LESSON WRITTEN AND PREPARED BY

Dr. Y. AVUDAINATHAN ASSOCIATE

PROFESSOR AND

HEAD DEPARTMENT OF COMMERCE

DIRECTORATEOF

DISTANCE EDUCATION MADURAI

KAMARAJ UNIVERSITY

MADURAI - 625021 & Dr. V. SURESH

BABU ASSISTANT PROFESSOR P.G

AND RESEARCH DEPARTMENT OF

COMMERCE MANNAR THIRUMALAI

NAICKER COLLEGE

MADURAI - 625004
 Syllabus

Unit–I

Market analysis and selection:

Concept, Nature, Scope and

importance of marketing; marketing

concept and its evolution; Strategic

marketing planning -CRM-Marketing

environment -macro and micro

components and their impact on

marketing decisions ;Market

segmentation and positioning; Buyer

behaviour ;Consumption verus

Industrial Organizational buyers;

Consumer decision -making process.

Unit–II

Product and Pricing Decisions:

concept of a product; classification

of product; Major product decision;

Product line and product mix;

Branding; Packaging and labelling;

Product life cycle- Strategic

implications; New product

development and consumer adoption

process; Factors affecting price

determination Pricing polices and

strategies.

Unit–III

Distribution and Promotional

Decisions: Nature, functions and

types of distribution channels;

Distribution channel intermediaries;

Channel management decisions,

Retailing and wholesaling.

Unit–IV

Promotion Decisions:

Communications process; Promotion

mix-advertising, personal selling,

sales promotion, publicity and public

relations; Determining advertising

budget; copy designing and its

testing; Media Selection; Advertising

effectiveness; Sales promotion-tools

and techniques.

Unit-V

Recent Development in marketing:

Retail Marketing - Online Marketing -

MLM -Relationship Marketing.

 Unit–I

MARKET ANALYSIS AND

SELECTION

Unit Structure:

1.0 Introduction

1.1. Unit Objectives

1.2. Definitions

1.3. Nature

1.4. Scope

1.5. Importance of marketing

1.6. Marketing concept and its

evolution

1.7. Strategic marketing

planning

1.8. Customer Relationship

Management (CRM)
1.9. Marketing Environment

1.10. Macro and Micro

components and their impact on

marketing decisions

1.11. Market segmentation and

positioning

1.12. Buyer behaviour

1.13. Consumption verus

1.14. Industrial Organizational

Buyers

1.15. Consumer decision

1.16. Marketing process

1.17. Key terms

1.18. Summary

1.19. Answers to Check Your

Progress

1.20. Questions / Exercise

1.21. Further Reading

 1.0. INTRODUCTION

Every country is interested in

increasing the productivity in all

spheres with the object of fulfilling all

the wants and needs of the people.

Thus the factories, offices and

commercial establishments are

engaged in the production of variety

of goods and services. In order to

fulfil the wants and needs of the

people. In this direction, marketing

is concerned with finding the

consumers, deciding their exact

requirements, producing the goods

and handling the distribution

including after sales service, giving

guarantee etc. In other words,

marketing is a special management

function, just like organising,

staffing, financing and production.

But many have not understood the

meaning of the word, marketing

clearly. A salesman or a sales

manager considers that marketing is

nothing but selling whereas the

advertising executive holds that

marketing is advertising and a

department store manager considers

that marketing is retailing.

1.1. UNIT OBJECTIVES

After going through this unit, you will

be able to:

• Describe the importance the

marketing management.
 • To know the scope of marketing

management.

• Explain the concept of evaluation

of marketing

• To analysis the Market

segmentation and positioning

• To analysis the marketing

process.

1.2. DEFINITIONS

We can distinguish between a social

and a managerial definition for

marketing. According to a social

definition, marketing is a societal

process by which individuals and

groups obtain what they need and

want through creating, offering, and

exchanging products and services of

value freely with others.

As a managerial definition, marketing

has often been described as “the art

of selling products.” But Peter

Drucker, a leading management

theorist, says that “the aim of

marketing is to make selling

superfluous. The aim of marketing is

to know and understand the

customer so well that the product or

service fits him and sells itself.

Ideally, marketing should result in a

7
customer who is ready to buy.”
The American Marketing Association

offers this managerial definition:

Marketing (management) is the

process of planning and executing

the conception, pricing, promotion,

and distribution of ideas, goods, and

services to create exchanges that

satisfy individual and organizational

8
goals.

Coping with exchange

processes—part of this

definition—calls for a considerable

amount of work and skill. We see

marketing management as the art

and science of applying core

marketing concepts to choose target

markets and get, keep, and grow

customers through creating,

delivering, and communicating

superior customer value.

1.3. THE NATURE AND

CONTENTS OF A MARKETING
PLAN

The marketing plan created for each

product line or brand is one of the

most important outputs of planning

for the marketing process. A typical

marketing plan has eight sections:

1.3.1 Executive summary

and table of contents

This brief summary outlines the

plan's main goals and

recommendations; it is followed by a

table of contents.
 1.3.2 Current marketing
situation

This section presents relevant

background data on sales, costs,

profits, the market, competitors,

distribution, and the macro

environment, drawn from a feet book

maintained by the product manager.

1.3.3 Opportunity and issue

analysis

This section identifies the major

opportunities and threats, strengths

and weaknesses, and issues facing

the product line or brand.

 1.3.4 Objectives

This section spells out the financial

and marketing objectives to be

achieved.

1.3.5 Marketing strategy

This section explains the broad

marketing strategy that will be

implemented to accomplish the plan's

objectives.

1.3.6 Action programs

This section outlines the broad

marketing programs for achieving the

business objectives. Each marketing

strategy element must be elaborated

to answer these questions: What will

be done? When will it be done? Who

will do it? How much will it cost?

1.3.7 Projected profit-and-

loss statement

Action plans allow the product

manager to build a supporting budget

with forecasted sales volume (units

and average price), costs

(production, physical distribution,

and marketing), and projected profit.

Once approved, the budget is the

basis for developing plans and

schedules for material procurement,

production scheduling, employee

recruitment, and marketing

operations.
 1.3.8 Controls

This last section outlines the controls

for monitoring the plan. Typically,

the goals and budget are spelled out

for each month or quarter so senior

management can review the results

each period. Sometimes contingency

plans for handling specific adverse

developments are included.

No two companies handle marketing

planning and marketing plan content

exactly the same way. Most

marketing plans cover one year and

vary in length; some firms take their

plans very seriously, while others use

them as only a rough guide to action.

The most frequently cited

shortcomings of marketing plans,

according to marketing executives,

are lack of realism, insufficient

competitive analysis, and a short-run

focus.

1.4. SCOPE

The Scope of Marketing

Marketing people are involved in

marketing 10 types of entities:

goods, services, experiences, events,

persons, places, properties,

organizations, information, and

ideas.

Goods: Physical goods constitute the

bulk of most countries' production

and marketing effort. The United

States produces and markets billions

of physical goods, from eggs to steel

to hair dryers. In developing nations,

goods— particularly food,

commodities, clothing, and

housing—are the mainstay of the

economy.

Services: As economies advance, a

growing proportion of their activities

are focused on the production of

services. The U.S. economy today

consists of a 70-30 services-to-goods

mix. Services include airlines, hotels,

and maintenance and repair people,

as well as professionals such as

accountants, lawyers, engineers, and

doctors. Many market offerings

consist of a variable mix of goods and

services.
Experiences: By orchestrating

several services and goods, one can

create, stage, and market

experiences. Walt Disney World's

Magic Kingdom is an experience; so

is the Hard Rock Cafe.

Events: Marketers promote time-

based events, such as the Olympics,

trade shows, sports events, and

artistic performances.

Persons: Celebrity marketing has

become a major business. Artists,

musicians, CEOs, physicians, high-

profile lawyers and financiers, and

other professionals draw help from
4
celebrity marketers.
Places: Cities, states, regions, and

nations compete to attract tourists,

factories, company headquarters,

5
and new residents. Place marketers

include economic development

specialists, real estate agents,

commercial banks, local business

associations, and advertising and

public relations agencies.

Properties: Properties are intangible

rights of ownership of either real

property (real estate) or financial

property (stocks and bonds).

Properties are bought and sold, and

this occasions a marketing effort by

real estate agents (for real estate)

and investment companies and banks

(for securities).

Organizations: Organizations

actively work to build a strong,

favourable image in the mind of their

publics. Philips, the Dutch electronics

company, advertises with the tag

line, “Let's Make Things Better.” The

Body Shop and Ben & Jerry's also

gain attention by promoting social

causes. Universities, museums, and

performing arts organizations boost

their public images to compete more

successfully for audiences and funds.

Information: The production,

packaging, and distribution of

information is one of society's major
6
industries. Among the marketers of

information are schools and

universities; publishers of

encyclopedias, nonfiction books, and

specialized magazines; makers of

CDs; and Internet Web sites.

Ideas: Every market offering has a

basic idea at its core. In essence,

products and services are platforms

for delivering some idea or benefit to

satisfy a core need.

1.5. IMPORTANCE OF
MARKETING

Financial success of any organization

depends upon marketing ability of

that organization. There should be

sufficient demand for products &

services so the company can make

profit. Therefore many companies

created chief marketing officer (CMO)

position to put marketing on a more

equal footing with other e-level

executives.

Marketing is tricky & large well

known business such as Levi's,

Kodak, Xerox etc. had to rethink their

business models, Even Microsoft,

Wal-Mart, Nike who are market

leaders cannot relax. Thus, we can

say that making the right decision

is not easy & marketing managers

must take major decisions about the

features of the product prices &

design of the product, where to sell

products & expenditure on sales &

advertising. Good marketing is no

accident but a result of careful

planning & execution. Marketing

practices are continuously being

refined to increase the chances of

success. But marketing excellence is

rare & difficult to achieve & is a never

ending task.

Eg. NIRMA — The brand icon of the

young girl has adorned the package

of Nirma washing powder. The jingle

has become one of the enduring

times in Indian advertising.

 1.6. MARKETING CONCEPT
AND ITS EVOLUTION

1.6.1
The various
fundamental concepts are

1.6.1.1 Exchange Concept

The Exchange concept holds that the

exchange of a product between seller

& buyer is the central idea of

marketing Exchange is an important

part of marketing, but marketing is a

much wider concept.

1.6.1.2 Production Concept

The production concept is one of the

oldest concepts in business. It holds

that consumers will prefer products

that are widely available &

expensive. Manager of production

oriented business concentrate on

achieving high production efficiency

low cost & mass distribution.

Eg. Haier in China take advantage of

the country's huge inexpensive labor

pool to dominate the market, to

manufacture PC & domestic

appliances.

1.6.1.3 Production Concept

This concept holds that consumers

will prefer those products that are

high in quality, performance or

innovative features. Managers in

these organization focus on making

superior products & improving them.

Sometimes, this concept leads to

marketing myopia, Marketing myopia

is a short sightedness about

business. Excessive attention to

production or the product or selling

aspects at the cost of customer & his

actual needs creates this myopia.

1.6.1.4 Selling Concepts

This concept focuses on aggressively

promoting & pushing its products, it

cannot expect its products to get

picked up automatically by the

customer. The purpose is basically to

sell more stuff to more people, in

order to make more profits.

Eg. Coca Cola

 1.6.1.5 Marketing Concept

The marketing concept emerged in

the mid 1950's. The business

generally shifted from a product -

centered, make & sell philosophy, to

a customer centered, sense &

respond philosophy. The job is not

to find the right customers for your

product, but t o find right products

for your customers. The marketing

concept holds that the key to

achieving organizational goals

consist of the company being more

effective than competitors in

creating, delivering & communicating

superior customers value. This

concept puts the customers at both

the beginning & the end of the

business cycle. Every department &

every worker should think customer

& act customer.

1.6.1.6 Social Marketing Concept

This concept h olds understanding

broader concerns & the ethical,

environmental & legal & social

context of marketing activities &

programs. The cause & effects of

marketing extend beyond the

company & the consumes to society

as a whole. Social responsibility also

requires that marketers carefully

consider the role that they are

playing & could play in terms of social

welfare.
 1.6.1.7 Holistic Marketing
Concept

This concept is based on the

development, design &

implementation of marketing

programs, processes & activities that

recognizes their breadth. Holistic

concept realizes that everything

matters with marketing.

1.6.2. Evolution of Marketing

Once upon a time, when the needs

and wants were satisfied by the

barter trade, there was no need for

marketing. Two parties interested in

each other's products simply

negotiate with each other regarding

the quantities of each product that

must be exchanged. Even at the time

of industrial revolution when the

demand for different products was far

greater than the supply, even in that

scenario there was no need for

marketing. In fact producers were

focussed on production aspects. With

the advancement of production

technology and the increase in

competition, the focus shifted

through various functional areas

towards marketing. The evolution of

marketing can be easily understood

by understanding the company

orientations toward the market place.

 1.7. STRATEGIC MARKETING
PLANNING

Strategic planning is the

management task concerned with the

growth and future of a enterprise.

Strategic planning can be viewed as a

stream of decisions and actions that

lead to effective strategies and

which, in turn, help the firm achieve

its growth objectives. The process

involves a thorough self-appraisal by

the corporation, including an

appraisal of the businesses it is

engaged in and the environment in

which it operates.

A business firm cannot afford to

travel in haphazard manner; it has
to travel with the support of a road

map. Strategic planning provides the

road map for the corporation. It

ensures that the enterprise keeps

moving in the right direction. It

serves as the hedge against risk and

uncertainty, the hedge against costly

mistakes and overnight vulnerability.

It lends a framework for the

corporation, which can ensure that

decisions concerning the

future—decisions on matters like

product-market choices, and

investments—are taken in a

systematic and purposeful way. The

focus of the corporation thus gets

decided through this process.

Strategic planning works as the

F7J><?D:;H JE J>; L7H?EKI 8KI?D;II
EFFEHJKD?J?;I I?CKBJ7D;EKIBO
?J
I;HL;I 7I 7 9EHFEH7J; :;<;D9;
C;9>7D?IC
M>?9> >;BFI 7 <?HC 7LE?:
9EIJBO
C?IJ7A;I

1.8. CUSTOMER
RELATIONSHIP MANAGEMENT
(CRM)

/E:7O
J>; ;NFBEI?ED E< C;:?7 ?I
;D78B?D= C7DO CEH; 9ECF7D?;I JE

I;BB J>;?H FHE:K9J 7D: I;HL?9;I

:?H;9JBO JE 9KIJEC;HI M?J>EKJ

?DJ;HC;:?7H?;I
KI?D= JH7:?J?ED7B

C;:?7 FH?DJ 7D: 8HE7:97IJ C;:?7

97J7BE=I
:?H;9J C7?B
7D: J;B;F>ED;

C7HA;J?D= FBKI <7N C79>?D;I

;
C7?B
J>; $DJ;HD;J
7D: EDB?D;
I;HL?9;I $DDEL7J?L; C7HA;J;HI 7H;
creatively combining traditional and

new media to make direct,

individualized offers to existing

customers, to identify their best

prospects, to better target their

offers, and to measure their results

more accurately.

Despite the myriad marketing

opportunities, this new-media world

has also increased the level of

competitive pressure, forcing small

and large companies to battle for

customers around the clock and

around the world. Longterm customer

relationship management is therefore

driving the most successful direct

and online marketing initiatives.

Based on the information in their

customer databases, companies can

now customize their offers,

messages, and media for more

effective and efficient one-to-one

marketing. The ultimate goal:

stronger, more profitable bonds with

targeted customers.

1.9. MARKETING
ENVIRONMENT

Purpose of marketing

environment analysis:-

a. To know where the environment

is leading, to observe & size up

the relevant events & trends in

the environment.
 b. Strategic response to

environment is possible only with

proper environment analysis.

c. To assess the scope of various

opportunities & shortlist those

that can favourably impact the

business.

d. To help secure the right fit

between the environment & the

business unit which is the crux of

marketing.

The marketing environment

consist of the following

factors

1. Demographic

Demographic is a major element

to be studied in environment
 analysis. Several factors relating

to population, such as size,

growth rate, age distribution,

religious composition, need to be

studied. Aspects such as

composition of workforce,

household patterns, regional

characteristics, population shifts

etc. also need to be studied as

they are a part of demographic

environment.

2. Socio-cultural

Environment:
Socio-cultural environment is

another important component of

the environment. Culture,

traditions, beliefs, values &

lifestyles of the people in a given

society constitute the socio-

cultural environment.
3. Culture

Culture is the combined result of

factors like religion, language,

education & upbringing.

Meaningful, information on the

consumption habits, lifestyles &

buying behaviour can be

obtained through a survey of

socio-cultural environment.

Cultural shifts carry with them

marketing opportunities as well

as threats.
4. Social Class

Social class is one important

concept in socio cultural

environment. A social class is

determined by income,

occupation, location, of

residence etc. Each class has its

own standards with respect to

lifestyle, behaviours etc., they

are known as class values or

class norms. These values have

a strong bearing on the

consumption pattern & buying

behaviour.

5. Economic Environment

The factors to be considered

under economic environment

are:-

a. General Economic conditions

b. Economic conditions of

different segments of the

population, their disposable

income, purchasing power

etc.

c. Rate of growth of the

economy, rate of growth of

each sector of the economy

d. Income, prices &

consumption expenditure

e. Credit availability & interest

rates

f. Inflation rate

g. Foreign exchange reserves

h. Exchange rates

i. Tax rates

j. Behaviour of capital market

6. Political Environment

Economic environment is a by-

product of the political

environment, since economic &

industrial policies followed by a

nation greatly depends on its

political environment. Political

environment has several

aspects, industrial growth

depends to a great extent on the

political environment. Legislation

regulating business are also a

product of the political

configuration. Apart from this

political stability, form of govt,

elements like social & religious

organizations, media &

pressuremgrps & lobbies of

 various kinds also form the part

of political environment

7. Natural Environment

1. Natural Resources

Business firms depends on

natural resources. Raw

material is one major part

of these resources & firms

are concerned with their

availability, they need to

know whether there will be

a shortage in any of the

critical raw materials, they

also need to know the trends

governing their cost. Besides

raw materials, they are also

concerned about energy, its

availability as well as cost.

2. Ecology

Issues like environmental

pollution, protection of wild

life & wealth are the factors

concerned with ecology &

govt, is becoming active

bargainers in environmental

issues.

3. Climate

Firms with products whose

demand depends on climate

& firms depending on climate

dependent raw materials will

be particularly concerned

with this factor. These firms

have to study the climate in

depth & decide their

production location &

marketing territories

respectively. Technology

Environment: For a firm

technology affects not only

its final products but also its

raw material processes &

operations as well as its

customer segments e.g. IT

Industry, Telecom industry.

a. Options Available in

Technology:
A firm has to assess the

relative merits & costs

effectiveness of

alternate technologies.

It has to analyze

technological changes

taking place in the

industry.
b. Govt's Approach in

Respect of

Technology

Regulations by the govt,

in matters relating to

technology restrict the

freedom of operation of

business firm. There

may be areas where

technology may support

the use of modem

technology or they may

ban technologies that

are potentially unsafe.

c. Technology

Selection

Firms have to scan the

technology environment

& select technologies

that will be appropriate

for the firm & the given

product — market

situation. They have to

forecast technological

trends, assess current &

emergency techniques.

Legal Environment —

Business have to

operate within the

framework of prevailing

legal environment. They

have to understand all

legal provisions.
8. Legal environment

depends on

a. Corporate affairs

b. Consumers protection

c. Employee protection

d. Sectoral protection

e. Corporate protection

f. Protection of society

g. Regulations on products,

prices & distribution

h. Control on trade practices

i. Protecting national firms

against foreign firms

 1.10. MACRO AND MICRO
COMPONENTS AND THEIR
IMPACT ON MARKETING
DECISIONS

Macro environment: Broad societal

forces that shape the activities of

every business and non-profit

marketer. The physical environment,

socio-cultural forces, demographic

factors, economic factors, scientific

and technical knowledge, and

political and legal lactors are

components of the macro

environment. Whether it is the

domestic environment, a foreign

environment, or the world

environment that is under

consideration, the environment can

be divided into two categories: the

macro environment and the micro

environment. The broad societal

forces that influence every business

and non-profit marketer comprise the

macro environment. Every company,

however, is more directly influenced

by a micro environment consisting of

its customers and the economic

institutions that shape its marketing

practices.

1.11. MARKET
SEGMENTATION AND
POSITIONING

Markets are not homogenous & they

are made of several segments. A

market is the aggregate of

consumers of a given product and

consumers vary in their

characteristics buying behaviour. It

is feasible to disaggregate the

consumers into segments in such a

manner that in needs characteristics

& buying behaviour, the members

vary significantly among segments.

Segmentation benefits the marketer

as:

1. Facilitates Proper Choice

of Target Market

Segmentation helps in

distinguishing one customer

group from another & thereby

unables him to decide which

segment should form his target

market.
2. Facilitates Taping of the

Market, Adopting the Offer

to the Target:

Segmentation also enables the

marketer to crystallize the needs

of the target buyers. It also helps

him to generate an accurate

predication of the likely

responses from each segment of

the target buyers.

Eg. Ford Strategy -

Through segmentation car

manufacturers have

gained

useful insights on the product

features to be provided to

different segments of car buyers.

3. Makes the Marketing

Effort More Efficient &

Economic:

Segmentation makes the

marketing effort more efficient &

economic. It ensures that the

marketing effort is concentrated

on well defined & carefully

chooses segments. After all, the

resources of any firm are limited

& no firm can normally afford to

attack & tap the entire market.

4. Benefits the customer as well.

5. Helps spots the less satisfied

segments & succeed by

satisfying such segments.

6. Helps achieve the specialization

required in product, distribution,

promotion & pricing for matching

the customer group & develop

marketing offers. Therefore, to

compete more effectively, many

companies go for target

marketing which can establish &

communicate the distinctive

benefits of the company's market

offering. This process is called as

market segmentation.

Eg: GM has identified 40

different customer needs & 40

different market segments in

which it would be present with its

vehicle.
Market can be segmented

using several relevant bases

they are

i. Geographic Segmentation

Geographic segmentation calls

for dividing the market into

different geographical units such

as nations, regions, countries,

cites or neighbourhood. One of

the major geographic

segmentation in India is the

division of rural & urban areas.

The need to segment the market

geographically becomes clearer

when we look at some of the

characteristics of the market. In

India, there are more than 5000
towns & over 6,38,000 villages.

Nearly 87% of these villages

have a population of less than

2000 people. This variation in

population is important for the

marketer while formulating

marketing strategy & plans. In

addition to this products

penetration, income levels &

availability of infrastructure like

roads & electricity make the task

of geographic segmentation

important. For most products,

penetration levels in rural areas

are lower than in urban areas.

Income & lifestyle issues

influence the penetration rate of

products & services.

 Eg: Haats & mandis serve

important roles in the exchange

of goods & services in rural

areas.

ii. Demographic

Segmentation

In demographic segmentation,

the market is divided into groups

on the basis of variables such as

age, family size, family life cycle,

gender, income occupation,

education religion, race

generation, nationality & social

class.

Age & Life Cycle Stage

Consumer wants & abilities

change with age. Eg: Hindustan

Unit Level introduced Pears soap

in pink colour specially for

children. Johnson & Johnson

Baby Powder & Talcum Powder

are classic examples of products

for infants & children. Television

channels in India Indicate the

segmentation based on age & life

cycle. There are channels like

Aastha & Sanskaar target which

towards the old generation,

cartoon network, Disney are

channels for children etc.

Gender

Men & women have different

behavioural orientation. Gender

differentiation has been long

applied to product categories

such as clothing, cosmetics &

magazines. Eg: Axe deodorant is

positioned as a masculine

product. Park avenue from

Raymond is positioned as

masculine brand. Bajaj wave is

a brand specifically designed for

women in the scooter segment.

Income

Income segmentation is a long

standing practice in a variety of

products & services & is a basic

segmentation variable. Eg:

Nirma Washing Powder, was

launched as the lowest priced

detergent in India primarily

targeted at middle income group.

Markets for many consumers

products in India are showing

rapid growth due to low unit

price packaging.

Generation

Each generation is profoundly

influenced by the time in which

it grows- the music movies,

politics.

Social Class

Social class has a strong

influence on preference in cars,

clothing, home , furnishings,

leisure activities, reading habits,

retailers etc.
iii. Psychographic Segmentation
In psychographic segmentation,

elements like personality traits,

attitude lifestyle & value system

form the base. The strict norms,

that consumers follow with

respect to good habits or dress

codes are representative

examples. Eg: Mr. Donald's

changed their menu in India to

adopt to consumer preference.

The market for Wrist Watches

provides example of

segmentation. Titan watches

have a wide range of sub brands

such as Raga, fast track, edge

etc. or instant noodle markers,

fast to cook food brands such

as Maggi, Top Ramen or Femina,

 women's magazine is targeted

for modem women.

iv. Behavioural

Segmentation:

Markets can be segmented on

the basis of buyer behaviour as

well. The primary idea in buyer

behaviour is that different

customer groups expect different

benefits from the same product &

accordingly they will be different

in their motives in owning it. In

buyer behaviour based

segmentation also, several sub

factors form the basis. Eg:

Purchase occasion can be one

base, buyers can be segmented

on the basis of whether they are

 regular buyers or special

occasion buyers. Degree of use

can be another base, they can

be segmented on the basis of

whether they are light, medium

or heavy users of the product or

whether they are enthusiastic or

indifferent or negative towards

the product.

The different levels of market

segmentation:

The starting point for discussing

segmentation is mass marketing.

In mass marketing, the seller

engages in mass production, mass

distribution & mass promotion of one

product for all buyer. Eg: Henry ford
offered the model T-f ord in one color

i.e. black. The argument for mass

marketing is that it creates the

largest potential market, which leads

to lower cost & proliferation of

advertising media & distribution

channels making it difficult.

Therefore more companies are

turning to micro marketing at one of

four levels: segments, niches, local &

individual.

Segment Marketing

A market segment consist of a

group of customers who share a

similar set of needs & wants. Eg: We

can distinguish between car buyers

who are primarily seeking low cost

basic transportation, seeking a

luxurious driving experience & those

seeking driving thrills & performance,

segment & sector should not be

contused. A car company might say

that it will target young, middle

income car buyers. Young middle car

buyers are a sector, not a segment.

The marketer does not create the

segments, the marketers task is to

identify the segments & decide one

which to target. Segment marketing

offers key benefits over mass

marketing. The company can design

better price & deliver the product or

service to satisfy the target market.

Niche Marketing

A niche is a narrowly defined

customer group seeking a distinctive

mix of benefits. Marketers usually

identify niches by dividing a segment

into sub segments. The customers in

the niche have distinctive sets of

needs, they will pay a premium to the

firm that best satisfies their needs,

the niche is not likely to attract other

competitors & the niche has size,

profit & growth potential.

i. Larger companies such as IBM

have lost prices of their market

to nichers.

ii. Ezee, the liquid detergent from

godrej is a fabric washing

product for woolen clothes

iii. Crack and ointment for pain is

another product with niche focus.

This product is primarily targeted

at women for prevention of

cracked heels.

iv. Itch guard, focuses on niche

requirement of treating itching

sensation

v. Television channels particularly

focusing on religion &

spirituality.

vi. Matrimonial websites like

www.shadi.com. Niche Marketers

understand their customer needs

so well that customer is willing

to pay a premium & as marketing

efficiency increases niches that

were too small, becomes more

profitable.
Local Marketing

Target marketing is leading to

marketing programs tailored to the

needs & wants of local customers

groups. Many banks in India have

specialized branches that cater to the

needs of corporate customer. The

inter city courier companies in many

cities specialize in delivering packets

on the same day. The marketing

activities concentrate on getting as

close to the individual customers.

Eg : Nike.
Customization

The ultimate level of segmentations

leads to one to one marketing.

Today's customers are taking more

individual initiative in determining

what & how to buy. They log on to

the internet, look up information,

evaluates the product / service & in

many cases, design the product they

want. Companies see it more efficient

as the marketers can achieve more

precision & effectiveness by

addressing individual needs.

1.12. BUYER BEHAVIOUR

Marketing and environmental stimuli

enter the buyer's consciousness. The

buyer's characteristics and decision

process lead to certain purchasing

decisions. The marketer's task is to

understand what happens in the

buyer's consciousness between the

arrival of outside stimuli and the

buyer's purchase decision.

The Major Factors Influencing

Buying Behaviour Space for

Hints

Consumer's buying behaviour is

influenced by cultural, social,

personal, and psychological factors.

Cultural factors exert the broadest

and deepest influence.

Cultural Factors

Culture, subculture, and social class

are particularly important in buying

behaviour.
Culture

Culture is the most fundamental

determinant of a person's wants and

behaviour. The growing child

acquires a set of values, perceptions,

preferences, and behaviours through

his or her family and other key

institutions. A child growing up in the

United States is exposed to the

following values: achievement and

success, activity, efficiency and

practicality, progress, material

comfort, individualism, freedom,

external comfort, humanitarianism,

and youthfulness.
Subculture

Each culture consists of smaller

subcultures that provide more

specific identification and

socialization for their members.

Subcultures include nationalities,

religions, racial groups, and

geographic regions. Many

subcultures make up important

market segments, and marketers

often design products and marketing

programs tailored to their needs.

Social Class

Virtually all human societies exhibit

social stratification. Stratification

sometimes takes the form of a caste

system where the members of

different castes are reared for certain

roles and cannot change their caste

membership. More frequently,

stratification takes the form of social

classes.

Social classes are relatively

homogeneous and enduring divisions

in a society, which are hierarchically

ordered and whose members share

similar values, interests, and

behaviour.

Social classes do not reflect income

alone, but also other indicators such

as occupation, education, and area

of residence. Social classes differ in

dress, speech patterns, recreational

preferences, and many other

characteristics. Table 5.1. describes

the seven U.S. social classes

identified by social scientists.

Social classes have several

characteristics. First, those within

each social class tend to behave more

alike than persons from two different

social classes. Second, persons are

perceived as occupying inferior or

superior positions according to social

class. Third, social class is indicated

by a cluster of variables-rather than

by any single variable. Fourth,

individuals can move from one social

class to another—up or down—during

their lifetime. The extent of this

mobility varies according to the

rigidity of social stratification in a

given society. Social classes show

distinct product and brand

preferences in many areas, including

clothing, home furnishings, leisure

activities, and automobiles. Some

marketers focus their efforts on one

social class.

