Marketing Management

MBA IInd SEM MARKETING MANAGEMENT
MBA203: MARKETING MANAGEMENT:

Objective of the Course: the objective of the course is to cover the marketing which is one of
the important areas of functional managements. This is pre-requisite to taking of the any
elective in this III and IV semesters.
1. Introduction to Marketing: Needs, Wants, Demands, Products, Exchanges,
Transactions, Market, Marketing, Production concept, Product concept, Sales
Concept, Marketing concept, Societal marketing concept, Indian Marketing
Environment.
2. Marketing Segmentations: Identification of Market Segments – bases for market
segmentation – Consumer market segment- Selecting Target marketing –
Segmentation and targeting as a basis for strategy formulation – Development
Position – Strategies.
3. Product Management: Introduction to product – PLC-PLC as a tool for marketing
strategy – Constituents of a Product- core product, augmented product, Differentiated
product, potential product – Product line and Product mix – product line decision-
Brand management – decisions – NPD – classification – process of NPD.
4. Pricing Strategy: objectives of pricing – pricing methods- selecting the final price,
adopting price, initiating the price cuts, initiating price increases – responding to
competitor’s price changes. Sales and Distribution managements –sales and
distribution functions – channel management and decision –types of Retailers –trend
in retailing – growth and trend in Wholesalers –sales force and sales agents –
advantages and disadvantages.
5. Marketing Commucnitons: the cmmuncation process – communciton mix –
managing adverting sales promion –public relations and direct marektging – sales
forece objectgives – salesforce structure and size – sales force compensation.
(minimum 5 cases to be dealt each from each unit so that all units will be
covered)
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Compiled By I.V.GIRISH KUMAR, MBA,M.COM,LLB,B.Ed,(PhD),CA,. M.No: 9573444199
2018 External Question Paper

Part A (5 X 10 = 50marks)
1. (a) Discuss the various concepts of marketing?
(b) Overview the Indian Marketing Environment in detail?
2. (a) Explain the steps involved in selecting target marketing?
(b) What are the strategies adopted for developmental position?
3. (a) Explain the different strategies and stages in product life cycle?
(b) Describe the steps involved in NPD process?
4. (a) Write a short notes on: Fair Price and Final Price?
(b) What are the advantages and disadvantages of sales force and sales agents?
5. (a) Explain the process of communication in marketing?
(b) What are the objectives of sales force?
Part – B (20 Marks)
6. Case Analysis:
Sudha Home appliances pays its sales p[people well. They are on expense
account. Their promotional prospects are bright. They get an opportunity to travel to exotic
places as a reward for their service. Many sales people draw five figure salaries.
Sudha Homes Appliance has thought about an incentive plan to keep the sales
people motivated. IT has started to think of ways and means to compensate sales people
without increasing their tax liability. It has thought of providing the sales people a catalogue
of house hold items which can be obtained by redeeming the points earned by them on the
basis of performance. It will provide good opportunity to sales people to point out to others
with a great degree of provide what they have achieved by showing the house hold items and
then explaining how they won it.
They also want to introduce a travel plan, because a travel to beautiful locales
home and abroad is an ultimate dream of many people. Travel plan scores over rewaqrd
redemption scheme because a reward that is repeated does not have incentive value where as
travel plan through repeated keeps up its incentive value. Travel plan is also a family affair.
Questions:
a. What is the real issue in this case ?

