Suggested Answers Marketing Management (MB221) : October 2004

Suggested Answers
Marketing Management (MB221) : October 2004
Section A : Basic Concepts
1. Answer : (a)
Reason : Reminder advertising is a form of advertisement, which creates a reinforcement of decision- making in the customer.
b. Persuasive advertising is aimed at persuading the customer.
c. Informative advertising aims to provide basic information about the product to the customer.
d. Comparative advertising occurs when two companies enter into promotional war, like Pepsi andCoca Cola.
e. Teaser advertising is the form of advertising where suspense is created by giving part of the
advertisement at one time and then concluding it in a series of advertisements at different
timings.
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2. Answer : (e)
Reason : Psychological pricing : Many sellers believe that prices should end in odd numbers. Bata always uses Rs.599.95 instead of Rs.600.00.
a. Target Return Pricing : The firm fixes the price that would yield its target of return on
investment (ROI).
b. Perceive Value Pricing : The price is based on buyer’s perception of the value of the
product.
c. Going Rate Pricing : The firm bases its price largely on competitors’ prices.
d. Mark-up Pricing : The elementary method used is to add a standard mark up to the
production costs.
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3. Answer : (c)
Reason : Some products require use of ancillary or captive products like printers and cartridges.
a. Service firms often engage in two-part pricing consisting of a fixed fee plus a variable
usage fee: Telephone services are an example.
b. By-product pricing: The production of certain goods – petroleum products and other
chemicals – often results in by-products. If the by-products have value to a customer group,
they should be priced on their value.
c. Mark-up pricing: The elementary method used is to add a standard mark-up to the
production costs.
d. Going rate pricing: The firm bases its price largely on competitor’s prices.
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4. Answer : (a)
Reason : Self-explanatory.
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5. Answer : (c)
Reason :
High - Involvement Low - Involvement
Significant differences
between brands
Complex buying behavior
(occurs for Branded consumer
durables )
Variety seeking
buying behavior
Few differences
Dissonance reducing buying Habitual buying behavior
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between Brands behavior
6. Answer : (d)
Reason : Relationship marketing is building mutually satisfying long-term relationships with customers. The aim of Customer relationship management is to produce high customer equity. There are five levels in customer relationship building.
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7. Answer : (d)
Reason : Ansoff has proposed a useful framework for detecting intensive growth opportunities called a “ Product-market expansion grid”. Ansoff’s Product-Market Expansion Grid.
Alternative (a) is incorrect because in Market penetration strategy, the company considers whether it could gain more market with its current products in their current markets. Alternative (b) is incorrect as in Market development, the company considers whether it can find or develop new markets for its current products. Alternative (c) is incorrect because in Product development strategy, the firm
considers whether it can develop new products of potential interest to its current markets. Alternative (e) is one of Porter’s generic strategies.
Current Products New Products
Current Markets Market Penetration
Strategy
Product Development
Strategy
New Markets Market Development
Strategy Diversification Strategy
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8. Answer : (d)
Reason : Marketing chewable vitamins for children and a different version for adults is an example of age and
life-cycle segmentation. Alternative (a) is incorrect because in Geographic segmentation, the marketer
divides the market into different geographical units such as nations, states and regions. Alternative (b)
is incorrect as in Psychographic segmentation, buyers are divided into different groups on the basis of
lifestyle or personality or values. Alternatives (c) & (e) are incorrect because they are not real terms.
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9. Answer : (c)
Reason : External influences have acted on Elena’s purchase decision in the given example.
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10. Answer : (a)
Reason : Firms that base their price on how they think the competitors will price, rather than on their own costs
or demand, in order to win a contract, are using going-rate pricing.
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11. Answer : (b)
Reason : Relationship marketing is building mutually satisfying long-term relationships with customers.
The aim of customer relationship management is to produce high customer equity. There are
five levels in customer relationship building. Alternative (a) is incorrect as in basic level the
salesperson simply sells the product. In Accountable marketing, the salesperson phones the
customer to check whether the product is meeting expectations, hence alternative (c) is
incorrect. Alternative (d) is incorrect because in the proactive level of relationship marketing the
salesperson contacts the customer from time to time with suggestions about improved products,
new uses or new products.
