Marketing Management 1

Marketing Management MBA -10 1 - 24
ANNAMALAI UNIVERSITY
DIRECTORATE OF DISTANCE EDUCATION
MASTER OF BUSINESS ADMINSTRATION

SECOND YEAR
PAPER 2.2
MARKETING MANAGEMENT
LESSONS: 1 - 24
Marketing Management
LESSON 1 - 14 Written by
Dr. Rm. CHIDAMBARAM
Professor and Head Dept. of Bank management Alagappa University Karaikudi
LESSON 15 - 24 Written by
Dr. S.C. SAHOO
Professor and Head Dept. of Business Administration Utkal University Bhubaneswar
CONTENTS
Lesson No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Lesson Name Marketing : Definition and Importance Concepts of Marketing Marketing Management Tasks Marketing Environment Marketing Strategies Market segmentation, Market Targeting and Product Positioning Buyer (Consumer Behaviour) Sales Forecasting Marketing Mix Product Product Planning and Development New Product Development Product Related Strategies : Branding Product Related Strategies : Packing and Labelling Pricing Promotion Advertising Sales Management Distribution Channels Physical Distribution Marketing Distribution Consumerism Government and Marketing The Indian Marketing Environment Page No. 4 10 17 23 34 42 55 67 77 82 90 98 106 115 127 139 151 165 187 203 213 226 236 241
LESSON 1
MARKETING: DEFINITION AND IMPORTANCE

OBJECTIVES After studying this lesson you are familiar with
To know the Distinction between Market & Marketing Importance of marketing

STRUCTURE 1.1 Introduction
1.2 Definitions of Marketing 1.3 Distinction between market and marketing 1.4 Marketing, Selling and Merchandising 1.5 Importance of Marketing 1.5.1 Importance of Marketing to the Society 1.5.2 Importance of Marketing to Individual Business Firms 1.6 Summary 1.7 Revision points 1.8 Keywords 1.9 Review questions 1.10 Terminal exercise 1.11 Assignment questions
1.1 INTRODUCTION The term market in its common usage is used to refer the place where actual buying and selling take place. But, for a student of marketing, the term market does not mean any particular market place in which things are bought and sold, but the whole of any region in which buyers and sellers are in free interaction with one another that the prices of the same goods tend to be equalized easily and quickly. In its general interpretation it means any body of persons who are in intimate business relations and carry on extensive transaction in any commodity. Thus the market is the some total of the situation of environment which the resources, activities and attitudes of buyers and sellers affect the demand of products in a given area. It should be clearly understood that the term market is used to mean not any particular geographical meeting place of the buyers and sellers by as the getting together of buyers and sellers in person, by mail, telephone, telegraph, cable or any other means of communication.
Marketing makes goods useful to the society by getting them where they are wanted, when they are wanted and by transferring them to those people who want them. It is in this sense that marketing has been defined as all the activities involved in the creation of place, time and possession utilities. Marketing is thus concerned with handling and transportation of goods from the point of production 4
to the point consumption. In this journey of goods from the manufacturers warehouse of producers granary or miners yard to the ultimate consumers, several difficulties has to be removed. Firstly good are to be removed from the place of their origin to the place or places where their need is felt. This is creation of place utility. secondly, goods are to be made available at a time when they are needed. it means that they must be stored and protected against fire, rain, pests, thieves etc., till that time. This is creation of time utility. Finally, the ownership and ultimately the possession of these goods are to be transferred from the producer or the manufacturer to the ultimate consumer. This has been referred to as the creation of possession-utility. To emphasize all these aspects of marketing. Clark and Clark wrote that marketing consists of those efforts which effect transfer in ownership of goods and care for their physical distribution. To facilitate proper discussion on the subject, we shall consider a few definitions of marketing. A cursory glance through them would reveal that there are varying perception sand view-points on the meaning are content of marketing.
1.2 DEFINITIONS OF MARKETING 1. Much of marketing is concerned with the problem of profitably disposing of what is produced. 2. Marketing is a phenomenon brought about by the pressures of mass production and increased spending power. 3. Marketing is the performance of business activities that direct the flow of goods and services from the producer to the consumer. 4. Marketing is the economic process by means of which good and services are exchanged between the maker and the user their values determined in them of money prices. 5. Marketing is designed to bring about desired exchanges with target audiences for the purpose of mutual gain. 6. Marketing activities are concerned with the demand-stimulating and demand fulfilling efforts of the enterprise. 7. Marketing is the function that adjusts the organisations offering to the changing needs of market place. 8. Marketing is a total system of interacting business activities designed to plan, promote and distribute need-satisfying products and services to existing and potential consumers. 9. Marketing starts with the identification of a specific need on the part of the consumer and ends with the satisfaction of that need. The consumer if found both at the beginning and the end of the marketing process. 10. Marketing originates with the recognition of a need on the part of a consumer and terminates with the satisfaction of that need by the delivery of a usable products at the right time, at the right place and at an acceptable price. 11. Marketing is so basic that it cannot be considered a separate function. It is really the whole business seen from the point of view of the final result, i.e., from the point of view of the customer.
12. Marketing is a viewpoint which looks at the entire business process as a highly integrated effort to discover, create, arouse and satisfy consumer needs. Marketing is the delivery of a standard of living.
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1.3 DISTINCTION BETWEEN MARKET AND MARKETING Market is an arrangement to provide an opportunity to exchange goods. In the market the forces of demand and supply operate directly or by means of communication and fix prices. Whereas marketing is the sum-total of all those activities that are related to the free flow of goods from the point of production to the point of consumption. Physical movement of goods is the point of consumption. Physical movement of goods is the hallmark of marketing. That is, once the price fixation is done, the journey is to start from sellers to buyers. 1.4 MARKETING, SELLING AND MERCHANDISING Sometimes the terms Marketing, Selling and Merchandising are used interchangeably. But that is not correct. Some difference exists in their meaning. Marketing is a comprehensive term, while the others are only one part of the marketing system. Merchandising may be defined as product planning. It includes the internal planning need to get the right product or service to the market at the right time, at the right place, and in proper colours, quantities, and sizes. Selling is one method of promotion, and promotion is only a part of the total marketing programme.
The studying of marketing aims at: i. Developing an intelligent appreciation of modern marking practices and the influences in marketing situations. ii. Developing a broader framework for thinking about marketing. iii. Providing guiding policies regarding marketing procedures and their implimentations. iv. Intensifying ones felling of participation in marketing. v. Creating an open-minded, hopeful attitude towards the efforts of those scholars in marketing who are trying to develop it into a science. vi. Indicating the sources from which further information can be obtained concerning marketing problems or situations. vii. Supplying the factual background and analytical judgement necessary for dealing with marketing problems. viii. Helping oneself to decide whether his career shall be marketing.
1.5 IMPORTANCE OF MARKETING The importance of marketing has been so beautifully expressed by Peter Drucker :
Marketing is the distinguishing, the unique function of business. A business is set apart from all other human organizations by the fact that it markets a product or a service. Neither Church, nor Army, nor State does that. Any organisation that fulfills itself through marketing a product or a service is a business. Any organisation in which marketing is either absent or incidental is not
a business and should never be run as if it where one. The importance of marketing in business planning and decision making can be understood from a following quotation: In this existing age of change, marketing is the beating heart of many operations. It must be considered a principal reason for corporate existence. The modern concept of marketing recognizes its role as a direct contributor to profits, as well as sales volume. No longer can a company just figure out how many gadgets it can produce and then go ahead and turn them out. To endure in this highly competitive change infested market, a company must first determine what it can sell, how much it can sell and what approaches must be used to entice the wary customer. The president cannot plan; the production manager cannot produce, the purchasing agent cannot purchase; the chief financial officer cannot budget, and the engineer and designer cannot design until the basic market determinations have been made. Marketing has even greater importance and significance for the society as a whole than for any of the individual beneficiaries of the marketing process, and can be expressed as follows:
1.5.1 Importance of Marketing to the Society 1. Marketing helps to achieve, maintain and raise the standard of living of the society : Despite the differences in the level of living, every member of the society requires certain commodities and services to enjoy, to make his living decent and gracious. There for everything and anything, everybody has to depend completely on this gigantic system i.e. marketing. Thus the shirts and pants you wear, the hair oil and toothpastes that you apply, the face powder and now that you use in makeup, the medicines you consume, the cycle you ride on, the cars and scooters that you drive, the food you eat, the drinks cold or hot you drink all are made available by marketing. Marketing is the means through which production and purchasing power are converted into consumption. Hence Paul Mazur states that marketing is the delivery of standard of living. Prof. Malcolm Nair improved Mazurs statement and has said that Marketing is the creation and delivery of standard of living to the society.
Marketing process brings new variety of useful and quality goods to consumers. This raises the standard of living. Better marketing gives room for mass production. Under mass production, cost of production will be low and hence price of the article will be low. Since price is low people can buy more goods for their money. This will result in a higher standard of living. 2. Marketing increases employment opportunities : Marketing process increases employment opportunities. Just as every industry provides employment opportunities to thousands of skilled and unskilled labour in various capacities, marketing also provides employment to millions of people. Marketing is a complex mechanism involving number of functions and sub-functions which call for different specialized persons for employment. The major marketing functions are buying and selling, transport, warehousing, financing, risk bearing, market
information and standardization. In each such function, different activities are to be performed by a large number of individuals or institutions. It is said that roughly 30 to 40% of the population depend directly or indirectly on marketing. 3. Marketing helps to increase national income: The narions income is composed of goods and services which money can buy. Efficient system of marketing reduces the cost to the minimum, this in turn lowers the prices and the cons numers purchasing power increases this will increases the national income. 4. Marketing helps to maintain economic stability and development: Economic stability is the sign of any efficient and dynamic economy. Economic stability is maintained only when there is a balance of supply and demand. If production is more than demand, the excess goods cannot be sold at acceptable prices. Then the stocks of goods would be piled up and there would be glut in the market, resulting in fall in price. Similarly, if production is less than demand, prices shoot up resulting in inflation. In such a situation, marketing maintains the economic stability by balancing production and consumption. 5. Marketing is connecting link between the consumer and the producer: Marketing process brings new and new to retail shops from where the consumer can have them. 6. Marketing removes the imbalances of supply by transferring the surplus to deficit areas, through better transport facilities. 7. Marketing helps in creation of utilities: Marketing as an economic activity creates possession, place, time, and information utilities. Exchange creates ownership and possession utilities. Transport creates place utility. Storage creates time utility. Promotional activities create information utility.
1.5.2 Importance of Marketing to Individual Business Firms 1. Marketing generates revenue to firms: Profit is the core on which the whole super structure of business is built. Marketing alone generates revenue or income to an enterprise. Functions of marketing development and widen the markets. When markets are widened sales increases and thus profit to the firm increases.
2. Marketing as a basis for making decisions: The problems of the entrepreneur are what, how, when, how much and for whom to produce. In the past, the producer was in direct contact with consumers. Hence the problems were tackled very easily. However, to-day the producer does not have any direct contact with a consumers. Therefore, the problem of the procedure become very acute and complicated. Now a days, these problems are solved by the marketing departments. The marketing department collects all information regarding what, how when, how much and the whom to produce and these informations are passed on to the top management. The top management uses all these informations for decision making. 3. Marketing helps the top management to manage innovations and changes: Marketing and innovation are the two basic functions of any business. We are living in a dynamic world. There is nothing permanent except change. Change is the essence of life and change means progress. To-day the minds of the consumers are not firm, but fluctuating or changing. Hence, in order to run a business successfully a business man should adapt himself to the changing preferences, 8
changing styles, changing fashions etc. and innovate new customers, new product, new markets, new methods and procedures. Marketing helps to adopt change and innovate. Retailers communicate to the wholesalers about consumers demand. Wholesalers, in turn, communicate to manufacturers about market demand. Market research also acts as a source of marketing information on consumer behaviour and market trends. Salesmen of a market oriented concern are its ears and eyes for information feedback. Marketing, in sum, tries to find out the right type of production that the firm should manufacture, the right place where it is to be made available for use; and the right price at which it is to be made available, and the right channel, through which it is to be brought to the notice of the consumers. Marketing is, thus, the father of innovation and product development, prompter of entrepreneurial talent, developer of economy, stimulator of consumption and higher standard of living and guardian of price system.
1.6 SUMMARY If the functions of marketing are not performed properly the economic system may get out of balance resulting in piling of goods with retailers, wholesalers and manufacturers, closure of factories and retrenchment of workers. Marketing secures a closer balance between output and consumption. In this age of mass production, modern marketing has enabled a smooth system of mass distribution. Hence, marketing plays an review role in the economic stability of country. 1.7 REVISION POINTS 1. Market
2. Selling 3. Merchandising
1.8 KEYWORDS 1. Marketing
2. Merchandising
1.9 REVIEW QUESTIONS 1. Describe the various importance of marketing.
2. All organizations need marketing. Do you agree to this statement? If so give reasons 3. Marketing orientation goes beyond selling. Examine this statement.
1.10 TERMINAL EXERCISE Your company has decided to introduce the modern marketing concept into its business activities. The firm is in the line of manufacturing quartz watches. Give a write up as to how you could make the company really Consumer-oriented? 1.9 ASSIGNMENT QUESTIONS 1. How would you judge, whether a firm is really consumer-oriented or not?
LESSON 2
CONCEPTS OF MARKETING
OBJECTIVES After studying this lesson you are famililar with
To study different concepts of marketing To study features and importance of marketing concept
STRUCTURE 2.1 Introduction
2.2
Marketing Concept 2.2.1 Exchange Concept 2.2.2 Production Concept 2.2.3 Product Concept 2.2.4 Sales Concept 2.2.5 Marketing Concept
2.3 2.4 2.5 2.6 2.7 2.8 2.9
Features of the Marketing Concept Benefits of Marketing Concept Summary Revision points Keywords Review Questions Terminal exercise
2.10 Assignment questions

2.1 INTRODUCTION Studies reveal that different organisations have different perceptions of marketing. And these differing perceptions have led to the formation of different concepts of marketing. It is found that at lest five distinct concepts of marketing have guided and are still guiding business firms. 2.2 MARKETING CONCEPTS the exchange concept the production concept the product concept the sales concept and the marketing concept We shall now discuss each of the five distinct concepts of marketing. 2.2.1 Exchange Concept The Exchange Concept of marketing, as the very name indicates, holds that the exchange of a product between the seller and the buyer is the central idea of marketing. While exchange does form a significant part of marketing to view marketing as a mere exchange process would amount to a gross undermining of the essence of marketing. A proper scrutiny of the marketing process would readily reveal that
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marketing is very much broader than exchange. Exchange, at best, covers the distribution aspect and the price mechanism involved in marketing. The other review aspects of marketing, such as concern for the customer, the generation of value satisfactions, the creative selling and integrated action for serving the customer get completely overshadowed in the Exchange Concept of marketing.
2.2.2 Production Concept According to the Production Concept, marketing is a mere appendage to production. Production and technology dominate the thinking process of the key people in the business. They believe that marketing can be managed by managing production. The concept holds that consumers would, as a rule, support those products that are produced in great volume at a low unit cost.
Organisations voting for this concept are influenced by a drive to produce all that they can. They do achieve high production efficiency and a substantial reduction in the unity cost of production; and in quite a few cases they also do well with the distribution takes and make the products widely available, get, they often do not get customers as they expected. Customers, after all, are motivated by a variety of considerations in their purchases. Easy availability and low cost are not the only parameters governing the customers buying action. And the production concept thus fails to serve as the right marketing philosophy for the enterprise.
2.2.3 Product Concept The product Concept is somewhat different from the Production Concept. Whereas the Production Concept seeks to win markets and profits via high volume of production and low unit costs of production, the Product Concept seeks to achieve the same results via production excellence, improved products, new products and ideally designed and engineered products. It also places emphasis on quality assurance. In general, it tries to take care of the marketing task through the product attributes.
Organisations that subscribe to the Product Concept of marketing believe that the consumers would automatically vote for products of high quality. They concentrate on achieving product excellence. In addition, research and development and bring in a variety of new products. Yet, in many cases, these organisations fail in the market. They do not bother to study the market and the consumer in depth. They get totally engrossed with the product and almost forget the consumer for whom the product is actually meant; they fail to find out what the consumers actually need and they would gladly accept.
2.2.4 Sales Concept The Sales Concept become the dominant idea guiding marketing as more and more markets became buyers markets and as the entrepreneurial problem became one of solving the shortage of customers rather than the shortage of goods. The sales concept maintains that a company cannot expect its products to get picked up automatically by the customers. The company has to consciously promote and push its products. Heavy advertising high-power personal selling, large-scale sales promotion, heavy price discounts and strong publicity and public relations are the normal tools used by the orgnaisation that rely on this concept.
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Evidently, the Sales Concept too generates marketing myopia just as the Exchange Concept, the Production Concept, and the Product Concept do. But only a few marketing executives realise this problem. Overwhelming attention to the production or product aspects or the selling aspects at the cost of the customer and his actual needs creates this myopia. It leads to a wrong or inadequate understanding of the market and consequently a total failure in the market-place. The majority fee that the Sales Concept is a flawless idea. They think selling is synonymous with marketing. The general public too perceive marketing from the standpoint of the Sales Concept as the majority of business firms practice only selling. But in reality, there is a great deal of difference between selling and marketing. And that explains the evolution of the Marketing Concept as a totally distinct idea from the Sales Concept. It may be relevant and useful to analyse the difference between Marketing and Selling before we discuss the Marketing Concept. Marketing is much wider than selling, the much more dynamic. There is a fundamental between the two in approach as well as in the very philosophy on which the two processes rest. Selling revolves around the needs and interests of the seller; marketing revolves around the needs interests of the buyer. Selling starts with the existing products of the corporation and views business as a task of somehow promoting these products. Marketing, the other hand, starts with the customers of the corporation-present and potential-and views business as a task of meeting the needs of the customers by producing and supplying those products and services that would exactly meet the needs of the customers. Selling seeks profits by pushing the products on the buyers. Marketing seeks profits not through the aggressive pushing of the products but by meeting the needs of the customers and by creating value satisfactions for them. In other words, marketing calls upon the corporation to choose products, prices and methods of distribution and promotion that would meet the needs of customers. It dose not unwisely limit its role to persuading the customers to accept what the corporation already has or what it can offer readily.
2.2.5 Marketing Concept While the foregoing discussion on the difference between selling and marketing make it clear that marketing is a more fully evolved idea compared with selling, one has to delve a little deeper for obtaining a full understanding of the marketing concept as such.
The Marketing Concept was born out of the awareness that marketing starts with the determination of consumer wants and ends with the satisfaction of those wants. The concept puts the consumer at both the beginning and end of the business. It stipulates that the company should be organized totally around the marketing function, anticipating, stimulating and meeting customers requirements. The customer, not the corporation, has to be the centre of the business universe. The concept rests on the realization that a business cannot success by supplying to the customer products and services that are not properly designed to serve their needs. It proclaims that the entire business has to be seen from the point of view of the customer. In a company operating on this concept all departments will
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recognize that their actions have a profound impact on the companys ability to create a retain a customer. Marketing concept represents essentially a change in orientation on the part of managements towards business. The change is: From production orientation From product orientation From supply orientation From volume orientation From sales orientation From internal orientation to marketing orientation; to customer orientation; to demand orientation; to profit orientation; to satisfaction orientation; to external orientation;
It is obvious that only the Marketing Concept is capable of keeping the organisations free from Marketing Myopia. All other ideas guiding marketing, viz., the Exchange Concept, the Production Concept, the Product Concept and the Sales Concept give rise to marketing myopia of one from or the other. The marketing concept is a customer orientation backed by integrated marketing aimed at generating customer satisfaction as the key to satisfying organisational goals.
2.3 FEATURES OF THE MARKETING CONCEPT 1. Consumer orientation: An overwhelming emphasis on the consumer and his need is the first distinguishing feature of the Marketing Concept. The concept enabled the industrial and business firms to understand the nature and the mission of their business from the point of view of the consumer. And it meant a revolution, as till then, the business was seen and defined from the point of view of the producers of those who owned the business.
2. Integrated management action: The second major distinguishing feature of the Marketing Concept is integrated management action. Integrated management action simply means that all the different management functions in the business must be tightly integrated with one another, keeping marketing as the pivot. This is essential for the success of the business because every activity in every function of management has a vital bearing on marketing consumer. All these activities should lead to a favourable impact on the consumer. And for this to happen all functional areas of the business has to be properly aligned with marketing. 3. Consumer satisfaction: Integrated management action explained above, is again only a means, not an end in itself. It is the means for fulfilling the needs of the consumer. And this leads us to the third major distinguishing features of the Marketing Concept, namely, consumer satisfaction. The Marketing Concept believes that it is not enough if a firm has consumer orientation. It is essential that such orientation leads to consumer satisfaction. The concept believes that it is not enough if a firm markets its products successfully in the short run; it must keep growing, keeping consumer satisfaction as the foundation of it growth. It believes that not firm can afford to ignore the its dose so at its peril. The concept effectively counteracts the temptations of short-sighted management attitudes, by its emphasis on consumer satisfaction.
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4. Realising organizational goals including profits: Consumer satisfaction, which is a major theme of the Marketing Concept, is again not an end in itself. The concept does not preach that a firm must generate consumer satisfaction and forget all the other goals of the organisation. Instead, it treats consumer satisfaction as the pathway to all the goals of the organisation. The underlying approach is: if a firm that the firm has given a quality product, has offered competitive price and prompt services and has succeeded in creating a good product and company image. It is quite obvious that for achieving these results, the firm would have tried its maximum to control costs and simultaneously ensure quality, optimize productivity and maintain a good organisational supporting one another, will a product with all the attendant features organisational goals including profits is unreview to the firm. The concept is against profiteering, but not against profits. It appreciates that reasonable returns or surpluses are essential for the survival and as a natural corollary of the business sequence consumer orientation and integrated management action leading to consumer satisfaction, and the latter leading in turn to organisational profits.
2.4 BENEFITS OF MARKETING CONCEPT A business enterprise adopting the marketing concept can enjoy the following advantages:
1. Long term success is assured to an enterprise only if it recognize that the needs of the market are paramount. 2. It enables the firm to move more quickly to capitalise on market opportunities. Marketing risks can be reduced only by knowing and understanding the market. 3. Customer needs, wants and desires receive top consideration in all business activities. 4. Greater attention is given to the product planing and development so that merchandising can become more effective. 5. Demand side of the equation of exchange is honoured more and supply is adjusted to changing demand. Hence, more emphasis is given to research and innovation. 6. Marketing system based on the marketing concept assures integrated view of business operations and indicates interdependence of different departments of a business organisation. 7. Interests of the enterprise and society can be harmonised as profit through service emphasized. 8. Marketing research is now an integral part of the marketing process and it is a managerial tool in decision making in the field of marketing. Thus Marketing Concept brings benefits to the organisation that practices the concept, the consumer and the society. Hence a clear understanding of this concept is fundamental to the study of marketing.
MARKETING AS AN IDEOLOGY Critics recognize the importance of customer orientation, but ask why after decades of trying has the concept not been fully implemented. They argue that there are other valid considerations hat companies must take into account when making decisions (for instance, economies of scale) apart from giving customers
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exactly what they want. There has to be a conl.promisc betweer: the satisfaction of customers and achievement of other company requirements.
MARKETING AND SOCIETY The marketing concept focuses on individual market transactions. Since individuals heavily weigh their personal benefits while discounting the societal impact of their purchases, adoption of marketing concept will result in production of goods, which do not adequately correspond to societal welfare. Providing customer satisfaction may simply be a means to achieving a companys profit objectives and does not guarantee protection of customer welfare. Marketing oriemation docs not guarantee welfare of the customer but it does ensure profits for the firm. MARKETING AS A CONSTRAINT TO INNOVATION Marketing research discourages major innovations. Relying on customers to guide development f new products has severe limitations. This is because customers have difficulty articulating needs beyond the realm of their own experiences. This suggests that the ideas gained from marketing research will be modest compared to those coming from the scientific discoveries of R & D laboratories. Particularly for discontinuous innovations, the role of product development ought to be far more proactive. Technological innovation is the process that realizes market demands which were previously unknown. Effective utilization and exploitation of technology in developing new products is at least as important as market need analysis.
But this criticism is not actually directed towards the marketing concept itself but towards an over dependence on customers as a source of new product ideas. Companies must not rely solely on the customer for new product ideas. New product development should be based on sound interface between perceived customer needs and technological research. Successful innovations are mostly based on good understanding of user needs and technologies available to meet those needs.
2.5 SUMMARY All the fine concepts of marketing the exchange, the production, the product, the sales, the marketing gets importance study of marketing. 2.6 REVISION POINTS Marketing concepts, Benefits of marketing concepts, innovation 2.7 KEY WORDS Consumer orientation, Integrated management action 2.8 REVIEW QUESTIONS 1. Explain clearly the modern concepts of marketing
2. Write short notes on a. Consumer orientation b. Integrated management action c. Consumer satisfaction
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d. Realising organisational goals including profit
2.9 TERMINAL EXERCISE Identify an Indian company which sailed through the different concepts of marketing. Evaluate the reactions from the consumers. 2.10 ASSIGNMENT QUESTIONS All organisations need marketing Do you agree to this statement? If so give reasons in support of your answer.
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LESSON 3
MARKETING MANAGEMENT TASKS

Responsibilities of marketing management Marketing management tasks STRUCTURE Introduction Responsibilities of marketing management Marketing management tasks Summary Revision points Keywords Review questions Terminal exercise Assignment question
3.1 INTRODUCTION Marketing management represents marketing concept in action. It may be defined as the process of management of marketing programmes for accomplishing organisational goals and objectives. The process of management is the set of managerial functions known as planning, implementation and control of programmes to achieve predetermined objects. Marketing management involves planning, implementation and control of marketing programmes.
Marketing management represents an review functional area of business management efforts for the flow of goods and services from the producers to the consumers. It looks after the marketing system of the enterprise. Marketing management performs all managerial functions in the field of marketing. It has to plan and develop the production on the basis of known consumer demand. It has to build up appropriate marketing plan or marketing mix to fulfill the set goals of the business. It has to formulate sound marketing policies and programmes. It looks after their implementation and control.
3.2 RESPONSIBLITIES OF MARKETING MANAGEMENT Marketing management has to fulfill the particular:
following
responsibilities
in
1. 2. 3. 4. 5.
Sales and market analysis. Determination of marketing goals Sales forecasting and marketing budget. Formulation of marketing strategies, policies and procedures. Evolving an appropriate marketing mix or programme.
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Organizing all marketing activities and instruments included in the marketing-mix. Marketing activities may be organized product-wise, areawise or customers-wise according to specific requirements. 7. Assembling of necessary resources, such as marketing personnel, finance, and physical facilities etc., to execute marketing campaign. 8. Active participation in the product planning and development to establish best correlation between the product attributes and customer demands. 9. Management of distribution channels and physical distribution. 10. Effective communication, proper control and co-ordination of all marketing functions. 11. Post-sales servicing during the warranty period. 3.3 MARKETING MANAGEMENT TASKS The popular image of the marketing manager is that of someone whose task is primarily to stimulate demand for the companys products. However, this is too limited a view of the range of marketing tasks carried out by marketing managers. Marketing management is a task of regulating the level, timing, and characters of demand in a way that will help the organisation achieve its objectives. Simply put, marketing management is demand management. The organisation forms an idea of a desired level of transactions with a market. At any point in time, the actual demand level may be below, equal to, or above the desired demand level. This leads to the eight distinguishable demand states listed in Table 3.1. The marketing task and the formal name of each task is shown next to each demand state.
Table 3.1 The basic marketing tasks
Demand State I II III IV V VI Negative demand No demand Latent demand Faltering demand Irregular demand Full demand Marketing Task Disabuse demand Create demand Develop demand Revitalize demand Synchronize demand Maintain demand Reduce demand Destroy demand Formal Name Conversional marketing Stimulational marketing Developmental marketing Remarketing Synchromarketing Maintenance marketing Demarketing Countermarketing
6.
VII Overfull demand VIII Unwholesome demand
CONVERSIONAL MARKETING Conversional marketing grows out of the state of negative demand. Negative demand is a state in which all or most of the review segments of the potential market dislike the product or service and in fact might conceivably pay a price to avoid it.
Negative demand, far from being a rare condition, applies to many products and services. Vegetarians feel negative demand for meats of the kinds. People have a negative demand for vaccinations, dental work, vasectomies, and gall bladder
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operations. Many travelers has a negative demand for air travel; others have a negative demand for rail travel. Places such as the North Pole and the desert wastelands are in negative demand by tourists. Atheism, exconvicts, military service, and even work are in negative demand by certain groups. The challenge of negative demand to marketing management especially in the face of a positive supply, is to develop a plan that will cause demand to rise from negative to positive and eventually equal the positive supply level. We call this marketing task conversional marketing.
STIMULATIONAL MARKETING There is a whole range of products and services for which there is no demand. Instead of people having negative or positive feeling toward the offering, they are indifferent or uninterested. No demand is a state in which all or review segments of a potential market are uninterested in or indifferent to a particular offering.
Three different categories of offering are characterized by no demand. First, there are those familiar objects that are perceived as having no value. Examples would be urban junk such as disposable coke bottles, old barbed wire, and political buttons right after an election. Second, there are those familiar objects that are recognized to have value but not in the particular market. Examples would include boats in areas not near any water, snowmobile in areas where it never snows, and burglar alarms in areas where there is not crime. Third, there are those unfamiliar objects that are innovated and face a situation of no demand because the relevant market has no knowledge of the object. Examples would include trinkers of all kinds that people might buy if exposed to but would not normally think about or desire. The task of converting no demand into positive demand is called stimulational marketing. Stimulational marketing is a tough task because the marketer does not even start with a semblance of latent demand for the offering. He can proceed in three ways. The first is to try to connect the product or service with some existing need in the marketplace. Thus antique dealers can attempt to stimulate interest in old barbed wire on the part of those who have a general need to collect things. The second is to alter the environment so that the offering becomes valued in that environment. Thus sellers of motorboats can attempt to stimulate interest in boast in a lakeless community by building an artificial lake. The third is not distribute information or the object itself in more places in the hope that peoples lack of demand is really only a lack of exposure.
DEVELOPMENTAL MARKETING Developmental marketing is associated with a state known as latent demand. A state of latent demand exists when a substantial number of people share a strong need for something that dose not exist in the form of an actual product or service. The latent demand represents an opportunity for the marketing innovator to develop the product or service that people has been wanting.
Examples of products and services in latent demand abound. Many cigarette smokers would like a good-tasting cigarette that dose not yield nicotine and tars
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damaging to health. Such a product break-through would be an instant success, just as the first filter-tip ciragette won a sizable share of the market. Many people would like a car that promised substantially more safety and substantially less pollution than existing cars. There is a strong latent demand for fast city roads, efficient trains, uncrowded national parks, unpolluted major cities, safe streets, a good television programmes. The process of effectively converting latent demand is that of development marketing. The marketer must be an expert in identifying those prospectus who have the strongest latent demand and in coordinating all the marketing functions to develop the market in an orderly way.
REMARKETING All kinds of products, services, places, organisations, and ideas eventually experience declining or faltering demand. Faltering demand is a state in which the demand for a product or service is less than its former level and where further decline is expected in the absences of remedial efforts to revise the target market, offering and /or marketing effort.
For example, railway travel has been a service in steady decline for a number of years, and it is badly in need of imaginative remarketing. Many churches have seen their membership thin our in the face of competition from secular recreations and activities. The downtown areas of many, large cities are in need of remarketing. Many popular entertainers and political candidates lose their following and badly need remarketing. The challenge of faltering demand is revitalization, and the marketing task involved is remarketing. Remarketing is based on the premise that is possible in many cases to start a new life cycle for a declining product or service. Remarketing is the search for new marketing propositions for relating the offering to its potential market.
SYNCHROMARKETING Very often an orgnization might be satisfied with the average level of demand but quite dissatisfied with its temporal pattern. Some seasons are marked by demand surging far beyond the supply capacity of the organisation, and other seasons are marked by a wasteful underutilization of the organisations supply capacity. Irregular demand is defined as a state in which the current timing pattern of demand is marked by seasonal or volatile fluctuations that depart from the timing pattern of supply.
Many examples of irregular demand can be cited. In mass transit, much of the equipment is idle during the off-hours and in insufficient supply during the peak hours. Hotels in Miami Beach are insufficiently booked during the summer and overbooked in the winter. Hospital operating facilities are overbooked at the beginning of the week and underutilized toward the end of the week to meet physician preferences. The marketing task of trying to resolve irregular demand is called synchromarketing because the effort is to bring the movements of demand and
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supply into better synchronization. Many marketing steps can be taken to alter the pattern of demand. For example, a museum that is undervisited on weekdays and over visited on weekends could (a) shift most of the optional events to weekdays instead of weekends (b) advertise only its weekday programmes (c) change a higher admission price during the week ends. In some cases a pattern of demand can be readily reshaped through simple switches in incentives or promotion; in other case the reshaping may be achieved only after years of patient effort to alter habits and desires.
MAINTENANCE MARKETING The most desirable situation that a seller daces is that of full demand. Full demand is a state in which the current level an timing of demand is equal to the desired level and timing of demand. Various products and services achieve this state from time to time. However, it is not a time for resting on ones laurels and doing perfunctory marketing market demand is subject to two erosive forces. One force is changing needs and taste in the market place. The demand for barber services as well as the demand for mass magazines and college, education, had undergone and unexpected decline because of changing market preferences. The other force is active competition. When a product is doing well, competitors quickly move in a attempt to attract away some of the demand.
The task of the marketer facing full demand is maintenance marketing. Maintenance marketing calls for maintaining efficiency in the carrying out of dayto-day marketing activities and eternal vigilance in spotting new process that threaten to erode demand. The maintenance marketer is primarily concerned with tactical issues such as keeping the price right, keeping the sales force and dealers motivated, and keeping tight control over costs.
DEMARKETING Sometimes the demand for a product or service may outpace the supply. Known as overfull demand, it is defined as a state in which demand exceeds the level at which the marketer feels above to motivated to supply it.
The problem may be due to temporary shortages, as when producers suddenly find themselves facing an unexpected surge in demand or unexpected interruptions of supply. Or the problem may be due to chronic overpopularity. For example, the state of Oregon felt that too many people were moving to Oregon and spoiling its natural environment; and the city of San Francisco felt that too many motorists were using the Golden Gate bridge and weakening its structure. The task of reducing overfull demand is called demarketing. Demarketing deals with attempts to discourages customers in general or a certain class of customers in particular on either a temporary or a permanent basis. Demarketing largely calls of marketing in reverse. Instead of encouraging customers, it calls for the art of discouraging convenience may be reduced. The demarketer must have a thick skin because he is not going to be popular with certain groups.
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COUNTERMARKETING There are many products or services for which the demand may be judged unwholesome from the viewpoint of the consumers welfare, the publics welfare, or the suppliers welfare. Unwholesome demand is a state in which any demand is felt to be excessive because of undesirable qualities associated with the offering. Classic examples of unselling efforts have revolved around the so-called products; alcohol, cigarettes, and hard drugs. 3.4 SUMMARY The task of trying to destory the demand for something is called countermarketing, or unselling. Whereas demarketing tries to reduce the demand without impugning the product itself, countermarketing is an attempt to designate the product as intrinsically unwholesome. The offering may be the organisations own product which it wishes to phase out, a competitors product, or a third partys product which is regarded as socially undesirable. 3.5 REVISION POINTS Conversional marketing, Stimulational marketing, Remarketing, synchro marketing, Demarketing, counter marketing. 3.6 KEY WORDS Negative demand, Latent demand, faltering demand, irregular demand, unwholesome demand. 3.7 REVIEW QUESTIONS 1. Explain Marketing management and its responsibilities.
2. Elucidate the various tasks of marketing with examples.

3.8 TERMINAL EXERCISE In the face of fuel shortage, many petroleum companies have sought to reduce their customers using oil. Propose a demarketing plan that will bring down the level of demand for oil. 3.9 ASSIGNMENT QUESTIONS Marketing orientation goes beyond selling. Examine this statement and highlight the major differences between marketing orientation and selling orientation.
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LESSON 4
MARKETING ENVIRONMENT
Key environmental forces that have an implementation on marketing decisions The techniques available for environmental scanning STRUCTURE 4.1 Introduction 4.2 Uncontrollable external forces 4.2.1 Demography 4.2.2 Economic environment 4.2.3 Social & Cultural environment 4.3 Importance & Benefits of environmental analysis 4.4 Summary 4.5 Revision points 4.6 Keywords 4.7 Review questions 4.8 Terminal exercise 4.9 Assignment question INTRODUCTION Most of successful companies have now realized that marketing presents a never ending series of opportunities and threats. The marketing managers major task is that of trend trackers and opportunity seekers modern marketers realize that environmental scanning would provide a continuous link between them and their customers. A marketers has to design his marketing strategies based on the current marketing environment. Marketing environment comprises of external factors over which the organization and management. Marketing Environment comprises of external factors over which the organisation and management has little control.
4.2 UNCONTROLLABLE EXTERNAL FORCES 4.2.1. Demography Market means people with money and with a will to spend their money to satisfy their wants. Hence, marketing management is directly interested in demography, i.e., scientific study of human population and its distribution structure. Growing population indicates growing market particularly for baby products. But when we have reduction in the birth rate and the lower rate of growth of population, many companies specializing in baby products will have to adjust their marketing programme accordingly. Population forecasts during the next decade can be arrived at with considerable accuracy and on the basis of such forecasts marketing management can adjust marketing plans and policies to establish favourable relationship with demographic changes. Demographic analysis deals with quantitative elements such as age, sex, education, occupation, income,
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geographic concentration and dispersion, urban and rural population, etc. Thus, demography (study of population) offers consumer profile which is very necessary in market segmentation and determination of target markets. Quantitative aspects of consumer demand are provided by demography, e.g. census of population, whereas qualitative aspects of consumer demand such as personality, attitudes, motivation, perception, etc., are several factors such as population rate of growth, motivation, perception, etc., are provided by behavioural analysis. Good demographic analysis combines several factors such as personality, attitudes, motivation, perception, etc., are provided by behavioural analysis. Good demographic analysis combines economic power, life cycle analysis of consumer, occupation, education and geographic segmentation. Both demographic and behavioural analysis enable marketing executives to understand the basis of market segmentation and to determine marketing reaction to a new product or consumer reaction to an advertising campaign. India is the second largest market in the world. By the turn of the century, Indias population likely to reach the 100 crore mark. The life expectancy of the people in the country has gone upto 56 year by 1984. About 40 percent of the total population is below 14 years of age. The people of India are widely scattered over the length and breadth of the vast country which covers an area of 3.3 million sq.km. The average density of population in the country is 260 per sq.km (mid-1998 estimate). The density, however, varies widely from state to state from 655 per sq.km in Kerala to 45 per sq.km in Sikkim and 8 per sq.km in Arunachal Pradesh. Similarly, the density also varies widely between the urban and rural areas of the country. There are 4000 towns and more than five lakh inhabited villages in the country. Nearly a quarter of the total population of the country lives in urban areas and the remaining three quarters in semi-rural and rural areas. The people of India profess diverse religions and speck different languages. As many as seven different religious groups Hindus, Muslims, Sikhs, Christians, Zoroastrians, Buddhists and Jains form part of Indian society. The lanuages specified in the Consitution as national languages and hundreds of dialects spoken by substantial segments.
4.2.2. Economic Environment People constitute only one element of a market. The second essential element of a market is purchasing power and willingness to spend. Then only we have effective demand. Hence, economic conditions play a significant role in the marketing system. High economic growth assures higher level of employment and income, and this leads to marketing boom in many industries.
Marketing plans and programmes are also influenced by many other economic items such as interest rates, money suppy, price level, consumer credit, etc. Higher interest rates adversely influence real estate market and markets of consumer durables sold on instalment basis. Exchange fluctuations, currency devaluation, change in political and legal set-up influence international marketing. The level of
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take home pay determines disposable personal income and it influences marketing programmes directly. Economic conditions leading to recession can influence product planning, price fixing, and promotion policies of a business enterprise. Marketing mix must be formulated on the basis of review economic indices. Since 1974, i.e., after the energy (oil) crisis all over the world, we have inflationary trends and general level of prices in continuously rising. Inflation coupled with scarcity conditions can radically change consumer buying habits. Many purchases may be postponded or even eliminated. Higher petrol prices created a tread in favour of small cars and public transport. Inflationary conditions affect adversely the market for consumer durables. Economic forces can have positive or negative effects upon the promotion efforts of business units. State of trade and business booms and slumps constitute the economic aspects of marketing environment. Over the years, the Private Final Consumption has also shifted in a welcome manner from food and other basic items to products and services with high marketing significance. Between 1960-61 and 1983-84, the food component came down to 24 percent from 28 percent; household equipment went up from 2.6 percent to 4.3 percent; transport and communication went up from 4.7 percent to 9.9 percent. In addition to the marked downtrend in the share of food in final consumption, within the food group, there was a marked spurt in the share of protective foods-fats, pulses, sugar, vegetable, meat, fruits, eggs and fish. Similarly, with the non-food consumer goods, the share of durables increased substantially. Indias per capita income, continuous to be appallingly low. Fortunately in recent years, an environment for faster economic growth and higher per capita income is sought to be created through a new set of economic and industrial policies. There are indications that India is emerging as a growth economy. While throughout the seventies, India was among the slow growth countries in the developing world and her unspectacular average annual growth of 3 to 3.5 percent was dubbed the Hindu rate of growth, in the eighties, Indias economic growth has averaged five percent per annum. And this spurt from the historical rate of 3.5 percent has review implications for future standards of living. If fact, it is now accepted that a growth rate of 7.5 percent or more in GDP is achievable on a stable basis by the turn of the country, provided the technological aspects of the nations economy is appropriately stepped up. The growth of the corporate sector is an review indicator of the sophistication and growth of an economy. During the last two decades 96.144 joint stock companies in India, government and non-government put together. Of these, 94,264 companies which were limited by shares has a paid up capital of Rs. 21, 929crore. In 1951, the number of joint stock companies was only 28,532 with a paid-up capital of just Rs.775crore. The growth of the corporate sector is adequately reflected in the growth of the stock markets. The countrys stockmarkets have grown enormously in the last two decades. The growth in the eighties has been particularly striking. The corporate sector which was till then depending
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more on external borrowings and dependence during the decade and started mobilizing larger funds for investment through the capital market. Agriculture is a prominent sector of the economy of India. In fact it has been the backbone of the national economy all these years. Nearly three-fourths of the total population of the country depend directly or indirectly on agriculture for their livelihood and more than forty percent of the national income is contributed by agriculture. Industries in cotton, jute, sugar, rubber, etc., as well as the food processing industry, depend totally on agricultural commodities. A substantial portion of the countrys exports in also provided by the agricultural sector-mostly by agricultural commodities like tea, coffee, tobacco, jute, spices and marine products. In this backdrop, it is needless to say that the future growth of several consumer goods industries in the country will increasingly depend on rural prosperity, which, in effect, means agricultural prosperity. To the marketing man, this has a special significance. It means that agricultural growth would be a main indicator of the level of buoyancy of the nations markets. A survey of the industrial scene of India would reveal that industrial production increased at an average compound rate of six percent per annum. The industrial output today is nearly six times of what it was in 1950. The industrial sector now contributes nearly 30 percent of Indias GNP. The growth has been particularly striking in sectors like petroleum products, chemicals and chemical products, metal products, electronics, electrical machinery, transport equipment and power generation. There has also been some fundamental structural changes for the better. The output of basic and capital goods industries now have a share of 55 percent in the index of industrial production whereas it had only a share of 20 percent in1950. Indias engineering industry can today supply the entire requirements of the country in respect of power generation equipments, equipments for railways, road transport, communications etc. Indian industry has in recent years also undergone a qualitative change in addition to the quantitative expansion. It has embraced the concepts of optimum scales of production, state-of-the-art technology, internationally comparable costeffectiveness and levels of productivity. Though it has still a long way to go in this respect, a good beginning has already been made and it augurs well for the future.
4.2.3. Social and Cultural Environment Changes in our life-style and social values, e.g., changing role of women, emphasis of quality of goods instead of quantity of goods, greater preference to recreational activities, etc.
1.
2.
Major social problems, e.g., concern for pollution of our environment, socially responsible marketing policies, need for safety in occupations and products etc. Consumerism is becoming increasingly review to marketing decision process. Societal marketing concept, demanding not only consumer welfare but also citizen welfare is very much emphasized. Marketers are now called upon not only to deliver life i.e. environment free from pollution.
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From the marketing point of view, the emergency of a large middle class is perhaps the most significant of all developments that have taken place in India since independence. Many economists now place Indias middle class at over 100 million. Occupation statistics form the basis for such estimates. In India, around 25 million people are at present employed in the government and organized sector, private and public. Around 18 million are estimated to be employed in the unorganized sector. These two groups add up to 43 million people. It could safely be reckoned that one half of this falls under the middle class. In addition, in the rural areas too, there is a sizable middle class today. It has actually two segments-the well-to-do among the farming class and the relatively better off among the nonfarmers, employed of self-employed, pursuing varied vocations. The middle class households in all these categories together could, on a conservative basis, be reckoned as 25 million. If on an average we have four members in each household, the total size of the middle class in the country can be reckoned at 100 million at the minimum. The industrial development over the years gave birth to a well-to-do working class and a sizable chunk of engineers, managers and supervisors. In the social services sector, a sizable population of school and college teachers, doctors and other supporting staff emerged. The continuous expansion of the government machinery at the Centre and the states swelled up the strength of government servants of different categories. The trader class also expanded considerably. While these developments were taking place largely in the urban areas, rural India was also undergoing some change. The landed gentry become a vanishing tribe, but a sizable new agricultural group emerged. This group reaped the benefits of the green revolution, the land reforms and the new farming technology. All these groups constitute the middle class of the country. This class has not only swelled continuously in numbers, but has also grown in prosperity; its disposable and discretionary income has gone up; and the upper strata within this group has become the consumption community of the country. As this class is also relatively better educated and better exposed to the life styles of the rich, its aspirations have been constantly changing. The class has often spent more than what it has earned at any given point in time to cope with its new social image. Its expenditure on non-food items has increased. Soft drinks, cosmetics, synthetic fabrics, ready made garments, furniture, fans, transistors, stereo systems, TVs, electric mixers and grinders pressure cookers, gas stoves and other household appliances have also become items of demand for this class. In addition to the economic factors, socio-structural and life style factor have also contributed to the rise of the middle class. The growth of urbanisation is the first among these factors. The breaking down of the joint family system and the parallel rise of the nuclear family is the next. More and more women taking to employment is the third factor. These and other similar factors acting the concert, have brought about a new lifestyle among the middle class. They now require several time-saving conveniences. For example, the increased income coming from
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both husband and employed wife has made it possible for the family to buy a variety of such conveniences. As cumulative effect of the quantitative expansion of the class, the increase in its income levels and the change in its lifestyle, the consumption potential of the class has gone up considerably in recent years. Today, the market potential of this segment of India can be placed almost on par with the total potential of major European countries like U.K. France or West Germany. 4. Political and Legal Forces: Political and legal forces are gaining considerable importance in marketing activities of business enterprises. Marketing systems are affected by governments monetary and fiscal policies, import-export policies, customs duties. Legislation controlling physical environment, e.g., anti-pollution laws also influence marketing plans and policies. Consumer legislation tries to protect consumer interests. Marketing management cannot ignore the legislation regulating competition and pretecting consumers. Business enterprises may not be allowed to resort to price discrimination, false and misleading advertising exclusive distributorships and trying agreements, deceptive sales promotion devices, division of markets, exclusion of new competitors and such other unfair trade practices. The economic and industrial environment of India has undergone a significant change as a result of the new economic policies and liberalization measures introduced by the government in recent years. The new policies touch practically each and every aspect of economic affairs. Fiscal policies, industrial licensing policies, trade policies and policies relating to technology have all been changed. On the procedural side too there has been simplification of rationalisation. Basically, all these steps have been aimed at a restructuring of the instruments of controlremoving some, revamping others-with the ultimate objective of accelerating the pace of industrial development in the country. From the marketing point of view, the new policy measure have resulted in two significant developments: (i) a high degree of encouragement has become available to consumer goods industries and (ii) a perceptible change has occurred in the competitive character of Indias markets. In the earlier years, the government laid greater emphasis on basic and heavy industries; it was also unduly concerned with mopping up savings and curbing consumption. These approaches dampened Indias marketing climate considerably. Now, both these approaches have undergone a change. Consumer goods have been accorded their due importance and consumption is encouraged along with savings. The markets of India have become enormously more competitive as a sequel to the new policies and measures. While the new policies and measures were primarly aimed at accelerating the countrys economic development, as a fall-out effect, the competitive profile of the nations markets has changed in a significant manner. The provision of a free atmosphere to the industrial and business enterprise and the consequent entry of a number of new enterprises into different businesses with relative ease have been mainly responsible for the change in the competitive structure of a wide variety of businesses in the country.
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The legal framework prevailing in a country has a direct impact on the marketing environment of the country. India is no exception to this reality. Over the years, the government has been bringing in a number of legislative measures with a view to regulating the marketing and distribution of several products in India. Aspects like the final consumer price, product quality, the physical movement of the product, channel arrangements and stipulations and resale prices are the ones that have been frequently touched by one law or the other. 5. Science and Technology: Unprecedented development of science and technology since 1940 has created a phenomenal impact on our lives. We have witnessed in one generation radical change in our life-styles, in our consumption pattern as well as in our economic welfare. A new package of policies relating to technology has also been introduced. The nation is now attaching a great degree of importance to technological upgradation of practically all segments of industry. Better incentives have been built into the basic policies and systems so that technologically advanced nations find it attractive to collaborate with India in different sectors of industry and transfer the latest technologies in the respective fields. In particular, India is making rapid and significant advances in field like energy, electronics, micro electronics, and communication and information technologies. There is an all-round accent on securing high technology on par with the developed nations and on becoming technologically competitive on the international scene. Technology is the way things are done; the methods, materials and techniques used to achieve commercial and industrial objectives. New technologies offer a main source of economic growth. Many businesses are earning handsome profits from products which did not exist 35 years ago. Electronic industry is the best example of exploiting new marketing opportunities. Computers and airplanes are entirely new industries. Digital watches are killing the marketing prospects of traditional watches. Artificial fibre cloth has almost killed the pure cotton textile industries in many countries. Television has adversely affected radio and cinema industries. Seventy percent of food products now available to a housewife in highly industrialized countries were simply non-existent thirty years ago. Marketing management with the help of technology can create and deliver standards and style of life in many counties. It has the responsibility of relating changing life-style patterns, values and changing technology to market opportunities for profitable sales to particular market segments. 6. Competition: Although price competition is still present particularly in the retail market, non-price competition is of paramount importance for the manufacturer. No marketing decision of major importance can be made without assessing competition in a free market economy. The marketing manager has little or no control over the actions of competitors. He can merely anticipate competitive actions and be prepared to deal with them. Competitors considerably influence the companys choise of marketing strategies particularly in relation to selection of
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target markets, suppliers, marketing channels as well as in relation to its product mix, price mix and promotion mix. 7. The Distribution Environment: The distribution environment is an review part of the marketing environment. The distribution environment in India has been undergoing significant changes in the past few years. And to present, the pace of change is getting further accelerated. In the first place, as a rule, the distribution channels have been getting shorter. The gap between the producer and the consumer is becoming narrower. Secondly, the parasitic middlemen of yore are disappearing from the Indian distribution scene. Thirdly, as the channel is getting shorter, the retail dealer in the distributive trade is getting a better deal; his margins are more respectable now than before; he is able to give better service to the consumers; and his profitability had improved despite the hike in various cost elements. In fact, in quite a few sectors, retailing has grown into a prestigious activity. The distribution trade has also been growing in size recent years more and more people are being employed in the distribution business. Another significant development is that the manufacturers in many industries have departed from the traditional method and channels of distribution. The are now developing their own channels, depots and showrooms. Finally, the emergence of a large public distribution system is another major development in Indias distribution scenario. Many factors have been responsible for these changes in the distribution environment. Increased competition and inflation and rising costs of marketing and distribution are the most significant among these factors. Redundant market intermediaries have been withdrawn by manufacturers for containing the escalating costs of marketing and distribution. The government has taken several measures by which the distribution environment has been affected in a significant way. Increasing consumer awareness and the spread of consumerism has also had its share of influence on the distribution environment. 8. The advertising Scenario: According to marketing experts, the nature, substance and volume of advertising in a country is a pointer to the status of the economy of the country, the nature of its country. Advertising in India has grown in a spectacular manner throughout the last two decades and has scaled new peaks during the last five years in terms in size, range and quality. Over the years there has also been a substantial expansion in the media. All the major media-the press, radio, TV and cinema have expanded sizably and are being used extensively by advertisers for reaching their target customers. Over the years, the number of advertising agencies in the country has also increased rapidly. Qualitatively too, the ad business of India has grown considerably. There was a time when Indian ads were mere imitations of British and American ads. But now, the situation has vastly changed. The ad-men of India have succeed in giving a distinctiveness to Indian advertising. New approaches and new styles to suit the Indian audience have emerged. Creative ads have multiplied, making advertising in the country an interesting and professionally rewarding field of activity.
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9. The Rural Marketing scenario: The marketing environment governing the rural markets too has been undergoing vast changes in the last two decades. For example, tape recorders or two-in-ones have become a common sight in the rural areas. The spread of bicycles had been almost in the nature of a revolution. Today, India is the worlds second largest producer of bicycles with an output of six million unites per annum and a major part of this is absorbed by rural India. Two-wheelers have also become a common sight in the villages. In clothing, their has been a sea change. Preferences have shifted to blended fabrics, knitted apparels, and readymade garments. Earthenware pots have yielded place to a variety of new kitchenever. Plastic products and stainless steel goods have become common consumer items. Evidently, there are two sides to Indias rural markets, both equally powerful while the market provides immense opportunities it also displays intimidating challenges. It does not lend itself to an automatic transfer of the tools and techniques, and temp and style of marketing which proved a success in the urbon marketing context. The rural market happens to be a totally new market, involving a new customer and a new marketing situation. 10. The exports scene: Indias exports too have been growing over the years. There has also been a welcome change in the pattern and range of Indias exports. More than 4,000 different items are exported by the country today, as compared to hardly 60 items at the time of independence. Manufactured products and products of a highly technical nature now find a prominent place in the items exported by India. The directional pattern of the foreign trade of India has also changed for the better. Indian exports are now reaching a large number of countries all over the globe. The sectors in which significant gains have been made in the export effort in recent years include farm products, marine products, textiles and ready-made garments, leather and leather manufatures, gems and jewellery, chemicals, engineering goods and iron ore. The country has also made notable progress in the export of projects, technology and consultancy services. 11. Ecology: In the wider concept of marketing, ecological environment has assumed a unique importance. Environmental experts are vigorously advocating the preservation and survival of our entire ecological systems. It is said that pollution is an inevitable by-product of high-consumption economic systems prevalent in the advanced countries. The marketing system of an enterprise has now to satisfy not only the buyers of its products (consumers/users) but also societal wants which may be adversely affected by its activities and then only it is entitled to achieve its profit objective. In future, marketing executives will have to pay due attention to the quality of our life and our environment. They are expected to take measures to conserve and allocate our scarce resources properly. Above all, they must show active interest in the welfare of community life. Prevention of all types of pollution and efficient use of our scarce resources can restore to balance in
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our ecological environment. Economic use of energy and natural resource are the essential ingredients of marketing strategies.
4.3 IMPORTANCE OF ENVIRONMENT ANALYSIS The marketing manager needs to be dynamic to effectively deal wit.h the challenges of environment. The environment of business is not. static. It is changing with fast speed. The following benefits of environment scanning have been suggested by various authorities:
It creates an increased general awareness of environmental changes on the part of management. It guides with greater effectiveness in matters relating to Government. It helps in marketing analysis. It suggests improvements in diversification and resource allocations. It helps firms to identify and capitalize upon opportunities rather than losing out to competitors. It provides a base of 'objective qualitative information about the business environment that can subsequently be of value in designing the strategies. It provides a. continuing broad-based education for executives in general, and the strategists in particular.
4.4 SUMMARY The detailed analysis presented in the foregoing page in this lesson reveals that the marketing environment of India has undergone a major change in the last three decades. The change has been particularly significant in the past few years. All these developments has made a profound impact on the size and structure of Indias markets the traditional marketing scene has been significantly altered by these developments. New markets for several consumer products have been created in the country-in-urban as well as rural areas. Competition has become an integral part of the marketing environment of the country. It is resonable to expect that in the coming years, the change already witnessed in the social scenario too is like to get accelerated further in the coming years. In short, the marketing environment of the country provides a great opportunity for the marketing man to work on. 4.5 REVISION POINTS Demographic environment, environment.
Economic environment, Social and cultural
4.6 KEYWORDS Legal forces, distribution environment, advertising scenario, experts scene, Ecology 4.7 REVIEW QUESTIONS 1. Mention the uncontrollable variables influencing the marketing strategies and policies of a firm in a competitive market.
2. Explain the impact of social and cultural environment on the marketing management of a firm.
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4.8 TERMINAL EXERCISE A marketer has to be more aware of changes in the external environment than any other department in the organization Do you agree. 4.9 ASSIGNMENT QUESTIONS 1. A firm is an open, adaptive system living in its own environment and strives to accomplish within objective through integration and coordination Explain.
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LESSON 5
MARKETING STRATEGIES
OBJECTIVES After studying this lesson you can able to know Analysing opportunities Kinds of marketing strategies STRUCTURE 5.1 Introduction 5.2 Analysing opportunities 5.3 Setting company objectives 5.4 Developing marketing strategy 5.5 Formulating marketing strategy 5.6 Kinds of marketing strategy 5.7 Summary 5.8 Revision points 5.9 Key words 5.10 Review question 5.11 Terminal exercise 5.12 Assignment question 5.1 INTRODUCTION Marketing strategy as a set of objectives, policies and rules that guide over time a firms marketing efforts. It is a policy to maintain the firms competitive edge in the market. Management give it a shape with strategies for each controllable of product, distribution, promotion and pricing. 5.2 ANALYSING OPPORTUNITIES There is an unresolved debate in the management literature as to whether the first step in the strategic marketing process is to identify opportunities or to set objectives. Those who argue in favour of looking at opportunities offer the following reasons:
1.
2.
3.
Many organisations get their start because they recognize an review opportunity. They echo Sir Edmund Hillarys reason for climbing Mount Everest: Because it is there. Many organisations do not have well-stated objectives. It is difficult for them to state what they really want. But they do recognize good opportunities. Many organisations change their objectives as their opportunities change. Thus the March of Dimes was set up to raise money to conquer the dreaded disease of polio. The development of the Salk vaccine in the early 1950s left the organisation without a cause. It looked for new opportunities and recommitted its resources to the problem of birth defects.
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On the other hand, there are those who argue that objectives should precede opportunity analysis: Many organisations start with an overriding objective, such as to make high profits, and look for the opportunities that will achieve the objective. 2. A company cannot simply look for opportunities without a set of objectives. The world is too full of opportunities. 3. Many organisations make conscious change in their objectives; and when they do, the new objectives lead them to search for a different set of opportunities. We have to conclude that both sides have merit. It is possible to start the strategic marketing process by looking either at opportunities or at objectives. The arguments show that there is a dynamic tension between them, and both must be considered simultaneously. We might even add that the companys resources often provide still a third starting point. There are countless environmental opportunities available in any economy as long as there are unsatisfied needs. Currently there are great opportunities to develop new sources of energy, new food products, improved agricultural methods, improved forms of transportation, new forms of leisure, and improved teaching technology. There are opportunities in refuse disposal, lower cost legal services, containerization, prefab housing, water purification, day-care centers and biochemical instruments. But none of these necessarily represent opportunities for any specific company. Alternative growth opportunities can be generated for a company by mapping its core marketing system and then moving to three levels of analysis. The first level of analysis discerns those opportunities present in the current product-market activity of the company; we call these intensive growth opportunities. The second level discerns those opportunities present in other parts of the core marketing system; we call these diversification growth opportunities. Intensive growth: Intensive growth makes sense for a company if it has not fully exploited the opportunities latent in its present products and markets. The three major types of intensive growth opportunities are described below: Market Penetration: Market penetration consists of the companys seeking increased sales for its present products in its present markets through more aggressive marketing effort. 2. Market development: Market development consists of the companys seeking increased sales by taking its present products into new markets. 3. Product development: Product development consists of the companys seeking increased sales by developing improved products for its present markets. Integrative Growth: Integrative growth makes sense for a company if (a) the basic industry has a strong growth future and /or (b) the company can increase it profitability, efficiency, or control by moving backward, forward, or horizontal within the industry. 1. 1.
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The three integrative growth possibilities are discussed below: Backward integration: Backward integration consists of a companys seeking ownership or increased control of its supply systems. 2. Forward integration: Forward integration of a companys seeking ownership or increased control of its distribution systems. 3. Horizontal integration: Horizontal integration consists of a companys seeking ownership or increased control of some of its competitors. Diversification Growth: Diversification growth makes sense for a company (a) if the core marketing system does not show much additional opportunity for growth or profit, or (b) if the opportunities outside of the present core marketing system are superior. Diversification does not mean that the company will take up any opportunity however unrelated to its present distinctive competences or needs. On the contrary, the company would attempt to identify fields that make use of its distinctive competencies or help it overcome a particular problem. There are three broad types of diversification moves: Concentric diversification: Concentric diversification consists of the companys seeking to add new products that have technological and/or marketing synergies with the existing product like; these products will normally appeal to new classes of customers. 2. Horizontal diversification: Horizontal diversification consists of the companys seeking to add new products that could appeal to its present customers though technologically unrelated to its present product line. 3. Conglomerate diversification: Conglomerate diversification consists of the companys seeking to add new perfects for new classes of customers because this (a) promises of offset some deficiency or(b) represents a great environment opportunity; in either case, these products have no relationship to the companys current technology, products, or markets. 5.3 SETTING COMPANY OBJECTIVES A company cannot go after all of its opportunities first, because some of them are inconsistent with each other; second, because it never has enough resources to pursue all of its opportunities; and third, because all the opportunities are not equally attractive. We can imagine the company eliminating those opportunities for which it lacks sufficient resources or synergistic possibilities. Once a company arrives at a strong sense of corporate mission, it finds it easier to scan the environment for opportunities and easier to evaluate the contribution of different opportunities to corporate purpose. At the same time, corporate purpose itself is subject to revision as new opportunities arise and old solutions no longer work. The companys basic purpose and mission must be translated into specific objectives to guide the organisation to what it should try to accomplish with various activities in the external environment. Company objectives must have certain qualities if they are to serve the purposes. If particular, they should be hierarchical, quantitative, realistic, and consistent. 1. 1.
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A company may pursue a large number of objectives, not all equally important. When possible, major objectives should be arranged in a hierarchical fashion showing which are the most important, which are derived, and how they are derived. To the extent possible, objectives should be stated in quantitative or operational terms. The objective increase the return on investment is not very satisfactory. The objective increase the return on investment to 7.5 percent is an improved statement. The objective increase the return to investment to 7.5 percent by the end of the second year is a still better statement. The more specifically the objective is stated in terms of magnitudes, time and place, the more useful it I for developing plans and implementing controls. The company is likely to pursue at any time a number of review objectives rather than one. For example, a company states that it seeks to provide a quality product that will maximize customer satisfaction, provide an adequate return, and increase the companys total market share. These are admirable objectives but raise the question of whether they are all consistent. Sometimes the objectives are clearly inconsistent as when management says that it wants to maximize sales and profits, or wants to achieve the greatest sales at the least cost, or wants to design the best possible products in the shortest possible time. It must be recognised that these objectives are in a trade-off relationship. It is not possible to maximize simultaneously sales and profits. One can increase sales by lowering price, improving product quality, and increasing marketing effort, although these steps, beyond and point, are likely to reduce profit. A statement involving two basic objectives in a trade or relationship is of no help as a management guide without further specification.
5.4 DEVELOPING MARKETING STRATEGY Objectives are a statement of where a company wants to go; strategy is a grand design for getting there. Strategy is a battle plan fused out of marketing, financial, and manufacturing elements.
Marketing strategy of a firm is the complete and unbeatable plan or instrument designed specifically for attaining the marketing objectives of the firm. The marketing objectives will toll us where the firm wants to go; the marketing strategy will provide the design for getting there. According to Michael E. Porter, Marketing strategy has mainly one air-to cope with competition. There are five major and vital forces that decide the nature and intensity of competition the treat of new entrants, bargaining power of customers, bargaining power of suppliers, threat of substitute products and the jockeying among the existing contestants. The collect strength of these forces determines the ultimate profit potential of an industry. And the strategists goal is to find a position in the industry where his company can best defend itself against these forces or can influence them in his companys favour. Strategy can be viewed as building defenses against the competitive forces.
5.5 FORMULATING THE MARKETING STRATEGY Formulation of marketing strategy consists of five main steps.
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1. Market segmentation: Market segmentation is the basic recognition the every market is made up of distinguishable segments consisting of buyers with different needs, buying styles, and responses of offer variations. No one approach to the market will satisfy all buyers. Each segment of the market represents somewhat different parts of the market before taking a position. There is no unique way to segment a market. The fortunate firm is often the one that has found a creative new way to segment the market. 2. Market positioning: The second principal of marketing strategy is to select a specific pattern of market concentration that will afford the maximum opportunity to the company to achieve its leadership objective. The company cannot to everywhere. It must go after viable positions. It mush follow the principle of target marketing. Market segmentation throws up not one but several market segments with varying degrees of potential, profitability and risks. The firm may not be interested in all these segments. There may be segments assuring immediate profits; there may be segments demanding heavy investment by way of market development; some other segment may show very great potential but may display tough barriers to entry. As such, the question which segment/segments the firm should select as its target market, assumes crucial importance. The firm may analyse the risks,. Analyse the profitability and size and the competition in the different segments. Still, it may not be possible for it to readily pick up the target segments. Quantitative techniques may take the firm thus far, but not to be concluding point. Judgment along can take the firm to the concluding point or final decision on the decision on the target market. This decision is essentially a decision in the realm of strategy. It is not just a number game. What makes any part of the market an attractive one for a particular company to go after? A maximally attractive market segment would have four characteristics: The market segment is of sufficient size. The market segment has the potential for further growth. The market segment is not owned or over occupied by existing competition. 4. The market segment has some relative unsatisfied needs that the particular company can serve well. 1. Market entry strategy: The third element of marketing strategy is to determine how to enter a target market segment. The company can proceed through acquisition, internal development, or collaboration with other companies. Acquisition of an existing product or company is the easiest and quickest way to enter a new market. Acquisition obviates the costly and time-consuming process of attempting to build up internally the knowledge, resources, and reputation necessary to become an effective participant in that part of the market. Some companies prefer to achieve most of their growth through internal development. The may feel that true leadership is only achieved by running their own research and development laboratories. They many feel that the companies 1. 2. 3.
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around to acquire are not very good or are asking for too much. Or there may be no companies around to acquire. Entry into a new market or market segment may also be accomplished by collaboration with others to jointly exploit the new opportunity. A major advantage is that the risk is shared, and therefore, reduced, for each of the participating companies. Another advantage may be that each company brings specific skills or resources, the lack of which makes it impossible for either company to venture by it. In the best jointventuring combinations, there is not only complementarily by synergy. 4. Marketing mix strategy: The next element in marketing strategy is for the company to determine how it will profits its offering to the particular market segment. The key concept here is marketing mix. Marketing mix is the set of controllable variables that the firm can use to influence the buyers responses. Many variables quality as marketing mix variables. McCarthy popularized a four-factor classification which he called the four Ps product, place, promotion and price. This classification implied that buyers are influenced by variables related to the product, the place, promotion, and price. Assembling the marketing mix simply means assembling the Four Ps of marketing in the right combination. Involved in this process are the choice of the appropriate marketing activities and the allocation of the appropriate marketing effort to each one of them. Product strategy is a part of this process. Matching the products with market needs and consumer aspirations is the purpose of product strategy. Distribution strategy is another part of this exercise. Taking the product where the consumer wants it and delivering the product to him in a manner that is most convenient to him is the essence of the distribution strategy. When other elements like pricing, advertising and promotion are superimposed appropriately on this framework, the marketing mix gets assembled. 5. Timing strategy: The final element of strategy is that of timing. Just because a company has spotted a good opportunity, set an objective, and developed a marketing strategy does not mean it should immediately move in. It may lost by moving in too soon or too late. The proper sequencing and timing of its moves are a key component of strategy.
5.6 KINDS OF MARKETING STRATEGY In actual practice, it can be often seen that different firms take different strategy stances. This is but natural. As long as their situational designs and consequently their specific requirements of strategy differ from each other, they will evidently follow different strategy stances. One firm may find it appropriate to have a direct confrontation with the market leader; another may find it appropriate to keep aloof for some time from the heat of competition; the third may find it relevant to chalk out a strategy of sheer survival. It is essential to understand that three is no universally valid strategy stance. It is so because the various firms do not share the same situational design. Depending on the unique situational requirement faced by each firm, the strategy stances adopted by them can fell into any of the following broad categories.
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Confrontation Strategy It is a strategy of aggression /offence. The firm is ready for a direct frontal attach on the existing competition. Reliance Textiles adopted a confrontation strategy. Balsaras, makers of Promise toothpaste, too adopted a confrontation strategy. And to confront, a firm may adopt several kinds of tactics /approaches. Taking the cue from military strategies, Philip Kotler classifies these approaches into Frontal attach, Flanking attach, Encirclement attack, Bypass attach and Guerrilla warefare. Defensive Strategy Here the firm wants to avoid any possible direct conformation with leading competitions. For its own reasons, it assumes a defensive stance in the market. Its concern is: how best can I defend my present position? VIP in the moulded luggage market adopted a defensive strategy when big competition landed it in rough weather. Niche Strategy In this case, the firm neither confronts nor defends. It cultivates a small market segment for itself with unique products/services, supported by a unique marketing mix. These segments are too small to attract big competitors. Normally, smaller firms with distinctive capabilities adopt niche strategy. Demarketing Strategy When for certain reasons, a firm wants to withdraw a product that is enjoying good demand, it demarkets the product through a conscious manipulation and suppression of demand. The firm may canalize the demand towards some other products which it would like to popularise. Remarketing Strategy Through this strategy, a product with losing demand is brought back of like and remarketed in the same name and style or in a changed name and style. A repositioning of the product and /or a modification in the marketing mix often constitutes the broad components of a remarketing strategy. 5.7 SUMMARY Organisational marketing strategies differs and choose the strategy according to their requirement. Strategies help the firms to maintain or increase market share. 5.8 REVISION POINTS Diversification growth opportunities, Types of diversification 5.9 KEY WORDS Concentric diversification
diversification,
Horizontal
diversification,
conglomerate
5.10 REVIEW QUESTIONS 1. How would you formulate a marketing strategy?
2. Explain the different kinds of marketing strategies.