b. Can you think of some more incentives for Sudha’s sales people?
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UNIT 1
MARKETING
MEANING AND DEFINITION OF MARKETING:
Generally, marketing is understood to mean the sale and purchase of goods and
services but it is narrow thinking to understand it so. The term 'marketing’ is very wide. It
does not mean only the sale and purchase of goods and services. It means entire process of
satisfying the needs of consumers. It starts with discovery of needs and wants of the
consumers, and it continues, till these needs and wants are satisfied.
According to American Marketing Association (AMA), "Marketing is the process
of planning and executing the conception, pricing, promotion, and distribution of ideas,
goods, and services to create exchanges that will satisfy individual and organizational
objectives".
According to William J. Stanton, "Marketing is a total system of interacting business
activities designed to plan, price, promote and distribute want-satisfying products and
services to the present and potential customers".
According to Prof. Paul Mazur, "Marketing is the delivery of standard of living to the
society".
NATURE OF MARKETING
1) Specialized Business Function: In the early days, the selling function did not call far any
specialized skills as the sales could have been affected on production-basis. But now the
business environment has undergone tremendous changes in social, economic, political and
cultural aspects..
2) Socially Desirable Function: It requires constant interaction with the various strata of
society. It is instrumental in manipulating the factors of production, distribution, promotion
and price, and also in influencing the patterns of consumption and consumer attitudes.
3) Integrative Function: It integrates and combines the other business functions like
production, finance, personnel, R & D etc. with a view to accomplishing the organizational
objectives.
4) Reflects the Business Mission: Marketing reflects the business mission of a firm before
the public and society.
5) Adaptation to Environment Variables: It is said that change is the only basic law of
economics. Marketing, which is the art of distributing the products and services among the
various claimants, has also only one basic law, change.
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SCOPE OF MARKETING:
Marketing is typically seen as the task of creating, promoting, and delivering goods
and services to consumers and businesses. In fact, marketing people are involved in 10 types
of entities of marketing.
1) Goods: Physical goods constitute the bulk of most countries' production and marketing
effort. In developing nations, goods-particularly food, commodities, clothing, and housing-
are the mainstay of the economy.
2) Services: As economies advance, growing proportions of their activities are focused on
the production of services. Services include the work of airlines, hotel, car rental firms,
barbers and beauticians, maintenance and repair people, dog kennels and dog therapists, as
well as professionals working within or -for companies, such as accountants, lawyers,
engineers, doctors, software programmers, and management consultants. Many market
offerings consist of a variable mix of goods and services.
3) Experiences: By orchestrating several services and goods, one can create, stage, and
market experiences.
4) Events: Marketers promote time-based events, such as the Olympics, company
anniversaries, major trade-shows, sports events, and artistic performances. There is a whole
profession of meeting planners who work out the details of an event and stage it to come off
perfectly.
5) Persons: Celebrity marketing has become a major business. Years ago, someone seeking
fame would hire a press agent to plant stories in newspapers and magazines. Today every
major film star has an agent, a personal manager, and ties to a public relations agency.
Artists, musicians, CEOs, physicians, high-profile lawyers and financiers, and other
professionals are drawing help from celebrity marketers.
6) Places: Places-cities, states, regions, and whole nations-compete actively to attract
tourists, factories, company headquarters, and new residents. Place marketers include
economic development specialists, real estate agents, commercial banks, local business
associations, and advertising and public relation agencies.
7) Properties: Properties are tangible rights of ownership of either real property (real estate)
or financial property (stocks and bonds) Properties are bought and sold, and this occasions a
marketing effort. Real estate agents work for property owners or seekers to sell or buy
residential or commercial real estate.
8) Organization: Organizations actively work to build a strong, favorable image in the mind
of their publics. We see corporate identity ads by companies seeking more public recognition.
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9) Information: Information can be produced and marketed as a product. This is essentially

what schools and universities produce and distribute at a price to parents, students, and
communities.
10) Ideas: Every market offering includes a basic idea at its core. Products and services are
platforms for delivering some idea or benefit. Marketers search hard for the core need they
are trying to satisfy.
IMPORTANCE OF MARKETING:
The importance of marketing is as shown in figure ahead.
1) Importance of Marketing to the Society: Marketing can play a vital role for well-being
to society. The importance of marketing to society may be summarized under following
heads
i) Delivery of Standard of Living to the Society: Main liability of marketing is to
produce goods and services for the society according to their needs and tastes at reasonable
price. Marketing discovers needs and wants of the society, produces the goods and services
according to these needs, create demand for these goods and services, encourages customers
to use them and thus, improves the standard of living of the society.
ii) Decreases in Distribution Cost: Marketing aims at reducing the cost of

