Recap of almost entire marketing

Ankush sir had started the journey of marketing with batch – A from 04-02-2011 by giving a review of marketing which we have already studied in term 2.Explain various rules to be followed in the class during lecture. Here are the recap of some sessions that are taught by our respective faculty.

Recap of 04-02-2011:

Image that a product occupies in the mind of customer is defined as positioning. Marketing is nothing but only a concept of CCD that means Creating communicating and delivering value. To market a product in a proper manner or to do proper marketing an individual has to pass through the process of segmentation, targeting, differentiating, positioning. Flanking means competing in a market where the target does not consider mission critical. Segment the market target particular set of peoples differentiate your product from other product and position it in the mind of customer .

Recap of the 08/02/2011-

Product is a bundle/set of attributes cater to specific need or want of the target segment. Product has different levels such as core that means the service or benefit the customer is really buying, Basic that means to turn the core benefit into a basic product , Expected that is a set of attributes and conditions buyer normally expect when they purchase a product , the another level is augmented which exceeds customer expectation. Product augmentation also leads to the marketer to look at the users entire total consumption system and the last which is potential where a company looks for new way to satisfy customer. Products are traditionally classified on the basis of:

· Usage

· Durability

· Tangibility

Based on Durability and tangibility the products are classified as:

· Durables

· Non-Durables

· Services

Based on Usage they are classified as Consumer goods and Industrial goods.

Consumer goods are further classified based on the purchasing habits on the consumers as:

· Shopping goods

· Speciality products

· Unsought products

· Convenience goods

Industrial goods are classified as:

· Materials and parts

· Capital items

· Supplies and business services

Limitations of Product classification

1. A single product can be a consumer product as well as an industrial product. Eg: Eureka Forbes

2. Perception of one customer varies from another.

3. Customers do not behave rationally.

Recap of session of 15/02/2011 :

Collaborative Marketing: Collaborative marketing can be explained by the following example:

When a person is deciding to go on a trip there are several steps he would take:

· Booking a ticket

· In flight activities

· Rental car

· Hotel and Accommodation

When the individual books the ticket with a particular airline, it may have a deal with the rental car services like Avis, Hertz etc which could provide services when the individual reaches the destination. The airline may also have deals with the airport cab service which would drive the passenger to the airport. If we are able to book the airline ticket through Facebook Connect, and the individual has filled in his movie and music preferences, the airline tracks this information and provides the individual appropriate in flight entertainment according to his choices. Once the destination is reached, the individual need not search for accommodation if the airline has tie-ups with different hotels also.

The purpose of collaborative marketing is:

· Take Advantage of Size Economies

· Maintain a Steady Flow of Products

· Preserve an Existing Market

· Create a New Market

· Gain Access to Knowledge and Professional Expertise

· Increase Bargaining Power

· Promote a Product Line

· Access a Broad, Diverse Customer Base

Proximity Marketing

It is defined as the wireless transmission of advertising content related to a particular area with the help of equipments available with the customer. This is usually done in malls, public places like bus stops etc. It allows real time interaction with the customers.

Eg: Advertising through Blue tooth the various locations within a tourist hot spot, Supplying information about the various events happening in different areas during a College fest, Advertising new discount offers of a retail store through Bluetooth etc.

The location of a device can be detected using:

· Cellular phone

· Bluetooth or Wifi

· Internet enabled Device with GPRS

Several companies help in proximity marketing, Eg: Bluevibe.

Recap of session of 15/02/2011 (Afternoon session)

In the second session we covered concepts such as Cannibalization, Brand Equity, Product Pruning, Pain Gain Theory, Co-Branding and Ingredient Branding.

Cannibalization is a phenomenon that results when a firm develops a new product or service that steals business or market share from one or more of its existing products and services. Thus one product may take sales from another offering in a product line. Although the idea of cannibalization may seem primarily negative, it also has some positive implications. In the evolving world of E-commerce, some companies are intentionally choosing to cannibalize their retail sales through bargain-priced online offerings.

Brand Equity: Amount that a company invests to shift a customer from one brand to its own brand is called the brand equity of that company’s brand.