1.13 CONSUMPTION VERUS

Definitions — Conspicuous

consumption denotes the act of

buying many things, especially

expensive things, that are not

necessary to one's life, done in a
M7O J>7J M?BB C7A; F;EFB; DEJ?9; J>;

FKH9>7I;I $D J>; %EKHD7B E<
9EDEC?9 $IIK;I 7HJ?9B; T1;8B;D

EKH:?;K
7D: EDIF?9KEKI

EDIKCFJ?EDU 
 /H?==
:;<?D;: 9EDIF?9KEKI 9EDIKCFJ?ED 7I

J>; 8;>7L?EKHI M>;H;8O 7 C7D EH 7

MEC7D 97D :?IFB7O =H;7J M;7BJ> 8O

C;7DI E< ?:B;D;II S ;NF;D:?D= CK9>

J?C; ?D J>; FH79J?9; E< B;?IKH;

79J?L?J?;I
7D: IF;D:?D= CK9> CED;O

JE 9EDIKC; BKNKHO =EE:I 7D:

I;HL?9;I

1.14. INDUSTRIAL
ORGANIZATIONAL BUYERS

+>OI?97B :?IJH?8KJ?ED <KD9J?EDI ?D9BK:;

8H;7A?D= 8KBA
799KCKB7J?D= 8KBA

creating assortments, reducing

transactions, and transporting and

storing.

Bulk-breaking function: An activity,

performed by marketing
intermediaries, consisting of buying

products in relatively large quantities

and selling in smaller quantities.

Breaking Bulk. With few exceptions,

intermediaries perform a bulk-

breaking function. The bulk-breaking

function consists of buying in

relatively large quantities, such as

truckloads, and then selling in

smaller quantities, passing the lesser

amounts of merchandise on to

retailers, organizational buyers,

wholesalers, and other customers.

By accumulating large quantities of

goods and then breaking them into

smaller amounts suitable for many

buyers, intermediaries can reduce

the cost of distribution for both

manufacturers and consumers.

Consumers, do not buy and store

great amounts of merchandise, which

would increase their storage costs

and the risks of spoilage, fire and

theft. Manufacturers are spare the

necessity of dividing their outputs

into the small order sizes retailers

or consumers might prefer. Bulk

breaking is sometimes termed

“resolution of economic

discrepancies,” because

manufacturers, as a rule, turn out

amounts of merchandise that are

vast compared with the quantity that

an individual buyer might be able to

purchase. Breaking bulk resolves this

discrepancy.

Bulk–accumulating function:

An activity, performed by marketing

intermediaries, consisting of buying

small quantities of a particular

product from many small producers

and then selling the assembled larger

quantities.

Assembler:

A marketing intermediary that

performs a bulk-accumulating

function.
Accumulating Bulk. In the majority

of cases, it is the task of the

intermediary to break bulk. However,

an intermediary may also create

bulk, buying units of the same

product from many small producers

and offering the larger amount to

those who prefer to purchase in large

quantities. These intermediaries are

performing bulk- accumulating

function. An intermediary performing

this function is called surprisingly, an

assembler.

The classic examples of assemblers

are in agriculture and fishing

businesses. A maker of tomato

sauce, such as Maggie, would

probably not want to have to deal

with many small farms

 1.15. CONSUMER DECISION
Each time a person buys good or

service, donates to a charity, and so

on, he or she uses the decision

process. This may be done

subconsciously, with the person not

aware of using it. Some situations let

a person move through the process

quickly and de-emphasize or skip

steps; others require a thorough use

of each step. A consumer may use

extended, limited, or routine decision

making—based on the search, level

of experience, frequency of purchase,

amount of perceived risk, and time

pressure.
Types of Decision Processes

Extended consumer decision making

occurs when a person fully uses the

decision process. Much effort is spent

on information search and evaluation

of alternatives for expensive,

complex items with which a person

has little or no experience. Purchases

are made infrequently. Perceived risk

is high, and the purchase is

important. A person has time

available to make a choice. Purchase

delays often occur. Demographic,

social, and psychological factors have

their greatest impact. Extended

decision making is often involved in

picking a college, a house, a first car,

or a location for a wedding.

Limited consumer decision making

occurs when a person uses every step

in the purchase process but does not

spend a great deal of time on some

of them. The person has previously

bought a given good or service, but

makes fresh decisions when it comes

under current purchase

consideration-due to the relative

infrequency of purchase, the

introduction of new models, or an

interest in variety. Preceived risk is

moderate and a person is willing to

spend some time shopping. The

thoroughness with which the process

is used depends on the amount of

prior experience, the importance of

the purchase, and the time pressure

facing the consumer. Emphasis is on

evaluating a list of known choice,

although an information search may

be done. Factors affecting the

decision process have some impact.

A second car, clothing, gift, home

fiimishings, and an annual vacation

typically need limited decision

making.

Routine consumer decision making

occurs when a person buys out of

habit and skips steps in the process.

He or she spends little time shopping

and often rebuys the same brands

(or those bought before). In this

category are items with which a

person has much experience. They

are bought regularly, have little or no

perceived risk, and are rather low in

price. Once a person realizes a good

or service is depleted, a repurchase

is made. Time pressure is high.

Information search, evaluation, and

post-purchase behaviour are

normally omitted, as long as a person

is satisfied. Impulse purchases,

where consumers have not thought of

particular items until seeing displays

for them, are common. Factors

affecting the process have little

inpact because problem awareness

usually leads to a purchase.

Examples of items routinely

purchased are the daily paper, a

haircut by a regular stylist, and

weekly grocery items.

1.16. MARKETING PROCESS

Planning at the corporate, division,

and business levels is an integral part

of the marketing process. To fully

understand that process, we must

first look at how a company defines

its business. The task of any business

is to deliver value to the market at

a profit. There are at least two views

of the value-delivery process. The

traditional view is that the firm

makes something and then sells it

.For example, Thomas Edison invents

the phonograph and then hires
people to make and sell it. In this

view, marketing takes place in the

second half of the value-delivery

process. The traditional view

assumes that the company knows

what to make and that the market

will buy enough units to produce

profits for the company.

Companies that subscribe to this

traditional view have the best chance

of succeeding in economies marked

by goods shortages where consumers

are not fussy about quality, features,

or style. But the traditional view of

the business process will not work in

more competitive economies where

people face abundant choices. The

“mass market” is actually splintering

?DJE DKC;HEKI C?9HE C7HA;JI
;79>
M?J> ?JI EMD M7DJI
F;H9;FJ?EDI

FH;<;H;D9;I
7D: 8KO?D= 9H?J;H?7 />;

IC7HJ 9ECF7DO J>;H;<EH; CKIJ

:;I?=D J>; E<<;H <EH M;BB:;<?D;:
J7H=;J
C7HA;JI

1.17. Key terms

Opportunity and issue

analysis

/>?I I;9J?ED ?:;DJ?<?;I J>; C7@EH

EFFEHJKD?J?;I 7D: J>H;7JI
IJH;D=J>I
7D: M;7AD;II;I
7D: ?IIK;I <79?D=
J>;
FHE:K9J
B?D;
EH
8H7D:
Demographic Segmentation

In demographic segmentation, the

market is divided into groups on the

basis of variables such as age, family

size, family lif e cycle, gender,

income occupation, education

religion, race generation, nationality

& social class.

1.18. SUMMARY
An analytical of the unit the study of

all functions of marketing discussed

unit makes it clear that marketing is

a very wide term including all the

activities from the discovery of needs

and wants of consumers to their

satisfaction.
1.19. ANSWERS TO CHECK
YOUR PROGRESS

1. a

2. b

3. a.

1.20. QUESTIONS /
EXERCISE

1. Definition of Marketing.

2. What are the importance of

marketing?

3. Explain the scope of marketing.

4. Explain the different types of

marketing segmentation.

5. What is CRM in Marketing?

6. What are the different types of

marketing segmentation?
1.21. FURTHER READING
1. Kotler, Philip and Gray

Armstrong, Principles of

Marketing, Prentice Hall, New

Delhi,2007.
 UNIT – 2

PRODUCT

Unit Structure:

2.0. Introduction

2.1. Unit Objectives

2.2. Definitions

2.3. Concept of Product

2.4. Classification of Product

2.5. Major Product Decisions

2.6. Product Line

2.7. Product Mix

2.8. Branding

2.9. Packaging and Labelling

2.10. Product Life Cycle

2.11. Strategic Implications

2.12. Challenges in New Product

Development

2.13. Types of New Products

2.14. Why New Products

Fail—and Succeed

2.15. Managing New Products:

Ideas to Strategy

2.16. Managing New Products:

Development

toCommercialization

2.17. Consumer Adoption

Process

2.18. Key terms

2.19. Summary

2.20. Answers to Check Your

Progress

2.21. Questions / Exercise

2.22. Further Reading.

 2.0. INTRODUCTION

“A Product is a bundle of

Physical service and symbolic

particulars expected to yield

satisfaction or benefits to the

buyer.”

For developing a total marketing

programme the marketing manager

is armed with four tools:

i. his product

ii. his distribution system

iii. his pricing strategy, and

iv. his advertising and sales

promotion programme.
This first of these tools,i.e. the

product is the most important tool

in the marketing mix. Without a

product, there is no question of

marketing. The whole marketing

programme is based on the product.

The buyer purchases a product only

because, it serves the customer

satisfying his needs and desires and,

therefore, he pays for it. Thus a

product is a product is a bundle of

potential utility because customer is

more interested in the benefits he

gets from the product rather then the

product characterises in a physical

sense.
In this way, product is the basis of

marketing programme and all

marketing decisions are based on

production decisions and pricing

distribution, advertising and other

decisions are influenced by the

product decisions.

2.1. UNIT OBJECTIVES

This chapter is devoted to the

product, and related terms like

• To know the concept of product

• To know the product line

• To know the PLC

• To know the branding

• To know the new product

development
 2.2. DEFINITIONS

William J. Station, “ A Product is a

complex of tangible attributes,

including packaging, colour, price,

manufactures prestige and retailers

prestige and manufacturers and

retailers services which the buyer

may expect as offering satisfaction of

wants or needs.”

In the words of R.S.Davar,“A product

therefore, may be regarded from the

marketing view point a bundle of

benefits which are being offered to

the consumer.”
 2.3. CONCEPT OF PRODUCT

Other businesses are guided by the

product concept, which holds that

consumers favour those products

that offer the most quality,

performance, or innovative features.

Managers in these organizations

focus on making superior products

and improving them over time,

assuming that buyers can appraise

quality and performance.

Product-oriented companies often

design their products with little or

no customer input, trusting that their

engineers can design exceptional

products. A General Motors executive

said years ago: “How can the public
know what kind of car they want until

they see what is available?” GM today

asks customers what they value in a

car and includes marketing people in

the very beginning stages of design.

However, the product concept can

6
lead to marketing myopia} Railroad
management thought that travellers

wanted trains rather than

transportation and overlooked the

growing competition from airlines,

buses, trucks, and automobiles.

Colleges, department stores, and the

post office all assume that they are

offering the public the right product

and wonder why their sales slip.

These organizations too often are

looking into a mirror when they

should be looking out of the window.

 2.4. CLASSIFICATION OF
PRODUCT

In addition to understanding a

product's position in the hierarchy,

the marketer also must understand

how to classify the product on the

basis of three characteristics:

durability, tangibility, and consumer

or industrial use. Each product

classification is associated with a

different marketing mix strategy.

Durability and tangibility. Nondurable

goodsare tangible goods that are

normally consumed in one or a few

uses (such as beer and soap).

Because these goods are consumed

quickly and purchased frequently, the

appropriate strategy is to make them

available in many locations, charge

only a small markup, and advertise

heavily to induce trial and build

preference. Durable goods are

tangible goods that normally survive

many uses (such as refrigerators).

These products normally require

more personal selling and service,

command a higher margin, and

require more seller guarantees.

Services are intangible, inseparable,

variable, and perishable products

(such as haircuts or cell phone

service), so they normally require

more quality control, supplier

credibility, and adaptability.

Consumer-goods classification.

Classified according to consumer

shopping habits, these products

include: convenience goods that

are usually purchased frequently,

immediately, and with a minimum of

effort, such as newspapers;

shopping goods that the customer,

in the process of selection and

purchase, characteristically

compares on the basis of suitability,

quality, price, and style, such as

furniture; speciality goods with

unique characteristics or brand

identification, such as cars, for which

a sufficient number of buyers are

willing to make a special purchasing

effort; and unsought goods that

consumers do not know about or do

not normally think of buying, such

as smoke detectors. Dealers that sell

speciality goods need not be

conveniently located but must

communicate their locations to

buyers; unsought goods require more

advertising and personal sales

support.

Industrial-goods classification.

Materials and parts are goods that

enter the manufacturer's product

completely. Raw materials can be

either farm products (e.g., wheat) or

natural products (e.g., lumber). Farm

products are sold through

intermediaries; natural products are

generally sold through long-term

supply contracts, for which price and

delivery reliability are key purchase

factors. Manufactured materials and

parts fell into two categories:

component materials (iron) and

component parts (small motors);

again, price and supplier reliability

are important considerations. Capital

items are long-lasting goods that

facilitate developing or managing the

finished product. They include two

groups: installations (such as

factories) and equipment (such as

trucks and computers), both sold

through personal selling, supplies

and business services are short-

lasting goods and services that

facilitate developing or managing the

finished product.

2.5. MAJOR PRODUCT

DECISIONS

In offering a product line, the

company normally develops a basic

platform and modules that can then

be expanded to meet different

customer requirements. As one

example, many home builders show

a model home to which additional

features can be added, enabling the

builders to offer variety while

lowering their production costs.

Regardless of the type of products

being offered, successful marketers
do not make product-line decisions

without rigorous analysis Sales and

profits. The manager must calculate

the percentage contribution of each

item to total sales and profits. A high

concentration of sales in a few items

means line vulnerability. On the

other hand, the firm may consider

eliminating items that deliver a low

percentage of sales and

profits—unless these exhibit strong

growth potential. Market profile. The

manager must review how the line is

positioned against competitors' lines.

A useful tool here is a product map

showing which competitive products

compete against the company's

products on specific features or

benefits. This helps management

identify different market segments

and determine how well the firm is

positioned to serve the needs of

each.

2.6. PRODUCT LINE

Product line to induce up selling.

Thus, maruti would like to move

customers up from Maruti 800 to Alto

to Zen. Thus, increasing the line

length adds more & more products

/ brands to the line to capture new

marketing opportunities.

Eg. Videocon offers wide range of

products such as refrigerators,

washing machines, televisions,

microwave, & air conditioners under

different brand names to cater the

needs of entry level, middle level &

premium segments. Line stretching &

line filling—Two ways of increasing

line length:

Line Stretching

Line stretching is a measure firms

undertake frequently in product

mgmt. The aim is to enter a new

price slot & a new market segment.

Stretching occurs in two ways-

i. Stretching up

ii. Stretching down

At times, a company which has

initially taken its position in the high

price slot, stretches the line

downwards by offering products in

the same line for the lower end

markets. This is called stretching

down. Eg. Kodak introduced Kodak

fun time film to counter lower priced

brands.

In some other instance, a company

which has initially positioned its

products for the lower end markets,

decides to make higher priced offers

for the top slots. This is called

stretching up. Many markets have

spawned surprising upscale segments

Starbucks in coffee. Toyata's lexus,

Honda's acura.
Two Way Stretch:

Companies serving the middle

market might decide to stretch

their line in both directions. Texas

instruments introduced its first

calculators in the medium price

medium quality end of the market.

Gradually it added calculators at the

lower end taking market share from

Bowmar & at the higher end to

complete with Hewlett Packard.

Line Filling:

In line filling the firm introduces

more items to the line to plug

certain gaps in its current range of

offers to plug holes to keep out

competitors.
Line filling is overdone if it results in

confusion of consumer. The company

needs to differentiate each item in

the consumer's mind.

Eg. Videocon has several product

lines & room air conditioners is one of

them. Video con entered the market

for air conditioners with just two or

three models, but later on introduced

dozens of models.

Line Modernization Featuring

& Pruning :

Product lines need to be

modernized. Companies plan

improvements t o encourage

customer migration to higher valued,

higher priced items. Companies like

Microsoft & Oracle introduce more

advanced versions of their products.

This is product modernization. Line

pruning is the opposite of line

stretching. Here a consumers

decision is taken to reduce the no.

of items in the line, the company

is trying to save cost maximizes

efficiency in production.

2.7. PRODUCT MIX

A product mix is the set of all

products & items a particular seller

offers for sale. A product mix consist

of various product line. A company's
product mix has a certain width,

length, depth & consistency.

Eg: These concepts are illustrated

through an example of Hindustan

Unibuer Ltd. (HUL).

The width of a product mix refers

to how many different products lines

the company carries. The length of

the product mix refers to the total

number of items in the mix. This is

obtained by dividing the total length

(25) by the number of lines (11) or

an average product length of less.

The depth ofproduct mix refers to

how many variants are offered of

each product in the line. Since lux

comes in 4 scents (exotic flower

petals & jojoba oil, almond oil & milk

cream, fruit extracts & honey &

sandal saffron in milk cream), it has

a depth of 8. The consistency of the

product mix refers to how closely

related the various product liens are.

Personal Skin Hair Colour

Deo. Laundry Oral Care Coffee Foods
Wash Care Care Cosmetic

Surf Fair & Sun

Axe Lux Peposodent Lakme Bra Kissan
Excel Lovely Silk

Lifebuoy Rim Clinic Ponds Close Up Knors

Rexeno Liril Wheel Annpuma

Hamam

Breeze

Dove

Pears

Rexona

Product
Line

length
 2.8. BRANDING

Branding is the management process

by which a product is branded. It

is a general term covering various

activities such as giving a brand

name to a product, designing a brand

mark and establishing and

popularising.

Perhaps the most distinctive skill of

professional marketers is their ability

to create, maintain, protect, and

enhance brands.
The American Marketing Association

defines a brand as a name, term,

sign, symbol, or design, or a

combination of these, intended to

identify the goods or services of one

seller or group of sellers and to

differentiate them from those of

competitors. In essence, a brand

identifies the seller or maker.

Whether it is a name, trademark,

logo, or another symbol, a brand is

essentially a seller's promise to

deliver a specific set of features,

benefits, and services consistently to

the buyers. The best brands convey a

warranty of quality. But a brand is an

6
even more complex symbol. It can

convey up to six levels of meaning,

as shown in Table 4.1.

The branding challenge is to develop

a deep set of positive associations for

the brand. Marketers must decide at

which level(s) to anchor the brand's

identity. One mistake would be to

promote only attributes. First, buyers

are not as interested in attributes

as they are in benefits. Second,

competitors can easily copy

attributes. Third, today's attributes

may become less desirable

tomorrow. Ultimately, a brand's most

enduring meanings are its values,

culture, and personality, which define

the brand's essence. Smart firms

therefore craft strategies that do not

dilute the brand values and

personality built up over the years.

Levels of

Brand

Meaning

Meaning Description Example 1

Mercedes

A brand suggests

brings to expensive, 1

Attributes mind well-built,

certain durable, high-

attributes. prestige 1

vehicles.

Attributes The attribute

Benefits must be "durable" could

translated translate into the

 into functional benefit

functional "I won't have to

and buy another car

emotional for several

benefits. years."

The brand
Mercedes stands
says
for high
something
Values performance,
about the
safety, and
producer's
prestige.
values.

Mercedes

The brand represents

may German 1

Culture represent a culture:

certain organized,

culture. efficient, high 1

quality. 1

The brand Mercedes may

can project suggest a non-

Personality
a certain nonsense boss

personality. (person) or a 1
 reigning lion

(animal). 1

Mercedes

The brand vehicles are

suggests more likely to be

the kind of bought by

User customer 55-year- 1 old

who buys top managers

or uses the than by 20-1

product. year-old store

clerks.

2.9. PACKAGING AND

LABLING

Most physical products have to be

packaged and labeled. Some

packages— such as the Coke

bottle—are world famous. Many

marketers have called packaging a

fifth P, along with price, product,
place, and promotion; however,

packaging and labeling are usually

treated as an element of product

strategy.

2.9.1 Packaging

Packaging includes the activities of

designing and producing the

container for a product. The

container is called the package, and

it might include up to three levels of

material. Old Spice aftershave lotion

is in a bottle (primary package) that

is in a cardboard box (secondary

package) that is in a corrugated box

(shipping package) containing six

dozen boxes of Old Spice.

The following factors have

contributed to packaging's growing

use as a potent marketing tool:

Self-service: The typical supermarket

shopper passes by some 300 items

per minute. Given that 53 percent of

all purchases are made on impulse,

an effective package attracts

attention, describes features, creates

confidence, and makes a favourable

impression.

2.9.1.1. Consumer affluence:

Rising consumer affluence means

consumers are willing to pay a little

more for the convenience,

appearance, dependability, and

prestige of better packages.

 2.9.1.2. Company and brand
image:

Packages contribute to instant

recognition of the company or brand.

Campbell Soup estimates that the

average shopper sees its red and

white can 76 times a year, the

equivalent of $26 million worth of

advertising.

2.9.1.3. Innovation opportunity:

Innovative packaging can bring

benefits to consumers and profits to

producers. Toothpaste pump

dispensers, for example, have

captured 12 percent of the

toothpaste market because they are

more convenient and less messy.

Developing an effective package for

a new product requires several

decisions. The first task is to

establish the packaging concept,

defining what the package should

basically be or do for the particular

product. Then decisions must be

made on additional elements—size,

shape, materials, color, text, and

brand mark, plus the use of any

“tamperproof” devices. All packaging

elements must be in harmony and,

in turn, must harmonize with the

product's pricing, advertising, and

other marketing elements. Next come

engineering tests to ensure that the

package stands up under normal

conditions; visual tests, to ensure

that the script is legible and the

colors harmonious; dealer tests, to

ensure that dealers find the packages

attractive and easy to handle; and,

finally, consumer tests, to ensure

favourable response.

Tetra Pak, a major Swedish

multinational, provides an example of

the power of innovative packaging

and customer orientation. The firm

invented an “aseptic” package that

enables milk, fruit juice, and other

perishable liquid foods to be

distributed without refrigeration. This

allows dairies to distribute milk over

a wider area without investing in

refrigerated trucks and facilities.

Supermarkets can carry Tetra Pak

packaged products on ordinary

shelves, which saves expensive

refrigerator space. The firm's motto

is “the package should save more

than it costs.”

2.9.2. Labeling

Every physical product must carry a

label, which may be a simple tag

attached to the product or an

elaborately designed graphic that is

part of the package. Labels perform

several functions. First, the label

identifies the product or brand—for

instance, the name Sunkist stamped

on oranges. The label might also

grade the product, the way canned

peaches are grade labelled A, B, and

C. The label might describe the

product: who made it, where it was

made, when it was made, what it

contains, how it is to be used, and

how to use it safely. Finally, the label

might promote the product through

attractive graphics.

Labels eventually become outmoded

and need freshening up. The label

on Ivory soap has been redone 18

times since the 1890s, with gradual

changes in the size and design of the

letters. The label on Orange Crush

soft drink was substantially changed

when competitors' labels began to

picture fresh fruits, thereby pulling

in more sales. In response, Orange

Crush developed a label with new

symbols to suggest freshness and

with much stronger and deeper

colors.

Legal concerns about labels and

packaging stretch back to the early

1900s and continue today. The Food

and Drug Administration (FDA)

recently took action against the

potentially misleading use of such

descriptions as “light,” “high fiber,”

and “low fat.” Meanwhile,

consumerists are lobbying for

additional labeling laws to require

open dating (to describe product

freshness), unit pricing (to state the

product cost in standard

measurement units), grade labeling

(to rate the quality level), and

F;H9;DJ7=; B78;B?D= JE I>EM J>;

F;H9;DJ7=; E< ;79> ?CFEHJ7DJ

?D=H;:?;DJ 

.EC; J7D=?8B; FHE:K9JI J>7J

?D9EHFEH7J; F79A7=?D= 7D: B78;BI 7BIE

?DLEBL; IEC; I;HL?9; 9ECFED;DJ

IK9> 7I :;B?L;HO EH ?DIJ7BB7J?ED

/>;H;<EH;
C7HA;J;HI CKIJ 8; IA?BB<KB

DEJ EDBO ?D C7D7=?D= FHE:K9J B?D;I

7D: 8H7D:I
8KJ 7BIE ?D :;I?=D?D= 7D:

C7D7=?D=
I;HL?9;I


 $&#)(

- 

/>;
+HE:K9J
'?<;O9B;
ED9;FJ

/E I7O J>7J 7 FHE:K9J >7I 7 B?<; 9O9B;

?I
JE
7II;HJ
<EKH
J>?D=I
 1. Products have a limited life;

2. Product sales pass through

distinct stages with different

challenges, opportunities, and

problems for the seller;

3. Profits rise and fall at different

stages of the product fife cycle;

and

4. Products require different

marketing, financial,

manufacturing, purchasing, and

human resource strategies in

each stage.

Most product lifecycle curves are

portrayed as a bell-shape This PLC

curve is typically divided into four

stages:
Introduction:

A period of slow sales growth as the

product is introduced in the market.

Profits are nonexistent in this stage

because of the heavy expenses

incurred with product introduction.

Growth:

A period of rapid market acceptance

and substantial profit improvement.

Maturity:

A period of a slowdown in sales

growth because the product has

achieved acceptance by most

potential buyers. Profits stabilize or

decline because of increased

competition.
Decline:

The period when sales show a

downward drift and profits erode.

Following Table summarizes the

characteristics, objectives, and

strategies associated with each

stage.

Marketing Strategies:

Introduction Stage

Because it takes time to roll out a

new product and fill dealer pipelines,

sales growth tends to be slow at this

stage. Buzzell identified several

causes for the slow growth:

 Figure 2.1

Product Life Cycle

Introduction Growth Maturity Decline

Characteristics

Rapidly Declining
Sales Low sales Peak sales
rising sales sales

Average Low cost Low cost

High cost per
Costs cost per per per
customer
customer customer customer

Rising Declining
Profits Negative High profits
profits profits

Early Middle
Customers Innovators Laggards
adopters majority

Stable
Growing number Declining
Competitors Few
number beginning number
to decline
Marketing
Objectives

Maximize
Create Reduce
Maximize profit while
product expenditure
market defending
awareness and milk
share market
and trial the brand
share

Strategies

Offer
product Diversify Phase out
Offer a basic
Product extensions, brands and weak
product
service, items models
warranty

Price to
Price to
Charge cost- match or
Price penetrate Cut price
plus best
market
competitors

Go
Build more
Build Build selective:

Distribution selective intensive intensive phase out

distribution distribution unprofitable

distribution
outlets

Build
Build product Stress Reduce to
awareness
awareness brand level
and
Advertising among early differences needed to
interest in
adopters and and retain hard-
the mass
dealers benefits core loyals
market

Reduce to
Use heavy take Increase to
Reduce to
Sales sales advantage encourage
minimal
Promotion promotion to of heavy brand
level
entice trial consumer switching
demand
 Introduction Growth Maturity Decline

Characteristics

Rapidly Declining
Sales Low sales Peak sales
rising sales sales

Average Low cost Low cost

High cost per
Costs cost per per per
customer
customer customer customer

Rising Declining
Profits Negative High profits
profits profits

Early Middle
Customers Innovators Laggards
adopters majority

Stable
Growing number Declining
Competitors Few
number beginning to number
decline

Marketing
Objectives

Maximize
Create Reduce
Maximize profit while
product expenditure
market defending
awareness and milk
share market
and trial the brand
share

Strategies

Offer
product Diversify Phase out
Offer a basic
Product extensions, brands and weak
product
service, items models
warranty

Price to
Charge cost- Price to
Price penetrate Cut price
plus match or
market
 best
competitors'

Go
Build more
Build Build selective:
Distribution selective intensive intensive phase out
distribution distribution unprofitable
distribution
outlets

Build
Build product Reduce to
awareness Stress
awareness level
and brand
Advertising among early needed to
interest in differences
adopters and retain hard-
the mass and benefits
dealers core loyals
market

Reduce to

Use heavy take Increase to

Reduce to
Sales sales advantage encourage
minimal
Promotion promotion to of heavy brand
level
entice trial consumer switching
demand

Sources: Chester R.Wasson, Dynamic

Competitive and Product Life Cycles

(Austin,TX: Austin Press, 1978);

John A.Weber, "Planning Corporate

Growth with Inverted Product Life

Cycles," Long Range Planning,

October 1976, pp. 12-29; and Peter

Doyle,"The Realities of the Product

Life Cycle," Quarterly Review of

Marketing,Summer 1976.

Summary of Product Life

Cycle Characteristics,

Objectives, and Strategies

Delays in the expansion of production

capacity, technical problems

(“working out the bugs”), delays in

obtaining adequate distribution

through retail outlets, and customer

reluctance to change established

 21
behaviours. Sales of expensive new

products are retarded by additional

factors such as product complexity

and fewer buyers. Profits are

negative or low in the introduction

stage because of low sales and heavy

distribution and promotion expenses.

Much money is needed to attract

distributors. Promotional

expenditures are high because of the

need to (1) inform potential

consumers, (2) induce product trial,

and (3) secure distribution. Firms

focus their selling on those buyers

who are the readiest to buy, usually

higherincome groups. Prices tend to

be high because costs are high due

to relatively low output rates,

technological problems in production,

and high required margins to support

the heavy promotional expenditures.

Companies must decide when to

enter the market with a new product.

Most studies indicate that the market

pioneer gains the most advantage.

Such pioneers as Amazon.com, Cisco,

Coca-Cola, eBay, Eastman Kodak,

Hallmark, Microsoft, Peapod.com.

and Xerox developed sustained

market dominance.

However, the pioneer advantage is

not inevitable. Schnaars studied 28

industries in which the imitators

surpassed the innovators and found

several weaknesses among the failing

pioneers, including new products that

were too crude, were improperly

positioned, or appeared before there

was strong demand; product-

development costs that exhausted

the innovator's resources; a lack of

resources to compete against

entering larger firms; and managerial

incompetence or unhealthy

complacency. Successful imitators

thrived by offering lower prices,

improving the product more

continuously, or using brute market

22
power to overtake the pioneer. As

one example, Apple's Newton, the

first handheld personal digital

assistant, failed because it could not

decipher the handwriting of users

consistently. In contrast, imitator

Palm Pilot's smaller, more advanced

product was enormously successful

because it allowed users to input

information with a few standardized

strokes of the stylus.

