Question No. 10 - Principles of Marketing BCOE - 141

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BCOE - 141 - Principles of Marketing

Question No. 10

What do you understand by marketing environment? Explain the types of marketing environment.

Marketing environment is the combination of external and internal factors and forces that affect the company’s ability to establish a relationship and serve its customers.

The marketing environment of a business consists of an internal and an external environment.

• The internal environment is company-specific and includes owners, workers, machines, materials etc.
• The external environment is further divided into two components: micro & macro.
• The micro or the task environment is also specific to the business but is external. It consists of factors engaged in producing, distributing, and promoting the offering.
• The macro or the broad environment includes larger societal forces which affect society as a whole. It is made up of six components: demographic, economic, physical, technological, political-legal, and social-cultural environment.

TYPES OF MARKETING ENVIRONMENT

The marketing environment is made up of the internal and external environment of the business. While the internal environment can be controlled, the business has less or no control over the external environment.

• Internal Environment

The internal environment of the business includes all the forces and factors inside the organisation which affect its marketing operations. These components can be grouped under the Five Ms of the business, which are:

• Men: The people of the organisation including both skilled and unskilled workers.
• Minutes: Time taken for the processes of the business to complete.
• Machinery: Equipment required by the business to facilitate or complete the processes.
• Materials: The factors of production or supplies required by the business to complete the processes or production.
• Money: Money is the financial resource used to purchase machinery, materials, , and pay the employees.

The internal environment is under the control of the marketer and can be changed with the changing external environment. Nevertheless, the internal marketing environment is as important for the business as the external marketing environment. This environment includes the sales department, the marketing department, the manufacturing unit, the human resource department, etc.

• External Environment

The external environment constitutes factors and forces which are external to the business and on which the marketer has little or no control. The external environment is of two types:

• Micro marketing environment
• Macro marketing environment

• Micro Environment

The micro-component of the external environment is also known as the task environment. It comprises external forces and factors that are directly related to the business. These include suppliers, market intermediaries, customers, partners, competitors and the public

• Suppliers include all the parties which provide resources needed by the organisation.
• Market intermediaries include parties involved in distributing the product or service of the organisation.
• Partners are all the separate entities like advertising agencies, market research organisations, banking and insurance companies, transportation companies, brokers, etc. which conduct business with the organisation.
• Customers comprise of the target group of the organisation.
• Competitors are the players in the same market who targets similar customers as that of the organisation.
• Public is made up of any other group that has an actual or potential interest or affects the company’s ability to serve its customers.

• Macro Environment

The macro component of the marketing environment is also known as the broad environment. It constitutes the external factors and forces which affect the industry as a whole but don’t have a direct effect on the business. The macro-environment can be divided into 6 parts.

• Demographic Environment

The demographic environment is made up of the people who constitute the market. It is characterised as the factual investigation and segregation of the population according to their size, density, location, age, gender, race, and occupation.

• Economic Environment

The economic environment constitutes factors that influence customers’ purchasing power and spending patterns. These factors include the GDP, GNP, interest rates, inflation, income distribution, government funding and subsidies, and other major economic variables.

• Physical Environment

The physical environment includes the natural environment in which the business operates. This includes the climatic conditions, environmental change, accessibility to water and raw materials, natural disasters, pollution etc.

• Technological Environment

The technological environment constitutes innovation, research and development in technology, technological alternatives, innovation inducements also technological barriers to smooth operation. Technology is one of the biggest sources of threats and opportunities for the organisation and it is very dynamic.

• Political-Legal Environment

The political & Legal environment includes laws and government’s policies prevailing in the country. It also includes other pressure groups and agencies which influence or limit the working of the industry and/or the business in the society.

• Social-Cultural Environment

The social-cultural aspect of the macro-environment is made up of the lifestyle, values, culture, prejudice and beliefs of the people. This differs in different regions.

Question No. 9 - Principles of Marketing BCOE - 141

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BCOE - 141 - Principles of Marketing

Question No. 9

What is product life cycle? Discuss briefly. 

The term product life cycle refers to the length of time a product is introduced to consumers into the market until it's removed from the shelves. The life cycle of a product is broken into four stages—introduction, growth, maturity, and decline. This concept is used by management and by marketing professionals as a factor in deciding when it is appropriate to increase advertising, reduce prices, expand to new markets, or redesign packaging. The process of strategising ways to continuously support and maintain a product is called product life cycle management.

Products, like people, have life cycles. A product begins with an idea, and within the confines of modern business, it isn't likely to go further until it undergoes research and development (R&D) and is found to be feasible and potentially profitable. At that point, the product is produced, marketed, and rolled out.

As mentioned above, there are four generally accepted stages in the life cycle of a product—introduction, growth, maturity, and decline.

