Monthly Archives: March, 2013

Changing Patterns of Rural Demand – Reasons

The position in the rural market was totally different twenty years ago. At present there is a demand for products like TV, fans, oil engines, readymade garments, medicine, etc. New products like toiletries, baby care products and consumer durables are now getting good demand. Demand pattern of rural markets are changing due to the following reasons:

1. New Employment Opportunities

Earlier the only occupation of people in rural areas was agriculture. Now due to development in rural areas the and also due to agricultural advancement new and exciting careers are emerging. Self-Employment policy with assistance from bank has become great success in rural areas.

2. Green Revolution

Technological breakthrough since 1965 in Indian agriculture has led to many revolutions like Operation Flood, White Revolution, Blue Revolution, etc… Today, rural India generates 210 million tons of food grains per year. It produces 15 million eggs, 90 million broilers, 50 million tons of milk per annum. Due to 2000 EXIM policy, export of Indian farmers has increased considerably.

3. Better credit facilities through banks

All types of loans – short, medium & long-term loans – has helped rural masses in better investment. Co-operative and public sector banks are extending loans to the rural people and creating job opportunities for them.

4. Green Card / Credit Card for farmers

Helps / encourages farmers to buy consumer goods on easily payable credits / installment basis.

5. Improved exports due to Export Policy

Open market, WTO, GATT, has all resulted in better openings / markets, increased income, increased purchasing power.

6. Remittances from Indians working abroad

A sizeable contribution to growing rural income & purchasing power.

7. Expectation Revolution among Rural Masses

Expectation Revolution brought about a powerful change in the environmental dynamics.

Rural Market Patterns

8. Political & Social changes through favorable Government policies

New farm policy, high support price, tax exemption in backward areas, subsidy, etc. Liberalization facilitated contract farming thus the farmer has ready market for their produce

9. Marketing Efforts

Firms like HLL, Bajaj Auto, Godrej soaps, BFL, Brooke Bond, etc. have started penetrating rural market.

10. Media

Role of newspapers, radio, T.V., etc. has given rise to new demand for goods and services. Cable TV has played important role in bringing change in lifestyle and consumption habits of rural people.

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Characteristics of Rural Consumer

Rural Notes 01

4. Reference Group

Typically, in a rural area the reference groups are primary health workers, doctors, teachers and panchayat members, the village trader or the grocer, commonly called ‘Baniya’ or ‘Mahajan’ are an important influencer in the decision making of rural customer. A marketer needs to be aware of these influences that can effect changes in the rural customer’s consumption patterns.

5. Occupation

Consumption patterns differ according to income levels. Typically, in a rural area the principal occupation is farming, trading, crafts, plumbing, electric works, primary health workers and teachers.

Agriculture and related activities continue to be the main occupation for majority of the rural population. Land is the major source of income for about 77% of the population.

6. Media Habits

Rural people are fond of music and folklore. In rural areas a popular form of entertainment is the ‘Tamasha’ and ‘Nautanki’. And then there are television, radio and video films.

7. Rural Electrification

The main objective is to provide electricity for agricultural operations and for small industries in rural areas. About 5 lakh villages (77%) have electric supply and this has increased the demand for electric supply and this has increased the demand for electric motors, pumps and agricultural machinery.

8. Other Variables

Culture, language, religion, caste and social customs are some other important variables for profiling a rural customer. Rural consumers have a lot of inhibitions and tend to be rigid in their behavior. A company has to take intense care while targeting them.

Rural Consumer Class

Rural Notes 02

Rural Marketing Process

Rural marketing involves the process of developing, pricing, promoting  and distributing rural specific products and services leading to exchange between rural and urban market which satisfies consumer demands and also achieves organizational objectives

It is a two way marketing process wherein the transactions can be:

1. Urban to Rural

A major part of rural marketing falls into this category. It involves selling of products and services in urban market in rural areas. These include, Pesticides, FMCG products, consumer durables, etc…

2. Rural to Urban

Transactions in this category basically fall under agricultural marketing where a rural producer seeks to sell his products in urban market. An agent or a middle man plays a crucial role in the marketing process. The following are some of the important items sold from the rural to urban areas: seeds, fruits, vegetables, milk and related products, forest produces and spices, etc…

3. Rural to Rural

This includes the activities that take place between two villages in close proximity to each other. The transactions relate to the areas of expertise the particular village has. These include selling tools, cattle, carts to other villages in its proximity.

