Beginners Marketing Guide

for Pricing & Marketing Channels

 CONTENTS

Pricing decisions:

1. Significance of pricing,
2. Factor Influencing pricing (Internal factor and External factor),
3. Objectives,
4. Pricing Strategies-Value based, Cost based, Market based, Competitor
based,
5. Pricing Procedure.

Marketing Channels:

1. Importance ,Meaning & Purpose,

2. Factors Affecting Channel Choice,
3. Channel Design,
4. Channel Management Decision,
5. Channel Conflict,
6. Designing a physical Distribution System
7. Network Marketing.
8. Advent of Omni Channel
Preface

In management school, we learn that there are 7 Ps in the marketing mix:

product, place, people, process, physical evidence, promotion, and price.

Traditionally, each of these P’s has been an important way to differentiate

your company from the competition. Whether it was the quality of your
product or the location of your store, these P’s served as sign posts telling
your customers why they should buy from you.

But do each of these P’s still hold up in the 21st century? The short answer
is yes, but the importance of each is changing.

Today’s retail market differs vastly from the 1990s and the 2000s, and the
internet has fundamentally changed the retail sector. Consumers now have
the power to comparison shop instantly. The rise of online shopping also
eliminates the need for physical stores and opens up competition to the
entire internet, not just the physical locations nearby.
These changes have a huge impact on the way shops should manage their
marketing — and which P’s they should pay attention to in the marketing
mix. As the internet has leveled the online playing field, one P has emerged
as the clear focus for most consumers: Price.

In fact, price is so important, McKinsey found that just a 1% improvement

in pricing raises profits by 6%.

That's more influential than a 1.0% reduction in variable costs (which

increased profits by 3.8%) or a 1% reduction in fixed costs (which yielded a
1.1% increase in profits).

Place

Another P we must not forget is Place. Given the price marketing channels
are the key to reach the customer. Marketing Channels are wheels of the
economy which drives small and medium businesses. A strong marketing
channel gives strength to the brand contributes to the seamless distribution
of the company`s products and services.
Case study: Turning pricing complexity into a price advantage that boosts
return on sales

By Mckinsey
How to price for maximal returns with minimal investment of time, effort,
and resources.
Pricing has become a Big Data question without an easy answer. The vast
complexity around pricing today presents many B2B companies with a
dilemma: how to increase returns by making better pricing decisions without
investing prohibitively high amounts of time, effort, or resources.
The technology exists to make better pricing decisions. What is often lacking,
however, is a complete program that integrates the technology with the
people on the front lines who will be using it and a system to sustain pricing
excellence over time.
That challenge bedeviled one multinational chemicals company. The
majority of its pricing decisions tended to be based on across-the-board
“mass pricing,” resulting in significant losses. Unwarranted high prices were
driving “good customers” away, while opportunities were squandered with
customers who were willing to pay more. Pricing complexity—thousands of
products for tens of thousands of customers—made it difficult to develop a
manageable fact base for sales reps and get to a level of detail that would
unlock pricing opportunities.
Here are the stages that were successful for this multinational chemicals
company:
1. Build an analytics engine
Before analyzing the data, the team had to create a useful data set. Pulling
in and cleaning data from several different sources, they created a huge data
warehouse containing all the transaction history on price, products, and
customers for the previous year. For the first time, the company had full
transparency into the real cost of deploying pricing and sales force discount
strategies.
Making sense (and use) of the data, however, required a sophisticated tool.
The company developed one based on statistical algorithms that allowed
the team to get a much more granular view of prices and customers. For
example, it clustered segments by product and recommended target prices
for each one. The tool also incorporated advanced visualization techniques
so that pricing and sales reps on the front lines could easily understand and
manipulate the data.

2. Involve the front line

The tool determined pricing guidelines, but they had to be tested. The
pricing-analytics team incorporated active input from the front-line pricing
and sales managers, who had good experience with individual customers
and the marketplace. The managers and reps reviewed each price
recommendation and adjusted it for the risk of losing customers.
This risk-adjustment phase incorporated quantitative and qualitative factors
(such as average profitability per client or recency of the pitch) covering
market, customer, and product specifics. To help with the assessment, the
team developed a simple sales-force risk survey that only took fifteen
seconds to answer for each customer.

3. Keep the implementation simple

Many good pricing solutions get bogged down in cumbersome validation

procedures. To eliminate that problem, the team developed an online work-
flow management system that used advanced visualization techniques so
that sales managers and reps could quickly review and validate the size and
timing of every price increase. It also provided standardized validation
analyses, such as benchmarks vis-à-vis other sales reps, to help sales
managers challenge the sales force to perform better.
This referral and approval process was simplified by incorporating it within
a single system, while the output of validated prices was tailored so as to be
uploaded to the client’s existing software systems. Critical to the success of
the approach was having the client influence how it was developed (such as
choosing how to quantify the risk variables) as well as tailoring the output
to be easily integrated into existing Enterprise Resource Planning (ERP)
systems.

4. Build for the long term

The most difficult part of a pricing program is getting beyond the initial
short-term burst of energy. The company committed to a program
grounded on training a set of trainers, who were made responsible for
replicating the initial program throughout the organization. The training
focused on helping pricing managers better segment customers, design the
right risk assessment for a specific business unit, and build support across
the organization.
To build confidence in the front-line sales force to negotiate and
implement pricing changes, the team developed experiential learning
programs that required reps to take part in tailoring the pricing approach,
practice customer negotiations in specifically designed role plays, and
engage in brainstorming sessions to generate price-increase
arguments/counterarguments.

Impact

This effort resulted in a return on sales between 3 percent and 7 percent

across seven different countries in which the company rolled out the
program.
1.Significance of Pricing:
✓ Price is the amount of money charged for a product or service.
✓ Total value that customers exchange for the benefits of having or using
products or services.
✓ Of all the elements, price is the only one that generates revenue. All
other generates only cost.
✓ Most important determinant of the profitability of any company.
✓ By manipulating the price, the company adjusts the level of cash flow
and funds available for other elements of the marketing mix.

Importance of Pricing in Marketing Strategy

1. Price is the Pivot of an Economy:

In the economic system, price is the mechanism for allocating resources and
reflecting the degrees of both risk and competition. In an economy
particularly free market economy and to a less extent in controlled economy,
the resources can be allocated and reallocated by the process of price
reduction and price increase.

Price policy is a weapon to realize the goals of planned economy where

resources can be allocated as per planned priorities.

Price is the prime mover of the wheels of the economy namely, production,
consumption, distribution and exchange. As price is a sacrifice of purchasing
power, it affects the living standards of the society; it regulates business
profits and, hence, allocates the resources for the optimum output and
distribution. Thus, it acts as powerful agent of sustained economic
development.

2. Price regulates demand:

The power of price to produce results in the market place is not equalled by
any other component in the product-mix.

It is the greatest and the strongest ‘P’ of the four ‘Ps’ of the mix. Marketing
manager can regulate the product demand through this powerful instrument.
Price increases or decreases the demand for the products. To increase the
demand, reduce the price and increase the price to reduce the demand.

Price has a special role to play in developing countries where the marginal
value of money is high than those of advanced nations. De-marketing
strategy can be easily implemented to meet the rising demand for goods and
services.

As an instrument, it is a big gun and it should be triggered exclusively by

those who are familiar with its possibilities and the dangers involved.

