Tag: Principles of Marketing

Value Innovation

Value innovation is a process in which a company introduces new technologies or upgrades that are designed to achieve both product differentiation and low costs.

The changes implemented through value innovation create new or improved elements for the product or service, but also result in cost savings by eliminating or reducing unnecessary aspects during the product lifecycle.

Value innovation does not necessarily create a completely new product or technology. This type of innovation can improve on existing services and lowers the costs of that service for both the company and their customers.

Blue oceans refer to all the unexplored or unknown markets. Red oceans, the existing markets, are filled with fierce competition that eliminates profit whereas the blue ones are untouched by competition and thus full of opportunity for profitable growth. So, the Blue Ocean Strategy simply refers to creating new demand by developing uncontested market space instead of competing in the crowded red ocean colored by the blood of everyone that swims in it.

Benefits:

Make the competition irrelevant

As mentioned, in a traditional setting, growth and performance are achieved when you manage to beat competition. When you focus on beating the competition you work on small improvements which are good, but not enough to give you a leading position for too long.

Even more, this approach means that you limit the time and resources you allocate to identifying new innovation opportunities. When you pursue value innovation you focus on adding higher value at lower costs, so you make the competition irrelevant.

Make the competition irrelevant

As mentioned, in a traditional setting, growth and performance are achieved when you manage to beat competition. When you focus on beating the competition you work on small improvements which are good, but not enough to give you a leading position for too long.

Even more, this approach means that you limit the time and resources you allocate to identifying new innovation opportunities. When you pursue value innovation you focus on adding higher value at lower costs, so you make the competition irrelevant.

Create an exponential mindset

Another noteworthy benefit of value innovation is the unconventional thinking that it comes with.

Successful companies focus on exponential value, not just on incremental improvements. While both have their role in the growth of a business, there is a big difference between the two.

Incremental thinking is about making something 10% better while the exponential thinking is about how to be 10x better by making something different. The 10% is a plane taking you from A to B, while the 10x is a rocket launching into space.

When companies compete for the same market share, their strategy is mostly built around incremental improvements that give a competitive advantage, until they are surpassed or outperformed again, and the process starts all over.

Co-creation of value

Co-creation of value is a business strategy, one that promotes and encourages active involvement from the customer to create on-demand and made-to-order products. With co-creation, consumers get exactly what they want and have a hand in making it happen. Like the NikeID platform, co-creation makes the design process fun through a user-friendly site with great product visuals. Co-creation, then, becomes as much about the process of the product as purchasing the product itself.

Co-creation, in the context of a business, refers to a product or service design process in which input from consumers plays a central role from beginning to end. Less specifically, the term is also used for any way in which a business allows consumers to submit ideas, designs or content. This way, the firm will not run out of ideas regarding the design to be created and at the same time, it will further strengthen the business relationship between the firm and its customers. Another meaning is the creation of value by ordinary people, whether for a company or not.

Retailers are using co-creation primarily in an e-commerce setting where it is easier to engage customers in a more interactive experience, but the model can also be seen in some brick-and-mortar stores, like Build-A-Bear Workshop. For businesses, there are reduced manufacturing and production inefficiencies and failures because products are built based on consumer demand, enhancing customer satisfaction.

Co-creation, in many ways, is a collaborative creation between a brand and its fans. It has evolved the sales and marketing of products from a one-to-many formula to a one-to-one formula, a more personalized approach. For marketing professionals, it has turned the communication from active brand/passive consumer to one where both sides are active and engaged.

Disadvantages

Though the potential for co-creating value through interaction is huge, the possibility of interactional value co-destruction should not be overlooked. Managers and academics alike must recognize that value co-creation is not the only possible outcome of interaction between service systems. Adverse consequences can occur for a variety of reasons. It is therefore essential, before implementing a strategy based on S-D logic, to consider where, how, and to what extent co-destruction might occur.

Exploitation of customers under the norms of ‘value co-creation’ takes place on two related but different planes. First, consumers are not generally paid for the know-how, enthusiasm, and social cooperation that they contribute to the manufacturing process of marketable commodities. Second, customers typically pay what the marketing profession calls a ‘price premium’ for the fruits of their own labor. They call it the use value provided by co-created commodities is said to be higher than that which can be accomplished through rationalized systems of standardized production. In other words, the work undertaken by customers to customize their own commodities, ends up increasing the price one has to pay for one’s creation.

Consumers have to also learn that co-creation is a two-way street. The risks cannot be one sided. They must take some responsibility for the risks they consciously accept. The tobacco company has the obligation to educate consumers on the risks of smoking and develop cessation programs. But if a consumer persists in smoking, he must take responsibility for his own actions. In cases where the consumer is unlikely to have the expertise to make that choice, they must accept the choice made for them by a neutral party such as the Federal Drug Administration.

