3.0 sales & marketing management_1

Sales & MarketingManagement

Definition of Marketing

Marketing is a social & Managerial process by which individuals & groups obtain what they need & want through creating & exchanging products & value with others.

Philip Kotler in 1991

American Marketing Association’sDefinition

Marketing is an organisational function & a set of processes for creating, communicating & delivering value to customers & for managing customer relationships in ways that benefit the organisation & its stakeholders

Marketing

Marketing is concerned with anticipating customer demand & directing the flow of goods from producers to consumers

Marketing has to do with matching producer’s outputs to consumer’s activities (needs, wants)

Marketing is the business function that interprets customer needs to the rest of the organisation

Marketing- Definition

Process of Planning & Executing the conception,pricing,promotion & distribution of ideas, goods& services to create exchanges that satisfy individuals & organisational objectives.

What is Marketed ?

Goods or Products

Services

Events

Experiences

Property, Time share, etc

Marketing Practice

Marketing Triad

Dialogue

RelationshipCoordination Customer

Concepts of Marketing

1. The Exchange Concept

2. The Production Concept

3. The Product Concept

4. The Sales Concept

5. The Marketing Concept

Sales & MarketingSales: Selling concept is to sell what you make rather

than make what the market wantsMarketing: Emerged in the mid 50sCustomer centered – find the right products for your

customers

Selling

Selling focuses on the needs of the seller

Preoccupied with the seller’s need to convert his product into cash

Marketing

Marketing on the needs of the buyer

Idea of satisfying the needs of the customer by means of the product

Sales & Marketing

Selling Concept:

Marketing Concept:

Starting Focus Means Ends

Factory Profit through Sales Volume

Selling & Promotion

Products

Coordinated Marketing

Market Customer Needs

Profits through Customer Satisfaction

Sales & Marketing

Difference between Selling & Marketing:

Selling:

Revolves around the needs & interests of the seller

Starts with existing products

Seeks profits by pushing the products on the ‘ buyers’

Marketing:

Revolves around the needs & interests of the buyer

Starts with the customers – present & potential

Seeks profits by meeting the needs of the customer

The Marketing Concept

The Marketing concept has four major distinguishing features:

1. Consumer Orientation

2. Integrated Management, with Marketing as the fulcrum.

3. Consumer Satisfaction

4. Realisation of all organisational Goals, including profits

The Marketing Concept

1. Consumer Orientation

Emphasis on the consumer and his need.

Enables the firm to look at its business from the point of view of the consumer.

When a firm adopts a Marketing concept, the consumer becomes the focal point of the business.

Marketing2. Integrated Management, with Marketing as the

Fulcrum

All different functions of the business must be tightly integrated with one another, keeping Marketing as the pivot.

All functions have to be integrated and properly aligned with Marketing

All elements are seen through the eyes of the customer and are coordinated so as to produce the best benefits & satisfaction for the customer, and no dept. or executive functions in isolation.

Marketing

3. Customer Satisfaction

Integrated Management is the means for fulfilling the needs of the consumer.

Marketing concept leads to consumer orientation which in turn should lead to consumer satisfaction

Marketing

4. Profits

The Marketing concept also considers the creation of profits or surpluses as an essential requirement of any business firm

Attractive returns & surpluses are essential for the survival and growth of any business.

MarketingMarketing ConceptThe Marketing concept is essentially a

point of view about business. It enunciates that business is basically a “need-satisfying process” and that businesses must be managed keeping the consumer and his need as the focus.The concept prescribes that all goals of

business, including profit, must be realised through consumer orientation and generation of consumer satisfaction.

Marketing

Concept of Value

Customer seeks value in what he buys

He has to pay a cost for acquiring this value

He is happy when this value exceeds the cost he incurs

He also gets satisfaction when using the product

The larger the value-cost gap, the greater is his satisfaction

Marketing

He selects the offer that gives him the best trade-off.

Benefit-value-cost-satisfaction-is a challenging exercise

Winning combination of the above is the job of Marketing Management.

The Marketing concept gets implemented when a firm searches for the benefits sought from it by the customer & builds them into its offer

Marketing

Market Offer

The firm incorporates the benefit that it wants to provide to the customer into its market offer.

The firm has a value creating & value delivering system & it includes the firm’s production facilities, processes, organisation, expertise, etc.

Marketing

Market Offer

The firm makes out the best possible bundle of benefits as per the customer’s expectations and puts it across in the form of its Market Offer.

Providing the Best Value-Cost Balance is thus the key to Marketing

In its effort to deliver the intended value to the customer, the firm uses its Tool Kit- Marketing Mix.

MarketingPerceived Value

Every benefit promised by the product, carries a measure of value to the customer

The customer mentally judges the value of the product

This is called the “Perceived Value” The estimate is based on various information which

he has on hand from different sources Buyer behaviour also influences the process of

customer value assessment Branding can come into play

Marketing

In any Marketing situation, one can discern four distinct steps in the value providing process :

1. Value Selection

2. Value Creation / Value Delivery

3. Value Communication

4. Value Enhancement

Marketing

Value Selection

Only after selecting the value to be offered, can the firm proceed with production, sales and promotion.

Marketing Planning, Buyer analysis, market segmentation and targetting are concerned with Value Selection.

Marketing

Value Creation / Value DeliveryThis is the bulk of the marketing job.Product development, manufacturing,

service planning, pricing, distribution and servicing, are concerned with value creation / value delivery.Thus, technology, design and Engg.,

Finance management and organisation set up have a role in this function.

Marketing

Value Communication

The firm first makes out a Value Proposition and then communicates this to the customer.

The product offer consisting of the best possible benefits / value is put forward as a value proposition

Personal selling, advertising, publicity and sales promotion are concerned with value communication.

MarketingValue EnhancementThe firm has to continuously and

proactively keep enhancing the value of the product offeringFirm has to collect feedback from the

customer about his level of satisfaction, upgrade product value etc.Market research and other control

activities help in enhancing the value of the product offering.

Marketing Mix

Products Price Promotion Place

Advertising

Marketing Mix

Variety

Quality

Design

Features

Packaging

Services

Warranties

Returns

List price

Discounts

Allowances

Payment Period

Credit Terms

Sales Promotion

Advertising

Sales Force

Public Relations

Direct Marketing

Channels

Coverage

Location

Inventory

Transport

Marketing Mix

Product1. Product Design, features, brand name,

models, style, appearance2. Product Quality3. Warranty / Returns4. Package : Design type, material, size,

appearance and labelling5. Service : Pre-sale & after sale, service

standards, service charges.

Marketing Mix

1. Channels of Distribution: Channel design, types of intermediaries, location of outlets, channel remuneration, dealer-principal relations. Etc

2. Physical distribution: Transportation, warehousing, inventory levels, order processing etc.

Marketing Mix

1. Pricing Policies, List prices, Margins, discounts and rebates.

2. Terms of delivery, payment terms, credit terms and installment purchase facilities

3. Resale price maintenance

Marketing Mix

Promotion

1. Personal Selling: Selling expertise, size of sales force and quality of sales force

2. Advertising: Media Mix, vehicles, programmes

3. Sales Promotion

4. Publicity and Public relations

Marketing Information System(MIS)

Sources: Internal Data Personal Experience External Data

o Internal Data:» Performance Data» Written Reports» Data Handling

o Personal Experience:» Oral Reports & Feedback» Questioning

o External Data:» Market research » Desk Research

Qualitative

Quantitative

Marketing Research is now made by leading Management consultancies

Systematic collection & organisation of data relevant to the needs of the marketer - computerised

Marketing Intelligence Systems

Intelligence

Information

Intelligence

Is the interpretation which is made,followinganalysis of above information

Most important use of MIS data on a large scale is in “Precision Marketing” where small groups of customers are used to target promotional efforts very accurately

Internal Sources of Information

Performance Analysis

ABC Analysis

Variance Analysis

Marketing Research

Gives a profound insight into the whole of the marketing process

Syndicated Research

Custom Research

Sub Contractors

Syndicated Research

Easiest & quickest service

Some of this can be standard research

Shared cost is one major advantage

o Areas:

» Retail audits

» Panel research

» Omnibus surveys – Questionnaires

» Consultancies

Custom Research

Specific to Customer needs

Cost is significant

When costs are cut quality suffers

The Marketing Environment

Environmental Analysis

The Marketing EnvironmentThe foll. constitute the environment variables of

Marketing :

Competition

Consumer

Govt. of the land

Forces of Nature etc

While the Marketing Manager can choose, alter and control the Marketing Mix variables, he cannot choose or alter the environment variables against which he markets his product.

Hence:Environmental Variables : Non Controllable

Marketing-Mix : Controllable variables

Marketing – Interaction betweenMarketing Mix} EnvironmentalVariables } & VariablesMarketing Objective is achieved using different

combinations of the Marketing Mix.

Selecting an optimum combination is the name of the game

The task is to give correct weightage to the different elements of the mix.

Ensure that all the elements are integrated

The aim is to select a combination which will have the desired impact on the market being cost effective at the same time.

The Marketing EnvironmentOther factorsChange in Environmental variables

Change in customer preference

Changes within the firm

Corporate strategy

Product Lines

Organisation

Resource level

Thus knowledge of Marketing Environment is central and crucial to Marketing Management

Environmental Analysis

1. Introduction

2. The Environment

3. Analysis

4. Scanning

5. Areas of Information

6. Macro – environmental Analysis

7. Porter’s Five Competitive Forces

Introduction1. The business environment is the setting within

which a business operates, formulates policies & makes decisions

2. We can distinguish between Internal & External environment

3. Considerable control can be exercised over its Internal environment by a firm, but a firm cannot exert control in the same way or to the same extent over the External environment

4. The nature of this environment & the changes occurring within it, present Opportunities, Threats & Constraints to an organisations’ activities.

Introduction

5. An Organisation in its environment might be likened to a ship at sea

6. Organisational environments present the same kinds of Opportunities ,Threats & Constraints for the organisation as the sea does for the ship

7. Organisations need to respond & adapt to changing environmental conditions if they intend to survive.

The Environment

1. Infinite number of environmental variables 2. Large number of non – controllable variables

Pose both opportunities & threats

3. Essence of strategy: Future Orientation4. We need to understand & diagnose the

environment 5. No simple models or algorithms for success 6. If you get it wrong: You go out of business 7. If you get it right: Does not ensure success

Analysis

1. Identify & Monitor potential threats & opportunities 2. Diagnosis: Through a process of decision making,

assess the significance to the company of such threats & opportunities

Analysis of environment: Current product / market strategies & predictions of

variance Diagnosis stage: Improvements to existing strategiesTherefore, Environmental Analysis: Integral part of the strategic

planning process

Scanning

Environmental audit is also referred to as ‘ Scanning’

There are four forces of scanning:

1. Undirected viewing

2. Conditional viewing

3. Informal search

4. Formal search

Undirected viewing

Exploring information in general without carrying a specific agenda

Viewer is exposed to a large amount of varied information

Just a broad attempt to be aware of factors or areas that may have changed

Conditional viewing

Not an organised search

Viewer is sensitive to information that identifies changes in specific areas of activity

Informal search

Organised but limited search for information to support a specific goal

Formal search

Search is actively pursued & specifically designed to seek particular information

Balance has to be struck between the resources allocated to this search activity & the potential benefits

Areas of Information

Managers search for information in five broad areas:

1. Market Intelligence

2. Technical Intelligence

3. Acquisition Intelligence

4. Broad Issues

5. Other Intelligence

Area of external Information

Category General Content

Market Intelligence

Market Potential

Structural change

Competitors & Industry

Pricing

Sales Negotiations

Customers

Capacity, consumption, imports, exports

Mergers, acquisitions, new entries

Competitor information, Industry policy

Effective & Proposed prices

Information on specific current or potential sales

Current or potential customers, markets & problems

Technical Intelligence

New product, processes & technology

Product problems

Licensing & Patents

Technical information relatively new or unknown to enterprise

Involving current products

For processing, operations, etc. for suppliers, customers & competitors

Products & Processes

Acquisition Intelligence

Intelligence on broad issues

Other Intelligence

Leads for mergers, joint ventures or acquisitions

General conditions

Govt. actions & policies

Suppliers & raw materials

Resources available

Miscellaneous

Information concerning possibilities for the organisation

General information: Political, demographic, etc.

Decisions affecting the industry

Purchasing information

Availability of people, land, other resources

Any other information

Macro - Environmental Analysis

This audit examines the broad range of environmental issues that may affect the organisation

P : Political

E : Economic

S : Social

T : Technological

Macro – Economical Analysis

The central role of this PEST analysis is to identify the key factors that are likely to drive change in the environment

Then, the aim is to establish how these key factors will affect the industry in general & the organisation in particular

Political / Legal issuesGovts. Are in a position to take actions which can substantially alter a

company’s marketing environment. e.g Duties on cars / commodities Import / Export policies Telecom Regulations

Political instability in a country can also have a marked effect on Marketing methods used by exporters.

Other factors include the foll:

1. Taxation policy2. Monopoly controls3. Environmental protection measures4. Employment law5. Environmental legislation6. Foreign trade agreements

The Economic Environment

Prosperity demand for well known & well established products

Recession demand for basic functional & less expensive products

Recovery demand for convenience products

Effects of booms & slumps in economy

Effects of booms & slumps in economy: In each stage of the cycle there are different patterns In times of prosperity – consumer spending is high Organisations exploit this by:

Extending Product lines Increasing Promotional efforts Expanding distribution Raising prices

On the presumption that consumers are often willing to pay more for well known & well established products & have the means to do so

Current & Future state of key economic variables used to describe wealth, purchasing power, savings & consumption together with government economic policy deployed to affect those variables

GDP or disposable income are key determinants of demand

Rate of inflation & Govt. policy towards it can greatly affect consumer’s attitudes to credit

Other areas considered are: 1. Conservation of Natural resources 2. Costs of pollution 3. Energy consumption 4. Management of natural resources

As part of strategic planning process: Identification, monitoring & forecasting of those economic variables to which the company’s market effort is most sensitive

Key marketing task is to attempt to realisethe relationships between movements in the economy & changes in the market place

Economic Factors

Interest rates

Inflation rates

Money supply

Business cycles

Unemployment

GDP trends

The Demographic Environment

Demographic and cultural factors make up society-wide influences and changes that can affect the marketing environment.

Factors: Population : size, growth rate, distribution

by gender, birth rates / death rates, life expectancy etc.

Density : Location, geographic / regional shifts.

Hosehold / Family : Size, make-up Income / Wealth distribution Socio-economic groups : Occupations, ethnic groups.

The Demographic Environment

These factors change slowly over time & exert powerful effects on the volume & nature of demand for most products & services.

e.g. Children’s products & services

Elderly population

Smaller families / Single Parent families

Career couples.

Nature of Cultural Values

Different regions of a country exhibit different buying preference patterns that seem to reflect different cultural & traditional values

Culture is reflected in the prevalent core beliefs & values of people.

These beliefs & values are declared in family & friendship relations etc.

Nature of Cultural Values

Religious beliefs, have a major influence on consumer attitudes & purchase behaviour.

Reflected in the kinds of food that people consume, the drinks they purchase & even their manner of dress.e.g. Spate of new restaurants that have come up recently.

Changes in Menu to meet the requirements of the changing class of people.

