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A variety of environmental forces influence a companys marketing system. Some of them
are controllable while some others are uncontrollable. It is the responsibility of the
marketing manager to change the companys policies along with the changing environment.
According to Philip Kotler, A companys marketing environment consists of the internal
factors & forces, which affect the companys ability to develop & maintain successful
transactions & relationships with the companys target customers.
The Environmental Factors ma !e classi"ied as:
!. Internal "actor
#. $%ternal "actor
E#ternal Factors ma !e "urther classi"ied into:
$%ternal &icro "actors & $%ternal &acro "actors
$ompan%s Internal Environmental Factors:
A 'ompanys marketing system is influenced by its capabilities regarding production,
financial & other factors. (ence, the marketing management)manager must take into
consideration these departments before finali*ing marketing decisions. +he ,esearch &
-evelopment -epartment, the .ersonnel -epartment, the Accounting -epartment also
have an impact on the &arketing -epartment. It is the responsibility of a manager to
company/ordinate all department by setting up unified ob0ectives.
E#ternal Micro Factors:
!. &uppliers: +hey are the people who provide necessary resources needed to produce
goods & services. .olicies of the suppliers have a significant influence over the
marketing managers decisions because, it is laborers, etc. A company must build
cordial & long/term relationship with suppliers.
#. Mar'etin( Intermediaries: +hey are the people who assist the flow of products from
the producers to the consumers1 they include wholesalers, retailers, agents, etc. +hese
people create place & time utility. A company must select an effective chain of
middlemen, so as to make the goods reach the market in time. +he middlemen give
necessary information to the manufacturers about the market. If a company does not
satisfy the middlemen, they neglect its products & may push the competitors product.
2. $onsumers: +he main aim of production is to meet the demands of the consumers.
(ence, the consumers are the center point of all marketing activities. If they are not
taken into consideration, before taking the decisions, the company is bound to fail in
achieving its ob0ectives. A companys marketing strategy is influenced by its target
consumer. $g3 If a manufacturer wants to sell to the wholesaler, he may directly sell to
them, if he wants to sell to another manufacturer, he may sell through his agent or if he
wants to sell to ultimate consumer he may sell through wholesalers or retailers. (ence
each type of consumer has a uni4ue feature, which influences a companys marketing
5. $ompetitors: A prudent marketing manager has to be in constant touch regarding the
information relating to the competitors strategies. (e has to identify his competitors
strategies, build his plans to overtake them in the market to attract competitors
consumers towards his products.
An compan "aces three tpes o" competition:
a6 )rand $ompetition: It is a competition between various companies producing
similar products. $g3 +he competition between 7.8 & 9idecon companies.
b6 The Product Form $ompetition: It is a competition between companies
manufacturing products, which are substitutes to each other $g3 'ompetition
between coffee & +ea.
c6 The *esire $ompetition: It is the competition with all other companies to attract
consumers towards the company. $g3 +he competition between the manufacturers
of +9 sets & all other companies manufacturing various products like automobiles,
washing machines, etc.
(ence, to understand the competitive situation, a company must understand the
nature of market & the nature of customers. :ature of the market may be as follows3
I. .erfect &arket
II. ;ligopoly
III. &onopoly
I9. &onopolistic &arket
9. -uopoly
<. Pu!lic: A 'ompanys obligation is not only to meet the re4uirements of its customers,
but also to satisfy the various groups. A public is defined as any group that has an
actual or potential ability to achieve its ob0ectives. +he significance of the influence of
the public on the company can be understood by the fact that almost all companies
maintain a public relation department. A positive interaction with the public increase its
goodwill irrespective of the nature of the public. A company has to maintain cordial
relation with all groups, public may or may not be interested in the company, but the
company must be interested in the views of the public.
Pu!lic ma !e various tpes+ The are:
a. Press: +his is one of the most important group, which may make or break a
company. It includes 0ournalists, radio, television, etc. .ress people are often
referred to as unwelcome public. A marketing manager must always strive to get a
positive coverage from the press people.
b. Financial Pu!lic: +hese are the institutions, which supply money to the company.
$g3 7anks, insurance companies, stock e%change, etc. A company cannot work
without the assistance of these institutions. It has to give necessary information to
these public whenever demanded to ensure that timely finance is supplied.
c. Government: .oliticians often interfere in the business for the welfare of the society
& for other reasons. A prudent manager has to maintain good relation with all
politicians irrespective of their party affiliations. If any law is to be passed, which is
against the interest of the company, he may get their support to stop that law from
being passed in the parliament or legislature.
d. General Pu!lic: +his includes organisations such as consumer councils,
environmentalists, etc. as the present day concept of marketing deals with social
welfare, a company must satisfy these groups to be successful.
E#ternal Macro Environment:
+hese are the factors)forces on which the company has no control. (ence, it has to frame
its policies within the limits set by these forces3
!. *emo(raph: It is defined as the statistical study of the human population & its
distribution. +his is one of the most influencing factors because it deals with the people
who form the market. A company should study the population, its distribution, age
composition, etc before deciding the marketing strategies. $ach group of population
behaves differently depending upon various factors such as age, status, etc. if these
factors are considered, a company can produce only those products which suits the
re4uirement of the consumers. In this regard, it is said that to understand the market
you must understand its demography.
