Wednesday, 19 September 2012

CONSUMER BEHAVIOUR



It is a segment or part of human behaviour. Human behaviour refers to the total process whereby the individual interacts with the environment. Every thought, feeling, or action that we have as individuals is part of human behaviour.

Definition:Consumer behaviour is the study of how individuals, groups and organizations select, buy and dispose of goods, services, ideas or experiences to satisfy their needs and wants.

Importance; It seeks to understand the consumer buying decision process and to answer the following questions;

Who makes the market?
Who do they buy from?
What does the market buy?
When do consumers buy?
Why do they buy?
How do they buy?

The marketer wants to know how consumers respond to various marketing strategy the company might use. It helps the firm to find better ways to satisfy consumers through creating a suitable marketing mix that will meet customer’s needs and requirements better than competitors.


Understanding Consumer Behaviour: 7 O’S Framework:

Who is the customer? Occupants
what does the consumer buy? Objects
why did they buy? Objectives
Who participate in the process? Organisation
When did they buy? Occasions
Where do they buy/ Outlets
How did they buy? Operations



Model Of Consumer Behaviour (Stimulus-Response Model Of Buyer Behaviour)







Consumers make many buying decisions every day. Most companies are interested to know what consumers buy, where they buy, how and how much they buy, when they buy, and why they buy. But learning about the consumer buying behavior is not easy task The central question for marketers is how consumers respond to various marketing stimuli The company that understands how consumers will respond to different product features, prices, and advertising appeals has a great advantage over its competitors. The starting point is the stimulus-response model of buyer behavior This figure shows that marketing and other stimuli enter the consumer’s “black box” and produce certain responses.

Marketing stimuli consist of the four Ps: product, price, place, and promotion. Other stimuli include major forces and events in the buyer’s environment: economic, technological, political, and cultural. All these inputs enter the buyer’s black box, where they are turned into a set of observable buyer responses: product choice, brand choice, dealer choice, purchase timing, and purchase amount. The marketer wants to understand how the stimuli are changed into responses inside the consumer’s black box, which has two parts. First, the buyer’s characteristics influence how he or she perceives and reacts to the stimuli. Second, the buyer’s decision process itself affects the buyer’s behaviour. 

Stages of the consumption process:

Pre-purchase: problem recognition & information search
Purchase: mental evaluations & making of decision
Post-purchase: The activities that the consumer undertakes after the purchase and includes; how he uses the product, his degree of satisfaction, and actions taken after the purchase is made.

Participants in the buying process (The D.M.U.-Decision Making Unit)

The marketer needs to know which people are involved in the buying decision. People might play any of several roles in the buying decision process;
Initiator: the person who first suggests or thinks of an idea of buying a particular product or service i.e. who initiates the buying decision.
Influencer: a person whose views or advices carries some weight in making the final decision.
Decider: is the one who ultimately makes a buying decision or any part of it, i.e. whether to buy, what to buy, where to buy. One or more people may be a decider.
Buyer: the person who makes the actual purchase.
User: the person who uses or consumes the product.

A company needs to identify who occupies these roles because they affect product design, promotion, and other marketing strategy



The Consumer Buying  Decision Process
It is made up of the following five steps;
 




STEPS IN CONSUMER BUYING DECISION PROCESS:

1)Problem recognition; It is the stage when the individual recognizes a need or problem to be satisfied or solved. The need can be triggered by either an internal stimulus (hunger, thirst, or sex), or external stimulus (bread, car, or ad). 

2)Information research; Of key interest to the marketer are the major information sources:
          Personal source- family neighbours, acquaintances
         Commercial sources- sales persons, dealers , packaging displays
         Public sources- mass media, consumer-rating organizations
         Experiential sources- handling, examining, or using the product
The relative amount and influence of these information sources vary with the product category and buyer’s characteristics.


3) Evaluation of alternatives; The consumer develops a set of brand beliefs about a brand, which make up the brand image. The brand image will vary with his/her experiences as filtered by the effects of selective perception, selective distortion and selective retention. The consumer may evaluate brands on the basis of price, product design, colour, packaging, after-sales service, etc.


4) Purchase decision; Having evaluated various solutions, the buyer may develop a predisposition to make a purchase. However, two factors can intervene between the purchase intention and the purchase decision that may change the purchase intention, e.g.
·         The attitude of others
·         Unanticipated situational factors
In executing a purchase intention, the consumer may take up to five purchase sub-decisions;
·         A brand decision (brand A)
·         Vendor decision (dealer 2)
·         Quantity decision (1 computer)
·         Timng decision (weekend)
·         Payment method decision (cash/credit)
5) Post purchase behaviour; The consumer will experience some level of satisfaction or dissatisfaction. Buyers do not follow the general decision sequence at all times. The procedure may vary depending upon;
·         The time available
·         Levels of perceived risk
·         The degree of involvement a buyer has with a product.
Marketers should provide after sales service and support to assure customer satisfaction.

 
Involvement
Involvement may be in terms of relevance and importance and is of two types;
a    High involvement; This occurs when a consumer perceives an expected purchase which is not only of high personal relevance but also represents a high level of perceived risk. Cars, washing machines, houses and insurance policies fall in this category.
b    Low involvement; This suggests little threat or risk to the consumer. Low priced items such as washing soap, cooking oil, and breakfast products are bought frequently, and past experience of the product class and the brand cues the consumer into a purchase that require little information or support.


