Marketing Management

Marketing Management
Block
I
UNDERSTANDING MARKETING MANAGEMENT AND BUYER BEHAVIOR
UNIT 1 Marketing: The Development of a Concept
1-16
UNIT 2 Delivering Customer Values and Satisfaction UNIT 3 Marketing Environment UNIT 4 Marketing Budgets and Costs
17-30
31-46
47-58
UNIT 5 Understanding Consumer Buying Behavior UNIT 6 Organizational Markets and Organizational Buying Behavior
59-72
73-88
Expert Committee
Dr. J. Mahender Reddy Vice Chancellor IFHE (Deemed to be University) Hyderabad Prof. Y. K. Bhushan Vice Chancellor IU, Meghalaya Prof. Loveraj Takru Director, IBS Dehradun IU, Dehradun Prof. S. S. George Director, ICMR IFHE (Deemed to be University) Hyderabad Dr. 0. P. Gupta Vice Chancellor IU, Nagaland Prof. D. S. Rao Director, IBS, Hyderabad IFHE (Deemed to be University) Hyderabad
Course Preparation Team

Prof. Vivek Gupta IFHE (Deemed to be University) Hyderabad Prof. Debapratim Purkayastha IFHE (Deemed to be University) Hyderabad Prof. Tarak Nath Shah IU, Dehradun Mr. Mrinmoy Bhattacharjee IU, Mizoram Aizawal Ms. Hadiya Faheem IFHE (Deemed to be University) Hyderabad Ms. Pushpanjali Mikkilineni IFHE (Deemed to be University) Hyderabad Ms. Padmaja IU, Meghalaya Ms. Anurita Jois IU, Sikkim
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The ICFAI University Press, Hyderabad
Course Introduction
Marketing management is the art and science of choosing target markets and attracting, retaining, and growing customers through creating, delivering, and communicating superior customer value. The course Marketing Management throws light on marketing and its importance. The course introduces the students to the various concepts, theories, and applications related to marketing. It helps the students to understand the importance of marketing in the conduct of business and in solving the problems that the businesses may face. It is a foundation course that introduces the student to an understanding of both the consumer and business marketplaces and provides an introduction to the fundamental concepts of marketing, including a customer orientation, matched with attention to competition and core strengths. The strategies necessary to market goods and services are discussed from the perspective of a variety of organizational structures. This is accomplished through an analysis of external and internal factors that impact the organization, and through the development of an understanding of the strategy components collectively referred to as the marketing mix. This course is intended to introduce students to the essentials of marketing: how firms and consumers behave and what strategies and methods marketers can use to successfully operate in todays dynamic environment and gain a competitive advantage. The course examines issues such as the marketing process, buyers and their behaviors, markets and competition, collection and use of marketing information, target marketing and positioning, and marketing mix.
Block I
Understanding Marketing Management and Buyer Behavior

The first block to the course on Marketing Management deals with the fundamental concepts related to Marketing Management. The block contains six units. The first unit talks about the basic concepts related to marketing. The second unit deals with delivering customer values and satisfaction. The third and fourth units focus on the marketing environment and marketing budgets and costs. The fifth and sixth units examine the different aspects related to consumer and organizational buying behaviors. The first unit, Marketing: The Development of a Concept, introduces the concept of marketing management and the various issues related to it. Marketing involves creating an environment where exchange takes place between two parties. This unit provides a clear understanding of how the concept of marketing evolved over time and its significance for different kinds of industries. The second unit, Delivering Customer Values and Satisfaction, deals with delivering value and satisfaction to the consumers and customer profitability. It is necessary that companies deliver value to their customers to satisfy both their articulated and unarticulated needs. This unit provides a clear understanding of the concept of delivering customer value and satisfaction, the importance of attracting and retaining customers, and customer profitability. The third unit, Marketing Environment, discusses the various environmental forces affecting the marketing activities of the organization. The forces affecting the marketing activities of the organization can be divided into external and internal forces. The external forces can be further divided into micro and macro environments. This unit gives a detailed discussion on the macro environmental factors affecting the organization. The fourth unit, Marketing Budgets and Costs, discusses about marketing budgets and costs. Proper estimation of the costs is essential for the success of a marketing plan and it helps in optimum allocation of a companys financial resources. This unit discusses about marketing cost analysis, customer profitability analysis, budgeting for the sales force, and the production process and efficiency. The fifth unit, Understanding Consumer Buying Behavior, introduces the concept of buying behavior of consumers and its importance in the marketing activities of the organization. The purchase decisions of the consumers reflect their buying behavior. Studying the buying behavior of consumers help the marketers to develop long term association with them. This unit deals with the factors affecting the buying behavior of consumers and the buying decision process. The sixth unit, Organizational Markets and Organizational Buying Behavior, introduces the concepts of organizational markets and organizational buying behavior. Organizational buying process is quite different from regular consumer buying process and needs specialized study by the marketers. A thorough understanding of the organizational buying behavior is necessary for the long term success of the company. This unit deals with the different issues related to organizational buying behavior.
Unit 1
Marketing: The Development of a Concept

Structure
1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction Objectives Definition of Marketing Evolution of Marketing Marketing Dynamics Significance of Marketing Summary Glossary Self-Assessment Test
10. Suggested Reading/Reference Material 11. Answers to Check Your Progress Questions
1. Introduction
In this unit, we introduce you to marketing management. Marketing is vital to the functioning of any business as it generates profits that influence the growth and survival of businesses. Businesses are confronted with social, economic, and technological issues in the wake of globalization. Marketing makes the difference by converting these issues into opportunities. Marketing can be related to a product, service, or an idea. In the post globalization era, companies and marketers are dealing with the rapid technological advancements and the resulting increase in competition through various responses and adjustments. Marketers are following new strategies like customization, target marketing, integrated marketing communication etc. to deal with the advancements in technology. In this unit, we will discuss the concept of marketing and evolution of business through different stages of marketing. We shall then move on to discuss company, marketer responses and adjustments to technological advancements and the resulting increase in competition. Finally we would discuss the significance of marketing to various industries.
2. Objectives
By the end of this unit, students should be able to: Recognize the importance of marketing for the functioning of a business Discuss the different stages of marketing through which businesses have passed
Understanding Marketing Management and Buyer Behavior Evaluate the various company, marketer responses and adjustments to advancements in technology and the resulting increase in competition Explain the importance of marketing to various industries
3. Definition of Marketing
According to American Marketing Association (AMA), the term marketing can be defined as: The process of planning and executing the conception, pricing, promotion , and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals. A good can be termed as a physical entity that we can touch and feel. For example, watches and spectacles are goods. A service is an intangible product that is created by using both human and mechanical resources. For example, hotels provide hospitality. An idea includes issues, philosophies, and concepts. For example, an architect sells the blue print of a house to a client. Marketing involves creating an atmosphere where an exchange takes place between a buyer and a seller. In other words, a buyer gains value by purchasing and consuming a product and the seller gains value by making a profit. However, the exchange is based on needs and wants. Therefore, marketing should be based on customers perceptions of a need or want. The extent, to which these needs or wants are satisfied, is called utility. Marketers provide four types of utility to customers. Form utility relates to the conversion of raw material, to a finished product. Time utility involves providing products at the time required by the customers. Place utility involves providing products at the place required by the customer. Possession utility relates to permitting a customer to use the product, according to his wishes. Activity: Identify the types of utility provided by marketers, from the following examples: 1. 2. 3. 4. Sunfeast launched its Sunfeast Pasta Treat, at all major retail stores in South India. Viewers can watch Cable TV channels at their convenience. Lays India Ltd. offers Potato chips to customers. Sraindia.com offers gifts that are delivered, according to the wishes of the customers.
Answer:
Check Your Progress 1. _________ is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goals. Selling Manufacturing Marketing Advertising. Marketers can provide four types of utility to target customers. Which of the following is not a form of utility offered by marketers? Form utility Time utility Place utility Position utility. Marketers provide place utility to customers by providing their products at locations where the customer wants them. Which of the following services is least associated with place utility? Internet banking Distance learning E-Commerce Issue of driving license. The extent to which needs and wants are satisfied is called as ______________. Utility Form utility Place utility Time utility. To meet competition from multinational banks, Punjab National Bank adopted certain strategies in the form of providing utility. Which of the following strategies adopted by the bank focuses on time utility? Offer differential interest rates to industrial and retail customers Increase the variety of deposit schemes available Introduce ATMs to ensure customer satisfaction All of the above.
a. b. c. d. 2. a. b. c. d. 3.
a. b. c. d. 4. a. b. c. d. 5.
a. b. c. d.
4. Evolution of Marketing
The concept of marketing came into focus with the Industrial Revolution. Since then, businesses have passed through three stages of marketing. Consequently, the concept of customer satisfaction also, evolved through these different stages that are discussed below.
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Understanding Marketing Management and Buyer Behavior Production Era: It began in the seventeenth century with the Industrial Revolution and continued till the late 1920s. Manufacturing was given importance, and it was assumed that all that gets produced gets sold. Product features were not a priority, and the emphasis was on faster and efficient production at low prices. For example, Henry Ford said, You can have any color car you want, as long as it is black. Sales Era: It spans the period from the late 1920s to the mid 1950s. With the production process gaining efficiency, competition emerged. Businesses realized the importance of selling their products using advertising, promotion, and distribution strategies. Example: Camel Cigarettes in the 1930s Athletes say Camels dont get Small print: So Mild! You can smoke all you want! Marketing era: It began in the mid 1950s and is evolving even at the beginning of the new millennium. It signifies the shift in businesses, from product selling to customer satisfaction. The concept of marketing management has gained importance, with the businesses focusing on customer preferences and profitability.
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your wind!
Marketing Concept Marketing includes a set of activities undertaken by firms, to satisfy both customer needs and their corporate goals. The marketing concept, therefore, includes customer orientation, long-term profitability, and functional integration. Customer orientation: Firms constantly need to change and modify their products, to satisfy the varying needs and preferences of the customer. Long term profitability: Apart from generating profits to sustain themselves, firms should engage in detailed analyses of issues, such as market research, product development, and promotion to reap long term profits. Functional integration: The marketing concept is not limited to the marketing department alone. Proper coordination must exist between the marketing department and departments, such as R & D, personnel, finance, and manufacturing. Example: Kodaks Award Winning Commercial In 1967, a Kodak commercial showed a couple in their sixties cleaning the attic. They come across old photographs reflecting memories of their youth, marriage, and children. At the end of the commercial, the same woman is shown using an Instamatic to take a photograph of her grandson. Societal Marketing Concept (SMC) Firms, in the process of offering products to please customers, fulfill societal objectives as well. Therefore, firms marketing efforts should be directed beyond satisfying customers needs and making a profit. The concept of SMC, seeks to
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Marketing: The Development of a Concept achieve equilibrium between profit making objectives, customer satisfaction, and societys interest. Companies following SMC reflect the image of good corporate citizens and find favor with customers. Example: Some Social Initiatives of TATA International It has set up co-operatives to generate employment for women in leather industry related work, at Indore and Madhya Pradesh. It has set up ATA Public School at Dewas, Madhya Pradesh. It makes a donation of finished leather every year, to the leprosy hospital for making shoes for the patients. It has a deer park at the leather factory in Dewas, Madhya Pradesh for environmental protection and conservation. For energy conservation, it has one of Indias largest thermal water heating systems at the factory at Dewas, Madhya Pradesh.
1. 2. 3. 4. 5.
Adapted from http://www.tatainternational.com/abt-social.html Activity: Abdul Mohammed started a small readymade garments shop in 1919. At that time, he merely concentrated on making an adequate number of garments, in a cost effective manner. Through the years, the shop expanded and went on to become a retail garment house. By 2005, it had started offering customized garments. Elucidate the evolution of the shop, highlighting the changes in the stages of marketing. Answer:
Check Your Progress 6. a. b. c. d. Businesses have gone through different phases or stages of marketing over the years. Identify the correct sequence from the following options. Production era - Product era - Sales era - Marketing era Product Era - Production Era - Sales era - Marketing Era Product Era - Production Era - Marketing Era - Sales Era Production Era - Product Era - Marketing Era - Sales Era.
Understanding Marketing Management and Buyer Behavior 7. ITC dedicated one rupee from the sale of each packet of Sunfeast for the education of physically challenged children. Which approach is the company following? Production concept Marketing concept Selling concept Societal marketing concept. Sometimes, organizations need to restructure internal operations to improve coordination between departments. Which of the following terms is suitable for such integration? Marketing integration Functional integration Forward integration Supply chain integration. Societal marketing is a key concept that firms adopt to ensure long-term profitability. Which of the following alternatives explains the Societal Marketing Concept in the most appropriate manner? Initiatives to satisfy customer needs and wants Initiatives for product promotion and distribution Initiatives to offer better quality product at minimum price Initiatives to maintain and improve societal wellbeing.
a. b. c. d. 8.
a. b. c. d. 9.
a. b. c. d.
10. Which of the following statements brings out the basic difference between the marketing concept and the selling concept? a. b. c. d. Marketing focuses on profitability, whereas selling involves meeting the needs and wants of customers Marketing is more concerned with satisfying customer needs and wants, and selling is concerned with stimulating demand Marketing is more concerned with meeting the social responsibilities of the firm whereas selling is more concerned with product and profitability None of the above.
11. Which of the following statements best explains the societal marketing concept? a. b. c. d. The consumer will buy anything if it is cheap enough If a company manufactures a product of superior quality, customers by themselves will come forward to buy the product A company has an ethical obligation towards societys long term welfare A company can sell anything it produces if it is promoted aggressively.
5. Marketing Dynamics
Technological advancement has resulted in a dynamic market where products keep changing. The use of technology has decreased production cost per unit. However, as the same technology is used by different companies, retaining competitive advantage becomes an issue. On the other hand, customers are also benefited by advancement in technology and obtain information about various brands through the Internet. To deal with this situation, both the company and the marketers, need to make certain responses and adjustments. Company Responses and Adjustments Reengineering: Restructuring business processes and related systems to improve business performance. Outsourcing: To reduce costs, companies can outsource non-core activities that would enable them to give greater priority to relevant areas. E-Commerce: The Internet can be used as a medium to buy and sell products. This can be in the form of business-to-business (B2B), business-to-customer (B2C), and customer-to-customer (C2C). Benchmarking: Companies should try and meet the levels of competence of the market leader. Suppliers: Companies should source their raw material from a limited number of suppliers, to ensure an amicable relationship and reduce problems associated with storage, economic order quantity, etc. Global and local markets: Companies are catering to both local and global markets. Decentralization: In changing times, responsibility and power has moved away from the top management, and moved down the line. Teamwork forms a part of organizational culture. Activity: Jivha Almirahs Ltd. is a mid-cap company, specializing in the manufacture of all kinds of steel almirahs. The company has seen a decline in its sales for the last five years. What options are available to the company to improve its business performance? Answer:
Marketer Response and Adjustments Customization: Companies are providing customized products to customers, after understanding their needs and wants. Pizza Hut offers paneer pizzas and other local flavors to suit the Indian palate.
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Understanding Marketing Management and Buyer Behavior Building a good relationship with customers: Existing customers help in marketing the products, by communicating about them to potential customers. Therefore, it is very important to maintain a good relationship with existing customers. HDFC bank gives promotional offers, such as free foreign holiday to its credit card holders. Target marketing: Different customer segments have been identified as target markets. Various media, such as the television, radio, Internet, and print media are used for marketing purposes. For example, Max New York Life, a private life insurance company, has used the Internet, television, and print media to promote its products in India. Customer database: Companies use data warehousing to create a database of their customers. Using this database, they gain knowledge about customers preferences. They base their strategies and develop their product, in tune with the requirements of the customers. Carrefour, the global retailer, based its promotions on information obtained from data warehousing. Integrated marketing communication: Marketers can choose from a variety of options, in communicating with their customers. The options include the television and the Internet. Mobile phones are also, increasingly being used as a medium for marketing communications. Marketers need to adopt an integrated approach, to avail maximum advantage from these options.
Check Your Progress 12. Companies are now offering services like selling and delivering products over the Internet. What is this kind of business service known as? a. b. c. d. Outsourcing E-Commerce Reengineering Business Process Outsourcing (BPO).
13. Technological advancement is rapidly changing the marketplace and causing intense competition among firms. To cope with the changing dynamics, firms use various approaches. They are divided into company responses, and marketer responses. Which of the following is a company response? a. b. c. d. Customization Target marketing Outsourcing Integrated marketing communications.
6. Significance of Marketing
Marketing has emerged as an important activity for the sustenance of any organization. In the light of an ever changing market environment, the production, distribution, and consumption activities have to be aligned with the market forces. In addition, factors like customer service, quality assurance, and price competitiveness determine the success of an organization. The importance of marketing can be understood by considering three industries: airlines, banking, and education. The Airline Industry The success determinants in the airlines industry include: flight schedules, in-flight and airport services, fleet capacity, and route efficiency. The airline industry has the following basic characteristics: It is highly competitive. Its growth is directly proportional to economic growth. It offers a perishable product. It reflects price elasticity of demand. It seeks optimum utilization of flight capacity. Marketing of Airlines To use proper marketing tools, customer needs have to be understood on a proactive basis. Promotional activities, such as frequent flyer schemes, festival season offs, and access to club lounges, are important in building the image of an airline. Quality of service, in terms of helpful crew, establishes a competitive advantage in the airline industry. Example: Quality of Service in Emirates Airlines Emirates Airlines (EA) entered the airline industry in 1985, as an independent state airline owned by the Dubai government. As a part of in-flight services on Emirates B777 and A330 aircraft, passengers were provided with up to 18 TV channels and 22 audio channels. First or business class passengers could choose from 50 titles from the in-flight video library and watch them on the in-seat personal video player. To enhance these services, EA launched on its airbus 340-500 flights, a US$ 8 million worth ICE (information, communication, and entertainment) technology for the benefit of the passengers. It had over 100 movies and 50 TV channels on demand, 350-plus audio channels, and 40 in-flight games three times more than on any other airline. EA was the first to offer BBC news updates on the flight, and e-mail and SMS services for US$1 per request. It had the most widely used in-flight telephony system, with the US calls charged at US$5 per call. The quality of food on flights was very good, and business/first class passengers were offered a choice from the menu card. The cabin crew was multilingual, and trained to be courteous and pleasant in catering to the needs of passengers. This resulted in increased customer satisfaction. Adapted from Emirates set to launch new US$ 8 million entertainment system , www.asiatraveltips.com, December 01, 2003.
Understanding Marketing Management and Buyer Behavior Marketing Strategies Eliminate costs that do not add value, and employ the savings to provide better quality services. Niche market- Air Deccan offers no-frills aircraft and caters to secondary airports in smaller cities. Establish marketing tie-ups with travel agents and offer commission to them. They can also offer tickets over the Internet. Jet Airways has started offering tickets over the Internet. Offer competitive frequent flyer schemes and discounted packages. Malaysian Airlines offers free hotel stay with some of its flights. It also offers discounted tickets on international flights. Enter into trade alliances with other businesses. Emirates Airlines tied up with Fairmont Hotels and Resorts, and offered 500 Skywards miles for every qualifying stay at all Fairmont hotels. Operational agreement and code-sharing with other airlines. For example, two low cost airlines, Southwest Airlines and ATA signed a code-sharing agreement in January 2005, by which the customers would be able to connect one airline to the other in a single booking. The Banking Industry Definition of Bank Marketing The aggregate of functions, directed at providing services to satisfy customer needs and wants, more effectively and efficiently than the competitors, keeping in view the organizational objectives of the bank. In India, the Reserve Bank of India (RBI), regulates the banking Industry. The marketing mix of the banks is influenced by changing consumer expectations and changes in technology, in the banking sector. Therefore, these factors should be taken into account while serving both individual and corporate customers. Banks and Marketing Differential interest rates are charged for corporate customers and retail customers, depending on the nature of products and services availed. For retail customers, these rates may be fixed or floating interest rates, depending upon individual customer preferences. For distributing their products, banks use a variety of channels. These channels include: ATMs, Internet banking, home banking, and mobile banking. Marketing by banks involves communicating about their products, to customers. This communication is a part of promotion undertaken by banks, and may take the form of brochures and mailers. Examples: Marketing by Banks Products 1. Kotak Mahindra Bank offered a unique Sweep-in account, where any amount in excess of Rs 150,000 was invested in Kotaks liquid mutual fund that earned an average return, higher than the savings account interest.
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Contd
2.
ABN Amro offered home loans at 6.5% interest rate (the lowest in the country), for the first two years, after which the consumer paid the marketdetermined rate. ICICI Bank offered loans to customers against their cars, provided these were less than five years old. HDFC Bank offered a unique online card called NetSafe that minimized the risk arising out of online frauds. NetSafe, a single usage online card, contained a specified amount debited from the credit or debit card of the consumer. This card was valid for the day on which it was issued. Any unspent amount was transferred back to the customers account. HDFC Bank also offered OneView service. This service enabled customers to access accountrelated information on the Internet, including their accounts in other banks like ICICI Bank, Citibank, HSBC, and Standard Chartered Bank.
3. 4.
Value added services 1. 2. 3. ABN Amro offered consumers who wanted to withdraw cash ranging between Rs 5,000 and Rs 200,000 free, secure, and timely delivery at their doorstep. HDFC Bank, in association with Travelex India, provided home delivery of foreign exchange, including cash and travelers checks. ICICI Bank made its banking hours 8 A.M to 8 P.M, for customer convenience. Select branches also, remained open throughout the year.
Compiled from various sources. The Education Industry Marketing in the education industry has gained importance, with the education sector opening up to the private domain. Various modes of delivering education services have emerged, with advancement in technology. These include contact programs and distance education. However, the degree of contact between the student and teacher is low, in the latter category. Marketing of Education In terms of marketing mix, marketing of education can be explained as follows: Product: Educational institutions can base their services on consumer benefits, service concept, and service delivery Place: Location of an educational institute, coupled with good infrastructure facilities, attract students Price: In most cases, price is regulated by public policy. However, depending upon the demand for their services, a higher tuition fee can be charged by educational institutions. Promotion: Promotion, in education services, aims at creating awareness about the courses offered by an institute. Market share in this industry can be obtained by providing facilities, such as library, laboratory, and study material.
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Understanding Marketing Management and Buyer Behavior Physical infrastructure: This refers to the tangible aspect of education services, and includes the campus, buildings, laboratories, and hostel facilities provided by an institute. Example: US universities tried to promote their institutions, in India, through the U.S. Educational Foundation in India (USEFI) 1 that had professional education advice centers located at New Delhi, Chennai, Kolkata, and Mumbai. It also had satellite centers at Ahmedabad, Bangalore, Hyderabad, and Manipal. USEFI offered advisory and information services to potential students through initiatives, such as distributing brochures and applications, conducting information sessions and US university fairs, and providing guidance on entrance examinations like GRE and GMAT. Marketing Strategy The main characteristic of the educational services sector is that the nature of services provided are intangible and perishable. First, the industry service providers need clarity on the objectives of the service. Second, they need to identify the target segment and preferences of this segment, for the service. Finally, they need to design a strategy that would attract the target customers.
7. Summary
Marketing is the process of planning and executing the conception, pricing, promotion, and distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational goals. Marketing has evolved through three stages: the production era, sales era, and marketing era. The marketing concept includes customer orientation, long-term profitability, and functional integration. Marketing has to be dynamic, in tune with the changing environment, and especially, with the advancement in technology. Companies and marketers need to make adjustments and responses to the changing scenario. Some of these may take the form of re-engineering, outsourcing by companies, customization, and target marketing by companies. Marketing is vital to the survival of any organization. All other functions like production, distribution, and consumption have to be in line with market forces.
8. Glossary
Competition: The rivalry among sellers trying to increase sales, profits, or market share while addressing the same set of customers. Competitive advantage: In the context of international business, the ability of a nations industries to innovate and upgrade to the next level of technology and productivity.
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The United States Educational Foundation in India (USEFI), created by a treaty on educational exchange between the Governments of India and the USA in 1950, is a binational organization promoting mutual understanding among Indians and Americans through higher education.
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Marketing: The Development of a Concept Culture: The beliefs, values, and objects shared by a group and passed on to succeeding generations. Customer orientation: A management philosophy in which the customer is central to everything the company does. Customer service: Actions companies can take to add value to basic goods and services. Data: The statistics, facts, and opinions that market researchers record and store. Database: A computerized system that stores and retrieves a variety of data. Distribution: The process of moving products from the producer to the consumer, which may involve several steps and the participation of multiple companies. Exchange: The transfer between two or more parties of tangible or intangible items of value. Goods: Tangible products that customers can evaluate by touching, seeing, tasting, or hearing. Information: Data that are useful in a specific marketing situation to help marketers to make decisions. Infrastructure: A nations energy (gas and electric utilities), transportation, and communication systems. Market: The customers and potential customers who want or need a product and who are willing and able to exchange something for it. Market share: An organizations portion expressed as a percentage. of the total sales in a given market,
Marketing: The process of developing and exchanging ideas, goods, and services that satisfy customers, using the principles of pricing, promotion, and distribution. Marketing communications: The specific use of communication applied to the problem of sending messages to a target market. Marketing concept: The idea of maximizing long-term profitability while integrating marketing with other parts of the company and meeting customers needs and wants. Marketing mix: The four key elements of marketing strategy: product, promotion, distribution, and price. Marketing strategy: The overall plan for marketing a product that includes selecting and analyzing a target market and creating and maintaining a marketing mix. Need: A felt discrepancy between your actual state and your desired state. Perception: Reception and interpretation of sensory stimuli. Price: The value, usually in monetary terms, that sellers ask for in exchange for the products they are offering. Price elasticity of demand: The measure of price sensitivity, expressed as the ratio of percentage change in demand to percentage change in price.
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Understanding Marketing Management and Buyer Behavior Product: A good, service, or idea for which customers will exchange money or something else of value; a product is a bundle of features and benefits designed to meet needs of target customers. Product development: A type of intense growth strategy that improves present products or develops new ones for the firms current markets. Promotion: A variety of techniques, including advertising, sales promotion, public relations, and personal selling, that are used to communicate with customers and potential customers. Quality: A measure of how closely a product conforms to customers needs, wants, and expectations. Survey: A method of gathering data directly from consumers via a questionnaire. Target market: The market youve selected as the focus of your marketing program; it covers the potential customers you think are most likely to need or want your product. Technology: The result of applying scientific and engineering knowledge to practical problems. Utility: The ability of a product to satisfy the customers wants or needs.
9. Self-Assessment Test
1. 2. 3. Explain the various stages in the evolution of marketing. What is the importance of marketing from the perspective of the airline industry? Elucidate the difference between the marketing concept and the societal marketing concept.
10. Suggested Reading/Reference Material

