Glossary:

Appropriability: The extent to which businesses can retain their added value against threats of hold up and
slack.

Absolute cost advantage: A cost advantage that is enjoyed by incumbents in an industry and that new entrants
cannot expect to match.

Barriers to imitation: Factors that make it difficult for a competitor to copy a company’s distinctive
competencies.

Balanced Scorecard: A balanced scorecard is a performance metric used in strategic management to identify
and improve various internal functions of a business and their resulting external outcomes.

Best alternative test: When the business units of a corporation can create more value under common
ownership than they would as isolated entities (linked by alliances, licenses, joint ventures etc.) on a net basis,
then a test for a broad scope of the corporation can be said to be passed.

Better off test: This implies that combining and coordinating activities of multiple business units enables the
units to create more value than they could as independent, unassociated units.

Broad differentiation strategy: When a company differentiates its product in some way, such as by
recognizing different segments or offering different products to each segment.

Broad low cost-strategy: When a company reduces its cost to reduce the prices and still make profit.

Business landscape: Envisioning of business strategies mapped to topography of choices, with each location
in this space representing a different business strategy, at a different “elevation” of profitability.

Business model: The conception of how strategies should work together as a whole to enable the company to
achieve competitive advantage.

Buyer Power: Is one of the two vertical forces in industry analysis that influences the appropriation of the
value created by an industry. It allows buyers to squeeze industry margins by compelling players to either
reduce prices or raise the level of service offered without recompense.

Capabilities: A company’s skills at coordinating its resources and putting them to productive use.

Causal ambiguity: The idea that a successful firm may itself be uncertain about what truly drives its superior
performance. This complexity deters imitation.

Choice/Tradeoffs: The idea when a company pursues competitive advantage in a certain way, it must
sacrifice other ways. For example, when a company chooses an integrated set of activities and resources to
compete on say, cost leadership, it implies that it will not pursue another set of activities and resources to
compete on say, product differentiation.

Commitment: The tendency of a company to persist in its strategy, even when such persistence requires
significant investment to capitalize on some opportunity or address some challenge.

Competitive advantage: A firm that earns superior returns within its industry over the long run is said to
enjoy a competitive advantage over its rivals.

Competitive Position: A company’s advantage or disadvantage relative to competition, assessed on some

dimension of strategy (e.g., cost or differentiation).
Competitor analysis: Is the detailed analysis of individual competitor data (e.g., historical factors, resources,
capabilities, management predispositions, etc.) with the aim of understanding current and potential actions a
competitor may take.

Complementors: Defined as being a mirror image of competitors‐ could increase willingness to pay or reduce
supplier opportunity cost; an explicit component of the ‘value net’ framework of industry analysis

Complexity: A possible defence against imitation, complexity of a business strategy may impede its imitation.

Corporate Strategy: The overall plan for a diversified company to analyze the potential businesses and
techniques to manage the array of business units.

Cospecialization: Occurs when suppliers, complements and/or buyers develop specialized activities in order
to benefit from each other’s unique abilities. While mutually beneficial to begin with, co-specialization carries
a threat of holdup.

Cost Analysis: Analysis of cost is a basis of assessing competitive positioning, by disaggregating the
components of a company’s cost and analyzing its cost drivers.

Cost Drivers: Are the factors that make the cost of an activity to rise or fall

Cost Leadership: The strategy used by a company to compete on the basis of lower costs relative to
competitors.

Credible commitment: A believable promise or pledge to support the development of a long‐term

relationship between companies.

Differentiation: The strategy used by a company to command a price premium by satisfying some valued
customer need in a differentiated way.

Distinctive Competencies: Firm‐specific strengths that allow a company to differentiate its products and/or
achieve substantially lower costs to achieve a competitive advantage. Generally, it is an activity that a firm
performs better than its competitors.

Dual competitive advantage: Is a situation in which a company is able to extract competitive advantage from
both differentiation as well as cost leadership.

Diseconomies of scale: Unit cost increases associated with a large scale of output.

Diversification: The process of entering new industries, distinct from a company’s core or original industry,
to make new kinds of products for customers in new markets.

Dynamic Thinking: It is the point of analysis to understand the course of changes in the business landscape
over time.

Economies of scale: Reductions in unit costs attributed to a larger output.

Economies of scope: The synergies that arise when one or more of a diversified company’s business units are
able to lower costs or increase differentiation because they can more effectively pool, share, and utilize
expensive resources or capabilities.

Entry barriers: Exists whenever it is difficult or not economically feasible for an outsider to replicate the
incumbent’s position. Entry barriers usually rest on irreversible commitments. Some barriers reflect intrinsic
physical or legal obstacles to entry. The most common forms of entry barriers however are usually the scale
and the investment required to enter an industry as an efficient competitor.
Experience curve: The systematic lowering of the cost structure, and consequent unit cost reductions that
have been observed to occur as cumulative output increases.

External stakeholders: All other individuals and groups that have some claim on the company.

First mover: A firm that pioneers a particular product category or feature by being first to offer it to market.

First mover disadvantages: Competitive disadvantages associated with being first.

Fixed costs: It is the cost incurred to produce a product regardless of the level of output.

Focus differentiation strategy: When a company targets a certain segment or niche, and customizes it’s
offering to the needs of that particular segment through the addition of features and functions.

Focus low-cost strategy: When a company targets a certain segment or niche, and tries to be the low‐cost
player in that niche.

Focus strategy: Option for a company to gain competitive advantage by focusing on an arrow scope target
market (e.g., by geography or customer niche); while still pursuing a generic strategy of cost leadership or
differentiation.

Functional level-strategies: Strategy aimed at improving the effectiveness of a company’s operations and its
ability to attain superior efficiency, quality, innovation, and customer responsiveness.

Generic strategies: A successful company in a given industry usually has made a choice to compete on either
of the two generic strategies: cost leadership or differentiation; based on the strategic target these could be
‘focused’ or industry wide.

Good parent test: Even if the proposed opportunity to expand corporate scope apparently satisfies the tests
of better off and best alternative, it is worth asking yourself whether your company is particularly placed to
observe or act upon the opportunity identified before actually moving to capitalize on it.

Harvest strategy: A business plan for reducing or altogether eliminating investment in a particular product
or line of business, which has reached the stage of maturity beyond which the product is unlikely to show any
significant sales growth from continued investments in sales and marketing, to fund the marketplace
development of new brands or of existing products perceived to have high growth potential.

Holdup: When a company is taking advantage of another company, it does business with, after it has made
an investment in expensive specialized assets to better meet the needs of the other company.

Horizontal Integration: The process of acquiring or merging with industry competitor’s to achieve the
competitive advantages that arise from a large size and scope of operations.

Imitation: Threatens the originator of a successful business model as the business model is copied by
competitors over time.

Industry: A group of companies offering products or services that are close substitutes for each other.

Intangible resources: Non-physical entities such as brand names, company reputation, experiential
knowledge, and intellectual property, including patents, copyrights, and trademarks.

Internal stakeholders: Stockholders and employees, including executive officers, other managers, and board
members.
Leveraging Competencies: The processes of taking a distinctive competency, developed by a business unit
in an industry and use it to gain advantage in a new business unit in a different industry.

Market segmentation: The way a company decides to group customers based on important differences in
their needs to gain a competitive advantage.

Mass customization: The use of flexible manufacturing technology to reconcile two goals that were once
thought to be incompatible: low cost, and differentiation through product customization, offering the
possibility of tailor products to individual customers.

Mass market: One in which large numbers of customers enter the market

Merger: An agreement between two companies to pool their resources and operations and join together to
better compete in a business or industry.

Mission: The purpose of the company or a statement of what the company strives to do.

Moral suasion: Is an approach to deal with slack by appealing to employee values, norms, a sense of mission,
etc.

Multinational company: A company that does business in two or more national markets.

Oligopolistic Competition: A market dominated by only a few large firms, who do not prefer to compete via
price wars and therefore, compete in various other ways, such as advertising, product differentiation and
barriers.

Opportunity cost: Supplier opportunity cost is the smallest amount that suppliers would accept for the
services and resources that are required by a company to produce its final product/service.

Opportunities: Elements and conditions in a company’s environment that allow it to formulate and
implement strategies that enables it to become more profitable.

Organizational Alignment: Organisational alignment is a process of ensuring all aspects of your organisation
is aligned with realisation of its strategy - operationally to deliver its mission and strategically to achieve its
vision.

Portfolio Planning: The relative potential of a diversified company’s portfolio of business units as areas for
investment.

Price leadership: When one company assumes the responsibility for determining the pricing strategy that
maximizes industry profitability.

Primary activities: Are those activities that are related to the design, creation, and delivery of the product, its
marketing, and its support and after‐sales service.

Related diversification: A corporate‐level strategy that is based on the goal of establishing a business unit in
a new industry that is related to a company’s existing business units by some form of commonality or linkage
between their value‐chain functions.

Retaliation: When a company makes a credible threat of massive retaliation, it inhibits imitation.

Scale economies: A barrier to imitation, scale economies are the advantages a company gains by being large
in a particular market or segment.
Scope economies: A barrier to imitation, scope economies are the advantages a company gains by being large
in interrelated markets or segments.

Scope: The range of business activities and customers that a company pursues; a narrow scope implies focus
on a target segment or market.

Segmentation Strategy: The process of identifying groups of customers, who share preferences and then
analyzing these groups on maximizing the company’s willingness to pay for each segment.

Sensitivity analysis: As competitive/relative cost analysis involves a large set of assumptions, it is important
to test the robustness of underlying assumptions through sensitivity analysis, in which the assumptions are
varied through a reasonable range, and impact on overall cost is examined.

Seven ‘S’ framework: A management tool that helps to analyze seven internal aspects of an organization that
need to be aligned for success‐ shared values, structure, systems, skills, staff, style and strategy.

Shared Values: are the core values of the company that are evidenced in the corporate culture and the general
work ethic.

Slack: Is an internal threat to a company’s added value and is the extent to which the value appropriated by a
company falls short of the value potentially available to it.

Skills: means that employees/ the organization have the right competencies to execute the activities needed

Shareholder value: Returns that shareholders earn from purchasing shares in a company.

Stakeholders: Individuals or groups with an interest, claim, or stake in the company—in what it does and in
how well it performs.

Strategic alliances: Long‐term agreements between two or more companies to jointly develop new products
or processes that benefit all companies that are a part of the agreement.

Strategic Options: is the set of different ways by which a company can maximize the difference between its
costs and its customer’s willingness to pay.

Strategic Positioning: Strategic positioning reflects choices a company makes about the kind of value it will
create and how that value will be created differently than rivals.

Strategy: The actions that an organization takes to gain a sustainable advantage over the competition.

Structure: The way in which people and activities are organized, often in a hierarchy.

Style: means that company employees share a common way of thinking and behaving, often promoted by
mangers.

Systems: The processes and routines that characterize how important work is to be done. E.g. financial
systems, incentive systems, information systems.

Support activities: Activities of the value chain that provide inputs that allow the primary activities to take
place.

Sustained competitive advantage: A company’s strategies enable it to maintain above average profitability
for a number of years.
Switching costs: Costs that consumer must bear to switch from the products offered by one established
company to the products offered by a new entrant.

SWOT analysis: The comparison of strengths, weaknesses, opportunities, and threats.

Threats: Elements in the external environment that could endanger the integrity and profitability of the
company’s business.

Transferring competencies: The processes of taking a distinctive competency developed by a business unit
in one industry and implant it in a business unit operating in another industry.

Unrelated diversification: A corporate‐level strategy based on a multi‐business model that uses general
organizational competencies to increase the performance of all the company’s business units

Value chain: The idea that a company is a chain of activities that transforms inputs into outputs that
customer’s value.

Vertical integration: When a company expands its operations either backward into an industry that produces
inputs for the company’s products (backward vertical integration)or forward into an industry that uses,
distributes, or sells the company’s products (forward vertical integration)

Willingness to pay: The maximum amount a consumer is willing to pay to procure a company’s product or
service. For example: consumers tend to be willing to pay more for a beauty service in a high profiled salon
than in a local parlour.

Red Queen Effect: refers to the phenomena that businesses face in sustaining competitive advantage. Often,
businesses may "run faster", only to find themselves in the same place.
 CORPORATE FINANCE GLOSSARY

Accounts Payable
Amounts owed by an organisation or individual to another for goods or services it has
received.

Accounts Receivable
Amounts due to an organisation or individual from another for goods or services it has
supplied.

Accrual
A term used in company accounts where income is due or a cost is incurred during an
accounting period but has not been received or paid.

Acid Test Ratio

A financial ratio similar to the current ratio or working capital ratio, defined as: current
assets minus stocks divided by current liabilities. It shows whether a company would be
able to pay its debts if it needed to satisfy creditors but it had no time to sell any of its
assets.
Amortisation
An annual charge made in a company's profit and loss account to reduce the value of an
intangible asset to zero over a period of years. A common example has been goodwill
amortisation, but that has been abolished under international accounting standards. The
goodwill, acquired through a takeover, is instead subjected to an annual impairment test.

Arbitrage
The simultaneous purchase and sale of two different, but closely related, securities to take
advantage of a disparity in their prices.

Authorised Share Capital

The total number of shares a company is authorised to issue by reference to its
memorandum and articles of association.

Balloon Payment
Large final payment of loan

Beta Value
a measurement of the movement of the price of a particular stock compared with the
movement of the market as a whole over the same period.
Bid Price

The price at which a market maker will buy a security which could be shares, warrants or,
in the case of unit trusts, the price at which units will be bought back from their holders.
Bid prices for shares are quoted on the London Stock Exchange SEAQ system, and
displayed live on broker’s computer screens. The prices are only firm for quantities
within the normal market size of a stock, limiting the ability to sell a large quantity of
shares in, for example, a small AIM stock.

Bond
The generic name for a tradable loan security issued by governments and companies as a
means of raising capital. The bond guarantees its holder both the repayment of capital at a
future specified date (the maturity date) and a fixed rate of interest (also known as the
coupon).

Conglomerate Merger
Merger of companies in unrelated business

Credit Period
The length of time customers are allowed for their credit purchases

Current Assets
Asset which normally get converted into cash during the operating cycle of the firm

Current Liabilities
Liabilities those are normally payable in a year

Day’s Sales outstanding

The ratio of receivable outstanding to average daily sales

Debenture
An instrument for long term debt. Debentures in India are typically owned.

Degree of Financial Leverage

The percentage change in earning per share as result of one percent change in
earningbefore interest & taxes

Degree of Operating Leverage

Percent change in earning before interest & taxes as result on one percent change in sales
Depreciation
A write-off of part of an asset annually. This is charged to the income statement

Diversifiable Risk
The portion of security’s risk that can be eliminated by diversification

Dividend Discount Model

A Model that calculates value of an equity share as the present value of future dividends
expected from it.

Dividend Payment
Payment made by company to its shareholders

Dividend Yield
Annual dividend stated as percentage of share market price

EBIT
Abbreviation of earning before interest & tax

EPS
Earning per share

Equity
The net worth of the firm consisting of paid up equity capital plus reserve & surplus

Exercise price

Price at which the call option or put option exercisable

Expiration Date

The last date by which an option can be exercised

Face Value
The value of a bond, note or other security as printed on the document. Throughout the
life of a security, its market price will fluctuate but at maturity the face amount is payable

Factoring
Arrangement whereby financial institutions provides services relating to management &
factoring of debts arising from credit sales

Financial Assets
A piece of paper representing claim on real assets
Financial Risk
The risk which arises from the use of debt capital

First In First Out

Method of inventory pricing which assumes that the order in which materials are received
in the stores is the order in which materials are issued from the stores

Float
Funds represented by the cheques which have been issued but which have not been
collected

Forward Contract
An agreement between two parties to exchange an assets for cash at pre-determined
future date for price that is specified today

Free Cash flow

Surplus cash generated by a firm after meeting its investment requirements

Funded Debt
Debt that matures after one year

Goodwill
The value of a business to a purchaser over and above its net asset value

Greenshoe Option
Option allowing a company issuing securities to retain excess subscription upto certain
extent.

Hedge Ratio
Number of shares to be brought for each option sold to create a riskless position

Horizontal Merger
A merger between two or more firms engaged in the same line of activity

Hurdle Rate
In investment decision making, the minimum acceptable rate of return on a project

Incremental analysis
Analysis of the additional cost s or benefits of one alternative vis-à-vis another

Initial Public Offering

The first issue of Company’s equity
Internal Rate of Return
The rate of discount at which the net present value of an investment is zero

Intrinsic Value
An expression used in options and warrants trading which indicates the difference
between the exercise price of the option/warrant and current price of the underlying
instrument (shares, an index, commodity, etc)

IRR
Internal Rate of Return

Lease
A contract in which the legal owner of property or other asset agrees to another person
using that property or asset in return for a regular specified payment (known as rent) over
a set term. In addition to buildings, other items such as cars and computers are often
leased in order to avoid capital costs in the running of a business.

Leverage Buyout
An acquisition that is largely financed by the debt

Liquidity
A Firm’s liquidity refers to its ability to meet obligation in short run. An assets liquidity
refers to how quickly it can be sold at a reasonable price

Marking- to- Market

An arrangement wherein profits or losses on a futures contract are settled every day.

Merger
The process by which two companies become one. If the companies are listed, the merger
may be by agreement, or hostile. A hostile bid is one in which the directors of the target
company reject the approach, but it is still possible for the predator company to obtain
control if enough of the target's shareholders accept its offer.

Mortgage
A pledge of specific property offered as security for a loan

Net Present Value

Net Present Value is defined as present value of benefits minus present value of cost

Net Working Capital

Net Working Capital is the difference between the total current assets & the total current
liabilities
Net Worth
A measure of the difference between the total value of assets and total indebtedness.Also
known as net assets.

Off balance Sheet Financing

Financing that does not figure on the balance sheet of the firm

Operating Cycle
The Operating Cycle of the firm begins with the acquisitions of raw materials amd ends
with the collection of receivables

Operating lease
A short term cancellable lease arrangements which is not fully amortised

Operating Leverage
The leverage arising from fixed operations costs

Opportunity Costs
The rate of return that can be earned on the best alternative investment

Option
The right buy or sell something on or before a given date at a predetermined price

P/E Ratio
The ratio of share price to earning per share

Payback period
The length of time required for an asset to generate cash flow just enough to cover initial
outlay

Payment Float
The Amount of cheques issued by the firm but not paid for by the bank

Perpetuity
A perpetual annuity

Pooling interest
A method for accounting for merger s in which there is there is a line by line addition of
balance sheets of merging entities

Portfolio
A combination of assets
Portfolio Effects
The extent to which the variability of the returns on a portfolio is less than the sum of
variability of an individual assets in the portfolio

PBIT
An abbreviation for profit before interest & taxes

Primary Market
The market in which new securities are issued

Profit Margin
Operating profit as a percentage of sales (or turnover). Profit margin tells you about the
underlying profitability of a company’s trading activities, and is calculated before taking
account of interest charges or tax. Sometimes known as return on sales.

Project Finance
Project Finance is the principal arrangement for private sector participation in
infrastructure project which heavily depends on debt

Put Option
An option that gives its holder the right to sell an asset at fixed price during a certain
period

Put Call Parity Relation

A relation between the price of the Put, the price of the call, the price of the underlying
security & the present value of the exercise price

Reinvestment Rate
The rate of return at which the intermediate cash inflows of the project may be invested

Required rate of return

Rate of return required by investors on their investment

Retained earning
The proportion of earnings to net worth

Return on equity
The ratio of equity earnings to net worth

Risk adjusted discount rate

The discount rate applicable to risky investments. It is equal to risk free rate of return
plus risk premium.
ROI
Return on investment

Safety Stock
Inventories carried to protect against the variations in sales rate, production rate &
procurement time

Sale & Leaseback

A special lease agreement under which firm sells an assets to another firm &
simultaneously leases it back

Salvage value
The value realized from disposal of an assets

Secondary Market
The Market for outstanding securities

Specific Risk
Unique risk or diversifiable risk

Spin-off
Separating division of accompany into an independent company.

Stock Split
In stock spilt, the par value is reduced & the number of share is increased proportionately

Subscription Price
The price at which the issue of security can be subscribed by an investors

Swap contract
A contract that involves an exchange of one set of financial flows for another

Synergy
Gain from combination of two or more units.

Systematic Risk
Risk that can not be diversified away. Market risk or non diversifiable risk

Term Loan
A loan which is generally repayable in more than one year & less than ten year

Turnover Ratios
Turnover Ratios measures how efficiently the assets that are employed by the firm
Unfunded Debt
Debt that Matures in less than one year

Unique Risk
Risk that can not be diversified away

Unsystematic risk
Risk that can be diversified away.

WACC
Weighted average cost of capital

Working Capital
A company's current assets (cash, debtors, work in progress) less its current liabilities
(creditors, taxes due). This capital is used by a company to run its business.

Yield Curve
A curve representing the promised yield to maturity of debt instruments of a given risk &
maturity of the instruments

Yield to Maturity
The rate of return earned on security if it is held till maturity.

Zero Coupon Bond

A bond that makes no coupons payments & is issued at a steep discount over its face
value.
 Glossary DTB 2023

Information System (IS) can be defined as a set of interrelated components that collect,
process, store, and distribute information to support decision making and control in an
organization.
Components of Information Systems include processes, people, data and technology which
includes hardware & software
Types of Information Systems include Transaction Processing Systems, Office Support
Systems, Management Information systems, Decision Support Systems and Executive
Information Systems
Management Information System (MIS) is an integrated man-machine system designed for
providing information to make decisions for the managerial function of planning, control,
organizing and operations in an organization.
Transaction Process System (TPS) is an information processing system for business
transactions involving the collection, modification and retrieval of all transaction data.
Characteristics of a TPS include performance, reliability and consistency.
Decision Support System (DSS) is an information system that aids a business in decision-
making activities that require judgment, determination, and a sequence of actions. The
information system assists the mid- and high-level management of an organization by
analysing huge volumes of unstructured data and accumulating information that can help to
solve problems and help in decision-making
Business enterprise: It is any endeavour where the primary motive is profit and not mere
employment for oneself and others. It is the activity of providing goods and services
involving industrial, financial and commercial aspects. It is always in search of improving or
acquiring Competitive advantage thru Business Process Differentiation
Competitive advantage: Competitive advantage is when an organization differentiates itself
by charging less and creating and delivering better quality products or services than its
competitors. It is creating differentiation at market place either on cost or product and
services.
Business process reengineering: Business Process Reengineering (BPR) is continuous
examination to determine whether processes are still necessary or operating at peak efficiency
by eliminating wasted steps.
Business Process Improvement: Characteristics
● Formal Processes or Standard Operating Procedures (SOP): documented and
have well-established steps.
● Informal Processes:
1) Typically, undocumented, undefined, or are knowledge-intensive.
2) Range from slow, rigid to fast-moving, adaptive.
3) Can be rigid, resistant to change, or adaptive, responding to change.
 ● Critical success factor (CSF) is an element that is necessary to ensure the success of
an organization or project, such as access to adequate financial resources

DIKW (Data, Information, Knowledge, Wisdom): A hierarchical model that represents the
transformation of raw data into actionable insights
Data: The company collects data on the number of units produced, raw materials used, and
the time taken to manufacture each unit. This is raw data of numbers, strings etc.
Information: The company can generate more useful information by analysing the data. For
example, they can calculate the average production time per unit, the cost of raw materials
per unit, and the overall production cost.
Knowledge: The company can gain knowledge about the manufacturing process based on the
information generated. They may learn that a particular machine is causing a bottleneck in
the production process or that certain raw materials are more expensive than others. This
knowledge can help the company identify areas for improvement and make data-driven
decisions.
Wisdom: With the knowledge gained, the company can make wise decisions on improving
the production process. For example, they may invest in a new machine to reduce the
production time or switch to a cheaper raw material to reduce costs. By applying their
knowledge and experience, they can make wise decisions that drive the success of their
business.
Business processes refer to the manner in which work is organized, coordinated, and focused
to produce a valuable product or service. A business process is a series of steps performed by
a group of stakeholders to achieve a concrete goal and supported by flows of material,
information and knowledge among the participants in the business process. Information
Technology plays a huge role in improving a business process.
Business Process consists of the activities that convert inputs into outputs by doing work.
Cross-functional business processes involve two or more business functions.
Three Components of a Business Process:
1. Inputs- Raw materials, data, Knowledge, expertise
2. Activities-Work that transforms inputs & act on data and knowledge
3. Deliverables: Deliverables are tangible or intangible goods or services produced in a
project and intended to be delivered to a customer.

Types of Business Processes:

● Operational Processes: Core activities that create the primary value stream, such as
manufacturing or customer service.
● Management Processes: Oversee operational processes and include activities like
corporate governance and strategic planning.
● Supporting Processes: Activities like HR, accounting, and IT that support the core
operational processes
Enterprise Systems are those that span various functional areas and focus on executing
business processes across the enterprise including all levels of management. They help to
coordinate and integrate business processes closely so they focus on efficient management of
resources and customer service.
Organisation Structure: Based on an organization’s application of the common elements-
common purpose, coordinated effort, division of labour, hierarchy of authority, as well as
centralization/decentralization and formalization—the resulting structure will typically exhibit
one of four broad departmental structures: functional, product, customer, and geographic.
Digital Platforms can be thought of as the sum total of a place for exchanges of information,
goods, or services to occur between producers and consumers as well as the community that
interacts with said platform. Platforms are the back-end technology capabilities, whether
provided by individual systems or by assemblies of multiple systems, that power products, as
well as the enterprise more broadly Digital platforms take a lot of different forms depending
on the business model they employ and the specific purposes they seek to serve.
Business Models: Business models are those models who have a powerful impact on people,
business, government, and society. IT enables leading companies to change their business
models, business processes, customer experiences and way of working.
Value Chain: Value Chain configurations mainly consist of many business processes. A
value chain refers to the full lifecycle of a product or process, including material sourcing,
production, consumption and disposal/recycling processes
Michael Porter's value chain model: The primary activities of Michael Porter's value chain
are inbound logistics, operations, outbound logistics, marketing and sales, and service. The
goal of the five sets of activities is to create value that exceeds the cost of conducting that
activity, therefore generating a higher profit.
Enterprise Resource Planning (ERP): It is all about automation of workflows and
accounting processes to analyse a business and forecast development decisions. These might
include inventory and order management, finance and accounting, human resources, CRM,
SCM and e-commerce.
SAP R/3: SAP R/3 is an integrated application software product developed by SAP AG for
client-server computing environments.
Information Flows in SAP: The module SAP R/3 is an integrated application software
product used for client-server computing environments.
BPMN Tool: Considering the Bonitasoft Studio as the BPMN Tool which is used for doing
the data flow diagram for making different modules and concerned business process of an
organization
Process diagram: A process diagram defined in the Bonita studio of a group of processes
(BPMN pools). A process diagram saved, deployed all pools in one action along with the
other attributes and decision making points.
Customer relationship Management (CRM): This process of choosing the most suitable
and efficient approach to making and maintaining interactions with customers and clients.
With all the data available in CRM an organization can really get to know the customer
preferences and gain a competitive edge in the market.
Supply Chain Management (SCM): The management system where organisation of the
overall business processes to enable the profitable transformation of raw materials or
products into finished goods and their timely distribution to meet customer demand.
Big Data may be described using the 5 Vs which are volume, velocity, veracity, variety and
value. Big data may be a combination of structured and unstructured data.
Metadata is data about data – for example metadata for a research paper document might
include a collection of information like the author, file size, the date the document was created,
and keywords to describe the document.
Data Warehouse is a single, complete and consistent store of data obtained from a variety of
different sources made available to end users in a way they can understand and use in a business
context.
Data Mart is a subset of a data warehouse, in which a functional or related portion of the
organization’s data is placed in a separate DB for a specific population of users. It is lower in
cost and size, can be constructed more rapidly and gives rapid response.
Data Lake is a centralized repository for hosting raw, unprocessed enterprise data. Data lakes
can encompass hundreds of terabytes or even petabytes, storing replicated data from
operational sources, including databases and SaaS platforms. They make raw data available to
any authorized stakeholder. Due to their potentially large (and growing) size and the need for
global accessibility, they are often implemented in cloud-based, distributed storage. Eg:
Hadoop
Data modelling - Data modellers create a series of conceptual, logical and physical data
models that document data sets and workflows in a visual form and map them to business
requirements for transaction processing and analytics. Common techniques for modelling data
include the development of entity relationship diagrams, data mappings and schemas. In
addition, data models must be updated when new data sources are added or an organization's
information needs changes.

Data Management is the process of capturing, storing, organizing and maintaining

the data created and collected by an organization.

Data Security is focused on protecting personal or organization data from any unauthorized
third-party access or malicious attacks and exploitation of data. It is set up to ensure the
integrity of data, meaning that data is accurate, reliable and available to authorized parties.

Data Privacy governs how data is collected, shared and used. It is concerned with proper
handling, processing, storage and usage of personal information. It is about the rights of
individuals with respect to their personal information.

RDBMS - A Relational Database Management System is a common type of database that

stores data in tables, so it can be used in relation to other stored datasets. It supports ease of
querying data through SQL – Structured Query Language.
NoSQL (Not only SQL) is a non-relational database, schema less, trades off consistency or
availability to achieve scalability. There are four main types of NoSQL systems: document
databases that store data elements in document-like structures, key-value databases that pair
unique keys and associated values, wide column family stores with tables that have a large
number of columns, and graph databases that connect related data elements in a graph format.
Eg: Apache Casandra, Google Big Table.

Data Exploration refers to the initial step in data analysis in which data analysts use data
visualization and statistical techniques to describe dataset characterizations, such as size,
quantity, and accuracy, in order to better understand the nature of the data

Data Visualization is the graphical representation of information and data using visual
elements like charts, graphs, and maps. Data visualization tools provide an accessible way to
see and understand trends, outliers, and patterns in data.

Demographics: Statistical data relating to the general population or the smaller groups within
it. Generally, demographics are broken down by age, gender, location, income, occupation,
ethnicity, and race. It is a common practice in marketing campaigns to target advertisements
towards one or several demographics.

Corpus of Data: The variety of data available in the format of Structured, Unstructured and
Semi-Structured Data where a large % also exists in the latter two varieties

Attributes to large corpus of Data

● Evolution of Technology
● Adoption of IoT
● Advent of Social Media
● Connected Economy

Key Problems to Large Corpus of Data

● Storage
● Data Processing
● Speed of Processing

Artificial Intelligence: Artificial intelligence is the branch of computer science concerned with
making computers behave like humans.

Machine Learning: Learning of Systems without being programmed for the same
Supervised Learning: is a machine learning paradigm for problems where the available
data consists of labelled examples, meaning that each data point contains features (covariates)
and an associated label. The goal of supervised learning algorithms is learning a function
that maps feature vectors (inputs) to labels (output), based on example input-output pairs. It
infers a function from labelled training data consisting of a set of training examples.
Unsupervised Learning: Unsupervised Learning, another type of machine language, relies
on giving the algorithm unlabelled data and letting it find patterns by itself. We provide the
input but not labels,
and let the machine infer qualities. The algorithm ingests unlabelled data, draws inferences,
and finds patterns.
Decision Tree: J Ross Quinlan at the University of Sydney created decision tree analysis.
Powerful/popular for classification and regression. Explore data to gain insight into
relationships of a large number of candidate input variables to a target (output) variable
Blockchain: A distributed database technology that is decentralized in power concentration.
Blockchain also provides a sense of traceability and transparency by the usage of premise viz.
cryptography, hashing and Digital Signatures.

Reinforcement Learning: Reinforcement Learning, relies on providing a machine-learning

algorithm with a set of rules and constraints, and letting it learn how to achieve its goals. We
define the state, the desired goal, allowed actions, and constraints. The algorithm figures out
how to achieve the goal by trying different combinations of allowed actions, and is rewarded
or punished depending on whether the decision was a good one.

Consensus Mechanism: A consensus mechanism is a method for validating entries into a

distributed database and keeping the database secure. In the case of cryptocurrency, the
database is called a blockchain—so the consensus mechanism secures the blockchain.

Augmented Reality: Augmented reality, is a set of technologies that superimposes digital

data and images on the physical world.
Virtual Reality: VR provides immersive experiences by transporting users in artificially
constructed environments. Sensory perceptions (somatosensory, vision, sound, and touch) are
controlled and from screen-based technologies, haptic devices, and exoskeletons

Metaverse: A collective virtual shared space, created by the convergence of virtually

enhanced physical and digital reality. A Metaverse is persistent, providing enhanced
immersive experiences.

Non Fungible Token (NFT): NFTs are tokens that we can use to represent ownership of
unique items. They let us tokenize things like art, collectibles, even real estate.

Virtualization: Virtualization uses software to create an abstraction layer over computer

hardware that allows the hardware elements of a single computer—processors, memory,
storage and more—to be divided into multiple virtual computers, commonly called virtual
machines (VMs). Each VM runs its own operating system (OS) and behaves like an
independent computer, even though it is running on just a portion of the actual underlying
computer hardware.
Data Center: Data Center is a large group of networked computer servers typically used by
an organization for remote storage, processing, or distribution of large amounts of data. Data
Centers can be of two types, likely Private and Public.
Cloud Computing: Often referred to as simply “the cloud,” is the delivery of on-demand
computing resources. It is a model for enabling Ubiquitous, convenient, on-demand network
access, to a shared pool of configurable computing resources (e.g., networks, servers, storage,
applications, and services) that can be rapidly provisioned and released with minimal
management effort or service provider interaction
● everything from applications to resources
● over the Internet on a pay-for-use basis.

Cloud Service Models:

● SaaS – Software as a Service
● PaaS – Platform as a Service
● IaaS – Infrastructure as a Service

Cloud Deployment models indicate where the infrastructure resides, who owns and manages
it, and how cloud resources and services are made available to users. There are four such
models, Public, Private, Hybrid, Multi Cloud
Internet of Things: Network of physical objects or things embedded with electronics,
software, sensors, and network connectivity that enables these objects to collect and exchange
data.
GLOSSARY OF FAA

Above the line: This term can be applied to many aspects of accounting. It means
transactions, assets etc., that are associated with the everyday running of a business.

Account: A section in a ledger devoted to a single aspect of a business (eg. a Bank

account, Wages account, Office expenses account).

Accounting cycle: This covers everything from opening the books at the start of the year
to closing them at the end. In other words, everything you need to do in one accounting
year accounting wise.

Accounting equation: The formula used to prepare a balance sheet: assets = liability +
equity .

Accounting period:the period of time over which profits are calculated. Normal
accounting periods are months, quarters, and years (fiscal or calendar).

Accounts Payable: An account in the nominal ledger which contains the overall balance
of the Purchase Ledger.

Accretive: If a company acquires another and says the deal is 'accretive to earnings', it
means that the resulting PE ratio (price/earnings) of the acquired company is less than
the acquiring company. Example: Company 'A' has an earnings per share (EPS) of $1.
The current share price is $10. This gives a P/E ratio of 10 (current share price is 10 times
the EPS). Company 'B' has made a net profit for the year of $20,000. If company 'A'
values 'B' at, say, $180,000 (P/E ratio=9 [180,000 valuation/20,000 profit]) then the deal
is accretive because company 'A' is effectively increasing its EPS (because it now has
more shares and it paid less for them compared with its own share price). (seedilutive )

Accruals: If during the course of a business certain charges are incurred but no invoice
is received then these charges are referred to as accruals (they 'accrue' or increase in
value). A typical example is interest payable on a loan where you have not yet received
a bank statement. These items (or an estimate of their value) should still be included in
the profit & loss account. When the real invoice is received, an adjustment can be made
to correct the estimate. Accruals can also apply to the income side.

Accrual method of accounting: Most businesses use the accrual method of accounting
(because it is usually required by law). When you issue an invoice on credit (ie. regardless
of whether it is paid or not), it is treated as a taxable supply on the date it was issued for
income tax purposes (or corporation tax for limited companies). The same applies to bills
received from suppliers. (This does not mean you pay income tax immediately, just that
it must be included in that year's profit and loss account).

Accumulated Depreciation Account: This is an account held in the nominal ledger

which holds the depreciation of a fixed asset until the end of the asset's useful life (either

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because it has been scrapped or sold). It is credited each year with that year's
depreciation, hence the balance increases (ie. accumulates) over a period of time. Each
fixed asset will have its own accumulated depreciation account.

Advanced Corporation Tax (ACT - UK only - no longer in use): This is corporation tax
paid in advance when a limited company issues a dividend. ACT is then deducted from
the total corporation tax due when it has been calculated at year end. ACT was abolished
in April 1999. See Corporation Tax .

Aging :a process where accounts receivable are sorted out by age (typically current, 30
to 60 days old, 60 to 120 days old, and so on.) Aging permits collection efforts to focus
on accounts that are long overdue

Amortization: The depreciation (or repayment) of an (usually) intangible asset (eg. loan,
mortgage) over a fixed period of time. Example: if a loan of 12,000 is amortized over 1
year with no interest, the monthly payments would be 1000 a month.

Annualize: To convert anything into a yearly figure. Eg. if profits are reported as running
at £10k a quarter, then they would be £40k if annualized. If a credit card interest rate was
quoted as 1% a month, it would be annualized as 12%.

Appreciation -- an increase in value. If a machine cost $1,000 last year and is now worth
$1,200, it has appreciated in value by $200. (The opposite of depreciation.)

Appropriation Account: An account in the nominal ledger which shows how the net
profits of a business (usually a partnership, limited company or corporation) have been
used.

Arrears: Bills which should have been paid. For example, if you have forgotten to pay
your last 3 months rent, then you are said to be 3 months in arrears on your rent.

Assets :things of value owned by a business. An asset may be a physical property such
as a building, or an object such as a stock certificate, or it may be a right, such as the
right to use a patented process.

Current Assets are those assets that can be expected to turn into cash within a year or
less. Current assets include cash, marketable securities, accounts receivable, and
inventory.

Fixed Assets cannot be quickly turned into cash without interfering with business
operations. Fixed assets include land, buildings, machinery, equipment, furniture, and
long-term investments.

Intangible Assets are items such as patents, copyrights, trademarks, licenses, franchises,
and other kinds of rights or things of value to a company, which are not physical objects.

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These assets may be the most important ones a company owns. Often they do not appear
on financial reports.

At cost: The 'at cost' price usually refers to the price originally paid for something, as
opposed to, say, the retail price.

Audit: The process of checking every entry in a set of books to make sure they agree
with the original paperwork (eg. checking a journal's entries against the original purchase
and sales invoices).

Audit Trail: A list of transactions in the order they occurred.

Bad debts :amounts owed to a company that are not going to be paid. An account
receivable becomes a bad debt when it is recognized that it won't be paid. Sometimes,
bad debts are written off when recognized. This is an expense. Sometimes, a reserve is
set up to provide for possible bad debts. Creating or adding to a reserve is also an
expense.

