Question Paper Marketing Management (MB221) : July 2006

Question Paper
Marketing Management (MB221) : July 2006
Section A : Basic Concepts (30 Marks)
• This section consists of questions with serial number 1 - 30.
• Answer all questions.
• Each question carries one mark.
• Maximum time for answering Section A is 30 Minutes.
1. A business buyer is faced with a purchasing decision in which information requirements, risk and
product cost are all high. Which of the following types of buying situations does the buyer likely face?
(a) Straight rebuy (b) Modified rebuy (c) New task
(d) Uphill task (e) Downhill task.
2. Which of the following components of a marketing information system is described as the set of
procedures and sources used by managers to obtain information about the marketing environment?
(a) Marketing research (b) Sales information system
(c) Order-to-payment cycle system (d) Marketing intelligence system
(e) Management information system.
3. Members of the marketing channel perform a number of key functions. Which of the following is/are
the tasks performed by members of marketing channels?
I. Gather information about potential and current customers.
II. Develop and disseminate persuasive communications to stimulate purchasing.
III. Assume risks connected with carrying out channel work.
IV. Negotiate price and transfer of ownership.
(a) Only (I) above (b) Both (I) and (II) above
(c) Both (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(d) (II), (III) and (IV) above
4. Which of the following functions of warehousing uses the warehouse as a station for transferring goods
from one place to another?
(a) Stock mixing (b) Batch method
(c) Cross docking
(e) Job shop method.
(d) Continuous method
5. Which of the following relates to a company assessing the monetary feasibility of its products, customer
segments, territories, partners etc.?
(a) Annual-Plan control (b) Profitability control
(c) Efficiency control (d) Strategic control
(e) Tactical control.
6. The Promotional campaign “Malaysia truly Asia” tries to attract tourists to visit Malaysia. This type of
promotion/advertising is known as
(a) Event marketing (b) Person marketing
(c) Idea marketing
(e) E-marketing.
(d) Place marketing
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7. In Canada, Coca-Cola Beverages has rolled out new marketing, technologies, and packaging to
outmaneuver private-label Canadian cola bottlers, which have captured considerable market share. Coke
will bring in a new just-in-time distribution system based on unit trains and cross-docking sales centers.
Which of the following statements describes how Coke will most likely use its just-in-time (JIT)
system?
(a) The just-in-time system will require Coke to purchase and/or lease more warehouse space
(b) The use of just-in-time means Coke does not have reliable demand for its product
(c) The just-in-time system will allow Coke to expand its product line without requiring additional
investments
(d) The just-in-time system will allow Coke to operate with very low inventory levels
(e) The just-in-time system will increase inventory carrying costs while reducing order processing
cost.
8. Which of the following deals with techniques for determining profitability at the market segment level,
product level, distribution level and customer level?
(a) Contribution analysis (b) Financial situational analysis
(c) Value analysis (d) Marginal analysis
(e) Customer profitability analysis.
9. Smith's Fine Foods is involved in selecting and analyzing a target market and developing a marketing
mix to gain long-run competitive advantages. Smith's is involved in
(a) Positioning (b) Creating differentiation
(c) SWOT analysis
(e) Segmentation.
(d) Creating a marketing strategy
10. Among industrial products, items that are purchased routinely, that do not become part of the final
physical product and are treated like expense items rather than capital goods, are called
(a) Raw materials (b) Capital equipment
(c) Accessory equipment (d) Component parts
(e) Process materials.
11. Behavioral segmentation is an important variable for understanding different patterns of “behavior”
among consumers. Which of the following statements is/are true about behavioral segmentation?
I. It is the best starting point for dividing market segments.
II. Occasion segmenting helps firms build up product usage.
III. A consumer buying toothpaste to prevent tooth decay, can be included in a segment of
consumers seeking the same benefits.
IV. Split loyals are people who shift loyalty from one brand to another.
(a) Only (II) above (b) Both (I) and (II) above
(c) (I), (II) and (III) above (d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
12. Entry barriers are those things in place that can make entry into a market very hard. Which of the
following is not an entry barrier?
(a) Economies of scale (b) High capital requirements
(c) Low asset salvage value (d) Proprietary products
(e) Learning curve.
13. Companies continually search for new customers in order to make profits and increase their sales
volume. Which of the following is not helpful in attracting new customers?
(a) Developing advertisements
(b) Mailing to prospective customers
(c) Participating in trade shows and fairs
(d) Making personal phone call to customers
(e) Measuring the defection rate.
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14. The members of a product venture team who are instrumental in organizing new product development
come from
(a) The marketing department
(b) The research and development department
(c) The production and finance departments
(d) Different functional areas of an organisation
(e) The sales department.
15. Which of the following statements is/are not true about an administered vertical marketing system?
I. Two or more firms administrate the channel activities.
II. Firms with dominant market positions wield authority, command and cooperation from other
channel members.
III. The system possesses a relatively low degree of inter-organisational management.
IV. Being independently owned and operated makes them different from traditional channels.
(a) Only (I) above (b) Only (IV) above
(c) Both (I) and (II) above (d) Both (III) and (IV) above
(e) (I), (II) and (IV) above.
16. There are a number of characteristics that are distinguished by franchises. Which of the following is not
one of these characteristics?
I. The franchiser owns a trade or service mark and licenses it to a franchisee in return for royalty
payments.
II. The franchisee does not have to pay for the franchiser's name.
III. The franchisee pays for the right to be part of the system.
IV. The franchiser provides its franchisees with a system for doing business.
(a) Only (II) above (b) Only (IV) above
(c) Both (I) and (III) above (d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
17. Businesses have gone through different phases or stages of marketing over years. Which of the
following is true about the production era?
I. Say’s law-supply creates its own demand-was truly applicable in this era.
II. The market was a seller’s market.
III. Product features were given importance in this era.
IV. Companies focused on manufacturing processes.
(a) Only (I) above (b) Only (IV) above
(c) Both (II) and (III) above (d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
18. Which of the following is incorrect when assessing the communication process?
I. It should monitor the consumer from pre-selling to post-consumption stages.
II. It can be sabotaged by ‘noise’ which prevents the receiver getting the intended message.
III. It has an encoding element by which the receiver assigns meanings to the symbols or illustrations
he receives.
IV. It has some element of feedback.
(a) Only (I) above (b) Only (III) above
(c) Both (I) and (III) above (d) Both (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
19. Until Bill and Hillary saw a feature on local news about baby car seats, they thought all brands were
alike. Having seen the news broadcast, they were better informed to make the baby car seat purchase
decision for their soon-to-be-born son. What source did Bill and Hillary use to collect information for
their purchase decision?
(a) Public (b) Commercial (c) Personal
(d) Experiential (e) Past purchase experience.
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20. A large oil company runs advertisements that show how its employees are involved in the community
development activities. This is an example of
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(a) Informative advertising (b) Institutional advertising
(c) Comparative advertising
(e) Product advertising.
(d) Reminder advertising
21. Arun is the owner of a luxury car dealership. He is very much worried about his business because sales
of his luxury cars have declined considerably. He has read that unemployment is up, that consumer
spending is down, and consumer income is also down. Which of the following best describes the current
economy?
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(a) Recession (b) Inflation (c) Stagnation
(d) Price escalation (e) Depression.
