Principles of Marketing notes.pdf

JOA Principles of Marketing 3 Sahiba thapa [Date]  Chapter-1 Introduction Marketing Marketing deals with identifying and meeting human and s...

JOA Principles of Marketing 3 Sahiba thapa [Date]  Chapter-1 Introduction Marketing Marketing deals with identifying and meeting human and social needs. Marketing refers to activities a company undertakes to promote the buying or selling of a product or service. Marketing includes advertising, selling, and delivering products to consumers or other businesses. Some marketing is done by affiliates on behalf of a company. Professionals who work in a corporation's marketing and promotion departments seek to get the attention of key potential audiences through advertising. Promotions are targeted to certain audiences and may involve celebrity endorsements, catchy phrases or slogans, memorable packaging or graphic designs and overall media exposure Definition The American Marketing Association offers the following definition: Marketing is an organizational function and a set of processes for creating, communicating and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders. Marketing management as the art and science of choosing target markets and getting, keeping and growing consumers through creating, delivering and communicating superior customer value. Key points Marketing refers to all activities a company does to promote and sell products or services to consumers. Marketing makes use of the "marketing mix," also known as the four Ps—product, price, place, and promotion. At its core, marketing seeks to take a product or service, identify its ideal customers, and draw the customers' attention to the product or service available. Exchange & Transaction Exchange which is the core concept of marketing, is the process of obtaining a desired product 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. Whether exchange actually takes place depends on whether the two parties can agree on terms that will leave them both better off (or at least not worse off) Exchange is a value- creating process because it normally leaves both parties better off. Two parties are engaged in exchange if they are negotiating- trying to arrive at mutually agreeable terms. When an agreement is reached, we say that transaction takes place. A Transaction is a trade of values between two or more parties. A gives X to B and receives Y in return. Example: Partap sells a television to Samir and Samir pays Rs 20000 to Partap. A transaction involves several dimensions: At least two things of Value Agreed upon Conditions A time of agreement A place of agreement. A transaction differs from a transfer. In a Transfer, A gives X to B but does not receive anything tangible in return. Gifts, Subsidies and Charitable contributions are all transfers. What is Marketed? Marketing people are involved in marketing 10 types of entities: Goods: Physical goods constitute the bulk of most countries production and marketing efforts. Example: Cars, Trucks, Television sets, Watches, Cosmetics etc. Not only do companies market their goods but thanks in part to the Internet, even Individuals can effectively market goods. Services: Services includes the work of Airlines, hotel, car rental firms, barbers as well as professional working within or for companies such as Accountant, Bankers, Lawyers, engineers, Doctors, Management consultants etc. Many market offerings consist of a variable mix of goods and services. For example: At Fast food restaurant, the customer consumes both product and service. Events: Marketers promotes time-based events, such as major Trade shows, artistic performance and company anniversaries. Global sporting events such as Olympics or World Cup are promoted aggressively to both companies and fans.  Experiences: By orchestrating several services and goods, firm can create, stage and markets experiences. An Amusement Park or Water Park represents experiential marketing. So does a “theme restaurant” that create the ambience of a village in Rajasthan or Gujarat. Persons: Celebrity marketing is a major business. Example: Amitabh Bachchan, Sachin Tendulkar, Shahrukh Khan, Aishwarya Rai are big brands themselves. Management consultant Tom peters, himself a master at self-branding, has advised each person to become a “Brand”. Places: Cities, States, regions and whole nations compete actively to attract tourists, factories, company headquarters and new residents. In order to attract investments from domestic and international automobile companies) to highlight the advantages that these companies will get on investing in their state. In software industry, Bangalore is positioned as the “Silicon Valley” of India. In the tourism industry, Kerala is marketed as “God’s own country” and has become one of the hot-spots for tourism. The government of India is marketing India as a tourist destination through the “Incredible India” advertisement campaign. 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 requires marketing. Organizations: Organizations actively work to build a strong, favourable and unique image in the minds of their target publics. Companies spend money on corporate identity ads. Example: Philips puts out ads with the tagline “Let’s Make Things Better”. Universities, museums, performing arts organizations and non-profits all use marketing to boost their public images and to compete for audiences and Funds. Information: Information can be produced and marketed as a product. Encyclopaedias and most nonfiction books market information. Ideas: Every market offering includes a basic idea. Products and services are platforms for delivering some idea or benefit. Promoting awareness about AIDS, encouraging family planning and discouraging smoking are ideas that fall in the realm of social marketing. Who Markets? A Marketer is someone who seeks a response (attention, a purchase, a vote, a donation) from another party, called Prospect. Marketing managers seek to influence the level, timing, and composition of demand to meet the organization’s objectives. Eight demand states are possible:  1. Negative Demand: Consumers dislike the product and may even pay a price to avoid it. 2. Non-existent Demand: Consumers may be unaware and uninterested in the product. 3. Latent Demand: Consumers may share a strong need that cannot be satisfied by an existing product. 4. Declining Demand: Consumer begin to buy the product less frequently or not at all. 5. Irregular Demand: Consumer purchases vary on a seasonal, monthly, weekly, daily, or even hourly basis. 6. Full Demand: Consumers are adequately buying all products put into the marketplace. 7. Overfull Demand: More consumers would like to buy the product than can be satisfied. 8. Unwholesome Demand: Consumers may be attracted to products that have undesirable social consequences. In each case, marketers must identify the underlying cause(s) of the demand state and then determine a plan for action to shift the demand to a more desired state. Market Traditionally, “Market” was a physical place where buyers and sellers gathered to buy and sell goods. Economist describe a market as a collection of buyers and sellers who transact over a particular product or product class. A market is a composition of systems, institutions, procedures, social relations, or infrastructures where by parties engage in exchange of goods & services. Key Points: Market is a place where buyers & sellers can meet to facilitate the exchange or transactions of goods & services. Market can be physical like retail outlet or virtual like e-retailers. Other examples include the illegal markets, Auction markets & Financial Markets. Market establishes the prices of goods & services that are determined by supply & demand. Key customer Markets:  1. Consumer Markets: Companies selling mass consumer goods and services such as soft drinks, cosmetics, air travel etc. They spend a great deal of time trying to establish a superior brand image. Much of a brand’s strength depends on 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- trained and well-informed professional buyers who are skilled in evaluating competitive offerings. Business buyers buy goods in order to make or resell a product to others at profit. Business marketers must demonstrate how their product will help these buyers achieve higher revenue or lower costs. Advertising can play a role, but a stronger role may be played by the sales force, price, and the company’s reputation for reliability and quality. 3. Global Market: Companies selling goods & services in the global marketplace face additional decisions and challenges. They must decide which countries to enter, how to enter each country (As an exporter, licenser, joint venture partner, contract manufacturer, or solo manufacturer); how to adapt their product and service features to each country, how to price their products in different countries: and how to adapt their communications to fit different countries. 4. Non-profit and Government Markets: Companies selling their goods to nonprofit organizations such as churches, universities, charitable organizations, or government agencies need to price carefully because these organizations have limited purchasing power. Lower prices affect the features and quality that the seller can build into the offering. Much government purchasing calls for bids, with the lowest bid being favored, in absence of extenuating factors. Nature of Marketing 1. Marketing is a part of the total Environment: The business environment defines its threats and opportunities. A marketing system is directly related to the distribution and production of goods, ideas, services, place, and persons for the satisfaction of human needs. However, it is better to look at the remote and adequate environment of any marketing organization. 2. Marketing is Consumer-oriented: A business is a work to satisfy human needs. The activities of marketing must be focussed and directed at the customer. It involves the combination of various business activities whose main objective is the gratification of customer needs and desires. By satisfying the previous needs of the consumers and creating new needs or wants for improved and better products, marketing sets the pattern of consumption and improves the standard of living of the individuals. 3. Marketing is a Specialized Business Function: In any business organization, the selling function did not require any special skill. But in the previous days marketing requires a specialized skill, the management of a business firm has to develop a business organization with a motive of absorbing new approaches, new ideas, and new marketing demands. 4. Marketing as a Discipline: The topic of marketing is an essential part of a business which has desired its existence from economics. After appearing from business, Marketing has got its strength from related areas- psychology, law, sociology, anthropology, statistics, mathematics, because of the related problems affecting heavily on consumer behaviour, research canon consumer needs, advertising media, legal aspects of marketing, promotion, pricing method, etc. 5. Marketing is a System: Marketing is a system including several inter-dependent and sub-systems. It is right that a system might vary according to changes in the concept. In simple words, the marketing system may be called as a socio-economic process. In another sense, the marketing system is a combination of the firm and society. 