Balance sheet :a statement of the financial position of a company at a single specific

time (often at the close of business on the last day of the month, quarter, or year.) The
balance sheet normally lists all assets on the left side or top while liabilities and capital
are listed on the right side or bottom. The total of all numbers on the left side or top must
equal or balance the total of all numbers on the right side or bottom. A balance sheet
balances according to this equation: Assets = Liabilities + Capital.

Bankrupt: If an individual or unincorporated company has greater liabilities than it has

assets, the person or business can petition for, or be declared by its creditors, bankrupt.
In the case of a limited company or corporation in the same position, the term used is
insolvent .

Below the line: This term is applied to items within a business which would not normally
be associated with the everyday running of a business. Bond -- a written record of a debt
payable more than a year in the future. The bond shows amount of the debt, due date,
and interest rate.

Bill: A term typically used to describe a purchase invoice (eg. an invoice from a supplier).

Book value :total assets minus total liabilities. (See also net worth.) Book value also
means the value of an asset as recorded on the company's books or financial reports.
Book value is often different than true value. It may be more or less.

Breakeven point :the amount of revenue from sales which exactly equals the amount of
expense. Breakeven point is often expressed as the number of units that must be sold to
produce revenues exactly equal to expenses. Sales above the breakeven point produce
a profit; below produces a loss.

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CAGR: (Compound Annual Growth Rate) The year on year growth rate required to show
the change in value (of an investment) from its initial value to its final value. If a $1
investment was worth $1.52 over three years, the CAGR would be 15% [(1 x 1.15) x 1.15
x 1.15]

Capital Employed (CE): Gross CE=Total assets, Net CE=Fixed assets plus (current
assets less current liabilities).

Capital Gains Tax: When a fixed asset is sold at a profit, the profit may be liable to a tax
called Capital Gains Tax. Calculating the tax can be a complicated affair (capital gains
allowances, adjustments for inflation and different computations depending on the age of
the asset are all considerations you will need to take on board).

Capital :money invested in a business by its owners. (See equity.) On the bottom or right
side of a balance sheet. Capital also refers to buildings, machinery, and other fixed assets
in a business. A capital investment is an investment in a fixed asset with a long-term use.

Capitalize :to capitalize means to record an expenditure on the balance sheet as an

asset, to be amortized over the future. The opposite is to expense. For example, research
expenditures can be capitalized or expensed. If expensed, they are charged against
income when the expenditure occurs. If capitalized, the expenditure is charged against
income over a period of time usually related to the life of the products or services created
by the research.

Cash :money available to spend now. Usually in a current account.

Cash Accounting: This term describes an accounting method whereby only invoices and
bills which have been paid are accounted for. However, for most types of business in the
UK, as far as the Inland Revenue are concerned as soon as you issue an invoice (paid
or not), it is treated as revenue and must be accounted for. An exception is VAT : Customs
& Excise normally require you to account for VAT on an accrual basis, however there is
an option called 'Cash Accounting' whereby only paid items are included as far as VAT is
concerned (eg. if most of your sales are on credit, you may benefit from this scheme -
contact your local Customs & Excise office for the current rules and turnover limits).

Cash flow :the amount of actual cash generated by business operations, which usually
differs from profits shown.

Chart of accounts :a listing of all the accounts or categories into which business
transactions will be classified and recorded. Each account usually has a number.
Transactions are coded by this number for manipulation on computers.

Contingent liabilities :liabilities not recorded on a company's financial reports, but which
might become due. If a company is being sued, it has a contingent liability that will become
a real liability if the company loses the suit.

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Cost of sales, cost of goods sold :the expense or cost of all items sold during an
accounting period. Each unit sold has a cost of sales or cost of the goods sold. In
businesses with a great many items flowing through, the cost of sales or cost of goods
sold is often computed by this formula: Cost of Sales = Beginning Inventory + Purchases
During the Period - Ending Inventory.

Compound interest: Apply interest on the capital plus all interest accrued to date. Eg. A
loan with an annually applied rate of 10% for 1000 over two years would yield a gross
total of 1210 at the end of the period (year 1 interest=100, year two interest=110). The
same loan with simple interest applied would yield 1200 (interest on both years is 100 per
year).

Contra account: An account created to offset another account. Eg: a Sales contra
account would be Sales Discounts. They are accounts included in the same section of a
set of books, which when compared together, give the net balance. Example:
Sales=10,000 Sales Discounts=1,000 therefore Net Sales=9,000. This example, affecting
the revenue side of a business, is also referred to as Contra revenue . The tell-tale sign
of a contra account is that it has the oposite balance to that expected for an account in
that section (in the above example, the Sales Discounts balance would be shown in
brackets - eg. it has a debit balance where Sales has a credit balance).

Corporation Tax (CT - UK only): The tax paid by a limited company on its profits. At
present this is calculated at year end and due within 9 months of that date. From April
1999 Advanced Corporation Tax was abolished and large (UK) companies now pay CT
in instalments. Small and medium-sized companies are exempted from the instalment
plan.

Current Liabilities: These include bank overdrafts, short term loans (less than a year),
and what the business owes its suppliers. They are termed 'current' for the same reasons
outlined under 'current assets' in the previous paragraph.

Credit :an accounting entry on the right or bottom of a balance sheet. Usually an increase
in liabilities or capital, or a reduction in assets. The opposite of credit is debit. Each credit
in a balance sheet has a balancing debit. Credit has other usages, as in "You have to pay
cash, your credit is no good." Or "we will credit your account with the refund."

Creditors: A list of suppliers to whom the business owes money.

Days Sales Outstanding (DSO): How long on average it takes a company to collect the
money owed to it.

Debit :an accounting entry on the left or top of a balance sheet. Usually an increase in
assets or a reduction in liabilities. Every debit has a balancing credit.

Deferred income :a liability that arises when a company is paid in advance for goods or
services that will be provided later. For example, when a magazine subscription is paid in

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advance, the magazine publisher is liable to provide magazines for the life of the
subscription. The amount in deferred income is reduced as the magazines are delivered.

Depreciation :an expense that is supposed to reflect the loss in value of a fixed asset.
For example, if a machine will completely wear out after ten year's use, the cost of the
machine is charged as an expense over the ten-year life rather than all at once, when the
machine is purchased. Straight line depreciation charges the same amount to expense
each year. Accelerated depreciation charges more to expense in early years, less in later
years. Depreciation is an accounting expense. In real life, the fixed asset may grow in
value or it may become worthless long before the depreciation period ends.

Dilutive: If a company acquires another and says the deal is 'dilutive to earnings', it
means that the resulting P/E (price/earnings) ratio of the acquired company is greater
than the acquiring company. Example: Company 'A' has an earnings per share (EPS) of
$1. The current share price is $10. This gives a P/E ratio of 10 (current share price is 10
times the EPS). Company 'B' has made a net profit for the year of $20,000. If company
'A' values 'B' at, say, $220,000 (P/E ratio=11 [220,000 valuation/20,000 profit]) then the
deal is dilutive because company 'A' is effectively decreasing its EPS (because it now has
more shares and it paid more for them in comparison with its own share price). (see
Accretive )

Discounted cash flow :a system for evaluating investment opportunities that discounts
or reduces the value of future cash flow. (See present value.)

Dividend :a portion of the after-tax profits paid out to the owners of a business as a return
on their investment.

Double entry :a system of accounting in which every transaction is recorded twice -- as

a debit and as a credit.

Debenture: This is a type of share issued by a limited company. It is the safest type of
share in that it is really a loan to the company and is usually tied to some of the company's
assets so should the company fail, the debenture holder will have first call on any assets
left after the company has been wound up.

Debit: A column in a journal or ledger to record the 'To' side of a transaction (eg. if you
are paying money into your bank account you would debit the bank when making the
journal entry).

Debtors: A list of customers who owe money to the business.

Deferred expenditure: Expenses incurred which do not apply to the current accounting
period. Instead, they are debited to a 'Deferred expenditure' account in the non-current
assets area of your chart of accounts . When they become current, they can then be
transferred to the profit and loss account as normal.

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Dividends: These are payments to the shareholders of a limited company.

Double-entry book-keeping: A system which accounts for every aspect of a transaction

- where it came from and where it went to. This from and to aspect of a transaction (called
crediting and debiting) is what the term double-entry means. Modern double-entry was
first mentioned by G Cotrugli, then expanded upon by L Paccioli in the 15th century.

Drawings: The money taken out of a business by its owner(s) for personal use. This is
entirely different to wages paid to a business's employees or the wages or remuneration
of a limited company's directors (see 'Wages').

Duality: is the very foundation of double entry book keeping system and it comes from
the fact that every transaction has a double (or dual) effect on the position of a business
as recorded in the accounts. For example, when an asset is bought, another asset cash
(or bank) is also and simultaneously decreased OR a liability such as creditors is also
and simultaneously increased.

Earnings per share :a company's net profit after taxes for an accounting period, divided
by the average number of shares of stock outstanding during the period.

EBIT: Earnings before interest and tax (profit before any interest or taxes have been
deducted).

EBITA: Earnings before interest, tax and amortization (profit before any interest, taxes or
amortization have been deducted).

EBITDA: Earnings before interest, tax, depreciation and amortization (profit before any
interest, taxes, depreciation or amortization have been deducted). 80 - 20 rule -- a general
rule of thumb in business that says that 20% of the items produce 80% of the action --
20% of the product line produces 80% of the sales, 20 percent of the customers generate
80% of the complaints, and so on. In evaluating any business situation, look for the small
group which produces the major portion of the transactions you are concerned with. This
rule is not exactly accurate, but it reflects a general truth, nothing is evenly distributed.

Equity :The value of the business to the owner of the business (which is the difference
between the business's assets and liabilities).

Expenditure :an expenditure occurs when something is acquired for a business -- an

asset is purchased, salaries are paid, and so on. An expenditure affects the balance sheet
when it occurs. However, an expenditure will not necessarily show up on the income
statement or affect profits at the time the expenditure is made. All expenditures eventually
show up as expenses, which do affect the income statement and profits. While most
expenditures involve the exchange of cash for something, expenses need not involve
cash. (See expense below.)

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Expense :an expenditure which is chargeable against revenue during an accounting
period. An expense results in the reduction of an asset. All expenditures are not
expenses. For example, a company buys a truck. It trades one asset - cash - to acquire
another asset. An expenditure has occurred but no expense is recorded. Only as the truck
is depreciated will an expense be recorded. The concept of expense as different from an
expenditure is one reason financial reports do not show numbers that represent
spendable cash. The distinction between an expenditure and an expense is important in
understanding how accounting works and what financial reports mean. (To expense is a
verb. It means to charge an expenditure against income when the expenditure occurs.
The opposite is to capitalize.)

Fixed cost :a cost that does not change as sales volume changes (in the short run.)
Fixed costs normally include such items as rent, depreciation, interest, and any salaries
unaffected by ups and downs in sales.

FIFO: First In First Out. A method of valuing stock.

Fiscal year: The term used for a business's accounting year. The period is usually twelve
months which can begin during any month of the calendar year (eg. 1st April 2001 to 31st
March 2002).

Fixed Assets: These consist of anything which a business owns or buys for use within
the business and which still retains a value at year end. They usually consist of major
items like land, buildings, equipment and vehicles but can include smaller items like tools.
(see Depreciation )

Fixtures & Fittings: This is a class of fixed asset which includes office furniture, filing
cabinets, display cases, warehouse shelving and the like.

Flow of Funds: This is a report which shows how a balance sheet has changed from one
period to the next.

Goodwill: This is an extra value placed on a business if the owner of a business decides
it is worth more than the value of its assets. It is usually included where the business is
to be sold as a going concern.

Historical Cost: Assets, stock, raw materials etc. can be valued at what they originally
cost (which is what the term 'historical cost' means), or what they would cost to replace
at today's prices

Income :see profit.

Interest :a charge made for the use of money.

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Inventory :the supply or stock of goods and products that a company has for sale. A
manufacturer may have three kinds of inventory: raw materials waiting to be converted
into goods, work in process, and finished goods ready for sale.

Inventory turnover :a ratio that indicates the amount of inventory a company uses to
support a given level of sales. The formula is: Inventory Turnover = Cost of Sales
Average Inventory. Different businesses have different general turnover levels. The ratio
is significant in comparison with the ratio for previous periods or the ratio for similar
businesses.

Invested capital :the total of a company's long-term debt and equity.

Insolvent: A company is insolvent if it has insufficient funds (all of its assets) to pay its
debts (all of its liabilities). If a company's liabilities are greater than its assets and it
continues to trade, it is not only insolvent, but in the UK, is operating illegally (Insolvency
act 1986).

Intangible assets: Assets of a non-physical or financial nature.

Journal :a chronological record of business transactions.

Ledger :a record of business transactions kept by type or account. Journal entries are
usually transferred to ledgers.

Liabilities :amounts owed by a company to others. Current liabilities are those amounts
due within one year or less and usually include accounts payable, accruals, loans due to
be paid within a year, taxes due within a year, and so on. Long-term liabilities normally
include the amounts of mortgages, bonds, and long-term loans that are due more than a
year in the future.

LIFO: Last In First Out. A method of valuing stock .

LILO: Last In Last Out. A method of valuing stock .

Liquid :having lots of cash or assets easily converted to cash

Long term liabilities: These usually refer to long term loans (ie. a loan which lasts for
more than one year such as a mortgage).

Matching principle: A method of analysing the sales and expenses which make up those
sales to a particular period (eg. if a builder sells a house then the builder will tie in all the
raw materials and expenses incurred in building and selling the house to one period -
usually in order to see how much profit was made).

Maturity value: The (usually projected) value of an intangible asset on the date it
becomes due.

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Minority interest: A minority interest represents a minority of shares not held by the
holding company of a subsidiary. It means that the subsidiary is not wholly owned by the
holding company. The minority shareholdings are shown in the holding company
accounts as long term liabilities .

Moving average: A way of smoothing out (i.e. removing the highs and lows) of a series
of figures (usually shown as a graph). If you have, say, 12 months of sales figures and
you decide on a moving average period of 3 months, you would add three months
together, divide that by three and end up with an average for each month of the three
month period. You would then plot that single figure in place of the original monthly points
on your graph. A moving average is useful for displaying trends. See Normalize .

Multiple-step income statement (aka Multi-step): An income statement (aka Profit and
Loss ) which has had its revenue section split up into sub-sections in order to give a more
detailed view of its sales operations. Example: a company sells services and goods. The
statement could show revenue from services and associated costs of those revenues at
the start of the revenue section, then show goods sold and cost of goods sold underneath.
The two sections totals can then be amalgamted at the end to show overall sales (or
gross profit). See Single-step income statement .

Net worth:total assets minus total liabilities. Net worth is seldom the true value of a
company.

Objectivity: The objectivity concept means that an accountant has to prepare any
accounts only on the basis of objective and factual information. Thus, this concept
attempts to ensure that if, for example, 100 accountants were to draw up a set of accounts
for one business, there would be 100 identical accounting statements prepared

Opportunity cost :a useful concept in evaluating alternate opportunities. If you choose

alternative A, you cannot choose B, C, or D. What is the cost or loss of profit of not
choosing B, C, or D? This cost or loss of profit is the opportunity cost of alternative A. In
personal life you may buy a car instead of taking a European vacation. The opportunity
cost of buying the car is the loss of the enjoyment of the vacation.

Overhead :a cost that does not vary with the level of production or sales, and usually a
cost not directly involved with production or sales. The chief executive's salary and rent
are typically overhead.

Price-earnings (p/e) ratio :the market price of a share of stock divided by the earnings
(profit) per share. P/e ratios can vary from sky high to dismally low, but often do not reflect
the true value of a company.

Post :to enter a business transaction into a journal or ledger or other financial record.

Prepaid expenses, deferred charges :assets already paid for, that are being used up
or will expire. Insurance paid for in advance is a common example. The insurance

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protection is an asset. It is paid for in advance, it lasts for a period of time, and expires on
a fixed date.

Present value :a concept that compares the value of money available in the future with
the value of money in hand today. For example, $78.35 invested today in a 5% savings
account will grow to $100 in five years. Thus the present value of $100 received in five
years is $78.35. The concept of present value is used to analyze investment opportunities
that have a future payoff.

Profit :the amount left over when expenses are subtracted revenues. Gross profit is the
profit left when cost of sales is subtracted from sales, before any operating expenses are
subtracted. Operating profit is the profit from the primary operations of a business and is
sales minus cost of sales minus operating expenses. Net profit before taxes is operating
profit minus non-operating expenses and plus non-operating income. Net profit after taxes
is the bottom line, after everything has been subtracted. Also called income, net income,
earnings. Not the same as cash flow and does not represent spendable dollars.

Preference Shares: This is a type of share issued by a limited company. It carries a

medium risk but has the advantage over ordinary shares in that preference shareholders
get the first slice of the dividend 'pie' (but usually at a fixed rate).

Profit and Loss Account: An account made up of revenue and expense accounts which
shows the current profit or loss of a business (ie. whether a business has earned more
than it has spent in the current year).

Profit margin: The percentage difference between the costs of a product and the price
you sell it for. Eg. if a product costs you $10 to buy and you sell it for $20, then you have
a 100% profit margin. This is also known as your 'mark-up'.

Provisions: One or more accounts set up to account for expected future payments (eg.
where a business is expecting a bill, but hasn't yet received it).

Realisationprinciple: The principle whereby the value of an asset can only be

determined when it is sold or otherwise disposed of, ie. its 'real' (or realised) value.

Retail: A term usually applied to a shop which re-sells other people's goods. This type of
business will require a trading account as well as a profit and loss account

Retained earnings :profits not distributed to shareholders as dividends, the accumulation

of a company's profits less any dividends paid out. Retained earnings are not spendable
cash.

Return on investment (ROI) :a measure of the effectiveness and efficiency with which
managers use the resources available to them, expressed as a percentage. Return on
equity is usually net profit after taxes divided by the shareholders' equity. Return on
invested capital is usually net profit after taxes plus interest paid on long-term debt divided

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by the equity plus the long-term debt. Return on assets used is usually the operating profit
divided by the assets used to produce the profit. Typically used to evaluate divisions or
subsidiaries. ROI is very useful but can only be used to compare consistent entities similar
companies in the same industry or the same company over a period of time. Different
companies and different industries have different ROIs.

Revenue :the amounts received by or due a company for goods or services it provides
to customers. Receipts are cash revenues. Revenues can also be represented by
accounts receivable.

Risk :the possibility of loss; inherent in all business activities. High risk requires high
return. All business decisions must consider the amount of risk involved.

Run Rate: A forecast for the year based on the current year to date figures. If a company's
1st quarter profits were, say, $25m, they may announce that the run rate for the year is
$100m.

Sales :amounts received or due for goods or services sold to customers. Gross sales are
total sales before any returns or adjustments. Net sales are after accounting for returns
and adjustments.

Service: A term usually applied to a business which sells a service rather than
manufactures or sells goods (eg. an architect or a window cleaner).

Sinking fund: An account set up to reduce another account to zero over time (using the
principles of amortization or straight line depreciation). Once the sinking fund reaches the
same value as the other account, both can be removed from the balance sheet.

Shares: These are documents issued by a company to its owners (the shareholders)
which state how many shares in the company each shareholder has bought and what
percentage of the company the shareholder owns. Shares can also be called 'Stock'

Shareholders: The owners of a limited company or corporation.

Shares issued (aka Shares outstanding): The number of shares a company has issued
to shareholders.

Share premium: The extra paid above the face value of a share. Example: if a company
issues its shares at $10 each, and later on you buy 1 share on the open market at $12,
you will be paying a share premium of $2

Sole-proprietor: The self-employed owner of a business

Straight-line depreciation: Depreciating something by the same (ie. fixed) amount every
year rather than as a percentage of its previous value. Example: a vehicle initially costs

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$10,000. If you depreciate it at a rate of $2000 a year, it will depreciate to zero in exactly
5 years.

Sunk costs :money already spent and gone, which will not be recovered no matter what
course of action is taken. Bad decisions are made when managers attempt to recoup
sunk costs.

Trial balance :at the close of an accounting period, the transactions posted in the ledger
are added up. A test or trial balance sheet is prepared with assets on one side and
liabilities and capital on the other. The two sides should balance. If they don't, the
accountants must search through the transactions to find out why. They keep making trial
balances until the balance sheet balances.

Variable cost : cost that changes as sales or production change. If a business is

producing nothing and selling nothing, the variable cost should be zero. However, here
will probably be fixed costs.

Value Added Tax (VAT - applies to many countries): Value Added Tax, or VAT as it is
usually called is a sales tax which increases the price of goods. At the time of writing the
UK VAT standard rate is 17.5%, there is also a rate for fuel which is 5% (this refers to
heating fuels like coal, electricity and gas and not 'road fuels' like petrol which is still rated
at 17.5%).

Working capital :current assets minus current liabilities. In most businesses the major
components of working capital are cash, accounts receivable, and inventory minus
accounts payable. As a business grows it will have larger accounts receivable and more
inventory. Thus the need for working capital will increase.

Work in Progress: The value of partly finished (ie. partly manufactured) goods

Write-down :the partial reduction in the value of an asset, recognizing obsolescence or

other losses in value.

Write-off :the total reduction in the value of an asset, recognizing that it no longer has
any value. Write-downs and write-offs are non-cash expenses that affect profits.

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 Management Accounting Glossary

Cost accounting provides information for management accounting and financial

accounting. Cost accounting measures, analyzes and reports financial and
nonfinancial information relating to the costs of acquiring or using resources in an
organization.
Management accountingmeasures analyzes and reports financial and nonfinancial
information that helps managers make decisions to fulfill the goals of an
organization.
Cost management to describe the approaches and activities of managers to use
resources to increase value to customers and to achieve organizational goals. Cost
management decisions include decisions such as the amounts and kinds of materials
used, changes in plant processes and changes in product design.
Strategic cost management describes cost management that specifically focuses on
strategic issues.
Value chain is the sequence of business function in which customer usefulness is
added to products or services.
Supply chain describes the flow of goods, services and information from the initial
sources of materials and services to the delivery of products to consumers,
regardless of whether those activities occur in the same organization or in other
organization.
Control comprises taking actions that implement the planning decisions, deciding
how to evaluate performance, and providing feedback and learning to help future
decision making.
Cost benefit approach resources should be spent if the expected benefits to the
company exceed the expected cost. The expected benefit and costs may not be easy
to quantify.
Line management such as production, marketing and distribution management is
directly responsible for attaining the goals of the organization.
Staff managementsuch as management accountants and information technology
and human resource management, exist to provide advice and assistance to line
management. A plant manager (a line function) may be responsible for investing in
new equipment. A management accountant works as a business partner of the plant
manager by preparing detailed operating-cost comparisons of alternative pieces of
equipment.
An actual cost is the cost incurred (a historical or past cost)
A budgeted cost, which is a predicted or forecasted cost (a future cost).

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Cost as a resource sacrificed or forgone to achieve a specific objective. A cost (such
as direct materials or advertising) is usually measured as the monetary amount that
must be paid to acquire goods or services.
Cost accumulation is the collection of cost data in some organized way by means of
an accounting system.
A cost object, which is anything for which a measurement of cost is desired.
Cost allocation is used to describe the assignment of indirect costs to a particular
cost object.
Cost assignment is a general term that encompasses both (1) tracing direct costs to
a cost object and (2) allocating indirect costs to a cost object.
Cost tracing is used to describe the assignment of direct costs to a particular cost
object.
Direct costs of a cost object are related to the particular cost object and can be
traced to it in an economically feasible (cost-effective) way.
Indirect costs of a cost object are related to the particular cost object but cannot be
traced to it in an economically feasible (cost-effective) way.
A Variable cost changes in total in proportion to changes in the related level of total
activity or volume.
A fixed cost remains unchanged in total for a given time period, despite wide
changes in related level of total activity or volume. Costs are defined as variable or
fixed with respect to a specific activity and fora given time period.
A Cost driver is a variable, such as the level of activity or volume that casually affects
over a given time span. That is, there is a cause and effect relationship between a
change in the level of activity or volume and a change in the level of total costs.
Relevant range is the band of normal activity level or volume in which there is a
specific relationship between the level of activity or volume and the cost on
question.
Average costA unit cost, also called an average cost, is computed by dividing total
cost by the number of units.
Manufacturing sector companied purchase materials and components and convert
them into various finished goods. Examples are automotive companies, cellular
phone producers, food processing companies, and textile companies.
Merchandising- sector companies purchase and then sell tangible products without
changing their basic form. This sector includes companies engaged in retailing (such
as bookstores or department stores), distribution, or wholesaling.

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Direct materials inventory. Direct materials in stock and awaiting use in the
manufacturing process (for example, computer chips and components needed to
manufacture cellular phones).
Work- in- process inventory. Good partially worked on but not yet completed (for
example, cellular phones at various stage of completion in the manufacturing
process). Also called work in process.
Finished goods inventory. Goods (for example, cellular phones) completed but not
yet sold.
Direct material costs are the acquisition costs of all materials that eventually become
part of the cost object (work in process and then finished goods) and can be traced
to the cost object in an economically feasible way. Acquisition costs of direct
materials include freight-in (inward delivery) charges, sales taxes and custom duties.
Direct manufacturing labor costs include the compensation of all manufacturing
labor that can be traced to the cost object (work in process and then finished goods)
in an economically feasible way.
Indirect manufacturing costs are all manufacturing costs that are related to the cost
object (work in process and then finished goods) but cannot be traced to that cost
object in an economically feasible way.
This cost category is also referred to as manufacturing overhead costs or factory
overhead costs. We use indirect manufacturing costs and manufacturing overhead
costs.
Inventorial costs are all costs of a product that are considered as assets in the
balance sheet when they are incurred and that become cost of goods sold only when
the product is sold.
Revenues, are inflows of assets (usually cash or accounts receivable) received for
products or services provided to customers.
Period costs are all costs in the income statement other than cost of goods sold.
Period costs are treated as expenses of the accounting period in which they are
incurred because they are expected to benefit revenues in future periods.
Cost of goods manufactured refers to the cost of goods brought to completion,
whether they were started before or during the current accounting period.
Prime costs are all direct manufacturing costs.
Prime costs = Direct material costs + Direct manufacturing labor
Conversion costs are all manufacturing costs other than direct material costs.
Conversion costs represent all manufacturing costs incurred to convert direct
materials into finished goods.

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Idle time is wages paid for unproductive time caused by lack of orders, machine
breakdowns, material shortages, poor scheduling, and the like.
A product costs is the sum of the costs assigned to a product for a specific
Cost-volume-profit (CVP) analysis examines the behavior of total revenues, total
costs, and operating income as changes occur in the units sold, the selling price, the
variable cost per unit, or the fixed costs of a product.
Contribution MarginThe difference between total revenues and total variable costs
is called contribution margin. Contribution margin indicates why operating income
changes as the number of units sold changes.
Contribution margin percentage (also called contribution margin ration) equals
contribution margin per unit divided by selling price.
Revenue driver is a variable, such as volume, that causally affects revenues.
The Breakeven point (BEP) is that quantity of output sold at which total revenues
equal total costs – that is, the quantity of output sold that results in Rs 0 of operating
income.
A PV graph shows how changes in the quantity of units sold affect operating income.
Margin of safety, the amount by which budgeted (or actual) revenue exceed
breakeven revenues. Expressed in units, margin of safety is the sales quantity minus
the breakeven quantity.
Operating leverage describes the effects that fixed costs have on changes in
operating income as changes occur in units sold and contribution margin.
Degree of operating leverage = Contribution margin /Operating income
A Choice criterion is an objective that can be quantified. This objective can take
many forms. Most often the choice criterion is to maximize income or to minimize
costs. The choice criterion provides a basis for choosing the best alternative action.
Product under costing- a product consumer a high level of resource but is reported
to have a low cost per unit.
Product over costing–a product consumes a low level of resources but is reported
to have a high cost per unit.
Product-cost cross-subsidization means that if a company undercosts one of its
products, then it will overcost at least one of its other product. Similarly, if a
company overcosts one of its products, it will under cost at least one of its other
products. Product-cost cross-subsidization is very common in situations in which a
cost is uniformly spread.
Activity-based costing (ABC) refines a costing system by identifying individual
activities as the fundamental cost objects.

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A cost hierarchy categories various activity cost pools on the basis of the different
types of cost drivers, or cost-allocation bases, or different degrees of difficulty in
determining cause-and-effect (or benefits-received) relationships.
Output unit-level costs are the costs of activities performed on each individual unit
of a product or service.
Batch- level costs are the costs of activities related to a group of units of products or
services rather than to each individual unit of product or service.
Product-sustaining cost (service-sustaining costs) is the costs of activities
undertaken to support individual products or services regardless of the number of
units or batches in which the units are produced.
Faculty-sustaining costs are the costs of activities that cannot be traced to individual
products or services but that support the organization as a whole.
Activity-basedmanagement (ABM) is a method of management decision-making
that uses activity-based costing information to improve customer satisfaction and
profitability.
A variance is the difference between actual results and expected performance.
The static budget, or master budget, is based on the level of output planned at the
start of the budget period. The master budget is called a static budget for the period
is development around a single (static) planned output level.
The static-budget varianceis the different between the actual result and the
corresponding budgeted amount in the static budget.
A favorable variance – has the effect, when considered in isolation , of increasing
operating income relative to the budgeted amount. For revenue items, F means
actual revenues exceed budgeted revenues. For cost items, F means actual costs are
less than budgeted costs.
Aunfavorable variance – denoted U in this book-has the effect, when viewed in
isolation, of decreasing operating income relative to the budgeted amount.
Unfavorable variances are also called adverse variance in some countries.
A flexible budget calculates budgeted revenues and budgeted costs based on the
actual output in the budget period.
The sales-volume variance is the difference between a flexible-budget amount and
the corresponding static-budget amount.
The flexible-budget variance is the difference between an actual result and the
corresponding flexible-budget amount.
The flexible-budget variance for revenues is called the selling-price variance because
it arises solely from the difference between the actual selling price and the budgeted
selling price:

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A standard cost is a carefully determined cost of a unit of output
A price variance is the difference between actual price and budgeted price
multiplied by actual input quantity, such as direct materials purchased or used.
A price variance is sometimes called an input-price variance or ratevariance,
especially when referring to a price variance for direct manufacturing labor.
An efficiency variance is the difference between actual input quantity used – such
as square yards of cloth of direct materials – and budgeted input quantity allowed
for actual output, multiplied by budgeted price. An efficiency variance is sometimes
called a usage variance.
Effectiveness: the degree to which a predetermined objective or target is met.
Efficiency: the relative amount of inputs used to achieve a given output level-the
smaller the quantity of inputs used to make a given number of cell phones or the
greater the number of cell phones made a given quantity of input, the greater the
efficiency.
Relevant costs are expected future costs.
Relevant revenues are expected future revenues
Past costs are also called sunk costs because they are unavoidable and cannot be
changed no matter what action is taken.
Quantitative factor are outcomes that are measured in numerical terms. Some
qualitative factors are financial; they can be expressed in monetary terms. Examples
include the cost of direct materials, direct manufacturing labor, and marketing.
Other quantitative factors are nonfinancial; they can be measured numerically, but
they are not expressed in monetary terms.
Qualitative factors are outcome that are difficult to measure accurately in numerical
terms. Employee morale is an example.
One type of decision that affects output levels is accepting or rejecting special orders
when there is idle production capacity and the special orders have no long- run
implications. We use the term one –time- only special order.
The sum of all costs (variable and fixed) in a particular business faction of the chain,
such as manufacturing costs or marketing costs are called business function costs.
Full costs of the product are the sum of all variable and fixed costs in all business
functions of the value chain (R&D, design. Production, marketing, distribution, and
customer service
Decisions about whether a product of goods or services will in source outsource
are also called make- or- buy decision. Surveys of companies indicate that managers
consider quality, dependability of suppliers, and costs as the most important factors
in the make- or- buy decision.

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An incremental cost is the additional total cost incurred for an activity. A differential
cost is the difference in total cost between two alternatives.
Incremental revenue is the additional total revenue from an activity.
Differential revenue is the difference in total revenue between two alternatives.
Deciding to use a resource in a particular way causes a manager to forgo the
opportunity to use the resource in alternative ways. Opportunity cost is the
contribution to operating income that is forgone by not using a limited resource in
its next-best alternative use.
Opportunity cost is the contribution too operating income that forgone by not using
a limited resource in its next-best alternative use.
Product mixdecisions- the decisions made by a company about which product to sell
and in what quantities. These decisions usually have only a short- run focus because
the level of capacity can be expanded in the long run.
Book value original cost minus accumulated depreciation- of existing equipment is a
past cost that is irrelevant.
Goal congruence exists when individuals and groups work toward achieving the
organization’s goals-that is, managers working in their own best interest take actions
that align with the overall goals of top management.
Autonomy is the degree of freedom to make decisions. The greater the freedom,
the greater the economy.
Suboptimal decision making-also called incongruent decision making or
dysfunctional decision making-is most likely to occur when the subunits in the
company are highly interdependent, such as when the end product of one subunit
is used or sold by another subunit.
A transfer price is the price one subunit (department or division) charges for a
product or service supplied to another subunit of the same organization.

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Marketing Concepts Glossary

PGDM 2022-24

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 Defining Marketing
Marketing Marketing is the activity, set of institutions, and processes for
creating, communicating, delivering and exchanging offerings that
have value for customers, clients, partners, and society at large

Marketing Marketing management is the art and science of choosing target

Management markets and getting, keeping, and growing customers through
creating, delivering, and communicating superior customer value

Marketers and Marketers are skilled at managing demand: They seek to influence
Managing Demand the level, timing, and composition of demand to meet organizations
skills objective. Marketers identify the underlying cause(s) of the
demand state and then determine a plan of action to shift the
demand to a more determined state.
Marketers are involved in marketing many types of entities: goods,
services, events, experiences, persons, places, properties,
organizations, information, and ideas. To do this, they face a host of
decisions; from what features a new product should have to the
colour of packaging.

Importance of Marketing plays a key role in addressing the challenges due to

Marketing declining economic environment. Marketing’s broader importance
extends to society as a whole. Marketing has helped introduce and
gain acceptance of new products that have eased or enriched
people’s lives.
CEOs recognize the role of marketing in building strong brands and
a loyal customer base, intangible assets that contribute heavily to
the value of a firm. .

Needs, Wants and Needs are basic human requirements, which become Wants when
Demands they are directed to specific objects that might satisfy the need.
Demands are wants for a specific product backed by an ability to
pay.
Demand states Marketers are skilled at stimulating demand for their products and
they seek to influence the level, timing, and composition of demand
to meet the organization’s objectives. Eight demand states are
possible:
1. Negative demand - Consumers dislike the product and may
even pay to avoid it.
2. Non-existent demand - Consumers may be unaware of or
uninterested in the product.
3. Latent demand - Consumers may share a strong need that
cannot be satisfied by an existing product.
4. Declining demand - Consumers begin to buy the product less
frequently or not at all.
5. Irregular demand - Consumer purchases vary on a seasonal,
monthly, weekly, daily, or even hourly basis.
6. Full demand - Consumers are adequately buying all products
put into the marketplace.
7. Overfull demand - More consumers would like to buy the
product than can be satisfied.

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 8. Unwholesome demand - Consumers may be attracted to
products that have undesirable social consequences.
Market Marketers use the term “market” to cover various groups of
customers. They view the sellers as constituting the industry and
the buyers as constituting the market. They talk about need
markets, product markets, demographic markets, and geographic
markets. They operate in four different marketplaces: consumer,
business, global, and non-profit.

Marketplaces, Marketplace is physical, Marketspace is digital and Metaspace is

Marketspaces & both physical and digital.
Metamarkets

Segmenting, Target A marketer can rarely satisfy everyone in the market, therefore
markets and they start by dividing the market into Segments (distinct group of
Positioning Market buyers), marketers then decide which segment present the
offering and Brands greatest opportunity –which constitutes their Target Markets. For
each chosen target market, the firm develops a Market Offering
that is positioned in the minds of buyers as delivering some core
benefits. Marketers must try to understand the target market’s
needs, wants, and demands:
Companies address needs by putting forth a Value Proposition, a
set of benefits that they offer to customer to satisfy their needs.
(Positioning)
A Brand is an offering from a known source; all companies strive to
build a brand image with strong, favourable and unique brand
associations.

Value and Satisfaction The offering will be successful if it delivers value and satisfaction
to the target buyer. Value, is the central marketing concept which
reflects the sum of perceived tangible and intangible benefits and
costs to customers (primarily a combination of quality, service and
price called ‘customer value triad’). Satisfaction reflects a person’s
judgment of a product’s perceived performance (or outcome) in
relationship to expectations.

Marketing Channels To reach a target market, the marketer uses three kinds of
marketing channels – Communication channels to deliver and
receive messages that incudes newspapers, magazines, radio,
television, mail, telephone, billboards, posters, fliers, CDs,
audiotapes, and the Internet
Distribution channels to display, sell or deliver the physical
products/ services. These channels may be direct via the Internet,
mail, or mobile phone or telephone, or indirect with distributors,
wholesalers, retailers, and agents as intermediaries. Service
channels to facilitate transactions with potential buyers that
include warehouses, transportation companies, banks, and
insurance companies.

Supply Chain Describes a longer channel stretching from raw materials to

components to finished products carried to final buyers.(also
called Value Delivery Network)

Competition and Marketers face Competition from actual and potential rival
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Marketing offerings and substitutes a buyer might consider. They operate in a
Environment Task environment and Broad environment. Task environment
includes producing, distributing and promoting the offering, while
the Broad environment includes demographic, economic, social-
cultural, natural, technological, political-legal environment.
Marketers must pay close attention to the trends and
developments in these environments and make timely adjustments
to their marketing strategies.

Changes in Business “Marketplace isn’t what it used to be”, today, its radically different
and Marketing as a result of major societal forces that have resulted in many new
scenario consumer and company capabilities. These forces have created
new behaviours, opportunities and challenges, and marketing
management has changed significantly in recent years as
companies seek new ways to achieve marketing excellence.
The major societal forces include network information technology,
globalization, deregulation, heightened competition, industry
convergence, retail transformation, disintermediation, consumer
buying power, consumer information, consumer participation and
consumer resistance.

New Company To cope with the complex challenges created by the major societal
capabilities force new set of capabilities are generated such as
 marketers can use the internet as a powerful information
and sales channel
 marketers can collect fuller and richer information about
markets, customers, prospects and competitors
 marketers can tap into social media to amplify their brand
message
 marketers can facilitate and speed external communications
among customers
 marketers can send ads, coupons, samples and information
to customers who have requested them or given the
permission to send them
 marketers can reach consumers on the move with mobile
marketing
 companies can make and sell individually differentiated
goods
 companies can improve purchasing, recruiting, training and
internal and external communications
 companies can speed up internal communications among
their employees by using the internet as a private intranet.
 companies can improve their cost efficiency by skilful use of
the internet.
Concepts of Marketing There are five competing concepts under which organizations can
choose to conduct their business: the production concept, product
concept, selling concept, marketing concept and the holistic
marketing concept. The first three are of limited use today
The marketing concept The Marketing concept holds that the key to achieving
organizational goals is being more effective than competitors in
creating, delivering and communicating superior customer value
for your chosen target markets.

