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“Marketing is the performance of business activities that direct the flow of goods and services from producer to users or consumers” Explain this statement in the light of importance of marketing. Marks 2. What are the factors that should always be considered while making pricing decision” Explain 5 Marks 3. “Channels of distribution used are different for different products” Discuss. What are the criteria’s that can be used for the evaluation of channel members? Illustrate your answer with appropriate examples. Marks 4. In our country, when managers were asked about the meaning of Marketing, 5 the policies and strategies for the same. 5

the majority of them said that the marketing is selling, advertising and public relations. In USA, when college administrators were asked this question 90 percent of them gave a similar replay. Although selling, advertising and public relations form the part of the marketing, it is important to understand that marketing is much more than selling or advertising.

According to American Marketing Association " marketing is the performance of business activities that direct the flow of goods and services from producer to consumer or user".

From this definition we can understand that marketing not only deals with selling but also include other activities that direct the flow of goods and services from producer to consumer.

Modern concept of marketing include a variety of activities. Suppose, if you want to start a business, you should have a product or service to offer. How

do you identify that product or service? You need to go to the market and find out the product or services which will satisfy the need or desire of human being. Once you identified the need or desire of a group of human being, you can decide the product or service which can satisfy that need or desire. All these activities starting from identifying the product to getting the feedback from the consumer comes under the scope of modern marketing.
5. Philip Kotler, a well known marketing author defines marketing as " a

human activity directed at satisfying needs and want through exchange process."The definition given by Kotler explains in detail the different aspects of marketing. All the marketing activities are based on the existence of human needs. Even though people may have endless needs and requirements, the ability to buy the products depend on his economic background. There are a variety of products available in the market. People select those goods which are more satisfying and needed more according to their purchasing power. The purchasing power very according to the class, area and economic background. This need and want converted in to demand for the products. To identify the demand of goods among different class of people according to their economic background comes under the scope of marketing. We can develop a process-oriented definition of Marketing from the above discussion as "the process of ascertaining consumer needs, converting them into products or services and moving the product or service to the final consumer or user to satisfy certain needs and wants of specific consumer segment or segments with emphasis on profitability, ensuring the optimum use of resources available to the organization."

6. Gone are the days of business functions like production, marketing, finance etc., were performed by different departments with their own style and way of thinking. Now the condition is changed that the production department will produce only that goods which is demanded by the customers. Earlier it was like produce goods first and then sell. Now it is like find out the demand and then produce. Finance, marketing and production department now work as a team to sustain in the market. In this scenario, marketing plays a vital role in the business function.

Marketing as a subject of study is now attracting attention from business firms, companies, institutions and even from countries. In history, its origin dates back to the days when the people realized that he should specialize only in the activity to which he was best suited and he found it to be his advantage to utilize the services of others when they could do things better than him. This specialization created the necessity of exchange and thus the foundation of business was started. After Industrial Revolution, there were changes in the techniques, methods and volume of production. Large scale production introduced the new methods of marketing to create demand for products and services. Marketing includes various activities which are involved in the generation of markets and the satisfaction of consumer needs. Marketing is not a single activity nor is it the sum of several activities. It is the result of a balanced interaction of several activities. In this unit we will explain the basic concept of marketing, its nature, scope, importance and the evolution of marketing concepts.

Market means buyers having unmet wants and purchasing power to make their demand effective with the will to spend their income to fulfill those wants. Basically. goods there e.g. This is a right approach to determine a target market. are physical two concepts or spot of market– market. (a) Place Concept: A convenient meeting place of buyers and sellers for exchange of (b) Demand Concept: A market is equated with the total demand.MEANING OF MARKET The term ‘Market’ refers to a place where goods are bought and sold by the buyers and sellers. MEANING AND DEFINATION OF MARKETING . market includes the whole of any region in which buyers and sellers are brought into contact with one another and by means of which the price of goods tend to be equalized easily and quickly. In wider sense. Demand concept of market assumes unique importance in the marketing concept.

it should be on payment basis. to create wants. Marketers produce various types of food such as Pulao.e. and Coffee etc. Thus. The process of marketing starts with the identification of needs and wants through market survey and converting them into products or services and distributing the same to ultimate consumers through buyer oriented channel with suitable sales promotion technique at logical price to make a reasonable profit. Sweets. For example. marketing creates place utility. But the modern concept of marketing states that marketing involves the production of the product acceptable to the customers and the activity which helps physical transfer and ownership from the producer to the ultimate consumers. anticipating and satisfying consumer’s needs and desires. Tea. time utility and possession utility. Tea or Coffee to satisfy their hunger needs. Sweets. the buyers have an opportunity to select out of the four alternatives –Pulao. Marketing is a human activity directed at satisfying needs and wants through exchange processes. The exchange process means the transfer or transaction of goods which cannot be made free of cost i.The traditional view of marketing states that marketing is mainly concerned with the physical and ownership transfer of goods and services from the producer to the ultimate consumers. A need is a state of felt deprivation. food is an essential to satisfy the hunger needs. Marketers create wants on the basis of needs. The modern view assumes that marketing means identifying. Here. Definition of Marketing . Creating wants means creating demand for a product by providing an opportunity for choice or selection.

modern views such Stanton as– The above definition given by Stanton appears to be more suitable as it covers at the place where such goods are needed. In fact. utilities” 2. The reason is obvious. This definition expresses the traditional views of marketing and it covers only few aspects of marketing. We shall describe a few definitions here to realize how dynamic the subject marketing is– 1.The term “marketing” has been defined by a number of scholars in a variety of ways. –Committee American Association. Time utility is created by making the goods available at the time when they are consumer possession oriented. “Marketing is the performance of business activities that direct the flow of goods and services of from the producer to consumer Marketing or user”. place . there are as many definitions as there are popular scholars in marketing. almost all the J. “Marketing is that part of economics which deals with the creation of time. promote and distribute want satisfying products and services to present and potential consumers” –W. It makes marketing production oriented rather than and –American Marketing Association Place utility is created by marketing the goods and services available to the consumer needed. Possession utility is created by transferring the goods to those who need them. This definition merely emphasizes one particular aspect i. The subject is even changing and at every stage of evolution new potentialities are recognized which result in a new definition.e. 3. “Marketing is a total system of interacting business activities designed to plan. movement of goods and services from producer to consumer.