Still, the pioneer knows that

competition will eventually enter the

market and charge a lower price,

which will force the pioneer to lower

prices. As competition and market

share stabilize, buyers will no longer

pay a price premium; some

competitors will withdraw at this

point, and the pioneer can then build

share if it chooses.
Marketing Strategies: Growth

Stage

The growth stage is marked by a

rapid climb in sales, as DVD players

25
are currently experiencing. Early

adopters like the product, and

additional consumers start buying it.

Attracted by the opportunities, new

competitors enter with new product

features and expanded distribution.

Prices remain where they are or fell

slightly, depending on how fast

demand increases. Companies

maintain or increase their

promotional expenditures to meet

competition and to continue to

educate the market. Sales rise much

faster than promotional

expenditures, causing a welcome

decline in the promotion-sales ratio.

Profits increase during this stage as

promotion costs are spread over a

larger volume and unit

manufacturing costs fall faster than

price declines owing to the producer

learning effect. During this stage, the

firm uses several strategies to

sustain rapid market growth as long

as possible:

1. improving product quality and

adding new product features and

improved styling;

2. adding new models and flanker

products;
 3. entering new market segments;

4. increasing distribution coverage

and entering new distribution

channels;

5. shifting from product awareness

advertising to product-

preference advertising; and

6. lowering prices to attract the

next layer of price-sensitive

buyers.

Marketing Strategies:

Maturity Stage

At some point, the rate of sales

growth will slow, and the product will

enter a stage of relative maturity.

This stage normally lasts longer than

the previous stages, and poses

formidable challenges to marketing

management. Most products are in

the maturity stage of the life cycle,

and most marketing managers cope

with the problem of marketing the

mature product.

Three strategies for the maturity

stage are market modification,

product modification, and

marketingmix modification:

Market modification: The company

might try to expand the market for

its mature brand by working to

expand the number of brand users.

This is accomplished by (1)

converting nonusers; (2) entering

new market segments (as Johnson

& Johnson did when promoting baby

shampoo for adult use); or (3)

winning competitors' customers (the

way Pepsi-Cola tries to woo away

Coca-Cola users). Volume can also

be increased by convincing current

brand users to increase their usage of

the brand.

Product modification: Managers try

to stimulate sales by modifying the

product's characteristics through

quality improvement, feature

improvement, or style improvement.

Quality improvement aims at

increasing the product's functional

performance—its durability,

reliability, speed, taste. New features

build the company's image as an

innovator and win the loyalty of

market segments that value these

features; this is why America Online

regularly introduces new versions of

its Internet software. However,

feature improvements are easily

imitated; unless there is a permanent

gain from being first, the feature

improvement might not pay off in the

26
long run.

Marketing-mix modification:

Product managers can try to

stimulate sales by modifying other

marketing-mix elements such as

prices, distribution, advertising, sales

promotion, personal selling, and

services. For example, Goodyear

boosted its market share from 14 to

16 percent in 1 year when it began

selling tires through Wal-Mart, Sears,

27
and Discount Tire. Sales promotion

has more impact at this stage

because consumers have reached an

equilibrium in their buying patterns,

and psychological persuasion

(advertising) is not as effective as

financial persuasion (sales-promotion

deals). However, excessive sales-

promotion activity can hurt the

brand's image and long-run profit

performance. In addition, price

reductions and many other

marketing- mix changes are easily

imitated. The firm may not gain as

much as expected, and all firms

might experience profit erosion as

they step up their marketing attacks

on each other.

Marketing Strategies: Decline

Stage

The sales of most product forms and

brands eventually decline for a

number of reasons, including

technological advances, shifts in

consumer tastes, and increased

domestic and foreign competition. All

of these factors lead ultimately to

overcapacity, increased price cutting,

and profit erosion. As sales and

profits decline, some firms withdraw

from the market. Those remaining

may reduce the number of products

they offer. They may withdraw from

smaller market segments and weaker

trade channels, and they may cut

their promotion budget and reduce

their prices further.

In a study of company strategies in

declining industries, Harrigan

identified five possible decline

strategies:

1. Increasing the firm's investment

(to dominate the market or

strengthen its competitive

position);

2. Maintaining the firm's

investment level until the

uncertainties about the industry

are resolved;
3. Decreasing the firm's investment

level selectively, by dropping

unprofitable customer groups,

while simultaneously

strengthening the firm's

investment in lucrative niches;

4. Harvesting (“milking”) the firm's

investment to recover cash

quickly; and Divesting the

business quickly by disposing of

its assets as advantageously as

possible. The appropriate decline

strategy depends on the

industry's relative attractiveness

and the company's competitive

strength in that industry. Procter

& Gamble has, on a number of

occasions, successfully restaged

disappointing brands that were

competing in strong markets.

One example is its “not oily”

hand cream called Wondra,

which came packaged in an

inverted bottle so the cream

would flow out from the bottom.

Although initial sales were high,

repeat purchases were

disappointing. Consumers

complained that the bottom got

sticky and that “not oily”

suggested it would not work well.

P&G carried out two restagings

for this product: First, it

reintroduced Wondra in an

upright bottle, and later, it

reformulated the ingredients so

they would work better. Sales

then picked up.

If the company were choosing

between harvesting and divesting, its

strategies would be quite different.

Harvesting calls for gradually

reducing a product's or business's

costs while trying to maintain its

sales. The first costs to cut are R&D

costs and plant and equipment

investment. The company might also

reduce product quality, sales force

size, marginal services, and

advertising expenditures. It would

try to cut these costs without letting

customers, competitors, and

employees know what is happening.

Harvesting is an ethically ambivalent

strategy, and it is also difficult to

execute. Yet harvesting can

substantially increase the company's

current cash flow

Critique of the Product Life-

Cycle Concept

The PLC concept is best used to

interpret product and market

dynamics. As a planning tool, this

concept helps managers characterize

the main marketing challenges in

each stage of a product's life and

develop major alternative marketing

strategies. As a control tool, this

concept helps the company measure

product performance against similar

products launched in the past. The

PLC concept is less useful as a

forecasting tool because sales

histories exhibit diverse patterns, and

the stages vary in duration.

Critics claim that life-cycle patterns

are too variable in their shape and

duration. They also say that

marketers can seldom tell what stage

the product is in: A product may

appear to be mature when it is

actually only in a plateau prior to

another upsurge. One final criticism

is that the PLC pattern is the result

of marketing strategies rather than

an inevitable course that sales must

follow.
For example, when Borden owned

Eagle Brand Sweetened Condensed

Milk, its marketing positioned this

mature product as a key ingredient in

favourite holiday recipes.

When the brand was sold to Eagle

Family Foods, however, the new

brand manager was able to boost

sales with an ad campaign educating

consumers on the wider range of

30
uses for condensed milk. Savvy

marketers are therefore careful when

using the PLC concept to analyze

their products and markets.

 2.11. STRATEGIC
IMPLICATIONS

All products have certain length of

life during which they pass through

certain identifiable stages. Once the

product gains consumer acceptance,

the sales generally go up in the

growth stage but soon more and

more competitors enter the market.

It will adversely affect the sales of

the product considerably and will

likely to stop going up. The sales

position is optimum in the maturity

stage. Henceforth sales begin to go

down and comes to an end after

certain period when its demand dies

out.
Every product has to pas through

these stages. The period of its stay in

the market may differ from product

to product. Several factors govern

the length of product life cycle. A

slight change in the ingredients leads

to obsolescence. So, the

management tries to make the

product survive in the market for a

long period and hence.

2.12. CHALLENGES IN NEW

PRODUCT DEVELOPMENT

Companies that fail to develop new

products (either goods or services)

are putting themselves at great risk.

Over time, existing products are

vulnerable to changing customer
needs and tastes, new technologies,

shortened product life cycles, and

increased competition. Yet

newproduct development also entails

considerable risk: Texas Instruments

lost $660 million before withdrawing

from the home computer business;

RCA lost $500 million on its videodisc

players; Federal Express lost $340

million on its Zap mail service; and

the British-French Concorde aircraft

1
will never recover its investment.

A company can add new products in

two ways: through acquisition

(buying another company, buying

another firm's patent, or buying a

license or franchise) or through

development (using its own

laboratories, hiring independent

researchers, or hiring a new-product-

development firm). Moreover, there

is more than one category of new

product.

2.13. TYPES OF NEW

PRODUCTS

Even though thousands of products

are offered for the first time each

year, less than 10 percent are

entirely new and innovative. Booz,

Allen & Hamilton has identified six

categories of new products:

1. New-to-the-world products:

New, innovative products that

create an entirely new market,

such as the Palm Pilot handheld

computerized organizer.
2. New product lines: New products

that allow a company to enter an

established market for the first

time, such as Fuji's brand of

disks for Zip drives.

3. Additions to existing product

lines: New products that

supplement a company's

established product lines

(package sizes, flavors, and so

on), such as amazon.com's

auctions and email greeting

cards.

4. Improvements and revisions of

existing products: New products

that provide improved

 performance or greater

perceived value and replace

existing products, such as

Microsoft Office 2000.

5. Repositioning: Existing products

that are targeted to new markets

or market segments, such as

repositioning Johnson &

Johnson's Baby Shampoo for

adults as well as youngsters.

6. Cost reductions: New products

that provide similar performance

at lower cost, such as Intel's

Celeron chip.

The new-to-the-world category

involves the greatest cost and risk

because these products are new to

both the company and the

marketplace, so positive customer

response is far from certain. That's

why most new-product activities are

improvements on existing products.

At Sony, for example, over 80

percent of new-product activity is

undertaken to modify and improve

existing Sony products. Even new-

product improvements are not

guaranteed to succeed, however.

2.14. WHY NEW PRODUCTS

FAIT. - AND SUCCEED

New products are failing at a

disturbing rate; by one estimate, 80

percent of recently launched products

are no longer around. Given the high
costs—a company can spend $20

million to $50 million to develop and

advertise one new product—it is a

wonder that companies continue to

innovate at all. Yet product failures

can serve one useful purpose:

Inventors, entrepreneurs, and new-

product team leaders can learn

valuable lessons about what not to

do.

Some of the reasons for new-product

failure are:

1. a high-level executive pushes a

favourite idea through in spite

of negative market research

findings;
 2. the idea is good, but the market

size is overestimated;

3. the product is not well designed

4. the product is incorrectly

positioned, ineffectively

advertised, or overpriced;

5. development costs are higher

than expected; or (6)

competitors fight back harder

than expected.

What can a company do to develop

successful new products? Cooper and

Kleinschmidt found that new products

with a high product advantage

succeed 98 percent of the time,

compared to products with a

moderate advantage (58 percent

success) or minimal advantage (18

percent success). Madique and Zirger

studied successful product launches

in the electronics industry and found

greater newproduct success when the

firm: has a better understanding of

customer needs; a higher

performance-to-cost ratio; a head-

start in introducing the product

before competitors; a higher

expected contribution margin; a

higher budget for promoting and

launching the product; more use of

cross-functional teamwork; and

stronger top-management support.

 2.15. MANAGING NEW
PRODUCTS: IDEAS TO
STRATEGY

The process of developing new

products spans eight stages, each

with a particular set of marketing

challenges and questions to answer

(see Figure 2.2). If the company

cannot answer “yes” to the key

question at each of the first six

stages, the new product will be

dropped; in the final two stages, the

company has the option of further

development or modification rather

than immediately dropping the new

product. This section covers the

stages from idea to strategy and

analysis; the following section covers

the stages from product development

through market testing and

commercialization.

2.15.1 Idea Generation

2.2. The New-Product-Development Decision

Process

The marketing concept holds that

customer needs and wants are the

logical place to start the search for

new product ideas. Hippel has shown

that the highest percentage of ideas

for new industrial products originates

with customers. Many of the best

ideas come from asking customers to

describe their problems with current

products. For instance, in an attempt

to grab a foothold in steel wool soap

pads, 3M organized consumer focus

groups and asked about problems

with these products. The most

frequent complaint was that the pads

scratched expensive cookware. This

finding produced the idea for the

highly successful Scotch-Brite Never

Scratch soap pad. In addition to

customers, newproduct ideas can

come from many sources: scientists,

competitors, employees, channel

members, sales reps, top

management, inventors, patent

attorneys, university and commercial

laboratories, industrial consultants,

advertising agencies, marketing

research firms, and industry

publications.

Once the firm has collected a number

of new product ideas, the next step

is to screen out the weaker ideas,

because product-development costs

rise substantially with each

successive development stage. Most

companies require new-product ideas

to be described on a standard form

that can be reviewed by a new-

product committee. The description

states the product idea, the target

market, and the competition, along

with a rough estimate of the market

size, product price, development

time and costs, manufacturing costs,

and rate of return. The new product

committee then reviews each idea

against criteria such as: Does the

product meet a need? Would it offer

superior value? Will the new product

deliver the expected sales volume,

sales growth, and profit? The ideas

that survive this screening move on

to the concept development stage.

2.15.2. Concept
Development

A product idea is a possible product

the company might offer to the
market. In contrast, a product

concept is an elaborated version of

the idea expressed in meaningful

consumer terms. A product idea can

be turned into several concepts by

asking: Who will use this product?

What primary benefit should this

product provide? When will people

consume or use this product? By

answering such questions, a

company can often form several

product concepts, select the single

most promising concept, and create a

product-positioning map for it. Figure

3-9 shows the positioning of a

product concept, a low-cost instant

breakfast drink, compared to other

breakfast foods already on the

market.
 2.3 Product and Brand Positioning

Next, the product concept has to be

turned into a brand concept. To

transform the concept of a low-cost

instant breakfast drink into a brand

concept, the company must decide

how much to charge and how calorific

to make its drink. Figure 2..2 shows

a brand-positioning map that reflects

the positions of three instant

breakfast drink brands. The gaps on

this map indicate that the new brand

concept would have to be distinctive

in the medium-price, medium-calorie

market or the high-price, high-

calorie market.

2.15.3. Concept Testing

Concept testing involves presenting

the product concept to appropriate

target consumers and getting their

reactions. The concepts can be

presented symbolically or physically.

However, the more the tested

concepts resemble the final product

or experience, the more dependable

concept testing is. In the past,

creating physical prototypes was

costly and time consuming, but

computer aided design and

manufacturing programs have

changed that. Today firms can design

a number of prototypes via computer

and then create plastic models to

obtain feedback from potential

consumers. Companies are also using

virtual reality to test product

concepts.

Many companies today use customer-

driven engineering to design new

products. Customer-driven

engineering attaches high importance

to incorporating customer

preferences in the final design.

National Semiconductor uses the

Internet to enhance its customer-

driven engineering by tracking what

customers search for on its Web site.

Sometimes, says the company's Web

services manager, it is more

important to know when a customer

did not find a product than when he

did. That helps National

Semiconductor shrink the time

needed to identify market niches and

create new products.

2.15.4.Marketing Strategy
Development

After testing and selecting a product

concept for development, the new-

product manager must draft a three

part preliminary marketing strategy
plan for introducing the new product

into the market. The first part will

describe the target market's size,

structure, and behaviour; the

planned product positioning; and the

sales, market share, and profit goals

sought in the first few years. The

second part will outline the planned

price, distribution strategy, and

marketing budget for the first year.

The third part will describe the long-

run sales and profit goals and

marketing-mix strategy over time.

This plan forms the basis for the

business analysis that is conducted

before management makes a final

decision on the new product.

 2.15.5. Business Analysis

In this stage, the company evaluates

the proposed new product's business

attractiveness by preparing sales,

cost, and profit projections to

determine whether these satisfy

company objectives. If they do, the

product concept can move to the

product-development stage. Note

that this cannot be a static process:

As new information emerges, the

business analysis must be revised

and expanded accordingly.

2.15.6. Estimating Total

Sales

First, management needs to estimate

whether sales will be high enough

to yield a satisfactory profit. Total

estimated sales are the sum of

estimated first time sales,

replacement sales, and repeat sales.

For one time purchased products,

such as a retirement home, sales rise

at the beginning, then peak, and

later approach zero as the number of

potential buyers is exhausted; if new

buyers keep entering the market, the

curve will not drop to zero.

Infrequently purchased

products—such as automobiles and

industrial equipment—exhibit

replacement cycles that are dictated

by physical wearing out or by

obsolescence due to changing styles,

features, and performance; sales

forecasting calls for estimating first

time sales and replacement sales

separately.

For frequently purchased products,

such as consumer and industrial non-

durables like soap, the number of

first-time buyers initially increases

and then decreases as fewer buyers

are left (assuming a fixed

population). Repeat purchases occur

soon, providing that the product

satisfies some buyers. The sales

curve eventually falls to a plateau

representing a level of steady repeat-

purchase volume; by this time, the

product is no longer a new product.

 2.15.7. Estimating Costs and
Profits

After preparing the sales forecast,

management should analyze

expected costs and profits based on

estimates prepared by the R&D,

manufacturing, marketing, and

finance departments. Companies can

also use other financial measures to

evaluate new-product proposals. The

simplest is break-even analysis, in

which management estimates how

many units of the product the

company will have to sell to break

even with the given price and cost

structure.
The most complex method of

estimating profit is risk analysis.

Here, three estimates (optimistic,

pessimistic, and most likely) are

obtained for each uncertain variable

affecting profitability under an

assumed marketing environment and

marketing strategy for the planning

period. The computer simulates

possible outcomes and computes a

rate of retum probability distribution

showing the range of possible rates

10
of returns and their probabilities.

2.16. MANAGING NEW

PRODUCTS: DEVELOPMENT TO
COMMERCIALIZATION

If the product concept passes the

business analysis test, it moves on to

be developed into a physical product.

Up to now, it has existed only as

a word description, drawing, or

prototype. This step involves a large

jump in investment that dwarfs the

costs incurred in the earlier stages.

If the company determines that the

product idea cannot be translated

into a technically and commercially

feasible product, the accumulated

project cost will be lost—except for

any useful information gained in the

process.

2.16.1. Product Development

The job of translating target

customer requirements into a

working prototype is helped by a set

of methods known as quality function

deployment (QFD). This methodology

takes the list of desired customer

attributes (CAs) generated by market

research and turns them into a list

of engineering attributes (EAs) that

the engineers can use. For example,

customers of a proposed truck may

want a certain acceleration rate (CA).

Engineers turn this into the required

horsepower and other engineering

equivalents (EAs). QFD allows firms

to measure the trade-offs and costs

of satisfying customer requirements;

it also improves communication

among marketing, engineering, and

manufacturing.
Next, the firm uses QFD to develop

one or more physical versions of the

product concept. The goal is to find

a prototype that customers believe

embodies the key attributes

described in the product-concept

statement, that performs safely

under normal use, and that can be

produced within the budget. The rise

of the World Wide Web has driven

more rapid prototyping and more

flexible development; prototype-

driven firms such as Yahoo! and

Microsoft cherish quick-and-dirty

tests and experiments.

When the prototypes are ready, they

are put through rigorous functional

tests and customer tests. Alpha

testing means testing the product

within the firm to see how it performs

in different applications. After

refining the prototype further, the

company moves to beta testing,

enlisting customers to use the

prototype and give feedback on their

experiences. Beta testing is most

useful when the potential customers

are heterogeneous, the potential

applications are not fully known,

several decision makers are involved

in purchasing the product, and

opinion leadership from early

adopters is sought.

Consumer testing can take a variety

of forms, from bringing consumers

into a laboratory to giving them

I7CFB;I JE KI; ?D J>;?H >EC;I

$D>EC; FB79;C;DJ J;IJI 7H; 9ECCED

M?J> FHE:K9JI H7D=?D= <HEC ?9; 9H;7C

<B7LEKHI JE D;M 7FFB?7D9;I !EH

;N7CFB;
M>;D K+EDJ :;L;BEF;: ?JI

D;M IODJ>;J?9 97HF;J?D=

?J ?DIJ7BB;:

<H;; 97HF;J?D= ?D I;L;H7B >EC;I ?D

;N9>7D=; <EH J>; >EC; EMD;HI

M?BB?D=D;II JE H;FEHJ J>;?H B?A;I 7D:

:?IB?A;I
78EKJ
J>;
97HF;J?D=

 !/@93B
(3AB7<5

<J;H C7D7=;C;DJ ?I I7J?I<?;: M?J>

<KD9J?ED7B 7D: FIO9>EBE=?97B

F;H<EHC7D9;
J>; FHE:K9J ?I H;7:O JE

8; :H;II;: KF M?J> 7 8H7D: D7C; 7D:

F79A7=?D=
7D: FKJ JE 7 C7HA;J J;IJ

/>; D;M FHE:K9J ?I DEM ?DJHE:K9;:

into an authentic setting to learn how

large the market is and how

consumers and dealers react to

handling, using, and repurchasing

the product. For example, idealab!

is in the business of launching new

Internet ventures (eToys was one).

Before starting CarsDirect, a Web-

based car buying service, idealab!

put up a live Web page and

monitored on-line market reaction.

In just one evening, the site sold

four cars—results that hinted at the

product's potential for strong market

acceptance.
 2.16.3. Consumer-Goods
Market Testing

In testing consumer products, the

company seeks to estimate four

variables: trial, first repeat purchase,

adoption, and purchase frequency.

The company hopes to find all of

these variables at high levels. In

some cases, however, it will find

many consumers trying the product

but few rebuying it. Or it might find

high permanent adoption but low

purchase frequency (as with gourmet

frozen foods).

The major methods of consumer-

goods market testing, from the least

to the most costly, are:

Sales-wave research: Consumers

who initially try the product at no

cost are reoffered the product, or a

competitor's product, at slightly

reduced prices, as many as three to

five times (sales waves). The

company notes how many customers

select its product again and their

reported level of satisfaction.

Simulated test marketing: Up to

40 qualified buyers first answer

questions about brand familiarity and

product preferences. These buyers

are invited to look at commercials or

print ads, including one for the new

product, then they are given money

and brought into a store where they

can make purchases. The company

notes how many people buy the new

brand and competing brands as a test

of the ad's relative effectiveness

against competing ads in simulating

trial. Consumers are also asked why

they bought or did not buy; non-

buyers receive a free sample of the

new product and are reinterviewed

later to determine product attitudes,

usage, satisfaction, and repurchase

intention.

Controlled test marketing: A

research firm manages a panel of

stores that will carry new products

for a fee. The company with the new

product specifies the number of

stores and geographic locations it

wants to test. The research firm

delivers the product to the

participating stores and controls shelf

position; number of facings, displays,

and point-of-purchase promotions;

and pricing. Sales results can be

measured through electronic

scanners at the checkout. The

company can also evaluate the

impact of local advertising and

promotions during this test.

Test markets: When full-blown, the

company chooses a few

representative cities, the sales force

tries to sell the trade on carrying the

product and giving it good exposure,

and the company unleashes a full

advertising and promotion campaign

in these markets. Here, marketers

must decide on the number and

location of test cities, length of the

test, what to track, and what action

to take. Today, many firms are

skipping extended test marketing and

relying instead on faster and more

economical market-testing methods,

such as smaller test areas and

shorter test periods.

2.16.4. Business-Goods
Market Testing

Business goods can also benefit from

market testing. Expensive industrial

goods and new technologies will

normally undergo both alpha and

beta testing. In addition, new

business products are sometimes
market-tested at trade shows. Trade

shows such as the annual Toy Fair

and semiannual Internet World draw

a large number of buyers who view

many new products in a few

concentrated days. The vendor can

observe how much interest buyers

show in the new product, how they

react to various features and terms,

and how many express purchase

intentions or place orders. The

disadvantage of trade shows is that

they reveal the product to

competitors; therefore, the vendor

should be ready to launch the

product soon after the trade show.

 2.16.5. Commercialization

If the company goes ahead with

commercialization, it will face its

largest costs to date. The company

will have to contract for manufacture

or build or rent a full-scale

manufacturing facility. Plant size will

be a critical decision. The company

may choose to build a smaller plant

than called for by the sales forecast,

to be on the safe side. Quaker Oats

did this when it launched its 100

Percent Natural breakfast cereal.

Unfortunately, demand so exceeded

the company's sales forecast that for

about a year it could not supply

enough product to the stores.

Although Quaker Oats was gratified

with the response, the low forecast

cost it a considerable amount of

profit.

In addition to promotional decisions,

other major decisions during this

stage include:

When (timing): Marketing timing is

critical. If a firm learns that a

competitor is nearing the end of its

development work, it can choose:

first entry (being first to market,

locking up key distributors and

customers, and gaining reputational

leadership; however, if the product

is not thoroughly debugged, it can

acquire a flawed image); parallel

entry (launching at the same time

as a rival may gain both products

more attention from the market); or

late entry (waiting until after a

competitor has entered lets the

competitor bear the cost of educating

the market and may reveal problems

to avoid).

Where (geographic strategy): The

company must decide whether to

launch the new product in a single

locality, a region, several regions,

the national market, or the

international market. Smaller

companies often select one city for a

blitz campaign, entering other cities

one at a time; in contrast, large

companies usually launch within a

whole region and then move to the

next region, although companies with

national distribution generally launch

new models nationally. Firms are

increasingly rolling out new products

simultaneously across the globe,

which raises new challenges in

coordinating activities and obtaining

agreement on strategy and tactics.

To whom (target-

marketprospects): Within the

rollout markets, the company must

target its initial distribution and

promotion to the best prospect

groups. Presumably, the company

has already profiled the prime

prospects—who would ideally be

early adopters, heavy users, and

opinion leaders who are able to be

 16
reached at a low cost. The

company should rate the various

prospect groups on these

characteristics and then target the

best prospect group to generate

strong sales as soon as possible,

motivate the sales force, and attract

further prospects.

How (introductory market

strategy): The company must

develop an action plan for

introducing the new product into the

rollout markets. To coordinate the

many activities involved in launching

a new product, management can use

network-planning techniques such as

critical path scheduling (CPS), which

uses a master chart to show the

simultaneous and sequential

activities that must take place to

launch the product. By estimating

how much time each activity takes,

the planners can estimate the

project's completion time. A delay in

any activity on the critical path will
17
delay the entire project.

2.17. CONSUMER ADOPTION

PROCESS

Adoption is an individual's decision to

become a regular user of a product.

How do potential customers learn

about new products, try them, and

adopt or reject them? In the past,

companies used a mass-market

approach to introduce new products,
on the assumption that most people

are potential buyers. Yet consumers

have different levels of interest in

new products and brands. The theory

of innovation diffusion and consumer

adoption helps marketers to identify

and target early adopters—people

who adopt products before the

majority of consumers in the market.

2.17.1 Stages in the

Adoption Process

An innovation refers to any good,

service, or idea that is perceived by

someone as new. The idea may have

a long history, but it is an innovation

to the person who sees it as new.

Innovations take time to spread
through the social system. Rogers

defines the innovation diffusion

process as “the spread of a new idea

from its source of invention or

creation to its ultimate users or

18
adopters.” The consumer-adoption
process focuses on the mental

process through which an individual

passes from first hearing about an

innovation to final adoption.

Adopters of new products have been

observed to move through five

stages:

1. awareness (consumer becomes

aware of the innovation but has

no information about it);

 2. interest (consumer is stimulated

to seek information about the

innovation);

3. evaluation (consumer considers

whether to try the innovation);

4. trial (consumer tries the

innovation to estimate its value;

and (5) adoption (consumer

decides to make full and regular

use of the innovation).

2.17.2. Factors Influencing

the Adoption Process

As Figure 2.4. shows, people adopt

new products at different rates:

Innovators are the first to adopt

something new, while laggards are

the last. Rogers defines a person's
innovativeness as “the degree to

which an individual is relatively

earlier in adopting new ideas than the

other members of his social system.”

Because people differ in their

readiness to try new products, there

are consumption pioneers and early

adopters for each product. After a

slow start, an increasing number of

people adopt the innovation, the

number reaches a peak, and then it

diminishes as fewer non adopters

remain.

Another factor affecting adoption is

personal influence, the effect one

person has on another's attitude or

purchase probability. Although

personal influence is greater in some

situations and for some individuals, it

is more important in the evaluation

stage of the adoption process than

in the other stages. It generally has

more influence on late adopters and

is more important in risky situations,

as well.

Five characteristics influence the rate

of adoption of an innovation:

1. relative advantage—the degree

to which the innovation appears

superior to existing products;

2. compatibility—the degree to

which the innovation matches

the values and experiences of

the individuals;
 3. complexity—the degree to which

the innovation is relatively

difficult to understand or use;

4. divisibility—the degree to which

the innovation can be tried on a

limited basis; and

5. communicability—the degree to

which the beneficial results of

use are observable or

describable to others. The new-

product marketer has to research

and consider all of these factors

in designing the new product and

19
its marketing program.

Finally, organizations vary in their

readiness to adopt innovations.

Adoption is associated with variables

in the organization's environment,

the organization itself (size, profits,

pressure to change), and its

managers. Other forces come into

play when trying to get a product

adopted into organizations that

receive the bulk of their funding from

the government. And a controversial

or innovative product can be

squelched by negative public opinion.

Figure 2.4. Adopter Categorization on the Basis

of Relative Time of Adoption of lnnovation

 2.18. KEY TERMS

Product Line

Product line refers to a group of

products that are closely related

because they satisfy a class of needs

or are used together or are sold to

the same customer group or are

marketed trough the same types of

outlets or fall given price ranges.

Product Development

Product development is a limited

term but include the technical

activities of product research,

engineering and design. Product

development is the process of finding

out the possibility of producing a

product keeping in view the

customers needs and wants.

2.19. SUMMARY

Because economic conditions change

and competitive activity varies,

companies normally reformulate their

marketing strategy several times

during the product life cycle. The

introduction stage of this cycle is

marked by slow growth and minimal

profits as the new product gains

distribution. If successful, the

product enters a growth stage

marked by rapid sales and increasing

profits. The company attempts to

improve the product, enter new

market segments and distribution
channels, and reduce prices slightly.

In the maturity stage, sales growth

slows and profits stabilize, causing

the firm to try to modify the market,

the product, or the marketing mix

to renew sales growth. Finally, the

product enters the decline stage,

when the firm must decide whether

to increase, maintain, or decrease its

investment; harvest the product; or

divest as advantageously as possible.

In the competitive global

marketplace, the key to competitive

advantage is differentiation. Amarket

offering can be differentiated

byproduct, services, personnel,

channel, and image. A difference is

worth establishing to the extent that

it is important, distinctive, superior,

preemptive, affordable, and

profitable. Positioning is the act of

designing the company's offering and

image to occupy a distinctive place

in the target market's mind. Many

marketers advocate positioning

according to a single product benefit,

although double- and triple-benefit

positioning can be successful if used

carefully.

