INTRODUCTION TO MARKETING MANAGEMENT

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Chapter 1:
Defining Marketing for the Twenty-First Century
This chapter focuses on following issues of marketing:

1. The definition of marketing, marketing process, marketing task and scope of

marketing
2. Core marketing concept
3. Demand Management in marketing
4. Company orientation toward the marketplace: Marketing Management philosophies

I. Defining Marketing

Marketing, more than any other business activities deals with customers. Although there are a
number of detailed definitions of marketing perhaps the simplest definition of marketing is
managing profitable customer relationship.
We can distinguish between a social and a managerial definition for marketing. According to a
social definition, marketing is a societal process by which individuals and groups obtain what
they need and want through creating, offering, and exchanging products and services of value
freely with others. As a managerial definition, marketing has often been described as “the art of
selling products.” But Peter Drucker, a leading management theorist, says that “the aim of
marketing is to make selling superfluous. The aim of marketing is to know and understand the
customer so well that the product or service fits him and sells itself.

Marketing is the management process that identifies, anticipates and satisfies customer
requirements profitably - The Chartered Institute of Marketing (CIM).

The American Marketing Association (offers this managerial definition):Marketing

(management) is the process of planning and executing the conception, pricing, promotion, and
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distribution of ideas, goods, and services to create exchanges that satisfy individual and
organizational goals.
It is a total system of business activities designed to plan, price, promote and place want satisfying
products to target markets in order to achieve organizational objectives. -Etzel, Walker, Stanton,
Pandit
Marketing is the social process by which individuals and organizations obtain what they need and
want through creating and exchanging value with others. - Kotler and Armstrong (2010).

Marketing is the management process for identifying, anticipating and satisfying customer
requirements profitably-The Chartered Institute of Marketing (CIM).

Marketing is the activity, set of institutions, and processes for creating, communicating, delivering,
and exchanging offerings that have value for customers, clients, partners, and society at large.-
American Marketing Association
Philip Kotler:
Marketing Management is the process of choosing target markets and getting, keeping and
growing customers through creating, delivering and communicating superior customer value and
satisfaction.

II. Difference between Selling and Marketing

The old sense of making a sale is telling and selling, but in new sense it is satisfying customer
needs. Selling occurs only after a product is produced. By contrast, marketing starts long before a
company has a product. Marketing is the homework that managers undertake to assess needs,
measure their extent and intensity, and determine whether a profitable opportunity exists.
Marketing continues throughout the product’s life, trying to find new customers and keep current
customers by improving product appeal and performance, learning from product sales results, and
managing repeat performance. Thus selling and advertising are only part of a larger marketing
mix-a set of marketing tools that work together to affect the marketplace.

III. Process of Marketing:

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The marketing process involves five steps: The first four steps create value for customers and build
strong customer relationships in order to capture value from customers in return. At the primary
stage, marketers must assess and understand the marketplace and customers needs and demands.
Next, marketers design a customer driven marketing strategy with the goal of getting, keeping and
growing target customers. This stage includes market segmentation, targeting and position. The
third step involves designing a marketing program that actually delivers the superior value. This
step includes designing products and services, pricing the product, distribution and finally
promoting the product. . The first three steps provide the basis for the fourth step that is building
profitable customer relationships and creating customer satisfaction. And finally, the company
reaps the reward of strong customer relationship and satisfaction by capturing value from
customers.

Value creation for customers

Understand the Design a Construct a Build

market place customer-driven marketing profitable Capture Value
and customer marketing program that relationships from customers
needs and strategy delivers and create in return
wants superior value customer
delight

Figure 1: Marketing Process

IV. MARKETING TASKS

According to market experts John Evans & Berry Bergmen- there are nine functions of marketing.
These are:

1. Customer analysis
2. Buying supplies
3. Selling products and services
4. Product and service planning
5. Pricing
6. Distribution

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 7. Marketing research
8. Opportunity analysis
9. Social responsibility.

V. Scope of marketing: (What can be Marketed)

Now a day, marketing offers are not confined into products and services. The scope of
marketing is now becoming larger. Marketing people are involved in marketing several
types of entities:

Goods: Physical goods constitute the bulk of most countries’ production and marketing effort.
Most of the country produces and markets various types of physical goods, from eggs to steel to
hair dryers. In developing nations, goods— particularly food, commodities, clothing, and housing
—are the mainstay of the economy.
Services: As economies advance, a growing proportion of their activities are focused on the
production of services. The U.S. economy today consists of a 70–30 services-to-goods mix.
Services include airlines, hotels, and maintenance and repair people, as well as professionals such
as accountants, lawyers, engineers, and doctors. Many market offerings consist of a variable mix
of goods and services.
Experiences: By orchestrate several services and goods, one can create, stage, and market
experiences. Walt Disney World’s Magic Kingdom is an experience.
Event: Marketers promote time-based events, such as the Olympics, trade shows, sports events,
and artistic performances.
Persons: Celebrity marketing has become a major business. Artists, musicians, CEOs, physicians,
high profile lawyers and financiers, and other professionals draw help from celebrity marketers.
Place: Cities, states, regions, and nations compete to attract tourists, factories, company
headquarters, and new residents. Place marketers include economic development specialists, real
estate agents, commercial banks, local business associations, and advertising and public relations
agencies.
Properties: Properties are intangible rights of ownership of either real property (real estate) or
financial property (stocks and bonds). Properties are bought and sold, and this occasions a
marketing effort by real estate agents (for real estate) and investment companies and banks (for
securities).
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Organizations: Organizations actively work to build a strong, favorable image in the mind of their
publics. Philips, the Dutch electronics company, advertises with the tag line, “Let’s Make Things
Better.” The Body Shop and Ben & Jerry’s also gain attention by promoting social causes.
Universities, museums, and performing arts organizations boost their public images to compete
more successfully for audiences and funds.
Information: The production, packaging, and distribution of information is one of society’s major
industries. Among the marketers of information are schools and universities; publishers of
encyclopedias, nonfiction books, and specialized magazines; makers of CDs; and Internet Web
sites.
Ideas: Every market offering has a basic idea at its core. In essence, products and services are
platforms for delivering some idea or benefit to satisfy a core need.

VI. Core Concepts of marketing:

1. Needs, Wants and Demands: The successful marketer will try to understand the target
market’s needs, wants, and demands.

Needs: The most basic concept of marketing is the human needs. Human needs are states of felt
deprivation. Human needs can be physical needs (Hunger, thirst, shelter etc) social needs
(belongingness and affection) and individual needs (knowledge and self-expression).
There are five types of needs. These are-
 Stated need (Minimum price)
 Real need (Psychological price)
 Unstated need (Service for post purchase)
 Delighted need (Supplementary-Gift)
 Secret need (Show up, gesture).

Wants: It is the form of human needs shaped by culture and individual personality. Needs become
wants when they are directed to specific objects that might satisfy the need. For example, An
American needs food but wants hamburger, French fries and soft drink but a British wants fish,
chicken, chips and soft drinks. So, it differs.

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Demands: Wants become demand when backed by purchasing power. Consumers view products
as bundles of benefits and choose product that add up to the most satisfaction. Demand comprises
of three steps first, desire to acquire something, second, willingness to pay for it, and third, ability
to pay for it. Many people want a Mercedes; only a few are able and willing to buy one.
Companies must measure not only how many people want their product, but also how many would
actually be willing and able to buy it. However, marketers do not create needs; Needs preexist
marketers. Marketers, along with other societal influences, influence wants. Marketers might
promote the idea that a Mercedes would satisfy a person’s need for social status. They do not,
however, create the need for social status.

2. Product or Offering and Value Proposition

People satisfy their needs and wants with products. A product is any offering that can satisfy a
need or want, such as one of the 10 basic offerings of goods, services, experiences, events,
persons, places, properties, organizations, information, and ideas.
By an offering customer get the value proposition to use or consume the deliver product or
services. So Value proposition is the set of benefits or values it promises to deliver to customers
to satisfy their needs. It is actually the answer of customer’s question: ‘Why should I buy your
product?’

3. Value and satisfaction:

Value can be defined as a ratio between what the customers get and what they give in return. The
customers gets benefit and assumes costs. Value = Benefits / Costs. Marketers’ concern should be
to raise the value in the minds of the customers. When value of the products or services is high,
customers are willing to pay more for the products. Thus;

Functional Benefit+ Emotional Benefit

Value =
Monetary costs +Time costs + Energy costs +Psychic costs

Customer satisfaction is the extent to which a product’s perceived performance matches a

buyer’s expectation. If performance matches expectation level, the customer becomes satisfied but

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if the product’s performance falls short of expectations, the customer will be dissatisfied. If
performance exceeds expectation, the customer will be highly satisfied or delighted.

4. Exchanges and Transactions:

Exchange: Marketing occurs when people decide to satisfy needs and wants through exchange.
Exchange is defined as the act of obtaining a desired object from someone by offering something
in return. For exchange potential to exist, 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 exchange offer
 Each party believes it is appropriate or desirable to deal with the other party.

Transaction: If exchange is the core concept of marketing, transaction is the marketing’s unit of
measurement. Two parties are engaged in exchange if they are negotiating- trying to arrive at
mutually agreeable terms. When an agreement is reached, we say the transaction takes place. Thus,
a transaction is a trade of values between two or more parties. When the exchange is made, it
results into transaction. A transaction involves several dimensions:
 at least two things of value
 agreed-upon conditions
 a time of agreement and
 a place of agreement.

5. Relationships and Networks

Transaction marketing is part of a larger idea called relationship marketing. Relationship

marketing aims to build long-term mutually satisfying relations with key parties —customers,
suppliers, distributors—in order to earn and retain their long-term preference and business.
Effective marketers accomplish this by promising and delivering high-quality products and
services at fair prices to the other parties over time.

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Relationship marketing builds strong economic, technical, and social ties among the parties. It 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 its supporting stakeholders (customers, employees, suppliers, distributors, university
scientists, and others) with whom it has built mutually profitable business relationships.

6. Market:

From the view point of modern marketing, market doesn’t stand for a place where buyers and
sellers gathered to buy or sell goods. A market is the set of actual and potential buyers. More
specifically, a market is an arrangement of all customers who have needs that may be fulfilled by
an organization’s offerings. The size of a market depends of the number of people who exhibit the
need, have resources to engage in exchange and are willing to offer these resources in exchange
for what they want. The key customer markets can be: Consumer market, Business Market, Global
Market and Non-profit and Government market.

Now marketers view the sellers as the industry and the buyers as the market. The sellers send
goods and services and communications (ads, direct mail, e-mail messages) to the market; in return
they receive money and information (attitudes, sales data). The inner loop in the diagram in Figure
1-1 shows an exchange of money for goods and services; the outer loop shows an exchange of
information.

Figure 2: Modern Market System

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Today we can distinguish between a marketplace, a marketspace and metamarket. The
marketplace is physical, as when one goes shopping in a store; marketspace is digital, as when
one goes shopping on the Internet. E commerce—business transactions conducted on-line—has
many advantages for both consumers and businesses, including convenience, savings, selection,
personalization, and information. For example, on-line shopping is so convenient that 30 percent
of the orders generated by the Web site of REI, a recreational equipment retailer, is logged from 10
P.M. to 7 A.M., sparing REI the expense of keeping its stores open late or hiring customer service
representatives. However, the e-commerce marketspace is also bringing pressure from consumers
for lower prices and is threatening intermediaries such as travel agents, stockbrokers, insurance
agents, and traditional retailers.
The metamarket concept describes a cluster of complementary products and services that are
closely related in the minds of consumers but are spread across a diverse set of industries. The
automobile metamarket consists of automobile manufacturers, new and used car dealers, financing
companies, insurance companies, mechanics, spare parts dealers, service shops, auto magazines,
classified auto ads in newspapers, and auto sites on the Internet. Car buyers can get involved in
many parts of this metamarket. This has created an opportunity for metamediaries to assist buyers
to move seamlessly through these groups.

7. Marketing Channels:
Marketing channels means the parties that help the company to promote, sell and distribute its
goods to final buyers. To reach a target market, the marketer uses three kinds of marketing
channels:
1. Communication channels: deliver and receive messages form target buyers and include
newspapers, magazines, radio, television, mail, telephone and the internet.
2. Distribution channels: The marketers use this channel to display, sell or deliver the physical
products or services to the buyer or user. They include distributors, wholesalers, retailers and
agents.
3. Service channels: The marketer also uses service channels to carry out transaction with
potential buyers. Service channels include warehouses, transportation companies, banks and
insurance companies that facilitate transaction.

