Module 2

Market Segmentation

Means dividing a market into distinct groups of buyers who might require
separate products or market mixes

 The concept of market is based on the fact that the markets of commodities
are not homogenous but they are heterogeneous

 Market represents of group of customers having common characteristics but

two customers are never common in their nature, taste, habits, hobbies,
income &purchasing styles

 Their exist a lot of difference in their buying behaviour & buying decisions

 On the basis of these characteristics customers having similar qualities are

grouped in segments

 The characteristics of customers of one segment differ with those of other

segments. In this way market segmentation refers to various segments of the
market based on the common characteristics of the customers

Definitions

‘Whenever a market for a product or service consists of two or more

buyers, the market is capable of being segmented, that is divided into meaningful
buyer groups. The purpose of segmentation is determine differences among buyers
which may be consequential in choosing away them or marketing to them’’-Philip
Kotler
Flow chart of segmentation process

Analyze the needs of customers

Analyze the characteristics of consumers

Disaggregate the consumers into suitable segments

Formulate different marketing mix for different segments

Feedback of various segments

Select the higher potential segments

Criteria for market segmentation

Bases for Consumer product Bases for Industrial product

1.Income of the consumer 1.Kinds of business
2.Age of the consumer 2.Usual purchasing procedure
3.Gender of the consumer 3.Geogrphical markets segmentation
4.Geogrphical market
Segmentation
5.Educational attainment of the
consumer
6.Religion of the consumer

Benefits Market Segmentation

 Adjustment of product & market appeals

 Better position to spot marketing opportunities
 Allocation of marketing budget
 Making the competition effective
 Effective marketing program
  Evaluation of marketing activities
 Increase in sales volume

 Adjustment of product & market appeals

It represents an opportunity to understand the nature of the market. The
seller can adjust his marketing skills to attract the maximum number of customers
by various publicity media & appeals

 Better position to spot marketing opportunities

-The producer can make fair estimation of the volume of his sales & the
possibilities of furthering his sales

-In the regions where the response of the consumers is poor the strategy of
approach can be readjusted accordingly to push the sales on the basis of
marketing research

-On the basis of research taste, hobbies, preferences & nature of consumers
of different markets can be understood deeply to have marketing opportuntities

 Allocation of marketing budget

In the places where the sales opportuntities are limited, it is no use of
allocating a huge budget there.

 Making the competition effective

-It helps the producer to face the competition of his rivals effectively

-The producer can adopt different policies, program, Strategies for different
markets taking account the rivals strategies

 Effective marketing program

-It also helps the producer to adopt an effective marketing program & serve
the consumer better at comparatively low cost
 -Different marketing program can be attached for different segments

 Evaluation of marketing activities

-It helps the manufacturer to find out & compare the marketing potentialities
of the products

-It helps to adjust production & using resources in a profitable manner

 Increase in sales volume

-By segmenting the market, the producer can increase his sales volume

-As we know each segment has demand pattern & the producer satisfies the
demand of each segment by improving his product

Thus the total sales volume of the enterprise increases

Bases for Market Segmentation

• CUSTOMER BASED SEGEMENTATION

• PRODUCT RELTED SEGMENTATION

• COMPETETION RELATED SEGMENTATION

 CUSTOMER BASED SEGEMENTATION

It is further classified as follows

 Geographic location of customers

 Demographic characteristics
*Age

*Income

*Gender

*Occupation

*Education
 *Marital status

*Family size & Structure

 Psychographic variables


*Geographic Location of customers

-The starting point of all market segmentation is the geographic location of

customers. It helps the firm in planning the marketing offer

-The common method is to classify according to rural & urban, metro or non-
metro markets

There are also other classification like district & block markets

-We all know the perception of rural market is quite different from the urban
market, the product, price, promotion & place were designed to meet those markets

-But with the development of technology & advent of various modes of

communication like TV, the customers in the rural areas are much exposed &
aware of the market & today the customers in the rural area buys the same branded
product which are purchased by urban customer.

*Demographic Characteristics

1. AGE

-In the market the producer should for what age group his product could be most
suited so that he can plan his pricing policy, advertiamant policy, marketing policy
& strategy accordingly
 Example: Cloth market or Garment market may be segmented on the basis of
age:

Children b/w the age group of 3-13yrs

Children b/w the age group of 13-15yrs

Teenager’s b/w the age group of 16-20yrs

Adult’s b/w the age group of 21-30yrs

2. INCOME

-The manufacturer should also bear in mind while preparing his marketing policy
because of the difference in the income groups

Example: People in high income group prefer quality of goods, design, fashion,
oriented products hence they can be motivated on these factors. People in low
income group attract towards low products

3. GENDER

-Market is divided on the basis of sex i.e., male & female. Some products are
exclusively produced for women while some others are for men.

Example: Lipstick is meant for women & on the other hand shaving cream is
only meant for men.

4. OCCUPATION

-It is an important variable in segmenting the market because an individual’s

employment does definitely affect the consumption different categories of
segments can be identified like doctors, consultants, entrepreneurs etc

5. EDUCATION

-Education of consumer also affects the preference & taste

 -The choice of literate person would differ from that of an illiterate, as a literate
would be having a lot exposure to the outside worlds but an illiterate lack the
ability to understand

Based on the education the Indian market can be segmented as illiterates,

literates-high school, college & university education

6. MARITAL STATUS

The behavioral of single & married people differs. Married people are more
conservative than unmarried people

7. FAMILY SIZE & STRUCTURE

-Example: Refrigerators & cookers are produced in different sizes to suit the
needs of families of different sizes

Psychographic Segmentation: The psychographic segmentation relates to the

personality, lifestyle and attitude of the individual. It is believed that the consumer
buying behavior can be determined by his personality and lifestyle. The personality
refers to the traits, attitudes and habits of an individual and the market is
segmented according to the personal traits such as introvert, extrovert, ambitious,
aggressiveness, etc.

The lifestyle means the way a person lives his life and do the expenditures.
Here the companies segment the market on the basis of interest, activities,
beliefs and opinions of the individuals.