Answers to Check Your Progress

Choose the Best Answer

1. The basic focus for marketing

is exchange,a way to a want.

a. Satisfy

b. Importance

c. Product.
 2. To begin with the ________ is

the individual or organisation

that actually makes the

exchange or purchases.

a. Motivators

b. Customer

c. None of the above.

3. When these customers are

grouped together a is formed.

2.20. ANSWERS TO CHECK

YOUR PROGRESS

1. A

2. B.

3. C
2.21. QUESTIONS /
EXERCISE

1. Define Product.

2. Explain the importance of

Product.

3. What are the classification of

product?

4. Explain the PLC.

5. What are the strategies of new

product development and

Commercialization

2.22. FURTHER READING

1. Fundamentals of Marketing —

William J.Standon.
 UNIT–3

PRICING

Unit Objectives

3.0 Introduction

3.1. Unit Objectives

3.2. Definitions

3.3. Concept of pricing

3.4. Pricing objectives

3.5. Steps involved in pricing

procedure

3.6. Pricing Decisions

3.7. Objectives of pricing

decision

3.8. Kinds or Methods of pricing

3.9. Factors affecting price

determination
3.10. Pricing polices and

strategies

3.11. Promotional Pricing

3.12. Discriminatory Pricing

3.13. Product-Mix Pricing

3.14. Price Discounts and

Allowances

3.15. Initiating and responding

to price changes

3.16. Reactions to Price Changes

3.17. Responding to Competitors

Price Changes

3.18. Key terms

3.19. Summary

3.20. Answers to Check Your

Progress

3.21. Questions / Exercise

3.22. Further Reading.

 3.0 Introduction
A firm must set a price for the first

time when it develops a new product,

introduces its regular product into a

new distribution channel or

geographical area, and enters bids on

new contract work. Price is also a key

element used to support a product's

quality positioning, as described in

Chapter 9. Because a firm, in

developing its strategy, must decide

where to position its product on price

and quality, there can be competition

between price-quality segments

3.1. UNIT OBJECTIVES
• To K now the pricing

• To known the pricing decisions

and factors of affecting pricing

• To known the kinds of pricing

• To known the pricing polices and

strategies

3.2. DEFINITIONS

‘Price is the only element in the

marketing mix that creates sales

revenue; the other elements are

costs.” — Philip Kotler.

 3.3. CONCEPT OF PRICING
Price is all around us. We pay rent

for our apartment, tuition for our

education, airline, railways, buses

charge you a fare, local bank charge

interest for the money a fee to your

doctor etc. Thus price is not just a

number on a tag or an item.

Traditionally, price has been the

major determinant of a buyer's

choice & is the only element in the

marketing mix that generates

revenue. Pricing acquires its

importance on account of yet another

factor. It is a highly risky decision

area & mistakes in pricing seriously

affects the firm, its profits, growth &

future.
 3.4. PRICING OBJECTIVES

A business firm will have a number

of objectives in the area of pricing.

These objectives can be short term or

long term or primary objectives:-

i. Prof it maximization in the short

term.

ii. Prof it optimization in the long

term.

iii. A minimum return on investment

iv. A minimum return on sales

turnover.

v. Achieving a particular sales

volume.

vi. Achieving a particular market

share.
vii. Deeper penetration of the

market.

viii. Entering new markets.

ix. Target project on the entire

product line.

x. Keeping competition out, or

keeping it under check.

xi. Keeping parity with competition.

xii. Fast turn around & early cash

recovery.

xiii. Stabilizing price & margins in the

market.

xiv. Providing the commodities at

prices affordable by weaker

section.

xv. Providing the commodities at

prices that will stimulate

economic development.
 3.5 STEPS INVOLVED IN
PRICING PROCEDURE

The term pricing procedure refers to

the actual process /mechanics of

working out the price. The steps

involved in the pricing procedure will

vary depending on the pricing

objectives & pricing methods chosen

by the firm. The general steps of

pricing procedure are:

i. Identify the target customer

segments & draw up their profile

ii. Decide the market position &

price image that the firm desires

for the brand.

 iii. Determine the extent of price

elasticity of demand of the

product &the extent of price

sensitivity of target customer

groups.

iv. Take into account the life cycle

stage of the product. Analyze

competitions prices.

v. Analyze, other environmental

factors.

vi. Choose the pricing methods to

be adopted taking all the above

factors into account.

vii. Select the final price.

viii. Periodically review the pricing

method as well as procedure.

 3.6. PRICING DECISIONS

Pricing decision means decision of

determining price of a product. A

concern has to take a number f

factors like cost of production, cost

of distribution, cost of storage and

transportation, cost of advertisement

and personal selling, competitive

forces, purchasing power of the

consumer etc., Other than the

demand and supply position of the

product in the market. “Decision

Concerning price to be followed far a

period of time maybe called a price

Decision.”
 3.7. OBJECTIVES OF PRICING
DECISION

Some specific objectives of

company's pricing policy may be

noted below:

1. To maximise the profits

2. Price stability

3. Competitive Situation

4. Achieving a target—return

5. Capturing the market

6. Ability to pay

7. Long-run welfare of the firm

8. Margin of profit to middlemen

 3.8 KINDS OR METHODS OF
PRICING

There are several methods of pricing

& they can be grouped into few broad

categories:-

1. Cost Based Pricing

2. Demand Based Pricing

3. Competition Oriented Pricing

4. Value Pricing

5. Product Line Oriented Pricing

6. Tender Pricing

7. Affordability Based Pricing

8. Differentiated Pricing.

1. Cost Based Pricing:

Under the cost based pricing,

different methods used are

 ◦ Mark Up Pricing

◦ Absorption Cost Pricing

◦ Target Rate of Return Pricing

◦ Marginal Cost Pricing

Mark Up Pricing: It refers to

the pricing methods in which the

selling price of the product is

fixed by adding a margin to its

cost price. The mark ups may

vary depending on the nature of

the product & the market.

Usually, the higher the value of

the product, the larger is the

mark up. Again, the slower the

turnaround of the product, the

larger is the mark up. Mark-up

pricing proceeds on the

assumption that demand cannot

be known accurately, but costs

are known.

Absorption Cost Pricing : ACP

rests on the estimated unit cost

of the product at the normal level

of production & sales. The

method uses standard costing

techniques & works out the

variable & fixed costs involved

in manufacturing, selling &

administering the product. By

adding the costs of 3 operations,

we get the total costs. The

selling price of the product is

arrived by adding the required

margin towards profit to such

total costs. The main merit of

this method is that as long as

the market can absorb the

production at the determined

price, the firm is assured of its

profits without any risk & the

main demerit is that the method

simply assumes price to be a

function of cost alone & this

method becomes ineffective.

Target Rate of Return Pricing:

It is similar to absorption cost

pricing. The rate of return pricing

uses a rational approach to

arrive at the mark up. It is

arrived in such a way that the

ROI criteria of the firm is met

in the process. But this process

amounts to an improvement over

absorption costing since it uses a

rational basis for arriving at the

mark up. Second, since the rate

of return on the funds employed

is a function of mark up as well

as turnaround of capital

employed, rate of return pricing

constantly reminds the firm that

there are 2 routes for profits-

improvement in the capital

turnover & increase in the mark

up. The main limitation of the

method is that the rate of return

is linked to the level of

production & sales assumed.

Marginal Cost Pricing: It aims

at maximizing the contribution

towards fixed costs. Marginal

costs include all the direct

variable costs of the product. In

marginal cost pricing, these

direct variable costs are fully

realized. In addition, a portion of

the fixed costs is also realized

under competitive market

conditions marginal cost pricing

is more useful. Moreover, when

a firm has a number of product

lines marginal cost pricing is

useful This method is also useful

in quoting for competitive

tenders & in export marketing.

On the demerits side, marginal

costing makes certain

assumptions, regarding cost &

revenue behaviours which can

turn out to be incorrect in some

 cases. Moreover, while marginal

costing rests on a two fold

classification of cost into fixed

costs & variable costs, in reality

there can be a third class of costs

- The Semi variable costs.

2. Demand Based Pricing:

The following methods belong to

the category of demand / market

based pricing:-

◦ What the Traffic can Bear'

Pricing

◦ Skimming Pricing

◦ Penetration Pricing

What the Traffic can Bear'

Pricing : The seller takes the

maximum price that the

customers are willing to pay for

the product under the given

circumstances. This method is

used more by retail traders than

by manufacturing firms. This

method brings high profits in the

short term. But in the long run it

is not a safe concept, chances of

errors in judgment are very high.

Skimming Pricing: This method

aims at high price & high profits

in the early stage of marketing

the product. It profitably taps

the opportunity for selling at

high prices to those segments of

the market, which do not bother

much about the price. This

method is very useful in the

pricing of new products,

especially those that have a

luxury or specialty elements.

Penetration Pricing:

Penetration pricing seeks to

achieve greater market

penetration through relatively

low price. This method is also

useful in pricing of new products

under certain circumstances. For

e.g. when the new product is

capable of bringing in large

volume of sales, but it is not a

luxury item & there is no affluent

/ price insensitive segment, the

firm can choose the penetration

pricing & make large size sales

at a reasonable price before

competitors enter the market

with a similar product.

Penetration pricing in such cases

will help the firm have a good

coverage of the market & keep

competition out for some time.

In all demand based pricing

methods, the price elasticity of

demand is taken into account

directly or indirectly. Price

elasticity of demand refers to the

relative sensitivity of demand for

a product to changes in its price

in other words how significantly

the sales of the product are

affected when price is changed.

If an increase or decrease in the

price of the product results in

 significant decrease or increase

the product is said to be price

elastic conversely, if price

change does not significantly

affect the sales volume, a

product is said to be price

inelastic.

3. Competition Oriented

Pricing:

In a competitive economy,

competitive oriented pricing

methods are common. The

methods in this category rest on

the principle of competitive

parity in the matter of pricing.

Three policy options are

available to the firm under this

pricing method
 ◦ Premium Pricing

◦ Discount Pricing

◦ Parity Pricing

Premium pricing means pricing

above the level adopted by

competitors. Discount pricing

means pricing below such level

& parity pricing means matching

competitors pricing.

4. Value Pricing:

Value pricing is a modem

innovative & distinctive method

of pricing. Value pricing rests on

the premise that the purpose of

pricing is not to recover costs,

but to capture the value of the

product perceived by the

customer. Analysis will readily

show that the following scenario

are possible with the cost value

price chain.

◦ Value > Price > Costs

◦ Price > Value > Costs

◦ Price > Costs > Value

◦ Price > Value > Costs

Under Scenario:

i. Marketer recovers his costs

through price, but fails to

recover the value of his

product.

ii. He recovers his costs as well

as the value.
 iii. The value that he passes on

to the customer is still

lesser.

iv. He matches the value & price

& wins customer loyalty &

since the value created is

larger then his costs, he

ensures his profits.

5. Product Line Pricing:

When a firm markets a variety

of products grouped into suitable

product lines, a special

possibility in pricing arises. As

the product in a given product

line are related to each other,

sales of one influence that of the

others. They also have

interrelated costs of
 manufacturing & distribution. It

can fix the prices of the different

product in such a manner that

the product line as a whole is

priced optimally, resulting in

optimal sales of all the products

put together & optimal total

proof its from the line.

6. Tender Pricing:

Business firms are often required

to fix the prices of their products

on a tender basis. It is more

applicable to industrial products

& products purchased by

Institutional customers. Such

customers usually go by

competitive bidding through

sealed tenders. They seek the

 best price consistent with the

minimum quality specification &

thus bag the order.

7. Affordability Based

Pricing:

The affordability based pricing is

relevant in respect of essential

commodities, which meet the

basic needs of all sections of

people. Idea here is to set prices

in such a way that all sections of

the population are in a position

to buy & consume the products

to the required extent.

8. Differentiated pricing:

Some firms charge different

prices for the same product in

 different zones/ areas of the

market. Sometimes, the

differentiation in pricing is made

on the basis of customer class

rather than marketing territory.

3.9. FACTORS AFFECTING

PRICE DETERMINATION

There are internal as well as external

factors that affect pricing:-

Internal Factors:

i. Corporate & marketing

objectives of the firm.

ii. The image sought by the firm

through pricing

iii. The characteristic of the product

 iv. Price elasticity of demand of the

product.

v. Stage of product in its life cycle.

vi. Use pattern & turnaround rate of

the product.

vii. Cost of manufacturing &

marketing

viii. Extent of differentiation

practiced

ix. Other elements of the marketing

mix & their interaction with

pricing

x. Composition of the product line

of the firm.
External Factors:

i. Market characteristics (relative

to demand, customer &

competition)

ii. Buyer behaviour in respect of the

product

iii. Bargaining power of major

customers

3.10. PRICING POLICES

AND STRATEGIES

After a good or service has been

developed, identified, and packaged,

it must be priced. This is the second

aspect of the marketing mix. As

noted earlier, price is the

exchange value of a good or service.

Pricing strategy has become one of

the most important features of

modem marketing. All goods and

services offer some utility, or want-

satisfying power. Individual

preferences determine how much

utility a consumer will associate with

a particular good or service. One

person may value leisure-time

pursuits while another assigns a

higher priority to acquiring property,

automobiles, and household

furnishings Consumers face an

allocation problem: Their scarce

resource of a limited amount of

money and a variety of possible uses

for it. The price system helps them

make allocation decisions. A person

may prefer a new personal computer

to a vacation, but if the price of the

computer rises, they may reconsider

and allocate funds to the vacation

instead. A firm uses various factors

of production, such as natural

resources, labor, and capital, based

on their relative prices. High wage

rates may cause a firm to install

labor-saving machinery.

Similarly, high interest rates may

lead management to decide against

a new capital expenditure. Prices and

volume sold determine the revenue

received by the firm and influence its

profits.
 3.11. PROMOTIONAL
PRICING

Companies can use any of seven

promotional pricing techniques to

stimulate early purchase (see Table

4.5). However, smart marketers

recognize that promotional- pricing

strategies are often a zero sum

game. If they work, competitors copy

them and they lose their

effectiveness. If they do not work,

they waste company money that

could have been put into longer

impact marketing tools, such as

building up product quality and

service or strengthening product

image through advertising.

 3.12. DISCRIMINATORY
PRICING

Companies often adjust their basic

price to accommodate differences in

customers, products, locations, and

so on. Discriminatory pricing occurs

when a company sells a product or

service at two or more prices that do

not reflect a proportional difference

in costs. Discriminatory pricing takes

several forms: Customer- segment

pricing: Different customer groups

pay different prices for the same

good or service. For example,

museums often charge a lower

admission fee to students and senior

citizens.
Product-form pricing:

Different versions of the product are

priced differently but not

proportionately to their respective

costs. Evian, for instance, prices a

48-ounce bottle of its mineral water

at $2, while its 1.7 ounce moisturizer

spray sells for $6.

Image pricing:

Some companies price the same

product at two different levels based

on image differences. For instance,

a perfume manufacturer can put its

perfume in one bottle with a certain

name and image priced at $10 an

ounce; the same perfume in another

bottle with a different name and

image could be priced at $30 an

ounce.

Location pricing:

The same product is priced

differently at different locations even

though the costs are the same; for

example, theaters often vary seat

prices according to audience

preferences for different locations.

Time pricing:

Prices are varied by season, day, or

hour. Public utilities use time pricing,

varying energy rates to commercial

users by time of day and weekend

versus weekday. A special form of

time pricing is yield pricing, which is

often used by airlines to fill as many

seats as possible.

Price discrimination works when (1)

the market is segmentable and the

segments show different intensities

of demand; (2) members in the lower

price segment cannot resell the

product to the higher-price segment;

(3) competitors cannot undersell the

firm in the higher price segment; (4)

the cost of segmenting and policing

the market does not exceed the extra

revenue derived from price

discrimination; (5) the practice does

not breed customer resentment and

ill will; and (6) the particular form

of price discrimination is not illegal

(practices such as predatory pricing—

selling below cost with the intention

of destroying competition—are

against the law).

Today's Internet technology helps

sellers discriminate between buyers

as well as helping buyers

discriminate between sellers. For

example, Personify software allows

companies to examine the “click

stream” of an on-line shopper,

looking at the way that individual

navigates through a Web site. Based

on that behavior, the software can

instantaneously target shoppers for

specific products and prices. At the

same time, Web sites such as

MySimon are giving buyers instant

price comparisons on specific

products, while Web sites such as

Priceline.com allow buyers to name

their own price for airline tickets,

long-distance phone service, hotel

rooms, mortgages, groceries, and

other goods and services—including

an electronic yard sale for personal

22
items. These and other Internet

innovations clearly signal the return

to fluid pricing rather than the fixed

pricing approach that came into

acceptance a century ago.

3.13. PRODUCT-MIX
PRICING

Price-setting logic must be modified

when the product is part of a product

mix. In this case, the firm searches

for a set of prices that maximizes

profits on the total mix. Pricing a

product line is difficult because the

various products have demand and

cost interrelationships and are

subject to different degrees of

competition. We can distinguish six

situations involving product-mix

pricing:

Product-line pricing: Many sellers

use well-established price points

(such as $200, $350, and $500 for

suits) to distinguish the products in

their line. The seller's task is to

establish perceived-quality

differences that justify the price

differences. Optional-feature pricing:

Automakers and many other firms

offer optional products, features, and

services along with their main

product. Pricing these options is a

sticky problem because companies

must decide which items to include in

the standard price and which to offer

as options.

Captive-product pricing: Some

products require the use of ancillary,

or captive, products. In the razor

industry, manufacturers often price

their razors low and set high markups

on their blades. However, there is a

danger in pricing the captive product

too high in the after market (the

market for ancillary supplies to the

main product). Caterpillar, for

example, makes high profits in the

after market by pricing its parts and

service high. This practice has given

rise to “pirates,” who counterfeit the

parts and sell them to “shady tree”

mechanics who install them,

sometimes without passing on the

cost savings to customers.

23
Meanwhile, Caterpillar loses sales.

Two-part pricing, which is practiced

by many service firms, consists of a

fixed fee plus a variable usage fee.

As an example, telephone users pay

a minimum monthly fee plus charges

for calls beyond a certain area. The

challenge is how much to charge for

the basic service and how much for

the variable usage. The fixed fee

should be low enough to induce

purchase; the profit can then be

made on the usage fees.

By-product pricing: The production

of certain goods—meats, chemicals,

and so on— often results in by-

products, which can be priced

according to their value to

customers. Any income earned on the

by-products will make it easier for

the company to charge less for the

main product if competition forces it

to do so. Sometimes companies do

not realize how valuable their by-

products are. Until Zoo-Doo Compost

Company came along, many zoos did

not realize that one of their by-

products—their occupants’
manure—could be an excellent
24
source of additional revenue.

Product-bundling pricing: Sellers

often bundle their products and

features at a set price. An auto

manufacturer, for instance, might

offer an option package at less than

the cost of buying all of the options

separately. Because customers may

not have planned to buy all of the

components, the savings on the price

bundle must be substantial enough to

induce them to buy the bundle.

3.14. PRICE DISCOUNTS

AND ALLOWANCES

Most companies will adjust their list

price and give discounts and
allowances for early payment,

volume purchases, and off season

buying, as shown in Table 3.1.

However, companies must do this

carefully or they will find that their

profits are much less than planned.

Table 3.1

Cash A cash discount is a price

Discounts: reduction to buyers who pay

their bills promptly. A typical

example is "2/10, net 20," which

means that payment is due

within 30 days and that the

buyer can deduct 2 percent by

paying the bill within 10 days.

Such discounts are customary in

many industries.

Quantity A quantity discount is a price

Discounts: reduction to those buyers who

1 buy large volumes. A typical

example is "$10 per unit for less

 than 100 units; $9 per unit for

100 or more units." Quantity

discounts must be offered

equally to all customers and

must not exceed the cost savings

to the seller associated with

selling large quantities. They can

be offered on a noncumulative

basis (on each order placed) or a

cumulative basis (on the number

of units ordered over a given

period).

Functional Functional discounts (alsO Called

Discounts: trade discounts) 8Te Offered by

manufacturer to trade-channel

members if they will perform

certain functions, such as

selling, storing, and record

keeping. Manufacturers may

offer different functional

discounts to different trade

channels but must offer the

same functional discounts within

each channel.
Seasonal A seasonal discount is a price

Discounts: reduction to buyers who buy

merchandise or services out of

season. Ski manufacturers will

offer seasonal discounts to

retailers in the spring and

summer to encourage early

ordering. Hotels, motels, and

airlines will offer seasonal

discounts in slow selling periods.

Allowances: Allowances are extra payments

designed to gain reseller

participation in special

programs. Trade-m allowances

are rice reductions granted for

turning in an old item when

buying a new one. Trade-in

allowances are most common in

durable- goods categories.

Promotional allowances are

payments or price reductions to

reward dealers for participating

in advertising and sales support

programs.
 3.15. INITIATING AND
RESPONDING TO PRICE
CHANGES

After setting initial prices and

creating a pricing structure for their

products, firms may need to cut or

raise prices in certain situations.

Here we will examine the challenges

of initiating price cuts, initiating price

increases, reacting to price changes,

and responding to competitors' price

changes. For an overview of strategic

pricing options involving marketing-

mix variables, see Table 3.2.

Initiating Price Cuts

Several circumstances might lead a

firm to cut prices. One is excess plant

capacity: If the firm needs additional

business but cannot generate it

through increased sales effort or

other measures, it may initiate a

price cut. In doing so, however, the

company risks triggering a price war.

Another circumstance is a declining

market share, which may prompt the

firm to cut prices as a way of

regaining share. In addition,

companies sometimes initiate price

cuts in a drive to dominate the

market through lower costs. Either

the company starts with lower costs

than those of its competitors or it

initiates price cuts in the hope of

gaining market share and lower

costs.
When considering price-cutting,

marketers need to be aware of three

possible traps: (1) Customers may

assume that lower-priced products

have lower quality; (2) a low price

buys market share but not market

loyalty because the same customers

will shift to any lower-price firm; and

(3) higher-priced competitors may

cut their prices and still have longer

staying power because of deeper

cash reserves.

Initiating Price Increases

A successful price increase can raise

profits considerably. For example, if

the company's profit margin is 3

percent of sales, a 1 percent price

increase will increase profits by 33

percent if sales volume does not

drop. In many cases, firms increase

prices just to maintain profits in the

face of cost inflation. This occurs

when rising costs— unmatched by

productivity gains—squeeze profit

margins, leading firms to regularly

increase prices. In fact, companies

often raise their prices by more than

the cost increase in anticipation of

further inflation or government price

controls in a practice called

anticipatory pricing.

Table 3.2

Strategic
Reasoning Consequences
Options

Firm has
Maintain Smaller market
1. higher
price and share.
customer
 Perceived Loyalty. It is
Lowered
quality. willing to
profitability.
Engage lose

in
poorer
selective
customers to
customer

Pruning. Competitors.

Raise price
Raise Smaller market
2. to cover
price and share.
rising

Costs.
Perceived Maintained
Improve
quality. profitability.
quality to

Justify

higher

prices.

Maintain It is cheaper
Smaller market
3. price and to maintain
share. Short-
raise price
 And raise
Perceived Term decline in
perceived
quality. profitability.
quality.

Long-term

increase in

Profitability.

Cut price Must give

Maintained
4. partly customers
market share.
and some

Raise price
Short-term
perceived reduction
decline in
quality. but stress

Higher value Profitability.

of offer. Long-term

Maintained

profitability.

Discipline
Cut price Maintained
5. and
fully and market share.
discourage
 maintain Price Short-term

perceived competition. decline in

Quality. Profitability.

Discipline
Cut price Maintained
6. and
fully and market share.
discourage

price Maintained
reduce
competition margin.
perceived
and Reduced

Maintain
Long-term
Quality. profit
profitability.
margin.

Cut
Maintain Smaller market
7. marketing
price and share.
expense to

Maintained
reduce Combat
margin.
perceived rising.
Reduced

Long-term
Quality.
profitability.
 Introduce Give the Some

8. an market what cannibalization

economy it but

Higher total
Model. Wants.
volume.

Another factor leading to price

increases is over demand. When a

company cannot supply all of its

customers, it can use one of the

following pricing techniques:

• With delayed quotation pricing,

the company does not set a final

price until the product is finished

or delivered. This is prevalent in

industries with long production

lead times.
• With escalator clauses, the

company requires the customer

to pay today's price and all or

part of any inflation increase that

occurs before delivery, based on

some specified price index. Such

clauses are found in many

contracts involving industrial

projects of long duration.

• With unbundling, the company

maintains its price but removes

or prices separately one or more

elements that were part of the

former offer, such as free

delivery or installation.

• With reduction of discounts, the

company no longer offers its

normal cash and quantity

discounts.
 3.16. REACTIONS TO PRICE
CHANGES

Any price change can provoke a

response from the firm's

stakeholders. Savvy marketers pay

close attention to customers'

reactions, because customers often

question the motivation behind price

26
changes. Customers are most price
sensitive to products that cost a lot
or are bought frequently; they hardly

notice higher prices on low-cost

items that they buy infrequently.

Some buyers are less concerned with

price than with the total costs of

obtaining, operating, and servicing

the product over its lifetime. So a

seller can charge more and maintain

sales if customers are convinced that

total lifetime costs are lower.

Competitors are most likely to react

to a price change when there are

few firms offering the product, the

product is homogeneous, and buyers

are highly informed. Anticipating

competitive reaction is complicated

because each rival may have

different interpretations of a

company's price cut: One may think

the company is trying to steal the

market, while another may believe

that the company wants the entire

industry to reduce prices to stimulate

total demand. Still, a firm will be

unable to interpret competitors' price

changes or other marketingmix

adjustments unless it continuously

monitors and analyzes its rivals'

activities.
 3.17. RESPONDING TO
COMPETITORS' PRICE
CHANGES

How should a firm respond to a price

cut that is initiated by a competitor?

In markets characterized by high

product homogeneity, the firm should

search for ways to enhance its

augmented product, but if it cannot

find any, it will have to meet the

price reduction. If the competitor

raises its price in a homogeneous

product market, the other firms

might not match it, unless the price

increase will benefit the industry as a

whole. By not matching it, the leader

will have to rescind the increase.

In nonhomogeneous product

markets, a firm has more latitude to

consider the following issues: (1)

Why did the competitor change the

price? Is it to steal the market, to

utilize excess capacity, to meet

changing cost conditions, or to lead

an industry wide price change? (2)

Does the competitor plan to make

the price change temporary or

permanent? (3)What will happen to

the company's market share and

profits if it does not respond? Are

other companies going to respond?

(4) What are the competitor's and

other firms' responses likely to be to

each possible reaction?

Market leaders often face aggressive

price cutting by smaller competitors

trying to build market share, the

wayAmazon.com has attacked Barnes

and Noble. The brand leader can

respond by:

Maintaining price and profit

margin, believing that (1) it would

lose too much profit if it reduced its

price, (2) it would not lose much

market share, and (3) it could regain

market share when necessary.

However, the risk is that the attacker

may get more confident, the leader's

sales force may get demoralized, and

the leader can lose more share than

expected. Then the leader may panic,

lower price to regain share, and find

that regaining market share is more

difficult and costly than expected.

Maintaining price while adding

value to its product, services, and

communications. This may be less

expensive than cutting price and

operating at a lower margin.

Reducing price to match the

competitor's price, because (1) its

costs fall with volume, (2) it would

lose market share in a price-sensitive

market, and (3) it would be hard to

rebuild market share once it is lost,

even though this will cut short term

profits.

Increasing price and improving

quality by introducing a new product

to bracket the attacking brand.

Launching a low-price fighter line

or creating a separate lower-price

brand to combat competition. Miller

Beer, for example, launched a lower-

priced beer brand called Red Dog.

The best response varies with the

situation. Successful firms consider

the product's stage in the life cycle,

its importance in the company's

portfolio, the competitor's intentions

and resources, the market's price and

quality sensitivity, the behavior of

costs with volume, and the

company's alternative opportunities.

3.18. KEY TERMS
• Ability to pay

Price decisions are sometimes

taken according to the ability of

customers to pay.i.e.more prices

can be charged from persons

having a capacity to pay

• Price Stability
As far as possible, the prices

should not fluctuate too often. A

stable price policy can win the

confidence of the consumers. It

will also add to the goodwill of

the firm. For this purpose, the

concern should consider long-run

and short —run elements.

 3.19. SUMMARY

Price is the only one of the four Ps

that produces revenue. In setting

prices, a company follows a six-step

procedure:

1. Select the pricing objective,

2. determine demand,

3. estimate costs,

4. analyze competitors' costs,

prices, and offers,

5. select a pricing method, and

6. select the final price.

Companies do not usually set a single

price, but rather a pricing structure

that reflects variations in

geographical demand and costs,

market-segment requirements,

purchase timing, order levels, and

other factors. Several price-

adaptation strategies are available:

(1) geographical pricing; (2) price

discounts and allowances; (3)

promotional pricing; (4)

discriminatory pricing, in which the

company sells a product at different

prices to different market segments;

and (5) productmix pricing, which

includes setting prices for product

lines, optional features, captive

products, two- part items, by-

products, and product bundles.

After developing pricing strategies,

firms often face situations in which

they need to change prices by

initiating price cuts or price

increases. In these situations,

companies need to consider how

stakeholders will react to price

changes. In addition, marketers must

develop strategies for responding to

competitors' price changes. The

firm's strategy often depends on

whether it is producing homogeneous

or nonhomo-geneous products.

Market leaders who are attacked by

lower-priced competitors can choose

to maintain price, raise the perceived

quality of their product, reduce price,

increase price and improve quality, or

launch a low-price fighter line.

Answers to Check Your Progress

Choose the best answer

1. Examples of consumer goods

a. soap

b. scooter

c. T.V.

2. ________is the life blood of

business.

a. marketing

b. finance

c. planning

3. The first stage of PLC

a. Growth

b. Decline

c. Introduction
3.20. ANSWERS TO CHECK
YOUR PROGRESS

1. Goodwill

2. Product mix

3. Optional

3.21. QUESTIONS /
EXERCISE

1. Define Pricing.

2. Briefly explain the concept of

pricing

3. What are the factors influencing

pricing?

4. What are the objectives of

pricing?

5. What are the various methods of

pricing?
6. Discuss briefly the steps involved

in pricing procedure.