Markets, industries, companies, systems, and people do not change so often: it may take quite some time before the whole world is co-creating. The concept challenges many of the habits of managers. To change the mind-sets of people within the company into the way that an external customer think is not an easy task.

Value in marketing, also known as customer-perceived value, is the difference between a prospective customer’s evaluation of the benefits and costs of one product when compared with others.

Value may also be expressed as a straightforward relationship between perceived benefits and perceived costs:

Value = Benefits – Cost

The basic underlying concept of value in marketing is human needs. The basic human needs may include food, shelter, belonging, love, and self-expression. Both culture and individual personality shape human needs in what is known as wants. When wants are backed by buying power, they become demands.

With a consumers’ wants and resources (financial ability), they demand products and services with benefits that add up to the most value and satisfaction.

The four types of value include: functional value, monetary value, social value, and psychological value. The sources of value are not equally important to all consumers. How important a value is, depends on the consumer and the purchase. Values should always be defined through the “eyes” of the consumer.

Functional Value: This type of value is what an offer does, it’s the solution an offer provides to the customer.

Monetary Value: This is where the function of the price paid is relative to an offering perceived worth. This value invites a trade-off between other values and monetary costs.

Social Value: The extent to which owning a product or engaging in a service allows the consumer to connect with others.

Psychological Value: The extent to which a product allows consumers to express themselves or feel better.

For a firm to deliver value to its customers, they must consider what is known as the “total market offering.” This includes the reputation of the organization, staff representation, product benefits, and technological characteristics as compared to competitors’ market offerings and prices. Value can thus be defined as the relationship of a firm’s market offerings to those of its competitors.

Value in marketing can be defined by both qualitative and quantitative measures. On the qualitative side, value is the perceived gain composed of individual’s emotional, mental and physical condition plus various social, economic, cultural and environmental factors. On the quantitative side, value is the actual gain measured in terms of financial numbers, percentages, and dollars.

For an organization to deliver value, it has to improve its value: Cost ratio. When an organization delivers high value at high price, the perceived value may be low. When it delivers high value at low price, the perceived value may be high. The key to deliver high perceived value is attaching value to each of the individuals or organizations making them believe that what you are offering is beyond expectation helping them to solve a problem, offering a solution, giving results, and making them happy.

Value changes based on time, place and people in relation to changing environmental factors. It is a creative energy exchange between people and organizations in our marketplace.

Very often managers conduct customer value analysis to reveal the company’s strengths and weaknesses compared to other competitors. The steps include:

• Identifying the major attributes and benefits that customers value for choosing a product and vendor.
• Assessment of the quantitative importance of the different attributes and benefits.
• Assessment of the company’s and competitors’ performance on each attribute and benefits.
• Examining how customer in the particular segment rated company against major competitor on each attribute.
• Monitoring customer perceived value over time.

Value Creation and Delivery

Value-creation and value-delivery is the main task of marketing. Marketing in its entirety is a value “Creating and value-delivering process. The whole bunch of tasks involved in marketing, serve the purpose of value delivery. They actually form a sequence leading to value delivery.

Marketing planning, buyer analysis, market segmentation and targeting are concerned with value selection. Product development, manufacturing, service planning, pricing, distribution and servicing, are concerned with value creation & value delivery. Personal selling, advertising, publicity and sales promotion are concerned with value communication. Activities like market research and market control assess the effectiveness of the value delivery process, the level of satisfaction the customer has actually received and how it compares with the firms intention as well as with other competing offers for the purpose of enhancing value.

In any marketing situation, one can discern four distinct steps in the value providing process:

• Value selection.
• Value creation/value delivery
• Value communication (making a value proposition and communicating it.)
• Value enhancement.

Value Selection

It is obvious that selecting the value to be offered is the first step in the value delivering process. Everything else follows. Only after selecting the value to be offered, can the firm proceed with production, sales and promotion. What needs to be specifically understood here is that the firm finds out what constitutes value in the estimation of the customer and accepts it as the value to be offered. Value selection is thus not only the first step in the sequence but also the most crucial one.

Value Creation / Value Delivery

This constitutes the bulk of the marketing job. What the firm has promised to provide the customer has to be actually provided. The product offering must actually carry the benefits the firm has promised and it must be reached to the customer in the most satisfying manner. Value creation/value delivery signifies the successful execution of the firms promise. Most firms fumble here because they promise to provide all sorts of things, but they fail deliver; their products fail to carry the value they were supposed to carry. The entire firm with all the functions and activities is involved in this step. In creating and delivering the product with all the associated benefits, which the firm has decided to offer, there is a role for technology, design and engineering finance management and the organizational set-up

On Marketing Concept, in this article we outlined up on the idea of integrated management action. What is required in value creation and delivery is integrated management action with marketing taking center stage.