Behavioral Segmentation: Here, the marketer segments the market on the basis of
the individual’s knowledge about the product and his attitude towards the usage of
the product. Several behavioral variables are occasions, benefits, user status, usage
rate, buyer readiness stage, loyalty status and the attitude.

The buyers can be classified as those who buy the product or services
occasionally, or who buy only those products from which they derive some
sort of benefits.Also, there are buyers who can be called as ex-users,
potential users, first-time users and regular users, the marketers can segment
the market on this classification. Often, the market is segmented on the basis
of the usage rate of the customers, such as light, medium and heavy users.
  PRODUCT RELTED SEGMENTATION
-Different customers use the same product in different situations

-A market makes the product versatile so that it can be used in different

situations. Thus depending on the use situation a product or a brand may be
selected by the customers

 COMPETETION RELATED SEEMENTATION

-The success in marketing depends on the number of loyal customers

Customer’s loyalty therefore is an important factor to determine the

competitive position of the firm. On the basis of brand loyalty the market could be
classified as:

*Hard core loyal

*Soft-core loyal

*Switchers

1. Hard core loyal

Are those customers who buy the same brand like newspapers readers, tea
drinkers etc

2. Soft-core loyal

Are those customers who are loyal to two or three group of brands in a product
group, Example: Housewife buying toilet soap (lux, cinthol, Pears)

3. Switchers

Are those customers who never stick to a brand, customers keep switching from
brand to brand & from the existing to the competitive brand.
Requisites of sound marketing segmentation

1. Company resources

2. Products Characteristics

3. Homogeneous nature of markets

4. Competitive marketing

5. Government Policy

1. Company resources

It involves heavy expenditure in implementing, unless the company has got

enough resources market segmentation cannot be undertaken at all

2. Products Characteristics

Most products are heterogeneous in character but some other homogeneous in

nature. In that case market differentiated strategy is adopted but in latter stage the
necessity segmentation is disputed

3. Homogeneous nature of markets

i.e., where the consumers have a common taste & preferences, then there is no
need of segmentation, only it is required when the customer preferences vary from
group to group

4. Competitive marketing

It is necessary to follow the competitor’s activity of market segmentation

5. Government Policy

Differentiated or undifferentiated market should be selected

Requisites/ Essential of sound market segmentation

a) Measurable: The size, needs, purchasing power, and characteristics of the

customers in the segment should be measurable. Quantification should be possible.

b) Divisible: The segments should be differentiable. There must be clear-cut basis

for dividing customers into meaningful homogeneous groups. They should respond
differently to different marketing mixes. There should be differences in buyer's
needs, characteristics and behaviour for dividing in groups.

c) Accessible: The segment should be reachable and serviceable. It should be

accessible through existing marketing institutions, such as distribution channels,
advertising media and sales force. There should be middlemen to distribute the
products.

d) Substantial: The segment should be substantial. It should be large enough in terms

of customers and profit potential. IT should justify the costs of developing a separate
marketing mix.

e) Actionable: It should be actionable for marketing purposes. Organizations should

be able to design and implement the marketing mix to serve the chosen segment.

Target Market Strategies

A target market is a defined group most likely to buy a company's product or

service. There are different types of target market strategies as well. They are
focusing on an entire market with one marketing mix, concentrating on one
segment, and targeting many segments with multiple marketing mixes.

1. Undifferentiated marketing:

There may be no strong differences in customer characteristics. Alternatively, the

cost of developing a separate marketing mix for separate segments may outweigh
the potential gains of meeting customer needs more exactly. Under these
circumstances a company will decide to develop a single marketing mix for the
whole market. There is absence of segmentation.
This strategy can occur by default. Companies which lack a marketing orientation
may practice this strategy because of lack of customer knowledge. It is convenient
since a single product has to be developed.

A company using an undifferentiated targeting strategy essentially adopts a mass-

market philosophy. It views the market as one big market with no individual
segments. The company uses one marketing mix for the entire market. The
company assumes that individual customers have similar needs that can be met
with a common marketing mix.

The first company in an industry normally uses an undifferentiated targeting

strategy. There is no competition at this stage and the company does not feel the
need to tailor marketing mixes to the needs of market segments.

Since there is no alternate offering, customers have to buy the pioneer’s product.
Ford’s Model T is a classical example of an undifferentiated targeting strategy.
Companies marketing commodity products like sugar also follow this strategy.

Companies following undifferentiated targeting strategies save on production and

marketing costs. Since only one product is produced, the company achieves
economies of mass production. Marketing costs are also lower as only one product
has to be promoted and there is a single channel of distribution.

But undifferentiated targeting strategy is hardly ever a well considered strategy.

Companies adopting this strategy have either been blissfully ignorant about
differences among customers or have been arrogant enough to believe that their
product will live up to the expectations of all customers, till focused competitors
invade the market with more appropriate products for different segments.

Therefore companies following this strategy will be susceptible to incursions from

competitors who design their marketing mixes specifically for smaller segments.

Finding out that customers have diverse needs that can only be met by products
with different characteristics means that managers have to develop new products,
design new promotional campaigns and develop new distribution channels.
Moving into new segments means that salespeople have to start prospecting for
new customers.

2. Differentiated marketing or multi-segment targeting:

When market segmentation reveals several potential target segments that the
company can serve profitably, specific marketing mixes can be developed to
appeal to all or some of the segments. A differentiated marketing strategy exploits
the differences between marketing segments by designing a specific marketing mix
for each segment.
A company following multi-segment targeting strategy serves two or more well-
defined segments and develops a distinct marketing mix for each one of them.
Separate brands are developed to serve each of the segments.

It is the most sought after target market strategy because it has the potential to
generate sales volume, higher profits, larger market share and economies of scale
in manufacturing and marketing. But the strategy involves greater product design,
production, promotion, inventory, marketing research and management costs.