7. Write short notes on:

1. Promotional Pricing

2. Discriminatory Pricing

3. Product-Mix Pricing

8. Explain the Price Discounts and

Allowances

3.22. FURTHER READING

1. A Text on Marketing Management

— Debraj Datta & Mahua Datta,

Vrinda Publications (P) Ltd.,

 UNIT–4

DISTRIBUTIONS AND
PROMOTIONAL DECISIONS

Unit Structure

4.0 Introduction

4.1. Unit Objectives

4.2. Definition

4.3. Nature of the distribution an

promotional decisions

4.4. Functions

4.5. Types ofDistribution of

channels

4.6. Intermediaries

4.7. Channel Management

Decisions

4.8. Retailing and Wholesaling

 4.9. Key terms

4.10. Summary

4.11. Answers to check yours

progress

4.12. Questions / Exercises

4.13. Further Reading

4.0 INTRODUCTION

Even after the favourable product

features, affordable pricing and well

communicated promotions, if the

product is not readily available in the

market, ten the ultimate purpose is

not served; hence the importance of

the distribution management.

 4.1 UNIT OBJECTIVES
• Describe the nature if

distribution of channels.

• To know the functions of

distribution of channels.

• To analysis the intermediaries.

4.2 DEFINITION

For this distribution or place is an

important tool of the marketing mix.

Hence, lee Iaacoca, the legendary

ex-boss of General motors’

commented, ‘The company with the

finest distribution system often wins

the battle for market share and an

can substantially block a rival from

penetrating a market.”
The English word‘Channel ’is based

on the Norman word for canal. In

marketing terms, this can be

interpreted as the journey taken by

products and /or services as they

flow their point of creation to points

of intermediate and final use or

consumption. A manufacturer selling

a physical product and services might

require 3 channels: sales, delivery

and service. But due to complexity

of operation and widely dispersed

customers, most of the

manufacturers cannot deliver their

products directly to the consumers

and have to depend on various

intermediaries or channels of

distribution.
 4.3. NEED FOR THE
DISTRIBUTION AN
PROMOTIONAL DECISIONS

The distribution channels are the sets

of interdependent organizations

involved in the process of making a

product or service available for use or

consumption.

1. They oversee actual transfer of

ownership from one person or

organization to another.

2. They assume risks connected

with carrying out channel work.

3. They provide for the successive

storage and movement of

physical products.

4. They take care of collecting

buyers payment and paying back

to the seller in due time.

 4.4. FUNCTIONS

Physical distribution functions include

breaking bulk, accumulating bulk,

creating assortments, reducing

transactions, and transporting and

storing.

Bulk-breaking function:

An activity, performed by marketing

intermediaries, consisting of buying

products in relatively large quantities

and selling in smaller quantities.
Breaking Bulk:

With few exceptions, intermediaries

perform a bulk-breaking function.

The bulk- breaking function consists

of buying in relatively large

quantities, suchastruckloads, and

then selling in smaller quantities,

passing the lesser amounts of

merchandise on to retailers,

organizational buyers, wholesalers,

and other customers. By

accumulating large quantities of

goods and then breaking them into

smaller amounts suitable for many

buyers, intermediaries can reduce

the cost of distribution for both

manufacturers and consumers.

Consumers, do not buy and store

great amounts of merchandise, which

would increase their storage costs

and the risks of spoilage, fire and

theft. Manufacturers are spare the

necessity of dividing their outputs

into the small order sizes retailers

or consumers might prefer. Bulk

breaking is sometimes termed

“resolution of economic

discrepancies,” because

manufacturers, as a rule, turn out

amounts of merchandise that are

vast compared with the quantity that

an individual buyer might be able to

purchase. Breaking bulk resolves this

discrepancy.
Bulk-accumulating function:

An activity, performed by marketing

intermediaries, consisting of buying

small quantities of a particular

product from many small producers

and then selling the assembled larger

quantities.

Assembler: A marketing

intermediary that performs a bulk-

accumulating function.

Accumulating Bulk. In the majority

of cases, it is the task of the

intermediary to break bulk. However,

an intermediary may also create

bulk, buying units of the same

product from many small producers

and offering the larger amount to

those who prefer to purchase in large

quantities. These intermediaries are

performing bulk- accumulating

function. An intermediary performing

this function is called surprisingly, an

assembler. The classic examples of

assemblers are in agriculture and

fishing businesses. A maker of

tomato sauce, such as Maggie, would

probably not want to have to deal

with many small farms.

Sorting function: An activity,

performed by marketing

intermediaries, consisting of

classifying accumulated products as

to grade and size, and then grouping

them accordingly. After accumulating

bulk, marketers of agricultural

products and raw materials typically

perform a sorting function, which

involves identifying differences in

quality and breaking down the

product into grade or size categories.

For example, eggs are sorted into

jumbo grade AA, large grade AA, and

so on.

Assorting function

An activity, performed by marketing

intermediaries, consisting of

combining products purchased from

several manufacturers to create

assortments.

Creating Assortments:

Another function that intermediaries

perform is the creation of

assortments of merchandise that

would otherwise not be available.

This assorting function resolves the

economic discrepancy resulting from

the factory operator's natural

inclination to produce a large

quantity of a single product or a line

of similar products and the

consumer's desire to select from a

wide variety of choices. Wholesalers

that purchase many different

products from different

manufacturers can offer retailers a

greater assortment of items than an

individual manufacturer is able to

provide. Consider how magazine

publishers and retailers use

intermediaries to solve a very big

assorting problem. There are

hundreds of magazine titles available

from Indian publishers. No news

stand operator or other retailer

carries anything like that number; a

series of intermediaries is used to

sort these many titles into

appropriate groupings for individual

stores. National wholesalers, move

the hundreds of titles to hundreds

of local wholesalers. Their reward for

fulfilling this huge task is about 6

percent of the magazines’ retail

prices, out of which they must pay

all expenses involved. The local

distributors continue the task of

breaking bulk, moving the magazines

to countless supermarkets, new

stands, and other retail spots. But

there is more to the local

wholesaler's task than simply

breaking bulk and making delivery.

The local wholesaler must select,

from among the hundreds of

available titles the ones that are

appropriate for the individual

retailers’ operations. Then, this

assortment of titles must be

assembled in the proper numbers for

each retailer. The local wholesaler is

paid about 20 percent of the cover

prices. Complicated as this sounds,

the system is so efficient that, less

than 36 hours after a new Business

Today is printed, it has arrived at all

the retail establishments that carry

the business magazine. Although the

influence of wholesalers has declined

in certain industries, it is obvious

why wholesalers remain very

important in the magazine

distribution business.

Reducing Transactions:

There is one underlying reason why

intermediaries can economically

accumulate bulk and create

assortments. The presence of

intermediaries in the distribution

system actually reduces the number

of transactions necessary to

accomplish the exchanges that keep

the economy moving and consumers

satisfied. As Figure 10.2, indicates,

even if only four suppliers of grocery

items attempt to transact business

with just four retail buying

headquarters, the number of

interrelationships necessary is for

greater than the number needed once

an intermediary, such as a

wholesaler, is added to the system.

Channel intermediaries, in their dual

roles as buying agents for their

customers and selling agents for the

manufacturers with which they deal,

simplify the necessary transaction

process considerably. (Of course,

channels of distribution can become

too long. Such channels are common

in Japan). Intermediaries not only

reduce the number of transactions

but also reduce the geographic

distances that buyers and sellers

must travel to complete exchanges

and spare manufacturers the trouble

of locating and contacting individual

potential customers. These are some

of the ways wholesalers and retailers

can reduce costs. If manufacturers

and consumers had to perform all

these activities themselves, they

would have to bear the costs

involved.

Transporting and Storing:

Intermediaries, in most cases,

perform or manage two other

marketing functions: transporting

and storing. Merchandise must be

physically moved from points of

production to points of consumption.

This process often involves storing,

or holding, the product at various

spots along the way. Intermediaries

of all types, including retailers,

frequently store goods until they are

demanded by customers further

along in the channel of distribution .

Consider Haldiram namkeen—a very

popular namkeen in the Rohtak

market. If each person who wanted

to buy (Haldiram namkeen) had to

travel from Rohtak to the Haldiram

namkeen manufacturing unit at New

Delhi to make a purchase, those

hundreds of thousands of

customers—or Haldiram's employees,

if the company chose to make home

deliveries— would travel an

incredible total distance. Wholesalers

and retailers provide storage in the

Rohtak market and enable Haldiram

to send relatively few truckloads of

namkeen to that city, greatly

reducing the total distance travelled.

It is clear that transportation and

storage functions are necessary to

satisfy the Rohtak area's demand for

Haldiramnamkeen. Although this

example may seem for-fetched, it

illustrates that one of the most

important functions of intermediaries

is to provide regional and local

storage. The local Haldiram

wholesaler, the neighbourhood sweet

shop, and the comer retailer all carry

an inventory, and thus each performs

the storage function.

We should mention that some types

of intermediaries do not take

possession of the goods whose

distribution they facilitate. In such

cases, the intermediary does not

actually transport or store the

merchandise. Instead, the

intermediary coordinates

transportation and storage or

contributes in some other way to the

creation of time and place utility.

Thus, you should think of

transportation and storage in a broad

sense that includes the contribution

of wholesalers that, for example,

arrange for shipment of goods from

a producer-owned place of storage

to an organizational buyer's place of

business.

Communication and

Transaction Functions

Intermediaries perform a

communication function, which

includes buying, selling, and other

activities involving gathering or

disseminating information. The

ultimate purpose of the

communication link between the

manufacturer and the retailer or

between the wholesaler and the

retailer is to transfer ownership—that

is, to complete a transaction that

results in an exchange of title.

Selling function:

Activities, performed by

intermediaries, that are associated

with communicating ideas and

making a sale and thus effecting the

transfer of ownership of a product.

Buying function:

Activities, performed by

intermediaries, that are associated

with making a purchase and thus

effecting the transfer of ownership of

a product. Wholesalers and retailers

may perform an important

promotional function for

manufacturers when they provide

product information and price quotes.

Most frequently, this communication

is carried out by a sales force.

However, intermediaries also use

advertising and such sales promotion

tools as retail displays. In other

words, intermediaries perform a

selling function for the manufacturer,

often providing a sales force or other

promotional efforts that they can

supply more efficiently than the

manufacturer can. The wholesaler

provides a buying function for

retailers, organizational users, and

other customers. A wholesaler's

contact with numerous

manufacturers allows it to evaluate

the quality of a wide assortment of

goods from competing

manufacturers, thus, retailers and

other customers are freed of the

burden of evaluating every

manufacturer's product assortments.

This allows them more time to

specialize in the retailing and

merchandising of products.

Intermediaries further serve as

channels of communication by

informing buyers how products are

to be sold, used, repaired, or

guaranteed. They can even explain

new product developments. (In feet,

retailers should pass along more of

this information to their customers:

unfortunately many retail

salespeople are not trained to

provide information of this sort).

Because intermediaries typically deal

with a number of manufacturers or

other suppliers of goods, they are in

a unique position to serve as conduits

of information. Intermediaries, being

“in the middle”, are well placed not

only to pass information from

producers to other channel members

but also to collect information from

channel members or retail shoppers

and return it to producers. For

example, suppose a retailer receives

serious consumer complaints about

a product or some product-related

matter such as repair service. The

retailer should pass this information

backward in the channel to the

wholesaler, who can bring the matter

to the attention of the producer.

Should is the key word here. Too

often, whether because of apathy or

the fear of somehow being blamed

for a problem, intermediaries fail to

perform this potentially valuable

service. Marketers at all levels should

encourage communication

throughout channels of distribution,

because the satisfaction of all

channel members and consumers is

at stake.

Facilitating Functions

The transportation and storage

functions of channel intermediaries

are their most obvious contributions

to the operation of the marketing

system. However, intermediaries

perform additional, so-called

facilitating functions, which are not

quite so apparent to observers of a

channel in operation. Because the

tasks of a channel intermediary can

be so varied, it is nearly impossible

to list all the facilitating functions a

channel member might perform.

However, three major categories of

facilitating functions should be

mentioned specifically: providing

extra services, offering credit, and

taking risks.
Service function

Activities, performed by

intermediaries that increase the

efficiency and effectiveness of the

exchange process. Repair services

and management services provided

by intermediaries are examples.

Extra Services

Channel member, particularly

intermediaries, can and do provide

arrange of extra services that

increase the efficiency and

effectiveness of the channel;

intermediaries thus perform a service

function. For many products, the

availability of a post-sale repair

service is an absolute necessity.

Office photocopiers, for examples,

always seem to need either routine

maintenance or minor or major

overhauls. Wholesalers and retailers

of such machines usually offer repair

services on either a contract or an

emergency basis. They also carry

necessary supplies like paper. Other

products—such as personal

computers and cellular phones—are

not so prone to breakdowns, yet

buyers like to know that repair

service is available should it ever be

needed. Technical support is critical

for many Internet and software

companies. Honouring

manufacturers' guarantees can be

another responsibility of

intermediaries.
Channel intermediaries can also

provide a variety of management

services. In the food industry, Ibr

example, wholesalers offer such

services as computerized accounting

systems, inventory planning, store

site selection, store layout planning

and management training programs.

The extra services offered are good

business for the wholesalers in that

(1) they attract customers and (2)

they help their food retailer

customers to stay in business and

to remain successful. The services,

if not offered by every competing

wholesaler, can also provide a

competitive advantage to the food

wholesaler willing to invest in them.

Wholesalers may offer other services,

too. They may provide help in

preparing advertisements, and they

may offer a line of private brand

goods or a wholesaler-owned label

that smaller retailers can use to

create an image similar to those of

larger chains.

Credit function:

Provision of credit to another

member of a distribution channel.

Credit Services:

Most intermediaries perform a credit

function by offering credit service of

one kind or another. Although some

wholesalers and retailers operate

exclusively on a cash- and-carry

basis, promising to pass related

savings on to the customers, they

make up a relatively small proportion

of the millions of intermediaries

operating in India. Some credit

services provided by channel

members may not be immediately

obvious. Aretailer that accepts

Master Card or Visa provides a credit

service that in fact, costs the retailer

a percent of the sales fee, which it

must pay to the credit card company.

Many small/medium retailers offer

their own credit plans, which involve

a more clear-cut provision of service

than accepting “outside” card.

Wholesalers and other non retailer

channel members may provide credit

in a number of ways. Although a

supplier may have a credit system

so unique that buyer pay particular

notice, supplier credit systems are

generally so widespread throughout

a trade that buyers scarcely see the

credit system as a true service

Intermediaries in many fields

routinely offer 30,60 or more days to

pay for merchandise ordered. Often,

the days do not start “counting” until

the goods are delivered to the

buyer's place of business. In effect,

such a service permits the buyer to

make some money on a product

before having to pay for it.

Risk-taking function

Assumption of the responsibility for

losses when the future is uncertain.

Risk Taking

In almost everything they do,

channel intermediaries perform a

risk-taking function. When

purchasing a product from a

manufacturer or supplier of any type,

intermediaries run the risk of getting

stuck with an item that has fallen

out of favour with the buying public

because of a shift in fashion or the

death of a fed. It is also possible for a

product to spoil while it is in storage

or lost through fire or some other

disaster. Intermediaries bear these

risks in addition to market risk.

 4.5. FUNCTIONS OF
DISTRIBUTION OF CHANNELS

Physical distribution functions include

breaking bulk, accumulating bulk,

creating assortments, reducing

transactions, and transporting and

storing.

Bulk-breaking function:

An activity, performed by marketing

intermediaries, consisting of buying

products in relatively large quantities

and selling in smaller quantities.

Breaking Bulk:

With few exceptions, intermediaries

perform a bulk-breaking function.
The bulk- breaking function consists

of buying in relatively large

quantities, such as truckloads, and

then selling in smaller quantities,

passing the lesser amounts of

merchandise on to retailers,
organizational buyers, wholesalers,

and other customers.

By accumulating large quantities of

goods and then breaking them into

smaller amounts suitable for many

buyers, intermediaries can reduce

the cost of distribution for both

Manufacturers and consumers.

Consumers, do not buy and store

great amounts of merchandise, which

would increase their storage costs

and the risks of spoilage, fire and

theft. Manufacturers are spare the

necessity of dividing their outputs

into the small order sizes retailers

or consumers might prefer. Bulk

breaking is sometimes termed

resolution of economic
discrepancies,uO because

manufacturers, as a rule, turn out

amounts of merchandise that are

vast compared with the quantity that

an individual buyer might be able to

purchase. Breaking bulk resolves this

discrepancy.

Bulk–accumulating function:

An activity, performed by marketing

intermediaries, consisting of buying

small quantities of a particular

product from many small producers

and then selling the assembled larger

quntities.

Assembler:

A marketing intermediary that

performs a bulk-accumulating

function. Accumulating Bulk. In the

majority of cases, it is the task of the

intermediary to break bulk. However,

an intermediary may also create

bulk, buying units of the same

product from many small producers

and offering the larger amount to

those who prefer to purchase in large

quantities. These intermediaries are

performing bulk-accumulating

function. An intermediary performing

this function is called surprisingly, an

assembler. The classic examples of

assemblers are in agriculture and

fishing businesses. A maker of

tomato sauce, such as Maggie, would

probably not want to have to deal

with many small farms. Assemblers

gather large quantities of apples or

tuna or other products attractive to

large buyers Figure 10.1. contrast

the operation of assemblers with that

of bulk-breaking intermediaries.

Sorting function:

An activity, performed by marketing

intermediaries, consisting of

classifying accumulated products as

to grade and size, and then grouping

them accordingly.
After accumulating bulk, marketers

of agricultural products and raw

materials typically perform a sorting

function, which involves identifying

differences in quality and breaking

down the product into grade or size

categories. For example, eggs are

sorted into jumbo grade AA, large

grade AA, and so on.

Assorting function:

An activity, performed by marketing

intermediaries, consisting of

combining products purchased from

several manufacturers to create

assortments.
Creating Assortments:

Another function that intermediaries

perform is the creation of

assortments of merchandise that

would otherwise not be available.

This assorting function resolves the

economic discrepancy resulting from

the factory operator's natural

inclination to produce a large

quantity of a single product or a line

of similar products and the

consumer's desire to select from a

wide variety of choices. Wholesalers

that purchase many different

products from different

manufacturers can offer retailers a

greater assortment of items than an

individual manufacturer is able to

provide.

Consider how magazine publishers

and retailers use intermediaries to

solve a very big assorting problem.

There are hundreds of magazine

titles available from Indian

publishers. No news stand operator

or other retailer carries anything like

that number; a series of

intermediaries is used to sort these

many titles into appropriate

groupings for individual stores.

National wholesalers, move the

hundreds of titles to hundreds of

local wholesalers. Their reward for

fulfilling this huge task is about 6

percent of the magazines' retail

prices, out of which they must pay

all expenses involved. The local

distributors continue the task of

breaking bulk, moving the magazines

to countless supermarkets, new

stands, and other retail spots. But

there is more to the local

wholesaler's task than simply

breaking bulk and making delivery.

The local wholesaler must select,

from among the hundreds of

available titles the ones that are

appropriate for the individual

retailers' operations. Then, this

assortment of titles must be

assembled in the proper numbers for

each retailer. The local wholesaler is

paid about 20 percent of the cover

prices. Complicated as this sounds,

the system is so efficient that, less

than 36 hours after a new Business

Today is printed, it has arrived at all

the retail establishments that carry

the business magazine. Although the

influence of wholesalers has declined

in certain industries, it is obvious

why wholesalers remain very

important in the magazine

distribution business.

Reducing Transactions:

There is one underlying reason why

intermediaries can economically

accumulate bulk and create

assortments. The presence of

intermediaries in the distribution

system actually reduces the number

of transactions necessary to

accomplish the exchanges that keep

the economy moving and consumers

satisfied. As Figure 10.2, indicates,

even if only four suppliers of grocery

items attempt to transact business

with just four retail buying

headquarters, the number of

interrelationships necessary is far

greater than the number needed once

an intermediary, such as a

wholesaler, is added to the system.

Channel intermediaries, in their dual

roles as buying agents for their

customers and selling agents for the

manufacturers with which they deal,

simplify the necessary transaction

process considerably. (Of course,

channels of distribution can become

too long. Such channels are common

in Japan). Intermediaries not only

reduce the number of transactions

but also reduce the geographic

distances that buyers and sellers

must travel to complete exchanges

and spare manufacturers the trouble

of locating and contacting individual

potential customers. These are some

of the ways wholesalers and retailers

can reduce costs. If manufacturers

and consumers had to perform all

these activities themselves, they

would have to bear the costs

involved.
Transporting and Storing

Intermediaries, in most cases,

perform or manage two other

marketing functions: transporting

and storing. Merchandise must be

physically moved from points of

production to points of consumption.

This process often involves storing,

or holding, the product at various

spots along the way. Intermediaries

of all types, including retailers,

frequently store goods until they are

demanded by customers further

along in the channel of distribution.

We should mention that some types

of intermediaries do not take

possession of the goods whose

distribution they facilitate. In such

cases, the intermediary does not

actually transport or store the

merchandise. Instead, the

intermediary coordinates

transportation and storage or

contributes in some other way to the

creation of time and place utility.

Facilitating Functions

The transportation and storage

functions of channel intermediaries

are their most obvious contributions

to the operation of the marketing

system. However, intermediaries

perform additional, so-called

facilitating functions, which are not

quite so apparent to observers of a

channel in operation. Because the

tasks of a channel intermediary can

be so varied, it is nearly impossible

to list all the facilitating functions a

channel member might perform.

However, three major categories of

facilitating functions should be

mentioned specifically: providing

extra services, offering credit, and

taking risks.

Service function

Activities, performed by

intermediaries, that increase the

efficiency and effectiveness of the

exchange process. Repair services

and management services provided

by intermediaries are examples.

Extra Services. Channel member,

particularly intermediaries, can and

do provide a range of extra services

that increase the efficiency and

effectiveness of the channel;

intermediates thus perform a service

function. For many products, the

availability of a post-sale repair

service is an absolute necessity.

Office photocopiers, for examples,

always seem to need either routine

maintenance or minor or major

overhauls.
Wholesalers and retailers of such

machines usually offer repair services

on either a contract or an emergency

basis. They also carry necessary

supplies like paper. Other products.

Such as personal computers and

cellular phones are not so prone to

breakdowns, yet buyers like to know

that repair service is available should

it ever be needed. Technical support

is critical for many Internet and

software companies.

Honouring manufacturers:

Guarantees can be another

responsibility of intermediaries.

Channel intermediaries can also

provide a variety of management

services. In the food industry, for

example, wholesalers offer such

services as computerized accounting

systems, inventory planning, store

site selection, store layout planning

and management Training programs.

The extra services offered are good

business for the wholesalers in that

(1) they attract customers and (2)

they help their food retailer

customers to stay in business and

to remain successful. The services,

if not offered by every competing

wholesaler, can also provide a

competitive advantage to the food

wholesaler willing to invest in them.

Wholesalers may offer other services,

too. They may provide help in

preparing advertisements, and they

may offer a line of private brand

goods or a wholesaler-owned label

that smaller retailers can use to

create an image similar to those of

larger chains.

Credit function

Provision of credit to another

member of a distribution channel.

Credit Services

Most intermediaries perform a credit

function by offering credit service of

one kind or another. Although some

wholesalers and retailers operate

exclusively on a cash- and-carry

basis, promising to pass related

savings on to the customers, they

make up a relatively small proportion

of the millions of intermediaries

operating in India. Some credit

services provided by channel

members may not be immediately

obvious. Are tailer that accepts

Master Card or Visa provides a credit

service that in fact, costs the retailer

a percent of the sales fee, which it

must pay to the credit card company.

Many small/medium retailers offer

their own credit plans, which involve

a more clear cut provision of service

than accepting .outside, card.

Wholesalers and other nonretailer

channel members may provide credit

in a number of ways. Although a

supplier may have a credit system

so unique that buyer pay particular

notice, supplier credit systems are

generally so widespread throughout

a trade that buyers scarcely see the

credit system as a true service

Intermediaries in many fields

routinely offer 30,60 or more days to

pay for merchandise ordered. Often,

the days do not start counting until

the goods are delivered to the buyers

place of business. In effect, such a

service permits the buyer to make

some money on a product before

having to pay for it.

Risk-taking function:

Assumption of the responsibility for

losses when the future is uncertain.

Risk Taking:

In almost everything they do,

channel intermediaries perform a risk

taking function. When purchasing a

product from a manufacturer or

supplier of any type, intermediaries

run the risk of getting stuck with an

item that has fallen out of favour

with the buying public because of a

shift in fashion or the death of a fed.

It is also possible for a product to

spoil while it is in storage or lost

through fire or some other disaster.

Intermediaries bear these risks in

addition to market risk.

Intermediaries run obvious risks in

offering credit to the individuals and

organizations to which they sell. They

take legal risks in that

intermediaries, not manufacturers,

can be held responsible for problems

caused by faulty products or

misleading claims.

When intermediaries, for whatever

reason, seek to avoid the service of

risk taking, the distribution system

becomes less effective. In hard

economic times, for example,

retailers and wholesalers are

tempted to engage in .hand to

mouth. Buying, ordering small

quantities of products and attempting

to sell them before placing yet

another small order. Such behaviour

defeats the whole purpose of the

marketing channel by eliminating the

.buy in large quantities. Sell in

smaller quantities. Premise on which

most channels are based.

4.6. TYPICAL CHANNELS OF

DISTRIBUTION

We have already suggested that not

all channels of distribution are alike.

In fact, the variety of distribution

channels is extensive indeed. That

is because marketers are constantly

seeking new ways to perform the

distribution function. Both

manufacturers and intermediaries

have developed all sorts of variations

on the basic theme of distribution.

Each variation was developed in an

effort to perform the distribution

function better and thereby attract

business.

Channels may be distinguished by

the number of intermediaries they

include; the more intermediaries, the

longer the channel Some

organizations choose to sell their

products directly to the consumer or

organizational user; others use long

channels that include numbers of

wholesalers, agents, and retailers to

reach buyers. This discussion focuses

on the most common of the

numerous channels of distribution

available. The Direct Channel for

Consumer Goods and Services. A

good example of the direct channel

is supplied by the neighbourhood

bakery, which converts flour, water,

and other raw materials into baked

goods and then retails these

products, providing any other

functions that might be necessary to

complete the transaction. The direct

channel is also familiar as the

distribution method used by many

marketers of services and not- for-

profit groups that solicit donations.

Marketers of consumer goods and

services that promote their products

through mail- order catalogs,

telemarketing (telephone sales), and

toll-free numbers listed in

advertisements and that distribute

directly to consumers through the

mail or a delivery service are also

using direct channels. The strategies

of these direct marketers, which do

not use retail outlets or contact

customers in person, rely largely on

data-based management and certain

direct-response promotional
strategies.

The Manufacturer

(Producer)—Retailer—Consumer

Channel

The

manufacturer—retailer—consumers

channel is commonly employed when

the retailer involved is a sizable

organization, such as a discount

chain like Wal-Mart. This type of

retail marketing organization may

prefer to deal directly with

manufacturers to be able to order

specially made merchandise or obtain

discounts or other benefits.

Generally, the benefits must be

important enough to make the

retailer willing to perform many

wholesaling functions. However, in

an effort to please large retail

customers, the manufacturer may

agree to perform wholesaler

functions. The efficiencies a

manufacturer gains from the large

orders placed by Sears or Wal-Mart

can more than offset the wholesaling

costs the manufacturer may have to

absorb.
Most of the private mobile phone

service provides like Air Tel, Hutch,

IDE Ause service provider. Retailer,

Consumer channel to provide various

pre-paid and post paid service

facilities to the consumers. This type

of intensive distribution helps in

catering the customer requirements

anywhere, anytime.

The Manufacturer—Wholesaler

—Retailer —Consumer Channel

The manufacturer—wholesaler—

retailer—consumer channel of

distribution is the most commonly

used structure for consumer

goods. This is because

most consumer goods are so widely

used. It would be virtually impossible

for the ITC, for example, to deal

individually with every retailer

stocking cigarettes, let alone every

consumer of cigarettes.Thus, a long

channel, with at least two

intermediaries, is needed to

distribute the product. Wholesalers

can also be used in the distribution of

services.

Channels That Include Agents

A familiar type of agent is the real

estate agent. Consumers marketing

their homes or unconstructed plots

often lack time and marketing skills,

so they hire agents. Manufacturers,

especially those lacking expertise in

marketing a particular product line,

may choose to permit manufacturer's

agents or selling agents to handle

the marketing of their products. Such

agents do not take title to the goods

they sell and usually earn

commissions rather than a salary.

In marketing channels for consumer

goods, agents may, depending on the

circumstances and the product they

offer, sell to retailers or wholesalers.

The manufacturer-agent- wholesaler-

retailer-consumer channel is widely

used in the marketing of consumer

products, especially convenience

goods.
It might seem that travel agents used

by airlines function as retailers.

Technically, however, they are part

of a channel involving an agent. The

service producer-agent channel is

common in marketing of consumer

services like insurance, tours travel,

postal saving scheme etc.

Channels of Distribution for

Business-to-business

Marketing

Business-to-business marketers use

channels that are similar to those

used by the marketers of consumer

products.
The Direct Channel in

Business-to-Business

Marketing

The name business to-businessuO

suggests the importance of the direct

channel in the marketing of

organizational products. Indeed, the

direct channel is the one most

commonly used in the marketing of

organizational goods. Direct

organizational sales of industrial

machinery such as escalators, power-

generating machinery such as turbine

engines, metals such as titanium,

and many other products require

well-informed salespersons, and

perhaps engineers, who can help the
buyer fit the product into its

organizational facility or

manufacturing process. Otis Elevator,

for example, it a business-to-

business marketer that uses a direct

channel to reach multistorey

construction companies.

Many business-to-business

marketers now use the Internet for

electronic commerce. This

constitutes a direct channel.

TheManufacturer—Wholesaler
—Organizational User

Channel:

Because, by definition, retailers deal

with consumers, there is no

distribution channel for

organizational goods that directly

parallels the manufacturer—retailer

channel. However, there is a trade

channel for organizational goods that

relies on just one wholesale

intermediary, which performs a

function much like that ofa retailer.

This is the manufacturer-

distribution- organizational user

channel. The names for this type of

wholesaler vary from industry to

industry; among the most common

terms used are jobber and

distributor.

Jindal Steel, maker of not rolled &

cold rolled steel, uses distributors

who, working out in a given area sell

directly to small customers, like

utensil makers. Distributors selling to

organizational users may also

operate store-like facilities that

buyers such as electricians or

plumbers may patronize. In either

format, organizational distributors

perform storage and communication

functions. They may, as in the Jindal

steel example, provide delivery, and

they may also supply credit or

perform other functions. The

organizational distributor is classified

as a merchant intermediary, because

this distributor takes title to the

goods. Channels of distribution for

organizational goods sometimes

include more than one merchant

wholesaler. This arrangement is most

common in international marketing.

