Chapter 22

Marketing Mix Research: Product, Price, Place and Promotion Research

Learning Objectives

Upon completion of this chapter, you will be able to:

• Understand the application aspects of market research.
• Understand the meaning of marketing mix and its connection with marketing research.
• Understand the issues pertaining to new-product development research.
• Understand the role of marketing research with respect to pricing dimensions.
• Understand the marketing research inputs required to take different distribution decisions.
• Understand the use of marketing research in making different promotional decisions.

22.1 INTRODUCTION

We have discussed the different aspects of making and presenting decisions in marketing in the previous chapters. We have also discussed how marketing research is a sequential and interlinked exercise that is difficult to execute without following a defined sequence. Traditionally, the 4Ps of marketing defined by McCarthy in 1964 include product, price, place and promotion. This chapter focuses on the information required by a decision maker to take decisions regarding product, price, place and promotion.

Companies invest heavily on new product development. Marketing research provides companies with inputs to take objective decisions. The pricing of a product is also an important consideration to place and penetrate a product effectively in the market. Information pertaining to various aspects of pricing can also be generated by engaging in marketing research. The place indicates a distribution channel required to make the product available in the market. Distribution involves determining the number and location of warehouses, retail stores and sales personnel. Promotion caters to decisions pertaining to communication with users or potential users or non-users of the product. These aspects are very important for any marketer to take informed decisions to optimize profit and customer satisfaction.

22.2 MARKETING MIX: MEANING

McCarthy (1964) first defined marketing mix with the help of a combination of four tools, which he called the four Ps of marketing—product, price, place and promotion. Product variables include product variety, quality, design, features, brand name, packaging, sizes, services, warranties and returns. Price includes list price, discounts, allowances, payment period and credit terms. Place covers channels, coverage, assortments, locations, inventory and transport. Promotion includes sales promotion, advertising, sales force public relations and direct marketing (Kotler et al. 2009). A marketer always seeks the latest information related to the tools of marketing discussed above. The marketing environment is highly dynamic and inputs from market research is essential for marketers to understand the changing needs of the market. Marketing research acts as a facilitating tool to make effective decisions.

Though the four Ps present a comprehensive discussion of the various elements of marketing, there has been debate on the extension of the concept to include more Ps. Researchers who can be referred to as “traditionalists” argue that the original four Ps are sufficient for dealing with the various dimensions of marketing activity as the addition or deletion of factors is always possible within each P. Another group of researchers who can be referred to as “modernists” suggest that since these Ps were developed way back in 1964, many aspects of each P has completely changed. Hence, there is an urgent need to enhance the traditional list of four Ps. Researchers and academicians claim that during the evolution of the four Ps, the approach was manufacturing focused and customer focus was minimal. They also argue that after the evolution of the four Ps, every decade has been marked by changes in the marketing arena. For example, the use of the Internet for marketing was unimaginable at the time of the development of the traditional four Ps of marketing. Over a period of time, new concepts such as total quality management, services marketing, customer relationship management and e-marketing have also emerged. The inclusion of all these concepts in the traditional four Ps did not seem appropriate and the need was felt to include a few more Ps to make this discussion complete. There has been a lot of debate and research about the sufficiency of the four Ps as a marketing management tool in its original form. Many researchers have proposed alternative approaches by adding new parameters to the original mix or replacing it with alternative frameworks altogether (Goi 2009).

From a services marketing perspective, Booms and Bitner (1981) have added three more Ps—physical evidence, participants and process. Physical evidence refers to physical surroundings and all tangible issues. Participants reflect all people including employees, channel members, customers, etc. directly or indirectly involved in the marketing or consumption process. Process is also a comprehensive phenomenon that involves all the procedures, mechanisms or flow of activities pertaining to the environment where the service is being delivered. Many researchers and experts claim that a list of the four traditional Ps and three more Ps derived from the services marketing point of view make the study and discussion more exhaustive. They felt that there was no need to add another P to cover the wide scope of marketing activities. Over a period of time, importance was given to the customer relationship aspects in marketing. Scholars of relationship marketing felt that the list of seven Ps would become more comprehensive with the addition of a tool to factor in the long-term relationships with customers. In order to make the list complete from the relationship marketing point of view, Goldsmith (1999) added one more P (Personalization) to make the list of Ps more complete. Theories of marketing management and strategy need to evolve and change to keep pace with the changes in the marketplace and in marketing practice. As the next century draws closer, it is apparent that some marketing managers are basing their relationships with customers on policies and procedures called either “individualization”, “mass-customization”, or as we prefer, “personalization”. The core of this practice involves tailoring goods and services to the individual needs and wants of specific consumers, just the opposite of one-size-fits-all. Personalization is so important to marketing strategy that it should become one of the featured elements of the marketing mix, alongside product, price, promotion, place, personnel, physical assets, and procedures, to form a new marketing mix, the 8Ps (Goldsmith, 1999).

The journey of adding more Ps to cover all the dimensions of marketing does not stop over here. The additional three Ps were based on services marketing. Balmer (1998) proposed a list of 11 Ps in the field of corporate marketing. Balmer and Greyser (2005) listed it as Philosophy and Ethos, Product, Price, Place, Performance, Positioning, Personality, Promotion, People, Perception and Promise. Their scholarly research paper further explains all these 11 components making 11 Ps in the field of corporate marketing. Philosophy and Ethos indicates how the organization is constituted and how it executes its work activities to address different issues. Product refers to what the organization is making and doing. Price is beautifully explained as the emotional and capital asset of the organization. It also includes a valuation of the organization’s brands, share price and staff salaries. Place widely covers distribution and organizational relationships in terms of the selling and distribution of product and services. Performance not only focuses on the quality of product and services but also covers issues related to governance, ethics and social responsibility. Positioning indicates the organization’s position relative to its competitors in the market. Personality is related to the critical role of personnel for corporate marketing activities. Promotion incorporates coordinated corporate communications including corporate advertising, corporate PR, visual identification and the like. People defines the organization’s internal and external constituencies and communities in addition to customers. Perception is the image and reputation of the organization by groups, communities and by individuals. Promise includes fulfilling stakeholder’s expectations as well as satisfying the expectation from the organization’s point of view.

Understanding marketing from a discussion of Ps sometimes presents a great simplification but some authors tried to make the concept of marketing mix more elaborative. The marketing mix can be explained as the specific collection of actions and associated instruments employed by an organization to stimulate acceptance of its ideas, products, or services. The basic functions included in the mix are product development and policymaking, pricing, channel selection and control, and marketing communications, personal selling, direct marketing, and advertising (Dalrymple and Parsons 2000). This definition is more elaborate as it addresses different issues in marketing management and focuses not only on products but also ideas and services. This stimulus can include any effort done by the marketer to make a product, an idea or services acceptable to customers. This definition travels from developing a marketing mix to ultimately making it acceptable to all the potential customers.

Over a period of time, the understanding of marketing mix has included one more dimension of framing strategy to cater to the needs and demands of customers. The undue focus on the four Ps or many Ps has diverted the attention of the marketer and the market researcher. In a powerful earlier incarnation lodged firmly in the marketing department, marketing essentially referred to the “marketing mix,” the set of implementation programs that the firm would develop to address a particular market or market segment. Later, in the era of “strategic marketing”, it became clear that the choice of markets and market segments, and the manner in which the firm would position its offerings in those markets and segments, were logically decisions that had to be made prior to designing the marketing mix (Capon and Hulbert 2001). This definition opens the strategic dimension of understanding the marketing mix. This concept focuses on making logical decisions related to the markets. The market segments comes first and then the marketing mix comes into the picture.

The four Ps act as the basis of understanding marketing activity and the various dimensions of marketing. A market researcher has to provide inputs to the marketer or organization pertaining to the various decision dimensions mainly emerging from the four Ps. As discussed, the concept of seven Ps, eight Ps and 11 Ps emerged over the years (Table 22.1). Even after the emergence of many Ps in different streams of marketing, the importance of the four Ps remain intact. The four Ps are still the focal point of discussion in many popular books of marketing. The four Ps concept has also been criticized by many experts. As discussed, there has been debate to make the four Ps more extensive and wide. Some experts suggest that each category must be subdivided into more categories. For example, promotion can be subdivided into sales promotion and advertising. Nevertheless, the four Ps offer a memorable, useful guide to the major categories of marketing activity, as well as a framework within which they can be used (Czinkota and Kotabe 2002). Since 1964, many researchers and marketers have talked about expanding the scope of the study beyond the four Ps. However, the importance and application of four Ps for study and discussion is unchanged. After almost 50 years, it is apparent that despite the controversies between the “conservatives” and “revisionists”, the basic construction of the four Ps is still valid and, with some extension and adjustment, is still the core of operative decisions (Dominici 2009). In this chapter, we will focus our discussion on the combination of four Ps product, price, place and promotion proposed by McCarthy (1964). The chapter will focus on new product research, pricing research, place (distribution) research and promotion research.

Table 22.1 Evolution of different Ps with the evolution of different branches of marketing

22.3 New Product Research

Managers hesitate to define a policy to develop a new product as they feel that it is a creative process that should not be shackled by definition or policy. Their hesitation seems to be genuine as any pre-specified policy may disturb the creative and innovative process of new product development. Though the literature related to new product development presents some formal stages in new product development, a strict policy to adhere to is not readily available in the literature. Within the new product development literature, there are a number of studies that seek to identify the factors that determine the outcome of new product development. Generally, a distinction can be made between “generalist” and “specialist” studies. Generalist studies typically include a broad range of possible determinants of new product success and aim at identifying the most important ones among them within an exploratory research design. On the other hand, specialist studies focus on an in-depth analysis of a limited range of determinants of new product success (Gruner and Homburg 2000). Figure 22.1 presents a roadmap to develop a new product. As shown in Figure 22.1, generally, there are eight steps in the new-product development process. These are: new product idea generation (need identification and concept identification); strategic screening of ideas (revenue and cost analysis); concept development and testing; product development and marketing strategy; product testing; test marketing, commercialization and post-launch evaluation (short term and/or long term). The very first step in new product development process is the generation of ideas with two inherent components: need identification and concept identification. Need identification propels need identification research. Concept identification is an activity that is launched to develop a concept for fulfilling the identified need.

Figure 22.1 Stages in new product development research

22.3.1 New Product Idea Generation (Need Identification and Concept Identification)

Need identification requires inputs from marketing research. A systematic market research effort is required to cater to the needs of customers. A technique known as multidimensional scaling (discussed in Chapter 19) can be used to identify the needs of customers. As discussed in Chapter 19, multidimensional scaling is the process of positioning products in a spatial map or perceptual map with the defined dimensions. This map can be used to generate gaps, which can be used to fit in a potential new product. Though multidimensional scaling is a widely applied technique of need identification, it also suffers from one major drawback. This method can be used to frame user perceptions and preferences in terms of attributes. However, it does not offer the means of going beyond the experience of the users interviewed. First, for reasons discussed above, user subjects are not well positioned to accurately evaluate novel product attributes or “amounts” of familiar product attributes that lie outside the range of their real-world experience. Second, and more specific to these techniques, there is no mechanism to induce users to identify all product attributes potentially relevant to a product category, especially attributes that are currently not present in any extant category member (Hippel 1986).

In recent years, the lead user analysis technique has been adopted to identify customer needs. Hippel (1986) defined “lead users” of a novel or enhanced product, process or service as those who display two characteristics with respect to it:

• Lead users face needs that will be general in a marketplace but face them months or years before the bulk of that marketplace encounters them.
• Lead users are positioned to benefit significantly by obtaining a solution to those needs.