22. Who among the following is least likely to be directly involved in actually making sales?
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(a) Order taker (b) Current-customer salesperson
(c) Order getter (d) Field order taker
(e) Support personnel.
23. At the Melting Moments, an ice cream parlour, customers place their orders, watch their ice-cream
sundaes being prepared, and then eat the sundaes in the store. This is an example of the service
characteristic of
(a) Inseparability (b) Intangibility
(c) Heterogeneity (d) Perishability (e) Durability.
24. Which of the following is/are factors of the political environment that need to be considered when doing
business in a foreign country?
I. National sovereignty and security policies.
II. Rules regarding mergers and acquisitions.
III. Implications of foreign direct investments.
IV. Rules regarding patents and trademarks.
(a) Only (I) above (b) Both (II) and (III) above
(c) Both (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
(d) (I), (II) and (III) above
25. Microsoft offers spreadsheet software, word processing software, and graphics software as part of its
"Microsoft Office" suite of products, at one price. This is an example of
(a) Target pricing (b) Captive-product pricing
(c) Psychological pricing
(e) Price bundling.
(d) Penetration pricing
26. A form of marketing that consists of direct communications with carefully targeted individual
customers, often on a one-to-one, interactive basis to obtain an immediate response is called
(a) Database marketing (b) Relationship marketing
(c) Direct marketing (d) Personal selling
(e) Differentiated marketing.
27. Bata Shoe Company sells its manufactured products through its own chain of retail outlets. Which of
the following marketing strategies does Bata employ?
(a) Backward integration (b) Forward integration
(c) Horizontal integration
(e) Concentration.
(d) Diversified strategy
28. The advantage derived by the marketer, from which of the following, gets reduced if the technology
used in a product becomes obsolete fast?
(a) Product form (b) Product design
(c) Product position
(e) Product durability.
(d) Product quality
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29. Persil acquired by Lever Bros, is the best selling laundry detergent in the UK. When Lever Bros. used
the Persil brand name for its washing up liquid it was adopting a/an
(a) Individual branding strategy (b) Family branding strategy
(c) Line extension strategy (d) Brand extension strategy
(e) Private branding strategy.
30. The company that overlooks new and better ways to do things will eventually lose customers to another
company which has found a better way of serving customer needs. This is a major tenet of
(a) Innovative marketing (b) Consumer-oriented marketing
(c) Value marketing (d) Sense-of-mission marketing
(e) Person marketing.
END OF SECTION A
Section B : Caselets (50 Marks)
• This section consists of questions with serial number 1 – 7.
• Answer all questions.
• Marks are indicated against each question.
• Detailed explanations should form part of your answer.
• Do not spend more than 110 - 120 minutes on Section B.
Caselet 1
Read the caselet carefully and answer the following questions:
1. Discuss the reasons for the success of the Korean companies in India.
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2. Hyundai, LG and Samsung have pursued successful growth strategies in India. With respect to the Ansoff’s
product grid, explain what growth strategies the three Korean companies have adopted in India.
(7 marks) < Answer >
3. Korean companies have tapped India as potential market. Explain how the evaluation of potential markets is
done by Multinational companies.
(6 marks) < Answer >
When Hyundai Motor Chairman Chung Mong Koo toured his company's well-manicured plant in the Indian port
city of Madras last November, he was impressed with its operations. So impressed, in fact, that he did something
extraordinary: In January and February, he chartered a total of nine airplanes and ferried 2,000 Hyundai managers
and workers from Seoul to Madras, where each group spent three days studying the Indian subsidiary's operations.
The quality of the cars Hyundai produces in India shows up in the numbers. In 2002 - just after four years in India -
Hyundai sold 1,11,000 cars, giving it a 19% share of the market, second only to leader Maruti's 45%.
Chung isn't the only Korean executive who's hot on India these days. Consumer-electronics and white-goods maker
LG Electronics has seen its Indian sales surge by 40% annually since 2000. Its rival, Samsung Electronics, has been
growing at a 20% annual clip. Together, their TVs, air conditioners, washing machines, microwaves, and phones
now make up a third of Indian sales in each of those categories, according to New Delhi market researcher ORG-
GfK. By this year, the Indian subsidiaries of Hyundai, Samsung, and LG each expect to raise their Indian revenues
to more than $1 billion a year, which would put them well ahead of rivals from the West such as Philips, Electrolux,
and Whirlpool.
What's the Korean trio's secret? Other multinationals rushed into India a decade ago, when the government loosened
its rules on foreign investment, and didn't do much to adapt their products. Ford Motor's first model in India was the
Escort, while General Motors sold the Opel Astra, both aging versions of midsize cars costing more than $20,000,
out of reach for most Indians. When the Koreans arrived on the subcontinent in the mid-1990s, they took the time to
do market research and learn exactly what Indians wanted. Samsung, for instance, began doing market research in
India in 1994 but didn't start selling products there until December 1995. "We learned that it's very important to live
up to Indian consumer expectations," says M.B. Lee, vice-president for marketing at Samsung India Electronics.
Hyundai's first Indian offering was the $7,000 Santro, a mini-car retailored with the latest technology especially for
India. Another example: Both Samsung and LG discovered that Indians like more volume on their TV sets because

families often watch in noisy environments. So for a premium of 7%, both now offer sets with more than 800 watts
of sound, compared with the normal 200 watts. "In India, you've got to roll up your sleeves like a local to do
business, not do it like a suit-and-tie multinational," says Ganesh Mahalingam, LG Electronics India's sales and
marketing chief. "Korean companies are more flexible," says Namuh Rhee of Rhee Capital in Seoul. "They know
how to learn from past mistakes."
Hyundai, Samsung, and LG have been building factories in India since 1997, and now make up to 85% of their
products locally. That helps cut costs dramatically because India's high tariffs make imports a tough sell. And
they're still investing. Hyundai is completing an $80 million expansion of its Madras factory and plans to export as
many as 25,000 of its Santros to Europe and North America this year. Samsung is building a new $25 million,
500,000-refrigerator-a-year plant near Delhi. And LG is spending $50 million on a new facility near Bombay that
will double its washing machine and refrigerator production.
The Koreans' success has stirred the competition. Indian TV maker Onida, which once led the market, is expanding
into air-conditioners and washing machines as "dealers feel happier with a basket of products," says Chairman Gulu
Mirchandani.
Analysts say that the success of the firms is primarily a case of "returns on investments" – investments not only in
creating large manufacturing capacities in the country but also towards maintaining local flavour in its products and
marketing. "Credit must also go to the Korean management, which was aggressive, ready to wait and invest in this
country – patience being the key operating word. The focus on people and product-related processes also ensured
that product and service delivery was of high quality," says Anang D. Jena, Research Director, Synovate.
Nevertheless, for some time now, LG Electronics has been the number one player in many categories. LG’s strategy
has been remarkably simple: it has kept prices low while targeting the mass market. And that’s helped it bring in the
numbers. It’s been offering a range of feature-packed but economically priced products. And the company’s kept its
focus firmly on increasing its penetration in the rural and semi-urban mass markets.
