Description
Marketing is indeed an ancient art; it has been practiced in one form or
the other, since the days of Adam and Eve. Today, it has become the
most vital function in the world of business. Marketing is the business
function that identifies unfulfilled needs and wants, define and measures
their magnitude, determines which target market the organization can
best serve, decides on appropriate products, services and programmes to
serve these markets, and calls upon everyone in the organization to think
and serve the customer. Marketing is the force that harnesses a nation's
industrial capacity to meet the society's material wants. It uplifts the
standard of living of people in society.
PAPER V
BASIC PRINCIPLES OF MARKETING AND MANAGEMENT
LESSON 1- Definition & Core concept, marketing tools, P’s- product, price, place and
promotion
LESSON 2- Market segmentation, targeting and positioning & analyzing the marketing
environment
LESSON 3- Study consumer behavior, needs and motivation, group dynamics, social
surroundings and consumer perception
LESSON 4-Promotion mix-direct selling, advertising, sales promotion and public
relations
LESSON 5-Brand evaluation and new trends in marketing
LESSON 6-Communication
LESSON 7- Relationship marketing
LESSON 8- Network and cyber marketing
LESSON 9- E-commerce
LESSON10- Rural marketing in India
LESSON 11- Ethics and marketing
LESSON 12- Introduction to management
LESSON 13- Decision making and organization
LESSON 14- Communication and control process
LESSON 15- Human resource management
LESSON 16- Entrepreneurship
Subject: Basic principles of marketing Author: Dr. M.R.P. Singh
And management
Course Code: Paper-V Vetter: Dr. B.S. Bodla
Lesson: 1
Definition and Core Concept, Marketing Tools,
P's-Product, Price, Place and Promotion
.
Structure
1.1. Objectives
1.2 Introduction
1.3 Definitions and terminology
1.4 Marketing concepts
1.5 Marketing mix
1.6 Summary
1.7 Key words
1.8 Self Assessment Exercise
1.9 Suggested Readings
1.1 Objective
This lesson deals with basics of the marketing process, marketing
concept and marketing mix i.e. product, price, place and promotion
1.2 Introduction
'Marketing is so basic that it cannot be considered as separate function.
It is the whole business seen from the point of view of its final result,
that is, from the customer's point of view'.
- Peter Drucker.
Marketing is indeed an ancient art; it has been practiced in one form or
the other, since the days of Adam and Eve. Today, it has become the
most vital function in the world of business. Marketing is the business
function that identifies unfulfilled needs and wants, define and measures
their magnitude, determines which target market the organization can
best serve, decides on appropriate products, services and programmes to
serve these markets, and calls upon everyone in the organization to think
and serve the customer. Marketing is the force that harnesses a nation's
industrial capacity to meet the society's material wants. It uplifts the
standard of living of people in society.
Marketing must not be seen narrowly as the task of finding clever ways
to sell the company's products. Many people confuse marketing with
some of its sub functions, such as advertising and selling. Authentic
marketing is not the art of selling what you make but knowing what to
make. It is the art of identifying and understanding customer needs and
creating solutions that deliver satisfaction to the customers, profit to the
producers, and benefits for the stakeholders. Market leadership is gained
by creating customer satisfaction through product innovation, product
quality, and customer service. If these are absent, no amount of
advertising, sales promotion, or salesmanship can compensate.
William Davidow observed: 'While great devices are invented in the
laboratory, great products are invented in the marketing department'.
Too many wonderful laboratory products are greeted with yawns or
laughs. The job of marketers is to 'think customer' and to guide
companies to develop offers that are meaningful and attractive to target
customers. Already sea changes have been taking place in the global
economy. Old business road maps cannot be trusted. Companies are
learning that it is hard to build a reputation and easy to lose it. The
companies that best satisfy their customers will be the winners. It is the
special responsibility of marketers to understand the needs and wants of
the market place and to help their companies to translate them into
solutions that win customers approval. Today's smart companies are not
merely looking for sales; they are investing in long term, mutually
satisfying customer relationships based on delivering quality, service and
value.
1.3 Definitions and terminology
There are as many definitions of marketing as many scholars or writers
in this field. It has been defined in various ways by different writers.
There are varying perceptions and viewpoints on the meaning and
content of marketing. Some important definitions are:
Marketing is a social and managerial process by which individuals
and groups obtain what they need and want through creating,
offering and exchanging products of value with others.
Marketing is the process by which an organization relates
creatively, productively and profitably to the market place.
Marketing is the art of creating and satisfying customers at a
profit.
Marketing is getting the right goods and services to the right people
at the right places at the right time at the right price with the right
communication and promotion.
Much of marketing is concerned with the problem of profitably
disposing what is produced.
Marketing is the phenomenon brought about by the pressures of
mass production and increased spending power.
Marketing is the performance of business activities that direct the
flow of goods and services from the producer to the customer.
Marketing is the economic process by which goods and services are
exchanged between the maker and the user and their values
determined in terms of money prices.
Marketing is designed to bring about desired exchanges with target
audiences for the purpose of mutual gain.
Marketing activities are concerned with the demand stimulating
and demand fulfilling efforts of the enterprise.
Marketing is the function that adjusts an organization’s offering to
the changing needs of the market place.
Marketing is a total system of interacting business activities
designed to plan, promote, and distribute need satisfying products
and services to existing and potential customers.
Marketing origination with the recognition of a need on the part of
a consumer and termination with the satisfaction of that need by
the delivery of a usable product at the right time, at the right place,
and at an acceptable price. The consumer is found both at the
beginning and at the end of the marketing process.
Marketing is a view point, which looks at the entire business
process as a highly integrated effort to discovery, arouse and
satisfy consumer needs.
It is obvious from the above definitions of marketing that marketing has
been viewed from different perspective. Now it is imperative to discuss
the important terms on which definition of marketing rests: needs,
wants, and demands; products; value, cost, and satisfaction; exchange,
transactions and relationships; markets; and marketers. These terms are
also known as the core concepts in marketing.
Needs, wants and demands
Marketing starts with the human needs and wants. People need food, air,
water, clothing and shelter to survive. They also have a strong desire for
recreation, health, education, and other services. They have strong
performances for particular versions and brands of basic goods and
services. A human need is a state of felt deprivation of some basic
satisfaction. People require food, clothing, shelter, safety, belonging,
esteem and a few other things for survival. These needs are not created
by their society or by marketers; they exist in the very texture of human
biology and the human condition.
Wants are desires for specific satisfiers of these deeper needs. For
example, one needs food and wants a pizza, needs clothing and wants a
Raymond shirt. These needs are satisfied in different manners in
different societies. While people needs are few, their wants are unlimited.
Human wants are continually shaped and reshaped by social forces and
institutions.
Demands are wants for specific products that are backed up by an ability
and willingness to buy them. For example, many people want to buy a
luxury car but they lack in purchasing power. Companies must therefore
measure not only how many people want their products, but, how many
would actually be willing to buy and finally able to buy it.
Marketers do not create need, they simply influence wants. They suggest
to consumers that a particular product or brand would satisfy a person’s
need for social status. They do not create the need for social status but
try to point out that a particular product would satisfy that need. They
try to influence demand by making the product attractive, affordable,
and easily available.
Products
People satisfy their needs and wants with products. Product can be
defined as anything that can be offered to someone to satisfy a need or
want. The word product brings to mind a physical object, such as T.V.,
Car, and Camera etc. The expression products and services are used
distinguish between physical objects and intangible ones. The
importance of physical products does not lie in owning them rather using
them to satisfy our wants. People do not buy beautiful cars to look at,
but because it supply transportation service. Thus, physical products are
really vehicles that deliver services to people.
Services are also supplied by other vehicles such as persons, places,
activities, organizations and ideas. If people are bored, they can go to a
musical concert (persons) for entertainment, travel to beautiful
destination like Shimla (place), engage in physical exercise (activity) in
health clubs, join a laughing club (organization) or adopt a different
philosophy about life (idea). Services can be delivered through physical
objects and other vehicles. The term product covers physical products,
service products, and other vehicles that are capable of delivering
satisfaction of a need or want. The other terms also used for products are
offers, satisfiers, or resources.
Manufacturers pay more attention to their physical products than to the
services produced by these products. They love their products but forget
that customers buy them to satisfy their need. People do not buy
physical object for their own sake. A tube of lipstick is bought to supply a
service: helping the person to look better. A drill is bought to supply a
service: producing holes. The marketers job is to sell the benefits or
services built into physical products rather than just describe their
physical features.
Value, cost, and satisfaction
How do consumers choose among the various products that may satisfy
a given need is very interesting phenomenon. If a student needs to travel
five kilometers to his college every day, he may choose a number of
products that will satisfy this need: a bicycle, a motorcycle, automobile
and a bus. These alternatives constitute product choice set. Assume that
the student wants to satisfy different needs in traveling to his college,
namely speed, safety, ease and economy. These are called the need set.
Each product has a different capacity to satisfy different needs. For
example, bicycle will be slower, less safe and more effortful than an
automobile, but it would be more economical. Now, the student has to
decide on which product delivers the most satisfaction.
Here comes the concept of value. The student will form an estimate of the
value of each product in satisfying his needs. He might rank the
products from the most need satisfying to the least need satisfying. Value
is the consumer’s estimate of the product’s overall capacity to satisfy his
or her needs. The student can imagine the characteristics of an ideal
product that would take him to his college in a split second with absolute
safety, no effort and zero cost. The value of each actual product would
depend on how close it came to this ideal product.
Assume the student is primarily interested in the speed and case of
getting to college. If the student was offered any of the above mentioned
products at no cost, one can predict that he would choose an
automobile. Here comes the concept of cost. Since each product involves
a cost, the student will not necessarily buy automobile. The automobile
costs substantially more than bicycle or motorcycle. Therefore, he will
consider the product’s value and price before making a choice. He will
choose the product that will produce the most value per rupee.
Today’s consumer behaviour theorists have gone beyond narrow
economic assumptions of how consumers form value in this mind and
make product choices. These modern theories on consumer behaviour
are important to marketers because the whole marketing plan rests on
assumptions about how customers make choices. Therefore the concept
of value, cost and satisfaction are crucial to the discipline of marketing.
Exchange, transactions and relationships
The fact that people have needs and wants and can place value on
products does not fully explain the concept of marketing. Marketing
emerges when people decide to satisfy needs and wants through
exchange. Exchange is one of the four ways people can obtain products
they want. The first way is self production. People can relieve hunger
through hunting, fishing, or fruit gathering. In this case there is no
market or marketing. The second way is coercion. Hungry people can
steal food from others. The third way is begging. Hungry people can
approach others and beg for food. They have nothing tangible to offer
except gratitude. The fourth way is exchange. Hungry people can
approach others and offer some resource in exchange, such as money,
another food, or service.
Marketing arises from this last approach to acquire products. Exchange
is the act of obtaining a desired product from someone by offering
something in return. For exchange to take place, five conditions must be
satisfied:
There are at least two parties.
Each party has something that might be of value to the other
party.
Each party is capable of communication and delivery.
Each party is free to accept or reject the offer.
Each party believes it is appropriate or desirable to deal with the
other party.
If the above conditions exist, there is a potential for exchange. Exchange
is described as a value creating process and normally leaves both the
parties better off than before the exchange. Two parties are said to be
engaged in exchange if they are negotiating and moving towards an
agreement. The process of trying to arrive at naturally agreeable terms is
called negotiation. If an agreement is reached, we say that a transaction
takes place. Transactions are the basic unit of exchange. A transaction
consists of a trade of values between two parties. A transaction involves
several dimensions; at least two things of value, agreed upon conditions,
a time of agreement, and a place of agreement. Usually a legal system
arises to support and enforce compliance on the part of the transaction.
A transaction differs from a transfer. In a transfer A gives X to B but does
not receive anything tangible in return. When A gives B a gift, a subsidy,
or a charitable contribution, we call this a transfer.
Transaction marketing is a part of longer idea, that of relationship
marketing. Smart marketers try to build up long term, trusting, ‘win-win’
relationships with customers, distributors, dealers and suppliers. This is
accomplished by promising and delivering high quality, good service and
fair prices to the other party over time. It is accomplished by
strengthening the economic, technical, and social ties between members
of the two organizations. The two parties grow more trusting, more
knowledgeable, and more interested in helping each other. Relationship
marketing cuts down on transaction costs and time. The ultimate
outcome of relationship marketing is the building of a unique company
asset called a marketing network. A marketing network consists of the
company and the firms with which it has built solid, dependable
business relationships.
Markets
The concept of exchange leads to the concept of market. A market
consists of all the potential customers sharing a particular need or want
who might be willing and able to engage in exchange to satisfy that need
or want. The size of market depends upon the number of persons who
exhibit the need, have resources that interest others, and are willing to
offer these resources in exchange for what they want.
Originally the term market stood for the place where buyers and sellers
gathered to exchange their goods, such as a village square. Economists
use the term market to refer to a collection of buyers and sellers who
transact over a particular product or product class; i.e. the housing
market, the grain market, and so on. Marketers, however, see the sellers
as constituting the industry and the buyers as constituting the market.
Business people use the term markets colloquially to cover various
groupings of customers. They talk need markets (such as diet-seeking
market); product markets (such as the shoe market); demographic
markets (such as the youth market); and geographic markets (such as
the Indian market). The concept is extended to cover non-customer
groupings as well, such as voter markets, labour markets, and donor
markets.
Marketing, marketers, and marketing management
The concept of markets bring the full circle to the concept of marketing.
Marketing means human activities taking place in relation to markets.
Marketing means working with markets to actualize potential exchanges
for the purpose of satisfying human needs and wants. If one party is
more actively seeking an exchange than the other party, we call the first
party a marketer and the second party a prospect. A marketer is
someone seeking a resource from someone else and willing to offer
something of value in exchange. The marketer is seeking a response from
the other party, either to sell something or to buy something. Marketer
can be a seller or a buyer. Suppose several persons want to buy an
attractive house that has just became available. Each would be buyer
will try to market himself or herself to be the one the seller selects. These
buyers are doing the marketing. In the event that both parties actively
seek an exchange, we say that both of them are marketers and call the
situation one of reciprocal marketing.
In the normal situation, the marketer is a company serving a market of
end users in the face of competitors. The company and the competitors
send their respective products and messages directly and/or through
marketing intermediaries i.e. middlemen and facilitators to the end
users.
Marketing management takes place when at least one party to a potential
exchange gives thought to objectives and means of achieving desired
responses from other parties. According to American Marketing
Association, ‘Marketing Management is the process of planning and
executing the conception, pricing, promotion, and distribution of ideas,
goods, and services to create exchanges that satisfy individual and
organizational objectives’. This definition recognizes that marketing
management is a process involving analysis, planning, implementation,
and control; that it covers ideas, goods and services; that it rests on the
notion of exchange; and that the goal is to produce satisfaction for the
parties involved.
1.4 Marketing concepts
Firms vary in their perceptions about business, and their orientations to
the market place. This has led to the emergence of many different
concepts of marketing. Marketing activities should be carried out under
some well-thought out philosophy of efficient, effective, and responsible
marketing. There are six competing concepts under which organisations
conduct their marketing activity.
1.4.1. Exchange concept
The exchange concept of marketing, as the very name indicates, holds
that the exchange of a product between the seller and the buyer is the
central idea of marketing. While exchange does form a significant part of
marketing, to view marketing as more exchange will result in missing out
the essence of marketing. Marketing is much broader than exchange.
Exchange, at best, covers the distribution aspect and the price
mechanism. The other important aspects of marketing, such as, concern
for the customer, generation of value satisfactions, creative selling and
integrated action for serving customer, are completely overshadowed in
exchange concept.
1.4.2. Production concept
It is one of the oldest concepts guiding sellers. The production concept
holds that customers will favour those products that are widely available
and low in cost. Managers of production-oriented organisations
concentrate on achieving high production efficiency and wide distribution
coverage.
The assumption that consumers are primarily interested in product
availability and low price holds in at least two types of situations. The
first is where the demand for a product exceeds supply. Here consumers
are more interested in obtaining the product than in its fine points. The
suppliers will concentrate on finding ways to increase production. The
second situation is where the product’s cost is high and has to be
brought down through increased productivity to expand the market.
1.4.3. The product concept
The product concept holds that consumers will favour those products
that offer quality or performance. Managers in these product-oriented
organisations focus their energy on making good products and improving
them over time.
These managers assume that buyers admire well-made product and can
appraise product quality and performance. These managers are caught
up in a love affair with their product and fail to appreciate that the
market may be less “turned on” and may even be moving in different
direction.
The product concept leads to “marketing myopia”, an undue
concentration on the product rather than the need. Railroad
management thought that users wanted trains rather than
transportation and overlooked the growing challenge of the airlines,
buses, trucks, and automobiles. Slide-rule manufacturers thought that
engineers wanted slide rules rather than the calculating capacity and
overlooked the challenge of pocket calculators.
1.4.4. The selling concept
The selling concept holds that consumers, if left alone, will ordinarily not
buy enough of the organization’s products. The organization must
therefore an aggressive selling and promotion effort.
The concept assumes that consumers typically show buying inertia or
resistance and have to be coaxed into buying more, and that the
company has available a whole battery of effective selling and promotion
tools to stimulate more buying.
The selling concept is practiced most aggressively with “sought goods”,
those goods that buyers normally do not think of buying, such as
insurance, encyclopedias, and funeral plots. These industries have
perfected various sales techniques to locate prospects and hard-sell them
on the benefits of their product. Hard selling also occurs with sought
goods, such as automobiles. Most firms practice the selling concept when
they have overcapacity. Their aim is to sell what they make rather than
make what they can sell.
Thus selling, to be effective, must be preceded by several marketing
activities such as needs assessment, marketing research, product
development, pricing, and distribution. If the marketer does a good job of
identifying consumer needs, developing appropriate products, and
pricing, distributing, and promoting them effectively, these products will
sell very easily. When Atari designed its first video game, and when
Mazda introduced its RX-7 sports car, these manufacturers were
swamped with orders because they had designed the “right” product
based on careful marketing homework.
Indeed, marketing based on hard selling carries high risks. It assumes
that customers who are coaxed into buying the product will like it; and if
they don’t, they won’t bad-mouth it to friends or complain to consumer
organizations. And they will possibly forget their disappointment and buy
it again. These are indefensible assumptions to make about buyers. One
study showed that disappointed customers bad-mouth the product to
eleven acquaintances, while satisfied customers may good-mouth the
product to only three.
1.4.5. The marketing concept
The marketing concept holds that the key to achieving organizational
goals consists in determining the needs and wants of target markets and
delivering the desired satisfactions more effectively and efficiently than
competitors.
Theodore Levitt drew a perceptive contrast between the selling and
marketing concepts. Selling focuses on the needs of the seller; marketing
on the needs of the buyer. Selling is preoccupied with the seller’s need to
convert his product into cash; marketing with the idea of satisfying the
needs of the customer by means of the product and the whole cluster of
things associated with creating, delivering and finally consuming it.
Market focus: No company can operate in every market and satisfy every
need. Nor can it even do a good job within one broad market: Even
mighty IBM cannot offer the best customer solution for every computer
need. Companies do best when they define their target markets carefully.
They do best when they prepare a tailored marketing program for each
target market.
Customer orientation: A company can define its market carefully and
still fail at customer-oriented thinking. Customer-oriented thinking
requires the company to define customer needs from the customer point
of view, not from its own point of view. Every product involves tradeoffs,
and management cannot know what these are without talking to and
researching customers. Thus a car buyer would like a high-performance
car that never breaks down, that is safe, attractively styled, and cheap.
Since all of these virtues cannot be combined in one car, the car
designers must make hard choices not on what pleases them but rather
on what customers prefer or expect. The aim, after all, is to make a sale
through meeting the customer’s needs.
Why is it supremely important to satisfy the customer? Basically because
a company’s sales each period come from two groups: customers and
repeat customers. It always costs more to attract new customers than to
retain current customers. Therefore customer retention is more critical
than customer attraction.
Coordinated marketing: Unfortunately, not all the employees in a
company are trained or motivated to pull together for the customer.
Coordinated marketing means two things. First, the various marketing
functions-sales-force, advertising, product management, marketing
research, and so on- must be coordinated among themselves. Too often
the sales-force is mad at the product managers for setting “too high a
price” or “too high a volume target”, or the advertising director and a
brand manager cannot agree on the best advertising campaign for the
brand. These marketing functions must be coordinated from the
customer point of view. Second, marketing must be well coordinated with
the other departments. Marketing does not work when it is merely a
department; it only works when all employees appreciate the effect they
have on customer satisfaction.
Profitability: The purpose of the marketing concept is to help
organizations achieve their goals. In the case of private firms, the major
goal is profit; in the case of non-profit and public organizations, it is
surviving and attracting enough funds to perform their work. Now the
key is not to aim for profits as such but to achieve them as a byproduct
of doing the job well.
This is not to say that marketers are unconcerned with profits. Quite the
contrary, they are highly involved in analyzing the profit potential of
different marketing opportunities. Whereas salespeople focus on
achieving sales-volume goals, marketing people focus on identifying
profit-making opportunities.
1.4.6. The societal marketing concept
In recent years, some people have questioned whether the marketing
concept is appropriate organizational philosophy in an age of
environmental deterioration, resource shortages, explosive population
growth, world hunger and poverty, and neglected social services. The
question is whether companies that do an excellent job of sensing,
serving, and satisfying individual consumer wants are necessarily acting
in then best long-run interests of consumers and society.
The societal marketing concept holds that the organization’s task is to
determine the needs, wants, and interests of target markets and to
deliver the desired satisfactions more effectively and efficiently than
competitors in a way that preserves or enhances the consumer’s and the
society’s well-being.
The societal marketing concept calls upon marketers to balance three
considerations in setting their marketing policies, namely, company
profits, consumer want satisfaction, and public interest. Originally,
companies based their marketing decisions largely on immediate
company profit calculations. Then they began to recognize the long-run
importance of satisfying consumer wants, and this introduced the
marketing concept. Now they are beginning to factor in society’s interests
in their decision-making. The societal marketing concept calls for
balancing all three considerations. A number of companies have achieved
notable sales and profit gains through adopting and practicing the
societal marketing concept.
1.5 Marketing Mix
The marketers delivers value to the customer basically through his
market offer. He takes care to see that the offer fulfils the needs of the
customer. He also ensures that the customer perceives the terms and
conditions of the offer as more attractive vis-à-vis other competing offers.
Marketing Mix is the set of marketing tools that the firm uses to pursue
its marketing objectives in the target market. It is the sole vehicle for
creating and delivering customer value.
It was James Culliton, a noted marketing expert, who coined the
expression marketing mix and described the marketing manager as a
mixer of ingredients. To quote him, “The marketing man is a decider and
an artist – a mixer of ingredients, who sometimes follow a recipe
developed by others and sometimes prepares his own recipe. And,
sometimes he adapts his recipe to the ingredients that are readily
available and sometimes invents some new ingredients, or, experiments
with ingredients as no one else has tried before’. The dynamics of the
marketing process and the versatility of the marketing process and the
versatility of the marketing mix tool cannot be described any better.
Subsequently Niel H. Borden, another noted marketing expert,
popularized the concept of marketing mix. It was Jerome McCarthy, the
well known American Professor of marketing, who first described the
marketing mix in terms of the four Ps. The classified the marketing mix
variables under four heads, each beginning with the alphabet ‘p’.
• Product
• Price
• Place (referring to distribution)
• Promotion
McCarthy has provided an easy to remember description of the
marketing mix variables. Over the years, the terms-Marketing mix and
four Ps of marketing-have come to be used synonymously.
• Product: The most basic marketing mix tool is product, which
stands for the firm’s tangible offer to the market including the
product quality, design, variety features, branding, packaging,
services, warranties etc.
• Price: A critical marketing mix tool is price, namely, the amount of
money that customers have to pay for the product. It includes
deciding on wholesale and retail prices, discounts, allowances, and
credit terms. Price should be commensurate with the perceived
value of the offer, or else buyer will turn to competitors in choosing
their products.
• Place: This marketing mix tool refers to distribution. It stands for
various activities the company undertakes to make the product
easily available and accessible to target customers. It includes
deciding on identify, recruit, and link various middlemen and
marketing facilitators so that products are efficiently supplied to
the target market.
• Promotion: The fourth marketing mix tool, stands for the various
activities the company undertakes to communicate its products’
merits and to persuade target customers to buy them. It includes
deciding on hire, train, and motivate salespeople to promote its
products to middlemen and other buyers. It also includes setting
up communication and promotion programs consisting of
advertising, personal selling, sales promotion, and public relations.
Marketing mix or 4 Ps of marketing is the combination of a product, its
price, distribution and promotion. It must be designed by marketers in
such a manner that these four elements together must satisfy the needs
of the organisation’s target market, and at the same time, achieve its
marketing objectives.
1.6 Summary
Marketing starts with the customers and ends with customers. Meaning
thereby, marketing starts with the identification of needs and wants of
customers and ends with satisfying it with product or services. Marketing
has its origin in the fact that humans are creatures of needs and wants.
Need and wants create a state of discomfort, which is resolved through
acquiring products that satisfy these needs and wants. Most modern
societies work on the principle of exchange, which means that people
specialize in producing particular products and trade them for the other
things they need. They engage in transactions and relationship building.
A market is a group of people who share a similar need. Marketing
encompasses those activities involved in working with markets, that is,
the trying to actualize potential exchanges. Marketing management is the
conscious effort to achieve desired exchange outcomes with target
markets. The marketer’s basic skill lies in influencing the level, timing,
and composition of demand for a product, service, organization, place,
person or idea. Marketing can be vital to an organization’s success. In
recent years numerous service firms and nonprofit organisations have
found marketing to be necessary and worthwhile.
1.7 Key words
Authentic: genuine
Perception: perceiving, giving meaning to particular
information using senses
Occur: happen
Numerous: great in number
Magnitude: largeness, size, importance
1.8 Self Assessment Exercise
1. Define marketing and discuss in brief the various concepts of
marketing.
2. “Marketing starts with consumers and ends with consumers.”
Explain.
3. Elaborate the concept of marketing mix or 4 P’s of marketing.
4. Explain the following terms:
• Need, wants and demand
• Product
• Value, cost and satisfaction
• Exchange, transaction and relationships
5. Does the marketing concept imply that marketers should confine
themselves only to those needs and wants that consumers say they
want to satisfy?
1.9 Suggested Readings
1. Stanton, Etzel and Walker- Fundamentals of marketing (TMH)
2. Philip Kotler- Marketing Management (PHI)
3. Philip Kotler and Armstrong- Principles of marketing (PHI)
4. Ramaswamy and Namakumari- Marketing management
(Macmillan)
Subject: Basic principles of marketing Author: Dr. M.R.P. Singh
And management
Course Code: Paper-V Vetter: Prof. H. Bansal
Lesson: 2
Market segmentation, targeting and positioning and analyzing the
marketing environment
Structure
2.1 Objectives
2.2 Introduction
2.3 Segmentation
2.4 Targeting
2.5 Positioning
2.6 Marketing environment
2.7 Summary
2.8 Key words
2.9 Self Assessment Exercise
2.10 Suggested Readings
2.1 Objective
The objective of this lesson is to make the students learn about the
concept of segmentation, targeting and positioning along with the
importance of studying marketing environment and its impact on
marketing.
2.2 Introduction
A market consists of people or organizations with wants, money to
spend, and the willingness to spend it. However, most markets the
buyers' needs are not identical. Therefore, a single marketing program for
the entire market is unlikely to be successful. A sound marketing
program starts with identifying the differences that exist within a market,
a process called, market segmentation, and deciding which segments will
be treated as target markets. Market segmentation is customer oriented
and consistent with the marketing concept. It enables a company to
make more efficient use of its marketing resources. After evaluating the
size and potential of each of the identified segments, it targets them with
a unique marketing mix. The marketer must somehow persuade the
members of each segment that its product will satisfy their needs better
than competitive products. To do so, marketers attempt to develop a
special image for their products in the consumer's mind relative to
competitive products: that is, it positions its product as filling a special
niche in the market place. The marketing environment is the set of
conditions within which the company must start its search for
opportunities and possible threats. It consists of all the actors and forces
that affect the company's ability to transact effectively with its target
market. The company's micro-environment consists of the actors in the
company's immediate environment that affect its ability to serve its
markets; specifically, the company itself, suppliers, market
intermediaries, customers, competitors, and publics. The company's
macro-environment consists of six major forces: demographic, economic,
natural, political, technological, and cultural.
2.3 Segmentation
Market segmentation is defined as "the process of taking the total,
heterogeneous market for a product and dividing it into several sub-
markets or segments, each of which tends to be homogeneous in all
significance. The markets could be segmented in different ways. For
instance, instead of mentioning a single market for 'shoes', it may be
segmented into several sub-markets, e.g., shoes for executives, doctors
college students etc. Geographical segmentation on the very similar lines
is also possible for certain products.
2.3.1 Requirements for markets segmentation
For market segmentation to become effective and result oriented, the
following principles are to be observed: (1) Measurability of segments, (2)
Accessibility of the segments, and (3) Represent ability of the segments.
The main purpose of market segmentation is to measure the changing
behaviour patterns of consumers. It should also be remembered that
variation in consumer behavior are both numerous and complex.
Therefore, the segments should be capable of giving accurate
measurements. But this is often a difficult task and the segments are to
be under constant review.
The second condition, accessibility, is comparatively easier because of
distribution, advertising media, salesmen, etc. Newspaper and magazines
also offer some help in this direction. For examples, there are magazines
meant exclusively for the youth, for the professional people, etc.
The third condition in the represent ability of each segment. The
segments should be large and profitable enough to be considered as
separate markets. Such segments must have individuality of their own.
The segment is usually small in case of industrial markets and
comparatively larger in respect of consumer products.
2.3.2. Benefits of segmentation
1. The manufacturer is in a better position to find out and compare
the marketing potentialities of his products. He is able to judge
product acceptance or to assess the resistance to his product.
2. The result obtained from market segmentation is an indicator to
adjust the production, using man, materials and other resources
in the most profitable manner. In other words, the organization
can allocate and appropriate its efforts in a most useful manner.
3. Change required may be studied and implemented without losing
markets. As such, as product line could be diversified or even
discontinued.
4. It helps in determining the kinds of promotional devices that are
more effective and also their results.
5. Appropriate timing for the introduction of new products,
advertising etc., could be easily determined.
2.3.4. Aggregation and segmentation
Market aggregation is just the opposite of segmentation. Aggregation
implies the policy of lumping together into one mass all the markets for
the products. Production oriented firms usually adopt the method of
aggregation instead of segmentation. Under this concept, management
having only one product considers the entire buyers as one group.
Market aggregation enables an organization to maximize its economies of
scale of production, pricing, physical distribution and promotion.
However, the applicability of this concept in consumer oriented market is
doubtful. The ‘total market’ concept as envisaged by market aggregation
may not be realistic in the present-day marketing when consumers fall
under heterogeneous groups.
2.3.5. Basis for segmenting markets
As explained above, market segmentation consists in identifying a
sufficient number of common buyer characteristics to permit sub
division of the total demand for a product into economically viable
segments. These segments fall between two extremes of total
homogeneity and total heterogeneity. The various segments that are in
vogue are as follows:
1. Geographic segmentation: Chronologically this kind of
segmentation appeared first, for planning and administrative
purposes. The marketer often fined it convenient to sub-divide the
country into areas in a systematic way. The great advantages of
adopting this scheme are that standard regions are widely used by
Government and it facilitates collection of statistics. Most of the
national manufacturers split up their sales areas into sales
territories either state-wise or district-wise.
2. Demographic segmentation: Under this method, the consumers
are grouped into homogeneous groups in terms of demographic
similarities such as age, sex, education, income level, etc. This is
considered to be more purposeful since the emphasis ultimately
rests on customers. The variables are easy to recognize and
measure than in the case of the first type, as persons of the same
group may exhibit more or less similar characteristics. For
example, in the case of shoes, the needs and preferences of each
group could be measured with maximum accuracy.
(a) Age groups: Usually age groups are considered by
manufacturers of certain special products. For example,
toys. Even in the purchases made by parents, children exert
a profound influence. The market segmented on the basis of
the age groups is as follows: (I) children, (ii) teenagers, (iii)
adults, (IV) grown-ups.
(b) Family life-cycle: This is yet another method falling under
demographic segmentation. The concept of a family life cycle
refers to the important stages in the life of an ordinary
family. These stages are called ‘decision-making units’
(Dumps). A widely accepted system distinguishes the
following eight stages:
(I) Young, single, (ii) Young, married, no children, (iii) Young,
married, youngest child under six, (iv) Young, married,
youngest child over six, (v) Older, married with children, (vi)
Older, married, no children under eighteen, (vii) Older single,
(viii) Others. Although the distinction between the young and
the old is not explicit the concept provides a useful basis for
breaking down the total population into sub-group for a
more detailed analysis.
(c) Sex: Sex influences buying motives in consumer market, e.g.
in the case of many products women demand special styles.
Bicycle is an example. This kind of segmentation is useful in
many respects. The recent studies, however, show that
traditional differences are being fast broken down and this
kind of segmentation doesn’t hold much water. One reason
for this is that women are going in for jobs. This is a blessing
in disguise as a number of new products are now being
demanded, e.g. frozen food, household appliances, etc.
Successful attempts to remove barriers of discrimination
against women have generated many market opportunities.
Interestingly enough, however, it has not been so easy to get
males to accept products traditionally considered feminine. A
decade age driving motor vehicles by women was seldom
seen but today it has become a common sight. The
distinction in dress traditionally maintained by girls and
boys has also been considerably reduced. These changes
have tremendous marketing implications.
3. Socio-psychological segmentation: The segmentation here is
done on the basis of social class, viz., working class, middle
income groups, etc. Since marketing potentially is intimately
connected with the "ability to buy", this segmentation is
meaningful in deciding buying patterns of a particular class.
4. Product segmentation: When the segmentation of markets is
done on the basis of product characteristics that are capable of
satisfying certain special needs of customers, such a method is
known as product segmentation. The products, on this basis, are
classified into:
1. Prestige products, e.g. automobiles, clothing.
2. Maturity products, e.g. cigarettes, blades.
3. Status products, e.g. most luxuries.
4. Anxiety products, e.g. medicines, soaps.
5. Functional products, e.g. fruits, vegetables.
The argument in favor of this type of product segmentation is that
it is directed towards differences among the products which
comprise markets. Where the products involved show great
differences, this method is called a rational approach.
5. Benefit segmentation: Russell Hally introduced the concept of
benefit segmentation. Under this method, the buyers form the
basis of segmentation but not on the demographic principles
mentioned above. Here consumers are interviewed to learn the
importance of different benefits they may be expecting from a
product. These benefits or utilities may be classified into generic or
primary utilities and secondary or evolved utilities. The following
table would explain this aspect.
Product category Generic or primary
utilities
Secondary or evolved
utilities
Tooth-paste Cleaning Good taste, breath
freshening, brightness
Shampoo Cleaning Shiny hair, thickening
hair
Aspirin Pain control Speed of action, taste
Automobiles type Convenience Economy seeking,
status, quality, i.e.,
speed
But choosing the benefit as emphasized is not any easy job, for the
various utilities may shift from time to time.
6. Volume segmentation: Another way of segmenting the market is
on the basis of volume of purchases. Under this method the buyers
are purchasers, and single unit purchasers. This analysis is also
capable of showing the buying behavior of different groups.
7. Marketing-factor segmentation: The responsiveness of buyers to
different marketing activities is the basis for these types of
segmentation. The price, quality, advertising, promotional devices,
etc., are some of the activities involved under this method. This is
explained by R.S. Frank as follows:
"If a manufacturer knew that one identifiable group of his
customers was more responsive to changes in advertising
expenditures than others, he might find it advantageous to
increase the amount of advertising aimed at them. The same sort
of tailoring would also be appropriate if it was found that
customers reacted differently to changes in pricing, packaging,
product, quality etc.
It is pertinent here to ask how these consideration influence
marketing. The answer is simple as the present day marketing is
consumer-oriented and consumers' psychology, their social and
economic characteristic form the corner stone of marketing
decisions. It is this recognition accorded to consumers that has
given rise to the concept of market segmentation.
2.3.6. Markets on the basis of segmentation
It is now certain that any market could be segmented to a considerable
extent because buyers' characteristics are never similar. This, however,
does not mean that manufacturers may always try to segment their
market. On the basis of the intensity of segmentation, marketing
strategies to be adopted may be classified into:
1. Undifferentiated marketing: When the economies of organization
do not permit the division of market into segments, they conceive
of the total market concept. In the case of fully standardized
products and where substitutes are not available, differentiation
need not be undertaken. Under such circumstances firms may
adopt mass advertising and other mass methods in marketing,
e.g., Coca Cola.
2. Differentiated marketing: A firm may decide to operate in several
or all segments of the market and devise separate
product-marketing programmes. This also helps in developing
intimacy between the producer and the consumer. In recent years
most firms have preferred a strategy of differentiated marketing,
mainly because consumer demand is quite diversified. For
example, cigarettes are now manufactured in a variety of lengths
and filter types. This provides the customer an opportunity to
select his or her choice from filtered, unfiltered, long or short
cigarettes. Each kind offers a basis for segmentation also. Though
the differentiated marketing is sales-oriented, it should also be
borne in mind that it is a costly affair for the organization.
3. Concentrated marketing: Both the concepts explained above
imply the approach of total market either with segmentation or
without it. Yet another option is to have concentrated efforts in a
few markets capable of affording opportunities. Put in another way,
'instead of spreading itself thin in many parts of the market, it
concentrates its forces to gain a good market position in a few
areas. Then new products are introduced and test marketing is
conducted, and this method is adopted. For a consumer product
'Boost' produced by the manufacturers of Horlicks, this method
was adopted. The principle involved here is 'specialization' in
markets which have real potential. Another notable feature of this
method is the advantage of one segment is never offset by the
other. But in the case of the first two types, good and poor
segments are averaged.
2.4 Targeting
Market segmentation reveals the market-segment opportunities facing
the firm. The firm now has to evaluate the various segments and decide
how many and which ones to serve.
2.4.1. Evaluating the market segments
In evaluation different market segments, the firm must look at three
factors, namely segment size and growth, segment structural
attractiveness and company objectives and resources.
(a) Segment size and growth: The first question that a company
should ask is whether a potential segment has the right size and
growth characteristics. Large companies prefer segments with large
sales volumes and overlook small segments. Small companies in
turn avoid large segments because they would require too many
resources. Segment growth is a desirable characteristic since
companies generally want growing sales and profits.
(b) Segment structural attractiveness: A segment might have
desirable size and growth and still not be attractive from a
profitability point of view. The five threats that a company might
face are:
(i) Threat from industry competitors: A segment is unattractive
if it already contains numerous and aggressive competitors.
This condition may lead to frequent price wars.
(ii) Threats from potential entrants: i.e. from new competitors
who, if enter the segment at a later stage, bring in new
capacity, substantial resources and would soon steal a part
of the market share.
(iii) Threat of substitute products: A segment is unattractive if
there exists too many substitutive products because it would
result in brand switching, price wars, low profits etc.
(iv) Threat of growing bargaining power of buyers: A segment is
unattractive if the buyers possess strong bargaining power.
Buyers will try to force price down, demand more quality or
services, all at the expense of the seller's profitability.
(v) Threat of growing bargaining power of suppliers: A segment
is unattractive if the company's suppliers of raw materials,
equipment, finance etc., are able to raise prices or reduce the
quality or quantity of ordered goods.
(c) Company objectives and resources: Even if a segment has
positive size and growth and is structurally attractive, the company
needs to consider its own objectives and resources in relation to
that segment. Some attractive segments could be dismissed
because they do not match with the company's long-run objectives.
Even if the segment fits the company's objectives, the company has
to consider whether it possesses the requisite skills and resources
to succeed in that segment. The segment should be dismissed if
the company lacks one or more necessary competences needed to
develop superior competitive advantages.
2.4.2. Selecting the market segments
As a result of evaluating different segments, the company hopes to find
one or more market segments worth entering. The company must decide
which and how many segments to serve. This is the problem of target
market selection. A target market consists of a set of buyers sharing
common needs or characteristics that the company decides to serve. The
company can consider five patterns of target market selection.
1. Single segment concentration: In the simplest case, the company
selects a single segment. This company may have limited funds
and may want to operate only in one segment, it might be a
segment with no competitor, and it might be a segment that is a
logical launching pad for further segment expansion.
2. Selective specialization: Here a firm selects a number of
segments, each of which is attractive and matches the firm's
objectives and resources. This strategy of 'multi-segment coverage'
has the advantage over 'single-segment coverage' in terms of
diversifying the firm’s risk i.e. even if one segment becomes
unattractive, the firm can continue to earn money in other
segments.
3. Product specialization: Here the firm concentrates on marketing
a certain product that it sells to several segments. Through this
strategy, the firm builds a strong reputation in the specific product
area.
4. Market specialization: Here the firm concentrates on serving
many needs of a particular customer group. The firm gains a
strong reputation for specializing in serving this customer group
and becomes a channel agent for all new products that this
customer group could feasibly use.
5. Full market coverage: Here the firm attempts to serve all
customer groups with all the products that they might need. Only
large firms can undertake a full market coverage strategy. e.g.
Philips (Electronics), HLL (Consumer non-durables).
Large firms going in for whole market can do so in two broad
ways— through undifferentiated marketing or differentiated
marketing.
2.5 Positioning
Suppose a company has researched and selected its target market. If it is
the only company serving the target market, it will have no problem in
selling the product at a price that will yield reasonable profit. However, if
several firms pursue this target market and their products are
undifferentiated, most buyers will buy from the lowest priced brand.
Either, all the firms will have to lower their price or the only alternative is
to differentiate its product or service from that of the competitors,
thereby securing a competitive advantage and better price and profit. The
company must carefully select the ways in which it will distinguish itself
from competitors.
Suppose a scooter manufacturer, say Bajaj, gets worried that scooter
buyers see most scooter brands as similar and, therefore, choose their
brand mainly on the basis of price. Realizing this, Bajaj may decide to
differentiate their scooters physical characteristics.
"Differentiation is the act of designing a set of meaningful differences to
distinguish the company's offer from competitors' offers.
May be Bajaj claims its scooter to be different from others because of its
highest fuel efficiency and economy, LML claims-maximum durability
and added physical features, whereas Vijay Super may have claimed
highest mileage. Thus, all scooters appeal differently to different buyers.
If it wishes, any scooter manufacturer can show this comparison chart to
potential buyers. Not all buyers will notice or be interested in all the
ways one brand differs from another. Such firm will want to promote
those few differences that will appeal most strongly to its target market.
Positioning is the act of designing the company's offer so that is occupies
a distinct and valued place in the target customer's minds. Positioning
calls for the company to decide how many differences and which
differences to promote to the target customers.
How many differences to promote: Many marketers advocate
aggressively promoting only one benefit to the target market. Rosser
Reeves, e.g. said a company should develop a unique selling proposition
(USP) for each brand and stick to it. Thus, Godrej refrigerators claim,
automatic defrost, while Rin claims to have dirt-blasters. Each brand
should pick an attribute and claim itself to be "number one" on it.
What are some of the "number one" positions to promote? The major
ones are "best quality", "best service", "best value", “most advanced
technology” etc. If a company hammers at any one of these positioning
points and delivers it properly, it will probably be best known and
recalled for this strength.
Besides single benefit positioning, the company can try for double benefit
positioning- e.g. Forhans toothpaste claims that it cleans teeth and
protects the enamel. There are even cases of successful triple benefit
positioning e.g. Videocon Washing machines claims that the machine
"washes, rinses and even dries the clothes". Many people want all three
benefits, and the challenge is to convince them that the brand delivers all
three.
What differences to promote: A company should promote its major
strengths provided that the target market values these strengths. The
company should also recognize that differentiation is a continuous
process. It would seem that the company should go after cost or service
to improve its market appeal relative to competitors. However, many
other considerations arise.
1. How important are improvements in each of these attributes to the
target customers?
2. Can the company afford to make the improvements, and how fast
can it complete them?
3. Would the competitors also be able to improve service if the
company started to do so, and in that case, how would the
company react?
This type of reasoning can help the company choose or add genuine
competitive advantages.
Communicating the Company's positioning: The Company must not
only develop a clear positioning strategy, it must also communicate it
effectively. Suppose a company chooses the "best in quality" positioning
strategy. It must then make sure that it can communicate this claim
convincingly. Quality is communicated by choosing those physical signs
and cuts that people normally use to judge quality.
Quality is often communicated through other marketing elements.
A high price usually signals a premium-quality product to buyers. The
product's quality image is also affected by the packaging, distribution,
advertising and promotion. The manufacturer’s reputation also
contributes to the perception of quality. To make a quality claim credible,
the surest way is to offer "satisfaction or your money back". Smart
companies try to communicate their quality to buyers and guarantee that
this quality will be delivered or their money will be refunded.
2.6 Marketing environment
A company's marketing environment consists of the factors and forces
that affect the company's ability to develop and maintain successful
transactions and relationships with its target customers. Every business
enterprise is confronted with a set of internal factors and a set of external
factor.
The internal factors are generally regarded as controllable factors
because the company has a fair amount of control over these factors, it
can alter or modify such factors as its personnel, physical facilities,
marketing-mix etc. to suit the environment.
The external factors are by and large, beyond the control of a company.
The external environmental factors such as the economic factors, socio-
cultural factors, government and legal factors, demographic factors, geo-
physical factors etc.
As the environmental factors are beyond the control of a firm, its success
will depend to a very large extent on its adaptability to the environment,
i.e. its ability to properly design and adjust internal variables to take
advantages of the opportunities and to combat the threats in the
environment.
2.6.1 The micro environment
The micro environment consists of the actors in the company's
immediate environment that affects the ability of the marketers to serve
their customers. These include the suppliers, marketing intermediaries,
competitors, customers and publics.
1. Suppliers: Suppliers are those who supply the inputs like raw
materials and components etc. to the company. Uncertainty
regarding the supply or other supply constraints often compels
companies to maintain high inventories causing cost increases. It
has been pointed out that factories in India maintain indigenous
stocks of 3-4 months and imported stocks of 9 months as against
on average of a few hours to two weeks in Japan.
It is very risky to depend on a single supplier because a strike, lock
out or any other production problem with that supplier may
seriously affect the company. Hence, multiple sources of supply
often help reduce such risks.
2. Customers: The major task of a business is to create and sustain
customers. A business exists only because of its customers and
hence monitoring the customer sensitivity is a prerequisite for the
business to succeed.
A company may have different categories of consumers like
individuals, households, industries, commercial establishments,
governmental and other institutions etc. Depending on a single
customer is often too risky because it may place the company in a
poor bargaining position. Thus, the choice of the customer
segments should be made by considering a number of factors like
relative profitability, dependability, growth prospects, demand
stability, degree of competition etc.
3. Competitors: A firm's competitors include not only the other firms
which market the same or similar products but also all those who
compete for the discretionary income of the consumers. For
example, the competition for a company making televisions may
come not only from other TV manufacturers but also from
refrigerators, stereo sets, two-wheelers, etc. This competition
among these products may be described as desire competition as
the primary task here is to influence the basic desire of the
consumer.
If the consumer decides to spend his disposable income on
recreation, he will still be confronted with a number of alternatives
to choose from like T.V., stereo, radio, C.D. player etc. the
competition among such alternatives which satisfy a particular
category of desire is called generic competition.
If the consumer decides to go in for a T.V. the next question is
which form of T.V. - black and white, color, with remote or without
etc. this is called 'product form competition'. Finally, the consumer
encounters brand competition, i.e. competition between different
brands like Philips, B.P.L., Onida, Videocon, Coldstar etc.
An implication of these different brands is that a marketer should
strive to create primary and selective demand for his products.
4. Marketing intermediaries: The immediate environment of a
company may consist of a number of marketing intermediaries
which are "firms that aid the company in promoting, selling and
distributing its goods to final buyers.
The marketing intermediaries include middlemen such as agents
and merchants, who help the company find customers or close
sales with them; physical distribution firms which assist the
company in stocking and moving goods from their origin to their
destination such as warehouses and transportation firms;
marketing service agencies which assist the company in targeting
and promoting its products to the right markets such as
advertising agencies; consulting firms, and finally financial
intermediaries which finance marketing activities and insure
business risks.
Marketing intermediaries are vital link between the company and
final consumers. A dislocation or disturbance of this link, or a
wrong choice of the link, may cost the company very heavily.
5. Public: A company may encounter certain publics in its
environment. "A public is any group that has actual or potential
interest in or impact on an organisation's ability to achieve its
interests". Media, citizens, action publics and local publics are
some examples.
Some companies are seriously affected by such publics, e.g. one of
the leading daily that was allegedly bent on bringing down the
share price of the company by tarnishing its image. Many
companies are also affected by local publics. Environmental
pollution is an issue often taken up by a number of local publics.
Action by local publics on this issue has caused some companies
to suspend operations and/or take pollution control measures.
However, it is wrong to think that all publics are threats to
business. Some publics are opportunity for business. Some
businessmen e.g. regard consumerism as an opportunity for their
business. The media public may be used to disseminate useful
information. Similarly, fruitful symbiotic cooperation between a
company and the local publics may be established for the benefit of
the company and the local community.
2.6.2. Macro environment
A company and the forces in its micro environment operate in larger
macro environment of forces that shape opportunities and pose threats
to the company. The macro forces are, generally, more uncontrollable
than the micro forces. The macro environmental forces are given below:
1. Economic environment: Economic conditions, economic policies
and the economic system are the important external factors that
constitute the economic environment of a business.
The economic conditions of a country e.g., the nature of the
economy, the stage of development of the economy, economic
resources, the level of income, the distribution of income and
assets etc. are among the very important determinants of business
strategies.
In a developing economy, the low income may be the reason for the
very low demand for a product. In countries where investment and
income are steadily and rapidly rising, business prospects are
generally bright, and further investments are encouraged.
The economic policy of the government, needless to say, has a very
strong impact on business. Some types of businesses are favorably
affected by government policy, some adversely affected, while it is
neutral in respect of others, e.g. in case of India, the priority sector
and the small-scale sector get a number of incentives and positive
support from the government, whereas those industries which are
regarded as inessential may find the odds against them.
The monetary and fiscal policies by way of incentives and
disincentives they offer and by their neutrality, also affect the
business in different ways. The scope of private business depends,
to a large extent, on the economic system. At one end, there are
the free market economies, or capitalist economies, and at the
other are the centrally planned economies or communist
economies. In between these two extremes are the mixed
economies.
A completely free economy is an abstract rather than a real system
because some amount of government regulations always exist.
Countries like the United States, Japan, Canada, Australia etc. are
regarded as free market economies.
The communist countries have, by and large, a centrally planned
economic system. The State, under this system, owns all the
means of production, determines the goals of production and
controls the economy. China, Hungary, Poland etc. had centrally
planned economies. However, recently, several of these countries
have discarded communist system and have moved towards the
market economy.
In a mixed economy, both public and private sectors co-exist, as in
India. The extent of state participation varies widely across
different mixed economies. However, in many mixed economies,
the strategic and other nationally very important industries are
fully owned or dominated by the state.
The economic system, thus, is a very important determinant of the
scope of business.
2. Political and Government environment: Political and
government environment has a close relationship with the
economic system and economic policy. In most countries, there are
a number of laws that regulate the conduct of the business. These
laws cover such matters as standards of product, packaging,
promotion etc. In many countries, with a view to protecting
consumer interests, regulations have become stronger. Regulations
to protect the purity of the environment and preserve the ecological
balance have assumed great importance in many countries.
In most nations, promotional activities are subject to various types
of controls. Media advertising is not permitted in Libya. In India
too, till recently advertisements of liquor, cigarettes, gold, silver
etc. were prohibited. There is a host of statutory control on
business in India. MRTP commission, industrial licensing, FEMA
regulations etc. kept a strict check on the expansion of private
enterprises till recently. Recent changes in the statutes and
policies have had a profound and positive impact on business.
Thus, marketing policies are definitely influenced by government
policies and controls throughout the world.
3. Socio-cultural environment: The socio-cultural environment
includes the customs, traditions, taboos, tastes, preferences etc. of
the members of the society, which cannot be ignored at any cost by
any business unit. For a business to be successful, its strategy
should be the one that is appropriate in the socio-cultural
environment. The marketing-mix will have to be so designed as to
suit the environmental characteristics of the market. Nestle, a
Swiss multinational company, today brews more than forty
varieties of instant coffee to satisfy different national tastes.
Even when people of different cultures use the same basic product,
the mode of consumption, conditions of use, purpose of use or the
perceptions of the product attributes may vary so much so that the
product attributes, method of presentation, or promotion etc. may
have to be varied to suit the characteristics of different markets.
The differences in language sometimes pose a serious challenge
and even necessitate a change in the brand name. The values and
beliefs associated with color vary significantly across different
cultures e.g. white is a color which indicates death and mourning
in countries like China, Korea and India but in many countries it is
a color expressing happiness and often used as a wedding dress
color.
While dealing with the social environment, it is important to
remember that the social environment of business also
encompasses its social responsibility, alertness or vigilance of the
consumers and the society's interests and well-being at large.
4. Demographic environment: Demographic factors like the size,
growth rate, age composition, sex composition, family size,
economic stratification of the population, educational levels,
language, caste, religion etc. are all factors relevant to business. All
these demographic variables affect the demand for goods and
services. Markets with growing population and income are growth
markets. But the decline in birth rates in countries like United
States, etc. has affected the demand for baby products. Johnson
and Johnson had to overcome this problem by repositioning their
products like baby shampoo and baby soaps, and promoting them
to the adult segment particularly females.
A rapidly increasing population indicates a growing demand for
many products. High population growth rates also indicate an
enormous increase in labor supply. Cheap labor and a growing
market have encouraged many multinational corporations to invest
in developing countries like India.
5. Natural environment: Geographical and ecological factors such as
natural resources endowments, weather and climate conditions,
topographical factors, location aspects in the global context, port
facilities etc. are all relevant to business.
Geographical and ecological factors also influence the location of
certain industries, e.g. industries with high material index tend to
be located near the raw material sources. Climate and weather
conditions affect the location of certain industries like the cotton
textile industry. Topographical factors may affect the demand
pattern, e.g. in hilly areas with a difficult terrain, jeeps may be in
greater demand than cars.
Ecological factors have recently assumed greater importance. The
depletion of natural resources, environmental pollution and the
disturbance of the ecological balance has caused great concern.
Government policies aimed at the preservation of environmental
purity and ecological balance, conservation of non-replenishable
resources etc. have resulted in additional responsibilities and
problems for business, and some of these have the effect of
increasing the cost of production and marketing.
6. Physical facilities and technological environment: Business
prospects depend on the availability of certain physical facilities.
The sale of television sets e.g. is limited by the extent of coverage of
telecasting. Similarly, the demand for refrigerators and other
electrical appliances is affected by the extent of electrification and
the reliability of power supply.
Technological factors sometimes pose problems. A firm which is
unable to cope with the technological changes may not survive.
Further, the different technological environment of different
markets or countries may call for product modifications, e.g. many
appliances and instruments in the U.S.A. are designed for 110
volts but this needs to be converted into 240 volts in countries
which have that power system.
7. International environment: The international environment is very
important from the point of view of certain categories of business.
It is particularly important for industries directly depending on
exports or imports. E.g. a recession in foreign markets or the
adoption of protectionist policies may help the export-oriented
industries. Similarly, liberalization of imports may help some
industries which use imported items, but may adversely affect
import-competing industries.
Similarly, international bodies like WTO, IMF, WHO, ILO etc. have
had a major impact on influencing the policies and trade of many
countries, especially India.
2.7 Summary
Market segmentation is process of dividing the total market into several
sub-markets, or segments, each of which tends to be homogeneous.
There are three important principles applied for market segmentation:
measurability of segments, accessibility of the segments, and represent
ability of the segments. In market targeting, we evaluate each market
segment and finally select the appropriate segment company finds worth
entering. After targeting, marketers attempt to develop a special image
for its products in consumer mind relative to competitive products; this
is known as market positioning. A business enterprise operates within
the framework of environment factors. These environment factors must
be duly considered in planning a marketing strategy. The company's
marketing environment consists of micro and macro environmental
factors. Micro-environmental factors include suppliers, company,
customers, intermediaries, competitors and publics. Macro
environmental factors consisting of factors: demographic, economic,
political, technological, natural, cultural, and international.
2.8 Key words
Aggregation: a whole combining several elements,
formed by combination or addition
Pertinent: relevant
Homogeneous: of the same kind, uniform
2.9 Self Assessment Exercise
1. Discuss the significance of segmentation. Also write in brief
different bases of segmentation.
2. What do you mean by market targeting? Write in brief the process
of evaluating and selecting the market segment for targeting.
3. Write a detailed note on market positioning with suitable
examples.
4. Discuss in brief the micro and macro environmental factors. Also
write its impact on marketing.
2.10 Suggested Readings
1. Stanton, Etzel and Walker- Fundamentals of marketing (TMH)
2. Philip Kotler- Marketing Management (PHI)
3. Philip Kotler and Armstrong- Principles of marketing (PHI)
4. Ramaswamy and Namakumari- Marketing management
(Macmillan)
Subject: Basic Principles of marketing and management
Course Code: Paper-V Author: Dr. M.R.P. Singh
Lesson: 3 Vetter: Dr. B.S. Bodla
Study consumer behavior, Needs and motivation, group dynamics,
social surroundings and consumer perception
Structure
3.1 Objectives
3.2 Introduction
3.3 Consumer Needs and Motivation
3.4 Consumer Perception
3.5 Group Dynamics
3.6 Social Surroundings
3.7 Summary
3.8 Key words
3.9 Self Assessment Exercise
3.10 Suggested Readings
3.1 Objective
The objective of this lesson is to make the students aware about the
basic concepts of consumer behavior and its impact on marketing.
3.2 Introduction
Behavior is a mirror in which everyone displays his own image. The term
consumer behavior can be defined as the behavior that consumers
display in searching for, purchasing, using, evaluating, and disposing of
products and services that they expect will satisfy their needs. The study
of consumer behavior is the study of how individuals make decision to
spend their available resources (money, time, and effort) on
consumption-related items. It includes the study of what they buy, why
they buy it, how they buy it, when they buy it, where they buy it, and
how often they buy it.
The term consumer is often used to describe two different kinds of
consuming entities: the personal consumer and organizational
consumer. The personal consumer buys goods and services for his or her
own use (e.g. shaving cream or lipstick), for the use of the household, or
as a gift for a friend. In all of these contexts, the goods are bought for
final use by individuals, who are referred to as ‘end users’ or ‘ultimate
consumers’. The second category of consumer, the organizational
consumer, encompasses profit and non-profit making businesses,
government agencies, and institutions, all of which must buy products,
equipments, and services in order to run their organizations.
Manufacturing companies must buy the raw materials and other
components to manufacture and sell their own products; service
companies must buy the equipments necessary to render the services
they sell; government agencies must buy the office products needed to
operate agencies; and institutions must buy the materials they need to
maintain themselves and their population.
The person who purchases a product is not always the user, or the only
user, of the product in question. Nor is the purchaser necessarily the
person who makes the product decision. A mother may buy toys for her
children (who are the users); she may buy food for dinner (and be one of
the users); she may buy a handbag (and be the only user). She may buy
a magazine that one of her teenagers requested, or rent a video that her
husband requested, or she and her husband together may buy a car that
they both selected. Clearly, buyers are not always the users or the only
users, of the products they buy, nor are they necessarily the persons who
make the product selection decisions. Marketers must decide at whom to
direct their marketing efforts: the buyer or the user. They must identify
the person who is most likely to influence the purchase decision. Some
marketers believe that the buyer of the product is the best prospect,
others believe it is the users of the product, which still others play it safe
by directing all their marketing efforts to both buyers and users.
The study of consumer behavior holds great interest for us as
consumers, as students, and as marketers. As consumers, we benefit
from insights into our own consumption-related decisions: what we buy,
why we buy, and how we buy. The study of consumer behavior makes us
aware of the subtle influences that persuade us to make the product or
service choices we do. As students of human behavior, it is important for
us to understand the internal and external influences that impel
individuals to act in certain consumption related ways. Consumer
behavior is simply a subset of the larger field of human behavior. As
marketers or future marketers, it is important for us to recognize why
and how individuals make their consumption related decisions so that
we can make better strategic marketing decisions. Without doubt,
marketers who understand consumer behavior have a great competitive
advantage in the market place.
There are a number of reasons why the study of consumer behavior
developed as a separate marketing discipline. Marketing scientists had
long noted that consumers did not always act or react as economic
theory would suggest. The size of the consumer market was vast and
constantly expanding. Consumer preferences were changing and
becoming highly diversified. Even in industrial markets, where needs for
goods and services were always more homogeneous than in consumer
markets, buyers were exhibiting diversified preferences and less
predictable purchase behavior. The technological explosion that started
after World War II resulted in the rapid introduction of new products at
an ever-increasing rate. Many of these products— some experts estimate
over 80 per cent – proved to be marketing disasters. To counter this
problem marketers have made a determined effort to learn more about
consumers (their needs, preferences, changing life styles) to guide the
development of new products to fulfill unsatisfied needs. In addition to
the fast pace of new product introduction, other factors that contributed
to the development of consumer behavior as a marketing discipline
include shorter product life cycles, environmental concerns, increased
interest in consumer protection, the growth of service marketing, the
growth of international markets, and the development of computers and
sophisticated methods of statistical analysis.
Consumer behavior is interdisciplinary; that is, it is based on concepts
and theories about people that have been developed by social scientists
in such diverse disciplines as psychology, sociology, social psychology,
cultural anthropology, and economics.
3.3 Consumer needs and motivation
Every individual has needs; some are innate, others are acquired. Innate
needs are physiological (i.e., biogenic); they include the needs for food,
for water, for air, for clothing, for shelter, and for sex. Because they are
needed to sustain biological life, the biogenic needs are considered
primary needs or motives.
Acquired needs are needs that we learn in response to our culture or
environment. These may include needs for esteem, for prestige, for
affection, for power, and for learning. Because acquired needs are
generally psychological (i.e., psychogenic), they are considered secondary
needs or motives. They result from the individual's subjective
psychological state and from relationships with others. For example, all
individuals need shelter from the elements; thus, finding a place to live
fulfills an important primary need for a newly transferred executive.
However, the kind of house she buys may be the result of secondary
needs. She may seek a house in which she can entertain large groups of
people (and fulfill her social needs); she may also want to buy a house in
an exclusive community in order to impress her friends and family (and
fulfill her ego needs). The house an individual ultimately purchases thus
may serve to fulfill both primary and secondary needs.
Motivation can be described as the driving force within individuals that
impels them to action. This driving force is produced by a state of tension,
which exists as the result of an unfilled need. Individuals strive— both
consciously and subconsciously— to reduce this tension through behavior
that they anticipate will fulfill their needs and thus relieve them of the
stress they feel. The specific goals they select and the patterns of action
they undertake to achieve their goals are the results of individual thinking
and learning. Figure 3.1 presents a model of the motivational process. It
portrays motivation as a state of need-induced tension, which exerts a
"push" on the individual to engage in behavior that he or she expects will
gratify needs and thus reduce tension.
The specific course of action that consumers pursue and their specific goals
are selected on the basis of their thinking processes (i.e., cognition) and
previous learning. For that reason, marketers who understand motivational
theory attempt to influence the consumer's cognitive processes.
Figure 3.1 Model of the motivational process
Positive and negative motivation— Motivation can be positive or
negative in direction. We may feel a driving force toward some object or
condition, or a driving force away from some object or condition. For
example, a person may be impelled toward a restaurant to fulfill a
hunger need and away from motorcycle transportation to fulfill a safety
need. Some psychologists refer to positive drives as needs, wants, or
Unified
needs, wants,
and desires
Tension
Drive
Behavior
Goal or
need
fulfillment
Learning
Cognitive
processes
Tension
reduction
desires, and to negative drives as fears or aversions. However, though
negative and positive motivational forces seem to differ dramatically in
terms of physical (and sometimes emotional) activity, they are basically
similar in that both serve to initiate and sustain human behavior. For
this reason, researchers often refer to both kinds of drives or motives as
needs, wants, and desires.
Rational versus emotional motives— Some consumer behaviorists
distinguish between so-called rational motives and emotional (or non-
rational) motives. They use the term rationality in the traditional
economic sense, which assumes that consumers behave rationally when
they carefully consider all alternatives and choose those that give them
the greatest utility (i.e., satisfaction). In a marketing context, the term
rationality implies that consumers select goals based on totally objective
criteria, such as size, weight, price, or miles per gallon. Emotional
motives imply the selection of goals according to personal or subjective
criteria (e.g., the desire for individuality, pride, fear, affection, status).
The assumption underlying this distinction is that subjective or
emotional criteria do not maximize utility or satisfaction. However, it is
reasonable to assume that consumers always attempt to select
alternatives that, in their view, serve to maximize satisfaction. Obviously,
the assessment of satisfaction is a very personal process, based on the
individual's own need structure as well as on past behavioral, and social
or learned experiences. What may appear irrational to an outside
observer may be perfectly rational in the context of the consumer's own
psychological field. For example, a product purchased to enhance self-
image (such as a fragrance) is a perfectly rational form of consumer
behavior.
3.4 Consumer Perception
Perception can be described as "how we see the world around us". Two
individuals may be subject to the same stimuli under apparently the
same conditions, but how they recognize them, select them, organize
them, and interpret them is a highly individual process based on each
person's own needs, values, expectations, and the like.
Perception is defined as the process by which an individual selects,
organizes, and interprets stimuli into a meaningful and coherent picture
of the world. A stimulus is any unit of input to any of the senses.