It is so because; the damage done by improper pricing may completely sap

the effectiveness of the well-conceived marketing programme. It may
defame even a good product and fame well a bad product too.

3. Price is competitive weapon:

Price as a competitive weapon is of paramount importance. Any company
whether it is selling high or medium or low priced merchandise will have to
decide as to whether its prices will be above or equal to or below its
competitors. This is a basic policy issue that affects the entire marketing
planning process. Secondly, price does not stand alone as a device for
achieving a competitive advantage.
In fact, indirect and non-price competitive techniques often are more
desirable because, they are more difficult for the competitors to copy. Better
results are the outcome of a fine blend of price and non-price strategies.
Thirdly, there is close relationship between the product life-cycle and such
pricing for competition.

There are notable differences in the kinds of pricing strategies that should
be used in different stages. Since the product life span is directly related to
the product’s competitiveness, pricing at any point in the life-cycle should
reflect prevailing competitive conditions.

4. Price is the determinant of profitability:

Price of a product or products determines the profitability of a firm, in the

final analysis by influencing the sales revenue. In the firm, price is the basis
for generating profits. Price reflects corporate objectives and policies and it
is an important ingredient of marketing mix. Price is often used to off-set
the weaknesses in other elements of the marketing-mix.

Price changes can be made more quickly than any other changes in the
product, channel, and personal selling and sales-promotion includes
advertising. It is because; price change is easily understood and
communicating to the buyer in a precise way. That is why, price changes are
used frequently for defensive and offensive strategies. The impact of price
rise or fall is reflected instantly in the rise or fall of the product profitability,
thinking that other variables are unaffected.
5. Price is a decision input:
In the areas of marketing management, countless and crucial decisions are
to be made. Comparatively marketing decisions are more crucial because,
they have bearing on the other branches of business and more difficult as
the decision-maker is to shoot the flying game in the changing marketing
environment.

Normally, profit or contribution is taken as a base for pay-off conditions.

Price can be a better criterion for arriving at cut-off point because; price is
the determinant of profit or contribution.

As pointed earlier, price as an indicator has a special role in the decision-

making process in developing countries because, consumer response to price
changes will be more quick and tangible as people have higher marginal value
of money at their disposal. For instance, if it is a decision regarding selecting
product improvement possibilities, select that possibility which gives the
highest price as compared to the cost.

These five points make product pricing an important and major function of
marketing manager. However, until recently, it has been one of the most
neglected areas of marketing management.

In fact, we must have a specialist in pricing as we do have in other functions

of marketing. This negligence is quite evident from the fact that even the
well-known companies in the world price their products on simple concepts
of costs market position competition and desired profit. Scientific pricing is
much more than this easy exercise.
 2.Factors Influencing pricing

Internal Factors:

1. Cost:
While fixing the prices of a product, the firm should consider the cost
involved in producing the product. This cost includes both the variable and
fixed costs. Thus, while fixing the prices, the firm must be able to recover
both the variable and fixed costs.

2. The predetermined objectives:

While fixing the prices of the product, the marketer should consider the
objectives of the firm. For instance, if the objective of a firm is to increase
return on investment, then it may charge a higher price, and if the objective
is to capture a large market share, then it may charge a lower price.

3. Image of the firm:

The price of the product may also be determined on the basis of the image
of the firm in the market. For instance, HUL and Procter & Gamble can
demand a higher price for their brands, as they enjoy goodwill in the market.

4. Product life cycle:

The stage at which the product is in its product life cycle also affects its price.
For instance, during the introductory stage the firm may charge lower price
to attract the customers, and during the growth stage, a firm may increase
the price.

5. Credit period offered:

The pricing of the product is also affected by the credit period offered by
the company. Longer the credit period, higher may be the price, and shorter
the credit period, lower may be the price of the product.
6. Promotional activity:
The promotional activity undertaken by the firm also determines the price.
If the firm incurs heavy advertising and sales promotion costs, then the
pricing of the product shall be kept high in order to recover the cost.

B. External Factors:

1. Competition:
While fixing the price of the product, the firm needs to study the degree of
competition in the market. If there is high competition, the prices may be
kept low to effectively face the competition, and if competition is low, the
prices may be kept high.

2. Consumers:
The marketer should consider various consumer factors while fixing the
prices. The consumer factors that must be considered includes the price
sensitivity of the buyer, purchasing power, and so on.

3. Government control:
Government rules and regulation must be considered while fixing the prices.
In certain products, government may announce administered prices, and
therefore the marketer has to consider such regulation while fixing the prices.

4. Economic conditions:
The marketer may also have to consider the economic condition prevailing
in the market while fixing the prices. At the time of recession, the consumer
may have less money to spend, so the marketer may reduce the prices in
order to influence the buying decision of the consumers.

5. Channel intermediaries:
The marketer must consider a number of channel intermediaries and their
expectations. The longer the chain of intermediaries, the higher would be
the prices of the goods.
 3.Pricing Objectives:

Pricing can be defined as the process of determining an appropriate price for

the product, or it is an act of setting price for the product. Pricing involves
a number of decisions related to setting price of product. Pricing policies are
aimed at achieving various objectives. Company has several objectives to be
achieved by the sound pricing policies and strategies. Pricing decisions are
based on the objectives to be achieved. Objectives are related to sales
volume, profitability, market shares, or competition. Objectives of pricing
can be classified in five groups as shown in figure 1.

1. Profits-related Objectives:
Profit has remained a dominant objective of business activities.

Company’s pricing policies and strategies are aimed at following

profits-related objectives:

i. Maximum Current Profit:

One of the objectives of pricing is to maximize current profits. This
objective is aimed at making as much money as possible. Company tries to
set its price in a way that more current profits can be earned. However,
company cannot set its price beyond the limit. But, it concentrates on
maximum profits.
ii. Target Return on Investment:
Most companies want to earn reasonable rate of return on investment.

Target return may be:

(1) fixed percentage of sales,

(2) Return on investment,

Company sets its pricing policies and strategies in a way that sales
revenue ultimately yields average return on total investment. For
example, company decides to earn 20% return on total investment of
3 crore rupees. It must set price of product in a way that it can earn 60
lakh rupees.

(3) A fixed rupee amount.

Company sets its pricing policies and strategies in a way that sales
revenue ultimately yields average return on total investment. For
 example, company decides to earn 20% return on total investment of
3 crore rupees. It must set price of product in a way that it can earn 60
lakh rupees.

2. Sales-related Objectives:
The main sales-related objectives of pricing may include:
i. Sales Growth:
Company’s objective is to increase sales volume. It sets its price in such a
way that more and more sales can be achieved. It is assumed that sales
growth has direct positive impact on the profits. So, pricing decisions are
taken in way that sales volume can be raised. Setting price, altering in price,
and modifying pricing policies are targeted to improve sales.

ii. Target Market Share:

A company aims its pricing policies at achieving or maintaining the target
market share. Pricing decisions are taken in such a manner that enables the
company to achieve targeted market share. Market share is a specific volume
of sales determined in light of total sales in an industry. For example,
company may try to achieve 25% market shares in the relevant industry.

iii. Increase in Market Share:

Sometimes, price and pricing are taken as the tool to increase its market
share. When company assumes that its market share is below than expected,
it can raise it by appropriate pricing; pricing is aimed at improving market
share.
3. Competition-related Objectives:
Competition is a powerful factor affecting marketing performance. Every
company tries to react to the competitors by appropriate business strategies.