6. Marketing is a Social Function: Marketing is a kind of social function because it requires interaction with the various segment of society. It involves the combination of various business activities whose main objective is the satisfaction of consumer desires and needs. 7. Marketing Starts and Ends with the Consumer: Traditional marketing is concerned only with the flow of goods or services from the manufacturer to the consumer. Under consumer-oriented marketing, it is essential to understand what the consumers really want. It is possible when data of information are collected from the consumers. So, that is the reason, marketing information system and marketing research have emerged as a full-fledged function of marketing. 8. Marketing creates mutual relationships:  A customer is the focus of all marketing activities. But during the last previous years, the focus has shifted to the way of doing business, i.e., the strategic approaches of marketing. Here the means of marketers are their experience and knowledge, and the end result is in the form of a mutual better relationship. Marketing is everything that results in mutually better relationships with potential buyers or customers. Scopes of Marketing Marketing being a part of social science is highly dynamic and complex in nature. The rapid changes in various sectors have brought great changes in the concept of marketing. Traditionally, marketing was concerned with buying and selling of goods and services only but now its scope has widened and it encompasses a range of activities from consumer satisfaction to consumer delight and management of customer relationship. 1. Study of Consumer wants and need: Goods are purchase to satisfy consumer wants. Therefore, study is conducted to satisfy consumer needs and wants. These needs and wants motivates customer to purchase. 2. Study of consumer behaviour: A marketer performs study of consumer behaviour. Analysis of buyer behaviour helps marketers in market segmentation and targeting. 3. Product Planning: A product refers to a bundle of benefits that offers satisfaction to the consumers. Product planning starts with the generation of the idea and continues until the product is ready to be launched in the market. To create a successful product the company must understand the needs of the consumer and the currently available competition in the market. 4. Product design: Product design is the fore most important elements in marketing the communication needs & problems of the consumer have to be considered before marketing a new product design. 5. Implementation of product: Once the decision is finalized about the design of the product more focus should be there on communication with the production department regarding the implementation of product features. 6. Pricing of Product: Pricing is the most important aspect of the product because it only decides the major buying decision of the consumer. So, if the product is very new to the market correct & affordable pricing should be done. 7. Selection of Layout: The layout is the place where actually the product /services will be availed so more focus should be done on the exact location and layout. 8. Publicity of the product: Publicity means communication about the product and services for creating awareness & demand for the product by publicity & Advertisement. 9. Distribution channel: Distribution channel means the number of mediator like whole-sellers, Retailers, distributors, Agent who all are involved in the marketing channel. 10. Selling of Product: Selling involves the actual challenge of marketing. The selling of products and services involves different strategies like distribution through stores, salesmen, Advertisements, Exhibitions, trade fairs, etc. 11. Consumer Satisfaction: The product or service offered must satisfy consumer. Consumer satisfaction is the main objective of marketing. 12. Collecting the Feedback: This begins after the product is marketed and sold collecting feedback regarding satisfaction or dissatisfaction related features like price, to make availability etc it is to make changes in the marketing mix. Importance of Marketing The importance or significance of marketing in business can be explained as under: 1. Helpful in Communication between Manufacturer and Customers: Through marketing activities, a seller collects various information regarding customer taste and their preferences and changes in customer behaviour from time to time. On the other hand, marketing gives necessary information regarding product quality, place, price, product quantity to buyers. In this way, buyers come to know about the new products. 2. Helpful in Profit Maximization: Profit maximization is the main task of every business firm. Marketing makes easier to availability of products are reduced cost at each level. It creates demand for products through sales promotion and advertisement activities. All these efforts create a maximum profit of the firm. 3. Helpful in Decision-Making: In modern changing economy a seller collects information and takes accurate decisions regarding the business. All over the marketing activities deeply concerned with are of decision-making. On the basis of various information seller able to take the right decision. 4. Provides Employment: Marketing activities require the services of various enterprises such as insurance, finance, production, transportation, research, wholesaler, warehousing, advertising, and retailers. These services require a large number of individuals and it provides employment to society. 5. Provides Standard of Living: Marketing provides the best goods and services to the people in the society according to their needs and expectations. Marketing generates, increases and maintains the demand for an existing product and new product and improve the standard of living of the society. Evolution of Marketing 1. The Production Concept: The production Concept is one of the oldest concepts in business. It holds that consumers will prefer products that are widely available and inexpensive. Managers of production-oriented business concentrated on achieving high production efficiency, low costs and mass distribution. This orientation makes sense in developing countries such as China where the largest PC manufacturer, legend, and domestic appliances giant Haier take advantage of the country’s huge inexpensive labour pool to dominate the market. It is also used when company wants to expand the market. 2. Product Concept: The Product concept holds that consumers will favour those products that offer the most quality, performance, or innovative features. Managers in these organizations focus on making superior products and improving them over time. They might commit the “better mousetrap” fallacy, believing that a better mousetrap will lead people to beat a path to their door. A new or improved product will not necessarily be successful unless the product is priced, distributed, advertised, and sold properly. 3. The Marketing Concept: The marketing Concept emerged in the mid-1950s. Instead of a product-centred, “make and sell” philosophy, business shifted to customer- centred, “sense and response” philosophy. Instead of “hunting”, marketing is “gardening”. The job is not to find the right customers for your products, but the right products for your customers. The marketing concept holds that the key to achieving organizational goals consists of the company being more effective than competitors in creating, delivering, and communicating superior customer value to its chosen target markets. 4. Holistic Marketing Concept: The Holistic Marketing Concept is based on the development, design, and implementation of marketing programs, processes, and activities that recognizes their breadth and interdependencies. Holistic marketing recognizes that “everything matters” with marketing- and that a board, integrated perspective is often necessary. Four components of holistic marketing are: Relationship Marketing Integrated Marketing Internal Marketing Social Responsibility Marketing 1. Relationship Marketing: A key goal of marketing is to develop deep, enduring relationships with all people or organizations that could directly or indirectly affect the success of the firm’s marketing activities. Relationship marketing has thee aim of  building mutually satisfying long-term relationships with key parties- customers, suppliers, distributors, and other marketing partners- in order to earn and retain their business. Relationship marketing builds strong economic, technical, and social ties among the parties. Marketing must not only do Customer Relationship Management (CRM) but also Partner Relationship Management (PRM) as well. The ultimate outcome of relationship marketing is the building of unique company asset called Marketing Network. The operating principle is simple: Build an effective network of relationship with key stakeholders, and profits will follow. 2. Integrated Marketing: The marketer’s task is to devise marketing activities and assemble fully integrated marketing programs to create, communicate, and deliver value for consumers. The marketing program consists of numerous decisions on value-enhancing marketing activities to use. MC Carthy classified the marketing tools into four board groups, which he called the Four Ps of Marketing: Product, Price, Place and Promotion. The four Ps represent the sellers’ view of marketing tools available for influencing buyers. From a buyers’ point of view, each marketing tools is designed to deliver a customer benefit. Robert Lautetborn suggested the sellers’ four Ps correspond to the customers’ four Cs. Four Ps Four Cs Product Customer Solution Price Customer Cost Place Convenience Promotion Communication Winning companies will be those that can meet customer needs economically and conveniently and with effective communication. Two key themes of integrated marketing are that: Many different marketing activities are employed to communicate and deliver value and All marketing activities are coordinated to maximise their joint effects. 3. Internal Marketing: Holistic Marketing incorporates internal marketing, ensuring that everyone in the organization embraces appropriate marketing principles, especially senior management. Internal marketing is the task of hiring, training, and motivating able employees who went to serve customers well. It makes no sense to promise  excellent service before the company’s staff is ready to provide it. Internal marketing must take place on two levels. At one level, the various marketing functions-sales force, advertising, customer service, product management, marketing research- must work together. At another level, marketing must be embraced by the other departments: they must also “Think Customer”. 