Marketing Management (MB221): July 2005

Marketing Management (MB221): July 2005

Section A : Basic Concepts (30 Marks)
· This section consists of questions with serial number 1 - 30.
· Answer all questions.
· Each question carries one mark.
1. All of the following are examples of publicity-based public relations tools except
(a) Annual reports (b) Feature articles (c) News releases
(d) Press conferences (e) News stories.
< Answer >
2. To facilitate self-checkout, a food-retailing store has instituted electronic machines for use by its
customers. These machines are examples of
(a) Vending Machines (b) Online retailing (c) Video texts
(d) Direct Mail (e) Kiosks.
< Answer >
3. Which of the following is not part of an organization’s micro environment?
(a) Customers (b) Suppliers (c) Competitors
(d) Government legislation (e) Wholesalers.
< Answer >
4. The college recruiter who visits a high school campus to convince its leading scorer to play basketball
for his university, is involved in which type of promotion?
(a) Online marketing (b) Publicity (c) Personal selling
(d) Public relations (e) Sales Promotion.
< Answer >
5. Demand for a product that increases greatly following a small reduction in price is said to be
(a) Inelastic (b) Highly inelastic (c) Derived
(d) Perfectly elastic (e) Highly elastic.
< Answer >
6. A builder who has a full order book during a period of economic prosperity and leaves his potential
customers waiting for work to be completed, is most likely showing what type of business orientation?
(a) Marketing orientation (b) Selling orientation (c) Production orientation
(d) Societal orientation (e) Product orientation.
< Answer >
7. Which of the following statements is not true about the concept of a customer?
(a) A customer and consumer are always the same thing - the terms are completely interchangeable
(b) Customers can be described as clients
(c) A customer doesn't necessarily consume the product that they have purchased
(d) Students can be described as customers of a university
(e) In theory, “Customer is King”.
< Answer >
8. When Procter & Gamble introduced Pampers disposable diapers into Japan, it used basically the same
pricing strategy as it used in the United States. P&G did not realize that the typical Japanese mother
changes her baby about 14 times a day – twice as often as her US counterpart does. Thus, Pampers were
too expensive for the Japanese market. P&G misunderstood which environmental force in Japan?
(a) Technological (b) Economic (c) Political/legal
(d) Socio -cultural (e) Ethical.
< Answer >
9. A value chain in marketing is
(a) An operator of discount stores with many branches
(b) A process by which goods gain value as they pass through different levels of intermediaries
(c) A factory outlet store
(d) A process by which companies target value conscious customers
(e) Total quality management process.
< Answer >
10. For most people, the purchase of cheese for daily use can be described as a
(a) Routine buy (b) Modified rebuy (c) Completely novel purchase
< Answer >
(d) High involvement product (e) System buying.
11. A method of comparing the internal capabilities of an organization with the demands and challenges of
its external environment is referred to as
(a) SHOT analysis (b) SWOT analysis (c) Stakeholder analysis
(d) Shareholder analysis (e) Market Research.
< Answer >
12. Which of the following represents the most important reason why firms monitor their demographic
environment?
(a) To explain historical trends
(b) To predict the size of market segments
(c) To predict political change
(d) To predict business cycles
(e) To understand lifestyles of individuals in a society.
< Answer >
13. Peter Drucker noted the relationship between selling and marketing in which of the following terms?
(a) Marketing is a subsidiary component of selling
(b) The aim of selling is to make marketing superfluous
(c) Customers have a limited choice; t herefore selling and marketing become easy
(d) Selling and marketing are essentially the same thing
(e) The aim of marketing is to make selling superfluous.
< Answer >
14. A secretary who answers calls from suppliers, for a company buyer, may be taking on which role within
the company’s decision-making unit?
(a) User (b) Influencer (c) Gatekeeper (d) Buyer (e) Decider.
< Answer >
15. At what stage in the product lifecycle does the sales growth start to slow down?
(a) Growth stage (b) Decline stage (c) Saturation stage
(d) Maturity stage (e) Introduction.
< Answer >
16. What method for measuring advertisement effectiveness was being used when Sunita was asked if she
had seen any appliance advertisements recently?
(a) Arbitron (b) Direct recall (c) Aided recall
(d) Unaided recall (e) Recognition.
< Answer >
17. A branded, high volume, low value consumer good is most likely to be sold through
which of the following types of distribution channel?
(a) Dir ect sale from the manufacturer to consumer
(b) Sale through brokers
(c) Sale through many general retail outlets
(d) Sale through specialist retail outlets
(e) Sale through discount stores.
< Answer >
18. Which of the following is not true of franchisees?
(a) They are always small owner managed businesses
(b) They generally agree to charge prices in accordance with the franchiser’s guidelines
(c) They generally enter an agreement with a franchiser for a fixed period
(d) They create legal relationships between themselves and franchisers
(e) They get the right to use the franchiser’s trademark, trade name, product or service.
< Answer >
19. As Betty Jeffries prepares the script for a radio commercial for her boutique, she is
engaging in the ________ stage of the communication process.
(a) Sourcing (b) Coding (c) Decoding (d) Transmission (e) Feedback.
< Answer >
20. Inseparability of services necessarily implies
(a) Inability to own the service
(b) Intangibility of the service offering
(c) A high level of tangibility in the s ervice offering
(d) Variable output
(e) A high level of consumer-producer interaction.
< Answer >
21. A theme park operator considering setting up an operation in an overseas country, is
most likely to begin its preliminary research by
(a) Conducting secondary research in its target market
(b) Conducting primary research in its target market
(c) Conducting secondary research on the overseas market at home
< Answer >
(d) Conducting primary research on the overseas market at home
(e) Conducting primary research both at home and in its target market.
22. Tom goes to a vending machine, deposits 50 pence, and receives a Cola. Which of the following aspects
of the definition of marketing is focused on here?
(a) Product concept (b) Satisfaction of organizational goals
(c) Product pricing and promotion (d) Exchange
(e) Distribution of ideas.
< Answer >
23. Which of the following is the best definition of value?
(a) A technical measure of a company’s selling price relative to its production costs.
(b) A measure of the mark -up charged by companies
(c) The lowest prices available to consumers
(d) The best ratio of benefits to costs available to buyers
(e) The quality offered to customers.
< Answer >
24. Sonali recently changed employers within the same industry. At her old company, employees routinely
took home company pens, pencils, and note pads, and they frequently made personal long-distance calls
on company phones. Sonali observes that employees do not engage in such practices at her new
company. What Sonali sees could best be described as a difference in
(a) Corporate culture (b) Profit objectives (c) Significant others
(d) Legal climate (e) Corporate goals.
< Answer >
25. Which of the following consumer responses is least likely to overcome cognitive dissonance
experienced by a consumer who is dissatisfied with their purchase?
(a) Rationalizing that a product is actually quite good
(b) Seeing the product in a different light so that the bad aspects of a product are emphasized
(c) Seeing the product in a different light so that the good aspects of a product are emphasized
(d) Complaining and returning goods to the supplier
(e) Find alternative uses of the product.
