Principle_Marketing.pdf

CONTENTS UNIT- 1- INTRODUCTION TO MARKETING 1.0 Objectives 1.1 Introduction to Marketing Management 1.2 Difference between Selling and Marketing 1.3 Process of Marketing Management. 1.4 Marketing Tasks. 1.5 Scope of Marketing. 1.6 Core Concept of Marketing...

CONTENTS UNIT- 1- INTRODUCTION TO MARKETING 1.0 Objectives 1.1 Introduction to Marketing Management 1.2 Difference between Selling and Marketing 1.3 Process of Marketing Management. 1.4 Marketing Tasks. 1.5 Scope of Marketing. 1.6 Core Concept of Marketing. 16.1 Demand Management in Marketing. 1.7 Marketing Management Philosophies 1.7.1 Production Concept. 1.7.2 Product Concept. 1.7.3 Selling Concept. 1.7.4 Marketing Concept. 1.7.5 Social Marketing Concept. 1.7.6 Holistic Concept 1.8 Marketing in Economic Development Process 1.9 Marketing Environment. UNIT- 1- CONSUMER BEHAVIOUR & MARKET SEGMENTATION 2.1 Identification of market 2.2 Market Segmentation 2.3 STP Approach 2.4 Market Information System (MIS) 2.5 Market Research 2.6 Consumer Behaviour 2.7 Demand Forecasting UNIT- 2: PRODUCT 3.1 Product 3.1.1 Product Classification. 3.1.2 Product Strategies. 3.1.3 New Product Development. 3.1.4 Product Life Cycle and Marketing Mix. 3.2 Branding Strategy 3.3 Labeling Strategy 3.4 Packaging Strategy UNIT- 3: PRICING ,DISTRIBUTION CHANNEL & PHYSICAL DISTRIBUTION 31 Pricing Methods and Strategy. 3.2 Distribution System 3.3 Function of Wholesaler and Retailer UNIT- 4-PROMOTION 4.1 Integrated Marketing Communication (IMC) 4.2 Tools of Promotion 4.3 Promotional Strategy UNIT- 4- RECENT DEVELOPMENT IN MARKETING 5.1 Marketing of Services 4 5.2 Rural Marketing 5.3 International Marketing 5.4 Digital Marketing 5.4.1 Marketing through Social Channels 5.4.2 Marketing 5.5 Green Marketing 5 UNIT 1 INTRODUCTION TO MARKETING Structure 1.1 Introduction to Marketing Management 1.2 Difference between Selling and Marketing 1.3 Process of Marketing Management. 1.4 Marketing Tasks. 1.5 Scope of Marketing. 1.6 Core Concept of Marketing. 1.7 Demand Management in Marketing. 1.8 Marketing Management Philosophies Production Concept. Product Concept. Selling Concept. Marketing Concept. Social Marketing Concept. Holistic Concept 1.10 Marketing in Economic Development Process 1.11 Marketing Environment. 1.0 OBJECTIVE After studying this unit, you should able to learn :  The meaning of the term Marketing and various marketing concepts:  The difference between selling and marketing;  The marketing management process;  The Core Concept of Marketing:  Role of Marketing in Economic Development Process.  The marketing environment. 1.1 INTRODUCTION TO MARKETING MANAGEMENT 1.1.1 TRADITIONAL CONCEPT OF MARKETING According to the traditional concept, marketing means selling goods and services that have been produced. Thus, all those activities which are concerned with persuasion and 6 sale of goods and services, are called marketing. This concept of marketing emphasizes on promotion and sale of goods and services and little attention is paid to consumer satisfaction. This concept has the following implications:  The main focus of this concept is on product, i.e., we have a product and it has to be sold. So, we have to persuade the consumers to buy our product.  All efforts of the marketing people are concentrated on selling the product. They adopt all means like personal selling and sales promotion to boost the sales.  The ultimate goal of all marketing activity is to earn profit through maximisation of sales. Traditional Concept of Marketing Focus on Product Means Selling Ends Profit through maximization of sales 1.1.2 MODERN CONCEPT OF MARKETING The modern concept of marketing considers the consumers’ wants and needs as the guiding spirit and focuses on the delivery of such goods and services that can satisfy those needs most effectively. Thus, marketing starts with identifying consumer needs, then plan the production of goods and services accordingly to provide him the maximum satisfaction. In other words, the products and services are planned according to the needs of the customers rather than according to the availability of materials and machinery. Not only that, all activities (manufacturing, research and development, quality control, distribution, selling etc.) are directed to satisfy the consumers. Thus, the main implications of the modern concepts are:  The focus of this concept is on customer orientation. The marketing activity starts with an assessment of the customer’s needs and plans the production of items that satisfy these needs most effectively. This also applies to all other marketing activities like pricing, packaging, distribution and sales promotion.  All marketing activities like product planning, pricing, packaging, distribution and sales promotion are combined into one as coordinated marketing efforts. This is called integrating marketing. It implies: 7  (i) developing a product that can satisfy the needs of the consumers; (ii) taking promotional measures so that consumers come to know about the products, its features, quality , availability etc.; (iii) pricing the product keeping in mind the target consumers’ purchasing power and willingness to pay; (iv) packaging and grading the product to make it more attractive and undertaking sales promotion measures to motivate consumers to buy the product; and (v) taking various other measures (e.g., after sales service) to satisfy the consumers’ needs.  The main aim of all effort is to earn profit through maximisation of customer satisfaction. This implies that, if the customers are satisfied, they will continue to buy and many new customers will be added. This will lead to increased sales and so also the profits. Modern Concept of Marketing Focus on Customer’s Need Means Coordinated marketing efforts Ends Profit through customer’s satisfaction. It may be noted that with growing awareness of the social relevance of business, marketing has to take into account the social needs and ensure that while enhancing consumer satisfaction, it also aims at society’s long-term interest. 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 8  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). 1.1.3 FEW RELEVANT TERMS ON MARKETING Market: Normally people understand the term market as a place where goods are bought and sold. But, in the context of Marketing, it refers to a group of buyers for a particular product or service. For example, the market for Accountancy textbooks consists of students in Commerce and specialised Accountancy Programmes; the market for ladies readymade garments consists of girls and women, and so on. Concept of Market:  Place Concept: A market is a convenient meeting place of buyers and sellers to gather together in order to conduct buying and selling activities. It is a physical location where buyers and sellers personally meet to affect purchase and sales. Types of Market According to Area According to Goods and According to Commodities. Volume of transaction  Local Market  Fruit Market  Wholesale Market  Regional Market  Furniture Market  Retail Market  Rural Market  Stock Market; so on  National Market  International Market  Marketer: It refers to the person who organises the various marketing activities such as market research, product planning, pricing, distribution etc.  Seller: It refers to a person or organization, who is directly involved in the process of exchange of goods and services for money. This includes the wholesaler, retailer, etc.  Buyer: A buyer is one who is directly involved in the process of purchase of goods and services. He/she is one who selects the goods, makes payment and takes the delivery.  Consumer: One who actually uses the product or service. For example, you bought a shirt and gifted it to your friend who uses it. Here your friend is the consumer and you are a buyer. However, a consumer can also be the buyer. 9   Customer: A customer usually refers to the person who takes the buying decision. For example, in a family , father decides on the brand of the toothpaste to be used by his children. Here, the children are the consumers and the father is the customer. A customer can also be the consumer. Similarly, the buyer may be different from the customer or one can be the customer as well as the buyer.  