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8. Segmentation, Target market and Positioning:
Market Segmentation means dividing a market into smaller groups of buyers on the basis of
different needs, characteristics or behavior. Market segments can be identified by examining
geographic, demographic, psychographic and behavioral differences. The marketer then decides
which segments present the greatest opportunity which is its target market. For each chosen
target market, the firm develops a market offering. The offering is positioned in the minds of the
target buyers as delivering some central benefits. Thus, product positioning is the way a product
occupies a place in the minds of the customers relative to competing products. Like, Volvo,
positions its car as the safest a customer can buy, where Ford positioned on economy and
Mercedes and Cadillac positioned on Luxury.

9. Supply Chain
It is the channel stretching from raw materials to components to final products that are carried to
final buyers. The supply chain of women’s’ purse starts with hides and moves through tanning,
cutting, manufacturing, and the marketing channels to bring to bring products to final customers.
This supply chain represents a value delivery system. Each company captures only a certain
percentage of the total value generated by the supply chain. When a company acquires competitors
or moves upstream or downstream, its aim is to capture a higher percentage of supply chain value.

10. Competition: Competition includes all the actual and potential rival offerings and substitutes a
buyer might consider. There are several possible level of competition:

Brand competition: A company sees its competitors as other companies that offer similar
products and services to the same customers at similar prices. Volkswagen might see its major
competitor as Toyota, Honda and other manufacturers of medium period automobiles. It would not
see itself to compete with Mercedes or Hyundai.
Industry competition: A company sees its competitors as all companies that make the same
product or class of products. Volkswagen would see itself competing against all other automobile
manufacturers.
Form competition: A company sees its competitors as all companies that manufacture
products that supply the same service. Volkswagen might see itself as competing against not only
other auto mobile but also against manufacturers of motor cycle, bicycles and trucks.

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Generic competition: A company sees its competitors as all companies that compete for the same
consumer dollars. Volkswagen might see itself competing with companies that sell major
consumer durables, foreign vacations and new homes as substitutes of spending on a Volkswagen.

VII. Marketing Environment

Competition represents only one force in the environment in which all marketers operate. The
overall marketing environment consists of the task environment and the broad environment.
The task environment includes the immediate actors involved in producing, distributing, and
promoting the offering, including the company, suppliers, distributors, dealers, and the target
customers. Material suppliers and service suppliers such as marketing research agencies,
advertising agencies, Web site designers, banking and insurance companies, and transportation and
telecommunications companies are included in the supplier group. Agents, brokers, manufacturer
representatives, and others who facilitate finding and selling to customers are included with
distributors and dealers. The broad environment consists of six components: demographic
environment, economic environment, natural environment, technological environment, political-
legal environment, and social-cultural environment. These environments contain forces that can
have a major impact on the actors in the task environment, which is why smart marketers track
environmental trends and changes closely.

VIII. The Marketing Program and Marketing Mix

A marketing program consists of numerous decisions on the mix of marketing tools to use for
their target market.
The marketing mix is the set of marketing tools the firm uses to pursue its marketing objectives in
the target market. McCarthy classified these tools into four broad groups that he called the four P’s
of marketing: product, price, place and promotion.
a. Product: Product means the combination of goods and services that the company offers to
the target market.
b. Price: Price is the amount of money customers have to pay to obtain the product.
c. Place: Place includes company activities that make the product available to target
consumers.
d. Promotion: Promotion means the activities that communicate the merits of the product and
persuade target customers to buy it.
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 Product Price

Variety List Price

Quality Discounts
Design Allowances
Brand name Credit terms
Packaging

Target
Market
Place
Promotion
Channels
Coverage Advertising
Locations Sales Promotion
Inventory Personal Selling
Transportation Direct marketing
Marketing Mix: 4 P’s Public Relation

Figure :The Four P Components of the Marketing Mix

Four P’s represent the sellers view of the marketing tools available for influencing buyers. From a
buyer’s point of view, each marketing tool is designed to deliver a customer benefit. Robert
Lauterbom suggested that the seller’s four P’s corresponded to the customer’s four C’s.

Four P’s Four C’s

Product -------------- Customer solution
Price -------------- Customer cost
Place -------------- Convenience
Promotion ---------- Communication

Extended Marketing Mix (3 Ps)

Now a days three more Ps have been added to the marketing mix namely People, Process and
Physical Evidence. This marketing mix is known as extended marketing mix.
People:- All people involved with consumption of a service are important. For example workers,
management, consumers etc
Process:- Procedure, mechanism and flow of activities by which services are used.

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Physical Evidence:- The environment in which the service or product is delivered, tangible are the
one which helps to communicate and intangible is the knowledge of the people around us.
IX. Demand Management in Marketing

Marketers face different market conditions which are related to different states of demand.
Especially the pricing strategy largely depends on the variability of demand. According to Kotler,
the eight major states of demand are:

1. Negative Demand: A market is in a state of negative demand if a major part of the market
dislikes the product and may even pay a price to avoid it. The marketing task is to analyze why the
market dislikes the product and whether a marketing program consisting of product redesign,
lower prices and more positive promotion can change the market beliefs and attitudes. For
example: vegetarians have a negative demand for meat, people in general have negative demands
for vaccinations, dental work or surgery.

2. No Demand: Target customers may be unaware of or uninterested in the product. The

marketing task is to find ways to connect the benefits of the product with the person’s natural
needs and interests. For example: the products that have usually no value to people, like a
newspaper published in last week. Or, any products that have value but not in a particular market,
like snowmobiles in areas of warm climate.

3. Latent Demand: Many consumers may share a strong need that cannot be satisfied by any
existing product. The marketing task is to measure the size of the potential market and develop
effective goods and services that would satisfy the demand. Like vaccinations of HIV or harmless
cigarettes.

4. Decline Demand: Every organization, sooner or later, faces declining demand for one or more
of its products. The marketing task is to reverse the declining demand through creative
remarketing of the product. Like: the demands for compact disks (CD) are declining now a day.

5. Irregular Demand: Many organizations face demand that varies on a seasonal, daily or even
hourly basis, causing problems of idle or overworked capacity. The marketing task, called

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synchro-marketing, is to find ways to alter the same pattern of demand through flexible pricing,
promotion and other incentives.

6. Full Demand: Organizations face full demand when they are pleased with their volume of
business. The marketing task is to maintain the current level of demand in the face of changing
customer preferences and increasing competition. The organization must maintain or improve its
quality and continually measure consumer satisfaction to make sure it is doing a good job.

7. Overfull Demand: Some organizations face a demand level that is higher than they can or want
to handle. The marketing task, called demarketing, requires finding ways to reduce the demand
temporarily or permanently. General demarketing seeks to discourage overall demand and consists
of such steps as raising prices and reducing promotion and service. Selective demarketing consists
of trying to reduce the demand coming form those parts of the market that are less profitable or
less in need of the product. Demarketing aims not to destroy demand but only to reduce its level
temporarily or permanently. For example : The campaign in our country that insist people to take
potatoes as replacement of rice.

8. Unwholesome Demand: Unwholesome products will attract organized efforts to discourage

their consumption. The marketing task is to get people who like something to give it up, using
such tools as fear messages, price hikes, and reduced availability. Like books and film piracy,
inhaling drugs and so on.

X. Marketing Management Concepts:

Marketing management is the carrying out the task to achieve desired exchanges with target
markets. Marketing activities should be carried out under a well thought out philosophy of
efficiency, effectiveness and social responsibility. The philosophies are the guidance for marketing
efforts. It emphasizes on the weight that should be given to the interests of the organizations,
customers and society. There are some concepts under which organizations conduct their
marketing activities. These are:
1. Production Concept
2. Product Concept

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3. Selling Concept
4. Marketing Concept
5. Societal Marketing Concept
6. Holistic Concept.

1. Production Concept: It holds that consumers will favor products that are available and highly
affordable. Therefore, management should focus on improving production and distribution
efficiency that means high production efficiency, low costs and mass distribution. This concept is
still useful in two types of situations, when the demand exceeds the supply and when the product’s
cost is too high and improved productivity is needed to bring it down. It is used when a company
wants to expand the market.
 Managers assume that consumers are primarily interested in product availability and low
cost.
2. Product Concept: It holds the idea that consumers will favor products that offer the most
quality, performance, and features and that the organization should therefore devote its energy to
making continuous product improvements.
 Focuses on making superior product and improving them.
 buyers admire well-made products and can evaluate quality and performance.
 Product concept can lead to marketing myopia (that means lack of foresight or long-term
view regarding the product decision).
3. Selling Concept: It holds the idea that consumers will not buy enough of the organization’s
products unless the organization undertakes a large-scale selling and promotion effort. This
concept is typically practiced with unsought goods, those that buyers do not normally think of
buying, such as encyclopedias or insurance. Most firms practice the selling concept when they
have over capacity. This concept takes an inside-out perspective. It starts with the factory, focuses
on the company’s existing products and calls for heavy selling and promotion to obtain profitable
sales.
 Consumer typically show buying inertia/resistance & must be coaxed into buying.
 To sell what they make rather than make what market wants.

4. Marketing Concept: It holds the idea that achieving organizational goals depend on
determining the needs and wants of target markets and delivering the desired satisfactions more
effectively and efficiently than competitors do. The main task for marketers not to find the right
customers for the product, but the right products for the customers.
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 Starting Point Focus Means Ends

Factory Existing Selling and Profits through

Products Promotion Sales volume

The Selling Concept

Starting Point Focus Means Ends

Market Customer Integrated Profits through

Needs Marketing Customer Satisfaction

The Marketing Concept

Figure 4: Contrast between selling concept and marketing concept

It can be expressed in many ways:

 Marketer balance creating more value for customers against making more profits.
 Marketing concept rest on four pillars: a) Target market b) Customer needs c) Integrated
marketing d) Profitability.
 Love the customer not the product
 Putting people first.

5. Societal Marketing Concept:

It holds the idea that the organization should determine the needs, wants and interests of target
markets and deliver the desired satisfactions more effectively and efficiently than do competitors
in a way that maintains or improves the consumer’s and society’s well being. This concept calls on
marketers to balance three considerations in setting their marketing policies: company profits,
consumer wants and society’s interests. It emphasizes on both the short run wants and long run
welfare of consumers.
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6. Holistic Concept: this is the most recent concept of marketing which is based on the
development, design and implementation of marketing programs processes and activities from a
broad integrated perspective. It is the integration of internal marketing, integrated marketing,
relationship marketing and performance marketing concept.

Products
Senior Other Communications &Services
Management departments Channels

Marketing
Department Internal Integrated
Marketing Marketing

Holistic
Marketing

Performance Relationship
Sales
Marketing Marketing
revenue

Brand & Community

customer Partners
Ethics Environment Customers Channel
equity

Figure 6: Holistic Marketing Dimensions

(a) Internal Marketing Concept: This concept holds the idea to satisfy the internal people or
employees within the organization, so that they work for the satisfaction of the customers. The first
step to satisfy the customers is to satisfy the internal people first or to motivate them first.
(b) Integrated Marketing Concept: It refers to an approach where all the departments of the
organization work in a coordinated manner to support and serve the customers. Any single section
cannot serve the customers without the help of other sections. The customer’s satisfaction is
achieved when all the departments have the common goals and intention to serve the customers.
(c) Relationship Marketing Concept: It refers the long-term relationship with the customers. It
emphasizes on creating, maintaining and developing a long term value laden or value based
relationship with the target customers benefits and costs.

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(d) Performance marketing: Holistic marketing incorporates performance marketing and
understanding the returns to the business from marketing activities and programs as well as their
legal, ethical, social, and environmental effects. Performance marketing thus includes: Financial
accountability and Social responsible marketing.