< Answer >
26. If the Kellogg Company decides to build a new cereal plant because it anticipates the next five years
will bring low unemployment and increases in buying power, it is forecasting a period of
(a) Depression (b) Recovery (c) Prosperity (d) Austerity (e) Recession.
< Answer >
27. Which of the following constitute(s) primary activities in the generic value chain?
I. Firm infrastructure. II. Inbound logistics.
III. Operations. IV. Procurement.
(a) Only (I) above (b) Both (II) and (III) above
(c) Both (I) and (III) above (d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
28. When Hindustan Levers offers dental insurance with Pepsodent toothpaste, it is an example of
(a) Highly intangible good (b) Variability of service
(c) Service linked to a tangible good (d) A tangible good linked to service
(e) Possession processing service.
< Answer >
29. When a customer asks for ‘Band Aid’ instead of adhesive bandage, it is a case of
(a) Poorly educated customers not aware of adhesive bandages
(b) The brand name having replaced the generic product in the customer’s mind
(c) Leading pharmaceutical players reluctant to enter the adhesive bandage segment
(d) An attempt by band-aid manufacturers and trade to block competition
(e) Band-aid being the only adhesive bandage available in the market.
< Answer >
30. Which of the following overseas market entry strategies is likely to give a restaurant operator the
highest level of control?
(a) Strategic alliance (b) Joint venture (c) Direct investment
(d) Franchising (e) Management contracting.
< Answer >
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. Can the ubiquitous Maruti 800, which has virtually become a generic brand in India and signifies the dream of
many a not so well-to-do Indian, be written off? Justify.
(9 marks) < Answer >
2. The future seems to have many challenges in store for Maruti 8 00. What are the threats and opportunities for
Maruti 800? Explain.
(6 marks) < Answer >
It has survived end-of-the-road predictions for the last eight years. It can flit across the roads almost as dexterously as a
bike. It goes easy on your pocket to run and maintain too. It is now showing a decline after having held the baton as the
largest selling car for several years. While rivals have always been ranting that the end is near for the fuel-sipping 800,
if the car's manufacturer is to be believed, the car is not going anywhere in a hurry. Quite on the contrary, Maruti Udyog
Ltd is actively pushing the car in smaller towns and among indecisive motorcycle owners who can be coaxed into
graduating to four wheels and who represent a 3.7 million a year market. Maruti’s offerings comprise models cheaper
than Rs 250,000 and it accounts for a quarter of new car sales.
Maruti had an 83 percent share in 1998, when it was competing against only two local firms selling cars based in 1950s
designs. This share considerably lessened by 2004. Maruti now faces rivalry from companies such as Hyundai Motor,
Fiat, ford Motor Co., and Tata Engineering and locomotive Co. after the government liberalized the sector in 1993.
While competition from the larger ‘B segment’ cars and the company's strategy of positioning its other model, the Alto,
as an alternative to Maruti 800 may have dented the small car's sales in recent months, Jagdish Khattar, Managing
Director , Maruti Udyog, believes that the 800 is still the answer to the first-time car buyer's needs. And that is more true
in smaller towns because in the larger metro markets, easier finance schemes have shifted customer preference towards
larger cars.
Maruti is not in a position to bring down its costs. The company is pushing sales in smaller centers and rural markets
with tie-ups with banks. The company already has a finance scheme tailored for farmers, which provides for sixmonthly
installments to coincide with crop cycles. “I believe in Dr C. K. Prahalad’s concept of finding value at the
bottom of the pyramid. There is still a very large segment of our population which cannot afford a car,” says Khattar.
Maruti Udyog had already announced a ‘2599’ scheme, where the customer can take home the 800 at an EMI of Rs
2,599 per month. It recently launched its ‘Do ka Chaar’ offer for existing two-wheeler owners who can use their
motorcycle as the down payment to take home a Maruti 800. Similarly, the company has launched a scheme, ‘Teacher
Plus,’ with State Bank of India. The scheme entailed offering a lower rate of interest for teachers under the scheme.
Khattar says that the idea behind the Teacher Plus scheme is rather simple. “Teaching is the profession that accounts for
the highest number of couples working in the same organization. Their combined income is about Rs 30,000 per month.
We find that in smaller places, a customer with Rs 30,000 monthly income has better spending power than one in a
metro earning double that amount.” Khattar says.
Buoyed by the scheme’s success, Khattar jocularly promises similar schemes for the media and lawyers. But on the
ground, the company has identified several large public sector companies and the Railways as the next target for tailor -
made finance schemes. The reasoning, again, is that many of these customers would opt for the 800.
Post price reductions, which Maruti says came about due to localization and higher efficiencies, the price difference
between the top-end Maruti 80 0 and the base version of Alto has narrowed down to Rs 35,000. As most cars are
financed, in EMI terms the price difference comes to under Rs 700 per month. But Khattar denies that the Alto is being
positioned as a substitute for the Maruti 800. “By bringi ng down the prices of Alto, we are only trying to give an
alternative to the customer who may not want to buy an 800 for some reason. We are concentrating equally on both
models and it is not as if one is meant to cannibalize the sales of the other,” he says.
It cannot be denied, however, that the sales volume of Maruti 800 that stood at about 13,000 last year has reduced to
about 10,000 cars per month this year and continues to slide. Alto, on the other hand, has more than tripled from about
3,000 units to close to 10,000 units a month by the end of 2004.
While Maruti is confident that the numbers for even the 800 will start rising again, auto analysts say that the country’s
largest carmaker will face an uphill task pushing the car in the medium term. One of the factors, auto sector watchers
say, is that the second-hand car market in the country is becoming more mature. Across the world, the used car market
is twice the size of new cars. In India, the ratio is 1:1, i.e., the size of both the markets is nearly the same. In India, the
second-hand car market has seen sluggish growth due to several impediments imposed by the Government. But it is
obvious that the second-hand market is set to grow and Maruti has itself positioned the company as the largest seller of
used vehicles under the TrueValue brand. As of now, the company has just touched the tip of the iceberg and is unable
to match the supplies with the high demand. But as the market gets more organized, it could affect the sales of the
Maruti 800.
Anot her auto sector analyst was more critical of Maruti's strategy. “They have very little regard for their existing
customers and have come to be known as a company that constantly slashes prices. While the Tata's car is still on the
drawing board, the market expects it to debut at about Rs 1.3 lakh. The Tatas are yet to even define the basic specs of
their proposed car. But it can be safely predicted that by the time the car actually comes into the market, Maruti would
be in a position to launch a stripped -down version of the 800. Their investment in the die plant has been recovered some
20 times over. They can really play around with prices when the need arises,” he said..
Caselet 2
Read the caselet carefully and answer the following questions:
3. What are the issues that marketers face in pricing products and services? Discuss.
(8 marks) < Answer >
4. In pricing a product, there are many considerations to reach a number for a specific product, such as different types
of costs, expected returns on investments etc. Explain the various methods on which companies can base their
pricing.