Virtual Market: With advancement of technology, the buyer and sellers can, now-a-days, interact with each other by using Internet. This is called virtual market. 1.2 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. Marketing Selling Marketing includes selling and other Selling is confined to persuasion of activities like various promotional measures, consumers to buy firm’s goods and marketing research, after sales service, etc. Services. It starts with research on consumer needs, Selling starts after the production process wants, preference, likes, dislike etc., and is over and ends with the handing over the continues even after the sales have taken money to the seller by the buyer. place. Focus is on earning profit through Focus is on earning profit through maximisation of customers’ satisfaction. maximisation of sales. Customer ’s need is the central point around Fragmented approach to achieve short- whom all marketing activities revolve. term gain. It is an integrated approach to achieve long All activities revolve around the product term goals like creating, maintaining and that has been produced. retaining the customers. Stresses on needs of buyer. Stresses on needs of the seller 1.3 PROCESS OF MARKETING KETING: 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. Stage – 1:- Marketers must assess and understand the marketplace and customers needs and demands. 10 Stage – 2:- 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. Stage -3 :- This 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.. Stage – 4:-The first three steps provide the basis for the fourth step that is building profitable customer relationships and creating customer satisfaction. Stage -5:- 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 profitable market place customer-driven marketing relationships Capture Value and customer marketing strategy program that and create from customers needs and wants delivers superior customer delight in return value Figure 1: Marketing Process 1.4 MARKETING TASKS According to market experts John Evans & Berry Bergmen- there are nine functions of marketing. These are:  Customer analysis  Buying supplies  Selling products and services  Product and service planning  Pricing  Distribution  Marketing research  Opportunity analysis  Social responsibility. 1.5 SCOPE OF MARKETING: 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 Indian 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, 11  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).  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. 1.6. CORE CONCEPTS OF MARKETING:  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) 12  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. 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.  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?’  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 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.  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: 13  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.  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.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.  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 14  exchange of money for goods and services; the outer loop shows an exchange of information. Figure 2: Marketing Communication System  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:  Communication channels: deliver and receive messages form target buyers and include newspapers, magazines, radio, television, mail, telephone and the internet.  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.  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.  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.  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 15  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.  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.  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.  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.  Product: Product means the combination of goods and services that the company offers to the target market.  Price: Price is the amount of money customers have to pay to obtain the product.  Place: Place includes company activities that make the product available to target consumers.  Promotion: Promotion means the activities that communicate the merits of the product and persuade target customers to buy it. 16  Product Variety Price Quality List Price Design Discounts Brand name Allowances Packaging Target Credit terms Market Place Channels Promotion Coverage Advertising Locations Sales Promotion Inventory Personal Selling Marketing Mix: 4 P’s Direct Transportation marketing Public Relation Figure 3 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 The latest way to view four P’s from buyers’ perspective is SIVA which stands for  Solution: How can I get a solution of my problem? (Represents the product)  Information: Where can I learn more about it? (Represents promotion)  Value: What is m total sacrifice to get this solution? (Represents Price)  Access: Where can I find it? (Represents place). Extended Marketing Mix (3 Ps): Now a day’s 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. 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. 1.6.1 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:  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 17  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.  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.  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.  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.  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 synchro-marketing, is to find ways to alter the same pattern of demand through flexible pricing, promotion and other incentives.  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.  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 from 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. 18  For example : The campaign in our country that insist people to take potatoes as replacement of rice.  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. 1.7 MARKETING MANAGEMENT PHILOSOPHIES: 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:  Production Concept  Product Concept  Selling Concept  Marketing Concept  Societal Marketing Concept  Holistic Concept 1.7.1 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. 1.7.2 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). 1.7.3 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 19  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. 1.7.4 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. 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. 1.7.5 Societal Marketing Concept: Society (Human welfare) Consumers Company (Need/Want (Profits) satisfaction) Societal Marketing Concept Figure: 5 Societal Marketing Concepts 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. 1.7.6 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. 20  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. (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. 21 1.8 MARKETING IN ECONOMIC DEVELOPMENT PROCESS Marketing has acquired an important place for the economic development of the whole country. It has also become a necessity for attaining the object of social welfare. As a result of it, marketing is considered to be the most important activity in a business enterprise while at the early stage of development it was considered to be the last activity. For convenience, the importance of marketing may be explained as under:  Delivery of standard of living to the society: A society is a mixture of diverse people with diverse tastes and preferences. Modern marketing always aims for customer satisfaction. So, main liability of marketing is to produce goods and services for the society according to their needs and tastes at reasonable price. Marketing discovers needs and wants of society, produces the goods and services according to these needs creates demand for these goods and services. They go ahead and promote the goods making people aware about them and creating a demand for the goods, encouraging customers to use them. Thus, it improves the standard of living of the society.  