Types of consumer problem solving behaviour:
Consumer decision-making varies with the type of buying decision. More complex decisions are likely to involve more buying participants and more buyer deliberations. There are three types of consumer problem-solving behaviour:
1   Routine response behaviour; This occurs when consumers buy low cost, frequently purchased items. The buyers have very few decisions to make. They know a lot about the product class and the major brands available and they have fairly clear preference among the brands. In general, consumers do not give much thought, search or time to the purchase. Marketers must satisfy current consumers by maintaining sufficient quality service and value. They must also try to attract new buyers by introducing new features and using point of purchase displays and price deals.
2   Limited problem solving; Buying is more complex when buyers confront an unfamiliar brand in a familiar product class (e.g. a new brand of radio or toothpaste). E.g. people thinking about buying new music equipment may be shown a new brand with a new shape and new features. They may ask questions and watch adverts to learn more about the new brand. This is described as limited problem-solving because buyers are fully aware of the product class but are not familiar with all the brands available and their features.
Extensive problem solving; Sometimes buyers face complex buying decisions for more expensive, less frequently purchased products in a less familiar product class. For these products buyers do not often know what brands are available and what factors to consider in choosing between brands. E.g. suppose you want to buy an expensive stereo component system, you would probably spend time visiting several shops collecting information and comparing various brands before making the final decision.


TYPES OF CONSUMER BUYING BEHAVIOUR

From the understanding of general decision making process, perceived risk and involvement theory, it is possible to identify the following buying behaviours;


 

Complex buying behaviour; It involves three- step process;
          The buyer develops beliefs about a product,
          Then develops attitude,
          Then makes thoughtful choice
Consumers are highly involved in a purchase and are aware of significant differences among brands.
Products are highly expensive, bought infrequently, risky and highly self-expressive e.g. automobiles. 

Dissonance-reducing buyer behaviour; where the consumer is highly involved in a purchase but sees little difference in brands.
Purchase is expensive, infrequent and risky.
If the consumer finds quality differences in the brands, he might go for the higher price.
If he finds little difference, he might buy simply on price or convenience.

 Habitual buying behaviour; Is characteristic with low involvement and the absence of significant brand differences common with low cost, frequently purchased products e.g. salt consumers reach for the same brand out of habit but there is no strong brand loyalty.

Variety seeking behaviour; Low involvement but significant brand differences exists.
A lot of brand switchingMarketing communication should reinforce past decisions by stressing the positive features of the product or by providing more information to assist its use and application.

 
Organizational/ Industrial Buyer Behaviour

Businesses ask themselves the same questions as consumer marketers i.e. who are our buyers and what are their needs. How do buyers make their buying decisions and what factors influence these decisions? What marketing programs will be most effective?

Definition: industrial buying is the decision making process by which formal organizations establish the need to purchase products and identify, evaluate and choose among alternative brands and suppliers.

Types of organizational markets;

1) The industrial market; It consists of all organizations acquiring goods and services that enter into the production of other goods and services that are sold or supplied to others. It is the largest organizational market.
2) Reseller market; It consists of all individuals and organizations that acquire goods for the purpose of reselling them to others for a profit. Resellers buy products for resale and for conducting their operations e.g. wholesalers.
3) Government market; It consists of government units from central and local government that purchase or rent goods and services for carrying out their main functions.
4) The institutional market; It is made up of hotels, hospitals, schools, colleges and other institutions that also buy goods and services.

Differences between Organizational and Consumer markets
In some ways organizational markets are similar to consumer markets- both involve people who assume buying roles and make purchase decisions to satisfy needs. But there are differences stemming from market structure, demand, product characteristics, promotion, distribution channels, price, nature of buying unit, and the decision process.
  
1   Market characteristics 
     Size: usually industrial consumers are few in number but purchase larger volumes on a repeat basis.
     Geographic concentration: industrial consumers tend to concentrate in specific areas especially urban areas.
     Competition: industrial organizations are more directly involved in international purchasing.
Product characteristics; In industrial markets products are purchased as component parts of other products. More emphasis is given to the technical aspect of the product. Purchases of industrial products are usually governed by customer specifications.
    Buyer characteristics; Typical consumer buyers have little knowledge of the product they purchase as contrasted with industrial buyers who are professionally and technically trained. Many industrial purchases involve large sums of money; technically complex products and decisions to purchase take longer and involve several people.
4   Reciprocity; Industrial buyers often select suppliers who may also buy from them e.g. a paper company that buys needed chemicals from a chemical company that in turn buy’s the company’s paper.
5   Channel characteristics; In industrial markets, channels are direct where buyers often buy from producers rather than through middlemen.
6   Promotional characteristics; Personal selling is the dominant mode of promotion in industrial markets and advertising may only be used to lay a foundation for personal selling. Sales people act as consultants.
7   Price; Generally in industrial buying, price takes less prominence. Factors of interest are quality, product consistency, certainty and timeless of delivery, service and technical support.
8   Demand; Demand for industrial products is derived demand. It ultimately comes from demand for consumer goods. A cloth manufacturer buys cotton because consumers buy cloth. If consumers demand for cloths declines, so will the demand for cotton and all other products used to make cloth.
The demand is also inelastic in organizational markets i.e. total demand is not much affected by price changes especially in the short-run e.g. a drop in the price of leather will not cause shoe manufacturers to buy more leather unless it results in lower shoe prices that in turn would increase customer demand for shoes.

