Marketing Management (MB221) : April 2006

Suggested Answers

Marketing Management (MB221) : April 2006

Section A : Basic Concepts

1. Answer : (c)

Reason : Statistical demand analysis method determines the effect of factors such as marketing

expenditure and the price of the product on its sales. (a) Consumers behave differently at

different times, and therefore to forecast sales, it is essential to conduct consumer research

surveys. (b) Time and motion studies takes into account trends over a period of time. (d) Test

marketing is nothing but testing the sales of the product in the market for a few days. (e)

Companies use past sales analyses for projecting future sales patterns.

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2. Answer : (c)

Reason : Age is widely used in segmentation studies because it can be relatively easy to establish and is

associated with variations in spending patterns. However, there is a lot of evidence that

people's perceived age may be more important for explaining their buying behavior than their

actual age.

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3. Answer : (b)

Reason : Rahul has to consider relative market share as input with regard to business position. This can

be inferred from the BCG product portfolio matrix which helps the managers to analyze and

develop business level strategy. The BCG growth-share matrix displays the position of

business units on a graph of the market growth rate against their market share relative to

competitors.

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4. Answer : (b)

Reason : A marketer who resorts to price competition will compete with his competitors on the price

front by offering his product or services at the same price of at a lower price than that of the

competitor. In price competition, marketer who can sell his products at the lowest cost will

usually win a larger part of the market share.

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5. Answer : (c)

Reason : Tying agreement is an agreement between a manufacturer and a distributor that makes the

distributor purchase other products produced by the manufacturer along with his main line of

product.

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6. Answer : (e)

Reason : Electronic media is a non-personal communication channel. Personal communication channels

include face-to-face interactions, telephone conversations, communicating through mailers, emails,

etc.

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7. Answer : (a)

Reason: Capital equipment comprises of the large tools and machines that are used for the productions

of goods or for providing services. (b) Accessories are those products that help in production

or office activities. They do not become part of final product. (c) A component is a finished

product or a product that needs a little processing before becoming a part of the main product.

(d) Raw material is the basic material used in producing a product. (e) Consumable supplies

are products that are consumed during production and delivery of the product but they do not

become part of the final product.

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8. Answer : (a)

Reason : The strategy of choosing one attribute to excel at to create competitive advantage is known as

unique selling proposition.

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9. Answer : (d)

Reason : Brand strategy decision involves steps such as identification of the availability of resources

for allocating budgets for brand building, company's capability to take required initiative and

the commitment of the company. The brand strategy decision should support the

organisation's business strategy. Statement (III) is untrue because brand sponsorship involves

enhancing the brand name by linking the organization's name with a particular event therefore

option (d) is the answer.

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10. Answer : (d)

Reason : Horizontal channel conflict arises between channel members operating at the same level also

within the same market. The length of a channel represents the number of intermediary levels

that exist between the producer and the final user. Jobbers are a form of intermediary who

sells to small retailers.

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11. Answer : (b)

Reason : Agents are the wholesalers who negotiate for purchases and sell the goods immediately. They

do not possess the title of goods.

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12. Answer : (d)

Reason : Support activities assist primary activities by providing infrastructure that allows them to take

place on an ongoing basis. Support activities such as procurement, hiring the personnel,

R&D, infrastructure i.e., general management, planning, government, hiring the activities and

quality management, accounting, and legal activities, etc., are handled by various

departments.

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13. Answer : (b)

Reason : An organization's goals and objectives affect the decision-making process of its purchase

department. An organization's systems and procedures, rules and regulations, decisionmaking

process, purchase policy, etc., affect the purchase process.

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14. Answer : (e)

Reason : Competitive advantage is the critical advantage that a firm possesses in the market over a

competitor in the industry. Neopure can differentiate based on the patent it has, therefore has a

competitive advantage.

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15. Answer : (c)

Reason : Advertising is a paid form of non-personal communication about an organization, good,

service, or idea by an identified sponsor. A non-personal, indirect presentation of an

organization, service or product is termed publicity.

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16. Answer : (b)

Reason : The last activity to be performed by the salesperson in the pre-approach stage is to prepare for

the presentation. The salesperson develops his presentation on the basis of the information

gathered earlier. The salesperson updates himself with relevant information, and assembles

together all the material like visual aids that would be necessary to make an effective

presentation.