.Co-branding, also called brand partnership, is when two companies form an alliance to work together, creating marketing synergy. As described in Co-Branding: The Science of Alliance:

"the term 'co-branding' is relatively new to the business vocabulary and is used to encompass a wide range of marketing activity involving the use of two (and sometimes more) brands. Thus co-branding could be considered to include sponsorships, where Marlboro lends it name to Ferrari or accountants Ernst and Young support the Monet exhibition." Examples of Co-branding: • Betty Crocker’s brownie mix includes Hershey’s chocolate syrup • Pillsbury Brownies with Nestle Chocolate • Dell Computers with Intel Processors • Kellogg Pop-tarts with Smucker’s fruit Product Pruning: Discontinuation of a product or brand in response to declining demand or insufficient financial returns. Product pruning enables the marketer to dedicate its resources to its best products or brands. The marketer must first evaluate whether a product or marketing mix modification could revive demand for the ailing product. Innovative and multibrand companies do a better job of product pruning than companies who have relied too much on one product or brand. A product may be pruned gradually by discontinuing all promotion expenditures and milking the market for any remaining demand. The declining product may also be sold to a competitor or sold in limited quantities to a market segment with self-sustaining demand. Recap of Session of 17/02/2011

PRICING METHODS

1. MARKUP PRICING: Markup is the difference between the cost of a good or service and its selling price. A markup is added on to the total cost incurred by the producer of a good or service in order to create a profit. The total cost reflects the total amount of both fixed and variable expenses to produce and distribute a product. Markup can be expressed as a fixed amount or as a percentage of the total cost or selling price. Retail markup is commonly calculated as the difference between wholesale price and retail price, as a percentage of wholesale. The automotive industry, for example, is usually limited to a 5-10 percent markup on new cars, but it realizes a far higher profit in the hugely popular sports utility vehicle market, where markups of 25 percent or more are not uncommon.

For example, if company A and company B are selling the same $5 product, but company A insists on attaching a $4 markup on the product while company B limits itself to a $2 markup, the disparity in retail price may allow company B to register sales three or four times greater than the sales posted by company A. Company B thus realizes greater profits from the product than company A, even though the latter business had a higher markup.

2. TARGET RETURN PRICING: Set your price to achieve a target return-on-investment (ROI). For example, let's assume that you have $10,000 invested in the company. Your expected sales volume is 1,000 units in the first year. You want to recoup all your investment in the first year, so you need to make $10,000 profit on 1,000 units, or $10 profit per unit, giving again a price of $60 per unit.

3. PERCEIVED VALUE PRICING: PVP is an open line pricing technique where respondents estimate the price of a new product compared to those who are already in the market. This method can be used with concepts or real products. The technique is used with face to face interviews. It is a preferred approach if the client has little idea about the price level of the new product.For example, if you are selling luxury cars through lease programs, you might include pickup and delivery at time of leasing and return; four free maintenance services, including pickup and delivery; a guarantee of service turn-around (on regular service items); etc. Your competition is not offering any additional services. You promote the value in your offer and cost that value (four free maintenance services have a value of $400, pickup and delivery has a value of the customer's time saved, and more).

4. VALUE PRICING: is a strategy that business with a high value product or service use. The strategy is to sell the high value product or service at a low, value price. Note: this price is not to be below cost but at what the customer would perceive to be a low price. Customers' perceptions are influenced by the value they perceive in the relationship between the attributes of the product or service and the price they will have to pay for that product or service. Customers also are influenced by price comparison amongst similar products or services. For example, let's say that your widget above saves the typical customer $1,000 a year in, say, energy costs. In that case, $60 seems like a bargain - maybe even too cheap. If your product reliably produced that kind of cost savings, you could easily charge $200, $300 or more for it, and customers would gladly pay it, since they would get their money back in a matter of months.

5. GOING RATE PRICING: In markets where price leadership is well established, going-rate pricing is the only rational strategy which a follower firm can adopt; it may be less costly and troublesome, than the exact calculation of costs and demand to set a price and then to face market risk and uncertainty. Going rate pricing does not necessarily imply that a firm accepts a price impersonally set by a near perfect market. Rather it would seem that the firm has, the option to set its own price, looking at the prevalent price. The firm can be a price- maker provided it agrees to bear the consequences. It prefers however; to take the safe course and confirm to the policy of others. Such a pricing method is not confined to small and medium business; sometimes even large business organizations also follow this policy. In a way, by adopting the going-rate prices, the firm avoids costs of collecting and processing information about market conditions.