Participants in the industrial buying process- The buying centre

This is the group of people who make the buying decision. The group consists of all people who influence, whether positive or negative, at one or more stages of the purchasing process. The Decision Making Unit (D.M.U) has people playing the following roles;
 .   The gate keeper: he controls the flow of information, ideas and instructions. Such roles may be played by the receptionist/secretary who controls the buying organization’s diary. A gate keeper could also be a specialist who can feed relevant information to the rest of the D.M.U.
2    Influencers: are people such as engineers, accountants or the board of directors. They help define product specifications and provide information for evaluating alternatives. Technical personnel are particularly important influencers.
Users: are members of the organization who will use the product. In many cases they initiate the buying proposal and help define product specifications.
4   Buyers: they are people with formal authority to select the supplier and arrange terms of purchase. They negotiate with the selected supplier on issues such as price, delivery time, mode of delivery, etc.
5    Deciders: are people who have formal or informal power to select or approve the final suppliers. In routine or straight buying, the buyers are often the deciders.
The buying centre concept presents a challenge to the industrial marketer who must learn the following;
          Who is involved in the decision?
          What decisions do they make?
          What is their relative degree of influence?
          What evaluative criteria does each participant use?
Only when the above questions have been answered can the supplier plan the campaign to inform the key persons within the D.M.U. A multi-faceted attack may be necessary, involving direct mail, personal contact, as well as the use of advertising.

Industrial Buying Situations (classes):

1     Straight re-buy; it is where the buyer knows his own requirements and the products on offer. The items tend to be regular purchases and the process is in most cases repeated frequently. A buyer would most likely purchase from the same supplier and it is often hard for another supplier to break into such a market.
2    Modified re-buy; in this category would fall the purchase of either a new product from an existing or known supplier, or the purchase of an existing product from a new supplier. It usually involves more decision participants.
3     New task; involves the purchase of new unfamiliar products from previously unknown suppliers. In this situation the buyer must obtain a lot of information about alternative products and suppliers. He must determine the following;
Product specifications, price limits, delivery times and terms, service terms, payment terms, order quantities, etc.
The buyer makes the fewest decisions in the straight re-buy and most in the new task situation. The new task situation is the marketer’s greatest opportunity. He tries to reach as many people with key buying influences as possible, and providing useful product information.

Industrial Buyer Decision Making Process

In the industrial buyer decision making process, buyers facing a new task buyer situation will usually go through all stages of the buying process and those making straight or modified re-buys may skip some of the stages. They are;





1      Problem recognition; The process begins when someone in the firm recognizes a problem or need that can be solved by acquiring a specific product. The company may decide to launch a new product and need new equipment and materials to produce it or a machine may break down and need new parts etc.
2      General need description; This is description of the general characteristics and quantity of the needed item. Emphasis here is on reliability, durability, price and other attributes desired in the item.
3      Product specification; The item’s product specifications are analyzed and the purchasing team (D.M.U.) decides on the best product characteristics and specify them accordingly.
4      Supplier search; This is carried out to find the best suppliers. Some suppliers may not be considered because they are not large enough to supply the needed quantity or because they have poor reputation. The supplier’s task is to get listed in major directories and build reputation in the marketplace. Salespeople should watch for companies in the process of searching for suppliers and ensure their firm is considered.
5      Proposal solicitation; The buyer invites qualified suppliers to submit proposals. When the item is complex or expensive, the buyer will need detailed written proposals from each potential supplier.
6      Supplier selection; The buying centre (D.M.U.) reviews the proposals and   selects a supplier. They will consider the technical competence of various suppliers, their ability to deliver the item on time and also deliver the necessary services. The following attributes have a strong influence on the relationship between the supplier and customer;
Quality of products, on time delivery, competitive prices,  and delivery terms.
7      Order routine specification; This involves preparing the final order with the chosen supplier, listing the technical specifications, quantity needed, expected time of delivery, e.t.c.
8      Performance review; Here the buyer reviews the performance of the supplier. The buyer may retain, modify, or drop the supplier in future hence the supplier should ensure that he is giving the expected satisfaction.

Personal Determinants of Consumer Behaviour

These are needs, motivation, perception, learning, beliefs, and attitudes.
1     Needs and Motivation
·         A motive is a need that is sufficiently pressing to drive a person to act.
·         Needs are either physiological-(hunger, thirst, comfort), or psychological-(recognition, self-esteem, etc.).
·         Marketers study motivation theories for consumer analysis and marketing strategy. Three of the best known theories are those of Sigmund Freud, Abraham Maslow and Fredrick Herzberg.

Freud’s theory
1    Assumes that the psychological forces shaping people’s behaviour are largely unconscious, and that a person cannot fully understand his/her own motivation.
2     When a person examines specific brands, he/she will react not only to their stated capabilities, but also to  other less conscious cues.
3     Shape, size, weight, colour and brand can all trigger certain associations and emotions in the consumer.    Motivation researchers often collect “in-depth interviews” to uncover deeper motives that trigger the purchase of a product.

Maslow’s theory
         In order of  importance, they are physiological needs, safety needs, social needs, esteem needs and self- actualization.  A person will try to satisfy their most important needs first, after which he will then try to satisfy the next higher need. The theory helps marketers to understand how various products fit into the plans, goals, and lives of consumers.