Decrease in distribution cost: Second important liability of marketing is control the cost of distribution. Through effective marketing the companies can reduce their distribution costs to a great extent. Decrease in cost of distribution directly affects the prices of products because the cost of distribution is an important part of the total price of the product.  Increasing employment opportunities: Marketing comprises of advertising, sales, distribution, branding and many more activities. So the development of marketing automatically gives rise to a need for people to work in several areas of marketing. Thus the employment opportunities are born. Also successful operation marketing activities requires the services of different enterprises and organisation such as wholesalers, retailers, transportation, storage, finance, insurance and advertising. These services provide employment to a number of people. 22   Protection against business slump: Business slump cause unemployment, slackness in the success of business and great loss to economy. Marketing helps in protecting society against all these problems.  Increase in national income: Successful operation of marketing activities creates, maintains and increases the demand for goods and services in society. To meet this increased demand the companies need to increase the level of production in turn raising their income. This increase, in turn, increases the national income. Further effective marketing leads to exports adding to the national income. This is beneficial to the whole society. 1.9 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. According to Philip Kotler, “A company’s marketing environment consists of the internal factors & forces, which affect the company’s ability to develop & maintain successful transactions & relationships with the company’s target customers”. Marketing Environment involves forces that directly or indirectly influence an organisation’s capability to market its product successfully. 23  Marketing Environment Internal External Environment or Environment or Controlable Uncontrolable Environment Environment Micro Environment Macro Environment Figure 7: Components of Marketing Environment 1.9.1 Internal Marketing Environment or Controllable Factors Internal Environment is generally audited by applying 5 Ms i.e.  Men  Money  Machinery  Markets  Materials The internal marketing environment consists of all factors that are internal to the organisation like:  Company`s mission, vision and business objectives  Company Culture  Company image and Goodwill  Marketing Strategy  Technical Capacity  Managerial Skills and Abilities  Structure and Processes  Finance and Sales force  Production and Research  Internal Processes and Procedures  Allocation of responsibilities  Resource availability  Attitude of stakeholders  Organisation culture  Human Resources – HR department, Operations department, Accounting and Finance departments, Research and Design 24 1.9.2 The External Environmental Factors may be classified as:  Internal Factor  External Factor External Factors may be further classified into: External Micro Factors & External Macro Factors Company’s Internal Environmental Factors: A Company’s marketing system is influenced by its capabilities regarding production, financial & other factors. Hence, the marketing management/manager must take into consideration these departments before finalizing marketing decisions. The Research & Development Department, the Personnel Department, the Accounting Department also have an impact on the Marketing Department. It is the responsibility of a manager to company- ordinate all department by setting up unified objectives. 1.9.2.1 External Micro Factors:  Suppliers: They are the people who provide necessary resources needed to produce goods & services. Policies of the suppliers have a significant influence over the marketing manager’s decisions because, it is laborers, etc. A company must build cordial & long-term relationship with suppliers.  Marketing Intermediaries: They are the people who assist the flow of products from the producers to the consumers; they include wholesalers, retailers, agents, etc. These people create place & time utility. A company must select an effective chain of middlemen, so as to make the goods reach the market in time. The middlemen give necessary information to the manufacturers about the market. If a company does not satisfy the middlemen, they neglect its products & may push the competitor’s product.  Consumers: The main aim of production is to meet the demands of the consumers. Hence, the consumers are the center point of all marketing activities. If they are not taken into consideration, before taking the decisions, the company is bound to fail in achieving its objectives. A company’s marketing strategy is influenced by its target consumer. Eg: If a manufacturer wants to sell to the wholesaler, he may directly sell to them, if he wants to sell to another manufacturer, he may sell through his agent or if he wants to sell to ultimate consumer he may sell through wholesalers 25  or retailers. Hence each type of consumer has a unique feature, which influences a company’s marketing decision.  Competitors: A prudent marketing manager has to be in constant touch regarding the information relating to the competitor’s strategies. He has to identify his competitor’s strategies, build his plans to overtake them in the market to attract competitor’s consumers towards his products. Types of Competition Pure Competition: Numerous competitors offer undifferentiated products. No buyer or seller can exercise market power. Monopolistic Competition: Numerous competitors offer products that are similar, prompting the competitors to strive to differentiate their product offering from others. Oligopoly: A small number of competitors offer similar, but somewhat differentiated, products. There are significant barriers to new competitors entering the market. Monopoly: There is only one supplier and there are substantial, potentially insurmountable, barriers to new entrants. Monopsony: The market situation where there is only one buyer. Company faces three types of competition: a) Brand Competition: It is a competition between various companies producing similar products. Eg: The competition between BPL & Videcon companies. b) The Product Form Competition: It is a competition between companies manufacturing products, which are substitutes to each other Eg: Competition between coffee & Tea. c) The Desire Competition: It is the competition with all other companies to attract consumers towards the company. Eg: The competition between the manufacturers of TV sets & all other companies manufacturing various products like automobiles, washing machines, etc. Hence, to understand the competitive situation, a company must understand the nature of market & the nature of customers.  Public: A Company’s obligation is not only to meet the requirements of its customers, but also to satisfy the various groups. A public is defined as 26  “any group that has an actual or potential ability to achieve its objectives”. The significance of the influence of the public on the company can be understood by the fact that almost all companies maintain a public relation department. A positive interaction with the public increase its goodwill irrespective of the nature of the public. A company has to maintain cordial relation with all groups, public may or may not be interested in the company, but the company must be interested in the views of the public. Public may be various types. They are: i. Press: This is one of the most important group, which may make or break a company. It includes journalists, radio, television, etc. Press people are often referred to as unwelcome public. A marketing manager must always strive to get a positive coverage from the press people. ii. Financial Public: These are the institutions, which supply money to the company. Eg: Banks, insurance companies, stock exchange, etc. A company cannot work without the assistance of these institutions. It has to give necessary information to these public whenever demanded to ensure that timely finance is supplied. iii. Government: Politicians often interfere in the business for the welfare of the society & for other reasons. A prudent manager has to maintain good relation with all politicians irrespective of their party affiliations. If any law is to be passed, which is against the interest of the company, he may get their support to stop that law from being passed in the parliament or legislature. iv. General Public: This includes organisations such as consumer councils, environmentalists, etc. as the present day concept of marketing deals with social welfare, a company must satisfy these groups to be successful. 