Author: indiafreenotes

1. Jury of Executive Opinion:

This method of sales forecasting is the oldest. One or more of the executives, who are experienced and have good knowledge of the market factors make out the expected sales. The executives are responsible while forecasting sales figures through estimates and experiences. All the factors-internal and external are taken into account. This is a type of committee approach. This method is simple as experiences and judgement are pooled together in taking a sales forecast figure. If there are many executives, their estimates are averaged in drawing the sales forecast.

Merits:

(a) This method is simple and quick.

(b) Detailed data are not needed.

(c) There is economy.

Demerits:

(a) It is not based on factual data.

(b) It is difficult to draw a final decision.

(c) More or less, the method rests on guess-work, and may lead to wrong forecasts.

(d) It is difficult to break down the forecasts into products, markets, etc.

2. Sales Force Opinion:

Under this method, salesmen, or intermediaries are required to make out an estimate sales in their respective territories for a given period. Salesmen are in close touch with the consumers and possess good knowledge about the future demand trend. Thus all the sales force estimates are processed, integrated, modified, and a sales volume estimate formed for the whole market, for the given period.

Merits:

(a) Specialized knowledge is utilized.

(b) Salesmen are confident and responsible to meet the quota fixed.

(c) This method facilitates to break down in terms of products, territories, customers, salesmen etc.

Demerits:

(a) Success depends upon the competency of salesmen.

(b) A broad outlook is absent.

(c) The estimation may be unattainable or may to too low for the forecasts as the salesmen may be optimistic or pessimistic.

3. Test Marketing Result:

Under the market test method, products are introduced in a limited geographical area and the result is studied. Taking this result as a base, sales forecast is made. This test is conducted as a sample on pre-test basis in order to understand the market response.

Merits:

(a) The system is reliable as forecast is based on actual result.

(b) Management can understand the defects and take steps to rectify.

(c) It is good for introducing new products, in a new territory etc.

Demerits:

(a) All the markets are not homogeneous. But study is made on the basis of a part of a market.

(b) It is a time-consuming process.

(c) It is costly.

4. Consumers’ Buying Plan:

Consumers, as a source of information, are approached to know their likely purchases during the period under a given set of conditions. This method is suitable when there are few customers. This type of forecasting is generally adopted for industrial goods. It is suitable for industries, which produce costly goods to a limited number of buyers- wholesalers, retailers, potential consumers etc. A survey is conducted on face to face basis or survey method. It is because changes are constant while buyer behaviour and buying decisions change frequently.

Merits:

(a) First hand information is possible.

(b) User’s intention is known.

Demerits:

(a) Customer’s expectation cannot be measured exactly.

(b) It is difficult to identify actual buyers.

(c) It is good when users are few, but not practicable when consumers are many.

(d) Long run forecasting is not possible.

(e) The system is costly.

(f) Buyers may change their buying decisions.

5. Market Factor Analysis:

A company’s sales may depend on the behaviour of certain market factors. The principal factors which affect the sales may be determined. By studying the behaviours of the factors, forecasting should be made. Correlation is the statistical analysis which analyses the degree of extent to which two variables fluctuate with reference to each other.

The word ‘relationship’ is of importance and indicates that there is some connection between the variables under observation. In the same way, regression analysis is a statistical device, which helps us to estimate or predict the unknown values of one variable from the known values of another variable.

For instance, you publish a text book on “Banking”, affiliated to different universities. The permitted intake capacity of each and the medium through which the students are taught are known. Is it a compulsory or an optional subject? By getting all these details and also by considering the sales activities of promotional work, you may be able to declare the probable copies to be printed.

The key to the successful use of this method lies in the selection of the appropriate market factors. Minimizing the number of market factors is also important. Thus the demand decision makers have to consider price, competitions, advertising, disposal income, buying habits, consumption habits, consumer price index, change in population etc.

Merits:

(a) It is a sound method.

(b) Market factor is analysed in detail.

Demerits:

(a) It is costly.

(b) It is time-consuming.

(c) It is a short run process.

6. Expert Opinion:

Many types of consultancy agencies have entered into the field of sales. The consultancy agency has specialized experts in the respective field. This includes dealers, trade associations etc. They may conduct market researches and possess ready-made statistical data. Firms may make use of the opinions of such experts. These opinions may be carefully analysed by the company and a sound forecasting is made.

Merits:

(a) Forecasting is quick and inexpensive.

(b) It will be more accurate.

(c) Specialized knowledge is utilized.

Demerits:

(a) It may not be reliable.

(b) The success of forecasting depends upon the competency of experts.

(c) A broad outlook may be lacking.

7. Econometric Model Building:

This is a mathematical approach of study and is an ideal way to forecast sales. This method is more useful for marketing durable goods. It is in the form of equations, which represent a set of relationships among different demand determining market factors. By analyzing the market factors (independent variable) and sales (dependent variable), sales are forecast. This system does not entirely depend upon correlation analysis. It has great scope, but adoption of this method depends upon availability of complete information. The market factors which are more accurate, quick and less costly may be selected for a sound forecasting.

8. Past Sales (Historical method):

Personal judgement of sales forecasting can be beneficially supplemented by the use of statistical and quantitative methods. Past sales are a good basis and on this basis future sales can be formulated and forecast. According to Kirkpatrick, today’s sales activity flows into tomorrow’s sales activities; that is last year’s sales extend into this year’s sales. This approach is adding or deducting a set of percentage to the sales of previous year(s). For new industries and for new products, this method is not suitable.

