18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 1 MG 298 Entrepreneurship Module #4 Marketing Management: Market Opportunities and Marketing Aug – Dec 2007

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 2 Marketing Philosophy The marketing concept provides an orientation for conducting a business, a way of thinking, and a basic approach to business problems. Marketing is.. The whole business seen from the point of view of its final result, that is, from the customer’s point of view. The principal task of the marketing function… is not to be skillful in making the customer do what suits the interests of the business as to be skillful in conceiving and then making the business do what suits the interests of the customer

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 3 Indicators of Customer and Marketing Orientation What information do you collect about the exact needs of your customers? Could you consider custom designing your products or services for smaller groups of customers? How? Are your employees specifically trained to represent your company to customers? How? How do you convert unsatisfied customers to satisfied customers? Do you have any strategy?

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18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 5 Five steps for assessing market opportunities 1. Identify business environmental forces (economic, legal, regulatory, technological) 2. Describe the industry and its outlook (type, size, market segments, marketing practices) 3. Analyze key competitors (products, market positioning, market practices (channels, pricing, promotion, services), estimated market share 4. Create a target market profile (levels, generic needs, product types, end-user focus, targeted customer profiles, implications for opportunity 5. Set sales projections (formal/ intuitive approaches, comparison of results)

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 6 Sources of information for Market Opportunity Analysis (MOA) 1. Published sources: Periodicals, newspapers, trade association reports, information service reports, government documents, company reports 2. Interviews with experts: Managers of suppliers, trade companies, associations, consultants, sales persons 3. Personal observation: Of customers, competitors, environmental influences 4. Primary marketing research: focus groups, concept tests, cross-sectional surveys, longitudinal panels, experiments

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18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 9 Marketing implications of new product/ venture characteristics Characteristic Marketing action 1. Relative advantage Clear communication Obtain third party endorsement Price the product favorably Construct product to deliver benefits quickly 2. Compatibility Understand customer life style, to minimize required adaptation Make product fit with related products Make product/ brand fit social situation

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 10 Marketing implications of new product/ venture characteristics 3. Complexity Make the product readily understandable Strive to make product user friendly Make product at complexity not exceeding substitutes 4. Testability Offer money-back guarantee Reduce the costs and risks of trials Make small quantities free or at low price Provide incentives to encourage trials Offer special incentives for durable items 5. Observability Encourage visible use by customers Make it easy form others to perceive brand Create incentives for customers to encourage friends

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18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 12 Marketing Mix Variables 1. Product: Features, Quality, Packaging, Branding, Services, Guarantees, Assortment 2. Distribution: Types of channels/ middlemen, Store/ distributor location, Storage, Transportation and Logistics, Service Levels 3. Price: List price, Credit terms, Discounts, Selection and allowances, Flexibility 4. Promotion: Promotion blend: Advertising, Media, Copy, Timing; Personal selling: Training, Motivation, Allocation; Sales promotion, Publicity

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18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 17 Four Steps for Pricing Products 1. Establish Specific Objectives for Pricing Programs: For example, Increase sales or profit growth Maximize short-run/ long-run profits Discourage entrants Speed exit of marginal competitors Discourage price cutting Stabilize market prices Rapidly establish market position Rapidly recover new product development costs

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 18 Four Steps for Pricing Products 2. Determine the extent of price flexibility: Determined by costs, demand, competition, and legal and ethical considerations Demand and competition set the ceiling for prices; determine “what the market will bear”. Range between cost floor and demand and competition ceiling defines the flexibility in pricing Critical demand consideration is price elasticity= % change sales/ % change in price

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 19 Four Steps for Pricing Products 3. Develop price strategies: guidelines and policies to effectively guide pricing decisions to match target markets: Whether prices should vary day to day; Overall price levels; Price stability; Pricing relative to the stages of the product/ service life cycle; and Use of psychological pricing

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 20 Four Steps for Pricing Products 4. Establish prices: How are prices for specific products actually set? Sound approach to pricing must incorporate cost, competition, and demand factors Costs establish the floor for a possible price range Cost plus pricing involves adding a % of the cost to set the price. There could be many other strategies.

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 21 Alternative Pricing Strategies Markup Pricing: Different from cost plus; markups are calculated as % of selling price (rather than cost) Successful new ventures are founded on innovative, low-margin pricing (hoping that high volumes will provide good returns) Break-even Pricing: Determine the level of sales needed to cover all relevant fixed and variable costs (e.g. FC= Rs. 1,00,000; Unit VC=Rs.2; and Price= Rs.4, Break even= 50,000)

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 22 Alternative Pricing Strategies Target Return Pricing: Set the price as a desired % return over and above the break-even point (weakness is that it ignores market demand; yet ensures that prices exceed all costs, contribute to profit) Going-rate Pricing: Set prices equal to or a certain % above or below competitor’s prices. Depends on pricing objectives, structure of industry, relative production selling, and administrative costs

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 23 Promotion Decisions Promotion is considerably more than just advertising. Can use four major tools: 1. Sales Promotion: Communicating with audience through variety non-personal and non-media vehicles, e.g. free samples, gifts, coupons, etc. 2. Advertising: Communicating with audience through non-personal paid media

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 24 Promotion Decisions 3. Publicity: Communicating with audience by personal or non-personal media, that are not explicitly paid for delivering the messages; the audience is more likely to perceive the media rather than the business as the source of messages. 4. Personal selling: Communicating directly with an audience through paid sales personnel

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18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 26 Criteria to Determine Roles of Promotion Tools Cost of reaching an audience Ability to reach target audiences with little leakage to persons not included in them Ability to deliver a complicated message Ability to engage in interchanges with target audiences Credibility

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18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 28 Sales Promotion Can be aimed at target markets, but also at distributors and sales personnel (e.g. offering a free vacation to person with highest sales volume) Real estate developer may use the following sales promotions: special events to draw customers’ attention; price promotions on slow moving property; attractive signs at development site; prizes and other incentives for high-selling real estate brokers

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 29 Sales Promotion An entrepreneur may want customers to: Try the product (or service); Switch brands; Stock up on the product; Visit a dealer’s showroom; Make an inquiry about the company’s product

18 September 2007(c) 2007 Parameshwar P. Iyer Indian Institute of Science Bangalore 30 Sales Promotions 1. In-store promotions: aimed at communicating with customers, while they are shopping in a store; 2. Audience-direct sales promotions: aimed at reaching audiences directly, either through the mail, or through advertisements, or delivery by sales personnel; include samples, gifts, contests, or discount coupons 3. Trade shows: events where a number of companies display their wares in exhibits at a central location, invite dealers or customers

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