5.11 TERMINAL EXERCISE Comment on the competitive marketing strategies to convert the competition from multinationals in India.
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5.12 ASSIGNMENT QUESTION Give a brief write-up on the Current marketing situation and how to face the challenge of dynamism. CASES (UNIT 1) 1. In the face of fuel shortage, many petroleum companies have sought to reduce their customers use of oil. Propose a demarketing plan that will bring down the level of demand for oil. (Refer Lesson 3) 2. Leading cigarette manufactures in India have launched cheaper varieties to have an eye on beedi segment concentrating in rural parts of the country. Do you think that the Indian marketing environment is a boon to their strategy? (Refer Lesson 4 and 5) REFERENCE BOOKS (UNIT 1) MARKETING MANAGEMENT
MARKETING MANAGEMENT FUNDAMENTALS OF MARKETING STRATEGIC MARKETING BASIC MARKETING
Philip kotler V.S.Ramaswamy and S. Namakumari William J. Stanton A. Robertson Mc Carthy
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LESSON 6
MARKET SEGMENTATION, MARKET TARGETING AND PRODUCT POSITIONING

OBJECTIVES After studying this lesson you can able to know
Rationale for market segmentation Requirements for effective segmentation Target market strategies Product positioning techniques STRUCTURE 6.1 Introduction 6.2 Rationale for market segmentation 6.3 Benefits of segmentation 6.4 Requirements for effective segmentation 6.5 Bases for segmenting industrial markets 6.6 Steps involved in segmentation process 6.7 Criteria for market segmentation 6.8 Market targeting of product positioning 6.9 Target market strategies 6.10 Selecting a market targeting strategy 6.11 Product positioning 6.12 Product positioning techniques 6.13 Summary 6.14 Keywords 6.15 Assignment questions 6.1 INTRODUCTION Market consists of buyers, and buyers differ in one or more respects. They may differ in their wants, purchasing power, geographical locations, buying attitudes and buying practices. This varied and complex buyer behaviour is the root cause of market segmentation. A market segment is a meaningful buyer group having similar wants. Each segment can be a group of people with similar or homogeneous demand and this will enable the enterprise to have tailor-made marketing mix to each market segment. Segmentation is a consumer oriented marketing strategy. Though wants and desires of consumers are diverse, segmentation helps in grouping those consumers having similar wants or desires. Market segmentation is a method for achieving maximum market response from limited marketing resources. This is made possible by recognizing the difference in the response characteristics of various parts of the market. In a sense, market segmentation is the strategy of divide and conquer. Thus, segmentation answers the following question: To whom should the products be sold and what should be sold to them? Market segmentation enables the marketers to select the target market and offer appropriate marketing mix. The essence of segmentation is to identify
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consumer demand. With the rising cost of production, Distribution and promotion, precise market segmentation has assumed considerable importance in marketing management.
Definition Market segmentation consists of taking the total, heterogeneous market for a product and dividing it into several sub-markets or segments, each of which tends to be homogeneous in all significant aspects.
Market segmentation is the sub-dividing of a market into homogeneous subsets of customers where any subset may conceivably be selected as a market target to be reached with a distinct marketing mix. The power of this concept is that in an age of intense competition for the mass market, individual sellers may prosper through creatively serving specific market segments whose needs are imperfectly satisfied by the mass-market offerings.
6.2 RATIONALE FOR MARKET SEGMENTATION Every organisation must decide not only of what needs to serve but also whose needs. Most markets are too large for an organisation to provide all the products and services needed by all the buyers in that market. Some delimitation of the market is necessary for the sake of efficiently and because of limited resources. This is the problem of selecting target markets.
Markets vary in their degree of heterogeneity. At one extreme, there are markets made up of buyers who are very similar in their wants, product requirements, and responses to marketing influences. For example, suppose all buyers of salt want to buy the same amount per month and want the simplest packaging and the lowest price. Such a market would be homogeneous, and selling to it would be fairly straight forward. The market offers of competitors would probably be very similar. At the other extreme are markets made up of buyers seeking substantially different product qualities and/or quantities. For example, furniture buyers are looking for different styles, sizes, colours, materials, and prices. Such a market is heterogeneous. It is made up of customer groups with different buying needs and interests. These groups are called market segments. In a heterogeneous market, the marketer has three targeting options: He can introduce only one product, hoping to get as many people to want and buy it as possible. We call this undifferentiated marketing. 5. He can go after one particular market segment and develop the ideal product for them. We call this concentrated marketing. 6. He can introduce several product versions, each appealing to a different group. We call this differentiated marketing. Thus market segments and the determination of market targets are separate questions. Market segmentation is the process of identifying groups of buyer with different buying desires or requirements. Market targeting is the firms decision regarding which market segments to serve. 4.
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6.3 BENEFITS OF SEGMENTATION 1. The manufacturer is in a better position to find out and compare the marketing potentialities of his products. He is able to judge product acceptance or to assess the resistance to his product. 2. The result obtained form market segmentation is an indicator to adjust the production, using men, materials and other resources in a most profitable manner. In other words, the organisation could allocate and appropriate its efforts in a most useful manner. 3. Changes required may be studied and implemented without losing markets. As such as soon as the product becomes obsolete, or even earlier, the product line could be diversifies or even discontinued. 4. It helps in determining the kinds of promotional devices that are effective and also their results 5. Appropriate timing for the introduction of new products, advertising, etc., could be easily determined. 6.4 REQUIREMENTS FOR EFFECTIVE SEGMENTATION The first condition is measurability, the degree to which information exists or is obtainable on the particular buyer characteristic. Unfortunately, many suggestive characteristics are not susceptible to easy measurement. Thus it is hard to measure the respective number of automobile buyers who are motivated primarily by considerations of economy versus status quality.
The second condition is accessibility, the degree to which the firm can effectively focus its marketing efforts on chosen segments. This is not possible with all segmentation variables. It would be nice if advertising could be directed mainly to opinion leaders, but their media habits are not always distinct from those of opinion followers The third condition is substantiality, the degree to which the segments are large and /or profitable enough to be worth considering for separate marketing cultivation. A segment should be the smallest unit for which it is practical to tailor a separate marketing programme. Segmental marketing is expensive, as we shall shortly see. It would not pay, for example, for an automobile manufacturer to develop special cars for midgets. Geographic Segmentation: (Bases for Segmentating Consumer Markets) in geographic segmentation, the market is divided into different locations, such as nations, states, cities, or neighbourhoods. The organisation recognizes that market potentials and costs vary with market location. It determines those geographical markets that it could serve best. Demographic Segmentation: In demographic segmentation, the market is subdivided into different parts on the basis of demographic variables such as age, sex, family size, income, occupation, education, family life cycle, religion, nationality, or social class. Demographic variables have long been the most popular bases for distinguishing significant groupings in the market place. One reason is that consumer wants or usage rates are often highly associated with demographic variables: another is that demographic variables are easier to measure than most other types of variables.
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Psychographic Segmentation: The third category of segmentation variables is the psychographic. Psychographic variables tend to refer to the individual and such aspects as his life-style, personality, buying motives, and product knowledge and use. People within the same demographic group can exhibit vastly different traits. Life-style: Life-style refers to the distinctive mode of orientation an individual or a group has toward consumption, work, and play. Such terms as hippies, swingers, straights, and jet-setters are all descriptive of different life-styles. Marketers are increasingly being drawn to life-style segmentation. Personality: Marketers have used personality variable to segment the market. They try to endow their products with brand personalities (brand image, brand concept) designed to appeal to corresponding consumer personalities (self-images, self-concepts). Benefits sought: Buyers are drawn to products with different buying motives. In the case of toothpaste, there are customers who seek decay prevention, bright teeth, good taste, or low price. An attempt is made to determine the demographic or psychographic characteristics associated with each benefit segment. Haley has characterised those seeking decay prevention as worriers, bright teeth as sociable, good taste as sensories, and low price as independents. User status: Many markets can be segmented into nonusers, ex-users, potential users, first-time users, and regular users of a product. High-market-share companies such as Kodak (in the film market) are particularly interested in going after potential users, whereas a small film competitor will concentrate on trying to attract regular users to its brand: Potential users and regular users require different kinds of communication and marketing efforts. Usage rate: Many markets can be segmented into light, medium and heavyuser groups of the product called volume segmentation. Heavy users may constitute only a small percentage of the numerical size of the market but a major percentage of the unit volume consumed. For example, 50 percent of the beer drinkers account for 88 percent of beer consumption. Loyalty status: Loyalty status describes the amount of loyalty that users have to a particular object. The amount of loyalty can range from zero to absolute. We find buyers who are absolutely loyal to a brand to an organisation, to a place and so on. Companies try to identify the characteristics of their hard-core loyal so that they can target their market effort to similar people in the population. Stage of Readiness: At any point of time, there is a distribution of people in various stages of readiness toward buying the product. Some members of the potential market are unaware of the product: some are aware; some are informed; some are interested; some are desirous; and some intend to buy. The particular distribution of people over stages of readiness makes a big difference in designing the marketing programme. Marketing factors: Markets can often be segmented into groups responsive to different marketing factors such as price and price deals, product quality, and service. This information can help the company in allocating its marketing 45
resources. The marketing variables are usually proxies for particular benefits sought by buyers. A company that specializes in a certain marketing factor will build up hard-core loyal seeking that factor or benefit.
6.5 BASES FOR SEGMENTING INDUSTRIAL MARKETS Industrial markets can be segmented using many of the variable employed in consumer market segmentation. Demographic variables are the most important basis for market segmentation. They are followed by operating variables and personal characteristics. The following factors should be borne in mind to segment industrial market.
Demographic Factors: The type of industries to which the goods sold, the size of the companies and geographical areas shall be the demographic factors to which attention should be paid. For example, a rubber tyre companys buyers may be car manufacturers, aircraft manufacturers, heavy vehicle manufacturers etc. Purchasing Approach Factors: Companies some times have a centralised purchase function or a totally decentralised purchase function. The purchasing policies of the company, the power structure viz., financial soundness, technological soundness have an impact the market segmentation. The criteria for purchasing, say, quality, service, price etc., and the companys relationship with market do need attention while segmenting these markets. Situational Factors: Some industries may require sudden be immediate delivery of the product. The product sometimes may serve only a single purpose. e.g. picture tubes. The size of orders may also vary according to requirements. Personal characteristics: the industrial customer may have the similar or different values than the marketer. Some industrial customers may be enterprising and risk-taking where as some may be conservative and cautious. The industries might be loyal to a particular supplier. All these personal characteristics are noteworthy for segmentation of industrial markets. Within a chosen target industry, a company can further by segmented by customer size. Separate marketing programmes can be formulated for dealing with large and small customers. Within the chosen customer size, the company can segment on the basis of purchase criteria. Government industries may require products at a lower price where as private industrial units may give importance to reliability. Thus, industrial companies do not focus on one segmentation variable. They apply multi attribute segmentation.
6.6 STEPS INVOLVED IN SEGMENTATION PROCESS The process of market segmentation is not complete merely by identifying the differences between one customer group and another. Identification is the starting point. There are many other steps in completing the process. The main steps are as follows
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Assessing the difference between one customer group and the other. This may be in terms of needs, likely response, market inputs, etc., ii) Finding out the factors or characteristics on the basis of which consumers can be appointed to a specific segment. iii) Based on the above steps, disaggregating the customers into suitable segments. iv) Analysing and establishing whether it is possible to formulate separate marketing programmes and marketing mixes for the different segments. v) Finding out the segment which will be benefited by the products of the firm. Such a segment can be considered as the target segment of the firm. vi) Estimating the likely levels of purchase by each segment, especially the significant and relevant ones. vii) Finally, selecting those segments which offer higher potential and which would be amenable to the offerings of the firm. As mentioned earlier while carrying out the segmentation, the practical requirements have to be kept in view. The segments arrived at must be relevant to the marketing requirements of the firm. The segments must be accessible or available to the firm; they should not remain a dreamland, i.e., by normal standards, it should be possible for the firm to capture the segments; they must also be sizable. A very small segment may not serve the purpose of commercial exploitation. Again, they must be profitable to the firm there is no use in locating sizable markets that are unprofitable. The chosen segments should also be clearly measurable. i.e. the sales potential and profit potential of the segments must be measurable; the extent of influence of a specific marketing mix over the segment should also be measurable.
6.7 CRITERIA FOR MARKET SEGMENTATION
CUSTOMER DEMAND AND MAKET SEGMENTATION EASTERN PART OF COUNTRY HIGH INCOME GROUP FAMILIES
i)
TOTAL MARKET
TARGET MARKET
1. Identity: The marketing manager must have some means of identifying members of the segment i.e., some basis for classifying an individual as being or not being a member of the segment. There must be clear differences
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between segments. Members of such segments can be readily identified by common characteristics.
2. Accessibility: It must be possible to reach the different segments in regard
to both promotion and distribution. In other words, organisation must be able to focus its marketing efforts on the chosen segment. Segments must be accessible in two senses. Firms must be able, to make teem aware of products or services. 3. Responsiveness: A clearly defined segment must react to changes in any of the elements of the marketing mix. For example, if a particular segment is defined as being cost-conscious, it should react negatively to price rises.
4. Size: The segment must be reasonably large enough to be a profitable

target. It depends upon the number of people in it and their purchasing power. For example, makers of luxury goods may appeal to small but wealthy target markets whereas makers of cheap consumption goods may sell co a large number of persons who are relatively poor. The idea is that enough potential buyers must exist to cover the costs of production and marketing required in that segment.
5. Nature of Demand: It refers to the different quantities demanded by various segments. Segmentation Is required only If there are marked differentiation in terms of demand. 6. Measurablility: The purpose of segmentation Is to measure the changing behaviour pattern of consumers. For example, the segment of a market for a bike are determined number of considerations, such as economy, status, quality, safety, comforts, resale value etc.
6.8 MARKET TARGETING AND PRODUCT POSITIONING Introduction: Market segmentation is actually the prelude to target market selection. The marketing man normally carries out several steps in addition to segmentation before selecting the target market. Essentially, he carries out a thorough evaluation of the various segments and selects those segments that are most appropriate. The evaluation of the different segments has to be actually based on these criteria and only on the basis of such an evaluation should the target segments be selected. The marketing man must assess the sales potential and profit potential of each segment; he must evaluate the worth of each segment from his firms viewpoint- whether the segment is relevant to his firm, whether it is sizable, whether it is accessible and whether it is attractive and profitable. He must examine alternative possibilities whether the whole market has to be chosen for tapping or only a few segments have to be chosen ad if so, how many and which one. He can look for segments which are relatively less satisfied by the current offers of competing brands. He must look at each segment as a distinct marketing opportunity. He must evaluate his companys resources and try to match the resources and the market segments. He must also take at the product characteristics and try to match the product characteristics and market segments.
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The future position of the segment would be the next consideration in the evaluation process. Usually, business firms seek out the high growth segments. In the soap business, market analysis would readily indicate that the premium segment happen to be the high-growth segment of the business. Next in line will be the consideration of profitability. In the example under consideration, the firm can easily size up that the premium segment is the more profitable segment in the soap business. The price in this segment is usually high, between Rs.6 per cake in respect of the popular segment. The profit potential in the premium segment is quite high and a relatively lower volume would provide adequate returns to the firm. On the contrary, in the popular or regular segment, a much larger sales volume would be necessary for the business to be viable since prices and profit margins in the segment are low. The firm has to now consider whether the segment is accessible to it. This may need further analysis. The market realities of the segment under consideration will now enter the picture. Having satisfied itself that the premium segment is sizable, growth oriented, profitable and accessible, the firm has to analyse and find out if the segment would match the firms resources, objectives, ambition and distinctive capabilities. Given the position of the firm in these respects, for some firms, the popular segment may be natural and for others, the premium segment may be the ideal choice. The premium segment is a highly competitive segment; all new brands that enter the segment do not make a success; though it is a high growth segment, several new brands in the segment are seen falling by the wayside. Only a firm endowed with an aggressive marketing culture, a strong marketing organisation and the required resources can successfully fight for a share of the premium segment. The firm has to assess whether its marketing capabilities are compatible with the segment under consideration. In addition to the segmentation on the basis of premium vs. popular groups, the firm can also attempt a geographical segmentation of the soap market before finally selecting the segments to be served. The firm, for example, may look at each zone in the country as a separate market segment and analyse whether distinctive marketing strategies and distinctive marketing mixes could be applied over the different zones. Here again, an analysis of whether the segment considered is sizable, attractive, profitable and accessible, etc. will have to be seen.
6.9 TARGET MARKET STRATEGIES There are three target market strategies viz.,
6. Un differentiated marketing 7. Differentiated marketing 8. Concentrated marketing 1. Undifferentiated Marketing: In undifferentiated marketing, the firm chooses not to recognize the different market segments making up the market. It treats the market as an aggregate, focusing on what is common in the needs of people rather than on what is different. It tries to design a product and a marketing programme
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that appeal to the broadest number of buyers. It relies on mass channels, mass advertising media, and universal themes. It aims to endow the product with a superior image in people's minds, whether or not this is based on any real difference. Undifferentiated marketing is primarily defended on the grounds of cost economies. The fact that the product line is kept narrow minimizes production, inventory, and transportation costs. The undifferentiated advertising programme enables the firm to enjoy media discounts through large usage. The absence of segmental marketing research and planning lowers the costs of marketing research and product management. On the whole, undifferentiated marketing results in keeping down several costs of doing business. 2. Differentiated Marketing: Under differentiated marketing, a firm decides to operate in two or more segments of the market but designs separate product and / or marketing programmes for each. In recent years an increasing number of firms have moved toward a strategy of differentiated marketing. This is reflected in trends toward multiple product offerings and multiple trade channels and media. The net effect of differentiated marketing is to create more total sales than undifferentiated marketing. However, it also tends to be true that differentiated marketing increases the costs of doing business. 3. Concentrated Marketing: Both differentiated marketing and undifferentiated marketing imply that the firm goes after the whole market. However, many firms see a third possibility, one that is especially appealing when the companys resources are limited. Instead of going after a small share of a large market, the firm goes after a large share of one or a few sub markets. Put another way, instead of spreading itself thin in many parts of the market, it concentrates its forces to gain a good market position in a few areas. At the same time, concentrated marketing involves higher than normal risks. The particular market segment can suddenly turn sour or a competitor may decide to enter the same segment. For these reasons, many companies prefer to diversify in several market segments.
6.10 SELECTING A MARKET TARGETING STRATEGY Particular characteristics of the seller, the product, or the market serve to constrain and narrow the actual choice of a market targeting strategy.
The first factor is company resources. Where the firm's resources are too limited to permit complete coverage of the market, its only realistic choice is concentrated marketing. The second factor is product homogeneity. Undifferentiated marketing is more suited for homogeneous products such as grape fruit or steel. Products that are capable of great variation, such as cameras and automobiles, are more naturally suited to differentiation or concentration.
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The third factor is product stage in the life cycle. When a firm introduces a new product into the market place it usually finds it practical to introduce one or, at the most, a few product versions. The firm's interest is to develop primary demand, and undifferentiated marketing seems the suitable strategy; or it might concentrate on a particular segment. In the mature stage of the product life cycle, firms tend to pursue a strategy of differentiated marketing. The fourth factor is market homogeneity. If buyers have the same tastes, buy the same amounts per periods, and react in the same way to marketing stimuli, a strategy of undifferentiated marketing is appropriate. The fifth factor is competitive marketing strategies. When competitors are practicing active segmentation, it is hard for a firm to compete through undifferentiated marketing. Conversely, when competitors are practicing undifferentiated marketing, a firm can gain by practicing active segmentation if some of the other factors favour it.
6.11 PRODUCT POSITIONING The significance of product positioning can be easily understood from David Ogilvy's assertion. "The results of your campaign depend less on how we write your advertising than on how your product is positioned".
Let us understand product positioning through certain examples. Great Shake, the newly introduced soyamilk, is positioned as a health drink, and positioned against milk. Complan is positioned as a health-builder, and positioned against milk, listing out the additional nutritive agents it possessed over milk. Limca is positioned as a thirst-quenching soft drink. Rasna is positioned on the plank of economy and convenience. The detergent powder, Nirma is positioned on the plank of economy, and it is positioned for a price-conscious segment of the detergent users.
6.12 PRODUCT POSITIONING TECHNIQUE There are certain brands and companies which occupy a dominant position in the consumer's mind, on account of the distinction that the brand or company has already attained. For example, throughout the world, among the customers of computers. IBM holds a dominant position. No other brand can enter the market without somehow relating itself to IBM's position. So, wherever there is a dominant brand or competitor, the other brands have to reckon the leader's position.
Positioning is the outcome of a conscious strategy of marketing. Some unique features of the product, some unique features of the market or some unique features of the competition is normally isolated and around that feature the product is placed in the market. Positioning comes out to the marketing man's awareness that a product cannot be 'everything to everyone'. It can only be something to someone. Identifying these features imaginatively and using it as the Plank on which to pedestal the product is the essence of positioning. So, the product can be positioned against a competing brand, it can be positioned for an exclusive well-to-
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do segment of the market, it can be positioned for men, it can be positioned for children, it can be positioned for the fun-loving youth, it can be positioned for a health-conscious market, it can be positioned on a claim of luxury, a claim of distinctiveness, a claim of convenience, uniqueness, novelty, or usage. The marketing man has to formulate his positioning theme right from the product idea stage. He cannot suddenly invent a positioning theme when he is ready to enter the market with his product. He should have already decided what his cash on point should be, where he should introduce his product and for whom, and on what distinctive claim he should go around and promote his product. Positioning is essentially a battle or capturing a place in the mind of the prospect. Quite often, products undergo repositioning as they go along their life-cycle. This is done to increase the sale of the products by appealing to a wider market. The product may be provided with new features for the same old product may be associated with new uses and may be offered to existing and new markets. In India, in the past, manufacturers of transistor radios positioned them for the urban and educated customers. Later, they repositioned them as an affordable convenience for the common man of the semi-urban and even the rural markets. Positioning is a technique which the marketing mean has to employ with a lot of care and pre-planning. By positioning a product in a particular way, the marketing man is committing the product to the particular decision and situation. If the positioning decision is faulty, the product suffers heavy damages. It may take a long time and enormous effort to retrieve a wrongly positioned product. While repositioning a successful product later in the life-cycle may be easy, it is not at all easy to retrieve and reposition a wrongly positioned product.
CRETERIA FOR SUCCESSFUL POSITIONING CLARITY The positioning idea must be clear in terms of both target market and differential advantage. The target market should be clearly demarcated and identifiable in terms of demographic or geographic parameters, or a combination of both. Each target market of the company should be different from the other. The target market should be clearly defined in terms of being served by a distinct value proposition. The value proposition should be clearly communicated.
Most companies do not clearly communicate the corresponding value proposition because they also want their offerings to be' acceptable to customers other than those in their target market. They feel that defining value propositions will narrowly restrict their market. Confusion will arise if changes in positioning planks occur frequently. For instance, if a company positions on quality of service in one year, and then next year it changes its positioning to superior product performance. the consumer would not know what to expect from the offering of the company, Customers who were attracted to the previous positioning of the company now desert it. New
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customers do not find the new positioning of the company credible, as their image of the company being something other than what it is claiming to become persists. A company which changes its positioning planks frequently will leave customers confused about its real identity. Customers will not know what the company stands for. A company has to stick to a positioning plank for a reasonable length of time so that the new image sinks in customers. A company feels that all that a new positioning requires is an ad campaign posturing the new status. But positioning is just an external manifestation of what the company really is. So if a company changes its positioning plank it has to transform itself to become true to its new positioning. No company can transform itself completely so frequently The differential advantage must be credible to customers. Credibility means believability and trustworthiness. Positioning is a promise made to the customer. The customer must believe that the company will deliver what is promises, and is capable of delivering the promise. Through advertisement and its public relation efforts the company should be able to demonstrate its capability to deliver the promised utility. Every time a customer buys the company's product he should have got what the company promised in its positioning strategy. Through word of mouth the company develops a reputation for delivering its promised value. Credibility built through personal use of the product and word of mouth are stronger than credibility built through advertising and public relations. The differential advantage should offer something of value to the customer which the competition is failing to supply. The company should be able to develop or acquire distinct set of resources and processes. This unique set of resources and processes are used to deliver a distinctive value which no other company can possibly deliver, since they lack the set of resources and processes used to create it. Therefore the key to be able to provide differential value to customers is to possess a distinctive set of resources and processes which competition does not possess. Positioning is not an abstract art. It is important for firms to understand and implement a few fundamental do's and don'ts to attain successful positioning. The positioning of a corporate or a brand should be clear and precise. The unique proposition made to the customer should be brief and catchy. Instead of overloading customers with a maze of complicated information, companies should be precise and concise. A company cannot hope to reach out to the entire market with one positioning appeal. The target audience should be determined, and the positioning appeal and message should be tailored to it. The product or service should be set apart from what competitors are offering. If the product or service being offered by the Company is not better than or different from that of competition, why should customers buy it? It is extremely important to state that one compelling reason why the company's product is the best for the target customers.
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The positioning statement should clearly reflect what the organization stands for, and what it is about. Its values, intent and offering should be clear from the positioning statement. Positioning should address the felt needs of the customer. Customers should be told as to how the company's product will fulfill these needs. Such benefits should be stressed in the positioning statement. These needs should be specific, measurable and something that customers really want. Instead of being vague that the company offers a lot of variety or selection, a company should say that it has 2S different models, and five colours in each model. Positioning appeals should be specific. One unique value proposition that customers desire the most must be present in the product. The company should also be able to deliver what it promises to the customer as its success depends on its credibility.
6.13 SUMMARY Market segmentation enables the marketers to select the target market and offer appropriate marketing mix. 6.14 KEY WORDS Segmentation, Positioning, Repositioning 6.15 ASSIGNMENT QUESTIONS 1. What is market segmentation? What is the rationale behind the market segmentation? 2. What are the benefits of market segmentation? Identify the requirements of effective segmentation. 3. Distinguish between the base for segmenting consumer market and industrial markets? 4. Explain the steps involved in market segmentation process. 5. What is market targeting? As a two-wheeler marketer, how would you select the target segment? 6. Explain the target market strategies with illustrations. 7. What is product positioning? Distinguish between product positioning and product repositioning? 8. Explain the features of the product positioning technique.
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LESSON 7
BUYER (CONSUMER) BEHAVIOUR