Herzberg’s theory
He developed a two- factor theory that distinguishes dissatisfiers (factors that cause dissatisfaction) and satisfiers (factors that cause satisfaction).Satisfiers must be actively present to motivate a purchase. The implications are that sellers must do their best to avoid dissatisfiers e.g. poor instructions manual. The manufacturers should identify the major satisfiers and motivators and supply them to buyers.

 Perception
Perception is a process by which an individual selects, organizes and interprets stimuli into a meaningful, coherent image or picture of the world. simply said it is how an individual views a particular product.
A motivated person is ready to act and how he acts is influenced by his or her perception of the situation. Two people in the same motivated state and objective situation may act quite differently because they perceive the situation differently. People can emerge with different perceptions of the same object because of three perceptual processes: selective attention, selective distortion, and selective retention.

Learning
Learning can be defined as ‘a relatively permanent change in behaviour that occurs as a result of experience or reinforced practice’.
Most human behaviour is learned.
Two main approaches to learning are:
           Behavioural-association, reinforcement and motivation.
           Cognitive-processing information in order that problems can be resolved.
Learning theory teaches marketers that they can build up demand for a product by associating it with strong drives, using motivating cues, and reinforcement.

Personality Theories
Personality is, essentially, concerned with the inner properties of each individual, those characteristics that differentiate each of us.

Freudian theory of personality; psychoanalytic theory:
It assumes that the needs which motivate human behaviour are driven by primary instincts- life and death. The life instincts are considered to be predominantly sexual in nature, whereas the death instincts are believed to be manifested through self-destructive and/or aggressive behaviour. The personality of an individual is assumed to have developed in an attempt to gratify these needs, and consists of the id (pleasure seeking), super ego (acts within the rule of the society) and ego.
  
Trait theory:
Traits are distinguishing, relatively enduring ways in which one individual differs from another. Personality is measured and quantified e.g. the degree of assertiveness, responsiveness to change or level of sociability.
Marketers identify specific traits and then develop consumer profiles which enable a distinct market segment to be determined.
For example, Aspirers seek status and self- esteem (materialism) and are targeted with products which act as symbols of achievement e.g. designer clothes, latest hi-fi etc.
Consumers are likely to choose brands whose personalities match their own. For example; Tommy Hilfiger-‘youthfulness’, Levi’s- ruggedness. Brand personalities can attract consumers with the same self-concept (how somebody views himself).
 Beliefs and attitudes
An attitude is a learned predisposition to behave in a consistently favourable or unfavourable way with respect to a given object.
Through doing and learning, people acquire beliefs and attitudes.
Attitudes relevant to purchase behaviour are formed as a result of direct experience with the product, word of mouth information acquired from others, or exposure to mass media advertising.
A company can fit its products into existing attitudes rather than trying to changing them.
Attitude change strategies include:
·         Changing the consumer’s basic motivational function, i.e., making particular needs prominent.
·         Associating the product with an admired group or event e.g. social support events, celebrities, e.t.c.
·         Resolving two ‘conflicting attitudes’ e.g. moving from negative to positive.
·         Altering components of a multi –attribute product e.g. toothpaste (regular and herbal, etc.).
·         Changing consumer belief about competitors’ brands.

External Determinants of Consumer Behaviour:

Consumers are social and cultural human beings. Their behaviour is affected by the social setting they find themselves in as well as the cultural practices of the community they live in.
1    Culture:
It refers to the ways of life of a people. It is a set of socially transmited beliefs, attitudes, norms and customs. Culture is learned from parents, teachers, and society in general. Culture describes the prescribed acceptable behaviours and norms of a society. Marketers has to understand the changes in cultural shifts in a society in order to capture opportunities to serve them in a better manners. Any marketer must be familiar with the culture of the people they wish to sell to.
2    Social classes:
It is the division of the society into groups. It is also known as social stratification. Social functions have to be performed by a society for it to survive.  Stratification in the world is done on the bases of  education, occupation, income or economic and political station. In some societies eight to  nine strata were found but in most of the society three classes were found i.e Upper class, middle class and lower class.
A social class is an open aggregate of people with a similar social ranking. It is open since people can move in and out of the group. Mobility may take the form of education, occupation, talent, marriage, etc. Within a social class, people will to a certain extent have the same patterns of behaviour, similar attitudes, values, possessions, etc.
Characteristics of social classes;
People within the same social class exhibit similar behaviour.
People are ranked as occupying an inferior or superior social position according to their social class.
A social class is not indicated by any single variable, but is as a result of the weighed function of an individual’s occupation, place of residence, wealth, education, values, e.t.c.

The marketer has to identify the class differences due to the following reasons;
·         Each class will have certain products that appeal to them and others that do not appeal to them. The marketer has to concentrate their marketing effort on specific social classes.
·         In the same social class, there may be individual tastes that the marketer needs to take into consideration. The kind and quality of the product selected may vary from one consumer to another.
·         Difference in classes may also show in marketing areas the consumers frequent.  Certain classes may have a preference for a given shop, club, restaurant etc.
·         The media habits of different classes will also differ. Some members of a class may read different newspapers and listen to different programs or watch different stations on T.V.