Examples of stimuli (i.e., sensory inputs) include products, packages,
brand names, advertisements, and commercials. Sensory receptors are
the human organs (the eyes, ears, mouth, and skin) that receive sensory
inputs. These sensory functions are to see, hear, smell, taste, and feel.
All of these functions are called into play— either singly or in
combination— in the evaluation and use of most consumer products.
The study of perception is largely the study of what we subconsciously
add to or subtract from raw sensory inputs to produce a private picture
of the world.
Sensation— Sensation is the immediate and direct response of the
sensory organs to simple stimuli (an advertisement, a package, a brand
name). Human sensitivity refers to the experience of sensation.
Sensitivity to stimuli varies with the quality of an individual's sensory
receptors (e.g., eyesight or hearing) and the amount of intensity of the
stimuli to which he or she is exposed. For example, a blind person may
have a more highly developed sense of hearing than the average sighted
person and may be able to hear sounds that the average person cannot.
Sensation itself depends on energy change or differentiation of input. A
perfectly bland or unchanging environment- regardless of the strength of
the sensory input- provides little or no sensation at all. Thus, a person
who lives on a busy street in midtown Manhattan would probably receive
little or no sensation from the inputs of such noisy stimuli as horns
honking, tires screeching, and fire engines clanging, since such sounds
are so common in New York City. One honking horn more or less would
never be noticed. In situations where there is a great deal of sensory
input, the senses do not detect small intensities or differences in input.
As sensory input decreases, however, our ability to detect changes in
input or intensity increases, to the point that we attain maximum
sensitivity under conditions of minimal stimulation. This accounts for
the statement, "It was so quiet I could hear a pin drop". It also accounts
for the increased attention given to a commercial that appears alone
during a program break, or to a black-and-white advertisement in a
magazine full of four-color advertisements. This ability of the human
organism to accommodate itself to varying levels of sensitivity as external
conditions vary not only provides more sensitivity when it is needed, but
also serves to protect us from damaging, disruptive, or irrelevant
bombardment when the input level is high.
Perceptual Selection
Consumers subconsciously exercise a great deal of selectivity as to which
aspects of the environment—which stimuli—they perceive. An individual
may look at some things, ignore others, and turn away from still others.
In total, people actually receive- or perceive-only a small fraction of the
stimuli to which they are exposed. Consider, for example, a woman in a
super-market. She is exposed to literally thousands of products of
different colors, sizes, and shapes; to perhaps a hundred people (looking,
walking, searching, talking); to smells (from fruit, from meat, from
disinfectant, from people); to sounds within the store (cash registers
ringing, shopping carts rolling, air conditioners humming, and clerks
sweeping, stocking shelves); and to sounds from outside the store (planes
passing, cars honking, tires screeching, children shouting, car doors
slamming). Yet she manages on a regular basis to visit her local
supermarket, select the items she needs, pay for them, and leaves, all
within a relatively brief time, without losing her sanity or her personal
orientation to the world around her. This is because she exercises
selectivity in perception.
Which stimuli get selected depends on two major factors in addition to
the nature of the stimuli itself: the consumer’s previous experience as it
affects her expectations (what she is prepared, or “set”, to see) and her
motives at the time (her needs, desires, interests, and so on). Each of
these factors can serve to increase or decrease the probability that the
stimulus will be perceived, and each can affect the consumer’s selective
exposure to and selective awareness of the stimulus itself.
Nature of the Stimulus— Marketing stimuli include an enormous
number of variables that affect the consumer’s perception, such as the
nature of the product, its physical attributes, the package design, the
brand name, the advertisements and commercials (including copy
claims, choice and sex of model, positioning of model, size of ad, and
typography), the position of the ad or time of the commercial, and the
editorial environment.
Expectations— People usually see what they expect to see, and what
they expect to see is usually based on familiarity, previous experience, or
preconditioned” set”.
In a marketing context, people tend to perceive products and product
attributes according to their own expectations. A man who has been told
by his friends that a new brand of Scotch has a bitter taste will probably
perceive the taste to be bitter; a teenager who attends a horror movie
that has been billed as terrifying will probably find it so.
Motives— People tend to perceive things they need or want; the stronger
the need, the greater the tendency to ignore unrelated stimuli in the
environment. A businessman concerned with fitness and health is more
likely to notice and to read carefully an ad for a health club than one who
is without such concerns. In general, there is a heightened awareness of
stimuli that are relevant to one’s needs and interests, and a decreased
awareness of stimuli that are irrelevant to those needs.
Related Concepts— As the preceding discussion illustrates, the
consumer’s “selection” of stimuli from the environment is based on the
interaction of expectations and motives with the stimulus itself. These
factors give rise to a number of important concepts concerning
perception.
Selective Exposure— Consumers actively seek out messages they find
pleasant or with which they are sympathetic, and actively avoid painful
or threatening ones. Thus, heavy smokers avoid articles that link
cigarette smoking to cancer and note (and quote) the relatively few that
deny the relationship. Consumers also selectively expose themselves to
advertisements that reassure them of the wisdom of their purchase
decisions.
Selective Attention— Consumers have a heightened awareness of the
stimuli that meet their needs or interests and a lesser awareness of
stimuli irrelevant to their needs. Thus, they are likely to note ads for
products that meet their needs or for stores with which they are familiar
and disregard those in which they have no interest.
People also vary in terms of the kind of information in which they are
interested and the form of message and type of medium they prefer.
Some people are more interested in price, some in appearance, and some
in social acceptability. Some people like complex, sophisticated
messages; others like simple graphics. Consumers therefore exercise a
great deal of selectivity in terms of the attention they give to commercial
stimuli.
Perceptual Defense— Consumers subconsciously screen out stimuli
that are important for them not to see, even though exposure has already
taken place. Thus, threatening or otherwise damaging stimuli are less
likely to be perceived than are neutral stimuli at the same level of
exposure. Further more, individuals may distort information that is not
consistent with their needs, values, and beliefs.
Perceptual Blocking— Consumers protect themselves from being
bombarded with stimuli by simply “tuning out”— blocking such stimuli
from conscious awareness. Research shows that enormous amounts of
advertising are screened out by consumers; this may be more common
for television than for print. To explain why television advertising recall
scores are falling, various hypotheses have been offered, such as the
greater amount of time allotted for commercials, the use of shorter
commercials (and thus more advertising messages within the same
period of time), the number of commercials that are strung together back
to back, the increased number of advertisers, and the greater number of
products being advertised.
Perceptual Organization
People do not experience the numerous stimuli they select from the
environment as separate and discrete sensations; rather, they tend to
organize them into groups and perceive them as unified wholes. Thus,
the perceived characteristics of even the simplest stimulus are viewed as
a function of the whole to which the stimulus appears to belong. This
method of organization simplifies life considerably for the individual.
The specific principles underlying perceptual organization are often
referred to by the name given the school of psychology that first
developed and stressed it- Gestalt psychology. (Gestalt in German means
“Pattern” or “Configuration”)). Three of the most basic principles of
perceptual organization center on figure and ground relationships,
grouping, and closure.
Figure and Ground— Stimuli must contrast with their environment in
order to be noticed. A sound must be louder or softer, a color brighter or
paler. The simplest visual illustration consists of a figure on a ground
(i.e., background). The figure is usually perceived clearly because, in
contrast to its ground, it appears to be well defined, solid, and in the
forefront.
Grouping— Individuals tend to group stimuli automatically so that they
form a unified picture or impression. The perception of stimuli as groups
or “chunks” of information, rather than as discrete bits of information,
facilitates their memory and recall.
Grouping can be used advantageously by marketers to imply certain
desired meanings in connection with their products. For example, an
advertisement for tea may show a young man and woman sipping tea in
beautifully appointed room before a blazing hearth. The grouping of
stimuli by proximity leads the consumer to associate the drinking of tea
with romance, fine living, and winter warmth.
Most of us can remember and repeat our social security numbers
because we automatically group them into three chunks rather than nine
separate numbers. When the telephone company introduced the idea of
all-digit telephone numbers, consumers objected strenuously on the
grounds that they would not be able to recall or repeat so many
numbers. However, because we automatically group telephone numbers
into two chunks (or three, with the area code), the problems that were
anticipated never occurred.
Closure— Individuals have a need for closure. They express this need by
organizing their perceptions so that they form a complete picture. If the
pattern of stimuli to which they are exposed is incomplete, they tend to
perceive it nevertheless as complete; that is, they consciously or
subconsciously fill in the missing pieces. Thus, a circle with a section of
its periphery missing will invariably be perceived as a circle and not as
an arc. The need for closure is also seen in the tension and individual
experiences when a task is incomplete, and the satisfaction and relief
that come with its completion.
Perceptual Interpretation
The preceding discussion has emphasized that perception is a personal
phenomenon. People exercise selectivity as to which stimuli they
perceive, and organize these stimuli on the basis of certain psychological
principles. The interpretation of stimuli is also uniquely individual, since
it is based on what individuals expect to see in light of their previous
experience, on the number of plausible explanations they can envision,
and on their motives and interests at the time of perception.
Stimuli are often highly ambiguous. Some stimuli are weak because of
such factors as poor visibility, brief exposure, high noise level, and
constant fluctuation. Even stimuli that are strong tend to fluctuate
dramatically because of such factors as different angles of viewing,
varying distances, and changing levels of illumination.
Consumers usually attribute the sensory input they receive to sources
they consider most likely to have caused the specific pattern of stimuli.
Past experience and social interactions may help to form certain
expectations that provide categories or alternatives that individuals use
in interpreting stimuli. The narrower the individual’s experience, the
more limited the access to alternative categories.
When stimuli are highly ambiguous, an individual will usually interpret
them in such a way that they serve to fulfill personal needs, wishes,
interests, and so on. How a person describes a vague illustration, what
meaning the individual ascribes to an inkblot, is a reflection not of the
stimulus itself, but of the subject’s own needs, wants, and desires.
Through the interpretation of ambiguous stimuli, respondents reveal a
great deal about themselves.
How close a person’s interpretations are to reality, then, depends on the
clarity of the stimulus, the past experiences of the perceiver, and his or
her motives and interests at the time of perception.
3.5 Group Dynamics
A group may be defined as two or more people who interact to
accomplish either individual or mutual goals. The broad scope of this
definition includes an intimate “group” of two neighbors who shop
together and a larger, more formal group, such as a neighborhood watch
association, whose members are mutually concerned with reducing crime
in their neighborhood. Included in this definition, too, are more remote,
one-sided, social relationships where an individual consumer looks to
others for direction as to which products or services to buy, even though
these others are largely unaware that they are serving as consumption-
related models.
Types of Groups
There are many ways to classify groups, such as by regularity of contact,
by structure and hierarchy, by membership, even by size. For example, it
is often desirable to distinguish between groups in terms of their size or
complexity. However, it is difficult to offer a precise point as to when a
group is considered large or small. A large group might be thought of as
one in which a single member is not likely to know more than a few of
the group’s members personally or be fully aware of the specific roles or
activities of more than a limited number of other group members. In
contrast, members of a small group are likely to know each member
personally and to be aware of every member’s specific role or activities in
the group. For example, each staff member of a college newspaper is
likely to know all the other members and be aware of their duties and
interests within the group.
In the realm of consumer behavior, we are principally concerned with the
study of small groups, since such groups are more likely to influence the
consumption behavior of group members.
Primary versus Secondary Groups— If a person interacts on a regular
basis with other individuals (with members of his or her family, with
neighbors, or with co-workers whose opinions are valued), then these
individuals can be considered a primary group for that person. On the
other hand, if a person interacts only occasionally with such others, or
does not consider their opinions to be particularly important, then these
others constitute a secondary group for that person. From this definition,
it can be seen that the critical distinctions between primary and
secondary groups are the perceived importance of the groups to the
individual and the frequency or consistency with which the individual
interacts with them.
Formal versus Informal Groups— Another useful way to classify groups
is by their formality; that is, the extent to which the group structure, the
members’ roles, and the group’s purpose are clearly defined. If a group
has a highly defined structure (for example, a formal membership list),
specific roles and authority levels (a president, treasurer, and secretary),
and specific goals (to support a political candidate, assist the homeless,
increase the knowledge or skills of members), then it would be classified
as a formal group. The local chapter of the American Red Cross, with
elected officers and members who meet regularly to discuss topics of
civic interest, would be classified as a formal group. On the other hand, if
a group is more loosely defined- if it consists, say, of four women who
were in the same college sorority and who meet for dinner once a month,
or three co-workers who, with their spouses, see each other frequently-
then it is considered an informal group.
From the standpoint of consumer behavior, informal social or friendship
groups are generally more important to the marketer, since their less
clearly defined structures provide a more conducive environment for the
exchange of information and influence about consumption-related topics.
Consumer-Relevant Groups
To more fully comprehend the kind of impact that specific groups have
on individuals, we will examine six basic consumer-relevant groups: the
family, friendship groups, formal social groups, shopping groups,
consumer action groups, and work groups.
The Family— An individual’s family is often in the best position to
influence his or her consumer decisions. The family’s importance in this
regard is based upon the frequency of contact that the individual has
with other family members and the extent of influence that family has on
the establishment of a wide range of values, attitudes, and behavior.
Friendship Groups— Friendship groups are typically classified as
informal groups because they are usually unstructured and lack specific
authority levels. In terms of relative influence, after an individual’s
family, his or her friends are most likely to influence the individual’s
purchase decisions.
Formal Social Groups— In contrast to the relative intimacy of friendship
groups, formal social groups are more remote and serve a different
function for the individual. A person joins a formal social group to fulfill
such specific goals as making new friends, meeting “important” people
(e.g., for career advancement), broadening perspectives, pursuing a
special interest, or promoting a specific cause. Because members of a
formal social group often consume certain products together, such
groups are of interest to marketers.
Membership in a formal social group may influence a consumer’s
behavior in several ways. For example, members of such groups have
frequent opportunity to informally discuss products, services, or stores.
Some members may copy the consumption behavior of other members
whom they admire.
Shopping Groups— Two or more people who shop together- whether for
food, for clothing, or simply to pas the time- can be called a shopping
group. Such groups are often offshoots of family or friendship groups.
People like to shop with others who are pleasant company or who they
feel have more experience with, or knowledge about, a desired product or
service. Shopping with others also provides an element of social fun. In
addition, it reduces the risk that a purchase decision will be socially
unacceptable. In instances where none of the members have knowledge
about the product under consideration, a shopping group may form for
defensive reasons; members may feel more confident with a collective
decision.
Consumer Action Groups— A particular kind of consumer group- a
consumer action group- has emerged in response to the consumerist
movement. Consumer action groups can be divided into two broad
categories: those that organize to correct a specific consumer abuse and
then disband, and those that organize to address broader, more
pervasive, problem areas and operate over an extended or indefinite
period of time. a group of tenants who band together to dramatize their
dissatisfaction with the service provided by their landlord, or a group of
irate neighbors who unite to block the establishment of a drug treatment
clinic in a middle-class neighborhood, are examples of temporary, cause-
specific consumer action groups.
Work Groups— The sheer amount of time that people spend at their
jobs— frequently more than thirty-five hours per week—provides ample
opportunity for work groups to serve as a major influence on the
consumption behavior of members.
Both the formal work group and the informal friendship/work group
have the potential for influencing consumer behavior. The formal work
group consists of those individuals who work together as a team. Their
direct and sustained work relationship offers substantial opportunity for
one or more members to influence the consumption-related attitudes and
activities of other team members. Informal friendship/work groups
consist of people who have become friends as a result of working for the
same firm, whether or not they work together as a team. Members of
informal work groups may influence the consumption behavior of other
members during coffee or lunch breaks or after-hours meetings.
3.6 Social Surroundings
While social class can be thought of as a continuum- a range of social
positions- on which each member of society can be placed, researchers
have preferred to divide the continuum into a small number of specific
social classes, or strata. Within this framework, the concept of social
class is used to assign individuals or families to a social class category.
Consistent with this practice, social class is defined as the division of
members of a society into a hierarchy of distinct status classes, so that
members of each class have relatively the same status and members of
all other classes have either more or less status.
To appreciate more fully the complexity of social class, we will briefly
consider several underlying concepts pertinent to our definition.
Social Class and Social Status
Researchers often measure social class in terms of social status; that is,
they define each social class by the amount of status the members of
that class have in comparison with members of other social classes. In
the behavioral sciences, status is frequently conceptualized as the
relative rankings of members of each social class in terms of specific
status factors. For example, relative wealth (amount of economic assets),
power (the degree of personal choice or influence over others), and
prestige (the degree of recognition received from others) are three popular
factors frequently employed in the estimation of social class. When it
comes to consumer behavior and marketing research, status is most
often defined in terms of one or more of the following convenient
demographic (socioeconomic) variables: family income, occupational
status, and educational attainment. These socioeconomic variables, as
expressions of status, are used by marketing practitioners on a daily
basis to measure social class.
Social Class is Hierarchical— Social-class categories are usually ranked
in a hierarchy ranging from low to high status. Thus members of a
specific social class perceive members of other social classes as having
either more or less status than they do. Too many people, therefore,
social-class categories suggest that others are either equal to them
(about the same social class), superior to them (higher social class), or
inferior to them (lower social class).
This hierarchical aspect of social class is important to marketers.
Consumers may purchase certain products because they are favored by
members of their own or a higher social class and they may avoid other
products because they perceive them to be “lower-class” products.
Social Class and Market Segmentation— The various social class
strata provide a natural basis for market segmentation for many
products and services. In many instances, consumer researchers have
been able to relate product usage to social-class membership. Thus
marketers can effectively tailor products or services, channels of
distribution, and promotional messages to the needs and the interests of
a specific social stratum.
Social Class and Behavioral Factors— The classification of society’s
members into a small number of social classes has enabled researchers
to note the existence of shared values, attitudes, and behavioral patterns
among members within each social class, and differing values, attitudes,
and behavior between social classes. Consumer researchers have been
able to relate social-class standing to consumer attitudes concerning
specific products, and to examine social-class influences on the actual
consumption of products.
Social Class as a Frame of Reference— Social-class membership serves
consumers as a frame of reference (i.e., a reference group) for the
development of their attitudes and behavior. In the context of reference
groups, we might expect members of a specific social class to turn most
often to other members of the same class for cues (or clues) as to
appropriate behavior.
Social-class Categories— There is little agreement among sociologists
on how many distinct class divisions are necessary to describe
adequately the class structure of the United States. Most early studies
divided the social-class organizations of specific communities into five-
class or six-class social structures. However, other researchers have
found nine-class, four-class, three-class, and even two-class schemes to
be suitable for their purposes. The choice of how many separate classes
to use depend on the amount of detail the researcher believes is
necessary to explain adequately the attitudes or behavior under study.
Marketers are interested in the social-class structures of communities
that offer potential markets for their products, and in the specific social-
class level of their potential customers. Table 3.1 illustrates the number
and diversity of social-class schemes, and shows the distribution of the
United States population in terms of several different sub-divisions (five
category, six category and seven category subdivisions).
Table 3.1 Number and Diversity of Social-class Schemes
Two-category social-class schemes
Blue-collar, white-collar
Lower, upper
Lower, middle
Three-category social-class schemes
Blue-collar, gray-collar, white-collar
Lower, middle, upper
Four-category social-class scheme
Lower, lower-middle, upper-middle, upper
Five-category social-class schemes
Lower, working-class, lower-middle, upper-middle, upper
Lower, lower-middle, middle, upper-middle, upper
Six-category social-class scheme
Lower-lower, upper-lower, lower-middle, upper-middle, lower-upper,
upper-upper
Seven-category social-class scheme
Real lower-lower, a lower group of people but not the lowest, working
class, middle class, upper-middle, lower-upper, upper-upper
Nine-category social-class scheme
Lower-lower, middle-lower, upper-lower, lower-middle, middle-middle,
upper-middle, lower-upper, middle-upper, upper-upper.
In Indian context, six category social-class schemes are used more
frequently.
3.7 Summary
Consumer behavior can be defined as the behavior that consumers
display in searching for, purchasing, using, evaluating, and disposing of
products, services and ideas that they expect will satisfy their needs.
Motivation is the deriving force within individuals that impels them to
action. This driving force is produced by a state of uncomfortable
tension, which exists as the result of an unfilled need. All individuals
have needs, wants and desires. Perception is the process by which
individuals select, organize, and interpret stimuli into a meaningful and
coherent picture of the world. It has strategy implications for marketers
because consumers make decisions based on what they perceive, rather
than on the basis of objective reality. Almost all individuals regularly
interact with other people who directly or indirectly influence their
purchase decisions. Thus the study of groups and their impact on the
individual is of great importance to marketers concerned with influencing
consumer behavior. Social stratification- the division of members of a
society into hierarchy of distinct social classes-exists in all societies and
cultures. Social class is usually defined by the amount of status that
members of a specific class posses in relation to members of other
classes. Social class membership after serves as a frame of reference for
the development of consumer attitudes and behavior. So, the study of
social classes is of utmost importance for marketers.
3.8 Key words
Honking: the harsh sound of a car horn, make this
noise
Screech: a harsh high-pitched scream or sound
Stimuli: something that rouses a person or thing to
activity or energy
Hierarchial: a system which grades ranking one above
another
3.9 Self Assessment Exercise
1. What is consumer behavior? Discuss in brief its importance and
application in marketing with illustrations.
2. Discuss the concept of need and motivation and its impact on
marketing.
3. What is group dynamics? Write in brief different types of groups.
4. Define perception and sensation. Discuss in brief selection,
organization and interpretation of stimuli.
5. Write a detailed note on social surroundings and its impact on
marketing.
3.10 Suggested Reading
1. Stanton, Etzel and Walker- Fundamentals of marketing (TMH)
2. Philip Kotler- Marketing Management (PHI)
3. Philip Kotler and Armstrong- Principles of marketing (PHI)
4. Ramaswamy and Namakumari- Marketing management
(Macmillan)
Subject: Basic principles of marketing Author: Dr. M.R.P. Singh
And management
Course Code: Paper V Vetter: Prof. H. Bansal
Lesson: 4
Promotion Mix: Direct selling, Advertising, Sales Promotion and
Public Relations
.
Structure
4.1 Objective
4.2 Introduction
4.3 Advertising
4.4 Sales promotion
4.5 Personal selling
4.6 Public relations
4.7 Summary
4.8 Key words
4.9 Self assessment exercise
4.10 Suggested readings
4.1 Objective
The objective of this lesson is to make the students aware about the
importance of promotion, its meaning, objective and types
4.2 Introduction
Broadly speaking, promotion means to push forward or to advance an
idea to gain its acceptance and approval. Promotion is any
communicative activity whose main object is to move forward a product,
service or idea in a chain of distribution. It is an effort by a marketer to
inform and persuade buyers to accept, use, recommend, and repurchase
the idea, good or service which is being promoted. Thus, promotion is a
form of communication with an additional element of persuasion. The
promotional activities always attempt to affect knowledge, attitudes,
preferences, and behavior of recipients i.e. buyers.
In any exchange activity, communication is absolutely necessary. The
company may have the best product, package etc. but still people may
not buy the product if they haven’t heard of it. The marketer must
communicate to his prospective buyers and provide them with adequate
information in a persuasive language. People must know that the right
product is available at the right place and at the right price. This is the
job of promotion in marketing.
Thus promotion is the process of marketing communication involving
information, persuasion and influence. Promotion has three specific
purposes.
1. It communicates marketing information to consumers, users, and
prospects.
2. Besides just communication, promotion persuades and convinces
the buyers.
3. Promotional efforts act as powerful tools of communication.
Providing the cutting edge to its entire marketing programmed.
Thus promotion is a form of non-price competition.
Promotion is thus responsible for awakening and stimulating demand,
capture demand from rivals and maintaining demand for products even
against keen competition.
Every company can choose from the following tools of promotion,
popularly known as the promotion-mix variables:
1. Advertising,
2. Sales Promotion,
3. Personal Selling,
4. Public Relations
4.3 Advertising
Advertising is perhaps the most important tool of promotion that
companies use to direct persuasive communications to target buyers and
publics. Advertising is defined by the American Management Association
as “any paid form of non-personal presentation and promotion of ideas,
goods or services by an identified sponsor”. Advertising through various
media like magazines, newspapers, radio, television, outdoor displays
etc., has many purposes: “long-term build-up the organization’s
corporate image (institutional advertising), or long-term build-up of a
particular brand (brand advertising), information dissemination about a
sale, service or event (classified advertising), announcement of a special
sale (sale or promotional advertising) and advocacy of a particular cause
(advocacy advertising”.
Organizations obtain their advertising in different ways. In small
companies, advertising is handled by someone in the sales or marketing
department who works with an advertising agency.
Large companies on the other hand, set up their own advertising
departments, whose job is to develop the total budget, approve
advertising agency ads and campaigns, dealer displays etc.
In developing an advertising programmed, marketing managers must
always start with the identification of the target market and buyer
motives then proceed to make the five major decisions in developing
advertising programmed, known as the five Ms:
1. What are the advertising objectives (Mission)
2. How much can be spent (Money)
3. What message should be sent (Message)
4. What media should be used (Media)
5. How should the results be evaluated (Measurement)
4.3.1. Setting the advertising objectives
The first step in developing an advertising programme is to set the
advertising objectives. These objectives must flow from prior decisions on
the target market, market positioning and marketing mix. The objectives
can be classified on the basis of the aim which can be either to (a) inform
the target about the product features, performance, service available, a
price change or new uses etc. (called informative advertising) or (b) to
persuade the prospect to may be remain brand loyal, or switch brands,
or to purchase now etc. (called persuasive advertising) or (c) to remind
the buyer or the prospect about the product or its features, price where
to buy it from etc. (called reminder advertising).
The choice of the advertising objectives should be based on a thorough
analysis of the current marketing situation, e.g. if the product has
reached its maturity stage in its product-life cycle, and the company is
the market leader, and if the brand usage is low, the proper objective
should be to stimulate more brand usage (as in the case of colgate
toothpaste or surf). On the other hand, if the product is new and at the
introduction stage of the PLC and the company is not a market leader,
but its brand is superior to the leader, (as in the case of captain cook
salt) then the proper objective may be to convince the prospects about
the brands superiority.
4.3.2. Deciding on the advertising budget
After determining the objectives, the company can proceed to establish
its advertising budget for each product. Every company would like to
spend the amount required to achieve the sales goal. But how should it
decide how much to spend on advertising. There are several methods
from which a company can choose from while deciding on how much to
spend:
(a) What-all-you-can-afford method: Many companies set the
promotion budget at what they think the company can afford.
However, this method completely ignores the role of promotion as
an investment and the immediate impact of promotion on sales
volume. It leads to an uncertain annual promotion budget.
(b) Percentage of sales method: Many companies set their promotion
expenditure at a specified percentage of sales (either current or
anticipated). A number of advantages are claimed for the
percentage of sales method. First, it means that promotion
expenditures would vary with what the company can “afford”.
Second, it encourages management to think in terms of the
relationship between promotion cost, selling price and profit per
unit. Third, it encourages competitive stability to the extent that
competing firms spend approximately the same percentage of their
sales on promotion.
(c) Competitive parity method: Some companies set their promotion
budget to achieve parity with their competitors. Two arguments
have been advanced for this method. One is that the competitors’
expenditures represents the collective wisdom of the industry and
second is that maintaining a competitive parity helps prevent
promotion wars.
(d) Objective-task method: This method calls upon marketers to
develop their promotion budgets by defining their specific
communication objectives, determining the tasks that must be
performed to achieve these objectives, and estimating the costs of
performing these tasks. The sum of these costs is the proposed
promotion budget. This method has the advantage of requiring
management to spell out its assumptions about the relationship
between the amount spent, exposure levels, trial rates and regular
usage.
4.3.3. Deciding on the massage
Many studies on ‘sales effect of advertising expenditures’ neglects the
message creativity. One study found that the effect of the creativity factor
in a campaign is more important than the amount of money spent. Only
after gaining attention can a commercial help to increase the brand’s
sales.
Advertisers go through the following steps to develop a creative strategy-
message generation, message evaluation and selection and message
execution.
Message Generation: In principle, the product’s message (theme,
appeal) should be decided as part of developing the product concept; it
expresses the major benefit that the brand offers. Creative people use
several methods to generate possible advertising appeals. Many creative
people proceed inductively by talking to consumers, dealers, experts and
competitors. Consumers are the major source of good ideas. Their
feelings about the strength and shortcomings of existing brands provide
important clues to creative strategy.
How many alternative ad themes should the advertiser create before
making a choice? The more the advertisements created, the higher the
probability that the agency will develop a first-rate appeal. Yet, the more
time it spends on creating ads, the higher the costs. Thus, there must be
some optimal number of alternative ads that an agency should create
and test for the client.
Message Evaluation and Selection: The advertiser needs to evaluate
the alternative messages. A good ad normally focuses on one central
selling proposition without trying to give too much product information,
which dilutes the ad’s impact. Messages should be rated on desirability,
exclusiveness and believability. The message must first say something
desirable or interesting about the product. The message must also say
something exclusive or distinctive that does not apply to every brand in
the product category. Finally, the message must be believable.
Message Execution: The impact of the message’ depends not only upon
‘what is said’ but also on ‘how it is said’. Some ads aim for rational
positioning (designed to appeal to the rational mind) e.g. Surf-washes
clothes whitest, whereas other advertisements aim for emotional
positioning, which appeal to the emotions of love, tenderness, care etc.
The choice of headlines, copy and so on, can make a difference to the
ad’s impact. The advertiser usually prepares a copy strategy statement
describing the objective, content, support and tone of the desired ad.
Creative people must find a style, tone, words, and format for executing
the message. All of these elements must deliver a cohesive image and
message. Since few people read the body copy, the picture and headline
must summarize the selling proposition.
A number of researchers of print advertisements report that the picture,
headline, and copy are important in this order. The reader first notices
the picture and hence it must be strong enough to draw attention. Then
the headline must be effective in propelling the person to read the copy
which itself must be well composed. Even then, a really outstanding ad
will be noted by less than 50% of the exposed audience, about 30% of the
exposed audience might recall the headline’s main point, about 25%
might remember the advertiser’s name and less than 10% will have read
most of the body copy.
4.3.4. Deciding on the media
The advertiser’s next task is to choose advertising media to carry the
advertising message. The steps are deciding on desired reach, frequency
and impact, choosing among major media types, selecting specific media
vehicles, and deciding on media timing.
(a) Deciding on reach frequency and impact: Media selection is the
problem of finding the most cost-effective media to deliver the
desired number of exposures to the target audience. But what do
we mean by the desired number of exposures? Presumably, the
advertiser is seeking a certain response from the target audience-
e.g. a certain level of product trial. The impact of exposures on
audience awareness depends on the exposure’s reach, frequency
and impact.
Reach (R): The number of different person or households exposed
to a particular media schedule at least once during a specified time
period.
Frequency (F): The number of times within the specific time
period that an average person or household is exposed to the
message.
Impact (I): The qualitative value of an exposure through a given
medium e.g. a woman’s product in Femina would have a higher
impact than in the Dalal Street).
(b) Choosing among Major Media Types: The media planner has to
know the capacity of the major media types to deliver, reach,
frequency and impact. The major media types are newspapers,
television, direct mail radio, magazines, and outdoor.
Media planners make their choice among these media categories
by considering several variables, the most important ones being
the following:
Target-Audience Media Habits: e.g. television and radio are the
most effective media for reaching teenagers.
Product: Women’s dressers are best shown in colored magazines.
Massage: A message announcing a major sale tomorrow will
require radio or newspapers.
Cost: Television is very expensive, whereas newspaper advertising
is comparatively much cheaper. What counts are the cost per
thousand exposures and not the total cost?
(c) Selecting specific media vehicles: Now the media planner
searches for the most cost-effective media vehicle. There are
hundred of magazines and newspapers specially targeted at special
audience which a planner chooses from. Similarly on the television
media, there are several channels and programmes from which a
choice can be made. However, every media vehicle entails a certain
cost and has certain customer coverage. How to select the most
cost-effective media is done using the “Cost-Per-Thousand
Criterion” e.g. if a full page, four color advertisement in India Today
costs Rs. 80,000/- and has a readership of 20 lac people, the cost
of reaching each one thousand persons is approximately Rs. 40/-
The same advertisement in Business Today may cost Rs. 25,000
but reach only 50,000 people, the cost per thousand people would
be approximately Rs. 500/. Similarly, the media planner would
rank reach magazine by cost per thousand and favor those
magazines with the lowest cost per thousand for reaching the
target consumers.
Media planners are increasingly using more sophisticated
measures of media effectiveness and employing them in
mathematical models for arriving at the best media-mix. Many
advertising agencies use computer programmes to select the initial
media and then make further improvements based on subjective
factors cited in the model.
(d) Deciding on media timing: The advertiser faces a macro
scheduling problem and a micro scheduling problem.
Macro-scheduling Problem: The advertiser has to decide how to
schedule the advertising in relation to seasonal & business cyclic
trends. Suppose 70% of a product’s sales occur between June &
September, the firm has three options-either it could follow the
seasonal pattern, to oppose the seasonal pattern or to be constant
throughout the year.
Micro-scheduling Problem: The micro scheduling problem calls
for allocating advertising expenditures within a short period to
obtain the maximum impact.
4.3.5. Evaluating advertising effectiveness
Good planning and control of advertising depends critically on measures
of advertising effectiveness. Most advertisers try to measure the
communication effect of an ad that is its potential effect on awareness,
knowledge or preference. They would like to measure the sales-effect but
often find it is too difficult to measure. Yet both can be researched.
Communication-Effect Research: Communication-effect research seeks
to determine whether an ad has been able to communicate effectively i.e.
copy testing. It can be done before an ad is put into media and after it is
printed or broadcast.
There are three major methods of advertising pre-testing:
(a) Direct-rating method: Which asks consumers to rate alternative
ads?
(b) Portfolio tests: entail a group of consumes to view and/or listen
to a portfolio of advertisements and then they are asked to recall
all the ads and their content, aided/unaided by the interviews.
(c) Laboratory tests: use equipment to measure consumer’s
physiological reactions-heartbeat, blood pressure, pupil dilation
etc. which measures the ad’s attention-getting power.
Sales Effect Research: Communication-effect advertising research helps
advertisers assess advertising’s communication effects but reveals little
about its sales impact.
Advertising’s sales effect is generally harder to measure than
communication effect. Sales are influenced by many factors besides
advertising, such as the product’s features, price, availability &
competitors’ actions. Researchers try to measure sales impact through
analyzing either historical or experimental data. The historical approach
involves correlating past sales to past advertising expenditures on a
current basis using advanced statistical techniques. Other researchers
use experimental design to measure the sales impact of advertising.
Instead of spending the normal percentage of advertising to sales in all
territories, the company spends more in some territories and less in
others. These are called high-spending and low-spending tests. If the
high-spending tests produce substantial sales increases, it appears that
the company has been under spending. If they fail to produce more sales
and if low-spending tests do not lead to sales decreases, then the
company has been overspending. These tests, of course, must be
accompanied by good experimental controls.
4.3.6. Advertising agencies and profile of advertising in
India
Today, the advertising job has become so complex and large, that
normally no business firm chooses to handle the function directly. They
employ the services of advertising agencies. These agencies carry forward
the task of planning, execution and evaluation of the promotional
campaigns of companies.
Stanton has defined an advertising agency as “an independent company
rendering specialized services in advertising in particular and marketing
in general.” They are independent concerns working as a specialist, an
agent or consultant of the advertiser. They perform all activities right
from preparation and development of advertising copy to the evaluation
of the effectiveness of the advertising programme.
Advertising agencies render a lot of services to advertisers like
1. Copy writing,
2. Photographing,
3. Media planning,
4. Buying of space,
5. Marketing research,
6. Public relations,
7. Merchandising,
8. Sales promotion,
9. Forwarding the advertising material etc.
All these specialized services help the advertisers in raising the
effectiveness of advertising.
Advertising in the Indian perspective
In a country like India, where we find diverse languages, low-income
levels, large-scale illiteracy, the growth in advertising has also been slow
as a natural consequence. An experienced marketing man in India feels
that the greatest difficulty in India is to find a common link of
communication for the entire country. The advertising campaigns are
usually not conceived in Indian languages and are often translations of
the original advertisement in English. The advertising themes lack Indian
images, associations and expressions. India being a country of villages,
the ultimate task before the advertising men is to make the advertising
appeal simple. No doubt to reach and influence the rural market is a
challenge.
However, in the yester decades, we find multifaceted changes in our
socio-economic set-up, an increase in the pace of industrialization & an
increase in the level of income of the general masses. We also find
satisfactory developments in the field of education and all these
developments have paved wider avenues for advertisements. The
technological sophistication in the field of mass communication has also
been instrumental in making the advertising come of age.
Indian advertising practices are under-going a see-saw change and the
credibility would probably be to the rising tempo of industrialization in
all the sectors of the Indian economy. Of late, the Indian businessmen
have learnt to appreciate and visualize the social responsibility of
business. Hence, it is pertinent that advertising is given new orientation.
With these developments, advertising has become a communication
device as well as an indispensable weapon in the armory of today’s
business. Even the area of advertising research needs special attention.
Advertising thus is a sensitive tool of promotion-mix with a very wide
coverage and now that the level of consumerism and competition is
reaching its peak in India too, business houses have understood that
they need the effective tool of advertising to promote the special selling
proposition of product to their prospects.
4.4 Sales Promotion
“Sales Promotion is a direct and immediate inducement that adds an
extra value to the product so that it prompts the dealers, distributors or
the ultimate consumers to buy the product.”
According to the American Marketing Association, “Sales promotion
means to give short term incentives to encourage purchase or sale of a
product or service. Sales promotion includes those activities that
supplement both personal selling and advertising, and co-ordinate them
and help to make them effective, such as display, shows and expositions,
demonstrations and other non-recurrent selling efforts not in the
ordinary routine”.
Sales promotion helps in solving the short-term problems of the
marketing manager, the impact of these methods is not very lasting or
durable and the results of these efforts are not as lasting as those of
advertising and personal selling. Sales promotion is more of a catalyst
and a supporting communication effort to advertising and personal
selling.
4.4.1. Objectives of sales promotion
Sales promotions, as a tool of communication and promotion, fulfils the
following objectives:
(a) Sales promotion helps in introducing new products.
(b) It also helps in overcoming any unique competitive situation.
(c) It is useful for unloading the accumulated inventory or stock of the
goods in the market.
(d) It can be used for overcoming the seasonal slumps in sales.
(e) Sales promotion helps in getting new accounts i.e. clients or
customers.
(f) It helps in retrieving the lost accounts.
(g) It acts as a support and supplement to the advertising effort.
(h) It also acts as a support and supplement to the salesmen’s efforts.
(i) It aims at persuading salesmen to sell the full line of the products
and not just concentrate on a few products.
(j) It helps in persuading the dealer to buy more stock from the
company i.e. to increase the size of the order.
(k) Its objective is to create a stronger and quicker response from the
consumers.
(l) It also helps to boost dropping sales of any product of the
company.
4.4.2. Sales promotion techniques
The sales promotion techniques or tools have three distinctive features:
(a) Communication- Sales promotion attracts the attention of the
consumer and gives him such information that he is led to the
product or service.
(b) Incentive: they give some incentive, concession, inducement or
contribution that gives added value to the consumer.
(c) Invitation: They give a distinct invitation to the consumer to enter
into a transaction with the dealer or the company.
The various tools or techniques of sales promotion can be described
below:
1. Sales promotional letters: Several companies utilize the medium
of letters for sales promotion. These letters serve different
purposes. Some times they are used to give information about the
company's products, at other times; they are used as reminders for
the customers to continue to buy a particular brand. Some letters
seek information from the customers regarding various aspects of
their purchases.
2. Point of purchase (POP) displays: This is the most widely used
sales promotional tool. Various kinds of display materials like
posters, danglers, stickers, mobile wobblers and streamers are
used at the retailer's outlet to induce customers to purchases. POP
displays are generally useful in the case of products like liquors for
which advertising is prohibited. At times, to enhance the display
effect, manufacturers use different approaches such as illuminated
designs and motion displays etc. companies use the technique of
mass display within the limited space available in the retail store.
The stocks are artistically arranged to gain maximum attention.
Displays of various types such as window displays, wall display,
counter displays or floor displays are also used. The retailer's role
is very important from the point of view of displays.
3. Customer service programmes: At times, the company organizes
and conducts customer service programmes or camps with the aim
of providing service to the customers at different points of
purchase.
4. Demonstrations: Companies do product demonstrations for sales
promotion, especially when they are introducing a new product in
the market. Demonstrations are usually used for low unit price
products like washing powder or high unit price products like
washing machines and vacuum cleaners. Demonstrations may be
organized at the retail stores by the company salesmen for the
benefit of retailers as well as consumers. Door to door
demonstrations and institutional demonstrations are also
considered to be highly specialized form of sales promotion.
Sometimes demonstrations are organized for influential people
such as journalists, mediamen, opinion leaders, etc, who are
invited to see the demonstration of the product. Demonstration is a
good sales promotion technique which involves the cooperation of
the sales representatives and the prospective customers.
5. Free samples: Free samples of the product are offered to persuade
the consumers to try them out. By offering free samples to a large
section of the new market, a company seeks to gain an entry into
that market. For using this tool, the product should be of low cost
and subject to frequent purchases. e.g., soaps, detergents,
toothpastes, tea, etc.
6. Contests: Contests of various kinds are also commonly used as
sales promotion tool. There are dealer contests which are
exclusively for the dealers of the company and consumer contests
for the general public. Companies spend a large amount of money
on these contests because they have to be publicized widely and
the expenditure on the attractive prizes is also to be covered.
Consumer contests may be in the form of quiz contests, beauty
contests, scooter and car rallies, lucky draws, suggesting a brand
name, writing a slogan, suggesting a logo, etc. The consumer has
to be induced to get interested in the contest and purchase the
product associated with it.
7. Premiums and free offers, price-off schemes and installment
offers: In the Indian markets today, these tools are being used
extensively by different companies. A premium offer is given for a
particular product and alongwith it is a free offer of another
product to be given free to anybody buying the product, for e.g., an
Arial bar free with a pack of Arial washing powder.
Price-off schemes are also introduced by different companies from
time to time. e.g. Kelvinator and Allwyn refrigerators, Hawkins
pressure cooker, etc. Other companies give the installment offer to
the consumer for buying their product which is usually high priced
and give the consumers the facility of paying a certain amount of
money as down payment and pay the balance amount in a
specified number of equal installments. This sales promotion
measure has been found to be very effective.
8. Coupons: These are certificates which promise price reduction to
consumer on specified items. Coupons generally perform specific
functions for the company. Firstly, they encourage the consumers
to make use of the bargain offered and secondly they also serve as
an inducement to the channel members for stocking the items of
that company. Coupons may be distributed through newspaper
and magazine advertisements or by direct mail or along with the
package consisting the product. Coupons are generally used while
introducing a new product or for strengthening the image of the
product.
9. Catalogues: Catalogues carry essential information on the
products offered by the company. A well-designed catalogue carries
complete information relating to the products, their pictures, size
specifications, colours, packing, uses and prices. The products are
listed and indexed properly in order to facilitate order booking and
processing.
10. Trade fairs and exhibitions: These tools are based on the premise
that 'seeing is believing' and are extensively used. These fairs and
exhibitions provide the companies with the opportunity of
introducing and displaying their products. This brings the
company's products and consumers in direct contact with each
other. Trade fairs and exhibitions are very effective in international
marketing and a lot of trade orders and enquiries are generated at
the international level also.
11. Gifts: Companies also distribute gifts to people like customers,
dealers and other influential people. These gifts may include pens,
pencils, calendars, diaries, decoration pieces, etc. The gifts
generally carry the company's name and logo. These gifts are
intended to create goodwill amongst the various people towards the
company and indirectly help in furthering the sales of the
company.
12. Sponsoring major national and international events:
Companies associate themselves with the major national and
international events such as sports like cricket, hockey, tennis,
golf, etc. The business houses generally sponsor the event as a
whole or may associate themselves with specific aspects of the
events. e.g., companies of soft drinks, cigarette manufacturers, etc.
The purpose behind sponsoring is to remain a part of the news and
got the best of sales promotional efforts in the form of benefits.
4.5. Personal selling
It is essential to communicate, persuade and motivate the target
customers in order to make the product and price known and acceptable
to the target consumers. For this, personal selling is adopted as an
effective tool. The company's sales persons who may be referred to as the
salesmen or sales representatives or sales executives, who are on its
payroll, communicate with the target consumers, so as to make an order
of sale and motivate them to positively respond to it and finally to clinch
the deal. According to the American Marketing Association, “Personal
selling can be defined as an oral presentation, in conversation with one
or more prospective purchasers, for the purpose of making sales”.
According to F.E. Webster, Jr. "Personal selling is a highly distinctive
form of promotion. Like other forms of promotion, personal selling is
basically a method of communication, but unlike others it is a two-way,
rather than unidirectional communication. It involves not only the
individual but social behaviour. Each of the persons in face-to-face
contact, salesman and prospect influences the other. The outcome of
each sales situation depends heavily upon the success that both the
parties experience in communicating with each other and reaching a
common understanding of needs and goals. The main task involved in
personal selling is to match specific products with specific consumers so
as to secure transfer of ownership".
According to K.B. Hass- "Personal selling basically consists of the
interpretation of product and service features in terms of benefits and
advantages to the buyer and of persuading the buyers to buy the right
kind and quantity of the product."
Objectives of personal selling
Personal selling helps in the following major areas:
1. To improve the sales volume of the company's different products.
2. To ensure the proper mix of products in the total sales volume.
3. To increase the market share of the company.
4. To increase the profits of the company.
5. To reduce the overall selling expenses.
6. To gain new accounts and improve business growth.
7. It helps in the appointment of dealers and expansion of the
distribution channel.
8. To secure channel members co-operation in stocking as well as
selling the products of the company.
9. To achieve the desired proportion of cash and credit sales.
10. To provide pre-sale and after-sale services.
11. To train the dealers and customers.
12. To assist and support other promotional measures.
13. To help in collecting the amounts due from the market.
14. To help in gathering and reporting marketing intelligence.
4.6. Public relations
Public relations is a very important and resourceful tool of the promotion
mix.
According to Kotler, “Public relations induces a variety of programmes
designed to improve, maintain or protect a company of product image.
e.g., through press conferences, seminars, speeches, annual reports,
charitable donations, etc.”
The major tools in public relations are (i) publications: annual reports,
brochures, articles, company magazines and news letters. (ii) events:
special events like news conference, anniversary celebration of the
company, sponsoring sports and cultural events. (iii) News: the
companies find and create favorable news (iv) speeches: by company
executives at trade associations, sales meetings, etc. (v) identity media:
companies also use such devices as company logos, stationery, business
cards, uniforms, etc., which help in identifying the company.
Public relations (PR) is another important marketing tool, which until
recently, was treated as a marketing step-child. The PR department is
typically located at corporate headquarters; and its staff is so busy
dealing with various publics- stockholders, employees, legislators,
community leaders- that PR support for product marketing objective
tends to be neglected.
Objectives of public relations
1. Social awareness can be created through the PR promotion
plan, regarding a product, service, person, organizer, etc.
2. It helps to build credibility by communicating the message
for example, in editorials of newspapers, etc.
3. It assists in the launch of new products.
4. It assists in repositioning of a product.
5. It helps in building up consumer interest in a particular
product category.
6. It also helps in influencing the specific target groups.
7. Public relations help to define products that have faced
problems or complaints from the public.
8. It helps to build the corporate image in such a way that it
projects favorably on its products.
PR department perform following activities:
Press relations- The aim of press relations is to place newsworthy
information into the news media to attract attention to a person,
product or service.
Corporate communication- This activity covers internal and
external communications and promotes understanding of the
organization.
Lobbying- It involves dealing with legislators and government
officials to promote or defeat legislation and regulation.
Counseling- Counseling involves advising management about
public issues and company position and image.
4.7 Summary
Promotion is one of the most important components of company's overall
marketing mix. The methods of promotion are— advertising, sales
promotion, personal selling and public relations. The purpose of
promotion is to inform, persuade, and remind customers. It must be
integrated into firm’s strategic planning because effective execution
requires that all elements of marketing mix-product, price, place and
promotion- be coordinated. While deciding on the promotional mix
(combination of advertising, sales promotion, personal selling and public
relations), management should consider – the nature of the market and
product, the stage of the product's life cycle and funds available for
promotion. The key to a successful promotional campaign is to carefully
plan and coordinate all the components of promotion.
4.8 Key words
Presumably: it may be presumed (suppose to be true)
Retrieving: regain possession of, bring back
4.9 Self Assessment Exercise
1. Discuss in brief the role of promotion in marketing effort of a
company. Also write a short note on public relations.
2. What is advertising? How advertising budget is decided? What are
different advertising media?
3. Define personal selling and discuss its objectives.
4. What is sales promotion? Discuss in brief some important tools of
sales promotion.
4.10 Suggested Readings
1. Stanton, Etzel and Walker- Fundamentals of marketing (TMH)
2. Philip Kotler- Marketing Management (PHI)
3. Philip Kotler and Armstrong- Principles of marketing (PHI)
4. Ramaswamy and Namakumari- Marketing management
(Macmillan)
Author: Anju Verma
Course Code: Vetter: Dr B S Bodla
Lesson: 05
BRAND EVALUATION AND NEW TRENDS IN MARKETING
Structure
5.0 Objectives
5.1 Introduction- Brand evaluation, the concept and applications of brand
evaluation
5.2 Developing new brands
5.3 New Trends in marketing
5.4 Experiential marketing
5.5 Integrated marketing
5.6 Summary
5.7 Key words
5.8 Self Assessment Exercise
5.9 Suggested Readings
5.0 Objective – This lesson is intended to elicit information regarding
brand valuation. As the brand lies in the center of marketing activities.
Consumers no longer want just a product or service but a relationship on
trust and familiarity. The focus is also on the steps to develop new
brands. Brand equity developed by brand awareness, familiarity and
unique brand association. The changing economic environment leads to
contribute certain new trends in marketing viz. experiential marketing,
permission marketing and integrated marketing. The aim of this lesson is
to make aware students about these new concepts of marketing in very
easy and interesting way.
5.1 Introduction-BRAND EVALUATION –THE CONCEPT AND
APPLICATION OF BRAND EVALUATION
5.1.1 BRAND
A brand is a name or a symbol - and its associated tangible and emotional
attributes - that is intended to identify the goods or services of one seller in
order to differentiate them from those of competitors. At the heart of a brand
are trademark rights.
5.1.2 BRAND EVALUATION
A brand designates a product or service as being different from competitors'
products and services by signaling certain key values specific to a particular
brand. It is the associations which consumers make with the brand that
establish an emotional and a rational 'pact' between the supplier and the
consumer. This pact is an ongoing relationship between the supplier and
consumer, and because of this, brands provide a security of demand that the
supplier would not enjoy if they did not own the brand. This security of
demand means a security of future brand earnings, and this is what defined
as brand evaluation.
5.1.3 ORIGIN OF BRAND EVALUATION
Ten years ago Interbrand conducted the first ever brand valuation for Rank
Hovis McDougal(RHM). This exercise succeeded in putting the worth of the
company's brands as a figure on the balance sheet. RHM's management
wanted this information to fight a hostile takeover bid. With the brand value
information, the RHM board was able to go back to investors and argue that
the bid was too low, and eventually repel it.
It was the wave of brand acquisitions in the late 1980's that exposed the
hidden value in highly branded companies and brought brand valuation to
the fore. Some of these acquisitions included Nestlé buying Rowntree,
United Biscuits buying and later selling Keebler, Grand Metropolitan buying
Pillsbury and Danone buying Nabisco's European businesses. All these
acquisitions were at high multiple price tags.
The amount being paid for the acquisition of a strongly branded company
was increasingly higher than the value of the company's net tangible assets.
This resulted in huge levels of 'goodwill' arising on acquisition. This
'goodwill' actually disguised a mix of intangible assets - brands, copyrights,
patents, customer loyalty, distribution contracts, staff knowledge, etc.
An Interbrand study of acquisitions in the 1980s showed that, while in 1981
net tangible assets represented 82% (on average) of the amount bid for
companies, by 1988 this had fallen to just 56%. It became clear that
companies were being acquired less for their tangible assets and more for
their intangible assets.
5.1.4 NEED FOR BRAND EVALUATION
Although public perceptions of brand valuation are often focused on balance
sheet valuations, the reality is that the majority of valuations are now
actually carried out to assist with brand management and strategy.
Companies are increasingly recognizing the importance of brand
guardianship and management as key to the successful running of any
business.
The values associated with the product or service is communicated through
the brand to the consumer. Consumers no longer want just a service or
product but a relationship based on trust and familiarity. In return businesses
will enjoy an earnings stream secured by loyalty of customers who have
'bought into' the brand.
5.1.5 METHODS OF BRAND EVALUATION
Today, a widely accepted method of valuing a company or business is to
discount the profit or cash flows it produces to a net present value. A similar
approach can be used for brands. The profit streams produced by the brand
are discounted to their net present value using a discount rate which reflects
the riskiness of those income streams being realized i.e. which reflects the
strength of the brand - the drivers of those profit streams.
Interbrand, the original pioneers of Brand Valuation employ an economic
use method, which is the most widely accepted and has made Interbrand a
worldwide authority in this field. It is based on the premise that brands,
when well managed, affect the way that consumers behave in the market and
the brand owner derives an economic benefit as a result.
Interbrand bases its valuation method on this concept of economic use and
the fundamental question: how much more valuable is the business because
it owns certain brands? It is thus a marketing measure that reflects the
security and growth prospects of the brand and a financial measure that
reflects the earnings potential of the brand.
Given this concept of economic worth, the value of a brand reflects not only
what earnings it is capable of generating in the future, but also the likelihood
of those earnings actually being realized. Broadly speaking Interbrand's
brand valuation methodology comprises four elements:
1. Financial Analysis - To identify business earnings and 'Earnings
from Intangibles' for each of the distinct segments being assessed.
2. Market Analysis - To measure the role that a brand plays in driving
demand for services in the markets in which it operates and hence to
determine what proportion of Earnings from Intangibles are
attributable to the brand (this is measured by an indicator referred to
as the 'Role of Branding Index').
3. Brand Analysis - To assess competitive strengths and weaknesses of
the brand and hence the security of future earnings expected from that
brand (this is measured by an indicator referred to as the 'Brand
Strength Score').
4. Legal Analysis - To establish that the brand is a true piece of
'property' Brand valuation techniques originally developed in response
to mergers and acquisitions activity: valuing the brands owned by a
company to help calculate the true value of the business.
5.1.6 APPLICATIONS OF BRAND EVALUATION
External investor relations
Mergers and acquisitions were the original driving force for brand valuation.
Now many successful companies use brand valuation as an ongoing business
performance indicator: to help ensure that brand strength is reflected in share
value. (And in many markets the relevant accounting standards allow brands
to be shown as assets on the balance sheet).
Internal marketing management
Brand valuation is increasingly being used as a management tool in leading
organizations. For example: brand valuation figures can be used to evaluate
new product and market development opportunities, to set business
objectives, allocate budgets and to help measure performance and reward
staff.
Internal royalty rates
Across a large organization there may be many affiliates, subsidiaries or
divisions that make use of any particular brand. As the profit potential of
brands becomes more clearly understood more companies are charging
royalties, across their business operations, for the use of these brand assets.
Licensing and franchising
Where companies allow outside organizations to use their brand, on a
licensing or franchising basis, a brand valuation can lay the foundation for
appropriate charges.
Tax planning
As the management of brands as financial assets becomes more
sophisticated, so tax authorities around the world have started to take an
interest in how these assets are managed. The result is that more and more
international organizations are planning the most cost-effective domicile for
their brand portfolios and are organizing their tax affairs with their brands in
mind.
Securitized borrowing
Even in the conservative world of banking, the asset value of brands has
been recognized. As a result brands have been used to secure loans,
especially in the US, where companies such as Disney have borrowed
significant amounts of money against their brand name.
Litigation support
Brand valuations have been used to support litigation against the illegal use
of a brand name (as a basis for calculating damages, for example) and also in
cases of receivership, to prevent the assets of the business being
undervalued.
5.1.7 BENEFITS OF BRAND EVALUATION
Valuation has various intangible and tangible benefits.
Intangible benefits of brand valuation
1. Enhances Confidence: Brand credibility shows the faith & confidence
of public at large in the product, Valuation if reflected in the books of
accounts further enhances the public loyalty to the product and hence
becomes a force multiplier.
2. Indicator of effective utilization: The value in the brand building is
generated in the reverse direction when compared to the capital
expenditure. We invest in capital expense today and utilize the
proportionate investment every year, which we write off in the form
of depreciation or amortization, whereas the expenditure in brand
building is incurred in installments and is converted into valuable
asset over a period of time. The expenditure is considered as revenue
expense due to accounting and taxation provision which really is not
so, hence valuation gives us the real effective worth, which we have
created over the years through brand building and hence becomes an
indicator as to how effectively we have utilized the expenditure.
3. Credibility to the real worth: If you valuate your brand only at the
time of disposal it has a lesser influence and will always leave a doubt
of its real worth, in the mind of both the buyer as well as the seller
where as if the brand is continuously valued has a different impact and
gives much more creditability to the real worth.
4. Strategy development: Companies are applying brand valuation
techniques in order to understand and manage their brands better.
Brand valuation involves a detailed examination of a brand from
marketing point, a financial and legal prospective. It also examines the
brand performance, prospective, market opportunity, and competition.
It thus provides an excellent tool for strategy development.
Tangible benefits of brand valuation
1. Merger & Acquisition: It is of critical importance for an acquirer, as
well as for the vender to understand and evaluate their real worth for
negotiating the correct price.
2. Disposal: The current focus on brands has led many companies to
recognize that they cannot support properly all their brands or
certain brands could be worth more to a third party than to their
current owner. Brand evaluation technique can be used to judge
which brand to dispose of and their possible economic worth to a
third party.
3. Licensing: Brand licensing, either to third parties or internally to its
own subsidiary, is am increasingly common practice. Brand
valuation assists in formulating this strategy.
4. Fund Raising: Brand valuation are playing an increasing prominent
role in the area of fund raising, particularly from the public as brand
represent robust asset against which to seek funds is much easier.
5. Discount Rate: Robust strength also assists in arranging the large
funds at lower cost.
5.2 DEVELOPING NEW BRANDS
Customer based brand equity occurs when the consumer has a high
level of awareness and familiarity with the brand and holds some strong,
favourable and unique brand associations in memory. In some cases, brand
awareness alone is sufficient to get a favourable response from consumer.
But in most cases, the brand strength, favorability and uniqueness of the
brand associations play a critical role.
5.2.1 SOURCES OF BRAND EQUITY
Brand Awareness: It consists of brand recognition and brand recall
performance. Brand recognition is capability of consumer to identify brand
among a variety of brand. And brand recall is the capability of consumer to
collect information about brand from memory when a product category is
given to him.
Brand Image: It is the impression about the brand before any consumer. It
can be either positive or negative. A positive brand image can be created by
marketing programs that link strong, favourable and unique association to
brand in memory. Consumer beliefs about brand attributes and benefits can
be formed in different ways. Brand attributes are those descriptive features
are the personal value and meaning that consumers attach to the product or
service. Brand benefits are the personal value and meaning that consumers
attach to the product or service attributes. These two factors are the strength
of the brand association. Then comes, favorability of brand association. This
is created by convincing consumer that the brand possesses relevant
attributes and benefits that satisfy their needs and wants. Lastly, uniqueness
of brand associations. The essence of brand positioning is that the brand has
a sustainable competitive advantage or “unique selling proposition” that
induces consumer to buy a particular brand.
5.2.2 BUILDING A STRONG BRAND- THE FOUR STEPS
The steps are as follows:
1. Ensure identification of the brand with consumers and an
association of the brand in customers mind with a specific product
class or consumer need.
2. Firmly establish the totality of brand meaning in the mind of
consumers by strategically linking a host of tangible and intangible
brand associations with certain properties.
3. Elicit the proper customer responses to this brand identification
and brand meaning.
4. Convert brand response to create an intense, active loyalty
relationship between customers and the brand.
5.2.3 BRAND BUILDING BLOCKS
Performing the four steps as mentioned in fig. 5.2.3 is a complicated and
difficult process. To provide some structure, it is useful to think of
sequentially establishing six “brand building blocks” with customers. These
blocks can be assembled in terms of a brand pyramid.
Resonance
Relationships
Brand Salience
It relates to aspects of brand awareness, for example, how often and easily
the brand is recalled under various situations. Brand awareness links the
brand with brand name, logo, and symbol and with certain associations in
memory. So achieving the right brand identity involves creating brand
salience with customers. It helps consumer to identify product category and
making sure that customers know which of their “need” the brands – through
these products – is designed to satisfy.
Brand Performance
The product itself is at the heart of brand equity, because it has the primary
consideration of the consumers experience with brands. What they think and
expect from a product? To create brand loyalty and resonance, the
expectations of consumers must meet favourably. The performance has the
five essential elements to meet the expectations of consumer.
1. Primary characteristics and secondary features
2. Product reliability, durability and serviceability
3. Service effectiveness, efficiency and empathy
J udgments Feelings
Performance Imagery
Salience
Response
Meaning
Identity
Source : Strategic Brand Management by Revin Lane Kellar
Figure 5.2.3: Brand Pyramid
4. Style and design
5. Price
But these attributes vary by product or service category. Some
categories have few features like bread. But some categories have
numerous features; examples are TV, audio system, computer system etc.
Brand Imagery
It deals with the extrinsic properties of the product or service. It is the
way in which the brand attempts to meet consumer’s psychological and
social needs. The basic consideration is on user’s profile, their purchase and
usage situation. Their personality and values. Lastly, history, heritage and
experiences of consumer about brand.
Band Judgment
It focuses on consumer’s personal opinion and evaluation with regard
to the brand. It means how consumers perceive the brand particular from
different brands. They make their judgment by considering ‘brand quality’,
which are defined in terms of over all evaluation of brand calculated by
consumers. The second factor is ‘brand credibility’. This is explained by
three important elements viz perceived expertise, trustworthiness and
liability. It must be competitive and innovative. It must consider the interest
of consumer and finally, the image of manufacturer or company must
associated with brand is good. The other factors are ‘brand consideration’
and brand superiority.’ consideration is more important than awareness. It
must induce or motivate them to think about brand superiority means a
brand must different itself as unique as and better than other available
brands.
Brand feeling
It is defined as the consumer’s emotional responses and reaction with
respect to brand. Brand feelings also relate to the social currency evoked by
brand. The main elements are: (soothing type feeling), Fun (upbeat type of
feelings), Excitement (energetic feelings), security (feeling of safety and
comport), social approval (positive feelings) and lastly self-respect (feeling
of pride and accomplishment).
Brand Resonance
This is the last step of model refers to the extent of intensity, or depth of
psychological bond that customer with brand as well as the level of activity
engendered by this loyalty. Specially, brand resonance can be broken down
into four categories.
1. Behavioural loyalty – repeat purchases
2. Attitudinal attachment – favourable perception
3. Sense of community – a sense of affiliation with other users of
brand
4. Active engagement – strongest affirmation with brand.
5.2.4 CRITERIA FOR CHOOSING BRAND ELEMENTS
In general, there are six criteria in choosing brand elements
1. Memorability
The brand must have a high level of brand awareness. It must be
easily recognizable and easily recalled by consumer.
2. Meaningfulness
Beside brand awareness, a brand must convey the message in
terms of valuable information it must convey general information
about the nature of product category on one side. On other side, it
must provide information regarding specific attribute and benefit
of the brand.
3. Liability
Brand element can be chosen that are rich in visual and verbal
imagery and inherently fun and interesting.
4. Transferability
Up to what extent can the brand element add to the product
category and geographic sense? upto what extent does not element
add to brand equity across geographic boundaries and market
segment?
5. Adaptability
The brand should be changed with the change in consumer values
and opinions as well as taste and preferences for example, logos
and characters can be given a new look or a new design to make
them appear more modern and relevant.
6. Protectability
This is last consideration regarding legal and competitive sense.
The brand elements can be legally protected on an international
basis. The brand formally registers them with appropriate legal
bodies.
5.2.5 TYPES OF BRANDS
Brands are of six types explained as:
1. Descriptive: It explains the functions or provides detailed
information to consumes. Example, Singapore Air lines using
descriptive brands.
2. Suggestive: There are certain brands, which is suggestive of a
benefit or a function. Example, Agilent Technologies.
3. Compound Brand : When brand combines two or more, often
unexpected words, like – red hat
4. Classical: Meritor is an example using Latin, Greek or Sanskrit
language for a brand.
5. Arbitrary: When a real word is used as a brand, but the word does
not have association with company. Example is apple.
6. Fanciful: It is coined word with no obvious meaning. Example –
avanade is a fanciful name with out any proper meaning.
5.2.6 NAMING PROCEDURE
A number of different procedure or systems have been suggested for
naming new products.
1. The first step is to select a brand name for a new product. The
brand selected should have certain objective, ideal meaning and
recognize the role of brand with in the corporate branding
hierarchy.
2. The second step is to generate as many names and concepts as
possible. The names and concepts can be explored by company
management and employees, existing and potential consumers, ad
agencies, professional name consultants or specialized computer
based naming companies.
3. The next step is the screening of names on the basis of objectives
and marketing consideration identified in step-1.
4. The fourth step involves the collection of more extensive
information on each of the final 5 to 10 names.
5. Consumer research is conducted to confirm management
expectations regarding memorability and meaningfulness of the
names through consumer testing.