4. Social Responsibility Marketing: Holistic Marketing incorporates social responsibility marketing and understanding broader concern and the ethical, environmental, legal, and social context of marketing activities and programs. The cause and effects of marketing clearly extend beyond the company and the consumer to society as whole. The Societal Marketing Concept holds that the organization’s task is to determine the needs, wants, and interest of target markets and to deliver the desired satisfactions more effectively and efficiently than competitors in a way that preserves or enhances the consumer’s and the society’s well-being. The Societal marketing concept calls upon marketers to build social and ethical consideration into their marketing practices. Also called as Cause-related marketing. Companies see cause relating marketing as an opportunity to enhance their corporate reputation, raise brand awareness, increase customer loyalty, build sales, and increase press coverage. Core Concept A core set of concept creates a foundation for marketing management and holistic marketing orientation: 1. Needs, Wants, and Demands: The Marketer must try to understand the target market’s needs, wants, and demands. Needs are the basic human requirements. People need food, air, water, clothing, and shelter to survive. People also have strong needs for recreation, education, and entertainment. These needs become Wants when they are directed to specific objects that might satisfy the need. Wants are shaped by one’s society. Demands are wants for specific product backed by an ability to pay. Many people want a Mercedes; but only few people willing and able 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 but it. There are five types of needs: Stated Needs: The customer wants an inexpensive car. Real Needs: The Customer wants a car whose operating cost, not its initial price, is low.  Unstated Needs: The customer expects good service from the dealer. Delight Needs: The customer would like the dealer to include an onboard navigation system. Secret Needs: The Customer wants to be seen by friends as a savvy consumer. 2. Target Markets, Positioning, and Segmentation: A Marketer can rarely satisfy everyone in a market. Therefore, marketers start by dividing up the market into segments. The marketers then decide which segments present the greatest opportunity- which are its target markets. For each chosen target market, the firm develops a market offering. The offering is positioned in the minds of target buyers as delivering some central benefit(s). Companies do best when they choose their target market(s) carefully and prepared tailored marketing programs. 3. Offerings and Brands: Companies address needs by putting forth a value proposition, a set of benefits they offer to customers to satisfy their needs. The intangible value proposition is made physical by an offering, which can be a combination of products, services, information, and experiences. A Brand is an offering from a known source. A brand name carries many associations in the mind of people. All companies strive to build brand strength- that is a strong, favourable, and unique brand image. 4. Value and Satisfaction: The offering will be successful if it delivers value and satisfaction to the target buyer. The buyer chooses between different offerings on the basis of which is perceived to deliver the most value. Value reflects the perceived tangible and intangible benefits and costs to customers. Value can be seen as primarily a combination of quality, service, and price (QSP), called “Customer Value Triad”. Value increases with quality and service and decreases with price, although other factors can also play an important role. satisfaction reflects a person’s comparative judgements resulting from a product’s perceived performance (or outcome) in relation to his or her expectations. If Performance falls short of expectations, the customer is dissatisfied and disappointed. If the performance matches the expectations, the customers is satisfied. If the performance exceeds expectations, the customer is highly satisfied or delighted. 5. Marketing Channels: To reach a target market, the marketer uses three kinds of marketing channels. Communication channels deliver and receive messages from target buyers, and include newspapers, magazines, radio, television, mail, telephone, billboards, internet etc. The marketer uses distribution channels to display, sell, or deliver the physical product or service(s) to the buyer or user. They include distributors, wholesalers, retailers, and agents. The Marketer also uses service Channels to carry out transactions with potential buyers. Service channels include warehouses, transportation companies, banks, and insurance companies that  facilitate transactions. Marketers clearly face a design problem in choosing the best mix of communication, distribution, and service channels for their offerings. 6. Supply Chain: Supply chain describes a channel stretching from raw materials to components to final products that are carried to final buyers. The 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. 7. Competition: Competition includes all the actual and potential rival offerings and substitutes that a buyer might consider. 8. Marketing Environment: The 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 offerings. The main actors are company, suppliers, distributors, dealers, and the target customers. The Broad environment consists of six components: Demographic, Economic, Physical, technological, Political-legal, and social-cultural environment. 9. Marketing Planning: The marketing planning process consists of analysing marketing opportunities, selecting target markets, designing marketing programs, and managing the marketing effort. Selling Vs Marketing Marketing Selling Marketing includes selling and other activities Selling is confined to persuasion of consumers like various promotional measures, marketing to buy firm’s goods and Services. research, after sales service, etc. It starts with research on consumer needs, Selling starts after the production process is wants, preference, likes, dislike etc., and over and ends with the handing over the continues even after the sales have taken place. money to the seller by the buyer. Focus is on earning profit through maximisation Focus is on earning profit through maximisation of customers’ satisfaction. of sales. Customer ’s need is the central point around Fragmented approach to achieve short-term whom all marketing activities revolve. gain. It is an integrated approach to achieve long term All activities revolve around the product that goals like creating, maintaining and retaining the has been produced. customers. Stresses on needs of buyer. Stresses on needs of the seller  Marketing Mix The marketing mix refers to the set of actions, or tactics, that a company uses to promote its brand or product in the market. The 4Ps make up a typical marketing mix-Price, Product, Promotion and Place. 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 four Ps classifications for developing an effective marketing strategy was first introduced in 1960 by marketing professor and author E. Jerome McCarthy. 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. Product Variety Price Quality List Price Design Discounts Brand name Allowances Packaging Target Credit terms Market Place Promotion Channels Coverage Advertising Locations Sales Promotion Inventory Personal Selling Marketing Mix: 4 P’s Transportation Direct marketing Public Relation 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 Ps 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 is the one which helps to communicate and intangible is the knowledge of the people around us. Marketing Environment The marketing environment is the combination of external and internal factors and forces that affect the company’s ability to establish a relationship and serve its customers. The marketing environment of a business consists of an internal and an external environment. The internal environment is company-specific and includes owners, workers, machines, materials etc. The external environment is further divided into two components: micro & macro. ✓ The micro or task environment is also specific to the business but is external. It consists of factors engaged in producing, distributing, and promoting the offering. ✓ The macro or the broad environment includes larger societal forces which affect society as a whole. It is made up of six components: demographic, economic, physical, technological, political-legal, and social-cultural environment. “A company’s marketing environment consists of the actors and forces outside of marketing that affect marketing management ability to build and maintain successful relationships with target customers”. – Philip Kotler Components of Marketing The marketing environment is made up of the internal and external environment of the business. While the internal environment can be controlled, the business has less or no control over the external environment. 1. Internal Environment The internal environment of the business includes all the forces and factors inside the organisation which affect its marketing operations. These components can be grouped under the Five Ms of the business, which are: Men: The people of the organisation, including both skilled and unskilled workers. Minutes: Time taken for the processes of the business to complete. Machinery: Equipment required by the business to facilitate or complete the processes. Materials: The factors of production or supplies required by the business to complete the processes or production. Money: Money is the financial resource used to purchase machinery, materials, and pay the employees. The internal environment is under the control of the marketer and can be changed with the changing external environment. Nevertheless, the internal marketing environment is as important for the business as the external marketing environment. This environment includes the sales department, the marketing department, the manufacturing unit, the human resource department, etc. 2. External Environment The external environment constitutes factors and forces which are external to the business and over which the marketer has little or no control. The external environment is of two types: Micro marketing environment Macro marketing environment a. Micro Environment The micro-component of the external environment is also known as the task environment. It comprises external forces and factors that are directly related to the business. These include suppliers, market intermediaries, customers, partners, competitors and the public. Suppliers include all the parties which provide resources needed by the organisation. Market intermediaries include parties involved in distributing the product or service of the organisation. Partners are all the separate entities like advertising agencies, market research organisations, banking and insurance companies, transportation companies, brokers, etc., which conduct business with the organisation. Customers comprise the target group of the organisation. Competitors are the players in the same market who targets similar customers as the organisation. The public comprises any other group with an actual or potential interest or affects the company’s ability to serve its customers. b. Macro Environment The macro component of the marketing environment is also known as the broad environment. It constitutes the external factors and forces which affect the industry as a whole but don’t have a direct effect on the business. The macro-environment can be divided into six parts. Demographic Environment The demographic environment is made up of the people who constitute the market. It is characterised as the factual investigation and segregation of the population according to their size, density, location, age, gender, race, and occupation. Economic Environment The economic environment constitutes factors that influence customers’ purchasing power and spending patterns. These factors include the GDP, GNP, interest rates, inflation, income distribution, government funding and subsidies, and other major economic variables. Physical Environment The physical environment includes the natural environment in which the business operates. This includes climatic conditions, environmental change, accessibility to water and raw materials, natural disasters, pollution etc.  