#. Economic Environment: A company can successfully sell its products only when
people have enough money to spend. +he economic environment affects a consumers
purchasing behavior either by increasing his disposable income or by reducing it. $g3
-uring the time of inflation, the value of money comes down. (ence, it is difficult for
them to purchase more products. Income of the consumer must also be taken into
account. $g3 In a market where both husband & wife work, their purchasing power will
be more. (ence, companies may sell their products 4uite easily.
2. Phsical Environment or Natural Forces: A company has to adopt its policies within
the limits set by nature. A man can improve the nature but cannot find an alternative for
:ature offers resources, but in a limited manner. A product manager utili*es it efficiently.
'ompanies must find the best combination of production for the sake of efficient
utili*ation of the available resources. ;therwise, they may face acute shortage of
resources. $g3 .etroleum products, power, water, etc.
5. Technolo(ical Factors: "rom customers point of view, improvement in technology
means improvement in the standard of living. In this regard, it is said that +echnologies
shape a .ersons 8ife.
$very new invention builds a new market & a new group of customers. A new
technology improves our lifestyle & at the same time creates many problems. $g3
Invention of various consumer comforts like washing machines, mi%ers, etc have
resulted in improving our lifestyle but it has created severe problems like power
$g3 Introduction to automobiles has improved transportation but it has resulted in the
problems like air & noise pollution, increased accidents, etc. In simple words, following
are the impacts of technological factors on the market3
a6 +hey create new wants
b6 +hey create new industries
c6 +hey may destroy old industries
d6 +hey may increase the cost of ,esearch & -evelopment.
<. &ocial , $ultural Factors: &ost of us purchase because of the influence of social &
cultural factors. +he lifestyle, values, believes, etc are determined among other things
by the society in which we live. $ach society has its own culture. 'ulture is a
combination of various factors which are transferred from older generations & which are
ac4uired. ;ur behaviour is guided by our culture, family, educational institutions,
languages, etc.
+he society is a combination of various groups with different cultures & subcultures.
$ach society has its own behavior. A marketing manager must study the society in
which he operates.
'onsumers attitude is also affected by their society within a society, there will be
various small groups, each having its own culture.
$g3 In India, we have different cultural groups such as Assamese, .un0abis, =ashmiris,
etc. +he marketing manager should take note of these differences before finali*ing the
marketing strategies.
'ulture changes over a period of time. (e must try to anticipate the changes new
marketing opportunities.
It is difficult to analy*e the environmental factors affecting Indian market. ;urs is a vast
country with various religions, caste, sub/caste, languages, culture, etc. $ach of these
factors operates at different levels & art different places.
!. Vast Mar'et: +he Indian market is the second largest in the world considering its
population. If consumption is considered, it has one of the lowest levels of consumption.
(ence, it can be said that ma0ority of the market for various products has been left
untapped. ,egion/wise, the Indian &arket can be broadly classified into "our .arts3
a. :orthern &arket
b. Southern &arket
c. >estern &arket
d. $astern &arket
#. Rural Mar'et: &a0ority of the Indians live in rural areas. (ence, rural markets have a
significant influence on the companys marketing strategy
2. $ultural , Reli(ion: India is a country with many religions each religion has its own
culture & most of the Indians are religious. +he culture affects the habits of people.
(ence, it has to be considered before deciding what is to be sold.
$g3 ?ainism completely prohibits the consumptions of meat. (ence, it is difficult to sell
meat where ?ains are living
5. Economic $onditions: India is one of the fastest developing countries. +he standard
of living is increasing every year. +his indicates that the marketing opportunities in our
country are vast.
<. Government: >e are following the policy of mi%ed $conomy i.e., &arket is neither
totally free @'apitalism6 nor it is fully controlled @Socialism6. +he government encourages
consumerism & hence he marketers are gradually accepting the marketing concept.
A. Intermediaries: ;ur country has two types of distribution system. +hey are3
a. .ublic distribution system, where essential commodities are directly sold to the
consumers through government agencies.
b. ;pen distribution system, where the products are sold in the open market. +he open
distribution system in our country is the traditional one. +he chain of distribution is
once of the most efficient chains of the world. >holesalers, retailers, brokers, etc are
the intermediaries operating in our country.
B. .ress3 .ress in our country is not as sophisticated as in the developed countries. &ost
of the newspapers & maga*ines are controlled by big business houses.
C. +echnology3 &ost of the company)companies in our country import the technology from
other countries. Investment in research is one of the lowest in the world.
Rural Mar'etin( $hallen(es , Opportunities:
&a0ority of Indians live in villages & most of them are farmers. ,ural markets in our country
are changing rapidly. &any companies have not tried to find out the needs of rural
consumers. (ence, many rural markets have been left untapped.
Pro!lems o" Rural Mar'etin(:
About CDE of villages do not have proper infrastructural facilities like transportation,
communication, etc. .eople in the rural market purchase in small 4uantities1 usually, they
behave as group. (ence, it is difficult to influence their behavior to deliver a product directly
to the rural consumers1 a company has to incur double the cost of what it incurs in case of
urban consumers.
Illiteracy among villagers makes it difficult to promote products. &ost of them purchase
because of their belief.
Introduction: 'onsumers behave in a group. $ach such group has its own model of
behaviour identifying such group of consumers is known as marketing segmentation. It is
marketing strategy to produce & market producers that suits the need of a particular group
of consumer.