Another potential cost is cannibalization, which occurs when sales of a new

product cut into sales of a firm’s existing products. Before deciding to use this
strategy, a company should compare the benefits and costs of multi-segment
targeting to those of undifferentiated and concentrated targeting.

The car market is most clearly segmented. There are segments for small cars,
luxury cars, sports utility vehicles, etc. Most car makers like General Motors, Ford,
Toyota, Honda and others offer cars for all the segments. Though Toyota entered
the US market with small cars, it eventually chose to operate in most of the
segments.

3. Focus or concentrated targeting:

Several segments may be identified but a company may not serve all of them.
Some may be unattractive or out of line with the company’s business strengths. A
company may target just one segment with a single marketing mix. It understands
the needs, and motives of the segment’s customers and designs a specialized
marketing mix.

Companies have discovered that concentrating resources and meeting the needs of
a narrowly defined market segment is more profitable than spreading resources
over several different segments. Starbucks became successful by focusing
exclusively on customers who wanted gourmet coffee products.

The strategy is suited for companies with limited resources as these resources may
be too stretched if it competes in many segments. Focused marketing allows R&D
expenditure to be concentrated on meeting needs of one set of customers and
managerial activities are devoted to understanding and catering to their needs.

Large organizations may not be interested in serving the needs of this one segment
or their energies may be so dissipated across the whole market that they pay
insufficient attention to the requirements of this small segment. One danger that
such niche marketers face is attracting competition from larger organizations in the
industry if they are very successful.
Companies following concentrated targeting strategies are obviously putting all
their eggs in one basket. If their chosen segments were to become unprofitable or
shrink in size, the companies will be in problem. Such companies also face
problems when they want to move to some other segments, especially when they
have been serving a segment for a long time.

They become so strongly associated with serving a segment with a particular type
of product or service, that the customers of other segments find it very difficult to
associate with them. They believe that the company can serve only that particular
segment.

Companies which start with concentrated targeting strategy but nurse ambitions to
serve more segments should make early and periodic forays into other segments.

The idea is to avoid being labelled as the company which exclusively serves a
particular segment. The association with one particular segment should not be
allowed to become so strong that customers cannot imagine the company doing
something else.

Mercedes offers premium cars for the upper segment of the market only. It does
not offer cars for the middle and lower segments. But Mercedes segments the
premium segment and offers different cars for its different premium segments.

Some companies are focused in another way. They focus on heavy users—the
small percentage of customers that account for large share of a product’s sale.

The problem with such a strategy is that all the major players would be targeting
this segment, and hence serving this segment will involve high marketing
expenditure, price cutting and low profitability. A more sensible strategy is to
target a small, less attractive segment rather than choose the same segment that
every company is after.

4. Customized marketing/Micro marketing:

In some markets, the requirements of individual customers are unique and their
purchasing power is sufficient to make designing a separate marketing mix for
each customer a viable option. Many service providers such as advertising,
marketing research firms, architects and solicitors vary their offerings on a
customer to customer basis.

They will discuss face to face with each customer their requirements and tailor
their services accordingly. Customized marketing is also found within
organizational markets because of high value of orders and special needs of
customers.
Customized marketing is associated with close relationships between the supplier
and customer because the high value of an order justifies large marketing and sales
efforts being focused on each buyer.

Product Positioning

Product positioning is an important element of a marketing plan. Product positioning

is the process marketers use to determine how to best communicate their products'
attributes to their target customers based on customer needs, competitive pressures,
available communication channels and carefully crafted key messages.

Steps to product Positioning

Marketers with the positioning process try to create a unique identity of a product
amongst the customers.

1. Know your target audience well

It is essential for the marketers to first identify the target audience and then
understand their needs and preferences. Every individual has varied
interests, needs and preferences. No two individuals can think on the same
lines.

Know what your customers expect out of you.

The products must fulfill the demands of the individuals.

2. Identify the product features

The marketers themselves must be well aware of the features and benefits of
the products. It is rightly said you can’t sell something unless and until you
yourself are convinced of it.

A marketer selling Nokia phones should himself also use a Nokia handset
for the customers to believe him.

3. Unique selling Propositions

Every product should have USPs; at least some features which are unique.
The organizations must create USPs of their brands and effectively
communicate the same to the target audience.
 The marketers must themselves know what best their product can do.

Find out how the products can be useful to the end-users ?

Why do people use “Anti Dandruff Shampoo?”

Anti Dandruff Shampoos are meant to get rid of dandruff. This is how the
product is positioned in the minds of the individuals.

Individuals purchase “Dabur Chyawanprash “to strengthen their body’s

internal defense mechanism and fight against germs, infections and stress.
That’s the image of Dabur Chyawanprash in the minds of consumers.

USP of a Nokia Handset - Better battery backup.

USP of Horlicks Foodles - Healthy snack

Communicate the USPs to the target audience through effective ways of

advertising. Use banners, slogans, inserts and hoardings.

Let individuals know what your brand offers for them to decide what is best
for them.

4. Know your competitors

 A marketer must be aware of the competitor’s offerings. Let the
individuals know how your product is better than the competitors?
 Never underestimate your competitors.
 Let the target audience know how your product is better than others.
 The marketers must always strive hard to have an edge over their
competitors.
5. Ways to promote brands
 Choose the right theme for the advertisement.
 Use catchy taglines.
 The advertisement must not confuse people.
 The marketer must highlight the benefits of the products.
6. Maintain the position of the brand
 For an effective positioning it is essential for the marketers to
continue to live up to the expectations of the end - users.
 Never compromise on quality.
 Don’t drastically reduce the price of your products.
 A Mercedes car would not be the same if its price is reduced below a
certain level.
 A Rado watch would lose its charm if its price is equal to a Sonata or
a Maxima Watch.
Top 10 Benefits of Product Positioning

1. To Make Entire Organization Market-oriented:

Product positioning is a part of the broader marketing philosophy. It concerns with

identifying superior aspects of product and matching them with consumers more
effectively than competitions. This philosophy makes the entire organisation
market oriented.