distribution as far as possible so that the commodities might be within the reach of maximum
number of consumers. It increases the level of consumption in the society. Reduction in the
cost of distribution directly affects the price of the commodity and it will also be reduced. As
a result, customers who were unable to purchase it due to high prices can now purchase the
product.
iii) Increase in Employment Opportunities: Employment opportunities are directly
affected by the development of marketing. It is expected that in the under developed
countries, like India, there is great scope of increasing employment opportunities by
developing marketing activities.
iv) Protection against Business Slump: Business Slump causes unemployment,
slackness in the success of business and great loss to the economy. Marketing helps in
protecting society against all these problems.
v) Increase in National Income: Successful operation of marketing activities
creates, maintains and increases the demand for goods and services in the society. It results in
the increased level of production and it increases the scope and area of marketing.
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2) Importance of Marketing to the Firm: Marketing plays an important role for the well
being of a firm.
The importance of marketing to a business firm may be summarized under following heads.
i) Helpful in Business Planning and Decision Making: Marketing is helpful
not only to plan the production but it is helpful also in business planning and
taking various decisions regarding the business. In today's economy,
production is planned according to the sales forecast and not according to the
production capacity of the firm.
ii) Helpful in Increasing Profits: Every business is carried on with the profit
motive. Marketing helps in increasing the business profits by reducing the
selling cost on the one hand and by increasing the demand of the product
through advertising and sales promotion activities on the other hand.
iii) Helpful in Communication between Firm and Society: Business collects
various information’s regarding consumers' behavior and changes therein from
time to time through marketing. Marketing also provides information to the
firm of the competitors, price policies. Production policies, advertising and
sales promotion policies, and distribution policies. Thus, society comes to
know about the new products.
3) Importance of Marketing in Developed Economy: In all developed countries of the
world, marketing is considered to be the key of economic activities for industrial growth and
expansion. Truly speaking, developed countries are in greater need of efficient marketing
than underdeveloped countries because in a developed country, generally, the production is
carried on at very large scale through the use of latest technology and equipment. In these
countries, the production is much more than the demands.
4) Importance of Marketing in Underdeveloped or Developing Economy: Marketing has
a special significance in underdeveloped economies. A rapid development of the economy is
possible only by adopting the modern methods of marketing. Marketing in underdeveloped
economies is still in its infancy. Industrialization and organization go hand in hand with
application of modern refinements in the field of marketing.
5) Importance of Marketing in a Seller's or Buyer's Market: A seller's market is one in which
the demand for goods and services exceeds the supply. In such a situation there is tendency of
growing monopolies. On the other hand buyer's market is one in which the supply of goods
exceeds the demand.
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CORE CONCEPTS OF MARKETING

The marketing thinking starts with the customer's needs. Today the customer is on the
driver's seat. It is also because of the change in the demand supply equation. Now the demand
is less than supply just reverse to the past times situation. Today each marketer wants to
retain and satisfy the customer because of the intense competition. The marketing has the
basic concepts as its elements.
NEEDS, WANTS AND DEMANDS:

Consumers are motivated by their desire to satisfy complex needs, and these should
be the starting point for all marketing activity.
Need refers to something that is deep-rooted in an individual's personality. How
individuals go about satisfying that need will be conditioned by the cultural values of the
society which they belong to. So in some cultures the need for self-fulfillment may be
satisfied by a religious penance, while other societies may seek ii through a development of
their creative talents.
Thus, the most fundamental concept which must be realized as being the being the
basis of all marketing activities is the existence of human needs. There are many human
needs and these can be broadly classified as:
1) Basic Physiological or Primary Needs: These needs arise out of the basic physiology of
life and are important for the survival of a man. They are virtually universal among people,
but they exist in different intensity. Needs are also influenced by the social environment. One
man may require wheat to satisfy his hunger, other may require rice for the same purpose.
Some of the physiological needs are food, wafer, sleep, air to breathe, sex, clothing and
shelter.
2) Socio-Psychological or Secondary Needs: Secondary needs are related to mind and spirit
rather than to the physiology of life. Many of these needs develop as one matures. Instances
are belongingness, recognition, self-esteem, sense of duty, self-assertion and so on. Actually,
these are the needs which complicate the efforts of managers because the secondary needs
vary among people much more than the primary physiological or basic needs.
3) General Needs: This is an intermediate category of motives between the physiological
and the socio-psychological. The motives in this category are unlearned but not
physiologically based. In this category may fall all other motives which cannot be classified
as physiological or socio-psychological, like competence, manipulation, curiosity and love or
affection.
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WANTS are desires for specific satisfiers of these deeper needs. For example, for
satisfying the hunger need the person may want a Chinese food, south Indian food etc.
Although people's needs are few, their wants are many. Human wants are continually shaped
and reshaped by social forces and institutions. Wants are the form taken by human needs as
they are reshaped by culture and individual personality.
People have almost unlimited wants but limited resources. Thus they want to choose
products that provide the most value and satisfaction for their money. When backed by
buying power, wants become demands. Consumers view products as bundles of benefits and
choose products that give them the best bundle for their money.
Demands are need or wants for specific products that are backed by an ability
qualification and willingness to buy them. Wants become demands when supported by
purchasing power. The marketer must not only be interested in knowing how people may
want their product but also how many actually have the purchasing power to purchase.
The concept demands refers to the quantity of a good or service that consumers are
willing and able to purchase at various prices dealing a period of time.
Types of Demand
1) Individual and Market Demand: The quantity of a commodity which an individual is
willing to buy at a particular price of the commodity during a specific time period, given his
money income, his taste, and prices of other commodities (particularly substitutes and
complements), is known as 'individual's demand' for a commodity.
2) Demand for Firm's Product and Industry's Products: The quantity of a firm's produce
that can be disposed of at a given price over a time period denotes the demand for the 'firm's
product'. The aggregate of demand for the product of all the firms of an industry is known as
the market demand for 'industry's product'.
3) Autonomous and Derived Demand: Autonomous Demand for a commodity is one that
arises independent of the demand for any other commodity whereas derived demand is one
that is tied to the demand for some 'parent product'. Demand for food, clothes, shelter etc.
4) Demand for Durable and Non-durable Goods: Demand is often classified also under
demand for durable and non-durable goods. Durable goods are those, whose total utility is
not exhausted by a single use. Such goods can be used repeatedly or continuously over a
period.
Nondurable goods on the other hand, are those, which can be used or consumed only
once (e.g., food items) and their total utility is exhausted in a single use.
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5) Short-term and Long-term Demand: Short-term demand refers to the demand for such
goods as are demanded over a short period. In this category fall mostly the fashion consumer
goods, goods of seasonal use, and inferior substitutes during the scarcity period of superior
goods, etc.
The long-term demand, on the other hand, refers to the demand, which exists over a
long period. The change in long-term demand is perceptible only after a long period. Most
generic goods have long-term demand.
PRODUCT:
Product is anything that can be offered to a market that might satisfy a want or need.
According to George Fisk, "Product is a cluster of psychological satisfactions".
According W. Alderson, "A product is a bundle of utilities consisting of various
features and accompanying services".
There are two concepts of product - narrow concept and wide concept. In its narrow
concept, a product is a bundle of physical or chemical properties which has some utility. A
product is not a non-living object it is not a mere assemblage of matter physical and
chemical. Utility alone is not the function of the product. A product means an object which
satisfies me need of the customer.
VALUE:
Value means relative worth or importance. Furthermore, value implies excellence
based on desirability or usefulness and is represented as a magnitude or quantity. On the other
hand, values are the abstract concepts of what is right, worthwhile, or desirable.
Value may be best defined from the customer's perspective as a trade-off between the
benefits received versus the price paid. Value is created when product and user come together
within a particular use situation. Thus, each transaction is evaluated as to dissatisfaction,
satisfaction, or high satisfaction experience, in terms of the value received. These service
encounters impact customer decisions to form long-term relationships with organizations.
Benefits deriving from a product
Customer perceived value =---------------------------------------
Cost of acquiring the product
From this equation, we can see that a customer will experience value from a product or
service when the perceived benefits exceed the price of the product. What is not evident in
the equation (but nevertheless crucial) is that the value of the firm's product must exceed that
of competitors.
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EXCHANGE, TRANSACTION AND RELATIONSHIP:

The essence of marketing is a transaction an-exchange-intended to satisfy human
needs and wants. Marketing emerges when people decide to satisfy needs and wants through
exchange. Exchange is the act of obtaining a desired product from someone by offering
something in return. Exchange is the social concept of marketing. Whether exchange actually
takes place depends upon whether the two parties are agreed to the terms and conditions of
exchange. When the exchange is completed it is called as transaction.
Needs Wants Demand Exchange Offers Research
Factors Affecting the Exchange Process

1) Demand and supply
2) Price
3) Market information with sellers and buyers
4) Legal control and regulations to ensure fair price.
Types of Transaction
The exchange or transaction can be of various cypes and these are described below:
• Commercial Transaction: Generally seen day-to-day in our marketing activity,

where consumers or buyers buy goods or services offered by seller or marketer in
exchange of money.
• Employment Transaction: It can be between employers to give compensation or
remuneration depending upon the service offered by an individual employee. This
transaction can be on regular basis or on contract basis.
• Civil Transaction: This could be any transaction where the services are offered by
one organization to the consumers or to the general citizens who pay fees for such
services. It could be general hospital or police or education or civic or essential
services.
• Religious Transaction: Religious organizations like Church, Temple. Mosque and
individual or group of individuals who give donations or contributions in lieu of
religious services offered to them.
• Financial Services Transaction: With the growth of economic activity, the
requirement of financial package and proper sourcing of funds is becoming a very
critical issue.
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MARKETS:
The term 'market' has traditionally been used to describe a place where buyers and
sellers gather to exchange goods and services (for example a fruit and vegetable market or a
stock market).
According to PHILIP KOTLER, "A market consists of all the potential customers
sharing a particular need or wants who might be willing and able to engage in exchange to
satisfy that need or want". So the size of the market depends upon the number of persons who
have the unsatisfied needs and are potentially capable of doing the exchange.
According to COURNOT "Economists understand by the market not any particular
place in which things are bought and sold but the whole of any region in which buyers and
sellers are in such free intercourse with one another that prices of the same goods tend to be
at equality".
IMPORTANCE OF MARKET:
The importance of market Is as follows:
1) Reciprocal Benefits: The buyers can get their goods for the satisfaction of their wants and
the sellers also get their market for their merchandising operations.
2) Incentive to Producers: The goods are produced for marketing, i.e., selling to the
consumers. In the absence of any market, the goods cannot be sold. The existence of a market
provides Incentive to the manufacturers to produce the goods.
3) Generation of Employment: The activities of repeated buying and selling of goods and
services in a market call for the services to be rendered by different people. This way, a
market creates opportunities of employment to people in various capacities like dealers and
agents, etc.
4) Index of Economic Situation: The economic condition of a country can be gauged by the
presence of a market. A country- possessing an international or global market for its products
and/or services is considered as an economically advanced one in the world of business.
5) Supply vs. Demand Adjustment: The existence of a market creates demand for goods
and services. Certain raw materials like cotton, jute., etc. have seasonal supplies but their
demands are regular and continuous. An organized market for them ensures adjustments
between the demand and supplies and stabilization of prices over a long period.
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CLASSIFICATION OF MARKETS
Markets have been classified, on the basis of different approaches, in various ways as
are given below:
1) Classification According to Geographical Areas
➢ National Market: For certain type of commodities, a country may be regarded as a