(8 marks) < Answer >
The domestic airline industry witnessed an unusual phenomenon in late 2004. While the major airlines rather reluctantly
announced a 10 percent increase in fares, triggered by higher international fuel prices, at the start of a bright tourist
season, the newcomer and price -warrior Deccan Airways on the same day slashed the already rock-bottom prices on
some sectors by 20 percent. Contrary to the expectations of the conservative business traveler, its flights reportedly
went full. The safety-minded traveling public has apparently shed its skepticism and started supporting the newer
entrants, first Sahara and then Deccan. While Jet Airways, the main challenger to the State-owned monopoly, is an
example of a superior strategy based on efficient customer service, comfort, punctuality and attention to detail, and
could exact even a premium, the purely price-based competitors wrote themselves a different script.
In an earlier era, price-based warfare had been relatively rare across most of Indian business. True, there were a few
low-priced manufacturers in many categories but they were written off as beyond the pale by the so-called large,
organized sector, the assumption being that anyone who could charge a price much lower than the established players
must have sacrificed some essential element of quality and performance. At best, a lower price was an occasional and
defensive tactic during times of difficulties, meant mainly to stimulate falling demand in a recession. One made annual
plans forecasting both revenues and net profits, assuming predictable conditions for at least a 12-month period, taking it
for granted that if input costs increased beyond expectations, price increases could be automatic, and could be forced
upon the market place to protect one's profit margins.
Almost all industries have, however, been brought face to face in recent times with the severe and demanding nature of
the market forces, and the crucial, indeed survival value of pricing decisions. Dropping prices is not just a passing
gimmick any more; genuinely steep and permanent price reductions have become part of the game.
How to fix the price of a given product (whether a multi-million dollar contract or a bottle of a new shampoo brand) is
such a messy and hazy affair when you get right down to it that it is still a fertile field for sophisticated research. At
best, one can only give some guidelines, which meant a lot of “it depends” statements. One could think of many ways to
reach a number for a specific product, mostly from internal considerations such as different types of costs, variable or
otherwise, expected returns on investments, probability of reaching a certain minimum volume needed, the level of
corporate ambitions for profit and so on; yet the puzzle remains, what the right price is remains a moot point, although
one could ideally describe it as the level where the customer and the producer are both left satisfied that they have had a
bargain.
The pricing of a product has an impact on the demand, sales revenue, profit margins and the break-even level. It sends
signals about the direction in which the management is heading to all external associates – from distributors, dealers,
and customers to bankers and industry analysts.
Sometimes, perhaps more often than senior management care to admit, the decision is not so much whether to lower the
price to match competition but when to do so, and by how much. When mulling over such decisions, it is always a
temptation for the CFO to procrastinate by asking for more and more analysis, making fine distinctions and forecasts of
likely impact of different combinations of price reductions and promotional discounts, on sales and profits. Faced with
the prospect of a squeeze on margins one does tend to clutch at straws and postpone the evil day. Most frequently, a
price reduction is also seen as an indignity, an admission of defeat on the part of the managers. It is as though the sales
force and dealers were incompetent to extract a full and ‘just’ price from the market. Yet, in very competitive times – as
the present and foreseeable future – managements have few options beyond trying to restrict the damage to the bottomline
by continuous efforts to trim costs without anyway offending the perceived value of the customer. All said and
done, the final word today is with the customer, not the cost accountant or even the competition.
Nowhere is the distinction between an ‘attractive’ and customer value so critical as in the case of the capital asset.
Directors of companies that appreciated this difference, acted on the principle that they owed it to the shareholders to
provide them sustained value returns of a high order – and not to those ‘share-flippers’ primarily driven by the price
from one day to the next. There is a worthwhile parallel in this for the marketing managers who think strategically. If
they wish to build long-term customer preference for their brands, they must systematically deliver long-term value, and
thus reward the loyalists more than the switchers.
In the case of consumer durables, this value in an enduring sense is captured by the lifetime cost of owning and use,
including repair and upkeep. Thus flawless performance, durability, reliability and superlative service and warranty
handling (if and when it becomes necessary) are all values deliver ed and to be factored into the real price. The initial
purchase price alone does not reveal the whole story. With services, notably those such as airlines, hotels for the
business traveler and banking, the real pay-off to both parties comes from an ascending scale of value (or net gain).
Hence, the cost of loyalty reward programs and owner clubs have a real part in the value delivered. Therefore, it must
be reckoned in any comparison with costs of selling the same service to a moving stream of new customers.
A more infrequently encountered issue is how high a price to charge. Typically, this happens when a marketer innovates
in some distinctive aspect and therefore offers visible and significantly greater performance, access, safety, convenience
or other benefits in the product compared to older and established brands.
Caselet 3
Read the caselet carefully and answer the following questions:
5. Explain ITC’s e-Choupal initiative.
(5 marks) < Answer >
6. Can it be stated that e-Choupal has accomplished virtual vertical integration and has brought immense benefits to
farmers? Elucidate.
(7 marks) < Answer >
7. How has e-Choupal revolutionized channel dynamics in rural India?
(7 marks) < Answer >
Taking the Internet to the villages and empowering rural India with information at the click of a button is what best
describes ITC's much acclaimed initiative - e-Choupal. ITC has combined digital technology with the Indian concept of
a gathering place, choupal, to redefine the dynamics of distribution.
ITC's unique Rs. 60 crore web based initiative offers wheat farmers of India all the information, products and services
they need to enhance farm productivity, improve farm -gate price realization and cut transaction costs. With the e-
Choupal farmers can learn online the best scientific farming practices for their crop, the prevailing prices and price
trends for the crop in the Indian and world markets, the intricacies of risk management, and the local and global weather
information - all in Hindi. Individual farmers thus get the benefit of expert knowledge for the cultivation of their crops.
e-Choupal also facilitates the supply of high quality farm inputs as well as purchase of commodities at their doorstep.
Today, ITC has 4,500 e-Choupals connecting 18,000 villages across Madhya Pradesh, Uttar Pradesh, Andhra Pradesh,
Karnataka and Maharashtra. The main portals of the e-Choupal initiative are soyachoupal.com connecting soya farmers
in Madhya Pradesh, Rajasthan and Maharashtra, plantersnet.com for coffee traders in Karnataka, and aquachoupal.com
linking shrimp farmers in Andhra Pradesh – all available in the local language.
The e-Choupal idea cuts through the basic and historic problems crippling Indian agriculture - fragmented land
holdings, high levels of illiteracy - which make agricultural extension work unviable, and the application of laboratory
research findings to agricultural cultivation daunting. The e-Choupal makes use of the physical transmission strengths
of the current intermediaries – the only efficient option in the context of India’s weak infrastructur e, making them an
integral part of the value chain.
