evolved into a
robust institution for Citizenship and Democracy. It now has an eminent governing board and an active
Working Council that makes operational decisions for the organisation. Of the thirteen programmes in
Janaagraha four have advisory groups with members that are highly accomplished working profession-
als. Besides the staff of twenty nine, Janaagraha is supported by the energy of at least 200 volunteers
at any given point in time. Janaagraha works to improve the quality of life of all the people in Indian
cities and towns. It works with citizens and governments to bring about comprehensive solutions to
the problems in cities. Janaagraha believes that it is not enough to have a systems approach alone; the
solutions have to be rooted in democracy. It identified that one of the many issues faced by democratic
systems is elections and to be precise—low voter turnout during elections. Thus, to achieve a mass
awakening regarding all these issues, Janaagraha joined hands with TATA.
The objective of the partnership between TATA and Janaagraha is to create a platform that will
motivate the vast numbers of Indian youth to participate actively in the electoral process of the country.
The initiative is named ‘Jaago Re! One Billion Votes’ and aims at awakening the youth of this country
to the importance of exercising their right to vote as a means to bring about the change they seek.
The campaign’s main concept is to strengthen the very roots of Indian democracy by encouraging
the citizens to actively participate in changing the quality of governance by voting and electing quality
leaders. This product/campaign vision is to transform tea from a medium of mere physical and mental
rejuvenation to a medium of social awakening. The Jaago Re campaign communicates the message
that merely being awake up is not enough; we need to be awaken to all the problems facing us, and to
help bring about a positive change. The same is communicated loud and clear by its punch line ‘Har
subah sirf utho mat. Jaago Re!’
Why Tata Tea?

Launched in 1985, Tata Tea created the polypack revolution in the tea industry in this country. Over
the years the brand has built on its success and is the market leader in terms of both value and volume.
From a single product offering, it has moved to offer products at all price- value points. Spanning the
length and breadth of the country, appealing to a wide spectrum of consumers of all demographics,
Tata Tea is today poised to take a quantum leap in terms of growth, relevance and appeal to consumers.
The four Tata Tea brands—Tata Tea Premium (largest selling tea brand in India), Tata Tea Gold,
Tata Tea Agni and Tata Tea Life—were advertised and positioned uniquely. These four brands are now
brought together under one umbrella brand—Tata Tea. This consolidation and unification of the four
brands is aimed at communicating to the consumer a single, unified message in terms of emotional
connect. The new campaign leverages the unique position that tea enjoys in the Indian culture and at-
tempts to transform tea from a physical and emotional revitaliser to a catalyst for ‘social awakening’.
As Mr. Percy Siganporia, Dy. Managing Director, Tata Tea Limited, commented:
‘In India tea is much more than just a beverage; it is indeed a way of life. It is so deeply embedded
in our psyche, in our roots, and our culture that we cannot imagine life without a cup of steaming hot
tea. The new campaign will migrate Tata Tea from being a physically and emotionally revitalising tea
experience to one that will challenge the consumer’s intellect to “awaken” to what is around them.
It will motivate people to internalise the tea experience and externalise their social awakening. It is
probably the first time that any brand is taking on the mantle of social responsibility in such a manner.
The campaign will also provide a poignant platform for connection with the youth.’
Thus to create a social awakening on such a large scale the need was to select a product which is a
mass product and one with which all segments of consumers associate. Voting is the biggest power in a
democracy and a cause with which an average citizen identifies. Hence, a natural synergy between the
cause and the product. Further to encourage individuals to register to vote without having to go through
public systems, a website www.jaagore.com was created.
STRATEGY, PROMOTIONS AND ADVERTISEMENT

Since the campaign size is on such a large scale, the strategy has plans to deploy a mega approach to
connect with the consumer at all possible touch points. Television is the lynchpin of the campaign. Tel-
evision commercials are shown at regular intervals. Each of the commercials touch upon one relevant
social issue. Further the site provides all the required information on the issue, allowing consumers to
interact and provide solutions. Along with television and the website, the campaign also uses radio,
press, shop level visibility and the new outdoor medium of malls and multiplexes to drive home the
message of Jaago Re.
To impact the mind of the viewer, the promotion started with a very catchy line, ‘Jaago re, Jaago
re, Jaaaaaaaaaaaaggggoooo reeeeeee’. In its very first advertisement, it shows a youth interviewing
an election candidate and asking him to awaken himself. The candidate’s attitude of taking things for
granted is matched with his sleeping state. It is followed by a few small ads like naming badly con-
structed roads full of potholes after the contractor and the latest ad where two guys are shown distribut-
ing tea on the day of elections to a bunch of people.
Tata Tea is promoted in a very subtle but clearly effective manner.
INNOVATION USING TECHNOLOGY

The uniqueness of this campaign is the way technology has been innovatively leveraged to address the
fundamental challenges in voter registration process. There are many hurdles which citizens face in the
current voter registration process, enough to test the patience of even the most determined citizen! The
issues vary from getting accurate answers on how the process exactly works, knowing your Assembly
Constituency, where to drop your registration form, whether you have made it to the voter list or not
etc. Integrating the latest advances in internet and mobile technologies in a seamless manner, Jaago
Re! One Billion Votes and its website www.jaagore.com, aim to provide a one-stop solution to all your
voting needs. The website has an easy managibility through interface with following features:
It is fairly simple and easy to navigate
Quite self explanatory and matter of fact
Interesting interface
A comprehensive list of FAQs and sensible bifurcation between the different kinds of voters’
query
Good content as it is informative and educative.
VALUE PROPOSITION
This campaign starts with a vision to transform tea from a medium of mere physical and mental rejuve-
nation to a medium of social awakening especially the youth. It is meant for all those who feel an urge
to do something revolutionary in a positive way. A quick assessment among those who have watched
the ad campaign on television, shows that it makes the individual to stand up and voice his/her opinion.
Hence it spreads the message of awarness and the need to support social courses.
TARGET MARKET
The campaign focuses on empowering the youth of India to lead the change they are seeking. Undoubt-
edly, the driving force behind the campaign are a bunch of passionate youth themselves.
The youth of India have the passion and potential to make a difference; what is missing is an enabling
platform. This is what Jaago Re! One Billion Votes aims to provide. The campaign provides opportuni-
ties and tools to the youth to run their own voter registration drive—amongst their friends, community
or at their campuses—and even track the number of people they have registered at www.jaagore.com.
After establishing the concept of Jaago Re! last year, it was time to take it to the next level this year.
And the biggest event for the next twelve months in the country is the general assembly election. This
segment is educated, tech savvy and has a modern outlook. And yet, it is indifferent and cynical towards
elections, and unaware and disinterested about voting.
So 2008 campaign, One Billion Votes, aims to awaken the entire country, including the youth. To
facilitate this campaign at the ground level, Tata Tea has tied up with Janaagraha, which has a back-
ground in social awakening. With plans to create awareness in colleges and organisations in 35 cities
across the nation, One Billion votes will create a platform to help the people vote. The thrust of their
on ground and online campaign being, ‘If on Election day you’re not voting then you’re sleeping’.
Partners
Loksatta Lok Satta movement is India’s leading civil society initiative and people’s movement for
wide-ranging governance and political reforms. The movement is driving the electoral and governance
reform agenda of the country with several notable successes to its credit such as the Public Disclosure
Law and the Right to Information Act (RTI).
Lok Satta has experience in similar campaign e.g. Lok Satta launched a national platform called
‘Vote India’ in partnership with several organisations to spearhead the campaign for political reform.
Likewise it launched ‘Vote Police’ for police reform and ‘Vote Mumbai’ is a campaign for urban gov-
ernance reform.
PRIA PRIA founders believed in the two principles of development:
Participatory Research believes in the intrinsic value of people’s knowledge as a basis for their
own empowerment
Participatory Development is a process whereby people are empowered for planning and imple-
menting their own development plans.
These two principles of participation were applied in a variety of settings and contexts:
Women’s education and their livelihood
Forests and tribals’ rights
Workers’ Education and Occupational Health
Literacy and continuing education
PRIA’s vision is to develop a democratic society based on the values of equity and justice. PRIA in-
tervenes directly at the local level in the eight states of Bihar, Chhattisgarh, Haryana, Himachal Pradesh,
Jharkhand, Orissa, Rajasthan and West Bengal. With the support of its core group of partners PRIA has
further extended this approach to the states of Gujarat, Kerala, Madhya Pradesh, Uttarakhand and Ut-
tar Pradesh. PRIA’s interventions in each state are woven around relevant issues and themes ensuring
delivery of development through the effective and accountable functioning of local governance.
Yahoo Yahoo! India (www.yahoo.in), launched in June 2000, has established itself as the pioneer-
ing and leading Internet portal providing value added services for web users in India and users abroad
with special interest in India.
Yahoo! India seeks to provide a compelling web experience to Internet users. A full range of tools
and marketing solutions from Yahoo! India help businesses connect with Internet users and make it a
‘must-buy’ partner of choice for advertisers, globally. Yahoo! India also offers an array of communica-
tions, commerce and content services that serve as a starting point for online needs of Internet users.
The ‘Jaago Re’ campaign is a unique campaign undertaken by TATA. Along with creating a general
awareness in India regarding election, reservation and taxation system it also projected the image of
TATA Tea as the brand leader in its segment. This campaign as of now has revolutionised the youth as
more than 1,70,000 users have already registered by January 2009.
The challenge before JANAAGRAHA and TATA was whether they would be able to succeed in
creating this awareness. Even if they did, how to ensure that the people actually go to vote on election
day and the consumer believes in and buys Tata Tea. As one of the marketer commented ‘the success
of a campaign lies in getting the consumer to believe in it and buy or act in the manner in which the
organisation want him or her to act’. The test of the campaign, therefore, would be 2009 election and
market share gain for Tata Tea.
Another challenge was that of reaching out to the younger generation across India in their own lan-
guage. The cost of the project is yet another issue that JANAAGRAHA would have to consider. Can this
cause be marketed through funds generated by all those who commit to the cause?
Exhibit C3.1 Turnout