Business-to-Business

Marketers also use agents:

The manufacturer-agent-

organizational user channel is

commonly used in business- to-

business marketing by small

manufacturers that market only one

product to many users. The wide

range of customers to which agents

sell suggests the main attraction of

agents for manufacturers: flexibility.

One type of agent intermediary, the

broker, can be used on an occasional

basis, as needed. No continuing

relationship—and therefore no
continuing financial remuneration or

other obligation—is necessary.

Similarly, manufacturers' agents

operate on a commission basis within

fixed geographic territories.

Therefore, they appeal to small

organizations whose limited financial

resources make it difficult for them

to fund their own sales forces.

Manufacturers' agents are also

attractive because they can be

employed in chainuO market areas or

in foreign countries where potential

sales do not seem to justify a

manufacturer's forming its own sales

force
 4.6. INTERMEDIARIES

These help buying more per order

than individual consumers. The

economics of scale operate to mutual

benefit (i.e. manufacturers produce

in bulk; intermediaries buy in bulk).

The fewer relationships are required

to maintain the distribution network

than in dealing directly with

thousands of individual consumers.

Types of Intermediaries

Intermediaries known as

merchants–such as wholesalers and

retailers—buy, take title to, and

resell the merchandise.

Agents—brokers, manufacturers’
representatives and sales

agents—search for customers and

may negotiate on the producer's

behalf but do not take title to the

goods. Facilitators—transportation

companies, independent warehouses,

banks, and advertising

agencies—assist in the distribution

process but neither take title to

goods nor negotiate purchases or

sales. The most successful companies

search for innovative marketing

channels. The Conn Organ Company,

for example, sells organs through

merchants such as department and

discount stores, drawing more

attention than it ever enjoyed in

small music stores. Similarly, Ohio-

based Provident Bank reaches new

mortgage customers by selling

through the lend-ingtree.com Web

site, which acts as a facilitator.

Number of Intermediaries

In deciding how many intermediaries

to use, successful companies use one

of three strategies:

Exclusive distribution means severely

limiting the number of

intermediaries. Firms such as

automakers use this approach when

they want to maintain control over

the service level and service outputs

offered by the resellers. Often it

involves exclusive dealing

arrangements, in which the resellers

agree not to carry competing brands.

Selective distribution involves the

use of more than a few but less than

all of the intermediaries who are

willing to carry a particular product.

In this way, the producer avoids

dissipating its efforts over too many

outlets, and it gains adequate market

coverage with more control and less

cost than intensive distribution. Nike,

for example, sells its athletic shoes

and apparel through seven types of

outlets:

1. specialized sports stores, which

carry a special line of athletic

shoes;
 2. general sporting goods stores,

which carry a broad range of

styles;

3. department stores, which carry

only the newest styles;

4. mass-merchandise stores, which

focus on discounted styles;

5. Niketown stores, which feature

the complete line;

6. factory outlet stores, which stock

mostly seconds and closeouts,

and

7. the popular Fogdog Sports site

(www.fogdog.com), its exclusive

Web retailer.

Intensive distribution consists of the

manufacturer placing the goods or

services in as many outlets as

possible. This strategy is generally

used for items such as tobacco

products, soap, snack foods, and

gum, products for which the

consumer requires a great deal of

location convenience.

4.7. CHANNEL MANAGEMENT

DECISIONS

After a company has chosen a

channel alternative, it must select,

train, motivate, and evaluate the

individual intermediaries. Then,

because neither the marketing

environment nor the product life

cycle remains static, the company

must be ready to modify these

channel arrangements over time.

Selecting Channel Members

During the selection process,

producers should determine what

characteristics distinguish the better

intermediaries. They will want to

evaluate number of years in

business, other lines carried, growth

and profit record, solvency,

cooperativeness, and reputation. If

the intermediaries are sales agents,

producers will want to evaluate the

number and character of other lines

carried and the size and quality of the

sales force. If the intermediaries are

store or Internet retailers that want

exclusive distribution, the producer

will want to evaluate locations, brand

strength, future growth potential,

and type of clientele.

Selection of channel participants is

actually a two-way process: Just as

producers select their channel

members, the intermediaries also

select their producer partners. Yet

producers vary in their ability to

attract qualified intermediaries.

Toyota was able to attract many new

dealers when it first introduced its

Lexus line, but Polaroid initially had

to sell through mass-merchandising

outlets when photographic-

equipment stores would not carry its

cameras.
Selection can be a lengthy process.

Consider the experience of Japan's

Epson Corporation. A leading

manufacturer of computer printers,

Epson decided to add computers to

its product line but chose to recruit

new distributors rather than sell

through its existing distributors. The

firm hired a recruiting firm to find

candidates who (1) had distribution

experience with major appliances,

(2) were willing and able to set up

their own distributorships, (3) would

accept Epson's financial

arrangements, and would handle only

Epson equipment, although they

could stock other companies'

software. After the recruiting firm

went to great effort to find qualified

candidates, Epson terminated its

existing distributors and began

selling through the new channel

members.Despite this time-

consuming, detailed selection

process, Epson never succeeded as a

computer manufacturer

Training Channel Members

Companies need to plan and

implement careful training programs

for their distributors and dealers

because the intermediaries will be

viewed as the company by end users.

Microsoft, for example, requires

third-party service engineers who

work with its software applications to

complete a number of courses and

take certification exams. Those who

pass are formally recognized as

Microsoft Certified Professionals, and

they can use this designation to

promote business.

As another example, Ford Motor

Company beams training programs

and technical information via its

satellite based Fordstar Network to

more than 6,000 dealer sites. Service

engineers at each dealership sit at a

conference table and view a monitor

on which an instructor explains

procedures such as repairing on

board electronics and then answers

questions. Such training initiatives

keep employees updated on the

latest product specifications and

service requirements.

Motivating Channel Members

The most successful firms view their

channel members in the same way

they view their end users. This

means determining their

intermediaries' needs and then

tailoring the channel positioning to

provide superior value to these

intermediaries. To improve

intermediaries' performance, the

company should provide training,

market research, and other

capability-building programs. And the

company must constantly reinforce

that its intermediaries are partners in

the joint effort to satisfy customers.

More sophisticated companies go

beyond merely gaining

intermediaries' cooperation and

instead try to forge a long term

partnership with distributors. The

manufacturer communicates clearly

what it wants from its distributors

in the way of market coverage,

inventory levels, marketing

development, account solicitation,

technical advice and services, and

marketing information. The

manufacturer then seeks distributor

agreement with these policies and

may introduce a compensation plan

or other rewards for adhering to the

policies. For example, Dayco

Corporation, a maker of engineered

plastics and rubber products,

strengthens channel partnerships by

running an annual week-long retreat

with 20 distributors' executives and

20 Dayco executives.

Still, too many manufacturers think

oftheir distributors and dealers as

customers rather than as working

partners. Up to now, we have treated

manufacturers and distributors as

separate organizations. But many

manufacturers are distributors of

related products made by other

manufacturers, and some distributors

also own or contract for the

manufacture ofin-house brands.

JCPenney sells national brands

ofjeans by manu-facturers such as

Levi Strauss in addition to a line

oceans under the Original Arizona

Jeans company private label. This

situation, which is common in the

jeans industry and in many others,

complicates the process of selecting

and motivating channel members.

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.

A producer will occasionally discover

that it is paying too much to

particular intermediaries for what

they are actually doing. As one

example, a manufacturer that was

compensating a distributor for

holding inventories found that the

inventories were actually held in a

public warehouse at the

manufacturer's expense. Producers

should therefore set up functional

discounts in which they pay specified

amounts for the trade channel's

performance of each agreed-upon

service. Under performers need to be

counseled, retrained, remediate, or

terminated.
 4.8. RETAILINGAND
WHOLESALING

Retailing and Its Importance

Retailing consists of all business

activities associated with the sale of

goods and services to ultimate

consumers. Retailing involves a

retailer—traditionally a store or a

service establishment—that deals

with consumers who are acquiring

goods or services for their own use

rather than for resale. Of course,

Shopper's stop, Ebony, Pamami

Jaipur and other familiar

organizations offering products for

sale to consumers are retailers.

However, the definition of retailing

includes some less-than-obvious

service marketers, such as hotels,

movie theaters, restaurants, and ice-

cream trolly operators. And even if

an intermediary calls itself a Tactory

outlet,uO a wholesale club,uO or a

shopping channel,” it is a retailer if

its purpose is to sell to the ultimate

consumer. Companies that sell on the

Internet are retailers. Because these

retailers are e-commerce firms, they

are often called e- retailers.

Retailing

All business activities concerned with

the sale of products to the ultimate

users of those product.

e-retailers:

e-commerce firms with retailing

operations on the Internet.

Viewed in the context of the channel

of distribution, retailers are the

important final link in the process

that brings goods or services from

producers to consumer. Poor

marketing on the part of retailers can

negate all the planning and

preparation that have gone into other

marketing activities. In the United

States, there are more than 15 lac

retailing institutions accounting for

about Rs. 9600 crore in sales. About

15 percent ofU. S. workers are

employed in retailing.

Classifying Retailers by

Ownership

Independent retailer: Are tail

establishment that is not owned or

controlled by any other organization.

One popular method of categorizing

retailers is by ownership. Most

retailers are independent retailers,

operating as single-unit entities.

Independent operations maybe

proprietorships, partnership, or

corporations, but they are usually

owned by one operator, a family, or a

small number of individuals. They are

not generally integrated into a larger

corporation. These retailers are often

thought of as small, but some are

quite sizable. Taken together, they

are the most important part of the

Indian retailing scene.

Leased department retailer:

An independent retailer that owns the

merchandise stocked but leases floor

space from another retailer, usually

operating under that retailer's name.

An independent retailer that owns the

merchandise stocked but leases floor

space from another retailer is a

leased department retailer. A leased

department—for example, a branch

bank, a jewellery department, or a

watch repairer—operates

independently from the lessor retailer

(the retailer that rents out the floor

space), although it often operates

under the lessor's name. The lessor

grants leased department retailers

this degree of independence because

they have special expertise in

handling the particular product line,

will increase total store traffic, or are

necessary to the lessor because

consumer expected to find the

department's merchandise in the

store.

If a retail establishment is not

independent, it is classified as either

a chain or an ownership group. The

more familiar of these classifications

is the chain store— one of a group

of shops bearing the same name and

having roughly the same

merchandise assortment and store

image. Chain-store systems consist

of two or more stores of a similar

type that are centrally owned and

operated.

Chains have been successful for a

number of reasons, but one of the

most important is the opportunity

they have to take advantage of

economies of scale in buying and

selling goods. Conducting centralized

buying for several stores permits

chains to obtain the lower prices

associated with large purchases.

They can then maintain their prices,

thus increasing their margins, or they

can cut prices, attracting greater

sales volume. Unlike small

independents with lesser financial

means, chains can also take

advantage of promotional tools, such

as television advertising, by

spreading the expense among many

member stores, thus stretching their

promotional budget. Other expenses,

such as costs for computerized

inventory control systems, may also

be shared by all stores. According to

the U.S. Department of Commerce,

the term corporate chain is used for

chains with 11 or more stores.

Typically, as the number of units in

a chain increases, management

becomes more centralized, and each

store manager has less autonomy in

determining the overall marketing

strategy. Although corporate chains

possess many advantages over

independents, some analysts say

independents and smaller chains are

more flexible. They may be better

able to apply such marketing

techniques as segmentation than are

bigger operations, whose appeal

must be more general.

Retail franchise operations are a

special type of chain. Although the

broad marketing strategy in such

chains is centrally planned, the retail

outlets are independently owned and

operated. Franchises provide an

excellent example of the evolution of

retail institutions to fit the American

culture. As the country's mobile

citizenry moves from place to place,

a familiar retail outlet is waiting for

them when they arrive. Each new

franchise benefits from the

company's experience, reputation,

and shared resources.

Chain store:

One of a group of two or more stores

of a similar type, centrally owned and

operated.

Corporate chain:

A chain consisting of 11 or more

stores.
Ownership group

An organization made up of stores or

small chains, each with a separate

name, identity, and image but all

operating under the control of a

central owner. The other type of

retailing organization is the

ownership group—an organization

made up of various stores or small

chains, each having a separate name,

identity, and image but all operating

under the ultimate control of a

central owner. Typically, the

members of such groups are former

corporate chains bought out by much

larger ownership groups.

Speciality Stores Speciality stores,

also called single-line retailers or

limited-line retailers, are

differentiated from other retailers by

their degree of specialization—that

is, the narrowness of their product

mixes and the depth of their product

lines. These traditional retailers

specialize within a particular product

category, selling only items targeted

to narrow market segments or items

requiring a particular selling

expertise, such as children's shoes,

contact lens, swimming costumes, or

wall clocks. Service establishments,

such as restaurants and banks, are

often classified as speciality retailers.

These retailers do not try to be all

things to all people. In feet one can

never be all things to all peoples.

General stores dominated Indian

retailing and they are likely to

dominate because, except in large

cities, too few people could be found

to justify speciality retailers. The

remarkable success enjoyed by

speciality stores in recent years,

however, illustrates the importance

of effective market segmentation and

target marketing. The major reason

for their success is the development

of considerable expertise in their

particular product lines.

Department Stores Department

stores are typically large compared

with speciality stores. They carry a

wide selection of products, including

clothing, furniture, home appliances,

house wares, and—depending on the

size of the operation—good many

other products as well. These stores

are departmentalized both physically

and organizationally. Each

department is operated largely as a

separate entity headed by a buyer,

who has considerable independence

and authority in buying and selling

products and who is responsible for

the department's profits.

Independent department stores do

exist, but most department stores

are members of chains or ownership

groups.
Most department stores are

characterized by a full range of

services, including credit plans,

delivery, generous return policies,

restaurants, and a host of other

extras such as fashion clinics, closed-

door sales for established customers

only and even etiquette classes for

customers' children. Such services,

as well as the need to carry a wide

variety of merchandise and maintain

a large building, increase store

operating costs and necessitate

higher prices than those at discount

stores. Some consumer seek the

service and atmosphere of the

department store but then make

actual purchases at a discount store.

In short, discounters and other types

of store operators are formidable

competitors for traditional

department stores.

Supermarkets and Convenience

Stores. The supermarket of today

differs greatly from the grocery store

from which it evolved. The grocery

operator of the early part of last

century knew most customers,

personally filled customers' orders

and was likely to offer both delivery

service and credit. With the advent

of the telephone, the grocer accepted

phone orders and dispatched a

delivery boy to the customer's home.

Supermarket:

Any large, self-service,

departmentalized retail

establishment, but especially one

that sells primarily food items.

Today's supermarket is a large

departmentalized retail

establishment selling a variety of

products, mostly food items but also

health and beauty aids, house wares,

magazines, and much more. The

dominant features of a supermarket

marketing strategy are large in-store

inventories on self-service aisles and

centralized checkout lines. Often,

supermarkets stress the low prices

resulting from self-service. The

inclusion of non food items on

supermarket shelves was once novel,

in that it represented the stocking of

items that did not traditionally belong

in the supermarket's group of

offerings. The name given to this

practice is scrambled merchandising

Scrambled merchandising permits

supermarkets (as well as other types

of retailing institutions) to sell items

that carry a higher margin than most

food items; thus it provides a means

to increase profitability.

Across the board, however,

supermarket profit margins are

slim—only 1 to 2 percent of total

sales. Supermarkets rely on high

levels of inventory turnover to attain

their return on investment goals.

Scrambled merchandising:

The offering by retail establishment

of products not traditionally

associated with that establishment.

Supermarkets were among the first

retailers to stress discount

strategies. Using such strategies,

large self-service retail

establishments sell a variety of high

turnover products at low prices.

Agoodpart of a retailer's ability to

hold process down stems from the

practice of offering few services.

Other than the costs of the goods

they sell, most retailers find that

personnel costs are their largest

financial outlay. Thus, by eliminating

most of the sales help, having no

delivery staff, and hiring stock clerks

and cash-register operators rather

than true salespeople, discounters

are able to take a big step toward

reducing their prices. Buying in large

volume also reduces the cost of

Convenience store:

A small grocery store stressing

convenient location and quick service

and typically charging higher prices

than other retailers selling similar

products. Convenience stores are, in

essence, small supermarkets. They

have rapidly developed as a major

threat to their larger cousins.

7-Elevens, Quick-Trips, and other

imitative convenience store have

sprung up and multiplied across the

United States. These stores carry a

carefully selected variety of high-

turnover consumer products. As their

names generally imply, the major

benefit these stores provide to

consumers is convenience—

convenience of location and

convenience of time. By choosing

handy locations and staying open

15,18, or 24 hours a day, 7 days a

week, convenience stores offer extra

time and place utility. Consumers

must pay for these conveniences and

seem quite willing to do so. Managers

of these stores price most of their

convenience goodsuO at levels higher

than super marketers, to provide

high profit margins. Convenience

stores goods sold are unusual among

retailers because they have both a

high margin and a high inventory

turnover.

Mass merchandise retailer :

A retailer that sells products at

discount prices to achieve high sales

volume; also called a mass

merchandise discount store. There

are two basic types of mass

merchandise retailers: general mass

merchandesers and speciality mass

merchandisers. Mass Merchandisers

Mass merchandise retailers,

sometimes called mass merchandise

discount stores or superstores, sell at

discount prices to achieve high sales

volume. Mass merchandisers cut

back on their stores’ interior design

and on customer service in their

efforts to reduce costs and maintain

low prices. Supermarkets were the

forerunners of mass merchandisers.

In fact, the term supermarket

retailing has been used to describe

Target, Wal-Mart, and many other

stores that have adopted the

supermarket strategy, incorporating

large inventories, self-service,

centralized checkouts, and discount.

Using supermarket-style discount

strategies helps mass merchandisers

to offer prices lower than those at

traditional stores. Mass

merchandisers can be classified as

general or speciality. General mass

merchandisers, such as Wal-Mart,

carry a wide variety of merchandise

that cuts across product categories.

They may sell everything from drug

and cosmetic items to electrical

appliances to clothing, toys, and

novelty items. The wide variety of

goods general mass merchandisers

offer at low prices means that they

usually cannot afford to carry a deep

selection of goods in any product

line. Retailers usually carry either a

wide variety or a deep selection, but

not both. The expense associated

with having many kinds of goods and

many choices of each kind makes the

two possibilities largely mutually

exclusive. (Indeed, small retailers

can often compete with giant mass

merchandisers on the basis of

selection.

In contrast with general mass

merchandisers, speciality mass

merchandisers carry a product

selection that is limited to one or a

few product categories. For example,

some speciality mass merchandisers

sell only clothing. We will discuss two

types of general mass

merchandisers, catalog showrooms

and warehouse chibs, and two types

of speciality mass merchandisers,

category superstores and off-price

retailers.
Wholesaling

Wholesaler an organization or

individual that serves as a marketing

intermediary by facilitating transfer

of products and title to them.

Wholesalers do not produce the

product, consume it, or sell it to

ultimate consumers.

A wholesaler neither produces nor

consumes the finished product. A

wholesaler is a marketing

intermediary that buys products and

resells those product to retailers,

other wholesalers, or organizations

that use the products in the

production of other goods or

services. A wholesaler's primary

function is facilitating either the

transportation of products or the

transfer of title to them.

Wholesalers have much in common

with retailers; both of these types of

marketers act as selling agents for

their suppliers and as buying agents

for their customers. Both are creators

of time and place utility. Both must

carefully evaluate the needs of their

customer and deliver an appropriate

total package of goods and services

if they are to succeed in business.

And both have developed ways of

performing marketing functions that

specially suit market conditions.

Classifying Wholesalers

Intermediaries performing

wholesaling functions are

traditionally divided into two

groups—merchants and agents. The

only distinction between these

categories lies in whether the

intermediaries take title to the goods

they sell. Merchant intermediaries

take title; agent intermediaries do

not. This has nothing at all to do with

physical possession of goods. Some

merchants take possession of

merchandise and other do not; some

agents take possession of the goods

they sell, but most do not. Taking

title to goods means that the

merchant intermediary owns that

merchandise and must be prepared

to handle any risks associated with

ownership—including getting stuck

with merchandise that, for whatever

reason, turns out to be unsellable.

Arecent Census ofWholesale Trade

reported that there were 453,470

wholesale trade establishments in the

United States. Of these, 376,330

were merchant wholesalers, and they

accounted for almost 60 percent of

wholesale sales volume. There were

29,305 manufacturer's sales

branches, and they accounted for

slightly less than a third of the

wholesale sales volume. The 47,835

agents and brokers accounted for

approximately 11 percent of

wholesale sales volume.

Merchant Wholesalers

Merchant wholesaler an

independently owned wholesaling

concern that takes title to the goods

it distributes. Merchant wholesalers

are independently owned concerns

that take title to the goods they

distribute. Merchant wholesalers

represent about 80 percent of all

wholesaling concerns in the United

States. Valley Media, for example is

a top wholesale distributor of music

and video products, such as CDs,

DVDs, video cassettes, and video

games. It distributes products to

more than 6,000 bricks-and-mortar

retailers, such as Best Buy, Where

house Entertainment, and Sears.

However, its customer also include

CDnow, Amazon.com, and more than

100 Internet retailers.

Not all merchant wholesalers operate

on a national basis. Small merchant

wholesalers often restrict their

business to a limited geographical

area. They may cover single cities

or areas stretching only 100 or 200

miles from the main office. This

allows them to replace retailers'

inventory quickly. It also reduces or

eliminates the need for overnight

trips by trucks or sales personnel and

so holds down expenses. Merchant

wholesalers may be classified in

terms of the number and types of

services they provide to their

customers. In this regard, they

provide perfect examples of how

marketing firm adjust their total

product offering of goods and

services to reflect the demands of

particular situations and market

segments.

Full-service merchant wholesaler

Amerchant wholesaler that provides

a complete array of services, such

as delivery, credit, marketing

information and advice, and

managerial assistance; also called a

full-function wholesaler.

Full-Service Merchant Wholesalers As

their name suggests, full-service

merchant wholesalers provide their

customers with a complete array of

services in addition to the

merchandise they offer. Such

services include delivery, credit,

marketing information and advice,

and possibly even such managerial

assistance as accounting aid or other

non marketing aid. Full-service

wholesalers are also called full

function wholesalers. General

merchandise wholesaler A full-

service merchant wholesaler that

sells a large number of different

product lines.

General line wholesaler A full-service

merchant wholesaler that sells a full

selection of products in one product

line. Speciality wholesaler A full

service merchant wholesaler that

sells a very narrow selection of

products. Within this category, three

subsets of wholesalers are

identifiable by lines of goods offered:

general merchandise wholesalers,

which sell a large number of different

product types: general line

wholesalers, which limit their

offerings to a Ml array of products

within one product line; and

speciality wholesalers, which reduce

their lines still further. A coffee and

tea wholesaler or a spice wholesaler

exemplifies this last class.

Wholesalers determine how wide or

narrow a line to carry by carefully

considering the customers they serve

and the industry in which they

operate. When the target customers

are operators of general stores, the

decision to be a general merchandise

wholesaler is logical. In some

industries, however, traditional

marketing practices may require

some degree of specialization.

Limited-service merchant wholesaler

Amerchant wholesaler that offers less

than full service and charges lower

prices than a full-service merchant

wholesaler; also called a limited-

function wholesaler.

Limited-Service Merchant

Wholesalers: Regardless of the

product line carried, full service

merchant wholesalers provide an

essentially complete line of extra

services. However, some customers

may not want—or may not want to

pay for—some of those services.

They may prefer to sacrifice services

to get lower prices. Thus, a group

of limited-service merchant

wholesalers, or limited-function

wholesalers, has developed. Cash-

and-carry wholesaler A limited-

service wholesaler that does not offer

delivery or credit.

Cash-and-Carry Wholesalers:

Buyers who are not willing to pay

for and who do not need certain

wholesaler services, such as delivery

and credit, may choose to patronize

cash-and-carry wholesalers. Such

intermediaries eliminate the delivery

and credit functions associated with

a full-service wholesaler and permit

buyers to come to the warehouse or

other point of distribution to pick up

their merchandise and to pay cash.

The resulting savings are passed on

to buyer who are, after all,

performing several functions

normally associated with

wholesalers. Truck wholesaler A

limited-service wholesaler that sells a

limited line of items (often perishable

goods) from a truck, thus providing

immediate delivery; also called a

truck jobber.
Truck Wholesalers:

Truck wholesalers, also called truck

jobbers, typically sell a limited line of

items to comparatively small buyers.

Most of these merchant wholesalers

sell perishable items. Their mode of

operation, selling from a truck full

of merchandise, can be justified by

the increased freshness immediate

delivery offers. Some truck

wholesalers sell items that are not

particularly perishable but that face

keen competition. Although truck

jobbing is an expensive means of

distributing relatively small amounts

of merchandise, it is an aggressive
form of sales provides instant

delivery to buyers. Direct-marketing

wholesaler A limited- service

wholesaler that uses catalogs or the

Internet, mail or telephone ordering,

and parcel delivery.

Direct Marketing Wholesalers:

Direct-marketing wholesalers operate

in much the same way as mail-order

catalogue retailers and to the direct

marketers. Traditionally they used

catalogue and direct mail, took phone

and fax orders, and then forwarded

merchandise to buyers via mail or

a parcel delivery service. These

wholesalers have been most

important in reaching remote rural

locations where market potential is

low.
However, in recent years, many

types of wholesalers, such as office

supply wholesalers, have made

strategic decisions to focus on direct

marketing via the Internet. Drop

shipper A limited-service wholesaler

often dealing in bulky products, that

takes customer orders and arranges

for shipment of merchandise from the

producer directly to the customer;

also called a desk jobber.

Drop Shippers:

Drop shippers are merchant

wholesalers that take title to goods

but do not take possession of the

goods or handle them in any way.

Drop shippers accept a buyer's order

and pass it on to a producer or

supplier of the desired commodity,

which then ships the product directly

to the buyer. (See Figure 11.4). The

big advantage of this systemis that

the product need not be loaded and

unloaded several times. Also, it goes

directly to where it is needed, which

lowers transportation costs, These

advantage are especially important

when the product is bulky, unwieldy,

and comparatively inexpensive.

Thus, drop shipping is most

commonly used for products such as

coal, cement, building blocks, and

logs.

Because the drop shipper does not

physically handle any products, no

investment in warehousing facilities

or equipment is required. In fact, so

little equipment of any sort is

required that these wholesalers can

often get by with little more than

a small officer, a desk, and a

telephone. For this reason, they are

also called desk jobbers. Rack jobber

A limited-service wholesaler that

contracts with a retailer to place

display racks in a store and to stock

those racks with merchandise.

Rack Jobbers:

Rack jobbers are a type of merchant

wholesaler that came to prominence

in the 1930s when supermarket

operators began to practice

scrambled merchandising and started

selling cosmetics and other items

they had not previously carried. To

do this easily, they contracted with

wholesalers willing to come to the

store, set up a display rack, stock

and replenish it, and give the super

market operator a percentage of the

sales. Now rack jobbers sell many

different product lines, such work

gloves, paper back books,

magazines, toys, cosmetics, etc.

The attraction of this system for the

store operator is the chance to stock

and sell certain items at little risk.

The great attraction for the rack

jobber is the chance to place

merchandise in a high-traffic
supermarket location. Like most

relationships between members of a

channel of distribution, theirs is a

mutually beneficial one.

AGENTS

Agent:

A wholesaler that does not take title

to goods. Agents sometimes take

possession of goods but function

primarily to bring buyers and sellers

together or otherwise help

consummate a marketing

transaction. Agents the second

general category of wholesalers, may

take possession of goods they deal in

but do not take title to them. Agents,

as a rule, do not carry an inventory

or extend credit, but they may

provide physical facilities for

conducting business. They may help

to arrange for delivery or credit as

part of their services, which can be

generally described as bringing buyer

and seller together. Agents typically

receive commissions based on the

selling prices of the products and the

amount of products they help to sell.

The commission percentage varies

tremendously depending on the

industry. Agents are expected to be

familiar with their products and with

who wants to sell and who wants to

buy them. In short, they are

expected to have on expert

knowledge of the market in which

they operate. Broker An agent

intermediary whose major role is

placing buyers and sellers in touch

with one another and assisting in

contractual arrangements. Brokers

are agent intermediaries that receive

a commission for putting sellers in

touch with buyers and assisting with

contractual negotiations. Brokers

generally portray themselves as in

the selling process, working for both

buyers and sellers. Brokers are found

in many fields. Such commodities as

coffee, tea, crude petroleum, and

scrap metal are frequently brokered;

so are the financial instruments

handled by the familiar stock broker.

Effective brokers are experts in the

market for the products in which they

deaL In effect, they sell their

expertise. They have relatively low

expenses. Their commissions are also

likely to be small, generally 6 percent

or less of the selling price.

Use of brokers holds particular

appeal for sellers because brokers

work strictly on commission and do

not enter into long-term relationships

with the companies that use them. A

broker can be used only when needed

and does not tie sellers to continuous

expenses the way a full-time sales

force does. Because they are

commonly used sporadically, brokers

as a group do not constitute a major

selling force in the day-to- day

marketing activities of most

organizations. Anotable exception is

the food broker, which represents a

number of manufacturers of food

products on a continual basis and

actively attempts to sell their

products to wholesalers or

supermarkets. Such an operation

really violates the standard

description of a broker, because food

brokers may be seen as working

more for the seller than for the

buyer. In many ways, food brokers

better fit other categories of agents.

By tradition as much as anything

else, however, they continue to be

referred to as brokers.
Commission merchant An agent

intermediary similar to a broker but

having certain additional decision-

making powers, such as the power to

make price adjustments.

Commission Merchants

The commission merchant is an agent

intermediary similar to a broker.

Unlike brokers, however, commission

merchants are usually given certain

power by sellers. They might be

empowered, for example to attempt

to bid up the selling price or to accept

a selling price as long as it is above a

previously agreed-on floor.

Commission merchants thus perform

a pricing function and more clearly

work in league with the seller than

do most brokers. They are most

commonly found representing

producers of agricultural products.

Commission merchants, despite the

name, are like other types of agents

in that they do not take title to the

goods they sell. However, they often

take possession of those goods so

that potential buyers can inspect

them. Once a sales agreement has

been reached, the commission

merchant deducts a commission form

the selling price and returns the

balance to the producer. Auction

company An agent intermediary that

brings together buyers and sellers.

Auction companies often assemble

merchandise for sale in a central

location and sell it by means of

bidding process.