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 Holistic Marketing

Holistic marketing is based on the development, design, and

implementation of marketing programs, processes, and activities
that recognizes the breath and interdependencies. It acknowledges
that “everything matters” in marketing and that —a broad,
integrated perspective is often necessary. Four broad components
characterise holistic marketing: relationship marketing, integrated
marketing, internal marketing, and performance marketing.

Relationship Relationship marketing aims to build mutually satisfying long-term

Marketing relationships with key constituents in order to earn and retain
their business. Four key constituents for marketing are: customers,
employees, marketing partners (channel partners), members of
the financial community (shareholders, investors, analysts) The
ultimate outcome of relationship marketing is the building of a
unique company asset called a marketing network.

Integrated Marketing The marketer’s task is to devise marketing activities and assemble
fully integrated marketing programs to create, communicate, and
deliver value for consumers. Two key themes: 1. many different
marketing activities can create, communicate and deliver value
and 2. marketers should design and implement any one marketing
activity with all other activities in mind

Internal Marketing An element of holistic marketing; is the task of hiring, training and
motivating able employees who want to serve customers well. It
requires vertical alignment with senior management and
horizontal with other departments.to ensure everyone in the
organization embraces appropriate marketing principles.

Performance Holistic marketing incorporates performance marketing to

Marketing understand the financial and non-financial returns to business and
society from marketing activities and programs. Through financial
accountability marketers go beyond sales revenue and examine the
marketing score card, they interpret what is happening to market
share, customer loss rate, customer satisfaction, product quality,
and other measures. Through social responsibility marketing,
marketers consider the legal, ethical, social and environmental
efforts of marketing activities and programs

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Marketing-mix tools The four components of marketing mix- the 4P’s: Product, Price,
Promotion, Place; these are now updated and 4 more Ps are added
to reflect the holistic marketing concept – People, Processes,
Programs and Performance.
People reflect internal marketing and the fact that employees are
critical to marketing success; Processes reflect all the creativity,
discipline, and structure brought to marketing plan
implementation; Programs reflect all of the firm’s consumer-
directed activities; Performance is holistic marketing to capture the
range of possible outcomes/measures that have financial and non-
financial implications, and implications beyond the company itself.
These new four Ps apply to all disciplines within the company, and
managers grow more aligned with the rest of the company.

Marketing The set of tasks necessary for successful marketing management

Management Tasks include developing marketing strategies and plans, assessing
market opportunity and customer value; choosing, designing,
delivering and communicating value, and sustaining long-term
growth and value.
Developing Marketing Strategies and Plans
Value Delivery Process Instead of emphasizing making and selling, companies now see
themselves as part of value creation and delivery process which
includes assessing market opportunity and customer value;
choosing(or identifying), designing, delivering (or providing) and
communicating superior value, and sustaining long-term growth
and value.

Value Chain The value chain is a tool for identifying key activities that creates
value and costs in a specific business; it identifies five primary and
four support strategically relevant activities-
Primary activities include Inbound logistics (material
procurement), Operations (turn into final product), Outbound
logistics (shipping and warehousing), Marketing (marketing and
sales) and Servicing (service after the sale).
Support activities include Procurement, Technology development,
Human resource management and Firm infrastructure.

Core Business Strong companies develop superior capabilities in managing core

Processes business processes by managing core processes effectively to
create a marketing network from suppliers to consumers.
Managing these core processes effectively, means creating a
marketing network in which the company works closely with all
parties in the production and distribution chain, from suppliers of
raw materials to retail distributors. Companies no longer
compete— marketing networks do. Many companies have
partnered with suppliers and distributors to create a superior
value-delivered network or supply chain
Core business processes includes market sensing process
(marketing intelligence), new offering realization process (research
and development), customer acquisition process (defining target
markets and consumers), customer relationship management
process (deeper understanding of consumers) and the fulfilment
management process (receiving, approving, shipping, and collecting
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 payments).

Core Competencies Traditionally, companies owned and controlled most of the

and Competitive resources that entered their business, today, many companies
Advantage outsource less-critical resources if they can obtain better quality or
lower cost.
Business realignment may be necessary to maximize core
competencies in three steps – (re)defining the business concept
‘big idea’, (re)shaping the business scope and (re)positioning the
company’s brand identity.
To be successful, a firm also needs to look for competitive
advantages beyond its own operations, into the value chains of
suppliers, distributors, and customers. Competitive advantage is a
company’s ability to perform in one or more ways that
competitor’s cannot or will not match; derives from how well the
company fits its core competencies and distinctive capabilities into
tightly interlocking “activity systems.”

Characteristics of Core  A source of competitive advantage

Competencies  Applications in a wide variety of markets
 Difficult to imitate

Holistic Marketing Holistic marketing maximizes value exploration by understanding

Orientation the relationships between the customer’s cognitive space, the
company’s competence space, and the collaborator’s resource
space. It maximizes value creation by identifying new customer
benefits from the customer’s cognitive space; utilizing core
competencies from its business domain, selecting and managing
business partners from its collaborative networks. Maximized
value is delivered by becoming proficient at customer relationship
management, internal resource management, and business
partnership management.
Holistic marketing addresses three key management questions:
1. Value exploration—what value opportunities are available?
2. Value creation—how can we create more promising new
value offerings?
3. Value delivery—how can we deliver the new value offerings
more efficiently?
Developing strategy requires the understanding of the
relationships and interactions among these three spaces.

Market-orientated Market-orientated strategic planning is the managerial process of

strategic planning developing and maintaining a viable fit between the organization’s
objectives, skills, and resources and its changing market
opportunities. The aim of strategic planning is to shape the
company’s businesses and products so that it yields target profits
and growth. Strategic planning takes place at four levels:
corporate, division, business unit, and product.

Marketing Plan The Marketing Plan is the central instrument for directing and
coordinating the marketing effort. It operates at two level –
Strategic and Tactical
Strategic Marketing Plan lays out the target markets and the
positioning while Tactical Marketing Plan specifies the product

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 features, promotion, merchandising, pricing, sales channels, and
service.

Corporate and division The corporate strategy establishes the framework within which
strategic planning the divisions and business units prepare their strategic plans.
Setting a corporate strategy entails four activities: defining the
corporate mission, establishing strategic business units (SBUs),
assigning resources to each SBU based on its market attractiveness
and business strength, and assessing growth opportunities.

Corporate Mission Organizations develop mission statements to share with

statements managers, employees, and (in many cases) customers. A clear,
thoughtful mission statement provides a shared sense of purpose,
direction, and opportunity.
Mission statements are at their best when they reflect a vision, an
almost “impossible dream” that provides direction for the next 10
to 20 years.
Good mission statements have five major characteristics –
 focus on limited number of goals
 stress on companies major policies and values
 define the major competitive spheres within which the
company will operate (industry, products, competence,
market segment, vertical channels and geographic)
 take a long-term view and
 are short, memorable and meaningful

Characteristics of SBUs Dimensions that define a business are Customer groups, Customer
needs and technology. The following characterise a strategic
business unit (SBU)
1. It is a single business, or a collection of related businesses,
that can be planned separately from the rest of the company.
2. It has its own set of competitors.
3. It has a manager responsible for strategic planning, profit
performance, and controls most of the factors affecting
profit.
The purpose of identifying the company’s strategic business units is to
develop separate strategies and assign appropriate funding.

Assigning resources to Once it has defined SBUs, management must decide how to allocate
each SBU corporate resources to each. Several portfolio-planning models
provide ways to make investment decisions.

The Strategic-Planning To assess growth

Gap opportunities first
identify growth
opportunities within
current businesses
(intensive
opportunities), second
identify opportunities to
build or acquire

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 businesses related to current businesses (integrative
opportunities) and third identify opportunities to add attractive
unrelated businesses (diversification opportunities).
If there is a gap between future desired sales and projected sales,
corporate management will need to develop or acquire new
businesses to fill it.

Corporate culture Corporate culture is the shared experiences, stories, beliefs, and
norms that characterise an organization

Business unit strategic Strategic planning for individual businesses entails the following
planning activities: defining the business mission, analysing external
opportunities and threats, analysing internal strengths and
weaknesses, formulating goals, formulating strategy, formulating
supporting programs, implementing the programs, gathering
feedback, and exercising control

SWOT analysis The overall evaluation of a company’s strength, weakness,

opportunities and threats is called SWOT analysis. It involves
monitoring the internal (Strength and Weakness) and external
(Opportunities and Threats) marketing environment

Market Opportunity Market opportunity is an area of buyer need and interest that a
company has a high probability of profitably satisfying. There are
three main sources: (1) offer something that is not in supply, (2)
supply an existing product/ service in new or superior way, and
(3) innovate- offer totally new product/ service.

Market Opportunity To evaluate opportunities, companies can use market opportunity

Analysis (MOA) analysis (MOA) to ask questions like:
 Can the benefits involved in the opportunity be articulated
convincingly to a defined target market?
 Can the target market be located and reached with cost-
effective media and trade channels?
 Does the company possess or have access to the critical
capabilities and resources needed to deliver the customer
benefits?
 Can the company deliver the benefits better than any actual
or potential competitors?
 Will the financial rate of return meet or exceed the
company’s required threshold for investment?
Goal Formulation Goals are objectives that are specific with respect to magnitude
(MBO) and time. The firm sets objectives, and then manages by objectives
(MBO). For MBOs to work, they must meet four criteria:
1) They must be arranged hierarchically, from the most to
least important.
2) Objectives should be quantitative whenever possible.
3) Goals should be realistic.
4) Objectives must be consistent.
Strategic formulation Strategy is a game plan for achieving its goals, Every business must
design a strategy consisting of a marketing strategy and a
compatible technology strategy and sourcing strategy.
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Marketing Plan – Each product level within a business unit must develop a
Contents marketing plan for achieving its goals. It is one of the most
important outputs of the marketing process which includes
1. Executive Summary
2. Situation Analysis
3. Marketing Strategy
4. Financials
5. Controls

Scanning the Marketing Environment, Forecasting Demand, and Conducting Market

Research
MIS A marketing information system consists of people, equipment,
and procedures to gather, sort, analyse, evaluate, and distribute
needed, timely, and accurate information to marketing decision
makers.

Significance of MIS To carry out their analysis, planning, implementation, and control
responsibilities, marketing managers need a marketing
information system (MIS). The role of the MIS is to assess the
manager’s information needs, develop the needed information, and
distribute that information in a timely manner.

Components of MIS An MIS has three components: (a) an internal records system that
includes information on the order-to-payment cycle (the heart of
the internal record system) ; sales reporting systems and
databases, data warehousing and data mining (b) a marketing
intelligence system, a set of procedures and sources used by
managers to obtain everyday information about pertinent
developments in the marketing environment; and (c) a marketing
research system that allows for the systemic design, collection,
analysis, and reporting of data and findings relevant to a specific
marketing situation.

Databases, Data Companies organize information in databases- customer

Warehousing and Data databases, product databases, salesperson database; they then
Mining combine data from the different databases. They make these data
easily accessible to their decision makers, and hire analysts who
can “mine” the data and garner fresh insights into: - Neglected
customer segments, Recent customer trends and other useful
information.
The customer information can be cross-tabbed with product and
salesperson information to yield still deeper insights.
Marketing Intelligence The internal records systems supplies results data, but the
System marketing intelligence system supplies happenings data. A
Marketing Intelligence System is a set of procedures and sources
managers use to obtain everyday information about developments
in the marketing environment.
Marketing managers collect marketing intelligence through-
reading books, newspapers, and trade publications; talking to
customers, suppliers, and distributors; monitoring social media on
internet; meeting with other company managers.

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Needs and Trends Successful companies recognise and respond profitably to unmet
needs and trends.
A Fad is “unpredictable, short-lived, and without social, economic,
and political significance”.
Trend is a direction or sequence of events that have some
momentum and durability. Trends are more predictable and
durable than fads.
Megatrends have been described as “large social, economical,
political, and technological changes [that] are slow to form, and
once in place, they have a lasting influence.

Major Environmental Within the rapidly changing global picture, marketers must
Forces monitor six major environmental forces: demographic, economic,
social-cultural, natural, technological, and political-legal. These
forces represent “non-controllable” to which the company must
monitor and respond.

Demographic In the demographic environment, marketers must be aware of

Environment worldwide population growth; changing mix of age, ethnic
composition, and educational levels; the rise of non-traditional
families and large geographic shifts in population.

Economic In the economic environment, marketers need to focus on

Environment consumer psychology, income distribution, income levels and
consumption patterns.

Socio-Cultural In the social-cultural arena, marketers must understand people’s

Environment views of themselves, others, organizations, society, nature, and the
universe. They must market products that correspond to society’s
core and secondary values, and address the needs of different
subcultures within a society.

Natural Environment The marketers need to be aware of the publics increased concern
about the health of the environment. Many marketers are now
embracing sustainability and green marketing programs that
provide better environmental solutions as a result.

Technology In the technological arena, marketers should take into account the
Environment accelerating pace of technological change, opportunities for
innovation, varying R&D budgets, and the increased governmental
regulation brought about by technological change

Political-legal In the political-legal environment, marketers must work within the

Environment many laws regulating business practices, government agencies and
with various special-interest groups.

Forecasting and Understanding the market environment and conducting market

Demand Measurement research can help identify marketing opportunities. The company
must then measure and forecast the size, growth, and profit
potential for each opportunity.

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Measures of Market
Demand

Companies can prepare as many as 90 (6 x 5 x 3) different types of

demand estimates; six different product levels, five different space
levels and three different time levels; each serving a specific
purpose.

There are many productive ways to break down the market –

 The potential market is the set of consumers who profess a

sufficient level of interest in a market offer.
 The available market is the set of consumers who have interest,
income, and access to a particular offer
 The target market is the part of the qualified available market
the company decides to pursue.
 The penetrated market is the set of consumers who are buying
the company’s product.

Concepts of Demand The major concepts in demand measurement are market demand
Measurement and company demand. Within each, we distinguish among a
demand function, a sales forecast, and sales potential.
Mathematical models, advanced statistical techniques, and
computerized data collection procedures are essential to all types
of demand and sales forecasting.

Market Demand Market demand for a product is the total volume that would be
bought by a defined customer group, in a defined geographical
area, in a defined time period, in a defined marketing environment,
under a defined marketing program.
It is not a fixed number, but rather a function of the stated
conditions, hence it can also be called the market demand function.
Market penetration A comparison of the current level of market demand to the
index potential demand level.
Share penetration index A comparison of a company’s current market share to its potential
market share.
Market Forecast When the market demand is associated with the level of industry
marketing expenditure, only one level will coincide, The market
demand corresponding to this level is called the market forecast.
Market Potential Market potential is the limit approached by market demand as
industry marketing expenditures approach infinity for a given
marketing environment.

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 Product –penetration The percentage of ownership or use of a product or service in a
percentage population.

Company Demand Company demand is the company’s estimated share of market

demand at alternative levels of company marketing effort in a
given time period.
The company’s share of market demand depends on how its
products, prices, communications, services, are perceived relative
to competitors.
Company sales Forecast The company sales forecast is the expected level of company sales
based on a chosen marketing plan and an assumed marketing
environment.
A sales quota is the sales goal set for a product line, company
division, or sales representative.
A sales budget is a conservative estimate of the expected volume
of sales, used for making current purchasing, production, and cash
flow decisions.
Company sales Potential Company sales potential is the sales limit approached by company
demand as company marketing effort increases relative to that of
competitors. The absolute limit of company demand is, the market
potential.

Estimating Current To estimate current demand, companies attempt to determine

Demand Total market potential, Area market potential, Industry sales, and
Market share
.
Total market potential It is the maximum sales available to all the firms in an industry
during a given period, under a given level of industry marketing
effort and environmental conditions.
Total market [potential number of buyers] x [average
potential = quantity purchased by a buyer] x [ the price]
Area market potential Area market potential - Companies face the problem of selecting
the best territories and allocating marketing budget optimally
among these territories, Therefore, it needs to estimate the market
potential of different cities, states, and nations. Market build-up
and Multiple-factor Index are two major methods of assessing area
market potential. Besides estimating total potential and area
potential, a company needs to know the actual industry sales in its
market. This means identifying competitors and estimating sales
Market build up method Identifying all the potential buyers in each market and estimating
their potential purchases.
Multiple-factor index Consumer companies, estimate market potential either by using
method existing market indexes or develop their own, one example is - Brand
Development Index (BDI) which is the ratio of brand sales to
category sales expressed in percentage terms.

Estimating Future To estimate future demand, companies survey the buyers’

Demand intentions, solicit companies’ sales force input, gather expert
opinions, or engage in market testing. It also involves analysing
records of past behaviour or using time series analysis or
statistical demand analysis.

Marketing Research Marketing research is qualitative and quantitative process in

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 which consumers’ thoughts, actions, and purchase intensions
(insights) are collected to form the basis of marketing decisions.
Good marketing research is characterized by the scientific method,
creativity, multiple research methods, accurate model building,
cost-benefit analysis, healthy scepticism, and an ethical focus

Marketing Research The marketing research process consists of defining the problem,
Process decision alternatives and research objectives; developing the
research plan, collecting the information, analysing the
information, presenting the findings to management and making
the decision.
Defining the problem Clearly state ‘What is to be researched’ and ‘Why is to be
researched’. Specify decision alternatives and state research
objectives.
Develop the research For gathering information, choose research approach
Plan (observational and ethnographic, focus group, surveys,
behavioural data and experimental) and research instruments
(questionnaire, qualitative measures or technological devices)
Decide on the sampling plan and contact methods (mail, phone or
in person)
Decide on the sampling Calls for three decisions to be made
plan  Sampling unit: Who is to be surveyed?
 Sample size: How many people should be surveyed?
 Sampling procedure: How should the respondents be
chosen?

MDSS (marketing A growing number of organizations are using a marketing decision

decision support support system to help marketing mangers make better decisions.
system) A marketing decision support system (MDSS) is d defined as a
coordinated collection of data, systems, tools, and techniques with
supporting software and hardware, by which, an organization
gathers, interprets relevant information from business and
environment, and turns it into a basis for marketing action

Overcoming barriers In spite of the rapid growth of marketing research, many

to the use of Marketing companies still fail to use it sufficiently or correctly, for several
Research reasons:
 a narrow conception of the research
 uneven calibre of researchers
 poor framing of the problem
 late and occasionally erroneous findings
 personality and presentation differences

Measuring Marketing An important task of marketing research is to assess the efficiency

Productivity and effectiveness of marketing activities. Two complementary
approaches to measure marketing productivity are:
(1) Marketing metrics to assess marketing effects, as it is a set of
measures that help firms to quantify, compare, and interpret
marketing performance; and
(2) Marketing mix modelling to estimate causal relationships and
how marketing activities affects outcomes, as it analyses data from
a variety of sources to understand more precisely the effects of
specific marketing activities.
Marketing dashboards are a structured way to disseminate the
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insights gathered from these two approaches within the
organization

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 Creating Customer Value and Customer Relationships
Significance of Customers are value maximisers. They form an expectation of value and
building customer act on it. Buyers will buy from the firm they perceive to offer the highest
value customer-delivered value. Businesses succeed by getting, keeping and
growing customers.

CPV (Customer CPV is defined as the difference between prospective customer’s

Perceived Value) evaluation of all benefits and all the costs of an offering and the
perceived alternatives
Total customer benefit (TCB): Is the perceived monetary value of the
bundle of economic, functional and psychological benefits customers
expect from a given market offering because of the product, service,
people and image.
Total customer cost (TCC): Perceived bundle of costs customers expect
to incur in evaluating, obtaining, using and disposing of the given
market offering, including, monetary, time, energy and psychological
costs.
CPV = | TCB – TCC |

Customer value Reveal company’s strengths and weaknesses relative to those of various
analysis competitors. The steps in this analysis are
1. identify the major attributes and benefits (customers value.)
2. assess the quantitative importance of the different attributes and
benefits
3. assess the company’s and competitor’s performances on the
different customer values against their rated importance.
4. examine how customers in a specific segment rate the company’s
performance against a specific major competitor on an individual
attribute or benefit basis.
5. monitor customer value over time

Delivering High The key to generating high customer loyalty is to deliver high customer
Customer Value value
Loyalty Loyalty is defined as “a deeply held commitment to re-buy or re-
patronize a preferred product or service in the future despite
situational influences and marketing efforts having the potential to
cause switching behaviour.”
Value proposition The value proposition consists of the whole cluster of benefits the
company promises to deliver, it is more than the core positioning of the
offer.
Value delivery The value-delivery system includes all the experiences the customer will
system have to obtain and use the offer.

Total customer Satisfaction (S) is a person’s feeling of pleasure or disappointment that

satisfaction results from comparing a product’s perceived performance (P) to the
customer’s expectation (E).
Thus, S = f {P, E}
Customer is said to be:
dissatisfied, when P <E;
satisfied, when P=E; and
delighted, when P>E.

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Customer Buyers form their expectations based from past buying experience,
expectation from friends and associate advice, from marketers’ and competitors’
information and promises, also from opinion leaders and third party
reviews.

Monitoring Many companies are systematically measuring how well they treat
satisfaction customers, identifying the factors shaping satisfaction, and changing
operations and marketing plans. Customer satisfaction can be measured
using techniques like periodic survey, monitoring customer loss rate,
hire mystery shoppers, monitor competitor’s performance etc.
Quality Quality is the totality of features and characteristics of a product or
service that bear on its ability to satisfy stated or implied needs.

Customer Lifetime Customer Lifetime Value (CLV) describes the net present value of the
Value stream of future profits expected over the customer’s lifetime
purchases.

Maximising The 20-80 rule says the top 20% of customers generate 80% or more of
Customer Lifetime the company’s profits. Marketing managers must calculate customer
Value lifetime values of the target base to understand the profit implications.
They must also determine ways to increase the value of the customer
base.
Customer A profitable customer is a person, household, or company that over time
Profitability yields a revenue stream exceeding by an acceptable amount the
company’s cost stream for attracting, selling, and servicing that
customer. Customer profitability analysis (CPA) is best conducted with
the tools of an accounting technique called activity-based costing (ABC).
Customer Equity Customer equity is the total of the discounted lifetime values of all of
the firm’s customers. Key drivers of customer equity are value equity,
brand equity and relationship equity.
Value equity The customer’s objective assessment of the utility of an offering based
on perceptions of its benefits relative to its costs. The sub-drivers of
value equity are quality, price, and convenience.
Brand equity It is the customer’s subjective and intangible assessment of the brand,
above and beyond its objectively perceived value. The sub-drivers of
brand equity are customer brand awareness, customer attitude toward
the brand, and customer perception of brand ethics.
Relationship equity The customer’s tendency to stick with the brand, above and beyond
objective and subjective assessments of its worth. Sub-drivers of
relationship equity include loyalty programs, special recognition and
treatment programs, community building programs, and knowledge-
building programs

Significance of CLV calculations provide a formal quantitative framework for planning

measuring CLV customer investment and helps marketers to adopt a long-term
perspective.

Customer CRM is the process of carefully managing detailed information about

Relationship individual customers and all customer ‘touch points’ to maximize
Management customer loyalty.
(CRM) A customer touch point is any occasion on which a customer encounters
the brand and product— from actual experience to personal or mass
communications to casual observation.
Framework for  Identify prospects and customers (don’t go after everyone)

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CRM  Differentiate customers by needs and value to company
 Interact to improve knowledge
 Customize for each customer

Customer reviews  The strongest influence on consumer choice remains

and “recommended by relative/friend”.
recommendations  With increasing mistrust of some companies and their
advertising, online customer ratings and reviews and
recommendations from consumers are playing an important role.
 Bloggers who review products or services, online retailers who
add their own recommendations have also become important
Attracting and Companies seeking to expand their profits and sales must spend
retaining considerable time and resources searching for new customers. Different
customers acquisition methods yield customers with varying CLVs
Marketing Funnel Marketing funnel can be used for attracting and retaining customers.
It identifies the percentage of the potential target market at each stage
inthe decision process, from merely aware to highly loyal.

Managing the A key driver of shareholder value is the aggregate value of the customer
customer base base. Winning companies improve the value of their customer base by
excelling at strategies such as:-Reduce the rate of defection, increase
longevity, enhance share of wallet, terminate low-profit customers and
focus more effort on high-profit customers.
Building Loyalty Frequency programs (FPs) are designed to reward customers who buy
frequently and in substantial amounts. They can help build long-term
loyalty with high CLV customers, creating cross-selling opportunities in
the process

Customer Customer relationship management often requires building a customer

database database and data mining to detect trends, segments and individual
needs. A number of significant risks also exist, so marketers must
proceed thoughtfully.
Pros Customer database can identify prospects, target offers, deepen loyalty,
reactivate customers and avoid mistakes.
Avoid database If product is once-in-a-lifetime purchase, customers do not show
loyalty, the unit sale is very small or the cost of gathering information is
too high.

Analysing Consumer Markets

Consumer Consumer behaviour is the study of how individuals, groups, and
Behaviour organizations select, buy, use, and dispose of goods, services, ideas, or
experiences to satisfy their needs and wants. It is influenced by cultural,

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 social and personal factors.

Culture Culture is the fundamental determinant of a person’s wants and

behaviors acquired through socialization processes with family and
other key institutions.
Subcultures Each culture consists of smaller subcultures that provide more specific
identification and socialization for their members. It includes
nationalities, religions, racial groups, and geographic regions.
Social class Virtually all human societies exhibit social stratification. The Indian
marketers use a term called socio-economic classification (SEC). Social
classes members show distinct product and brand preferences in many
areas, including clothing, home furnishings, leisure activities, and
automobiles.

Social factors In addition to cultural factors, social factors such as reference groups,
family, and social roles and status affect our buying behaviour.
Reference groups A person’s reference groups are all the groups that have a direct (face-
to-face) or indirect influence on attitudes or behaviour.
They expose an individual to new behaviours and lifestyles, influencing
attitudes and self-concept, and also create pressures for conformity that
may affect actual product and brand choices.
Family The family is the most important consumer-buying organization in society,
and family members constitute the most influential primary reference
group.
Roles and status We can define a person’s position in each group in terms of role and
status. A role consists of activities a person is expected to perform. Each
role connotes a status. Marketers must be aware of the status-symbol
potential of products and brands
Personal factors Personal characteristics that influence a buyer’s decision include age
and stage in the life cycle; occupation and economic circumstances;
personality and self-concept; and lifestyle and values.

Age and Stage in Consumption is also shaped by the family-life cycle and the number,
the Life Cycle age, and gender, of people in the household at any point in time.
Marketers should also consider critical life events or transitions as
giving rise to new needs.

Occupation and Occupation influences consumption patterns and economic

Economic circumstances influence product. Product choice is greatly affected by
Circumstances economic circumstances including disposable income, savings and
assets, debts, borrowing power and attitudes toward spending and
saving.

Personality and Each person has personality characteristics that influence his or her
Self-Concept buying behaviour, which can be a useful variable in analysing consumer
brand choices.
Personality A set of distinguishing human psychological traits that leads to
relatively consistent and enduring responses to environmental stimuli.
Brand personality The specific mix of human traits that can be attributed to a particular
brand.
 Consumers often choose and use brands with a brand personality
consistent with their actual self-concept (how we view ourselves).
 Although in some cases, the match may be based on the consumer’s
ideal self-concept (how we would like to view ourselves).
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  Others self-concept (how we think others see us).

Lifestyles and People from the same subculture, social class, and occupation may lead
Value quite different lifestyles.
Lifestyle A person’s pattern of living in the world as expressed in activities,
interests, and opinions. It portrays the “whole person” interacting with
his or her environment.
LOHAS is an acronym standing for: Lifestyles of health and
sustainability

Key psychological Four main psychological processes affecting consumer behaviour are
processes motivation, perception, learning, and memory.
Needs could be Biogenic (eg. hunger) or Psychogenic (for recognition /
Motivation esteem). A need becomes a Motive when it is aroused to a sufficient
level of intensity to drive us to act.
Sigmund Freud’s Sigmund Freud assumed that the psychological forces shaping people’s
theory behaviour are guided by subconscious motivations.
Maslow’s theory Behaviour is driven by lowest unmet need. In order of importance, they
are:
1. Physiological needs
2. Safety needs
3. Social needs
4. Esteem needs
5. Self-actualization needs
Herzberg’s theory Herzberg’s theory has two implications:
 Sellers should do their best to avoid dissatisfiers.
 Sellers should identify the major satisfiers or motivators of
purchase in the market and supply them

Perception Perception is the process by which we select, organize, and interpret

information inputs to create a meaningful picture of the world.
Selective Attention People are likely to notice stimuli that relates to a current need.
Selective Distortion People’s tendency to interpret information in a way that fits their
preconceptions
Selective Retention People don’t remember much of the information to which they’re exposed,
but do retain information that supports their attitudes and beliefs.

Learning Learning involves changes in an individual’s behaviour arising from

experience
Drive A strong internal stimulus impelling action
Cue Minor stimuli that determine when, where, and how a person responds
Discrimination Learning to recognize differences in sets of similar stimuli and adjusting
responses accordingly
Beliefs and Attitude Through experience and learning, people acquire beliefs and attitudes.
These in turn influence buying behaviour.
 Belief —a descriptive thought that a person holds about
something.
 Attitude—a person’s enduring favourable or unfavourable
evaluation, emotional feeling, and action tendencies toward some
object or idea; they put people into a frame of mind and are
difficult to change.

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 Emotions Consumer response is not all cognitive and rational; much may be
emotional and invoke different kinds of feelings
Memory Cognitive psychologists distinguish between short-term memory
(STM)—a temporary repository of information, and Long-term memory
(LTM)—a more permanent repository. The associative network
memory model views LTM as a set of nodes (stored information) that
are collected by links and vary in strength
Brand Association Brand Association consists of all brand-related thoughts, feelings,
perceptions, images, experiences, beliefs, and attitudes, linked to the
brand node.
Memory Process Memory is a very constructive process, because we don’t remember
information and events completely and accurately. Often we remember
bits and pieces and fill in the rest.
Memory encoding describes how and where information gets into
memory.
Memory retrieval refers to how information gets out of memory.

The Buying Marketing scholars have developed a “stage model” of the buying-
Decision Process decision process.
The consumer passes through five stages:
1. Problem recognition
2. Information search
3. Evaluation of alternatives
4. Purchase decision
5. Post-purchase behaviour
Consumers don’t always pass through all five stages—they may skip or
reverse some.

Expectancy-Value The expectancy-value model of attitude formation posits that

Model consumers evaluate products and services by combining their brand
beliefs—the positives and negatives—according to importance

Non- In non-compensatory models of consumer choice, positive and negative

Compensatory attribute considerations do not necessarily net out.
Models of  With conjunctive heuristic method, the consumer sets a minimum
Consumer Choice acceptable cut-off level for each attribute and chooses the first
alternative that meets this minimum.
 With the lexicographic heuristic method, the consumer chooses the
best brand on the basis of its perceived most important attribute.
 With the elimination-by-aspects heuristic method, the consumer
compares brands on an attribute selected and eliminates brands that
do not meet minimum acceptable cut-offs.
Consumers do not adopt only one type of choice rule and may combine
two or more decision rules.

Perceived Risk A consumer’s decision to modify, postpone, or avoid a purchase

decision is heavily influenced by one or more types of perceived risk:
 Functional risk—the product does not perform to expectations.
 Physical risk—the product poses a threat to the physical well-being or
health of the user or others.
 Financial risk—the product is not worth the price paid.
 Social risk—the product results in embarrassment in front of others.
 Psychological risk—the product affects the mental well-being of the

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 user.
 Time risk—the failure of the product results in an opportunity cost of
finding another satisfactory product.

Post-Purchase Marketers must monitor post-purchase satisfaction, post-purchase

Behaviour actions, and post-purchase uses
Low-Involvement The elaboration likelihood model, an influential model of attitude
Decision Making formation and change, describes how consumers make evaluations in
both low- and high-involvement circumstances. There are two means of
persuasion in their model:
the Central route, in which attitude formation or change stimulates
much thought and is based on the consumer’s diligent, rational
consideration of the most important product information; and the
Peripheral route, in which attitude formation or change provokes much
less thought and results from the consumer’s association of a brand
with either positive or negative peripheral cues.

Decision Consumers are constructive decision makers and subject to many

Heuristics contextual influences. They often exhibit low involvement in their
decisions, using many heuristics as a result.
Availability Consumers base their predictions on the quickness and ease with which
heuristic a particular example of an outcome comes to mind.
Representative Consumers base their predictions on how representative or similar the
heuristic outcome is to other examples.
Anchoring and Consumers arrive at an initial judgment and then adjust it based on
adjustment additional information.
heuristic

Decision framing Decision framing is the manner in which choices are presented to and
seen by a decision maker.
Choice architecture The environment in which decisions are structured and buying choices
are made.

Mental accounting Refers to way the consumers code, categorise, and evaluate financial
outcomes of choices. It is based on the set of core principles that
Consumers tend to –
Segregate gains, integrate losses, integrate smaller losses with larger
gains and segregate small gains from large losses.
Prospect theory Maintains that consumers frame their decision alternatives in terms of
gains and losses according to a value function.

Analysing Business Markets

The business The business market consists of all the organizations that acquire goods
market and services used in the production of other products or services that
are sold, rented, or supplied to others.

Organizational Refers to the decision-making process by which formal organizations

buying establish the need for purchased products and services, identify,
evaluate and choose among alternative brands and suppliers.

Characteristics of Compared to consumer markets business markets have

Business Markets Fewer buyers; Close supplier-customer relationships; Professional
purchasing; Many buying influences; Multiple sales calls; Derived

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 demand; Inelastic demand; Fluctuating demand; Geographically
concentrated buyers; Direct purchasing
Buying Situations While making a purchase the number of decisions a business buyer
faces depends on the complexity of the problem. Three types of buying
situations are straight rebuy, modified rebuy, and new task. (fewest
decision in straight rebuy and most in new task situation)
Straight rebuy When the purchasing department reorders on a routine basis and
chooses from suppliers on an “approved list.”
Modified rebuy When the buyer wants to change product specifications, prices, delivery
requirements, or other terms.
New task When the purchaser buys a product or service for the first time. The process
passes through several stages: awareness, interest, evaluation, trial, and
adoption.

Systems Buying Many business buyers prefer to buy a total problem solution from one
and Selling seller. Called systems buying, this practice originated with government
purchases of major weapons and communications systems.
The government solicited bids from prime contractors that, if awarded
the contract, would be responsible for bidding out and assembling the
system’s subcomponents from second-tier contractors. The prime
contractor thus provided a turnkey solution, so-called because the buyer
simply had to turn one key to get the job done.
Sellers have increasingly recognized that buyers like to purchase in this
way, and many have adopted systems selling as a marketing tool. One
variant of systems selling is systems contracting, in which a single
supplier provides the buyer with its entire requirement of MRO
(maintenance, repair, operating) supplies.

Buying Center Decision-making unit of a buying organisation, it consists of all those

individuals and groups who participate in the purchasing decision-
making process, who share some common goals and the risks arising
from the decisions. These members play any of the seven roles –
1. Initiators—requests the product.
2. Users—will use the product.
3. Influencers—influences the buying decision.
4. Deciders—makes the decision of what to purchase.
5. Approvers—authorizes the proposal.
6. Buyers—have the formal authority to purchase.
7. Gatekeepers—have the power to prevent seller information from
reaching members of the buying center.

Business Specific concern to business marketers as they make buying decisions-

marketer’s  Who are the major decision participants?
concerns  What decisions do they influence?
 What is their level of influence?
 What evaluation criteria do they use?

Stages in the Stages in the buying process

Buying Process  Problem recognition
 General need description
 Product specification
 Supplier search
 Proposal solicitation
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  Supplier selection
 Order-routine specification
 Performance review
Problem Someone in the company recognizes a problem or need. It can be
recognition triggered by internal or external stimuli.
General need The buyer determines the needed item’s general characteristics and
description required quantity, and develops the item’s technical specifications.
Supplier search The buyer next tries to identify the most appropriate suppliers through
trade directories, contacts with other companies, trade advertisements,
trade shows, and the Internet.
Electronic market places over the internet - Catalogue sites, Vertical
markets, Pure play auction sites, Spot markets, Private exchanges,
Barter markets, Buying alliances
Proposal
solicitation The buyer invites qualified suppliers to submit proposals.
Supplier Selection Before selecting a supplier, the buying center will specify and rank
desired supplier attributes, often using a supplier-evaluation model.
Researchers studying how business marketers assess customer value
found eight different customer value assessment (CVA) methods.
Companies tended to use the simpler methods, although the more
sophisticated ones promise to produce a more accurate picture of CPV.
1. Internal engineering assessment
2. Field value-in-use assessment
3. Focus-group value assessment
4. Direct survey questions
5. Conjoint analysis
6. Benchmarks
7. Compositional approach
8. Importance ratings
Order-routine Orders can be made routine at times. Some techniques for managing
specification ordering needs includes the use of purchase plans, vendor-managed
inventory, and shifting to a system of continuous replenishment.
Performance The buyer periodically reviews the performance of the chosen
Review supplier(s).

Managing A number of forces influence the development of a relationship between

business-to- business partners. Four relevant factors are availability of alternatives,
business importance of supply, complexity of supply, and supply market
customer dynamism. Based on these buyer–supplier relationships are classified
relationships into eight categories.
Basic buying and These are simple, routine exchanges with moderate levels of
selling cooperation and information exchange.
Bare bones These relationships require more adaptation by the seller and less
cooperation and information exchange
Contractual These exchanges are defined by formal contract and generally have low
transaction levels of trust, cooperation, and interaction.
Customer supply In this traditional custom supply situation, competition rather than
cooperation is the dominant form of governance.
Cooperative systems The partners in cooperative systems are united in operational ways, but
neither demonstrates structural commitment through legal means or
adaptation.
Collaborative In collaborative exchanges, much trust and commitment lead to true

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 partnership
Mutually adaptive Buyers and sellers make many relationship-specific adaptations, but
without necessarily achieving strong trust or cooperation.
Customer is king In this close, cooperative relationship, the seller adapts to meet the
customer’s needs without expecting much adaptation or change in
exchange.

Institutional The institutional market consists of schools, college and university

markets hostels, hospitals and nursing homes, and other institutions that
provide goods and services to people in their care. Many of these
organizations are characterized by low budgets and captive clients.

Identifying Market Segments and Targets

Market Segment A market segment consists of a group of customers who share a similar
set of needs and wants.