Exhibit C3.2 Turnout

Exhibit C3.3 Progress of Literacy in India, 1901 to 2001
Percent Liberate in Population

Census Year Total Male Female
1901 5.53 9.83 0.69
1911 5.92 10.56 1.05
1921 7.16 12.21 1.81
1931 9.5 15.59 2.93
1951 18.33 27.16 8.86
1961 28.3 40.4 15.35
1971 34.45 45.96 21.98
1981 42.57 56.38 29.76
1991 52.21 64.13 39.29
2001 65.38 75.85 54.16
Exhibit C3.4 Election Statistics—Voting percentage in Lok Sabha Elections
General Year Male Female Total

Election
1st 1952 – – 61.2
2nd 1957 – – 62.2
3rd 1962 63.31 46.63 55.42
4th 1967 66.73 56.48 61.33
5th 1971 60.90 49.11 55.29
6th 1977 65.63 64.91 60.49
7th 1980 62.16 51.22 56.92
8th 1984 68.18 58.60 63.56
9th 1989 66.13 57.32 61.95
10th 1991 61.58 51.35 56.93
11th 1996 62.06 53.41 57.94
12th 1998 1998 57.88 61.97
13th 1999 63.97 55.64 59.99
Exhibit C3.5
CASE
FABINDIA—FABRIC OF INDIA*
3
In 2009, with more than 90 stores across India, Fabindia, is looking towards expanding its operations
overseas. Initially an export house, Fabindia has emerged as one of the leading players in the ready to
wear segment, with the image of a quintessential ‘Indian’ brand.
The questions now confronting Fabindia relate to the way it is supposed to take its expansion plans
forward and increase its global reach, and whether the ‘Indian’ brand can gain enough of a foothold in
the international market. Fabindia has also become a fashion statement in the ‘elite’ and ‘intellectual’
customer segments. It has also come to represent organic products.
‘Fabindia was founded with the strong belief that there was a need for a vehicle to market the vast
and diverse craft traditions of India and thereby help fulfil the need to provide and sustain rural
employment.’
‘Our endeavour is to provide customers with hand crafted products which help support and
encourage good craftsmanship.’
John Bissell
EARLY TIMES
John Bissell who founded Fabindia was born in Hartford in Connecticut and was educated at the Brooks
School in North Andover, Massachusetts, and at Yale. He was introduced to India by his father, who
narrated stories of his time in India where he was posted during the Second World War. John Bissell
worked as a buyer for the American departmental store, Macy’s. In 1958, under a programme run by
the Ford Foundation, he came to India to advise the Central Cottage Industries Corporation created by
the Indian government, on showcasing Indian handlooms and handicrafts. His role was to advise on
issues relating to marketing Indian handicrafts. He was new to India and he did not know any Indian
language. In spite of these inconveniences, he travelled extensively over India and met several crafts-
men. He came across a unity of skills, among craftsmen, but he observed that they had no idea about
marketing their products as they were in no position to access distant, urban or international markets.
He liked his experiences in India and hence kept coming back. What Bissell discovered was a village
based industry with a profusion of skills hidden from the world. However, they lacked the skills to
market their products and access the large urban and foreign markets.
*This case is based on the project work of Kopal Doshi, Anurag Kalita, Ashit Shetty, Amit Baweja, Shristi Dalmia,
students of MBA (2008–10) batch of SVKM’s NMIMS Univeristy.
Case 3: Fabindia—Fabric of India 691
Determined to showcase Indian handloom textiles, and provide equitable employment to traditional
artisans, and sensing an entrepreneurial venture, Bissell established Fabindia in 1960. It was also to
fuse the best aspects of East and West collaboration. Initially, Fabindia started as a wholesale export
company, concentrating on the export of upholstery fabrics, durries and rugs.
Initially, his goal was to export to the US and to other western countries. With that aim in mind, he
incorporated Fabindia in 1960. The company operated from Bissell’s residence in the posh Golf Links
locality in New Delhi. Growth was initially slow for the company but in 1965 the company moved out
of his house into a proper office. By then, Fabindia had an annual turnover of `20 lakhs. Most of this
turnover was accounted for by a single buyer and a single supplier. A. S. Khera made durries and other
home furnishings in his workshop in Panipat and most of the output was purchased by the UK based
Habitat, which was founded by a famous interior designer, Sir Terence Conran.
Retail Foray
Bissell’s Greater Kailash shop in New Delhi was a success. It attracted a distinct category of custome`But
in spite of such success in its direct retail business, Fabindia remained dependent on exporting and
Habitat continued to be their single major buyer. In the early 80s, Fabindia made a significant addition
to its product range by adding ready to wear garments in their retail offerings. In an interview in 1977,
Bissell said, ‘The greatest thing that happened to our business was the move in Europe and America a
few years back to the natural look—natural textures, natural fibres—and away from things like poly-
ester and nylon’. Like in Europe and America, a distinct group was emerging in India. Some of India’s
new, young politicians, media stars and other celebrities patronised Fabindia who were able to provide
Fabindia with nationwide exposure for its products. In spite of all that, its domestic retail business grew
slowly. It continued to focus on export business.
However with passage of time Fabindia’s marketing shifted from exports to the local Indian retail
market. This was especially so from 1990s.
In 1999, on John Bissell’s death, his son William aged 32,formally took over as the Managing Di-
rector of Fabindia. The Company’s domestic expansion had been spectacular after William took over.
By 2001, Fabindia had six stores located in the metro cities. By the end of 2004, these had increased to
20, and the company was seriously considering expanding its stores into the tier II and tier III cities as
well as overseas. By the end of 2007 Fabindia had 75 retail stores across India and in addition, stores
in Dubai, Rome and Guangzhou in China.
Fabindia Across India

What started as an export house has today become a successful retail business presenting Indian textiles
in a variety of natural fibres, and also home products including furniture, lights and lamps, stationery,
home accessories, pottery and cutlery. In 2004, food products range was launched and in 2006, Fabindia
Sana, their authentic body care products range, was launched. Recently, it has also ventured into the
jewellery segment. However, the major chunk of Fabindia’s product range is textile based.
The company has continued its focus on the artisans and sources its products from over 15,000 crafts-
men across India. With a strong foundation, the company has been successful in increasing its presence
all over India.
Channels of Business
It has created a visibility in the international market either through its own stores or through other re-
tailers and boutiques. They were promote their brand through institutional sales. The main advantage
Fabindia has enjoyed is that its products have a distinctive and quintessential style which can be easily
identified by potential customers.
Retail The retail channel is already developed within India with almost 100 stores in tier 1 and tier
II cities. As of today, internationally Fabindia owns stores in Rome (Italy), Guangzhou (China), Dubai
(UAE), Manama (Bahrain) and Doha (Qatar).
The product range consists of garments for men, women, children and infants; garment accessories;
home furnishings—bed, bath, table and kitchen linen, upholstery fabric, curtains, floor coverings and
a range of non textile products like furniture, lights, lamps and stationery. In addition to handcrafted
clothing and home furnishings, Fabindia’s product line includes organic foods and body care products.
Wholesale Exports As of today, Fabindia exports to more than 34 countries. The clients are
wholesalers as well as secondary retailers. Products exported include home linens as well as garments.
Exports are done as per the agreements/contracts excessed between Fabindia and the customer.
Exports being a very lucrative market, Fabindia develops a special collection for exports markets
twice every year. The special collections are showcased at the Indian Handicrafts and Gifts Fair, New
Delhi during spring and autumn. This collection draws on different techniques to present a range of
home furnishings comprising bed and table linen, with a focus on textures—both visual and tactile. As
different wholesalers and retailers flock to these fairs to address their sourcing needs, Fabindia is able
to reach out to potential clients.
Institutional Sales Fabindia envisages to service the top end institutional business segment espe-
cially the heritage hotels and multinational corporate houses. Part of the service includes customisation
and interior designing consulting for these clients.
Mechandise Mix
During the early days, merchandising was not a planned activity. Whenever Bissell saw something
of interest, he procured it for display at the store. Sometimes he would also invite the craftsmen , to
display the products and assist in the sale. This orientation of customer relationship later became a part
of the company culture.
The expansion in merchandise mix is mainly done through customer feedback, especially that of its
loyal customers. Fabindia believes: ‘A delighted Customer is our Best Brand Ambassador’
Fabindia does not follow any customer acquisition strategy. It instead focuses on customer retention.
Fabindia creates its market through its existing customers which is quite evident from the fact that about
85% of its customers are repeat customers. The Unique Selling Proposition of Fabindia is the quality
of the fabric and the traditional style, which is always in vogue. It has designed the stores’ decor and
ambience keeping this in mind. It constantly attempts to improve the quality of the products in order
to retain its customers.
The company concentrates on customer feedback by maintaining a visitors’ register to record
customer views. The store managers prepare a report on the buying pattern among consumers which is
periodically reviewed by the Product Selection Committee at Fabindia. Recently, the CRM software has
been implemented in a select few stores which aims to help in maintaining a centralised database. This
will help Fabindia in retaining customers by building lasting relationships and improving loyalty. The
implementation, however, is still in its nascent stage, but is soon expected to be spread across all the
stores in the country. Fabindia also has the Mystery Shopper Programme to gauge the customer satisfac-
tion level. Mystery shoppers posing as normal customers perform specific tasks such as purchasing a
product, asking questions, registering complaints or behaving in a certain way and then provide detailed
reports or feedback on their shopping experiences to the management. It serves as an effective tool to
improve the customer experience.
Moreover, the brand managers at Fabindia rely upon the concept of intuition. If a new line of tradi-
tional kurtis is launched, the jewellery which suits the attire also gets launched. It automatically gets
sold without any promotion. Before launching any new product, be it traditional, western, organics,
jewellery or furniture, Fabindia looks into the value which a customer may feel by having the product
as a part of his/her life. Some customers are so inclined to Fabindia that they just do not believe in
going elsewhere else, and do not even tell other people that they have purchased the particular item
from Fabindia.This helps them create an image of exclusiveness . Hence, uniqueness, innovation and
intuition are the most important aspects of Fabindia’s product planning.
Store Layout and Location

