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MARKETING MANAGEMENT
V semester BBM
BM 5 CRT22 Total credits: 4 Contact Hours: 5

Aim: To provide the students idea regarding market and marketing activities
Objective: Students should be able to understand the marketing activities and the various factors influencing the
marketing process

MODULE I
Introduction Marketing – meaning – definition – significance – evolution – objectives – concepts – basic
features – market – selling – current trends and waves in marketing – benefits of marketing – marketing
management – functions in marketing processes – marketing functions.

MODULE II
Market Segmentation Meaning – benefits – costs – bases – approaches – requisites. Target marketing – meaning
– strategies – market integration and orchestration –Product positioning – meaning – alternatives – determinants
– steps – errors. Consumer behaviour – meaning – determinants – steps – errors. Consumer behaviour – meaning
– consumer buying process – determinants of consumer behaviour – buying motives – meaning – classification –
characteristics – importance

MODULE III
Marketing Mix Meaning –elements -Product planning – definition – objectives – product characteristics –
product classification – product portfolio – product line – product positioning – product life cycle. New product
development – need – meaning –steps Branding – merits – market redefinition – rand equity approaches –
product packaging – objectives – functions – essentials – strategies. Product labelling – purpose – after sales
service

MODULE IV
Product Pricing Meaning – role – influencing factors – methods – policies and strategies – resale price
maintenance.

MODULE V
Channel of Distribution Meaning – role – classification – types of intermediaries – factors influencing channels
of distribution – factors governing the choice of an intermediary – Direct marketing – meaning – methods –
merits and demerits.

References:
 C. N. Sontakki, Marketing Management, Kalyani Publishers
Philip Kotler & Koshy, Marketing Management, Pearson Education
 V. S. Ramaswamy & S. Namakumary, Marketing Management, Macmillion Publishers
 D. D. Sharma, Marketing Research, Sultan Chand & Sons

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Module I
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MARKETING –INTRODUCTION

The term ‘market’ is derived from Latin word ‘marcatus’ meaning place of trade. A market in general may be
described as a place where buyers and sellers meet, goods and services are offered for sale and title of goods is
transferred. But goods and services do not move automatically from producer to the buyer. There is a definite
mechanism that bring about the exchange of goods and services against money or moneys worth of mutual
benedict-satisfaction to customers and profits to producers. And marketing is that belt that connects the
producers with the customers.

MARKET & MARKETING

According to Philip Kotler, ‘Market is a place or atmosphere for potential exchange’. And Marketing is an
organizational function and a set of processes that aim at serving the market effectively and profitably.

MARKET MARKETING

a) It means the total demand for a product.
b) It is a place where the exchange function
alone takes place.
c) The ultimate objective is to facilitate the
physical flow of goods & exchange.
d) Price, demand supply and purchasing
power are the major forces in the market.
e) It is existing pattern of potential buyers
for a product.
It includes all activities aimed at customer
satisfaction.
It covers not only exchange but also other
facilitating functions like financing, risk
bearing, standardization etc.
The ultimate objective is customer
satisfaction.
Planning, designing, pricing, advertising
and distribution are important elements of
marketing.
It is a process of making market.

MARKETING & SELLING

There is definite distinction in meaning between selling and marketing though used interchangeably.

SELLING MARKETING

1.Focuses on seller needs.-Sales is the Focuses on customer needs- Customer

primary motive satisfaction is primary motive.

2.Begins after production- First production Begins before production- First customer needs
takes place and then selling takes are identified and then production takes
place at a profit without knowing place and then product is sold at a
customer needs profit.

3. Comes to an end after sale. Continues after sale.

4. Profits through Sales Volume. Profits through Customer Satisfaction.

5.Cost determine price Customer determines price and price

determines the cost
6.Views customer as the last link in Views Customer as the very purpose of
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business business

7. It is an activity that converts goods into It is a function that converts consumer needs
cash. into products

8.Short term perspective Long term perspective.

9. Narrow in scope - selling is only part of Wider in scope - it is a comprehensive term

marketing process. covering selling function also.

10. Routine physical process. Business Philosophy

SIGNIFICANCE/IMPORTANCE/BENEFITS OF MARKETING 

The importance of marketing can be well understood by studying its benefits to the society and to the firm.
1. Benefits to the Society 

According to Philip Kotler marketing is a societal process by which individuals and groups obtain what they
need and want through creating and exchanging products and value with others. The definition clearly explains
the significant role played by marketing in the society. The focal point of marketing is the identification of
societal needs and wants so as to satisfy them through the creation and distribution of valuable goods and
services. Marketing activities offer great benefits to the society at large. Some of the major benefits are; 

1) Developing goods and services to meet the needs of the society and thereby improves its quality of life. 
2) Act as a connecting link between the producers of goods and services and consumers.
3) Help people to obtain products at stable and fair prices by creating a competitive market environment. 
4) Increased marketing activities generate more employment opportunities for the people. 
5) The distribution function of marketing makes the products available in different geographic regions. People
can buy products from all over the world. 
6) The promotion function of marketing educates people about different products and services available in the
market. 
7) Marketing offers a wide range of products and services to people and thereby helps them to choose on the
basis of their tastes and preferences. 
8)In general, marketing functions offer valuable benefits to the society by creating products and services with
desired benefits at fair and stable prices in places convenient for customers. 

2. Benefits to the Firm 

Marketing helps firms to increase their revenues by attracting more customers. It helps to reach the right
customers at the right time and place. The following are the major benefits offered by marketing to the firm; 

1) Helps to identify the target market (right customers)

2) Develops suitable (right) products and services
3) Determines the demand for products 
4) Gives adequate information to the customers about the products 
5) Delivers the products to the customers by establishing suitable distribution channels 
6) Identifies competitors and analyses the competitive advantage of the firm’s products in the market 
7) Identifies new product areas 
8) Identifies new target market or potential customers 

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Marketing efforts help firms to develop satisfying relationships with customers that benefit both the customer
and the firms. They provide all information related with the customers and the market which form valuable
inputs for decisions at all levels of the firm.

3. Benefits to the nation

Marketing plays a crucial role in the economic development of a nation. Marketing activities help in resolving
the scarcity of goods and services in a nation. The following points clearly show the significant role played by
marketing in the economic development of a nation

1. Marketing increases the entrepreneurial activities in a nation which result in the productive utilisation of
natural resources such as land, labour, capital and organisation. An effective utilisation of these economic
resources increases the national income of the country.
2. Marketing promotes the development of basic industries of a country such as agriculture, mining and
plantation by distributing their outputs to the customers. These industries are considered as the back bone of
economic development of a nation.
3. Marketing increases the foreign exchange earnings of the nation through exporting products and services in
which it enjoys competitive advantage over other nations.
4. Marketing helps in the growth of industrial sector of an economy by distributing industrial raw
materials, machines, equipment’s and tools.
5. Marketing earns capital for business projects through creation of demand and increased consumption. Increase
in business activities increases the pace of economic development of a nation.
6. Increased marketing activities generate more employment opportunities for the people which increase their
purchasing power leading to the economic development of the country. 

CHARCTERISTICS/FEATURES OF MARKETING

1. It is Operational-Managers must think and act to achieve results. Benefits of marketing will emphasize the
statement “no gains without pains”. 
2. It is Customer Oriented: Marketing firm is to be the keen observer focusing its attention on needs of
customers. Its effectiveness lies in finding solutions to the challenges posed by these demands. 
3. It is Mutuality of Benefits: Exchange of goods and services works and persists because it is the mutual
interest of both parties to continue. Both the marketer and the customer benefit through supply of quality goods
and services in return for profit. Here, customer’s benefits exceed costs. 
4. It is Value Driven: The culture of the marketing firm is based on .a desire to build the business through
meeting the needs and responding to the' market where the values espoused by firm’s leaders are communicated
to all those involved in the firm. 
5. It is Proactive to the Environment: Marketing firm is a sub-system of super-system, the environment. The
environment is something which is external to the firm. The environmental forces are ecology, technology,
competition, physical resources, legal framework, socio-economic factors, which are to be accepted by the
marketing unit where it is to be proactive and not reactive. 
6. It Covers Both Profit and Non-Profit Making Organisations : Marketing is not confined to only profit
making organisations but covers non-profit making organisations or charitable institutions that sell services such
as educational institutions, churches, temples, mosques, gurudwaras, hospitals, sports clubs and so on. 

OBJECTIVES OF MARKETING

1. To identify the target market where the products can be marketed.

2. To identify the needs and wants of the target market. 
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3. To develop products sufficient enough to satisfy the needs of the target market. 
4. To determine the price of the products on the basis of manufacturing cost, competition, market condition and
quality of the products. 
5. To deliver/distribute the products to the customer with the help of adequate distribution channels. 
6. To follow adequate promotion (advertisement) techniques for the purpose of informing or influencing the
purchasing decision of the customers. 
7. To continuously take the effort to satisfy the changing needs of the customers. 
8. To use a variety of channels to gain new customers and keep existing customers. 
9. To undertake researches for modifying the existing products and developing new products. 
10. To build and maintain company image and customer goodwill by consistently producing quality products
to satisfy customers.

EVOLUTION OF MARKETING CONCEPT

The following are the stages or eras in the evolution of the marketing concept:

1. SELF – SUFFICIENT STAGE :-The earlier days of human history, family was self – sufficient. It
produced the goods needed by itself & there was no need for exchange.
2. EXCHANGE ORIENTED STAGE :-This stage is marked by the division of labour & specialization, which
brought in the need for exchange. Barter system existed in those days, which was later replaced by money –
first stage in the evolution of marketing.
3. PRODUCTION ORIENTED STAGE :-This stage is a result of industrial revolution & large scale
production. The producers concentrated their attention only on the product & totally ignored consumers &
even sales. The reason being the fact that competition b/w various producers were not that acute.
4. SALES ORIENTED STAGE :-At this stage the producers started realizing the need for selling the product
to the customers. The place of customers was accepted, but no serious steps were taken to satisfy their wants.
The consumer had no other alternative but to accept the product produced.
5. MARKETING ORIENTED STAGE :-During this stage, the competition became more stiff, production
exceeded demand & the producers began to realize that their products cannot be sold without an effective
sales force. Advertising & selling techniques were used during this stage. However, no co-ordination existed
between sales & production. This stage lasted till the end of World War II.

6. CONSUMER ORIENTATION STAGE :-Also called MODERN MARKETING STAGE. After the second
world war, with the growth of population & the increase in the number households together with the
development in science & technology & mass communication media, the competition became more severe &
producers began realizing that the success of their product depended on their ability to find customers and
satisfy their needs. This led to the emergence of Modern Marketing Concept.

MODERN MARKETING CONCEPT

Definition : Philip Kotler-“ The marketing concept is a consumer oriented, backed by integrated marketing
aimed at generating customer satisfaction as a key to satisfy organizational goals”.

7. SOCIETAL MARKETING STAGE :-Proposed by Philip Kotler, the societal marketing concept differs
from the modern marketing concept by adding the consideration “long run consumer & public welfare”.

These various stages have given different philosophy or concepts to marketing, which according to Philip
Kotler there are 5 philosophies that can give marketing management.
1. The production concept:
Customer will favor those products that are widely available & low in cost.

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2. The product concept
Customers will favour those products that offer most quality, performance & innovative features.

Marketing Myopia : The product concept leads to the phenomenon called marketing myopia. Professor
Theodore Lewit introduced this term to describe undue concentration on the product rather that consumer needs.
The producers are so much interested in their product that they enter into “love affair with the product”
forgetting other factors that contributing to customer satisfaction.

3. Selling Concept
According to this concept goods are not bought but sold – customers, if left alone, will not ordinarily buy
enough of the organizations product & so the organization must undertake selling & promotional activities.

4. Marketing Concept
According to this concept the company must identify the consumer wants & tailor all its activities to satisfy
those needs. Thus the marketing concept offers the best remedy to marketing myopia. The marketing concept
exists on 4 pillars-a) Target market b) Customer needs c) Integrated Marketing{Within the marketing functions
there must be intelligent adaptation of the 4 Ps to build strong relation with the customer}d) Profitability.

5.Societal marketing concept

The firm has a social responsibility because of which it should produce not only what the consumer needs but
also what is good for the society. It has to bring about a balance of 3 factors.i) Consumer wants ii) Public
interest iii) Profitability.

Society (Social welfare)

Consumer Company
(want Satisfaction) (Profit)

MARKETING MANAGEMENT
According to W.J Stanton: “Marketing Management is marketing concept in action”. Philip Kotler defines it as
:“Analysis, planning, implementation & control of programs designed to bring about desired exchange with the
target market for the purpose of achieving organizational objectives:.

Marketing Management is primarily concerned with stimulating the demand for the product. However, in reality,
it also involves the task of regulating the level, timing & character of demand in such a way that it will help the
organization to achieve its objectives. So Marketing Management is also called demand management.

According to Philip Kotler, there are eight distinguishable demand stages/situations. They are:
1. CONVERSIONAL MARKETING- Refers to the conversion of a negative demand to a positive demand.
Eg : Vegetarians have a –ve demand for meat. The marketer should therefore develop a plan which can
convert a –ve demand to a +ve one.
2. STIMULATIONAL MARKETING -This creates a demand for a product, which has no demand at all. No
demand is a situation in which the buyers are uninterested or indifferent to a particular product. However this
is a rare situation & an extremely difficult task for marketers. *eg Poultry business during bird flu

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3. DEVELOPMENT MARKETING -Refers to the conversion of latent demand into an actual demand. Latent
demand refers to a state when a substantial no of buyers have a strong need for something that is not available
in the product. In this state, the marketer must develop a product incorporating those needs of the buyer. *eg
rotating trays in refrigerators
4. RE-MARKETING -It is the process of rebuilding a flattering demand into its earlier state. Flattering
demand is a state in which the demand for a product is less than that what it was originally & further fall is
expected, if no remedial measures are taken. *eg Splender reintroduced as Super splendor
5. SYNCHRO MARKETING -This is the process of converting an irregular demand into a regular demand.
An irregular demand is a state in which timing pattern is marked by seasonal fluctuation. For a marketer, the
conversion of a irregular demand to a regular one can be done by offering incentives, discounts during off
season. *eg:Monsoon Tourism
6. MAINTANANCE MARKETING-This refers to the maintenance of full demand. Full demand is the state in
which the current level & timing of demand is equal to the desired level & timing & in this situation, the
marketer should keep the right price, motivate the sales force & control the cost to maintain this full demand .
eg.Horlicks
7. DE – MARKETING-Refer to the task of reducing an overfull demand. An overfull demand is a state in
which the actual demand for a product exceeds the capacity to supply & this may be due to excessive
shortage in supply or excessive popularity for the product. In such a state, demarking has to be done by
increasing the prices, to discourage the buyers. *eg Onion prices shoots up due to floods
8. COUNTER MARKETING-Refer to the task of destroying the demand for product. Counter marketing is
also called unselling. This is an extreme step taken by producers only, when the Government prohibits or
bans such products. *eg Cigrattes.
*eg-not to be quoted for exams.

MARKETING PROCESS

The marketing machinery involves 3 major processes.1) Concentration 2) Dispersion3) equalization of goods.
1) CONCENTRATION
This is the first process of marketing. It denotes bringing goods at a single point for the purpose of distribution.
2) DISPERSION
It means distributing the good to the needed person. The goods are concentrated for the purpose of dispersion &
this process is essential because buyers are not located at the point of production.
3) EQUALIZATION
This activity occurs b/w the activities of concentration and dispersion. It refers to the adjustment of supply to
demand on the basis of time, quantity & quality. The main objective of equalization is to ensure the regular
supply of goods that are produced only in a particular season but consumed throughout the year. Eg: Paddy,
Wheat etc.

MANUFACTURERS

CONCENTRATION

EQUALISATION

DISPERSON

CONSUMERS

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FUNCTIONS OF MARKETING

CLARK & CLARK classify the functions of marketing into three:-

1. Functions of Exchange 2.Functions of Physical Supply 3.Facilitating functions
1. FUNCTIONS OF EXCHANGE :
(a) BUYING & ASSEMBLING
Buying is the first step in the process of marketing. It refers to the process of acquiring goods at the right place,
at the right time, in the right quantity, quality and form from right suppliers. Good buying ensures securing
goods which can be sold profitably to customers demand. Wholesalers & Retailers buy goods for the purpose of
retail. Assembling refers to bringing together a variety of goods of different quantities of similar items. This
activity ensures wider choice to consumers and reasonable price to producers.
(b) SELLING
It refers to the process of transfer of ownership to the buyer in exchange for money. In a broader perspective,
this function involves product planning and development, establishing contact with buyers, creation of demand
through various promotional activities, negotiating with prospective buyers on quantity and price and arriving at
a contract to help this transaction.

2. FUNCTIONS OF PHYSICAL SUPPLY :

(a) TRANSPORTATION
It means the movement of goods from the point of production to the place of consumption.
(b) STORAGE & WAREHOUSING
Middlemen should hold sufficient stock to meet the anticipated demand & to ensure smooth supply. Storage
involves making of proper arrangement for retaining goods in perfect state without losing properties and
qualities till these are required by ultimate customer and taken to market. This storage of goods takes place
through network of warehouses specially constructed for this purpose.

3. FACILITATING FUNCTIONS :
(a) FINANCING -The very existence of a business concern depends on adequate funds to support it.
(b) RISK BEARING It may be defined as the danger of loss due to unforeseen circumstances in future. It
implies an element of uncertainly or possibility of loss. Such risk may be classified into three: Economic,
Natural & Human Risk.
1. ECONOMIC RISK -There result from changes in market conditions & are generally of three kinds :
TIME RISK-Changes in price happen with the passage of time & such price changes are due to new
inventions, changes in fashion etc. Almost all such changes are unexpected & no one can say how long a
particular product will be popular or when it will grow out of demand.
PLACE RISK - The prices of a product are different in different markets at the same. It is because price is
based on demand & supply patterns in these markets.
COMPETITION RISK-This arises out of actions of the competitors such as improvements in quality &
durability, lowering of prices by offering special discounts & free gifts which will result in demand
fluctuations for the product.
2. NATURAL RISK
Natural Risk such as flood, earthquakes, fire, storm etc. are uncontrollable by humans. Pests, rats etc can cause
physical damage to the grains. Normal precautions can only limit such losses but total avoidance is not possible.
3. HUMAN RISK
Major sources of risks arising out of human error are
(a) Personal Risk-(i).Dishonesty (ii) Carelessness (iii) incompetence of the employees
(b) Public Risk-(i) Strikes (ii) War (iii) Theft
(c) Consumer risk-(i) Loss from Bad Debts due to dishonesty of customers
(d) Govt. Risk -Changes in taxation policy of the Govt. & other liabilities

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(c) STANDARDIZATION & GRADING-Standardization refers to establishment of standards for the product.
A standard is a measure, which is generally recognized as having a fixed value. Standards are generally
determined on the basis of weight, colour, quality & other specific feature of a product. Grading is a part of
standardization. It refers to application of certain qualities, specification & size. Grading is usually necessary for
goods on which the producers cannot exercise control in terms of their physical; properties Eg. Food grains,
fruits etc.
(d) MARKETING INFORMATION-Success in marketing depends upon the information regarding the market
of the product, customer reaction on the product, etc. which should be collected, analyzed & property
interpreted.
FUNCTIONS OF MARKETING

‌ Functions of Functions of Physical Facilitating

Exchange Distribution Functions
1. Buying & Assembling 1. Transportation 1. Financing
2. Selling 2. Storage & 2. Risk bearing
Warehousing 3. Standardization
4.Market Information

MODULE 2
MARKET SEGMENTATION
Market segmentation is an act of dividing a market into distinct group of buyers who might merit from separate
product or marketing mixes.