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17. Answer : (a)

Reason : Indirect export is a process of exporting goods to foreign countries with the help of a domestic

intermediary. Usually companies use the method of indirect export to test a new foreign

market.

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18. Answer : (c)

Reason : Efficiency control relates to many large companies employing marketing controllers, whose

responsibility is to determine the various marketing expenditures of the company and provide

necessary training for the marketing personnel on the financial dimensions of the marketing

activities.

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19. Answer : (b)

Reason : Business-to-Business services are purchased by organizations.

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20. Answer : (a)

Reason : The stakeholders of a business firm consist of its shareholders, employees, supplier's,

distributors and customers.

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21. Answer : (b)

Reason : Marketing is as old as mankind. A place, an idea, an individual or even a cause can be

marketed. Option (a) and (c) are examples of selling concept. Option (d) is a social welfare

act and does not satisfy the core concept of marketing. Option (e) is an example of place

utility.

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22. Answer : (a)

Reason : Multiple sourcing has many suppliers from different backgrounds gives organization an edge

over its competitors.

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23. Answer : (c)

Reason : A subculture is a culture followed by a group of people within a culture that is distinctly

identified within a larger society. These groups have similar habits, behavior patterns, shared

value system, buying behavior on the basis of their age, religion, common experiences or even

geographic location. All other options are not completely defining subculture.

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24. Answer : (e)

Reason : Concept testing helps the company in selecting the strongest concept from the available

alternatives, eliminating the concepts that are not approved by the target market, identifying

consumer criteria of evaluating the product and deciding upon the product positioning.

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25. Answer : (b)

Reason : In owned goods service retailing the service provider does not own the goods he services.

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26. Answer : (c)

Reason : Environmentalism does not constitute enlightened marketing activities of a firm aimed at

leveraging long-term benefits.

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27. Answer : (e)

Reason : When a firm owns and operates businesses at other channel levels, it is called a corporate

vertical marketing system. This system is used by firms that want to leverage high levels of

control over their channel functions.

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28. Answer : (c)

Reason : Mass media advertising is often used to support direct marketing, but is not an essential

element of it. Think, for example, of Avon Cosmetics, which has traditionally placed very few

advertisements in mass circulation titles.

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29. Answer : (d)

Reason : Change in the discretionary income will affect the sales of durables like appliances, furniture

and automobiles.

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30. Answer : (b)

Reason : Social class is not a personal factor instead it is a cultural factor. Personal factors such as the

age, sex, lifestyle stage, occupation, economic or financial status, personality, etc, etc are

unique to every individual.

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Section B : Problems

1. The steps or factors to be considered in developing strategic business plan for Star Gold are as follows:

• State the premises on which the plan is based.

• Analyze the company's past performance.

• Evaluate the impact of changes taking place in the market.

• Compare the image of the company with that of the expected image of the customers.

• Search for the critical success factors of the firm and try to add value to them.

• Analyze the opportunities available to the firm along with its innovative capabilities.

• Check the performance of the management.

• Search for ways to enhance the performance throughout the organization.

Every member of the organization should contribute to the development of the goals of the organization and should

be entrusted with the responsibility of achieving these goals. The strategic plans should be reviewed every three or

four months, to ensure that they are being adhered.

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2. The various initiatives taken by Star Gold are as follows:

• Research had shown that in most households, the younger generation decides what the family will watch —

and that doesn't include black & white movies. So StarGold fast-forwarded to movies from the 1970s and

1980s.

• Another year on, it was on to even newer Bollywood releases and even some dubbed foreign flicks. At present,

just 5 percent of the programme list of Star Gold is made up of the original oldies.

• Surveys pointed to the need to move away from the dated look and feel.

• Media planners add that the classic positioning was restrictive — it appealed to an older set and very few

brands and companies that advertise on television target this age group.

• The changing character of Star Gold's target audience also came into play; typically, older people no longer

want to be seen doing "old" things. Youthfulness, modernity and urban are cues that everyone is looking

forward to.