The store layout in Fabindia depends upon the type of store. Fabindia works on various types of stores
which include concept stores as well as full fledged store. In a posh locality in a metropolitan city,
Fabindia works as a full fledged store which has almost all the product lines. On the other hand, in a
concept store, specific products are retailed. Market potential determines store location for Fabindia,
which is fast expanding in tier II cities like Bhopal where still mall culture is non existent.
The layout usually keeps the governments section at the rear of the store while the entrance area is
utilised for home products. The exclusive jewellery counter is also kept in the front section.
FABINDIA CHALLENGES
Fabindia since its inception has concentrated on cultivating an image of ‘Indianness’. Relying on its
word of mouth publicity, Fabindia has been highly successful in creating a pool of repeat customers,
who come again and again for the unique Fabindia experience.
The core values of Fabindia have always been to provide its customers with quality products which
reflect the unique Indian culture and tradition. Since most of Fabindia’s customers are repeat customers,
the motivating factor for the customer remains the quality and consistency of product and the service
provided by Fabindia.
The major problems for Fabindia occur in maintaining the consistency of the products. Since the
supply and manufacturing happen on a small scale over a large geographical area, it becomes difficult
for the firm to maintain the same level of quality. Fabindia makes sure that an acceptable quality level
is maintained by having strong relationships with all its suppliers. It makes sure that a supplier does
not suffer due to marginal quality lapses. The Fabindia customers also understand this and are largely
tolerant of the minor shorcomings in garments in terms of size and prints etc. In fact, over 77% of the
customers buy from Fabindia, because of the ‘Fabindia’ brand and its contribution to improving the life
of rural artisans.
Fabindia educates customers about the dyes used in the products, and also the possible problems
which could be faced in washing and using them through unpromotive posters put up at the stores.
Thus, Fabindia has succeeded in making the inherent inconsistency of the product into an appeal factor
by positioning each garment as ‘unique’.
Also, even though the products sometimes have problems due to the fading of colours, or shrinkage,
the service personnel make sure that the customers are not inconvenienced on account of such problems.
The general response is to exchange the garment for another, which makes sure that the customer goes
back happy, and remains a loyal customer.
In case of organic products, which is still a nascent market. The appeal is mostly to people who are
already aware of the product offering and have been using similar products. The major problem there
is erratic delivery and product availability, which does lead to customer dissatisfaction. But this is a
very small part of the clientele. Over 83% of Fabindia’s customers go back satisfied, with 58% being
highly satisfied with the brand and its offerings.
Fabindia has been expanding its product range to include jewellery, home furnishings, body care
products, etc. This has mostly been done as an extension of the garment brand. For example, the men’s
garment range was started because the founder, John Bissell, needed shirts. Therefore, for quite some
time, the Fabindia men’s garment line was restricted to shirts and that too in only one size, because it
was John’s shirt size!
Although Fabindia appeals to the Indian customer’s need to remain rooted with the tradition and
culture, it has made sure that it changes with the times. It had adopted a large number of western fash-
ions and garments into its range. This is done keeping in mind the customer feedback received and the
inputs given by the store managers. Fabindia relies on its managers to identify client needs and trim
the store offerings accordingly.
Competition
Competition faced by Fabindia is from both the organised and unorganised retail sector. The unor-
ganised sector has the local tailors who provide customised garments to the customers at reasonable
prices and the local NGOs selling wares. However, the scale of operations does not pose a major threat
to Fabindia.
One such competitor is the Delhi Haat, an upgraded traditional weekly market, located in the hub of
south Delhi. The place has been developed by the Tourist Department of Delhi to promote the crafts-
manship of our country. It is an amalgamation of craft, food and cultural activities. Unlike the village
haat, the Delhi Haat is a permanent haat that offers a kaleidoscopic view of the richness and diversity
of the Indian handicrafts and artefacts. Spread over a spacious six acre area, imaginative landscaping,
creative planning, and the traditional village architectural style provide for a major tourist attraction.
One is very happy to get goods at a very nominal price here.
Another such regional competitor is the market outside the law garden in Ahmedabad. The law
garden is a famous place for buying handicrafts and Gujarati outfits from local hawkers. This garden
provides one with various recreational options like music, theatre, rides for kids and a great variety of
Gujarati food.
The common thread that links both the Delhi Haat and the Law Garden is the experience they create
for the customer by combining crafts, food and cultural activities. Such an experience is lacking in case
of Fabindia. A tourist would be lured by the overall ambience he gets in the former case.
However, a far greater threat is posed by the organised sector especially Government owned Khadi
Gram Udyog outlets and Cottage Industries Emporiums across the country. The product mix offered
by both is similar to Fabindia. Also, they have the backing of the government. However, the quality of
products and service provided by Fabindia is perceived to be higher than that of the government run
outlets.
Fabindia’s main competitors are the ethnic wear retailers like Khadder, W and Good Things, who are
also expanding at a rapid pace. W, for example, has well over 30 exclusive stores now, in addition to
being available at some multi brand outlets. There is also tough competition from the ethnic wear labels
of modern Indian retail chains, such as Shoppers Stop and Pantaloons. Stand alone stores like Shristi
and Biba in Bangalore, Prapti in Kolkata and Sadka and Shoma in Delhi have been doing well for a
while and could pose a challenge by expanding. New competition is expected from overseas retailers
also. The government has already permitted single brand retailers to set up shop and others like Car-
refour, WalMart and Metro have devised ways to get into the Indian market. Powerful Indian business
houses like Tata, Reliance and Birla are also expanding their retail businesses.
The organised retail sector also includes outlets of corporate houses like Lifestyle and Westside
which cater to the same demographic profile. However, the products served are more contemporary in
nature and does not aim at the same target audience. Stores like Anokhi have the same target audience,
but do not have the reach of Fabindia.
International Presence
Fabindia has gradually attained a strong foothold in India. It has become the niche player of choice
for the urban and semi-urban masses when it comes to buying something with ‘Indian flavour’. The
constant product innovations and agility in identifying associated product lines has been the key. Be
it garments with distinctive folk patterns to furniture with carvings and designs reflective of the rich
Indian heritage, the products have an intrinsic appeal for customers.
As of January 2009, they have 97 stores across the length and breadth of the country. They have also
opened international stores in Italy, UAE, Qatar and China. Their network is spread across 34 countries
worldwide and 511 destinations in India.
Market
From a turnover of `36 crores in 2000–01, Fabindia has grown to having a turnover of `130 crores in
2005–06. It registered a CAGR of about 38% in the period 2002–06. Phenomenal growth in sales as
also profits is shown in Fig. 2 have characterised 2002-2006 period for Fabindia. So has been the rapid
growth in its retail stores (Fig. 1). William Bissell has set an ambitious target of reaching 250 stores and
a turnover of `1,000 crores by 2011. The growth is expected to come from new stores as well as increase
in sales from existing stores. That increase will be achieved by increased emphasis on premium prod-
ucts. Also, Fabindia has attempted to decrease its dependence on fabric based businesses by increasing
its other product lines. Currently organic foods, body care products and handicrafts form a significant
part of its total sales. Growth in locations was expected to come from expansion in overseas markets as
well as a greater penetration of the markets in smaller towns in India. As mentioned earlier, Fabindia
planned to expand significantly in tier II and tier III cities in India. India has a flourishing retail business
but most of it is in the unorganised sector. There are estimated to be over 120 lakh stores in the country.
Of this, organised retail is only three percent but is growing at the rate of 18%. This organized retail
sector is vying for a share of the spending of India’s rapidly growing middle class whose purchasing
power is estimated to be around `10 lakh crores. An estimate made by a professional demand forecaster
shows that out of the total retail business potential, the Indian market for ethnic wear is likely to be a
about `9,000 crore. For areas outside India, there is a strong mysticism about Indian culture and hence
the products reflective of Indian folk art hold great potential in those markets.
Given the over eight percent growth in the Indian market and an upwardly mobile India consumer,
it was quite clear that product and services which enable a customer to make a fashion statement, are
going to grow in volume and value. The question before Fabindia management is that of making Fa-
bindia product exclusive or mass produced. If it decides to make it exclusive, then it will have to look
at issues of product design, store layout and even the store ambience. Increasingly, its competitors are
using ethnic themes for their store layouts as also for designing garments.
Exhibit C4.1 Store Layout: Upholstery
Figure 1 Growth of Stores since William took Figure 2 Profit and Turnover in Rupees Crore
over as MD (2002 to 2006)
Competitors of Fabindia
Strengths Weaknesses
Unorganised Sector
Tailoring Outlets 1. Reaching out to customer with 1. Highly fragmented business
larger dispersion. approach.
2. Ensures convenience of
demanding service.
NGOs Promoting Handicrafts 1. Strong community based 1. Lack of retailing expertise and
operations. inability to minimise costs.
2. Complementary products 2. Products are mostly produced
manufactured with other firms. for souvenirs or artefacts of
collector’s interest.
Organised Sector
Retailing Houses
Garments Based (Shoppers 1. National presence of outlets. 1. Diversity of product is limited.
Stop, Westside, Reliance Trends, 2. Retailing expertise and 2. Retailing brands and in-house
Globus) competitive pricing. labels have a considerable
3. Agility for quick product share of product mix. The
development cycles. trends are designed as
per recent garments and
accessories trends.
Government Handloom Initiatives 1. Strong legacy attached to 1. Business is heavily influenced
products. by bureaucratic approach of
employees
(Khadi Gramudyog, Cottage 2. Subsidised manufacturing and 2. No significant product
Industries Emporium, State costs evolution.
Government departments)
Designer Boutiques 1. Scope of product 1. No uniformity in price across
customisation. products.
2. Highest level of customer 2. Limited models of SKUs
intimacy. manufactured.
Organic Foods (Reliance, Godrej 1. Well established business 1. Profitability concerns as
Agrovet, ITC Foods, Organic houses with high brand equity. organic market is still in
India) 2. Established and nascent state.
technologically equipped
supply chains.
Fabindia Modelled Garment Houses
Anokhi 1. Differentiable products. 1. Minimal product lines.
2. Established brand and market. 2. Handicrafts from western
regions
Bombay (Swadeshi) Stores 1. Servicing high value 1. Only located in Mumbai
customers. 2. Priced much higher than
average Fabindia prices.
Organised Retail
CASE
STAYING HEARTY AND HEALTHY—