     Reference groups:
Reference group is a group of people who have direct or indirect influence on the individuals behaviour. It acts as point of comparison or refence point/frame of reference for an individual’s behaviour.
Reference groups can be classified in to many Types; based on the degree of involvement we can classify into two groups i.e primary and secondary groups.
Primary groups: - these are groups that are small and very close to the consumer. The consumer has direct contact with group members and often has face-to-face communication with them. They include the family, co-workers and those one spends his leisure time with.
Secondary groups: - are larger and less intimate than the primary group. The consumer contact with this group may not be as frequent as those of the primary groups. They include religious organizations, professional organizations, clubs, unions, etc.
 Rationale groups; - these are membership groups that a person may join. They engage in activities which interest the consumer to express his idea, be guided and influenced in the type of goods consumed. They include YMCA, YWCA, scouting movement, etc.
The reference group has norms that the members abide by. These norms promote conformity within the reference group. A reference group may influence the decision to buy in two ways;
·         Being a member of a group, a person may buy a product or service since all those in the group have done so. A person may buy a product or service for the reason of wanting to belong to or be associated with the group.
·         Some products can be sold by appealing them to a reference group. The consumer will use others as a point of reference;
·         If he lacks specific experience in the purchase or use of a product, service or idea.
·         When available sources of marketing information are judged as biased or inadequate.
·         When the outcome of a consumer’s decision is highly visible and therefore open to disapproval from others.
·         When the products are in high risk category e.g. are expensive.
4   Role of Opinion leaders:
These are the pace setters or trend setters. They are the people who will first venture into sampling a new product before the others. They would then give information to the others before they commit themselves to buy the product or service. The opinion leaders or the pace setters are respected and serve as a source of advice to the rest. Characteristics of opinion leaders are;
          They are more interested and better read in areas they influence.
·         They are more self confident and sociable.
·         They are slightly more innovative i.e., they take risks but cautiously so.
The word of mouth becomes an important tool for the spread of information here. The opinion leaders are the first to receive advertising messages and then pass them on to the others. Marketers should identify the opinion leaders first and focus information on them so that they can then influence others.
5   The Family
       A Family comprises of two or more persons living together connected through blood or marriage or adoption and stay together. Different family structures were observed in the socieity i.e married couples, nuclear family (parents and children) and extended family(parents+children+grandparents+uncles). Members of a family have a role in the buying process and the roles will depend on the product purchased. There are three important players in the family, they are husband, wife and children. These roles may be grouped as;
      Wife dominated decisions
      Husband dominated decisions
 Joint decisions

Thursday, 30 August 2012

UNIT III MARKETING PROGRAMME


Product: A product is any thing that can be offered to a market that might satisfy a want or need

FEATURES OF PRODUCT:

Tangibility: It should be perceptible by touch, seen, or feeling.

Intangible attribute: The product may be intangible in the form of service like banking or insurance services.

Associated attribute: Product may have such attributes like brand, package, warranty.

Exchange value: It should have exchange value and must be capable of being exchanged between seller and buyer for mutually agreed price.

Customer satisfaction: Product should have the ability to offer value satisfaction to the consumer.

LEVELS OF PRODUCT:

Core Product: It is the fundamental service or benefit that the customer is buying.
Eg: A hotel guest buys "rest and sleep"

Basic Product: It is the second level, the marketer turns core benefit into a basic product.
Eg: A hotel room includes a bed, bathroom, desk etc.

Expected Product: It is the third level, and a buyer normally expects a set of attributes and conditions when purchase product.

Augumented Product: The marketer prepares an augmented product that exceeds customer expectations i.e product containing additional features, services and benefits so that customers able to distinguish his product from competitors.

Eg: A hotel room may include TV with remote control, fresh flowers, and fine room service.

Potential Product: It includes all augmentation and transformation the product might undergo in the future.
                                         

PRODUCT LINE

A group of products that are closely related products, that function in a similar manner and are sold to the same customer groups, are marked through the same types of outlets.

For example :- Nike produces several lines of athletic shoes, Motorola produces several lines of telecommunications products and AT&T offers several lines of long distance telephone services.

Major product line decision is the product line length (number of items in the product line). Product line length is influenced by company objectives and resources.


PRODUCT LINE STRATEGIES:

Product Line Stretching: Product line stretching occurs by two ways i.e upward and downward stretch.

Downward Stretch: Company may stretch its product line at lower end by introducing product with low price (or economy) enabling the product accessible to majority of customers.

Upward Stretch: A company may stretch its line upward by introducing a premium product in order to increase its growth rate or higher margins.

Eg: Nirma initially launched Nirma yellow towards lower end, later launched  Nirma super for upper end customers.

Product Line Filling: A product line can be filled by adding additional product items. The strategy is followed to make more profits, to satisfy dealers, to use excess capacity etc.

Product Line Modernization: In some cases, company modifies or modernizes some of the products in terms of colors, shapes, sizes to make them attractive.  

Product Line Deletion/Pruning: Some times company's may delete or drop a product or entire product line when these products are not generating minimum sales. Then it decides to delete entire product line.

Eg: Gillette dropped its watches product line.

  
PRODUCT MIX

Product mix refers to set of all product lines and items that a particular seller offers for sale.

Avon's product mix consists of four major product lines. Cosmetics, Jewelry, fashions and household items. Each products line consists of several sub lines. For example, cosmetics breaks down into lipstick, eyeliner, powder and so on. Each line and sub line has many individual items.

Avon's product mix includes 1300 items. Kmart Stocks 15000 items, 3M markets more than 60,000 products and general electric manufactures as many as 2,50,000 items.

A company product mix has four important dimensions (i) width (ii) length (iii) depth and (iv) consistency.