XI. Key Customer Markets

1. Consumer Markets:
Companies selling mass consumer goods and services spend a great deal of time establishing a
strong brand image by developing a superior product and packaging, ensuring its availability, and
backing it with engaging communications and reliable service.
2. Business Markets:
Companies selling business goods and services often face well-informed professional buyers
skilled at evaluating competitive offerings. Business buyers buy goods in order to make or re-sell a
product to others at profit. Business marketers must demonstrate how their products will help these
business buyers to achieve higher revenues or lower cost.
3. Global Markets:
Companies in the global marketplace must decide which countries to enter; how to enter each (as
an exporter, licenser, joint venture partner, contract manufacturer, or solo a manufacturer); how to
adapt product and service features to each country; how to price products in different countries;
and how to design communications for different cultures. They face different requirements for
buying and disposing of property; cultural, language, legal and political differences and currency
fluctuations.
4. Nonprofit and Governmental Markets:
Companies selling to nonprofit organizations with limited purchasing power such as churches,
universities, charitable organizations, and government agencies need to price carefully, because
these buyers have limited purchasing power. Lower selling price affect the features and quality the
seller can build into offering.

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 MARKETING FUNDAMENTALS
CHAPTER-II
SEGMENTATION-TARGETING-POSITIONING.

Markets consist of buyers, and buyers differ in one or more ways. They may differ in their
wants, resources, locations, buying attitudes, and buying practices. Through market segmentation,
companies divide large, heterogeneous markets into smaller segments that can be reached more
efficiently and effectively with products and services that match their unique needs. In this section,
we discuss five important segmentation topics: levels of market segmentation, segmenting
consumer markets, segmenting business markets, segmenting international markets, and
requirements for effective segmentation.

I. LEVELS OF MARKET SEGMENTATION

Because buyers have unique needs and wants, each buyer is potentially a separate market. Ideally,
then, a seller might design a separate marketing program for each buyer. However, although some
companies attempt to serve buyers individually, many others face larger numbers of smaller buyers
and do not find complete segmentation worthwhile. Instead, they look for broader classes of
buyers who differ in their product needs or buying responses.
Thus, market segmentation can be carried out at several different levels. Figure below shows that
companies can practice no segmentation (mass marketing), complete segmentation
(micromarketing), or something in between (segment marketing or niche marketing).

Levels of marketing segmentation

Mass Marketing

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Companies have not always practiced target marketing. In fact, for most of the 1900s, major
consumer products companies held fast to mass marketing—mass producing, mass distributing,
and mass promoting about the same product in about the same way to all consumers. Henry Ford
epitomized this marketing strategy when he offered the Model T Ford to all buyers; they could
have the car "in any color as long as it is black." Similarly, Coca-Cola at one time produced only
one drink for the whole market, hoping it would appeal to everyone.

The traditional argument for mass marketing is that it creates the largest potential market, which
leads to the lowest costs, which in turn can translate into either lower prices or higher margins.
However, many factors now make mass marketing more difficult

The proliferation of distribution channels and advertising media has also made it difficult to
practice "one-size-fits-all" marketing. Today's consumers can shop at megamalls, superstores, or
specialty shops; through mail catalogs or virtual stores on the Internet. They are bombarded with
messages delivered via media ranging from old standards such as television, radio, magazines,
newspapers, and telephone to newcomers like the Internet, fax, and e-mail. No wonder some have
claimed that mass marketing is dying. Not surprisingly, many companies are retreating from mass
marketing and turning to segmented marketing.

Segment Marketing

A company that practices segment marketing isolates broad segments that make up a market and
adapts its offers to more closely match the needs of one or more segments. Thus, Marriott hotels
markets to a variety of segments—business travelers, families, and others—with packages adapted
to their varying needs. GM has designed specific models for different income and age groups. In
fact, it sells models for segments with varied combinations of age and income. For instance, GM
designed its Buick Park Avenue for older, higher-income consumers.
Segment marketing offers several benefits over mass marketing. The company can market more
efficiently, targeting its products or services, channels, and communications programs toward only
consumers that it can serve best and most profitably. The company can also market more
effectively by fine-tuning its products, prices, and programs to the needs of carefully defined
segments. The company may face fewer competitors if fewer competitors are focusing on this
market segment.

Niche Marketing
Market segments are normally large, identifiable groups within a market—for example, luxury car
buyers, performance car buyers, utility car buyers, and economy car buyers. Niche marketing
focuses on subgroups within these segments. A niche is a more narrowly defined group, usually
identified by dividing a segment into sub segments or by defining a group with a distinctive set of
traits who may seek a special combination of benefits.

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For example, the utility vehicles segment might include light-duty pickup trucks and sport utility
vehicles (SUVs). The sport utility vehicles subsegment might be further divided into standard SUV
(as served by Ford and Chevrolet) and luxury SUV (as served by Lincoln and Lexus) niches.
Whereas segments are fairly large and normally attract several competitors, niches are smaller and
normally attract only one or a few competitors. Niche marketers presumably understand their
niches' needs so well that their customers willingly pay a price premium. Niching offers smaller
companies an opportunity to compete by focusing their limited resources on serving niches that
may be unimportant to or overlooked by larger competitors. However, large companies also serve
niche markets.

Micromarketing

Segment and niche marketers tailor their offers and marketing programs to meet the needs of
various market segments. At the same time, however, they do not customize their offers to each
individual customer. Thus, segment marketing and niche marketing fall between the extremes of
mass marketing and micromarketing. Micromarketing is the practice of tailoring products and
marketing programs to suit the tastes of specific individuals and locations. Micromarketing
includes local marketing and individual marketing.

Local Marketing

Local marketing involves tailoring brands and promotions to the needs and wants of local
customer groups—cities, neighborhoods, and even specific stores. Thus, retailers such as Sears and
Wal-Mart routinely customize each store's merchandise and promotions to match its specific
clientele. Citibank provides different mixes of banking services in its branches depending on
neighborhood demographics. Kraft helps supermarket chains identify the specific cheese
assortments and shelf positioning that will optimize cheese sales in low-income, middle-income,
and high-income stores and in different ethnic communities.

Local marketing has some drawbacks. It can drive up manufacturing and marketing costs by
reducing economies of scale. It can also create logistics problems as companies try to meet the
varied requirements of different regional and local markets. Further, a brand's overall image might
be diluted if the product and message vary too much in different localities.

Individual Marketing (Mass customization)

In the extreme, micromarketing becomes individual marketing—tailoring products and marketing

programs to the needs and preferences of individual customers. Individual marketing has also been
labeled one-to-one marketing, customized marketing, and markets-of-one marketing.

II. SEGMENTING CONSUMER MARKETS

There is no single way to segment a market. A marketer has to try different segmentation
variables, alone and in combination, to find the best way to view the market structure. Table 7.1
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outlines the major variables that might be used in segmenting consumer markets. Here we look at
the major geographic, demographic, psychographic, and behavioral variables.

Table 7.1Major Segmentation Variables for Consumer Markets

Geographic Segmentation:
World region or North America, Western Europe, Middle East, Pacific Rim, China, India,
country Canada, Mexico

Country region Pacific, Mountain, West North Central, West South Central, East North
Central, East South Central, South Atlantic, Middle Atlantic, New England

City or metro Under 5,000; 5,000–20,000; 20,000–50,000; 50,000–100,000; 100,000–

size 250,000; 250,000–500,000; 500,000–1,000,000; 1,000,000–4,000,000;
4,000,000 or over

Density Urban, suburban, rural

Climate Northern, southern

Demographic Segmentation:
Age Under 6, 6–11, 12–19, 20–34, 35–49, 50–64, 651

Gender Male, female

Family size 1–2, 3–4, 51

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

Income Under $10,000; $10,000–$20,000; $20,000–$30,000; $30,000–$50,000;

$50,000–$100,000; $100,000 and over

Occupation Professional and technical; managers, officials, and proprietors; clerical,

sales; craftspeople; supervisors; operatives; farmers; retired; students;
homemakers; unemployed

Education Grade school or less; some high school; high school graduate; some college;
college graduate

Religion Catholic, Protestant, Jewish, Muslim, Hindu, other

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 Race Asian, Hispanic, Black, White

Generation Baby boomer, Generation X, echo boomer

Nationality North American, South American, British, French, German, Italian, Japanese

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

Lifestyle Achievers, strivers, strugglers

Personality Compulsive, gregarious, authoritarian, ambitious

Behavioral Segmentation:
Occasions Regular occasion, special occasion

Benefits Quality, service, economy, convenience, speed

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

Usage rate Light user, medium user, heavy user

Loyalty status None, medium, strong, absolute

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

Attitude toward Enthusiastic, positive, indifferent, negative, hostile

product

A. GEOGRAPHIC SEGMENTATION
Geographic segmentation calls for dividing the market into different geographical units such as
nations, regions, states, counties, cities, or neighborhoods. A company may decide to operate in
one or a few geographical areas, or to operate in all areas but pay attention to geographical
differences in needs and wants. Many companies today are localizing their products, advertising,
promotion, and sales efforts to fit the needs of individual regions, cities, and even neighborhoods.
For example, Campbell sells Cajun gumbo soup in Louisiana and Mississippi and makes its nacho
cheese soup spicier in Texas and California. P&G sells Ariel laundry detergent primarily in Los
Angeles, San Diego, San Francisco, Miami, and south Texas—areas with larger concentrations of
Hispanic consumers. In the South, where customers tend to arrive later in the day and stay longer,
Starbucks offers more desserts and larger, more comfortable coffee shops.
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 B. DEMOGRAPHIC SEGMENTATION
Demographic segmentation divides the market into groups based on variables such as age, gender,
family size, family life cycle, income, occupation, education, religion, race, and nationality.
Demographic factors are the most popular bases for segmenting customer groups. One reason is
that consumer needs, wants, and usage rates often vary closely with demographic variables.
Another is that demographic variables are easier to measure than most other types of variables.
Even when market segments are first defined using other bases, such as benefits sought or
behavior, their demographic characteristics must be known in order to assess the size of the target
market and to reach it efficiently.
1. Age and Life-Cycle Stage
Consumer needs and wants change with age. Some companies use age and life-cycle
segmentation, offering different products or using different marketing approaches for different age
and life-cycle groups.
For example, McDonald's targets children, teens, adults, and seniors with different ads and media.
Its ads to teens feature dance-beat music, adventure, and fast-paced cutting from scene to scene;
ads to seniors are softer and more sentimental.
Procter & Gamble boldly targets its Oil of Olay ProVital Series sub-brand at women over 50 years
of age. It's "specially designed to meet the increased moisturization needs of more mature skin."
2. Gender
Gender segmentation has long been used in clothing, cosmetics, toiletries, and magazines. For
example, Procter & Gamble was among the first with Secret, a brand specially formulated for a
woman's chemistry, packaged and advertised to reinforce the female image. Recently, other
marketers have noticed opportunities for gender segmentation.
For example, Merrill Lynch offers a Financial Handbook for Women Investors who want to "shape
up their finances." Owens-Corning consciously aimed a major advertising campaign for home
insulation at women after its study on women's role in home improvement showed that two-thirds
were involved in materials installation, with 13 percent doing it themselves. Half the women
surveyed compared themselves to Bob Vila, whereas less than half compared themselves to
Martha Stewart.
3. Income
Income segmentation has long been used by the marketers of products and services such as
automobiles, boats, clothing, cosmetics, financial services, and travel. Many companies target

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affluent consumers with luxury goods and convenience services. Stores such as Neiman Marcus
pitch everything from expensive jewelry and fine fashions to glazed Australian apricots priced at
$20 a pound. Prada's hot-selling black vinyl backpack sells for $450, and a front-row seat at a New
York Knicks game at Madison Square Garden goes for $1,000.
However, not all companies that use income segmentation target the affluent. Despite their lower
spending power, the 25 percent of the nation's households that earn less than $25,000 per year
offer an attractive market. For example, Greyhound Lines, with its inexpensive nationwide bus
network, targets lower-income consumers. Almost half of its revenues come from people with
annual incomes under $15,000. Many retailers also target this group, including chains such as
Family Dollar, Dollar General, and Dollar Tree stores.
C. PSYCHOGRAPHIC SEGMENTATION
Psychographic segmentation divides buyers into different groups based on social class, lifestyle, or
personality characteristics. People in the same demographic group can have very different
psychographic makeups.
Marketers often segment their markets by consumer lifestyles. For example, Duck Head apparel
targets a casual student lifestyle claiming, "You can't get them old until you get them new." One
forward-looking grocery store found that segmenting its self-service meat products by lifestyle had
a big payoff:
Marketers also have used personality variables to segment markets. For example, the marketing
campaign for Honda's Helix and Elite motor scooters appears to target hip and trendy 22-year-olds.
But it is actually aimed at a much broader personality group. One ad, for example, shows a
delighted child bouncing up and down on his bed while the announcer says, "You've been trying to
get there all your life." The ad reminds viewers of the euphoric feelings they got when they broke
away from authority and did things their parents told them not to do. It suggests that they can feel
that way again by riding a Honda scooter. Thus, Honda is appealing to the rebellious, independent
kid in all of us. As Honda notes on its Web page, "Fresh air, freedom, and flair—on a Honda
scooter, every day is independence day!" In fact, more than half of Honda's scooter sales are to
young professionals and older buyers—15 percent are purchased by the over-50 group.
The VALS Segmentation System for Psychographic
Segmentation:
One of the most popular commercially available classification systems based on psychographic
measurements the VALS psychographic segmentation.
The four groups with higher resources are:
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  Innovators: successful, sophisticated, active, “take-charge” people with high self-esteem
 Thinkers: Mature, satisfied, and reflective people motivated by ideals and who value
order, knowledge and responsibility.
 Achievers: Successful, goal-oriented people who focus on career and family
 Experiencers: Young, enthusiastic, impulsive people who seek variety and excitement.