Yet, by using the real-time multicasting ability of the Internet, these intermediaries are bypassed to deliver information
and market signals directly to the farmer to enhance the long-term competitiveness of their businesses. As a part of the
e-Choupal, ITC has set up Internet kiosks in villages. Local farmers called sanchalaks manage these kiosks. At the
kiosks, the sanchalaks serving as an interface between the computer and the farmers help them readily access the
different agricultural crop-specific websites. e-Choupal leverages the seamless workflow capabilities of IT to virtually
integrate best players along the chain and offer the services on a single platform to every farmer. The virtual
aggregation of such demand effectively reduces the cost of these inputs, again bringing the power of scale to even the
smallest of farmers. Then, there’s what it has done for the farmer. e-Choupal links the Indian farmer to the consumers in
local and global markets, by leveraging ITC’s competencies in branding, marketing and distribution.
Unlike in the alternative mandi channel (where a farmer discovers the price for his produce after he has incurred costs
of transportation, and therefore ends up selling even if he is not happy with the price), e-Choupal helps the farmer to
take an informed and empowered decision (because the price is known in the village itself). In the process many
unproductive activities like multiple transportation, handling and bagging, which ar e otherwise inevitable in the
traditional supply chain, are eliminated, ploughing back a larger share of the consumer’s pie to the farmer.
None of this, however, is as relevant as the e-Choupals’ transition into an alternative distribution system in a cou ntry
where the potential of the rural market has never been fully tapped. Today, 60 companies, including the likes of
Nagarjuna Fertilizers, Monsanto, Eicher, BPCL, TVS Motor, Hero Cycles, LIC and ICICI Prudential sell their products
through the e-Choupal network: ITC earns a commission of anything between 3 percent and 40 percent on these. Not
surprisingly, ITC expects the e-Choupal network to cover 1 lakh villages by 2010.
On the ground, e-Choupal is proving to be a unique 3-D marketing channel for many products and services consumed
by rural India. The changes sweeping the marketing discipline in the backdrop of the increasing consumer centricity of
today’s world are well known. For instance, while superior products and distinctive functional benefits are the
necessary starting point for success in the marketplace, the experiential dimension is becoming a critical differentiator.
Process benefits, which make transactions between the buyer and seller easier, quicker, less expensive and more
pleasant, support this dimension. A third dimension, personalization, now successfully employed by a few marketing
companies, will be the only sustainable differentiator in tomorrow’s world. The relationship benefits which reward the
willingness of consumers to identify themselves and reveal their purchasing behavior laid the foundation for this
dimension for ITC
Being in a village should not restrict a farmer from having access to the latest retail products, especially essential
supplies. e-Choupal’s new services include its use for the distribution of essential goods, implements and services. At
present, FMCG products such as salt and biscuits are available through e-Choupals. ITC also has plans for setting up
common retail hubs so that villagers have easy access to the products. The first such hub has already been
commissioned in Madhya Pradesh. Earlier, procurement of farm inputs and agricultural implements meant a trip to the
nearest big town for the farmer. e-Choupal has brought these closer to him by making them available through the portal.
It is now possible for farmers to buy tractors and motorcycles using the network. The system also sells LIC’s life
insurance products.
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. Effective logistics management plays a key role in meeting customer expectations. A budding retail format intends
to put in place an inventory management system that integrates its value chain and inventory policy. What are the
inventory control tools that the retail format can use to achieve this? Explain.
(10 marks) < Answer >
9. Tesco, the UK's leading supermarket, has extended its Finest brand into the home ware market and other non-food
products such as crockery, cutlery, cotton bed linen and towels, gifts, vases and glassware. Discuss the conditions
in which it is appropriate for a company to adopt a brand extension strategy.
(10 marks) < Answer >
END OF SECTION C
END OF QUESTION PAPER
Suggested Answers
Marketing Management (MB221): July 2005
1. Answer : (a)
Reason : Publicity involves placing of information in a news medium at no billed
cost to the sponsor. Public relations aims at improving the goodwill of a
company in the market. Publicity is a function of PR and is carried out
in the form of news items, press releases, articles, mass media
interviews etc. An annual report is not a tool of publicity, though it is a
tool of public relations.
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2. Answer : (e)
Reason : Kiosks are electronic touch screens or customer-order placing machines,
usually placed in stores, airports, shopping malls etc. Kiosks allow
customers convenience of shopping.
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3. Answer : (d)
Reason : Government legislation is part of a firm’s macro-environment and not
its micro-environment. Hence, option (d) is the answer.
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4. Answer : (c)
Reason : Personal selling is the two-way flow of communication between a buyer
and seller, designed to influence a person's or a group's purchase
decision. (a) Online marketing refers to internet marketing. (b) Publicity
is a non-personal, indirectly paid presentation of an organization, good,
or service. (d) Public relations is a form of communication management
that seeks to influence the feelings, opinions, or beliefs held by
customers, prospective customers, stockholders, suppliers, employees,
and other publics about a company and its products or services. (e)
Sales promotions include gift offers, price offs etc., which induce
immediate sales.
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5. Answer : (e)
Reason : Highly elastic products show large changes in demand following a small
change in price. For example, demand for holiday packages may
drastically drop if there is a steep rise in their prices.
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6. Answer : (c)
Reason : Companies that tend to be inward looking and concentrate on their own
production needs rather than customers’ needs have a production
orientation. The production concepts or orientation holds that
consumers will prefer products that are widely available and
inexpensive and therefore the focus should be on producing as much as
possible.
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7. Answer : (a)
Reason : A customer and consumer are not always be the same entity. A
customer may buy a product, but will not necessarily consume it. For
example, parents buying for children.
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8. Answer : (d)
Reason : Socio-cultural forces refer to attitudes, beliefs, norms, values and
lifestyles of individuals in a society. In this case, P&G misunderstood
the lifestyle of the Japanese.
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9. Answer : (b)
Reason : A value chain describes how goods and services progress from being
basic raw material with very low value, to become more complex
products which buyers are prepared to pay a higher price for. For
example, coffee beans are processed by merchants, manufacturers,
wholesalers and retailers who all add value to give consumers a high
value jar of coffee.
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10. Answer : (a)
Reason : For most regular cheese eat ers, buying cheese will be quite routine and
will call for only limited searching and a simple decision. Purchase
decision in this case is quick. (b) Modified rebuy refers to an
organizational buying situation where a purchasing manager buys goods
that have been purchased earlier but changes specifications, quantity,
delivery schedules etc. (c) Completely novel purchase as apparent refers
to a new purchase. In organizational buying, this can be equated with
new task rebuy where a product is purchased for the first time. (d) High
involvement product is that which requires extensive information on the
products to evaluate the purchase decision. (e) System buying is a
process in which an organization selects only one supplier for all its raw
material requirements.
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11. Answer : (b)
Reason : SWOT analysis (standing for Strengths, Weaknesses, Opportunities,
Threats) is a widely used method of comparing the internal capabilities
of an organization with the demands and challenges of its external
environment.
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12. Answer : (b)
Reason : Firms monitor demographic change to understand how many people
will be in a market segment in the future - e.g. how large will the
segment of 85+ people be in 2010?
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13. Answer : (e)
Reason : The contemporary view is that selling is just one of the tools of
marketing. Peter Drucker said, “the aim of marketing is to make selling
superfluous.” This essentially means that marketers do not have to do
much of selling if they are able to identify unfulfilled needs of
customers and satisfy them.