The segmentation process is twofold namely

1. Identifying the viable segments of consumers
2. Targeting specially designed programs towards them

Basically there are three reasons why firms go for market segmentation
1. Some markets are heterogeneous
2. Market segments responds differently to different promotional appeals
3. Market segmentation is consistent with marketing concept

REQUISITES OF SOUND MARKETING SEGMENTATION

 
Market segmentation has its own benefits and costs. The strength of it lies in better understanding of consumers
for making intelligent marketing decisions and their implementation. Requisites of sound segmentation strategy
are: 

1. It must be identifiable and measurable: The segment or the group of buyer’s must be clearly defined. That
is, who is in segment? Who is outside the segment? After answering these questions, it is essential to get
demographic, social and cultural data about segment members. These data should permit the measurements of
the size and importance of the segment as a potential project of marketing strategy. Unfortunately, obtaining
segment details is not easy especially when the segment is defined in terms of behavioural features. 

2. It must be of adequate market potential: Either an actual or potential need must exist in order to identify
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segment as an opportunity. Actual needs are recognised needs-overt demands for existing goods and services.
Potential needs can be transformed into perceived wants through education or persuasion. Potential needs are
more difficult to ascertain than the actual needs.

3. It must be economically accessible: Segmentation involves a search for enough similarity among buyers to
permit the seller search these potential customers economically. For example, segment members could be
concentrated geographically, may be shopping at the same store or may be reordering the same magazines. A
segment based on motivational characteristics cannot be reached economically. lf ‘Closeup’ tooth-paste makers
attempt to reach a segment identified by the user’s desire to enhance sex appeal, it may take up TV advertising.
This message reaches both the intended and others. The cost per segment member is much higher in case of TV
advertising.

4. It must react uniquely to marketing efforts. A segment should make differential response to the marketing
efforts put in. Different segments, unless they respond in unique ways to particular marketing efforts; hardly
justify the use of a separate marketing programmes. Thus, a given segmentation, to be meaningful, should differ
in its response to marketing efforts. Differing responses will help in optimising the marketing operations by
changing marketing efforts and amount involved.
 
5. It must be relatively stable over a period of time: Marketing strategies are long-range plans that project
three to five years into the future. Moreover, lead-time of up to a year is often needed to analyse market and to
prepare a plan. Therefore, the segments that emerge rapidly and disappear just as quickly do not offer very good
marketing opportunities for a firm that follows the generally accepted approach. Only highly innovative
entrepreneurs can, at considerable amount of risk, attempt to serve these segments.

6. It must be dynamic: A final word of caution is to be given at this juncture. One should not conclude that
once a company finds its segment, its problems will be solved for ever. The marketing is changing constantly.
The segments are to lose aggregations subject to modification-technology, competition, perceptions and
attitudes-all are volatile. Because of such changes, marketers must monitor the market constantly to detect the
changes in it to adapt the strategy accordingly. 

THE COSTS OF MARKET SEGMENTATION

Marketing segmentation strategy involves certain costs it, arrive at these benefits which we cannot afford to
forget. At times, it may so happen that the segmentation strategy costs outweigh the benefits, rendering
segmentation a futile exercise, these costs are:
 
1. Product costs: In order to accommodate each market segment, the firm goes ahead with designing a specific
product. Designing work may be in the range of mere change in label to complete rethinking of entirely new
product. It involves good deal of research and development activities as a product is to be separated for each
market segment. 

2. Production cost: Though technological break-through have made possible good many firms to reduce the
number of units needed to achieve economies of scale, still there persists a problem of high productivity costs;
The firm is expected to achieve sufficient sales volume in each market segment to justify, the costs involved in
separate production runs. In case the sales in each segment are insufficient to keep production lines operating
continuously, the firm may be either forced to stop the production periodically or to shift the line over to the
production of products for other market segments. Both of these activities at very expensive.

3. Promotion costs: Every organization has to develop a promotion strategy that fits each market segment. It is
but natural that multiple strategies require huge expenditure on both human and financial resources to design

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different ads and place them in various media. Multiplicity of ads deprives the firms of quantity discounts and
concessions. This results 'I mounting promotion costs. 

4. Inventory costs-More the segments the firms want to serve, the larger will be inventory costs. These
inventory costs work out higher because of two basic reasons:
1. Larger selection of products will force the firm to maintain more and more records
covering location and quantity of merchandise. 
2. The firm must maintain increased buffer stock for normal demand and increased
safety stock for unpredicted demand levels.
 
5. Management costs: Market segmentation strategy consumes good deal of valuable time of management. The
management has to design and implement a coordinated marketing strategy for each market segment. Such a
coordinated strategy deals with product, pricing, promotion and distribution.

BENEFITS OF MARKET SEGMENTATION

1. Adjustment of product and marketing appeals-Market segmentation presents an opportunity to understand

the nature of the market. The seller can adjust his product to attract the maximum number of customers by
various publicity media and appeals. More resources may be allocated to market segment where sales
opportunities are better. 
2. Better position to spot marketing opportunities-The producer can make a fair estimate of the volume of his
sales and the possibilities of furthering his sales. In the regions where response of the consumers is poor, the
strategy of approach can be readjusted accordingly to push the sales on the basis of marketing research. On
the basis of research habits, tastes, hobbies and nature of consumers of different markets can be understand
deeply, new to harness marketing opportunities.
3. Allocation of marketing budget-It is on the basis of market segmentation than the marketing budget is
adjusted for a particular region or locality. In the place where the sales opportunities are limited, it is no use
of allocating a huge budget there.
4. Making the competition effective-. It helps the producer to face the competition of his rivals effectively.
The producer can adopt different policies, program, and strategies for different markets taking into account
the rivals strategies, policies and program.
5. Effective marketing program- It also helps the producer to adopt an effective marketing program and serve
the consumer better at comparatively low cost. Different marketing program can be attached for different
segments.
6. Evaluation of marketing activities- The market segmentation helps the manufacturer to find out and
compare the marketing potentialities of the products. It helps to adjust production and in using his resources
in the most profitable manner. As soon as the product becomes obsolete, the product line could be diversified
or discontinued.
7. Increase in sales volume-By segmenting the market, the producer can increase his sales volume. As we
know, each segment has demand pattern and the producer satisfies the demand of each segment, by
improving his product. The total sales volume for the enterprise increases. Customer is also benefitted by the 
market segmentation as the producer produces and supplies the goods which serves their interest and satisfy
their needs and wants.

BASES/APPROACHES OF MARKET SEGMENTATION

In market segmentation, the crucial issue is to how to identify the market segments and there are two basic
approaches employed to identify market segments.
A.Consumer Characteristic Approach B.Consumer Response Approach

A.Consumer Characteristic Approach

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Consumer characteristic or personal segment bases measure in terms of geographic, demographic and
psychographic features of consumers. These characteristics portray the consumer in terms of Where they live ?
Who are they?How they behave? Following is the brief explanation of each such consumer characteristics and
its variables. 
1.Geographic characteristics : Historically the first and probably the most obvious basis for segmentation of
markets has been geographic characteristics of people. Regional differences in consumer tastes for products as a
whole are well-known. The sellers distinguish carefully among the regions in which they operate and select
where they have comparative advantage. Thus, small retailer may distinguish between nearby or surrounding
customers and distant customers or far-off one. A fertilizer dealer may have grouping as-urban and rural. A
regional manufacturing company may have segments as in terms of zones -North--South---East and West. A
national manufacturer might have different sales territories in terms of States-Divisions Districts-Taluks-Cities
and Towns. Though geographic segmentation helps the marketers to concentrate their efforts to the exact places,
organizational, promotional and distributional efforts can be fruitfully utilized. Consumers do not stick to a
particular locality or a region. The geographic mobility changes consumer habits thus, canceling the
organisational set-up.

2.Demographic and socio-economic characteristics: By far the most common approach to market
segmentation has been the identification of buyer groups according to selected demographic and socio-economic
characteristics. Demography is the study of human population in terms of its size, density and distribution. These
demographic and social economic characteristic are-age group,--sex--family size, income, occupation level of
education religion, ethnic status, social class and the like. For instance, a marketing manager of a carpet
manufacturing company might decide the market segmentation on such characteristics such as family income,
size of the family and home ownership. Ideally, the manager would like to cross these tabulated variables to
have clear twenty four possibilities-he has four income groups, three family sizes and two types of ownerships.
Each family belongs to one of these twenty four segments. After weighing the profit potentiality, the manager
can select the best one to his advantage. Although demographic and socio-economic segmentation tells the firm
as to who is the most likely customer to buy the product or a service, it does not disclose about the brand he or
she likes.
3.Psychographic characteristics: Psychographics is a recent approach to market segmentation which has
emerged as a major alternative to the traditional approaches. Psychographics seeks to describe the human
characters of consumers that have bearings on their responses to product’s packaging, advertising and public
relations efforts. Psychographic characteristics include variables like personality attitudes and life styles.
Personality is the individual’s consistent reactions to the world that surrounds him. The personality variables are-
dominance, aggressiveness, objectivity, achievement motivation and the like. These influence the buyer
behavior. The renowned example of this kind is the famous personality study conducted by American
automobile industrialist in case of Ford versus Chevrolet cars. According to the study, Ford cars attracted the
personalities with variables like “independent, impulsive, masculine, alert to change and self-confident'.
Chevrolet cars, on the other hand, “conservative, thrifty, prestige conscious, less masculine and seeking to avoid
extremes”. This applies to other consumer durable and nondurable items. Life-style, it stands for the people’s
activities, opinions and the sum-total their interests and values. Thus, the customers can be grouped as Swingers
who seek up to date goods; Status Seekers who try to buy goods that will reflect a high status in the society and
the Plain Joes who seek ordinary, unfilled goods that do their job.

B.Consumer Response Approach

Unlike consumer characteristic approach, the consumer response approach believes in why a consumer buys a
product than asking who the consumer is. Consumer response to the market offerings is much more important
which can be made as the bases segmentation. These responses are benefit, usage, loyalty and the occasion. 
1.Benefit response : Under this, the consumers are subdivided into specific groups in relation to the various
benefits that the buyer is seeking from a product in particular. The benefits sought differ from product to
product. These benefits are-the aspects of efficiency, prestige, durability, economy or resale value and the like.
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For instance, in case of tooth-paste, the benefits sought may be bright teeth, taste and low price. In case of an
automobile the benefits sought may be the fuel efficiency, quality, and status and resale value. Thus, a company
can choose the benefit it wants to emphasize, create a product and deliver it by a direct message to the group
seeking that benefit or set of benefits.
2.Usage response -The amount of usage of a particular product has its say among different consumer segments.
Under this approach, the seller distinguishes the users as the Heavy, Medium, Light and Non-User of his
product. Then he attempts to determine whether these groups differ in demographic and psychographic factors.
Thus, the classification is into primary groups as Users, Non-Users and Potential Users. Actual users are
separated as to Heavy and Light Users. Non-user group is consisting of two types of people. One, those who
generally do not use his product (Non-potential Users) and those who might use (Potential Users). Much caution
should be exercised before writing off the people as Non-potential Users because, every rule has an exception.
Potential Users are those who do not use the product but who are not barred from its use for any functional,
cultural or economic reason. Many a times, it may be the ignorance of the product or inertia or even a
psychological resistance. However, these can be removed effectively. Thus, extensive information feed will kill
ignorance, inertia will be eased by repetitive ads and psychological resistances by thernatic ads.
3.Loyalty responses: Loyalty response or product-space response is the latest base used for segmentation. It
works on the fact that the consumers can differentiate between the products and they create a product preference
scale. That is, the buyers are asked to compare the existing brands of product and rate them as they perceive
them based on their liking. Such attempt helps the seller in developing an ideal brand to which a sizeable group
of customers it clustering. However, it is really very difficult to pin down correctly the loyalty. There is
no guarantee that the most loyal consumers are the heaviest users. Further, brand loyalty is, too hard to measure
because, it depends on the availability of competing products. Again reasons for faith in a particular product are
too often too personal to take as the basis for effective segmentation.
4.Occasion response: The earlier noted responses of loyalty, benefit and usage are that vary according to the
immediate situation. For this reason, the shrewd marketers occasion response to determine which situations
produce optimal consumption patterns for a given product. This sense of occasion is of top significance when it
comes to the question of designing the marketing-mix. For instance, for daily use most people use common
brand toilet soap cakes but for special occasion specific brands of toilet soap cakes are used. 

In conclusion, it can be said that the marketer may proceed to segment his market in many ways. His goal is to
delimit and determine the most decisive mode of segmentation. Once, the manager has the sound understanding
of markets to be approached, intelligent decisions about product, price, promotion and place can be made.
ALTERNATIVE STRATEGIES TOWARDS MARKET SEGMENTATION

There are 3 alternative strategies to be followed while segmenting markets :

1. MARKET SEGMENTATION-Also called market segregation- under this strategy a firms total market
is divided into so many sub – markets for the purpose of differentiating in prices, product etc.
2. MARKET AGGREGATION-Under this strategy only a single product is produced & offered to the
entire market. Changes are made only in promotional activities, prices etc. but no changes are made in
the product Eg. Kerosene, gas etc. In this way market aggregation is just opposite to market
segmentation.
3. CONCENTRATED MARKETING -It refers to the concentration of marketing efforts in a few
segments so as to gain good market position in that segment Eg. Johnson & Johnson for child care
products. This method is suitable while introducing new products.

MARKET TARGETING/ TARGET MARKETING

TARGET MARKET- Refers to a group of customers at whom the organization specifically intends to aim its
marketing efforts.

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MARKET TARGETING- It’s a process of taking decision regarding the market segments to be served.

It’s the one in which the seller distinguish the major segments, targets one or more of those segments & develops
products & marketing programmes tailor made for each selected segment.

STEPS IN MARKET TARGETING

There are two steps involved
Step 1. Evaluating the market segments
In evaluating the market segments, the firm must look at 3 factors
1)Segment Size and Growth-The segment must be of the right size and must have sales prospects and
profitability.
2)Segment’s structural attractiveness-The long-term profit attractiveness of the market segment is
determined by five forces.
Industrial competition
Potential entrants
Substitutes
Buyers
Suppliers
3)Company objectives & Resources available to the firm.

Step 2. Selecting the marketing segment : There are4 patterns of market selection(MARKET
TARGETTING STRATEGIES)
1. UNDIFFERENTIATED OR MASS MARKETING-Under this strategy, the marketer attempts to
appeal to one large market with a single marketing strategy. It is an unsegmented market in which products
with mass appeal products (aspirin, orange juice, soft drinks, paperback romances, etc.) are offered to every
customer through mass retailers or independent stores, and promoted through mass media. It focuses on
what consumers have in common rather than what’s different. Two of the most widely recognized egs are
Ford and Coco-Cola.
2. DIFFERENTIATED OR SEGMENTATION MARKETING-Marketers choosing this strategy try to
appeal to multiple smaller markets with a unique marketing strategy for each market. The underlying
concept is that bigger markets can be divided into many sub-markets and an organization chooses different
marketing strategies to reach each sub-market it targets. It prepares many separate offerings for many
different markets. For ege, Horlicks offers Horlicks Junior, Horlicks Women Horlicks lite for various
segments with unique needs..
3. CONCENTRATED OR NICHE MARKETING -The word “niche” comes from a French word that
means to nest. Niche marketing is targeting a product or service to a small portion of a market that is not
being readily served by the mainstream product or service marketers. A niche market is a focused,
targetable portion of a market. This strategy combines mass and segmentation marketing by using a single
marketing strategy to appeal to one or more very small markets.Eg: artificial limbs manufacturing
companies.
4. CUSTOMIZED OR MICRO-MARKETING-This newest target marketing strategy attempts to appeal
to targeted customers with individualized marketing programs. For micro-marketing segmentation to be
effective the marketer must, to some degree, allow customers to “build-their-own” products. This approach
requires extensive technical capability for marketers to reach individual customers and allow customers to
interact with the marketer.eg: Designer wear

2.3. MARKET (PRODUCT)POSITIONING

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Positioning refers to ‘how organizations want their customers to see their product’. Positioning shows the space
of a product in the target market. A firm creates an unique image for its product through positioning. A product’s
position is the way the product is defined by consumers on important attributes. Example- Dettol as antiseptic.

ELEMENTS OF MARKET POSITIONING

Positioning has 3 fundamental elements
1. Attributes-These are the characteristics of a product marketed by the company in the target market. It
includes qualities such as shapes, size, price, colour, weight, durability, and maintainability. For
example, the design of a car, power of its engine, mileage, price etc.
2. Product Communication-It deals with the way in which a product is communicated to the target market
through various advertisement and promotion measures. Effective product communication helps a firm to
create awareness, knowledge and interest in the targeted customers.
3. Perception-It deals with how consumers perceive a product compared to other competing brands in the
target market. Consumers may maintain a positive or negative attitude towards a product. The attitude of
the consumers depends on their perception regarding the product.
Positioning is the combination of these three elements. It about a product’s attributes, how it is communicated,
and the way in which these two elements are perceived by the customers.