With reference to price, following competition-related objectives may

be prioritized:

i. To Face Competition:
Pricing is primarily concerns with facing competition. Today’s market is
characterized by the severe competition. Company sets and modifies its
pricing policies so as to respond the competitors strongly. Many companies
use price as a powerful means to react to level and intensity of competition.

ii. To Keep Competitors Away:

To prevent the entry of competitors can be one of the main objectives of
pricing. The phase ‘prevention is better than cure’ is equally applicable here.
If competitors are kept away, no need to fight with them. To achieve the
objective, a company keeps its price as low as possible to minimize profit
attractiveness of products. In some cases, a company reacts offensively to
prevent entry of competitors by selling product even at a loss.

iii. To Achieve Quality Leadership by Pricing:

Pricing is also aimed at achieving the quality leadership. The quality
leadership is the image in mind of buyers that high price is related to high
quality product. In order to create a positive image that company’s product
is standard or superior than offered by the close competitors; the company
designs its pricing policies accordingly.

iv. To Remove Competitors from the Market:

The pricing policies and practices are directed to remove the competitors
away from the market. This can be done by forgoing the current profits – by
keeping price as low as possible – in order to maximize the future profits by
charging a high price after removing competitors from the market. Price
competition can remove weak competitors.
4. Customer-related Objectives:
Customers are in center of every marketing decision.Company wants to
achieve following objectives by the suitable pricing policies and practices:

i. To Win Confidence of Customers:

Customers are the target to serve. Company sets and practices its pricing
policies to win the confidence of the target market. Company, by appropriate
pricing policies, can establish, maintain or even strengthen the confidence of
customers that price charged for the product is reasonable one. Customers
are made feel that they are not being cheated.

ii. To Satisfy Customers:

To satisfy customers is the prime objective of the entire range of marketing
efforts. And, pricing is no exception. Company sets, adjusts, and readjusts
its pricing to satisfy its target customers. In short, a company should design
pricing in such a way that results into maximum consumer satisfaction.

5. Other Objectives:
Over and above the objectives discussed so far, there are certain objectives
that company wants to achieve by pricing.

They are as under:

i. Market Penetration:
This objective concerns with entering the deep into the market to attract
maximum number of customers. This objective calls for charging the lowest
possible price to win price-sensitive buyers.

ii. Promoting a New Product:

To promote a new product successfully, the company sets low price for its
products in the initial stage to encourage for trial and repeat buying. The
sound pricing can help the company introduce a new product successfully.

iii. Maintaining Image and Reputation in the Market:

Company’s effective pricing policies have positive impact on its image and
reputation in the market. Company, by charging reasonable price, stabilizing
price, or keeping fixed price can create a good image and reputation in the
mind of the target customers.

iv. To Skim the Cream from the Market:

This objective concerns with skimming maximum profit in initial stage of
product life cycle. Because a product is new, offering new and superior
advantages, the company can charge relatively high price. Some segments
will buy product even at a premium price.

v. Price Stability:
Company with stable price is ranked high in the market. Company
formulates pricing policies and strategies to eliminate seasonal and cyclical
fluctuations. Stability in price has a good impression on the buyers. Frequent
changes in pricing affect adversely the prestige of company.

vi. Survival and Growth:

Finally, pricing is aimed at survival and growth of company’s business
activities and operations. It is a fundamental pricing objective. Pricing
policies are set in a way that company’s existence is not threatened.
 4.Pricing Strategies:

Value Based Pricing strategy-

Pricing a product based on the value the product has for the customer and
not on the cost of production or any other factor. Value based pricing sells
the product at the price based on customer’s perceived value of the product.
Such pricing is used on the luxury items where the actual value is quite
different from the perceived value. The luxury item may not actually cost
nearly as much to make as what people are prepared to pay for it. It is
important to note that this method of pricing is based on a sound
understanding of how customers judge value , for determining the value the
companies generally find the value through customer surveys, focus groups,
which is then used to determine the price.

Value = perceived benefits received/perceived price paid.

Value Based Pricing Example…Basketball Coach

Imagine you wanted to learn how to

dribble the ball a little bit better on the
basketball court. You might pay:

$100/hr = Regular basketball coach.

$250/hr = Coach that taught a famous
basketball team.
$100,000+/hr = LeBron James as your
personal basketball coach.
Cost based pricing strategy- cost of production is the most important
variable and most important determinant of its price. There may be many
types of costs such as fixed cost, variable cost, total cost, average cost and
marginal cost.

a) Mark – up pricing or cost plus pricing: in this method, the marketer

estimates the total cost of producing or manufacturing the product and
then adds it a mark up or the margin that the firm wants. This is indeed
the most elementry pricing methods and many of services and projects
are priced accordingly.

b) Full cost or Absorption cost pricing: Absorption costing means that

all of the manufacturing costs are absorbed by the units produced. In
other words, the cost of a finished unit in inventory will include direct
materials, direct labour, and both variable and fixed manufacturing
overhead. Absorption costing is also referred as full costing or full
absorption method. Absorption costing is costing system which treats
all costs of production as product costs, whether they are variable or
fixed
c) Break even pricing: Breakeven point is the volume of sales at which
the total sales revenue of the product is equal to its total cost. It can
also be said that break even point is the volume of sales at which there
is no profit and no loss. Therefore this method is also known as “ No
profit no loss Zone “

In the short run the enterprise will not make any pofit but in long run,
it will start to earn profit and higher be the scale of production, more
will be the amount of profit to the enterprise because all fixed costs
remain constant at all levels of production and as the fixed costs are
recovered in the beginning, the enterprise starts to get profit with
increase in sales above break even point.
 d) Rate of return or target pricing method : under this method of price
determination, a rate of return desired by the enterprise on the amount
of capital invested by its determined. The amount of profit desired by
the enterprise is calculated on the basis of this rate of return. This
amount of profit is added to the cost of production of the product and
thus, the price per unit of the product is determined. This method of
price determination can be used by an enterprise to get a certain return
on invested capital. The use of this method is possible only when there
is no competition in the market.

Market based Pricing strategy or Competitor based pricing :

Most companies fix the prices of their products after a careful consideration
of the competitor’s price structure. Four pricing methods are available under
this method.

Parity pricing or Going Rate pricing :Here the price of the product is
determined on the basis of the price of competitor’s products. This method
is used when the firm is new in the market or when the existing firm
introduces a new product in the market. This method is used when there is
a tough competition in the market. The method is based on the assumption
that a new product will create demand only when its price is competitive. In
such case the firm follows the market leader.

Price below competitive level or discount pricing : discount pricing means

when the firm determines the price of its products below the competitive
level i.e below the price of the same products of the competitors. This
method is used by new firms entering the market.

Pricing above Competition level or Premium Pricing : premium pricing

means where the firm determines the price of its product above the price of
the same products of the competitors. Price of the firm’s product remains
higher showing that its quality is better. The price policy is adopted by the
firms of high reputation only because, they have created the image of quality
producer in the minds of the public. They became the market leader.

Competitive Bidding/ sealed Bid/ Tender pricing : In a large number of

projects, and marketing to the government , suppliers are asked to submit
their quotations, as a part of tender. The price quoted reflects the firm’s cost
and its understanding of competition.