. Harsen 5.(a) (b) It It views describes marketing marketing as as a total dynamic concept. –Harry L. (c) It covers all the activities ranging from product planning to distribution. and designs appropriate products. (e) It pays importance for satisfying consumer’s needs and wants. 1996). 4. services. IMPORTANCE OF MARKETING The success or failure of any organization. “Marketing is the business function that identifies customers’ needs and wants. and programmes to serve these markets” –(Kotler and Armstrong. As the economy progresses. determines which target markets the organisation can serve best. process. the importance of marketing also increases. (d) It indicates that marketing is the result of interaction of several activities. converting than into product and service and making things available to consumers in a manner that they can enjoy more and more. “Marketing is the process of discovering and translating consumer wants into product and service specifications and then in turn helping to make it possible for more and more consumers to enjoy more and more of these products and services”. This definition has also covered all the activities of marketing starting from identification of needs and wants of consumers. profit making or otherwise depends on marketing.

In our country. the demand and supply of certain new products and services start increasing and some of the existing products or services start losing their demands. (IV) It helps to provide economic stability: Good marketing system enables to maintain the price level stable by equalizing the demand and supply at various places and different period. (II) Marketing connects the producers and consumers: The producers produce goods and services for the purpose of selling. Lower price results in large consumption by large number of consumers which improves the standard of living at large. the producers should be in touch with the consumers who require such goods and services. the business establishment ranks second to agriculture sector in providing employment opportunities. Importance of marketing from society point of view: (I) Marketing improves standard of living: Marketing promotes large scale production and sales which bring down the cost of production and increase the amount of profit. wants and desires of the customers. it would have been extremely difficult for producer to find out what customer want. (V) It helps to utilize our natural resources: It is marketing which collects needs. Thousands of people are employed to manage the retail and wholesale establishments. The importance of marketing may be studied from both from the point of view of society and producer. In the absence of marketing process. In this ever changing situation marketers are forced to sell the product according to the needs. Therefore.With the progress of economy. . (III) It provides employment opportunities: Marketing results in large scale production which in turn creates a good number employment in the production process. This is possible by creating time and place utility.

tastes and preferences to the top managements. (b) The marketing organization provides a channel of communication between the firm and the consumers. . (c) It helps the producers to increase the volume of sales which forces large scale production and results more profit. From the above explanation you will be able to realize the importance of marketing in the economic development of a country. they are utilizing the national resources up to optimum level. the firms generate revenue by selling the goods and services with which the firms further produce and grow. Importance of marketing from producers/firms point of view: (a) Marketing creates awareness among potential consumers and motivates people to purchase the products and services to satisfy their needs and wants.wants desires. preferences etc. It is furnishing information about the consumers demands. of domestic consumers and international consumers and analyze the information to produce goods and services for better satisfaction of consumers. In this process. This process helps the firm to adjust its production schedule to suit the tastes of the consumers. In the process of producing various goods.

The need for food. a person will try to either reduce the need or look for a substitute object that has the ability to satisfy the need. But they can influence the wants and suggest and inform the consumers about certain products and persuade them to purchase these by stressing the benefits of such products. wants become demand. The individual needs include the need for knowledge and self expression. · WANTS Human wants are desires for specific satisfaction of deeper needs that means the needs become wants when they are directed to specific object that might satisfy the need.· NEEDS The core concept of marketing is to understand or feel the “human needs” that denotes the state of felt deprivation. Therefore they have to choose the products that are likely to provide the most value and satisfaction for their money. When the needs are not satisfied. But resources are limited in compare to the wants they have. demands are basically wants for specific . · DEMANDS People may have almost unlimited wants. Human needs may be few. Therefore being the marketers you need not go for inventing these needs. Rather you should try to understand it. When backed by purchasing power. These wants are continually shaped and re-shaped by social forces and institutions such as families. shelter and safety are the basic physical needs and the needs of belongingness and affection are the social needs. clothing. collogues. a teenage may need water to quench his thirst but want to have a cold drink. For example. The needs are inbuilt in human nature itself and thus naturally existed in the composition of human biology and human condition. Marketers need not to create needs because these needs pre-exist in the market. office neighbours etc. but their wants are numerous. Thus.

a product can be defined as an object. If you give a thought. many desire a car such as Mercedes Benz. fishing or gathering fruits. you will realise that the importance of a product does not lay not so much in owning them than to use them to satisfy our wants. Therefore it is the job of marketer to sell the service packages associated with the physical products. person.e buyer and seller. They could offer money. The hidden use of a physical objects may be to provide the service. hungry people can find food by hunting. BMW. Specifically. Kotler (1984) states that for exchange to take place. For example. For example. · PRODUCTS To satisfy the wants and needs of people the company must offer their products in the market. toothpaste for whiter teeth – prevent germs or give fresh breath etc. namely: . Toyota. it must satisfy five conditions. For example a lipstick is bought to supply service (beautify). That means people purchase the products to satisfy their needs and wants. So in the process of marketing there is exchange value between the two party’s i. we do not buy a bed just to admire it. another food or a service in return for food. service. For example. The value for buyer is to obtain the desired object to satisfy its needs and wants while the value for the seller is generally the profit or the money.products that are linked /associated with the ability and willingness to pay for these products. organisation or idea. Honda etc. Therefore being a marketing executive you must measure how many people would actually be willing and able to buy your company’s products than how many of them want the products. Marketing focuses on this last option. activity. but only a few are really willing and able to buy one. You can note here that the tangible items are known as product while the intangible items are known as service. place. but because it aids resting better. · EXCHANGE We have already got that marketing takes place only when people decide to satisfy needs and wants through exchange.