(a) Simple Sales Percentage:

Under this method, sales forecast is made by adding simply a flat percentage of sales so as to forecast sales as given below:

Next year sales = Present year sales + This year sales/Last year sales

or = Present year sales + 10 or 5% of present sale

(b) Time Series Analysis:

A time series analysis is a statistical method of studying historical data. It involves the isolation of long time trend, cyclical changes, seasonal variations and irregular fluctuations. Past sales figures are taken as a base, analysed and adjusted to future trends. The past records and reports enable us to interpret the information and forecast future trends and trade cycle too.

Merits:

(a) No guess-work creeps in.

(b) The method is simple and inexpensive.

(c) This is an objective method.

Demerits:

(a) ‘Market is dynamic’ is not considered.

(b) No provision is made for upswings and downswings in sales activities.

9. Statistical Methods:

Statistical methods are considered to be superior techniques of sales forecasting, because their reliability is higher than that of other techniques.

They are:

(i) Trend Method

(ii) Graphical Method

(iii) Time-series Method:

(a) Freehand method

(b) Semi-average method

(c) Moving average method

(d) Method of least square

(iv) Correlation method

(v) Regression method.

NB:

The above statistical methods can easily be studies with the help of any statistics book.

Apart from the above, the following factors may also be considered:

1. Availability of raw materials
2. Plant capacity
3. Government policies
4. Buying habits of consumers
5. Fashion changes
6. Distribution system
7. Financial capacity
8. Market competition
9. National income movement
10. Sales promotions.

Creating an effective strategy for your marketing efforts doesn’t happen all at once, and neither is it a problem only the marketing department has to deal with. Once you implement the marketing strategy, the entire company will have to deal with the consequences. An important part of the marketing strategy is the forecasting process. Perhaps the most important forecast in this respect is the sales forecast, which estimates how much will be sold by the company within a given time period. The rest of the company should be prepared to meet the demands of the sales forecast.

When it comes to preparing forecasts, of utmost importance is accuracy. If you overestimate how much consumers will demand of your product, then you could end up spending an exorbitant amount of money, on such things as manufacturing and distribution, only to be unable to recoup it, when the actual sales start to flow in. When you overestimate demand, you might overextend yourself financially and find that your revenue is incapable of paying your vendors, suppliers, and other business creditors. Sometimes, you might have to lay off your employees.

Performing an underestimation of demand levels can also be disastrous for your company. When you introduce a new product into the market, you have to market it in order to generate demand for the product. In case you are incapable of delivering just the right amount of product as demanded by the market, then your market share is in danger of being snatched away from you by your competitors. If your competitors’ products can match or exceed yours in quality, then you might never be able to recover your market share.

Your marketing department has to do a lot more than simply generate sales forecasts. Their forecasts have to be a little more elaborate because there will be many factors that will determine how much your company will be able to sell. These factors, such the reaction of your competitors, the cost of the products, and others should be considered to determine how much you are likely to sell. As the factors change over time, you will also have to change your forecasts. A sales forecast is therefore really a special forecast that is the composite of a variety of estimates and it has to be dynamic enough to change.

Usually, the first step to take is to determine something called market potential. This is an estimate of the total sales expected across the industry for a given product category within a certain time frame. It could be a month, a quarter, a year, and so on. The key idea here is the market potential is an estimate of what the market can take in total, from all the companies within it, so it includes both you and your competitors.

Once you have a good idea of what the market potential is, you can estimate the sales potential. This is an estimate of the maximum revenue you are likely to generate from the sale of a product. Alternatively, you can estimate it as the maximum number of units of the product that your company can hope to sell in a given market over a given time period. The sales potential is typically represented in percentage terms, where it is a percentage of the market potential. It is also the same as the estimate of the markets total market share in a given time period. Any method that forecasts sales potential is therefore also a market share forecasting method.

Companies will typically sell less than their sales potential. After all, not everyone that is expected to buy a product will end up buying that product. Some will postpone their purchases while others will never make it. Others yet will buy the product from your competitors while others still will prefer some kind of substitute. As you make a budget, it is a good idea to compare the revenue forecasts against both the costs of the product and the market potential.

Different Forecasting Methods

A forecast is really nothing more than a guess of what is likely to happen. This kind of guess, however, is neither arbitrary nor frivolous. It is the product of an elaborate process. There are lots of different processes by which you can make a forecast and most forecasts are arrived at by blending several of these processes.

Survey and Judgement Forecasting Techniques

The most important thing to understand before forecasting is that a forecast is really just a judgment made by someone. Some techniques rely more on judgment than others, however, and they are generally known as judgment techniques. These techniques include customer surveys, expert opinions, customer intention survey, and estimates by salespeople.

Channel and Customer Surveys: In some kinds of markets, such as business to business markets, research companies tend to ask customers how much they are likely to spend on given products in a given time period. The answers are used to make a forecast. The research companies will then sell the research to companies. Sometimes the companies will conduct their own surveys to produce their own forecasts. These surveys are generally better at determining the market potential than the sales potential. They are, therefore, market potential forecasting methods. After all, a consumer probably knows what they’ll buy, but isn’t always so sure of which brand they’ll buy from.

Sales Force Composite: This is a type of forecast based on information gathered from the sales force of a company. Salespeople usually have a good intuition of how much of a product can reasonably sell in a given time period. They’re close to the customer and therefore know firsthand what is realistically possible. It’s usually harder for salespeople to estimate sales of a new product, however, unless they have sold such products before. This method of forecasting is therefore not suitable to new products. It is typically best used for existing products and near-term estimates.

Executive Opinion: This is pretty much the best guess of the company executives. It is usually the starting point of many forecasts. It can be made even more thorough and accurate by basing the bonuses of executives on the amount of sales they make. They will, therefore, have an incentive to generate well-thought-out opinions on the sales potential of a product. Nonetheless, executive opinion should always be backed by quantitative techniques and research.

Expert Opinion: This is just like executive opinion, only the expert is a third party from outside the company. Just like executive opinion, it should also be backed by research and quantitative methods.