If the firm has to price its offer only at its cost level, it may be the lowest
bidder and may even get the contract but may not make any profit out of the
deal. So it is important that the firm uses expected profit at different price
levels to arrive at the most profitable price. This can be arrived at by
considering the profits and profitability of getting a contract at different
prices. This method obviously assumes that the firm has complete
knowledge or information about the competition and the customer.

Pepsi vs Coke is ideal example competition based

pricing. Since they are direct competition they have to
be sensitive of each other’s pricing.

Customer Demand based pricing : under this method of pricing, price is

fixed by adjusting it to the market conditions. A high price is charged when
or where the demand is intense and a low price is charged when the demand
is low. The following methods are used under this category
a) What the traffic can bear pricing/purchasing power pricing method :
here the pice of the product is determined on the basis of what the
purchaser can bear or pay. What purchases can pay depends upon their
purchasing power. Generally, luxury goods or fashion goods,
cosmetics, are price on this basis. It is more used by retailers rather
than by manufacturing firms.

This method brings high profits in short run. But in the long run, this
concept is not safe. Chances of errors in judgements are very high.

b) Skimming Based pricing : one of the most commonly discussed pricing

methods is skimming prcing. This pricing method to the firm’s desire
to skim the market, by selling at a premium price. This pricing method
delivers results in the following situation :

1) When the target market associates quality of the product with its
price, and high price is perceived to means of high quality of the
product.

2) When the customer is aware and is willing to buy the product at a

higher price just to be an opinion leader.

3) When the product is perceived enhancing the customer’s status in

the society.

4) When competition is non – existent or the threat from potential

competition exists in the industry because of low entry and exit
barriers.

5) When the product represents significant technological

breakthroughs and is perceived as a high technology product.

Apple when it launches its new product Iphone-5,6 till

11,12 currently, it adopts a skimming price strategy as it
is perceived as high technological product with status
value.
 Penetration Based pricing: the objective of penetration pricing
method is to gain a foothold in a highly competitive market. The
objective of this pricing method is market share or market
penetration. Here, the firm prices its product lower than the others
do in competition. This method delivers results in the following
situations:

• when the size of the market is large and it is a growing market.

• When the customer loyalty is not high, customers have been

buying the existing brands more because of habit rather than
any specific preferences for it.

• When the market is characterized by intensive competition

• When the firm uses it as an entry strategy.

Steps for Setting the Price

Selecting the pricing objective

Determining demand

Estimating costs
Analyzing competitor’s costs,
prices and offers

Selecting a pricing method

Selecting the final price

I. Selecting the pricing objective –
1. Survival – Plagued with overcapacity, intense competition or changing
consumer wants and the motive is just to survive in the market. Eg.
Asian paints reduced the price across all the paint items to survive in
the market.
2. Maximum current profit – Estimate the demand and costs associated
with alternative prices and choose the one that produces maximum
current profit. Eg. British Airways is concentrating more on premium
class passengers by reducing economy class seats to earn maximum
profit.
3. Maximum market share – Higher sales volume lead to lower unit
costs and higher long run profit. Marketers set a large plant, set its price
as low as possible, win a large market share, experience falling costs
and cut its price further as costs fall. Eg. LG came with reasonably
priced products in the beginning to gain maximum market share.

II. Determining Demand

1. Price sensitivity – Buyers are less price sensitive to low cost items or
items they buy infrequently, there are few or no substitutes or
competitors, they think high prices is justified and price is only a small
part of the total cost.
2. Price elasticity of demand – Products where change in price does
not cause much difference in the quantity demanded have inelastic
demand. Marketers can charge high price for these products.
If the change in price causes much difference in the quantity
demanded, then such products have elastic demand. A small reduction
in price can increase the sales of the product.

III. Estimating Cost – Demand sets the ceiling and cost sets the floor.
Manufacturer has to cover its cost of producing, distributing and selling the
product including return for its effort and risk.
1. Types of cost and production – Fixed Cost – Does not vary with
production level or sales revenue. Eg. Salary, light, rent, heat, interest
etc.
Variable cost – Vary directly with the level of production. Eg. For
calculators, cost of plastic, microprocessor chip and packaging vary with the
level of production.
Total cost = FC + VC
Average cost = Total Costs
No. of units produced

IV. Analyzing competitor’s costs, prices and offers – Firm should

consider nearest competitor’s price. If the firm’s offer contains features, not
offered by the nearest competitor, it 3should evaluate their worth to the
customer and add that value to the competitor’s price. If the competitor’s
offer contains some features not offered by the firm, the firm should subtract
their value from its own price.
 5. Selecting a pricing method –

1. Mark-up pricing –
Add a standard markup for profit to the producer’s cost.
Variable cost per unit = Rs. 10
Fixed Cost = Rs. 300000
Expected unit sales = 50000
Unit cost is given by = VC + FC
Unit sales = 10 + 300000
50000 = Rs. 16
sw Earn 20% mark up on sales
Mark up price = Unit cost + .2 * unit Cost
= 16 + .2 * 16 = Rs 19.2

2. Target Return Pricing -Firm determines the price that would yield its
target rate of a ROI. For eg. Invested Rs. 10,00000 in the business and wants
to set a price to earn a 20% ROI, specifically Rs. 200000.

Target Return price = Unit cost + Desired Return x Invested capital

Unit sales
= 16 + 0.20 x 1000000 = Rs. 20
50000
4. Perceived Value Pricing – Customer is ready to pay little amount extra
if the product has got high perceived value. Perceived value is made up
of several elements : buyer’s image of the product’ s performance, the
channel deliverables, the warranty quality, customer support, supplier’s
reputation, trustworthiness and esteem.

5. Going – Rate Pricing – The firm bases its price largely on

competitor’s price, charging the same, more or less than its major
competitors. Premium pricing involves pricing above the competitor’s price.
Discount pricing is pricing below such level. Parity pricing is matching the
price of competitors. For eg. In steel, paper or fertilizer industry, firms
charge the same price and follow the market leader.
VI Selecting the final price – Company must consider the additional
factors :
i. Impact of other marketing activities – Brand quality, advertising,
customer support, on time delivery and product shipping and handling
relative to the competitors are considered. Brands with average relative
quality but high relative advertising budgets were able to charge
premium prices.
ii. Impact of price on other parties – Impact on distributors, dealers,
sales force competitors, suppliers and government.
iii. Psychological pricing - Lower price threshold below which prices
signal inferior quality and upper price threshold above which prices are
prohibitive. Bata quote price like 399, 499 in order to affect the
psychology of the customers.
Distribution Channels:

1.Importance, Meaning & Purpose

One of the most imperative components of marketing management is
the distribution channel. A distribution channel refers to market
intermediaries that are involved in the process of transfer of the goods
from the producers to the consumers/end customers. The market
intermediaries include wholesalers, distributors, authorised dealers, retailers,
internet and franchise dealers.

An effective distribution channel is crucial for proper supply of goods and

for minimizing the gap between the producer & consumer. It tends to
create time, place and possession utility of a product. As the industries and
markets are growing rapidly, distribution is becoming more complex, so
there is a high demand for the effective distribution channel.

Let’s find out various roles that a distribution channel plays in marketing:

It assists in stock holding

Various market intermediaries involved in a distribution channel perform
different functions like financing, risk bearing, product storage, etc. These
help in effectual handling of the inventories.