Technological Environment The technological environment constitutes innovation, research and development in technology, technological alternatives, innovation inducements, also technological barriers to smooth operation. Technology is one of the biggest sources of threats and opportunities for the organisation, and it is very dynamic. Political-Legal Environment The political & Legal environment includes laws and government policies prevailing in the country. It also includes other pressure groups and agencies which influence or limit the working of the industry and/or the business in society. Social-Cultural Environment The social-cultural aspect of the macro-environment is made up of the lifestyle, values, culture, prejudice and beliefs of the people. This differs in different regions. Importance of Marketing Environment Every business, no matter how big or small, operates within the marketing environment. Its present and future existence, profits, image, and positioning depend on its internal and external environment. The business environment is one of the most dynamic aspects of the business. In order to operate and stay in the market for a long, one has to understand and analyse the marketing environment and its components properly. 1. Essential for planning: An understanding of the external and internal environment is essential for planning for the future. A marketer needs to be fully aware of the current scenario, dynamism, and future predictions of the marketing environment if he wants his plans to succeed. 2. Understanding Customers: Thorough knowledge of the marketing environment helps marketers acknowledge and predict what the customer actually wants. An in- depth analysis of the marketing environment reduces (and even removes) the noise between the marketer and customers and helps the marketer to understand consumer behaviour better. 3. Tapping Trends: Breaking into new markets and capitalising on new trends requires a lot of insight into the marketing environment. The marketer needs to research every aspect of the environment to create a foolproof plan. 4. Threats and Opportunities: Sound knowledge of the market environment often gives a first-mover advantage to the marketer as he makes sure that his business is safe from future threats and taps future opportunities. 5. Understanding the Competitors: Every niche has different players fighting for the same spot. A better understanding of the marketing environment allows the marketer to understand more about the competition and about what advantages the competitors have over his business and vice versa.  6. Helps building strategy: Paying the required concentration to the Importance of Marketing Environment, helps the company to plan and build various business strategies such as deciding on the nature and unique attributes of the offerings, have competitive pricing, and working on the channel partner and distribution network amongst others along with planning the marketing strategies such as selecting the potent mix of marketing platforms such as television, radio, print, social media, outdoor hoardings, digital marketing, events, trade shows, and participation in various exhibitions amongst others. 7. Innovation: The company is able to come up with the innovative line of products and services to its customers as per the modern and technological advancements, positive impact on the business with the fruitful government policies, relaxing norms on the tax procedures, and other such external factors that helps carve a distinctive identity in the marketplace amidst the tough and ever-growing competition. Example of Importance of Marketing Environment The mobile technology brand Nokia had a stronghold in the market till the time the management of the company was paying due attention to the Importance of Marketing Environment. But with the changing spheres of business dynamics and the overall marketing environment, the company was not able to keep up with the developing choices of its customers and technological advancements and slowly and gradually the brand started losing its major chunk of market share to the new and technological advanced mobile brands such as Apple, Blackberry, and Samsung that bought the revolution of smartphones. Nokia slowly lost its battle and eventually vanished from the market. Features Of Marketing Environment The marketing environment surrounding a business possesses the following five features: Specific and general forces: The marketing environment is made up of both specific and general forces. Specific forces such as customers and investors directly affect the business’s working, while general forces like social, legal, technological, or political factors indirectly affect the business’s working. Complex: The marketing environment is a complex interaction of several elements, factors, conditions, and forces that affect the business’s ability to establish a relationship and serve its customers. Dynamic: The environment surrounding a business is very dynamic as its constituents do not remain stable and change over time. Moreover, while marketers can control some of the marketing environment elements, several elements are out of the marketer’s control. Uncertain: Forces that rule the marketing environment are highly uncertain, and it becomes tough for a marketer to predict market forces to develop marketing strategies and plans.  Relative: Marketing environments are also relative in nature. A specific product might have a good demand in the USA but not in India because of the different marketing environments in the two countries. Chapter-2 Consumer Behaviour & Market Segmentation Consumer Behaviour Consumer behaviour can be defined as the decision-making process and physical activity involved acquiring, evaluating, using and disposing of goods and services. Consumer behaviour refers to the behaviour that consumer display in searching, purchasing, using, evaluating and disposing of products and services that they expect will satisfy their needs. According to Walter – “Consumer behaviour is the process where by individual decides what, where, when, how, from whom to purchase the goods and services.” According to Webster – “Consumer behaviour is the psychological, social & physical behaviour or potential customer as they become aware of evaluation, purchase, consume and tell others about product and services. Consumer behaviour focuses on how individuals make decisions to spend their available resources to satisfy their consumption needs. This includes questions like what to buy? When to buy? Where to buy? How often to buy? How much to buy? Consumer – A consumer is a person who evaluates, uses and disposes a good or service to satisfy a need. Customer – Customer is the person, who actually purchases the product. Consumers can be divided into two types – Household consumers – Who buy products for their own consumption Industrial consumers – Who buy products for further value addition, as inputs for manufacturing or for retailing Nature of Consumer Behaviour 1. It is complex as each customer has a unique set of needs 2. It is dynamic in nature, human behaviour is constantly altered by its environment 3. It varies from consumer to consumer, product to product and from country to country 4. It is influenced by various cultural, social, personal and psychological factors 5. The buying behaviour and pattern of an individual reflects his/her status in the society Importance of Consumer Behaviour 1. It helps to understand human behaviour and various internal and external motives that influence human behaviour. 2. It helps marketers to determine customer needs, expectations, problems, preferences etc. which help them to estimate demand for a product or service. 3. It helps marketers to understand what a customer buys, why he buys it, when and from who he buys which helps them to formulate an effective marketing mix (4P`s). 4. It helps advertisers to understand how consumers react to different advertising appeals, thereby helping them to select the appropriate media and advertising message for a particular target audience. 5. It helps organizations to analyze market opportunities and develop competitive strategies accordingly. It helps in rapid introduction of new products. 6. It helps the government to understand the social and economic trends in the country and formulate policies regarding price controls, subsidization, consumer protection etc. Consumer Buying Decision The buyer decision process (or customer buying process) helps markets to identify how consumers complete the journey from knowing about a product to making the purchase decision. Understanding the customer’s buying process is essential for marketing and sales. The buyer decision process will enable them to set a marketing plan that convinces them to purchase the product or service for fulfilling the buyer’s or consumer’s problem. Consumers go through 5 stages in taking the decision to purchase any goods or services. When making a purchase, the buyer goes through a decision process consisting of 5 stages. Clearly, the buying process starts long before the actual purchase and continues long after. The marketer’s job is to understand the buyer’s behaviour at each stage and the influences that are operating. The figure implies that consumers pass through all five Stages with every purchase. Let’s explain all 5 stages of the buyer decision process. 1. Need or Problem Recognition During need or problem recognition, the consumer recognizes a problem or need that could be satisfied by a product or service in the market. Problem Recognition is the first stage of the buyer decision process. At this stage, the consumer recognizes a need or problem. The buyer feels a difference between his or her actual state and some desired state. This could be a simple as “I’m hungry, I need food.” The need may have been triggered by internal stimuli (such as hunger or thirst) or external stimuli (such as advertising or word of mouth). 