27 1.9.2.2 External Macro Environment: These are the factors/forces on which the company has no control. Hence, it has to frame its policies within the limits set by these forces: i. Demography: It is defined as the statistical study of the human population & its distribution. This is one of the most influencing factors because it deals with the people who form the market. A company should study the population, its distribution, age composition, etc before deciding the marketing strategies. Each group of population behaves differently depending upon various factors such as age, status, etc. if these factors are considered, a company can produce only those products which suits the requirement of the consumers. In this regard, it is said that “to understand the market you must understand its demography”. ii. Economic Environment: A company can successfully sell its products only when people have enough money to spend. The economic environment affects a consumer’s purchasing behavior either by increasing his disposable income or by reducing it. Eg: During the time of inflation, the value of money comes down. Hence, it is difficult for them to purchase more products. Income of the consumer must also be taken into account. Eg: In a market where both husband & wife work, their purchasing power will be more. Hence, companies may sell their products quite easily. iii. Physical Environment or Natural Forces: A company has to adopt its policies within the limits set by nature. A man can improve the nature but cannot find an alternative for it. Nature offers resources, but in a limited manner. A product manager utilizes it efficiently. Companies must find the best combination of production for the sake of efficient utilization of the available resources. Otherwise, they may face acute shortage of resources. Eg: Petroleum products, power, water, etc. iv. Technological Factors: From customer’s point of view, improvement in technology means improvement in the standard of living. In this regard, it is said that “Technologies shape a Person’s Life”. Every new invention builds a new market & a new group of customers. A new technology improves our lifestyle & at the same time creates many problems. Eg: Invention of various consumer comforts like washing machines, mixers, etc have 28  resulted in improving our lifestyle but it has created severe problems like power shortage. Eg: Introduction to automobiles has improved transportation but it has resulted in the problems like air & noise pollution, increased accidents, etc. In simple words, following are the impacts of technological factors on the market: a) They create new wants b) They create new industries c) They may destroy old industries d) They may increase the cost of Research & Development. v. Social & Cultural Factors: Most of us purchase because of the influence of social & cultural factors. The lifestyle, values, believes, etc are determined among other things by the society in which we live. Each society has its own culture. Culture is a combination of various factors which are transferred from older generations & which are acquired. Our behaviour is guided by our culture, family, educational institutions, languages, etc. The society is a combination of various groups with different cultures & subcultures. Each society has its own behavior. A marketing manager must study the society in which he operates. Consumer’s attitude is also affected by their society within a society, there will be various small groups, each having its own culture. Eg: In India, we have different cultural groups such as Assamese, Punjabis, Kashmiris, etc. The marketing manager should take note of these differences before finalizing the marketing strategies. Culture changes over a period of time. He must try to anticipate the changes new marketing opportunities. Importance of Environmental Analysis: The marketing Manager needs to be dynamic to deal effectively with the challenges of environment. The business environment is not static and it is changing continuously. The following are the benefits of environment scanning as suggested by various authorities:  It creates an increased general awareness of environmental changes on the part of management. 29   It guides with greater effectiveness in matter relating to the Government.  It helps in marketing analysis.  It suggests improvements in diversification and resource allocations.  It helps firms to identify and capitalize upon opportunities rather than losing out to competitors.  It provides a base of objective qualitative information about the business environment that can subsequently be of value in designing the strategies.  It provides a continuing broad- based education of executives in general, and the strategists in particular. INDIAN MARKET & ITS ENVIRONMENT It is difficult to analyze the environmental factors affecting Indian market. Ours is a vast country with various religions, caste, sub-caste, languages, culture, etc. Each of these factors operates at different levels & art different places.  Vast Market: The Indian market is the second largest in the world considering its population. If consumption is considered, it has one of the lowest levels of consumption. Hence, it can be said that majority of the market for various products has been left untapped. Region-wise, the Indian Market can be broadly classified into Four Parts: a. Northern Market b. Southern Market c. Western Market d. Eastern Market  Rural Market: Majority of the Indians live in rural areas. Hence, rural markets have a significant influence on the company’s marketing strategy  Cultural & Religion: India is a country with many religions each religion has its own culture & most of the Indians are religious. The culture affects the habits of people. Hence, it has to be considered before deciding what is to be sold. Eg: Jainism completely prohibits the consumptions of meat. Hence, it is difficult to sell meat where Jains are living 30  Economic Conditions: India is one of the fastest developing countries. The standard of living is increasing every year. This indicates that the marketing opportunities in our country are vast.  Government: We are following the policy of mixed Economy i.e., Market is neither totally free (Capitalism) nor it is fully controlled (Socialism). The government encourages consumerism & hence he marketers are gradually accepting the marketing concept.  Intermediaries: Our country has two types of distribution system. They are: a. Public distribution system, where essential commodities are directly sold to the consumers through government agencies. b. Open distribution system, where the products are sold in the open market. The open distribution system in our country is the traditional one. The chain of distribution is once of the most efficient chains of the world. Wholesalers, retailers, brokers, etc are the intermediaries operating in our country.  Press: Press in our country is not as sophisticated as in the developed countries. Most of the newspapers & magazines are controlled by big business houses.  Technology: Most of the company/companies in our country import the technology from other countries. Investment in research is one of the lowest in the world. Rural Marketing Challenges & Opportunities: Majority of Indians live in villages & most of them are farmers. Rural markets in our country are changing rapidly. Many companies have not tried to find out the needs of rural consumers. Hence, many rural markets have been left untapped. Problems of Rural Marketing: About 80% of villages do not have proper infrastructural facilities like transportation, communication, etc. People in the rural market purchase in small quantities; usually, they behave as group. Hence, it is difficult to influence their behavior to deliver a product directly to the rural consumers; a company has to incur double the cost of what it incurs in case of urban consumers. 