*e"inition: It is defined as +he strategy of dividing the market in order to consumer them.
According to .hilip =otler, It is the subdividing of market into homogenous subsets of
consumers where any subset may be selected as a market target to be reached with
distinct &arketing &i%.
Importance o" Mar'et &e(mentation: &arket segmentation is built around the
consumers. In other words, the company analyses the needs of the consumers, & the
group of those consumers who have similar needs. It tries to satisfy those needs by having
common marketing program, without such segmentation, market program becomes
hapha*ard & they lead the company no where. A small company with limited resources can
select a particular group of consumers & market its products efficiently by selecting the
marketing mi% suitable to that group.
)asis o" &e(mentation: +he following factors are considered before dividing the market3
!. Geo(raphical Factors: ;n the basis of geographical factors, market may be classified
as state/wise, region/wise & nation/wise. &any companies operate only in a particular
area because people behave differently in different areas due to various reasons such
as climate, culture, etc.
#. *emo(raphic Factors: +his is the most widely used basis for market segmentation.
&arket is classified on the basis of population, using ages, income, se%, etc as
a. A(e: It is known fact that people of different ages like different products, need
different things, & behave differently. Almost all companies use this factor to reach
the target market. ;n the basis of age, market in our country is divided into
childrens market, teenagers market, adults market, & the market for old people.
'ompanies use the census data to prepare marketing strategies on the basis of age.
b. &e#: +here is a variation of consumption behavior between males & females. +his
factor is used as a basis for segmentation for products like watches, clothes,
cosmetics, leather goods, maga*ines, motor vehicle, etc.
c. Famil -i"e $cle: +his is another important factor, which influences the consumers
behavior. $g3 7efore making purchases, a bachelor may consult his friends, a boy
may ask his parents & a married man asks his wife. +he study of family life cycle
helps a company to prepare an effective promotional strategy.
2. Pscholo(ical "actors:
a. Personalit: &ost consumers are influenced by personality traits. +his is particularly
true in the case of urban consumers. ;n the basis of personality, consumers may be
divided in to introverts @reserve people6, talkative, status, conscious, suspicious & so
5. Economic Factors: ;n the basis of economic factors, markets have been classified in
the westerns countries as follows3
a. Fpper 'lass b. Fpper/upper class c. 8ower/upper class
d. &iddle class e. Fpper/middle class f. 8ower/middle class
g. 8ower class h. Fpper/lower class i. 8ower/lower class
In our country, it is classified as upper class @rich6, middle class, & the lower class.
Another classification based on income in our country is as follows3
a. 9ery ,ich b. +he ,ich class c. +he Aspiration 'lass &
d. +he -estitutes.
.+ )ehavior Factors:
a. Occasions: Sellers can easily find out certain occasions when people buy a
particular product. $g3 -emand for clothes, greeting cards, etc increases during the
festival season. -emand for transportation, hotels etc increases during the holiday
b. )ene"its: $ach consumers e%pects to fulfill certain desire or to derive some benefits
from the product he purchases. $g3 A person may purchase clothes to save money
& another to impress others. 7ased upon this, markets may be classified as markets
for cheap price products & market for 4uality products etc.
c. Attitude: ;n the basis of attitude of consumers, markets may be classified as
enthusiastic market, indifferent market, positive market, & negative market.
)ene"its o" Mar'et &e(mentation:
+he purpose of segmentation is to determine the differences among the purchases which
may affect the choice of the market area & marketing strategies. "ollowing are some of the
benefits of marketing segmentation.
a6 It helps to formulate marketing programs.
b6 It helps to understand the comple% behavior of consumers
c6 +astes & .references of consumers may be easily determined.
d6 It helps in locating the new markets
e6 It helps marketing programs beneficial to consumers as products are produced &
sold according to their needs.
In simple words, the term, .roduct means an article which satisfies our wants. It is defined
as a set of attributes, tangible, intangible & physical assembled in an identified manner.
.hilip =otler, defines the term product as anything that can be offered to the market for
consumption that might satisfy a need.
Features o" a Product:
!. It has many utilities
#. It can either be tangible. $%3 soap, or intangible $%3 Insurance policy.
2. It is a combination, package, brand, etc
5. It is purchased because of its satisfying power.
Ne0 Product *evelopment:
Introducing a new product is a difficult task, there is no guarantee that the new product
developed is accepted in the market1 hence, the risk if high. It is better to adopt a scientific
approach for the development of new products. +he following are the different stages of a
new product development3
1+ Idea Generation: :ew product development starts with an idea. +he idea may come
from any source. $%3 'ompetitors, :ewspapers, Government, ,esearch &
-evelopment, -epartment, etc.
2+ &creenin( Analsis: (ere the company evaluates all ideas. +he intention here is to
avoid unnecessary e%penses by stopping further processing of unwanted ideas, which
do not suit the companys re4uirements. An idea is evaluated with reference to various
factors such as consumer needs, investments, profitability, technology, etc.
3+ $oncept Testin(: In the stage the concept of the new is tested. +he co. evaluates
whether the concepts would suit the co., re4uirements.
4+ )usiness Analsis: (ere a detail financial analysis is done. It is carried out to find out
the financial marketing competitive & manufacturing viability usually, they analysis is
done by the e%perts. +he task of the management is this step is to identify the product
features, estimate the market demand & the products profitability. +hose ideas, which
promise more profits with minimum payback are selected.