Value Communication

After selecting the value to be offered and deciding how the value has to be created /delivered, the firm tries to communicate the value to the customer. In this step, there are actually two components. The firm works out a value proposition and then communicates it to the customer.

Making a Value Proposition

In a marketing endeavour, what the firm offers to the customer is not a mere physical product; it offers a value proposition. The product offer consisting of the best possible benefits/value is put forward as a value proposition, explaining how the offer matches the customers requirement s and how it works out to be the best among all the competing offers.

Communicating the Value Proposition

The firm then, communicates the value proposition to the customer. It explains the uniqueness of its offer through a well-formulated marketing communication mix. The customers exercise of assessing the value of the offer actually starts from this stage.

Value Enhancement

The firm also continuously and proactively enhances the value. It collects feedback from the consumer about his level of satisfaction with the product and upgrades the value. It actually is a non-stop job for the firm to search for the customers satisfaction level and augment the offer. Competing products, including substitute products, keep attacking the value proposition of the firm.

Expectations of customers to keep changing. The firm has to search for the new expectations of the customers, locate product gaps/ benefits gaps and keep making new and better offers to the customer to stay ahead of the competition in value rankings.

Sales promotion gimmicks do not normally serve the purpose of sustained value addition. Sales promotion measures like consumer deals and trade deals result in just a temporary shift in the value-cost equation in favor of the consumer. When the deals are withdrawn, consumers turn away from the product.

What is needed is a sustained and ongoing effort, not short-lived big bangs. The effort must be lasting value addition, which normally accrues only though factors like enhancement of the functional utility/ convenience of the product.

Business markets need to be segmented like consumer markets geographically or by benefits sought, user status, usage rate, and loyalty status. Some additional variables are also used for segmenting business markets.

These are Business Market Segmentation bases;

• Customer demographics (industry, company size),
• Operating characteristics,
• Purchasing approaches,
• Situational factors, and
• Personal characteristics.

Retention based:

Risk of customer cancellation of company service

One of the most common indicators of high-risk customers is a drop off in usage of the company’s service. For example, in the credit card industry, this could be signaled through a customer’s decline in spending on his or her card.

Risk of customer switching to a competitor

Many times customers move purchase preferences to a competitor brand. This may happen for many reasons those of which can be more difficult to measure. It is many times beneficial for the former company to gain meaningful insights, through data analysis, as to why this change of preference has occurred. Such insights can lead to effective strategies for winning back the customer or on how not to lose the target customer in the first place.

Customer retention worthiness

This determination boils down to whether the post-retention profit generated from the customer is predicted to be greater than the cost incurred to retain the customer and includes evaluation of customer lifecycles.

Different Buyer:

Relationship Buyers: These buyers regard Signode’s packaging products as moderately important and are knowledgeable about competitors’ offerings. They prefer to buy from Signode as long as its price is reasonably competitive. They receive a small discount and a modest amount of service. This segment is Signode’s second most profitable.

Programmed Buyers: The buyers view Signode’s products as not very important to their operations. They buy the products as a routine purchase, usually pay full price, and accept below-average service. This is a highly profitable segment for Signode.

Transaction Buyers: These buyers see Signode’s products as very important to their operations. They are price and service sensitive. They receive about a 10 percent discount and above ­average service. They are knowledgeable about competitors’ offerings and ready to switch for a better price, even if it means losing some service.

Bargain Hunters: These buyers see Signode’s products as very important and demand the deepest discount and the highest service. They know the alternative suppliers’ bargain hard and are ready to switch at the slightest dissatisfaction. Signode needs these buyers for volume purposes, but they are not very profitable.

4 levels of market segmentation are:

Mass Marketing or Undifferentiated Marketing

Mass marketing refers to the strategy of targeting the entire potential customer market by means of a single marketing message. The marketing strategy used in this segmentation does not target the specific requirements or needs of customers. Mass marketing strategy, instead of focusing on a subset of customers, focuses on the entire market segment that can be a probable customer of a product.

An example of mass marketing strategy is of Baygon cockroach spray or Mortein mosquito repellent coils that target all its potential customers through a single marketing message.

Advantages of Mass Marketing

• Only one marketing plan is required, and no specific market segment is targeted. One marketing campaign targets the whole market, facilitating marketing economies of scale.
• Economies of scale can be obtained in mass markets because of enormous size. Thus, the average cost of bringing the product to the market will be lower, and hence, profit margins higher.
• Providing products for a mass market enables establishing a more extensive base of customers. This will generally increase profitability.

Limitations of Mass Marketing

• In mass marketing, the competition is usually broad and extreme.
• There are very high barriers to entry for mass markets. Often incumbent competition has invested in capital equipment, large-scale factories, offshore centers, efficient supply chain management processes, etc. Huge competition can make it extremely difficult to compete in a mass-market as a new firm successfully.
• Mass marketing is less focussed, requires more resources.
• The company can suffer a high loss if the marketing strategy fails.