• StarGold was a little slow in upping the ante on promotions. Apart from a few on-air promos on other Star

channels, the movie channel didn't really focus on events until 2003, when it launched the annual 'sabsey

favourite kaun' contest, which invited viewers to vote for their favourite actor.

• Perhaps the biggest hurdle for Star Gold is its lack of identity — the channel continues to be seen by media

planners and advertisers as one more in the Star bouquet.

• Ad rates on Set Max and Zee Cinema, too, are higher than for Star Gold. It hasn't helped that until now, Star's

strategy for new movie releases has been secondhand.

• The return of Kaun Banega Crorepati on Star Plus helped usher in some much-needed changes. The weekend

prime time slots are now devoted to KBC 2, so Star is pushing all its movies to StarGold.

• Accordingly, Gold has a new logo, a new look and even a new lineup of films.

Hence Star Gold is taking steps towards revamping it offerings to its audience in order to be able to pursue growth.

Star Gold is currently trying to penetrate the market. In the long run, Star Gold could adopt strategies such as

product development and market development.

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3. Price competition:

Marketers develop different strategies to survive in the market and attack the competitors. A marketer who resorts

to price competition will compete with his competitors on the price front by offering his products/services at the

same price or at a lower price than that of the competitor. In price competition, marketer who can sell his products

at the lowest cost will usually win a larger part of the market share. Marketers engaging in price competition will

often have to alter their prices to match the competition.

Price competition among various brands is visible as follows:

• The scenario was changing from multinational companies being helpless against the challenger brands, who

were selling at significant price discounts to the aggressive pricing strategy of the FMCG's.

• National players such as Hindustan Lever Ltd (HLL),, Procter & Gamble (P &G), Dabur India and Colgate

Palmolive fought a bitter war, offering consumers a better price value equation across detergents, oral care

products, soaps and shampoos.

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• Babool - the toothpaste of the erstwhile Balsara, which Dabur India Ltd acquired recently, was also a victim of

the aggressive pricing strategy. The Babool brand has lost considerable share due to aggressive pricng by the

market leaders. Hence, Babool has been given new pricing, improved packaging and fresh communication.

• As long as market leaders maintain a grip on the price-value equation, the FMCG consumer will continue to

patronize the brands.

• National brands have snatched market share from the regional brands in most FMCG categories. Challenger

brands such as Anchor, Ajanta and Babool have given way to brands with a national footprint.

• Having slashed prices mercilessly through most of 2004, the large FMCG companies realized that there is little

scope for further pricing action. Besides, input costs have been rising steadily over the last couple of months,

making it all the more difficult for these companies to pursue further price discounts. Hence, most FMCG

companies have begun to raise prices by small amounts.

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4. The competitive strategies for market leaders, market challengers, market followers and market nicher are as

follows:

Market Leader Strategies:

A market leader has a considerable market share, a significant presence in the industry and is acknowledged as the

leader by the other firms in the industry. Al Ries and Jack Trout in their successful book 'Marketing Warfare' have

said that marketing has to be considered as a war and firms have to focus on competition rather than customers to

sustain themselves in the market. To strengthen their argument, they argument, they compared marketing to a

football match. If a team just identifies the goalpost and moves towards it without considering the other team, they

will easily be blocked by the rival team in their pursuit of hitting a goal. The team must focus its efforts on gaining

an advantage over the rivals, if it wants to win the game. Therefore, evaluating the competitors' strategies is very

important for the firm.

A market leader has to constantly guard itself from other competing firms, as they will always try to attack the

leader at its weak spot or challenge it in its strong area. The market leader can adopt certain strategies to remain in

that position by expanding the market area with new products or by extending the current products in the new

markets. It can also show its customers the benefits of increasing the usage the product

Market Challenger Strategies

Market challengers are those firms, which occupy the second, third or fourth positions in the market. The firm,

which is in the second position, can best adopt the strategy of offensive attack against the market leader to grab a

market share. This is especially the case when it does not payoff to snatch the market share from the company in

the third position, which usually has much lower market share. The challenger can attack firms of its own

capacity; it can also attack vulnerable areas of the leader, but it should have sufficient resources to sustain the

attack, or it can attack the leader in its weak spots and try to leverage the maximum market share by such an

attack. There is another strategy whereby the challenger can attack its competitors by offering the market all the

benefits and features and all other facilities provided by its competitors. This strategy works when the firm has

superior resources to sustain such an attack. The challenger can indirectly attack its competitors by entering into

those markets where the competitors do not have a presence.