Rural marketing requires the understanding of the complexities, Indian agricultural industry has been growing at a tremendous pace in the last few decades. The rural areas are consuming a large number of industrial ad manufactures products. The rural agricultural production and consumption plays a predominant role in developing the Indian economy.

The concept of rural marketing has to be distinguished from Agricultural marketing. Marketing is the process of identifying and satisfying a customer need by providing them with adequate after sales service. Rural marketing is different from agricultural marketing, which signifies marketing of rural products to the urban consumer or institutional markets. Rural marketing basically deals with delivering manufactured or processed inputs or services to rural producers, the demand for which is basically a derived outcome.

The Idea Sensitive Point

By Edward De Bono (sourced from http://www.thinkingmanagers.com)

In some of my writings I have mentioned the ‘isa’ or ‘idea sensitive area’. Because the term ‘isa’ has since come to indicate a type of investment instrument, it may be sensible strategy to change the term to ‘ISP’ or ‘idea sensitive point’.

Everyone knows what a bottleneck is. A bottleneck is a constriction or restriction on flow. The bottleneck controls and limits the flow through the channel. The bottleneck determines the rate of flow. Much effort is made to identify bottlenecks. Once identified, the bottleneck can be opened up and widened. Or the bottleneck can be by-passed.

In general, efforts are made to remove the restricting effects of the bottleneck. In some ways an ‘idea sensitive point’ is the opposite of the bottleneck. It is not a restricting or limiting area. There may be no reason at all why you should notice the area.

An ISP is a point or an area where a change in idea can produce substantial results. These results can take the form of increased sales, increased profits, reduced costs, etc. Take the label on a bottle of table water (mineral water, etc.) This is not an area which demands attention. There are no problems. The label serves its purpose. Nevertheless, the label could be an ISP. When a bottle is placed on a table everyone can read the label.

When you buy a bottle the label is very visible. What could you do with that visibility?

Why not use the label, or adjacent areas, for advertising? Why not advertise cars or digital cameras? An even better idea would be to advertise holidays to exotic places. If chosen well, such advertisements might even enhance the ‘feeling’ around the water. If bargain discounts were offered for such holidays, that bottled water would be sought out.

So the label is an ISP. There may be many different ideas which flow from considering this ISP.

WHICH COMES FIRST?

Does the ISP come first and then we look around for ideas? Or, does the idea come first and then we realise it is an ISP?

Research shows that screw-caps on wine bottles are much better for the wine than the traditional cork. Corks are unreliable and a significant amount of wine is wasted through bad corks. The difficulty is that screw-caps would suggest a cheap wine. The tradition and ritual of pulling a cork would be lost. For this reason plastic corks have been developed which are more reliable than ordinary corks but still retain the ‘cork’ effect and action. So this could be an ISP – even though it is also a problem.

One idea would be for expensive wines to have silver enamelled screw caps. These obviously expensive caps would be works of art. For example, each cap could be a chess piece – so you would collect a chess set. Or anew game could be designed to use the special caps.

There are many other ideas which could develop around this particular ISP. In this example the ISP arises from a perceived problem. In the case of the label on the water bottle it did not.

Restaurants have menus. Diners pay a bill. There is an ISP here. Maybe restaurants could carry half a dozen of the current best-selling books. You choose one from the menu and it is simply added to your bill. You hardly notice the purchase. You can also purchase a book as a gift to your guests. You have bought your guest a steak, which has been consumed, why not a book, which lasts longer?

WHOSE BUSINESS IS IT?