2. To Cope with Market Changes:

Once the product is positioned successfully doesn’t mean the task of manager is
over. He has to constantly watch the market. As per new developments in the
market place, new competitive advantages should be identified, discovered or
developed to suit the changing expectations of the market. It makes the manager
active, alert and dynamic.

3. To Meet Expectation of Buyers:

Generally, the advantages to be communicated are decided on the basis of

expectations of the target buyers. So, product positioning can help realize
consumers’ expectations.

4. To Promote Consumer Goodwill and Loyalty:

Systematic product positioning reinforces the company’s name, its product and
brand. It popularizes the brand. The company can create goodwill and can win
customer loyalty.

5. To Design Promotional Strategy:

More meaningful promotional programme can be designed. Based on what

advantages are to be communicated, appropriate means are selected to promote the
product.

6. To Win Attention and Interest of Consumers:

Product positioning signifies those advantages that are significant to consumers.

When such benefits are promoted through suitable means of advertising, it
definitely catches the interest and attention of consumers.

7. To Attract Different Types of Consumers:

Consumers differ in terms of their expectations from the product. Some want
durability; some want unique features; some want novelty; some wants safety;
some want low price; and so on. A company, by promoting different types of
competitive advantages, can attract different types of buyers.

8. To Face Competition:

This is the fundamental use of product positioning. Company can respond strongly
to the competitors. It can improve its competitive strength.

9. To Introduce New Product Successfully:

Product positioning can assist a company in introducing a new product in the

market. It can position new and superior advantages of the product and can
penetrate the market easily.

10. To Communicate New and Varied Feature Added Later on:

When a company changes qualities and/or features of the existing products, such
improvements can be positioned against products offered by the competitors.
Product positioning improves competitive strength of a company. Normally,
consumers consider product advantages before they buy it. So, product positioning
proves superiority of company’s offers over competitors. It may also help
consumers in choosing the right product.

What is repositioning?

Repositioning refers to the major change in positioning for the brand/product. To

successfully reposition a product, the firm has to change the target market’s
understanding of the product. This is sometimes a challenge, particularly for well-
established or strongly branded products.

Firms may consider repositioning a product due to declining performance or due to

major shifts in the environment. Many firms choose to launch a new product (or
brand) instead of repositioning because of the effort and cost required to
successfully implement the change.

5 ways to repositioning

1. Brand. Conveying who you are, a brand goes beyond a Website, catchy theme,
logo, or campaign. It is the vision, principles, mission ,and essence of the
company, and if done correctly, it is proudly conveyed by its employees and
communicated to the world. Each company has its unique personality that is
visually and verbally articulated to differentiate it from its competition. Consider
the brands of Pepsi vs. Coca-Cola. They each represent quality products and sound
public companies. When each of their products are side by side with an unknown
local bottler, which would you choose? That is the advantage of the brand.
Some brands have become so powerful, they have entered the dictionary. We now
say "Google it" when searching on the Internet. When copying, we often say
"Xerox it."

2. Niche. Consistent with a brand is the development of a niche. An ongoing

challenge plaguing most senior managers is how to gain a competitive edge in the
marketplace. How do you differentiate your company? A niche will do it by:

a. Developing and promoting a unique product, feature, or service.

b. Gaining enough market share to influence buying behavior.
c. Both of the above.

Maintaining a niche is another issue, and a difficult one. Wal-Mart does it with
market share, volume, and price; Microsoft with market share and technology for
its suite of Windows. A key is to do the research, think long term, and constantly
work toward that niche goal, which is a problem for corporate America. It is said
we in the U.S. think in terms of a quarter or two ahead, perhaps a year, while the
Japanese think in terms of a decade and the Chinese in terms of a century.

3. Profitability and Budget. We all know the golden rule: "He who has the gold
makes the rules." The same is true regarding corporate spending and positioning. If
you cannot maintain profitability or have never set aside an appropriate budget to
market your products or services, what can you do? Here are several cost-
conscious ideas:

• Identify and attend free events promoting your products and services.
• Maximize the use of your Website with Search Engine Optimization (SEO) and
start attracting more visitors.
• Utilize social media to promote the company's products and services.
• Empower and incentivize employees to participate in marketing via social media,
conferences and association meetings, networking events, etc.
• Besides well-placed ads, consider articles and speaking engagements.
• Consider joint ventures or partnering with other companies that can share the
marketing costs.
• Use better go/no-go decision-making criteria to focus on the best opportunities.



4. Technology. Investing in technology helps strengthen and reposition the

company in many ways. It can enhance your product or service, especially if you
are in a technologically driven industry, such as IT, robotics, communications,
engineering, etc. Forward thinking does not necessarily have to be cutting-edge
technology, but it could if the strategy is well-thought-out. You may want to
consider enhancing or customizing vs. developing new. A second use of
technology involves marketing, and the effective use of Websites. Today, most
companies have Websites, but many serve little purpose except "to be with it."
Companies should take advantage of their Websites and employ the use of Search
Engine Optimization (SEO) to attract and convert more customers, even if it was
developed as a lead generator or public relations vehicle. SEO consultants are out
there to assist, and it could pay dividends and maximize your use of technology.
Evolving quickly is social media, and while companies are struggling to control
these phenomena, its use grows every day. Aren't you Tweeting? It's everywhere,
and companies are taking advantage of it to reach more people.

5. Implementation and Follow-Through. A great plan poorly executed is not as

good as a poor plan well executed. Therefore, equal thought must be given to the
implementation phase of a project. This would include:

• A well-thought-out
approach to the execution.

• Properly assigned personnel

• Responsibilities and the authority to carry out the mission
• Incentives, if applicable
• Time line
• Performance measurement



An important consideration is the follow-though, and following up on the

various executable elements, which may involve senior management or an
additional implementation step such as a survey, rating, or a debriefing if the sale
is lost.

