Tuesday, May 13, 2008

Marketing Management(For 2003 and Earlier Batches) - 2

Q 7. What is the difference between Market Segmentation & Concentrated Marketing?
Answer 7)
Market Segmentation is the breaking up of a large market into smaller groups based on Geographic, Demographic, Psycho graphic & Customer characteristic factors.
This is done to get a more detailed description of people in segments so that the marketing mix can be optimized.

The following are the major types of Segmentation -

· Geographic

This divides the market into countries, states, cities, and urban & rural areas. The population density in each area is important.

· Demographic

This is the segmentation based on the people & their characteristics.
E.g.: Age, Sex, buying power etc
This is a commonly used segmentation. The data needed can be easily acquired by surveys.

· Psycho graphic

Elements like social class, personality traits, life styles etc are the basis of this segmentation. This is the psychological factor in a market.

· Product-Customer characteristics

This is based on the customer’s relation to the product.

Concentrated marketing implies that the organization focuses its attention on one market segment & develops one marketing mix for that segment. The single segment can vary in size from very large to very small. Rolls Royce caters to the super luxury segment of the market for cars - a relatively small segment of the total market. The Maruti 800 on the other hand concentrates on the much larger economy minded segment of the market.

A firm that is trying to enter a market dominated by a few large firms may gain easier entry by targeting a smaller segment that the existing competitor is overlooking. The survival of small firms depends more & more on their ability to concentrate on their ability to concentrate on those specialized market segments that are not attractive to their larger rivals.

If a firm concentrates on a segment so small that only one firm can make profit, potential rivals may continue to ignore it. On the other hand, marketers who identify & focus on small segments that develop into large segments attract rivals who also want to cater to that segment. Many firms want to concentrate on the segment of the mass market that has the most people. This is sometimes referred to as the Majority Fallacy. Stiff competition among the competitors for the big segments develops when smaller segments are left untouched.

Q 8. What are the 4 criteria for effective use of Market segmentation?

Answer 8)
Market Segmentation is categorized into the following four types for effective usage. They are -

1. Geographic Segmentation
2. Demographic Segmentation
3. Psycho graphic Segmentation
4. Product-Customer characteristics Segmentation

1. Geographic Segmentation
Marketers who practice geographic segmentation divide the mass market into geographic units such as nations, regions, states, urban agglomerations and rural areas, and neighborhoods. Climate and terrain are other possible segmentation variables. No matter which variable is used, marketers must also have a good understanding of population density & market density.
Dividing a market solely on geographic variables tends to result in the creation of a large segment that is too heterogeneous for effective marketing. Thus marketers also use other types of segmentation variables along with those related to geography.

2. Demographic Segmentation
Demography is the study of population statistics, such as the number of births, deaths, marriages & age groupings. In demographic segmentation markets are identified on the basis of statistical data like age, sex, buying power, expenditure patterns, occupation, education & the stage in the family life cycle. This approach to segmentation is most frequently used because demographic variables are easy to measure through observation & surveys. Census data can also be used.

3. Psycho graphic Segmentation
Psycho graphic variables like social class, personality characteristics & lifestyles are used to supplement the main variables like geography & demography.

4. Product-Customer characteristics Segmentation
In Product-Customer characteristics Segmentation, the market is divided on the basis of one or more characteristics of the consumer’s relationship to the product. Examples of this relationship include the consumer’s amount of usage of the product, type of usage of the product, brand loyalty & benefits sought from the product.

Marketers must make two major decisions about Segmentation variables –
·Which category/categories of variable to use?
·How many in each category to use?

Marketers sometimes use more than one category of Segmentation variables in segmenting a market. The greater the number of variables used to segment a market, the greater the number of segments created & the more detailed the description is of people in each segment. For example using only age place more people in a segment than if age, income, race & sex were used. Thus the major advantage of multivariate segmentation is that it provides more information about the people in a particular segment. This should help in developing more satisfying marketing mixes for them. The drawback is that the sales potential will be limited.