STEPS IN POSITIONING
The various tasks involved in positioning are as follows.
1. Identifying the Competitors- A first step is to identify the competition. There is basically two types of
competitors: 1) Primary competitors i.e., competitors belonging to the same product class ii) Secondary
competitors, those belonging to other product category.
2. Determining how the Competitors are Perceived and Evaluated -The second step is related to determine when
the competitors’ products are purchased by the customers and the type of attributes customers look for.
3. Determining the competitor’s positions- Next focus is to determine how different brands (including our own
brand) are positioned with respect to the relevant attributes selected under the previous step. At this point we
should be clear about what is the image that the customer has about the various product brands? You have to see
how are they positioned in respect to each other? Which competitors are perceived as similar and which as
different? This judgment can be made subjectively
4. Analyzing the Customer -Now you need to analysis the customers habits and behavior in a particular market
segment. The following questions need attention while understanding the customer and the market (i). how is
market segmented? (ii) What role does the product class pay in the customer’s life style? What really motivates
the customers? And what habits and behavior patterns are relevant?
5. Making the positioning Decision & Monitoring it -Identifying the most appropriate positioning of the product
amidst competitors which is economically viable. Monitoring helps to check and change the acceptability of
product among customers.

MARKET POSITIONING STRATEGIES 

1. Positioning by product attributes and benefits.
It is relating a product with a particular feature. Sometimes it can in terms of two or more attributes 
simultaneously. It is a common approach in positioning a product on the basis of the specific characteristics or
benefits offered. For example, Colgate offers the benefits of preventing cavity and fresh breath. 

2. Positioning by price
Marketers commonly use pricing as a strategy to position their products. Premium brands are positioned at high
price to capture the market whereas others offer their brands at competitive price. For example, Maggie offered
at Rs.5/-.
3. Positioning by use or application 

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Another important positioning strategy followed by companies is relating their products with a specific use or
application. For example, ‘Surf Excel’ is positioned as stain remover.
4. Positioning by product user
This strategy is based on certain products being suited for certain users. For example, insurance policies
specifically designed to senior citizens, kids etc.
5. Positioning by product class
The Company may vary positioning as needed in relation to one or more competitors. (Medicare clears lice and
All clear dandruff)When close substitutes exist, the firm may focus on the benefits its product class relative to
other product classes.
6. Positioning by competitor.
Certain firms compare their brands with the competitors’ brands as a means of gaining the desired position for
their brands in the mind of the consumer. For example, most of the FMCG (Fast Moving Consumer Goods)
companies position their brands in the market by advertising that their brands are better than that of the
competitors. 
7. Positioning by cultural symbols
Some companies use cultural symbols to differentiate the' brands. For example, Air India uses the Image
(symbol) of the Maharaja (Indian king) so as to associate itself with the Indian heritage.
8. Positioning by usage occasions-The product usage can be associated with special occasions or values. (Diary
milk for celebrities)
9. Positioning by users-A product can be positioned to its most important users. (Horlicks women only to serve
the needs of women)
10.Repositioning- Changing a product or its promotion to appeal a different market segment. (Dettol soap from
an antiseptic to a family soap)

CONSUMER BEHAVIOUR
Nature & Scope
It is the act consuming a good or service. To be successful the marketer must know the following with regard to
a customer:
1. Who is the customer ? – Tastes & preference of a customer.
2. What does he buy ? – Type of product to be produced.
3. Why does he buy ? – Objectives behind purchasing a product.
4. How does he buy ? – Customer service & packaging, style etc.
5. From whom does he buy ? – Channel of distribution.
6. When does he buy ? – Occasion.
Hence the study of consumer behavior is fundamental to the marketing process.

DETERMINANTS OF CONSUMER BEHAVIOUR

FACTORS INFLUENCING CONSUMER DECISION MAKING

The determinants of consumer behaviour can be grouped into three major captions namely, 1.economic,
2.psychological and 3.sociological.

1. ECONOMIC DETERMINANTS
1. Personal income: Income means purchasing power. When we talk of income in marketing sense, we are
concerned with ‘disposable income’ and “discretionary income’. ‘Disposable income ‘is the sum of money
that a consumer has at his disposal for spending or saving or both. When disposable income increases, the
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consumer spending not only increases but also consumer starts spending on luxuries as well. Discretionary
income is the residual income left after meeting minimum subsistence needs of family. A rise in discretionary
income results in increased spending by consumers on those items that raise their living standards and life
style.
2. Family Income-When a consumer is a member of join family, the buyer behaviour is influenced by family
income rather than individual income. In a joint family, it may so happen a rise in income of an individual
member may be neutralised by a fall in another member income. That is why it is the relationship between the
family size and the requirements and income that finally determines the buying behaviour or the family
members. 
Consumer income expectations: Many a times, it is the future income expectation of the consumer that
influences such consumer behaviour. It is the optimism or the pessimism about consumer income that
determines the level of current spending. If there are bid prospects of future expected income, he spends less
now and saves more and vice versa.
3. Consumer liquid assets: Liquid assets of consumers are the assets held in the money or near money forms of
investments. If a person has more such liquid assets, more carefree he comes in spending the current or the
regular income. 
4. Consumer credit: Consumer credit is a facility extended by a market to postpone the payment of products
bought to some future date. Consumer credit may be in the form of deferred payment, instalment purchasing,
hire-purchase arrangements and the like. Availability of consumer credit makes the consumer to go in for
those consumer durables which he would have postponed otherwise.
5. The level of standard of living. The established standard of living to which he is used to also influences the
consumer buying pattern. Even if consumer income comes down, the consumer spending will not come down
proportionately because, it is very difficult come down from an established standard of living. On the other
hand, rise in income will lead to improve upon the established standard of living. In case the income falls, the
short-fall is made good by borrowings to a certain extend over a short period of time

2.PSYCHOLOGICAL DETERMINANTS 
1.Motivation -Motivation is the ‘why’ of behaviour. Motivation refers to the drives, urges, wishes or desires
which initiate the sequence of events known as behaviour. Motives can be conscious or unconscious, rational or
emotional, positive or negative. These motives range from a mere biological desires like hunger and thirst to the
most advanced scientific pursuits like landing on the Moon or Mars. It was Abraham Maslow who developed
five step human need hierarchy -those of survival-Safety Belongingness and Love-Esteem and Self
Actualisation. According to him, fulfilment of one will lead to the fulfilment of higher motives. The implications
are that as we move up in the ladder, the input of marketing becomes more and more deep and subtle.

2.Perception -Marketing management is concerned with the understanding of the process of perception because
perception leads to thought and thought leads to action. Perception is the process whereby stimuli are received
and interpreted by the individual based on his experience, attitudes and feelings.
1. Perception and communication: It is estimated that 90 per cent of the stimuli that the individual perceive
come through sight and rest from hearing. That is why, advertisements bank heavily audio on visual stimuli,
which grabs customer attention.
2. Product and Brand Perception- It is brand images and the brand differentiation that play vital role in
perception in addition to the physical characteristics of the product. Therefore, it is a must for a marketer to
examine the factors that impinge on the construction of a brand image to ascertain their effect on consumer
perception.
3. Price perception: Price is another element of marketing mix where perception has implications. Studies have
proved beyond doubt that consumers judge product or service or quality by price. ‘Higher the price better the
quality’ that goes. Another aspect of this price perception is psychological pricing strategies is which
consumers are likely to perceive price cut promotions are drastic price reductions.

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4. Store Perception: There are five major components of stores image namely, location, design, product
assortment, services and personnel each of which contributes to consumer perception of the place from which
he or she buys. Consumer perceptions of stores are greatly influenced by consumer’s own self-perception and
motives. Further, consumer’s self-images influence the places in which they shop.
5. Perceived risk: The concept of perceived-risk recognises that consumer experience a sense of risk in purchase
and that consumer behaviour can be studied profitably as a risk reducing behaviour. The perception of risk in
a purchase situation is a function of the possible consequences and the product uncertainty involved.
Perceived risk can be divided into forms namely, ‘functional’ and ‘psychological’. Functional risk is related
with the performance and the psychosocial risk is related with the fact whether the product enhances one’s
sense of well-being or self-concept
3.Learning-In behavioural science, learning means any change in behaviour which comes about of result of
experience. Learning is the process of acquiring knowledge. Consumer behaviour is a process of learning
because, it is modified according to the customer’s past experiences. This process of learning is made up of four
stages namely Drive-cue-response and Reinforcement. ‘Drive’ refers to an internal state of tension which
warrants action. Thus, hunger or thirst can be a drive. A ‘cue’ is an environmental stimulus, for instance it can be
an ad on food item or soft-drink. ‘Response ‘represents a person’s reaction to cues within his environment. Here,
it can be purchased of food item or soft-drink, .Reinforcement’ is the response reward. The food item or soft
drink satisfies the hunger or thirst. When reinforcement happens, the response may be duplicated resulting in
habit formation or absence of reinforcement results in extinction of learnt habit.
As most consumer behaviour is learnt behaviour, it has deep impact on consumer buying process. Prior
experience and learning act as buying guide. The strong tendency of most consumers to develop brand loyalties
definitely benefits the makers of established brands. This makes the manufacturer of a new brand to face
difficulty in breaking such loyalties and encouraging brand switching.

4.Attitude -The concept of attitude occupies a central position in the consumer behaviour studies in particular
and social psychology in general because, attitude measurements help in understanding and prediction of
consumer behaviour. ‘Attitude’ refers to a predisposition to behave in a particular way when presented with a
given stimulus and the attitudes towards people, places, products and things can be positive or negative or
favourable or unfavourable. Attitudes develop gradually as a result of experience; they emerge from interaction
of a person with family, friends, and reference groups.

5.Personality –It consists of mannerisms, habits and actions that make a person an individual and thereby serve
to mm him distinct from everyone else. It is the function of innate drives, learned motives, experience. This
means that an individual responds with certain amount of consistency similar stimuli. The personality of an
individual is either expressed in terms of traits or type. Personality traits may be- aggressiveness-honesty-anxiety
-independence sociability and so on.Each of these traits and types has been explored as the possible clues to the
behaviour of consumers. Evaluation of personality’s role in marketing is seen in drawing consumer profiles and
psychograph market segmentation.
 

3.SOCIOLOGICAL DETERMINANTS 

1. Family-Many of the decisions made by consumers are taken within the environment of the familyand are
affected by the desires, attitudes, and values of the other family members. Family, as the primary group, is vital
because, it links the individual with a wider society and it is through this that the individual learns the roles
appropriate to the adult life. The family can be ‘nuclear’ or ‘extended’. A ‘nuclear’ family is a two generational
family which consists of usually, a mother-father and children. The ‘extended’ family is one that spans atleast
three generations which consists of mother-father-children-grandparents-uncles-aunts-nephews and other in-
laws. The family impact on consumer buying behaviour can be traced in two ways-
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1. The family influence on the individual personality characteristics, attitudes and the evaluative criteria and 2.
The family influence in the decision-making process involved in the purchases.
Family is both a purchasing and consuming unit. 1n nuclear families, it is mostly the house-wife that has an
upper hand in family purchases regarding her family role such as food, clothing, cosmetics, interior decoration
and jewelleries. Father has say over clothing, education, insurance etc. The children have say in clothes, sports-
equipment and recreational facilities.
2. Reference groups -Each person in the society is not only the member of his family but the member of some
group or groups outside the family circle. These groups can be called as ‘reference groups’. ‘Reference groups’
are those groups which an individual identifies with to the extent that these groups become a standard or norm
which influences his behaviour. Such group come under the following 5 classifications:
1. Membership group – are those to which a person is a member to which he belongs & interacts.
2. Primary group – include groups of family members, friends etc. Among whom the person has a fairly
continuous interaction.
3. Secondary group – include religious & professional group where there is only less continuous interaction.
4. Aspirational group – are those to which a person aspires to become a member. People are also influenced by
such groups.
5. Dissociative groups – are those whose value and principles an individual rejects.
These reference groups have face to face interactions that provide word of more communication which is more
powerful than formal advertising.
3. Opinion leaders -Like reference groups, ‘opinion leaders’ or ‘influentials’ play a key role in influencing the
buying behaviour of their followers. Very often we come across situations where a person refers to an individual
than a group in formulating his or her behaviour pattern. The individual to whom such reference is made by a
person or persons is the Opinion leader. The beliefs, preferences, attitudes, actions and behaviour of the leader
set a trend and a pattern for others to follow in given situation .Marketers very often try to catch hold of the
opinion leaders through ads and if they succeed in selling their ideas and products to the opinion leaders then
they have sold it to the entire group of followers behind them.
4. Social class and caste-Buying behaviour of individuals is also influenced by the social class and the caste to
which they belong. Upper, middle and lower classes of the society show different buying behaviour low class
consumer buy on impulse & care little for advertisements. Middle class does more careful buying after reading
advertisements & comparing prices. At the same time, upper class needs high-class goods to maintain their
social status
5. Culture-Culture adds yet another dimension to the study of consumer behaviour. ‘Culture" refers to all those
symbols, anti-factor and behavioural patterns which are passed on socially from one generation to the next. It
includes cognitive elements, beliefs, values, and norms, signs and non-normative behaviour. Cultures are
specific to the areas in which they evolve. Y. Thus, each nation has its distinct culture ; however, in a particular
nation, there may be subcultures identified on the basis of ethnicity, nationality, religion and race .Cultural and
sub-cultural groups have their unique consumption patterns that provide important bases to the marketers.
Cultural trends have significant implications for market segmentation, product development, advertising,
merchandising, branding and packaging. While designing the marketing-mix, it is but essential to determine the
broad cultural values that are relevant to the product as well as the most effective means of conveying these
values. A shrewd marketer never contradicts these cultural values in product, promotion, price and 

BUYING MOTIVES

Buying motives can be broadly classified into 2

A. PRODUCT MOTIVES
Product buying motives are those that prompt the consumer or propel him to buy because of physical and
psychological product attributes. These product buying motives may be either ‘emotional’ or ‘rational’.
1.PRODUCT EMOTIONAL BUYING MOTIVES 

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Emotion is the excited state of feeling or mental agitation. Emotional decision is not based on detailed study or
plan but is the outcome of the spur of the moment. Emotional buying motives pertaining to product can be. 
1. Pride : Man and woman are proud of their achievements, birth in family, social standing or status, possessions
like riches, knowledge, talents, skills, salary drawn, power enjoyed. Such persons led by-pride go on buying
those products that help them in getting satisfaction through showmanship.
2. Vanity: Like pride, vanity plays a decisive role in the life of a person. Vanity is making empty showmanship.
That is, they will buy goods that they really do not need and afford. Thus, a rich man buys a modern art canvas
not because he understood it but he wants to show of his riches.
3. Jealousy: Closely related to pride and vanity is jealousy. . Jealousy is the habit of hating others because, they
are superior in a given field, it may be matter of intelligence, riches, beauty, health, achievements and the like.
4. Fashion or Imitation: To imitate is to copy the things. It is basic human tendency to imitate others in many
ways--may be their style of walking, talking, speaking, singing etc
5. Sex: Though sex or romance is a basic human motive, it is emotional. It is the sex appeal that makes teen-
agers and adults to behave in an unusual manner. Love is mutual and needs sex-partnership. It is this sex appeal
which makes the men and women to look more young and smart than they are, to attract the opposite sex. That is
why, men and women spend a lot on clothing, cosmetics and entertaining.
6. Habits: Human beings are the slaves of habits. A habit is a repetitive act on his or her part done consciously
or subconsciously or unconsciously.
7. Love and Affection: Human beings are basically social animals and the motive of love and affection or
attachment for his or her dear and near once is quite natural.
8. Comfort-t is natural tendency to avoid strain, pain, physical exertion. The comfort is influenced by the factors
like softness, accuracy, noise, space, humidity, heat, cold and the like. Thus, a rich person prefers to buy a foam
beds to cotton or coir ones. Remote control comes in place of manual operation.
9. Aesthetic Pleasure: Aesthetics is the study of art, tastes, beauty, aroma etc.; Aesthetic pleasure is derived by
human-beings through their sensual gratification Thus, the concept of beauty differs from person to person and
time to time, this motive of sensual gratification or aesthetic pleasure has revolutionised the design and the
beauty of articles like four-wheelers, two wheelers, machines, clothing, architecture, packing and packaging,
furniture etc
10.Praise : Some people like to be praised or admired by Others and this is a buying motive.

2.PRODUCT RATIONAL MOTIVES

 Rational motives are reasoning or judgement.
1. Safety or Fear: Human life is patent example of uncertainty as it is full of hazards. The fears and tensions
have made men to be cautious .Precaution is better than cure. Today, we are buying vitamins, pills, capsules,
tonics for maintaining and improving sound health, iron safes and burglar alarms for safety, insurance
policies to reduce and shift risks. Thus, fear is the key and strongest motive.
2. Suitability: Individual requirements differ widely depending on his paying capacity, size of the house or a
flat, relations with outside world and the like.
3. Durability: Durability is the quality of lasting longer. Each one is interested in durability of a product before
he invests his money particularly in case of consumer durables such as cars, two-wheelers, washing
machines, micro-wave oven, cooking range, sewing machine, etc.. It is because, these are lifelong
investments. 
Economy: Economy is the most common rational motive of a person. Economy is seen from two points
namely original investment and operating costs.
4. Convenience: Easy and cosy attempts and approaches lead to convenience. Convenience is the most sought
after rational buying motive. Convenience speaks of saving valuable time, mental and physical exertion and
guarantees accurate and efficient work. We neednot go to cricket and foot-ball stadium to see matches as
idiot’s boxes have done it right at one’s drawing room.

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5. Versatility: Versatility is that quality which permits the user to put the product to alternative uses. Getting
maximum utility is the point. We are having today, two-in-one, three-in-one, sound gadgets, folding tables
and chairs, parasols, walking sticks etc.
6. Profit or Cupidity -To be very accurate, one wants to earn not only just profit but more profit in minimum
possible time. People buy shares and bonds, invest in saving schemes, deposits, mutual funds mainly because
of revenue and capital gain and tax concession
7. Curiosity: Curiosity is the burning passion for new experience.
8. Recreation: Human life is ongoing. Human body needs rest or recouping space. After a day's work or weeks
work, persons do resort to evening strolls, reading, enjoying movies, attending get-togethers, witness matches
in stadium, drams in academics and so on. This recreational motive that keeps his physical and mental health
in kilt.
9. Hobbies :. Hobbies are rational' and creative and are purely personal. The hobbies make those persons to buy
those products and services that further their attainment and satisfaction.
 
B. PATRONAGE MOTIVES
Patronage motives speak of the choice of a particular person or an outlet for purchase. These may be emotional
and rational.