Marketers have to understand cultural values in all aspects of implementing the marketing concept & managing the Marketing Mix.

Changes in Values & Attitudes

Attitudes towards credit have changed substantially since the 1980s.

Credit has become an intrinsic part in the marketing of many products.

Changes in society’s attitudes towards health & wellness have resulted in an entirely new set of businesses coming up.

People are now more weight conscious, exercise conscious & diet conscious.e.g Diet India- supplies food which is door-delivered-three times a day.

The role of working women in society is also a result of changing attitudes.

Social / Cultural issues

Other factors

Social mobility

Changes in life style

Levels of Education

Work behaviour

Leisure activities

Patterns of ownership

The Technological Environment

Technology has always been important but the rate of innovation has increased so rapidly in recent years that the impact of technology has become a principal driving force in business activity.

The last three decades have seen an amazing no. of new technologies that have created new markets for many electronic and other products.

Technology can also change how businesses operate (Banks, airlines, retail stores etc.)Consumers today enjoy cheque- free banking, printing of air and train tickets at home etc.

The Technological Environment

Music industry has been forced to change the way they distribute music.

Technological developments are also having a profound impact on all aspects of marketing practice :

Marketing communications

Distribution

Packaging

Technological Factors

Focus of government research

Rate of technology transfer

Materials

Developing technological processes

Porter’s Five Competitive forces

Competitive Rivalry

Bargaining power of Suppliers

Bargaining power of Buyers

Threat of Substitute Products

Threat of new Entrants

Competitor AnalysisThe Five Forces Model of “Porter”

Introduction

The essence of Strategy formulation is coping with competition.

The state of competition in an industry depends on five basic forces :

1. Bargaining power of suppliers

2. Bargaining power of customers

3. Threat of new entrants

4. Threat of substitute products or services

5. Competitive rivalry

Competitor Analysis

The collective strength of these forces determines the ultimate profit potential of an industry.

Knowledge of these underlying sources of competitive pressure provides the groundwork for a strategic agenda of action.

This analysis should be conducted at the level of the individual strategic business unit (SBU)

The analysis is as below:

Competitor AnalysisBargaining Power of SuppliersPower of suppliers is liable to be strong where:Control over supplies is concentrated into the

hands of a few playersCosts of switching to a new source of supply are

high.The supplier has a strong brandThe supplier is in an industry with a large no. of

disparate customers Its product is unique or at least differentiated. If suppliers can realistically threaten forward

integration.

Competitor AnalysisBargaining Power of Suppliers

Depending upon the above factors, a powerful supplier is in a position to influence the profitability of a whole industry by raising prices or reducing the quality of the goods it supplies.

In recent years, more no. of companies seek a partnership relationship with their suppliers, the result being:

Lower transaction costsImproved QualityDecreased transaction time.

Competitor AnalysisBargaining Power of Buyers / CustomersBuyers or customers exhibit power when : Purchases are in large volumes.

( Especially so when fixed costs are high) Buyers control a large % of a volume market. Products are standard or undifferentiated.

( Buyers can always find alternate suppliers) There are a large no. of small suppliers. The product forms a component of its product or is a fraction

of its cost. Buyer earns low profits & hence is price sensitive. The industry’s product is unimportant to the quality of the

buyer’s products or services. The buyers pose a credible threat of integrating backward to

make the industry’s product. E.g. Auto manufacturers.

Competitor AnalysisThreat of new entrants

New competitors add capacity to the industry and bring with them the need to gain market share thereby making competition more intense.

The barriers to entry are :

• Economies of scale

Apart from product cost advantage, economies of scale can also act as hurdles in distribution, utilisation of sales force, financing & almost all other part of a business.

2. Strong capital Requirements

Competitor AnalysisThreat of new entrants

3. Product Differentiation

Brand identification creates a barrier by forcing entrants to spend heavily to overcome customer loyalty.

e.g. Soft drinks, OTC drugs, cosmetics etc.

Coupled with distribution & marketing, this acts as a strong entry barrier.

4. Gaining access to appropriate Distribution Channels can be difficult.e.g Petrol bunks

Competitor Analysis

Threat of new entrants

5. Cost advantages independent of size

Built over a period of time

Experience curve

6. Hostile Reactions

7. New products, marketing etc.

Introduction of new products through R & D, Marketing initiatives,e.g.long term contracts etc.

Competitor AnalysisThreat of Substitute Products / Services

Substitute products put a ceiling on the profitability of an industry by limiting the price that can be charged, especially when supply exceeds demand.

Substitution can arise in a no. of ways : A new product replaces an existing product or service.

Fountain pen by Ball penInland Letter, Greetings Card- E MailGifts- Gift vouchersCassettes- CDs- Hard disk / I-Pod etc All Products & Services, to some extent, suffer from

generic substitution.e.g Car instead of a Holiday or vice versa

Competitor AnalysisThreat of Substitute Products / Services

Substitute products that deserve the most attention strategically are those that

Are subject to trends improving their price-performance trade off with the industry’s product.

e.g. Tea Bags, Shoe polish, self sealing envelopes, ready to eat snacks etc.

Competitor Analysis

Competitive RivalryRivalry among existing competitors takes the

familiar form of “Jockeying” for position using tactics like price competition, product introduction, advertising etc.

Intense rivalry is related to the presence of a no. of factors :

Competitors are numerous & almost equal. Industry Growth is slow.Product or service lacks differentiationFixed costs are high or the product is perishable

Competitor Analysis

Competitive RivalryCapacity is normally augmented in large

increments. E.g chemical, steel etc.Exit barriers are high

Firms may find it difficult to get out of business because of the relationship of the business with other businesses in which they are engaged.Rivals are diverse in strategies.

Functions of Marketing

Obtaining Demand:

1. Personal selling

2. Product planning / Development

3. Pricing

4. Sales Promotion

5. Advertising

Functions of MarketingServicing Demands:

6. Distribution

Warehousing

Inventory Management

7. Order processing handling

8. Transportation

Functions of Marketing

Transpermeating Activities:

9. General Administration

10.Financing

11.Marketing Research

12.Marketing Info. Management

Product

Product Management

1. Product Management encompasses the whole range of activities pertaining to Product Planning & Management

2. Product Planning includes the Basic corporate & Marketing Plan

3. Product Planning covers the entire spectrum of Marketing Management like:

1.Pricing 2.Promotion3.Distribution4.Products

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Product Management

4. In Products, the objective would be to raise it to a BRAND status over a period of time so as to establish a bond with the customer

5. Product Management also considers Product Life & Strategies at each stage of the life cycle

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Product Manager & his Responsibilities

Product Manager is also called as:Brand Manager Marketing Manager

Responsibilities:1.Responsibility for Planning Activities related

to the Product or Product LineAnalyse the market including customers,

competitors & their external environmentMakes use of this info to make out the

Marketing Objectives & Strategies for the Product

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Product Manager & hisResponsibilities

2. Responsible for getting the Organisation to support the Marketing Programmesrecommended in the plan

3. To coordinate with R & D ( For product line extensions), Manufacturing, Market Research & Finance

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Product Manager’s PotentialInteractions

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Product manager

AdvertisingAgency Media

PromotionServices

Packaging

Purchasing

Publicity

MarketResearch

Fiscal

Manufac &Distribution

Skills required for a ProductManager

Analytical Ability

Communication skills

Team work

Negotiation

Creativity

Business sense

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Definition

A Marketing Plan is a written document containing the guidelines for the Business centre’s Marketing Programmes & Allocations over the Planning Period

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Objectives of a Marketing Plan

Define the current situation facing the product Define problems & opportunities facing the Business Establish objectives Define strategies & programmes necessary to achieve

the objectives Pin point responsibilities for achieving product objectives Encourage careful & disciplined thinking Establish a customer – competitor orientation

Customer & Competitor hold the key in today’sdynamic world

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Componenets of the marketingPlan

Marketing Plan Summary:I. Executive SummaryII. Situation Analysis

a) Category / Competitor Definition b) Category Analysis c) Company & Competitor Analysis d) Customer Analysis e) Planning Assumptions

III. ObjectivesIV. Product / Brand Strategy V. Supporting Marketing Programs VI. Monitors & Controls VII. Contingency Plans

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Product Life Cycle

Introductory Phase:

Growth & size low: Attractive to Pioneer

Growth Phase:

Market becomes attractive

Maturity Phase:

Growth is low

Decline Phase:

Negative Growth

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Product Life Cycle

Product life cycle varies form segment to segment

Can be 4 to 5 or even 15 years

Industrial products generally have a longer lifespan than consumer products

When life cycle is low, product development cycles are to be shortened

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Marketing Strategies across theProduct Life Cycle

Product Life Cycle Stage

Introduction Growth Maturity Decline

Characteristics

Profits

Competitors

Decline

Negative or Low

Average

Rising

Increase

Low Low

Declining

DecliningPeak Level

Stabilisation

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Marketing Strategies across thePLC

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Product Planning

Product Management begins with Product Planning

Product Planning provides us strategies to realise our Marketing objectives set in the Marketing Plan

Environment Scanning

Organisation Objectives

Organisational Strategies

Production Objectives

Production Strategies

Marketing Objectives

Marketing Strategies

Other Departmental Objectives

Other Departmental Strategies

Pricing Objectives

Promotional Objectives

Distribution Objectives

Product Objectives

Pricing Strategies

Promotional Strategies

Distribution Strategies

Product Strategies

Elements of a Product Strategy

1. Statement of the objective the product should attain

2. Selection of Strategic alternatives3. Selection of customer targets4. Choice of competitor targets5. Statement of core strategy6. Description of supporting Marketing Mix7. Description of supporting Functional

programmes

Setting Objectives

Two important objectives commonly set are:

1. Sales Revenue or Market share

2. Profitability

Generally one is achieved at the expense of the other & hence one becomes the Primary while the other secondary

Quantifying the objective & setting a time frame for its achievement is important

Selection of Strategic Alternativesfor Growth

Choice is between:

andGrowthLong TermProfits

Selection of Strategic Alternativesfor Growth

Growth:

Market Penetration

Product Development

Market Development

Diversification

Present New

Present

Market

Product

Market Penetration

Increasing sales on existing products in existing markets

Advertising, line extensions, new applications, etc.

Increase frequency of use

Through customer acquisition: Inducing Brand switching

Through sales promotion: Expensive

Through sales Advertising: Expensive

Market Development

Introduce current products to new markets – customer acquisition

Enter new markets – approach different segments

Product Development

Development of new products for existing customers

Needs time bound action plan with full knowledge on competitors’ products

Diversification

Growth in sales by introducing new products in new markets

Diversification can be:

Horizontal – addition of new products

Vertical – moves forward

Long Term Profits

1. Cost Reduction

2. Increasing Outputs

Positioning – Choice of customertargets

Positioning is a popular term in ‘Marketing’ first coined by two advertising executives, A L Ries & Jack Trout in 1972

According to them, positioning is a creative exercise that starts with a product or an individual brand

It is an exercise of creating & maintaining an image for the Product or Brand in the mind of the Target audience relative to other brands

Positioning – Choice of CustomerTargets

Definition:A place in the mind of the customers in

relation to competitors It occupies a distinct & valued place in the

mind of the target customersPositioning is not what we do to a Product

but is what we do to the mind of the Prospect

Positioning – Choice of CustomerTargets

After choosing the appropriate Marketing Strategy, we now have to decide on the customer target & competition Generally three key considerations are critical:Size / Growth of the segmentOpportunities for obtaining competitive advantageResources available

Customer targets, competitor targets & some attribute for differentiation are chosen

Depending on the Market strategy chosen, the customer targets are identified

Competitor Targets

In Positioning, we have to decide on the competitors who are worth competing –weakest are chosen

Depending on the Marketing Strategy, the targeted customers are identified

Positioning: Core Strategy

Each Business must have a Core strategyCore Strategy decides our competitive

behaviourDifferent segments require different Core

strategiesThere is a need to develop a Core strategy

that runs as a common thread through all pieces of planning

Core strategy tells us why customers buy our product and how we shall compete with others

Core strategy defines the differential advantage that is communicated to the target customers

Called - Product Positioning

I.e.. Positioning a product to specific segments

In Positioning, we will have to decide our competitors

Two Methods:

Cost or Price Advantage

Differentiation based on Product offering

Cost / Price Strategy

Low Price has been used as a strategy by some companies

Eg: Walmart, Pantaloons. Nirma, Parle, etc.Nano car is the latest

Requires large volume, efficient facilities & benefit of latest technology

Control in costs also required in Sales Distribution Expenses

Low Price core strategy poses real risksCustomer can shift tastesTechnological changes can bring in more

competitors One advantage: There will always be room

Non Price Strategy

Differential advantage in the product by way of additional features will fetch a higher price

Differential advantages are often obtained by going beyond what customers expect, to provide unanticipated product benefits

Focussing on customer benefits & experience will make their products & services different from competiton.

Areas for Differentiation

1. Quality

2. Status & Image

3. Branding

4. Convenience & service

5. Distribution

Managing Brand Equity

A brand is built up over a period of time

First level of Brand Equity is Brand Recognition

Brand Equity is just the process of Brand Building

Eg: Wills, Lux, Dalda, Amul, Airtel

Many Brands remain powerful & profitable

Aaker (1996) calls Brand Equity a set of assets associated with a brand & which add to the value provided by the product / service to its customers

Brand Equity also refers to the value inherent in a well known Brand name

Advantages:

Easy acceptance

Willingness to pay more

Preferred shelf space, etc.

Brand Equity

Brand Managers create & enhance four assets to build Brand Equity

Brand Awareness

Brand Loyalty

Perceived Quality

Brand Associations

Brand Awareness

Top of mind recall

Familiarity – liking

Past experience

Feeling of confidence

Brand Loyalty

1. Brand loyalty gives a stable & growing market share- Due to Repeat Buying.

2. Reflects in the purchase price

3. Customers are to be retained on a continuous basis

4. Brand Loyalty can be defined in terms of consumer behaviour

Brand Loyalty

5. Consumers buy due to commitment & also due to habit.

6. Strong Brand Loyalty is an effective entry barrier for competitors

7. Leads to reduced Marketing Costs

8. Brand Loyalty is enhanced by creating Brand Awareness, improving the perceived quality & establishing a clear identity.

Brand Associations

Aaker states that a Brand Association is anything that is “linked” in meaning to a Brand. There are many types of associations.

Consumers associate the Brand with certain tangible & intangible attributes, a celebrity endorser or a visual symbol.

These are derived from Brand Identity & Brand Image.

Associations form a Brand Personality that suggests situations for which a Brand is suitable / not suitable- Aaker

Perceived Quality

Certain Brands convey good qualityGilletteBournvita-brand by itselfBlue Dart / Fedex

Perceived Quality is a result of an understanding of the requirements of customer segments.

It is a key positioning dimension & often a part of company’s mission statement.

It is necessary to educate the customers about the right parameters to measure the quality.

Importance of Brand Equity

Important for Packaged goods manufacturers that face increasing competition from super-markets- own label.

Stretching of successful brand names :

Toyota-Lexus

Nissan-Infiniti

Honda-Acura

Product Manager must view the Management & Sustenance of Brand Equity as an important task.