It provides products in required assortments

Every market intermediary has its own proficiency. For example, the task
of a producer lies in manufacturing/creating products, the wholesaler
purchases those products in bulk and sells them in lesser quantities to the
retailers while retailer expertise in selling products to end users. Due to the
availability of an improved distribution channel, the products become easily
available to the customers in their nearby stores. Thus, these intermediaries
help in fulfilling the demand of the customers.
It assists in executing price mechanism between firm and customers
Due to the presence of a distribution channel, the price of a product
increases as it has to pass through various intermediaries. These
intermediaries help to reach that price level where a producer is ready to
manufacture a product and a consumer is ready to purchase the product.

They assist in product merchandising

Product merchandising plays a significant role in increasing the demand for
a product. Merchandising is executed by the market intermediaries at a
retail store to facilitate the movement of a product from the store to the
customer. It basically involves an attractive display of a newly launched
product to grasp the attention of potential customers. There are various
other merchandising activities that help in effective selling of products in
the store.

It offers salesmanship
A distribution channel not only involves wholesalers and retailers, but it
also includes sales agents. The sales agents are sent directly by the
companies to offer pre-sale and post-sale services to the customers.
Through their salesmanship and direct customer contact, they can send
true feedback to the producers about their newly launched products. In this
way, they can improvise their upcoming products to improve their sales.

Clearly, distribution channel is the backbone of marketing. Thus, every

marketing manager must know how to effectively communicate with
intermediaries to ensure effective marketing as well as the sale of products.
Marketing channels / Distribution channels are sets of interdependent
organizations involved in the process of making a product or service
available for use or consumption.

They are the set of pathways a product or service follows after production,
resulting in purchase and use by the final end users.
It connects the manufacturer with the consumer and help in the distribution
of goods.
Manufacturer Intermediaries
Consumer

Distribution Channels

Purpose
 Buying – Purchasing a broad assortment of goods from the producer
or other channel members.
 Carrying Inventory – Assuming the risks associated with purchasing
and holding an inventory. Successive storage and movement of goods.
 Selling – Performing activities required for selling goods to consumers
or other channel members.
 Transporting – Arranging for the shipment of goods to the desired
destination.
 Financing – Providing funds required to cover the cost of channel
activities.
 Promoting – Contributing to national and local advertising and
engaging in personal selling efforts.
 Negotiating – Attempting to determine the final price of goods and
the terms of payment and delivery.
 Marketing Research (Information) – Providing information
regarding the needs of customers.
 Servicing – Providing a variety of services, such as credit, delivery and
returns.
2.Factors affecting Channel Choice:

Important factors affecting the choice of channels of distribution by the

manufacturer are:

(A) Considerations Related to Product:

1.Unit Value of the Product:
When the product is very costly it is best to use small distribution channel.
For example, Industrial Machinery or Gold Ornaments are very costly
products that are why for their distribution small distribution channel is used.
On the other hand, for less costly products long distribution channel is used.

2. Standardised or Customised Product:

Standardised products are those for which are pre-determined and there has
no scope for alteration.
For example: utensils of MILTON. To sell this long distribution channel is
used.
On the other hand, customised products are those which are made according
to the discretion of the consumer and also there is a scope for alteration, for
example; furniture. For such products face-to-face interaction between the
manufacturer and the consumer is essential. So for these Direct Sales is a
good option.

3.Perishability:

A manufacturer should choose minimum or no middlemen as channel of

distribution for such an item or product which is of highly perishable nature.
On the contrary, a long distribution channel can be selected for durable
goods.

4.Technical Nature:

If a product is of a technical nature, then it is better to supply it directly to

the consumer. This will help the user to know the necessary technicalities of
the product.
(B)Considerations Related to Market

Market considerations are given below:

1. Number of Buyers:
If the number of buyer is large then it is better to take the services of
middlemen for the distribution of the goods. On the contrary, the
distribution should be done by the manufacturer directly if the number of
buyers is less.

2. Types of Buyers:
Buyers can be of two types: General Buyers and Industrial Buyers. If the
more buyers of the product belong to general category then there can be
more middlemen. But in case of industrial buyers there can be less
middlemen.

3. Buying Habits:
A manufacturer should take the services of middlemen if his financial
position does not permit him to sell goods on credit to those consumers who
are in the habit of purchasing goods on credit.

4. Buying Quantity:
It is useful for the manufacturer to rely on the services of middlemen if the
goods are bought in smaller quantity.

5. Size of Market:
If the market area of the product is scattered fairly, then the producer must
take the help of middlemen.
(C) Considerations Related to Manufacturer/Company
Considerations related to manufacturer are given below:
1. Goodwill:
Manufacturer’s goodwill also affects the selection of channel of distribution.
A manufacturer enjoying good reputation need not depend on the
middlemen as he can open his own branches easily.

2. Desire to control the channel of Distribution:

A manufacturer’s ambition to control the channel of distribution affects its
selection. Consumers should be approached directly by such type of
manufacturer. For example, electronic goods sector with a motive to control
the service levels provided to the customers at the point of sale are resorting
to company owned retail counters.

3. Financial Strength:
A company which has a strong financial base can evolve its own channels.
On the other hand, financially weak companies would have to depend upon
middlemen.

(D) Considerations Related to Government

Considerations related to the government also affect the selection of channel
of distribution. For example, only a license holder can sell medicines in the
market according to the law of the government.

In this situation, the manufacturer of medicines should take care that the
distribution of his product takes place only through such middlemen who
have the relevant license.

(E) Others
1. Cost:
A manufacturer should select such a channel of distribution which is less
costly and also useful from other angles.
2. Availability:
Sometimes some other channel of distribution can be selected if the desired
one is not available.

3. Possibilities of Sales:
Such a channel which has a possibility of large sale should be given weight
age.

3.Channel Design Decisions

Analysis of customer’s desired service output level

Establishing channel objectives and constraints

Identifying major channel alternatives

Evaluating major channel alternatives

Opting for multi-channel model

Choosing channel intensity and number of tiers

I Analysis of Customer’s desired Service output levels – Marketer must
understand the service output levels its target customers want. Channels
produce five service outputs.
1. Lot size – The number of units the channel permits a typical customer
to purchase on one occasion. A household wants a channel that
permits buying a lot size of one. Wholesalers buy in bulk.
2. Waiting and Delivery time – Average time customers of that
channel wait for receipt of the goods. For electronic items, customers
are ready to wait so online channel is a good option.
3. Spatial Convenience – Expresses the degree to which the marketing
channel makes it easy for the customers to purchase the product. Eg.
FMCG products in nearby localities.
4. Product Variety – Assortment breadth provided by marketing
channel. Customers prefer a greater assortment because more choices
increase the chance of finding what they need.
5. Service backup – Add on services (credit, delivery, installation,
repairs) provided by the channel.

II. Establishing objectives and constraints -

Broad objectives include :
 Availability of product in the target market.
 Smooth movement of the product from the producer to the consumer.
 Cost effective and economic distribution.

 Information communication from the producer to the consumer.

In case of Lifebuoy, the objective of HUL Is
to cover 80% of the rural market – So
Intensive distribution available in every nook
and corner of Rural India.
For Louis Phillippe , it has been promoted as
a complete and premium wardrobe line – So
exclusive showrooms; ensure availability of
the whole line at these outlets.
 Channel objectives vary with product characteristics. Perishable
products require more direct marketing. Bulky products such as
building materials require channels that minimize the shipping distance
and the amount of handling. Complex machinery are sold directly by
company sales representative.