2. Information Search Once the need is recognized, the consumer is aroused to seek more information and moves into the information search stage. The second stage of the purchasing process is searching for information. After the recognition of needs, the consumers try to find  goods for satisfying such needs. They search for information about the goods they want. Consumers can get information about goods from different sources. ▪ Personal sources: This includes family, friends, neighbours, colleague, etc. ▪ Commercial source: This includes advertising, salespeople, dealers, packaging, display, etc. ▪ Public sources: This includes mass media, consumer rating organizations, etc. they also become confidential to provide information. ▪ Experimental sources: This includes handling, examining, using, etc. Such information becomes decisive and confidential. 3. Evaluation of Alternatives With the information in hand, the consumer proceeds to alternative evaluation, during which the information is used to evaluate” brands in the choice set. Evaluation of alternatives is the third stage of the buying process. Various points of information collected from different sources are used in evaluating different alternatives and their attractiveness. While evaluating goods and services, different consumers use different bases. Generally, the consumers evaluate the alternatives on the basis of attributes of the product, the degree of importance, belief in the brand, satisfaction, etc. to choose correctly. 4. Purchase Decision After the alternatives have been evaluated, consumers decide to purchase products and services. They decide to buy the best brand. But their decision is influenced by others’ attitudes and situational factors. 5. Post-Purchase Evaluation In the final stage of the buyer decision process, post purchase behaviour, the consumer takes action based on satisfaction or dissatisfaction. In this stage, the consumer  determines if they are satisfied or dissatisfied with the purchasing outcome. Here is where cognitive dissonance occurs, “Did I make the right decision.” Consumers go through the 5 stages of the buyer decision process in deciding to purchase any goods or services. Factor influencing consumer buying behaviour Consumer behaviour is influenced by many different factors. A marketer should try to understand the factors that influence consumer behaviour. Here are 5 major factors that influence consumer behaviour: 1. Psychological Factors 2. Social Factors 3. Cultural Factors 4. Personal Factors 5. Economic Factors 1. Psychological Factors: Human psychology is a major determinant of consumer behaviour. These factors are difficult to measure but are powerful enough to influence a buying decision. Some of the important psychological factors are: i. Motivation: When a person is motivated enough, it influences the buying behaviour of the person. A person has many needs such as the social needs, basic needs, security needs, esteem needs and self-actualization needs. Out of all these needs, the basic needs and security needs take a position above all other needs. Hence basic needs and security needs have the power to motivate a consumer to buy products and services. ii. Perception: Consumer perception is a major factor that influences consumer behaviour. Customer perception is a process where a customer collects information about a product and interprets the information to make a meaningful image about a particular product. When a customer sees advertisements, promotions, customer reviews social media feedback, etc. relating to a product, they develop an impression about the product. Hence consumer perception becomes a great influence buying decision of consumers. Learning can be either conditional or cognitive. iii. Learning: When a person buys a product, he/she gets to learn something more about the product. Learning comes over a period of time through experience. A consumer’s learning depends on skills and knowledge. While a skill can be gained through practice, knowledge can be acquired only through experience. In conditional learning the consumer is exposed to a situation repeatedly, thereby making a consumer to develop a response towards it. Whereas in cognitive learning, the consumer will apply his knowledge and skills to find satisfaction and a solution from the product that he buys. iv. Attitudes and Beliefs: Consumers have certain attitude and beliefs which influence the buying decisions of a consumer. Based on this attitude, the consumer behaves in a particular way towards a product. This attitude plays a significant role in defining the brand image of a product. Hence, the marketers try hard to understand the attitude of a consumer to design their marketing campaigns. 2. Social Factors: Humans are social beings and they live around many people who influence their buying behaviour. Human try to imitate other humans and also wish to be socially accepted in the society. Hence their buying behaviour is influenced by other people around them. These factors are considered as social factors. Some of the social factors are: i. Family: Family plays a significant role in shaping the buying behaviour of a person. A person develops preferences from his childhood by watching family buy products and continues to buy the same products even when they grow up. ii. Reference Groups: Reference group is a group of people with whom a person associates himself. Generally, all the people in the reference group have common buying behaviour and influence each other. iii. Roles and status: A person is influenced by the role that he holds in the society. If a person is in a high position, his buying behaviour will be influenced largely by his status. A person who is a Chief Executive Officer in a company will buy according to his status while a staff or an employee of the same company will have different buying pattern. 3. Cultural factors: A group of people are associated with a set of values and ideologies that belong to a particular community. When a person comes from a particular community, his/her behaviour is highly influenced by the culture relating to that particular community. Some of the cultural factors are: i. Culture: Cultural Factors have strong influence on consumer buyer behaviour. Cultural Factors include the basic values, needs, wants, preferences, perceptions, and behaviours that are observed and learned by a consumer from their near family members and other important people around them. ii. Subculture: Within a cultural group, there exists many subcultures. These sub-cultural groups share the same set of beliefs and values. Subcultures can consist of people from different religion, caste, geographies and nationalities. These subcultures by itself form a customer segment. iii. Social Class: Each and every society across the globe has form of social class. The social class is not just determined by the income, but also other factors such as the occupation, family background, education and residence location. Social class is important to predict the consumer behaviour. 4. Personal Factors: Factors that are personal to the consumers influence their buying behaviour. These personal factors differ from person to person, thereby producing different perceptions and consumer behaviour. Some of the personal factors are: i. Age: Age is a major factor that influences buying behaviour. The buying choices of youth differ from that of middle-aged people. Elderly people have a totally different buying behaviour. Teenagers will be more interested in buying colourful clothes and beauty products. Middle-aged are focused on house, property and vehicle for the family. ii. Income: Income has the ability to influence the buying behaviour of a person. Higher income gives higher purchasing power to consumers. When a consumer has higher disposable income, it gives more opportunity for the consumer to spend on luxurious products. Whereas low-income or middle-income group consumers spend most of their income on basic needs such as groceries and clothes. iii. Occupation: Occupation of a consumer influences the buying behaviour. A person tends to buy things that are appropriate to this/her profession. For example, a doctor would buy clothes according to this profession while a professor will have different buying pattern. iv. Lifestyle: Lifestyle is an attitude, and a way in which an individual stay in the society. The buying behaviour is highly influenced by the lifestyle of a consumer. For example, when a consumer leads a healthy lifestyle, then the products he buys will relate to healthy alternatives to junk food. 5. Economic Factors: The consumer buying habits and decisions greatly depend on the economic situation of a country or a market. When a nation is prosperous, the economy is strong, which leads to the greater money supply in the market and higher purchasing power for consumers. When consumers experience a positive economic environment, they are more confident to spend on buying products. Whereas, a weak economy reflects a struggling market that is impacted by unemployment and lower purchasing power. Economic factors bear a significant influence on the buying decision of a consumer. Some of the important economic factors are: i. Personal Income: When a person has a higher disposable income, the purchasing power increases simultaneously. Disposable income refers to the money that is left after spending towards the basic needs of a person. When there is an increase in disposable income, it leads to higher expenditure on various items. But when the disposable income reduces, parallelly the spending on multiple items also reduced. ii. Family Income: Family income is the total income from all the members of a family. When more people are earning in the family, there is more income available for shopping basic needs and luxuries. Higher family income influences the people in the family to buy more. When there is a surplus income available for the family, the tendency is to buy more luxury items which otherwise a person might not have been able to buy. iii. Consumer Credit: When a consumer is offered easy credit to purchase goods, it promotes higher spending. Sellers are making it easy for the consumers to avail credit in the form of credit cards, easy instalments, bank loans, hire purchase, and many such other credit options. When there is higher credit available to consumers, the purchase of comfort and luxury items increases. iv. Liquid Assets: Consumers who have liquid assets tend to spend more on comfort and luxuries. Liquid assets are those assets, which can be converted into cash very easily. Cash in hand, bank savings and securities are some examples of liquid assets. When a consumer has higher liquid assets, it gives him more confidence to buy luxury goods. v. Savings: A consumer is highly influenced by the amount of savings he/she wishes to set aside from his income. If a consumer decided to save more, then his expenditure on buying reduces. Whereas if a consumer is interested in saving less, then most of his income will go towards buying products Marketing Segmentation Meaning Market segmentation is the method for achieving maximum market response from initial marketing resources by recognizing differences in the response characteristics of various parts of the market. In this sense market