.+ Product *evelopment: In this stage, product on paper is converted into a physical
product. +his is done by the engineering department or by the research & development
department. .roper care must be taken while developing the product, so that the new
product does not become a waste. "or this purpose, research reports, companys
budget, product features, etc have to be studied carefully. Fndue haste in developing a
new product results in the premature death. ;n the other hand, if the time taken is to
long, the company may lose the opportunity to the competitors.
5+ Test Ma'in(: After developing the product, the ne%t stage is to test its commercial
viability. +his process is known as test making.
+est marketing is defined as developing a temporary &arketing &i% & introducing the
new product to a market called, the sample market to verify & analy*e the market
reaction for the new product. +his is one of the most important steps because for the
first time, the information on the new product acceptance by the market is collected.
>hile, test marketing, the company changes the &arketing &i% namely, .roduct, .rice,
.romotion & .hysical -istribution depending upon the test marketing results. If it is
accepted, it chooses the best marketing mi% for the product, otherwise the pro0ect is
Advanta(es o" Test Mar'etin(:
a6 It helps to understand the market reaction to the new product.
b6 'ustomers perception on the marketing mi% is understood.
c6 It avoids costly error of manufacturing, unwanted products. It reduces, the
uncertainties relating to the new product.
d6 It helps in developing suitable marketing mi%
e6 It helps in developing proper marketing strategies.
f6 +est marketing also highlights the weakness of the new product, which can be
rectified before launching on a large scale.
g6 +est marketing gives better coordination between the company, intermediaries & the
h6 It also helps to understand the intermediaries view on the new product.
i6 It brings down the overall cost of new product development by eliminating wastages.
It should be remembered that the market chosen for test marketing must be proper
in the sense that is should represent the entire country so that biased results are not
6+ $ommerciali7ation: >hen once is successful in test marketing, i.e., when the market
accepts the new product, it is launched in other markets on a large scale in a wider
market is known as commerciali*ation. It is from this stage that a new product is really
born from the customers point of view.
PRO*/$T -IFE $8$-E
.roduct also has various stages of life as human beings. "rom the time a product is
introduced, till it is withdrawn from the market, it goes through < stages. Analysis of these
stages for the purpose of repositioning the product in the market is called .roduct 8ife
'ycle management. +he following are the stages in a product life cycle.
I. Introduction Stage
II. +he Growth Stage
III. +he &aturity Stage
I9. +he Saturation Stage
9. +he -ecline Stage
+he above stages can be shown in the following graph3

8ife 'ycle Stages
!. Introduction &ta(es: In this stage, a new product is introduced on a large scale for the
first time. &arket reacts slowly to the introduction. In other words, consumers take time
to accept the new product. Initially, the company may suffer losses, sales improves
gradually. &ost of the products fail in this stage itself.
"ollowing are the characteristics of this stage3
a. 'onsumers do not have the knowledge of the product
b. 'onsumers may or may not be strongly in need of the new product.
c. If there is a need for the product, the company gets readymade demand. ;therwise,
it increases slowly.
d. Sales are minimum
e. +he competition is less, in fact the company, which introduces new product is called
as a &arket .ioneer.
f. +he cost of it is very high because the company spends money heavily on ,esearch
& -evelopment, Sales, .romotion, etc.
#. Mar'etin( &trate(ies durin( the Introduction &ta(e: A company has to prepare the
policies very carefully in the stages because it has a great impact on the image of a new
product. $ven a minor mistake results in the premature death of a product.
+he following are the strategies that the company may adopt in this stage3
a. It may spend heavily on promotion & fi% high price. +his meets two ob0ectives.
"irstly, heavy promotion creates large demand & high price, brings immediate
profits. +his strategy also helps to create brand preference in the minds of the
consumer. It is normally followed when there is a great need for the product, when
the product belongs to the richer class & when products are consumer specialties.
b. +his second strategy is to fi% high price but to spend less on promotion. +his is
preferred when the product has limited market, in which people have knowledge
about the product & the competition is completely absent.
c. Another strategy is to charge low price & spend heavily on promotion. +his is
preferable when consumers are sensitive to the price & market is wide enough. +his
strategy brings good returns in the long run.
d. +he company may charge low price & spends less on promotion. +his is preferable
when the consumers are informed about the product, market is very large & there is
no competition for the time being.
In the introduction stage, the competitors are very cautious. +hey do not enter the
market immediately. +hey study the strategies of a company & watch the reaction of
the consumers. +his helps them to find out the defects of the companys strategy.
2. Gro0th &ta(e: It is called the market acceptance stage. "ollowing are its features3
a. 'onsumers & traders accept the product
b. Sales & profit increase
c. &ore competitions enter the market
d. +he focus of competition is on the brand rather than the product
e. 'ompetitors may introduce new features to the product
f. -istribution network increase
g. +he price will be reduced marginally.
Mar'etin( &trate(ies in the Gro0th &ta(e:
a. +he company tries to impress upon the consumers that its brand is superior
b. It may introduce new models or improve the 4uality
c. It may enter new market & sell its products with new distribution channels
d. +o attract more buyers, it may reduce the price.
5. Maturit &ta(e: +his stage indicates the capacity to face the competition, sales
increases at a decreasing rate. 'ompetition becomes severe. It is reflected in various
ways such as offering discounts, modifying products etc.