Definition and Meaning of Marketing According to American Marketing Association (1948) . Marketing is something that affects you even though you may not necessarily be conscious of it."Marketing is the .(i) (iii) (iv) There Each Each party party are is is capable free at of to least communication accept or two and the parties. From morning to night you are exposed to thousands of marketing messages everyday. everywhere you go you are being marketed to in one form or another. (ii) Each party has something that might be of value to the other party. Introduction In today's world of marketing. Marketing is with you each second of your walking life.what exactly the marketing is. delivery. After reading this you'll understand . different definitions of marketing. reject (v) Each party believes it is appropriate or desirable to deal with the other party. offer. and what are the different approaches of marketing.

selects target customers or constituents. and Storing. Marketing embraces all the business activities involved in getting goods and services . Identifying and selecting the type of customer. institution. from the hands of producers into the hands of final consumers. and 3. 3. The business steps through which goods progress on their way to final consumers is the concern of marketing."Marketing is the performance of business activities that direct the flow of goods and services from producer to consumer or user. understanding their needs and desires."Marketing is the delivery of a standard of living to . Consumer's Approach of Marketing According to Star et al." AMA (1960) . Persuading customers to buy at the firm's offerings. or organisation 1.performance of business activities directed toward. manages its resources to satisfy those customer needs or wants."Marketing is that process through which a business enterprise. moving. 2." Approach of Marketing Designing product or services that suits the customers' desires. and displaying goods after they leave the production According to Mazur (1947) . (1977) . 4." The above definitions are based on the economic approach of marketing. 2. the flow of goods and services from producer to consumer or user." The above definition is based on the consumer's approach of marketing. and incident to. According to this approach marketing consists of four general activities:1. site. Societal society. assesses the needs or wants of such target customers.

communicating and delivering value to customers and for managing relationships in a way that benefits both the organisation and the stakeholder. and freely exchanging products and services of value with others. offering."A societal process by which individuals and groups obtain what they need and want through creating. Efficient provision of distribution and payment processing systems. A Broader Approach of Marketing According to Kotler (2000) ."Marketing is the combination of activities designed to produce profit through ascertaining. 2. creating. Managerial or Systems Approach According to Eldridge (1970) ." According to AMA (2004) ." The above definition is based on the managerial or systems approach of marketing. and satisfying the needs and/or wants of a selected segment of the market. According to this approach the emphasis is on how the individual organisation processes marketing and develops the strategic dimensions of marketing activities. Efficiently and effectively managing the supply and demand of products and services. stimulating. .This definition is based on the societal approach of marketing. and 3."Marketing is an organisational function and set of processes for creating. According to Cunningham and Cunningham (1981) societal marketing performs three essential functions:1. Knowing and understanding the consumer's changing needs and wants.

Since the goal of marketing is to make the product or service widely known and recognized to the market. If you target more of their needs. marketers must be creative in their marketing activities. Marketing covers advertising. In this competitive nature of many businesses. If you push more on the product and disregard their wants and the benefits they can get. you will lose your customers in no time. Sales refer to the act of buying or the actual transaction of customers purchasing the product or service. It is the process of introducing and promoting the product or service into the market and encourages sales from the buying public. getting the product noticed is not that easy. MarketingPromotesProductAwarenessto the Public It has already been mentioned in the previous paragraph that getting the product or service recognized by the market is the primary goal of marketing. promotions. Strategically. and sales.Importance of Marketing Marketing is a very important aspect in business since it contributes greatly to the success of the organization. public relations. the buying public still has their personal preferences. The sad thing is that getting them back is the hardest part. unless you have already established a reputation in the . Production and distribution depend largely on marketing. they will come back again and again and even bring along recruits. Many people think that sales and marketing are basically the same. No business possibly ever thought of just letting the people find out about the business themselves. These two concepts are different in many aspects. Although good and quality products are also essential. the business must be centered on the customers more than the products.

But if you are a start-out company. A company must invest in marketing so as not to miss the opportunity of being discovered. MarketingHelpsBoostProductSales Apart from public awareness about a company’s products and services. the marketing department must be able to come up with effective and strategic marketing plans. If your company aims to increase the sales percentage and double the production. newspaper ads. Offline and online marketing make it possible for the people to be educated with the various products and services that they can take advantage of. and other forms of marketing. All forms of marketing promote product awareness to the market at large. there are cost-effective marketing techniques a company can embark on such as pay-per-click ads and blogging. This is a technique for the consumers to easily . MarketingBuildsCompanyReputation In order to conquer the general market. If expense is to be considered. The more people hear and see more of your advertisements. it will generate sales once the public learns about your product through TV advertisements. online ads. Your business may be spending on the advertising and promotional programs but the important thing is that product and company information is disseminated to the buying public. Whatever your business is selling. Various types of marketing approaches can be utilized by an organization. marketing helps boost sales and revenue growth. radio commercials.industry. the more they will be interested to buy. the only means to be made known is to advertise and promote. marketers aim to create a brand name recognition or product recall.