31 Illiteracy among villagers makes it difficult to promote products. Most of them purchase because of their belief. 32 UNIT I –CONSUMER BEHAVIOUR & MARKET SEGMENTATION Structure: 2.1 Identification of market 2.2 Market Segmentation 2.3 STP Approach 2.4 Market Information System (MIS) 2.5 Market Research 2.6 Consumer Behaviour 2.7 Demand Forecasting 2.1 IDENTIFICATION OF MARKET 2.1.1 Introduction to Market: The term market has many meanings and connotations. Originally the term market stood for the place where buyers and sellers gathered to exchange their goods, such as a village bazaar. Another popular way of describing a market is in the context of a particular place where several shops or buyers or users may be located. For example, Connaught Place is considered a market in New Delhi. Economists use the term market to refer to a collection of buyers and sellers who transact a particular product category or a range of products such as computer market, two-wheelers market, car market, etc. But marketers do not agree with economists as they consider the sellers as constituting the industry and the buyers as constituting the market. From the marketing point of view it can be defined as group of people or organisations with needs to satisfy, money to spend, and the willingness to spend it. It can be identified by Lome common characteristic, interest, or problem; use a certain product to advantage; and be reached through some medium. However, within a total market there is always some diversity among the buyers. The size of the market depends on 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. Within the sane general market there w e groups of customers with different needs, buying preferences, or product-use behavior. In some markets these 33 differences are relatively minor, and the primary benefit sought by consumers can be satisfied with a single marketing mix. In other markets customers are unwilling to make the compromises necessitated by a single marketing mix. As a result different marketing mixes are required to reach the entire market. Whether it is large or small, the group of consumers (people or organizations) for whom the seller designs a particular marketing mix is a target market. Thus a target market refers to a group of people or organizations at which a firm directs a marketing program with a specific marketing mix. For example, Malvti Udyog, the market leader in passenger car market, focuses on one target market for its Maruti 800, for Zen it has another target market, for Esteem il considers yet another target market, and for Baleno it is targeting a different target market. Therefore, a company may have different target markets for its various brands in the same general market in a product category. For each target market the company has to develop distinct marketing program if it wants to succeed in that target market. 2.1.2 Types of Market We as consumers, buy various goods and services for our own consumption or use in our daily life. 111the same way business enterprises buy innumerable goods and services for the purpose of using them in manufacturing process, helping in manufacturing process, for running the business, and reselling them to the final consumers. For proper understanding of the markets, therefore, it is essential to classify the markets 011 the basis of the type of buyer group. As such, markets are classified into two broad categories. They are: consumer markets and organizational markets. Let us study these two types of markets in detail.  Consumer Markets: Here consumers mean all the individuals and households who buy goods and services for their personal or household consumption. Thus the consumer market consists of all the individuals and households who buy or acquire goods and services for their own personal or household use. They buy strictly to satisfy their non-business personal needs and wants. For example, you purchase items such as toothpaste, soap, biscuits, sweets etc., for your personal consumption or your family consumption. But when an individual or organization buys goods for resale or for further production, such an individual o r organization is not treated as 34  belonging to the consumer market. These ultimate consumers are large in numbers and spread throughout the country. They also vary tremendously in age, income, educational level, tastes, preferences, etc. These factors are cultural, social, personal, economic and psychological characteristics of the buyer. You may also recall while buying different products and services a buyer typically goes through five stages of buying decision process. These five stages are: problem recognition or need arousal, information search, evaluation of alternatives, actual purchases decision and post-purchase behavior.  Organizational Markets: It is generally considered that business organizations engage in selling their products and services to their consumers. This is true, but they also buy vast quantities of raw materials, manufactured components, plants and equipments, supplies, and business services. Thousands of business, institutional, and government organizations represent a huge, lucrative buying market for goods and services purchased from both domestic and international suppliers. In fact, organizational markets involve many more lopes and items than do consumer markets. Today most of the large companies, in addition to selling their products to the consumer market, sell to other organizations. Many industrial goods manufacturing companies sell most of their products to other business organizations. Even large consumer goods manufacturers engage in organizational marketing. Types of Organizational Market:  The Industrial market: It is also called producer or business market. It consists of all the individuals and organizations that buy or acquire goods and services that enter into the production of other products and services that are sold, rented or supplied to others. The major industries making up the organizational market are agriculture, forestry 35  and fisheries; mining; manufacturing; construction; transportation; communication; public utilities; banking; finance, and insurance; distribution; and services. For example, Maruti Udyog purchases large number of raw materials, component parts, machinery, and supplies. After manufacturing different brands of passenger cars it sells to final consumers and organizations. Within the industrial market, customers tend to be larger and fewer than in consumer markets. But even here, great variations are found. First, the number of industrial firms making up the market varies from one (monop sony), to few (oligopoly), to many. Secondly, we can also distinguish between industrial markets made up of only large films, or a few large and many small firms, or only small firms.  The Reseller Market: It consists of all the individuals and organisations that acquire goods for the purpose of reselling or renting them to others at a profit. The basic activity of resellers-unlike industrial or business market-is buying products from manufacturing organizations and reselling these products essentially in the same form to the resellers' customers. In economic terms resellers create time, place and possession utilities rather than form utility. Resellers also buy many goods and services for use in operating their businesses-items such as office supplies and equipment, warehouses, materials-handling equipment, legal services, and electrical services. In the case of the resellers like small wholesale and retail organisations, buying are done by one or a few individuals In large reseller's organizations, buying is done by a buying committee made up of experts on demand, supply, and prices. One of the major problems a reseller faces is to determine its unique assortment-the combination of products and services that it will offer to its customers.  