Q 11. For marketing purposes, it is useful to see learning as involving 5 major concepts. What are these concepts? Explain each one.

Answer 11)
The strategic plan lays out the companies overall mission & objectives. Within each business unit, marketing plays a role in helping to accomplish the overall strategic objectives. This involves five major concepts as follows -

A) Target consumers

Target consumers are the driving force of the entire marketing strategy. The company specifies the total market, divides it into segments, selects the most lucrative segments & focuses on servicing these. It creates a marketing mix made up of factors within its control - product, price, place & promotion. To find the optimum mix, the company uses marketing analyses, planning, implementation & control. Through these activities the company keeps its tabs on the marketing environment & adapts to changes in the environment. A company needs to focus on the target consumers if it wants to succeed. Before it can satisfy consumers, it needs to understand their needs. Thus, marketing needs a careful analysis of consumers. The universe of potential consumers is vast & within this universe, a company needs to identify the segments that it is best equipped to service & satisfy.

B) Demand Measurement & Forecasting

The company needs to make of the current & future size of the market & its segments. To do so, it will need to identify all competing products, estimate their sale & determine whether the market is large enough to profitably support another entrant.

Equally important is future market growth. Companies need to enter market that shows strong growth potential. This may depend on the growth rate of certain demographic categories like age groups, income & nationality groups. Growth may also be related to large developments in the environments, such as economic conditions, and lifestyle changes. For example, the growth in market size in educational material will depend upon the current birth rates, and the projected attitudinal changes to education of children. Forecasting the effect of these environmental forces is difficult, but it must be done in order to make decisions about the market. The companies marketing information specialists probably will use complex techniques to measure & forecast demand.

C) Market Segmentation

Suppose the demand forecast looks good. The company must now decide its strategy to enter the market. The marketer has to decide which segment of the market offers the best opportunity for achieving the company objectives. Consumers can be grouped in many ways based on geographic, demographic or Psycho graphic factors. The process of dividing the market into distinct groups of buyers who may require separate products or market mixes is called Market Segmentation.

Every market has Market segments. But not all ways of segmenting markets are equally important. A market segment consists of users who respond in similar ways to similar marketing efforts.

D) Market targeting

After the company has identified the market segments, it can enter one or many market segments. Market targeting involves evaluating each market segments attractiveness & selecting one or more segments to enter. A company with limited resources might decide to serve only a single segment at times, very profitably. Most new companies start with addressing one segment & then adding segments, as their strategy proves successful.

E) Market Positioning

After a company has decided which segments to target, it must decide what positions it wants to occupy in those segments. A products position is the place the product occupies in the consumers mind, in relation to competition. If the products position were to be perceived to be no different from others products, the consumer would have no need to buy it. Through the process of market positioning, the marketer arranges for the product to have a clear, distinctive place in the minds of the consumer. In positioning the product, the company first identifies possible competitive advantages on which to build the position.

To gain competitive advantage, the company must offer greater value to the chosen target of customers either by charging lower prices or by offering more benefits to justify the higher prices. But, if the company positions its products as offering greater value it must deliver the extra value.

Thus, effective positioning begins with actually differentiating the companies marketing offer so that it gives more value than they are offered by the competition.

Once the company has chosen the desired position, it must take strong steps to deliver & communicate that position to target consumers. The companies entire marketing program should support the chosen positioning strategy.

Q 12. The most useful way to classify products is according to whether they are consumer products or industrial products. What are some other ways to classify products into groups?

Answer 12)

The most Common basis for classifying consumer products is based on buyer behavior. The classification is based on differences in the buying behavior of the people who buy products (how they perceive and buy the products) not on the differences in the products themselves. The system works because many consumers behave alike in buying a given type of product. This helps marketers in making generalization to guide development of their marketing mixes. Four classes of consumer products are (1) Convenience products (2) Shopping products (3) Specialty products (4) Unsought products.