Whose duty is it to look for ISPs? As usual, the answer is everyone’s and no one’s. That is always the case with creativity. Obviously, everyone is supposed to be creative. The result is that no one makes any effort to be creative. Creativity is seen as a sort of by-product while you are doing something else. Too often it is assumed that new ideas are the business of the R&D department. This is a bad mistake. The mind-set of science and research is the mind-set of analysis and discovery. That is the exact opposite of the mind-set of creativity and design.

There is a huge difference between trying to find out ‘what is’ and seeking to design ‘what can be’. I have often suggested that organisations need a specific ‘Concept Department’ that is separate from R&D and Marketing. It would be the business of this department to seek out ISPs and to put them on the ‘Creative Hit List’.

It could be argued that any point could be a potential ISP. Here we need to distinguish between ‘improvement’ as such and an ISP. There is always room for improvement at any point in a process. The improvement may be small or large. The point about an ISP is the word ‘sensitive’. The word ‘sensitive’ means that you get a big effect from a small idea. A person who is sensitive to oysters gets a big reaction from a very small amount of oyster.

The mind-set of seeking out ISPs has to be developed. There are no formal rules which will identify an ISP. Your mind has to be open to possibilities and even start to generate an idea before you recognise an ISP.

To produce extra revenue or profits an organisation may have to invest heavily in production capacity or marketing effort. With an ISP a small idea can produce a big result. The investment is disproportionately small. An ISP is an unused asset. It can never make sense for an organisation to under-use its assets. The difficulty with an ISP is that it is an invisible asset until someone notices it. It is like buried treasure. No one knows it is there, so no one makes an effort to find it.

NEW PRODUCTS AND SERVICES

Every organisation knows about the need to develop new products and services. A considerable effort is made to do this, even if the effort consists in following someone else with a ‘me too’ product. Developing anew product or service is not the same as identifying ISPs and then generating ideas around them. Sometimes the ISP frame of mind can be applied to discerning new values. There are the obvious values, but there are also values which are hidden unless you look directly at them. These are a form of ISP. Once the value has been identified then a new product or service can be designed to deliver that value.

NOTICING

Noticing is a difficult operation. You no longer notice something with which you are very familiar. You notice things that are wrong but not things that are right. You take for granted what is always around you.

Sometimes there needs to be an external perspective to notice something that cannot be noticed from within the system. It is certainly possible to notice ISPs from within an organisation. It can also be useful to notice them from outside the organisation.

SUMMARY

There are points where a new idea can make a big difference. These points are ‘sensitive’ to new thought. There is a need to identify such points and then to proceed to generate ideas around those points. There needs to be a formal effort to do this. Assuming that it will be done is not good enough. ISPs are unused assets. To leave them unused does not make good business sense.

Benefits or Importance of Advertisement

Advertising is the most important tool in the marketing of products and services. Companies all over the world universally accepted this fact. The expenses on advertising are considered to be a profitable investment that reaps profits both in the long and short run. Businesses that keep on advertising regardless of rise or fall in the economic times get a competitive advantage over those that cut their ad budgets.

Advertising broadens the knowledge of the consumers. With the aid of advertising, consumers find and buy necessary products without much waste of time. This speeds up the sales of commodities, increases the efficiency of labor in distribution, and diminishes the costs of selling.

The main benefits of advertising may be narrated as follows:

Benefits to Manufacturers

  • It increases sales volume by creating attraction towards the product.
  • It helps easy introduction of new products into the markets by the same manufacturer.
  • It helps to create an image and reputation not only of the products but also of the producer or advertiser. In this way, it creates goodwill for the manufacturer.
  • Retail price, maintenance is also possible by advertising where price appeal is the promotional strategy.
  • It helps to establish a direct contact between manufacturers and consumers.
  • It leads to smoothen the demand of the product. It saves the product from seasonal fluctuations by discovering new and new usage of the product.
  • It creates a highly responsive market and thereby quickens the turnover that results in lower inventory.
  • Selling cost per unit is reduced because of increased sale volume. Consequently, product overheads are also reduced due to mass production and sale.
  • Advertising gives the employees a feeling of pride in their jobs and to be in the service of such a concern of repute. It, thus inspires the executives and worker to improve their efficiency.
  • Advertising is necessary to meet the competition in the market and to survive.