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12. Answer : (c)
Reason : A manufacturer will have several options vis-à-vis brand sponsorship. Alternative (a) is incorrect because Manufacturers’ brands dominate; large retailers and wholesalers have been developing their own brands. Slotting brand is not real term, hence option (b) is incorrect. Alternative (e) is incorrect as the brand created by the dealer to distribute the product/service is referred to as Dealer brand.
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13. Answer : (b)
Reason : Market challengers are runner-up companies that aggressively attack competitors to get more market share.
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14. Answer : (c)
Reason : Market segmentation is a process of dividing a larger market into sub-markets each having different market demand patterns, needs, buying styles and responses to various suppliers’ marketing strategies. Alternative (a) is incorrect because Geographics is concerned with dividing the market into different geographical units such as nations, states and regions. Alternative (b) is incorrect as Demographic variables include age, family, size, family life-cycle, gender, income, occupation, religion, race, generation, nationality and social class. Alternative (d) is not a real type of market segmentation. Alternative (e) is incorrect because in Behavioral segmentation, buyers are divided on the basis of their knowledge, attitude toward, use of, or response to a product.
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15. Answer : (b)
Reason : Marketing research is the systematic design, collection, analysis, and reporting of data and
findings relevant to a specific marketing situation faced by the company.
Alternative (a) is incorrect because Exploratory research is used when there is a need for large
amounts of information. Alternative (c) is incorrect as Descriptive research is conducted when there is a
need to understand a specific phenomenon to solve a particular problem. Alternative (d) is not a term
used for developing the research plan.
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16. Answer : (d)
Reason : Idea generation: It’s the fist stage of new product development. Brainstorming is one of the techniques
used for idea generation.
a. Commercialization: Last stage of new product development.
b. Concept testing: It’s the stage where concept of the product is tested.
c. Market Analysis: It’s the stage where demand for new product is analyzed.
e. Idea screening: Second stage where ideas generated are screened.
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17. Answer : (a)
Reason : AIETA Model
Awareness Interest Evaluation Trial Adoption
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18. Answer : (e)
Reason : Product Mix = Product Length x Product Width x Product Depth x Product consistency
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19. Answer : (c)
Reason :
Augmented Production
Actual Packaging etc.,
Core
Production
C
(e)
Product &
Service
Which is
Consumed
by consumer
Production
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20. Answer : (d)
Reason :
PRICE
QUALITY High Medium Low
High 1. Premium Strategy 2. High value Strategy 3. Super Value Strategy
Medium 4. Over Charging
Strategy
5. Medium Value Strategy 6. Good Value Strategy
Low 7. Rip-off Strategy 8. False economy Strategy 9. Economy Strategy
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21. Answer : (d)
Reason : Loss leader Pricing: Supermarkets drop the prices on some of their products to increase customer
traffic.
a. Special event pricing: Sellers establish special seasons to draw in more festive offers.
b. Auto companies and other consumer goods companies offer cash rebates to encourage
purchase of manufacturer’s production within a specified span of time.
d. Loss leader pricing involves offering heavy discounts on one product to attract customers
into the store.
e. Psychological pricing: Many sellers believe that prices should end in odd numbers.
Bata always uses Rs.599/- instead of Rs.600/-.
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22. Answer : (b)
Reason : Advertising objectives can be classified according to whether their aim is to inform, persuade, remind
or reinforce.
Reminder advertising aims to stimulate repeat purchase of products and services; hence alternative (a)
is incorrect. Alternative (c) is incorrect as Persuasive advertising will create liking, preference,
conviction and purchase of a product or service. Comparison advertising is not real time classification
used in setting advertising objectives; hence option (d) is incorrect. Alternative (e) is incorrect because
Reinforcement advertising aims to convince current purchasers that they made the right choice.
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23. Answer : (d)
Reason : Companies select the pricing method considering competitors’ prices and the prices of substitutes.
Generally the firms set the prices using seven pricing-setting methods; markup pricing, target-return
pricing, perceived-value pricing, value pricing, going-rate pricing, auction-type pricing and group
pricing.
Alternative (a) is incorrect because in Markup pricing, price is set to cover costs and pre-determined
percentage of profit. Option (b) is incorrect as in Going-rate pricing, the firm bases its price largely on
competitors’ prices. Sealed-bid is type of auction pricing in which suppliers can submit only bid and
cannot know the other bids; hence option (c) is incorrect. In Perceived-value pricing companies base
their price on the customer’s perceived value; hence option (e) is incorrect.