Bases for Two broad groups of variables are used to segment the consumer
Segmenting markets.
Consumer 1. Descriptive characteristics: geographic, demographics, and
Markets psycho-graphic.
2. Behavioural considerations: consumer responses to benefits,
usage occasions, or brands
Geographic Geographic segmentation divides the market into geographical units
such as nations, states, regions, counties, cities, or neighbourhoods. The
company can operate in one or a few areas, or it can operate in all but
pay attention to local variations
Demographic In demographic segmentation, we divide the market by variables such
as age, family size, family life cycle, gender, income, occupation,
education, religion, race, generation, nationality, and social class.
Consumer needs, wants, usage rates, and product and brand
preferences are often associated with demographic variables.
Psychographic Psychographics is the science of using psychology and demographics to
better understand consumers. Here, buyers are divided into different
groups on the basis of psychological/personality traits, lifestyle, or
values
VALs framework One of the most popular commercially available classification systems
based on psychographic measurements is Strategic Business Insight’s
(SBI) VALS™ framework. , signifying values and lifestyles, classified into
eight primary groups
1. Innovators—Successful, sophisticated, active, take-charge people
with high self-esteem.
2. Thinkers—Mature, satisfied, and reflective people motivated by
ideals and who value order, knowledge, and responsibility. They
seek durability, functionality, and value in products.
3. Achievers—Successful, goal-oriented people who focus on career
and family. They favor premium products that demonstrate
success to their peers.
4. Experiencers—Young, enthusiastic, impulsive people who seek
variety and excitement. They spend a comparatively high
proportion of income on fashion, entertainment, and socializing.
5. Believers—Conservative, conventional, and traditional people
with concrete beliefs.
6. Strivers—Trendy and fun-loving people who are resource-

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 constrained. They favor stylish products that emulate the
purchases of those with greater material wealth.
7. Makers—Practical, down-to-earth, self-sufficient people who like
to work with their hands.
8. Survivors—Elderly, passive people concerned about change and
loyal to their favorite brands
Behavioural Behavioral segmentation divide buyers into groups on the basis of their
knowledge of, attitude toward, use of, or response to a product.
Needs and Benefits Not everyone who buys a product has the same needs or wants the
same benefits from it. Needs-based or benefit-based segmentation is a
widely used approach because it identifies distinct market segments
with clear marketing implications.
Decision Roles People play five roles in a buying decision: Initiator, Influencer,
Decider, Buyer, and User.
User and Usage Variables related to various aspects of users or their usage as follows
are good starting points for constructing market segments.
 Occasions: mark a time of day, week, month, year, or other well-
defined temporal aspects of a consumer’s life
 User Status: Every product has its nonusers, ex-users, potential users,
first-time users, and regular users.
 Usage Rate: markets can be segmented into light, medium, and heavy
product users. Heavy users are often a small slice but account for a
high percentage of total consumption.
 Buyer-Readiness : Some people are unaware of the product, some are
aware, some are informed, some are interested, some desire the
product, and some intend to buy.

To help characterize how many people are at different stages and how well
they have converted people from one stage to another, marketers can employ
a marketing funnel to break down the market into different buyer-readiness
stages.

 Loyalty Status: Marketers usually envision four groups based on

brand loyalty status:
1. Hard-core loyals—Consumers who buy only one brand all the
time
2. Split loyals—Consumers who are loyal to two or three brands
3. Shifting loyals—Consumers who shift loyalty from one brand to

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 another
4. Switchers—Consumers who show no loyalty to any brand
 Attitude: Five consumer attitudes about products are: enthusiastic,
positive, indifferent, negative, and hostile.

Bases for Business segmentation uses some of the same variables as that of
Segmenting consumer market as well as others; it uses --
Business Markets  Demographic
 Operating variable
 Purchasing approaches
 Situational factors
 Personal characteristics

Market Targeting Once a firm has identified its market-segment opportunities, it must
decide how many and which ones to target.
Steps in 1. Need-based segmentation - group customers into segments based on
segmentation similar needs and benefits sought by customers in solving a
process particular consumption problem.
2. Segment identification – determine which variable makes the
segment distinct and identifiable.
3. Segment attractiveness – determine the overall attractiveness of each
segment (market growth, competitive intensity or market access)
4. Segment profitability – determine segment profitability
5. Segment positioning – create ‘value proposition’ and product-price
positioning strategy
6. Segment acid test – create ‘segment storyboard’ to test the
attractiveness of each segment’s positioning strategy
7. Market mix strategy- expand segment positioning strategy to include
all aspects of the marketing mix: product, price promotion and place

Effective To be useful, market segments must rate favorably on five key criteria:
segmentation  Measurable. The size, purchasing power, and characteristics of the
criteria segments can be measured.
 Substantial. The segments are large and profitable enough to serve. A
segment should be the largest possible homogeneous group worth going
after with a tailored marketing program. It would not pay, for example,
for an automobile manufacturer to develop cars for people who are less
than four feet tall.
 Accessible. The segments can be effectively reached and served.
 Differentiable. The segments are conceptually distinguishable and
respond differently to different marketing-mix elements and programs. If
married and unmarried women respond similarly to a sale on perfume,
they do not constitute separate segments.
 Actionable. Effective programs can be formulated for attracting and
serving the segments.

Porter’s five Five forces determine the intrinsic long-run attractiveness of a market
forces model or market segment: industry competitors, potential entrants,
substitutes, buyers, and suppliers. The threats these forces pose are as
follows:
 Threat of Rivalry — a segment is unattractive if it already contains
numerous, strong, or aggressive competitors.
 Threat of Buyer Bargaining Power —a segment is unattractive if
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 buyers possess strong or growing bargaining power.
 Threat of Supplier Bargaining Power —a segment is unattractive if the
company’s suppliers are able to raise prices or reduce quantity
supplied.
 Threat of Substitutes—a segment is unattractive when there are
actual or potential substitutes for the product.
 Threat of New Entrants — the most attractive segment is one in
which entry barriers are high and exit barriers are low.

Evaluating and In evaluating different market segments, the firm must look at two
selecting Market factors: The segment’s overall attractiveness and the company’s
Segments objectives and resources.
Full market With full market coverage, a firm attempts to serve all customer groups
coverage/ with all the products they might need.
(mass)  In undifferentiated or mass marketing, the firm ignores segment
differences and goes after the whole market with one offer.
 In differentiated marketing, the firm operates in several market segments
and designs different products for each segment.
Multiple segment With selective specialisation, a firm selects a subset of all the possible
specialisation segments, each objectively attractive and appropriate.
Companies can try to operate in supersegment rather than in isolated
segments. A supersegment is a set of segments sharing some exploitable
similarity.
A firm can also attempt to achieve some synergy with product or
market specialization.
 product specialization, the firm sells a certain product to several
different market segments
 market specialization, the firm concentrates on serving many needs
of a particular customer group..
Single-segment With single-segment concentration, the firm markets to only one particular
concentration/ segment .Niche is a more narrowly defined customer group seeking a
(niche) distinctive mix of benefits within a segment. Marketers usually identify
niches by dividing a segment into sub-segments
Individual The ultimate level of segmentation leads to “segments of one,”
marketing/ “customized marketing,” or “one-to-one marketing. Today customers
(customisation) are taking more individual initiative in determining what and how to
buy.
Customerisation combines operationally driven mass customisation
with customised marketing in a way that empowers consumers to
design the product and service offering of their choice.
Ethical choice of Marketers must choose target markets in a social responsible manner at
market targets all times. Market targeting also can generate public controversy when
marketers take unfair advantage of vulnerable or disadvantaged groups,
or promote potentially harmful products

COMPETITIVE DYNAMICS
Significance of Today’s challenging marketing circumstances and intense growth in
marketing competition are reasons why product and brand fortunes change over
strategies time. Marketers must respond accordingly, and reformulate their
marketing strategies and offerings several times.
Hypothetical Firms can be classified as Market Leader, Challenger, Follower or Nicher, on
Market Structure the basis of the roles they play in the target market.

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 In a given market scenario, 40% is said to be in the hands of market
leader, 30% in Challenger, 20% claimed by Follower and 10% by
Nicher.
Market Leader has the largest market share, leads in price changes, new product
introductions, distribution coverage and promotional; intensity.
Market Challenger attacks the market leader and other competitors in an aggressive bid for
more market share. There are five types of general attack; challengers
must also choose specific attack strategies.
Market Follower is a runner-up firm willing to maintain its market share and not rock the
boat.
Market Nicher It serves small market segments not being served by larger firms. The
key to nichemanship is specialization. Nichers develop offerings to fully
meet a certain group of customers’ needs, commanding a premium
price in the process.

Expanding Total When the total market expands, the Market Leader should look for new
Market Demand customers of more usage from existing customers
New customers A company can search for new users among three groups:
1. those who might use it but do not (market-penetration strategy),
2. those who have never used it (new-market segment strategy),
3. those who live elsewhere (geographical-expansion strategy).
More usage A. Marketers can try to increase the amount, level, or frequency of
consumption. –
1. boost the amount through packaging or product redesign
2. make the brand more available
3. identify additional opportunities to use the brand
B. Identify completely new and different applications.

Protecting Market While trying to expand total market size, the dominant firm must
Share actively defend its current business, the most constructive response is
continuous innovation. It should lead the industry in developing new
products and customer services, distribution effectiveness, and cost
cutting.

Proactive In satisfying customer needs, one can draw a distinction between

Marketing responsive marketing, anticipative marketing, and creative marketing.
 A responsive marketer finds a stated need and fills it.
 An anticipative marketer looks ahead to needs customers may have
in the near future.
 A creative marketer discovers solutions customers did not ask for but
to which they enthusiastically respond.
Creative marketers are proactive market-driving firms, not just market-
driven ones.
Defensive The aim of defensive strategy is to reduce the probability of attack,
Marketing divert attacks to less-threatened areas, and lessen their intensity. Speed
of response can make an important difference to profit.
A dominant firm can use the six defense strategies:
1. Position Defense - Means occupying the most desirable market
space in consumers’ minds, making the brand almost impregnable.
2. Flank Defense- The market leader should erect outposts to
protect a weak front or support a possible counterattack.
3. Preemptive Defense A more aggressive maneuver is to attack

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 first, perhaps with guerrilla action across the market—hitting one
competitor here, another there—and keeping everyone off
balance.
4.
5. Counteroffensive Defense The market leader can meet the
attacker frontally, hit its flank, or launch a pincer movement so it
will have to pull back to defend itself.
6. Mobile Defense: In mobile defense, the leader stretches its domain
over new territories through market broadening and market
diversification.
a) market broadening shifts focus from the current product to
the underlying generic need.
b) Market diversification shifts into unrelated industries.
7. Contraction Defense Sometimes large companies can no longer
defend all of their territory.
a) In planned contraction (also called strategic withdrawal),
they give up weaker markets and reassign resources to
stronger ones.

Increasing Market Because the cost of buying higher market share through acquisition
Share may far exceed its revenue, a company should consider four factors
first:
1. The possibility of provoking antitrust action
2. Profitability might fall with market share gains after some level.
3. The danger of pursuing the wrong marketing activities
4. The effect of increased market share on actual and perceived
quality
Other Competitive Firms that occupy second, third, and lower ranks in an industry are
Strategies often called runner-up, or trailing firms.
These firms can adopt one of two postures.
Each can attack the leader and others in an aggressive bid for further
market share (market challengers), or they can play ball and not “rock
the boat” (market followers).

Market Define the strategic objective and opponents

Challenger  Choose a general attack strategy
Strategies  Choose a specific attack strategy
General Attack Five attack options are available
Strategies 1. Frontal attack - the attacker matches its opponent’s product,
advertising, price, and distribution
2. Flank attack - is another name for identifying shifts that are causing
gaps to develop, then rushing to fill the gaps
3. Encirclement attack - attempts to capture a wide slice of territory by
launching a grand offensive on several fronts.
4. Bypass attack - Bypassing the enemy altogether to attack easier
markets instead offers three lines of approach: diversifying into
unrelated products, diversifying into new geographical markets, and
leapfrogging into new technologies
5. Guerilla warfare - consist of small, intermittent attacks, conventional
and unconventional, including selective price cuts, intense
promotional blitzes, and occasional legal action, to harass the
opponent and eventually secure permanent footholds.

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 Reputed international brands face stiff competition from regional
champions who understand the local and regional tastes, customs, and
preferences well. These firms also tend to be entrepreneurial in their
strategic and tactical initiatives and quick in decision making.

Specific Attack The challenger must go beyond the five broad strategies and develop
Strategies more specific strategies such as Price discounts, Lower-priced goods,
Value-priced goods, Prestige goods, Product proliferation, Product
innovation, Improved services, Distribution innovation, Manufacturing-
cost reduction, Intensive advertising and promotion

Market Follower Product imitation might be as profitable as product innovation. Many

Strategies companies prefer to follow rather than challenge the market leader.
Four broad strategies can be -
 Counterfeiter – duplicates the leader’s product
 Cloner – emulates the leader’s product with slight variation
 Imitator – copies some things from leader and differentiates some
 Adapter- takes the leader’s product and adapts or improves them.

Market Nicher The Nicher achieves high margin, whereas the mass marketer achieves
Strategies high volume.
The risk is that the niche might dry up or be attacked. Because niches
can weaken, the firm must continually create new ones, expand and
protect Niches.

Niche Specialist The key idea in successful nichemanship is specialisation, some possible
Roles niche roles are -
 End User Specialist - specialize in one type of end-use customer.
 Vertical Level Specialist - specialize at some vertical level of the
production-distribution value chain.
 Customer Size Specialist - concentrate on either small, medium-
sized, or large customers.
 Specific Customer Specialist - specialists limit its selling to one or a
few customers.
 Geographic Specialist - sell only in a certain locality, region, or area
of the world.
 Product Line Specialist - carry or produce only one product line or
product.
 Job Shop Specialist - customize its products for individual customers
 Quality Price Specialist - operate at the low- or high quality ends of
the market.
 Service Specialist - offer one or more services not available from
other firms.
 Channel Specialist - specialize in serving only one channel of
distribution.
Product Life-Cycle A company’s positioning and differentiation strategy must change as the
Marketing product, market, and competitors change over the product life cycle
Strategies (PLC). To say a product has a life cycle is to assert four things:
1. Products have a limited life.
2. Product sales pass through distinct stages, each posing different
challenges, opportunities, and problems to the seller.
3. Profits rise and fall at different stages of the product life cycle.
4. Products require different marketing, financial, manufacturing,

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 purchasing, and human resource strategies in each life-cycle stage.

Product Life Most product life-cycle curves are portrayed as bell-shaped and are
Cycles typically divided into four stages: Introduction, Growth, Maturity, Decline

Introduction stage There is a period of slow sales growth as the product is introduced in
the market. Profits are non-existent because of the heavy expenses of
product introduction
Growth stage There is a period of rapid market acceptance and substantial profit
improvement.
Maturity stage There is a slowdown in sales growth because the product has achieved
acceptance by most potential buyers. Profits stabilize or decline because
of increased competition.
Decline stage Sales show a downward drift and profits erode.

Common PLC Growth-Slump-Maturity Pattern - Sales grow rapidly when the

patterns product is first introduced and then fall to a “petrified” level sustained
by late adopters buying the product for the first time and early adopters
replacing it.
Cycle-Recycle Pattern – Aggressive promotion of new product
produces the first cycle, Later the sales start declining, and another
promotion produces a second cycle (usually of smaller magnitude and
duration).
Scalloped Pattern - sales pass through a succession of life cycles based
on the discovery of new-product characteristics, uses, or users.

Growth-Slump-Maturity Cycle-Recycle Scalloped

Style, Fashion, The PLC can be distinguished by three special categories -

and Fad Life 1. A style is a basic and distinctive mode of expression appearing in a
Cycles field of human endeavor.
2. A fashion is a currently accepted or popular style in a given field
and it passes through four stages: Distinctiveness, Emulation, Mass-
fashion and Decline. The length of a fashion cycle is hard to predict.
3. Fads are fashions that come quickly into public view and are
adopted with great zeal, peak early, and decline very fast.

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Summary of Product-Life-Cycle
Introduction Growth Maturity Decline
Characteristics
Sales Low sales Rapidly rising sales Peak sales Declining sales

High cost per Average cost per Low cost per Low cost per
Costs
customer customer customer customer

Profits Negative Rising profits High profits Declining profits

Customers Innovators Early adopters Middle majority Laggards

Stable number
Competitors Few Growing number Declining number
beginning to decline
Marketing Objectives
Maximize profit Reduce expenditure
Create product Maximise market
while defending and harvest the
awareness and trial share
market share brand
Strategies

Offer product
Offer a basic Diversify brands Phase out weak
Product extensions, service,
product and items, models products
warranty

Price to penetrate Price to match best

Price Charge cost-plus Cut price
market competitors

Build more Go selective: phase

Build selective Build intensive
Distribution intensive out unprofitable
distribution distribution
distribution outlets
Build product Stress brand
Reduce to minimal
awareness and trial Build awareness differences and
level needed to
Communications among early and interest in the benefits and
retain hard-core
adopters and mass market encourage brand
loyals
dealers switching

Marketing in an Guidelines to improve the odds for success during an economic

Economic downturn:
Downturn  Explore the upside of increasing investment
 Get closer to customers
 Review budget allocations
 Put forth the most compelling value proposition
 Fine-tune brand and product offerings
A Compelling Value During a recession, a marketer should:
Proposition  avoid being overly focused on price reductions and discounts
 increase—and clearly communicate—the value their brands offer,
making sure that consumers appreciate all the financial, logistical,
and psychological benefits compared with the competition
 review pricing to ensure it has not crept over time and does not
reflect good value

CRAFTING THE BRAND POSITIONING

Developing and All marketing strategy is built on STP – Segmentation, Targeting and
establishing a Positioning. A company discovers different needs and groups in the
Brand Positioning marketplace, targets those needs and groups that it can satisfy in a
superior way, and then positions its offering so that the target market

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 recognizes the company’s distinctive offer and image
Positioning The act of designing a company’s offering and image to occupy a
distinctive place in the minds of the target market. The goal is to locate
the brand in the minds of consumers to maximize the potential benefit
to the firm.
Significance of A good brand positioning helps guide marketing strategy by clarifying
positioning the brand’s essence, identifying the goals it helps the consumer achieve,
and showing how it does so in a unique way.

Prerequisites for Positioning requires that marketers define and communicate

Positioning similarities and differences between their brand and its competitors.
Specifically, deciding on a positioning requires:
1. determining a frame of reference by identifying the target market and
relevant competition
2. identifying the optimal points of parity (POP) and points of difference
(POD) given the frame of reference, and
3. creating a brand mantra to summarize the positioning and essence of
the brand.
Competitive frame The competitive frame of reference defines competitive landscape and
of reference the brands that compete with your brand, and therefore, tells which
brands should be the focus of competitive analysis. They are closely
linked to target market decisions. A good starting point in defining a
competitive frame of reference for brand positioning is to determine
category membership—the products or sets of products with which a
brand competes and which function as close substitutes
POD Are attributes or benefits that consumers strongly associate with a
brand, positively evaluate, and believe that they could not find the same
extent with a competitive brand. Three key criteria determine whether
a brand association can truly function as a point-of-difference i.e
desirability, deliverability, and differentiability.
POP POPs are attributes or benefits associations that are not necessarily
unique to the brand but may in fact be shared with other brands.
They come in two basic forms-
Category POP - are associations consumers view as essential to be a
legitimate and credible offering within a certain product or service
category.
Competitive POP - parity are associations designed to negate
competitors’ points-of-difference.
Brand Mantra A brand mantra is an articulation of the heart and soul of the brand and
is closely related to other branding concepts like “brand essence” and
“core brand promise.” Brand mantras are short, three- to five-word
phrases that capture the irrefutable essence or spirit of the brand
positioning.

Designing a brand Brand mantras are designed with internal purposes in mind. A brand
mantra slogan is an external translation that attempts to creatively engage
consumers.
Three key criteria for a brand mantra are:
1. Communicate: A good brand mantra should define the category (or
categories) of business for the brand and set the brand boundaries.
It should also clarify what is unique about the brand.
2. Simplify: An effective brand mantra should be memorable. For that,
it should be short, crisp, and vivid in meaning.
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 3. Inspire: Ideally, the brand mantra should also stake out ground that
is personally meaningful and relevant to as many employees as
possible.

Establishing Once the brand positioning strategy is determined, marketers should

brand positioning communicate it to everyone in the organization so it guides their words
and actions.
Bulls eye Constructing a Brand Positioning “Bullseye” outlines one way
marketers can formally express positioning of a brand in the
organization.
Components of a brand bull’s eye are –
the inner two circles is the heart of the bull’s eye—key points of parity
and points of difference, as well as the brand
mantra.
In the next circle out are the substantiators or
reasons-to-believe (RTB)—attributes or
benefits that provide factual or demonstrable
support for the points-of-parity and points-of-difference.
Finally, the outer circle contains two other useful branding concepts: (1)
the brand values, personality, or character—intangible associations that
help to establish the tone for the words and actions for the brand; and
(2) executional properties and visual identity—more tangible
components of the brand that affect how it is seen.
Three boxes outside the bull’s-eye provide useful context and
interpretation.
To the left, two boxes highlight some of the input to the positioning
analysis (one of consumer target and their insights and other
competitive information); to the right one box offers the ‘big picture’
view of the output.
Brand Ladderimg refers to the gradual change in focus that brands undergo over a period
of time, in order to achieve a better connect with the customers. The
primary aim of laddering is to form stronger bonds with the consumer,
ensuring retention and preventing switching of brands.
A brand initially showcases Attributes as the benefit, followed by
Functional benefits, Emotional benefits. Leading up to consumer Value.
Positioning To communicate a company or brand positioning, marketing plan plans
statement often include positioning statement.
The statement should follow the format:
To (target group)
our (brand /concept)
is the (superlative: USP/ POD)
because (RTB)

Communicating There are three main ways to convey a brand’s category membership:
category 1. Announcing category benefits. To reassure consumers that a brand
membership will deliver on the fundamental reason for using a category,
marketers frequently use benefits to announce category
membership.
2. Comparing to exemplars. Well-known, noteworthy brands in a
category can also help a brand specify its category membership.
3. Relying on the product descriptor. The product descriptor that
follows the brand name is often a concise means of conveying
category origin.
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Communicating One common difficulty in creating a strong, competitive brand
the POPs and positioning is that many of the attributes or benefits that make up the
PODs points-of-parity and points-of-difference are negatively correlated. The
best approach is to develop a product and service that performs well on
both dimensions

Differentiation Companies can craft powerful, compelling images that appeal to

Stages consumers’ social and psychological needs.
 Competitive advantage is a company’s ability to perform in one or
more ways that competitors cannot or will not match.
 A leverageable advantage is one that a company can use as a
springboard to new advantages
Means of In competitive markets, however, firms may need to consider
differentiation dimensions they can use to differentiate market offerings.
 Employee differentiation: train employees to provide superior
customer service. Singapore Airlines is well regarded in large part
because of its flight attendants.
 Channel differentiation: design distribution channels’ coverage,
expertise, and performance to make buying the product easier and
more enjoyable and rewarding.
 Image differentiation: craft powerful, compelling images that appeal
to consumers’ social and psychological needs.
 Services differentiation: design a better and faster delivery system
that provides more effective and efficient solutions to consumers. –
they are of three types – reliability, resilience and innovativeness

Emotional Emotional brands share three specific traits – Strong culture,

branding Communication style and Emotional hook.

Market Share, In general, the firm should monitor three variables when analyzing
Mind Share, potential threats posed by competitors:
and Heart Share 1. Share of market—The competitor’s share of the target market.
2. Share of mind—The percentage of customers who named the
competitor in responding to the statement, “Name the company that
first comes to mind in this industry.”
3. Share of heart—The percentage of customers who named the
competitor in responding to the statement, “Name the company
from which you would wish to buy the product.”

Alternative Some marketers have proposed other, less-structured approaches in

Approaches to recent years that offer provocative ideas on how to position a brand
Positioning such as :
 Brand Narratives and Storytelling
 Brand Journalism
 Cultural branding

Creating Brand Equity

(if you are not a brand, you are a commodity)
Brand Brand is “a name, term, sign, symbol, or design, or a combination of
them, intended to identify the goods or services of one seller or group of
sellers and to differentiate them from those of competitors.”

The role of is to identify the maker, simplify product handling, organise accounting;
Brands offer legal protection; signify quality; create barriers to entry; serve as
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 a competitive advantage; secure price premium

Branding is endowing products and services with the power of the brand and
creating differences between products.
The Scope of it involves creating mental structures and helping consumers organize
Branding their knowledge about products and services in a way that clarifies
their decision-making and provides value to the firm.

Building strong Building a strong brand is both an art and a science. It requires careful
brands planning, a deep long-term commitment, and creatively designed and
executed marketing. A strong brand commands intense consumer
loyalty, and at its heart is a great product or service.

Brand equity is the added value endowed to products and services, which may be
reflected in the way consumers, think, feel, and act with respect to the
brand.
Customer based is the differential effect that brand knowledge has on consumer
brand equity response to the marketing of that brand.
Brand knowledge consists of all thoughts, feelings, images, experiences, beliefs, that
become associated with the brand.
Brand Promise is the marketer’s vision of what the brand must signify and do for
consumers.

Brand equity a number of models of brand equity offer some differing perspectives.
models Three more-established ones are – Brand Asset Valuator (BAV) and
BrandZ.
BAV (developed by Young and Rubicam (Y&R)) .BAV compares the brand
equity of thousands of brands across hundreds of different categories.
There are four key components or pillars of brand equity:
 Energized differentiation measures the degree to which a brand is
seen as different from others.
 Relevance measures the appropriateness and breadth of a brand’s
appeal.
 Esteem measures perceptions of quality and loyalty or how well the
brand is regarded and respected.
 Knowledge measures how aware and familiar consumers are with
the brand. The relationships among these dimensions—a brand’s
“pillar pattern”—reveal much about a brand’s current and future
status.
Energized differentiation and relevance combine to determine brand
strength—a leading indicator that predicts future growth and value.
Esteem and knowledge together create brand stature, a “report card”
on past performance and an indicator of current value. The
relationships among these dimensions—a brand’s “pillar pattern”—
reveal much about a brand’s current and future status. Energized brand
strength and brand stature combine to form the power grid, depicting
stages in the cycle of brand development in successive quadrants.

BrandZ Marketing research consultants Brown and WPP have developed the
BRANDZ model of brand strength, at the heart of which is the Brand
Dynamics pyramid. According to this model, brand building follows a
series of steps.
 Bonding – Rational and emotional attachments to the brand to the

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 exclusion of most other brands
 Advantage – Belief that the brand has an emotional or rational
advantage over other brands in the category
 Performance – Belief that it delivers acceptable product
performance and is on the consumer's short-list
 Relevance – Relevance to consumer's needs, in the right price range
or in consideration set
 Presence – Active familiarity based on past trial, saliency, or
knowledge of brand promise
Brand Resonance The brand resonance model also views brand building as an ascending
Pyramid series of steps, from bottom to top:
1. ensuring customers identify the brand and associate it with a
specific product class or need;
2. firmly establishing the brand meaning in customers’ minds by
strategically linking a host of tangible and intangible brand
associations;
3. eliciting the proper customer responses in terms of brand-related
judgment and feelings; and
4. converting customers’ brand response to an intense, active loyalty.

The model emphasizes the duality of brands—the rational route (left

side) and emotional route (right side) to brand building.
Brand Salience is how often and how easily customers think of the brand under
various purchase or consumption situations
Brand Performance is how well the product or service meets customers’ functional needs.
Brand Imagery describes the extrinsic properties of the product or service, including
the ways in which the brand attempts to meet customers’ psychological
or social needs.
Brand Judgments focus on customers’ own personal opinions and evaluations.
Brand Feelings are customers’ emotional responses and reactions with respect to the
brand.
Brand Resonance describes the relationship customers have with the brand and the
extent to which they feel they’re “in sync” with it.

Building Brand Marketers build brand equity by creating the right brand knowledge
Equity structures with the right consumers. There are three main sets of brand
equity drivers:
1. The initial choice for the brand elements or identities making up the
brand.
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 2. The product and service and all accompanying marketing activities
and supporting marketing programs.
3. Other associations indirectly transferred to the brand by linking it to
some other entity.
Brand elements are trademark-able devices that identify and differentiate the brand.
brand element There are six criteria for choosing brand elements. The first three—
choice criteria memorable, meaningful, and likable—are “brand building” The latter
three—transferable, adaptable, and protectable—are “defensive” and
help leverage and preserve brand equity against challenges

Designing Holistic
Brands are not built by advertising alone, Customers come to know a
Marketing
Activities brand through a range of contacts and touch points.
Brand contact point is any information-bearing experience, whether positive or negative, a
customer or prospect has with the brand, its product category, or its
market through Personal observations, Personal use, Word of mouth,
Interactions with company personnel, Online or telephone experiences,
Payment transactions;
Marketers also create brand contact and build brand equity through
clubs and consumer communities, trade shows, event marketing,
sponsorship, factory visits, public relations and press realeases and
social cause marketing.
Integrated is about mixing and matching variety of different marketing activities
Marketing to maximize their individual and collective effects. It can be evaluated in
terms of effectiveness and efficiency with which they affect brand
awareness and create, maintain or strengthen brand associations.

Leveraging
create brand equity by linking the brand to other information in
secondary
memory that conveys meaning to consumers.
associations

Internal Branding Internal branding is activities and processes that help to inform and
inspire employees. Brand bonding occurs when customers experience
the company as delivering on its brand promise. The brand promise will
not be delivered unless everyone in the company lives the brand.
Principles for 1. Choose the right moment
internal branding 2. Link internal and external marketing
3. Bring the brand alive for employees

Brand is a specialized community of consumers and employees whose

Communities identification and activities focus around the brand.
Characteristics of 1. A “consciousness of kind” or sense of felt connection to the brand,
Brand Communities company, product, or other community members;
2. Shared rituals, stories, and traditions that help to convey the
meaning of the community; and
3. A shared moral responsibility or duty to both the community as a
whole and individual community members

Measuring Brand Two general approaches, which are complementary can be employed to
Equity measure brand equity –
An indirect approach—assesses potential sources of brand equity by
identifying and tracking consumer brand knowledge structures.
A direct approach—assesses the actual impact of brand knowledge on

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 consumer response to different aspects of the marketing.
The Brand value The brand value chain is a structured approach to assessing the sources
chain and outcomes of brand equity and the manner in which marketing
activities create brand value.
The Brand value It is based on several premises.
chain (process) First, brand value creation begins when the firm targets actual or
potential customers by investing in marketing program to develop the
brand, including product research, development, and design; trade or
intermediary support; and marketing communications.
Next, we assume customers’ mind-sets, buying behaviour, and response
to price will change as a result of the marketing program; the question
is how.
Finally, the investment community will consider market performance,
replacement cost, and purchase price in acquisitions (among other
factors) to assess shareholder value in general and the value of a brand
in particular.
The model also assumes that three multipliers moderate the transfer
between the marketing program and the subsequent three value stages.
 The program multiplier determines the marketing program’s ability
to affect the customer mind-set and is a function of the quality of the
program investment.
 The customer multiplier determines the extent to which value
created in the minds of customers affects market performance.
 The market multiplier determines the extent to which the value
shown by the market performance of a brand is manifested in
shareholder value.
Brand audit is a consumer-focused series of procedures to assess the health of the
brand, uncover its sources of brand equity, and suggest ways to
improve and leverage its equity
Brand-tracking collect quantitative data from consumers on a routine basis over time to
studies provide marketers with consistent, baseline information about how
their brands and marketing programs are performing on key
dimensions.
Brand valuation An estimation of the total financial value of the brand.
(Marketers should distinguish brand equity from brand valuation)

Managing Brand Because consumer responses to marketing activity depend on what

Equity they know and remember about a brand, short-term marketing actions
by changing brand knowledge necessarily increase or decrease the
long-term success of future marketing actions.
Brand Marketers can reinforce brand equity by consistently conveying the
Reinforcement brand’s meaning in terms of: (1) What products it represents, what core
benefits it supplies, and what needs it satisfies, and (2) how the brand
makes products superior and which strong, favourable, and unique
brand associations should exist in consumers’ minds.
Brand revitalisation the first thing to do in revitalizing a brand is to understand the sources
of brand equity . Are positive associations losing their strength or
uniqueness? Have negative associations become linked to the brand?
Then decide whether to retain the same positioning or create a new
one, and if so which new one.
Brand strategy/ A firm’s branding strategy—often called the brand architecture—
architecture reflects the number and nature of both common and distinctive brand
elements. Deciding how to brand new products is especially critical. A
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 firm has three main choices:
1. It can develop new brand elements for the new product.
2. It can apply some of its existing brand elements.
3. It can use a combination of new and existing brand elements.

Branding Terms Brand extension - When a firm uses an established brand to introduce a
new product, the product is called a brand extension.
Sub-brand - When marketers combine a new brand with an existing
brand, the brand extension can also be called a sub-brand.
Parent brand - The existing brand that gives birth to a brand extension
or sub-brand is the parent brand.
Master/ Family brand - If the parent brand is already associated with
multiple products through brand extensions, it can also be called a
master brand or family brand.
Brand line - A brand line consists of all products—original as well as line
and category extensions—sold under a particular brand.
Brand mix - A brand mix (or brand assortment) is the set of all brand
lines that a particular seller makes

Line extension - In a line extension, the parent brand covers a new

product within a product category it currently serves, such as with new
flavours, forms, colours, ingredients, and package sizes.
Category extension - In a category extension, marketers use the parent
brand to enter a different product category
Branded variants - Many companies are introducing branded variants,
which are specific brand lines supplied to specific retailers or
distribution channels.
Licensed product - A licensed product is one whose brand name has
been licensed to other manufacturers that actually make the product.

Branding Three popular strategies for choosing a brand name are –

Decisions 1. Individual or separate family brand names.
2. Corporate or company brand name.
3. Sub-brand name
House of brand The use of individual or separate family brand names
Branded house use of an umbrella corporate or company brand name

Brand Portfolio is the set of all brands and brand lines a particular firm offers for sale in
a particular category or market segment.
Reasons for brand A brand can only be stretched so far, and all the segments the firm
portfolio would like to target may not view the same brand equally favourably.
Marketers often need multiple brands in order to pursue these multiple
segments. Some other reasons for introducing multiple brands in a
category include increasing shelf presence and retailer dependence in
the store, attracting consumers seeking variety, increasing internal
competition within the firm, and yielding economies of scale in
advertising, sales, merchandising, and distribution.
Brand Roles in a Brands also play a number of specific roles as part of a portfolio.
Brand Portfolio  Flanker or “fighter” brands are positioned with respect to
competitors’ brands so that more important (and more profitable)
flagship brands can retain their desired positioning.
 Cash cow brands - Some brands may be kept around despite
dwindling sales because they manage to maintain their profitability

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 with virtually no marketing support. Companies can effectively
“milk” these “cash cow” brands by capitalizing on their reservoir of
brand equity.
 Low-end or entry level brands - The role of a relatively low-priced
brand in the portfolio often may be to attract customers to the brand
franchise. Retailers like to feature these “traffic builders” because
they are able to “trade up” customers to a higher-priced brand.
 High-end prestige brands - The role of a relatively high-priced
brand often is to add prestige and credibility to the entire portfolio

Brand Extensions Many firms have decided to leverage their most valuable asset by
introducing a host of new products under their strongest brand names.
Most new products are in fact line extensions
advantages Two main advantages of brand extensions are that they can facilitate
new-product acceptance and provide positive feedback to the parent
brand and company.
disadvantages On the downside, line extensions may cause the brand name to be less
strongly identified with any one product (line-extension trap) -
Brand dilution - occurs when consumers no longer associate a brand
with a specific or highly similar set of products and start thinking less of
the brand.
Brand confusion –occurs when consumers would deem the brand
inappropriate, they may question the integrity of the brand or become
confused or even frustrated.
Damage the parent brand- extension failure can cause damage to the
parent brand.
Cannibalization – occurs when revenue of the extension brand may be
coming from consumers switching from existing parent-brand offering,
cannibalising the parent brand.

Customer Equity Customer equity and brand equity both emphasize on customer loyalty
and Brand Equity and creating value. While, Customer equity perspective focuses on
bottom-line financial value, Brand equity emphasise strategic issues in
managing brands and creating and leveraging brand awareness and
image with customers.

Setting Product Strategy

At the heart of a great brand is a great product. Product is a key element in the market offering
Components of
Three basic elements of the market offering are – product features and
the market
offering quality, services mix and quality, and value based price.

Product A product is anything that can be offered to a market to satisfy a want

or need, including Physical goods, Services, Experiences, Events,
Persons, Places, Properties, Organizations, Information, Ideas

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Five Product the five constitute a customer-value hierarchy. And each level adds
levels. more customer value.
The fundamental level is the core benefit: the service or benefit the
customer is really buying.
At the second level, the marketer
must turn the core benefit into a
basic product.
At the third level, the marketer
prepares an expected product, a set
of attributes and conditions buyers
normally expect when they purchase
this product.
At the fourth level, the marketer
prepares an augmented product that
exceeds customer expectations.
At the fifth level stands the potential
product, which encompasses all the possible augmentations and
transformations the product or offering might undergo in the future.

Product Marketers classify products into Nondurable, Durable and Services on

Classification the basis of durability, tangibility, and use (consumer or industrial).
Each type has an appropriate marketing-mix strategy.
Nondurable goods are tangible goods normally consumed in one or a few uses, such as soft
drinks and shampoo. Because these goods are purchased frequently, the
appropriate strategy is to make them available in many locations,
charge only a small mark-up, and advertise heavily to induce trial and
build preference
Durable goods are tangible goods that normally survive many uses: refrigerators,
machine tools, and clothing. Durable products normally require more
personal selling and service, command a higher margin, and require
more seller guarantees
Services are intangible, inseparable, variable, and perishable products that
normally require more quality control, supplier credibility, and
adaptability. Examples include haircuts, legal advice, and appliance
repairs.

Consumer-goods Consumer goods are classified on the basis of shopping habits -

classification Convenience goods, Shopping goods, Speciality goods and Unsought
goods
Convenience goods goods purchased frequently, immediately and with minimal effort
Shopping goods goods that are compared by consumers based on suitability, quality,
price and style.
Speciality goods consumers make special purchasing effort to buy these goods due to
their unique characteristics or brand identification.
Unsought goods are goods that consumer does not know about or normally think of
buying.
Industrial-goods Industrial goods are classified in terms of their relative cost and how
classification they enter the production process: Materials and parts, Capital items,
Supplies and business services.
Materials and parts They fall into two classes – raw materials and manufactured materials
and parts.
Raw materials fall into two major groups:

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  Farm products: Their perishable and seasonal nature gives rise to
special marketing practices, whereas their commodity character
results in relatively little advertising and promotional activity.
 Natural products: They usually have great bulk and low unit value
and must be moved from producer to user.
Manufactured materials and parts fall into two categories:
 Component materials- are usually fabricated further.
 Component parts- enter the finished product with no further change
in form
Capital items are long-lasting goods that facilitate developing or managing the
finished product. They include: Installations and Equipment.
Installations are major purchases. They are usually bought directly from
the producer.
Equipment – these types don’t become part of finished product, they
include portable factory equipment and tools, and office equipment.