If there is a market leader who has a very powerful brand image, competitive price but a poor distribution chain, a

challenger can quickly seizes the opportunity and topple the leader from its position. An example is the deep

penetration of the Nirma brand as a low cost washing powder, into rural India, into which giants like HLL, etc.

could not make sufficient inroads. The dimension of the segment is concerned with serving the needs of the

uncovered market. Such attacks make good sense for a challenger, which has fewer resources at its disposal.

Market Follower Strategies:

Market followers prefer to follow the leader rather than attack it. Most follower firms manufacture products

leveraging on the product innovations of the market leaders. If the follower attacks a market leader with the same

quality offerings and at the same price, it might have to face severe attacks from the market leader. So, unless the

follower firm has some strong point in its armor, it will not dare attack the market leader.

Market Nicher Strategies:

Companies following niche strategies do not like to attack the market leader and therefore, operate in a small

segment of the market in which the leader is not interested. A niche marketer usually focuses all his resources to

efficiently serve a small market segment and thus gains the loyalty of customers in this segment. The niche

marketer then tries to ensure that customers in the segment remain loyal to it. It increases its efforts with increased

focus and attention.

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5. FMCG companies can adopt the following strategies:

• With no more scope for price reductions, FMCG companies can resort to non-price competition, focusing on

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differentiating on the basis on product variety, quality, packaging, promotions etc. This non-price

competition can help FMCG companies to enhance their market size.

• Indian semi-urban and urban market with its vast size and demand base offer a huge opportunity that FMCG

companies cannot afford to ignore. Therefore, for FMCG companies rural penetration is the key, which is

currently extremely low. The semi-urban area is the epicenter of huge demand of FMCG products which

cater to the FMCG requirements of the rural folk because of growing penchant and insatiable appetite of

semi-urban folks for FMCG products.

• FMCG companies can also take advantage of the rising semi-urban and urban income levels coupled with

massive advertisement of FMCG products in the electronic media that can spread much awakening in the

rural and semi-urban folks towards fast moving consumer goods products so much that these will enlarge

their affordability for them.

• If these companies can change consumer's mindset and offer new generation products, they would be able to

generate higher growth. For example, Indian consumers used to wear non-branded clothes for years, but

today, clothes of different brands are available and the same consumers are willing to pay almost 5 times

more for branded quality clothes. It is the quality and innovation of products, which is really driving many

sectors. Thus, FMCG companies should use their imagination and respect the tastes of Indian consumers by

offering quality products.

• However, the rural market although alluring is not without its problems – low per capita disposable incomes;

large number of daily wage earners, acute dependence on the vagaries of the monsoon; seasonal

consumption linked to harvests and festivals and special occasions; poor roads; power problems; and

inaccessibility to conventional advertising media. However, the rural consumer is not unlike his urban

counterpart in many ways.

• The other difficulties which the FMCG companies are likely to face will include availability of the product or

services and delivering them to the rural population.

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6. (a) The reasons for growth of malls in India:

• Malls today present convenience and choice, be it the prospect of food courts offering several cuisines under a

single roof, escaping the vagaries of the weather or just window-shopping.

• And this penchant for the average middle-class Indian shopaholic is being translated into big business.

• High purchasing power of customers.

• Entertainment.

• New lifestyle.

• Places where people can buy something or the other – the impulse purchase as well as planned purchase.

(b) The reasons for malls retailing having a long way to go are as follows:

• The retailing industry is still highly fragmented. It also suffers from over-generalization, thus stopping several

established names from making their mark.

• In the case of Fabindia, conventional malls are not suitable. They need to be more efficiently designed so as to

differentiate serious footfalls from those loitering around. Fabindia targets a very sharply defined target

audience.

• There are several established retailers that have shied away from being present in conventional malls because

they are looking for a well-defined customer profile and are not really enthusiastic about getting window

shoppers.

• Malls are getting slotted in India not as shopping but as entertainment, so it works for McDonald's, gaming

parlours and the like but not for serious sellers.