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24. Answer : (b)
Reason : When a service firm effectively trains and motivates its customer-contact employees and the support
personnel to work as a team to provide customer satisfaction, it is practicing internal marketing.
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25. Answer : (d)
Reason : In the given example, Sandy is in the purchase stage of the buying decision process.
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26. Answer : (d)
Reason : Distribution channels can be arranged in vertical, horizontal and multichannel marketing systems.
Corporate and Administered marketing systems are vertical marketing systems which combine
successive stages of production and distribution under single ownership; hence options (a) and (b) are
incorrect. A contractual vertical marketing system consists of independent firms at levels of production
and distribution integrating their programs on a contractual basis; hence option (e) is incorrect.
Alternative (c) is not a real term.
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27. Answer : (e)
Reason : All the statements given reflect the definition of a product.
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28. Answer : (b)
Reason : In the given example, Naina is in the active information search stage.
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29. Answer : (c)
Reason : In the given example, the university is pursuing partial cost recovery.
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30. Answer : (b)
Reason : A themed TV programme, typically 30 minutes long, during which the features or virtues of a product
are discussed by 'experts', is known as an ‘infomercial’.
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Section B: Caselets
1. 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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2. Some of the reasons why celebrity endorsements may not work:
Improper positioning Associating with a star, however big he or she may be, in itself does not guarantee sales. The most it can do is generate interest in the product or create a buzz around it. Take the case of Maruti Versa, which was launched amidst a lot of fanfare about three years ago. In spite of Maruti signing up superstar Amitabh Bachchan and his son Abhishek Bachchan as brand ambassadors for Versa, the brand’s sales remained sluggish. To be fair, the Big
B magic did work and the ads created significant interest, drawing people into the showroom. But perhaps the positioning itself was faulty as people were expecting a larger than life car, just like the brand’s ambassador. Last year, we saw Versa being re-positioned as a family car, with the core proposition being, “the joy of travelling together.” In the words of Ravi Bhatia, General Manager of Marketing at Maruti, Versa has started doing well and has witnessed an upswing since the new positioning. Last year, the average sales were 80-100 vehicles a month.
Now they are selling 450 vehicles a month. Brand-celebrity disconnect If the celebrity used represents values that conflict with the brand values and positioning, the advertising will
create a conflict in the minds of the target audience who may reject the proposition. Take for instance Toyota, one of world’s leading auto companies. Toyota chose teeny-pop singer Britney Spears for its brand Soluna Vios, a family sedan, which is preferred by married men and women with children. According to Phan, a youth icon like Britney would’ve been better used by Toyota for a sleek sports vehicle and for Soluna Vios, Toyota should choose someone like a mature man, Harrison Ford for example. Clutter Flutter
In recent times, there has been such a deluge of celebrity endorsements that it has led to the very clutter that it aimed to break. For instance, Amitabh Bachchan endorses or has endorsed Pepsi, ICICI, BPL, Parker pens, Nerolac, Dabur, Reid & Taylor, Maruti Versa, Cadbury and a few social messages too. Bollywood Badshah Shah Rukh Khan endorses Omega, Tag Heuer, Pepsi, Hyundai, Clinic All Clear and Airtel among other brands and has to his credit more television commercials than feature films since 1992. This over-exposure can be bad for the
brand. Khan adds, “We seem to have just 2 ½ celebrities per brand in a country of 1 billion people which is a terrible tragedy. Consequently, each celebrity is called upon to push maybe a dozen brands or so, which is great for the celebrity, but I think it is pretty daft for the brand because the impact of the celebrity reduces as the number of brands he endorses increases.” Parmeswaran agrees, “Unfortunately in India, we have too many brands chasing too
few celebrities. And the recall value drops by a huge margin when you move from an A Class celebrity to a B Class.” Dissatisfaction with product quality/performance
You cannot sell an ordinary product just by making a celebrity endorse it. In fact, if anything, the product will fail faster because the presence of the celebrity will create a buzz and more people will know about the “ordinariness” of the product. Parmeswaran says, “Unfortunately using a celebrity seems to be the easy way out of a parity product situation.” Sachin Tendulkar’s endorsement of Fiat Palio was quite a success initially. But as word about the poor fuel efficiency of Palio spread, its sales took a beating. In this case, Sachin’s presence could’ve worked
wonders but for the poor performance of the car in a market that is highly performance conscious. Confusion/ Scepticism The use of celebrities can be confusing. Some viewers forget the brand that a celebrity is approving. Others are so spellbound by the personality of the celebrity that they completely fail to notice the product/brand being advertised. The brand is overshadowed in the overwhelming presence of the star. In some cases, a celebrity can
give rise to scepticism because it might be a bit too much for the masses to believe that the celebrities who are rich and can afford the best in the world are actually using a mass product being advertised on television. On the contrary, people might speculate about such things as “how much did the brand pay to rope him/her in as the brand ambassador?”