Target market selection

 Single-segment strategy - also known as a concentrated strategy. One

market segment (not the entire market) is served with one marketing mix. A
single-segment approach often is the strategy of choice for smaller
companies with limited resources.
 Selective specialization- this is a multiple-segment strategy, also known as
a differentiated strategy. Different marketing mixes are offered to different
segments. The product itself may or may not be different - in many cases
only the promotional message or distribution channels vary.
 Product specialization- the firm specializes in a particular product and
tailors it to different market segments.
 Market specialization- the firm specializes in serving a particular market
segment and offers that segment an array of different products.
 Full market coverage - the firm attempts to serve the entire market. This
coverage can be achieved by means of either a mass market strategy in
which a single undifferentiated marketing mix is offered to the entire
 market, or by a differentiated strategy in which a separate marketing mix is
offered to each segment.

The following diagrams show examples of the five market selection patterns given
three market segments S1, S2, and S3, and three products P1, P2, and P3.

Single Selective Product Market Full Market

Segment Specialization Specialization Specialization Coverage

S1 S2 S3
S1 S2 S3 S1 S2 S3 S1 S2 S3 S1 S2 S3
P1
P1 P1 P1 P1
P2
P2 P2 P2 P2
P3
P3 P3 P3 P3

A firm that is seeking to enter a market and grow should first target the most
attractive segment that matches its capabilities. Once it gains a foothold, it can
expand by pursuing a product specialization strategy, tailoring the product for
different segments, or by pursuing a market specialization strategy and offering
new products to its existing market segment.

Another strategy whose use is increasing is individual marketing, in which the

marketing mix is tailored on an individual consumer basis. While in the past
impractical, individual marketing is becoming more viable thanks to advances in
technology.

The Advantages of a Product Differentiation Strategy

Creates Value

When a company uses a differentiation strategy that focuses on the cost value of
the product versus other similar products on the market, it creates a perceived
value among consumers and potential customers. A strategy that focuses on value
highlights the cost savings or durability of a product in comparison to other
products.

Non-Price Competition

The product differentiation strategy also allows business to compete in areas other
than price. For example, a candy business may differentiate its candy from other
brands in terms of taste and quality. A car manufacturer may differentiate its line
of cars as an image enhancer or status symbol while other companies focus on cost
savings. Small businesses can focus the differentiation strategy on the quality and
design of their products and gain a competitive advantage in the market without
decreasing their price.

Brand Loyalty

A successful product differentiation strategy creates brand loyalty among

customers. The same strategy that gains market share through perceived quality or
cost savings may create loyalty from consumers. The company must continue to
deliver quality or value to consumers to maintain customer loyalty. In a
competitive market, when a product doesn't maintain quality, customers may turn
to a competitor.

No Perceived Substitute

A product differentiation strategy that focuses on the quality and design of the
product may create the perception that there's no substitute available on the market.
Although competitors may have a similar product, the differentiation strategy
focuses on the quality or design differences that other products don't have. The
business gains an advantage in the market, as customers view the product as
unique.

USP

Unique selling proposition

A unique selling proposition (USP, also seen as unique selling point) is a factor
that differentiates a product from its competitors, such as the lowest cost, the
highest quality or the first-ever product of its kind. A USP could be thought of as
“what you have that competitors don't.”

Importance

1. Identify what makes your company unique – Just as the name suggests, a
“unique” selling proposition must explain what distinguishes your company or
offer. It’s easy if you have a product that’s new to the marketplace, but for most
printing companies that isn’t the case. Hence, the first thing to do is define the
particular advantages your company has over the competition.
2. Be specific – Generic-sounding claims about customer service or simply being
the best are not effective. Start by creating a list of each specific benefit that your
company provides. As you review it, one or more unique aspects should emerge
and provide the basis for writing a strong, descriptive, specific USP.

3. Keep it short – USPs are not introductory paragraphs. They are generally a
phrase or sentence. Don’t ramble. The more concise you are, the better your results
will be.

Effective USPs identifies the most important benefits of using your services, solve
an industry pain point, and (of course) are unique. Once you’ve determined yours,
the final step is to integrate the USP(s) into all your marketing collateral and
customer communication tools, such as email signatures, social media sites,
invoices, etc.

1. so it is hard to judge whose services are better than the other as compared to
goods.
2. Goods can be returned to or exchanged with the seller, but it is not possible
to return or exchange services, once they are provided.
3. Goods can be distinguished from the seller. On the other hand, services and
service provider are inseparable.
4. A particular product will remain same in terms of physical characteristics
and specifications, but services can never remain same.
5. Goods can be stored for future use, but services are time bound, i.e. if not
availed in the given time, then it cannot be stored.
6. First of all the goods are produced, then they are traded and finally
consumed, whereas services are produced and consumed at th same time.

PRODUCT MIX

It is mix of all the products offered by sale for company. It is defined as the
composite of products offered for sale by a firm or a business unit.

It is mix of all the products offered by sale for company. It is defined as the
composite of products offered for sale by a firm or a business unit.
Factors influencing change in product mix

1. Change in the market demand

Due to changes in habits, fashion, purchasing power, income, attitudes &

preferences of consumer affects the decision of product mix

2. Cost production

If the company can develop a new product with the help of the same labor
form, plant, machinery & techniques it can decide to start the production of that
at lower cost

3. Quality of production

If the production of the product to be considered to at large scale & the

company can add one more item to its product line just to get the economies of
large scale production

4. Change in purchasing power or Behaviour of the customer

If the numbers of customers are increased with the increase in their

purchasing power or with the change in their buying habits, fashion etc

5. Goodwill of the company

If the company is of repute it can market any new product in the market
without much difficulty.

PRODUCT LINE

Products that are closely related, either because they function in a similar manner
or are sold to the same customer groups or are marketed through the some type of
outlets or fall within given price ranges
 Example: HLL, Goderj’s, P & G’s range of toilet soaps is product line

Product Diversification

Means that the manufacturer offers more than one product. It involves adding
new products or lines to have balanced or optimum product range.