• Introduction: This phase generally includes a substantial investment in advertising and a marketing campaign focused on making consumers aware of the product and its benefits.
• Growth: If the product is successful, it then moves to the growth stage. This is characterized by growing demand, an increase in production, and expansion in its availability.
• Maturity: This is the most profitable stage, while the costs of producing and marketing decline.
• Decline: A product takes on increased competition as other companies emulate its success—sometimes with enhancements or lower prices. The product may lose market share and begin its decline.

When a product is successfully introduced into the market, demand increases, therefore increasing its popularity. These newer products end up pushing older ones out of the market, effectively replacing them. Companies tend to curb their marketing efforts as a new product grows. That's because the cost to produce and market the product drop. When demand for the product wanes, it may be taken off the market completely.

Question No. 8 - Principles of Marketing BCOE - 141

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BCOE - 141 - Principles of Marketing

Question No.  8

What are the factors affecting promotion mix.

The following are the factors influencing promotion mix:

1. Nature of the Product:

Promotion mix will vary according to the nature of the product. Consumer goods require mass advertisement. But industrial goods require personal selling, advertising, displays etc. Complex and technical products like computer need personal selling.

Non-technical products require advertising as promotional device. In case where there is no brand differentiation personal selling should be the method of promotion. Where there is brand differentiation advertising should be emphasised.

2. Nature of the Market:

For industrial market, advertising plays an informative role, but for consumer market it plays as informative as well as persuasive role. The promotion strategy varies with the target groups depending on age, sex, education, income, religion etc.

3. Stages in the Product Life Cycle:

The marketing objectives and strategies are different at each stage of the product in its life cycle. During the introductory stage intensive advertising and personal selling are required for effecting product awareness.

During growth stage advertising should be extended to maximise the market share. During maturity stage persuasive advertising and sales promotion techniques are beneficial. But at the declining stage advertisement and sales promotion are reduced to the minimum.

4. Market Penetration:

A product having good market penetration is well-known to the buyers. In that situation, middlemen are motivated to spend more an advertising.

5. Market Size:

It there is limited number of buyers, direct selling is enough. But if the market size is large the promotional tool is mainly advertising.

6. Characteristics of Buyers:

Experienced buyers of industrial product need personal selling. The experience of buyers, the time available for purchase, influence of friends, retailers etc. are the factors affecting promotion mix.

7. Distribution Strategy:

If the products are directly sold by the manufacturer personal selling is the tool of promotion.

Advertising is only a supporting tool. Personal selling and advertising is required for market penetration. If the product passes through a longer channel more importance should be given to advertising and less importance to personal selling.

8. Pricing Strategy:

Pricing influences promotion strategy. If the brand is priced higher than the competitor’s price, personal selling is used. If the price is comparatively low only little promotion is needed. If the middlemen are allowed higher profit margin, sales promotion at dealer level is important.

9. Cost of Promotion:

The cost of the media of advertising and sales promotion tools should also be considered while deciding the promotional mix.

10. Availability of Funds:

If the funds are adequate the firm can spend more for advertising and sales promotion. But small firms with limited resources can depend on personal selling.

Question No. 7 - Principles of Marketing BCOE - 141

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BCOE - 141 - Principles of Marketing

Question No. 7 

 Explain the process of new product development. 

The process of new product development involves 8 steps as described below: 

1. Idea generation – The New Product Development Process

The new product development process starts with idea generation. Idea generation refers to the systematic search for new-product ideas. Typically, a company generates hundreds of ideas, maybe even thousands, to find a handful of good ones in the end. Two sources of new ideas can be identified:

a. Internal idea sources: the company finds new ideas internally. That means R&D, but also contributions from employees.

b. External idea sources: the company finds new ideas externally. This refers to all kinds of external sources, e.g. distributors and suppliers, but also competitors. The most important external source are customers, because the new product development process should focus on creating customer value.

2. Idea screening – The New Product Development Process

The next step in the new product development process is idea screening. Idea screening means nothing else than filtering the ideas to pick out good ones. In other words, all ideas generated are screened to spot good ones and drop poor ones as soon as possible. While the purpose of idea generation was to create a large number of ideas, the purpose of the succeeding stages is to reduce that number. The reason is that product development costs rise greatly in later stages. Therefore, the company would like to go ahead only with those product ideas that will turn into profitable products. Dropping the poor ideas as soon as possible is, consequently, of crucial importance.

3. Concept development and Testing – The New Product Development Process

To go on in the new product development process, attractive ideas must be developed into a product concept. A product concept is a detailed version of the new-product idea stated in meaningful consumer terms. You should distinguish

A product idea -  an idea for a possible product

A product concept - a detailed version of the idea stated in meaningful consumer terms

A product image - the way consumers perceive an actual or potential product.

4. Marketing strategy development – The New Product Development Process

The next step in the new product development process is the marketing strategy development. When a promising concept has been developed and tested, it is time to design an initial marketing strategy for the new product based on the product concept for introducing this new product to the market. The marketing strategy statement consists of three parts and should be formulated carefully:

• A description of the target market, the planned value proposition, and the sales, market share and profit goals for the first few years 

• An outline of the product’s planned price, distribution and marketing budget for the first year 

• The planned long-term sales, profit goals and the marketing mix strategy.