Product-Variety Marketing or Differentiated Marketing

In Product-Variety Marketing or Differentiated Marketing, the marketer divides the market into different segments depending on the consumer’s buying behavior, requirements, purchasing power, location, and age level.

In product-variety marketing, the seller produces two or more products that have different features, styles, quality, and so on. Subsequently, Kohinoor produced several kinds of toothpaste bearing different brands with other packages. They were designed to offer variety to consumers rather than creating various appeals to different market segments.

Differentiated marketing helps the marketer to connect to each type of customer in the best possible way. Most companies use different market segments for marketing its entire list of products which caters to different market levels.

The promotional and advertising activities for a particular focus only to the target market for that product.

The example of segment marketing within clothing industry may be men, women, casual, fashionable and business clothing segments.

Concentrated Marketing or Niche Marketing

This strategy of marketing focuses on a narrower customer segmentation. Customers may want or desire a product that is not met completely by the products offered in a market. When companies move forward and develop highly specialized products to offer these customers their specific needs, they offer distinct products in a market that caters to specific customer segments only.

Mountain bikes are an example of a niche marketing segment. where the market segmentation will be individuals interested in mountain biking only. Since not every bike manufacturing company caters to mountain bikers, it is a niche segment. Companies that produce mountain bikes target the niche segment of mountain bikers and cater to their specific needs, preferences and requirements.

Advantages of Niche Marketing

• When a specific market segment is targeted in a firm’s marketing, marketing tends to be more focused and likely to have a greater appeal within the targeted segment. Mass marketing is not as focussed and, as such, tends to focus on the ‘average’ consumer.
• Businesses can become highly specialized in finding out the needs and wants of a niche market they are targeting. With needs and wants being better met, customer loyalty can ensue.
• Competitive rivalry within a niche market is less than that for broader markets. Less competition can translate into increased pricing power for a firm’s differentiated products, which, in turn, can lead to increased profitability.

Limitations of Niche Marketing

• Niche markets, by their definition, are small. The number of total potential customers in the market is limited. Niche marketing strategies may miss potential customers and depress sales revenues.
• Economies of scale may not be obtained in niche markets due to their limited size. Thus, the average cost of bringing the product to the market will be higher, leading to higher prices and or lower profit margins.
• Profitable niche markets with low barriers to entry are likely to attract new competitors into the industry. Niche markets are small and cannot sustain a relatively high number of competitors.

Micro Marketing

Micro marketing follows an even narrower segmentation marketing strategy, catering to the attribute of a much-defined subset of potential customers such as catering to individuals of a specific geographical location or a very specific lifestyle.

An example of niche marketing is luxury cars that are very high priced and offer exceptional features such as high speed, customized look, etc. Since these cars are very expensive and limited in number, the niche market for these vehicles target rich, car lovers that are interested in the unique features and has the financial capability to buy them.

Types:

Local marketing

In Local marketing, the seller or the marketer only concentrates on the local market. The products also have the local appeal or the local usages, and the promotional activities are planned based o the location only with local flavor.

Here the cost remains high due to lower production, and competition is also less. Marketers can concentrate on mom in the local market to reach all the customers in the region. The best example would be the marketing of regional chain of hotels or restaurants, locally produced food products, etc.

Local marketing can be studied from both the retailer and manufacturer perspective. For the retailer, local marketing implies the optimization of the store’s marketing mix.

For the manufacturer, local marketing implies optimizing the product’s marketing mix at the store level. We focus on the interaction between manufacturers and retailers, how manufacturers and retailers optimize the marketing mix for a product (category) at the store level.

Individual Marketing

Individual marketing focuses on satisfying the needs and wants of individual customers it’s also known as one-to-one marketing and customized marketing; it’s the segmentation level where the seller offers a customized product to the consumer.

In simple words, making and selling product(s) according to the needs and preferences of the consumer.

For example, a Fabrics company will cut your cloths according to the needs of the individual customers.

Individual Marketing happens when several specific attributes are “fulfilled” will the personal message be automatically triggered by one person.

The more attributes included triggering the message, the more relevant it becomes for the person. Let’s look at the type of attributes.

• Customer profile attributes: A simple message commonly used is the birthday month promotion.
• New and renewal: Sending automatic messages triggered to the person based on the new, active, lapsing, or inactive customers (or members) group. The content will be relevant based on their activity level.
• Buying behavior: The spending history (the type of product, average spend, frequency, changing spending patterns) is used to trigger a message.
• Channel behavior: the channel interactions (web, mobile, e/m-commerce, social media, visits) is used to trigger a message.
• Customer sentiments: may include feedback forms, service cases, likes on social media.
• Location: These are often real-time messages being sent when a person is close to, outside, or inside a particular location.