Mar'etin( &trate(ies durin( Maturit Period9&ta(e3 In this stage, the manufactures
have to take responsibility to promote his product. +his strategy aims at creating brand
<. &aturation &ta(e: +his is the stage when the sales reach the peak point. 'ompetition
intensifies further & profit begins to decline. Small competitors may withdraw from the
market because of their incapability to face the competition.
Mar'etin( &trate(ies: +his is the stage where the marketing manager must try to
reposition his product. &ost of the strategies in this stage are offensive in nature. $ach
manufacture tries to cut down his competitors market share by aggressive promotion
policy. +he ob0ective of marketing in this stage is to retain the present sales level.
A. *ecline &ta(e: "or all products, sales invariably declines as new products enter the
market. In this stage, there is a sharp decline in the profits, cost increases & market
share comes down. &ost of the manufactures withdraw from the market. Some may
reduce production & concentrate only on a limited market
&arketing Strategies3 +his stage offers one of the greatest challenge to the marketing
manager. (e has to decide whether or not to continue with the product. +he main task
of marketing manager is to revitali*e the demand instead of discontinuing the product
immediately. It is better to withdraw gradually. +hose channels of distribution, which are
costly & unproductive maybe removed. In the meantime, the weak points of the
marketing mi% maybe identified & altered as re4uired.
Reasons "or the Failure o" Ne0 Product:
!. .oor marketing research
#. :ot using the up/to/date technology
2. (igh price or to costly products
5. .oor design
<. Inefficient marketing
A. :on/cooperation from the middlemen
B. Improper promotional techni4ues
C. Improper timing of introduction of the new product.
.roduct planning is that part of marketing, which is concerned with determining the
products to be offered, deleted & diversification.
O!:ectives o" Product Plannin(:
.roduct planning is one of the most important functions of a marketing manager. +he
following are its ob0ectives3
!. +o offer products based upon customer needs.
#. +o diversify, to capitali*e on the companys strength.
2. +o utili*e the available resources more profitability.
5. +o decide on the elimination of non/profitable products.
<. +o change the features of the product as per the changes in the market.
A. "or long/term survival.
$omponents o" Product Plannin(:
!. .roduct Innovation
#. .roduct -iversification
2. .roduct -evelopment
5. .roduct Standardi*ation
<. .roduct $limination
A. .roduct &i% & .roduct 8ine
!. Product Innovation: Innovation is a part of continuous improvement. In the absence of
innovation, products become stale & hence die in the market. Innovation is re4uired to
keep up with the phase of changing market needs. According to -rucker, Innovation
will change customers wants, create new ones, e%tinguish old ones & create new ways
of satisfying wants.
#. Product *iversi"ication: >hen a manufacturer offers more products in different areas,
it is referred as product diversification. In fact, when a manufacturer diversification.
-iversification normally involves business in a new area. $g3 I+' entering into hotel
business, sony entering into film production business.
2. Product *evelopment: It involves introducing a new product either by replacing the
e%isting one or innovating a completely new product. It can either be brand e%tension or
line e%tension. 'ompany must be careful while developing new products because
research shows that H#E of them fall in the market. Another danger of product
development is cannibali*ation.
5. Product &tandardi7ation: It implies a limitation of types of products in a given class. It
gives uniformity in terms of 4uality, economy, convenience & 9alue. $g3 $ach model of
+.9. gives a different standard. Standardi*ation promises a minimum level of
performance & hence is used as a benchmark for 4uality.
<. Product Elimination: +his involves an emotional decision of withdrawing the e%isting
product line. -ecision must be carefully taken based upon current market share, future
prospects etc. +he product elimination involves reviewing the present product portfolio,
analy*e their profitability & then decide on discontinuance of a product.
A. Product Mi# , Product -ine: .roduct line is defined as a group of products offered by
a company which belongs to same family of products or similar to each other or
substitutes. $g3 .roduct line of ponds for personal care products includes cold creams,
talcum powders, etc.
.roduct &i% is defined as combination of product lines offered by a company. $g3
.roduct mi% of 7a0a0 includes two wheelers, home appliances, electrical appliances,
financial products etc.
Product Port"olio Plannin(:
A product mi% & line of a company put together forms product portfolio of a company. It can
be e%plained in terms of product width, product depth I the product consistency. .roduct
width e%plains the number of product lines that a company offers, whereas product
indicates the number of products in each line & product consistency indicates the
closeness of items of range of products.
.rice of a product is its value e%pressed in terms of money which the consumers are
e%pected to pay. "orm the sellers point of view, it is return on the e%change & in economic
terms, it is the value of satisfaction.
Importance o" Price:
.rice is a key factor, which affects a companys operation. It plays an important role at all
levels of activities of a company. It influences the wages to be paid, the rent, interest &
profits. It helps in proper allocation of resources by controlling the price, the demand &
supply factor may easily be ad0usted.
O!:ectives o" Pricin(:
!. To increase the pro"it: this is the most common ob0ective. A company may fi% the
price with the aim of earning certain percentage of profits
#. Mar'et &hare O!:ective: some companies fi% the price with a view to capture new
market or to, increase or maintain the e%isting market share. +he ob0ective here is to
either avoid competition or to meet it.
2. To &ta!ili7e the Price: +his is usually followed in the oligopoly market by the market
leaders. +he ob0ective here is to avoid the price war & fluctuations in price.