After the identification of lead users, their need data is collected and analysed. The analysed data is then used for addressing the market needs strategically and not directly. This means that the data obtained from the lead users is specified and examined for a special market need and then it is appropriately used for catering to the needs of the customers. Over the past decade, empirical research has shown that, in many fields, users have a great deal more to contribute to the marketing researcher than data regarding their unfilled needs. Often, they can contribute insights regarding solutions responsive to their needs as well. This “solution” data can range from rich insights to working and tested prototypes of the desired novel product, process or service. In some fields, users have been shown to be the actual developers of most of the successful new products eventually commercialized by manufacturers (Urban and Hippel 1988).

The focus group method is another technique to identify the needs of customers. In the focus group method, a market researcher calls a group of customers who are familiar with the product and its features for a discussion whose duration is specified in advance. The market researcher acts as a moderator and ensures that the discussion is recorded for later analysis. The issue to be discussed is also specified earlier and it is generally is related to the problems and issues associated with a particular aspect of a product. For example, a market researcher can organize a discussion on some issues related to the launch of a new feature in the product. In this method, sometimes the discussed issues go beyond the issues specified earlier with the deliberate silent approval of the moderator. This kind of discussion provides an opportunity to uncover respondents’ feelings not only regarding the existing attributes of the product but also to analyse their opinion about the future requirement of the product or product attributes. Focus group method is largely dependent on the analytical ability of the analyst or researcher, which sometimes makes it very subjective. If issues are perceived correctly by the researcher, the process is effective. Otherwise, the situation becomes very complex for a decision maker.

An approach termed as benefit structure analysis is also being used to determine the needs of customers in the market, A benefit structure analysis study indicated what types of product characteristics are seen by respondents as being the most closely associated with any single benefit or any group of related benefits. This provides a linkage between benefits and the product characteristics that produce the desired benefits. This provides a “structure” for a particular type of consumer product or service market (Myers 1976). Benefit structure analysis helps in identifying the benefits that a current product is not able to provide. This is very important for a market researcher as it provides a base for the development of a new product.

A market researcher has to identify the product needs correctly as heavy investment is incurred by the company on the initial identification. This is a great responsibility and needs to be done at the outset. If the product needs are identified wrongly and the process reaches the commercialization stage, the company will have to bear heavy losses. Figure 22.2 exhibits the cost of failure in new product development research. Marketing researchers face serious difficulties if they attempt to determine new product needs falling outside the real-world experiences of the users they analyse (Hippel 1986).

Figure 22.2 Cost of failure in new product development

Concept identification is also a very important step in new-product development research. A market researcher has to keep a strict surveillance on the changing marketing dimensions and environment to identify the right concept at the right time. For example, the Indian two-wheeler industry is witnessing a shift in terms of consumer preferences for a two-wheeler. The scooter market is shrinking and the motorcycle market is expanding. So, companies are placing more emphasis on the production of motorcycles as compared to scooters and are focusing on features such as the mileage. It is a well-known fact that Indians are very particular about the mileage they receive from their two-wheelers. Hence, most two-wheeler companies are focusing on mileage and their advertisement campaigns also mainly address this issue. So, in this case, the concept identification must not only focus on the production of motorcycles but should also be able to take care of the mileage issue.

In the concept identification stage, the needs are being identified and a broad concept emerges to cater to the identified needs. An initial idea for new product development is generated. On the basis of the information generated, the researcher can decide whether the concept can be sent for development or whether it must be further refined before it is developed further. In the field of marketing research, conjoint analysis (discussed in Chapter 18) is typically used for concept generation related to the combination of different product attributes. Concept identification generally addresses issues such as the correct identification of the concept; removal of initial flaws and making it appropriate for further processing in terms of the various stages in new product development. A marketing research firm can also introduce> the concept to potential customers to make it more concrete. This will be a type of exploratory research in which a market researcher tries to obtain a potential customer’s views and suggestions on the identified concept. The traditional methods of concept identification sometimes make the respondents aware about the concept without considering environment in which the new product will be used. Sometimes, the market researcher finds it difficult to present the complete information. This hinders the process. In some cases, respondents can provide information only after using the product. In such a situation, the presentation of the concept may not generate much information. Nowadays market researchers have also started using modern techniques such as exposing consumers to a virtual buying environment. The new market measurement system combines existing methods with a multi-media virtual buying environment that conditions respondents to future situations, simulates user experiences and encourages consumers to actively search for information on the product (Urban et al. 1996).

22.3.2 Strategic Screening of Ideas (Revenue and Cost Analysis)

Before the concept testing and development stage, the idea generated in stage one has to pass the strategic screening of ideas phase. Among the criteria employed at this point are those related to fit with the business unit’s strategy, its core competencies, and the potential of the idea to meet or exceed the unit’s growth and profitability objectives (Capon and Hulbert 2001). This stage is termed as the strategic screening of ideas stage as the idea may also be related with the enhanced potential of the company. There is a possibility that a company may be willing to enhance its existing potential with the introduction of the new product in the market. The introduction of a new product may be a part of its development and growth strategy. The ideas generated vary widely in scope and are filtered out to meet the firm’s strategy and vision.

The strategic screening of the idea also includes a detailed revenue and cost analysis. This is the stage where the potential of the market must be assessed and a detailed study must be launched to understand the potential profitability of the new product. At this stage, if a market researcher has any doubts about the success of the product, it must be immediately communicated to the firm as the cost incurred up to this stage is not very high and further losses can be prevented. A simple mathematical approach can be adopted to assess market potential. This can be computed using a simple formula

PMP = NPB × ASP × ANPB

Where

PMP = Projected market potential

NPB = Number of potential buyers

ASP = Average selling price

ANPB = Average number purchased by each buyer

For example, a microwave oven company plans to launch a new product in 2015. The company has estimated the number of potential buyers as 50,000; average selling price per unit as 7,000 and average number purchased by each buyer as one. For such a situation, the projected market potential can be computed as:

PMP = 50,000 × 7,000 × 1 = 35,00,00,000

Hence, the project market potential is computed as 35 crore. The figure obtained from such a simple method of projection may contain some errors. This figure can be further adjusted by ±10% or ±20% or the adjustment margin decided by the company officials or experts. This stage is extremely important as a wrong estimation will lead to heavy losses for the company. For example, a company realises that the product will not work in the market after investing a huge amount in research and development. This realisation could prove to be very costly for the company because it has already come out with the new product and there is no way to undo the losses that it has started incurring.

The next step is to estimate the cost of new product development. At this stage, where the product has just passed through the initial stage of idea generation, the determination of accurate and actual costs is a difficult exercise. However, it is a very essential part of the product development stage. The cost includes development cost, cost related to new product penetration efforts, cost related to promotional efforts including advertisement and selling expenses, distribution expenses, overheads and many miscellaneous expenses. The right estimation of costs is important at this stage before the company moves to the next stage of concept testing and development. Marketing researchers provide inputs to ensure that the costs estimated are close to the real cost. An analysis of the competitors’ costs incurred in developing a similar type of product is also a helpful technique in determining the cost of new product development. Cost estimation is the start of the cost management process and influences the “go,” or “no go” decisions concerning new product development (Rush and Roy 2000). The various cost estimation techniques can be broadly divided into qualitative techniques and quantitative techniques. Qualitative techniques are helpful either in furnishing rough cost estimates or serve as a decision-aid tool for designers or estimators especially during the early phases of the design process. However, when the detailed design becomes available, quantitative techniques provide more accurate estimates, which are necessary for factors such as design rationalization, determination of profit margins, etc. (Niazi et al. 2006). Qualitative techniques use past information and are very helpful in generating cost estimates when detailed information about the product is not available. Qualitative techniques can be further divided into intuitive cost estimation techniques and analogical cost estimation ­techniques. Intuitive techniques covers case-based methodology and decision-support systems. The case-based methodology uses the design of an old product, which is similar to the new product for estimating the cost of the new product. Decision-support systems are helpful in evaluating design alternatives. The main purpose of these systems is to assist estimators in making better judgments and decisions at different levels of the estimation process by making use of the stored knowledge of experts in the field (Niazi et al. 2006).The analogical cost estimation technique covers a traditional approach known as regression technique. This technique is based on the linear relationship between the cost of a product and some independent variable. This relationship and the information available for the past product is used to forecast the cost of a new product.

22.3.3 Concept Development and Testing

Concept development and testing is different from idea generation. A product idea refers to the possible product that a company can offer to the market. On the other hand, concept development is an extended version of the idea that is presented to a consumer according to his or her understanding. Concept development and testing is also an important stage of the new product development process. The difference between an idea and a concept can be explained with the help of an example. Suppose a four-wheeler manufacturer is looking to launch an SUV at an affordable price for a new segment of customers. This is the idea generated by the company. This product development idea can be categorized in many ways. A market researcher has to address many issues. The first and most important issue is to identify the segment of customers who will buy the product. Second, how will the proposed new product be different from the existing products in the market? Third, why will the potential customer buy this new product when there are already many established products in the market? Fourth, what will be the right time to introduce the product in the market? Hence, a basic idea concerning the introduction of a new product has been categorized in several addressable concepts. The first concept explores the exact customer segment that will be mainly attracted by the new product. A market researcher can provide information on this issue. A systematic market study can reveal that after liberalization and globalization, an affluent middle class has emerged in India, which is looking out to buy an SUV. The second concept may address the issue of discovering the difference that this new product can offer. A market researcher can provide the input that even with fewer features, customers may like to purchase a vehicle that looks like an SUV in a reasonable price range and with enhanced mileage. This leads to the brand positioning concept. A perceptual map can be used to compare the offering of this new brands with other available brands. The third concept forces a market researcher to establish the notable difference between the new proposed product and the existing products in the market. A market researcher may discover that price and mileage may be the two major differentiating features of the new product that can be used to penetrate the market. The market researcher can also provide information regarding the right time to introduce the product in the market. A systematic study should be undertaken for discovering the right time for product introduction. A market researcher can reveal that Indians have the tendency to purchase products during the festive season especially during Diwali. There are regional differences even in the festive season across the country. A market researcher can advice the company about these regional differences.

Concept testing is the presentation of the product concept symbolically or physically to potential consumers to obtain their feedback on the different characteristics of the product. Concept testing must relate to the proposed new product so that it is an effective exercise. This is the stage when many cost considerations come into the picture. Allocating resources at this early stage poses quite a challenge considering the inherent uncertainty. In particular, uncertainty arises from imperfect information about customers and markets, undiscovered or untested product designs and technologies, and the challenges of perfectly executing and delivering even an ideal design. Concept tests help resolve this uncertainty and encompass most methods used to measure the performance of new products and processes along with the dimensions affecting profitability (Dahan and Mendelson 2001).

As discussed, concept testing is an exercise in which a market researcher presents an elaborate version of an idea that has already been generated in stage one. For example, a market researcher can select a group of potential purchasers and interact with them in a virtual environment for discussing the special features offered by the company. For an easy to manufacture and bulk retail selling capacity product, a physical experience can also be provided. Market researchers collect information on different dimensions of the product and use it for testing the viability of the product. Market researchers collect information to analyse the acceptability of the product, the need for the product and purchase intentions for the product. Market researchers also undertake a gap analysis to fill the gap between consumer’s expectations and the new product.

22.3.4 Product Development and Marketing Strategy

After passing through the first three stages of product development, a company reaches a very important stage of development. Even in the 1990s, scholars clearly identified the importance of bringing products early in the market. In today’s highly competitive ­environment, those who are slow in bringing new products to market often lose out to those with a more agile development process (Smith 1990). This is a crucial stage where a firm has to make heavy investments. In the hurry to release products as early as possible in the market, the probability of committing mistakes (in terms of producing lower quality products) also become very high. The speedy development of products can also lead to more expenses in research and development leading to high costs of development. Hence, a careful approach needs to be adopted.

A defined gap exists between idea generation and the final development of the product. This gap may consist of many years and millions of rupees in research expenses. It is very important for a market researcher to provide authentic and accurate information in the initial stages as the product is developed on the basis of these inputs only. Any misappropriation in providing quality information can lead to a disaster for the firm developing a new product. If a company’s problems earlier were due to little new product development activity, problems now arise due to too much or rather too much unstructured and uncontrolled new product development activity (Bessant and Francis 1997). Every industry nowadays has become technological driven and technology is changing very fast. The firm launching a new product must learn to cope up with the changing technology. The unpredictability of customer requirements and competitor strategies in high-tech industries would require: (1) use of step-wise new-product development processes, (2) establishment of a stable though not exhaustive business case, (3) full integration of customers, and (4) higher specialization as opposed to cross-functional collaboration (Harmancioglu et al. 2007).

It is important to understand that in a rush to launch a new product as early as possible companies should not discard the organized and systematic way of introducing a product to the market. It is also true that products now have a shorter life cycle as compared to some 20–30 years ago. India, especially after liberalization, has witnessed a tremendous change in the buying and consumption pattern. The demand of people has also been changing rapidly. For example, in the early and late nineties, there were only a few players in the consumer electronics segment. Liberalization, globalization and privatization has opened up opportunities in the market and the market scenario has completely changed. This has posed new challenges and opportunities for indigenous firms. So, the environment itself is fostering the speedy development of new products. Takeuchi and Nonaka (1986), in their article ­published in the Harvard Business Review clearly stated that speed and flexibility are essential in today’s fast-paced, fiercely competitive world of commercial new product development. Companies are increasingly realising that the old, sequential approach to developing new products simply won’t get the job done. Instead, companies in Japan and the United States are using a holistic method—as in rugby, the ball gets passed within the team as it moves as a unit up the field. This holistic approach has six characteristics: built-in instability, self-organizing project teams, overlapping development phases, multilearning, subtle control and organizational transfer of learning.

In the market strategy stage, the idea has completed its transformation into a physical product. Technical and design problems are resolved and consumer reaction is gauged in order to develop entry strategies. During this stage, the emphasis shifts from technical to market concerns as the product approaches commercialization (Yelkur and Herbig 1996). After passing through the product development stage, a firm has to make a sound marketing strategy to gain a competitive advantage in the market. Marketing strategy is not only focused on the internal environment that is controllable up to one extent. Rather, a sound marketing strategy has to deal with many uncontrollable external marketing variables. Innovation in marketing strategies is the key to gain success in the marketplace. However, this is also not a guarantee for success in the market. New ventures must develop innovative strategies but the possession of an innovative strategy does not assure commercial success of a product. Rather, consistent with the contingent resource-based view of the firm, the productive capacity of marketing strategy innovativeness (MSI) is determined by its congruency with other organizational capabilities and the environmental conditions (Atuahene-Gima et al. 2006). Hence, the marketing strategy actually relates to how a firm appropriately positions its product in the market in the light of many intervening and impacting internal and external constraints. A market researcher can provide information for making a sound marketing strategy and ultimately implementing it. Marketing strategy for a new product can broadly be divided into three parts (Kotler et al. 2009). A broad marketing strategy covers target market, size of the target market, positioning of the product, its sales plans, market share, penetration strategy, and profit generation for the initial few years as the first part. The second part covers planned price, distribution strategy and marketing budget. The third part includes long-run sales, profit goals and marketing mix strategies. The level of relative efficiency of the firm’s marketing strategy influences the new product’s performance level not only directly but also by interacting with market condition variables, such as the degree of competitiveness of the market, stage of the product life cycle, and market growth rate (Yoon and Lilien 1985).

22.3.5 Product Testing

After a successful journey passing through the first four stages, the product is launched in the market in the product testing stage. Market researchers investigate the feedback of the customers regarding the new product. Customer acceptance is the key and this must be assessed thoroughly. It is critical at this stage to measure whether the product is acceptable to the customer, to measure the customer’s level of interest, liking, preferences, and intent to purchase, and to determine those benefits, attributes, and features of the product to which the customer responds (Bhuiyan 2011). Even though a lot of expenditure has been incurred by the firm at this stage, customer approval is vital. This is vital as non-approval will give a signal to a firm to either modify or completely stop the production process. It has been observed that many products fail at this stage due to non-approval or low approval by the customers.

It is also important that there should not be any hurry to make any new product a success. A market researcher has to spend a considerable amount of time to determine customer approval as sometimes an initial non-response gets converted into a huge response after some time. A market researcher may face several problems at this stage. There is the ­possibility of respondents providing misleading opinions about the product due to their lack of awareness about the product. Sometimes a free sample provided by the firm during the introduction stage may have distorted customer opinion. There is also the possibility of customers providing an inflated opinion about the purchase. Customers can provide random answers about their purchase intention and in the end they may not even purchase the product. Marketing strategy is not only focused on the internal environment, which is controllable only up to some extent. Rather, a sound marketing strategy has to deal with many uncontrollable external marketing variables. Innovation in marketing strategies is the key to gain success in the marketplace. A rational customer opinion about purchase intention is also very important as any wrong estimate about future purchase intention may lead to a misleading projection of future purchase.

In order to determine consistency in purchase intention, a market researcher has to take a consistent approach after analysing trial purchase, repeat purchase, final adoption and frequency purchase. This is important to avoid speedy conclusions about the purchase of the new product and making blunders on the basis of conclusions drawn from premature marketing research. Some techniques like sales-wave research and simulated store techniques are often used to determine repeat purchase pattern of the customers. In the sales-wave technique, the firm offering the new product offer some incentives (may be some discount in price) as compared to the competitor’s product and observes repeat purchase behaviour by the customers. In a simulated store technique, purchasers are allowed to purchase and are asked about their intention to repeat the purchase. These purchasers can also be interviewed to judge their future purchase or repeat purchase.

22.3.6 Test Marketing

Test marketing is the process of conducting an experiment in a field setting. Companies generally launch test market strategy in selected parts of the market referred to as the test markets. Test marketing is discussed in detail in Section 8.11 of Chapter 8.

22.3.7 Commercialization

Figure 22.2 clearly indicates that this stage involves the highest risk among the product development stages. The commercialization stage consists of a list of all the activities that need to be undertaken for moving a product to market after it successfully passes through the first six stages of product development. Time is a major consideration when a new product needs to be introduced in the market. For example, the introduction of a new statistical software program in the market may be a really difficult exercise for the producer. Like any other product, this product has to pass through several phases of development. Obviously, it will take a long time to make a novel product that is acceptable in the market. In such a case, there is a severe threat of the product becoming obsolete in the market as it has to go through different stages of development that could involve several months or years. Such problems are very common in the fashion industry, software and hardware industry and many such industries. It has to be noted that the problem of obsolescence can prove to be very challenging for more stable industries such as the consumer electronics industry and the automobile industry. For example, almost two decades ago, the Indian automobile industry was dominated by a few major Indian players like Maruti, Tata and Mahindra. This situation changed completely when the Indian markets were liberalized. The market was thrown open to all the leading automobile companies of the world. Global auto giants were keen to cater to the large and ever expanding customer base of the country. Though this was an opportunity for Indian players, it also posed a threat with respect to the new product development time available with the Indian players. The leading global players were ready to capture the market with their established research and development departments. So, the timing of placement of the product in the market is also an extremely important factor. Most of the commercialization failures occurred because the idea or its timing was wrong (Griffin 1997).

A firm has two popular options when it plans to enter a market. It can either act as an initiator or as a follower. An initiator has to spend a lot of energy and resources to enter the market. There is also a considerable amount of risk associated with failure in the market. This also gives the firm an opportunity to become the market leader and generate great profits over a long period. The firm also gets to keep the technical know-how and obtain the copyright or patent for it. The follower approach presents the reverse opportunity. The initiator firm has already explored the market and the viability of the product has already been established in the market. Hence, the risk is now minimized and the follower firm can enter the market in relative comfort.

Another consideration related to product commercialization is the market to be targeted. The firm has to decide whether it would like to launch the new product for a small market, a regional market or the national market. This depends upon the size and the capacity of the firm launching the new product. A small firm may launch the product in a few selected markets whereas a large firm may to cater to the national market. For example, Maruti has a strong dealer network in all parts of India. So, launching a product nationally is a routine exercise for the company as it has the strength to do so. The firm also has to decide to whom the product should be targeted. Some companies fix a specific target group for facilitating early penetration in the market. This helps them in attracting early adopters who can actually become opinion leaders for the relatively late adopters. Last, the firm developing the new product has to chalk out an effective marketing strategy to make the product acceptable and adoptable in the market.

Though commercialization is an important stage in the established process of new product development, the stage cannot be independently assessed or evaluated without considering the previously interlinked stages. By understanding the contribution of each potential driver in the product development decision process, an organization can assess the strengths and weaknesses of the organization, the new product development technology itself, and the environmental surrounding the technology to drive effective new product development. The iterative assessment of each of these factors on a continual basis is necessary throughout the product development process to ensure that logical, effective and efficient decisions are made (Baltz et al. 2012). The market researcher here can provide valuable information for making an optimum decision.

22.3.8 Post-Launch Evaluation (Short Term and/or Long Term)

After the launch, the evaluation of the launch is also a critical step in the new-product development process. This is treated differently by different authors. Some authors treat it as an interlinked stage while some others do not consider it as an interlinked stage in new product development and tend to treat it separately. Evaluation can be short term as well as long term. A short-term evaluation is important to find out easily identifiable shortcomings of the product, which can be corrected easily. A long-term evaluation is important to identify the gaps in customers’ needs, wants and product offerings. This may be an important factor for launching a new product again or extending an existing product line.

A review of the recent business and other publications suggests that companies are also using the following new-product evaluation methods: (1) brand-equity analysis, (2) need/usage context analysis, (3) environmental scanning, (4) portfolio approach, (5) pattern recognition, (6) the Internet, (7) alliances, (8) value-chain approach, and (9) straight judgment/vicarious input (Ozer 1999). In brand-equity analysis, the firm focuses on assessing the brand equity of the new product. New products are developed taking into account the needs of customers and tend to satisfy these needs. Need/usage context analysis is done to assess whether the new product is able to satisfy the needs of customers or not. Environment scanning can also provide valuable inputs for the evaluation of the new product. This can identify gaps that can be used to further refine the new product. Companies generally generate a product line with the use of the same technology. It is important for the firm to evaluate new products on a different product line portfolio. This approach can also provide information about the need for a better product line, which can be developed using the same technology. The access to information through various sources of information is not as difficult as it was may be some 30 years ago. This pool of information can be used to forecast emerging patterns in the market. For example, Indian companies have realised that scooters are becoming obsolete in the two-wheeler market. As a result, the scooter manufacturers in India are now focusing on the motor-cycle market. Similarly, the SUVs have become popular in the Indian four-wheeler market. As a result, Mahindra has come out with many affordable mini SUVs such as the different variants of “Quanto” to create a new market segment. The Internet has also become an important tool for new product evaluation. For example, many software companies use the Internet to test their new software prototypes. Market alliances help a firm to operate successfully in the uncertain new product launch environment. Alliances also allow a firm to minimize the risk of launching a product by sharing the risk of launching a product. As part of the value chain, the opinions of wholesale distributors, distributors, dealers and retailers must be sought to evaluate a new product in the market. The discussion presents the market researcher with an opportunity to provide relevant, authentic and accurate information at all the stages.

22.4 Pricing Research

Pricing is a very important topic in the current tough economic environment. It is a vital part of framing a market strategy. As discussed earlier, price is one of the four elements of the traditional marketing mix. Price is not only an important element of marketing mix, it is also different from the other three elements of the marketing mix. Product, place and promotion are the activities mainly linked with providing value to a customer. Value can be defined broadly as the benefits or satisfaction that a customer derives from the product. So, these three elements of the marketing mix actively create value for the product or services. In fact, price harvests the value created by the other three elements of the marketing mix. Therefore, price is an important parameter that the firm should deal with effectively. Among the four elements of the marketing mix, product, place, promotion and price, only price creates income while the other three elements generate costs. Price, besides creating income, plays a major role as a strategic factor in developing competitive advantage in the market. The income of a company and its position in the mind of customers are related to suitable pricing strategies (Zaribaf 2008).

There are many factors affecting the pricing policies of firms. These factors are different from new-product pricing strategies. Broadly, the factors influencing the pricing strategy of a firm can be categorized into organizational factors, customer factors and market factors. The organizational factors can further be grouped into product life cycle pricing, product portfolio pricing, product line pricing and pricing for market segmentation. Customer factors can be grouped into demand pricing, benefit pricing, value pricing and place pricing. The factors related to the market can also be grouped into competitive pricing, pricing in economic and regulatory environment, exchange rate pricing and geographical pricing (Czinkota and Kotabe 2002). Most firms adopt a different approach to price their new products. The popular pricing techniques for a new product are: skimming pricing, penetration pricing and value-in-use pricing.

22.4.1 Organizational Factors

While taking a decision on pricing a product, many factors remain beyond the control of a firm. However, some factors are related to organizations and can be controlled by the firm relatively. These factors are related to the life cycle of a product, product portfolio, product line, and segmentation and positioning. This section focuses on these four controllable organizational factors related to pricing.

22.4.1.1 Product Life Cycle Pricing

Every product passes through different stages in the product life cycle as exhibited in Figure 22.3. Traditionally, these stages include introduction, growth, maturity and decline. A firm has to take these stages into consideration when fixing a price. At the introduction stage, a firm can fix a high price and obtain the initial market share. At the growth and maturity stage, the price can be relatively lower than the introduction period. At the stage of decline, the firm can either a fix higher price to milk the product revenue or it can fix a low price to ensure maximum purchase of the product. At the stage of decline, the firm can also offer a discount to cater to the closing stages of the product life cycle. The pricing strategy adopted by a firm is usually situation specific. It has to change its strategy according to the different stages in the product life cycle. The main application suggested for the product life cycle is to plan changes in marketing strategy as the product moves from one stage to another. It follows that the product life cycle would be more useful in strategy planning if one could more accurately forecast the time when a product moves across the different phases of the product life cycle (Rink and Swan 1979).

Figure 22.3 Stages in the product life cycle

It is obvious that a firm has to chalk down a specific pricing strategy to cater to the market according to the different stages of the product life cycle. Some authors have questioned the stages in the product life cycle described above and have proposed the new stages: Innovation, Imitation, Repetition and Substitution. This approach defines the new product life-cycle phases based on some key consumer trends during product market evolution, resulting in a four-phased product life cycle model: Innovation → Imitation → Repetition → Substitution. New marketing strategy implications emerge for each phase due to this additional focus on consumers (Steffens 2002). The market researcher can provide valuable information that will help the firm tackle the market during the different stages of the product life cycle. Pricing is the key to manage the product life cycle. Today, product life-cycle management is widely recognized as a business necessity. Product life-cycle management enables companies to leverage their investments in product-related intellectual and physical assets and are the vehicles to reduce cost, provide solid return on investment and enable product and process innovation (Liu and Maletz 2009).

22.4.1.2 Product Portfolio Pricing

Product portfolio pricing enables a firm to practice a balanced pricing strategy by fixing different prices for the different products available in its portfolio so that the overall combined impact is optimal. A firm can adopt the approach of fixing a relatively higher price for a product that is popular and a relatively lower price for a product that is not so popular. For example, companies that manufacture air conditioners come out with a variety of models with slight differences in features in the summer. Pricing is also a factor when a varied option is given to consumers. All leading companies showcase their different models with prices on their Web sites.

22.4.1.3 Product Line Pricing

It is widely believed that product variety increases a firm’s market power, which further increases a firm’s profit margin and market share (Hopp and Xu 2005). While deciding the pricing of different product lines, a firm has to be careful about demand switch in the same product line. For example, consumer electronics companies these days come out with a number of variants of the same product. If there is a big difference in the price, then there is the possibility of a customer picking the product with the lower price or the higher price perceiving a better quality at the higher price. This impacts the demand or acceptance of the other products in the product line. There is a common feeling that the profit margins are higher if a firm is able to offer a variety of products in the market. However, a few scholars have termed product proliferation as double-edged sword. A firm with a long product line may be able to obtain a high market share, but it can also end up with higher prices (due to the higher costs of the broad product line). These higher prices, in turn, put downward pressure on the firm’s market share (Bayus and Putsis 1999). Market research can provide information about customer perceptions and behaviour for the different price ranges fixed for the different products of a product line.

22.4.1.4 Pricing for Market Segmentation and Brand Positioning

Market segmentation is a crucial marketing strategy. It enables the marketing manager to divide total demand into relatively homogeneous segments identified by geographic, demographic, psychological or behavioural variables. These characteristics are relevant in explaining and in predicting the response of consumers, in a given segment, to marketing stimuli (Tynan and Drayton 1987). A firm should not segment a market just for the sake of convenience. The rational of segmentation must first be analysed and only then must it be taken as a strategic alternative. All market segmentation strategies are based on three basic assumptions(Hunt and Arnett 2004):

• Many markets are significantly, but not completely, heterogeneous regarding consumers’ needs, wants, use requirements, tastes, and preferences, and, therefore, can be divided into smaller, meaningful, relatively homogeneous segments of consumers.
• A firm’s market offerings (here, including price, promotion, and channels) can often be designed to meet the needs, wants, tastes, and preferences of such segments.
• For many firms, a strategy of targeting specific segments can lead to competitive advantages in the marketplace and, in turn, superior financial performance.

Market segmentation can be based on different parameters. Segmentation can be carried out on the basis of a specific category of buyers and prices can be fixed by keeping the needs and demands of this category of customers in mind. The location can also be used to segment markets and different pricing strategies can be framed for different locations. For example, a cement manufacturing company can fix a lower price for a city that is close to its plant as the freight charges will be lower. Obviously, freight is the main determinant of price in cement marketing. The timing of purchase can also acts as the basis for segmentation. In India, all leading companies come out with lucrative price discount offers during the festive season. The quantity of purchase also offers another method of segmentation and pricing. Many Indian national banks offer different interest rates according to the amount invested. Many industrial product manufacturers often offer a discount price for bulk purchases. Product design is also an important basis of segmentation. For example, water purifier companies fix different prices for home users and industrial users. For all segmentation strategies, market researchers can provide important information to decide the pricing strategy that can effectively cater to the market.

Brand positioning relates to creating a perception about the brand in the customer’s mind, which differentiates it from the offerings of the competitors and also meets the consumer’s needs/expectations. A brand marketer’s main objective should be to create the desired perception in the target consumer’s mind (Ghodeswar 2008). Clearly, positioning is a subjective activity that is based on the perception of consumers and not the reality that the consumer encounters. An important aspect of a brand’s positioning in a product category is how similar or different the brand is perceived to be in comparison with other brands in a product category (Sujan and Bettman 1989). A company can adopt different measures to position its brand in the minds of consumers. It has to ensure that its customers are positively influenced by its brand. This should be done in a systematic manner. Thought it is difficult to make a positive perception about a product, it is difficult for a competitor to break it once it is made. Positioning is the way company wants customers to perceive, think and feel about its brand versus competitive entries. According to such a perspective, brand positioning is highly subjective since it refers to the customer’s individual perceptions (Janiszewska and Insch 2012).

A brand is a distinguishing name and/or symbol (such as logo, trademark, or package design) intended to identify the goods or services of either one seller or a group of sellers, and to differentiate those goods or services from those of competitors (Ghodeswar 2008). As discussed earlier, brand positioning is an individual’s perception about the brand and is not linked with the features or importance of product or services offerings. It is not an activity based on developing better products, rather it is a managerial activity to position a product properly in the mind of a customer. So, positioning is a managerial activity shaping the perceived value of a product prevalent in society. For example, companies are adopting an environment friendly approach to position a brand. This is referred to as green branding A green brand identity is defined by a specific set of brand attributes and benefits related to the reduced environmental impact of the brand and its perception as being environmentally sound. A well-implemented green branding identity should provide benefits to environmentally conscious consumers (Hartmann et al. 2005). Green branding offers a differentiation to customers and highlights the special positioning effort of the brand as more environment friendly. Green branding is a systematic effort to position a product differently by highlighting its environment friendly attributes.

For sound positioning, the evaluation of the positioning efforts is an important factor that cannot be ignored. Managers will have to develop some tools to measure the ­effectiveness of positioning. Positioning effectiveness can be defined as the extent to which consumers perceive a brand to occupy a favorable, differentiated and credible position in the minds of consumers (Fuchs and Dianantopoulos 2010). For measuring the effectiveness of positioning, the behavior pattern of consumers can be constantly observed. A consumer influenced by the positioning effort of a company will be less likely to shift to a competitor’s product irrespective of the efforts undertaken by the competitor which produces a similar type of product. The mindset of brand users may be another way of assessing the effectiveness of the positioning effort. A customer’s mindset refers to his or her’s assessment about the features and quality of the product and services as compared to the offerings provided by competitors. A positive mindset indicates good positioning for the brand in the minds of customers. A customer’s dependency on the brand is also an indicator for measuring brand effectiveness. When a brand provides high value, it occupies a place in the customer’s life and the customer develops an emotional bonding with the brand. Brand equity can also be a very good measure of positioning effectiveness.

22.4.2 Customer Factors

One of the main considerations for price determination is to know how much a customer is willing to pay for a particular product. For example, many studies in India are suggesting that the disposable income levels have increased. This presents an opportunity to a manufacturer for offering different products to effectively explore different levels of disposable income customers available in the market. This section will focus discussion on demand pricing, benefit pricing, value pricing and place pricing.

22.4.2.1 Demand Pricing

Price fixing on the basis of customer demand is a very simple and widely applied phenomenon. When demand is high, a high price can be fixed and a low demand will force a firm to fix a low price. For example, many companies launch mega housing projects in India and abroad. It is obvious that the demand is high for housing projects in the premium locations of any city. This opportunity is used by the service provider to fix a higher price. Such a high price cannot be fixed for a non-premium location even with the same construction cost. Hence, a high demand gives a firm the freedom to leverage profit. A careful approach must be adopted as an extremely high price will put off customers and they will start looking for alternative options.

22.4.2.2 Benefit Pricing

Benefit pricing is based on the assumption that the customer will be ready to pay an additional price for additional product features that he sees or perceives are not available in the other products. Here, it is important to understand that sometimes the benefit is actually a perception of the customer and he is ready to pay extra for the perceived benefit. A firm has to discover what a consumer perceives as an extra benefit. Sometimes, customers believe that a particular brand provides extra benefits such as quality and they readily pay more for this extra benefit.

22.4.2.3 Value Pricing

A benefit is the value that a customer seeks from a product and is ready to pay for. Customer value-based pricing approaches use the value a product or service delivers to a predefined segment of customers as the main factor for setting prices. The key to sustained ­profitability lies in the essential features of customer value-based pricing, including understanding the sources of value for customers; designing products, services, and solutions that meet customers’ needs; setting prices as a function of value; and implementing consistent pricing policies (Hinterhuber 2008).

Value pricing is also based on the theory of “perceived value” that a product derives in the eyes of potential customers. For generating differential value-based pricing, it is very important that a firm creates a specific, differential value for the product. A firm has to generate capacity to obtain the advantage of value-based pricing. The implementation of value-based pricing is contingent on five distinct types of capabilities working together to understand and communicate value: capabilities in value assessment, capabilities in value communication, capabilities in market segmentation, capabilities in sales force management, and, finally, capabilities in leadership (Hinterhuber and Bertini 2011).

22.4.2.4 Place Pricing

In some cases, a manufacturing firm alone cannot decide on the pricing of a product. The place, or in other words, the distribution channel plays a key role in determining the final price offered to a customer. For example, we see that in many purchase transactions, the distributer or even the retailer sells the product at a price that is different from the displayed MRP (maximum retail price). Though the product displays the MRP, the minimum price of selling is not indicated. This price is a localized type of price and varies from one shop to another. Some companies offer special incentive plans for distributors for bulk sales. In order to avail this benefit, distributors pass some discount to retailers and retailers also pass some price discount to the end users. Therefore, there is a possibility that different end users are being offered different prices.

22.4.3 Market Factors

As discussed, pricing cannot be determined in isolation and many factors play a decisive role in determining the price of a product in the market. The first two sections focused on organizational factors and customer factors as the determinants of a firm’s pricing policy. This section will focus on the market itself as a key determinant of pricing strategies. Market factors can broadly be categorized as competitive pricing; pricing in economic and regulatory environment; exchange rate pricing and geographical pricing.

22.4.3.1 Competitive Pricing

The competitor’s price for a product is a compelling factor that needs to be taken into consideration for fixing the final price. In a competitive marketplace, the effectiveness of any element of the marketing mix is determined not only by its absolute value, but also by its relative value with respect to the competition. For example, the effectiveness of a price cut in increasing demand is critically related to competitors’ reaction to the price change (Sudhir 2001).

A firm has to devise a strategy related to pricing after taking the competitors’ strategy into consideration. No firm can operate in isolation by ignoring the price strategy of a rival firm. A competitive strategy requires a firm to be positioned in the marketplace in such a way that the value of its most outstanding capabilities is maximized (Natter and Hruschka 1998). The rivalry in the market creates the need for competitive strategies including pricing strategies that can be used to defend a firm’s position in the industry (Fratto et al. 2006).

22.4.3.2 Pricing in Economic and Regulatory Environment

The prevailing economic environment of the country is a determining factor in deciding the price of a product. Liberalization, privatization and globalization in India have opened the markets for firms from across the globe. This has really benefitted the Indian consumer as many options from across the globe are available to them. Such an environment has also impacted the price regime of many firms as the high competition in the market has forced these firms to fix prizes considering the pricing strategies adopted by competing firms. In addition, the flow of easily available products in the market has also fostered a free purchase and sell environment that was not available in the market earlier. For example, many four-wheeler and two-wheeler companies are offering replacement schemes for old vehicles and adjusting the price of the new vehicle accordingly.

The regulatory economic environment in the country also prevents firms from freely fixing prices. Government regulation in India can broadly be grouped into two categories: economic regulation and regulation in the public interest. Economic regulation is broadly applied by the Government to check market failure. For example, firms providing electricity in many states cannot fix tariffs independently. They will have to fix tariffs in compulsory consultation with some consulting bodies formed by the Government. Public interest regulation covers the actions taken by the Government to protect the interests of the common people. For example, the Indian government provides subsidies for diesel and gas cylinder purchase. Petroleum companies cannot can fix prices ignoring the guidelines provided by the government irrespective of the losses that they may incur. In order to safeguard the interests of poor people, the Indian government sells essential grains at heavily subsidized prices through the public distribution system. The paying capacity of ordinary citizens are taken into account when the Indian Railways fixes train fares. In India, even after liberalization many Government regulators are working to safeguard the interests of the public.

22.4.3.3 Exchange Rate Pricing

Exchange rates fluctuate on a regular basis and have a decisive impact on products qualified for import and export. Exchange rate pricing is beyond the control of a firm and they will have to adopt compulsory price changes in the light of global changes in the exchange rates.

22.4.3.4 Geographical Pricing

The transport cost is also an important element in deciding the price of a product. Obviously, a place that is remotely located will have to bear a high price as compared to a place that is close to the manufacturing plant. State imposed taxes also play a key role in making prices slightly different in different states. For example, a four-wheeler company markets the same product in different parts of the country with a slight varying price considering factors such as the distance and the state tax policy. Similarly, petrol and diesel prices differ from town to town though there is a national policy available to fix the price uniformly for the entire country. Hence, many or almost all the products have price variations according to the geographical location.

22.4.4 New Product Pricing

Companies have to adopt a careful strategy to determine the pricing strategy for a new product. The price decided for a new product will definitely act as a direct comparison referral when the company changes the price in later stages. So, the initial price set by the company itself will become a point of consideration. The price movement from low to high or high to low will be scrutinized by the customer and the price will be assessed by the customer based on his perception. The three accepted pricing techniques for a new product: skimming pricing, penetration pricing and value-in-use pricing are discussed in the following section.

22.4.4.1 Skimming Pricing

A common pricing strategy employed by managers in new and growing markets is price skimming–setting high prices during introduction and dropping them over time. As product life cycles become shorter and the number of new products and services increase every year, managerial use of price skimming appears to be increasing (Gebhardt 2006). This strategy is used when a new and innovative product is launched in the market. Firms try to set a higher price for this new product in order to generate a high initial revenue. This strategy is used to “skim” of early users of the product. The price goes down when the demand from these early users start declining. The price also starts to decline when competitors start entering the market with similar products. This approach obviously generates high revenue for a firm but is not free from some inherent drawbacks. High prices attract competitors and they also try to enter the market as soon as possible. There is a possibility that by the time the innovative firm decides to reduce the prices; competitors will enter the market and sometimes destroy the innovative firm’s dream to exploit early market share. Hence, timing is a crucial factor in the skimming price strategy. A market research firm can conduct a small-scale survey to provide information about the trends in the market status. This information may be extremely useful for a firm which plans to use a skimming price strategy.

22.4.4.2 Penetration Pricing

Penetration pricing is the strategy of offering a lower price (even below cost) while entering the market with the expectation that a mass market will open quickly. The users of this strategy sacrifice potential profits in the early stages of the product life cycle with the expectation to sell higher volumes in the later stages. The strategy is based on some assumptions. First, firms believe that the chances of product modifications are low. Second, the initial low price and high cost technical knowhow will keep potential competitors away from the market. Demand is highly elastic and the initial low price will help in expanding the market base. The penetration pricing strategy requires accurate information about the market as in the later stages companies will have to cope up with the low price set initially. Market researchers may be able to provide useful information to firms using this pricing strategy.

22.4.4.3 Value-in-Use Pricing

This theory of pricing does not follow an initial low or high pricing strategy. The theory believes in offering complete value pricing to its potential customers in the long run. Value-in-use pricing firms provide a complete value package including warranty, post-purchase service, delivery on time, service and maintenance on time, etc. Using such a strategy, firms try to understand the value that a customer expects from the product. After understanding customer needs completely and modifying the product accordingly, the firm is in a position to fix the price. A market researcher can provide the necessary information by conducting an organized survey. It is not an easy job to decide the value package for a potential customer and a systematic study is required to decide on the value proposition that will work for both customers and the company.

22.5 Distribution (PLACE) Research

Distribution research is a vast topic and researchers are continuously working on it. Distribution channel decisions involve well-specified procedures to reach the end consumers in the light of the marketing strategy. A firm has to first decide whether it will approach the end consumer directly or indirectly. The direct approach is widely used nowadays to reach the end consumer. Direct approach can be grouped into direct selling, direct marketing, company owned or sponsored special retail outlets and Internet marketing. Firms can also reach customers indirectly through some intermediaries. In the indirect approach, the common distribution channel members are distributors, wholesalers and retailers. Some distributors appoint wholesalers and help wholesalers in appointing retailers. Wholesalers appoint retailers who directly reach the end consumers. Figure 22.4 presents this common distribution network. Market research is necessary to make effective decisions about channel members as unethical practices by the last member in channel, i.e. by a retailer is capable of tarnishing the image of the company. These channel members act as a link between the firm and the consumer and their behaviour has a direct impact on the firm’s image and sales.

Figure 22.4 A common distribution network

22.5.1 Direct Approach

Direct approach is based on the concept of contacting the potential buyer directly. As exhibited in Figure 22.4, the direct approach of contacting customers can be generally grouped into personal selling, personal (direct) marketing, company owned or sponsored special retail outlets and Internet marketing.

22.5.1.1 Personal Selling

Personal selling is also an important method of reaching customers directly. It allows face-to- face communication for both buyers and sellers. The strength of personal selling lies in the fact that it allows communication interchange, a process more subtle but, at the same time, more hazardous than classical methods such as advertising that rely on one-way communication. In terms of efficiency, communication interchange results in the reduction of reach losses. It is of primary importance in the marketing of commodities that have to be explained or demonstrated to the buyer and particularly, therefore, in industrial marketing and the marketing of services (Hammann 1979). Personal selling allows a seller to form an individualized personal relationship with the buyer in the process of selling, which otherwise seems to be an expensive activity.

Marketing research acts as the facilitator for certain specific forms of personal selling. In recent times, the scope of personal selling has expanded and many new dimensions of contacting a customer directly have emerged. A recent research study emphasizes the role of personal selling as a partnering activity in the selling process. This partnering role provides the opportunity for a firm to resolve the inherent conflicts between the buyer and seller. For salespeople in the partnering role, personal selling shifts the focus from influencing buyer behaviour to managing the conflict inherent in buyer-seller relationships. The emphasis on building relationships rather than making short-term sales and the use of sales teams dictate changes in the way firms select, train, evaluate, and compensate salespeople and members of sales teams (Weitz and Bradford 1999). Many companies like Eureka Forbes in India are mainly based on the personal selling skills of sales people.

22.5.1.2 Personal Marketing

Personal marketing is a direct marketing technique that allows a firm to promote its products by direct contact. Direct marketing can use different modes of communication like informational letters, informational brochures, telephonic information, online information and information in person. As a part of personal marketing, many companies provide customized services to customers. Many companies and sometimes large distributors try to use different marketing strategies for different segments of customers by offering different programmes according to the personalized needs of customers. Some companies like Amway are using the network marketing strategy to sell its products in the market. The company has adopted the network marketing strategy and developed a large chain of representatives all over the world using personalized relationships.

22.5.1.3 Company Owned or Sponsored Special Retail Outlets

Some companies believe in selling through their own chain of retail outlets. These companies believe that it makes more sense to develop their own specialized retail outlets instead of relying on third-party channel members. They believe that selling through specialized retail outlets will be beneficial in the long run. For example, the major footwear company Bata sells its products through a well-established retail chain spread across the country.

22.5.1.4 Internet Marketing

Advancements in technology has lead to the marketing of goods and services over the Internet (Corley et al. 2013). Internet marketing is able to overcome some of the drawbacks of traditional marketing activities. Internet marketing is able to provide 24 hours access to customers; is capable of eliminating geographical boundaries and allows immediate communication with customers. Firms have to be very careful about the web experience a potential customer gets from its web site. Web site nowadays is the first forum of interaction between a firm and the customer. The Web experience as a major parameter of customer influence is crucial for dot.com-type firms but also for multi-channel vendors (Constantinides 2004). Internet marketing presents an opportunity to use diverse channel of communication. Internet marketing presents an opportunity to have communication one to one or many to many, synchronous or asynchronous and local or global. With exiting opportunities for creativity and innovation, variable costs tend to zero (Lawton and Gregor 2003).

22.5.2 Indirect Approach

Designing a marketing channel can be a complex task because it involves dealing with a large number of issues such as analysing the markets to be served, specifying the distribution function that needs to be performed, deciding on the number of levels in the channel, the intensity of the distribution, the type of middlemen to be used, as well as in determining the availability of middlemen and examining financial considerations (Rosenbloom and Anderson 1985). Some producers use a direct channel of reaching customers whereas many manufacturers adopt an indirect way of reaching customers through some intermediaries. The most common and simple method used by firms is the appointment of distributors, wholesalers and retailers. Some products cannot capture the market without the presence of distributors, wholesalers and retailers. Let us take the example of cement marketing. The direct methods discussed previously can facilitate the firm’s desired communication but cannot provide the product to the end user. For making the product available in all urban and rural areas, a firm has to create a strong channel network. In contemporary marketing, firms will also have to cater to global requirements. This is a compelling factor for the firms to develop a solid channel network. Visualizing, tracking, and managing supply chains become more complicated as firms pursue outsourcing strategies and as the supply and delivery systems used by firms become increasingly global (Gardner and Cooper 2003). The following sections focus on three common indirect parties used to reach customers: distributors, wholesalers and retailers.

22.5.2.1 Distributors

A distributor serves the multiple roles of being an independent representative of a manufacturer and a collector of orders from retailers for the manufacturer’s products (Lau 2012). Distributors stock goods and pass it to intermediaries like wholesalers and retailers. Some distributors are large in size and take care of the firm’s overseas distribution. Traditionally, distributors were confined to their defined geographical territory but in contemporary marketing practice their traditional role has enlarged. In a conventional setting, one party controls the functioning of the channel by controlling the activities of another party through the use of power (Weitz and Jap 1995). Distributors generally due to their large size compared to other channel members acquire the highest controlling power. In a traditional set up, over a period of time, distributors acquire a sound reputation, goodwill and prestige in a particular territory as an associate of any company. This provides benefits to both the distributor as well as the producer. Marketing research can help a firm maintain a healthy channel relationship between channel members.

22.5.2.2 Wholesalers

A wholesaler typically buys goods from different manufacturers, stocks them in warehouses, and resells them to retailers as one combined order under one invoice (Lau 2012). ­ Generally, the term distributor and wholesaler refers to the same entity and the names are used interchangeably. In operating terms, distributors are generally one more intermediary link between the manufacturer and wholesalers. As discussed, distributors are experienced and important players in marketing and selling and soon acquire a superior position in the channel relationship. Firms generally complain that the channel partner wholesaler is not providing the required support and wholesalers complain that the firm is ignorant about the margins of the wholesaler. Conflicts are bound to arise in their relationship. Market research can also act as a conflict resolution agent in the channel network as conflict is an inherent part of channel functioning. Marketing research can act as a facilitator in understanding the channel relationship and its use for maximizing the firm’s profit.

22.5.2.3 Retailers

Retailing involves all the activities in selling goods and services to the end consumer. Companies make products for national or international markets and retailers act as the last member of a specific distribution channel. Large companies go in for advertising the product across the country. However, even a small retailer helps a company generate strong goodwill for its brands. Retailers are the first point of contact for a firm and act as not only a sales facilitator but also as an image creator for the company. The manufacturer acts as a channel leader mainly responsible for making the strategy and the retailer acts as a follower responsible for implementing the strategy effectively (Jorgensen et al. 2006). So, a retailer acts as a follower and helps the manufacturer to implement its ambitious sales plan. It is the responsibility of a firm as a leader to provide the correct direction and roadmap to a retailer to keep the retailer on the correct sales track. Retailers can adopt a short-term profit generation tactic but firms will have to keep a vigilant eye to ensure that the retailer understands the importance of a long-term vision and strategy. In fact, the manufacturer has to the check myopic vision of a retailer. Myopia refers to the lack of recognition of the impact of today’s decisions on tomorrow’s performance. A myopic retailer hurts the manufacturer’s performance. (Taboubi and Zaccour 2002). In the light of the focus on customers, the traditional approach of maintaining a good relationship between a producer and the last member of the channel, the retailer, is getting momentum. Research, specifically, marketing research can act as an enabler in discovering new dimensions in the manufacturer → distributor → wholesaler→ retailer → consumer relationship.

22.6 Promotional Research

After a new product is developed and even for the old products, companies will have to adopt some consumer awareness programmes commonly known as promotional activities. Firms can adopt any strategy for making consumers aware about its products or services. Some of the commonly used and established strategies are advertising, sales promotion and public relations. Figure 22.5 shows these commonly applied promotional tools in the field of marketing. This section will focus on the three important elements of promotion: advertising, sales promotion and public relations. Marketing research can help a firm use these tools effectively and appropriately.

Figure 22.5 Commonly used promotional tools

22.6.1 Advertising Research

Advertising has been called the ‘‘the cave art’’ of contemporary society that makes consumption a top of mind behaviour (McMullan and Miller 2009). Advertising is a widely applied promotional tool used by many companies. It is often rated as the most powerful and ­reachable tool of promotion. In a free market economy characterized by a variety of similar products, the role of advertising consists of influencing consumers by creating a preference for one product in comparison with another of the same kind. In the present system of standardized production, an improvement in advertising technique and effort is often easier and more profitable for the entrepreneur than a price or quality variation (Ghidini 1978). It is undoubtedly a powerful tool of communication but is risky and costly in practice. Advertising is a creative exercise where most of decisions pertain to advertising copy. Advertising agencies have expertise in the technical aspects of advertising. An effective advertising message:

1. (a) Creates awareness among the unaware
2. (b) Creates preferences among the undecided
3. (c) Provides reinforcement among those positively predisposed, and
4. (d) Provides conversion among those negatively predisposed (Holmes and Crocker 1987)

Marketing research is mainly used for measuring the effectiveness of advertising. Recall and recognition are two memory-based advertising effectiveness techniques, which evaluate the ability of an advertisement to attract the attention of the individual and make him/her aware of the existence of the brand being advertised and the benefits that it provides (Palacio and Santana 1998). Recall is based on the understanding that the more an advertisement is recalled the better it is. This theory believes that since an advertisement is better in recall, it is able to influence the target. As a result, it is more likely to change the attitude and to achieve the desired purchase behavior. After an exposure to the advertisement, recall techniques can be used to systematically investigate interest, clarity of message delivered, understanding of the message and attitude (positive, negative or neutral) toward the concept of the message. Recall is widely used by market researchers as can be used for direct measurement after respondents are exposed to an advertisement. In addition, recall technique provides an objective measurement technique other than a subjective technique. A direct comparison with similar advertisements provides the market researcher with an opportunity to objectively judge which advertisement is more effective. On the other hand, recognition is a test to determine whether respondents can recognize an advertisement that they have seen before.

Other than recall and recognition, persuasive messages are also a tool for measuring advertising effectiveness. Persuasive advertisement are based on some basic principles of human behaviour. There are seven persuasion principles: namely; reciprocation; commitment and consistency; social proof; liking; authority; scarcity and instant influence (Cialdini 2001). A brief discussion about these principles and its relation with persuasive advertisements is given below:

1. Reciprocation: The reciprocation principle indicates that people feel obligated to return a favour offered to them. When a persuasive request through an advertisement is made, people are inclined to fulfill the request as and when they feel comfortable.
2. Commitment and consistency: After taking a stand on a particular issue people tend to be consistent with their stand due to personal and interpersonal pressure. People try to be consistent with the previous behaviour in order to avoid cognitive dissonance by changing the behaviour. If a persuasive advertisement (request) is used to repeat the purchase behaviour, people tend to do it.
3. Social proof: Social proof is the tendency of people to determine the correctness of any event or action by noting what others think about the correctness of the same event or action. The principle lies in the fact when lots of people acknowledge the event, incidents or actions get social approval if it is acknowledged by a majority. Persuasive advertisements sometimes use a number of people who have already used the product in order to influence a person (or a potential buyer) by the sheer number of the approvers.
4. Liking: Liking is based on the concept that we tend to say “yes” to the people whom we like. When we like someone, we are inclined to say yes to their request.
5. Authority: The authority principle is based on the fact that when a message or a request is being delivered by an authority (may be social, business, sports or films), people tend to follow that. It is not very rare to see why companies are ready to pay a large amount to celebrities from different fields.
6. Scarcity: People tend to value things that are scare in the environment. Advertising can also use such a phenomenon for promotion by informing buyers about the limited number of products available.
7. Instant influence: While making a decision, people tend to avoid analysing all the alternatives and are inclined towards taking a quick, instant decision on the basis of some initial and necessary information.

A market researcher can obtain relevant information on the parameters discussed above as the primary task of an advertisement campaign is to mobilize potential customers for purchase by influencing them.

22.6.2 Sales Promotion

Sales promotion consists of temporary incentives offered to customers for promoting sales. Sales promotion activities are generally classified as consumer promotion, retailer promotion and trade promotion. Sales promotion aimed at consumers include coupons, rebates, in-store temporary price cuts, feature advertising, and in-store displays. The impact of these promotions can be categorized as immediate sales promotion bump and effect beyond the immediate bump (Heerde and Neslin 2008). In the consumer promotion model, a manufacturer offers promotional schemes directly to consumers and in retail promotion, customers are offered a lower price through a retail store with advertising support for a definite time period (Martin and Lowe 1986). Trade promotion is an activity where a manufacturer offers different schemes to members of the distribution channel in order to boost sales for a definite time period. For example, sometimes manufacturers offer discount schemes to big distributors on bulk sales. The distributors then pass on discounts to wholesalers and retailers to sell in pre-specified quantities for availing the quantity discount. Pre-specified quantity is a selling quantity decided by the seller in mutual agreement with the producer to avail some discount on bulk selling.

Sales promotions provide an increased sale during the time of promotion; referred to as promotional bump. Its impact on sales can be seen even after the promotions in terms of some brand shift activity, which was actually being initiated during the sales promotion tenure. In some cases, various manufacturers or distributors or retailers join hands for promotion referred to as promotion partnership. We have seen that for promotion many small products are bundled free for the purchase of a relative big product. Whether it is consumer promotion or retailer promotion or trade promotion; the manufacturer has to use some incentive or benefit providing scheme to give a push to sales. Marketing research can have a pivotal role in determining the means of promotion. Researchers have focused on some limited and widely applied tools of promotion like price cut, displays, free sample distribution and the like whereas a lot is required to be explored as any list of promotional activities cannot be completely exhaustive and no doubt it is also not mutually exclusive.

22.6.3 Public Relations

Public relations, a common term used in marketing, consists of a list of programmes for promoting a company’s image in order to achieve its long-term objectives. Public relations consists of a set of activities designed to influence people in a polite and persuasive manner as one cannot use coercive power for influencing potential customers. It is sometimes defined as soft power that operates through influence and attraction (Vercic 2008). Most organizations have a public relations department commonly known as the PR department, which is mainly responsible for maintaining and developing a sound relationship with the public. The term public includes members of the organization as well as the general public. The main role of the public relations department is to protect the company’s image.

Companies show their concern for non-profit objectives as part of their public relations activities. Exhibiting concern for the welfare of the society helps a company create a responsible image in the long run. Public relation activities cover the aspects mentioned above by promoting the non-profit activities of a company. It is not rare to see many companies participating in local welfare programmes and indirectly showing their concern for the welfare of the society. The journey that starts with social welfare activities ends in creating a sound public image for the company. This ultimately results in profit generation for the company. Through public relations, companies can demonstrate altruistic and non-profit-oriented objectives, indicate a sincere concern for consumer benefits, and establish consumer trust in order to enhance customer loyalty (Hsieh and Li 2007).