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14. Answer : (c)
Reason : Gatekeepers are the people who control the flow of information into the
organization. The secretary controls access to choices for the individual
or group that will make the decision, hence is the gatekeeper..
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15. Answer : (d)
Reason : Sales start to slow when the product reaches maturity. In the
introduction stage, sales are not very significant as the product is new to
the market. The growth stage is associated with rapid increase in sales.
In the decline stages, sales tend to decline.
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16. Answer : (d)
Reason : Unaided recall is a means of evaluating the effectiveness of a
company’s advertising where selected respondents from the target
market are asked to bring to mind advertisements they have seen or
heard recently. (c) Aided recall is a method of post-testing the
effectiveness of an advertisement where respondents are shown
products, brand names, trademarks, etc to assist their memories. The
other options are irrelevant.
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17. Answer : (c)
Reason : Branded, high volume, low value consumer good such as bars of
chocolate or soft drinks are most likely sold through general retail
outlets. Here the challenge for manufacturers is to make the product
available through as many channels as feasible.
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18. Answer : (a)
Reason : Franchisees operate a franchise on behalf of the franchise brand owner.
Franchisees can come in many forms, and are not confined to small
business owners. Moat House Hotels, is an example of a large
corporation which operates franchises on behalf of a franchiser, in this
case on behalf of Holiday Inn.
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19. Answer : (b)
Reason : The coding process involves selection of the right amount of
information, the type of information and the organization of information
that has to be sent or the receiver. (a) The sender of the message is the
source if communication. The sourcing process starts when an
individual, group of individuals or an organization wants to
communicate some message to the target audience. (c) Decoding is the
process in which the receiver analyzes or interprets the information that
is forwarded by the sender. (d) The process of sending the message is
referred to as transmission. (e) Feedback helps in the continuation of the
communication process.
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20. Answer : (e)
Reason : A service is consumed by a person as soon as it is delivered. Production
and consumption occur simultaneously. Hence, inseparability is
essentially about the need for consumer and producer to interact in
order for the benefits of a service to be created.
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21. Answer : (c)
Reason : Secondary research at home is the cheapest and quickest means of
establishing whether it is worth pursuing development in an overseas
market. If go od evidence is found at this stage, the theme park operator
will seek more specific information, including primary data collection.
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22. Answer : (d)
Reason : An exchange implies giving in return for something received. Tom gets
a cola by depositing money in the vending machine. Therefore, an
exchange takes place.
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23. Answer : (d)
Reason : Value is a subjective measure as people will perceive different benefits
from any given product. However, it can be best described as the ratio
of the benefits a customer derives to the cost of acquiring the product or
service.
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24. Answer : (a)
Reason : Organization or corporate culture refers to the values, norms, artifacts,
assumptions, practices etc. of an organization, its employees and their
behavior.
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25. Answer : (b)
Reason : Cognitive dissonance is about overcoming a mismatch between our
attitudes and the reality around us. When we make a bad purchase, we
try and overcome uncomfortable feelings associated with the poor
product through such means as trying to think that the product is
actually better than it really is, or downplaying its importance to us.
Therefore, option(b) is least likely to overcome cognitive dissonance.
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26. Answer : (c)
Reason : In the prosperity stage of business cycle, employment rate is high,
interest rates are low, inflation is low, and income is high.
Consequently, customers spend more to fulfill their needs and wants.
(a) A state of intense recession is known as depression, where the rate
of unemployment is very high, wages are very low, GNP drops and
customers do not have confidence on the economy. (b) The stage where
the economy moves from reces sion or depression to growth is termed as
recovery. (d) There is no such concept as austerity in business cycle. (e)
In recession, jobs are slashed and consequently the willingness of
people to spend money decreases considerably.
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27. Answer : (b)
Reason : Inbound logistics and operations constitute primary activities in the
generic value chain. Firm infrastructure and procurement are support
activities in the generic value chain.
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28. Answer : (c)
Reason : Dental insurance being offered along with Pepsodent toothpaste is an
example of a service linked to a tangible good – Pepsodent being the
tangible goods and dental insurance being the service.
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29. Answer : (b)
Reason : A generic product is one made by a manufacturer the customer doesn't
know much about who may or may not put their name on the product.
The association of Band Aid with adhesive bandages is so strong in to
minds of customers that it has become a generic name. Another
example of a product becoming generic is Xerox, which is used instead
of the term photocopy.
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30. Answer : (c)
Reason : Direct investment removes the influence of joint venture partners and
franchisees. The restaurant will have more control than if it is merely
managing an operation on behalf of another company.
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Part B : Caselets
1. After being the largest selling car for several years Maruti 800 is now showing a decline. This decline is evident
from the following factors:
· The drop in prices of Alto has narrowed the price difference between the two cars, which seems like Alto can
serve as a substitute to 800, but the company maintains that Alto can only be an alternative to Maruti 800 and
its sales are not meant to cannibalize the sales of 800.
· Data also suggests that volume sales of Maruti 800 declined in 2004 to 10000 units from 13000 units in 2003.
Alto, on the other hand, recorded more than triple sales volume from about 3,000 units to close to 10,000 units
a month by the end of 2004.
· While Maruti is confident that the numbers for even the 800 will start rising again, auto analysts say that the
country’s largest carmaker will face an uphill task pushing the car in the medium term. One of the factors,
auto sector watchers say, is that the second-hand car market in the country is becoming more mature. The
second-hand market is set to grow and Maruti has itself positioned the company as the largest seller of used
vehicles under the TrueValue brand.
· As of now, the company is unable to match the supplies with the high demand. But as the market gets more
organized, it could affect the sales of the Maruti 800.
Despite what reports suggest, there seems no question of phasing out the Maruti 800. The main reason being that it
is still apparently selling so well. As long as the customer demands it, the company will want to continue to
produce the 800. This can be justified in the following manner:
· Maruti still has the strength of being a virtual free-run of the entry-level segment, comprising models cheaper
than Rs 250,000 and accounting for a quarter of new car sales. It also continues to be the answer to the first
time buyer’s needs.
· Maruti is being pushed by its manufacturers into smaller towns and rural markets to find new takers for the
product.
· Despite the introduction of Alto as an alterative to Maruti 800 has caused a drop in sales of the product, it
constitutes to be the choice for a first time buyer’s needs.
· With a large segment that still cannot afford to buy a car, Maruti is trying to increase market penetration with
innovative schemes. The 800 can become a choice for this segment.
· While the Tata's new small car is still on the drawing board, the market expects it to debut at about Rs 1.3
lakh. By the time the car actually comes into the market, Maruti would be in a position to launch a strippeddown
version of the 800. Their investment in the die plant has been recovered some 20 times over.
In the coming years, it would be interesting to see how the Maruti 800 charts its course. But with the Tata's car
still on the drawing board and red tape stifling the development of the second-hand car market, it is clear that the
800 will continue to be a very significant contender for the victory stand of the top-selling cars in India.
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2. Threats to Maruti
· Maruti's market share has fallen from a huge 83 per cent in 1998, when it was pitted against just two local
firms selling cars based on 1950s designs.