1. 2. 3. 4. 5. 6. 7. Bovee, Courtland L and Thill, John V. Marketing. McGraw-Hill Inc, 1992. Saxena, Rajan. Marketing management. Tata McGraw-Hill Publishing Co Ltd, 1997. Stanton, William J and Futrell, Charles. Edition. McGraw-Hill International, 1998. Fundamentals of Marketing. Eight
Kotler, Philip. Marketing Management. The Millennium Edition. New Delhi: Prentice-hall of India, 2001. The Marketing Concepts, <http://www.netmba.com/marketing/concept/> How to Develop a Marketing Concept, <http://www.cecunc.org/business/salesmarketing/marketing-concept.html> Importance of Integrated Marketing, <http://nonprofit.grizzard.com/articles.cfm?mode=single&article_id=69>
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11. Answers to Check Your Progress Questions

Following are the answers to the Check Your Progress questions given in the Unit. 1. (c) Marketing As per the definition provided by the American Marketing Association, marketing is the process of planning and executing the conception, pricing, promotion and distribution of ideas, goods and services to create exchanges that satisfy individual and organizational goals. 2. (d) Position utility Marketers can provide four types of utility to target customers utility, place utility, and possession utility. 3. (d) Issue of driving license To get a driving license, an individual has to go to a specified place and complete all the requirements there. The other three options provide place utility. Place utility is obtained when a marketer provides the product at locations preferred by the customer. 4. (a) Utility Utility is the extent to which needs and wants are satisfied. The other options given are the different types of utility. 5. (c) Introduce ATMs to ensure customer satisfaction Marketers provide time utility to customers by placing their products when customers want them. An ATM enables customers to draw cash and view statements when they require them, without any restriction of time. Form utility is created when raw material is converted into a finished product. Place utility is provided when a marketer provides the product at locations preferred by the customer. Possession utility allows a buyer to use the product as he/she wishes. It is the value that a buyer obtains from the product. 6. (a) Production era - Product era - Sales era - Marketing era Over the years, businesses have gone through different stages of marketing that can be classified chronologically as production era, product era, sales era and marketing era. 7. (d) Societal marketing Concept The Societal Marketing Concept deals with the idea that firms should not only think in terms of profitability but also in terms of goodwill that can be earned from being a socially responsible company. 8. (b) Functional integration In functional integration, all organizational activities should be well coordinated. 9. (d) Initiatives to maintain and improve societal well being The Societal Marketing Concept is related to the idea that profitability cannot be the only objective of marketing. Marketers should also have social responsibility for the wellbeing of society at large. form utility, time
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Understanding Marketing Management and Buyer Behavior 10. (b) Marketing is more concerned with satisfying customer needs and wants, and selling is concerned with stimulating demand Meeting social responsibility is associated with the societal marketing concept. 11. (c) A company has an ethical obligation towards societys long term welfare According to the societal marketing concept, apart from determining needs, wants and interests of the target market and providing quality products, organizations must maintain and improve societal well being. It questions the adequacy of the companys marketing efforts towards addressing pressing environmental and economic problems like shortages of resources and increase in global population. 12. (b) E-Commerce E-Commerce refers to the selling and delivering of products over the Internet. 13. (c) Outsourcing Companies are realizing that they need to focus on activities in which they are strong and outsource the rest to other firms which have the competence. This helps organizations reduce costs, improve performance and utilize resources better. The other three options are part of marketer response to changing market dynamics.
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Unit 2
Delivering Customer Values and Satisfaction

Structure
1. Introduction 2. Objectives 3. Business Components 4. Customer Satisfaction 5. Concept of Value 6. Attracting and Retaining Customers 7. Customer Profitability 8. Relationship Marketing 9. Summary 10. Glossary 11. Self-Assessment Test 12. Suggested Reading/Reference Material 13. Answers to Check Your Progress Questions
1. Introduction
In the earlier unit we have introduced the concept of marketing. We also discussed company, marketer responses and adjustments to technological advancements, and evolution of businesses through different phases of marketing. In this unit we will discuss how to deliver satisfaction and value to the customer. Organizations need to adapt to the changing environment and understand the behavior of the customers. They should use technology to obtain information about the customers and they should also communicate the value of their offerings to the customers and ensure customer satisfaction. Customer satisfaction refers to the meeting of the expectations of the customer regarding a product or a service. However, a customer is concerned about the value he derives from the product or service, which is beyond mere satisfaction. Customer value refers to the benefits derived from a product in excess of the cost paid for its acquisition by the customer. Attracting and retaining the customers is gaining importance in view of the increasing competition. Marketers use relationship marketing to retain customers which involves developing long-term association with the customers. The five approaches of increasing the bonding with the customers through relationship marketing are: basic marketing, reactive marketing, accountable marketing, and partnership marketing. In this unit, we will first discuss the different factors influencing business performance. We shall then discuss the concept of customer satisfaction, concept of value, attracting and retaining customers, and measuring the customer profitability. We conclude the unit by discussing about relationship marketing.
2. Objectives
By the end of this unit, students should be able to: Discuss the factors influencing business performance Explain the concept of customer satisfaction Discuss the concept of value Analyze the importance of attracting and retaining customers Explain the concept of customer profitability Assess the role of relationship marketing in building lasting relationships with customers
3. Business Components
It is essential to harmonize the internal and external environments of a business, for its long-term success. Arthur D. Little has identified four components of business that influence business performance: stakeholders, processes, resources, and organization. Stakeholders The shareholders, employees, suppliers, distributors, and customers of a business firm, constitute its stakeholders. To increase growth, the firm must cater to the needs of these stakeholders. It must fulfill the requirement of each group of stakeholders, to avoid conflicts among them. This is important as they collectively determine the success of any business. Processes The manner in which the flow of work occurs is called process. Each department has its own allocation of work, based on its functions. It is important that these departments work in coordination with each other so that the overall objectives of the organization are achieved. For this purpose, the work process in each department should be designed in a way to avoid conflict among the departments. Resources The convention in organizations was to have ownership of resources, such as electric power, buildings, and equipment. It was felt that better control would come with ownership. However, in the changing business environment, most organizations believe in having ownership of only those resources that are necessary for carrying out their core activities. The remaining resources are outsourced to reduce costs and specialize in core services. Example: The Bharti Group, which owns the Airtel brand, outsourced the management of its GSM cellular network in 3000 towns across India to Ericsson, a Swedish telecom company, in June 2005. Organization Organization culture reflects the values and attitudes of the employees. Sometimes, the culture is affected by the traits of the leader. The culture changes with a change in strategy of the organization. Organizational culture can be instilled in employees by
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Delivering Customer Values and Satisfaction involving them right from the beginning of a new initiative till the formulation and implementation of the same. It is essential for a company to adapt to the changes in the business environment, and mold its culture accordingly. Example: Selling in Greece requires building a personal rapport with customers. In the US and Europe, product features gain precedence over relationships. In China, aggressive selling is not encouraged as the Chinese prefer a non-interfering attitude. In Latin America and East Asia, person to person contact is mandatory for every business transaction, and mediums, such as faxes take a back seat. Check Your Progress 1. A company must identify the needs of its stake-holders and then develop strategies to satisfy them. Who among the following are considered stake-holders in a company? Customers Shareholders
i. ii.
iii. Employees iv. Competitors. a. b. c. d. 2. a. b. c. d. i & ii i & iii i , ii & iii Only iv. _______ refers to the combination of the values, norms, artifacts, and assumptions of the organization along with its people and their behavior. Organization policy Organizational structure Organizational culture Organizational change.
4. Customer Satisfaction
A customer has certain expectations when he uses a product or a service. Customer satisfaction refers to meeting these expectations. In case expectations are not met, it results in customer dissatisfaction. Exceeding expectations leads to customer delight. Delighted customers are going to be loyal customers, and help in increasing the business of the firm. Customer satisfaction can be achieved by developing products that suit the needs of customers. Organizations should strive to provide new product offerings to customers, and improve their services to keep customers satisfied. They should continuously observe customer requirements, and modify their offerings accordingly. This would help them to achieve customer satisfaction on a continual basis.
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Understanding Marketing Management and Buyer Behavior Customer satisfaction can be measured by questionnaires and direct interviews. However, these methods cannot be considered as foolproof on account of various reasons. First, most surveys are long, complex and have a low response rate. Secondly, salesmen often manipulate surveys by including only satisfied customers in the survey or by offering discounts in return for a good rating. Activity: Neibor Foods Ltd. (Neibor), a processed food company, wants to measure the level of customer satisfaction with regard to its packaged food products, such as pickles, cheese, and butter. Develop a questionnaire to help Neibor in assessing the customer satisfaction levels. Answer:
Example: Cox and Kings (CKS), one of the prominent tour operators of the world, identified the various needs of customers in different segments, and designed customized packages to suit these needs. To cater to the up-market tourist who wanted to be a part of the historic Mahakumbhamela in Allahabad, CKS set up five-star quality tents which provided hot water baths, massages, and other facilities to personify high-level of comfort. Realizing that Indian travelers with their specific eating habits face a real problem with regard to food while traveling abroad, CKS introduced the Kitchen Caravan on its Europe Tours. The Kitchen Caravan traveled along with the Indian tourists, offering all varieties of Indian food. To make its trips affordable, it had a tie-up with ICICI Bank to offer installment schemes on such travel loans. The premium customer could take his/her pick from various one of a kind luxury travel packages, which provided private, group tours as well as group and family safaris, while offering the best of accommodation with personalized service. Apart from these, flexi-holidays were provided where customers could plan their own dates and schedules so that they could avoid traveling in a group. CKSs unique packages and positioning resulted in revenue generation of around Rs 50 million in 2004, from the Indian subsidiary.
Check Your Progress 3. Dr. Sharma purchased an X-ray machine for his clinic. A survey conducted a few months later revealed that Dr. Sharma was a satisfied customer. What can we conclude from the survey report? The quality of the X-ray machine was of global standards The actual performance of the X-ray machine matches with the expected performance The actual performance of the X-ray machine is less than the expected performance The actual performance of the X-ray machine is more than the expected performance.
a. b. c. d.
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5. Concept of Value
Value to a customer is the excess of benefits derived from a product or service, over and above the cost paid for its acquisition. The value increases with an increase in the benefits derived from the product/service. A high customer value results in loyal customers. Example: To provide value to the rural segment in India, Electrolux modified the refrigerator. A water dispenser was placed on the refrigerator door to avoid opening the door many times. Another innovation was providing legs for the refrigerator, which removed the necessity of buying a stand. Value Chain Each firm performs a set of activities like designing, producing, marketing, and delivering, which form a process. There is value addition at each level of the process. The set of activities from raw material procurement to after sales services can be termed as a value chain. Activities can be divided into primary and support activities. Primary activities include manufacturing, shipping, warehousing, order processing, distribution, advertising, promotion, pricing, and after sales service. The support activities aid the primary activities and include procurement, hiring personnel, R&D, and infrastructure. There is a cost attached to each activity in a value chain, which is used to measure the performance of the firm. It includes a profit margin, over and above the costs so that there is a profit. Optimizing the value chain gives a competitive advantage to the company. Value chains differ for different organizations. Activity: BPL India Ltd. (BPL) manufactures and sells a variety of consumer durables like refrigerators and washing machines. The company has departments to handle the procurement of raw materials, maintain the flow of production, keep track of market requirements, develop innovative products, and make improvisations in the existing product range. Identify the primary and support activities being carried out at BPL. Answer:
Providing Value-cost Balance Firms attach many features to their products so that they generate varied benefits for their customers. These benefits add value to the products, attracting new customers and retaining the existing customers. However, firms need to keep the cost in mind while adding the product features. If this increases the cost of the product, then the value of the product compared to the competitors products, may go down. Therefore, firms strive to reduce the product delivery cost and meet customers expectations on a parallel basis.
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Understanding Marketing Management and Buyer Behavior Value Delivery System Each firm has its own network for creating and delivering value. To minimize its cost structure, the firm tries to control indirect costs arising out of the value chains of its suppliers and distributors. For this purpose, it builds a relationship with other members of its network, to provide maximum benefits to the customers at a competitive price. For example, manufacturers of micro-wave ovens (oven) can provide more value to customers by integrating the oven with a barcode scanner and a microprocessor, to determine the heating characteristics for maintaining the quality of food. Information shared between the scanner and the microprocessor can be used to control the heat of the oven. Software required for this purpose can be developed through the joint efforts of food scientists and oven engineers, to ensure that customers obtain appropriate results while heating processed food in the oven.
Check Your Progress 4. a. b. c. d. 5. Value chain identifies five primary strategic activities. Which one of the following is not a primary strategic activity in the value chain? Procurement Operations Marketing and sales Outbound logistics. Firms usually develop partnerships with suppliers, transporters, distributors, etc., so that coordination is attained, which in turn enables firms to deliver maximum value to customers. What is this set of inter-related value delivery networks of interconnected firms called? Value chain Value delivery system Value web Value structure.
a. b. c. d.
6. Attracting and Retaining Customers