Recap of session of 22/02/2011:

This was our second class on PRICING. The lecture began with a note on the importance of sharing blogs on marketing.

The following concepts of pricing were covered:

Pricing is the “Game changer”. Pricing is important so as to:

· Retain Market share

· Survival in the competitive market

· Penetration in the market

· Skimming

Set up steps in Pricing:

1. Selecting Pricing objective: Pricing objectives are different for different brands, variants, etc. This is the 1^st and important step in pricing. The task of the marketing manager is to decide the objectives of pricing before he determines the price itself.

2. Determine Demand: Demand is determined by using elasticity concept. Magnitude of demand influence pricing strategies. But in marketing perspective, the more important decision is to be made on the basis of how to create demand for a product. The marketers should create something specific to meet specific demands of customers.

For eg: Vodafone’s Chota Voucher, Tata Ace (Chota Haathi)

Various econometric models are designed to determine demand.

3. Estimate Costs: If the firm has decided to launch a product, a basic understanding of the costs is to be made, otherwise, there might be no profit. The unit cost of the product sets the lower limit of what the firm might charge, and determines the profit margin at higher prices. The total costs includes variable costs and fixed costs. A firm must consider both.

4. Analyze competitor Price mix: Identifying nearest price competitors, making decision as to charge same, less or more than competitors is a very important step of pricing.

Ball Park: an estimate or approximate figure of pricing. It may arise because of:

· Competitive pricing

· Intention to buy

Hunch: a moderating variable, an intuition or gut feeling. It may arise on the basis of:

· Research

· Attributes of products (eg: sony monolithic design) – Attribute based pricing must be communicated effectively or else lead may lead to a product failure.

On the basis of the above concepts, reference pricing may be defined as “ a price to set a ball mark on the basis of competitor pricing, customer’s intention to buy , a hunch or attributes of a product.

Eg: network providers (Globe, sun,Smart)

The other points discussed were:

· Integrated marketing communication

· AMA- a pool of definitions on marketing concepts

· Brand Equity

The lecture concluded with a small note on discriminating pricing. The examples of PBR(multiplexes) and airlines were discussed in this context.

Recap of session of 25/02/2011 -

The basic concept that we learnt in previous class was all about VALUE PRICING.

VALUE PRICING:

Q. What is Value?

A. Value is nothing but evaluation of anything and everything in the terms of cost and benefit involved with it.

The arithmetic formula of the same can be given as Benefits-Costs involved. On the basis of this the value of any product or service is evaluated. Value in marketing can be defined by both qualitative and quantitative measures. When taking qualitative aspect into mind value can said to be calculated keeping in mind all the emotions, metal, social, economic and environment. Whereas, quantitative value is the monetary benefit in direct or percentage form.

Perceived Value can be said to be calculated with both the aspect in mind. That is the customer should feel that they are getting high value product in low cost as it is the best they can get in that amount. The opportunity cost should be less in simple terms. With this mind set the perceived values become high.

Value can be of 4 types namely:

1. Functional

2. Emotional

3. Value of mind

4. Value of heart

Functional Value:

The functional value of any product can be said to be derived from all the values of the produst and nothing else.

For eg - Various companies try and show advertisements related to the functionalities of the product Like a LIJJAT PAPAD advertisement that was launched years back. It was all about the characteristics of the product that is the papad like “kurram kurram” and home-made features. There was nothing else that was used in the advertisement which makes it functional

Value of heart:

Emotional value of the product is developed by attacking the emotions of customer directly. Various features of the product is studied on the basis of where does it is attached to the target group. That is why it is termed as value of heart.

For eg –

1. The advertisements related to the carpenters, made by fevicol as they understood the basic customer of that product was them and it was the first time they were given so much of importance directly through media. This made them value the product emotionally and made the sales grow high.

2. Adv. Campaigns by various life insurance providing companies.

3. De beers ad with the punch line-“HEERE KO KYA PATA TUMHARI UMAR?”

Economical value:

Economical value of any product is evaluated only on the basis of monetary value. This is based for the middle class and lower middle class people which constitute the majority in our country.