· Maruti has had to fend off newer entrants such as Hyundai Motor, Fiat, Ford Motor Co and local firm Tata
Engineering and Locomotive Co.
· Launching of Alto which is perceived as a substitute to Maruti 800 and which has evidently had an impact on
Maruti 800’s sales.
· Maruti's focus on entry-level cars has been driven as much by immediate necessity as long-term strategy.
Opportunities for Maruti 800
· In order to expand its sales Maruti is adopting a strategy of market penetration by expanding its target
segments. The company is pushing sales in smaller centers and rural markets with tie-ups with banks. The
company already has a finance scheme tailored for farmers, which provides for six-monthly installments to
coincide with crop cycles. There is still a very large segment of the Indian population that cannot afford a car
and that segment can be tapped.
· Maruti has also been offering innovative schemes such as ‘2599’ scheme, where the customer can take home
the 800 at an EMI of Rs 2,599 per month. Its ‘Do ka Chaar’ offer was directed at existing two-wheeler owners
who can use their motorcycle as the down payment to take home a Maruti 800. Luring even a small
percentage of buyers in India's huge 3.7 million a year motorcycle market, could increase Maruti's sales
substantially.
· Buoyed by the success of its ‘Teacher Plus’ scheme, Maruti has identified several large public sector
companies and the Railways as the next target for tailor-made finance schemes. The reasoning, again, is that
many of these customers would opt for the 800.
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3. Price-wars were unheard of in most of Indian business until recently. The Airlines industry has seen the
emergence of new price-based competition. There did exi st a few low -priced manufacturers in many categories
but they were assumed to have sacrificed some essential element of quality and performance for offering at a price
much lower than the established players. At best, a lower price was an occasional and defensive tactic during
times of difficulties, meant mainly to stimulate falling demand in a recession. Companies were guided by annual
plans forecasting both revenues and net profits, assuming predictable conditions for at least a 12-month period,
taking it for granted that if input costs increased beyond expectations, price increases could be automatic, and
could be forced upon the market place to protect one's profit margins.
However, industries are now forced to acknowledge the survival value of pricing decisions. Dropping prices is not
just a passing gimmick any more; genuinely steep and permanent price reductions have become part of the game.
In such a situation, pricing of products becomes is difficult and unclear. The issues marketers face in pricing are:
· In pricing a product one can consider different types of costs, variable or otherwise, expected returns on
investments, probability of reaching a certain minimum volume needed, the level of corporate ambitions for
profit and so on. Yet whether this will help arrive at the right price remains debatable. Ideally the right price
can be describe as the level where the customer and the producer are both left satisfied that they have had a
bargain.
· Pricing of a product remains a key issue, because it has a wider and deeper impact across a business than
almost any other managerial decision. It simultaneously affects the demand, sales revenue, profit margins and
the break-even level; it also changes the perceptions of all external associates – from distributors, dealers, and
customers to bankers and industry analysts – by sending signals about where the management intends the
business to go.
· Most times, the pricing decision is not so much whether to lower the price to match competition but when to
do so, and by how much. This may lead to procrastination of the decision as it calls for more and more
analysis, making fine distinctions and forecasts of likely impact of different combinations of price reductions
and promotional discounts, on sales and profits. Most frequently, a price reduction is also seen as an
admission of defeat on the part of the managers. It is as though the sales force and dealers were incompetent to
extract a full and ‘just’ price from the market. But in the present competitive times and the foreseeable future
managements have few options but to restrict the damage to the bottom-line by continuous efforts to reduce
costs without anyway hampering the perceived value of the customer. The final word, therefore, lies with the
customer not the cost accountant or even the competition.
· Marketing managers are faced with the issue of providing long-term value to customers in order to build
long-term customer preference for their brands.
· In case of consumer durables, customer value can be offered through the lifetime cost of owning, use, repair
and upkeep of the product. Thus, values such as performance, durability, reliability and superlative service
and warranty handling can be delivered and factored into the real price. In case of services, notably such as
airlines, hotels for the business traveler and banking, the real pay-off to both parties comes from an ascending
scale of value (or net gain). Hence, the cost of loyalty reward programs and owner clubs play a real part in the
value delivered. Therefore, it must be considered in any comparison with costs of selling the same service to a
moving stream of new customers.
· Another, not so frequently encountered issue, is how high a price to charge. This arises when a marketer
introduces and offers some unique aspect and therefore offers visible and significantly greater performance,
access, safety, conv enience or other benefits in the product compared to older and established brands.
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4. Companies have various options for selecting a pricing method.
Mark-up pricing
Firms fix a selling price on the products they produce, which normally exceeds the costs incurred in producing
these products. In this type of pricing, a marketer adds a mark-up on its cost of the product. Mark-up pricing is
most common in retailing, where a ret ailer buys a product for resale. For example, if a retailer incurs a cost of
Rs.85 to buy a product, he might add a mark-up of Rs.15 and fix the selling price of the product at Rs.100. Markup
is most normally expressed as a percentage of the cost or a percentage of the selling price.
Target return pricing
The target return pricing is set by marketers to achieve a specified rate of return on their investments. The
companies, which fix a return on their investment, are usually the leaders in their industry. General Motors,
General Electric, Dupont are examples of companies, which have linked the prices of their products to this
objective. A marketer can fix the prices of his products on the basis of target returns that he is expecting on the
investment with the help of following formulae:
Target return pricing = unit cost = (desired cost x invested capital)/unit sales
Perceived value pricing
In this type of pricing, marketers set the prices of the products on the basis of their perceived value in the minds
of customers. Perceived value is calculated, as a weighted average of the products' perceived attribute scores.
Marketers normally use advertising and sales promotional activities to enhance the perceived value of the product
in the market. Firms may conduct market surveys to analyze customers' perceptions about the value of the
product. This will help marketers efficiently set the prices for their products. Dupont follows perceived value
pricing for its products. However, there is an inherent risk in using this method. If the marketer underestimates
the value of the product based on the customer's belief of the perceived value of the product, he will charge less
than what he actually can from the customers and he will not be able to maximize his profits. Similarly, if the
marketer overestimates the value of the product, the customers will not buy the product and it will be difficult for
him to survive in the market.
Going rate pricing
Going rate pricing is a simple method in which a company simply follows the prevailing pricing patterns in the
market. The company adopts a pricing strategy similar to those adopted by the major players in the market or may
slightly adjust its prices to suit the company's systems and processes. Generally, in this method, marketers give
importance to price changes made by the market leader and alter their own prices accordingly, rather than
changing the prices according to the demand patterns of the company's product in the market.
Sealed bid pricing
In some markets, business is carried out on the basis of sealed bids rather than on the basis of openly setting
prices for products. This type of pricing is more suitable for industrial products. Many companies compete in this
process, where the price of the product or service is usually quoted in a sealed cover. This method is adopted for
the products that do not possess a market price or for products for which it is difficult to fix the price owing to
attributes like varying levels of quality and specifications. The sealed bid method is usually followed in
government organizations. Whenever a government organization needs to purchase a product or service, it is
required to call for bids and several companies are invited to quote their prices in a sealed form. After recei ving
the sealed bids, the organization will normally purchase the product or service from the company, which has bid
the least price.