Prices set by a company do not always remain the same. Over time, the original price established for almost any product will have to be adjusted. The marketing executive will find it necessary to change the product’s price several times during the course of its life cycle.

They are changed or adapted depending on the needs or situations. A company needs to adapt its prices to different situations, i.e., it may charge different prices depending on geographic variation, variations in segments, purchase timing, order levels, delivery frequency, guarantees, service contracts, and some other factors.

Goals:

Price adaptations are made to pursue a number of goals;

• Change of purchase patterns
• Market segmentation
• Market expansion
• Utilization of excess capacity
• Implementation of channel strategy
• To meet the competition.

Market Segmentation

Marketers can also adapt their prices to tap segments of a market, which differ in demand elasticity.

These differences in sensitivity to price may come about because of differing values in use among various classes of buyers and/or differing competitive situations facing the seller.

Market Expansion

The market for a given product or service may be expanded by offering lower prices to customers who have lower values in use.

Utilization of Excess Capacity

Price adaptations can also be made to utilize excess production or marketing capacity.

If such capacity exists, adaptation makes a sale possible, which covers direct costs and will contribute to the firm’s total profits.

Implementation of Channel Strategy

Price adaptation is a major device by which a firm attempts to implement its marketing strategy with regard to channels of distribution. Price variations may reflect differences in marketing tasks performed by various types of resellers or differences in the competitive environments in which they operate.

Different price-adaptation strategies to be discussed here are;

Geographical pricing

The basic issue confronting the executive here is recognizing that market conditions and consumer sensitivities to price vary by geographic area. The difference in price occurs not only on wide territorial bases but also between districts and even in different parts of the same district.

Though such an exercise is very costly, the executive could segment the overall market into tiny geographic areas and set unique prices in each.

Price discounts, allowances, and Promotional pricing;

The standard price established for the product by a marketer is list price. But it is not always the actual price charged to the customer.

Here, basic prices are modified to reward customers for such acts as early payments, volume purchases, and off-season buying and called together discounts and allowances.

Marketers sometimes offer a discount or allowance to the buyers, effectively reducing the product’s list price, making it more competitive in the marketplace, stimulating short-term demand, or creating product awareness.

In order to attain any of these objectives, a marketer can choose from a variety of discount and allowance methods. Some of the most commonly used strategies are:

• Quantity discounts.
• Cash discounts.
• Trade discounts.
• Seasonal discounts.
• Promotional allowances: Loss-leader pricing, special-event pricing, cash rebates, low-interest financing, longer payment terms, warranties and service contracts, psychological discounting.
• Forward dating.

Discriminatory pricing

• Customer-Segment Pricing.
• Product-Form Pricing.
• Image Pricing.
• Location Pricing.
• Time Pricing.

Product-mix pricing

The logic of setting or charging a price on an individual product has to be modified when the product is a member of a product mix.

Six situations may be distinguished involving product-mix pricing;

• Product-­line pricing,
• Optional-feature pricing,
• Captive-product pricing,
• Two-part pricing,
• Byproduct pricing, and
• Product-bundling pricing.

Companies are bound to face market situations where they are required to initiate price changes. It means, either they are to cut the prices or increase the present prices to survive, maintain status quo or further growth. Initiating price changes involves two possibilities of price cuts and price increases.

Initiating Price Cuts:

There are good many circumstances where a firm is to resort to price cuts.

There are genuine reasons for cutting prices:

First may be existence of excess capacity. In such situation the firm is badly in need of additional business and cannot generate it through increased sales efforts, product improvement or even price rise.

It may resort to aggressive pricing, but in initiating price out, the company may trigger a price war. Second reason for initiating price cut is a drive to dominate the market through lower costs.

Here, either the company starts with lower costs than its competitors or it initiates price cuts in the hope of gaining the market share and lower costs to price cutting policy involves the following possible traps:

1. Low-quality trap:

Consumers will assume that quality is low.

2. Fragile-market share trap:

A low price buys market share but not market loyalty. The same customers will shift to any lower- priced firm that comes along.

3. Shallow-pockets trap:

The higher priced competitors may cut their prices and may have longer staying power because of deeper cash resources.

Initiating Price Increases:

Price increase is a source of maximising the profit or maintaining it if done carefully. Say a company earns 3 percent profit on sales, and one percent price increase will increase profits by 33 per cent if sales volume is not affected.

The factors leading to price increase can be:

1. Increase in cost inflation. That is rising costs unmatched by productivity gains squeeze profit margins and lead companies to regular rounds of price increases. Companies often raise their by more than the cost hike, in anticipation of further inflation or government price controls, in a practice called anticipatory pricing.
2. Over demand can be another cause that leads to price increase. When the company cannot supply all of its customers, it can raise its prices, ration or cut supplies to customers or both.