Product Strategy over the life cycle

Introductory Stage:

Market Strategy:

Examining Price & Promotion variables of the Marketing Mix. 4 Strategies are available:

Rapid Skimming

Slow Skimming

Rapid Penetration

Slow Penetration

Promotion

Introductory Stage

Rapid Skimming Strategy

Cost structure of the product is largely variable cost

Launched at a high pricePromotional effort is heavyProduct penetrates the market due to high

promotionRisk of competition- Firm has to build up

Brand preferenceStrategy useful when Entry Barriers are highMargins can be used to fund investment in R

& D leading to new products

Introductory Stage

Slow Skimming Strategy

Assumed that the Market size is limited

It is perceived that Potential competition will not be around right now

Introductory Stage

Rapid Penetration StrategyMore appropriate when Fixed costs are highObjective is to bring about a very fast Market

penetrationResult- Larger Market share.Strategy suitable for large markets which are

highly competitiveMarket is price sensitiveProduction costs expected to show a downward

trend with increase in Production

Introductory Stage

Slow Penetration Strategy

Lower prices lead to fast market acceptance

Healthy Profits

In a large market with high awareness level & price sensitiveness, this strategy makes sense. There is some potential of competition.

Growth Stage

Overall Objective is to sustain the growth rate.

Strategies have the foll. Elements:No. of competitors increases

Product quality is improved. New features are incorporated. Style is improved.

New models are introduced. Flanker products are introduced.

New Market segments are tapped

Growth Stage

Re Position the product through re segmentingBrand building promotion is resorted to.Pressure on pricesPrices may be lowered to lure the next

layer of price conscious buyersFirm has to trade off between high market share

& High current profit.

Maturity Strategies

Most Products fall under this category

Fraught with battles for market share, access to distribution channels, customer promotion & aggressive pricing

Foll. Strategies can be tried by Marketers:

Market Modification

Product Modification

Marketing Mix Modification

Maturity Strategies

Market Modification

Market can be expanded by increasing the no. of users or the consumption

Explore new Market segments or attract customers of competitors

Discover new applications for the Product

Maturity Strategies

Product Modification

Product can be modified to stimulate thro:

Quality improvement

Feature improvement

Style Improvement

Maturity Strategies

Marketing Mix Modification Sales can be stimulated by manipulating one or more

elements of the Marketing Mix1. Advertising2. Sales Promotion3. Personal Selling4. Price5. Distribution6. Services As Firms battle it out in the Market Place, there may be

profit erosion for each firm.

Decline Stage

Markets reach this stage for a variety of reasons

Most obvious reason could be Technological Obsolescence

Can also be due to shift in customer taste

Try to be the last to quit. Can be the monopoly and resort to “Harvesting”

Brand Strategy Decisions

Line Extension Brand Extension

Multiple Brands New Brands

Existing

Existing New

Product Category

Brand Name

The Product Life Cycle

New Products

1. Introduction2. Product Modifications3. Line Extensions4. Inputs for New Products5. Testing slightly new products6. Forecasting7. Brand extensions8. Real New Products9. Summary

Introduction1. Introduction of New Products is the

responsibility of the Product Manager, Brand or Category Manager & is part of the Marketing Plan

2. Most new products introduced by companies are only variants

3. Purpose: Can be introduced to either : Gain sales or share To match or block competitors

4. While launching a new product, you need to decide on :

Brand to be attached to the product Customers targetted

5. The development of new products typically occurs in stages.

Product Modifications1. New Products introduced may be :

An upgrade ( Soap, software etc ) Different Inferior ( Value engg., less expensive )

2. Reactions can be from : Loyal customers Occasional Buyers Current non-customers

3. After trials, profit implications need to be studied4. Modifications can also be made in the foll. areas:

Distribution channel Price Service Packaging

5. Modifications introduced only after careful consideration of allthe above.

Line Extensions

Popular method of using an existing brandGenerally product families are all found

with close relatives – designed to appeal to various segmentsEg: Cinthol soapsThe objective of introducing multiple

versions is to appeal to multiple segments

Price differential brings in users with different needs & preferences

Line Extensions

More versions – Less efficiency of operations ( Production, Inventory , Distribution)Less versions – Better efficiencyOver use of a brand – with extensions may

dilute & weaken Brand EquityUltimate form of product variants – Introduced &

practised by Dell – P.C BusinessThe downside – Operational Inefficiency

Line Extensions

Adding a Product variant:

1. One reason to add a product variant is to attract new customers – Market Development or Penetration

2. Maruti does it frequently3. Cannabalisation can occur4. Since profits can be affected, you need both

customer & cost data to evaluate the effect of adding a product variant

Line Extensions

5. Adding versions sometimes lead to customer confusion & dilution of Brand Equity

e.g. Different models in automobile Industry

6. If Quality spread is more, a new name is given

7. If the number of versions is very high, the information overload facing a purchase sometimes makes customers postpone a decision because of confusion

Line Extensions

Dropping a Product Variant:

1. A variant may be dropped due to slow sales or low profits

2. Reaction of customers, besides cost & operational issues are considered before taking a decision

3. However, dropping one variant, may add to the cost of the others

4. Dropping a variant will be seen as an admission of failure by customers & distribution channels & will also be an indication of reduced commitment to the Product Category

Inputs for New Products

For product modifications & extensions the following are done:

1. Customer Analysis2. Competitor Analysis3. Active Search:

Of new products & processes in other areas with a view to incorporate them in company’s own product

4. Category Analysis 5. Brainstorming

Other sources include the following:

CustomersEmployeesSuppliers Distribution ChannelsOperations people Internal & external R & DEntrepreneurs

Testing slightly new products

All new products need to be tested for a feedback:

Foll. methods are used :

Concept Testing

Product Testing

Market Tests

Quasi Market Tests

Testing slightly new products

Concept Testing is done through: Surveys Focus Groups Demonstrations

Product Testing involves physical use by customers and used for :

Diagnostic Trial Placement of product

Discrimination & Preference Testing feedback is obtained.

Market Tests are done to predict sales and to set up the infrastructure for selling

Quasi Market tests tend to be a little expensive.

Forecasting

Forecasting for New products though difficult needs to be done.

It is done using the foll. 4 key factors :

Awareness

Repeat

Usage Rate

Different Models are available for carrying out these exercises.

Brand Extensions

Of late customers extend Brands beyond their original category

Eg: Nike – Sportswear

Dunlop – Sportswear

Reliance – Fresh, Footwear

Sony- Entertainment

Godrej- Housing, Food etc.

Brand Extensions

Carries a lot of Risk Product Manager has no control over these Brand

Extensions Brand extension value depends on the value of the

original Brand and the fit in the new category. Fit depends on the technical competence and Image

match A key issue regarding extensions is the impact of the

extension on the original brand. Research continues to be done on the success of Brand

Extensions & acceptability by consumers.

Real New Products

Some examples are :1. Packaged Food2. Bottled Beverages3. Cut & frozen veg, fruits etc.4. Cell phones5. ATMs6. R.O.water filters7. Microwave ovens8. Tata Sky programme recorders9. Gym Products10. Neutraceuticals

Real New Products

Create or expand a new category

New to customers-have to learn

Require new channels & Team to handle.

Real New & Slightly New Products

Before introducing a slightly new product, a detailed analysis & review needs to be done. Ref. annex.For a real new product, there is no

industry to analyse & the competitive set is not definedEmphasis is more on achieving sales &

advertising is used only to build awareness.

Customer Feedback

Survey

Involvement with customers – Industrial Products

Scientists

New Technology

Evaluation of New Products

Real new products tend to take a few years for development

Following Characteristics are analysed :Relative AdvantageCompatibility – Retrofitting should be feasibleAll types of risksComplexityCommunicabilityTrialability

Conclusions

New Products are the lifeblood of many companies.

Eg: 3M, Gillette, HP, Sony, Nokia, etc

Slightly new products are relatively easy to forecast & low in risk

Real new products take time to develop & hard to forecast

Summary

1. Most Product Managers have limited flexibility in changing product composition

2. Proper evaluation is made considering the following, before any new product is introduced:

Customer need and acceptance Impact on Brand value / Equity &

customer loyalty Capability to produce Impact on costs Long term profitability

3. Product Manager has to form teams across functions- Mktg., Design, R & D & Operations & coordinate with them for the systematic development of new products.

Pricing Decisions

1. Introduction2. Elements considered when prices are fixed.3. Types of Market Situations4. Marketing Strategy & Prices5. Measuring Perceived Value & Price6. Psychological Aspects of Price7. Competition & Pricing8. Pricing Objectives9. Other Factors affecting Price10. Specific Pricing Tactics11. Summary

Introduction

1. Price is one of the most important factors that determines the success or failure of a product in a market.

2. Originally Pricing was cost based:Price = Cost + Profit

3. Different Prices produce different levels of Demand.

4. Customer plays an important role in the Pricing of a Product.

Introduction

5. Customer does not care about your cost. Looks at Value

6. Purpose of Price is to capture the perceived value of a Product in the mind of the customer

7. Price is therefore not determined by internal factors alone, but also by customers

8. Pricing has become one of the most innovative areas of Marketing.

Elements considered when Pricesare fixed

1. Production cost

2. Profit Plans

3. Brand Image / Equity

4. Seasonality of Business

5. Market Segment

6. Competition

Elements considered when Pricesare fixed

7. Product Life Cycle stage

8. Guarantee / Warranty

9. Payment Methods & Terms

10.Discounts / Special Offers

11.Range of Products with the Firm

12.Product value & utility for the customers

Types of Market Situations

There are usually three types of market situations and each gives pricing opportunities in diff. ways :

1. Monopoly Market

2. Oligopoly Market

3. Perfect Competition

Types of Market Situations

Monopoly MarketThere is only one supplier of the product and in such

cases the firm has the foll.options : Charge Premium price or keep skimming price Keep cost plus pricingOligopoly Four to Five suppliers Customer’s purchasing power governs the price Sometimes cartel formedPerfect Competition Large no. of suppliers of the product, Size,

category etc. Perfect competition usually brings about

penetrating prices.

Marketing Strategy & Prices

Price must be consistent with the Marketing Strategy that is developed.

Marketing Strategy consists of Market segmentation & core strategy or Product Positioning decisions.

Prices can vary widely over segments leading to Price Discrimination.

Substantial price variation can exist even within a targetted segment- Price Bands.

Product Manager to understand price sensitivity of the different mkt. segments & the flexibility (width of the price band)

Measuring Perceived Value & Price

Perceived value of a Product by the customer becomes very important

Customers have some notion on what constitutes a good or a bad price

Notion is developed by : Comparing the price being charged to the

perceived value or benefits that would be derived through purchasing.

Comparing price to a reference point-past price

Three possible relations1. Perceived value > Price > Variable cost2. Price > Perceived value > Variable cost3. Price > Variable cost > Perceived value

Perceived value > Price > Variable costProduct Manager “leaves money on the

table”-sacrifices profits by charging less than what he can obtain.This situation is extremely difficult for the

PM to discover without using Market Research methods“Value Pricing” is sometimes done

deliberately as a strategy.

Price > Perceived value > Variable cost

The Product is a bad deal.

Customers simply do not buy the Product.

Increase in customer value or downward price revision is necessary.

Competition is used as reference point.

Price > Variable cost > Perceived value

Product needs to be withdrawn from the Market.

Such products need to be weeded out.

Measuring Customer Value

Psychological Aspects of Price

Customers continuously assess the prices charged for products based on prior purchasing experience, formal communications etc.

The concepts relating to psychological aspects of pricing are :

Reference prices

Relationship between Price & Perceived Quality

Reference prices1. External prices are prices marked or Retail Prices2. Internal prices are mental prices used to assess an

observed price3. Internal reference prices include : Last Price paid Price frequently charged Fair price Upper amount someone would pay The price of the brand usually bought Average prices charged for similar products Expected future price Typical discounted price

Reference prices Concept of Reference price has important implications

for Product Managers During a promotion, the special price offered would

seem to be the reference price for the consumer thereafter

Customers also resort to predicting future prices and if they feel it is going to drop, wait for the price cuts

Some PMs, knowingly or unknowingly, create predictable pricing patterns. Customers make decisions based on their personal forecasts of future prices.

Relationship between Price & Perceived Quality

In some situations, higher price can lead to higher demand.

Customer perceives the higher priced product to be of higher quality

The Brand imparts a feeling of Prestige to the owner

Other examples are when it is difficult to assess the product’s quality. E.g. Experience,- Perfume, wine, services etc,.

Competition & Pricing

1. PMs have to estimate competitor’s cost in the Product category

2. It helps in determining margins in the category & useful in the case of a Price war.

3. Also helps in deciding amount that can be spent in Brand building

4. Two ways of estimating : Reverse Engg. Use of Publicly available data.

Use of Publicly available DataAverage margins are ascertainedExperience curve is used to understand

current costs & forecast future costs.The assumption is that costs are a

decreasing function of accumulated “Experience” or production volume.Ref. notes.

Historical Pricing BehaviourHistorically, certain brands tend to be the

first when it comes to price increasesCompetitons follow suitMost PMs tend to be pro activeCompetitor Analysis and Objectives of

competitor will help the PM to decide on the Pricing strategy.

Pricing ObjectivesPricing Objectives are set after the PM has carried out

the analysis on Category, Customer & CompetitionPenetration Pricing This strategy is often used as an entry strategy for a

new product The Objective of Penetration pricing is to build or

keep a market share Not to be used when the product has a strong

competitive advantage.Prices for Industrial Products Customers prefer stability Look at transparency and a Model / Formula Some customers like GM look at YOY price

reductions

Pricing Objectives

Skimming

It is the opposite of Penetration pricing

Reasonable objective when there is little chance of competition in the immediate future.

Also a good objective when costs are not related to volume

Pricing Objectives

Competitive Pricing

Here the PM tries to maintain a “Competitive’Price

Done either by pricing at Category average or equivalent to the competitor’s price

May be necessary in a Product Category with high Fixed costs.

Other factors Affecting Price

Stage Of Product Life Cycle

Other factors Affecting Price

Category Conditions

Threat of New Entrants

Power of buyers / Suppliers

Rivalry

Pressure from Substitutes

Unused capacity

Specific Pricing Tactics

1. Product Line Pricing

2. Price bundling

3. Complementary Pricing

4. Value Pricing

5. Price Discrimination

6. Seconds Market

7. Seasonal pricing

8. Auctions

Summary

1. Price Objectives and Pricing made only after an analysis of the market & finalisation of Marketing Strategy.

2. Customer plays an important part in the Pricing of a Product

3. Reference Price & perceived value affects the strategy and profits of the company

4. Product Manager’s role is crucial in the pricing of a Product which affects the fortune of a company.

Sales Promotion

Sales Display & Sales Promotion

1. Objectives of Sales Display:

Products shown to potential customers

Details & features about product seen by customer

Display induces customer to purchase

Reminds customers about the need & they are attracted to buy

2. Types of Sales Display:

There are three forms of display:

1. Interior Display

2. Exterior Display

3. Other Displays

a.Interior:

Floor / Walls / Showcases, etc.