THE SAFFOLA WAY*
4
INTRODUCTION
Mr. Harsh Mariwala while addressing the convocation at NMIMS University talked about the role of in-
novation at Marico and how his company has managed to attain an iconic status in the FMCG Industry.
Even though many of its innovations have been successful, there have been some others that have faced
turbulent times. He also mentioned about the organisation culture that has got created wherein the entire
organisation is an open house and everybody sits along with his/her team member. He mentioned that
for a country like India, innovation is a necessity and not just another alternative way to gain competi-
tive advantage. One such example of innovation was in the area of healthy heart and the growing need
to educate Indian consumers on adoption of healthy food products and lifestyle. At the end of his talk
we approached him to understand the innovation philosophy and the strategy that the company adopts.
He told his category head to connect with us. He invited us to a strategy meet being held in July
2013. The strategy team was discussing the road ahead for Marico India’s functional foods, especially
on Saffola Oats which was launched just about 3 years back in 2010. In the discussion there came up
the vital insight of the emergence of functional foods in the lives of the Indian consumers. The category
head, who heads the foods domain, was of the opinion that this category should be given the necessary
attention. This would help strengthen the focus of heart health that the brand Saffola is positioned for.
This would also help them tap the growing functional foods market.
Riding on the heart-health proposition, Marico rolled out Saffola Oats in 2010 and pitted itself
against established MNCs such as Pepsi (with Quaker Oats) and Kelloggs with its recently launched
ready-to-eat oats. The oats market is believed to be rather small at `182 cr. Saffola’s current market
share stands at 13% as of 2012–2013.
One of the challenges faced by Marico, Saffola Oats was to make heart health relevant to people
who believe they don’t suffer from it in addition to the households where heart health was a felt need.
And given the fact that they cater to a nation of ‘invincibles’—people in their 30’s with an extended
youth hangover who believe that there can be nothing wrong with them, when it comes to health, the
task becomes tougher.
What compounds the fact is a deep rooted ‘fear psychosis’. Even if people acknowledge the need
to be healthy, they live in constant fear of an ailing heart. They don’t even want to know if their heart
may be at risk. So they choose to look the other way, not acknowledge that they could be ‘heart health
sufferers’.
*Rajan Saxena, Vice Chancellor NMIMS; Hufrish Majra, Assistant Professor; Saloni Gandhi prepared this case. The
case is not intended to serve as an endorsement, source of primary data, or to show effective or inefficient handling of
decision or business processes.
Saffola, hence, faces a challenging situation of overcoming psychological barriers to make heart
health relevant to Indian consumers, increasing the oat penetration and making Saffola Oats the pre-
ferred brand.
ABOUT MARICO
Marico is one of India’s leading consumer products and services company in the global beauty and
wellness space. From its foundations, Marico has worked outside the box, to bring innovation to its
customers through the careful creation of continuous and sustainable change.
Today, 1 out of 3 Indians uses a Marico product. The company boasts of a history of developing
innovative products. From cooking oil with ‘LoSorb Technology’, to rice that keeps you active, person-
alised ‘skinscription’ services and hair oil that comes with a battery-powered head massager, Marico
believes that it pays to think differently.
Marico’s commitment has catapulted the company to become a leading FMCG company. Marico
is present in more than 25 countries across Asia and the African continent. The company recorded a
turnover of INR 4,596 crore (USD 851 million) in 2012–13 a growth of around 15% over the previous
year. Their vast portfolio of enduring brands such as Parachute Advanced, Saffola, Hair & Care, Nihar,
Mediker, Revive and Manjal are leading household names today. In addition, the company has recently
acquired the erstwhile personal care business from Reckitt Benckiser. Marico now owns popular brands
like Set Wet, Livon, Zatak, and other personal care brands thereby strengthening its portfolio for the
youth and creating a significant presence in the male grooming and post hair wash segments. Marico’s
international portfolio includes brands like Fiancée, Haircode, Camelia, Aromatic, Caivil, Hercules,
BlackChic, Code 10 and Ingwe. They are also present in the Skin Care Solutions segment through
Kaya Skin Clinics in India, Middle East and Bangladesh and Derma Rx in Singapore. Their consumers
transcend countries and customs. They are a company which believes in challenging the status quo, to
create growth and continuity in change.
Marico aims at working as a catalyst and creating an innovation ecosystem through cutting edge
research, knowledge creation and dissemination. It is with this objective in mind that ‘The Marico In-
novation Foundation’ was set up.
The projects focused on by Marico Innovation Foundation are Social Innovation Acceleration Pro-
gramme, applying innovation methodologies in areas of social improvement; Innovation for India
Awards, recognising the best innovations from across India; and launching Innowin, India’s first maga-
zine dedicated to innovation.
Saffola is Marico’s health and wellness brand in the foods category in India. It has several products
in its portfolio which include edible oils, breakfast cereals, rice and salt. Saffola is known to be a brand
which is good for heart and recommended by doctors. For the last 10 years, Saffolalife has been edu-
cating Indians on preventive heart care. Saffola has over the years built an ecosystem which actively
works towards adopting a healthier lifestyle.
Saffola’s philosophy is to help people get the most out of life and always promotes the adoption of
a healthier lifestyle for one’s heart. Saffola’s products are the first in the line of defence against heart
diseases, making the transition to a healthier lifestyle a lot easier.
Case 4: Staying Hearty and Healthy—The Saffola Way 701
HEART-RELATED HEALTH PROBLEMS AMONGST INDIANS

The Saffolalife study covered more than 1.86 lakh people between the age of 30 years and 100 years.
‘A sedentary lifestyle, in addition to stressful work conditions and a compromised diet are leading fac-
tors in precipitating a heart disease’s risk. This has affected the heart health of people between the age
of 30 years and 44 years,’ said Dr. Akshay Mehta, Senior Cardiologist, Asian Heart Hospital (Source:
health.india.com).
Of the 29,017 Mumbaikars who participated in the study, 44% reported that they consume preserved or
processed foods at least twice a week, and 42% said that they eat fried foods at least twice a week. Addition-
ally, 71% of them were guilty of consuming two or less servings of fibre-rich whole grains in their diet.
‘Now it is fairly common to see youth suffering from heart strokes. Five years ago, we hardly saw
young patients with heart problems. Now, we get many cases where cardiovascular disease affects
people in the age groups of 25 to 35,’ said Dr. Ajay Chaurasia, Head of Cardiology Department, BYL
Nair Hospital.
The study also revealed that at 12%, Mumbai was one of the cities with the least number of respon-
dents with diabetes, which experts see as a good sign. The study also showed that Mumbaikars are keen
on keeping themselves fit, with a substantial 64% of respondents agreeing that they exercise thrice a
week or less.
Increasing Health Awareness

Globally, growth in nutrition foods and beverages is being fuelled by emerging markets, such as India,
China, Brazil and Indonesia are expected to add more than 100 billion USD between 2012 and 2017.
India ranks among the top ten global growth markets for nutrition foods and beverages.
There is an emergence of the health conscious segment, in line with the international trends, and has
created a demand for natural/organic products. Over the period of time, this segment has grown.
The increased emphasis on a healthy lifestyle is part of a trend to look fitter and well-groomed. The
rise in health-consciousness explains the huge increase of 203.5% on health goods and medical services
expenditures from 1995–2007. The growth is expected to continue at a rate of 63.3% over 2007–2015.
Indian consumers are joining weight loss clinics, a trend very popular with northern Indians whose diets
have a high intake of saturated foods.
The wellness market in India thrived at a whopping 700 billion INR in 2012 with a growth rate of
18% over the previous year. The market has been segmented along hygiene, curative and enhancement
needs of the consumer.
There has been a drastic increase in the number of fitness services, slimming services, spas, slim-
ming products, fitness equipment, dietary supplements, alternate therapy service and products, wellness
food and beverages, cosmetic treatments, salons and beauty services, OTC medications, pain relievers,
‘nutraceuticals’, digestives, anti-aging and revitalising potions, and various other services and products
(FICCI, 2013).
Low brand loyalty and increased price-sensitivity is still preventing the Indian food retail market to
unfold to its true potential. However, unique-to-the-Indian-consumer innovative products that provide
quality and affordability will benefit (Health and Wellness Trends in India, 2010).
Euromonitor report predicts that the breakfast cereals market will grow by a CAGR of 16% between
2011 and 2016, rising to `1,565.20 crore, with hot cereals at about `829.54 crore and Ready-to-eat
cereals at `735.60 crore.
Oats Penetration in the Indian Household

Indian consumer awareness of branded oats is still quite low. As per Nielsen’s Survey (2013) done in
select urban centres, a large proportion of 36% Indians are not aware of the oats category. Oats have
so far a penetration rate of 21% in India of which 13% are regular users and 8% are occasional users;
10% are lapsers who have tried and later discontinued use; 26% of Indians who are aware of oats don’t
intend to try in the future while 7% are aware and intend to try the same.
The penetration of oats is the highest in South India (21%) largely contributed by Chennai and Co-
chin; followed by West (11%), North (10%) and East (4%). The consumption here indicates households
consuming oats at least once a week and where oats were found in the pantry check. Occasional users
are higher in the North and South regions. The awareness for oats is low in North, East and West zones.
Majority of oats consuming households are affluent with 44% of the consumers from Sec A. 1 out
of 4 oats consumers are from Sec C households.
Though oats are traditionally marketed for its health benefits, many households with no health
problems consume oats regularly. In fact 54% of the consumers of oats do not have any health related
issue. 3 out of 4 members in a household consume oats, which include both men and women. However,
a slight skew is seen favouring women (56%). Also, consumption of oats happens across age groups.
The main decision makers are mainly housewives who buy oats for their households. They are con-
sidered as trendsetters (78%).
Saffola’s Foray into Oats

Saffola’s main focus over the years has been heart health. Over the years they have come out with
various products with the proposition of achieving good heart health with the most prominent being
Saffola’s brand of cooking oil which is the biggest contributor to their business portfolio. Saffola felt
the need to extend its strong brand positioning and venture into the growing functional foods market
with their brand of oats.
Competition
The oats market is divided mainly into 2 zones; the South and the rest of the country, with South domi-
nating with 70% of the volume sales in 2012–2013 (Refer to Exhibit 1).
In 2006, Quaker Oats, which called itself the ‘World’s no. 1 oats brand’, entered India. With over
100 years of trusted heritage, it offered oats which cook within three minutes. More recently, it also
launched instant oats which needed no cooking. The brand is aggressively marketed, with a widely
publicised ‘Smart Heart Challenge’ and a website interestingly named goodmorningheart.com.
In 2010, Kellogg’s, the global giant best known for its cornflakes, also entered the oats market with
its ‘Heart-to-Heart’ oats which the company claimed was tailored to the Indian palate. It emphasised
the healthy nature of oats, and how it would help battle a stressful life.
In 2011, Horlicks, one of the country’s best known brands of health beverages, launched Horlicks
Oats, with an enhanced three-way promise: manage your weight, control your blood pressure and re-
duce cholesterol.
Towards the end of 2011, Britannia, a household name in biscuits, introduced oats under its Healthy
Start brand. Four variants of oats were launched simultaneously: plain, strawberry, savoury and multi-
grain.
Perhaps in no other category have so many famous brands entered the Indian foods market in such
quick succession.
Amidst the strong competition and numerous players, Saffola, India’s leading brand of healthy cook-
ing oil from Marico, launched its range of oats in 2010. The clear objective was to leverage the strong
‘health’ equity of the Saffola brand. A few months later, Saffola also introduced two new variants of
oats catering specifically to Indian tastes: curry and pepper oats, and masala and coriander oats.
Saffola succeeded in achieving a strong presence in the Southern region. People in the South had
been consuming oats since many years due to awareness about the digestive benefits, heart benefits and
more health awareness in general.
Exhibit 2 shows the sales figures for Saffola and its key competitors since the launch of Saffola Oats.
Product Variants
The per kilo prices of these ready to cook breakfasts (warm milk or hot water to be added) can be seen
in Exhibit 3.
The Slow Take-Off

Oats as a category had failed to take off even after a decade of existence in India with an all India pen-
etration of mere 5% of the households (Source: IMRB HH Panel, 2010). Moreover, the consumption of
oats was restricted to largely the Southern part of India which contributed 75% of the total sales volume.
Oats were unappealing for consumers and non-users or ‘oats rejecters’ alike. Sensorially oats were
so bland and gooey that they seemed like a punishment for Indian taste buds culturally accustomed to
adore spicy, savoury and flavourful foods.
The only driver of consumption was its recognised health credentials. Oats were mostly recom-
mended by doctors for those ailing with heart problems (high cholesterol), high blood pressure, obesity
or digestion problems.
Indians ate oats because they had to, not because they wanted to. It was just a bland healthy meal,
that wasn’t desirable but necessary.
Leading competitors like Quaker’s & Baggry’s who sat on a combined market share of 65% (Source:
A.C. Nielson Track, 2010) only fuelled this perception by selling oats exactly in that manner—‘as a
medicine in a meal’ to reduce cholesterol, manage weight, etc.
The Indian Homemakers Dilemma—Be a Health Guardian vs. the

Masterchef
The Indian woman today is moving towards becoming the decision maker instead of silent influencer.
In the health segment, woman is the undisputed decision maker and food plays a critical role in infus-
ing health in her family’s life.
She has learnt the art by masking healthy food through her cooking using familiar ingredients
whether it was by putting the extra green veggies on a pizza, not deep frying but shallow frying recipes,
putting honey instead of sugar to sweeten beverages and so on. However, when it came to the unfamil-
iar, foreign ingredient such as oats, she did not know what to do with it except serve it as a standalone
breakfast porridge.
For the Indian Homemaker, getting praised by the family for making their favoured delicious cuisine
took higher precedence than serving up low calorie, low fat more nutritious food. This is why oats never
found a natural entry in her home.
Saffola’s Goal: Make Indians Eat Oats Willingly

Amidst the then existent strong competition, Saffola had a choice to make—either follow the category
leaders and be satisfied with an undifferentiated offering growing at normal pace or to redefine the
rules of the market and achieve exponential growth. Even though it was a tough choice to make at the
time, Saffola chose to do the latter.
Instead of trying to convert the competition users, Saffola aimed to traverse a tougher route and woo
the remaining 95% non-users or ‘oats rejectors’ in India (Source: IMRB HH Panel, 2010). ‘Oats rejec-
tors’ were people who simply did not like the bland taste of oats, which was too much of a trade-off for
the ‘health’ benefits oats provided.
So instead of mimicking the competition by selling plain oats as amedicinal, bland breakfast por-
ridge, Saffola decided to show how oats could be made part of the everyday sweet and savoury recipes
that Indians loved eating. Saffola chose to unleash the versatility of oats as a unique health infusion
with a deliciously ‘desi’ culinary twist. Over a period of 3 years, Saffola translated oats in India’s own
language.
Saffola’s ‘Do More with Deliciously Desi Oats’ Initiatives

Saffola in their first phase aimed to seed ‘desiness’ in the bland oats. They did so by showing people
how plain oats as an ingredient could be made a part of delicious everyday Indian recipes. For the first
time ever, Saffola partnered with leading Indian chefs and introduced a ‘Saffola Oats Recipe Book’. This
was distributed free with every Saffola Oats pack. The colours and product shots of oats on front of the
pack showcased oats in a sumptuous avatar with fruits, along with other recipes on the side of pack. TV
and Print popularised the recipe book. Saffola oats became a key ingredient for innovative recipes in a
special episode of Masterchef India, one of the most popular cookery shows in the country. A Cookery
Contest was held in 4 cities where homemakers showcased created their own signature recipes using
Saffola oats. A live chef demo and wet sampling in select malls across 4 cities made people experience
the wonder of innovative oats recipes. Users of Saffola oats could go on the Saffola oats website to
learn and share oats recipes.
In their second phase, Saffola surprised enthusiasts with pre-mixed desi oats. For the first time in
India, they introduced a ‘tasty, savoury twin’ of Saffola oats, i.e. Saffola Masala Oats. It came pre-mixed
with tasty veggies and Indian spices.
Saffola also designed innovative packaging for the smallest pack (40 g) in the oats category to induce
trials. Also for the first time in the category oats were shown in a new savoury format with variant
names like ‘Curry and Pepper’, ‘Masala and Coriander’—tailored to appeal to the Indian palate. This
cued that oats could be eaten not just in the morning but as an anytime snack.
TV, Radio and Print popularised the new format of pre-mixed savoury oats to surprise the family
that oats were not just for the ailing or elderly. Masala oats could be enjoyed by both, kids and adults.
A wet sampling program across 4 cities in malls brought alive the surprisingly tasty experience of
pre-mixed Masala oats on-ground.
This helped Saffola become the homemakers partner in infusing health and winning praises for it
from family members with oats that came astonishingly pre-mixed with sumptuous Indian Taste.
CONCLUSION
Branded oats is still a relatively small category estimated at `182 cr and has a long way to go. While
oats make a natural sense to households where heart health is a felt need, oats as a category yet struggle
to make heart-health relevant to people who believe they don’t suffer from it. Also given the fact that
they cater to a nation of invincible people in their 30s with an extended youth hangover who believe
there can be nothing wrong with them, when it comes to health, the task becomes tougher.
What compounds the fact is a deep rooted ‘fear psychosis’. Even if people acknowledged the need
to be healthy, they live in constant fear of an ailing heart. They don’t even want to know if their heart
may be at risk. So they choose to look the other way, not acknowledge that they could be heart-health
sufferers.
Saffola’s challenge is to overcome these barriers to make heart health relevant to more number of
Indian households and to penetrate the market successfully.
Exhibit 1
Period: Volume Volume Annual Value Value Annual Market

Sep 2012-Aug 2013 (tons/ Trend volume (` cr./ Trend value share
month) (tons/ growth yr) (` Cr./yr) growth
month)
All India
Total oats category 956 734 7% 182 629 19% 100%
Plain oats 872 670 0% 149 512 3% 91%
Flavoured oats 83 64 241 34 116 256% 9%
Brands
Quaker Oats 449 345 15% 85 293 31% 47%
Saffola Oats 130 100 27% 29 100 58% 14%
Kellogg’s Heart to Heart Oats 95 73 20% 17 58 30% 10%
Horlicks Oats 92 71 50% 17 58 63% 10%
Others 189.5 146 –29% 35 120 –29% 20%
North
Plain oats 81 63 11% 14 47 15% 82%
Flavoured oats 17 13 989% 7 25 1040% 18%
Brands
Quaker Oats 55 43 29% 12 41 67% 56%
Saffola Oats 13 10 103% 4 12 281% 13%
Horlicks Oats 0 0 – 0 0 – 0%
Others 9 7 –29% 2 6 –27% 9%
South
Plain oats 626 481 –1% 106 368 1% 93%
Flavoured oats 44 34 105% 18 62 112% 7%
Brands
Quaker Oats 299 230 13% 54 187 23% 45%
Saffola Oats 90 69 14% 19 67 26% 13%
Kellogg’s Heart to Heart Oats 37 29 –3% 6 22 5% 6%
Horlicks Oats 92 71 50% 17 58 63% 14%
Others 152 117 –29% 27 95 –27% 23%
East
Plain oats 74 53 9% 13 44 16% 91%
Flavoured oats 8 5 2900% 3 11 2400% 9%
Brands
Quaker Oats 36 26 15% 8 26 43% 45%
Saffola Oats 10 7 65% 2 8 158% 12%
Others 14 10 –22% 3 9 –17% 17%
West
Plain oats 92 73 –6% 15 53 –5% 87%
Flavoured oats 14 11 1192% 6 21 1220% 13%
Brands
Quaker Oats 59 46 15% 11 38 34% 55%
Saffola Oats 18 14 1% 4 14 183% 17%
Others 15 12 –28% 3 10 –28% 14%
Source: Data masked from AC Nielson Report
Exhibit 2
Volume sales trend Value sales trend

Date of (tons/month) (` cr/yr)
Brand
launch Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec Jan-Dec
2011 2012 2013 2011 2012 2013
Saffola Oats Total 100 184 196 100 254 341
Saffola Oats plain Jun 2010 98 147 126 94 158 141
Saffola Oats flavoured Jun 2011 2 37 70 6 96 200
Quaker Oats Total 539 648 701 592 795 950
Quaker Oats plain 2006 539 617 638 592 701 757
Quaker Oats flavoured Apr 2012 0 31 64 0 93 193
Horlicks Oats Total 7 136 154 9 159 213
Horlicks Oats plain Nov 2011 7 136 141 9 159 176
Horlicks Oats flavoured Apr 2013 0 0 13 0 0 38
Kellogg’s Oats Total 112 131 163 122 148 223
Kellogg’s Oats plain 2010 112 131 153 122 148 191
Kellogg’s Oats flavoured Jul 2013 0 0 10 0 0 32
Source: Data masked from AC Nielson Report
Exhibit 3
List of SKU’s in the oats market

Quaker Oats Kesar Flavour with Kishmish 26g `10
Quaker Oats Strawberry with Apple Flavour 26g `10
Quaker Lemony Veggie Mix 28g `10
Quaker Homestyle Masala 28g `10
Quaker Oats Jar 1 Kg `185
Quaker 400 gms `65
Quaker Oats Pouch 1.5 kg `173
Quaker Oats Pouch 1 kg `149
Quaker Oats 200 gms `38
Saffola Masala Oats Veggie Twist 43 gms `15

Saffola Curry and Pepper Oats 43 gms `15
Saffola Pepper and Spice Oats 40 gms `15
Saffola Masala and Corriander Oats 400 gms `130
Saffola Classic Masala 43 gms `15

Saffola Peppy Tomato 43 gms `15
Saffola Oats Pouch 1 kg `158
Saffola Oats 400 gms `62
Saffola Oats 200 gms `38
Horlicks Oats 200 gms `32

Horlicks Oats 500 gms `79
Horlicks Oats 1 kg `158
Kellogg’s Heart to Heart Oats 500 gms `76

Kellogg’s Heart to Heart Oats 200gms `37
Kellogg’s Heart to Heart Oats I kg `149
Kellogg’s Heart to Heart Oats—Green Pudina 26 gms `10
Kellogg’s Heart to Heart Oats—Tomato Salsa 26 gms `10

Kellogg’s Heart to Heart Oats—Green Pudina 250 gms `99
Kellogg’s Heart to Heart Oats—Tomato Salsa 250 gms `99
Kelloggs Oats—Bites 350 gms `95
Exhibit 4
Young India’s Perception of Staying Fit
28% of respondents feel heart health problem can never affect them
87% of respondents prefer to eat food which has health benefits attached to it
72% of respondents feel taste has higher priority over health when it comes to food
15% feel health food is for ill people
62% respondents feel that oats help maintain heart health
53% feel oats help in losing weight
57% feel oats help in maintaining cholesterol
52% feel oats help control diabetes
13% feel that eating oats does not have any health benefits
37% feel oats have multiple health benefits
53% feel oats should be consumed at breakfast
18% feel oats could be consumed as an anytime snack
Less than 1% feel oats could be consumed at dinner, lunch or could be mixed with other food ingredients
22% feel oats are not tasty
Oats Consumption Frequency

Frequency Percentage (%)
Daily 12
Once a week 15
Once in 15 days 16
Rarely 38
Never 18
This is based on a survey conducted by case writers.
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tice-Hall, 1987, Chapter 3.
9. Ogilvy David, Confession of an Ad Man, David
3. Kotler, Philip, Marketing Management: Analysis,
A. Aaker and Johan G. Myers, Advertising Man-
Planning and Control, Sixth edition, Prentice-
agement, second edition, Delhi: Prentice-Hall of
Hall of India, p. 509.
India.
4. Kotler, ibid.
10. Burnett, Leo, David A. Aaker, and John G. My-
5. Ellipt B. Ross, “Making Money with Proactive
ers, Advertising Management, second edition,
Pricing”, Strategic Marketing Management,
Delhi: Prentice-Hall of India.
Ed. Robert J. Dolan, Harvard Business School,
11. Ogilvy, David, David A. Aaker, and John G. My-
1991, pp. 301–303.
ers, Advertising Management, second edition,
6. Rajan Saxena, ‘Marketing of Raw Materials
Delhi: Prentice-Hall of India.
and Commodities”: New Perspective for Indian
12. Osgood and Taninebuum in Ogilvy, Aaker, and
Market in 1990’, at International Marketing
Myers, ibid.
Congress, January, New Delhi, 1989.
CHAPTER 16
CHAPTER 15
1. Aker, Batra, and Myers, ibid., p. 2.
1. “Medium on the Move”, A&M, March 1990,
2. Clake, D.G., ‘Econometric Measurement of the
pp. 46–9.
Duration of Advertising Effect on Sales’, Jour-
nal of Marketing Research, November 13, 1986, Business Review, November–December, 1976,
pp. 345–57. pp. 89–96.
3. Colley, Russell H., Defining Advertising Goals 3. Hollander, Stanley D., ‘The Wheel of Retailing’,
for Measured Advertising Results, New York: Journal of Marketing, July 1960, pp. 37–42.
Association of National Advertisers, 1961. 4. Stern, Loins W., Adel I. El-Ansary, and Anne
4. Aaker, Batra, and Myers, op cit, p. 98. T. Coughlan, Marketing Channels, fifth edition,
5. Ogilvy, David A., Confessions of an Advertising Prentice Hall, pp. 89–90.
Man, New York: Aklkerein, 1964.
6. Martin Mayer, New York: Madisan Avenue,
USA, Pocket Books, 1958, p. 64. CHAPTER 21
7. Dik Warren Twedt, ‘How to Plan New Products, 1. Direct Marketing Association, Statistical Fact
Improve old ones and Create Better Advertising’, Book 1996, New York: Direct Marketing Asso-
Journal of Marketing, January 1969, pp. 53–7. ciation, 1996.
8. Aaker, Batra, and Myers, op. cit. p. 412. 2. Shaw, Robert and Merlin Stone, Database Mar-
9. Aaker, Batra, and Myers, op. cit, pp. 421–3. keting and Strategy Implementation, New York:
John Wiley and Sons, 1990, pp. 3–4.
CHAPTER 18
1. Blake, Robert R. and Jane S., Mouten, Manage- CHAPTER 22
rial Grid III, The Key to Leadership Excellence, 1. Ohmae, Kenichi, The Mind of the Strategist,
London; Gulf Publication Company, 1984. Penguin, 1998, Chapter l, pp. 11–35.
2. Ibid., p. 21.
CHAPTER 19 3. Ohmae, Kenichi, ‘Getting back to Strategy’,
Harvard Business Review, November–Decem-
1. Stern, Louis W. and Adel I. El-Ansary, Market- ber 1988, reprinted in Dolan, Robert J., Strate-
ing Channels, third edition, New Jersey; Pren- gic Marketing Management, Harvard Business
tice-Hall, 1988, p. 3. School, 1991, pp. 55–66.
2. Leyand Pitt, Pierre Berthon, and Jean-Paul Ber- 4. Slywotzky, Adrian J. and Benson P. Shapiro,
thon, ‘Changing Channels: The Impact of the ‘Leveraging to Beat the Odds: The New Mar-
Internet on Distrbition Strategy’, Business Ho- keting Mindset’, Harvard Business Review,
rizon, 1999. September–October 1993, pp. 97–107.
3. Lele, Milind M., “Change channels in your 5. Pine, Joe, Mass Customisation: The New Fron-
product life cycle”, Business Marketing, De- tiers in Business Competition, Harvard Business
cember 1986, p. 64. School Press.
4. Adler, Lee, ‘Symbiotic Marketing’, Harvard 6. Normann, Richard and Rafael Ramirez, ‘From
Business Review, November–December 1966, the Value Chain to the Value Constellation: De-
pp. 59–71. signing Interactive Strategy’. Harvard Business
5. Stern, Louis W. and Frederick D. Sturdivant, Review, July–August 1993, pp. 65–77.
‘Customer Driven Distribution System’ in Stra- 7. Ibid., p. 69.
tegic Marketing Management, editor Dolan, 8. Sheth, Jagdish N., ‘Winning Back Your Mar-
Robert J., Harvard School Publications, 1991. kets’, New York: John Wiley and Sons, 1995.
9. Ansoff, Igor H., Business Strategy, London:
Penguin, 1978.
CHAPTER 20 10. Morita, Akio, Made in Japan, Signet, 1986.
1. www.atkearney.com/consumer product and re- 11. Zeithaml, Parsuraman and Berry, Delivering
tail. Quality Service, New York,: Free Press, 1990.
2. Davidson, William R., Albert D. Bates, and 12. Porter, Michael E., Competitive Advantage, Free
Stephen J. Bass, ‘Retail Life Cycle’, Harvard Press, 1985, p. 33.
Endnotes 715
13. For a detailed discussion on Brand Equity, see 6. Rajan Saxena: Can Marketing be Depended
Chapter 12. Upon? USP Age Vol. IV Issue no.7 May 2007
14. Ries, Al and Jack Trout, Marketing Warfare, p.60–61
Singapore: McGraw-Hill, 1986. 7. Joe F. Hair Jr, Knowledge Creation in Market-
ing: The Role of Predictive Analytics, European
Business Review Vol.19 No.4, 2007 pp.303–315
CHAPTER 23 8. Kotler, Philip, Marketing Management, Analy-
1. Reichheld, Frederick E., The Loyalty Effect, sis, Planning and Control, Sixth edition, Pren-
Harvard Business School Press, 1996. tice-Hall of India, pp 730–53
2. Brown, Stanley, Customer Relationship Man- 9. Kotler, Philip, Marketing Management, Analy-
agement, p. 235. sis, Planning and Control, Sixth edition, Pren-
3. Managing Corporate Performance Today and tice-Hall of India, pp. 730–53.
Tomorrow, PriceWaterhouseCoopers, 1999. 10. Kotler, Philip, ibid.
4. Brown, Stanley A, Customer Relationship Man-
agement, p. 285.
5. Ibid. p. 287. CHAPTER 26
1. Hamel, Gary, and C.K. Prahlad, ‘Do you really
CHAPTER 24 have a global strategy?’, Harvard Business Re-
view, pp. 139–148, vol. 63, No. 4, July–Aug.
1. Friedman, Thomas: The World is Flat, Penguin 1985.
Books, New York, 2005.
2. Theodore, Levitt, “The Globalisation of Mar-
2. Sean Geehan and Stacy Sheldon: Connecting
kets,” in “Going Global,” Harvard Business Re-
to customers, MM, November/December 2005
view, pp. 13–22.
pp.37-42
3. Ibid.
3. Peters, Tom and Robert H., Watermans Jr., “In
Search of Excellence”, New york:, Harper and 4. Robert D. Buzzell, ‘Can you Standardise Mul-
Row, 1982, pp. 13–15. tinational Marketing?’, Harvard Business Re-
4. Peters, Thomas and Robert H. Watermans Jr., view, November–December 1968, pp. 102–13.
Robert H., ibid, pp. 306–17. 5. Kamran, Kashani, ‘Beware the Pitfalls of Global
Marketing’, Harvard Business Review, Septem-
ber–October 1989, pp 91–98.
CHAPTER 25 6. Quelch, John A. and Edward J. Hoff, ‘Custom-
1. Bossidy Larry and Charan Ram: Execution: The ising Global Marketing’, in Robert J. Dolan,
Discipline of Getting things Done, Crown Busi- Strategic Marketing Management, Harvard
ness, New York 2002 Business School, pp. 537–52.
2. Bonoma, Thomas V., Making Your Marketing 7. Kashani, Kamran, op cit, p. 97.
Strategy Work, Strategic Marketing Manage- 8. Ohmae, Kenichi, “Managing in a Borderless
ment, Editor Dolan, Robert J., Harvard Business World”, in “Going Global”, Harvard Business
School. 1991. Review, p. 6.
3. Ibid., p. 461. 9. Ibid., p. 7.
4. William J. Hauser, Marketing Analytics: The 10. For a detailed discussion on Generic Strategy
Evolution of Marketing Research in the Twenty- See Saxena, Rajan, ‘Generic Product Strategies
first Century, Direct Marketing: An Internation- for the World Market’ in Palivoda, Stanley and
al Journal Vol. 1, No.1, 2007 pp.38–54. John K. Ryans, Jr., International Marketing
5. Irene M.Hermans, John K Ryans, Jr., and Raj Reader, London: Routledge, 1995.
Aggarwal, Linking Advertising and Brand Val- 11. Hamel Gary, and C.K. Prahlad, op cit.
ue, Business Horizons, May/June 2000) 12. Ibid.
CHAPTER 27 4. Rita Di Mascio, The service models of frontline

employees, Journal of Marketing, 2010, Vol. 74,
1. Zeithaml, Valarie, A. Parasuraman, and Leonard No. 4, pp 63–80.
L, Berry, Delivering Quality Service, New York:
The Free Press, 1990. CHAPTER 28
2. Jiun-Sheng Chris Lin, Cheng-Yu Lin, What
makes service employees and customers smile: 1. Prahalad, C.K., The Fortune at the Bottom of
Antecedents and consequences of the employ- Pyramid, 2005, Pearson Education Inc., pub-
ees’ affective delivery in the service encounter, lishing as Wharton School Publishing, Upper
Journal of Service Management, 2011, Vol. 22 Sadle River, NJ 07458.
Iss: 2, pp 183–201. 2. Pradeep Kashyap, ‘Rural Marketing: Issues,
3. Dagger Tracey, Peter J Danaher, Jillian C Swee- Opportunities & Challenges’, presentation at
ney and Janet R McColl-Kennedy, Selective FICCI Seminar on Rural Marketing, 2003.
halo effects arising from improving the inter-
personal skills of frontline employees, Journal
of Service Research, 2013, Vol. 16, pp 488–502.
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12. Competing in a Flat World - Building En- CASE 1
terprises for a Bordeless World – Victor
K. Fung, William K. Fung, Yoram (Jerry) 1. Aiyar, S., (2008). Ratan’s Revolution, India
Wind Today, XXXIII No.3, 32-42
2. Bhanutej, N., (2008). Carnival Time .The
Week, 26, 40-44
CHAPTER 28 3. Big designs on the small car, The Economic
1. Lovelock Cristopher, Services Marketing— Times, January 18, 2008
People, Technology, Strategy, Singapore: 4. Everyone said Nano was a pipedream, The
Addison Wesley Longman Private Limited. Economic Times, January 11, 2008
2. Chase, Richard B, “Where does the Cus- 5. http://tatanano.inservices.tatamotors.com/
tomer Fit in a Service Organization?”, tatamotors, Inclusive Innovation, Hindu
Harvard Business Review 56, November– (Web Edition)
December 1978. 6. http://tatanano.inservices.tatamotors.com/
3. Schneider and Bowen, “Winning the Ser- tatamotors , Nano makes it to Time’s most
vice Game”, 85. important car of all time, Hindu (Web Edi-
4. Berry, Leonard L, “ Services marketing is tion) ,January 17,2008
Different”, Business, May–June 1980. 7. http://tatanano.inservices.tatamotors.com/
5. Zeithaml, Valarie A, Parasuraman, A, and tatamotors ,The Next People’s Car, Forbes
Berry, Leonard L, “ Problems and Strate- Asia (Web Edition) ,April 16 ,2007
gies in Services Marketing”, Journal of 8. http://www.chennaionline.com/health/
Marketing 49, Spring 1985 pp 33– 46. News/2005/02helmetday.asp
6. Shostack, G Lynn, “Breaking Free from 9. Nano to Drive in a New Customer Class,
Product Marketing”, Journal of Marketing, The Economic Times, January 15, 2008
April 1977 pp 73–80. 10. Narayanan., D., ( 2008) . The Making of a
7. Sasser, W Earl, Olsen, R Paul, and Wyckoff, Modern Classic, Businessworld, 27,37-47
D Daryl, “Management of Service Opera- 11. Naughton, K., (2008). Small. It’s the New
tions: Text, Cases, and Readings”, Boston: Big, Newsweek, 8, 28-34
Allyn and Bacon, 1978. 12. Taking Cover Gets Cheaper, The Economic
8. Booms, Bernard H, and Bitner, Mary J, Times, January 11, 2008
“Marketing Strategies and Organization 13. Tata Motors, Annual Report, 2006-2007
Structures for Service Firms”, Marketing 14. Tata Motors plans multi-manufacturing hubs,
of Services, ed Donnelly, J H and George, The Economic Times, January 15, 2008
15. Tata Unveils the much awaited Rs 1 lakh CASE 2

Nano, The Economic Times, January 13,
2008 1. http://en.wikipedia.org/wiki/Indian_elec-
16. The Income Pyramid, Business World, The tions
Marketing White book (2007 – 2008) 2. http://www.indian-elections.com/
17. The Nano Effect, The Economic Times, 3. http://www.jaagore.com/
January 14, 2008 4. http://janaagraha.org/
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AUTHOR INDEX
Bonoma 592 Robert Watermans 580
Eric von Hippel 298 Sammon 77, 85

Everett M Rogers 299 Spitlanic 77
Jonathan R. Copulsky and Michael J. Wolf 20 Theodore Levitt 457, 244, 285
Tom Peters 580, 581
Kotler 30, 34, 34, 220, 233-34, 285, 588
Kurland 77
COMPANY INDEX
Adlab’s 542 Dabur 10

AIG 274 Deccan Air 92
Air Deccan 630 Dell 25
Air India 92 destinationindia.com 50
Air India Express 92 Domino’s Pizzas 14
Airtel 49 Dr Reddy’s Labs 599
Allianz 274 Dr. Lal 7
Amazon.com 17
American Express 17 Eicher 89
Amul 5 Ermenegildo 5
Apollo 49 Eureka Forbes 68
Apollo Hospital 49
Apple 17 Fame Adlabs 542
Archies 276 FedEx 17
Asian Paints 10 Food Bazaar 498
Food Specialities Limited 11
Bajaj 89 Fortis 49
Bajaj Auto 137
Barista 8 General Motors 166
Bharat Forge 8 Go Air 247
Bharat Sanchar Nigam Limited (BSNL) 14 Godrej 11
Big Bazaar 52 Goldman Sachs 575, 610
Biotique 9 Google 6
Birla 274 Gucci 5
BMW 17
BPL 223 Haier 608
British Airways 629 HDFC 57
HDFC Bank 12
Café Coffee Day 53 Health and Glow 280
Cartier 5 Himalaya 280
CavinKare 265 Hindustan Lever 2
CBS 29 Hindustan Motors 12
Citibank 116 Hindustan Motors and Premier Automobiles 166
CNN IBN 278 Hindustan Times 5
Coca Cola 8 HLL 81
Coke 18 HMV’s 29
Colgate 25 Honda 38
Croma 240 HSBC 610
CRS Health 280 Hyundai 74
Company Index 813
IBM 17 Motorola 181

ICICI 140 MRF 75
ICICI Bank 12 Music India 29
IIMs 8
IITs 8 Nestle 17
IMRB 201 Nirma 2
Indian Railways 5 Nissan 5
Indian Railways Catering and Travel Corporation, I 54 NMIMS 89
Indigo 347 Nokia 25
Infosys 8
Intel 49 Onida 5
Ion Exchange 279 Orchid 8
ITC 245
ITC’s e-chaupal 5 P&G 329
Paras 280
Jet Airways 14 Parle 70
Jimmy Choo 5 Pepsi 10
Johnson and Johnson 11 Pfizer 49
Phillip 492
Kellogg 262 Premier Automobiles 12
Kingfisher 47 Procter and Gamble 11
Kingfisher Airlines 47, 576, 577 PVR 49
Kitchens of India 8
Ranbaxy 7
L.N. Mittal group 8 Raymond’s 57
Leela 8 Reliance 30
Lehman Brothers 575 Reliance Fresh 499
Levi Strauss 277
Levi Strauss India Pvt. Ltd 277 Samsung 57
LG 5 Samsung and LG 241, 589
Life Insurance Corporation of India 276 Shaadi.com 422
Life spring 280 Shahnaz Hussain 324
Lifestyle 502 Shoppers’ Stop 57
Lintas 406 SIEBAL 568
Lipton 11 Singapore Airlines 17
L’Oréal P&G 280 Sony 5
Spice Jet 92
M&M 89 Starbucks 17
Maggi 11 State Bank of India 74
Mahanagar Telephone Nigam Limited (MTNL) 14 Subhiksha 498
Mahindra 488 Sunlife 274
Mahindra & Mahindra 309 Suzuki 248
makmytrip.com 152
MARG 201 T-Series 29
Marico 10 Taj 5
Maruti 12 Taj Hotels 5
Matsushita’s 280 Tata 5
Merill Lynch in U.S.A. 575 Tata Corus 8
Microsoft 8 Tata Motors 89, 178, 273
Monsanto 49 Tata Sky 8
Tesco 498 Vodafone 46

Timex Watches 278 Voltas 247
Titan 281
Toyota 19 Wal-Mart 138
travelguru.com 50 Whirlpool 284
TVS 284 Wikipedia 44, 46, 298, 528, 574
Wipro 8
Unilever 2 Wockhardt 49
Venus 29 Xerox 333

Videocon 5
Vijay Sales 240 Zee (DishTV) 8
Villa Moda 5 Zee TV 32
SUBJECT INDEX
Acquisition profitability 62, 66 Entrepreneurial marketing 30

Affluent customers 5, 9 Experience 46
Allocating resources for profits 61
Approaches to marketing planning 96 Formulated marketing 30
Idea generation 281

Bargaining power 83
Indian market 2
Brand ambassador 8
Innovate 9
Brand valuation 311
Innovation 527, 552, 9
Bureaucratic control 577
Integration of technology 278
Integrative function 23
Cause marketing 31
Intrapreneurial marketing 31
Centric innovations 298
Involving the customer 278
CLV 54
Co-producers 298 LTV 14, 15
Competition 7, 28, 67
Competition oriented 545 Managing alliances and network 278
Competitive differentiation 223, 309 Market environment 24
Consumer communities 7 Marketing analytics 594
Consumer lifestyle 280 Marketing culture 11
Consumer orientation 77 Marketing mix 29, 28
Convergence of technologies 284, 326 Marketing orientation 11
Cost of acquisition and retention 61 Marketing systems 11, 74, 474
Customer acquisition 26, 48, 60 Micro finance 6
Customer DNA profile 594
Network driven 83, 84
Customer equity 31
New product 279
Customer orientation 10
New product development 274
Customer value 26, 51, 53, 54
Customer value and loyalty 55 Panoptic control 577
Customers 47 Poor market 5
Customer’s lifetime value 14 PPP 5
Customisation 534 Process of marketing planning 105
Product failures 276
DART 54 Product Market selection 106
Demographic shifts 72
Diffusion of an Innovation 283 Relationship marketing 13, 55
Enhancing access 7 Self help groups 655

Social channels 8 Value creation 639, 54

Sources of innovation 298 Value for money 661, 278
Value innovation 553
Technological changes 281, 610, 51
Wikipedia 574, 44, 46, 298, 528
Understanding local culture 278

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Marketing

Rajan Saxena is Vice Chancellor NMIMS (Deemed-to-be-University u/s 3 of

McGraw Hill Education (India) Private Limited

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Published by McGraw Hill Education (India) Private Limited

Marketing Management, 5/e

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Manager—Product Development (B&E-BGR): Hemant K Jha

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3. The poor markets which require innovative solutions

All chapters open

Sales Promotion and Public Relations 433

These small boxes in the

discussion in the paragraph. They customer about product

Imitation on the sales

Index COMPANY INDEX

Preface to the Fifth Edition vii

Three Stages of Marketing Practice 30

Factors Contributing to Enhanced Inter-Firm Rivalry 69

Process of Marketing Planning 105

Online Buyer Behaviour 151

Impact of Technology on Organisational Purchase 192

Product Decisions 242

Early Majority and Late Majority 300

Organisational Issues in Delivering Service Quality 341

Online Advertising 422

Manpower Planning 446

Chapter 20 Retail Management 487

Customer Loyalty as a Goal 552

Framework for Cultural Change 584

Characteristics of Service Marketing 629

Pricing Decision 657

THE GREAT INDIAN MARKET

LO1 Indian market offers biggest opportunity to any marketer. It is an oppor-

Issues and Challenges in Marketing in India

Exhibit 1.1 The Power of Facebook

LO2 In the context of these developments in India, it is necessary to understand

Marketing Orientation and How Can it be Employed in Organisations

TYPES OF ORIENTATIONS PREVALENT IN ORGANISATIONS

LO3 Marketing Orientation vis-a-vis Selling Orientation

Table 1.1 Marketing and Selling Orientations

Table 1.2 Marketing Orientation vs Other Orientations

Figure 1.1 Relationship between Customers and Corporate Proﬁtability

Figure 1.2 Inverting Organisational Pyramid for Customer Retention

Focus on Internal Customer

● courtesy and respect

● efficient, friendly, and knowledgeable concepts

Figure 1.3 Needs of the Internal Customer

Figure 1.4 The 3Cs of Internal Customer Care

Market Driven Organisations

Exhibit 1.2 World’s 20 best companies

Rank Name of the Company Rank Name of the Company

● Quality of products and services

● Customer centric product design

● Product perceived as good value for money