1. PATRONAGE EMOTIONAL MOTIVES-here selection is founded on the casual factors and these are
1. Appearance of the Store: It is the mob psychology that a store that is attractive or alluring deserves entry.
2. Recommendation of Friends and Relatives-Good many times, a person prefers a particular shop not
because he thinks appropriate but because it has been recommended strongly by his friends and relatives.
3. Imitation: Imitation is one bad thing that makes many customers to go in to a particular shop or a store.
Here, the opinion leaders, trend-setters, have their role play.
4. Prestige: For some people prestige is all. For the sake of prestige, they do and undo the things. In case of
people who have good deal of amassed wealth and those of social status; have a particular lifestyle and they
want to maintain it at any rate
5. Consumer loyalty is developed out of consumer habit. Once he is emotionally attracted by a particular store,
he continues to patronise the same. It is the usual case with grocers, green~ grocers, druggists and chemists,
barbers, beauty parlours, restaurants, hotels, motels, and so on.
2. PATRONAGE RATIONAL MOTIVES
1. Proximity: Convenience in buying cannot be ruled out. Here cost is not a matter. What is convenient to one
may not be convenient to another. It is purely individualistic
2. Widest Assortment: People do not want to move from one place to another in search of things of routine
type. They prefer that store which provides the widest choice through assortments. That is, in each item wide
range of varieties are provided in terms of size, dimensions, weight, colour, taste, packages and so on.
3. Credit Facilities: Credit facilitates the individuals to adjust their weekly or monthly budgets and those stores
that grant credit liberally, attract customers on permanent basis. It can be a point of consumer preference and
loyalty.
4. Treatment: Buying the goods is done by any one from anyone. Today’s customer wants that he is to be
given due respect through Warm treatment. Courtesy, modesty meekness in behaviour of the sales-staff and
the owner make the customer feel at home. Individual and timely treatment makes a person to support to that
shop. 
5. Services Offered: Consumers have their preference for a store that is known for additional services on
request of the Customer. These are door delivery, booking orders on phone, replacements, and repairs at
reasonable prices or cost, accommodating complaints. Sometimes, even giving emergency help in the form of
finance, parking, lift and the like.

CHARACTERISTICS OF BUYING MOTIVES

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1. They are the Inner Feelings-Buying motive is an important aspect of buyer’s psychology like those of
knowledge attitude, intention or the image. It is a feeling, emotion or an instinct which creates a Strong
desire to purchase an article.
2. They are Countless-Like human wants, the buying motives are many. Men and women are bundle of
desires. Some of these are hidden or covert and unexplained.
3. They Differ in Significance-All buying motives are of not equal importance . They are capable of being
ranked on scale of preference. Physiological needs are necessary to maintain health and normal well-
being. Safety needs are the desires for factors that give a sale and secure environment and freedom from
danger. Social needs include feelings of belonging, friendship, love, affection and acceptance from
others. Ego needs are truly individual needs including self-esteem, personal reputation and status
Fulfilment of esteem needs give individual a feeling of personal worth and self-confidence. Self-
actualisation needs relate to the desire to attain one’s full potential in life and work. In other words, the
above ranking pattern takes place under normal circumstances.
4. They are not the same for All-Buying motives needs not be same for all the people. The buying
motives differ from person to person because, they differ in heredity, environment, level of education,
training and experience.
5. They Differ in Intensity-Intensity of buying motives differs widely from person to person
6. They Influence Together-Whenever a person decides to buy, his buying decision is hardly the result of
a single buying motive. They work in unison to force him to decide or come to the cut-off point of
purchase. Thus, when a fully automatic washing machine is bought the motives behind such purchase are
both product and patronage and rational and emotional. He might have been influenced by the motives of
economy, durability, vanity, pride, comfort, convenience, attractive make, color and so on. Thus, it is a
mix of these that makes him to buy a particular product.

IMPORTANCE OF BUYING MOTIVES

1. They are the Basis in Product Planning and Development

Product strategies are the outcome of buying motives. A seller and manufacturer makes decisions regarding
colour, size, dimensions, design, packing, packaging, weight, taste, and the like on the basis of buyer’s
psychology. He cannot make available that product which is against the consumer specifications. Consumer is
the monarch and his likes and dislikes, tastes are to be catered to, for the firm’s survival and success. 

2. They are the Determinants of Pricing Policies

Product pricing is a delicate yet very significant issue that is to be tackled with utmost care and caution. It is the
price that makes or mars the fortunes of the firm. If the consumers are moved by the rational motives the prices
should be the lowest or competitive while can be pretty high if moved by emotional motives because  people pay
high price.

3.They are Helpful in Designing Promotional Policies

Promotional policies and the strategies hover round three important areas namely, Personal selling, advertising,
and sales promotion. Any wing is influenced greatly and deeply by buying motives. Salesman works on
understanding buying motives and capitalizes on them; a piece of advertisement tries to appeal to his inner
feelings; sales-promotion cannot abstain from this, as it is supplementary to personal selling and advertising

4.They are the Planks of Distribution Policies-Making available the most suitable goods is one thing and
making them available to Customers at their convenient demand points is another. 

TYPES OF BUYING BEHAVIOUR

Based on the degree of buyer involvement in a purchase & the degree of differences among the brands, buying
behaviour can be classified into 4 types.
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Degree of Degree of
Involvement of buyer differences among brands

1. Complex Buying Behaviour High High

2. Dissonance Reducing Buying Behaviour High Low
3. Habitual Buying Behaviour Low Low
4. Variety Seeking Buying Behaviour Low High

1. COMPLEX BUYING BEHAVIOUR-This type is found when the customers are highly involved in a
purchase and are aware of significant differences among brands. The involvement is high only when the product
is expensive and purchased rarely. The customer therefore, seeks info on the product before the purchase & so
the marketer must develop strategies to enable the customer to learn more about the products.

2. DISSONANCE REDUCING BUYING BEHAVIOUR- This type is found when consumers are highly
involved but sees low differences among brands. Here high involvement is essential because the purchase is
expensive, rare & risky. The consumer will purchase the product but later experiences “dissonance” when he
hears favorable things about similar products or notices unfavorable features of his own product. In such a
situation, the marketer must aim at supplying beliefs & evaluations, which will help the customer feel good
about his product.

3. HABITUAL BUYING BEHAVIOUR-This type is formed when the consumers have low involvement
& there are low significant brand differences. Low cost, frequently purchased products like match box, Salt etc
require low involvement in purchasing as there is no need for evaluation in this case. In such a situation, the
marketer should try to convert low involvement to high involvement. E.g. : Introduction of iodized salt.

4. VARIETY SEEKING BUYING BEHAVIOUR-Here the consumer’s involvement is very low, but
brand differences are significant & the customers can do a lot of brand switching, because of lot of choice
available. Brand switching offers better variety to the consumer E.g. soft drinks, confectionaries, talcum powder
etc. The marketer must concentrate on promotional strategies like low prices, discount coupons, free samples
etc. to attract customer preference in such a situation.

BUYING DECISION PROCESS

1.PROBLEM RECOGNITION - Recognizing the problem or need is the first step in the buying decision
process. The need can be created by external stimuli & internal stimuli. The marketer has to identify the most
frequent stimuli that spark interest in the product category & develop marketing strategies that trigger customer
interest.

2.INFORMATION SEARCH- In this stage the customer will search for information on the product &
there are 4 groups of information sources available to him.
1) PERSONAL SOURCES – Family, friends, neighbor etc.
2) COMMERCIAL SOURCES – Advertisement, Salesman, dealer, package..
3) PUBLIC SOURCES – mass media
4) EXPERIMENTAL SOURCES – examining, using & handling the product.
By gathering information from these sources the customer learns about competing brands & their
features. The marketer should identify these information sources & should try to convince the buyer on the
relative merits of his product in comparison with similar products of the competitors.

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3.EVALUATION OF ALTERNATIVES- In this stage the consumer evaluates the various product alternatives
available in the market on the basis of certain attributes. The attributes of interest to a buyer vary with
products E.g. attributes normally required in case of tyres are safety, tread life, quality in price while in the case
of an automobile they are brand, style & accessories. The marketer must therefore identify the attributes the
customer gives importance in the product he tries to sell.

4.PURCHASE DECISION- Having evaluated the purchase alternatives, the next step is taking decision as to
buy or not to buy. If he has decided to buy, the customer has to take decision as to which brand, how much, from
whom, when & how to make the payment.

5.POST PURCHASE BEHAVIOR-After purchasing the product, the customer will experience some level of
satisfaction or dissatisfaction, which will influence his subsequent behaviour. If satisfied, the customer
will show more interest to buy the product again. However, a dissatisfied customer will behave differently he
may try to return the product or seek information that might confirm its value. Post-purchase behaviour or
reaction stands for the behaviour of a consumer after a commitment to product has been made. This post-
purchase, experience may be a set of positive or negative feelings. Positive feeling or satisfaction will result in
repeat sales or at least recommending the products or services to other; on the other hand, dis-satisfaction or
negative feelings creating anxiety and doubts. This stage of mind is called as ‘cognitive dissonance’. He tries to
reduce it by going in for other alternative product or service in search of highest level of satisfaction

Understanding the customer his need, patterns of buying behaviour & major influence on him will help the
marketer to design effective marketing programs.

There are 5 stages in the buying decision process:

(1) PROBLEM RECOGNITION

Personal Sources
Commercial Sources
(2) INFORMATION SEARCH Public Sources
Experimental Sources

(3) EVALUATION OF ALTERNATIVES

(3) PURCHASE DECISION To Buy

Not To Buy

(5) POST PURCHASE BEHAVIOUR

CUSTOMER VALUE OR CUSTOMER DELIVERED VALUE

Product Value
Service Value
Image Value
Personal Value

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Total Customer Value
Customer Value
Total Customer Cost

Monetary Cost
Time Cost
Energy Cost
Psychic Cost

Customer value is the difference between the value a customer gains from owning & using a product & the cost
of obtaining the product. Faced with a growing range of choice in products & services, consumers base their
buying decisions on perceptions of quality, value & service. The customers’ will usually choose the product that
maximizes their delivered value. Customer delivered value is the difference between total customer value and
total customer cost of a marketing offer.
TOTAL CUSTOMER VALUE - It’s the bundle of benefits that the customer expects from a given product
or service.
TOTAL CUSTOMER COST -It is a bundle of costs, customer is expected to incur in evaluating, obtaining &
using the product or service.

CUSTOMER SATISFACTION

Product’s Perceived > Delighted Buyers

Performance = Satisfied
< Dissatisfied Expectations

It refers to the extent to which the product’s perceived performance exceeds a buyer’s expectation. If the
products performance exceeds buyer’s expectations, the customer is highly satisfied or delighted (CUSTOMER
DELIGHT). If the performance matches expectations, the customer is satisfied. If the performance falls short of
expectations, the customer is dissatisfied. Many companies are looking for high satisfaction because customers
who are dissatisfied are seen to switch brands easily. High satisfaction or delight builds an emotional affinity
(liking) with the brand, which results in high customer loyalty.

CUSTOMER RETENTION

Today most successful companies are raising expectations & delivering performance to match it. A company can
always increase customer satisfaction by either lowering its prices or improving the services, but this may result
in reduction in profits. Hence, the purpose of marketing is to generate customer value profitably by the customer
retention methods & effective promotions.

At present stiff competition has brought forth fighting for shares among the companies are also realizing that
loosing a customer is more than loosing a single sale, it means loosing the entire stream of purchases that the
customer will make for a lifetime. The cost of keeping an existing customer is found to be five times less than the
cost of obtaining a new customer. Hence, retaining a customer or customer retention plays an important role in
marketing.

There are two ways for customer retention

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1. To erect high switching barriers so that the customers are less inclined to switch over due to high
capital cost, high search cost, loss of loyal customer discounts etc.

2. The better approach is to develop high customer satisfaction & the major tools for creating high
customer satisfaction are:

1. Relationship marketing -It includes all those steps that the firm undertakes to know & serve better, their
customers.
2. Value Chain- It is a tool for identifying ways to create high customer value & depends on the
assumption that each department in a firm is a link in its value chain & the firm’s success depends not
only how well each department functions but also how well their activities are coordinated for a well
defined goal achievement..
3. Value delivering Network- To be successful firms also need to look for competitive advantages
beyond its value chain, into the value provide by its suppliers.
4. Total quality management (TQM)-Its is an organization wide approach to consistently improve the
quality of product, services & the marketing process.

RELATIONSHIP MARKETING

It involves creating, maintaining & enhancing strong relationship with customer. Its an attempt to establish long
term relationship with the customer & is an effective brand building exercise. The following are the factors that
necessitate relationship marketing. Studies have shown that customers want the following.

 Personalized offering: Products & services have to be made to suit the unique needs & wants of the
customer.
 High quality value: Customer are ready to pay a premium for quality, reliability, ease of use &
maintenance.
 Caring Customer Service
 Customers have reduced loyalty to seller.
The goal here is to develop a long term, cost effective personal relationship with the customer.

CONSUMERISM/ CONSUMER PROTECTION

Consumerism is defined as a social force designed to protect consumer interest in the market
place by organizing consumer pressures on business. Consumerism consists of all the activities undertaken by
independent individuals, groups, & organizations to protect their rights as consumers. Consumerism is a war
against unfair business practices & injustices like supply of unsafe products, adulteration, deceptive advertising,
fictious pricing etc. Consumer Protection Act, 1986, amended by the Consumer Protection (Amendment) Act,
2002, is intended to provide better protection of the interests of consumers & for that purpose make provision for
the establishment of Consumer protection Councils at the Central, State & District levels whose main object will
be to promote & protect the rights of the consumers. 

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Module 3

MARKETING MIX
It’s a term used to describe the combination of 4 inputs/ingredients that constitute the core of a company’s
marketing system. The product, price structure, promotional activities & place or physical distribution-The 4 Ps.
These ingredients are interrelated and all revolve around potential consumer satisfaction as the focal point.
1) PRODUCT- To decide what to produce, its features, design, estimated demand, technical & other product
aspects.
2) PRICE -To determine the basic for fixing prices & the price margin.
3) PROMOTION - Advertising, personal selling & other sales promotion methods to expand as well as retain
the markets.
4) PHYSICAL DISTRIBUTION OR PLACE-Channel of distribution or marketing channels on marketing
intermediates or middlemen or wholesalers, retailers & other agents.
A standard or optimal marketing mix evolves from the creative blending of the ingredients so that the
product is offered to the market under conditions most favorable to the attainment of marketing objectives.

ELEMENTS OF MARKETING MIX

1.THE PRODUCT MIX
The product mix has following important variables.
1) The Product Line and Product Range - Product-line is a group of closely related products which are able to
satisfy a class of need. Each firm has its own product line. Thus, Godrej Company has product line consisting
of-vanaspati, soaps, detergents, fridges, furniture, machine tools, soft-drinks, and so on.
2) Product Design- The marketing decisions start with designing the product in a way which is required by the
target consumer. Product design is an important factor in the sale of many products. Product design is
influenced by external appearance of the product; Construction-the arrangement of parts; Production
capacity; Available capital; Uses or applications for a product; Service and the competitor’s design etc. 
3) Product package-package has the pride of place in merchandising because it protects the products, provides
convenience to the consumers, increases economy and communicates. Packages protect the products against
deterioration, preserve freshness and fIavour, insure against evaporation loss and physical changes due
climatic condition.
4) Product quality -Establishment and control of quality standards is a basic step in merchandising. Generally,
specific grades or quality standards are established for products either by agreement among the producers or
by law.
5) Product labeling-A product label may be either descriptive, informative, grade designating or a combination
of these. Labels are fixed to products to identify them; describe their ingredients, quantity, quality, and other
characteristics.
6) Product branding-Products are identified and labeled with trade-marks or brands composed of letters,
numbers, words and designs. A good brand name is one which is easy to remember, pronounce, describe the
product or its use, suggests product quality distinctive and compliment with legal sanction

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7) After sale services and guarantees-With every increase in the use of machinery, appliances, equipment and
gadgets, there is inherent need for after-sale services such as installation, guarantees and warrantees against
defect, servicing, repairs, spare-parts, maintenance and the like.

2. PLACE MIX
1) Transportation-A selection is to be made of the most efficient, economical, rapid and dependable mode of
transport for the firm’s products taking into account rail, roads, motor trucks, inland-water ways, pipe-lines,
air or railways express and post parcel. This is of particular importance, in these days of ever increasing costs.
It is known fact transport is creating place utility that widens market and marketability for the products of the
firm
2) Warehousing- Warehousing has it own place in distribution of goods that creates time utility by adjusting
supply and demand, preserving or conditioning the product and obtaining more favorable demand and market
price. Hence, plans and policies are to be designed and implemented regarding storage and storage facilities
considering the public Warehouses, private storage and cold storage
3) Inventory Levels and diversification -inventory requirements are dependent on economic conditions,
weather conditions, new or improved products and amount of advertising and sales-promotion. Amount of
inventory involves determining the variety of products, models, sizes, types or colors of each product to
manufacture.
4) The channels of distribution- every manufacturer is faced with the problem of developing plans and policies
involving the choice of channel of distribution of his products. The manufacturer should take into account the
factors such as the type of product-in the nature and extent of market-the channels employed by the
competitors-the relative merits and demerits of each channel of distribution to the manufacturer-in the extent
of cooperation extended by the intermediaries the potential volume, cost and profit derived in case of each
alternative channel.

3. PRICE MIX
1. The Pricing Policies and Strategies: The price policies and strategies are the guidelines  and the frames
within which management administers prices so as to match them to the market needs.
2. The Terms of Credit: It is the ability to offer some form of deferred payment or instalment buying that
facilitates increased market and sales for business firms. Credit, by expanding a market, can make new forms
of production economically worthwhile.
3. Terms of Delivery: Delivery of the goods to the dealers, middlemen and customers is of vital importance.
Clear-cut policies are to be spelled out regarding the terms of delivery as to quantity, time and place of
delivery and the conditions of valid delivery.
4. Margin -Margin here refers to the difference between the final price paid by the consumers and the total cost
incurred in making available to him the product or service. This includes margin of retailer, wholesaler and
producer.
5. Resale Price Maintenance-Resale price maintenance is a practice whereby manufacturers or the distributors
or the importers recommend the price and the profit margin at which a product will be sold.