The price can be increased by at least four ways:

1. Delayed quotation pricing:

Here, the company does not set final price until product is finished or delivered. This pricing is prevalent in industries with long production lead times like construction and heavy industrial equipment’s.

2. Unbundling:

The company under this plan maintains its price but removes or prices separately one or more elements that were part of the former offer, such as free delivery or installation.

Automobile companies, sometimes, add antilock brakes and passenger-side air-bags as supplementary extras to their whiles.

3. Escalator clauses:

Under this, the company asks the customer to pay today’s price and all or part of any inflation increase that takes place before delivery. This hike based on specified price index. These escalation clauses are quite common in construction line whether it is a house or industrial project or air-craft and ship building.

4. Reduction of discounts:

The company asks the sales force to offer its normal cash and quantity discounts at reduced rate. To gain four such attempts, the company must avoid looking like a price gouger. Companies also think of who will bear the brunt of the increased prices.

It is so because, customer memories are long, and they can turn against the company which is perceived as price gauger.

Reactions to Price Changes:

Naturally any price change provokes response or reaction from customers, competitors, distributors and suppliers and even the government. Here, we shall touch only the reactions of consumers and competitors.

Customer Reactions:

Consumers are more interested in knowing the cause or causes of price change.

A price cut can be interpreted in several ways:

1. The item or product is about to be replaced by a new model.
2. The item is faulty and it is not selling well.
3. The firm’s financial position is badly affected.
4. The price will come down further.
5. The quality has been reduced.

A price hike may have some positive meanings:

1. The items is ‘hot’
2. It has a high value because of quality.

Competitor Reactions:

Competitors are most likely to react when the number of firms is few, the product is homogeneous, and buyers are highly informed. Competitor reactions can be a special problem when they have a strong value proposition. The price hike them to take steps based on objectives of such price hike where they will resort to advertising and product improving efforts.

In case of price cuts, they have different interpretations:

1. That the company’s trying to steal the market
2. That the company is doing poorly and trying to boost its sales
3. That company wants the whole industry to reduce prices to stimulate total demand.

Stage 1: Business Strategy Review

At this stage we must review and understand the vision, mission, values and strategic orientation of our company. The vision of transporting goods, i.e., cargo service would be different from the vision of transporting mail, i.e., courier service. In 1997, Michael Treacy and Fred Wiersema have written about three value disciplines that companies must choose from.

These include:

(i) The operationally excellent firm, which is efficient and delivers services at the lowest cost to the customer,

(ii) The product/service leader, i.e., offering innovative services under a strong brand.

(iii) The customer intimate firm, that excels in customer attention and customer service.

Next, we must understand the strategic orientation that our company has decided to take to excel in the marketplace. A strategy is essentially a means to reaching business goals that our company has decided for itself. Generic strategies are game plans for operating and surviving in the marketplace. Michael Porter has written about three generic strategies in 1980.

Stage 2: Developing New Service Strategy

We must decide the strategy that our company would like to take to grow in the marketplace and align new service development in that direction. These include

(i) Intensive growth

(ii) Integrative growth

(iii) Diversification

For intensive growth, the company would strive to increase market share for its current services in the current market or develop and launch new services in existing markets or take current services to new markets. These strategies are depicted in the matrix. A company can increase its market share by changing the style of operations and enhancing its customer intimacy, for instance. Ordinarily, service businesses choose to grow by taking their current services to new markets, i.e., new countries and cities and adapt the offering to the preferences of the customers in the new market. You may have noticed how McDonald’s opened its outlets in various cities in India, one after another. On the other hand, post offices in India started providing fixed deposit services and passport related services in the same markets where they were offering postal services. Similarly, a customs agent may launch courier services in the city where they are located, as an example of growing their business by offering new services in existing markets.

Stage 3: Idea Generation

The third stage of new service development is that of idea generation. This stage requires a formal department to be set up in our company. The activities in this stage would include conducting idea generation exercises like brainstorming and focus group discussion with customers, observing customers in different situations wherein they receive the same benefit through similar or ernative services and learning about the services provided by competitors. The company must also place suggestion boxes and institute suggestion reward schemes to attract suggestions from their employees. Listening to customers is the best way to receive ideas, not only for improvements in the current services offering, but also for entirely new services. The idea must align with the new service strategy; otherwise the idea must be dropped or shelved. It must also undergo preliminary evaluation regarding the potential market for the benefit that customers are willing to receive from the service. We must keep in mind that the quantum of investments starts increasing rapidly from this point onwards for developing each idea. Unless the idea has clear potential, it must be dropped, otherwise the company will face further losses if the idea is allowed to be developed further and is dropped at a later stage due to lack of feasibility.