Display / Lighting / Colour matching

b. Exterior:

Show window

Attracts attention

c. Other displays:Show room / Show casesOutside – Places of public interestInflatables – Outside the show room Classes of display:1. Product Unit Display2. Life – style Displays3. Assortment

Open – Super market Closed Jewellery

4. Rack Display

3. Role of Retailers in Sales Displays:Retailers have a major role to play They need to be:Trained & MotivatedTrainingSpace UtilizationRotationCreative displaysHow to attract customers

Motivating the Retailer:

Display contest

Publicity through newsletters mentioning retailer’s name

Provision of display goods & fixtures at subsidised prices

Sales PromotionRole of Sales Promotion

Informs Persuades Reminds

DefinitionSales Promotion consists of a diverse

collection of incentive tools, mostly short term, designed to stimulate quicker and / or greater purchase of a particular product by consumers & traders.

Kotler

Push- Pull Strategy

Aimed at channels of distribution.

Distributors / Wholesalers / Retailers

Includes a lot of Personal Selling & Sales Promotion

Factors Influencing Sales Promotion

a. Target Market / Segment

b. Nature of Product & Services

c. Stage of the Product Life cycle

d. Budget available for Promotion

a. Target Market / Segment

Customer may be in any one of the follstages :

Awareness

Knowledge

Liking

Creating preference

Conviction

Purchase

b. Nature of Product & Services

Product Attributes which influence the Promotional Strategy

Nature of pre-sale & post sale

Unit Price

Degree of customisation

Factors Influencing Sales Promotion:

c). Stage of the product Life cycle:Both Advertising & personal selling are critical

in a Product’s Introductory staged). Budget available for Promotion:Budget for Sales promotion can be prepared by:

% of sales

Fixed funds available

Follow Competition

Budget by objectives

Tools of Sales Promotion:

1. Prize schemes

2. Trade fairs & exhibitions

3. Free samples

4. Correspondence

5. Catalogues

6. Advertising Novelties

7. Entertainment of customers

8. Sales contests – Sales personnel

9. Price – off

10. Refunds

11. POS materials

12. Boosters for dealers

Summary:

Sales Displays are very important for RetailingAttracts customers & enhances image

of the storesIncrease sales & ProfitabilityDealers need to be motivated

Sales Promotion Strategies

1. Introduction to Sales Promotion Objectives

2. Launch New Product & Increase Trial

3. Encourage Repeat Purchase

4. Sales Promotion & Consumer Behaviour

5. Consumer’s Price Perception

6. Perceived Risk & Attitudes

7. Consumer Decision Making

8. Profiles of High & Low Involvement Consumers

9. Rate of Discount, Terms & Conditions

10.Protection from Competition

11.Summary

1.0 Introduction to Sales Promotion Objectives:Sales promotions are used to achieve some of

the marketing objectives Some of the Sales Promotion objectives are:Proactive: Increase Revenues / Market share Expand the target market Add extra value to the product & develop brand

franchise

Reactive:

In response to competitive moves

Due to excessive Inventory

Generate short term cash

When you discontinuous a product or close down the business

It is important to spell out the objectives which the sales Promotion offer is intended to achieve

The objectives should be:

Specific

Measurable

Clear & concise

Practical & realistic

Affordable

Attainable

Examples:a) Marketing objective: To increase market share from 15% to 20% Increase sales by 15% Increase profit by 10%b) Marketing Strategy: Promotion to use a combination of ‘Pull’ &

‘Push’ Increase purchase rate of Trade

Promotion objectives: Increase purchase rates by consumerMaintain distribution at 85%Decrease inter – purchase duration for 8 weeks

to 6 weeksSales Promotion Strategies:Use Trade & consumer deals Use ‘Pull – Push’ sales promotions to encourage

faster usage rate & frequency price cuts Stop common promotion which are unprofitable

Promotion Objectives can be:

Increase sale volume

Speed up sales of slow moving products

Attract new customers

Launch new product & increase trial

Encourage repeat purchase

Clear excess inventories

Motivate dealers / Sales force

Improve relationship with dealers

Block competitors’ moves

Supplement Advertising & Personal Selling efforts & deflect customers’attention from price

2.0 Launch New Product & Increase Trial

Small budget companies that cannot afford sustained advertising expenditure to introduce new products, find sales promotion very cost effective & helps in generating Sales volume

Extra benefit to customers & retailers help in trial by customers & in obtaining shelf space

Freebies with the product together with attractive displays at the Retailer shops help in initial trials by consumers

3.0 Encourage Repeat Purchase Repeat purchase leads to increased sales volume Offers may be given by way of ‘Freebies’ or tokens, etc.Block competitor’s moves: A company threatened by competition sometimes plan to

load consumers to increase the interval of purchasing Bundled offers for soaps, etc. Attractive retailer schemes to block shelf space is

combined with above A ‘Push – Pull’ strategy is used

Encourage Dealers to participate in Display & Sales contests:

Display is a powerful tool to enhance sales. Generate higher sales volume

They encourage unplanned purchases Contests are used to motivate dealers.

Combination of incentives & certificateContests help in attaining short – term objectives

& improve company reseller relationship

Advertisements:

Print advertisements with ‘Free’ offers often catch the eye of consumers

4.0 Sales Promotion & Consumer Behaviour:Understanding consumer behaviour can help in

launching appropriate sales promotion measures

Classical Conditioning:A brand frequently associated with premiums &

contests can excite customers to buyCustomers get conditioned by performing a

certain type of behaviour repeatedly Customers have learnt to be smart shoppers

because of this conditioning

Instrumental Conditioning:Behaviour is a function of its

consequencesFavourable experience as the outcome

becomes instrumental in encouraging the consumers to repeat the behaviour in futureA coupon inside the product pack

serves as a good example of instrumental conditioning

Attribution & Dissonance Theories:

Group of inter – related psychological principles

Consumer’s explanation on their behaviour is called attribution

Attributions have a direct effect on attitude but have no direct effect on behaviour

Attitudes affect behaviour – hence relevant to sales promotions

Self Perception:Consumer’s behaviour due to external causes

(sales promotion) or internal (favourable brand attitude)

Consumer’s behaviour in using a combination of these at the time of buying

Object Perception: If a particular brand alone is offered at a

discount, frequently, consumers may draw a conclusion

that the brand is inferior

Dissonance Theory:Dissonance or Discomfort is felt by

consumers when they are exposed to information that conflicts with their original belief or attitudeEspecially in expensive high - involvement

product purchasesPost purchase dissonance is quite normal

5.0 Consumer’s Price Perceptions:Consumer’s perceived prices are important to

determine the appropriate price reductionAmount of difference between the list price &

the promoted price should be sufficient enough to be noticeable

To protect the shift in consumers’ perceived reference price, marketers often provide a reference price in their communications of sales promotion

Eg: Rs. 18 Rs. 16

6.0 Perceived Risk & Attitudes:Perceived risk is defined as ‘the uncertainty

that consumers face when they cannot foresee the consequences to their purchase decisions’

Two important dimensions associated with the purchase of a new brand –

Uncertainty & ConsequencesOnly the risk which is perceived by the

consumers will affect the purchase decision: Will not affect the purchase behaviour of the

consumer if not perceived

Risk can be:

Functional

Financial

Psychological

Physical

Social

Two ways that consumers use to reduce risk

Reduce uncertainty

Reduce consequences of a wrong choice

High risk perceivers reduce the risk by purchasing well

known brands

7.0 Consumer Decision MakingFour types of behaviour depending on the degree

of perceived differences among brands & the level of consumer’s involvement in a purchase situation

1. Complex Buying behaviour 2. Dissonance reducing buying behaviour3. Habitual buying behaviour 4. Variety seeking buying behaviour

8.0 Profiles of High & Low Involvement ConsumersTo maximize the satisfaction from their

purchases is the purpose of highly involved consumersConsumers with low involvement seek

only an acceptable level of satisfaction after the use of the product

9.0 Rate of Discount, Terms & ConditionsPrice elasticity of low prices products is high

because consumers do not perceive much difference between brands & do not mind switching to another brand

In case of trade promotion, the producer may specify the minimum purchase value or the quantity of product to avail the benefit of promotion

Terms & conditions vary with products, market conditions & consumers response patterns

10.0 Protection from Competition:Normally for any promotion, competitor

follows suitOne way to gain protection is to make the

promotion a little complex & difficult to copyCompany can also tie up with a non -

competing product

Summary:Sales Promotion aims at inducing purchasers to

buy a product It involves, demonstrations, contests, coupons,

etc.Sales Promotion activities are designed to

encourage resellers to sell the productSales Promotion objectives are to be consistent

with Marketing objectives Sales promotion alters the market share

permanently

Sales Promotion Budget &Evaluation

1. How are sales affected by Sales Promotions ?

2. Sales Promotion Design Issues

3. Testing the Sales Promotion

4. Guidelines to Planning Sales Promotion

1.0 How are Sales affected by Sales Promotions ?

Sales Promotion affect sales through these mechanisms

Brand switching

Repeat buying

Purchasing more or accelerating timings

Increasing category expansion & consumption

Sales Promotion Budget & Evaluation

Brand Switching

Objective of some sales promotions is to induce brand switching

Repeat Buying

Sales Promotion scheme is introduced to promote repeat buying of the same brand.

Objective is to make it a habit especially for Low-involvement products

Purchasing more or Accelerated Timings

Consumers buy more qty. than their immediate requirements or the purchase timings are changed.

Increasing category Expansion & Consumption

Consumption of total product category is increased by the consumers as a result of sales promotion.

2.0 Sales Promotion Design Issues

1. Promotion Choice

2. Product Choice

3. Choice of Market Areas

4. Promotion Timing, Duration & Frequency

Sales Promotion Design Issues Promotion Choice

Different types of promotions that can be used singly or in combination:

Consumer Promotion Trade Promotion & Sales Force Promotion

Two major approaches for consumer & Trade promotions Same for Less More for the same

Two types of promotions are usually offered:1. Immediate value offer vs Delayed value offer2. Price cut vs extra Value Offer.

Product Choice

Sales Promotions can be run on the entire product line or only selected items in the line.

Choice of Market Areas

National or regional markets can be chosen.

Sales Promotions of similar value products are normally announced at the same time everywhere.

Promotion Timing, Duration & Frequency Normally promotions are introduced when

the channels have enough inventory Duration of consumer promotion should be

such that a larger % of customers get exposed to the promotion offer. Low involvement products have a shorter

duration

3.0 Testing the Sales Promotion

Pre Testing

Pre test helps to find out what is likely to be the perceived value & the risk

Pre test can be conducted by using “Focus Groups” & “consumer Panels”

Concurrent TestingIs done when the sale promotion is in

progress. Helps in modifying the promotion if needed.

Post testingAn evaluation is done on the success of

the promotion at the end of the scheme.Helps in the launch of future promotions.

Guidelines to Planning Sales Promotion

1. The first step in Promotion Planning is “Situation Analysis”

2. Based on Marketing Objectives & Strategies, the promotion objectives would be developed.

3. Measurable objectives must be set.4. Allocation of Budget to Sales Promotion from

the Total Budget is made.5. Considering the objectives & the Budget

allocation, each promotion event must be carefully created.

Types & Techniques of SalesPromotion

1.0 Types of Sales Promotions:

Promotions are generally offered by

Manufacturers

Retailers

2.0 Sales Promotions- Tools & Techniques

Price deals

Bonus paid

Coupons

Contests

Sampling

Continuity plans ( Flap exchange)

Trade coupons

Trade allowances

Exchange offers

Trade fairs / Exhibition

Event sponsorshipsAbove list includes both Trade & consumer Promotions

Used for a variety of Products

3.0 Price Deals Generally used when Brand Loyalty is low Product category is considered a commodity Price is the primary considerationPrice Discount: Discount given to beat competitors’ prices Also used to generate additional sales & increase in

Market share Communication through: Press / TV / POP / Display Retailers offer discounts to liquidate inventory

Discounts from 5% to 20%

Advantages:

Flexibility & convenience of implementation

Discount offers immediate value

‘Pull & Push’ can be implemented

Price offers can be kept flexible:

Products / Discount / Period

Disadvantages: If competition offers similar discount, advantage

is lostSales may drop when discounts are withdrawnPrice discounts may lead to decrease in Brand

LoyaltyPrice – Pack Deals:Also called value – packs Bonus Pack / Branded pack

4.0 Refunds & RebatesRefund orders are used to :• Encourage trial of a new product• Purchase of increased quantity• Increasing the frequency of purchase• Encourage customers to purchase those

products whose purchases can be postponed.

Refunds & Rebates

Some of the offers make the customer buy the product on trial basis with an option to return if they are not satisfied.

Refund offers are only limited by the imagination of the promotion planner and the budget allocation.

Coupons1. Coupons can be used to achieve many

different sales promotion objectives.2. Coupons are particularly attractive to

consumers who are price sensitive.3. Coupons generally attract older, better

educated, urban, miiddle-income families.DistributionCoupons can be delivered direct to customers,

through the print media or along with the product.

Coupons can be used to serve the foll. Objectives:

1. Encourage trial

2. Encourage Brand switching

3. Encourage Repeat Purchase

4. Supplement Print Media Advertising.

5. Price Discrimination.

Types & Techniques of Sales Promotion

Contests1. Among all the sales Promotional devices,

probably the most exciting & highly rewarding are the contests & sweepstakes.

2. A contest is an event that invites the customer to apply skill to solve or complete a special problem. American Assoc. of Adv. Ag.

3. A contest is based on testing skill or ability & may not involve proof of purchase to enter the contests.

Types & Techniques of Sales Promotion

4. Two stages :

Contest in terms of skill.

A draw of chance to decide the winners

5. A sweepstake is a random drawing & is sometimes called a chance contest. May or may not involve purchase of any product or service.

6. Often a combination of contest & sweepstakes is employed in some promotions

Premiums1. A Premium (Gift) is a reward given to the

consumer for purchasing a product or service.2. Premium may be given free or made available

at a price well below the market price. E.g. Printer free with computerDVD Player free with LCD TV.

3. Premiums are chosen carefully to appeal to the consumer.

In-Pack, On-Pack & Container Premiums Premiums are attached either to the product,

enclosed with the product or otherwise available with the product when the consumer buys the product.

Premiums can be used to solve a competitive price advantage or to counter the competitor’s coupon promotion.

In-pack PremiumPremium is enclosed inside the product pack. Such

premiums are generally small & low priced.On-Pack PremiumAttached to the outside of the product package. Also

known as banded premium.

Near-Pack Premium

Premium bulky in size & cannot be enclosed or packed with the product. E.g. Bucket

Container Premium

Product itself is packed inside the premium, which is a container.

E.g. Bru, Tata Tea, Pet jars, glass tumbler etc.

Summary

Premium selection should be based on Pre testing

The premium should be a known brand name.

Premium should communicate its good quality & Value

Premium should (if possible) be related to the promoted product or the promotion theme.

Premium should be as distinctive as possible.

Summary

Promotions are generally offered by both Manufacturers and retailers.

Price appeal include Price-cuts, coupons, rebates, bonus packs etc.

Promotions are powerful competitive tools.