OBJECTIVES To know the meaning of consumer behaviour To study the theories of buyer behaviour Discuss about buyer behaviour process STRUCTURE 7.1 Introduction 7.2 Buyer Behaviour 7.3 Theories of buyer behaviour 7.4 Buying motives 7.5 Factors influencing buyer behavour 7.6 Buying process 7.7 Influences on buying decisions 7.8 Summary 7.9 Keywords 7.10 Assignment questions 7.1 INTRODUCTION The buyer is a complex person, influenced by the social environment in which he lives-his family, his society, his neighbour, his friends, his job, his colleagues. Every component of his social environment leaves some imprint on him and influences him in his day-to-day life. His purchases and consumption are carried out within the larger context of his living. And his role as a buyer is not distinct from his role as a human being. Buyer behaviour, after all, is a specific aspect of general human behaviour. And, it is only natural that it is as complex as general human behaviour. The Buyer 1. Buyer is a riddle. He is not a simple entity. His needs vary from security needs to self-actualisation needs. He satisfies his needs by his means. When his needs are costlier, he postpones them. 2. With the revolution in the field of communication, the buyer is exposed to a great deal of information. He does not take all the information, but selects those which suit him. 3. When the buyer takes a buying decision, there is no rigid rule to bind him. His decision may either be spontaneous on the spot, or the made after a thorough analysis. 7.2 BUYER BEHAVIOUR Buyer behaviour is defined as "all psychological, social and physical behaviour of potential customers as they become aware of, evaluate, purchase, consume, and tell others about products and services". In other words, buyer behaviour includes the acts of individuals directly involved in obtaining and using economic goods. These acts are the result of a sequence of decisions made by the buyer. These decisions are influenced by various factors. Hence buyer behaviour is the process by which individuals decide whether, what, when, where, how and from whom to purchase goods and services.
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The above definition gives the following information about buyer behaviour: 1. Buyer behaviour involves both individual (psychological) processes and group (social) processes. 2. Buyer behaviour is reflected by post-purchase evaluation which indicates satisfaction or non-satisfaction 3. Buyer behaviour includes communication, purchasing and consumption behaviour. 4. Buyer behaviour is shaped by social environment. 5. Buyer behaviour includes both consumer and industrial buyer behaviour. 7.3 THEORIES OF BUYER BEHAVIOUR 1. Economic Theory: According to economic theory, the buyers are assumed to be rational in their decision-making. They follow the law of marginal utility. Consumers evaluate the alternatives available and they chose that alternative which would provide him with highest utility and lowest cost. The consumers have a set of needs and tastes. They have got a certain amount of purchasing power. He may not be able to fulfill all his needs because his purchasing power is the limiting factor. Hence, he allocates his expenditure over different products at given prices so as to maximize utility. Thus, the law of equi-marginal utility enables him to secure maximum utility from limited purchasing power. The purchasing decision is based on economic calculations and reason. Economic model of consumer behaviour is un-dimensional. The following presumptions are made about buyer behaviour; i) ii) iii) iv) Lower the price of the product, larger will be the quantity bought-price effect. Higher is the purchasing power, higher will be the quantity boughtincome effect. Lower the price of a substitute product, lesser the quantity that will be bought of the original product-substitution effect. Higher the promotional communication effect. expenditure, higher will be the sales-
Economic model assumes that markets are homogeneous. But now markets are assumed to be heterogeneous. Hence the economic man is a myth. Buying process is not always rational and price is not the only factor of motivation. Buying is not always at the lowest price. It is obvious that the economic model is insufficient to explain the intricacies of buyer behaviour. 2. Learning Theory: Classical psychologists interpret man's needs are coming about through the interplay of drives, stimuli, cues, responses, and reinforcement. Every organism has innate physiological drives connected with survival. Psychologists distinguish between primary drives (such as hunger, thirst, sex, and acquisitiveness). The latter are learned through experience in trying to satisfy primary drives. A drive is a strong internal stimulus impelling action. A drive becomes a motive 'when it is directed toward a particular drive- reducing object. A person may
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reach for a soft drink to satisfy his thirst or a hotel to satisfy his hunger. These objects are stimuli in that they are capable of arousing and satisfying his drives. The particular response of a person to a stimulus is influenced by the configuration of cues. Cues are minor stimuli that determine when, where and how the person responds. In satisfying a thirst, a person is cued by the time of day, the cost and availability of different beverages, and so on. The response is the organism's reaction to the configuration of stimuli and cues. If the response is rewarding, the probability of a similar response next time to the same cue configuration is reinforced. If a response is not rewarding, the probability of a similar response is diminished. Cue configurations are constantly changing. For example, the shopper's favorite brand may be out of stock or he may see another brand on sale. He will shift to similar stimuli because learned responses are generalised. A countertendency to generalisation is discrimination. When a person tries two similar brands and finds one more rewarding, his ability to discriminate between similar cue configurations improves. Discrimination increases the specificity of the cue- response connection, while generalisation decreases the specificity. Thus, the learning theory has the following predictions. 1. Learning refers to change in behaviour brought about by practice or experience. Almost everything one does or thinks is learned. 2. Product features such as price, quality, service, brand, package etc., acts as cues or hints influencing consumer response. 3. Marketing communications such as advertising, sales promotion also act as guides persuading buyer to purchase the product. 4. Response is decision to purchase. 3. Psycho-analytic Theory : This theory is developed from the thoughts of Sigmund Freud. He postulated that the personality has three basic dimensions: id refers to the free mechanism that leads to strong drives. Such drives (motives) are not influenced by morality or ethics. Ego refers to the act of weighing consequences and tries to reconcile with reality. It is an equilibrating device that leads to socially acceptable behaviour and imposes rationality on the id. The ego weighs, the consequence of an act rather than rushing blindly into the activity. Super ego is a person's conscience. It is highly rational and tries to keep the activities morally right. In essence, the id urges and enjoyable act: the super ego presents the moral issues involved and the ego acts as the arbitrator n determining whether to proceed or not. This has led to motivation research and has proved to be useful in analysing buyers behaviour. This, in turn, has contributed some useful insights in the advertising and packaging fields. 4. Socio-cultural Theory: Man is primarily a social animal and his wants and behaviour are largely influenced by the group of which he is a member. The tendency of all people is to "fit in" a society in spite of their personal likes and dislikes. Most of the luxury goods are bought primarily because one's neighbour or
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friend of the same status bought it. Culture, subculture, social classes, reference groups, family are the different factor groups that influence buyer behaviour. Culture: Culture is the most fundamental determinant of a person's wants. The individual learns the values of his culture through a process called socialization. Culture has a great deal to do with how an individual sees, thinks, and feels. This becomes obvious when one steps into another culture. He suddenly becomes aware of his cultural biases. International marketers in particular must study cultural differences as a prelude to planning their products and marketing programmes in different countries. Sub-cultures: Each culture contains smaller groups or subcultures, and each of these provides more specific identification and socialization for its members. Nationality groups, Religious groups, Racial groups, and Geographical areas are the four types of subcultures identified. Major marketers, although their markets are broad, require sensitivity to variations in the needs and preferences of different subcultures. Social class: Virtually all human societies exhibit social stratification. Stratification may take the form of a caste system where the members of different castes are reared for certain roles and cannot change their caste membership. More frequently, stratification takes the form of social classes. Social classes are relatively homogeneous and enduring divisions in a society which are ordered with respect to each other and whose members share similar values, life-styles, interests, and behaviour. Marketers have found social class a useful variable for segmenting markets. Products, advertising appeals, services, and atmospheres can be designed to appeal to specific social classes. Social classes show distinct differences in their tastes in clothing, home furnishings, leisure activity, automobiles, and so on. There is evidence that social classes differ in their purchase decision processes as well Reference groups: An individual is influenced by the many small groups with which he interacts. Some are primary groups (family, close friends, neighbours and fellow workers) and others secondary groups (fraternal organisations, professional associations). He is also influenced by groups of which he is not a member, such as sports clubs and movie clubs. Groups that interact and influence the attitudes and behaviour of an individual are called reference groups. Reference group influences consumption behaviour most strongly in those product and brand categories that are visible and even conspicuous. The more cohesive the reference group, the more effective its communication process; and the higher the individual esteems it, the more influential it will be in shaping his product and brand choices. The Person: From what has been said, a person's basic motivations are heavily influenced by social learning. The norms and value systems in his culture, subculture, social class, and reference groups leave in indelible imprint on his needs and wants. These social forces deserve the most careful study by marketers trying to interpret the objectives that might motivate consumer interest in their products and brands. 58
5. The Nicosia Model: In recent years, some efforts have been made by marketing scholars to build behaviour models totally from the marketing man's standpoint. The Nicosia model and the Howard and Sheth model are two important models in this category. Both of them belong to the group called the systems model, where the human being is analysed as a system with stimuli as the input to the system and behaviour as the output of the system. The model tries to establish the links between a firm and its consumer-how the activities of the firm influence the consumer and result in his decision to buy. The messages from the firm first influence the predisposition of the consumer towards the product. Depending on the situation, he develops a certain attitude towards the product. It may lead to a search for the product or an evaluation of the product. If these steps have a positive impact on him, it may result in a decision to buy. This is the sum and substance of the 'activity explanations' in the Nicosia model. The Nicosia model groups these activities into four basic fields. Field One has two sub-fields-the firm's attributes. An advertising message from the firm reaches the consumer's attributes. Depending on the way the message is received by the consumer, a certain attribute may develop, and this becomes the input for Field two. Field Two is the area of search and evaluation of the advertised product and other alternatives. If this results in a motivation to buy, it becomes the input for Field Three. Field Three consists of the act of purchase. And Field four consists of the use of the purchased item. There is an output from Field Four feedback of sales results to the firm. 6. The Howard-Sheth Model: John Howard and Jagdish Sheth put forward the Howard and Sheth model in 1969, in their publication entitled 'The Theory of Buyer Behaviour'. The logic of the model runs like this: There are inputs in the form of stimuli. There are outputs beginning with attention to a given stimulus and ending with purchase. In between the inputs and the outputs there are variables affecting perception and learning. These variable are termed 'hypothetical' since they cannot be directly measured at the time of occurrence. Over the years, several other models have also been put forward, with the intention of explaining buyer behaviour. All these models have certain merits and certain limitations. They do not fully explain the complex subject of buyer behaviour. Nor do they establish a straight input-output equation on buyer behaviour. And, none of them provides a precise answer to the why's or how's of buyer behaviour. They merely explain the undercurrents of human behaviour from different angles and premises. But these models will certainly be helpful in gaining at least a partial insight into buyer behaviour.
7.4 BUYING MOTIVES A consumer buys a particular product because he is influenced by certain motives. Motive is a strong feeling, urge, instinct, desire or emotion that makes the buyer to react in the form of a decision to buy. For that matter, every human activity is motivated and is not spontaneous. Consumers, for example, are goalseekers who gratify their needs by purchases and consumption. In other words,
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needs are the motivational element behind purchase. These needs were classified by Abraham H. Marlow, in a pyramid form known as 'Hierarchy of Needs'. Satisfaction proceeds through each of the five stages viz., psychological, safety, social, self esteem and self realisation. When one need is satisfied, the customer will seek higher goals and thus proceeds up the hierarchy. It seems that distinction between needs and wants is necessary here. Needs are general in nature and common to all people. For example, need for safety is common. But all needs may not become demand. Only when need becomes specific and is consciously felt, it conditioned by certain motives. These are termed as buying motives buying motives are defined as "those influences or consideration which provide the impulse to buy, induce action or determine choice in the purchase of goods or services. These buying motives may be classified into two: i) ii) Product Motives Patronage Motives
Product Motives: Product Motives may be defined as those impulses, desires and considerations which make the buyer to purchase a product. Product motives may still be classified on the basis of nature of satisfaction as, a) Emotional Product Motives and b) Rational Product Motives Emotional product motives are those impulses which persuade the consumer on the basis of his emotion. The buyer does not try to reason our or logically analyse the need for purchase. He makes a buying to satisfy: (i) pride; (ii) sense of ego, (iii) urge to imitate others; (iv) his desire to be distinctive Rational product motives are defined as those impulses which arise on the basis of logical analysis and proper evaluation. The buyer makes a rational decision after cheap evaluation of the purpose, alternatives available, cost benefit, and such other valid reasons. Product motives may also be classified in the following ways: i) ii) Operational product motive Socio-psychological product motives
Operational product motive may be defined as an impulse arising out of the ability or function that a product is likely to provide. Socio-psychological product motive may be defined as the desire to buy the product which shall arise as a result of psychological or social significance that a buyer attaches to the product. Patronage Motives: Patronage Motives may be defined as consideration or impulses which persuade the buyer to patronise specific shops. Just like product motives, patronage can be grouped as emotional and rational. Emotional Patronage Motives are those that persuade a customer to buy from specific shops, without any logical reason behind this action. He may be subjective for shopping in his favourite
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place. Rational Patronage Motives are those which arise when selecting a place depending on the buyers satisfaction that i) ii) iii) it offers a wide selection it has latest models it offers good after-sales services etc.
7.5 FACTORS INFLUENCING BUYER BEHAVIOUR 1. Impact of Information on Buyer Behaviour: The buyer today is exposed to a veritbale flood of information. There is a deluge of information unleashed on him from different sources. These sources inform him about new products and services, improved versions of existing products, new uses for existing products and so on.
The common information sources that persuade people to try a product are: advertising samples and trials display in shops salesmen's suggestions 2. The Socio-Cultural Environment: Affecting Buyer Behaviour: The buyer whom we are studying is living in a society, influenced by it and in turn influencing its course of development. He is a member of several organisations formal and informal. He is a unit of several groups. He belongs to a family, he is a member of some religion or caste, he belongs to a certain language group. He may be a member of a professional forum, he may belong to a particular political group, or a cultural body. There is constant interaction between the individual and the organisations to which he belongs. And all these interactions leave some imprint on him. Which influences him in his day-to-day life and consequently, his buying behaviour. 3. Group Influence on Buyer Behaviour: Actually group influence on buyer behaviour is of two types since there are two types of groups exercising an influence on buyers: i) the intimate group and ii) the broad social classes influence of intimate group on buyer behaviour: Examples or intimate groups are family, friends, close colleagues, and small, closely-knit organisations. These groups exercise a strong influence on the life styles and the buying patterns of the members. Among these groups, the most influential and primary groups are the family and peer groups. The peer groups are close-knit groups composed of individuals, who have a common social background and who normally belong to the same age group. 4. Influence of Social Classes on Buyer Behaviour: Buying behaviour of individuals is also influenced by the social class to which they belong. Structurally, the social class is a larger group than the intimate groups. The constitution of a social class is decided by the occupation, place of residence etc., of the individual members. The members of a social group will enjoy more or less the same community status and prestige. Each class develops its own standard of life style and behaviour patterns. And the members of the class normally select a product or a brand which caters to their group norms. Marketers stand to gain considerably 61
form a proper study of group influence on individual buying behaviour. It will help them to develop proper marketing strategies for different customer segments. 5. Influence of Religion, Culture, Language, etc, on Buyer Behaviour: Every culture, every religion and every language group dictate its own unique patterns of social conduct. Within each religion, there may be several set and sub-sects; there may be orthodox groups and cosmopolitan groups. In dress and food habits, education or marriage in almost all matters of individual life, religion and culture exercise an influence on the individual directly or indirectly. The dos and donts listed out by religion and culture, control significantly the individual's life style and buying behaviour. 6. Status Influencing Buyer Behaviour: People are becoming more and more concerned about their image or their status in society. This concern is a direct outcome of the material property of the society. The desire to the somebody, 'to feel that you are somebody, are to show that you are one, is a compelling one in modern society. Status is announced through various symbols like dress, ornaments, possessions, and general lifestyle. The values attached to these status-symbols may change over time. It is for the marketing man to know and capture the marketing opportunity behind these changing symbols-symbols of status. Buying Habits: Marketers should also know the buying habits of customershow, when and where they buy. Buying habits can be best studied in relation to the types of products purchased. In fact, classifications of consumer goods have been made on the basis of buying habits. One such classification divides them into convenience goods, shopping goods and specialty goods. Convenience Goods: There are certain product which the consumers would like to purchase with the least possible effort. Such items are purchased frequently and their unit price is low. There is not much of planning behind the purchase. Products like toothpaste, soap, cigarettes, etc., come under this category. There is a recurring need of these items and the consumer would desire to get it at an easily accessible place. These are convenience goods. Manufacturers marketing such products know that the products have to be made available within the customer's easy reach. So they make these products available in as many outlets as possible ensuring maximum exposure. If the products are not available easily, the consumer is not prepared to make a special shopping trip for buying the products, and he may readily switch over to any substitute product or brand available at the immediate vicinity. Shopping Goods: Items like furniture, dress materials, electrical appliances, etc., are not purchased so frequently. There is an element of planning behind the purchase. It is not necessarily purchased at the easily accessible store. The buyer is willing to make one or more shopping trips to buy these items. Unlike the purchase of convenience goods, these purchases involve considerable expenditure. The customer would certainly like to compare the prices, quality, patterns etc., in a number of stores before finalizing the purchase. Such products are normally not standardized items. There is an element of fashion in them. They are termed shopping goods.
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In accordance with these buying habits, marketing methods of these goods have been modified. Since the buyers of shopping goods are in the habit of comparing the items in one shop with those of another, stores dealing in such goods are seen clustered in market centres. Whereas manufacturers of convenience goods make their products available through innumerable sales points, in the case of shopping goods, normally there will be a smaller number of selling points. And the manufacturers normally sell directly to the retailers without routing the supplies through a wholesale tier. Specialty Goods: Specialty goods are high-priced goods-care, watches, highpriced dresses and ornaments, etc. Purchases of specialty goods involve substantial investment and the periodicity of purchase is less frequent than that of shopping goods. Specially goods are not purchased out of instant decisions. The various aspect of the purchase-the cost angle, the utility angle, the prestige angle, the alternatives available, the experience of others who have purchased the product are analysed before deciding on the purchase. Normally the entire family take part in the decision- making process in the purchase of specialty goods. Since the buyers of such products are prepared to make special purchase efforts, the manufacturers need not have a wide distribution. They normally deal through a small number of outlets in potential markets. They have a selective distribution, normally entrusting the job to selected retailers. In certain cases, the manufacturers of specialty goods operate their own retail outlets.
7.6 BUYING PROCESS The buying process includes the following five steps:
1. Need Recognition: Buying process begins when a person begins to feel that a certain need or desire has arisen. The need may be activated by internal or external factors. The intensity of the want will indicate the speed with which a person will move to fulfill the want. The buyer will postpone the less important motives. Marketing management should offer appropriate cues to promote the sale of the product. 2. Information Search: Aroused needs can be satisfied promptly when the desired product is not only known but also easily available. But when it is not clear what type or brand of the product can offer best satisfaction, the person will have to search for information. This may relate to the brand, location and the manner of obtaining the product. Consumers can use many sources, like family, friends, neighbours, opinion leaders and acquaintances. Marketers also provide relevant information through salesman, advertisements, dealers, packaging, sales promotion and window-displaying. Mass-media like newspapers, radio and television provide information. Marketers are expected to provide reliable, up-to-date and adequate information regarding their products and services. This is the pressing demand of consumerism. 3. Evaluation of Alternative: This is the critical stage in the process of buying. There are several important elements in the process of evaluation: 1. A product is viewed as a bundle of attributes. These attributes or features are used for evaluating alternative brands. For example, a
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product like it has certain common attributes such as taste, flavour, strength, aroma, colour, number of cups per packet and price. 2. Information cues or hints about a set of characteristics of the product in brand such as quality, price, distinctiveness, availability etc. 3. brand images and brand concepts can help in the evaluation of alternatives. 4. In order to reduce the number of alternatives, some consumers may consider more critical attributes and mention the level of for those attributes. 5. Occasionally, consumers, may use an evaluation process permitting trade off among different alternatives. Marketers should grasp thoroughly the process and utility functions for designing and promoting the product. 4. Purchase Decision: While the consumer is evaluating the alternatives, he will develop some likes and dislikes about the alternative brands. This attitude towards the brand influence the intention to buy. Thus the prospective buyer heads towards final selection. In addition to all other factors, situational factors like dealers terms, falling prices etc., also are considered. Perceived risk may also influence the decision to purchase. High priced products involve higher risk. Sophisticated products involve performance risk. Consumers may not have confidence in foreign products involving higher cost and they would prefer national brands to reduce risks and problems of service after sale. 5. Post-purchase Experience and Behaviour: The brand purchase and the product use provides feedback of information regarding attitudes. If the derived satisfaction is as per the expected satisfaction, it will create brand preference influencing future purchase. But if the purchased brand does not yield desired satisfaction, negative feelings will occur and this will create anxiety and doubts. This phenomenon is called cognitive dissonance. There will be lack of harmony between the buyer's beliefs and his purchase decision. Marketer may try to create dissonance by attracting users of other brands to his brand. Advertising and sales promotion can help marketer in this job of brand switching.
7.7 INFLUENCES ON BUYING DECISIONS Most organizational purchase decisions are influenced by the firm's external and internal variables. For example, the fiscal policy of the government has a direct influence on the organizational customer's decision to buy a product. The recent announcement of the government of India's policy to reduce excise duty on consumer goods and the emergence of a strong middle class market' in the country, sent all companies either shopping for collaborations, with major brands in the
world market, or diversifying or expanding their existing capacity. In either situation, demand for basic commodities like steel, cement, paddy are going to increase in the future. Further, industrial buying will change, depending on whether the economy is going through a boom or a recessionary phase. There are four major variables influencing buyer decisions: (a) environmental
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(b) organizational (c) interpersonal (d) individual
Environmental Factors (a) Level of demand (b) Economic outlook (c) Rate of interest (d) Technological change (e) Political and regulatory development (f) Competition
Individual (a) Age (b) Education (c) Income (d) Attitude towards risktaking (e) Personality (f) Job position
Organizational Buyer
Interpersonal (a) Authority (b) Status (c) Empathy (d) Persuasiveness
Organizational Variables (a) Objectives and goals (b) Organizational policies (c) Procedures (d) Organizational structures (e) Systems
Fig.7.1. Influence on buying decisions These influences are shown in Figure 7.3.
Environmental Variables : A very important determinant in organizational purchases is the environmental factor. This includes, factors like competitive developments in the industry, rate of technological change and the value of money. For example, if the buyer perceivcs that the government is likely to increase taxation, which will in turn increase the price of a crucial input, the buyer may resort to buying more material and holding its stock. Likewise, if the buyer anticipates new competition with a better technology, he may not rcpeat his entire purchase order with the existing suppliers. Organizational Variables : Internal variables like culture and environment of an enterprise affect buying decisions. For example, most Indian family owned firms have a centralized structure where purchase decisions often require the familys consent. This can delay purchases and sometimes even affect the firm's capability
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to compete in the market. As opposed to this, a decentralized structure allows for quicker decisions. Interpersonal Variables : The buying centre usually involves several individuals with different formal authority status and persuasiveness. The marketer needs to know who exerts the maximum authority and able to persuade others to agree with his viewpoint. An understanding of group dynamics helps the marketer to evolve his strategy on selling to the buying centre. Individual Variables : Even though there are several individuals, organizational factors and environmental variables affecting buyers decisions, at the end, it is a human decision involving the individual that matters. It is important that the marketer has complete personal details of all individuals who arc involved in the decision making process. Because, personal factors like age, income, education, job position, and so forth are likely to affect individual perception, motivation and preference. Let us take the example of a case where a young (20-25 years) salesperson had to deal with an elderly (55-60 years) customer. The customer found it difficult to accept that a young boy had the knowledge and authority to explain technical details of computers and networks. Since the buying organization was an important client, this young salesperson reported his problems to the marketing manager, who then called on the buyer along wwith his director (50-55 years) and the salesperson. The director asked the young salesperson to do the presentation and thereafter negotiated the deal with the buye. They got the order because the buyer could relate himself better to the old and seasoned gentleman than the young, smart brat.
7.8 SUMMARY Buyer mind is a black box, many persons tried to study the buyers mind and are successful to some extent only. Hence Buyer Behaviour is still a riddle. 7.9 KEY WORDS Reference group, Buying motives, Buying process, Patronage motives 7.10 ASSIGNMENT QUESTIONS 1. What do you mean by Buyer Behaviour? Discuss the different themes of Buyer Behaviour. 2. Explain the factors influencing Buyer Behaviour. 3. Narrate the Buying process.
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LESSON 8
SALES FORECASTING
OBJECTIVES To know the meaning of sales forecasting and its uses To study various techniques of sales forecasting To study the sales forecasting procedure and its limitations STRUCTURE 8.1 Introduction 8.2 Uses of Sales Forecast 8.3 Period of Sales Forecast 8.4 Sales Forecasting is a Difficult Task 8.5 Criteria in sales forecasting 8.6 Techniques of sales forecasting 8.7 Section of appropriate forecasting method 8.8 Sales forecasting procedure 8.9 Marketing information system(MIS) and sales forecasts 8.10 Limitations of sales forecast 8.11 Role of forecasting in planning and budgeting 8.12 Summary 8.13 Keywords 8.14 Assignment questions 8.1 INTRODUCTION A sales forecast is an estimate of the amount or unit sales for a specified future period under a proposed marketing plan or programme. The American Marketing Association has defined sales forecast as "an estimate of sales, in dollars or physical units for a specified future period under a proposed marketing plan or programme and under an assumed set of economic and other forces outside the unit for which the forecast is made"
The making of a proper sales forecast requires assessment of two sets of factors: i) ii) The outside uncontrollable forces likely to influence the company's sale, such as the weather, government activity and competitive behaviour. The internal marketing methods or practices of the firm that are likely to affect its sales, such as product, quality, price, advertising, distributing and service.
The sales forecast may be for a specified product or for the entire product line or it can be for market as a whole or any portion of it. Once the sales forecast is prepared, it becomes the key controlling factor in all operational planning throughout the company. The forecast is the basis of sound budgeting. Financial planning or working capital requirements, plant expansion, and other need is based on anticipated sales. Scheduling of all production as setting man power needs purchasing raw material requirement, and determining the rate of production output, depends upon sales forecast.
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8.2 USES OF SALES FORECAST Sales forecasting serves the following purposes:
1. It enables the company concerned to meet the growing needs by balancing supply and demand. As far as sudden and temporary pressures are concerned, forecasting helps the organisation to avoid them. 2. It is useful for measuring the efficiency of sales department. Sales forecasting may be said to occupy a forefront seat in management. 3. Reliable sales forecasting is a first rate aid to proper pricing whether in terms of costs or in terms of what the market will bear. 4. It aids in reallocation of sales territories. 5. It mitigates the twin evils of under-stocking and over-stocking 6. It acts as a tonic for financial departments which may make use of sales forecast. 7. It acts as a friend, philosopher and guide in so far as plant layout, warehousing and transportations facilities are concerned. 8. Seasonal or timely fluctuations may be easily met with by averaging out production and employment over the year. 9. Maximum regularisation of production which forecasting makes possible serves to eliminate completely or reduce substantially the need for overtime work at premium rates. It also eliminates slack periods in which workers have nothing to do. Perhaps the most dramatic advantage of forecasting in the personal field is the opportunity it gives management to avoid frantic discharging and hiring policies. According to Henry Fayol, "The act of forecasting is of great benefit to all who take part in the process, and is the best means of ensuring adaptability to changing circumstances. The collaboration of all concerned leads to a unified front, an understanding of the reasons for decisions, and a broadened outlook". The specific contributions of forecasting to the field of marketing management may be summed as follows: To decide whether to enter a new market or not. To determine how much production capacity to be built up. To help in the product mix decisions (to eliminate or to add a new product). To prepare standards against which to measure performance. To prepare annual budgets based on estimated sales revenue. To assess the effects of a proposed marketing programme. Sales forecast is the cost or keystone of marketing management. On the basis of the reliable sale forecast, we can have (1) the required number of the salesmen to achieve our sales objective, (2) allocation of sales quota for each salesman, (3) determination of sales compensation plan, (4) determination of sales territories, (5) advertising and sales promotion programme, (6) scheme of distribution, (7) fixing of sales price, (8) production plan, (9) regulating inventories and purchasing, (10) estimating standard cost, (11) budgeting and controlling expenses, and (12) planning cash requirements.
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In fact entire marketing mix, viz., product, price, promotion and physical distribution revolves round the sales forecasts. Sales forecasting acts as the basis not only of production planning and marketing planning but also of financial planning and personal planning. The master plan or budget of the company as the functional or departmental plan and budgets are ultimately based on sales forecasts. Thus a comprehensive and integrated business planning (strategic as well as short term) is based on the foundation of sales planning. Sales forecasting is a device by means of which management may integrate its objectives, its operating programmes, and its targets with potential market opportunity. This is done by translating the sales forecast into specific profit and sales volume goals to be realised in the given period. The sale forecast thus becomes a basis for marketing programmes, purchasing plans, financial, budgets, personnel needs, production schedules, plant and equipment needs, expansion programme and many other aspects of management programming.
8.3 PERIOD OF SALES FORECASTS As far as time frame is concerned, basically, there are three types of sales forecasts:
The short range forecasts The long range forecasts Perspective planning forecasts The short range forecasts help in short range business planning. Such forecast are usually made for a period of one year and reviewed monthly, quarterly or half yearly. Revisions are made in the light of experience and changing conditions. The short-range forecasts are used for planning the various sales/marketing programmes like personal selling, advertising, warehousing arrangements and so on. They also used for short-term planning of the activities in the functional areas that are outside marketing like production, finance and materials. The long range forecast at the time of starting facilitate investment decisions at the time of starting a new industry or while attempting and expansion or diversification. Since industrial investment is often irrevocable and the pay-off period extends over a long term, demand forecasting for a longer-term, say ten years will be essential for investment decisions. The margin of error may be high in such long-term forecasts. Yet, they would be sufficiently reliable for planning purposes. Sometimes, one comes across a still longer-term forecast, say for 15 or 25 years. Such forecasts are normally used for the purpose of perspective planning. Economies subscribing to planned economic development often generate perspective planning targets in the different sectors of the national economy. Perspective planning of this kind serves as a guide to the planning and implementation process over a really long ranging period.
8.4 SALES FORECASTING IS A DIFFICULT TASK In any business, sales forecasting invariably turns out to be a difficult exercise. There are two vital reasons for this. In the first place, forecasting means
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predicting the future. And as Peter F. Drucker said, we can be certain of only three things about the future. i) it cannot be known with certainty. ii) It will be different from what it is now. iii) It will be different from what we expect Secondly, each business has certain peculiarities. As such forecasting of demand and sales in any business bristles with certain peculiar complexities. One has to master these complexities in any attempt at sales forecasting.
8.5 CRITERIA IN SALES FORECASTING The following are the criteria frequently used:
Market potential (or industry potential) Company potential (or sales potential) Market demand (or industry demand) Company demand (or sales possibilities) Market forecast (or industry forecast) Company forecast (or sales forecast) 'Market potential' is nothing but a quantitative estimate of the total possible sales by all the firms selling the product in a given market. It gives an indication of the maximum demand or the ultimate potential for that product assuming that the ideal marketing effort is made. 'Company potential' refers to a part of the market potential, what an individual firm can sell at the maximum in a given market, again under ideal conditions and on the assumption that the ideal marketing effort is made. The terms 'Market demand' and 'Company demand', refer to those portions of 'Market potential' and 'Company potential' that are achievable under existing conditions. 'Market forecast' and 'Company forecast' are still narrower they refer to what the industry and the firm respectively are likely to sell in actual practice during the period of the forecast. It can be easily seen that 'Company potential' is just a part of 'Market potential', 'Company demand' is just a part of 'Market demand', and 'Company forecast', i.e., sales forecast is just a part of 'Market forecast'.
8.6 TECHNIQUES OF SALES FORECASTING No one method of sales forecasting can be applied to all enterprises, nor can all factors that establish a sales forecast be obtained form one source. These techniques range from uninformed guesses of the executives to highly sophisticated statistical methods. Usually separate estimates are prepared for each article or product line. Then each total product forecast is sub-divided in as much detail as possible i.e., a forecast should be made in rupees and/or units for each territory, customer, group or other meaningful sales unit. Such forecast may then be used in planning for sales quota or allocating the advertising expenditure.
Some of the most common techniques used for sales forecasting are discussed below:
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1. Jury Method/Executive Opinion Method: Under this method, opinions of the top executives (form marketing, production, finance and other departments) regarding future sales volume is obtained. Such method provides forecasts easily and quickly; does not require any elaborate statistics; permits combining and averaging the specialised opinion of different executives. But such method lacks scientific validity and may turn out to be absolutely wrong and deceptive; and it also disperses responsibility for accurate forecasting. 2. Sales Force Composite Method: As per the sales force composite method, the sales forecasting is done by the sales force. All salesmen develop the forecast for their respective territories; the territory-wise forecasts are consolidated at branch/region area level; and the aggregate of all these forecasts is taken as the corporate forecast. 3. Survey of Export Opinion Method: This is yet another judgment-based method of sales forecasting. This is somewhat different form the jury method and the sales force composite method. In those two methods, opinions of the executives and sales force are used to develop the forecast. In survey of expert opinion method, experts in the concerned field inside or outside the organisation are approached for their estimates. This method may be relatively more useful when total industry forecast is developed than in company level sales forecast. 4. Users' Expectation Method: This method is adopted for industrial marketing. The advantage here is that the customers comprise only a small group. Clearly, if a company can obtain an adequate and reliable information sample of what customers will buy, even though the actual orders are not in hand, it will have a good basis upon which to develop a sales forecast. As pointed out, this method cannot be adopted in consumer goods marketing as the customer are large in number. Secondly, customer expectations cannot be predicted accurately. 5. Market Share Method: Some firms use a simple method of sales forecast in which the desired/planned market share of the firm is the key factor. They work out the industry forecast apply their market share factor and deduce the company's sales forecast. The market share factor is developed based on past trend, companys competitive position, brand preference etc. Such conversion of industry forecast into company sales forecast enquires considerable expertise. By a detailed marketing audit, the firm must correctly appraise its market standing, brand image, market share and strengths and weaknesses as compared with the competitors in the industry. It must also correctly assess through reliable marketing intelligence, its competitors plans, policies and activities. Only then, the forecast arrived at by this method will have a good degree of reliability. Retail audit would also be of considerable help in employing, the market share method; it would help assess the industry position as well as the individual firms market shares. 6. Simple Projection Method: Among the projection methods, the simplest is the one that uses the rule of the thumb by which current years forecast is arrived
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a by simply adding a certain percentage to last years sales. Some firms use the formula shown below: Next year' s sales =
(This year' s Sales )2

Last year' s sales
This formula will provide a reasonably reliable estimate only if the sales are stable and show an increasing trend. Some other firms go by the growth rates adopted by industry leaders. In certain cases the rate of growth of the industry as a whole is adopted or the projection. 7. Extrapolation Method: Some firms rely on the extrapolation method. Extrapolation is also a projection/trend method. It involves the plotting of the sales figures for the past several years and stretching of the line or the curve as the case may be. The mechanical extrapolation will give the sales forecast for the coming years. Extrapolation basically assumes that the variables will follow the previously established pattern. Accordingly, this method will be effective where the pattern of past movement has been relatively steady and abrupt disruptions are unlikely in the future. In other words, the assumption is that the future will mirror the past. 8. Moving Averages Method: This method enables us to eliminate the effects of seasonality and other irregular trends in sales. Each point of a moving average of time series is the arithmetical or weighted average of a number of preceding consecutive points of the series. If seasonal effects are present in the demand pattern of the product, a minimum of two years sales history is needed for applying this method. 9. Exponential smoothing: Exponential smoothing is yet another projection method of sales forecasting. It is similar to moving averages and is used fairly extensively. It represents the weighted sum of all past numbers in a time series with the heaviest weight placed on the most recent data. This method is particularly useful when forecasts of a large number of items are made. It is not necessary to keep a long history of past data. The method can have a stable response to changes and responses can be adjusted as required. 10. Time-series Analysis: It is a common device of mathematical projections of future sales. It involves the projection of past sales trends into the future. To predict future sales we analyse four kinds of historical sales variations (1) seasonal variations, (2) movements related to changes in the business cycles (Depression, Revival, Prosperity, Boom followed by Slump and so on), (3) the long-term trends of sales, and (4) irregular or unexplained variations. By isolating and analysing these four types of variations in sales, an analyst can estimate with accuracy the probable level of sales for a coming period. Of course, it is assumed that the past trend will continue in the future under such extrapolation. This is an objective method of sales forecast. 11. Regression Analysis: Regression analysis is another analytical technique of sales forecasting. This technique tries to functionally relate sales to those variables that influence sales. They may be economic factors, competitive factors or price.
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The variable which is to be forecasted is the dependent variable and the factors which cause changes in the dependent variable are explanatory or casual variables. The association between the dependent the dependent variable (i.e. the sales forecast of the company) and the explanatory or causal variables is determined and measured. An equation is fitted to explain the fluctuations in sales in terms of explanatory or causal variables. After establishing the relationship based on past data and with the estimated values for the factors for future years, we can get the sales estimates for the future years. Where sales are influenced by two or more causal variables acting together, multiple regression analysis is applied. Computers are used for regression analysis involving complex calculations. The regression method, in general, will give more accurate forecasts than the trend method since regression takes into account causal factors. At the same time, in regression analysis involving a number of causal variables, the error of forecasting will multiply along with the error in determining and measuring the relationship or influence of each of these variables. 12. Econometric Models: Econometric models constitute yet another analytical method of sales forecasting. Econometrics basically attempts to express economic theories in mathematical terms so that they can be verified by statistical methods and used to measure the impact of one economic variable upon another for predicting future event. The econometric forecasting models vividly portray the real world situations and the multiple variables involved in the sales situation. The econometric models are quite complex and expensive to develop. But they predict the turning points more accurately. The econometric models are used more in forecasting the demand of durable industrial as well as consumer durables, where replacement demand is a significant factor to be projected. 13. Market Survey Method: When a company wants to introduce a new product or an improved product, it resorts to a market survey to assess the likely demand for the product. Likewise, any new company entering the market for the first time, resorts to the market survey method for forecasting its demand/sales. This is quite natural. The firm does not have any data of past sales or past demand patterns to fall back upon. It has to gather the information from the market and take decisions. Usually, the firm conducts a survey among a sample of consumers and gauges their attitudes, likely purchases and purchase habits. Sometimes, a survey is conducted among the channel members-wholesalers, and/or retailers to elicit information on their attitudes, likely purchases, etc.
8.7 SELECTION OF APPROPRIATE FORECASTING METHOD The forecaster must carefully choose his method of forecasting from among the wide variety of methods. Basically, the method chosen must match the requirements of his product and his organisation. Since all the methods have their associated merits and demerits and there is nothing like an ideal forecasting method that could be applied to advantage in all situations, the forecaster must assess the suitability of the specific method to his specific situation before
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commissioning the forecasting exercise. Quite often, the forecaster can improve his forecast by choosing a combination of more than one method.
8.8 SALES FORECASTING PROCEDURE The usual steps involved in sales forecasting are:
1. Determining the objectives for which the sales forecasts are to be used. 2. Dividing Companys products into homogeneous groups. 3. Determining the relative importance of the factors which affect sales of each such group. 4. Selecting the appropriate sales forecasting method. 5. Collecting and analysing the sales and drawing conclusions there from. 6. Converting the conclusions into specific forecasts relating to the products and territories involved. 7. Applying these forecasts to companys operations; and 8. Periodically reviewing and revising the forecasts. 8.9 MARKETING INFORMATION SYSTEM (MIS) AND SALES FORECASTS Marketing information is central to sales forecasting. Since a large number of factors, such as changes in economic and business conditions, changes in market potential, changes in competition and changes in the programmes of the firm influence the sales of a firm, sales forecasting requires a data base relating to all these factors. The following are the essential data requirements for effective sales forecasting. 1. Industry sales for the past few years; product-wise territory-wise, customers class-wise, month-wise and dealer-wise. 2. Past sale of the company. 3. Production data-industry and company. 4. Market share of each firm in the industry with break-up of sales by markets/territories/channel types. 5. Sales of substitute products. 6. Use pattern of the product. 7. Economic, technological and environmental date relevant for the products consumption. 8. Strengths and weaknesses of the firm in the market. 8.10 LIMITATIONS OF SALES FORECAST It is subject to certain limitations, which hamper the accuracy of sales forecasting. The limitations are offered by factors such as fashion, absence of sales history, growth elements and psychological behavioural variables of the market. Fashion or style affects the sales. It is difficult to say how for the market will adopt the new fashion and for how long. If the fashion becomes popular, large sales may result, otherwise the sales may be very small. Absence of sales history also creates difficulty in accurate forecasting in case of those firms which base their forecasts on the past sales trends. In the absence of past a sales history the sales forecasts may be based on mere guess work.
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Anticipated growth rate for the product can be calculated precisely, because the rate of growth never remains uniform, the same rate may rather continue, decline or remain stationary. Psychological behavioural variables prevailing in the market are difficult to measure for any change in the consumer attitude may upset the entire sales forecast. Therefore, while preparing sales forecasting, due consideration should be given to these limitations by the marketing executives.
8.11 ROLE OF FORECASTING IN PLANNING AND BUDGETING Forecasting plays an important role in every major functional area of business
management. But forecasting probably is more closely linked to planning and budgeting than to any other key business function.
Forecasts are different from plans. A forecast is an estimate of what is expected to happen at or by some future period. A plan is what management intends to do about it. Management prepares for change through planning which, in turn, requires making forecasts, establishing goals based on the forecasts, and determining how these goals are to be reached. Plans can never be realistic if they i1re based on solid forecasts. Budgeting is also closely related to planning. Though a plan depicts what management intends to do in the future, a budget is a blueprint of the financial aspects intended for that future. Collectively, an organisations budgets spell out how much is to be spent on various activities in the future and, in effect, where the funds will come from. In turn, budgets serve as control mechanisms to measure the progress toward accomplishing plans. The entire budgeting process is also built on the sales forecasting process, as the diagram on the next page shows. Notice in the diagram how sales forecasts drive the entire budgeting process. An organisation cannot have effective plans or budgets without their being built on well-conceived sales plans or sales forecasts.
8.12 SUMMARY Sales forecasting is an estimate or projection of sales likely in the future. It is helpful for a marketing man in several ways in planning. There are various techniques used for sales forecasting. An organisation should choose an appropriate method of Sales Forecasting. 8.13 KEY WORDS Sales Forecasting, Market Potential 8.14 ASSIGNMENT QUESTIONS 1. Define Sales Forecasting. State the importance of Sales Forecasting. 2. Explain the techniques of Sales Forecasting.
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3. CASES/PROBLEMS (UNIT II) 1. Suma Limited has a product range of steel furniture, cosmetics, drugs, cattle feed, refrigerators and typewriters. The company has market potential throughout India. How would you segment the market for Suma Ltd? (Refer Lesson 6)
2. Bata shoes are gradually losing their position in the market. Suggest a strategy to reposition them. (Refer Lesson 7) 3. State the factors influencing the TV buyers. The extent of their influence and the appropriate approach of marketers have also to be highlighted. (Refer Lesson 8) 4. You are making and marketing mosquito nets. Now the market is flooded with mosquito repellents. How would you manipulate your marketing mix to face the market situations? (Refer Lesson 9) REFERENCE BOOKS (UNIT II) Fundamentals of marketing William J Stanton Marketing Management Marketing Management Principles and Practice of Marketing in India Principles of Marketing Philip Kotler V.S. Ramaswamy S. Namakumari Dr. C.B. Mamoria R.L. Joshi S.A. Sherlekar S.J. Salvadore Victor Dr. K. Nirmala Prasad
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LESSON 9
MARKETING MIX
OBJECTIVES After reading this lesson you will understand
The concept of Marketing mix Variables of Marketing mix STRUCTURE 9.1 Introduction 9.2 Product variable 9.3 Place variables 9.4 Price variable 9.5 Promotion variables 9.6 Customer variables 9.7 Competition variables 9.8 Trade variables 9.9 Environmental variables 9.10 Management of Marketing Mix 9.11 Summary 9.12 Keywords 9.13 Assignment questions 9.1 INTRODUCTION It was James Culliton, the American marketing expert, who coined the expression Marketing Mix and described the marketing manager as a mixer of ingredients. To quote him, The marketing man is a decider and an artist-an mixer of ingredients, who sometime follows a recipe prepared by others: sometimes prepares his own recipe as he goes along; sometimes adapts a recipe to the ingredients immediately available; sometimes invents some new ingredients; and sometimes experiments with ingredients as no one else has tried before. It was Jerome McCarthy, the well-known American Professor of marketing, who described the variables of marketing mix in terms of the four Ps, classifying the variables under four heads, each beginning with the alphabet P; Product. Place (distribution). Pricing. Promotion. These for components of the marketing mix are also alternatively described as: The product mix. The distribution mix. The pricing strategy. The communication mix. In each of the marketing mix elements there are several sub-elements. The complete set of marketing mix elements and sub- elements are presented below:
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9.2 PRODUCT VARIABLES Product line and range. Design, quality, features, models, style, appearance, size and warranty of product. Packaging, type, materials, size, appearance and label. Branding and trade mark. Service, pre-sale and after-sale. New products. 9.3 PLACE VARIABLES Channels of distribution, types of intermediaries, channel policy and design, location of outlets, channel remuneration, and dealer-principal relations. Physical distribution, transportation, warehousing, inventory, levels, order processing etc. 9.4 PRICE VARIABLES Pricing policies, levels of prices, levels of margins, discounts and rebates. Terms of delivery, payment terms, credit terms and instalment facilities. Resale price maintenance. 9.5 PROMOTION VARIABLES Personal selling, objectives, level of effort, quality of sales force, cost level, level of motivation. Advertising, media mix, budgets, allocations and programmes. Sales promotional efforts, display, contests, trade promotions. Publicity and public relations. In addition to the marketing mix variables described above, the marketing manager of any firm handles another set of variables, viz., Behavioural/ Environmental variables. As the same indicates, these variables are constituted by the behavioural or environmental forces that are external to the enterprise. This set of variables too can be classified under four heads;
Customer variables. Competition variables. Trade variables. Environmental variables. There are several sub-variables under each of the Behavioural/Environmental variables. They are presented below:
9.6 CUSTOMER VARIABLES Number of customers. Location of the customer. Purchasing power of the customers. Buying behaviour. Habit of purchase. Personality traits and attitudes. Lifestyles and needs 9.7 COMPETITION VARIABLES Structure of the industry. Nature and intensity of competition.
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Products and services offered by the competitors. Number of competitors, their size, capacity and territory of operation. Competitors sales levels in each market segment/product. Competitors strengths and weaknesses. Competition from substitute products. 9.8 TRADE VARIABLES Structure of the trade. Types of intermediaries, their number and strength. Trade practices. Service provided by the trade. Motives and attitudes of the intermediaries. Extent of sophistication of the trade. 9.9 ENVIRONMENTAL VARIABLES Level of technology. Government regulations on products, prices, distribution, etc. Controls on trade practices. Economic conditions in the country. Geography and climate. Culture and traditions. Law and politics. Attitudes of the public and the press. The marketing mix variables are often termed as controllable variables of marketing, as they emanate from within the enterprise and the marketing manager is free to choose, alter and control these variable as he likes. The environmental variables are termed as non-controllable variables as they are external to the firm and the marketing manager cannot choose them or control them at his will. The marketing process is nothing but the interaction of the marketing mix variables with the environmental variables. As the environmental variables are noncontrollable any marketing programme in effect turns out to be a conscious adjustment of the marketing mix variables to suit the environment variables.
9.10 MANAGEMENT OF MARKETING MIX Assembling the marketing mix elements into a winning marketing programme is by no means an easy task. It involves many crucial decisions relating to each of the elements-product, price, channel and promotion. Decisions are also required on the interrelationships of the elements. What is the ideal combination of the four Ps in a given situation? Which line of products, or which individual product should be the price structure? What are the channel options available and which one has to be selected? What is the right promotion strategy for the product in the chosen market? How should the total marketing effort and resource of the firm be apportioned among each of the four Ps? These and many other similar questions have to be raised and answered. The impact of the mix would be best when the different elements of the mix are chosen correctly and are integrated very well with one another.
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Blending the marketing mix elements into a winning combination is a continuous task and not a one shot assignment. No marketing man can assume that the marketing job is over once the elements of the marketing mix are assembled in the right way. The mix may require constant changes. The marketing man has to carefully monitor the mix and adjust the elements as required by the changing conditions. The marketing man has to keep the marketing mix open. Without keeping the marketing mix open and dynamic, the marketing man will not be in a position to respond properly to the changes that are taking place constantly in the environmental variable. Let us, for instance, take competition, which is a major environmental variable. The competitor in a given industry may be making many tactical manoeuvres in the market all the time. They may introduce a new product or initiate an aggressive promotion campaign or announce a price reduction. The marketing man of the firm has to meet all these manoeuvres and take care of the competitive position of his firm and his brands in the market. The only route open to him for achieving this is the manipulation of his marketing mix. Just as the changes taking place in the external environment necessitate modifications in the marketing mix, changes taking place within the firm too necessitate modifications in the marketing mix. For example, changes in the corporate strategy of the firm, changes in the resource level of the firm, or changes in the product lines of the firm lead to changes in the marketing mix as well. In short, the elements of the marketing mix have to be ingeniously altered to accommodate the changes taking place within the firm and in the relevant external environment. And this is precisely why assembling and operating the marketing mix remains a continuous task in marketing management.
LIMITATIONS OF 4 PS MODEL The 4 Ps model of Marketing-Mix has perhaps gained acceptance more because of its elegance, rather than its validity, in all situations. So, it is very important to emphasize here that this mode1 is not of universal validity. The basic theory behind this model and concept is that if one manages to achieve the right product at the right price, with appropriate promotion and at the right place, the market-programme will be taken to be effective and successful.
In other words, it is not sufficient to think in terms of 4 Ps model only. We have to identify the significant sub-components, which underline the Company's strategy. To help you, here we give a few typical examples of Marketing-Mixes of various Companies. (1) Cosmetics - 7 Ps and 1 A (Product, Packaging, Price, Promotion, Personalselling, Publicity, Physical distribution and Advertising). (2) Domestic appliances - product, price, promotion, place and service. (3) Automobile components product, quality, price, place (i.e., just in time), selling (i.e., no mention of promotion and/or advertising).
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Thus, it should be very clear now, that what is right for a cosmetic company, is not appropriate for an automobile-components company. The situation gets all the more complicated, in as much as the automobile components company may have different mixes, depending on whether it sells its products to original ell1lipment manufacturing (OEM) companies, or for the replacement market. In the former case, there is little point in spending resources on promotion and/or advertising; whereas in the latter case, advertising may be quite relevant, because one is seeking to reach a market, with a large number of consumers in it. So, every situation calls for a careful analysis or the key-points, to decide where marketingresources must be allocated. The Marketing-Mix should represent these key-points. Remember that the very purpose of determining a Marketing-Mix, is to satisfy the needs and wants of the customers, in the most effective and economical way. It is because of the constant changes in the needs of the customers, and the environmental factors, that the Marketing-Mix also has to keep on changing and cannot remain static. It is a dynamic process. According to Philip Kotler it represents the setting of a Firms marketing decisions, at a particular point of time.
9.11 SUMMARY The four elements of marketing mix are co-equal, inter-dependent and essential. The marketing mix acts as the integrated marketing strategy and the four elements together constitute the marketing strategy. Individually the four elements are important but their significance lies in the proper mix or blend indicating the unique way they are combined as a careful plan, or strategy, to meet competition in a dynamic marketing environment. For one market segment we have a typical marketing mix. The decisions on the elements of marketing mix must be properly co-ordinate and balanced in order to achieve an optimum marketing mix. 9.12 KEY WORDS Four Ps, Variables, Marketing mix, Blending the Marketing mix 9.13 ASSIGNMENT QUESTIONS 1. Explain the different variables of Marketing Mix. 2. Brief the Behavioural/ Environmental variables. 3. Narrate Management of Marketing Mix.
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LESSON 10
PRODUCT
OBJECTIVES To know the meaning of the term product and its importance To know the classification of products To study the product policy and factors influencing product mix STRUCTURE 10.1 Introduction 10.2 Importance of the product 10.3 Product classification 10.4 Product concept 10.5 Product policy 10.6 Factors influencing product mix 10.7 Objective of product management 10.8 Summary 10.9 Key words 10.10 Assignment questions 10.1 INTRODUCTION In a most simple way a product could be defined as everything the purchaser gets in exchange for his money. From a strictly technical or manufacturing point of view, a product consists of a number of raw materials put together that the end result (i.e., the product) serves a useful purpose of consumption. From the economic point of view, a product consists of a bundle of utilities involving various product features and accompanying services. These utilities are created by a set of tangible, physical and chemical attributes assembled in an easily identifiable form. The products, for easy identity, will have a descriptive name also (brand name). Thus, a consumer is buying what is expressed economically as want satisfaction. A product is, therefore, not just a physical object but what consumers perceive it to be.
Almost everything that we come across in our daily life is a product this course material on Marketing Management is a product; Financial Express news paper is a product; Reynolds ball point pen is a product; a bottle of Kissans Orange squash, a tin of Complan, a Close-up tooth paste, a Margo soap, a packet of Surf, a Onida TV set they are all products. All of them have some utility behind them; all of them cater to and satisfy some needs of some people. So, in simple terms, we can define a product as a need satisfying entity. A product is something more than a mere physical commodity. It has a personality. Products carry certain meaning with them and project certain distinctive image. These meanings and images arise out of the many components that make up the total product personality. The major components are: (i) (ii) (iii) The core or the basic constituent The associated features The brand name
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(iv) (v) The package and The label
10.2 IMPORTANCE OF THE PRODUCT A firm is not selling a product. It sells only the Product benefit. Product is the most important variable in the marketing mix of a firm. Any firm is floated to manufacture and sell a product. If the product is sound and easily acceptable to the market, if it satisfies resellers needs and consumer preferences and is carefully fitted to the needs and desires of the customers, sales success is assured. In essence, the right product is a great stimulus to sales. A right product is bound to reduce considerably the problems pricing, promotion and distribution. It need not have aggressive advertising and high pressure salesmanship. It may not demand extra-ordinary sales promotion gimmicks. Hence product is the centre of all marketing policies and decisions. The marketing planning begins with the product and also ends with the product. So product decisions are the most important decisions. 10.3 PRODUCT CLASSIFICATION It is evident that product has been undergoing a constant change and the marketing man has been constantly engaged in enriching his product offer. In his attempt to score over competition, he has been bringing out refinements upon refinements on his basic product offer but managing the product was becoming more and more difficult. He had to take the product to higher and higher levels of evolution such as:
The generic product The branded product The differentiated product The customized product The augmented product The potential product THE GENERIC PRODUCT AND THE BRANDED PRODUCT The generic product is an unbranded and undifferentiated commodity like rice, bread, flour or cloth. The branded product gets an identity through a name. Spencers bread and Modern bread are branded products. The marketing implications of the Brand have already been dealt with earlier in detail.
THE DIFFERENTIATED PRODUCT The differentiated product enjoys a further distinction form other similar products/brands in the market. The differentiation claimed may be real, with a real distinction on quality or utility or service; or it may be psychological, brought about through subtle sales appeals. All seasons Hi-tech Tomato soup is an example of a differentiated product. It claims a distinction and difference over other brands of packaged soups-it is ready in two minutes, it involves absolutely no cooking, the product is to be just poured into boiled water and consumed. The differentiation is essentially on the plank of convenience to the user.
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THE CUSTOMISED PRODUCT In the customized product, the customers specific requirements are taken into account while developing the product. This is a frequent practice in industrial products marketing, where the manufacturer and the user are in direct contact and the product gets customized to the requirements of the customer. When an engineering and fabrication firm like Larsen and Toubro undertakes to supply oil rigs to the Oil and Natural Gas Commission, it is offering a customized product to the specifications of ONGC. It is not supplying an off-the-shelf or standard product. When the same firm supplies its cement to ONGC, it is offering just a branded product, not a customized product. THE AUGMENTED PRODUCT The augmented product is the result of voluntary improvements brought about by the manufacturers in order to enhance the value of the product. These improvements are neither suggested by the customers nor even expected by them. The marketer, on his own, augments the product, by adding an extra facility or an extra feature to the product. When manufacturers of Aristocrat mouled luggage introduced luggage cases with wheels, it was a case of product augmentation. The wheel was an extra facility the manufacturer thought of and added to the luggage. Instead of lifting and carrying the suitcase, the users could now pull it along the ground on its wheels. THE POTENTIAL PRODUCT The potential product is tomorrows product carrying with it all the improvement and finess possible under the given economic and competitive conditions. There are no limits to the potential product. The limit is set only by the technological and economic resources of the firm. A computer which can understand human language, and respond directly to human voice and oral instructions is an example of a potential product. 10.4 PRODUCT CONCEPT The product concept has three dimensions viz.,
Managerial Dimension Consumer Dimensions and Societal Dimension 1. Managerial Dimension: It covers physical attributes, related services, brand, package, product life-cycle and product planning and development. 2. Consumer Dimensions: To the consumer, a product actually represents a bundle of expectations. Once a product is bought by a consumer and his evaluation, i.e., post-purchase experience, is favourable, marketers can have repeat orders. Buyers are not interested in the composition of a product. They are concerned only with what the product does, and to what extent it satisfies their social and psychological needs. 3. Societal Dimensions: To the society salutary products (having good effect in the body & mind) e.g. Tonic and desirable product (TV., Cycle etc.) are always welcome, as they fulfill the expectations of social welfare and social interests. 84
Salutary products yield long run advantages, but may not have immediate appeal. Desirable products offer both immediate satisfaction and long run consumer welfare. Marketers have to fulfill the following social responsibilities while offering the products to consumer. (a) (b) (c) (d) Safety to users Long-run satisfaction to consumers Quality of life, concern for better environment Fulfillment of government regulations relating to composition, packaging and pricing of many products.
10.5 PRODUCT POLICY The modern marketing concept is that it is not sufficient merely to produce a better product; it is also necessary to bring it to the attention of the prospective customers. In other words:
(1) Even if there is a better product, it will not be bought unless its existence is brought to the notice of the consumers (2) A bad or useless product may be bought when its uses are highlighted to the consumers. This makes it necessary on the part of the producers to adopt certain policies to bring the product to the notice of the prospective buyers. The term policy can notes a principle of operation adopted by the management to guide those who carry out action. A policy sets the objectives to be achieved and also the limits within which the management has to operate. For the proper carrying out of business functions, each function must have a policy. As far as a product is concerned, such a policy is essential to make the product live up to the expectations of the consumers. Such policies taken in regard to the development of a new product or for retaining an existing product in the market is known as product policy. The main function of product policy is to guide the activities of the firm towards common goals. Today the success of the company is measured not only by its current profits but also by its long-term growth. In other words, a company must strike a delicate balance between optimizing current operations and making necessary provisions for the future. These aims could be achieved only by adopting a proper product policy. The important aspects analysed under product policy are: Consideration of the product mix; the rate, nature and direction of changes in demand for existing products; Product elimination and new product development decisions, and Product policy of the competitors. It is to be understood that product policies do not provide ready made answers to the above problems. Product policy could provide only guidelines for efficient planning and action.
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Product policies are company rules to guide those engaged in product planning development, production or marketing. Stated more specifically, such policies are concerned with defining the type, volume and timing of the products that are offered by a company for sale, it is sometimes suggested that the product policy is applicable only in cases where new products are introduced. Product policies are applicable for both existing and new products.
DECIDING THE PRODUCT POLICY Deciding the product policy is the main task in product management. What products should a company make? Where exactly are these products to be offered? To which market, or market segment? What should be the relationship among the various members of a product line? What should be the breadth and depth of the product mix? How many different product lines can a company accommodate? How should the products be positioned in the market? What should be the brand policy? Should there be individual brands, family brands and / or multiple brands? Can a product be left to the middlemans branding? Answers to these questions will constitute the product policy of a firm.
Broadly, the product policy involves: Appraisal of the product line and the individual products. Decisions on product differentiation Product positioning Brand decisions Decisions of packaging New product development Product policy has three elements viz. (1) Product item (2) Product line and (3) Product Mix. 1. Product Item: Product item refers to the specific product manufactured by a company. Simply speaking it refers to a particular product. For example, Godrej Company produces various products (items), like locks, refrigerators, typewriters, etc. Here each product is a product item. 2. Product Line: Product line refers to a group of products that are closely related because: (a) they satisfy a class of need (b) they are used together (c) they are sold to the same customer groups, (d) they are marketed through the same type of outlets (e) they fall within given price ranges. a. If any one of the conditions is fulfilled to a group of products manufactured by a concern, then it is a product line. 3. Product Mix: Product Mix is defined as the composite of products offered for sale by a firm or a business. Rather product mix is a collection of all products offered for sale by a company. Product mix is one of the elements of product policy. The product mix is three dimensional: it has breadth/ width, depth and consistency. (a) Breadth/Width: Breadth or width of the product mix refers to the number of product groups or product lines found within the company. For example, Bajaj Electricals produce varieties of electrical appliances such as fans, mixies, lamps, etc.
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(b) Depth: Depth refers to the number of product items within each product line. For example Kodak Company manufactures different varieties of cameras. Consistency: Consistency of product mix refers to the close relationship of the various product lines. In other words the products manufactured by a company are united by one factor. For example, Bajaj Electricals produces various lines of products. But these goods are not united by a common factor.
(c)
10.6 FACTORS INFLUENCING PRODUCT MIX As long as profit motive is there in any business, changes, in product mix are inevitable. The exact number of products to be manufactured and marketed by a firm cannot be exactly determined. They are influenced by many factors controllable, non-controllable, external or internal.
(1) Non-controllable Factors: The non-controllable factors may be (a) population increase / decrease, (b) changes in the level of income of buyers, (c) changes in consumer behaviour. In India, there is an ever increasing rate in the growth of population. This naturally adds to the number of buyers leading to a quantitative change in the volume of production. The development programme of the Government ensures increase in income enabling the consumers to spend more. This also adds to the stream of demand qualitatively and quantitatively. The consumer behaviour is the source of reasons that invite changes in product planning. (2) Controllable Factors: (a) Cost Considerations: A firm may think of adding the new product to its product line which can be produced easily with the same machinery and production facilities. It will certainly bring down the cost of production of existing products. Thus the cost considerations may be tempting motive behind such diversifications. Complementary/Demand Factor: A firm can add the product to its product line which has a complementary demand to its products. For example, a pen manufacturing company can start the production of nibs and link also. Advertising and Distribution Factors: A firm using a wide network of advertising and distribution channels can think of adding new products, to its product line as they can be distributed with the help of the same network. It will lower down their advertising and distribution costs also. Use of Waste: Sometimes due to use of waste and residual material also there can be an increase in product line. The product can be manufactured as by-product and it may bring down the cost of main product.
(b)
(c)
(d)
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(e) Company Objective: The company objective may be to stabilize or increase the profits, to maximum sales or to enter into new markets. This may motivate the company to add new product to its product line. The elimination of obsolete products and unsuccessful product also bring changes in product line and product mix of the companies.
10.7 OBJECTIVES OF PRODUCT MANAGEMENT Products are the bed-rock of any organisation. Sales are realised through sales of the products. Thus the overall success of the organisation is dependent upon the planning land development of products. Product management thus tries to achieve the following objectives:
PR AN O D DU D CT EV P EL LA O N PM NI EN NG T D EL I VA VER LU Y E OF
E Y AG IT IM AL D ON A N RS BR PE D AN
D NT AN ME BR GE NA MA D AN Y BR UIT EQ
C O RE F VA AT LU ION R E
D G AN NIN BR TIO SI PO
PRODUCT MANAGEMENT
1. 2. 3. 4. 5. 6.
Fig. 10.1 Scope Of Product Management To design product strategies with respect to customer, industry and competition analysis. To spot marketing opportunities and to see whether they are exploitable. To seek growth through new product development. To plan strategies for each stage of product life cycle. To generate new product ideas, and develop them further. To consolidate existing product profile. To do portfolio analysis. To improve and modify existing products. To identify the brand extensions and line extensions. '
C M OR C AR P O IN OM KE R D P T AT U E IN E ST TI G A R TIO P ND Y L AN N, AN AL CU NIN YS ST G IS O M , ER
PRODUCT LIFE CYCLE
AN
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To identify the brand identity, build a brand image, position a brand, build a brand, to develop brand equity and measure it. 10.8 SUMMARY Product is the import variable in the market. If the product is satisfied to the buyer, then all other tasks to the organ is simple.
10.9 KEY WORDS Generic product, Augmented product, Product differentiation, Product lone, Customised product. 10.10 ASSIGNMENT QUESTIONS 1. What is a Product? How would you classify it? 2. Explain product policy.
7.
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LESSON 11
PRODUCT PLANNING AND DEVELOPMENT

OBJECTIVES To understand the concepts Product Planning & Product development To study the stages in Product Life Cycle To know the strategies used in different product life cycle. STRUCTURE 11.1 Introduction 11.2 Product Planning 11.3 Product Development 11.4 Product Life Cycle 11.5 Uses and Limitations of Product Life Cycle 11.6 Summary 11.7 Keywords 11.8 Assignment questions 11.1 INTRODUCTION The Marketing programme starts with product planning and the technical activities involved in it, is called as Product development like human being the product is having a definite life cycle. Various strategies are formulated depend upon the stages of the cycle. 11.2 PRODUCT PLANNING It is the starting point for entire marketing programme in a firm. It embraces all activities, which enable producers and middlemen to determine what should constitute a companys line of products. Product planning has been defined as the act of marketing out the supervising the research, screening, development, and commercialization of new products; the modification of existing lines and the discontinuance of marginal or unprofitable items.
In other words, product planning involves three important considerations: (a) (b) (c) The development and introduction of new products The modification of existing lines to suit the changing consumer needs and preferences; and The discontinuance or elimination of unprofitable or marginal products.
11.3 PRODUCT DEVELOPMENT Product development embraces the technical activities of product research, engineering and design. It requires the collective participation of production, marketing, engineering, and research departments. The scope of product- planning and product development activities covers the decision making and programming in the following areas.
1. 2. 3. 4. 5.
Which product should the firm make and which should it buy? Should the company expand or simplify its line? How each new item could be more useful? Is the quality right for the intended use and market? What brand, package and label should be used for each product?
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How should the product be styled and designed, and in what sizes and colours, and what materials should it produce? 7. In what quantities should each item be produced, and what inventory control should be established? 8. How should the product be priced? Of the above areas one of the most important is the taking of decision to make or buy a product. Some firms may assemble a series of pre-manufactured parts; others may decide to make some parts and buy others and then assemble to give an end product. Yet others may assemble pre-manufactured parts; and the paint, polish, or otherwise finish the end product. The decision to make or buy a product depends upon the managements analysis of several issues, such as the following. Relative cost of making or buying Extent to which specialized machinery techniques, and production resources are needed. 3. Availability of production capacity. 4. Managerial time and talents required the amount of production supervision needed. 5. Secrecy of design, style and materials the extent to which the company wants its processing methods kept secret. 6. Attractiveness of the investment necessary to make a product. 7. Willingness to accept seasonal, cyclical, and other market risks. 8. Risk of depending upon outside resource-will they raise the price cut off relationship? 9. Extent of reciprocity present Is the supplier of item also a customer of the firms other products? 11.4 PRODUCT LIFE CYCLE Products, like people, have a certain length of life, during which they pass through different stages. For some, the life cycle may be as short as a month, while for others it may last for quite a sufficiently long period. The examples may be of a fashionable dress or an electrical appliance. From the time the product idea is born, during its development, and upto the time it is launched in the market, a product goes through the various phases of its development. It life begins with its market introduction; next it goes through a period during which its market grows rapidly. Ultimately, it reaches marketing maturity after which is a market decline and finally the product dies. It is worth noting that the duration of each stage is different among products go through all stages some fail in the initial stages; others may reach the maturity stages after a long time. In virtually all cases decline and possible abandonment are inevitable because (1) the need for the product disappears; (2) a better or less expensive product is developed to fill the same need, or (3) a competitor does a superior marketing job.
1. Introduction In the early stage when the product is introduced in a market sales revenue begins to grow but the rate of growth is very slow. Profit may not be there as there is low sales volume, large production and distribution costs. It may require heavy
6.
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advertising and sales promotion. Products are brought cautiously on a trial basis. Weaknesses may be revealed and they must be promotion. Products are brought cautiously on a trial basis. Weaknesses may be revealed and they must be promptly removed. Cost of market development may be considerable. In this stage, product development and design are considered critical.
Marketing Strategies in the Introduction Stage In launching a new product, marketing management can set a high or a low level for each marketing variable such as price, promotion, distribution, and product quality.
A high-price a high promotion level. The firm charges a high price in order to recover as much gross profit per unit as possible. At the same time, it spends a lot on promotion to convince the market of the products merits even at the high-price level. The high promotion serves to accelerate the rate of market penetration. This strategy makes sense under the following assumptions: (1) a large part of the potential market is not aware of the product; (2) those that become aware of the product are eager to have it and play the asking price; (3) the firm faces potential competition and wants to build up brand preference. A selective penetration strategy consists of launching the new product with a high price and low promotion. The purpose of the high price is to recover as much gross profit per unit as possible and the purpose of the low promotion is to keep marketing expenses down. This combination is expected to skim a lot of profit from the market. This strategy makes sense under the following assumptions (1) the market is relatively limited in size; (2) most of the market is aware of the product; (3) those who want the product are prepared to pay a high price; and (4) there is little threat of potential competition. A pre-emptive penetration strategy consists of launching the product with a low price and heavy promotion. This strategy promises to bring about the fastest rate of market penetration and the larger market share for the company. This strategy makes sense under the following. Assumptions: (1) the market is large in size; (2) the market is relatively aware of the product (3) most buyers are pricesensitive; (4) there is strong potential competition; and (5) the companys unit manufacturing costs fall with the scale of production and accumulated manufacturing experience. A low-profile strategy consists of launching the new product with a low price and low level of promotion. The low price will encourage the markets rapid acceptance of the product; at the same time, the company keeps its promotion costs down in order to realize more net profit. The company firmly believes that market demand is highly price-elastic but minimally promotion elastic. This strategy makes sense if (1) the market is large; (2) the market is highly ware of the product (3) the market is price-sensitive; and (4) there is some potential competition.
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2. Growth or market Acceptance stage In this stage, the product is produced in sufficient quantity and put in the market without delay. The demand generally continuous to outpace the supply. They sales and profit curves rise often at a rapid rate. Competitors enter in the market in large number if the profit outlook appears to be very attractive. The number of distribution outlets increase, economies of scales are introduced and prices may come down slightly,. Sellers shift to But-my-brand rather tan Try my-product promotional strategy. Marketing Strategies in the Growth Stage During this stage, the firm tries to sustain rapid market growth as long as possible. This is accomplished though such actions as:
The firm undertakes to improve products quality and add new-product features and models. 2. It vigorously searches out new market segments to enter. 3. It keeps its eyes open to new distribution channels to gain additional product exposure. 4. It shifts some advertising from building product awareness to trying to bring about product conviction and purchase. 5. It decides when the time is right to lower prices to attract the next layer of price sensitive buyers into the market. 3. Market strategies in the mature stage The product manager whose product has settled into a stage of sales maturity is not content to simply defend its current position. He recognizes that good offense will provide the best defense of his product. These basic strategies are available in this stage; market modifications product modification, and marketing mixmodification. Market modification: The product manager first looks for opportunities to find new buyers for the product. There are several possibilities. First the manager looks for new markets and market segments that have not yet tried the product. Second, the manager looks always to stimulate increased usage among present customers. A common practice of food manufacturers, for example, is to list several recipes on their packages to broaden the consumers uses of the product. Third, the manager may want to consider repositioning his brand to achieve larger brand sales, although this will be not affect total industry sales. For example, a manufacturer of a chocolate drink mix may find that its heavy users are mostly order people. This firm should give serious consideration to reposition the drink in the youth market, which is experiencing faster growth. Product modification: Managers also try to break out of a stagnant sales picture by initiating calculated changes in the products characteristics that will attract new users and /or more usage from current users. The trade term for this is product relaunch, and it can take several forms.
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A strategy of quality improvement aims at adding new features that expand the products versatility, safety, or convenience. For example, the introduction of power to hand lawn movers increased the speed and ease of cutting grass. A strategy of style improvement aims at increasing the aesthetic appeal of the product in contrast to its functional appeal. The periodic introduction of new car models amounts to style competition rather than quality of feature competition. Marketing-mix: Modification: As a final source of mature product strategy, the product manger considers the possibility of stimulating sales through altering one or more elements or the marketing mix. One strong possibility is to cut prices as a way of drawing new segments into the market as well as attracting other brand users. Another is to search for a new a brilliant advertising appeal that wins the consumers attention and favour. A more direct way to attract other brand users is through aggressive and attractive promotions trade deals, cents-off, gifts, and contests. The company can also offer more services to the buyer as a patronage building step.
4. Market decline Stage At the decline stage, the sales begin to fall. The demand for the product shrinks probably due to new and functionally advanced products become available in the market or the market becoming apathetic to the product. In any case, Prices and margins get depressed, the total sales and the profits diminish. Some firms at this stage may try to link up the sale of these products with some other premium products they have developed and this try to strength out the life of the product. But most firms perceive properly the impending total decline and prepare for the gradual phasing out of the product. Successful firms quite often keep new products ready in a queue to fill the vacuum created by the decline of existing products. Marketing Strategies in the Decline Stage A company faces a number of tasks and decisions to ensure the effective handling of its aging products.
Identifying the weak product: the first task is to set up on information system that will spot those products in the line that are truly in a declining stage. An overall view of such a system is 1. A product review committee is appointed with the responsibility for developing a system for periodically reviewing weak products in the companys mix. The committee includes representatives from marketing, manufacturing and the controllers office. The committee meets and develops a set of objectives and procedures for reviewing weak products. The controllers office fills, out data for each product showing industry sales, company sales, unit costs, prices, and other information over the last several years. This information is run against a computer programme that identifies the most dubious products. The criteria include the number of years of sales decline, market-share trends, gross profit margin, and return on investment.
2. 3.
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Products put on the dubious list are then reported to those managers responsible for them. Each manger fills out a diagnostic and prognostic rating forms showing where he thinks sales and profits on dubious products will go with no change in the current marketing programme and with his recommended changes in the current programme. 6. The product review committee examines the product rating form for each dubious product and makes a recommendation (a) to leave it along (b) to modify its marketing strategy, or (c) to drop it. Determining marketing strategies: In the face of declining sales, some firms will abandon the market earlier than others. The firms that remain enjoy a temporary increase in sales as they pick up the customers of the withdrawing firms. Thus any particular firm faces the issues of the whether it should be the one to stay in the market until the end. For example, Procter & Gamble decided to remain in the declining liquid soap business until the end and made good profits as the others withdrew. If it decides to stay in the market, the firm faces further strategic choices. The firm could adopt a continuation strategy, in which case it continuous its past marketing strategy; same market segments, channels, pricing, promotion, and so on. The product simply continuous to decline until at last it is dropped from the line. Or the firm could follow a concentration strategy, in which case it concentrates its resources only in the strongest markets and channels while phasing out its efforts elsewhere. Finally, it could follow a milking strategy, in which case it sharply reduces its marketing expenses to increase its current profits, knowing this will accelerate the rate of sales decline and ultimate demise of the product. In some situations the hard-core loyalty may remain strong enough to allow marketing the product at a greatly reduced level of promotion, and that the old or even a higher price, both of which mean good profits. The drop decision: When a product have been singled out for elimination, the firm faces some further decisions. First, it has the option of selling or transferring the product to someone else or dropping it completely. It will usually prefer the farmer because this will bring in some cash and will minimize the hardship to customer and employees. Second, the organization has to decide when the product should be terminated. It could be dropped quickly and decisively so there would be no chance for resistance to build up a reverse the decision. Or it could be discontinued gradually with a time table to allow resources to transfer out in an orderly way and to allow customers to make other arrangements. Management will also want to provide a stock of replacement parts and service to stretch over the expected life of the most recently sold units.
11.5 USES AND LIMITATIONS OF PRODUCT LIFE CYCLE PLC emphasizes the need for product planning. There is need to replace to old products with new ones, There is a need to analyze the balance of products. A company with all its products in the mature stage may be generating profit today hut as the products enter decline stage, profits may fall. A nicely balanced product array would see the company marketing some products in mature stage, a number of them in the growth stage, and there should be reasonable prospect of new
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product launches in the near future, Products should be viewed as interrelated set of profit bearing assets that need to be managed as a group. A company that introduces a new to the world product may be in very powerful position early in the PLC. It may charge a very high price during the, period of monopoly supply. But unless the product is patented competition will enter during growth phase and make it difficult for the, pioneer to charge high prices. Customers get angry when they find the pioneer reducing their high prices due to competitive pressures. They feel that the company has charged them a high price when they could afford not to. A company which understands concept of PLC will realize and estimate the eventual entry of competitors, and will take that into account when they shape their early strategies of market entry. In fact, smart pioneers will price the products at a low price so the potential competitors do not consider the market attractive enough to enter it. If pioneers decide to be content with low margins, they can keep off competitors, at least those which pursue markets purely for profits and do not have strategy and preference for entering new markets. Genuinely interested competitors will still enter the market but they will be there for the long haul and their strategies and moves will be more predictable and manageable. Companies have to face the fact that products need to be terminated and new products developed to replace them. Without this sequence a company may find itself with a group of products all in decline stage of the PLC.
LIMITATIONS OF PLC Not all products follow the classic S-shapcd PLC curve. The sale of some products rise like a rocket and their fall like a stick (fad). Other products (and brands) do not enter the decline stage for a very long time. Some products have been in the maturity stage for a very long time and the decline stage seems nowhere in sight. Some brands have shown reluctance to follow the traditional PLC. Marketers have continually reinvented them, putting them on the growth trajectory time and again.
PLC is the result of marketing activities and is not the cause of variability in sales. It is simply a pattern of sales that reflects marketing activity. Sales of a product may flatten because it has not received enough marketing attention, insufficient product redesign or lack or promotional support. Using the PLC may lead to inappropriate action (dropping the product) when correct response would be increased marketing support. The duration of PLC stages is unpredictable. It is not possible to predict when maturity or decline will begin. Strict adherence to PLC can lead a company to misleading objectives and strategy prescriptions. There can be circumstances where appropriate marketing objective in the growth phase is harvest (in like of intense competition), in maturity stage to build (when a differential advantage can be developed) and in the decline stage to build (where there is opportunity to dominate).
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11.6 SUMMARY This is a description of the typical product life cycle. This does not man that every single product necessarily passes through all these stages. Several new products, all of a sudden, find their way into decline before entering the growth stage. However, most successful products can be seen to pass through the typical life cycle. The knowledge that the product will pass through such a cycle of life is helpful in evolving proper product policies and promotion and pricing strategies. A marketer can also try to foresee at the very outset the pattern of life of the proposed product and plan the product strategy, pricing strategy and promotion strategy, so as to shape the life cycle of the product to suit his objectives and requirements. 11.7 KEYWORDS Product Planning, Product Development, Product Life Cycle, Pre-Emptive Penetration 11.8 ASSGINMENT QUESTIONS 1. What is Product Planning? How will you differentiates it from product development? 2. Explain the different stages in Product Life Cycle.
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LESSON 12
NEW PRODUCT DEVELOPMENT