Differentiated pricing
In differentiated pricing, marketers adopt different prices for the same product at different locations or for
different types of customers. For instance, the cost of a 250 ml Pepsi may cost Rs.8 in a supermarket, Rs.I0 in a
cinema hall and Rs.12 in a restaurant. Thus, even though the product is the same, it is sold at different prices at
different locations. This pricing method, if used effectively, will help a company increase its profits. Another
example of differentiated pricing can be seen in the service provided by Andhra Pradesh State Road Transport
Corporation (APSRTC), which offers tickets at a lower cost to regular travelers through various schemes, than to
those who only travel occasionally. Similarly, at hill stations, hotels keep different prices for summer and winter
seasons.
Value pricing
Value pricing is a method in which marketers offer low prices for high quality products or services. The idea of
value pricing is to help the customers perceive that they are getting a high quality product at a low price. Value
pricing is not implemented as a response to the pricing patterns of the competitors. On the contrary, it is an
outcome of improved research and development that helps the company deliver high quality goods at low prices.
For example, The Times of India started a revolution in the newspaper market by offering the daily newspaper for
as less as Rs.l on some days of the week.
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5. Taking the Internet to the villages and empowering rural India with information at the click of a button is what
best describes ITC's much acclaimed initiative - e-Choupal. The initiative has combined digital technology with
the Indian concept of a gathering place, choupal, to redefine the dynamics of distribution.
ITC's unique Rs 60 crore web based initiative offers information, products and services to wheat farmers of India
that help in
· Enhancing farm productivity
· Improving farm-gate price realization
· Cutting transaction costs
Other benefits of e-Choupal for farmers are:
· They can learn online the best scientific farming practices for their crop
· They can find out prevailing prices and price trends for the crop in the Indian and world markets
· They can learn the intricacies of risk management
· They can know the local and global weather information
· The network facilitates the supply of high quality farm inputs as well as purchase of commodities at the
farmers’ doorstep
Presently, ITC has 4,500 e-Choupals connecting 18,000 villages across Madhya Pradesh, Uttar Pradesh, Andhra
Pradesh, Karnataka, and Maharashtra. The main portals of the e-Choupal initiative are soyachoupal.com
connecting soya farmers in Madhya Pradesh, Rajasthan and Maharashtra, plantersnet.com for coffee traders in
Karnataka, and aquachoupal.com linking shrimp farmers in Andhra Pradesh – all available in the local langu age.
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6. e-Choupal puts an end to the basic and historic problems crippling Indian agriculture - fragmented land holdings,
high levels of illiteracy - which make agricultural extension work unviable, and the application of laboratory
research findings to agricultural cultivation daunting. The e-Choupal initiative is definitely a great instance of
virtual vertical integration for the following reasons:
· The e-Choupal makes use of the physical transmission strengths of the current intermediaries – the only
efficient force in the context of India’s weak infrastructure, making them an integral part of the value chain.
On the other hand, by using the real-time multicasting ability of the Internet, these intermediaries are evaded
to deliver information and market signals directly to the farmer to enhance the long-term competitiveness of
their businesses.
· Further, as a part of the e-Choupal, ITC has set up Internet kiosks in villages managed by local farmers called
sanchalaks. The sanchalaks serve as an interface between the computer and the farmers help them access the
different agricultural crop -specific websites. e-Choupal leverages the seamless workflow capabilities of IT to
virtually integrate best players along the chain and offer the services on a single platform to every farmer. The
virtual aggregation of such demand effectively reduces the cost of these inputs, again bringing the power of
scale to even the smallest of farmers.
· The initiative has also immensely benefited the farmers. e-Choupal links the Indian farmer to the consumers
in local and global markets, by leveraging ITC’s competencies in branding, marketing and distribution. e-
Choupal helps the farmer to take an informed and empowered decision, which is not the case in the alternative
mandi channel. Thereby, many unproductive activities such as multiple transportation, handling and bagging,
which are otherwise inevitable in the traditional supply chain, are eliminated, accruing a larger share of the
consumer’s pie to the farmer.
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7. e-Choupals have emerged as and caused the transition to an alternative distribution system in a country where the
potential of the rural market has never been completely tapped. This has revolutionized channel dynamics in India
as explained below:
· Companies such as Nagarjuna Fertilizers, Monsanto, Eicher, BPCL, TVS Motor, Hero Cycles, LIC and ICICI
Prudential sell their products through the e-Choupal network: ITC earns a commission of anything between 3
percent and 40 percent on these. Not surprisingly, ITC expects the e-Choupal network to cover one lakh
villages by 2010.
· e-Choupal is proving to be a 3-D marketing channel for many products and services consumed by rural India.
(i) With increasing consumer centricity, while superior products and distinctive functional benefits are the
necessary starting point for su ccess in the marketplace, the experiential dimension is becoming a critical
differentiator.
(ii) Process benefits, which make transactions between the buyer and seller easier, quicker, less expensive and
more pleasant, support this dimension.
(iii) A t hird dimension, personalization, now successfully employed by a few marketing companies, will be
the only sustainable differentiator in future.
· For farmers, e-Choupal is usable for the distribution of essential goods, implements and services. Products
that are being distributed include FMCG products such as salt and biscuits. ITC plans establishing common
retail hubs so that villagers have easy access to the products and experience the products that they order
through the e-Choupal kiosks. Also available through the network are farm inputs and agricultural
implements, saving the farmer the trouble of having to travel to the nearest big town. It is now possible for
farmers to buy tractors and motorcycles using the network. The system also sells LIC’s life insurance
products.
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Part C: Applied Theory
8. Inventory management is a concerted effort to integrate the firm's value chain and its inventory policy. In
organizations, inventory is effectively managed by using to following inventory control tools:
Reorder point
The reorder point system is extensively used to identify the stock purchase requirements of an organization.
Reorder point system uses information on the quantum of order and demand forecasts. All the components in the
inventory of an organization are computerized and have a preset reorder point and reorder quantity.
When the inventory reaches a certain predetermined minimum level, the reorder point system notifies the purchase
department through various procedures such as emails, etc. to issue an order to the supplier for replenishment of
stock. The use of a computerized system in handling the reorder process is highly effective since the system can
automatically alert the purchase department about the reorder quantity and also calculate the most economical way
of reordering the components by assessing the demand forecasts, inventory holding costs, and ordering costs.
Order lead-time
Order lead-time is the period between the date an order is placed to the date the raw materials are available for
production. Organizations take into consideration order lead-time because suppliers need time to manufacture and
deliver the material. Therefore, organizations order material before they are actually required depending on the
time suppliers will take to make the delivery. Lead-time will be different for different suppliers.
Usage rate
Usage rate is the average rate at which the raw materials are used in the production process of an organization.