Reasons

1. To reduce risks of product obsolescence & exploit new markets

2. To utilize the un-utilized or under utilized capacity

3. To spread overheads & fixed costs & increase sales turnover & profits

4. To maximize seasonal fluctuations in demand

Merits

1. Reduces change in demand

2. Balanced optimum line of products

3. Optimum use complimentary process

Types of Product Diversification

*Related Diversification

Means adding new products of the same line for facilities

*Un-related Diversification

Means adding new products which are not related to the existing line.
The cost is usually high
 PRODUCT LIFE CYCLE

Product life stage

The product life cycle is an important concept in marketing. It describes

the stages a product goes through from when it was first thought of
until it finally is removed from the market. Not all products reach this
final stage. Some continue to grow and others rise and fall.

-All products have certain strength, like during which they pass through
identifiable stages.

-Through the conception of the product during its development & upto the
market introduction, product remains in the parental stage

-Its life begins with its market INTODUCTION, then goes through a period
during which its market GROWS rapidly, eventually its reaches its MATURITY &
then stands SATURATED & finally its life comes to an END

Definition-‘The product life cycle is an attempt to recognize distinct stages in

the sales history of the product’ PHILIP KOTLER

Different stages of PLC

 1. INTRODUCTION

2. GROWTH

3. MATURITY

4. SATURATION

5. DECLINE

6. OBSOLESCENCE

1. INTRODUCTION

-During the stage of PLC, the product is put in the market with full scale
production & marketing programme

The company is an innovator may be the whole industry

-The product has gone through the embryonic stages of idea screening, pilot
methods & test marketing.

The entire product may be new or the basic product

May be well know but a few feature or accessory is in

The introductory stage

-In the pioneering stage there is virtually no competition

-Technical defects in the product often appear during this stage because of
insufficient prior testing of the product, in these initial stages these defects may
be detected & eliminated.

-The pioneering stage is very difficult & expensive as there are a high
percentage of product failures in this product
 Operations in this stage are characterized by high costs, low sales volume, ltd
distribution & heavy promotion & the type of the product rather than the sellers
brand is emphasized

2. GROWTH or market Acceptance stage

-In this stage the product gains popularity among & recognition from the
customers

-The product is produced in sufficient quantity & put in the market without
delay.

The DEAMND generally continuous to exceed the SUPPLY

-The demand & sales go up tremendously due to promotional efforts

-Consequently profits of the firm start going up & up because of the two primary
reasons:

*Production & sales goes up

*Advertising & distribution cost though goes up but its per unit reduced.

3. Market MATURITY

-During this stage the sales volume continue to increase but at a decreasing
rate, while the sales curve is leveling off, the profits of both the manufacturer &
the retailers are starting to decline

BECAUSE of rising expenditure & lowering of prices

 MARGINAL producers are therefore force to drop out of the market

-Price competition assumes a greater share of the total promotional efforts in

order to retain his dealers

The producer search for new market & market & marketing research goes up,
supply exceeds the demand for the first time

4. SATURATION

-Here the sales volume comes to standstill despite best efforts

-In this stage the market may peaks & levels off & it may start to decline, sales
volume becomes stagnant as there no customers

-Competition intensifies & profit margins decline further as production &

distribution cost increase & prices tumble down further due to increasing
competition

-High competition brings the cost of distribution & promotional efforts at new
high

Fresh efforts are made in this stage to impress the products

5. DECLINE

-This stage is characterized by either the products gradual replacement by

some new innovation or by an evolving change in consumer buying behaviour
 -The buyers don’t buy as much as they did before, NEW & SUPERIOR
products are being introduced to the market many of which meet the consumers
demand

-The sales drop off & many of the competitors withdraw from the market. Cost
control becomes increasingly important as demand drops.

6. OBSOLENSCENCE

- After sometime, consumers want “NEWNESS’’ i.e, new products, new

styles, new colors etc

- As new products are developed & introduced by the competitors, the

company’s product dies out. Its demand & sales are likely to tamper off. Profits
are reduced to negligible point

- At this stage it is advisable to stop the production of the products & switch of
to other products

PLC importance

1. Product Positioning

At the introduction stage of the product life cycle, companies often seek to enhance
brand awareness as a way of improving the product's position in the market, which
involves creating a market for the products. Companies that succeed at this stage
often undertake market research to identify suitable markets for their products.
They advertise through various media channels, tools and platforms, including
social networking websites, video-sharing websites and blogs, all of which can
effectively help companies reach the desired target market.

2. Increasing Market Share

A successful marketing plan can guarantee improvements in the market share. To

understand whether there is a real improvement in a product's market share,
companies compare the percentage of sales volume to that of the competitors in the
same product category. During this growth stage, the focus is mainly on reaching
as many customers as possible. To succeed, companies use additional promotional
and distribution resources to squeeze enough profits from the stable markets they
enjoy. For example, in some cases, a company might lower the price of its products
to steer customers away from other manufactures in the same category.

3. Improving Sales and Maximizing Profits

As products move from the growth stage to the maturity phase, the primary motive
is improving sales to maximize profits. Even though demand for products at this
moment may naturally level off, the companies may spend less on advertising and
promotion. This is because when products reach the maturity phase, the company’s
brand awareness is already well-established in the marketplace. Instead of focusing
on increasing market share, the primary objective at this stage is to maintain the
current market share. This objective can be achieved by use of promotional
strategies geared toward customer loyalty among the existing users.

4. Prolonging Life Cycle

At the final stage of a product's life cycle, product sales begin to decline.
Companies, therefore, focus on reaping profits for as long as possible. It is at this
time, when the product's popularity begins declining, that companies make
decisions regarding the ultimate fate of their product. Companies may decide to
lower product prices to maintain market share for as long as possible. Other
companies may decide to discontinue the product by developing replacement
products. Making proper decisions throughout the product's entire life cycle can
naturally ensure a long life for the product.

5. New Product Entrants

When a new product is introduced, or a new company opens its doors, the business
owner's challenge is to generate awareness for that product or service. In these very
early stages of market introduction the use of traditional print and broadcast media
is a proven way to create demand.