• Spencer Plaza is an exception — driven by small tenants with wide merchandise. People who can get traffic on

their own to the store will prefer standalones; the me-toos or small/frivolous who cannot will act as parasites

and get into a mall.

• Malls are not getting positioned as places to shop but ones to visit.

• Indian market is still not mature enough for specialty malls. Many of these malls are being built only because

the realtor has got hold of land. And the skepticism appears to be supported by the time required for such

ventures to begin making money.

• Consumers too may take much more time to get used to the specialty concept.

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7. Strategic issues in retailing involve an overall set of plans that help the retailer to effectively conduct his business.

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A retail strategy has six major elements which are as follows:

(i) Situation analysis: This involves developing an organizational mission, evaluating the ownership and

management alternatives, selecting a product or service type to engage in retailing.

(ii) Setting objectives: Objectives are set in areas such as retail sales, profits, customer satisfaction and the store

image.

(iii) Identification of target markets and consumers: Prospective target markets and consumers are identified and a

suitable marketing process is determined which may be in the form of mass marketing, or differentiated

marketing.

(iv) Developing an overall strategy considering the controllable and uncontrollable variables.

(v) Developing specific activities on the basis of the day-to-day operations and also the business environment.

(vi) Finally suitable control strategies for control have to be desired by evaluating the deviations and correcting

them to attain the retail organization's objectives.

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Section C: Applied Theory

8. Marketing research refers to the systematic gathering, recording and analyzing of data about problems relating to

the marketing of goods and services. As marketing research is a systematic and formalized process, it follows a

certain sequence of research actions. The marketing research process has the following steps:

i. Formulating the problem

ii. Developing the objectives of the research

iii. Designing an effective research plan

iv. Data collection techniques

v. Evaluating the data and preparing a research report.

Formulating the problem:

The purpose of conducting marketing research is to find a suitable solution for a specific and immediate problem

confronted by a business manager. The problem formulation is the first and the most important step of the

marketing research process.

The problem has to be defined clearly and specifically, as an ill-defined problem may result in an ineffective

solution. The problem faced by the manager has to be properly translated into a research problem and the reason

why the research is required should also be spelt out.

Developing the objectives of the research:

The objectives of the research should clear and specific. The objectives should cover questions regarding the

purpose of the study, how the study should be conducted, the information needs and the sources of information.

Designing an effective research plan:

The design of the research plan determines the tools and techniques that are employed for conducting marketing

research. Normally the research design is broadly classified into exploratory research, descriptive research and

causal research.

Exploratory research helps the management identify the presence of potential opportunities and threats for the

company. It is generally conducted with minimum expenditure of time and cost during the initial stages of

decision-making process. The data is obtained from books, journals, magazines, reports, case studies, etc. Other

approaches for acquiring background information include interviewing knowledgeable persons, and analyzing case

histories.

Descriptive research is generally conducted after the exploratory research. As the problem is clearly defined in

exploratory research, the quantum or intensity of the problem is identified in descriptive research. Descriptive

studies usually involve a small number of subjects. For example, studying the traffic movement at a particular

junction to install traffic signals is an example of descriptive research. j

In causal research, the cause and effect relationships between two variables are analyzed. This research helps

managers select a particular strategy. It is carried out with a detailed questionnaire and with clearly defined

objectives.

Research Instruments

The research instruments generally used to collect primary data are questionnaires and mechanical instruments.

Data Collection Techniques:

The information requirements for solving a business problem are identified in the problem formulation stage. In

this stage, the sources from which information can be found are identified. Data for a research can be collected

from two sources - primary and secondary. Primary data is direct or first-hand data collected from respondents. It

is collected using research instruments like questionnaires, mailers, telephonic interviews, etc. Secondary data is

collected from already available sources such as published papers, journals, magazines, reports, company

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literature, etc. Researchers need to evaluate the cost effectiveness of the sources before selection.

Primary data collection

Primary data is collected by surveying the sampling units or the elements of the sampling units. Primary data is the

first-hand information gathered to solve the research need. For example, if a marketer collects opinions regarding

customer service from his customers, then the data thus obtained will be primary data. The collection of primary

information is expensive and time consuming.