THE PROMOTION MIX

1. Personal Selling- Personal selling has an important role to play in communication between a firm and its
customers.
2. Advertising- Advertising is a very popular method of impersonal communication using its wide variety of
media and media vehicles. These media are indoor, outdoor, and direct and display advertising.
3. Sales-Promotion- Sales-promotion is the achievement of short-term marketing objectives by schematic
means. It is the function of providing inducements to buy, offered for a limited period only, at the time and
place the purchasing decision is made, which are supplementary to a product’s nominal value.
4. Trade Fairs and Exhibitions - An exhibition is the huge congregation of manufacturers and dealers under a
single roof for displaying, demonstrating and selling their products.
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5. Public Relations -Public relations involve the installation and maintenance of mutual understanding between
a firm and all who are likely to come in contact with it. These sections of society are customers and general
public.

MARKETING MIX-4P’s

Product Price Place Promotion

Line & Range Policies &Strategies Transportation PersonalSelling

Design Credit Terms Warehousing Advertising
Packaging Delivery Terms Inventory Levels Sales Promotion
Quality Margin Distribution Channels Trade Fairs.
Labelling Resale Price Maintenance Public Relations
Branding
AfterSales Services & Guarantees

The company should view the 4 P’s in terms of the customer’s 4 C’s

4 P’s 4 C’s

1. PRODUCTS CUSTOMER NEED

2. PRICE COST TO THE CUSTOMER
3. PLACE CONVENIENCE FOR THE CUSTOMER
4. PROMOTION COMMUNICATION TO THE CUSTOMER

FACTORS AFFECTING MARKETING MIX:

I. Factors Affecting the Market:-

(i) Consumer behavior: Buying habits, living habits, taste, purchasing

power.
(ii) Trade behavior: The structure practice & attitude of
middlemen.
(iii) Competitor’s Behavior: Size & strength of competitor’s, trends,
product choice available.
(iv) Governments Behavior- Policies, taxes levied by government.

II. Factors affecting the products: -

(i) Branding
(ii) Packaging
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(iii) Personal Selling
(iv) Advertising
(v) Promotional Activities etc.

THE PRODUCT
The product represents a bundle of expectations of the customers. According to Philip Kotler “A product is
anything that can be offered to a market for attention, acquisition, use or consumption that might satisfy
a want or a need. It includes physical objects, services, persons, places, organization & ideas”.

Important features/characteristics of a product

1) Tangibility: The product has a tangible character that is touch, see, feel, etc.
2) Intangible attributes: A product be intangible in the form of services such as banking , insurance , etc .
3) Associated Attributes: This includes brand, package, warranty.
4) Exchange value: The product should have an exchange value.
5) Customer Satisfaction: The product should offer value satisfaction to the customer

PRODUCT CONCEPT
It consists of 3 levels: 1.Core product 2.Related product features 3.Related product services
1. Core Product – The product has certain immediately identifiable characteristics & functions that distinguish
it from other product or services. It is the most fundamental level.
2. Related Product Features – These includes brand name, packaging, safety features, style, quality, etc.
3. Related Product Services – These includes installation, delivery, maintenance, repair, guarantee, etc of the
product.

CLASSIFICATION OF PRODUCTS/GOODS

On the basis of Consumption, products are classified into 1.Consumer goods and 2.Industrial goods
Convenience goods
Consumer goods shopping goods
Consumption Speciality goods
Equipment & physical facility
Industrial goods Raw materials
Manufacturing materials
Mgmt Materials
1.Consumer goods - these are goods designed for final consumption and can be classified into 3:
1) Convenience Goods-Goods which consumers buy frequently, immediately and with minimum shopping
efforts. E.g. Newspapers, stationary etc.
2) Shopping Goods-Goods, which consumers buy after making comparison on such bases as suitability,
quality, price, style etc. E.g. Furniture, ready-made garments.
3) Speciality Goods- Good for which significant number of buyers are habitually willing to make a special
purchasing effort. . E.g. Automobiles, electronic goods.

2.Industrial goods -These are used for further production of goods & services & can be classified into the
following:
1) Equipment & Physical facility like plant & machinery, building etc.
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2) Material entering into a product like raw materials, fabricating parts etc.
3) Manufacturing or service supplies like fuel, oil etc.
4) Mgmt materials like stationary, office machine etc.

On the basis of durability, products can be classified into 3.

1) Durable goods: These products are expected to deliver a stream of satisfaction over a period of time &
hence are not purchased frequently. Eg: automobile, refrigerator, etc.
2) Non-durable goods: These products are consumed fast & so are purchased frequently. E.g.: soap, salt,
etc.
3) Services:

{Insistence goods: There are goods, which may or may not be generally available for which the consumer
refuses to take any substitutes. Eg: A customer who wants to buy a car may insist on buying a Ford model. That
particular ford model becomes insistence goods.}

NEW PRODUCT
According to William.J.Stanton, there are 3 recognizable categories of new products.
 Products those are really innovative – truly unique. Eg: TV replaced radio.
 Replacement for existing products, that are significantly different from the existing product. Ex: instant
coffee replaced coffee powder.
 Imitative products: they are new to a company but not new to a market. e.g.: glucose, vitamin tablets, etc.
are marketed by diff companies under diff names.
Perhaps the key criterion as to whether a given product is new is how the intended market perceives it. If the
buyers perceive that a given product is significantly different in some characteristic, appearance or performance,
then it is a new product.

PRODUCT POLICY

The product is a fundamental feature, which determines a firm’s success or failure. The policies of the
firm must be to manufacture the right product for the consumers. “Product policy is concerned with defining the
type, volume & timing of the products a Company offers for sale.”
A product policy generally covers the following:
 Product planning & development
 Product line
 Product mix
 Product branding
 Product style
 Product positioning
 Product packaging

PRODUCT PLANNING & DEVELOPMENT-(NEW PRODUCT DEVELOPMENT STAGES)

It is the 1st step in an entire marketing programme. It is a wider term & includes product
development also. Product development is concerned with technical activities of product research, engineering
& design. Product planning has been defined as the act of making out & supervising the research, screening,
development & commercialization of a new product. Product planning & development involves following 6
steps: -.

IDEA SEARCH
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SCREENING OF
IDEAS

BUSINESS ANALYSIS

PRODUCT DEVELOPMENT

TEST MARKETING

COMMERCIALIZATION

1.Idea search – New products are developed from ideas originated from sources both within & outside the
company like employees, customers, their preferences & tastes etc.

2.Screening of ideas – Ideas are screened in this stage to select those feasible & promising ones for further
processing.

3.Business Analysis – In this stage the management performs the following:

 Identify the product features
 Estimate market demand & product profitability
 Establish a programme to develop the product
 Assign the responsibility for further study of the product’s feasibility.
In this stage an attempt is made to predict the economic consequences of manufacturing a particular product by
the company.

4.Product development – In this stage the idea on paper is converted into a physical product. Pilot models of
the product are produced in small quantities with certain specifications. Technical &laboratory tests are
conducted to determine the feasibility of the product.

5.Test Marketing or Market Testing – In this stage a market test is conducted in a limited geographical area to
determine the feasibility of full-scale production and marketing of a product & also to make re-adjustments in
the product based on test findings. At this stage the management makes a final decision to market the product or
not. (See last section of this chapter)

6. Commercialization – Full-scale production & marketing programmes are planned & then the product is
launched.
Unto this point the management has complete control over the product. However after launching the product, it
enters into its life cycle over which the management has no control. Then only external environmental factors
control the life cycle of the product. In these 6 stages of evolution of the product, the first 3 stages are critical but
least expensive. The subsequent 3 stages are also very important as they involve sizable revenue to the company.

PRODUCT LIFE CYCLE

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As every being has a life, the product has its life. The product passes through five stages collectively known as
the product life cycle-PLC and they are
1) Introduction
2) Growth
3) Maturity
4) Saturation
5) Decline
William J. Stanton has specified one more stage known as 6. Abandonment.
1.Introduction / Market Pioneering Stage:
This is the first stage in the life of a product during which the product is introduced into the market and heavy
advertising and sales promotion activities are undertaken to create customer awareness and increase in sales.
The characteristics of this stage are:
 Low and slow sales
 Highest promotional expenses
 Highest product price

2.Growth/ Market Acceptance Stage:

During this stage the product gains consumer acceptance and the sales as well as the profit increases. The
characteristics of this stage are
 Raising sales at increasing rate.
 Higher promotional expenses
 Product improvements to counter the products of the competitors

Sales Volume

Profit Margin

Introduction Growth Maturity Saturation Decline

3.Maturity Stage:
During this stage competition increases and the sales continue to increase for a while, but at a decreasing rate.
Characteristics of this stage are
 Sale increase at decreasing rate
 Normal promotional expenses
 Uniform and lower prices

4.Saturation Stage:

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During this stage the sales are at its peak and further increase is not possible. The demand for the product is
stable. Characteristics of this stage are:
 Stable sales
 Stiffer competition

5.Decline Stage:
During this stage the sales starts declining and the buyers go for newer and a better products because of
technological advances, changes in consumer taste and preferences, increased competition etc., Characteristics
of this stage are :
 Rapid fall in sale
 Further fall in prices
 No promotional expenses

6. Abandonment Stage:
The last stage in this is of obsolescence. At this stage there is no chance for profitable sales for the product. The
product becomes totally out of date. Hence, management must drop it from the product line.

BENEFITS OF PRODUCT LIFE CYCLE CONCEPT

 When product life cycle is known the management will be cautious in taking advanced steps before the
decline stage by adopting a product modifications, price changes, style, quality changes etc.,
 It enables the management to try new products in order to equalize the profit return.
 Different suitable pricing policy can be formulated for different products passing through different
stages.
 Finds use in sale forecasting, product pricing, advertising, product planning etc.,

CRITICISM ON THE CONCEPT

Though effectively used, PLC is subject to following criticism:

 Absence of absolute conformity- the traditional life cycle does not occur in case of gold, silver,
patented medicine etc, the prices of which respond to economic fluctuation rather than life pattern
fluctuation.
 Stage span fluctuation - There is no reason to believe that all products inevitably pass through all the
five stages –a product may pass straight from the growth stage to the decline stage due to the introduction
of superior new products. E.g. Mobiles replaced Pagers. It is also difficult to predict how long each stage
remains.
 Product life cycle has limited value as a method of forecasting. Product life cycle measures only
fluctuation in sales and profits and does not explain the causes of such fluctuation or predict when they
will occur.

PRODUCT LINE AND PRODUCT MIX

Product Item
It is a specific product. It is a distinct unit that is distinguishable by size, price, appearance or some other
attribute. Example – Lux is a product item of HUL.
Product Line
This is collective term, which refers to a group of products intended for essentially similar uses and possessing
reasonably similar physical characteristics. E.g. Toilet soaps is a Product Line of HUL and it includes product
items like Lux, Hamam etc.
Product Mix

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This is a comprehensive term, which covers the entire product lines and product item that are company offers for
sale. E.G. Product Mix of HLL consists of toilet soaps, detergents, health drinks etc.,

CHARACTERISTICS / DIMENSIONS OF PRODUCT MIX

1. Width or breath of product mix: - This refers to number of different product lines offered by a company
2. Length of product mix: - It refers to total number of items in the product mix.
3. Depth of product mix: - It refers to the average number of items offered by the company in its product
line and is measured by the range of sizes, colors, models and prices offered within each product line.
4. Consistency of a product mix: - It refers to how closely the various product lines are related in production
requirements, distribution, channels, etc.E.g. Products manufactured by GE Company have an overall
consistency as most products involved electrical power.

Line I Line II Line III

Shoe A Shirt A Pants A
Shoe B Shirt B Pant B
Shoe C Shirt C Pant C
Shoe D Shirt D
Shirt E
No. Of Items (Length) = 12
No. Of lines (Width) = 3
Average Depth = L/W = 12/3 = 4

PRODUCT MIX STRATEGIES/DECISIONS ON PRODUCT MIX

1. EXPANSION OF PRODUCT MIX-This includes increasing the no. of product lines or the no. of
product items within the same line. If a new product is added to the existing product line , its called product
diversification.

2. CONTRACTION OF PRODUCT MIX -This means eliminating the whole or one or two product lines
or product items within the product line.

3. ALTERATIONS OF EXISTING PRODUCTS -Improving established products by alterations in

design, size, colour, packaging etc. can be more profitable & less risky than developing a new product

4. POSITIONING THE PRODUCT -This marketer emphasizes the features of the product that will prove
it to be more attractive to the customers.

5. TRADING UP & TRADING DOWN-Trading up means adding a higher price prestigious product to
the existing product line with the hope of improving the sales of the existing low priced product.A company is
said to be trading down when it adds a low price item to its line of prestigious products. Trading down is just
the opposite of trading up. This policy is followed with the expectation that people who cannot buy the original
product may buy the new low priced one because they carry some of the status of higher priced product. E.g.
Spark Cars to Chervolet Range.

6. PRODUCT DIFFERENCIATION & MARKET SEGMENTATION - This involves developing &

promoting an awareness of differences between one’s product & the products of the competitors. This strategy
enables the company to remove itself from price competition, so that it can compete in terms of the differences
it has with the competitors. This differentiation is either done in quality, design, brand on package.

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REASONS FOR PRODUCT FAILURE

Product failure defeats not only the objective of the firm but also leads to wastage of money, material & time.
The following are usual reasons for failure.

1. INADEQUATE MARKET ANALYSIS -Biased information or improper analysis will result in using
such wrong information for product planning.
2. PRODUCT DEFECTS -The technical defects of product are a fundamental reason for product failure.
3. HIGHER COST -Higher cost than anticipated at the time of product planning is another reason & this
may be due to wrong cost estimation.
4. POOR TIMING -Its necessary to find out the exact time at which the product may be introduced in the
market through careful analysis of market condition, changing customer tastes or preferences.
5. COMPETITION-Marketing to overcome severe competition like price cuts & various kinds of discount
should carefully done. It should be noted that the low price alone cannot help the product to compete & succeed
in the market.
6. POOR MARKETING EFFORTS -Proper & attractive promotional activities must be undertaken to
make the customer aware of the product, its features & its uses.
7. INADEQUATE SALES FORCES-Skilled & trained sales persons should be engaged to promote & sell
the product.
8. WEAKNESS IN DISTRIBUTION-Proper choice of distribution channel is essential to enable the
product to reach the proper market at the required time & at a reasonable price.

PRODUCT PORTFOLIO MANAGEMENT AND BCG MATRIX

A product portfolio is the collection of all the products or services offered by a company. It is extremely
important for any organization to have a well-managed product mix/portfolio. The most widely used approach to
product portfolio analysis is the model developed by the Boston Consulting Group (BCG). The BCG analysis
emphasizes two main criteria in evaluating the firm’s product mix: The market growth rate (the products’
category position in the product life cycle) and the product’s relative market share (represent the company’s
competitive strength). BCG uses these two criteria because they are closely related to profitability, which is why
top management often uses the BCG analysis. Proper analysis and conclusions may lead to significant changes
to the company’s product mix, product line, and product offerings.

Once the analysis has been done using the market growth rate and relative market share, products are placed into
one of four categories.
1) Stars: Products with high growth and market share are known as stars. Because these products have
high potential for profitability, they should be given top priority in financing, advertising, products
positioning, and distribution.
2) Cash cows: Products with a high relative market share but in a low growth position are cash cows. These
are profitable products that generate more cash than is required to produce and market them.
3) Problem children: These products have low relative market share but are in a high- growth situation.
They are called “problem children” because their eventual direction is not yet clear. The firm should invest
heavily in those that sales forecasts indicate might have a reasonable chance to become stars.
4) Dogs: Products in the category are clearly candidates for deletion. Such products have low market shares
and unlike problem children, have no real prospect for growth. These strategies involve “harvesting” these
products by eliminating marketing support and selling the product only to intensely loyal consumers who will
buy in the absence of advertising. However, over the long term, companies will seek to eliminate dogs.

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Products are evaluated as producers or users of cash. Products with a positive cash flow will finance high-
opportunity products that need cash. Companies will normally take money from cash cows and divert it to stars
and to some problem children. The hope is that the stars will turn into cash cows and the problem children will
turn into stars. The dogs will continue to receive lower funding and eventually be dropped.

PRODUCT IDENTIFICATION
(Branding, Packaging & Labeling)

Branding, Packaging & Labeling are important features that are psychological associated with the product and
strongly influence the consumers’ evaluation of the product.

BRANDING
It is the way by which an organization tries to identify its offerings and distinguishes it from those of the
competitors. Branding may be accomplished by the use of brand, brand name on a brand mark.

BRAND- It is a name, term, symbol or design or a combination of them which is used to identify a product E.g.
Godrej, P & G etc.

BRAND NAME - It consists of words, mark, symbols or a combination of these, that can be communicated
orally & used, to specify a produced. E.g. Bata shoes, HMT watches. Brand name should not be confused with
trade name whereas brand name refers to the product; trade name refers to the company that manufactures
it. E.g. Bata comes from Bata India. The brand name comes from trade name.

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BRAND MARK - It is part of the brand which appears in the form of a symbol or design or a distinctive
attractive colouring or lettering, which is recognizable by sight but is not expressed when a person pronounces
the brand. E.g. The ‘Butterfly’ of Butterfly appliances.

TRADE MARK -When a brand name or brand mark is registered & legalized, it becomes a trademark.
According to American Marketing Association, trade mark is a “brand or part of a brand that is gives legal
protection because it is capable of exclusive appropriation”(only the owner can use it).“Parle Gluco” of Parle
biscuits is a trademark under the Name & Emblem Act in India.

CHARACTERISTICS OF A GOOD BRAND

1. DISTINCTIVE -The name should be attention compelling & interest generating.
2. SUITABILITY -The name should suit the market of the product.
3. SUGGESTIVE -They should be a suggestive quality so that interest may be generated.
4. EASY TO MASTER-Brand name should be easy to write, read, recognize & remember.
5. SHORT -It should be as short as possible and may not exceed 8 letters.
6. FAMILY SUITABILITY -All products manufactured by the same procedures must be capable of being
grouped together.

REASONS FOR BRANDING (ADVANTAGES)

1. Memory recall is facilitated which will lead to rapid initial buying or greater frequency of buying.
2. Branding leads to ready acceptance of the product by the wholesalers & retailers.
3. Self selection is facilitated & brand in a very important consideration in self-services stores.
4. Brand loyalty gives the manufactures greater control over distribution channels & other product can be
introduced easily under the same brand.
5. Branding makes market segmentation easier and different brands of similar products may be developed
to meet specific customer categories.

DISADVANTAGES
1) Establishing a brand name involves huge advertising & promotional expenditure, which will result in
increased price.
2) Branding leads to brand monopoly, which enables the producers to exercise control over the product & even
dictate its price.
3) Quality is not assumed under a glamorous brand name. Dishonest producers may place inferior goods in the
market under a glamorous brand name.