Stage 4: Service Concept Development

An idea that appears feasible and profitable is taken up for development of the service concept. The service concept is the description of the service in terms of the value it will provide customers, the form and function of the service, the type and level of experience that customers are likely to receive from the service, and the outcome of the service. The concept is developed by involving customers, Service personnel, service managers, suppliers and other professionals such that it is acceptable to all and everybody agree that it is likely to provide much needed benefits to the customers. The service concept is tested with customers and employees and is dropped if it is not found to offer substantial benefits to customers in comparison to existing alternate methods by which customers can satisfy their need.

Stage 5: Developing the Business Case

It is ensured that it will be possible to deliver the services in a manner acceptable to customers, the customers are willing to purchase the service, and the service remains profitable with a three-year ROI/ROCE that is greater than the prevailing bank interest rate. If the service does not seem to be profitable, it must be dropped without incurring any further cost in developing the concept further. The profitable business case is then developed for approval of the management and representatives of the shareholders and investors.

Stage 6: Service Development and Testing

Once the business case for the service has been approved, it is taken up for development of the actual service. The blueprint of the services is further developed and the service prototype is tested with actual customers. For example, a bank can test new ideas by reorganizing current branches for the test period and observing and collecting data from actual customers about the benefits of the new idea. One bank found that installing TVs with CNN channel reduced the perceived waiting time for the customers and then the same was taken up for implementation in big branches. In this way all new concepts are tested and those ideas that do not provide substantial benefits to customers are promptly dropped.

Stage 7: Market Testing

Once the service prototypes have been tested, these are put together for a pilot test. Alternative marketing mix elements or 7Ps options are tested at this stage. At first, the pilot service is offered to the employees of the organisation and their feedback is collected. The service is then modified according to the feedback received and is offered to actual customers for a short period and their feedback collected. The feedback is analysed for effecting further modifications in the service and tying up any loose ends. If the service passes the market testing phase and it is found that customers are enthusiastic about the new service and the service is estimated to generate profits, the service development is taken to the next stage.

Stage 8: Commercialisation

The plan for rolling out the new service is then drawn up. It is usually rolled out in a phased manner by opening it up in the least risky markets and then quickly spreading it to other markets if the feedback is favourable. Commercialisation has two important objectives. The first objective is to elicit the support of the large number of service personnel who are going to deliver the services. At this stage the new service is marketed to the employees of the organisation as a new smart offering that generates profits and bonuses for the organisation. The second objective is to monitor the service throughout the period that customers purchase and use the service. Every interaction at the moment of truth and every detail is monitored and feedback collected from the customers as to whether the latter’s needs are being fulfilled, whether they are deriving benefits from the service and are satisfied and what modifications they would like to be made in the service. The service is constantly modified based on the feedback collected. Customers’ comfort with the price and other marketing mix elements is thoroughly ensured by the service manager and adjustment and improvements are continuously made so that customers feel a compelling need to purchase the service.

Stage 9: Post-launch evaluation

The service is reviewed for performance according to a pre-planned period of review. Customers, employees, the market and the context keep changing with time. It is important to effect necessary changes periodically in the service in line with the changes in the above dimensions. The service blueprint comes in handy at this stage. It is also inspected for alternate ways to gain further efficiency and pass on part of the benefits so accrued to the customers and part of the same to the organisation. Customers and employees are requested for new ideas for this new service and same are incorporated to be able to provide the latest to the customers and to remain ahead of competitors in the marketplace.

New Service Characteristics

Since services are intangible, it has to have 4 basic characteristics:

• It must be objective, not subjective
• It must be precise, not vague.
• It must be fact driven, not opinion driven.
• It must be methodological, not philosophical.

A product range refers to variations of a single product that are made in order to create similar yet distinctly different products. Each version of the product is designed to attract a different market segment with the intention of maximizing sales and building the customer base.

The success of product marketing in any business, small or large, is a direct result of having a satisfying array of products. Companies create and market these products to customers of varying ages, incomes, purchasing behavior and product likes and dislikes. Making sure the product range is right is a top priority for companies. Even companies as large as Coca-Cola continually assess their product marketing strategy to drive more growth, as seen in Marketing Week.

A look at the product mix vs product line discussions shows two types of product assortments. These include the “product range” (or product line) and the “product mix”. A company may have a strong product mix in several categories, and a comparable product range within those categories.

Advantages of Product Range

When companies roll out a product range, they are seeking to attract customers in a certain demographic, with common aspirations, income and purchasing behavior patterns. For example, a company may offer an excellent shampoo, like these on display at Matrix, and then develop alterations to the original formula for common audience targets.

Companies may also opt to create a product line extension from its product range, notes The Marketing Study Guide. A popular soft drink may opt to add in hints of pumpkin and cinnamon to capitalize on fall-winter taste themes. This has already happened in coffees and alcoholic beers.

Reasons for Product Range extension:

1) New Market Opportunities: When there is an emerging opportunity in a market sector, a company will launch various product variants in order to match the customer needs.