OBJECTIVES To study the concept of New Product Development To know the stages in NPD STRUCTURE 12.1 Introduction 12.2 Significance of new product development 12.3 Stages in new product development 12.4 New product adoption process 12.5 How to solve the problems of new product failure 12.6 Product elimination 12.7 Factors contributing new product development 12.8 Summary 12.9 Keywords 12.10 Assignment questions 12.1 INTRODUCTION New product development is one of the most important components of product policy and product management. It is not enough if the existing product lines and products are appraised properly, products are positioned effectively and brand decisions are taken wisely. A progressive firm must always consider new product development as a cardinal element of its product policy. 12.2 SIGNIFICANCE OF NEW PRODUCT DEVELOPMENT New Products Become Necessary for Meeting the Changes in Demands Innovation is the essence of all growth. This is especially true in marketing. In the age of scientific and technological advancements, change is a natural outcome of change in food habits, change in comforts and conveniences of life, change in social customs and habits, change in expectation and requirements. Any business has to be vigilant to these changes taking place in its environment. People always seek better and better product more convenience to products, more fashion, and more value for the money they part with. A business firm has to respond to these dynamic requirements of its clientele, and these responses take the shape of new products and new services. Through such as response, the firm reaps a good deal of benefits. NEW PRODUCTS BECOME NECESSARY FOR MAKING NEW PROFITS New products become necessary from growth and profit angles too. Products that are already established often have their limitations in enhancing the profit level of the firm. It thus becomes essential for business firms to bring in new products to replace old and declining ones and products incurring losses. New products become part and parcel of the growth requirements of the firm and in many cases, new profits come to the firm on through new products.
The need for responding to changes and the need for new profits are not the only factors that persuade business firms to go in for new products. There is amore
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compelling reason-the threats arising from the environment. These threats make some of their current products highly vulnerable. And to reduce the vulnerability of their business as a whole, they seek our new products. New products offer new avenues of growth and thus secure to overall viability of the firm. The risk also gets spread over several products, existing ones and new products, so that the firm does not face the threat of sudden extinction. Successful new-product development is becoming increasingly hard to achieve, there are several reasons for this. Some technologist think there is shortage of fundamentally new technologies on the order of the automobile, television, computers, xerography, and wonder drugs. Although there are many minor products emerging the nation needs major innovations to avoid economic stagnation. Keen competition is leading to increasing fragmented markets. A new product is aimed at capturing a large share of a small market segment rather than the mass market. This means smaller sales and profits, although the company may maintain its position longer. New products have to increasingly satisfy public criteria in addition to promising reasonable profits. They must be designed with consideration given to consumer safety and ecological compatibility. Government requirements have slowed down the rate of innovation in the drug industry and have considerably complicated product design and advertising decisions in such industries as cosmetics, automobiles, small appliances, and toys. A company typically has to develop a great number of new- product ideas in order to finish with a few good ones. Thus management finds itself in a dilemma; it must develop new products, yet the odds weigh heavily against their success. The answer still must lie in new product development, but conducted in a way that reduces the risk of failure. Two needs stand out; the need for effective organizational arrangements and the need for improved techniques at each stage of the new product development process.
12.3 STAGES IN NEW PRODUCT DEVELOPMENT New product development goes through several important stages as given below:
Exploration: The first stage of the new products evolution begins with an idea for the product. Hence this stage is also termed as Idea Generation. The new product ideas may come from customers, dealers, in-company sources or from research organisation. Consumers problems are the most fertile ground for the generation of new product ideas. This is equally true of both industrial products and consumer products. From shampoos to computers, customers are generating product ideas. And innovation bound companies are cashing in on them. Several companies follow user-stimulus strategies by announcing attractive rewards for good new product ideas. Experienced workforce, research staff and salesman are also source of product ideas. There are companies well known for silently encouraging
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skunkworks where small unauthorized teams of executives/workers spend companys time and money to work to crazy product ideas of their own. New product ideas can also come from market research studies. Research studies on the consumers, products, competition, etc. will reveal market gaps by comparing the existing supply of products with the ideal product conceptions of consumers. But all market gaps are not commercially viable. The promising ideas will be chosen for framing new product concepts. Creatively techniques like brainstorming and synectics are also used for generation of product ideas. In brainstorming, a small group of people are encouraged to come up with their ideas on a specified problem. In synectics, the real problem is kept away initially from the group and only a broader framework of the problem is given to them. The group is encouraged to think in all possible dimensions, and slowly the problem would be made clearer to them, and their ideas would get refined.
SCREENING The main purpose of the first stage in the new-product development process is to increases the number of good ideas. The main purpose of all the succeeding stages is to reduce the number of ideas. The company is not likely to have the resources or the inclination to develop all of the new-product ideas, even if they were all good. And they will not all be equally good. Evaluation and decision now enter the picture. The first idea-pruning stage is screening.
In the idea screening stage, the various product ideas are put to rigorous screening by expert product evaluation committees. They seek answers to basic questions, like: Is there a felt need for the new product? Is it an improvement over an existing product? Is it close to out current line of business? Does it take us to a totally new line of business? Can the existing marketing organisation handle the product? Or does it need extra expertise on the production and marketing front? The more attractive looking ideas pass on to the next stage.
CONCEPT DEVELOPMENT During this stage the idea-on-the paper is turned into a product-on-hand. In other words, the idea is converted into a product that is producible and demonstrable. This stage is also termed as Technical Development. It is during this period that all development of the product, from idea to final physical form, take place.
The final decision whether a product should be developed on a commercial scale or not is decided at this stage because the time-lag required to attain this stage is a long one and it is possible that some adverse developments might have taken place during this period. Once the management decides to go forward with the product idea, the following activities are undertaken: 9. Establishing development projects for each product.
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10. Building the product with the changed specifications, if necessary, and 11. Completing laboratory evaluation and releasing the product for testing. CONCEPT TESTING This is different from test marketing of the product which takes place at a later stage. What is tested at this stage is the product concept itself-whether the prospective consumers understand and product idea, whether they are receptive towards the idea, whether they actually need such a product and whether they would try out such a product if its is made available of getting the market response to the product idea, this exercise helps bring the companys own version of the product concept into clearer focus. Because, in the absence of any real product to be shown to the respondents at this stage, the company has to make very elaborate and definite statements about the product, its attributes and benefits. Much of the vagueness associated with a new product idea may get thrashed out at the concept testing stage.
BUSINESS ANALYSIS This stage is crucial in the total process of new product development because several vital decisions regarding the project are taken based on the analysis done at this stage. This stage will decide whether from the financial and marketing point of view, the project is worth proceeding with. Investment analysis and profitability analysis of the project under different assumptions are made at this stage. The projects overall impact on the corporations financial position with and without the new product are estimated and compared. The financial estimates would be reliable only if they are based on a fairly accurate demand forecast and related market factors. The marketing experts by now should have undertaken detailed exercises on the marketability of the product.
The purpose of this stage is to project the future sales, profits, and rate of return for the proposed new product, and to determine whether these meet the companys objectives. If they do, the company will develop the new product. Business analysis is done not only at this stage but throughout the development process as new information is accumulated about the product and the market.
PRODUCT DEVELOPMENT Product ideas appearing sound from a business point of view can now be turned over to the research and development department. This is an important step in at least three ways. It marks the first attempt to develop the product in a concrete form. Upto now, it has existed only as idea, or perhaps as a drawing, or a very crude mock-up. Second, it represents a very large investment, which is likely to dwarf the idea-evaluation costs incurred in the earlier stages. Much time and money go into trying to develop a technically feasible product. And finally, it provides an answer as to whether the product idea can be translated into a technically and commercially feasible product. If not, the companys investment up to now is lost except for any by-product information gained in the process.
Three steps are involved in the product-development stage: prototype development and consumer testing, branding and packaging.
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The first task is for the research and development department to build a physical prototype that realizes the attributes specified in the product concept and its trouble free and economical to manufacture. Consumer testing goes hand in hand with prototype development. Various methods have been proposed for the testing of consumer preferences among a set of prototype alternatives, such as paired comparisons, multiple choices, and ranking procedures. Consumers are normally asked to sample the alternative products in a laboratory or home setting, and the testing organization exercises the normal controls to avoid biased results. The company examines the results and decides on the prototype model that seems not promising on the overall criteria. The brand name should not be casual after thought but an integral part or reinforcer of the product concept. Among the desirable qualities for a brand name are: 1. It should suggest something about the products benefits. 2. It should suggest product qualities such as action colour, or whatever. 3. It should be easy to pronounce, recognize and remember. 4. It should be distinctive. The two traditional packaging concerns of manufactures are product protection and economy. A third packaging objective, which comes closer to considering the consumer, is convenience. This means such things as size options and packages that are easy to open. Over the years a fourth packaging objective has received increasing recognition from manufacturers, particularly those in the consumers goods field. This is the promotional function.
TEST MARKETING Test marketing is a form of risk control and ensures avoidance of costly business errors. It is a controlled marketing experiment with minimum possible cost and risk; to decide the soundness and feasibility of full-fledged marketing of the product. If totally new products are introduced into the market on a commercial scale without resorting to test marketing, it may so happen that the product was not the right one for the chosen market. It may be too costly a mistake for the firm. Test marketing of a product may indicate that the sales prospectus for the product are bound to be poor. The firm can save the investment by dropping the new product idea. On the contrary, if the results received from the test marketing are positive and encouraging, the firm may go ahead with the commercial producton and marketing of the new product.
Test marketing is an experiment that has to be carefully conducted. Care is required in selecting the test markets and control markets, in monitoring the test and in analysing and interpreting the test results. In many cases, test marketing is also a time-consuming process; it has to be carried out for long duration in order to obtain reliable and meaningful indications. And if competitors get information regarding the test, it is possible for them to manipulate the test process and thereby make the test results unreliable. In the Indian context, text marketing as a marketing technique is becoming popular in recent times. In the past, only giant corporations like Hindustan Lever
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and Tatas used to go in for test marketing. Now more and more firms with the help of their advertising agencies are going in for test marketing before a new product is commercially launched.
COMMERCIALISATION In this stage the product is submitted to the market, and thus commences its life-cycle. Commercialisation is also the phase where marketing is most active in connection with the new product. This stage is considered to be a critical one for any product and should therefore be handled carefully. For instance, it should be checked whether advertising and personal selling have been done effectively and whether proper outlets have been arranged for the distribution. Despite the care with which the previous development stages have been planned, unforeseen events can impair commercialisation seriously. The following activities are usually undertaken during this stage:
1. Completing final plans for production and marketing 2. Initiating coordinated production and selling programmes. 3. Checking results at regular intervals. It should be remembered that new products should be launched in the market only stage by stage. In other words, introduction may be restricted to a few regions in the first instance. This is to avoid short supply of the product due to initial gaps in production and distribution. It is not prudent to extent a product nationally and then not be able to meet demand or to come across some unexpected deficiency.
12.4 NEW PRODUCT ADOPTION PROCESS When a new product is launched, it can be highly successful if the management identifies the nature and extent of adoption process of that product. Stanton visualises six mental stages which a prospective user goes through while deciding whether or not to adopt new product. According to him, these stages are:
(a) (b) (c) (d) (e) (f) (g)
Awareness stage, where the individual is exposed to innovation-product, service, idea-but knows very little about it. Interest information stage, where the prospect becomes interested to ask for and know specific information about it. Evaluation stage, in which the prospect mentally measures the relative merits and demerits of the innovation. Trial stage, in which the prospects actually adopted the innovation on a limited basis. Adoption stage, in which the individual decides whether or not to use the innovation on a full scale basis. Post-adoption stage, in which the prospect continues to seek assurance that he made the right decision. Why new products fail? Despite careful attention to product planning and development, as many as 50% of the new products actually entering the markets have a very short life span and market failures occur. The following are the usual reasons for the failure of new products.
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1. Inadequate market analysis: if the market analysis is inadequate, improper, biased or not extensive enough, the analysis will yield only wrong idea. Acting on such data leads to product failure. Product problems and defects: It arises out of technical mistakes in the process of production. This is a basic reason for product failure. Inadequacies in products, to a large extent, are got rid of by proper product testing. Higher costs than estimated costs: This is another reason for product failure. The cost estimate often also go wrong when the products are finally introduced into the market. Poor/Bad timing of introduction: The basic principle to be followed in product planning is to find out the exact time within which the product is to be introduced into the market. Usually when and how are the two questions, a manufacturer often finds it difficult to answer. A close analysis of market conditions and the consumer behaviour and attitudes is essential to find out an answer to the two problems. Failure to estimate the strength of competition: this is also an important factor that leads products to struggle hard in the market. There are various methods to overcome severe market. Price cuts on the marked price and various kinds of discounts, etc., may be adopted. Whatever it is, improvement in the quality alone will withstand competition. Customers cannot be cheated by price cuts, discounts, etc. Insufficient and ineffective marketing effort: It is wrong to assume that a manufacturers job ends at the moment a product is ready for sale. He should try very much to market his product by proper promotional activities. Inadequate sales force: Selling is done by personal or impersonal methods. Impersonal methods constitute the advertisement and similar promotional activities. Personal methods on the other hand, are more intimate and more efficient. Promotional activity should be backed by adequate sales force to introduce the product in the market. Failure to recognise rapidly changing market environment. Failure of product to fill consumer needs due to ignorance about consumers attitudes and about new products. Too many new products entering the market and Many products are not new as perceived by consumers.
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12.5 HOW TO SOLVE THE PROBLEMS OF NEW PRODUCT FAILURE? All these problems could be solved by timely action of the marketing management. The following methods are suggested to prevent a new product failure:
1.
By analysing and ensuring that there is adequate demand existing for the product. In other words one should identify and ensure a potential market for his products.
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By making a product that would exactly fit into the existing market structure of a company. 3. By using continuous and efficient demand creation methods and 4. By selecting a product that should reflect the companys image already created in all respects, especially with regard to quality and price. 12.6 PRODUCT ELIMINATION There are some products which cannot be improved or modified to suit the market. Here, the profitable alternative would be withdrawn the product. The process of withdrawal is technically known as product elimination.
12.7 FACTORS CONTRIBUTING TO NEW PRODUCT DEVELOPMENT Several factors contribute to new product development. While most are related to external environmental variables, the most important internal factor in new product development is the surplus capacity that a firm may have at any given time. Although firms should not pick up products to fill their surplus capacities, the fact is that many do.
2.
Changing Customer preferences : The driving force in new product development is changing customer life styles, leading towards a change in the customers preferences and expectations. The changing role of women, growth in the nuclear and stand alone families, increase in education and income levels, and a manifold increase in the electronic media also contributes towards changing customers expectations and preferences Technological changes : Another factor is the technological change in the industry and the market. For example, if Mrs. Indira Gandhis government had not decided to expand the television network to cover 70 percent of the Indian population, launched its own Satellite INSAT 1B and started colour telecast in 1982, it is extremely doubtful if many of todays products would have seen the light of the day in the Indian market. Application of chips technology to the watch making industry gave us a quartz watch-some thing that Titan watches have successfully marketed the product in India.
12.8 SUMMARY Marketing management will have to undertake constant checking of a new product throughout its life cycle. Product improvement search will be a continuous affair to introduce necessary improvements, modifications, innovations etc., in the existing product on the basis of changing consumer preferences as well as on account of development of science and technology. Your product must be uptodate and then only it can prolong its life cycle against keen competitions. 12.9 KEY WORDS Product Elimination, Commercialisation, Test Marketing, Concept testing, Screening. 12.10 ASSIGNMENT QUESTIONS 1. Explain the significance of New Product Development. 2. Explain the different stages in New Product Development. 3. Why New Product Fail? Suggest measures to overcome this problem.
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LESSON 13
PRODUCT RELATED STRATEGIES: BRANDING

OBJECTIVES To know the concept of Branding and its importance STRUCTURE 13.1 Introduction 13.2 Branding 13.3 Concepts of branding 13.4 Importance of branding 13.5 Functions of branding 13.6 Methods of branding 13.7 Types of brands 13.8 Conditions favourable to branding 13.9 Essentials of a good brand 13.10 Advantages of branding or trade mark 13.11 Disadvantages of branding 13.12 Branding decisions 13.13 Summary 13.14 Keywords 13.15 Assignment questions 13.1 INTRODUCTION The physical product is only a part of the product image. It cannot stand alone before the potential buyer. There are four elements that surround the product to give us a complete product concept. These are (1) Branding, (2) Packaging and Labelling, (3) Product Warranty and (4) Services. These four elements are the vital marketing tools in any marketing programme to secure the desired market share in a competitive market. 13.2 BRANDING Brand is a wider term and it includes brand name and brand mark.
Brand Name: According to American Marketing Association, brand name is part of a brand consisting of a word or group of words comprising a name which is intended to identify the foods or services of a seller to differentiate them from those of competitors. In other words, a brand name consists of words which may be pronounced e.g. Usha fans. Allwyn Refrigerators, Godrej etc. It is a single word or words used to identify a product and to differentiate it from other products. Brand Mark: A brand mark is that part of the brand whichappears in the form of a symbol, design, or distinctive colouring or lettering. It is recognised by sight, but not pronounceable. It is designed for easy identification of the product. For example, the picture of Gopuram of the Tamil Nadu Tourism and Development Corporation. Trade Mark: When a brand name or brand mark is registered and legalised it becomes a trade mark. Thus registered brands are Trade Marks. In that sense all trade marks are brands but not all brands are trade marks. Trade Mark is defined
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as a brand or part of a brand that is given legal protection because it is capable to exclusive appropriation. Thus the trade mark is essentially a legal term protecting the manufacturers right to use the brand name and /or brand mark. Trade Name: This term is frequently and erroneously used as synonym for either brand name or trade mark. A trade name is the name of business, preferably the name of the organisation itself. A trade name may also be a brand name, but in such a case in serves two separate purposes. It brings name, but in such a case it serves two the product. TATAS is solely a trade name of the marker of various brands of cosmetics. GODREJ is both a trade name and a brand name for most of their products. Patents: Patents are public documents conferring certain rights privileges, titles of offices. A patent confers the right to the use of a technical invention. It is applicable in the case of new inventions such as a new process, a new machine. When a new invention is made it is registered so that an exclusive right is obtained by the inventor to use it. Defined more precisely, a patent confers the right to secure the enforcement power of the State in excluding unauthorized persons, for a specific number of years, from making commercial use of a clearly identified, new and useful technological invention. Copyright: This is applicable in the case of books and is used in the same meaning as that of patents. It is a sole right to reproduce literary, dramatic, musical or artistic work. Copyright is available for the whole of the authors lifetime and fifty years after his death.
13.3 CONCEPT OF BRANDING Brand A brand is a name, term, sign, symbol, or design or a combination of them intended to identify the goods and services of a seller to differentiate them from those of competition.
Ex: Dettol, Fiat, and Ponds

Brands versus Products A brand is a product with additional dimensions to differentiate it in some way from other products designed to satisfy the same need. These differences may be rational and tangible-related to product performance of the brand or more symbolic, emotional and intangible related to non-product performance of the brand. Brand Architecture It is a branding approach that explains the relationship of corporate brand and individual products. The types of architecture are:
1. Monolithic Structure: The corporate brand name appears on all products Ex: Nirma, LG 2. Fixed Endorsed Structure: Powerful brand name with individual product name Ex: Tata Indica, Skoda
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3. Flexible Endorsed Structure: Corporate name appears but individual brand name dominates. Ex: Cadbury's Perk
4. Discrete Structure: -Individual brand name alone dominates-with identity and status
Ex: Power detergent cake
Brand Platform Inter-brand model that explains brand characteristics are mentioned below
Brand Vision: Insight of brand in its world Brand Mission: Brands contribution to society Brand Value: The core value on which brand stands Brand Personality: Characteristics of-brand Brand Tone: The way brand communicates with its target customers
Double Branding or sub-Branding It is a hybrid form of product branding and umbrella branding where, a company name is linked - with product name.
Ex: Bajaj Chetak, Tata Indigo

Co - Branding or Dual Branding Two or more well-known brands are combined in marketing offer.
Ex: Bru-Cadbury McDonalds Coca-Cola

Multi Branding Having more than one brand in the same product category.
Ex: HLLs Surf, Wheel

Re-Branding Changing the name of the brand and relaunching with new name.
Ex: Raymonds ready to wear trouser brand, 'Raymonds Double Barrel is renamed as Park Avenue
Brand Portfolio \ Set of all brands and brand lines that a particular firm offers for sale in a particular category.
Ex: P & G has 12 brands of detergents

Brand Elimination Process of gradually taking the brand out of the market, when all efforts fail to strengthen brand.
Ex : GlaxoSmithKline withdrew its Aquafresh tooth paste brand.

Brand Re- Vitalisation Process of strengthening the brand when its share and value starts declining in the market.
Ex: Ambassador, Burnol. .
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Brand Positioning Positioning refers to placing the brand distinctively in the consumers mind against competitors. Brand Audit It is a detailed examination of a brand involving activities to assess the health of the brand, uncover its source or equity, and suggest ways to improve and leverage that equity. 13.4 IMPORTANCE OF BRANDING Branding is an essential part of marketing sub-function of selling. Manufactured goods are standardized in the process of production. Thus they are of uniform quality, size, etc. and do not require grading. But every manufacturer or seller feels the need of identifying his goods with some definite symbol, mark or slogan so that his goods catch the attention of the consumers. Also, a manufacturer or a seller wants to establish certain definite image in the mind of the public about the quality, durability, shape, fashion and colour of his product. He does this by using a brand or trade mark to symbolize his product. For example, it is not a car which is sold, but a Maruti or an Ambassador. We may take the example of tea which satisfies a number of our needs like hospitality, sociability, intimacy, leisure and relaxation. What is purchased by us is not tea as such but a particular brand of tea. The seller is selling Brook Bond or Lipton tea. This is so because there is an image in the mind or the buyer that a particular brand satisfies his need. Consequently sales of this brand exceed those of the competing brands which have not created such distinct image. Thus, brands provide the base for selling efforts. Manufacturers and sellers know that branded products can be sold more easily and at highest prices than competitive unbranded products. Therefore, branding is invariably used as a method of modern mass selling. The primary object of branding is to introduce product differentiation in the market, that is, to single out a product from its rivals.
Factors which have made branding necessary. Following factors have made the need of branding felt effectively: (a) (b) (c) (d) The growth of competition. The increasing importance of advertising Significance of packing as an important function of marketing. The growing habit among consumers to buy goods of particular brands.
13.5 FUNCTIONS OF BRANDING 1. It helps in product identification gives distinctiveness to a product. 2. A branded product indirectly denotes the quality or standard of a product. 3. It eliminates imitation products 4. It ensures legal right on the product. 5. Brands differentiate the product and facilities advertisement to be more effective and successful. 6. Brands help or facilitate consumers shopping. 7. It helps to create brand loyalty to particular products.
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Branding reduces the price comparison, because two similar items with two different brands may not be compared. 9. Repeated sales are facilitated with minimum effort through brands. 10. A good brand signifies prestige. BRAND IMAGE AND PRODUCT IMAGE Every brand image is partially derived from a product image. The product image relates to the fundamental aims and satisfactions which the consumers find in a particular product. Therefore, it is not wrong to say that the brand image relates to the specific versions of the product image.
13.6 METHODS OF BRANDING Products are branded in one of the following ways:
8.
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Based on the name of the manufacturer: The name of the manufacture may be used in the abbreviated form to name the product Example-Bata, Remington. Special names: The products may be given special name without may be coined especially to be used as the brand name Example-Sunlight; Lifebuoy. Special symbol or mark: Special symbol or mark may be designed for use as trade-mark or brand to describe a particular product and to identify and distinguish it from other products some class Examples-Scissors cigarettes, Camel ink.
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13.7 TYPES OF BRAND 1. Individual Brand: A firm very decides upon a policy of adopting distinctive brands for each of its products. For example ITC Ltd., gives different brand names for its products. 2. Family brand: When a firm is making many lines of products and each line of product is given a particular brand name it is called family brand. A company may produce different lines Milk food, soft drinks, cosmetics and so on. If each line is given a separate brand name, it is known as family brand. 3. Umbrella Brand / Company Brand: When all the products of a company have the name of the company as a brand name, such brand name is known as umbrella brand or company brand. All the products of Godrej Company Soap, Furniture, Typewriter, Refrigerator etc. has only one brand name Godrej. 4. Combination Device: Tata house is using a combination device. Under this device each product of the company has an individual brand name but it also has the name of the company brand to indicate the business house producing the product e.g. Tatas Tea. Under this method, side by side with the product image, we have the image of the organisation also. Many companies use this device profitably. 5. Private of Middlemans Brand: Under this arrangement manufacturer introduces his products under the distributors brand name. In India this practice is popular in the woolen, hosiery, sports goods etc. The manufacturer merely produces goods as per the specifications and requirements of distributors and he need not worry about marketing.
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Middlemen enjoy more freedom in pricing products sold under their own brands. They have more control distribution. 13.8 CONDITIONS FAVOURABLE TO BRANDING The following conditions, if satisfied, will lead to successful branding: The demand for the general product class should be large and strong enough to support a profitable marketing plan, involving additional promotion cost. 2. The product should be easily identifiable by a brand and lend itself easily to conspicuous marketing. 3. The brand must vary through to the ultimate consumer. 4. There must be economies of large scale production whenever additional production is undertaken as a result of expanding sales volume. 5. The quality of the product should be the best and it should be easily maintained. 6. There must be a consistent and widespread supply of the product. 13.9 ESSENTIALS OF A GOOD BRAND A brand to be an effective weapon in the hand of manufacturer or seller for the creation of consumers preference or :product differentiation must posses the following essential qualities: Firstly it should simple short and easy to memorise : Secondly, it should be easy to recognize and recall. Thirdly, it should be distinctive and attractive to the eyes and pleasing to ears. Fourthly, it should not be based on prevailing styles and fashions., Fifthly, it should be easy economical to reproduce. Sixthly, it should be effectively illustrative. Finally, its owner should be able to protect the brand or trade mark in the low court.
13.10 ADVANTAGES OF BRANDING OR TRADE MARK The practice of selling goods under a brand name or trade mark brings advantages to manufacturers, whole salers, retailers and consumers alike. More important of these advantages are discussed here: (a) Advantages to manufacturers 1. Distribution of the product in a wider market with the help of effective advertising is made possible. 2. The individuality of a product is established. This helps the manufacturer to distinguish his product from those of his competitors. Thus a fixed demand and preference for the branded product are created. 3. Advertising costs are reduced. Once the brand has been made popular retailers are forced to keep the product in their stock because of its popularity. 4. Wholesalers and retailers have preference for branded products because they can be hold easily. 5. After some time, it is possible for the manufacturer to dispense with the services of the wholesaler. In such a case manufacturer reduces the expenses in distribution of goods.
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Manufacturer can directly control the price of his product because in case of the branded product retail selling price is fixed by manufacturer. 7. Branded products are often handled on smaller margins. Therefore, manufacturer is required to pay lower rate of commission to wholesalers (or retailers). 8. Manufacturer has not to depend upon the wholesalers and retailers for the creation of demand for his product. Branding aids the manufacture to maintain contact with the consumers. 9. Branding insures steadier demand which leads to economics of planned and continuous production. (b) Advantages to wholesalers and retailers 1. No efforts of promoting a sale are necessary. Consumers often know and accept many branded products. Therefore, consumers themselves come to the retailer for the purchase of such products. 2. Less risk involves in the case of a branded product of a manufacturer for the retailer. 3. In case of products with manufacturers brands less time is required to sell them. This many help in the turnover of sales in retail shops. 4. Retailer is assured of a more or less stabilized demand for the branded products which have been brought to the notice of the consumers. 5. Breading aids in the standardization of quality and saves the retailer much trouble in choosing and buying his stock. 6. It helps in advertising and display programmes. Brand name or brand mark gives a seller a short, quick method of attracting the consumers attention and creating an impression which will motives his into buying action. A product sold on self-service basis has to rely heavily on brand appeal so that in can be immediately recognized and selected by the customer out of the mass of products displayed on shelves and counters. 7. It help in increasing control and share of market. By putting his own brand on the product a manufacturer or a middleman can be sure of some control over the market. Branding also helps the owner of the brand to encourage repeat sales and to protect himself against product substitution. Unless the product can be identified by a brand, a wholesaler cannot be sure that a retailer will not substitute a product of another make. 8. It reduces price comparisons and helps stabilize prices. A brand differentiates a product and enables the brand owner to establish a price for his product which cannot be easily compared with prices of competing goods. Also, branding reduces price- fluctuations. Prices of well-known brands tend to fluctuate less than those of non-branded products or of unknown brands. 9. It facilities introduction of a new item. A firm selling one or more lines of branded much more easily than a firm selling unbranded goods. c) Advantages to consumers 1. Consumers cannot be charged higher prices by the retailers. Prices of branded products are fixed by the manufacturers and they are well advertised. Thus the consumers know what the price is. Therefore, it is not possible for the retailers to charge higher prices of branded products. 2. Consumers are assured of good quality: Manufacturers have to maintain the quality of products, their reputation is to be retained, products of 6.
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inferior quality cannot be sold. Therefore, supply of quality product is ensured to consumers. 3. Quality goods are easily available: Retailers have to keep ready in stock goods of all popular brands. Therefore consumers can get such goods easily whenever they want. 4. Quality of branded goods is protected: Branded goods are usually sold in sealed packages. Thus, they are protected from the effect of heat, moisture and dust. Adulteration by middlemen is also made impossible in case of branded goods. 5. Stability in price: Generally the retail price of branded products is maintained steady because manufacturers do not find it advisable to change the prices as frequently as those of unbranded products. 13.11 DISADVANTAGES OF BRANDING 1. The serve criticism leveled against branding is that it leads to some kind of monopoly known as Brand monopoly. The brand monopoly created by gradually creating a brand loyally to the products in the minds of the customers. 2. It is difficult to establish a brand and the expense of advertising in the initial stage is very high which raises the cost. 3. Brand names do not always assure good quality. Manufacturers sometimes place inferior goods in the market under a glamorous brand name. 13.12 BRANDING DECISIONS Branding has become a management technique as it involves considerations of alternatives and choosing the best alternative. Some of the practical hints have been discussed above. Brand managers have in develop a logical order of action in developing brand awareness and ultimately leading to brand loyalty. These steps may be as follows: 1. 2. 3. 4. 5. Non recognition of a Brand recognition availability Brand preference habit a Brand insistence any Brand loyalty Consumers are unware of the availability particular brand Making the consumers to realise the of a particular brand Making the consumers buying out of particular brand In this stage consumers will not accept substitute product Last stage in the Branding process when consumers make repeat purchases of the same brand.
13.13 SUMMARY The purpose of branding is to create a distinct offering that is superior to those offered by competitors. The product that is offered must be meant for a well defined set of customers, and must provide them with a compelling reason to buy. 13.14 KEY WORDS Brand Name, Brand Mark, Brand Loyalty, Trade Mark, Patents, Copy Right. 13.15 ASSIGNMENT QUESTIONS 1. What is branding? Differentiate brand name from brand mark.
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2. Write notes on: (a) Trade Mark (b) Trade Name (c) Patents (d) Copyright State the importance of branding Explain the functions of branding What are the essentials of a good brand? Explain the different methods of branding. Narrate the features of different types of brands State the conditions favouring branding Discuss the advantages of branding to manufacturers, wholesalers / retailers, and consumers. What are the limitations to branding? How would you make a branding decision?
3. 4. 5. 6. 7. 8. 9. 10. 11.
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LESSON 14
PRODUCT RELATED STRATEGIES: PACKAGING AND LABELLING