Public relations activities involve many activities for promoting products or services or the image of a company in a positive manner. The public relations department of a firm uses the press for generating information about product and services. The media is used not only for providing information; it is also used for disseminating information about the firm’s welfare activities. Public relation also deals with maintaining good relations with the government and other agencies with which the company may have to interact in a routine manner. During good times, the public relations department of a firm promotes the image of a company and in bad times, the public relations department of a firm protects the image of a company. Marketing research has an integral role in such activities. Marketing research can be used to generate the required information for product or image promotion.

References

Atuahene-Gima, K., H. Li and L. M. De Luca (2006). “The Contingent Value of Marketing Strategy Innovativeness for Product Development Performance in Chinese New Technology Ventures”, Industrial Marketing Management, 35: 359–72.

Balmer, J. M. T. (1998). “Corporate Identity and the Advent of Corporate Marketing”, Journal of Marketing Management, 14 (8): 963–96.

Balmer, J. M. T. and S. A. Greyser (2005). “Integrating Corporate Identity, Corporate Branding, Corporate Communications, Corporate Image and Corporate Reputation”, European Journal of Marketing, 40(7/8): 730–41.

Baltz, A., A. Bobek, T. Combs, C. Imondi and M. Trippel (2012). “A Comprehensive Strategic Model for the Commercialization of New Product Development Technologies”, Proceedings of PICMET’12: Technology Management for Emerging Technologies, 770–84.

Bayus, B. L. and W. P. Putsis Jr. (1999). “Product Proliferation: An Empirical Analysis of Product Line Determinants and Market Outcomes”, Marketing Science, 18(2): 137–53.

Bessant, J. and D. Francis (1997). “Implementing the New Product Development Process”, Technovation, 17(4): 189–97.

Bhuiyan, N. (2011). “A Framework for Successful New Product Development”, Journal of Industrial Engineering and Management, 4(4): 746–70.

Booms, B. H. and B. J. Bitner (1981). “Marketing Strategies and Organization Structures for Service Firms”, in Donnelly, J. and W. R. George (eds.), Marketing of Services, pp. 47–51. American Marketing Association.

Capon, N. and J. M. Hulbert (2001). Marketing Management in the 21st Century, pp. 6, 345. Upper Saddle River, NJ: Prentice-Hall.

Cialdini, R. B. (2001). Influence, Science and Practice, pp. 1–257. Boston, MA: Allyn & Bacon .

Constantinides, E. (2004). Influencing the Online Consumer’s Behavior: The Web Experience, Internet Research, 14(2): 111–26.

Corley II, J. K., Z. Jourdan and W. R. Ingram (2013). “Internet Marketing: A Content Analysis of the Research”, Electron Markets, 23: 177–204.

Czinkota, M. R. and M. Kotabe (2002). Marketing Management, 2nd ed., pp. 14–15. Singapore: Thomson Asia Pte. Ltd.

Dahan, E. and H. Mendelson (2001). “An Extreme-Value Model of Concept Testing”, Management Science, 47(1): 102–16.

Dalrymple, D. J. and L. J. Parsons (2000). Marketing Management: Text and Cases, 7th ed., pp. 13–14. Wiley.

Dominici, G. (2009). “From Marketing Mix to E-Marketing Mix: A Literature Overview and Classification”, International Journal of Business and Management, 4(9): 17–24.

Fratto, G. M., M. R. Jones and N. L. Cassill (2006). “An Investigation of Competitive Pricing Among Apparel Retailers and Brands”, Journal of Fashion Marketing and Management, 10(4): 387–404.

Fuchs, C. and A. Dianantopoulos (2010). “Evaluating the Effectiveness of Brand-Positioning Strategies from A Consumer Perspective”, European Journal of Marketing, 44(11/12): 1763–86.

Gardner, J. T. and M. C. Cooper (2003). “Strategic Supply Chain Mapping Approaches”, Journal of Business Logistics, 24(2): 37–64.

Gebhardt, G. F. (2006). “Price Skimming Paradoxes”, Advances in Consumer Research, 33: 242–43.

Ghidini, G. (1978). “Problems of Consumer Protection Against Unfair Advertising Under Italian Law”, Journal of Consumer Policy, 2(4): 316–25.

Ghodeswar, B. M. (2008). “Building Brand Identity in Competitive Markets: A Conceptual Model”, Journal of Product & Brand Management, 17(1): 4–12.

Goi, C. L. (2009). “A Review of Marketing Mix: 4Ps or More”, International Journal of Marketing Studies, 1(1): 1–15.

Goldsmith, R. E. (1999). “The Personalized Marketplace: Beyond the 4Ps”, Marketing Intelligence & Planning, 17(4): 178–185.

Griffin, A. (1997). “PDMA Research on New Product Development Practices: Updating Trends and Benchmarking Best Practices”, Journal of Product Innovation Management, 14: 429–58.

Gruner, K. J. and C. Homburg (2000). “Does Customer Interaction Enhance New Product Success?”, Journal of Business Research, 49: 1–14.

Hammann, P. (1979). “Personal Selling”, European Journal of Marketing, 13(6): 141–76.

Harmancioglu, N., R. C. McNally, R. J. Calantone and S. S. Durmusoglu (2007). “Your NPD is Only as Good as Your Process”, R&D Management, 37(5): 400–24.

Hartmann, P., V. A. Ibanez and F. J. F. Sainz (2005). “Green Branding Effectiveness on Attitude: Functions versus Emotional Positioning Strategies”, Marketing Intelligence & Planning, 23(1): 9–29.

Heerde, H. J. V. and S. A. Neslin (2008). “Sales Promotion Models”, International Series in Operations Research and Management Science, 121: 107–62.

Hinterhuber, A. (2008). “Customer Value-Based Pricing Strategies: Why Companies Resist”, Journal of Business Strategy, 29(4): 41–50.

Hinterhuber, A. and M. Bertini (2011). “Profiting When Customers Choose Value Over Price”, Business Strategy Review, 1: 46–9.

Hippel, E. (1986). “Lead Users: A Source of Novel Product Concepts”, Management Science, 32(7): 791–805.

Holmes, J. H. and K. E. Crocker (1987). “Predispositions and the Comparative Effectiveness of Rational, Emotional and Discrepant Appeals for Both High Involvement and Low Involvement Products”, Academy of Marketing Science, 15(1): 27–35.

Hopp, W. J. and X. Xu (2005). “Product Line Selection and Pricing with Modularity in Design”, Manufacturing & Service Operations Management, 7(3): 172–87.

Hsieh, A. and C. Li (2007). “The moderating effect of brand image on public relations perception and customer loyalty”, Marketing Intelligence & Planning, 26(1): 26–42.

Hunt, S. D. and D. B. Arnett (2004). “Market Segmentation Strategy, Competitive Advantage, and Public Policy: Grounding Segmentation Strategy in Resource-Advantage Theory”, Australasian Marketing Journal, 12(1): 7–25.

Janiszewska, K. and A. Insch (2012). “The Strategic Importance of Brand Positioning in the Place Brand Concept: Elements, Structure and Application Capabilities”, Journal of International Studies, 5(1): 9–19.

Jorgensen, S., S. Taboubi and G. Zaccour (2006). “Incentives for Retailer Promotion in a Marketing Channel”, Advances in Dynamic Games, 8: 365–78.

Kotler, P., K. L. Keller, A. Koshey and M. Jha (2009). Marketing Management: A South Asian Perspective, 13th ed., pp. 24–25. India: Dorling Kindersley Pvt. Ltd.

Lau, K. H. (2012). “Demand Management In Downstream Wholesale and Retail Distribution: A Case Study”, Supply Chain Management: An International Journal, 17(6): 638–54.

Lawton, B. and S. Gregor (2003). “Internet Marketing Communications: Interactivity and Integration”, The International Federation for Information Processing, 23: 239–57.

Liu, W. and M. Maletz (2009). “Product Lifecycle Management: A Review”, International Design Engineering Technical Conferences & Computers and Information in Engineering Conference IDETC/CIE, pp. 1–13. Proceedings of the ASME, San Diego, USA.

Martin, R. P. and P. H. Lowe (1986). “Production and Inventory Control: Effect of Sales Promotion”, Advances in Manufacturing Technology, 33–7.

McCharty, E. J. (1964). Basic Marketing: A Managerial Approach, 2nd ed. IL: Richard D. Irwin.

McMullan, J. L. and D. Miller (2009). “Wins, Winning and Winners: The Commercial Advertising of Lottery Gambling”, Journal of Gambling Studies, 25: 273–95.

Myers, J. H. (1976). “Benefit Structure Analysis: A New Tool for Product Planning”, Journal of Marketing, 40: 23–32.

Natter, M. and H. Hruschka (1998). “Evaluation of Aggressive Competitive Pricing Strategies”, Marketing Letters, 9(4): 337–47.

Niazi, A., J. S. Dai, S. Balabani and S. Seneviratne (2006). “Product Cost Estimation: Technique Classification and Methodology Review”, Journal of Manufacturing Science and Engineering, 128: 563–75.

Ozer, M. (1999). “A Survey of New Product Evaluation Models”, Journal of Product Innovation Management, 16: 77–94.

Palacio, A. B. and J. D. M. Santana (1998). “Memory-Based Advertisement Effectiveness Techniques: Recall versus Recognition”, Managing in Uncertainty: Theory and Practice,19: 183–201.

Rink, D. R. and J. E. Swan (1979). “Product Life Cycle Research: A Literature Review”, Journal of Business Research, 9: 219–42.

Rosenbloom, B. and R. Anderson (1985). “Channel Management and Sales Management: Some Key Interfaces”, Journal of the Academy of Marketing Science, 13(3): 97–106.

Rush, C. and R. Roy (2000). “Analysis of Cost Estimating Processes Used within A Concurrent Engineering Environment Throughout A Product Life Cycle”, 7th ISPE International Conference on Concurrent Engineering: Research and Applications, Lyon, France, 17th–20th July, pp. 58–67. Pennsylvania, USA: Technomic Inc.

Smith, P. G. (1990). “Fast-Cycle Product Development”, Engineering Management Journal, 2(2): 11–6.

Steffens, P. R. (2002). “The Product Life Cycle Concept: Buried or Resurrected by the Diffusion Literature?”, Academy of Management Conference, Technology and Innovation Management Division, pp. 1–29.

Sudhir, K. (2001). “Competitive Pricing Behavior in the Auto Market: A Structural Analysis”, Marketing Science, 20(1): 42–60.

Sujan, M. and J. R. Bettman (1989). “The Effect of Brand Positioning Strategies on Consumer’s Brand and Category Perceptions: Some Insights from Schema Research”, Journal of Marketing Research, 26: 554–67 .

Taboubi, S. and G. Zaccour (2002). “Impact of Retailer’s Myopia on Channel’s Strategies, Optimal Control and Differential Games”, Advances in Computation Management Science, 5: 179–92.

Takeuchi, H. and I. Nonaka (1986). “The New Product Development Game”, Harvard Business Review, (January–February): 137–46.

Tynan, A. C. and J. Drayton (1987). “Market Segmentation”, Journal of Marketing Management, 2(3): 301–35.

Urban, E. L., B. D. Weinberg and J. R. Hauser (1996). “Premarket Forecasting of Really New Products”, Journal of Marketing, 60: 47–60.

Urban, G. L. and E. Hippel (1988). “Lead User Analyses for the Development of New Industrial Products”, Management Science, 34(5): 569–82.

Vercic, D. (2008). “Public Relations and Power: How Hard is Soft Power?”, Public Relation Research, 3: 271–9 .