For its part, Samsung claims it’s never been a price warrior – its focus has always been on the premium market,
which is why it has remained a steady No. 2 or No. 3 player in most product categories. Says a prominent Chennaibased
consumer durables retailer: "The trend of Korean dominance will continue; they have good penetration of
their products, established distribution centres and all this helped in their market leadership in most segments. Also,
erstwhile top players like Videocon and BPL vacated many markets which the Koreans filled." He says that the
Koreans have got their finger on the pulse of the Indian market by getting their pricing and product profile right.
Caselet 2
Read the caselet carefully and answer the following questions:
4. Differentiation is a key to competitive advantage. What kind of differentiation strategies have been used in
marketing Harry Potter books and how? Explain.
(8 marks) < Answer >
5. Explain the various positioning strategies for a marketer as suggested by Al Ries and Jack Trout. Which of
these are applicable to Harry Potter’s positioning?
(8 marks) < Answer >
Harry Potter does not just denote the mania that has gripped readers across the globe. Nor is it only about the ragsto-riches
story of its author, J K Rowling. The story of Harry Potter (HP) is of a brand transformed into an icon,
transcending age, cultural, geographical and many other barriers. The brand Potter extends to a host of categories
from toys to movies to apparels to many others. Harry Potter is one of the most remarkable brand stories of recent
years. So much so, that there can't be a single person anywhere who hasn't heard of "the boy who lived" and the
best-selling books that bear his name. To date, six books in the seven-book series have been published and
approximately 250 million copies have been sold worldwide. J.K. Rowling's books have been translated into 61
different languages, including Icelandic, Serbo-Croat, Vietnamese, Hebrew, Swahili, Ukrainian, and Afrikaans, to
say nothing of novelty editions in Latin, Gaelic and ancient Greek. In addition to the books themselves, the first
three Harry Potter adventures have been made into live-action movies by Warner Brothers, earning some US$ 1.6
billion at the global box office and a further $750 million in DVD, video and broadcasting rights sales. More than
400 items of ancillary merchandise are also available: everything from candy and key rings to computer games and
glow-in-the-dark glasses. Harry Potter books were being sold in places such as the supermarket, the local burger bar,
the kiosk on the corner, the gas station, the dentist, the bank, the hairdresser, the toy store, and naturally, the book
store.
Staggering as the sales figures are, the Harry Potter "effect" goes far beyond the bottom line. The entire children's
book sector has been invigorated by the achievements of the teenage mage: applications to boarding schools have
rocketed in the wake of the HP phenomenon.
For many, of course, Harry Potter is just a passing fad, yet another in a long line of consumer crazes like Pet Rocks,
Beanie Babies and, of late, Sudoku. But it is arguable that the Harry Potter brand contains lessons that are relevant
to the entire marketing community. In a world of intense competition, indistinguishable products, impenetrable
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advertising clutter and increasingly marketing-savvy consumers, Harry Potter stands head and shoulders above the
clamoring crowd, and for that reason alone, the secrets of the brand's success are worth considering.
Four success factors can be tentatively identified. The first of these is Narrative. Harry Potter epitomizes the
storytelling propensity that characterizes contemporary corporate culture. Having exhausted one-word solutions
("synergy," "re-engineering," "disintermediation") and having run the gamut of acronyms, metaphors, and
mnemonics (TQM, CSR, "relationships," "warfare," 4Ps, 3Cs), the consultancy-industrial-complex has belatedly
discovered the power of parables, anecdotes, yarns, myths and more. Storytelling is the management method of the
moment. "Tell the tale, make the sale" is the order of our day. The interesting thing about the Harry Potter story,
however, is that it comprises multiple stories.
The second HP success factor is Ambiguity. The Harry Potter stories are nothing if not ambivalent. They appeal to
adult and child alike. They comprise a mix of genres: mystery, boarding school, coming of age. They are set in the
present yet are decidedly old-fashioned. They consider the evil in good and good in evil. They are loved by
consumers and loathed by critics. They are held up as exemplars of authentic, grassroots marketing and egregious
over-exploitation by meretricious marketing types.
The third HP lesson concerns Mystery. The books are much more than mere comic adventures. They are replete
with riddle-me-re, both at the overarching level and within each individual volume. Every installment, furthermore,
contains a couple of concluding explanatory chapters, akin to classic Agatha Christie whodunits, where the chief
suspects are assembled in the library prior to the private eye's pronouncement. Harry Potters are Hercule Poirots for
pre-teens of all ages.
Marketing too is deeply mysterious. It is mysterious not only in the sense that we still don't know how advertising
works, why Potteresque fads and crazes occur, or what the marketing concept is, exactly. Mystery is a marketing
tactic in itself, although brand swamis have very little to say on the matter. Yet one only has to peruse the
promotional practices of brand-centric organizations to appreciate that mystery, enigma, intrigue and "how they do
that?" are an important part of their appeal.
The fourth and final lesson concerns Entertainment. Whatever else it is, the Harry Potter phenomenon is enormously
entertaining. The reaction of the public is entertaining, as the tribute websites, themed parties, and lines outside
bookstores indicate. The reaction of the Harry-haters is entertaining as well, not least that of the affronted literary
establishment. And, lest we forget, the marketing campaigns are wonderfully entertaining, particularly when newrelease-date
frenzy kicks in. If nothing else, Harry Potter reminds us of the easily forgotten fact that what we do is
great fun. Yes, fun!
When all is said and done, Harry Potter epitomizes today's Entertainment Economy. This is a world-a warp-speed
world-where there's no business without show business and where hot products, the next big thing, and the thing
after the next big thing are where it's at. It seems that 21st-century brand wizards have much to learn from the book
business in general and Harry Potter in particular. Although it is one of the oldest industries around (Gutenberg was
the first modern marketing man), the book biz is a harbinger of how business will increasingly be. It is fastchanging,
fad-prone, hit-driven, increasingly global and consolidating rapidly. It is facing technological threats,
savage competition, copious substitutes, product profusion and channels confusion. Far from being an old-fashioned
holdout, which has yet to come to terms with the marketing concept, the idea of customer-orientation and the nuts
and bolts of branding, the biblio-business is where we should be looking to foresee the future of our field.
Caselet 3
Read the caselet carefully and answer the following questions:
6. Companies are banking on ‘star power’ to enhance the visibility of their brands. Discuss at least six uses of
celebrity endorsements.
(7 marks) < Answer >
7. Getting a brand endorsed by a celebrity does not always lead to success. Discuss why celebrity endorsements
fail and the risks associated with them. Also, explain how the risks can be avoided.
(8 marks) < Answer >
Stars, who are known to shape destinies, cast an enormous influence. No, we’re not talking about astrology here.
We’re referring to the powerful effect of celebrities on destinies of brands. One approving nod from a famous face
can translate into millions in brand sales. Perhaps that’s why the world over, companies have been using stars to
endorse everything, from food to food chains, from soft and hard drinks to health drinks, from clothes and
accessories to cars (and the tyres on which they run).
Signing up stars for endorsements is a time-tested strategy and has been effectively used by some of the top brands
in the world including Nike and Pepsi. In India too, HLL has used Hindi film stars to endorse their beauty soap Lux
since the fifties. Vimal, Thums Up, Gwalior and Dinesh are some of the other brands that used star-appeal in the
early days of mass advertising. And who can forget Kapil ‘Palmolive’ Dev?