market, through the fast development of industrialization; it is called a national
market. At the present stage, in India, the goods of one corner can reach another
corner, because of the efficient systems of communications and transportation
facilities.
➢ International Market: World or international market comes up when buyers and
sellers of goods evolve on world level, i.e., involvement of buyers and sellers beyond
the boundaries of a nation.
➢ Regional Market: A regional market covers a particular region of a country. Such
regional classification is found in a large country. India, for example, is divided into
four regions, east, west, north and south, for all practical purposes.
➢ Local Market: A Local Market has a very limited area and generally for perishable
daily necessary goods like fish, vegetables, etc.
2) On the Basis of Nature of Transaction
➢ Spot Market: In such a market goods are exchanged and the physical delivery of
goods takes place immediately.
➢ Future Market: In such a market contracts are made over the price for future
delivery. The dealing and settlement take place on different dates.
3) Classification According to Position of Sellers
➢ Primary Markets: The agricultural or industrial goods are sold by the producers to
some middlemen like wholesalers. This is the primary market.
➢ Secondary Market: In the secondary market the middlemen like the wholesalers sell
the goods to another group of middlemen called the retailers.
➢ Terminal Market: Ultimately the goods are sold in the terminal market to the actual
consumers.
4) On the Basis of Commodities/Goods
➢ Produce Exchange Market: This type of market is found only in developed
industrial centers or cities. One market deals in one commodity only. Generally sellers
and buyers of a particular commodity set up such markets and run them regulated and
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controlled by certain rules, for example, Wheat Exchange Market of Hapur, the
Cotton Exchange Market of Mumbai, etc.
➢ Manufactured Goods Market: Such type of markets deals with manufactured goods,
for example.Leather goods, machinery, etc. The Leather Exchange Market at Kanpur,
Piece Goods Exchange of Mumbai, is examples of such markets.
➢ Bullion Market: This type of market deals with the purchase or sale of gold, silver
etc. Bullion markets of Mumbai, Kolkata, Kanpur, etc, are examples of such markets.
5) Classification According to Nature and Degree of Competition
➢ Perfect Market: A market is perfect when some conditions are satisfied, for example,
• There are large number of sellers and buyers;
• The products of the sellers are identical;
• Each buyer and each seller has perfect knowledge of the market;'
• Each seller has equal access to the factors of production; etc.
➢ Imperfect Market: When one or more of the above conditions are absent the market is
imperfect. Market can be further classified according to the degree of imperfection.
The worst situation is when there is a monopoly (one seller) or a monopsony (one
buyer).
6) Classification according to Periodicity
➢ Very Short-Period: This is a market for perishable goods and the goods have to be
sold out by the sellers in a short time. The supply cannot be adjusted with the demand.
➢ Short-Period: This is a market for goods with a limited stock. The supply can be
adjusted with the demand to some extent but not fully.
➢ Long-Period: In such a market the supply can be adjusted with the demand by
changing the scale of production.
➢ Very Long-Period: In such market, the length of the period is so long that very big
changes take place to affect the supply and the demand, for example, change in
technique of production, change in population, change in tastes, etc.
7) On the Basis of Volume of Business Transacted
➢ Retail Market: In retail market goods are sold in small quantities directly to the users
or consumers in consumer market. The consumer gets the goods for consumption and
not for profit-making.
➢ Wholesale Market: In wholesale market, goods are supplied in bulk quantity to
dealers.
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➢ Industrial Market: Here goods are bought in bulk quantity either for consuming or
for reproducing process.
MARKETERS:
One that sells goods or services in or to a market, especially one that markets a
specified commodity.
According to PHILIP KOTLER, "A marketer is someone seeking a resource from