Example:

1. Maruti 800 ad campaign of 2599 pm instalment scheme

2. Sachetization like shampoo and Tomato ketchup

3. Discounting strategy

Value of Mind:

Value of mind is one of the most complex of all. It constitutes Cognitive Thinking.

Cognitive thinking is nothing but processing of information available about a certain product and classify them into utilitarian or hedonism.

· Utilitarian can be said to be that the worth is totally defined by the usefulness and utility.

· Hedonism is totally dependent on pleasure based perception.

Value of mind is derived through thinking on this basis that we call as cognitive thinking.

Recap of session of 01/03/2011 :

Perceived Value vs Actual Value

Perceived value is defined as the benefits a customer expects to obtain from a product or service. It can be derived from a combination of tangible and psychological benefits like status enhancement. Perceived value has a direct impact on the demand hence it is very important to be considered during pricing. The whole purpose of marketing is to make the customers perceive the real value or the value that isn’t actually present.

Eg: Toys found in cereal boxes. An entire marketing campaign was conducted by the company focusing on the little toy inside the cereal box. Thousands of cereal boxes were sold due to this toy. This is the perceived value, whereas the actual value of that cereal box is in pennies.

Micro Segmentation

Micro segmentation is a strategy applied in marketing to narrow and refine a market into smaller segments on the basis of common characteristics — age, gender, income, possessions, expenditure and preferences. Micro segmentation is critical to focused direct marketing messages aimed at niche customer segments. This process is done because the more you know about the customer - age, gender, what he owns, what he spends and what his preferences are - the more likely it is that you can create and pitch a product or service that will hit a bull's-eye.

Eg. Social networking sites like Facebook and several internet businesses like Google whose main revenue generation is from the advertisements carry out micro segmentation. Once they get to know the individual preferences of the customers they can then can place a short and non intrusive list of advertisements in each personalized user view and get a high hit rate. They can also camouflage their advertisements under information appearance. But if micro segmentation strategy is not done properly and continuously as people preferences change over time, it can lead to loss of customers.

Organized vs Unorganized retail

The Indian retail industry is the fifth largest in the world. Comprising of organized and unorganized sectors, India retail industry is one of the fastest growing industries in India, especially over the last few years. Though initially, the retail industry in India was mostly unorganized, however with the change of tastes and preferences of the consumers, the industry is getting more popular these days and getting organized as well. With growing market demand, the industry is expected to grow at a pace of 25-30% annually. The India retail industry was expected to grow from Rs. 35,000 crore in 2004-05 to Rs. 109,000 crore by the year 2010.

Organized retailing refers to the trading activities undertaken by licensed retailers, that is, those who are registered for sales tax, income tax, etc. These include the corporate-backed hypermarkets and retail chains, and also the privately owned large retail businesses. It is also a place where all the items are brought together under one roof.

Unorganized retailing, on the other hand, refers to the traditional formats of low-cost retailing, for example, the local kirana shops, owner manned general stores, paan/beedi shops, convenience stores, hand cart and pavement vendors, etc.

Touch points

These can be defined as Communications channels with which companies interact directly with prospects and customers. Traditional touch points include face-to-face (in-store or sales representatives), phone and mail. Digital touch points include web services, e-mail and potentially mobile phone.

Eg: Touch points in banking can include client service advisors, receipts, events, offerings, financial expert reports, website, intranet, IT-systems, research reports, sponsoring, Word of mouth, e-banking, regional office or contacts by phone with the client service advisors, etc.

A customer has several touch points with a brand like the product, packaging, price, advertisement, sales personnel. These are obvious touch points whereas there are unobvious ones like the product manual, monthly statements, post sales services etc. The experience of a customer with the brand through these touch points defines the existence of the brand.