The government market: A government market is a market where the consumers are federal, state, and local governments. Governments purchase both goods and services from the private sector. Governments buy the same types of products and services as private sector consumers, plus some more exotic products such as 36  aircraft carriers, fighter jets, tanks, spy satellites, and nuclear weapons. A growing trend in the past decades has been the outsourcing of traditional government services to private firms, such as prisons. Government purchasing processes are different from those in the private sector of the industrial or business market. A unique feature of the government buying is the competitive bidding system. Much government procurement, by law, must be done on a bid basis. That is, the government agency advertises for bids using a standard format called a request for proposal (RFP), or quotation states specifications for the intended purchase. Then it must accept the lowest bid that meets these specifications. An alternative to this system, the government may sometimes negotiate a purchase contract with an individual supplier. This system is used when government wants to purchase a specialized product that has no comparable products on which to base bidding specifications. In India, most of the government purchases for standard products are based on the rates approved by the Directorate General of Supplies and Disposal (DGS&D). From time to time DGS&D decides the rates of various products and services which are needed by governmental agencies. Despite the vast opportunities available from the government market, many companies are reluctant to sell because they are intimidated by the red tape.  The Institutional Market: This is also known as non-profit organization or "non business" business market. This market consists of various non-profit institutions other than the government market. This includes: educational institutions (schools, colleges, universities, and research laboratories), hospitals, nursing homes, religious institutions, etc. Many non-profit institutions have low budgets and captive clienteles. For example, many universities, colleges and governmental hospitals work on funds provided by the government and in most of the cases these are limited. Therefore, those companies who wish to sell to this market should keep i n mind the inherent budget constraints. 37 2.1.3. Characteristics of Organizational Market After discussing various types of organizational market w e now describe briefly the distinguishing characteristics of organizational market which make it different fro consumer market. These characteristics are more or less applicable to all types of organizational market, but these are more applicable to industrial or business market. These are: Fewer Buyers: Normally organizational buyers are less in number compared with consumers. Therefore, an industrial marketer normally deals with fewer buyers than does the consumer marketer. For instance, if a MRF a leading tyres manufacturing company wants to sell its tyres in the industrial market, it may concentrate on one of the big automobile manufacturing concerns. When the same company wishes to sell tyres to consumers (vehicle owners) it has to contact lakhs of vehicle owners. Larger Buyers: Organizational buyers normally require large quantities of goods whereas personal consumers require smaller quantities. Thus industrial buyers are large scale buyers. Even among industrial buyers a few large buyers normally account for most of the purchasing. In such industries as automobiles, telephone, soaps, cigarette, synthetic yarn etc., a few top manufacturers account for more than a substantial part of total production. Such industries account for a major share of raw material bought in the market. Geographical Concentration: Organizational buyers are mainly concentrated in few places like, Mumbai, Kolkata, Delhi, Chennai, Bangalore, Pune, Hyderabad, etc., whereas consumers are spread throughout the country. For example, most of the companies in textile sector are located in the western belt of India. Because of this geographical concentration of industrial markets, the marketers need not establish distribution network throughout the country. This helps in reducing the cost of distribution. Derived Demand: The demand for industrial goods is ultimately derived from the demand for consumer goods. For instance, Maruti Udyog Ltd. purchases steel and produces cars for the consumer market. If the consumer demand for cars drops, so 38 will the demand for the steel and all the other products used to make cars. Therefore, industrial marketers sometimes promote their products directly to final consumers to increase business demand. For example, Intel Corporation, the largest supplier of computer processors engages in mass media advertising quite often. Inelastic Demand: Demand for many industrial goods and services is inelastic and not much affected by price changes, especially in the short run, because producers cannot make quick changes in production schedules. For example, footwear manufacturers will not buy much more leather if the prices of leather fall. Nor will they buy less leather if the prices rise unless they can find satisfactory substitutes. In case of price increase of industrial product such as key raw material, the manufacturers will increase the price of the finished product. In this way they pass on the price increase to the ultimate consumers. Fluctuating Demand: The demand for industrial goods and services tends to be more volatile than for consumer goods and services. This is especially true of the demand for new plant and equipment. A given percentage increase in consumer demand can lead to a much larger percentage increase in the demand for necessary plant and equipment to produce the additional quantity in order to meet the increased demand. Economists refer to this as the acceleration principle. Professional Purchasing-: Most of the organisations have professionally trained personnel in the purchasing division. Goods are purchased by these specialists. There are professional journals which provide for the benefit of these professional buyers. Consumers, on the other hand are less trained in the art of careful buying. In industrial purchasing, if the buying decision is complex; it is likely that several persons will participate in the decision-making process. Purchase committee comprising experts and top management are common in the purchase of major goods. In addition to this many of the buying instruments-such as purchase contracts-are not found in consumer buying. Close Supplier-Customer Relationship: With the smaller customer base and the importance and power of the larger customers, industrial sellers are frequently 39 required to customize their offerings, practices, and performance to meet the needs of individual customers. Multiple Buying Influences: More people typically influence business buying decisions. Buying committees are common in the purchase of major goods; marketers have to send well trained and experienced sales people and often sales teams to deal with these well-trained buyers Multiple Sales Calls: With the more people involved in the process, the sales representatives or sales teams from the industrial supplier are required to call many times before getting an order from an industrial buyer. A long period, ranging from a few weeks to few months is required to get an order for major capital equipment from an industrial buyer. Direct Purchasing: Organizational buyers particularly business buyers often buy directly from manufacturers rather than through intermediaries, especially products that are technically coinplex or expensive. Reciprocity: Organizational buyers often select suppliers who also in turn buy from them. For example a paper manufacturer who buys chemicals from a chemical company that is buying a considerable quantity of its paper. Even in this reciprocal buying situation the buyer will make sure to get the supplies at a competitive price, of proper quality and service. Leasing: In case of major and expensive equipment many industrial buyers lease rather than buy in order to conserve funds, get the latest products, receive better service, and gain tax advantages. The lessor often makes more profit and sells to customers who could not afford outright purchase of equipment; there are certain income tax benefits according to Indian Income Tax Act given to both lessor and leasee. 