Distribution Management &Marketing Mix

Distribution Management & Marketing Mix

1. Introduction

2. Distribution Management

3. Distribution Channel

4. Distribution Channels-Why are they required?

5. Activities of a Distribution Channel

Distribution Management & Marketing Mix

6. Functions of Distributor Channels

7. Value enhancement through the Distribution Function

8. Distribution channel strategy

9. Setting distribution Objectives

10.Overview of Distribution Channels

11.Patterns of Distribution

1.0 Introduction

Distribution Management deals with the ‘Place’part of the ‘Marketing Mix’

Provides Place, Time & Possession utility to the customer

Customer buys a product at a particular Place & Time & takes Possession of it by making the payment without the direct involvement of the manufacturer

This is the role that the Distribution Management function of the company has played

2.0 Distribution Management

Definition:The Management of all activities which facilitates

movement & coordination of supply & demand in the creation of time & place utility in goods

The art & science of determining requirements, acquiring them, distributing them & finally maintaining them in an operationally ready condition for their entire lives

Broad range of activities concerned with the efficient movement of finished products from the end of the production line to the customer

3.0 Distribution Channel

Definition:

Distribution channels are sets of interdependent organisations involved in the process of making a product or service available for use or consumption

- Stern & El Ansary (1992)

They play a critical role in the overall marketing function

As companies expanded, direct distribution became unmanageable & also quite expensive

Distribution Channel

Definition: Intermediaries came into the picture Intermediaries are a link between the

manufacturer & his customersTheir primary job is to re – distribute the

products of the company in a manner that it reaches the ultimate consumer & gets used

Intermediaries are able to perform the Distribution functions & deliver benefits at a lower cost than if the company were to do it by itself

4.0 Distribution Channels-Why are they required ?

Channels or intermediaries exist for the following reasons;

They help in the smooth flow of goods & services

They improve the efficiency of the process

They adjust the discrepancy of assortment through the performance of the sorting process

They hang together in channel arrangement to provide for the routinization of the transactions

Channels facilitate the searching process

5.0 Activities of a Distribution Channel

Discrepancies creep in between a typical production activity & a typical consumption activity

General discrepancies are:

Spatial Discrepancy

Temporal discrepancy

Need to break the bulk

Need to provide assortment

Information Gap

Need for Financial Support.

Activities of a Distribution Channela). Spatial Discrepancy:Can be defined as the discrepancy that exists

because of the physical distance between the location where a product is manufactured & the location where the product is eventually consumed

b). Temporal Discrepancy:Can be defined as the discrepancy that exists

because of the inevitable difference in the point in time at which a product is manufactured & the point in time when the product is consumed

If the stock consists of perishable items, the task for bridging the temporal discrepancy becomes all the more complex & critical

Activities of a Distribution Channel

c). Need for breaking the Bulk:To achieve economies of scale, products

have to be manufactured in bulk quantitiesProducts are consumed in smaller

quantities Without the routinization activity, performed by the intermediaries, millions of small transactions will take more time & effort

Activities of a Distribution Channeld). The Need for Assortment: Most of the time, consumers demand an assortment &

not just a single producte). Information Gap: This is especially true in the Travel & Tourism Industry f). Need for financial support:Combination works better:Most companies use a combination of a direct & indirect

distribution modes Technical equipment requiring technical knowledge & high

value products are sold directly by the company & not through intermediaries

6.0 Functions of Distributor Channels

1. Collection of information about customers, competitors & any other entities which can affect a company’s marketing efforts

2. Provide for storage & physical movement of the goods

3. Place orders on the manufacturers of the goods for delivery to end users or other customers

4. Canvass sales of products through effective communication

Functions of Distributor Channels

5. Act as a link for transferring ownership of the goods from one party to another

6. Finance the inventories after the goods leave the manufacturer till they reach the end user

7. Provide credit facilities to their buyers8. Help the manufacturer to effectively run,

trade & consumer promotions

7.0 Value enhancement through theDistribution Function

1. Distribution function complements the form utility by providing the time & possession utility

2. Time Utility: Customer need not buy in advance & stock the item.

Can buy when he requires3. Place Utility: Products are available at a convenient location4. Possession utility: Channels routinize transactions & maintain linkage with

the upstream entitiesValue provided by a distribution channel often goes beyond

the three utilities provided

8.0 Distribution Channel Strategy

Distribution, being part of the Marketing effort, forms a critical part of the Marketing Strategy.

It is critical because the distribution channel strategy cannot be frequently changed as it requires building a network based on sound, & long term relationships.

Distribution looks at some of the foll. Factors: Defining customer service levels Define the distribution objectives to achieve these

service levels

8.0 Distribution Channel StrategyOutline the steps or activities required to

achieve the Distribution channel objectives

Decide on the structure of the network.

Make out a Policy & Procedure for the network to carry out its daily activities

Outline the key performance indicators

Understand the critical success factors to make the distribution Strategy effective.

Overview of Distribution Channels

Distribution Channels can broadly be classified as :

Sales Channel

Delivery Channel

Service Channel

Overview of Distribution Channels

Distribution Channels normally include the foll:

Co. owned Distribution centres

Carrying & Forwarding agents ( C & FAs)

Consignment selling agents

Distributors, stockists, value added reseller agents.

Wholesalers

Retailers

Patterns of Distribution

This determines the intensity of desired distributionIntensity denotes the service level that the

organisation provides to its customersThere are three types:Intensive distributionSelective distributionExclusive distribution

Intensive

This strategy is to make sure that the product is made available in as many outlets as possible so that, anywhere the consumer goes, he or she should be able to get the product of his choice. E.g HLL, FMCG,Autospares etc

Selective

Outlets are carefully selected by the co. in line with the image it wants to project about itself and its exclusive products. E.g Philips, Tanishq etc.

Exclusive

Exclusive- as the name suggests

Co. keeps a close watch & control on the distribution of its products.

Summary

Companies cannot reach hundreds of customers directly and hence have to use the medium of distribution channels

Distribution channels provide the right situation for time, Place & Possession Utilities for the company’s products

Distribution Channels provide financial support to the Marketing effort to maintain healthy inventory levels & credit in the market place

Companies can also decide on the intensity of the distribution effort.

Marketing Channels

1. Introduction2. Five kinds of Flows3. Information Flows4. Marketing Channel & Formats5. Relationship of Flows to Service Levels6. Channel Levels7. Service Channels8. Expectations from Channels9. Channel Systems10. Multi Channel Marketing Systems

Introduction

Company Products Customer:

Current

Potential

Introduction Co. needs to communicate to the customers on :

Price Availability Other terms & conditions

Channel Partners- Facilitate change of title of the products from manufacturer to the end users

They take physical possession of the goods, pay for it & are also responsible for the stock including its condition.

Channel is responsible for the safe keeping of stocks & takes the risk towards storage, losses, price fluctuations etc.

Introduction

The physical movement of goods is also the responsibility of the channel partner

Channel also takes care of :

Sales on credit

Insurance

Complete documentation

All statutory levies.

Five kinds of Flows

a) Physical Flows of Goodsb) Title Flow of the Goods( includes

negotiation, ownership & risk sharing)c) Payment Flows for the Goodsd) Information Flow about the Goods, orders

placed, executed & so one) Promotion Flows about the advertising &

other support to the customer Channel Partners or members are involved

in various degrees in all these flows For every flow in the channel, there is an

element of cost involved

Information Flows

1. Correct, accurate & immediate information on all transactions at each stage must flow to the channel members, company & customers

2. Info. Flows are in the nature of reports & records. Examples are :

A one time info. to the channel members on the features of the co. products, details of customers, prices, margins & any promotional or merchandising support.

3. Inventory levels to be held by the distribution centres

Information Flows

4. Frequency of stock receipts, production centres etc.

5. Indents / orders from distributors to C & Fs

6. Info. on targets, performance- monthly etc

7. Info. to customers on co. products by distributors, including promotional offers.

8. Details of Invoices generated

Marketing Channels- Formats

Channels can be categorised depending on who drives the channel:

Producer Driven

Seller Driven

Service Driven

Others

Producer Driven

Co. owned Retail Outlets

Licensed Outlets

Consignment selling agents

Brokers

Franchisees

Distributors

Seller DrivenExisting RetailersWholesalersFranchiseesModern Store FormatsSpecialty storesDiscount storesAgents, Dealers, stockistsDoor to Door sales people

Service Driven

Carrying & Forwarding agents

Transporters

Warehouse owners

Couriers

Credit Card companies

Financial Institutions

Logistics Service Providers

OthersMulti level marketingCo-op SocietiesKiosksVending MachinesGift MakersTV Home ShoppingCatalogue ShoppingInternet Based SellersExhibitions, Trade ShowsDatabase Marketing

Relationship of Flows to Service Levels

Channel Design depends on the Product, the customers & what competition has to offer

Cost associated with the channel system should be affordable to the co.

The nature of the product dictates the flows required in the channel system

Consumer Product- C & F –Wholesalers etc

Relationship of Flows to Service Levels

Ownership flow is relevant as the products change hands before reaching the final customer

Each channel member performs only some of the channel flows. The channel flows performed by all the channel members put together helps deliver the customer service output.

Channel levels

No. of Channel members decides the level of the channel in operationZero-Level Channel : Direct distribution.

Co. to end user or consumer directlyOne-Level channel : Consists of one

intermediary. E.g. Big Bazaar, Vivek & co. Two-Level Channel : Two Intermediaries.

E.g. FMCG.

Service Channels

Service : Education, Banking & Insurance, Hospitality, Financial Services, etc

Companies have to establish their own unique channels for distribution of their service to the largest no. of end users

Each of these, uses a unique channel to promote their business.

Expectations from Channel

Expectations of the end user or consumer is as follows:

Variety of Products

Location-Proximity to the consumer

Speed of Delivery

Availability-In terms of sizes as well

Home Delivery, credit, packing etc.

Expectations from ChannelServices of ChannelsChannels take care to provide the foll:Provide smaller qtysPlace utilityMin. cycle timeVariety, assortment etcIn the case of consumer durables, the channels

provide: Installation supportAfter sales supportTraining of personnelFinance

Company Policies

Co. takes policy decisions to enable the channel partner to deliver

Clear Pricing-MRP on packClear terms on payment, sales returns,

damaged goods, etcFrequency of DeliveryMin. InventoryAssignment of territoryAny other support

Channel Systems

1. Vertical Marketing Systems

2. Horizontal Marketing Systems

3. Multi Channel marketing Systems

Channel SystemsVertical Marketing Systems When the manufacturer, Distributor & retailer act

together as one team to provide service to the end user, it would be called a “Vertical Marketing System”

All members cooperate & work together Conflicts are avoided Improves efficiency & Marketing effectiveness Benefit from size, bargaining power & reduce

duplicationThree types1. Corporate2. Administered3. Contractual

Channel Systems

Vertical Marketing SystemsCorporateSuccessive stages of production &

distribution are handled by one entityGives a high degree of control over the

channel for the co.Retailers are resorting to this for their own

brandse.g Mico filters

Channel Systems

Administered VMSOne entity or a distributor controls other channel

partners.Manufacturers like HUL or Nestle dictate terms

to retailers on stock levels, shelf space, displays etc- Coca Cola, Gillette etc

These products and brands enjoy a strong consumer franchise

All channel members are proud to stock and sell these products & willing to listen

Channel Systems

Contractual VMSConvenient arrangements between channel

members when they get together to achieve economies of scale or use favourableopportunities to increase their sales.

Can take the form of:Retailer co-operatives like Janatha Bazaar,

TUCS etcManufacturer sponsored-car dealers of Maruti

& HyundaiBottlers of pepsi or Coca ColaService firm sponsored: Retailer franchise

like Coffee Day, MacDonalds etc.

Channel Systems

Horizontal Marketing SystemsTwo or more unrelated companies.

Arrangement provides benefits to bothHighly opportunistic arrangementEach co. exploits the strength of the other. A

mutually beneficial arrangementE.g. Supermarkets- ATMs

Café Coffee day- AirportsRetail Outlets in petrol pumps

Veg shop / soup counters / etc in dept stores- Vitan

Channel Systems

Multi Channel Marketing Systems

Companies use 2 or more marketing channels to reach different customer segments.

FMCG- Different for Retail & Institutional

Benefits

Better coverage of the market and its various segments

CSD-classified as a separate customer / segment

Channel Systems

Multi Channel Marketing Systems

Generally used where :

Same product is sold to different segments

Un related products are sold in the same market

Size of buyers varies

e.g Tea / Coffee- Retailers & Hotels, Hospitals & Nursing Homes

Urban & rural Markets

Designing Channel Systems

1.0 Channel Design & Planning ProcessThe foll. are considered in the Designing &

Planning process:Customer NeedsChannel ObjectivesCost of the ChannelEvaluating alternatives

Channel system has to be a combination of Revenue generation & Physical distribution

Servicing can also be a third entity.

Designing Channel Systems

1.1 Factors consideredFoll. factors are considered :

Activities channel members are required to perform

How these activities are going to help the co. achieve its customer satisfaction objectives

No. of channels required.Definition of roles & responsibilitiesCompensation to channel membersEvaluation of channel members’

performance

Stages in Channel Planning

Segmentation Positioning Focus Development

Stages in Channel Planning

SegmentationPutting customers in similar groups based on their

needs.Positioning Ideal channel partner chosen for each segment. No. of channels & service objectives also decided.Focus StageFocus segments are selected out of the different

segments already chosen,Developing the right channel alternative Best possible alternatives are chosen Channel partners of competitors also studied

Defining customer needs

Customer needs are defined by the desired customer service levels expected out of the channel system

Service levels relate to :

Lot size

Waiting time

Choice to the customer-assortment

Place utility

Service support

Defining Channel objectives Channel objectives are simply what the channel

system is expected to do to support customer service Channel system to carry out all the activities required

to achieve the service levels at the least cost. Service levels required may vary between segments.

E.g. Consumer > Retail> Institutional

Channel objectives also depend on product characteristics

Indl. ProductsConsumer productsIce creamsSeeds, Fertilizers > Rural Marketing

Channels adopted by competitors also need to be reckoned

Channel Alternatives

After selecting the target segment and the service deliverables, channel alternatives are looked at :

Current Business intermediaries available in the market

The No. and type of intermediaries required

Any new channel members that need to be specially developed. E.g. Technical Training

Roles of each of the channel members.

Cost of the Channel System

Cost elements of the channel network include:

Margins of the channel partners

Cost of transportation of goods between the co. and the end user

Cost of order booking & execution

Cost of stock returns / date expired.

Stocks taken back from the market

Cost of any reverse logistics reqd.

6.1 Current IntermediariesDistributors or Re distribution StockistsC & F agents Logistics service providersManufacturer’s agents, stockists, etcFinancing agenciesWholesalers / semi-wholesalersRetailersService centres

6.2 No. of IntermediariesNos. should be adequate for covering the

targetted segmentToo many can add to competition,

reducing their marginsIt is not easy to get rid of channel partnersThe No. depends on the “Intensity of

Distribution” the co. desires.

Evaluation of Major Alternatives

Evaluation is done using the foll. criteria:

Ability to manage & control

Adaptability

Range & volume to be handled

Selecting Channel Partners

The process of recruitment includes:Placing advertisementsGetting the sales people to visit the

marketsGetting references from existing channel

partners about prospects in other townsSelection criteria depends on whether the

channel partner reqd. is a C & F agent, wholesaler, Distributor etc.

Training Channel Members

Training is a continuous process & starts right from the time the channel partner is appointed

Since the channel partner represents the co., he has to maintain a high profile.Training includes:On the job training to channel sales peopleClass room training to the distributor & his staff

on the co. products, competition etc.Training on submitting reports & maintaining

records

Training Channel Members

Statutory requirements

Care of the co. products in the custody of the channel member

Technical training if the product is technical

Repair, maintenance, demonstration etc

Servicing.