It educates people on the latest market trends. a business continues to grow and expand because more and more customers will purchase the products or take advantage of the services from a reputable company. your company is likely missing out on all of the other great things that can come from a solid marketing department. the company might just be wasting on expenses and time on a failed marketing approach. If you want a social media presence. helps boost a company’s sales and profit. McDonalds is known for its arch design which attracts people and identifies the image as McDonalds. In other words. if you want a press release. sales duties—and the responsibilities never seems to end.associate the brand name with the images. building a reputation to the public may take time but there are those who easily attract the people. public relations. With an established name in the industry. SEO marketing. creation of a brand/image. turn to marketing. logo. marketing is no longer just creating a nice commercial or well written newspaper ad. But marketers must be creative and wise enough to promote their products with the proper marketing tactics. or caption that they hear and see in the advertisements. If your marketing team thinks their job is nothing more than trying to sell a product or service. PPC marketing. Understanding the importance of marketing is crucial to the success of a business. Although marketing is important. . turn to marketing. and develops company reputation. For example. For some companies. Ads Marketing plays a very essential role in the success of a company. telemarketing. Marketing is an extremely complex department because it has to wear many hats—price fixing. if it is not conducted and researched well.

but for many that is the extent of it. but sell an entire company. The get right to the point: reputation does matter. and this does transfer over into the business world.” It is the job of the marketing department to not only to sell a product or service. Consider some of the things that make marketing so important. People want to be around a company with a good reputation and want to stay away from those “bad apples. but marketing is important when it comes to revenue. Marketing Brings in Revenue It may seem obvious.With all of the chaos that sometimes comes from the Internet. You know that it helps make you money. you’ve known someone who wasn’t looked upon very highly. and try to put this kind of pride into each and every campaign: Top 3 Reasons Your Company Should Understand the Importance of Marketing 1. 2. Reputation is generally formed for a company through social media. This is no easy task and often involves a high level of creativity and a knack for planning. and public appearances. you found yourself with a bad reputation? Even if you have had a great reputation you’re entire life. This is typically what people think about when they think “the importance of . it’s hard to miss the importance of marketing. customer reviews. for whatever reason. Marketing Shapes a Company Reputation Remember how important reputation was when you were in high school? And how horrible it was if.

Coming up with marketing campaigns is a way to bring awareness to a brand (slightly different than creating a reputation). nothing more will be needed to help bring in a sale. Although a sale is usually a combined effort.” but some still miss the reason this is so important. Marketing can. this isn’t always the case. Many see PR and sales as completely different aspects of business. and you cannot bring awareness to a brand when your competitors are using more advanced marketing techniques. the entire company will be stuck in the past. While it may seem that a marketing department puts the thought into a consumer’s head and then sales takes over. it is crucial that a company implements this tactic in order to remain on the scene. ready to be innovative and creative. no department is forced to deal with as much change as a marketing department. you deserve to have a sense of pride for what you do every day. . 3. make a sale all on its own. Marketing Keeps a Company Relevant While every department has its own responsibilities that are crucial to a company. your marketing team can take pride in knowing that they have the power and control to bring in some serious revenue for the company. If a new marketing tactic takes off. and often It’s easy to overlook the importance of marketing because it seems so straightforward. so whether you’re a company owner or someone working in marketing. but in the end they are all under the umbrella term “marketing. You have to always be at the top of your game. If marketing is done correctly and successfully.” This makes marketing extremely important for every company. If this department slacks.

The price now represents the cost to access the desired benefits. firms need a new approach to marketing. Firms who think smarter. but ensuring the experience matches up to it to retain and develop those relationships. What sets a £2 and £200 pair of jeans apart in the 21st Century is not the production costs. Interuption marketing is no longer productive. With this change has come a change in planning. in the belief that interest and sales would follow automatically. is not just in setting expectations to win customers. Relevance to the individual customer is now the key to generating interest. Firms need to make people aware of how they understand and can meet their requirements. . Marketing planning has switched from looking inwards to looking out – at what customers want and finding production and distribution methods that meet those wants. Consumers have become much better at filtering out messages they regard as not relevant to them individually. with an effective engagement marketing strategy can make budgets work much harder and stretch further. but the perceived value to the purchaser. Price and competitive edge is linked to desirability and not production costs and profitability is linked to maximising lifetime customer value not individual purchases. In today’s ultra competitive markets firms have to organise themselves around the needs of the customer. In a time of almost limitless choice and more standard production quality. People are happy to pay more if they believe they are getting more personal value. and takes account of the whole customer journey. Buying behaviour has changed from focusing on product features to personal value. not awareness. Choice has changed consumer behaviour. In the Consumer era we now find ourselves in. product features have been superceded by brand value as the key differentiator. motivate and satisfy . to help shape and meet the needs of today’s more demanding customers. The planning models based on the 4P’s was internally orientated. Even in the face of greater competition. If customers do not find the experience of using the product or service to their tastes they will switch to one of the other providers keen for their business – very quickly. It is why differentiation and customer value is at the heart of modern business planning and marketing has extended beyond adverts and brochures to include people and processes. the changes in the market have actually enabled those companies that have embraced the changes to become more profitable and more dominant. View details of the new model. To survive and thrive today firms need to recognise that the role of marketing. generating more customers and maximising customer lifetime value. Instead of making it harder for firms to prosper. have gone in a fog of choice.Marketing is no longer about how a firm takes a product to market. instead of bigger. One that goes beyond the initial purchase. to help promote an affordable product. Firms who take no notice of customers needs risk having customers take no notice of them. replacing the 4P’s with a more customer-centric planning model. In the Production era marketing was geared around the requirements of the production process. Spending more no longer guarantees greater impact. not the needs of the firm. with the huge explosion in competition and over-supply in most markets. over-supply and fragmentation of media. Simply focusing on awareness of your product. The task of marketing today is not to interrupt and persuade but to engage.