Safety stock
Safety stock is the extra stock that is maintained in the inventory at any given point of time as a buffer against out -
of-stock conditions, which may arise due to unexpected customer demands or delays in supplier deliveries.
Organizations always strive to maintain safety stock at minimum possible levels so that the inventory carrying
costs can be reduced. Therefore, managing the safety stock is a crucial issue in inventory management. Normally,
the safety stock levels are determined on the basis of the worst-case scenario (such as what should the safety stock
levels be when the supply of raw materials is inordinately delayed). Safety stock levels may also be dependent on
the intuition of the managers. Various methods that can help organizations lower safety stock levels include
maintaining accurate inventory records, ensuring the vendor supplies the materials within few days of reordering,
and a higher frequency in planning the inventory.
Economic order quantity
Economic order quantity (EOQ) is the replenishment order quantity that minimizes the overall cost of inventory
i.e. the sum of ordering and carry ing. A mathematical formula is used to calculate the economical order quantity.
The EOQ model is based on certain assumptions given below:
· All the demand will be satisfied.
· Demand is predictable and constant.
· There is no inventory in transportation.
· Capital is available in abundance.
· There is no interaction between the multiple components of inventory. Replenishment cycle time is known.
· The price of inventory is independent of order quantity.
· Ordering cost is constant.
· The lead-time for material delivery is known with certainty and it remains constant.
Just-in -time
The Japanese developed a time-based logistics management system known as just -in-time. It is based on the
process of systematically controlling the supplies as well as production system of the organization. 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. The production process following the just-in-time method is purely dependent on market demand. In this
method, it is assumed that whatever inventory is not used immediately is a waste. This concept also focuses on
advanced production techniques like zero level inventory maintenance, manufacturing smaller batch lot sizes,
rapid switch over, controlling the production with the help of preventive maintenance, quality circles, and so on.
The two principles that form the basis of just-in-time management are continuous improvement and a clear sup ply
chain strategy. These two principles emphasize that a continuous improvement of the production process with the
minimum stock of inventory is essential and the supply process should be clearly defined by involving the
suppliers in the efficient management of the supply chain.
Fixed order interval system
In the fixed order period system, the order period is fixed, but the order quantity varies with requirement. The
quantity ordered each time depends on the current inventory level or inventory in hand and future inventory
requirements. Here, orders are placed at equal intervals of time (T1 = T2 = T3) and the quantity ordered during
TI is different from the quantity ordered at T 2. The level of inventory in this system is counted during the review
period. The order size is determined on the basis of available and required inventory level. As. this system is based
on a periodic review of inventory levels, the cost involved in conducting constant review can be saved. But the
system requires higher levels of safety stocks to tide over any unexpected demand variations.
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9. There several issues to be considered while going in for brand extension. Organizational synergies, product
category similarity, and perceptional match or mismatch need to be considered exhaustively. Otherwise, there's a
risk of compromising on the carefully built up parent brand equity. The following should be considered while
going in for brand extension:
Extension is advisable when the value proposition reflected by the parent brand gets enhanced through the
extension. For example, Clinic All Clear's extension to hair oils. Both shampoo and hair oil complement each
other as hair care products. Extension is also advisable when distribution and communication synergies exist. The
closer an extension is to the product category of the parent brand, the greater are the synergies in both distribution
and promotion. For example, Cadbury's has a presence internationally in chocolates and ice creams. Both are
impulse purchases and need refrigerated distribution and storage. Both the products need lifestyle advertising and
promotion and thus, there is scope for alignment of promotional strategies for both.
An extension strategy has to be avoided when a breakthrough product is to be launched. If the new product
launched is revolutionary and has no bearing on other brands of the same marketer, coining a new brand as a standalone
is better. An extension carries the baggage of the parent brand, which mayor may not be relevant to the new
product. It is also advisable to avoid an extension strategy when there is a possibility of a mismatch between what
one brand delivers and an extension promises. One of the reasons why Nirma's foray into the high -end soap
category with Nirma Premium Soap didn't generate enough of a market share was the incompatibility between
what the parent brand basically stood for and what its extension to the premium segment conveyed. While the
parent brand stood for functional, value-for money proposition, the high end soaps category was different, with its
aspirational and beauty overtones.
Brand extensions are common in most companies. Companies go in for brand extension to leverage themselves on
the opport unities that are present in the market. Firms generally adopt upward or downward brand extensions. An
upward extension is where it is trying to cater to an upper market segment than the one it is serving currently while
the downscale extension is where it is trying to cater to the lower end of the market than the one it is serving
currently. But there is a possibility of both these kind of extensions damaging the brand value.
Sometimes, extending a brand becomes a necessity for a firm when there is no other way for the organization to
grow. But a number of companies across the globe have failed miserably trying to extend their brands. Therefore, a
firm has to tread very cautiously and ask themselves a few questions before going in for brand extensions. The
questions are: what is the potential of the new market? What should the position of the brand be in the new market?
Is brand rejuvenation required? Should the firm develop a completely new brand?
Firms quite often face a situation where they find tremendous opportunity in the next level of price sensitive
customers. In such situations, companies extend the same brand with products whose prices may be either lower or
higher than the existing product to cater to different segments of the market. This kind of extension increases the
sales volume by leveraging on the economies of scale. However, when firms adopt a downward extension, the
brand may lose its up -market image. Price reduction also may have serious repercussions on consumers'
perceptions about the brand's ability to offer superior value. But to avoid consumers nurturing such a perception,
firms need to communicate to the target customers that reducing the price has not compromised the quality.
Another strategy could be to come out with an entirely new brand. HLL came out with Wheel detergent powder to
capture the lower end of the market. Yet, another strategy could be to reposition the brand. A price reduction in"
the brand should not be adopted under any circumstances if it does not give the company a cost advantage.
To extend to a downscale market another successful strategy is to develop sub-brands. Most of the brands in the
market adopt this strategy to cater to the lower end of the market. For instance, Gillette caters to the lower end of
the market with twin blades and Gillette Vector, as against the parent brand of Gillette Sensor Excel and Mach III.
This strategy has two advantages: the parent brand name is not diluted and the sales of the sub brand do not affect
that of the parent brand in any way.
Extending to upscale markets is normally done to leverage on the vast potentials of the higher end market, as the
margins here are normally very high. The problem with extending a brand to cater to an upscale market is that the
consumers are often less confident about the credibility of a previously cheaper brand. When a company is trying
to serve the upper end of the market, it is always better to come out with a new brand, rather than try to extend the
existing brand. Brand repositioning could be another strategy but it is very difficult to reposition a brand from a
lower end segment an upper segment, because the brand will in no way associate itself with the brand image and
personality of an upper class market.
Creating sub brands can be useful to an extent, but this strategy also requires heavy investment in brand building.
However, it is very difficult to extend a brand into an upscale market because people usually lack confidence in a
brand that caters to the lower end of the market and suddenly provides a product for the upper segment of the
market. For example, Nirma detergent is usually perceived as a product that caters to the lower end of the market.
When it came out with a detergent of high quality and targeted the upper end of the market, it failed miserably
because people still perceived it to be a product for the lower segment.
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