Motivating Channel Partners

Channel members need to be kept highly motivated to deliver results consistently.

French & raven have suggested the foll. Power format which can be used on the intermediaries to make them effective:

Referent PowerExpertLegitimateRewardCoercive

Motivating Channel Partners

The foll. two can also be added to the above :SupportCompetition

For multilevel marketing cos. like Amway, Tupperware etc, relationship is the main source of motivation. Promotions like meetings, trips abroad etc are also used.

Evaluating Channel Members

A company’s success depends on the effectiveness of its distributor channel.

Co. needs to keep reviewing the performance of the channel partners to ensure the highest standards of performance

Evaluation done against agreed performance criteria like :

Targets / Sales Quota Avg. level of inventory held% of volume achieved by extending credit Productive calls per day Servicing complaints handled and so on. FMCG cos. Work on 30 % ROI for the distributors &

support with schemes & promotional programmeswhen the % falls

Modifying an Existing ChannelNetwork

Channel Design comparisonfactors

Efficiency

Effectiveness

Capacity

Agility

Consistency

Reliability

Integrity

Channel Design Implementation

Channel Management

1. Use of Channel Power

2. Channel Conflict

3. Principles of Channel Management

Use of Channel Power Co. & Channel members are dependent on each

Dependence on each other considers the foll:

% of channel partner’s business from the co’s products

Ability of co. to find alternatives who are better than the existing

Consistent good performance of the channel & co’s dependence on the channel

Channel becomes indispensable when customers, wholesalers & retailers depend entirely on the channel partner.

Use of Channel PowerFive sources of Power

1. Rewards

2. Coercion

3. Expertise

4. Legitimacy

5. Reference

Use of Channel PowerFive sources of Power1. Rewards Reward is a benefit given to a channel member

for him to conform his behaviour in line with the system.

Reward can be financial or otherwise e.g Incentives on achieving sales targets. Best Distributor award in the Annual Sales

conference Reward power is the most popular in the

administration of Marketing channels

Use of Channel Power

Five sources of Power2. Coercion This is a hint of punishment for the channel

if he does not fall in line with the requirements

E.g. Withdrawing of incentive payments if promised infrastructure is not built up.

Being more strict on payment mode, methodology etc.

Five sources of Power3. Expertise

Special knowledge that the Principal / co. has which is of benefit to the channel

Principal & channel partner trust each other

Co. to make efforts to renew the expertise continuously.

Five sources of Power4. Legitimacy These are contracts or agreements entered by

the Principal with the channel partner.E.g. Stock Keeping, Credit etc.

Most of these clauses have been developed over a period of time & have become standards.

Legitimate Power is the most objective of all the powers between the channel partners.

Five sources of Power5. Reference

Referent Power helps in companies being selective in the channel partners they would like to work with.

Referent Power can be developed over a long period of time with a lot of hard work.

Countervailing Power

At times, the channel may have some influence on the Principal.The Distributor can have referent &

expert power over his own customers & this is equally valuable to the company.This leads to “Interdependence of

Channel Members”

Countervailing Power

This is called as “Countervailing Power”

It reduces confrontation & improves cooperation which is good for the channel system

However, at times, the relationship seem to exploit the weaker parties.

Channel Conflict

A situation of discord or disagreement between channel members from the same marketing channel system

Driven more by feelings than by facts

When one entity in the relationship is behaving in a certain way or doing some things which will directly affect the performance, of the first entity, or come in the way of its goals, a situation of “Conflict” arises.

Channel Conflict

Channel conflict arises when the behaviour of a channel member is in opposition to its channel counterpart. It is opponent centered and direct, in which the goal or object sought is controlled by the counterpart.

Channel Conflict

Channel conflict occurs when one member of a channel views its upstream or downstream partner as an adversary or opponent. The key is that interdependent parties at different levels of the same channel (upstream & downstream) attempt to block each other.

Conflict implies an incompatibility at some level.

Channel Conflict

Some features of Conflicts are:

It is initially latent & does not affect the working of the channel members

It is not possible to detect till it reaches a level of disruption.

Channel Conflict

Stages of Conflict

Latent

Perceived

Manifest

Measuring Conflict

Conflict = Importance * Frequency* Intensity.

When conflict is desirable

Opposition actually makes a relationship better on certain occasions :

This is Functional Conflict.

Functional conflict is common when channel members recognise each other’s contribution and understand that each party’s success depends on the other.

When conflict is desirable

Conflict can be Functional because channel members drive each other to improve their performance.

By raising and working through their differences, they incite each other to do better and challenge each other to break old habits and assumptions.

Channel Conflict

Reasons for Channel Conflict1. Roles not defined properly2. Resource scarcity3. Differences in perception on the Business

environment.e.g Quantum of credit.4. Channel members have certain expectations

from each other. If they do not materialise, conflicts can arise

5. Decision Domain disagreements6. Goal Incompatibility

Channel Conflict

Reasons for Channel Conflict

7. Communication Difficulties.

8. New Channel Partner

9. Target fixing exercise

10.Extension of credit

11.Multiple Distributors

12.Loss of opportunity

Managing Conflict

There are four steps to be taken to resolve conflicts:

1. Understanding the nature of the conflict & measuring its intensity

2. Tracing the source of the conflict.

3. Finding out the consequences of the conflict

4. Strategy and action plan for resolution

Managing Conflict

Nature & Impact of conflict

List down the major issues

Tackle routine issues

Check frequency of the issues

e.g Distributor coverage

Assess perception of each party on the issue

Lastly, take an inventory of all the issues ranked in terms of importance.

Managing Conflict

Tracing the source of conflictObjectives may not have matchedChannel members may have read the

business differentlyUnderstanding of the Domain may be

differentCheck with channel members at regular

intervals- on each other’s performanceTheir opinion on the irritants in the systemSalespeople to continuously assess the

performance of the channel members to sense any latent conflicts.

How Conflicts escalate

Conflict can escalate into a dispute

There is an element of “Distrust” built into the system

Ideal to identify the conflicts in the early stage itself & resolve them

Use the power of Coercion.

Conflict Resolution

If conflicts happen, they have to be accepted & resolved

Where conflict arises between channel partners who are not bound by contracts or agreements of any kind, the conflict resolution is guided by the best past practice.

Conflict Resolution

Other Methods:

Joint membership of trade associations

Distributor councils

Personnel exchange between channel partners

Mediation through Trade Associations

Final stage: Through Arbitration

Building Channel Relationships

Use of Motivational Tools

Payments for shelf space

Higher Trade discounts

Higher margins for better distribution

Strong Advertising, merchandising & promotional support

Support of field sales people- particularly in achieving secondary sales.

Provide sales training to distributor salesmen

Building Channel Relationships

Use of Motivational ToolsOffer Financial assistance- subsidies on

distribution to new markets or rural marketsProvide logistical supportGenerate customer leads and pass on to

channel membersCommunicate promptly all crucial

marketing related decisions

Principles of Channel Management

Channel Management is in four steps:1. The Planning effort-setting the objectives2. The Organisation structure to deliver the

customer service objectives-the people and the channel members & a clear definition of responsibilities

3. Ability to control the channel- measuring progress towards the objectives & making course corrections

4. Measuring performance for constant improvement.

Physical Distribution Management

The Management of all activities which facilitate movement and coordination of supply and demand in the creation of time and place utility in goods

Physical Distribution Management

SummaryTransportationWarehousingPacking & PackagingHandling of MaterialsMaintenance of Stocks, inventory controlsOrders, processing, despatchCustomer services, complaints, redressalsMaintenance of records related to these

activities

Transportation

Transport system in an organisation should be :

Efficient

Economic

Reliable

Meeting customer needs in a timely manner

Experienced

Capable of meeting emergencies, special needs

Warehouses

Facilities OfferedStorageStackingEase of handlingRe PackingDeliverySafety measures in stocking-fire, burglary..Safety- Insects, rodents etc

Warehouses

Classification of Warehouse

1. General warehouse

2. Bonded warehouse

3. Cold storage

4. Warehouses meant for agricultural goods

5. Buffer storage warehouses

6. Import-Export warehouses

Modes of Transportation

RailwaysRoadAirSea Inland waterwaysRopeways-hilly areasPostalCourierHand carts, cycle rickshawsBullock carts etc

Distribution Agreement

Covers the foll:PriceDiscount structureCredit periodArea of operationMin. order qty.Right to appoint additional distributorsTermination clauseType of expenses to be borne

Segmentation

1. Introduction

2. Why segmentation & Why segment ?

3. Segmentation Process

4. Segmentation Criteria

5. Choosing Attractive Market Segments

6. Different Targetting strategies

Segmentation

1. Introduction

Segmentation process is a crucial aspect of Strategic Marketing.

It is central to strategy & can be broken into three distinct elements:

1. Segmentation

2. Targetting

3. Positioning

Segmentation

Market segmentation is the process by which a market is divided into distinct subsets of customers with similar needs and characteristics that lead them to respond in similar ways to a particular product offering & marketing program.

Segmentation

Targetting or Target MarketingEvaluating the relative attractiveness of various

segments in terms of :Market PotentialGrowth RateCompetitive Intensity & other factorsAnd the firm’s mission & capabilities to deliver

what each segment wants, in order to choose which segments it will serve.

Segmentation

Product PositioningProduct Positioning entails designing

product offerings and marketing programs that collectively establish an enduring competitive advantage in the target market by creating a unique image, or position, in the customer’s mind.

These three are closely linked and have strong interdependence

SegmentationWhy segmentation ? A Market segment is a section of a market

which possesses one or more unique features that both give it an identity & set it apart from other segments.

Market segmentation amounts to partitioning a market into a number of distinct sections, using criteria which reflect different & distinctive purchasing motives & behaviour of customers.

Segmentation makes it easier for firms to produce goods or services that fit closely with what people want.

SegmentationWhy Segment ?1. Meet consumer needs more precisely

Customer has different wants & needs

2. Increase Profits3. Gain segment leadership4. Retain customers5. Focus marketing communications6. Population growth has slowed

More Product Markets are maturingCompetition becoming more intense

Segmentation7. Expanding disposable incomes

Different resources at the buyer’s disposal

8. Higher educational levels9. More awareness of the world, resulting in more

varied & sophisticated needs, tastes & lifestyles

10. Increasing and important trend towards micro segmentation.

Careful segmentation & accurate targetting keeps a firm close to the market, reduces waste, finds the best customers & helps to keep them satisfied.

Segmentation Process

The segmentation process involves establishing criteria by which groups of consumers with similar needs can be identified.

These criteria have to establish consumer groups that have the foll. characteristics :

The consumers in the segment respond in the same way to a particular marketing mix.

The consumers within the segment have to react in a clearly different way from other groups of consumers to the marketing mix on offer

Segmentation Process

The group has to be large enough to provide the return on investment necessary to the organisation

The criteria used to identify the segment have to be operational.

Segmentation Criteria

The development and implementation of a Market segmentation strategy can incur greater costs (e.g market research, separate promotional campaigns, distribution channels etc) than a mass-marketing strategy. Therefore, each segment must meet the foll. basic criteria:

1. The organisation must be able to identify and measure each segment

2. The market must be substantial enough3. The organisation must be able to reach

customers

1. Customers in the selected segment must be responsive

2. Characteristics of the segment are relatively stable over a long period

Broadly there are three major categories for both consumer and organisational markets :

1. Geographic2. Demographic3. Behavioural Some Marketers also use Geodemographic and

Psychographic as additional criteria for segmentation. More the variables-better- Tighter target market. Leads to :

Less waste, more relevant offers to appropriate customers & higher customer satisfaction.

Segmentation Criteria1. Geographic Used more extensively in the past Different locations vary in their sales potential,

growth rates, customer needs, cultures, climates, service needs and competitive structures as well as purchase rates for a variety of goods.

Used in both consumer & organisational markets

Retailing & many service businesses-esp. because customers are unwilling to travel very far to obtain the goods or service they require.

Segmentation CriteriaGeoDemographic Targeting of one demographic group in an area This segmentation can be used to aid decision making in

a variety of areas:Identifying favourable retail locations for a

specific retail formatThe specific mix of products & services

delivered in a particular retail location.Decision on direct mail campaignsBoundaries of specific sales territoriesSelection of Media

This has been used very successfully in Europe spread across many countries

2. Demographic Key Demographic variables consist of Age,

Gender, Income, Occupation, Education and Family Life cycle

Age and Gender can be combined Products and markets are also created &

targetted based on life cycle.Micro segmentation groups are also created by the

characteristics of the individuals who influence the purchasing decision.

3. BehaviouralThe influences that affect consumer’s purchasing

decisions can be broken down into four major categories :

I. SocialII. PersonalIII. PsychologicalIV. SituationalV. Benefit SegmentationVI. Usage SegmentationVII. Purchase occasion

Segmentation Criteria3. Behavioural:

1.Social:There is a range of social influences on a consumer’s

purchasing behaviour, in particular culture & social classCulture Social classReference groups Family

2.Personal:AgeOccupation & Financial situation PersonalityFamily life cycle

3.Psychological:

Motivation

Perception

Learning

Beliefs & Attitudes

All the above are influences on consumer behaviour

Segmentation Criteria4.Situational:

Self ImagePerceived risk, eg – Expensive purchasesSocial factors – level of social acceptance may

depend on the right purchasing decisionHedonistic factors – Concerned with products or

services that are linked to providing to personal pleasure

5.Benefit:Based on the concept that the key reason a

consumer buys the product or service is for the benefit that product or service gives themTo identify groups of consumers that are seeking a

common benefit

6.Usage:The characteristics & patterns of consumer

usage are the essence of this segmentation approach Use of PPPPP analysis - can lead to the

identification of new segmentation opportunities

7.Purchase occasion:Marriage New Year, etc.

Organisational Market Segmentation

Organisational markets can be segmented according to the characteristics of the organisation. Factors that would be analysed at this level would be:

Industry sector

Size of the organisation

Geographic location

End use application

Organisational Market Segmentation

Organisational markets can also be segmented according to the characteristics of the decision making unit; also called micro segmentation. Factors include:

The structure of the decision making unitThe decision making processStructure of the buying functionAttitude towards innovationKey criteria used in reaching a decision on a

purchasePersonal characteristics of decision makers

Organisational / IndustrialSegmentation Techniques

Choosing Attractive Market Segments1. Select Market – Attractiveness & Competitive –

position factors

2. Weigh Each factor

3. Rate segments on Each factor, Plot Results on Matrices

4. Project future position for each segment

5. Choose segments to Target, Allocate Resources

Different Targetting Strategies

Niche Market

Mass Market

Growth Market

Developing Competitive Brands

Strategy Formulation

Approaches to DifferentiationThere are many approaches or strategic

orientations that can lead to sustainable differentiation strategies.

Employing Quality

Building strong Brands,

are two of the most important approaches.

Strategy FormulationQuality option

Here, the Business will deliver and be perceived to deliver a product or service superior to that of competitors.

A Quality strategy can mean that the brand, whether it is a hotel, car or computer, will be a premium brand as opposed to a value or economy entry.

To be the quality option, a business must distinguish itself with respect to delivering quality to customers.