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3. 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” Hedging 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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4. The strategy of acquiring existing brands gives a company the opportunity for exploiting common use of a wellknown brand name that in turn delivers a ‘strategic fit’. The company’s brand name and reputation are relevant in the context of these virtues being transferable to other businesses (through M&As) arising from cross-business strategic fits along the value chain. Brand rank and profitability are strongly correlated since brands constitute competitive strength of a firm. Since most M&A activity is also focused on achieving bottom-line growth,
businesses must give a serious thinking to the issues of brand equity pertaining to potential acquisition. The absence of an integrated approach may result into acquisitions adding to brand proliferation and market confusion. However, if brand strategies are brought into discussion before deals are finalized, M&A strategies can fill the gaps and expand the relevance and reach of brand portfolios. MNCs are required to undertake a holistic approach while acquiring brands and must attempt to understand relationships between brands across portfolio, where fits and disconnects may exist so that they could be better leveraged to create more value to the organization. MNCs have other compelling reasons to look forward to brand acquisitions in emerging markets like India. This arises out of the poignant need to address the peculiarities of the Indian market. With global brand premiums vulnerable, MNCs may want to develop local brands, typically through acquisition, to position along with global
brands in their overall product portfolios. In the recent past there have been disasters where MNCs, trying to launch brands in India without understanding the relevance of the brand in an Indian market, had to recoil. In cases where MNCs wanted to continue with their
international brands, they are adapting to appeal to Indian tastes and deliver the value that the customer seeks.
Kellog's and McDonald's are good examples.
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5. The following are some of the practical steps that would help an MNC enhance its brand equity. Work for referrals: Word of mouth is the least expensive, most effective way to get new business. An American entrepreneur used to make his new customers write on the back of their business cards why they bought his products. These become mini-testimonials. Another businessman calls at least one client a day just to keep in touch. This builds the relationship by showing he does not just care about them when he wants something, allows
him to update files, and generates referrals. Dr Batra of Positive Health Clinic started off very small and today is one major homeopathy chain. He uses the referral technique and word-of-mouth very effectively. Use online marketing: You do not have to have a Web site like Indiainfoline.com to do business online. You can send personalised e-mail. You can pay only for the leads generated for you by advertising on many sites. You can research potential clients for better presentations. Or you can post free ads in discussion groups. Do not sell; help people buy: When you truly put the client’s interests above your own, you will become a
consultant, a team member, and a partner for your client. When you have earned trusted advisor status, doing business is no problem. For instance, Dell helps its customers make more money by using computers to help their clients sell more. Of course, the extra business comes around as the client grows. A small consultant’s big client felt they needed a “Big 5” firm to handle their M&A plan. Instead of resisting, the consultant helped the client
select a Big 5 firm, thus maintaining and extending the relationship with the client. When you put the customer first, you earn long-term loyalty that is more profitable than a larger quick sale.
Partner with other companies reaching your market: There might be other traders in a commercial hub doing something like a shopping festival, or Intel associating with computer hardware manufacturers to better serve the customer. Or it could be something like Home Trade sponsoring the Experiential Marketing seminar in India to bring attention to both the brand and the seminar theme, which is being practised by them. Shift the risk to yourself and you will profit: A believable guarantee makes it safe for prospects to give you a
try. Very few people will exploit a generous guarantee compared to the extra business it generates. Money back guarantee always elicits trust and confidence from customers. Indica Hair Dye from Cavin Kare started challenging market leader Godrej by doing that.
Be personal: To build relationships you have to build a personal connection. A handwritten invitation pulls better than a printed one. One nursing home in Dubai created a waiting list through great referrals by greeting visiting relatives by name and filling them in on their loved ones at the start of each visit. Create free publicity: Large consulting firms such as McKinsey, KSA Technopack, PWC, etc, do surveys every year on their fields of focus such as IT, garment industry, retail, etc. Although only parts of the data would be given out to the media, their clients in the industry get full access to the data and this indeed helps these clients
benchmark their operations, etc. while the consulting firms get free publicity across media.