segmentation is the strategy of divide and conquer, i.e., dividing market in order to conquer them. Market segmentation enables the marketers to give better attention to the selection of customers and offer an appropriate marketing mix for each chosen segment or a group of buyers having homogenous demand. Each subdivision or segment can be selected as a market target to be reached with a distinct marketing mix. Market segmentation is defined as the segmentation or division of markets into various homogenous coups of customers, each of them reacting differently to promotion, communication, pricing and other variables of the marketing mix. Market segments should be formed in such a way that difference between buyers within each segment is as small as possible. Thus, every segment can be addressed with an individually targeted marketing mix. Market segmentation and the identification of target markets are an important element of each marketing strategy. The importance of market segmentation results from the fact that the buyers of a product or a service are no homogenous group. Actually, every buyer has individual needs, preferences, resources and behaviours. Since it is virtually impossible to cater for every customer’s individual characteristic, the marketing people group customers into various market segments by variables they have in common. These common characteristics allow developing a standardised marketing mix for all customers in this segment. They are the basis for determining any particular marketing mix. Very often, companies shape their market segmentation using the results of market research and analysis. Market segmentation research is not designed to shape the market. Rather, it reveals underlying divisions in the market and characteristics of the market segments that can be used for effective and profitable marketing. At the very least, segmentation research places the steps companies take on a firm factual foundation. Often, it also uncovers characteristics of the market that are not obvious and identifies ways of dividing and approaching the market that will be particularly effective. If these ways are not evident to competitors, the marketing impact of segmentation research can be even more beneficial. At a more tactical level, market segmentation can make the choices a company faces in developing products, services, and marketing messages easier. Often, market segmentation shows that many conceivable combinations of interest in product features, combinations of service needs, or combinations of attitudes are actually very rare in the marketplace. Segmentation refers to a process of bifurcating or dividing a large unit into various small units which have more or less similar or related characteristics. The concept of market segment is based on the fact that the market of commodities is not homogeneous but they are heterogeneous. Market represents a group of customers having common characteristics but two customers are never similar in their nature, habits, hobbies, income and purchasing techniques. Market segmentation is a marketing strategy that involves dividing a broad target market into subsets of consumers who have common needs, and then designing and implementing strategies to target their needs and desires using media channels and other touch-points that best allow to reach them. Market segments allow companies to create product differentiation strategies to target them. So, it can be concluded here that companies cannot connect with all customers in large, broad, complex or diverse markets. But division of such markets is possible into groups of consumers or segments with distinct needs and wants. After that organization can select any segment in which it can perform well and which is best suited for the overall interest of the organization. This decision requires a keen understanding of the customer behavior. To develop the best marketing mix, marketer need to understand what makes each segment unique and different. Identification and satisfaction of the right market segment is often the key to marketing success. Definitions Paul Green and Donald Tull set four basic criteria for market segmentation: 1) The segments must exist in the environment (and not be a figment of the researcher’s imagination) 2) The segments must be identifiable (repeatedly and consistently) 3) The segments must be reasonable stable over time, and 4) One must be able to efficiently reach segments (through specifically targeted distribution and communication initiatives). According to Schiffman and Kanuk, “Market Segmentation can be defined as the process of dividing a market into distinct subsets of consumers with common needs or characteristics and selecting one or more segments to target with a distinct marketing mix”. Rajan Saxena defines, “Segmentation as the process of dividing heterogeneous market into homogeneous sub units.” As per SJ.Skinner, “Market segmentation is the process of dividing a total market into groups of consumers who have relatively similar product needs.” Thus, on the basis of the above definitions, it can be concluded that segmentation is to divide a market composed of consumers with diverse characteristics and behaviours into homogeneous segments that contain persons who will all respond similarly to a firm’s marketing effort.  According to Philip Kotler, “Market segmentation is sub-dividing a market into distinct and homogeneous subgroups of customers, where any group can conceivably be selected as a target market to be met with distinct marketing mix”. Characteristics Characteristic # I. Identification: To facilitate division of the market in various segments based on certain common characteristics relevant to a particular product or service, the marketers must be in a position to identify these characteristics. It is easy to identify certain segmentation variables because they are easily visible or observable. These are demographics such as age, sex, marital status, education and occupation. This information about demographic variables can be obtained either through observation or through research (by using questionnaires). Similarly, geographic segmentation (region, city size, density of area and climate) can easily be identified as they are observable or through mapping. But there are certain characteristics which are not easily identifiable. These could be a part of the psychographics, like benefits sought or lifestyle. And it is such intangible consumer behaviour characteristics which will help the marketers, to use it as a base for market segmentation. Characteristic # II. Measurability: Another important characteristic ascertains the degree of measurability of the size and purchasing power of the segments. The marketer must be able to determine the size of the market that is to find out how many people are there in the segment and where they are located. The marketer must be able to measure the sales potential of the particular segment and also be able to determine the extent of influence of the marketing mix elements on the particular segment. Characteristic # III. Accessibility: The extent to which the market segments can be reached and served is another area of concern. The consumers must be accessible or available to the marketers. For instance, a company which sells ‘skin care products’, may find that heavy users of its brand are teenagers and young women, who are frequent visitors at fast-food centres and beauty parlours. But unless the firm is able to get more information on places or store preferences and exposure to various media’s it will be difficult to reach this consumer segment. Because once the firm has found a medium that reaches their consumers, it can communicate with its target segment effectively. Marketers try to reach their consumers through “differentiated marketing for differentiated consumer profiles “. Characteristic # IV. Substantiality: Another matter of concern for the marketer is the extent to which the segments are large enough and worthy of investment. For a market segment to be worthwhile, it must have a large number of people with specific needs and interests. The size of the large segment must be big enough to be economically viable. The size of the market is not the only indicator of the economic worthiness of the segment. It is also necessary to undertake consumer research methodology to determine whether the consumers are dissatisfied or only partly satisfied with the existing products and whether they are willing to pay for the firm’s product. The target segment should be a large homogeneous group worth focusing with a tailored marketing programme. Characteristic # V. Stability: Marketers would like to target consumers whose behaviours can be predicted. The marketers want to be sure of the stability of the consumers in terms of their demographic and psychological characteristics and wants and needs which are likely to grow faster over a period of time. Marketers would like to avoid ‘fads’ which may disappear one day because it is unpredictable in terms of durability. A few years ago, the travel industry noticed that when the ‘airfares’ were reduced (especially with the entry of the low cost airlines) many middle class customers were exposed to a taste of international travel for leisure. The woman customers are offered a Club Card, with discounts from Card associate companies such as Tanishq, VLCC. They also keep the link alive through get-together organised periodically. The offerings include trips to a variety of domestic and international destinations. Importance Some of the importance of market segmentation are described below: 1. Co-Ordination of Product and Marketing Appeals – As market segmentation presents an opportunity to understand the nature of the market, the seller can adjust his thrust to attract the maximum number of customers by various publicity media and appeals. 2. Better Position to Spot Marketing Opportunities – As the producer can make a fair estimate of the volume of his sale and the possibilities of furthering his sales in the regions where response of the customers is poor. 3. Allocation of Marketing Budget – It is on the basis of market segmentation that marketing budget is adjusted for a particular region or locality. Specific budget can be allocated according to different market segments. 4. Meeting the Competition Effectively – It helps the producer to face the competition of his rivals effectively. The producer can adopt different strategies for different markets taking into account the rival’s strategies. 5. Effective Marketing Programme – It helps the producer to adopt an effective marketing programme and serve the consumer better at comparatively lower cost. Diverse marketing programmes can be attached for various segments. 