Convenience Products:

Convenience products are low-priced, nationally advertised items like cigarettes, toffee, razor blades and matchboxes. They are bought frequently but consumers rarely shop actively for them because they are low value items whose price and quality do not justify active involvement. Convenience products are widely available at may outlets.
Three subclasses are:

1. Staple Products: Like milk, bread, eggs, butter which are bought routinely because the family regularly consumes them. The decision to buy these products is programming after the first time when the consumer puts them on his list of regular items.
2. Impulse Products: Purchases of impulse products are absolutely unplanned exposure to the product triggers the want. The desire to buy staple products may cause the consumer go to the shopping. The desire to buy impulses is a result of the shopping trip. This is why impulse products are located where they can be easily noticed. Stardust and Savvy magazines, toffees and chocolates (placed at a child’s eye-level) are example of impulse products.
3. Emergency Products: purchases of emergency products result from urgent and compelling needs. Often a consumer pays more than if this need had been anticipated. Hotels permit shops vending toothbrushes and shaving blades set up in their lobbies to cater to travelers who have forgotten theirs at home are an example.

Shopping Products:

These products involve price and quality comparisons. Shoppers spend more time, cost and effort to compare because they perceive a higher risk in buying these products. Shopping products may be homogeneous or heterogeneous.

1. Homogeneous Shopping Products: are products considered to be alike. A person who thinks all leading color Television brands are very similar, will limit shopping effort to price comparisons. Thus sellers tend to engage in price competition. Manufacturers also may stress differences in design and try to distinguish between the physical product and its product related services. One might setup service centers to differentiate its products from rivals. A retailer might advertise that the Color TV’s price includes 6 months or free interest financing. Consumer who want to stretch their disposable incomes are more likely to consider a product as a homogeneous shopping production than as a convenience product.

2. Heterogeneous Shopping Products: are considered unlike or non-standardized. Consumers shop for the best price quality combination. Price often is secondary to style & quality when price comparison is difficult to make. Using price to compare clothing, jewelry, cars, furniture & apartments is tough because quality & style carry within each product class. A couple searching for a flat may spend a lot of time comparing decor, floor plans, and distance from stations so on. Once they find the right one price becomes important. If the rent is reasonable compared to the alternatives they probably will lease it.

Special Products:

Consumers will make a special effort to buy special products. For this products consumers have strong convictions as to brand, style or type. Mitsubishi lancer, Ray ban glasses, leica cameras & Johnny walker scotch whisky are examples. Consumers will go out of their way to locate & buy these products because they perceive quality & other benefits in owning them. There is no comparison-shopping. Doctors, Lawyers & Accountants who enjoy a large following are selling special products. Marketers try to crate specialty status for their products with advertising phrases like “Accept no substitutes”, “Insist on the real thing”, & so on. They build customer loyalty when consumers consider their brands to be specialty products. A specialty product can be less intensively distributed than a convenience or shopping product because buyers will search to find it.

Unsought Products:

Unsought products are products potential buyers do not know exist or do not yet want. There are two types - Regular Unsought products & New Unsought products.
Life insurance, lawyer’s services in contesting a will, a wreath & a doctor’s service in an emergency are regular unsought products. These are existing products that consumers do not want to know although they may eventually purchase them. Marketers face a tough challenge in persuading consumers who buy their New Unsought products. The marketer’s task here is to inform target consumers of the products existence & stimulate demand for it. Oral Polio, Vaccine was once a New Unsought product. But heavy promotion & acceptance of the product practically eradicated Polio.

Q14. Briefly describe the major differences between one-price policy & flexible price policy?

Answer 14)

A marketer has to decide whether to sell a product at the same price to all buyers or at different prices to different buyers. The choice is between a one price policy and flexible price policy.