Integrate your marketing: This means that everything you do should convey the same message and represent what you stand for. All your literature, and even your office, should convey the same message.
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6. The following are the reasons for the success of Krispy Kreme:
• Product quality (taste, crispiness)
• Choice for the customer (a wider menu)
• Creating demand by opening a limited number of stores in a given geographical area
• Inducing trials by giving away free samples at the time of opening new stores
• Allowing customers to watch the products being manufactured
• Spreading word of mouth through satisfied customers
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7. Krispy Kreme has achieved the success it has, largely due to the fact that it created curiosity among the customers by making them go all the way to the works to get the product. This has successfully created a great amount of hype and prestige around the product. This also has given the customers an opportunity to have the magical experience of watching the doughnuts being made. The limited availability of the product has created demand for it. But now the company has chosen the supermarket route to increase the availability of the product. Though this
could increase sales and hence profits in the short term, it could prove disastrous over the long term. The very basic plank on which Krispy Kreme achieved enviable success was uniqueness and the supermarket sales will destroy it. Krispy Kreme will become just another doughnut in the market. Therefore, Krispy Kreme should consider franchising as an option to increase profitability without hurting the image of the product. This option helps retain the exclusivity of the product while at the same time generating attractive cash flows for the company. A successful business formula always attracts franchisees and results in a
mutually profitable business proposition (for the franchiser and the franchisee). The franchisees work hard to grow their businesses and in the process, they spread the brand message. In the long run, this will expand the reach and customer base of the product.
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8. Buzz marketing involves passing on information about the company’s products and services from user to user i.e. spreading product/brand message through word of mouth. The two chief advantages of word of mouth are that it is convincing and it is low cost. Personal influence carries especially great weight in two situations. One is with products that are expensive, risky, or purchased infrequently. The other situation is where the product suggests something
about the product’s usage or status. Buzz marketing saves the company a lot of money since it needs little advertising. In some cases, positive word of mouth happens in a natural way. But in most cases, buzz is managed.
Buzz is increasingly the result of shrewd marketing tactics in which companies send a vanguard group, ration
supplies, use celebrities to generate buzz, leverage the power of lists, and initiate grass roots marketing.
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Section C: Applied Theory
9. Here are some of the reasons why new products fail:
• No competitive point of difference
• Unexpected reactions from competitors
• Poor positioning
• Product didn't deliver promised benefits
• Too little marketing support
• Bad estimates of market potential (or other marketing research mistakes)
• Improper channels selected
• Rapid change in the market or economy after launch
Britannia is known for its wide-range of biscuits. They are introduced in different flavors and packages to satisfy different segments of consumers. Since most of the consumers associate Britannia brand name with the product, ‘biscuit’, its diversification into flavored milk market was not welcomed. And the product was introduced in a tetra-pack, the quality of which was in question. The high price of the drink was also responsible for poor sales. P & G’s floating soap ‘Ivory’ could not make a lasting impression in the minds of consumers since the concept of
‘Floating Soap’ did not give them any value addition. Moreover, it was highly priced. Marketing research would help the companies in overcoming the uncertainties involved in product launch. Research would help the companies in forecasting sales and understanding the needs of the target consumer. Analysis of the competitors’ marketing strategies would help price the products effectively. In addition, test marketing would help the companies in knowing the potential demand for the product, which resulted in successful launch of the products.
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10. The initiator of the buying decision could be identified as the salesperson who identified the need but more likely would be the sales force manager who suggested the purchase be made.
Influencers/evaluators might include the finance office (which would control the amount of money available for the purchase), members of the sales force (who might provide information about phones that competitors are using), and the purchasing department (which would have a good knowledge of alternative suppliers). Gatekeepers could include management (which would only approve of certain phone models that are compatible with existing phone systems), the finance office (which may only approve a limited budget), and the purchasing
department (which would recommend matches with likely vendors).
The decider might be the president of the company, the president of marketing, or the sales manager; the decider is the person with the power to approve the brand of phone.
The purchaser will be the purchasing agent in the purchasing department who will negotiate the terms of the sale. Users will include all salesforce members who would use the cellular phone.