Mail interviews

Mail interviews are widely used for the collection of information; since the cost is relatively low Respondents in a

mail interview can remain anonymous if they wish to. In such cases, they can express their opinions openly,

criticize products and services and provide confidential and accurate information. The advantage of the mail

interview is that the respondent can respond to the questionnaire at his convenience.

Telephonic interviews

Telephonic interviews are often conducted when the information required is not great and needs to be collected

quickly. The cost of conducting telephonic interviews is also low compared to the cost of personal interviews.

Research regarding non-confidential and general information can be easily elicited through telephonic interview.

People can be easily reached on telephones and the reluctance level of respondents is usually low.

Personal interviews

Personal interviews are conducted when an interviewer and interviewee are physically present at one place. They

can be one-to-one or one-to-many. In other words, an interviewer can interview one interviewee at a time or many

interviewees at a time. The interviewer asks questions and records the responses from the respondents. He can

record the responses during the interview or at the end of the interview.

Observation

This method of collecting the information from respondents is effective only when the interviewer is highly

trained and intelligent enough to draw the appropriate conclusions through active observation of the respondents.

Secondary data collection

Secondary data is collected from the company's internal and external resources. While the internal sources include

the company's literature, annual reports, sales reports, etc., the external sources could be independent magazines,

journals, legal documents, government gazettes, etc. Compared to primary data, the collection of secondary data is

cheaper and less time consuming. As information in the secondary sources is readily available, it can be compiled

quickly by researchers. However, the reliability of secondary sources is an aspect that the researchers should

always look into before selecting them. Researchers also need to ensure that the sources are free from biases.

Evaluating the Data and Preparing a Research Report:

Once the information is collected, it is edited and coded. The data after coding is tabulated and evaluated using

statistical applications. After data analysis, a detailed research report indicating the extent to which the objectives

set for the research process have been fulfilled, is made.

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9. The various methods of online advertising are as follows:

Forums :

Forums are discussion groups located on commercial websites that link users to libraries, directories or chat

rooms. These help users who are online to send and receive instant messages.

Newsgroups:

Conventionally, customers used to lodge complaints with the company's complaint department. But these days,

customers can log on to newsgroups or chatrooms and praise a marketer's service or express their discontent about

it. Newsgroups can build or destroy a company's image since these messages get exposed to larger audiences.

Discontented customers, especially, tend to choose popular sites like Yahoo, which are visited by large audiences,

to express their feelings.

Bulletin Boards:

Bulletin boards are electronic notice boards where mails can be sent, discussions can be held between individuals

and groups and even files can be exchanged.

Web Communities:

Users who want to share information online through message boards are called web communities. Message boards

allow users to post messages for people having similar interests, and who thus become members of that particular

web community. Any member of the community can reply to the messages posted. Popular websites like Yahoo

offer free services to its members to set up web communities. Web communities are becoming increasingly

popular as they provide a platform for people who want to share information on similar interests. Setting up a web

community is as easy as the click of a mouse. For instance, on the Yahoo website (http://groups.yahoo.com), all it

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requires to set up a web community is a dick on the 'start a new group' link and entering the Yahoo ID and

password.

E-mails:

Electronic mails have become a popular medium for marketers to reach customers and promote their products and

services personally to the customers. Personalized e-mails relevant to the target customers are sent to persuade

them to buy the product/service. However, if the market is not segmented properly, the emails may reach unrelated

audiences, who may develop negative opinions about the company's offerings. Therefore, sufficient care should be

taken in selling through e-mails. Personalized emails targeted at the right audience will leverage maximum benefit

for marketers. Companies need to search for those users who have consent to receive emails of their interest. This

would significantly enhance the online marketing effort of marketers.

Web Casting:

Web casting is a form of broadcasting, using Internet technologies. The information is dispatched to the users

according to their requirements. When a user signs up for the service of a webcaster, he gives his consent for

receiving and being updated with certain information from time to time. This technology helps in sending such

information to these users at regular intervals. This kind of online advertising significantly reduces the time users

spend on searching. Direct marketers use this technology to target relevant customers. Information on sports,

news, weather and other subjects is sent to customers continuously. The latest software such as Real Networks and

Microsoft Net Show help in broadcasting movie releases over the Internet.