The four groups with lower resources are:

 Believers: Conservative, conventional, and traditional people with concrete beliefs
 Strivers: Trendy, and fun-loving people who are resource-constrained
 Makers: Practical, down-to-earth, self-sufficient people who like to work with their hands
 Survivors: Elderly, passive people concerned about change and loyal to their favorite
brands.

D. BEHAVIORAL SEGMENTATION
Behavioral segmentation divides buyers into groups based on their knowledge, attitudes, uses, or
responses to a product. Many marketers believe that behavior variables are the best starting point
for building market segments.
1. Occasions: Buyers can be grouped according to occasions when they get the idea to buy,
actually make their purchase, or use the purchased item. Occasion segmentation can help firms
build up product usage. For example, orange juice is most often consumed at breakfast, but orange
growers have promoted drinking orange juice as a cool and refreshing drink at other times of the

26
day. In contrast, Coca-Cola's "Coke in the Morning" advertising campaign attempts to increase
Coke consumption by promoting the beverage as an early morning pick-me-up.
Some holidays, such as Mother's Day and Father's Day, were originally promoted partly to
increase the sale of candy, flowers, cards, and other gifts. Many food marketers prepare special
offers and ads for holiday occasions.
Kodak, Konica, Fuji, and other camera makers use occasion segmentation in designing and
marketing their single-use cameras. By mixing lenses, film speeds, and accessories, they have
developed special disposable cameras for about any picture-taking occasion, from underwater
photography to taking baby pictures.
2. Benefits Sought: A powerful form of segmentation is to group buyers according to the different
benefits that they seek from the product. Benefit segmentation requires finding the major benefits
people look for in the product class, the kinds of people who look for each benefit, and the major
brands that deliver each benefit. For example, one study of the benefits derived from travel
uncovered three major market segments: those who travel to get away and be with family, those
who travel for adventure or educational purposes, and people who enjoy the "gambling" and "fun"
aspects of travel.
3. User Status: Markets can be segmented into groups of nonusers, ex-users, potential users, first-
time users, and regular users of a product. For example, one study found that blood donors are low
in self-esteem, low risk takers, and more highly concerned about their health; non-donors tend to
be the opposite on all three dimensions. This suggests that social agencies should use different
marketing approaches for keeping current donors and attracting new ones. A company's market
position also influences its focus. Market share leaders focus on attracting potential users, whereas
smaller firms focus on attracting current users away from the market leader.

4. Usage Rate: Markets can also be segmented into light, medium, and heavy product users.
Heavy users are often a small percentage of the market but account for a high percentage of total
consumption. Marketers usually prefer to attract one heavy user to their product or service rather
than several light users. For example, a recent study of U.S.-branded ice cream buyers showed that
heavy users make up only 18 percent of all buyers but consume 55 percent of all the ice cream
sold. On average, these heavy users pack away 13 gallons of ice cream per year versus only 2.4
gallons for light users.

5. Loyalty Status: Marketers usually envision four groups based on brand loyalty status:

a. Hard-core Loyals: Consumers who buy only one brand all the time

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b. Split Loyals: Consumers who are loyal at two or three brands
c. Shifting Loyals: Consumers who shift loyalty from one brand to another
d. Switchers: Consumers who show no loyalty to any brand.

Behavioral Segmentation Breakdown:

III. REQUIREMENTS FOR EFFECTIVE SEGMENTATION

Clearly, there are many ways to segment a market, but not all segmentations are effective. For
example, buyers of table salt could be divided into blond and brunette customers. But hair color
obviously does not affect the purchase of salt. Furthermore, if all salt buyers bought the same
amount of salt each month, believed that all salt is the same, and wanted to pay the same price, the
company would not benefit from segmenting this market.

To be useful, market segments must be:

1. Measurable: The size, purchasing power, and profiles of the segments can be measured.
Certain segmentation variables are difficult to measure. For example, there are 32.5 million
left-handed people in the United States—almost equaling the entire population of Canada.
Yet few products are targeted toward this left-handed segment. The major problem may be
that the segment is hard to identify and measure. There are no data on the demographics of
lefties, and the U.S. Census Bureau does not keep track of left-handedness in its surveys.

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 Private data companies keep reams of statistics on other demographic segments but not on
left-handers.

2. Accessible: The market segments can be effectively reached and served. Suppose a
fragrance company finds that heavy users of its brand are single men and women who stay
out late and socialize a lot. Unless this group lives or shops at certain places and is exposed
to certain media, its members will be difficult to reach.

3. Substantial: The market segments are large or profitable enough to serve. A segment
should be the largest possible homogenous group worth pursuing with a tailored marketing
program. It would not pay, for example, for an automobile manufacturer to develop cars for
persons whose height is under four feet.

4. Differentiable: The segments are conceptually distinguishable and respond differently to

different marketing mix elements and programs. If married and unmarried women respond
similarly to a sale on perfume, they do not constitute separate segments.

5. Actionable: Effective programs can be designed for attracting and serving the segments.
For example, although one small airline identified seven market segments, its staff was too
small to develop separate marketing programs for each segment.

Steps in Segmentation Process:

o Needs-Based Segmentation: group customers into segments based on similar
needs and benefits sought by customers in solving a particular consumption
problem.
o Segment Identification: for each needs-based segment, determine which
demographics, lifestyles, and usage behaviors make the segment distinct and
identifiable (actionable)
o Segment attractiveness: Using predetermined segment attractiveness criteria
(such as market growth, competitive intensity, and market access), determine the
overall attractiveness of each segment
o Segment profitability: determine segment profitability

SELECTING THE TARGET 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

29
 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.

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 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.

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
31
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.

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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.

UNIT-3
PRODUCT
Many people think that a product is a tangible offering, but a product can be more than that.
Product is everything that can be offered to market to satisfy a want or need. Products that are
marketed include physical goods, services, experiences, events, persons, places, properties,
organizations, information and ideas.
A product is a set of tangible and intangible attributes, which include packaging, color, price,
quality, and brand, plus the services and reputation of the seller.

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Product levels: The Customer-Value Hierarchy

In planning market offering, the marketer needs to address five product levels. Each level adds
more customer value, and the five constitute a customer value hierarchy.
Fundamental level (Core Product): Core benefit - the service or benefit the customer is really
buying (marketers – benefit providers);
Second level (Generic Product): Basic product – marketer turn the core benefit into a basic
product;
Third level (Expected Product):- a set of attributes and conditions buyers normally expect when
they purchase this product;
Fourth level (Augmented product) – the product thatexceeds customer expectations
(differentiation);
Fifth level (Potential Product) - which encompasses all possible augmentations and
transformations the product might undergo in the future.
Product Consumption system:
The way the user performs the task of getting and using product and related services;
It is necessary to know that:
Each augmentation adds costs;
Augmented benefits soon become expected benefits and necessary points-of-parity;
As companies raise the price of their augmented product, some companies offer a stripped-down
version at a much lower price.
To better explain that, let’s consider the example of a car:
Core product: The client is looking for transportation from one place to another.
Actual Product: The brand of the car, its looks and design etc.
Expected Product: Decent mileage, proper engine, inflated tires etc.

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Augmented Product: After-sale services, insurance policy etc.
Potential Product: May run more smoothly as it wears off a little.
The passage from one level to the next happens when the previous level is satisfied. If the
customer goes to a hotel and finds some chocolate bars on his bed, it exceeds his expectations and
causes and enchantment. But after that, the customer will always expect a chocolate bar on his bed,
and it won’t cause an enchantment anymore. It will be considered part of the expected product.
With that in mind, marketers must find a way of providing always something in order to exceed
customer expectations and cause a continuous enchantment. Marketers must find, in this way, not
only customers current needs, but also its future needs, what can be done throughout market
research.

Product classifications
Marketers have traditionally classified products on the basis of durability, tangibility and use of the
product (Consumer or Industrial) the each product type has an appropriate marketing-mix strategy.
1. Classification On The Basis Of Durability and Tangibility:
Nondurable goods: tangible goods normally consumed in ne or a few uses (beer and soap). These
goods are consumed quickly and purchased frequently. Appropriate strategy: make them available
in many locations, charge only a small markup, and advertise heavily to induce trial and build
preference.
Durable goods: tangible goods that normally survive many uses (refrigerators, clothing).
Appropriate strategy: require more personal selling and services, command a higher margin, and
require more sells guarantees.
Services: services are intangible, inseparable, variable, and perishable products. As a result
services require appropriate strategy: require more quality control, supplier credibility, and
adaptability (haircuts, legal advice).
2. Classification on The Basis of Use
A. Consumer-Goods Classification:
The consumer usually purchases convenience goods frequently, immediately, and with a
minimum of effort. Examples include soft drinks.
Staples are goods consumers purchase on a regular basis.
Impulse goods are purchased without any planning or search effort.
Emergency goods are purchased when a need is urgent – umbrellas during a rainstorm.
Manufacturers of impulse and emergency goods will place them in those outlets where consumers
are likely to experience an urge or compelling need to make a purchase.
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Shopping goods are goods that consumer characteristically compares on such bases as suitability,
quality, price and style. Examples include furniture, clothing, used cars and major appliances. We
further divide this category:
Homogeneous shopping goods are similar in quality but different enough in price to justify
shopping comparisons.
Heterogeneous shopping goods differ in product features and services that may be more
important than price.
Specialty goods have unique characteristics or brand identification for which a sufficient number
of buyers are willing to make a special purchasing effort. Examples include: cars and photographic
equipment’s.
Unsought goods are those the consumers does not know about or does not normally think of
buying, such as smoke detectors. The classic examples of known but unsought goods are life
insurance and encyclopedias. Unsought goods require advertising and personal-selling support.
B. Industrial-Goods Classification:
Industrial goods can be classified in terms of their relative cost and how they enter the production
process: material and parts capital items and supplies and business services.
Material and parts are goods that enter the manufacturer’s product completely. They fall into two
classes:
Raw materials: farm products and natural products;
Manufactured materials and parts: component materials and components parts.
Capital items are long-lasting goods that facilitate developing or managing the finished product.
They include two groups:
1. Installations 2. Equipment
Supplies and business services are short-term goods and services that facilitate developing or
managing the finished product. Supplies are of two kinds:
1. Maintenance and repair items 2.Operating supplies

Differentiation
To be branded, products must be differentiated. The seller faces an abundance of differentiation
possibilities, including form, features, customization, performance quality, conformance quality,
durability, reliability, reparability and style. Design has become increasingly important.
Product differentiation
Form – any products can be differentiated in form (the size, shape, or physical structure);

36
Features – Most products can be offered with varying features that supplement their basic
function. The marketer must be aware of customer value versus company cost for each potential
feature. Each company must decide whether to offer feature customization at a higher cost or a few
standard packages at a lower cost.
Customization – marketers can differentiate products by making them customized to an
individual;
Mass customization – is the ability of a company to meet each customer’s requirements (to
prepare on a mass basis individually designed products, services, programs and communications);
Performance quality - most products are established at one of four performance levels: low,
average, high or superior. Performance quality is the level at which the product’s primary
characteristics operate. The manufacturer must design a performance level appropriate to the target
market and competitors’ performance levels;
Conformance quality – buyers expect products to have a high conformance quality, which is the
degree to which all the produced units are identical and meet the promised specifications;
Durability – is a measure of the product’s expected operating life under natural or stressful
conditions, is a valued attribute for certain products;
Reliability – buyers normally will pay a premium for more reliable products. Reliability is a
measure of the probability that a product will not malfunction or fail within a specified time
period;
Repairability – is a measure of the ease of fixing a product when it malfunctions or fails;
Style – describes the products look and feel to the buyer.