Strategy Formulation

Quality optionA Quality focussed Management

system that is comprehensive, integrative and supported throughout the org. is required.A hallmark of most customer driven

organisations is that the top executives have regular meaningful one-to-one contact with customers.

Strategy FormulationBuilding Strong Brands

Differentiation can also be accomplished by building strong brands to create Brand Equity.This strategy is likely to prove sustainable

since it creates competitive barriers.Brand equity generates value to the

customer that can emerge either as a price premium or enhanced brand loyalty.

Strategy FormulationBuilding Strong BrandsBrand Equity is a set of assets and liabilities

linked to a brand’s name and symbol that add to or subtract from the value provided by a product or service to a firm or that firm’s customers. Aaker-1991

The assets and liabilities on which Brand equity is based can come under:Perceived brand QualityBrand IdentityBrand awarenessBrand Loyalty

Brand Valuation

Brand Equity has led to Financial valuation of the assets in a company’s balance sheets.

Factors seen as indicators of a Brand’s ValueMarket TypeMarket ShareGlobal PresenceDurabilityExtendabilityProtectionSuperior Products & Services

Brand ValuationBrand Equity has led to Financial valuation of the

assets in a company’s balance sheets.Factors seen as indicators of a Brand’s ValueMarket Type

Brands operating in a high margin, high volume & stable markets carry a higher valuation than brands in less profitable or stable sectors.One of the aims in developing a strong

brand is to allow a company to compete on other factors than price in order to make strong margins.

assets in a company’s balance sheets.Factors seen as indicators of a Brand’s ValueMarket Share

Brands that are market leaders are deemed to command a premium because competitors will find it difficult to overcome a consumer’s tendency to buy the dominant brand.Holding the market leadership position is

seen as a barrier to entry for other brands. E.G. Titan, Horlicks, etc.

Brand Valuation

Factors seen as indicators of a Brand’s Value

Global Presence

Brands that are accepted in the Global market carry more value than brands within a purely domestic market.

assets in a company’s balance sheets.

Factors seen as indicators of a Brand’s Value Durability

Some Brands manage to maintain a contemporary appeal & retain their relevance to customers over a long period of time.

These brands have created strong customer loyalty & become an established player in the market. E.G. Cadbury, Gillette, Kodak, Colgate etc.

Brand Valuation

Factors seen as indicators of a Brand’s Value Extendability

Brands that have the ability to be extended into related markets or stretched in new markets offer greater value than brands with more limited options.

E.g BIC successfully extended from disposable pens to razors etc.

Brand Valuation

Factors seen as indicators of a Brand’s Value Protection

Brands that have some protection from being copied through patents or registered trade marks or designs, potentially offer greater value.However, retailers have been able to offer similar

products in similar packaging in their own brands. Superior Products & Services

Brands that offer the consumer products and / or services that are superior to those of competitors.

Strategic Brand Management

Successful Brand development consists of “Elements of brand delivery” visible and not visible to the consumer.

Elements visible

Symbols

Brand name

Packaging

Advertising

Successful Brand development consists of “Elements of brand delivery” visible and not visible to the consumer.

Elements not visibleQualityProduction efficiency / operational costsResearch & DevelopmentService delivery systemsSales serviceSupply chain

Organisations now have the option of coordinating activities without necessarily owning all the assets and competencies needed.

The capability to support a brand is done through various forms of relationships and alliances. The foll. options are used :

1. Manufacturer’s Brand system2. Retailer’s own Brand system3. Franchise Brand system4. Manufacturer’s private label Brand system

Manufacturer’s Brand system Such companies produce products under their own

brand name. E.g Kellogs The majority of the businesses is owned by the

company.Retailer’s own Brand system The Brand is owned by the Retailer and there are

suppliers who supply the Retailer in the required Brand. Product development is sometimes undertaken by a third

party but definitely under the guidance and care of the Retailer.

E.g Gap, Marks & Spencer etc

Strategic Brand ManagementFranchise Brand system The retail outlets are mainly Franchise

operations The key skills relating to core aspects of the

Brand’s quality are kept in-house.Manufacturer’s private label Brand system These are companies that supply goods under

a certain Brand name to the retailers. E.g. Marks & Spencer.

These companies create their competitive position through highly efficient manufacturing skills, customer service and new product development abilities

Brand Name Strategy

An organisation has to decide its policy for naming brands across all its products & services.

The focal point of decisions on Branding strategy is about the emphasis the org. wishes to place on creating a distinctive offering in the market against the weight it wishes to place on the origin of the product or service.

Between these two extremes lie several options:

Brand Name Strategy

Ref Fig.

Brand Name Strategy

1. Corporate Brand

2. Multi Brand

3. Company and Individual brand

4. Range Brand

5. Private Brand

6. Generic Brand

Brand Name Strategy

1. Corporate Brand

Organisations that follow this approach use one corporate name across all products.E.g Cadbury, Heinz etc Individual products merely carry a descriptive name under the corporate umbrella.

Strong overall image

Opportunity to create economies of scale in marketing comm, distribution etc.

Brand Name Strategy

2. Multi Brand This is the complete opposite of corporate

branding approach. Each product is given its own unique brand

name. The aim is to build completely separate brand

identities. Appropriate if the org. is competing in a no. of

different segments. E.g. Washing powder. Ariel, Tide etc.

Brand Name Strategy

3. Company and Individual brand

This is the “Endorsed” approach

Endorsing the product with the corporate name gives a new product credibility while at the same time allowing the new brand some degree of freedom.

Different companies adopt different approaches to this strategy.

Brand Name Strategy

4. Range Brand Some organisations use different brand names for

different ranges of product, in effect creating a family of products. E.g Maggi

5. Private Brand This is the Distributor’s own brand.The private brand is

owned and controlled by the distributor who makes decisions regarding the product’s position in the market.

The distributor is likely to use either a strategy of corporate or a company and individual brand for its products.

Brand Name Strategy

6. Generic Brand This strategy involves the product having

no brand name. The product’s packaging merely states

the contents of the package. Flour, liquid soap etc.

Each of the approaches to Branding outlined above has advantages and disadvantages.

Combined Brand Strategies Large organisations may use a mixture of Brand

strategies to manage their large product portfolios.

The approach an organisation adopts to branding is a crucial decision relating to the overall strategy the company has decided to pursue . The branding policy should be developed in the light of:

The nature of Product or service

The pattern of consumer behaviour in the specific market

The company’s competitive position.

Combined Brand StrategiesDepending on resources, companies invest on

promoting and developing new brands.

This is normally done when the target market is large enough and has the potential profitability to justify investing in creating a new brand.

Lexus by Toyota- Premium cars

Aashirwaad by ITC

Tanishq by Tatas

Companies can also choose to use a current brand name and opt for a brand extension or brand stretching policy.

Brand Extension

There are occasions when an organisation will try to extend the use of a brand name to new products in the same broad market.

Brands that carry high Brand equity are candidates for brand extension as they have the ability to increase the attractiveness of the new products.

E.G Horlicks, Maggi etc.

Brand StretchingBrand stretching takes place when an

organisation stretches a brand into new unrelated markets.

E.g. Godrej into Frozen Foods, properties

HDFC into Bank, Insurance

Mahindra into Holiday Resorts, Gensets

Reliance- Footwear, Retail etc

Nike and others into apparel

Brand Revitalisation

Over a period of time, it is likely that an organisation will be required to undertake actions to improve the performance of a brand.

This can be due to new technology, changing consumer behaviour or new competition.

Options open to a company are either to increase sales or to raise Brand profitability.

Brand revitalisation and Brand repositioning are two approaches that can be employed to increase the sales volume of a brand.

Brand RevitalisationBrand revitalisation involves gaining sales

volume by expanding the market for a brand.

Four significant opportunities exist that can expand the market:

Enter new markets

Exploit new market segments

Increase the frequency of use

Increase quantity used.

Brand Repositioning Brand repositioning is undertaken in order to

increase a brand’s competitive position and therefore increase sales volume by seizing market share from rival products.

When repositioning, companies can change aspects of the product, change the brand’s target market or both.

This gives four repositioning options:

Image repositioning

Market repositioning

Product repositioning &

Total Repositioning

Brand Repositioning

Image Repositioning Here, The Product &Target market remain unchanged. Aim is to change the image of the product in its current

target market.Market Repositioning Here, the Product remains unchanged but it is

repositioned to appeal to a new market segment.e.g. Adults to children etc. Ordinary beverage to a health drink etc.

Brand Repositioning

Product RepositioningHere, the Product is materially changed.However, aimed to appeal to the same

target segment. Done to suit the changing tastes of the consumer.

Total RepositioningThis option involves both a change of

target market and accompanying product modifications.

Sales Management

Definition Of Sales Management

The Planning, Direction & Control of Personal selling, including recruiting, selecting, equipping, assigning, routing, supervising, paying and motivating as these tasks apply to the personal sales force.

J.Parthasarathy

Importance Of Sales Management

Development of largebusiness operations.

National level presence.

Importance & Managementof Sales Force.

Sales Management Process.

The sequence of activities that guides managers in the creation & administration of sales programmes for a firm is known as the Sales Management Process.

Customer

Sales Manager Field force

Customer

Recruit / Train /

Motivate / Compensate / Evaluate

Products / Services

Selling Strategy & Plan of Action.

Relationship between individuals.

Between Sales Personnel & Customers.

Between Sales Management & their Sales Personnel.

Marketing Mix & SalesManagement

Products Price Promotion Distribution

Advertising Public Relations Personal Selling

Sales Promotion

Sales Management

Marketing Mix

Sales Management

Planning

Budgeting

Recruiting & Selecting

Training

Motivating

Compensating

Designing Territories

Evaluating Performance

Sales Management

The Planning, Implementing & Control of personal contact programmes designed to achieve the Sales & Profit objectives of the firm.

Managing the Sales ForceSales Force: Need to be efficient, effective & focussed on customer

value.Requirements:

Right organisation in terms of:

Most Powerful Motivator : A well designed Compensation Package

1. Qualification

2. Aptitude

3. Knowledge

• Selling

• Product Knowledge

4. Experience

5.Well trained

6. Commitment

7. Right strength

8. Right compensation & Incentive system

Designing & Managing a SalesForce

Set out objectives

Design a Sales Force

Structure & Size

Territory Allocation

Make out Compensation Package

Recruitment & Selection

Designing & Managing a SalesForce

Training

Set out Duties & Responsibilities

Direction & Control

Motivation & Supervision

Performance Appraisal

Sales Manager’s Duties &Responsibilities

Set Goals / Targets

Define Expectations.

Evaluate Product features, Performance, Competition, etc.

Set out strategies

Establish Sales Controls

Sales Manager’s Duties &Responsibilities

Develop Plans / Help Develop Plans

Execute Programmes

Controlling Distribution Expenses

Get the Best output from the Sales Force.

Recognition & Awards

Sales Manager’s Job Skills

Two skills essential in Sales Management :

Leadership

Organizational Ability

Leadership

Intelligence

Energy

Personal Impact

Persuasiveness

Ambition

Vision

Motivation

Inter Personal Skills

Empowerment

Value congruence

Organisational AbilityTime ManagementHandle & Manage office staffPreparation of Budgets in timeHandle Sales Reports & other MISOrganise travel programmesRoutine office Functions

Organisational Ability

Hold Meetings

Coordinate with Production / Accounts & other departments from time to time.

Implement sales promotional programmes

Handle & Manage Sales Staff

Regular & Timely communication with Sales Force.

Enforce Policies & Rules of the Company.

Challenges for the SalesManager

Getting the right person in the team-Qualification, Age & Experience.

Budgeting in line with capacity.

Product Range, New Products, etc.

Issues on Logistics.

MIS Availability.

Challenges for the Sales Manager

Fixing of acceptable targets to sales force in line with the budget.

Delegation of Authority to sales force to help them deal with their customers

Dealing with frequent problems on prices, claims, promotion, quality, etc.

Being unable to personally visit all the areas to meet all the customers on a regular basis.

Collection of old outstandings, change of payment terms, problems of discontinued dealership, etc.

Sales Strategies

Relationship Strategy:

To Establish working relationship with customers in which mutual support, trust & goals are nurtured over time.

Usually done by high performers

Customer is treated as a partner

Win – Win Strategy

Concept is very Powerful

The only real alternative to lose – lose.

I Win,

You Win

I Lose

You Lose

I Lose

You Win

Partnership, Win – Win, must always be looked for

Win – Win Strategy

Outcome:

Both come out of the sale feeling satisfied with neither having taken advantage of the other.

The stage is set for a long term relationship, repeat business & future referrals.

Account Relationship Management

Deals with a single customer

Especially applicable for all OE Sales.

Focus on clients needs, problems & Successes.

Clients’ wants & needs become the most important factor driving any selling process.

Sales persons are in touch with the customer almost everyday to give them information, support, service, etc. to solve their problems.

Service Strategy Aim is to provide enhanced and better quality service

to all customers.

Better service includes all activities starting from order acknowledgement to after - sales service.

Service led to the concept of “ supply chain management”.

Linked to QCD triangle.

• Highest Quality

• Lowest Cost.

• Least Delivery time

Company strives continuously to improve their service / product to help increase the customer base & to retain loyalty.

Methods of Selling

Telemarketing

Personal

Saves on Time

Immediate Feedback

Telemarketing

Products

Insurance

Holiday Resorts

Consumer Durables

Other Products

Internet Selling

Products

Lifestyle Products

Chocolate

Bouquet etc.

Direct Selling

Eureka Forbes

Modicare

Tupperware

Others.

Sales through Wholesalers &Retailers

Chain is created by the company

Products made available

Promotions done by company.

Directly

Jointly

Retailing- Separate Chapter

Mail Order Sales

Old & Traditional- Reader’s Digest

Sales of different items through credit card operations.

Sales Manager as Coordinator

Coordinates with :

Production

Accounts

Higher Management

Quality

Service Dept. if separate.

Conclusion

Thus we see that the Sales Manager & his team play a very important role in the success of the company.

Personal Selling

1. Features,Importance & Advantages of Personal Selling

2. Personal Selling- Then & Now.3. Role of Sales Personnel in Mktg. Mix.4. Diversity in Selling Situations.5. Advertising & Personal Selling6. Steps in Personal Selling7. Theories of Selling8. Overall Skills required by Sales People.

Features, Importance &Advantages of Personal Selling

1. Enhances Customer’s confidence in the Seller.

2. Provides human touch to business transactions.

3. Promotes Long Term business relations through personal intimacy.

4. Seller is able to understand customer’s needs & preferences more clearly.

5. Customer gets satisfied when his product gets modified to suit his needs.

Features, Importance &Advantages of Personal Selling

6. Powerful & effective tool for convincing the customer about the product.

7. Seller & Customer- Always in touch resulting in better understanding.

8. Use of language known to & comfortable to the seller enhances the relationship & reduces the time for conversion of prospect into sales.

Personal Selling – Then &Now:1. Was one of only persuasion

2. One time effort & result

3. Current role:

a) Consultative Selling

b) Cultivates long term relationship

Personal Selling – Then & Now:

c) Mutually beneficial Sales Relationship

d) Role of a Psychologist with some individuals

e) Advisors

f) Personal friends – Relationship Building

Role of Sales Personnel inMarketing Mix

Product:Aware of Product FeaturesKnowledge of Competitors’ Products & Features.Functioning of ProductsProduct complaints & servicingHow to identify a genuine product from a

spurious onePacking / Date of manufacture, etc.New Products & Design

Role of Sales Personnel inMarketing Mix - contd.