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Ask about the objective of using a celebrity in an ad and most admen will talk about making an impact on the
bottom line. They believe that star endorsements have several benefits, key among them being building credibility,
fostering trust and drawing attention… any or all of which can translate into higher brand sales. So how does one
decide whether to put a celebrity in an ad? Ideally, this should be dictated by the communication idea. Advertising
professionals recommend celebrity endorsements when the case is justified. There are many cases where you need
to use the celebrity to break out of a category clutter. At times celebrity endorsement is used to build credibility to
the brand offer.
Most experts concur that, when used judiciously, celebrity endorsements can be an effective strategy. Using a
celebrity by itself is not a bad idea provided it is done intelligently. And there are many examples of good and bad
use of celebrities. Take Amitabh Bachchan, who has been used by some companies like Parker Pens and ICICI
Home Loans remarkably well while some others have been unable to exploit his Big B status too well. Shah Rukh
Khan’s endorsement of Hyundai Santro too seems to have worked well. Ad agency FCB Ulka used cricketers like
Rahul Dravid for Castrol in an attempt to break out of the clutter, as well as have an image rub off of ‘dependability’
on to the brand.
Yet, there are some who don’t have much conviction in star endorsements. Some admen do not recommend
celebrity endorsements because they think that to be really successful, a brand needs to have a strong identity of its
own. It should ideally not piggyback on the identity of a celebrity and hope to achieve success. They feel that not
much effort is put in to think through an ad with a celebrity. Most times it seems like it is just the celebrity saying ‘I
use this product, so why don’t you’ kind of thing and the ad agency thinks it has done its job. Celebrity
endorsements are capable of manifesting both favourable and adverse effects for the brands with which they
associate.
Celebrity endorsements are very expensive. Therefore, their use in an ad should be justified. In other words, the
message strategy for a brand should strongly warrant the use of a known face in an idea. Sadly, very often the
celebrity is hired first and an idea is then weaved around his or her presence. The important thing to remember is
that putting a celebrity in an ad is not an idea in itself. Unfortunately, this is how most celebrities are being used in
Indian advertising, where they just become a prop. Ideally, there should be an idea that makes the celebrity relevant
to the product and the consumer.
A celebrity’s presence in the ad should be contextual. When Sachin Tendulkar declares, “Boost is the secret of my
energy,” it doesn’t seem out of context. Internationally, Nike’s association with Michael Jordan is legendary and
also logical. Celebrity endorsements work best when the celebrity is not introducing the brand. When the product
already has a strong identity and a USP that is well established, then a celebrity can come in and give the brand an
added fillip and generate some more interest value. However, what is of paramount importance is to find a complete
fit between the values of the brand and the values of the celebrity. One needs to create a unique situation or story
that links the celebrity to the product.
Many celebrity endorsements fail because they identify a celebrity they like in an emotive and un-researched
manner, and then try to create advertising to force-fit the celebrity into the creative concept. Often, the finished
advertising is at best contrived, and often, simply laughable. In the end, the brand suffers from a mismatched
concept and celebrity, and millions of dollars are flushed away. If this company is publicly listed, imagine the
disservice the company has done for its shareholders.
There are several reasons why celebrity endorsements fail to produce the desired effect, and each of them has more
to do with the core communication strategy and less with the celebrity’s pull. Celebrities cannot really be blamed if
their endorsements fail to push up the brand sales. Indeed, it is important to recognize that celebrities can create
interest - whether that interest converts into sales depends on various factors such as brand-celebrity disconnect,
improper positioning, clutter of celebrities, or even product life-cycle.
END OF SECTION B
Section C : Applied Theory (20 Marks)
• This section consists of questions with serial number 8 - 9.
• Answer all questions.
• Marks are indicated against each question.
• Do not spend more than 25 -30 minutes on section C.
8. Nature Care is a company that is into manufacturing and marketing of skin care products. Of late, the sales of
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the products are reducing and the company wants to try out some sales promotion techniques to improve the
sales. Discuss the importance of sales promotion and suggest the various sales promotion techniques that
can be used by Nature Care company to improve its market share.
(10 marks) < Answer >
9. Frutella is planning to introduce its new fruit juice product ‘Cool Sip’ in the market. But before introduction of
its product in the market, the new product has to go through several stages of product development. In this light,
explain the various stages of new product development for ‘Cool Sip’.
(10 marks) < Answer >
END OF SECTION C
END OF QUESTION PAPER
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Suggested Answers
Marketing Management (MB221) : July 2006
Section A : Basic Concepts
1. Answer : (c)
Reason : A new task situation is where a business buyer is faced with a purchasing decision in which
information requirements, risk and product cost are all high due to the first time purchase. (a)
Straight rebuy is a routine buying situation, hence risk and information requirements are very
low. (b) Modified rebuy is a buying situation where a business buyer is faced with a
purchasing decision in which information requirements, risk, and product cost are moderate.
Options (d) and (e) are not applicable.
2. Answer : (d)
Reason : The marketing intelligence system deals with the set of procedures and sources used by
managers to obtain information about the marketing environment. (a) Marketing research is
the design, collection, analysis, and reporting of data and findings. (b) Sales information
system deals with the selling activities of the firm. (c) Order to payment cycle system deals
with the marketing operations management. (e) A management information system applies to
the entire organization and is not restricted to marketing information.
3. Answer : (d)
Reason : The flow of information from the channel to the customers is essential in order to create
awareness among them about the availability of the products. The flow of information can
help in obtaining cuatomer orders, producer promotions, etc. Risks may flow from one
channel member to another in the form of product perishability, fluctuating demand patterns,
price fluctuations, risks generated by faulty products, etc. Negotiation is the process of
reaching an agreement on the price and other conditions for facilitating easier transfer of
ownership and possession of goods.
4. Answer : (c)
Reason : Cross docking is a function of warehousing that uses the warehouse as a station for
transferring goods from one place to another.
5. Answer : (b)
Reason : Profitability control entails a company assessing the profitability or monetary feasibility of its
products, customer segments, territories, channel partners etc. (a) Annual plan control
examines whether a company’s planned results are achieved. (b) Efficiency control aims at
evaluating and identifying ways to improve efficiency of the sales force, sales promotional
activities, advertising and distribution. (c) Strategic control aims at evaluating objectives
regularly in order to ascertain changes required to suit changing market needs. (d) Tactical
control relates to controls in operations.
6. Answer : (d)
Reason : Place Marketing involves marketing of tourist spots and business sites. (a) Event marketing
involves promotion of events. (b) Person marketing and image management are crucial in
fields like politics. (c) Idea marketing involves promotion of concepts and ideas such as
pollution control, health programs etc. (e) E-marketing relates to marketing on the Internet.
7. Answer : (d)
Reason : The concept of just-in-time implies that raw materials are delivered in required quantities to
the production plant as and when they are needed without any delay. Just-in-time process
focuses on the reduction or elimination of inventory in the plant.
8. Answer : (a)
Reason : Contribution analysis deals with techniques for determining profitability at the market
segment level, product level, distribution level and customer level. It takes into account
contribution of each factor such as the contribution per labor hour, machine hour, etc.
9. Answer : (d)
Reason : The overall plan for marketing a product that includes selecting and analyzing a target market
and creating and maintaining a marketing mix is known as marketing strategy.