OBJECTIVES To know the importance of Packaging and labelling. STRUCTURE 14.1 Introduction 14.2 Need of packing and packaging 14.3 Packaging decision 14.4 Requisites of good packaging 14.5 Kinds of packaging 14.6 Packaging materials 14.7 Advantages of packing and packaging 14.8 Consumer problems with packaging 14.9 Social view of packaging 14.10 Gauging the reaction of consumers 14.11 Packaging scene in India 14.12 Labelling 14.13 Functions 14.14 Kinds of labels 14.15 Advantages of labeling 14.16 Disadvantages of labeling 14.17 Product warranty 14.18 Summary 14.19 Keywords 14.20 Assignment questions 14.1 INTRODUCTION Packing means the wrapping and creating of goods before they are transported or stored. Many goods must be packed in order to be preserved or delivered to the buyers. Liquids must be placed in barrels, bottles or cans. Bulky foods such as cotton and jute are compressed into bales. Goods must be placed in boxes or bags for delivery to dealers. Retailers often wrap goods or place them in bags or boxes for delivery to the ultimate consumer. Fragile goods are often packed in special containers.
Packages are the sub-division of the packing function of marketing. It means placing of goods in small packages boxes, bottles or cans, bags, barrels etc., for sale to the ultimate consumers. It is concerned with putting goods in the market in the size convenient to the buyers. Packaging has been defined as the general group of activities which involve designing and producing the container or wrapper for a product.
14.2 NEED OF PACKING AND PACKAGING 1. Protection from damage: Goods are likely to get damaged in transit or while in store. Therefore they must be kept in suitable containers. 2. Prevention of Evaporation: Products like gas, spirit etc., are volatile in nature. If they are not properly packed they will evaporate.
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3. Protection Against spoilage: Products like gur, sugar, tea, etc., are likely to get spoiled in transit or in store if they are not protected against dust and other articles. Also gur, sugar, honey and such other products attract flies, ants, etc. Hence they must be kept properly and tightly packed in suitable containers. 4. Protection against pilferage: To product goods from getting stolen also packing becomes essential. 5. Protection against leakage: To prevent liquid articles like oil flow away while in storage or in transit, these must be kept in barrels or containers. 6. Protection of the quality of goods: Packing is also necessary to prevent deterioration in the quality of goods because of the effect of light, air or other atmospheric effects. 7. Convenience of consumers: Goods are packaged in convenient sizes and units which are easy of handle by the consumers. 8. Economy: Package should provide various economies both to the producers and to the consumers. Well packed products are fresh, clean and it tack. Therefore monetary loss is prevented. Moreover, whenever possible, containers should be so designed that they may be useful for further usedomestic or re-use. 9. Promotion Role: Packaging also has a promotional role which has become more important. It has received increasing recognition from the manufacturers in recent years. The various promotional functions are : (a) Self- Service: The package must be capable of performing many of the sales tasks. It must attract attention, describe the producers features, give the consumer confidence and make a favourable over all impression. (b) Consumer difference: Prestige of a product is maintained with the help of proper packaging. Good packaging is capable of projecting various qualities of the product as well as of the manufacturers. Product identification: Packages differentiate similar products and thereby they have an advertisement value. When people think that a good package, taller in size, not shorter, contains bigger products. Above all many people buy the products for the sake of containers.
(c)
14.3 PACKAGING DECISION Packaging as a marketing activity confronts the seller with following questions:
1. Which of the numerous materials available for packaging will serve the purpose of enhancing the appearance of the product best? 2. What colours, designs, shapes and sizes of packages should be preferred? 3. How to design a package which will be convenient for the consumers to handle? 4. Can a package be so designed that it can be used by the consumer even after the product it contains has been consumed? 5. Should special gifts and such other packages be designed for Diwali, Christmas marriage and such other selling seasons. 14.4 REQUISITES OF GOOD PACKAGING
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To perform its function effectively in the process of marketing, packaging must possess the following essential qualities: (i) Attractiveness, (ii) Protective strength, (iii) Consumers convenience, and (iv) Economy. i) Attractiveness: The package must be attractive enough to tempt the on looker to try it. Generally, colours are used to make to packages look attractive. But while using colour certain caution is necessary. Firstly, colour to be used should be pleasing to eye. Secondly, while using colours it must be borne in mind that different colours are associated with different human feeling and emotions. For example, white colour is the symbol of purity and cleanliness, blue stands for coolness, green symbolizes freshness and red indicates warmth. Thirdly, different colours should be used for packages containing goods for customers from different age-groups. Bright colours should be used for packaging articles meant for children but use of such colours should be avoided if the article is meant for grown up persons. Usually, a picture, is used on the package to make it attractive. In such a case, care should be taken to see that the picture suggests the nature of the product. Pictures having no relation with the product should be avoided. Printed matter on the package also adds to its attractiveness. But to be effective, such matter should be informative and should occupy minimum of the space. Also it must have been printed clearly, attractively and in prominent letters. ii) Protective strength: Basically packaging is concerned with the protection of goods. Therefore it should be strong enough to protect the goods from breakage or leakage, spoilage, pilferage etc. In case of goods packaged in glass bottles or containers, they should be further packed in good cardboard packing. Goods subject to determination in quality due to atmospheric effects should be packed in glass containers or in tight-capped metal tins. iii) Consumers convenience: Goods are packaged in the size which suits the requirements of the consumers. Usually consumers prefer to purchase their requirements in small quantities rather than in bulk. Therefore, there is tendency towards smaller packages. iv) Economy: Another essential requisite of good packaging is it must be as inexpensive as possible. For this purpose special efforts should be made to reduce the cost of packaging. Whenever possible containers should be so designed that they may be useful for domestic and other purposes even after the contents have been used. For example, glass cans, baskets, wooden etc., have many uses. Sometimes packages are so designed that they may be returned for refilling, for example edible oil bottles.
14.5 KINDS OF PACKAGING The following are the various kinds of packaging:
1. Consumer Packaging: A consumer package is a kind of package which holds the required volume of products for the household consumption. For example tooth
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paste, shoe polish, face powder, oil, shaving cream, blade, ink, nail polish, kumkum, gas cylinder etc., have packed is small volume. Sometimes the same article may be packed in larger volume for office or factory purposes. For example oil, ink, gas etc. are packed in larger volumes also. 2. Family packaging: The products of a particular manufacturer when packed in an identical manner is known as family packaging. The shape, colour, size, etc., of packaging will be similar for all his products. In such a case packaging methods, materials used for packaging, the appearance etc., will be one end the same for all the products of a manufacturer. For example, Asian Paints Company packs all its products in a similar type of packing. Similar in the sense, the shape of tins and appearance will be same. Bata shoe companys products are packed in similar type of boxes. 3. Re-use Packaging: Re-use packaging is also known as dual package. Packages that could be used for some other purposes after the packed goods have been consumed is known as re-use packing. For example, the glass jar of Nescafe Instant Coffee and many other products are packed in such a way that the package can be put into many uses. The other examples are V.V.D. Oil packing, liquor bottles, Sweet tins, biscuit tins and so on. 4. Multi Packaging: The practice of placing several units in one container is known as multiple packaging. Johnsons Baby care set, Parker pen set, etc., are example of multiple packaging.
14.6 PACKAGING MATERIALS Packaging differs from goods to goods. It depends upon the nature of the goods to be packed. For liquid products container made of materials which can prevent its disperson is used. For solid product, packing is necessary and helpful in retaining the moisture, freshness and such other characteristics of the product. For fragile articles like bangles, wooden containers are used to protect then from breakage.
Different materials at used for the purpose of packaging. Earthenware is porous and helps in retaining the freshness of the products kept in it. Chin jars are becoming popular and replacing the old earthenware containers. They can protect a product against right and corrosive action of acid. Their defect is that they are fragile. Wooden boxes are used as the outermost packing because they are strong enough to protect goods even if roughly handled in the process of transportation. Cardboard containers have become popular and in many cases have replaced wooden boxes, particularly in the case of packing small articles. This is because cardborad containers have certain advantages over wooden boxes. Firstly, cardboard is cheap, though sufficiently, strong and right to product fragile goods. Secondly, it can be manufactured in varying thickness and different colours. Thirdly, its surface can be used for marking and design or written material. Gunny bags are popular for packing goods like grains, cement, sugar, etc. They are strong and can stand rough handling through long distance involved in the transportation of such goods. Paper bags are popular as package for products
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solid in form. Paper bags are commendable because they can be given very attractive appearance and they have an advertisement value as it can be printed upon. But they suffer from certain limitations. Firstly, the freshness of the product cannot be preserved. Secondly, production against damage is not possible. Tin and plastic containers have gained extreme degree of popularity because they are light in weight and they can be made attractive by giving any shape or colour to them. They are rigid and non-porous too. But, in case of plastic, caution to keep them away from fire is always necessary. The new family of synthetic packaging materials have several merits such as: (I) waterproof and moister proof property; (ii) capacity to provide effective barrier to vapour; (iii) greater resistance to sun exposure (iv) thermal stability; (v) light weight; (vi) alkali and acid proof property; (vii) attractiveness and transparency. They also lend themselves to attractive printing/ branding on them. Plastics as a group are now dominating the packaging field in India. They are now used in a variety of packaging applications from simple grocery bags to sophisticated stretch blown bottle. Consumer products like Paloma Tea, Nescafe, Sponta Wafers, Dalda, Amul Milk Chocolates and agricultural inputs like chemical fertilizers have all gone in for plastic packaging materials. Tetrapacks: One of the latest among these innovations is the tetrapack bricks or aseptic packaging. It is the new development in food packaging. The special feature in this case is that the package as well as the contents are sterilized and human handling is dispensed with. The package consists of several thin layers of polyethylene foil and paper. Several manufactures of fruit juices and fruit drinks are now using tetrapacks. In the past, fruit juices were made available in cans and fruit drinks in bottles. These packing processes necessitated the addition of preservatives to the products. Tetrapacks have an edge over cans since their contents have as shelf life of three months without the addition of preservatives. Parles Frooti and Appy, Liptons Tree Top, Voltas Volfruit and Noble Soyas Great Shake are some of the drinks now being marketed in aseptic tetrapack bricks. Flexible Containers: The trend generally is towards flexible packaging whenever the products lend themselves to such package. Not only in consumer goods packaging, but in the bulk transportation of commodities also, flexible containers have made their entry. For example, the Transport Corporation of India (TCI), one of the leading transportation agencies in the country, have recently introduced flexible containers for bulk movement of liquids, granules and powders. They are durable rubber containers-tanks and drums made from high tenacity polymide fabric matrix and coated with compatible polymers. The flexible containers are useful in large volume transportation of several products like oil, chemicals, liquid detergents, alcohol, food grains, fertilizers cement, etc.
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14.7 ADVANTAGES OF PACKING AND PACKAGING Packing is very useful in the marketing of goods. Most of the products are packed for their protection. Apart from this protective packaging, package is also used as a Powerful selling tool. This is particularly so in the marketing of consumers goods. Chief advantages of packing and packaging are listed below:
1. It protects goods on its route from the manufacturer to the consumer or industrial user against breaking, spoilage, leakage or pilferage. 2. It facilitates branding and advertising of products. 3. It is useful in getting display in retail stores which usually suffer from the shortage of space. 4. It helps the seller to increase his sales and obtain higher prices than he could get for similar goods handled in the bulk. 5. It products the quality of the products. 6. It ensures the supply of goods of right quality in desired quantity of consumers. 7. A company with several products gets the advantage of the goodwill or one product to push the sale of other products by using similar package with the same colour scheme and name. 8. Printed literature containing information about the method of using the product can be easily passed on to the consumers by putting it in the package. 9. Packaging gives the product a prestige, an individuality which are not possessed by goods sold in the loose form by retailers. It helps to identify a product and thus may prevent substitution of competitive goods. 10. Compared with products sold in bulk, packaged goods, usually, are more convenient, cleaner and less susceptible to losses from evaporation, spilling and spoilage. 11. At the selling point, the package serves as a silent salesmen encouraging impulse buying. While in the possession of the customer, it induces the customer to reorder the same brand and thus stimulates repeat sale. 12. An increase ease of handling or a reduction in losses due to damage may cut marketing costs. Thus, packaging is important not only for the purpose of protection and convenience but also for product-differentiation and stimulation of demand.
14.8 CONSUMER PROBLEMS WITH PACKAGING In spite of its various advantages, packaging has been subjected to many criticisms. One among them it that it adds to cost. To some extent this complaint holds good. But the benefits received are sufficient to compensate the increase in cost. Apart from this criticism the other disadvantages are listed below:
1. Unless the package is transparent, the buyer cannot judge the contents by appearance. If information about the quality on the package label is absent, the buyer has to buy almost blindly. 2. If the consumer wants a specific quantity, he may not have that amount when goods are sold in packages. 3. There is no way to check the weight and volume of the contents unless the buyer opens the packages to ascertain the weight. Package sizes inflate the contents.
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4. During the period of rising prices less contents are packed in the same package and apparently same prices are charged. 5. Packaging may create health hazards for consumers. Certain plastic food packaging has been shown to cause cancer. Packages stored in god owns are susceptible to infection. 14.9 SOCIAL VIEW OF PACKAGING 1. Pollution control: Pollution control is a burning issue in packaging particularly in western countries. Broken bottles, crushed cartons and bent cans litter the streets and choke municipal dumps. This has created the solid waste problems in those countries. Hence all packaging programmes must consider the environmental and ecological issues. 2. Resources scarcity: Resources scarcity is another problem. Some precious natural resources are being wasted on non-returnable (disposable) containers e.g. soft drink bottles. Later on these disposal packages create litter and pollution problems. Such type of packages cannot be tolerated now. 14.10 GAUGING THE REACTION OF CONSUMERS TO PACKAGING It is essential to gauge periodically the reaction of the consumers to packaging and adapt the packaging to their requirements. Consumers may have their own preferences covering (a) package size, (b) package shape and (c) package material. Marketing men must grasp through systematic research, consumer preferences on the one hand and the cost and availability aspects on the other and provide the consumers with the best possible packaging. They should also remember that any change in packaging, even when it means an improvement in every respect, must be handled deftly and carefully. The consumers perception of the change is the most important factor.
14.11 PACKAGING SCENE IN INDIA The progress made by Indian packaging industry recently is commendable. Still, this 10 thousand plus crore industry has to go a long way when compared to its counterparts in other countries. The middle class is the main consumer for packaging products. The average consumption of plastics in India per person is one KG whereas in the Western countries it is 14 KG. Per capita consumption of paper is around 5 KG where as it is almost 50 KG all over the world I The packaging industry In India is mostly in the small scale sector. These units convert the basic materials into finished and semi-finished packaging forms. Medium and large units, however, contribute over 60 per cent of the value of the packaging materials produced. Still the scale is not very large by world standards. Ever since the liberalisation, the industry is, changing rapidly.
India being an agricultural economy, packaging will playa greater role in food related sector. Processed food sector will be a main buyer of packaging materials. Transportation of milk, food grains and commodities like tea, coffee, edible oil over large distances, and under varying climatic conditions is a big challenge to the packaging industry. Fruits and vegetables are perishable and do require protective packa9ing like Modified Atmospheric Packaging (MAP) and Controlled Atmospheric Packaging (CAP). Cold storage facilities are required more and more.
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Pharmaceutical Packaging is a very promising area. Consumer durables with high value products also require a scientific packaging approach. Even a small dent on a durable may result in its rejection Industrial products also require packaging. Packaging should be a value added function. Packaging can provide support to Indian exporters.
14.12 LABELLING Label is a small slip placed on or near anything (product) to denote its nature, contents, ownership, destination, etc. The function of standardization is made perfect and known to the users through labels. Packages afford a place where the labels could be affixed. It is a medium through which the manufacturer gives necessary information to the user or consumer. It is defined as a part of a product which carries verbal information about the product of the seller. A label plays an important role in making the packaging and branding functions meaningful. Hence these three functions are closely related. The recently passed Packaged Commodities (Regulation) Order 1975, makes it obligatory on the part of manufacturers to show details about the identity of the commodity, its weight, date of manufacturer, etc. The provision of this enactment is carried out with the help of labelling. 14.13 FUNCTIONS 1. It gives definiteness to the product and therefore the identification of a product is easy. 2. It stresses the standard and other special features of the product which are advertised. 3. It enables the manufacturer to give clear instructions to the consumer about the proper use of his product. 4. By mentioning prices, undue price variations caused by the intermediaries are avoided. In other words, price is recorded registered and maintained. 5. It encourages to produce only standardized and quality products. 6. It provides a method for the manufacturer by which a contact with the customer is established. 14.14 KINDS OF LABELS William J. Stanton classifies the labels into four: Brand, Grade, Descriptive and Informative labels.
i) Brand labels: These labels are exclusively meant for popularising the brand name of the product. Cosmetics manufacturers prefer to use this kind. They are interested, above all, in popularising the brand manes for their products. ii) Grade labels: These give emphasis to standards or grades. This is used as an indirect method of product identification,. E.g. cloth, leaf, tea, dust tea. iii) Descriptive labels: the labels which are descriptive in nature are typified as descriptive labels. They are most illustrative in nature. In addition to the product feature they explain the various uses of the product. Most of the milk food products and other similar household products invariably have descriptive a labels. iv) Informative labels: The main object of these labels is to provide maximum possible information. These may contain the product characteristics and in addition
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the method of using it properly. In the case of medicine detailed labels are attached which even specify the side effect in using them.
14.15 ADVANTAGES OF LABELLING 1. Labelling is a social service to customers, who very often do not know anything about the products characteristic features. False claims are prevented by using labels. 2. It avoids price variations by publishing the price on the label. 3. It helps advertising activity of the organisation. Label is the medium to popularise the product. 4. It helps the customers to assess the superiority of the product. 5. It is guarantee for the standard of the product. Hence it raise the prestige of the product and of the manufacturer. 6. It gives all needed information to the buyers and avoids confusion. 14.16 DISADVANTAGES OF LABELLING 1. For an illiterate this is of no use. 2. It increases the cost of the product, since labelling involves expenditure on the part of the manufacturer. 3. Labelling is effective only where standardization is compulsory. 4. It aims at mainly popularizing the product rather than giving information to the consumers. 5. It enables to customers to weigh and compare the advantages of products before they are used. This ultimately ends in discarding of one product in favour of the other. 14.17 PRODUCT WARRANTY In modern life we have numerous products with complicated, intricate and elaborate mechanism, such as radio, television, motor car, electrical appliances, etc. An average consumer is incompetent to know the ins and outs of such sophisticated products. The law has now started to alter the famous maxim Let the Buyer Beware and give due recognition to its substitute Let the Seller Beware. In many countries the law takes into consideration the handicaps and disabilities encountered by average buyers while purchasing such highly mechanized or automated products. Informative labelling and informative advertisement will also educate consumers in making wise selection while purchasing the products. The Sale of Goods Act has given legal protection in the form of implied conditions and warranties.
Condition is a stipulation essential to the main purpose of the contract. If it is broken, victimized party, i.e., the buyer can claim for damages but has no right to reject the contract. The product warranty must be clear, unambiguous and meaningful. A warranty is an assurance of the quality, service and performance. It is a written guarantee of the intrinsic value of a product. It points out the responsibility of the maker for repairs, service and maintenance in the case of consumer durables. The producer should use the word warranty instead of the word guarantee. The warranty is the outcome of the rule of law viz., let the buyer beware. Producers developed warranties to create buyers confidence and to provide redress
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to aggrieved customers. Buyers could rely on the statement made by the seller. For example, a manufacturer may warrant that his produce is 100% wool or that the colour of the cloth will not fade. Such a warranty may be supported by money-back guarantee. The value of warrantee to consumers depends upon the reliability of the warrantor and the person who has specific responsibility of making good on the warranty. This is true because in practice and it law, the consumer has little resource. However, courts have started awarding damages for an injury simply if the product is shown to be defective or unfit for its intended use. There are four guidelines as instruments for meeting social responsibilities of marketing as well as for assuring a continuous customer interest 1) Warranty integrity, (2) Education of consumer in the use of the product, (3) Product quality control, and (4) Service on demand. If the four guidelines are followed by the manufacturers, repeat sales can be stimulated and Government may not be compelled to enact additional consumer legislation. There are millions of appliances being used by consumers all over the world. They are complicated and need honest warranties from the manufacturers. Consumer satisfaction is the key to successful warranty programme. Customer satisfaction with product in use provides the clue as to the effectiveness of the warranty programme. Implied warranties are promise of the maker that the product is of average saleable quality, will do what the product is normally expected to do; and will last a reasonable period of time. Express warranties are specific promises in writing made by the manufacturer or trader relating to quality, performance, condition or other feature. When one accepts an express warranty, one may have to give up the implied warranty as a condition of acceptance. Manufacturer is expected no go give deceptive advertisement of warranties or guarantees as they will defect the very purpose viz., warranty acting as seller aid. Manufacturer should not give fraudulent warranties and victimize innocent consumers, particularly in the case of costly durable goods such as television, refrigerators, motor cars, fans, electrical appliances etc. False warranty is an unfair trade practice.
SERVICE FACILITIES After sales service is an important aspect of a marketing transaction. Every increase in the use of machinery, appliances and equipment in all branches of our economy has created a continuous demand for after-sales service, i.e., for the smooth maintenance and repairs at low charges as well as quick access to spare parts and accessories at reasonable prices.
Market research emphasizes the importance of after sales service in the marketing campaign of costly and durable goods such as typewriters, duplicators, all kinds of office appliances and machines refrigerators, TV sets, tape recorders, radios, washing machines, domestic appliances and such other status-symbol goods. It is also necessary in the sale of machine and equipment.
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BENEFITS OF AFTER SALES SERVICE 1. It can build up and maintain sellers goodwill. 2. Mass distribution of costly consumer durables is possible only through after-sales service and consumer credit. 3. Complaints and grievances regarding servicing and maintenance will be promptly and efficiently dealt with by the seller. Customer satisfaction is the master-key to further sales and growth. 4. Sales campaign will achieve remarkable success if after-sales service is included in sales promotion. 5. Free service during the guarantee period is the best selling point in the sale of machinery and appliances. 14.18 SUMMARY Once the decision is taken on the brand, we have to consider the design and the make-up of the package and the labeling of the package. Branding, Packaging and labeling are distinctly specialized activities, demanding the services of advertising experts. In reality it is not the product which is displayed and sold but it is the brand together with the package and the label which are sold or which enable to sell the product. 14.19 KEYWORDS Packaging, Packing, Labelling, After Sales Service, Product Warranty MODEL QUESTIONS (UNIT III) 1. What is packaging? What is the need for packaging? 2. How would you make a good packaging decision? 3. Explain the requisites of good packaging. 4. What are the different kinds of packaging? 5. What are packaging materials? 6. Discuss the advantages of packaging? 7. State the problems of consumers associated with packaging. 8. What is labelling? What are its functions? 9. State William J. Stantons classification of labelling. 10. What are the advantages and disadvantage of labelling. 11. Product warranty is a seller aid Elucidate. 12. Highlight the importance of after sales service in marketing the durable goods. CASES / PROBLEMS (UNIT III) 1. Develop a long range plan for marketing a new line of electric gas lighter indicating for each stage in the products life cycle the major objective and the likely policy on price, quality, advertising, personal selling and channels. (Refer Lesson: 12)
1. Following two ideas are generated by your subordinates : (a) Fountain pen with eraser mechanism. (b) Ball point pen with eraser technology. Evaluate both the ideas and select one for commericalisation. Justify your selection
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(Refer Lesson: 13) 2. Your have a product mix of multiple items like edible oil, cosmetic items, drugs, writing materials, and biscuits. The whole of India is your market. Your have to channelise your products through dealers. Do you recommend umbrella brand or combination device while branding? Assign reasons for your answer. (Refer Lesson: 14) 3. You are using polythene bags as packing material on a massive scale. Consumer activists protest against you to replace polythene bags by jute. How would you react to this demand? (Refer Lesson: 15) 4. You are marketing seedless dates in packages. State the information to be incorporated while labelling such packages?
REFERENCE BOOKS (UNIT III) 12. Fundamentals of Marketing 12. Principles of Marketing and Salesmanship 13. Marketing Management 14. Principles and Practice of Marketing in India
William J. Stanton J.C. Sinha Philip Kotler Dr. C.B. Memoria, R.L. Joshi
QUESTIONS TO RESPONSE SHEET 1 (UNITS 1 TO III) INSTRUCTIONS TO LEARNER: Answer all questions.
Answer for a question should not exceed five pages Do not copy from course materials Stretch your imagination as a student of marketing 13. 15. 16. 17. 18. 19. Assess the Indian marketing environment. Critically examine the different kinds of marketing strategies. Discuss the bases meant for segmenting consumer and industrial markets. Explain the factors influencing the buyer behaviour. Narrate the different stages in the product life cycle. Explain the process of new product development.
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LESSON 15
PRICING
OBJECTIVES After reading the lesson, you will understand
The concept of price and pricing The objectives and role of pricing The pricing policy and various pricing strategies. The different methods of pricing STRUCTURE 15.1 Introduction 15.2 Pricing meaning and Objectives 15.3 Pricing polices and strategies 15.4 Pricing methods 15.5 Summary 15.6 Key words 15.7 Revision points 15.8 Model questions 15.9 Assignment questions 15.10 References 15.1 INTRODUCTION Pricing decisions have strategic importance to all organizations profit as well as non-profit organizations. Price is the only element in the marketing mix that produces revenue, the other elements produce costs. Price exists all around us. You pay interest for use of money, a student pays tuition fees for education, rent for use of living quarters or a piece of equipment for a period of time: fare for a taxi ride or airline flight, toll for travel as some highways, dues for membership in an union for a club, and so on.
15.2 PRICING MEANING AND OBJECTIVES Price is the device for translating (into quantitative terms i.e rupees and paise) the perceived value of the product to the customer at a point of time. The buyer is interested in the price of whole package consisting of the physical plus a bundle of expectations or satisfactions. These may inter alia include after sale service, replacement parts: technical guidance, credit, etc. To the ultimate consumer, the price he pays for a product or service represents a sacrifice of purchasing power. It is the only objective criteria (might be an imperfect measuring rod) for the consumer for comparing alternative items and making the final choice.
Pricing is the process of setting objectives, determining the available flexibility, developing strategies, setting prices, and engaging in implementation and control. (Marketing Management, David W. Carvens, Gerald E, Hills and Robert B Woodruff, Richard D, Irwin, Inc Illinois 1988, P.455). Pricing as a marketing function has an important role to play both at the macro and micro-levels. In this lesson, we are concerned with the role of pricing at the micro-level i.e. a firms level. Pricing plays a far greater role in the marketing mix of a company and contributes significantly to
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the effectiveness and success of the marketing strategy, Price is said to be the demand regulator, a competitive weapon, a probability determinant, etc. It is an important decision input in a variety of marketing decisions. For example, when product planning or modification programmes are undertaken, the price that the product would fetch relative to the cost provides an important decision base to approve or discard a product idea. Pricing begins with an understanding of the corporate mission, target markets, and marketing objectives. Pricing objectives are specific quantitative and qualitative operating targets that reflect the basis role of pricing in the marketing plan. The pricing objectives should be clear, concise and understood by all involved in making pricing decisions. These should be so stated as to enable those charged with pricing responsibility to compare performance with them. We may discuss the following pricing objectives:
PROFIT-ORIENTED OBJECTIVES 14. To achieve a target return 15. To maximize profit To Achieve a Target Return An adequate rate of return on the investment involved is the principal objective of any pricing policy. The rate of return may be a specified percentage return on its sales or on its investment. The idea here is to secure a sufficient return on investment from specific products or divisions so that the sales revenue will ultimately yield a pre-determined average return for the whole company. Many retailers and wholesalers use a target return on sales as a pricing objectives. They add an amount to the cost of the product called mark up, to cover anticipated operating experts and provide a desired profit for the period. To Maximize Profits Stanton, Etzel and Walker have rightly observed. The pricing objective of making as much money as possible is probably followed more than any other goal. (Fundamentals of Marketing. McGraw-Hill, 1994. P.301). It may be pointed out here that profit maximization should not be equated with profiteering, high prices, and monopoly. The objective of profit maximization implies in a given set of market conditions, management attempts to maximize profits through the instrument of price. Stanton and others further observe that a profit maximization goal is likely to be far more beneficial to a company if it is pursued over the long term. To do this hoverer, first may be have to accept modest profits or even losses over the short term. For example, a firm entering a new geographic territory or introducing a new product thinks best by initially setting low prices to build a customer base. Repeat purchases from this large group of customers may allow the firm to maximize its profits over the long term. SALES-ORIENTED OBJECTIVES 1. To increase sales volume 2. To maintain or increase market share
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To Increase Sales Volume This is one of the sales oriented objectives. This objective is adopted to achieve either a rapid growth or to discourage potential competitors from entering a market. The increase in sales is usually stated as a percentage increase in sales volume over a certain period say, 1 year or 3 years or 5 years. Management may seek higher sales volume by discounting or by some other aggressive pricing strategy. Sometimes companies are prepared to incur a loss in the short run to expand sales volume. Cloth Merchants, Garments Dealers, Electrical appliances Dealers run end of season sales. In hotel industry reduction to prices in tariff for accommodation is seen during off-season to increase sales volume. To Maintain or Increase Market Share Another important pricing objective is to maintain or enlarge market share. A firm may aim to secure a target market share by employing price as an input. The market share as a pricing objective is especially relevant for companies in developing countries like India, where market expansion is a phenomenon of economic development. STATUS-QUO ORIENTED 1. To stabilize prices 2. To meet competition To Stabilise Prices This is a long-range objective which aims at preventing frequent and violent fluctuations in prices. It also aims at preventing price wars amongst competitors. Price stabilization often is the goal in industries where the product is highly standardized such as steel or bulk chemicals. Many public sector companies aim at achieving this objective so as to impart a sort of stability to economic conditions. To Meet Competition To meet or prevent competition may be another pricing objective of no less importance. The object to meet competition is appropriate when a company is not a price leader and does not want to initiate price changes. In such a situation it only aims to neutralize the impact of competitive manoeuvres by appropriate pricing moves.
Besides these, the other pricing objectives may be to expedite cash collection, to mobilize resource, to promote developmental activity etc. Expediting cash collection may be resorted to as a pricing objective to accelerate cash inflow for developmental projects for debt-servicing or repayment. In times of credit squeeze this pricing object is so special relevance. The price structure may be so designed that it encourages cash sales and discourages credit sales, besides, it may expedite realization of bills receivables. A firm set pricing objective so as to promote developmental activity in those sectors or areas of the economy which are weaker. The price may be so designed as may favour the weakest and be affordable by the weaker. In such circumstances government subsidy is usually available to prevent losses. The National small industries corporation (NSIC) assists small firms to grow by availing of its nominally priced services.
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Resource mobilization as a pricing objective may be adopted by companies through higher resale prices which have a strong demand in the market so that the adequate resources are made available either for their own expansion or for the developmental investment elsewhere in the country.
15.3 PRICING POLICIES AND STRATEGIES A pricing policy is the standing answer for a company to recurring problem of pricing. It provides guidelines to the marketing manager to evolve appropriate pricing decisions. Policies Involving Prices Variations Under these we can discuss (a) One price-policy and (b) Variable price policy.
Under one-price policy, a seller charges all similar types of buyers exactly the same price and there shall be no discrimination or difference among the buyers of the same commodity. There is no chance for negotiations, bargaining or haggling. Terms of sale are the same for similar quantities of the product. The merits of one price or single-price policy may be enumerated as follows: 1. It is fair and builds goodwill among buyers owing to its non discriminatory character. 2. It is easy to administer and saves the salesmans time. 3. Uniform return on each sale and a certain profit is assured. However, this pricing policy does not allow company to match price to buyer needs. It particularly does not appeal to large buyers who want variable price on account of bulk transactions. In the absence of a strong brand, it is likely, that a company may lose bulk buyers. Variable price policy may be defined as one in which a company charges different prices for sale of its similar goods at a given time to similar buyer purchasing in comparable quantities under similar conditions of sale. The variable price policy is relevant in small businesses and where products are not standardized. It can be adopted where the individual sale transactions involve large sums and bargaining power of individual buyers varies with the size of the transaction. Flexible character in use as a promotional weapon is its strength. It can be used to match price with individual consumer needs and demand elasticities. However, such pricing polices often produces friction and dissatisfaction among consumers who feel unfairly discriminated against when charged higher prices relative to others.
Geographical pricing Geographical pricing involves the company in deciding how to price its products to customers in different locations. We find transportation expenses on the distribution of goods to different regions or zones. Hence the firms adopt two policies, viz, f.o.b. factory or f.o.b. destination. In the former, the transport cost from sellers dock is met by the buyers. In the f.o.b destination, the cost of transportation is borne by the sellers. On the basis of geographical condition, the pricing policies may be any one of the following:
(a) (b)
Uniform delivery pricing policy. Zone pricing
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(c) Basing point pricing. (d) Production point pricing policy. (e) Freight absorption policy. In uniform delivery pricing policy the sellers charge equal prices form all consumers. In the other words, the consumer belonging to the different regions or zones pay similar prices. In such pricing policy the sellers price includes cost of goods and the transportation charges. This pricing is also called postage stamp pricing policy. It is suitable to the products covering the least transportation charges. Under Zone pricing policy different prices are charged to the different zones. Buyers are classified in to different and equal prices are charged for the consumers coming under the particular zone. In the Basing point pricing policy, the sellers are the producers charge prices to a given destination. A basing point is a geographical location from which all sellers of a given commodity compute transportation charges to a given destination. The basing point for a given transaction may be location of the mill nearest to the buyer or it may be some arbitrary location. The ultimate aim of this pricing policy is to allow all competitors to quote identical transportation charges to any one buyer. This pricing policy is seen in industries producing the standardized industrial products. Production-point policy is adopted by majority of firms. The firms adopting the pricing policy make delivery of the goods at the gate of the factory or the warehouses. The transportation cost there from is borne by the buyer. The price is known as factory price or f.o.b. factory price. Freight absorption pricing policy is generally adopted when market for a product expands. In this policy, the sellers or producers bear a portion of freight. Hence the name freight absorption policy. This pricing policy is found suitable only for such firms whose fixed cost or production is high but the marginal cost is low. It may also be adopted to protect the interest of the producers from the nearest rival competitors. This may also be followed by firms offering the same quality product at the same price being located at differing distance. Let us take an distance of say 250 Km from customer C and B at the distance say the cost of freight is likely to be low. But factory B agrees to pay excess freight on 100 Km, the customer in question would not have any objection to make purchase.
Psychological pricing Psychological pricing is based on customer price perceptions so has to have special appeal in certain target markets. It is used to create an illusion of bargain. It is the practice of setting the prices at odd points e.g. Rs. 99, Rs. 199, Rs. 190.95 etc. Bata Shoe company adopts psychological pricing. Prices of consumer durables such a care, refrigerators, etc. are usually fixed in odd amounts. Promotional pricing Under certain situations, companies price their products below the list price, of course, for a temporary period and sometimes even below the cost. Such pricing policy is known as Promotional pricing. It takes various forms, viz. Loss leader pricing. Special Event pricing, special Event pricing Low-interest Financing, etc.
Loss-leader pricing policy helps in raising the sales volume or make possible the generation of profits at an increased scale. For example manufacturer has been
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able to create a positive image for its product(s), he may attempt at encashing the goodwill or reputation. He then brings down the prices of a particular product and takes help of advertising. Ultimately, the consumers realize that the producers have been showing their good gesture by minimizing the price. Supermarkets and department stores at times drop the price on well-known brands to stimulate additional store traffic. The notable examples of Special-event pricing are pricing followed when a new show room is opened, e.g. Titan show Room, Bombay Dying or any other retail outlet. During exhibitions also, the stalls price their products at lower than the market price. Low-Interest Financing as a form of promotional pricing is being followed by some of the automobile manufacturers, e.g. Telco and Premier Automobiles, instead of lowering the price, the companies offer customers low-interest financing.
Pricing strategies for new products The introduction stage of the product life cycle (PLC) is characteristised by product distinctiveness. This distinctiveness gradually perishes during the products travel through the subsequent stages. During its introduction stage, the product is offered to customers at a basic price which may be set on the basis of cost or demand or both. Two common price strategy options are available to a manufacturer during the introduction stage of new products, they are:
(a) (b)
Skimming pricing Penetration pricing
Skimming pricing is also known as skim-the-cream pricing. It is characterised by high initial price of the product when it is introduced in the market resulting in enormous profits in the products initial on the market period and then allows the price to fall as competitors enter the field. This is a strategy of recovering rapidly the investment made in the product. This policy is followed where it is felt that there will be rapid competitive in roads and the company wants to take the cream before this happens. The principal object underlying this pricing strategy is to fully exploit the product distinctiveness by offering the product to consumers in the higher income level group so as to skim the milk of the market. An important advantage of keeping the price high in the initial stage is that if the market does not respond satisfactorily, the price can be lowered. Secondly, the initial high price generates more profits which can be used subsequently for further market development and expansion. As opposed to skimming pricing strategy, penetration pricing strategy is characterised by low initial price product when product is introduced in the market. The principal object underlying this pricing strategy is to attain a large volume and reduce cost by stimulating rapid and widespread market acceptance. Penetration pricing is desirable in the following situations. Existence of a high short-run price elasticity of demand Substantial economics of large-scale production are possible.
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Possibility of rapid competitive imitation Market generation pricing strategy may also be adopted to capture a share of a market form a competing product which the new product is likely to replace. It also discourages competitors from entering the market in view of the fact that the lowprice policy allows a small margin.
Policies involving price differentials Price differential may be defined as the difference between the quoted price and the net price charged to the buyer. Price differentials are designed to accommodate various situations such as meeting competitive pressures, encouraging early payments, compensating buyers for the loss of some value satisfaction, providing incentives to buy in bulk. Some of the important differentials involving reduction in quoted price include discounts and rebates. A brief mention may be made on each class of discount.
Trade Discount: It is also known as functional discount and is offered by the manufacturer to channel members such as distributers, wholesalers, retailers for performing certain functions viz; selling, storing and record keeping. Functional discount is allowed as a certain percentage of the quoted price and its rate varies among different classes of middlemen. For example, a company may quote Rs. 2,000.00 as the price of a product and offer 20 per cent and 5 per cent trade discount from the channel end to retailers and wholesalers respectively. It implies 20 retailers buying from a wholesaler would pay (Rs.2000 x = 400) Rs. 1,600/100 (Rs. 2000/- - Rs. 400/-). Thus the wholesaler is given 25 per cent keeps 5 per cent and possess 15 per cent to the retailers. Cash discount: A cash discount is a price reduction to buyers who promptly pay their bills. It amounts to a reduction from the invoice price. This is in addition to trade discount. Such discount is best used when money market is tight and company needs to augement liquidity. It serves not only the purpose of improving the sellers liquidity but also helps in reducing credit collection costs and bad debts. Quality discount: A quantity discount is a price reduction to buyers who buy large quantity of a product(s). It may be allowed on the aggregate of all or specific class of product purchases measured in rupee value or physical units, in terms of purchases at a time or over a period of time (cumulative), or beyond a specific flow volume (incremental purchases) or absolute volume. In india, such discounts are allowed by a number of companies in order to stimulate their sales (J.C. Gandhi, Marketing- A Managerial Introduction, TMH, New Delhi, 1990, P. 244).
Quantity discounts is being allowed because of some benefits that accrue from it. It stimulates larger orders especially in case of slow moving items. It is possible to force full line on buyers by so structuring the discount schedule that slow moving items attract more discount Despite these, one major difficulty that arises in structuring the discount shedule which is not discriminatory and anticompetitive so that it does not attract provisions of MRTP Act, 1969. According to the judgement given in the case of Carona Sahu Company Limited the practice of
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allowing discriminatory or differential incentive bonuses based on larger turnover is a trade practice within the meaning of Sec. 2(c) of the MRTP Act and therefore, restrictive trade. (Restrictive Trade Practices in India, Vol. I, 1978, P. 288).
Seasonal Discounts: A seasonal discount is a price reduction to buyers who buy merchandise or services out of season i.e. during the slack/off-season. The purpose of this pricing policy is to enable the manufacturer to level his production throughout the year. This policy is generally found in the consumer durables of seasonal uses. E.g. refrigerators, electric fans, coolers, etc. Rebate: It is deduction from the quoted price. It is designed to accommodate different claims of buyers arising out of loss of some value satisfiaction, e.g. making of defective or delayed deliveries of goods and deterioration in the quality of products on shelf or in transit, etc. The rate of rebate or its quantum is seldom fixed. It varies from situation to situtation depending on the loss of value satisfaction. Allowances: These are also a type of reductions from the list price. Promotional allowances are payments or price reductions to reward dealers for participating in advertising and sales-support programmes. Trade-in allowances are price reductions granted for turning in an old item when buying a new one. These are found in durable goods markets.
15.4 PRICING METHODS A number of methods are available for setting prices. The price setting may be either on the basis of cost or on the basis of market conditions. Pricing methods Cost plays an important role in making the pricing decisions. The cost based method of price determinations is one in which the cost of manufacturing a product serves as the base for price fixation. The important pricing methods falling under this broad head are:
Cost-plus pricing method Marginal or Incremental cost Break-even Pricing Method

Cost-plus pricing method It is simple method of price setting. In this method, the cost of manufacturing a product serves as the base for price fixation. However in order to cover an anticipated profit on the product being sold, management usually adds to this cost some amount referred to as mark-up. This mark-up may be a certain per cent of the cost. It is for this reason that this method is also called cost-plus or Target pricing method. It is also called flow price since it provides the flow below which any sale would loss to the company.
The mark-up when based on cost is arrived at as follows: Mark up % based on cost = Markup in Rs. x 100 Cost price
When the mark-up is based on selling price the formula adopted is :
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Markup in Rs. x 100 Selling price
Markup % based on sale price =
It is a simple method of price selling since the calculation stands like: Selling Price = Unit Total cost+Derived Unit Profit This method is a weak and unrealistic one since it completely ignores the influences of competition and market demand. It is suitable only to such producers who maintain the minimum possible cost of production. Cost-plus pricing is generally preffered by the middlemen. A middleman includes in it acquistion cost, the selling expenses, the interest, deprecation, expected profit margin mark-up.
Marginal or incremental cost pricing method In this method, the price is fixed on the basis of the additional variable cost associated with an additional unit of output. The cost of producing and selling one more unit, i.e. the cost of the last unit, is taken as the price of the final article. This method of setting prices is found useful, particularly while introducing a new product. It is also useful for keeping labour employed during slack seasons and to prevent a shut-down. Despite all, the method cannot be followed for long. Because, we do not find the relevance of fixed cost in this method. Break even pricing method This is the most sophisticated pricing method which takes into account both fixed costs and variable costs. Breakeven analysis is a managerial tool that emphasizes the relationship among decision variables such as price, costs and volume of sales. Sales volume is a function of prices charged and the amount of products sold. (Price per unit multiplied by quantity sold). Any marketing plan is based on the sales budget and the sales budget is itself based on the sales forecasts, i.e. estimated sales volume.
As regards costs, we know that there are broadly two categories of cost viz. Fixed costs and variable costs. Fixed costs remain constant for a given range of operations. Variable costs vary with the output or number of units produced. The concept of contribution is important in breakeven analysis. Unit contribution to fixed costs is foundout by subtracting variable costs per unit from the selling price per unit. Mathematically: Unit Contribution to Fixed Costs = [Selling price per unit] [Variable Costs per unit] Break-even points is the point at which the firm has neither gains nor losses. The firm just manages to cover its total costs. When the sales revenue exceeds total costs, the result or difference is profit and when sales revenue is less than total costs, the result or difference is loss. Thus, break even point is that point at which sales revenue is just equal to total costs. The equation for arriving at BEP is: BEP = Where FC SP VC or FC C
FC = Fixed Cost
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SP = Selling Price VC = Variable Cost C = Contribution A diagrammatic representation of the breakeven point has been depicted in Fig. 1.
Y 800
TOTAL COST & REVENUE (Rs.)
700 600
BREAK-EVEN POINT
TOTAL REVENUE
IT OF PR
500 400 300 200 100 0

SS LO
B
TOTAL VARIABLE COST TOTAL FIXED COST
X 0 1 2 3 4 5 6 7 8 9 10 11 12
QUANTITY Figure 1 Break even Analysis
In Figure 1, OX axis indicates the quality of production and OY the cost revenue in rupees. With a rise in production, we find a rise in the variable cost. But the fixed cost remains static. The point where the total cost is equal to the revenue is the break-even point. In Fig.1. this point is B. The assumption that fixed costs remain static is not true in the long run. Again, the demand estimate would also vary. Hence, it is doubted whether this method of pricing is perfect. Especially in a firm where we find fluctuation in costs, this method would not be suitable.
Pricing method based on market conditions Besides costs, the market condition is also a reliable basis of the setting of pricing. The stage of competition determines the market condition. Usually three method exist which are based on market condition or demand viz;
Pricing to meet competition Pricing above competition Pricing below competition Pricing to meet the competition This is the simplest method of price setting. Here, each company or firm prices its products the same as rival competitors. Competitive price is the basis of this method of price setting. It is found applicable in the perfect market situation. In such a market, the buyers have details of the prices adopted by the competitors. The standardized products prefer to adopt this pricing method. This pricing method is also found suitable for products having inelastic demand.
Pricing above competition In this method of price setting, the seller may set higher than average prices for the product. The main object is to give an impression that his product(s) is superior to that of the competitors. At times, that producers set more than average prices, particularly to give some share to the middlemen. Above competition pricing
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is suitable to the producers who have established fair image among the consumers at large. Despite the above, the method is criticized on the ground that the producer charge high prices not only to make high profits but also to give a chance to middlemen to get handsome pay offs. In the process it is alleged that the ultimate consumers suffer. Hindustan Lever Ltd (HLL) follows this method of pricing.
Pricing below competition In this method the firms price their product(s) below the prevailing competitive price it is observed, the price of a product is usually low when the quality of product is low. The firms following this method of price setting must either have very low costs or be willing to accept a very low profit pen unity in the hope of radically increasing sales volume. This method of pricing is found suitable to the firms, particularly new and interested in penetrating the new market. The products having elastic demand may go through this method of pricing. 15.5 SUMMARY Price is an important element in the marketing-mix. Price exists all around us. It is a like that binds consumers and the company. Pricing management begins which an understanding of the corporate mission, target markets and marketing objectives. Pricing objectives can be grouped under three broad categories, viz, profit oriented objectives, sales oriented objectives and status quo oriented objectives. Of the objectives, achieving a target return, increasing market share, and meeting competition are the principal ones.
Every company follows a particular pricing policy or a combination of two. Pricing policy may either be one-price policy or variable price policy. One price policy is fair and builds goodwill, easy to administer etc. Geographical pricing policy may be one of uniform delivery pricing policy, zone pricing, basing point pricing, production point pricing and freight absorption pricing policy. Some firms also follow psychological pricing or odd pricing policy. Promotional pricing takes that form of Loss-Leader Pricing, Special Event Pricing, Low-Interest Financing, etc. For new products two products two principal pricing strategies are (a) skimming pricing and (b) penetration pricing. The former is characterized by high initial price of the product and the later is characterized by low initial price. Discount is an element in the price-mix. Trade discount, Quantity discount, Cash discount, Seasonal discounts are the most popular forms of discounts allowed by the marketers. Besides, rebate and allowances are also given. The pricing methods inter alia include Cost-plus pricing method. Marginal or Incremental cost pricing method and Breakeven Pricing method. Cost-plus pricing is generally preferred by the middlemen. In case of marginal cost pricing the cost of the last unit is taken as the price of the final article. Breakeven pricing is said to be the most sophisticated pricing method which takes into account both fixed costs and variable costs. Break-even analysis is a managerial tool.
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Thus, price policies and strategies are guidelines and frameworks within which management of a company administers prices so as to match them with the market needs.
15.6 KEY WORDS Mark-up, Promotional Pricing, Rebate, Trade in Allowances, Contribution 15.7 REVISION POINT Pricing policies & strategies, Pricing methods 15.8 MODEL QUESTIONS 1. Describe the major pricing objectives which a company may set out to achieve. 2. Describe the cost-based methods of pricing and outline its strengths the limitations. 3. What is the rationale of following policies involving price-differentials? Describe the kinds of differentials usually allowed by the marketers. 4. Write short notes on: a) Variable Pricing, b) Zone Pricing, c) Loss-Leader Pricing d) Promotional e) Pricing 5. Distinguish between (a) Skimming Pricing and Penetration Pricing
(b) (c)
Trade Discount and Quantity Discount Break-even Pricing and Incremental Cost Pricing.
15.9 ASSIGNMENT QUESTIONS 1. The break-even pricing method overcomes the weaknesses of both the costbased and demand-based pricing methods- Discuss. 15.10 REFERENCES 1. Crevans, W. David et al. Marketing Management, Richard D. Irwin, Inc. Illionis, 1998. 2. Dean Joel, managerial Economics, PHI, New Delhi, 1977. 3. Gandhi, J.C. Marketing A Managerial Introduction, TMH, New Delhi, 1990. 4. Kotler, P. Marketing Management (Analysis, Planning Implementation and Control), PHI, New Delhi, 1992. 5. Lynn, R.A. Price Policies and Marketing Management, Richard D. Irwin, Inc. Illinois, 1967.
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LESSON 16
PROMOTION
OBJECTIVES After reading this lesson, you will understand,
the concept of promotion-mix the aims/purposes of promotion the scope of sales promotion the promotion strategy STRUCTURE 16.1 Introduction 16.2 Promotion-Meaning, Nature and Scope 16.3 Need for Purpose of promotion 16.4 Sales promotion 16.5 Promotion Strategy 16.6 Marketing communication process 16.7 Summary 16.8 Key words 16.9 Revision points 16.10 Review questions 16.11 References 16.12 Assignment Questions 16.13 Terminal exercise 16.1 INTRODUCTION In an exchange activity such as marketing, communication is vital. A manufacturer may have the best product, reasonable price, an efficient distribution system. But it is a fact that people will never buy the product unless they have heard of it. They must know that the right product is available at the right place and at the right price. This is the job of promotion. It is an important element in the marketing-mix.
16.2 PROMOTION MEANING AND SCOPE Meaning Basically, promotion is an attempt to influence. More specifically, promotion is the element in organisations marketing mix that serves to inform. Persuade, and remind the market of a product and/or the organisation selling it. [Stanton, et al, Fundamentals of marketing, Mc Graw Hill, New York, 1994, P. 456]. It has also been defined as the coordinated self-initiated efforts to establish channels of information and persuasion to facilitate or foster the sale of goods or services, or the acceptance of ideas or points of view. [Quoted in S.A. Sherlekar, Marketing Management, Himalaya, New Delhi, 1993, p. 264].
Since the promotion-mix is also known as the marketing communication-mix, let us at this stage have an idea about the communication process and the various elements (Fig. 1) involved in it.
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Sender
Encoding
Message Media
Decoding
Receiver
Noise
Feedback
Response
Fig. 1: Elements in the Communication Process
Source: Philip Kotler, Marketing Management, PHI, 1992, New Delhi P. 568.
A glance at the figure indicates nine elements which may be explained as follows:
Sender: It is the source or communicator, a marketing company. In other words, he is the party sending the message to another party. Encoding: The process of putting through into symbolic form Message: The set of symbols that the sender transmits. (may be sales the copy theme)
story,
Media: The communication channels through which the message moves from sender to receiver. (may be a salesman, an ad., telephone, postcard, newspaper, etc.) Decoding: The process by which the receiver assigns meaning to the symbols transmitted by the sender. Receiver: The party receiving the message sent by another party. (the target customers, purchase influencer, etc) Response: The set of reactions that the receiver has after being exposed to the message. Feedback: That part of the receivers response that the receiver communicates back to the sender. Noise: Unplanned static or distortion during the communication process.
Nature and Scope The nature and scope of promotion-mix can be studied under five heads, viz; Personal Selling, Advertising, Sales Promotion, Packaging, public Relations, and Publicity. These can be the elements of the promotion-mix.
Personal Selling: It is the direct presentation of a product to a prospective customer by a representative of the selling organisation. Personal selling takes
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place face to face or over the phone, and it may be directed to an intermediary in the distribution channel or a final consumer.
Advertising: Any paid form of non-personal personal presentation and promotion of ideas, goods, or services by an identified sponsor. (The American Marketing Association) The key words are non-personal and paid by an identified sponsor. Publicity: It is non-personal stimulation of demand for a product, service or a business unit by place commercially significant news about it in a publication or obtaining favourable presentation of it upon radio, television, or stage that is not paid for by the sponsor. Public Relations: A variety of programmer designed to improve, maintain or product a company or product image. Sales promotion: It embraces those marketing activities other than advertising, publicity and person selling that induce consumer purchasing and dealer effectiveness. Sales promotion aims at complementing other means of publication. Packaging: Packaging has become increasingly important as a promotional tool. With the introduction of new packaging technology, the value of packaging especially in consumer products has assumed a fascinating communication channel. The polypacking is an example. Marketers have designed their communication message around new and innovative packaging (Dalda Refined Oil, Cosmetic, Pan Masala, etc.) service industry e.g. catering, courier too have begun to use packaging as a promotion.
Some common promotional tools have been presented in figure-2.