6. Finally, based on all of the information collected from the previous
step, management can choose the name that maximizes the firms
branding and marketing objectives and then formally register the
name.
Logos and symbols
Although the brand name typically is the central element of the brand, visual
brand elements often play a critical role in building brand equity, especially
in terms of brand awareness. Logos are defined as a means to indicate origin,
ownership. Or association. There are many types of logos, ranging from
corporate names or trademarks written in a distinctive form. Examples of
brands with strong word mark or trademarks include Coca-Cola, Kit-Kat,
where no accompanying logo separate from the name. Examples of abstract
logos include the Mercedes star, Rolex crown and Olympic rings. The non-
word mark logos are often called as symbols.
Characters
Characters represent a special type of brand symbol. Brand symbol. Brand
characters typically are introduced through advertising and can play a central
role in these and subsequent ad. Campaigns and package designs some brand
characters are animated (e.g., Pillsbury’s Poppin Fresh Doughboy), where as
some are live-action characters like the Marlboro cowboy.
Slogans
Slogans are short phrases that communicate descriptive or persuasive
information about the brand. Slogans often appear in advertising but can
play an important role on packaging and in other aspects of the marketing
program.
Jingles
J ingles are musical messages written around the brand. Professional
songwriters typically compose jingles. They often have enough catchy hooks
and choruses to become almost permanently registered in the minds of
listeners. J ingles can be thought of as extended musical slogans and in that
sense can be classified as a brand element. It can communicate brand
benefits and convey product meaning in a musical way.
Packaging
Packaging involves the activities of designing and producing containers or
wrappers for a product. Early humans covered them selves with leaves and
animal skin. Packaging is used to identify the brand and convey descriptive
and persuasive message to consumers. It facilitates transportation and
protection to product. It can be reused home storage. Today, Packaging has
been elevated in its importance and has now become an integral part of
product development and launch.
5.3 NEW TRENDS IN MARKETING
The strategy and tactics behind marketing programs have changed
dramatically in recent years as firms have dealt with the enormous shift of
the “new economy” in their external marketing environment. Changes in
economic, technological, political – legal, sociocultural, and competitive
environments have compelled marketers to develop new approaches and
philosophies. Kotler identifies five major forces of this new economy.
1. Digitalization and connectivity through Internet, Intranet and
mobile services.
2. Disintermediation and reintermediation via new middlemen of
various sorts.
3. Customization and customization through tailored products and by
providing customers ingredients to make products themselves.
4. Industry convergence through the blurring of industry boundaries.
5. New customers and company capabilities.
In the face of tighter budgets and the general demand for greater
effectiveness in marketing many marketers are starting to employ more
creative and innovative ways to reach out to their target customers. Many
have started marketing cooperatively in order to share costs among two or
more marketers who are trying to reach the same consumers.
5.3.1 HOW BUSINESS PRACTICES ARE CHANGING
The change in technology and economy are eliciting a new set of
beliefs and practices on the part of business firms.
1. From organizing by product units to organizing by customer
segments.
2. From focusing on Profitable transactions to focusing on customer
lifetime value.
3. From focusing on J ust the financial scorecard to focusing also on the
marketing scorecard.
4. From focusing on shareholders to focusing on stakeholders.
5. From marketing does the marketing to everyone does the marketing.
Every employee has an impact on the customer and must see the
customer as the source of company’s prosperity.
6. From building brands through advertising to building brands through
performance.
7. From focusing on customer acquisition to focusing on customer
retention.
8. From no customer satisfaction measurement to in-depth customer
satisfaction measurements.
9. From over-promise, under-deliver to under promise, over-deliver.
5.3.2 HOW MARKETING PRACTICES ARE CHANGING
E-business describes the use of electronic means and platform to
conduct a company’s business. The advent of Internet has greatly increased
the ability of companies to conduct their business faster, more accurately,
more timely with reduced cost, and with the ability to customize and
personalize customer offerings. E-commerce and E-marketing are new
strategies to meet the demand of consumers in new economy.
E-commerce is more specific than e-business, it means that in
addition to providing information to visitors about the company, its history,
philosophy, product and job opportunities, the company or site offers to
facilitate the selling of product and services online.
E-purchasing means companies decide to purchase goods, services
and information from various online suppliers.
E-marketing describes company efforts to inform, communicate,
promote and sell its products and services over the internet.
There are four major internet domains through which E-business take
place.
1. Business to consumer ( B2C)
2. Business to Business (B2B)
3. Consumer to Consumer (C2C)
4. Consumer to Business (C2B)
5.3.3 SETTING UP WEB SITES
A key challenge is designing a site that is attractive on first viewing
and interesting enough to encourage repeat visit. Early test-based web sites
have increasingly been replaced by sophisticated sites that provide text,
sound and animation.
7 Cs as essential elements of effective web site
1. Context-layout and design
2. Content – Text, picture, sound, and video
3. Community – How the site enables user-to-user communication
4. Customization – site’s ability to tailor itself to different users or to
allow users to personalize the site.
5. Communication – site to user, user to site communication
6. Connection – degree to site is linked to other site
7. Commerce – capability to enable commercial transactions.
5.3.4 CUSTOMER RELATIONSHIP MARKETING (CRM)
In addition to e-marketing, CRM is used to improve quality of service
and to meet the requirement of consumer successfully. CRM enables
company to provide excellent real-time customer service by developing a
relationship with each valued customer through the effective use of
individual account information.
Customer relationship marketing holds that a major driver of company
profitability is the aggregate value of the company’s customer base winning
companies are more productive in acquiring, keeping and growing
customers through various strategies as:
reducing the rate of customer defection
increasing the longevity of the customer relationship
enhancing the growth potential of each customer through share-of-
wallet, cross-selling and up-selling.
Making low profit customers more profitable
focusing disproportionate effort on high value customers.
5.3.5 ONE-TO-ONE MARKETING
Don Peppers and Martha Rogers have popularized the concept of one-
to-one marketing. In rationalizing their approach, they cite a number of
trends in the marketing environment such as shift from transaction based
marketing to relationship marketing, advances in communication
technologies and a continued fragmentation of mass media.
One-to-One marketing is based on several fundamental concepts.
Focus on individual consumers through consumer data base
Response to consumer dialogue via interactivity
Customize products and services
5.3.6 PERMISSION MARKETING
The practice of marketing to consumers only after gaining their
express permission, is gaining popularity as a tool with which company can
break through the clutter and build customer loyalty. Today consumers are
bombarded with large number of marketing communications every day, kif
marketers wants to get a attention of consumer, they first need to get his/her
permission with some kind of inducement like a free sample, sales
promotion or discount, a contest, and so on. By eliciting consumer
cooperation in this manner, marketers can potentially develop stronger
relationships with consumers so as they will wish to receive further
communication in future.
These various new approaches help to reinforce a number of
important marketing concept and techniques. From a brand point of view,
they are particularly useful means of thinking how to both elicit positive
brand responses and create brand resonance to built customer based brand
equity. One-to-One, permission and experiential marketing are all
potentially effective means of getting consumers more actively involved
with a brand.
5.4 EXPERIANTIAL MARKETING
After economic reforms, marketing has changed the entire consumer
behavior; it has intensified more competition in brands. Now we are in net
revolution. We have left behind traditional marketing concepts. Earlier we
were using product, feature based brands to induce consumers. Now we have
new differentiator in marketing. This is called EXPERIENTIAL
MARKETING. This new marketing mix is trying to bring brands to life
through experience. Experiential marketing is to stimulate in active manner,
to engage consumer in a personal life experience, to allow them to be
receptive with the brand in a personalized environment. Experiential
marketing is to create and add the value of life; they are to be involved in the
product development process. We have seen lots of marketers are doing this
experience like Indica, Pepsodent, NIIT, Pepsi, and Dish net. Experiential
marketing is also about choosing customers, selling your dreams. Here
dreams are not a product it is about experience. Take the case of PEPSI they
are in business of creating experiences for consumers through events,
placement of visicoolers, everything.
Experience marketing is having mind shift approach in its delivery system it
has creative rules and frame work. It has to be viewed as scientifically. It has
the following objectives, these objectives; these objectives can be used as
new marketing mix strategy.
a) The company's core business activity
b) Marketing communication strategy
c) Consumer research
d) Promotional strategy
e) Integrated marketing strategy
f) All marketing tools, Advertising, Media interactive, Promotion,
On site promotion, direct response from consumers.
Experiential marketing focuses on customer experiences. Traditional
marketing fails to gauge sensory, motional, Cognitive behavioral
relationship needs. But in the case of experiential marketing it has
philosophy neurobiology, psychology and sociological theory of the
consumer.
Indian Experiences we have Indian experiences in this context.
1. The launching of SHELL brand of two wheeler oil-SHELL 21. The
objectives were to provide certain experience which ad could not
provide or deliver. The USP was purity, colorless, odourless. They
carried out these experiences in 25-30 cities with the oil. Two wheeler
driver could see, smell through experiences, this was done in petrol
pumps. Over 16 lakh consumers went through this experience. It was
measured as parameter of trials and repeat purchase rate.
2. Hindustan Lever is one of the best examples of the mind shift that
explains experiential marketing. They targeted children for
PEPSODENT in 96. They decided to take the pepsodent experience
through a positive dentist interaction. They targeted schools allover
the country. They did in the following manner:
a) They hired dentists who gave personal and audio visual
interaction
b) taught about brushing, good oral habits.
c) check ups, given colorful edutainment booklets.
d) Given Dental Forms to Kids
e) setting up kiosks with touch screen were a kid can have all
queries, experiences. HLL did these experiences in 25 cities
targeted 2.5 million kids. These exercises forged a new
personalized relationship with kids where pepsodent is being
seen as high brand recall product & identified itself with coral
care. HLL is also doing this experience with VIM dishwasher
brand. .
Experiential marketing invites change in bindset. It has all sense, feel, think
act & relate. All the strategic marketing, tools are to be synchronized in a
consistent, holistic, enriching experience.
5.4.1 KEY ELEMENTS OF EXPERIENTIAL MARKETING
The sensory area of experiential marketing is made up of styles and visual
and verbal symbols that create an overall impression. If you want to create a
strong sense of impact or create something appealing, whether an
advertisement, packaging or a website, you need to first choose the right
colors. They have to be in line with the image of your company; they have to
be attractive; they have to gain the customer's attention.
For example, colors like yellow or red are often better than blue and gray.
Even though blue and gray are very common on the corporate arena because
they're "safe" colors, they're not very good at attracting attention. So you
have to choose your color scheme appropriately, with multiple criteria in
mind. It's not just a matter of getting consumers' attention; it also has to be in
line with what sort of company you are. If you're in the banking industry,
you don't want to use pink. You need to understand which colors and shapes
to use.
Act
"Act" is about behaviors and lifestyles. It's about getting people to do
something and express a lifestyle. There's an "Act”. On aspect to the
Volkswagen Beetle. Market research showed that a lot of people buy the
Volkswagen Beetle as a second car. I think that is because people want to
live in a certain lifestyle, they want to drive a car that is more fun to drive
than their normal, professional Lexus or BMW. So the notion of "Act" is
always about actual behaviors or broader lifestyles.
There are different ways of communicating "Act." On the Web you can do it
through Flash animations, for example. On television, you can do it through
some very fast-paced advertisement. In an environment, you can do it by
having a lot of different sensory stimuli coming together--very bright, fast,
changing images. The point is that you need to choose a medium carefully
so that it produces the right sort of experience. The print medium would not
be good for "Act."
Relate
"Relate" is about relating to cultures, relating to other people and relating to
your reference groups. It's about creating a sense of social identity. Ort. I
should say the marketer helps you to create a sense of social identity. We're
talking about products that you can relate to a generation, a nationality or an
ethnicity. In "Relate," you use the right sort of cultural symbolism in your
advertising campaigns and Web designs and in everything you're doing,
which then helps the consumer to identify with that particular group.
One good example of a "Relate" campaign is Harley-Davidson, the icon of
American free spiritedness, which draws thousands of motorcycle
enthusiasts to weekend rallies staged across the country. Harley-Davidson
evokes such strong relations that owners tattoo the logo on their arms or
their entire bodies. If you own a Harley-Davidson, you are part of
something.
A Holistic Approach
The key is to integrate many of these approaches. One good example of this
is the Volkswagen Beetle. With the Beetle, it all starts with the product.
Now, this is not your typical car. It's not just about the features and benefits
of this car, which are probably not much better than a Hyundai, maybe a
little bit better, but not enough to justify the price premium.
What is so unique about the product? It's the shape--very unusual in the
entire car industry. It's the colors; it's the flower vase that they have in the
front. These individual symbols come together in a theme. Maybe the theme
is professionalism. You go to McKinsey & Co. and they're a professional
company. Why are they a professional company? Because of all the symbols
that they have--that includes the cars that their consultants drive, or the
briefcases they have, or the suits they wear, or the icons that they use for a
PowerPoint presentation; all speak to thus notion of professionalism These
stylish themes create the overall sense or impression of the company.
Feel
Feelings are quite different from sensory impressions, because they suggest
the whole realm of moods and emotions. It's not just a matter of beauty and
appeal but a matter of getting people, in the extreme, to feel joyful, to feel
happy or maybe even to cry.
Take a company like Hallmark, which understands how to do that. They
have these "Feel" advertisements that they show during the Hallmark Hall of
Fame at Christmastime. first of all, these advertisements are not short ads.
You cannot create a strong "Feel" impact in a 10- or 15-second commercial.
Think
With "Think" we are getting into something that stimulates people's intellect
or their creativity. The "Think Different" campaign by Apple tried to do that.
They wanted people to think differently about Apple. Apple had been in big
trouble a few years back, and then Steve J obs came in as CEO and said,
"Well, we want people to think differently about the company again" So
they've done a very unusual advertising campaign for a computer company.
You don't see a computer; you see these heroes of the twentieth century,
from Einstein to J ohn Lennon--a very unusual approach in terms of getting
people to think more broadly about the company and its products.
5.5 INTEGRATED MARKETING
When all the company’s departments work together to serve the
customer’s interests, the result is “integrated marketing.” Integrated
marketing works on two levels.
1. The various marketing functions like sales force, advertising,
customer service, product management, marketing research must
work together.
2. Marketing must be embraced by the other departments, they must
also “think customer”. According to David Packard of Hewlett-
Packard, “Marketing is far too important to be left only to the
marketing department!” To foster teamwork among all
departments, the company carries out internal marketing as well as
external marketing. Internal marketing is marketing of the task of
hiring, training and motivating able employees who want to serve
consumers well. External marketing. Internal marketing is
marketing directed at people outside the company. Infect, internal
marketing must precede external marketing.
5.5.1 INTEGRATED MARKET COMMUNICATION
The wide range of communication tools, message and audiences
makes it imperative that companies move towards integrated marketing
communication (IMC)”.
As defined by American Association of Advertising Agencies, IMC is a
concept of marketing communications planning that recognizes the added
value of a comprehensive plan. Such a plan evaluates the strategic role of a
variety of communications disciplines- for example, general advertising,
direct response, sales promotion and public relations and combines these
disciplines to provide clarity, consistency and maximum impact. Today
however a few large agencies have substantially improved their integrated
offerings. Many international clients have opted to put a substantial portion
of their communications work through one agency. Example is IBM turning
all of its advertising over to ogilvy to attain uniform branding. IMC does
produce stronger massage consistency and greater sales impact. It forces
management to think about the every way the customer comes in contact
with the company, how the company communicates its positioning. It will
improve the company’s ability to reach the right customer with the right
message at right time and in the right place.
5.5.2 INTEGRATED DIRECT MARKETING
However, companies are increasingly recognizing the importance of
integrating their marketing communications. To get a right mix of
communication tools, to establish a right overall communication budget and
right allocation of fund to each communication tool, integrated marketing
communication, integrated direct marketing, and maxi marketing has been
variously used.
5.5.3 DEVELOPING INTEGRATED MARKETING COMMUNICAT-
ION PROGRAMS
The main theme is that the marketer should “mix and match”
communication options to build brand equity.
1. Mixing communication options
From the perspective of customer-based brand equity, marketers
should evaluate all possible communication options available to
create knowledge structure according to effectiveness criteria as
well as cost consideration. This strategy is used to improve brand
awareness brand awareness is closely related to brand familiarity
and can be viewed as a function of brand related exposure and
experience.
2. Matching communication option
There are many ways to create IMC programs. A number of
considerations come into play while evaluating IMC program these
are discussed below:
Coverage: It relates to the proportion of the audience that is reached by
each communication option employed, as well as how much overlap exists
among communication options.
Contribution: It relates to the inherent ability of a marketing communication
to create the desired response and communication effects from consumers in
the absence of any other communication options.
Commonality: It relates to the extent to which common associations are
reinforced across communication conveyed by different communication
options sharing meanings.
Complementarily: These options are often more effective when used in
tandem. It relates to the extent to which different associations and linkages
are emphasized across communication options.
Versatility: Versatility relates to the extent that marketing communication
option is robust and effective for different groups of consumers. It is of two
types namely communication and consumers. The reality of any IMC
program is that when consumers are exposed to a particular marketing
communication, some consumer will have already been exposed to other
marketing communication for the brand; where as the other consumers will
not have had any prior exposure.
5.6 SUMMARY
A brand is a trademark or combination of trademarks that, is intended
to identify goods and services of one seller in order to differentiate them
from those of competitors. The value of the brand is the amount another
party is prepared to pay for it. Sometimes this is easily ascertainable when
one company purchases a brand but no other asset of another company.
There are several applications of brand valuation such as brand management
and development, enhancing management communication, benchmarking of
competitors, monitoring value year on year, merger and acquisition, joint
venture negotiations.
Customer based brand equity occurs when the consumer has a high
level of awareness and familiarity with the brand. The brand equity has some
strong, favourable and unique association to get a memorable status in the
mind of consumers. Various sources of brand equity contribute to get a
strong brand. There are six brand building brocks to create right brand
identity, brand meaning and brand responses.
5.7 Key words
Elicit: draw out (a response)
Holistic: treating the whole thing rather than just particular
isolated symptoms
In tandem: arranged one behind another, together, alongside
each other
Inherent: existing in a thing as natural or permanent quality
5.8 Self Assessment Questions
1. What do brands mean to you? What are your favorite brands and
why?
2. What do you mean by brand valuation? How brand valuation can
be done? What are the variables responsible for brand valuation?
3. What are the benefits of brand valuation?
4. Can you think of yourself as a brand? What do you do to “brand”
yourself?
5. Can you list the procedure of building of new brand? What are the
sources of brand equity?
6. Which brands do you have the most resonance with? Why?
7. Enlist the various types of brand. What are the essential elements
of a strong brand?
8. Write a brief not on new trends in marketing with special reference
to various forces responsible for such changes.
9. Explain briefly latest trends in marketing practices?
10. What do you mean by experiential marketing? Have you had any
experience with a brand that has done a great job with relationship
marketing, permission marketing, experiential marketing, or one-
to-one marketing? What did the brand do? Why was it effective?
Could others learn from that?
11. How effectively has the brand mixed and matched marketing
communications? How explicitly has it integrated its
communication program?
12. What do you see as the role of Internet for building brands?
5.9 Suggested Readings
1. Kevin Lane Kellar, Strategic Brand Management, Pearson
Education, IInd edition.
2. Philip Kotler, Marketing Management
3. Dr. Augustine Fou, Experiential Marketing, Marketing Science –
Vision Executive Briefs, March 21, 2003.
4. Dr. Bernd Schmitt, Experience Is The Key For Differentiation,
Strategic Marketing
5. Linda Alexander, Multidimensional Brand Building,
6. Linda Alexander, Experiential Branding With Prospects
7. Brand Valuation, International Trademark Association
8. J ane Yates, Brand Valuation And Its Applications
9. Experiential Marketing, The Indian Express, May 17, 2001
10. Linda Alexander, Marketing Works Smarter, Not Harder
11. Dr. Bernd Schmitt, Experiential Marketing
12. Amar Raj Lal and Vinod Khurana, Brand Valuation.
Note : 3 to 12 references are downloaded by internet through google search
STRUCTURE:
6.1 Objective
6.2 Introduction
6.3 Meaning and Definitions of Communication
6.4 The Communication Situation And Cycle
6.5 Importance of Effective Communication In Business
6.6 Medias of Communication
6.7 Barriers To Communication
6.8 Marketing Communication and the Target Audience
6.9 The Response Process in Marketing Communication
6.10 Summary
6.11 Key words
6.12 Self-Test Questions
6.13 Suggested Readings
6.1 OBJECTIVE: The present chapter explains the meaning, process and essentials
of communication.
6.2 INTRODUCTION
Communication transmits information .not only about tangible facts and
determinable ideas and opinions but about emotions. When a communicator
passes on or transmits some information, he may also, either intentionally or
unconsciously, be communicating his attitude or the frame of his mind. And
sometimes the latter may be more relevant to the reality that is being
COURSE: BASIC PRINCIPLES OF MARKETING AND MANAGEMENT
Course Code: 05 Author: Surinder Singh Kundu
Lesson: 06 Vetter: Dr. B. S. Bodla
COMMUNICATION
communicated. Often we may have come across words of high praise spoken in a
scoffing tone. In this case, the words signify nothing and the tone is the real thing.
Similarly, high-sounding expressions of bravery may be only a mask to conceal a
person's timidity and weakness, which may be betrayed by his facial expressions.
Hence, facial expressions are an important part of communication.
6.3 MEANING AND DEFINITION OF COMMUNICATION
Communication is something so simple and difficult that we can never put it in
simple words, says T. S. Matthews. Peter Little defines communication as
follows:
Communication is the process by which information is transmitted between
individuals and/or organisations so that an understanding response results.
Another very simple definition of 'communication' has been provided by W. H.
Newman and C. F. Summer J r.: “Communication is an exchange of facts, ideas,
opinions, or emotions by two or more persons”. William Scott defined
communication in his Organisation Theory: “Administrative communication is a
process which involves the transmission and accurate replication of insured by
feedback for the purpose of eliciting actions which will accomplish organizational
goals”.
These definitions emphasize four important points:
1. The process of communication involves the communication of ideas.
2. The ideas should be accurately replicated (reproduced) in the receiver's
mind, i.e., the receiver should get exactly the same ideas as were
transmitted. If the process of communication is perfect, there will be no
dilution, exaggeration or distortion of the ideas.
3. The transmitter is assured of the accurate replication of the ideas by
feedback, i.e., by the receiver's response which is communicated back to
the transmitter. Here it is suggested that communication is a two way
process including transmission of feedback.
4. The purpose of all communication is to elicit action.
6.4 THE COMMUNICATION SITUATION AND CYCLE
The communication situation is said to exist when
1. there is a person (sender or transmitter) desirous of passing on some
information;
2. there is another person (receiver) to whom the information is to be
passed on;
3. the receiver partly or wholly understands the message passed on to
him;
4. the receiver responds to the message, i.e., there is some kind of
feedback.
The communication situation cannot exist in the absence of any of these four
components. Two gentlemen greeting each other with folded hands constitute a
communication situation, for (a) there is a person desirous of sending a message
(greeting); (b) there is another person to receive this message; (c) when the first
person folds his hands, the second one understands that he is being greeted; and
(d) the second person immediately responds back by folding his own hands.
But, if a Hindi-speaking person addresses a Tamil-speaking person in Hindi, the
communication situation does not exist, for though there is a person desirous of
sending a message, the message is not understood and consequently there is no
feedback.
In the communication cycle, the transmission of the sender’s ideas to the receiver
and the receiver’s feedback or reaction to the sender is done. The main steps of
this cycle are as follows:
1. Input : the information or ideas the sender wants to give the receiver;
2. Channel : letter, fax, phone call, electronic mail, etc;
3. Message : the-actual massage that is sent;
4. Output : the information the receiver gets;
5. Feedback : the receiver’s response (or non-response) to the massage;
6. Brain drain: the possibility of misunderstanding at any step.
If the action desired in the message is satisfactorily performed or the information
is faithfully received (ensured by the feedback), we say the communication loop
has been closed. But breakdowns in the communication cycle are quite frequent.
The breakdown may be due to one or more of the following:
• Improper formulation of the message in the mind of the sender;
• Improper statement of the information in the message;
• Improper statement of the message by the receiver.
6.5 IMPORTANCE OF EFFECTIVE COMMUNICATION IN
BUSINESS
Communication is the life blood of business. No business can develop in the
absence of effective internal and external communication. Besides,
communication skills of the employees are given high weight age at the time of
their appointment as well as promotion. The effective communication can be
understood into following ways:
6.5.1 Internal communication
Effective internal communication is considered important for the following
reasons:
Business has grown in size: Large business houses have a number of branches
within the country and even abroad. Some of the multinational corporations are
no smaller than huge empires. The central organisation of a large business house
is its nerve centre. For its healthy and even growth, it is extremely important that
the central organisation maintains a thorough and up-to-date knowledge of the
various activities at the branch offices, keeps the branch offices well acquainted
with the activities at the centre, and some kind of link is maintained among the
various branches. This calls for an effective and efficient network of
communication.
Business activity has become extremely complex: This being an age of
specialisation, planning, production, sales, stores, advertising, financing,
accounts, welfare, etc., are handled by different departments. If these departments
do not communicate with one another as well as with the management, there will
be no coordination among them. This may give rise to some awkward and
embarrassing situations for the management. When production is fully geared up
the stores department may report shortage or non-availability of raw- materials.
The planners, having spent one full month to work out the details of a new
project, may suddenly discover that there are no finances available to execute the
project.
Effective communication promotes a spirit of understanding and coop-
eration: If the effective communication exists between the management and the
employees, it helps to bring about an atmosphere of mutual trust and confidence.
The employees know exactly what is expected of them; the management is aware
of the potentialities and limitations of the employees and knows how to exploit
the first and make up for the latter. This mutual understanding is extremely
beneficial to both the parties. The management gets better returns; the employees
get job satisfaction. They also develop a sense of belonging and loyalty to .the
enterprise.
6.5.2 External communication
External communication includes communication with the government agencies
and departments on the one hand and distributors, retailers, individual customers
and general public on the other.
Government agencies and departments: Business organisations are required to
deal with licensing authorities, foreign trade offices, customs authorities, banks
and other financial institutions, income-tax and sales tax offices, post offices,
transporters, etc. Quite frequently they find themselves in formidable and tricky
situations that can be handled only through tactful negotiation and negotiation is
nothing but communication.
Distributors, retailers, individual customers, etc: Modern business is a highly
competitive phenomenon. Each product of common consumption is available in
myriads of brands, not all of which sell equally well. Marketing research has
revealed that the organisations that can communicate better can also sell better.
Sales are promoted through persuasion and persuasion is another aspect of
communication.
Communication skill a job requirement: Some areas like personnel, public
relations, marketing, sales, and labour relations call for exceptional
communication skills. Editors, writers, teachers, advocates, researchers also need
a highly developed ability to communicate. Executives are also expected to make
speeches, prepare pamphlets, brochures, souvenirs, and give interviews to the
media in order to project a favourable image of their organisation. Thus the ability
to communicate effectively has become an important job requirement.
Important factor for promotion: The ability to communicate as the most
essential requisite for promotion of the executives. It is higher than essential
attributes as the capacity for hard work, the ability for making sound decisions,
academic qualifications and ambition-drive. Generally, we can say that possessing
communication skill is an important qualification at the time of both appointment
and promotion.
6.6 MEDIA OF COMMUNICATION
These days communication is possible through a vast variety of media. The
Managing Director desirous of communicating with the sales manager can
summon him to his room, talk to him over the telephone, or send him a memo. If
he wants to consult all the departmental heads, he would most probably convene a
meeting. If information is to be transmitted to all the employees, a notice may be
put on the notice board or a peon may circulate it among them, a senior officer
may announce it over the public address system, or it may be printed in the office
bulletin. Posters may be used to issue warnings. Communication with
Government departments and other agencies is mostly conducted through written
letters. General public can be reached through advertisements on the radio, the
television, the cinema screen, or in the newspapers and popular journals. For
communication to be effective, the communicator has to be very careful and
judicious in the choice of media, which will depend on various factors like the
urgency of the message, the time available, the expenditure involved and the intel-
lectual and emotional level of the receivers. All the media available can be
broadly classified into five groups:
(i) Written communication: It includes letters, circulars, memos, telegrams,
reports, minutes, forms and questionnaires, manuals, etc. Everything that
has to be written and transmitted in the written form falls in the area of
written communication.
(ii) Oral communication: It includes face-to-face conversation, conversation
over the telephone, radio broadcasts, interviews, group discussions, meet-
ings, conferences and seminars, announcements over the public address
system, speeches, etc.
(iii) Visual communication: It encompasses gestures and facial expressions,
tables and charts, graphs, diagrams, posters, slides, film strips, etc.
(iv) Audio-visual communication encompasses television and cinema films
that combine the visual impact with narration.
(v) Computer-based communication includes E-mail, voice mail, cellular
phones, fax, etc. .
Most often more than one medium may have to be simultaneously employed to
make the communication effective. Face-to-face communication combines the
oral form with the visual. Graphs and posters often combine the visual with the
written form. A manager giving written instructions may also take pains to
explain them to a subordinate: he is simultaneously using the oral and the written
form of communication. And a great deal can be communicated by the absence of
communication, that is, by maintaining total silence.
6.7 BARRIERS TO COMMUNICATION
In the earlier paragraph, we have discussed the various media of communication
available to us - oral, written visual, audio-visual, computer-based, etc. While a
properly chosen medium can add to the effectiveness of communication, an
unsuitable medium may act as a barrier to it. Each communication must be
transmitted through an appropriate medium. An unsuitable medium is one of the
biggest barriers to communication. In addition, some of the barriers of
communications are as follows:
6.7.1 PHYSICAL BARRIERS
Noise: Noise is quite often a barrier to communication. In factories, oral
communication is rendered difficult by the loud noise of machines. Electronic
noise like blaring often interferes in communication by telephone or loudspeaker
system. The word noise is also use to refer to all kids of physical interference like
illegible handwriting, smudged typescript, poor telephone connections, etc.
Time and Distance: Time and distance also act as barriers to the smooth flow of
communication. The use of telephone along with computer technology has made
communication very fast and has; to a large extent overcome the space barrier.
However, sometimes mechanical breakdowns render these facilities ineffective. In
such cases, the distance between the transmitter and the receiver becomes a
mighty barrier. Some factories run in shifts. There is a kind of communication gap
between persons working in different shifts. Faulty seating arrangement in the
room can also become a barrier to effective communication, for whichever seats
the employees may be occupying; they definitely want an eye contact with one
another.
6.7.2 SEMANTIC BARRIERS
Interpretation of words: Most of the communication is carried on through
words, whether spoken or written. But words are capable of communicating a
variety of meanings. It is quite possible that the receiver of a message does not
assign the same meaning to a word as the transmitter had intended. This may lead
to miscommunication.
Bypassed instruction: Bypassing is said to have occurred if the sender and the
receiver of the message attribute different meanings to the same word or use
different words for the same meaning. Murphy and Pack have given a classic
example of how bypassed instructions can play havoc with the communication
process: An office manager handed to a new assistant one letter with the
instruction. “Take it to our stockroom and burn it”. In the office manager's mind
(and in the firm's jargon) the word ''burn'' meant to make a copy on a company
machine which operated by a heat process. As the letter was extremely important,
she wanted an extra copy. However, the puzzled new employee, afraid to ask
questions, burned the letter with a lighted match and thus destroyed the only
existing copy.
6.7.3 SOCIO-PSYCHOLOGICAL BARRIERS
Attitudes and opinions: Personal attitudes and opinions often act as barriers to
effective communication. If information agrees with our opinions and attitudes,
we tend to receive it favourably. It fits comfortably in the filter of our mind. But if
information disagrees with-our views or tends to run contrary to our accepted
beliefs, we do not react favourably. If a change in the policy of an organisation
proves advantageous to an employee, he welcomes it as good; if it affects him
adversely, he rejects it as the whim of the Director.
Emotions: Emotional states of mind play an important role in the act of
communication. If the sender is perplexed, worried, excited, afraid, nervous, his
thinking will be blurred and he will not be able to organise his message properly.
The state of his mind is sure to be reflected in his message. It is a matter of
common observation that people caught in a moment of fury succeed only in
violent gesticulation. If they try to speak, they falter and keep on repeating the
same words. In the same way, the emotions of the receiver also affect the
communication process. If he is angry, he will not take the message in proper
light. It is extremely important that emotions are not allowed impede the smooth
flow of communication. The communicator should not try to communicate while
in a state of emotional excitement. He should first cool down. In the same way,
the receiver should not react to the message if his mind is perturbed.
Closed mind: A person with a closed mind is very difficult to communicate with.
He is a man with deeply ingrained prejudices. And he is not prepared' to
reconsider his opinions. If closed-minded people can be encouraged to state their
reasons for rejecting a message or a proposal, they may reveal deep-rooted,
prejudices, opinions and emotions. Perhaps, one can make an attempt to
counteract those prejudices, opinions, etc. But if they react only with anger and
give a sharp rebuff to anyone who tries to argue with them, they preclude all
possibility of communication.
Status-consciousness: Status consciousness exists in every organisation and is
one of the major barriers to effective communication. Subordinates are afraid of
communicating upward any unpleasant information. They are either too conscious
of their inferior status or too afraid of being snubbed. Status-conscious superiors
think that consulting their juniors would be compromising their dignity. Status-
consciousness proves to be a very serious barrier to face-to-face communication.
The subordinate feels jittery and nervous, fidgets about where he is standing,
falters in his speech and fails in communicating what exactly he wanted to say.
The officer, on the other hand, reveals impatience and starts giving comments or
advice before he has fully heard his subordinate. Consequently, there is a total
failure of communication; the subordinate returns to his seat dissatisfied and
simmering inside, while the officer resumes his work with the feeling that his
employees have no consideration for the value of his time and keep on pestering
him for nothing.
Such communication failures can be averted if the managers and other persons in
authority rise above the consciousness of their status and encourage their
employees to talk freely.
The source of communication: If the receiver has a suspicion about or prejudice
against the source of communication, there is likely to be a barrier of
communication. People often tend to react more according to their attitude to the
source of facts than to the facts themselves. Think of an executive in the habit of
finding fault with his employees. If once in a while he begins with a compliment,
the employees immediately become suspicious and start attributing motives to the
compliment. If a statement emanates from the grapevine, the manager will not
give credence to it, but the same state coming from a trusted supervisor will
immediately be believed.
Inattentiveness: People often become inattentive while receiving a message, in
particular, if the message contains a new idea. The adult human mind usually
resists change, for change makes things uncertain. It also threatens security and
stability. So the moment a new idea is presented to them, they unconsciously
become inattentive. Sometimes a person becomes inattentive because of some
distraction. It is possible that an employee does not listen to the supervisor's
instructions attentively because he is being distracted by the lady typist who has
chosen exactly this moment to repair her make-up, or because he is feeling
amused at the supervisor's artificial accent and finds it difficult to concentrate on
his words. Sometimes when the listener has received a part of the message, his
.mind gets busy in framing a reply to it, or in guessing the next part of the
message. It is quite likely that in thinking of what has been said or that might be
said later, the listener misses a part of what is actually being said at the present
moment.
Faulty transmission: A message is never communicated from one person to
another in its entirety. This is true in particular of oral messages. If a decision has
been taken by the Board of Directors, it must be in the form of a lengthy
resolution. This resolution cannot be passed on to the factory workers in the same
form. It has to be translated in simple language so that they may easily understand
it. But translation can never be perfect. In the process of interpretation,
simplification and translation, a part of the message gets lost or distorted. A
scientific study of the communication process has revealed that successive
transmissions of the same message are decreasingly accurate. In oral
communications, something in the order of 30 per cent of the information is lost
in each transmission.
Poor retention: Poor retention of communication also acts as a barrier. Studies
show that employees retain only about 50 per cent of the information
communicated to them. The rest is lost. Thus if information is communicated
through three or four stages, very little reaches the destination, and of that very
little also only a fraction is likely to be retained poor retention may lead to
imperfect responses, which may further hamper the communication process.
Unsolicited communication: Unsolicited communication has to face stronger
barriers than solicited communication. If I seek advice, it should be presumed that
I will listen to it. But if a sales letter comes to me unsolicited, it is not very sure
that I will pay much attention to it.
6.8 MARKETNG COMMUNICATION AND THE TARGET
AUDIENCE
The marketing communication process really begins with identifying the audience
that will be the focus of the firm's advertising and promotional efforts. The target
audience may consist of individuals, groups, niche markets, market segments, or a
general public or mass audience. Marketers approach each of these audiences
differently. The target market may consist of individuals who have specific needs
and for whom the communication must be specifically tailored. This often
requires person-to-person communication and is generally accomplished through
personal selling. Other forms of communication, such as advertising, may be used
to attract the audience's attention to the firm, but the detailed message is carried
by a salesperson that can respond to the specific needs of the individual customer.
Life insurance, financial services, and real estate are examples of products and
services promoted this way.
The group represents a second level of audience aggregation. Marketers often
must communicate with a group of people who make or influence the purchase
decision. For example, organizational purchasing often involves buying centers or
committees that vary in size and composition. Companies marketing their
products and services to other businesses or organizations must understand who
are on the purchase committee, what aspect of the decision each individual
influence, and the criteria each member uses to evaluate a product. Advertising
may be directed at each member of the buying center, and multilevel personal
selling may be necessary to reach those individuals who influence or actually
make decisions.
Marketers look for customers who have similar needs and wants and thus repre-
sent some type of market segment that can be reached with the same basic
communication strategy. Very small, well-defined groups of customers are often
referred to as market niches. They can usually be reached through personal selling
efforts or highly targeted media such as direct mail. The next level of audience
aggregation is market segments, broader classes of buyers who have similar needs
and can be reached with similar messages. There are various ways of segmenting
markets and reaching the customers in these segments. As market segments get
larger, marketers usually turn to broader-based media such as newspapers,
magazines, and TV to reach them. Marketers of most consumer products attempt
to attract the attention of large numbers of present or potential customers (mass
markets) through mass communication, such as advertising or publicity. Mass
communication is a one-way flow of information from the marketer to the
consumer. Feedback on the audience's reactions to the message is generally
indirect and difficult to measure.
6.9 THE RESPONSE PROCESS IN MARKETING
COMMUNICATION
Perhaps the most important aspect of developing effective communication
programs involves understand the response process the receiver may go through
in moving toward a specific behavior (like purchasing a product) and how the
promotional efforts of the marketer influence consumer responses. In many
instances, the marketer's only objective may be to create awareness of the
company or brand name, which may trigger interest in the product. In other
situations, the marketer may want to convey detailed information to change
consumers’ knowledge of and attitudes toward the brand and ultimately change
their behavior.
The function of all elements of the promotional mix is to communicate; so
promotional planners must understand the communication process. This process
can be very complex; successful marketing communications depend on a number
of factors, including the nature of the message, the audience's interpretation of it,
and the environment in which it is received. For effective communication to
occur, the sender must encode a message in such a way that the receiver will
decode it in the intended manner. Feedback from the receiver helps the sender
determine whether proper decoding has occurred or whether noise has interfered
with the communication process. Promotional planning begins with the receiver
or target audience, as marketers must understand how the audience is likely to
respond to various sources of communication or types of messages. For promo-
tional planning, the receiver can be analyzed with respect to both its composition
(i.e., individual, group, or mass audiences) and the response process it goes
through. Different orderings of the traditional response hierarchy include the stan-
dard learning, dissonance/attribution, and low-involvement models. The
information response model integrates concepts from both the high- and low-
involvement response hierarchy perspectives and recognizes the effects of direct
experience with a product.
6.10 SUMMARY
The main purpose of all communication in an organisation is the general welfare
of the organisation. Effective communication is needed at all stages in order to
ensure this welfare. At the planning stage, information is needed on various
aspects of the enterprise, the feasibility of the project being undertaken, finances
involved, man-power required, marketing conditions, publicity campaigns, etc. At
the execution stage, orders are issued to the employees to start work, the workers
associated with the project are constantly motivated and kept involved, a sense of
discipline is cultivated among them and their morale is kept high. All this requires
constant two way communication between the managers and the employees. Then
at the assessment stage, the manager is again required to communicate with
various sources, both internal and external, to assess the success of the project,
and if a need is felt, to envisage modifications in the future plans. In case of
marketing it is very crucial part, because of we can attract the potential customers
through it.
6.11 Key words
Embarrassing: cause to feel awkward or ashamed
Envisage: imagine, foresee
6.12 SELF-TEST QUESTIONS
1. What do you mean by communication? What is its importance in marketing?
2. Discuss the various elements of communication process. Find an example of
an advertising campaign being used by a company and analyse the campaign
in terms of these elements of the communication model.
3. What are the main barriers to marketing communication?
4. “Communication is the base of marketing life”. Comment.
5. How can you attract the customers towards your products in marketing
environment?
6.13 SUGGESTED READINGS
1. Aaker, David A. Managing Brand Equity: Capitalizing on the Value of a
Brand Name. New York: Free Press, 1991.
2. Belch George E. and Michael E. Belch, “Advertising and Sales Promotion (5
th
ed.)”, Tata McGraw Hill, New Delhi, 2001.
3. Berry, L., and A. Parasuraman. Marketing Services. New York: Free Press,
1991.
4. Gale, B.T., and R.W. Chapman. Managing Customer Value: Creating Quality
and Service That Customers Can See. New York: Free Press, 1994.
5. J acoby, J ., and R. Chestnut. Brand Loyalty: Measurement and Management.
New York: J ohn Wiley, 1978.
6. Reichheld, Frederick F. The Loyalty Effect. Boston: Harvard Business School
Press, 1996.
7. Pal, Rajendra, and J . S. Kolahalli. Essentials of Business Communication,
New Delhi: Sultan Chand & Sons, 1999.
Relationship Marketing
STRUCTURE:
7.1 Objective
7.2 Introduction
7.3 Meaning and Definitions of Relationship Marketing
7.4 Relationship Marketing Versus Marketing Relationships
7.5 The Characteristics of Relationship Marketing
7.6 A Process Model of Relationship Marketing
7.7 Importance of Relation Marketing
7.8 Principles of Relationship Marketing
7.9 Important Tips for Relationship Marketing
7.10 Summary
7.11 Key words
7.12 Self-Test Questions
7.13 Suggested Readings
7.1 OBJECTIVE: The present chapter would enable the students to understand the
basics of relationship marketing. It gives the detail of the process, benefits, principles,
and tips for successful relationship marketing.
7.2 INTRODUCTION
These stories are indicative of the changing nature of marketing. Marketing is no
longer simply about developing, selling and delivering products. It is
progressively more concerned with the development and maintenance of mutually
satisfying long-term relationships with customer. If the 1950s was the era of
mass-marketing, and the 1970s the era of market segmentation, then the 1990s
represent the genesis of personalized marketing, in which knowledge about
COURSE: BASIC PRINCIPLES OF MARKETING AND MANAGEMENT
Course Code: 05 Author: Surinder Singh Kundu
Lesson: 07 Vetter: Dr. B. S. Bodla
RELATIONSHIP MARKETING
individual customers is used to guide highly focused marketing strategies. This
change is driven by several conditions: more intense, often global, competition;
more fragmentation of markets; a generally high level of product quality which is
forcing companies to seek competitive advantage in other ways; more demanding
customers; and rapidly changing customer buying patterns. Enduring relationships
with customers cannot be duplicated by competitors, and therefore provide for a
unique and sustained competitive advantage. The expression most widely used to
describe this new form of marketing is relationship marketing (RM). Other terms
have been used, either as substitutes for RM or to describe some close parallel-
micro marketing, database marketing, one-to-one marketing, loyalty marketing,
wrap-around marketing, customer partnering, symbiotic marketing and interactive
marketing. Although the shift to RM is widespread, it is occurring more rapidly in
some sectors and industries than others, facilitated by fundamental cultural shifts
within organizations, powerful databases and new forms of organizational
structure.
In the current era of intense competition and demanding customers, relationship
marketing has attracted the expanded attention of marketers. They are studying
the nature and scope of relationship marketing and developing conceptualizations
regarding the relationships between different marketing actors, including
suppliers, competitors, distributors, and internal functions in creating and
delivering customer value and taking interests in various sub-disciplines of
marketing, such as channels, services marketing, business-to- business marketing,
and advertising. They are actively engaged in studying and exploring the practical
foundations of relationship marketing. However, the conceptual and practical
foundations of relationship marketing are not fully developed as yet. The current
growth in the field of relationship marketing is somewhat similar to what was
experienced in the early stages of the development of the discipline of consumer
behavior. This is how consumer behavior grew to become a discipline that now
enjoys a central position in marketing knowledge. We expect relationship
marketing to undergo a similar growth pattern and soon to become a discipline
unto itself.
7.3 MEANING AND DEFINITION OF RELATIONSHIP
MARKETING
Before we begin to examine the theoretical foundations of relationship marketing,
it will be useful to define what the term relationship marketing means. This term
has been used to reflect a variety of themes and perspectives. Some of these take a
narrow functional marketing perspective, whereas others employ a view that is
broad and somewhat paradigmatic in approach and orientation. One example of a
narrow perspective on relationship marketing is database marketing that
emphasizes the promotional aspects of marketing linked to database efforts.
Another narrow, yet relevant, viewpoint considers relationship marketing only as
customer retention, in which a variety of after marketing tactics are used for
customer bonding or staying in touch after the sale is made. A more popular ap-
proach with recent application of information technology is to focus on individual
or one-to-one relationships with customers that integrate database knowledge with
a long-term customer retention and growth strategy. Shani and Chalasani define
relationship marketing as "an integrated effort to identify, maintain, and build
up a network with individual consumers and to continuously strengthen the
network for the mutual benefit of both sides, through interactive, individualized
and value-added contacts over a long period of time". J ackson defines relationship
marketing as "marketing oriented toward strong, lasting relationships with
individual accounts". McKenna offers a more strategic view of relationship
marketing by putting the customer first and shifting the role of marketing from
manipulating the customer (telling and selling) to genuine customer involvement
(communicating and sharing the knowledge). Berry takes a service sector
perspective: RM is attracting, maintaining and - in multi-service organizations -
enhancing customer relationship.’ J ackson writes from an industrial marketing
perspective: RM concerns attracting, developing and retaining customer
relationships.’ Christopher, Payne and Ballantyne see RM as a synthesis of
marketing, customer service and quality management. Sheth describes RM as 'the
understanding, explanation and management of the ongoing collaborative
business relationship between suppliers and customers'. Evans and Laskin
suggest: 'RM is a customer centered approach whereby a firm seeks long-term
business relations with prospective and existing customers.' Morgan and Hunt
offer the broadest definition of RM, taking neither a sectoral perspective nor
specifying the need for there to be a 'customer'. Rather, 'RM refers to all
marketing activities directed toward establishing, developing and maintaining
successful relational exchanges'. Czepiel retorts that a relationship possesses
'mutual recognition of some special status between exchange partners' (emphasis
added), to which Barnes adds: 'a succession of interactions does not necessarily
lead to a relationship any more than repeat purchasing constitutes loyalty.' Finally,
as Gummesson has rightly observed: ‘RM is currently seeking its identity.
Gradually, a more general approach to marketing management, based on
relationships, is gaining ground.’ It may be that RM will not be firmly entrenched
as standard business practice until the millennium.
7.4 RELATIONSHIP MARKETING VERSUS MARKETING
RELATIONSHIPS
It is an interesting question as to what the difference is between "marketing
relationships" and "relationship marketing." Certainly marketing relationships
have existed and have been a topic of discussion for a long time. But what
distinguishes marketing relationships from relationship marketing are their nature
and specificity. Marketing relationships could take any form, including
adversarial relationships, rivalry relationships, affiliation relationships, and
independent or dependent relationships. However, relationship marketing is not
concerned with all aspects of marketing relationships. The core theme of all
relationship marketing perspectives and definitions is a focus on cooperative and
collaborative relationships between the firm and its customers and/or other
marketing actors. It is characterized such cooperative relationships as being
interdependent and long-term oriented rather than concerned with short-term
discrete transactions. The long-term orientation is often emphasized because it is
believed that marketing actors will not engage in opportunistic behavior if they
have a long-term orientation and that such relationships will be anchored in mu-
tual gains and cooperation. Thus the terms relationship marketing and marketing
relationships are not synonymous. Relationship marketing describes a specific
marketing approach that is a subset or a specific focus of marketing. In fact, the
emphasis on relationships as opposed to transaction-based exchanges is very
likely to redefine the domain of marketing.
7.5 THE CHARACTERISTICS OF RELATIONSHIP MARKETING
RM is about healthy relationships which are characterized by concern, trust,
commitment and service.
Concern: Relationship marketers are concerned for the welfare of their
customers. They want to meet or, preferably exceed customer expectations,
producing satisfaction or delight. Marketers can to some degree mould
expectations through mediated and interpersonal communications with customers,
but only in very rare circumstances is it likely that they will be able to determine
expectations.
Trust and commitment: Commitment and trust are 'key' because they encourage
marketers to (i) work at preserving relationship investments by cooperating with
exchange partners, (ii) resist attractive short-term alternatives in favour of the ex-
pected long-term benefits of staying with existing partners, and (iii) view
potentially high risk actions as being prudent because of the belief that their
partners will not act opportunistically. When commitment and trust – not just one
or the other - are present they produce outcomes that promote efficiency,
productivity and effectiveness. The challenge for RM managers is to demonstrate
their commitment to the relationship and to inculcate trust in their partner. In a
service marketing context this can be particularly challenging because of the
relative absence of tangible clues, and because services cannot be examined
before they are produced or consumed.
Service: The outcome of this concern for customers, in an environment of
relationship commitment and trust, is a desire to provide excellent service. RM
requires an organization-wide commitment to providing high-quality service
which is reliable, empathic and responsive. Since RM is a means to a profitable
end, relationship marketers must believe that excellent service produces improved
profitability. Further, the basic sequence: 'service quality leads to customer
satisfaction which leads to relationship strength, which leads to relationship
longevity, which leads to customer relationship profitability.'
7.6 A PROCESS MODEL OF RELATIONSHIP MARKETING
Relationship Marketing is a process of engaging in cooperative and collaborative
relationships with customers. The broad model (a four-stage relationship
marketing process model) suggests that the relationship marketing process
comprises four sub-processes: formation process, management and governance
process, performance evaluation process, and relationship evolution or
enhancement process. These are discussed as follows:
1. Formation: The formation process of relationship marketing involves the
decisions that must be made regarding initiation of relationship marketing
activities for a firm with respect to a specific group of customers or an
individual customer with whom the company wishes to engage in a
cooperative and collaborative relationship. In the formation process, three
important decision areas relate to defining the purpose (or objectives) of
engaging in relationship marketing, selecting parties (or customer
partners) for relationship marketing, and developing programs (or
relational activity schemes) for relationship marketing engagement.
2. Management and governance: Once a relationship marketing program is
developed and rolled out, the program as well as the individual
relationship within it must be managed and governed.
3. Performance evaluation: Companies need to undertake periodic
assessment of the results of relationship marketing in order to evaluate
whether or not they are sustainable in the long run. Performance
evaluation is also useful because it allows firms to take corrective action in
areas of relationship governance or to modify relationship marketing
objectives and program features as needed. Without a proper performance
metric against which to evaluate relationship marketing efforts, it is hard
to make objective decisions regarding continuous, modification, or
termination of relationship marketing program.
4. Evolution: Individual relationship and relationship marketing program are
likely to undergo evolution as they mature. Some evolution paths may be
planned, whereas others will evolve naturally. In any case, the partners
involved have to make several decisions about the evolution of their
relationship marketing programs. These include decisions regarding the
continuous, modification, or termination of relationship marketing
engagement. Several factors could cause the precipitation of the
relationship decisions. Among these factors, relationship performance and
relationship satisfaction (including relationship process satisfaction) are
likely to have the greatest impact on the evolution of the relationship
marketing program. When performance is satisfactory, partners would be
motivated to continue or enhance their relationship programs. When the
performance does not meet expectations, partners may consider
terminating or modifying their relationship programs.
Now, in the ensuing paragraph, we will define the contents which are related to
the process of relationship marketing.
7.6.1 Relationship Marketing Purpose: The overall purpose of relationship
marketing is to improve marketing productivity and enhance mutual value
for the parties involved in the relationship. Relationship marketing has the
potential to improve marketing productivity and to create mutual values by
increasing marketing effectiveness and/or improving marketing
efficiencies. By seeking and achieving strategic marketing goals-such as
entering new markets, developing new products or technologies, serving
new or expanded needs of customers, and redefining the competitive
playing field-firms can enhance their marketing effectiveness. Similarly,
by seeking and achieving operational goals-such as the reduction of
distribution costs, streamlining of order processing and inventory
management, and reduction of the burden of excessive customer
acquisition costs-firms can achieve greater marketing efficiencies. Thus
stating objectives and defining the purpose of relationship marketing can
help firms to clarify the nature of relationship marketing programs and
activities that ought to be performed by the partners. Defining the purpose
also helps firms to identify suitable relationship partners who have the
necessary expectations and capabilities to fulfill mutual goals. It can
further help firms to evaluate relationship marketing performance by
comparing results achieved against objectives. These objectives could be
specified as financial goals, marketing goals, strategic goals, operational
goals, and general goals.
Similarly, in the mass-market context, consumers expect to fulfill their
goals related to efficiencies and effectiveness in their purchase and con-
sumption behavior. As we have noted previously, consumers are
motivated to engage in relational behavior because of the psychological
and sociological benefits associated with a reduction in choice decisions.
In addition to their natural inclination to reduce choices, consumers are
motivated to seek the rewards and associated benefits offered by
companies’ relationship marketing programs.
7.6.2 Relational Parties: The selection of customer partners (or parties with
whom to engage in cooperative and collaborative relationships) represents
another important decision to be made in the process of relationship
marketing program. Even though a company may serve all customer types,
few have the necessary resources and commitment to establish
relationship marketing programs for all. Therefore, in the initial phase, a
company has to decide which customer types and specific customers or
customer groups will be the focus of its relationship marketing efforts.
Subsequently, when the company has gained experience and achieved
successful results, it can expand the scope of relationship marketing
activities to include other customers in the program, or it can engage in
additional programs.
Although the selection of partners is an important decision for firms to
make in achieving their relationship marketing goals, not all companies
have formalized processes of selecting customers. Some follow the intui-
tive judgmental approach of senior managers in selecting customer part-
ners; others partner with those customers who demand so. Yet other com-
panies have formalized processes for selecting relational partners that
involve extensive research and evaluation against particular criteria. The
criteria for partner selection vary according to different companies’ goals
and policies. These range from a single criterion, such as revenue potential
of the customer, to multiple criteria that may include several variables,
such as customer commitment, resourcefulness, and management values.
7.6.3 Relationship Marketing Programs: there are three types of relationship
marketing programs: continuity marketing, one-to-one marketing, and
partnering programs. These take different forms depending on whether
they are meant for end consumers, distributor customers, or business-to-
business customers.
Continuity marketing programs: Given the growing concern for retain-
ing customers as well as the emerging knowledge about customer reten-
tion economics, many companies have developed continuity marketing
programs that are aimed at both retaining customers and increasing their
loyalty. For consumers in mass markets, these programs usually take the
shape of membership and loyalty card programs in which consumers are
often rewarded for their member and loyalty relationships with the
marketers. These rewards may range from privileged services to points for
upgrades, discounts, and cross-purchased items. For distributor customers,
continuity marketing programs take the form of continuous replenishment
programs ranging from J ust-in-Time (J IT) inventory management
programs to efficient consumer response initiatives that include electronic
order processing and Material Requirements Planning (MRP). In business-
to-business markets, these may be in the form of preferred customer
programs or special sourcing arrangements, including single sourcing,
dual sourcing, network sourcing, and J IT sourcing arrangements. The
basic aim of continuity marketing programs is to retain customers and
increase loyalty through long-term special services that have the potential
to increase mutual value as the partners learn about each other.]
One-to-one marketing: The one-to-one or individual marketing approach
is grounded in account-based marketing. Such programs are aimed at
meeting and satisfying each customer's needs uniquely and individually.
What was once a concept prevalent only in business-to-business marketing
is now implemented in mass-market and distributor-customer contexts? In
the mass market, the dissemination of individualized information on
customers is now possible at low cost due to the rapid development in
information technology and the availability of scalable data warehouses
and data-mining products. By using on-line information and databases on
individual customer interactions, marketers aim to fulfill the unique needs
of each mass-market customer. Information on individual customers is
utilized to develop frequency marketing, interactive marketing, and after
marketing programs in order to develop relationships with high-yielding
customers. For distributor customers, these individual marketing programs
take the form of customer business development. For example, Procter &
Gamble has established a customer team to analyze and propose ways in
which Wal-Mart's business could be developed. Thus, by bringing to bear
its domain-specific knowledge from across many markets, Procter &
Gamble is able to offer expert advice and resources to help build the
business of its distributor customer. Such a relationship requires
cooperative action and an interest in mutual value creation. In the context
of business-to-business markets, individual marketing has been in place
for quite some time. In what are known as key account management
programs, marketers appoint customer teams to husband company
resources according to individual customer needs. Often such programs
require extensive resource allocation and joint planning with customers.
Key account programs implemented for multi-location domestic
customers usually take the form of national account management
programs; for customers with global operations, these programs become
global account management programs.
Partnering programs: The third type of relationship marketing programs
involves partnering relationships between customers and marketers to
serve end-user needs. In the mass markets, two types of partnering
programs are most common: co-branding and affinity partnering. In co-
branding, two marketers combine their resources and skills to offer
advanced products and services to mass-market customers. Affinity
partnering programs are similar to co-branding except that the marketers
do not create new brands; rather, they use endorsement strategies. Usually,
affinity partnering programs try to take advantage of customer
memberships in one group to cross-sell other products and services. In the
case of distributor customers, partnering programs are implemented
through logistics partnering and cooperative marketing efforts. In such
partnerships, the marketer and the distributor customers cooperate and
collaborate to manage inventory and supply logistics and sometimes to
engage in joint marketing efforts. For business-to-business customers,
partnering programs involving codesign, codevelopment, and comarketing
activities are not uncommon today.
7.7 IMPORTANCE OF RELATIONSHIP MARKETING
Although 'relationship marketing' has entered the management lexicon only
recently but the practice of RM has a long history. The merchants in the Middle
Ages recognized that some customers were worth courting more seriously than
others. Richer customers would be offered credit terms; the poor paid cash.
Industrial marketers, particularly those selling high-priced 'capital goods, have
long known that they must take a long-term view to make a sale. Team selling,
with multiple levels of contact between seller and customer organizations, is
commonplace. Sales are only closed after protracted periods involving many
people, and after-sale follow-up is the norm. Manufacturers of fast-moving
consumer goods (FMCG) have also attempted to climb on the RM bandwagon.
Businesses which are dependent on large numbers of customers, high sales
volumes and low margins tend to have more difficulty adopting RM. Frequently,
their customer databases are inadequately disaggregated; they know little about
their customers at a personal level. Until the costs of communicating with
customers fall, it is likely that FMCG manufacturers will be slow to move to RM.
It is, however, in the services marketing area that RM is practiced most widely.
Services provided by banks, hotels and healthcare organizations are particularly
suitable for RM initiatives because they supply multiple services deliverable over
several contacts, in person. Because of their participation in the production of
services, customers come face to face with employees and are able to form an
interpersonal relationship with the service provider. Relationships between
members of the marketing channel exist on a continuum, ranging from discrete to
relational. Channel members whose relationships take the relational form have
expectations that the relationship will persist over time, exhibit mutual trust and
make plans for the future. In an industrial marketing context, switching costs
associated with changing supplier may be immense; manufacturing technology
and processes represent long-term commitments for most producers. Hence,
suppliers of critical inputs are rarely changed. Often, relationships are made more
secure through joint product development programmes. Long-term relationships
are composed of encounters in series and, can be developed in a number of stages:
i) the accumulation of satisfactory encounters; ii) active participation based on
mutual disclosure and trust; ii) creation of a double bond (personal and
economic); and iv) psychological loyalty to the partner.
7.8 PRINCIPLES OF RELATIONSHIP MARKETING
There appear to be a number of requirements for the successful implementation of
RM programmes. First, a supportive culture is necessary for RM to flourish.
Several commentators have noted that RM represents a paradigm shift from the
older, transactional way of doing business. Paradigm shifts inevitably pose threats
to, and demand changes of existing corporate culture. RM is typified by mutual
co-operation and interdependence between customer and supplier. Under a
transactional regime, the relationship is better characterized as 'manipulation of
customers, exploiting their ignorance'. Under RM, salespeople are likely to be
replaced by relationship managers; customer retention is likely to be rewarded
more highly than customer acquisition; customer satisfaction data will receive
billing equal to that of financial data in management meetings; and the CEO will
spend as much time with customers as with department heads. These are not the
priorities in exploitative marketing settings.
Internal marketing is a second prerequisite for successful RM. The goal of
internal marketing is to convert employees to the new vision of RM, to promote
the development of the new culture, to persuade them that it is sensible to buy into
the new vision, and to motivate them to develop and implement RM strategies.
The internal market's expectations and needs must be satisfied. 'Unless this is
done properly, the success of the organization's operations on its ultimate,
external markets will be jeopardized'. If the organization is unable to meet its
employees' needs, it is likely that they will defect to other jobs before being able
to build long-lasting relationships with customers.
It is also clear that the firm must understand customer expectations. This means
that there must be a continuous flow of information into the business; continuity
is required because expectations change over time. The managers do not always
have a clear understanding of customer expectations. This is a product of an
inadequate marketing information system, too many levels of management
between the front line and management, and communication difficulties.
A fourth requirement for successful RM is a sophisticated customer database
which provides information in actionable format for the development and
monitoring of RM strategy and tactics. The database technology is fundamental to
allowing companies to get to know their customers as individuals. The company
uses these data to communicate highly focused offers to customers, and to
monitor the impacts of any RM initiatives. Relationship managers are
increasingly able to use databases to track retention rates longitudinally, conduct
root-cause investigations of defections, segment their markets and establish
retention objectives.
Finally, new organizational structures and reward schemes may be required. The
traditional marketing and sales function is organized around products or
geographic markets. Under the influence of RM, organization around customers
becomes more sensible. Customer, or account, managers are better placed to build
long-term relationships with clients, more deeply understanding their expectations
and constructing financial, social and structural links to the firm. The logic of RM
would suggest that the people allocated to customer acquisition should differ from
those dedicated to customer retention. Different knowledge, skills and attitudes
are deployed. Through their combined efforts these account managers should be
able to acquire, migrate (from light-user to heavy-user status) and retain
customers. Companies will also need to reconsider how they reward employees.
At present, sales and marketing management is widely rewarded with a mix of
basic salary and performance-related bonus or commission. Common
performance criteria include sales volume and customer acquisition. Under the
RM regime, customer managers are more likely to be rewarded by customer
profitability, account penetration and customer retention.
7.9 IMPORTANT TIPS FOR SUCCESSFUL RELATIONSHIP
MARKETING
For successful relationship marketing following steps may be
considered.
Listen to customers. They'll tell you what they need from you if you'll just
take the time to listen and make them feel comfortable. If they don't volunteer
information, ask questions to uncover their problems and needs. Then, focus
on solving problems or meeting needs rather than selling them another
product. They'll appreciate your interest and you will, most likely, make a sale
in the long run. And, even if you don't make an additional sale, customers may
refer you to someone else based on the excellent service you've provided
them.
Be honest. Don't try to sell something that's not needed. Likewise, if you can't
fulfill particular customer needs, tell them, and try to help them find someone
who will. Your helpfulness will be long remembered and those customers are
more likely to come back to you when they need your type of product or
service again.
One relationship-building tactic is to "get in front of your customers" through
the mail.
You might want to send the following:
1. Thank you notes for orders, referrals or continued business.
2. Short notes about positive meetings or phone calls.
3. A newspaper or magazine article about a customer's business.
4. Articles or information about a customer's competition.
5. An announcement of your new product or service. (Don't forget to focus on its
benefits.)
6. A notice of a special sale or offer. Include coupons for customer discounts or
invite customers to special "pre-sale" days.
7. A newsletter from your company. Include beneficial tips and information for
your customers.
8. A hot lead. (Your customers are in business to make sales, too!).
9. A notice of a meeting or seminar of interest.
10. A reminder of a pending order or reorder. (You just might help them avoid a
costly lack of inventory.)
11. Get to the point in the first sentence and limit letters to one page in
correspondence.
12. Use personal, hand-written notes when possible.
13. Spell correctly.
14. In thank-you notes, don't thank more than once. You could close with, "Thank
you again for your business".
7.10 SUMMARY
Relationship Marketing is a term which has yet to acquire uncontested status and
meaning. For some, RM is simply transactional marketing dressed up in new
clothes; for others, it represents a significant change in the practice of marketing.
For some, RM refers to all types of internal and external organizational
relationships; for others, RM is focused clearly on external customer
relationships. Companies, particularly in the service sector, are increasingly
finding ways of building close, long-term relationships with external customers.
These companies know that winning new customers is significantly more costly
than retaining existing customers, and that when customers defect they take with
them all future income stream. Their reason for practising RM is customer
retention. However, the more advanced relationship marketers also know that not
all customers are worth retaining. Not all contribute positively and equally to
company performance. The voice of the customer is absent from much RM.
Indeed, it is not known whether customers want, in significant numbers, to enter
into relationships with their suppliers. Companies routinely communicate more
frequently and make special offers to their more valued customers. Whether this
is seen by customers as adding value is a moot point. At its best, RM is
characterized by a genuine concern to meet or exceed the expectations of
customers and to provide excellent service in an environment of trust and
commitment to the relationship. To be successful relationship marketers,
companies must develop a supportive organizational culture, market the RM idea
internally, intimately understand customers’ expectations, create and maintain a
detailed customer database, and organize and reward employees in such a way
that the objective of RM, customer retention, is achieved.
