Marketing: Concept, Orientation, Customer Value, STP, Product and Pricing, Place and Promotion
2. Market segmentation, targeting and positioning
Segmentation (Wendell Smith, 1956) divides a market into distinct groups of buyers with different needs, characteristics or behaviour who might require separate products or marketing mixes. Consumer markets are segmented on geographic (region, city size, density, climate), demographic (age and life-cycle stage, life stage, gender, income, generation — Baby Boomers, X, Y or millennials, Z, alpha — race, social class), psychographic (lifestyle, personality, values — the VALS framework) and behavioural bases (occasions, benefits sought — Haley's benefit segmentation — user status, usage rate, loyalty status, buyer-readiness stage, attitude); business markets on demographics (industry, size, location), operating variables, purchasing approaches, situational factors and personal characteristics (Bonoma and Shapiro's nested approach). Effective segments are measurable, substantial, accessible, differentiable and actionable. Targeting evaluates segments on size and growth, structural attractiveness (Porter's forces) and company objectives and resources, and chooses a pattern: full market coverage (undifferentiated or differentiated), multiple segment specialisation (selective specialisation, product specialisation, market specialisation), single-segment concentration (niche) or individual marketing (customisation, one-to-one, mass customisation). Positioning is the act of designing the company's offering and image to occupy a distinctive place in the minds of the target market (Ries and Trout, 1972) — choosing a frame of reference (the competitive set), points of parity and points of difference, and a brand mantra; it is drawn on perceptual maps, expressed in a positioning statement (to whom, what, which is, because) and executed through differentiation of product, service, personnel, channel or image; repositioning changes it, and Kotler's positioning errors are under-positioning, over-positioning, confused positioning and doubtful positioning.
3. Product and pricing decisions: product mix, life cycle, new product development, pricing types and strategies
| Decision | Content | Point tested |
|---|---|---|
| Product levels and classification | Kotler's five levels — core benefit, basic product, expected product, augmented product, potential product (the customer-value hierarchy); consumer goods by shopping habit — convenience (staples, impulse, emergency), shopping (homogeneous, heterogeneous), specialty, unsought; industrial goods — materials and parts, capital items, supplies and services; durability — nondurable, durable, services | Competition takes place mainly at the augmented level; unsought goods (insurance, encyclopaedias) need the selling concept |
| Product mix (assortment) and product line | Width (number of lines), length (total items), depth (variants per item), consistency (relatedness); line decisions — line analysis (sales and profit by item, market profile), line length, line stretching (down-market, up-market, two-way), line filling, line modernisation, line featuring, line pruning | Cannibalisation is the risk of line filling and down-market stretching; brand ladder and brand portfolio decisions sit here |
| Product life cycle | Introduction (slow sales, negative profit, awareness building, skimming or penetration price), growth (rapid sales, peak profit rate, competitors enter, improve and add features, new segments), maturity (slow growth, peak-then-falling profit, intense competition — modify market, product or mix), decline (falling sales — maintain, harvest, drop); shapes — growth-slump-maturity, cycle-recycle, scalloped; styles, fashions and fads | Maturity is the longest stage and holds most products; profit peaks at the end of growth or start of maturity; the PLC is a sales curve, distinct from Rogers' adoption curve (innovators 2.5%, early adopters 13.5%, early majority 34%, late majority 34%, laggards 16%) |
| New product development | Eight stages: idea generation, idea screening (drop-error and go-error), concept development and testing, marketing strategy development, business analysis, product development, market testing (sales-wave, simulated, controlled, test markets), commercialisation (when, where, to whom, how); Booz Allen Hamilton's new-product categories — new-to-the-world, new lines, additions, improvements, repositionings, cost reductions | Stage-gate (Cooper) formalises the go/kill decisions; most new products fail for lack of a real point of difference; adoption follows awareness, interest, evaluation, trial, adoption |
| Group | Methods | Notes |
|---|---|---|
| Setting the price (Kotler's six steps) | Select the objective (survival, maximum current profit, maximum market share, maximum market skimming, product-quality leadership), determine demand (elasticity), estimate costs (target costing, experience curve), analyse competitors' costs, prices and offers, select a pricing method, select the final price | The three Cs — customer demand schedule (ceiling), cost function (floor), competitors' prices (orienting point) |
| Cost-based methods | Mark-up (cost-plus) pricing; target-return pricing (break-even chart); marginal-cost pricing; full-cost pricing | Ignore demand and competition; simple and 'fair' |
| Demand- and value-based methods | Perceived-value pricing; value pricing (low price for high quality — everyday low pricing); differential or discriminatory pricing (by segment, form, image, channel, location, time); psychological pricing (odd pricing, reference prices, prestige pricing); auction-type pricing (English, Dutch, sealed-bid) | Price discrimination needs separable segments with different elasticities and no resale |
| Competition-based methods | Going-rate pricing; sealed-bid (tender) pricing; price leadership following; competitive parity | Used in oligopolies and for homogeneous products |
| New-product strategies | Market-skimming (high initial price, lowered in steps — novel, patented, inelastic early demand) and market-penetration (low initial price to win share fast — elastic demand, scale economies, threat of entry) | Skimming pairs with the PLC's introduction stage |