someone else and willing to offer something of value in exchange. It is clear, that marketer is
not a producer. Marketer is one of the parties to exchange".
In the normal situation, the marketer is the company serving a market of end users
The company and the competitors send those respective products and messages directly
and/or through marketing intermediaries to the end users. The relative effectiveness is
influenced by their respective intermediaries as well as major
environmental forces.
MARKETING FUNCTIONS:
The functional approach of marketing consists of a number of activities called
marketing functions. A marketing function is, "an act or operation or service by which
original product and the final consumer are linked together".
1) Functions of Exchange: The process of the passing of goods into the customer's hands is
called the function of exchange. This process can be divided into buying, assembling and
selling.
➢ Buying: It is the first step in the process of marketing. A manufacturer has to buy
raw materials for production; a wholesaler has to buy goods to sell them to the
retailer; a retailer has to buy goods to be sold to the consumer. Buying involves
transfer of ownership of goods from seller the buyer.
➢ Assembling: Assembling means creation and maintenance of the stock of goods,
purchased from different sources. Generally, the dealer or middleman purchases the
goods from more than one seller. In such a case, the goods have to be collected and
assembled at one place.
➢ Selling: Selling and buying are complement to each other. Marketing efforts evolve
around the buying and selling functions. In business, the selling function is very
important. The primary objective of marketing is to sell the products at a profit.
efforts.
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2) Functions of Physical Supply: The second group of marketing process is the physical
supply. These are the functions that are related with creation of place and time utilities.
Physical transfer of goods from the manufacturer to consumer takes place by means of the
following functions.
➢ Transportation: Marketing system requires an economical and effective
transportation system. A good system of transportation increases the value of goods
by the creation of place utility. The opening of new markets has been possible by the
quick development of transportation and communication.
➢ Storage and Warehousing: When production is seasonal but consumption is
permanent or when production is continuous but consumption is seasonal, storage
becomes necessary. Storage involves holding and preserving of goods between the
time of their production and the time of their consumption. It facilitates a steady flow
of commodities in the market.
➢ Choosing and Motivating the Channels of Distribution: A channel of distribution
is a group of individuals and organizations that direct the flow of products from
producers to customers. Channels of distribution should make products available at
the right time, in the right place, and in the right quantity.
3) Facilitating Functions: These functions make the marketing process easy and include
financing, Pricing, risk-bearing, standardization and market information, etc.
➢ Financing: It is very difficult to carry on marketing activities smoothly without the
availability of adequate and cheap finance. Commercial Banks, Cooperative Credit
Societies, and Government Agencies arrange for short term finance, medium term
finance, and long term finance to facilitate marketing. Trade credit is also one of the
important sources of finance.
➢ Pricing: Pricing is also an important function which is closely alluding to selling.
Price policy of the concern directly affects the profit element and therefore, its
successful functioning. In determining the price policy, several factors are to be borne
in mind such as cost of the product, competitors' prices, marketing policies,
government policy or customary or convenient prices, etc.
➢ Risk-Bearing: In marketing, there arise numerous risks - damages to goods, physical
loss, changes in economic values of goods, mismanagement, credit losses etc. These
are more or less inherent in the marketing process. There are losses - on accounts of
fire, flood, deterioration, bad debts etc.
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➢ Standardization: Standardization is related with the division of commodities into