Supplies and Supplies and business services are short-term goods and services that
business services facilitate developing or managing the finished product. There are two
kinds of supplies:
Maintenance and repair items; and Operating supplies.
Business services include maintenance and repair services and business
advisory.
Product Products can be differentiated in many ways including: Form, features,
Differentiation customization, performance quality, conformance quality, durability,
reliability, repairability, and style.
 Form - the size, shape, or physical structure of a product.
 Features - Most products can be offered with varying features that
supplement its basic function.
 Customisation - marketers can differentiate products by making
them customized to an individual.
 Performance quality - is the level at which the product’s primary
characteristics operate.
 Conformance quality -the degree to which all the product units are
identical and meet the promised specifications.
 Durability – is a measure of the product’s expected operating life
under natural or stressful conditions.
 Reliability- is a measure of the probability that a product will not
malfunction or fail within a specified time period.
 Repairability - Is the measure of the ease of fixing a product when it
malfunctions or fails.
 Style - Describes the product’s look and feel to the buyer.

Service When the physical product cannot easily be differentiated, the key to
Differentiation competitive success may lie in adding valued services and improving
quality. The main service differentiators are
 Ordering Ease: ordering ease refers to how easy it is for the
customer to place an order with the company.
 Delivery: refers to how well the product or service is brought to the
customer.
 Installation: refers to the work done to make the product
operational.
 Customer Training: refers to the training the customer’s employees
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 undergo to use the vendor’s equipment properly and efficiently.
 Customer consulting: refers to data, information systems, and advice
services that the seller offers to the buyers.
 Maintenance and Repair: describes the service program for helping
customers keep purchased products in good working order.
 Returns: An unavoidable reality of doing business: Controllable
returns and Uncontrollable returns

Design Design offers a potent way to differentiate and position a company’s

products and services. It is the totality of features that affect how a
product looks, feels, and functions to a consumer. It offers functional
and aesthetic benefits and appeals to both our rational and emotional
sides.

Product The product hierarchy stretches from basic needs to particular items
Hierarchy that satisfy those needs. Six levels can be identified –
 Need family - core need that underlies the existence of product
family
 Product family – all the product that can satisfy the core need
 Product class or product category – a group of products within the
product family recognised as having a certain functional coherence.
 Product line – group of product within a product class that are
closely related because they perform a similar function, may consist
of different brands, or a single family brand, or individual brand that
has been line extended.
 Product type – a group of items within a product line that share one
of several possible forms of the product.
 Item or SKU or Product variant – a distinct unit within a brand or
product line distinguishable by size, price appearance or some other
attribute.

Product systems A product system is a group of diverse but related items that function in
a compatible manner.
Product Mix/ is the set of all products and items a particular seller offers for sale- a
Assortment company’s product mix has certain –
 Product width - refers to how many different product lines the
company carries.
 Product length - refers to the total number of items in the mix or the
average length of a line.
 Product depth - refers to how many variants are offered of each
product in the line.
 Product consistency - refers to how closely related the various
product lines are in end use, production requirements, distribution
channels, or some other way.

Product Line companies develop a basic platform and modules of a product line that
Analysis can be added to meet different customer requirements and lower
production costs. Managers need to know the sales and profits of each
item in their line to determine which items to build, maintain, harvest,
or divest, as well as each product line’s market profile.
It helps in decision areas of product line length and product mix
pricing.
Sales and Profits Every company’s product portfolio contains products with different

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 margins; it can classify its products into four types that yield different
gross margins, depending on sales volume and promotion - Core
products, Staples, Specialties and Convenience items.
Market profile The product-line manager must review how the line is positioned
against competitors’ lines. Product Maps can be used to identify close
competitors, locations for new items and new market segments.

Product Line Company objectives influence product-line length such as – to induce

Length upselling, to facilitate cross selling, to protect against economic ups and
downs. Product lines tend to lengthen over time and can lengthen in
two ways – line stretching and line filling.
Line stretching Line stretching, occurs when a company lengthens its product line
beyond its current range, whether down-market, up-market or both
ways.
Down-market stretch: a company positioned in the middle market
may want to introduce a lower-priced line for any of three reasons:
1. Shoppers want value-priced goods
2. Wish to tie up lower-end competitors
3. Find that the middle market is stagnating or declining
Up-market stretch: a company may wish to enter the high end of the
market to achieve more growth, realise higher margins or simply to
position themselves as a full-line manufacturer.
Two-way stretch: companies serving the middle market might decide
to stretch the line in both directions.
Line filling Line filling, occurs when a company lengthens its product line by adding
more items within the present range. It could be done for several
reasons - for incremental profits, to satisfy dealers who complain about
lost sales because of missing items in the line, to utilize excess capacity,
to be the leading full-line company, to plug holes to keep out
competitors.
If overdone, it can result in self-cannibalization and customer confusion.
Company should also check that it satisfies a market need and not an
internal need and should differentiate each item in consumer’s mind
with just a noticeable difference.

Line Companies continuously modernise product lines to encourage

Modernisation, customer migration to higher-valued, higher-priced items; boost
Featuring and demand for certain product lines by featuring them; and optimize their
Pruning brand portfolios by focusing on core brand growth and concentrating
resources on the biggest and most established brands.

Product-Mix the firm searches for a set of prices that maximizes profits on the total
Pricing mix.
Product line pricing developing product lines rather than single products and introduce
price steps.
Optional-feature offering optional products, features, and services with the main product.
pricing
Captive- pricing the main products low and setting high mark-ups on the
product pricing aftermarket products.
Two-part pricing consists of a fixed fee plus a variable usage fee
By-product pricing charging low price for the main products and earning income on the by-
products .
Product-bundling seller often bundles products and features. Pure Bundling – occurs
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 pricing when firm offers its product only as a bundle. Mixed Bundling – seller
offers goods both individually and in bundles and charging less for the
bundle than if the items were purchased separately.

Co-Branding Marketers often combine their products with products from other
companies in various ways. In co-branding—also called dual branding
or brand bundling—two or more well-known brands are combined into
a joint product or marketed together in some fashion. One form of co-
branding is same company co-branding and other is joint-venture co-
branding.

Ingredient Ingredient branding is a special case of co-branding. It creates brand

Branding equity for materials, components, or parts that are necessarily
contained within other branded products.

Packaging Packaging includes all the activities of designing and producing the
container for a product. The package is the buyer’s first encounter with
the product, and it encourages product choice.
The packaging elements must harmonize with each other and with
pricing, advertising, and other parts of the marketing program, and
after it is designed it must be tested.

Labeling The label can be a simple attached tag or an elaborately designed

graphic that is part of the package. It might carry a great deal of
information, or only the brand name.
Functions of label Sellers must label products, it performs several functions
 The label identifies the product or brand
 The label might also grade the product
 The label might describe the product
 Finally, the label might promote the product through attractive
graphics

Warranties and Warranties are formal statements of expected product performance by

Guarantees the manufacturer. Warranties, whether expressed or implied are legally
enforceable.
Guarantees reduce the buyer’s perceived risk. They suggest that the
product is of high quality and the company and its service performance
are dependable.

Designing and Managing Services

Services are an important part of the economy. The share of services in GDP exceeds the share of
manufacturing in many economies today
Service A service is any act of performance that one party can offer another that
is essentially intangible and does not result in the ownership of
anything; its production may or may not be tied to a physical product.
They are everywhere – in government sector, private non-profit sector,
business sector, manufacturing sector and retail sector.

Product Service The service component can be a minor or a major part of the total
Continuum offering. There are distinguish five categories of offerings -
 A pure tangible good is a tangible good such as soap, toothpaste, or
salt with no accompanying services.
 A tangible good with accompanying services is a tangible good, like a
car, computer, or cell phone, accompanied by one or more services.
 A hybrid is an offering, like a restaurant meal, of equal parts goods
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 and services.
 A major service with accompanying minor goods and services refers
to a major service, like air travel, with additional services or
supporting goods such as snacks and drinks. This offering requires a
capital-intensive good—an airplane—for its realization, but the
primary item is a service.
 A pure service is primarily an intangible service, such as babysitting,
psychotherapy, or massage.

Service The range of service offerings makes it difficult to generalize without a

Distinctions few further distinctions. Services vary as to whether they are –
 Equipment-based or people-based
 Service processes
 Client’s presence required or not
 Personal needs or business needs
 Objectives (profit or non-profit) and ownership (private or public)

Distinctive Four distinctive service characteristics greatly affect the design of

Characteristics marketing programs: intangibility, inseparability, variability, and
of Services perishability.
Intangibilitymeans that it is difficult to evaluate services unless we have tangible
cues and physical evidence to use, such as – place, people, equipment,
communication material, symbols or price.
Inseparability means that we cannot separate the service from the experience of the
customer
Variability means that services tend to vary from experience to experience. The
quality of services can vary, so to increase quality control service firms
can take the steps - .
 Invest in good hiring and training procedures
 Standardize the service-performance process
 Monitor customer satisfaction
Perishability means that we cannot inventory services, thus it can be a problem when
demand fluctuates.

Matching Demand Demand or yield management is critical—the right services must be

and Supply available to the right customers at the right places at the right times and
right prices to maximize profitability. Several strategies can produce a
better match between service demand and supply.
On the demand side:
 Differential pricing will shift some demand from peak to off-peak
periods.
 Nonpeak demand can be cultivated.
 Complementary services can provide alternatives to waiting
customers.
 Reservation systems are a way to manage the demand level.
On the supply side:
 Part-time employees can serve peak demand.
 Peak-time efficiency routines can allow employees to perform only
essential tasks during peak periods.
 Increased consumer participation frees service providers’ time.
 Shared services can improve offerings.
 Facilities for future expansion can be a good investment.

Shifting Customer Savvy services marketers are recognizing the new service realities, such
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Relationship as the importance of the newly empowered customer, customer
coproduction, and the need to engage employees as well as customers
Customer Customers are becoming more sophisticated about buying product-
Empowerment support services and are pressing for “unbundled services.”
They may desire separate prices for each service element and also the
right to select the elements. Customers also increasingly dislike having
to deal with a multitude of service providers handling different types of
equipment. Some third-party service organizations now service a
greater range of equipment.
Most importantly, the Internet has empowered customers by letting
them vent their rage about bad service—or reward good service—and
send their comments around the world with the click of a mouse
Customer Customers often feel they derive more value, and feel a stronger
Coproduction connection to the service provider, if they are actively involved in the
service process
Solution to Four broad causes of failures – Processes, Technology, Services-cape,
customer failures People.
Solutions to customer failure –
 Redesign processes and redefine customer roles to simplify service
encounters
 Incorporate the right technology to aid employees and customers
 Create high-performance customers by enhancing their role clarity,
motivation, and ability
 Encourage customer citizenship where customers help customers
Preventing service failures is crucial, since recovery is always
challenging.
Satisfying Instilling a strong customer orientation in employees can also increase
employees as well their job satisfaction and commitment, especially if they have high
as employees customer contact.
Employees thrive in customer-contact positions when they have an
internal drive to pamper customers, accurately read customer needs,
develop a personal relationship with customers, and deliver quality
service to solve customers’ problems.
Given the importance of positive employee attitudes to customer
satisfaction, service companies must attract the best employees they
can find. They can use the intranet, internal newsletters, daily
reminders, and employee round tables to reinforce customer-centred
attitudes.

Achieving Marketing excellence with services requires excellence in three broad

excellence in areas: external, internal, and interactive marketing
service marketing  External marketing describes the normal work of preparing, pricing,
distributing, and
promoting the
service to
customers.
 Internal marketing
describes training
and motivating
employees to serve
customers well. The
most important
contribution the
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 marketing department can make is arguably to be “exceptionally
clever in getting everyone else in the organization to practice
marketing.”
 Interactive marketing describes the employees’ skill in serving the
client Clients judge service not only by its technical quality, but also
by its functional quality.

Best Practices of In achieving marketing excellence with their customers, well-managed

Top Service service companies share a strategic concept, a history of top-
Companies management commitment to quality, high standards, profit tiers, and
systems for monitoring service performance and customer complaints.

Differentiating Marketers can differentiate their service offerings in many ways,

Services through people and processes that add value. What the customer
expects is called the primary service package. The provider can add
secondary service features to the package

Managing Service The service quality of a firm is tested at each service encounter. Service
Quality outcome and customer loyalty are influenced by a host of variables,
Eight categories of behaviours that cause customers to switch services
have been identified as –
Pricing, Inconvenience, Core Service Failure, Service Encounter Failures,
Response to Service Failure, Competition, Ethical Problems, Involuntary
Switching.
Improving service There are 10 key things companies can do to improve service quality –
quality Listening, Reliability, Basic service, Service design, Recovery, Surprising
customers, Fair play, Teamwork, Employee research, Servant leadership

Managing Customers form service expectations from many sources, such as past
Customer experiences, word of mouth, and advertising.
Expectation Customers compare the perceived service with the expected service;
thus, Customer Satisfaction = f{ Ps, Es }
customers are disappointed, when Ps < Es;
customers are satisfied, when Ps = Es;
customers are delighted, when Ps > Es.

The Service- The service-quality model is

Quality Model

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 Gap 1. Gap between consumer expectation and management
perception—Management does not always correctly perceive
what customers want.
Gap 2. Gap between management perception and service-quality
specification Management might correctly perceive customers’
wants but not set a performance standard.
Gap 3. Gap between service-quality specifications and service delivery—
Employees might be poorly trained, or incapable of or unwilling
to meet the standard; they may be held to conflicting standards,
such as taking time to listen to customers and serving them fast.
Gap 4. Gap between service delivery and external communications—
Consumer expectations are affected by statements made by
company representatives and advertisements and delivery may
not match the same
Gap 5. Gap between perceived service and expected service—This gap
occurs when the consumer’s perception of service does not
match their expectations.

Determinants of Based on this service-quality model, five determinants of service

Service Quality quality, in this order of importance-
1. Reliability—the ability to perform the promised service dependably
and accurately.
2. Responsiveness—willingness to help customers and provide
prompt service.
3. Assurance—the knowledge and courtesy of employees and their
ability to convey trust and confidence.
4. Empathy—the provision of caring, individualized attention to
customers.

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 5. Tangibles—the appearance of physical facilities, equipment,
personnel, and communication materials.
Managing Product No less important than service industries are product-based industries
–Support Services that must provide a service bundle. Product-support service is
becoming a major battleground for competitive advantage.
Customer Worries Traditionally, customers have had three specific worries about product
service:
 They worry about reliability and failure frequency.
 They worry about downtime
 They worry about out-of-pocket costs
Best Support A product-based company too must provide post-purchase service. To
provide the best support, a manufacturer must identify the services
customers value most and their relative importance. The service mix
includes both presale services (facilitating and value-augmenting
services) and post-sale services (customer service departments, repair
and maintenance services).

Developing Pricing Strategies and Programs

(Price is one element of the marketing mix that produces revenue; pricing decisions must be
consistent with the firm’s marketing strategy, its target markets and brand positioning.)
Understanding Price is not just a number or tag; it comes in many forms and performs
pricing many functions - Rent, tuition, fares, fees, rates, tolls, retainers, wages,
and commissions are all the price you pay for some good or service.
Throughout most of history prices were set by negotiation between
buyers and sellers; setting one price for all buyers is a relatively modern
idea.

A Changing The changing technological environment has also impacted pricing

Pricing decisions. For some years now, the Internet has been changing how
Environment buyers and sellers interact-
Buyers can
 Get instant price comparisons from thousands of vendors.
 Name their price and have it met.
 Get products free.
Sellers can
 Monitor customer behaviour and tailor offers to individuals.
 Give certain customers access to special prices.
 Negotiate prices in online auctions and exchanges or even in person.

How Companies In small companies, prices are often set by the boss; In large companies,
price top management sets general pricing objectives, policies, and often
approves lower management’s proposals.
Effectively designing and implementing pricing strategies requires a
thorough understanding of consumer pricing psychology and a
systematic approach to setting, adapting, and changing prices.

Common Pricing  Determine costs and take traditional industry margins

Mistakes  Failure to revise price to capitalize on market changes
 Setting price independently of the rest of the marketing mix
 Failure to vary price by product item, market segment, distribution
channels, and purchase occasion
Consumer Marketers recognize that consumers often actively process price

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Psychology information, interpreting prices in terms of their knowledge from prior
and Pricing purchasing experiences, formal communications, and point-of-purchase
or online resources.
Purchase decisions are based on how consumers perceive prices and
what they consider the current actual price to be —not the marketer’s
stated price.
Consumers may have a
 lower price threshold below which prices may signal inferior or
unacceptable quality.
 upper price threshold above which prices are prohibitive and seen
as not worth the money.
Understanding how consumers arrive at their perceptions of prices is
an important marketing priority – three key topics are considered –
reference prices, price-quality inferences and price endings
Reference Prices consumers compare an observed price to an internal reference price
they remember or an external frame of reference such as a posted
“regular retail price.”
Price-Quality consumers use price as an indicator of quality. Image pricing is
Inferences especially effective with ego-sensitive products such as perfumes,
expensive cars, and designer clothing.
Price Endings Many sellers believe prices should end in an odd number. Customers
see an item priced at Rs.299 as being in the Rs.200 rather than the
Rs.300 range; they tend to process prices “left-to-right” rather than by
rounding. Another explanation for the popularity of “9” endings is that
they suggest a discount or bargain. Prices that end with 0 and 5 are also
popular and are thought to be easier for consumers to process and
retrieve from memory.

Setting the Price Most marketers have 3 to 5 price points or tiers. The firm has to
consider many factors in setting its pricing policy.
The Six-step procedure for setting a Pricing Policy
1. Selecting the pricing objective
2. Determining demand
3. Estimating costs
4. Analysing competitors’ costs, prices, and offers
5. Selecting a pricing method
6. Selecting the final price

Selecting the The company first decides where it wants to position its market
Pricing Objective offering. The clearer a firm’s objectives, the easier it is to set price. The
five major objectives are: survival, maximum current profit, maximum
market share, maximum market skimming, and product-quality
leadership.
Survival Survival is a short-run objective for firms to deal with overcapacity,
intense competition, or changing consumer wants.
Maximize Current Many companies try to set a price that will maximize current profits.
profits They estimate the demand and costs associated with alternative prices
and choose the price that produces maximum current profit, cash flow,
or rate of return on investment.
Maximum Market Some companies want to maximize their market share. They believe
Share that a higher sales volume will lead to lower unit costs and higher long-
run profit.
This practice is called market-penetration pricing.
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 Maximum Market Utilizes a market-skimming pricing strategy in which prices start high
Skimming and slowly drip over time. This strategy can be fatal if competitors price
low.
Product-Quality Many brands strive to be “affordable luxuries”—products or services
Leadership characterized by high levels of perceived quality, taste, and status with a
price just high enough not to be out of consumer’s reach

Determining Each price will lead to a different level of demand and therefore have a
Demand different impact on a company’s marketing objectives.
The normally inverse relationship between price and demand is
captured in a demand curve
Price Sensitivity The demand curve sums the reactions of many individuals with
different price sensitivities. Customers are less price sensitive to low-
cost items or items they buy infrequently.
They are also less price sensitive when (1) there are few or no
substitutes or competitors; (2) they do not readily notice the higher
price; (3) they are slow to change their buying habits; (4) they think the
higher prices are justified; and (5) price is only a small part of the total
cost of obtaining, operating, and servicing the product over its lifetime
Estimating Demand Most companies attempt to measure their demand curves using several
Curves different methods.
Surveys can explore how many units consumers would buy at different
proposed prices.
Price experiments can vary the prices of different products to see how
the change affects sales.
Statistical analysis of past prices, quantities sold, and other factors can
reveal their relationships. These can be: Longitudinal or Cross-sectional
Price Elasticity of Marketers need to know how responsive or elastic, demand would be to
Demand a change in
price. If
demand
hardly
changes
with a small
change in
price,
demand is
said to be
inelastic, and if demand changes considerably it is said to be elastic.
There may be a price indifference band within which price changes have
little or no effect.

Long-run price elasticity may differ from short-run elasticity. Buyers

may continue to buy from a current supplier after a price increase but
eventually switch suppliers. Here demand is more elastic in the long run
than in the short run, or the reverse may happen: Buyers may drop a
supplier after a price increase but return later. The distinction between
short-run and long-run elasticity means that sellers will not know the
total effect of a price change until time passes.

Estimating Costs Demand sets a ceiling on the price the company can charge for its
product. Costs set the floor. The company wants to charge a price that
covers its cost of producing, distributing, and selling the product,

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 including a fair return for its effort and risk. Yet when companies price
products to cover their full costs, profitability isn’t always the net result.
Types of Cost and A company’s costs take two forms, fixed and variable
Levels of Production Fixed (overhead) costs are costs that do not vary with production or
sales revenue.
Variable costs vary directly with level of production.
Total costs consist of the sum of the fixed and variable costs for any
given level of production.
Average cost is the cost per unit at that level of production
Management wants to charge a price that will at least cover the total
production costs at a given level of production. To price intelligently,
management needs to know how its costs vary with different levels of
production.
To estimate the real profitability of dealing with different retailers, the
manufacturer needs to use activity-based accounting (ABC).ABC
accounting tries to identify the real costs associated with serving each
customer. The key to effectively employing ABC is to define and judge
“activities” properly.
Accumulated The decline in the average cost with accumulated production
Production experience is called the experience curve or learning curve.
Experience-curve pricing carries major risks.-
 Aggressive pricing might give the product a cheap image.
 The strategy assumes that competitors are weak followers.
Most experience-curve pricing focuses on manufacturing costs, but all
costs, including marketing costs, can be improved on.
Target Costing Costs change with production scale and experience. They can also
change as a result of a concentrated effort to reduce them through
target costing. The objective is to bring the final cost projections into
the target cost range.
Market research establishes a new product’s desired functions and the
price at which it will sell, given its appeal and competitors’ prices. This
price less desired profit margin leaves the target cost the marketer must
achieve.
Analysing Within the range of possible prices determined by market demand and
Competitor’s company costs, the firm must take competitors’ costs, prices, and
Costs, Prices and possible price reactions into account. If the firm’s offer contains
Offers features not offered by the nearest competitor, it should evaluate their
worth to the customer and add that value to the competitor’s price. If
the competitor’s offer contains some features not offered by the firm,
the firm should subtract their value from its own price. Now the firm
can decide whether it can charge more, the same, or less than the
competitor.

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 The Three Cs Given the customers’ demand schedule, the cost
Model for Price- function, and competitors’ prices, the company is now
Setting ready to select a price.
Adjoining figure summarizes the three major
considerations in price setting: Costs set a floor to the
price. Competitors’ prices and the price of substitutes
provide an orienting point. Customers’ assessment of
unique features establishes the price ceiling.

Selecting a Pricing Companies select a pricing method that includes one or more of these
Method three considerations – Costs, Competitor’s prices and Customer
assessment. Any pricing method that ignores current demand,
perceived value, and competition is not likely to lead to the optimal
price. There are six price-setting methods.-
Markup pricing, Target-return pricing, Perceived-value pricing, Value
pricing, Going-rate pricing, Auction-type pricing.
Markup Pricing The most elementary pricing method is to add a standard markup to the
product’s cost.
Unit cost
Markup price =
(1- Desired return on sales)
Where
Fixed cost
Unit cost = Variable cost + Unit sales

Though not likely to lead to the optimal price, it still remains popular
because
 Sellers can determine costs much more easily than they can estimate
demand.
 By tying the price to cost, sellers simplify the pricing task.
 Where all firms in the industry use this pricing method, prices tend to
be similar.
 Many people feel that cost-plus pricing is fairer to both buyers and
sellers

Target-Return In target-return pricing, the firm determines the price that would yield
Pricing its target rate of return on investments (ROI).

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 Target-Return desired return x invested capital
unit cost +
price = unit sales

The manufacturer can prepare a break-even chart to learn what would

happen to other sales levels. And verify by
fixed cost
Break-even volume =
(price – variable cost)

Target-return pricing tends to ignore price elasticity and competitors’

prices.

Perceived-Value Customer’s perceived value is determined by the buyer’s image of the

Pricing product performance, the channel deliverables, the warranty quality,
customer support, and softer attributes such as the supplier’s
reputation, trustworthiness, and esteem. Companies must deliver the
value promised by their value proposition, and the customer must
perceive this value.
The key to perceived-value pricing is to deliver more value than the
competitor and to demonstrate this to prospective buyers

Value Pricing Several companies adopt value pricing- they win loyal customers by
charging a fairly low price for a high-quality offering. Value pricing is
not a matter of simply setting lower prices. It is a matter of
reengineering the company’s operations to become a low-cost producer
without sacrificing quality.
An important type of value pricing is everyday low pricing (EDLP) that
takes place at the retail level.
In high-low pricing, the retailer charges higher prices on an everyday
basis but then runs frequent promotions in which prices are
temporarily lowered below the EDLP level

Going-Rate Pricing the firm bases its price largely on competitor’s prices. The firm might
charge the same, more, or less than major competitor(s).
It is quite popular where costs are difficult to measure or competitive
response is uncertain.

Auction-Type with the growth of the Internet, Auction-type pricing is growing more
Pricing popular; there are three type of auction type pricing –
English auctions (ascending bids) - have one seller and many buyers.
the seller puts up an item and bidders raise the offer price until the top
price is reached
Dutch auctions (descending bids) - feature one seller and many buyers,
or one buyer and many sellers. In the first kind, an auctioneer
announces a high price for a product and then slowly decreases the
price until a bidder accepts. In the other, the buyer announces
something he or she wants to buy, and potential sellers compete to offer
the lowest price.
Sealed-bid auctions - suppliers submit only one bid; they cannot know
the other bids.

Selecting the Final Pricing methods narrow the range from which the company must select
Price its final price. In selecting the price, the company must consider
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 additional factors, including the impact of other marketing activities,
company pricing policies, gain-and-risk sharing pricing, and the impact
of price on other parties.

Adapting the Companies usually do not set a single price but rather develop a pricing
Price structure that reflects variations in geographical demand and costs,
market-segment requirements, purchase timing, order levels, delivery
frequency, guarantees, service contracts, and other factors.
Geographical In geographical pricing, the company decides how to price its products
Pricing (Cash, to different customers in different locations and countries.
Countertrade, Another question is how to get paid. This issue is critical when buyers
Barter) lack sufficient hard currency to pay for their purchases. Many buyers
want to offer other items in payment, a practice known as
countertrade. Countertrade may account for 15 percent to 20 percent
of world trade and takes several forms.
Barter means the buyer and seller directly exchange goods, with no
money and no third party involved.
A compensation deal involves the seller receives some percentage of
the payment in cash and the rest in products.
A buyback arrangement means that the seller sells a plant, equipment,
or technology to another country and agrees to accept as partial
payment products manufactured with the supplied equipment.
Offset means the seller receives full payment in cash but agrees to
spend a substantial amount of the money in that country within a stated
time period.
Price Discounts and Most companies will adjust their list price and give discounts and
Allowances allowances for early payment, volume purchases, and off-season buying.
Companies must do this carefully or find their profits much lower than
planned.
A discount is a price reduction to buyers who pay bills promptly.
A quantity discount is a price reduction to those who buy large
volumes.
A functional or trade discount is offered by a manufacturer to trade
channel members if they will perform certain functions, such as selling,
storing, and record keeping.
A seasonal discount is a price reduction to those who buy merchandise
or services out of season.
An allowance is an extra payment designed to gain reseller
participation in special programs
Promotional Pricing Companies can use several pricing techniques to stimulate early
Tactics purchase.
Loss-leader pricing means that supermarkets and department stores
often drop the price on well-known brands to stimulate additional store
traffic. This pays if the revenue on the additional sales compensates for
the lower margins on the loss-leader items.
Special event pricing means that sellers will establish special prices in
certain seasons to draw in more customers.
Special customer pricing means sellers will offer special prices
exclusively to certain customers.
Cash rebates mean that auto companies and other consumer-goods
companies offer cash rebates to encourage purchase of the
manufacturers’ products within a specified time period.
Low-interest financing means that instead of cutting its price, the
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 company can offer customers low interest financing. Sellers, especially
mortgage banks and auto companies, stretch loans over longer periods
and thus lower the monthly payments.
Companies can promote sales by adding a free or low-cost warranty or
service contract.
Using psychological discounting is a strategy that sets an artificially
high price and then offers the product at substantial savings
Differentiated In third-degree price discrimination, the seller charges different
Pricing amounts to different classes of buyers, as in the following cases:
Customer-segment pricing. Different customer groups pay different
prices for the same product or service.
Product-form pricing. Different versions of the product are priced
differently, but not proportionately to their costs.
Image pricing. Some companies price the same product at two
different levels based on image differences.
Channel pricing. Coca-Cola carries a different price depending on
whether the consumer purchases it in a fine restaurant, a fast-food
restaurant, or a vending machine.
Location pricing. The same product is priced differently at different
locations even though the cost of offering it at each location is the same.
Time pricing. Prices are varied by season, day, or hour.

Initiating and Companies often face situations when they may need to cut or raise
Responding to prices.
Price Changes Firms often need to change prices. A price decrease might be brought
about by excess plant capacity, declining market share, a desire to
dominate the market through lower costs, or economic recession.
A price increase might be brought about by cost inflation or over-
demand. Companies must carefully manage customer perceptions in
raising prices.

Traps in Price Low-quality trap. Consumers assume quality is low.

Cutting Strategies Fragile-market-share trap. A low price buys market share but not
market loyalty. Shallow-pockets trap. Higher-priced competitors match
the lower prices but have longer staying power because of deeper cash
reserves.
Price-war trap. Competitors respond by lowering their prices even
more, triggering a price war.
Methods for Delayed quotation pricing means that the company does not set a final
Increasing Prices price until the product is finished or delivered.
Escalator clauses are used when the company requires the customer to
pay today’s price and all or part of any inflation increase that takes
place before delivery.
Unbundling means the company maintains its price but removes or
prices separately one or more elements that were part of the former
offer, such as free delivery or installation.
Reduction of discounts means that the company instructs its sales force
not to offer its normal cash and quantity discounts.
Responding to Companies must anticipate competitor price changes and prepare a
Competitor’s Price contingent response. A number of responses are possible in terms of
Changes maintaining or changing price or quality. Brand Leader can respond by
choosing –
 Maintain price

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  Maintain price and add value
 Reduce price
 Increase price and improve quality
 Launch a low-price fighter line

Designing and Managing Integrated Marketing Channels

(Successful value creation needs successful value delivery)
Marketing are sets of interdependent organisations participating in the process of
Channels making a product or service available for use or consumption. They are
the set of pathways a product or service follows after production,
culminating in purchase and consumption by the final end user.

Intermediaries Most producers do not sell their goods directly to the final users;
between them stands a set of intermediaries performing a variety of
functions. These intermediaries constitute a marketing channel (also
called a trade channel or distribution channel).
Some intermediaries—such as
wholesalers and retailers—buy, take title to, and resell the
merchandise; they are called merchants. Others—brokers,
manufacturers’ representatives, sales agents—search for customers and
may negotiate on the producer’s behalf but do not take title to the
goods; they are called agents.
Still others—transportation companies, independent warehouses,
banks, advertising agencies—assist in the distribution process but
neither take title to goods nor negotiate purchases or sales; they are
called facilitators

Role of Companies use intermediaries when they lack the financial resources to
Intermediaries carry out direct marketing, when direct marketing is not feasible, and
when they can earn more by doing so.
The most important functions performed by intermediaries are
information, promotion, negotiation, ordering, financing, risk taking,
physical possession, payment, and title

Marketing Is the particular set of marketing channels a firm employs. The channels
channel system chosen affect all other marketing decisions.
Channels and In managing its intermediaries, the firm must decide how much effort to
Marketing devote to push versus pull marketing.
Decisions A Push strategy uses the manufacturer’s sales force, trade promotion
money, or other means to induce intermediaries to carry, promote, and
sell the product to end users.
In a Pull strategy the manufacturer uses advertising, promotion, and
other forms of communication to persuade consumers to demand the
product from intermediaries, thus inducing the intermediaries to order
it.

Hybrid Channels Hybrid channels or multichannel marketing occurs when a single firm
uses two or more marketing channels to reach customer segments.
Companies that manage hybrid channels must make sure these
channels work well together and match each target customer’s
preferred ways of doing business. Customers expect channel
integration, characterized by the following features:
 order a product online and pick it up at a convenient retail location

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  to return an online ordered product to a nearby store of the retailer.
 receive discounts based on total online and off-line purchases.

Demand Chain The process of designing the supply chain based on adopting a target
Planning market perspective and working backward.

Value Network is a system of partnerships and alliances that a firm creates to source,
augment and deliver its offerings. It examines the whole supply chain
that links raw materials, components, and manufactured goods and
shows how they move toward the final consumers

Channel Member A marketing channel performs the work of moving goods from
Functions and producers to consumers. It overcomes the time, place, and possession
flows gaps that separate goods and services from those who need or want
them. Members of the marketing channel perform a number of key
functions as - Gather information, Develop and disseminate persuasive
communications, Reach agreements on price and terms, Acquire funds to
finance inventories, Assume risks, Provide for storage, Provide for buyers’
payment of their bills, Oversee actual transfer of ownership.
Some of these functions (storage and movement, title, and
communications) constitute a forward flow of activity from the
company to the customer; other functions (ordering and payment)
constitute a backward flow from customers to the company. Still others
(information, negotiation, finance, and risk taking) occur in both
directions
Channels normally describe a forward movement of products from
source to user. One can also talk about reverse-flow channels, which
are important in the following cases: To reuse products or containers,
To refurbish products for resale, To recycle products, To
dispose of products and packaging

Channel Levels The producer and the final consumer are part of every channel, the
number of intermediary level designates the length of the channel -
A zero-level channel (also called a direct-marketing channel)
consists of a manufacturer selling directly to the final consumer.
A one-level channel contains one selling intermediary such as a
retailer.
A two-level channel contains two intermediaries—a wholesaler and a
retailer.
A three-level channel contains wholesalers, jobbers (small scale
wholesalers), and retailers.
Designing a To design a marketing channel system, marketers analyse customer
Marketing needs and wants, establish channel objectives and constraints, and
Channel System identify and evaluate major channel alternatives.
Analyse Customer Consumers may choose the channels they prefer based on price,
Needs and Wants product assortment, and convenience, as well as their own shopping
goals (economic, social, or experiential). Channels produce five service
outputs:
1. Lot size is the number of units the channel permits a typical
customer to purchase on one occasion.
2. Waiting and delivery time is the average time customers wait for
receipt of goods
3. Spatial convenience is the degree to which the marketing channel
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 makes it easy for customers to purchase the product.
4. Product variety is the assortment provided by the marketing channel
5. Service backup is the add-on services (credit, delivery, installation,
repairs) provided by the channel.

Establishing Marketers should state their channel objectives in terms of targeted

Objectives and service output levels.
Constraints  Channel institutions should arrange their functional tasks to
minimize total channel costs and still provide desired levels of
service outputs.
 Planners can identify several market segments that want different
service levels.
 Channel objectives vary with product characteristics.
 Marketers must adapt their channel objectives to the larger
environment.
 Channel design must take into account the strengths and
weaknesses of different types of intermediaries.
 In entering new markets, firms often closely observe what other
firms are doing.
Identifying Channel alternatives differ in three ways: the types of intermediaries, the
Channel number needed, and the terms and responsibilities of each.
Alternatives
Types of A firm needs to identify the types of intermediaries available to carry on
Intermediaries its channel work. Companies should search for innovative marketing
channels.
Number of Three strategies based on the number of intermediaries are exclusive
Intermediaries distribution, selective distribution, and intensive distribution.
Exclusive distribution means severely limiting the number of
intermediaries.
Selective distribution involves the use of more than a few, but less than
all, of the intermediaries who are willing to carry a particular product.
Intensive distribution consists of the manufacturer placing goods or
services in as many outlets as possible.
Terms and Each channel member must be treated respectfully and given the
Responsibilities of opportunity to be profitable. The main elements in the “trade-relations
Channel Members mix” are:
Price policy calls for the producer to establish a price list and schedule
of discounts and allowances that intermediaries see as equitable and
sufficient.
Condition of sale refers to payment terms and producer guarantees.
Distributors’ territorial rights define the distributors’ territories and the
terms under which the producer will enfranchise other distributors.
Mutual services and responsibilities must be carefully spelled out,
especially in franchised and exclusive- agency channels.
Evaluating Major Each channel alternative needs to be evaluated against economic,
Channel control, and adaptive criteria.
Alternatives Economic criteria - Each channel alternative will produce a different
level of sales and costs. Firms will try to align customers and channels
to maximize demand at the lowest overall cost (and arrive at break-
even cost)
Control and Adaptive Criteria- Using a sales agency poses a control

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 problem.
To develop a channel, members must make some degree of
commitment to each other for a specified period of time

Channel After a company has chosen a channel system, it must select, train,
Management motivate, and evaluate individual intermediaries for each channel. It
Decisions must also modify channel design and arrangements over time.
Selecting Channel To customers, the channels are the company. Companies need to select
Members their channel members carefully - They should evaluate the:
Number of years in business, Other lines carried, Growth and profit
records, Financial strength, Cooperativeness, Service reputation
Training and The company should provide training programs and market research
Motivating Channel programs to improve intermediaries’ performance; The company must
Members constantly communicate its view that the intermediaries are partners in
a joint effort to satisfy end users of the product.
Channel Power Channel power is the ability to alter channel members’ behaviour so
they take actions they would not have taken otherwise. Manufacturers
can draw on the following types of power to elicit cooperation:
Coercive power means that the manufacturer threatens to withdraw a
resource or terminate a relationship if intermediaries fail to cooperate.
Reward power includes when the manufacturer offers intermediaries an
extra benefit for performing specific acts or functions.
Legitimate power includes the manufacturer requesting a behaviour
that is warranted under the contract.
Expert power means the manufacturer has special knowledge the
intermediaries value.
Referent power means the manufacturer is so highly respected that
intermediaries are proud to be associated with it.
Channel Some companies try to forge a long-term partnership with distributors.
Partnerships The manufacturer clearly communicates what it wants from its
distributors in the way of market coverage, inventory levels, marketing
development, account solicitation, technical advice and services, and
marketing information and may introduce a compensation plan for
adhering to the policies
Evaluating Channel Producers must periodically evaluate intermediaries’ performance
Members against such standards as sales quota attainment, average inventory
levels, customer delivery times, treatment of damaged and lost goods,
and cooperation in promotional and training programs

Modifying No channel strategy remains effective over the whole product life cycle.
Channel Design The change could mean adding or dropping individual market channels
and or channel members or developing a totally new way to sell goods.
Arrangements Channel evolution - A new firm typically starts as a local operation
selling in a fairly circumscribed market, using a few existing
intermediaries. A successful firm might branch into new markets with
different channels.
Channel Modification Decisions - A producer must periodically review
and modify its channel design and arrangements, the distribution
channel may not work as planned - consumer buying patterns change,
the market expands, new competition arises, innovative distribution
channels emerge, and the product moves into later stages in the product
life cycle.