TYPES OF BRAND

1) INDIVIDUAL BRAND -A firm may decide upon different brand names for each of it product. Eg. Lux &
Rexona are separate brands of HUL..

2) FAMILY BRAND -Here, the brand name is limited to one line of product. Eg: Ponds for consmetics. Amul
for milk products.

3) COMPANY BRAND / UMBRELLA BRAND -In this case, for all products in the market, the name of the
company is given. When a firm manufactures many products this type of brand is used. E.g. : Tata
Automobiles, Tata engineering goods etc.

4) COMBINATION DEVICE-Products can have individual names and the company name to indicate the
firms producing them. E.g Reliance Infocom.

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5) PRIVATE OR MIDDLEMEN’S BRANDS -Such brands are owned & controlled by middleman rather than
manufacturers. Manufacturers introduce the product under a distributor’s brand name. Eg : Nike (Sports
goods).

BRAND EQUITY

Brand Equity is the intrinsic worth or value of the brand in terms of the kind of money a consumer is willing to
pay for it, in preference to its competitors. It is the value of the brand [Brand Value] which is based on the brand
assets in the form of (1) Brand Loyalty or Customer loyalty (2) Brand Awareness (3) Brand’s Perceived Quality
(4) Brand Associations and (5)other Proprietary Assets.

(1) Brand Loyalty or Customer loyalty- this refers to the preference and commitment shown by a consumer
to a particular brand in comparison with the competing brands and substitutes.

(2) Brand Awareness- This refers to the ability of a potential buyer to recognize the firms’ product in retail
outlets .A highly recognizable brand name is an enormous asset to firm giving it high brand equity.
Advertisements especially Advertisement Copy must be effectively formulated to achieve good band awareness.

(3) Perceived Quality of the Brand- Perceived Quality is the one, which is perceived by the customer by
evaluating different brands on quality. Only if the customer’s perception of quality is high, he would be ready to
pay a premium for it.

(4) Brand Associations- Brand association is anything which is linked to the memory of the brand. All brands
have some association in the minds of customers, developed on the basis of their experience with the brands and
exposure to it. Based on these associations, Customers form an image of the brand.

(5) Other Proprietary Assets include the firm’s’ brand name, patents, trade marks, its relationship with
channel members which will enhance the value of the brand.

PACKAGING

It’s a powerful selling tool which has become very popular with the growth of self service stores and so,
sometimes its called the 5th “P” with the 4P’s. It is defined as the general group of activities which involves the
designing and producing of the container / wrapper for a product.

OBJECTIVES OR CHARACTERISTICS OF PACKAGING

1) PROTECTION -Packaging offers protection to the product while its in transport or in the shop on with the
customer.
2) COMMON IDENTIFICATION -It gives a common identification to a company’s product.
3) CONVENIENCE-It provides greater economy and convenience in branding, opening and storage of the
product.
4) PRODUCT DIFFERENTIATION -Package helps to differentiate a product from other products and there
by helps to build up brand image.
5) HELPS IN SELLING -Attractive packaging attracts the attention of the customers and induce him to buy
the packed.

TYPES OF PACKAGES

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1) CONSUMER PACKAGE- It contains the required volume of the product for ultimate consumption and
is within the means of a buying house hold
2) BULK PACKAGE -It contains a fairly large quantity of the product and is meant for industrial
consumers for retailing
3) INDUSTRIAL PACKAGE -This can either be a bulk package or a package for consumer directly like
TV, refrigerator etc.
4) REUSE OF DUAL USE PACKAGE -In this type the package has a secondary use after its contents
have been consumed.E.G Surf in a bucket.
5) MULTIPLE PACKAGE -In this type several units associated with the product are placed in one
container. E.g. : Make – up set, Baby care kit.
AIDAS – Formula
This formula is used to measurers the effectiveness like advertisements. packaging etc. As packaging is
used as an effective tool to sell attract and sell a product, the formula is very much applicable here. The formula
represents the 5 basic requirements.
1. A - Attention - getting the attention of the public
2. I - Interest - Creating an interest over the product
3. D - Desire – Creating a desire to purchase the product
4. A - Action - compelling the customers to buy the product
5. S - Satisfaction - giving customer satisfaction.

LABELLING

A label gives verbal information about the product. This information may either be imprinted on the
containers or delivered as a separate slip with the product package. The Commodities (Regulation) Act 1957,
made it compulsory on the part of the manufacturers of specify details about the identifying of the product, its
weight, date of manufacturer etc.
FUNCTIONS OF LABELING
1. It gives definition of the product making its identification easier.
2. It specifies special features of the products.
3. It helps the manufacturers to give clear instructions about use of the product.
4. Mostly maximum retail price is specified on the label thereby helping the manufactures to price
uniformity.
KINDS OF LABELING
1. BRAND LABEL -This contains the brand name of the product & the objective is to familiarize the
brand name & create brand loyalty.
2. GRADE LABEL - This identifies the quality, standard on grade of the product & is used as an
indirect method of product identification.
3. DESCRIPTION LABEL - They are more illustrative in nature giving essential information about the
use, mode of usage, method of storing etc.

ADVANTAGES
1) Enables the users to know about the product & its uses.
2) With maximum retail price given, the retailers cannot demand higher prices & thus exploit the customers.
3) It protects the consumers interest by assuring the quality of the product.

DISADVANTAGES
1) Sometimes the label does not give sufficient information about the product.
2) They are useful only to literates not to illiterates.
3) Labels are useful & effective only in case of standardized products and thus its use is limited.
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AFTER SALE SERVICES
With every increase in the use of machinery, appliances, equipment and gadgets, there is inherent need for after
sale services such as installation, guarantees and warrantees against defect, servicing, repairs, spareparts,
maintenance and the like. Manufacturers of machines, instruments, gadgets and technical equipment will have to
establish service policy and a plan for servicing their equipment after sale. Mechanical service is an important
sales asset. It is instrumental in securing repeat sales, customer goodwill and a word of mouth advertising. The
heart of sound service policy is the product guarantee or warranty which defines the producer’s liability for
defects in materials or workmanship over a certain period of time ranging from one year to five years under
normal circumstances. Every manufacturer should determine as to who shall be responsible for service to
customers. It may be the responsibility of manufacturer or distributor or wholesaler or retailer. Such a decision
depends on factors like nature of product-the amount and type of Mice required and the resources of the
manufacturer. In case the middlemen are responsible, the manufacturer should train them in the areas of after-
sale services such as installation, servicing and maintenance. 

Module 4
PRODUCT PRICING
Meaning & Role
Price mans the exchange value of the product or service in terms of money. Price is the main factor on
which the ultimate objective of a firm – profit maximization depends. This is because price not only affect the
profit margin but also affects the quantity of goods sold, through it influence on demand. In the marketing mix
price in the only element that generates revenue while all other produce, cost. Therefore management should be
very cautious while taking pricing decisions.

Objectives of pricing decisions

1) Ensuring target returns
2) Market share
3) Preventing competition
4) Maximizing the profit.

FACTORS INFLUENCING PRICING DECISION

1. Objectives of business – The objective of firm with regard to its target return, price stability is a real
deciding factor in pricing.
2. Cost of product – Generally prices will not be less than the cost of its product and will be fixed in such a
way, that it can cover the entire cost of a product and give a reasonable profit to the producer.
3. Market Demand-. If consumers feel that the value of product justifies its price, he will buy it.
4. Prices of the competitors – A manufacturer should consider the market prices fixed & quality maintained by
these competitors for making pricing decisions. The prices should be fixed, either equal to or low to the
competitor price.
5. Distribution channels – This policy also influences pricing decisions in case of lengthy distribution channel
product prices fixed are higher to compensate for services rendered by middlemen while short channels
normally carry lower product prices.
6. Govt. policy – Govt rules, directives legislation, inflation etc have its effect on pricing.
7. Economic environment – During depression the prices are reduced so as to maintain the sales & during
boom periods, product prices are hiked.
8. Stage in product life cycle – Pricing decisions varies with the product life cycle stage. During the
introduction stage the producer generally keeps the prices high & during the later stages of growth & maturity
the producer may go for price reduction to widen the markets and to fight competition..

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9. Promotional strategy – A manufacturer when he uses massive advertising to ‘Pull the product ” through the
channels is likely to keep the prices high & when he intends to push the product through the channel, is likely
to reduce the prices.
10. Buyer Psychology – The objectives behind shopping varies with the buyers psychology. Buyers shop for
high fashion item, regards prices as having secondary importance while buyers for industrial goods may
attach more importance to product attributes like quality and durability in comparison to price. The frequency
of buying, the quantity purchase at a time and bargaining power of the buyers also influence pricing.

PROCESS OF PRICE DETERMINATION OF A PRODUCT

The price determination process proceeds in 6 steps:
1. Estimating the demand for the product – The first step consists of estimating the anticipated demand
of the product considering 2 factors:

1) Estimated price – Price of a product is estimated on the basis of relative importance of that product in the
budget estimate of a customer.

2) Estimated demand of product at different price level can be fixed on the basis of elasticity of demand of the
product In case of inelastic demand, prices fixed higher & in case of elastic demand, prices may be lower.

2. Anticipating competition – once a demand is estimated, the next step is anticipating competition which can
be dome from 2 angles:
1) Competition from producers off similar product.
2) Competition from substitutes of the product
Estimating the future competitive situation is also very importance especially when the production has
been started, with low initial capital investment & profit margin is expected to be very attractive.

3. Determining the expected share of market - It depends on factors such as present production capacity, cost
of extension programmes, cost of manufacture & competition. The market share should never be fixed beyond
production capacity of the plant.

4. Selecting a suitable price strategy- it includes.

1. Skimming the cream pricing strategy.

2. Penetration Pricing
3. Discouraging potential competition
4. Following the competition.
Each of these strategies has its own merits and demerits & keeping the business objective in mind, a
suitable price strategy should be selected.

5. Marketing policies of the company – This regards production, channels of distribution & promotion to
be considered at this stage. The nature of product whether new or old, perishable on durable, consumer or
industrial should also be considered. The Channels of distribution & commission payable to middlemen and
promotional schemes all form a part of cost & thus influences price of product.

6. Fixing the price – while fixing the price of product, the interest of the producers, middlemen & consumers
should be considered. Price should be fixed in such a manner that it ensures.
1. fair return to the producers
2. profit margin to middlemen
3. reasonable price to consumers.

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METHODS OF PRICING
Pricing methods generally revolve around cost demand and competition factors.
1. COST Based Pricing Method– various methods under this type is based on cost concept and the following
methods are adopted:

1) Cost plus pricing – under this method, cost of a product is taken as the starting point and then a fixed % is
added to it’s as to fix price for that product. Retailers & manufacturers of non-standardized products use this
type of pricing. However, criticism against this policy is that ignore the influence of competition & market
demand.
2) Target pricing – is followed by manufacturer, who fix a target return on the total cost.
3) Break-even point pricing– Break-even Point is the volume of sales at which the total sales revenue of the
product is equal to its cost. At BEP there is no profit no loss and so this technique is also called No Profit No
Loss Pricing Method. Sales beyond BEP result in profits and sales below BEP represent loss to manufacturer.

2) DEMAND Based pricing method

Under this method, demand is the deciding factor and the price is fixed simply by making adjustment in it.
There are two important demand based methods
1. Demand modified break even analysis pricing-this method sets the prices to achieve highest profit (over
break-even point) in consideration of the amount demanded at alternative prices. In other words, this method
requires estimates of market demand at each feasible break even points and expected profit levels of total sales
revenue can then be calculated.
2.Perceived Value Pricing - This is regarded as a customer-oriented approach to pricing where price is
determined on the basis of customer perceived value for the product. It is the buyer’s perceived value rather than
seller cost than determines price. The customer’s perceived value is estimated on the basis of the total
performance, psychological & service characteristics of the product. Price is set to give the customer a slightly
higher perceived value than any other competing product. A common form of demand oriented pricing is price
discrimination (see next section).

3) COMPETITION ORIENTED PRICING POLICY

Many producers fix prices after considering the price structure of the competitors & pricing policies
are framed with a view to sell below or above or in uniform with the competitors. Even if there is any change in
cost or demand, the prices under this method remain unchanged & firm will change to prices only when
competitors change. Two such commonly used methods are:
1. Going rate pricing –method of setting prices in relation to competitors.
2. Sealed Bid Pricing - In all business, when firms bid for job (completion of task/work- like building
dams or roads), this type of pricing is followed. The firm fixes its price based on the competitor pricing
and to win the contract, the firm should quote less than the competitor

PRICING STRATEGIES/POLICIES

The major pricing strategies followed by the markets are grouped under 6 categories (See illustration )
1 New Product Pricing Strategies –price variation based on innovative /imitative product.
2 Product Mix Pricing Strategies- price variations based on product attributes.
3 Price Adjustment Strategies – price variation to match the prices with different market needs.
4 Psychological Pricing-
5 Promotional Pricing-
6 Geographical Pricing- price variations due to geographical location and transportation needs.

1.NEW PRODUCT PRICING STRATEGIES

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Pricing strategies of a product changes as it passes through its life cycle. The introductory stage is most
challenging and the strategies can be categorized into 2 –
Pricing an (1) Innovative product and (2) an imitative product..
a) Pricing on innovative product
1) Market – skimming pricing -Under this, many companies that introduce new products set high prices in
the beginning to skim the market and after the initial sales fall down, the price will be lowered. The
strategy is possible only if the high price supports the superior image of the product & the high initial
price will not attract more competitors E.g.: All electronic goods.
2) Market penetration pricing -Some companies set relatively low prices on their innovative product,
hoping to attract a large no. of buyers & increase the market share. This strategy is possible in a highly
priced sensitive market, where low price can stimulate growth in sales.

b) Pricing an imitative product.

A company that plans to develop an initiative product can vary price and quality and follow 9 types of
strategies:

Price

High Medium Low

High Premium strategy Penetration strategy Super value strategy

Quality Medium Over charging strategy Average Strategy Good value strategy

Low Rip-off strategy Borax Strategy Cheap value strategy

2.PRODUCT MIX PRICING STRATEGIES

(a) Product line pricing -In this case the management decides on a price structure to cover various product
lines, justifying the features that go with the product. Eg: Panasonic offers color video camera ranging from
simple one to complex one incorporating different features & pricing it accordingly.
b) Optional Product Pricing - Under this the company offer to sell optional products along with these
main product based on the management decision as to which items are to be included in price & which ones to
be offered as optional Eg : Automobile manufactures, offer options such as window defoggers,upholstery etc.
with the main product .
c) Captive Product Pricing -Certain industries produce products that must be used with the main product E.g.:
Kodak prices its cameras low because it makes money selling films.
d) By-product pricing - If the by product has no value & disposing them is costly, it will affect (increase) the
pricing of the main product and if there is a good market for the by-product, it will result in reducing the main
product price, to make it more competitive.

3.PRICE ADJUSTMENT STRATEGIES – There are 2 types

1) DISCOUNT PRICING & ALLOWANCES –PRICE DIFFERENTIALS-The Price Differential may be

defined as difference between the quoted price and net price charged to the buyer. The following are the
major types:

1) Cash discounts – This is a price reduction to the buyers who pay their bills promptly.
2) Quantity discounts – This is a price reduction to the buyers who buy the goods in large quantities.
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3) Trade discounts – These are offered by the manufacturer to the trade channel members, who perform
certain function like selling, storing & record keeping.
4) Seasonal discounts – This is a price reduction to the buyers who buy off season/off season.
5) Allowances – These are other types of reduction from the listed price. Eg : trade in allowance are price
reduction granted for giving in return an old item when buying a new one.

[Discount- a price differential that reduces the quoted price so that the buyer pays much less than quoted price. It
is an allowance in consideration for marketing services rendered. It is of 3 types –
1) Trade or functional discount-it is a percentage deduction of the quoted price given to channel
members- whole salers and retailers. Eg. If a firm quotes Rs.3000 per ton of a product with trade
discount of 10%,the actual price payable by whole sellers or retails will be Rs.2,700/ton.
2) Quantity discount-deduction allowed from quoted price to the buyers on the basisn of quantity bought.
Eg. 10% off on the purchase of more than 2 units of a product.
3) Cash discount- This is a price reduction to the buyers who pay their bills promptly.
Rebate-is a deduction in quoted price given in situations of partially defective products, tampering, old stock etc
which reduces the impact of such on customer satisfaction.Eg.50% reduction on old stock.
Premium- actual price will be above quoted price due to some extra services/attributes on offer]

2) PRICE DISCRIMINATION-DIFFERENTIATED PRICING-DISCRIMINATORY PRICING -occurs

when a company charges different prices from different customers for the same product. It may take
several forms.
1) Customer Segment Pricing- Different customer pay differently for same product or service like Entry
concession for children in Zoos.
2) Product form Pricing – here different versions of the product are priced differently.eg Windows
Versions.
3) Place (location) Pricing-Different locations are priced differently even though the cost & service offered
in each location is the same. Eg : a cricket stadium varies its seat prices because of the audience
preference for certain locations.
4) Time Pricing-Here prices are varied seasonally’ by the day & even by the hour. E.g. Telephone
department charges diff rates for day & night calls.
5) Image Pricing -Under this the company price the same product at 2 different levels based on image
difference E.g. : One perfume in a fancy bottle may be priced higher than the same perfume in an
ordinary bottle.

4.PSYCHOLOGICAL PRICING
Under this method, the consumers’ psychology is considered while fixing the price. Two types of
psychological pricing are as follows.
1) Prestige pricing -Under this method, pricing of a product is above the competition level. It can be
successfully applied in case of luxurious products like automobiles for which customers are willing to
pay a high price. People are prepared to pay a high price because to them high price means “Something
special besides quality”.
2) Odd pricing - This kind of pricing sets their price at odd amounts. It refers to a price ending in an odd
number instead of a round number. E.g. : Bata Shoe Co. successfully follows odd pricing i.e. it sets odd
price of Rs.199.95 instead of Rs.200 odd price and is proved to bring more sales.