Design
As competition intensifies, design offers a potent way to differentiate and position a company’s
products and services. In increasingly fast-paced markets, price and technology are not enough.
Design is the factor that will often give a company its competitive edge. Design is the totally of
features that affect how a product looks, fells, and functions in terms of customer requirements.
In the firm’s point of view, a well-design product is the one that is easy to manufacture and
distribute. In the customer’s point of view a well-design product is pleasant to look at and easy to
open, install, use, repair and dispose of.
Holistic marketers recognize the emotional power of design and the importance to customers of
how things look and fell.

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In summary, in a increasingly visually oriented culture, translating brand meaning and positioning
through design is critical.
Service Differentiation
When the physical product cannot easily be differentiated, the key to competitive success may lie
in adding valued services and improving their quality. The main services differentiators are
ordering ease, delivery, installation, customer training, customer consulting and maintenance and
repair.
Ordering ease: how easy it is for the customer to place an order with the company.
Delivery: how well the product or service is brought to the customer. It includes speed, accuracy
and care throughout the process. Two tools that help the delivery process are: Quick Response
Systems (QRS) and Global Positioning System (GPS).
Installation: the work done to make a product operational in its planned location.
Customer training: training the customer’s employee to use the vendor’s equipment properly and
efficiently.
Customer consulting: data, information system and advice services that the seller offer to buyers.
Maintenance and repair: service program for helping customers keep purchased products in good
working order.
Return: product returns in two ways:
Controllable returns results from problems, difficulties or errors of the seller or customer and
cam mostly be eliminated with proper strategies and programs;
Uncontrollable returns can’t be eliminated by the company in the short-run through any of the
aforementioned means.
Product and Brand Relationship
Each product can be related to other products to ensure that a firm is offering and marketing the
optimal set of products. Example: UNILEVER
The Product Hierarchy
It stretches from basic needs to particular items that satisfy those needs. It has six levels and we
will use a cosmetic example in order to better explain:
1. Need family: underlies the existence of a product family. PERSONAL CARE
2. Product family: product classes that can satisfy a core need with reasonable effectiveness.
COSMETICS, SKIN CREAMS, SHAMPOOS, CONDITIONERS, SOAPS
3. Product class: a group of products within the product family recognized as having a certain
functional coherence. HAIR CLEANING AGENTS
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4. Product line: a group of products class that are closely related because they perform a similar
function, are sold to the same customer groups, are marketed through the same outlets or channels,
or fall within given price ranges. SHAMPOOS (SEDA, MONANGE, ALL CLEAR ETC)
5. Product type: a group of items within a product line that share one of several possible forms of
the product. DANDRUFF CONTROL SHAMPOOS
6. Item: a distinct unit, distinguishable by size, price, appearance or some other attribute. A
SACHET OF CLINIC ALL CLEAR.

Product System and Mixes

A Product system is a group of diverse but related items that function in a compatible manner. For
example, I phone and Palms product lines come with attachable products: cameras, keyboard, e-
books, MP3 players, voice recorders, GPS etc.
The product mix means a set of all products and items a particular seller offers for sale. It consists
of various product lines. The product mix has four dimensions:
• Width: how many different product lines the company carries.
• Length: the total number of items in the mix.
• Depth: refers to how many variants are offered of each product in the line.
• Consistency: how closely related the various product lines are in end use, production
requirements, distribution channels or some other way.
The product mix dimension permit the company to expand its business in four ways: add new
product line, lengthen each product line, add more product variants and deepen its product mix and
pursue more product line consistency. For instance, Avon’s product mix consists of four major
product lines: cosmetics, jewelry, fashions, and household items. Let take the example of Uni-
Lever Limited product mix from the below chart.

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Product Line Analysis
Product-line managers need to know the sales and profits of each item in their line in order to
determine which items to build, maintain, harvest, or divest.
Sales and profits: it is possible for companies to know how well its lines are performing by the
sales and profit report. Every company's product portfolio contains products with different
margins. A company can classify its products into four types that yield different gross margins,
depending on sales volume and promotion:
 Core products: high sales volume, heavily promoted, low margins;
 Staples: lower sales volume and no promotion, higher margin;
 Specialties: lower sales volume, highly promoted;
 Convenience items: high volume, less promotion, higher margins.
Market Profile: how the line is positioned against competitors' lines. The product map shows
which competitors' items are competing against a regarding company’s items. Another benefit of
product mapping is that it identifies market segments. Product-line analysis provides information
for two key decision areas-product-line length and product-mix pricing.
Product-Line Length
One objective is to create a product line to induce up-selling. A different objective is to create a
product line that facilitates cross-selling. Another objective is to create a product line that protects
against economic ups and downs. Companies seeking high market share and market growth will
generally carry longer product lines. Product lines tend to lengthen over time. Excessive
manufacturing capacity puts pressure on the product-line manager to develop new items. A
company lengthens its product line in two ways: line stretching and line filling.

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Line Stretching - occurs when a company lengthens its products line beyond its current range.
The company can strength its line down-market, up-market or both ways.
Down-Market Stretch - A company positioned in the middle market may want to introduce a
lower-priced line for any of three reasons:
1- The company may notice strong growth opportunities as mass retailers.
2- The company may wish to tie up lower-end competitors who might otherwise try to move up-
market.
3- The company may find that the middle market is stagnating or declining.
A company faces a a number of naming choices in declining to move a brand down-market:
1- Use the parent brand name on all its offerings;
2- Introduce lower-priced offerings using a sub brand name;
3- Introduce the lower-priced offerings under a different name.
Moving down-market carries risks and it can cannibalize its core brand.
Up – Market Stretch - Companies may wish to enter the high end of the market to achieve more
growth, to realize higher margins, or simply to position themselves as full –line manufactures.
Two – Way Stretch - Companies serving the middle market might decide to stretch their line in
both directions.
Line Filling - A firm can also lengthen its product line by adding more items within the present
range. There are several reasons for line filling: reaching for incremental profits. Line filling is
overdone if it results in self-cannibalization and customer confusion. The company needs to
differentiate each item in the consumer’s mind with a just-noticeable difference. According to
Weber’s law, consumers are more attuned to relative then absolute difference.
Line modernization, featuring, and pruning - Product lines need to be modernized. The issue is
whether to overhaul the line piecemeal or all at once. A piecemeal approach allows the company to
see how customers and dealers tae to the new style. It is also less draining on the company’s cash
flow, but it allows competitors to see changes and to start redesigning their own lines.
In rapidly changing product marketers, modernization is continuous. Major issue is timing
improvements so they do not appear too early (damaging sales of the current line) or too late (after
the competition has establishes a strong reputation for more advanced equipment).
The product-line manager typically selects one or a few items in the line to feature, and also they
must periodically review the line for deadwood that is depressing profits. The weak items can be
identified through sales and cost analysis.

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Product-Mix Pricing
Marketers must modify their price-setting logic when the product is part of a product mix. In
product-mix pricing, the firm searches for a set of prices that maximizes profits on the total mix.
Six situations calling for product-mix pricing: product-line pricing, optional-feature pricing,
captive-product pricing, two-part pricing, by-product pricing, and product-bundling pricing.
Product – line pricing- Companies normally develop product lines rather than single products and
introduce prices steps. The seller’s task is to establish perceived quality differences that justify the
price differences.
Optional – feature pricing - Many companies offer optional products, features and services along
with their main product.
Captive – product pricing - Some products require the use of ancillary products, or captive
products. Manufactures of razors, digital phones, and cameras often price them low and set high
markups on razor blades and film.
There is a danger in pricing the captive product too high in the aftermarket, however. If parts and
service are too expensive, counterfeiting and substitutions con erode sales.
Two-part pricing - Service firms engage in two-part pricing consisting of a fixes fee plus a
variable usage fee. Telephone users pay a minimum monthly fee plus charges for call beyond a
certain area.
By-product pricing - The production of certain goods-meats, petroleum products, and others
chemicals often results in by-products. If the by-products have value to a consumer group, they
should be priced on their value. Any income earned on the by-products will make it easier for the
company to charge a lower price on its main product if competition forces it to do so.
Product-bundling pricing - Sellers bundles products and features. Pure bundling occurs when a
firm offers its products only as a bundle. It can be a kind of tied-in sales, when a product is sold
accompanied with others products. In mixed bundling, the seller offers goods both individually
and in bundles. The seller normally charges lees for the bundle than if the item were purchase
separately.
Co-Branding and Ingredient Branding
Co-Branding
Marketers often combine their products with products from other companies in various ways. In
co-branding – also called dual branding or brand bundling – two or more well-known brands are
combined into a joint product or marketed together in some fashion. There are various ways to

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form a combination: same-company co-branding, joint-venture co-branding, multiple- sponsor co-
branding, or retail co-branding.
Co-branding can generate greater sales, reduce cost of product introduction, and may be a valuable
means to learn about consumers and how other companies approach them. The potential
disadvantages of co-branding are the risk and lack of control in becoming aligned with another
brand in the minds of consumers, do not overcome the consumer’s expectations generating
dissatisfaction affecting both brand negatively.
For co-branding succeed, the two brands must separately have brand equity a logical fit between
them.
Ingredient Branding
Ingredient branding is a special case of co-branding. It creates brand equity for materials,
components, or parts that are necessarily contained within other branded products. For example,
there`s Danone Activia Yogurt that advertises its trademarked probiotic Bacilus Regularis,
promoting healthy digestion.
An interesting take on ingredient branding, as exposed in Activia`s example, is "self-branding" in
which companies advertise and even trademark their own branded ingredients. It`s a way to create
individual identity to the product, protection it from competitors.

Packaging, Labeling, Warranties and Guarantees

Most physical products must be packaged and labeled. Due to this fact, many marketers have
called packaging a fifth P, along with price, product, place, and promotion. Most marketers,
however, treat packaging and labeling as an element of product strategy. Warranties and
guarantees can also be an important part of the product strategy, which often appear on the
package.
Packaging
We define packaging as all the activities of designing and producing the container for a product.
Packages might include up to three levels of material. Cool Water cologne comes in a bottle
(primary package) in a cardboard box (secondary package) in a corrugated box (shipping package)
containing six dozen boxes.
Well-designed packages can build brand equity and drive sales. The package is the buyer's first
encounter with the product and is capable of turning the buyer on or off.
Various factors have contributed to the growing use of packaging as a marketing tool:

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Self-service: package provides the sales in a self-service basis, like in a supermarket where
consumers buy directly from the shelf.
Consumer affluence: consumers are willing to pay more for the convenience, appearance,
dependability, and prestige of better packages.
Company and brand image: packages contribute to instant recognition of the company or brand.

Innovation opportunity: innovative packaging can bring large benefits to consumers and profits
to producers.
From the perspective of both the firm and consumers, packaging must achieve a number of
objectives:
1. Identify the brand.
2. Convey descriptive and persuasive information.
3. Facilitate product transportation and protection.
4. Assist at-home storage.
5. Aid product consumption.
Marketers must choose the aesthetic and functional components of packaging correctly. Aesthetic
considerations relate to a package's size and shape, material, color, text, and graphics. The
packaging elements must harmonize with each other and with pricing, advertising, and other parts
of the marketing program.
After the company designs its packaging, it must test it. Engineering tests ensure that the package
stands up under normal conditions; visual tests, that the script is legible and the colors harmonious;
dealer tests, that dealers find the packages attractive and easy to handle; and consumer tests, that
buyers will respond favorably.
Companies must pay attention to growing environmental and safety concerns to reduce packaging.
Fortunately, many companies have gone "green" and are finding new ways to develop their
packaging.
Labeling
The label may be a simple tag attached to the product or an elaborately designed graphic that is
part of the package. It might carry only the brand name, or a great deal of information. Even if the
seller prefers a simple label, the law may require more.
Labels perform several functions:
Identifies the product or brand;

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Grade the product;
Describe the product;
Promote the product;
Labels eventually become outmoded and need freshening up.