With increasing competition, customers have become very selective, and sensitive to prices. While purchasing a particular product, they can choose from a variety of brands. In this environment, firms need to build a strong relationship with the customers. Attracting and retaining customers assumes importance. The firms also need to look into the cost of losing a customer, and building structural ties. Attracting Customers A firm needs to continuously expand its customer base to increase sales and revenues. For this purpose, it needs the requisite skills for generating leads, qualifying the leads, and converting them into accounts. Lead generation can be done through
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Delivering Customer Values and Satisfaction advertisements, mailers, telemarketing, and trade shows. Lead qualification is done by checking the financial status of the customer, through personal interaction. Finally, accounts are created by presentation and subsequent negotiations. Cost of Losing a Customer A customer will stay loyal to a company only if the product of that company continuously meets his expectations. If a customer is dissatisfied, it may result in negative communication about the companys product, to others. This will result in the loss of existing and potential customers. To reduce such customer attrition, the retention rate must be defined and measured. The company should recognize the causes of attrition and calculate the amount of lost revenues. They should also estimate whether the cost of retaining a customer is less than future profits or not. Finally, they should give priority to the opinions of the customers to avoid losing them. Need for Retention According to past researches, companies lose 10% of their customers every year. It was also found that customer profit rate increases over the life time of retained customers. Therefore, it is very important to retain customers. The benefits of retaining customers are as under: Increased revenue: A long-term customer will spend more with an increase in his income and family size. Decrease in cost of selling: A retained customer helps in keeping the selling cost down. It costs five times more to get a new customer than to retain an existing one. Further, a loyal customer will not bother about changes in prices and is also less reactive to competitors ads. Advertising: A retained customer will propagate the benefits of the companys products to potential customers. Therefore, he indirectly advertises for the company. Cross selling possibilities: A retained customer can be a potential customer for other products of the company. In light of the above, customer suggestions and complaints should be viewed on priority basis, and the information obtained should be utilized for retention of customers. Activity: Arthur Abraham (Abraham), sales manager of Money Mart Ltd., a financial services company is faced with a problem of high customer attrition. His team does not realize the importance of retaining customers. Therefore, he asked his team to understand the importance of attracting and retaining customers. Do you side with the concerns of Abraham? Justify your stand. Answer:
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Understanding Marketing Management and Buyer Behavior Example: Bharti Cellular Limited that manages Airtel, discovered that the single most important factor in opportunity cost was the churn 1 rate of customers. By looking through its customer data, it tried to find out whether the reason was poor service, network congestion, or bad tariff plans. It realized that there was a need to predict the probability of churn customers to put an effective retention strategy in place. With this end in view, it tied up with SAS Institute2 in 2001. The Institute created predictive model software to control churn. Using this software, Bharti identified that the reasons for the high churn rates in Delhi were the large numbers of dropped calls3 and wrong tariff plans. As a result, it realigned its tariff plans and rationalized the billing cycles of such customers. In August 2004, it introduced the network promise service under which customers would be reimbursed for dropped calls provided they called customer service within five minutes of the call getting dropped. Airtel managed to restrict its churn levels to 2% by these predictive models as compared to industry levels of 5-6%. Airtel also had an e-CRM model in place, which registered every customer interaction, online. If there is a case of a customer calling more than once, we get into quick action, said Mr. Atul Jhamb, COO, Bharti Cellular Ltd. Structural ties: Some companies provide additional services like equipment or computer links to their customers, which helps them to manage some of their functions like inventory and payroll. For example, Asian Paints India Ltd. connected all their suppliers through a supply chain management solution that enabled them to undertake stock assessment at any point of time.
Check Your Progress 6. Attracting customers is not adequate unless one knows the art of keeping them. Which of the following situations will not arise, in a situation where the company keeps losing customers? Increase in the goodwill of the company Negative opinion about the company and its products Customers will no longer buy the products of the company Increase in sales for the competitor. Attracting and retaining customers is necessary to survive in a competitive environment. Which of the following statements on this issue is incorrect? Listening to customer queries helps retain them The company must try to attract new customers instead of retaining customers Word of mouth is the strongest medium of communication and this can help in attracting customers A loyal set of customers keeps the cost of selling down.
Churn is when a customer decides to leave a service or product in favor of a competitor. SAS is the worlds leader in business analytics software. Dropped call is a call on mobile phone, which gets terminated due to technical faults, such as problems in the range of wireless network and signal receiving capacity of cell-phone.
a. b. c. d. 7. a. b. c. d.
1 2 3
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Delivering Customer Values and Satisfaction 8. The marketing department of Marico Industries Ltd has been planning to exert further effort to retain customers. Which one of the following is not a direct benefit of customer retention? Increase in revenue Decrease in cost of selling Increase in share prices Increased possibility for cross-selling.
a. b. c. d.
7. Customer Profitability
According to Philip Kotler, A profitable customer is a person, household, or company that over time, yields a revenue stream that exceeds by an acceptable amount the companys cost stream of attracting, selling, and servicing the customer. To understand customer profitability, firms need to measure the profitability of individual customers. For this purpose, firms have to make a list of profitable customers and understand their companys level of dependence on these customers. They also have to identify the unprofitable customers and ascertain the amount of the companys resources being consumed by them. Activity costing is usually used as a tool for finding out the profitable customers. Through this method, activities are first developed. Secondly, amount spent on each activity should be ascertained. Thirdly, the products, services, and customers have to be identified. Finally, the cost drivers connecting the activity costs to the organizations products, services, and customers need to be ascertained. This analysis helps the company to take informed decisions and build customer relationship. Example: At Kimberly-Clark, a global company dealing in consumer and medical products, a new approach was followed where the activities were divided into the following cost categories: customer deliveries, primary and inter-region freight, storage, handling, pallet, inventory shrinkage, and administration. Unlike the traditional costing approach, which assumed that costs are directly influenced by the product or service, the new approach assumed that the manufacture of a product leads to a number of activities that govern costs. Therefore, the company first identified the costs, which were incurred between storing the product and delivering it to the customer. They took numbers from the general ledger and broke them into smaller costs relating to various activities. This led to each movement of the product being allocated in terms of costs. In other words, all these costs were allocated as an expense to the product or the customer.
Check Your Progress 9. Activity Based Costing (ABC) helps organizations assess customer profitability. Kaplan and Cooper developed a system for activity based costing based on four steps. Arrange the steps in the correct order.
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Understanding Marketing Management and Buyer Behavior i. ii. Identify the organizations products, services and customers Develop the activity dictionary
iii. Determine how much the organization is spending on each activity iv. Select activity cost drivers that link activity cost to the organization s products, services and customers. a. b. c. d. i, ii, iii, iv i, iii, iv, ii iv, i, ii, iii ii, iii, i, iv.
8. Relationship Marketing
Relationship marketing refers to building a long-term association with customers, by understanding and catering to their needs and preferences. Therefore, firms have to explore innovative methods of building a bond with the customers. In this context, there are five approaches: Basic marketing: After selling the product, the customer is not contacted again. For example, generally after the sale of pulses and certain other grocery items, the customer is not contacted again. Reactive marketing: Customer is encouraged to contact the company in the case of any problem. For example, if a consumer buys a durable like music system, he is requested to contact the company in the case of any fault. Accountable marketing: Customer is contacted after s/he purchases the product/service, to know whether her/his expectations have been met by the product. For example, BSNL calls its customers after installing a fixed telephone line. Proactive marketing: Customer is regularly contacted by the company with suggestions for product usage and improvement. Partnership marketing: Companies work in tune with the customers for providing better services and improving business performance. Relationship marketing aims at satisfying customers, to generate a loyal customer base. These customers are converted to clients by giving priority treatment. These clients become members of the company club, and are given special benefits. Subsequently, the members become advocates of the company s product/service, propagating a positive image to potential customers. For example, the First Citizen Club of Shoppers Stop provides special benefits like additional discounts to the club members. There are three approaches for building relations. First, offering financial benefits to customers. Secondly, providing social benefits by offering personalized services based on an understanding of individual customers preferences. Thirdly, establishing structural ties with the customer, in addition, to social and financial benefits.
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Example: ITC Sonar Bangla ITC Sonar Bangla, belonging to ITC Hotels Ltd. concentrated on offering customized services to women travelers who were alone or with a kid. As part of ITC one room services, such women guests were offered special facilities like airport pick up, and were welcomed with wine and chocolates. To add to the feminine atmosphere, some rooms at ITC Sonar Bangla, Kolkata, were redesigned with bright colors. Further, flowers and soft toys were placed on the bed in addition to special magazines to make her stay comfortable. In case there was a child accompanying the woman guest, baby sitting services were offered when the guest was out at work. Talking about this service, Ranvir Bhandari, general manager, ITC Sonar Bangla said, Of all amenities, the teddy bear has been the most popular fellow. A designated women valet attends to the guest for her entire stay at the hotel. These services were designed keeping in mind the increasing numbers of single women business travelers in the country. Adapted from A soft touch to make her feel at home, The Telegraph, April 02, 2004.
Check Your Progress 10. It involves focus on transactions and building long -term, profitable customer relationships. The focus is on profitable customers, products and channels; wha t is the term associated with above concept? a. b. c. d. Focus marketing Societal marketing Relationship marketing Basic marketing.
11. A company works continuously with the customer to discover ways of serving customers better and improving company performance. What is this type of marketing called? a. b. c. d. Reactive marketing Proactive marketing Partnership marketing Accountable marketing.
9. Summary
Businesses need to achieve their long-term objectives. For this purpose, they need to satisfy some of their components, namely stakeholders, processes, resources, and organization. Customer satisfaction is derived when the product of the company meets the customers expectations. Therefore, companies should develop the product keeping the customers needs in mind. Customer satisfaction can be measured by questionnaires and direct interviews. Value to customers is the benefits obtained from the product, over and above its cost. The set of activities from procuring raw material to after sales service is known as the value chain.
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Understanding Marketing Management and Buyer Behavior Firms need to maintain a balance between the benefits they provide to customers and the cost of the product. Firms can attract new customers by advertisements, mailers, and tradeshows. Customers would continue to use the product only if they are satisfied with it. To avoid customer attrition, firms can identify the causes of attrition, measure retention rate, and calculate the cost of retaining a customer. A retained customer increases revenues, decreases the cost of selling, induces crosses selling, and advertises the product to potential customers. Firms should measure individual customer profitability by identifying number of profitable and unprofitable customers, and the dependency of the firm on the profitable customers. For this purpose, they can use activity based costing. Relationship marketing means building a long-term association with the customer. This can be done by using various approaches like financial benefits, personalized service, and structural ties.
10. Glossary
Attitude: Learned tendency to respond to objects, people, ideas, or products in a particular way. Discounts: Direct reductions from the list price. Distributor: A general term usually applied in organizational markets to intermediaries that perform the equivalent functions of both wholesalers and retailers. Household: All the people who occupy a housing unit. Income: The consumers financial gain from all sources, usually specified over some time interval. Opportunity cost: The value of sacrifices customers are asked to make when choosing among available alternatives. Order processing: The systems used to receive orders, route them to appropriate supplying functions, and then arrange customer billing. Proactive marketing: A marketing style in which organizations take steps to change the marketing environment so that it will be more conducive to their needs. Profit margin: The amount of profit left over after expenses have been accounted for, expressed as a percentage of revenue. Reactive marketing: A marketing style in which the marketers view environmental forces as uncontrollable and tries to adjust to them. Relationship marketing: A strategy to build long-term customer loyalty that is based on becoming partners with customers and doing everything possible to contribute to their success. Tariff: A tax imposed by a government on goods entering its borders. Telemarketing: A promotional method utilizing specially trained salespeople to systematically contact a group of prospects or customers by telephone. Trade shows: Exhibitions that feature a specific industrys products and bring together buyers and sellers for a short period of time; many industries use trade shows as forums for technical, political, and other issues as well. Values: Beliefs about what is good or desirable.
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1. 2. Write a short note on the concept of customer profitability. Describe the different forms of marketing that can be used to build customer relationships.

1. 2. 3. 4. 5. Kotler, Philip et al., Marketing management: An Asian perspective. Singapore: Prentice-hall, 1996. Kotler, Philip. Marketing Management. The Millennium Edition. New Delhi: Prentice-hall of India, 2001. Porter, Michael E. Competitive Advantage: Creating and Sustaining Superior Performance. New York: The Free Press, 1985. Pride, William M and Ferrell, O C. Marketing Concepts and Strategies. Tenth Edition. All India Publishers and Distributors, 2000. Ramaswamy, VS and Namakumari, S. Marketing Management: Planning, Implementation and Control - Global Perspective - Indian Context. Third Edition. Delhi: Mac Millan Ltd, 2002. Laura Lake, Explore the Value of Customer retention, <www.marketing.about.com.> Improving Customer Satisfaction Once a Customer Satisfaction Measurement Program is in Place, <http://www.busreslab.com/tips/tip11.htm> Using Satisfaction Surveys to Achieve a Competitive Advantage, <http://www.spss.com/dk/wp/statisfaction.pdf> Relationship Marketing, <http://www.jimnovo.com/Relationship-Marketing-more.htm>
6. 7. 8. 9.
10. Relationship Marketing, <http://en.wikipedia.org/wiki/Relationship_marketing>

Following are the answers to the Check Your Progress questions given in the Unit. 1. (c) i, ii & iii The stakeholders in the company are shareholders, employees, suppliers, distributors and customers. 2. (c) Organizational culture Organizational culture refers to the value, norms, artifacts, assumptions, etc., of an organization, its employees and their behavior. The culture of an organization is reflected in its interiors, the way people greet each other, the way people work, etc. 3. (b) The actual performance of the X-ray machine matches with the expected performance When the product performance matches the expected performance, the customer is satisfied; when it falls short of expectations, he is dissatisfied. In cases where the performance exceeds expectations, the customer is highly satisfied or delighted.
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Understanding Marketing Management and Buyer Behavior 4. (a) Procurement Primary activities in a value chain involve buying and bringing materials into the firm (inbound logistics), manufacturing product (operations), shipping goods (which includes warehousing, order processing, scheduling, distribution etc., i.e. outbound logistics), advertising, promotion, sales force management, pricing (marketing and sales), and providing services like installation, training, repair, etc., (service). Support activities assist primary activities and include procurement, hiring personnel, R&D etc. 5. (b) Value delivery system Apart from its own value chain, a firm tries to manipulate the value chain of its suppliers, distributors, etc., because optimization of the value chain of suppliers and distributors will result in the optimization of the firms cost structure. So, with the help of its value chain and value delivery networks the firm can offer the best possible package of benefits to meet customer expectations. Therefore, a value delivery system can be defined as a set of inter-related value delivery networks of interconnected firms. 6. (a) Increase in the goodwill of the company Customers who leave a firm are dissatisfied. Most dissatisfied customers tend to spread negative word-of-mouth publicity. This erodes the goodwill of a company. 7. (b) The company must try to attract new customers instead of retaining customers Alternative b is incorrect because acquiring a new customer cost s five times more than retaining an existing one. 8. (c) Increase in share prices The benefits from customer retention are increased revenue, decrease in costs of selling, advertising, and increase in cross-selling possibilities. Customer retention when resulting in customer satisfaction could increase the goodwill of the company and be an indirect factor for increase in share prices. 9. (d) ii, iii, i, iv Kaplan and Cooper developed a system for activity based costing which can be used to measure customer profitability. It consists of four steps: developing the activity dictionary, determining how much the organization is spending on each activity, identifying the organizations products, services and customers, and selecting activity cost drivers that link activity costs to the organizations products, services and customers. 10. (c) Relationship marketing Relationship marketing involves focus on transactions and building longstanding, gainful customer relationships. Here, the spotlight is on profitable customers, products and channels. 11. (c) Partnership marketing In partnership marketing, companies work with customers to provide better service to them and improve the companys performance.
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Unit 3
Marketing Environment
Structure
1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction Objectives Competitive Forces Macro Economic Factors Indian Business Environment and MNCs in India Summary Glossary Self-Assessment Test Suggested Reading/Reference Material
1. Introduction
In the last unit, we discussed about delivering satisfaction and value to the customers. We discussed the different strategies like relationship marketing to increase the bonding with the customer. In this unit, we will discuss about the different types of competitive structures and the various forces constituting the marketing environment of a firm. The marketing environment in which a firm operates is affected by the level of competition. The common types of competitive structures are: monopoly, oligopoly, monopolistic competition and pure competition. To survive in the various competitive structures, firms need to monitor their competitors, customers and market trends and make necessary changes to their own market strategies. The marketing environment of the firm consists of both internal and external environments. The external environment can again be divided into micro and macro environments. The micro environment consists of suppliers, marketing intermediaries, and customers and the macro environment consists of demographic, legal, political, technological, sociocultural, economic, and natural environments. In this unit, we will first discuss about competitive forces and the different types of competitive structures. We shall then discuss the various environmental factors affecting the firm.
2. Objectives
By the end of this unit, students should be able to: Explain the different types of competitive structures Discuss the importance of monitoring competition Analyze the different types of macro environmental factors affecting the firm
3. Competitive Forces
The marketing environment is affected by the level of competition. The structure of the market determines the level of competition in an industry. Types of competitive structures Monopoly: In this structure, the supply and the price of a product are completely controlled by one firm, and the product does not have any close substitutes. Due to the presence of one player in the industry, entry barriers can be created to prevent competition. For example, the railways in India are controlled by the Indian government. Oligopoly: This structure includes a few players in the market, with controlled supply of products. The industry has high entry barriers. In this market, the decision taken by one firm influences and is also influenced by the decisions taken by other firms. For example, the cement industry in India is characterized by a few large players, and at times, they can form cartels to influence the prices. Monopolistic competition: There are many firms in this structure, and the market share is divided among them. To increase their share, firms try to differentiate their product by using various components of the marketing mix. For example, marketers may attempt to differentiate their products from those of competitors, by showing differences in product quality, prices, features, and packaging. This is very evident in the fast moving consumer goods (FMCG) industry. In fact, companies like Procter & Gamble (P&G), Hindustan Lever Limited (HLL), and Colgate offer various flavors and colors of oral hygiene products to differentiate their products from those of competitors. Pure competition: This structure is idealistic in nature, with a large number of buyers and sellers selling homogenous products. There are no entry barriers in this structure. The agricultural sector in India comes closest to this type of market. In the agricultural sector, there are many buyers/consumers and sellers/producers (farmers). The farmers sell the same produce to all the buyers at the prevailing market price. In fact, no single producer can influence the market prices. Furthermore, entry barrier does not exist. Monitoring competition Firms need to assess their competitors, customers, and market trends on a regular basis. Studying the competitor strategies will aid them in critically analyzing their own market strategies. Consequently, they will not only modify their current marketing strategy, but also formulate new ones that would give them a competitive advantage. Activity: Asha Monalika (Monalika), a celebrity in India, wants to launch her own line of cosmetics, ranging from creams to shampoos. However, before finalizing her business decision, she wanted to analyze the competitiveness of the industry, by determining the structure of the market. What are the various types of competitive market structures? Identify the type of market structure that exists in the industry that she is planning to enter. Justify your answer.
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Check Your Progress 1. a. b. c. d. 2. a. b. c. d. 3. a. b. c. d. Which one of the following is not a characteristic of a monopoly? Presence of a single dominant firm The dominant firm controls the price of the product/ service The dominant firm controls the entire supply of product/ service Entry barrier is low. In which of the following competitive structures does a firm try to capture the market by differentiating the product from the competitors? Monopoly Oligopoly Monopolistic competition Pure competition. In which type of market structure does one firm completely control the supply of products that do not have a close substitute? Monopoly Monopolistic competition Oligopoly Pure competition.
4. Macro Economic Factors