5. To Recover $ost: +o get back the cost incurred as early as possible, is another
ob0ective of pricing. It is for this reason that different prices are set for cash & credit
sales for the same product.
<. Penetration O!:ective: +he ob0ective of penetration pricing is to fi% a low/price so
as to enter the new market.
A. To Maintain the Product Ima(e: In this case, the ob0ective is to fi% a higher price to
create a perception that the product is of superior 4uality. +his is called market
skimming strategy.
Factors In"luencin( the Price *etermination:
+he decision to fi% the price is influenced by many factors which are controllable &
uncontrollable. +hey are3
!. .roduct 'haracteristics.
#. -emand 'haracteristics.
2. &anufacturers ;b0ectives.
5. 'ost of the .roduct.
<. $conomic 'ondition.
A. Government ,egulation.
I+ Product $haracteristics:
a. Product -i"e $cle: A product manufacturer charges the price depending upon
the stages of the life cycle of the product. $g3 If he has introduced a new
product, he may charge a lower price & increase it when it enters the growth
b. Perisha!ilit: According to the general principle, other things being e4ual, if a
product is perishable, the price will be lower because it has to be sold as early
as possible.
c. Product &u!stitution: If there is a substitute in the market, then the price will
be either e4ual to or lower than the price of the substitute, because if the price
is more that the substitute, people may purchase the substitute product only.
II. *emand $haracteristics: It is one of the most important factors influencing the price.
+he company must forecast demand for its products & its elasticity before fi%ing the
price. -emand estimation helps a company to prepare sales & the e%pected price, the
consumers are willing to pay. +he e%pected price of the market is the influencing factor
here. According to the general principle, the final price fi%ed must neither be lower nor
higher than the e%pected price.
III. Manu"acturer%s O!:ective: If the manufacturer wants to increase the market share,
he has to fi% the competitive price. In other words, he has to offer more discounts etc.
;n the other hand, if his ob0ective is to increase profits, he may fi% a higher price.
I9. $ost o" the Product: &ost of the companies fi% the price on the basis of cost.
Accordingly, selling price is e4ual to total cost plus profit. +otal cost includes
manufacturers cost, administrative cost & selling cost.
9. Economics $ondition: According to the general economic theory, price will not be
lower during the depression & higher during the inflationary period. +he company has
no control over this factor because it is the result of general condition prevailing in the
entire country.
9I. Government .olicy ) ,egulation3 If government thinks necessary, it may fi% minimum
price for a product. If it wants to discourage consumptions, it may increase the price &
reduce it to encourage consumption.
Pricin( Policies , Pricin( Methods or *etermination or the Price:
I+ $ost Plus Pricin(: In this method, the cost of manufacturing a product serves as
the basis to fi% the price, the desired profit is added to the cost & the final price is
fi%ed. &ost of the companies follow this method. "ollowing are various methods of
cost J pricing.
a+ Price )ased on the Total $ost: (ere a percentage of profit is added to the
cost to calculate the selling price. It is usually followed by the whole sellers &
the retailers. "or industries such as construction, printing, repair shops, etc.
this method is more suitable.
!+ Price )ased on the Mar(inal $ost: It is the method of pricing where the
price is fi%ed to recover the marginal cost only. &arginal cost is the e%tra cost
incurred to produce e%tra units. (ence, this method is suitable only when
pricing decisions are to be taken to e%pand the market to accept the e%port
orders etc.
c+ )rea' Even Pricin(: Fnder this method, the price is fi%ed first to recover the
total cost incurred to produces the product. It is fi%ed in such a manner that
the company neither earns profit nor does it suffer losses. +his method is
suitable during depression when there is acute competition, when a new
product is to be introduced or when the product enters the declining stage of
its life.
Advanta(es o" $ost ; Pricin(:
!. +his method is simple & hence price can be easily determined.
#. 'ompanies, which cannot estimate the demand may follow this method.
2. It is suitable for long/term pricing policies
*is<advanta(es o" $ost ; Pricin(:
!. It neglects the demand factor of the product
#. It is difficult to determine the e%act cost.
II+ Pricin( )ased /pon $ompetition: 'ompetition based pricing is defined as a
method where a company tries to maintain its price on par with its competitors. It is
suitable when the competition is serve & the product in the market is homogenous.
+his price is also called the going rate price. +he company cannot take risk of either
increasing the price or decreasing it. "ollowing are some of the methods based upon
a+ Pricin( A!ove the $ompetition: It is usually followed by well/recogni*ed
manufacturers to take advantage of their goodwill. +he margin of profits is too
high. +his method is useful to attract upper class & upper middle class
!+ Pricin( )elo0 $ompetition -evel: +his type of pricing is followed by the
wholesalers & the retailers. +hey offer various kinds of discounts to attract
consumers. $ven established companies follow this method to maintain or to
increase their sales during the off season.
III+ Pricin( )ased on Mar'ets: -epending upon the market of product, the
manufacturers may fi% the price for their products. In a perfect market, he has to go
for the e%pected price in the market. It is also called the market price or going rate
price. In case of monopoly, he is free to fi% the price & can effectively practice the
price discrimination policy.
In oligopoly where there are few sellers, the price is fi%ed by the largest seller called
the market leader & others follow him. If price is above this level, he loses sales
considerably & if he reduces it, sales may not increase because competitors
immediately react & reduce their price also.