No doubt the £200 jeans used better materials. as well as the physical needs. have replaced them as people have demonstrated their willingness to measure price based on personal worth to them rather than cost (display an affinity for. even though identical style cars will be made by many others. . the offers. were better stitched and had nicer detailing. From this shortlist the final product choice is determined by the best individual fit. i. to be associated with values and an image they aspire to). From this group they will then make their final selection based on the test drive. The result includes satisfying emotional wants. A simple example of this is car buying. but would not be a consideration in the motivation for the purchase. such as the image and personality of the brand or added value aspects that make the product or service more relevant. communication and guarantees. But these elements have no real sway compared to personal value aspects in the buying process. pay a premium. It is like wanting to be friends and associated with the most popular kid at school – only now you can buy into that friendship. in terms of how they see themselves and want others to see them. such as service. and will often be cheaper. with limited technical knowledge. the specification etc. Cultural fit for individuals is based on the brands they have an affinity with. Brand personality or image has emerged as the key differentiator as products themselves have become more commoditised. Personal value needs will also be less emotional than in B2C purchase decisions. Even though more based in logic they will still have a major impact in the final buying decision. to judge on than pouring over complex product specifications. involving elements over and above the product functionality. non product differences. Hence the badge on the jeans counts for more than needing a tough pair of trousers. Whilst branding plays a less significant part in professional buying behaviour.The value an individual gets is linked to the result gained from the purchase. As product differences have shrunk. People will have a group of manufacturers they regard as acceptable and will not look outside these manufacturers. B2B markets. Buying behaviour now involves two stages. They may help justify the purchase.e. They are also a much easier and quicker method for individuals. it is still a significant factor in achieving standout in overcrowded and building a cultural fit with the target market.

. Understanding these factors requires the marketer conduct research to monitor what is happening in each market the company serves since the effect of these factors can vary by market. • External Factors .When setting price. while the organization may have control over these factors making a quick change is not always realistic. marketers must take into consideration several factors which are the result of company decisions and actions. . However. For instance. product pricing may depend heavily on the productivity of a manufacturing facility (e. The final price for a product may be influenced by many factors which can be categorized into two main groups: Internal Factors . can be altered.g.There are a number of influencing factors which are not controlled by the company but will impact pricing decisions. To a large extent these factors are controllable by the company and. But increasing productivity may require major changes at the manufacturing facility that will take time (not to mention be costly) and will not translate into lower price products for a considerable period of time. The marketer knows that increasing productivity can reduce the cost of producing each product and thus allow the marketer to potentially lower the product's price. if necessary. how much can be produced within a certain period of time).ques 2 • For the remainder of this tutorial we look at factors that affect how marketers set price.

price can be changed quickly. heavy competition. top management sets the pricing objective and policies. and often approves the prices proposed by lower-level-management or salespeople. market share leadership. oil companies). To keep a plant going. Unlike product features and channel commitments. Prices can be reduced temporarily to create excitement for a product or to draw more customers into retail store. such as Southwest Airlines. companies often have a pricing departments to set the best prices or help others in setting them. Fort example. Thus. Marketing Mix Strategy: Price is only one of the marketing mix tools that a company uses to achieve its marketing objectives. External Factors Affecting Pricing Decisions: . and promotion decisions to form a consistent and effective marketing program. A company might also use price to attain other. If the company has selected its target market and positioning carefully. Factors to Consider When Setting Prices: A company’s pricing decisions are affected by both internal and external environmental factors. Decisions made for other marketing mix variables may affect pricing decisions. Price is also one of the most flexible elements of the marketing mix. Many companies use current profit maximization as their pricing goal. hoping to increase demand. the firm must learn how to add value that consumers will pay for or face extinction. production managers. thus. They estimate demand and costs will be at different prices and choose the price that will produce the maximum current profit. largely determined by decisions on market positioning. current profit maximization. price is the sum of all the values that consumers exchange for the benefits of having or using the product or service. 1. when Honda and Toyota decided to develop their Acura and Lexus brands to compete with European luxury-performance cars in the higher income segment. costs and organizational considerations. For example. In small companies.In the narrowest sense. One product may be priced to help the sales of other products in the company’s line. Not-for-profit and public organizations may adopt a number of other pricing objectives. Costs: Costs set the floor for the price that the company can charge. price is the amount of money charged for a product or service. Common objectives include survival. the company may seek additional objectives. or return on investment. marketing strategy. Companies set survival as their major objectives if they are troubled by too much capacity. The company wants to charge a price that both covers all its cost for producing. Many companies. The decision to position the product on high-performance quality will mean that the seller must charge a higher price to cover higher cost. A company might decide that it wants to achieve product quality leadership . Yet. In the long run. In industrial markets. pricing and price competition is the number one problem facing many marketing executive. a company may set a low price. and selling the product and delivers a fair rate of return for its effort and risk. and Union Carbide. fiancé managers and accountants. A not-for-profit theatre company may price its production to fill the maximum number of theatre seats. knowing that it must rely on private gifts and public grants. Companies with lower costs can set lower price that result in greater sales and profits. Organizational Considerations: Management must decide who within the organization should set prices. and product quality leadership . more specific objectives. work to become the “low-cost producers” in their industries. This normally calls for charging a high price to cover higher performance quality and high cost of R&D. Price decisions must be coordinated with product design. Companies handle pricing in a variety of ways. railroad. More broadly. then its marketing mix strategy. For example. this required charging a high price. In large companies. salespeople may be allowed to negotiate with customers with a certain price ranges. steel. however. will be fairly straightforward. 4. At the same time. including price. distribution. pricing may play an important role in helping to accomplish the company’s objectives at many levels . producers using many resellers who are expected to support and promote their products may have to build larger reseller margins into their prices. Prices can be set to keep the loyalty and support of resellers or to avoid government intervention. Price is the only element in the marketing mix that produces revenue. distributing. Wal-Mart. Other companies want to obtain market share leadership . A social service agency may set a social pricing geared to the varying income situations of different clients. many companies do not handle pricing well. 3. all other elements represent costs. To become the market share leader. 2. This department reports to the marketing department or top management. or changing consumer wants. A company’s costs may be an important element in its pricing strategy. the company must decide on its strategy for the product. these firms set prices as low as possible. At the same time. In industries in which pricing is a key factor (aerospace. Even so. It can set prices low to prevent competitors from entering the market or set prices at competitors’ level to stabilize the market. Others who have an influence on pricing include sales manager. A university aims for partial cost recovery. prices are often set by top management rather then by the marketing or sales departments. to cover the remaining costs. Pricing strategy. cash flow. A not-for-profit hospitals may aim for full cost recovery in its pricing. Marketing Objectives: Before setting a price. Internal Factors Affecting Pricing Decisions: Internal factors affecting pricing include the company’s marketing objectives. price is typically handled by divisional or product line managers. Caterpillar charges 20 percent to 30 percent more than competitors for its heavy construction equipment based on superior product and service.