III. Identifying major channel alternatives – Each channel has its own
strengths and weaknesses. Sales force is expensive but can handle complex
products.
1. Types of Intermediaries – For eg. Car perfume manufacturer
identifies the following channel alternatives: Sell its car perfumes to
automobile manufacturers.
 Auto dealers
 Retail automotive – equipment dealers
 Mass merchandisers such as Spar or eZone.
 Authorized service centers.
2. Innovative Channel Alternatives –
HUL’s Operation Shakti involves Self Help Group women to
distribute the product in rural areas. Avon’s – Chain Marketing, ITC’s
e-choupal
3. Number of Intermediaries –

Exclusive Distribution

Selective Distribution

Intensive distribution – FMCG Products.

IV. Evaluating the major alternatives –

1. Economic Criteria – Estimate how many sales are likely to be
generated by a company sales force.
 Cost of selling different volume through each channel
 Comparing sales and cost.
 2. Control and adaptive criteria – Sales agency poses a control
problem. Seeking to maximize the profit. Agents concentrate on the
customer who buy the most, not necessarily who buy the
manufacturer’s goods. It is easy to control in case of exclusive
distribution. Manufacturers seek to choose such distribution channel
which will provide them the flexibility to adapt to any changing
marketing environment.
For eg. Apple opened its own exclusive showroom because of control
problems only.

Economic Criteria
Sales force
High
Value added
Partners

Distributors
Value added
Retail Outlet

Telemarketing

Internet
Low

Cost per High

Low
Transaction

V Deciding on Multichannel Model – Companies have to decide whether

to go for multichannel model or single channel model.
For eg.
 Pantaloons has got offline as well as online channel.

Coca Cola is available in Restaurants, Airlines, Bars and Clubs and

supermarkets.

VI. Deciding on the number of tiers and intensity of Distribution –

Number of levels of channel (zero level, one level, two level, three level) and
intensity of distribution (Intensive distribution, exclusive or selective
distribution)is being decided.

4,Channel Management Decisions

Selecting Channel Members

Training & Motivating Channel

Members

Evaluating Channel Members

Modifying Channel Design and

Arrangements

I. Selecting Channel Members – Company should select channel

partners based on number of years in business, other lines carried,
growth and profit record, financial strength, cooperativeness and
service reputation. If the intermediaries are department stores, the
producer should evaluate locations, future growth potential and type
of clientele.
 II. Training and motivating Channel Members – A company has to
plan and implement careful training program and Capability building
program to improve intermediaries’ performance. For eg. SBI Life
Insurance training the agents and SBI Bank employees to sell the
policies.
Producers draw on the following types of power for motivating their
channel partners:
Coercive Power – Manufacturer threatens to withdraw a resource or
terminate a relationship if intermediaries fail to cooperate.
Reward Power – Offers an extra benefit for performing specific acts
or functions.
Legitimate Power – Requests the behavior that is warranted under
the contract.
Referent Power – Manufacturer is so highly respected that
intermediaries are proud to be associated with it. Eg. IBM, HP,
Caterpillar etc.

III. Evaluating Channel Members – Producers must periodically

evaluate intermediaries’ performance against such standards as sales
quota attainment, average inventory levels, customer delivery time,
treatment of damaged and lost goods, and cooperation in promotional
and training programs. Underperformers need to be counseled,
retrained, motivated or terminated.

IV. Modifying Channel design and arrangements – Manufacturers

periodically review and modify channel design and arrangements when
the distribution channel is not working as planned, consumer buying
patterns change, the market expands, new competition arises,
innovative distribution channels emerge and the product moves into
the later stages in the PLC.
Eg.Small office copiers were initially marketed through manufacturers
direct sales force, then through office equipment dealers, then mass
merchandisers and now through Internet Markets.
 Apple was distributing Laptops initially
through Retail Stores but got disappointed by
poor retail presentation by others. Now they are
selling the product exclusively through
company stores where there is a full line of
Apple products, software and accessories and
Apple specialists providing technical support.
They conduct in store presentations and
workshops for tech savvy customers.
Pantaloons opened its online store as well. (Will be discussing
about in chapter to come)
 5.Channel Conflict

Channel conflict is generated when one channel member’s actions

prevent another channel from achieving its goal.
Eg. General Motors came into conflict with its dealers in trying to
enforce policies on service, pricing and advertising.

Types of Conflict
 Vertical channel conflict – Conflict between two members at
different levels within the same channel. A manufacturer having a
conflict with a distributor is an example of vertical conflict.

For eg. HUL came into conflict with its distributors in

Kerala on the issue of commissions.

 Horizontal channel Conflict – Involves conflict between members

at the same level within the channel.

For eg. Bangalore Ford Dealers complained about other Ford

Dealers advertising and pricing too aggressively.

 Multichannel conflict – When the manufacturer has established two

or more channels that sell to the same market. For eg. Companies
getting into direct online sales through Web marketing have also
received boycott threats from the established distributors.

Causes of Channel Conflict

 Goal Incompatibility – Manufacturers may want to achieve rapid
market penetration through a low price policy. Dealers, in contrast,
may prefer to work with high margins and pursue short run
profitability.
 Unclear roles and rights –Geographical territory boundaries , credit
for sales and commission, roles performed issues always create
conflict. For eg. Nearby territories of Bangalore coming under which
 dealer, Transportation expenses borne by whom, manufacturer or
distributor.
 Differences in perception – Manufacturer may be optimistic about
the short term economic slowdown and want dealers to carry higher
inventory. Dealers may be pessimistic and assume that slowdown will
last long and are not ready to carry high inventory.
 Intermediaries’ dependence on the manufacturer – Fortunes of
exclusive dealers such as auto dealers are profoundly affected by the
manufacturer’s product and pricing decisions.

Impact of channel conflict :

• Decrease in productivity : when an organization spends much
of its time dealing with conflict, members take time away from
focusing on the core goals they are tasked with achieving.
Conflict causes members to focus less on the project at hand and
more gossiping about conflict or venting about frustrations. As
a result, organizations can lose money.
• Members leave organizations
• Violence.
• Inspire Creativity : some channel members view conflict as an
opportunity for finding creative solutions to solve problems.
Conflict can inspire members to brainstorm ideas, while
examining problems from various perspectives.
• Improve Future communication : conflict can bring group
members together and help them learn more about each other.
• Mental health Concerns : Channel conflict can cause members
to become frustrated if they feel as if there’s no solution insight,
or if they feel that their opinions go unrecognized by other group
members. As a result members become stressed, which affect
their professional and personal lives. channel members may have
problems of sleeping, loss of appetite or overeating, headaches
and become unapproachable. In some cases channel members
may avoid meetings to prevent themselves from expressing
stress and stress related symptoms.
Managing Channel Conflict
Effective conflict management can be done by –
 Adoption of superordinate goals – Channel members come to an
agreement on the fundamental goal they are jointly seeking, whether it
is survival, market share, high quality or customer satisfaction.
 Exchange of employees – GM executives might agree to work for a
short time in some dealerships and some dealership owners might
work in GM’s dealer policy department. Participant will grow to
appreciate each other’s point of view.
 Co-optation – An effort by one organization to win the support of
the leaders of another organization by including them in advisory
councils, boards of directors and the like.
Eg. Few representatives of the Dealers of GM in the advisory council of
GM.
 Diplomacy, Meditation and Arbitration – Diplomacy when each
side sends a person or group to meet with its counterparts to resolve
the conflict.
Meditation means resorting to a neutral third party skilled in maintaining the
two parties’ interests.
Arbitration occurs when the two parties agree to present their arguments to
one or more arbitrators and accept the arbitration decisions.
 Legal recourse – File a lawsuit if nothing works.
6.Designing Physical Distribution system:

Physical distribution is the group of activities associated with the

supply of finished product from the production line to the consumers.
The physical distribution considers many sales distribution channels,
such as wholesale and retail, and includes critical decision areas like
customer service, inventory, materials, packaging, order processing,
and transportation and logistics.
The various elements of Physical Distribution system are :

• Order Processing : order processing is the receipt and

transmission of sales order information. Efficient order
processing facilitates product flow. Order processing directly
affects the firm’s ability to meet its customer service standards.
A company may have to compensate for inefficiencies in its
order processing system by shipping products via costly
transportation modes or by maintaining large inventories at
many expensive field warehouses.