Warranties and Guarantees

All sellers are legally responsible for fulfilling a buyer's normal or reasonable expectations.
Warranties are formal statements of expected product performance by the manufacturer. Products
under warranty can be returned to the manufacturer or designated repair center for repair,
replacement or refund.
Extended warranties can be sold by the retailer or manufacturer to customers and can be extremely
lucrative for them. It represented 30% of Best Buy`s operating profits in 2005.
Guarantees reduce the buyer's perceived risk. They suggest that the product is of high quality and
that the company and its service performance are dependable. They can be especially helpful when
the company or product is not that well known or when the product's quality is superior to
competitors.
Guarantees is more than legal statements that guides the warranties, they can be seen as extra
benefits to induce consumer to buy the product. For instance, Procter & Gamble promises
complete satisfaction without being more specific (General Guarantee) and A. T. Cross guarantees
its Cross pens and pencils for life, repairing and replacing at no charges (Specific Guarantee).

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 UNIT-4
SETTING PRODUCT STRETEGY

NEW-PRODUCT DEVELOPMENT STRATEGY

A firm can obtain new products in two ways.
1. Acquisition—by buying a whole company, a patent, or a license to produce someone else’s
product.
2. New-product development efforts.
New products are original products, product improvements, product modifications, and new brands
that the firm develops through its own research-and-development efforts.
According to one estimate, 90% of all new products fail (e.g. Harley-Davidson cake-decorating
kits). There are a number of reasons for failure e.g. overestimation of the market size, poor design,
incorrectly positioned, launched at the wrong time, priced too high or poorly advertised.
THE NEW-PRODUCT DEVELOPMENT PROCESS
There are eight major steps in the new-product development process. This systematic process is
for finding and growing new products. The major steps of new product development are:
1. Idea generation
2. Idea screening
3. Concept development and testing
4. Marketing strategy development
5. Business analysis
6. Product development
7. Test marketing
8. Commercialization
1. IDEA GENERATION
New product development starts with Idea generation-The systematic search for new product
ideas. A company typically has to generate many ideas in order to find a few good ones. For

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example, one brainstorming session for Prudential insurance company came up with 1500 ideas
and only 12 were considered even usable.
Major sources for new ideas include internal sources and external sources such as customers,
competitors, distributors, and suppliers, and others.

Internal Idea Sources

Internal sources include company employees at all levels. Companies can pick the brains of its
executives, scientists, engineers, manufacturing staff, and sales people.
External Idea Sources
– Customers
Good new product ideas also come from watching and listening to customers. Company engineers
or sales people can meet with and work alongside to get suggestions and ideas.
– Competitors
Companies watch competitor’s adds to get clues about their new products. They buying competing
new products, take them apart to see how they work, analyze their sales, and decide whether they
should bring out a new product of their own.
– Distributors & Suppliers
Distributors and suppliers can also contribute many good and new product ideas. Resellers are
those close to the market and can pass along information about customer problems and new
product possibilities. Suppliers can tell company about new concepts, techniques, and materials
that can be used to develop new products.
– Outsourcing
Many companies are now outsourcing some of their new product innovation to outside developers.
Companies such as Dell, Motorola sometimes buy new designs from Asian developers and then
market under their own brand names.

Other idea sources include Trade magazines, shows, seminars, government agencies, new product
consultants, advertising agencies, marketing research firms, university and commercial
laboratories, and inventors.
2. IDEA SCREENING: Process used to spot good ideas and drop poor ones.

The purpose of idea generation is to create large number of ideas. The purpose of the succeeding
stages is to reduce that number. The first idea reducing stage is the Idea screening.

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 – Executives provide a description of the product along with estimates of market
size, product price, development time and costs, manufacturing costs, and rate of
return.
– Evaluated against a set of company criteria for new products.
For example, at Kao company, the large Japanese consumer products company, the new product
committee asks questions such as “Is the product truly useful to the consumers and society?”, “Do
we have the people, skills, resources, to make it proceed?” etc.

4. CONCEPT DEVELOPMENT AND TESTING

In concept development, several descriptions of the product are generated to find out how
attractive each concept is to customers. From these concepts, the best one is chosen. An attractive
idea must be developed into a product concept. It is important to distinguish between product idea,
product concept, and a product image.
Product Idea: idea for a possible product that the company can see itself offering.
Product Concept: detailed version of the idea stated in meaningful consumer terms.
Product Image: the way consumers perceive an actual or potential product.
For example, after more than 10 years of development, Daimler Chrysler is getting ready to
commercialize its experimental cell powered electric car into the market. This car’s nonpolluting
fuel system runs directly on Hydrogen.

Daimler Chrysler is currently testing more than 100 F cell cars under varying weather conditions,
traffic situations, and driving styles in world wide.

Now Daimler’s task is to develop this into alternative product concept, find out each how attractive
each concept to its customers, and choose the best one.

Concept one: A moderately priced sub compact designed as a second family car to be used around
town.

Concept two: A medium cost sporty compact appealing to the young people.

Concept three: An inexpensive subcompact green car appealing to environmentally conscious

people.

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Concept Testing: Concept testing calls for testing new-product concepts with groups of target
consumers. Sometimes, a word description or picture is used. At other times the physical
representation of the object is shown to consumers, increasing the reliability of the concept test.

4. Marketing Strategy Development

The next step is marketing strategy development which is designing an initial marketing strategy
for a new product based on the product concept.
The marketing strategy statement consists of three parts.

The marketing strategy statement consists of three parts.

1. A description of the target market; the planned value proposition; and the sales, market
share, and profit goals for the first few years.
2. Outline of the product’s planned price, distribution, and marketing budget for the first year.
3. Description of the planned long-run sales, profit goals, and marketing mix strategy.

5. Business Analysis
Business analysis involves a review of the sales (review the sales history of similar products and
conduct market surveys), costs (e.g. marketing, R&D, operations, finance and other costs), and
profit projections for a new product to find out whether they satisfy the company’s objectives. If
they do, the product can move to the product development stage.

6. Product Development
In product development, R&D or engineering develops the product concept into a physical
product.
The product development step calls for a large jump in investment. Often, products undergo
rigorous tests to make sure they perform safely and effectively. The new product must have the
required functional features and the intended psychological characteristics (e.g. comfortable, safe
for a car; beautiful and special for a handbag).

7. Test Marketing
Test marketing is the stage at which the product and marketing program are introduced into
realistic market settings (e.g. KFC test-marketed its new Kentucky Grilled Chicken product for 3
years, before rolling it out widely). It tests the product and its entire marketing program– targeting
and positioning strategy, advertising, distribution, pricing, branding, packaging and budgeting.
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But, companies often do not test-market simple line extensions or when management is already
confident about the new product.
Drawbacks/disadvantages include:
1. Costly
2. Time consuming
3. Competitors can monitor results
4. Competitors get an early look at your new product.
Test marketing also does not guarantee success.
When using test marketing, consumer products companies usually choose one of the following
approaches: standardized test markets, controlled test markets and simulated test markets.

8. Commercialization
Test marketing gives management the information needed to make a final decision about whether
to launch the new product. If management goes ahead with commercialization, it will introduce
the new product into the market (e.g. Sunsilk hair care launched by Unilever).
Decisions must be made concerning:
 Timing (e.g. if the economy is down, the company may delay the launch),
 Where to launch the new product (in a single location, region, country or international
market)
 Market rollout (rollout could be in stages)
MANAGING NEW-PRODUCT DEVELOPMENT
Companies must manage this process with a customer-centered, team-based and systematic effort.

1. Customer-Centered New-Product Development

New-product development must be customer centered. It must not just rely on technical research
in R&D labs.
Customer-centered new-product development focuses on finding new ways to solve customer
problems and create more customer-satisfying experiences.
2. Team-Based New-Product Development
Under the sequential product development approach one company department works individually
to complete its stage of the process before passing the new product along to the next department
and stage. This orderly, step-by-step process can help bring control to complex and risky projects.
But it also can be dangerously slow.

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In order to get their new products to market more quickly, many companies use a team-based
new-product development approach. Under this approach, company departments work closely
together in cross-functional teams, to save time and increase effectiveness. Instead of passing the
new product from department to department, the company assembles a team of people from
various departments that stay with the new product from start to finish.
It has some limitations. For example, it sometimes creates more organizational tension and
confusion than the more orderly sequential approach. But, for rapidly changing industries with
increasingly shorter product life cycles, the benefits of faster and flexible product development is
greater than the risks. Combining this approach with team-based new prodcut development can get
the right products to market faster.
3. Systematic New-Product Development
An innovation management system can be used to collect, review, evaluate, and manage new-
product ideas, so that new ideas will be encouraged and these ideas will not be lost. It can be web-
based and encourage all company stakeholders to be involved in finding and developing new
products.

THE PRODUCT LIFE CYCLE (PLC)

After launching the new product, management wants the product to enjoy a long and happy life.
Although the company doesn’t expect its product to sell forever, the company wants to earn a
decent profit to cover all the effort and risk that went into launching it.
The product moves through the four stages namely, introduction, growth, maturity and decline. As
the product moves through different stages of its life cycle, sales volume and profitability change
from stage to stage as shown in the figure below. The firm’s emphasis on the marketing mix
elements also undergoes substantial changes from stage to stage.

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The product life cycle has four distinct stages after the Product development, during product
development, sales are zero and the company’s investment costs mount.
1. Introduction is a period of slow sales growth as the product is introduced in the market. Profits
are nonexistent in this stage because of the heavy expenses of product introduction.
2. Growth is a period of rapid market acceptance and increasing profits.
3. Maturity is a period of slowdown in sales growth because the product has achieved acceptance
by most potential buyers. Profits level off or decline because of increased marketing outlays to
defend the product against competition.
4. Decline is the period when sales fall off and profits drop.

Introduction Stage:
The first stage of a product life cycle is the introduction or pioneering stage. Under this state the
fixed costs of marketing and production will be high, competition is almost non-existent, markets
are limited and the product is not known much. Prices are relatively high because of small scale of
production, technological problems and heavy promotional expenditure. Profits are usually non-
existent as heavy expenses are incurred for introducing the product in the market.
Marketing strategies:
a. Advertisement and publicity of the product.
b. Attractive gift to customers as an ‘introductory offer’.
c. Attractive discount to dealers.
d. Higher price of product to earn more profit during the initial stages.

Growth Stage:
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The sales as well as the profits increase rapidly as the product is accepted in the market. The
promotional expenses remain high although they tend to fall as a ratio to sales volume. Quite often,
smaller firms move into the market during the growth phase. With their flexibility they can move
very quickly and capture a valuable part of the market without the huge investment risks of the
development phase. In this stage, the competition increases and distribution is greatly widened.
The marketing management focuses its attention on improving the market share by deeper
penetration into the existing markets and entry into new markets. Sometimes major improvements
also take place in the product during this stage.
Marketing strategies at Growth stage:
The following strategies are followed during the growth stage:
a. The product is advertised heavily to stimulate sale.
b. New versions of the product are introduced to cater to the requirements of different types of
customers.
c. The channels of distribution are strengthened so that the product is easily available wherever
required.
d. Brand image of the product is created through promotional activities.
e. Price of the product is competitive.
f. There is greater emphasis on customer service.

Maturity Stage:
The product enters into maturity stage as competition intensifies further and market gets stabilized.
There is saturation in the market as there is no possibility of sales growth. The product has been
accepted by most of the potential buyers. Profits come down because of stiff competition and
marketing expenditures rise. The prices are decreased because of competition and innovations in
technology. This stage may last for a longer period as in the case of many products with long-run
demand characteristics. But sooner or later, demand of the product starts declining as new products
are introduced in the market. Product differentiation, identification of new segments and product
improvement are emphasized during this stage.
Marketing strategies at Maturity stage:
In order to lengthen the period of maturity stage, the following strategies may be adopted:
a. Product may be differentiated from the competitive products and brand image may be
emphasized more.
b. The warranty period may be extended.
c. Reusable packaging may be introduced.
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d. New markets may be developed.
e. New uses of the product may be developed.

Decline Stage:
This stage is characterized by either the product’s gradual displacement by some new products or
change in consumer buying behavior. The sales fall down sharply and the expenditure on
promotion has to be cut down drastically. The decline may be rapid with the product soon passing
out of market or slow if new uses of the product are found. Profits are much smaller and
companies need to assess their investment policies, looking towards investing in newer and more
profitable product lines.
Marketing strategies at Decline stage:
As far as possible, attempts should be made to avoid the decline stage. But if it has started, the
following strategies may be useful:

a. The promotion of the product should be selective. Wasteful advertising should be avoided.
b. The product model may be abandoned and all the good features may be retained in the new
model of the product.
c. Economical packaging should be introduced to revive the product.
d. The manufacturer may seek merger with a strong firm.