Time Series Forecasting Techniques

Time series techniques observe patterns in sales. One of these techniques, trend analysis, can be used to measure the rate of growth of sales in the past and extrapolate it to the future. A past growth of 3 percent in sales year over year might be a good basis to estimate future growth at 3 percent, as well. Time series analysis is most useful in a stable market. A market that either fluctuates or frequently gets disrupted will not lend itself very well to this method.

Correlates Techniques

There are a variety of highly sophisticated forecasting models that can be used to forecast sales. One of these is correlational analysis, which is a special form of trend analysis. It bases sales forecasts on the trend patterns of related variables. For example, furniture making companies frequently base their future furniture sales on the rate at which new houses are being built.

Response Models

Sometimes a company will base its forecasts based on past responses of customers to marketing techniques. They can then estimate when customers are price sensitive, how they respond to offers, and so on.

Market Tests

This isn’t as much a forecasting method as it is an experiment. The company launches a new product in a small market in order to gain knowledge of how the larger market would respond to the product based on the reaction of the smaller market. Such an experiment will typically show how the marketing plan can influence sales. That is why it is called a response model. Once data has been gained from the limited market, it can easily be extrapolated to the larger market.

The importance of market forecasting cannot be understated. With a good idea of what to expect from the market, your company will be better able to anticipate and meet its needs.

Different companies call the process of forecasting the need for future goods or services different things. Some refer to the process as sales forecasting, while others call it demand forecasting or product forecasting. No matter what terms are used, market demand, market potential and sales forecasting are inextricably tied together by virtue of the end result knowing what, how much and when consumers want to purchase goods or services.

Market Demand

Demand reflects the willingness of a consumer to purchase a good or service. Market demand reflects the willingness of all consumers within a given market to purchase a good or service. Companies spend millions of dollars on software and experts to help them predict or forecast market demand. Companies forecast market demand because it fluctuates and has an unstable nature. If every company knew exactly how many people would buy a given product or service, the need to forecast market demand would evaporate.

Market Potential

One company selling widgets in a certain market has a certain percentage of that market’s total sales volume. The maximum number of widgets sold by every company that sells widgets in that same market comprises the market potential for widgets in that market. Market potential refers to the maximum sales volume of any given product or service in a given market before the product or service reaches market saturation.

Sales Forecasting

Sales forecasting refers to the process by which a company attempts to predict future market demand of a product or service. Companies typically use historical sales data to predict future market demand. Problems can occur with blindly using historical sales data as a forecast input because at times it does not parallel actual market demand.

Demand Vs. Sales

For example, a furniture company makes a very popular dining room set but has constant production issues in manufacturing. Because of these issues, it cannot keep up with demand for the product. At the end of the year, the historical sales data show the company sold 5,000 of the dining room sets between September and December, but the historical sales data misses a vital piece of the demand equation: It doesn’t show the 2,500 dining room sets people came into the store to buy but couldn’t because the company could not produce the goods in time. The additional 2,500 potential sales make the actual market demand 7,500 units (5,000 sold + 2,500 missed sales). If the dining room continued to sell at its current rate and the company only used the 5,000 units as an input to forecast the future market demand, the forecast would fall short during the same time period next year because it does not reflect the actual market demand of 7,500 units. The result leads to loss sales and revenue.

Considerations

Despite being called “sales forecasting,” the goal remains forecasting future market demand. This becomes more difficult when trying to forecast new goods or services and the market potential for these new products. Many different forecast methods exist for determining market potential, but as with all forecasts the result is inherently wrong, the Don Rice Company notes. Whether forecasting market demand or market potential, using clean, accurate and relevant data–human and system-generated–gets the forecasting process off to a good start.

Creating an effective strategy for your marketing efforts doesn’t happen all at once, and neither is it a problem only the marketing department has to deal with. Once you implement the marketing strategy, the entire company will have to deal with the consequences. An important part of the marketing strategy is the forecasting process. Perhaps the most important forecast in this respect is the sales forecast, which estimates how much will be sold by the company within a given time period. The rest of the company should be prepared to meet the demands of the sales forecast.

When it comes to preparing forecasts, of utmost importance is accuracy. If you overestimate how much consumers will demand of your product, then you could end up spending an exorbitant amount of money, on such things as manufacturing and distribution, only to be unable to recoup it, when the actual sales start to flow in. When you overestimate demand, you might overextend yourself financially and find that your revenue is incapable of paying your vendors, suppliers, and other business creditors. Sometimes, you might have to lay off your employees.

Performing an underestimation of demand levels can also be disastrous for your company. When you introduce a new product into the market, you have to market it in order to generate demand for the product. In case you are incapable of delivering just the right amount of product as demanded by the market, then your market share is in danger of being snatched away from you by your competitors. If your competitors’ products can match or exceed yours in quality, then you might never be able to recover your market share.

Your marketing department has to do a lot more than simply generate sales forecasts. Their forecasts have to be a little more elaborate because there will be many factors that will determine how much your company will be able to sell. These factors, such the reaction of your competitors, the cost of the products, and others should be considered to determine how much you are likely to sell. As the factors change over time, you will also have to change your forecasts. A sales forecast is therefore really a special forecast that is the composite of a variety of estimates and it has to be dynamic enough to change.

Usually, the first step to take is to determine something called market potential. This is an estimate of the total sales expected across the industry for a given product category within a certain time frame. It could be a month, a quarter, a year, and so on. The key idea here is the market potential is an estimate of what the market can take in total, from all the companies within it, so it includes both you and your competitors.

Once you have a good idea of what the market potential is, you can estimate the sales potential. This is an estimate of the maximum revenue you are likely to generate from the sale of a product. Alternatively, you can estimate it as the maximum number of units of the product that your company can hope to sell in a given market over a given time period. The sales potential is typically represented in percentage terms, where it is a percentage of the market potential. It is also the same as the estimate of the markets total market share in a given time period. Any method that forecasts sales potential is therefore also a market share forecasting method.