Macro economic factors affect all the companies in an industry. They tend to have an impact upon the companies, specifically, in the long-run. By proactively adapting to changes in the macro economic environment, companies can gain a competitive edge. Demographic Environment Demography is the study of population characteristics, such as size, density, and gender. Marketers study these variables to understand the changing needs of consumers. For example, in the wake of an increasing number of working women, brands for menswear like Scullers and Allen Solly have introduced womens formal wear.
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Understanding Marketing Management and Buyer Behavior Consumer Groups Demographic variables help in understanding and differentiating various consumer groups. Marketers develop products to suit the needs of various consumer groups. For example, Cadburys Delite is primarily targeted at school going children who have an aversion to warm milk in summer. Age-wise Classification Infants: With an increase in population and average disposable incomes of people, the expenditure on infants has increased. Therefore, infants constitute an important consumer group. Therefore, marketers have developed many products like bath accessories, bedding, and sterilizing equipment that are targeted at the parents of infants. Children (school going-teens): This group has led to an increasing market for books, clothes, school bags, and stationery items. Young adults (19-30 years): Marketers of products like vehicles, fast food, jewelry, and clothes target this group. Adults: Products and services related to health and security like pharmaceuticals, nutrition foods, gym equipment, and banking attract this group. Senior citizens: Marketers concentrate on providing spiritual tours, healthcare packages, old age homes, and special products like adult diapers and hearing aids. Other demographic variables Women: With women increasingly taking up work outside their homes, marketers have come up with products like ready to cook foods, range of cosmetics and garments, and footwear. Singles: This group requires products that are convenient to use like ready to cook noodles and canned juices, and leisure products like entertainment and travel. Occupation and Literacy: This variable reflects the awareness of the customers who prefer to analyze all options before taking an informed decision. Location: Geographical location also influences the demand for certain products. For example, the drink from Coke called Coolers, which consists of the juice of fruits like green mango and water melon, is more suited to heat intensive areas like Rajasthan and Chennai rather than Simla. Cultural diversity: With globalization, people from different cultural backgrounds have settled in different cities. Marketers target customers keeping their different needs, tastes, and consumption habits in mind. For example, Tamil movies are played at theatres in Singapore, UK, and Japan where there is considerable Tamil population. Activity: XYZ & Co., a shoe manufacturer wants to enter the African market. Accordingly, it wants to develop new products exclusively for that market. The managing director of the company wants the products to be based on the demographic variables. Discuss the demographic variables that the company should consider, before developing a product, to ensure its success in the African market.
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Political Environment Government policies determine the trade relationship between various countries. They also influence the business decisions and marketing strategies of a firm. These factors are beyond the control of firms so they adapt to the changing policies of governments, in the different countries they operate in. Domestic Politics Organizations help political parties by funding elections, providing financial support to candidates, and running political advertisements. Considering the strong nexus between politicians and marketers, marketers are in a position to lobby for or against proposed laws by governments, depending upon the impact on their industry. For example, traders in states ruled by the BJP ensured the postponement of VAT, which was supposed to be implemented by April 2005. International Politics MNCs influence foreign governments through their domestic governments. Trade alliances between countries increase the opportunities for marketers. Political unrest affects the strategies of marketers as they need to revamp their plans in the light of such happenings. Example: In 2005, a conflict between the workers and the management of Honda Motorcycle and Scooters India (HMSI), a fully-owned Gurgaon-based subsidiary of Honda Motors, Japan, led to a labor strike. During the strike, tension broke out between the workers and the police, which caused severe injuries to numerous workers as well as some policemen. However, the strike also had its aftermath in the form of a political unrest between India and Japan. The Japanese Ambassador to India, Yasukuni Enoki, expressed his disappointment over the turn of events and said, This is a disadvantage for Indias image as an FDI destination and also a negative image on Japanese management.1 The ruling UPA government did not take unfavorable action against the automobile company, keeping in mind the need for maintaining healthy bilateral relations between India and Japan. The government faced allegations and stiff opposition on this issue from the CPI, one its coalition partners, for not taking necessary steps to protect workers interests. CPI leaders demanded an enquiry into alleged violations of law by the management of HMSI.
1
Honda workers' riots spark political storm, http://inhome.rediff.com/money/2005/jul/27honda.htm, July 27, 2005 35
Understanding Marketing Management and Buyer Behavior Economic Environment The economic environment of a country is reflected by its Gross Domestic Product2 (GDP). The GDP varies significantly between rich and poor countries due to factors like population growth. GDP is also sometimes the indicator of the standard of living in a country. The concept of purchasing power parity (PPP) is helpful in comparing the incomes of different nations. As goods and services are priced differently in different nations, PPP is used to measure the buying power of the currency of a particular country, in terms of a standard international measure (generally, US dollars). The PPP rate, therefore, helps in comparing the buying power of two countries. The higher the PPP of a country, the more buying power it enjoys. General Economy Economic conditions affect both companies and customers. During economic recession, companies suffer lack of sales or no sales. On the other hand, economic growth signifies an increase in revenues for companies. These fluctuations can be termed as business cycle. Business Cycle Business cycle has four stages: Recovery: At this stage, an economy moves from recession or depression to growth. Employment and wage levels slowly increase, and customers have a positive attitude towards the economy. Marketers should adopt a cautious approach at this stage. Growth: This signifies growth of the economy. Income and employment are high, with low interest and inflation rates. Customers perceive that the economy is growing, and do not anticipate any economic problems in the near future. Therefore, customers spend more to fulfill their needs. Consequently, marketers tend to expand production and distribution. They also charge higher prices for products at this stage, and incur huge expenditure to promote products to increase their revenues. Recession: Customers are not willing to spend during this period, due to an uncertain economic future. Prices of products come down, and companies try to reduce cost by downsizing the employee base. Marketers need to concentrate on market research at this stage, to understand the customer and implement innovative promotional strategies to attract customers. Depression: Severe recession can be termed as depression. This stage is characterized by low wages and low employment. Customers have a pessimistic view of the economy. During this stage, the government uses fiscal policy to induce fresh investments and regulate the supply of money, with a view to improve the economy of the nation. Example: The Taiwanese economy witnessed a decline in growth, from 6.7% in 1997 to 4.6% in 1998. The economy recovered in 1999, with an economic growth of 5.4%. However, in the last quarter of 2000, political uncertainty and lack of clarity on policy matters caused the stock market to suffer a setback. In addition, private consumption went down from 8.36% in the first quarter to 3.89% in the fourth quarter, in the same year. Furthermore, there was a decline in the production and export of information and communication technology goods (ICT). Therefore, there was a negative growth of
2
It is the total monetary value of all the goods and services produced in a country during a specified period (usually, one year).
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Marketing Environment around 2% in the economy, in 2001. However, in the first quarter of 2002, the economy started recovering because of improvements in the export of computer chips and mobile phones. Both exports and production picked up, which resulted in a reduction in the unemployment rate. Due to these factors, the economic growth rate reached 2.6% in 2002. Buying Power The financial resources and the state of the economy determine the buying power of customers. Furthermore, the state of the economy depends upon the business cycle. The financial resources of customers primarily consist of 1) Income - This includes wages, rent, interest, and dividends Income may be disposable income (after tax) and discretionary income (after buying essential goods). Marketers need to assess the income levels of customers to plan their strategies; 2) Credit - This is given to customers by stores, banks, and other organizations. The extent of credit given depends upon the disposable income, interest, size of installments, and other factors. Marketers use credit as a tool to attract customers by giving them easy finance options which can be repaid through equated monthly installments (EMI). For example, automobile retailers have tied up with banks to offer car loans to customers at discounted rates; 3) Wealth It is the accumulated money of customer groups, be it individuals or organizations. It includes inheritance, gifts, shares, property, and jewelry. Willingness to Spend This depends upon economic conditions and the buying power of the customer. Customers would be willing to spend more in the case of higher disposable incomes and sustained economic growth. A change in the price of rival products also affects customers decision to spend on a particular companys product. Marketers should analyze customers willingness to spend on their product. Socio Cultural Forces This refers to the lifestyles, values, and beliefs of the customers. These affect the plans of the marketers as they can pose both an opportunity and a threat to them. For example, the increase in the numbers of working women has led to the business opportunity of establishing day care centers. On the other hand, increased patronage towards super markets by customers, affects the business of the local kirana shops. Example: STAR TV The Initial Years STAR TV faced cultural hurdles when it entered India. Initially, it launched a spate of English programs like Wonder Years, Crystal Maze, Santa Barbara, and The Bold and the Beautiful. However, it was not able to attract a large audience due to the popularity of Indian mythological programs like Mahabharata, aired by the government channel, Doordarshan. An attempt to dub English serials in Hindi did not catch on with the audience as they could not relate to them. By early 1994, Zees audience share for the prime-time slot in three metros was 37%, when compared to the 39% combined share of Doordarshans National Network and Metro Channel, and the 8% combined share of the STAR platform, SUN-TV (a Tamil channel), and Asianet (a Malayalam channel). To increase its viewership, STAR started a daily Hindi-band between 7 p.m. and 9 p.m. on Star -Plus, including news bulletins in Hindi and English (produced locally in India). Later, it started offering full-time programs in Hindi, on all its channels.
Adapted from The growth of satellite-fed cable, http://www.tbsjournal.com, 1999. 37
Understanding Marketing Management and Buyer Behavior Technology Technology refers to the use of tools to conduct tasks, effectively. Marketers should regularly apprise themselves about the latest technologies in the country. Impact of Technology Technology affects the elements of the marketing mix. Product: Technology plays an important role in improving product design, and reduces the manufacturing cost. Price: With a reduction in production cost due to the use of technology, prices of products have come down. For example, when mobile phone services were introduced, they were priced at around Rs 16 per minute. However, with use of better technology by cellular operators, the operation cost has come down. Therefore, call rates have decreased. Promotion: The advancement in technology has opened up a number of communication channels for marketers. Today, marketers can use a variety of media like the Internet, satellite T.V., and mobile phones to communicate their message to the consumers. Furthermore, these technologies help in transmitting data quickly, giving a strategic advantage to the companies. Advertising: Technology has revolutionized the way marketers advertise their products. Most companies depend upon advertising agencies that are able to develop creative ads in a short span of time with technological tools. These agencies use media like, print, television, radio, and entertainment to display the advertisements. Distribution: The technological advancement in the transportation industry has helped in bringing markets closer. Companies are able to transport their goods to retailers and wholesalers faster, and in a cost effective manner. Customers can access the Internet and search for relevant information before making a purchase decision. Manufacturers can obtain the status of their supplies and streamline logistics by using technology. Example: Cemex Cements, a Mexico based company developed an adaptive solution called dynamic synchronization of operations (SDO) system in 1995, which made use of the CemexNet as its communication base. In SDO, each truck was fitted with a computer and Global Positioning System (GPS) locators that linked them with the central control center. With these components in place, central dispatchers could know the location, speed, and direction of each truck. This helped the dispatchers to assign the order to the nearest truck driver and the mixing plant. Activity: The research department of SRM Phones Ltd. has discovered a cost effective method of using technology to produce telephone instruments. What are the other benefits that the company can leverage by efficient use of technology in its business practices? Justify your answer.
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Natural Environment The ecological balance has been disturbed by the rapid industrialization, higher consumption of fossil fuels, increasing consumerism, and rapid urbanization. This has resulted in ozone layer depletion, global warming, and other problems. The components of the natural environment are: Resources: Companies use natural resources for the production of goods and services. However, these resources are not unlimited and have to be used judiciously. Weather: Demand for products also depends upon the climatic conditions. For example, demand for woolen wear would be higher in north India because of long and severe winters, in comparison to south India. Pollution: With industrialization, the presence of polluted elements has increased in the environment. To safeguard against environmental pollution, companies have created eco-friendly products like recycled paper and jute bags. Governmental intervention: National governments follow different policies on the environment. In 2001, the Indian government banned the sale of shahtoosh products (sourced from Chiru, an endangered antelope species found in Tibet), across India, except in Jammu and Kashmir to save the species from extinction. Legal Environment Marketing activities in any country have to work within the realms of the laws of that country. Therefore, marketers should have complete knowledge of the rules and regulations governing the industry, they are operating in. In India, some of the regulatory agencies/acts are as under: Consumer protection act This Act governs all the states in India, except Jammu and Kashmir, to protect the interests of consumers. According to this act, a consumer can ask for legal assistance in case traders follow unfair trade practices, sell goods having more than one defect, charge higher prices than the fixed price, and sell goods that are harmful to health. State regulatory agencies State governments set up regulatory agencies that enforce laws with a view to regulate the trade practices within a state. These laws pertain to production, promotion, and sale of goods and services. These laws, therefore, regulate the activities of marketers within the state. Furthermore, these laws do not conflict with the Central government laws.
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Understanding Marketing Management and Buyer Behavior Non-government regulatory agencies Trade associations have their own regulatory bodies that define ethical codes. They influence the marketers in a particular industry. For example, the Foreign Exchange Dealers Association in India is a self-regulatory body, which was formed in 1958 as an association by banks that deal in foreign exchange. Example: In August 1995, PepsiCos Kentucky Fried Chicken (a fast-food restaurant) situated in Bangalore, India, got entangled in a major controversy, when the Municipal Food Inspectors found that KFCs hot & spicy seasoning contained an amount of monosodium glutamate3 (MSG) that was nearly three times more than what was allowed by the Indian Prevention of Food Adulteration Act, 1954 (IPFAA). Laboratory tests also revealed that the seasoning contained 2.8 percent of MSG, while the IPFAA permits only 1 percent of the ingredients use in fast foods. Following this incident, the Bangalore City Corporation revoked KFCs license. It further instructed the police to close down the restaurant.
Check Your Progress 4. a. b. c. d. 5. a. b. c. d. 6. a. b. c. d. 7. Identify the statement that does not hold good for macro environmental forces. They influence the marketing abilities of the firm These forces have an immediate and direct effect on a company They affect all players in the industry These forces are complex in nature and interdependent. The income left to consumers after tax is called _________. Disposable income Discretionary income Credit Savings. Which of the following is not a significant characteristic of the growth stage of the business cycle? Employment rate is high Inflation rate is low Interest rates are high Income is high. Which of the following is a branch of sociology that deals with the study of the characteristics of human population such as size, growth, density, distribution, gender and marital status? Psychographics
a.
MSG is popularly known as Ajinomoto, a flavor enhancing ingredient. It has been associated with behavioral disorders, hyperactivity, severe brain damage in rats, and nausea and headache among adults.
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Marketing Environment b. c. d. 8. a. b. c. d. 9. a. b. c. d. Socio-cultural environment Demographics None of the above. A business cycle consists of fours stages depending on a countrys economic activities. Identify the correct sequence of steps in a business cycle. Growth - Depression - Recession - Recovery Growth - Recession - Depression - Recovery Depression Recession - Growth - Recovery Recovery - Depression - Growth Recession. Which of the following statements brings out the salient difference between recession and depression? A state of intense recession is known as depression During recession the demand for the product increases whereas during depression demand decreases During recession unemployment increases whereas during depression jobs are slashed A state of intense depression is known as recession.
10. Which of the following statements are definitely false in the case of recession? a. b. c. d. Unemployment increases Interest rates increase Demand for products increases Price of commodities decreases.
11. In recent years there has been a considerable increase in the number of working women in India. Consequently, ITC Ltd launched a new range of ready-to-eat foodstuffs like chapatis and curries. Which factor led to this decision by ITC? a. b. c. d. Economic factor Socio-cultural factor Demographic factor Technological factor.
12. The macro environmental forces include the political, economic, socio-cultural, legal, demographic, technological and natural environment. Which of the following is not a socio-cultural force? a. b. c. d. Lifestyles Values Beliefs Gender.
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5. Indian Business Environment and MNCs in India

The liberalization policy of 1991 opened the gates for foreign companies to invest in certain areas of the Indian industrial sector. This led to many MNCs entering the Indian market. MNCs primarily entered India either through alliances with Indian companies or through their wholly owned subsidiaries. The MNCs invested their resources and set up manufacturing facilities in India. As a result, they generated employment opportunities in India. For example, Hyundai has set up its manufacturing plant near Chennai. As MNCs bring with them the latest technology (e.g. in the production process), they also help in developing and enhancing the skill set of people in the host country.
Check Your Progress 13. Identify the government policy that paved the way for the entry of MNCs into India. a. b. c. d. Removal of the MRTP act Setting up state regulatory agencies Consumer protection act Liberalization of the economy.
6. Summary
Four types of market structures determine the level of competition: monopoly, oligopoly, monopolistic competition, and pure competition. Marketers have to monitor competition by studying customer and market trends on a continuous basis. The demographic environment consists of consumer groups that can be divided on the basis of age (infants, children, adults, and senior citizens), sex, marital status, occupation and literacy, and location. The political environment includes domestic politics and international politics. Marketers try to influence political leaders and governments with a view to create a favorable trade environment for their businesses. The economic environment depends upon the general economy, which is governed by the business cycle. The stages in the business cycle influence the strategies of marketers. Furthermore, the buying power of the customer also affects marketing plans. This depends upon the customers income and wealth, and credit availability. Finally, the customers willingness to buy a product has to be observed by the marketers. The values, beliefs, and lifestyles of the customer have to be taken into account by any firm, for its marketing activities. Technological advancement has improved all aspects of the marketing mix (product, price, promotion, and distribution), which has resulted in the saving of time and resources.
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Marketing Environment The natural environment has to be taken into account for marketing products. This includes natural resources, climate, pollution, and government intervention. Marketers should abide by the laws and regulations of the countries they operate in. With liberalization, MNCs entered India and helped in the growth of the economy by increasing employment and providing other benefits.
7. Glossary
Business cycle: A predictable economic fluctuation that gives rise to four stages: prosperity, recession, depression, and recovery. Buying power: The consumers ability to purchase products. Consumerism: A social, economic, and political movement that seeks to protect the safety and rights of consumers. Dealer: Basically the same type of intermediary as a distributor, although some people distinguish dealers as those intermediaries that sell only to final customers not to other intermediaries. Depression: A more intense from of recession in which unemployment peaks, buying power drops dramatically, and consumers lose faith in the economy. Discretionary income: The portion of disposable income the consumer retains after paying for food, shelter, and other necessities. Disposable income: Income the consumer retains after paying taxes. Export: To sell goods and raw materials to another country. Gross domestic product (GDP): A measure of the purely domestic output of a country. Market price: The actual price at which a product sells (to consumers and organizational customers other than resellers); equal to list price minus discounts and allowances. Marketing environment: The general atmosphere in which marketers operate and are influenced by such external elements as competitors, economics, nature, politics, regulations, technology, and society. Marketing intermediaries: People or organizations that assists in the flow of products in a marketing channel. Marketing plan: A formal document that details your objectives, your situation analysis, your marketing strategy, and the elements of your marketing mix. Message: An idea that has been encoded and is capable of being transmitted. Monopolistic competition: A competitive structure in which many marketers compete to sell similar products and in which marketing strategies typically emphasize product differentiation.
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Understanding Marketing Management and Buyer Behavior Monopoly: A competitive structure in which one marketer controls the supply of a product that has no direct substitutes. Oligopoly: A competitive structure in which a small number of competitors control the market. Population: The universe of people, places, or things to be investigated in a specific research study. Pure competition: The ideal competitive structure in which many marketers compete to sell the same undifferentiated product. Recession: The stage of the business cycle in which unemployment rises and consumer buying power drops. Recovery: The stage of the business cycle in which the economy moves from depression or recession towards prosperity. Retailers: Intermediaries that sell to final customers; they purchase goods from wholesalers, or in some cases, directly from producers. Sociocultural forces: Characteristics of culture and society that influence consumer behavior. Wholesalers: Intermediaries that perform a variety of marketing channel functions to move goods and services through the channel to retailers and organizational customers.
8. Self -Assessment Test

1. 2. Discuss the impact of business cycle changes on the marketing activities of a firm. How does the natural and legal environment of a country impact the marketing environment of an organization?