6. Evaluation of Marketing Activities – Market segmentation helps the manufacturer to find out and compare the marketing potentialities of the products. It helps to adjust production and using his resources in the most profitable manner. As soon as the product becomes obsolete, the product line could be diversified or discontinued. Spotting of opportunities in right time is found essential to influence the target market. It is quite natural that the needs and requirements of different users living in different segments, regions are not identical. The marketers bear the responsibility of identifying the difference in preferences so that the strategic decisions are formulated in line with the same. This helps in sensitising the marketing resources. The marketing inputs are found instrumental in developing the required marketing outputs. Bases of Market Segmentation The step towards developing a segmentation strategy is to allocate base for segmenting the market. These are different variables used for this purpose. The bases for market segmentation can be broadly classified into following groups: 1. Customer based segmentation 2. Product related segmentation 3. Competition related segmentation. 1. Customer Based Segmentation: Customer based segmentation further classifies as follows: a. Geographic Location of Customers: The starting point of all market segmentation is the geographic location of customers. It helps the firm in planning the marketing offer. The common method is to classify according to rural and urban, metro or non-metro markets. There are also other classifications like district and block markets. We all know that here was the perception that the rural markets are different from urban markets and naturally the product promotion, pricing and distribution were accordingly designed to meet those markets. But now with the development of technology and the advent of various modes of communication like TV, the customers in the rural areas are much exposed and are more aware of the availability market. Today the rural customer buys the same branded product which is purchased by urban customer. b. Demographic Characteristics: Factors like age, sex, income, occupation, family size, education; marital status is used singly or in combination to segment the market. i. Age: Age is one of the most important factors for segmenting the market. The market the producer should know for what age group his product could be most suited so that he can plan his pricing policy, advertisement policy, marketing policy and strategy accordingly. For example, Cloth market or Garment market may be segmented on this basis of age as – Children b/w the age group of 3-12yrs Children b/w the age group of 13-15yrs Teenagers’ b/w the age group of 16-20yrs Adults’ b/w the age group of 21-30yrs and so on ii. Income: The manufacturer should also bear in mind while preparing his marketing policy, the income of the prospective buyers of his product. Consumer’s needs, behaviour, persuasion etc. differ in different income groups. For example, people in high-income group prefer quality of goods, design, fashion-oriented products, etc. hence they can be motivated on these factors. People in low-income group attract towards low price. iii. Sex: Marketers may also be divided on the basis of sex i.e., male and female. Some products are exclusively produced for women while some others are for men. For example, Lip Stick is meant for a woman and on the other hand Shaving cream is only meant for men. iv. Occupation: Occupation is also another variable in segmenting the market. An individual’s employment does definitely affect the consumption; different categories of segments can be identified like doctors, consultants, entrepreneurs, lecturers etc. v. Education: Education of the consumer also affects the preference and taste. The choice of literate person would obviously differ from that of an illiterate, as a literate he would be having a lot of exposure to the outside worlds where as an illiterate although exist the same environment would lack the ability to understand, when we look at all these aspects it is easy to indicate that education plays an important role in the life of an individual as it creates awareness about the environment, the availability of different products in the market and awareness about their rights. Accordingly based on education, the Indian Market can be segmented as illiterates, literates- high school, college and university educated vi. Marital Status: Marital status is another demographic variable used. The behavioural of single and married people differs. Married people are more conservative than unmarried people. vii. Family Size and Structure: Markets may also be segmented on the basis of size of family Refrigerators and cookers are produced in different sizes to suit the needs of families of different sizes. c. Psychographics Variables: No two consumers act in the same manner though they two may be of the same age, from the same profession, same education and have same income. Each of the customers may have different attitudes because of personality and life-style differences. Markets are using psychographics variables to segment their market. For example, Citibank, Diners card, Titan Watch, Savvy has used Psychographics variables to segment its market and distance itself from all others, including Femina. Savvy Women is identified as the highly liberated independent strong women, who have a definite plan in the society and to whom career would be extremely important. d. Buyer Readiness: Buyers are at different stages of readiness. People may be unaware, people who are aware but are not interested, people who are interested and desires to buy and those who will buy the product. The relative proportion of buyers at different stages will affect the marketer’s tasks. 2. Product Related Segmentation: Different customers use the same product in different situations for example; Rasna – for parties, unexpected guests, and a drink for quenching thirst etc. A market makes the product versatile so that it can be used in different situation. A consumer may buy different brands of the same product for different situations for e.g., saree for kitty party, work place. Thus, depending upon the situation, a product or a brand may be selected by the customers. Knowing these situations marketer can plan the positioning strategy. Another product related variable is the benefit segmentation. The marketer identifies benefits that the customer looks for when buying a product. 3. Competition Based Segmentation: The success in marketing depends on the number of loyal customers. Customer loyalty therefore is an important factor to determine the competitive position of the firm. On the basis of brand loyalty further the market could be classified as: i. Hard core loyal – These are the customers who buy the same brand, for examples Newspaper readers, tea drinkers etc. ii. Soft-core loyal – Customers who are loyal to two or three brands in a product group, for e.g., Housewife buying toilet soap (Lux, Cinthol, Pears). The marketers have to watch such customers and shift them to the core loyal. iii. Switchers – Customers who never stick to a brand. This is a slipping market segment for the marketer. The marketer has to find out why customers keep switching from brand to brand and from the existing to the competing brand. This can help the firm to strengthen its competitive position in the market. The marketer should also take into amount factors like price, non-availability of brands, indifferent habit etc. Market Segmentation – Examples Brooke Bond Lipton India Ltd. Ice Cream: Segmentation in the ice cream market can be done in a number of ways. While developing strategies for its portfolio of products, an ice cream company such as Brooke Bond, Lipton India Ltd. can adopt one or more suitable segmentation processes to be followed up with effective targeting and positioning. Bases of Segmentation: (i) Income: The market can be assumed to take the shape of a pyramid with the various segments occupying the different layers. Base up, the pyramid (denoting the market) can be seen to be segmented into Base, Medium, Premium and Super Premium categories. The surface area of the layer is supposed to be an indication of the strength of that segment (in terms of number of households). Kwality Wall’s array of choices can be categorised according to the income segments they wish to address. As an Example: Base – Mini milk, Ice Candies, etc. Medium – Chocobar, etc. Premium – Feast, Cornetto, etc. Super-premium – Nothing in this segment as yet (ii) Age: Considering that consumers belonging to different age groups have different preferences (children—basic flavours; young adults—cones, etc.; adults—ethnic flavours), it is essential to segment the market in terms of age as well. The existing portfolio of BBLIL’s ice cream division can be geared to meet the preferences of different target segments in this manner: Adults – Dairy Classic range, Pot Kulfi, etc. Young adults – Cornetto, Split, etc. Teenagers – Chocobar, Top 10, Feast, Cassatta, etc. Children – Mini milk, Solo, Hattrik, Paddle Pop, etc. (iii) Occasion of Consumption: Considering that ice creams are consumed for myriad reasons, it would be vital to segment the ice cream market by occasion of consumption, and categorise the product offerings on the same lines as well. Refreshment – Water ices, Sparkle, etc. Snacks – Chocobar, Feast, Cornetto, etc. Dessert – Dairy Classic range, Cassatta, etc. (iv) Outlets: The various outlets for end consumption of ice creams in India are Parlours, Hotels, Restaurants and Retailers. Further, retailers could either induce on-the-premises- consumption or take-home-consumption. For all these different end consumption points, the company can tailor its product portfolio. Parlours – Dairy Classic range, parlour offerings such as Sundaes, etc. Hotels and restaurants – Dairy Classic range, etc. Take-home – Pot Kulfi, Dairy Classic range, etc. On-the-premises consumption (retailers, push-carts) – Entire range. Market Segmentation – 4 Possible Levels of Market Segmentation Market Segmentation can be carried at many different levels. Companies can practice No Segmentation (Mass Marketing), something in between (Segment Marketing or Niche Marketing) or Complete Segmentation (Personalize Marketing). Each of these possible levels of segmentation is as follows: 1. Mass Marketing: Companies have not always practiced target marketing rather followed mass marketing characterized by mass-producing, mass distributing, and mass promoting the same product in about the same way to all consumers. The traditional argument of 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. Today, marketers find it very hard to create a single product or program that appeals to all diverse consumer groups that exist in market. The proliferation of advertising media and distribution channels has also made it difficult to practice “one size fits all” marketing practices. Consumers now days want to have their own special identity and they project it through product and services they consume. Marketers must understand that consumers have different expectation form the products they purchase, especially in terms of products ability to help consumer to project their image that they intend, to show to society and peer groups. Such consumer psychologies make segmentation inevitably. No wonder some people claim that mass marketing is dying. Not surprisingly, many companies are turning away from mass marketing and adapting segmented marketing. 