Companies will typically sell less than their sales potential. After all, not everyone that is expected to buy a product will end up buying that product. Some will postpone their purchases while others will never make it. Others yet will buy the product from your competitors while others still will prefer some kind of substitute. As you make a budget, it is a good idea to compare the revenue forecasts against both the costs of the product and the market potential.

International Marketplace

A market is a structure that allows people and businesses to exchange goods and services. For example, the United States is a market. China is a market. Together, the U.S., Canada, and Mexico are a market that is governed by NAFTA, the North American Free Trade Agreement.

Now, let’s define an international market.

International market is not defined as one geographic location, but allows the trade of goods and services anywhere in the world. For example, Apple is a U.S. company. It purchases supplies from several countries, and then has its products manufactured in Taiwan. Once the product has been assembled, it is transported to the U.S., Europe, Australia, and Asia.

Entering the international marketplace is a huge opportunity for a company to meet the needs of an international market, while possibly increasing sales exponentially. Of course, there are advantages and disadvantages, as with any marketing strategy. But the international market is definitely an excellent opportunity for any marketer.

Creating the international marketing plan

A marketing plan is the full beginning-to-end strategy used to bring a product to market, and get it in the hands of the consumer. It requires planning and excellent organizational skills. The marketer wants to understand the consumer insight, and meet those needs with the product and marketing plan.

Small businesses will obviously have a smaller plan than a large corporation, and it’s important the marketer doesn’t over-do it. Small businesses should have a marketing plan that is around 15 pages or less.

Before the plan can be written, the following information should be available:

• The company’s latest financial statements, as well as sales figures broken down by product and location
• A list of each product or service the company offers, including the markets they target
• A table that breaks down the organization, especially if it is a large company
• A written statement from the marketing team detailing their understanding of the marketplace
• Statements from each employee involved in the marketing process that detail what they think must be included in the new marketing plan

When beginning, the marketer will want to focus on three items:

1. Completion date

The marketer must set a date for when the plan should be completed. It can be a long process, involving many people and departments. So it is key the marketer has a goal end-date.

2. Who is responsible?

Each member of the marketing team should have a defined role, which they should clearly understand and be prepared for. They must be responsible for their part; otherwise the plan will never come together.

3. The budget

A marketing plan can cost a lot of money, so establish a budget and stick to it. You don’t want to end up with no money, and have to finish the marketing plan without funds.

Entry into the International Market

In order to enter into an international market, a company must have a mode of entry. There are many ways to enter the international market, but we will detail the top methods here.

1. Licensing

Licensing consists of three types of licensing contracts.

Licensing is when a company requires a fee for the use of its brand. Franchising is when the company (the franchiser) provides branding expertise to the franchisee. Examples include McDonald’s, Subway, and Dunkin’ Donuts.

Turnkey contracts are major corporate agreements to build large plants. They usually include the training of employees.

2. International Agents

Agents are often used as a way for a company to enter the international market. Agents are people or organizations that are contracted by a business to market on their behalf in a certain country. Agents don’t own any of the products they simply earn a commission on any products sold.

Agents usually represent more than on company at a time. They are inexpensive, but can be difficult to manage. If a company intends to go international, it should make sure the agent contract is revocable. It can be difficult for the marketer to work in the international market, especially in the beginning, when it is new. So setting goals and targets can be difficult at first.

Using an agent can be an easy solution for a company new to the international market, but be aware that the agent can represent a competitor at the same time. So be aware there might be conflicts of interest. They can also be costly to recruit and train, and with a international market, there can be language and cultural issues.

Distributors are another option, and they are similar to agents, except they do take ownership of the product. Ownership gives them incentive to move the product quicker, and attempt to make a profit from it. Otherwise, they have the same pros and cons as an agent.

3. Strategic Alliances

This term describes a series of different types of professional relationships that can work as an intermediary between the company and the international marketplace. Sometimes, there can be a strategic alliance between competitors.

Here are some examples of strategic alliances:

• Shared manufacturing – An example would be two car companies sharing the same manufacturer.
• Research and Development – This could happen when two companies decide to share R&D facilities.
• Distribution alliances
• Marketing alliances

These types of alliances are non-equity, so each company remains independent.

4. Joint Ventures

Joint ventures are usually equity relationships, with a new company being formed to handle the international split. There are several reasons why a company would set up a joint venture to help them enter the international market. Some of these reasons are:

• Access to new technology
• Just to gain entry into a foreign market
• To gain access to new distribution channels, manufacturing, or R&D

5. Overseas Manufacturers

If a company is large enough, owning an overseas manufacturing plant might be the best choice. Investing in the plant, machinery, and labor can also be cheaper, if currency rates are working in the company’s favor. This is referred to as Foreign Direct Investment (FDI).

This can be a newly built plant, or the company could acquire a current business that has acceptable facilities.