5.PROMOTIONAL PRICING
Under this the company will temporary price their products below their listed price and sometimes even
below the cost for the sake of promotion. This may take any of the following six forms.
1) Loss leader pricing - Super markets & departmental stores drop price on well-known brands to attract
customers to their stores in the hope that customers will buy other items at normal rate.
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2) Psychological discounting - This involves putting higher prices and then cutting the prices
psychological so that it can create the feel among the customers that the price is actually reduced. I.e.
Rs200=Rs.100
3) Low interest financing
4) Cash rebates
5) Warranties and service contract
6) Longer payment terms

6.GEOGRAPHICAL PRICING

The price changes with customer location taking into consideration the transportation cost. E.g.: Petrol is
priced high for distant customers to cover transportation cost – There are 5 approaches to geographical pricing:
1) FOB origin Pricing: Under this, goods are placed free on board a carrier at which point the ownership
titles passes to the customer. In other words the customers have to pay, the transportation or freight cost
which will be higher in case of distant customers.
2) Uniform delivered pricing – Just opposite to FOB origin pricing, the company charges the same price
to all customers irrespective of their location.
3) Zone pricing – Under this method, the firm establishers 2 or more zones. All customers within a
particular zone will pay the same price and the price is higher for distant zones.
4) Base point pricing – Under this some city is designated as the base point and all customers are charged
the freight cost from that city to customer location.
5) Freight absorption pricing – Under this method, the seller bears all charges till customer location, with
a hope to get the business.

PRICING STRATEGIES

New product P
Product Mix P Price Adjustment
1.Product Line P
2.Optional product P
3.Cptive Product P Discount P Discriminatory P
InnovativePP ImmitiativePP 4..By-Product P 1.Cash Discounts 1.Customer Segment P
1.Market Skimming (Quality x Price) 2.Quantity Discounts 2.Product form P
2.Market Penetration P 3.Trade Discounts 3.Location/Place P
4.Seasonal Discounts 4.Time P
5.Allowances 5.Image P

Psychological P. Geographical P Promotional P.

Prestige P FOB Origin P Loss leader P
Odd P Uniform delivered P Psychological discounting
Zone P Cash rebates
Base – Point P Warranties & Service contracts
Freight Absorption low interest
Longer payment period

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KINDS OF PRICING
 Unit Pricing - Unit pricing shows the price per unit (volume, quantity, weight etc.)of product, allowing
consumers to compare prices among competing products .
 Price lining – This is the practice of pricing merchandise, within price ranges by the retailer. A retailer may
sell different types of shirt to suit the requirements of different customers under different price ranges Eg : 1
type for the mass market, another for the middle class ,another for the upper class.
 Customary pricing - In this case, the price of certain commodities get fixed because they have prevailed
so, over a long period of time. E.g. the price of a cup of tea / coffee is custom fixed and the price will change
only when the cost changes significantly.
 Sealed bid pricing / contract pricing- In all business, when firms bid for job (completion of task/work-
like building dams or roads), this type of pricing is followed. The firm fixes its price based on the competitor
pricing and to win the contract, the firm should quote less than the competitor.
 Going rate pricing / Price leading pricing / Parity pricing - This is a method of charging prices
according to what competitors are charging.. Firms selling homogeneous products in a highly competitive
market usually adopt this method.
 Dual pricing – When a manufacturer sells the same product at two different prices it is dual pricing. In this
case the same product is sold at two different prices at the same place unlike geographical pricing in which the
same product is sold at different prices at different places. Eg: a producer who sells a part of its product to the
Govt. @ a lower price and the rest of its product a relatively higher price in the open market.
 Administered Pricing – Here the pricing is done on the basis of managerial decisions & not on the basis of
cost, demand or competition.
 Monopoly pricing – Pricing of a product, by a firm enjoying monopoly in the market is monopoly pricing. As
the producer exclusively sells the product, he has a free hand in fixing the price. Monopoly price will maximize
the profit, as there is no pricing problem.
 Expected pricing – In this case the price which will be accepted by the customers is found out from their
response and then the price is fixed.
 Negotiated pricing / variable pricing – In this case, the price is not fixed and the price to be paid on sales
depends upon bargaining. Industrial suppliers, for whom the price is fixed only after negotiations adopt this
kind of pricing.
 Cost Plus prices / Mark Up pricing – This is generally followed by wholesalers & retailers who adds a
certain percentage to the cost of the manufacture, to quote a retail price.
 Special Event Pricing –Sellers fix special prices in certain seasons and events to draw more customers.

RESALE PRICE MAINTENANCE

Also known as fair trading. It an agreement b/w manufacturers & sellers whereby the sellers are required to sell
the branded product at a certain fixed retail price to the consumers. If the seller does not maintain this fixed
price, the manufacturer can stop further supplies.

Resale price should not be confused with retail price –it is the price at which the retailer sells the product to
his customers, usually covering cost plus expenditure plus his profit margin.

In India RPM is controlled through MRTP Act, resale price is fixed by any of the following ways :
1) A min price below which the products concerned be sold.
2) A max price above which the product cannot be sold.
3) A stipulated price from which no changes are allowed.
According MRTP Act ,the 1st & 3rd are restrictive trade practices while the 2nd one is not a respective trade
practice.
ADVANTAGES
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1) Ensures price stability
2) Eliminates price competition, as uniform price is set. Protects the interest of the consumer.
3) Prevents unfair trade practices.

Module 5
PLACE/PHYSICAL DISTRIBUTION
1. Physical distribution
2. Channels of distribution/ marketing channels
3. Middlemen / marketing intermediaries

PHYSICAL DISTRIBUTION

Physical distribution is a marketing activity that concerns with the handling and the movement of goods.
Physical distribution is a major component of marketing mix and a cost area of business. It includes all those
activities connected with the efficient movement of goods from the place of production to the place of
consumption. The physical distribution encompasses the wide range of inter related activities. Broadly, these
activities can be group into four major functions namely, order processing, inventory management,
transportation and materials handling.

THE OBJECTIVES OF PHYSICAL DISTRIBUTION

1. Consumer satisfaction -The marketer knows fully well that enhanced consumer satisfaction hinges on prompt
and dependable distribution. Consumer satisfaction is improved upon by delivering the products to the
consumers at the point and at the nick of time required
2. Profit maximization-Making this physical distribution more effective and efficient can increase the profit
margin for the manufactures. It is because; the price of product just does not only include – the cost of
production – but also the cost of delivery. Physical distribution system by moving right goods to the right places
helps to hold down the costs.

THE COMPONENTS OF PHYSICAL DISTRIBUTION SUPPLY

The structure of physical distribution system is made up of four broad components namely order
processing – inventory management – materials handling and the transportation.

1. ORDER PROCESSING: Order processing includes the activities of receiving, recording, filling and
assembling and orders for shipment. Each customer expects that the order placed by him should be
implemented without delay on one hand and that the goods dispatch match perfectly to his order specification.
Since, order processing involves series of logical steps from the ceiling order to the dispatch, there should be a
standard procedure to receiving the orders, handling the orders, granting of credit, invoicing, dispatching,
collecting the bills and post dispatch adjustment.

2.INVENTORY MANAGEMENT:Inventory management is a basic task of planning and controlling of

finished goods after they have been brought out from production centers and before their delivered to the users.
Inventory management among other aspects, cover the most immediate aspects of ware housing and inventory
controlling.

(a)WARE HOUSING: Warehousing is an act of storing and assorting the finished goods so as to create
maximum time utility at minimum cost. Ware housing covers 2 sub functions namely, movement and storage
of finished goods. Movement refers to the actual receipt of products from the manufacturing centre-their
transfer into ware house and stocking at the designated place, assorting according to customer order and
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transferring them to transport carriers to take it to consumer. The storage function in mainly concerned with
holding and carrying the goods from the time they are placed in and till they are placed out in carriers. It is
mainly a safety and preservative function.

(b) INVENTORY CONTROLLING: Inventory implies the stock of goods held over a period of time for
meeting the consumer needs. Inventory accumulation is expensive, yet its availability is essential to the
consumer for their satisfaction. Inventory management strives to pursue to basic goals namely:-
(i) Providing adequate level of consumer service, and
(ii) Minimizing firm’s investment in inventory.

3.MATERIAL HANDLING: Material handling purely from marketing angle, it stands for the product
movements after it gets out from manufacturing plant but before it is loaded on the transport carrier. Sound
management of material handling avoids damage in product handling, prevents unnecessary and irrelevant
movement and facilitates order processing and order picking.

4.TRANSPORTATION: Transportation as the last component of distribution system is to do with the

movement of products from warehouses to the customer destination.Transportation involves loading and
unloading of products and transshipment between the places of dispatch and places of arrival. The major
contribution of transportation management is cost reduction because; cost of transportation is 35% of total
distribution cost and 15 to 20% of total price paid by the users. The point lies in cost reduction and creation of
maximum of time utility. Every alert marketer takes sufficient interest in company transportation and
transportation decisions because, it is the correct choice of transport mode of modes that affects pricing of
products, regular and punctual delivery, performance and the conditions of the goods in transit – all affecting
finally the consumer satisfaction and sales profitability.

MARKETING STRUCTURE.
CHANNELS OF DISTRIBUTION/ MARKETING OR
DISTRIBUTION/MARKETING CHANNELS

A channel of distribution consists of various specialized marketing institutions or agencies(retailer &

wholesalers) called middlemen, who transfer the product from point of production to point of consumption.

ROLE/FUNCTIONS OF MARKETING CHANNELS

1. Create Time, Place and Ownership Utility

Channels provide time, place and ownership utility. They make products available when, where, and in the sizes
and quantities that customers want. Distribution channels provide a number of logistics or physical distribution
functions that increase the efficiency of the flow of goods from producer to customer.
2. Creates Efficiency in transactions-Tranactional Functions
Distribution channels create efficiencies in transaction by buying in bulks from a few producers, breaking it in to
required customer quantities and delivering it to large number of customers. .This occurs in two ways .The first
is called breaking bulk. Wholesalers and retailers purchase large quantities of goods from manufacturers but
sell only one or a few at a time to many different customers. Second, channel intermediaries reduce the number
of transactions by creating assortments--providing a variety of products in one location-so that customers can
conveniently buy many different items from seller to seller at one time.
3. Transportation and Storage of Goods-Logistical Function

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The transportation and storage of goods is another type of physical distribution function. Retailers and other
channel members move the goods from the production site to other locations where they are held until they are
wanted by customers.
4. Facilitating Functions
Channel intermediaries also perform a number of facilitating functions- functions that make the purchase process
easier for the customers and manufacturers. Intermediaries often provide customer services such as offering
credit to buyers and accepting customer returns. Customer services are often times more important in B2B
markets in which customers purchase larger quantities of higher-priced products.
5. Repair and maintenance services.
Some wholesalers and retailers assist the manufacturer by providing repair and maintenance services for
products they handle. Channel members also perform a risk-taking function .If a retailer buys a product from a
manufacturer and it doesn’t sell, it is ‘stuck’ with the item and will lose money.
6. Communication and transaction functions
Channel members perform a variety of communication and transaction functions. Wholesalers buy products to
make them available for retailers and sell products to other channel members. Retailers handle transactions with
final consumers. Channel members can provide two-way communication for manufacturer’s .They may supply
the sales force, advertising and other marketing communications necessary to inform consumers and persuade
them to buy .And the channel members can be invaluable sources of information on consumer complaints,
changing tastes, and new competitors in the market.

CLASSIFICATION OF CHANNEL SYSTEMS 

The trade channels are classified into conventional and non-conventional or non-integrated and integrated.
A. CONVENTIONAL CHANNELS OR NON-INTEGRATED SYSTEMS 
Conventional or individualistic channels are the fragmented networks wherein the manufacturers and the
consumers are loosely linked by intermediaries. These intermediaries perform the usual conventional marketing
functions and are further classified into
1. Direct Channel-one which is the shortest wherein the company chooses to sell directly to the consumer
without engaging any intermediary. It is commonly seen in ease of mail-order sales, sales by travelling salesmen
and multiple shops
2. Indirect Channel- one which employs the services of intermediaries in moving the goods to the consumers. 
B.INTEGRATED CHANNEL SYSTEMS 
As opposed to the conventional or non-integrated channels of distribution, integrated channels of distribution are
those net-works that work with full coordination and cohesion rather than working in a loose manner. These
integrated channels can be ‘vertical’ and ‘horizontal’ in nature. 
1. Horizontal Marketing Systems-A horizontal marketing system is a channel arrangement in which two or
more companies at one level join together to follow a new marketing opportunity. By working together
companies can combine their financial, production, or marketing resources to accomplish more than any one
company could do alone. Companies can join forces with competitors or non-competitors. Consider too
companies X & Y.X engaged in hotel business & Y operates a supermarket. X can open a restaurant in Y’s
premises to make use of the large number of customers Y & Y can provide the hunger needs of its customers in
Y’s on premises at the cost of X.
2. Vertical Marketing Systems -A vertical marketing system (VMS) is a distribution channel structure in which
producers, wholesalers & retailers act as a unified system. One channel member owns the others, has contracts
with them, or has so much power that they all cooperate. There are three major types of vertical marketing
systems: corporate, contractual, & administered
1.A corporate VMS is a vertical marketing system that combines successive stages of production & distribution
under single ownership. Channel leadership is established through common ownership. A little-known Italian
eye wear maker, Luxottica, sells its many famous eye wear brands -including Giorgio, Armani, Yves Saint
Laurent,& Ray-ban-through the world’s largest optical chain Lens Crafters, which it also owns.

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2.A contractual VMS is a vertical marketing system in which independent firms at different levels of
production & distribution join together through contracts to obtain more economies or sales impact than they
could achieve alone. The Franchise organization is the most common type of contractual relationship There are
three types of Franchises: manufacturer-sponsored retailer franchise system (Ford Motor
Company),Manufacturer-sponsored wholesaler franchise system(Coca-Cola bottlers),& service-firm-sponsored
retailer Franchise system(McDonald’s).
3An administered VMS is a vertical marketing system that coordinates successive stages of production and
distribution, not through common ownership or contractual ties but through the size and power of one of the
parties. Manufacturers of a top brand can obtain strong trade cooperation and support from resellers.

BASIC CHANNELS OF DISTRIBUTION OF CONSUMER GOODS

There are 5 basic channels available for consumer goods distribution.

BASIC CHANNELS
1. Producer – consumer …………… Zero level
2. Producer – retailer – consumer ……….one level
3. Producer – wholesaler – retailer – consumers – Two level
4. Producer – Agent – Retailer – Consumer – Two level
5. Producer – agent – wholesaler – retailer – consumer -----Three level
Levels are determined by the no. of intermediate in between.

PDS : (Public Distribution System)

It aims at supplying certain essential commodities like sugar, wheat, rice, kerosene, etc. at reasonable prices to
the weaker section of society. It also facilities equitable distribution of commodities as well as stabilization of
their prices. PDS works under direct control and supervision of state governments. It functions as retailers
through its outlets like cooperative societies, ration shops etc. Under this system commodities are distributed to
only those who have ration cards & family income is the main criteria on the basis of which the quantity of
items for each family is determined.

TYPES OF MIDDLEMEN / MARKETING INTERMEDIARIES

Middlemen refer to such institutions on business concerns situated in the marketing channel at points between
the producer & the final buyer. These institutions can be classified into 2 kinds.
1. Merchant middlemen 2. Agent middlemen

MERCHANT MIDDLEMEN AGENT MIDDLEMEN

He acts in his own right
Title of the goods in which he deals passes on
to him.
He works for a profit, which is not pre-
determined.
He bears at risk involved in marketing the
goods.
Includes retailers & wholesalers.
The acts as a agent of the producer
There is no transfer of title over the goods
in his favour.
He works for a commission, which is
generally predetermined.
He does not take the risk involved in
marketing the goods.
Includes brokers, commission agents,
manufacturers agents, selling agents, export
& import agents, auctioneers etc.

I.MERCHANT MIDDLEMEN
Merchant Middlemen are broadly classified into two:- 1.Wholesalers & 2. Retailers

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1. WHOLESALERS 
Wholesale trader is one who sells to other middlemen, institutions and individuals usually in fairly large
quantities.
Functions 
1. Assembling and buying- Assembling means bringing together stocks of different manufacturers producing
same line of goods. ‘Buying’ comprises of the activities of selection of manufacturers and placing orders on
them and making special purchases in cases of seasonal products. 
2. Warehousing- Warehousing or storing is closely related to the function of assembling. As there is always a
gap between the time periods of production and consumption, the goods are to be held and preserved. This
involves capital lock-up plus risks. This warehousing by wholesalers relieves both the producers and the retailers
from the problems of storage. 
3. Transporting- In the processes of assembling and warehousing and resale, wholesalers do undertake
transportation of goods from producers to their warehouses and back to the retailers.
4. Financing- Wholesalers undertake marketing financing. They grant credit on liberal terms to retailers on one
hand and reduce the financial burden of the manufacturers by taking early delivery of stocks from them.
5. Risk Bearing- Risks are inherent in business which are to be borne and shifted. Wholesalers bear the risks of
loss or change in prices, of damage, deterioration in quality, theft, fire and the like of the goods held in storage.
6. Grading, Packing and Packaging-Grading is another function of wholesalers, whereby they sort-out the
stocks in terms of differing sizes, qualities, moisture contents and on. Bulk-breaking is done with a view to meet
the small lot requirements of the retailers.
7. Dispersing and Selling-The goods assembled and held in stock are meant for dispersing and selling. It is the
retailers who buy from the wholesalers.
8. Providing Market Information-Wholesalers are the vital link between the retailers and the manufacturers.
They provide relevant and up-to-date information to the retailers ’affecting their trade interests; so also they
reciprocate the same to manufacturers as to whatever retailers feed them on changing market conditions useful
for the wholesalers. 

The Types
Wholesalers are mainly of three types namely: 
(1) Full function- A ‘full-function’ wholesaler is an intermediary who buys and sells the products on his own
account, assembles products from different sources in bulk, carries stocks, sells in smaller lots, grants credit and
renders valuable counsel and advice. Because of wide range of functions, he performs and service he renders, he
is called as full-line wholesaler.
(2) Converter -A ‘converter’ is that full-line wholesaler who buys products and sells them to the subsequent
channel members after processing them. Thus, in cotton textiles, he may convert gray cloth into bleached and
dyed, in corns, he may convert wheat into wheat flour or pallets.
(3) Drop shipper-A ‘drop shipper’ is that wholesaler who neither stores the products nor delivers them to the
buyers from his own stock but books orders and directs manufacturers to the retailers to that effect. However, he
has to take delivery of goods in case the retailer or the buyer fails to accept the same. 

2. RETAILERS 
Retailer is one whose business is to sell to consumers a wide variety of goods which are assembled at his
premises as per the needs of final users. A retailer is the last link between the final user and the wholesaler or the
manufacturers. 
Functions 
1. Buying and Assembling-Retailer has to assemble products from different manufacturers and wholesalers as
he has to keep wide variety of stock of products to meet the varied and small requirements of large number of
customers. Buying is a continuous process involving selection of best and the most economical and dependable
sources of supply. 