It is the duty of the manufacturers to know about & accept their products & price for this
purpose, they have to communicate with, persuade, & motivate them. +o achieve this, they
use promotional strategies. .romotion is the means through which a company meets its
prospective customers.
Meanin( o" Promotion: .romotion is a part of an organi*ation marketing mi% that is used
to inform & persuade the market regarding its products & services.
Promotion Mi#: It is a combination of personal selling, advertising, sales promotion,
publicity & public relations that helps an organi*ation to meet its marketing ob0ectives.
$ommunication Process in Mar'etin(: 'ompanies to be successful must communicate
effectively. $ffective communication is one which is received by the receiver in its original
meaning as sent by the sender. In marketing, effective communication must be capable of
making the consumers understand what the company is going to say. "ollowing are the
steps in communication process3
!. Identi"in( the Tar(et Mar'et: It is concerned in finding out to whom the message is
being prepared. "or each group of consumers or distributors a different message is
re4uired. Identifying the target, market helps a company to ascertain tastes,
preferences etc of the consumers.
#. *etermine the communication O!:ective: After analy*ing target market & their
characteristics, the ne%t step is to find out what is desired from the communication, to
attract the target market.
2. *esi(nin( the Messa(e: >hile designing the message, the marketing manager must
understand what to communicate & to whom to communicate. +he message must be
prepared in such a way that it reaches the target market effectively.
5. &electin( $ommunication $hannels: A company can use two types of channels of
communications, namely personal & non/personal.
.ersonal channel refers to
communicating directly with the target
market through salesmen
:on/personal channels are also called
indirect channel & they include newspapers,
+9, publicity, etc.
<. Allocatin( o" Promotional )ud(et: (ere the amount is to be spent to promote the
product is fi%ed. -ecision is also taken on the amount to be spent on various media.
A. *ecidin( on the Promotion Mi#: (ere money is allocated to various tools of
promotion. 7efore deciding, the marketing managers have to analy*e the nature &
impact on the market of each kind of production.
Factors A""ectin( the &election o" Promotion Mi#:
!. Tpe o" the mar'et: .romotion of industrial products re4uires a different strategy from
the promotion of consumer products. $g3 .ersonal selling is the ma0or tool of promotion
for industrial products, whereas advertising is a ma0or tool for consumer product.
#. Product -i"e $cle: A product re4uires different kinds of promotion in different stages
of its life. In the introduction stage, advertising & publicity are used. In the growth state,
all means of promotion are given due importance. In the maturity stage, personal selling
is used mostly & in the decline stage, it is the sales promotion which is the most
influencing factor.
2. Push , Pull &trate(: .ush strategy refers to the manufacturer using the sales force to
push the sales. (e promotes the product aggressively to the wholesalers. >holesalers
promote to retailers & retailers aggressively promote to the consumers. +his is can be
illustrated as follow3
Push &trate(
Promotes To
&anufacturers >holesalers ,etailers 'onsumers
In case of pull strategy, manufacturer using heavy advertisement, publicity etc.
promotes directly to the consumers. 'onsumers ask the retailers for the products.
"eeling the demand, retailers force the wholesalers to sell)supply the product &
wholesalers come to the manufacturer finally. It can be illustrated as below3
Promotes to
&anufacturers >holesalers ,etailers 'onsumers
+he main advantages of pull strategy is that the manufacturers need not depend upon
the wholesalers & retailers to sell his product & also this method helps him to create
brand loyalty.
5. )uer%s Attitude: $g3 If buyers are positive in action, promotion aims at reminding
them about the availability of the product.
Tools o" Promotion
I. Advertisin(: +he word Advertise has been derived from the word Ad which means
Turn & Verto meaning to0ards. (ence the term advertising means to turn the
attention towards something.
*e"inition: According to the Philip Kotler, Advertising consists of non/personal or one
way form of communication conducted through paid media under clear sponsorship.
O!:ectives o" Advertisin(: +he main ob0ective of advertising may be e%plained in the
=AI*A& formula, where A>Attract the attention? I>$reate interest @readA? *>*esire
@li'eA? A>Action @actA? &>&atis"action+
In other words, a god advertisement must attract the consumers, create interest in
them, make them to desire the product & finally they should buy the product. +he other
ob0ectives are3
a. +o bring to the notice of consumers, the product, the features, uses etc.
b. +o make an immediate sale.
c. +o build demand in case of a new product.
d. +o build the brand recognition
e. +o increase market share
f. +o build overall image of the company
g. +o reach new market.
Factors A""ectin( the Media &election:
!. The o!:ective o" Advertisin(: $g3 If immediate action is re4uired radio, tv,
newspapers, etc, may be used.
#. The Geo(raphical Factors: +he geographical factors such as circulation of the
media, re4uired coverage, etc.
2. Nature o" the messa(e: $g3 If the advertisement is 0ust to inform people about
something, only signboards can be used.
5. $ost o" the Media: $g3 :ewspapers are the cheapest medium, whereas +9 is
<. +he financial resources available.