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Channel A conventional marketing channel consists of an independent producer,
Integration wholesaler(s), and retailer(s). Each is a separate business seeking to
system maximize its own profits, even if this goal reduces profit for the system
as a whole. No channel member has complete or substantial control
over other members.
Vertical Marketing A vertical marketing system (VMS) includes the producer,
Systems wholesaler(s), and retailer(s) acting as a unified system. One channel
member, the channel captain, owns or franchises the others or has so
much power that they all cooperate. There are three types -
Corporate VMS – combines successive stages of production and
distribution under single ownership.
Administered VMS - coordinates successive stages of production and
distribution through the size and power of one of the members.
Manufacturers of dominant brands can secure strong trade cooperation
and support from resellers.
Contractual VMS - consists of independent firms at different levels of
production and distribution, integrating their programs on a
contractual basis to obtain more economies or sales impact than they
could achieve alone. Sometimes thought of as “value-adding
partnerships” (VAPs), contractual VMSs come in three types:
wholesaler-sponsored voluntary chains, retailer cooperatives, and
franchise organizations.
Horizontal in which two or more unrelated companies put together resources or
Marketing Systems programs to exploit an emerging marketing opportunity.
Multi-Channel occurs when a single firm uses two or more marketing channels to
Marketing reach one or more customer segments.

Integrated is one in which the strategies and tactics of selling through one channel
Marketing Channel reflect the strategies and tactics of selling through other channels.
system Companies need to think through their channel architecture. They must
determine which channels should perform which functions, they should
use different sales channels for different-sized business customers and
they also need to decide how much of their product to offer in each of
the channel.

Conflict, No matter how well channels are designed and managed, there will be
Cooperation, and some conflict, its mainly because the interests of independent business
Competition entities do not always coincide. Channel conflict is generated when one
channel member’s actions prevents another channel from achieving its
goal.
Channel coordination occurs when channel members are brought
together to advance the goals of the channel, as opposed to their own
potentially incompatible goals.
Horizontal channel conflict occurs between channel members at the
same level. Vertical channel conflict occurs between different levels of
the channel. Multichannel conflict exists when the manufacturer has
established two or more channels that sell to the same market.
Causes of Channel Some causes of channel conflict are easy to resolve, others are not.
Conflict Conflicts may arise from – Goal incompatibility, unclear goals and rights,
differences in perception and intermediaries dependence on the
manufacturer.
Strategies for Some channel conflict can be constructive and lead to better adaptation
Managing Channel to a changing environment, but too much is dysfunctional. The

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 Conflict challenge is not to eliminate conflict but to manage it better. There are
several mechanisms for effective conflict management such as -
Strategic justification, Dual compensation, Superordinate goals,
Employee exchange, Joint membership, Co-option, Diplomacy,
mediation, and arbitration, Legal recourse
Dilution and Marketers must also be careful not to dilute their brands through
Cannibalization inappropriate channels, particularly luxury brands whose images often
rest on exclusivity and personalized service.

E-Commerce E-commerce uses a Web site to transact or facilitate the sale of products
and services online. Online retailers compete in three key aspects of a
transaction: (1) customer interaction with the Web site, (2) delivery,
and (3) ability to address problems when they occur.
Pure-click companies, are those that have launched a Web site without
any previous existence as a firm, and
Brick-and-click companies, are existing companies that have added an
online site for information or e-commerce.

M-Commerce An area of increasing importance is m-commerce (m- for mobile) and

marketing through smart phones and PDAs —it allows people to
connect to the Internet and place online orders on the move

Managing Retailing, Wholesaling, and Logistics

Retailing Any organization selling to final consumers—whether it is a
manufacturer, wholesaler, or retailer—is doing retailing. It includes all
the activities in selling goods or services directly to final consumers for
personal, non-business use. A retailer or retail store is any business
enterprise whose sales volume comes primarily from retailing

Major retailer Consumers can shop for goods and services at store retailers, non-
types retailers and retail organisations; (overwhelming bulk of goods and
services (97%) -is sold through stores)
Store Retailers Different format of store retailers will have different competitive and
price dynamics –
1. Specialty store: Narrow product line. (Tanishq)
2. Department store: Several product lines. (Shoppers Stop).
3. Supermarket: Large, low-cost, low-margin, high-volume, self-
service store designed to meet total needs for food and household
products. (HyperCITY).
4. Convenience store: Small store in residential area, often open 24/7,
limited line of high-turnover convenience products plus takeout.
(7-Eleven, Circle K)
5. Drug store: Prescription and pharmacies, health and beauty aids,
other personal care, small durable, miscellaneous items (Religare).
6. Discount store: Standard or specialty merchandise; low-price, low-
margin, high-volume stores. (Walmart, Kmart.)
7. Extreme value or hard-discount store: A more restricted
merchandise mix than discount stores but at even lower prices.
(Big Bazaar).
8. Off-price retailer: Leftover goods, overruns, irregular merchandise
sold at less than retail. Factory outlets; independent off-price
retailers (TJ Maxx).
9. Superstore: Huge selling space, routinely purchased food and
household items, plus services. Category killer carry deep
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 assortment in one category (Staples); hypermarket are huge stores
that combine supermarket, discount, and warehouse retailing
(Carrefour in France, Meijer’s in the Netherlands).
10. Catalog showroom: include a broad selection of high-markup, fast-
moving, brand-name goods sold by catalog at a discount.

Levels of Retail Retailers meet widely different consumer preferences for service levels
Service and specific services. They position themselves as offering one of four
levels of service.
Self-service - is the cornerstone of all discount operations. Many
customers are willing to carry out their own “locate-compare-select”
process to save money.
Self-selection - customers find their own goods, although they can ask
for assistance.
Limited service - retailers carry more shopping goods and services
such as credit and merchandise-return privileges.
Full service - salespeople are ready to assist in every phase of the
“locate-compare-select” process. Customers who like to be waited on
prefer this type of store

Non-store Non-store retailing falls into four major categories:

Retailing  Direct selling, also called multilevel selling and network marketing,
is a multibillion-dollar industry, with hundreds of companies selling
door-to-door or at home sales parties.
 Direct marketing has roots in direct-mail and catalogue marketing;
it includes telemarketing, television direct-response marketing, and
electronic shopping.
 Automatic vending offers a variety of merchandise, including
impulse goods such as soft drinks, coffee, candy, newspapers,
magazines, and other products such as hosiery, cosmetics, hot food,
and paperbacks.
 Buying service is a storeless retailer serving a specific clientele—
usually employees of large organizations (entitled to buy from a list
of retailers that have agreed to give discounts in return for
membership).

Corporate Retailing Although many retail stores are independently owned, an increasing
number are part of some form of corporate retailing. These
organizations achieve economies of scale, greater purchasing power,
wider brand recognition, and better-trained employees than
independent stores can usually gain alone.
The major types of corporate retailing:
Corporate chain stores -refers to two or more outlets owned and
controlled, employing central buying and merchandising, and selling
similar lines of merchandise (Reliance Mart)
Voluntary chains - is a wholesaler-sponsored group of independent
retailers engaged in bulk buying and common merchandising.
Independent Grocers Alliance (IGA)
Retailer cooperative - is an independent retailers using a central
buying organization and joint promotion efforts (ACE Hardware)
Consumer cooperative - retail firm owned by its customers. Members
contribute money to open their own store, vote on its policies, elect a
group to manage it, and receive dividends (Super Bazaar)
Franchise organisation - is a contractual association between a
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 franchisor and franchisees, popular in a number of product and service
areas (McDonalds’s, Subway, Pizza Hut)
Merchandising conglomerates - is a corporation that combines several
diversified retailing lines and forms under central ownership, with
some integration of distribution and management.(Pantaloons, Central,
Big Bazaar, Food Bazaar, e-zone)

Franchising In a Franchising system, individual franchisees are a tightly knit group

System of enterprises whose systematic operations are planned, directed, and
controlled by the operation’s innovator, called a franchisor.
Franchises are distinguished by three characteristics:
 The franchisor owns a trade or service mark and licenses it to
franchisees in return for royalty payments.
 The franchisee pays for the right to be part of the system. Start-up
costs include rental and lease equipment and fixtures, and usually a
regular license fee.
 The franchisor provides its franchisees with a system for doing
business.

Changes in the In India, the growth of urbanization, the size of the youth market with
retail high disposable income, and economic liberalization has supported
Environment faster growth of organized retail, and has influenced several changes in
the retail marketing environment. Here are some that are changing the
way consumers buy and manufacturers and retailers :
 New retail forms and combinations
 Competition between store-based and non-store-based retailing
 Growth of giant retailers
 Decline of middle market retailers
 Growing investment in technology
 Global profile of major retailers
 Growth of shopper marketing

Retailer’s With new retail environment as background -

marketing Target market - To better hit their targets, retailers are slicing the
decision market into finer and finer segments and introducing new lines of
stores to provide a more relevant set of offerings to exploit niche
markets
Channels - Based on a target market analysis and other considerations,
retailers must decide which channels to employ to reach their
customers.
Product Assortment - The retailer’s product assortment must match the
target market’s shopping expectations in breadth and depth and develop
product differentiation strategy.
Procurement - retailer must establish merchandise sources, policies, and
practices; Stores are using direct product profitability (DPP) to measure a
product’s handling costs (receiving, moving to storage, paperwork,
selecting, checking, loading, and space cost) from the time it reaches the
warehouse until a customer buys it in the retail store
Prices - Prices are a key positioning factor and must be decided in relation
to the target market. All retailers aim for high turns x earns (high volumes
and high gross margins) but the two don’t usually go together, and fall into
high markup – low volume (specialty store) or low markup – high volume
(discount store).
Services - Retailers must decide on the services mix to offer customers.
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 Pre-purchase services include accepting telephone and mail orders,
advertising, window and interior display, fitting rooms, shopping hours,
fashion shows, and trade-ins.
Post-purchase services include shipping and delivery, gift wrapping,
adjustments and returns, alterations and tailoring, installations, and
engraving.
Ancillary services include general information, check cashing, parking,
restaurants, repairs, interior decorating, credit, rest rooms, and baby-
attendant service
Store atmosphere and experiences - Store atmosphere refers to the “look”
or “feel” that is influenced by colours, smell, music and physical layout of the
store, which make it hard or easy to move around; Some retailers of
experiential products are creating in-store entertainment to attract
customers who want fun and excitement. Retailers must consider all the
senses in shaping the customer’s experience.
Communications - Retailers use a wide range of communication that
support and reinforce its image positioning tools, to generate traffic and
purchases.
Location Decisions - Retailers are accustomed to saying that the three keys
to success are “location, location, and location.” In view of the relationship
between high traffic and high rents, retailers must decide on the most
advantageous locations for their outlets. They can locate their stores in the:
Central business district - The oldest and most heavily trafficked city
areas, often known as “downtown”
Regional shopping centers - Large suburban malls containing 40 to 60
stores, with few well known chains.
Communityshopping centers - Smaller malls with one anchor store and 20
to 40 smaller stores.
Shopping strips - A cluster of stores, usually in one long building, serving a
neighbourhood’s needs for groceries, hardware, laundry, shoe repair, and
dry cleaning.
A location within a larger store - Certain well-known retailers locate new,
smaller units as concession space within larger stores or operations, such
as airports, schools, or department stores.
Stand-alone stores - . Some retailers avoid malls and shopping centers to
locate new stores in free-standing sites on streets, so they are not
connected directly to other retail stores.

Private Labels A private label brand (also called a reseller, store, house, or distributor
brand) is a brand that retailers and wholesalers develop. For many
manufacturers, retailers are both collaborators and competitors. Some
experts believe that 50 percent is the natural limit for carrying private
brands because: Consumers prefer certain national brands; and Many
product categories are not feasible or attractive on a private-brand
basis.

Characteristics of Private labels - are ubiquitous; accepted by the consumer; buyers come
Private labels from all socioeconomic strata; are not a recessionary phenomenon; are
more profitable than national brands; .-Retailers develop exclusive
store brands to differentiate themselves from competitors; -Consumer
loyalty shifts from manufacturers to retailers.
Generics Private labels should be distinguished from generics. Generics are
unbranded, plainly packaged, less expensive versions of common

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 products

Wholesaling includes all the activities involved in selling goods and services to those
who buy for resale or business use and it excludes farmers,
manufacturers, and retailers.
Characteristics Wholesalers (also called distributors) differ from retailers in:
 they pay less attention to promotion, atmosphere, and location
because they are dealing with business customers.
 their transactions are usually larger than retail transactions.
 they cover a larger trade area than retailers.
 the government deals with wholesalers and retailers differently in
terms of legal regulations and taxes.
Functions Wholesalers are more efficient in performing one or more of these
functions.
Selling and promoting – their sales forces help manufacturers reach
many small business customers at a relatively low cost.
Buying and assortment building - are able to select items and build the
assortments their customers need, saving them considerable work.
Bulk breaking - achieve savings for their customers by buying large
carload lots and breaking the bulk into smaller units.
Warehousing - they hold inventories, thereby reducing inventory costs
and risks to suppliers and customers.
Transportation - they can often provide quicker delivery to buyers
because they are closer to the buyers.
Financing - they finance customers by granting credit, and finance
suppliers by ordering early and paying bills on time.
Risk bearing - absorb some risk by taking title and bearing the cost of
theft, damage, spoilage, and obsolescence.
Market information - supply information to suppliers and customers
regarding competitors’ activities, new products, price developments,
and so on. Management services and counselling – they often help
retailers improve their operations by training sales clerks, helping with
store layouts and displays, and setting up accounting and inventory-
control systems.

Major Wholesaler Merchant wholesalers are independently owned businesses that take
types title to the merchandise they handle. They are full-service and limited-
service jobbers, distributors, mill supply houses.
Full-service wholesalers carry stock, maintain a sales force, offer
credit, and make deliveries.
Limited-service wholesalers are
cash and carry wholesalers who sell a limited line of fast-moving
goods to small retailers for cash.
Truck wholesalers sell and deliver a limited line of semi-perishable
goods to supermarkets, grocery stores, hospitals, restaurants, hotels.
Drop shippers serve bulk industries such as coal, lumber, heavy
equipment. They assume title and risk from the time an order is
accepted to its delivery.
Rack jobbers serve grocery retailers in non-food items. Delivery
people set up displays, price goods, keep inventory records; they
retain title to goods and bill retailers only for goods sold to the end of
the year.
Producers’ cooperatives assemble farm produce to sell in local

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 markets.
Mail-order wholesalers send catalogs to retail, industrial, and
institutional customers; orders are filled and sent by mail, rail, plane,
or truck.
Brokers and agents facilitate buying and selling, on commission of 2
percent to 6 percent of the selling price; limited functions; generally
specialize by product line or customer type.
Specialized wholesalers include agricultural assemblers, petroleum
bulk plants and terminals, and auction companies.
Market Logistics includes planning the infrastructure to meet demand, then
implementing and controlling the physical flows of materials and final
goods from points of origin to points of use, to meet customer
requirements at a profit.
Market logistics planning has four steps:
 deciding on the company’s value proposition to its customers
 deciding on the best channel design and network strategy
 developing operational excellence
 implementing the solution

Supply Chain SCM starts before physical distribution and means strategically
Management procuring the right inputs (raw materials, components, and capital
(SCM) equipment); converting them efficiently into finished products; and
dispatching them to the final destinations

Integrated The market logistics task calls for integrated logistics systems (ILS),
Logistics systems which include materials management, material flow systems, and
(ILS) physical distribution, aided by information technology (IT). Information
systems play a critical role in managing market logistics, especially via
computers, point-of-sale terminals, uniform product bar codes, satellite
tracking, electronic data interchange (EDI), and electronic funds
transfer (EFT). These developments have shortened the order-cycle
time, reduced clerical labour, reduced errors, and provided improved
control of operations.
Functions of ILS Market logistics encompass several activities - The first is sales
forecasting, on the basis of which the company schedules distribution,
production, and inventory levels. Production plans indicate the materials
the purchasing department must order. These materials arrive through
inbound transportation, enter the receiving area, and are stored in raw-
material inventory. Raw materials are converted into finished goods.
Finished-goods inventory is the link between customer orders and
manufacturing activity. Customers’ orders draw down the finished-
goods inventory level, and manufacturing activity builds it up. Finished
goods flow off the assembly line and pass through packaging, in-plant
warehousing, shipping-room processing, outbound transportation, field
warehousing, and customer delivery and servicing.

Market Logistics Given that market-logistics activities require strong trade-offs,

Objectives managers must make decisions on a total-system basis. The company
must research the relative importance of each of their service outputs -
they study what customers require and what competitors are offering,
and ultimately must establish some promise it makes to the market.
Given the market-logistic objectives, the company must design a system
that will minimize the cost of achieving these objectives. Each possible
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 market-logistics system will lead to the following costs:

M = T + FW + VW + S
Where M = total market-logistic cost of proposed system.
Where T = total freight cost of proposed system.
Where FW = total fixed warehouse cost of proposed system.
Where VW = total variable warehouse costs (including
inventory).
Where S = total cost of lost sales due to average delivery delay
under proposed system.
Market Logistics The firm must make four major decisions about its market logistics: (1)
Decisions How should orders be handled (order processing)? (2) Where should
stock be located (warehousing)? (3) How much stock should be held
(inventory)? and (4) How should goods be shipped(transportation)?
Order processing companies are trying to shorten the order-to-payment cycle -that is the
elapsed time between an order’s receipt, delivery, and payment. The
longer this cycle takes the lower the customer’s satisfaction and the
lower the company’s profits
Warehousing The storage function helps smooth discrepancies between production
and quantities desired by the market.
Storage warehouses store goods for moderate-to-long periods of time.
Distribution warehouses receive goods from various company plants
and suppliers and move them out as soon as possible.
Automated warehouses employ advanced materials-handling systems
under the control of a central computer.
Inventory Inventory cost increases at an accelerating rate as the customer-service
level approaches 100%. Management needs to know how much sales
and profits would increase as a result of carrying larger inventories and
promising faster order fulfilment times, and then make a decision.
The stock level to place a new order is called the order (reorder) point.-
it must balance the risks of stock-out against the costs of overstock.
The company needs to balance order-processing costs and inventory-
carrying costs.-Order-processing costs for a manufacturer consist of
setup costs and running costs (operating costs when production is
running); Carrying costs include storage charges, cost of capital, taxes
and insurance, and depreciation and obsolescence.
The optimal order quantity can be determined by observing how order-
processing costs and inventory-carrying costs sum up at different order
levels
Transportation Transportation choices will affect product pricing, on-time delivery
performance, and the conditions of the goods upon arrival, all of which
affects customer satisfaction.
Containerisation consists of putting the goods in boxes or trailers that
are easy to transfer between two transportation modes.
 Piggyback describes the use of rail and trucks.
 Fishyback water and trucks.
 Trainship water and rail.
 Airtruck air and trucks.
In deciding on transportation modes, shippers can choose from:
 Private carrier- the shipper owns their own truck or air fleet,
 Contract carrier is an independent organization selling
transportation services to others on a contract basis.
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  Common carrier provides services between predetermined points
on a scheduled basis and is available to all shippers at standard
rates.

Designing and Managing Integrated Marketing Communications

(Done right, marketing communications can have a huge payoff)
Marketing are the means by which firms attempt to inform, persuade, and remind
Communications consumers—directly or indirectly—about the products and brands they
sell.

Role of Marketing  Marketing communications represent the “voice” of the brand and
Communications are a means by which it can establish a dialogue and build
relationships with consumers.
 By strengthening the customer loyalty, marketing communications
can contribute to customer equity.
 Marketing communications also work for consumers when they
show how and why a product is used, by whom, where, and when

Marketing consists of eight major modes of communication.

Communications 1. Advertising is any paid form of non-personal presentation and
Mix promotion of ideas, goods, or services by an identified sponsor.
2. Sales promotion is any variety of short-term incentives to encourage
trial or purchase of a product or service.
3. Events and experiences are company-sponsored activities and
programs designed to create daily or special brand-related
interactions with consumers.
4. Public relations and publicity are a variety of programs directed
internally to employees of the company or externally to consumers,
other firms, the government, and media
5. Direct marketing is the use of mail, telephone, fax, e-mail, or Internet
to communicate directly with or solicit response or dialogue from
specific customers and prospects.
6. Interactive marketing is online activities and programs designed to
engage customers or prospects.
7. Word-of-mouth marketing refers to people-to-people oral, written,
or electronic communications.
8. Personal selling is face-to-face interaction with one or more
prospective purchasers for the purpose of making presentations,
answering questions, and procuring orders.

Marketing Marketing communication activities must be integrated to deliver a

Communication consistent message and achieve the strategic positioning.
Effects The starting point in planning marketing communications is a
communication audit that profiles all interactions customers in the
target market may have with the company and all its products and
services.
To implement the right communications programs and allocate money
efficiently marketers need to assess which experiences and impressions
will have the most influence at each stage of the buying process; thus
build customer loyalty and brand equity to drive sales.

The Marketers should understand the fundamental elements of effective

Communication communication. Two models are useful: a macro model and a micro
Process Models model.

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The Macromodel of The communication process involves the sender, receiver, message,
the Communication media, encoding, decoding, response, feedback and noise. To get their
Process message
through,
marketers
must
encode
their
messages in
a way that
the target
audience
can decode
them. They must transmit the message through efficient media that
reach the target audience and develop feedback channels to monitor
response to the message. The last element in the system is noise,
random and competing messages that may interfere with the intended
communication.
The Selection, Attention and Retention concepts may be operating
during communications.
The Micromodel of The micromodel concentrates on consumer’s specific responses to
the Communication communications.
Process The four classic
response hierarchy
models are – AIDA,
Hierarchy-of-
Effects, Innovation-
Adoption and
Communications
Model. All these
models assume the
buyer passes
through cognitive,
affective and
behavioural stages
in that order.
This “learn-feel-do” sequence is appropriate when the audience has high
involvement with a product category perceived to have high
differentiation, such as an automobile or house.
An alternative sequence, “do-feel-learn,” is relevant when the audience
has high involvement but perceives little or no differentiation within
the product category, such as an airline ticket or personal computer.
A third sequence, “learn-do-feel,” is relevant when the audience has low
involvement and perceives little differentiation, such as with salt or
batteries.
By choosing the right sequence, the marketer can do a better job of
planning communications.
Developing Developing effective communications involves the following steps:
effective identify the target audience, determining the objectives, designing the
communication communications selecting the channels and establishing the budget -
establish the total communications budget.
Identify the target The communication process must start with a clear target audience in
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 audience mind, they influence the communicator’s decision s about what to say,
how when where and to whom. Target audience can also be profiled in
terms of – usage and loyalty, new or current user, heavy or light user.
An Image Analysis can be conducted -
A major part of audience analysis is assessing the current image of the
company, its products and its competitors. Image is the set of beliefs,
ideas and impressions a person holds regarding an object. Consumer’s
attitudes and actions on toward an object are highly conditioned by that
object’s image
Determine the Communication objectives can be set at any level of the hierarchy-of-
communications effects model. Four key communications objectives identified –
objective Category need - establishing a product or service category as necessary
to remove or satisfy a perceived discrepancy between a current
motivational state and a desired emotional state.
Brand Awareness – fostering consumer’s ability to recognize or recall
the brand within the category, in sufficient detail to make a purchase.(it
provides a foundation for brand equity)
Brand attitude - helping consumers evaluate the brand’s perceived
ability to meet a currently relevant need.
Brand purchase intention – focus on moving consumers to decide to
purchase the brand or take purchase-related action.
Designing the Formulating the communications to achieve the desired response
communications requires solving three problems: what to say (message strategy), how to
say it (creative strategy), and who should say it (message source).
Message strategy - management searches for appeals, themes, or ideas
that will tie in to the brand positioning and help establish points-of-
parity or points-of-difference.
Creative strategy - are the way marketers translate their messages into
a specific communication. We can broadly classify them as either
informational or transformational appeals.
Informational appeal - elaborates on product or service attributes or
benefits.
Transformational appeal - elaborates on a nonproduct-related
benefit or image. It might depict what kind of person uses a brand,
or what kind of experience results from use. It often attempts to stir
up emotions that will motivate purchase.
Message source - Messages delivered by attractive or popular sources
can achieve higher attention and recall - the three most often identified
sources of credibility of the spokesperson used are: expertise,
trustworthiness, and likability
Expertise is the specialized knowledge the communicator possesses
to back the claim. Trustworthiness describes how objective and
honest the source is perceived to be. Likability describes the
source’s attractiveness.
If a person has a positive attitude toward a source and a message, or
a negative attitude toward both, a state of congruity is said to exist.
The principle of congruity implies that communicators can use their
good image to reduce some negative feelings toward a brand but in
the process might lose some esteem with the audience.
Select the Selecting an efficient means to carry the message becomes more
communications difficult as channels of communication become more fragmented and
channels cluttered. Communications channels may be personal and nonpersonal.
Within each are many subchannels.
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 Personal communications channels let two or more persons
communicate face-to-face or person-to-audience through a phone,
surface mail, or e-mail.
Nonpersonal channels are communications directed to more than one
person and include advertising, sales promotions, events and
experiences, and public relations.

Establish the Companies decide on the promotion budget in four common ways:
Total Marketing the affordable method - Some companies set the promotion budget at
Communications what they think the company can afford. It leads to uncertain annual
Channel budget, and makes long-range planning difficult.
percentage-of-sales method - Some companies set promotion
expenditures at a specified percentage of sales (current or anticipated)
or the sales price. It encourages management to think about cost, profit
and competition; but tends to ignore what each product and territory
deserves.
competitive-parity method - Some companies set their promotion
budget to achieve share-of-voice parity with competitors
the objective-and-task method – it calls upon marketers to develop
promotion budgets by defining specific objectives, determining the
tasks that must be performed to achieve these objectives, and
estimating the costs of performing these tasks. The sum of these costs is
the proposed promotion budget. The advantage here is it requires
management to spell out its assumptions about the relationship among
rupees spent, exposure levels, trial rates, and regular usage.

Deciding on the Companies must allocate the marketing communications budget over
Marketing the eight major modes of communication:
Communication Advertising - Advertising can be used to build up a long-term image for
mix a product or trigger quick sales, and it can efficiently reach
geographically dispersed buyers. Characteristics are – Persuasiveness,
Amplified expressiveness and Control.
Sales promotion - Companies use sales-promotion tools (eg. coupons,
contests) to draw a stronger and quicker buyer response, including
short-run effects such as highlighting product offers and boosting
sagging sales. It offers three distinct benefits: Ability to be attention-
getting, Incentive and Invitation
Public relations and publicity - Marketers tend to underuse public
relations, yet a well-thought-out program coordinated with the other
promotion-mix elements can be extremely effective; the appeal of
public relations and publicity is based on three distinctive qualities:
High credibility, Ability to catch buyers off guard and Dramatization
Events and experiences – there are many advantages - Relevant,
Involving and implicit.
Direct and interactive marketing – take many forms –over phone,
online or in person, characteristics are – customised, up-to-date and
interactive.
Word-of-mouth marketing – takes many forms offline and online,
characteristics include – Influential, Personal and timely.
Personal Selling - is the most effective tool at the later stages of the
buying process, particularly in building up buyer preference, conviction,
and action. It has three distinctive qualities: Personal interaction,
cultivation and response

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Factors in Setting In choosing the marketing communications mix, marketers must
the Marketing examine the distinct advantages and costs of each communication tool
Communications and the company’s market rank. They must also consider the type of
Mix product market in which they are selling, how ready consumers are to
make a purchase, and the product’s stage in the product life cycle.

Measuring Measuring the effectiveness of the marketing communications mix

Communication involves asking members of the target audience whether they recognize
Results or recall the communication, how many times they saw it, what points
they recall, how they felt about the communication, and their previous
and current attitudes toward the product and the company.

Integrated A planning process designed to assure that all brand contacts received
Marketing by a customer or prospect for a product, service, or organization are
Communications relevant to that person and consistent over time.
(IMC)
Managing the IMC Managing and coordinating the entire communications process calls for
process integrated marketing communications (IMC): marketing
communications planning that recognizes the added value of a
comprehensive plan that evaluates the strategic roles of a variety of
communications disciplines and combines these disciplines to provide
clarity, consistency, and maximum impact through the seamless
integration of discrete messages.
Managing Mass Communications
Developing and Advertising can be a cost-effective way to disseminate messages,
Managing an whether to build a brand preference or to educate people. The 6Ms for
Advertising developing an advertising program –
Program Market – Identifying the target market and buyer motives
(The 6Ms Model) Mission – Define the advertising objectives, sales goals
Money – Decide how much to spend and how to allocate across media
types.
Message – developing the advertising campaign ( what message should
be send)
Media – Selection of media
Measurement – decide on how the results will be evaluated.
Advertising is a specific communications task and achievement level to be
objective accomplished with a specific audience in a specific period of time. It can
be classified according to whether their aim is to inform, persuade,
remind, or reinforce.
Informative advertising aims to create brand awareness and knowledge
of new products or new features of existing products.
Persuasive advertising aims to create liking, preference, conviction, and
purchase of a product or service.
Reminder advertising aims to stimulate repeat purchase of products and
services.
Reinforcement advertising aims to convince current purchasers that
they made the right choice.
Advertising Budget specific factors to consider when setting the advertising budget:
Stage in the product life cycle. New products typically merit large
advertising budgets to build awareness and to gain consumer trial.
Established brands usually are supported with lower advertising
budgets, measured as a ratio to sales.

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 Market share and consumer base. High-market-share brands usually
require less advertising expenditure as a percentage of sales to
maintain share. To build share by increasing market size requires larger
expenditures.
Competition and clutter. In a market with a large number of competitors
and high advertising spending, a brand must advertise more heavily to
be heard. Even simple clutter from advertisements not directly
competitive to the brand creates a need for heavier advertising.
Advertising frequency. The number of repetitions needed to put the
brand’s message across to consumers has an obvious impact on the
advertising budget.
Product substitutability. Brands in less-differentiated or commodity-like
product classes (beer, soft drinks, banks, and airlines) require heavy
advertising to establish a unique image.
Advertising In designing an ad campaign, marketers employ both art and science to
Campaign develop the message strategy or positioning of an ad—what the ad
attempts to convey about the brand—and its creative strategy—how
the ad expresses the brand claims.
Advertisers go through three steps:
Message Generation and evaluation - A good ad normally focuses on
one or two core selling propositions. A Creative brief of one or two
pages is prepared which is an elaboration of the Positioning statement
and includes considerations such as key message, target audience,
communications objectives (to do, to know, to believe), key brand
benefits, supports for the brand promise, and media. Alternate themes
are prepared by Ad Agencies, conduct market research to determine
which appeal works best with its target audience.
Creative Development and Execution –
Television is generally acknowledged as the most powerful advertising
medium and reaches a broad spectrum of consumers at low cost per
exposure.
Advantages - Reaches broad spectrum of consumers; flexibility,
Low cost per exposure, Ability to demonstrate product use,
Ability to portray image and brand personality
Disadvantages – Brief, Clutter, High cost of production, High cost
of placement, Lack of attention by viewers.
Print media offer a stark contrast to broadcast media. Because readers
consume them at their own pace, magazines and newspapers can
provide detailed product information and effectively communicate user
and usage imagery.
The picture, headline, and copy matter in that order. The picture must
be strong enough to draw attention. The headline must reinforce the
picture and lead the person to read the copy. The copy must be
engaging and the brand’s name sufficiently prominent.
Advantages - Detailed product information, Ability to
communicate user imagery, Flexibility in choosing the right
publications, Ability to segment
Disadvantages - Passive medium, Clutter, Unable to demonstrate
product use, Print quality, Short shelf-life.
Social responsibility review – Advertisers and their agencies must
ensure that advertising does not overstep social and legal norms. Public
policy makers have developed a substantial body of laws and
regulations to govern advertising.
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Selection of Media The steps here are deciding on desired reach, frequency, and impact;
choosing among major media types; selecting specific media vehicles;
deciding on media timing; and deciding on geographical media allocation.
Media selection is finding the most cost-effective media to deliver the desired number
and type of exposures to the target audience.
Desired number of exposures is the advertiser seeks a specified advertising
objective and response from the target audience. Exposure depends upon
reach, frequency and impact.
Reach (R) is the number of different persons or households exposed to a
particular media schedule at least once during a specified time period.
(important for new launch)
Frequency (F) is the number of times within the specified time period that
an average person or household is exposed to the message. (important
where there are strong competitors)
Impact (I) is the qualitative value of an exposure through a given medium.

Total number of exposures (E)

or GRP (Gross Rating Points) = RxF
Weighted number of exposures
(WE) = RxFxI
Choosing among The Media planner must know the capacity of the major advertising media
Major Media Types types to deliver reach, frequency, and impact. They make their choices by
considering factors such as target audience media habits, product
characteristics, message requirements, and cost.
Place advertising, or is a broad category including many creative and unexpected forms to grab
out-of-home consumers’ attention. The rationale is that marketers are better off reaching
advertising people where they work, play, and, of course, shop. Popular options include
billboards, public spaces, product placement, and point of purchase.
Selecting specific The media planner must search for the most cost-effective vehicles within
media vehicles each chosen media type. The planner rely on measurement services that
estimates audience size, composition, and media cost and calculates the
cost per thousand persons reached by a vehicle. Several adjustments are
applied to the cost-per-thousand measure: audience quality, audience-
attention probability, the magazine’s editorial quality (prestige and
believability) and their placement policies and extra services.
Media timing and In choosing media, the advertiser has both a macro-scheduling decision,
allocation which relates to seasons and business cycle and micro-scheduling
decision, which calls for allocating advertising expenditures within a
short period to obtain maximum impact.
In launching a new product, the advertiser must choose among -
Continuity means exposures appear evenly throughout a given period.
Concentration calls for spending all the advertising rupees in a single
period
Flighting calls for advertising during a period, followed by a period with
no advertising, followed by a second period of advertising activity.
Pulsing is continuous advertising at low-weight levels, reinforced
periodically by waves of heavier activity.
A company has to decide how to allocate its advertising budget over
space as well as over time: Areas of dominant influence (ADIs) or
Designated marketing areas (DMAs)

Evaluating Communication-effect research seeks to determine whether an ad is

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 Advertising communicating effectively. Called copy testing, it can be done before an
Effectiveness ad is put into media (pre-testing) and after it is printed or broadcast
(post-testing).
Sales-effect research - A company’s share of advertising expenditures
produces a share of voice (proportion of company advertising of that
product to all advertising of that product) that earns a share of
consumers’ minds and hearts and, ultimately, a share of market.

Sales Promotion consists of a collection of incentive tools, mostly short term, designed to
stimulate quicker or greater purchase of particular products or services
by consumers or the trade.
Advertising offers a reason to buy, Sales promotion offers an incentive.
It includes tools for
 consumer promotion (samples, coupons, cash refund offers, prices
off, premiums, prizes, patronage rewards, free trials, warranties, tie-
in promotions, cross-promotions, point-of-purchase displays, and
demonstrations);
 trade promotion (prices off, advertising and display allowances, and
free goods); and
 business and sales force promotion (trade shows and conventions,
contests for sales reps, and specialty advertising).
Establishing For Consumers
Objectives  Incentive-type promotions attract new users, reward loyal
customers and increase the repurchase rates of occasional users.
 to attract brand switchers;
 encouraging stockpiling or purchase of larger-sized units.
For Retailers – persuade to
 Carry new items
 Higher levels of inventory
 Encourage off-season buying
 Encourage stocking of related items
 Offset competitive promotions
 Build brand loyalty
 Gain entry into new retail outlets
For Sales force
 Encourage support of a new product or model
 Encourage more prospecting
 Stimulate off-season sales
Consumer Samples offer of a free amount of a product or service delivered door-to-
promotion tools door, sent in the mail, picked up in a store, attached to another product,
or featured in an advertising offer.
Coupons are certificates entitling the bearer to a stated saving on the
purchase of a specific product.
Cash Refund Offers (rebates) provide a price reduction after purchase
rather than at the retail shop.
Price Packs (cents-off deals) offer to consumers of savings off the
regular price of a product, flagged on the label or package.
Premiums (gifts) are merchandise offered at a relatively low cost or free
as an incentive to purchase a particular product.
Frequency Programs are programs providing rewards related to the
consumer’s frequency and intensity in purchasing the company’s
products or services.
Prizes (contests, sweepstakes, and games) are offers of the chance to
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 win cash, trips, or merchandise as a result of purchasing something.
Patronage Awards offer values in cash or in other forms that are
proportional to patronage of a certain vendor or group of vendors.
Free Trials invite prospective purchasers to try the product without cost
in the hope that they will buy.
Tie-in Promotions are two or more brands or companies team up on
coupons, refunds, and contests to increase pulling power.
Cross Promotions are using one brand to advertise another
noncompeting brand
Point-of-purchase (POP), displays and demonstrations takes place at
the p-o-p or sale venue.
Trade promotion Price-Off (off-invoice or off-list) is a straight discount off the list price on
tools each case purchased during a stated time period.
An allowance is an amount offered in return for the retailer’s agreeing to
feature the manufacturer’s products in some way. An advertising
allowance compensates retailers for advertising the manufacturer’s
product. A display allowance compensates them for carrying a special
product display.
Free Goods offers includes extra cases of merchandise to intermediaries
who buy a certain quantity or who feature a certain flavour or size.
Trade Shows and Conventions are industry associations organize annual
trade shows and conventions.
A sales contest aims at inducing the sales force or dealers to increase
their sales results over a stated period, with prizes (money, trips, gifts,
or points) going to those who succeed.
Specialty advertising consists of useful, low-cost items bearing the
company’s name and address, and sometimes an advertising message
that salespeople give to prospects and customers.
Developing the factors considered are
program  The size of the incentive
 The conditions for participation
 The duration of the promotion
 The distribution vehicle
 The timing of the promotion
 The total sales-promotion budget
Implementing and Marketing managers must prepare implementation and control plans
Evaluating the for each individual promotion that cover lead-time and sell-in time.
Program Lead-time is the time necessary to prepare the program prior to
launching it.
Sell-in time begins with the promotional launch and ends when the
merchandise is in the hands of consumers.
Manufacturers can evaluate the program using three methods: Sales
data, Consumer survey and Experiments

Events and Sponsoring events enables companies to obtain wider exposure for
Experiences their brands and influence consumers’ attitude towards brands.
Atmospheres are “packaged environments” that create or reinforce
leaning toward product purchase
Events Objectives To identify with a particular target market or lifestyle
To increase brand awareness
To create or reinforce consumer perceptions of key brand image
associations
To enhance corporate image
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 To create experiences and evoke feelings
To express commitment to community
To entertain key clients or reward employees
To permit merchandising or promotional opportunities
Major sponsorship Making sponsorships successful requires choosing the appropriate
decisions events, designing the optimal sponsorship program, and measuring the
effects of sponsorship.
Choosing events The event must meet the marketing objectives and communication
strategy defined for the brand.-
 The audience delivered by the event must match the target market.
 The event must have sufficient awareness.
 Possess the desired image.
 Be capable of creating the desired effect with that target market.
 Consumers must make favourable attributions to the sponsor for its
event involved
Designing At least two to three times the amount of the sponsorship expenditure
Sponsorship should be spent on related marketing activities. Event creation is a
Programs particularly important skill in publicizing fund-raising drives for non-
profit organizations. Fund-raisers have developed a large repertoire of
special events, including anniversary celebrations, art exhibits, auctions,
benefit evenings, book sales and walkathons. More firms are now using
their names to sponsor arenas, stadiums, and other venues that hold
events.
Measuring It is a challenge to measure the success of events.
Sponsorship The Supply-side method focuses on potential exposure to the brand by
activities assessing the extent of media coverage. It attempts to approximate the
amount of time or space devoted to media coverage of an event.
The Demand-side method focuses on reported exposure from consumers
and attempts to identify the effects sponsorship has on consumers’
brand knowledge.