One Price Policy:

All customers who buy a seller’s products under the same conditions, in the same quantities and at the same time pay the same price under a one-price policy. This makes it easy to administer prices and eliminates the risk of losing customer goodwill due to a differential price treatment. But there is no room for tailoring the price to customer. This can be a big problem, especially in industrial marketing where prices re often negotiable between buyer and seller.
Flexible Price Policy:

Different customers, who buy a seller’s product under the same conditions, in the same quantities and at the same time, pay different prices under a flexible, or variable, price policy. Price is more active marketing mix element. Marketers who practice different pricing set two or more prices for a product in order to appeal to different market segments, based upon the segment’s price elasticity of demand for the product. Thus lower prices are set for the more price elastic market segments and higher prices are set for the more price inelastic market segments.

Different pricing can be based upon differences in products, customers, locations and time. An appliance manufacturer that sets different prices on different models of the same basic product is differentiating on a product basis. Lesser of space in office buildings who charge different prices per square foot based upon floor lever are differentiating on a location basis. Hotels that offer discounts to customers over the age of sixty are differentiating on a customer basis.

Flexible pricing is widely practiced in industrial to enable salespeople to tailor their prices to a prospect’s situation. This is often referred to as price shading. Flexible pricing exists in practically all-sales transactions the involve trade-ins.

Marketers who engage in flexible pricing should pricing should try to ensure that customers can be segmented into different segments based on price elasticity of demand for the product. They should also ensure that customers who pay lower prices couldn’t resell the product for a higher price, that rivals cannot price them in those segments.

Several risks are associated with flexible pricing. There is potential loss of customer’s goodwill if some buyers learn they paid more than others buyers. Also, salespeople tend to be overly optimistic that price reductions will help them increase sales. Thus their productivity suffers when they devote too much time and price negotiation and not enough to non-price elements in their offerings. They may make downward price adjustments routinely, whether it helps to close sales or not. There is also less central control over the price when sales people operate under flexible price policy.

Q 16. What is the difference between a short and a long channel of distribution?

Answer 16)

In Short channels of distribution there are no intermediaries or middlemen between the producer & the final buyer. These are much more common in industrial than in consumer products marketing because industrial buyers are usually concentrated geographically, buy in large quantities, buy products with a high unit value, buy complex products that require after sale service, and insist on dealing directly with producers.

Short channels are sometimes used for consumer products. For example Eureka Forbes & Real value use door-to-door sales persons for their vacuum cleaners & fire extinguishers respectively. Some products like magazines are also sold directly by mail. Although most services are sold directly by the producer to the consumer, agent middlemen are common in marketing airline tickets & tourist places.

Producers may choose to sell directly for several reasons. They may believe they can do a better job than available middlemen. Also they can have greater control over the distribution of their products when they handle the job themselves. Acceptable middlemen may be unavailable or unwilling to handle the producer’s product. Producers of bulky products may not want to transport to middlemen, but may wish to send directly to the final buyer. Producers who have only a few customers may not use middlemen at all. Nor will producers with complex products requiring after-sales-service or training regarding use.

Producers who use Short channel of distribution are also able to keep in direct contract with their final buyers. This makes it easier to keep tabs on buying behavior and customer’s changing wants. Thus conducting marketing research and making adjustments to the marketing mix are easier.

In Long channel of distribution the producer entrusts some part(s) of the distribution task to independent middlemen. The producer, however, must work closely with the middlemen to ensure final buyer satisfaction.

In consumer products marketing the producer -> retailer -> ultimate consumer channel is common for shopping products like cars, clothing and home appliances. The producer – wholesaler-retailer-ultimate consumer channel is common for convenience products channels for convenience products tend to be long because consumers want to buy them with a minimum of effort. Thus producers have to sell through a very large number of outlets. Industrial channels are fairly common for industrial products except installations and products manufactured to the buyer’s specifications. Generally, however, indirect channels for industrial products are shorter than consumer product channels.

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