Pricing

Statutory levies

Dealer & Distribution margins

Market prices

Competitors’ prices

Unorganized sector

Role of Sales Personnel inMarketing Mix- contd.

PromotionCoordinates on PromotionEvent ManagementDemonstrationsWorks out schemes in coordination with

the dealer, etc.Synchronise Personal selling with

advertising- speak the same language.

Role of Sales Personnel inMarketing mix – Contd.

Distribution1. Selection, Performance & Monitoring of

Dealer’s Performance.2. Continuous survey on adequacy of

outlets3. Availability of Product in right nos. /

quantity.4. Logistics

Role of Sales Personnel inMarketing mix – Contd.

Distribution

5. Exclusive outlets for different product categories

6. Impart Training to Dealer Salesmen

7. Help Dealer-Overall display, Ads, POP, signboards, etc.

8. Promotion / Sales of new products.

Diversity in Selling Situations

Service Selling:

Retail shop: “ Waits on” customer

Delivery Salesperson: Milk, bread, etc.

Merchandising Salesperson: Cyclical visits to customers

Missionary: To build goodwill & to educate

Technical

Diversity in Selling Situations-contd.

Developmental Selling

Creative: Vacuum cleaners, Encyclopedias, etc.

Creative intangibles: Insurance, Educational programmes, Time share, etc.

Diversity in Selling Situations-contd.

Developmental Selling with unusual creativity

Commodity Selling:

Salesperson takes care of key buyer’s other interests in golfing, fishing, etc.

Engaged in multiple sales:

Only one can say “ Yes” while several can say “ No”

Advertising & Personal Selling

Common Objective

The seller seeks to motivate the prospective buyer to behave favorably toward the seller

Advertising & Personal Selling

Sl. No.

Personal Selling Advertising

Two way Communication One way Communication

Direct contact with representative of Company

No direct contact. Customer arrives at his own Perceptions & conclusions

Major role in pre purchase, during purchase & post purchase

Mainly in pre purchase & to some extent in post purchase

Result can be seen during and after interaction & can be measured

Cannot be measured

easily

Advertising & Personal Selling-contd.

However, Advertising & Personal Selling often supplement or support each other and the buyer reacts to their combined impact.

Steps in Personal Selling

1. Prospecting

2. Pre-Approach

3. Approach

4. Presentation & Demonstration

5. Handling Objections

6. Closing

Steps in Personal Selling-contd.

Prospecting:

Is the process of identifying potential and likely buyers of a product or service.

Prospect :

Prospects are those who have a need or will to buy and the power to pay for the product / service.

Methods of Prospecting

References

Acquaintances / Friends

Cold Calling

Centre of Influence

Direct Mail / Telephone

Exhibitions / Seminar / Leads created.

Pre Approach:

Salesman aware of the specific needs, preferences, behaviour, etc. about the customer.

Can plan to give an effective presentation.

Pre Approach – AdvantagesSaves on time & energy – Presentation limited to

only the prospects.Has all information about the prospect –

Salesman can be fully preparedSales Presentation can be fully focussed around

the needs of the prospect – Can be made short & meaningful.

Can grade the prospects in term of Hot / Medium / Low – Accordingly priority can be given.

Steps in Personal Selling

Approach :

1. Salesman to make best use of the opportunity.

2. Approach should not fail as it gives an opportunity to the competitor.

3. To meet different people at lower levels who can influence the decision making process.

4. One of the better methods – is to try & get an appointment through a reference.

Approach, Contd.

5. Some salesmen send gifts in advance-also called “ Door Openers”

6. Can use the Brand name

7. Customer Benefit Approach

8. Product Trials

9. Free Gift Offer

Approach :

1. Take prior appointment.

2. Maintain Punctuality

3. Go in a formal attire

4. Make the presentation short & effective

5. Make the prospect feel important & pamper his ego

Approach

Don’ts

1. Do not try to meet during odd hours

2. Do not show over anxiety to sell

3. Do not be tense

4. Do not apologize for the time taken

Presentations & Demonstrations

1. Attractively packaged

2. Prominent location in the store

3. To spell out features of the product, its advantages, benefits, etc.

4. Demonstrate the product to highlight its features & benefits to the customer

Presentations & Demonstrations-contd.

5. As soon as customer takes a decision, discreetly stop discussion on the product & remove the other products from view

6. Make the customer handle the product at the right time

Handling Objections1. Listen carefully to all the objections of the

customer2. Acknowledge that you have understood

the objections3. Sales person should be able to identify a

real objection from an excuse & tackle accordingly

4. Clarify or overcome the objection with genuine answers

5. Present options / solutions at each stage6. Get the customer to acknowledge the

clarification before you move on to the next objection

Closing Sales

Ask for the commitment from the customer –order

Do not have “ Fear of Rejection”

Ask for leading questions half way through

Look for signs / gestures / body language which may suggest that the customer has take a “ Buy” decision

If all previous steps have been done correctly, closing the sale does not take much time

Theories of Selling

AIDAS Theory of selling.1. A ttention2. I nterest3. D esire4. A ction5. S atisfaction Many Training Programmes are organized

around this concept. Based on experiential knowledge. Known to be in existence as early as 1898.

Theories of Selling-contd.

AIDAS Theory of Selling

Attention:

1. First few minutes are crucial.

2. Prospect- Receptive state of mind.

3. Salesperson to be a skilled conversationalist.

4. To have ample supply of “Conversation Openers.”

Theories of Selling – contd.

AIDAS-contd. Interest :Objective is to convert the attention into

a strong interest.Maintain the interest of the prospect

throughout the presentation.To seek the selling appeal that is most

likely to be effective.Usually – a lot of Questions & Answers.

AIDAS-contd.

Kindling desire :

Goal is to kindle the prospect’s desire to the “ready–to–buy” product.

Objections to be anticipated & answered to the prospect’s satisfaction.

To concentrate on projecting the benefits of the product.

AIDAS-contd.

Inducing Action :

Buying must be induced.

To be done only after overcoming all possible objections.

To ask leading questions.

Check if any other person is to participate in the decision making process.

AIDAS-contd.

Satisfaction :

Order is the climax of the selling situation.

Customer to be reassured that the decision was correct.

To complete all formalities as quickly as possible.

B : Right Set of Circumstances.

Everything was right for that sale.

Situation – Response Theory.

Hinges on the skill of the Salesperson.

C : Buying FormulaBuyers’ needs or problems receive major

attention.Need ( or problem ) – Solution – Purchase –

Satisfaction.Solution can be a product or service or both.Buyer thinks of a solution – Product – Trade

name – Purchase – experiences satisfaction or dissatisfaction.

Buyer should experience a pleasant feeling of anticipated satisfaction.

Theories of Selling

D : Behavioral Equation:Sophisticated version of the “ Right set of

circumstances ” theory.Buyer’s behaviour in terms of Purchasing

Decision process.This stimulus – response model includes the

elements- Drive, Cue, Response & Reinforcement.

Relation among the variables is multiplicative.Salesperson’s response to “ Buyer Behaviour

” & the different elements determine this “Buyer Behaviour”

Overall Skills required by SalesPeople

1. Be Thorough in your product knowledge

2. Know your competitor & his products well

3. Should know how to prospect

4. Establish rapport with strangers

5. Be a good listener

Overall Skills required by SalesPeople

6. Good at making oral presentations

7. Demonstrate Product Benefits

8. Handle customer concerns

9. Be well groomed, dress well & maintain good oral hygiene

10.Speak slowly, clearly, flawlessly & with confidence

Sales Organisation

Sales Organisation1. Definition2. Pre – Requisites3. Purpose of sales organisation4. Span of control5. Setting up a Sales Organisation6. Functions of Sales Organisation7. Role of Sales Administration8. Developing a Sales Organisation9. Field Sales Organisation10. Conclusion

Sales Organisation

Definition:

It is the systematic coordination of the various functions which are essential to achieve the organisational objectives

Sales Organisation

Pre requisites :

Should anticipate changing situations.

Should be able to adapt to diverse marketing environments

Purpose of Sales organisation

Ideal Organisation:

No duplication of effort

Less friction

Maximum cooperation

To have a combination of intelligent leadership, informal organisation & formal organisation to facilitate achievement of objectives

Use of specialized personnel

Assignment & Delegation of Authority

Purpose of Sales organisation

Coordination: Motivating individuals to work together towards common

objectives is important in achieving coordination

Authority: All executives should understand the nature of their

authority with respect to each aspect of the operation; otherwise friction develops

To achieve harmony: Continuing coordination Free flowing communication systems

Span of Control

Refers to the no. of subordinates who are supervised by each manager.

It ranges from 5:1 to 10:1 depending on industry, experience & nature of job responsibility

Setting up a Sales Organisation

Most problems of Sales organisation are problems of re- organisation.

Goal is to make it more effective

Five major steps in setting up aSales Organisation

1. Defining the Objectives

2. Determination of Activities & their Volume of Performance

3. Grouping Activities into positions

4. Assignment of personnel to positions

5. Provision for coordination & control

1. Defining the objectives Set Qualitative & Quantitative objectives

Sales volume

Produce profits

Through profitable sales

Controlling costs

Growth in Sales & Profits

2. Determination of Activities & their volume of performance

Determine all necessary activities & estimate their volume of performance

Determine executive positions, relationships to other positions & duties & responsibilities

3. Grouping Activities into positions

Activities are classified & grouped so that closely related tasks are assigned to the same position

Positions to offer job challenge, interest & involvement

4. Assignment of Personnel to positions Different personnel assigned to various

positions Sometimes job specifications are

modified to suit individuals Sometimes preferable to have individuals

grow into particular jobs rather than have the jobs grow up around individuals

5. Provision for coordination & control Written job description – a formal instrument of org.

controlAlso used at the time of employee selection processAlso used as yardsticks against which to appraise the performance

Control & coordination by sales executive is done through formal & informal means

Organisation manual is also made outContains departmental objectives & policies as also write- ups of job descriptions & specifications

Functions of Sales Organisation

1. Planning Functions: Sales Forecasting Sales Budgeting Selling Policy2. Administrative Functions: Selecting Salesmen Training Salesmen Remuneration of Salesmen Control of Salesmen3. Executive Functions: Sales Promotion Selling routine – Execution of orders

Role of Sales Administration Order Processing

Delivery

Logistics

Maintenances Stock

All communications to :o Sales & Regional

officeso Customer

o Ware houses

Transit Insurance

Excise / Sales tax Formalities / Documentation

Sales Documentation

Packing / Packaging

Sales Returns

Developing a Sales Organisation

1. Formal & Informal Organisations

2. Horizontal & Vertical Organisations

3. Centralized & Decentralized Organisations

4. Line & Staff components of Organsations

5. Size of the Company

Developing a Sales Organisation

Formal & Informal Organisations

Every firm has a formal & informal organisation

It is basically a communication pattern

To be recognized as being useful

To be encouraged to the extent

Horizontal & Vertical Organisations

Vertical

Sales Supervisor

Sales Manager

Regional Sales Manager

General Manager

District Sales Mgr

Horizontal Organisations

General Manager- Sales

Export Sales Manager

Regl. Manager-South

Regl. Manager-North

Distribution Manager

Regl Manager-West

Regl Manager-East

Mktg. Services Manager

Horizontal & Vertical Organisations

Span of control decides whether you need a vertical or Horizontal OrganisationEach company must determine the span

of control that works best for its Sales OrganisationSpan of Control should be monitored

periodically in order to assure maximum effectiveness

Centralised & De CentralisedOrganisations

Decentralised Organisation: Responsibility & Authority are delegated to lower levels.

Centralised Organisation: Concentrated at higher levels of Management.

Centralised Organisation: Economies of scale.

Uniformity in an organisation’s product & service offerings

Encourages coordination & integration of sales peoples’efforts & behaviour

DecentralisedOrganisation:

Happens when the organisation grows in size

Due to a more diverse customer base

With improved communication facilities, becoming more feasible

Mixture of both:Certain organisations use both where

certain functions are centralised while certain others are decentralised.Eg: Recruitment, Training, etc.However, when Responsibility is de-

centralised,organisation must take care to ensure that there is adequate authority.

Line & Staff Components

Line Function: Primary Activity

Staff Function: Supporting Activity

•Selling

•Advertising

•Market research

•Planning

•Training

•Market ServicesSmall Firms: Have only one line function

Line & Staff Components

Staff Activities report to the position they supportEg: VP Has advertisements, Market research –

as staff functionsWhereas GM : Has Training, Sales & distribution,

planning, etc. as staff functions

Size of the Company

An organisation evolves as a company grows in size

Specialist functions are added

Eg: Sales Head, Production Head, Personnel, Finance & Accts, etc.

Field Sales Organisation

Geographic Sales Organisation

Product based sales Organisation

Customer based Organisation

Activity / Function based Organisation.

Hybrid Sales Organisation

Team based Organisation

Geographic Sales Organisation

Sales Manager

South West North East

Product based Organisation

Product ‘A’Product ‘A’ Product ‘B’ Product ‘C’

WestWest

Duplication of coverageIncreased costs J.Parthasarathy

Customer based Organisation

Sales Manager

Regl. Mgr. S Regl. Mgr. ERegl. Mgr. NRegl. Mgr. W

Asst. Mgr.

Ashok Leyland

Asst. Mgr.

TVSAsst. Mgr.

Hero Honda

Asst. Mgr.

MarutiSuzuki

Activity based Organisation

Used in high cost selling methods

Eg: One to one

Prospecting

Presentation

Installation

Service

Hybrid Sales Organisation

Any two organisation types are combined to suit the problems of individual sales organisation

Advantage: Customer service

Disadvantage: Difficulty in managing multiple sales force

Team based Sales Organisation

Customer

Marketing Technical support

Manufacturing

Conclusion

Coordination is the key

Formal interactions

Informal coordination

Companies use a combination of types –Sales Organisation

Customer service – Primary concern

Recruitment & Selection

Need for Recruitment

Organisation for Recruiting & Selection

Job Description & Specification

Important qualities of salespeople

Recruitment Sources

Selection Procedure

Sales Force Training

Summary

Need for Recruitment

Recruitment is a continuous process

Natural growth of organisation

Growth due to: Addition of new products

Acquisitions

Change in selling policy

People outgrowing positions

Growth of new industries & resultant attritions

Induced vacancies

Organisation for Recruiting &Selection

Varies from company to companyRecruitment normally handled by Sales

DepartmentPersonnel Department handles only a few

aspects of recruitmentWhere a company operates with

branches, to some extent, the process is decentralised

Job Description & Specification

Title of the job

Duties & Responsibilities

Reporting methods

Minimum qualifications & experience

Territory to be covered

Important Qualities of Salespeople

Aptitude

Communication skills

Personality

Product knowledge

Self motivated

Educational backgroundDeterminationIntelligenceBusiness senseConfidence

Recruitment Sources

Pre Recruiting reservoir

3.0 sales & marketing management_1

companys balance sheets

building channel relationshipsuse

brand valuationbrand equity

channel powerfive sources

sales managementthe planning

sales promotion strategies7

sales promotion strategies1

designing channel systems1

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