Advertising Personal selling In person sales Presentation Sales Meeting Tele Marketing Print and Broadcast ads Bill Boards 1. Display signs 2. POP display 3. Catalogues 4. Motion Pictures 5. Direct Mails Print, Media, New Stories Broadcast media New Stories 1. Annual Reports 2. Speeches Contents Publicity Sales Promotion
Couponing 1. Free samples 2. Rebates 3. Premium and gifts
Fig.2. Some Common Promotional Tools A mention made this at this stage about the suitability of promotion elements. Advertising is the efficient tool in obtaining customer awareness of new products and services whereas customer comprehension is influenced about equally by advertising and personal selling.fig.3 shows personal selling is considered the most important of the promotion tools in the marketing of industrial goods. But advertising is most important in the marketing of consumer goods.
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Personal Advertising Sales Promotion selling Form of communication Contact with prospect Message flexibility Prospect feedback Cost per contact Relative importance for consumer marketing Relative importance for industrial marketing Personal Non-personal Non-personal Direct Flexible Direct High 3 1 Indirect Inflexible Indirect Low 1 3 Indirect Inflexible Indirect
Publicity Nonpersonal Indirect Inflexible Indirect
Moderate to high None 2 2 4 4
Fig.3. Characteristic and Relative Importance of Four Elements of Promotion 16.3 NEED FOR/PURPOSES OF PROMOTION Someone has rightly said, Nothing happens until somebody promotes something. Promotion is said to be the spark plug in the marketing-mix. Sales do not take place automatically without promotion, even though the product is superb. Promotion is persuasive communication to inform potential customer of the existence of products, to persuade and convince them that those products have want satisfying capabilities. The promotion message has two basic purposes viz; persuasive communication, and tool of competition.
Promotion is responsible for awakening and stimulating consumer demand for a product. It can create and stimulating demand, capture demand from rivals and maintain demand for ones products even against keen competition. The main purpose of promotion is to influence buyer behaviour and alter the location and shape of the consumer demand curve in favour of the products. Figure-4 demonstrates the effect of promotion on the demand curve.
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PRICE Y
HIGHER PRICE FOR SAME SALES
D2 P2 D1 P1
DE MA N PR D G OM OA OT L W IO N IT
PR PA ESE T T NT ER N
RESULT OF PROMOTION
D2 D1 Y Q1 Q2
MORE SALES AT SAME PRICE 1. Large quantity OQ2 sold at the same price OP1 2. Same quantity OQ1 sold a the higher price OP2
X SALES VOLUME
Fig. 4: Influence of Promotion on Demand
Source: S. A. Sherlekar, Marketing Management, Himalaya, New Delhi, 1993, P.270. Thus promotion tries to alter demand curve to the right (from D1 to D2). It is employed to retain the price and secure increasing sales at the price. Promotion can also raise the price but retain the sales level by marketing the demand relatively inelastic e.g. through creating brand loyalty and patronage by intensive advertising and sales promotion. Either through shifting the demand to the right or marketing the demand more inelastic, the object of higher sales revenue can be accomplished with the help of persuasive marketing communication. In brief, all forms of promotion can act as the best means of non-price competition.
16.4 SALES PROMOTION Sales promotion is an integral part or promotion-mix. It is referred to those marketing activities other than personal selling, advertising and publicity that stimulate consumer purchasing and dealer effectiveness such as display, shows and exhibitions, demonstrations and various non-recurrent selling effort not in the ordinary routine. Sale promotion also means any steps that are taken or the purpose of obtaining or increasing sales. Objectives of Sales Promotion 1. The primary objective of sales promotion is to introduce new product. The basic purpose is to expand market for the new product by influencing or motivating the potential buyers, actual users, re-sellers or middlemen. 2. Sales promotion activities are also undertaken with a view to attract new customers. The potential buyers or the actual users are motivated by paying
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to them different incentives. They are induced by free samples, gifts, premium, etc. 3. To reduce seasonal fluctuations in sales is another important objective of sales promotion. The demand for electric fan, air cooler, refrigerator or so is reduced, particularly in the winter season. To maintain their normal demand, we find the provision of off-season discount/concession/gifts. 4. The sales promotion activities also aim at influencing or inducing the middlemen. Hence dealers promotion is as important as consumer promotion. 5. To counter-attack the competitors in some cases is also the objective of sales promotion actives. As and when a competing firm provides promotional benefits, the rival competitors are forced to adopt the same. Sales Promotion vs. Advertising Sales promotion is the temporary offer of a material reward to the customer. Where as advertising is the communication of information. More specifically the points of distinction between the two are as follows: (a) (b) (c) Advertising is a day-to-day matter of the business. But sales promotion is an occasional tool. Advertising is a necessity for any marketer/manufacturer, but the sales promotion can be dispensed with. Advertising is impersonal communication or we can say it is a media of information transmission. The sales promotion is a persuasive communication.
Classification of Sales Promotion Activities Sales promotions are targeted at consumers, dealers and sales force of the organisation. Hence we can classify the sales promotion activities into three broad groups viz; Consumer Promotion, Dealer promotion and Sales-force Promotion. Consumer Promotion Consumer Promotion activities are those incentives which are intended to educate or inform the consumers and at the same time stimulate the product/service usage at the consumer level. A few consumer promotional tools may be mentioned here.
Free samples are given to consumers with the object of introducing a new product in the market as well as to enlarge the market for the product. The free samples accelerate sale by motivating the consumers as they get an opportunity of using the product before making the buyer decisions. Free samples are prevalent in consumer non-durables market.
Price-off is a consumer-oriented sales promotion device which provides an opportunity to the buyers to get the product at a reduced price. The chief objective of price-off or money-off is to boost sales. It is available in two forms; first, the reduction in price and the second, more than one item is packed and made available at a reduced price. Price-off label is printed on the package. This is common.
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Premium is the product which is given free of cost to the purchaser. This is introduced to attract new customers or actual users or to improve off-season sales or to introduce a new product or to discourage price competition. The premium is of four types, viz; in-pack or non-pack premium, free in the mail premium, selfliquidating premium and re-usable container premium.
In the in-pack premium, the goods are packed with premium. One finds its descriptions on the package of goods. In the mail premium, the purchasers get the premiums after a certificate producing a certificate regarding the purchase of goods. The premiums are sent to the concerned purchasers free of cost by mail. In the selfliquidating premium, the purchasers get the goods at the reduced prices. In the container premium, the purchasers get a container of domestic use. Key chains, artificial flowers, ball pens, combs, blades, toilet soaps, etc. were given as in pack premiums. Attractive jars costing separately Rs.8.00 or so may be given at an extra change of Rs.4.00 or Rs.5.00 only. Recently Brooke Bond Tea gave sugar in a separate pack weighting 50grams for each pack of 250grams of tea.
Sweepstakes are some sort of lottery. In this device, a consumer who buys the product is given a coupon containing a serial number. All the coupons received from the consumers are kept in a place, lots are drawn and names of winners are declared. Consumer contests are competitions where in individuals are invited to compete on the basis of create skills. Consumer contests are indirect manner of introducing a new product or attracting new users. The contests remain open for a period of five weeks of more and among others aim at generating greater degree of awareness and enthusiasm in the sponsor and/or his brand. Being capable of meeting diverse objectives the popular types of contest include; reason why, sentence completion, brand name/slogan/essay writing contest, special skills, sewing, knitting, cookery contest, etc., each capable of delivering the purpose with which a contest is organized. The contest should be easy and fun in order to attract greater participation.
Trades or Dealer Promotion Trade promotions are incentives which are offered to wholesalers, distributors, retailers, etc. and aim at motivating them to back up the sponsored brand by giving more than their usual push. The dealer promotions thus are introduced to induce the dealer to keep a larger stock of the manufacturers product. The middlemen are interested in profits. Hence, the forms of promotion which attract them may include (1) offered of cash discount on various bases i.e. percentage, quantity bought / ordered, (2) advertising or display allowances, (3) prizes and gift, etc.
Quantity discounts and higher rate cash discount/trade discount induce the dealers to stock larger quantities. These are also known as buyer allowance. This device is used for the new products intended to be penetrated in the market. But the manufacturers can also use it for the existing goods.
Retail demonstrators are supplied by manufacturers for preparing and distributing the product as a retail sample. For example, Nescafe Instant Coffee and
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Rasna use this device by trying the sample with visitors to the retail outlets on the spot. Even Surf at times shows on the spot demonstration regarding the method of using the product.
Dealer and distributor training for salesmen which may be provided to give them a better knowledge of a product and how to use it. Displays and advertising allowances otherwise known as merchandising allowances are also offered to the dealers. A merchandise allowance may be defined as a short-term contractual agreement through advertising or in store display of his product. The advertising allowance is paid to them for making advertisements. The payment of display allowance is for displaying the goods and the merchandise allowance combines both. Free goods are an important sales promotion device meant for the middlemen. In this method, the middle men get few goods free of cost, especially after crossing the minimum limit.
While organizing trade/dealer promotional activities some of the following points should be borne in mind. Trade promotion schemes should match with the capability of the different members of the trade. The wholesalers might be put at primary demand creation of the product and the retailers in administration of complete schemes. Hence the sponsors of trade/dealer promotion schemes should perform these tasks for them instead of expecting them to carry them out. Regular availability of product supplies and gifts must be ensured during the period of the promotion schemes. In case of gifts are offered as incentives to trade members, these article should be reputed brand and of household or personal use. Sales force promotions Sales promotion schemes can be aimed at a companys own sales force .these include broadly incentive programmes and sales contest. The sales incentive awards may be for the sales-force by following any one of the four methods, viz. Awards are tied to unit sales on the annual basis. Awards are given to those who achieve more than a specific percentage of their sales quota performance. Awards are given to those who perform best in relation to their Individual quota. Awards are given on account of specials achievements as notified by the organisation from time to time. Besides sales contest the other promotional tools used for motivating sales force are bonus, meetings, sales aids, trainings materials, etc. all these lead to increase sales productivity, to increase average sales per account, to promote dealer activity, to revive old product. To boost recession period sales, etc. A sales contest is a competition among members of the sales force of a firm. It aims at fulfilling the needs of the sales person for achievement, esteem and selfactualization. Contests are employed to increase sales on an entire product line, to launch and introduce new products, to obtain new customers, and to evaluate the 146
real capacity of salesmen. However, sales contests suffer from limitations. They may lead to jealousy among salesmen. They may also lead to overstocking or under servicing of customers. If contests are wisely used, they can remove many disadvantages. Contest awards must be cash prizes or merchandise prizes or a combination of both. Sales meeting/convention/conferences are the devices of group motivation. They promote team work, dissolve social barriers, inspire and raise salesmens morale. The sales promotion activities now can be summarized and put in Figure 5.
Tools of Consumers Promotion Banners Samples Calendars Point-of-purchase materials Contests Coupons Trade Fairs Tools of Dealer Promotion Price deals Sales contests Gifts Trade shows Meetings Merchandising Tools of Sales Force Promotion Contests Bonuses Meetings Sales aids Training Materials
Fig.5 : Sales Promotion Activities 16.5 PROMOTION STRATEGY Promotion strategies are influenced by the life cycle stages of a product. During the introduction stage, the prospective buyers must be informed about the products existence and its benefits, the middlemen must be convinced to carry it. In such a situation both advertising (to consumers) and personal selling (to middlemen) are critical in a products introductory stage. Later, if a product succeeds in the markets competition is seen which gradually intensifies. Hence, more emphasis is placed on persuasive advertising.
Promotions strategies may also be studied under (a) push strategy, (b) pull strategy, and (c) push and pull strategy. A promotion programme aimed primarily at middlemen is called a push strategy and promotion programme directed primarily at end users is called a pull strategy. Figure-6 gives an idea about both the promotion.
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Manufactuer
Demand
Intermediaries
Demand
End User
Push Strategy Marketig activities Demand Demand
Manufactuer
Intermediaries
End User
Pull Strategy Marketing activities Fig.6 : Push Versus Pull Strategy
Source: Philip Kotler; Marketing Management, PHI, New Delhi, 1992, P. 588
Push strategy It is also called a pressure strategy. A channel member directs its promotion primarily at the middlemen that are the next link forward in the distribution channel. The product is pushed through the channel. The producer promotes heavily to wholesales, which then also use a push strategy to retailers. In turn, the retailers promotes to consumer. A push strategy usually involves a lot of personal selling and sales promotion, including contests for sales people and displays at trade shows. Advertising plays a minor role. This promotion strategy is appropriate for many manufactures of business products and for various consumer goods.
The conditions favouring push strategy are: Quality product with unique product features and talking points of salesmen. High priced product. Higher profit margins to resellers. Pull strategy A pull strategy involves marketing activities primarily advertising and consumer promotion directed at end user to them to ask intermediaries for the product and thus induce the intermediaries to order the product from the manufacturer. This strategy is also known as suction strategy. The product is literally pulled through the marketing channel by consumer.
16.6 MARKETING COMMUNICATION PROCESS 1. It presents a set of messages to a target market through numerous media or cues.
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2. The messages try to create a favourable response from the market (with the help of unique sales propositions) towards the company's total product offering. 3. The company tries to get back adequate feedback from the consumers which points out their response, reaction and their reinterpretation of the message
4. The feedback enables the company to improve and modify its total pruduct offering. 5. Elements of Marketing communication: (1) Sender of the message also called the communicator, (2) message in the form of commercial ides, sales story, advertising copy, package, print and label etc., (3) channel or media, the vehicle carrying the message, a sales person, an advertisement, sales literature, phone television, radio, press etc., (4) receiver a prospect, customer, reseller, purchase influencer, the audience 0r destination, (5) feedback in the form of a response, reaction, counter-proposal, or the returned communication called feedback from the receiver to the sender. The feedback is essential to modify, alter, and improve the plan, programme or message. Feedback improves the effectiveness of communication. The communicator must be a good listener, (6) noise or obstacles reducing the effectiveness of communication process.
6. The company is not only the source or sender of market messages but also a receiver of market responses. 7. As a sender of messages, the company communicates with the market not only through promotional tools but also through product, price and place or point of sale (the retail store) as well.
16.7 SUMMARY Promotion is one of the important elements in the marketing-mix. Personal selling, advertising, publicity, public relations and sales promotion constitute the promotion-mix. In the present day competitive business world promotion in general and sales promotion in particular plays a key role. These elements vary in their relative importance depending on whether the product is a consumer one or industrial one. The principal objective of promotion is to influence the behaviour of the buyer and increase demand. It is a persuasive communication. Sales promotion activities are necessary while introducing a new product, to attract new customer, to reduce seasonal fluctuation, to counter-attack the competitors, promotion strategy.
Sales promotional activities can be broadly divided into (a) consumer promotion (b) dealer promotion (c) sales force promotion. Broadly two promotional strategies exists viz. Push Strategy and Pull Strategy.
16.8 KEY WORDS Encoding
Decoding Identified
Contests Buyer allowance Push strategy
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Premium Sweepstakes Pull strategy
16.9 REVISION POINTS Contests, Buyer allowance, Push strategy, Pull strategy 16.10 REVIEW QUESTIONS 1. Explain in brief the process of communication in marketing. Give illustration. 2. Define promotion and give its classification. Also describe the purposes of promotion. 3. How does sales promotion differ from advertising? State the importance of sales promotional activities 4. Write notes on: (a) Sales contests, (b) Premium, (c) Push strategy, (d) Pop materials 5. Distinguish between: i. Push strategy and pull strategy
ii. iii.
Premium and sweepstakes. Advertising and sales promotion.
6. What is the need for motivating the sales force? Explain the various tools that are used for sales force promotion. 16.11 REFRENCES 1. Aaker, et al. Advertising Management PHI, New Delhi, 1992. 2. Anderson, Rolph E. et. al. Professional sales management, McGraw Hill, International edition, New York, 1988. 3. Kotler Philip, Marketing Management, Prentice Hall of India, New Delhi, 1992. 4. Stanton, J. William, et. al. Fundamentals of marketing. Mc Graw Hill, International, New York, 1994. 16.12 ASSIGNMENT QUESTIONS 1. Apply the 4 major elements of promotion mix to market CRY-child relief and you or family planning programme in the country.
16.13 TERMINAL EXERCISE 1. What types of consumer response should the markets aim at in the communication strategies for the following:
1. Mutual funds 2. Four wheeler 3. Water purifier 4. Cellular phones
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LESSON 17
ADVERTISING
OBJECTIVES After studying this lesson you will be in a position to learn the following:
The meaning and nature of advertising an important element, in the promotion. Kinds of advertising. Ad. Budgeting/appropriation for advertising. Evaluation of advertising effectiveness. STRUCTURE 17.1 Introduction 17.2 Advertising-Meaning and Nature 17.3 Role/Functions of Advertising 17.4 Classification of Advertising 17.5 Advertising Budget 17.6 Evaluation of Ad. Effectiveness 17.7 Public relation advertising 17.8 Summary 17.9 Key Words 17.10 Model Question 17.11 Assignment Questions 17.12 Reference 17.13 Terminal Exercise 17.1 INTRODUCTION In the preceding lesson promotion in general and sales promotion in particular were discussed. In this lesson an attempt is made to explain advertising and its various important aspects as another important element in the promotion-mix.
17.2 ADVERTISING-MEANING & NATURE
Several authors have defined advertising in various ways. However, the theme has more or less remained the same. According to W.J. Stanton and others advertising consists of all activities involved in presenting to an audience a nonpersonal, sponsor-identified, paid-for message about a product or organisation. (Fundamentals of Marketing, Mc Graw Hill, New York, 1994, P. 502) One of the most representative and widely accepted definitions is that of the American Marketing Association. According to it, advertising is, any paid of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor. This definition indicates that advertising is a paid, non-personal communication. It lays emphasis on presentation and promotion. The presentation of the sales message may be visual as well as oral. Importance is also attached to the sponsor. Wright, winter and Zeigler say advertising is controlled, identifiable information and persuasion by means of mass communication media. (Advertising, TMH, New Delhi, 1982, P. 10) It is considered controlled information because it has to use the
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time, space and content of the message effectively and economically. It is controlled again because, it is directed at a particular group. The field of advertising management is made up of a system of interacting organisations and institutions, all of which play a role in the advertising process. At the core of this system are advertisers, the organisations that provide the financial that support advertising. Advertising management is heavily focused on the analysis, planning, control, and decision-making activities of this core institution i.e. the advertiser (David A. Aaker et. al. Advertising Management, PHI, New Delhi, 1992, P.1). The nature or characteristics of advertising may be enumerated as follows: 1. It is an essential element in the promotion-mix. Personal selling, sales promotion and publicity are the other elements. 2. Mass communication is the basic purpose of advertising. It informs not one person but a group of persons who are the prospective buyers of the product. The mass communication media such as radio, television, newspaper, bill boards and magazines, etc., are used for advertising purpose. 3. Advertising activity is undertaken by some advertising agencies which charge the price of advertising. Space, time, language, etc., are sold by advertising agencies 4. An advertisement is sponsored by some identified advertiser, disclosing ideas, messages and information., 5. The advertising message is persuasive & informative enough to motivate potential customers. It has been said that success in business depends on persuasion. Advertising informs, entertains and ultimately persuades a group or society to purchase the advertised products. The distinction made between advertising and sales promotion in the preceding chapter helps us in further understanding the nature of advertising. Advertising may here be differentiated from publicity. 1. Publicity may or may not be for, whereas advertising is always paid for. 2. Publicity may or may not be openly sponsored or initiated by any party 17.3 ROLE/FUNCTIONS OF ADVERTISING Advertising is a communication which informs, persuades and reminds. It performs a number of functions. The role of advertising can be traced from the functions it performs.
Introduces New Product Advertising introduces a new product to potential customers. The prospective buyers are given information on the attributes, qualities and prices of the product. New products are advertised first before production commences. Such advertising gives an edge to the new product over the existing products. Stimulates Demand Advertising as a communication medium informs consumers about the presence of a product in the market. The knowledge so gained about the advertised product in two ways. First, it aroused latent needs and secondly, it reinforces and
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strengthens the aroused needs. Promotional activity had definite impact on aggregate consumption.
Increases Sales Volume By stimulating demand, supplementing other selling efforts, and creating a brand preference, advertising influences in a positive way a companys sales volume. It ultimately increases the share of market. Reinforces Middlemens Promotional Efforts Advertising helps middlemen to achieve better performance. They are informed about the prices, qualities, etc., so that they may pass on the information to customers. News letters, coupled with newspaper advertisement, may give information on the names of shops and retailers where the advertised products would be available at a lower cost. Distribution is accelerated by extensive advertising by the manufactures which acts as the dealer support. Develops Brand Preference Consistent advertising, coupled with other selling efforts, makes consumers to buy companys product. It also tries to create and retain brand preference and brand loyalty. Once a brand preference is developed, advertising goes on to reduce the post-purchase consumer dissonance and the influence of competitive advertising so as to sustain consumers brand preference. Makes De-marketing Possible Advertising is the prime instrument of a companys demarketing strategy. Its contribution is particularly relevant in a country like India where demand for goods has to be regulated so as to check the adverse effects of the demand supply disequilibrium (J.C. Gandhi, Marketing A Managerial Introduction, TMH, Delhi, 1985, P. 298). Miscellaneous Role Advertising helps in cutting costs both production and selling. When sales go up on account of advertising, there is a greater spread of over head production cost as a result of which unit cost also goes down (when variable cost remains constant). When unit cost of a product goes down there are both internal and external environmental pressures which compel companies to lower their prices to the advantage of consumers.
The major contribution of advertising is in maximizing profits under a given set of constraints. The collective and cumulative effect of demand stimulation, brand preference and cost reduction is better price realisation on the product sold. Besides, the product differentiation created by advertising enables a company to maximize its profits on sales of those who value product distinctiveness.
17.4 CLASSIFICATION OF ADVERTISING MEDIA In advertising, media refer to those through which the message of an advertisement is presented. The message may appear in newspapers, magazines or calender, or may be heard in a ratio or shown on a screen in a cinema hall or displayed on posters or in neonsign. A classification of advertising media is presented below:
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I. Indoor Advertising * Press media *News Papers *Magazines * Radio * TV * Film II. Outdoor advertising * Mural (Posters * Advertising Board * Vehicular * Sky advertising III. Direct Advertising * Sales Letters * Circular Letters * Folders IV. Promotional Advertising * Window Display * Showrooms * Interior Display * Exhibitions * Booklets & Catalogues * Package Inserts * Stores Publications * Hand Bills * Painted Displays * Electric Displays * Sandwichman
4.Indoor Advertising Press Media: Press Media are broadly divided into News paper and Magazines.
There are mainly three types of news papers viz; Morning Newspapers, Evening Newspapers, Sunday Newspapers. A Newspaper is suitable for any type of advertisement. Newspapers have wide circulation, the appeal in such advertisement has a very extensive coverage. Effectiveness of the advertisement has a very extensive coverage. Compared to the cost in other media like radio or film, the cost of newspaper advertising is cheaper. Magazines / periodicals are published monthly, quarterly, even fortnightly / and weekly. Now a days magazines are published practically on every discipline viz. Agriculture, banking, astrology, trade and commerce. There are magazines for men and women, children and so on. Trade journals or industrial magazines are also published. Advertisements in magazines look more attractive compared to newspapers because of the quality of paper. Magazines enjoy longer life than newspapers. Production can be illustrated through advertisements in magazines. Different magazines have different classes of readers. A suitable magazine may be selected to make an appeal to a particular class or section of the society.
Selecting Press Media: The following are the important considerations which must be taken into account while selecting the press media.
1. Circulation: News papers and magazines having more circulation in a particular area or all over the country is a major consideration. 154
2. Frequency: If the demand for the product to be advertised is seasonal, advertisement must appear in a number of newspapers, magazines during and before that season. 3. Appeal: If appeal is to be made through illustrations, magazines are to be selected in preference to newspapers. But if only general appeal is to be made over a wide area, newspapers shall be better than those of magazines. If appeal is to be made to a specific group of persons specific magazines are to be selected. 4. Cost: The amount which can be spent towards advertisement is another consideration. The higher the circulation of newspaper or magazine, the higher while be the cost of advertisement. The space and position of advertisement also decide its cost. Radio Advertising: Radio advertising is advertising by sound and voice and not by illustration. Broadcasting stations in several parts of the country are selling time for the purposes of commercial advertisements. Commercial broadcasting is a good source of income to broadcasting stations. Radio advertising comprises to methods, viz; Spot Announcements and Sponsored Programmes. The former are made by the broadcasting stations where they charge on the basis of words contained in the announcement. On the other hand, sponsored programmes are relayed by purchasing the time. Usually longer time is purchased for making the programmes interesting.
Film advertising: Cinema or film advertising is an indoor medium of advertising where customers are approached indirectly. Cinema advertising is of two types viz; feature films for products and slides for products. Feature films contain advertisement of products. Many advertisers take the help of advertising agency for the purpose on payment. These films are exhibited in cinema halls or outside. Sildes are the simplest form of cinema advertising. Here, a slide is made for the product to be advertised. The final design is handled over to a photo-engraver who transfers the design to a small squares glass plates. These slides are shown in the cinema usually before the commencement of the main film or during the interval.
Film advertising has goods demonstrative value. People can see as well as hear the salient features of products. Hence, the attention of audiences is not diverted, Both educated and uneducated sections of people can understand the message of advertisement through films. The films or slides can be prepared in the regional language of the area where they are to be exhibited. This ensures easy understanding of products by people.
Television: Television uses both video (vision) and audio (sound) signals. Television has all the advantages or radio, namely, sound and explanation, plus the additional advantage of sight. Advertising though television is a powerful medium. Television reaches the audience almost like personal face-to-face contact. T.V. combines all of the elements of communication viz. Illustration, music, spoken word, written words. We can have short commercials as well as sponsored programmes confining entertainment with advertisement. In fact, it represents typical combination of salesmanship and advertising.
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Outdoor or Rural Advertising The outdoor or mural advertising is suitable for the outdoor readers. Outdoor advertisements are displayed on the walls. The outdoor advertising includes the following forms:
The Posters are placards displayed in public places like street corners, junction areas, railway station, etc. The message conveyed in posters is very brief. It contains in brief the attractive feature of articles, name of manufactures, etc. Posters are less expensive than many media of advertising.
The Advertising Board is generally displayed at the focal points of big cities where the potential buyers are expected. Such advertisements are displayed on the big boards.
Electric and Neon-signs: These are glass tubes or signs with electric wiring made in the form of letters or designs to represent the advertisement message. Like the advertising board, this form of advertising is also reminds the consumers. They are lighted with attractive coloured lights after sunset and therefore, are very effective in attracting the attention of the people. Sandwitch Board Advertising: These are two advertisement boards connected at the top having space in the middle. A man with fancy dress carries or pushes these boards and attracts the attention of people sitting or walking on both the sides and roads. He goes on repeating some slogans. Vehicular advertising also constitutes an important place, specially among the outdoor advertisements. The advertisements are displayed on the bus, tram and trains where general passengers view the advertisement. One can see the display of posters on the different modes of transportation either inside or outside. Some manufactures possess their own vans and they display posters, sign boards, etc. inside the vehicles. Such vans use of colourful smokes designing the map or shape of products to be advertised. No doubt, it is a costly advertising media which is suitable for the big business houses. Sky advertising is generally found in the advanced countries where aero planes are used for advertisements. We find use of colourful smokes designing the map or shape of products to be advertised. No doubt, it is a costly advertising media which is suitable for the big business houses. Sticker advertising is also a suitable form of outdoor advertising. In the Indian context, such type of advertising is found at the very nascent stage. Of late a good number of big business houses has started sticker advertising.
Direct Mail Advertising Direct mail advertising includes circular letters, business replay, envelopes/ cards, price list, catalogue, leaflets and folders, booklets, novelty gifts, etc. Direct mail is considered the most personal and selective media. It reaches only the desired prospects. It has maximum possible personal features even without personal contact. It provides detailed information about the product or service,
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creating lasting impression. The results of direct mail advertising can be checked by means of an offer incorporated in the mailing. Some of the strengths of direct advertising are: The impact of direct advertising can be tested Catalogues, booklets, etc. have educative value. Explanations of product become more elaborate and illustrations more distinct and pleasant through these media. There exists a more personal touch in direct advertising.
Promotional Advertising Promotional advertising consists of window display, interior display, show rooms, exhibitions, etc.
Window Display: It is otherwise called Window Dressing. It is the art of dressing windows by an attractive display of articles inside shop windows. The object of the window display is to bring the store to the notice of the likely customers and induce them to enter into it by creating a favourable impression and interest in the goods displayed by an appeal through the eye to some emotion or instinct.
Attractive window display is an important factor in effecting sales. Just as the face is the index of mind, so also the window display is the indicator of shop contents. Window displays with a good combination of light and colour can have an impelling effect on the prospective buyers.
Interior Display: Display made in the interior portion of a shop is known as interior display. It includes within itself display of articles on counters in front of the selling personnel, displays on the floor, on walls, in show-cases and showboxes. Effective interior display holds on the attention of the customers who have been attracted into the shop by outside display. It make easy the selection of the goods by the customers. With proper use of light and colour, it makes the stores atmosphere congenial,. Cheerful, etc. Showrooms and Show Cases: Show rooms are specially designed rooms in which products of a concern are displayed and where people can go near the products and see them from a close quarter. Show cases are glass boxes, or cupboards containing the displayed articles depicting the wide range of products of a particular firm. The purpose is to exhibit a sample of an article for show purpose. Show-cases from an important part of interior display. The leading textiles mills like DCM, VIMAL, BOMBAY DYEING and TITAN & HMT watch have their show-rooms in urban areas.
Show rooms and show cases have more than one use. Show rooms act as places to get orders from the prospective customers who visit them. They provide an opportunity to the customers to examine the displayed commodities for their satisfaction. Recently show rooms have offered the after sale services particularly in case of T.V., Automobiles, Watches, etc.
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Exhibitions: An exhibition is a huge fair, where many manufacturers get together to display their products to the dealers and the general public. The importance of exhibitions is increasing in modern days. The principal object of advertising at exhibitions is to keep the product before the public and to demonstrate its uses and merits. Exhibitions are also a good means of introducing new products and educating the public about their uses. Besides displaying their products, the manufacturers who organize the exhibitions, distributes sales literature to the visitors and at times samples to the dealers and stockists.
17.5 ADVERTISING BUDGET The most important aspect of the management of advertising is budgeting. Advertising budgeting is also known as advertising appropriation. Budget is a detailed plan of the amount to be spent within a specified time. The advertising budget sets the limit of amount to be spent on various promotional measures. 5.Factors to be considered in setting advertising budget (Schultz. Martin & Brown, Strategic Advertising Compaigns, Crain Books, Chicago, 1984, p. 192 97)
The following specific factors are taken into account while setting the advertising budget. 1. STAGE IN THE PLC: New products typically receive large advertising budgets to build awareness and to gain consumer trial. Established brands usually are supported with lower budgets as a ratio to sales. 2. MARKET SHARE & CONSUMER BASE: Higher market-share brands usually require less advertising expenditures as a percentage of sales to maintain their. To build share by increasing market size or market share requires larger advertising expenditures. 3. COMPETITION: In a market with a large number of competitors and high advertising spending, a brand must advertise more heavily to be heard above the noise in the market. 4. ADVERTISING FREQUENCY: The number of repetitions needed to put across the brands message to consumers also determines the advertising budget. 5. PRODUCT SUBSTITUTABILITY: Brands in a commodity class e.g. cigarettes, beer, soft drinks require heavy advertising to establish a differential image. Advertising is also important when a brand can offer unique physical benefits of features.
5.Methods of ad. Budgeting The following are the principal methods for determining the advertising budget.
Percentage on Sales Method: In this case a pre-determined percentage of sales value is earmarked for advertising purposes. The previous years (years) sales are taken as the yardstick for the allocation of the Budget. At times the estimated sale of the coming year is also taken as the basis for budget allocation. This method may be explained as follows:
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Advertising Appropriation = Rupee Sales x % The main advantage of this method is its simplicity. The budget varies with what the firm can afford on the basis of its sales. Further, this method provides ample opportunity to the management to maintain optimum relation between the advertising cost, selling price and profit. However, the fundamental drawback of this method relates to the fixation of the percentage itself. There are firms which spend 10 percent or more of their sales on advertising while there are many others who spend possibly less than 1 per cent.
Affordable Method: This method is based on the capacity of a firm in a given business situation. Since a company seldom spends more than it can afford there is an element of financial discipline. On the contrary, advertising expenses are deemed to be unaffordable. Competitive Parity Method: This method envisages determination of advertising appropriation in such a way that a company maintain parity with its competitors advertising outlays. This method is explicitly out-ward looking. The procedure is to estimate a accurately as possible what the other competitors in the industry are spending and to fix own appropriation at the same level.
Despite the fact that this method is more market oriented than any other method, it is extremely difficult to estimate very accurately what other competitors are spending advertising. For example, while the amount spent on print media or TV can be easily found out, it is very difficult to estimate what a firm is spending on direct mail or out-door advertising. Secondly, competitors in general would not have identical product line and to that extent direct comparability would not be justified. Finally, there is no reason to assume of that what the competitors are spending is optional and therefore should be followed.
Objective and Task Method: This method is based on the relationship between the objective and task. At the outset, the objectives are determined and there after the media and frequency are determined. Finally, the cost on advertisement is computed.
This method is more realistic. It compels management to think in terms of advertising objectives and awakens it to the need for their achievement. It is flexible and may be adopted to changing company needs. Of course, some of the critics feel that this method lacks a correlation between the cost and objectives of advertising.
17.6 EVALUATION OF ADVERTISING EFFECTIVENESS Advertising effectiveness is measured by pre-testing and post-testing. Pre-Testing Techniques Pre-testing is preferred because it enables one to know how effective an advertising is likely to be, before spending the budget and adopting advertising actions. Pre-testing may involve a consumer jury, story board tests, laboratory tests, tachistoscope, pychogalvanometer, eye camera, pupil dilation, attitude test and depth interviewing.
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Consumer Jury: The consumer-jury test involves persons most likely to be exposed to the advertisement. Consumer reactions have greater validity than the reactions of non-consumers. Consumers can provide true and correct information on reaction to and adaptability of products following an advertising campaign. The copy, illustrations, filming techniques, layout, etc., can be properly evaluated by the consumers concerned with the product. The message of the print medias should be evaluated before its publication. Similarly, the other medias messages should be evaluated before their presentation. The consumer jury technique is adopted for print media, broadcast media and direct mail. Story-board Tests: The story-board prepared for television advertising is tested before it is used. The story board pictures are transferred to a film strip and the audio section on to a tape. Vision and sound are synchronized and shown to an audience for evaluation. The costs involved can be cut by reducing the unnecessary part of the story board. This test uncovers the unnecessary part for deletion. The important part of advertising is accepted for telecasting. Laboratory Tests: Laboratory tests have been an important method of pretesting advertisements. The respondents responses are recorded and special laboratory tests are conducted to examine the effect of the advertisements. Important means are developed to measure the stimuli. Laboratory conditions offer a controlled environment that is used to measure awareness, attention, desire, retention, etc. The respondents are placed in laboratory situations. Tachistoscope: Tachistoscope is a projector that can project objects into a screen at rates so fast that the viewer cannot detect the message. It is slowed down to a level where the message can be perceived easily. The respondents should understand and appreciate the message, interesting words, slogans, headlines, etc. They can be easily segregated from the less interesting message. This process can separate the messages which are more effective from those which are less effective. Psychogalvanometer: It is a mechanical device that measures the amount of perspiration. The change in perspiration rate in a respondent is supposedly indicative of a change in emotional reaction. The psychogalvanometer measures a respondents reactions to new records and slogans. Electrodes are attached to his palms to detect changes in electrical resistance arising from perspiration. If the machine registers lower electrical resistance, it is stated that a tension exists as a result of advertisement. The main objective of advertising is to attract attention to the product which is reflected by the galvanic skin response. However, it should not be concluded that greater tension reflects the treater success of the advertisement. Attitude Test: A number of techniques for measuring the attitudes of respondents are available. There are known as psychological techniques. The semaetic differential is a rating scale which has been used extensively to measure advertising effectiveness. Respondents are asked the questions to be answered on a seven-point bipolar scale about their feelings about a particular advertisement. The psychological technique is characterized by a prediposition or state of readiness to act or react in a particular way to some stimuli. The attitude is closely related to
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advertising effectiveness. If the attitudes of potential customers are changed towards the products, the advertisement is considered effective. Consumer behaviour towards an advertisement can be measured on the attitude scale. This scale measures the position of the consumers attitudes on a continuum, varying from favourable at one end and to unfavourable at the other end with the neutral point in the middle. The degrees of variation on the left side and the right side of the neutral point indicate the favourable and unfavourable attitudes respectively. This measurement is applied before the use of the advertising media, message and campaign to find out how far they would influence consumer attitudes.
Post-testing techniques Post-testing techniques are applied after the advertisement has ended. The techniques are used to find our how far advertising has been successful. The immediate objective of advertising is to arouse consumer awareness, his interest, desire and develop his attitude to the product. Hence, the post-testing techniques are in the nature of recognition tests, recall tests, attitude change, sales tests, enquiry tests, etc. The most important ones may be elaborated on this stage.
Recognition Tests: Recognition test is also known as readership test. This test in relation to print media information regarding the percentage of readers who have seen the advertisement and remember it, who recall seeing or reading any part of it, identifying the product and brand, and who reported reading at least one half of the advertisement. Recognition tests have been helpful in determining the actual percentage of persons who recognised the advertising. A recognition test is based on the assumption that there is a high correlation between the reading of the advertising and the purchase of the product.
The advantage of the recognition test is that it measures something which has been realised under normal conditions. The recognition tests show the importance of each type of advertisement on the basis of the readership test. It is a simple test does not require any specialized knowledge.
Recall Tests: A recall test depends on the memory on the memory of the respondents. This test is applied to measure the penetration of, or the impression made by an advertisement on the readers mind. Recall tests have been divided into aided recall and unaided recall.
The aided method is used to measure the reading memory of magazine advertising impressions. This test has a high degree of objectivity which arises from the respondents attempting to perform at the maximum level of recall without subjectively screening out the response. The aided test is used mainly to measure television advertising. Under the unaided recall, little or no aid is given because the purpose is to measure the penetration of the advertisement. Respondents are asked whether the advertisements included a particular picture or message. The name of the product is not given to the audience. They has to recall it themselves. If they do remember, it is established that there was some impact of the advertisement. The impact may be probed to find out the attitude, etc., of the audience to the product.
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Attitude Test: Such tests measures advertising effectiveness. It measures the extent to which favourable opinions have been created about the product, image and company. Loyalty, acceptance, preference, intent, etc., are measured with this technique. There are several techniques for the measurement of attitude change after the advertising campaign has ended, viz. semantic differential, the Likert scale, the ranking techniques and the projective techniques.
The semantic differential technique is used to measure attitude in the field of marketing and advertising research. It uses a bi-polar (opposite) adjective statement about the subject of evaluation. An illustration of semantic differential is given in Fig.1.
Semantic Differential
Known Informative Realistic Persuasive Useful Effective
Unknown Uninformative Unrealistic Not persuasive Useless Ineffective
Fig.Illustration of Semantic differential This technique may be used to determine how far the advertising of a particular brand has been effective.
The Likert Scale is used to measure audience attitude to advertisements. A series of statements are described to measure the attributes of the advertisement. Only relevant statements are used for the purpose.
Examples 16. Radio advertising has been heard by a majority of the population.
Strongly agree
Agree
Uncertain
Disagree
Strongly disagree
2. BPL advertising has applied to people who have accepted it.
Strongly agree
Agree
Uncertain
Disagree
Strongly disagree
A review of the various methods reveals that no one method is perfect and, therefore, usually a mix of these methods is developed to evaluate the effectiveness of advertising. However, the selection of appropriate technique depends on the needs of a company, its resources and information constraints.
17.7 PUBLIC RELATIONS ADVERTISING Public relations involves the many practices used to build good rapport with various sectors of the public; advertising is one of several tools available to accomplish such goals Public relatiol1s advertising, thus, involves the use of nonpersonal, media communication by an identified sponsor to accomplish objectives that are not related directly to products or commercial services.
Public relations, involves the following elements: 1. A planned effort or management function
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2. The relationship between an organization and its publics 3. Evaluation of public attitudes an; opinions 4. An organizations policies, procedures, and actions as they relate to s lid organizations publics 5. Steps taken to ensure that said policies, procedures, and actions are in the public interest and socially responsible 6. Execution of an action and/or communication program 7. Development of rapport, goodwill, understanding, and acceptance as the chief end result sought by public relations activities
17.8 SUMMARY Advertising is an important element in promotion mix. It is any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor. Advertising helps in introducing new products, stimulates demand, increases sales volume, reinforce the middllemens promotional efforts, develops brand preference, and so on. Advertising may be indoor, outdoor, direct or promotional. A variety of toolls are available under each category. While selecting press media, circulation, frequency, appeal and cost factors are taken account. Film and TV advertising especially the sponsored programmes have gradually assumed increasing importance.
Of the outdoor advertising the prominent ones are posters, electric and neon signs, hoardings, vehicular advertising, sticker advertising, Interior display, window display, participation in exhibitions and fairs have also become popular as promotional tools. Various methods of advertising appropriation or budgeting such as percentage of sales, affordable method, competitive parity method etc., are available. Each of these have its own strengths and weaknesses. It is important to measure the effectiveness of advertising from time to time. Pre-testing and post-testing of advertising are undertaken to ascertain the impact of advertising on consumer. Consumer Jury, Story Board Tests, Laboratory Tests, Techistoscope, Attitude Change Tests are the various devices available for pretesting. Post-testing techniques comprise Recognition Test, Recall Test (aided and unaided), Projective Techniques.
17.9 KEY WORDS Non-personal Presentation, Sponsor, Promotional Advertising, Consumer Jury
Frequency,
Mural
Advertising,
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17.10 MODEL QUESTIONS 1. Describe the importance of advertising in the marketing strategy of a firm 2. Expand the following statements: (a) Advertising stimulates demand
(b)
Advertising reinforces the middlemens promotional efforts
3. Write short notes on (a) Outdoor advertising (b) (c) (d) Exhibitions Recall Tests Direct Mail Advertising
4. a) What factors are taken into account in setting and advertising budget? b) Explain in brief the various methods of appropriating for advertising. 5. Why should effectiveness of advertising be evaluated? Describe the various methods/ tools available for the purpose. 6. What media choices would you suggest in the following cases? (a) Family planning, (b) (c) (d) Garments, Refrigerators, LPG. Give you reasons.
17.11 REFRENCES 1. Aaker, A. David et al. Advertising Management PHI, New Delhi, 1992. 2. Ghandi, J. C. Marketing A Managerial Introduction, TMH, New Delhi, 1985. 3. Kotler P. Marketing Management (Analysis, Planning, Implementation and Control), PHI, New Delhi, 1992. 4. Stantion, W. H. et al. Fundamentals of marketing. Mc Graw Hill, New York, 1994. Wright, et al., Advertising, TMH, New Delhi, 1984. 17.12 ASSIGNMENT QUESTIONS 1. It is said that advertising is a waste of scarce resources in a developing country like India. Do you agree? Substantiate your arguments with appropriate examples. 17.13 TERMINAL EXERCISE 1. Examine the suitability of the following media in relation to some product(s) or service (a) TV,
(b) (c) (d) (e) (f)
Sticker Advertising, Folders, Sandwichman, Vehicular advertising, Circular letters.
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LESSON 18
SALES MANAGEMENT
OBJECTIVES After studying this lesson the reader will be in a position to understand the following:
The concept of sales management, its scope and importance. Salesmanship qualities. The stages of selling process The effective selling. STRUCTURE 18.1 Introduction 18.2 Meaning, Nature and Scope 18.3 Qualities of a Salesmanship 18.4 Selling Process 18.5 AIDCA Process of Selling 18.6 Effective Selling 18.7 Problems of sales management 18.8 Summary 18.9 Key Words 18.10 Revision Points 18.11 Assignment questions 18.12 References 18.1 INTRODUCTION Sales management is an integral part of marketing management. The sales function of a business is a basic function, especially in a commercial concern i.e. wholesale or retail trade. In the present lesson an attempt is made to examine some important aspects of sales management and personal selling.
18.2 MEANING, NATURE AND SCOPE Sales management has assured the position of a challenging profession. Sales management may be defined as the management of a firms personal selling function. All the principles of general management such as planning, organising, direction, motivation and control are applied to sales management for securing better sales performance. It is responsible for obtaining sales volume, handling the sales operations so as to make contributions to profits, and for ensuring continuous growth. Under the socially responsible marketing policy, sales executives must assure the delivery of products with satisfying experiences.
The importance of the sales function various across organisations depending upon its nature and variety of products, target market, consumer density and dispersion and the competitive practices. It is the sales management that translates the marketing plan into action. Sales management is sometimes described as the muscle behind marketing management. In fact, it does much more than provide muscle. In a modern organisation, sales management means the management of the sales effort in toto. (V.S. Ramaswamy and S. Namakumari, Marketing
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Management, Planning, Implementation and Control, Mcmillan, New Delhi, 1990, P. 362). The following mega-trends affect the growing importance of sales management Intense foreign competition Rising customer expectations Increasing buyer expertise Revolutionary developments in communications There is a increased integration of marketing and sales functions. The nature and scope of a sales management functions can be clearly understood from the check list given below.
Checklist-Sales Management Functions I. Administration - Organize sales department at headquarters and at branches
- Arrange for office space, layout, appliances and staff - Establish sales policies and programmes - Explain policies and programmes to the staff - Sell sales programmes to top management - Plan communication channel - Delegate duties to subordinate and assign necessary authority to operate effectively - Plan current and long-range sales operations - Supervise budgets and quotes - Lay down clear channels for operating procedures - Supervise handling of sales correspondence - Supervise hiring and training of salesmen - Stress professional salesmanship - Supervise allocation of sales territories - Analyse salesmens reports and expense accounts - Keep customer control-records - Contact important customers and distributors - Participate in activities of trade association - Supervise regional, district and branch offices as well as distribution agencies.
II. Coordination - Keep in touch with board of directors decisions
- Co-operate with top management executives - Co-ordinate activities of regional, district and branch managers, a well as supervisors and salesmen - Co-ordinate area sales activities with headquarters
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- Co-ordinate all promotional materials and campaigns - Co-ordinate export selling with headquarters operations - Co-ordinate dealer activities with company operations.
III. Sales Planning
- Determine how and where sales can be effected - Plan sales offices, locations, personnel, etc. - Establish regional, district and branch offices - Determine types of sales organization suitable for various branches - Plan for efficient administration at headquarters and in the field - Plan sales strategy - Ascertain types of promotion and advertising provided. - Select distribution channels such as wholesalers, distributors, dealers and retailers. - Plan warehousing facilities throughout the field - Plan packaging, packing and transportation; e.g. branch office delivering; transportation from warehouses: and time schedules for such transportation.
IV. Selecting the Sales Force
- Build job specification - Determine suitable sources for recruitment - Prepare application blanks - Arrange interviews and rating blanks - Determine methods of interviewing - Decide who should interview - Decide when and where interviews should be held - Cross check on interviews - Prepare checking of reference blanks - Arrange for medical reports
V. Training the Sales Force - Develop training plans for new salesmen
- Arrange refresher courses for existing salesmen - Emphasize professional, salesmanship - Arrange training for regional, district and branch managers as well as supervisors and salesmen - Develop and use sales-training tools, such as: - Textbooks - Sales manuals - Sales-training bulletins
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- Instruction manuals - Modern catalogues - Correspondence courses - Headquarters schools - Branch office training - Field supervisory training - Special product presentations - Slide films - Motion pictures - Sales meetings - Determine how training is to be done - Follow up on training programmes
VI. Remunerating the Sales Personnel - Fix base salary scales
- Plan commission incentives - Fix rules for submission of expense accounts - Arrange vacation plans - Fix how bonus is to be paid - Arrange contests and award of prizes - Fix pension and retirement plans.
VII. Motivation Human Relations - Determine what motivates salesman
- Plan advancements and promotions - Arrange exciting sales contests - Draft enthusiastic letters and bulletins - Arrange interesting sales meetings and conventions - Provide reasonable satisfaction of the security need - Build employee pride - Analyse what motivates distribution channels - Find out what motivates consumers - Provide adequate pubic relations - Be fair to all, i.e. employees, distribution channel and consumers - Conduct continuing motivation research - Provide emphasis on the dignity of man
VIII. Quota Setting
- Use sales forecasting as an aid to quota setting - Determine methods of arriving at quotas
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- Fix overall quota - Break down overall quota into quotas for territories, etc. - Determines special quotas for large users - Sell quotas to salesmen
IX. Territory Allocation - Analyse territory potentials
- Allocate territories on basis of geographical areas - Prospect density - Economic condition - Industrial centres - Special income groups - Population increases - Increase in number of households - Rearrange territories for more effective effort - Develop routing lists for territories - Review territories allocations periodically for improvements.
X. Controlling the Sales Personnel
- Visit regional, district and branch offices - Pay periodic visits to salesmen in the field - Arrange and attend meetings, conferences and conventions - Control salesmen through - Daily, weekly, monthly reports - Letters and bulletins - Personal contacts - Expense meetings - Supervisors and branch managers - Quotas and special assignments - Commission and bonuses - Incentive plans - Visit important distributors and dealers - Bring distributors and dealers into home office occasionally - Analyse orders from distributors and dealers - Find and develop new distributors and dealers - Check complaints and adjustments - Visit large and important customers - Tap information from trade association contacts - Arrange marketing research trips to old and possible
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The various decision areas of sales management may be exhibited as a cycle in Fig. 2.
Analysis
Control
Organisation
Planning
Direction Fig. 2. Sales Management Cycle

Analysis: Review of the firms internal sales records and sales persons reports. Planning: Selling objectives of the firms sales effort and pointing out strategies and facts for achieving them. Organisation: Setting up structure and procedures for smooth and effective execution of sales programmes and plans. Direction: Staffing and supervision of the day-to-day implementation of sales policies, programmes and plans. Control: Performance comparison of actual and planned sales results, examination of the reasons for observed divergences and evaluation of the need for plan revision.
18.3 QUALITIES OF A SALESMAN Under this let us examine first what is personal selling or salesmanship. Meaning of salesmanship The American Marketing Association has defined personal selling as an Oral presentation in a conversation with one or more prospective purchasers for the purpose of making sales. Whitehead defines salesmanship as. The art of so presenting an offering that a mutually satisfactory sale follows The ability to handle people is also salesmanship. A good salesman looks upon the work of selling as a process of making the customer buy. It is affected only if the prospect is convinced in his own mind that it will be beneficial for him to make the purchase. In terms of psychology salesmanship is persuasion which motivates feelings to action or evidence which convinces reason and judgment.
The work of a salesman is service because he helps the customer to get the most for the money he spends. He performs two important tasks viz., he serves as a
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link between the producer and the distributor to their mutual advantage and secondly, he enables to customer to satisfy his wants better.
Classification of salesmen Sales can be classified on the basis of (a) organisations they represent, (b) the goods they sell, and (c) the services they render.
The following Figure gives an idea about the classification of salesmen on the basis of organisations they serve.
SALESMAN
Manufactuer' s Sales
Wholesaler' s Salesmen
Retailer' s Salesmen
Pioneer Salesmen
Dealer Servicing Salesmen
Merchandising Salesmen
Counter or Indoor Salesmen
Travelling or Outdoor Salesmen
Fig.1 Classification of Salesmen
On the basis of the types of goods they sell, the salesman may be classified into 17. Staple salesmen 20. Speciality salesmen On the basis of services of field or field of operation the salesmen may be classified into House-to-House salesmen, Missionary salesmen, Service salesmen and Exporters salesmen.
Qualities of good salesmen The personality of the salesman plays a very important role in the field of sales. Sales personality includes all the qualities of a good salesman. When one compares two salesmen, one having a good personality and the other not having it there will be remarkable difference in the sales by them. Since the success of sales is primarily influenced by the personality of the salesman, firms become careful in selecting the right type of salesman whose personality is impressive.
The qualities may broadly by divided into (a) physical, (b) mental, (c) social and (d) character traits
Physical Qualities The sales man is the ambassador of the company. Physically he must be fit. Sound health is of first necessity. The personality of a salesman will be pleasing only when he has a good health. A good health is usually associated with a good breath. Offensive breath repels the customers. Since the salesman has to meet and talk with many customers, oral hygiene is of utmost importance. The quality and the tone of voice have also its influence on the listeners. A good appearance is another important physical quality which goes a long way to create a good
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impression. A tall, fair, healthy looking and well proportioned young man with a good poise makes an excellent impression on the prospects. Appearance includes many things viz, clean and neat dress, general cleanliness, good facial expression of the salesman, etc. A well-dressed salesman can work with ease and confidence and uphold the prestige of the firm he represents. It is said, Apparel often counts a man. A healthy and happy facial expression is a sure indication of the confidence with which a salesman works. It is aptly remarked, Smile and the world smiles with you. Weep and you keep your goods.
Mental qualities The important mental traits or qualities which must be developed by a salesman to be successful are accuracy, alertness, imagination, resourcefulness, initiative, self-confidence, cheerfulness, and so on. A salesman should be accurate in his speech or statements. By making accurate statements he is able to establish confidence of the customers in himself. While meeting the inquiries of the customers he has to convince them by stating the facts and advantages of the products. Alertness relates to the presence of mind. It also means keen power of observation and common sense to take correct decisions quickly. If the salesman will be alert, he will inspire confidence in the customers and this result in more sales. Imagination is also another important mental quality. Imagination is needed to enable devise means for solving them. It is the ability to invent new angles of approach to sales problem that characterizes the imaginative salesman. This quality can be cultivated through study products and psychology of customers.
Resourcefulness is a mental ability to think and find out alternatives. A resourceful salesman is one who can analyse the situation by alertness and use of common sense. A salesman who can understand the psychology of the customer better shall ultimately be a resourceful salesman. Self-confidence is another important quality, which every salesman should possess and cultivate. Selfconfidence comes to him through study, experience and knowledge of himself, goods he sells and the customers.
Social Traits Some of the qualities under this category are ability of the salesman to meet the public, tact, courtesy, manners and mannerism, etc.
A salesman has to initiate talks and should feel happy in meeting the public and enjoy their presence. He should be an extrovert. He should have the ability to meet strangers, open up new territories and create friendship. He must have the ability to speak very effectively to impress the customers. Conversation is an art and can be developed by proper thought and practice. Tact is the skillful way of doing things. A good salesman understands the attitude and feeling of the customers and answers all questions fully, calmly and tactfully, inspiring confidence. It implies doing the right thing at the right moment. This can be developed through experience and mixing with people easily. Courtesy is an indication of refinement and culture. The salesman should always be polite and courteous. By showing polite behaviour he exercises courtesy.
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Being punctual appointments, becoming polite to customers, receptionists and secretaries, listening attentively and maintaining a cool temperament are some of the important courtesy rules. A salesman has to show good manners to customer. The success of an organisation greatly depends on good manners and politeness of the salesmen. Manners of a salesman either make him prosper or mar his career. A salesman should avoid biting nails, clasping and unclasping hands, swinging back and forth in the chair, keeping hands swinging back and forth in the chair etc.
Character attributes Honesty, integrity, loyalty, reliability, industriousness etc., are some of the important character traits which a salesman must possess and develop.
Honesty in dealings and statements, and keeping ones promise make salesman successful. An honest salesman appeals to the customers desire for safety and protection. Though an honest salesman might take time to win customers will frequently come to his shop. Hence, the significance of honesty in selling, Integrity implies uprightness of character, moral soundness and good behaviour, honesty, fulfillment of promises and strength of character. There is no substitute for this quality. Loyalty is another character attribute which a salesman should posses and develop. He should be loyal to (1) the organisation in which he works and its products (2) his customers, and (3) his fellow-workers. He has to work in harmony with the authority given to him. Secretly making any profit, stealing or misusing any property of the firm are some of the acts of disloyalty. Reliability is the outcome of honesty, integrity and loyalty. A salesman should be reliable or trustworthy. A reliable salesman takes his work seriously and is honest in his dealings. Such a salesman gives value to his promises, fulfills them and loses no friend. In the process, he commands the confidence of the customers. Industriousness is another quality which means the ability to work hard. It implies persistent work to achieve a desired goal. Willingness to work is a great thing in salesmanship also. It may be pointed out here that a salesman may not possess all the qualities that are present in the best salesmen. The personality of a salesman can be improved. Salesmen are not necessarily born as qualified salesmen. They can be made qualified or ideal salesmen by developing their personality through constant and sincere efforts. Sales managers impart necessary training to their salesmen to develop their personality. Self-examination and self-improvement may turn out to prove amazingly rewarding, through out the life of a salesman.
18.4 SELLING PROCESS Personal selling is an oral representation in conversation. The actual process, the salesman goes through to sell a product are more or less than the same. (Fig. 2). All salesmen attempt to locate the prospect buyers (prospecting), collect valuable information about their testes and habits (pre-approach) initial contact (meeting) with the potential buyers (approach), show the product and its use (Presentation and demonstration), attempt to overcome the objections, and then close the sale.
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POST SALE SERVICE
PROSPECTING
PREAPPROACH
PRESENTATION
Identifying Profiles Leads Records Qualifying Capability Willingness
Information Habits Preferences
AIDA Attention Interest Desire Action
Reduce Dissonance Build goodw ill
Fig.2 The Personal Selling Process

Source: William J. Stanton et al. Fundamentals of Marketing, McGraw Hill, New York, 1994, p 487.
Prospecting This is the first step in the personal selling process. Prospecting implies locating of prospects or locating the potential customers. The prospect or potential customers have an unsatisfied need, the ability to purchase and a willingness to buy the product. A salesman can locate potential buyer by analysing the telephone directory, yellow pages, Membership Registers of club, etc. The task of prospecting beings with obtained names and addresses of people who might be needier. Such, names with addressed are of no use if he does not quality each person according to the requirements of a prospect. Before approaching a prospect the salesman should ascertain whether the prospect has a need to buy the product. This can be assessed from his profession, income and environment. Many persons may have the need to buy but they may not have the ability to pay for them. The salesman should ensure that the prospect has the necessary financial capacity and also the desire to spend in that product.
The prospect that the salesman contacts may be quite convinced about the product but he may not have the authority to buy the same. In case of institutions, big organisations of Government concerns, all executive officers do not have the authority to buy. The salesman should ascertain the authority of the executive or officer before approaching to persuade him. Accessibility is another criterion to know whether person/organisation could be a potential buyer. Accessibility means whether a prospect is approachable by the salesman or not. Physical accessibility approaches a prospect, but with very high expenses it is said that such prospect does not have accessibility. The important prospecting methods are: 1. 2. 3. 4. Endless chain method Centre of influence method Cold canvass method Direct mail and Telephone method.
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In additional to these methods of prospecting, the salesman may take advantage of other methods under suitable circumstances. The persons visiting various exhibitions and fairs are likely to become prospects.
Pre-approach
This is the second step in the sales process and starts soon after the salesman obtains the names and addresses of the prospectus. Hereafter the salesman prepares for the next step i.e. approaching the prospects. In the pre-approach stage, the salesman obtains some other detailed information like the ability need, authority, accessibility, etc., of the prospects. The objectives of the pre-approach are: To obtain additional qualifying information To obtain information around which the presentation can be better planned. To give the salesman more confidence To gain insights into how best to approach the prospect. During this stage the salesman would be required to go through the age, martial status, children, income, occupation, education, religion, hobbies, etc. The information gathered in the pre-approach will differ with the selling problem facing the salesman. If he is selling to an individual for his own use, the salesman will confine his investigations to the prospect as a person. On the other hand, if the prospect is buying for a business the pre-approach should be broad and it includes many facts about that business also.
Approach The initial few minutes of the sales talk are known as the approach to the prospect. The purpose of the talk is to arouse and sustain the customers attention. Before the talk, the salesman should introduce himself by using the telephone, by obtaining introduction from a customer and by handing his business card. In the first contact, he should attract the attention of the customers and get them interested in the talk. Some of the popular techniques for this purpose are reference approach, benefit approach, sample approach, and mutual approach.
The reference approach involves reference of the product by the friends of the prospects. The benefit approach indicates the benefits of the product. The sample approach involves giving the sample to prospect. The mutual approach considers the prospect supreme. Whatever methods of approach the salesman adopts, he must make it a point to include something of interest to the prospect. The salesman should put him in the place of the prospect when planning his approach in person and asks himself, Will this interest me and cause me to like the salesman? Approach by travelling salesmen differs from approach by retail salesman faces many difficulties in approaching people who are completely strangers to him. He has to meet many subordinates like receptionists, secretary and others who may
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not allow them to go in unless they have some real value to offer to the executives proposed to be met by him. Gaining an interview with the right man is the biggest problem. It is rightly observed gaining the interview is in fact a selling process; it is like making a sale. The salesman is to sell an idea to the subordinate i.e. secretary or receptionist who prevents him from meeting the boss, or to the prospect who has the power to grant or refuse the interview to the prospect proper. The salesman should give due respect and recognition to the subordinates, praise them to get their favour and thank them for their co-operation. A traveling salesman may follow any one of the following ways of approach for gaining an interview with the prospect. Personal call without introduction Personal call with introduction Sending business card Writing for an interview Appointment over telephone Use of sales letters The approach followed by the retail salesman/indoor salesman is different. This class of salesman does not move from place to place for prospecting. Collecting details of the prospects is also required in retail selling. Such prospects are aware of the products and one attracted to the store by means of advertising, displays, etc.
Presentation and Demonstration Presentation means the presentation of the product to the customer or prospect, and is closely related to the buying process. Sales presentation involves the presentation of the product and a demonstration of its features and benefits to the prospect, and shows how the product meets the customers needs. It attempts to increase the desire for the product and arouses the willingness of the prospect to purchase the product and arouses the willingness of the prospect to purchase the product. If the salesman will be prompt in presenting the articles to the prospects, he usually conveys willingness or indication to serve them. Prompt action creates a favourable mood in the minds of the prospects. Clarity in presentation in essential and the salesman should always try to complete it for the satisfaction of prospects. The details of articles, about their uses and working, model, texture, etc., have to be explained to the prospect. The prospect should be allowed to fondle, handle, and test the articles for their satisfaction.
Demonstration in personal selling is the task of proving the statements by a salesman about quality, utility, service, etc., of a product with the help of experiments, operation, and test or by any other satisfactory evidence. Demonstration gives rise to following advantages: It enables the salesman to present all the salient features of products in a more concrete way. It also affords an opportunity to the salesman to prove the truth of what he has stated about the products.
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It appeals to the senses of the customers. It enables the salesman to reduce his sales talk to some extent and sometimes to a substantial extent. The main forms of demonstration are; (a) Demonstration is use and (b) Demonstration of a specific feature of the article. The most effective form of demonstration would be to show how the article will appear when actually used by the customer. For example, while selling a TV or audio-set one may ask the customer to which on and switch off the see the picture clarity (TV) or stereo effect (Audio-set). The specific features like leak proof, unbreakable, etc. can also be demonstrated.
Meeting objections Sometimes, customers raise some objections to the product. The objections or resistance may be either psychological or logical. Psychological resistance relates to interference, preference for established products or habits and traditions. A customer may be reluctant to give up the product and adopt the new product. Logical resistance or objections may pertain to price, product, transport, payment systems of the company. A salesman has to answer these objections and overcome the customers resistance. He should break down the customers objections. Experience and training would enable him to deal with the objections satisfactorily. The best time for meeting objections is the moment they are raised. The way and the time of answering questions or meeting objections depend upon the attitude of the prospects, the nature of the product and the type of objections. Listening attentively is the fundamental principle of over coming objections. The mere act of listening to the prospect is likely to feed his ego.
Various methods are available to overcome objections viz., Direct Denial Method, Indirect Denial Methods/Yes, but method, Superior point/Compensation Method, Boomerang Method, etc. Indirect denial method is invariably used in meeting most of the important objections. It removes the idea from the mind of the prospect inoffensively and courteously. Direct denial method may be applied when the objection raised is a false one, mostly due to ignorance of prospects.
Closing and follow-up The main object of the salesman is to sell and hence closing the sale. It is said a poor closer is always a poor salesman. The ultimate goal of salesman is to get the order. The salesman should be expert enough to close the sales talk at the right moment and ask for the order. He should know the closing signal, including physical actions, statements or comments. He can ask for the order, help the customer to select a particular product and offer special inducements to close the sale. Self confidence and positive attitudes help the salesman to secure favourable buying decisions.
Follow up action begins when the prospect signs the order and asks for delivery. He prices to remove any post-purchase problems. After sales service is a good example of follow-up action. The sale is said to complete when the buyer is satisfied. It is true that sale is made not in the mind of the buyer. The follow-up
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action also provides feedback to the salesman because if graces him a chance to evaluate his actions and persuasions. One should keep in mind that the close of one is the beginning of another.
18.5 AIDCA PROCESS In order to effect a sale, the salesman must persuade the customer to buy his product. This act of persuasion needs proper planning of the strategy and tactics. The customer must be taken through various stages of the mid. These stages are summarized by what is known as the AIDCA formula.
Attention (A): It is the starting point in the sales process. The attention of the customer must be attracted to the product, the want what the product is able to satisfy and the buying motive to which the product appeals. Until the customers attentions secured by the salesman, the sale process does not develop. At stage, the salesman informs the customer about his needs. He also informs him about the existence of products or services to satisfy his needs. The salesman induces the customer to think about the goods. In this way the prospects attention is attracted towards the product. The attention of the prospects may be attracted in many ways such as advertisements, display, etc. Interest (I): The salesman must awaken an interest in the mind of the customer. Awakening interest means getting a person interested in an article or proposition. The salesman can arouse interest and held his attention by specifying to him interesting features of his product. One can arouse interest by offering something useful, supplying sure information, distributing samples etc. The customer must be made to realize how the product will benefit him, and must feel curious to know more about the product, its features, and its merits. Desires (D): A salesman must ignite the desire of the prospect after securing his attention and after arousing his interest in the products. From the stage of interest or curiosity must develop the desire to buy the product. The first thing which is involved here is to make the prospect feel that the article is necessary for them. Interest can be converted into desire for the product mainly by three means viz.
Emphasizing the selling points of the article/product Making suggestions Making demonstration. Conviction (C): After a desire for the product has been created in the mind of the prospect. Some doubts may remain to be removed. In order to convince him all objections must be met adequately. He has to convince him about the soundness of his proposition. After the desire is created in the mind of the prospect, he must be made to feel that the product to be sold is worth buying. Once he is convinced of this fact he would be ready to buy.
Action (A): It means gaining an order. The culmination of the first three stages should be in the actual purchase of the product. Action can be stimulated by permitting the prospect to feel sensually gratified by seeing, smelling, testing, touching, hearing, etc. and by explaining once more the important selling points of
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the products. If the prospect is convinced or his confidence is reported in the product, firm and the salesman, it leads the prospect to the ultimate decision or action, i.e. purchasing.
18.6 EFFECTIVE SELLING There are six pre-requisites of effective selling i.e. know your company, know your product, know your competitors and their products, know your customers, know the process of selling and know your self. Knowledge of the company It is essential that the salesman has an in-depth knowledge of the company in which he has been working. In a good number of cases, the potential customers make buying decisions in the background of brand, name or fame earned by a particular corporation. Hence, the salesman should essentially be companyoriented. As the representative of the company, he is expected to know everything about the company. The potential buyers may raise different queries regarding the policies, after sale-servicing, discounts, guarantees and so on. It is the responsibility of the salesman to answer all the questions asked by the potential buyers and albeit to satisfy them. Unless, the salesman has an in-depth knowledge of the corporate multi-faceted development programmes, he would not be successful in answering the questions asked by the potential customers. Knowledge of product A salesman should know all about his product. (a) materials from which it is made, (b) how it is used and how it is maintained, (c) product features, (d) selling points of the product in relation to its rival, etc. this would help his particularly while convince the potential customers. The whole responsibility before a salesman is to convert the potential customer into the actual users and this would not be possible. If the salesmen lacks details about the products. Knowledge of competition It is essential that the salesman constantly studies the emerging trends in competition. He should constantly study the products offered by his competitors and determine their strengths and weaknesses in comparison to his own products. Awareness of competition enables a salesman, if necessary, to compare his product with that of the rival on those points in which the buyer seems most interested. Buyers have faith in well-informed salesman. Then again knowledge gives salesmen confidence in themselves. Knowledge of customers To make the personal selling effective, it is also essential that the salesman must have adequate knowledge about the customers. A salesman should have details of the customers wants, desires and habits. The changing trends in fashion should also be studied by a salesman. The principal responsibility before a salesman is to establish a fair match between the goods desired and goods offered. The buying motives of the customers would help the salesman, particularly while studying the customers. The perception, motivation and learning processes would help the salesman, especially while studying the buyers behaviour. Sales
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presentation cannot be effective unless a salesman knows socio-psychological factors influencing buyer behaviour.
Knowledge of selling process The various stages of personal selling process have already been discussed in this lesson. The salesman should know the details of prospecting, pre-approach, approach, etc. The AIDCA formula also helps the salesman, particularly while sales presentation. The post-sale activities like writing of order, execution preferences facilitating grant of credit should also be known to the salesman. The details regarding the selling processes would help a salesman, in making the processes effective, pro-active or sensitive. Know-Yourself Last but not the least essential requisite for successful selling is knowledge of self. To make the selling process effective, it is essential that a salesman evaluates his own performance. Self-evaluation of preference is the best criterion to diagnose the loopholes. This evaluation should be made not only in terms of the salesmen but also in respect of the quality of goods and services offered and the prices charged.
Thus, all the aforesaid prerequisites would help the salesman in raising the volume of sales. But it must not be forgotten that the mere possession of selling techniques does little to ensure success. It is the ability or perfectibility of the salesman that counts more in the process.
18.7 PROBLEMS OF SALESMANAGEMENT 1. Designing and managing sales force
2. Sales force authority 3. Target-setting 4. Sales forecasting