4.9. KEYTERMS
• Training Channel Members

Companies need to plan and

implement careful training

programs for their distributors

and dealers, because the

intermediaries will be viewed as

the company by end users.

Here are some examples of

reseller training programs :

Microsoft requires third-party

service engineers to complete a
set of courses and take

certification exams. Those who

pass are formally recognized as

Microsoft Certified Professions,

and they can use this designation

to promote business.

Ford Motor Company beams

training programs and technical

information via its satellite-

based Fordstar Network to more

than 6,000 dealer sites. Service

engineers at each dealership sit

around a conference table and

view a monitor on which an

instructor explains procedures

such as repairing on-board

electronics and asks and answers

questions.
• Motivating Channel

Members

A company needs to view its

intermediaries in the same way

that it views its end users. The

company needs to determine

intermediaries' needs and

construct a channel positioning

such that its channel offering is

tailored to provide superior value

to these intermediaries. The

company should provide training

programs, market research

programs, and other capability-

building programs to improve

intermediaries' performance. The

company must constantly

communicate its view that the

 intermediaries are partners in

the joint effort to satisfy end-

using consumers.

4.10. SUMMARY

Most producers do not sell their

goods directly to final users. Between

producers and final users stands one

or more marketing channels, a set of

marketing intermediaries performing

a variety of functions. Companies use

intermediaries when they lack the

financial resources to carry out direct

marketing, when direct marketing is

not feasible, and when they can earn

more by going through

intermediaries. The use of

intermediaries largely boils down to

their superior efficiency in making

goods widely available and accessible

to target markets. The most

important functions performed by

intermediaries are gathering

information, handling promotion,

handling negotiation, placing orders,

arranging financing, taking risks, and

facilitating physical possession,

payment, and title.

Manufacturers have many

alternatives for reaching a market.

They can sell direct through a zero-

level channel or use one-, two-, or

three-level channels. Deciding which

type(s) of channel to use calls for

analyzing customer needs,

establishing channel objectives, and

identifying and evaluating the major

alternatives. The company must also

determine whether to distribute its

product exclusively, selectively, or

intensively, and it must clearly spell

out the terms and responsibilities of

each channel member.

Effective channel management calls

for selecting intermediaries, then

training and motivating them. The

goal is to build a long-term

partnership that will be prof-itable

for all channel members. Individual

members must be evaluated

periodically against preestablished

standards, and overall channel

arrangements may need to be

modified over time. Three of the

most important trends in channel

dynamics are the growth of vertical

marketing systems, horizontal

marketing systems, and multichannel

marketing systems.

Answers To Check Your Progress

Fill up the blanks

1. A stable price policy can win

the confidence of the

consumers it will also add to

the of— the firm.

2. Price-setting logic must be

modified when the product is

part of a

3. Automakers and many other

firms offer —products,

features, and services along

with their main product.

4.11. ANSWERS TO CHECK
YOURS PROGRESS

1. Intermediaries

2. Wholesalers and retailers

3. Working partners

4.12. QUESTIONS /
EXERCISES

1. What are the functions of

distribution of channels?

2. Explain the various types of

channels.

3. Explain the channel management

decisions.

4. Explain the intermediaries.

5. Explain the Nature of the

distribution an promotional

decisions
6. Define retailers. Explain he types

of retailers.

7. Explain the wholesaling.

4.13. FURTHER READING

1. Ramaswamy VS and Namakumari

S-Marketing Management,

Macmillon India, New Delhi

 UNIT–5

PROMOTION MIX: DIRECT

SELLING, ADVERTISING,
SALES PROMOTION AND
PUBLIC RELATIONS

Unit Structure

5.0 Introduction

5.1 Objective

5.2 Definition

5.3 Advertising

5.4. Sales promotion

5.5. Personal selling

5.6. Public relations

5.7. Keywords

5.8. Summary
 5.9. Answer to check Your

Progress

5.10. Questions/Exercise

5.11. Further readings

5.0 Introduction

Broadly speaking, promotion means

to push forward or to advance an idea

to gain its acceptance and approval.

Promotion is any communicative

activity whose main object is to move

forward a product, service or idea

in a chain of distribution. It is an

effort by a marketer to inform and

persuade buyers to accept, use,

recommend, and repurchase the

idea, good or service which is being

promoted. Thus, promotion is a form

of communication with an additional

element of persuasion. The

promotional activities always attempt

to affect knowledge, attitudes,

preferences, and behavior of

recipients i.e. buyers. In any

exchange activity, communication is

absolutely necessary. The company

may have the best product, package

etc. but still people may not buy the

product if they haven’t heard of it.

The marketer must communicate to

his prospective buyers and provide

them with adequate information in

a persuasive language. People must

know that the right product is

available at the right place and at

the right price. This is the job of

promotion in marketing. Thus

promotion is the process of

marketing communication involving

information,

1. It communicates marketing
information to consumers, users,

and prospects.

2. Besides just communication,

promotion persuades and

convinces the buyers.

3. Promotional efforts act as

powerful tools of communication.

Providing the cutting edge to its

entire marketing programmed.

Thus promotion is a form of

nonprice competition.
4. Promotion is thus responsible for

awakening and stimulating

demand,

5. Capture demand from rivals and

maintaining demand for products

even against keen competition.

6. Every company can choose from

the following tools of promotion,

popularly known as the

promotion-mix variables:

1. Advertising

2. Sales Promotion,

3. Personal Selling,

4. Public Relations
 5.1. OBJECTIVE
The objective of this lesson is to

make the students aware about the

• To know the importance of

promotion, its meaning,

objective and types

• To know the persuasion and

influence. Promotion has three

specific purposes.

• To know the public relations

5.2. DEFINITION
Promotion Mix:

In the words of Philip Kotler,

“Promotion compasses all the tools in

the marketing mix whose major role

is persuasive communications.”
Advertisement:

“Any paid form of non-personal

communication of ideas goods or

services by business communication

firms identified in the advertising

message intended to lead to a sale

immediately or eventually.”

According to William J. Stanton,

“Sales promotion is an exercise in

information, presentation and

influence.”

Personal Selling:

Personal selling has been defined by

the American Marketing Association

as” Oral presentation in conversation

with one or more prospective for the

purpose of making sales.”

 5.3. ADVERTISING
Advertising is perhaps the most

important tool of promotion that

companies use to direct persuasive

communications to target buyers and

publics. Advertising is defined by the

American Management Association as

“any paid form of non-personal

presentation and promotion of ideas

goods or services by an identified

sponsor”. Advertising through

various media like magazines,

newspapers, radio, television,

outdoor displays etc., has many

purposes: “long-term build-up the

organization's corporate image

(institutional advertising), or long-

erm build-up of a particular brand

(brand advertising), information

dissemination about a sale, service

or event (classified advertising),

announcement of a special sale (sale

or promotional advertising) and

advocacy of a particular cause

(advocacy advertising”.

Organizations obtain their

advertising in different ways. In

small companies, advertising is

handled by someone in the sales or

marketing department who works

with an advertising agency. Large

companies on the other hand, set up

their own advertising departments,

whose job is to develop the total

budget, approve advertising agency

ads and campaigns, dealer displays

etc. In developing an advertising

programmed, marketing managers

must always start with the

identification of the target market

and buyer motives then proceed to

make the five major decisions in

developing advertising programmed,

known as the five Ms:

1. What are the advertising

objectives (Mission)

2. How much can be spent (Money)

3. What message should be sent

(Message)

4. What media should be used

(Media)

5. How should the results be

evaluated (Measurement)
 5.3.1. Setting the
advertising objectives

The first step in developing an

advertising programme is to set the

advertising objectives. These

objectives must flow from prior

decisions on the target market,

market positioning and marketing

mix. The objectives can be classified

on the basis of the aim which can be

either to (a) inform the target about

the product features, performance,

service available, a price change or

new uses etc. (called informative

advertising) or (b) to persuade the

prospect to may be remain brand

loyal, or switch brands, or to

purchase now etc. (called persuasive

advertising) or (c) to remind the

buyer or the prospect about the

product or its features, price where

to buy it from etc. (called reminder

advertising). The choice of the

advertising objectives should be

based on a thorough analysis of the

current marketing situation, e.g. if

the product has reached its maturity

stage in its product-life cycle, and

the company is the market leader,

and if the brand usage is low, the

proper objective should be to

stimulate more brand usage (as in

the case of Colgate toothpaste or

surf). On the other hand, if the

product is new and at the

introduction stage of the PLC and the

company is not a market leader, but

its brand is superior to the leader,(as

in the case of captain cook salt) then

the proper objective may be to

convince the prospects about the

brands superiority.

5.3.2. Deciding on the

advertising budget

After determining the objectives, the

company can proceed to establish its

advertising budget for each product.

Every company would like to spend

the amount required to achieve the

sales goal. But how should it decide

how much to spend on advertising.

There are several methods from

which a company can choose from

while deciding on how much to

spend:
a. What-all-you-can-afFord

method: Many companies set the

promotion budget at what they

think the company can afford.

However, this method completely

ignores the role of promotion as

an investment and the

immediate impact of promotion

on sales volume. It leads to an

uncertain annual promotion

budget.
b. Percentage of sales method:

Many companies set their

promotion expenditure at a

specified percentage of sales

(either current or anticipated). A

number of advantages are

claimed for the percentage of

sales method. First, it means

that promotion expenditures

would vary with what the

company can “afford”. Second, it

encourages management to think

in terms of the relationship

between promotion cost, selling

price and profit per unit. Third, it

encourages competitive stability

 to the extent that competing

firms spend approximately the

same percentage of their sales

on promotion.

c. Competitive parity method:

Some companies set their

promotion budget to achieve

parity with their competitors.

Two arguments have been

advanced for this method. One

is that the competitors'

expenditures represents the

collective wisdom of the industry

and second is that maintaining a

competitive parity helps prevent

promotion wars.

d. Objective-task method: This

method calls upon marketers to

develop their promotion budgets

by defining their specific

communication objectives,

determining the tasks that must

be performed to achieve these

objectives, and estimating the

costs of performing these tasks.

The sum of these costs is the

proposed promotion budget. This

method has the advantage of

requiring management to spell

out its assumptions about the

relationship between the amount

spent, exposure levels, trial

rates and regular usage.

 5.3.3. Deciding on the
massage

Many studies on ‘sales effect of

advertising expenditures’ neglects

the message creativity. One study

found that the effect of the creativity

factor in a campaign is more

important than the amount of money

spent. Only after gaining attention

can a commercial help to increase the

brand's sales.

Advertisers go through the following

steps to develop a creative strategy-

message generation, message

evaluation and selection and

message execution.
Message Generation:
In principle, the product's message

(theme, appeal) should be decided

as part of developing the product

concept; it expresses the major

benefit that the brand offers.

Creative people use several methods

to generate possible advertising

appeals. Many creative people

proceed inductively by talking to

consumers, dealers, experts and

competitors. Consumers are the

major source of good ideas. Their

feelings about the strength and

shortcomings of existing brands

provide important clues to creative

strategy. How many alternative ad

themes should the advertiser create

before making a choice? The more

the advertisements created, the

higher the probability that the

agency will develop a first-rate

appeal Yet, the more time it spends

on creating ads, the higher the costs.

Thus, there must be some optimal

number of alternative ads that an

agency should create and test for the

client.

The advertiser needs to evaluate the

alternative messages. A good ad

normally focuses on one central

selling proposition without trying to

give too much product information,

which dilutes the ad's impact.

Messages should be rated on

desirability, exclusiveness and

believability. The message must first

say something desirable or

interesting about the product. The

message must also say something

exclusive or distinctive that does not

apply to every brand in the product

category. Finally, the message must

be believable.

Message Execution:

The impact of the message' depends

not only upon ‘what is said’ but also

on ‘how it is said’. Some ads aim

for rational positioning (designed to

appeal to the rational mind) e.g.

Surf-washes clothes whitest, whereas

other advertisements aim for

emotional positioning, which appeal

to the emotions of love, tenderness,

care etc. The choice of headlines,

copy and so on, can make a

difference to the ad's impact. The

advertiser usually prepares a copy

strategy statement describing the

objective, content, support and tone

of the desired ad. Creative people

must find a style, tone, words, and

format for executing the message.

All of these elements must deliver a

cohesive image and message. Since

few people read the body copy, the

picture and headline must summarize

the selling proposition.

A number of researchers o f print

advertisements report that the

picture, headline, and copy are

important in this order. The reader

first notices the picture and hence

it must be strong enough to draw

attention. Then the headline must be

effective in propelling the person to

read the copy which itself must be

well composed. Even then, a realty

outstanding ad will be noted by less

than 50% of the exposed audience,

about 30% of the exposed audience

might recall the headline's main

point, about 25% might remember

the advertiser's name and less than

10% will have read most of the body

copy.

5.3.4. Deciding on the media

The advertiser's next task is to

choose advertising media to carry the

advertising message. The steps are

deciding on desired reach, frequency

and impact, choosing among major

media types, selecting specific media

vehicles, and deciding on media

timing.

a. Deciding on reach frequency and

impact: Media selection is the

problem of finding the most cost-

effective media to deliver the

desired number of exposures to

the target audience.

But what do we mean by the

desired number of exposures?

Presumably, the advertiser is

seeking a certain response from

the target audience- e.g. a

certain level of product trial. The

impact of exposures on audience

awareness depends on the

exposure's reach, frequency and

impact.

Reach (R): The number of

different person or households

exposed to a particular media

schedule at least once during a

specified time period.

Frequency (F): The number of

times within the specific time

period that an average person

or household is exposed to the

message.

Impact (I): The qualitative

value of an exposure through a

given medium e.g. a woman's

product in Femina would have a

 higher inpact than in the Dalai

Street).

b. Choosing among Major Media

Types: The media planner has to

know the capacity of the major

media types to deliver, reach,

frequency and impact. The major

media types are newspapers,

television, direct mail radio,

magazines, and outdoor. Media

planners make their choice

among these media categories

by considering several variables,

the most important ones being

the following:

Target-Audience Media

Habits: e.g. television and radio

 are the most effective media for

reaching teenagers.

Product: Women's dressers are

best shown in colored

magazines. Massage: Amessage

announcing a major sale

tomorrow will require radio or

newspapers.

Cost: Television is very

expensive, whereas newspaper

advertising is comparatively

much cheaper. What counts are

the cost per thousand exposures

and not the total cost?

c. Selecting specific media

vehicles: Now the media planner

searches for the most cost-

effective media vehicle. There

are hundreds of magazines and

newspapers specially targeted at

special audience which a planner

chooses from. Similarly on the

television media, there are

several channels and

programmes from whichachoice

can be made. However, every

media vehicle entails a certain

cost and has certain customer

coverage. How to select the most

cost-effective media is done

using the “Cost-Per-Thousand

Criterion” e.g. if a full page, four

color advertisement in India

Today costs Rs. 80,000/- and has

a readership of 20 lack people,

the cost of reaching each one

thousand persons is

approximately Rs. 40/ - The

same advertisement in Business

Today may cost Rs. 25,000 but

reach only 50,000 people, the

cost per thousand people would

be approximately Rs. 500/.

Similarly, the media planner

would rank reach magazine by

cost per thousand and favour

those magazines with the lowest

cost per thou sand for reaching

the target consumers. Media

planners are increasingly using

more sophisticated measures of

media effectiveness and

employing them in mathematical

models for arriving at the best

 media-mix. Many advertising

agencies use computer

programmes to select the initial

media and then make further

improvements based on

subjective factors cited in the

model.

d. Deciding on media timing: The

advertiser faces a macro

scheduling problem and a micro

scheduling problem

Macro-scheduling Problem:

The advertiser has to decide how

to schedule the advertising in

relation to seasonal & business

cyclic trends. Suppose 70% of

a product's sales occur between

June & September, the firm has

 three options-either it could

follow the seasonal pattern, to

oppose the seasonal pattern or

to be constant throughout the

year.

Micro-scheduling Problem:
The micro scheduling problem

calls for allocating advertising

expenditures within a short

period to obtain the maximum

inpact

5.3.5. Evaluating advertising

effectiveness

Good planning and control of

advertising depends critically on

measures of advertising
effectiveness. Most advertisers try to
measure the communication effect of

an ad that is its potential effect on

awareness, knowledge or preference.

They would like to measure the sales-

effect but often find it is too difficult

to measure. Yet both can be

researched.

Communication-Effect Research:

Communication-effect research seeks

to determine whether an ad has been

able to communicate effectively i.e.

copy testing. It can be done before

an ad is put into media and after

it is printed or broadcast. There are

three major methods of advertising

pre-testing:
 a. Direct-rating method: Which

asks consumers to rate

alternative ads?

b. Portfolio tests: entail a group of

consumes to view and/or listen

to a portfolio of advertisements
and then they are asked to recall

all the ads and their content,

aided/unaided by the interviews.

c. Laboratory tests: use equipment

to measure consumer's

physiological reactions-

heartbeat, blood pressure, pupil

dilation etc. which measures the

ad's attention- getting power.

Sales Effect Research:

Communication-effect advertising
research helps advertisers assess

advertising's communication effects

but reveals little about its sales

impact. Advertising's sales effect is

generally harder to measure than

communication effect. Sales are

influenced by many factors besides

advertising, such as the product's

features, price, availability &

competitors' actions. Researchers try

to measure sales impact through

analyzing either historical or

experimental data. The historical

approach involves correlating past

sales to past advertising

expenditures on a current basis using

advanced statistical techniques.

Other researchers use experimental

design to measure the sales impact

of advertising. Instead of spending

the normal percentage of advertising

to sales in all territories, the

company spends more in some

territories and less in others. These

are called high-spending and low-

spending tests. If the high- spending

tests produce substantial sales

increases, it appears that the

company has been under spending. If

they fail to produce more sales and

if low-spending tests do not lead to

sales decreases, then the company

has been overspending. These tests,

of course, must be accompanied by

good experimental controls.

 5.3.6. Advertising agencies
and profile of advertising in
India

Today, the advertising job has

become so complex and large, that

normally no business firm chooses to

handle the function directly. They

employ the services of advertising

agencies. These agencies carry

forward the task of planning,

execution and evaluation of the

promotional campaigns of

companies. Stanton has defined an

advertising agency as “an

independent company rendering

specialized services in advertising in

particular and marketing in general.”

They are independent concerns

working as a specialist, an agent or

consultant of the advertiser. They

perform all activities right from

preparation and development of

advertising copy to the evaluation of

the effectiveness of the advertising

programme.

Advertising agencies render a lot of

services to advertisers like

1. Copywriting,

2. Photographing,

3. Media planning,

4. Buying of space,

5. Marketing research,

6. Public relations,

7. Merchandising,
 8. Sales promotion,

9. Forwarding the advertising

material etc.

All these specialized services help the

advertisers in raising th effectiveness

of advertising.

Advertising in the Indian

perspective

In a country like India, where we

find diverse languages, low-income

levels, large- scale illiteracy, the

growth in advertising has also been

slow as a natural consequence. An

experienced marketing man in India

feels that the greatest difficulty in

India is to find a common link of

communication for the entire

country. The advertising campaigns

are usually not conceived in Indian

languages and are often translations

of the original advertisement in

English. The advertising themes lack

Indian images, associations and

expressions. India being a country

of villages, the ultimate task before

the advertising men is to make the

advertising appeal simple. No doubt

to reach and influence the rural

market is a challenge. However, in

the yester decades, we find

multifaceted changes in our socio-

economic setup, an increase in the

pace of industrialization & an

increase in the level of income of

the general masses. We also find

satisfactory developments in the field

of education and all these

developments have paved wider

avenues for advertisements. The

technological sophistication in the

field of mass communication has also

been instrumental in making the

advertising come of age. Indian

advertising practices are under-going

a see-saw change and the credibility

would probably be to the rising

tempo of industrialization in all the

sectors of the Indian economy. Of

late, the Indian businessmen have

learnt to appreciate and visualize the

social responsibility of business.

Hence, it is pertinent that advertising

is given new orientation. With these

developments, advertising has

become a communication device as

well as an indispensable weapon in

the armory of today's business. Even

the area of advertising research

needs special attention. Advertising

thus is a sensitive tool of promotion-

mix with a very wide coverage and

now that the level of consumerism

and competition is reaching its peak

in India too, business houses have

understood that they need the

effective tool of advertising to

promote the special selling

proposition of product to their

prospects.
 5.4. SALES PROMOTION

“Sales Promotion is a direct and

immediate inducement that adds an

extra value to the product so that it

prompts the dealers, distributors or

the u ltimate consumers to buy the

product.” According to the American

Marketing Association, “Sales

promotion means to give short term

incentives to encourage purchase or

sale of a product or service. Sales

promotion includes those activities

that supplement both personal selling

and advertising, and co-ordinate

them and help to make them

effective, such as display, shows and

expositions, demonstrations and

other non-recurrent selling efforts

not in the ordinary routine”.

Sales promotion helps in solving the

short-term problems of the

marketing manager, the impact of

these methods is not very lasting or

durable and the results of these

efforts are not as lasting as those

of advertising and personal selling.

Sales promotion is more of a catalyst

and a supporting communication

effort to advertising and personal

selling.
 5.4.1. Objectives of sales
promotion

Sales promotions, as a tool of

communication and promotion, fulfils

the following objectives:

a. Sales promotion helps in

introducing new products.

b. It also helps in overcoming any

unique competitive situation.

c. It is useful for unloading the

accumulated inventory or stock

of the goods in the market.

d. It can be used for overcoming

the seasonal slumps in sales.

e. Sales promotion helps in getting

new accounts i.e. clients or

customers.
f. It helps in retrieving the lost

accounts.

g. It acts as a support and

supplement to the advertising

effort.

h. It also acts as a support and

supplement to the salesmen's

efforts.

i. It aims at persuading salesmen

to sell the full line of the

products and not just

concentrate on a few products.

j. It helps in persuading the dealer

to buy more stock from the

company i.e. to increase the size

of the order.
 k. Its objective is to create a

stronger and quicker response

from the consumers.

l. It also helps to boost dropping

sales of any product of the

company.

5.4.2. Sales promotion

techniques

The sales promotion techniques or

tools have three distinctive features:

a. Communication- Sales promotion

attracts the attention of the

consumer and gives him such

information that he is led to the

product or service.

b. Incentive: they give some

incentive, concession,
 inducement or contribution that

gives added value to the

consumer.

c. Invitation: They give a distinct

invitation to the consumer to

enter into a transaction with the

dealer or the company. The

various tools or techniques of

sales promotion can be described

below:

1. Sales promotional letters:

Several companies utilize the

medium of letters for sales

promotion. These letters serve

different purposes. Some times

they are used to give information

about the company's products, at

other times; they are used as

 reminders for the customers to

continue to buy a particular

brand. Some letters seek

information from the customers

regarding various aspects of

their purchases.

2. Point of purchase (POP) displays:

This is the most widely used

sales promotional tool. Various

kinds of display materials like

posters, danglers, stickers,

mobile wobblers and streamers

are used at the retailer's outlet

to induce customers to

purchases. POP displays are

generally useful in the case of

products like liquors for which

advertising is prohibited. At
 times, to enhance the display

effect, manufacturers use

different approaches such as

illuminated designs and motion

displays etc. companies use the

technique of mass display within

the limited space available in the

retail store. The stocks are

artistically arranged to gain

maximum attention. Displays of

various types such as window

displays, wall display, counter

displays or floor displays are also

used. The retailer's role is very

important from the point of view

of displays.

3. Customer service programmes:

At times, the company organizes

 and conducts customer service

programmes or camps with the

aim of providing service to the

customers at different points of

purchase.

4. Demonstrations: Companies do
product demonstrations for sales

promotion, especially when they

are introducing a new product in

the market. Demonstrations are

usually used for low unit price

products like washing powder or

high unit price products like

washing machines and vacuum

cleaners. Demonstrations maybe

organized at the retail stores by

the company salesmen for the

benefit of retailers as well as

 consumers. Door to door

demonstrations and institutional

demonstrations are also

considered to be highly

specialized form of sales

promotion. Sometimes
demonstrations are organized for

influential people such as

journalists, mediamen, opinion

leaders, etc, who are invited to

see the demonstration of the

product. Demonstration is a good

sales promotion technique which

involves the cooperation of the

sales representatives and the

prospective customers.

5. Free samples: Free samples of

the product are offered to

 persuade the consumers to try

them out. By offering free

samples to a large section of the

new market, a company seeks to

gain an entry into that market.

For using this tool, the product

should be of low cost and subject

to frequent purchases, e.g.,

soaps, detergents, toothpastes,

tea, etc.

6. Contests: Contests of various

kinds are also commonly used as

sales promotion tool. There are

dealer contests which are

exclusively for the dealers of the

company and consumer contests

for the general public.

Companies spend a large amount

 of money on these contests

because they have to be

publicized widely and the

expenditure on the attractive

prizes is also to be covered.

Consumer contests may be in the

form of quiz contests, beauty

contests, scooter and car rallies,

lucky draws, suggesting a brand

name, writing a slogan,

suggesting a logo, etc. The

consumer has to be induced to

get interested in the contest and

purchase the product associated

with it.

7. Premiums and free offers, price-

off schemes and installment

offers: In the Indian markets

today, these tools are being used

extensively by different

companies. A premium offer is

given for a particular product and

alongwith it is a free offer of

another product to be given free

to anybody buying the product,

for e.g., an Arial bar free with

a pack of Arial washing powder.

Price-off schemes are also

introduced by different

companies from time to time.

e.g. Kelvinator and Allwyn

refrigerators, Hawkins pressure

cooker, etc. Other companies

give the installment offer to the

consumer for buying their

product which is usually high

 priced and give the consumers

the facility of paying a certain

amount of money as down

payment and pay the balance

amount in a specified number of

equal installments. This sales

promotion measure has been

found to be very effective.

8. Coupons: These are certificates

which promise price reduction to

consumer on specified items.

Coupons generally perform

specific functions for the

company. Firstly, they encourage

the consumers to make use of

the bargain offered and secondly

they also serve as an inducement

to the channel members for

 stocking the items of that

company. Coupons may be

distributed through newspaper

and magazine advertisements or

by direct mail or along with the

package consisting the product.

Coupons are generally used while

introducing a new product or for

strengthening the image of the

product.

9. Catalogues: Catalogues carry

essential information on the

products offered by the

company. A well-designed

catalogue carries complete

information relating to the

products, their pictures, size

specifications, colours, packing,

 uses and prices. The products

are listed and indexed properly in

order to facilitate order booking

and processing.

10. Trade fairs and exhibitions:

These tools are based on the

premise that ‘seeing is believing’

and are extensively used. These

fairs and exhibitions provide the

companies with the opportunity

of introducing and displaying

their products. This brings the

company's products and

consumers in direct contact with

each other. Trade fairs and

exhibitions are very effective in

international marketing and a lot

of trade orders and enquiries are

 generated at the international

level also.

11. Gifts: Companies also distribute

gifts to people like customers,

dealers and other influential

people. These gifts may include

pens, pencils, calendars, diaries,

decoration pieces, etc. The gifts

generally carry the company's

name and logo. These gifts are

intended to create goodwill

amongst the various people

towards the company and

indirectly help in furthering the

sales of the company.

12. Sponsoring major national and

international events:
Companies associate themselves

with the major national and

international events such as

sports like cricket, hockey,

tennis, golf, etc. The business

houses generally sponsor the

event as a whole or may

associate themselves with

specific aspects of the events,

e.g., companies of soft drinks,

cigarette manufacturers, etc.

The purpose behind sponsoring is

to remain a part of the news and

got the best of sales promotional

efforts in the form of benefits.

 5.5. PERSONAL SELLING

It is essential to communicate,

persuade and motivate the target

customers in order to make the

product and price known and

acceptable to the target consumers.

For this, personal selling is adopted

as an effective tool. The company's

sales persons who may be referred

to as the salesmen or sales

representatives or sales executives,

who are on its payroll, communicate

with the target consumers, so as to

make an order of sale and motivate

them to positively respond to it and

finally to clinch the deal According to

the American Marketing Association,

“Personal selling can be defined as

an oral presentation, in conversation

with or more prospective purchasers,

for the purpose of making sales”.

According to F.E. Webster, Jr.

“Personal selling is a higjily

distinctive form of promotion. Like

other forms of promotion, personal

selling is basically a method of

communication, but unlike others it is

a two-way, rather than unidirectional

communication. It involves not only

the individual but social behaviour.

Each of the persons in face-to-face

contact, salesman and prospect

influences the other. The outcome of

each sales situation depends heavily

upon the success that both the

parties experience in communicating

with each other and reaching a

common understanding of needs and

goals. The main task involved in

personal selling is to match specific

products with specific consumers so

as to secure transfer of ownership”.

According to K.B. Hass- “Personal

selling basically consists of the

interpretation of product and service

features in terms of benefits and

advantages to the buyer and of

persuading the buyers to buy the

right kind and quantity of the

product.”
Objectives of personal selling

Personal selling helps in the following

major areas:

1. To improve the sales volume of

the company's different

products.

2. To ensure the proper mix of

products in the total sales

volume.

3. To increase the market share of

the company, one

4. To increase the profits of the

company.

5. To reduce the overall selling

expenses.

6. To gain new accounts and

improve business growth.

 7. It helps in the appointment of

dealers and expansion of the

distribution channel

8. To secure channel members co-

operation in stocking as well as

selling the products of the

company.

9. To achieve the desired

proportion of cash and credit

sales.

10. To provide pre-sale and after-

sale services.

11. To train the dealers and

customers.

12. To assist and support other

promotional measures.
13. To help in collecting the amounts

due from the market.

14. To help in gathering and

reporting marketing intelligence.

5.6. PUBLIC RELATIONS

Public relations is a very important

and resourceful tool of the promotion

mix. According to Kotler, “Public

relations induces a variety of

programmes designed to improve,

maintain or protect a company of

product image, e.g., through press

conferences, seminars, speeches,

annual reports, charitable donations,

etc.”
The major tools in public relations

are (i) publications: annual reports,

brochures, articles, company

magazines and newsletters, (ii)

Events: special events like news

conference, anniversary celebration

of the company, sponsoring sports

and cultural events, (iii) News: the

companies find and create favorable

news (iv) speeches: by company

executives at trade associations,

sales meetings, etc. (v) identity

media: companies also use such

devices as company logos,

stationery, business cards, uniforms,

etc., which help in identifying the

company. Public relations (PR) are

another important marketing tool,

which until recently, was treated as

a marketing step-child. The PR

department is typically located at

corporate headquarters; and its staff

is so busy dealing with various

publics- stockholders, employees,

legislators, community leaders- that

PR support for product marketing

objective tends to be neglected.