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10. Answer : (c)
Reason : Accessories are those products that help in production or office activities. They do not become
part of final product. (a) Raw material is the basic material used in producing a product. (b)
Capital equipment comprises of the large tools and machines that are used for the productions
of goods or for providing services. (d) A component is a finished product or a product that
needs a little processing before becoming a part of the main product. (e) Process materials are
used directly in production of the final product but are not easily identified as part of the
production of final products.
11. Answer : (c)
Reason : Organizations can divide markets on the basis of behavior that customers show towards the
usage of the products. Behavioral segmentation is most suitable for product driven
organizations. Various variables for segmenting market on the basis of the purchase behavior
of customers are occasions, benefits, user status, usage rate, loyalty, etc.
Statement (IV) is incorrect since split loyals are those customers who use more than one
brand. Their loyalty is divided among two or three brands. Customers who shift their loyalty
from one brand to another are know as shifting loyals.
12. Answer : (c)
Reason : Firms generally face a threat from new entrants in an industry in which the entry and exit of
players are free. Various entry barriers are economies of scale, product differentiation, high
capital cost, cost disadvantages independent of scale, access to distribution channels,
government policy, government restrictions, patents and proprietary knowledge, etc. Low
asset salvage value is not an entry barrier.
13. Answer : (e)
Reason : Measuring the defection rate helps in retaining customers. All other options are helpful in
attracting new customers.
14. Answer : (d)
Reason : A venture team is defined as a “group brought together from various departments and given
the charge of developing a specific product or business.” They can be instrumental in
organizing new product development.
15. Answer : (d)
Reason : Administered vertical marketing systems possesses a high degree of inter-organisational
management. They are similar to traditional channels in the sense that they are independently
owned and operated. Two or more firms administrate the channel activities to improve
business opportunities for other members. Firms with dominant market
positions wield authority, command and cooperation from other channel members in terms of
greater shelf space, displays, promotions etc. Hence, statements (III) and (IV) are not true
about administered marketing systems.
16. Answer : (a)
Reason : Trade name franchise is a type of franchise in which the franchiser allows the franchisee to
use his trade name or license for the products manufactured at the franchisee’s plant. The
franchisee obtains the license to do business by paying the franchiser an initial amount and
setting aside a definite portion of his monthly sales for the franchiser.
17. Answer : (d)
Reason : Product features were not given importance because it was felt that customers were
concerned only about the availability of the product, and not about its features. All other
statements are true about the production era.
18. Answer : (b)
Reason : Option (b) is incorrect because the element by which the receiver assigns meanings to the
symbols or illustrations they receive is referred to as decoding.
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19. Answer : (a)
Reason : Public sources of customer information include articles newspapers, journals, and consumer
rating organizations. (b) Commercial sources include advertising, salespersons, dealers,
packaging, displays etc. (c) Personal sources include family, friends, neighbors, acquaintances
etc. (d) Experiential sources include free trials etc. (e) Past purchase experience can help in
reducing the time for information search and evaluation. It is not a source of information.
20. Answer : (b)
Reason : Institutional advertising promotes a concept, idea, or philosophy. The objective of institutional
advertisements is to build goodwill or an image for an organization, rather than to promote a
specific good or service. (a) Informative advertising is used to inform consumers about a new
product or feature and to build primary demand. (c) When a brand is directly or indirectly
compared to a competitor, it is known as comparative advertising. (d) The objective of
reminder advertising is to remind people about the brand.
(e) Product advertising places a message to promote a good or service.
21. Answer : (a)
Reason : A period of general economic decline; specifically, a decline in GDP for two or more
consecutive quarters is referred to as recession. (b) The overall general upward price
movement of goods and services in an economy, usually as measured by the Consumer Price
Index and the Producer Price Index. (c) A period of little or no economic growth is referred as
Stagnation. (d) Price escalation refers to price rise. (e) A period during which business activity
drops significantly. High unemployment rates and deflation often accompany a depression.
22. Answer : (e)
Reason : Support personnel are not involved in actual sales of the product but facilitate the selling
function. Their responsibilities include identifying prospective buyers, educating them about
the company’s products, building goodwill for the company and providing after sales support
to the buyers.
23. Answer : (a)
Reason : Production and consumption of services takes place simultaneously. Therefore, services are
characterized by inseparability of production and consumption. This necessitates interaction
between the consumer and the service provider for the service to be delivered or in other
words the customer has to be physically present at the time of service delivery.
24. Answer : (d)
Reason : The national sovereignty and security policies, the political prestige of the country, trade
barriers, implications of foreign direct investments and rules regarding mergers and
acquisitions are usually taken into consideration while assessing the political environment.
Statement (IV) is not a facor of the political environment since rules regarding patents and
trademarks are the factors of legal and regulatory environment.
25. Answer : (e)
Reason : The marketing of two or more products in a single "package" price is price bundling. Bundle
pricing is based on the idea that consumers value the package more than the individual items.
It often provides a lower total cost to buyers and lower marketing costs to sellers. (a)
Manufacturers will sometimes estimate the price that the ultimate consumer would be willing
to pay for a product. They then work backward through markups taken by retailers and
wholesalers to determine what price they can charge wholesalers for the product. This
practice, called target pricing, results in the manufacturer deliberately adjusting the
composition and features of a product to achieve the target price to consumers. (b) Captiveproduct
pricing is setting a price for products that must be used along with a main product,
such as blades for a razor and film for a camera. In the case of services, this strategy is called
two-part pricing where there is a fixed fee and a variable usage rate. (c) Psychological pricing
is the concept that certain prices are more appealing than others are. (d) A penetration pricing
policy involves setting prices of products relatively low compared to those of similar products
in the hope that they will secure wide market acceptance that will allow the company to later
raise its prices.
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26. Answer : (c)
Reason : A form of marketing that consists of direct communication s with carefully targeted individual
customers, often on a one-to-one, interactive basis to obtain an immediate response is called
direct marketing.
27. Answer : (b)
Reason : Most firms adopt integration strategies for growth. Forward integration is a form of vertical
integration that involves expanding a business so it directly distributes its products.
28. Answer : (e)
Reason : If the technology used in a product becomes obsolete fast, the advantage derived by the
marketer from its durability also gets reduced.
29. Answer : (d)
Reason : Brand extension is assigning an existing brand name to a new product in the same product line
or in a different product line.
30. Answer : (a)
Reason : A company should innovate new products faster than its competitors, devise new ways to
reach customers, communicate with them and identify how their unfulfilled needs can be
fulfilled.
Section B : Problems
1. Reasons for the success of Korean companies in India:
• When the Koreans arrived on the subcontinent in the mid-1990s, they took the time to do market research
and learn exactly what Indians wanted. Samsung, for instance, began doing market research in India in 1994
but didn't start selling products there until December, 1995. The company learned that it's very important to
live up to Indian consumer expectations.
• Hyundai, Samsung, and LG have been building factories in India since 1997, and now make up to 85% of
their products locally. That helps cut costs dramatically because India's high tariffs make imports a tough
sell. And they're still investing.
• LG Electronics after market research came to know that in India, you've got to roll up your sleeves like a
local to do business, not do it like a suit-and-tie multinational.