Weitz, B. A. and S. D. Jap (1995). “Relationship Marketing and Distribution Channel”, Journal of the Academy of Marketing Science, 23(4): 305–20.

Weitz, B. A. and K. D. Bradford (1999). “Personal Selling and Sales Management: A Relationship Marketing Perspective”, Journal of the Academy of Marketing Sciences, 27(2): 241–54.

Yelkur, R. and P. Herbig (1996). “Global Markets and The New Product Development Process”, Journal of Product and Brand Management, 5(6): 38–47.

Yoon, E. and G. L. Lilien (1985). “New Industrial Product Performance: The Effects of Market Characteristics and Strategy”, Journal of Product Innovation Management, 3: 134–44.

Zaribaf, M. (2008). “Pricing Challenges in Global Marketing: A Model for Export Pricing”, International Business and Tourism Society, 2 (1): 18–31.

Summary

This chapter focuses on the information required by a decision maker to take decisions regarding product, price, place and promotion. McCarthy first defined marketing mix with the help of a combination of 4 Ps—product, price, place and promotion to satisfy market needs. Booms and Bitner added three more Ps—physical evidence, participants and process. Goldsmith added one more P—Personalization—to make the list of Ps more complete. Balmer came out with a list of 11 Ps in the field of corporate marketing in 1998.

Generally, there are eight steps in the new product development process. These are: new product idea generation (need identification and concept identification); strategic screening of ideas (revenue and cost analysis); concept development and testing; product development and marketing strategy; product testing; test marketing, commercialization and post-launch evaluation (short term and/or long term).

Pricing is a very important concept in the current tough marketing environment and is a vital part of framing a marketing strategy. Price in not only an important element of the marketing mix, it is also different from the other three ­elements of the marketing mix. Product, place and promotion are the activities mainly linked with providing value to a customer. There are many factors affecting the pricing policies of firms. These factors are different from new product pricing strategies. Broadly, factors influencing the pricing strategy of a firm can be categorized as organizational factors, customer factors and ­market ­factors. Organizational factors can further be grouped into product life cycle pricing, product portfolio pricing, product line pricing and pricing for market segmentation. Customer factors can be grouped into demand pricing, benefit pricing, value pricing and place pricing. Factors related to market can also be grouped into competitive pricing, pricing in economic and regulatory environment, exchange rate pricing and geographical pricing. Firms adopt different approaches for pricing new products. The popular pricing techniques for a new product are skimming pricing, penetration pricing and value-in-use pricing.

Distribution channel decisions involve a well-specified procedure to reach the end consumers. A firm has to first decide whether it will approach the end consumer directly or indirectly. Nowadays, the direct approach technique is widely used to reach the end consumer. Direct approach techniques can be classified as direct selling, direct marketing, company owned or sponsored special retail outlets and Internet marketing. Other than reaching consumers directly, firms can also reach them indirectly through some intermediaries. In the indirect approach, the common distribution channel members are distributors, wholesalers and retailers.

Firms can adopt many strategies for making consumers aware about its products or services but strategies such as advertising, sales promotion and public relations are commonly used and established strategies.

Key Terms

Advertising, 576

Benefit pricing, 589

Benefit structure analysis, 581

Commercialization and post-launch evaluation, 579

Company owned or sponsored special retail outlets, 597

Competitive pricing, 589

Concept development and testing, 579

Corporate marketing, 577

Customer factors, 589

Demand pricing, 589

Direct marketing, 576

Direct selling, 597

Distribution research, 597

Distributors, 589

Exchange rate pricing, 589

Focus group, 581

Geographical pricing, 589

Idea generation, 579

Internet marketing, 597

Market factors, 589

Marketing mix, 576

New product research, 579

Organizational factors, 589

Participants and process, 577

Penetration pricing, 589

People, 577

Perception, 577

Performance, 577

Personality, 577

Personalization, 577

Philosophy and ethos, 577

Physical evidence, 577

Place, 576

Place pricing, 589

Positioning, 577

Price, 576

Pricing for market ­segmentation, 589

Pricing in economic and regulatory environment, 589

Pricing research, 579

Product, 576

Product development and marketing strategy, 579

Product life-cycle pricing, 590

Product line pricing, 589

Product portfolio pricing, 589

Product testing, 579

Promise, 577

Promotion, 576

Promotion research, 579

Public relations, 576

Relationship marketing, 577

Retailers, 589

Sales promotion, 576

Service marketing, 577

Skimming pricing, 589

Strategic screening of ideas, 579

Test marketing, 579

Value pricing, 589

Value-in-use pricing, 589

Wholesalers, 597

Notes

1. www.mahindra.com, accessed March 2014.
2. http://www.thehindubusinessline.com/feature/brandline/mahindra/, accessed March 2014.
3. http://blogs.hindustantimes.com/car-nama/ 2012/10/05/tata-mahindras-sibling-rivalry-set-to-turn-ugly/, accessed March 2014.

Discussion Questions

1. What do you understand by marketing mix?
2. How many Ps does the traditional marketing mix consist of ?
3. Write a short note on the evolution of various Ps in marketing.
4. What is new product development research?
5. What are the stages involved in new product ­development?
6. What is lead-user analysis and benefit-structure analysis?
7. Write a short note on revenue and cost analysis of new-product development.
8. Explain the role of concept development and concept testing in new-product development.
9. Write a short note on commercialization and post-launch status of new-product development.
10. What are organizational factors, customer factors and market factors in making sound pricing strategies?
11. Write a note on the life cycle of a product, product portfolio, product line and segmentation and positioning with reference to pricing.
12. What are demand pricing, benefit pricing, value pricing and place pricing?
13. What is competitive pricing, pricing in economic and regulatory environment, exchange rate pricing and geographical pricing?
14. What is skimming pricing, penetration pricing and value-in-use pricing? How is it used in decisions regarding new product pricing?
15. Write short notes on:
    • Direct selling
    • Direct marketing
    • Company owned or sponsored special retail outlets
    • Internet marketing
16. Explain the role of distributors, wholesalers and retailers as an integral part of the distribution channel.
17. Explain the role of advertising, sales promotion and public relations in promotional research.

Case Study

Case 22: Ford EcoSport: A Game Changer for Ford India

Introduction

The history of the passenger car industry in India can be divided into five phases. The regulated and restrained market in the country up to 1984 can be considered phase one. Phase two consists of the period between 1985 and 1992 when the country witnessed the exploration of new technology. Phase three arrived from 1995–2000 when there was a hurried entry of many world players in India. Phase four was the time duration from 2001 to 2004 when market has started maturing with intense competition. The period from 2005 and after when the market become completely global can be considered phase five.¹ Ford India (started in 1995) entered the market soon after the Indian economy started seeing the impact of globalization, liberalization and privatization specifically after 1995–96. Previously, the industry was completely dominated by Maruti Udyog Limited. The competition for the Indian four-wheeler segment leader Maruti Udyog was very limited and fragmented. Multinational players started entering the market after the announcement of the new industrial policy in 1991. There was an influx of global brands in almost all industries such as automobiles, consumer electronics, consumer durables, etc. There was intense competition between the players and the enhanced purchasing power of the Indian population resulted in the creation of a new, informed and powerful consumer base.

Ford India was established in 1995 as a wholly-owned subsidiary of the Ford Motor Company, a global automotive industrial leader. Ford has invested more than USD 2 Billion in India to meet the requirements of the country’s rapidly growing automotive market. The investment has gone into expanding the company’s manufacturing facilities and dealership network in the country. Ford India currently operates a modern, integrated manufacturing facility at Maraimalai Nagar, near Chennai, which produces its award-winning range of products including the Ford Figo, Ford Fiesta, Ford Classic, Ford Endeavour and Ford EcoSport.² The launch of its game changer brand, the Ford EcoSport, has given fresh impetus to Ford’s efforts to become a market leader in the Indian auto segment.

During the time that the EcoSport was launched, market studies clearly indicated that Indian consumers were inclined towards sports utility vehicles (SUVs). Therefore, many auto companies launched SUVs in the Indian market to cash in on consumer sentiments. Compact SUVs were also launched to create a new consumer segment. Indian auto companies came out with similar products, but the response that the EcoSport received was unmatched and the brand was able to set a new example in the Indian automobile segment.

Game Changer Impact of the EcoSport

Since it entered India in 1996, Ford has struggled to get a grip on Indian roads. Despite the occasional and fleeting successes like the Ford Ikon and the Ford Figo, Ford’s India journey has remained lacklustre. The launch of the EcoSport has created a buzz around the brand and resulted in a reversal in fortunes of sorts. The compact SUV now contributes over 55% of Ford’s total sales in India.³ EcoSport is trying to create a new customer segment using low price in the industry as the weapon in the sub-four metre vehicle category.

According to the company’s marketing director Vinay Piparsania, prices were decided by keeping the target customers in mind. The target customer for the EcoSport is someone who is in his early 30s, urban dweller, brand conscious, adventure-lover, and is practical with a sense of contemporariness about him.⁴

No Impact of Recall

Ford recalled 972 units of the EcoSport within two weeks of its launch because of a fault in the glow plug module of its diesel version. Joginder Singh, President and Managing Director of Ford India, in an interview with the Business Standard reiterated Ford’s focus on quality and said that the company was working on a skill development programme and strengthening its research and development team to avoid such issues in the future.⁵ The recall just after the launch was very unusual for an Indian automobile manufacturer and opened up many discussions regarding its negative impact on consumer sentiments. Many critics felt that this move may invite brand shift as many similar brands are available in the market. However, the recall of the vehicles had no impact on the demand for the EcoSport. Rather, the company had to stop taking bookings to clear the backlog of already booked vehicles.

Existing Product Portfolio

Ford India is also working closely with its suppliers to increase the output of the EcoSport to meet the high demand. Its manufacturing facililty at Chennai is working overtime to meet the high demand for the model. The company is also encouraging customers to choose a product from its existing portfolio so that they can avoid the inconvenience of the long waiting period.⁵

This smart strategy followed by Ford will definitely help it to position other brands using the “unprecedented demand” for the EcoSport as an instrument. Considering the “long queue,” Ford is now encouraging its EcoSport customers to go for models such as Figo, Ford Classic, Endeavour or Fiesta with an ­additional discount.⁶

Let us assume that Ford India has appointed you as a business analyst and consultant and asked you to prepare a report on the marketing mix of its products. The launch of the EcoSport, a game changer for Ford India, has witnessed an unprecedented response from the market. As an analyst, what will you do to prepare a report on the marketing mix for different products of the company? What improvements will you suggest for this new product? What will be your suggestions for promoting Ford’s product portfolio? It is also expected that the competitors will launch similar products after seeing the huge demand for the EcoSport. What pricing strategy will you suggest to the company to address this issue. Will you suggest a skimming or a penetration pricing strategy? Ford India is also looking for new partners as channel members to capitalize on this demand. What suggestions will you make to enhance the dealer network in different cities of the country? The company will also be looking for promotional strategies to promote its products. What promotional strategies will you suggest to the company for promoting its different models?

Based on the facts discussed in the case, prepare a detailed report on the marketing mix for the company. Use secondary data and exploratory research for substantiating your findings. Develop a detailed proposal for the company to enhance its ­market share in the Indian market.

Notes

1. www.indiastat.com, accessed March 2014.
2. www.india.ford.com/about, accessed March 2014.
3. http//www.articles.economictimes.indiatimes.com/2013-12-01/news/445… accessed March 2014.
4. http//www.telegraphindia.com/1130627/jsp/business/story_170532…, accessed March 2014.
5. http//www.business-standard.com/article/companies/we-have-stop…, accessed March 2014.
6. http//www.thehindubusinessline.com/companies/its-a-long-wait-for…, accessed March 2014.