Benefits of planning in international markets

Many marketing experts have argued that a well-developed planning process is fundamental for the achievement of a coherent approach when attacking international markets. The principal benefits of planning in international markets are:

• International market Planning encourages proactivity rather than reactivity so that the company is able to steer its own destiny rather than simply react to events. Firms need to gain competitive advantage by moving into new markets or developing more aggressive strategies in old markets.
• It encourages a systematic process of analysis of all the factors involved in decisions, rather than simply those uppermost in the decision-maker’s mind at a particular moment.
• Firms are forced to state objectives and policies clearly and precisely so that they are not misinterpreted by individual managers who might be quite remote from the point at which decisions are made.
• As the management task becomes more complex in dealing with many different markets it is essential that managers become more focused in their thinking.
• As the environment becomes increasingly complex and unstable, planning prepares the company for reacting quickly and decisively in a coordinated and effective way.
• It helps the company to coordinate strategies in different markets for the benefit of the company as a whole, so that it can out-perform the competition
• As ease of communication and mobility increases, customers must be able to find familiar product or service ‘offers’ in each market.
• Planning facilitates the development of common performance and quality standards which can be used for company-wide control.
• The participation of managers in the international market planning process increases ownership and loyalty and also allows easier intra-company transfer and career development. This is particularly important where there are major cultural differences.
• A better understanding of the requirements of other functions and subsidiaries in different countries reduces internal company conflict and encourages the selection of strategies which will be beneficial for the whole company.
• International market Planning necessitates the development of company-wide standardized information transfer systems so that the accessibility and value of information is improved.
• Short-term action and control measures and long-term strategies can be integrated through effective market planning.

The extent to which individual companies realize these benefits in practice, however, is dependent on a number of largely internal and controllable factors such as the nature and structure of the company, the stage of evolution of the organization and the managerial philosophy, all of which have a major impact on the culture of the firm. MNEs (multi-national enterprises) are making fundamental decisions about the way that they will operate in future.

Positioning strategies can be conceived and developed in a variety of ways. It can be derived from the object attributes, competition, application, the types of consumers involved, or the characteristics of the product class. All these attributes represent a different approach in developing positioning strategies, even though all of them have the common objective of projecting a favorable image in the minds of the consumers or audience.

There are seven approaches to positioning   strategies:

1. Using Product characteristics or Customer Benefits as a positioning strategy

This strategy basically focuses upon the characteristics of the product or customer benefits. For example if I say Imported items it basically tell or illustrate a variety of product characteristics such as durability, economy or reliability etc. Lets take an example of motorbikes some are emphasizing on fuel economy, some on power, looks and others stress on their durability. Hero Cycles Ltd. positions first, emphasizing durability and style for its cycle.

At time even you would have noticed that a product is positioned along two or more product characteristics at the same time. You would have seen this in the case of toothpaste market, most toothpaste insists on ‘freshness’ and ‘cavity fighter’ as the product characteristics. It is always tempting to try to position along several product characteristics, as it is frustrating to have some good characteristics that are not communicated.

Strategy of positioning

2. Pricing as a positioning strategy

Quality Approach or Positioning by Price-Quality: Lets take an example and understand this approach just suppose you have to go and buy a pair ofjeans, as soon as you enter in the shop you will find different price rage jeans in the showroom say price ranging from 350 rupees to 2000 rupees. As soon as look at the jeans of 350 Rupees you say that it is not good in quality.

Why? Basically because of perception, as most of us perceive that if a product is expensive will be a quality product where as product that is cheap is lower in quality. If we look at this Price – quality approach it is important and is largely used in product positioning. In many product categories, there are brands that deliberately attempt to offer more in terms of service, features or performance. They charge more, partly to cover higher costs and partly to let the consumers believe that the product is, certainly of higher quality.

3. Positioning strategy based on Use or Application

Lets understand this with the help of an example like Nescafe Coffee for many years positioned it self as a winter product and advertised mainly in winter but the introduction of cold coffee has developed a positioning strategy for the summer months also.

Basically this type of positioning-by-use represents a second or third position for the brand, such type of positioning is done deliberately to expand the brand’s market. If you are introducing new uses of the product that will automatically expand the brand’s market.

4. Positioning strategy based on Product Process

Another positioning approach is to associate the product with its users or a class of users. Makes of casual clothing like jeans have introduced ‘designer labels’ to develop a fashion image. In this case the expectation is that the model or personality will influence the product’s image by reflecting the characteristics and image of the model or personality communicated as a product user.

Lets not forget that Johnson and Johnson repositioned its shampoo from one used for babies to one used by people who wash their hair frequently and therefore need a mild people who wash their hair frequently and therefore need a mild shampoo. This repositioning resulted in a market share.

5. Positioning strategy based on Product Class

In some product class we have to make sure critical positioning decisions For example, freeze dried coffee needed to positions itself with respect to regular and instant coffee and similarly in case of dried milk makers came out with instant breakfast positioned as a breakfast substitute and virtually identical product positioned as a dietary meal substitute.

6. Positioning strategy based on Cultural Symbols

In today’s world many advertisers are using deeply entrenched cultural symbols to differentiate their brands from that of competitors. The essential task is to identify something that is very meaningful to people that other competitors are not using and associate this brand with that symbol.

Air India uses maharaja as its logo, by this they are trying to show that we welcome guest and give them royal treatment with lot of respect and it also highlights Indian tradition. Using and popularizing trademarks generally follow this type of positioning.

7. Positioning strategy based on Competitors

In this type of positioning strategies, an implicit or explicit frame of reference is one or more competitors. In some cases, reference competitors can be the dominant aspect of the positioning strategies of the firm, the firm either uses the same of similar positioning strategies as used by the competitors or the advertiser uses a new strategy taking the competitors’ strategy as the base.

A good example of this would be Colgate and Pepsodent. Colgate when entered into the market focused on to family protection but when Pepsodent entered into the market with focus on 24 hour protection and basically for kids, Colgate changed its focus from family protection to kids teeth protection which was a positioning strategy adopted because of competition.

Product development strategy is the process of bringing a new innovation to consumers from concept to testing through distribution. When existing business revenue platforms have plateaued, it is time to look at new growth strategies. New product development strategies look at improving existing products to invigorate an existing market or create new products that the market seeks.

The steps involved in product development are similar in each type of strategy.

1. Improve Existing Products

Improving existing products is an efficient method for product development. It is not as expensive as creating a new product because a lot of the time and resources were already devoted to creating the original product. Businesses then take feedback from consumers and find ways to improve upon products. .