• LG Electronics has been the number one player in many categories. LG’s strategy has been remarkably
simple: it has kept prices low while targeting the mass market. And that’s helped it bring in the numbers. It’s
been offering a range of feature-packed but economically priced products. And the company’s kept its focus
firmly on increasing its penetration in the rural and semi-urban mass markets.
• Samsung has never been a price warrior — its focus has always been on the premium market, which is why it
has remained a steady No. 2 or No. 3 player in most product categories.
• Korean companies are more flexible. They know how to learn from past mistakes.
• Analysts say that the success of the firms is primarily a case of "returns on investments" - investments not
only in creating large manufacturing capacities in the country but also towards maintaining local flavour in
its products and marketing.
• The Koreans' success has stirred the competition. Indian TV maker Onida, which once led the market, is
expanding into air-conditioners and washing machines as dealers feel happier with a basket of products.
• The Korean success credit goes to the Korean management, which was aggressive, ready to wait and invest
in India — patience being the key operating word. The focus on people and product-related processes also
ensured that product and service delivery was of high quality.
• The trend of Korean dominance will continue. They have good penetration of their products, established
distribution centres and all this helped in their market leadership in most segments. Also, erstwhile top
players like Videocon and BPL vacated many markets, which the Koreans filled. The Koreans have got their
finger on the pulse of the Indian market by getting their pricing and product profile right.
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2. Intensive growth for any business activity is identifying the growth opportunities in the existing area of business.
Ansoff has proposed a model to identify such growth patterns, known as Ansoff's product/market expansion grid.
In this grid, we can analyze market opportunities through a four quadrant matrix. The first quadrant of the matrix
denotes the strategy for growth in the existing market for the existing product known as market penetration
strategy. The second quadrant denotes the strategy for growth in the existing market for new products known as
product development strategy. The third quadrant denotes the strategy for growth in the new markets for existing
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products known as market development strategy. The fourth quadrant denotes the strategy for growth in the new
market for new product known as diversification strategy.
Since Hyundai, LG and Samsung have tapped the Indian market, which is a new market for them with their
existing products, it can be stated that they have followed a market development strategy. Further, within this
new market which once being tapped becomes existing market overseas, new products are constantly being
introduced through extensive research, the companies can be said to be adopting a product development
strategy as well.
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3. A firm generally selects a potential market by screening out less lucrative markets. It is not economically feasible
for companies to conduct comprehensive research on all 191 countries in the Atlas. Therefore, they select a few
promising countries and identify opportunities with the help of published secondary data.
Companies divide the screening of potential markets into four phases. During the first phase, the firm analyses
different markets on the basis macro environmental factors such as political, legal, geographic and economic
environment. If the disposable income of individuals in a country is low or the country's political condition is
unstable or its economy is facing a severe crisis, the country can be removed from the list of probable markets.
The second stage involves analyzing the market size, product acceptability and customer perceptions. If direct
data is not available about a product, its market potential can be estimated on the basis of the existing market
capacity for related products. For example, if you want to measure the size of the market for web cams, the
market size of related products such as personal computers can provide good indication of web cams' market.
Other factors, which can be used at this stage for screening out a country, are the stage of economic
development, the level of import duties, regulatory requirements, etc.
The third stage of the selection process includes analyzing micro environmental factors such as the barriers to
entry and exit in a particular industry, the cost of exit, industry capacity, number of competitors, availability of
skilled labor, number of sources for raw materials supply, intensity of the competition in the industry, etc. By the
time a company reaches this stage, it has already filtered out a majority of countries. Therefore, a detailed study
of the various micro environmental factors is feasible. At this stage, the company also determines the sales and
profit potential along with the costs of acquiring a profitable market share.
The fourth and the last stage of the selection process involves ranking the potential markets on the basis of profit
potential, market share, level of investment, margins, expected sales, etc.
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4. The differentiation strategy used by Harry Potter marketers is product and image differentiation.
Product differentiation focuses on the elements of a product that makes it different from the competing brands.
A product can be differentiated on the following basis :
• Product Form: Products can be differentiated based on their form i.e. size, shape and other physical
attributes of the product. Product form is the sum total of the physical attributes of a product.
• Product design: A good product design takes care of the aspect of functionality or usefulness. Customers
usually look for functionality, apart from the design or shape of the product.
• Product features: Product features are the characteristics that allow a product to perform certain functions.
A firm can differentiate its product from that of the competitor by adding or removing certain features. It
is generally found that adding new features enhances the value of the product and helps a company gain
competitive advantage.
• Product quality: It refers to the overall characteristics that enable the product to perform according to the
expectations of customers while also satisfying their needs.
• Product durability: Products are expected to perform satisfactorily during their useful life. If a product is
durable, customers are ready to pay a premium. However, the extra amount customers will pay for the
durability of a product is not known with certainty.
Product differentiation with respect to Harry Potter is evident from the following factors:
• The product differentiation in case of brand Potter extends to a host of categories to a host of categories from
toys to movies to apparel to many others.
• J.K. Rowling's books have been translated into 61 different languages, including Icelandic, Serbo-Croat,
Vietnamese, Hebrew, Swahili, Ukrainian, and Afrikaans, to say nothing of novelty editions in Latin, Gaelic
and ancient Greek.
• More than 400 items of ancillary merchandise were available everything from candy and key rings to
computer games and glow-in-the-dark glasses.
Image differentiation: Image is the way in which people perceive a company and its products. An effective
image establishes the product's character and value positions. Companies use various tools like symbols, events,
print and mass media, and communication channels to convey the image of the product to customers.
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With respect to Harry Potter, the following pertain to image differentiation:
• Harry Potter’s brand image was built through its unique content which are of Harry Potter are narrative,
ambiguous, mysterious and entertaining.
• Harry Potter has a unique narrative. Harry Potter epitomizes the storytelling propensity that characterizes
contemporary corporate culture. Having exhausted one-word solutions ("synergy," "re-engineering,"
"disintermediation") and having run the gamut of acronyms, metaphors, and mnemonics (TQM, CSR,
"relationships," "warfare," 4Ps, 3Cs), the consultancy-industrial-complex has belatedly discovered the power
of parables, anecdotes, yarns, myths and more.
• The Harry Potter stories are nothing if not ambivalent. They appeal to adult and child alike. They comprise a
mix of genres: mystery, boarding school, coming of age. They are set in the present yet are decidedly oldfashioned.
They consider the evil in good and good in evil. They are loved by consumers and loathed by
critics. They are held up as exemplars of authentic, grassroots marketing and egregious over-exploitation by
meretricious marketing types.
• Marketing too is deeply mysterious. It is mysterious not only in the sense that we still don't know how
advertising works, why Potteresque fads and crazes occur, or what the marketing concept is, exactly.
Mystery is a marketing tactic in itself, although brand swamis have very little to say on the matter. Yet one
only has to peruse the promotional practices of brand-centric organizations to appreciate that mystery,
enigma, intrigue and "how they do that?" are an important part of their appeal.
• The Harry Potter phenomenon is enormously entertaining. The reaction of the public is entertaining, as the
tribute websites, themed parties, and lines outside bookstores indicate. The reaction of the Harry-haters is
entertaining as well, not least that of the affronted literary establishment. And, lest we forget, the marketing
campaigns are wonderfully entertaining, particularly when new-release-date frenzy kicks in. If nothing else,
Harry Potter reminds us of the easily forgotten fact that what we do is great fun.