7.11 Key words
Emerging: come up or out into view, become known
Affinity: a close resemblance or attraction
7.12 SELF-TEST QUESTIONS
1. What do you mean by relationship marketing? How it can be operated in the
digital age?
2. Explain the process of Relationship Marketing with a suitable example?
3. How can you maintain the relations with the customers and would-be sellers?
4. Discuss the steps to be implemented in the process of Relationship Marketing
and its principles.
5. How can you distinguish the concept of Relationship Marketing in different
sectors of the economy like industry and service?
6. How can you differentiate relationship marketing and marketing
relationships?
7.
7.13 SUGGESTED READINGS
1. Berry, L., and A. Parasuraman. Marketing Services. New York: Free
Press, 1991.
2. Buttle, Francis, Relationship Marketing- Theory and Practice (ed.),
London: Paul Chapman Publishing Limited, 1996.
3. Gale, B.T., and R.W. Chapman. Managing Customer Value: Creating
Quality and Service That Customers Can See. New York: Free Press,
1994.
4. J acoby, J ., and R. Chestnut. Brand Loyalty: Measurement and
Management. New York: J ohn Wiley, 1978.
5. Reichheld, Frederick F. The Loyalty Effect. Boston: Harvard Business
School Press, 1996.
6. Seth, N. J agdish and Atul Parvatiyar, Handbook of Relationship
Marketing, New Delhi: Response Books, 2002.
STRUCTURE:
8.1 Objective
8.2 Introduction
8.3 Network Marketing
8.4 Cyber-Marketing
8.5 Cyber Marketing Plan and Techniques
8.6 Cyber Marketing Pitfalls
8.7 Cyber Marketing and role for Government
8.8 Steps to make better Cyber Marketing
8.9 Summary
8.10 Key words
8.11 Self Test Questions
8.12 Suggested Readings
8.1 OBJECTIVE: The motive of this chapter is facilitating the students to understand
the basics of network marketing and cyber marketing. The techniques, plan and pitfalls of
cyber marketing are also discussed here in.
8.2 INTRODUCTION
Through out our life, the school systems have taught each of us to be a good
employee. Our college system has taught us to be a good manager. There are
many different opportunities that in reality are a network marketing company or
multi level marketing (MLM) company, but they refuse to call themselves that.
COURSE: BASIC PRINCIPLES OF MARKETING AND MANAGEMENT
Course Code: 05 Author: Surinder Singh Kundu
Lesson: 08 Vetter: Dr. B. S. Bodla
NETWORK AND CYBER MARKETING
Each of these companies is best described as a non-traditional form of business,
so what’s the difference. In a traditional business you have lots of overhead,
employees, health insurance for your employees. Office rent so on. Non-
traditional businesses are generally worked form a home office. It eliminates the
high overhead of the traditional business and does the work efficiently and
effectively. In today’s high fuel prices one can save up to several hundred dollars
per month in just fuel costs by not having to commute to a job. In addition email-
marketing techniques from e-rm (e-relationship marketing) give you a cost
effective solution for promoting your products or services on a personal basis
directly to the customer via electronic media. Email broadcasts have a high
response rate and e-rm is experts in their field of electronic marketing systems
and solutions. Direct marketing by email is the sole solution which delivers
straight to the desired recipient snail mail rarely reaches the intended person as it
is often opened by secretaries, but even directors open their own e-mail therefore
if you have the name and email address you are much more likely to get our
message across, e-rm have opt in email lists, managed effectively and efficiently
to ensure your email, broadcast which is called successful internet marketing.
8.3 NETWORK MARKETING
It is a business about helping people often called a people’ franchise. It is the
unseen business, it does not have giant signs or large offices but yet millions of
people are working in this industry each and everyday. In the 1950’s when the
Franchise emerged it was labelled a seam, illegal etc. Fortunately a franchise is
not labelled as such anymore or you would not be enjoying your favourite
hamburger today. A network marketing business in reality is a business school;
you are or should be in a training program from day one. This truly is a ‘Learn
which you earn’ program. If the training is qualitative time, it can change the life
style of human being. The producer/service providers usually offer reasonably
priced products and services, which may be consumed by people in short time.
Network marketing also called direct selling; multi level marketing is about sales
and distribution, but a different kind of sales. It is more of a soft sale or
recommendation then the hard closing type that you are accustomed to with the
typical salesman or sales woman in the direct sales. In the network marketing, a
sales person goes to the home of a host who has invited friends, sales person
demonstrates the products and take orders. The multilevel or network marketing
sale system consists of recruiting independent business people who act as
distributors. The distributor’s compensation includes a percentage of sales of
those the distributor recruits as well as earnings on direct sales to customers.
These direct selling firms, now finding fewer consumers at home, are developing
multi distribution strategies. Generally the commission structure is less up-front
than the direct sales companies, but it has a benefit that most direct sales
companies do not have and that is residual income.
8.4 CYBER-MARKETING
Direct marketing has roots in direct mail and catalog marketing. It includes tele
marketing, television direct response marketing and electronic shopping. Of these,
electronic shopping/internet marketing experience a major takeoff in the late
1990’s as consumers flocked to dot com sites to buy books, music, toys,
electronics, and other products. The Internet/computer-generated system/cyber
is not only a new communication medium; it is an exciting and promising
marketing tool. Some companies have made the Internet their front line of
communication and marketing and had a lot of success in doing so. The Internet
lets you make transactions and reduces the sales cycle. It can also reduce the costs
of the presale effort and helps you provide efficient post-sale service. The Internet
lets you attack major markets around the world as well as allowing you to
penetrate any household that has a computer and an Internet link. It has become a
privileged means of communication between you and your customers. The
companies that manage to leverage the power of this tool will gain a close tie to
their customers. Those who fail to take advantage of they left behind.
8.5 CYBER-MARKETING PLAN AND TECHNIQUES
While designing the cyber-marketing plan, you have to consider the following
steps. :
1. Determine the need of marketing information: Brainstorm all
information you have available for your customers/clients. Consider the
value a customer may find in the information you plan to provide and
determine the information’s worthiness. Not all information is really
worthy of passing on to the customer/client. The “rule of thumb” here is to
provide the top three to five most important pieces of information.
Providing more than that would either overwhelm the customer or drive
the customer away.
2. Prepare your information in Internet-ready format: Build an inventory
of electronic and physical art ready for publishing on the Internet. By
doing this you will be able to keep costs down and integrate your
corporate image into your web promotional material. All these information
must be user friendly you will be able to keep costs down and integrate
your corporate image into your web promotional material. All these
information must be user friendly.
3. Organize the information into logical units: The biggest difference
between the Internet and traditional marketing methods is space
considerations. Consider the information that can be placed into a 30-
second radio advertisement, then consider the 30-second television
advertisement, and finally consider the amount of information that can be
placed on the Internet. You will find that the hardest place to advertise is
on the radio because you have people that for the most part, are in a
position where they are unable to record vital information or remember
your product. Television commercials have more to work with - visual art
being the strongest position that media has. Finally, with the Internet you
are able to get the message across in print, audio and art. Therefore, you
should strongly consider the best way to group your information into
logical units so that you do not detract from other areas of importance.
4. Plan your target market: After determining what you want your cyber
marketing to achieve, you will need to determine which areas of the
Internet will enable you to reach your objectives. There is one thing of
vital importance that requires mentioning: You may know you want to
sale to a particular age group or some other demographic, but you do not
know what makes up that demographic. A case in point, while blind
people can riot drive that does not mean they-do not own cars. However,
unlikely this may seem that the point is your target market will always
consist of individuals whose abilities or disabilities of which you may not
be aware or even consider. Therefore, an accessible website is your best
choice in internet marketing.
5. The Aspect of Traditional Marketing: Any marketer, when attempting
to establish a marketing plan, is always faced with how to classify and sort
ideas. The market segmentation in traditional marketing that can be
impacted by cyberspace. You must, determine the appropriateness of basis
of market segmentation i.e. demographic, psychographics, geographic, etc.
6. Build Brand Awareness and Loyalty: Build a community of customers
who are loyal to you and your product. If the customers are loyal to your
product/brand than advocacy of the product will go on automatically.
7. Educate your Market: Give customer and prospects an in-depth
understanding of your product or service, your company, or your industry.
So that, they tend to purchase products which they find a value in time of
quality and quantity.
8. Demonstrate and Distribute: Distribution works hand-in-hand with
demonstration. Door-to-door salesmen demonstrate their wares in hopes of
gaining avenues of distribution or customers. Demonstrating the value of
your product online properly will motivate people into impulse
purchasing.
9. Public Relations: There are many journalists that hang out in the
newsgroups, get e-zines, and surf the Internet in search of up and coming
business. Search out these journalists and work with them to get coverage
for your business. Further, you have to create relationship via electronic
media and thanks for purchase and give the reminders to the customers.
10. Feedback: Probably the most important thing you will ever receive as a
business owner working in cyberspace is feedback. The feedback you
receive can come from a customer, the market in general, others in your
industry, and even your competitors. The amount of information you
receive can be overwhelming at times. However, you want to use this
information to formulate responses with adjustments in your marketing
tactics or ensuring you continue with a marketing strategy that is working
for your business.
11. Promote your Web Site: By developing an ongoing promotional
program, you must be able to keep your web pages in front of potential
customers, and therefore helping generate inquiries and orders. If you
don’t promote your site then you will fade away like so many other
Internet businesses, which are notable to grasping the money from the
pocket of customers.
8.6 CYBER-MARKETING PITFALLS
The following mistakes not to be done in the field of cyber-marketing:
1. No E-mail Responsiveness: There are many web sites that have no means
of allowing the customers to send their e-mail to their business. If wish to
succeed; you should always have a means of allowing your customers to
contact you. On every page there should be at least one address-the
Webmaster’s address. On every page there should be a link to some form
of contact information. Your contact page should include phone numbers
(unless you work out of your home and you share the same phone number
for your business-definitely not advisable). Yet, most importantly your
contact page should include e-mail addresses so that the visitor can get
information being sought. You never know, you may even be blessed with
a customer that asks for a specific product you don’t carry and thereby
creating a new product line just from one letter.
2. Failure to Maintain Consistency between Marketing Efforts: There are
many businesses that fail to remain between their traditional marketing
plans and their cyber-marketing plans. This behavior could result in lost
business.
3. Lost in Cyberspace: All too often, web sites fail to provide adequate
navigational tools to move around on their sites. Further, lost in
cyberspace is to fail to get your web site listed in the various search
engines and directories. It is always recommend that the clients to
purchase Web Position Gold. They have clicked on the graphic to the left
us. We have to optimize their site the search engines.
4. No Sign of Humans: There are sites out there that seem as if they have
been created by some form of computer intelligence. What one should do
is ensure there is some evidence that people do exist in the business. This
could come in the form of employee names, humor, tidbits of local
information, and other sundry items. Probably the most important is to
write in conversational styles and not in a style that would seem
monotoned.
5. No Target Marketing: In cyberspace, people look for specific
information. With the vast amount of information available, failing to have
a target market is like shooting a shotgun at the side of the barn. You are
bound to hit something, but is it what you really want to hit? Mass
marketing is on its way out the door as fast and specialized marketing is
on its way in. This may not seem like it is with all the unsolicited email
you get from "spammers", but assuredly it fails more often that it
succeeds.
8.7 CYBER MARKETING AND ROLE FOR GOVERNMENT
As a high-tech marketer, you are probably familiar with the thought processes,
planning stages, factors, and risks involved which lead to a carefully planned and
executable direct mail marketing program. The costs involved, creative, printing,
postage etc. combined with adherence to basic guidelines, yield a responsible
campaign to market goods or services to consumers. Consider how this entire
paradigm drastically changes when it is performed electronically utilizing Email
or the Web. With the removal of investment, risk and guidelines, it's easy for
anyone to initiate a marketing campaign with no responsibility for their actions.
From one point of view, the Internet democratizes marketing, allowing
entrepreneurs to solicit customers in the same arena as larger companies.
However, the paradigm shift due to the construct and accessibility of Email
messaging and the Web opens an uncontrolled floodgate. With this floodgate
open, anyone capturing Email addresses or establishing a home page can easily
perform unethical marketing acts without any costs or risks. Intervention could
help to preserve and nurture the legitimate marketers while, most importantly,
protecting the consumer.
With some form or government involvement in place on the Internet, the
unscrupulous vendor will think twice about the content of their mass Emailing
and who they are targeting. It will also alleviate the mindset that marketing on the
Internet is only for opportunists. Legitimate marketers who adhere to the
guidelines will have momentum to use the electronic medium where they might
have originally avoided it in fear of being labelled as “schlock”.
The government can add definition to how marketing is performed on the
Internet, and actually make it a safer place for legitimate marketers by minimizing
irresponsible opportunists. It's not government interference, but marketing
responsibility that will make it better for all of us, including the consumers.
If you observe the origin of the Internet, the US Government has actually been
involved all along, starting in the 1960's with the Advanced Research Projects
Agency Network (ARPANET) funded by the Department of Defense. The
primary use of the ARPANET was to allow scientists and researchers to easily
access each other's information and to continue accessing information if one of
the systems went off-line due to a military attack. In the 1980's, the Government's
National Science Foundation officially created the Internet, replacing the original
ARPANET with a more modern, higher-speed network. The NSF's original goal
for the Internet was to provide distributed access to government-owned
supercomputers. Intended as a broad base educational and research network, the
Internet has evolved to include businesses, commercial services, and consumers.
In addition to remote computing, file access, and Email, the Internet later
supported multimedia elements, specifically color, graphics; audio, and video via
the implementation of the World Wide Web, which is based on the infrastructure
of the Internet. With the Internet’s governmental roots, there is a place for
continued involvement.
8.8 STEPS TO MAKE BETTER CYBER MARKETING
The following steps may help you for a successful cyber-marketing:
1. Analyze your business: As with any marketing venture, you have to nail
down your objective: What are you selling and how are you selling it? We
ask ourselves, what's our business? What do we do here? How do we do
this? What do our customers ask for and what do we do for them on a
daily basis? Once the self-analysis was complete; further, look into with
two key questions. How can we use the Internet to do, in a more cost-
effective way, something we are already doing? And what are we not
doing that the Internet might help accomplish? The great danger for
someone starting down this road is in thinking that by leveraging the
Internet, they're going to become a dot com. Instead, the attitude should be
that the Web is just one channel among many that can help a firm do what
it does better.
2. Hire a professional: The default thinking on launching a new business seems
to be: start small and work up. But when it comes to the Web, that
thinking will yield approximately the same result as setting up an office in
a trailer in Citibank's parking lot. When you get on the Web, your
competitors are the big guys. If you have a skimpy, amateurish website,
you don’t just suffer by comparison; you’re aced out by comparison.
Therefore you have hire professional to upto date you information on your
website.
3. Avoid brochure-ware and cheap, non-interactive designs: Web designers
come in may shapes and price ranges. It is advised that hiring can be done
as much sophistication as you can afford. All the financial service
expertise in the world won’t make up for a substandard site.
4. Keep it simple: Once your website is up, test its usability early and often.
This doesn’t require a high-tech eye-scan lab to see where surfers rest their
gaze first. It doesn’t even require a focus group. Simply parade people into
your office, watch them surf your site and ask them what they think. Are
they satisfied with the site’s speed and order? Is the layering logical, or do
they have to click through 10 levels of sediment to find gold? Are the
types of data on your site the kinds they’d hoped to find? Monitoring
usability can help ensure your site doesn’t become a digital ghost town.
5. Focus on service: Each of above aspects must be considered. Customer
service became a big focus for us. Before launching a website you must be
consider host of features it calls “view and do”, e.g. in insurance business,
“View” features include enabling clients to check the status of their own
products-account balances, policy designations and the like. “Do” features
are transactional, such as changing an address, changing investments in an
annuity and changing fund allocation, have not only improved customer
service, but have also made the firm’s advisors more efficient. “Since
we’re leaving our low emotion/high transaction services to the Internet,
our advisors are no longer functioning as data providers, instead, they are
becoming a client’s point of contact for more emotional decisions
including buying additional services insurance. Therefore, we have to
focus on service.
6. Keep it fresh: Before you leap into digital marketing, remember that today’s
Internet isn’t the Internet of the mid-1990s. Surfers will not put up with
static sites or those that change only once in a while. Access to an ever-
changing content mix is critical. What people don’t appreciate is that
putting up a website is simple.” But keeping it populated with interesting
content is a nightmare. It is advised that partnership with other firms and
services that can keep content fresh. Ready allies come in many shapes
and sizes, but look first at those companies whose products you sell.
Mutual fund companies and insurers often publish Web content they’re
willing to share in the form of how-to articles, advice and analysis. In
addition, news and information services add snap and currency to a site.
The more information a site offers, the more choices are available to the
customer, but another reason for varying and cycling through fresh
content: diversity of opinion. As an advisor, you have to make available
various opinions from various sources, “that way, clients can be assured
you’ve had the advantage of comparing opinions, as opposed to just
promoting your own agenda.
7. Integrate your message: Once you’ve launched a website, you should
mention it in all your marketing material, from business cards to brochures
to stationary. But you also need to view your site as an extension of your
marketing message. Are you running year-end print or broadcast ads?
Update your Web content to match. Have you added a new fund or
insurance product to your offerings? Add them to your site. As you fine-
tune your marketing message, make sure you update your website.
These steps will helps you launch or fine-tune your cyber-marketing efforts.
Generally it is observed that “the best sites are not those that are the most
complicated, but those that deliver what the customer needs.”
8.9 SUMMARY
Network-marketing is the personal selling tool, by which the producer interacts
directly to the customers in terms of their salespeople; and they become able to
get feedback from the customer quickly. Further, they become able to measure the
performance of the product in the market. In addition, they can grab the potential
of marketing in rural sector also. Through cyber-marketing producers can
approach many potential customers who are not in their easy access. If they will
launch a fine tuning among the websites, customers and competitors than they can
provide better services in this field of marketing and collect many orders with
huge profits and growth opportunities.
8.10 Key words
Tidbits: a small choice bit of food or item or information
Alleviate: ease (pain or distress)
Amateur: a person who does something as a pastime rather than as
a profession
Skimpy: scanty (small in amount or extent)
8.11 SELF-TEST QUESTIONS
1. What do you mean by network marketing? Why it is important in present
scenario?
2. What do you mean by cyber marketing? How can you develop a plan for
it?
3. Distinguish between network marketing and cyber-marketing?
4. What is the role of electronic marketing for government and society?
5. Explain the planning and techniques of cyber-marketing?
8.12 SUGGESTED READINGS
1. Shapario, C. and H.R. Varian (1999), Information Rules, Harvard, MA:
Harvard Business School Press.
2. Hornell, e. (1992), Improving Productivity for Competitive Advantage:
Lessons from the Best in the World, London: Pitman.
3. Seybold, P.B. and R. T. Marshak (1998), Customer.com:How to Create a
Profitable Business Strategy for the Internet and Beyond, New York:
Random House.
4. Berkowitz, E. N., R. A. Kerin, S. W. Hartly and W. Rudelius (2000),
Marketing Boston, MA: Irwin McGraw-Hill.
Contents:
9.1 Objectives
9.2 Introduction of E-Commerce
9.3 Meaning and Definitions
9.4 Scope of the E-Commerce
9.5 Basic Models and essentials to establish E-Commerce
9.6 Impact of the E-Commerce
9.7 E-Commerce and Marketing mix
9.8 Key success factor of E-Commerce
9.9 Product and Pricing
9.10 Acceptance of E-Commerce
9.11 Summary
9.12 Key words
9.13 Self -Assessment Questions
9.14 Suggested Readings
Subject : Basic principles of Marketing and Management
Subject code: 05 Author: Ashish Garg
Lesson no: 09 Vetter: Dr.B.S.Bodla
E-Commerce
9.1 Objective: Main objective of this lesson is to make the student high-tech
by providing the knowledge of the E-Commerce.
9.2 Introduction to E-Commerce
This is an age of Information Technology where the computer and
communication technologies together play a very vital role in all
spheres of human endeavour. The best known example that has
touched all of us is the computerized railway reservation system.
Here the computer located in different towns are interconnected
through a special network of railway and the computes
communicate with each other. Similarly airline reservation system
, hotel room reservation system etc. allow us to make suitable
reservations from anywhere in the world. Another influence of the
information technology can be seen in the banking sector where we
could withdraw the money at any time from any of the branches or
Automatic Teller Machine make payments through credit cards etc.
We can find so many other example of information technology
around us. Advent of internet that has made the dramatic impact
on the society by bringing people from all over the world together
and making most of these application come alive. Internet has
changed the way people communicate with each other in an
efficient and cost effective manner through the features of e – mail,
news groups, chat rooms and internet based conferencing.
With its all pervasive influence, IT is about to bring in the way we do
shopping and business. IT enables complex business operations to be
performed by effective using the electronic networks like internet and
computers. When the business is performed on the electronic media, it
is called electronic business (E-Business) or electronic commerce (E-
Commerce).
9.3 Meaning
E-Commerce or Electronic Commerce is a general term for any type of
business or commercial transaction that involves the transfer of information
across the internet. This covers a range of different type of business from
consumer based sites like Amazon.com, through auction and music sites like
eBay or MP3.com, to business exchange trading goods or services between
corporations
“ Electronic commerce encompasses the use of technologies, processes and
management practices that enhance organizational competitiveness through
strategic use of electronic information. E-Commerce, which is selling of
products on the internet, represents only the “front-end” of E-Business goes
beyond E-Commerce by integrating it tightly with business operation to
improve performance, create value and enable new relationship between
business and consumers.”
(MIS Magazine, May
1999)
According to David Baum, “Electronic commerce is a dynamic set of
technologies, applications and processes that link enterprises, consumers and
communities through electronic transactions and the electronic exchange of
the goods, services and information.”
Example of E-Commerce
There are several examples of electronic commerce covering a
wide spectrum of application areas in industry. Given below a
few areas in which E-Commerce is taking place and these give
some idea of the current status of E-Commerce activity.
On line trading in stock exchange instead of traditional
floor trading.
Trading in dematerialized share.
Electronic shopping for various types of product
Filling tax return electronically.
In supermarkets all over the world currently money
transfer take place electronically.
Integrated financial networks used by the banks enable
the customers to copy out their banking transactions
electronically.
Following are some specific examples of E-Commerce:
Amazon.com : It is a world’s largest bookstore and is an
excellent example of E-Commerce service. An internet user has
the facility to search for books, journals etc. based on
keywords or title. The user can order the books online and use
a credit card for paying the cost of the books. Amazon.com
also locates the books from publisher and other booksellers
and supplies the items.
Barclays Bank: Barclays Bank offer complete banking services
to consumers who can do all their banking works including
querying of accounts from their homes or offices.
Prudential ICICI : In India Prudential ICICI AMC is the first mutual fund
that offers investment facility to non-resident Indians through E-Commerce.
9.4 Scope of E-commerce
E-Commerce encompasses all activities of business, starting
from developing manufacturing , marketing and selling the
products, obtaining information through market intelligence,
assessing the market, grooming the market , providing pre and
post sale support, procuring material facilitating contacts
between traders, supporting shared business processes etc. In
the broadest terms e-commerce includes any form of
business/trading that is carried out using the electronic
medium. It could involve goods or services. The transactions
could takes place between:
One organization and another
An organization and an individual
An organization and a statutory or legislative body
Thus e-commerce encompasses all activities that are carried
out by a manufacturing and business firms except those
activities that are to be physically carried out, such as
manufacturing, packing and shipping. It is not essential that
all the above activities are to be carried out on the internet
from the beginning. The store can select some activities to
start with and then gradually expand the activities it carries
out on the internet. E-commerce can also be applied in the
field of
1) Education
2) Personnel training
3) Entertainment
4) Banking and financial transactions
5) Essential services etc.
9.5 Basic models & Essentials to establish E-Commerce
The basic business models are of two types.
Business-Consumer model
Business-Business model
1.Business to Consumer Model
This model cover all transactions done between consumer and
trader just as marketing of goods, ordering for the goods and
making payments etc.
Purpose of this model is to enable the consumer to locate and
purchase desired goods or service over the internet when the
customer is interested in making the purchase.
For the merchants this model ensures the higher revenue by
enabling them to access broad market.
2.Business to Business Model
This model covers the interactions between the business
houses. Taking the example of automobile industry , the broad
areas of activity in this industry can be through off as: market
survey, product development , market building , product
production , product distribution or supply chain
management, coordination of sales, financial planning and
management, procurement and inventory management,
personnel management etc. involve the firm dealing with other
firms that can be done with help of internet. This model being
encompassing all transactions with all parties involved, the
information system tend to be much more complex than
simple order supply transactions.
Essentials of E-Commerce
Enterprise large or small tend to develop their Web presence in
stages. Once a web presence is created then the enterprise
wants to use that site to enhance customer service and to
produce revenue. It is at the latter stage that E-Commerce
comes into play.
A server provider’s hosting customers will go through the same
evolution described in the preceding module. It is not enough
just pick off the high end client who represents the highest per
client revenue there simply enough of them. Furthermore the
future opportunity is to provide a platform that can move a
client along the range from low to high function as client
sophistication and needs evolve. Many small and medium
sized businesses are struggling with the high cost of entry to
E-Commerce. Creating a complete online selling environment
can require considerable time, money and technical expertise.
Many businesses follow the following three steps to establish
an effective E-Commerce.
Step one: Develop a content site and handle transaction off-
line.
Step two: Develop an on-line catalog and handle transaction
off-line.
Step three: Develop an on-line catalog and handle transaction
on-line.
Hardware required Software required
Processor Operating system
Modem HTML, Java, IIS
Mouse Java script, SQL
Server
Scanner Window
Environment
Others: 1) DHTML 2) XML 3) VBS Script etc.
9.6 Impact of E-Commerce on business and consumers
E-Commerce provides the following benefits to sellers as well
as consumers.
(A) Benefits to Business
1.Reduction in cost: E-Commerce helps a business by
reducing the cost by the following means:
E-Commerce helps to reduce inventory costs by allowing
the company to access and utilize their supplier’s data
base. This allow for the just in time inventory control by
providing the knowledge about the inventory.
E-Commerce helps us to reduce cost of the procurement
and the payments. By putting the catalogue on the net
supplier can receive order on the net and payment can be
received by the net which help the businessmen to
reduce the cost regarding the above.
Human resource costs are reduced as the need for
training and workers is reduced.
2.Improve customers satisfaction: Customer satisfaction
can be ensured by following ways
The customers can be controlled by providing the
information about the product at their home.
By delivering the product to the customers at home
By getting the payment on the net.
By providing the demonstration of the product on the
net.
3.Improve management
By improving the reporting and information system
By ensuring the better control techniques
By improving sales and marketing services
(B) Benefits to Customers
From the consumer point of view E-Commerce has following
benefits:
Consumer can access to the original firm rather than
access to the dealer or middleman.
Consumer have global choice regardless of their
geographical location.
The shopping decision will be much easier as the
consumer can reach several shops, compare the quality
and prices in a short time.
Saving of time and convenience
9.7 E-COMMERCE AND MARKETING MIX
The selection of an e-commerce marketing mix is likely to involve the application
of established marketing management principles as the basis for defining how
electronic technologies are to be integrated into a firm’s existing operations. In
many organizations, e-commerce marketing mix proposals will be based around
enhanching existing offline activities by utilizing the Internet to provide new
sources of information, customer supplier interaction and/or alternative purchase
transaction channels.
9.7.1. PRODUCT AND PRICING
It will be necessary to determine whether the Internet provides an opportunity for
product enhancement. Such opportunities include improving customer service and
broadening the product line. As far as pricing is concerned, thought must be given
to whether offline and online prices will be different and the potential
implications of any price variance for existing offline customers. When the move
to e-commerce involves new distribution costs, consideration should be given to
delivery charges. Tesco, for example, imposes a delivery charge for its home
shopping service.
9.7.2 PROMOTION
The first issue to be addressed when considering promotional mix decisions given
the important role of the Internet in making information available to customers-is
the design of a company’s webside. Some large companies will decide that this is
an activity over which they wish to retain absolute control. In this situation the
firm will hire a team of employees to manage the website creation process.
However, there are a variety of other approaches that may be adopted. The design
process may be contracted out to a major consulting firm, such as IBM, or to one
of the many specialist Internet agencies that have been formed in recent years.
Firms with limited financial resources may wish to use a web-authoring package.
One of the more expensive, but highly popular, authoring software packages is
Drumbeat 2000 produced by Macromedia (www.macromedia.com). This product,
besides containing a plethora of design options, also has features such as a
shopping cart function; secure credit card transactions and an integrated database
system. For those firms that do not feel able to run their own Internet operation,
another option is to join an existing website, which acts as host for a number of
organizations. These hosting services usually provide a choice of basic website
templates to suit different types of business. The firm is provided with software
by the hosting service, which permits it to customize a template and thus develop
its own visual identity. An example of a hosting service is Mindspring.com
(www.mindspring.com) The company provides software for a firm to build a
product catalogue and storefront, which is then featured on the Mind spring site.
The degree to which a company already has a strong offline market presence will
strongly influence the scale of an e-commerce promotional plan. Thus, for
example, when
Tesco, the largest UK supermarket chain, began to offer an online grocery
purchasing service; the promotional launch campaign was quite simple. As the
company already had strong brand recognition in the market, the main aim of its
promotional activity was to register awareness for its website address. This was
achieved by using traditional channels such as some television advertising, mail
shots to Tesco loyalty card holders and in-store merchandising displays. For new
entrants with no offline presence, building brand recognition can be expensive.
However, the Internet has also given rise to some novel approaches to promotion.
9.7.3. DISTRIBUTION
The commonest distribution model in the majority of offline consumer goods
markets is to delegate both transaction and logistics processes (e.g. major brands
such as Coca-Cola being marketed via supermarket chains). This can be
contrasted with the online world where absolute delegation of all processes is a
somewhat rarer event. The reason for this situation is that many firms, having
decided that e-commerce offers an opportunity for revising distribution
management practices, perceive cyberspace as offering a way to regain control
over transactions by cutting out intermediaries and selling direct to their end-user
customers. This process, in which traditional intermediaries may be squeezed out
of channels, is, as we have already seen, usually referred to as disinter mediation.
Hence, for those firms engaged in assessing the e-commerce distribution aspects
of their marketing mix, there is a need to recognize that the technology has the
following implications.
* Distance ceases to be a cost influencer because online delivery of
information is substantially the same no matter what the
destination of the delivery.
* Business location becomes an irrelevance because the e-commerce
corporation can be based anywhere in the world.
* The technology permits continuous trading, 24 hours a day, 365 days a
year.
Once all the issues associated with the e-commerce marketing mix have been
resolved, these variables will provide the basis for specifying the technological
infrastructure that will be needed to support the planned e-commerce operation. In
some cases the firm will decide to manage all of these matters in house but, in
others, the firm may outsource a major proportion of its e-commerce operations to
specialist subcontractors.
9.8 KEY SUCCESS FACTORS IN E-COMMERCE
Several factors have a role in the success of any e-commerce venture. They may include :
* Providing value to customers: Vendors can achieve this by offering a
product or product-line that attracts potential customers at a competitive
price, as in non-electronic commerce.
* Providing service and performance: Offering a responsive, user-friendly
purchasing experience, just like a flesh-and-blood retailer, may go some
way to achieving these goals.
* Providing an attractive website: The tasteful use of colour, graphic,
animation, photographs, fonts and white-space percentage may aid success
in this respect.
* Providing an incentive for customers to buy and to return: Sales
promotions to this end can involve coupons, special offers, and discounts.
Cross-linked website and advertising affiliate programs can also help.
* Providing personal attention: Personalized we sites, purchase
suggestions, and personalized special offers may go some of the way to
substituting for the face-to-face human interaction found at a traditional
point of sale.
* Providing a sense of community: Chat rooms, discussion boards,
soliciting customer input, loyalty schemes and affinity programs can help
in this respect.
* Providing reliability and security: Parallel servers, hardware
redundancy, fail-safe technology, information encryption, and firewalls
can enhance this requirement.
* Providing a 360-degree view of the customer relationship: Ensuring
that all employees, suppliers, and partners have a complete view, and the
same view, of the customer. However, customers may not appreciate the
big brother experience.
* Owning the customer’s total experience: E-tailers foster this by treating
any contacts with a customer as part of a total experience, an experience
that becomes synonymous with the brand.
* Streamlining business processes, possibly through re-engineering and
information technologies.
* Letting customers help themselves: Provision of a self-serve site, easy to
use without assistance, can help in this respect.
* Helping customers do their job of consuming: E-tailers can provide
such help through ample comparative information and good search
facilities. Provision of component information and safety-and-health
comments may assist e-tailers to define the customers’ job.
* Constructing a commercially sound business model: If this key success
factor had appeared in textbooks in 2000, many of the dot.coms might not
have gone ruined.
* Engineering an electronic value chain in which one focuses on a
“limited” number of core competencies - the opposite of a one-stop shop.
(Electronic stores can appear either specialist of generalist if properly
programmed.)
* Operating on or near the cutting edge of technology and staying there
as technology changes (but remembering that the fundamentals of
commerce remain indifferent to technology).
* Setting up an organization of sufficient alertness and agility to respond
quickly to any changes in the economic, social and physical environment.
9.9 PRODUCT AND PRICING
Even if a provider of E-commerce goods and services rigorously follows
these above “key factors” to devise an examplary e-commerce strategy,
problems can still arise. Sources of such problems include:
* Failure to understand customers, why they buy and how they buy:
Even a product with a sound value proposition can fail if producers and
retailers do not understand customer habits, expectations, and motivations.
E-commerce could potentially mitigate this potential problem with
proactive and focused marketing research, just as traditional retailers may
do.
* Failure to consider the competitive situation: One may have the
capability to construct a viable book e-tailing business model, but lack the
will to compete with Amazon.com.
* Inability to predict environment reaction: What will competitors ? Will
they introduce competitive brands or competitive web sites ? Will they
supplement their service offerings ? Will they try to sabotage a
competitor’s site ? Will price wars break out ? What will the government
do ? Research into competitors, industries and markets may mitigate some
consequences here, just as in non-electronic commerce.
* Over-estimation of resource competence: Can staff, hardware, software,
and processes handle the proposed strategy ? Have e-tailers failed to
develop employee and management skills ? These issues may call for
thorogh resource planning and employee training.
* Failure to co-ordinate: If existing reporting and control relationships do
not suffice, one can move towards a flat, accountable, and flexible
organizational structure, which may or may not aid co-ordination.
* Failure to obtain senior management commitment: This often results in
a failure to gain sufficient corporate resources to accomplish a task. It may
help to get top management involved right from the start.
* Failure to obtain employee commitment: If planners do not explain their
strategy well to employees, or fail to give employees the whole picture,
then training and setting up incentives for workers to embrace the strategy
may assist.
* Under-estimation of time requirements: Setting up an e-commerce
venture can take considerable time and money, and failure to understand
the timing and sequencing of tasks can lead to significant cost overruns.
Basic project plainning, critial path, critical chain, or PERT analysis may
mitigate such failings. Profitability may have to wait for the achievement
of market share.
* Failure to follow a plan: Poor follow-through after the initial plainning,
and insufficient tracking of process against a plan can result in problems.
One may mitigate such problems with standard tools: benchmarking,
milestones, variance tracking, penalties for negative variances, rewards for
positive variances, and remedial realignments.
* Product suitability: Certain products/services appear more suitable for
online sale; others remain more suitable for offline sales. Many successful
purely virtual companies deal with digital products, including information
storage, retrieval, and modification, music, movies, education,
communication, software, photography, and financial transactions.
Examples of this type of company include: Schwab, Google, eBay,
Paypal, Egghead, and Morpheus.
* Virtual marketers can sell some non-digital products/services
successfully: Such products generally have a high value-to-weight ratio,
and/or involve embarrassing purchases, and/or typically go to people in
remote locations, and/or have shut-ins as their typical purchasers. Products
such as spare parts, both for consumer items like washing machines and
for industrial equipment like centrifugal pumps, also seem good
candidates for selling online. Retailers often need to order spare parts
specially, since they typically do not stock them at consumer outlets-in
such cases, e-commerce solutions in spares do not compete with retail
stores, only with other ordering systems. A factor for success in this niche
can consist of providing customers with exact, reliable information about
which part number their particular version of a product needs, for example
by providing parts lists keyed by serial number. Purchases of pornography
and of other sex-related products and services fulfil the requirements of
both virtuality (or if non-virtual, generally high-value) and potential
embarrassment; unsurprisingly, provision of such services has become the
most profitable segment of e-commerce. Products unsuitable for e-
commerce include products that have a low value-to-weight ratio, products
that have a smell, taste, or touch component, products that need trial
fittings, and products where colour integrity appears important.
9.10 ACCEPTANCE OF E-COMMERCE
Consumers have accepted the e-commerce business model less readily than its
proponents originally expected. Even in product categories suitable for e-
commerce, electronic shopping has development only slowly. Several reasons
might account for the slow uptake, including :
* Concerns about security: Many people will not use credit cards over the
Internet due to concerns about theft and fraud.
* Lack of instant gratification with most e-purchases (non-digital
purchases). Much of a consumer’s reward for purchasing a product lies in
the instant gratification of using and displaying that product. This reward
does not exist when one’s purchase does not arrive for days or weeks.
* The problem of access to web commerce, particularly for poor
households and for developing countries. Low penetration rates of Internet
access in some sectors greatly reduce the potential for e-commerce.
• The social aspect of shopping: Some people enjoy talking to sales staff,
to other shoppers, or to their cohorts: this social reward side of retail
therapy does not exist to the same extent in online shopping.
9.11 SUMMARY
In short, the Internet World Wide Web is changing the way in which consumers
and businesses communicate. The original obstacles facing early users of the
Internet was how to find rapidly the information being sought. The solution to this
problem was the creation of portals such Yahoo ! (www.yahoo.com), and Alta
Vista (www.altavista.com), which provide search engines that locate those
websites containing the information sought by the user. Initial projections on the
on the scale of Internet usage and e-commerce have proved wildly optimistic. The
past two years have seen a significant downturn in the technology sector and
many high-profile Internet start-ups such as Boo.com, CDNow.com, eToys.com,
First.com, Peapod.com, Pets.com and Pop.com have gone out of business.
Mainstream companies have significantly reduced their investments in the
Internet. Nevertheless, Internet usage is growing steadily and will continue to
create new market openings as well as new ways of conducting marketing
activity.
9.12 Key words
Vendor: a seller
Penetration: make a way into or through
9.13 SELF-TEST QUESTIONS
1. What do you mean by e-commerce ? Why it is important in present
scenario ?
2. How can you develop a plan for e-commerce ?
3. What are the perspectives of electronic commerce in the competitive
environment ?
4. Discuss the problem e-commerce and key factors for success of it.
9.14 SUGGESTED READINGS
1. Shapario, C. and H.R. Varian (1999), Information Rules, Harvard, MA:
Harvard business School Press.
2. Hornell, e. (1992), Improving Productivity for Competitive Advantage:
Lessons from the Best in the World, London: Pitman.
3. Seybold, P.B. and R.T. marshak (1998), Customer.com: How to Create a
Profitable Business Strategy for the Internet and Beyond, New York:
Random House.
4. Berkowitz, E.N., R.A. Kerin, S.W. Hartly and W. Rudelius (2000),
Marketing Boston, MA: Irwin McGraw-Hill.
STRUCTURE:
10.1 Objective
10.2 Introduction
10.3 Rural Marketing
10.4 Features of Rural Consumers
10.5 Factors affecting Rural Marketing
10.6 Potential of Rural Marketing in India
10.7 Steps to tapping the Rural Markets
10.8 Summary
10.9 Key words
10.10 Self-Test Questions
10.11 Suggested Readings
10.1 OBJECTIVE: The present chapter aims to detail the scope and challenges of rural
marketing in India.
10.2 INTRODUCTION
The Indian rural market, with its vast size and demand base, offers great opportunities to
marketers. Nearly three-fourths of the country's consumers are in the rural market and
one half of the national income is generated there. The rural market started showing its
potential in the 1960s and the 1970s. The 1980s and the 1990s witnessed its steady
development. The first decade of the new millennium is set to see its blossom. In
COURSE: BASIC PRINCIPLES OF MARKETING AND MANAGEMENT
Course Code: 05 Author: Surinder Singh Kundu
Lesson: 10 Vetter: Dr. B. S. Bodla
RURAL MARKETING IN INDIA
numerical terms, India's rural market is indeed a large one; it consists of more than 740
million consumers. Though over the last three decades there has been a marginal
reduction in the rural population expressed as a percentage of the total population, there
has been a steady growth in rural population in terms of absolute numbers. And, it had
reached 74 crore by 2001. In terms of households, the rural market consists of more than
12 crore households, forming over 70 per cent of the total households in the country.
10.3 RURAL MARKETING
Rural demand has grown steadily over the years. Not only has the market grown in
quantitative terms, but qualitatively too it has undergone a significant change. The
composition of rural demand has also been changing significantly. The products that are
already well established in the rural market include: Textiles, bath soaps, washing soaps,
washing powder, detergents, and detergent cakes, medicines and hygiene products,
toothpowder/toothpaste, razor blades, packaged tea, other beverages, including alcoholic
beverages, tobacco and tobacco products, agricultural inputs like fertilizers, pesticides,
cooking utensils, pressure cooker, ornaments and jewellery, agricultural capital goods
such as tractors, trailers, harvesters, pump sets, pipes and pipe fittings, bicycles, scooters
and motorcycles, wristwatch radio/transistor/tape recorder, fans and TVs (B&W).
Many new products have entered the consumption basket of the rural consumer; and the
relative shares of the different categories of products in the consumption basket have also
recorded a good change. The upper segments, in particular, have started buying and using
a variety of modern consumer products, which were till recently unknown in the rural
market.
Marketers cannot now go by the perception of yesteryears and assume that rural India
consumes only certain traditional. Essential products and that its share in other product
categories is meager. Rural India now accounts for a sizeable share of the total
consumption for a variety of consumer goods, such as packaged tea, washing products,
including detergents, toiletries of various kinds, popular as well as premium bath soaps,
toothpaste, tooth powder, safety razor blades, shaving rounds, talcum powder, hair oil,
OTC products, and durables like electric irons, bicycles, scooters and motorcycles.
It is perhaps well known that products like packaged tea, bath soaps and washing prod-
ucts, including detergents/detergent cakes, are popular items of consumption in rural
market. What is not known perhaps is that products like shampoo, toothpaste and talcum
powder, and durables like electric irons, bicycles, mopeds, scooters, and motorcycles
have joined this category in recent years. The rural demand for electric irons, mopeds,
and motorcycles are now between 30 and 50 per cent of the all-India demand.
Interestingly, in many products, rural consumption now accounts for a larger share than
urban. Washing soaps (cakes bars); the rural share is over 60 per cent. Popular bath
soaps, it is more than 50 per cent and in batteries, it is more than 56 per cent. Similar is
the case with packaged tea and hair oils.
It is observe red that more than the land-owning class, those engaged in services
(government staff, teachers and self-employed service providers including shopkeepers)
are the major buyers of the high-priced durables in the rural market. The shopkeepers and
service people together account for 45, 55 and 60 per cent of the market for television,
two wheelers and refrigerators respectively, though they account for just 21 percent of the
rural households. Between the two groups, the service class seems to have far greater
potential for high-priced durables than the shopkeepers. The service class comprises just
13 percent of the rural households but owns 30 to 40 per cent of these durables. Within
the service class, those who work outside the villages but live in the villages seem to be a
far more fertile consumption group. Owner farmers continue to be a significant consumer
group. They comprise one-third of rural households (their estimated number being 43
million households), and own one-third of the stock of these durables.
10.4 FEATURES OF RURAL CONSUMERS
The features found in the rural consumers are discussed below:
Location pattern: Practically, the whole of India, barring the metros and towns,
constitutes the Indian rural market. In other words, the market is spread through
the length and breadth of the vast country.
A scattered market: It is thus evident that the rural market of India is a
geographically scattered market. Whereas the urban population of India is
concentrated in 3,200 cities and towns, the rural population is scattered across
570,000 villages. And, of them, only 6,300 villages, or less than 1.1 per cent, have
a population of more than 5,000 each. More than 3 lakh villages, or more than 55
per cent of the total number of villages, are in the category of 500 people or less
and more than 1.5 lakh villages, or 25 per cent, are in the category of 200 people
or less. The inference is clear; unlike urban demand, which is highly concentrated,
rural demand is scattered over a large area.
Socio-economic position: By and large, rural consumers continue to be marked
by low purchasing power/low per capita income. Similarly, they continue to be a
tradition-bound community, with religion, culture and tradition strongly
influencing their consumption habits. However, as we shall see in detail in this
chapter, a sizeable segment of rural consumers defy this description.
Nearly 60 per cent of rural income comes from agriculture. Rural prosperity and
discretionary income with rural consumers are thus linked to sizeable extent with
agricultural prosperity. More than half the households are in the income category
of less than Rs 25,000 per annum, but about 14 per cent of the households have an
annual income that exceeds Rs 50,000 per annum. Remittances from Indians
working outside have made a sizeable contribution to the growing rural
income/purchasing power in some states. Analysis reveals that, in recent years,
rural consumers have been increasingly drawn into the savings habit. Nearly, 70
percent of rural households now save a part of their income. The habit is
relatively more widespread among salary earners like government staff, teachers,
and self-employed non-farmers, who include in the main, shopkeepers and service
providers.
Culturally a Diverse and Heterogeneous Market: The rural market is not only
a scattered market, but is also diverse and heterogeneous. Rural consumers are
diverse in terms of religious, social, cultural and linguistic factors. The diversity is
manifest in a more intense manner among the rural segments. It can be said that
heterogeneity is the No. I hallmark of the rural market- 5, 70,000 villages, half a
dozen religions, 33 languages, 1,650 dialects and diverse sub-cultures characterize
the market.
State-to-State Variation in Extent of Development: There is also a great deal of
difference between different states in extent of development. It varies on various
parameters, such as availability of health and education facilities, availability of
public transport, electricity. TV transmission, banks, post offices, water supply
and so on. A weight was decided upon for each facility based on the relative
importance of that facility in indicating the extent of development of the village.
While the average village in India has 33 development index points, villages in
Kerala had an average of 88 points while those in Bihar had just 22; Mp,
Rajasthan and UP were close to Bihar; and states like Maharastra, Haryana,
Karnataka had points ranging between 40 and 50.
Literacy Level: It has been estimated that rural India has a literacy rate of 28
percent compared with 55 per cent for the whole country. The rate is certainly on
the low side. However, such statistics do not reveal the whole picture. A number
of aspects as shown below need to be emphasized specifically with regard to rural
literacy. The picture has been changing over the years. For example, a decade
ago, the literacy rate in rural India was only 20 per cent. Year-to-year too, there is
a change. Every year about eight million people get added to rural India's literate
population. The adult literacy programmes launched in the rural areas are bound
to enhance the rural literacy rate in the years to come. In absolute numbers,
already there are more literate people in rural India (16.5 crore) than in urban
India (16 crore). The picture also differs from state to state and even from district
to district.
Lifestyle: By and large, the rural consumers are marked by a conservative and
tradition-bound lifestyle. But, what is striking today about this matter is not the
basic conservative characteristic, but the fact that the lifestyle is undergoing a
significant change. The lifestyle of a sizeable segment of rural consumers has
already changed significantly in recent years, and that of a much larger segment is
currently going through the process of change. As such, the earlier practice of
bracketing all rural consumers as people with a tradition-bound lifestyle does not
hold good in the new context.
Buying Behavior: To understand the buying behavior of rural consumers, we
must go to the factors that influence their buying behavior. The factors include:
Socio-economic environment of the consumer, cultural environment, geographic
location, education/literacy level, occupation, exposure to urban lifestyles,
exposure to media and enlarged media reach, the points of purchase of products,
the way the consumer uses the products, involvement of others in the purchase,
and marketers' efforts to reach out the rural market. In recent years, many
corporate have been trying hard to develop a market for their products in the rural
areas, investing substantially in these areas. This has brought about some change
in the way buyers purchase different products. Developmental marketing has
created discriminating buyers and hitherto unknown demand in the rural market.
All the above factors influence the buying behavior of rural consumers and hence
their responses to the marketing mix variables, and the reference points they use
for purchase decisions.
No Stereotype Rural Consumer: The interesting position that finally emerges
about the profile of the rural consumer is that one cannot proceed on the basis of a
stereotype of the rural consumer or of rural consumer behavior. This signals
problems as well as opportunities for the marketer. When we use the broad brush,
we may be tempted to say that low purchasing power/low per capita income and
low literacy level, are the common traits of rural consumers. Similarly, we may
also say that the rural consumers are a tradition-bound community, with religion,
culture, and tradition strongly influencing their consumption habits. None of this,
however, constitutes the representative picture of rural consumers as a whole. A
sizeable segment of rural consumers defy this description. We have to recognize
that all rural consumers do not share a common buying behavior. There are
consumers who can afford high-priced brands and are also willing to buy. There is
thus great scope and need for segmenting the rural market on the basis of buying
behavior.
10.5 FACTORS AFFECTING RURAL MARKETING
While a variety of factors in this concern have brought about the big growth in the rural
demand, a few of them are discussed as follows:
New income due to agricultural/rural development: The technological
breakthrough, popularly known as the green revolution, which took place in Indian
agriculture from the mid-1970s onwards, has added to the prosperity of rural India
considerably. Moreover, in recent years, as part of the new farm policy, high
support prices are offered for farm products. As a result, there is now more money
in the hands of the owner-farmers in the rural areas. There have also been some
concerted efforts towards rural development in general, besides agriculture
development. This has generated new employment and new income and purchasing
power among the rural people. The rural population can no longer be labeled en
masse as a poverty-stricken lot.
The expectation revolution: The expectation revolution among the rural
folks completes the picture. The 'rising expectations' of the rural people have
greatly influenced the rural, market environment. It has enlarged the desire as well
as awareness of the rural people; it has strengthened their motivation to work, earn
and consume. The rise in income provides substance to the aspirations.
Season: Rural demand is more seasonal compared to urban demand. The
pre-dominance of agriculture in the income pattern is one main reason for this. The
relatively greater influence of marriages and festivals on the purchase pattern is
another. Interestingly, marriages and festivals often coincide with the harvest.
Besides being seasonal, rural demand is somewhat irregular as well. The pre-
dominance of agriculture in the income pattern is again the main reason for this.
Agriculture in many parts of India still depends on the vagaries of the monsoons. A
variety of factors have rendered the rural market quite attractive to corporate in
recent years.
10.6 POTENTIAL OF RURAL MARKETING IN INDIA
The following factors are favoring the attraction towards rural market in India.
1. The Growing Opportunity: The growing opportunity in the rural market is no
doubt the prime factor. In the preceding section, we saw that rural demand has
been growing rapidly and its composition has been changing for the better in
recent years. The increased income/purchasing power of the rural consumer and
the improved income distribution have enhanced rural demand for several
products. Better access too many modern products brands have added to this
growth.
2. Heat of Competition in the Urban Market: The opportunity in the rural market
becomes all the more rosier when the corporate see it in combination with the
growing competition in the urban markets. The heat of competition in the urban
market actually serves as the stronger driver behind the growing interest of
corporate in the rural market. The fact that the rural market is still largely an
untapped and virgin market and the fact that the early entrants can tap it without
having to face intense competition as in the case of the urban market, makes the
rural market all the more attractive to them. Corporate have been finding the
going increasingly tough in the urban market, especially for products in respect of
which penetration levels are already high. For example, penetration level for
toothpaste in the urban market has now reached close to 80 per cent. In contrast, it
is below 30 per cent in the rural market. Obviously, any substantial further growth
in the product can come only from the rural market. Moreover, in the urban
market, many consumers have been using particular toothpaste for quite some
time and have settled down to the brand, its flavor and other characteristics. They
cannot be expected to switch their brands very easily. In contrast, in rural areas,
there are a lot of first-time users of toothpaste whom the companies can tap from
the scratch. Toothpaste is but one example. Corporate find that the highly
penetrated urban markets 'allow little room for volume growths for most of what
are called 'necessity products' (toothpaste, bath soap, washing products, tea, etc.).
Growth opportunity for many of the 'emerging products' (coffee, 'shampoo,
biscuits, talcum powder, etc.) too is rather low in the urban market. The rural
market thus becomes essential for companies with strong growth aspirations. Not
competing in the rural market will keep them out of about half of the country's
market for 'necessity' products and one-third of the market for 'emerging' products
by value.
10.7 STEPS FOR TAPPING THE RURAL MARKETS
While rural India does constitute an attractive and sizeable market, firms have to
strive hard for securing a share of it. For, the market bristles with a variety of
problems. The firm has to grapple with them and find innovative solutions.
Practically in every task of marketing, rural marketing poses some unique
problems. The major steps that need to be followed in rural marketing are:
10.7.1 SEGMENTATION AND TARGETING
Firms have to analyze the consumers in-depth, carry out thorough market
segmentation and select relevant segments as target markets. And, they have
to develop a distinctive positioning and a distinctive marketing mix for each
target segment.
Geographic segmentation: In the first place, the rural market can
be segmented geographically, using different geographic bases.
Climate and level of irrigation: For example, climate can be one
of them; regions endowed with favourable climate are usually more
prosperous compared with climatically handicapped regions. Level of
irrigation can be another base; irrigated areas and dry land areas pose
different economic and marketing environments.
Nearness to a feeder town/industrial project: Firms can also
segment the rural market using 'nearness to a feeder town/industrial
project' as the base. Consumers located close to a feeder town visit it at
least once a month to sell their product and/or to buy their requirements,
and in buying habits, they differ from those living in the interior areas. It
will thus be meaningful to segment the rural market into consumers
located closer to a feeder town and consumers located away from them.
Similarly, nearness to an industrial project centre can also be used as the
base for segmentation. Many rural parts are studded with industrial
projects. There is a cross flow of population between these project centers
and the rural hinterlands, and the centers act as conduits for the flow of
products and ideas. As such, the proximity to such centers can be used as a
base for segmenting the market. It must be noted that in essence these are
cases of buying behavior-based segmentation, though a geographical base
is used for the segmentation. The point is that the difference in buying
behavior arises out of the geographical reality.
Demographic segmentation: The rural market can be segmented
demographically too. In fact, there are many possibilities of segmenting
the rural market demographically.
Population concentration: Population spread or population
concentration can be one base. About 40 per cent of the rural population
lives in 7 per cent of the villages in the country and remaining 60 per cent
in the other 93 per cent of the villages. Thus, the market can be segmented
on the basis of different size classes with regard to population.
Age: Segmentation using age as the base has also good scope in
rural marketing. In particular, the youth in the rural areas can be picked up
as a separate market. There is a population of more than 20 cores in the
age group of 16-30 years in the rural market. Surveys have revealed that
the younger generation dominates purchases in the rural market. This is
due partly to their greater literacy and exposure, and partly to their
changing values and lifestyles. We have also seen earlier that rural youth
differ from their elders in their buying behavior and that they are closer to
their urban cousins as far as aspirations go. It will thus be meaningful to
segment the rural youth as a separate market.
Literacy level: Literacy level can be another demographic base for
segmenting the rural market. Though rural India, in general, is
characterized by low literacy, there are wide variations in the matter of
literacy within rural India. For example, while the rural literacy rate in
Kerala is 80 per cent that in Bihar is only 15 per cent.
Income: Income too can be a base. The rural consumers can be
segmented into different income classes. It will be incorrect to paint the
whole area with the same brush and call it a market with 'low purchasing
power'. The rural consumers can also be segmented into regular income
and seasonal income segments. Earlier, we talked about the seasonal
nature of rural income and demand. All rural consumers are not
characterized by seasonality of income. There is a sizeable salaried class
in the rural area. There is also a sizeable self-employed group, consisting
of shopkeepers and service providers. There is nothing seasonal about the
income of such people. Obviously, those with regular income will differ in
buying habits compared with those whose income is seasonal.
Buying behavior segmentation: Earlier, we saw that rural
consumers differ in their buying behavior from their urban counterparts as
well as among themselves. This fact too could be factored into the
segmentation exercise. Firms should, however, generate relevant data on
the rural consumers and their buying behavior, perceptions and attitudes,
and then segment them using their buying behavior as the base.
Sources of data on rural consumers: Luckily, India has a rich
source of data on rural consumers in the form of census data. Reports of
the Centre for Monitoring Indian Economy (CMIE) also form a useful
source. As these are not usually in a user-friendly format, firms have to
discern the needed insights from them and use them as the base for
segmentation.
10.7.2 PRODUCT STRATEGY FOR RURAL MARKET
The first decision to be made in product strategy in the rural context is
whether the product that is sold in the urban market can be supplied to the
rural market as it is, or whether it must be adapted. It depends on the
situation and the nature of the product. In many cases, some adaptation
will be advantageous. Basically, the firm must find out what kind of
product is actually required by the rural consumer and then decide if it
should make an altogether distinct product or adapt the existing product.
Economic and income realities of the market should certainly be
considered while developing the product strategy for the rural market. In
addition, socio-cultural realities should also be considered. When products
are designed reflecting both these influences, the chance of success is
greater. Lower-priced product versions do help in many cases in the rural
market, but no generalization can be made in this regard. Many companies
try to reduce the prices of their products for the rural market by creating
smaller size, or by decreasing the quality. The approach works sometimes
and with some products, but not all times, with all products.
Different Products/Models, Brands, Packing, Pricing and
Positioning: By and large, the rural market can be tapped better
through different products/models, different brands, different
packaging and different positioning.
Designed Products: Specifically designed products do help in
many cases, e.g. tractor/trailer. It is a product specifically designed for
the rural market. It is designed as a replacement for the plough as well
as a vehicle for transporting both men and material in the rural areas.
Models: Models developed specifically for the rural market have
found more takers in the market. For instance, motorcycles that are
designed to take on the rigours of rural roads have succeeded more in
the rural market.
Colors: The rural consumers differ from their urban cousins in
color preference. In the case of some products, color may matter very
much. Firms can exploit this fact to their advantage. For example, in
the paint business, Asian Paints understood the substantial difference
between the urban and rural buyer in color preference. AP introduced
paints with bright colors for the rural markets. AP also communicated
the feature well through its communication campaigns.
Package Design and Packing Size: In some cases, the product
can be the same, but the package and pack size may have to be
different for the rural target group. Package design and color help
identification of brands by rural buyers. Many rural consumers are not
quite conversant with the various brands. All the same, they manage to
pick the brands that they want. They recognize the brand by its
packaging. This is the reason why a number of local brands in rural
areas imitate the packaging of big national brands.
Logos, Symbols and Mnemonics: Image is far more potent in the
rural market, which in many cases is an uninitiated market. Symbols,
therefore, add value to brand recall and brand personality in the rural
market, e.g. Asian Paints' Gattu, though equally well known in urban
and rural markets, has greater effectiveness as an identity tool in the
rural markets. Actually, in many rural parts of India, Asian Paints is
referred to as the bachchawala or chokrawala company. Similarly, the
Nirma girl in frock on the packs of Nirma washing powder has become
the mnemonic for effective and good value in washing powders.
Branding Decisions: The rural consumers have already graduated
from generic products to branded products. Today, the brand name is
the surest means of conveying quality to rural consumers. To them,
buying an established and well spoken of brand is the sure way of
reducing risk. Therefore, the branded products must be provided to
them. However, it will, be incorrect to assume that rural consumers
prefer local brands to national brands.
Value Brands, Not Cheap: While brands specifically developed
for the rural market and low-priced variants may work better in many
cases, the strategy should be one of selling value brands not cheap
brands. HLL's Lifebuoy, for example, is a low-priced carbolic soap
that is often the first choice of bath soap by a rural consumer. HLL,
however, does not sell it as a cheap soap. Instead, sells it as a hygiene
brand. It communicates the value of the brand to the target market. It
also tries to enhance the value of the offer by giving suitable 'add-ons'.
For example, while targeting rural students for the soap it distributed
height charts along with the soap and conveyed its concern for their
health and well being. Rural marketers would do well to add some
value to their products in this fashion if they are keen to secure the
loyalty of the consumers.
10.7.3 PHYSICAL DISTRIBUTION
There are so many problems, which marketers have to face in physical
distribution in the rural context.
Transportation and Warehousing: It is well known that
transportation infrastructure is quite poor in rural India. Though the
country has the fourth largest railway system in the world, many parts
of rural India remain outside the rail network. As far as road transport
concerned, proper roads do still not connect nearly 50 per cent of the
570,000-odd villages in the country. Many areas still have only kacha
roads and most of the interiors have hardly any roads worth
mentioning. As far as transport carriers concerned, the most common
ones are the delivery vans and the animal drawn carts. Because of the
difficulty in accessibility, delivery of products and services continues
to be difficult in rural areas. In warehousing too, there are special
problems in the rural context. Business firms find it quite difficult to
get suitable godowns in many parts of rural India.
Cost of Service: The constraints affect adversely the service as
well as the cost aspect in distribution. Maintaining the required service
level in delivery of products becomes very difficult. At the same time,
costs of distribution are shooting up. The scattered nature of the
market and its distance from the urban-based production points
compound the difficulty.
The Delivery Van: The delivery van has a key role in rural
distribution. The companies concerned or their C&F
agents/stockiest/distributors operate these vans. In some cases,
independent third parties operate them as a service for a fee.
Companies like Hindustan Lever and lTC, who are pioneers in rural
marketing in India, have a task force of company delivery vans for
rural distribution. The van takes the products to the retail shops in
every corner of the rural market. Besides facilitating product delivery,
the van serves certain other vital purposes. It enables the firm to
establish direct contact with rural dealers and consumers. It also helps
the firm in promotion. But, the cost of operating such vans is quite
high. And the proposition can work only if the area assures substantial
business. Through the van, they were not only solving the
transportation problem of the rural market, but were also developing
the market for their products.
10.7.4 CHANNEL MANAGEMENT IN RURAL MARKETING
Organizing marketing channels is the second part of the distribution task.
It also faces problems in the rural context.
Organizing Marketing Channels: The distribution chain in the
rural context usually requires more tiers, compared with the urban
distribution chain. The distance between the production points and the
rural market, and the scattered location of the consumers make it
necessary. At the minimum, the distribution chain in the rural context
needs three tiers, viz., the village shopkeeper, the mundi-level
distributor, and the wholesaler/stockiest/C&F agent in the town. In
addition, it involves the manufacturers' branch office operations in the
territory. Such multiple tiers and scattered outfit push up the costs and
makes channel management a major problem area.
Non-availability of dealers: Firms find that availability of dealers
is limited and the scope for appointing fresh/exclusive dealers of the
company is equally limited in view of the low demand and non-
availability of suitable candidates.
Low feasibility of the outlets: A good number of retail outlets in
the rural market suffer from low feasibility. A familiar paradox in rural
distribution is that on the one hand the manufacturer incurs additional
expenses on distribution and on the other, the retail outlets find that the
business is un-remunerative to them. The additional funds the
manufacturer pumps into the system are used by the scattered nature of
the market and the multiplicity of tiers in the distribution chain. They
usually do not result in any additional remuneration to any part of the
chain. And, the volume is not adequate to assure the profitability of all.
Banking and credit facilities: Distribution in rural markets is also
handicapped due to the lack of adequate banking and credit facilities.
It is estimated that there is only one bank branch for every 50 villages.
10.7.5 SALES FORCE MANAGEMENT
Generally, rural marketing involves more intensive personal selling effort
compared to urban marketing. The following steps can be taken for
successful management of sales force.
Special Traits of Salesmen: First of all, only those who feel
happy in living and working in the villages can become good rural
salesmen. It is common knowledge that the rural areas lack modem
amenities compared with the urban areas. Because of this factor, well-
qualified salesmen are often reluctant to live in rural areas. Firms
locate their salesmen in towns and allow them to cover the rural areas
assigned to them from there. Such an arrangement does not produce
optimum results. Successful rural marketing firms locate their sales-
men right in the midst of the rural market to be covered.
Cultural congruence: The salesmen must be well acquainted with
the cultural aspects of rural life. Since the cultural patterns of rural
communities differ from one another, a background that gels with the
culture of the given community is to be preferred. Urban markets, in
contrast, present a cultural convergence.
Attitude: Attitude factors are of particular significance in the rural
context. For example, the rural salesmen must have a great deal of
patience, as their customer is a traditional and cautious person.
Perseverance is another essential trait. It will not be possible for the
rural salesman to clinch the sale quickly. He may have to spend a lot
of time with the customer and make several visits to him to gain a
favorable response.
Knowledge of local language: Rural salesman should also be
conversant with the local language. Whereas his urban counterpart can
successfully manage with English and a working knowledge of the
local language, the rural salesman should be quite familiar with the
local language. In fact, he must be well versed in the lingo and idiom
of the local area/community.
Ability to handle several product lines: Often rural salesmen are
required to handle several product lines. While urban salesman can
generate an economic size business through a few product lines, rural
salesmen are compelled to handle a large variety of products, as they
do not generate economic volume of business with a few products.
Quite often, the items differ widely from one another. Rural salesmen
are thus required to be a 'jack of all trades'. They are also required to
travel more compared with their urban counterparts. Whereas urban
salesmen operate in highly concentrated and compact markets, rural
salesmen have to cover large territories and scattered customers. His
workload, therefore, is generally more.