2.2 Market Segmentation: 2.2.1: Concept of Segmentation: Today companies that sell their products and services to various consumer and industrial markets are aware that they cannot serve to all buyers in the entire 40 market for a specific product or service category. The reason is that buyers in a specific product market are too numerous, too widely spread, and have different needs and buying motives. This is known as heterogeneity or diversity of buyers. For examples, not all consumers who wear pants want to wear jeans. Even those wear jeans some will go for designer's jeans and some go for cheaper jeans. In the same way businesses who use compute s may not want the same amount of memory or speed in computers. Thus rather than to compete in an entire market each company must identify the parts of the market that it can serve in a more meaningful way. What we are seeing here is that within the same general market there are groups of consumers with different needs, buying preferences, or product-use behavior. In some product markets these differences are relatively minor, and the primary belief it sought by consumers can be satisfied with a single marketing mix. In other product markets these differences are pronounced and consumers are not likely to compromise on single product and other elements of marketing mix. As a result, alternative or multiple marketing mixes are required to reach the entire product market. For example, today in India there are various brands of cars which are serving the "small car market", some are serving "mid-size car market", and some brands of cars are serving "luxury car market". Whether it is large or small, the group of consumers (personal consumers or business buyers) for whom the seller designs and directs a particular marketing mix is a target market. Mass Marketing: In this marketing practice companies use to produce a single product on a mass scale, distributed and promoted on a mass level. The main advantage that has been advocated for mass marketing is that this will lead to economies of scale to the manufacturers and lower price to the consumers. This practice is also known as "shotgun approach" or market aggregation. In the present market scenario this practice used by the marketers as consumers in most of the markets exhibit differences in terms of buying preferences, needs and product use behaviour. This has made mass marketing difficult in the present times. Target Marketing: Here the total market is consisting of several smaller segments 41 with differences significant enough that one marketing mix will not satisfy everyone or even a majority in a given product or services, in market. Therefore, a firm here identifies different submarkets or market segments, selects one or more of them, and develops products and marketing mixes to each. This strategy develops a "rifle" approach instead of "shotgun approach". Selection of a target market (or target markets) is part of the overall process known as S-T-P (Segmentation→Targeting→Positioning). Before a business can develop a positioning strategy, it must first segment the market and identify the target (or targets) for the positioning strategy. This allows to the business to tailor its marketing activities with the needs, wants, aspirations and expectations of target customers in mind. This enables the business to use its marketing resources more efficiently, resulting in more cost and time efficient marketing efforts. It allows for a richer understanding of customers and therefore enables the creation of marketing strategies and tactics, such as product design, pricing and promotion, that will connect with customers' hearts and minds. Also, targeting makes it possible to collect more precise data about customer needs and behaviors and then analyze that information over time in order to refine market strategies effectively. The first step in the S-T-P process is market segmentation. In this phase of the planning process, the business identifies the market potential or the total available market (TAM). This is the total number of existing customers plus potential customers, and may also include important influencers. For example, the potential market or TAM for feminine sanitary products might be defined as all women aged 14-50 years. Given that this is a very broad market in terms of both its demographic composition and its needs, this market can be segmented to ascertain whether internal groups with different product needs can be identified. In other words, the market is looking for market-based opportunities that are a good match its current product offerings or whether new product/service offerings need to be devised for specific segments within the overall market. 42 2.2.2: Importance of Segmentation: Market segmentation being customer-oriented is resemblance with the marketing concept philosophy. In market segmentation, a company first identifies the needs of consumers within a segment and then decides if it is practical to develop a product and marketing mix to satisfy those needs. By practicing market segmentation and a company may obtain the following advantages and benefits.  By tailoring marketing programs to each market segment, a company can do a better marketing job and can make more efficient use of its marketing resources.  A small company with limited resources may be in a better position to compete more effectively in one or two small market segments, whereas the same company would be overwhelmed by the competition from bigger companies if it aimed for a major segment.  A company with effective market segmentation strategy can create a more fine- tuned product or service offering and price it appropriately for the target segment.  The company can more easily select the most appropriate distribution network and communication strategy, and it will be able to understand its competitors in a better way, which are serving the same segment.  By developing strong position in a specialized market segments, a medium sized company can grow rapidly.  Even very large companies with the vast resources at their disposal are abandoning mass marketing strategies and embracing market segmentation 43  as more effective strategy to reach various market segments in broad product market. For example, Hindustan Lever Ltd (HLL), one of the most admired companies, has developed a number of detergent brands to cater to the needs of various segments in detergent market. This has been done by HLL after it faced stiff competition in the 1970s from a sinall and lesser known Nirma Chemicals Ltd, in the form of Nirma brand. As a result of Nirma's onslaught HLL came up with an economical brand named Wheel to cater to the needs of middle class and economy conscious detergent buyers. Because of these factors and the benefits from the market segmentation most of the companies both in consumer and industrial markets are practicing this strategy. Because of obvious benefits, today not only market segmentation is practiced by the companies manufacturing goods and services but it has also been adopted by retailers. Many marketing experts are of the view that the days of mass marketing have gone and even if some companies are following mass marketing its days are numbered. Therefore, today companies use market segmentation to stay focused rather than scattering their marketing resources. 