(i) Product mix width refers to the no. of different product lines the co. Carries.
e.g. Procter & Gamble consisting of may product lines, paper, food, household, cleaning, medicinal, cosmetics and personal care products.

(ii) Product mix length refers to the total no. of items the Co. carries within its products lines. Procter & Gamble typically carries many bands with in each lines, for example, it sells eleven laundry detergent, eight hand soap, six shampoo and four dishwashing detergent.

(iii) Product mix depth refer to the no. of versions/variants, offered of each product in the line. Thus Procter & gamble's Crest Tooth Paste comes in three size and two formulation (paste & Gel)

(iv) Consistency of product mix refers to how closely related the various product lines are in end use, production requirements, distribution channels, or some other way.

  
PACKAGING

Packaging is an activity of designing and producing the container or wrapper for a product. The container or wrapper is called the package. The package might include upto three levels of material. i.e primary, secondary and teritiary packaging

Functions of Packaging:

It must protect the contents of the product
It must perform the tasks for which it was designed
Communicate product information/company
Offer convenience to customers

Benefits of packaging:

Helps in identifying the product
Works as a Silent sales man
Increase sales and profits.
Provides information regarding product/company, usage, and instructions to handle.


BRANDING:

Definition: Brand is a process of giving name, term, sign, symbol or special design or a combination of these which is used to identify the products/services of a seller/marketer. Branding helps to differentiate its product from the competing product. Branding gives several advantages to the seller. First, seller's brand name and trademark provide legal protection to unique product features, which would otherwise be copied by competitors.
Second, branding gives the seller the opportunity to attract a loyal and profitable set of customers. Brand loyalty given sellers some protection from competition and greater control in planning their marketing mix. Third, good brands help build corporate image. By carrying the company's name, the help advertise the quality and size of the company.

Branding Strategies:

Line stretching: it is one of the branding strategies in which an existing brand name is been extended to another product variants in the same product line:

Eg: Extending Rexona (75gm) brand name to another variant ie 40gm soap

Brand Extension: In this strategy, an already existing brand in one product line is extended to another product or new product which may falls into different product category.

Eg: Extending Rexona bath soap brand to deodorants

Multiple Brands/New Brand: In this strategy, marketer gives entirely new brand name to new product which falls into the same product line.

Eg: P&G offers 9 different brands of detergent bars.

  
NEW PRODUCT DEVELOPMENT PROCESS:

   
NEW PRODUCT DEVELOPMENT PROCESS:.  New products can be developed through many ie product modifications, product improvements, and entirely new products. The new product development process involves following stages


Idea generation: The new product development process starts with searching for innovative ideas. New product ideas can be obtained from customers, competitors, scientists,company sales force, dealers/retailers and top management. Ideas can also be generated from techniques like brainstorming, forced relationship, synectics, attribute listing and problem analysis.

Idea screening: involves reducing the number of ideas by screening. In this stage, poor ideas eliminated and only those ideas which are good allowed to move into the next stage of product development. Before this, all good ideas are rated on factors like target market, competion, market size, product price, costs and rate of return.

Concept development and selection:  A 'product idea' is a possible product/ mere thought, but product concept is an elaborated version of product which can be explained in meaningful consumer terms. That means a product concept answers questions like  who is to buy, what benefits it offers, what occasions it has to be taken. A product concept can be translated in to many concepts. Later these concepts are tested with target consumers to select the concept which has got strongest potential and appeal.   

Business Analysis: The next step after concept development and selection is to evaluate the attractiveness of the new product proposal. Generally evaluation is done based on estimates of sales, costs, profits, and rate of return to determine whether it meets company objectives.   

Product development & Test marketing: In this stage a physical products or prototype are developed with help of R&D / engineering department. The stage answers the technical and commercial feasibility of the product. Later the product is test marketed to know the consumers reactions about the new product. In this manufacturer selects some potential customers in a location and are agreed to use the product and gives feedback which helps them in modifying the product accordingly.

Product Launch/Commercialization: Test marketing gives significant information to top management to take decision on product launch. Product launch has to answer question like when to launch (timing) where to launch (location, region, national), whom (target market) and How to launch (marketing plan)


PRODUCT LIFE CYCLE (PLC)

The Product Life Cycle (PLC) is an important concept in marketing that provides insights into a product competitive dynamics.

The product life cycle portrays distinct stages in the sales history of a product. PLC portrays four things

  • Product have a limited life.
  • Product sales pass through distinct stages, each posing different challenges to the seller.
  • Profits rise and fall at different stages of the product life cycle.
  • Product requires different marketing, financial, manufacturing, purchasing and personnel strategies in each stage of their product life cycle.


A typical PLC follows an S-Shaped curve. This curve is typically divided into four stages, known as introduction, growth, maturity and decline.





Introduction:- A period of slow sales growth as the product is introduced in the market. Profits are non-existent in this stage because of heavy expenses of product introduction.

Growth:- a period of rapid market acceptance and substantial profit movement.

Maturity:- A period of a slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits stabilize or decline because of increased marketing out lays to defend the product against competition.

Decline:- The period when sales show a downward drift and profit erode.