1. 2. 3. 4. Bovee, Courtland L and Thill, John V. Marketing. USA: McGraw-Hill Inc, 1992. Cherunilam, Francis. Global Economy and Business Environment. First Edition. Mumbai: Himalaya Publishing House, 2001. Palmer, Adrian. Principles of Marketing. Oxford University Press, 2000. Pearce, John A and Robinson Jr, Richard B. Strategic Management - Strategy Formulation and Implementation. Third Edition. New Delhi: AITBS Publishers & Distributors (Regd). Reprint, 2000. Pride, William W and Ferrel, O C. Marketing Concepts and Strategies. Tenth Edition. Chennai: All India Publishers and Distributors, 2000.
5.
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Marketing Environment 6. 7. 8. Ramaswamy VS, Namakumari S. Marketing Management Planning, Implementation and Control. Third Edition. Delhi: Macmillan India Ltd, 2002. Saxena, Rajan. Marketing Management. Publishing Limited, 1997. New Delhi: Tata McGraw-Hill
The Marketing Environment, <www.marketingteacher.com/Lessons/lesson_marketing_environment.htm>

Following are the answers to the Check Your Progress questions given in the Unit. 1. (d) Entry barrier is low It is usually impossible to enter a monopolistic market as the cost of entry may be quite high. 2. (c) Monopolistic competition In this structure, many firms compete with one another. Each firm has a relatively small market share. Marketers try to differentiate their offer from competitors by varying the marketing mix to capture the market. They strive to make their products and services unique. 3. (a) Monopoly Common competitive structures are: monopoly, oligopoly, monopolistic competition and pure competition. Monopoly is a structure where one firm completely controls the supply of a product with no close substitute. In monopolistic competition, many firms compete with one another. Each firm has a relatively small market share. In the oligopoly structure, a few sellers control the major supply of the product. In pure competition, no single player can influence the supply or price of a product. 4. (b) These forces have an immediate and direct effect on a company Macro environmental forces do not affect the operations of a company or its relationship with its customers and suppliers, directly and immediately. However, they affect the company in the long run. They also affect all players in the industry. The player able to anticipate changes and adapt quickly will emerge the winner. 5. (a) Disposable income The income left to consumers after tax is called disposable income. The income left after purchasing basic needs is known as discretionary income. The customers inclination to use credit depends on their disposable inco me. The money left after basic expenditure is savings. 6. (c) Interest rates are high In this stage of the business cycle, the employment rate is high; interest rates are low, inflation low and income high. Consequently, customers spend more to fulfill their needs and wants.
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Understanding Marketing Management and Buyer Behavior 7. (c) Demographics Demographics is a branch of sociology that studies the characteristics of the human population like size, growth, density, distribution, gender and marital status. Marketers are keenly interested in studying the demography, ethnic mix, educational levels and standard of living of different cities, regions and nations because changes in these have a bearing on the way people live, spend their money and consume. 8. (b) Growth Recession Depression - Recovery Fluctuations in an economy generally follow a pattern of growth, recession, depression and recovery. This pattern is known as a business cycle. 9. (a) A state of intense recession is known as depression A state of intense recession is known as depression, where the rate of unemployment is very high, wages are very low, Gross National Product (GNP) drops and customers lack confidence in the economy. Demand for products decreases during depression as well as recession. Option c does not clearly distinguish between the two. 10. (c) Demand for products increases During recession there is a decrease in demand for products. In this stage of the business cycle, jobs are slashed and consequently the willingness of people to spend decreases considerably. Customers buying decisions depend more on price as they are apprehensive about future economic conditions. 11. (b) Socio-Cultural factor Due to lifestyle changes, a sociocultural force, Indian women spend less time cooking. This encouraged companies like ITC to launch ready-to-eat foodstuffs. 12. (d) Gender Socio-cultural forces are attitude, norms, beliefs, values and lifestyles of individuals in a society. Gender is part of demographics. 13. (d) Liberalization of the economy Reforms in government policies like the removal of FERA and liberalization of economy have paved the way for the entry of MNCs into India. MNCs found the vast untapped Indian market lucrative as they could invest up to 51 per cent or more in their enterprise or Joint Ventures.
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Unit 4
Marketing Budgets and Costs

Structure
1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction Objectives Marketing Cost Analysis Customer Profitability Analysis Budgeting for the Sales Force Department Production and Efficiency Summary Glossary Self-Assessment Test
10. Suggested Reading/Reference Material 11. Answers to Check Your Progress Questions 1.
Introduction
The previous unit discussed the different types of competitive structures and the various forces constituting the marketing environment of the firm. In this unit, we shall discuss the different issues related to marketing budgets and costs. The marketing costs include both the product and customer costs. Marketing costs are incurred after the product is available for sale. Costs are allocated to the marketing activities by integrating product cost and customer cost. Analysis of the marketing costs is important as they determine the profitability of each product line of a company. Like the analysis of marketing costs, the analysis of customer profitability is important to retain profitable customers. The financial situation of a firm can be analyzed by calculating the financial ratios like liquidity ratios, debt ratios, coverage ratios etc. for at least three years. Contribution analysis is also used to determine the profitability of products, customers, distribution and market segment. Production is an activity which converts input into output. The efficiency of production activity can be measured by economies of scale, learning effect, and experience curve. In this unit, we will discuss the marketing cost analysis and customer profitability analysis. We shall then move on to discuss the financial situation analysis of a firm and the contribution analysis. We shall conclude the unit by discussing the budgeting process for a sales force department and the different methods to measure the efficiency of a production activity.
2. Objectives
By the end of this unit, students should be able to: Explain how marketing cost analysis helps in determining the product line profitability of a company List the various steps in customer profitability analysis Discuss the budgeting process for a sales force department Analyze the relationship between production and efficiency
3. Marketing Cost Analysis

According to surveys conducted by the Domestic Commerce Division in the US, marketing costs consist of product and customer costs. Product cost includes inventory handling and advertising, and customer cost includes personnel selling, billing, and order processing. Costs could be effectively allocated to the marketing activities, by integrating product cost and customer cost. These form a base for developing budgets and controlling marketing efforts. Importance of Marketing Cost Analysis Marketing costs are those which occur after the product is available for sale. Furthermore, analysis of marketing costs is essential as these costs determine the profitability of each product line of a company. Marketing costs also help to estimate the profitability of customers. Shifting of marketing efforts from unprofitable to profitable activities reduces marketing costs for the company. Awareness of profitability of marketing activities helps in increasing sales. Example: Pramati Technologies, a Hyderabad-based company, offers tools and servers that implement J2EE (Java2 Platform, Enterprise Edition) standard. In a bid to lower its marketing and advertising costs, it tied up with around 120 big vendors to promote its product along with their offerings. This helped it to save costs and have greater visibility. As a result, it gained several customers in a short-period of time. Steps in Marketing Cost Analysis i. Dividing all costs into fixed (those costs that do not change with a change in the volume of sales), variable costs (that change with a change in the sales volume), and semi-variable costs (fixed in the short-term, but variable in the long-term). After the costs are classified, the appropriate functional cost category has to be allocated to them. This helps to identify the trouble areas in marketing costs.
ii.
iii. Marketing cost analysis should be undertaken at regular predetermined intervals as it helps a company to control its marketing expenditure. Full Cost Versus Contribution Margin Approach There are two methods of allocating marketing costs. In the full cost method, both direct and indirect expenses are deducted from the gross margin (sales minus cost of goods sold) to arrive at the net income. In the contribution margin method, only direct expenses are deducted from the gross margin to arrive at the net income.
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Marketing Budgets and Costs The contribution method gives an exact picture of the contribution of each product and segment towards profit and indirect costs. Therefore, it helps to analyze the efficiency of marketing activities in different sectors. Activity: Zentex (Pvt.) Ltd. is a fertilizer manufacturing and seeds processing company. The company has launched a new variety of hybrid seeds for cotton crop. Manik Chand (Chand), the marketing manager of the company was asked by its top management to prudently handle marketing efforts. Therefore, Chand decided to conduct marketing cost analysis. What is marketing cost analysis? Discuss the steps that Chand needs to take in conducting marketing cost analysis. Answer:
Check Your Progress 1. a. b. c. d. 2. i. ii. iii. iv. a. b. c. d. 3. a. b. c. d. What is meant by the term Marketing Cost? The cost incurred in planning the marketing process The cost incurred after products are manufactured The cost incurred after products are made available for sale The cost incurred in integrating the evaluation process of the customer and product profitability. There are two methods used to allocate indirect expenses in marketing cost analysis. Identify the two methods. Full cost approach Gross margin approach Contribution margin approach Sales approach. i & iii i & ii ii & iv iii & iv. Marketing cost can be divided into two categories. What are they? Product costs and promotional costs Product costs and packaging costs Product costs and customer costs Customer costs and promotional costs.
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Understanding Marketing Management and Buyer Behavior 4. i. ii. Identify the correct sequence of steps in Marketing Cost Analysis. Decide on the periodicity of marketing cost analysis Assign various marketing costs to the different divisions of the business on which they are being spent
iii. Divide various marketing costs into fixed, variable and semi-variable costs. a. b. c. d. 5. iii, ii, i iii, i, ii ii, i, iii i, iii, ii. In the contribution margin approach, net income is calculated by deducting direct expenses from gross margin. Which of the following alternatives is definitely not related to Contribution Margin Approach? It highlights the behavior of costs that cannot be controlled by the firm It pinpoints the contribution of each segment towards profits and indirect fixed costs It helps marketing managers to analyze the efficacy of marketing programs It helps management to analyze the profitability of a specific marketing mix in a specific market.
a. b. c. d.
4. Customer Profitability Analysis

Companies need to manage their customers as well as their products. Customer profitability analysis is an important tool to retain profitable customers. It is carried out with the help of customer and operational data, using analytical techniques and software technology. Software technology, such as Customer Information System (CIS), contains database of behaviors and transactions of each customer. It is used to estimate customer profitability. Example: Standard Chartered Bank needs to analyze a large mass of customer data collected by its online transaction processing systems. Therefore, the bank has adopted SAS customized CRM solutions, which have helped it to optimize customer profitability, and implement cost control measures amongst other benefits. Steps in Customer Profitability Analysis Customer profitability analysis involves four steps: Step 1: The profitability of products and services can be measured by taking into account all costs that are incurred for them. Economic profit should be derived by deducting all costs like operating expenses.
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Marketing Budgets and Costs Step 2: After the economic profitability has been estimated, marketers should study the customers purchase pattern and determine the profitability of customers. For this purpose, companies should have a customer database. Step 3: Customer costs should be deducted from customer profitability. Certain customers may delay payments, resulting in less profitability. Therefore, an analysis into customer behavior is essential to analyze customer profitability. Step 4: Certain overhead costs like travel expenses of top management and capital expenditure on building of the headquarters should be included to arrive at customer profitability. This is because certain big customers may be accountable for these costs. Activity: KY Systems Ltd. is a software developing firm located in Chennai. The firm has a strong customer base of around 150 clients from various sectors of business like banks, colleges, and departmental stores. Outline the steps that the marketing department of KY Systems Ltd. needs to carry out, to estimate customer profitability. Answer:
Financial Situation Analysis The financial situation of a firm can be gauged by a ratio analysis of a threeyear period. This period will reflect the firms position. These ratios are divided into five categories: 1. Liquidity ratios These ratios determine the capacity of the firm to meet its shortterm liabilities. Liquidity ratios include current ratio, quick ratio, average collection period, and inventory turnover ratio. Debt ratios They help in determining the long-term liquidity of the firm. These include debt-to-equity ratio and long-term capitalization. Profitability ratios The operational efficiency of the firm can be judged by these ratios, which are related to both assets and investment. These ratios include gross profit margin, net profit margin, return on equity, and asset turnover ratio. Coverage ratios These ratios refer to the capability of a firm to service its debts. These include interest coverage ratio and cash flow coverage of interest. Market-value ratios These ratios include price/earnings ratio and dividend yield.
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2. 3.
4. 5.
Activity: The financial statement of Shriram Alloys Ltd. is given below. Assess its financial situation using ratio analysis. Shriram Alloys Ltd.Balance Sheet as on 31st March, 2000 Liabilities Share Capital Reserves & Surplus Long-term debt Short-term bank loan Current Liabilities Rs. 3,00,000 2,10,000 Current Assets 5,80,000 1,75,000 2,35,000 15,00,000 Answer: Inventory Receivables Cash & Bank 6,00,000 2,50,000 1,50,000 10,00,000 15,00,000 Assets Net Fixed Assets Rs. 5,00,000
Contribution Analysis It determines the profitability of products, customers, distribution, and market segment. Contribution margin is equal to sales minus the variable costs. It represents the money available for covering fixed costs. Sometimes, limited factor contribution margin is calculated, which includes per factor contribution. This analysis is a useful input for business strategies.
Check Your Progress 6. The failure to measure customer profitability can have an adverse effect on business. Which of the following helps marketers undertake customer profitability analysis? Customer and operational data Market potential
i. ii.
iii. Use of specialized analytical techniques iv. Advanced software technology. a. b. c. d.

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i & iii i & iv i, ii & iv i, iii & iv.
Marketing Budgets and Costs 7. a. b. c. d. 8. a. b. c. d. 9. a. b. c. d. There are five major categories of ratios that help analyze the financial performance of a firm. Identify the alternative that is definitely not a financial ratio. Liquidity ratio Customer value ratio Market value ratio Profitability ratio. The contribution margin represents the amount of money available for covering fixed costs. Choose the correct formula used to calculate the contribution margin. CM = Sales Fixed Cost CM = Sales Cost of goods sold CM = Sales Variable Cost CM = Sales Indirect Cost. Managers need certain yardsticks to analyze the financial condition and performance of a company. What is the common term for such yardsticks? Liquidity ratio Debt ratio Profitability ratio Financial ratio.
5. Budgeting for the Sales Force Department

The sales budget includes various costs incurred by the sales personnel during the course of their operations. For this purpose, the sales manager has to analyze the spending patterns of salespersons. This can be figured by determining the expenditure per sales call and the number of sales calls per month. Furthermore, regular expenses like salaries and commissions, and contingency expenses should be taken into account. The manager should chalk out detailed plans and attempt to make the budget more realistic. Example: International Business Machines (IBM), leading manufacturer of computer systems, storage systems, and software realized that its outsourcing and data center unit, IBM Global Services (IGS), was earning better revenues than its hardware business. To realign its budget priorities, it consulted MarketBridge, a US-based sales and marketing professional services firm. The firm suggested that IGS should focus on supporting sales force activities, which would help it to increase clients by 6.6% to 10.4%, with an increase in sales force productivity of US$ 600,000 per sales representative.
6. Production and Efficiency

The production process converts input into output. The production process involves three types of changes. Change in form refers to the change from raw material to the finished product, change in space means transportation of the material, and change in time refers to the storage of goods. Efficiency of the production process increases with time as the workers and the management gain experience.
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Understanding Marketing Management and Buyer Behavior Learning Effect and Experience Curve Learning effect is a concept which was introduced in 1935. According to this concept, the time taken for producing goods decreases over time as the labor gains experience in producing that product. For example, a new typist may find it difficult to give error free documents while maintaining the time-limits. Over a period of time, as he/she gains experience in typing, error free documents are generated in minimum time. The experience curve shows that with an increase in the number of units produced, the firm gains experience in the production process. This experience helps to reduce production costs, considerably. It helps the firms to achieve economies of scale. Economies of Scale This refers to decrease in the average cost with an increase in production numbers. This is because when production increases, the fixed cost spreads over a large number of units, bringing economies of scale. However, beyond a certain point the average cost starts increasing, causing diseconomies of scale. Economies of scale may be internal economies of scale or external economies of scale. Example: Economies of scale are applicable to the electronics industry, among other industries. The cost of an ordinary pocket calculator cannot be brought below $50 if limited numbers like 200 pieces are produced at a time. However, as they are produced in large numbers, calculators can be produced at a very low cost. Due to economies of scale, pocket calculators are priced below $5 per piece.
Check Your Progress 10. _________ is a function that transforms input into output. Identify it. a. b. c. d. Contribution Budgeting Production Development.
11. Economy of scale refers to ___________ a. b. c. d. A decrease in average cost incurred in production of goods in large numbers A decrease in fixed costs incurred in production of goods in large numbers An increase in variable costs incurred in production of goods in large numbers An increase in average costs incurred in production of goods in large numbers.
12. Which one of the following is not true about experience curve? a. b. c. d.
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As the firm makes more and more products, it gains experience Experience reduces production costs Experience curve helps the firm price its products lower than competitors When a product is in the maturity stage of its life cycle, the experience curve gives the greatest benefits to organizations.
Marketing Budgets and Costs 13. Which of the following statements is definitely false about the Learning Effect? a. b. c. d. Production time decreases due to the learning effect Learning effect is a function that reduces the number of labor hours needed to produce a unit of a product as the workers gain experience over a period of time Learning Effect was introduced in 1935 As the firm manufactures more and more products, it gains experience in production methods over a period of time.
14. What does the term diseconomy of scale mean? a. b. c. d. A decrease in average cost incurred in the production of goods in large numbers After reaching a certain point, average cost starts decreasing at a faster rate with increasing production After reaching a certain point, average cost starts increasing with rising production An increase in average cost incurred in the production of goods in large numbers.
7. Summary
Marketing cost analysis is very important for a company as it gives an idea about the profitability of each product. For this purpose, costs should be classified as fixed and variable, and then, assigned to various divisions. This analysis should be done on a periodic basis. Understanding customer profitability aids businesses. Customer profitability analysis involves four steps. They are: ascertaining economic profit, observing customers to determine their profitability, deducting customer specific costs, and deducting overheads costs. Ratio analysis helps to determine a firms financial situation. Contribution analysis helps to determine profitability at the segment, customer, product, and distribution levels. Budgeting for sales force department includes spending patterns of sales persons, in addition to regular costs like salaries and commissions. Production transforms input into output. The learning effect signifies that the production time decreases over time with experience. The experience curve of a firm refers to efficiency in production methods over a span of time.
8. Glossary
Fixed costs: The portion of a companys production and marketing costs that remains constant regardless of the level of production. Marketing cost analysis: Examining marketing costs, their sources, why they are incurred, their size, and their change over time.
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Understanding Marketing Management and Buyer Behavior Product line: A group of closely related product items. Variable costs: The portion of a companys production and marketing costs that are dependent on the level of production.
9. Self -Assessment Test

1. 2. How does contribution analysis help a firm in taking marketing decisions? Explain with an example. Explain the concepts of learning effect, experience curve, and economies of scale in relation to production.