1. Designing and Managing Sales Force: The sales managers control over the various activities of the sales force a must. These activities may, sometimes be beyond control, leading to intractable problem~ in a sales organisation. So the sales manager must maintain a vigilant check on the various activities of the sales force. Actual supervision of and guidance to individual salesmen is also a sine qua non of a sound sales manager. 2. Sales Force Authority: If authority is not delegate to the sales force, they will not able to deal with the customers, who in turn do not like to deal with persons who have authority. There-fore, the sales force requires delegation of authority with respect to following:
(a) Changing or fixing prices; (b) Credit facilities to old and existing customers; (c) Assurance regarding quality and after-sale service; (d) Payment terms and settlement of claims.
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3. Target-Setting: Target-setting is necessary for achieving organisational goals. Sales targets are fixed on the basis of past experience, time period and brand positioning in the market. In a competitive environment, targets can be based on the different aspects of sales strategies.
4. Sales Forecasting: It is difficult to say how long consumers will continue to accept wasting goods in a changing environment, which is changing fast with new competitors, new technologies, new fashion articles, new advertising strategies being regularly introduced. Sales forecast must change as conditions change. Accuracy depends on meticulous planning and dynamic strategies
18.8 SUMMARY Sales management is an important aspect of overall marketing management. It embraces within itself the planning, organizing, directing, coordinating, motivating and controlling of sales-force. Recruitment selection, training and evaluation of sales personnel also come within the purview of sales management. Personal selling is an element in the promotion mix of any marketing strategy. It involves primarily prospecting, pre-approach, approach, presentation and demonstration and meeting objections of prospective buyers.
AIDCA- attracting attention, awakening interest, creating desire, conviction an ultimately action process is also followed by the salesmen. Various methods of principles exist for successful personal selling at each stage. An effective and successful salesman should have the knowledge of self, the knowledge of the company and its product and that of the competitors too. He has to develop his sales personality. He must possess a certain qualities in order to become successful.
18.9 KEY WORDS Sales Management Cycle, Tact, Prospecting 18.10 REVISION POINTS Selling process, Qualities of salesman. 18.11 ASSIGNMENT QUESTIONS 1. Define sales management. Give an overview of its scope and functions. 2. Define personal selling. State and explain in brief the various stages which are followed by salesmen. 3. Describe the various qualities of a successful salesman. 4. Write notes on (a) Prospecting.
(b) (c) (d)
Direct denial method of overcoming objections. After sale service. Canons of a successful close.
5. Explain the AIDCA process of selling 6. What is effective personal selling? How can this be developed?
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18.12 REFERENCE 1. Anderson Rolph E. et al. Professional Sales Management, McGraw-Hill, New York, 1988. 2. Jha, S.M. and Singh L.P. Marketing Management in Indian Perspective, Himalaya, New Delhi, 1988. 3. Nayak, A.P. & Sahoo S.C. Salesmanship, Sales Management and Advertising, Books and Books, Cuttack, 1994. 4. Still R.R. et al. Sales Management: Decisions, Policies and Cases, PHI, New Delhi, 1976.
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CASE STUDY 1 HELIX LATEX INDUSTRIES Helix Latex Industries, a partnership concern which was in the business of Surgical and Medical equipments, manufacturing between 25 and 30 items like feeding nipples, B.L.B. mask equipment, saline and blood transfusion tubing, soil testing sheets etc., entered into the business of manufacturing surgical and post mortem hand gloves in December 1968. It invested Rs.5 lakhs in plant and equipment to manufacture this item and started manufacturing 2,000 pairs per day. There were about 30 other manufacturers in this field nearly all of them coming under the classification of small scale industries. Helix Latex faced competition mainly from dial rubber works of Bombay, Phoenix of Bhavnagar, and Swastik Rubber of Poona.
The first two companies were selling about 60,000 pairs of hand gloves everyday. Swastik Rubber which was the biggest company of the lot was marketing about 30,000 pairs per day. These concerns were selling gloves on an approximate rate of Rs.1 per pair. When Helix first started manufacturing gloves is tried to sell its products at the rate of Rs.1.25 per pair. In term of quality its products was superior to two of its competitors but occupied a second place when compared to Dial Rubber Works of Bombay. Being a surgical item the product however has to satisfy the minimum specifications in respect of T.S. (Tensile Strength) and E.B. (Elongation and Break) laid down by the Government which required testing of the product in the Government laboratories before permission to market them was granted. The market for gloves consisted of hospitals, surgical trade, D.G.S. & D and State tenders, individual doctors and pockets of medicines. Helix sold their brand of gloves. Which they called super tax, through wholesalers and dealers and were able to keep to delivery schedules. They had an open channel policy. Helix appointed one dealer each in Madras, Calcutta and three in Delhi. No dealer was appointed in Bombay where the competition way very tough. In promoting the sale of gloves Helix put up sign boards in important surgical and medical equipments markets. To push the sale of its gloves it also advertised its products in medical journals and put up stalls in medical and surgical conference. The above marketing mix did not, however, help Helix in selling its daily production of 2,000 gloves in the market. One of the its partners, who had his training in the area of marketing in one of the best business schools of U.S.A. finding that its product was not moving notwithstanding the fact that Helixs marketing mix compared favourably with its competitors, decided to experiment and identify the effect of price reduction on the sale of this product. As a result of this decision the price of its brand of product super tax was reduced from Rs.1.25 initially fixed price, to Re. 1/. The reduced price also did not make any difference in the sale of super tax. It again reduced the price to 87 paise per pair. On finding that the reduced price of 87 paise, which was lower than its three main competitors
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prices in the neighbourhood of Rs.1/- per pair, again failed to tick, a decision was ten to further reduce the price to 75 paise per pair. No tangible difference was, however, made to sales of super tax by third downward exercise in price reduction. On reviewing other elements of the marketing mix, it was found that the Bombay concern was selling for cash and was not giving any credit facilities while its two other competitors were allowing 30 days credit. Helix in order to improve upon its competitors strategy decided to grant 3 months credit facilities. Unfortunately all these changes did not help Helix in marketing all the 2,000pairs it could produce every day. The firm was really at a loss to understand what mix and strategy it could adopt to achieve success in its sales efforts?
QUESTIONS (a) What are the basic problems being faced by the Company in marketing its products?
(b) (c)
What are the strength and weaknesses of the company? What marketing mix and strategy would you recommended to the company?
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CASE STUDY 2 PROMOTIONAL STRATEGY FOR BREAD MARKETING Mr. Rao, a successful businessman in Coimbatore, plans to launch a mechanized bread-making unit on a large scale. For this purpose, he intends to purchase the required machinery from Britannia Industries Limited of Germany. The proposed units installed capacity is 30,000 loaves per day. Mr. Rao is interested in introducing two varieties of bread viz., milk bread and fruit bread. Other bakery products will be added to the product line at a later date. He is also interested in starting a chain of bakeries in the city.
Mr. Rao approached Thick Group (TG), a reputed consultancy firm in the city for a feasibility study of the proposed venture. According TG conducted an exhaustive market survey. The following are the finding of the study. Coimbatore is developing fast industrially with a population of 6 lakhs. Out of the total population. As most of the industries are located in the outskirts of the city, a majority of employees have to travel on an average of 12kms, everyday and reach work-place before 80 clock in the morning. Regarding breakfast habits of most of the people, it has been observed that they are in the habit of taking idly, dosai, puri, etc. Out of lakh working population, working women account for 0.20lakh. Most of these working women expressed that the preparation of conventional break fast items like idly, dosai etc., it time consuming. They are also reluctant to get these items form hotels on the grounds of health of hygiene, cost, and lack of good hotels in their localities. Bread making and marketing in the city is unorganized. There are about 30 small bread making units, whose markets are limited to the places where they are located. Their manufacturing process is not mechanized. At present M/s Hindustan Bread is the only large scale, semi mechanized bread-making unit, which is marketing bread, under the brand name Hindustan Bread. There is no prominent branding, labeling, and packaging activity in other units. Most of the units simply wrap the bread in a white paper, and also some units sell bread without packing. Some of the industrial units and some big hospitals are large scale customers of bread in the city. These institutions, generally give supply contract after calling for tenders. It is worth nothing here that, this segment of customers is not happy with the regularity of supply and inconsistent quality of bread supplied by M/s Hindustan Bread, which is the sole supplier of bread to this segment. TG has a strong felling that there is a good market potential for bread in Coimbatore, where a change in the breakfast habits in favour of bread can be brought about by an aggressive promotional campaign. TG has made a positive case for Mr. Raos venture, as this mechanized unit will have a proven advantage over his nearest competitors M/s Hindustan Bread in ensuring better supply and quality consistency. In addition, Mr. Rao can also have economies of scale with this mechanized unit. Having gone through MIGs finding and recommendations, Mr. Rao entrusted the job of developing suitable marketing strategy to TG again. Mr. Ram Murty, Chief
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Executive of TG entrusted this job to Mr. Krishna Reddy, one of the TGs senior executives.
QUESTIONS FOR DISCUSSION 1. What are the important points that emerge from this case? 2. Do you think that TGs recommendation for aggressive promotional programme is a suitable marketing strategy to brig about this desired change in the breakfast henbits of the working people? 3. If you are in the place of Mr. Krishna Reddy, how would you work out suitable promotional programme for Mr. Rao.
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LESSON 19
DISTRIBUTION CHANNELS
OBJECTIVES After reading this you will be able to understand.
Meaning and importance of distribution in marketing. Major channels of distribution for both industrial and consumer products. The role and functions of wholesales and retailers. The considerations/factors involved in alternative method of distribution. STRUCTURE 19.1 Introduction 19.2 Meaning and Importance of distribution Channels 19.3 Role and Function of Wholesalers 19.4 Role and Function of Retailers 19.5 Selection of Channels of Distribution 19.6 Channels of Distribution for Consumer and Industrial Goods. 19.7 Factors influencing distribution decisions 19.8 Summary 19.9 Key words 19.10 Revision points 19.11 Model questions 19.12 Assignment questions 19.13 Terminal exercise 19.1 INTRODUCTION Placement or distribution of goods is an important element in the marketingmix since the product/service must reach the consumer in right quantity and at right time. There are a number of middlemen with varied roles and functions between the manufacturer or producer and the consumer or user. They constitute the marketing channel involving them on the process of making a product or service available for use or consumption by consumers or industrial users.
19.2 MEANING & IMPORTANCE OF DISTRIBUTION CHENNALS Large- scale production of to day has necessitated the use of different channels of distribution or marketing channel. Richard M. Clewett states, A channel is the pipeline through which a product flows on its way to the ultimate consumer. The manufacturer puts his product into the pipeline or marketing channel and various people move it along to the consumer at the other end of the channel. (Marketing channels fore manufacturer products, Richard D, Irwin, Illinois, 1954) Somebody has said, Marketing Channels are the combination of agencies through which the seller who is often through not necessarily, the manufacturer markets his product to the ultimate user.
The American Marketing Association defines marketing or distribution channel on the structure of intra-company organisation units or extra-company agents and
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dealers, whole and retail, through which a commodity, product or service is marketed.
Importance of Distribution Channel The importance of distribution channels can be examined with reference to the need for their emergence and functions they perform.
1. Intermediaries arise in the process of exchange because they can improve the efficiency of the process. Since the location of supply and demand points are at widely different locations, there is the need for physical movement of products. The demands of consumers at different geographical locations are intermittent and smaller in quantity, prohibiting individual customer specific transportation. This is referred to as spatial in advance to cater to the demand. This difference in line of production and consumption are referred to as temporal discrepancy which requires for risk inventory stocking. There is a variation in quantities and assortment demanded. The producers produce large quantities of an item while the individual consumer purchases a limited quantity of wide variety if items at a given point of time. So to facilitate exchange specific quantities and unique assortments must be built up from the product range. This is the discrepancy of quantity and assortment in the exchange process. The other factor is the buyers intention to buy on believes that right products are available at right quantities and at desired assortments. This does not guarantee and exchange. 2. Channel intermediaries arise to adjust the discrepancy of assortment and through the performance of sorting processes. The Sorting function is necessary to bridge the discrepancy between the assortment of goods and services generated by the producer and demand by consumer. This discrepancy arises out of the fact that manufacturers typically produce a large quantity of limited variety of goods whereas consumers usually desire only a limited quantity of wide variety of goods. The sorting function performed by intermediates includes the following activities. (a) Sorting out: It involves breaking down a heterogeneous supply into separate stocks that are relatively homogeneous. For example, separating the potatoes from the supply of vegetables to a restaurant. (b)
Accumulation: It involves bringing similar stocks from a number of sources together into a larger homogeneous supply (wholesalers accumulating various goods for retailers and in turn, retailers for consumers). Allocation: It involves breaking a homogeneous supply down into smaller and smaller lots. Good received in car loads are sold in case lots. Assorting: It involves building up the assortment of products for resale in association with each other.
(c)
(d)
While sorting out the accumulation predominate in the agricultural marketing, allocation and assorting are marked in finished goods.
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3. Marketing agencies group together in channel arrangements to provide for the routinization of transactions. Every transaction involves ordering of, valuation of and payment for goods and services. The seller and buyer must agree to the mode, amount and timing of payment. The cost of distribution can be minimized if the transactions are routinised. The process facilitates the development of exchange system. Routinisation leads to standardisation of performance of goods and services and encouraged high valued items production. Since Exchange relationships between buyer and seller are standardised resulting to routinization of lot size, frequency of delivery and payment, a sequence of marketing intermediaries can group together in a channel structure. 4. Channels facilitate the searching process: There is a double search for each other by both buyers and sellers in market place. This process involves the risk of uncertainty because producers are not certain of consumer needs and consumers are not certain about their products they are looking for. Marketing channels facilitate the process of searching when, for example, Wholesale and retail institutions are organized by separate lines to trade such as hardware, grocery, medicine, etc. Mass consumption products like chocolates, bread, sugar are available through various types of outlets like general stores, chain shops, super markets etc. Thousands of automotive parts are supplied to the spare part retailers by the local wholesalers within few hours or requisition. Distribution channels play a decisive role in the successful marketing of many products because they aid in mass consumption. The channels provide distributional efficiency to the manufacturers. They also provide a vital input for salesmanship. Channels help in merchandising and implementing price mechanism. Channels also look-after physical distribution and financing function, they promote transfer of technology and act as change agents. The channels role is to specialize in exchange efficiency and value assortment to provide customer satisfaction at the right time with right product at correct price. Intermediaries make possible the flow of products from producers to buyers by performing three basic functions. (a) Intermediaries perform a transactional function that involves buying, selling and risk taking because they stock merchandise in anticipation of sales. Intermediaries perform a logistical function evident in the gathering, storing and dispersing of products. Intermediaries perform facilitating functions, which assist producers in making goods and services more attractive to buyers.
(b) (c)
All three groups of functions (Fig. 1) must be performed in a marketing channel even though each channel member may not participate in all three. The members often negotiate about which specific function they will perform which results in reducing the channel conflict. 189
Type of function a) Transaction functions Buying Selling Risk taking b) Logistical functions Assorting Sorting
Description : Purchasing products for resale or as an agent for supply : Contacting potential customers promoting products and soliciting orders : Assuming business risks in the ownership of inventory that can become obsolete or deteriorate. : Creating product assortments from several sources to serve customers : Assembling and protecting products at a convenient location to offer better customer service. : Purchasing in large quantities and breaking into smaller amounts desired by customers : Physically moving a product to customers : Extending credit to customers : Inspecting, testing or judging products and assigning them quality grades : Providing information to customers and suppliers including competitive conditions and trends.
Sorting Transporting c) Facilitating functions Financing Grading Marketing information & Research
Fig.1. Broad Functions of intermediaries
Source: Reproduced from Fredrick E. Webster Jr, Industrial Marketing Strategy, New York, John Willey & Sons, 1979, pp. 162-63. A channel symbolizes the path for movement. This movement may be title, possession and payment for goods or services. Eight flow functions take place through channel. Physical possession, ownership and promotion are typically forward flows from producer to consumer. Each of there moves down the distribution channels. The negotiation finance and risk flows move in both directions. Ordering payment are backward flows. At any point of time, when inventories along with its title are held by a channel member, financing of the proceeding level takes place.
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a) Product flows
Suppliers
Shippers
Manufacturer
Dealers
Buyers
b) Title flows
Suppliers
Shippers
Manufacturer
Dealers
Buyers
c) Payment flows
Suppliers
Banks
Manufacturer
Banks
Dealers
Banks
Buyers
d) Information flows
Suppliers
Shippers
Manufacturer
Distributors
Buyers
e) Promotion flows
Ad. agency & Media
Manufacturer
Dealers
Buyers
Fig. 2 Marketing Flow s in Channels
19.3 ROLE AND FUNCTION OF WHOLESALER Wholesaler is one of the important members among the primary participants in a channel system. Wholesaler is commonly defined as an intermediary who sells to other intermediaries usually to retailers. Wholesalers are defined as all establishments or places of business engaged in selling merchandise to retailers, industrial, commercial and institutional users or to other wholesalers.
The wholesalers role in the modern business is shaped by the vast economic task of coordinating periods and places in which goods are produced and consumers. This sort preceding the essence of their economic viability that helps in reducing the discrepancy of assortment. The wholesalers role is for value addition for suppliers and customers as illustrated below:
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Marketing functions performed for Manufacturer Marketing functions performed for Customer
* * * * * *
Market coverage Inventory holding Customer support Market information Order processing Sales contract
Wholesalers perform all these functions
* * * * * *
Product availability Assortment convenience Bulk Breaking Customer service Credit & Finance Advice & Technical Support
RESULT
Value added (Reflected in Margins earned by w holesalers)
Fig. 2 Value Addition by Wholesaler through the performance of Marketing Function
CLASSIFICATION OF WHOLESALERS
Full Service Wholesaler Merchant w holesaler General merchandise Specialty merchandise
Limited Service Wholesaler
Rack jobbers Cash and Carry Drop Shippers Truck Jobbers
Agents Agents and Brokers Manufacturer' s Agent Selling Agent
Brokers
Branch Offices Manufacturers Branches and Offices Sales Offices
Fig. 3: Types of wholesaling intermediaries
Merchant wholesalers are independently owned firms that take title to the merchandise they handle. A merchant wholesalers compensation is the profit made on the sale of goods. Merchant wholesalers are classified as either fill service or limited service wholesaler, depending upon the number of functions performed.
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Two major types of full service wholesalers exist. General Merchandise (full time) wholesalers carry a board assortment of merchandise and perform all channel functions. These wholesalers do not maintain much depth of assortment within specific product lines. Specialty merchandise (limited time) wholesalers offer relatively narrow range of product but have an extensive assortment within the product line carried. They are found in health drinks, automotive parts and seafood industries. Four major types of limited service wholesalers exist. Rack jobbers furnish the racks or shelves that display merchandise in retail stores, perform all channel functions and sell on consignment to retailers which means that they retain the title to the products displayed and bill retailers only for the merchandise sold. Familiar products such as history, toys, house wares, health and beauty aids are sold by rack jobbers. Cash and carry wholesalers take title to merchandise but sell only to buyers who call on them, pay cash for merchandise and furnish their own transportation for merchandise. They carry limited product information. This wholesaler is common in electric, office supplies, hardware products and groceries. Drop Shippers or desk jobbers are wholesalers who one the merchandise they sell but do not physically handle, stock or deliver if the simply solicit orders from retailers and other wholesaler and have the merchandise shipped directly from a product to a buyer. Drop shippers are used for bulky products like coal, lumber and chemicals. Truck jobbers are small wholesalers who have a small warehouse from which they stock their trucks for distribution to retailers. They usually handle limited assortments for fast moving or perishable items. Agents and brokers: Unlike merchant wholesalers, agents and brokers do not take title to merchandise and typically provide fewer channel functions. They make their profit from commissions or fees paid for their services where as merchant wholesalers make their profit from the merchandise sold. Manufacturers agent and selling agent are the two major types of agents used by producers. Manufacturers Agents work for several producers and carry non-competitive, complementary merchandise in the exclusive territory. They act as a producers sale arm in a territory and are principally responsible for the transactional channels functions. They are used extensively automotive industry, footwear and fabricated steel industries. Selling agents represent a single producer and are responsible for the entire marketing function of that producer. They design promotional marketing function of the producer. They design promotional plans set prices, determine distribution policies and make recommendations on product strategy. Brokers are independent firms or individuals whose principal function is to bring buyers and seller and together to make sale. They usually do not have continuous relationship with the buyers or seller but negotiate a contract between two parties and then move on to another task.
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Manufactures Branches and Offices: Unlike merchant wholesalers, agents and brokers, manufacturers branches and offices are wholly owned extensions of the producer that perform wholesaling activities. Producers will assume wholesaling functions when there are no intermediaries to perform these activities, customers are few in number and geographically concentrated or orders are large or require significant attention. A Manufacturers Branch Office carries a producers inventory, performs the functions of a full service wholesaler and is an alternative to merchant wholesaler. A Manufacturers Sales Office does not carry inventory typically performs only a sales function and serves as an alternative to agents and brokers.
Functions of wholesalers The following are the marketing functions performed by the wholesalers.
I. Market Coverage Function: Markets for the product of most manufacturers consists of many customers spread over large geographical areas. To have good market coverage so that their products are readily available to customers when needed, manufacturers can call on wholesalers to secure the necessary market coverage at reasonable cost. II. Sales Contact Functions: The cost to cover the spread over market by sales force will be prohibitive. By using wholesalers to cover a substantial portion of the market, manufacturers are able to reduce significantly the costs of outside sales contacts. III. Inventory holding function: Wholesalers take title to and usually stock the products of the manufactures, which they represent. By doing so, they can reduce the manufactures financial burden and reduce the risk with holding large inventories and also help in planning better production schedule. IV. Market Information Function: Wholesalers are quite close to the customers geographically and in many cases have continual contact through frequent sales calls on their customers. So they are in a good position to learn about customers product and service requirement, number and type of customer orders and supports required by customers from the company in the form of ineffective merchandise return, after sales service information. They also provide advice and technical support in the cast of high-tech industrial goods. V. Product Availability Function: Probably the most basic marketing function offered by wholesalers to their customers is providing for the ready availability of products which sometimes cover the fabricating operation, assembly and set up of products. There is also the wholesalers ability to bring together from a variety of manufacturers an assortment of product that can greatly simplify their customers ordering tasks. Customers also do not need large quantities. Many manufacturers find it uneconomical to sell it to small customers by performing bulk breaking functions. VI. Credit and Finance Function: Wholesaler provide their customer with financial assistance by extending open account credit on products sold, their customers have time to use products in their business before having to pay for them. Second, by stocking and providing ready availability for many of the items needed by their customers would bear if they had to stock all of the products themselves. 194
19.4 ROLE AND FUNCTION OF RETAILERS Retail trade is defined by the Bureau of Census as all establishment engaged in selling merchandise for personal or household consumption and rending services incident to the sale of such goods.
Retailing includes all activities involved in selling, renting and providing services to ultimate customers for personal, non-business use. They are distinguished from wholesalers by the fact that they sell primarily to ultimate users. The utilities provides by intermediaries are of major value to retailers. Time, place, possession and form utilities are offered by most retailers in varying degrees. Many retailers often are able to influence marketing policies and practices of their suppliers. Any time a retailer is able to obtain a price concession advertising support or faster delivery from a manufacturer influence has been exerted over that manufacturers policies. Retailers have many sources of power to draw upon in their attempt to develop market leadership. These powers emerged because of their: I. Close Proximity to the Customers: They collect market information and consumers raise their complaints, preference desires and needs to the firms which supply them directly the desired market knowledge. II. Local Monopoly: Retailing is highly distributed and spread over activity. So within a specific market area, the manufacturers alternatives are limited. The amount of space or shelf area is restricted providing a local monopoly to the retailer. III. Customer Franchise: Related to local monopoly is the concept of retail customer franchise. The capabilities of a retailer to develop a large customer franchise and being trusted by consumers have included private label merchandise within their product assortments,
Forms of retail outlets There is a wide variety of retail outlets but broadly they can be classified into I. Form of ownership II. Level of service III. Merchandise line IV. Method of operation : : : : Who owns the outlet The degree of service provided to customer How many different types of products a store carries and in what assortment The manner in which services are provided how and where the customer purchase products.
I. Form of ownership a) Independent retailer: This is the retail outlet common to every day life which is owned by an individual e.g. dry cleaner, fluorist etc. The customer gets a personalised service in these kinds of stores.
b) Corporate chain: It involves multiple outlets under common ownership. In a chain operation, centralisation in decision making and purchasing is common. Chain stores have advantage in dealing with manufacturers particularly as the size of the chain grows. c) Contractual system: It involves independently owned stores that band together to act like chain. The example include retailer sponsored co-operative, wholesaler sponsored voluntary chains and franchising.
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II. Level of service a) Self Service: It is at the extreme end of the level of service continuum because the customer performs many functions and little is provided by the outlet. Home building supply outlets, discount stores and catalogue showroom are often self service.
b) Limited Service: These outlets provide some services which as credit, merchandise return and telephone ordering. Department stores are considered as limited service outlets. c) Full Service: These retailers provide a complete list of services to cater to its customers. Specialty stores are among the few stores in this category.
III. Merchandise line a) Depth of Line: These kinds of stores carry a considerable assortment (depth) of a related line of items. There are limited line stores. Stores that carry tremendous depth in one primary line of merchandise are single line stores.
b) Breadth of Line: These stores carry a board product line with limited depth. These are referred to as general merchandise stores, e.g. a large department store carries a wide range of different types of products, but not unusual size.
IV. Method of operation a) Store Retailing: Traditionally, retailing meant the consumer went to the store and purchased a product which is store retailing e.g. corporate chains, departmental stores and limited and single the specialty stores.
b) Non-store Retailing: It occur outside a retail outlet such as through direct marketing e.g. mail order, vending machines, computer and tele-shopping.
Functions of retailer The retailer is the ultimate connecting point to the consumer in distribution channel. The retailers perform various functions such as:
a) Physical flow 18. Take possession of merchandise from wholesaler. 5. Provide inventory facility 6. Make the required assortment in variety and quantity 7. Change the title of the merchandise to customers. b) Promotion Retailer takes an active part in producers promotion programme by facilitating POP display, store display and act as final dispenser of sales promotion schemes to the consumer. c) Negotiation, Financing and Risk Bearing The retailer negotiates with the wholesaler and manufacturer is quality, price stocked quantity and terms of sale. Also negotiates with consumers. They also help in financing consumer by extending credit facility for regular or bulk buying. As risk accompanies ownership, the retailers assume all the risk inherent in ownership of goods. d) Order, payment and information flow Anticipating or reacting to the needs of customer, the retailers order the merchandise through the wholesaler to manufacturer. Accepting payment from the
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customer is consideration for the transfer of ownership retailer pass on the payment, after deducting their margin, backward in the channel. Retailers form a vital link in the two way flow of information about customer response, product and promotional information.
19.5 SELECTION OF CHANNEL OF DISTRIBUTION A new firm typically starts as a local operation selling in a limited market. Since it has limited capital, it uses existing middlemen. The number of middlemen in any local is ought to be limited i.e. a few manufacturers selling agents, few wholesalers, several established retailers. Deciding upon the best channels is a challenging task if the new firm is successful, it branches out to new markets and operates with existing intermediaries. The following steps are involved while selecting and designing a distribution channel.
Step I Step II
: :
Analysing service output levels desired by customers Establishing channel objectives Identifying the major channel alternatives Evaluating channels.
Step III : Step IV :
Analysing service output levels desired by customer There is diversity in the customers buying needs, product assortments, merchandise choice and frequency of buying. There are five service outputs produced by channels. They include:
Lot Size: It is the number of units that the channel permits an individual customer to buy on one situation. The smaller the lot size the greater the service output level that the channel must provide. Product variety: It represents the breadth of assortment provided by the marketing channel customers like greater assortment breadth because the chance of exactly meeting their need. Waiting time: It is the average time that customers wait for receiving the goods. Customers normally prefer fast delivery channels. Faster service requires a greater service output level. Convenience: This expresses the degree to which the marketing channel makes it easy for customers to purchase the product. Service back up: Services back up represents the addition on services like credit, delivery, installation, repairs provided by the channel. The greater the service back up, the greater the work provided by the channel.
Establishing channel objectives These objectives should be stated in terms of targeted service output levels. Channel objectives vary with product characteristics. Perishable products require more direct marketing. Bulking products such as building and machinery material require channels minimizing transportation and shipping distance and the number of handling in the movement form producer to customer. Non standardised products are sold directly by company sales representatives. Products which require installation, fabrication and maintenance are sold by company itself.
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Similarly high unit value products are often sold through a company sales-force. Channel design decision maker should do the strength and weakness analysis of each member and the decision should be adaptable to a larger environment.
Identifying the major channel alternatives After defining the target market and the variability of customer needs, there should be the identification of channel alternatives. A channel alternative is characterized by:
(a) (b) (c)
Types of business intermediaries The number of intermediaries The responsibility and duty of each channel participant.
a) There are various kinds of intermediaries and each them differ in their role and function. As in the ultimate flow of products, price and communication these channel members perform a varying degree of function. The intermediaries can be of the manufactures agents or independent units or manufactures sales-force. b) The number of intermediaries decides the type of distribution the organisation prefers. An exclusive distribution involves severely limiting the number of intermediaries handling the companys merchandise. In this case the producer exercises a great deal of control. Selective distribution involves the use of more than a few but less than all of the intermediaries who are willing to carry a particular product. This type of distribution is used by established as all as new organisations. An intensive distribution involves planning the goods or services in as many outlets as possible. To get the locational convenience, it is required to offer greater intensity of distribution. c) The manufacturer must determine the conditions and responsibilities of the participating channel members. The policies involved are price policies conditions of sale, territorial rights and mutual services to be performed by each party.
Evaluating channels The various channels so selected needs to be evaluated against (a) Economic criteria, (b) Adaptive criteria, (c) Control criteria.
a) Economic Criteria : Each channel member produce a different level of sales and cost. Whether the company salesforce or the intermediaries will be generating more sales and the cost involved in maintaining each of these alternatives are to be analysed. b) Adaptive Criteria: The order to develop a channel, the members must make some degree of commitment to each other for a specified period of time. So in rapidly changing volatile or uncertain product markets, the producer needs the channel structure and policies to maximize control over the members. c) Control Criteria: The area of channel evaluation should be broadened to include the control criteria. The balance of the dynamics of marketing control between intermediaries and manufacturer should be considered.
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19.6 CHANNELS OF DISTRIBUTION FOR CONSUMER AND INDUSTRIAL GOODS The channels for consumer goods and industrial goods differ widely because of customer demands. As the intermediaries between a producer and buyer, increases the channel is viewed as increasing in length. A. Channels for Consumer Goods
A
Producer
B
Producer
C
Producer
D
Producer
Agent
Whole saler
Whole saler
Retailer
Retailer
Retailer
Consumer
Consumer
Consumer
Consumer
Fig. 4 Common Marketing Channels for Consumer Goods and Services
Channel A represents a direct channel, because a producer deals directly with each consumer. Many products and services are distributed this way. The remaining three channels B,C,D, are indirect channels, because intermediaries are inserted between the producer and consumers and perform numerous channel functions. Channel B, with a retailer added is most common when a retailer is large and can buy in large quantities from a producer. Adding a wholesaler in channel C is most common for low cost, low unit value items that are frequently purchased by consumers such as sweets, chocolates and magazines. Channels D, is manufacturers and many small retailers and an agent is used to help coordinate a large supply of the product.
B. Channels for Industrial Goods and Services
A
Producer
B
Producer
C
Producer
D
Producer
Agent
Agent Industrial Distributor Industrial Distributor
Industrial User
Industrial User
Industrial User
Industrial User
Fig. 5 Common Marketing Channels for Industrial Gods and Services
In contrast with channels for consumer products, individual channels typically are shorter and rely on one intermediary or none at all because industrial users are fewer in number and tend to be concentrated geographically and buy in larger quantities.
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Channel A is a direct channel and firms using this channel maintain their own sales-force and are responsible for all channel functions. This channel arrangement is employed when buyers are large and well defined, the sales effort requires extensive negotiations and the products are of high unit value and require hands on expertise in terms of installation or use. Other channels are indirect channels. In channel B an industrial distributor performs a variety of marketing channel functions. Channel C, introduces a second intermediary, an agent, who serve primarily as the independent selling arms of producers are represent and producer to industrial users. Channel D is the longest channel and includes both agents and distributors. Channel structures for consumer and industrial products assume various forms based on the number and type of intermediaries. Knowledge of the roles played by these intermediaries is important for understanding the channel operation.
19.7 FACTORS INFLUENCING DISTRIBUTION DECISION The distribution patterns, channel objectives and constraints are influenced by a host of variables. These are explained in the following section.
Market characteristics play an influencing more on distribution decisions. For example, if the customer wants a high level of service, manufacturer will have to ensure that its channel members are able to provide it or else the firm will have to provide it. The latter alternative may be costly but may ensure a high level of customer confidence. In an automobile dealership, for example, the automobile manufacturer insists on investment in tools, equipments and manpower training ensuring a high level of precision in servicing. Therefore, the manufacturer trains the dealers employees in servicing the automobiles. A firm like sumeet, a leader in the mixer and grinder market, has a mobile service concept to serve its customers. It regularly announces the date, time and place where its service van will be parked for the benefit of housewives and retail outlets. Many other firms have adopted this pattern to service their target markets.
Company characteristics The next variable is company characteristics and objectives. The channel design is influenced by the company's long-term objectives, financial resources manufacturing capacity, marketing mix and even its philosophy. For example, if the firms manufacturing capacity can only meet 25 percent of the total market demand it may be well advised to either fellow selective distribution, distribute only through selected outlets in few markets or adopt an intensive distribution, eater to all outlets in a given geographical market or distribute it exclusively all over the country.
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Product Characteristics The next important variable influencing the distribution decision is product characteristics. Here, the key issues for analysis are product value perceived risk and the nature of' the product. If the product value and hence perceived risk is high, as in the case of capital equipment or precious stones and gems, a shorter channel or direct marketing is the most preferred alternative. Here the firm sells the product through its own solcs force. Likewise, if the product is perishable in nature, direct distribution or a shorter channel is advisable. For example, milk, bread, eggs, fruits and flowers require direct or short channels to reach the customer. Hence, a dairy supplies milk in bulk to wholesalers or distribution points who then redistribute it directly to the customer either for n their outlets or through their own delivery boys. But this is not so in the case of non-perishable goods like textiles, footwear, toiletries, and so on, hence the longer channel. The next product related factor to be considered is whether it's standardised or non standardised. The latter demands direct distribution. Middleman Characteristics This refers to middlemens aptitude for service, promotion and handing negotiations, storage, contract and credit. Channel design reflects the strength and weakness of different intermediaries. Intensity of Competition The nature and intensity of competition in the industry will determine the distribution pattern adopted by a firm. Some firms may adopt an intensive distribution strategy and be indifferent to multiple brand outlets. Here, these firms aim at getting the highest share from such outlets. Other firms may have the policy of exclusive distribution-insisting that the intermediary deals in no other brand. 19.8 SUMMARY Distribution is also an important element in the marketing mix. The motto of any marketer is to see that the right production in right quantity at price is made available at the right place. The methods of distribution may broadly be divided into direct and indirect methods. A number of intermediaries/middlemen are engaged in the distribution of goods and service. The wholesalers and retailers perform a number of functions such a sorting out, accumulation, allocation and assorting. While sorting out and accumulation predominate in the agricultural marketing, allocation and assorting are marked in finished goods. The channel members also facilitate the searching process. The wholesaler more specifically performs the functions which can be broadly grouped under market coverage function; sales contact function, inventory holding function, market information function, credit and finance function.
The retailer is the ultimate connecting like between the wholesaler and the consumer / user. He takes possession of merchandise from the wholesaler, provides inventory facility, etc. He also takes active part in producers promotion programmes by facilitating POP display, store display and act as final dispenser of sales promotion schemes to the consumer.
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Four major steps are involved in selecting the designing the distribution channel viz., analysing service output levels desired by customers, establishing channel objectives, identifying the major channel alternatives, and evaluating channels.
19.9 KEY WORDS Sorting out, Assorting, Logistical function, Transactional function, Product flows, Title flows, Information flows 19.10 REVISION POINTS Local monopoly, Customer franchise, Depth of merchandise line, Breadth of merchandise line, Store retailing 19.11 ODEL QUESTIONS 1. Answer the following: a) What is meant by marketing channel?
b) What are the basic functions performed by intermediaries? c) What utilities are created by intermediaries? 2. Discuss the type and role of wholesalers in a channel? 3. What are the functions of wholesalers and retailers? 4. What are the various types of retailers and their functions? 5. Comment on the statement. The only distinction among merchant wholesalers and agents and pokers in that merchant wholesaler take title to the products they sell.
19.12 ASSIGNMENT QUESTION 1. Suppose the President of Libra Carpets has asked you to look into the possibility of by passing the firms wholesales (who sell to carpet department and furniture stores) and selling directly to these stores. What caution would you voice on this matter and what type of information would you gather before making this decision? 19.12 ERMINAL EXCERCISE 2. Suppose 15 firms in an industry wished to reach 15,000 potential customers are selling to them directly. How many sales contacts would be required in this industry if each firm if each firm called on each customer? How many sales contacts would be required if an intermediary were placed between firms and potential customers. REFERENCES
1. Clewett, R.M. (ed.) Marketing Channels for Manufactured Products, Richard D. Irwin, Illinois, 1954. 2. Cravens, David W. et al. Marketing Management, Richard D. Irwin, Illinois , 1988. 3. Kotler, P. Marketing Management, Analysis, Planning and Control, PHI, New Delhi, 1992. 4. Stren, Lowis W. (ed.) Distribution Channels: Behavioural Dimensions, Houghton Mifflin Co.,
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LESSON 20
PHYSICAL DISTRIBUTION
OBJECTIVES After studying this lesson you will be able to understand the following:
The importance of physical distribution in marketing The various important elements in physical distribution STRUCTURE 20.1 Introduction 20.2 Meaning, Objectives and Importance 20.3 Components of PDS 20.4 Managing Physical Distribution 20.5 Summary 20.6 Key words 20.7 Revision points 20.8 Model questions 20.9 References 20.10 Assignment questions 20.11 Terminal exercise 20.1 INTRODUCTION Physical distribution activities and decisions are important for many kinds of manufacturers, wholesalers, and retailers, affecting both customer satisfaction and bottom line profit performance. The management of physical distribution provides and exciting opportunity for improving customer services and reducing costs. Managing the physical distribution function is considered in this lesson.
20.2 MEANING, OBJECTIVES AND IMPORTANCE Meaning Physical distribution involves planning, implementing, and controlling the physical flows of materials and final goods from points of origin to points of use to meet customer needs at a profit (Kotler, P. Marketing Management, PHI, New Delhi, 1992, P. 554). The National Council of Physical Distribution Management, Chicago, USA status that physical distribution is a term employed in manufacturing and commerce to describe the broad range of activities concerned with efficient movement of finished products from the end of the production line to the consumer, these activities include freight transportation, warehousing, materials handling, protective packaging, inventory control, plant and warehousing site location, order processing, market forecasting, and customer service. In some cases the physical distribution also includes the movement of raw materials from the source of supply to the beginning of the production line. Mc Carthy states that physical distribution is the actual handling and moving of goods within individual firms and along channel systems.
Thus, it could be observed from the above definitions that physical distribution is a marketing term which refers to the broad range of activities connected with
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efficient movement of goods from the place of production to the place of consumption.
Objectives Like other components of the marketing mix, physical distribution, too strikes to achieve two broad marketing objectives, viz., Consumer satisfaction and profit maximization.
By delivering products to target consumers at the places and time required, physical distribution ensures better customer services. In the process it adds to the value satisfactions of consumers. An efficient service increases the probability of repeat sales, a higher customer retention rate and the addition of new customers. An efficient physical distribution facilitates lowering the level of stock and to avoid out of stock situations. This is achieved through devising a constant delivery schedule. Devising a constant delivery schedule results into lower inventory carrying costs and a reduction in the amount of capital tied-up in inventory. A significant reduction in cost is also brought about by determining the optimum number and location of warehouses, improving the handling of materials, increasing stock turnover and so on. All these help ultimately in profit maximization. The specific objectives of physical distribution are: Minimizing inventory level Speeder transportation Minimum handling Minimum transhipment Of course, these objectives may very from company to company and even from situation to situation in a company. They physical distribution strategy will, thus, largely depend on what the company aims to achieve within given cost revenue constraints.
Importance Physical distribution system is the most powerful support to distribution channel. Even the best distribution channels are not likely to yield derived results without adequate support a provided by the system of physical distribution. The importance of physical distribution system will be better understood from the following:
1. A well-devised Physical Distribution system helps to minimize cost of marketing. Recently, all the major components of marketing cost, viz., transportation cost, materials handling, inventories, order processing, etc. have registered a sharp increase primarily due to inflationary conditions all the world over. It is against this that physical distribution management assumes particular significance. A sizable chunk of marketing cost cold very well is curtailed by evolving an appropriate PDS. 2. Physical distribution system helps to attain the objective of utmost customer satisfaction. Customer satisfaction is the end of all marketing activities. A satisfactory physical distribution system ensures best possible warehousing,
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inventory control, transport, protective packaging, physical handling, order processing, etc. which gives the customer the service they expect. 3. PDS creates time and place utilities: Physical distribution creates utilities of time and place of making available a product at the time it is needed and at the place where it is needed. 4. PDS form a major part of national wealth: PDS in the form of rail, road, highways, trucks, aircraft, ships docks, etc. represents a major portion of national income. Hence PDS becomes important from the point of view of the national economy as well. Thus, the process of physical distribution is of utmost importance not only from the view point of the enterprise in question but also from the broader national angle.
20.3 COMPONENTS OF PDS PDS comprises the following broad areas: Transportation As a component of the physical distribution system of an organisation, transportation refers to the movement of products from the warehouse (s) to the consumer destination (s). Transportation is the crux of the problem of physical distribution. It plays an important role in the economic development of nation. In marketing, transport discharges an important function, since the entire work of assembling and dispersing of goods is done with the help of some form of transport. Better transport opens up new markets, which, in turn, increases the volume of production requiring the support of wider and larger transport facilities. Without the development of transport, large scale production would have been impossible. There are several models of transport such as,
Land/Road Transport (Road & Rail way) Water Transport Air Transport Some of the factors determining the choice of selecting transport medium may be pointed out here. 1. Cost: Cost of transport is indicated by the freight rate and total freight bill that a company is required to pay on the goods / Cargo. The distance to be traveled and the volume of products to be moved go to determine the cost. The distance criterion influences the ratio between the fixed and variable components of the total movement cost. Anyway, other things being equal, management chooses that mode which involves the minimum cost. 2. Performance Criteria: Performance characteristics of each mode of transport considerably influence the choice of management. The important performance criteria are speed, reliability, frequency, availability and safety. Speed refers to the pace of movement and it usually indicated in kilometers per hour. While calculating speed, the time involved in transhipment, handling, stoppages, loading and unloading, and starting from station to customer
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destination are taken into account. Its the total time taken from warehouse to customer destination that is relevant.
Reliability: It implies the dependability of the transport medium. Dependability in indicated by the number of in-transit interruptions, dislocation owing to inclement weather, accident proveness, etc. Both railways and roadways in these terms rank before airways and waterways. Frequency: It refers to repetitive movement of the mode of transport from one place to the other. There are daily rail and road cargo services from practically all trading centre in the country. Availability: It implies flexibility and accessibility of the transport medium. The chromic wagon shortage makes railways a purely available mode; road transport emerges successfully in this test. Safety: Safe and secure movement of products is important. Safety is indicated by the possibilities of product loss and damage. Product suitability: Not all media are suitable for the movement of all types of products. Hence the choice of the transport medium is also determined by its suitability from the view point of product character. Perishable products and products having a high replacement rate and time value are best moved by the roadways whereas bulky goods like coal, oil, etc, is best moved by railways and water ways. Similarly, products with a high unit value, such as diamond, jewellery, electronic equipment, etc. are best moved by air owing to the low ratio of the transport cost to the product price.
Inventory Management Inventory refers to all kinds of materials, component parts, supplies, inprocess goods and finished goods available with a firm. A firm cannot succeed in maximizing customer satisfaction without effective management of inventories. It is because of this reason that inventory management of physical distribution.
Inventory management means the laying down of the policy to be followed regarding the holdings of stocks or raw materials and finished products and the implementation of this policy in the business. The principal aim of inventory management is to ensure enough supply of all the materials and supplies of the quality essential to the business with the least of the inventory investment and inventory carrying cost. Inventory control means holding balanced stock of materials and / or finished goods. It aims at there objectives: Never run of anything (out of stock) Never build up a very large inventory i.e. having much of anything on hand (unwanted stock) Never send out too many small orders for more i.e. never pay high prices and incur high freight and lose quantity discount because of buying in small quantities.
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It should be noted that the efficient inventory management can not eliminate business risk but it can certainly reduce it. We can only assess risk, plan a strategy and accept risk and most favourable terms.
Standards in inventory control: There are four important standards in inventory control
1. The Maximum: It indicates the upper limit of inventory or stock. It is the largest quantity to be kept in the interest of the economy. 2. The Minimum: It is the lower limit of inventory. It is also called safety or reserve stock. It must be always on hand. It acts as a safety value. 3. The ordering point: It indicates when to order or reorder. It is the level of inventory necessary to protect against exhaustion of the stock during the time gap between the order date and date of receipt of stock. The supplier can help his customer by assuring delivery within a certain period, say 10 days from the date of receipt of an order. Under such assured delivery time, the ordering point can be easily determined. When the level of inventory or the balance of stocks on hand reaches this ordering point, it is an indication that a new order or reorder must be placed at once. Of course, sufficient margin must be provided for contingent delay or transport bottlenecks. 4. The standard order: It is the quantity of inventory to be requisitioned for purchase at any one time. A reorder or repeat order for a commodity is always the same quantity until conditions change, necessitating a revision of the standard order. The standard order. The standard order is the quantity for replenishment of stocks. Storage and warehousing Storage and warehousing is one of the important physical distribution functions of marketing. The word storage means holding the stock of goods for a relatively longer period. Thus, storage is a function that helps in preserving the goods at one place until they are needed at another place. Warehousing, on the other hand, involves more than storage. Warehouse, perform many of the usual functions of wholesalers e.g. breaking bulk, dispatch of smaller consignments to retailers, providing market intelligence and many other merchandising services of manufacturers. As regards the location of warehouse, usually two options are available, viz. to centralize warehouse facilities at one geographical location or to decentralize them at more than one location. The centralized warehouse is built around the manufacturing plant while the decentralized warehouse is built at or in the vicinity of market. In centralized warehouse products are moved to the warehouse from the plant from where these are distributed to different markets irrespective of the distance. Thus, there is only one dispatch point. In decentralized warehousing, on the other hand, the products are first moved in bulk from the plant to different warehouse called distribution centers where these are assorted, regrouped, and repackaged in customer acceptable sizes and delivered. It is a full service warehouse, primarily related to market. A distribution center provides services with the help of a computer and modern materials handling equipment. It can reduce cost of inventory, storage, handling and transport. Products are shifted from the
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factory to the distribution center directly and not to a storage warehouse. The distribution center is a new idea developed recently in India. Many companies are shifting steadily from storage warehouses, to distribution centers in their plans of physical distribution. As regards the ownership of warehouses, broadly two options are available viz., private warehouse(s) or/and public warehouse(s). The former are owned and operated by the company itself and are often exclusively used by it. The latter are those which are owned and operated by public institutions or other persons and are open for use by anybody at a charge who can confirm to certain rules and regulations.
20.4 MANAGING PHYSICAL DISTRIBUTION The design and management of physical distribution systems involve a number of business functions in addition to marketing, including raw materials management, inventory control, manufacturing, transportation, and warehouse and plant location. The major steps in designing the PDS are:
Establish PDS objective Measure customer service Examine cost trade offs, Identify and select design alternatives. Establish PDS objectives We have already pointed out earlier the objectives of effectives PDS. The principal objective was to provide better customer service. Customer service as it relates to the physical distribution function consists of providing products at the time and location corresponding to the customers needs. The customer services levels that may be provided range from very good to very poor. It is a measure of how all the customer service function is being accomplished. The ideal solution to the problem of PDS design is to develop minimum cost systems for a range of acceptable levels of customer service is a complex collection of demand-related factors under the control of the firm, but whose importance in determining supplier patronage is ultimately evaluated by the customer receiving the service. (Ronald H. Ballow, Business Logistics Management, Prentice Hall, Englewood (Iiffs, N.J. 1973)). Five major factors affect customer service, Time dependability, communication, availability and convenience.
Measure customer service Several possible measure of customer services are shown in fig. 1.
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Pretransaction elements
Inventory availabilty Target delivery dates
Customer service
Transaction elements
Order status Order tracing Backorder status Shipment shortages Shipment delays Product substitutions Routing change
Postransaction elements
Actual delivery dates Returns adjustments
Source:
Fig. 1 Possible Measures of Customer Service Performance Douglas M. Lambert and James R. Stock, Strategic Distribution Management (Homewood, III: Richard D. Irwin. 1982), p. 75
The choice of an appropriate measure or measures is situation specific and is based on the service factors(s) most closely linked to customer satisfaction. The pre-transaction elements use measure that designate service capability before it is provided. A target delivery date indicates the planned time or delivery. The transactions elements gauge service performance for various components of buyer seller transactions. The post-transaction elements measure customer service based and sellers is an important factor in customer service.
Examine cost trade - offs Trade-off analysis in PDS design is the evaluation of the costs of each system component with the objective of determining the combination of components that provides a minimum total cost system for specified customer service level. The interrelationships of various PDS components are shown fig.2. The arrows indicate the trade offs between activities the must be evaluated in:
Estimating customer service levels. Developing purchasing policies Selecting transportation policies Making warehousing decisions Setting inventory levels
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Product
Price
Promotion
Marketing
Plac-customer service levels (cost of lost sales) Physical distribution
Inventory carrying costs
Transportation costs
Production lot quality costs
Order processing and infomation costs
Warehousing costs (throughput costs not storage)
Fig.2 Cost Trade-offs in a Physical Distribution System