Benefits to Wholesalers and Retailers

  • Easy sale of the products is possible since consumers are aware of the product and its quality.
  • It increases the rate of the turn-over of the stock because demand is already created by advertisement.
  • It supplements the selling activities.
  • The reputation created is shared by the wholesalers and retailers alike because they need not spend anything for the advertising of already a well advertised product.
  • It ensures more economical selling because selling overheads are reduced.
  • It enables them to have product information.

Benefits to Consumers

  • Advertising provides awareness of the existence of the product to the customer
  • Advertising stresses quality and very often prices. This forms an indirect guarantee to the consumers of the quality and price. Further large scale production assumed by advertising enables the seller to seller product at a lower cost.
  • Advertising helps in eliminating the middlemen by establishing direct contacts between producers and consumers. It results in cheaper goods.
  • It helps them to know where and when the products are available. This reduces their shopping time.
  • It provides an opportunity to the customers to compare the merits and demerits of various substitute products.
  • This is perhaps the only medium through which consumers could know the varied and new uses of the product.
  • Modern advertisements are highly informative.

Benefits to Salesmen

Salesmanship is incomplete without advertising. Advertising serves as the forerunner of a salesman in the distribution of goods. Sales is benefited the advertisement in following ways:

  • Introducing the product becomes quite easy and convenient because manufacturer has already advertised the goods informing the consumers about the product and its quality.
  • Advertising prepares necessary ground for a salesman to begin his work effectively. Hence sales efforts are reduced.
  • The contact established with the customer by a salesman is made permanent through effective advertising because a customer is assumed of the quality and price of the product.
  • The salesman can weigh the effectiveness of advertising when he makes direct contact with the consumers.

Benefits to Community or Society

  • Advertising, in general, is educative in nature. In the words of the late President Roosevelt of the U.S.A., “Advertising brings to the greatest number of people actual knowledge concerning useful things: it is essentially a form of education and the progress of civilization depends on education.”
  • Advertising leads to a large-scale production creating more employment opportunities to the public in various jobs directly or indirectly.
  • It initiates a process of creating more wants and their satisfaction higher standard of living. For example, advertising has made more popular and universal the uses of such inventions as the automobiles, radios, and various household appliances.
  • Newspapers would not have become so popular and so cheap if there had been no advertisements. The cheap production of newspapers is possible only through the publication of advertisements in them. It sustains the press.
  • It assures employment opportunities for the professional men and artist.
  • Advertising does provide a glimpse of a country’s way of life. It is, in fact, a running commentary on the way of living and the behavior of the people and is also an indicator of some of the future in this regard.

Functions of Advertising

Following are the basic functions of advertising:

1. Preparing Ground for New Product

New product needs introduction because potential customers have never used such product earlier and the advertisement prepare a ground for that new product.

 

2. To distinguish product from competitors’ products

There are so many products of same category in the market and they compete with each other, advertising performs the function of distinguishing advertiser’s product from competitors.

3. Creation of Demand

The main objective of the advertisement is to create a favorable climate for maintaining of improving sales. Customers are to be reminded about the product and the brand. It may induce new customers to buy the product by informing them its qualities since it is possible that some of the customers may change their brands.

4. To communicate product information

Product related information required to be communicated to the targeted customers, and advertisement performs this function. Whenever changes are made in the prices, channels of distribution or in the product by way of any improvement in quality, size, weight, brand, packing, etc., they must be informed to the public by the producer through advertisement.

5. To expand product distribution

When the market demand of a particular product increases, the number of retailer and distributor involved in sale of that product also increases, hence product distribution get expanded.

6. To increase brand preference

There are various products of different bands are available, the brand which is effectively and frequently advertised is preferred most.