2. Segment Marketing: A company that practices segment marketing recognizes that buyers differ in their needs, perceptions, and buying behaviours. The company tries to isolate broad segments that make up a market and adapts its offers to match more closely the needs of one or more segments. Segment marketing offers several benefits over mass marketing. The company can market more efficiently, targeting its products or services, channels and communications programs towards only consumers that it can serve best. 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. 3. Niche Marketing/Concentrated Marketing: Market segments are normally large identifiable groups within a market – for example, luxury car buyers, performance car buyers, utility can buyers, and economy car buyers, Niche marketing (or niching) 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. For example, the utility vehicles segments might include light-duty pickup trucks and Sport Utility Vehicles (SUVs). And the sport utility vehicles sub-segment might be further divided into standard SUV (as served by Ford and Chevrolet) and Luxury SUV (as served by 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 niche’s 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 practice niche marketing. In many markets today, niches are the norm. As an advertising agency executive observed, “There will be no market for products that everybody likes a little, only for products that somebody likes a lot.” Other experts assert that companies will have to “niche or be niched.” 4. Micro-Marketing: 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 micro marketing. Micro marketing is the practice of tailoring products and programs to specific individual and locations. Micro marketing includes: i. Local Marketing and ii. Individual Marketing. i. Local Marketing: Local marketing involves tailoring brands and promotions to the needs and wants of local customer groups – cities, neighbourhoods, and even specific stores. Local marketing helps a company to market more effectively in the face of pronounced regional and local differences in community demographics and lifestyles. It also meets the needs of the company’s “first-line customers” – retailers – who prefer more fine-tuned product assortments for their neighbourhoods. Pepsi has tied up with farmers of Haryana for supplying potato for their ‘Lays’ brand chips and in return mentor them on potato farming. Airtel support sports events organised by institutions in various cities. ii. Individual Marketing: In the extreme, micro marketing becomes individual marketing – tailoring products and marketing programs to the needs and preferences of individual customers. Individual marketing has also been labelled “markets-of-one marketing,” “customized marketing,” and “one-to-one marketing”. The tailor custom-made the suit, the cobbler designed shoes for the individual, the cabinetmaker made furniture to order. Today, however, new technologies are permitting many companies to return to customized marketing. More powerful computers, detailed database, robotic production, and immediate and interactive communication media such as e-mail, fax, and Internet – all have combined to foster “mass customization”. Mass customization is the ability to prepare on a mass scale individually designed products and communications to meet each customer’s requirements. For example, Citibank provides credit limit to its customers based on their individual credit history and credit needs. Top 3 Strategies of Market Segmentation The following three strategies are identified for market segmentation. They are: 1. Concentrated Marketing, 2. Differentiated Marketing, and 3. Undifferentiated Marketing. 1. Concentrated Marketing: This strategy aims to concentrate or put all the available resources on one segment within the total market. Here, a firm wishes to match what it can do the best amidst the strong competitors. It intends to have an advantage of differentiated strategy. It is done on the basis of one marketing mix for the competitive advantage in a particular segment of market. The various forms adopted are of high fashion and design- oriented house-ware shops. In India, we can see Glass Manufacturing Companies, Johnson & Johnson for kids, Cars Companies, HMT Quartz etc. A firm targets on a major offering to a specific market segment. 2. Differentiated Marketing: This strategy intends to cover the whole market for designing different products and marketing programs for different segments of the market. A firm makes customers to identify the brand or its name, so that additional sales and increased customer identification can be achieved. This strategy is suitable for medium and large-sized firms which are operating in many markets with a broad product line. For instance, – (i) Hindustan Lever Ltd., sells Lux, Lux Supreme, Lifebuoy, Rexona, Saral, Pears, and Lyril (ii) Golden Tobacco Company markets its ten products in different segments like Panama, Gold Flake, New Deal, Taj, Gaylord, Taj Mahal, Square, Target, Sainik, and Diamond, (iii) Usha Fan Company offers Usha Prima, Usha Deluxe and Usha Continental. Here, each firm targets several markets i.e., offers one product to each of several market segments. 3. Undifferentiated Marketing: In this, a firm considers the whole market as its target. It competes successfully using the same marketing mix. This is adopted when a firm finds that there is no need for their segmentation. For example, Coca-Cola, Canada Dry, Sprint, Pepsi- Cola, Campa-Cola, Thums-Up etc. Here, all products of all organizations are targeted to all or majority of the market.  Market Segmentation – Process and Strategy Bases The first stage of segmentation involves formation of macro segments based on the characteristics of the buying organisation and the buying situations. The second stage involves dividing the macro segments into micro segments based on the characteristics of Decision-Making Units (DMUs). The hierarchical approach enables an initial screening of organisations and selection of these macro segments which on the basis of organisational characteristics provide potentially attractive market opportunities. Starting with grouping of organisations into homogenous macro segments also provide a reduction in total research effort and cost. Most of the data for the initial screening can be drawn from the company records. It can be standardised as a part of Marketing Information System A set of acceptable macro segments may be divided into micro segments on the basis of similarities and differences among DMUs within each macro segment. The two basic strategy bases that could be identified in industrial marketing are customer dispersion and product differentiation. 1. Customer Dispersion: Dispersion refers to the number of customers in a market and how the market is allocated among them. For example, the supplier of fasteners may get the major chunk of business from two or three automobile- manufacturing units. Dispersion can be calculated by an estimation of an industry off-take in each end-use application of the product. For example, the application of machine tools may be related to horizontal markets (markets with a number of applications). A company may work out the customer dispersion by comparing the number of customers using its products for a few applications to the total number of customers using machine tools for the same type of applications. 2. Product Differentiation: Product differentiation refers to the degree to which the product has to be custom-made to the needs of the buyer or the end-user software services. A close interaction is required with the buyer throughout the buying and execution phases to ensure a good ‘need-fit’. The marketer will have to interact with personnel belonging to different functional areas, R&D of the buyer organisation, and the finance department to stress on the cost-effective aspects. If projected costs offset the costs of differentiation, it may be worthwhile to pursue differentiation. It could also serve as an entry barrier for competitors. When an industrial product/market has low product differentiation and high customer dispersion, its customers can be categorized into ‘voicing’ strategies. Products of this kind are made as per the specification of the buyer and price is the factor which emphasized in the marketing mix. Low customer dispersion and high product differentiation may be applied to some markets. A company offering repair services for various kinds of computers (third party maintenance) can be called as ‘flexing’ strategy. ‘Augmenting’ is a strategy which would be suitable for products which are similar to consumer products but which are marketed to organisations (standardized office furniture, catering services). These products have low customer dispersion because the organisations have the option of either manufacturing them or obtaining them in a standardised manner. 3. Industry Practice: Industry marketers categorise bases of segmentation into three clusters, which they evaluate on two sets of criteria. The three clusters are: (i) Organisation characteristics (ii) Product characteristics (iii) DMU characteristics Organisation characteristics include the type of industry, size of the firm and geographic location. Product characteristics include usage, end-use and product specifications. DMU characteristics include the job titles, personality of the buyers and pattern of source loyalty. Market Segmentation – Evaluating and Selecting Market Segmentation In evaluating market segmentation, a firm must look at three factors. 1. Segment size and growth 2. Segment structural attractiveness 3. Company objectives and resources. 1. Segment Size and Growth: The company should do the analysis of current sales, projected sales, growth rates and profit margins of the different segments. The company will select that segments which have right size and growth. All the companies will not select segments with large currents sales, high growth rate and high profit margins. Small companies lack the skills and resources needed to serve the large segments. Hence, they select segments which are small and less attract. 2. Segment Structural Attractiveness: Segments having desirable size and growth do not always lead to profitability for a company. The company’s long run profit depends on the competitors in the segment. A segment is less attractive if there are already many strong and aggressive competitors. An analysis of the competitors in each segment is required to help the managers to evaluate the strengths and weakness of their position. In relative to the competitors, the company’s brand products sales depend on both market potential and effectiveness of marketing. Segment sales forecast – Segment market forecast x Segment share of the company The company has to assess the smaller segments for new opportunities, because the existing firms are likely to be successfully established in larger segments. Companies should consider the following five aspects: a. Threat of substitute products. b. Relative power of buyers. c. Relative power of suppliers. d. Threat of new entrants. e. Threat of segment revelry. 3. Company Objectives and Resources: The company must consider its own