Order processing involves three main tasks: Order Entry : Order entry
begins when customers or sales people place purchase orders via
telephone, mail,-mail, or websites.

Order handling: Once an order is entered, it is transmitted to a

warehouse, where product availability is verified, and to the credit
department where prices, terms and the customer’s credit rating are
checked. If approved, the order is assembled.

Order Delivery : when the order has been assembled and packed for
shipment, the warehouse schedules delivery with an appropriate
carrier.

• Managing inventory/stock or inventory controls : inventory

management involves developing and managing adequate
 assortments of products to meet customer’s needs. It will be
obvious that without effective management of finished product
inventory, it is impossible to run any business efficiently and
profitably.
inventory decision making involves knowing when to order and
how much to order. Management must know at what stock level
to place a new order, which is called as re-order point. An order
point of 10 means reordering when the stock falls to 10 units.

• Material handling : The physical handling of products is an

important factor in warehouse operations, as well as
transportation from point of production to point of
consumption. Efficient procedures and techniques for materials
handling minimise inventory management costs, reduce the
number of times a good is handld, improve customer service,
and increase customer satisfaction.
Material handling is the area of physical distribution that has
experienced the greatest change and improvement in efficiency.
Two major changes took place in this area are :
Elimination of man handling : The improvement was the
replacement of man handling by machine handling but still I is
used in retail of final buyer stage. Improved conveyer systems
and left equipments have changed to total mechanisation.
Containerisation: it is a method in which a large number of units
of a product are combined into a single compact unit for storage
and transportation. It reduced material handling cost and time.

• Warehousing : Any firm can choose to either have its own

dedicated network of warehouses or share space with others in
third party operated warehouses. The farmer offers greater
flexibility in design to meet product characteristics and storage
needs, greater control over warehouse operations, effective
market feedback and lower cost per unit as opposed to a third
party arrangement. However third party warehouses require no
fixed investment by the firm.
 Also flexibility in location and space utilisation make this an
attractive alternative. By using the right type of warehouse, a
company may reduce transportation and inventory costs or
improve service to customers, the wrong ware house may drain
the company resources.

• Transportation : the movement of products from where they are

made to where they are used, is the most expensive physical
distribution function. Transportation confers time utility, place
utility to the product , it determines the company’s customer
service. It also has a crusial bearing on the other elements of
physical distribution and marketing like marketing, inventory
control and channel management.
There are five important transportation modes, each offering
distinct advantages .
Railroads : railroads carry heavy, bulky freight that must be
shipped long distances overland.

Trucks : Trucks provide the most flexible schedules and routes

of all major transportation modes because they can go almost
anywhere.
Waterways ; this is a cheapest method of shipping heavy, low-
value, non-perishable goods.
Air – transportation : It is the fastest yet most expensive form of
shipping.
Pipelines : Pipelines, the most automated transportation mode,
usually belong to the shipper and carry the shipper’s products.
 Types of marketing channels :

Direct Marketing Channel or Zero Level Channel

This type of channel has no intermediaries In this distribution system,
the goods go from the producer direct to the consumer. Companies
use their own sales force to reach consumers. Eg. Eureka Forbes which
markets water purifiers in Indian market, Dell Computers.
Zero Level Channel
Producer consumer

Producer Consumer

Under direct channel of distribution, the manufacturer can adopt one

of the following methods of selling.
Selling at manufacturer’s Plant : it is also known as direct selling . here
the goods are sold by the producers directly to the consumers. Direct
selling is generally preferred in case of perishable products like bread.\,
milk, ice-creams, fish, meat, egg, vegetables and agricultural products
etc.
Door to door sales : here the sales agent travels from house to house ,
attempting to sell a product or service face to face.
Sales by mail order method : a method of selling in which orders are
taken and products are delivered by mail. Mail order is a term which
describes the buying of goods or services by mail delivery. The buyer
places the order through telephone or through website.
Sales by opening own shops : manufacturers of perishable or non
perishable products commonly sell their products to customers by
opening their own shops.

Indirect Marketing Channel – These are typical channels in which

a third party is involved in the distribution of products and services
of a firm. It can be classified into following categories:
 1. One-Level Channel- In this type of channel there is only one
intermediary between producer and consumer. This intermediary
may be a retailer or a distributor. It is used for specialty products
like washing machines, refrigerators, Automobiles etc.

Producer Distributor / Retailer Consumer

 Two-Level Channel – This type of channel has two intermediaries,

namely, wholesaler/distributor and retailer between producer and
consumer. It can be seen in pharmaceuticals, liquor, expensive
readymade garments.
Producer Distributor / Wholesaler Retailer Consumer

• Three-Level channel – This type of channel has three intermediaries

namely distributor, wholesaler and retailer. This pattern is used for
convenience products like soaps, toothpaste, icecreams, soft drinks
etc.

Producer Distributor Wholesaler Retailer Consumer

Hybrid distribution channel : when the firm sets up two or more marketing
channels to reach one or more customer segments .
Here the producer sells directly to consumer segment 1 using direct mail
catalogues and telemarketing and reaches consumer segment 2 through
retailers. It also sells indirectly to business segment 1 through distributors
and dealers and to business segment 2 through its own sales force.
7.Multilevel Marketing or Network Marketing
Multilevel selling and network marketing– Multilevel (network)
marketing, consists of recruiting independent businesspeople who act
as distributors. The distributor then recruits further members under
him/her. The distributor’s compensation includes a percentage of sales
of those the distributor recruits as well as earnings on direct sales to
customers. Eg. Amway, Tupperware, Oriflame etc.

Lady 1

Lady 2 Lady 3

Lady 4 Lady 5

Network marketing, also known as multi-level marketing, is a business

model which involves a pyramid structured network of people who sell a
company’s products. The participants in this network are usually
remunerated on a commission basis. That is, people in this network get
commission every time they perform the specified task, like –

• Make a sale of a product.

• Their recruits make a sale of the product.
In simple words, this model involves a pyramid structure of non-salaried
participants who get paid whenever they or a person below them in the
pyramid makes a sale.

In this system, consumers are the participants. Their family and friends are
their customers, and this cycle goes on.
Network Marketing

Characteristics Of Network Marketing

Direct Sales
Network marketing organizations sell their product directly don’t make use
of any well-defined channel of trade. The responsibility to sell the products
is transferred to the non-employed individuals (the participants) who get
the commission everytime they make a sale.