because buyers can obtain as much as they need at the going price. In setting prices. and other environmental factors. The product can be uniform (steel. Consumer Perception of Price and Value: In the end. it can charge more. A seller cannot charge more than the going price. a company’s short-term sales. The government is another important external influence on pricing decisions. Canon needs to benchmark its costs against its competitors’ costs to learn whether it is operating at a cost advantage or disadvantage. http://www. Basically. Competitors’ Costs. the company also must consider other factors in its external environment. the market consists of many buyers and sellers who trade over a range of prices rather than a single market price. Economic conditions can have a strong impact on the firm’s pricing strategies. each presenting a different pricing challenge. No single buyer or seller has much effect on the going market price. social concerns may have to be taken into account. encourage their support. Minolta. If Canon’s products are better than Nikon’s. competition. a desire to penetrate the marker faster with a low price. A range of prices occurs because sellers can differentiate their offers to buyers. a private regulated monopoly (a power company). and help them to sell the product effectively. Either the physical product can be varied in quality. the government permits the company to set rates that will yield a “fair return”. high -margin strategy. 4. the market consists of many buyers and sellers trading in a uniform commodity such as wheat. one that will let the company maintain and expand its competitors as needed. 1. However. When consumers buy a product. or style or the accompanying services can be varied.scribd. • • • In a pure monopoly. market share. the firm will not be able to charge as much. inflation. must be buyer-oriented. however. cars). Under oligopolistic competition. Economists recognize four types of markets. Once canon is aware of competitors’ price and offers. If canon follows a high-price. The Market and Demand: The seller’s freedom varies with different types of markets. features. and others. a desire to attract competition. it will have to price close to Nikon or lose sales. they exchange something of value (the price) to get something of value (the benefits of having or using the product). Nonregulated monopolies are free to price at what the market will bear.External factors that affect pricing decisions include the nature of market and demand. The company must also consider what impact its prices will have on other parties in its environment. Other External Factors: When setting prices. Each seller is alert to competitors’ strategies and moves. may stop competitors or drive them out of the market. Pricing is handled differently in each case. aluminum) or non-uniform (computers. If Canon’s cameras are similar to Nikon’s. and offers: Another external factor affecting the company’s pricing decisions is competitors’ cost and prices and possible competitor reactions to the company’s own pricing moves. Pentax. Buyers see differences in sellers’ products and will pay different prices for them. the consumer will decide whether a product’s price is right. A consumer who is considering the purchase of a Canon camera will evaluate Canon’s price and value against the prices and values of comparable products made by Nikon. If a steel company slashes its price by 10 percent. Prices. • • Under pure competition. and profit goals may have to be tempered by broader social considerations. like other marketing mix decisions. There are few sellers because it is difficult for new sellers to enter the market. and interest rates affect pricing decisions because they affect both the cost of producing a product and consumer perception of the product’s price and value. Economic factors such as boom or recession. or a fear of government regulation. it can use them as starting point for its pricing. 3. copper of financial securities. 2. It also needs to learn the price and quality of each competitor’s offer. or a private non-regulated monopoly. they do not always charge the full price for a number of reasons. How will reseller react to various prices? The company should set prices that give resellers a fair profit. Finally. Under monopolistic competition. A government monopoly can pursue a variety of pricing objectives. buyer-oriented pricing involves understanding how much value consumers place on the benefits they receive from the product and setting a price that fits this value. it may attract competition. Canon will use price to position its offer to the competition. buyers will quickly switch to this supplier. the market consists of a few sellers who are highly sensitive to each other’s pricing and marketing strategies. Pricing archive_doc=9723946&metadata=%7B%22page%22%3A%22read %22%2C%22platform%22%3A%22web%22%2C%22logged_in %22%3Atrue%2C%22context%22%3A%22archive%22%2C%22action %22%3A%22download_promo%22%7D . The seller may be a government monopoly (the US postal service). the market consists of one seller. In a regulated monopoly. If Canon’s cameras are not as good as Nikon’s. A lowprice. Effective. low-margin strategy.