7. To reduce overall sale cost

Advertising increases the primary demand in the market. When demand is there and the product is available, automatically the overall cost will decrease, simultaneously the cost of sales like distribution cost, promotional cost also gets decreased.

8. Barring New Entrants

From the advertiser’s point of view, a strongly built image through long advertising helps to keep new entrants away. The advertisement builds up a certain monopoly are for the product in which new entrants find it difficult to enter.

Advertising: An Introduction

The word advertising comes from the Latin word “advertere meaning” to turn the minds of towards”. Advertising is an activity of attracting public attention to a product, service, or business as by paid announcements in the print, broadcast, or electronic media.

The American Marketing Association has defined Advertising as “any paid form of non-personal presentations and promotion of goods, services or ideas by an identified sponsor”.

This definition requires some elaboration.

Firstly, advertising is paid for, and hence it is a commercial transaction. This is exactly the element with which the term publicity is distinguished from advertising. The publicity is defined as any form of commercially significant news about a product, an institution, a service, or a person published in space or radio that is not paid for by the sponsor. In short, Advertising is a paid form of publicity. Publicity is not a commercial future.

Secondly, Advertising is non-personal. Whatever be the form of advertisements (visual, spoken or written) they are directed at a mass audience, and not directed at the individual as in the case in personal selling.

Finally, advertisements are identifiable with their sponsor or originator, which is not always the case with publicity or propaganda.

Advertisement is a salesmanship in print.

It may be defined as “selling in print or presenting a commodity in print to the people in such a way that they may be induced to buy it”. In simple words, it is a technique of popularizing a product or a service. The basic task of advertising is to communicate information efficiently to groups of individuals that could number in the hundreds or millions.

Advertising is used for communicating business information to the present and prospective customers. It usually provides information about the advertising firm, its product qualities, place of availability of its products, etc. Advertisement is indispensable for both the sellers and the buyers. However, it is more important for the sellers. In the modern age of large scale production, producers cannot think of pushing sale of their products without advertising them. Advertisement supplements personal selling to a great extent. Advertising has acquired great importance in the modern world where tough competition in the market and fast changes in technology, we find fashion and taste in the customers.

Benchmarking

Benchmarking has a long history going back to early days of evolution, since then it has evolved a lot and has been an integral part of our daily lives.

Benchmarking is the process of identifying “best practice” in relation to both products (including) and the processes by which those products are created and delivered. The search for “best practice” can take place both inside a particular industry, and also in other industries (for example – are there lessons to be learned from other industries?).

Benchmarking is an activity that tells you your position or status by comparing yourself to others. The reason for comparison is to understand where you are today and what might be the some areas that you need to improve

Think about it in basic terms – you measure a piece of wood along your bench. You keep one end of the wood level/flush with the end of the bench and cut a notch in the bench itself with your chisel at the other end. Then you place other pieces of wood in the same location – the shorter ones you reject and the longer ones you cut down. A benchmark is a measurement tool.

In today’s global business environment it is essential that we compare ourselves to others, to

–      Understand are we making more money than competitors

–      How does my business compare with the rest in the same industry

–      Are there others out there that have similar problem

–      If yes, have they solved them and how

–      Where do I stand in comparison to them

Types of Benchmarking

benchmarking

How does benchmarking work?

There are some steps which you should take in order to have a successful benchmarking

  1. Define what you want to benchmark i.e. reputation, brand, and staff motivation
  2. Define appropriate comparators or Key Performance Indicators (KPIs) like sales, margins, productivity, costs, etc…
  3. Ensure comparisons are comparable; we should not be comparing apples to oranges. This can be done by defining segments within the organization
  4. Gather data in an independent manner and make sure it is consistent by collecting data and mapping into standard charts
  5. Produce customized and meaningful reports which not only are simple to understand but also show your performance over a period of time

Benefits of benchmarking (Gift 1996)

  1. It is an effective approach for achieving operational change. Benchmarks are the catalyst that moves an organization to higher levels of performance.
  2. Since customer requirements are so rigorously defined, benchmarking improves customer orientation.
  3. It focuses upon the processes that improve results – not simply results.
  4. Performance measures are often improved as a result of benchmarking.
  5. Decision making improves because the organization has enhanced customer knowledge, process focus, and performance measures.
  6. Benchmarking improves innovation and creativity since self-imposed barriers to success are removed.
  7. One can gain better understanding of all aspects of business like sales, margins

Pitfalls with benchmarking.