Creativity: Rural selling also involves greater creativity. Often,
the products concerned may be very new in the rural context. The rural
salesmen have to mal
Marketing is indeed an ancient art; it has been practiced in one form or
the other, since the days of Adam and Eve. Today, it has become the
most vital function in the world of business. Marketing is the business
function that identifies unfulfilled needs and wants, define and measures
their magnitude, determines which target market the organization can
best serve, decides on appropriate products, services and programmes to
serve these markets, and calls upon everyone in the organization to think
and serve the customer. Marketing is the force that harnesses a nation's
industrial capacity to meet the society's material wants. It uplifts the
standard of living of people in society.
PAPER V
BASIC PRINCIPLES OF MARKETING AND MANAGEMENT
LESSON 1- Definition & Core concept, marketing tools, P’s- product, price, place and
promotion
LESSON 2- Market segmentation, targeting and positioning & analyzing the marketing
environment
LESSON 3- Study consumer behavior, needs and motivation, group dynamics, social
surroundings and consumer perception
LESSON 4-Promotion mix-direct selling, advertising, sales promotion and public
relations
LESSON 5-Brand evaluation and new trends in marketing
LESSON 6-Communication
LESSON 7- Relationship marketing
LESSON 8- Network and cyber marketing
LESSON 9- E-commerce
LESSON10- Rural marketing in India
LESSON 11- Ethics and marketing
LESSON 12- Introduction to management
LESSON 13- Decision making and organization
LESSON 14- Communication and control process
LESSON 15- Human resource management
LESSON 16- Entrepreneurship
Subject: Basic principles of marketing Author: Dr. M.R.P. Singh
And management
Course Code: Paper-V Vetter: Dr. B.S. Bodla
Lesson: 1
Definition and Core Concept, Marketing Tools,
P's-Product, Price, Place and Promotion
.
Structure
1.1. Objectives
1.2 Introduction
1.3 Definitions and terminology
1.4 Marketing concepts
1.5 Marketing mix
1.6 Summary
1.7 Key words
1.8 Self Assessment Exercise
1.9 Suggested Readings
1.1 Objective
This lesson deals with basics of the marketing process, marketing
concept and marketing mix i.e. product, price, place and promotion
1.2 Introduction
'Marketing is so basic that it cannot be considered as separate function.
It is the whole business seen from the point of view of its final result,
that is, from the customer's point of view'.
- Peter Drucker.
Marketing is indeed an ancient art; it has been practiced in one form or
the other, since the days of Adam and Eve. Today, it has become the
most vital function in the world of business. Marketing is the business
function that identifies unfulfilled needs and wants, define and measures
their magnitude, determines which target market the organization can
best serve, decides on appropriate products, services and programmes to
serve these markets, and calls upon everyone in the organization to think
and serve the customer. Marketing is the force that harnesses a nation's
industrial capacity to meet the society's material wants. It uplifts the
standard of living of people in society.
Marketing must not be seen narrowly as the task of finding clever ways
to sell the company's products. Many people confuse marketing with
some of its sub functions, such as advertising and selling. Authentic
marketing is not the art of selling what you make but knowing what to
make. It is the art of identifying and understanding customer needs and
creating solutions that deliver satisfaction to the customers, profit to the
producers, and benefits for the stakeholders. Market leadership is gained
by creating customer satisfaction through product innovation, product
quality, and customer service. If these are absent, no amount of
advertising, sales promotion, or salesmanship can compensate.
William Davidow observed: 'While great devices are invented in the
laboratory, great products are invented in the marketing department'.
Too many wonderful laboratory products are greeted with yawns or
laughs. The job of marketers is to 'think customer' and to guide
companies to develop offers that are meaningful and attractive to target
customers. Already sea changes have been taking place in the global
economy. Old business road maps cannot be trusted. Companies are
learning that it is hard to build a reputation and easy to lose it. The
companies that best satisfy their customers will be the winners. It is the
special responsibility of marketers to understand the needs and wants of
the market place and to help their companies to translate them into
solutions that win customers approval. Today's smart companies are not
merely looking for sales; they are investing in long term, mutually
satisfying customer relationships based on delivering quality, service and
value.
1.3 Definitions and terminology
There are as many definitions of marketing as many scholars or writers
in this field. It has been defined in various ways by different writers.
There are varying perceptions and viewpoints on the meaning and
content of marketing. Some important definitions are:
Marketing is a social and managerial process by which individuals
and groups obtain what they need and want through creating,
offering and exchanging products of value with others.
Marketing is the process by which an organization relates
creatively, productively and profitably to the market place.
Marketing is the art of creating and satisfying customers at a
profit.
Marketing is getting the right goods and services to the right people
at the right places at the right time at the right price with the right
communication and promotion.
Much of marketing is concerned with the problem of profitably
disposing what is produced.
Marketing is the phenomenon brought about by the pressures of
mass production and increased spending power.
Marketing is the performance of business activities that direct the
flow of goods and services from the producer to the customer.
Marketing is the economic process by which goods and services are
exchanged between the maker and the user and their values
determined in terms of money prices.
Marketing is designed to bring about desired exchanges with target
audiences for the purpose of mutual gain.
Marketing activities are concerned with the demand stimulating
and demand fulfilling efforts of the enterprise.
Marketing is the function that adjusts an organization’s offering to
the changing needs of the market place.
Marketing is a total system of interacting business activities
designed to plan, promote, and distribute need satisfying products
and services to existing and potential customers.
Marketing origination with the recognition of a need on the part of
a consumer and termination with the satisfaction of that need by
the delivery of a usable product at the right time, at the right place,
and at an acceptable price. The consumer is found both at the
beginning and at the end of the marketing process.
Marketing is a view point, which looks at the entire business
process as a highly integrated effort to discovery, arouse and
satisfy consumer needs.
It is obvious from the above definitions of marketing that marketing has
been viewed from different perspective. Now it is imperative to discuss
the important terms on which definition of marketing rests: needs,
wants, and demands; products; value, cost, and satisfaction; exchange,
transactions and relationships; markets; and marketers. These terms are
also known as the core concepts in marketing.
Needs, wants and demands
Marketing starts with the human needs and wants. People need food, air,
water, clothing and shelter to survive. They also have a strong desire for
recreation, health, education, and other services. They have strong
performances for particular versions and brands of basic goods and
services. A human need is a state of felt deprivation of some basic
satisfaction. People require food, clothing, shelter, safety, belonging,
esteem and a few other things for survival. These needs are not created
by their society or by marketers; they exist in the very texture of human
biology and the human condition.
Wants are desires for specific satisfiers of these deeper needs. For
example, one needs food and wants a pizza, needs clothing and wants a
Raymond shirt. These needs are satisfied in different manners in
different societies. While people needs are few, their wants are unlimited.
Human wants are continually shaped and reshaped by social forces and
institutions.
Demands are wants for specific products that are backed up by an ability
and willingness to buy them. For example, many people want to buy a
luxury car but they lack in purchasing power. Companies must therefore
measure not only how many people want their products, but, how many
would actually be willing to buy and finally able to buy it.
Marketers do not create need, they simply influence wants. They suggest
to consumers that a particular product or brand would satisfy a person’s
need for social status. They do not create the need for social status but
try to point out that a particular product would satisfy that need. They
try to influence demand by making the product attractive, affordable,
and easily available.
Products
People satisfy their needs and wants with products. Product can be
defined as anything that can be offered to someone to satisfy a need or
want. The word product brings to mind a physical object, such as T.V.,
Car, and Camera etc. The expression products and services are used
distinguish between physical objects and intangible ones. The
importance of physical products does not lie in owning them rather using
them to satisfy our wants. People do not buy beautiful cars to look at,
but because it supply transportation service. Thus, physical products are
really vehicles that deliver services to people.
Services are also supplied by other vehicles such as persons, places,
activities, organizations and ideas. If people are bored, they can go to a
musical concert (persons) for entertainment, travel to beautiful
destination like Shimla (place), engage in physical exercise (activity) in
health clubs, join a laughing club (organization) or adopt a different
philosophy about life (idea). Services can be delivered through physical
objects and other vehicles. The term product covers physical products,
service products, and other vehicles that are capable of delivering
satisfaction of a need or want. The other terms also used for products are
offers, satisfiers, or resources.
Manufacturers pay more attention to their physical products than to the
services produced by these products. They love their products but forget
that customers buy them to satisfy their need. People do not buy
physical object for their own sake. A tube of lipstick is bought to supply a
service: helping the person to look better. A drill is bought to supply a
service: producing holes. The marketers job is to sell the benefits or
services built into physical products rather than just describe their
physical features.
Value, cost, and satisfaction
How do consumers choose among the various products that may satisfy
a given need is very interesting phenomenon. If a student needs to travel
five kilometers to his college every day, he may choose a number of
products that will satisfy this need: a bicycle, a motorcycle, automobile
and a bus. These alternatives constitute product choice set. Assume that
the student wants to satisfy different needs in traveling to his college,
namely speed, safety, ease and economy. These are called the need set.
Each product has a different capacity to satisfy different needs. For
example, bicycle will be slower, less safe and more effortful than an
automobile, but it would be more economical. Now, the student has to
decide on which product delivers the most satisfaction.
Here comes the concept of value. The student will form an estimate of the
value of each product in satisfying his needs. He might rank the
products from the most need satisfying to the least need satisfying. Value
is the consumer’s estimate of the product’s overall capacity to satisfy his
or her needs. The student can imagine the characteristics of an ideal
product that would take him to his college in a split second with absolute
safety, no effort and zero cost. The value of each actual product would
depend on how close it came to this ideal product.
Assume the student is primarily interested in the speed and case of
getting to college. If the student was offered any of the above mentioned
products at no cost, one can predict that he would choose an
automobile. Here comes the concept of cost. Since each product involves
a cost, the student will not necessarily buy automobile. The automobile
costs substantially more than bicycle or motorcycle. Therefore, he will
consider the product’s value and price before making a choice. He will
choose the product that will produce the most value per rupee.
Today’s consumer behaviour theorists have gone beyond narrow
economic assumptions of how consumers form value in this mind and
make product choices. These modern theories on consumer behaviour
are important to marketers because the whole marketing plan rests on
assumptions about how customers make choices. Therefore the concept
of value, cost and satisfaction are crucial to the discipline of marketing.
Exchange, transactions and relationships
The fact that people have needs and wants and can place value on
products does not fully explain the concept of marketing. Marketing
emerges when people decide to satisfy needs and wants through
exchange. Exchange is one of the four ways people can obtain products
they want. The first way is self production. People can relieve hunger
through hunting, fishing, or fruit gathering. In this case there is no
market or marketing. The second way is coercion. Hungry people can
steal food from others. The third way is begging. Hungry people can
approach others and beg for food. They have nothing tangible to offer
except gratitude. The fourth way is exchange. Hungry people can
approach others and offer some resource in exchange, such as money,
another food, or service.
Marketing arises from this last approach to acquire products. Exchange
is the act of obtaining a desired product from someone by offering
something in return. For exchange to take place, five conditions must be
satisfied:
There are at least two parties.
Each party has something that might be of value to the other
party.
Each party is capable of communication and delivery.
Each party is free to accept or reject the offer.
Each party believes it is appropriate or desirable to deal with the
other party.
If the above conditions exist, there is a potential for exchange. Exchange
is described as a value creating process and normally leaves both the
parties better off than before the exchange. Two parties are said to be
engaged in exchange if they are negotiating and moving towards an
agreement. The process of trying to arrive at naturally agreeable terms is
called negotiation. If an agreement is reached, we say that a transaction
takes place. Transactions are the basic unit of exchange. A transaction
consists of a trade of values between two parties. A transaction involves
several dimensions; at least two things of value, agreed upon conditions,
a time of agreement, and a place of agreement. Usually a legal system
arises to support and enforce compliance on the part of the transaction.
A transaction differs from a transfer. In a transfer A gives X to B but does
not receive anything tangible in return. When A gives B a gift, a subsidy,
or a charitable contribution, we call this a transfer.
Transaction marketing is a part of longer idea, that of relationship
marketing. Smart marketers try to build up long term, trusting, ‘win-win’
relationships with customers, distributors, dealers and suppliers. This is
accomplished by promising and delivering high quality, good service and
fair prices to the other party over time. It is accomplished by
strengthening the economic, technical, and social ties between members
of the two organizations. The two parties grow more trusting, more
knowledgeable, and more interested in helping each other. Relationship
marketing cuts down on transaction costs and time. The ultimate
outcome of relationship marketing is the building of a unique company
asset called a marketing network. A marketing network consists of the
company and the firms with which it has built solid, dependable
business relationships.
Markets
The concept of exchange leads to the concept of market. A market
consists of all the potential customers sharing a particular need or want
who might be willing and able to engage in exchange to satisfy that need
or want. The size of market depends upon the number of persons who
exhibit the need, have resources that interest others, and are willing to
offer these resources in exchange for what they want.
Originally the term market stood for the place where buyers and sellers
gathered to exchange their goods, such as a village square. Economists
use the term market to refer to a collection of buyers and sellers who
transact over a particular product or product class; i.e. the housing
market, the grain market, and so on. Marketers, however, see the sellers
as constituting the industry and the buyers as constituting the market.
Business people use the term markets colloquially to cover various
groupings of customers. They talk need markets (such as diet-seeking
market); product markets (such as the shoe market); demographic
markets (such as the youth market); and geographic markets (such as
the Indian market). The concept is extended to cover non-customer
groupings as well, such as voter markets, labour markets, and donor
markets.
Marketing, marketers, and marketing management
The concept of markets bring the full circle to the concept of marketing.
Marketing means human activities taking place in relation to markets.
Marketing means working with markets to actualize potential exchanges
for the purpose of satisfying human needs and wants. If one party is
more actively seeking an exchange than the other party, we call the first
party a marketer and the second party a prospect. A marketer is
someone seeking a resource from someone else and willing to offer
something of value in exchange. The marketer is seeking a response from
the other party, either to sell something or to buy something. Marketer
can be a seller or a buyer. Suppose several persons want to buy an
attractive house that has just became available. Each would be buyer
will try to market himself or herself to be the one the seller selects. These
buyers are doing the marketing. In the event that both parties actively
seek an exchange, we say that both of them are marketers and call the
situation one of reciprocal marketing.
In the normal situation, the marketer is a company serving a market of
end users in the face of competitors. The company and the competitors
send their respective products and messages directly and/or through
marketing intermediaries i.e. middlemen and facilitators to the end
users.
Marketing management takes place when at least one party to a potential
exchange gives thought to objectives and means of achieving desired
responses from other parties. According to American Marketing
Association, ‘Marketing Management is the process of planning and
executing the conception, pricing, promotion, and distribution of ideas,
goods, and services to create exchanges that satisfy individual and
organizational objectives’. This definition recognizes that marketing
management is a process involving analysis, planning, implementation,
and control; that it covers ideas, goods and services; that it rests on the
notion of exchange; and that the goal is to produce satisfaction for the
parties involved.
1.4 Marketing concepts
Firms vary in their perceptions about business, and their orientations to
the market place. This has led to the emergence of many different
concepts of marketing. Marketing activities should be carried out under
some well-thought out philosophy of efficient, effective, and responsible
marketing. There are six competing concepts under which organisations
conduct their marketing activity.
1.4.1. Exchange concept
The exchange concept of marketing, as the very name indicates, holds
that the exchange of a product between the seller and the buyer is the
central idea of marketing. While exchange does form a significant part of
marketing, to view marketing as more exchange will result in missing out
the essence of marketing. Marketing is much broader than exchange.
Exchange, at best, covers the distribution aspect and the price
mechanism. The other important aspects of marketing, such as, concern
for the customer, generation of value satisfactions, creative selling and
integrated action for serving customer, are completely overshadowed in
exchange concept.
1.4.2. Production concept
It is one of the oldest concepts guiding sellers. The production concept
holds that customers will favour those products that are widely available
and low in cost. Managers of production-oriented organisations
concentrate on achieving high production efficiency and wide distribution
coverage.
The assumption that consumers are primarily interested in product
availability and low price holds in at least two types of situations. The
first is where the demand for a product exceeds supply. Here consumers
are more interested in obtaining the product than in its fine points. The
suppliers will concentrate on finding ways to increase production. The
second situation is where the product’s cost is high and has to be
brought down through increased productivity to expand the market.
1.4.3. The product concept
The product concept holds that consumers will favour those products
that offer quality or performance. Managers in these product-oriented
organisations focus their energy on making good products and improving
them over time.
These managers assume that buyers admire well-made product and can
appraise product quality and performance. These managers are caught
up in a love affair with their product and fail to appreciate that the
market may be less “turned on” and may even be moving in different
direction.
The product concept leads to “marketing myopia”, an undue
concentration on the product rather than the need. Railroad
management thought that users wanted trains rather than
transportation and overlooked the growing challenge of the airlines,
buses, trucks, and automobiles. Slide-rule manufacturers thought that
engineers wanted slide rules rather than the calculating capacity and
overlooked the challenge of pocket calculators.
1.4.4. The selling concept
The selling concept holds that consumers, if left alone, will ordinarily not
buy enough of the organization’s products. The organization must
therefore an aggressive selling and promotion effort.
The concept assumes that consumers typically show buying inertia or
resistance and have to be coaxed into buying more, and that the
company has available a whole battery of effective selling and promotion
tools to stimulate more buying.
The selling concept is practiced most aggressively with “sought goods”,
those goods that buyers normally do not think of buying, such as
insurance, encyclopedias, and funeral plots. These industries have
perfected various sales techniques to locate prospects and hard-sell them
on the benefits of their product. Hard selling also occurs with sought
goods, such as automobiles. Most firms practice the selling concept when
they have overcapacity. Their aim is to sell what they make rather than
make what they can sell.
Thus selling, to be effective, must be preceded by several marketing
activities such as needs assessment, marketing research, product
development, pricing, and distribution. If the marketer does a good job of
identifying consumer needs, developing appropriate products, and
pricing, distributing, and promoting them effectively, these products will
sell very easily. When Atari designed its first video game, and when
Mazda introduced its RX-7 sports car, these manufacturers were
swamped with orders because they had designed the “right” product
based on careful marketing homework.
Indeed, marketing based on hard selling carries high risks. It assumes
that customers who are coaxed into buying the product will like it; and if
they don’t, they won’t bad-mouth it to friends or complain to consumer
organizations. And they will possibly forget their disappointment and buy
it again. These are indefensible assumptions to make about buyers. One
study showed that disappointed customers bad-mouth the product to
eleven acquaintances, while satisfied customers may good-mouth the
product to only three.
1.4.5. The marketing concept
The marketing concept holds that the key to achieving organizational
goals consists in determining the needs and wants of target markets and
delivering the desired satisfactions more effectively and efficiently than
competitors.
Theodore Levitt drew a perceptive contrast between the selling and
marketing concepts. Selling focuses on the needs of the seller; marketing
on the needs of the buyer. Selling is preoccupied with the seller’s need to
convert his product into cash; marketing with the idea of satisfying the
needs of the customer by means of the product and the whole cluster of
things associated with creating, delivering and finally consuming it.
Market focus: No company can operate in every market and satisfy every
need. Nor can it even do a good job within one broad market: Even
mighty IBM cannot offer the best customer solution for every computer
need. Companies do best when they define their target markets carefully.
They do best when they prepare a tailored marketing program for each
target market.
Customer orientation: A company can define its market carefully and
still fail at customer-oriented thinking. Customer-oriented thinking
requires the company to define customer needs from the customer point
of view, not from its own point of view. Every product involves tradeoffs,
and management cannot know what these are without talking to and
researching customers. Thus a car buyer would like a high-performance
car that never breaks down, that is safe, attractively styled, and cheap.
Since all of these virtues cannot be combined in one car, the car
designers must make hard choices not on what pleases them but rather
on what customers prefer or expect. The aim, after all, is to make a sale
through meeting the customer’s needs.
Why is it supremely important to satisfy the customer? Basically because
a company’s sales each period come from two groups: customers and
repeat customers. It always costs more to attract new customers than to
retain current customers. Therefore customer retention is more critical
than customer attraction.
Coordinated marketing: Unfortunately, not all the employees in a
company are trained or motivated to pull together for the customer.
Coordinated marketing means two things. First, the various marketing
functions-sales-force, advertising, product management, marketing
research, and so on- must be coordinated among themselves. Too often
the sales-force is mad at the product managers for setting “too high a
price” or “too high a volume target”, or the advertising director and a
brand manager cannot agree on the best advertising campaign for the
brand. These marketing functions must be coordinated from the
customer point of view. Second, marketing must be well coordinated with
the other departments. Marketing does not work when it is merely a
department; it only works when all employees appreciate the effect they
have on customer satisfaction.
Profitability: The purpose of the marketing concept is to help
organizations achieve their goals. In the case of private firms, the major
goal is profit; in the case of non-profit and public organizations, it is
surviving and attracting enough funds to perform their work. Now the
key is not to aim for profits as such but to achieve them as a byproduct
of doing the job well.
This is not to say that marketers are unconcerned with profits. Quite the
contrary, they are highly involved in analyzing the profit potential of
different marketing opportunities. Whereas salespeople focus on
achieving sales-volume goals, marketing people focus on identifying
profit-making opportunities.
1.4.6. The societal marketing concept
In recent years, some people have questioned whether the marketing
concept is appropriate organizational philosophy in an age of
environmental deterioration, resource shortages, explosive population
growth, world hunger and poverty, and neglected social services. The
question is whether companies that do an excellent job of sensing,
serving, and satisfying individual consumer wants are necessarily acting
in then best long-run interests of consumers and society.
The societal marketing concept holds that the organization’s task is to
determine the needs, wants, and interests of target markets and to
deliver the desired satisfactions more effectively and efficiently than
competitors in a way that preserves or enhances the consumer’s and the
society’s well-being.
The societal marketing concept calls upon marketers to balance three
considerations in setting their marketing policies, namely, company
profits, consumer want satisfaction, and public interest. Originally,
companies based their marketing decisions largely on immediate
company profit calculations. Then they began to recognize the long-run
importance of satisfying consumer wants, and this introduced the
marketing concept. Now they are beginning to factor in society’s interests
in their decision-making. The societal marketing concept calls for
balancing all three considerations. A number of companies have achieved
notable sales and profit gains through adopting and practicing the
societal marketing concept.
1.5 Marketing Mix
The marketers delivers value to the customer basically through his
market offer. He takes care to see that the offer fulfils the needs of the
customer. He also ensures that the customer perceives the terms and
conditions of the offer as more attractive vis-à-vis other competing offers.
Marketing Mix is the set of marketing tools that the firm uses to pursue
its marketing objectives in the target market. It is the sole vehicle for
creating and delivering customer value.
It was James Culliton, a noted marketing expert, who coined the
expression marketing mix and described the marketing manager as a
mixer of ingredients. To quote him, “The marketing man is a decider and
an artist – a mixer of ingredients, who sometimes follow a recipe
developed by others and sometimes prepares his own recipe. And,
sometimes he adapts his recipe to the ingredients that are readily
available and sometimes invents some new ingredients, or, experiments
with ingredients as no one else has tried before’. The dynamics of the
marketing process and the versatility of the marketing process and the
versatility of the marketing mix tool cannot be described any better.
Subsequently Niel H. Borden, another noted marketing expert,
popularized the concept of marketing mix. It was Jerome McCarthy, the
well known American Professor of marketing, who first described the
marketing mix in terms of the four Ps. The classified the marketing mix
variables under four heads, each beginning with the alphabet ‘p’.
• Product
• Price
• Place (referring to distribution)
• Promotion
McCarthy has provided an easy to remember description of the
marketing mix variables. Over the years, the terms-Marketing mix and
four Ps of marketing-have come to be used synonymously.
• Product: The most basic marketing mix tool is product, which
stands for the firm’s tangible offer to the market including the
product quality, design, variety features, branding, packaging,
services, warranties etc.
• Price: A critical marketing mix tool is price, namely, the amount of
money that customers have to pay for the product. It includes
deciding on wholesale and retail prices, discounts, allowances, and
credit terms. Price should be commensurate with the perceived
value of the offer, or else buyer will turn to competitors in choosing
their products.
• Place: This marketing mix tool refers to distribution. It stands for
various activities the company undertakes to make the product
easily available and accessible to target customers. It includes
deciding on identify, recruit, and link various middlemen and
marketing facilitators so that products are efficiently supplied to
the target market.
• Promotion: The fourth marketing mix tool, stands for the various
activities the company undertakes to communicate its products’
merits and to persuade target customers to buy them. It includes
deciding on hire, train, and motivate salespeople to promote its
products to middlemen and other buyers. It also includes setting
up communication and promotion programs consisting of
advertising, personal selling, sales promotion, and public relations.
Marketing mix or 4 Ps of marketing is the combination of a product, its
price, distribution and promotion. It must be designed by marketers in
such a manner that these four elements together must satisfy the needs
of the organisation’s target market, and at the same time, achieve its
marketing objectives.
1.6 Summary
Marketing starts with the customers and ends with customers. Meaning
thereby, marketing starts with the identification of needs and wants of
customers and ends with satisfying it with product or services. Marketing
has its origin in the fact that humans are creatures of needs and wants.
Need and wants create a state of discomfort, which is resolved through
acquiring products that satisfy these needs and wants. Most modern
societies work on the principle of exchange, which means that people
specialize in producing particular products and trade them for the other
things they need. They engage in transactions and relationship building.
A market is a group of people who share a similar need. Marketing
encompasses those activities involved in working with markets, that is,
the trying to actualize potential exchanges. Marketing management is the
conscious effort to achieve desired exchange outcomes with target
markets. The marketer’s basic skill lies in influencing the level, timing,
and composition of demand for a product, service, organization, place,
person or idea. Marketing can be vital to an organization’s success. In
recent years numerous service firms and nonprofit organisations have
found marketing to be necessary and worthwhile.
1.7 Key words
Authentic: genuine
Perception: perceiving, giving meaning to particular
information using senses
Occur: happen
Numerous: great in number
Magnitude: largeness, size, importance
1.8 Self Assessment Exercise
1. Define marketing and discuss in brief the various concepts of
marketing.
2. “Marketing starts with consumers and ends with consumers.”
Explain.
3. Elaborate the concept of marketing mix or 4 P’s of marketing.
4. Explain the following terms:
• Need, wants and demand
• Product
• Value, cost and satisfaction
• Exchange, transaction and relationships
5. Does the marketing concept imply that marketers should confine
themselves only to those needs and wants that consumers say they
want to satisfy?
1.9 Suggested Readings
1. Stanton, Etzel and Walker- Fundamentals of marketing (TMH)
2. Philip Kotler- Marketing Management (PHI)
3. Philip Kotler and Armstrong- Principles of marketing (PHI)
4. Ramaswamy and Namakumari- Marketing management
(Macmillan)
Subject: Basic principles of marketing Author: Dr. M.R.P. Singh
And management
Course Code: Paper-V Vetter: Prof. H. Bansal
Lesson: 2
Market segmentation, targeting and positioning and analyzing the
marketing environment
Structure
2.1 Objectives
2.2 Introduction
2.3 Segmentation
2.4 Targeting
2.5 Positioning
2.6 Marketing environment
2.7 Summary
2.8 Key words
2.9 Self Assessment Exercise
2.10 Suggested Readings
2.1 Objective
The objective of this lesson is to make the students learn about the
concept of segmentation, targeting and positioning along with the
importance of studying marketing environment and its impact on
marketing.
2.2 Introduction
A market consists of people or organizations with wants, money to
spend, and the willingness to spend it. However, most markets the
buyers' needs are not identical. Therefore, a single marketing program for
the entire market is unlikely to be successful. A sound marketing
program starts with identifying the differences that exist within a market,
a process called, market segmentation, and deciding which segments will
be treated as target markets. Market segmentation is customer oriented
and consistent with the marketing concept. It enables a company to
make more efficient use of its marketing resources. After evaluating the
size and potential of each of the identified segments, it targets them with
a unique marketing mix. The marketer must somehow persuade the
members of each segment that its product will satisfy their needs better
than competitive products. To do so, marketers attempt to develop a
special image for their products in the consumer's mind relative to
competitive products: that is, it positions its product as filling a special
niche in the market place. The marketing environment is the set of
conditions within which the company must start its search for
opportunities and possible threats. It consists of all the actors and forces
that affect the company's ability to transact effectively with its target
market. The company's micro-environment consists of the actors in the
company's immediate environment that affect its ability to serve its
markets; specifically, the company itself, suppliers, market
intermediaries, customers, competitors, and publics. The company's
macro-environment consists of six major forces: demographic, economic,
natural, political, technological, and cultural.
2.3 Segmentation
Market segmentation is defined as "the process of taking the total,
heterogeneous market for a product and dividing it into several sub-
markets or segments, each of which tends to be homogeneous in all
significance. The markets could be segmented in different ways. For
instance, instead of mentioning a single market for 'shoes', it may be
segmented into several sub-markets, e.g., shoes for executives, doctors
college students etc. Geographical segmentation on the very similar lines
is also possible for certain products.
2.3.1 Requirements for markets segmentation
For market segmentation to become effective and result oriented, the
following principles are to be observed: (1) Measurability of segments, (2)
Accessibility of the segments, and (3) Represent ability of the segments.
The main purpose of market segmentation is to measure the changing
behaviour patterns of consumers. It should also be remembered that
variation in consumer behavior are both numerous and complex.
Therefore, the segments should be capable of giving accurate
measurements. But this is often a difficult task and the segments are to
be under constant review.
The second condition, accessibility, is comparatively easier because of
distribution, advertising media, salesmen, etc. Newspaper and magazines
also offer some help in this direction. For examples, there are magazines
meant exclusively for the youth, for the professional people, etc.
The third condition in the represent ability of each segment. The
segments should be large and profitable enough to be considered as
separate markets. Such segments must have individuality of their own.
The segment is usually small in case of industrial markets and
comparatively larger in respect of consumer products.
2.3.2. Benefits of segmentation
1. The manufacturer is in a better position to find out and compare
the marketing potentialities of his products. He is able to judge
product acceptance or to assess the resistance to his product.
2. The result obtained from market segmentation is an indicator to
adjust the production, using man, materials and other resources
in the most profitable manner. In other words, the organization
can allocate and appropriate its efforts in a most useful manner.
3. Change required may be studied and implemented without losing
markets. As such, as product line could be diversified or even
discontinued.
4. It helps in determining the kinds of promotional devices that are
more effective and also their results.
5. Appropriate timing for the introduction of new products,
advertising etc., could be easily determined.
2.3.4. Aggregation and segmentation
Market aggregation is just the opposite of segmentation. Aggregation
implies the policy of lumping together into one mass all the markets for
the products. Production oriented firms usually adopt the method of
aggregation instead of segmentation. Under this concept, management
having only one product considers the entire buyers as one group.
Market aggregation enables an organization to maximize its economies of
scale of production, pricing, physical distribution and promotion.
However, the applicability of this concept in consumer oriented market is
doubtful. The ‘total market’ concept as envisaged by market aggregation
may not be realistic in the present-day marketing when consumers fall
under heterogeneous groups.
2.3.5. Basis for segmenting markets
As explained above, market segmentation consists in identifying a
sufficient number of common buyer characteristics to permit sub
division of the total demand for a product into economically viable
segments. These segments fall between two extremes of total
homogeneity and total heterogeneity. The various segments that are in
vogue are as follows:
1. Geographic segmentation: Chronologically this kind of
segmentation appeared first, for planning and administrative
purposes. The marketer often fined it convenient to sub-divide the
country into areas in a systematic way. The great advantages of
adopting this scheme are that standard regions are widely used by
Government and it facilitates collection of statistics. Most of the
national manufacturers split up their sales areas into sales
territories either state-wise or district-wise.
2. Demographic segmentation: Under this method, the consumers
are grouped into homogeneous groups in terms of demographic
similarities such as age, sex, education, income level, etc. This is
considered to be more purposeful since the emphasis ultimately
rests on customers. The variables are easy to recognize and
measure than in the case of the first type, as persons of the same
group may exhibit more or less similar characteristics. For
example, in the case of shoes, the needs and preferences of each
group could be measured with maximum accuracy.
(a) Age groups: Usually age groups are considered by
manufacturers of certain special products. For example,
toys. Even in the purchases made by parents, children exert
a profound influence. The market segmented on the basis of
the age groups is as follows: (I) children, (ii) teenagers, (iii)
adults, (IV) grown-ups.
(b) Family life-cycle: This is yet another method falling under
demographic segmentation. The concept of a family life cycle
refers to the important stages in the life of an ordinary
family. These stages are called ‘decision-making units’
(Dumps). A widely accepted system distinguishes the
following eight stages:
(I) Young, single, (ii) Young, married, no children, (iii) Young,
married, youngest child under six, (iv) Young, married,
youngest child over six, (v) Older, married with children, (vi)
Older, married, no children under eighteen, (vii) Older single,
(viii) Others. Although the distinction between the young and
the old is not explicit the concept provides a useful basis for
breaking down the total population into sub-group for a
more detailed analysis.
(c) Sex: Sex influences buying motives in consumer market, e.g.
in the case of many products women demand special styles.
Bicycle is an example. This kind of segmentation is useful in
many respects. The recent studies, however, show that
traditional differences are being fast broken down and this
kind of segmentation doesn’t hold much water. One reason
for this is that women are going in for jobs. This is a blessing
in disguise as a number of new products are now being
demanded, e.g. frozen food, household appliances, etc.
Successful attempts to remove barriers of discrimination
against women have generated many market opportunities.
Interestingly enough, however, it has not been so easy to get
males to accept products traditionally considered feminine. A
decade age driving motor vehicles by women was seldom
seen but today it has become a common sight. The
distinction in dress traditionally maintained by girls and
boys has also been considerably reduced. These changes
have tremendous marketing implications.
3. Socio-psychological segmentation: The segmentation here is
done on the basis of social class, viz., working class, middle
income groups, etc. Since marketing potentially is intimately
connected with the "ability to buy", this segmentation is
meaningful in deciding buying patterns of a particular class.
4. Product segmentation: When the segmentation of markets is
done on the basis of product characteristics that are capable of
satisfying certain special needs of customers, such a method is
known as product segmentation. The products, on this basis, are
classified into:
1. Prestige products, e.g. automobiles, clothing.
2. Maturity products, e.g. cigarettes, blades.
3. Status products, e.g. most luxuries.
4. Anxiety products, e.g. medicines, soaps.
5. Functional products, e.g. fruits, vegetables.
The argument in favor of this type of product segmentation is that
it is directed towards differences among the products which
comprise markets. Where the products involved show great
differences, this method is called a rational approach.
5. Benefit segmentation: Russell Hally introduced the concept of
benefit segmentation. Under this method, the buyers form the
basis of segmentation but not on the demographic principles
mentioned above. Here consumers are interviewed to learn the
importance of different benefits they may be expecting from a
product. These benefits or utilities may be classified into generic or
primary utilities and secondary or evolved utilities. The following
table would explain this aspect.
Product category Generic or primary
utilities
Secondary or evolved
utilities
Tooth-paste Cleaning Good taste, breath
freshening, brightness
Shampoo Cleaning Shiny hair, thickening
hair
Aspirin Pain control Speed of action, taste
Automobiles type Convenience Economy seeking,
status, quality, i.e.,
speed
But choosing the benefit as emphasized is not any easy job, for the
various utilities may shift from time to time.
6. Volume segmentation: Another way of segmenting the market is
on the basis of volume of purchases. Under this method the buyers
are purchasers, and single unit purchasers. This analysis is also
capable of showing the buying behavior of different groups.
7. Marketing-factor segmentation: The responsiveness of buyers to
different marketing activities is the basis for these types of
segmentation. The price, quality, advertising, promotional devices,
etc., are some of the activities involved under this method. This is
explained by R.S. Frank as follows:
"If a manufacturer knew that one identifiable group of his
customers was more responsive to changes in advertising
expenditures than others, he might find it advantageous to
increase the amount of advertising aimed at them. The same sort
of tailoring would also be appropriate if it was found that
customers reacted differently to changes in pricing, packaging,
product, quality etc.
It is pertinent here to ask how these consideration influence
marketing. The answer is simple as the present day marketing is
consumer-oriented and consumers' psychology, their social and
economic characteristic form the corner stone of marketing
decisions. It is this recognition accorded to consumers that has
given rise to the concept of market segmentation.
2.3.6. Markets on the basis of segmentation
It is now certain that any market could be segmented to a considerable
extent because buyers' characteristics are never similar. This, however,
does not mean that manufacturers may always try to segment their
market. On the basis of the intensity of segmentation, marketing
strategies to be adopted may be classified into:
1. Undifferentiated marketing: When the economies of organization
do not permit the division of market into segments, they conceive
of the total market concept. In the case of fully standardized
products and where substitutes are not available, differentiation
need not be undertaken. Under such circumstances firms may
adopt mass advertising and other mass methods in marketing,
e.g., Coca Cola.
2. Differentiated marketing: A firm may decide to operate in several
or all segments of the market and devise separate
product-marketing programmes. This also helps in developing
intimacy between the producer and the consumer. In recent years
most firms have preferred a strategy of differentiated marketing,
mainly because consumer demand is quite diversified. For
example, cigarettes are now manufactured in a variety of lengths
and filter types. This provides the customer an opportunity to
select his or her choice from filtered, unfiltered, long or short
cigarettes. Each kind offers a basis for segmentation also. Though
the differentiated marketing is sales-oriented, it should also be
borne in mind that it is a costly affair for the organization.
3. Concentrated marketing: Both the concepts explained above
imply the approach of total market either with segmentation or
without it. Yet another option is to have concentrated efforts in a
few markets capable of affording opportunities. Put in another way,
'instead of spreading itself thin in many parts of the market, it
concentrates its forces to gain a good market position in a few
areas. Then new products are introduced and test marketing is
conducted, and this method is adopted. For a consumer product
'Boost' produced by the manufacturers of Horlicks, this method
was adopted. The principle involved here is 'specialization' in
markets which have real potential. Another notable feature of this
method is the advantage of one segment is never offset by the
other. But in the case of the first two types, good and poor
segments are averaged.
2.4 Targeting
Market segmentation reveals the market-segment opportunities facing
the firm. The firm now has to evaluate the various segments and decide
how many and which ones to serve.
2.4.1. Evaluating the market segments
In evaluation different market segments, the firm must look at three
factors, namely segment size and growth, segment structural
attractiveness and company objectives and resources.
(a) Segment size and growth: The first question that a company
should ask is whether a potential segment has the right size and
growth characteristics. Large companies prefer segments with large
sales volumes and overlook small segments. Small companies in
turn avoid large segments because they would require too many
resources. Segment growth is a desirable characteristic since
companies generally want growing sales and profits.
(b) Segment structural attractiveness: A segment might have
desirable size and growth and still not be attractive from a
profitability point of view. The five threats that a company might
face are:
(i) Threat from industry competitors: A segment is unattractive
if it already contains numerous and aggressive competitors.
This condition may lead to frequent price wars.
(ii) Threats from potential entrants: i.e. from new competitors
who, if enter the segment at a later stage, bring in new
capacity, substantial resources and would soon steal a part
of the market share.
(iii) Threat of substitute products: A segment is unattractive if
there exists too many substitutive products because it would
result in brand switching, price wars, low profits etc.
(iv) Threat of growing bargaining power of buyers: A segment is
unattractive if the buyers possess strong bargaining power.
Buyers will try to force price down, demand more quality or
services, all at the expense of the seller's profitability.
(v) Threat of growing bargaining power of suppliers: A segment
is unattractive if the company's suppliers of raw materials,
equipment, finance etc., are able to raise prices or reduce the
quality or quantity of ordered goods.
(c) Company objectives and resources: Even if a segment has
positive size and growth and is structurally attractive, the company
needs to consider its own objectives and resources in relation to
that segment. Some attractive segments could be dismissed
because they do not match with the company's long-run objectives.
Even if the segment fits the company's objectives, the company has
to consider whether it possesses the requisite skills and resources
to succeed in that segment. The segment should be dismissed if
the company lacks one or more necessary competences needed to
develop superior competitive advantages.
2.4.2. Selecting the market segments
As a result of evaluating different segments, the company hopes to find
one or more market segments worth entering. The company must decide
which and how many segments to serve. This is the problem of target
market selection. A target market consists of a set of buyers sharing
common needs or characteristics that the company decides to serve. The
company can consider five patterns of target market selection.
1. Single segment concentration: In the simplest case, the company
selects a single segment. This company may have limited funds
and may want to operate only in one segment, it might be a
segment with no competitor, and it might be a segment that is a
logical launching pad for further segment expansion.
2. Selective specialization: Here a firm selects a number of
segments, each of which is attractive and matches the firm's
objectives and resources. This strategy of 'multi-segment coverage'
has the advantage over 'single-segment coverage' in terms of
diversifying the firm’s risk i.e. even if one segment becomes
unattractive, the firm can continue to earn money in other
segments.
3. Product specialization: Here the firm concentrates on marketing
a certain product that it sells to several segments. Through this
strategy, the firm builds a strong reputation in the specific product
area.
4. Market specialization: Here the firm concentrates on serving
many needs of a particular customer group. The firm gains a
strong reputation for specializing in serving this customer group
and becomes a channel agent for all new products that this
customer group could feasibly use.
5. Full market coverage: Here the firm attempts to serve all
customer groups with all the products that they might need. Only
large firms can undertake a full market coverage strategy. e.g.
Philips (Electronics), HLL (Consumer non-durables).
Large firms going in for whole market can do so in two broad
ways— through undifferentiated marketing or differentiated
marketing.
2.5 Positioning
Suppose a company has researched and selected its target market. If it is
the only company serving the target market, it will have no problem in
selling the product at a price that will yield reasonable profit. However, if
several firms pursue this target market and their products are
undifferentiated, most buyers will buy from the lowest priced brand.
Either, all the firms will have to lower their price or the only alternative is
to differentiate its product or service from that of the competitors,
thereby securing a competitive advantage and better price and profit. The
company must carefully select the ways in which it will distinguish itself
from competitors.
Suppose a scooter manufacturer, say Bajaj, gets worried that scooter
buyers see most scooter brands as similar and, therefore, choose their
brand mainly on the basis of price. Realizing this, Bajaj may decide to
differentiate their scooters physical characteristics.
"Differentiation is the act of designing a set of meaningful differences to
distinguish the company's offer from competitors' offers.
May be Bajaj claims its scooter to be different from others because of its
highest fuel efficiency and economy, LML claims-maximum durability
and added physical features, whereas Vijay Super may have claimed
highest mileage. Thus, all scooters appeal differently to different buyers.
If it wishes, any scooter manufacturer can show this comparison chart to
potential buyers. Not all buyers will notice or be interested in all the
ways one brand differs from another. Such firm will want to promote
those few differences that will appeal most strongly to its target market.
Positioning is the act of designing the company's offer so that is occupies
a distinct and valued place in the target customer's minds. Positioning
calls for the company to decide how many differences and which
differences to promote to the target customers.
How many differences to promote: Many marketers advocate
aggressively promoting only one benefit to the target market. Rosser
Reeves, e.g. said a company should develop a unique selling proposition
(USP) for each brand and stick to it. Thus, Godrej refrigerators claim,
automatic defrost, while Rin claims to have dirt-blasters. Each brand
should pick an attribute and claim itself to be "number one" on it.
What are some of the "number one" positions to promote? The major
ones are "best quality", "best service", "best value", “most advanced
technology” etc. If a company hammers at any one of these positioning
points and delivers it properly, it will probably be best known and
recalled for this strength.
Besides single benefit positioning, the company can try for double benefit
positioning- e.g. Forhans toothpaste claims that it cleans teeth and
protects the enamel. There are even cases of successful triple benefit
positioning e.g. Videocon Washing machines claims that the machine
"washes, rinses and even dries the clothes". Many people want all three
benefits, and the challenge is to convince them that the brand delivers all
three.
What differences to promote: A company should promote its major
strengths provided that the target market values these strengths. The
company should also recognize that differentiation is a continuous
process. It would seem that the company should go after cost or service
to improve its market appeal relative to competitors. However, many
other considerations arise.
1. How important are improvements in each of these attributes to the
target customers?
2. Can the company afford to make the improvements, and how fast
can it complete them?
3. Would the competitors also be able to improve service if the
company started to do so, and in that case, how would the
company react?
This type of reasoning can help the company choose or add genuine
competitive advantages.
Communicating the Company's positioning: The Company must not
only develop a clear positioning strategy, it must also communicate it
effectively. Suppose a company chooses the "best in quality" positioning
strategy. It must then make sure that it can communicate this claim
convincingly. Quality is communicated by choosing those physical signs
and cuts that people normally use to judge quality.
Quality is often communicated through other marketing elements.
A high price usually signals a premium-quality product to buyers. The
product's quality image is also affected by the packaging, distribution,
advertising and promotion. The manufacturer’s reputation also
contributes to the perception of quality. To make a quality claim credible,
the surest way is to offer "satisfaction or your money back". Smart
companies try to communicate their quality to buyers and guarantee that
this quality will be delivered or their money will be refunded.
2.6 Marketing environment
A company's marketing environment consists of the factors and forces
that affect the company's ability to develop and maintain successful
transactions and relationships with its target customers. Every business
enterprise is confronted with a set of internal factors and a set of external
factor.
The internal factors are generally regarded as controllable factors
because the company has a fair amount of control over these factors, it
can alter or modify such factors as its personnel, physical facilities,
marketing-mix etc. to suit the environment.
The external factors are by and large, beyond the control of a company.
The external environmental factors such as the economic factors, socio-
cultural factors, government and legal factors, demographic factors, geo-
physical factors etc.
As the environmental factors are beyond the control of a firm, its success
will depend to a very large extent on its adaptability to the environment,
i.e. its ability to properly design and adjust internal variables to take
advantages of the opportunities and to combat the threats in the
environment.
2.6.1 The micro environment
The micro environment consists of the actors in the company's
immediate environment that affects the ability of the marketers to serve
their customers. These include the suppliers, marketing intermediaries,
competitors, customers and publics.
1. Suppliers: Suppliers are those who supply the inputs like raw
materials and components etc. to the company. Uncertainty
regarding the supply or other supply constraints often compels
companies to maintain high inventories causing cost increases. It
has been pointed out that factories in India maintain indigenous
stocks of 3-4 months and imported stocks of 9 months as against
on average of a few hours to two weeks in Japan.
It is very risky to depend on a single supplier because a strike, lock
out or any other production problem with that supplier may
seriously affect the company. Hence, multiple sources of supply
often help reduce such risks.
2. Customers: The major task of a business is to create and sustain
customers. A business exists only because of its customers and
hence monitoring the customer sensitivity is a prerequisite for the
business to succeed.
A company may have different categories of consumers like
individuals, households, industries, commercial establishments,
governmental and other institutions etc. Depending on a single
customer is often too risky because it may place the company in a
poor bargaining position. Thus, the choice of the customer
segments should be made by considering a number of factors like
relative profitability, dependability, growth prospects, demand
stability, degree of competition etc.
3. Competitors: A firm's competitors include not only the other firms
which market the same or similar products but also all those who
compete for the discretionary income of the consumers. For
example, the competition for a company making televisions may
come not only from other TV manufacturers but also from
refrigerators, stereo sets, two-wheelers, etc. This competition
among these products may be described as desire competition as
the primary task here is to influence the basic desire of the
consumer.
If the consumer decides to spend his disposable income on
recreation, he will still be confronted with a number of alternatives
to choose from like T.V., stereo, radio, C.D. player etc. the
competition among such alternatives which satisfy a particular
category of desire is called generic competition.
If the consumer decides to go in for a T.V. the next question is
which form of T.V. - black and white, color, with remote or without
etc. this is called 'product form competition'. Finally, the consumer
encounters brand competition, i.e. competition between different
brands like Philips, B.P.L., Onida, Videocon, Coldstar etc.
An implication of these different brands is that a marketer should
strive to create primary and selective demand for his products.
4. Marketing intermediaries: The immediate environment of a
company may consist of a number of marketing intermediaries
which are "firms that aid the company in promoting, selling and
distributing its goods to final buyers.
The marketing intermediaries include middlemen such as agents
and merchants, who help the company find customers or close
sales with them; physical distribution firms which assist the
company in stocking and moving goods from their origin to their
destination such as warehouses and transportation firms;
marketing service agencies which assist the company in targeting
and promoting its products to the right markets such as
advertising agencies; consulting firms, and finally financial
intermediaries which finance marketing activities and insure
business risks.
Marketing intermediaries are vital link between the company and
final consumers. A dislocation or disturbance of this link, or a
wrong choice of the link, may cost the company very heavily.
5. Public: A company may encounter certain publics in its
environment. "A public is any group that has actual or potential
interest in or impact on an organisation's ability to achieve its
interests". Media, citizens, action publics and local publics are
some examples.
Some companies are seriously affected by such publics, e.g. one of
the leading daily that was allegedly bent on bringing down the
share price of the company by tarnishing its image. Many
companies are also affected by local publics. Environmental
pollution is an issue often taken up by a number of local publics.
Action by local publics on this issue has caused some companies
to suspend operations and/or take pollution control measures.
However, it is wrong to think that all publics are threats to
business. Some publics are opportunity for business. Some
businessmen e.g. regard consumerism as an opportunity for their
business. The media public may be used to disseminate useful
information. Similarly, fruitful symbiotic cooperation between a
company and the local publics may be established for the benefit of
the company and the local community.
2.6.2. Macro environment
A company and the forces in its micro environment operate in larger
macro environment of forces that shape opportunities and pose threats
to the company. The macro forces are, generally, more uncontrollable
than the micro forces. The macro environmental forces are given below:
1. Economic environment: Economic conditions, economic policies
and the economic system are the important external factors that
constitute the economic environment of a business.
The economic conditions of a country e.g., the nature of the
economy, the stage of development of the economy, economic
resources, the level of income, the distribution of income and
assets etc. are among the very important determinants of business
strategies.
In a developing economy, the low income may be the reason for the
very low demand for a product. In countries where investment and
income are steadily and rapidly rising, business prospects are
generally bright, and further investments are encouraged.
The economic policy of the government, needless to say, has a very
strong impact on business. Some types of businesses are favorably
affected by government policy, some adversely affected, while it is
neutral in respect of others, e.g. in case of India, the priority sector
and the small-scale sector get a number of incentives and positive
support from the government, whereas those industries which are
regarded as inessential may find the odds against them.
The monetary and fiscal policies by way of incentives and
disincentives they offer and by their neutrality, also affect the
business in different ways. The scope of private business depends,
to a large extent, on the economic system. At one end, there are
the free market economies, or capitalist economies, and at the
other are the centrally planned economies or communist
economies. In between these two extremes are the mixed
economies.
A completely free economy is an abstract rather than a real system
because some amount of government regulations always exist.
Countries like the United States, Japan, Canada, Australia etc. are
regarded as free market economies.
The communist countries have, by and large, a centrally planned
economic system. The State, under this system, owns all the
means of production, determines the goals of production and
controls the economy. China, Hungary, Poland etc. had centrally
planned economies. However, recently, several of these countries
have discarded communist system and have moved towards the
market economy.
In a mixed economy, both public and private sectors co-exist, as in
India. The extent of state participation varies widely across
different mixed economies. However, in many mixed economies,
the strategic and other nationally very important industries are
fully owned or dominated by the state.
The economic system, thus, is a very important determinant of the
scope of business.
2. Political and Government environment: Political and
government environment has a close relationship with the
economic system and economic policy. In most countries, there are
a number of laws that regulate the conduct of the business. These
laws cover such matters as standards of product, packaging,
promotion etc. In many countries, with a view to protecting
consumer interests, regulations have become stronger. Regulations
to protect the purity of the environment and preserve the ecological
balance have assumed great importance in many countries.
In most nations, promotional activities are subject to various types
of controls. Media advertising is not permitted in Libya. In India
too, till recently advertisements of liquor, cigarettes, gold, silver
etc. were prohibited. There is a host of statutory control on
business in India. MRTP commission, industrial licensing, FEMA
regulations etc. kept a strict check on the expansion of private
enterprises till recently. Recent changes in the statutes and
policies have had a profound and positive impact on business.
Thus, marketing policies are definitely influenced by government
policies and controls throughout the world.
3. Socio-cultural environment: The socio-cultural environment
includes the customs, traditions, taboos, tastes, preferences etc. of
the members of the society, which cannot be ignored at any cost by
any business unit. For a business to be successful, its strategy
should be the one that is appropriate in the socio-cultural
environment. The marketing-mix will have to be so designed as to
suit the environmental characteristics of the market. Nestle, a
Swiss multinational company, today brews more than forty
varieties of instant coffee to satisfy different national tastes.
Even when people of different cultures use the same basic product,
the mode of consumption, conditions of use, purpose of use or the
perceptions of the product attributes may vary so much so that the
product attributes, method of presentation, or promotion etc. may
have to be varied to suit the characteristics of different markets.
The differences in language sometimes pose a serious challenge
and even necessitate a change in the brand name. The values and
beliefs associated with color vary significantly across different
cultures e.g. white is a color which indicates death and mourning
in countries like China, Korea and India but in many countries it is
a color expressing happiness and often used as a wedding dress
color.
While dealing with the social environment, it is important to
remember that the social environment of business also
encompasses its social responsibility, alertness or vigilance of the
consumers and the society's interests and well-being at large.
4. Demographic environment: Demographic factors like the size,
growth rate, age composition, sex composition, family size,
economic stratification of the population, educational levels,
language, caste, religion etc. are all factors relevant to business. All
these demographic variables affect the demand for goods and
services. Markets with growing population and income are growth
markets. But the decline in birth rates in countries like United
States, etc. has affected the demand for baby products. Johnson
and Johnson had to overcome this problem by repositioning their
products like baby shampoo and baby soaps, and promoting them
to the adult segment particularly females.
A rapidly increasing population indicates a growing demand for
many products. High population growth rates also indicate an
enormous increase in labor supply. Cheap labor and a growing
market have encouraged many multinational corporations to invest
in developing countries like India.
5. Natural environment: Geographical and ecological factors such as
natural resources endowments, weather and climate conditions,
topographical factors, location aspects in the global context, port
facilities etc. are all relevant to business.
Geographical and ecological factors also influence the location of
certain industries, e.g. industries with high material index tend to
be located near the raw material sources. Climate and weather
conditions affect the location of certain industries like the cotton
textile industry. Topographical factors may affect the demand
pattern, e.g. in hilly areas with a difficult terrain, jeeps may be in
greater demand than cars.
Ecological factors have recently assumed greater importance. The
depletion of natural resources, environmental pollution and the
disturbance of the ecological balance has caused great concern.
Government policies aimed at the preservation of environmental
purity and ecological balance, conservation of non-replenishable
resources etc. have resulted in additional responsibilities and
problems for business, and some of these have the effect of
increasing the cost of production and marketing.
6. Physical facilities and technological environment: Business
prospects depend on the availability of certain physical facilities.
The sale of television sets e.g. is limited by the extent of coverage of
telecasting. Similarly, the demand for refrigerators and other
electrical appliances is affected by the extent of electrification and
the reliability of power supply.
Technological factors sometimes pose problems. A firm which is
unable to cope with the technological changes may not survive.
Further, the different technological environment of different
markets or countries may call for product modifications, e.g. many
appliances and instruments in the U.S.A. are designed for 110
volts but this needs to be converted into 240 volts in countries
which have that power system.
7. International environment: The international environment is very
important from the point of view of certain categories of business.
It is particularly important for industries directly depending on
exports or imports. E.g. a recession in foreign markets or the
adoption of protectionist policies may help the export-oriented
industries. Similarly, liberalization of imports may help some
industries which use imported items, but may adversely affect
import-competing industries.
Similarly, international bodies like WTO, IMF, WHO, ILO etc. have
had a major impact on influencing the policies and trade of many
countries, especially India.
2.7 Summary
Market segmentation is process of dividing the total market into several
sub-markets, or segments, each of which tends to be homogeneous.
There are three important principles applied for market segmentation:
measurability of segments, accessibility of the segments, and represent
ability of the segments. In market targeting, we evaluate each market
segment and finally select the appropriate segment company finds worth
entering. After targeting, marketers attempt to develop a special image
for its products in consumer mind relative to competitive products; this
is known as market positioning. A business enterprise operates within
the framework of environment factors. These environment factors must
be duly considered in planning a marketing strategy. The company's
marketing environment consists of micro and macro environmental
factors. Micro-environmental factors include suppliers, company,
customers, intermediaries, competitors and publics. Macro
environmental factors consisting of factors: demographic, economic,
political, technological, natural, cultural, and international.
2.8 Key words
Aggregation: a whole combining several elements,
formed by combination or addition
Pertinent: relevant
Homogeneous: of the same kind, uniform
2.9 Self Assessment Exercise
1. Discuss the significance of segmentation. Also write in brief
different bases of segmentation.
2. What do you mean by market targeting? Write in brief the process
of evaluating and selecting the market segment for targeting.
3. Write a detailed note on market positioning with suitable
examples.
4. Discuss in brief the micro and macro environmental factors. Also
write its impact on marketing.
2.10 Suggested Readings
1. Stanton, Etzel and Walker- Fundamentals of marketing (TMH)
2. Philip Kotler- Marketing Management (PHI)
3. Philip Kotler and Armstrong- Principles of marketing (PHI)
4. Ramaswamy and Namakumari- Marketing management
(Macmillan)
Subject: Basic Principles of marketing and management
Course Code: Paper-V Author: Dr. M.R.P. Singh
Lesson: 3 Vetter: Dr. B.S. Bodla
Study consumer behavior, Needs and motivation, group dynamics,
social surroundings and consumer perception
Structure
3.1 Objectives
3.2 Introduction
3.3 Consumer Needs and Motivation
3.4 Consumer Perception
3.5 Group Dynamics
3.6 Social Surroundings
3.7 Summary
3.8 Key words
3.9 Self Assessment Exercise
3.10 Suggested Readings
3.1 Objective
The objective of this lesson is to make the students aware about the
basic concepts of consumer behavior and its impact on marketing.
3.2 Introduction
Behavior is a mirror in which everyone displays his own image. The term
consumer behavior can be defined as the behavior that consumers
display in searching for, purchasing, using, evaluating, and disposing of
products and services that they expect will satisfy their needs. The study
of consumer behavior is the study of how individuals make decision to
spend their available resources (money, time, and effort) on
consumption-related items. It includes the study of what they buy, why
they buy it, how they buy it, when they buy it, where they buy it, and
how often they buy it.
The term consumer is often used to describe two different kinds of
consuming entities: the personal consumer and organizational
consumer. The personal consumer buys goods and services for his or her
own use (e.g. shaving cream or lipstick), for the use of the household, or
as a gift for a friend. In all of these contexts, the goods are bought for
final use by individuals, who are referred to as ‘end users’ or ‘ultimate
consumers’. The second category of consumer, the organizational
consumer, encompasses profit and non-profit making businesses,
government agencies, and institutions, all of which must buy products,
equipments, and services in order to run their organizations.
Manufacturing companies must buy the raw materials and other
components to manufacture and sell their own products; service
companies must buy the equipments necessary to render the services
they sell; government agencies must buy the office products needed to
operate agencies; and institutions must buy the materials they need to
maintain themselves and their population.
The person who purchases a product is not always the user, or the only
user, of the product in question. Nor is the purchaser necessarily the
person who makes the product decision. A mother may buy toys for her
children (who are the users); she may buy food for dinner (and be one of
the users); she may buy a handbag (and be the only user). She may buy
a magazine that one of her teenagers requested, or rent a video that her
husband requested, or she and her husband together may buy a car that
they both selected. Clearly, buyers are not always the users or the only
users, of the products they buy, nor are they necessarily the persons who
make the product selection decisions. Marketers must decide at whom to
direct their marketing efforts: the buyer or the user. They must identify
the person who is most likely to influence the purchase decision. Some
marketers believe that the buyer of the product is the best prospect,
others believe it is the users of the product, which still others play it safe
by directing all their marketing efforts to both buyers and users.
The study of consumer behavior holds great interest for us as
consumers, as students, and as marketers. As consumers, we benefit
from insights into our own consumption-related decisions: what we buy,
why we buy, and how we buy. The study of consumer behavior makes us
aware of the subtle influences that persuade us to make the product or
service choices we do. As students of human behavior, it is important for
us to understand the internal and external influences that impel
individuals to act in certain consumption related ways. Consumer
behavior is simply a subset of the larger field of human behavior. As
marketers or future marketers, it is important for us to recognize why
and how individuals make their consumption related decisions so that
we can make better strategic marketing decisions. Without doubt,
marketers who understand consumer behavior have a great competitive
advantage in the market place.
There are a number of reasons why the study of consumer behavior
developed as a separate marketing discipline. Marketing scientists had
long noted that consumers did not always act or react as economic
theory would suggest. The size of the consumer market was vast and
constantly expanding. Consumer preferences were changing and
becoming highly diversified. Even in industrial markets, where needs for
goods and services were always more homogeneous than in consumer
markets, buyers were exhibiting diversified preferences and less
predictable purchase behavior. The technological explosion that started
after World War II resulted in the rapid introduction of new products at
an ever-increasing rate. Many of these products— some experts estimate
over 80 per cent – proved to be marketing disasters. To counter this
problem marketers have made a determined effort to learn more about
consumers (their needs, preferences, changing life styles) to guide the
development of new products to fulfill unsatisfied needs. In addition to
the fast pace of new product introduction, other factors that contributed
to the development of consumer behavior as a marketing discipline
include shorter product life cycles, environmental concerns, increased
interest in consumer protection, the growth of service marketing, the
growth of international markets, and the development of computers and
sophisticated methods of statistical analysis.
Consumer behavior is interdisciplinary; that is, it is based on concepts
and theories about people that have been developed by social scientists
in such diverse disciplines as psychology, sociology, social psychology,
cultural anthropology, and economics.
3.3 Consumer needs and motivation
Every individual has needs; some are innate, others are acquired. Innate
needs are physiological (i.e., biogenic); they include the needs for food,
for water, for air, for clothing, for shelter, and for sex. Because they are
needed to sustain biological life, the biogenic needs are considered
primary needs or motives.
Acquired needs are needs that we learn in response to our culture or
environment. These may include needs for esteem, for prestige, for
affection, for power, and for learning. Because acquired needs are
generally psychological (i.e., psychogenic), they are considered secondary
needs or motives. They result from the individual's subjective
psychological state and from relationships with others. For example, all
individuals need shelter from the elements; thus, finding a place to live
fulfills an important primary need for a newly transferred executive.
However, the kind of house she buys may be the result of secondary
needs. She may seek a house in which she can entertain large groups of
people (and fulfill her social needs); she may also want to buy a house in
an exclusive community in order to impress her friends and family (and
fulfill her ego needs). The house an individual ultimately purchases thus
may serve to fulfill both primary and secondary needs.
Motivation can be described as the driving force within individuals that
impels them to action. This driving force is produced by a state of tension,
which exists as the result of an unfilled need. Individuals strive— both
consciously and subconsciously— to reduce this tension through behavior
that they anticipate will fulfill their needs and thus relieve them of the
stress they feel. The specific goals they select and the patterns of action
they undertake to achieve their goals are the results of individual thinking
and learning. Figure 3.1 presents a model of the motivational process. It
portrays motivation as a state of need-induced tension, which exerts a
"push" on the individual to engage in behavior that he or she expects will
gratify needs and thus reduce tension.
The specific course of action that consumers pursue and their specific goals
are selected on the basis of their thinking processes (i.e., cognition) and
previous learning. For that reason, marketers who understand motivational
theory attempt to influence the consumer's cognitive processes.
Figure 3.1 Model of the motivational process
Positive and negative motivation— Motivation can be positive or
negative in direction. We may feel a driving force toward some object or
condition, or a driving force away from some object or condition. For
example, a person may be impelled toward a restaurant to fulfill a
hunger need and away from motorcycle transportation to fulfill a safety
need. Some psychologists refer to positive drives as needs, wants, or
Unified
needs, wants,
and desires
Tension
Drive
Behavior
Goal or
need
fulfillment
Learning
Cognitive
processes
Tension
reduction
desires, and to negative drives as fears or aversions. However, though
negative and positive motivational forces seem to differ dramatically in
terms of physical (and sometimes emotional) activity, they are basically
similar in that both serve to initiate and sustain human behavior. For
this reason, researchers often refer to both kinds of drives or motives as
needs, wants, and desires.
Rational versus emotional motives— Some consumer behaviorists
distinguish between so-called rational motives and emotional (or non-
rational) motives. They use the term rationality in the traditional
economic sense, which assumes that consumers behave rationally when
they carefully consider all alternatives and choose those that give them
the greatest utility (i.e., satisfaction). In a marketing context, the term
rationality implies that consumers select goals based on totally objective
criteria, such as size, weight, price, or miles per gallon. Emotional
motives imply the selection of goals according to personal or subjective
criteria (e.g., the desire for individuality, pride, fear, affection, status).
The assumption underlying this distinction is that subjective or
emotional criteria do not maximize utility or satisfaction. However, it is
reasonable to assume that consumers always attempt to select
alternatives that, in their view, serve to maximize satisfaction. Obviously,
the assessment of satisfaction is a very personal process, based on the
individual's own need structure as well as on past behavioral, and social
or learned experiences. What may appear irrational to an outside
observer may be perfectly rational in the context of the consumer's own
psychological field. For example, a product purchased to enhance self-
image (such as a fragrance) is a perfectly rational form of consumer
behavior.
3.4 Consumer Perception
Perception can be described as "how we see the world around us". Two
individuals may be subject to the same stimuli under apparently the
same conditions, but how they recognize them, select them, organize
them, and interpret them is a highly individual process based on each
person's own needs, values, expectations, and the like.
Perception is defined as the process by which an individual selects,
organizes, and interprets stimuli into a meaningful and coherent picture
of the world. A stimulus is any unit of input to any of the senses.