For example. A US. Barter) Geographical pricing involves the company in deciding how to price its products to different. Price discounts and allowances The role of discount Offering discounts can be a useful tactic in response to aggressive competition by a competitor. However. Companies usually do not set a single price. As a general rule. and offset. tactics are about changing prices. quantity and other discounts. or change your terms of business so that you can impose a surcharge on overdue accounts instead. For example.e. price discounts and allowances. Customers in different locations and countries.The seller receives full payment in cash but agrees to spend a substantial amount of the money in that country within a stated time period. on your overall business development strategy and marketing plans. What is more. Offset . Chemical company built a plant for an Indian company and accepted partial payment in cash and the remainder in chemicals manufactured at the plant. so that you lose both ways. If you are not very careful. A British aircraft manufacturer sold planes to Brazil for 70 percent cash and the rest in coffee. Buyback arrangement .The only time when price setting is not a problem is when you are a “price-taker” and have to set prices at the going rate. PepsiCo sells its cola syrup to Russia for rubles and agrees to buy Russian vodka at a certain rate for sale in the United States. and promotional support. Quantity discounts – The trouble with these is that. The trouble is that. buyback agreements. This is not to say that there is anything particularly wrong with price discounting provided that you are getting something specific that you want in return. Discounting is common in many industries – in some it is so endemic as to render normal price lists practically meaningless. which in turn depends. pricing decisions are among the most difficult that a business has to make. although they may have helped you win the business to start with. either for a new product or for an existing product in a new market. whilst getting absolutely nothing in return except a lower profit margin. companies get themselves embroiled in a complex structure of cash. or else sell nothing at all. and product-mix pricing. Strategy is concerned with setting prices for the first time. Whilst you may lose some business by doing this. to a great extent. This normally only occurs under near-perfect market conditions. Let us look briefly at the main types of discounts common today Cash and settlement discounts – These are intended to bring payments in faster.The seller sells a plant. Counter trade may account for 15 to 25 percent of world trade and takes several forms: barter.The seller receives some percentage of the payment in cash and the rest in products. delivery frequency. is either to eliminate these discounts altogether and introduce an efficient credit control system. customers frequently take all the discounts on offer and still do not pay promptly. allowances. More usually. discounting can be dangerous unless carefully controlled and conceived as part of your overall marketing strategy.5% per month to have any real effect. in costs or the prices of a competitor).The direct exchange of goods.positioning decision. discriminatory pricing. where products are almost identical. but rather a pricing structure that reflects variations in geographical demand’ and costs. guarantees. In considering these decisions it is important to distinguish between pricingstrategy and tactics. Counter trade. since such discounts need to be at least 2. with no money and no third party involved Compensation deal . However. Many buyers want to offer other items in payment. this means paying your customer an annual rate of interest of 30% just to get in money which is due to you anyway. order levels. This issue is critical when buyers lack sufficient hard currency to pay for their purchases. we believe. Changes can be either self-initiated (to improve profitability or as a means of promotion) or in response to outside change (i. in the long run the only effect they have is to spoil your profit margin. only publish the very minimum of quantity discounts – your very largest customers will probably try to negotiate something extra anyway. Here we will examine sev-eral price-adaptation strategies: geographical pricing. promotional pricing. If some customers will not pay you for months you are probably better off trying to win others who will. Geographical pricing (Cash. American companies are often forced to engage in counter trade if they want the business. Much better. Barter . compensation deals. when formalized on a published price list. and other factors As a result of discounts. equipment. service contracts. all too often. purchase timing. or technology to another country and agrees to accept as partial payment products manufactured with the supplied equipment. Also . Pricing strategy should be an integral part of the market. a company rarely real-izes the same profit from each unit of a product that it sells. a practice known as counter trade. they become an established part of your pricing structure and as a result their impact can be lost. market-segment requirements. should the company charge higher prices to distant customers to cover the higher shipping costs or a lower price to win additional business? Another issue is how to get paid. these will probably be the worst payers anyway.

Warranties and service contracts . museums often charge a lower admission fee to students and senior citizens. will depend on the non-price benefits of your product.Some companies price the same product two different levels based on image differences at. Product-form pricing . a beginning and an end point. There may be times when you want to give an extra boost to sales – to shift an old product before launching an updated one for example.Supermarkets and department stores often drop the price on well Known brands to stimulate additional store traffic. whether they are effective.This strategy involves setting an artificially high price and then offering the product at substantial savings Promotional-pricing strategies are often a zero-sum game. In part your ability to minimize discounts. as in the following cases: Customer-segment pricing . Psychological discounting .cost warranty or service contract. Otherwise you may find that orders to you are up for a while. Longer payment terms . It can put the same perfume in another bot-tle with a different name and image and price it at Rs.Sellers will establish special prices in certain seasons to draw in more customers Cash rebates . Clearly the role of discounts will vary from one type of business to another and not all of the comments above will apply to you. but these laws have been revoked.Different customer groups are charged different prices for the same product or service. Location pricing . locations. whatever business you are in. give it a name and image. Manufacturers of loss-leader brands typically object because this practice can dilute the brand image and bring complaints from retailers who charge the list price. Discriminatory pricing Companies often adjust their basic price to accommodate differences in customers.Coca-Cola carries a different price depending on whether it is purchased ill a fine restaurant.Instead of cutting its price.The same product is priced differently at different locations even though the cost of offering at each location is the same. products. so that you hold something in reserve for when your customers do something extra for you.Companies can promote sales by adding a free or low. But try to think of unusual offers – a larger pack size for the same price or a ” five for the p [rice of four ” can often stimulate more interest than a straight percentage discount. If they do not work. In first-degree price discrimination. Two other points to remember are Make sure you retain control over your special promotions.e. At times like these special offers or promotional discounts can be useful. the seller charges a separate price to each customer depending on the intensity of his or her demand. the company can offer customers low. you should always ask yourself what your discounts are supposed to achieve.Different versions of the product ‘are priced differently but not pro-portionately to their respective costs Image pricing . . only to be followed by a barren period whilst your customer supplies the end user from his accumulated stocks. Manufacturers have tried to restrain intermediaries from loss leader pricing through lobbying for retail-price -maintenance laws. Be sure to terminate them once they have outlived their usefulness. they waste money that could have been put into other marketing tools. which doesn’t always happen with other types of discounts. Consumers often worry less about the cost (i. and price it at Rest. Ensure that your offers are linked to sales and not simply to orders.Auto companies and other consumer-goods companies offer cash rebates to Encourage purchase of the manufacturers’ products within a specified time period. This pays if the revenue on the addi-tional sales compensates for the lower margins on the) boss-leader items. the seller charges less to buyers who buy a larger volume. 50. a fast-food restaurant. the interest rate) of a loan and more about whether they can afford the monthly payment. Automakers have even announced no-interest financing to attract Customers.Sellers. Special-event pricing . If they work. stretch loans over longer periods and thus lower the monthly payments. In third-degree price discrimination. such as building up product quality and service or strengthening product image through advertising.. or as part of a special promotion. Promotional Pricing Companies can use several pricing techniques to stimulate early purchase: Loss-leader pricing . In second-degree price discrim-ination. For example. the seller charges different amounts to different classes of buyers. Rebates can help clear inventories without cutting the stated list price.200. or a vending machine.interest financing. Price discrimination occurs when a company sells a product or service at two or more prices that do not reflect a proportional difference in costs. Promotional discounts – These are the best kind of discounts because they enable you to retain the power to be flexible. with a specific objective. Channel pricing . A theater varies its seat prices according to audience preferences for different locations.keep quantity discounts small. and how long they are expected to last. such as offering you sole supply. and so on. In general. But. especially mortgage banks and auto companies. A perfume manufacturer can put the perfume in one bottle. They also make sure that the end user gets at least some of the benefit. keep standard discounts low to retain maximum flexibility and ensure that they are consistent with your overall marketing and pricing strategy. Low-interest financing . or eliminate them altogether. competitors Copy them and they lose their effectiveness.