| Product-mix pricing | Product-line pricing (price steps), optional-feature pricing, captive-product pricing (razors and blades), two-part pricing (fixed fee plus usage), by-product pricing, product-bundling (pure and mixed) | Captive pricing is the printer-and-cartridge case |
| Price adaptation | Geographical pricing (FOB origin, uniform delivered, zone, basing-point, freight absorption); discounts and allowances (cash, quantity, functional or trade, seasonal, trade-in and promotional allowances); promotional pricing (loss-leader, special-event, cash rebates, low-interest financing, longer payment terms, warranties, psychological discounting); dynamic pricing | Initiating and responding to price changes — price cuts invite the low-quality, fragile-share and shallow-pockets traps; responses to a competitor's cut are maintain, raise perceived quality, cut, or launch a fighter brand |
4. Place and promotion decisions: channels and value networks, VMS, IMC, advertising and sales promotion
A marketing channel is the set of interdependent organisations involved in making a product or service available for use or consumption; a value network is the wider system of partnerships and alliances — suppliers, suppliers' suppliers, immediate customers and their end customers — that a firm creates to source, augment and deliver its offerings, of which the channel is the downstream part. Channel levels count intermediaries: zero-level (direct — door-to-door, mail order, telemarketing, online, company stores), one-level (retailer), two-level (wholesaler and retailer), three-level (agent or jobber added). Intermediaries perform information, promotion, negotiation, ordering, financing, risk-taking, physical possession, payment and title functions, and reduce the number of contacts (with m producers and n customers, m × n contacts fall to m + n through one distributor). Channel design decisions are analysing customer service-output levels, setting objectives and constraints, identifying alternatives (types, number — exclusive, selective, intensive — and terms and responsibilities of members) and evaluating them by economic, control and adaptive criteria; channel management decisions are selecting, training, motivating (channel power — coercive, reward, legitimate, expert, referent — and channel partnership) and evaluating members and modifying the arrangement. Conflict is vertical, horizontal or multichannel; its causes are goal incompatibility, unclear roles and rights, differences in perception and dependence; remedies include superordinate goals, exchange of persons, co-optation, joint membership, diplomacy, mediation and arbitration. Vertical marketing systems replace the conventional channel of independent, self-interested members with a unified system: corporate (successive stages under one ownership), administered (coordinated by the size and power of one member) and contractual (independent firms bound by contract — wholesaler-sponsored voluntary chains, retailer cooperatives, and franchise organisations: manufacturer-sponsored retailer franchise, manufacturer-sponsored wholesaler franchise, service-firm-sponsored retailer franchise); horizontal marketing systems pool two unrelated firms at the same level, and multichannel or omnichannel systems reach segments through several integrated channels.
| Topic | Content | Point tested |
|---|---|---|
| Integrated marketing communications | Planning that recognises the added value of a comprehensive plan combining the communication disciplines — advertising, sales promotion, events and experiences, public relations and publicity, online and social-media marketing, mobile marketing, direct and database marketing, personal selling (Kotler's eight modes) — for clarity, consistency and maximum impact through one voice | Steps of effective communication: identify the target audience, determine objectives (category need, awareness, attitude, purchase intention), design the communication (message strategy, creative strategy, source), select channels (personal, non-personal), establish the budget (affordable, percentage-of-sales, competitive-parity, objective-and-task), decide the mix, measure results, manage IMC; response hierarchies — AIDA, hierarchy of effects (Lavidge and Steiner), innovation-adoption, communications model |
| Advertising | Any paid form of non-personal presentation and promotion of ideas, goods or services by an identified sponsor; the five Ms — mission (objectives: informative, persuasive, reminder, reinforcement), money (budget — PLC stage, share, competition, frequency, substitutability), message (generation, evaluation, execution, social responsibility), media (reach, frequency, impact; types — print, broadcast, outdoor, digital; timing — continuity, concentration, flighting, pulsing), measurement (communication effect — copy testing, recall, recognition; sales effect) | DAGMAR (Colley, 1961 — defining advertising goals for measured advertising results) sets communication objectives on the awareness-comprehension-conviction-action ladder; gross rating points = reach × frequency; the Advertising Standards Council of India (1985) self-regulates; surrogate advertising for liquor and tobacco is the recurring issue |
| Sales promotion | Short-term incentives to encourage trial or purchase — consumer tools (samples, coupons, cash refunds, price packs, premiums, frequency programmes, prizes, patronage awards, free trials, warranties, tie-ins, cross-promotions, point-of-purchase displays), trade tools (price-offs, allowances, free goods) and business and sales-force tools (trade shows, sales contests, specialty advertising); objectives, selection, programme design, pretesting, implementation, evaluation | Advertising offers a reason to buy, sales promotion an incentive; promotion works faster but can erode brand equity and train buyers to wait for deals; the push-pull distinction decides trade versus consumer emphasis |
Key takeaways
- Orientations run production, product, selling, marketing, holistic; Levitt's marketing myopia defines the business by product not need; customer perceived value is total benefit less total cost, satisfaction is performance against expectation, and CLV is the present value of a customer's future profits.