6. Establishing Preference

Once a product has gained market awareness, advertisers begin creating product
preferences among target customers. Establishing that preference over other
available offerings requires telling the product's story through various media. At
this point, mass media use gives way to more targeted media, including social
media, which allows more information to be shared.

7. Competing in a Crowded Market

Competing in a crowded market occurs during a product's mid-life stage.

Marketers begin to rely on word-of-mouth generated not only through satisfied
customers, but also through the public relations efforts of third-party
endorsements. What advertisers say about their own products and services will
always be viewed by consumers with a certain amount of skepticism. What they
hear from others, including the media, has more impact at this stage in the product
life cycle.

8. Maintaining Awareness

Once a product is established (think CocaCola or Chevrolet), the advertiser's

challenge is to maintain that awareness. At this stage, mass media becomes
important in maintaining a general level of awareness for the product. Mass media
also raises awareness among new market entrants, and even established product
marketers know that there are always opportunities to attract new customers.

9. Backing Off and Starting Over

Products and services eventually reach a point of diminishing returns. When this
happens, media use declines unless the marketer is able to introduce a brand
extension or an entirely new product. Then the cycle begins again. At every stage
in a product's life cycle, the marketer will be concerned about choices related to
generating awareness, preference, demand and, ultimately, a purchase decision.

Reasons for PLC

1. Continuous research for product development

2. Simultaneous attempts by several companies in the same direction

3. Tendency of a new idea to attract competitors in a relatively short period

PRODUCT LIFE CYCLE (PLC)

-All products have certain strength, like during which they pass through
identifiable stages.

-Through the conception of the product during its development & upto the
market introduction, product remains in the parental stage
 -Its life begins with its market INTODUCTION, then goes through a period
during which its market GROWS rapidly, eventually its reaches its MATURITY &
then stands SATURATED & finally its life comes to an END

Definition-‘The product life cycle is an attempt to recognize distinct stages in

the sales history of the product’ PHILIP KOTLER

Different stages of PLC

1. INTRODUCTION

2. GROWTH

3. MATURITY

4. SATURATION

5. DECLINE

1. INTRODUCTION

 -During the stage of PLC, the product is put in the market with full scale
production & marketing programme
 The company is an innovator may be the whole industry
 The product has gone through the embryonic stages of idea screening,
pilot methods & test marketing.
 The entire product may be new or the basic product
 May be well know but a few feature or accessory is in
 The introductory stage
 -In the pioneering stage there is virtually no competition
 -Technical defects in the product often appear during this stage because of
insufficient prior testing of the product, in these initial stages these defects
may be detected & eliminated.
 -The pioneering stage is very difficult & expensive as there are a high
percentage of product failures in this product
 Operations in this stage are characterized by high costs, low sales volume,
ltd distribution & heavy promotion & the type of the product rather than
the sellers brand is emphasized
2. GROWTH or market Acceptance stage

 -In this stage the product gains popularity among & recognition from the
customers
 -The product is produced in sufficient quantity & put in the market without
delay.
 The DEAMND generally continuous to exceed the SUPPLY
 -The demand & sales go up tremendously due to promotional efforts
 -Consequently profits of the firm start going up & up because of the two
primary reasons:
 Production & sales goes up
 Advertising & distribution cost though goes up but its per unit reduced.

3. Market MATURITY

-During this stage the sales volume continue to increase but at a decreasing
rate, while the sales curve is leveling off, the profits of both the manufacturer &
the retailers are starting to decline

BECAUSE of rising expenditure & lowering of prices

MARGINAL producers are therefore force to drop out of the market

-Price competition assumes a greater share of the total promotional efforts in

order to retain his dealers

The producer search for new market & market & marketing research goes up,
supply exceeds the demand for the first time
 4. SATURATION

-Here the sales volume comes to standstill despite best efforts

-In this stage the market may peaks & levels off & it may start to decline, sales
volume becomes stagnant as there no customers

-Competition intensifies & profit margins decline further as production &

distribution cost increase & prices tumble down further due to increasing
competition

-High competition brings the cost of distribution & promotional efforts at new
high

Fresh efforts are made in this stage to impress the products

5. DECLINE

-This stage is characterized by either the products gradual replacement by

some new innovation or by an evolving change in consumer buying behaviour

-The buyers don’t buy as much as they did before, NEW & SUPERIOR
products are being introduced to the market many of which meet the consumers
demand

-The sales drop off & many of the competitors withdraw from the market. Cost
control becomes increasingly important as demand drops.
 Pricing

 Price may be defined as the value of product attributes expressed in monetary

terms which a consumer pays or is expected to pay in exchange & anticipation
of the expected or offered utility
 Pricing is the function of determine product value in monetary terms by the
marketing management of a company before it is offered to the target
consumer for sale.

Objectives/ or Advantages of Pricing decisions

• 1. To maximize the profits

• 2. Price stability
• 3. Competitive situation
• 4. Achieving a Target-return
• 5. Capturing the market
• 6. Ability to pay
• 7. Long-run welfare of the firm
• 8. Margin of profit to middlemen

Methods of pricing polices/ Basic pricing polices

1. Cost-oriented pricing
2. Demand-oriented pricing
3. Competition-oriented pricing

1. Cost-oriented pricing

Following are some of the methods based on cost

 Cost-plus pricing
 Rate of return or target pricing methods
 Break-even pricing
 Marginal cost or Incremental pricing

 Cost-plus pricing
- In this method assumes that no product is sold at a loss since the price covers
 the full cost incurred

- Fixing tentative pricing is easier in this method

- The price under this method is determined by adding a desired percentage

profit on the cost to the total cost of the product taking into account, the
margins for middlemen

- The de-merits is that it ignores completely the influence of competition &

market demand

Merits

1. Where it is difficult to forecast the future demand this method is appropriate

2. If there are only few buyers for the product, then pricing can be justified

3. Public utility services like railways, post offices, electricity are priced through
this method

De-merits

1. The two important factors i.e. demand & supply are ignored

2. Method totally based on cost concept but in reality cost don’t influence the
prices where as price influence the cost

3. Correct cost can’t be calculated

  Rate of return or target pricing methods

Total cost of production+total

Desired profit at desired rate

On investment

Price per unit = _______________________

Total number of units

Produced

This method is good only when there is no competition in the market

 Break-even pricing
- This helps firm to determine at what level of output the revenues will equal
the costs considering certain selling price