1. 2. 3. 4. 5. 6. 7. Mehta, P.L. Managerial Economics, Analysis, Problems and Cases. Revised Edition. New Delhi: Sultan Chand and Sons, 2001. Eight
Pride, William W and Ferrel, O C. Marketing Concepts and Strategies. Tenth Edition. Chennai: All India Publishers and Distributors, 2000. Stanton, William J and Futrell, Charles. Fundamentals of Marketing. Edition. McGraw-Hill International, 1998. Tom Richebacher, The Art of Customer www.destinationcrm.com, April 14, 2003. How Banks Use Profitability Analysis, <http://www.dbmarketing.com/articles/Art195.htm> What Are Economies of Scale? <http://www.investopedia.com/articles/03/012703.asp> Susan M. Jacksack, Setting a Marketing Budget, <http://www.score.org/m_pr_11.html > Profitability Eight
Analysis,

Following are the answers to the Check Your Progress questions given in the Unit. 1. (c) The cost incurred after products are made available for sale Marketing costs are costs incurred after products are made available for sale. As marketing costs are not recorded in inventory costs, they often remain hidden. 2. (a) i & iii The two methods used are full cost approach and contribution margin approach. In the former, net income is calculated by deducting direct and indirect expenses from gross margin. In the contribution margin approach, net income is calculated by deducting direct expenses from gross margin. 3. (c) Product costs and customer costs Marketing costs can be divided into two categories: one closely associated with product costs and the other with customer costs.
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Marketing Budgets and Costs 4. (a) iii, ii, i The first step in marketing cost analysis is to divide various costs into fixed, variable and semi-variable costs. After classification of marketing costs, they can be assigned to different divisions of the business on which they are being spent. The final step is to decide on the periodicity of marketing cost analysis because periodical analysis helps a company check and control its marketing expenses. 5. a) It highlights the behavior of costs that cannot be controlled by the firm The contribution margin approach highlights the behavior of controllable costs and not costs that cannot be controlled by the firm. The approach highlights the contribution of each segment towards profits and indirect fixed costs. This technique helps marketing managers analyze the efficiency of marketing programs and profits accrued on different products, segments, distribution channels, types and number of customers and so on. The approach also helps the management to assess the profitability of a specific marketing mix in a specific area and also determine whether an action is required to change it. 6. (d) i, iii & iv Customer profitability analysis is carried out with the help of customer and operational data by using specialized analytical techniques and advanced software technology. 7. (b) Customer value ratio The five major categories of ratios are Liquidity Ratio, Debt Ratio, Profitability Ratio, Coverage Ratio and Market Value Ratio. 8. (c) CM = Sales Variable Cost The contribution margin is equal to sales minus variable costs. It represents the amount of money available for covering fixed costs. Net income refers to the contribution margin minus fixed costs. 9. (d) Financial ratio Financial ratios are used to measure the financial condition of a firm. All the other options are categories of financial ratios. 10. (c) Production Production is the process by which input/ raw material is converted into output/ finished goods. 11. (a) A decrease in average costs incurred in production of goods in large numbers Economy of scale refers to decrease in average costs incurred in production of goods in large numbers.
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Understanding Marketing Management and Buyer Behavior 12. (d) When a product is in the maturity stage of its life cycle, the experience curve gives the greatest benefits to organizations Option d is not true as the experience curve provides the greatest benefits to organizations when a product is in the early stage of its life cycle. This concept states that as the firm makes more and more products, it gains experience in production methods over a period of time. This experience reduces production costs. The experience curve coupled with economy of scale gives the firm the strategic advantage of pricing its products lower than that of its competitors. 13. (d) As the firm manufactures more and more products, it gains experience in production methods over a period of time Optiond describes the experience curve and not the learning effect. The experience curve states that as the firm makes more and more products, it gains experience in production methods over a period of time. 14. (c) After reaching a certain point, average cost starts increasing with rising production Economy of scale refers to a decrease in average cost incurred in goods production in large numbers. However, after reaching a point, average cost starts increasing. When average cost increases with a rise in production volume, it is called diseconomy of scale. Organizations should always avoid the condition of diseconomy of scale.
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Unit 5
Understanding Consumer Buying Behavior

Structure
1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction Objectives Factors Influencing Buying Behavior Buying Decisions Buying Decision Process Summary Glossary Self-Assessment Test Suggested Reading/Reference Material
10. Answers to Check Your Progress Questions 1.
Introduction
In the previous unit, we discussed about marketing budgets and costs. We also discussed the importance of analyzing marketing costs and customer profitability. In this unit, we introduce you to the concept of consumer buying behavior and various issues related to it. Customers take decisions regarding consumption of various goods and services based on the resources available with them. The purchase decisions made by customers reflect their buying behavior. Several factors like cultural, social, personal, and psychological affect the consumer buying behavior. The buying decision involves selecting one option from the given set of alternatives. While taking buying decision individuals play different roles like initiator, influencer, decider, buyer, user, maintainer, and disposer. Individuals also exhibit different types of buying behavior when taking a buying decision like extensive problem solving behavior, routinized buying behavior, and variety seeking behavior. In this unit, we shall first discuss the various factors affecting the consumer buying behavior. We shall then discuss the different buying roles played and buying behaviors exhibited by the individuals while taking a buying decision. Finally, we shall discuss the different stages of the buying decision process passed by customer before buying a product. Before studying this unit, student should recall the concepts of customer satisfaction, customer value, and relationship marketing (Unit 2). 2.
Objectives
Discuss the factors influencing the buying behavior List the various buying roles played by individuals when making a buying decision
By the end of this unit, students should be able to:
Understanding Marketing Management and Buyer Behavior Analyze the different kinds of buying behavior exhibited by the customer Identify the various stages of buying decision process
3. Factors Influencing Consumer Buying Behavior

Marketers need to understand the factors affecting consumer buying behavior so that they can align their strategies to suit the needs of consumers. The factors influencing consumer buying behavior are: cultural, social, personal, and psychological. Cultural Factors Culture This refers to the set of attitudes, values, and beliefs associated with a category of customers. Customers perceptions influence their buying behavior. Therefore, international marketers need to take into account the diverse cultures across the world, while designing their strategies. Example: In India, McDonalds has focused on innovative products and has changed its menu to suit the tastes of local consumers. It launched India-specific items, such as McVeggie burger, McAloo Tikki burger, Veg. Pizza McPuff and Chicken McGrill burger. Taking into account Indian preferences and sensibilities, the company does not offer pork and beef items at its outlets in India. On the other hand, it offers egg-less sandwich sauces to vegetarian customers, and vegetarian items are prepared at a separate counter at its outlets. Subculture Within a culture, there may be subcultures that contain similar habits, attitudes, and beliefs. Marketing mix needs to be altered according to the requirements of subcultures in a particular area. Advertising strategy is also influenced by subcultures. For example, a sari manufacturer may like to advertise his Kanjeevaram silk sarees more in Chennai than in Delhi, due to cultural preferences. Social Class This divides a society into different social structures based on status. There are primarily four categories of social class. Upper class: This class consists of customers who possess large amount of wealth and buy from exclusive branded stores. Upper middle class: These customers are well-educated and hold good positions in various organizations. They prefer goods appropriate to their social status. For example, malls like Shoppers Stop and Lifestyle cater to such customers. Middle class: These customers, usually, work at the middle and junior levels in organizations. They want value for money. Advertisements of products like Tide, are targeted at such customers. Lower class: These customers are primarily blue-collared workers with little or no education. They have no savings.
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Understanding Consumer Buying Behavior Social Factors The social factors refer to family, friends, and colleagues. They influence the buying pattern of customers. Friends fall under the informal group, and this group has an effective influence on the buying decisions of customers. Reference Groups A customers buying decision depends upon the reference group the customer belongs to. In this context, there are two types of reference groups, primary and secondary. Primary reference group: This can be further divided into four categories. They are: Membership reference group: Individuals hold membership to certain groups where they frequently interact with other members of the group. These interactions directly influence their buying decisions. Aspiration reference group: An individual wants to be part of that group and tries to incorporate the attitudes and buying behavior of that group. Disclaimant reference group: In this case, although an individual is a member of a particular group, the individual does not want to copy the actions of the group. Therefore, his buying behavior will not be influenced by this group. Avoidance group: In this case, an individual neither holds membership to a particular group nor likes the values and beliefs of the group. Secondary reference group: These may be religious groups, trade unions, or professional associations. Each of these groups has opinion leaders who influence the buying behavior of its members. For example, Max New York Life distributed its products in rural areas through gram sahayaks like teachers and social workers who were opinion leaders in villages. Family Family members influence the buying decisions of each other, significantly. In India, parents decide for their children and spouses decide for each other. For example, a working woman influences the eating patterns of her family. Marketers need to adjust the marketing mix elements depending upon the key influencer of their product in the family. The roles of husband and wife have also changed over time, which have to be reflected in the marketing strategies. For example, a commercial on television shows a man putting his baby to sleep. Activity: An advertising agency needs to design an advertisement for air coolers. To influence individuals decision making, the ad agency wants to involve social factors that affect the buying patterns of customers. Discuss the various social factors that the ad agency must consider in order to design an effective advertisement. Justify your answer. Answer:
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Understanding Marketing Management and Buyer Behavior Personal Factors These refer to age and life cycle stages, occupation and financial status, and life style. Age and Lifecycle Changes People may be at different stages of their life cycle based on whether they are single, married couples, couples with children, or senior citizens. At each stage, their buying behavior varies as they have different preferences. Therefore, marketers should keep in mind the stages in the life cycle of their customers. For example, LICs childrens plans and housing loans are targeted at young, married couples, while pension plans are targeted at the older generation. Occupation and Financial Statwus Occupation and financial status have a bearing on the buying behavior of an individual. For example, a top executive of an organization would purchase branded clothes and footwear, according to his status in the organization. Actresses pay particular attention to their looks, and spend more on cosmetics. Life Style Life style depends upon the work life, social groups, and interests of an individual. Psychological Factors These take the form of motivation, perceptions, beliefs, and attitudes. Motivation Needs governs the motivation levels of individuals. Maslows hierarchy of needs classify needs into physiological, security, social, self esteem, and self actualization categories. Fulfillment of one need leads to the other needs. However, needs should be distinguished from wants. For example, clothes are a need, but branded wear is a want. Therefore, marketers should create wants in customers and inculcate in them, the desire to fulfill these wants. Perceptions It is a process by which customers understand certain stimuli and convert them into their thoughts. These perceptions are based on their needs, wants, and experiences. For example, individuals opinion may differ with regard to services in a particular restaurant, based on their experiences at that restaurant. The basic senses of touch, smell, and hearing influence a customers perception of a product. The risk factor in a product also affects customers decision to purchase that product. Therefore, marketers should employ suitable strategies to alleviate customer fears and apprehensions. The right product mix can be arrived at by understanding customer perceptions. For example, Maggie atta noodles is being positioned as an alternative to regular dinner, to neutralize consumers perception of the product as a breakfast item. Beliefs and Attitudes An individuals thought about a particular product reflects his belief. Customer attitudes also affect buying behavior. These attitudes may emerge from customers interactions with other groups, and past product experiences. Marketers should aim at neutralizing negative attitudes, and alter their product mix to suit the needs and
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Understanding Consumer Buying Behavior preferences of customers. For example, although Coke was positioned as a drink for youngsters when it entered the Indian market, it was later repositioned as a drink for the whole family. This was done to tap the wider Indian market. As a part of this strategy, Coca Colas ads featured family members having Coke on various occasions. Activity: In August 2005, Paras Pharmaceuticals introduced its new product Recova, a 30-night skin repair formula. According to the company, the skin care product, which is targeted at older women helps in rejuvenating skin that gets dull with age. Assume that you are given the task of devising a marketing strategy for Recova. Which personal and psychological factors would you consider while drafting the strategy? Justify your answer. Answer:
Check Your Progress 1. Consumer buying behavior is affected by various factors that determine the product and brand preferences of consumers. Which of the following factors does not exert a significant influence on consumer buying behavior? Cultural influence on consumers Social influence on consumers Geographical location of producers Psychological factors. Identify the term commonly used to indicate the set of rules, values, beliefs, behavior and concepts that is common to and binds together the members of a society. Social norms Culture Sub-culture Ethics. Social factor is an important determinant of customer buying behavior. Identify the alternative which is not a social factor. Family Reference group Attitude Consumer action group.
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a. b. c. d. 2.
a. b. c. d. 3. a. b. c. d.
Understanding Marketing Management and Buyer Behavior 4. a. b. c. d. 5. a. b. c. d. 6. Reference groups can be of two types: primary reference group and secondary reference group. Religious groups are associated with which reference group? Membership reference group Secondary reference group Disclaimant reference group Avoidance group. Which of the following concepts is directly related to how individuals make decisions on spending available resources on consumption of related items? Marketing research Strategic planning Organizational buying behavior Consumer buying behavior. Pantaloons offered a Set Mundu (traditional dress) free on the purchase of two trousers during the Onam season in different cities of Kerala. Which factor might have influenced Pantaloons to undertake such a promotion? Psychological factor Social factors Cultural factors Personal factors. Social class, which is a distinctive feature of every society in the world, can be subdivided into certain distinct categories. Identify the option that lists the classifications that are applicable in most countries. Upper class -Upper middle class - Lower middle class - Less affluent class Upper class - Middle class - Lower class Upper class - Middle class - Lower Middle class - Lower class Upper class - Upper Middle class - Middle class - Lower class. Match the following social classes with their respective lifestyle and spending behavior. Upper class Upper middle class
a. b. c. d. 7.
a. b. c. d. 8. i. ii.
iii. Middle class iv. Lower class. p. q. r. These people lead a conservative lifestyle and spend moderately They buy expensive products and patronize branded exclusive shops for luxury items They tend to live in the present and hardly save
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Understanding Consumer Buying Behavior s. This class consists of well educated and highly successful and status conscious people. i/s, ii/q, iii/p, iv/r i/q, ii/s, iii/p, iv/r i/r, ii/s, iii/q, iv/p i/p, ii/s, iii/q, iv/r. Identify the alternative that is not a characteristic of secondary reference group. It includes religious groups, professional association and trade unions The member comes into regular and informal contact with the group It has its own set of reference leaders None of the above.
a. b. c. d. 9. a. b. c. d.
4. Buying Decisions
Taking a decision involves choosing one option from a set of given alternatives. Customers have the right to select from among a variety of brands or products. Buying Roles The buying decision depends upon various roles played by the members of a family. Sometimes, the buyer and the user may be two different individuals. For example, parents buy candy or chocolates for their children. Here, parents are the buyers, but the ultimate users or consumers are the children. Therefore, marketers should be clear about the buying roles of individuals. The various buying roles of individuals are: a) Initiator A person who initiates the idea of buying a product.
b) Influencer A person whose views affect the buying decision. In the case of costlier products, more significance is attached to the purchase decision, and there will be more number of influencers. c) e) f) Decider A person who takes the final decision on the purchase. User A person who actually uses the product. Maintainer A person who repairs or services the product. d) Buyer A person who actually buys the product.
g) Disposer A person who disposes the product. Example: For purchasing an air conditioner for the house, the initiator may be anyone in the family who feels the maximum need for the product. The influencers could be the husband, wife, friends, office colleagues, or any other reference group. The decider would be the husband/wife who would buy the product. The entire family would use the product that would be maintained by the company which manufactures the product. Disposal would be ultimately done by the husband/wife.
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Activity: Identify the buying roles of individuals in each of the following situations: Purchasing a house by a family of four members (father, mother, 30 year-old son, and 18year-old daughter). A little girl asking her mother to buy her a doll. A college-going boy in a family, intending to buy a two-wheeler. An 18-year-old boy shopping along with his dad on the occasion of his birthday. A lady on a buying spree with her husband as he promised to take her for shopping on the occasion of Diwali. A couple with a child, buying napkins for their kid.
Answer:
Buying behavior There are differences in buying behavior depending upon customers perceived differences about brands, and involvement in buying. Furthermore, the product type also influences buying behavior. We shall examine three kinds of buying behavior. Extensive problem solving behavior: This is displayed when purchasing an expensive product. The buyer develops a belief about the product, and his attitude regarding the purchase decision is based upon this belief. He makes a planned decision after evaluating all available alternatives to the product. To secure such behavior, marketers should clearly explain the distinct features of their product and use promotions for increasing visibility of their brand. For example, this sort of behavior is seen when individuals are involved in buying a music system. Routinized buying behavior: This sort of buying behavior is displayed by individuals for low cost regular purchases. Here, customers continue to buy familiar brands, and product features do not assume significance. Decisions are made fast, and the customer is not much involved in decision making. For example, buying monthly groceries is a routine activity, where there is low involvement of the buyer with regard to decision making. Variety seeking behavior: For certain products, customers seek differentiation, and evaluate the product during consumption. For example, some customers prefer to switch brands for shampoos. Impulse buying is a term that is used when customers take immediate decisions, based on instinct. Products that are bought on impulse are often marketed at a low price or at a discount. For example, Bru offered its Cappuccino coffee mix in sachets, at a low price. These were displayed prominently at the cash counters of well known departmental stores, to prompt impulse buying.
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Understanding Consumer Buying Behavior
Check Your Progress 10. What term is used to denote a person who chooses where, when, why and how to buy a product? a. b. c. d. Maintainer Decider Buyer User.
11. Consumer buying behavior is based on the degree of buyer involvement and the degree of differences an individual perceives among brands. In which of the following types of buying behavior do customers spend the least time in purchase decisions before buying the product? a. b. c. d. Routine-buying behavior Variety-seeking behavior Extensive problem-solving buying behavior Impulse buying behavior.
12. Extensive problem-solving buying behavior is a three stage process exhibited when the customer buys non-routine and expensive items. Select the alternative that gives the correct arrangement of steps. i. ii. Buyer makes a well planned decision Attitudes are shaped around the belief
iii. Buyer develops a belief about the product. a. b. c. d. i, ii, iii i, iii, ii ii, iii, i iii, ii, i.
5. Buying Decision Process