- Segmentation bases are geographic, demographic, psychographic and behavioural; effective segments are measurable, substantial, accessible, differentiable and actionable; targeting runs from undifferentiated to one-to-one; positioning (Ries and Trout) is a place in the mind, built on points of parity and difference.
- Five product levels from core benefit to potential product; mix width, length, depth, consistency; PLC introduction, growth, maturity, decline with profit peaking around the growth-maturity boundary; NPD in eight stages from idea generation to commercialisation.
- Kotler's six pricing steps run from objective to final price; cost sets the floor, demand the ceiling, competitors the reference; skimming versus penetration for new products; captive, two-part and bundle pricing for the mix; discounts, geographic and promotional pricing adapt the list price.
- Channel levels count intermediaries and intensity counts outlets; VMS is corporate, administered or contractual (franchising); IMC speaks with one voice across eight modes; advertising's five Ms are mission, money, message, media, measurement; sales promotion is a short-term incentive, not a reason to buy.
Practice questions (9)
Attempt each one before opening the answer. Every explanation names the tempting wrong option as well as the right one, because that is where marks are lost.
Theodore Levitt's 'marketing myopia' (1960) refers to the error of:
Show answer
Answer: A — Defining the business by the product it makes rather than by the customer need it serves
Levitt's railways thought they were in the railway business rather than the transportation business and declined as a result; the remedy is the marketing concept — start from customer needs. The article is the classic statement of product orientation's danger.Customer perceived value is defined as:
Show answer
Answer: A — Total customer benefit minus total customer cost, relative to alternatives
Benefits (product, services, personnel, image) less costs (monetary, time, energy, psychological), compared with competing offers. Price is only one of the costs; repeat purchase is a measure of loyalty, not value.Segmenting a market by lifestyle, personality and values uses which base?
Show answer
Answer: A — Psychographic
Psychographics (the VALS framework is the best-known scheme) explain why buyers in the same demographic behave differently. Demographics are age, income and the like; behavioural bases are occasions, benefits, usage and loyalty; geographic bases are region and city size.'The act of designing the company's offering and image to occupy a distinctive place in the minds of the target market' defines:
Show answer
Answer: A — Positioning
Positioning, popularised by Ries and Trout, is the third step of STP and is about perception in the customer's mind. Segmentation divides the market, targeting picks segments, branding builds the identity that carries the position.In Kotler's five product levels, the level at which most competition takes place in developed markets is the:
Show answer
Answer: A — Augmented product
The augmented product exceeds expectations — delivery, warranty, service, installation — and is where brands differentiate in mature markets; in developing markets competition is often at the expected level. Today's augmentation becomes tomorrow's expectation.Setting a low initial price for a new product to attract a large number of buyers quickly and win market share is called:
Show answer
Answer: A — Market-penetration pricing
Penetration suits price-sensitive markets with economies of scale and a threat of competition; skimming does the opposite with a high initial price for a novel product; prestige pricing keeps price high to signal quality; captive pricing prices the main product low and its consumables high.A channel in which a manufacturer sells through a wholesaler who sells to a retailer who sells to the consumer is a:
Show answer
Answer: A — Two-level channel
Channel level counts the intermediaries between producer and consumer: none is zero-level (direct), a retailer alone is one-level, wholesaler plus retailer is two-level, and adding an agent or jobber makes three.A franchise organisation, such as a fast-food chain, is an example of which type of vertical marketing system?
Show answer
Answer: A — Contractual VMS
Franchises, wholesaler-sponsored voluntary chains and retailer cooperatives bind independent firms by contract. A corporate VMS owns the successive stages, an administered VMS coordinates through one dominant member's power, and a horizontal system joins unrelated firms at the same level.In advertising management, the 'five Ms' are mission, money, message, media and:
Show answer
Answer: A — Measurement
Kotler's five Ms end with measurement of the communication effect (recall, recognition, attitude) and the sales effect. Mission sets objectives, money the budget, message the creative, media the vehicles and schedule.