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 ADVANTEGES OF PRODUCT LIFE CYCLE
The advantages of forecasting the life cycle of a product to a firm are as follows:
1. When the PLC is predictable, the marketer must be cautious in taking advance steps before the
decline stage, by adopting product modification, pricing strategies, distinctive style, quality
change, etc.
2. The firm can prepare an effective product plan by knowing the PLC of a product.
3. The marketer can find new uses of the product for the expansion of market during growth stage
and for extending the maturity stage.
4. The firm can adopt latest technological changes to improve the product quality, features and
design.
DISADVANTEGE OF PLC
1. Hard to identify which stage of the PLC the product is in.
2. Hard to pinpoint when the product moves to the next stage.
3. Hard to identify factors that affect product’s movement through stages.
4. Hard to forecast sales level, length of each stage, and shape of PLC.
5. Strategy is both a cause and result of the PLC.

UNIT-5
DESIGNING AND MANAGING SERVICES

We can observe services wherever you imagine, like the government sector, with its courts,
employment services, hospitals, loan agencies, military services, police and fire departments,
postal service, regulatory agencies, and schools, is in the service business. The private nonprofit
sector, with its museums, charities, churches, colleges, foundations, and hospitals, is in the service
business. A good part of the business sector also is in the service business. Many workers in the
manufacturing sector are really service providers.

Some reports like the Bureau of Labor Statistics reports that the service-producing sector will
continue to be the dominant employment generator in the economy, adding about 20 million jobs
by 2014. Employment in the service-producing sector is expected to increase by 17% over the
2004--2014 period, whereas manufacturing employment is expected to decrease by 5%. In fact,
manufacturing's share of total jobs is expected to decline from around 10% in 2004 to 8% in
2010.These numbers and others have led to a growing interest in the special problems of marketing
services.

Definition of service:
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A service is any act or performance one party can offer to another that is essentially intangible and
does not result in the ownership of anything. Its production may or may not be tied to a physical
product. Increasingly, however, manufacturers, distributors, and retailers are providing value-
added services, or simply excellent customer service, to differentiate themselves.

Categories of Service Mix

The service component can be a minor or a major part of the total offering. There are
distinguishing five categories of offerings: The below continuum of product –service mix the
same.

1. Pure tangible good.

The offering consists primarily of a tangible good such as soap, toothpaste, or salt. No services
accompany the product.
2. Tangible good with accompanying services.
The offering consists of a tangible good accompanied by one or more services. Typically, the more
technologically advanced the product, the greater the need for a broad range of high-quality
supporting services. Services are often crucial for cars, computers, and cell phones.
The offering consists of equal parts goods and services. For example, people patronize restaurants
for both the food and its preparation.
4. Major Service with accompanying minor goods and services.
The offering consists of a major service along with additional services or supporting goods. For
example, though the trip includes a few tangibles such as snacks and drinks, what airline
passengers buy is transportation. This service requires a capital-intensive good-an airplane-for its
realization, but the primary item is a service.
5. Pure service.
The offering consists primarily of a service. Examples include babysitting, psychotherapy, and
massage.
The range of service offerings makes it difficult to generalize without a few further distinctions.
1. Services vary as to whether they are equipment based (automated car washes, vending
machines) or people based (window washing, accounting services).

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 2. Service companies can choose among different processes to deliver their service.
Restaurants have developed cafeteria-style, fast-food, buffet, and candlelight service
formats.
3. Some services need the client's presence.
4. Services may meet a personal need (personal services) or a business need (business
services). Service providers typically develop different marketing programs for personal
and business markets.
5. Service providers differ in their objectives (profit or nonprofit) and ownership (private or
public). These two characteristics when crossed, produce four quite different types of
organizations.

Customers cannot judge the technical quality of some services even after they have received them.
Because services are generally high in experience and credence qualities, there is more risk in
purchase. This factor has several consequences: First, service consumers generally rely on word of
mouth rather than advertising. Second, they rely heavily on price, personnel, and physical cues to
judge quality. Third, they are highly loyal to service providers who satisfy them. Fourth, because
switching costs are high, consumer inertia can make it challenging to entice a customer away from
a competitor.

Distinctive Characteristics of Services

Services have four distinctive characteristics that greatly affect the design of marketing programs:
intangibility, inseparability, variability, and perishability.
1) INTANGIBILITY
Unlike physical products, services cannot be seen, tasted, felt, heard, or smelled before they are
bought. To reduce uncertainty, buyers will look for evidence of quality by drawing inferences from
the place, people, equipment, communication material, symbols, and price. Therefore, the service
provider's task is to "manage the evidence," to "tangibilize the intangible."
Service companies can try to demonstrate their service quality through physical evidence and
presentation. Service marketers must be able to transform intangible services into concrete benefits
and a well-defined experience.
2) INSEPARABILITY
Whereas physical goods are manufactured, put into inventory, distributed through multiple
resellers, and consumed later, services are typically produced and consumed simultaneously.
Because the client is also often present as the service is produced, provider-client interaction is a
special feature of services marketing.
In the case of entertainment and professional services, buyers are very interested in the specific
provider. When clients have strong provider preferences, the provider can raise its price to ration
its limited time.
Several strategies exist for getting around the limitations of inseparability. The service provider
can learn to work with larger groups. The service organization can train more service providers
and build up client confidence.
3) VARIABILITY
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Because the quality of services depends on who provides them, when and where, and to whom,
services are highly variable.
Service buyers are aware of this variability and often talk to others before selecting a service
provider. To reassure customers, some firms offer service guarantees that may reduce consumer
perceptions of risk. Here are three steps service firms can take to increase quality control.
a) Invest in good hiring and training procedures.
Recruiting the right employees and providing them with excellent training is crucial, regardless of
whether employees are highly skilled professionals or low-skilled workers. Better-trained
personnel exhibit six characteristics:
Competence, Courtesy, Credibility, Reliability, Responsiveness and Communication.
b) Standardize the service-performance process throughout the organization.
A service blueprint can simultaneously map out the service process, the points of customer contact,
and the evidence of service from the customer's point of view. Service blueprints can be helpful in
developing new service, supporting a "zero defects" culture, and devising service recovery
strategies.
c) Monitor customer satisfaction.
Employ suggestion and complaint systems, customer surveys, and comparison shopping.
Recognizing how customer needs may vary in different geographical areas can allow firms to
develop region-specific programs to improve total customer satisfaction. Firms can also develop
customer information databases and systems to permit more personalized, customized service,
especially online.
4) PERISHABILlTY
Services cannot be stored, so their perishability can be a problem when demand fluctuates.
Demand or yield management is critical-the right services must be available to the right customers
at the right places at the right times and right prices to maximize profitability.
Several strategies can produce a better match between demand and supply in a service business.
On the demand side:
1. Differential pricing will shift some demand from peak to off-peak periods
2. Non Peale demand can be cultivated.
3. Complementary services can provide alternatives to waiting customers.
4. Reservation systems are a way to manage the demand level.
On the supply side:
1. Part-time employees can serve peak demand.
2. Peake-time efficiency routines can allow employees to perform only essential tasks during
peak periods.
3. Increased consumer participation can be encouraged.
4. Shared services can improve offerings.
5. Facilities for future expansion can be a good investment.
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 Service Marketing Mix
An expanded marketing mix for services was proposed by Booms and Bitner (1981), consisting of
the 4 traditional elements–product, price, place, and promotion and three additional elements–
physical evidence, participants, and process. These additional 3 variables beyond the traditional 4
Ps distinguish ‘customer service’ for service firms from that of manufacturing firms.

Physical Evidence
Physical Evidence such as infrastructure, interior, decor, environmental design, business card, etc
that establishes firm's image and influences customer's expectations. Tangible clues help customer
judging the quality of service before service usage or purchase. Before service usage the service is
known by the tangible elements that surrounds it. In product marketing quality of product is judged
by the product itself.
People:
Participants in service environment also provides clues about what the customer should
expect. There is more variability among service outcomes in labour-intensive services than in
machine-dominated service delivery; bank customers who use human tellers will experience far
more service variability than those using automatic teller machines. Training the personnel
adequately is a major factor influencing the provision of quality service. Hence, providing
customer service in a service industry depends not only on recognising customer desires and
establishing appropriate standards, but also on maintaining a workforce of people both willing and
able to perform at specified levels.
Process
The how of service delivery is called the ‘process’ or the ‘functional’ quality. The attitudes and
behaviour of service personnel influence perceived service performance. These behaviours are
usually associated with what is called the ‘process’. For example, when things go wrong in a
service encounter, employees frequently attempt to sooth disgruntled customers by apologising,
offering to compensate, and explaining why the service delivery failure occurred. Any of these
behaviours may influence customer attributions about the firm’s responsibility for the failure and
the likelihood of it occurring again

7 Ps of the Service Marketing Mix

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The customer service for a service firm cannot be explicitly divided into pre-transaction and post-
transaction elements, because production and consumption of a service occurs at the same time.
The service provided can prove effective in terms of satisfying the customer, only if the gap
between expected service and perceived service is bridged. The wider this gap–the more the
number of disappointed customers; and disappointed customers may cause the image of the firm to
deteriorate.
1. Product/Service
Most services are intangible because they are performances rather than objects, precise
manufacturing specifications concerning uniform quality can rarely be set. Because of this
intangibility, the firm may find it difficult to understand how consumers perceive their services.
For developing a good customer service, the service marketer should stress on tangible cues and
also create a strong organisational image. This can be done by communicating clearly to the
customers the features of the service being provided.
2. Price
Because of the intangible nature of the service–price becomes a pivotal quality indicator in
situations where other information is not available. It is essential, therefore that the service firm
engage in competitive pricing. Being an important tangible cue, price of the service is an area in
which the service marketer can concentrate to get a competitive edge. In the case of pure services,
as in the present context, like medical services or legal services price is an important
factor because it is a basis for the customer to make a final choice among several competing
service organizations.
3. Place
Because services are performances that cannot be stored, service businesses frequently find it
difficult to synchronize supply and demand. Also, services cannot be inventoried for the same
reason. Consequently the service firms must make simultaneous adjustments in demand and
capacity to achieve a closer match between the two. Also, the firm could use multisite locations to
make the service more accessible to the users. If the service is located in a remote area, regardless
of the other advantages of the service, customers would not be motivated to use the service.
4. Promotion

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The service marketer should constantly simulate word-of-mouth communications apart from using
regular advertising. If customers in an existing market, for some reason or another have an image
of the firm which does not correspond with reality, traditional marketing activities can be expected
to be an effective way of communicating the real image to the market. Communication includes
informing the customers in a language they can understand. Especially in services post-purchase
communication is very important, because retaining existing customers is as important, as or even
more important than attracting potential customers.
5. Physical Evidence
Physical evidence, as already discussed under the services marketing mix, like the environmental
decor and design significantly influence the customer’s expectations of the service. Since services
cannot be readily displayed, firms should create a conducive environment that help the customers
to develop a positive perception of the service. For example, people would not like to wait for a
medical service or a legal service, if the atmosphere of the place they are made to wait is
unpleasant. Customers can be put off by a mere change in the layout of the service facility or even
the absence of clear signboards.

6. People
Most services are highly labour intensive; the behaviour of the personnel providing the service and
the customers involved in production (due to the inseparable nature of services), have an effect on
providing efficient customer service. To achieve customer-oriented personnel, the organisation
needs to recruit and select the right people, and offer an appropriate package of employment, in
order to enhance their skills and encourage them. Because of the constant interaction between the
employees involved in the service, and the customers–there is a mutual dependence between the
two. If the customers are dissatisfied, employees experience discomfort working with
unhappy customers, and customers are unhappy because the employees were not trained in
customer satisfaction. The extent of this mutual dependence influences the customer’s perception
of the service.
7. Process
In the ‘how’ of the service delivery is extremely important because the service and the seller are
inseparable. The functional quality, or the ‘how’ of service delivery is especially important to
service industries, as it is difficult to differentiate the technical quality, or the ‘what’ of service
delivery. Previous experience with a service also influences the expectations of the customer. If the
customer has had a bad experience with the
Service on any previous occasion, it will influence his or her future perceptions of the service. It is
essential to train the front line employees, whose actions and behaviour influence the customer’s
opinions of the organisation and the actual service provided.