There are five stages before a customer actually purchases a product. Although frequently purchased products with low customer involvement may not pass through all the five stages, the more expensive products go through all the stages. These are: recognizing the problem, searching for information, evaluation of alternatives, purchase decision, and post purchase behavior. 5.1 Problem Recognition At this stage, a customer has an unsatisfied need that he wishes to fulfill. The trigger for this dissatisfaction may be external or internal. External triggers are from advertisement or product packaging and internal triggers can be from within a person. Marketers try to create needs in customers, and fulfill those needs through their products. For example, marketers of fairness creams create a need to look fair and, then, aim at satisfying this need through their products.
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Understanding Marketing Management and Buyer Behavior 5.2 Information Search Once the need for the product is established, the customer gathers all information pertaining to the product. For this purpose, he may use personal sources (family, friends), commercial sources (print media, television), public sources (articles in newspapers and journals), and experiential sources (Free trials). Usually, customers awareness level increases after gathering information, which helps them to evaluate the product. 5.3 Evaluation of Alternatives At this stage, the customer evaluates the various alternatives available to him, based on the information gathered by him. However, evaluation will differ depending upon the level of customer involvement. In the case of low involvement products, limited analysis is done by the customer. 5.4 Purchase Decision The evaluation of alternatives will aid the customer in taking a decision. Purchase decisions can also be influenced by: seller and location of the store, size of the product, time of purchase, price of the product, delivery and warranty period, payment methods, and service mechanisms. 5.5 Post Purchase Behavior A customer evaluates a product after consuming it. If he is satisfied, it results in repeat purchase and a positive image of the product. This is essential as dissatisfaction may lead to negative word of mouth by the customer about the product, leading to a negative image about the product in peoples minds. Post purchase satisfaction: Customer satisfaction occurs if the product performance is in line with customer expectations. Customer delight occurs if the satisfaction of the customer exceeds his/her expectations. Marketers should aim at delighting the customer by adding features and improving product performance. Post purchase dissonance: If a customer feels that competitors products have better features than the product he has purchased, it leads to dissatisfaction in the customer with regard to his purchase decision. In this case, marketers should provide reassurance to the customer about the product. Post purchase use and disposal: Marketers should note the use of the product by customers. Sometimes, customers discover new uses for a product. This may result in enhanced utility of the product. Many companies encourage reuse or recycling of their products as a means of disposal. For example, companies like Chrysler Corporation and General Motors saved millions of dollars by using reusable containers in their business processes.
Check Your Progress 13. Customers gather information from different sources when making purchase decisions. Identify the alternative that is a source for gathering information for a customer. a. b.
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Personal source Commercial source
Understanding Consumer Buying Behavior c. d. Public source All of the above.
14. Post-purchase behavior is the behavior of the customer after product purchase. Single out the situation not associated with post-purchase behavior. a. b. c. d. Repeat purchase Evaluating the store location Talking favorably of the product Talking negatively of the product.
6. Summary
Cultural, social, personal, and psychological factors influence the buying behavior of consumers. Cultural factors include the values, beliefs, and social class of people. Social factors consist of friends, family, and other reference groups of an individual. Personal factors refer to age, occupation, and life style. Psychological factors include motivation, perceptions, beliefs, and attitudes. Each person takes a number of purchase decisions that involve selecting one option from the given alternatives. The varying buying roles of persons influence their buying decision. The buying roles may be that of initiator, influencer, decider, buyer, user, maintainer, or disposer. Buying behavior may be classified into extensive problem solving behavior, routinized buying behavior, and variety seeking behavior. The buying decision process involves five stages. They are: problem recognition, searching for information, evaluation of alternatives, purchase decision, and post purchase behavior.
7. Glossary
Consumer buying behavior: Deciding what goods or services to buy and then obtaining them. Involvement: The degree of personal importance or relevance a decision has for a consumer. Reference group: A group that has an influence on a particular consumer. Social class: Stratified groups in society made up of people with similar values, lifestyles, interests, and behaviors. Subculture: A group of people who share beliefs, values, and customs different from those of the larger culture. Warranty: A statement specifying what the producer of a product will do to compensate the buyer if the product does not live up to its promised level of performance. Word of mouth: Transmission of consumer information from person to person.
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1. 2. Compare and contrast the various kinds of buying behavior with regard to price and customer involvement during the purchase of different products. What are the steps in the buying decision process? Explain the steps with the help of an example.

1. 2. 3. 4. 5. 6. 7. Schiffnam, Leon G and Kanuk, Lesslie Lazar. Consumer Behavior. Edition. New Delhi: Prentice-Hall of India Private Limited, 1998. Sixth
Pride, William M and Ferrel, O C. Marketing: Concepts and Strategies. Tenth Edition. Chennai: All India Publishers and Distributors, 2000. Nair, Rajan Dr. Marketing. Sixth Revised Edition. New Delhi: Sultan Chand and sons, 1990. Skinner, Steven J. Marketing. Second Edition. Chennai: All India Publishers and Distributors, 1998. Consumer Behavior and Marketing, <http://www.consumerpsychologist.com/#Culture> The Buying Process Leads to a Decision to Buy, <http://www.grokdotcom.com/index10-15-2002.htm> The Importance of Changing Customer Buying Behavior, <http://www.clickz.com/experts/archives/mkt/onl_mkt_strat/article.php/842101>

Following are the answers to the Check Your Progress questions given in the Unit. 1. (c) Geographical location of producers Alternatives a, b, d are factors related to customer buying behavior whereas c is related to organizational buying behavior. 2. (b) Culture Culture is a set of rules, values, beliefs, behavior and concepts that is common to and binds together the members of a society. It is usually passed on from one generation to the other. 3. (c) Attitude Family, reference group and consumer action groups come under social factors. Attitude is part of psychological factors. 4. (b) Secondary reference group Secondary groups include religious groups, professional associations and trade unions with which customer interaction is formal and infrequent. All the other options are types of primary reference groups. 5. (d) Consumer buying behavior Consumer buying behavior is the study of how individuals make decisions to spend available resources on consumption of related items.
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Understanding Consumer Buying Behavior 6. (c) Cultural factors The cultural factors that influence consumer buying behavior include the culture, subculture and social class of the buyer. Culture is considered as a set of rules, values, beliefs, behavior and concepts that is common to and binds together the members of a society. It is usually passed on from one generation to the other. The set mundu is the traditional dress that women in Kerala wear as part of the Onam festival. The dress is part of the culture of Kerala. 7. (b) Upper class - Middle class - Lower class Social class can be clearly divided into Upper class, Middle class and Lower class. The socio-economic classification like lower middle, upper middle etc varies from country to country. 8. (b) i/q, ii/s, iii/p, iv/r The upper class consists of people who are rich and possess considerable wealth. They tend to buy expensive products and patronize branded exclusive shops for snob and luxury goods. The upper middle class consists of well-educated people holding top class positions in middle size firms, or successful professionals. They have a strong drive for success and indulge in shopping for goods that speak of their social status. Middle class consists of white collar workers. These people have a conservative lifestyle and spend moderately. They live in apartments or reasonably smaller houses and buy products, which give more value for money. The lower class consists of blue collar workers. Due to their low income levels, these people tend to live in the present rather than save for the future. 9. (b) The member comes into regular and informal contact with group members Reference groups can be of two types: primary reference group and secondary reference group. In membership reference group (a type of primary reference group), the member comes into regular and informal contact with group members. 10. (b) Decider A decider is a person who decides where, when, why and how to buy the product. The decider makes the final decision about the contemplated purchase. A buyer is a person who actually purchases the product. A user actually uses the product. A maintainer is one who repairs or services the product. 11. (d) Impulse buying behavior Impulse buying is a situation where customers do not make any purchase decision before buying the product. It is an on-the-spot decision based on the instinct to buy. In extensive problem-solving buying behavior, consumers indulge in buying expensive, infrequently purchased and unfamiliar products. Consumers gather a lot of data regarding various brands available in the product category. In routine behavior, customers buy low-cost, regularly purchased/routine products. They do not make significant efforts to gather much information about the product. In variety-seeking behavior, consumers are not very brand conscious and often switch brands.
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Understanding Marketing Management and Buyer Behavior 12. (d) iii, ii, i Extensive problem-solving consumer behavior is a three-stage process. At first the buyer develops a belief about the product. Attitudes are shaped around that belief. The buyer then makes a well-planned decision. 13. (d) All of the above All the options are information sources for customers. Information sources for a customer include personal sources, commercial sources, public sources and experiential sources. 14. (b) Evaluating the store location Post-Purchase Behavior may lead to a repeat purchase, positive or negative publicity of the product, return of product, etc. However, alternative b, i.e. evaluating store location, takes place in the purchase decision stage.
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Unit 6
Organizational Markets and Organizational Buying Behavior

Structure
1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction Objectives The Concept of Organizational Buying Dimensions of Organizational Buying Classification of Organizational Markets Factors Influencing Organizational Buying Participants in Organizational Buying Procurement Process Stages of Buying
10. Summary 11. Glossary 12. Self-Assessment Test 13. Suggested Reading/Reference Material 14. Answers to Check Your Progress Questions
1. Introduction
In the previous unit, we discussed the concept of consumer buying behavior. In this unit we will discuss the organizational markets, the organizational buying behavior and the various issues related to it. Organizational buying involves a more systematic decision making process than consumer buying. Unlike consumer buying, organizational buying has three kinds of buying situations like new task, modified rebuy, and straight rebuy. The organizational markets are classified as producers markets, resellers markets, government markets and institutional markets. Organizational buying is influenced by various factors like environmental, organizational, social and personal factors. Different categories of people called initiators, influencers, users, deciders, approvers, buyers, and gatekeepers are involved in organizational buying with each of them playing a different role in making a purchase decision. In this unit, we shall introduce you to the concept of organizational buying behavior and the different kinds of organizational markets. We shall then move on to discuss the various factors influencing the organizational buying and the different participants in organizational buying. We would be concluding the unit by discussing the various stages that the organizational buying process passes through.
2. Objectives
By the end of this unit, students should be able to: Discuss the concept of organizational buying Explain the different types of organizational markets Analyze the various factors influencing organizational buying List the different stages in the organizational buying process
3. Concept of Organizational Buying

Organizational buying differs from consumer buying, in involving more systematic decision making. The organizational purchases include a range of items from routine stationery to complex machinery. The managers time and involvement in the purchase decision would be more for items like equipment and less for items like stationery. Differences between organizational markets and consumer markets Basis Time of purchase process Number of buyers Quantity of products Segmentation Organization More Few Higher Purchasing approaches, situational factors, operating variables Consumer Less Large Lower Geographic, demographic, psychographic
Types of organizational buying situations and situational factors There are three kinds of organizational buying situations. They are new task, modified rebuy, and straight rebuy. New task: This involves purchasing a good for the first time. Modified rebuy: The purchase manager buys the same goods as earlier, but with slight modifications in specification, delivery schedule, and other aspects. This involves more interaction between the buyer and the supplier, but less than that in a new task. Straight rebuy: This involves purchasing a product, regularly. Therefore, there are no changes in the agreement between the approved supplier and the organization. Another buying situation is known as system buying, where the organization has one supplier for its raw material requirements.
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Activity: Given below are a few buying situations: 1. ABC Ltd., usually, buys computers from Nevi Computers Ltd. However, this time they want to order for PCs with a slightly different configuration and delivery schedule. Surya & Co., a consultancy firm, buys its stationery from Penpals Ltd., once in six months. Weaver Textiles Ltd. (Weaver) is a textile mill situated in Mumbai. As a part of its expansion plans, Weaver wants to purchase more raw materials. However, the textile mill wants to directly purchase cotton from farmers, rather than buy it from intermediaries, which is the usual practice. Zentel Manufacturing Ltd. (Zentel), a manufacturing unit requires cardboard boxes for packaging its products. Xint Ltd. supplies cardboard boxes to Zentel, every month.
2. 3.
4.
Identify the buying situation in each of the above cases and specify the differences among the various kinds of organizational buying situations. Answer:
Organizational markets in India Industrial markets in India can be classified into the following three categories: Chemical and Pharmaceutical sector In the chemical industry, goods are sold in mass quantities to organizational buyers. There is opportunity for growth in specialty chemicals. The pharmaceutical market offers good growth prospects, with global companies consolidating their position through mergers and acquisitions. There are also opportunities in the biotechnology and genetics area. Energy and natural resources With the depletion of natural resources, companies are looking at resource options like natural gases. Industrial markets have extended to sub-sectors like coal and lignite, forest and timber, and crude oil and precious metals. Industrial and automotive sector With economic growth, there has been an increase in activities related to the industrial structure as well as the infrastructural sector. The entry of multinational companies into the Indian automobile sector has increased the competition in the industry. However, multinational corporations also source their raw material from local companies, and sub-segment companies involved in ball bearings, heavy engineering, machine tools and tool rooms, and semi conductors are benefited.
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Check Your Progress 1. The concept of organizational buying is quite different from that of consumer buying. Identify the alternative which is definitely not a characteristic of organizational buying. It involves thorough and deep analysis The purchase managers experience influences the decision -making process It involves an unsystematic decision-making process Managers deal with personnel with varied responsibilities, before actually buying a product. Which of the following is not a type organizational buying situation? New task Modified rebuy Automatic rebuy Straight rebuy.
a. b. c. d.
2. a. b. c. d.
4. Dimensions of Organizational Buying

Organizational buying can extend from small nuts to big machinery. In an organization, the purchase decision, specifically, in the case of complex and expensive goods is taken after consultation with various members. Here, buying decisions are taken through techniques like material requirement planning and Just-in-time management. Under material requirement planning, the production schedule is based on forecasting. This schedule forms the basis for ordering raw material. Under the just-in-time method, minimum inventory levels are maintained and raw materials are purchased on the basis of customer demand. Example: To reduce the supply chain inventory, Maruti Udyog Ltd. (MUL), introduced a Delivery Instruction system through which vendors received advance notice about the companys schedule. Through this measure, the company ensured that vendors supplied goods on time. This helped in reducing holding costs and prevented wastage for the company. The company shifted from monthly to daily schedules to meet the fluctuation in demand. This also helped in meeting the competition. These schedules were supplemented by an electronic card system provided to the vendors. The company sent an indent card to its vendors whenever there was a need for replenishment. Therefore, the vendors were clear about supplies and built up inventory only upto the required level. This procedure marked a transition to the Just-in-Time concept, at MUL. The benefits became evident when JK Industries, a supplier to MUL, had a reduction in tire inventory from 30,000 to 10,000. Cost of raw materials influence the profitability of a firm. The quality of raw materials is upheld by reverse marketing, where the organization specifies the quality norms to be followed by suppliers. Suppliers get suggestions from the organization on quality
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Organizational Markets and Organizational Buying Behavior levels and timely delivery as the production process depends upon the procurement of raw material. Other factors during purchase include negotiations for a better price and checking a sample before purchase. The selection of a supplier depends upon his ability to deliver quality products on schedule. Geographical location also plays an important role as proximity to the supplier helps, when the material needs to be delivered within a short period of intimation. Fluctuations in demand affect the amount of raw materials required by organizations. Demand may be classified into four categories as below: Inelastic demand A change in the price of raw material does not affect the demand for the product. Derived demand Derived demand is based on consumers demand for the products produced by an organization. Demand for raw material depends upon customers demand for the organizations final product. Joint demand Demand for a particular product is affected by the demand for a related product. Joint demand arises when two or more products have to be consumed together, to satisfy consumer needs or wants. These products include DVD players and DVDs, car and fuel, and cotton and textiles. The increase or decrease in the demand of a product has a similar effect on the demand of its complementary product. Fluctuating demand This depends upon the changing demand of the end customers.
Check Your Progress 3. Like consumer markets, organizational markets too have some demand characteristics. Identify the demand characteristic not related with organizational markets. Fluctuating demand Joint demand Derived demand Elastic demand. ________ is a method for maintaining minimum inventory of raw materials and finished goods. Material requirement planning Supply management orientation Just-in-time Value analysis.
a. b. c. d. 4. a. b. c. d.
5. Classification of Organizational Markets

Organizational markets consist of producers, resellers, governments, and institutions. We shall discuss each of these in detail.
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Understanding Marketing Management and Buyer Behavior Producers markets Producer markets can be divided into original equipment manufacturers (OEM), industrial dealers, and users. OEM OEMs buy industrial products to include them in their final products. For example, Maruti buys steering wheels from Sona Koyo Steering Systems Ltd. for its cars. Industrial dealers They purchase the product and sell them to customers without making changes. They operate as dealers for intermediary goods in the industrial markets. Users Users buy goods that help them in the production of final goods, but do not become a constituent of the final product. For example, tools like welding machines and gas cutters are bought by various organizations, but such tools do not form a part of the final product. Resellers markets Resellers buy products and sell them for monetary gain. Resellers consist of wholesalers and retailers. In reseller markets, buyers can influence the producers to modify the product and enhance product features to meet the competition. Resellers also negotiate with producers to get bulk discounts that affect their price for the product. For example, Spearhead Infotech systems, a Mumbai based company offering message solutions, offered bulk discounts to its resellers on its new product, Spearmail. Example: Maxtor Corporation, announced its partner program called Maxtor VIP partner program in India, to improve relations with resellers. As part of the program, the channel partners receive new product information and news, technical support, special promotions, and a secured private website containing sales and marketing tools, such as downloadable logos and images. This program is aimed at helping resellers and other channel partners to provide better customer support. Government markets The government is a large buyer of goods and services for its various departments, at all levels. Industrial marketers should understand the governments purchase procedures. They should also have an idea about the rules and regulations governing the purchases. All purchases undertaken by the government are by way of tenders, in the organized market. The government also buys from the unorganized market and cooperative societies as part of its social obligation. Marketing, promotion, and advertising strategies do not assume importance when selling to governments. Instead, a marketer should obtain complete information about the requirement of a particular department and project himself as the best supplier. Institutional markets These markets consist of both government and private organizations. Marketers need to target each segment in a customized manner. Individual needs of such organizations should be met through specific strategies. These markets include non-profit organizations like schools, colleges, universities, and hospitals. These organizations require products like furniture, surgical equipment, books, and beds.
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Activity: Shahjahan runs a furniture shop. Until now it has been a small-scale business, targeted at retail buyers only. Recently, Shahjahan mooted a plan to supply furniture to schools located in his locality, and certain government offices. Should he change his approach while selling goods to these potential customers? If yes, what should be the approach? Justify your answer. Answer:
Check Your Progress 5. a. b. c. d. 6. a. b. c. d. 7. The producer market can be divided into three segments. Identify the correct combination of segments. OEM, Industrial dealers, Individual users OEM, Industrial dealers, Industrial users OEM, Retailers, Individual users OEM, Retailers, Industrial users. Resellers are a major category in organizational markets. Reseller markets have two key players. Identify them. Industrial traders and industrial dealers OEMs and industrial dealers Wholesalers and retailers Wholesalers and industrial dealers. A marketer trying to cater to the needs of customers must adopt marketing strategies that suit both government and private commercial markets. What is the term used for both government and private commercial markets? Producer market Reseller market Governmental market Institutional markets.
a. b. c. d.
6. Factors Influencing Organizational Buying