The technology industry is well known for this. Think about the latest version of your smartphone or desktop operating system; the foundation was created in a previous version. Sometimes there are 10 previous versions, each building on the one before.

2. Across all Industries

However, improving existing products is not limited to any one industry. Exercise equipment rolls out new models. Even pen manufactures find ways to improve ink flow and reduce smudging, making the product better. The goal of improving a product is to take an already successful product that consumers love and use, and then improve the product to maintain, or increase, the competitive advantage.

3. Create New Products

Innovative new products are risky because you don’t know how consumers will respond to something new. This is why developing the product properly is imperative. New products enter into the market all the time. Large corporations are constantly developing new products.

The evolution of home deodorizers started with candles and air fresheners to plug-in wall diffusers. Each was a new product intended to improve upon older, less effective methods.

4. Bringing New Products to Market

Crowdfunding, infomercials and television shows such as Shark Tank encourage inventors to bring innovations to market. One such product was a bee box with a spigot that enabled honey to be collected more easily. New products require that the maker identify a need and then develop a solution to make life easier, safer or more enjoyable.

5. The Steps in Product Development

Whether you’re improving an existing product or innovating a completely new product, follow a process to ensure you are creating a product that consumers will buy and use. Identify the need. If this is an existing product that needs improvement, there may have been an oft-reported problem with the product. Creating a new product often results from hearing common complaints about a similar issue.

For example, tablets were created because people enjoyed the convenience of smartphones but wanted a larger yet portable platform to work on.

6. Develop Prototypes Based on Research

Survey the market and develop a prototype based on the collected data. Find out what people like and don’t like about an existing product. Determine if any patterns exist for consumers that are showing a trending problem.

For example, vacuums have become more nimble with articulating joints, because consumers reported that they did not like heavy vacuums that were difficult to maneuver. Once prototypes exist, develop a financial plan for scaling production and establishing the target market with reasonable sales estimates.

7. Test the Market and Adjust

Test the product in the market with smaller runs. Keenly observe sales and actively seek feedback from real consumers on the real product. Adjustments might be required before going into mass production and commercialization.

Developing a product strategy is the toughest and the most difficult job that has to done by the marketer. Creating an efficient marketing strategy for a new or even existing product is done by every marketer and consists of different steps which are as follows:  

• Establishing the objective that the product should acquire
• Selecting the strategic alternatives for the achievement of the objective
• Selecting the customers who should be targeted
• Identifying the competitor target
• Deciding on the core strategy for the product
• Description of the marketing mix i.e product, price, place ,promotion
• Deciding for the supporting functional programs

Establishing the objective: For deciding the objective of the product , it should be taken care that it should have the following characteristics:

• They can be quantified based on the performance.
• The should be more of challenging and practical.
• They should focus more on increasing the revenue for the firm in terms of share of market
• They should increase the profitability of the firm

Positioning strategy for the firm: In order to develop the product strategy the firm also needs to focus on the positioning strategy. Some factors that affect the positioning of the firm are:

• The product
• Firm behind it
• Competitors
• Customers

Positioning: Choice of customer targets

The choice of selecting customers for effective positioning is based on some important considerations:

• Size of the segment selected
• Resources available
• Various opportunities for obtaining the competitive advantage

Positioning: Core Strategy

The core strategy defines the unique or distinctive advantage that has to be delivered to target customers in terms of price of the product and the values or offerings from the product.

Positioning Methods

The type of the product has a major impact on the positioning techniques. Different types of product are positioned in different way. According to this products are classified into different types:

• Daily use product
• Impulse product
• Speciality items
• Industrial products

The technique in which the product needs to be positioned is also classified on the basis of following considerations:

• On the basis of benefits delivered
• On the type of usage
• For a particular user category
• On the basis of the price
• On the basis of the quality
• On the basis of product specification
• On the basis of lifestyle of the user
• On the basis of reference groups

There is never going to be a single product that makes everyone happy. One group of people would applaud a design while others would have a different opinion. Among those some would criticize the design of the product and there would be others who wouldn’t be bothered at all. This shows that there is tremendous opportunity for a product designer as there is always something to work on. The target audience is always going to be different and most of the successful designs come from regularly taking feedback from the user and making improvisations to the design. Since the products are sold by a business to the users, multiple strategies are formulated to push sales and get the product to the market. However the success of a product design would depend on a few factors which are briefly described below.

1. Cost

One major factor that affects product design is the cost of production including material costs and labour costs. These in turn affect the pricing strategy, which needs to be in line with what the customer is prepared to pay for it.

2. Ergonomics

The product needs to be user friendly and afford convenience in its function. Using ergonomic measurements, minor or major changes may need to be made to product design to meet essential requirements.

3. Materials

An important consideration in product design is whether the required materials are available easily. In addition to that one has to be updated on new developments in materials and technology.

4. Customer Requirements

One of the biggest influence on the design of the product is the customer and their requirements. It is vital to capture customer feedback on any prototype as well as during the planning and conceptual stages. Even a technologically advanced and exciting feature may need to be removed if it causes dislike or negative feelings in an end user.

5. Aesthetics

The product needs to appear stylish or of a certain shape. This form may end up determining the technology that it built into the product. This may in turn also affect the manufacturing process that needs to be followed.

6. Fashion

The current fashion and trends would affect a certain product’s design. Customers would want the most updated options and this needs to be considered during product design.

7. Culture

If a product is for a certain market with its own individual culture, this needs to be kept in mind during design. A product which is acceptable in one culture would end up being offensive or not desirable in another one.

8. Environment

Another consideration to product design is its impact on the environment. The average customer these days may be more discerning and concerned about the environment than before. Things to consider here may include whether the materials used are recyclable, how the product will be disposed of at the end of its life or how the packaging can be disposed of.