- For this purpose two cost are taken i.e, FIXED cost & VARIABLE cost,
foxed cost decrease per unit when production increases, variable cost on the
other hand change as production varies i.e. , no production no variable cost,
more production more variable cost

- Therefore break even point is a point where there is neither loss nor profit

BEP= Total fixed costs

________________________

Margin of contribution per unit

 Marginal cost or Incremental pricing

In this method the price fixed on the basis of additional variable cost
associated with an additional unit of output
2. Demand-oriented pricing

- In this method of pricing DEMAND is considered as pivotal factor

- PRICE is fixed by simply adjusting it to the market conditions

- A high price is charged when or where the demand is intense & low price is
charged when the demand is low

3. Competition-oriented pricing

1. Parity pricing or going rate pricing

2. Pricing above competitive level or Discount pricing

3. Pricing above competitive level or Premium pricing

1. Parity pricing or going rate pricing

Price is fixed on the basis of competitors price, this method is used when
the firm is new in the market or existing firm introduces a new product in the
market or when there is tough competition in the market

2. Pricing above competitive level or Discount pricing

Means when the price is fixed below the competitive level i.e., below the
competitors product. This method is used only by new firms entering the
market

3. Pricing above competitive level or Premium pricing

Where the firm determines the price of its product above the price of the
same products of the competitors
 PRICING STRTERGY

1. SKIM THE CREAM PRICING

2. MARKET- PENETRATION

PRICING

3. FOLLOW THE LEADER PRICING

1. Skim the cream pricing strategy or A high Initial pricing strategy

- This strategy uses a very high introductory price to skim the cream of demand at
a very outset

- It is used when thee is no competition in the market or the new product has some
exclusive characteristics

- It continues to be high till the competitors begin to enter the market, as soon the
competitors enter the market the producer reduces the price

2. Market Penetration pricing

- This is just opposite of skimming pricing; it offers a very low introductory price
to speed up its sales & therefore widening the market base

- Basically low price is used as a major tool for rapid penetration of a mass market
& is based on a long-term view point, also aims at capturing the market share
3. Follow the leader Pricing

- It fixes the prices near about their prices which are generally lower than those of
their leader’s means they follow the company leader policy

- Has no scientific & rational basis for fixing the prices

Kinds of pricing

1. ODD pricing

Ending in odd number e.g. Bata shoe company pricing like 399.95

2. PSYCHOLOGICAL pricing

Prices are fixed at a full number

Positively inclined

3. CUSTOMARY pricing

Prices are fixed by the custom. Soft drinks are priced by their customary basis

4. Pricing at PREVAILING prices

Undertaken to meet the competition

5. PRESTIGE pricing

Luxury goods are priced in this type

6. Price LINING

This type usually found among retailers, it is related to both psychological &
customary pricing
7. GEOGRAPHIC pricing

Petrol is priced depending upon the distance from the storage area to the retail
outlet

8. F.O.B (Free on Board)

First the buyer will incur the cost of transit & in the latter the quoted is inclusive
of transit chargers

9. DUAL pricing

When the manufacturer sells the product at two or more different prices in the
same market. E.g. In railways where the passengers are charged differently for the
same journey & traveling in different classes

10. ADMINSTERED pricing

Pricing is fixed on the basis of policy decisions of sellers

Target pricing (2 marks)

A price target is a projected price level as stated by an investment analyst or

advisor. 2. A price that, if achieved, would result in a trader recognizing the best
possible outcome for his or her investment.

Factors influencing pricing

A. Internal Factors:

1. Cost:

While fixing the prices of a product, the firm should consider the cost involved in
producing the product. This cost includes both the variable and fixed costs. Thus,
while fixing the prices, the firm must be able to recover both the variable and fixed
costs.
2. The predetermined objectives:

While fixing the prices of the product, the marketer should consider the objectives
of the firm. For instance, if the objective of a firm is to increase return on
investment, then it may charge a higher price, and if the objective is to capture a
large market share, then it may charge a lower price.

3. Image of the firm:

The price of the product may also be determined on the basis of the image of the
firm in the market. For instance, HUL and Procter & Gamble can demand a higher
price for their brands, as they enjoy goodwill in the market.

4. Product life cycle:

The stage at which the product is in its product life cycle also affects its price. For
instance, during the introductory stage the firm may charge lower price to attract
the customers, and during the growth stage, a firm may increase the price.

5. Credit period offered:

The pricing of the product is also affected by the credit period offered by the
company. Longer the credit period, higher may be the price, and shorter the credit
period, lower may be the price of the product.

6. Promotional activity:

The promotional activity undertaken by the firm also determines the price. If the
firm incurs heavy advertising and sales promotion costs, then the pricing of the
product shall be kept high in order to recover the cost.

B. External Factors:

1. Competition:

While fixing the price of the product, the firm needs to study the degree of
competition in the market. If there is high competition, the prices may be kept low
to effectively face the competition, and if competition is low, the prices may be
kept high.

2. Consumers:
The marketer should consider various consumer factors while fixing the prices.
The consumer factors that must be considered includes the price sensitivity of the
buyer, purchasing power, and so on.

3. Government control:

Government rules and regulation must be considered while fixing the prices. In
certain products, government may announce administered prices, and therefore the
marketer has to consider such regulation while fixing the prices.

4. Economic conditions:

The marketer may also have to consider the economic condition prevailing in the
market while fixing the prices. At the time of recession, the consumer may have
less money to spend, so the marketer may reduce the prices in order to influence
the buying decision of the consumers.

5. Channel intermediaries:

The marketer must consider a number of channel intermediaries and their

expectations. The longer the chain of intermediaries, the higher would be the prices
of the goods.