Source: Douglas M. Lambert. The Development of an Inventory Methodology: A study of the costs Associates with Holding Inventory (Chicago: National council of Physical Distribution Management, 1976) p.7. Since certain elements of the distribution function are often more important than others in a given firm, trade-off analysis should be directed to those elements that comprise the major portion of distribution costs.
Identify and select design alternatives A key issue in designing the PDS is how to incorporate the customer service objective into the design process. Management judgment and experience will often dictate a range of customer satisfaction levels that are acceptable to the firm. In many cases, these levels may be expressed not as percentage, but rather in terms of lot orders, delays, stock-outs etc. Two possible approaches may be considered as alternative ways of handling the customer service objective. They are:
Estimate sales response to customer service Minimize total PDS costs Like product management, distribution involves areas of the firm that have traditionally been separated. Approaches for organizing physical distribution include:
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The use of a task force to monitor, coordinate and when necessary, modify distribution activities and interrelationships. The assignment of management responsibility to an existing functional area in which several distribution activities are already being performed. The establishment of a separate organisational until for distribution management and coordination. The unit should be headed by a professional physical distribution executive. It may range from a small staff organisation that is primarily responsible for analysis, planning, and coordination to a line operation with responsibility for such distribution activities as warehousing, transportation, and order processing. The integration of physical distribution activities may evolve time., beginning with a task force approach and ultimately developing into a separate organizational until.
20.5 SUMMARY
Physical distribution is an important aspect of overall distribution in marketing. It is also termed as the other half of marketing. To ensure better customer service, to lower the level of stock, to reduce cost and ultimately to provide best service to customers are the important objectives of any efficient PDS, PDS helps to minimize marketing cost, creates time and place utilities, cultivates demand and has a direct bearing on the standard of living of the people at large. Transportation, inventory management and control, storage and warehousing are the major components of any PDS. Various criteria are followed in selecting the mode of transport, such as speed, safety, reliability etc. inventory decisions are concerned with balancing the costs of carrying inventory, ordering products from suppliers, and controlling other inventory costs to achieve a desired level of customer satisfaction. The PDS planning and designing process involve establishing PDS objectives, measuring customer service, examining cost trade offs, and identifying and selecting design alternatives. It is observed that many companies are shifting steadily from storage warehouse to distribution centers in their plans of physical distribution. Such companies have succeeded in reducing appreciably the number of storage warehouses.
20.6 KEY WORDS Customer service level, Cost trade-offs, Distribution centers 20.7 REVISION POINTS Components of PDS 20.8 MODEL QUESTIONS 1. What do you mean by physical distribution? Describe its importance in marketing of goods and service. 2. (a)State how the PDS can contribute to the creation of time, place and possession utilities. (b)How does physical distribution contribute to the firms marketing programme?
3. State the objectives of an effective PDS. What are its major components? Discuss in brief. 211
20.9 REFERENCES
1. Douglas M. Lambert and James R. Stock, Strategic distribution management, Richard D. Irwin, Homewood, Illinois, 1982. 2. Cravens, David W. Marketing management, Richard D. Irwin, Inc. Homewood, Illinois, 1982. 3. Gandhi J.C. marketing A management, introduction, TMH, New Delhi, 1990. 4. Snykay, E.M., et al. Physical Distribution management, Macmillan Co, New York, 1961. 20.10 ASSIGNMENT QUESTION 1. Managing physical distribution involved balancing distribution costs against acceptable level of customer services and satisfaction, Explain :20.11 TERMINAL EXERCISE 1. As marketing director of kelloggs, evolve a market driven distribution system for the Indian market.
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LESSON 21
MARKETING RESEARCH
OBJECTIVES After studying this lesson, you should understand the following:
The meaning, scope and objects, of marketing research. The marketing research process. STRUCTURE 21.1 Introduction 21.2 Marketing research meaning, Importance and scope 21.3 Objects of marketing research 21.4 Marketing research process 21.5 Types of marketing research 21.6 Summary 21.7 Key words 21.8 Revision points 21.9 Model questions 21.10 References 21.11 Assignment question 21.12 Terminal exercise 21.1 INTRODUCTION Decisions making in various areas marketing management, such as pricing, product development, promotion and distribution, is a complex problem. It is both a problem and a challenge. It is essential for every marketer to develop a dependable marketing data and information base for rational decision making. This in turn, depends on collection, recording and analysing relevant data. This job of collecting, recording and analysing relevant data for marketing decisions is known as marketing research.
21.2 MARKETING RESEARCH MEANING IMPORTANCE AND SCOPE Meaning and importance Marketing research has been variously defined. It is the systematic, objective and exhaustive search for and study of the facts relating to any problem in the field of marketing. (Richard Crisp).
The American marketing Association has defined marketing research as the systematic gathering, recording and analysing of data about problems relating to the marketing of goods and services. Marketing research is a step by step process of planning for, acquiring, analysing, and interpreting information relevant to a marketing decision making situation (Cravens, Hills and Woodruff, Marketing management, Richard D. Irwin, Illusions, 1988. P. 631). An analysis of the definition reveals the following salient features of marketing research: 1. It is a search for data which are relevant to marketing problems distribution, promotion, pricing, etc. 213
2. It is a carried out in a systematic manner as opposed to a hazard or hit-and -miss manner. 3. It involves a process or gathering, recording, and analysis of data. As regards the importance, it can be said that marketing research plays a key role in the entire marketing process. It helps the firm in market measurement, assessment of market potential and development of sales forecasts. Marketing research can significantly help each and every function of marketing. It is rightly observed, Marketing Research is the radiology and pathology of marketing operations of a business. It diagnoses the business ailments when there is a trouble, it is also means regular checks. Like the radiologist who provides an X-ray, the market researcher gives a true picture of the business position. As the pathologist gives test reports to the medical practitioner, the marketing research furnishes reports that can guide the business executives. With the emphasis shifting from the product to the consumer and his needs and with the consumer becoming more involved and the market turning into a buyers market, it became necessary to get information on the needs, preference and evaluations of the consumer. One of the important tasks is to deliver the right product to the right person at the place at right time. It also required obtaining information on consumers satisfaction and dissatisfaction for bringing requisite change in companys marketing programme, so that the customer remains loyal to the enterprise and its product. Thus, marketing research is described as an activity, the results of which are useful in enhancing the ability to make marketing decisions in the ever changing world.
Scope A wide range of research activities are carried on by marketing researchers of this century. They can be broadly categorized into 7 groups.
a)
Product / Service research which covers the research on customer acceptance of the proposed new product, comparative study of competitive products, and determination of new uses of existing products. Test marketing of proposed product, study of customer dissatisfaction, product line decision, packaging labeling and design decision.
b) Market research which covers analysis of market potentials for existing products, Estimation of demand for new products, sales forecasting, characteristics of product markets, analysis of sales potential and study of trends in markets. c) Promotion research which covers advertising campaign evaluation, analysis of advertising and selling practices, selection of advertising media, motivational study establishment of sales territory, evaluation present and proposed sales methods, studying competitive pricing analysing salesmans effectiveness and establishing sales quota.
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d) Distribution research which covers location and design of distribution centers, handling and packing of merchandise, cost analysis of transportation methods, Dealer supply and storage requirements. e) f) Pricing Research which covers demand elasticities, perceived prices, cost analysis and margin analysis. Corporate Responsibility research which covers research on ecological impact of business, protection of customers rights, studies on legal restraints and regulations, studies on social values and policies. Miscellaneous Research activities cover various research activities which are not conducted regularly but has some marketing implication. This cover research on diversification satisfaction and motivation of sales personnel, governmental actions and attitudes towards corporate sector, international marketing research.
g)
The scope of modern marketing research is two fold i.e. routine problem analysis and non-routine problem analysis. The above categorization helps in giving a broader look to the scope of marketing research.
Marketing information system Vs marketing Research A marketing information system is an on going future oriented structure designed to generate, process, store and later retrieve information to aid decisionmaking in an organizations marketing programme. It is a set of procedures and methods for the regular and planned collection, analysis and presentation of information in making marketing decisions. It consists of people, equipment and procedures to gather, sort, analyse, evaluate and distribute needed, timely and accurate information to marketing decision makers.
In order to carryout their analysis planning implementation and control responsibilities, the marketing managers need information about developments in the marketing environment. The role of the MIS is to assess the managers information needs, develop the needed information and distribute the information in time to marketing managers.
INFORMATION PROCESSING INFORMATION OUT PERIODICAL REPORTS
MACRO
MICRO
MARKETING INFORMATION SYSTEM
INTERNAL
SPECIAL REPORTS
Fig.1 The Information Flow and Marketing Informatin System
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There is an increasing need for marketing information system because a) c) e) There is a growing consumer discontent. There is the emergence of complex marketing environment There is shortening of time span for decision making b) There is a shortage in scarce resources. d) There is a knowledge explosion There is a varying degree of contradiction among theorists regarding the relationship between the MIS and MR. Some view marketing intelligence system as simply a logical, computer based extension of marketing research. Others view them distinctly different. Some opinions that if a company has a formal MIS, then marketing research is a part of this broader information system.
CONTRAST BETWEEN MARKETING INFORMATION SYSTEM AND MARKETING RESEARCH
Marketing Information System 1. 2. 3. 4. 5. 6. Handles both internal and external data. Concerned with prevention and solution of marketing problems. operates continuously as a system Tends to be futuristic Mostly a computerized / process Includes other subsystems besides marketing research Marketing Research 1. Depends largely on the handling of external data 2. Concerned with solution of problems 3. 4. 5. 6. operates in a fragmented & interment basis Tends to concentrate on past information Need not be a computerised process Is one of the sources of input for an effective marketing information system
21.3 OBJECTS OF MARKETING RESERCH The first and foremost objective of marketing research is to enable manufactures to make product acceptable and saleable and to see that they reach the market easily, quickly, cheaply and profitably without sacrificing consumer interest. MR aims at providing the following information to the marketing manager:
1. To define his present market situation together with the long range trends which have led up to it? 2. To discover what major and underlying factors are dominating the situation and how these factors can be influenced or controlled. 3. To set up a plan for keeping in touch with the behaviour to these dominating factors and for measuring the results of any efforts made to influence or control them. 21.4 MARKETING RESEARCH PROCESS The marketing research begins with the recognition of a marketing related problem. Identifying and stating the right problems is like winning half of the marketing war. This is followed by a formulation of the objectives of the study and the methodology to be used to achieve these objectives. The detailed steps involved in the marketing research process are explained in the following flow chart.
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Step - 1
Definition of Problem
Step - 2
Statment of research objectives
Step - 3
List of needed informations
Step - 4
Design of data Collection Project
Step - 5
Selecting the sampling scheme & sample size
Step - 6
Organising field w ork
Step - 7
Analysing the data
Step - 8
Findings and Conclusions
Fig. 2 Stages of Marketing Research Process
Step 1
Definition of Problem: This is the first step in marketing research process. The problem may be of different types depending on the marketing situation e.g. product failure, sales decrease, market gossip etc. the problem may be solved internally or external assistance from a marketing research agency, is required depending on the gravity of the problem. The problems then are formulated into statements known as hypotheses can be translated into research objectives which give an indication on information to be collected and variables to be studied. Statement of Research Objectives: The hypotheses are translated into research objectives. The information so obtained while formulating the problems pass through a subjective exercise to assess the possible outcomes. The hypothesis and objectives are formulated having the idea about the possible set of outcomes, the subjective probabilities associated with each outcome and the pay-offs associated with each outcome.
List of Needed Informations: Information is required about attitudes, beliefs, values, knowledge, intention and socioeconomic status of prospects. The main source of information
Step 2
Step 3
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may be the prospects themselves. The data may be primary or secondary in character. The primary data are original data gathered specifically for the project at hand. The secondary data have already been gathered for some other purpose. The sources of secondary data are libraries, government, trade, professional and business associations, private business firms, Advertising media, University research organizations and foundation. The primary sources of data are obtained from respondents on their attitude, opinion, preference, behaviour etc. for the specific research purpose. Step 4 Design of data Collection Project: This covers two broad concepts viz., the type of research design and the methods to collect information for the project. The development of research design largely depends upon the purpose for which the research is conducted. The depth and extent of data required the costs and benefits of the research, the urgency of the work and the tone available for the work also affects the research design. It provides the blueprint for research work. All marketing research projects start with exploratory research. This is required to obtain a proper definition of the problem and helps in providing insight to the problem. It is helpful in establishing in studying the competing explanations of phenomenon: conclusive research is an elaborate and systematic collection of the information needed, its analysis and findings as per the research findings. The second aspect of the design of data collection project is the selection of methods for gathering data. Primary data can be collected in various ways such as: a) Survey Method: A survey consists of gathering data by interviewing a limited number of people selected from a larger group. It has the advantage of getting original information. The interviewing in a survey method can be done by the researcher by person, telephone and mail. Personal interviews are more flexible because they are able to probe more deeply is the answer is not satisfactory. In addition to high cost and time consuming, personal interviews also face the possible limitation of inviting respondents bias. Telephone surveys can be conducted more rapidly and at least cost but it is time specific and it leaves the scope of reaching non-telephone holders. Interviewing by mail involves mailing a questionnaire to potential respondents and having them returned the completed form by mail. Observational Method: In this method data are collected by observing some action of the respondent. It is the observation of some occurrence, people and incident. The observation can be personal and mechanical but this method suffers from recording covert behavior.
b)
c)
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d) Experimental Method: This method of gathering primary data involves the establishment of a controlled experiment that stimulates the real market situation as much as possible. The small scale experiment will provide valuable information for designing a large scale marketing programme. Selecting the Sampling Scheme & Sample Size: A complete enumeration or census involves in decisive data gathering and the cost involved is prohibitive in character, so it is prudent in marketing to select a small group (sample) out of the population (universe). This process of selecting small number of items out of a larger number of items is called sampling. Their process of sampling can be probabilistic as well a non-probabilistic or judgmental. A probabilistic or random sample is one that is selected in such a way that every unit in the predetermined universe has a known and equal chance of being selected. Some common probabilistic sampling methods are simple random sampling and quota sampling. In non-probabilistic, there is an unequal chance of few members being selected and rest others of being not selected out of the whole population. Organizing the Field Work: This step involves the real research work on the field. The actual collection of data in the field by interviewing, observation is the weakest link in the entire research process. In other steps, marketing prudent are involved to ensure the accuracy of the result, so if the field workers are inadequately trained and supervised, the whole labour will be lost. There is the chance of bias because people in the sample may not feel at home and refuse to answer; the field workers may be unable to establish rapport with respondents. So organizing the field work is an uphill task for the researcher. Analysis the Data, Finding and conclusion: The data so obtained from field survey are subjected to editing. Editing is a process of reviewing the data to avoid and check the error arising out of illegibility, non-response and response from non-competent respondents. Then these data are categorized by tabulation. Tabulation process involves manual as well as mechanical tabulation by using punched card, computers etc. After data processing various statistical and non-statistical tools are used to analyze the data quickly and inexpensively which invariably leads to finding solutions to the marketing problem and conclusions. These findings and conclusions are presented in the form of a report.
Step 5
Step 6
Step 7 & 8
Marketing research process to be effective should be always regulated with a follow up action. This helps the decision makers in finding out the effectiveness of the research.
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21.5 TYPES OF MARKETING RESEARCH An ad-hoe research focuses on a specific marketing problem and collects
data at one point in time from one sample of respondents. For example, a company wants to find the impact of its latest advertising campaign on its sales. Ad-hoc surveys are either custom designed or omnibus studies.
Custom designed studies are based on specific needs of the client. The research design is based on the research brief given. The questionnaire is designed specifically for finding a solution to the clients problem. For omnibus survey, space is bought on a questionnaire for face to face or telephone interviews. The interview may cover many topics as the questionnaire space is bought by a number of client.; who benefit from cost sharing.
Continuous Research Interview In this method the same respondents are interviewed repeatedly. Respondents are enrolled by the research agency. Information is gathered from these
respondents on a periodic basis. Thus, it is possible to track changes within the same set of audience over a period of time.
Consumer Panels Consumer panels are formed by recruiting a large number of households which provide information about their purchases over time. By using the same households and tracking the same variables over a period of tine, measures of brand loyalty and switching can be determined. The demographic profile of a person who buys a particular brand can also be found. Changes in market share can also be examined over time. Thus, it is possible to track even small behavioural changes in response to changes in marketing variables. Retail Audits Sales of brands can be measured by means (If laser scans of barcodes on packaging which are read at the checkout. Brand loyalty and switching cannot be measured, but accurate assessments, of sales achieved by the store and competitive activity is provided. For identifying geographic areas or type of outlets where new products may be, introduced, such audits can be particularly useful. Potential problems related to distribution, in-store promotions or layout can also be assessed by using retail audits. Sales potential and sales forecasts can also be planned with such data. Television Viewership Panel The audience size of a program is measured minute by minute. Commercial breaks can be allocated rating points according to the proportion of the target audience watching the program. This is the currency by which television advertising is bought and judged. People meters record whether the set is on or off, which channel is being watched and by means of a hand console, who is watching. 21.6 SUMMARY Marketing research has become vital weapon in the armory of a modern marketer. It is an activity, the results of which are useful in enhancing the ability of the marketer to make marketing decisions in the ever changing world. He has to gather information
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and process them for taking a decision on any marketing aspect. The scope of marketing research is widening. It has embraced with itself consumer research, advertising research, and product and price research. MR involves a number of steps starting with definition of problem and ending with finds and conclusions. The future of marketing research in India is bringing on account of the growing business awareness about its usefulness and the steady growth of data base. Specialised research skill and data processing facilities are also improving.
21.7 KEY WORDS Marketing information system, Corporate responsibility research, Conclusive research, Exploratory research 21.8 REVISION POINT Marketing research process 21.9 MODEL QUESTIONS 1. Why does a company need a marketing information system? 2. How does a marketing information system differ from marketing research? 3. Describe the types of goods/services which would definitely need exploratory/research 4. In depth interviews are similar to individual case studies Comments. 21.10 REFERENCES 1. Beri, G.C. Marketing Research, TMH, New Delhi, 1994. 2. Boyd Jr. et al., Marketing Research: Text and Cases, Richard D. Irwin, Illinois, 1964. 3. Green P.E. & D.S. Tull, Research for Marketing Decisions, PHI New Delhi, 1973. 4. Stanton, et al. Fundamental of Marketing. MrGraw Hill, New York, 1967. 21.11 ASSIGNMENT QUESTION 1. Evaluate the merits of personal, telephone and mail survey method on the basis of accuracy, speed, cost case of implementation, flexibility and amount of information obtained. 21.12 TERMINAL EXERCISE 1. Develop a suitable marketing research procedure for a departmental store for the following problems: Inability to copeup with large turnover of customers Lake of proper stock status Stock accounting Cash collection and reconciliation Excessive reliance on the owner in day to day operations of the store made him unable to devote sufficient time for developing business.
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CASE Attitude towards Advertising
You have been asked to ascertain the attitude of people towards advertising, whether favourable or unfavourable, in the medium sized city where you live. The study should indicate whether heterogeneous groups differ significantly or otherwise in their attitudes towards advertising. The proposed study has to be carried out in two parts. Part I will involve the construction of a suitable scale for measuring attitudes of people. Part II will examine some hypotheses and conclude whether they are accepted or rejected. The hypotheses will concern the differences in attitude of the two groups towards advertising. For this purpose, you may think of groups in terms of male and female, young and old, educated and uneducated, rich and poor.
QUESTIONS 19. What type of study is this? 6. How would you develop a suitable scale for the proposed study? 7. Which scale would be most appropriate and why? 8. What would be the limitations of such a study?
Source: Beri G.C. Marketing Research 2nd Edn., Tata Mc Graw-Hill Publishing Co. Ltd., New Delhi, 1994. P. 218.
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CASE BUSINESS WORLD
Business World, a fortnightly magazine, is published from Bombay. It brought out by management of Anand Bazar Patrika Limited, Calcutta. In accordance with the decision taken in the annual editorial workshop of Business World held in early May 1986, a questionnaire was printed in some issues of Business World to know what readers thought of this magazine. By undertaking a survey of this type, the management hoped to ascertain the strengths and weaknesses of the magazine. This would enable it to tailor Business World of readers requirements.
QUESTIONNAIRE Name :____________________________________________________
Profession:___________________________ Designation _____________________ Income____________________ Age __________________ City _________________ 20. Which of these business papers/magazines do you read? (Please tick) Regularly Occasionally Infrequently Economic Times Financial Express Business Standard World Business India Fortune India Update Others (Specify) 9. My areas of interest are (please tick one or more) Corporate and business affairs ( ) Economic policy / Development ( Political affairs People and lifestyles Art/Literature Investments ( ( ( ( ) ) ) ) )
10. Rank the following magazines on a 1 to 5 scale (5 for very good, 1 for poor) for the following attributes Business Business Update Fortune world India India 1 Timeliness of information 2 Depth of information 3 Range of information 4 Depth of analysis 5 Language and style of presentation 6 Quality of printing and visuals 11. How much time do you spend in reading an issue of Business World? ________ hours 12. How much of Business World do you read? (Please tick one)
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1. The entire magazine 2. More than half the magazine 3. More than a quarter of the magazine 4. Less than a quarter of the magazine ( ( ( ( ) ) ) )
13. Which of these features in Business World do you usually find interesting and read? (Please tick one or more) (1) Cover feature () (7) Editorial () (2) Spotlight () (8) Company News and Events ( ) (3) Business News () (9) International Briefs () (4) In the News () (10) Entrepreneurs () (5) International News ( ) (11) Leisure () (6) Off Stage () 14. Which of these specialist pages in Business World do you read and find interesting? (Please look at the shoulder heads inside the magazine pages if you are not sure). a. Political comment g. Careers & Professionals b. Banking and finance h. Media trends c. Economic comment I. Book serial d. Taxation j. Business Information e. Management k. Marketing F. Computers l. Investment 15. In order to suit my requirements better, Business World should have Fewer main feature stories ( ) The same number of main feature stories ( ) At least one more than feature story ( ) 16. The lead feature (cover and spotlight) should be Shorter ( ) Same length ( ) Longer ( ) 17. Business Worlds coverage of the following items (Please tick one column for each entry) Is Needs to be Needs to be adequate expanded reduced Technology Marketing Management Corporate finance Investment/ Stockmarkets Book reviews Economic policy Policy analysis Corporate performance Corporate studies Behaviour 18. (a) Do you buy your copy of Business World from the News stands or are you a subscriber? (A) News-stands, (B) Subscriber 224
(b) If A, do you find it difficult to get a copy of Business World on the newsstands? Yes ________________ No________________ 19. How soon after the magazine is published each fortnight do you receive you copy of Business World? 1 3 days ______________ 3 6 days ______________ 6 12 days ______________ Longer than 12 days ______________
QUESTIONS 21. Evaluate this questionnaire in the light of the object stated. 20. Can you suggest a few more items that can be included in the questionnaire?
Source: Beri G.C. Marketing Research, 2nd Edn., Tata Mc Graw Hill Publishing Co. Ltd., New Delhi, 1994, P. 218.
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LESSON 22
CONSUMERISM
OBJECTIVES After studying this lesson, you will understand:
The meaning and need for consumerism, The problems of consumer protection and related legislations. STRUCTURE 22.1 Introduction 22.2 Consumerism Definition and Scope 22.3 Need for Consumer Protection 22.4 Consumer Movement Abroad and in India 22.5 The Problems of Consumer Protection 22.6 Consumer Protection The Legal Framework 22.7 New avenues of consumer oriented marketing 22.8 Summary 22.9 Key words 22.10 Assignment questions 22.11 Reference 22.1 INTRODUCTION Consumer is the centre of all economic activities. In our Indian culture, Philosophers and Thinkers have thought consumer as a God. He is a kingpin of any democracy. But unfortunately the Indian consumer has always been neglected in our economy because of many reasons.
22.2 CONSUMERISM DEFINITION & SCOPE Consumerism was thought of as a consumer movement first in mid 1960s. It was considered as another ism like socialism and communism threatening capitalism. In simple words, consumerism is a protest of consumers against unfair business practices and business injustices. It is in fact a social force designed to protect consumer interests in the market place by organizing consumer pressure on business. Peter Drucker defines consumerism as follows:
Consumerism means that the consumer looks upon the manufacturer as somebody who is interested but who really does not know what the consumers realities are. He regards the manufacturer as somebody who has not made the effort to find out, who does not understand the world which the consumer likes, and who expects the consumer to be able to make distinctions which the consumer is neither willing nor able to make. (Consumerism in Marketing a Speech to the National Association of Manufacturers, New York, April, 1969). According to Buskirk and Rothe, consumerism means the organized efforts of consumers seeking redress, restitution and remedy for the dissatisfaction they have accumulated in the acquisition of their standard of living. Kotler defines consumerism as an organized movement of citizens and government to strengthen the rights and power of the buyers in relation to sellers. G.S. Kamat says,
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consumerism is a process through which consumers seek redress for their dissatisfaction and frustration on the basis of organized efforts and activities. Consumerism according to former Senator Charles Percy is a broad public reaction against bureaucratic neglect and corporate disregard of the public. Some others have defined consumerism as policies and activities designed to protect consumer rights as they are involved in an exchange relationship with any type of organisation. Consumerism now-a-days includes many things within its compass. The term has come to mean many things to different people. The most common understanding of consumerism is in reference to protection of consumers privileges against clear-cut abuses by the seller. This includes cheating and other malpractices at the market place as well dangers to health and safety of life form various types of products. What is interesting is that consumerism is also considered to include protection of consumers against consumers. For example, smoking is prohibited in auditorium, trains and public buses to avoid nuisance to other persons from smokers. Now-a-days consumerism has become wide enough to include protection against environmental pollution and declining quality of physical environment. The people are greatly concerned maintenance of ecological balance and conservation of national resources.
22.3 NEED FOR CONSUMER PROTECTION In a country like India, there is a very great need for consumer protection for a variety of reasons. Some of the important ones may be highlighted here.
a) A majority of the population is illiterate, ignorant and ill informed. In a vast country like India, it is very difficult to organize the consumer. The people are not only backward but also have linguistic, cultural and religious difference which makes the problem still more intricate. b) The consumer is economically weak if compared with the producer or the seller. The producer is able to manipulate the price quality, size, weight, etc. of the product. He has to depend upon the trade practice of the seller. If the seller indulges in unfair trade practice, then the consumer needs protection against such malpractices. c) The advance of science and technology enables the manufacturers to produce myriad types of goods. There are varieties of same type of goods produced by different manufacturers. Though they provide a choice of selection to the buyer still they have made the goods more complex and complicated making selection difficult. In such a situation the consume needs guidance which can be provided by consumer organizations. d) Advertising is a potent device for sales promotion. But advertising to-day is highly deceptive. A consumer does not know the real qualities of the advertised goods. For example, he would not know how one processed butter is better than another processed butter. He feels confused and hence needs to be guided and protected.
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Thus to prevent ruthless exploitation, we need a forceful, well-organised consumerism of consumer movement coupled with Government support and patronage in the form of special legislation. Of course, legislation can protect consumers only when consumers themselves assert their rights and exert necessary pressure on the producers, dealers and the Government. Only then the prevailing malpractices like profiteering, black-marketing, hoarding, adulteration, short measures and weights, misleading advertisement, faulty packaging, mailorder frauds, etc. can be cured or reduced to the minimum.
22.4 CONSUMER MOVEMENT ABROAD AND IN INDIA Consumerism or consumer movement is a social movement. In the past, all movements, such as, Independence Movement, Civil Rights Movements, etc. were the results of social conflicts. So also consumer movement which is likely to be with us till the conflict facing the consumer is resolved. The social conflict, in the case is largely owing to rising prices, poor product, shortage, deceptive advertising, etc.
In USA greater education and affluence of the buyers, better communication, mass marketing and above all, the failure of business to implement the marketing concept resulted in consumerism raising its head in the 1960s. The Watchword for this new militant mood among the American consumers, according to Mrs. Virginia H. Knauer, special Assistant to the President for Consumer Affairs, was simply Let the seller beware, in comparison with the age-old caveat emptor i.e. Let the buyer beware. Governments desire to protect the consumers and help them to arrive at rational decisions in their selection resulted in excessive control and insistence on adequate communication to the consumer such as the advertising pack the statement indicating that smoking may cause cancer. Thus increasing education and sophistication led to rising public standards of business conduct and social responsibility through consumer unrest. This was augmented in 1966 by rising prices. The influential writings by John Kenneth Galbraith, Vance Packard and Rachel Carson accused big business of wasteful and manipulative prices. John Kennedys Presidential Message of 1962 declared that consumers had the right to safety, to be informed, to choose and to be heard. Congressional investigations of certain industries proved embarrassing and finally, Ralph Nader appeared on the scene to crystallize many of the issues. In course of time, many private consumer organizations have emerged and several pieces of consumer legislation have been passed In the West, consumerism has emerged after the countries concerned, reached a level of affluence which is the characteristic of what may be called the postindustrial society. There was adequate production and distribution of essential as well as luxury products. The objectives of consumerism under these circumstances were to seek more information about the merits of competing products and services and to represent the collective views of consumers in order to influence the producers.
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The movement by now has acquired an international character, with much strength in Scandinavia, France, Germany and Japan. It has also got underway in India. The consumer movement in India is in its infancy and is largely confined to metropolitan cities like Bombay, Ahmedabad, Hyderabad, etc. The shortages of essential consumer products and the inflation of early 1973-74 gave a fillip to the consumer movement. As regards the origin of the movement in India, it was in April 1966, that nine housewives and social workers got together and formed the Consumer Guidance Society of India (CGSI) to protect the consumers interest, To-day the CGSI has over 2,500 members and five branches at Hyderabad, Dandeli, Pune, Kottayam and Trichur. It is gratifying to note that over the years, CGSI has excelled itself in publicizing of tests conducted by it on various products edible and electric. There is also the Consumer Education and Research Centre(CERC) at Ahmedabad. Among other such organisation Voluntary Organisation in Interest of Consumer Education (VOICE), Indian Federation of Consumer Organisations (IFCO) and the Society for Civic Rights are the most notable ones.
22.5 THE PROBLEMS OF CONSUMER PROTECTION The idea that the consumer is the king in the market place has in reality been largely discarded and in its place the idea that he is a pawn in the hands of the business man is a major driving force of consumer movement. Some of the problems of consumerism are;
First, rising prices of goods have created in customers an attitude to expect better quality and if it is not forthcoming creates dissatisfaction among them. Further, inflation in recent times has made purchasing more difficult. Secondly, there is a large variety of products with increasing element of complexity because of new and changing technology. This naturally makes the consumer to expect a perfect product. In the third place, the spread of education, especially higher education and rising incomes have tended to intensify consumer movement. The language of advertising making exaggerated claims about the products creates an expectation of better products. There are three agencies for ensuring consumer protection Self-help., i.e. consumer organisation itself, Business, by self-regulation and by giving a fair deal to the resellers ad consumers, Government, having special Acts and implementing those laws strictly. The consumer interest in the market place is the focus, rather the heart of enlightened marketing mix. The business and consumerism both aim at the protection of consumer business through self-regulation and consumer through self-help. Consumerism invokes Government assistance when business misbehaves and fails to fulfill social responsibilities. The problem of consumer protection in the market can be seen from Fig.1 229
Statutory Regulation
Consumer Legislation
Consumer Protection in the Market Place
Business
Consumerism
Self-Regulation
Self-help
Fig. 1: Problem of Consumer Protection in the Market
It is rightly said that self-policing is far more effective and superior or advantageous than State-policing in the field of distribution. The business community must take appropriate steps to regulate its conduct and cultivate selfdiscipline and self-regulation in the larger national interests. Enduring and positive improvements in business practices can be brought about by the businessmen themselves and these changes should be based on the inner will or desire rather than from external force or discipline. More and more companies are now creating a consumer affairs department in charge of consumer adviser directly responsible to the head of the organisation. The department deals with the consumer problems. It also contributes to the development of corporate social objectives, programmes to implement or carry out these objectives and measures to evaluate the programmes. It can also publish instructional booklets on the use and care of the company products. Further, it can provide consumer education.
22.6 CONSUMER PROTECTION THE LEGAL FRAME WORK In order to protect the consumer interest Government in the recent past have enacted several statutory legislations (Exhibit1). These legislations are related to standardization, grading, packaging and branding, food adulteration, weight and measure, false advertisement, boarding, profiteering, unfair trade practices, etc. In fact, to cover-u the consumers problems, the Government passed a comprehensive legislation i.e. Consumer Protection Act, 1986.
1. The 2. The 3. The 4. The The
Exhibit 1 Sale of Goods Acts, 1930 Agricultural Produce (Grading and Marking) Act, 1937 Drugs Act, 1940 Drugs and Cosmetic Act, 1946. Drugs Control Act, 1950
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5. The Prevention of Food Adulteration Act, 1954 6. The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954 7. The Drugs Control Act, 1954 8. The Essential Commodities Act, 1955 9. The Standard Weights and Measures Act, 1956 10. The Display of Prices Order, 1963 11. The Monopolies and Restrictive Trade Practices Act, 1969 12. The Patent Act, 1970 13. The Cigarette (Regulation of Production, Supply and Distribution) Act, 1975 14. The Packaged Commodities Order, 1975 15. The Standards of Weights and Measures Act, 1976. The MRTP (Amendment) Act. 1984 16. The Environment (Protection) Act, 1986 17. The Consumer Protection Act, 1986 18. The Monopolies and Restrictive Trade Practices (Recognition of Consumer Association) Rules, 1987 Salient Features of Major Legislations The Prevention of Food Adulteration Act, 1954: This is a consumer-oriented legislation designed to protect the health of the public by prohibiting adulteration of food. An adulterated food article is one is injurious to public health. In the area of marketing the provisions of this Act influence the product and advertising decision of companies manufacturing food products. According to this Act manufacturing to sell, storing, selling, or distributed of adulterated and misbranded food article is considered to be in injurious to public health. It is deemed injurious when The product quality is not as demanded or claimed. It contains an injurious substance. Its quality or purity falls below the prescribed standards. A food product is misbranded when It is a deceptive imitation of or resembles an existing product. It is falsely stated to be a product of another place or country. It makes false claims. Its package contains false or misleading information about its contents. The Act provides elaborate rules about the quality of different food articles and imposes both civil and criminal liabilities for violation of its provisions. The Essential Commodities Act, 1955: It is one of the major consumer-oriented legislations of the country whose object is to control in the interest of the general public, the production, supply and distribution of trade and commerce in certain commodities declared essential. The Act defines essential commodities and lists a large number of products included under it. Whenever a company markets these commodities, the provisions of this Act apply to it and influence its product, distribution, and pricing decisions.
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In 1974, the Act was amended with provision against hoarders, blackmarketers and profiteers. It is made compulsory to display the prices of essential commodities. The Act imposes both civil and criminal liability on the person for the contravention of the orders made under it. The Trade and Merchandise Markets Act, 1958: It is also an important commercial legislation which influences companys products and advertising decision particularly with regard to the use of trade and merchandise marks registered under this Act. The registration of trade-mark under this Act endows on its owner the right to its exclusive use and provides legal protection against infringement of his right on the person(s) infringing the rights of trademark the owner invites prosecution. The Drugs and Magic Remedies (Objectionable Advertisement) Act, 1954: It is an equally important piece of consumer-oriented legislation the provisions of which influence the advertising decisions of companies marketing drugs for certain ailments specified in it. It aims to prevent advertisement tending to cause and ignorant and unwary consumer to resort to self-medication with harmful drugs and appliances. The Act prohibits advertisements making false claims for the drug. According to this Act advertisements are prohibited in respect of certain drugs marketed for the treatment of certain diseases and disorders like prevention of conception, sexual importance, epilepsy, fits, etc. and others given in the schedule. As other consumer-oriented legislations, this Act also imposes both civil and criminal liabilities for the contravention of its provisions. The Consumer Protection Act, 1986: This Act is the latest development in safeguarding the economic rights of citizens as consumers. It is based on the principle of self-help i.e. a citizen must help himself to protect his rights as a consumer. This is a welcome legislation and redefines the legal relations between consumers of goods and services and their manufacturers or sellers. The month of December 1986 can legitimately be considered as the Parliaments session for consumer protection when marathon race of legislative activity was undertaken to protect the interests of consumers. The most important features of the Act, which is certainly an improvement over other consumer protection legislations, are that it is applicable even to public sector enterprise, financial institutions and co-operative societies. Secondly, the Act applies to all types of goods and services and it extends to Government services like railway, postal, telephone, telegram, radio, doordarshan, electricity, banks, insurance, etc. Thus the scope of this piece of legislation is much broader compared to the earlier ones. The Act establishes two councils viz. the Central Consumer Protection Council and the State Consumer Protection Councils comprising official and non-official members to provide a platform for discussing consumer problems and to advise the concerned Central or State Government on policies and programmes to safeguard consumers interest. They have an advisory role to promote and protect the rights of consumers which interalia consists of (a) the right to be informed about the quality, 232
quantity, potency, purity, standard and price of goods, (b) right to be assured access to a variety of goods at competitive prices; (c) right to be heard at appropriate forums; (d) right to seek redressal against unfair trade practices; and (e) right to consumer education. The Act provides for the establishment of adjudicator bodies at three different levels district, state and national. At the bottom, there is the consumer disputes redressal forum (district forum) in each district to be established by the state government with prior approval of the Central Government. The orders of the district forum and state and national commissions are enforceable by them in the same manner as a decree or order of a court; in case of their failure to enforce the order, the same may be sent to the court of competent jurisdiction for enforcement. An order of the national commission, in exercise of its original jurisdiction, is appealable to the Supreme Court within 30 days of its passing. The whole objective of the Consumer Protection Act is to speedily redress the grievances of the consumer and not through long drawn legal practices. The Redressal Forum may give orders for removal of defects from goods, replacement of the goods, refund of the price, award of compensation for injury suffered. The redressal machinery under the Consumer Protection Act, 1986 has been set in Bihar, Delhi, U.P., Rajasthan, A.P., Orissa, Pondicherry, etc. As said earlier it is a welcome legislation. However, the Act seems to have been enacted in a great hurry. Perhaps because of this, some significant aspects could not be covered. For example, there is no provision for giving interim relief or issuing interim injunction which may be necessary in some cases. Again, a large number of administrative and quasi-judicial bodies have been established under a large number of consumer protection legislation s to exercise powers in many areas which would also fall within the purview of he present Act. Efforts should be made to harmonise the functioning of all these courts and authorities so that one does not hinder the functioning of the other so as to harm the consume instead of protecting them The Act acknowledges only six rights of the consumers as pointed out a little earlier. It completely ignores the right of consumes to a healthy environment. This is very important in case of pollution control: hence, the right of healthy environment must be included for better environment. Whatever may be the lacunae in the Act, it is expected to ensure consumerism in the country, of course, with the support of the Government and the consumers organisations.
22.7 NEW ANENUES OF CONSUMER ORIENTED MARKETING Since a majority of the consumer problems (packaging, product testing and pricing, promotion and advertising policies, distribution policies and so on) directly involve marketing policies and practices, marketing is the one management area in which the question will often be raised Is it good for the consumer? - the basic philosophy for all future consumer relations. An marketing decisions must now centre round the question How will they affect the consumer?
Marketing deserves special study because of its very objective of reaching and selling the consumer. It is time for business to discard the traditional massmarketing concept of consumer and adopt in its place the new concept of consumer
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relations. Instead of viewing the consumer solely as sales prospect, it Is now necessary for business to take a broader, more wider look at the consumer to assess the full range of his genuine diverse needs and desires. Short-run sales and profits should be given secondary importance in such a consumer relations concept of the public. This is the demand of consumer movement today. In such are)s as market research, media planning, advertising appeals, brand promotion, selection of distribution channel, etc., management policies and decisions must see that consumer interests are duly protected. The nature and objectives of marketing management will have become vastly more consumeroriented and much less product and / or corporation-oriented for the maximum long-range benefits of the corporation itself. The future will call for far more effort in creating a reverse communications flow, carrying consumer (public) attitudes and opinions back to the corporation. Two-way communications are necessary for better flow of understanding between the corporation and the consumers. Management decision must be based on consumer viewpoint which is possible if we have two-way allow of communications in a balanced form. Consumer research, shareholder research, consumer- interest committees, consumer relations (for services) sections are some of the new avenues to consumer-oriented marketing management.
Consumer Research: It will provide grass-root report on consumer problems and complaints. Has the business ever gone directly to the consumer in such a manner? Individual companies might work with consumer-interest organisations such as Consumer unions, Fair Trade Practices Associations, Women's Organisations. Shareholder Research: Every public company has a ready-made, built-in consumer audience which could supply many answers about consumer wants and needs the company's shareholders. How many companies have taken advantage of this audience? Consumer-Interest Committees: Organised along product lines, such companywide groups would consist of representatives of the operating sections (advertising, sales, legal, public relations, and so on) whose work and responsibi1ities most closely affect consumer interest areas. At such meetings each specialist would contribute his particular knowledge and talents in order to market a product which substantially meets current consumer needs and demands.
22.8 SUMMARY Consumer is said to be the king in the market place. Unfortunately, the Indian consumer suffers from various dishonest practices of the traders and marketers. Poverty, illiteracy and lack of awareness necessitate for his protection. What is needed at present is a forceful, well-organised consumer movement coupled with Government support and patronage in the form of special legislation. The movement in India is in its infancy.
There are three agencies for ensuring consumer protection viz. Self- help by consumer organisations themselves, self-regulation by business and the 234
Government. In order to protect the consumer interest, the Government has enacted a number of legislations. All these legislations govern standardisation, grading, packaging and branding, and to regulate food adulteration, weights and measures, unfair trade practices, etc. In 1986 the Government has passed a comprehensive legislation viz., Consumer Protection Act. This is the latest Act meant to safeguard the economic rights of citizens as consumers. The principal feature of the Act is that it is an improvement over the earlier consumer legislations. It is applicable even to public sector enterprises, financial institutions and co-operative societies. Secondly, the Act extends to Government services like railways, postal, telephone, telegram, radio, electricity, insurance, etc. The Act establishes two councils viz. The Central Consumer Protection Council and the State Consumer Protection Councils comprising official and non-official members to provide a plat-form for discussing consumer problems and to advise the concerned Central or State Government on policies and programmes to safeguard consumers interest. The whole objective of the C.P. Act, 1986 is to speedily redress the grievances of the consumer.
22.9 KEY WORDS Consumerism, redressal.
Central Consumer
Protection
council, SCPC,
Consumer
22.10 ASSIGNMENT QUESTIONS 1. What do you mean by Consumerism? Examine its scope. 2. Define Consumerism. Do you feel a need for consumer protection in India? Why? 3. Write notes on: a) The Essential Commodities Act. b) The Prevention of Food Adulteration Act. 4. a) Point out the rights guaranted under the Consumer Protection Act, 1986. b) Point out the salient features of C.P. Act, ,1986. 5. Describe the problems that you face ion the market place as a consumer and suggest how can you protect your interest? 22.11 REFERENCE 1. Gandhi, J.C. Marketing A Managerial Introduction, TMH, New Delhi, 1990, (Chapter 15). 2. Sahoo, S.C. & P.K. Sinha (Eds), Emerging Trends in Indian Marketing in the 1990s, Academic Foundation, New Delhi, 1991 (Chapter 4). 3. Sherlekar, S.A. Marketing Management Himalaya, New Delhi, 1993 (Chapter 10 & 11).
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LESSON 23
GOVERNMENT AND MARKETING

OBJECTIVES After studying this lesson you will be able to understand.
The need for government intervention in marketing. Important aspects of ISI and AGMARK. Salient features of public distribution of essential commodities. STRUCTURE 23.1 Introduction 23.2 Need for Government Intervention in Marketing. 23.3 Public distribution system 23.4 Summary 23.5 Keywords 23.6 Review questions 23.7 References 23.8 Assignment questions 23.1 INTRODUCTION India lives in villages and more than 75% of their population lives in villages. They are mostly poor and illiterate. They lack bargaining power. The Government has to play its role to protect their interest in the market place. Absence of collective unity among consumers, excessive presence of middleman, adulteration, inadequate storage facilities and so on are the major reasons, which warrant intervention of Government.
23.2 NEED FOR GOVERNMENT INTERVENTION Marketing decisions are influenced and shaped by a variety of organisational and environmental factors. This section attempts to study the role played by the state and law in relation to marketing in India. It describes the nature and causes of States intervention in marketing operation of companies and brings out the relevant features of major legislations currently in vogue and having an influence in the marketing decisions. The whole idea of this section is to highlight the roleplayed by law as a marketing decision input and to examine to what extent it can promote consumer movement by protecting the interest of the consumers.
The broad reasons for the influence of state on the marketing decisions of companies may be put under three categories, viz. Commitment to national economic priorities and development strategy. Concern for and sympathy with emerging consumerism, and The need for regulation of commercial relations amongst citizens of our country. The planned development of Indian economy envisaged lying down of economic priorities in the successive five-year plans. Priorities as laid down in these plans entailed development of heavy industry and manufacture of capital goods, development of public sector and regulation of manufacturing operations through a licensing mechanism. In order to pursue this development strategy, government to determine what is to be
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manufactured, how much is to be manufactured and who will manufacture. In fact, the power of these options is wide enough to shape business decisions. The influence of government of the marketing decisions may also be attributed to its concern for and sympathy with the emerging consumerism in India which has been discussed in the preceding section. Lastly, Individuals, though powerful, are incapable of forging enforceable commercial relationships unless there are laws to help them out. If the businessman earlier shown as the necessary foresight on their own account had taken with effective and organised steps to build up through voluntary regulation fair trade norms and practices into the everyday process of industry and trade and into the exchange relationship between traders and consumers, the need for enacting consumer legislations would not have arisen. But whats the real picture? Just reverse. Government being the representative of this citizen entrusted with thus task of governing the affairs of the country by legislation and enforcing relevant laws has enacted certain laws to protect the well being of the consumer and to safeguard them. A few are dealt with here.
ISI certification
The common has no means to determine the quality of products but to depend upon the assurances of manufactures. Increasing technical complexities of consumer goods makes it difficult for the consumers to know the detail of such goods. In order to protect the consumers against exploitation by trade and industry the government has taken a number of measures. The ISI mark certification scheme operated since 1947 by the Indian standards institution (ISI) established by the government of India aims to protect the consumers against impure, bogus and sub-standard products, commodities and processes. Industrials units producing goods conforming to the standards specified by the institution are licensed to use ISI mark of quality. BIS is the creature of parliament under bureau of Indian standards Act, 1986 which is another Act of considerable significance to the consumer movement .one of the major objectives of this Act was to make BIS another instrument of state to protect and promote consumer interest. ISI certification mark scheme confers certain benefits to consumers: 1. ISI-marked goods are subject to quality control. 2. ISI mark helps the consumers to choose a standard product. 3. Free replacement of ISI marked products in case they are found to be sub-standard quality. 4. Protection from the explosion and deception. 5. Assurance of safety against hazards to life and property. Main Activities of BIS: The bureau of Indian standards, the national standards body is looking after the consumers interest through its two major activities, namely, standards formulation and certification marketing.
Standards Formulation: BIS is entrusted with the task of formulation and promotion of standards in all sectors of economy. The product standards prescribes
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optimum levels of quality, safety and performance of relevant products and methods of their practical evaluation.
Certification Marketing: the BIS certification marks schemes, operated under the provision of the BIS Act 1986, and is basically a voluntary scheme wherein manufacturer are permitted to use the standard mark (ISI) on their product after ascertaining there conformity to the relevant Indian standards under a well defined scheme of testing and inspection. The presence of standard mark on product provides a third party guaranty to the common consumer about its quality .to provide greater trust to consumer protection and ensure better consumer satisfaction .the government of India has made BIS certification mandatory for term of mass consumption and those affecting the health and safety of consumers.
These two major activities of BIS- standardization and certification encompass all the elements essential for promoting the rights of the common consumer as enshrined in the consumer protection act, 1986. The BIS has prepared over 13,000 standards relating to products, process, test methods, code of practices etc., in variety of fields of fields ranging from agriculture and food products to electronics and communication. Since its inception the institute has given 6000 licenses covering 1000 products such as dairy products, food products, glassware, rubber products, plywood, steel products, cables, motor, fans, cooker, mixer, gas stove, refrigerator, vests and briefs, safety matches, cement, biscuits, etc.
BIS has established a full-fledged consumer affairs Department to ensure intensive interaction with and provide service to common consumers and their organisations. BIS is also publishing a special feature entitled Consumer News in the Standard India, a monthly journal of BIS. The feature contains write-ups on the contents or International standard of interest to the consumer and reports the activities of conferences, seminars and workshops of consumer importance. A reprint of Consumer News is being distributed to about 400 consumer organisations all over the country so as to achieve as large a readership among the consumer as possible. This feature is also carried in BIS, Hindi journal manakdoot.
To create awareness among consumers, regarding Indian Standards and the certification marks scheme, BIS is carrying out publicity advertisement in newspaper, radio, television, etc, to the extent possible. Popularization of certification Marks Scheme with the help of BIS licenses is also being carried out.
BIS participates in seminars, exhibitions and the other programs organised by consumer, associations and organisations like Directorate of Marketing and Inspection professional bodies like Institute of standards Engineer (SEI), National Institute for Reliability, etc.
Agmark Agmark has been derived from the words Agricultural Marketing. According to the Agricultural produce (Grading and Marketing) Act, 1937 the equality standards of agricultural-based and animal based produce are determined. Atta, honey, refined ground nut oil, mustard oil, Ghee, spices etc. have been given
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AGMARK. Prior to the conferment of AGMARK Certification the Directorate of Sales and Inspection enquires about the history and status of the organisation, popularity and experience, etc. While issuing AGMARK label the Directorate or the officials of State Government remain present. They collect samples and study their physical and chemical properties. They look-after the processing, packing, etc. Because of increasing use of AGMARK the exports of agricultural product are increasing year after year, as a mark of purity and standard quality. Many traders and manufactures now-a-days used to obtain AGMARK for their saleable produce. This mark implies that the produce/product is free from adulteration. The Directorate of Sales and Inspection, Government of India has set up 21 scientific Laboratories and 50 sub-centres all over the country. The Central Agmark Laboratory is located at Nagpur. If any complaint is received about substandard product, detail inquiry is taken into hand immediately. And if the consumer has any complaint about the product bearing AGMARK he can lodge the same with the nearest Government office or with the directorate of Sale and Inspection. We should remember that Cy or Bx is prefixed to the number of AGMARK on a product.
23.3 PUBLIC DISTRIBUTION SYSTEM PDS is concerned with marketing of food grains, sugar, kerosene, i.e. essential commodities. In each State, a Department of Civil Supplies exists in addition to a State Civil Supplies Corporation. Other agencies concerned with PDS are Food Corporation of India and Cooperative Sector. For effective distribution, Distribution, District Civil Supplies Office at the district level manned with Civil Supplies Officer, Inspectors and Supervisors operates. Essential commodities are being distributed through open market as well as controlled retail outlets. The Consumer Card Holders of different categories get their commodities like wheat, sugar etc. through these retail outlets.
But a number of problems are witnessed in effective functioning of the PDS. It is observed except in certain pockets of the country, the public distribution of food grains has failed to have any impact on rural hunger (Economic Times, 19 May, 1993). The subsidy paid to F.C.I. has been continually increasing. The Commission on Agricultural Costs and Prices (CACP) has repeatedly reported the failures of support operations. The cheap food grain policy has resulted in increasingly adverse term of trade for farmers, sharp decline in capital formation in the farm sector and reduced growth rate of food grain production. Again, so long as paddy is required to be converted into rice only by licensed rice mills, more than half of the cereal production remains shackled, because paddy accounts for nearly 60% of the cereal production in the country (Economic Times, 19 May, 1993). In the process, in case of paddy, the benefit of support prices, if any, accrues to the rice millers and not to farmers, because most of the rice is procured by the government from rice milling and not from farmers. There are better alternatives to our public distribution system of food grains. The genuinely poor deserve sympathy and help. The producer in India is suffering, not because consumers and the taxpayers (in the form of subsidy) are paying less, but because nearly half of what they are paying is being expropriated by middlemen official as well as no-official. However, the need for effective intervention by the state in times of scarcity cannot be minimized. Therefore, reduction in the cost of food grains distribution and effective interventionary powers in the hands of the
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government in times of need, are the two essential features. For better distribution of food grains of the following steps may be taken. 1. All sorts of controls should be withdrawn. 2. A chain of rural godowns with Warehousing facilities be established and at least one godown be located in a cluster of 10 to 12 villages. 3. It should be obligatory on the part of all stockiest who which to stock more than 15 tones of food grains, to do so only in specified godowns under the control of the Central Warehousing Corporation (CWC). 23.4 SUMMARY India is a poor country. About 70-75% of its population lives on agriculture. Per capita income is very low. To protect the interest of the people in a welfare state like it is vital for the Government to intervene in marketing especially in public distribution of essential commodities. For quality control the Government has passed the Bureau of Indian Standards Act, 1986 under which ISI Certification is conferred on quality products. ISI mark and AGMARK (for agricultural produce) testify quality. BIS is concerned with standards formulation, certification marking, and a host of other activities. The public distribution system for essential commodities has failed to deliver the results. In case of paddy, the benefit of support prices, if any, is accruing to the rice millers and not to farmers. Reduction in the cost of food grains distribution and effective interventionary powers in the hands of the Government in times of need shall go a long way to help and aid the poor. A chain of rural godowns with warehousing facilities be established for effective distribution.
23.5 KEYWORDS ISI, Agmark, PDS 23.6 REVIEW QUESTIONS 1. State the need for Government intervention in marketing in India. 2. What is ISI Certification mark? Who confers it and why? 3. Write short notes on a) AGMARK b) Activities of the BIS. 23.7 REFERENCES 1. Gandhi J.C. Marketing Management A Managerial Introduction, THM, New Delhi, 1990. 2. Ramaswamy, V.S. and Namakumari, Marketing Management Mcmillan, New Delhi, 1991. 3. Sahoo, S.C. & P.K. Sinha, Emerging Trends in Indian Marketing in the 90s, Academic Foundation, New Delhi, 1991. 23.8 ASSIGNMENT QUESTION 1. What is the importance of Public Distribution System? What major problems exist in the present system? What measures do you suggest for better implementation of the PDs?
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LESSO N 24
THE INDIAN MARKETING ENVIRONMENT

OBJECTIVES After studying this lesson you would be able to understand the following
The salient features of the marketing environment and Ethics in marketing STRUCTURE 24.1 Introduction 24.2 Marketing Environment 24.3 Ethics in Marketing 24.4 Summary 24.5 Keywords 24.6 Revision Points 24.7 Review questions 24.8 References 24.9 Assignment questions 24.10 Terminal exercise 24.1 INTRODUCTION Environment comprises two aspects viz., internal and external. External environment is influenced by uncontrollable forces, viz., demography, economic, political, legal, technological, demand, and competitive scenario. A customeroriented organization has twin objectives - economic performance i.e. profitability and social performance i.e. satisfaction of all interested parties, such as customer, citizen, employees and the government with this background let us examine the marketing environment prevailing in India and also the changes that are likely to take place in the next few years.
24.2 MARKETING ENVIRONMENT Demographics India is the Worlds second largest customer base and adding to the population, majority of them are in the age bracket of 25-50, the spending years, this bracket has a maximum discretionary income and hence the target of all produces creation in nuclear family is changing the spending habits and its adding to the spending. Multi-income households are increasing. The population is looking upward and is better educated, better informed and quality conscious. The mobility toward urban area has been trend. The Nagars are becoming Mahanagars (like Colus becoming Mahacolos). A middle class with an enhanced purchasing power might be through different easy purchase schemes and support from the banks is growing in its size. This is the segment marketers are vying for.
Traditionally, India is a rural-based country. About 75% of the population lives in villages. They account for only 35% of the total spending. The change in media scene has changed their spending and producers are looking form ward them their ideal consumption basket is changing. They are no more as inclined to buy land 241
and gold as they two-wheelers, etc. With better facilities through Green and White Revolutions and now with the new economic policy of the Government to channelise 50% investment into rural areas the number of developing and urban analogous villages will rises rapidly and there is going to be an insurage of their purchasing power.
Psychographics The change to nuclear family has led to democratic purchase decisions with housewife exerting greater influence. The importance of working women is leading to a more prosperous and hedonist like style (Sahoo and Sinha, Emerging Trends in Indian Marketing in the 90s Academic Foundation, New Delhi, 1991, p.31). The increasing literacy rate and exposure to the World around have given the population a multi-culture orientation. The household is now made of electronic gadgets that were once dreams in Indian homes.
The middle class is a typical phenomenon. Its life style has been changed by the convenient payment alternative and increased discretionary income that help realize its dreams. The fact that even the entrepreneurs are young and dynamic has changed the industry scene and the market is proliferated with product, which have takers. The children want ice creams and chocolates and that too only Kwality and Cadburys. Such discretion was never seen before. The child is tending to be the influencer, if not the decider. Even the villages are affected by the process of change. Hero Honda and ONIDA have become household names. The population is no more homogenous. Every individual is being treated as a segment. The benefit segmentation will give way to occasion segmentation, as seen in ready made garments being offered as casual or formal wear.
Products The liberalization of the Indian economy with regard to technology transfer gave an impetus to the Worlds best technology flowing into the country. One of the main reasons for the change in the life style of the Indian population is the proliferation of products generated by the technology inflow. Indian products are in on way less those available outside. In fact, the outflow of such products is increasing day by day.
An upsurge is seen in the consumer products markets i.e. durables and consumables/non-durables. The market that was characterised by a handful of brands and one main brand is a scene of the post. Electronic gadgets have become a part of our life. Personal transport is a necessity. Dependence on public transport will increase due to the distance between work place and home, but a private transport is a necessity. Cycle will still be the maximum selling vehicle. The number of two wheelers and car owners will also increase. On the organisational front, the office automation drive will be faster and surer. A major shift in the product policies has been the emergence of services as a separate, and perhaps a major sector. The technological advancement has given the customers better quality products, but, in the process, the products have become complex in nature requiring expert knowledge to maintain and repair.
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The strategy is moving from Product Posting to Brand Positioning. The brand image is gaining primacy. Family brand is not likely to be popular but each brand will have a shelter of a Corporate Image. Due to the fast spread of technology the distinctiveness of the product will be short-lived. How ever, the products which are meant for prestige only will be on the rise as the market for the riches is growing.
Role of price The Indian market is experiencing a peculiar phenomenon now-a-days. The consumer durables have good image when priced higher, as in the case of TVs. on the other hand. PCs marketers are cutting prices like anything and if the response to the price cut by electronic corporation is any indication of the things come. PCs are going to be still cheaper. These are clear indication that price is no longer a cost-related decision .the companies which look to price as a cost-related determination well have to change to the non-related factors. Comparatively the new products are expected to be offered at much less price than to-day. Distribution Distribution calls for making available the product in every corner of the market this is especially true with low involvement products (lips). Where there is a lot of impulse buying .customers are more likely to go for conveniently available brands .in such a situation. Distribution plays a vital role.
The retail marketing scenario is changing it is no more a dull exercise .the shops are no having good get ups .the salesmen are becoming professional. The personal service shops will make way for the departmental stores where consumers will find it convenient and feel more free to look, pick and choose. They will be selling at a premium, customized and specialty product only one can observe a whole lot of addition to the service rendered at the retail outlets, viz., credit cards, home deliveries, asserted services etc. The dealer motivation will take a turn towards non-monetary incentive. Commission will stay as important as it is, but services like shop displays, contests, awards, co-operative advertising will form more important parts of motivation. The younger generation is taking over the business at the retail/wholesale outlets. They are dynamic, professional and highly forward looking. The marketing principles, which are restricted to the corporate level, will also come down to retailers. The trend shows an increase in the retailers advertisements of the product than it was a decade ago. This will be on the rise. In short, retail outlet will be another profit centre of the company and the concept of vertical marketing system (VSM) will catch on. What is seen is that the manufacturer has started to make the middlemen a partner in its marketing efforts.
Promotion The 1980s have been regarded by many as a watershed decade .They saw the beginning of the positioning Era, comparative advertising, political advertising, the growing importance of shelf space at retail outlets, the importance of rural markets and the beginning of Direct Marketing. The nineties now see the crystallization of many of these changes and the beginnings of new trends.
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Comparative advertising is the natural manifestation of a highly competitive environment. It has become a recent phenomenon in India. The first real comparative advertising in india was released more than a decade ago by Nutramul when it compared prices of competing brands. That was an isolated case then. Today, the cases of HCL copiers Vs. Modi Xerox, TVS Suzuki Vs. Hero Honda, Nirma Vs. Surf, Nirma Vs. Rin, and BPL Vs. Videocon are clear indications that comparative advertising is here to stay. One of the most important objectives of any Marketing Manager during the recent years was the procurement of a spot on the retailers shelf so that the consumer can see if easily and getting the retailer to push it just in case the consumer dose not spot it. Thus, incentives and margins for retailers and dealers become an important variable to be tackled. Thus dealer display contests, aggressive merchandising and efficient retailing have become the fulcrum around which marketing plans revolve. This is going to be more basic in the year to come. Companies like HLL P & G, Nestle, etc. go for regular booking, whereas a few Godrej, etc. use the space only in the case of a launch or when there has been an unforeseen change in sales. The ratesof the display depend on the location of the shop, the place of display in the shop and the size of the display. It is observed that roughly 40% of the consumers buy on impulse. This phenomenon can be strategically exploied through point-of-purchase (POP) displays. POP promotion consists of three major tasks viz, Preparing the display materials, like tangles, danglers, stickers, etc. Retailer motivation through citation, cash incentives,etc. Asquiring shelf space for the companys products. Budget outlays in various media and sales promotion in particular have shown increases. The advertisers no longer blindly pump in major protions of their advertising budget into television. In the rural areas, hoardings and wall paintings will continue to be the leading media, TV exhibitions and fairs are acquiring more popularity in rural areas. Of course, these have already become a common scene in urban areas particularly for industrial and household goods. Industrial advertising is becoming more corporate Image Building through social and ecological concerns shown by the companies. The Hindustani Advertisements (Vernaculars written in English) is now-a-days proving effective (Binnines, Co-Cool, Vicks, etc.)
24.3 ETHICS IN MARKETUNG Modern business is regarded as an integral component of society. Today society is expecting much more from business than in the past. It demands what is quality of life management.
In addition to economic performance, modern business must demonstrate social awareness or sensitivity and social performance. Ethics in marketing means an objective concern for the consumers or users of products and services i.e. for the welfare of society that prevent or limits individuals and corporate behavior from 244
unethical practices, such as unfair trade practices, restrictive trade practices, pollution of environment and so on. Following the principle of societal marketing, an enlightened company makes marketing decisions by considering consumers wants the companys requirements consumers long-run interest, and society long-run interest. Alert companies view societal problems as opportunities modern management is faced by critical public, challenging customers, powerful labour, exacting shareholders; hence modern business to demonstrate not only economic efficiency but also consumer Sensitivity and social awareness.
Criticism against marketing Many types of criticism have been leveled against marketing. These are in general in relation to inefficiencies or unethical marketing practices. It is alleged that marketing misallocates scarce economic resources. In an economy of scarcity like that of ours, this assumes special significance. The production of lakhs of cars, TVs, two-wheelers, refrigerators music system and only hundreds of new class rooms, a few public hospital, a few road and such other socially desirable goods and services can be noting but a serious misallocation.
Secondly, marketing also involves too much competitive promotion. For example, if HLL spends lakhs of rupees in promoting its soaps and detergents TATA spends more than HLLS investment in promotion to promoting its brands .in the process the prices charged for both the rival brands would have to be higher than necessary. As a result the consumer purchasing power is diverted from more worthwhile expenditure. In the third place marketing is also considered wasteful. it is felt that there are too many middlemen especially in retail trade. Again, marketing is said to create too much materialistic and artificial values. Most consumer wants are acquired or imposed. Advertising and sales promotion encourages consumers to place too much emphasis on the satisfaction of material wants and to substitute material values for moral values. Fraudulent and deceptive means to promotion exploit innocent consumers and always create after-sale doubts and frustration.
Principles of Public policy towards marketing
Marketing executives of the 1990s and beyond 2000 AD will face many challenges. Companies that are able to create new values and practice socially responsible marketing will have a world to conquer (Kotlet, P. 642). Each company has to develop corporate marketing ethics policies broad guidelines that every one in the organization must follow. These polices should cover distributor relations, advertising standards, customer service, pricing, product development and general ethical standards. But the question is what principle should guide companies and marketing managers on issue of ethics and social responsibility? One philosophy is that such issues are decided by the free market and legal system. Under this principle, companies and their managers are not responsible for
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making moral judgments. Companies can in good conscience do whatever the system allows. A second philosophy puts responsibility not on the system but in the hands of individual companies and managers. This means that a company should have a social conscience. Companies and marketing managers should apply high standards of ethics and morality when making corporate decisions. Each company must workout a philosophy of socially responsible and ethical behaviour. It should adopt its own code of ethics. A model is portrayed below in Exhibit-1.
The General Dynamics ethics program is considered the most comprehensive in the industry. And little wonder it was put together as general from the Pentagon looked on. The program came about after charged that the company had deliberately over billed the government on defense contracts. Now at General Dynamics, a committee of board members reviews its ethics policies, and a corporate ethics director and steering group execute the program. The company has set up hot lines that let any employee get instant advice on job-related ethical issues and has given each employee a wallet card listing a toll-free number to report suspected wrongdoing. Nearly all employees have attended workshops; those for sales people cover such topics as expense accounts and supplier relations. The company also has a 20 page code of ethics that tells employees in detail how to conduct themselves. Here are some examples of rules for sales people: If it becomes clear that the company must engage in unethical or illegal activity to win a contract, it will not pursue that business further. To prevent hidden interpretations or understandings, all information provided relating to products and services should be clear and concise. Receiving or soliciting gifts, entertainment, or anything else of value is prohibited. In countries where common practices, indicate acceptance of conduct lower than that to which General Dynamics aspires, sales people will follow the companys standards. Under no circumstances may an employee offer or give anything to customers or their representatives in an effort to influence them.
Source:
Exhibit1: The General Dynamics Ethics Program Kotler, Philip, and G. Armstrong Principle of Marketing , PHI, New Delhi, 1992, p.643.
A number of principles that might guide the formulation of public policy toward marketing may be adopted. The important ones may be enumerated in brief. 1. The Principle of Consumer and Procedure Freedom As far as practicable marketing, decisions should be made by consumers and producers under freedom. Marketing freedom is essential to enable the marketing system to deliver a high standard of living. Freedom for producers and consumers is the foundation of a dynamic marketing programme. This leads to greater fulfillment through a closer matching of products to desires. 2. The Principle of Meeting Basic Needs Marketing should serve both affluent as well as disadvantaged ones. Certain people may lack purchasing power and may to without needed goods and services, which ultimately cause harm to their physical and psychological well-being. Hence, 246
it should endeavour to meet the basic needs of all people and all people should share to some extent in the standard of living it creates. 3. The principle of Economic Efficiency Marketing must strive to supply goods and services efficiently and at low prices. The other principles of public policy which go to shape marketing ethics are (a) the principle of innovation, (b) the principle of consumer education and information and the principle of consumer protection.
24.4 SUMMARY Over 3/4th of the countrys population are in their spending years and the emergence of nuclear family has changed the spending habits. The customerpopulation is becoming educated, better informed and quality conscious. They will have greater purchasing power. The Indian market witnesses the proliferation of products service sector is emerging as a major sector. Product positioning is taking a backseat. Brand positioning is coming up. A whole lot of addition to the services at the retail outlets such as Credit Cards, Home Deliveries, etc. has become common. POP displays and personalized marketing are being emphasized. Shop displays, contests, cooperative advertisements etc. are forming an important part of dealer promotion. In rural areas, hoardings and wall paintings are becoming a leading media. Exhibitions and fairs are common in urban areas for promoting the products. Marketing is expected to become more consumer-based with an added social concern.
It is alleged that marketing misallocates resources. It involves too much of competitive promotion. The marketers at times forget their social responsibilities. Promotional efforts often are offensive, misleading and untruthful. It is high time that the companies and marketers must follow a code of ethics guided by certain principles of public policy.
24.5 KEY WORDS Impact of price, Psychographics 24.6 REVISION POINTS Marketing environment 24.7 REVIEW QUESTIONS 1. Examine the recent changes in the Indian Marketing environment. 2. a) What changes do you observe in the demographics and psychographics of the India Consumers? b) Distinguish between Product Positioning and Brand Positioning. 3. a) What changes do you witness in the Indian Market so far as products are concerned? b)Write a note on the promotional scenario in the Indian Market.
4. What is ethics in Marketing? What criticisms are leveled against it? 5. State the important principles of public policy in relation to marketing.
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24.8 REFERENCES 1. Kotler, P & Gary Armstrong, Principles of Marketing, PHI, New Delhi, 1992. 2. Mishra M.N. Sales Promotion and Advertising Management, Himalaya, New Delhi, 1994. 3. Sharlekar S.A. Marketing Management, Himalaya, New Delhi, 1993. 24.9 ASSIGNMENT QUESTIONS What factors would influence the willingness and ability of consumers to buy each of the following products
a) Mobile phone b) DVD player c) Air cooler

24.10 TERMINAL EXERCISE If you were the marketer for a new brand of cooldrink to be introduced in India. What information on competition will you collect and how will you go about searching for this information?
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Marketing Management MBA -10 1 - 24

MASTER OF BUSINESS ADMINSTRATION

Professor and Head Dept. of Bank management Alagappa University Karaikudi

Professor and Head Dept. of Business Administration Utkal University Bhubaneswar

MARKETING: DEFINITION AND IMPORTANCE

To know the Distinction between Market & Marketing Importance of marketing

2.3 2.4 2.5 2.6 2.7 2.8 2.9

2.10 Assignment questions

MARKETING MANAGEMENT TASKS

VII Overfull demand VIII Unwholesome demand

2. Elucidate the various tasks of marketing with examples.

Economic environment, Social and cultural

5.10 REVIEW QUESTIONS 1. How would you formulate a marketing strategy?

2. Explain the different kinds of marketing strategies.

MARKETING MANAGEMENT FUNDAMENTALS OF MARKETING STRATEGIC MARKETING BASIC MARKETING

Philip kotler V.S.Ramaswamy and S. Namakumari William J. Stanton A. Robertson Mc Carthy

MARKET SEGMENTATION, MARKET TARGETING AND PRODUCT POSITIONING

4. Size: The segment must be reasonably large enough to be a profitable

BUYER (CONSUMER) BEHAVIOUR

Interpersonal (a) Authority (b) Status (c) Empathy (d) Persuasiveness

(This year' s Sales )2

PRODUCT LIFE CYCLE

PRODUCT PLANNING AND DEVELOPMENT

NEW PRODUCT DEVELOPMENT

(a) (b) (c) (d) (e) (f) (g)

PRODUCT RELATED STRATEGIES: BRANDING

Ex: Dettol, Fiat, and Ponds

Ex: Bajaj Chetak, Tata Indigo

Ex: Bru-Cadbury McDonalds Coca-Cola

Ex: HLLs Surf, Wheel

Ex: P & G has 12 brands of detergents

Ex : GlaxoSmithKline withdrew its Aquafresh tooth paste brand.

Ex: Ambassador, Burnol. .

PRODUCT RELATED STRATEGIES: PACKAGING AND LABELLING

Uniform delivery pricing policy. Zone pricing

Skimming pricing Penetration pricing

Cost-plus pricing method Marginal or Incremental cost Break-even Pricing Method

When the mark-up is based on selling price the formula adopted is :

Markup % based on sale price =

500 400 300 200 100 0

Fig. 1: Elements in the Communication Process

Some common promotional tools have been presented in figure-2.

Couponing 1. Free samples 2. Rebates 3. Premium and gifts

Publicity Nonpersonal Indirect Inflexible Indirect

Moderate to high None 2 2 4 4

HIGHER PRICE FOR SAME SALES

Fig. 4: Influence of Promotion on Demand

Push Strategy Marketig activities Demand Demand

Pull Strategy Marketing activities Fig.6 : Push Versus Pull Strategy

Contests Buyer allowance Push strategy

Premium and sweepstakes. Advertising and sales promotion.

1. Mutual funds 2. Four wheeler 3. Water purifier 4. Cellular phones

Known Informative Realistic Persuasive Useful Effective

Unknown Uninformative Unrealistic Not persuasive Useless Ineffective

2. BPL advertising has applied to people who have accepted it.

Advertising reinforces the middlemens promotional efforts

(b) (c) (d) (e) (f)

Sticker Advertising, Folders, Sandwichman, Vehicular advertising, Circular letters.

Direction Fig. 2. Sales Management Cycle

Dealer Servicing Salesmen

Counter or Indoor Salesmen

Travelling or Outdoor Salesmen

Fig.1 Classification of Salesmen

Identifying Profiles Leads Records Qualifying Capability Willingness