PRICING:

Price is the only element in the marketing mix that produce revenue; the other elements produce cost. Price is the amount of money that customers have to pay for the product. There are six step procedure for price setting.
1.      Selecting the pricing objectives b) determining demand c) estimating costs d) analyzing competitors price and offers e) selecting a pricing method f) selecting the final price
A) Selecting the pricing Objectives: A company can pursue any six major objectives through its pricing
i) Survival- Companies pursue survival as their major objective if plagued with overcapacity, intense competition, or consumer wants. To keep the plant going and inventories turning over, they will often cut prices. Profits are less important than cut prices. Profits are less important than survival. However, survival is only a short run objectives.
ii) Maximum current Profit- Many companies try to set the price that will maximize current profits. They estimate the cost and demand associated with alternative prices and choose the price that produces maximum current profit, cash flow or rate of return on investment.
iii) maximum current Revenue- some companies will set a price to maximize sales revenue. Revenue maximization requires only estimating the demand function.
Many managers believe that revenue maximization will lead to long-run profit maximization and market share growth.
iv) Maximum Sales Growth: Some companies want to maximize unit sales. They believe that a higher sales volume will lead to lower unit costs and higher long run profit. They set the lowest price, assuming the market is price sensitive. This is called market penetration pricing.
v) Maximum Market skimming: Many Companies favour setting high prices to skim to the market. If estimates the highest price it can charge given the comparative benefits of its new product versus the available substitutes. Each time sales slow down, it lowers the price to draw in the next price sensitive layer of customers.
vi) Product-Quality Leadership:- A company might aim to be the product-quality leader in the market.
vii) Determining Demand: Each price that the company might charge will lead to a different level of demand and will therefore, have a different impact of its marketing objectives. In normal case, demand and price are inversely related , that is, the higher the price, the lower the demand.

PRICING STRATEGIES:

Market Penetration Strategy: In this strategy, firm sets lowest price to gain maximum market share, that lead to lower unit cost and higher long run profits.
Market Skimming Strategy: In this it sets high prices to maximize skimming. Later over a period of time prices are slowly lowered.

PRICING METHODS

A company can select any of the following pricing method:
Mark-up Pricing: is an elementary pricing method which adds a standard markup to the product's cost. It works only when it brings expected levels of sales. This pricing is fairer to both buyers and sellers.
Target-return Pricing: It is the price that would yield its target rate of return on investment (ROI).
Target return rice: Unit cost  +  desired return+ investment capital
                                                              unit sales
Perceived value pricing: it is the pricing based on the customer perceived value. Perceived value is made up of several elements such as buyers image of product performance, channel deliverables, the warranty, quality, customer support, supplier repuration, trust worthiness and esteem. Firm must deliver the promised, and firm used marketing mix elements to communicate and enhance perceived value in the minds of buyer's .
Going rate Pricing: Firms bases its price on the competitors pricing . the firm charges the same, more or less than major competitor.
Eg: steel, fertilizer, paper.
The pricing is popular when costs are difficult to measure or competitive response is uncertain.
Select-bid Pricing: goods are sold in auction. Most of the agri output or produce like spices, coffee, teas, crops, minerals and exotic art materials, and antiques are sold in auction.


DISTRIBUTION CHANNEL:

A channel of distribution is a set of independent organizations involved in the process of making a product or service available for use or consumption by the consumer or business user. (Philip kotler)


Importance of channels

Distribution channel plays important role in marketing as they move the products from factory to customer in right time, right quantity and at right place. A company with effective and well managed channel gives competitive edge to companies.   


FUNCTIONS OF CHANNELS:

Provide market information: about customer likes, dislikes, and their expectations
Physical distributions: transportation, warehousing, processing bills
Promotion: communicate about product/services, window  & POP displays, offers
Breaking bulk: purchases in bulk and distribute in small quantities to their customers
Supply in assortments: offers variety of products/assortments eg: not only soaps, other products also
Price negotiation: on behalf of manufacturer, negotiate about price and makes agreements
Risk taking: taking risks such as product failure, low or no sales
Financing: gives credit to their customers for a specific time period. Eg; wholesaler to retailers, retailer to customer
Selling: another task is selling
Title: the actual transfer of ownership from one organization or person to Another.

I. DISTRIBUTION CHANNELS IN CONSUMER PRODUCTS:


1.zero level channel or direct selling:      Mfr---------------consumer

2. One level channel:  Mfr-----------------  Retailer  ----------------- consumer

3. Two level channel: Mfr----------  wholesaler--------- Retailer  ----------  consumer  

4. Three level channel: Mfr--------  wholesaler----  Jobber -----  Retailer  -------  consumer                                  


II. DISTRIBUTION CHANNELS IN INDUSTRIAL PRODUCTS:


1.zero level channel:      Mfr-----------  Industrial customer

2. One level channel:  Mfr------------  Industrial distributor ----------  Industrial customer

3. Two level channel: Mfr--------  Mfr's sales office--------  Industrial distributor ---------  -------  Industrial customer  


Channels Based On Number Of Intermediaries:

Selective distribution: It involves appointing few dealers but not many dealers. This type of channel is preferred by appliance manufacturers.
Eg: dealers of televisions, washing machines, pressure cookers

Exclusive distribution:  limited number of dealers granted exclusive rights of distributions and selling in a territory.
Eg: dealers of Hynduai, or Maruthi cars

Intensive distribution: appointing more number of intermediaries or stocking products in as many outlets as possible. This strategy is preferred in convenience goods or FMCG's
Eg: toothpaste, soap, shampoos


CHANNEL DESIGN PROCESS:


  1. Analysing customer needs
  2. Establish channel objectives
  3. Identifying major channel alternatives
  4. Evaluating the major channel alternatives

1. Analysing Customer Needs: Designing channel starts with finding what target customers want from channel like wether they want to buy in single unit or bulk, buy from nearby location or willing to travel different locations, wether they want to buy in person or through internet. Wether they value breadth of product assortment or prefer specialization, or wether they like add on services like delivery, repairs, installation etc. or will they obtain elsewhere. However, providing fastest delivery, great assosrtment, may not be possible or practical. More over providing these higher levels of services result in higher prices for consumer and higher costs for the channel. Hence company must balance consumer desired services against feasibility and cost of meeting these needs but also against customer price preference.   