Independent Business Owners (IBO)

The participants are called IBO as they work as if they are promoting their
own business.

Selling Philosophy
This model involves participants to use the selling philosophy of
marketing. The main focus is on recruiting and selling as much as you can
to earn more commission. No relationships are built. People may even trick
you to buy the products or to join them.

System Of Hierarchy

Suppose a person ‘A’ has a person ‘B’ under him. Now ‘A’ will get the
commission whenever he makes a sale and also a part of commission when
‘B’ makes a sale. Now, to earn more money, ‘B’ will also try to recruit a
person ’C’ under him and so on. This makes the system a big hierarchy.

Less Or No Advertising

Dependency on direct sales helps the organization to rely less on

advertising as personalized contact have more convincing power than
advertisements.
No Fixed Salaries

This is a commission based network where participants (not employees) are

paid commissions to perform the specific task.

Accountability
Everyone is accountable only to himself. The more he sells, the more he
earns.
Benefits To The Participants
Participants are also the consumers of the network. Hence, they also get
discounts and other attractive offers to when they join the network.

Examples of Network Marketing

– been in business for around 57 years now, this

company is one of the biggest example of a
successful MLM/network marketing company.

Other companies that use network marketing model include –

Tupperware, Nu skin, Juice Plus, etc.

Difference Between A Pyramid Structure And Network Marketing

Pyramid structure is said to exist when you get paid to get a new recruit
and there is no involvement of any product. It’s an ill-practice which makes
a person earn money by taking advantage of his friends and family.
Companies having a pyramid structure model tend to deceive people while
making them believe that they’ll earn in future (which they do by deceiving
more people). For e.g. a person will be asked to pay $100 to be a part of
the company with a promise that he’ll get 25% of every new recruit’s
admission fees who he refers. This is a money making strategy of the
company where the participants are at a loss.
Whereas network marketing involves multiplying efforts by selling of
products. This is a win-win situation where the users get what they want
and participants earn a commission.
 8.The Advent of OMNI CHANNEL

If you’d have claimed ten years ago that retail shopping would be conducted
on phones, social platforms, tablets, interactive kiosks, and more you
would have been laughed at.

Today, that’s exactly what’s happening. Retail is anything but dead. And,
yes, people still buy in-store.

But people don’t just shop in-store … even when they’re inside a
store.
Instead, shoppers check prices, compare products, research reviews, and
consult social media before buying. If you’re not available everywhere, your
limited presence will derail both the user experience and your bottom line.

You’ve probably heard someone, somewhere utter: omni-channel. It sounds

hip, new, and revolutionary. But what exactly is it?

In a growing online world, it becomes harder and harder to differentiate

real tactics from buzzwords. To add to that, “multi-channel” often gets
thrown into the mix, making it even more confusing to understand how
the two are different

Here is the why, what, and how of an omnichannel retailing strategy to

cover your customers from beginning to end.
What is an Omni-Channel Retail Strategy?
An omni-channel strategy is an approach to sales and marketing that
provides customers with a fully-integrated shopping experience by uniting
user experiences from brick-and-mortar to mobile-browsing and everything
in between.

Omni-channel retail focuses on every customer interaction and their overall

experience of your product and brand.
 Pressing questions surround a truly omni-channel retail strategy:

• Can your customers browse a product in-store, scan it with your app, and
then add it to their bag to purchase later at home in a different size?
• Can they browse your online store for new styles, explore those outfits on
Pinterest, Instagram, and Facebook, and then get an in-store coupon to
redeem?
• Does your data connect in-store purchases so that loyal customers get
notified via Messenger when similar similar styles are released online or
off?
They should be able to do all those things and more.

To illustrate, let’s start with an example everyone can relate to …

Disney`s app is one of the best omnichannel experience with a full-

fledged experience.

Disney’s various customer touchpoints are so interconnected that the user

experience never ends.

You don’t buy a ticket online, show up at the park, and take a gamble on
lining up anymore.
Now, you buy a ticket, download the app, scan your Fastpasses, check ride
times, and explore customized content before even setting foot in the park.

Image via Disney Mobile App

Once you're at the park, you can locate Disney characters on a live,
interactive map.
Image via ThisFairyTaleLife
You can get your picture taken at the store, have it show up on your app,
and purchase when you get home.
The entire experience is a never-ending sensory overload of the Disney
brand that contains one critical factor: Consistent, seamless integration.

Everything carries over to the next platform and connects to the last. And
Disney isn’t the only company creating an omni-channel empire:

Grainger is starting to build on their omni-channel efforts using their

mobile application that allows customers to browse available products at
the closest branch location to them.
When you sign into your account online and make a purchase or adjust
your cart, those changes reflect in the mobile app too:
This leads to a seamless experience where your content and actions transfer
from platform to platform. No matter how or where a customer interacts, the
shopping experience is the same.

In fact, that is the fundamental difference between an omni-channel vs

multichannel strategy:

The big idea is that in omni-channel, every customer interaction changes

their overall experience of your product and brand.

Why Create an Omni-Channel Retail Strategy?

Recently, the Harvard Business Review studied 46,000 shoppers to gauge
what impact (if any) omni-channel retailing had on their experience:
• 7% shopped online exclusively
• 20% were store-only shoppers
• 73% used multiple channels
Another study by Business Insider found that shoppers who engaged on
multiple channels made purchases more often:

More importantly, HBR noticed a glaring trend:

“Our findings showed that omnichannel customers loved using the

retailer’s touchpoints, in all sorts of combinations and places. Not only did
they use smartphone apps to compare prices or download a coupon, but
they were also avid users of in-store digital tools such as an interactive
catalog, a price-checker, or a tablet.”

Beyond having multiple channels and points of contact, shoppers loved

when an integrated omni-channel experience was available.

Customers interacting with an omni-channel experience spent 4% more in-

store and 10% more online, too.
The power of omni-channel experiences can lift sales dramatically. This
analysis corroborated a study from 2013 that found a key data point.

Companies with omni-channel retail strategies retain an average of 89% of

their customers from channel to channel.
Meanwhile, businesses with weak omni-channel integration retain 33%.

Creating a more seamless transition from channel to channel has the power
to help you retain the majority of your customers.

A prime example (pun intended) is the Amazon acquisition of Whole

Foods

Amazon is taking their digital marketplace to the streets and creating an

experience that flows naturally from online to offline (O2O). You can now
order your groceries directly on AmazonFresh and pick them up at local
stores.

The experience transcends typical barriers and allows the customer to keep
their experience the same throughout each touchpoint. They no longer
have to go to the store and spend hours looking or forget to buy.

Instead, they just log in to Amazon and order their groceries, finding the
same, seamless pickup experience when they arrive. That data then gets
transferred back to their app or account online for even deeper integration.
The same was just seen recently with the acquisition of Bonobos, where
Walmart is looking to expand their typical sales (brick-and-mortar) into
new online channels.

Previously, Bonobos eschewed the typical brick-and-mortar retail strategy

for “Guideshops” and pop-up shops. Customers wouldn’t actually walk
out with any inventory. Instead, they could try on clothes, place an online
order, and their goods would be immediately shipped out to their home or
office.

Walmart’s one-stop grocery and goods changes the game for Bonobos, too.
Their distribution outlets just received a massive upgrade.