Multiple products are brought into the market daily but there is still scope for improvement in every aspect as trends keep changing. People always want newer versions of everything. Product design is a field where one would always have opportunity to experiment and innovate.

• Foreign allowances

Foreign allowances or perquisites paid or allowed by Government to its employees (an Indian citizen) posted outside India. Fully exempted.

• Allowances to Judges of High Court/Supreme Court 

Fully exempted subject to certain conditions

• Allowances paid by the UNO to its employees

Fully exempted

• Salary and allowances received by a teacher /professor from SAARC member state

 Fully exempted (Subject to certain conditions).

• Compensatory allowance received by a Judge

“Perquisite” may be defined as any casual emolument or benefit attached to an office or position in addition to salary or wages.

“Perquisite” is defined in the section 17(2) of the Income tax Act as including:

(i) Value of rent-free/concessional rent accommodation provided by the employer.

(ii) Any sum paid by employer in respect of an obligation which was actually payable by the assessee.

(iii) Value of any benefit/amenity granted free or at concessional rate to specified employees etc.

(iv) The value of any specified security or sweat equity shares allotted or transferred, directly or indirectly, by the employer, or former employer, free of cost or at concessional rate to the assessee.

(v) The amount of any contribution to an approved superannuation fund by the employer in respect of the assessee, to the extent it exceeds one lakh rupees; and

(vi) The value of any other fringe benefit or amenity as may be prescribed.

Fully and Partially Taxable Perquisites

The following perquisites are fully taxable in the hands of all employees receiving such perquisites:

Rent free accommodation:

The rent free accommodation provided to employees by their employer is taxable. Since the employees are provided rent free accommodation, the amount of income accruing to them cannot be determined by them. Accordingly, there is prescribed manner for calculating income chargeable to tax as perquisite. The manner of calculating income chargeable to tax as perquisite for rent free accommodation is as follows:

Category of Employees	Income
	Unfurnished Accommodation	Furnished Accomodation
1) Provided to a Judge of High Court, Supreme Court2) Provided to an Officer of Parliament	In case of Rent free Official Residence: Nil	In case of Rent Free Official Residence: Nil
Provided to Central/ State Government employees	(a) License fees determined by the Central/ State Government	(a) Same as Unfurnished Accommodation(b) 10% p.a. Of the cost of furniture If such furniture is hired, then hire charges payable.
Provided to any other employee
1) Where the accommodation is owned by the employer	(i) 15% of salary in cities having population exceeding 25,00,000(ii) 10% of salary in cities having population between 10,00,000 and 25,00,000(iii) 7.5% of salary in other areas	(a) Same as Unfurnished Accommodation (b) 10% p.a. Of the cost of furniture If such furniture is hired, then hire charges payable.
2) Where the accommodation is taken on rent by the employer	Lower of the following:(i) Rent Payable Or(ii) 15% of salary	(a) Same as Unfurnished Accommodation (b) 10% p.a. Of the cost of furniture If such furniture is hired, then hire charges payable.
Accommodation provided in a hotel	Not Applicable since Hotel is presumed to be furnished.	Lower of the following:(i) 24% of salary Or(ii) Rent (Room Fare/ Charges) Payable

Concession in rent:

Some employers provide the employees with accommodation at rates lower than normal market rates. This reduction in rates is known as concession in rent.

The income chargeable to tax as perquisite as concession shall be determined as:

(i) Amount of Income chargeable to tax as above

(ii) Less: Amount of rent payable/ paid to the employer. 

Payment by the employer in respect of an obligation of employee:

In this case, the amount is liable to be paid by the employee and the employer pays the same.

Example: Self-Assessment Tax of the employee is paid by the Employer.

Note: If the employer pays taxes on behalf of employees on non-monetary perquisites provided to them, then such taxes are exempt in the hands of the employee. 

Sweat Equity allotted or transferred to the assessee:

The Companies in appreciation of its employees or with an aim to achieve a particular objective grants an option to the employees to subscribe equity shares at nil value or at concessional rates than the current market prices to its workforce. If the employee exercises such option and subscribes to such shares at nil or concessional rates, then it forms part of perquisites. 

Valuation of Sweat Equity shall be as follows:

Note: If the shares have been received at a concessional rate then the amount paid to the employer company shall be deducted from the value of perquisite calculated as above. 

Amount of any Contribution to an approved superannuation fund:

Employer’s contribution to superannuation fund is a perquisite.

The tax treatment for approved superannuation fund is as follows:

1. Employer’s Contribution to Superannuation Fund: Upto Rs. 1,50,000/- exempt in the hands of the employee.
2. Employee’s Contribution to Superannuation Fund is allowed as deduction under Chapter VIA. (Subject to the limits specified)
3. Interest accumulated on such fund is exempt from tax.
4. Payment of balance of fund:
5. To the employee on retirement
6. To the employee on disablement
7. To the legal heirs on death of the employee 

Transport Facility and Valuation of Free or Concessional Tickets:

 The Value of any benefit or amenity resulting from the provision by an employer:

(i) Who is engaged in the carriage of passengers or goods,

(ii) To any employee or to any member of his household for personal or private journey free of cost or at concessional fare,

(iii) In any conveyance owned, leased or made available by any other arrangement by such employer for the purpose of transport of passengers or goods

Shall be taken to be the value at which such benefit or amenity is offered by such employer to the public as reduced by the amount, if any, paid by or recovered from the employee for such benefit or amenity.

However, there would be no such perquisite to the employees of an airline or the railways. 

Valuation of benefit of provision of domestic servants

If the employee or any member of his household are provided with domestic servants such as sweeper, gardener, watchman or personal assistant then the benefits so received by the employee are taxable as perquisites in the hands of the employee. 