A. +he nature of the product
B. +he nature of the consumers
C. .ower of the media to reach the target market.
Kinds o" Advertisin( Media or Media or Advertisin(:
1+ Press Pu!licit or the Print Media:
a. Ne0spapers: :ewspapers are useful to advertise all types of product. +hey
are more fle%ible & cheaper. In case of products, which are to be sold 4uickly
or within a limited period, this is the most useful media. 7efore selecting a
particular newspaper, the advertiser must take into account its circulation,
readers, cost, etc.
i6 It reaches almost all places, hence the e%posure is ma%imum.
ii6 As newspapers are published daily, continuous publicity is possible.
iii6 +hey are more fle%ible, economical, & convenient.
iv6 Advertising may be changed according to the re4uirements.
i6 +he life of advertisement is very short
ii6 It becomes a waste if the readers do not go through the
iii6 It becomes a waste if there is no market for the product advertising in
the place of circulation.
b. Ma(a7ines: &aga*ines are read leisurely & they are more attractive.
&aga*ines may be either general meant for general readers. $g3 India +oday
or specific that is specially meant for a particular group, $g3 7usiness India,
>omens $ra etc.
i6 +he 4uality of advertisement is better because of the better design,
print, color, & 4uality of the paper.
ii6 +he advertisement reaches the target market.
iii6 Almost all advertisements are read because their number will be
limited, they are more attractive & readers have enough time to go through
i6 It is not fle%ible
ii6 It is comparatively costlier
iii6 As it is published periodically, urgent messages cannot be advertised.
II+ *irect Mail Advanta(es:
+his method is more popular in case of mail order business. +he advertiser maintains a
list of prospective customers & the advertisement is dispatched to them directly by post.
Advertisement may be in the form of circulars, leaflets, broachers, catalogues, etc.
!. +he advertiser can reach any part of the country & convey his message directly to
the customer
#. It tries to build personal contact as the message is addressed to the customer
2. +he message can be altered according to the re4uirements.
5. It reaches the target market.
!. It is very difficult to prepare the list of prospective customers
#. In case of products, which need personal attention inspection before & after sales
services, it cannot be used.
III+ Outdoor Advertisin(:
+his is the oldest form of advertising1 it is suitable to promote products that need a wide
appeal. &essages are e%hibited at busy streets & places. +hey are primarily meant for
the moving population. ;utdoor advertising helps the advertiser to remind the people of
his product fre4uently. .osters, .aintings, $lectronic Signboards, Sky >riting, etc. are
the various forms of outdoor advertising.
!. It attracts the attention of the people
#. It is fle%ible & comparatively cheaper
2. It has mass appeal
5. It is useful to promote the brand name.
!. +he message is limited
#. It is difficult to find out the impact of advertisement
2. It is not primary form of advertising
5. At the best, it supplements other methods.
IV+ The )roadcast Media:
a. Radio: In our country, radio as a means of advertising was first used in !H#B, at
present it is one of most effective tools of advertising. In almost all countries,
sponsored commercial programs are very popular3
i. Its coverage is wide
ii. It reaches even the illiterate consumers.
iii. It is more fle%ible, in the sense that the advertiser can broadcast the messages
at the language he wants it.
iv. +he changes of being heard are more because advertisements are broadcasted
in between various popular programs.
v. Advertisements are effective because they are recreational in nature.
vi. "or emergency announcement, this is the most suitable media.
i. As it reaches general consumers, advertisement e%penditure may become
ii. Its life is e%tremely short
iii. It is more e%pensive.
b. Television: 7eing one of the important instruction in the field of marketing it has
occupied position. &ost manufacturers prefer this medium because it has both audio
& visual effect. It is suitable for consumer shopping & specialty goods & all types of
industrial goods.
!. It is the only medium, which appeals to both eye & ears.
#. 'reativity may be achieved
2. It is more life than any other medium.
5. It is more fle%ible, i.e., advertisement can be telecasted when programs relate to
a particular group are telecasted. $g3 &anufactures of toys may telecast their
advertisement when childrens programs are being telecasted.
!. 7ecause of too many advertisements, consumers may lose interest in them.
#. +he life is e%tremely short
2. It is the costliest form of advertisement.
c. $inema: It is one of the most popular media in our country. It attracts a wide
audience. +he main advantage is that almost all advertisements are looked at &
read by the people. 'inema advertisement may be in the form of slides, animation,
documentaries, etc.
+he main disadvantage is that its life is very short, in other words, when once the
cinema begins people may forget all advertisements.
d. ;nline Advertising or Interest Advertising3 ;ne of the features of $/marketing is
online advertising. Its popularity is increasing of late as it reaches the target market
directly1 scrolls, banners, etc are some of the forms of online advertising.
e. Advertising on &obiles3 +he advent of mobile phones has changed the nature of
advertising drastically. .eople advertise directly to mobile phone users through
messages @S&S6. +his method of marketing is referred to as vital marketing.
$%hibition, fairs, demonstration, window display etc are other forms of advertisements.
$riticisms o" Advertisin(:
!. It is considered as an unproductive e%penditure.
#. It forces the people to purchase those products, which are not within reach.
2. It increase the cost of the product
5. It makes people to become slaves of a particular brand.
<. &ost advertisements mislead the people
A. &ost advertisements are unethical & immortal
B. It is used as a tool to deceive people
C. +hey make false claims & omit certain things intentionally.
+he above points prove that advertisement is a mere waste. 7ut a deeper analysis proves
otherwise, it facilitates production & consumption functions. As its results are intangible, it
cannot be considered as a wasteful e%penditure. It stimulates competition & helps the
people to get the better products at reasonable price.