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2. Warehousing-Retailer is a safety valve releasing the goods in quantities of different varieties and price ranges
according to the consumer needs. Warehousing makes possible holding the stocks to match between the
consumer demand and the wholesalers.
3. Selling-The final aim is to sell products so bought and held by him. Retailer is rightly called as the buying
agent of consumers. He is the means to dispose the goods to the consumers for producers and wholesalers and
collect the sales revenue for them.
4. Risk-shouldering-Risk shouldering is the basic responsibility of a retailer arising out of physical
deteriorations and changes in prices. These are unavoidable as he holds sufficient and variety of inventories from
the time they are bought till they are sold to the consumer.
5. Grading and Packing -Retailers undertake secondary or second round grading packing activities left by the
manufacturers and wholesalers.
6. Financing- In the whole scheme of marketing, the contribution of retailers is really worth emphasizing in so
far as consumer financing is concerned. His financing consists of credit granted on liberal terms to the
consumers, investment made in large variety of stock, the expenses of holding stock, salaries and wages of
watch and ward staff and other trade expenses. 
7. Advertising - Retailers are the best agents to advertise the products, services and ideas. In collaboration with
wholesalers and manufacturers retailers do undertake shop display, distribution of sales literature, introduction
of new products in a convincing way.
8. Supply of Market Information- As being in close and constant touch with consumers, he clearly keenly
observes, studies the consumer behaviour, changes in the taste; and fashions and therefore, .demand. This
collected information is passed on to the wholesalers and the manufacturers for their perusal and necessary
action for future adjustment and success. 

Types
The most practical and popular way is that of small scale and large retailers with further sub-classifications as
under: 

A. SMALL SCALE RETAILERS 

1. Itinerant/ mobile retailers
They include street vendors, peddlers, stall holders, in fares & exhibitions etc. who has no fixed locality and so
carries goods from place to place.
2. Convenience Stores
They include small stores like grocery shops, provision stores etc., which are usually, located in non-residential
area, with long working hours & carry a wide range of goods.
3. Specialty stores
Goods of particular variety are sold in such shops like shops for leather goods, medicine, toys etc.
4. Discount houses:
It is a retail business unit which sells consumer durables like jewellery, household appliances etc. where prices
are low & offer few customers services.

B. LARGE SCALE RETAILERS 

1.Departmental stores
It’s the large – scale retail institution in which there are many departments in one building, each of which deals
in particular type of goods. They feature both soft goods such as sheets, towels, garments etc. and hard goods
like furniture, electronic goods, including facilities like restaurants, telephones, toilets etc. to the customers.
Hence this type of shopping is also known as one- stop shopping. A peculiar feature of this kind of shop is
decentralized buying with centralized selling. 2.Multiple shop
A multiple shop or chain stores is a network of branches situated at different localities in the city or in different
parts of the country. All branches are under central ownership, management & control. Eg : Bata shoes
3.Co-operative Retailing
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In India, consumers cooperative is a retail business, owned & operated by ultimate consumers which purchase &
distribute goods & service primarily to its members at relatively low prices..
4. Hire-purchase/ Installment selling
Hire purchase is a method by which the sellers agree to sell the article on the condition that the buyer shall pay
the purchase price by a fixed no. of installments. Under this method the article is not legally sold, but is only
hired by the buyer. Until the final installment is paid he cannot become the owner.
5. Super market
It’s a large, low cost, law margin, high volume, self – service store that offers a wide – variety of food, laundry
& house hold products.
6. Hyper market
It is an exceedingly large scale retail institution that has a very brand & moderately deep product range, low
prices & some customer services. They are giant sized super markets.
7. Catalogue showrooms
In this kind of showroom, complete catalogues & samples of a wide variety of goods are kept & shoppers can
see samples, give orders and the product is delivered from the warehouse.
8. Shopping centre / mall
Mall consists of numerous retail stores offering wide variety & range of consumer goods always located near
large residential areas. Here buying as well as selling is decentralized.

II. AGENT MIDDLEMEN 

Agent middlemen are as important as merchant middlemen.
The Types
1. Commission Agents -He buys and sells goods for his principals in return for a commission. He may or may
not buy in his name but he does not assume any risk. He gets a fixed rate of commission for the business done.
He has expert knowledge of all the commodities in which he is trading; he keeps close contacts with the
producers and dealers on the one hand and the market trends on the other. He procures goods as per the
instructions of his principals; he gets order .and is responsible for arranging for packing, transport and delivery
of goods including granting of credit and collecting the payments and the dues. If he guarantees payment on
goods sold on credit, he is eligible for extra commission called ‘deal credere’ commission, over and above the
normal commission.
2. Brokers-Broker is an agent who is employed to make bargains and contracts in matters of trade, commerce or
navigation, between two parties for a compensation known as brokerage. He is an independent agent who
negotiates bargains or agreements between two or move parties for exchange. He brings the intending buyer and
the seller together. He does not take title to the goods and hence, he does not take possession of goods.
3. Factors-Factor is an agent employed to sell the goods or merchandise consigned of delivered to him by or his
principals for a compensation. Thus, his major role is to sell the goods assigned to him under the instructions of
the principals. Since, selling is his sole responsibility, he takes possession of goods and sells in his own name for
a commission. He finances his principal by making advance payment or immediate payment. 
4. Auctioneers - There are some class of products where sale by auction takes place. The products like
jewellery, tobacco, tea, automobiles art pieces, land and buildings are now commonly sold by auction.
Auctioneer is the. Intermediary between the buyers and seller. His dealings are mostly on cash terms.
5. Selling Agents: Selling agents are the intermediaries who are given the exclusive franchise only for a limited
market segment. He performs the functions of an independent middlemen taking over all the selling activities of
a producer. He negotiates sales of merchandise produced by his principal and has full authority and control over
prices and the terms and conditions of the sale.
6. Forwarding and Clearing Agents: Forwarding and clearing agents are the middlemen employed to collect,
deliver and otherwise forward goods on behalf of others. Most of the manufacturing houses, with gradual
expansion and growth of their business find it necessary and economical to employ the agent, middlemen to
relieve them of the tedious tasks of collection, delivery and forwarding the goods to their destination. These
agent middlemen have been indispensable in foreign trade. Forwarding agents receive goods from the exporters
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and arrange for the shipment of these goods to their destinations. Clearing agents receive goods from abroad on
behalf of the importers at port of entry and arrange for their clearance. They have professional touch and
operational efficiency for which one bows down. . 
THE FACTORS GOVERNING THE CHOICE OF CHANNELS OF DISTRIBUTION 
(Evaluation of Effectiveness of a channel member)
1. Distribution policy / intensity of a channel
There are generally three types of distribution or three degree of intensity of a channel & they are :
a) INTENSIVE DISTRIBUTION :In this case, the product is distributed over a limited geographical area by
employing as many types of middlemen as possible. Such a policy is adopted when quantity purchased by the
consumer is small or the price of the unit is low or the purchase is frequent. Eg : soaps, pencils, razors, soft
drinks etc
b) SELECTIVE DISTRIBUTION-It refers to the sale of product by employing only those middlemen who
will do effective sales of the product. Under this policy the manufactures select, only the best outlets,
concentrate on them & thereby eliminate unprofitable channels
c) EXCLUSIVE DISTRIBUTION-Under this system, the manufacturer gives the dealer an exclusive area of
sales called “territory” within which the distribution will be his exclusive selling right & the producer could not
sell the product to anyone else in the same territory. The dealers, in turn are not permitted to deal with the
competitor product.

2. Product characteristics
In selecting a marketing channel, the manufacturer should consider the type of the product (whether consumer /
industrial); the nature on consumption (limited use / mass consumption); the frequency of its purchase,
perishability of the product, rapidity of fashion change, the service required the value of the product etc. If the
goods are perishable or fashion goods, a shorter channel is essential as they have to be placed with the final
sellers as quickly as possible. If the good are purchased frequently, all available distribution channels must be
made use of. If the products are bulky, large in size, technically complicated etc. the channel must be as short
as possible & direct selling must be made used.

3. Supply characteristics
If the number of producers is small or each producer can control large amount of resources or there is no free
entry to the new producers, short channels is useful and when the number of producers is large or each
producer commands limited resources or there is free entry, a long channel is to be preferred.

4. Customer characteristics
These include the number of customers, their geographical distribution, their frequency & regularity of purchase,
their acceptability to different selling methods, average quantities bought by them etc. If the customers are
concentrated in a particular region, a simple distribution channel is sufficient, where as of the customer size is
large & widely distributed & they buy in small quantities frequently, a lengthier channel is useful.

5. Middlemen characteristics:
These include their behavioral differences, their product lines, their number, location etc. Eg : If a product needs
special storage facilities, the producers must employ financially sound wholesalers who will provide such
facilities.

6. Channel competition
The competition can be of 4 distinct types :
a) Competition between channel members-Refers to the competition between
i) wholesalers & wholesalers
ii) retailers & retailers
iii)producers & producers
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b) Competition among channel members -Relates to the competition between

i) wholesalers & producers

ii) retailers & wholesalers
iii)producers & retailers
c) Competition between channel members for the use of a channel member-
This relates to the competition between

1. Producer & producer for the use of a wholesaler.

2. Wholesaler & wholesalers for the use of a retailer
d) Competition between channels-Refers to the competition between different marketing channels.
The four distinct types of competitors highly influence the channel selection because when the competition is
intense, the producers incur high distribution cost.

7. Company characteristics

This includes the financial soundness size of the company, its product mix, attitude of its employer, past channel
experiences etc. Financially sound companies can employ their own salesmen for direct marketing whereas
financially weak companies have to depend upon strong middlemen.

8. Environmental characteristics

This includes economic conditions, law of the land etc. When economic conditions are depressed, shorter
channels are preferred while, when there is multi – point tax on sales, direct marketing is more advantageous.

All these factors along with sale volume potential as will as cost of distribution should be taken into
consideration while choosing a marketing channel.

THE FACTORS GOVERNING THE CHOICE OF AN INTERMEDIARY 

While selecting the intermediaries, the following points deserve special attention. 
1. Economic Factors: The economic conditions prevailing in the country on one hand and the world on the
other, have bearing on channel selection decisions. During the period of boom- period of prosperity, everyone is
willing to cooperate and ready to work at least rates of return because of assured and quick possible turnover.
Even the intermediaries are prepared to accept stringent terms and conditions of agreement. This makes the firm
to go in for direct channels. On the contrary, during the period of slump, the intermediaries try to be stringent as
they find it very difficult to move the goods. This makes the channel commander (manufacturer) still more
difficult to venture direct channels.
2. The Legal Restrictions - The legislative restrictions imposed by the governments, both State and Central-
have impact of giving final shape to channels of distribution. It is well known fact that the provisions of the
M.R.T.P. Act of 1969 prevent channel arrangements that tend to lessen competition, create monopoly and those
are objectionable to the very public interests. It means that these provisions prevent exclusive distributorships,
territorial restrictions, resale price maintenance and full-line forcing and the like. Even Companies Act of 1956
forbids sole selling agency arrangement in the lines of activities like cement,, paper, vanaspati.
3. Fiscal Policies- As a part of fiscal policy, the rules and regulations brought in by the government also
influences intermediary selection.
4. The Financial Position-After all, the financial position of the intermediary is of much significance while
selecting. An intermediary who is financially very strong is sure to buy on cash, carry more inventory at a time,
sell on credit and help the channel commander at times of adversity and needs. The financial strength of an

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intermediary is measurable in terms of indicators like-net worth, debt-capital ratio, liquidity and profitability.
These are to be studied carefully to avoid the possible errors in selection. 
5. The Facilities Available- In addition to the above specific requirements of sound dealer commander
relations, one must take into account the additional facilities that the dealer -or the intermediary is going to
extend. Thus, an intermediary equipped with operational facilities like godowns, delivery vans, parking lots,
after-sale service equipment and the like make him better qualified for selection.
In nut-shell, the intermediary selection is a matter of purely individual analysis. The channel commander is to
collect the relevant and .up-to-date information about the above and other points he thinks a must; such
information is possible through marketing research; the common sources of information can be trade directors,
trade journals, personal visits, banks and financial institutions, consumers and the direct contacts. 

Difference B/W

WHOLESALERS RETAILERS

1.Deals in large quantity Deals in small quantities

2.Requires large capital investment
3.Connecting link b/w producers & retailers
4.Deals in limited types of products
5.Sells goods for resale
6.Wholesale price are low
7.Business field is wide
Requires small capital investment
Connects wholesalers & consumers
Deals in all types of products
Sells goods for consumption
Retail price are comparatively high
Business confined to local customers.

__________________________________________________________________________

DIRECT MARKETING
(Zero level channel Marketing-Channelless Retailing)
It is defined as an interactive system of marketing. Under this marketing an organization uses personal selling,
advertising, sales promotion, electronic media etc. to promote and sell directly to consumers.

METHODS/TECHNIQUES OF DIRECT MARKETING

1. IN – HOME SELLING - This includes ‘door-to-door’ selling which can either be approaching the prospects
without selecting them in advance or after an initial contact over phone or by mail. It also includes party plan
selling under which a hostess invites some friends to a party and a sales man makes a sales presentation at the
party.
2. TELE MARKETING-It involves contacting the prospects directly over the telephone to influence them &
get orders on the plan.
3. MAIL ORDER SALES-In this the order for goods is placed by the customer based on information from a
catalogue or from an advertisement. Disadvantage- Customers place the order without seeing the goods.
4. DIRECT – RESPONSE MARKETING Under this TV, radio & press media are used to offer goods to the
customers directly & the customers are asked to contact the manufacturers over the telephone. The telephone no.
is usually given while advertising the product. Eg : Teleshopping.
5. AUTOMATIC VENDING MACHINE -It’s a form of retailing without the aid of a salesman. A variety of
product, mostly convenience goods, is disposed by means of a machine, when the buyer inserts coins. Items like
cigarettes, milk, ice cream, news paper, coffee etc. can be sold by automatic vending machines and hence, this is
also known as robot retailing. The products sold are generally of low price, uniform in size, shape or weight.
Operating costs & maintenance costs are generally high making automatic vending machine costly to install.
6. INTERNET MARKETING - In this system, people sit at home and do their shopping through internet
connected PCs . They have to log on to relevant websites, read the comparative merits & demerits of different
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products of similar type, select the product of their taste and place the order through internet, payment can be
made through debit / credit card and delivery of goods is by courier.

MERITS
1. Centrifugal Approach-It follows a spot lighted or focused approach that has the capacity to identify a very
specific target market using direct marketing techniques and tools. This makes it possible a very useful and
effective promotional tool for niche products because it is possible to target only those prospects who are likely
to respond to the promotion.
2. Results Are Measurable for Fitting Actions-It is possible to relate a particular sale as a response to a
particular direct marketing activity. This is useful piece of information since over a period of time, it is possible
for an organization to build up a picture of the kind of marketing messages to which a particular group of
customers is more likely to respond. Direct marketing is highly flexible and there are short lead times associated
with its use. Direct marketing often has an immediate impact on customer responses. 

3. Effective Pretesting of Ads -Direct market has built in ability to' test and retest and measure the intensity of
impact of variables separately. This versatility' affords good number of pilot versions of a direct marketing
campaign can be run before the final version is rolled out on a mass scale. 
4. Easy International Coverage-Direct marketing its latest technologies, give global coverage at least time and
a firm can find the customer to whom the product or service can be sold without hassles. Even the ad messages
which are tailor made can be used wisely and widely. This open span of coverage gets you the best business. 
5. It Provides an Alternative Distributive Channel -Direct marketing offers an opportunity of talking or
communicating directly to any customer in any corner of the world. Not only this, the goods are delivered and
money is collected at comparatively least cost. There is virtually no intermediaries. This reduction means
passing on the benefits of lower prices to the consumers. 
6. Helps in Building a Broad based Data-base-Once a customer is on line, whether he purchases or not, his
details are available to the firm which can be used later on by the same firm or can be exchanged with other
dealers for mutual benefit. If the marketing has a detailed data about each customer from a particular region or
part of the country or world, it can be fruitfully tapped when opportunities arise. This help is knowing the
consumer behavior or buying patterns. 
7. Least Investment and More Yields-Unlike traditional direct marketing, the modern direct marketing calls
for least investment-both fixed and working. A firm can be a one man show all over the world where Internet
facility is a must and at the most one assistant. There is no warehouse, showroom, no inventories, no salesmen or
women. This means major expenses are cut both fixed and variable that leads to higher yields, even if the goods
and services are sold at reasonably low prices. 

DEMERITS
1.One cannot Throw out the Intermediaries -Intermediaries between the manufacturing and marketing firm,
and customers have been playing important role and they will continue to play. E-tailing might secured as new
enchanting trial but retailing is bound to continue. No manufacturer in all the lines will be able to deal with
widespread unique customers. It is foolish and futile to expect that modern direct methods are fool proof and
long standing. Even if you throw the middlemen, the services of middlemen cannot be done away with. 
2. Consumers Oppose Direct marketing as an Intruder -Very few companies have succeeded in modern
methods of direct marketing in some cases in some products and services. However vast majority of customers
or prospects look down upon direct marketing methods particularly, telephone marketing, television marketing
and door to door selling. The privacy of these customers is snatched away. When a T.V. serial is going on which
is absorbing, and Asian skyshop or T.V.C. gives ads and demos, the consumers are irked. Again we see
salesmen come at odd time, either at 12.00 noon or lunch hours where, they get negative treatment. Even
telemarketing one finds an intrusion. 
3. Consumer Satisfaction -The modern methods no doubt make whole world as a single market, the parties
communicate each other. .However, there is no personal inspection of products before buying. The consumer has
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no opportunity five sense testing of products before buying. This is one serious draw back that reduces consumer
satisfaction. Infact any new system should enhance consumer satisfaction or consumer delight. 
4. Divulging Credit information-Modern methods of marketing especially direct have encouraged credit, debit
and charge cards ATMs-which result in divulging credit worthiness of customers. Again, there have been scams
that have come to light when online trading, credit, debit charge cards are misused. That is why customers do not
trust direct marketing though international security protocols are practiced. 
5. Costly Affair -For a company which has to get a customer the initial costs are high which can be recovered in
due course of time if consumer is loyal. To keep the customer, customer maintain costs are also high. That is
data base development is costly in terms of costs and time. It is clear from the experience that sudden mushroom
growth of online trading units appeared and suddenly disappeared too.

Manju Alex