  1. Benchmarking needs to be supported and driven by senior leaders.
  2. Prerequisites (such as organizational structure, processes) need to be in place.
  3. Conducting benchmarking for the wrong reasons can be problematic e.g. to produce data – ignoring processes and insights gained into practices that produce benchmarks.
  4. Selecting the wrong benchmarks.
  5. Selecting the wrong benchmark partner.
  6. Not gaining management support for plans resulting from benchmarks.

Marketing benchmarking

When applying benchmarking techniques to an organization’s marketing activities you are essentially comparing one or a number of your company’s marketing activities to those of another part of the business, a competitor or a business that operates in another industry. Vorhies and Morgan (2005) used the following marketing benchmarks in their research:

  • Pricing
  • Product Development
  • Channel Management
  • Marketing Communications
  • Selling
  • Market Information Systems
  • Marketing Planning
  • Marketing Implementation

Essentially they focus upon the marketing mix, marketing information, planning and operations. Each of these could be sub-divided and new factors introduced e.g. Customer Relationship Management (CRM) – to suit your own organization’s marketing strategy.

Comparisons are great, however there is a catch, only things that are comparable can be compared. When these comparisons are done it is called benchmarking

Consumer buying behavior-process

The consumer buying process is a complex matter as many internal and external factors have an impact on the buying decisions of consumers. Consumers do not spend much time thinking about the purchase of low value products which are bought on impulse. Manufacturers of such products will need to implement strategies that encourage consumers to buy on impulse from them instead of their competitors. When consumers purchase high value products or non-impulse products, they often go through a set process. Research suggests that customers go through a five-stage decision-making process in any purchase. This is summarized in the diagram below:

Buying Behaviour01

This model is important for anyone making marketing decisions. It forces the marketer to consider the whole buying process rather than just the purchase decision (when it may be too late for a business to influence the choice!)

The model implies that customers pass through all stages in every purchase. However, in more routine purchases, customers often skip or reverse some of the stages.

For example, a student buying a favorite hamburger would recognize the need (hunger) and go right to the purchase decision, skipping information search and evaluation. However, the model is very useful when it comes to understanding any purchase that requires some thought and deliberation.

1. Need Recognition and Problem Awareness

The buying process starts with need recognition. Without recognition of a need, consumers have no reason to consider a purchase decision. At the first stage in consumer buying behavior, a person begins to recognize a problem or desire. At this stage, the buyer recognizes a problem or need (e.g. I am hungry, we need a new sofa, I have a headache) or responds to a marketing stimulus (e.g. you pass Starbucks and are attracted by the aroma of coffee and chocolate muffins).

Successful marketing often begins with need stimulation, whereby marketers attempt to create or help consumers recognize a need rather than waiting around for consumers to figure out they have one.

2. Information Search

An “aroused” customer then needs to decide how much information (if any) is required. If the need is strong and there is a product or service that meets the need close to hand, then a purchase decision is likely to be made there and then. If not, then the process of information search begins.

A customer can obtain information from several sources:

  • Personal sources: family, friends, neighbors, etc…
  • Commercial sources: advertising; salespeople; retailers; dealers; packaging; point-of-sale displays
  • Public sources: newspapers, radio, television, consumer organizations; specialist magazines
  • Experiential sources: handling, examining, using the product

The usefulness and influence of these sources of information will vary by product and by customer. Research suggests that customers value and respect personal sources more than commercial sources (the influence of “word of mouth”). The challenge for the marketing team is to identify which information sources are most influential in their target markets.