5. Business analysis – The New Product Development Process

Once decided upon a product concept and marketing strategy, management can evaluate the business attractiveness of the proposed new product. The fifth step in the new product development process involves a review of the sales, costs and profit projections for the new product to find out whether these factors satisfy the company’s objectives. If they do, the product can be moved on to the product development stage. In order to estimate sales, the company could look at the sales history of similar products and conduct market surveys. Then, it should be able to estimate minimum and maximum sales to assess the range of risk. When the sales forecast is prepared, the firm can estimate the expected costs and profits for a product, including marketing, R&D, operations etc. All the sales and costs figures together can eventually be used to analyse the new product’s financial attractiveness.

6. Product development – The New Product Development Process

The new product development process goes on with the actual product development. Up to this point, for many new product concepts, there may exist only a word description, a drawing or perhaps a rough prototype. But if the product concept passes the business test, it must be developed into a physical product to ensure that the product idea can be turned into a workable market offering. The problem is, though, that at this stage, R&D and engineering costs cause a huge jump in investment.

The R&D department will develop and test one or more physical versions of the product concept. Developing a successful prototype, however, can take days, weeks, months or even years, depending on the product and prototype methods.

Also, products often undergo tests to make sure they perform safely and effectively. This can be done by the firm itself or outsourced.

In many cases, marketers involve actual customers in product testing. Consumers can evaluate prototypes and work with pre-release products. Their experiences may be very useful in the product development stage.

7. Test marketing – The New Product Development Process

The last stage before commercialisation in the new product development process is test marketing. In this stage of the new product development process, the product and its proposed marketing programme are tested in realistic market settings. Therefore, test marketing gives the marketer experience with marketing the product before going to the great expense of full introduction. In fact, it allows the company to test the product and its entire marketing programme, including targeting and positioning strategy, advertising, distributions, packaging etc. before the full investment is made.

8. Commercialisation

Test marketing has given management the information needed to make the final decision: launch or do not launch the new product. The final stage in the new product development process is commercialisation. Commercialisation means nothing else than introducing a new product into the market. At this point, the highest costs are incurred: the company may need to build or rent a manufacturing facility. Large amounts may be spent on advertising, sales promotion and other marketing efforts in the first year.

Question No. 6 - Principles of Marketing BCOE - 141

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BCOE - 141 - Principles of Marketing

Question No.  6

What do you mean by market segmentation? Explain the basis of market segmentation.

Market segmentation is a marketing concept which divides the complete market set up into smaller subsets comprising of consumers with a similar taste, demand and preference. A market segment is a small unit within a large market comprising of like minded individuals. One market segment is totally distinct from the other segment. A market segment comprises of individuals who think on the same lines and have similar interests. The individuals from the same segment respond in a similar way to the fluctuations in the market.

• Basis of Market Segmentation

1. Gender

The marketers divide the market into smaller segments based on gender. Both men and women have different interests and preferences, and thus the need for segmentation. Organisations need to have different marketing strategies for men which would obviously not work in case of females. A woman would not purchase a product meant for males and vice a versa. The segmentation of the market as per the gender is important in many industries like cosmetics, footwear, jewellery and apparel industries.

2. Age Group

Division on the basis of age group of the target audience is also one of the ways of market segmentation. The products and marketing strategies for teenagers would obviously be different than kids.

Age group (0 - 10 years) - Toys, Nappies, Baby Food, Prams

Age Group (10 - 20 years) - Toys, Apparels, Books, School Bags

Age group (20 years and above) - Cosmetics, Anti-Ageing Products, Magazines, apparels and so on

 

3. Income

Marketers divide the consumers into small segments as per their income. Individuals are classified into segments according to their monthly earnings.

The three categories are:

a. High income Group 

b. Mid Income Group

c. Low Income Group

Stores catering to the higher income group would have different range of products and strategies as compared to stores which target the lower income group. Pantaloon, Carrefour, Shopper’s stop target the high income group as compared to Vishal Retail, Reliance Retail or Big bazaar who cater to the individuals belonging to the lower income segment.

4. Marital Status

Market segmentation can also be as per the marital status of the individuals. Travel agencies would not have similar holiday packages for bachelors and married couples.

5. Occupation 

Office goers would have different needs as compared to school / college students. A beach house shirt or a funky T Shirt would have no takers in a Zodiac Store as it caters specifically to the professionals.

6. Usage

Product usage also acts as a segmenting basis. A user can be labelled as heavy, medium or light user of a product. The audience can also be segmented on the basis of their awareness of the product.

7. Lifestyle

Other than physical factors, marketers also segment the market on the basis of lifestyle. Lifestyle includes subsets like marital status, interests, hobbies, religion, values, and other psychographic factors which affect the decision making of an individual.