Traditionally, marketers believed that economic factors like cost of the product or impulse purchase of managers affect organizational buying. However, this view lacks an overall perspective of the organizational purchase process. The factors affecting organizational buying include environmental, organizational, social, and personal factors.
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Understanding Marketing Management and Buyer Behavior Environmental Factors The purchase process can get affected by climatic conditions, location, or ecological concerns. Legal factors, such as laws enacted by the government affect the purchase process. Economic factors like the general market situation, growth rate, and unemployment rate also influence the buying process. The other influencers are technology and political environment. Organizational Factors The purchase decision taken by an organization reflects the procedures, rules, and purchase policy of the organization. Four aspects of an organization influence its purchase process. These are: individual and collective responsibilities, work flow, current and future technologies, and employees. Social Factors Marketers should identify the roles of all members involved in the purchase process of an organization. They should then interpret and analyze the relationships among these members and their relation with external individuals. Based on these factors, marketers can plan effective strategies. Personal Factors Individuals who take purchase decisions in an organization play an important role in the organizational buying process. Individuals perceptions, attitudes, and knowledge about the product influence their purchase decisions. Therefore, the marketer should take these personal factors into account before approaching an organization.
Check Your Progress 8. a. b. c. d. 9. a. b. c. d. Organizational buying is influenced by a number of factors. Pick the alternative that is not a primary factor influencing organizational buying. Environmental factors Lifestyle factors Social factors Personal factors. Information on laws governing the organization and industry are part of which factor influencing buying behavior? Environmental factor Organizational factor Social factor Personal factor.
7. Participants in Organizational Buying

Each individual involved in a purchase decision, plays a different role. Marketers stand to benefit from an understanding of these roles. These roles can be classified into seven categories.
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Organizational Markets and Organizational Buying Behavior Initiators: They identify the need for the product. The initiator may be an employee of the organization, a supplier, or an end user of the product. For example, an accountant who requests the purchase department of an organization to purchase latest accounting software to improve organizational performance acts as the initiator as well as the end user. Influencers: A person who can affect the purchase decision, due to requisite knowledge about the product and various options available, is known as influencer. For example, to install software for payroll processing, both technical and HR personnel would be influencers. Users: Users are the persons who use the product or service. They may also be initiators or influencers. In the above example, the HR personnel are both influencers and users. Deciders: They choose the best available option and have the requisite power to do so. However, different individuals in an organization have decision-making authority for different purchases, depending upon the nature and type of product to be purchased. Approvers: These are a group of persons within an organization who approve the purchase process and necessity of buying a product. Buyers: They select the most suitable vendor for supplies. Sometimes, they are involved in negotiations and setting standards for the product. In the case of high value items, they need to prepare and present a list of potential vendors to the top management. Gatekeepers: They control the flow of information in an organization. Marketers need to be tactful in handling these persons, to gain access to the decision makers in the organization. Activity: Texturn India Ltd., supplies machinery to textile companies. What major roles does the salesperson need to identify in an organization, to get business? Answer:
Check Your Progress 10. During the organizational buying process, a panel of senior managers evaluates the need to purchase a product or service and approves the proposed decision. Who plays this role in the buying process? a. b. c. d. Initiator Influencer Approver Gatekeeper.
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Understanding Marketing Management and Buyer Behavior 11. The people who decide on product requirements or on suppliers are known as __. a. b. c. d. Deciders Approvers Gatekeepers Influencers.
8. Procurement Process
Product managers of organizations, usually, have a good knowledge about suppliers. They facilitate the procurement process by identifying the appropriate suppliers. However, technical and legal factors should also be taken into account by companies, during purchase. Efficiency in procurement is achieved through techniques like material requirement planning and just-in-time management. Buying The purchasing department has assumed great significance in recent times. Organizations have realized that strategic decisions pertaining to the purchase process play an important role in enhancing the profits of an organization. The purchase department needs to ensure that suppliers maintain certain quality standards. Organizations are also focusing on building long-term relations with suppliers. Supply Management Orientation This refers to an organizations efforts to improve its supply chain, right from the suppliers to the customer. Through this, the organization can achieve better quality and supply of raw material, which will affect the quality and supply of the final product. The distributors would also have an edge in the market by supplying good quality products. Supply management orientation enables the company to improve its value in the entire value chain. Example: Cemex, a major cement company, had a problem in delivering the readymixconcrete to the construction site. Once loaded in a truck, the ready-mixconcrete needed to be delivered to the construction site within 90 minutes to ensure the effectiveness of the mix. Factors like traffic delays, poor roads and weather conditions, and equipment failures delayed the delivery of the orders. Cemex developed an adaptive solution called dynamic synchronization of operations (SDO) system in 1995, which used CemexNet as its communication backbone. Under SDO, each truck was fitted with a computer and Global Positioning System (GPS) locators that linked them with the central control center. With these components in place, central dispatchers could know the location, speed, and direction of each truck. This helped the dispatchers to assign the order to the nearest truck driver and mixing plant. These systems also provided information on weather conditions, traffic situation, inventory at the plants, and customer location. This, in turn, helped the dispatchers in taking decisions like rerouting the trucks during traffic jams. The SDO system helped Cemex in reducing the delivery time to 20 minutes from three hours. Cemex used this system as a competitive advantage and promised customers of timely delivery.
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Check Your Progress 12. What efforts are made by an organization to improve its overall value chain starting from the suppliers supplier to the customer's customer? a. b. c. d. Materials requirement planning Just-in-time approach Supply management orientation Procurement.
9. Stages of Buying
Most buying processes in organizations go through certain stages. A typical organizational buying process usually consists of nine stages. They are: Problem Recognition The first step in the purchase process is the identification of the problem. This identification may be done by persons internal to the organization like employees or top management, or external persons like suppliers. Then, the demand for raw material arises. Problem identification may also be done by suppliers in the case of technological advancements or other such instances. General Need Recognition This refers to specifying the quality of the product to be purchased. In routine purchases, there will be a standard procedure. However, in the case of complex products, technical persons as well as end users need to be consulted to reach to a final decision with regard to procuring the product. Product Specification Here, the firm starts negotiating with the suppliers and gives the technical specifications of the product. It also explores alternate means of producing the product at a lower cost. In this stage, suppliers should maintain close contact with the buyers in the firm, to gain advantage. Searching for Potential Suppliers At this stage, the buyers start searching for potential suppliers through directories, Internet, and other mediums. After finalizing the list of suppliers, the firm analyzes each supplier based on factors like specifications, quality standards, and delivery schedules laid down by its purchase department. Value Analysis The purchase manager has to analyze the value and quality conditions given by the users of the product. These specifications have to be compared with the specifications of the product that is supplied by the vendors. He has to ensure that each product or component of the product being supplied creates value addition without compromising on quality. This would help him to cut irrelevant costs.
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Understanding Marketing Management and Buyer Behavior Vendor Analysis It is not merely sufficient for vendors to supply quality products. They should also supply goods on time as this has a direct impact on the production process. Delay in the supply of goods will delay the production process and lead to losses for the organization. So the supplier should be responsible in his dealings with the organization. Order Routine Specification The company has to specify the quantity of product, delivery schedule, details of warranty and service contracts. The purchase is said to be complete when the users are satisfied with the quality and quantity of the purchased products. Subsequently, the purchase department initiates the payment process. Multiple Sourcing Organizations often source their requirements from a number of suppliers in order to get the latest information about products and services as well as reduce their reliance on one supplier. Performance Review The buyer evaluates the performance of the suppliers product as well as services delivered, throughout the life of the product. This evaluation is undertaken at periodic intervals to prevent any lapses in the production schedule. Techniques like weighted score methods are used to evaluate the performance of suppliers.
Check Your Progress 13. It is a process wherein an organization depends on several different suppliers for purchase of goods and services. What is the process referred to here? a. b. c. d. Multiple sourcing Supply management orientation Vendor analysis None of the above.
14. The technique to reduce cost and improve performance of equipment, production process, etc., as part of the buying process, is called ______________. a. b. c. d. Vendor analysis Value analysis Supplier analysis Performance review.
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10. Summary
Organizational buying ranges from the purchase of small routine items to complex machinery. It is different from consumer buying as it involves more systematic decision making. There are three kinds of buying situations in organizations. New task refers to first time purchases; modified rebuy refers to repeat purchase with changes in product specifications; straight rebuy means repeat purchase on existing terms and conditions. There are three sectors of organizational markets in India Chemical and pharmaceuticals, energy and natural resources, and industrial and automotive sectors. Organizational buying is undertaken after consultation with the relevant members of the department concerned. Buying decisions are taken through techniques like just-in-time inventory and material requirements planning. Organizations ensure that the required quality, price, and delivery schedule is met by the vendors. Organizational buying also depends on the kind of demand for the product inelastic, derived, joint or fluctuating demand. Organizational markets can be categorized into: producers markets buy raw material to convert them into finished goods; resellers markets sell goods for monetary gain; government markets - purchase for requirement of various government departments; institutional markets combination of government and private markets like schools and universities. Many factors influence organizational buying apart from the cost of the product. These are environmental, organizational, social, and personal factors. Different roles are played by individuals in the organization buying process. These are the roles of initiators, influencers, users, deciders, approvers, buyers, and gatekeepers. Buying of raw materials has assumed importance in organizations. Suppliers need to be aware of the appropriate quality standards, and buyers need to maintain strong relationships with suppliers. Supply management orientation can help organizations to improve their value in the entire value chain. Organization buying can be classified into nine stages. They are problem recognition, general need recognition, product specification, searching for potential suppliers, value and vendor analysis, order routine specification, multiple sourcing, and performance review.
11. Glossary
Derived demand: The fact that the demand for organizational products is driven by the demand for consumer products. Government market: Federal, state, local, and foreign governments that buy goods and services.
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Understanding Marketing Management and Buyer Behavior Industrial product: A product bought for use in the production of other products or in a businesss operations. Inelastic demand: A price-demand relationship in which a decrease in prices decreases total revenue. Logo: A unique symbol that represents a specific firm or organization, or a brand name written in a distinctive type style. Multinational corporation: A corporation that has operations in more than one country, exploits the countries differences to enhance competitive advantage, and operates primarily from a domestic perspective. Organizational buying process: The steps that organizations go through to purchase goods and services. Organizational market: Group that buys goods and services for use in its operations, for resale, or as raw materials or components for other products. Prospects: Consumers or organizations that are potential customers. Resellers: Establishments in the organizational market that help move goods and services from producers to consumers. Sample: a portion of a population that represents the whole in a research study. Straight rebuy: An organizational buying situation in which the purchaser automatically reorders the same item from the same supplier. Value analysis: A comparison of the cost of a potential purchase and the benefits it promises. Vendor analysis: Formal evaluation of suppliers.

1. According to the traditional view, only the cost of the products that the organization ought to buy influences the organizational buying process. What are the other factors that influence organizational buying? Outline the various stages of the organizational buying process.
2.

1. 2. 3. 4. Gross, Andrew C. et al. Business Marketing. New Delhi: A.I.T.B.S Publishers and Distributors, 1998. Hill, Richard M, Alexender, Ralph S. and Cross, James S. Industrial Marketing. Fourth Edition. New Delhi: A.I.T.B.S Publishers and Distributors, 1996. Pride, William M and Ferrell, O.C. Marketing. First Indian Edition. Chennai: All India Publishers and Distributors, 2000. Reeder, Robert R, Brierty, Edward G. and Reeder, Betty H. Industrial Marketing. Second Edition. New Delhi: Prentice-hall India, 2001.
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Organizational Markets and Organizational Buying Behavior 5. 6. 7. 8. Stanton, William J, and Futrell, Charles. International Edition. McGraw-Hill, 1987. Fundamentals of Marketing.
Research Industrial Buyer Behavior - Key Factor of Strategic Positioning, <http://facta.junis.ni.ac.yu/facta/eao/eao2000/eao2000-03.pdf> Personal Selling: Organizational Buying Behavior, <http://www.sykronix.com/tsoc/courses/sales/sls_org.htm> Identifying Buying Influences in a Complex Sales Process, <http://www.market-impact.com/htmlfiles/articles/identify.htm>

Following are the answers to the Check Your Progress questions given in the Unit. 1. (c) It involves an unsystematic decision making process While the buying decisions of individual customers are made relatively easily and quickly, usually without any systematic decision-making process, organizational buying involves thorough and deep analysis. In organizational buying, managers deal with personnel with varied responsibilities, before actually buying a product. The purchasing managers experience in organizational buying affects the buying process in organizations. 2. (c) Automatic rebuy The three different types of organizational buying situation are new task, modified rebuy and straight rebuy. 3. (d) Elastic demand Organizational demand characteristics include: Inelastic demand, Derived demand, Joint demand and Fluctuating demand. 4. (c) Just-in-Time Just-in-Time is a technique that helps maintain a bare minimum inventory of raw materials and finished goods. On the other hand, MRP deals with material requirement and supply management. Supply Management orientation involves effort on the organizations part to improve the overall value chain of the organization. Value analysis is a step in the organizational buying process. 5. (b) OEM, Industrial dealers, Industrial users Producer markets are further divided into original equipment manufacturers (OEM), industrial dealers and industrial users. 6. (c) Wholesalers and Retailers Industrial dealers and OEMs are players in the producer market. Wholesalers and retailers form a part of the reseller market. 7. (d) Institutional markets Institutional markets are a combination of government and private organizations.
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Understanding Marketing Management and Buyer Behavior 8. (b) Lifestyle factors The four major factors influencing organizational buying are environmental, organizational, social and personal factors. 9. (a) Environmental factor Environmental factors influence the purchase process in the form of climatic conditions, geographical location and ecological concerns. Other environmental factors such as legal, political, economic, technological and cultural factors too affect the purchase process. Legal factors influence the purchase process by providing information on laws governing the organization and industry. 10. (c) Approver Approvers are those who authorize the purchase process before it is actually implemented by buyers in the organization. Usually, a panel consisting of senior managers evaluates the need to purchase the product or service and approves the decision. 11. (a) Deciders Deciders are those with sufficient power to choose the best alternative among available options regarding the purchase. These are the people who actually take the decision whether to buy a particular product or service or not. 12. (c) Supply management orientation Supply management orientation involves efforts by an organization to improve the overall value chain starting from the suppliers supplier to the customer's customer. 13. (a) Multiple sourcing In multiple sourcing, an organization depends on several different suppliers for purchase of goods and services. 14. (b) Value analysis Value analysis uses various techniques to reduce cost and improve performance of equipment, production process, etc. Whenever a purchase process is initiated, the manager first analyzes the value and quality specification given by the users of the product. These specifications are then compared with the product supplied by suppliers.
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Course Components
BLOCK I Unit 1 Unit 2 Unit 3 Unit 4 Unit 5 Unit 6 BLOCK II Unit 7 Unit 8 Unit 9 Unit 10 BLOCK III Unit 11 Unit 12 Unit 13 Unit 14 Unit 15 BLOCK IV Unit 16 Unit 17 Unit 18 Unit 19 Unit 20 Unit 21 BLOCK V Unit 22 Unit 23 Unit 24 Unit 25 Unit 26 Unit 27 Understanding Marketing Management and Buyer Behavior Marketing: The Development of a Concept Delivering Customer Values and Satisfaction Marketing Environment Marketing Budgets and Costs Understanding Consumer Buying Behavior Organizational Markets and Organizational Buying Behavior Market Analysis and Marketing Strategies Marketing Research, MkIS, and Demand Forecasting Market Segmentation and Market Targeting Strategic Planning Process in Marketing Marketing and Competitive Strategies The Marketing Mix I Product and Product Lines Product Differentiation and Positioning New Product Development Branding and Packaging Pricing and Marketing The Marketing Mix II Channels of Marketing Logistics and Wholesaling Retailing Communication Mix in Marketing Advertising, Sales Promotion and Public Relations Personal Selling and Sales Force Management Additional Topics in Marketing Management Developing and Managing Marketing Department and Organization Global Marketing Strategies Direct and Online Marketing Marketing of Services Marketing of Organizations, Individuals, Places, and Ideas Marketing Management: Ethical and Social Dimensions

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Marketing Management

UNIT 1 Marketing: The Development of a Concept

Course Preparation Team

The ICFAI University Press, Hyderabad

Understanding Marketing Management and Buyer Behavior

Marketing: The Development of a Concept

Marketing: The Development of a Concept

Marketing: The Development of a Concept

Marketing: The Development of a Concept

Marketing: The Development of a Concept

10. Suggested Reading/Reference Material

Marketing: The Development of a Concept

11. Answers to Check Your Progress Questions

Delivering Customer Values and Satisfaction

Understanding Marketing Management and Buyer Behavior

Delivering Customer Values and Satisfaction

6. Attracting and Retaining Customers

Delivering Customer Values and Satisfaction

Delivering Customer Values and Satisfaction

11. Self-Assessment Test

12. Suggested Reading/Reference Material

10. Relationship Marketing, <http://en.wikipedia.org/wiki/Relationship_marketing>

13. Answers to Check Your Progress Questions

10. Answers to Check Your Progress Questions

Understanding Marketing Management and Buyer Behavior

4. Macro Economic Factors

Understanding Marketing Management and Buyer Behavior

5. Indian Business Environment and MNCs in India

8. Self -Assessment Test

9. Suggested Reading/Reference Material

The Marketing Environment, <www.marketingteacher.com/Lessons/lesson_marketing_environment.htm>

10. Answers to Check Your Progress Questions

Marketing Budgets and Costs

Understanding Marketing Management and Buyer Behavior

3. Marketing Cost Analysis

4. Customer Profitability Analysis

Understanding Marketing Management and Buyer Behavior

iii. Use of specialized analytical techniques iv. Advanced software technology. a. b. c. d.

i & iii i & iv i, ii & iv i, iii & iv.

5. Budgeting for the Sales Force Department

6. Production and Efficiency

9. Self -Assessment Test

10. Suggested Reading/Reference Material

11. Answers to Check Your Progress Questions

Understanding Consumer Buying Behavior

10. Answers to Check Your Progress Questions 1.

By the end of this unit, students should be able to:

3. Factors Influencing Consumer Buying Behavior

Understanding Marketing Management and Buyer Behavior

Understanding Consumer Buying Behavior

5. Buying Decision Process

Personal source Commercial source

Understanding Consumer Buying Behavior c. d. Public source All of the above.

Understanding Marketing Management and Buyer Behavior

9. Suggested Reading/Reference Material

10. Answers to Check Your Progress Questions

Organizational Markets and Organizational Buying Behavior

Understanding Marketing Management and Buyer Behavior