Creating A large part of local, grassroots marketing is experiential marketing,

Experiences which not only communicates features and benefits, but also connects a
product or service with unique and interesting experiences; ‘the idea is
not to sell something, but to demonstrate how a brand can enrich a
customer’s life.’

Public Relations A public is any group that has an actual or potential interest in or impact
on a company’s ability to achieve its objectives. Public relations (PR)
include a variety of programs to promote or protect a company’s image
or individual products.
Functions of PR Press relations—Presenting news and information about the
organization in the most positive light.
Product publicity—Sponsoring efforts to publicize specific products.
Corporate communications—Promoting understanding of the
organization through internal and external communications.
Lobbying—Dealing with legislators and government officials to promote
or defeat legislation and regulation.
Counseling—Advising management about public issues, and company
positions and image during good times and bad.
Marketing Public earlier known as Publicity, supports the marketing department in
Relations (MPR) corporate or product promotion and image making, it is a task of
securing editorial space –as opposed to paid space. It also plays

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 important role in -
 Launching new products.
 Repositioning a mature product.
 Building interest in a product category.
 Influencing specific target groups.
 Building the corporate image in a way that reflects favourably on its
products.
Major decisions in management must establish the marketing objectives, choose the PR
MPR messages and vehicles, implement the plan carefully, and evaluate the
results.
Establishing Build awareness, credibility, boost sales force and dealer enthusiasm,
objectives can hold down promotion costs.
Major tools of MPR Major tools in MPR are
Publications, Events, Sponsorships, News, Speeches, Public Service
Activities, Identity Media
Choosing messages The MPR manager must identify or develop interesting stories about
and vehicles the product, propose newsworthy events company can sponsor. The
challenge is to create meaningful news.
Implementation and Difficult to measure as it is used along with other promotional tools. The
evaluation three most commonly used measures of MPR effectiveness are:
Number of exposures, Awareness, comprehension, or attitude
change, Contribution to sales and profits.
Managing Personal Communications
(Personal dialogue between customers, intermediaries and the company is vital for maintaining
a strong relationship and ensuring marketing success.)
Direct Marketing Direct marketing is the use of consumer-direct channels to reach and
deliver goods and services to customers without using market
middlemen.
It is an interactive marketing system that uses one or more media to
effect a measurable response or transaction at any location

Benefits of Direct Market demassification has resulted in an ever-increasing number of

Marketing market niches. Benefits to -
Customers - can be fun, convenient and hassle free, saves time.
Sellers- customize and personalize messages, build a continuous
relationship, can timed to reach the prospect at the right moment,
Permits the testing of alternative media and messages in a cost-effective
approach, can measure responses to their campaigns to decide which
one has been more profitable.

Major Channels Direct marketers can use a number of channels to reach individual
for Direct prospects and customers: direct mail, catalog marketing, telemarketing,
marketing interactive TV, kiosks, Web sites, and mobile devices. They often seek a
measurable response, typically a customer order, through direct-order
marketing.
Direct Mail means sending an offer, announcement, reminder, or other item to an
individual consumer;
It is a popular medium because it permits target market selectivity, can
be personalized, is flexible, and allows early testing and response
measurement. Although the cost per thousand is higher than for mass
media, the people reached are much better prospects
Direct Mail Objectives – aim to receive an order: a response of 2-4% is considered

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 Campaign good.
Target - apply the RFM (recency, frequency, monetary amount) formula
to select customers according to how much time has passed since their
last purchase, how many times they have purchased, and how much
they have spent since becoming a customer.
Offer elements – offer strategy has five elements -elements—the
product, the offer, the medium, the distribution method, and the
creative strategy.
Components of mailing – Outside envelope, sales letter, circular, reply
form and reply envelope.
Measuring campaign success – By adding up the planned campaign
costs, the direct marketer can figure out in advance the needed break-
even response rate. The response rates typically understate a
campaign’s long-term impact, Awareness, Intention to buy and word of
mouth will give a more comprehensive estimate. Thus it may fail to
break even in the short run but can still be profitable in the long run if
customer lifetime is factored in.
Catalog marketing companies may send full-line merchandize catalogs, specialty consumer
catalogs, and business catalogs, usually in print form but also as DVDs
or online. There are several Web sites that facilitate e-commerce by
publishing e-catalogs, it allows better access to global consumers than
ever before and saves printing and mailing costs too.
The success of a catalog business depends on the company’s ability to
manage its: customer lists, control inventory, offer quality merchandise
so returns are low and project a distinctive image.
Telemarketing is the use of the telephone and call centers to attract prospects, sell to
existing customers, and provide service by taking orders and answering
questions. It helps companies increase revenue, reduce selling costs,
and improve customer satisfaction. Companies use call centers for
inbound telemarketing—receiving calls from customers—and outbound
telemarketing—initiating calls to prospects and customers. Although
telemarketing has become a major direct-marketing tool, it is perceived
by many customers to be intrusive.
Other media for Direct marketers use all the major media. Newspapers ,magazines radio,
Direct response kiosks, television and Internet; they carry infomercials or ads offering
books, clothing, appliances, vacations, and other goods and services that
individuals can order via toll-free numbers.
Public and ethical Direct marketers and their customers usually enjoy mutually rewarding
issues in Direct relationships. But there is a dark side too –
marketing Irritation - Many people don’t like hard-sell, direct marketing
solicitations.
Unfairness - Some direct marketers take advantage of impulsive or less
sophisticated buyers or prey on the vulnerable, especially the elderly.
Deception and Fraud - Some direct marketers design mailers and write
copy intended to mislead or exaggerate product size, performance
claims, or the “retail price.”
Invasion of Privacy - It seems that almost every time consumers order
products by mail or telephone, apply for a credit card, or take out a
magazine subscription, their names, addresses, and purchasing
behaviour may be added to several company databases

Interactive The newest channels for direct marketers are electronic; it provides
Marketing opportunities for much greater interaction and individualisation.
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 Advantages include a variety of online communication options like
tailored messages, track responsiveness, contextual ad placement,
search engine advertising.
Includes disadvantages – subject to click fraud and consumers develop
selective attention.

Interactive A company chooses which forms of interactive marketing will be most

Marketing cost-effective in achieving communication and sales objectives. There
Communication are many ways to utilize the Internet as listed in the slide. Some of the
Options main categories, discussed next, are: (1) Web sites, (2) search ads, (3)
display ads, and (4) e-mails
Web sites Companies must design Web sites that embody or express their
purpose, history, products, and vision and that are attractive on first
viewing and interesting enough to encourage repeat visits.
Companies may also employ microsites- individual Web pages or
clusters of pages that function as supplements to a primary site.
Search Ads In paid search or pay-per click ads, marketers bid in a continuous
auction on search terms that serve as a proxy for the consumer’s
product or consumption interests.
When a consumer searches for any of the words with Google, Yahoo!, or
Bing, the marketer’s ad may appear above or next to the results,
depending on the amount the company bids and an algorithm the
search engines use to determine an ad’s relevance to a particular
search.
Display ads Display ads or banner ads are small, rectangular boxes containing text
and perhaps a picture that companies pay to place on relevant Web
sites.
E-Mail allows marketers to inform and communicate with customers at a
fraction of the cost of a “d-mail,” or direct mail, campaign. E-mails must
be timely, targeted, and relevant.
Mobile Marketing With cell phones’ ubiquitous nature and marketers’ ability to
personalize messages based on demographics and other consumer
behaviour characteristics mobile marketing represent a major
opportunity for advertisers to reach consumers on the ‘third screen’
Marketing options includes – SMS text messages (restricted in India),
mobile apps - “bite-sized” software programs that can be loaded onto
smart phones.
Smart phones allow loyalty programs and also permit relevant and
timely offers to consumers at or near the point-of-purchase.

Word of Mouth Consumers use word of mouth to talk about dozens of brands each day.
Paid media results from press coverage of company-generated
advertising, publicity or other promotional efforts. Earned media, is all
the PR benefits a firm receives without having directly paid for.
Buzz and Viral Two particular forms of word of mouth are Buzz and Viral marketing.
Marketing Buzz marketing generates excitement, creates publicity, and conveys
new relevant brand-related information through unexpected or even
outrageous means.
Viral marketing is another form of word of mouth, or “word of mouse,”
that encourages consumers to pass along company-developed products
and services or audio, video, or written information to others online.

Social Media Social media are a means for consumers to share text, image, audio, and
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 video information with each other and with companies and vice versa.
There are three main platforms for social media:
Online communities and forums; Bloggers and Social networks
(facebook, twitter, YouTube).
Opinion Leaders Society consists of cliques, small groups whose members interact
frequently, they are similar and their closeness facilitates effective
communication, but also insulates new ideas. The challenge is to create
openness to exchange information within the clique and with others in
the society.
 Bridges – are people who belong to one clique and are linked to a
person in another.
 “Law of the few” factor one describes three type of people who help
to spread an idea like an epidemic – Mavens, knowledgeable about
big and small things; Connectors, know and communicate with a
great number of people; Salesmen, possess natural persuasive
power. Second factor is Stickiness, an idea must be expressed so that
it motivates people to act. Third factor is the Power of Context,
controls whether those spreading an idea are able to organise
groups and communities around it.
 Cultivate ‘bees’, hyperdevoted customers who live to spread the
word
 Controversial tactic: Shill or Stealth marketing, pays people to
anonymously promote a product or service in public places without
disclosing their financial relationship to the sponsoring firm.

Sales Force The original and oldest form of direct marketing is field sales call
performed by sales representatives; They are the company’s personal
link to its customers; they locate prospects, develop them into
customers and grow the business. As the performance of the sales force
is critical, companies devote great attention to designing and managing
their sales force.
Types of Sales The term sales representative covers six positions, ranging from the
Representatives least to the most creative types of selling:
 Deliverer — A salesperson whose major task is the delivery of a
product (water, fuel, oil).
 Order taker — An inside order taker (standing behind the counter)
or outside order taker (calling on the supermarket manager).
 Missionary — A salesperson not permitted to take an order but
expected rather to build goodwill or educate the actual or potential
user.
 Technician — A salesperson with a high level of technical
knowledge (the engineering salesperson who is primarily a
consultant to client companies).
 Demand creator — A salesperson who relies on creative methods
for selling tangible products or intangibles.
 Solution vendor — A salesperson whose expertise is solving a
customer’s problem, often with a system of the company’s products
and services.
Designing the sales In designing the sales force, the company must develop sales force
force objectives, strategy, structure, size and compensation
Selling increasingly calls for teamwork requiring the support of other
personnel such as: Top management, Technical people, Customer

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 service representatives and Office staff
To maintain a market focus, salespeople should know how to: Analyze
sales data
Measure market potential, Gather market intelligence, Develop
marketing strategies and plans
Companies need to define the specific objectives they want their sales
force to achieve. The specific allocation scheme depends on the kind of
Sales Force- products and customers, but regardless, salespeople will have one or
Objectives and more of the following specific tasks to perform:
Strategies  Prospecting- Searching for prospects, or leads
 Targeting - Deciding how to allocate their time among prospects and
customers
 Communicating - Communicating information about the company’s
products and services
 Selling - Approaching, presenting, answering questions, overcoming
objections, and closing sales
 Servicing - Providing various services to the customers—consulting
on problems, rendering technical assistance, arranging financing,
expediting delivery
 Information gathering - Conducting market research and doing
intelligence work
 Allocating - Deciding which customers will get scarce products
during product shortages
To manage costs, most companies are moving toward the concept of a
leveraged sales force, where the sales force focuses on selling the
company’s more complex and customized products to large accounts.
Companies must deploy sales forces strategically so they call on the
right customers at the right time in the right way.
Once the company decides on an approach, it can use a direct or a
contractual sales force.
A direct (company) sales force consists of full- or part-time paid employees
who work exclusively for the company.
A contractual sales force consists of manufacturers’ reps, sales agents, and
brokers who are paid a commission based on sales.
The sales force strategy also has implications for its structure. A
company that sells one product line to one end-using industry with
Sales Force customers in many locations would use a territorial structure. A
Structure company that sells many products to many types of customers might
need a product or market structure.

Sales representatives are one of the company’s most productive and

expensive assets. Increasing their number increases both sales and
costs. Once the company establishes the number of customers it wants
to reach, it can use a workload approach to establish sales force size.
Sales Force Size This method has five steps:
 Group customers into size classes according to annual sales volume.
 Establish desirable call frequencies (number of calls on an account
per year) for each customer class.
 Multiply the number of accounts in each size class by the
corresponding call frequency to arrive at the total workload for the
country, in sales calls per year.
 Determine the average number of calls a sales representative can
make per year.
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  Divide the total annual calls required by the average annual calls
made by a sales representative, to arrive at the number of sales
representatives needed.
Suppose the company estimates it has 1,000 A accounts and 2,000 B
accounts. A accounts require 36 calls a year, and B accounts require 12,
so the company needs a sales force that can make 60,000 sales calls
(36,000 + 24,000) a year. If the average full-time rep can make 1,000
calls a year, the company needs 60.
The company must quantify four components of sales force
compensation.
The fixed amount, a salary, satisfies the need for income stability.
Sales Force The variable amount, whether commissions, bonus, or profit sharing,
Compensation serves to stimulate and reward effort.
Expense allowances enable sales reps to meet the expenses of travel and
entertaining.
Benefits, such as paid vacations, sickness or accident benefits, pensions,
and life insurance, provide security and job satisfaction.

Managing the Various policies and procedures guide the firm in recruiting, selecting,
Sales Force training, supervising, motivating, and evaluating sales representatives
to manage its sales force
After management develops its selection criteria, it must recruit. The
human resources department solicits names from current sales
representatives, uses employment agencies, places job ads, and contacts
college students. Selection procedures can vary from a single informal
interview to prolonged testing and interviewing. New hires are trained
and supervised. They may be intrinsically or extrinsically motivated.
Most marketers believe that the higher the salesperson’s motivation,
the greater the effort and the resulting performance, rewards, and
satisfaction— all of which increase motivation. Lastly, their
performance must be evaluated.

Evaluating Sales Feed-forward aspects of sales supervision—how management

Representatives communicates what the sales rep should be doing and motivates them
to do it. But good feed-forward requires good feedback, which means
getting regular information from reps to evaluate performance.
Many companies require representatives to develop an annual
territory-marketing plan in which they outline their program for
developing new accounts and increasing business from existing
accounts. Sales managers study these plans, make suggestions, and use
them to develop sales quotas. Sales reps write up completed activities
on call reports. Sales representatives also submit expense reports, new-
business reports, lost-business reports, and reports on local business
and economic conditions.
These reports provide raw data from which sales managers can extract
key indicators of sales performance: (1) average number of sales calls
per salesperson per day, (2) average sales call time per contact, (3)
average revenue per sales call, (4) average cost per sales call, (5)
entertainment cost per sales call, (6) percentage of orders per hundred
sales calls, (7) number of new customers per period, (8) number of lost
customers per period, and (9) sales force cost as a percentage of total
sales.

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Principles of Reps are taught the SPIN method to build long term relationships –
Personal Selling  Situation questions—these ask about facts or explore the buyer’s
present situation. For example, “What system are you using to
invoice your customers?”
 Problem questions—these deal with problems, difficulties, and
dissatisfactions the buyer is experiencing. For example, “What parts
of the system create errors?”
 Implication questions—these ask about the consequences or effects
of a buyer’s problems, difficulties, or dissatisfactions. For example,“
How does this problem affect your people’s productivity?”
 Need-payoff questions—these ask about the value or usefulness of a
proposed solution. For example, “How much would you save if our
company could help reduce errors by 80 percent?”

Selling is a Six- 1. Prospecting and Qualifying – identify and qualify prospects, More
Step Process companies are taking responsibility for finding and qualifying leads
so salespeople can use their expensive time doing what they can do
best: selling.
2. Pre-Approach - The salesperson needs to learn as much as possible
about the prospect company (what it needs, who takes part in the
purchase decision) and its buyers (personal characteristics and
buying styles).
3. Presentation n Demonstration - The salesperson now tells the
product “story” to the buyer, following the AIDA framework and
uses Features, Advantages, Benefits and Value (FABV) approach.
4. Overcoming Objections - To handle objections posed during
presentations, the salesperson maintains a positive approach, asks
the buyer to clarify the objection, questions in such a way that the
buyer answers his own objection, denies the validity of the
objection, or turns it into a reason for buying.
5. Closing - Closing signs from the buyer include physical actions,
statements or comments, and questions.
6. Follow-Up and Maintenance - Follow-up and maintenance are
necessary to ensure customer satisfaction and repeat business.
Immediately after closing, the salesperson should cement any
necessary details about delivery time, purchase terms, and other
matters important to the customer. The salesperson should
schedule a follow-up call after delivery to ensure proper installation,
instruction, and servicing and to detect any problems.

Relationship Selling and negotiation are largely transaction oriented; many cases
Marketing company seeks not an immediate sale but rather a long-term supplier-
customer relationship. Customers too prefer suppliers who can sell and
deliver a coordinated set of products and services to many locations
who can solve problems quickly and who can work closely with
customer teams.
With a relationship management program properly implemented the
organization will focus as much on managing its customers as on
managing its products.

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 Introducing New Offering
(New-product development shapes the company’s future)
New Product Options A company can add new products through acquisition or
development.
Acquisition can take three forms – buy other company, acquire
patents from other company or buy license or franchise from
other company.
Development can take two forms – develop new product in its
own lab called ‘organic growth’ or contract with an independent
researcher or new development firm to develop new products.

Types of New Products New products range from new-to-the-world products that
create an entirely new market to minor improvements or
revisions of existing products; Categories of New Products
includes New to the World, Additions, Improvements,
Repositionings and Cost reductions.

Challenges in New- In an economy of rapid change, continuous innovation is a

Product Development necessity. Companies that fail to develop new products leave their
existing offerings vulnerable to changing customer needs and
tastes.
Factors that Limit New New product may fail for many reasons: ignored or misinterpreted
Product Development (NPD) market research; overestimates of market size; high development
costs; poor design or ineffectual performance; incorrect
positioning, advertising, or price; insufficient distribution support;
competitors who fight back hard; and inadequate ROI or playback.
Some additional drawbacks are
 Shortage of important ideas in certain areas
 Fragmented markets
 Social and governmental constraints
 Cost of development
 Capital shortages
 Shorter required development time
 Poor launch timing
 Shorter product life cycles
 Organizational support

Organisational Many companies use customer-driven engineering to design

Arrangements new products. New product development requires senior
management to define business domain, product categories,
and specific criteria.
Budgeting for NPD R&D outcomes are so uncertain that it is difficult to use normal
investment criteria when budgeting for new-product development.
 Some companies finance as many projects as possible, hoping
to achieve a few winners.
 Others apply conventional percentage of sales figures or spend
what the competition does.
 Some others decide how many successful new products they
need and work backward to estimate the required investment.
Organising NPD Companies handle the organizational aspect of NPD in several ways
by assigning responsibilities to
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 New-product manager, Growth Leaders, High-level management
committee, New-product department or Venture teams.
Venture teams A venture team is a cross-functional group charged with developing
a specific product or business. These ‘intrapreneurs’ are relieved of
other duties and given a budget, time-frame, and ‘skunkworks’
setting. Skunkworks are informal places where “intrapreneurial"
teams attempt to develop new products. Cross-functional teams
can collaborate and use concurrent new-product development to
push new products to market.
Stage-Gate Systems Some companies use the stage-gate system to manage the
innovation process. They divide the innovation process into
stages with a gate or checkpoint at the end of each. The
gatekeeper reviews the criteria at each gate to make one of four
decisions – go, kill, hold or recycle.

New-Product Development Decision Process

New-Product Many firms have parallel sets of projects working through the
Development Decision process, each at a different stage. Think of the process as a
Process funnel: A large number of initial new-product ideas and
concepts are winnowed down to a few high-potential products
that are ultimately launched. But the process is not always
linear. Many firms use a spiral development process that
recognizes the value of returning to an earlier stage to make
improvements before moving forward

Generating ideas The new-product development process starts with the search
for ideas. Some marketing experts believe the greatest
opportunities and highest leverage with new products are
found by uncovering the best possible set of unmet customer
needs or technological innovation. New-product ideas can come
from interacting with various groups and using creativity-
generating techniques.
Demand-First Innovation The demand-first innovation and growth (DIG) framework is

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 and Growth (DIG) designed to provide companies with an unbiased view and an
Framework outside-in perspective of demand opportunities. It has three
parts: the demand landscape, the opportunity space, and the
strategic blueprint.
The demand landscape is based on the consumer needs and
wants gleaned from observational, anthropological, and
ethnographic methods.
The opportunity space uses a conceptual lens and structured
innovative thinking tools to achieve market perspective.
The strategic blueprint sketches out where the new product will
fit in the lives of consumers.
Interacting with others Encouraged by the open innovation movement, many firms are
going outside their bounds to tap external sources of new ideas,
including customers, employees, scientists, engineers, channel
members, marketing agencies, top management, and even
competitors’
Companies are increasingly turning to “crowdsourcing” to
generate new ideas or, to create consumer-generated marketing
campaigns. Crowdsourcing means inviting the Internet
community to help create content or software, often with prize
money or a moment of glory as an incentive.
Creativity techniques Internal brainstorming can also be quite effective using
following techniques for stimulating creativity in individuals
and groups.
 An attribute listing is a list of the attributes of an object that
is then modified.
 Forced relationships means to list several ideas and to
consider how each relates to the others.
 Morphological analysis involves starting with a problem, and
then identifying the dimensions, the medium, and the power
source.
 With reverse assumption analysis, list all the normal
assumptions about an entity and then reverse them.
 New contexts, take familiar processes, and put them into a
new context.
 Mind mapping is to see what dimensions occur in
relationship to the concept for as far as can be mapped.
 NPD ideas arise from Lateral Marketing, combines two
product concepts or ideas to create a new offering.
Idea Screening The purpose of screening the idea is to check if it is compatible
with company objectives, strategies and resources. The
company must avoid two types of Error – A ‘Drop-error’ occurs
when company rejects a good idea and a ‘Go-error’ occurs when
company accepts a poor idea.
The surviving ideas can be rated using a weighted-index
method

Overall Probability of Probability of Probability of

Probability of = technical X commercialisation X economic success
Success completion given technical given
completion commercialisation
A Go-error occurs when the company permits a poor idea to
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 move into development and commercialization. An absolute
product failure loses money; its sales do not cover variable
costs. A partial product failure loses money, but its sales cover
all its variable costs and some of its fixed costs. A relative
product failure yields a profit lower than the company's target
rate of return.

Concept Development Concept development is a necessary but not sufficient step for
new product success. Marketers must also distinguish winning
concepts from losers. A product idea can be turned into several
concepts by answering questions like: Who will use this
product? What primary benefit should this product provide?
When will people consume this product?
Each concept will represent a category concept that defines the
product’s competition.
Product concept to Brand Product concept to be turned into a brand concept. For e.g.,
concept refer fig. ‘The brand-positioning map’ helps the company to
decide how much to charge and how calorific to make its drink.

Concept Testing Concept testing means presenting the product concept to target
consumers, physically or symbolically, and getting their
reactions.
After receiving this information, researchers measure product
dimensions by having consumers respond to questions like
these:
 Communicability and believability—“Are the benefits clear to
you and believable?”
 Need level—“Do you see this product solving a problem or
filling a need for you?”
 Gap level—“Do other products currently meet this need and
satisfy you?”
 Perceived value—“Is the price reasonable in relationship to
value?”
 Purchase intention— would you (definitely, probably,
probably not, definitely not) buy the product?
 User targets, purchase occasions, purchasing frequency—
who would use this product, when, and how often?
Conjoint Analysis With conjoint analysis, respondents see different hypothetical
offers formed by combining varying levels of the attributes,
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 then rank the various offers. Management can identify the most
appealing offer and its estimated market share and profit

Marketing Strategy After successful concept test, a preliminary strategy plan is

Development prepared which consists of three parts
1. Target market’s size, Structure, Behaviour, Planned
product’s positioning, Sales, Market share, Profit goals in the
first few years
2. Planned price, Distribution strategy, Marketing Budget for
the first year and
3. Long-run sales and profit goals, Marketing-mix strategy over
time
Business Analysis Management can now evaluate the proposal’s business
attractiveness. It prepares sales, cost and profit projections to
determine whether they satisfy company objectives.
Estimating Sales Total estimated sales are the sum of estimated first-time sales,
replacement sales, and repeat sales. Sales-estimation methods
depend on whether the product is a one-time purchase, an
infrequently purchased product, or a frequently purchased
product.
Estimating Costs and Profits Costs are estimated by the R&D, manufacturing, marketing, and
finance departments. Projected sales revenue, cost of goods,
expected gross margin, anticipated development costs,
estimated marketing costs, allocated overhead costs, gross
contribution, supplementary contribution, net contribution,
discounted contribution, and cumulative discounted cash flow
are some of the measures used.
The simplest method is breakeven analysis, which estimates
how many units the company must sell to breakeven with the
given price and cost structure.
The more complex method is risk analysis, three estimates
(optimistic, pessimistic and most likely) are obtained for each
uncertain variable affecting profitability. The computer
stimulates possible outcomes and computes a distribution
showing the range of possible rates of returns and their
probabilities.

Product Development The company will determine whether the product idea can
translate into a technically and commercially feasible product. If
not, the accumulated project cost will be lost, except for any
useful information gained in the process
Quality function The job of translating target customer requirements into a
deployment (QFD) working prototype is helped by a set of methods known as
quality function deployment (QFD).
This methodology takes the list of desired customer attributes
(CAs) and turns them into a list of engineering attributes (EAs).
A major contribution of QFD is that it improves communication
between marketers, engineers, and the manufacturing people.
Prototype Testing Physical Prototype: The goal of the R&D department is to find a
prototype that embodies the key attributes in the product-
concept statement, performs safely under normal use and
conditions, and can be produced within budgeted

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 manufacturing costs.
Customer Tests: Alpha testing tests the product within the firm
to see how it performs in different applications. After refining
the prototype further, the company moves to beta testing with
customers.
Market Testing After management is satisfied with functional and psychological
performance, the product is ready to be branded with a name,
logo, and packaging and go into a market test. High-risk
products—those that create new-product categories or have
novel features warrant more market testing than modified
products.
Consumer Goods Market In testing consumer products, the company seeks to estimate
Testing four variables: Trial, First repeat, Adoption and Purchase
frequency
Here are four major methods of consumer-goods market
testing, from the least to most costly:
With sales-wave research, consumers who initially try the
product at no cost are reoffered it, or a competitor’s product, at
slightly reduced prices. The offer may be made as many as five
times (sales waves), while the company notes how many
customers select it again and their reported level of satisfaction.
With simulated test marketing, qualified shoppers are asked
about brand familiarity and preferences in a specific product
category and attend a brief screening of TV commercials or
print ads. One ad advertises the new product but is not singled
out for attention. Consumers are invited into a store where they
may buy any items. The company notes how many consumers
buy the new brand and competing brands. This provides a
measure of the ad’s relative effectiveness against competing ads
in stimulating trial.
With controlled test marketing, the company with the new
product specifies the number of stores and geographic locations
it wants to test. A research firm delivers the product to a panel
of participating stores and controls shelf position, pricing, and
number of facings, displays, and point-of-purchase promotions.
Electronic scanners measure sales at checkout.
The ultimate way to test a new consumer product is to put it
into full-blown test markets. The company chooses a few
representative cities and puts on a full marketing
communications campaign, and the sales force tries to sell the
trade on carrying the product and giving it good shelf exposure

Commercialization Commercialization incurs the company’s highest costs to date.

The company will need to contract for manufacturers or build
or rent a full-scale manufacturing facility. Another major cost is
marketing. Most new-product campaigns rely on a sequential
mix of market communication tools
 When: market entry timing is critical, decide whether first
entry, parallel entry or late entry.
 Where: Geographic strategy, decide whether single locality,
a region, several regions, the national or the international
market.
 To Whom: Target-Market prospects, early adopters, heavy

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 users, opinion leaders or those reached at a low cost.
 How: Introductory market strategy - To coordinate the
many activities involved management can use network-
planning techniques such as critical path scheduling (CPS), it
calls for developing a master chart showing the
simultaneous and sequential activities that must take place
to launch the product.

Consumer Adoption Adoption is an individual’s decision to become a regular user of

Process a product.
An innovation is any good, service, or idea that someone
perceives as new, no matter how long its history.
The innovation diffusion process is ‘the spread of a new idea
from its source of invention or creation to its ultimate users or
adopters’
The Consumer adoption process includes – Awareness, Interest,
Evaluation, Trial and Adoption.
Factors Influencing the differences in individual readiness to try new products; the
Adoption Process effect of personal influences; differing rates of adoption; and
differences in organizations’ readiness to try new products.
Readiness to Try New People can be classified into these adopter categories:
Products and Personal Innovators, Early adopters, Early majority, Late majority,
Influence Laggards
Personal influence is the effect that one person has on another’s
attitude or purchase probability. It is important in the
evaluation stage of the adoption process than in the other
stages and has more influence on late adopters than early
adopters.
Characteristics of the There are five characteristics that explain the adoption of
Innovation innovations.
Relative advantage—the degree to which the innovation
appears superior to existing products.
Compatibility—the degree to which the innovation matches the
values and experiences of the individuals.
Complexity—the degree to which the innovation is difficult to
understand or use.
Divisibility—the degree to which the innovation can be tried on
a limited basis. Communicability—the degree to which the
benefits of use are observable or describable to others.

Other characteristics that influence the rate of adoption are

cost, risk and uncertainty, scientific credibility, and social
approval. The new-product marketer must research all these
factors and give the key ones maximum attention in designing
the product and marketing program.

Tapping into the Global Markets

(With ever faster communication, transportation, and financial flows, the world is rapidly
shrinking)
Global Firm A global firm is one that operates in more than one country and
captures R&D, production, logistical, marketing, and financial
advantages in its costs and reputation that are not available to
purely domestic competitors

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Selecting International Upon deciding to go abroad, a company needs to define its
Markets international marketing objectives and policies. It must
determine whether to market in a few or many countries and
rate candidate countries on three criteria: market
attractiveness, risk, and competitive advantage.

Major Decisions in  Deciding whether to go abroad

International Markets  Deciding which markets to enter
 Deciding how to enter the market
 Deciding on the marketing program
 Deciding on the marketing organization

Reasons for Pursuing Several factors can draw companies into the international
Global Markets arena:
 Some international markets present better profit
opportunities than the domestic market.
 The company needs a larger customer base to achieve
economies of scale.
 The company wants to reduce its dependence on any one
market.
 The company decides to counterattack global competitors in
their home markets.
 Customers are going abroad and require international
service.
 Government policies encourage and incentivize
globalization to earn precious foreign exchange to sustain
imports and improve the balance of trade.
Risks to Going Abroad Before making a decision to go abroad, the company must also
weigh several risks:
 The company might not understand foreign preferences and
could fail to offer a competitively attractive product.
 The company might not understand the foreign country’s
business culture.
 The company might underestimate foreign regulations and
incur unexpected costs.
 The company might lack managers with international
experience.
 The foreign country might change its commercial laws,
devalue its currency, or undergo a political revolution and
expropriate foreign property.
Four Stages of Some companies don’t act until events thrust them into the
Internationalization international arena. The internationalization process typically
has four stages. The first task is to move from stage 1 to stage 2.
Stage 1: No regular export activities
Stage 2: Export via independent agents
Stage 3: Establish sales subsidiaries
Stage 4: Establish production facilities abroad

Momentum in Market Companies must decide how many countries to enter and how
Entry fast to expand. Typical entry strategies are the waterfall
approach, gradually entering countries in sequence, and the
sprinkler approach, entering many countries simultaneously.
Increasingly, firms—especially technology intensive firms—are
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 born global and market to the entire world from the outset.
Mode of Entry for Once a company decides to target a particular country, it must
International Markets determine the best mode of entry. Its broad choices are indirect
exporting, direct exporting, licensing, joint ventures, and direct
investment. Each succeeding strategy entails more
commitment, risk, control, and profit potential.

Marketing Program for In deciding on the marketing program, a company must decide
International Markets how much to adapt its marketing mix (product, promotion,
price and place) to local conditions. At the two ends of the
spectrum are standardised and adapted marketing mixes, with
many steps in between.
At the product level, firms can pursue a strategy of straight
extension, product adaptation, or product invention. At the
communication level, they may choose communication
adaptation or dual adaptation. At the price level, firms may
encounter price escalation, dumping, grey markets, and
discounted counterfeit products. At the distribution level, firms
need to take a whole-channel view of distributing products to
the final users.
Firms must always consider the cultural, social, political,
technological, environmental, and legal limitations they face in
other countries.
Grey Market A grey market consists of branded products diverted from
normal or authorized distributions channels in the country of
product origin or cross international borders; dealers in lower
priced countries sell products in higher priced countries

Country of Origin Effects Country-of-origin perceptions can affect consumers and

businesses alike. Managing those perceptions to the best
advantage is a marketing priority.

Organisation Structure Depending on their level of international involvement,

for Managing Global companies manage international marketing activity in three
Presence ways: through export departments, international divisions, or a
global organization

Managing a Holistic Marketing Organization for the Long Run

Trends in Marketing Important shifts occurring in marketing.
Practices  Reengineering refers to appointing teams to manage
customer-value-building processes and break down walls
between departments.
 Outsourcing refers to the buying more goods and services
from outside domestic or foreign vendors.
 Benchmarking is the studying of “best practice companies”
to improve performance.
 Supplier partnering refers to partnering with fewer but
better value-adding suppliers.
 Customer partnering refers to the trend of working more
closely with customers to add value to their operations.
 Merging is the acquiring or merging with firms in the same
or complementary industries to gain economies of scale and
scope.
 Globalizing refers to the increasing efforts to “think global”
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 and “act local”.
 Flattening is the reduction in the number of organizational
levels to get closer to the customer.
 Focusing is determining the most profitable businesses and
customers and focusing on them.
 Justifying means becoming more accountable by measuring,
analysing, and documenting the effects of marketing actions.
 Accelerating means designing the organization and setting
up processes to respond more quickly to changes in the
environment.
 Empowering is encouraging and empowering personnel to
produce more ideas and take more initiative.
 Broadening is factoring the interests of customers,
employees, shareholders, and other stakeholders into the
activities of the enterprise.
 Monitoring is tracking what is said online and elsewhere and
studying customers, competitors, and others to improve
business practices.

Internal Marketing The modern marketing department has evolved through the
years from a simple sales department to an organizational
structure where marketers work mainly on cross-disciplinary
teams.
Marketing no longer has sole ownership of customer
interactions; rather, it now must integrate all the customer-
facing processes so customers see a single face and hear a single
voice when they interact with the firm. Only when all
employees realize their job is to create, serve, and satisfy
customers does the company become an effective marketer.
Organizing the Marketing Modern marketing departments may be organized in a number
Department of different, sometimes overlapping ways: functional
specialisation, geographically, by product or brand, by market,
or in a matrix.
 Functional organisation: functional specialists report to a
marketing vice president who coordinates their activities,
main advantage is its administrative simplicity.
 Geographical: area-marketing specialists (regional or local
marketing managers) to support the sales efforts in high-
volume markets.
 Product or Brand: Companies producing a variety of
products and brands often establish a product- (or brand-)
management organization. This does not replace the
functional organization but serves as another layer of
management. A product manager supervises product
category managers, who in turn supervise specific product
and brand managers.
 Market: When customers fall into different user groups with
distinct buying preferences and practices, a market-
management organization is desirable. Market managers
supervise several market-development managers, market
specialists, or industry specialists and draw on functional
services as needed
 Matrix: Companies that produce many products for many

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 markets may adopt a matrix organisation employing both
product and market managers.
Relations with Other Under the marketing concept, all departments need to “think
Departments customer” and work together to satisfy customer needs and
expectations. The marketing vice president, or CMO, has two
tasks:
1. To coordinate the company’s internal marketing activities.
2. To coordinate marketing with finance, operations, R&D,
engineering, purchasing, manufacturing, accounts, credit
and other company functions to serve the customer.

Building a Creative Many companies realize they’re not yet really market and
Marketing Organization customer driven—they are product and sales driven.
Transforming into a true market-driven company requires:
 Developing a company-wide passion for customers
 Organizing around customer segments instead of products,
and
 Understanding customers through qualitative and
quantitative research.
The task is not easy, but the payoffs can be considerable.

Socially Responsible Effective internal marketing must be matched by a strong sense

Marketing of ethics, values, and social responsibility. A number of forces
are driving companies to practice a higher level of corporate
social responsibility:
 Rising customer expectations
 Changing employee expectations
 Government legislation and pressure
 Investor interest in social criteria
 Changing business procurement practices
Corporate Social Raising the level of socially responsible marketing calls for a
Responsibility three-pronged attack that relies on proper legal, ethical, and
social responsibility behaviour.
The most admired—and most successful—companies in the
world abide by a code of serving people’s interests, not only
their own.
Sustainability Sustainability is the ability to meet humanity’s needs without
harming future generations, now tops many corporate agendas;
‘there is a triple bottom line – people, planet and profit –and the
People part of the equation must come first’.
Heightened interest in sustainability has also unfortunately
resulted in greenwashing, which gives products the appearance
of being environmentally friendly without living up to that
promise.