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5. Various positioning strategies suggested by Al Ries and Jack Trout are as follows:
Getting into the mind of the consumer
Getting into the mind of the customer is easier if the product or service happens to be the first in the market. It is
very easy to remember who is first but very difficult to remember who is second. The marketer needs to make
attempt to occupy a unique position in the customer's mind. For instance, although Tide detergent was not the
first in the market, by positioning itself as a detergent that gives the whitest wash compared to all other
detergents, it has claimed for itself a unique position in the mind of the customer.
Positioning of a leader
It is traditionally believed that the number one brand in the market occupies twice the market share of number
two brand. Likewise, the number two brand occupies twice the market share of number three brand. The success
of a company is not just due to its successful marketing strategies, but a major reason is that it was first in the
market.
A market leader should not boast about its being number one in the market. The danger is that customers may
believe that the insecurity of being number one in the market is forcing the company to do so. If a company is the
first to launch a product, this point can be reinforced in its positioning strategy. Another strategy for a market
leader would be to introduce multiple brands from time to time in order to cater to the changing needs of
customers. It is simpler and costs much less for a market leader to introduce new brands and create a unique
position for each brand rather than change the position occupied by existing brands in the mind of customers.
Positioning of a follower
If a brand is not the first that comes to mind, then it is better to identify an unoccupied position where the brand
can be the first. For example, when large cars like Ambassador and Fiat were popular in India in the 80s, Maruti
introduced a smaller car with an 800 cc capacity and it turned out to be immensely successful because it was the
first in the small car segment.
Repositioning the competition
Marketers sometimes try to reposition their products. The reasons might be that competitors are also positioning
for the same segment or that the market has become overcrowded or that the target segments do not turn out to
be as attractive as forecasted.
The power of a name
Creating a unique position for the brand in the mind of the customer becomes easy" if the brand has a suitable
name. Names like Uncle Chipps, Pepsodent, Close Up, Head & Shoulders, Clinic All Clear, Timex, Speed
(branded petrol), etc reveal something about the product's utility and therefore have a large recall value for
customers. These examples indicate the power of a name in positioning a product suitably. At the same time,
condensing the company name into a series of initials may not help significantly because it tends to confuse the
customer as to what business the company is involved in. This strategy may benefit large companies, but not
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small companies.
The strategies getting into the mind of the consumer, positioning of a leader and the power of a name are
applicable to Harry Potter.
• HP has gotten into the minds of customer and occupied a significant image.
• It can be a leader as there is no other parallel to HP in its domain.
• The name complement’s the idea and story extremely well.
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6. Six uses of Celebrity Endorsements:
Establishes Credibility: Approval of a brand by a star fosters a sense of trust for that brand among the target
audience- this is especially true in case of new products.
Attracts Attention: Celebrities ensure attention of the target group by breaking the clutter of advertisements and
making the ad and the brand more noticeable.
Associative Benefit: A celebrity’s preference for a brand gives out a persuasive message - because the celebrity
is benefiting from the brand, the consumer will also benefit.
Psychographic Connect: Stars are loved and adored by their fans and advertisers use stars to capitalize on these
feelings to sway the fans towards their brand.
Demographic Connect: Different stars appeal differently to various demographic segments (age, gender, class,
geography etc.).
Mass Appeal: Some stars have a universal appeal and therefore prove to be a good bet to generate interest
among the masses.
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7. There are several reasons why celebrity endorsements fail to produce the desired effect, and each of them has
more to do with the core communication strategy and less with the celebrity’s pull. Celebrities cannot really be
blamed if their endorsements fail to push up the brand sales. Indeed, it is important to recognize that celebrities
can create interest - whether that interest converts into sales depends on various factors such as brand-celebrity
disconnect, improper positioning, clutter of celebrities, or even product life-cycle.
Celebrities, being humans, make mistakes. But their mistakes get as much attention as their celebrity status and
this can adversely affect the brands that they are endorsing. There are a number of examples, both Indian and
International, where scandals and scams involving celebrity endorsers have caused embarrassment to the brands
they endorse. Companies have to make quick decisions when one of their endorsers comes under fire or their
own image could be tarnished. Guilty by association in a consumer’s eyes describes it best.
Magic Johnson lost his endorsement deals when he announced in 1991 that he’s HIV-positive. It wasn’t until
July 2003 that he landed his first endorsement deal since the announcement.
It’s a tricky situation for marketers. If a brand continues with the celebrity, it may adversely affect the image of
the brand and consequently, brand sales. If the brand chooses to distance itself with the tainted celebrity, the
huge costs spent on roping in the celebrity and making of the ads may go down the drain and even then the
association of the brand with the celebrity might by then be so ingrained that the damage is already done. “It’s a
two-way street. One way it shows the strength of the brand promotion. But it is also fraught with risk if your
brand ambassador fails to perform in the related field”.
Avoiding the risk
The first thing to ensure, when zeroing in on a celebrity, is to try and choose someone whose record is
impeccable. Having said that, it’s best not to depend on one celebrity, for that can backfire. Instead, it’s better to
use many celebrities who represent the same values. Pepsi does this quite well. Capitalizing on the popularity of
cricket and films in India, Pepsi uses several cricketers and film stars in their ads. So when Azharuddin and
Jadeja got embroiled in the match-fixing controversy, Pepsi severed its association only with these stars, but its
relationship with cricket continued.
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Section C: Applied Theory
8. Sales promotion includes those sales activities that supplement both personal selling and advertising and coordinate
them and make them effective, such as displays, shows, demonstrations and other non-recurrent selling
efforts not in the ordinary routine. Compared to any other element of the promotional mix, sales promotion is
more action-oriented. It helps in stimulating the customers to buy a product.
Importance of sales promotion:
1. When new products are launched, sales promotion gives an incentive to the customer to buy it.
2. Attract new customers.
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3. Counter competitors’ promotional activities.
4. Make customers brand loyal.
Kinds of sales promotion that can be used by this company are:
Price promotions: Price promotions are also commonly known as "price discounting". They offer either a
discount on the normal selling price of the product or more of the product at the same price. This type of
promotion must be used with care as the increase in sales is gained at the cost of a loss in the profit. Also, too
much of discounting can have a negative impact on the brand's reputation.
Coupons: Offering coupons is the most widely used customer sales promotion technique. It is yet another way
of offering a discount. A coupon is a certificate that offers a price reduction for some specified items to the
holder. Coupons are distributed with magazines, newspapers, etc.
Free gifts/samples: Free samples of a new product are usually given to customers, when it is launched in the
market. "Gift with purchase" is a very common promotional technique. It is also known as a "premium
promotion" as the customer gets something in addition to the main purchase. This type of promotion is widely
used for
• Subscription-based products (e.g. magazines).
• Consumer luxuries (e.g. perfumes, vehicles, etc.)
Banks and other businesses also offer free gifts like calendars, diaries, penholders, etc. to their regular customers.