2.2.3: Bases of Segmentation: Some of the major bases for market segmentation are as follows:  Geographic Segmentation  Demographic Segmentation  Psychographic Segmentation  Behavioristic Segmentation  Volume Segmentation  Product-space Segmentation  Benefit Segmentation. A large number of variables are used to segment a consumer market. The most common bases for segmenting markets are as follows: Traditional: Geographic, Demographic. Modern: Psychographic, Behaviouristic 2.2.3.1: Geographic Segmentation: 44 Geographic location is one of the simplest methods of segmenting the market. People living in one region of the country have purchasing and consuming habit which differs from those living in other regions. For example, life style products sell very well in metro cities, e.g., Mumbai, Delhi, Kolkata and Chennai but do not sell in small towns. Banking needs of people in rural areas differ from those of urban areas. Even within a city, a bank branch located in the northern part of the city may attract more clients than a branch located in eastern part of the city. 2.2.3.2: Demographic Segmentation: Demographic variables such as age, occupation, education, sex and income are commonly used for segmenting markets. (a) Age: Teenagers, adults, retired. (b) Sex: Male and female. (c) Occupation: Agriculture, industry, trade, students, service sector, house-holds, institutions. (i) Industrial sector: Large, small, tiny. (ii) Trade: Wholesale, retail, exporters. (iii) Services: Professionals and non-professionals. (iv) Institutions: Educational, religions, clubs. (v) Agriculture and cottage industries. (d) Income Level: Above Rs. 1 lakh per annum, Rs. 50,000 to Rs. 1 lakh, Rs. 25,000 to Rs. 50,000 per annum, i.e., higher, middle and lower. (e) Family Life-cycle: Young single, young married no children, young married youngest child under six, young married youngest child over six, older married with children, older married no children under eighteen, older single, etc. 2.2.3.3:. Psychographic Segmentation: 45 Under this method consumers are classified into market segments on the basis of their psychological make-up, i.e., personality, attitude and lifestyle. According to attitude towards life, people may be classified as traditionalists, achievers, etc. Rogers has identified five groups of consumer personalities according to the way they adopt new products: (а) Innovators: These are cosmopolitan people who are eager to try new ideas. They are highly venturesome and willing to assume the risk of an occasional bad experience with a new product. (b) Early Adopters: These are influential people with whom the average person checks out an innovation. (c) Early Majority: This group tends to deliberate before adopting a new product. Its members are important in legitimizing an innovation but they are seldom leaders. (d) Late Majority: This group is cautious and adopts new ideas after an innovation has received public confidence. (e) Laggards: These are past-oriented people. They are suspicious of change and innovations. By the time they adopt a product, it may already have been replaced by a new one. Understanding of psychographic of consumers enables marketers to better select potential markets and match the product image with the type of consumer using it. For example, women making heavy use of bank credit cards are said to lead an active lifestyle and are concerned with their appearance. They tend to be liberated and are willing to try new things. Psychographic classification may, however, be an oversimplification of consumer personalities and purchase behaviour. So many factors influence consumers that an early adopter of one product might well be a laggard for some other product and vice versa. 46 2.2.3.4: Behavioristic Segmentation: In this method consumers are classified into market segments not the basis of their knowledge, attitude and use of actual products or product attributes. Any of the following variables might be used for this purpose: (а) Purchase Occasion: Buyers may be differentiated on the basis of when they use a product or service. For example, air travellers might fly for business or vacation. Therefore, one airline might promote itself as a business flyer while another might target the tourists. (b) Benefits Sought: The major benefit sought in a product is used as the basis of classify consumers. High quality, low price, good taste, speed, sex appeal are examples of benefits. For example, some air travellers prefer economy class (low price), while others seek executive class (status and comfort). (c) User Status: Potential buyers may be classified as regular users, occasional users and non-users. Marketers can develop new products or new uses of old products by targeting one or another of these groups. 2.2.3.5: Volume Segmentation: Consumers are classified light, medium and heavy users of a product. In some cases, 80 per cent of the product may be sold to only 20 per cent of the group. Marketers can decide product features and advertising strategies by finding common characteristics among heavy users. For example, airlines having ‘Frequent Flyer’ are using user rate as the basis of market segmentation. Generally, marketers are interested in the heavy user group. But marketers should pay attention to all the user groups because they represent different opportunities. The non-users may consist of two types of people— those who do not use the product and those who might use it. Some may change over time from a non-user to a user. 47 Those who do not use due to ignorance may be provided extensive information. Repetitive advertising may be used to overcome inertia or psychological resistance. In this way non-users can gradually be converted into users. 2.2.3.6: Product-space Segmentation: Here the buyers are asked to compare the existing brands according to their perceived similarity and in relation to their ideal brands. First, the analyst infers the latent attributes that consumers are using to perceive the brand. Then buyers are classified into groups each having a distinct ideal brand in mind. The distinctive characteristics of each group are ascertained. 2.2.3.7: Benefit Segmentation: Consumer behaviour depends more on the benefit sought in product/service than on demographic factors. Each market segment is identified by the major benefits it is seeking. Most buyers seek as many benefits as possible. However, the relative importance attached to individual benefits differs from one group to another. For example, some consumers of toothpaste give greater importance to freshness while other prefer taste or brightness of teeth. Research studies on benefit segmentation reveal that it is easier to take advantage of existing segment, then to create new segments. As no brand can appeal to all consumers, a marketer who wants to cover the market fully must offer multiple brands. The following benefit segments have been identified: (а) The Status Seeker: This group comprises buyers who are very much concerned with the prestige of the brand. (b) The Swinger: This group tries to be modern and up-to-date in all of its activities. (c) The Conservative: This group prefers popular brands and large successful companies. 48 (d) The Rational Man: This group looks for benefits such as economy, value, durability and other logical factors. (e) The Inner Directed Man: This group is concerned with self-concept, e.g., sense of homour, independence, honesty, etc. (f) The Hedonist: This group is concerned mainly with sensory benefits. Marketing experts suggest that benefit segmentation has the greatest number of practical implications than any other method of segmentation. 2.3 : STP Approach: Segmentation Segmentation is the breaking down of large markets into sub markets or segments of consumers that are similar in terms of needs wants ad buying habits. The first method of segmenting a market is demographic segmentation. In demographic segmentation factors like age, gender, income, education, occupation, marital status family cycle and ownership of durables are used for determining consumer segments. Segmentation may also be on a geographic basis, by considering criteria like area type, area density, neighborhood type and region. Geographic segmentation may be done within a country, for a region state, province or neighborhood. The usage patterns of the consumers can also be use to segment the markets. Here, consumers and be classified as heavy users, non-users brand loyal users and switchers or variety seekers. Segmentation may also be done on the basis of psychographics and lifestyles. By understanding the psychographics a retailer tries to understand th