Examples of stimuli (i.e., sensory inputs) include products, packages,
brand names, advertisements, and commercials. Sensory receptors are
the human organs (the eyes, ears, mouth, and skin) that receive sensory
inputs. These sensory functions are to see, hear, smell, taste, and feel.
All of these functions are called into play— either singly or in
combination— in the evaluation and use of most consumer products.
The study of perception is largely the study of what we subconsciously
add to or subtract from raw sensory inputs to produce a private picture
of the world.
Sensation— Sensation is the immediate and direct response of the
sensory organs to simple stimuli (an advertisement, a package, a brand
name). Human sensitivity refers to the experience of sensation.
Sensitivity to stimuli varies with the quality of an individual's sensory
receptors (e.g., eyesight or hearing) and the amount of intensity of the
stimuli to which he or she is exposed. For example, a blind person may
have a more highly developed sense of hearing than the average sighted
person and may be able to hear sounds that the average person cannot.
Sensation itself depends on energy change or differentiation of input. A
perfectly bland or unchanging environment- regardless of the strength of
the sensory input- provides little or no sensation at all. Thus, a person
who lives on a busy street in midtown Manhattan would probably receive
little or no sensation from the inputs of such noisy stimuli as horns
honking, tires screeching, and fire engines clanging, since such sounds
are so common in New York City. One honking horn more or less would
never be noticed. In situations where there is a great deal of sensory
input, the senses do not detect small intensities or differences in input.
As sensory input decreases, however, our ability to detect changes in
input or intensity increases, to the point that we attain maximum
sensitivity under conditions of minimal stimulation. This accounts for
the statement, "It was so quiet I could hear a pin drop". It also accounts
for the increased attention given to a commercial that appears alone
during a program break, or to a black-and-white advertisement in a
magazine full of four-color advertisements. This ability of the human
organism to accommodate itself to varying levels of sensitivity as external
conditions vary not only provides more sensitivity when it is needed, but
also serves to protect us from damaging, disruptive, or irrelevant
bombardment when the input level is high.
Perceptual Selection
Consumers subconsciously exercise a great deal of selectivity as to which
aspects of the environment—which stimuli—they perceive. An individual
may look at some things, ignore others, and turn away from still others.
In total, people actually receive- or perceive-only a small fraction of the
stimuli to which they are exposed. Consider, for example, a woman in a
super-market. She is exposed to literally thousands of products of
different colors, sizes, and shapes; to perhaps a hundred people (looking,
walking, searching, talking); to smells (from fruit, from meat, from
disinfectant, from people); to sounds within the store (cash registers
ringing, shopping carts rolling, air conditioners humming, and clerks
sweeping, stocking shelves); and to sounds from outside the store (planes
passing, cars honking, tires screeching, children shouting, car doors
slamming). Yet she manages on a regular basis to visit her local
supermarket, select the items she needs, pay for them, and leaves, all
within a relatively brief time, without losing her sanity or her personal
orientation to the world around her. This is because she exercises
selectivity in perception.
Which stimuli get selected depends on two major factors in addition to
the nature of the stimuli itself: the consumer’s previous experience as it
affects her expectations (what she is prepared, or “set”, to see) and her
motives at the time (her needs, desires, interests, and so on). Each of
these factors can serve to increase or decrease the probability that the
stimulus will be perceived, and each can affect the consumer’s selective
exposure to and selective awareness of the stimulus itself.
Nature of the Stimulus— Marketing stimuli include an enormous
number of variables that affect the consumer’s perception, such as the
nature of the product, its physical attributes, the package design, the
brand name, the advertisements and commercials (including copy
claims, choice and sex of model, positioning of model, size of ad, and
typography), the position of the ad or time of the commercial, and the
editorial environment.
Expectations— People usually see what they expect to see, and what
they expect to see is usually based on familiarity, previous experience, or
preconditioned” set”.
In a marketing context, people tend to perceive products and product
attributes according to their own expectations. A man who has been told
by his friends that a new brand of Scotch has a bitter taste will probably
perceive the taste to be bitter; a teenager who attends a horror movie
that has been billed as terrifying will probably find it so.
Motives— People tend to perceive things they need or want; the stronger
the need, the greater the tendency to ignore unrelated stimuli in the
environment. A businessman concerned with fitness and health is more
likely to notice and to read carefully an ad for a health club than one who
is without such concerns. In general, there is a heightened awareness of
stimuli that are relevant to one’s needs and interests, and a decreased
awareness of stimuli that are irrelevant to those needs.
Related Concepts— As the preceding discussion illustrates, the
consumer’s “selection” of stimuli from the environment is based on the
interaction of expectations and motives with the stimulus itself. These
factors give rise to a number of important concepts concerning
perception.
Selective Exposure— Consumers actively seek out messages they find
pleasant or with which they are sympathetic, and actively avoid painful
or threatening ones. Thus, heavy smokers avoid articles that link
cigarette smoking to cancer and note (and quote) the relatively few that
deny the relationship. Consumers also selectively expose themselves to
advertisements that reassure them of the wisdom of their purchase
decisions.
Selective Attention— Consumers have a heightened awareness of the
stimuli that meet their needs or interests and a lesser awareness of
stimuli irrelevant to their needs. Thus, they are likely to note ads for
products that meet their needs or for stores with which they are familiar
and disregard those in which they have no interest.
People also vary in terms of the kind of information in which they are
interested and the form of message and type of medium they prefer.
Some people are more interested in price, some in appearance, and some
in social acceptability. Some people like complex, sophisticated
messages; others like simple graphics. Consumers therefore exercise a
great deal of selectivity in terms of the attention they give to commercial
stimuli.
Perceptual Defense— Consumers subconsciously screen out stimuli
that are important for them not to see, even though exposure has already
taken place. Thus, threatening or otherwise damaging stimuli are less
likely to be perceived than are neutral stimuli at the same level of
exposure. Further more, individuals may distort information that is not
consistent with their needs, values, and beliefs.
Perceptual Blocking— Consumers protect themselves from being
bombarded with stimuli by simply “tuning out”— blocking such stimuli
from conscious awareness. Research shows that enormous amounts of
advertising are screened out by consumers; this may be more common
for television than for print. To explain why television advertising recall
scores are falling, various hypotheses have been offered, such as the
greater amount of time allotted for commercials, the use of shorter
commercials (and thus more advertising messages within the same
period of time), the number of commercials that are strung together back
to back, the increased number of advertisers, and the greater number of
products being advertised.
Perceptual Organization
People do not experience the numerous stimuli they select from the
environment as separate and discrete sensations; rather, they tend to
organize them into groups and perceive them as unified wholes. Thus,
the perceived characteristics of even the simplest stimulus are viewed as
a function of the whole to which the stimulus appears to belong. This
method of organization simplifies life considerably for the individual.
The specific principles underlying perceptual organization are often
referred to by the name given the school of psychology that first
developed and stressed it- Gestalt psychology. (Gestalt in German means
“Pattern” or “Configuration”)). Three of the most basic principles of
perceptual organization center on figure and ground relationships,
grouping, and closure.
Figure and Ground— Stimuli must contrast with their environment in
order to be noticed. A sound must be louder or softer, a color brighter or
paler. The simplest visual illustration consists of a figure on a ground
(i.e., background). The figure is usually perceived clearly because, in
contrast to its ground, it appears to be well defined, solid, and in the
forefront.
Grouping— Individuals tend to group stimuli automatically so that they
form a unified picture or impression. The perception of stimuli as groups
or “chunks” of information, rather than as discrete bits of information,
facilitates their memory and recall.
Grouping can be used advantageously by marketers to imply certain
desired meanings in connection with their products. For example, an
advertisement for tea may show a young man and woman sipping tea in
beautifully appointed room before a blazing hearth. The grouping of
stimuli by proximity leads the consumer to associate the drinking of tea
with romance, fine living, and winter warmth.
Most of us can remember and repeat our social security numbers
because we automatically group them into three chunks rather than nine
separate numbers. When the telephone company introduced the idea of
all-digit telephone numbers, consumers objected strenuously on the
grounds that they would not be able to recall or repeat so many
numbers. However, because we automatically group telephone numbers
into two chunks (or three, with the area code), the problems that were
anticipated never occurred.
Closure— Individuals have a need for closure. They express this need by
organizing their perceptions so that they form a complete picture. If the
pattern of stimuli to which they are exposed is incomplete, they tend to
perceive it nevertheless as complete; that is, they consciously or
subconsciously fill in the missing pieces. Thus, a circle with a section of
its periphery missing will invariably be perceived as a circle and not as
an arc. The need for closure is also seen in the tension and individual
experiences when a task is incomplete, and the satisfaction and relief
that come with its completion.
Perceptual Interpretation
The preceding discussion has emphasized that perception is a personal
phenomenon. People exercise selectivity as to which stimuli they
perceive, and organize these stimuli on the basis of certain psychological
principles. The interpretation of stimuli is also uniquely individual, since
it is based on what individuals expect to see in light of their previous
experience, on the number of plausible explanations they can envision,
and on their motives and interests at the time of perception.
Stimuli are often highly ambiguous. Some stimuli are weak because of
such factors as poor visibility, brief exposure, high noise level, and
constant fluctuation. Even stimuli that are strong tend to fluctuate
dramatically because of such factors as different angles of viewing,
varying distances, and changing levels of illumination.
Consumers usually attribute the sensory input they receive to sources
they consider most likely to have caused the specific pattern of stimuli.
Past experience and social interactions may help to form certain
expectations that provide categories or alternatives that individuals use
in interpreting stimuli. The narrower the individual’s experience, the
more limited the access to alternative categories.
When stimuli are highly ambiguous, an individual will usually interpret
them in such a way that they serve to fulfill personal needs, wishes,
interests, and so on. How a person describes a vague illustration, what
meaning the individual ascribes to an inkblot, is a reflection not of the
stimulus itself, but of the subject’s own needs, wants, and desires.
Through the interpretation of ambiguous stimuli, respondents reveal a
great deal about themselves.
How close a person’s interpretations are to reality, then, depends on the
clarity of the stimulus, the past experiences of the perceiver, and his or
her motives and interests at the time of perception.
3.5 Group Dynamics
A group may be defined as two or more people who interact to
accomplish either individual or mutual goals. The broad scope of this
definition includes an intimate “group” of two neighbors who shop
together and a larger, more formal group, such as a neighborhood watch
association, whose members are mutually concerned with reducing crime
in their neighborhood. Included in this definition, too, are more remote,
one-sided, social relationships where an individual consumer looks to
others for direction as to which products or services to buy, even though
these others are largely unaware that they are serving as consumption-
related models.
Types of Groups
There are many ways to classify groups, such as by regularity of contact,
by structure and hierarchy, by membership, even by size. For example, it
is often desirable to distinguish between groups in terms of their size or
complexity. However, it is difficult to offer a precise point as to when a
group is considered large or small. A large group might be thought of as
one in which a single member is not likely to know more than a few of
the group’s members personally or be fully aware of the specific roles or
activities of more than a limited number of other group members. In
contrast, members of a small group are likely to know each member
personally and to be aware of every member’s specific role or activities in
the group. For example, each staff member of a college newspaper is
likely to know all the other members and be aware of their duties and
interests within the group.
In the realm of consumer behavior, we are principally concerned with the
study of small groups, since such groups are more likely to influence the
consumption behavior of group members.
Primary versus Secondary Groups— If a person interacts on a regular
basis with other individuals (with members of his or her family, with
neighbors, or with co-workers whose opinions are valued), then these
individuals can be considered a primary group for that person. On the
other hand, if a person interacts only occasionally with such others, or
does not consider their opinions to be particularly important, then these
others constitute a secondary group for that person. From this definition,
it can be seen that the critical distinctions between primary and
secondary groups are the perceived importance of the groups to the
individual and the frequency or consistency with which the individual
interacts with them.
Formal versus Informal Groups— Another useful way to classify groups
is by their formality; that is, the extent to which the group structure, the
members’ roles, and the group’s purpose are clearly defined. If a group
has a highly defined structure (for example, a formal membership list),
specific roles and authority levels (a president, treasurer, and secretary),
and specific goals (to support a political candidate, assist the homeless,
increase the knowledge or skills of members), then it would be classified
as a formal group. The local chapter of the American Red Cross, with
elected officers and members who meet regularly to discuss topics of
civic interest, would be classified as a formal group. On the other hand, if
a group is more loosely defined- if it consists, say, of four women who
were in the same college sorority and who meet for dinner once a month,
or three co-workers who, with their spouses, see each other frequently-
then it is considered an informal group.
From the standpoint of consumer behavior, informal social or friendship
groups are generally more important to the marketer, since their less
clearly defined structures provide a more conducive environment for the
exchange of information and influence about consumption-related topics.
Consumer-Relevant Groups
To more fully comprehend the kind of impact that specific groups have
on individuals, we will examine six basic consumer-relevant groups: the
family, friendship groups, formal social groups, shopping groups,
consumer action groups, and work groups.
The Family— An individual’s family is often in the best position to
influence his or her consumer decisions. The family’s importance in this
regard is based upon the frequency of contact that the individual has
with other family members and the extent of influence that family has on
the establishment of a wide range of values, attitudes, and behavior.
Friendship Groups— Friendship groups are typically classified as
informal groups because they are usually unstructured and lack specific
authority levels. In terms of relative influence, after an individual’s
family, his or her friends are most likely to influence the individual’s
purchase decisions.
Formal Social Groups— In contrast to the relative intimacy of friendship
groups, formal social groups are more remote and serve a different
function for the individual. A person joins a formal social group to fulfill
such specific goals as making new friends, meeting “important” people
(e.g., for career advancement), broadening perspectives, pursuing a
special interest, or promoting a specific cause. Because members of a
formal social group often consume certain products together, such
groups are of interest to marketers.
Membership in a formal social group may influence a consumer’s
behavior in several ways. For example, members of such groups have
frequent opportunity to informally discuss products, services, or stores.
Some members may copy the consumption behavior of other members
whom they admire.
Shopping Groups— Two or more people who shop together- whether for
food, for clothing, or simply to pas the time- can be called a shopping
group. Such groups are often offshoots of family or friendship groups.
People like to shop with others who are pleasant company or who they
feel have more experience with, or knowledge about, a desired product or
service. Shopping with others also provides an element of social fun. In
addition, it reduces the risk that a purchase decision will be socially
unacceptable. In instances where none of the members have knowledge
about the product under consideration, a shopping group may form for
defensive reasons; members may feel more confident with a collective
decision.
Consumer Action Groups— A particular kind of consumer group- a
consumer action group- has emerged in response to the consumerist
movement. Consumer action groups can be divided into two broad
categories: those that organize to correct a specific consumer abuse and
then disband, and those that organize to address broader, more
pervasive, problem areas and operate over an extended or indefinite
period of time. a group of tenants who band together to dramatize their
dissatisfaction with the service provided by their landlord, or a group of
irate neighbors who unite to block the establishment of a drug treatment
clinic in a middle-class neighborhood, are examples of temporary, cause-
specific consumer action groups.
Work Groups— The sheer amount of time that people spend at their
jobs— frequently more than thirty-five hours per week—provides ample
opportunity for work groups to serve as a major influence on the
consumption behavior of members.
Both the formal work group and the informal friendship/work group
have the potential for influencing consumer behavior. The formal work
group consists of those individuals who work together as a team. Their
direct and sustained work relationship offers substantial opportunity for
one or more members to influence the consumption-related attitudes and
activities of other team members. Informal friendship/work groups
consist of people who have become friends as a result of working for the
same firm, whether or not they work together as a team. Members of
informal work groups may influence the consumption behavior of other
members during coffee or lunch breaks or after-hours meetings.
3.6 Social Surroundings
While social class can be thought of as a continuum- a range of social
positions- on which each member of society can be placed, researchers
have preferred to divide the continuum into a small number of specific
social classes, or strata. Within this framework, the concept of social
class is used to assign individuals or families to a social class category.
Consistent with this practice, social class is defined as the division of
members of a society into a hierarchy of distinct status classes, so that
members of each class have relatively the same status and members of
all other classes have either more or less status.
To appreciate more fully the complexity of social class, we will briefly
consider several underlying concepts pertinent to our definition.
Social Class and Social Status
Researchers often measure social class in terms of social status; that is,
they define each social class by the amount of status the members of
that class have in comparison with members of other social classes. In
the behavioral sciences, status is frequently conceptualized as the
relative rankings of members of each social class in terms of specific
status factors. For example, relative wealth (amount of economic assets),
power (the degree of personal choice or influence over others), and
prestige (the degree of recognition received from others) are three popular
factors frequently employed in the estimation of social class. When it
comes to consumer behavior and marketing research, status is most
often defined in terms of one or more of the following convenient
demographic (socioeconomic) variables: family income, occupational
status, and educational attainment. These socioeconomic variables, as
expressions of status, are used by marketing practitioners on a daily
basis to measure social class.
Social Class is Hierarchical— Social-class categories are usually ranked
in a hierarchy ranging from low to high status. Thus members of a
specific social class perceive members of other social classes as having
either more or less status than they do. Too many people, therefore,
social-class categories suggest that others are either equal to them
(about the same social class), superior to them (higher social class), or
inferior to them (lower social class).
This hierarchical aspect of social class is important to marketers.
Consumers may purchase certain products because they are favored by
members of their own or a higher social class and they may avoid other
products because they perceive them to be “lower-class” products.
Social Class and Market Segmentation— The various social class
strata provide a natural basis for market segmentation for many
products and services. In many instances, consumer researchers have
been able to relate product usage to social-class membership. Thus
marketers can effectively tailor products or services, channels of
distribution, and promotional messages to the needs and the interests of
a specific social stratum.
Social Class and Behavioral Factors— The classification of society’s
members into a small number of social classes has enabled researchers
to note the existence of shared values, attitudes, and behavioral patterns
among members within each social class, and differing values, attitudes,
and behavior between social classes. Consumer researchers have been
able to relate social-class standing to consumer attitudes concerning
specific products, and to examine social-class influences on the actual
consumption of products.
Social Class as a Frame of Reference— Social-class membership serves
consumers as a frame of reference (i.e., a reference group) for the
development of their attitudes and behavior. In the context of reference
groups, we might expect members of a specific social class to turn most
often to other members of the same class for cues (or clues) as to
appropriate behavior.
Social-class Categories— There is little agreement among sociologists
on how many distinct class divisions are necessary to describe
adequately the class structure of the United States. Most early studies
divided the social-class organizations of specific communities into five-
class or six-class social structures. However, other researchers have
found nine-class, four-class, three-class, and even two-class schemes to
be suitable for their purposes. The choice of how many separate classes
to use depend on the amount of detail the researcher believes is
necessary to explain adequately the attitudes or behavior under study.
Marketers are interested in the social-class structures of communities
that offer potential markets for their products, and in the specific social-
class level of their potential customers. Table 3.1 illustrates the number
and diversity of social-class schemes, and shows the distribution of the
United States population in terms of several different sub-divisions (five
category, six category and seven category subdivisions).
Table 3.1 Number and Diversity of Social-class Schemes
Two-category social-class schemes
Blue-collar, white-collar
Lower, upper
Lower, middle
Three-category social-class schemes
Blue-collar, gray-collar, white-collar
Lower, middle, upper
Four-category social-class scheme
Lower, lower-middle, upper-middle, upper
Five-category social-class schemes
Lower, working-class, lower-middle, upper-middle, upper
Lower, lower-middle, middle, upper-middle, upper
Six-category social-class scheme
Lower-lower, upper-lower, lower-middle, upper-middle, lower-upper,
upper-upper
Seven-category social-class scheme
Real lower-lower, a lower group of people but not the lowest, working
class, middle class, upper-middle, lower-upper, upper-upper
Nine-category social-class scheme
Lower-lower, middle-lower, upper-lower, lower-middle, middle-middle,
upper-middle, lower-upper, middle-upper, upper-upper.
In Indian context, six category social-class schemes are used more
frequently.
3.7 Summary
Consumer behavior can be defined as the behavior that consumers
display in searching for, purchasing, using, evaluating, and disposing of
products, services and ideas that they expect will satisfy their needs.
Motivation is the deriving force within individuals that impels them to
action. This driving force is produced by a state of uncomfortable
tension, which exists as the result of an unfilled need. All individuals
have needs, wants and desires. Perception is the process by which
individuals select, organize, and interpret stimuli into a meaningful and
coherent picture of the world. It has strategy implications for marketers
because consumers make decisions based on what they perceive, rather
than on the basis of objective reality. Almost all individuals regularly
interact with other people who directly or indirectly influence their
purchase decisions. Thus the study of groups and their impact on the
individual is of great importance to marketers concerned with influencing
consumer behavior. Social stratification- the division of members of a
society into hierarchy of distinct social classes-exists in all societies and
cultures. Social class is usually defined by the amount of status that
members of a specific class posses in relation to members of other
classes. Social class membership after serves as a frame of reference for
the development of consumer attitudes and behavior. So, the study of
social classes is of utmost importance for marketers.
3.8 Key words
Honking: the harsh sound of a car horn, make this
noise
Screech: a harsh high-pitched scream or sound
Stimuli: something that rouses a person or thing to
activity or energy
Hierarchial: a system which grades ranking one above
another
3.9 Self Assessment Exercise
1. What is consumer behavior? Discuss in brief its importance and
application in marketing with illustrations.
2. Discuss the concept of need and motivation and its impact on
marketing.
3. What is group dynamics? Write in brief different types of groups.
4. Define perception and sensation. Discuss in brief selection,
organization and interpretation of stimuli.
5. Write a detailed note on social surroundings and its impact on
marketing.
3.10 Suggested Reading
1. Stanton, Etzel and Walker- Fundamentals of marketing (TMH)
2. Philip Kotler- Marketing Management (PHI)
3. Philip Kotler and Armstrong- Principles of marketing (PHI)
4. Ramaswamy and Namakumari- Marketing management
(Macmillan)
Subject: Basic principles of marketing Author: Dr. M.R.P. Singh
And management
Course Code: Paper V Vetter: Prof. H. Bansal
Lesson: 4
Promotion Mix: Direct selling, Advertising, Sales Promotion and
Public Relations
.
Structure
4.1 Objective
4.2 Introduction
4.3 Advertising
4.4 Sales promotion
4.5 Personal selling
4.6 Public relations
4.7 Summary
4.8 Key words
4.9 Self assessment exercise
4.10 Suggested readings
4.1 Objective
The objective of this lesson is to make the students aware about the
importance of promotion, its meaning, objective and types
4.2 Introduction
Broadly speaking, promotion means to push forward or to advance an
idea to gain its acceptance and approval. Promotion is any
communicative activity whose main object is to move forward a product,
service or idea in a chain of distribution. It is an effort by a marketer to
inform and persuade buyers to accept, use, recommend, and repurchase
the idea, good or service which is being promoted. Thus, promotion is a
form of communication with an additional element of persuasion. The
promotional activities always attempt to affect knowledge, attitudes,
preferences, and behavior of recipients i.e. buyers.
In any exchange activity, communication is absolutely necessary. The
company may have the best product, package etc. but still people may
not buy the product if they haven’t heard of it. The marketer must
communicate to his prospective buyers and provide them with adequate
information in a persuasive language. People must know that the right
product is available at the right place and at the right price. This is the
job of promotion in marketing.
Thus promotion is the process of marketing communication involving
information, persuasion and influence. Promotion has three specific
purposes.
1. It communicates marketing information to consumers, users, and
prospects.
2. Besides just communication, promotion persuades and convinces
the buyers.
3. Promotional efforts act as powerful tools of communication.
Providing the cutting edge to its entire marketing programmed.
Thus promotion is a form of non-price competition.
Promotion is thus responsible for awakening and stimulating demand,
capture demand from rivals and maintaining demand for products even
against keen competition.
Every company can choose from the following tools of promotion,
popularly known as the promotion-mix variables:
1. Advertising,
2. Sales Promotion,
3. Personal Selling,
4. Public Relations
4.3 Advertising
Advertising is perhaps the most important tool of promotion that
companies use to direct persuasive communications to target buyers and
publics. Advertising is defined by the American Management Association
as “any paid form of non-personal presentation and promotion of ideas,
goods or services by an identified sponsor”. Advertising through various
media like magazines, newspapers, radio, television, outdoor displays
etc., has many purposes: “long-term build-up the organization’s
corporate image (institutional advertising), or long-term build-up of a
particular brand (brand advertising), information dissemination about a
sale, service or event (classified advertising), announcement of a special
sale (sale or promotional advertising) and advocacy of a particular cause
(advocacy advertising”.
Organizations obtain their advertising in different ways. In small
companies, advertising is handled by someone in the sales or marketing
department who works with an advertising agency.
Large companies on the other hand, set up their own advertising
departments, whose job is to develop the total budget, approve
advertising agency ads and campaigns, dealer displays etc.
In developing an advertising programmed, marketing managers must
always start with the identification of the target market and buyer
motives then proceed to make the five major decisions in developing
advertising programmed, known as the five Ms:
1. What are the advertising objectives (Mission)
2. How much can be spent (Money)
3. What message should be sent (Message)
4. What media should be used (Media)
5. How should the results be evaluated (Measurement)
4.3.1. Setting the advertising objectives
The first step in developing an advertising programme is to set the
advertising objectives. These objectives must flow from prior decisions on
the target market, market positioning and marketing mix. The objectives
can be classified on the basis of the aim which can be either to (a) inform
the target about the product features, performance, service available, a
price change or new uses etc. (called informative advertising) or (b) to
persuade the prospect to may be remain brand loyal, or switch brands,
or to purchase now etc. (called persuasive advertising) or (c) to remind
the buyer or the prospect about the product or its features, price where
to buy it from etc. (called reminder advertising).
The choice of the advertising objectives should be based on a thorough
analysis of the current marketing situation, e.g. if the product has
reached its maturity stage in its product-life cycle, and the company is
the market leader, and if the brand usage is low, the proper objective
should be to stimulate more brand usage (as in the case of colgate
toothpaste or surf). On the other hand, if the product is new and at the
introduction stage of the PLC and the company is not a market leader,
but its brand is superior to the leader, (as in the case of captain cook
salt) then the proper objective may be to convince the prospects about
the brands superiority.
4.3.2. Deciding on the advertising budget
After determining the objectives, the company can proceed to establish
its advertising budget for each product. Every company would like to
spend the amount required to achieve the sales goal. But how should it
decide how much to spend on advertising. There are several methods
from which a company can choose from while deciding on how much to
spend:
(a) What-all-you-can-afford method: Many companies set the
promotion budget at what they think the company can afford.
However, this method completely ignores the role of promotion as
an investment and the immediate impact of promotion on sales
volume. It leads to an uncertain annual promotion budget.
(b) Percentage of sales method: Many companies set their promotion
expenditure at a specified percentage of sales (either current or
anticipated). A number of advantages are claimed for the
percentage of sales method. First, it means that promotion
expenditures would vary with what the company can “afford”.
Second, it encourages management to think in terms of the
relationship between promotion cost, selling price and profit per
unit. Third, it encourages competitive stability to the extent that
competing firms spend approximately the same percentage of their
sales on promotion.
(c) Competitive parity method: Some companies set their promotion
budget to achieve parity with their competitors. Two arguments
have been advanced for this method. One is that the competitors’
expenditures represents the collective wisdom of the industry and
second is that maintaining a competitive parity helps prevent
promotion wars.
(d) Objective-task method: This method calls upon marketers to
develop their promotion budgets by defining their specific
communication objectives, determining the tasks that must be
performed to achieve these objectives, and estimating the costs of
performing these tasks. The sum of these costs is the proposed
promotion budget. This method has the advantage of requiring
management to spell out its assumptions about the relationship
between the amount spent, exposure levels, trial rates and regular
usage.
4.3.3. Deciding on the massage
Many studies on ‘sales effect of advertising expenditures’ neglects the
message creativity. One study found that the effect of the creativity factor
in a campaign is more important than the amount of money spent. Only
after gaining attention can a commercial help to increase the brand’s
sales.
Advertisers go through the following steps to develop a creative strategy-
message generation, message evaluation and selection and message
execution.
Message Generation: In principle, the product’s message (theme,
appeal) should be decided as part of developing the product concept; it
expresses the major benefit that the brand offers. Creative people use
several methods to generate possible advertising appeals. Many creative
people proceed inductively by talking to consumers, dealers, experts and
competitors. Consumers are the major source of good ideas. Their
feelings about the strength and shortcomings of existing brands provide
important clues to creative strategy.
How many alternative ad themes should the advertiser create before
making a choice? The more the advertisements created, the higher the
probability that the agency will develop a first-rate appeal. Yet, the more
time it spends on creating ads, the higher the costs. Thus, there must be
some optimal number of alternative ads that an agency should create
and test for the client.
Message Evaluation and Selection: The advertiser needs to evaluate
the alternative messages. A good ad normally focuses on one central
selling proposition without trying to give too much product information,
which dilutes the ad’s impact. Messages should be rated on desirability,
exclusiveness and believability. The message must first say something
desirable or interesting about the product. The message must also say
something exclusive or distinctive that does not apply to every brand in
the product category. Finally, the message must be believable.
Message Execution: The impact of the message’ depends not only upon
‘what is said’ but also on ‘how it is said’. Some ads aim for rational
positioning (designed to appeal to the rational mind) e.g. Surf-washes
clothes whitest, whereas other advertisements aim for emotional
positioning, which appeal to the emotions of love, tenderness, care etc.
The choice of headlines, copy and so on, can make a difference to the
ad’s impact. The advertiser usually prepares a copy strategy statement
describing the objective, content, support and tone of the desired ad.
Creative people must find a style, tone, words, and format for executing
the message. All of these elements must deliver a cohesive image and
message. Since few people read the body copy, the picture and headline
must summarize the selling proposition.
A number of researchers of print advertisements report that the picture,
headline, and copy are important in this order. The reader first notices
the picture and hence it must be strong enough to draw attention. Then
the headline must be effective in propelling the person to read the copy
which itself must be well composed. Even then, a really outstanding ad
will be noted by less than 50% of the exposed audience, about 30% of the
exposed audience might recall the headline’s main point, about 25%
might remember the advertiser’s name and less than 10% will have read
most of the body copy.
4.3.4. Deciding on the media
The advertiser’s next task is to choose advertising media to carry the
advertising message. The steps are deciding on desired reach, frequency
and impact, choosing among major media types, selecting specific media
vehicles, and deciding on media timing.
(a) Deciding on reach frequency and impact: Media selection is the
problem of finding the most cost-effective media to deliver the
desired number of exposures to the target audience. But what do
we mean by the desired number of exposures? Presumably, the
advertiser is seeking a certain response from the target audience-
e.g. a certain level of product trial. The impact of exposures on
audience awareness depends on the exposure’s reach, frequency
and impact.
Reach (R): The number of different person or households exposed
to a particular media schedule at least once during a specified time
period.
Frequency (F): The number of times within the specific time
period that an average person or household is exposed to the
message.
Impact (I): The qualitative value of an exposure through a given
medium e.g. a woman’s product in Femina would have a higher
impact than in the Dalal Street).
(b) Choosing among Major Media Types: The media planner has to
know the capacity of the major media types to deliver, reach,
frequency and impact. The major media types are newspapers,
television, direct mail radio, magazines, and outdoor.
Media planners make their choice among these media categories
by considering several variables, the most important ones being
the following:
Target-Audience Media Habits: e.g. television and radio are the
most effective media for reaching teenagers.
Product: Women’s dressers are best shown in colored magazines.
Massage: A message announcing a major sale tomorrow will
require radio or newspapers.
Cost: Television is very expensive, whereas newspaper advertising
is comparatively much cheaper. What counts are the cost per
thousand exposures and not the total cost?
(c) Selecting specific media vehicles: Now the media planner
searches for the most cost-effective media vehicle. There are
hundred of magazines and newspapers specially targeted at special
audience which a planner chooses from. Similarly on the television
media, there are several channels and programmes from which a
choice can be made. However, every media vehicle entails a certain
cost and has certain customer coverage. How to select the most
cost-effective media is done using the “Cost-Per-Thousand
Criterion” e.g. if a full page, four color advertisement in India Today
costs Rs. 80,000/- and has a readership of 20 lac people, the cost
of reaching each one thousand persons is approximately Rs. 40/-
The same advertisement in Business Today may cost Rs. 25,000
but reach only 50,000 people, the cost per thousand people would
be approximately Rs. 500/. Similarly, the media planner would
rank reach magazine by cost per thousand and favor those
magazines with the lowest cost per thousand for reaching the
target consumers.
Media planners are increasingly using more sophisticated
measures of media effectiveness and employing them in
mathematical models for arriving at the best media-mix. Many
advertising agencies use computer programmes to select the initial
media and then make further improvements based on subjective
factors cited in the model.
(d) Deciding on media timing: The advertiser faces a macro
scheduling problem and a micro scheduling problem.
Macro-scheduling Problem: The advertiser has to decide how to
schedule the advertising in relation to seasonal & business cyclic
trends. Suppose 70% of a product’s sales occur between June &
September, the firm has three options-either it could follow the
seasonal pattern, to oppose the seasonal pattern or to be constant
throughout the year.
Micro-scheduling Problem: The micro scheduling problem calls
for allocating advertising expenditures within a short period to
obtain the maximum impact.
4.3.5. Evaluating advertising effectiveness
Good planning and control of advertising depends critically on measures
of advertising effectiveness. Most advertisers try to measure the
communication effect of an ad that is its potential effect on awareness,
knowledge or preference. They would like to measure the sales-effect but
often find it is too difficult to measure. Yet both can be researched.
Communication-Effect Research: Communication-effect research seeks
to determine whether an ad has been able to communicate effectively i.e.
copy testing. It can be done before an ad is put into media and after it is
printed or broadcast.
There are three major methods of advertising pre-testing:
(a) Direct-rating method: Which asks consumers to rate alternative
ads?
(b) Portfolio tests: entail a group of consumes to view and/or listen
to a portfolio of advertisements and then they are asked to recall
all the ads and their content, aided/unaided by the interviews.
(c) Laboratory tests: use equipment to measure consumer’s
physiological reactions-heartbeat, blood pressure, pupil dilation
etc. which measures the ad’s attention-getting power.
Sales Effect Research: Communication-effect advertising research helps
advertisers assess advertising’s communication effects but reveals little
about its sales impact.
Advertising’s sales effect is generally harder to measure than
communication effect. Sales are influenced by many factors besides
advertising, such as the product’s features, price, availability &
competitors’ actions. Researchers try to measure sales impact through
analyzing either historical or experimental data. The historical approach
involves correlating past sales to past advertising expenditures on a
current basis using advanced statistical techniques. Other researchers
use experimental design to measure the sales impact of advertising.
Instead of spending the normal percentage of advertising to sales in all
territories, the company spends more in some territories and less in
others. These are called high-spending and low-spending tests. If the
high-spending tests produce substantial sales increases, it appears that
the company has been under spending. If they fail to produce more sales
and if low-spending tests do not lead to sales decreases, then the
company has been overspending. These tests, of course, must be
accompanied by good experimental controls.
4.3.6. Advertising agencies and profile of advertising in
India
Today, the advertising job has become so complex and large, that
normally no business firm chooses to handle the function directly. They
employ the services of advertising agencies. These agencies carry forward
the task of planning, execution and evaluation of the promotional
campaigns of companies.
Stanton has defined an advertising agency as “an independent company
rendering specialized services in advertising in particular and marketing
in general.” They are independent concerns working as a specialist, an
agent or consultant of the advertiser. They perform all activities right
from preparation and development of advertising copy to the evaluation
of the effectiveness of the advertising programme.
Advertising agencies render a lot of services to advertisers like
1. Copy writing,
2. Photographing,
3. Media planning,
4. Buying of space,
5. Marketing research,
6. Public relations,
7. Merchandising,
8. Sales promotion,
9. Forwarding the advertising material etc.
All these specialized services help the advertisers in raising the
effectiveness of advertising.
Advertising in the Indian perspective
In a country like India, where we find diverse languages, low-income
levels, large-scale illiteracy, the growth in advertising has also been slow
as a natural consequence. An experienced marketing man in India feels
that the greatest difficulty in India is to find a common link of
communication for the entire country. The advertising campaigns are
usually not conceived in Indian languages and are often translations of
the original advertisement in English. The advertising themes lack Indian
images, associations and expressions. India being a country of villages,
the ultimate task before the advertising men is to make the advertising
appeal simple. No doubt to reach and influence the rural market is a
challenge.
However, in the yester decades, we find multifaceted changes in our
socio-economic set-up, an increase in the pace of industrialization & an
increase in the level of income of the general masses. We also find
satisfactory developments in the field of education and all these
developments have paved wider avenues for advertisements. The
technological sophistication in the field of mass communication has also
been instrumental in making the advertising come of age.
Indian advertising practices are under-going a see-saw change and the
credibility would probably be to the rising tempo of industrialization in
all the sectors of the Indian economy. Of late, the Indian businessmen
have learnt to appreciate and visualize the social responsibility of
business. Hence, it is pertinent that advertising is given new orientation.
With these developments, advertising has become a communication
device as well as an indispensable weapon in the armory of today’s
business. Even the area of advertising research needs special attention.
Advertising thus is a sensitive tool of promotion-mix with a very wide
coverage and now that the level of consumerism and competition is
reaching its peak in India too, business houses have understood that
they need the effective tool of advertising to promote the special selling
proposition of product to their prospects.
4.4 Sales Promotion
“Sales Promotion is a direct and immediate inducement that adds an
extra value to the product so that it prompts the dealers, distributors or
the ultimate consumers to buy the product.”
According to the American Marketing Association, “Sales promotion
means to give short term incentives to encourage purchase or sale of a
product or service. Sales promotion includes those activities that
supplement both personal selling and advertising, and co-ordinate them
and help to make them effective, such as display, shows and expositions,
demonstrations and other non-recurrent selling efforts not in the
ordinary routine”.
Sales promotion helps in solving the short-term problems of the
marketing manager, the impact of these methods is not very lasting or
durable and the results of these efforts are not as lasting as those of
advertising and personal selling. Sales promotion is more of a catalyst
and a supporting communication effort to advertising and personal
selling.
4.4.1. Objectives of sales promotion
Sales promotions, as a tool of communication and promotion, fulfils the
following objectives:
(a) Sales promotion helps in introducing new products.
(b) It also helps in overcoming any unique competitive situation.
(c) It is useful for unloading the accumulated inventory or stock of the
goods in the market.
(d) It can be used for overcoming the seasonal slumps in sales.
(e) Sales promotion helps in getting new accounts i.e. clients or
customers.
(f) It helps in retrieving the lost accounts.
(g) It acts as a support and supplement to the advertising effort.
(h) It also acts as a support and supplement to the salesmen’s efforts.
(i) It aims at persuading salesmen to sell the full line of the products
and not just concentrate on a few products.
(j) It helps in persuading the dealer to buy more stock from the
company i.e. to increase the size of the order.
(k) Its objective is to create a stronger and quicker response from the
consumers.
(l) It also helps to boost dropping sales of any product of the
company.
4.4.2. Sales promotion techniques
The sales promotion techniques or tools have three distinctive features:
(a) Communication- Sales promotion attracts the attention of the
consumer and gives him such information that he is led to the
product or service.
(b) Incentive: they give some incentive, concession, inducement or
contribution that gives added value to the consumer.
(c) Invitation: They give a distinct invitation to the consumer to enter
into a transaction with the dealer or the company.
The various tools or techniques of sales promotion can be described
below:
1. Sales promotional letters: Several companies utilize the medium
of letters for sales promotion. These letters serve different
purposes. Some times they are used to give information about the
company's products, at other times; they are used as reminders for
the customers to continue to buy a particular brand. Some letters
seek information from the customers regarding various aspects of
their purchases.
2. Point of purchase (POP) displays: This is the most widely used
sales promotional tool. Various kinds of display materials like
posters, danglers, stickers, mobile wobblers and streamers are
used at the retailer's outlet to induce customers to purchases. POP
displays are generally useful in the case of products like liquors for
which advertising is prohibited. At times, to enhance the display
effect, manufacturers use different approaches such as illuminated
designs and motion displays etc. companies use the technique of
mass display within the limited space available in the retail store.
The stocks are artistically arranged to gain maximum attention.
Displays of various types such as window displays, wall display,
counter displays or floor displays are also used. The retailer's role
is very important from the point of view of displays.
3. Customer service programmes: At times, the company organizes
and conducts customer service programmes or camps with the aim
of providing service to the customers at different points of
purchase.
4. Demonstrations: Companies do product demonstrations for sales
promotion, especially when they are introducing a new product in
the market. Demonstrations are usually used for low unit price
products like washing powder or high unit price products like
washing machines and vacuum cleaners. Demonstrations may be
organized at the retail stores by the company salesmen for the
benefit of retailers as well as consumers. Door to door
demonstrations and institutional demonstrations are also
considered to be highly specialized form of sales promotion.
Sometimes demonstrations are organized for influential people
such as journalists, mediamen, opinion leaders, etc, who are
invited to see the demonstration of the product. Demonstration is a
good sales promotion technique which involves the cooperation of
the sales representatives and the prospective customers.
5. Free samples: Free samples of the product are offered to persuade
the consumers to try them out. By offering free samples to a large
section of the new market, a company seeks to gain an entry into
that market. For using this tool, the product should be of low cost
and subject to frequent purchases. e.g., soaps, detergents,
toothpastes, tea, etc.
6. Contests: Contests of various kinds are also commonly used as
sales promotion tool. There are dealer contests which are
exclusively for the dealers of the company and consumer contests
for the general public. Companies spend a large amount of money
on these contests because they have to be publicized widely and
the expenditure on the attractive prizes is also to be covered.
Consumer contests may be in the form of quiz contests, beauty
contests, scooter and car rallies, lucky draws, suggesting a brand
name, writing a slogan, suggesting a logo, etc. The consumer has
to be induced to get interested in the contest and purchase the
product associated with it.
7. Premiums and free offers, price-off schemes and installment
offers: In the Indian markets today, these tools are being used
extensively by different companies. A premium offer is given for a
particular product and alongwith it is a free offer of another
product to be given free to anybody buying the product, for e.g., an
Arial bar free with a pack of Arial washing powder.
Price-off schemes are also introduced by different companies from
time to time. e.g. Kelvinator and Allwyn refrigerators, Hawkins
pressure cooker, etc. Other companies give the installment offer to
the consumer for buying their product which is usually high priced
and give the consumers the facility of paying a certain amount of
money as down payment and pay the balance amount in a
specified number of equal installments. This sales promotion
measure has been found to be very effective.
8. Coupons: These are certificates which promise price reduction to
consumer on specified items. Coupons generally perform specific
functions for the company. Firstly, they encourage the consumers
to make use of the bargain offered and secondly they also serve as
an inducement to the channel members for stocking the items of
that company. Coupons may be distributed through newspaper
and magazine advertisements or by direct mail or along with the
package consisting the product. Coupons are generally used while
introducing a new product or for strengthening the image of the
product.
9. Catalogues: Catalogues carry essential information on the
products offered by the company. A well-designed catalogue carries
complete information relating to the products, their pictures, size
specifications, colours, packing, uses and prices. The products are
listed and indexed properly in order to facilitate order booking and
processing.
10. Trade fairs and exhibitions: These tools are based on the premise
that 'seeing is believing' and are extensively used. These fairs and
exhibitions provide the companies with the opportunity of
introducing and displaying their products. This brings the
company's products and consumers in direct contact with each
other. Trade fairs and exhibitions are very effective in international
marketing and a lot of trade orders and enquiries are generated at
the international level also.
11. Gifts: Companies also distribute gifts to people like customers,
dealers and other influential people. These gifts may include pens,
pencils, calendars, diaries, decoration pieces, etc. The gifts
generally carry the company's name and logo. These gifts are
intended to create goodwill amongst the various people towards the
company and indirectly help in furthering the sales of the
company.
12. Sponsoring major national and international events:
Companies associate themselves with the major national and
international events such as sports like cricket, hockey, tennis,
golf, etc. The business houses generally sponsor the event as a
whole or may associate themselves with specific aspects of the
events. e.g., companies of soft drinks, cigarette manufacturers, etc.
The purpose behind sponsoring is to remain a part of the news and
got the best of sales promotional efforts in the form of benefits.
4.5. Personal selling
It is essential to communicate, persuade and motivate the target
customers in order to make the product and price known and acceptable
to the target consumers. For this, personal selling is adopted as an
effective tool. The company's sales persons who may be referred to as the
salesmen or sales representatives or sales executives, who are on its
payroll, communicate with the target consumers, so as to make an order
of sale and motivate them to positively respond to it and finally to clinch
the deal. According to the American Marketing Association, “Personal
selling can be defined as an oral presentation, in conversation with one
or more prospective purchasers, for the purpose of making sales”.
According to F.E. Webster, Jr. "Personal selling is a highly distinctive
form of promotion. Like other forms of promotion, personal selling is
basically a method of communication, but unlike others it is a two-way,
rather than unidirectional communication. It involves not only the
individual but social behaviour. Each of the persons in face-to-face
contact, salesman and prospect influences the other. The outcome of
each sales situation depends heavily upon the success that both the
parties experience in communicating with each other and reaching a
common understanding of needs and goals. The main task involved in
personal selling is to match specific products with specific consumers so
as to secure transfer of ownership".
According to K.B. Hass- "Personal selling basically consists of the
interpretation of product and service features in terms of benefits and
advantages to the buyer and of persuading the buyers to buy the right
kind and quantity of the product."
Objectives of personal selling
Personal selling helps in the following major areas:
1. To improve the sales volume of the company's different products.
2. To ensure the proper mix of products in the total sales volume.
3. To increase the market share of the company.
4. To increase the profits of the company.
5. To reduce the overall selling expenses.
6. To gain new accounts and improve business growth.
7. It helps in the appointment of dealers and expansion of the
distribution channel.
8. To secure channel members co-operation in stocking as well as
selling the products of the company.
9. To achieve the desired proportion of cash and credit sales.
10. To provide pre-sale and after-sale services.
11. To train the dealers and customers.
12. To assist and support other promotional measures.
13. To help in collecting the amounts due from the market.
14. To help in gathering and reporting marketing intelligence.
4.6. Public relations
Public relations is a very important and resourceful tool of the promotion
mix.
According to Kotler, “Public relations induces a variety of programmes
designed to improve, maintain or protect a company of product image.
e.g., through press conferences, seminars, speeches, annual reports,
charitable donations, etc.”
The major tools in public relations are (i) publications: annual reports,
brochures, articles, company magazines and news letters. (ii) events:
special events like news conference, anniversary celebration of the
company, sponsoring sports and cultural events. (iii) News: the
companies find and create favorable news (iv) speeches: by company
executives at trade associations, sales meetings, etc. (v) identity media:
companies also use such devices as company logos, stationery, business
cards, uniforms, etc., which help in identifying the company.
Public relations (PR) is another important marketing tool, which until
recently, was treated as a marketing step-child. The PR department is
typically located at corporate headquarters; and its staff is so busy
dealing with various publics- stockholders, employees, legislators,
community leaders- that PR support for product marketing objective
tends to be neglected.
Objectives of public relations
1. Social awareness can be created through the PR promotion
plan, regarding a product, service, person, organizer, etc.
2. It helps to build credibility by communicating the message
for example, in editorials of newspapers, etc.
3. It assists in the launch of new products.
4. It assists in repositioning of a product.
5. It helps in building up consumer interest in a particular
product category.
6. It also helps in influencing the specific target groups.
7. Public relations help to define products that have faced
problems or complaints from the public.
8. It helps to build the corporate image in such a way that it
projects favorably on its products.
PR department perform following activities:
Press relations- The aim of press relations is to place newsworthy
information into the news media to attract attention to a person,
product or service.
Corporate communication- This activity covers internal and
external communications and promotes understanding of the
organization.
Lobbying- It involves dealing with legislators and government
officials to promote or defeat legislation and regulation.
Counseling- Counseling involves advising management about
public issues and company position and image.
4.7 Summary
Promotion is one of the most important components of company's overall
marketing mix. The methods of promotion are— advertising, sales
promotion, personal selling and public relations. The purpose of
promotion is to inform, persuade, and remind customers. It must be
integrated into firm’s strategic planning because effective execution
requires that all elements of marketing mix-product, price, place and
promotion- be coordinated. While deciding on the promotional mix
(combination of advertising, sales promotion, personal selling and public
relations), management should consider – the nature of the market and
product, the stage of the product's life cycle and funds available for
promotion. The key to a successful promotional campaign is to carefully
plan and coordinate all the components of promotion.
4.8 Key words
Presumably: it may be presumed (suppose to be true)
Retrieving: regain possession of, bring back
4.9 Self Assessment Exercise
1. Discuss in brief the role of promotion in marketing effort of a
company. Also write a short note on public relations.
2. What is advertising? How advertising budget is decided? What are
different advertising media?
3. Define personal selling and discuss its objectives.
4. What is sales promotion? Discuss in brief some important tools of
sales promotion.
4.10 Suggested Readings
1. Stanton, Etzel and Walker- Fundamentals of marketing (TMH)
2. Philip Kotler- Marketing Management (PHI)
3. Philip Kotler and Armstrong- Principles of marketing (PHI)
4. Ramaswamy and Namakumari- Marketing management
(Macmillan)
Author: Anju Verma
Course Code: Vetter: Dr B S Bodla
Lesson: 05
BRAND EVALUATION AND NEW TRENDS IN MARKETING
Structure
5.0 Objectives
5.1 Introduction- Brand evaluation, the concept and applications of brand
evaluation
5.2 Developing new brands
5.3 New Trends in marketing
5.4 Experiential marketing
5.5 Integrated marketing
5.6 Summary
5.7 Key words
5.8 Self Assessment Exercise
5.9 Suggested Readings
5.0 Objective – This lesson is intended to elicit information regarding
brand valuation. As the brand lies in the center of marketing activities.
Consumers no longer want just a product or service but a relationship on
trust and familiarity. The focus is also on the steps to develop new
brands. Brand equity developed by brand awareness, familiarity and
unique brand association. The changing economic environment leads to
contribute certain new trends in marketing viz. experiential marketing,
permission marketing and integrated marketing. The aim of this lesson is
to make aware students about these new concepts of marketing in very
easy and interesting way.
5.1 Introduction-BRAND EVALUATION –THE CONCEPT AND
APPLICATION OF BRAND EVALUATION
5.1.1 BRAND
A brand is a name or a symbol - and its associated tangible and emotional
attributes - that is intended to identify the goods or services of one seller in
order to differentiate them from those of competitors. At the heart of a brand
are trademark rights.
5.1.2 BRAND EVALUATION
A brand designates a product or service as being different from competitors'
products and services by signaling certain key values specific to a particular
brand. It is the associations which consumers make with the brand that
establish an emotional and a rational 'pact' between the supplier and the
consumer. This pact is an ongoing relationship between the supplier and
consumer, and because of this, brands provide a security of demand that the
supplier would not enjoy if they did not own the brand. This security of
demand means a security of future brand earnings, and this is what defined
as brand evaluation.
5.1.3 ORIGIN OF BRAND EVALUATION
Ten years ago Interbrand conducted the first ever brand valuation for Rank
Hovis McDougal(RHM). This exercise succeeded in putting the worth of the
company's brands as a figure on the balance sheet. RHM's management
wanted this information to fight a hostile takeover bid. With the brand value
information, the RHM board was able to go back to investors and argue that
the bid was too low, and eventually repel it.
It was the wave of brand acquisitions in the late 1980's that exposed the
hidden value in highly branded companies and brought brand valuation to
the fore. Some of these acquisitions included Nestlé buying Rowntree,
United Biscuits buying and later selling Keebler, Grand Metropolitan buying
Pillsbury and Danone buying Nabisco's European businesses. All these
acquisitions were at high multiple price tags.
The amount being paid for the acquisition of a strongly branded company
was increasingly higher than the value of the company's net tangible assets.
This resulted in huge levels of 'goodwill' arising on acquisition. This
'goodwill' actually disguised a mix of intangible assets - brands, copyrights,
patents, customer loyalty, distribution contracts, staff knowledge, etc.
An Interbrand study of acquisitions in the 1980s showed that, while in 1981
net tangible assets represented 82% (on average) of the amount bid for
companies, by 1988 this had fallen to just 56%. It became clear that
companies were being acquired less for their tangible assets and more for
their intangible assets.
5.1.4 NEED FOR BRAND EVALUATION
Although public perceptions of brand valuation are often focused on balance
sheet valuations, the reality is that the majority of valuations are now
actually carried out to assist with brand management and strategy.
Companies are increasingly recognizing the importance of brand
guardianship and management as key to the successful running of any
business.
The values associated with the product or service is communicated through
the brand to the consumer. Consumers no longer want just a service or
product but a relationship based on trust and familiarity. In return businesses
will enjoy an earnings stream secured by loyalty of customers who have
'bought into' the brand.
5.1.5 METHODS OF BRAND EVALUATION
Today, a widely accepted method of valuing a company or business is to
discount the profit or cash flows it produces to a net present value. A similar
approach can be used for brands. The profit streams produced by the brand
are discounted to their net present value using a discount rate which reflects
the riskiness of those income streams being realized i.e. which reflects the
strength of the brand - the drivers of those profit streams.
Interbrand, the original pioneers of Brand Valuation employ an economic
use method, which is the most widely accepted and has made Interbrand a
worldwide authority in this field. It is based on the premise that brands,
when well managed, affect the way that consumers behave in the market and
the brand owner derives an economic benefit as a result.
Interbrand bases its valuation method on this concept of economic use and
the fundamental question: how much more valuable is the business because
it owns certain brands? It is thus a marketing measure that reflects the
security and growth prospects of the brand and a financial measure that
reflects the earnings potential of the brand.
Given this concept of economic worth, the value of a brand reflects not only
what earnings it is capable of generating in the future, but also the likelihood
of those earnings actually being realized. Broadly speaking Interbrand's
brand valuation methodology comprises four elements:
1. Financial Analysis - To identify business earnings and 'Earnings
from Intangibles' for each of the distinct segments being assessed.
2. Market Analysis - To measure the role that a brand plays in driving
demand for services in the markets in which it operates and hence to
determine what proportion of Earnings from Intangibles are
attributable to the brand (this is measured by an indicator referred to
as the 'Role of Branding Index').
3. Brand Analysis - To assess competitive strengths and weaknesses of
the brand and hence the security of future earnings expected from that
brand (this is measured by an indicator referred to as the 'Brand
Strength Score').
4. Legal Analysis - To establish that the brand is a true piece of
'property' Brand valuation techniques originally developed in response
to mergers and acquisitions activity: valuing the brands owned by a
company to help calculate the true value of the business.
5.1.6 APPLICATIONS OF BRAND EVALUATION
External investor relations
Mergers and acquisitions were the original driving force for brand valuation.
Now many successful companies use brand valuation as an ongoing business
performance indicator: to help ensure that brand strength is reflected in share
value. (And in many markets the relevant accounting standards allow brands
to be shown as assets on the balance sheet).
Internal marketing management
Brand valuation is increasingly being used as a management tool in leading
organizations. For example: brand valuation figures can be used to evaluate
new product and market development opportunities, to set business
objectives, allocate budgets and to help measure performance and reward
staff.
Internal royalty rates
Across a large organization there may be many affiliates, subsidiaries or
divisions that make use of any particular brand. As the profit potential of
brands becomes more clearly understood more companies are charging
royalties, across their business operations, for the use of these brand assets.
Licensing and franchising
Where companies allow outside organizations to use their brand, on a
licensing or franchising basis, a brand valuation can lay the foundation for
appropriate charges.
Tax planning
As the management of brands as financial assets becomes more
sophisticated, so tax authorities around the world have started to take an
interest in how these assets are managed. The result is that more and more
international organizations are planning the most cost-effective domicile for
their brand portfolios and are organizing their tax affairs with their brands in
mind.
Securitized borrowing
Even in the conservative world of banking, the asset value of brands has
been recognized. As a result brands have been used to secure loans,
especially in the US, where companies such as Disney have borrowed
significant amounts of money against their brand name.
Litigation support
Brand valuations have been used to support litigation against the illegal use
of a brand name (as a basis for calculating damages, for example) and also in
cases of receivership, to prevent the assets of the business being
undervalued.
5.1.7 BENEFITS OF BRAND EVALUATION
Valuation has various intangible and tangible benefits.
Intangible benefits of brand valuation
1. Enhances Confidence: Brand credibility shows the faith & confidence
of public at large in the product, Valuation if reflected in the books of
accounts further enhances the public loyalty to the product and hence
becomes a force multiplier.
2. Indicator of effective utilization: The value in the brand building is
generated in the reverse direction when compared to the capital
expenditure. We invest in capital expense today and utilize the
proportionate investment every year, which we write off in the form
of depreciation or amortization, whereas the expenditure in brand
building is incurred in installments and is converted into valuable
asset over a period of time. The expenditure is considered as revenue
expense due to accounting and taxation provision which really is not
so, hence valuation gives us the real effective worth, which we have
created over the years through brand building and hence becomes an
indicator as to how effectively we have utilized the expenditure.
3. Credibility to the real worth: If you valuate your brand only at the
time of disposal it has a lesser influence and will always leave a doubt
of its real worth, in the mind of both the buyer as well as the seller
where as if the brand is continuously valued has a different impact and
gives much more creditability to the real worth.
4. Strategy development: Companies are applying brand valuation
techniques in order to understand and manage their brands better.
Brand valuation involves a detailed examination of a brand from
marketing point, a financial and legal prospective. It also examines the
brand performance, prospective, market opportunity, and competition.
It thus provides an excellent tool for strategy development.
Tangible benefits of brand valuation
1. Merger & Acquisition: It is of critical importance for an acquirer, as
well as for the vender to understand and evaluate their real worth for
negotiating the correct price.
2. Disposal: The current focus on brands has led many companies to
recognize that they cannot support properly all their brands or
certain brands could be worth more to a third party than to their
current owner. Brand evaluation technique can be used to judge
which brand to dispose of and their possible economic worth to a
third party.
3. Licensing: Brand licensing, either to third parties or internally to its
own subsidiary, is am increasingly common practice. Brand
valuation assists in formulating this strategy.
4. Fund Raising: Brand valuation are playing an increasing prominent
role in the area of fund raising, particularly from the public as brand
represent robust asset against which to seek funds is much easier.
5. Discount Rate: Robust strength also assists in arranging the large
funds at lower cost.
5.2 DEVELOPING NEW BRANDS
Customer based brand equity occurs when the consumer has a high
level of awareness and familiarity with the brand and holds some strong,
favourable and unique brand associations in memory. In some cases, brand
awareness alone is sufficient to get a favourable response from consumer.
But in most cases, the brand strength, favorability and uniqueness of the
brand associations play a critical role.
5.2.1 SOURCES OF BRAND EQUITY
Brand Awareness: It consists of brand recognition and brand recall
performance. Brand recognition is capability of consumer to identify brand
among a variety of brand. And brand recall is the capability of consumer to
collect information about brand from memory when a product category is
given to him.
Brand Image: It is the impression about the brand before any consumer. It
can be either positive or negative. A positive brand image can be created by
marketing programs that link strong, favourable and unique association to
brand in memory. Consumer beliefs about brand attributes and benefits can
be formed in different ways. Brand attributes are those descriptive features
are the personal value and meaning that consumers attach to the product or
service. Brand benefits are the personal value and meaning that consumers
attach to the product or service attributes. These two factors are the strength
of the brand association. Then comes, favorability of brand association. This
is created by convincing consumer that the brand possesses relevant
attributes and benefits that satisfy their needs and wants. Lastly, uniqueness
of brand associations. The essence of brand positioning is that the brand has
a sustainable competitive advantage or “unique selling proposition” that
induces consumer to buy a particular brand.
5.2.2 BUILDING A STRONG BRAND- THE FOUR STEPS
The steps are as follows:
1. Ensure identification of the brand with consumers and an
association of the brand in customers mind with a specific product
class or consumer need.
2. Firmly establish the totality of brand meaning in the mind of
consumers by strategically linking a host of tangible and intangible
brand associations with certain properties.
3. Elicit the proper customer responses to this brand identification
and brand meaning.
4. Convert brand response to create an intense, active loyalty
relationship between customers and the brand.
5.2.3 BRAND BUILDING BLOCKS
Performing the four steps as mentioned in fig. 5.2.3 is a complicated and
difficult process. To provide some structure, it is useful to think of
sequentially establishing six “brand building blocks” with customers. These
blocks can be assembled in terms of a brand pyramid.
Resonance
Relationships
Brand Salience
It relates to aspects of brand awareness, for example, how often and easily
the brand is recalled under various situations. Brand awareness links the
brand with brand name, logo, and symbol and with certain associations in
memory. So achieving the right brand identity involves creating brand
salience with customers. It helps consumer to identify product category and
making sure that customers know which of their “need” the brands – through
these products – is designed to satisfy.
Brand Performance
The product itself is at the heart of brand equity, because it has the primary
consideration of the consumers experience with brands. What they think and
expect from a product? To create brand loyalty and resonance, the
expectations of consumers must meet favourably. The performance has the
five essential elements to meet the expectations of consumer.
1. Primary characteristics and secondary features
2. Product reliability, durability and serviceability
3. Service effectiveness, efficiency and empathy
J udgments Feelings
Performance Imagery
Salience
Response
Meaning
Identity
Source : Strategic Brand Management by Revin Lane Kellar
Figure 5.2.3: Brand Pyramid
4. Style and design
5. Price
But these attributes vary by product or service category. Some
categories have few features like bread. But some categories have
numerous features; examples are TV, audio system, computer system etc.
Brand Imagery
It deals with the extrinsic properties of the product or service. It is the
way in which the brand attempts to meet consumer’s psychological and
social needs. The basic consideration is on user’s profile, their purchase and
usage situation. Their personality and values. Lastly, history, heritage and
experiences of consumer about brand.
Band Judgment
It focuses on consumer’s personal opinion and evaluation with regard
to the brand. It means how consumers perceive the brand particular from
different brands. They make their judgment by considering ‘brand quality’,
which are defined in terms of over all evaluation of brand calculated by
consumers. The second factor is ‘brand credibility’. This is explained by
three important elements viz perceived expertise, trustworthiness and
liability. It must be competitive and innovative. It must consider the interest
of consumer and finally, the image of manufacturer or company must
associated with brand is good. The other factors are ‘brand consideration’
and brand superiority.’ consideration is more important than awareness. It
must induce or motivate them to think about brand superiority means a
brand must different itself as unique as and better than other available
brands.
Brand feeling
It is defined as the consumer’s emotional responses and reaction with
respect to brand. Brand feelings also relate to the social currency evoked by
brand. The main elements are: (soothing type feeling), Fun (upbeat type of
feelings), Excitement (energetic feelings), security (feeling of safety and
comport), social approval (positive feelings) and lastly self-respect (feeling
of pride and accomplishment).
Brand Resonance
This is the last step of model refers to the extent of intensity, or depth of
psychological bond that customer with brand as well as the level of activity
engendered by this loyalty. Specially, brand resonance can be broken down
into four categories.
1. Behavioural loyalty – repeat purchases
2. Attitudinal attachment – favourable perception
3. Sense of community – a sense of affiliation with other users of
brand
4. Active engagement – strongest affirmation with brand.
5.2.4 CRITERIA FOR CHOOSING BRAND ELEMENTS
In general, there are six criteria in choosing brand elements
1. Memorability
The brand must have a high level of brand awareness. It must be
easily recognizable and easily recalled by consumer.
2. Meaningfulness
Beside brand awareness, a brand must convey the message in
terms of valuable information it must convey general information
about the nature of product category on one side. On other side, it
must provide information regarding specific attribute and benefit
of the brand.
3. Liability
Brand element can be chosen that are rich in visual and verbal
imagery and inherently fun and interesting.
4. Transferability
Up to what extent can the brand element add to the product
category and geographic sense? upto what extent does not element
add to brand equity across geographic boundaries and market
segment?
5. Adaptability
The brand should be changed with the change in consumer values
and opinions as well as taste and preferences for example, logos
and characters can be given a new look or a new design to make
them appear more modern and relevant.
6. Protectability
This is last consideration regarding legal and competitive sense.
The brand elements can be legally protected on an international
basis. The brand formally registers them with appropriate legal
bodies.
5.2.5 TYPES OF BRANDS
Brands are of six types explained as:
1. Descriptive: It explains the functions or provides detailed
information to consumes. Example, Singapore Air lines using
descriptive brands.
2. Suggestive: There are certain brands, which is suggestive of a
benefit or a function. Example, Agilent Technologies.
3. Compound Brand : When brand combines two or more, often
unexpected words, like – red hat
4. Classical: Meritor is an example using Latin, Greek or Sanskrit
language for a brand.
5. Arbitrary: When a real word is used as a brand, but the word does
not have association with company. Example is apple.
6. Fanciful: It is coined word with no obvious meaning. Example –
avanade is a fanciful name with out any proper meaning.
5.2.6 NAMING PROCEDURE
A number of different procedure or systems have been suggested for
naming new products.
1. The first step is to select a brand name for a new product. The
brand selected should have certain objective, ideal meaning and
recognize the role of brand with in the corporate branding
hierarchy.
2. The second step is to generate as many names and concepts as
possible. The names and concepts can be explored by company
management and employees, existing and potential consumers, ad
agencies, professional name consultants or specialized computer
based naming companies.
3. The next step is the screening of names on the basis of objectives
and marketing consideration identified in step-1.
4. The fourth step involves the collection of more extensive
information on each of the final 5 to 10 names.
5. Consumer research is conducted to confirm management
expectations regarding memorability and meaningfulness of the
names through consumer testing.
6. Finally, based on all of the information collected from the previous
step, management can choose the name that maximizes the firms
branding and marketing objectives and then formally register the
name.
Logos and symbols
Although the brand name typically is the central element of the brand, visual
brand elements often play a critical role in building brand equity, especially
in terms of brand awareness. Logos are defined as a means to indicate origin,
ownership. Or association. There are many types of logos, ranging from
corporate names or trademarks written in a distinctive form. Examples of
brands with strong word mark or trademarks include Coca-Cola, Kit-Kat,
where no accompanying logo separate from the name. Examples of abstract
logos include the Mercedes star, Rolex crown and Olympic rings. The non-
word mark logos are often called as symbols.
Characters
Characters represent a special type of brand symbol. Brand symbol. Brand
characters typically are introduced through advertising and can play a central
role in these and subsequent ad. Campaigns and package designs some brand
characters are animated (e.g., Pillsbury’s Poppin Fresh Doughboy), where as
some are live-action characters like the Marlboro cowboy.
Slogans
Slogans are short phrases that communicate descriptive or persuasive
information about the brand. Slogans often appear in advertising but can
play an important role on packaging and in other aspects of the marketing
program.
Jingles
J ingles are musical messages written around the brand. Professional
songwriters typically compose jingles. They often have enough catchy hooks
and choruses to become almost permanently registered in the minds of
listeners. J ingles can be thought of as extended musical slogans and in that
sense can be classified as a brand element. It can communicate brand
benefits and convey product meaning in a musical way.
Packaging
Packaging involves the activities of designing and producing containers or
wrappers for a product. Early humans covered them selves with leaves and
animal skin. Packaging is used to identify the brand and convey descriptive
and persuasive message to consumers. It facilitates transportation and
protection to product. It can be reused home storage. Today, Packaging has
been elevated in its importance and has now become an integral part of
product development and launch.
5.3 NEW TRENDS IN MARKETING
The strategy and tactics behind marketing programs have changed
dramatically in recent years as firms have dealt with the enormous shift of
the “new economy” in their external marketing environment. Changes in
economic, technological, political – legal, sociocultural, and competitive
environments have compelled marketers to develop new approaches and
philosophies. Kotler identifies five major forces of this new economy.
1. Digitalization and connectivity through Internet, Intranet and
mobile services.
2. Disintermediation and reintermediation via new middlemen of
various sorts.
3. Customization and customization through tailored products and by
providing customers ingredients to make products themselves.
4. Industry convergence through the blurring of industry boundaries.
5. New customers and company capabilities.
In the face of tighter budgets and the general demand for greater
effectiveness in marketing many marketers are starting to employ more
creative and innovative ways to reach out to their target customers. Many
have started marketing cooperatively in order to share costs among two or
more marketers who are trying to reach the same consumers.
5.3.1 HOW BUSINESS PRACTICES ARE CHANGING
The change in technology and economy are eliciting a new set of
beliefs and practices on the part of business firms.
1. From organizing by product units to organizing by customer
segments.
2. From focusing on Profitable transactions to focusing on customer
lifetime value.
3. From focusing on J ust the financial scorecard to focusing also on the
marketing scorecard.
4. From focusing on shareholders to focusing on stakeholders.
5. From marketing does the marketing to everyone does the marketing.
Every employee has an impact on the customer and must see the
customer as the source of company’s prosperity.
6. From building brands through advertising to building brands through
performance.
7. From focusing on customer acquisition to focusing on customer
retention.
8. From no customer satisfaction measurement to in-depth customer
satisfaction measurements.
9. From over-promise, under-deliver to under promise, over-deliver.
5.3.2 HOW MARKETING PRACTICES ARE CHANGING
E-business describes the use of electronic means and platform to
conduct a company’s business. The advent of Internet has greatly increased
the ability of companies to conduct their business faster, more accurately,
more timely with reduced cost, and with the ability to customize and
personalize customer offerings. E-commerce and E-marketing are new
strategies to meet the demand of consumers in new economy.
E-commerce is more specific than e-business, it means that in
addition to providing information to visitors about the company, its history,
philosophy, product and job opportunities, the company or site offers to
facilitate the selling of product and services online.
E-purchasing means companies decide to purchase goods, services
and information from various online suppliers.
E-marketing describes company efforts to inform, communicate,
promote and sell its products and services over the internet.
There are four major internet domains through which E-business take
place.
1. Business to consumer ( B2C)
2. Business to Business (B2B)
3. Consumer to Consumer (C2C)
4. Consumer to Business (C2B)
5.3.3 SETTING UP WEB SITES
A key challenge is designing a site that is attractive on first viewing
and interesting enough to encourage repeat visit. Early test-based web sites
have increasingly been replaced by sophisticated sites that provide text,
sound and animation.
7 Cs as essential elements of effective web site
1. Context-layout and design
2. Content – Text, picture, sound, and video
3. Community – How the site enables user-to-user communication
4. Customization – site’s ability to tailor itself to different users or to
allow users to personalize the site.
5. Communication – site to user, user to site communication
6. Connection – degree to site is linked to other site
7. Commerce – capability to enable commercial transactions.
5.3.4 CUSTOMER RELATIONSHIP MARKETING (CRM)
In addition to e-marketing, CRM is used to improve quality of service
and to meet the requirement of consumer successfully. CRM enables
company to provide excellent real-time customer service by developing a
relationship with each valued customer through the effective use of
individual account information.
Customer relationship marketing holds that a major driver of company
profitability is the aggregate value of the company’s customer base winning
companies are more productive in acquiring, keeping and growing
customers through various strategies as:
reducing the rate of customer defection
increasing the longevity of the customer relationship
enhancing the growth potential of each customer through share-of-
wallet, cross-selling and up-selling.
Making low profit customers more profitable
focusing disproportionate effort on high value customers.
5.3.5 ONE-TO-ONE MARKETING
Don Peppers and Martha Rogers have popularized the concept of one-
to-one marketing. In rationalizing their approach, they cite a number of
trends in the marketing environment such as shift from transaction based
marketing to relationship marketing, advances in communication
technologies and a continued fragmentation of mass media.
One-to-One marketing is based on several fundamental concepts.
Focus on individual consumers through consumer data base
Response to consumer dialogue via interactivity
Customize products and services
5.3.6 PERMISSION MARKETING
The practice of marketing to consumers only after gaining their
express permission, is gaining popularity as a tool with which company can
break through the clutter and build customer loyalty. Today consumers are
bombarded with large number of marketing communications every day, kif
marketers wants to get a attention of consumer, they first need to get his/her
permission with some kind of inducement like a free sample, sales
promotion or discount, a contest, and so on. By eliciting consumer
cooperation in this manner, marketers can potentially develop stronger
relationships with consumers so as they will wish to receive further
communication in future.
These various new approaches help to reinforce a number of
important marketing concept and techniques. From a brand point of view,
they are particularly useful means of thinking how to both elicit positive
brand responses and create brand resonance to built customer based brand
equity. One-to-One, permission and experiential marketing are all
potentially effective means of getting consumers more actively involved
with a brand.
5.4 EXPERIANTIAL MARKETING
After economic reforms, marketing has changed the entire consumer
behavior; it has intensified more competition in brands. Now we are in net
revolution. We have left behind traditional marketing concepts. Earlier we
were using product, feature based brands to induce consumers. Now we have
new differentiator in marketing. This is called EXPERIENTIAL
MARKETING. This new marketing mix is trying to bring brands to life
through experience. Experiential marketing is to stimulate in active manner,
to engage consumer in a personal life experience, to allow them to be
receptive with the brand in a personalized environment. Experiential
marketing is to create and add the value of life; they are to be involved in the
product development process. We have seen lots of marketers are doing this
experience like Indica, Pepsodent, NIIT, Pepsi, and Dish net. Experiential
marketing is also about choosing customers, selling your dreams. Here
dreams are not a product it is about experience. Take the case of PEPSI they
are in business of creating experiences for consumers through events,
placement of visicoolers, everything.
Experience marketing is having mind shift approach in its delivery system it
has creative rules and frame work. It has to be viewed as scientifically. It has
the following objectives, these objectives; these objectives can be used as
new marketing mix strategy.
a) The company's core business activity
b) Marketing communication strategy
c) Consumer research
d) Promotional strategy
e) Integrated marketing strategy
f) All marketing tools, Advertising, Media interactive, Promotion,
On site promotion, direct response from consumers.
Experiential marketing focuses on customer experiences. Traditional
marketing fails to gauge sensory, motional, Cognitive behavioral
relationship needs. But in the case of experiential marketing it has
philosophy neurobiology, psychology and sociological theory of the
consumer.
Indian Experiences we have Indian experiences in this context.
1. The launching of SHELL brand of two wheeler oil-SHELL 21. The
objectives were to provide certain experience which ad could not
provide or deliver. The USP was purity, colorless, odourless. They
carried out these experiences in 25-30 cities with the oil. Two wheeler
driver could see, smell through experiences, this was done in petrol
pumps. Over 16 lakh consumers went through this experience. It was
measured as parameter of trials and repeat purchase rate.
2. Hindustan Lever is one of the best examples of the mind shift that
explains experiential marketing. They targeted children for
PEPSODENT in 96. They decided to take the pepsodent experience
through a positive dentist interaction. They targeted schools allover
the country. They did in the following manner:
a) They hired dentists who gave personal and audio visual
interaction
b) taught about brushing, good oral habits.
c) check ups, given colorful edutainment booklets.
d) Given Dental Forms to Kids
e) setting up kiosks with touch screen were a kid can have all
queries, experiences. HLL did these experiences in 25 cities
targeted 2.5 million kids. These exercises forged a new
personalized relationship with kids where pepsodent is being
seen as high brand recall product & identified itself with coral
care. HLL is also doing this experience with VIM dishwasher
brand. .
Experiential marketing invites change in bindset. It has all sense, feel, think
act & relate. All the strategic marketing, tools are to be synchronized in a
consistent, holistic, enriching experience.
5.4.1 KEY ELEMENTS OF EXPERIENTIAL MARKETING
The sensory area of experiential marketing is made up of styles and visual
and verbal symbols that create an overall impression. If you want to create a
strong sense of impact or create something appealing, whether an
advertisement, packaging or a website, you need to first choose the right
colors. They have to be in line with the image of your company; they have to
be attractive; they have to gain the customer's attention.
For example, colors like yellow or red are often better than blue and gray.
Even though blue and gray are very common on the corporate arena because
they're "safe" colors, they're not very good at attracting attention. So you
have to choose your color scheme appropriately, with multiple criteria in
mind. It's not just a matter of getting consumers' attention; it also has to be in
line with what sort of company you are. If you're in the banking industry,
you don't want to use pink. You need to understand which colors and shapes
to use.
Act
"Act" is about behaviors and lifestyles. It's about getting people to do
something and express a lifestyle. There's an "Act”. On aspect to the
Volkswagen Beetle. Market research showed that a lot of people buy the
Volkswagen Beetle as a second car. I think that is because people want to
live in a certain lifestyle, they want to drive a car that is more fun to drive
than their normal, professional Lexus or BMW. So the notion of "Act" is
always about actual behaviors or broader lifestyles.
There are different ways of communicating "Act." On the Web you can do it
through Flash animations, for example. On television, you can do it through
some very fast-paced advertisement. In an environment, you can do it by
having a lot of different sensory stimuli coming together--very bright, fast,
changing images. The point is that you need to choose a medium carefully
so that it produces the right sort of experience. The print medium would not
be good for "Act."
Relate
"Relate" is about relating to cultures, relating to other people and relating to
your reference groups. It's about creating a sense of social identity. Ort. I
should say the marketer helps you to create a sense of social identity. We're
talking about products that you can relate to a generation, a nationality or an
ethnicity. In "Relate," you use the right sort of cultural symbolism in your
advertising campaigns and Web designs and in everything you're doing,
which then helps the consumer to identify with that particular group.
One good example of a "Relate" campaign is Harley-Davidson, the icon of
American free spiritedness, which draws thousands of motorcycle
enthusiasts to weekend rallies staged across the country. Harley-Davidson
evokes such strong relations that owners tattoo the logo on their arms or
their entire bodies. If you own a Harley-Davidson, you are part of
something.
A Holistic Approach
The key is to integrate many of these approaches. One good example of this
is the Volkswagen Beetle. With the Beetle, it all starts with the product.
Now, this is not your typical car. It's not just about the features and benefits
of this car, which are probably not much better than a Hyundai, maybe a
little bit better, but not enough to justify the price premium.
What is so unique about the product? It's the shape--very unusual in the
entire car industry. It's the colors; it's the flower vase that they have in the
front. These individual symbols come together in a theme. Maybe the theme
is professionalism. You go to McKinsey & Co. and they're a professional
company. Why are they a professional company? Because of all the symbols
that they have--that includes the cars that their consultants drive, or the
briefcases they have, or the suits they wear, or the icons that they use for a
PowerPoint presentation; all speak to thus notion of professionalism These
stylish themes create the overall sense or impression of the company.
Feel
Feelings are quite different from sensory impressions, because they suggest
the whole realm of moods and emotions. It's not just a matter of beauty and
appeal but a matter of getting people, in the extreme, to feel joyful, to feel
happy or maybe even to cry.
Take a company like Hallmark, which understands how to do that. They
have these "Feel" advertisements that they show during the Hallmark Hall of
Fame at Christmastime. first of all, these advertisements are not short ads.
You cannot create a strong "Feel" impact in a 10- or 15-second commercial.
Think
With "Think" we are getting into something that stimulates people's intellect
or their creativity. The "Think Different" campaign by Apple tried to do that.
They wanted people to think differently about Apple. Apple had been in big
trouble a few years back, and then Steve J obs came in as CEO and said,
"Well, we want people to think differently about the company again" So
they've done a very unusual advertising campaign for a computer company.
You don't see a computer; you see these heroes of the twentieth century,
from Einstein to J ohn Lennon--a very unusual approach in terms of getting
people to think more broadly about the company and its products.
5.5 INTEGRATED MARKETING
When all the company’s departments work together to serve the
customer’s interests, the result is “integrated marketing.” Integrated
marketing works on two levels.
1. The various marketing functions like sales force, advertising,
customer service, product management, marketing research must
work together.
2. Marketing must be embraced by the other departments, they must
also “think customer”. According to David Packard of Hewlett-
Packard, “Marketing is far too important to be left only to the
marketing department!” To foster teamwork among all
departments, the company carries out internal marketing as well as
external marketing. Internal marketing is marketing of the task of
hiring, training and motivating able employees who want to serve
consumers well. External marketing. Internal marketing is
marketing directed at people outside the company. Infect, internal
marketing must precede external marketing.
5.5.1 INTEGRATED MARKET COMMUNICATION
The wide range of communication tools, message and audiences
makes it imperative that companies move towards integrated marketing
communication (IMC)”.
As defined by American Association of Advertising Agencies, IMC is a
concept of marketing communications planning that recognizes the added
value of a comprehensive plan. Such a plan evaluates the strategic role of a
variety of communications disciplines- for example, general advertising,
direct response, sales promotion and public relations and combines these
disciplines to provide clarity, consistency and maximum impact. Today
however a few large agencies have substantially improved their integrated
offerings. Many international clients have opted to put a substantial portion
of their communications work through one agency. Example is IBM turning
all of its advertising over to ogilvy to attain uniform branding. IMC does
produce stronger massage consistency and greater sales impact. It forces
management to think about the every way the customer comes in contact
with the company, how the company communicates its positioning. It will
improve the company’s ability to reach the right customer with the right
message at right time and in the right place.
5.5.2 INTEGRATED DIRECT MARKETING
However, companies are increasingly recognizing the importance of
integrating their marketing communications. To get a right mix of
communication tools, to establish a right overall communication budget and
right allocation of fund to each communication tool, integrated marketing
communication, integrated direct marketing, and maxi marketing has been
variously used.
5.5.3 DEVELOPING INTEGRATED MARKETING COMMUNICAT-
ION PROGRAMS
The main theme is that the marketer should “mix and match”
communication options to build brand equity.
1. Mixing communication options
From the perspective of customer-based brand equity, marketers
should evaluate all possible communication options available to
create knowledge structure according to effectiveness criteria as
well as cost consideration. This strategy is used to improve brand
awareness brand awareness is closely related to brand familiarity
and can be viewed as a function of brand related exposure and
experience.
2. Matching communication option
There are many ways to create IMC programs. A number of
considerations come into play while evaluating IMC program these
are discussed below:
Coverage: It relates to the proportion of the audience that is reached by
each communication option employed, as well as how much overlap exists
among communication options.
Contribution: It relates to the inherent ability of a marketing communication
to create the desired response and communication effects from consumers in
the absence of any other communication options.
Commonality: It relates to the extent to which common associations are
reinforced across communication conveyed by different communication
options sharing meanings.
Complementarily: These options are often more effective when used in
tandem. It relates to the extent to which different associations and linkages
are emphasized across communication options.
Versatility: Versatility relates to the extent that marketing communication
option is robust and effective for different groups of consumers. It is of two
types namely communication and consumers. The reality of any IMC
program is that when consumers are exposed to a particular marketing
communication, some consumer will have already been exposed to other
marketing communication for the brand; where as the other consumers will
not have had any prior exposure.
5.6 SUMMARY
A brand is a trademark or combination of trademarks that, is intended
to identify goods and services of one seller in order to differentiate them
from those of competitors. The value of the brand is the amount another
party is prepared to pay for it. Sometimes this is easily ascertainable when
one company purchases a brand but no other asset of another company.
There are several applications of brand valuation such as brand management
and development, enhancing management communication, benchmarking of
competitors, monitoring value year on year, merger and acquisition, joint
venture negotiations.
Customer based brand equity occurs when the consumer has a high
level of awareness and familiarity with the brand. The brand equity has some
strong, favourable and unique association to get a memorable status in the
mind of consumers. Various sources of brand equity contribute to get a
strong brand. There are six brand building brocks to create right brand
identity, brand meaning and brand responses.
5.7 Key words
Elicit: draw out (a response)
Holistic: treating the whole thing rather than just particular
isolated symptoms
In tandem: arranged one behind another, together, alongside
each other
Inherent: existing in a thing as natural or permanent quality
5.8 Self Assessment Questions
1. What do brands mean to you? What are your favorite brands and
why?
2. What do you mean by brand valuation? How brand valuation can
be done? What are the variables responsible for brand valuation?
3. What are the benefits of brand valuation?
4. Can you think of yourself as a brand? What do you do to “brand”
yourself?
5. Can you list the procedure of building of new brand? What are the
sources of brand equity?
6. Which brands do you have the most resonance with? Why?
7. Enlist the various types of brand. What are the essential elements
of a strong brand?
8. Write a brief not on new trends in marketing with special reference
to various forces responsible for such changes.
9. Explain briefly latest trends in marketing practices?
10. What do you mean by experiential marketing? Have you had any
experience with a brand that has done a great job with relationship
marketing, permission marketing, experiential marketing, or one-
to-one marketing? What did the brand do? Why was it effective?
Could others learn from that?
11. How effectively has the brand mixed and matched marketing
communications? How explicitly has it integrated its
communication program?
12. What do you see as the role of Internet for building brands?
5.9 Suggested Readings
1. Kevin Lane Kellar, Strategic Brand Management, Pearson
Education, IInd edition.
2. Philip Kotler, Marketing Management
3. Dr. Augustine Fou, Experiential Marketing, Marketing Science –
Vision Executive Briefs, March 21, 2003.
4. Dr. Bernd Schmitt, Experience Is The Key For Differentiation,
Strategic Marketing
5. Linda Alexander, Multidimensional Brand Building,
6. Linda Alexander, Experiential Branding With Prospects
7. Brand Valuation, International Trademark Association
8. J ane Yates, Brand Valuation And Its Applications
9. Experiential Marketing, The Indian Express, May 17, 2001
10. Linda Alexander, Marketing Works Smarter, Not Harder
11. Dr. Bernd Schmitt, Experiential Marketing
12. Amar Raj Lal and Vinod Khurana, Brand Valuation.
Note : 3 to 12 references are downloaded by internet through google search
STRUCTURE:
6.1 Objective
6.2 Introduction
6.3 Meaning and Definitions of Communication
6.4 The Communication Situation And Cycle
6.5 Importance of Effective Communication In Business
6.6 Medias of Communication
6.7 Barriers To Communication
6.8 Marketing Communication and the Target Audience
6.9 The Response Process in Marketing Communication
6.10 Summary
6.11 Key words
6.12 Self-Test Questions
6.13 Suggested Readings
6.1 OBJECTIVE: The present chapter explains the meaning, process and essentials
of communication.
6.2 INTRODUCTION
Communication transmits information .not only about tangible facts and
determinable ideas and opinions but about emotions. When a communicator
passes on or transmits some information, he may also, either intentionally or
unconsciously, be communicating his attitude or the frame of his mind. And
sometimes the latter may be more relevant to the reality that is being
COURSE: BASIC PRINCIPLES OF MARKETING AND MANAGEMENT
Course Code: 05 Author: Surinder Singh Kundu
Lesson: 06 Vetter: Dr. B. S. Bodla
COMMUNICATION
communicated. Often we may have come across words of high praise spoken in a
scoffing tone. In this case, the words signify nothing and the tone is the real thing.
Similarly, high-sounding expressions of bravery may be only a mask to conceal a
person's timidity and weakness, which may be betrayed by his facial expressions.
Hence, facial expressions are an important part of communication.
6.3 MEANING AND DEFINITION OF COMMUNICATION
Communication is something so simple and difficult that we can never put it in
simple words, says T. S. Matthews. Peter Little defines communication as
follows:
Communication is the process by which information is transmitted between
individuals and/or organisations so that an understanding response results.
Another very simple definition of 'communication' has been provided by W. H.
Newman and C. F. Summer J r.: “Communication is an exchange of facts, ideas,
opinions, or emotions by two or more persons”. William Scott defined
communication in his Organisation Theory: “Administrative communication is a
process which involves the transmission and accurate replication of insured by
feedback for the purpose of eliciting actions which will accomplish organizational
goals”.
These definitions emphasize four important points:
1. The process of communication involves the communication of ideas.
2. The ideas should be accurately replicated (reproduced) in the receiver's
mind, i.e., the receiver should get exactly the same ideas as were
transmitted. If the process of communication is perfect, there will be no
dilution, exaggeration or distortion of the ideas.
3. The transmitter is assured of the accurate replication of the ideas by
feedback, i.e., by the receiver's response which is communicated back to
the transmitter. Here it is suggested that communication is a two way
process including transmission of feedback.
4. The purpose of all communication is to elicit action.
6.4 THE COMMUNICATION SITUATION AND CYCLE
The communication situation is said to exist when
1. there is a person (sender or transmitter) desirous of passing on some
information;
2. there is another person (receiver) to whom the information is to be
passed on;
3. the receiver partly or wholly understands the message passed on to
him;
4. the receiver responds to the message, i.e., there is some kind of
feedback.
The communication situation cannot exist in the absence of any of these four
components. Two gentlemen greeting each other with folded hands constitute a
communication situation, for (a) there is a person desirous of sending a message
(greeting); (b) there is another person to receive this message; (c) when the first
person folds his hands, the second one understands that he is being greeted; and
(d) the second person immediately responds back by folding his own hands.
But, if a Hindi-speaking person addresses a Tamil-speaking person in Hindi, the
communication situation does not exist, for though there is a person desirous of
sending a message, the message is not understood and consequently there is no
feedback.
In the communication cycle, the transmission of the sender’s ideas to the receiver
and the receiver’s feedback or reaction to the sender is done. The main steps of
this cycle are as follows:
1. Input : the information or ideas the sender wants to give the receiver;
2. Channel : letter, fax, phone call, electronic mail, etc;
3. Message : the-actual massage that is sent;
4. Output : the information the receiver gets;
5. Feedback : the receiver’s response (or non-response) to the massage;
6. Brain drain: the possibility of misunderstanding at any step.
If the action desired in the message is satisfactorily performed or the information
is faithfully received (ensured by the feedback), we say the communication loop
has been closed. But breakdowns in the communication cycle are quite frequent.
The breakdown may be due to one or more of the following:
• Improper formulation of the message in the mind of the sender;
• Improper statement of the information in the message;
• Improper statement of the message by the receiver.
6.5 IMPORTANCE OF EFFECTIVE COMMUNICATION IN
BUSINESS
Communication is the life blood of business. No business can develop in the
absence of effective internal and external communication. Besides,
communication skills of the employees are given high weight age at the time of
their appointment as well as promotion. The effective communication can be
understood into following ways:
6.5.1 Internal communication
Effective internal communication is considered important for the following
reasons:
Business has grown in size: Large business houses have a number of branches
within the country and even abroad. Some of the multinational corporations are
no smaller than huge empires. The central organisation of a large business house
is its nerve centre. For its healthy and even growth, it is extremely important that
the central organisation maintains a thorough and up-to-date knowledge of the
various activities at the branch offices, keeps the branch offices well acquainted
with the activities at the centre, and some kind of link is maintained among the
various branches. This calls for an effective and efficient network of
communication.
Business activity has become extremely complex: This being an age of
specialisation, planning, production, sales, stores, advertising, financing,
accounts, welfare, etc., are handled by different departments. If these departments
do not communicate with one another as well as with the management, there will
be no coordination among them. This may give rise to some awkward and
embarrassing situations for the management. When production is fully geared up
the stores department may report shortage or non-availability of raw- materials.
The planners, having spent one full month to work out the details of a new
project, may suddenly discover that there are no finances available to execute the
project.
Effective communication promotes a spirit of understanding and coop-
eration: If the effective communication exists between the management and the
employees, it helps to bring about an atmosphere of mutual trust and confidence.
The employees know exactly what is expected of them; the management is aware
of the potentialities and limitations of the employees and knows how to exploit
the first and make up for the latter. This mutual understanding is extremely
beneficial to both the parties. The management gets better returns; the employees
get job satisfaction. They also develop a sense of belonging and loyalty to .the
enterprise.
6.5.2 External communication
External communication includes communication with the government agencies
and departments on the one hand and distributors, retailers, individual customers
and general public on the other.
Government agencies and departments: Business organisations are required to
deal with licensing authorities, foreign trade offices, customs authorities, banks
and other financial institutions, income-tax and sales tax offices, post offices,
transporters, etc. Quite frequently they find themselves in formidable and tricky
situations that can be handled only through tactful negotiation and negotiation is
nothing but communication.
Distributors, retailers, individual customers, etc: Modern business is a highly
competitive phenomenon. Each product of common consumption is available in
myriads of brands, not all of which sell equally well. Marketing research has
revealed that the organisations that can communicate better can also sell better.
Sales are promoted through persuasion and persuasion is another aspect of
communication.
Communication skill a job requirement: Some areas like personnel, public
relations, marketing, sales, and labour relations call for exceptional
communication skills. Editors, writers, teachers, advocates, researchers also need
a highly developed ability to communicate. Executives are also expected to make
speeches, prepare pamphlets, brochures, souvenirs, and give interviews to the
media in order to project a favourable image of their organisation. Thus the ability
to communicate effectively has become an important job requirement.
Important factor for promotion: The ability to communicate as the most
essential requisite for promotion of the executives. It is higher than essential
attributes as the capacity for hard work, the ability for making sound decisions,
academic qualifications and ambition-drive. Generally, we can say that possessing
communication skill is an important qualification at the time of both appointment
and promotion.
6.6 MEDIA OF COMMUNICATION
These days communication is possible through a vast variety of media. The
Managing Director desirous of communicating with the sales manager can
summon him to his room, talk to him over the telephone, or send him a memo. If
he wants to consult all the departmental heads, he would most probably convene a
meeting. If information is to be transmitted to all the employees, a notice may be
put on the notice board or a peon may circulate it among them, a senior officer
may announce it over the public address system, or it may be printed in the office
bulletin. Posters may be used to issue warnings. Communication with
Government departments and other agencies is mostly conducted through written
letters. General public can be reached through advertisements on the radio, the
television, the cinema screen, or in the newspapers and popular journals. For
communication to be effective, the communicator has to be very careful and
judicious in the choice of media, which will depend on various factors like the
urgency of the message, the time available, the expenditure involved and the intel-
lectual and emotional level of the receivers. All the media available can be
broadly classified into five groups:
(i) Written communication: It includes letters, circulars, memos, telegrams,
reports, minutes, forms and questionnaires, manuals, etc. Everything that
has to be written and transmitted in the written form falls in the area of
written communication.
(ii) Oral communication: It includes face-to-face conversation, conversation
over the telephone, radio broadcasts, interviews, group discussions, meet-
ings, conferences and seminars, announcements over the public address
system, speeches, etc.
(iii) Visual communication: It encompasses gestures and facial expressions,
tables and charts, graphs, diagrams, posters, slides, film strips, etc.
(iv) Audio-visual communication encompasses television and cinema films
that combine the visual impact with narration.
(v) Computer-based communication includes E-mail, voice mail, cellular
phones, fax, etc. .
Most often more than one medium may have to be simultaneously employed to
make the communication effective. Face-to-face communication combines the
oral form with the visual. Graphs and posters often combine the visual with the
written form. A manager giving written instructions may also take pains to
explain them to a subordinate: he is simultaneously using the oral and the written
form of communication. And a great deal can be communicated by the absence of
communication, that is, by maintaining total silence.
6.7 BARRIERS TO COMMUNICATION
In the earlier paragraph, we have discussed the various media of communication
available to us - oral, written visual, audio-visual, computer-based, etc. While a
properly chosen medium can add to the effectiveness of communication, an
unsuitable medium may act as a barrier to it. Each communication must be
transmitted through an appropriate medium. An unsuitable medium is one of the
biggest barriers to communication. In addition, some of the barriers of
communications are as follows:
6.7.1 PHYSICAL BARRIERS
Noise: Noise is quite often a barrier to communication. In factories, oral
communication is rendered difficult by the loud noise of machines. Electronic
noise like blaring often interferes in communication by telephone or loudspeaker
system. The word noise is also use to refer to all kids of physical interference like
illegible handwriting, smudged typescript, poor telephone connections, etc.
Time and Distance: Time and distance also act as barriers to the smooth flow of
communication. The use of telephone along with computer technology has made
communication very fast and has; to a large extent overcome the space barrier.
However, sometimes mechanical breakdowns render these facilities ineffective. In
such cases, the distance between the transmitter and the receiver becomes a
mighty barrier. Some factories run in shifts. There is a kind of communication gap
between persons working in different shifts. Faulty seating arrangement in the
room can also become a barrier to effective communication, for whichever seats
the employees may be occupying; they definitely want an eye contact with one
another.
6.7.2 SEMANTIC BARRIERS
Interpretation of words: Most of the communication is carried on through
words, whether spoken or written. But words are capable of communicating a
variety of meanings. It is quite possible that the receiver of a message does not
assign the same meaning to a word as the transmitter had intended. This may lead
to miscommunication.
Bypassed instruction: Bypassing is said to have occurred if the sender and the
receiver of the message attribute different meanings to the same word or use
different words for the same meaning. Murphy and Pack have given a classic
example of how bypassed instructions can play havoc with the communication
process: An office manager handed to a new assistant one letter with the
instruction. “Take it to our stockroom and burn it”. In the office manager's mind
(and in the firm's jargon) the word ''burn'' meant to make a copy on a company
machine which operated by a heat process. As the letter was extremely important,
she wanted an extra copy. However, the puzzled new employee, afraid to ask
questions, burned the letter with a lighted match and thus destroyed the only
existing copy.
6.7.3 SOCIO-PSYCHOLOGICAL BARRIERS
Attitudes and opinions: Personal attitudes and opinions often act as barriers to
effective communication. If information agrees with our opinions and attitudes,
we tend to receive it favourably. It fits comfortably in the filter of our mind. But if
information disagrees with-our views or tends to run contrary to our accepted
beliefs, we do not react favourably. If a change in the policy of an organisation
proves advantageous to an employee, he welcomes it as good; if it affects him
adversely, he rejects it as the whim of the Director.
Emotions: Emotional states of mind play an important role in the act of
communication. If the sender is perplexed, worried, excited, afraid, nervous, his
thinking will be blurred and he will not be able to organise his message properly.
The state of his mind is sure to be reflected in his message. It is a matter of
common observation that people caught in a moment of fury succeed only in
violent gesticulation. If they try to speak, they falter and keep on repeating the
same words. In the same way, the emotions of the receiver also affect the
communication process. If he is angry, he will not take the message in proper
light. It is extremely important that emotions are not allowed impede the smooth
flow of communication. The communicator should not try to communicate while
in a state of emotional excitement. He should first cool down. In the same way,
the receiver should not react to the message if his mind is perturbed.
Closed mind: A person with a closed mind is very difficult to communicate with.
He is a man with deeply ingrained prejudices. And he is not prepared' to
reconsider his opinions. If closed-minded people can be encouraged to state their
reasons for rejecting a message or a proposal, they may reveal deep-rooted,
prejudices, opinions and emotions. Perhaps, one can make an attempt to
counteract those prejudices, opinions, etc. But if they react only with anger and
give a sharp rebuff to anyone who tries to argue with them, they preclude all
possibility of communication.
Status-consciousness: Status consciousness exists in every organisation and is
one of the major barriers to effective communication. Subordinates are afraid of
communicating upward any unpleasant information. They are either too conscious
of their inferior status or too afraid of being snubbed. Status-conscious superiors
think that consulting their juniors would be compromising their dignity. Status-
consciousness proves to be a very serious barrier to face-to-face communication.
The subordinate feels jittery and nervous, fidgets about where he is standing,
falters in his speech and fails in communicating what exactly he wanted to say.
The officer, on the other hand, reveals impatience and starts giving comments or
advice before he has fully heard his subordinate. Consequently, there is a total
failure of communication; the subordinate returns to his seat dissatisfied and
simmering inside, while the officer resumes his work with the feeling that his
employees have no consideration for the value of his time and keep on pestering
him for nothing.
Such communication failures can be averted if the managers and other persons in
authority rise above the consciousness of their status and encourage their
employees to talk freely.
The source of communication: If the receiver has a suspicion about or prejudice
against the source of communication, there is likely to be a barrier of
communication. People often tend to react more according to their attitude to the
source of facts than to the facts themselves. Think of an executive in the habit of
finding fault with his employees. If once in a while he begins with a compliment,
the employees immediately become suspicious and start attributing motives to the
compliment. If a statement emanates from the grapevine, the manager will not
give credence to it, but the same state coming from a trusted supervisor will
immediately be believed.
Inattentiveness: People often become inattentive while receiving a message, in
particular, if the message contains a new idea. The adult human mind usually
resists change, for change makes things uncertain. It also threatens security and
stability. So the moment a new idea is presented to them, they unconsciously
become inattentive. Sometimes a person becomes inattentive because of some
distraction. It is possible that an employee does not listen to the supervisor's
instructions attentively because he is being distracted by the lady typist who has
chosen exactly this moment to repair her make-up, or because he is feeling
amused at the supervisor's artificial accent and finds it difficult to concentrate on
his words. Sometimes when the listener has received a part of the message, his
.mind gets busy in framing a reply to it, or in guessing the next part of the
message. It is quite likely that in thinking of what has been said or that might be
said later, the listener misses a part of what is actually being said at the present
moment.
Faulty transmission: A message is never communicated from one person to
another in its entirety. This is true in particular of oral messages. If a decision has
been taken by the Board of Directors, it must be in the form of a lengthy
resolution. This resolution cannot be passed on to the factory workers in the same
form. It has to be translated in simple language so that they may easily understand
it. But translation can never be perfect. In the process of interpretation,
simplification and translation, a part of the message gets lost or distorted. A
scientific study of the communication process has revealed that successive
transmissions of the same message are decreasingly accurate. In oral
communications, something in the order of 30 per cent of the information is lost
in each transmission.
Poor retention: Poor retention of communication also acts as a barrier. Studies
show that employees retain only about 50 per cent of the information
communicated to them. The rest is lost. Thus if information is communicated
through three or four stages, very little reaches the destination, and of that very
little also only a fraction is likely to be retained poor retention may lead to
imperfect responses, which may further hamper the communication process.
Unsolicited communication: Unsolicited communication has to face stronger
barriers than solicited communication. If I seek advice, it should be presumed that
I will listen to it. But if a sales letter comes to me unsolicited, it is not very sure
that I will pay much attention to it.
6.8 MARKETNG COMMUNICATION AND THE TARGET
AUDIENCE
The marketing communication process really begins with identifying the audience
that will be the focus of the firm's advertising and promotional efforts. The target
audience may consist of individuals, groups, niche markets, market segments, or a
general public or mass audience. Marketers approach each of these audiences
differently. The target market may consist of individuals who have specific needs
and for whom the communication must be specifically tailored. This often
requires person-to-person communication and is generally accomplished through
personal selling. Other forms of communication, such as advertising, may be used
to attract the audience's attention to the firm, but the detailed message is carried
by a salesperson that can respond to the specific needs of the individual customer.
Life insurance, financial services, and real estate are examples of products and
services promoted this way.
The group represents a second level of audience aggregation. Marketers often
must communicate with a group of people who make or influence the purchase
decision. For example, organizational purchasing often involves buying centers or
committees that vary in size and composition. Companies marketing their
products and services to other businesses or organizations must understand who
are on the purchase committee, what aspect of the decision each individual
influence, and the criteria each member uses to evaluate a product. Advertising
may be directed at each member of the buying center, and multilevel personal
selling may be necessary to reach those individuals who influence or actually
make decisions.
Marketers look for customers who have similar needs and wants and thus repre-
sent some type of market segment that can be reached with the same basic
communication strategy. Very small, well-defined groups of customers are often
referred to as market niches. They can usually be reached through personal selling
efforts or highly targeted media such as direct mail. The next level of audience
aggregation is market segments, broader classes of buyers who have similar needs
and can be reached with similar messages. There are various ways of segmenting
markets and reaching the customers in these segments. As market segments get
larger, marketers usually turn to broader-based media such as newspapers,
magazines, and TV to reach them. Marketers of most consumer products attempt
to attract the attention of large numbers of present or potential customers (mass
markets) through mass communication, such as advertising or publicity. Mass
communication is a one-way flow of information from the marketer to the
consumer. Feedback on the audience's reactions to the message is generally
indirect and difficult to measure.
6.9 THE RESPONSE PROCESS IN MARKETING
COMMUNICATION
Perhaps the most important aspect of developing effective communication
programs involves understand the response process the receiver may go through
in moving toward a specific behavior (like purchasing a product) and how the
promotional efforts of the marketer influence consumer responses. In many
instances, the marketer's only objective may be to create awareness of the
company or brand name, which may trigger interest in the product. In other
situations, the marketer may want to convey detailed information to change
consumers’ knowledge of and attitudes toward the brand and ultimately change
their behavior.
The function of all elements of the promotional mix is to communicate; so
promotional planners must understand the communication process. This process
can be very complex; successful marketing communications depend on a number
of factors, including the nature of the message, the audience's interpretation of it,
and the environment in which it is received. For effective communication to
occur, the sender must encode a message in such a way that the receiver will
decode it in the intended manner. Feedback from the receiver helps the sender
determine whether proper decoding has occurred or whether noise has interfered
with the communication process. Promotional planning begins with the receiver
or target audience, as marketers must understand how the audience is likely to
respond to various sources of communication or types of messages. For promo-
tional planning, the receiver can be analyzed with respect to both its composition
(i.e., individual, group, or mass audiences) and the response process it goes
through. Different orderings of the traditional response hierarchy include the stan-
dard learning, dissonance/attribution, and low-involvement models. The
information response model integrates concepts from both the high- and low-
involvement response hierarchy perspectives and recognizes the effects of direct
experience with a product.
6.10 SUMMARY
The main purpose of all communication in an organisation is the general welfare
of the organisation. Effective communication is needed at all stages in order to
ensure this welfare. At the planning stage, information is needed on various
aspects of the enterprise, the feasibility of the project being undertaken, finances
involved, man-power required, marketing conditions, publicity campaigns, etc. At
the execution stage, orders are issued to the employees to start work, the workers
associated with the project are constantly motivated and kept involved, a sense of
discipline is cultivated among them and their morale is kept high. All this requires
constant two way communication between the managers and the employees. Then
at the assessment stage, the manager is again required to communicate with
various sources, both internal and external, to assess the success of the project,
and if a need is felt, to envisage modifications in the future plans. In case of
marketing it is very crucial part, because of we can attract the potential customers
through it.
6.11 Key words
Embarrassing: cause to feel awkward or ashamed
Envisage: imagine, foresee
6.12 SELF-TEST QUESTIONS
1. What do you mean by communication? What is its importance in marketing?
2. Discuss the various elements of communication process. Find an example of
an advertising campaign being used by a company and analyse the campaign
in terms of these elements of the communication model.
3. What are the main barriers to marketing communication?
4. “Communication is the base of marketing life”. Comment.
5. How can you attract the customers towards your products in marketing
environment?
6.13 SUGGESTED READINGS
1. Aaker, David A. Managing Brand Equity: Capitalizing on the Value of a
Brand Name. New York: Free Press, 1991.
2. Belch George E. and Michael E. Belch, “Advertising and Sales Promotion (5
th
ed.)”, Tata McGraw Hill, New Delhi, 2001.
3. Berry, L., and A. Parasuraman. Marketing Services. New York: Free Press,
1991.
4. Gale, B.T., and R.W. Chapman. Managing Customer Value: Creating Quality
and Service That Customers Can See. New York: Free Press, 1994.
5. J acoby, J ., and R. Chestnut. Brand Loyalty: Measurement and Management.
New York: J ohn Wiley, 1978.
6. Reichheld, Frederick F. The Loyalty Effect. Boston: Harvard Business School
Press, 1996.
7. Pal, Rajendra, and J . S. Kolahalli. Essentials of Business Communication,
New Delhi: Sultan Chand & Sons, 1999.
Relationship Marketing
STRUCTURE:
7.1 Objective
7.2 Introduction
7.3 Meaning and Definitions of Relationship Marketing
7.4 Relationship Marketing Versus Marketing Relationships
7.5 The Characteristics of Relationship Marketing
7.6 A Process Model of Relationship Marketing
7.7 Importance of Relation Marketing
7.8 Principles of Relationship Marketing
7.9 Important Tips for Relationship Marketing
7.10 Summary
7.11 Key words
7.12 Self-Test Questions
7.13 Suggested Readings
7.1 OBJECTIVE: The present chapter would enable the students to understand the
basics of relationship marketing. It gives the detail of the process, benefits, principles,
and tips for successful relationship marketing.
7.2 INTRODUCTION
These stories are indicative of the changing nature of marketing. Marketing is no
longer simply about developing, selling and delivering products. It is
progressively more concerned with the development and maintenance of mutually
satisfying long-term relationships with customer. If the 1950s was the era of
mass-marketing, and the 1970s the era of market segmentation, then the 1990s
represent the genesis of personalized marketing, in which knowledge about
COURSE: BASIC PRINCIPLES OF MARKETING AND MANAGEMENT
Course Code: 05 Author: Surinder Singh Kundu
Lesson: 07 Vetter: Dr. B. S. Bodla
RELATIONSHIP MARKETING
individual customers is used to guide highly focused marketing strategies. This
change is driven by several conditions: more intense, often global, competition;
more fragmentation of markets; a generally high level of product quality which is
forcing companies to seek competitive advantage in other ways; more demanding
customers; and rapidly changing customer buying patterns. Enduring relationships
with customers cannot be duplicated by competitors, and therefore provide for a
unique and sustained competitive advantage. The expression most widely used to
describe this new form of marketing is relationship marketing (RM). Other terms
have been used, either as substitutes for RM or to describe some close parallel-
micro marketing, database marketing, one-to-one marketing, loyalty marketing,
wrap-around marketing, customer partnering, symbiotic marketing and interactive
marketing. Although the shift to RM is widespread, it is occurring more rapidly in
some sectors and industries than others, facilitated by fundamental cultural shifts
within organizations, powerful databases and new forms of organizational
structure.
In the current era of intense competition and demanding customers, relationship
marketing has attracted the expanded attention of marketers. They are studying
the nature and scope of relationship marketing and developing conceptualizations
regarding the relationships between different marketing actors, including
suppliers, competitors, distributors, and internal functions in creating and
delivering customer value and taking interests in various sub-disciplines of
marketing, such as channels, services marketing, business-to- business marketing,
and advertising. They are actively engaged in studying and exploring the practical
foundations of relationship marketing. However, the conceptual and practical
foundations of relationship marketing are not fully developed as yet. The current
growth in the field of relationship marketing is somewhat similar to what was
experienced in the early stages of the development of the discipline of consumer
behavior. This is how consumer behavior grew to become a discipline that now
enjoys a central position in marketing knowledge. We expect relationship
marketing to undergo a similar growth pattern and soon to become a discipline
unto itself.
7.3 MEANING AND DEFINITION OF RELATIONSHIP
MARKETING
Before we begin to examine the theoretical foundations of relationship marketing,
it will be useful to define what the term relationship marketing means. This term
has been used to reflect a variety of themes and perspectives. Some of these take a
narrow functional marketing perspective, whereas others employ a view that is
broad and somewhat paradigmatic in approach and orientation. One example of a
narrow perspective on relationship marketing is database marketing that
emphasizes the promotional aspects of marketing linked to database efforts.
Another narrow, yet relevant, viewpoint considers relationship marketing only as
customer retention, in which a variety of after marketing tactics are used for
customer bonding or staying in touch after the sale is made. A more popular ap-
proach with recent application of information technology is to focus on individual
or one-to-one relationships with customers that integrate database knowledge with
a long-term customer retention and growth strategy. Shani and Chalasani define
relationship marketing as "an integrated effort to identify, maintain, and build
up a network with individual consumers and to continuously strengthen the
network for the mutual benefit of both sides, through interactive, individualized
and value-added contacts over a long period of time". J ackson defines relationship
marketing as "marketing oriented toward strong, lasting relationships with
individual accounts". McKenna offers a more strategic view of relationship
marketing by putting the customer first and shifting the role of marketing from
manipulating the customer (telling and selling) to genuine customer involvement
(communicating and sharing the knowledge). Berry takes a service sector
perspective: RM is attracting, maintaining and - in multi-service organizations -
enhancing customer relationship.’ J ackson writes from an industrial marketing
perspective: RM concerns attracting, developing and retaining customer
relationships.’ Christopher, Payne and Ballantyne see RM as a synthesis of
marketing, customer service and quality management. Sheth describes RM as 'the
understanding, explanation and management of the ongoing collaborative
business relationship between suppliers and customers'. Evans and Laskin
suggest: 'RM is a customer centered approach whereby a firm seeks long-term
business relations with prospective and existing customers.' Morgan and Hunt
offer the broadest definition of RM, taking neither a sectoral perspective nor
specifying the need for there to be a 'customer'. Rather, 'RM refers to all
marketing activities directed toward establishing, developing and maintaining
successful relational exchanges'. Czepiel retorts that a relationship possesses
'mutual recognition of some special status between exchange partners' (emphasis
added), to which Barnes adds: 'a succession of interactions does not necessarily
lead to a relationship any more than repeat purchasing constitutes loyalty.' Finally,
as Gummesson has rightly observed: ‘RM is currently seeking its identity.
Gradually, a more general approach to marketing management, based on
relationships, is gaining ground.’ It may be that RM will not be firmly entrenched
as standard business practice until the millennium.
7.4 RELATIONSHIP MARKETING VERSUS MARKETING
RELATIONSHIPS
It is an interesting question as to what the difference is between "marketing
relationships" and "relationship marketing." Certainly marketing relationships
have existed and have been a topic of discussion for a long time. But what
distinguishes marketing relationships from relationship marketing are their nature
and specificity. Marketing relationships could take any form, including
adversarial relationships, rivalry relationships, affiliation relationships, and
independent or dependent relationships. However, relationship marketing is not
concerned with all aspects of marketing relationships. The core theme of all
relationship marketing perspectives and definitions is a focus on cooperative and
collaborative relationships between the firm and its customers and/or other
marketing actors. It is characterized such cooperative relationships as being
interdependent and long-term oriented rather than concerned with short-term
discrete transactions. The long-term orientation is often emphasized because it is
believed that marketing actors will not engage in opportunistic behavior if they
have a long-term orientation and that such relationships will be anchored in mu-
tual gains and cooperation. Thus the terms relationship marketing and marketing
relationships are not synonymous. Relationship marketing describes a specific
marketing approach that is a subset or a specific focus of marketing. In fact, the
emphasis on relationships as opposed to transaction-based exchanges is very
likely to redefine the domain of marketing.
7.5 THE CHARACTERISTICS OF RELATIONSHIP MARKETING
RM is about healthy relationships which are characterized by concern, trust,
commitment and service.
Concern: Relationship marketers are concerned for the welfare of their
customers. They want to meet or, preferably exceed customer expectations,
producing satisfaction or delight. Marketers can to some degree mould
expectations through mediated and interpersonal communications with customers,
but only in very rare circumstances is it likely that they will be able to determine
expectations.
Trust and commitment: Commitment and trust are 'key' because they encourage
marketers to (i) work at preserving relationship investments by cooperating with
exchange partners, (ii) resist attractive short-term alternatives in favour of the ex-
pected long-term benefits of staying with existing partners, and (iii) view
potentially high risk actions as being prudent because of the belief that their
partners will not act opportunistically. When commitment and trust – not just one
or the other - are present they produce outcomes that promote efficiency,
productivity and effectiveness. The challenge for RM managers is to demonstrate
their commitment to the relationship and to inculcate trust in their partner. In a
service marketing context this can be particularly challenging because of the
relative absence of tangible clues, and because services cannot be examined
before they are produced or consumed.
Service: The outcome of this concern for customers, in an environment of
relationship commitment and trust, is a desire to provide excellent service. RM
requires an organization-wide commitment to providing high-quality service
which is reliable, empathic and responsive. Since RM is a means to a profitable
end, relationship marketers must believe that excellent service produces improved
profitability. Further, the basic sequence: 'service quality leads to customer
satisfaction which leads to relationship strength, which leads to relationship
longevity, which leads to customer relationship profitability.'
7.6 A PROCESS MODEL OF RELATIONSHIP MARKETING
Relationship Marketing is a process of engaging in cooperative and collaborative
relationships with customers. The broad model (a four-stage relationship
marketing process model) suggests that the relationship marketing process
comprises four sub-processes: formation process, management and governance
process, performance evaluation process, and relationship evolution or
enhancement process. These are discussed as follows:
1. Formation: The formation process of relationship marketing involves the
decisions that must be made regarding initiation of relationship marketing
activities for a firm with respect to a specific group of customers or an
individual customer with whom the company wishes to engage in a
cooperative and collaborative relationship. In the formation process, three
important decision areas relate to defining the purpose (or objectives) of
engaging in relationship marketing, selecting parties (or customer
partners) for relationship marketing, and developing programs (or
relational activity schemes) for relationship marketing engagement.
2. Management and governance: Once a relationship marketing program is
developed and rolled out, the program as well as the individual
relationship within it must be managed and governed.
3. Performance evaluation: Companies need to undertake periodic
assessment of the results of relationship marketing in order to evaluate
whether or not they are sustainable in the long run. Performance
evaluation is also useful because it allows firms to take corrective action in
areas of relationship governance or to modify relationship marketing
objectives and program features as needed. Without a proper performance
metric against which to evaluate relationship marketing efforts, it is hard
to make objective decisions regarding continuous, modification, or
termination of relationship marketing program.
4. Evolution: Individual relationship and relationship marketing program are
likely to undergo evolution as they mature. Some evolution paths may be
planned, whereas others will evolve naturally. In any case, the partners
involved have to make several decisions about the evolution of their
relationship marketing programs. These include decisions regarding the
continuous, modification, or termination of relationship marketing
engagement. Several factors could cause the precipitation of the
relationship decisions. Among these factors, relationship performance and
relationship satisfaction (including relationship process satisfaction) are
likely to have the greatest impact on the evolution of the relationship
marketing program. When performance is satisfactory, partners would be
motivated to continue or enhance their relationship programs. When the
performance does not meet expectations, partners may consider
terminating or modifying their relationship programs.
Now, in the ensuing paragraph, we will define the contents which are related to
the process of relationship marketing.
7.6.1 Relationship Marketing Purpose: The overall purpose of relationship
marketing is to improve marketing productivity and enhance mutual value
for the parties involved in the relationship. Relationship marketing has the
potential to improve marketing productivity and to create mutual values by
increasing marketing effectiveness and/or improving marketing
efficiencies. By seeking and achieving strategic marketing goals-such as
entering new markets, developing new products or technologies, serving
new or expanded needs of customers, and redefining the competitive
playing field-firms can enhance their marketing effectiveness. Similarly,
by seeking and achieving operational goals-such as the reduction of
distribution costs, streamlining of order processing and inventory
management, and reduction of the burden of excessive customer
acquisition costs-firms can achieve greater marketing efficiencies. Thus
stating objectives and defining the purpose of relationship marketing can
help firms to clarify the nature of relationship marketing programs and
activities that ought to be performed by the partners. Defining the purpose
also helps firms to identify suitable relationship partners who have the
necessary expectations and capabilities to fulfill mutual goals. It can
further help firms to evaluate relationship marketing performance by
comparing results achieved against objectives. These objectives could be
specified as financial goals, marketing goals, strategic goals, operational
goals, and general goals.
Similarly, in the mass-market context, consumers expect to fulfill their
goals related to efficiencies and effectiveness in their purchase and con-
sumption behavior. As we have noted previously, consumers are
motivated to engage in relational behavior because of the psychological
and sociological benefits associated with a reduction in choice decisions.
In addition to their natural inclination to reduce choices, consumers are
motivated to seek the rewards and associated benefits offered by
companies’ relationship marketing programs.
7.6.2 Relational Parties: The selection of customer partners (or parties with
whom to engage in cooperative and collaborative relationships) represents
another important decision to be made in the process of relationship
marketing program. Even though a company may serve all customer types,
few have the necessary resources and commitment to establish
relationship marketing programs for all. Therefore, in the initial phase, a
company has to decide which customer types and specific customers or
customer groups will be the focus of its relationship marketing efforts.
Subsequently, when the company has gained experience and achieved
successful results, it can expand the scope of relationship marketing
activities to include other customers in the program, or it can engage in
additional programs.
Although the selection of partners is an important decision for firms to
make in achieving their relationship marketing goals, not all companies
have formalized processes of selecting customers. Some follow the intui-
tive judgmental approach of senior managers in selecting customer part-
ners; others partner with those customers who demand so. Yet other com-
panies have formalized processes for selecting relational partners that
involve extensive research and evaluation against particular criteria. The
criteria for partner selection vary according to different companies’ goals
and policies. These range from a single criterion, such as revenue potential
of the customer, to multiple criteria that may include several variables,
such as customer commitment, resourcefulness, and management values.
7.6.3 Relationship Marketing Programs: there are three types of relationship
marketing programs: continuity marketing, one-to-one marketing, and
partnering programs. These take different forms depending on whether
they are meant for end consumers, distributor customers, or business-to-
business customers.
Continuity marketing programs: Given the growing concern for retain-
ing customers as well as the emerging knowledge about customer reten-
tion economics, many companies have developed continuity marketing
programs that are aimed at both retaining customers and increasing their
loyalty. For consumers in mass markets, these programs usually take the
shape of membership and loyalty card programs in which consumers are
often rewarded for their member and loyalty relationships with the
marketers. These rewards may range from privileged services to points for
upgrades, discounts, and cross-purchased items. For distributor customers,
continuity marketing programs take the form of continuous replenishment
programs ranging from J ust-in-Time (J IT) inventory management
programs to efficient consumer response initiatives that include electronic
order processing and Material Requirements Planning (MRP). In business-
to-business markets, these may be in the form of preferred customer
programs or special sourcing arrangements, including single sourcing,
dual sourcing, network sourcing, and J IT sourcing arrangements. The
basic aim of continuity marketing programs is to retain customers and
increase loyalty through long-term special services that have the potential
to increase mutual value as the partners learn about each other.]
One-to-one marketing: The one-to-one or individual marketing approach
is grounded in account-based marketing. Such programs are aimed at
meeting and satisfying each customer's needs uniquely and individually.
What was once a concept prevalent only in business-to-business marketing
is now implemented in mass-market and distributor-customer contexts? In
the mass market, the dissemination of individualized information on
customers is now possible at low cost due to the rapid development in
information technology and the availability of scalable data warehouses
and data-mining products. By using on-line information and databases on
individual customer interactions, marketers aim to fulfill the unique needs
of each mass-market customer. Information on individual customers is
utilized to develop frequency marketing, interactive marketing, and after
marketing programs in order to develop relationships with high-yielding
customers. For distributor customers, these individual marketing programs
take the form of customer business development. For example, Procter &
Gamble has established a customer team to analyze and propose ways in
which Wal-Mart's business could be developed. Thus, by bringing to bear
its domain-specific knowledge from across many markets, Procter &
Gamble is able to offer expert advice and resources to help build the
business of its distributor customer. Such a relationship requires
cooperative action and an interest in mutual value creation. In the context
of business-to-business markets, individual marketing has been in place
for quite some time. In what are known as key account management
programs, marketers appoint customer teams to husband company
resources according to individual customer needs. Often such programs
require extensive resource allocation and joint planning with customers.
Key account programs implemented for multi-location domestic
customers usually take the form of national account management
programs; for customers with global operations, these programs become
global account management programs.
Partnering programs: The third type of relationship marketing programs
involves partnering relationships between customers and marketers to
serve end-user needs. In the mass markets, two types of partnering
programs are most common: co-branding and affinity partnering. In co-
branding, two marketers combine their resources and skills to offer
advanced products and services to mass-market customers. Affinity
partnering programs are similar to co-branding except that the marketers
do not create new brands; rather, they use endorsement strategies. Usually,
affinity partnering programs try to take advantage of customer
memberships in one group to cross-sell other products and services. In the
case of distributor customers, partnering programs are implemented
through logistics partnering and cooperative marketing efforts. In such
partnerships, the marketer and the distributor customers cooperate and
collaborate to manage inventory and supply logistics and sometimes to
engage in joint marketing efforts. For business-to-business customers,
partnering programs involving codesign, codevelopment, and comarketing
activities are not uncommon today.
7.7 IMPORTANCE OF RELATIONSHIP MARKETING
Although 'relationship marketing' has entered the management lexicon only
recently but the practice of RM has a long history. The merchants in the Middle
Ages recognized that some customers were worth courting more seriously than
others. Richer customers would be offered credit terms; the poor paid cash.
Industrial marketers, particularly those selling high-priced 'capital goods, have
long known that they must take a long-term view to make a sale. Team selling,
with multiple levels of contact between seller and customer organizations, is
commonplace. Sales are only closed after protracted periods involving many
people, and after-sale follow-up is the norm. Manufacturers of fast-moving
consumer goods (FMCG) have also attempted to climb on the RM bandwagon.
Businesses which are dependent on large numbers of customers, high sales
volumes and low margins tend to have more difficulty adopting RM. Frequently,
their customer databases are inadequately disaggregated; they know little about
their customers at a personal level. Until the costs of communicating with
customers fall, it is likely that FMCG manufacturers will be slow to move to RM.
It is, however, in the services marketing area that RM is practiced most widely.
Services provided by banks, hotels and healthcare organizations are particularly
suitable for RM initiatives because they supply multiple services deliverable over
several contacts, in person. Because of their participation in the production of
services, customers come face to face with employees and are able to form an
interpersonal relationship with the service provider. Relationships between
members of the marketing channel exist on a continuum, ranging from discrete to
relational. Channel members whose relationships take the relational form have
expectations that the relationship will persist over time, exhibit mutual trust and
make plans for the future. In an industrial marketing context, switching costs
associated with changing supplier may be immense; manufacturing technology
and processes represent long-term commitments for most producers. Hence,
suppliers of critical inputs are rarely changed. Often, relationships are made more
secure through joint product development programmes. Long-term relationships
are composed of encounters in series and, can be developed in a number of stages:
i) the accumulation of satisfactory encounters; ii) active participation based on
mutual disclosure and trust; ii) creation of a double bond (personal and
economic); and iv) psychological loyalty to the partner.
7.8 PRINCIPLES OF RELATIONSHIP MARKETING
There appear to be a number of requirements for the successful implementation of
RM programmes. First, a supportive culture is necessary for RM to flourish.
Several commentators have noted that RM represents a paradigm shift from the
older, transactional way of doing business. Paradigm shifts inevitably pose threats
to, and demand changes of existing corporate culture. RM is typified by mutual
co-operation and interdependence between customer and supplier. Under a
transactional regime, the relationship is better characterized as 'manipulation of
customers, exploiting their ignorance'. Under RM, salespeople are likely to be
replaced by relationship managers; customer retention is likely to be rewarded
more highly than customer acquisition; customer satisfaction data will receive
billing equal to that of financial data in management meetings; and the CEO will
spend as much time with customers as with department heads. These are not the
priorities in exploitative marketing settings.
Internal marketing is a second prerequisite for successful RM. The goal of
internal marketing is to convert employees to the new vision of RM, to promote
the development of the new culture, to persuade them that it is sensible to buy into
the new vision, and to motivate them to develop and implement RM strategies.
The internal market's expectations and needs must be satisfied. 'Unless this is
done properly, the success of the organization's operations on its ultimate,
external markets will be jeopardized'. If the organization is unable to meet its
employees' needs, it is likely that they will defect to other jobs before being able
to build long-lasting relationships with customers.
It is also clear that the firm must understand customer expectations. This means
that there must be a continuous flow of information into the business; continuity
is required because expectations change over time. The managers do not always
have a clear understanding of customer expectations. This is a product of an
inadequate marketing information system, too many levels of management
between the front line and management, and communication difficulties.
A fourth requirement for successful RM is a sophisticated customer database
which provides information in actionable format for the development and
monitoring of RM strategy and tactics. The database technology is fundamental to
allowing companies to get to know their customers as individuals. The company
uses these data to communicate highly focused offers to customers, and to
monitor the impacts of any RM initiatives. Relationship managers are
increasingly able to use databases to track retention rates longitudinally, conduct
root-cause investigations of defections, segment their markets and establish
retention objectives.
Finally, new organizational structures and reward schemes may be required. The
traditional marketing and sales function is organized around products or
geographic markets. Under the influence of RM, organization around customers
becomes more sensible. Customer, or account, managers are better placed to build
long-term relationships with clients, more deeply understanding their expectations
and constructing financial, social and structural links to the firm. The logic of RM
would suggest that the people allocated to customer acquisition should differ from
those dedicated to customer retention. Different knowledge, skills and attitudes
are deployed. Through their combined efforts these account managers should be
able to acquire, migrate (from light-user to heavy-user status) and retain
customers. Companies will also need to reconsider how they reward employees.
At present, sales and marketing management is widely rewarded with a mix of
basic salary and performance-related bonus or commission. Common
performance criteria include sales volume and customer acquisition. Under the
RM regime, customer managers are more likely to be rewarded by customer
profitability, account penetration and customer retention.
7.9 IMPORTANT TIPS FOR SUCCESSFUL RELATIONSHIP
MARKETING
For successful relationship marketing following steps may be
considered.
Listen to customers. They'll tell you what they need from you if you'll just
take the time to listen and make them feel comfortable. If they don't volunteer
information, ask questions to uncover their problems and needs. Then, focus
on solving problems or meeting needs rather than selling them another
product. They'll appreciate your interest and you will, most likely, make a sale
in the long run. And, even if you don't make an additional sale, customers may
refer you to someone else based on the excellent service you've provided
them.
Be honest. Don't try to sell something that's not needed. Likewise, if you can't
fulfill particular customer needs, tell them, and try to help them find someone
who will. Your helpfulness will be long remembered and those customers are
more likely to come back to you when they need your type of product or
service again.
One relationship-building tactic is to "get in front of your customers" through
the mail.
You might want to send the following:
1. Thank you notes for orders, referrals or continued business.
2. Short notes about positive meetings or phone calls.
3. A newspaper or magazine article about a customer's business.
4. Articles or information about a customer's competition.
5. An announcement of your new product or service. (Don't forget to focus on its
benefits.)
6. A notice of a special sale or offer. Include coupons for customer discounts or
invite customers to special "pre-sale" days.
7. A newsletter from your company. Include beneficial tips and information for
your customers.
8. A hot lead. (Your customers are in business to make sales, too!).
9. A notice of a meeting or seminar of interest.
10. A reminder of a pending order or reorder. (You just might help them avoid a
costly lack of inventory.)
11. Get to the point in the first sentence and limit letters to one page in
correspondence.
12. Use personal, hand-written notes when possible.
13. Spell correctly.
14. In thank-you notes, don't thank more than once. You could close with, "Thank
you again for your business".
7.10 SUMMARY
Relationship Marketing is a term which has yet to acquire uncontested status and
meaning. For some, RM is simply transactional marketing dressed up in new
clothes; for others, it represents a significant change in the practice of marketing.
For some, RM refers to all types of internal and external organizational
relationships; for others, RM is focused clearly on external customer
relationships. Companies, particularly in the service sector, are increasingly
finding ways of building close, long-term relationships with external customers.
These companies know that winning new customers is significantly more costly
than retaining existing customers, and that when customers defect they take with
them all future income stream. Their reason for practising RM is customer
retention. However, the more advanced relationship marketers also know that not
all customers are worth retaining. Not all contribute positively and equally to
company performance. The voice of the customer is absent from much RM.
Indeed, it is not known whether customers want, in significant numbers, to enter
into relationships with their suppliers. Companies routinely communicate more
frequently and make special offers to their more valued customers. Whether this
is seen by customers as adding value is a moot point. At its best, RM is
characterized by a genuine concern to meet or exceed the expectations of
customers and to provide excellent service in an environment of trust and
commitment to the relationship. To be successful relationship marketers,
companies must develop a supportive organizational culture, market the RM idea
internally, intimately understand customers’ expectations, create and maintain a
detailed customer database, and organize and reward employees in such a way
that the objective of RM, customer retention, is achieved.
7.11 Key words
Emerging: come up or out into view, become known
Affinity: a close resemblance or attraction
7.12 SELF-TEST QUESTIONS
1. What do you mean by relationship marketing? How it can be operated in the
digital age?
2. Explain the process of Relationship Marketing with a suitable example?
3. How can you maintain the relations with the customers and would-be sellers?
4. Discuss the steps to be implemented in the process of Relationship Marketing
and its principles.
5. How can you distinguish the concept of Relationship Marketing in different
sectors of the economy like industry and service?
6. How can you differentiate relationship marketing and marketing
relationships?
7.
7.13 SUGGESTED READINGS
1. Berry, L., and A. Parasuraman. Marketing Services. New York: Free
Press, 1991.
2. Buttle, Francis, Relationship Marketing- Theory and Practice (ed.),
London: Paul Chapman Publishing Limited, 1996.
3. Gale, B.T., and R.W. Chapman. Managing Customer Value: Creating
Quality and Service That Customers Can See. New York: Free Press,
1994.
4. J acoby, J ., and R. Chestnut. Brand Loyalty: Measurement and
Management. New York: J ohn Wiley, 1978.
5. Reichheld, Frederick F. The Loyalty Effect. Boston: Harvard Business
School Press, 1996.
6. Seth, N. J agdish and Atul Parvatiyar, Handbook of Relationship
Marketing, New Delhi: Response Books, 2002.
STRUCTURE:
8.1 Objective
8.2 Introduction
8.3 Network Marketing
8.4 Cyber-Marketing
8.5 Cyber Marketing Plan and Techniques
8.6 Cyber Marketing Pitfalls
8.7 Cyber Marketing and role for Government
8.8 Steps to make better Cyber Marketing
8.9 Summary
8.10 Key words
8.11 Self Test Questions
8.12 Suggested Readings
8.1 OBJECTIVE: The motive of this chapter is facilitating the students to understand
the basics of network marketing and cyber marketing. The techniques, plan and pitfalls of
cyber marketing are also discussed here in.
8.2 INTRODUCTION
Through out our life, the school systems have taught each of us to be a good
employee. Our college system has taught us to be a good manager. There are
many different opportunities that in reality are a network marketing company or
multi level marketing (MLM) company, but they refuse to call themselves that.
COURSE: BASIC PRINCIPLES OF MARKETING AND MANAGEMENT
Course Code: 05 Author: Surinder Singh Kundu
Lesson: 08 Vetter: Dr. B. S. Bodla
NETWORK AND CYBER MARKETING
Each of these companies is best described as a non-traditional form of business,
so what’s the difference. In a traditional business you have lots of overhead,
employees, health insurance for your employees. Office rent so on. Non-
traditional businesses are generally worked form a home office. It eliminates the
high overhead of the traditional business and does the work efficiently and
effectively. In today’s high fuel prices one can save up to several hundred dollars
per month in just fuel costs by not having to commute to a job. In addition email-
marketing techniques from e-rm (e-relationship marketing) give you a cost
effective solution for promoting your products or services on a personal basis
directly to the customer via electronic media. Email broadcasts have a high
response rate and e-rm is experts in their field of electronic marketing systems
and solutions. Direct marketing by email is the sole solution which delivers
straight to the desired recipient snail mail rarely reaches the intended person as it
is often opened by secretaries, but even directors open their own e-mail therefore
if you have the name and email address you are much more likely to get our
message across, e-rm have opt in email lists, managed effectively and efficiently
to ensure your email, broadcast which is called successful internet marketing.
8.3 NETWORK MARKETING
It is a business about helping people often called a people’ franchise. It is the
unseen business, it does not have giant signs or large offices but yet millions of
people are working in this industry each and everyday. In the 1950’s when the
Franchise emerged it was labelled a seam, illegal etc. Fortunately a franchise is
not labelled as such anymore or you would not be enjoying your favourite
hamburger today. A network marketing business in reality is a business school;
you are or should be in a training program from day one. This truly is a ‘Learn
which you earn’ program. If the training is qualitative time, it can change the life
style of human being. The producer/service providers usually offer reasonably
priced products and services, which may be consumed by people in short time.
Network marketing also called direct selling; multi level marketing is about sales
and distribution, but a different kind of sales. It is more of a soft sale or
recommendation then the hard closing type that you are accustomed to with the
typical salesman or sales woman in the direct sales. In the network marketing, a
sales person goes to the home of a host who has invited friends, sales person
demonstrates the products and take orders. The multilevel or network marketing
sale system consists of recruiting independent business people who act as
distributors. The distributor’s compensation includes a percentage of sales of
those the distributor recruits as well as earnings on direct sales to customers.
These direct selling firms, now finding fewer consumers at home, are developing
multi distribution strategies. Generally the commission structure is less up-front
than the direct sales companies, but it has a benefit that most direct sales
companies do not have and that is residual income.
8.4 CYBER-MARKETING
Direct marketing has roots in direct mail and catalog marketing. It includes tele
marketing, television direct response marketing and electronic shopping. Of these,
electronic shopping/internet marketing experience a major takeoff in the late
1990’s as consumers flocked to dot com sites to buy books, music, toys,
electronics, and other products. The Internet/computer-generated system/cyber
is not only a new communication medium; it is an exciting and promising
marketing tool. Some companies have made the Internet their front line of
communication and marketing and had a lot of success in doing so. The Internet
lets you make transactions and reduces the sales cycle. It can also reduce the costs
of the presale effort and helps you provide efficient post-sale service. The Internet
lets you attack major markets around the world as well as allowing you to
penetrate any household that has a computer and an Internet link. It has become a
privileged means of communication between you and your customers. The
companies that manage to leverage the power of this tool will gain a close tie to
their customers. Those who fail to take advantage of they left behind.
8.5 CYBER-MARKETING PLAN AND TECHNIQUES
While designing the cyber-marketing plan, you have to consider the following
steps. :
1. Determine the need of marketing information: Brainstorm all
information you have available for your customers/clients. Consider the
value a customer may find in the information you plan to provide and
determine the information’s worthiness. Not all information is really
worthy of passing on to the customer/client. The “rule of thumb” here is to
provide the top three to five most important pieces of information.
Providing more than that would either overwhelm the customer or drive
the customer away.
2. Prepare your information in Internet-ready format: Build an inventory
of electronic and physical art ready for publishing on the Internet. By
doing this you will be able to keep costs down and integrate your
corporate image into your web promotional material. All these information
must be user friendly you will be able to keep costs down and integrate
your corporate image into your web promotional material. All these
information must be user friendly.
3. Organize the information into logical units: The biggest difference
between the Internet and traditional marketing methods is space
considerations. Consider the information that can be placed into a 30-
second radio advertisement, then consider the 30-second television
advertisement, and finally consider the amount of information that can be
placed on the Internet. You will find that the hardest place to advertise is
on the radio because you have people that for the most part, are in a
position where they are unable to record vital information or remember
your product. Television commercials have more to work with - visual art
being the strongest position that media has. Finally, with the Internet you
are able to get the message across in print, audio and art. Therefore, you
should strongly consider the best way to group your information into
logical units so that you do not detract from other areas of importance.
4. Plan your target market: After determining what you want your cyber
marketing to achieve, you will need to determine which areas of the
Internet will enable you to reach your objectives. There is one thing of
vital importance that requires mentioning: You may know you want to
sale to a particular age group or some other demographic, but you do not
know what makes up that demographic. A case in point, while blind
people can riot drive that does not mean they-do not own cars. However,
unlikely this may seem that the point is your target market will always
consist of individuals whose abilities or disabilities of which you may not
be aware or even consider. Therefore, an accessible website is your best
choice in internet marketing.
5. The Aspect of Traditional Marketing: Any marketer, when attempting
to establish a marketing plan, is always faced with how to classify and sort
ideas. The market segmentation in traditional marketing that can be
impacted by cyberspace. You must, determine the appropriateness of basis
of market segmentation i.e. demographic, psychographics, geographic, etc.
6. Build Brand Awareness and Loyalty: Build a community of customers
who are loyal to you and your product. If the customers are loyal to your
product/brand than advocacy of the product will go on automatically.
7. Educate your Market: Give customer and prospects an in-depth
understanding of your product or service, your company, or your industry.
So that, they tend to purchase products which they find a value in time of
quality and quantity.
8. Demonstrate and Distribute: Distribution works hand-in-hand with
demonstration. Door-to-door salesmen demonstrate their wares in hopes of
gaining avenues of distribution or customers. Demonstrating the value of
your product online properly will motivate people into impulse
purchasing.
9. Public Relations: There are many journalists that hang out in the
newsgroups, get e-zines, and surf the Internet in search of up and coming
business. Search out these journalists and work with them to get coverage
for your business. Further, you have to create relationship via electronic
media and thanks for purchase and give the reminders to the customers.
10. Feedback: Probably the most important thing you will ever receive as a
business owner working in cyberspace is feedback. The feedback you
receive can come from a customer, the market in general, others in your
industry, and even your competitors. The amount of information you
receive can be overwhelming at times. However, you want to use this
information to formulate responses with adjustments in your marketing
tactics or ensuring you continue with a marketing strategy that is working
for your business.
11. Promote your Web Site: By developing an ongoing promotional
program, you must be able to keep your web pages in front of potential
customers, and therefore helping generate inquiries and orders. If you
don’t promote your site then you will fade away like so many other
Internet businesses, which are notable to grasping the money from the
pocket of customers.
8.6 CYBER-MARKETING PITFALLS
The following mistakes not to be done in the field of cyber-marketing:
1. No E-mail Responsiveness: There are many web sites that have no means
of allowing the customers to send their e-mail to their business. If wish to
succeed; you should always have a means of allowing your customers to
contact you. On every page there should be at least one address-the
Webmaster’s address. On every page there should be a link to some form
of contact information. Your contact page should include phone numbers
(unless you work out of your home and you share the same phone number
for your business-definitely not advisable). Yet, most importantly your
contact page should include e-mail addresses so that the visitor can get
information being sought. You never know, you may even be blessed with
a customer that asks for a specific product you don’t carry and thereby
creating a new product line just from one letter.
2. Failure to Maintain Consistency between Marketing Efforts: There are
many businesses that fail to remain between their traditional marketing
plans and their cyber-marketing plans. This behavior could result in lost
business.
3. Lost in Cyberspace: All too often, web sites fail to provide adequate
navigational tools to move around on their sites. Further, lost in
cyberspace is to fail to get your web site listed in the various search
engines and directories. It is always recommend that the clients to
purchase Web Position Gold. They have clicked on the graphic to the left
us. We have to optimize their site the search engines.
4. No Sign of Humans: There are sites out there that seem as if they have
been created by some form of computer intelligence. What one should do
is ensure there is some evidence that people do exist in the business. This
could come in the form of employee names, humor, tidbits of local
information, and other sundry items. Probably the most important is to
write in conversational styles and not in a style that would seem
monotoned.
5. No Target Marketing: In cyberspace, people look for specific
information. With the vast amount of information available, failing to have
a target market is like shooting a shotgun at the side of the barn. You are
bound to hit something, but is it what you really want to hit? Mass
marketing is on its way out the door as fast and specialized marketing is
on its way in. This may not seem like it is with all the unsolicited email
you get from "spammers", but assuredly it fails more often that it
succeeds.
8.7 CYBER MARKETING AND ROLE FOR GOVERNMENT
As a high-tech marketer, you are probably familiar with the thought processes,
planning stages, factors, and risks involved which lead to a carefully planned and
executable direct mail marketing program. The costs involved, creative, printing,
postage etc. combined with adherence to basic guidelines, yield a responsible
campaign to market goods or services to consumers. Consider how this entire
paradigm drastically changes when it is performed electronically utilizing Email
or the Web. With the removal of investment, risk and guidelines, it's easy for
anyone to initiate a marketing campaign with no responsibility for their actions.
From one point of view, the Internet democratizes marketing, allowing
entrepreneurs to solicit customers in the same arena as larger companies.
However, the paradigm shift due to the construct and accessibility of Email
messaging and the Web opens an uncontrolled floodgate. With this floodgate
open, anyone capturing Email addresses or establishing a home page can easily
perform unethical marketing acts without any costs or risks. Intervention could
help to preserve and nurture the legitimate marketers while, most importantly,
protecting the consumer.
With some form or government involvement in place on the Internet, the
unscrupulous vendor will think twice about the content of their mass Emailing
and who they are targeting. It will also alleviate the mindset that marketing on the
Internet is only for opportunists. Legitimate marketers who adhere to the
guidelines will have momentum to use the electronic medium where they might
have originally avoided it in fear of being labelled as “schlock”.
The government can add definition to how marketing is performed on the
Internet, and actually make it a safer place for legitimate marketers by minimizing
irresponsible opportunists. It's not government interference, but marketing
responsibility that will make it better for all of us, including the consumers.
If you observe the origin of the Internet, the US Government has actually been
involved all along, starting in the 1960's with the Advanced Research Projects
Agency Network (ARPANET) funded by the Department of Defense. The
primary use of the ARPANET was to allow scientists and researchers to easily
access each other's information and to continue accessing information if one of
the systems went off-line due to a military attack. In the 1980's, the Government's
National Science Foundation officially created the Internet, replacing the original
ARPANET with a more modern, higher-speed network. The NSF's original goal
for the Internet was to provide distributed access to government-owned
supercomputers. Intended as a broad base educational and research network, the
Internet has evolved to include businesses, commercial services, and consumers.
In addition to remote computing, file access, and Email, the Internet later
supported multimedia elements, specifically color, graphics; audio, and video via
the implementation of the World Wide Web, which is based on the infrastructure
of the Internet. With the Internet’s governmental roots, there is a place for
continued involvement.
8.8 STEPS TO MAKE BETTER CYBER MARKETING
The following steps may help you for a successful cyber-marketing:
1. Analyze your business: As with any marketing venture, you have to nail
down your objective: What are you selling and how are you selling it? We
ask ourselves, what's our business? What do we do here? How do we do
this? What do our customers ask for and what do we do for them on a
daily basis? Once the self-analysis was complete; further, look into with
two key questions. How can we use the Internet to do, in a more cost-
effective way, something we are already doing? And what are we not
doing that the Internet might help accomplish? The great danger for
someone starting down this road is in thinking that by leveraging the
Internet, they're going to become a dot com. Instead, the attitude should be
that the Web is just one channel among many that can help a firm do what
it does better.
2. Hire a professional: The default thinking on launching a new business seems
to be: start small and work up. But when it comes to the Web, that
thinking will yield approximately the same result as setting up an office in
a trailer in Citibank's parking lot. When you get on the Web, your
competitors are the big guys. If you have a skimpy, amateurish website,
you don’t just suffer by comparison; you’re aced out by comparison.
Therefore you have hire professional to upto date you information on your
website.
3. Avoid brochure-ware and cheap, non-interactive designs: Web designers
come in may shapes and price ranges. It is advised that hiring can be done
as much sophistication as you can afford. All the financial service
expertise in the world won’t make up for a substandard site.
4. Keep it simple: Once your website is up, test its usability early and often.
This doesn’t require a high-tech eye-scan lab to see where surfers rest their
gaze first. It doesn’t even require a focus group. Simply parade people into
your office, watch them surf your site and ask them what they think. Are
they satisfied with the site’s speed and order? Is the layering logical, or do
they have to click through 10 levels of sediment to find gold? Are the
types of data on your site the kinds they’d hoped to find? Monitoring
usability can help ensure your site doesn’t become a digital ghost town.
5. Focus on service: Each of above aspects must be considered. Customer
service became a big focus for us. Before launching a website you must be
consider host of features it calls “view and do”, e.g. in insurance business,
“View” features include enabling clients to check the status of their own
products-account balances, policy designations and the like. “Do” features
are transactional, such as changing an address, changing investments in an
annuity and changing fund allocation, have not only improved customer
service, but have also made the firm’s advisors more efficient. “Since
we’re leaving our low emotion/high transaction services to the Internet,
our advisors are no longer functioning as data providers, instead, they are
becoming a client’s point of contact for more emotional decisions
including buying additional services insurance. Therefore, we have to
focus on service.
6. Keep it fresh: Before you leap into digital marketing, remember that today’s
Internet isn’t the Internet of the mid-1990s. Surfers will not put up with
static sites or those that change only once in a while. Access to an ever-
changing content mix is critical. What people don’t appreciate is that
putting up a website is simple.” But keeping it populated with interesting
content is a nightmare. It is advised that partnership with other firms and
services that can keep content fresh. Ready allies come in many shapes
and sizes, but look first at those companies whose products you sell.
Mutual fund companies and insurers often publish Web content they’re
willing to share in the form of how-to articles, advice and analysis. In
addition, news and information services add snap and currency to a site.
The more information a site offers, the more choices are available to the
customer, but another reason for varying and cycling through fresh
content: diversity of opinion. As an advisor, you have to make available
various opinions from various sources, “that way, clients can be assured
you’ve had the advantage of comparing opinions, as opposed to just
promoting your own agenda.
7. Integrate your message: Once you’ve launched a website, you should
mention it in all your marketing material, from business cards to brochures
to stationary. But you also need to view your site as an extension of your
marketing message. Are you running year-end print or broadcast ads?
Update your Web content to match. Have you added a new fund or
insurance product to your offerings? Add them to your site. As you fine-
tune your marketing message, make sure you update your website.
These steps will helps you launch or fine-tune your cyber-marketing efforts.
Generally it is observed that “the best sites are not those that are the most
complicated, but those that deliver what the customer needs.”
8.9 SUMMARY
Network-marketing is the personal selling tool, by which the producer interacts
directly to the customers in terms of their salespeople; and they become able to
get feedback from the customer quickly. Further, they become able to measure the
performance of the product in the market. In addition, they can grab the potential
of marketing in rural sector also. Through cyber-marketing producers can
approach many potential customers who are not in their easy access. If they will
launch a fine tuning among the websites, customers and competitors than they can
provide better services in this field of marketing and collect many orders with
huge profits and growth opportunities.
8.10 Key words
Tidbits: a small choice bit of food or item or information
Alleviate: ease (pain or distress)
Amateur: a person who does something as a pastime rather than as
a profession
Skimpy: scanty (small in amount or extent)
8.11 SELF-TEST QUESTIONS
1. What do you mean by network marketing? Why it is important in present
scenario?
2. What do you mean by cyber marketing? How can you develop a plan for
it?
3. Distinguish between network marketing and cyber-marketing?
4. What is the role of electronic marketing for government and society?
5. Explain the planning and techniques of cyber-marketing?
8.12 SUGGESTED READINGS
1. Shapario, C. and H.R. Varian (1999), Information Rules, Harvard, MA:
Harvard Business School Press.
2. Hornell, e. (1992), Improving Productivity for Competitive Advantage:
Lessons from the Best in the World, London: Pitman.
3. Seybold, P.B. and R. T. Marshak (1998), Customer.com:How to Create a
Profitable Business Strategy for the Internet and Beyond, New York:
Random House.
4. Berkowitz, E. N., R. A. Kerin, S. W. Hartly and W. Rudelius (2000),
Marketing Boston, MA: Irwin McGraw-Hill.
Contents:
9.1 Objectives
9.2 Introduction of E-Commerce
9.3 Meaning and Definitions
9.4 Scope of the E-Commerce
9.5 Basic Models and essentials to establish E-Commerce
9.6 Impact of the E-Commerce
9.7 E-Commerce and Marketing mix
9.8 Key success factor of E-Commerce
9.9 Product and Pricing
9.10 Acceptance of E-Commerce
9.11 Summary
9.12 Key words
9.13 Self -Assessment Questions
9.14 Suggested Readings
Subject : Basic principles of Marketing and Management
Subject code: 05 Author: Ashish Garg
Lesson no: 09 Vetter: Dr.B.S.Bodla
E-Commerce
9.1 Objective: Main objective of this lesson is to make the student high-tech
by providing the knowledge of the E-Commerce.
9.2 Introduction to E-Commerce
This is an age of Information Technology where the computer and
communication technologies together play a very vital role in all
spheres of human endeavour. The best known example that has
touched all of us is the computerized railway reservation system.
Here the computer located in different towns are interconnected
through a special network of railway and the computes
communicate with each other. Similarly airline reservation system
, hotel room reservation system etc. allow us to make suitable
reservations from anywhere in the world. Another influence of the
information technology can be seen in the banking sector where we
could withdraw the money at any time from any of the branches or
Automatic Teller Machine make payments through credit cards etc.
We can find so many other example of information technology
around us. Advent of internet that has made the dramatic impact
on the society by bringing people from all over the world together
and making most of these application come alive. Internet has
changed the way people communicate with each other in an
efficient and cost effective manner through the features of e – mail,
news groups, chat rooms and internet based conferencing.
With its all pervasive influence, IT is about to bring in the way we do
shopping and business. IT enables complex business operations to be
performed by effective using the electronic networks like internet and
computers. When the business is performed on the electronic media, it
is called electronic business (E-Business) or electronic commerce (E-
Commerce).
9.3 Meaning
E-Commerce or Electronic Commerce is a general term for any type of
business or commercial transaction that involves the transfer of information
across the internet. This covers a range of different type of business from
consumer based sites like Amazon.com, through auction and music sites like
eBay or MP3.com, to business exchange trading goods or services between
corporations
“ Electronic commerce encompasses the use of technologies, processes and
management practices that enhance organizational competitiveness through
strategic use of electronic information. E-Commerce, which is selling of
products on the internet, represents only the “front-end” of E-Business goes
beyond E-Commerce by integrating it tightly with business operation to
improve performance, create value and enable new relationship between
business and consumers.”
(MIS Magazine, May
1999)
According to David Baum, “Electronic commerce is a dynamic set of
technologies, applications and processes that link enterprises, consumers and
communities through electronic transactions and the electronic exchange of
the goods, services and information.”
Example of E-Commerce
There are several examples of electronic commerce covering a
wide spectrum of application areas in industry. Given below a
few areas in which E-Commerce is taking place and these give
some idea of the current status of E-Commerce activity.
On line trading in stock exchange instead of traditional
floor trading.
Trading in dematerialized share.
Electronic shopping for various types of product
Filling tax return electronically.
In supermarkets all over the world currently money
transfer take place electronically.
Integrated financial networks used by the banks enable
the customers to copy out their banking transactions
electronically.
Following are some specific examples of E-Commerce:
Amazon.com : It is a world’s largest bookstore and is an
excellent example of E-Commerce service. An internet user has
the facility to search for books, journals etc. based on
keywords or title. The user can order the books online and use
a credit card for paying the cost of the books. Amazon.com
also locates the books from publisher and other booksellers
and supplies the items.
Barclays Bank: Barclays Bank offer complete banking services
to consumers who can do all their banking works including
querying of accounts from their homes or offices.
Prudential ICICI : In India Prudential ICICI AMC is the first mutual fund
that offers investment facility to non-resident Indians through E-Commerce.
9.4 Scope of E-commerce
E-Commerce encompasses all activities of business, starting
from developing manufacturing , marketing and selling the
products, obtaining information through market intelligence,
assessing the market, grooming the market , providing pre and
post sale support, procuring material facilitating contacts
between traders, supporting shared business processes etc. In
the broadest terms e-commerce includes any form of
business/trading that is carried out using the electronic
medium. It could involve goods or services. The transactions
could takes place between:
One organization and another
An organization and an individual
An organization and a statutory or legislative body
Thus e-commerce encompasses all activities that are carried
out by a manufacturing and business firms except those
activities that are to be physically carried out, such as
manufacturing, packing and shipping. It is not essential that
all the above activities are to be carried out on the internet
from the beginning. The store can select some activities to
start with and then gradually expand the activities it carries
out on the internet. E-commerce can also be applied in the
field of
1) Education
2) Personnel training
3) Entertainment
4) Banking and financial transactions
5) Essential services etc.
9.5 Basic models & Essentials to establish E-Commerce
The basic business models are of two types.
Business-Consumer model
Business-Business model
1.Business to Consumer Model
This model cover all transactions done between consumer and
trader just as marketing of goods, ordering for the goods and
making payments etc.
Purpose of this model is to enable the consumer to locate and
purchase desired goods or service over the internet when the
customer is interested in making the purchase.
For the merchants this model ensures the higher revenue by
enabling them to access broad market.
2.Business to Business Model
This model covers the interactions between the business
houses. Taking the example of automobile industry , the broad
areas of activity in this industry can be through off as: market
survey, product development , market building , product
production , product distribution or supply chain
management, coordination of sales, financial planning and
management, procurement and inventory management,
personnel management etc. involve the firm dealing with other
firms that can be done with help of internet. This model being
encompassing all transactions with all parties involved, the
information system tend to be much more complex than
simple order supply transactions.
Essentials of E-Commerce
Enterprise large or small tend to develop their Web presence in
stages. Once a web presence is created then the enterprise
wants to use that site to enhance customer service and to
produce revenue. It is at the latter stage that E-Commerce
comes into play.
A server provider’s hosting customers will go through the same
evolution described in the preceding module. It is not enough
just pick off the high end client who represents the highest per
client revenue there simply enough of them. Furthermore the
future opportunity is to provide a platform that can move a
client along the range from low to high function as client
sophistication and needs evolve. Many small and medium
sized businesses are struggling with the high cost of entry to
E-Commerce. Creating a complete online selling environment
can require considerable time, money and technical expertise.
Many businesses follow the following three steps to establish
an effective E-Commerce.
Step one: Develop a content site and handle transaction off-
line.
Step two: Develop an on-line catalog and handle transaction
off-line.
Step three: Develop an on-line catalog and handle transaction
on-line.
Hardware required Software required
Processor Operating system
Modem HTML, Java, IIS
Mouse Java script, SQL
Server
Scanner Window
Environment
Others: 1) DHTML 2) XML 3) VBS Script etc.
9.6 Impact of E-Commerce on business and consumers
E-Commerce provides the following benefits to sellers as well
as consumers.
(A) Benefits to Business
1.Reduction in cost: E-Commerce helps a business by
reducing the cost by the following means:
E-Commerce helps to reduce inventory costs by allowing
the company to access and utilize their supplier’s data
base. This allow for the just in time inventory control by
providing the knowledge about the inventory.
E-Commerce helps us to reduce cost of the procurement
and the payments. By putting the catalogue on the net
supplier can receive order on the net and payment can be
received by the net which help the businessmen to
reduce the cost regarding the above.
Human resource costs are reduced as the need for
training and workers is reduced.
2.Improve customers satisfaction: Customer satisfaction
can be ensured by following ways
The customers can be controlled by providing the
information about the product at their home.
By delivering the product to the customers at home
By getting the payment on the net.
By providing the demonstration of the product on the
net.
3.Improve management
By improving the reporting and information system
By ensuring the better control techniques
By improving sales and marketing services
(B) Benefits to Customers
From the consumer point of view E-Commerce has following
benefits:
Consumer can access to the original firm rather than
access to the dealer or middleman.
Consumer have global choice regardless of their
geographical location.
The shopping decision will be much easier as the
consumer can reach several shops, compare the quality
and prices in a short time.
Saving of time and convenience
9.7 E-COMMERCE AND MARKETING MIX
The selection of an e-commerce marketing mix is likely to involve the application
of established marketing management principles as the basis for defining how
electronic technologies are to be integrated into a firm’s existing operations. In
many organizations, e-commerce marketing mix proposals will be based around
enhanching existing offline activities by utilizing the Internet to provide new
sources of information, customer supplier interaction and/or alternative purchase
transaction channels.
9.7.1. PRODUCT AND PRICING
It will be necessary to determine whether the Internet provides an opportunity for
product enhancement. Such opportunities include improving customer service and
broadening the product line. As far as pricing is concerned, thought must be given
to whether offline and online prices will be different and the potential
implications of any price variance for existing offline customers. When the move
to e-commerce involves new distribution costs, consideration should be given to
delivery charges. Tesco, for example, imposes a delivery charge for its home
shopping service.
9.7.2 PROMOTION
The first issue to be addressed when considering promotional mix decisions given
the important role of the Internet in making information available to customers-is
the design of a company’s webside. Some large companies will decide that this is
an activity over which they wish to retain absolute control. In this situation the
firm will hire a team of employees to manage the website creation process.
However, there are a variety of other approaches that may be adopted. The design
process may be contracted out to a major consulting firm, such as IBM, or to one
of the many specialist Internet agencies that have been formed in recent years.
Firms with limited financial resources may wish to use a web-authoring package.
One of the more expensive, but highly popular, authoring software packages is
Drumbeat 2000 produced by Macromedia (www.macromedia.com). This product,
besides containing a plethora of design options, also has features such as a
shopping cart function; secure credit card transactions and an integrated database
system. For those firms that do not feel able to run their own Internet operation,
another option is to join an existing website, which acts as host for a number of
organizations. These hosting services usually provide a choice of basic website
templates to suit different types of business. The firm is provided with software
by the hosting service, which permits it to customize a template and thus develop
its own visual identity. An example of a hosting service is Mindspring.com
(www.mindspring.com) The company provides software for a firm to build a
product catalogue and storefront, which is then featured on the Mind spring site.
The degree to which a company already has a strong offline market presence will
strongly influence the scale of an e-commerce promotional plan. Thus, for
example, when
Tesco, the largest UK supermarket chain, began to offer an online grocery
purchasing service; the promotional launch campaign was quite simple. As the
company already had strong brand recognition in the market, the main aim of its
promotional activity was to register awareness for its website address. This was
achieved by using traditional channels such as some television advertising, mail
shots to Tesco loyalty card holders and in-store merchandising displays. For new
entrants with no offline presence, building brand recognition can be expensive.
However, the Internet has also given rise to some novel approaches to promotion.
9.7.3. DISTRIBUTION
The commonest distribution model in the majority of offline consumer goods
markets is to delegate both transaction and logistics processes (e.g. major brands
such as Coca-Cola being marketed via supermarket chains). This can be
contrasted with the online world where absolute delegation of all processes is a
somewhat rarer event. The reason for this situation is that many firms, having
decided that e-commerce offers an opportunity for revising distribution
management practices, perceive cyberspace as offering a way to regain control
over transactions by cutting out intermediaries and selling direct to their end-user
customers. This process, in which traditional intermediaries may be squeezed out
of channels, is, as we have already seen, usually referred to as disinter mediation.
Hence, for those firms engaged in assessing the e-commerce distribution aspects
of their marketing mix, there is a need to recognize that the technology has the
following implications.
* Distance ceases to be a cost influencer because online delivery of
information is substantially the same no matter what the
destination of the delivery.
* Business location becomes an irrelevance because the e-commerce
corporation can be based anywhere in the world.
* The technology permits continuous trading, 24 hours a day, 365 days a
year.
Once all the issues associated with the e-commerce marketing mix have been
resolved, these variables will provide the basis for specifying the technological
infrastructure that will be needed to support the planned e-commerce operation. In
some cases the firm will decide to manage all of these matters in house but, in
others, the firm may outsource a major proportion of its e-commerce operations to
specialist subcontractors.
9.8 KEY SUCCESS FACTORS IN E-COMMERCE
Several factors have a role in the success of any e-commerce venture. They may include :
* Providing value to customers: Vendors can achieve this by offering a
product or product-line that attracts potential customers at a competitive
price, as in non-electronic commerce.
* Providing service and performance: Offering a responsive, user-friendly
purchasing experience, just like a flesh-and-blood retailer, may go some
way to achieving these goals.
* Providing an attractive website: The tasteful use of colour, graphic,
animation, photographs, fonts and white-space percentage may aid success
in this respect.
* Providing an incentive for customers to buy and to return: Sales
promotions to this end can involve coupons, special offers, and discounts.
Cross-linked website and advertising affiliate programs can also help.
* Providing personal attention: Personalized we sites, purchase
suggestions, and personalized special offers may go some of the way to
substituting for the face-to-face human interaction found at a traditional
point of sale.
* Providing a sense of community: Chat rooms, discussion boards,
soliciting customer input, loyalty schemes and affinity programs can help
in this respect.
* Providing reliability and security: Parallel servers, hardware
redundancy, fail-safe technology, information encryption, and firewalls
can enhance this requirement.
* Providing a 360-degree view of the customer relationship: Ensuring
that all employees, suppliers, and partners have a complete view, and the
same view, of the customer. However, customers may not appreciate the
big brother experience.
* Owning the customer’s total experience: E-tailers foster this by treating
any contacts with a customer as part of a total experience, an experience
that becomes synonymous with the brand.
* Streamlining business processes, possibly through re-engineering and
information technologies.
* Letting customers help themselves: Provision of a self-serve site, easy to
use without assistance, can help in this respect.
* Helping customers do their job of consuming: E-tailers can provide
such help through ample comparative information and good search
facilities. Provision of component information and safety-and-health
comments may assist e-tailers to define the customers’ job.
* Constructing a commercially sound business model: If this key success
factor had appeared in textbooks in 2000, many of the dot.coms might not
have gone ruined.
* Engineering an electronic value chain in which one focuses on a
“limited” number of core competencies - the opposite of a one-stop shop.
(Electronic stores can appear either specialist of generalist if properly
programmed.)
* Operating on or near the cutting edge of technology and staying there
as technology changes (but remembering that the fundamentals of
commerce remain indifferent to technology).
* Setting up an organization of sufficient alertness and agility to respond
quickly to any changes in the economic, social and physical environment.
9.9 PRODUCT AND PRICING
Even if a provider of E-commerce goods and services rigorously follows
these above “key factors” to devise an examplary e-commerce strategy,
problems can still arise. Sources of such problems include:
* Failure to understand customers, why they buy and how they buy:
Even a product with a sound value proposition can fail if producers and
retailers do not understand customer habits, expectations, and motivations.
E-commerce could potentially mitigate this potential problem with
proactive and focused marketing research, just as traditional retailers may
do.
* Failure to consider the competitive situation: One may have the
capability to construct a viable book e-tailing business model, but lack the
will to compete with Amazon.com.
* Inability to predict environment reaction: What will competitors ? Will
they introduce competitive brands or competitive web sites ? Will they
supplement their service offerings ? Will they try to sabotage a
competitor’s site ? Will price wars break out ? What will the government
do ? Research into competitors, industries and markets may mitigate some
consequences here, just as in non-electronic commerce.
* Over-estimation of resource competence: Can staff, hardware, software,
and processes handle the proposed strategy ? Have e-tailers failed to
develop employee and management skills ? These issues may call for
thorogh resource planning and employee training.
* Failure to co-ordinate: If existing reporting and control relationships do
not suffice, one can move towards a flat, accountable, and flexible
organizational structure, which may or may not aid co-ordination.
* Failure to obtain senior management commitment: This often results in
a failure to gain sufficient corporate resources to accomplish a task. It may
help to get top management involved right from the start.
* Failure to obtain employee commitment: If planners do not explain their
strategy well to employees, or fail to give employees the whole picture,
then training and setting up incentives for workers to embrace the strategy
may assist.
* Under-estimation of time requirements: Setting up an e-commerce
venture can take considerable time and money, and failure to understand
the timing and sequencing of tasks can lead to significant cost overruns.
Basic project plainning, critial path, critical chain, or PERT analysis may
mitigate such failings. Profitability may have to wait for the achievement
of market share.
* Failure to follow a plan: Poor follow-through after the initial plainning,
and insufficient tracking of process against a plan can result in problems.
One may mitigate such problems with standard tools: benchmarking,
milestones, variance tracking, penalties for negative variances, rewards for
positive variances, and remedial realignments.
* Product suitability: Certain products/services appear more suitable for
online sale; others remain more suitable for offline sales. Many successful
purely virtual companies deal with digital products, including information
storage, retrieval, and modification, music, movies, education,
communication, software, photography, and financial transactions.
Examples of this type of company include: Schwab, Google, eBay,
Paypal, Egghead, and Morpheus.
* Virtual marketers can sell some non-digital products/services
successfully: Such products generally have a high value-to-weight ratio,
and/or involve embarrassing purchases, and/or typically go to people in
remote locations, and/or have shut-ins as their typical purchasers. Products
such as spare parts, both for consumer items like washing machines and
for industrial equipment like centrifugal pumps, also seem good
candidates for selling online. Retailers often need to order spare parts
specially, since they typically do not stock them at consumer outlets-in
such cases, e-commerce solutions in spares do not compete with retail
stores, only with other ordering systems. A factor for success in this niche
can consist of providing customers with exact, reliable information about
which part number their particular version of a product needs, for example
by providing parts lists keyed by serial number. Purchases of pornography
and of other sex-related products and services fulfil the requirements of
both virtuality (or if non-virtual, generally high-value) and potential
embarrassment; unsurprisingly, provision of such services has become the
most profitable segment of e-commerce. Products unsuitable for e-
commerce include products that have a low value-to-weight ratio, products
that have a smell, taste, or touch component, products that need trial
fittings, and products where colour integrity appears important.
9.10 ACCEPTANCE OF E-COMMERCE
Consumers have accepted the e-commerce business model less readily than its
proponents originally expected. Even in product categories suitable for e-
commerce, electronic shopping has development only slowly. Several reasons
might account for the slow uptake, including :
* Concerns about security: Many people will not use credit cards over the
Internet due to concerns about theft and fraud.
* Lack of instant gratification with most e-purchases (non-digital
purchases). Much of a consumer’s reward for purchasing a product lies in
the instant gratification of using and displaying that product. This reward
does not exist when one’s purchase does not arrive for days or weeks.
* The problem of access to web commerce, particularly for poor
households and for developing countries. Low penetration rates of Internet
access in some sectors greatly reduce the potential for e-commerce.
• The social aspect of shopping: Some people enjoy talking to sales staff,
to other shoppers, or to their cohorts: this social reward side of retail
therapy does not exist to the same extent in online shopping.
9.11 SUMMARY
In short, the Internet World Wide Web is changing the way in which consumers
and businesses communicate. The original obstacles facing early users of the
Internet was how to find rapidly the information being sought. The solution to this
problem was the creation of portals such Yahoo ! (www.yahoo.com), and Alta
Vista (www.altavista.com), which provide search engines that locate those
websites containing the information sought by the user. Initial projections on the
on the scale of Internet usage and e-commerce have proved wildly optimistic. The
past two years have seen a significant downturn in the technology sector and
many high-profile Internet start-ups such as Boo.com, CDNow.com, eToys.com,
First.com, Peapod.com, Pets.com and Pop.com have gone out of business.
Mainstream companies have significantly reduced their investments in the
Internet. Nevertheless, Internet usage is growing steadily and will continue to
create new market openings as well as new ways of conducting marketing
activity.
9.12 Key words
Vendor: a seller
Penetration: make a way into or through
9.13 SELF-TEST QUESTIONS
1. What do you mean by e-commerce ? Why it is important in present
scenario ?
2. How can you develop a plan for e-commerce ?
3. What are the perspectives of electronic commerce in the competitive
environment ?
4. Discuss the problem e-commerce and key factors for success of it.
9.14 SUGGESTED READINGS
1. Shapario, C. and H.R. Varian (1999), Information Rules, Harvard, MA:
Harvard business School Press.
2. Hornell, e. (1992), Improving Productivity for Competitive Advantage:
Lessons from the Best in the World, London: Pitman.
3. Seybold, P.B. and R.T. marshak (1998), Customer.com: How to Create a
Profitable Business Strategy for the Internet and Beyond, New York:
Random House.
4. Berkowitz, E.N., R.A. Kerin, S.W. Hartly and W. Rudelius (2000),
Marketing Boston, MA: Irwin McGraw-Hill.
STRUCTURE:
10.1 Objective
10.2 Introduction
10.3 Rural Marketing
10.4 Features of Rural Consumers
10.5 Factors affecting Rural Marketing
10.6 Potential of Rural Marketing in India
10.7 Steps to tapping the Rural Markets
10.8 Summary
10.9 Key words
10.10 Self-Test Questions
10.11 Suggested Readings
10.1 OBJECTIVE: The present chapter aims to detail the scope and challenges of rural
marketing in India.
10.2 INTRODUCTION
The Indian rural market, with its vast size and demand base, offers great opportunities to
marketers. Nearly three-fourths of the country's consumers are in the rural market and
one half of the national income is generated there. The rural market started showing its
potential in the 1960s and the 1970s. The 1980s and the 1990s witnessed its steady
development. The first decade of the new millennium is set to see its blossom. In
COURSE: BASIC PRINCIPLES OF MARKETING AND MANAGEMENT
Course Code: 05 Author: Surinder Singh Kundu
Lesson: 10 Vetter: Dr. B. S. Bodla
RURAL MARKETING IN INDIA
numerical terms, India's rural market is indeed a large one; it consists of more than 740
million consumers. Though over the last three decades there has been a marginal
reduction in the rural population expressed as a percentage of the total population, there
has been a steady growth in rural population in terms of absolute numbers. And, it had
reached 74 crore by 2001. In terms of households, the rural market consists of more than
12 crore households, forming over 70 per cent of the total households in the country.
10.3 RURAL MARKETING
Rural demand has grown steadily over the years. Not only has the market grown in
quantitative terms, but qualitatively too it has undergone a significant change. The
composition of rural demand has also been changing significantly. The products that are
already well established in the rural market include: Textiles, bath soaps, washing soaps,
washing powder, detergents, and detergent cakes, medicines and hygiene products,
toothpowder/toothpaste, razor blades, packaged tea, other beverages, including alcoholic
beverages, tobacco and tobacco products, agricultural inputs like fertilizers, pesticides,
cooking utensils, pressure cooker, ornaments and jewellery, agricultural capital goods
such as tractors, trailers, harvesters, pump sets, pipes and pipe fittings, bicycles, scooters
and motorcycles, wristwatch radio/transistor/tape recorder, fans and TVs (B&W).
Many new products have entered the consumption basket of the rural consumer; and the
relative shares of the different categories of products in the consumption basket have also
recorded a good change. The upper segments, in particular, have started buying and using
a variety of modern consumer products, which were till recently unknown in the rural
market.
Marketers cannot now go by the perception of yesteryears and assume that rural India
consumes only certain traditional. Essential products and that its share in other product
categories is meager. Rural India now accounts for a sizeable share of the total
consumption for a variety of consumer goods, such as packaged tea, washing products,
including detergents, toiletries of various kinds, popular as well as premium bath soaps,
toothpaste, tooth powder, safety razor blades, shaving rounds, talcum powder, hair oil,
OTC products, and durables like electric irons, bicycles, scooters and motorcycles.
It is perhaps well known that products like packaged tea, bath soaps and washing prod-
ucts, including detergents/detergent cakes, are popular items of consumption in rural
market. What is not known perhaps is that products like shampoo, toothpaste and talcum
powder, and durables like electric irons, bicycles, mopeds, scooters, and motorcycles
have joined this category in recent years. The rural demand for electric irons, mopeds,
and motorcycles are now between 30 and 50 per cent of the all-India demand.
Interestingly, in many products, rural consumption now accounts for a larger share than
urban. Washing soaps (cakes bars); the rural share is over 60 per cent. Popular bath
soaps, it is more than 50 per cent and in batteries, it is more than 56 per cent. Similar is
the case with packaged tea and hair oils.
It is observe red that more than the land-owning class, those engaged in services
(government staff, teachers and self-employed service providers including shopkeepers)
are the major buyers of the high-priced durables in the rural market. The shopkeepers and
service people together account for 45, 55 and 60 per cent of the market for television,
two wheelers and refrigerators respectively, though they account for just 21 percent of the
rural households. Between the two groups, the service class seems to have far greater
potential for high-priced durables than the shopkeepers. The service class comprises just
13 percent of the rural households but owns 30 to 40 per cent of these durables. Within
the service class, those who work outside the villages but live in the villages seem to be a
far more fertile consumption group. Owner farmers continue to be a significant consumer
group. They comprise one-third of rural households (their estimated number being 43
million households), and own one-third of the stock of these durables.
10.4 FEATURES OF RURAL CONSUMERS
The features found in the rural consumers are discussed below:
Location pattern: Practically, the whole of India, barring the metros and towns,
constitutes the Indian rural market. In other words, the market is spread through
the length and breadth of the vast country.
A scattered market: It is thus evident that the rural market of India is a
geographically scattered market. Whereas the urban population of India is
concentrated in 3,200 cities and towns, the rural population is scattered across
570,000 villages. And, of them, only 6,300 villages, or less than 1.1 per cent, have
a population of more than 5,000 each. More than 3 lakh villages, or more than 55
per cent of the total number of villages, are in the category of 500 people or less
and more than 1.5 lakh villages, or 25 per cent, are in the category of 200 people
or less. The inference is clear; unlike urban demand, which is highly concentrated,
rural demand is scattered over a large area.
Socio-economic position: By and large, rural consumers continue to be marked
by low purchasing power/low per capita income. Similarly, they continue to be a
tradition-bound community, with religion, culture and tradition strongly
influencing their consumption habits. However, as we shall see in detail in this
chapter, a sizeable segment of rural consumers defy this description.
Nearly 60 per cent of rural income comes from agriculture. Rural prosperity and
discretionary income with rural consumers are thus linked to sizeable extent with
agricultural prosperity. More than half the households are in the income category
of less than Rs 25,000 per annum, but about 14 per cent of the households have an
annual income that exceeds Rs 50,000 per annum. Remittances from Indians
working outside have made a sizeable contribution to the growing rural
income/purchasing power in some states. Analysis reveals that, in recent years,
rural consumers have been increasingly drawn into the savings habit. Nearly, 70
percent of rural households now save a part of their income. The habit is
relatively more widespread among salary earners like government staff, teachers,
and self-employed non-farmers, who include in the main, shopkeepers and service
providers.
Culturally a Diverse and Heterogeneous Market: The rural market is not only
a scattered market, but is also diverse and heterogeneous. Rural consumers are
diverse in terms of religious, social, cultural and linguistic factors. The diversity is
manifest in a more intense manner among the rural segments. It can be said that
heterogeneity is the No. I hallmark of the rural market- 5, 70,000 villages, half a
dozen religions, 33 languages, 1,650 dialects and diverse sub-cultures characterize
the market.
State-to-State Variation in Extent of Development: There is also a great deal of
difference between different states in extent of development. It varies on various
parameters, such as availability of health and education facilities, availability of
public transport, electricity. TV transmission, banks, post offices, water supply
and so on. A weight was decided upon for each facility based on the relative
importance of that facility in indicating the extent of development of the village.
While the average village in India has 33 development index points, villages in
Kerala had an average of 88 points while those in Bihar had just 22; Mp,
Rajasthan and UP were close to Bihar; and states like Maharastra, Haryana,
Karnataka had points ranging between 40 and 50.
Literacy Level: It has been estimated that rural India has a literacy rate of 28
percent compared with 55 per cent for the whole country. The rate is certainly on
the low side. However, such statistics do not reveal the whole picture. A number
of aspects as shown below need to be emphasized specifically with regard to rural
literacy. The picture has been changing over the years. For example, a decade
ago, the literacy rate in rural India was only 20 per cent. Year-to-year too, there is
a change. Every year about eight million people get added to rural India's literate
population. The adult literacy programmes launched in the rural areas are bound
to enhance the rural literacy rate in the years to come. In absolute numbers,
already there are more literate people in rural India (16.5 crore) than in urban
India (16 crore). The picture also differs from state to state and even from district
to district.
Lifestyle: By and large, the rural consumers are marked by a conservative and
tradition-bound lifestyle. But, what is striking today about this matter is not the
basic conservative characteristic, but the fact that the lifestyle is undergoing a
significant change. The lifestyle of a sizeable segment of rural consumers has
already changed significantly in recent years, and that of a much larger segment is
currently going through the process of change. As such, the earlier practice of
bracketing all rural consumers as people with a tradition-bound lifestyle does not
hold good in the new context.
Buying Behavior: To understand the buying behavior of rural consumers, we
must go to the factors that influence their buying behavior. The factors include:
Socio-economic environment of the consumer, cultural environment, geographic
location, education/literacy level, occupation, exposure to urban lifestyles,
exposure to media and enlarged media reach, the points of purchase of products,
the way the consumer uses the products, involvement of others in the purchase,
and marketers' efforts to reach out the rural market. In recent years, many
corporate have been trying hard to develop a market for their products in the rural
areas, investing substantially in these areas. This has brought about some change
in the way buyers purchase different products. Developmental marketing has
created discriminating buyers and hitherto unknown demand in the rural market.
All the above factors influence the buying behavior of rural consumers and hence
their responses to the marketing mix variables, and the reference points they use
for purchase decisions.
No Stereotype Rural Consumer: The interesting position that finally emerges
about the profile of the rural consumer is that one cannot proceed on the basis of a
stereotype of the rural consumer or of rural consumer behavior. This signals
problems as well as opportunities for the marketer. When we use the broad brush,
we may be tempted to say that low purchasing power/low per capita income and
low literacy level, are the common traits of rural consumers. Similarly, we may
also say that the rural consumers are a tradition-bound community, with religion,
culture, and tradition strongly influencing their consumption habits. None of this,
however, constitutes the representative picture of rural consumers as a whole. A
sizeable segment of rural consumers defy this description. We have to recognize
that all rural consumers do not share a common buying behavior. There are
consumers who can afford high-priced brands and are also willing to buy. There is
thus great scope and need for segmenting the rural market on the basis of buying
behavior.
10.5 FACTORS AFFECTING RURAL MARKETING
While a variety of factors in this concern have brought about the big growth in the rural
demand, a few of them are discussed as follows:
New income due to agricultural/rural development: The technological
breakthrough, popularly known as the green revolution, which took place in Indian
agriculture from the mid-1970s onwards, has added to the prosperity of rural India
considerably. Moreover, in recent years, as part of the new farm policy, high
support prices are offered for farm products. As a result, there is now more money
in the hands of the owner-farmers in the rural areas. There have also been some
concerted efforts towards rural development in general, besides agriculture
development. This has generated new employment and new income and purchasing
power among the rural people. The rural population can no longer be labeled en
masse as a poverty-stricken lot.
The expectation revolution: The expectation revolution among the rural
folks completes the picture. The 'rising expectations' of the rural people have
greatly influenced the rural, market environment. It has enlarged the desire as well
as awareness of the rural people; it has strengthened their motivation to work, earn
and consume. The rise in income provides substance to the aspirations.
Season: Rural demand is more seasonal compared to urban demand. The
pre-dominance of agriculture in the income pattern is one main reason for this. The
relatively greater influence of marriages and festivals on the purchase pattern is
another. Interestingly, marriages and festivals often coincide with the harvest.
Besides being seasonal, rural demand is somewhat irregular as well. The pre-
dominance of agriculture in the income pattern is again the main reason for this.
Agriculture in many parts of India still depends on the vagaries of the monsoons. A
variety of factors have rendered the rural market quite attractive to corporate in
recent years.
10.6 POTENTIAL OF RURAL MARKETING IN INDIA
The following factors are favoring the attraction towards rural market in India.
1. The Growing Opportunity: The growing opportunity in the rural market is no
doubt the prime factor. In the preceding section, we saw that rural demand has
been growing rapidly and its composition has been changing for the better in
recent years. The increased income/purchasing power of the rural consumer and
the improved income distribution have enhanced rural demand for several
products. Better access too many modern products brands have added to this
growth.
2. Heat of Competition in the Urban Market: The opportunity in the rural market
becomes all the more rosier when the corporate see it in combination with the
growing competition in the urban markets. The heat of competition in the urban
market actually serves as the stronger driver behind the growing interest of
corporate in the rural market. The fact that the rural market is still largely an
untapped and virgin market and the fact that the early entrants can tap it without
having to face intense competition as in the case of the urban market, makes the
rural market all the more attractive to them. Corporate have been finding the
going increasingly tough in the urban market, especially for products in respect of
which penetration levels are already high. For example, penetration level for
toothpaste in the urban market has now reached close to 80 per cent. In contrast, it
is below 30 per cent in the rural market. Obviously, any substantial further growth
in the product can come only from the rural market. Moreover, in the urban
market, many consumers have been using particular toothpaste for quite some
time and have settled down to the brand, its flavor and other characteristics. They
cannot be expected to switch their brands very easily. In contrast, in rural areas,
there are a lot of first-time users of toothpaste whom the companies can tap from
the scratch. Toothpaste is but one example. Corporate find that the highly
penetrated urban markets 'allow little room for volume growths for most of what
are called 'necessity products' (toothpaste, bath soap, washing products, tea, etc.).
Growth opportunity for many of the 'emerging products' (coffee, 'shampoo,
biscuits, talcum powder, etc.) too is rather low in the urban market. The rural
market thus becomes essential for companies with strong growth aspirations. Not
competing in the rural market will keep them out of about half of the country's
market for 'necessity' products and one-third of the market for 'emerging' products
by value.
10.7 STEPS FOR TAPPING THE RURAL MARKETS
While rural India does constitute an attractive and sizeable market, firms have to
strive hard for securing a share of it. For, the market bristles with a variety of
problems. The firm has to grapple with them and find innovative solutions.
Practically in every task of marketing, rural marketing poses some unique
problems. The major steps that need to be followed in rural marketing are:
10.7.1 SEGMENTATION AND TARGETING
Firms have to analyze the consumers in-depth, carry out thorough market
segmentation and select relevant segments as target markets. And, they have
to develop a distinctive positioning and a distinctive marketing mix for each
target segment.
Geographic segmentation: In the first place, the rural market can
be segmented geographically, using different geographic bases.
Climate and level of irrigation: For example, climate can be one
of them; regions endowed with favourable climate are usually more
prosperous compared with climatically handicapped regions. Level of
irrigation can be another base; irrigated areas and dry land areas pose
different economic and marketing environments.
Nearness to a feeder town/industrial project: Firms can also
segment the rural market using 'nearness to a feeder town/industrial
project' as the base. Consumers located close to a feeder town visit it at
least once a month to sell their product and/or to buy their requirements,
and in buying habits, they differ from those living in the interior areas. It
will thus be meaningful to segment the rural market into consumers
located closer to a feeder town and consumers located away from them.
Similarly, nearness to an industrial project centre can also be used as the
base for segmentation. Many rural parts are studded with industrial
projects. There is a cross flow of population between these project centers
and the rural hinterlands, and the centers act as conduits for the flow of
products and ideas. As such, the proximity to such centers can be used as a
base for segmenting the market. It must be noted that in essence these are
cases of buying behavior-based segmentation, though a geographical base
is used for the segmentation. The point is that the difference in buying
behavior arises out of the geographical reality.
Demographic segmentation: The rural market can be segmented
demographically too. In fact, there are many possibilities of segmenting
the rural market demographically.
Population concentration: Population spread or population
concentration can be one base. About 40 per cent of the rural population
lives in 7 per cent of the villages in the country and remaining 60 per cent
in the other 93 per cent of the villages. Thus, the market can be segmented
on the basis of different size classes with regard to population.
Age: Segmentation using age as the base has also good scope in
rural marketing. In particular, the youth in the rural areas can be picked up
as a separate market. There is a population of more than 20 cores in the
age group of 16-30 years in the rural market. Surveys have revealed that
the younger generation dominates purchases in the rural market. This is
due partly to their greater literacy and exposure, and partly to their
changing values and lifestyles. We have also seen earlier that rural youth
differ from their elders in their buying behavior and that they are closer to
their urban cousins as far as aspirations go. It will thus be meaningful to
segment the rural youth as a separate market.
Literacy level: Literacy level can be another demographic base for
segmenting the rural market. Though rural India, in general, is
characterized by low literacy, there are wide variations in the matter of
literacy within rural India. For example, while the rural literacy rate in
Kerala is 80 per cent that in Bihar is only 15 per cent.
Income: Income too can be a base. The rural consumers can be
segmented into different income classes. It will be incorrect to paint the
whole area with the same brush and call it a market with 'low purchasing
power'. The rural consumers can also be segmented into regular income
and seasonal income segments. Earlier, we talked about the seasonal
nature of rural income and demand. All rural consumers are not
characterized by seasonality of income. There is a sizeable salaried class
in the rural area. There is also a sizeable self-employed group, consisting
of shopkeepers and service providers. There is nothing seasonal about the
income of such people. Obviously, those with regular income will differ in
buying habits compared with those whose income is seasonal.
Buying behavior segmentation: Earlier, we saw that rural
consumers differ in their buying behavior from their urban counterparts as
well as among themselves. This fact too could be factored into the
segmentation exercise. Firms should, however, generate relevant data on
the rural consumers and their buying behavior, perceptions and attitudes,
and then segment them using their buying behavior as the base.
Sources of data on rural consumers: Luckily, India has a rich
source of data on rural consumers in the form of census data. Reports of
the Centre for Monitoring Indian Economy (CMIE) also form a useful
source. As these are not usually in a user-friendly format, firms have to
discern the needed insights from them and use them as the base for
segmentation.
10.7.2 PRODUCT STRATEGY FOR RURAL MARKET
The first decision to be made in product strategy in the rural context is
whether the product that is sold in the urban market can be supplied to the
rural market as it is, or whether it must be adapted. It depends on the
situation and the nature of the product. In many cases, some adaptation
will be advantageous. Basically, the firm must find out what kind of
product is actually required by the rural consumer and then decide if it
should make an altogether distinct product or adapt the existing product.
Economic and income realities of the market should certainly be
considered while developing the product strategy for the rural market. In
addition, socio-cultural realities should also be considered. When products
are designed reflecting both these influences, the chance of success is
greater. Lower-priced product versions do help in many cases in the rural
market, but no generalization can be made in this regard. Many companies
try to reduce the prices of their products for the rural market by creating
smaller size, or by decreasing the quality. The approach works sometimes
and with some products, but not all times, with all products.
Different Products/Models, Brands, Packing, Pricing and
Positioning: By and large, the rural market can be tapped better
through different products/models, different brands, different
packaging and different positioning.
Designed Products: Specifically designed products do help in
many cases, e.g. tractor/trailer. It is a product specifically designed for
the rural market. It is designed as a replacement for the plough as well
as a vehicle for transporting both men and material in the rural areas.
Models: Models developed specifically for the rural market have
found more takers in the market. For instance, motorcycles that are
designed to take on the rigours of rural roads have succeeded more in
the rural market.
Colors: The rural consumers differ from their urban cousins in
color preference. In the case of some products, color may matter very
much. Firms can exploit this fact to their advantage. For example, in
the paint business, Asian Paints understood the substantial difference
between the urban and rural buyer in color preference. AP introduced
paints with bright colors for the rural markets. AP also communicated
the feature well through its communication campaigns.
Package Design and Packing Size: In some cases, the product
can be the same, but the package and pack size may have to be
different for the rural target group. Package design and color help
identification of brands by rural buyers. Many rural consumers are not
quite conversant with the various brands. All the same, they manage to
pick the brands that they want. They recognize the brand by its
packaging. This is the reason why a number of local brands in rural
areas imitate the packaging of big national brands.
Logos, Symbols and Mnemonics: Image is far more potent in the
rural market, which in many cases is an uninitiated market. Symbols,
therefore, add value to brand recall and brand personality in the rural
market, e.g. Asian Paints' Gattu, though equally well known in urban
and rural markets, has greater effectiveness as an identity tool in the
rural markets. Actually, in many rural parts of India, Asian Paints is
referred to as the bachchawala or chokrawala company. Similarly, the
Nirma girl in frock on the packs of Nirma washing powder has become
the mnemonic for effective and good value in washing powders.
Branding Decisions: The rural consumers have already graduated
from generic products to branded products. Today, the brand name is
the surest means of conveying quality to rural consumers. To them,
buying an established and well spoken of brand is the sure way of
reducing risk. Therefore, the branded products must be provided to
them. However, it will, be incorrect to assume that rural consumers
prefer local brands to national brands.
Value Brands, Not Cheap: While brands specifically developed
for the rural market and low-priced variants may work better in many
cases, the strategy should be one of selling value brands not cheap
brands. HLL's Lifebuoy, for example, is a low-priced carbolic soap
that is often the first choice of bath soap by a rural consumer. HLL,
however, does not sell it as a cheap soap. Instead, sells it as a hygiene
brand. It communicates the value of the brand to the target market. It
also tries to enhance the value of the offer by giving suitable 'add-ons'.
For example, while targeting rural students for the soap it distributed
height charts along with the soap and conveyed its concern for their
health and well being. Rural marketers would do well to add some
value to their products in this fashion if they are keen to secure the
loyalty of the consumers.
10.7.3 PHYSICAL DISTRIBUTION
There are so many problems, which marketers have to face in physical
distribution in the rural context.
Transportation and Warehousing: It is well known that
transportation infrastructure is quite poor in rural India. Though the
country has the fourth largest railway system in the world, many parts
of rural India remain outside the rail network. As far as road transport
concerned, proper roads do still not connect nearly 50 per cent of the
570,000-odd villages in the country. Many areas still have only kacha
roads and most of the interiors have hardly any roads worth
mentioning. As far as transport carriers concerned, the most common
ones are the delivery vans and the animal drawn carts. Because of the
difficulty in accessibility, delivery of products and services continues
to be difficult in rural areas. In warehousing too, there are special
problems in the rural context. Business firms find it quite difficult to
get suitable godowns in many parts of rural India.
Cost of Service: The constraints affect adversely the service as
well as the cost aspect in distribution. Maintaining the required service
level in delivery of products becomes very difficult. At the same time,
costs of distribution are shooting up. The scattered nature of the
market and its distance from the urban-based production points
compound the difficulty.
The Delivery Van: The delivery van has a key role in rural
distribution. The companies concerned or their C&F
agents/stockiest/distributors operate these vans. In some cases,
independent third parties operate them as a service for a fee.
Companies like Hindustan Lever and lTC, who are pioneers in rural
marketing in India, have a task force of company delivery vans for
rural distribution. The van takes the products to the retail shops in
every corner of the rural market. Besides facilitating product delivery,
the van serves certain other vital purposes. It enables the firm to
establish direct contact with rural dealers and consumers. It also helps
the firm in promotion. But, the cost of operating such vans is quite
high. And the proposition can work only if the area assures substantial
business. Through the van, they were not only solving the
transportation problem of the rural market, but were also developing
the market for their products.
10.7.4 CHANNEL MANAGEMENT IN RURAL MARKETING
Organizing marketing channels is the second part of the distribution task.
It also faces problems in the rural context.
Organizing Marketing Channels: The distribution chain in the
rural context usually requires more tiers, compared with the urban
distribution chain. The distance between the production points and the
rural market, and the scattered location of the consumers make it
necessary. At the minimum, the distribution chain in the rural context
needs three tiers, viz., the village shopkeeper, the mundi-level
distributor, and the wholesaler/stockiest/C&F agent in the town. In
addition, it involves the manufacturers' branch office operations in the
territory. Such multiple tiers and scattered outfit push up the costs and
makes channel management a major problem area.
Non-availability of dealers: Firms find that availability of dealers
is limited and the scope for appointing fresh/exclusive dealers of the
company is equally limited in view of the low demand and non-
availability of suitable candidates.
Low feasibility of the outlets: A good number of retail outlets in
the rural market suffer from low feasibility. A familiar paradox in rural
distribution is that on the one hand the manufacturer incurs additional
expenses on distribution and on the other, the retail outlets find that the
business is un-remunerative to them. The additional funds the
manufacturer pumps into the system are used by the scattered nature of
the market and the multiplicity of tiers in the distribution chain. They
usually do not result in any additional remuneration to any part of the
chain. And, the volume is not adequate to assure the profitability of all.
Banking and credit facilities: Distribution in rural markets is also
handicapped due to the lack of adequate banking and credit facilities.
It is estimated that there is only one bank branch for every 50 villages.
10.7.5 SALES FORCE MANAGEMENT
Generally, rural marketing involves more intensive personal selling effort
compared to urban marketing. The following steps can be taken for
successful management of sales force.
Special Traits of Salesmen: First of all, only those who feel
happy in living and working in the villages can become good rural
salesmen. It is common knowledge that the rural areas lack modem
amenities compared with the urban areas. Because of this factor, well-
qualified salesmen are often reluctant to live in rural areas. Firms
locate their salesmen in towns and allow them to cover the rural areas
assigned to them from there. Such an arrangement does not produce
optimum results. Successful rural marketing firms locate their sales-
men right in the midst of the rural market to be covered.
Cultural congruence: The salesmen must be well acquainted with
the cultural aspects of rural life. Since the cultural patterns of rural
communities differ from one another, a background that gels with the
culture of the given community is to be preferred. Urban markets, in
contrast, present a cultural convergence.
Attitude: Attitude factors are of particular significance in the rural
context. For example, the rural salesmen must have a great deal of
patience, as their customer is a traditional and cautious person.
Perseverance is another essential trait. It will not be possible for the
rural salesman to clinch the sale quickly. He may have to spend a lot
of time with the customer and make several visits to him to gain a
favorable response.
Knowledge of local language: Rural salesman should also be
conversant with the local language. Whereas his urban counterpart can
successfully manage with English and a working knowledge of the
local language, the rural salesman should be quite familiar with the
local language. In fact, he must be well versed in the lingo and idiom
of the local area/community.
Ability to handle several product lines: Often rural salesmen are
required to handle several product lines. While urban salesman can
generate an economic size business through a few product lines, rural
salesmen are compelled to handle a large variety of products, as they
do not generate economic volume of business with a few products.
Quite often, the items differ widely from one another. Rural salesmen
are thus required to be a 'jack of all trades'. They are also required to
travel more compared with their urban counterparts. Whereas urban
salesmen operate in highly concentrated and compact markets, rural
salesmen have to cover large territories and scattered customers. His
workload, therefore, is generally more.
Creativity: Rural selling also involves greater creativity. Often,
the products concerned may be very new in the rural context. The rural
salesmen have to mal