Each person uses different criteria and different importance weights for those criteria. Individual buyers can also change criteria for the same purchase in two different buying situations. Information searches include external research as well as internal research through memory recall of past purchases. Ultimately, you try to identify the best value for your money.

3. Evaluation of Alternatives

In the evaluation stage, the customer must choose between the alternative brands, products and services. Need to establish criteria for evaluation, features the buyer wants or does not want. Rank/weight alternatives or resume search. You may decide that you want to eat something spicy, Indian gets highest rank etc.

If not satisfied with your choice then, return to the search phase. Can you think of another restaurant? Look in the yellow pages etc. Information from different sources may be treated differently. Marketers try to influence by “framing” alternatives.

An important determinant of the extent of evaluation is whether the customer feels “involved” in the product. By involvement, we mean the degree of perceived relevance and personal importance that accompanies the choice.

4. Purchase

After a comprehensive review of solutions and specific products and services, the consumer makes a purchase decision. At this point in the buying process, supporting information needs to be provided to reinforce the decision to buy.

High-involvement purchases include those involving high expenditure or personal risk – for example buying a house, a car or making investments.

Low involvement purchases (e.g. buying a soft drink, choosing some breakfast cereals in the supermarket) have very simple evaluation processes.

5. Post-purchase evaluation

The final stage is the post-purchase evaluation of the decision. It is common for customers to experience concerns after making a purchase decision. This arises from a concept that is known as “cognitive dissonance”. The customer, having bought a product, may feel that an alternative would have been preferable. In these circumstances that customer will not repurchase immediately, but is likely to switch brands next time.

To manage the post-purchase stage, it is the job of the marketing team to persuade the potential customer that the product will satisfy his or her needs. Then after having made a purchase, the customer should be encouraged that he or she has made the right decision.

Profit Impact of Marketing Strategy [PIMS]

An important piece of research in the 1960’s provided the basis for understanding the importance of market share – and emphasized the implications for marketing and business strategy.

 

The Profit Impact of Market Strategy (“PIMS”) analysis was developed at General Electric in the 1960’s and is now maintained by the Strategic Planning Institute. The PIMS database provides evidence of the impact of various marketing strategies on business success.

 

PIMS summarizes information about profitability, cash flow and marketing factors. This information is used to help companies develop effective marketing strategies. Some of the components of PIMS focus on product quality, customer service levels and investments. PIMS is a performance improvement technique.

 

PIMS today is much more than the research study from which it originated. PIMS is

  • A database of business strategies, used to generate benchmarks and identify winning strategies.
  • A set of data-derived business strategy principles to guide strategic thinking and strategic measurement.
  • A methodology for diagnosing business problems and opportunities, and for measuring the profit potential of a business.

 

The most important factor to emerge from the PIMS data is the link between profitability and relative market share. PIMS found (and continues to find) a link between market share and the return a business makes on its investment. The higher the market share – the higher the return on investment. This is probably as a result of economies of scale. Economies of scale due to increasing market share are particularly evident in purchasing and the utilization of fixed assets.

 

PIMS helps marketing managers to:

  1. Select the appropriate market to target
  2. Identify the marketing strategy that will maximize profits in a business unit
  3. Compare a firm’s actual return on investment (ROI) and return on sales (ROS) with the ROI and ROS that are expected from firms in comparable businesses and circumstances

 

A PIMS analysis can show a firm:

  1. How well it has met its profitability potential
  2. The reasons for its success or failure in achieving the expected profitability.

 

PIMS can be briefly described as follows:

  1. There are general conditions that control an organization’s profitability.
  2. These conditions are independent of industry.
  3. Strategic conditions that affect profitability explain about two-thirds of a business’s results. The remaining third is explained by other factors relating to management skills.
  4. There are about 35 generally applicable parameters forming thebasis for a classification of business units.
  5. A database covers data for about 3,000 business units, which makes it possible to compare a business unit with the average in the database for every one of the 30 strategic variables.

 

PIMS is an excellent instrument for providing metrics for business units in a diversified portfolio. PIMS has also attempted to evaluate value creation in synergic portfolios, or clusters.