If the by-products have value to a customer group. consisting of a fixed fee plus a variable usage fee. Hotels charge less’ on weekends. In many lines of trade. Amusement parks charge an admission fee plus fees for rides over a certain minimum. The service firm faces a problem sin1ilar to captive -product pricing-namely. average-. military. and product-bundling pricing. A theater company will price a season subscription at less than the cost of buying all the performances sepa-rately. Product-Bundling pricing – Sellers often bundle products and features. products. Hotels and airlines use yield pricing. day. For price discrimination to work. Telephone users pay a minimum monthly fee plus charges for calls beyond the minimum number. Coca-Cola considered raising its vending machine soda prices on hot days using wireless technology. In this case. optional-feature pricing. . certain conditions must exist. However. how much to charge for the basic service and how much for the variable usage. For instance. When offering a mixed bundle. the time of day (morning or night coach). Must not be able to resell the product to the higher-price segment.4500. sellers use well-established price points for the products in their line. the savings on the price bundle must be substantial enough to induce them to buy the bundle. and other chemicals-often results in byproducts. Third. are also allowing buyers to discrimi-nate between sellers by comparing prices instantaneously. Any income earned on the byproducts will make it easier for the company to charge a lower price on its main product if competition forces it to do so. and the liquor produces the profit. Sixth. the product is part of a product mix. Other restaurants price their liquor low and food high to draw in a drinking crowd. Rs. Fifth. they can use software that monitors customers’ movements over the Web and allows them to customize offers and prices. The fixed fee should be low enough to induce purchase of the ser-vice. Airlines charge different fares to passengers on the same flight. the firm searches for a set of prices that maximizes profits on the total mix. Customers can often order liquor in addition to the meal. and high-quality suits with the three price points. Restaurants face a similar pricing problem. however. by which they offer lower rates on unsold inventory just before it expires. Airlines are using yield pricing to cap-ture as much revenue as possible. and an extended warranty. An auto manufacturer might offer an option package at less than the cost of buying all the options separately.1500. or captive. the profit can then be made on the usage fees. light dimmers. Pricing is difficult because the various products have demand and cost interrelationships and are subject to different degrees of competition. the practice must not breed customer resentment and ill will. the seller offers goods both individually and in bun-dles. Many restaurants price their liquor high and their food low. the seller normally charges less for the bundle than if the items were purchased separately. the season. and so on. Product-mix pricing Price-setting logic must be modified when. As a result of deregulation in several industries. The seller’s task is to establish perceived-quality differences that justify the price differences. features. petroleum prod-ucts. Second. A men’s clothing store might carry men’s suits at three price levels: Rs800. respectively. past business. By-product pricing – The production of certain goods. Customers will associate low-. Pure bundling occurs when a firm only offers its products as a bundle.meats. or hour. defoggers. competitors must not be able to undersell the firm in the higher-price segment. and Rs. Fourth. by-product pricing. Manufacturers of razors and cameras often price them low and set high markups on razor blades and film. Captive-product pricing – Some products requires the use of ancillary. competitors have increased their use of discriminatory pricing. The food revenue covers costs. depending on the seating class. two-part pricing. In mixed bundling. the market must be segment able and the segments must show different intensities of demand. members in the lower-price segment.Prices are varied by season. Two-part pricing – Service firms often engage in two-part pricing.Time pricing . captive-product pricing. Public utilities vary energy rates to commercial users by time of day and weekend versus weekday. The automobile buyer can order electric window controls. customers so dis-liked the idea that Coke abandoned it. We can distinguish six situations involving product-mix pricing: product-line pricing. Because customers may not have planned to buy all the components. the day of the week (workday or weekend). the cost of segmenting and policing the market must not exceed the extra revenue derived from price discrimination. they should be priced on their value. and services along with their main product. Pricing is a sticky problem. the particular form of price discrimination must not be illegal. A cellular service operator may give a cellular phone free if the person commits to buying two years of phone service. and lowering the price on cold days. the person’s company. automobiles companies must decide which items to include in the price and which to offer as options. Optional-feature pricing – Many companies offer optional products. New software applications. Of status (youth. Product line Pricing . First. senior citizen). Computer technology is making it easier for sellers to practice discriminatory pric-ing.Companies normally develop product lines rather than sin-gle products and introduce price steps. This explains why servers often press hard to get customers to order drinks. Restaurants charge less to “early bird” customers.



. but the additional cost is needed in order to ensure that the merchandise moves quickly. it would not be cost effective for Procter & Gamble and Wal-Mart to involve a third party to move their merchandise—Wal-Mart has been able to develop. On the other hand. it will be much less expensive for a specialty foods manufacturer to have a wholesaler get its products to the retailer.Criteria in selecting channel members. channels for perishable products are often inefficiently short. the most important consideration whether to include a potential channel member is the cost at which he or she can perform the required functions at the needed level of service. based on its information systems and huge demand volumes. Note the important caveat that cost alone is not the only consideration —premium furniture must arrive in the store on time in perfect condition. Note also that image is important—Wal-Mart could very efficiently carry Rolex watches. a more efficient distribution system. Further. Typically. but this would destroy value from the brand. so paying more for a more dependable distributor would be indicated. For example.