Cause Related Marketing Many firms blend corporate social responsibility initiatives with
marketing activities. Cause-related marketing is marketing that
links the firm’s contributions to a designated cause to
customers engaging directly or indirectly in revenue-producing
transactions with the firm. It has also been called a part of
corporate societal marketing (CSM).
Cause-Marketing Benefits A successful cause-marketing program can improve social
and Costs welfare; create differentiated brand positioning; build strong
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 consumer bonds; enhance the company’s public image; create a
reservoir of goodwill; boost internal morale and galvanize
employees; drive sales; and increase the firm’s market value.
Consumers may develop a strong, unique bond with the firm
that transcends normal marketplace transactions.
Specifically, from a branding point of view, cause marketing can
(1) build brand awareness, (2) enhance brand image, (3)
establish brand credibility, (4) evoke brand feelings, (5) create a
sense of brand community, and (6) elicit brand engagement.

Social Marketing Social marketing is done by a non-profit or government

organization to further a cause. Choosing the right goal or
objective for a social marketing program is critical. Social
marketing campaigns may have objectives related to changing
people’s cognitions, values, actions, or behaviours.
Social marketing campaigns The following examples illustrate the range of possible
objectives.
Cognitive campaign example: Explain the nutritional values of
different foods.
Action campaign example: Motivate people to vote “yes” on a
certain issue.
Behavioural campaign example: De-motivate cigarette smoking.
Value campaign example: Change attitudes of bigoted people.
Key Success Factors for  Chose target markets that are ready to respond
Changing Behaviour  Promote a single, doable behaviour in clear, simple terms
 Explain the benefits in compelling terms
 Make it easy to adopt the behaviour
 Develop attention-grabbing messages
 Consider an education-entertainment approach
Social Marketing Planning The basic questions which must be addressed are
Process  Where are we?
 Where do we want to go?
 How will we get there?
 How will we stay on course?
Evaluation of Social Social marketing programs are complex; they take time and
Marketing Program may require phased programs or actions. Social marketing
organizations should evaluate program success in terms of their
objectives:
 High incidence of adoption
 High speed of adoption
 High continuance of adoption
 Low cost per unit of adoption
 No major counterproductive consequences

Marketing Marketing implementation is the process that turns marketing

Implementation and plans into action assignments and ensures they accomplish the
Control plan’s stated objectives.
A brilliant strategic marketing plan counts for little unless
implemented properly. Strategy addresses the ‘what’ and ‘why’
of marketing activities; implementation addresses the ‘who’,
‘where’, ‘when’, and ‘how’.
Marketing control is the process by which firms assess the
effects of their marketing activities and programs and make
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 necessary changes and adjustments. There are four types of
marketing control – Annual–plan control, Profitability control,
Efficiency control and Strategic control
Annual Plan control Annual-plan control ensures the company achieves the sales,
profits, and other goals established in its annual plan.
First, management sets monthly or quarterly goals. Second, it
monitors performance in the marketplace. Third, management
determines the causes of serious performance deviations.
Fourth, it takes corrective action to close gaps between goals
and performance. This control model applies to all levels of the
organization. Four tools for the purpose are: sales analysis,
market share analysis, marketing expense-to-sales analysis, and
financial analysis.
Profitability Control Profitability control measures and controls the profitability of
products, territories, customer groups, trade channels, and
order sizes.
Efficiency Control Efficiency control finds ways to increase the efficiency of the
sales force, advertising, sales promotion, and distribution.
Strategic Control Strategic control periodically reassesses the company’s
strategic approach to the marketplace using marketing
effectiveness and marketing excellence reviews, as well as
marketing audits.
Marketing Audit A marketing audit is a comprehensive, systematic, independent,
periodic examination of a company’s or business unit’s
marketing environment, objectives, strategies, and activities
with a view to determining problem areas and opportunities,
and recommending a plan of action to improve the company’s
marketing performance
Characteristics of Marketing audits have four characteristics: Comprehensive—
Marketing Audits The marketing audit covers all the major marketing activities of
a business, not just a few trouble spots asin a functional audit.
Systematic—The marketing audit is an orderly examination of
the organization’s macro- and micromarketing environments,
marketing objectives and strategies, marketing systems, and
specific activities.
Independent— Self-audits, in which managers rate their own
operations, lack objectivity and independence.
Periodic—Firms typically initiate marketing audits only after
failing to review their marketing operations during good times,
with resulting problems. A periodic marketing audit can benefit
companies in good health as well as those in trouble.

The Future of Marketing To succeed in the future, marketing must be more holistic and
less departmental. Marketers must achieve larger influence in
the company, continuously create new ideas, and strive for
customer insight by treating customers differently but
appropriately.
Integrating Marketing with Business Strategy
Significance of Each functional department often undervalues the other. This
Integrating Marketing lack of alignment ends up hurting corporate performance.
with Business Strategy A good management model means marketing and business
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 strategies become aligned and stay aligned. Good alignment
means the company gains flexibility to grow in any economy.

Challenges from the Functional departments, such as finance, manufacturing,

Functional departments marketing, sales, engineering and purchasing, have their own
bodies of knowledge, language and culture; functional silos
arise and become a major barrier to strategy implementation
since most organizations have great difficulty communicating
and coordinating across these functions.
Some of the strategic issues surrounding functional
departments –
 Finance – capital finance and creating shareholder value.
 Manufacturing - yield optimisation
 Marketing – customer segments
 Supply chain – transportation and pipeline

For organizational performance to be more than the sum of its

parts, individual strategies must be linked and integrated. It
must transcend traditional business functionality and embrace
the need for cross-organisational relationships

Role of Marketing in There could be loss in revenue when customers don’t buy,
building cross because of disconnection between marketing and the other
organisational business functions.
relationships Marketing can use the corporate strategy to determine the
scope of company’s resources and processes to be used and
demonstrate its direct contribution in achieving the business
goals.
Finance  Marketing chief must understand the business strategies
that are considered critical to meet the financial goals and
decide the marketing objectives and tactics that can deliver
results.
 Set a communication and reporting schedule
 marketing must talk about the plans with finance before
asking for budget,
 share successes alongside rupee spent while reporting,
 cutback when required and share it with finance
 when marketing misses numbers let them know why and
how it will fix things for the future, that will help build
good relationship.
Supply Chain Management Marketing is traditionally externally focused and creates
(SCM) customer value, while SCM is inwardly focused and
concentrates on the efficient use of resources in implementing
marketing decisions.
 Exchanging information with SCM, i.e. providing timely
information on: defined customer segments; new
customer/product opportunities; planned promotions;
feedback on over/under service delivery and, seeking
information on: lead times, capacity and pipeline costs;
 Seeking collaboration with SCM by working towards a
mutual understanding of the information exchanged and
collective goals.
Manufacturing Direct interaction between manufacturing and marketing

Page 102 of 103

 improves performance
 on capacity planning, production scheduling, delivery,
quality assurance, breadth of product line, cost control, NPD
and services.
 keeps manufacturing connected with downstream
requirements as captured by marketing; and provides
feedback upstream to the supplier base.

Contrary to popular opinion, good communication between

departments isn’t enough to make integrated marketing work
well. Departments have to work together. Communication is
important but the commitment to do whatever it takes to
resolve issues is vital.

REFERENCES
 Marketing Management A South Asian Perspective 14e Kotler, Keller, Koshy, Jha
 “Are Your Marketing and Business Strategies Aligned?” by Suresh Srinivasan,
Broadspire.com
 “How Will You Better Align with Strategy?” HBR BlogNetwork
 “5 Keys To Improve The Marketing & Finance Relationship” by Vic Drabicky,
marketingland.com
 “Building a Strategy-Focused Organization” by R S. Kaplan, D P. Norton,
iveybusinessjournal.com
 “5 Components of a Successful Integrated Marketing Strategy” by D Ellis,
socialmediatoday.com
 “Aligning marketing and manufacturing strategies with the market” by Berry, Hill
Klompmaker
 “Demand chain management-integrating marketing and supply chain management” by
U Juttner , M Christopher, S Baker, sciencedirect.com

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 P&P II GLOSSARY

Syllabus – OB (2 & 3)

Employee Motivation
Leadership
Power and Politics
Organization Culture

Employee Motivation
Motivation-the processes that account for an individual's intensity, direction, and persistence of
effort toward attaining a goal.
Intrinsic Motivation: The drive to perform an activity for its own sake and personal rewards.
Extrinsic Motivation: The motivation to perform an activity to earn a reward or avoid punishment
from external sources.
Need theories -
Maslow – hierarchy of needs – physiological, safety, social, esteem & self-actualization – as each
need is satisfied the next becomes dominant
Alderfer – ERG – three core needs – existence, relatedness & growth
Herzberg – two factor theory – relates intrinsic factors to job satisfaction, while associating extrinsic
factors with dissatisfaction
Mc Clelland – the three important needs that explain motivation are achievement, power &
affiliation
Equity theory – individuals compare their job inputs & outcomes with those of others & then
respond to eliminate any inequities
Expectancy theory – the strength of a tendency to act in a certain way depends on the strength of an
expectation that the act will be followed by a given outcome & on the attractiveness of that outcome
to the individual

Motivation: From Concepts to Application

Job design – The way the elements in a job are organized
Job Characteristics Model (JCM) - Hackman and Oldham’s concept that any job can be described
through five core job dimensions:
Skill variety – Requirements for different tasks in the job.
Task identity – Completion of a whole piece of work.
Task significance – The job’s impact on others.
Autonomy – Level of discretion in decision making.
Feedback – Amount of direct and clear information on performance.

Job Satisfaction: The level of contentment employees feel about their work, which can influence
their motivation.
Employee Engagement: The emotional commitment the employee has to the organization and its
goals, often resulting in willingness to volunteer extra effort.
Basic Approaches to Leadership
Leadership - The ability to influence a group toward the achievement of goals.
Traits Theories of Leadership - Theories that consider personality, social, physical, or intellectual
traits to differentiate leaders from non leaders.
Managerial Grid: A conceptual framework for evaluating management styles based on two
dimensions: concern for people (y-axis) and concern for production (x-axis).
Concern for People: This dimension measures the degree to which a leader considers team
members' needs, interests, and personal development within the organization.
Concern for Production: This dimension assesses how much a leader emphasizes organizational
efficiency, productivity, and meeting goals.
Leadership Styles: The behavior patterns of a leader as characterized by their position on the
Managerial Grid. The primary styles include:
Impoverished Management (1,1): Minimal effort in managing relationships and work
output. Leaders with this style have low concern for both people and production.
Country Club Management (1,9): High concern for people and low concern for production.
Leaders prioritize team members' welfare, potentially at the expense of work outcomes.
Authority-Compliance Management (9,1): High concern for production and low concern
for people. Leaders focus on efficiency and results, often ignoring the team's needs and well-
being.
Middle-of-the-Road Management (5,5): Moderate concern for both people and production.
Leaders attempt to balance work output with team members' needs but may not fully satisfy
either.
Team Management (9,9): High concern for both people and production. Leaders foster a
team environment that values both high performance and the satisfaction of team members.
Task Orientation: A focus on task completion and achieving organizational goals, characteristic of a
high concern for production.
People Orientation: A focus on building team spirit, supporting team members, and prioritizing
their welfare, reflecting a high concern for people.
Leadership Effectiveness: The degree to which a leader is successful in achieving organizational
goals while also satisfying the needs of employees, ideally achieved through the Team Management
style.
Leader-Member Exchange (LMX) Theory - Leaders select certain followers to be “in” (favorites)
based on competence and/or compatibility & similarity to leader. “Exchanges” with these “In”
followers will be higher quality than with those who are “Out”. As a result the “In” subordinates will
have higher performance ratings, less turnover, and greater job satisfaction
Situational Leadership Theory (SLT): A leadership model that proposes the effectiveness of a
leadership style is contingent upon the readiness level of the followers and the specific situation.
Leadership Style: In the context of SLT, it refers to the behavior pattern a leader adopts to
influence the performance of others. SLT identifies four primary leadership styles: Directing,
Coaching, Supporting, and Delegating.
Directing (S1): A high-directive, low-supportive leadership style where the leader provides specific
instructions and closely supervises task performance. It's most effective with individuals or groups
that lack the skill but are enthusiastic and committed.
Coaching (S2): A high-directive, high-supportive style where the leader continues to direct and
closely supervise task accomplishment but also provides support and encouragement to build the
followers’ skills and confidence.
Supporting (S3): A high-supportive, low-directive style where the leader facilitates and supports the
followers’ efforts toward task accomplishment and shares responsibility for decision-making with
them. This style is suited for followers who have the capability but may lack confidence or
motivation.
Delegating (S4): A low-directive, low-supportive style where the leader delegates responsibility for
decision-making and problem-solving to the followers. This style is effective when the followers are
competent, motivated, and capable of working independently.
Readiness Level: The degree to which followers have the ability and willingness to accomplish a
specific task. Readiness is not a static measure and can vary from task to task with the same group or
individual.
Ability: In SLT, ability refers to the knowledge, experience, and skill that an individual or group
brings to a particular task or activity.
Willingness: The level of confidence, commitment, and motivation that an individual or group
exhibits towards completing a task.
Maturity Level: A concept in SLT that combines followers' ability and willingness into an overall
assessment of their readiness to perform a given task. Maturity levels range from low (M1) to high
(M4), indicating the progression from learning to mastery.
Flexibility in Leadership: The capability of a leader to adapt their leadership style according to the
maturity level of the followers and the demands of the situation.
Task Behavior: The extent to which leaders engage in one-way communication by explaining what
each follower is to do, as well as when, where, and how tasks are to be accomplished.
Relationship Behavior: The extent to which leaders engage in two-way communication, including
listening, facilitating, and supportive behaviors.
Developmental Intervention: Adjusting leadership style and strategies to enhance an individual’s or
group's maturity level, aiming to increase their readiness to perform tasks more independently.
Situational Analysis: The process of diagnosing the needs of the situation to determine the most
appropriate leadership style to be adopted.

Contemporary Issues in Leadership

Charismatic Leadership Theory - Followers make attributions of heroic or extraordinary
leadership abilities when they observe certain behaviors.
Transactional Leaders - Leaders who guide or motivate their followers in the direction of
established goals by clarifying role and task requirements.
Transformational Leaders - Leaders who provide the four “I’s” (individualized consideration,
inspirational motivation, idealized influence, and intellectual stimulation

Power and Politics

Power - A capacity that A has to influence the behavior of B so that B acts in accordance with A’s
wishes.
Formal Power - Is established by an individual’s position in an organization; conveys the ability to
coerce or reward, from formal authority, or from control of information.
Coercive Power - A power base dependent on fear.
Reward Power - Compliance achieved based on the ability to distribute rewards that others view as
valuable
Legitimate Power - The power a person receives as a result of his or her position in the formal
hierarchy of an organization.
Expert Power - Influence based on special skills or knowledge.
Referent Power - Influence based on possession by an individual of desirable resources or personal
traits.
Political Behavior – Activities that are not required as part of one’s formal role in the organization,
but that influence, or attempt to influence, the distribution of advantages and disadvantages within
the organization
Legitimate Political Behavior – Normal everyday politics
Illegitimate Political Behavior – Extreme political behavior that violates the implied rules of the
game
Impression Management - Impression management refers to the process by which individuals
attempt to control the perceptions others have of them. This concept, rooted in social psychology and
extensively studied in organizational behavior and interpersonal relations, encompasses a variety of
techniques such as:
Rational Persuasion: Using logical arguments and factual evidence to convince others of a
viewpoint. This technique helps establish credibility and competence.
Inspirational Appeals: Attempting to build enthusiasm or confidence by appealing to others'
emotions, ideals, or values. This can be seen as a way to align personal image with positive,
motivational attributes.
Consultation: Seeking others' participation in planning a strategy or making a decision. This
approach can foster impressions of inclusiveness, openness, and respect for others'
contributions and insights.
Ingratiation: Using flattery, praise, or friendly behavior before making a request. This tactic
aims to make others more predisposed to view the individual favorably and be more receptive
to their influence.
Personal Appeals: Appealing to someone's feelings of loyalty or friendship before making a
request. This strategy leverages personal relationships to enhance one's image as a friend or
loyal colleague rather than just a professional acquaintance.
Exchange: Offering favors or benefits in exchange for following a request. This tactic can
help cultivate an image of reciprocity and fairness, as well as strategic acumen.
Coalition Tactics: Seeking the aid of others to persuade someone or using the support of
others as an argument for someone to agree. This can help in portraying an image of
leadership, influence, and the ability to mobilize resources.
Legitimating Tactics: Basing a request on one’s authority or right, organizational rules and
policies, or explicit and implicit support from superiors. This approach reinforces an image of
legitimacy and authority.
Pressure: Using demands, threats, frequent checking, or reminders to influence others. While
this can have negative implications, it might also be used to project an image of decisiveness
and authority in critical situations.
 Upward Appeals: Appealing to higher authorities or citing the influence of superiors in
support of a request. This can enhance an individual's image by associating it with higher
power levels or more significant organizational backing.

Organizational Culture
Institutionalization - When an organization takes on a life of its own, apart from any of its
members, becomes valued for itself, and acquires immortality.
Organizational Culture - A common perception held by the organization’s members; a system of
shared meaning.
Dominant culture – A culture that expresses the core values that are shared by a majority of the
organization’s members
Subcultures – Minicultures within an organization, typically defined by department designations and
geographical separation
Core values – The primary or dominant values that are accepted throughout the organization
Socialization – The process that adapts employees to the organization’s culture
Hofstede’s dimensions of country culture
Power Distance Index (PDI): Measures the extent to which less powerful members of
organizations and institutions accept and expect that power is distributed unequally. High PDI
indicates acceptance of a hierarchical order without much consultation, while low PDI suggests a
preference for equality and more consultation between power levels.
Individualism vs. Collectivism (IDV): Describes whether people in a society are integrated into
groups or expected to look after themselves and their immediate family only. Individualistic
societies prioritize personal goals and individual rights, whereas collectivist societies emphasize
group goals, social harmony, and interdependence.
Masculinity vs. Femininity (MAS): Reflects the distribution of roles between the genders. It
contrasts competitive societies (masculinity), which value achievement, assertiveness, and
material success, with more nurturing societies (femininity), which value relationships, modesty,
and quality of life.
Uncertainty Avoidance Index (UAI): Measures the degree of tolerance for uncertainty and
ambiguity within the society. High UAI indicates a society's low tolerance for uncertainty and a
preference for structured situations and clear rules. Low UAI suggests a more relaxed attitude
where practice counts more than principles and adaptability is valued.
Long-Term Orientation vs. Short-Term Orientation (LTO): Describes the time horizon of a
society's outlook. Cultures with a long-term orientation are oriented towards future rewards,
valuing perseverance and savings. Short-term oriented cultures are more focused on the present
or past and consider respecting tradition and fulfilling social obligations important.

Competing Values Framework (CVF): A model that categorizes organizational cultures and
leadership styles into four quadrants based on two axes: flexibility vs. stability and internal vs.
external focus.
Flexibility and Discretion: This dimension represents the extent to which an organization or leader
is adaptable, nimble, and open to change.
Stability and Control: This dimension measures the degree to which an organization or leader
emphasizes predictability, order, and control.
Internal Focus and Integration: This dimension looks at the extent to which an organization or
leader focuses on internal processes, employee development, and cohesion.
External Focus and Differentiation: This dimension assesses how much an organization or leader
concentrates on competition, market differentiation, and customer interaction.
Clan Culture: Characterized by a family-like atmosphere, with a high emphasis on mentorship,
teamwork, and loyalty. This culture values flexibility and an internal focus, promoting cohesion and
morale.
Adhocracy Culture: Focuses on innovation, creativity, and adaptability. This culture prioritizes
flexibility and an external focus, encouraging risk-taking and dynamic responses to the market.
Market Culture: Driven by competition and achieving tangible results. This culture emphasizes
stability and an external focus, with goals oriented towards productivity, efficiency, and customer
satisfaction.
Hierarchy Culture: Emphasizes structured procedures, control, and efficiency. This culture values
stability and an internal focus, with an emphasis on reliability, predictability, and formalized
procedures.
Leadership Styles: The behaviors and attitudes of leaders that are influenced by their underlying
values and the cultural context of their organization, as categorized by the CVF.
Organizational Effectiveness: The degree to which an organization achieves its goals, which,
according to the CVF, depends on the alignment between its culture, leadership style, and the
demands of its environment.
Strategic Orientation: The direction and focus of an organization's strategies, which can be
influenced by its predominant culture type according to the CVF.
Change Management: The processes and approaches used to navigate organizational change, which
vary significantly across the different cultures described in the CVF.
Innovation and Growth: The capacity of an organization to innovate and grow, often associated
with Adhocracy cultures within the CVF, which prioritize flexibility and external focus.
Customer Focus: The degree to which an organization prioritizes customer needs and satisfaction, a
key feature of Market cultures in the CVF.
Operational Efficiency: The focus on improving processes, reducing costs, and maximizing
efficiency, typically associated with Hierarchy cultures in the CVF.
Employee Development: The emphasis on training, development, and nurturing of employees,
characteristic of Clan cultures within the CVF.
Conflict Resolution Strategies: The methods used to resolve disagreements and conflicts, which can
vary depending on the organization's culture as described by the CVF.
Adaptability and Resilience: The ability of an organization to adapt to changes and bounce back
from challenges, influenced by its culture and leadership style within the context of the CVF.
 HRM Glossary

Nature & Scope of Human Resource Management

Human Resource Management – It is a management function concerned with hiring, motivating,

& maintaining effectiveness of people in an organisation and encompasses human resource
development & industrial relation management.

Human Resource Development – It is a function concerned with training and development,

career planning & development, & organisation development.

Industrial Relations Management – It is concerned with people grievances & their settlement,
unionization & the like.

HR Principles – Guide to managers in formulating policies, programmes, procedures &

practices.

HR Paradoxes – Any individual can become a HR manager, any of its practices can be
outsourced & an organisation can function without a HR department.

HR Policies – Are plans of action. They are benchmarks to compare & evaluate performance.

HR Functions – Includes HR planning, recruitment & selection, training & development,

performance appraisal, remuneration, assessment, etc.

Context of Human Resource Management

HRM environment – Comprises political-legal, economic, technological, culture (external), &
conflict, unions, strategy & professional bodies (internal).

Integrating HR Strategy with Business Strategy

Strategic Human Resource Management – Refers to the process of developing practices,

programmes & policies that help achieve organizational objectives.

Human Resource Planning

Delphi Technique – Is a method of forecasting personnel needs.

Downsizing Plan – When there is surplus workforce, trimming of labour force is necessary.
Managerial succession planning – Includes training programmes & series of job assignments
leading to top positions.

HRIS - Is a systematic procedure for collecting, storing, maintaining, retrieving & validating data
needed by an organisation about its human resources.

HRP – Is the process of forecasting a firm’s future demand for, and supply of, the right type of
people in the right number.

Management inventories – Comprehensive catalog of the capabilities & competencies found in an

organization's management team. It is based on the understanding gained from a manager's
employment records, formal and informal education and training obtained, immediate supervisor's
report, and the results of appraisal tests.

Skills inventories – It consolidates information about non-managers in the organisation. It

contains information about each employee’s current job.

Top-down & Bottom-up approaches – A design methodology that proceeds from the highest
level to the lowest and from the general to the particular, and that provides a formal mechanism
for breaking complex process designs into functional descriptions, reviewing progress, and
allowing modifications.

Turnover rates – the ratio of the number of workers that have to be replaced in a given time
period to the average number of workers

Demand forecasting – Is the process of estimating the quantity & quality of people required to
meet future needs of the organisation.

Ratio trend analysis – Involves studying past ratios & forecasting future ratios making some
allowances for change in the organisation or its methods.

Analysing work & Designing jobs

Autonomy – Is being responsible for what one does. It is the freedom to control one’s responses
to the environment.

Empowerment – It means passing on authority & responsibility to achieve a task / function.

Ergonomics – Is concerned with designing & shaping jobs to fit the physical abilities &
characteristics of employees so that they can perform their jobs effectively.

Job analysis – The process of collecting job related information. Such information helps in the
preparation of job description & job specification.

Job design – Involves conscious efforts to organize tasks, duties & responsibilities into a unit of
work to achieve certain objectives.
Job description – Implies objective listing of the job title, tasks, duties & responsibilities
involved in a job.

Job evaluation – Involves determination of relative worth of each job for the purpose of
establishing wage & salary differentials.

Job enlargement – Refers to the expansion of the number of different tasks performed by an
employee in a single job.

Job enrichment – It involves adding more motivators to a job to make it more rewarding

Job rotation – It involves moving employees from job to job to add variety & reduce boredom.

Job specification – Involve of listing of employee qualifications, skills & abilities to do a job.

Job Engineering – It focuses on the tasks to be performed, methods to be used, workflows among
employees, layout of the workplace, performance standards, & interdependencies among people
& machines.

Total Quality Management (TQM) – Total commitment to quality. An organization-wide

approach to continuously improving the overall quality of its process, products, and service

Performance appraisal – Involves assessment of the actual performance an employee against

what is expected of him / her in his / her role.

Recruiting Human Resources

Employee leasing – It involves paying a fee to a leasing company or a consulting firm that
handles payroll, employee benefits & routine HR functions for the client company. Also known
as staff – outsourcing.

E-recruiting – It involves screening candidates electronically, directing potential hires to a

special website for online skill assessment, conducting background checks over the internet,
interviewing candidates via video conferencing & managing the entire process with web based
software.

External recruitment – It includes sources external to a firm like professional or trade

associations, advertisements, employment exchanges, college/university/institutes/placement
services, walk-ins & write-ins, consultants, contractors, displaced persons, radio & televisions,
acquisitions & mergers & competitors.

Internal recruitment – It seeks applicants for positions from those who are currently employed.

Job Compatibility Questionnaire (JCQ) – It is designed to collect information on all aspects of a

job, which have a bearing on employee performance, absenteeism, turnover & job satisfaction.
Job posting – It means notifying vacant positions by posting notices, circulating publications or
announcing at staff meetings & inviting employees to apply.

Recruitment Philosophy – The firm must choose a recruiting approach that produces a best pool
of candidates quickly & cost effectively.

Recruitment – It involves attracting & obtaining as many applications as possible from eligible
job seekers.

Realistic Job Preview (RJP) – It provides complete job-related information (both positive &
negative) to the applicants so that they can make right decisions before taking up the job.

Screening – It is integral part of recruiting process, though it is viewed by some as the first step
in the selection process.

Time lapsed data (TLD) – It shows the average time that elapses between major decision points
in the recruitment process.

Yield ratios – It expresses the relationship of applicant inputs to outputs at various decision
points in the Recruitment process.

Selecting Human Resources

Ability test – Helps determine how well an individual can perform a task related to the job.

Aptitude test – The potential of an individual to learn in a given area.

Behavioural Interview – Focuses on a problem or a hypothetical situation that an applicant is

expected to solve.

False negative error – Rejection of an applicant who would have succeeded.

False positive error – An applicant is selected expecting success, but failure occurs.

Halo effect – This effect occurs when an interviewer judges an applicant’s entire potential for job
performance on the basis of a single trait, such as how the applicant dresses or talks.

Intelligence test – A standardized test used to establish an intelligence level rating by measuring
a subject's ability to form concepts, solve problems, acquire information, reason, and perform
other intellectual operations.

No shows – This refers to those individuals who pass through the selection rigour, receive
employment offers, but fail to report to duties. Is the consequence of ever increasing job offers.
Personality test – Tests to measure a prospective employee’s motivation to function in a
particular working environment.

Selection – It is a process to shortlist & match an applicant to a job.

Structured Interview – A predetermined checklist of questions, usually asked of all applicants.

Unstructured Interview – Few, if any, planned questions are out by the interviewers. Interviewee
does most of the talking.

Validity – Is a test, which helps predict whether a person will be successful in a given job.

Reliability – Refers to standardization of the procedure of administering & scoring the test
results.

Inducting & Placing New Hires

Independent jobs – Non-overlapping routes or territories are allotted to each worker wherein, the
activities of one worker have little bearing on the activities of other workers.

Induction – It is a planned introduction of new hires to their jobs, their peers & the company.

Orientation – Is a systematic & planned introduction of employees to their jobs, co-workers &
the organisation.

Placement – It refers to the allocation of people to jobs.

Pooled jobs – High interdependence among activities wherein, the final output is the result of
contribution of all workers.

Sequential jobs – Activities of one worker are dependant on the\activities of a fellow worker.

Training, Development & Career Development

Basic skills – Skill without which an operator will not be able to function.

Career planning – Process whereby an individual sets career goals & identifies the means to
achieve them.

Career development – Ensures that people with proper qualification & experiences are available
when needed.

Case study – A written description of an actual situation in business which provokes a reader to
decide what is going on, taken from an actual experience.

Education – To teach theoretical concepts & develop a sense of reasoning & judgement.
Motor skills – Refers to performance of specific physical activities. Also called psycho-mortar
skills.

On job training (OJT) – It is conducted at the work site & in context of the job. Is mostly
informal, an experienced worker shows a trainee how to work on the job.

Performance deficiency – The deficiency is caused by lack of ability rather than lack of
motivation to perform.

Program instruction (PI) – Is a method where training is offered without the intervention of a
trainer.

Computer assisted instruction – Is an extension of PI method. Speed, memory & data

manipulation capabilities of a computer permit greater utilization of basic PI concept.

Reinforcement – Increases the strength of response. Tends to induce repetitions of the behaviour
that preceded the reinforcement.

Role playing – An instance or situation in which one deliberately acts out or assumes a particular
character or role.

E learning – It is a web based learning or distance learning program.

Sensitivity training – To provide the participants with increased awareness of their own
behaviour & how others perceive them – understanding of group processes.

Simulation – An attempt to create a realistic decision making environment for the trainee. It
provides likely problem situations & decision alternatives to the trainee.

Training & development – Designed to impart specific skills, abilities & knowledge to
employees.

Appraising & Managing Performance

Assessment centers – Are series of assessment exercises in which candidates participate in job
related exercises evaluated by trained observers. Mostly used for executive hiring.

Behaviourally anchored rating scales (BARS) – Represent a range of descriptive statements of

behaviour varying from the least to the most effective.

Critical incidents – The method of employee assessment, which focuses on certain critical
behaviour of an employee that makes all the difference between effective & non-effective
performance of a job.
Field review – Appraisal by someone outside the assessee’s own department. Usually from the
corporate office or HR department.

Job evaluation – Seeks to determine the relative worth of each job in an organisation.

Job expectation – Informing the employee what is expected of him or her on the job.

MBO - Management by Objectives. A concept reflects a management philosophy, which values

& utilizes employee’s contribution.

Raters – Raters are expected to indicate which behaviour on each scale best describes an
employee’s performance.

Rater’s errors – The inaccuracies & biases in performance appraisal.

Performance appraisal – Is an objective assessment of an individual performance against well-

defined benchmarks.

Self-appraisal – Employee himself / herself evaluates his or her own performance.

Wage survey – wage rate is ascertained before fixing salary differentials in a job hierarchy.

360 degree appraisal technique – An employee’s performance is rated by superiors, peers,

subordinates & clients.

Managing Basic Remuneration

Cost of living – The criterion used for wage fixation as to compensate for price increases.
(Consumer price index).

Compensable factors – Factors for which an organisation is willing to pay ie skill, experience,
effort, & working environment.

Comparable worth – Implies equal pay for equal or same amount of work done irrespective of
the job profiles.

Egalitarian remuneration – The firms become egalitarian when they place most of the employees
under the same remuneration plan.

Employee remuneration – Compensation received by the employee in return for his or her
contribution to the organisation.

Fringe benefits – Employee benefits such as Provident fund, Gratuity, Medical care,
Hospitilisation, Accident relief, Health & group insurance, Canteen, Uniform, Recreation etc.
Going rate – Involves fixing wage/salary in tune with what is paid by different units of an
industry in a locality. Generally paid in the initial stage of plant operation.

Incentives – Also known as payment by results. It depends on productivity, sales, profits or cost
reduction efforts.

Productivity – Is a relationship between the input of labour measured in man-hours & the output
of entire economy.

Job classes / Bands – Jobs of approximately equal difficulty or importance are placed into a
group.

Living wage – Higher than fare wage. Provides for bare essentials plus frugal comforts.

Fare wages – Equal to the rate prevailing in the same trade & in the neighbourhood or equal to
the predominant rate for similar work throughout the country.

Minimum wage – Providing for sustenance of life plus for preservation of efficiency of worker.

Pay reviews – Reviews made in the pay as per the policy.

Pay surveys – Method by which prevailing wage & salary rates in the labour market are
ascertained.

Skill based pay – An employee is paid on basis of number of jobs he or she is capable of doing
on the depth of his or her knowledge. In the traditional system an employee is paid on the basis
of job held.

Wage policy – Refers to systematic efforts of the government in relation to national wage &
salary system.

Incentives & Performance-based Payments

Accelerated premium system – earnings of a worker increase with output. The rate of increase
itself rises progressively with the output.

Rowan Plan – Bonus paid to the employee is equal to the proportion of the time saved to
standard time.

Incentive system – A form of compensation in which the agency shares in the client's success
when a campaign attains specific, agreed-upon goals.

Piece rate – It is rate per unit.

Piece work – Is the oldest & most commonly used method of incentive scheme.
Standard hour – It is standard time in terms of hours. It is fixed for completion of hour.

Managing Employee Benefits & Services

Compensation benefits – Employers contribute funds to assist workers who are ill & cannot work
owing to occupational injury or ailment. Usually extended as condition of employment.

Indirect remuneration – Benefits & services are indirect compensation because they are usually
extended as a condition of employment & are not directly related to performance.

Pension plans – Organisations offer plans to provide supplementary income after they retire.
They are either company paid or joint employee & company paid programs meant to supplement
social security.

Insurance benefits – Most organizations offer insurance at a cost far below with what individuals
have to pay to buy insurance by themselves.
Empowering Employees

Empowered teams – Empowering refers to passing on authority & responsibility. It occurs when
power goes to employee who then experiences a sense of ownership & control over their jobs.

Joint councils – They are bodies comprising representatives of employers & employees.

Participative management – System of self-management, which gives complete control to

workers to manage directly all aspects of industries through their representatives. Manager &
worker are partners in the progress of business.

Quality circle – Consists of seven to ten people from the same work area to meet regularly to
define, analyse & solve quality & related problems in their area.

Self directed teams – Another name for empowered teams.

Communicating with Employees

Barriers to communication – Due the complexity of communication process, problems arise at

every stage resulting in distortion of communication.

Downward communication – Refers to communication from superiors to subordinates.

Upward communication – Is called as bottom-up flow. Is designed to provide feedback to

provide information how well the organisation is working. Also referred as chain of command.

Information technologies – Are mainly used as channels of communication. The Internet, World
Wide Web, email & voice mail etc constitute the state of art IT.

Communication – The process of exchanging information & understanding between people.

Communication network – Is the pattern how communication flows among various positions in
the organisation. It may assume the form of a wheel, a chain, a letter y, a circle or an all channel.

Grapevine – Informal communication that may tend to be largely accurate at times.

Interpersonal communication – Communication between people, between groups & among

groups.

Knowledge management – Plays the role in facilitating managerial functions, which changes
people’s attitude & enabling social behaviour.

Meta communication – Means an additional idea accompanying every idea that is expressed. The
non-verbal component indicates how the verbal message should be interpreted.
Organisational communication – Communication between various departments within the
organisation.

Lateral communication – Is called horizontal communication. Takes place between peers. It is

needed to achieve cooperation among group members & between work groups.

Non-verbal communication – Unspoken clues that a communicator sends in conjunction with

spoken or written messages ie tone of voice, facial expressions, body language etc.

Rumour – Is unjudicious & false information that is communicated without factual evidence.

Industrial Relations

Employer associations – It is a body, which protects & promotes the legitimate interests of
owners of industries.

Employee relations / Human relations – In addition to IR aspects, they also include participative
management, employee welfare, employee development, employee remuneration, employee
safety & health etc.

Industrial relations – Is concerned with the relationship between management & workers & the
role of regulatory mechanism in resolving any industrial dispute.

Industrial Relations strategy – It is a strategy covering communication, relationships,

competence, discipline, conflict & collaboration for productive purpose in any institution.

Judicial review – The authority of the courts to rule on the constitutionality of legislation.

Personnel manual – It sets out the rules & policies within which managers & employees must
operate. It tells how the management awards recognition to the union & offers facilities, how it
recognizes the officer’s association, how to handle a grievance, code of discipline in the industry
& the like.
Resolving Disputes
Adjudication – Means a mandatory settlement of an industrial dispute by a labour court or a
tribunal.

Arbitration – It is a procedure in which a neutral third party studies the dispute, listens to both
the parties & collects information, & makes recommendations, which are binding on both the
parties.

Bargaining issues – The issues related to wage, supplementary economic benefits, institutional &
administrative are known as Bargaining issues.

Code of discipline – It defines duties & responsibilities of employers & employees.

Collective bargaining – Takes place when representatives of a labour union meet management
representatives to determine employees’ wages & benefits & to solve other issues.

Conciliation – It is a process by which representatives of workers & employers are brought

together before a third party with a view to persuading them to arrive at an agreement by mutual
discussion between them.

Consultative machinery – Refers to bipartite & tripartite bodies operating at the plant, industry,
state & the national levels.

Grievance procedure – It is a procedure to resolve disputes, which is incorporated, in all-labour

agreements.

Industrial disputes – Refers to any conflict between employees & employers, between employers
& between employees & employees. But in reality, dispute is understood as the conflict between
employers & employees.

Unfair labour practices - Legally prohibited action by an employer or trade union such as refusal
to bargain in good faith.

Labour agreement - Contract between labor and management government wages and benefits
and working conditions

Managing Ethical Issues in Human Resource Management

Code of ethics – To provide guidance to managers & employees when they face an ethical
dilemma.

Corporate policy ethics – Are ethical dilemmas that affect their operations across all departments
& divisions in an organisation.
Employee privacy ethics – Refers to protecting person’s private life from
intrusive &unwarranted actions.

Ethics – Accepted norms of good or bad practices. Refers to a sense of right &
wrong &goodness & badness of action.

Ethical climate – The "feel of the organization" about the activities that have ethical
content or those aspects of the work environment that constitute ethical behavior. The
ethical climate is thefeel about whether we do things right; or the feel of whether we
behave the way we ought to behave.

Ethical dilemmas – An ethical dilemma is a situation that will often involve an apparent
conflictbetween moral imperatives, in which to obey one would result in transgressing
another.

Face to face ethics – These arise mainly due to a human element in most business
transactions.

Functional area ethics – Dilemmas arising out of functional areas of the business i.e.
financialstatements, pricing, promotions, advertising etc.

Managing ethics – Managerial techniques that are designed to encourage ethical behaviour.

Moral idealism – Postulates certain acts are good & others are bad. It gives definite
answer toethical issues.

Utilitariasm – To establish the moral locus not on the act or the motives but on the
consequences.

Whistle blowing – Is a business setting refers to disclosure to by former or current

organisationmembers of any illegal, immoral or illegitimate practices involving their
employers. It refrains the firm from indulging in unethical & harmful practices.