Utility such as gas, electricity or water supplied by employer

If the employer pays to the utility provider on behalf of the employee or if the employer himself provides such utilities then the benefits so received by the employee are taxable as perquisites in the hands of the employee. 

Free or concessional educational facilities

If the employer provides free or concessional educational facilities from the educational institutions maintained and owned by the employer or if free educational facilities are allowed in any other educational institution then the benefits so received by the employee are taxable as perquisites in the hands of the employee.

However, if the educational institution is maintained and owned by the employer and the employer provides free or concessional education facilities to the employee himself or his children and the benefits so received by the employee does not exceed Rs. 1,000/- per month then such amount shall not be taxable in the hands of the employee as perquisite. 

Interest-free or concessional loan

The value of the benefit to the employee as a result of interest-free loan or concessional loan for any purpose provided to the employee or any member of his household is a taxable perquisite.

However, this perquisite will be not be chargeable to tax in any of the following cases:

1. If such loan is provided for the purpose of treatment of diseases such as cancer, tuberculosis, etc. However, out of the amount of loan provided, if the employee receives reimbursement from any medical insurance scheme, then such amount shall not be exempt.
2. Amount of loans made to an employee does not exceed Rs. 20,000/-. 

  Free or concessional food and non-alcoholic beverages

If the employer provides free or concessional food and/ or beverages such as tea, coffee etc., then the benefits so received by the employee are taxable as perquisites in the hands of the employee. However, if the following are provided by the employer then they are not taxable in the hands of employees as perquisites:

1. Free food and beverages such as tea, coffee etc. provided by the employer to an employee during working hours at office or business premises less than Rs. 50/- per meal.
2. Vouchers provided having value less than Rs. 50/- per meal
3. Tea or Snacks provided during working hours
4. Free food and beverages such as tea, coffee etc. provided during working hours provided in a remote area or an offshore installation. 

 Gifts or Vouchers

Gift or vouchers received by employees or by member of his household on ceremonies or occasions are taxable perquisites in the hands of the employees. However, if the value of such gifts in totality do not exceed Rs. 5,000/- then such gifts are not taxable as perquisite in the hands of the employees. 

Reimbursement of credit card expenses

If the employer reimburses expenses incurred by the employee or any member of his household using a Credit card then the benefits so received by the employee are taxable as perquisites in the hands of the employee.

However, if such expenses are made by the employee exclusively for official purposes and the employer has documented the expenses incurred using the credit card then such reimbursements are not taxable as perquisite in the hands of the employees. 

Club expenditure

If the employer pays or reimburses for the periodic subscription of a club for the employee or any member of his household then the benefits so received by the employee are taxable as perquisites in the hands of the employee.

However, if the following are provided by the employer then they are not taxable in the hands of employees as perquisites:

1. If the use of health club, sports and such facilities are provided uniformly to all employees by the employer.
2. Such expenditure is incurred wholly and exclusively for business purposes and if the expenditure is properly documented by the employer. 

 Use of movable assets

If movable assets such as laptops are provided by the employer to the employee then the benefits so received by the employees are not taxable in the hands of the employee. However, other movable assets such as furniture, car etc are provided by the employer to the employee than the the benefits so received by the employee are taxable as perquisites in the hands of the employee.

Transfer of movable assets

If the employer transfers any movable assets such as computers and electronic items, motor cars etc. in the name of the employee than the the benefits so received by the employee are taxable as perquisites in the hands of the employee. 

Fully Exempt Perquisites

The following perquisites are fully exempt from tax subject to compliance of conditions specified: 

Telephone	Telephone provided by the employer to his employee at his residence.
Transport Facility	Transport Facility provided by an employer engaged in the business of carrying of passengers or goods to his employees either free of charge or at concessional rate
Privilege passes and Privilege ticket	These are provided by Indian railways to its employees.
Perquisites allowed outside India by the Government	Perquisites allowed outside India by the Government to a citizen of India for rendering services outside India
Employer’s Contribution to staff group insurance scheme	Employer takes a single insurance of all the staff and contributes towards the insurance premium.
Recreational Facilities	Subsidized lunch or dinner provided by the employer.
Amount spent on training of employees	This includes amount paid for refresher management course including expenses on boarding and lodging.
Sum payable by employer to a Approved Funds	Funds include Recognised Provident Fund, Approved Superannuation Fund or Deposit-linked insurance fund.
Medical Facilities	The following are exempt:(i) Value of medical treatment in a hospital maintained by the employer to the employee or any of his family members(ii) payment by the employer for treatment in a Government Hospital(iii) payment by the employer for treatment of prescribed diseases in any approved hospital(iv) mediclaim insurance premium paid by the employer for the employee(v) reimbursement upto Rs. 15,000/- of expenditure actually incurred by the employee for self or any of his family members.
Amount paid towards expenditure incurred outside India on medical treatment	This includes the following:(i) medical treatment of the employee or any member of the family of such employee outside India,(ii) travel and stay abroad of the employee or any member of the family of such employee for medical treatment(iii) travel and stay abroad of one attendant who accompanies the patient in connection with such treatment.Conditions:(i) The amount of exemption will be limited to the amount approved by RBI(ii) If the employee’s taxable income before deductions is more than Rs. 2,00,000/- then the expenditure on travelling of the patient and the attendant shall be fully taxable.
Conveyance Facility	Conveyance facility provided to Supreme Court and High Court Judges.
Payment of premium on personal accident insurance policies

Perquisite arising out of supply of gas, electric energy or water:

This shall be determined as the amount paid by the employer to the agency supplying the same. If the supply is from the employer’s own resources, the value of the perquisite would be the manufacturing cost per unit incurred by the employer. However, any payment received from the employee towards the above would be reduced from the amount [Rule 3(4)]