Bundle pricing

It is a technique that is used by the marketers which avoids lowering the price of the main product in the fear of reduction of quality perception of the product by the customer. Instead a number of products would be bundled together and the complementary products will be priced low such that the total price of the bundle would be lower than the sum of their individual prices. Bundling is also often a way for creating a larger market for relatively low value products by selling them cheap (or giving them away free) with a higher value product

Eg: Parachute oil free with every packet of Lifebuoy soap, Lux body wash at 50% discount with every bottle of Lux shampoo

Loyalty Programs

These are structured marketing efforts that encourage loyal buying through discounts, rebates and promotional offers during every purchase, which also benefits the firm. Through the loyalty card or the royal card a customer establishes a relationship with the retailer and is a source of identification when dealing with them. The card is a visible implementation of a two part tariff. While issuing the loyalty card, the issuer seeks certain minimal information and demographic details of the customer like his name and address. The application forms normally contain a non disclosure agreement regarding customer privacy.

The loyalty cards are an excellent source for tracking the customers through the data they have provided while issuing the cards. With the help of their contact details the frequent buyers can be informed of the various seasonal offers and promotional discounts. These loyalty cards also help the retailer understand the tastes and preferences of the consumer.

Eg: Hypercity gives its frequent customers a loyalty card onto which points are entered during every purchase, for the products bought. These points can be redeemed in the form of money any time. There are also special discounts for card holders. Hence those customers that possess the loyalty card find it essential to shop from Hypercity as the retailer has now established a bond with the consumer. Stores like globus, Shopper’s Stop etc also follow the loyalty program

The loyalty program is also followed by airlines where the frequent flyers are given a card or an account onto which air miles are entered (miles travelled by the customer). These can be redeemed in the form of another air ticket or gifts according to the miles travelled.

Size Usage Parameter

Research reveals that an average consumer is unaware of the quantity of product he pays for. The company takes advantage of this situation and may change the quantity while keeping the price same. Recently due to increasing raw material costs, brands are struggling with their profit margins. Increasing prices of products may offend the customer, hence they are resorting to other means wherein they can gain the confidence of the customers as well as cope up with their costs. One such method is to reduce the quantity of product supplied per packet and another is cutting down on the packaging.

The above concepts were taken while discussing parameters to be considered while selecting the final price like:

· Impact of other marketing activities

· Company pricing policies

· Gain and risk sharing pricing

· Impact of price on other parties

Recap of session of 03/03/2011:

PRICING IS NOT THE ONLY DIFFERENTIATOR

In business terms, to differentiate means to create a benefit that customers perceive as being of greater value to them than what they can get elsewhere. It's not enough to be different--a potential customer has to take note of the difference and must feel that the difference somehow fits their need better. Differentiating on price is probably the most common and easily understood method. Price is a double edged sword. On the one hand, potential customers might expect a lower price from you than from your larger competition because they perceive you as having less overhead, etc. On the other hand, cheaper prices can evoke perceptions of lower quality, a less-stable business, etc. As one is building his business, one can use differentiation to attract more customers. Once they have momentum, differentiation allows them to charge a higher price because they are delivering more value to their customers. Be creative with this differentiator by competing on something other than straight price. For example:

--More value--offer more products or services for the same price.
--Freebies --accessories, companion products, free upgrades, and coupons for future purchases.
--Free shipping, etc.--convenience sells, especially when it is free!
--Discounts--includes offering regular sales, coupons, etc.

DISCRIMINATING POWER OF PRICING:

Most businesses charge different prices to different groups of consumers for what is more or less the same good or service. This is price discrimination and it has become widespread in nearly every market.

Conditions necessary for price discrimination to work

Essentially there are two main conditions required for discriminatory pricing

• Differences in price elasticity of demand between markets: There must be a different price elasticity of demand from each group of consumers. The firm is then able to charge a higher price to the group with a more price inelastic demand and a relatively lower price to the group with a more elastic demand. By adopting such a strategy, the firm can increase its total revenue and profits (i.e. achieve a higher level of producer surplus). To profit maximize, the firm will seek to set marginal revenue = to marginal cost in each separate (segmented) market.
• Barriers to prevent consumers switching from one supplier to another: The firm must be able to prevent “market seepage” or “consumer switching” – defined as a process whereby consumers who have purchased a good or service at a lower price are able to re-sell it to those consumers who would have normally paid the expensive price. This can be done in a number of ways, – and is probably easier to achieve with the provision of a unique service such as a haircut rather than with the exchange of tangible goods. Seepage might be prevented by selling a product to consumers at unique and different points in time – for example with the use of time specific airline tickets that cannot be resold under any circumstances.