2) Product Life Cycle: In most cases, a product moves through four stages; Introduction, Maturity and Decline. When the product reached the maturity stage, company starts thinking about launching new variants to maintain the excitement among the customers or it will soon start to lose its customers to its competitors which have better functionalities.

3) Customer Loyalty: When a company wants to avoid the cost of acquiring new customers, it would launch new variants for the existing loyal customers.

4) Customer Needs: Introducing new products with emerging consumer needs. Getting customer insights and feedback through market research will help identifying those needs.

While changing price of any products, many reactions may come from concerned sides. At first reaction may come from consumers. Such reactions may be positive when price is cut down and negative when it is increased. The company should carefully as well as logically answer both reactions. In the same way, competitors’ reactions may also come. The company should give satisfactory answer to them with all reasons such as cost, market study, transport expenses, administrative expenses, etc. The following strategies should be adopted to face reactions of competitors and distributors.

1. Maintaining Price

The producers should try their best to maintain price at the same rate. Producers may cut down some percent of profit. The existing market segments can be maintained with such strategy. Along with this, opportunity can be found to enter new market segments. In this way, sale quantity may increase.

2. Increasing Price and quality

Producer may increase in existing quality and price. Production companies may bring in markets the new products or adding new features to the products challenging their competitors. Little more prices of such products do affect competitors so much. However, such analysis cannot last long. Other competitors also may adopt such strategy. This may be only a periodical means to stop competitors’ reactions. After sometime, the company should seek other alternatives.

3. Reducing price

Most of the customers become conscious about price. So, the producer should cut down the price of the products after certain time. Competitors of similar products also may adopt this strategy. The producers who cannot adopt such policy may get compelled to quit main market segments among many segments. Such markets once quitted need very hard labor to supply products to there again. Policy of taking low percent of profit should be adopted. Even decreasing price, quality, features and services should be maintained same. Only then, products can control markets.

Reactions of Competitors

Marketing executives must have a clear idea of the competitive environment in which they operate to estimate the extent of pricing flexibility available.

Like the customers, competitors also react to the price change of a company’s product. This reaction is inevitable if there are few competitors if buyers are highly informed, and if the product is homogeneous.

Like customers and competitors, the distributors, suppliers, and government may also react to a company’s price changes.

Reactions of Customers

Customers may react differently to price cuts, such as the item may be abandoned; it is faulty or not selling well; the firm may quit from this business; its quality has been reduced, or price may come down further.

Customers may equally react to the price increase of an item.

The price increase, though, normally reduces sales, may carry some positive meaning as well. Customers may consider the item as “hot” and may rush to buy it, anticipating that it may not be available in the future, or they may consider the item worth even if the price is raised.

Customers are normally price-sensitive to costly items or items frequently bought compared to less costly and less frequently bought items.

The integration of marketing channels involves a process known as multi-channel retailing. Multi-channel retailing is the merging of retail operations in such a manner that enables the transacting of a customer via many connected channels.

Vertical Channels:

These are professionally managed and centrally programmed networks that are established to achieve operating economies and maximum market impact. Hence, they are bound to be capital intensive; they are designed to achieve technical, managerial and promotional economies through integration, coordination and synchronization of marketing flows from the point of production to the point of final consumption.

a) Administered Channel:

This is developed in such a manner that the co-ordination of marketing activities is achieved by using the programs of one or few firms. An example of this type of system could include a large retailer such as Wal-Mart dictating conditions to smaller product makers, such as producers of a generic type of laundry detergent.

b) Contractual Channel:

Here, independent channel components integrate on contractual lines to attain economies of scale and maximize the market impact.

c) Corporate Channel:

Here, channel components are owned and operated by the same organisation. Although it provides full control, this comes with a huge investment. An example of a corporate vertical marketing system would be a company such as Apple, which has its own retail stores as well as designing and creating the products to be sold in those retail stores.

Horizontal Channels:

Here, two or more companies join hands to exploit a marketing opportunity. This may be achieved by themselves or by creating an independent unit, for example, Sugar Syndicate of India, Associated Cement Company, etc. The factors motivating horizontal integration are rapidly changing markets, racing competition, swift pace of technology, excess capacity, seasonal and cyclical changes in consumer demand and the risks involved in accepting financial risks single-handedly.

Omni-channel retailing is concentrated on a seamless approach to the consumer experience through all available shopping channels like mobile internet devices, computers, bricks-and-mortar, television, catalogue, and so on. The omni-channel consumer wants to use all channels simultaneously and retailers using an omni-channel approach will track customers across all channels, not just one or two.

Multi-channel retailing is built on systems and processes, but customer heavily dictates the route they take to transact. Systems and processes within retail simply facilitate the customer journey to transact and be served. The pioneers of multi-channel retail built their businesses from a customer centric perspective and served the customer via many channels long before the term multi-channel was used.