MARKETING STRATEGIES FOR SERVICE FIRMS

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At one time, service firms lagged behind manufacturing firms in their use of marketing because
they were small, or they were professional businesses that did not use marketing, they faced large
demand or little competition. This has certainly changed.
A SHIFTING CUSTOMER RELATIONSHIP:
Not all companies, however, have invested in providing superior service, at least not to all
customers. Customers complain about inaccurate information; unresponsive, rude, or poorly
trained personnel; and long wait times. Even worse, many customers find their complaints never
actually successfull reach a live human being because of slow or faulty phone or online customer
service.
It doesn't have to be that way.
E-mail response must be implemented properly to be effective. One expert believes companies
should:
(1) Send an automated reply to tell customers when a more complete answer will arrive (ideally
within 24 hours);
(2) ensure the subject line always contains the company name;
(3) Make the message easy to scan for relevant information; and
(4) Give customers an easy way to respond with follow-up questions.
PROFIT TIERS
Firms have decided to raise fees and lower service to those customers who barely pay their way
and to coddle big spenders to retain their patronage as long as possible.
Customers in high-profit tiers get special discounts, promotional offers, and lots of special service;
customers in lower-profit tiers may get more fees, stripped-down service, and voice messages to
process their inquiries.
CUSTOMER EMPOWERMENT
Customers are becoming more sophisticated about buying product-support services and are
pressing for "services unbundling." They may want separate prices for each service element and
the right to select the elements they want. Customers also increasingly dislike having to deal with a
multitude of service providers handling different types of equipment.
Most important, the Internet has empowered customers by letting them vent their rage about bad
service-or reward good service-and have their comments beamed around the world with a mouse
click. Ninety percent of angry customers reported that they shared their story with a friend. Now,
they can share their stories with strangers via the Internet, or "word of mouth on steroids" as some
says.
Most companies respond quickly, some within an hour. More important than simply responding to
a disgruntled customer, however, is preventing dissatisfaction from occurring in the future. That
may mean simply taking the time to nurture customer relationships and give customers attention
from a real person.

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CO-PRODUCTION
The reality is that customers do not merely purchase and use services; they play an active role in
the delivery of that service every step of the way. Their words and actions affect the quality of
their service experiences and those of others, and the productivity of frontline employees. One
study estimated that one-third of all service problems are caused by the customer. With an
increasing shift to self-service technologies, this percentage can be expected to rise. Preventing
service failures from ever happening to begin with is crucial, as service recovery is always
challenging. One of the biggest problems is attribution-customers will often feel that the firm is at
fault or, even if not, that it is still responsible for righting any wrongs.
Unfortunately, although many firms have well-designed and executed procedures to deal with their
own failures, they find that managing customer failures is much more difficult.

MANAGING SERVICE QUALITY

The service quality of a firm is tested at each service encounter. If service personnel are bored,
cannot answer simple questions, or are visiting with each other while customers are waiting,
customers will think twice about doing business again with that seller.
Customer Expectations
Customers form service expectations from many sources, such as past experiences, word of mouth,
and advertising. In general, customers compare the perceived service with the expected service. If
the perceived service falls below the expected service, customers are disappointed. Successful
companies add benefits to their offering that not only satisfy customers but surprise and delight
them. Delighting customers is a matter of exceeding expectations.
The service-quality model in figure below highlights the main requirements for delivering high
service quality.

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It identifies five gaps that cause unsuccessful delivery:
1. Gap between consumer expectation and management perception. :Management does not
always correctly perceive what customers want.
2. Gap between management perception and service-quality specification: Management might
correctly perceive customers' wants but not set a performance standard.
3. Gap between service-quality specifications and service delivery: Personnel might poorly
trained, or incapable offer unwilling to meet the standard; or they may be held conflicting
standards, such as taking time to listen to customers and serving them faster.
4. Gap between service delivery and external communications: Consumer expectation is affected
by statements made by company representatives and ads.
5. Gap between perceived service and expected service:This gap occurs when the consumer
misperceives the service quality the physician may keep visiting the patient to show car but the
patient may interpret this as an indication that something really is wrong.

DETERMINANTS OF SERVICE QUALITY

Based on this service-quality model, researchers identified the following five determinants of
service quality, in order of importance:
I. Reliability: The ability to perform the promised service dependably and accurately
II. Responsiveness: The willingness to help customers and to provide prompt service.

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III. Assurance: The knowledge and courtesy of employees and their ability to convey them and
confidence.
IV. Empathy: The provision of caring, individualized attention to customers.
V. Tangibles: The appearance of physical facilities, equipment, personnel, and communication
materials.

BEST PRACTICES OF SERVICE-QUALITY MANAGEMENT

Various studies have shown that well-managed service companies share the following common
practices: a strategic concept, a history of top-management commitment to quality high standards,
self-service technologies, systems for monitoring service performance an customer complaints,
and an emphasis on employee satisfaction.
STRATEGIC CONCEPT
Top service companies are "customer obsessed." They have a clear sense of their target customers
and their needs. They have developed a distinctive strategy for satisfying these needs.
TOP MANAGEMENT COMMITMENT
Many companies have a thorough commitment to service quality. Their managements look not
only at financial performance on a monthly basis, but also at service performance.
HIGH STANDARDS
The best service providers set high service-quality standards. The standards must be set
appropriately high. We can distinguish between companies offering "merely good" service and
those offering "breakthrough" service, aimed at being 100% defect-free.
A service company can differentiate itself by designing a better and faster delivery system. There
are three levels of differentiation. The first is reliability: Some suppliers are more reliable in their
on-time delivery, order completeness, and order-cycle time. The second is resilience: Some
suppliers are better at handling emergencies, product recalls, and answering inquiries. The third is
innovativeness: Some suppliers create better information systems, introduce bar coding and mixed
pallets, and in other ways help the customer.

SELF·SERVICE TECHNOLOGIES (SSTs)

Consumers value convenience in services. Many person-to-person service interactions are being
replaced by self-service technologies. To the traditional vending machines we can add Automated
Teller Machines (ATMs), self-pumping at gas stations, self-checkout at hotels, and a variety of
activities on the Internet, such as ticket purchasing, investment trading, and customization of
products.

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Not all SSTs improve service quality, but they can make service transactions more accurate,
convenient, and faster. Obviously they can also reduce costs. Every company needs to think about
improving its service using SSTs.
Some companies have found that the biggest obstacle is not the technology itself, but convincing
customers to use it, especially for the first time. Customers must have a clear sense of their roles in
the SST process, must see a clear benefit to SST, and must feel they have the ability to actually use
it.
MONITORING SYSTEMS
Top firms audit service performance, both their own and competitors', on a regular basis. They
collect voice of the customer (VOC) measurements to probe customer satisfiers and dissatisfiers.
They use comparison shopping, ghost shopping, customer surveys, suggestion and complaint
forms, service-audit teams, and letters to the president.
We can judge services on customer importance and company performance. Importance-
performance analysis rates the various elements of the service bundle and identifies what actions
are required.
Perhaps the company should spend less on sending out maintenance notices and use the savings to
improve performance on important elements. Management can enhance the analysis by checking
on the competitors' performance levels on each element.
SATISFYING CUSTOMER COMPLAINTS
Every complaint is a gift if handled well. Companies that encourage disappointed customers to
complain and also empower employees to remedy the situation on the spot-have been shown to
achieve higher revenues and greater profits than companies that do not have a systematic approach
for addressing service failures.
Getting frontline employees to adopt extra-role behaviors and to advocate the interests and image
of the firm to consumers, as well as take initiative and engage in conscientious behavior in dealing
with customers can be a critical asset in handling complaints.
SATISFYlNG EMPLOYEES AS WELL AS CUSTOMERS
Excellent service companies know that positive employee attitudes will promote stronger customer
loyalty. Instilling a strong customer orientation in employees can also increase their job
satisfaction and commitment, especially if they're in service settings that allow for a high degree of
customer-contact time. Employees thrive in customer-contact positions when they have an internal
drive to (1) pamper customers, (2) accurately read customer needs, (3) develop a personal
relationship with customers, and (4) deliver quality service to solve customers' problems.
Given the importance of positive employee attitudes to customer satisfaction, service companies
must attract the best employees they can find. They need to market a career rather than just a job.
They must design a sound training program and provide support and rewards for good
performance. They can use the intranet, internal newsletters, daily reminders, and employee
roundtables to reinforce customer-centered attitudes. Finally, they must audit employee job
satisfaction regularly.

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 DEVELOPING BRAND STRATEGIES FOR SERVICES
Developing brand strategies for a service brand requires special attention to choosing brand
elements, establishing image dimensions, and devising the branding strategy.
CHOOSING BRANDING ELEMENTS
Because services are intangible, and because customers often make decisions and arrangements
about their away from the actual service location itself (at home or at work), brand recall becomes
critical important. So an easy-to-remember brand name is critical.
Other brand elements logos, symbols characters, and slogans can also "pick up the slack" and
complement the brand name to build brand awareness and brand image. These brand elements
often attempt to make the service and some of its key benefits more tangible, concrete and real.
Because a physical product does not exist, the physical facilities of the service provider its primary
and secondary signage, environmental design and reception area, apparel, collateral material, and
so on are especially important. All aspects of the service delivery process can be branded.
ESTABLISHING IMAGE DIMENSIONS
Given the human nature of services, it's no surprise that brand personality is an important image
dimension for services.
Service firms can also design marketing communication and information programs so that
consumers learn more about the brand than the information they get from service encounters alone.
DEVISING BRANDING STRATEGY
Finally, services also must consider developing a brand hierarchy and brand portfolio that permits
positioning and targeting of different market segments. Marketers can brand classes of service
vertically on the basis of price and quality. Vertical extensions often require sub-branding
strategies that combine the corporate name with an individual brand name or modifier.

MANAGING SERVICE BRANDS

No less important than service industries are product-based industries that must provide a service
bundle. Manufacturers of equipment-small appliances, office machines, tractors, mainframes,
airplanes all must provide product-support services. Product-support service is becoming a major
battleground for competitive advantage.
Identifying and Satisfying Customer Needs
Customers have three specific worries:
1. They worry about reliability and failure frequency. A farmer may tolerate a combine that
will break down once a year, but not two or three times a year.
2. They worry about downtime. The longer the downtime, the higher the cost. The customer
counts on the seller's service dependability-the seller's ability to fix the machine quickly, or
at least provide a loaner.

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 3. They worry about out-of-pocket costs. How much does the customer have to spend on
regular maintenance and repair costs?
To provide the best support, a manufacturer must identify the services customers value most and
their relative importance. In the case of expensive equipment, manufacturers offer facilitating
services such as installation, staff training, maintenance and repair services, and financing. They
may also add value-augmenting services that extend beyond the functioning and performance of
the product itself.
A manufacturer can offer, and charge for, product-support services in different ways. If the
customer wants additional services, it can pay extra or increase its annual purchases to a higher
level, in which case additional services are included. Many companies offer service contracts (also
called extended warranties), in which sellers agree to provide free maintenance and repair services
for a specified period of time at a specified contract price.

POST-SALE SERVICE STRATEGY

The quality of customer-service departments varies greatly. At one extreme are departments that
simply transfer customer calls to the appropriate person or department for action, with little
follow-up. At the other extreme are departments eager to receive customer requests, suggestions,
and even complaints and handle them expeditiously.
CUSTOMER-SERVICE EVOLUTION
Manufacturers usually start out by running their own parts-and-service departments. They want to
stay close to the equipment and know its problems. They also find it expensive and time
consuming to train others, and discover that they can make good money running the parts-and-
service business, especially if they are the only supplier of the needed parts and can charge a
premium price. In fact, many equipment manufacturers price their equipment low and compensate
by charging high prices for parts and service.
Over time, manufacturers switch more maintenance and repair service to authorized distributors
and dealers. These intermediaries are closer to customers, operate in more locations, and can offer
quicker service. Still later, independent service firms emerge and offer a lower price or faster
service.
THE CUSTOMER SERVICE IMPERATIVE
Customer-service choices are increasing rapidly, however, and equipment manufacturers
increasingly must figure out how to make money on their equipment, independent of service
contracts. The increase in disposable or never-fail equipment makes customers less inclined to pay
2% to 10% of the purchase price every year for a service. A company with several hundred
personal computers, printers, and related equipment might find it cheaper to have its own service
personnel on-site.

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