EXAMPLES:

Because price discrimination is potentially profitable, businesses have found many ways to do it.

1. Theaters often charge younger customers less than adults.

2. Doctors sometimes charge the rich or insured patient more for services than they charge the poor or uninsured.

3. Grocery stores have a lower price for people who bother to check the newspaper and clip coupons.

4. Some companies, such as firms selling alcoholic beverages, produce similar products but try to promote one as a prestige brand with a much higher price.

5. Electric utilities usually charge lower rates to people who use a lot of electricity (and thus probably have electric stoves and water heaters) than they do to those who use only a little electricity (and who probably have gas stoves and water heaters).

6. perhaps be pleased at having gotten a good price. The different prices are illustrations of what is called as discriminatory pricing.

SKEWED PRICING:

In two-sided markets, one widely observes skewed pricing strategies, in which the price mark-up is much higher on one side of the market than the other. Using a simple model of two-sided markets, we show that, under constant elasticity of demand, skewed pricing is indeed profit maximizing. The most elastic side of the market is used to generate maximum demand by providing it with platform services at the lowest possible price.

Example: Sony comes out only with premium prices. If in the case of digital camera it comes out with high prices, then it is skewed i.e. pricing is not based on the product attributes but only on premium pricing.

PRICING CUES:

A price cue is defined as any marketing tactic used to persuade customers that prices offer good value compared to competitors’ prices, past prices or future prices. A common example is placing a sign at the point of purchase claiming an item is on “Sale”. However, the definition is broad enough to also include more subtle techniques such as $9 price endings, price matching guarantees, employee discount promotions and low advertised prices.

Pricing cues extend to much more than sale signs. Wal-Mart, Costco and other major discounters, for example, “have a storewide image of being low-priced, so people assume all items will be cheaper there.” If you want to buy a 42-inch plasma TV at a good price, people will look for cues such as the location of the store, the size of the store, the level of customer service, all to evaluate whether the prices will be low. Even if a TV is the same price at Tweeter as at Costco, a lot of customers will think the Costco price is lower. It's all about perceived prices, not actual prices.

PROMOTION AS AN IMPORTANT TOOL FOR PRICING:

Example: Suppose I go to the market to buy soap. The shopkeeper suggests that if I buy two soap cakes, an extra soap cake will be given tome free of cost under “buy 2 get 3” scheme. I feel attracted to buy as by doing so I am saving money on one soap. Moreover, soap is an item which is required on a regular basis, and so I can keep the extra two cakes to be used later. This is promotion strategy.

Some other examples are: “lakhpati bano”, “win a tour to Singapore”, “30% extra in a pack of one kg”, “scratch the card and win a prize” etc. We might also have seen gifts like lunch box, pencil box, pen, shampoo pouch etc. offered free with some products. There are also exchange offers, like in exchange of existing model of television you can get a new model at a reduced price. You may have also observed in your neighboring markets notices of “winter sale”, “summer sale”, “trade fairs”, “discount up to 50%” and many other schemes to attract customers to buy certain products. All these are incentives offered by manufacturers or dealers to increase the sale of their goods. These incentives may be in the form of free samples, gifts, discount coupons, demonstrations, shows, contests etc. All these measures normally motivate the customers to buy more and thus, it increases sales of the product. This approach of selling goods is known as “Sales Promotion”.

PRICING AS A BRAND BUILDING TOOL:

In building a brand platform from which your branding strategies, decisions, elements and activities will arise; the most significant plank is probably the way you plan to differentiate your brand. This is how you will determine your positioning strategy. It is the thing that will set you apart from competitors in the minds of your customers and prospects.

Customers experience your brand in numerous ways: products, packaging, price, marketing, sales personnel, etc. Each of these contacts or touch points molds the customer's impression of the brand. Some of these touch points are obvious, like product performance, and one-on-one customer interactions. Other touch points, such as the product manual, monthly statements or post-sales support, may be subtler in their brand effects. If the brand is a promise you make, then the customer experience is the fulfillment of that promise. The customer experience can't be left to chance. It should be actively designed and controlled in a manner that enhances your brand image. It must consistently reinforce the brand promise across every customer touch point or the value of the brand itself is at risk.