Objectives of public relations

1. Social awareness can be created

through the PR promotion plan,

regarding a product, service,

person, organizer, etc.

2. It helps to build credibility by

communicating the message for

example, in editorials of

newspapers, etc.
3. It assists in the launch of new

products.

4. It assists in repositioning of a

product.

5. It helps in building up consumer

interest in a particular product

category.

6. It also helps in influencing the

specific target groups.

7. Public relations help to define

products that have faced

problems or complaints from the

public.

8. It helps to build the corporate

image in such a way that it

projects favorably on its

products.
PR department perform

following activities

Press relations- The aim of press

relations is to place newsworthy

information into the news media to

attract attention to a person, product

or service.

Corporate communication- This

activity covers internal and external

communications and promotes

understanding of the organization.

Lobbying- It involves dealing with

legislators and government officials

to promote or defeat legislation and

regulation.
Counseling- Counseling involves

advising management about public

issues and company position and

image

5.7. KEYWORDS

Personal confrontation:

Two or more persons come into

active relation and each party is able

to observe at close quarters the

characteristics and needs of the other

and make immediate adjustments

and thereby make the encounter

successful.
Screen Slides:

Slides covering advertisements are

usual today. They are shown in

almost all the picture houses during

the show. Radio advertising,

television, exhibitions also offer good

media of advertising.

5.8. SUMMARY

Promotion is one of the most

important components of company's

overall marketing mix. The methods

of promotion are— advertising, sales

promotion, personal selling and

public relations. The purpose of

promotion is to inform, persuade,

and remind customers. It must be

integrated into firm's strategic

planning because effective execution

requires that all elements of

marketing mix-product, price, place

and promotion- be coordinated.

While deciding on the promotional

mix (combination of advertising,

sales promotion, personal selling and

public relations), management

should consider—the nature of the

market and product, the stage of the

product's life cycle and funds

available for promotion. The key to

a successful promotional campaign is

to carefully plan and coordinate all

the components of promotion.

 Answers to Check Your Progress

Fill up the Blanks

1. A company needs to view its in

the same way that it views its

end users.

2. such machines usually offer

repair services on either a

contract or an emergency

basis.

3. Too many manufacturers think

of their distributors and

dealers as customers rather

than as . 1. Ramaswamy VS

and Namakumari S-Marketing

Management, Macmillon India,

New Delhi
5.9. ANSWER TO CHECK
YOUR PROGRESS

1. Advertising

2. Marketing strategy

3. Customers

5.10 QUESTIONS /
EXERCISE

1. Discuss in brief the role of

promotion in marketing effort of

a company. Also write a short

note on public relations.

2. What is advertising? How

advertising budget is decided?

What are different advertising

media?

3. Define personal selling and

discuss its objectives.

4. What is sales promotion? Discuss

in brief some important tools of

sales promotion.

5.11. FURTHER READINGS

1. Stanton, Etzel and Walker-

Fundamentals of marketing

(TMH)

2. Philip Kotler- Marketing

Management (PHI

3. Philip Kotler and Armstrong-

Principles of marketing (PHI)

4. Ramaswamy and Namakumari-

Marketing management

(Macmillan)
 UNIT–6

RECENT DEVELOPMENTS IN
MARKETING

Unit Structure:

6.0 Introduction

6.1. Unit Objectives

6.2. Definitions

6.3. Retailing Marketing

6.4. Online Marketing

6.5. MLM

6.6. Relationship Marketing

6. 7. Key terms

6. 8. Summary

6.9. Answers to Check Your

Progress

6.10. Questions/Exercise

6.11. Further Reading

 6.0. INTRODUCTION

Marketing is the most exciting and

dynamic tool of today's businesses.

It somehow relates to each individual

affectively, either in buying the

product or selling the product.

Marketing Management is taken care

of like a backbone, sensitive but

vital. Without successful marketing

management no business can survive

the high level of competition which

the business environment today

offers us. With growing globalization,

technological advancements and

changing management trends,

continuous developments have been

done in all almost every field which

is still going on. Likewise marketing

strategies and management is also

customized to cater business with

profit and public with quality

services. Marketing Management

helps a firm in producing a product

which is truly desirable for public as

marketing team is the first one to

interact with people after launching

a product. Management of marketing

acts like the back bone of decisions

which can make and break the brand

equity and reputation of a product

or a business in market. Marketing

management is thus given a lot of

importance by all businesses big or

small. Every business has to meet

the expectations of their customers

to remain successful.

To achieve this goal, every business

needs successful and proper

marketing management. They get

honest and straight views about their

product which are later shared with

different channels, especially firm's

branding strategy to deliver the best

of the product to public. Effective

Marketing Management can help

build a customer centric firm to

capture market by attracting

customers. Thesis Statement:

Business studies and marketing

management are continually evolving

fields. To meet the modem business

environment requirements, every

firm needs to understand the modem

trends in marketing management.

6.1. UNIT OBJECTIVES

• To know the recent development

of marketing in India

• To Know the retailing marketing

• To know the online marketing

and MLM

• To know the relationship

marketing

6.2. DEFINITIONS

Marketing on the web is a part of

electronic commerce, or e-

commerce, or e- business .E-

commerce has already revealed its

potential across the world. In fact,

it has come to be described as the

biggest development in commerce

since the invention of money.

Powered by the breakthroughs in

information technology and telecom,

and the rapid growth of the Internet,

e-commerce is already changing the

way people work, buy and live.

According to Fortune magazine: It is

the foundation of a new industrial

order. It will change the relationship

between consumers and producers in

ways more profound than one can yet

imagine.
 6.3. RETAILING MARKETING

According to the report of the

definition of committee, America,

“Retailing includes all activities

incidental to selling to the ultimate

consumer.”

6.4. ONLINE MARKETING

Technology is expanding direct

marketing into new electronic arenas.

Electronic commerce (e-commerce)

describes a wide variety of electronic

platforms, such as the sending of

purchase orders to suppliers via

electronic data interchange (EDI);

the use of fax and e-mail to conduct

transactions; the use ofATMs,

electronic point-of-sale terminals,

and smart cards to facilitate payment

and obtain digital cash; and the use

of the Internet and on-line services.

All of these involve doing business

in a “market space” as compared to

a physical “marketplace.”14 Although

consumer buying over the Internet is

growing rapidly—driven by purchases

of computers and related products,

books, CDs, toys, and videos—the

volume of business Internet

transactions is growing even faster:

By 2003, U.S. business-to-business

e-commerce is projected to reach

$2.8 trillion.

Commercial on-line services offer on-

line information and marketing

services to paid subscribers. The

largest and best-known is America

Online (AOL), which has 19 million

subscribers and holds 50 percent of

the market. 16 AOL and other on-line

services offer proprietary channels

featuring information (news,

libraries, education, travel, sports,

reference), entertainment (fun and

games), shopping services, dialogue

opportunities (bulletin boards,

forums, chat rooms), and e-mail

capabilities.

The Internet is an international web

of computer networks that has made

instantaneous and decentralized

global communication possible.

Internet usage has surged with the

development of the user-friendly

World Wide Web and browser

programs such as Netscape Navigator

and Microsoft Internet Explorer.

Internet users can now experience

fully integrated text, graphics,

images, and sound; send e-mail and

visit chat rooms to exchange views;

shop for products; and find

information of all kinds.

To target and reach these Internet

users, marketers need to understand

the characteristics and behavior of

the on-line consumer.

The On-Line Consumer
As a whole, the Internet population

is younger, more affluent, and better

educated than the general

population, with an almost equal

number of men and women. 17 But

as more people find their way onto

the Internet, the cyberspace

population is becoming more

mainstream and diverse. Internet

users in general place greater value

on information and tend to respond

negatively to messages aimed only

at selling. They want to decide what

marketing information they will

receive about which pro ducts and

services and under what conditions.

In on-line marketing, it is the

consumer, not the marketer, who

gives permission and controls the

interaction. Internet consumers have

around-the-clock access to varied

information sources, making them

better informed and more discerning

shoppers. They can

1. get objective information about

multiple brands, including costs,

prices, features, and quality,

without relying on manufacturers

or retailers;

2. initiate requests for advertising

and information from

manufacturers and retailers;

3. design the offerings they want;

and

4. use shopping agents to search

for and invite offers from

multiple sellers.
These new on-line buyer capabilities

mean that the exchange process has

become largely customer initiated

and controlled; marketers must be

invited to participate in the

exchange. Even after marketers

enter the exchange process,

customers define the rules of

engagement, and insulate

themselves with the help of agents

and intermediaries. Customers define

what information they need, what

offerings they want, and what prices

they will pay—reversing, in many

ways, time honoured marketing

practices.
On-Line Marketing:

Advantages and

Disadvantages

On-line marketing is popular because

it provides three major benefits to

potential buyers:

Convenience: Customers can order

24 hours a day with a few keystrokes.

At the Lands’ End site

(www.landsend.com), for example,

buyers register their billing and

shipping information only once; after

that, whenever they make a

purchase, their data will appear on

the order form automatically.

Information: Customers can quickly

and easily find comparative

information about companies,

products, competitors, and prices.

Consumer World

(www.consumerworld.org), for

example, offers access to dozens of

comparison- shopping sites,

consumer protection sites, and many

other Internet resources to help

shoppers make more informed buying

choices.

Fewer hassles: Customers don’t

have to deal with salespeople or wait

in line. This is the special appeal of

Autobytel (www.autobytel.com) and

similar sites, which offer on-line car

shopping so buyers can avoid

haggling with salespeople over price

and options.

At the same time, on-line marketing

provides a number of benefits to

marketers: (1) quick adjustments to

market conditions (companies can

quickly add products and change

prices or descriptions), (2) lower

costs (firms avoid the costs of

maintaining a store and can create

digital catalogs for much less than

the cost of printing and mailing paper

catalogs), (3) relationship building

(firms can dialogue with consumers

and invite them to download useful

data or free demos), and (4)

audience sizing (marketers can learn

how many people visited their on-

line site and how many stopped at

particular places on the site).

Furthermore, on-line marketing is

affordable for both small and large

firms: There is no real limit on

advertising space, in contrast to print

and broadcast media, and

information access and retrieval are

nearly instantaneous. On-line

marketers can reach anyone

anyplace in the world, at any time,

offering private yet speedy buying for

consumers and business customers

alike.
Consider Wine, com

(www.wine.com), the brainchild of

master sommelier Peter Granoff and

Silicon Valley engineer Robert Olson.

Formerly known as Virtual Vineyards,

this popular site features over 300

wines from 100 wineries plus

hundreds of food and gift items for

personal and corporate customers.

One way the site adds value—without

extra cost—is by providing detailed

information on the characteristics of

each wine, along with suggested food

pairings. Customers can also join a

wine club and enjoy the convenience

of automatically receiving special

wine or champagne selections to

sample every month.

Conducting On-Line Marketing

Marketers can get involved in on-line

marketing by creating an electronic

presence on the Internet; placing ads

on-line; participating in forums,

newsgroups, bulletin boards, and

Web communities; and using e-mail

to targeted audiences. Electronic

Presence A company can establish an

electronic presence on the Web in

three ways:

1. Buying space on a commercial

on-line service. This involves

renting storage space on the on-

line service's computer or

establishing a link from the

company's own computer to the

 on-line service's shopping mall

For example, the retailer

JCPenney (www.jcpenney.com)

has links to America Online and

Prodigy. The on-line services

typically design the storefront for

which the company pays an

annual fee plus a small

percentage of its on-line sales.

2. Selling through another site.

Amazon.com (www.amazon.com)

broke new marketing ground by

starting zShops, a special section

on its Web site where

manufacturers and retailers can

sell their products. For less than

$ 10 per month and a small

percentage of on-line revenues,

 businesses of any size—even

competitors—can reach out to

Amazon's 12 million customers.

3. Opening its own Web site. On a

corporate Web site, the firm can

offer basic information about its

history, mission and philosophy,

products and services, and

locations; in addition, it may

post current events, financial

performance data, and job

opportunities. One example is

McDonald's

(www.mcdonalds.com), which

announces new promotions,

helps visitors find the nearest

outlet, posts news about its

charitable works, and generally

 builds the firm's image—even

though the site does not actually

sell any food. On a marketing

Web site, the firm seeks to bring

prospects and customers closer

to a purchase or other marketing

outcome by offering a catalog,

shopping tips, and possibly

promotional features such as

coupons or contests. The Garden

site (www.garden.com), for

example, offers a

“gardenplanner” that lets visitors

create and save their own ideal

garden designs, then buy the

plants and tools they need.

Business marketing is actually the

driving force behind the e-commerce

juggernaut. Major corporations such

as Chevron, Ford Motor Company,

General Electric, and Merck have

invested millions in Web procurement

systems to automate corporate

purchasing. The result: Invoices that

used to cost $ 100 to process now

cost as little as $20. General Electric

now requires its partners to join its

Web procurement network

(www.geis.com), which could save

GE as much as $200 million per year

by 2003.

Many companies are also developing

“microsites”—small, specialized Web

sites for specific occasions or

products. For instance, the big

motion picture studios are setting up

separate sites for new films rather

than sending people to the studios’

main Web sites. Now other

companies are using microsites for

new-product launches, promotional

campaigns, contests, recruiting,

crisis communication, specific

product information, and media

relations. Frito-Lay, for example, has

both a corporate Web site

(www.fiitolay.com) and amicrosite

(www.gosnacks.com) where

consumers can place large orders for

Cheetos and other snacks in special

resalable containers. Companies

should consider developing a

microsite for any situation in which

specific, detailed information needs

to be made available quickly and

easily.
Advertising On-line

Companies can place on-line ads in

three ways: (1) in special sections

offered by the major commercial on-

line services; (2) in selected Internet

newsgroups that are set up for

commercial purposes; and (3) using

ads that pop up while subscribers are

surfing online services or Web sites,

including banner ads, pop-up

windows, “tickers” (banners that

move across the screen), and

“roadblocks” (full-screen ads that

users must click through to get to

other screens).
Despite the ubiquity of banner ads,

the “click-through rate” (the number

of users who click on an ad to get

more information) has plummeted

below 1 percent. However, users who

don’t click may still see and absorb

the banner ad message, notes

Christopher Escher ofTalk City

(www.talkcity.com), anon-line

community site: “Our focus groups

tell us that people see our banner

ads. Sometimes they click.

Sometimes they don’t. But the

banner ads make them more likely to

visit at another time. ”23 Accustomed

to measurement techniques for

traditional media, advertisers want

better measures of on-line

advertising impact. For now, Web

advertising is playing a supporting

role in the promotion mixes of most

advertisers.24 Forums, Newsgroups,

Bulletin Boards, and Web

Communities Online buyers

increasingly create product

information, not just consume it.

They participate in Internet interest

groups to share product-related

information, with the result that

“word of Web” is joining “word of

mouth” as an important buying

influence. To benefit from this trend,

companies may participate in or

sponsor Internet forums,

newsgroups, and bulletin boards that

appeal to special interest groups.

Forums are discussion groups that

are usually located on commercial

on-line services. A forum may

operate a library, a “chat room” for

real-time message exchanges, and

even a classified ad directory. Some

firms are adding proprietary chat

rooms where visitors can go to

discuss that company's offerings or

interact with customer service reps.

IGoGolf.com (www.igogolf.com), for

example, made a $12,000 sale after

a customer (who logged onto the U.

S. site from Egypt) chatted with a

customer service rep who

recommended the right golf

equipment.
Newsgroups, the Internet version of

forums, are limited to people who

post and read messages on a

specified topic. Thousands of

newsgroups deal with every

imaginable topic: healthy eating,

caring for Bonsai trees, exchanging

views about the latest soap opera

happenings.

Bulletin board systems (BBSs) are

specialized on-line services that

center on a specific topic or group.

Over 60,000 BBSs deal with

numerous topics, such as vacations

and hobbies. Marketers that

participate in newsgroups and BBSs

must take care to avoid a commercial

tone in their messages.

Web communities are commercially

sponsored Web sites where members

congregate on-line and exchange

views on issues of common interest.

One such community is Agriculture

Online (www.agricukure.com), where

formers and others can find

commodity prices, recent form news,

and chat rooms of all types.

The most targeted method a

company can use to communicate

directly with prospects and

customers is via e-mail. Using

inbound e-mail, the firm can invite

people to e-mail the firm with

questions, suggestions, and even

complaints so customer service reps

can respond and cultivate the

relationship. E-sawy companies also

develop Internet-based electronic

mailing fists for outbound e-mail,

sending out customer newsletters,

special product or promotion offers

based on purchasing histories,

reminders of service requirements or

warranty renewals, and

announcements of special events.

However, in using e-mail as a direct-

marketing vehicle, companies must

be extra careful not to develop a

reputation as a “spammer.” Spam is

the term for unsolicited email.

Consumers who are accustomed to

receiving junk mail in their real

mailboxes are often enraged to find

unsolicited marketing pitches in their

e-mail boxes. In fact, several states,

as well as the federal government,

have proposed legislation to limit or

prohibit spam broadcasting.

Despite the possibility of being

perceived as a spammer, savvy

marketers are racing to take

advantage of the potential of e-mail

marketing.26 One effective approach

is permission-based marketing, a

term coined by Seth Godin to

describe the e-mail marketing model

in which marketers ask for the

customer's permission before

sending e-mail offers. Amazon.com,

for instance, invites customers to

receive free newsletters with editors'

recommendations for books in

specific categories such as business

and cooking. Targeted “opt-in

marketing messages” are an

increasingly important part of online

marketing strategy because they can

yield impressive response rates of

18-25 percent, compared with the

average banner ad's response rate of

1 percent (or less).

The Promise and Challenges

of On-Line Marketing

On-line marketing is bringing

profound changes to various sectors

of the economy. Consumers' ability

to order direct threatens to seriously

hurt certain groups, particularly

travel agents, stockbrokers,

insurance salespeople, car dealers,

and book store owners. These

middlemen will be disintermediated

by on-line services.28 At the same

time, some reintermediation will take

place in the form of new on-line

intermediaries, called infomediaries,

which help consumers shop more

easily and obtain lower prices.

Consider mySimon

(www.mysimon.com), which acts as

an intelligent shopping agent for

consumers looking for the best buys

in categories such as books, toys,

and computers. A shopper seeking a

digital camera can go to mySimon,

click on cameras, then digital

cameras, scan the listing of makes

and models, and locate the merchant

offering a particular camera at the

lowest price. Similarly, DealPilot (

www.dealpilot.com) helps buyers

compare prices ofbooks, videos,

DVDs, and CDs, while Point.com

(www.point.com) helps buyers

compare cellular phone service

offerings.

Among other changes, Quelch and

Klein believe that the Internet will

lead to the more rapid

internationalization of small- to

medium-size enterprises.30 The

advantages of scale economies will

be reduced, global advertising costs

will be less, and smaller enterprises

offering specialized products will be

able to reach a much larger world

market.

At the same time, on-line

marketers continue to face a

number of challenges:

Encouraging more buying: The major

on-line buyers today are businesses

rather than individual consumers.

Web marketers such as Priceline.com

(www.priceline.com) are among the

many sites using techniques such as

special pricing to encourage more

consumers to buy on-line. At auction

sites such as eBay (www.ebay.com),

many buyers return because they like

bidding for what they want and

getting a bargain.
Skewed user demographics and

psychographics: On-line users are

more upscale, younger, and more

Web-sawy than the general

population, making them ideal

prospects for computers, electronics,

and financial services. The challenge

now is to expand the online market

and find ways of reaching diverse

targeted segments. Eyeing the assets

of younger, wealthier investors who

frequent on-line brokerage firms, for

example, Charles Schwab

(www.schwab.com) acquired U.S.

Trust so it could offer a wider range

of services, such as private banking,

to this attractive segment.

Chaos and clutter: The Internet

offers millions ofWeb sites and a

staggering volume of information.

Navigating the Web can be

frustrating. Many sites go unnoticed

and even visited sites must capture

visitors' attention within 8 seconds or

lose them to another site.

Security: Consumers worry about the

security of credit-card numbers and

other data sent to Internet sites,

while companies worry about

systems espionage or sabotage. The

Internet is becoming more secure,

but the race continues between new

security measures and new code-

breaking measures. To allay users’

fears, Lending Tree

(www.lendingtree.com)—a site that

helps consumers shop for mortgages,

credit cards, and other financial

services—displays seals of approval

from Verisign and other firms that

monitor site security.

Ethical concerns: As noted earlier,

consumers who buy from direct

marketers worry about companies

making unauthorized use of their

personal data, such as selling it to

others. Threats of government

intervention have spurred an

increasing number ofWeb marketers

to post privacy policies. Travelocity

(www.travelocity.com), a one-stop-

shopping site for travel and vacation-

related purchases, is one of many

sites that reassure visitors by

displaying a seal of approval from

the Better Business Bureau or other

organizations and sites that examine

Web privacy policies.

Consumer backlash. Just as the Web

has shifted power to consumers by

giving them more product

information, it has given them a more

potent, effective means of expressing

disgruntlement or even outrage.

Rogue Web pages such as “Down with

Snapple,” often launched by irate

consumers or former employees, can

be seen by millions. They may

contain valid information, but they

can also spread unfounded rumors.

Some companies shrug off these

pages, but others are concerned

enough to hire firms to monitor

activity at these sites.

6.5. MLM

MLM can very simply be

characterized as an extension of

business to business for chain net

working is called MLM

6.6. RELATIONSHIP
MARKETING

Relationship marketing: Marketing

activities aimed at building long-term

relationship with the parties,

especially customers, that contribute

to a company's success; also called

relationship management.
Effective marketers view customer

services within the larger context of

relationship marketing. The term

relationship marketing is used to

communicate the idea that a major

goal of marketing, whether the

product is a good or a service, is

to build long term relationships with

suppliers, customers, and other

parties who contribute to a

company's success. The customer

relations dimension of relationship

marketing seeks to build customer

loyalty by fulfilling promises and

continuing to satisfy customer wants

and need.
Three Levels of Relationship

Marketing Programs

It is possible to categorize three

types of relationship marketing:

financial, social, and structural. The

categories are based on the primary

reason for the bond between the

marketer and the customer.

Financial Relationships:

Frequency & Club Marketing

Programs

Two financial benefits that companies

can offer are frequency marketing

programs and club marketing

programs. Frequency marketing

programs (FMPs) are designed to

provide rewards to customers who

buy frequently and/or in substantial

amounts. Frequency marketing is an

acknowledgment of the fact that 20

percent of a company's customers

might account for 80 percent of its

business. American Airlines was one

of the first companies to pioneer a

frequency marketing program when it

decided to offer free mileage credit

to its customers in the early 1980s.

Hotels next adopted FMPs, with

Marriott taking the lead with its

Honoured Guest Program. Frequent

guests receive room upgrades or free

rooms after earning so many points.

Shortly thereafter, car rental firms

sponsored FMPs. Then credit-card

companies began to offer points

based on their cards usage level.

Typically, the first company to

introduce anFMP gains the most

benefit, especially if competitors are

slow to respond. After competitors

respond, FMPs can become a financial

burden to all the offering companies.

Most frequency marketing programs

are based on financial incentives.

Season tickets for professional

basketball games or the opera

provide discounts to fans who

establish relationship with the

organization. Banks often offer

higher interest rates for deposits that

will be kept in an account for a longer

duration. Frequent flyer programs

offer a free trip after a customer flies

a certain number of segments or

miles. In effect, these programs

provide a discount pricing incentive

to reward consumers for high levels

of spending or multiple purchases.

Many companies have created club

membership programs to bond

customers closer to the company.

Club membership can be open to

everyone who purchases a product

or service, such as a frequent fliers

or frequent diners club, or it can be

limited to an affinity group or to

those willing to pay a small fee.

Although open clubs are good for

building a database or snatching

customers from competitors, limited

membership clubs are more powerful

long-term loyalty builders. Fees and

membership conditions prevent those

with only a fleeting interest in a

company's products from joining.

Limited customer clubs attract and

keep those customers who are

responsible for the largest portion of

business.

Social Relationships

One form of relationship marketing

involves the formation of a social

bond between the company and its

customers. Many people know about

the thousands of Saturn owners who

converge annually on the car

company's headquarters in Spring

Hill, Tennessee for a barbecue, a

plant tour, and a chance to talk with

other Saturn owners about how much

they love their cars. However, even

this type of relationship marketing

pales somewhat in comparison to

what Chrysler does to bond with its

Jeep owners. One weekend each

year, dozens of owners driving their

Jeeps meet in the tiny mountain town

of Blanding, Utah for Chrysler

Corporations .Jeep Jamboree. The

Jeep owners gas up and form a

convoy to Arches Canyon National

Park, a 20 minute drive away. There,

for the next two days and nights,

they get to test their vehicles on

narrow roads in natures roughest

terrain. For the Jeep owners who

participate, the Jeep Jamboree

adventure offers a rare chance to

experience the promise of Jeep

commercials. (Only 10 percent of

those who own sport- utility vehicles

ever get a chance to drive off-road,

studies show.) For Chrysler, this

relationship marketing event

provides an opportunity to bond with

customers and establish brand

loyalty. Chrysler expects participants

in the jamborees to become

ambassadors for the brand. Here

company personnel work on

increasing their bonds with

customers by individualizing and

personalizing customer relationships.

Table contrasts a socially sensitive

approach with a socially insensitive

approach to customers. In essence,

thoughtful companies turn their

customers into clients. Donnelly,

Berry, and Thompson draw this

distinction: Customers may be

nameless to the institution; clients

cannot be nameless.

Customers are served as part of the

mass or as part of larger segments;

clients are served on an individual

basis. Customers are served by

anyone who happens to be available;

clients are served by the professional

assigned to them.
Some companies take steps to bring

their customers together to meet and

enjoy each other. Companies such as

Harley-Davidson, Satum, and

Chrysler are said to be engaged in

building brand communities.

Structural Relationships

When a stockbroker, such as Charles

Schwab, provides its Velocity

computer software so that a client

in its signature program can check

stock quotes, evaluate port-folio

histories, get information about

companies, and trade stocks over the

Internet, it is creating a structural

solution to an important customer

problem. Relationships based on

structural bonds do not depend on

the relationship-building skills of a

particular service provider, as in the

traditional customer-stockbroker

relationship, but on the service

delivery system that is part of the

company structure. Many marketers

use the Internet to build structural

relationships. The company may

supply customers with special

equipment or computer linkages that

help customers manage their orders,

payroll, inventory, and so on. A good

example is McKesson Corporation, a

leading pharmaceutical wholesaler,

which invested millions of dollars in

EDI capabilities to help independent

pharmacies manage inventory, order

entry processes, and shelf space.

Another example is Milliken &

Company, which provides proprietary

software programs, marketing

research, sales training, and sales

leads to loyal customers.

6.7. KEY TERMS

• Internal Marketing Enhances

Relationship Building

Marketers who stress service quality

and relationship marketing strive to

manage the service encounter. This

is because the customer's evaluation

of service quality and the building of

a positive relationship between the

customer and the organization are

highly dependent on what takes place

during the service encounter.

Internal marketing is important in

improving the service employees

provide, which in turn improves

relationship with customers.

The Three Components of E-

Commerce

E-commerce has three broad

components.

IB

lBtoB (B2B)

1B to C (B2C)

B refers to Internet transactions of e-

commerce. B-to-B (B2B) or business-

to- business-commerce refers to

inter-enterprise e-commerce, where

8KI?D;II <?HCI I;BB J>;?H FHE:K9JI 7D:
I;HL?9;I JE EJ>;H 8KI?D;II <?HCI ED
J>; D;J JE  EH 8KI?D;II
JE 9EDIKC;H ;9ECC;H9; H;<;HI JE
C7HA;J?D= E< FHE:K9J 7D: I;HL?9;I JE
KBJ?C7J; >EKI;>EB: 9EDIKC;HI ED J>;
D;J

6.8. SUMMARY

/E:7O
:?H;9J C7HA;J;HI 97D KI; 7
M?:; L7H?;JO E< 9>7DD;BI JE H;79>

FHEIF;9JI 7D: 9KIJEC;HI I7B;I 97BBI

:?H;9JC7?B C7HA;J?D= I;D:?D= 7D

E<<;H
7DDEKD9;C;DJ
H;C?D:;H
EH
EJ>;H ?J;C JE 7 F;HIED 7J 7 F7HJ?9KB7H
7::H;II  97J7BE= C7HA;J?D=

J;B;C7HA;J?D= E<<;HI C7:; 8O H7:?E

C7=7P?D;
7D: D;MIF7F;H
:?H;9J
response television advertising;

home shopping channels; kiosks; and

on-line channels.

Electronic commerce describes a

wide variety of electronic platforms.

Commercial on-line services offer on-

line information and marketing

services to paid subscribers; the

Internet is an international web of

computer networks that makes

instantaneous and decentralized

global communication possible.

Companies can go on-line by buying

space on an on-line service; by

selling through another site; by

opening their own Web sites; by

placing ads on-line; by participating

in forums, newsgroups, bulletin

boards, and Web communities; and

by using e-mail to targeted

audiences. Direct e-mailers that want

to avoid being perceived as a

spammer can use permission-based

marketing, requesting the customer's

permission before sending any e-mail

offers. On-line marketing is leading

to disintermediation of certain

middlemen, even as in fomediaries

are starting to establish themselves

as new on-line intermediaries.

Answers to Check Your Progress

Fill up the blanks

1. In India , like any other

developing country, it is

believed that —tactics lack a

systematic approach.
 2. Thus advertising decision is a

very crucial decision because

it may effect and reflect the

whole

3. One of the objectives of the

sales promotion is to keep the

memory of the product alive

inn the minds of the present

Fill up the blanks

1. ______ is one of the greatest

concerns of e-business.

2. The unit of value in business

today is________ marketing.

3. _______________ has become

a ubiquitous part in the

professional business

marketing
6.9. ANSWERS TO CHECK
YOUR PROGRESS

1. Security

2. Relationship

3. Internet

6.10. QUESTIONS /
EXERCISE .

1. Define Retail Marketing

2. What do you mean by on-line

marketing? Explain the

advantages and disadvantages.

3. Explain the relationship

marketing.
6.11. FURTHER READING
1. Homell, e. (1992), Improving

Productivity for Competitive

Advantage: Lessons from the

Best in the World, London:

Pitman.

2. Seybold, P.B. and R.T. Marshak

(1998), Customer.com: How to

Create a Profitable Business

Strategy for the Internet and

Beyond, New York: