CHAPTER FIVE

MARKETING AND NEW VENTURE DEVELOPMENT

Introduction

To carry out marketing analysis, planning, implementation and control, managers need information. Like
Qantas, they need information about market demand, customers, competitors, dealers and other forces in the
marketplace. One marketing executive put it this way: 'To manage a business well is to manage its future; and to
manage the future is to manage information. Increasingly, marketers are viewing information as not just an
input for making better decisions, but also a marketing asset that gives competitive advantage of strategic
importance.

Marketing information system

5.1 Marketing Research

Marketing research is the function linking the consumer, customer and public to the marketer through
information - information used: to identify and define marketing opportunities and problems; to generate, refine
and evaluate marketing actions; to monitor marketing performance; and to improve understanding of the
marketing process. Marketing researchers specify the information needed to address marketing issues, design
the method for collecting information, manage and implement the data collection process, analyze the results
and communicate the findings and their implications.
It is the systematic, objective, and formal process of identification, collection, analysis, interpretation and
dissemination of actionable information for the purpose of improving decision making related to the
identification and solution of problems and opportunities in marketing.

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 Marketing researchers engage in a wide variety of activities, ranging from analyses of market potential and
market shares to studies of customer satisfaction and purchase intentions
5.1.1 The Marketing Research Process
The marketing research process (see Figure 8.2) consists of four steps: defining the problem and research
objectives; developing the research plan; implementing the research plan; and interpreting and reporting the
findings,
.

1. Defining the Problem and Research Objectives

The marketing manager and the researcher must work closely together to define the problem carefully and must
agree on the research objectives. The manager understands the decision for which information is needed; the
researcher understands marketing research and how to obtain the information. Defining the problem and
research objectives is often the hardest step in the research process. The manager may know that something is
wrong, without knowing the specific causes.
After the problem has been defined carefully, the manager and researcher must set the research
objectives. A marketing research project might have one of three types of objective. The objective of
exploratory research is to gather preliminary information that will help define the problem and suggest
hypotheses. The objective of descriptive research is to describe things such as the market potential for a product
or the demographics and attitudes of consumers who buy the product. The objective of causal research is to test
hypotheses about cause-and effect relationships.

2. Developing the Research Plan

The second step of the marketing research process calls for determining the information needed, developing a
plan for gathering it efficiently and presenting the plan to marketing management. The plan outlines sources of
existing data and explains the specific research approaches, contact methods, sampling plans and instruments
that researchers will use to gather new data.

3. Implementing the Research Plan

The researcher next puts the marketing research plan into action. This involves collecting, processing and
analyzing the information. Researchers must process and analyze the collected data to isolate important
information and findings. They need to check data from questionnaires for accuracy and completeness, and
code it for computer analysis. The researchers then tabulate the results and compute averages and other
statistical measures.

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4. Interpreting and Reporting the Findings
The researcher must now interpret the findings, draw conclusions and report them to management. The
researcher should not try to overwhelm managers with numbers and fancy statistical techniques. Rather, the
researcher should present important findings that are useful in the important decisions faced by management.
However, interpretation should not be by the researchers alone. In many cases, findings can be interpreted in
different ways and discussions between researchers and managers will help point to the best interpretations.
The manager will also want to check that the research project was conducted properly and that all the necessary
analysis was completed. Or, after seeing the findings, the manager may have additional questions that can be
answered from the data. Finally, the manager is the one who must ultimately decide what action the research
suggests. The researchers may even make the data directly available to marketing managers so that they can
perform new analyses and test new relationships on their own.

5.2 Marketing Intelligence

A marketing intelligence system is a set of procedures and sources used by managers to obtain their everyday
information need about pertinent development in the marketing environment.
Information in this case can be obtained from:
1. Internal - Research and Development
- Internal records
- Employees
2. External - Customers
- Distributors
- Suppliers
- Government bodies
Marketing managers often carry on marketing intelligence by reading books, newspapers, and tradepublications;
talking to customers, suppliers, distributors, and other outsiders; and talking with other managers and personal
within the company.
In order to improve the quality and quantity of marketing intelligence:
1. Motivating and train sales forces- to gather information from the market.
2. Providing incentives to marketing intermediaries
3. Buying information from outside suppliers
4. Develop (establish) internal marketing information center.

5.3 Competitive Analysis

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A competitive analysis is essentially a structured method of examining an organization or industry in order to
provide a clear understanding of factors that affect a business.
It is made based on Porter’s five forces of competition:
 Bargaining power of suppliers
 Bargaining power of buyers
 Bargaining power of existing firms
 Availability of substitute products
 Barriers to entry
These five forces determine industry profitability and in turn are a function of industry structure- the underlying
economic and technical characteristics of the industry.
 These can change over time but the analysis does emphasis the need to select industries carefully in the
first place.
 It also provides a framework for predicting, a predicting the success or otherwise of the small firm.
For example, a small firm competing with many other small firms to sell a relatively undifferentiated
product to a few large customers in an industry with few barriers to entry is unlikely to do well without
some radical shifts in its marketing strategies. How many firms face just such a situation

Potential
Entrants
Threat of
New entrants

Industry
Competitors

Bargaining Powerof suppliers

Suppliers
of Suppliers Rivalry
Barganing among
powerbuyer Buyer
Existing Firms

Threat of
Substitute Products or Services
Substitutes

Figure 5.1 Porter’s five competitive forces

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Bargaining Power of Suppliers
Supplier power is likely to be high when there are only few suppliers giving an entrepreneur few options to
shop for inventory.
 Whenever suppliers are few in number
 When products are not substitutable each other
Bargaining Power of Buyers
To what extent buyers impose a considerable influence on producers(suppliers)
Under the following conditions buyers influence producers:
 Whenever buyers are few in number and purchase in large volume relative to the total industry sales.
 Whenever products are not differentiated and can be easily substituted
 When switching cost of buyers is low
 When buyers have the ability to integrate backward and start to produce its input internally.

Rivalry among Existing Firms

It is concerned with competition among existing firms. This depends on:
 Size of firms -When firms have relatively similar size (either small or large), each of them can make
similar type of decision.
 Perishability of products- If organizations are engaged in selling perishable products, they sell their
products at the existing price.
 Low switching cost of buyers- tends to increase competition among existing firms..
 The numbers of firms in the industry –When there are many firms (when firms are many in number),
competition will increase.
Availability of Substitute products
When there are products which either serve similar purpose or satisfy similar needs and wants of customers.
Barriers to Entry
It includes forces that protect position of a firm from other or new competitors (entrants).
 Capital requirement-amount of capital required to operate in the market. If the type of business requires a
large initial capital investment, fewer entrepreneurs are likely to enter the industry. For example,
manufacturing computer requires millions of dollars in technology, facilities, and skilled people.
 Economies of scale- closely related to the capital requirement is the nature of a business that requires a
large sales volume to offer a product or service at a competitive price.
 Reputation and good will of existing firms- when existing firms have good reputation- entry is difficult.
 Switching cost of buyers –When buyers assume low switching cost-entry will be easy.

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 -when switching costs are high, entry is difficult.
 Differentiation –The extent to which an enterprise can establish a brand image, service, product innovation,
or reputation describes its differentiation or distinctive competency.
 Customer’s loyalty- If an existing firm builds hard core loyal customers, it will be difficult for new entrants.
If customers are switchers (customers who purchase what is available), entry will be easy.
 Regulatory forces-The extent to which the government protects the industry. Example, ETV
 Access to distribution channels, necessary input and technological knowhow.

5.4 Marketing Strategy

Using this focus, organizations can achieve their objectives in two ways. They can better manage what they are
presently doing and/or find new things to do. In choosing either or both of these paths, the organization must
then decide whether to concentrate on present customers or to seek new ones, or both. Accordingly the
following four marketing strategies are identified; market penetration, market development, product
development and diversification. A two dimensional model known as Ansoff’s product/market matrix is
developed to analyze alternative strategies available to an organization for achieving its objectives.
Ansoff’s product/market matrix (Organizational Growth strategies)
Product

Current New
Current
Market penetration Product development
Market strategy strategy
New Market Development Diversification
strategy

Market penetration strategies

These strategies pursued for present market and product. These strategies focus on improving the position of the
organizations present products with its present customers and are effective when the market is growing or
become saturated for existing products. There are three major approaches to increase current product’s market
share in the current market.
i. Encourage existing customer to buy more of the product.
ii. Attract competitor’s customers through attractive promotion
iii. Convince non-users of the product to use the product.

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In order to carry out this strategy and implement these three approaches certain tactics can be used: price
reduction, advertising that stresses the different benefits of the product, packaging the product in different sized
packages or making the product available in different locations.
Market Development Strategy
This strategy is the strategy of seeking new market for the existing product. The strategy is that:
i. Enter in to a new geographical market
ii. Identify a new marketing segment for current product
iii. Use additional new distribution channels.
For example:
 A government social service agency may seek individuals and families who have never utilized the
agency’s services.
 A manufacturer of automobiles may decide to sell automobiles in a new region which it has not entered
before.
 An athletic clothing and footwear company may decide to develop a line of fitness clothing for children

Product Development Strategy

This strategy may enforce management to consider some new product development possibilities such as:
design and develop a new product, modify the quality of existing product, and modify the features of existing
product. For example:
 A candy manufacturer may decide to produce biscuits and offer to its customers.
 A social service agency may offer additional services to present clients.
 A hotel adds a new item in its menu.
Diversification
This strategy makes the business to be less dependent on one or few products in the market place. This strategy
can also be pursued whenever there is a good opportunity outside the current business market and product.
Diversification can be:
Types of diversification
Diversification is of four types:
1. Concentric diversification
2. Conglomerate diversification
1. Concentric diversification: when a firm enters into some businesses, which is related with its present
business in terms of technology, marketing or both, it is called concentric diversification. It is employed for
one of the following purposes
 To counteract cyclical fluctuations in the present products or services

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  To utilize the cash flows generated by the existing products or services
 To face saturation of demand for present product or service
 To gain managerial expertise in new fields of business or services
 To capitalize on the reputation of present product or service
2. Conglomerate diversification: in this growth strategy, a firm enters into business, which is unrelated to its
existing business both in terms of technology and marketing. It may be adopted for the following reasons:
a) to achieve a growth rate higher than what can be realized through expansion
b) to make better use of financial resource with retained profits exceeding immediate investment needs
c) to avail of potential opportunities for profitable investment
d) to achieve distinctive competitive and greater stability
e) to spread the risk and
f) to improve the price earnings ratio and market price of the company’s shares

Integration:
1. Horizontal integration: in this type of diversification, a company adds up same type of products at the same
level of production or marketing process. This may happen internally or externally. Internally a company may
decide to enter a parallel product market condition to the existing product line. Externally, a company combines
with a competing firm. Two or more competing firms are brought together under single ownership and control.
2. Vertical integration: in this type of growth strategy new products or services are added which are
complementary to the existing product or service line. New products serve the firm’s own needs by either
supplying inputs or serve as a customer for its output. It involves moving backward or forward from the present
product or service. Linkages are established between products, processes or distribution systems.
Defensive strategy:
1. Liquidation
2. Retrenchment
3. Divestiture
5.5 International Markets
Everyone is involved in international markets every day. Almost everything we buy has some foreign element
or component. Virtually every job provides something to exports and uses some imports. International markets
provide a beginning toward understanding the policy issues of international economics.
5.6.1. Forms of Entering International market
Once a company decides to target a particular country, it has to determine the best mode of entry. Its broad
choices are indirect exporting, direct exporting, licensing, joint ventures and direct investments. Each
succeeding strategy involved more commitment, risk, control and profit potential.
A. Indirect Exporting
Companies typically starts with indirect exporting that is they work through independent intermediaries to
export their products. There are four types of intermediaries.
a) Domestic based export merchant
Buys the manufacturer’s products and then sells them abroad.
b) Domestic based export agent

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 Seeks and negotiate foreign purchases and is paid a commission. In this export type, trading companies are
Included.
c) Cooperative organization
Carries on exporting activities on behalf of several producers and is partly under their administrative control.
Often used by producers of primary product – fruits, nuts and so on.
d) Export Management Company
Agrees to manage a company’s export activities for a fee.
Indirect export has two advantages: -
1) It involves less investment and
2) It involves less risk
B. Direct Export
Companies eventually may decide to handle their own exports. The investment and risk are somewhat greater.
The company can carry on direct exporting in several ways;
a) Domestic based export department or division
An export sales manager carries on the actual selling and draws market assistance as needed. The department
might evolve into a self – contained export department performing all the activities involved in export and
operating as a profit center.
b) Overseas sales branch or subsidiary
An overseas sales branch allows the manufacturer to achieve greater presence and programs control in the
foreign market. The sales branch handles sales and distribution and might handle warehousing and promotion as
well. It often servers as a display center and customer – service center also.
c) Traveling export sales representation
The company sends home – based sales representatives abroad to find business.
d) Foreign – based distributors or agents
The company can hire foreign based distributors or agents to sell the company’s goods. These distributors and
agents might be given exclusive rights to represent the manufacturer in that country or only limited rights.
Whether companies decide to enter foreign markets through direct or indirect exporting, one of the best ways to
initiate or extend export activities is by exhibiting at an overseas trade show.
C. Licensing
Licensing is a simple way for a manufacturer to become involved in international marketing. The licensor gives
license a foreign company to use a manufacturing process, trademark, patent, or other item of value for a fee or
royalty. The licensor thus gains entry into the foreign market at a little risk. The licensee gains production
expertise or a well-known product or name without having to start from scratch.
There are several forms of licensing arrangements:
a) Management contract
The company can sell a management contract to the owners of a foreign hotel, airport, hospital or other
organization to manage these businesses for a fee.
Management contracting is a low risk method of getting into a foreign market, and it yields income from a
beginning. Management contracting prevents the company from competing with its clients.
b) Contract manufacturing
The firm engages local manufacturers to produce the product. Contract manufacturing has the drawback of
giving the company less control over the manufacturing process and the loss of potential profits on
manufacturing. However, it offers the company a chance to start faster, with less risk and with the opportunity
to form a partnership or to buy out of the local manufacturer later.
c) Franchising
A company can enter a foreign market through franchising, which is a more complete form of licensing. Here
the franchiser offers a franchisee a complete brand concept and operating system. In return, the franchisee
invests in and pays certain fees to the franchiser.

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 d. Joint Venture
Foreign investors may join with local investors to create a joint venture in which they share ownership and
control.
Forming a joint venture might be necessary or desirable for economic or political reasons. The foreign firm
might lack the financial, physical or managerial resources to undertake the venture alone. Or the foreign
government might require joint ownership as a condition for entry.
Joint ownership has certain drawbacks. The partners might disagree over investment, marketing or other
policies i.e. one partner might want to reinvest earnings for growth, and the other partner might want to
withdraw these earnings.
D. Foreign Direct Investment
The ultimate form of foreign involvement is direct ownership of foreign-based assembly or manufacturing
facilities. The foreign company can buy part or full interest in a local company or build its own facilities.
As a company gains experience in export, and if the foreign market appears large enough, foreign production
facilities offer distinct advantages, as enumerated below.
1. The firm could secure cost economies in the form of cheaper labor or raw materials, foreign government
incentives, freight savings and so on.
2. The firm will gain a better image in the host country because it creates jobs.
3. The firm develops a deeper relationship with government, customers, local suppliers, and distributors, enabling
it to adapt its products better to the local marketing environment. Etc.
4. The main disadvantages of direct investment are that a firm exposes its large investment to risks such as
blocked or devalued currencies, worsening markets, or expropriation. The firm will find it expensive to reduce
or close down its operations, since the best country might require substantial severance pay to the employees.
5.6.2. Benefits of International Marketing
The nation will be benefited through International Marketing, as discussed in the summarized from below:
 To meet imports of industrial needs
The developing countries need imports of capital equipments, raw materials of critical nature, technical
knowhow for building the industrial base in the country with a view to rapid industrialization and developing
the necessary infrastructure.
 Debt servicing
Almost all underdeveloped countries have been receiving external aid over the years for their industrial
development. Hence it is necessary to aim at sufficient export earnings to cover both imports and debt servicing.
 Rapid economic growth
An expanding export trade can be a dynamic factor in a country’s development process. The country should
have to utilize domestic resources and to provide technological improvement and improved production at lower
costs.
The benefits include: -
i) The foreign exchange earnings can be used for the import of agricultural implements and fertilizers to raise the
production of agricultural produce and that can provide a base for many agriculture-based industries.
ii) Mitigate unemployment in labor – intensive industries
iii) Full utilization of idle resources
iv) Spin of benefits for the domestic consumer by exposing the industry to international markets and making it
more competitive as well as conscious of costs and quality.
Profitable use of natural resources
Earning from exports can be utilized in establishing industrial unit based on different natural resources available
in the country by making the necessary imports of plant and machinery for the purpose.
Facing competition successfully
Better quality and lower prices improve the image of the producer as well as of the country in minds of foreign
customers.

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 Increase in employment opportunities
In an effort to increase the export, many export oriented industrial units are established. In underdeveloped
countries, the problem of the employment and underemployment is very serious that can be solved to some
extent by increasing the level of export.
Role of exports in national income
Exports play an important role in the national income of the country and it can be increased to a sizeable extent
through organized export marketing.
Increase in the standard of living
Export marketing improves the standard of living of the countrymen in the following ways: -
ii) The imports of necessary item for consumption can be made which may help improve standard of living.
iii) Exports increase the employment opportunities, which in turn, increase the purchasing power of the people.
iv) Exports are responsible for the rapid industrialization of the country. New items are produced for consumption
in domestic market, which increases the level of standard of living.
v) In order to face the competition in the international market, the producer improves the quality of the product by
applying the latest technology. In this way, people get better quality products at cheaper rates. It helps improve
the standard of living of the people.
International collaboration
Export marketing results in international collaboration. Developed country fixes their import quotas for
different countries and for different commodities.
 Closer cultural relations
International trade brings various countries closer. Better trade relations are established among the countries.
 Help in political peace
The economic relations between two countries help improve their political relations.
5.6.3. Barriers to International Marketing
The major legal, political and economical forces affecting international marketers are barriers created by
governments to restrict trade and protect domestic industries. Examples include the following: -
 Tariff: - a tax imposed on a product entering a country. Tariffs are used to protect domestic producers and / or
to raise revenue. E.g. Japan has a high tariff on imported rice.
 Import quota:
quota: - a limit on the amount of a particular product that can be brought into a country. Like tariffs,
quotas are intended to protect local industry.

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