Money refunds and rebates: In case of money refund, the customer receives a specific amount of money
(refund) after he submits a proof of purchase to the manufacturer. Manufacturers devise the strategy such that the
customer qualifies for a refund only when he makes multiple purchases. However, in some cases, marketers
refund cash to customers on making a single purchase. These schemes are often viewed with some suspicion,
especially if the method of obtaining a refund looks unusual. The customers might even doubt the manufacturer's
reason for offering rebates and refunds. This can lead to a degradation of the brand's image, if the scheme is not
handled properly.
Frequent user incentives: Repeat purchases may be stimulated by frequent user incentives. Hence, firms offer
incentive schemes to reward their loyal customers. The best example of this is the frequent flyer scheme offered
by airlines.
Point-of-purchase (POP) displays: POP displays are believed to serve as a silent sales force. They include
window displays, wall displays, display racks, danglers, balloons, outside signs, counter pieces and innovations
such as sniff teasers that spread a product's aroma in the store, etc., These items, often supplied by the
manufacturer, encourage the retailer to store the product in his store, attract the attention of a customer and
inform him about the product. Research on customer buying behavior in retail stores suggests that a significant
proportion of purchases result from displays that customers come across in the store. Attractive, informative and
well-positioned point-of-purchase displays therefore form an important part of sales promotion.
Installment offers: Manufacturers as well as retailers offer products at a down payment and allow the customers
to pay the remaining amount on an installment basis. Marketers of consumer durable and white goods use this
type of promotional method.
Consumer contest: This method of sales promotion is carried out when a marketer aims at increasing the retail
sale of a product. Customers take part in small competitions on the basis of their creative and analytical skills.
Such contests attract customers' attention. However, marketers should take care in designing a contest as
dissatisfied customers can stop purchasing the firm's product or speak negatively about the company to their
reference group. And at times, they may even resort to litigation. The Times of India regularly organizes such
contests for its readers. Some time back, it organized Tambola and recently organized the Name Game.
Consumer sweepstakes: In this type of sales promotion, customers are required to submit their names to be
included in a draw for prizes. Sweepstakes are more profitable in comparison to contests, as the chances of
lawsuits are minimal and they attract a vast majority of customers. Sweepstakes can help in generating customer
interest in the product and also lead to short-term increase in sales.
Trade shows: A group of retailers or manufacturers conduct exhibitions and trade shows to make the customer
aware of the products offered by various firms. Industrial shows and annual industrial exhibition, exhibition of
home appliances, consumer goods or gym equipment, etc, are examples of this type of sales promotion.
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9. STAGES OF NEW PRODUCT DEVELOPMENT
The stages of new product development include (a) idea generation, (b) screening, (c) concept testing, (d)
business analysis, (e) product development, (f) test marketing and (g) commercialization.
(i) Idea Generation: New Product Development starts with the search for ideas. New product ideas can come
from interacting with others or through creativity techniques.
• New product ideas can come from customers, dealers, in-company resources, advertising agencies and
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the external research consultants.
• The main source of ideas for new products is customer needs and wants. Their complaints and
grievances are also rich source of ideas. This is true in case of customer products as well as industrial
products. Creative techniques like brainstorming and incentives or reward system are also used for
generating new product ideas.
(ii) Idea Screening
• Companies can use various parameters to screen the ideas such as market size, technical capabilities,
potential competition, compatibility with the known customer needs, etc.
While screening the ideas, organizations should avoid two types of errors:
• Drop error: This type of error occurs when a company dismisses or rejects an otherwise good idea.
• Go error: This type of error occurs when a company permits a poor idea to move into development
and commercialization.
The main purpose of idea screening is to reduce the number of ideas to a manageable few that deserve
further attention for development.
(iii) Concept Testing: Attractive ideas must be converted into testable products. After passing the initial
screening stage, the product idea proceeds to the next stage i.e. concept testing.
• Concept testing involves presenting the product concept to appropriate target consumers and getting
their reactions.
• Concept testing is a low cost procedure.
• It helps the firm gather important information, customers' initial reaction towards the product, before it
invests further in product development.
• Product idea is expressed in terms of the quality, price level, attributes and unique benefits it provides
to the customers to surpass competition.
(iv) Business analysis: After testing the product concept, management evaluates the proposal’s business
attractiveness.
• The firm makes a plan for developing, producing, and marketing the new product.
• This requires research on the market size, competitive structure and preliminary technical analysis for
providing the basis for the design and production approach, and also the appropriate legal and patent
search.
• Business analysis is the first in-depth financial evaluation of the new-product to be developed. It
undergoes several revisions.
• It involves estimating the total investment required in developing the product and the expected sales.
Total sales estimation
• Total estimated sales are a sum of the estimated first-time sales, replacement sales and repeat sales.
Sales estimation methods depend on whether the product is a one-time purchase, an infrequently
purchased product or frequently purchased product.
Estimating costs and profits
• Costs are estimated by the R&D, manufacturing, marketing, and finance departments.
• The profitability of the new product is estimated through various financial tools.
• Break-even analysis, risk analysis and computer simulation techniques can be used to estimate the
costs and profits.
(v) Product Development: At this stage the company determines whether the product idea can be translated
into a technically and commercially feasible product.
• A working model or a prototype is developed which reveals all the tangible and intangible attributes of
the product. These prototypes are developed in limited numbers for customer testing purposes.
• A typical product protocol includes:
a. Identifying the target customers.
b. Positioning strategy of the new product as against the existing products of the company and the
competitors.
c. Developing the attributes of the new product.
d. Competitor's current activities and strategies.
e. Points for differentiating the product and its expected competitive advantage.
f. Product's development schedule.
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g. Marketing issues related to the new product
h. Financial issues related to the new product.
i. Legal and regulatory issues regarding the new product.
j. Production requirements for developing the new product.
k. Core competencies that need to be emphasized and corporate strategies with regard to the
product
• Once the product protocol has been developed, it is handed over to the R&D department to develop
the prototypes of the product.
• The scientists and engineers are furnished with information like market specifications and
expectations from the product. Marketers keep in regular touch with the market to obtain useful
information as the product keeps taking a distinct shape.
Product use testing
• Marketers identify a sample of target customer group to test the functionality of the prototype and the
final product.
• The prototype developed is tested for its feasibility and functionality.
• Product testing is carried out to evaluate the product characteristics and examine the functional
performance of the product.
• It gives useful information like customers' first impression about the product and provides early use
experiences of the customers and their further expectations.
(vi) Test Marketing: Once management is satisfied with the functional and psychological performance, the
product is ready to be dressed up with a brand name and packaging and to put into a market test.
• The product is introduced in a few select cities where it is exposed to a large authentic setting to learn
how large the market is and how consumers and dealers react to handling, using and repurchasing the
product.
• The marketer can use various methods of test marketing like sales wave research, simulated test
marketing and controlled test marketing. Test marketing provides insights into consumer responses
and traders' acceptance level. The level of consumer's awareness, product trial, repeat purchase, etc.
indicates how well the product can be accepted in the market.
(vii) Commercialization: The product enters the market during the commercialization stage.
• The results of test marketing help marketers decide the changes that are needed in the marketing mix
before entering the market.
• It also helps the marketers decide the amount of production, the distribution strategy, selling efforts
and other issues like providing guarantees, warranties, post purchase repair and replacement services
etc.
• The speed with which the product is commercialized depends on various factors like the advantage of
new product over alternative products, the benefits that the users expect, complexity of the product,
user's life style, etc.
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