2.   Establish Channel Objectives

            channel objectives should be stated in terms of desired service level of target consumers. Usually a company can identify several segments wanting different levels of channel service. Then company should decide which segments  to sere and the best channels to use in each case. In each segment, the company wants to minimize the total channel's cost by meeting customer service requirements.

            The company channel objectives are mainly influenced by the nature of company, type of products offered, marketing intermediaries, competitors and environment. For example the company's size and financial situation determine which marketing functions it can handle itself and which it must give to intermediaries. Companies selling perishable goods require direct marketing to avoid delays and too much handling. In some company want to compete with competitors product. In some cases companies avoid channels preferred by competitors.

3. Identifying major channel alternatives:

After a company has defined its target market and desired positioning it should identify its channel by three elements:-
1.      The type of business intermediaries
2.      The number of intermediaries and
3.      Terms and responsibilities of each channel participants.
1.      Types of intermediaries:-
The firm has following channel alternatives-
Company Sales force:- Expend the company's direct sales force. Assign to contact all prospects in the area. Or develop separate sales force for different products.
Manufacture's Agency:- Hire agencies in different regions sell the equipment.
Industrial Distributors:- Find distributors in the different regions who will buy and carry device. Give them exclusive distribution adequate margins and promotional support.
2.      The number of intermediaries:-
Company has to decide on the number of middlemen to use at each channel level. Three strategies are available.
  • Intensive Distribution:- Producers of convenience goods etc. typically seek intensive distribution that is stocking their product in numerous outlets. These goods must have place utility.
  • Exclusive Distribution:- Some producers limit the number of intermediaries handling their products. Through exclusive distribution the manufacturer hopes to obtain more aggressive and knowledgeable selling and more control over intermediaries polices on prices, promotion, credit and various activities.
3.      Terms and responsibilities of channel members:- The producer must determine the conditions and responsibilities of the participating channel members. The main elements in the trade relation mix are price policies, conditions of sale, territorial rights and specific service to be performed by each party.

EVALUATING MAJOR CHANNEL ALTERNATIVES;

Each channel alternative needs to be evaluated against economic, control and adaptive criteria.
Economic criteria:- Each channel alternative will produce a different level of sales and cost. Company sales representatives concentrate entirely on the company's products; they are better trained to sell the company's products, they are more aggressive because their future depends on the company's success on the other hand, sales agency could economically sell more than a company sales force. The sales agency has more number of sales representatives and secondly, sales agency has better knowledge of the geographical area in which he is operating
Control criteria:- Channel evolution has to include control issues. Using a sales agency poses a control problem. A sales agency is an independent business firm seeking to maximize its profits. The agents may concentrate on the customers who buy the most, not necessarily of the manufactures goods. Further, the agent might not master the technical details of the company's product or handle its promotion materials effectively.
Adaptive Criteria:- Each channel involves some duration of commitment and loss of flexibility. A manufactures seeking a sales agency might have to offer a five year contact. During this period, other means of selling such as direct mail might become more effective, but the manufactures is not free to drop the sales agency. A channel required a long commitment needs to be greatly superior on economic or control grounds to be considered.

CHANNEL MANAGEMENT DECISIONS:

After a company has chosen a channel alternative, individual middlemen must be selected, trained, motivated and evaluated.

Selecting channel members:  while selecting the channel members, the company must consider their experience in business, product lines carried or handled, growth and profit record, financial strength, their cooperation and business reputation.

Training channel members: After selecting the channel members, the company must plan and organize adequate training program for the members i.e distributors or dealers.
Company training includes: on the job field training, class room training, special meeting for launch of new product, training on submission and maintaining records.

Motivating channel members: channel motivation is done in order to improve their performance and behaviour. Company's elicits cooperation from the channel members through coercive power, rewards, legitimate and referent power.

Evaluating channel members: The next step is to evaluate channel members performance against predetermined standards. This is very important related to decisions like retention, training, motivation. Evaluation gives information wether a channel member is to be retained or to drop.

The general evaluation criteria includes sales volume and value, profitability, selling and marketing capabilities, quality of service provided to customers, willingness to keep commitments, attitude, and personal capability.

PROMOTION MIX OR MARKETING COMMUNICATION MIX

  1. Advertising
  2. Sales promotion
  3. Publicity and public relation
  4. Personal selling
  5. Direct marketing

Advertising: Any paid form of nonpersonal presentation and promotion of ideas , goods, or services by an identified sponsor.

Sales promotion: A variety of short term incentives offered to encourage trial or purchase of product or service.

Publicity and public relation:  a variety of programs designed to promote or protect a company's image or its individual product.

Personal selling: It involves face to face interaction with one or more prospective purchasers for the purpose of making presentations, answering questions and procuring orders.

Direct marketing: Use of mail, telephone, fax, e-mail, or internet to communicate directly with or solicit response or dialogue from specific customers and prospects.