distinct groups. Standard is used in providing certain basic qualities to the goods for
their use. Standard is a specification.
➢ Market Information: The desired success of marketing depends on correct and
timely decision. These decisions are based on market information or market
intelligence. Modern marketing must have information of size, location,
characteristics of markets etc.
4) Other Functions:
➢ Identifying Market Opportunities: This includes researching the needs and wants of
the different types of customers to be found in the market. At the same time it is
necessary to be aware of technological developments taking place outside the
company, and of new product development activities taking place within and outside
the organization.
➢ Promoting Products and Services: The marketing function will be responsible for
communicating to target market customers the existence of its products and the
benefits to be obtained from purchasing them. The advertising and promotional
process is aimed at the target customer group so that it:
➢ Planning the Marketing Activity: Marketing planning involves deciding on
marketing strategies that will help the company attain its overall objectives. The
primary objective for most companies is to make profit, so the marketing plan outlines
how company resources can be maximized in meeting customer needs so that this can
happen.
MARKETING MANAGEMENT:-
MEANING AND DEFINITION OF MARKETING MANAGEMENT

Marketing management is a compound word 'marketing plus management1.
Marketing is the total system of business activities while managernent is the art of getting
things done in a coordinated and harmonious way.
'Management' may be regarded as an art of getting things done through and with the
people towards the attainment of the objectives of the firm. Marketing management is a
branch of total management and is concerned with the direction of those activities toward the
attainment of marketing goals, i.e. satisfaction of customers' needs, increase in sales volume,
and increase in organization's profits. All activities directed towards attainment of these
marketing goals may be characterized as marketing management.
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According to PHILIP KOTLER, "Marketing management is the process of planning

and executing the conception, pricing and promotion and distribution of goods, services and
ideas to create exchanges with target groups that satisfy customer and organizational
objectives".
According to the AMERICAN MARKETING ASSOCIATION, "Marketing
Management" is the process of planning and executing the conception, pricing, promotion,
and distribution of ideas, goods and service to create exchanges that satisfy individual and
organizational objectives.
OBJECTIVES OF MARKETING MANAGEMENT:
Just as the objective of every business is to earn a reasonable profit by satisfying the
needs of customers, the goal of marketing management is to achieve the business objectives.
In the light of this statement, the following are the basic objectives of marketing
management:
1) Creating New Customers: The marketing manager should take all necessary steps such
as advertisement, sales promotion activities, etc., to attract new customers for buying the
firm's product. This will help to
increase sales.
2) Satisfying the Needs of Customers: The marketing manager should study the customers
demand before offering them any product or service as the modern marketing begins and
ends with the customers.
3) Enhancing the Profitability of the Business: Since the marketing department is the only
department which generates revenue for the firm, the survival of the firm mainly depends on
the efficiency of the marketing department to generate profit. Thus marketing management
aims at enhancing the profitability of the firm through the sale of products.
4) Raising the Standard of Living of the People: Marketing facilitates the production of a
wide variety of goods and services for satisfying customers' needs. It, therefore, helps to raise
the standard of living of people.
5) Determining the Marketing Mix: Here marketing management aims at proper planning
of marketing mix to meet the requirements of different kinds of customers. Marketing mix
refers to the culmination of various elements such as product, price, promotion, and physical
distribution.
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MARKETING MANAGEMENT ORIENTATIONS/ PHILOSOPHIES

INTRODUCTION:
Companies adopt different philosophies in relation to marketing of their products and
services. Some claim that they are customer-oriented and others say they offer value to their
customers. Still others say that they treat their customers as kings. Whatever be the guiding
philosophy of marketing for a company, it should be carried out efficiently, effectively and in
a socially responsible manner. In the process, the company must remember that marketing is
a conscious effort to achieve a, desired exchange with the target market. There are five
competing concepts and organizations can choose any one of them for conducting marketing
activities.
PRODUCTION CONCEPT:
Production Concept is a concept where goods are produced without taking into
consideration the choices or tastes of the customers. It is one of the earliest marketing
concepts where goods were just produced on the belief that they will be sold because
consumers need them.
The production concept is the management philosophy, which believes and operates
with the guiding force that the consumer will prefer those products which are conveniently
available in adequate quantity and affordable.
The salient features of production concept are:

1) This concept is based on the belief that consumer's needs can be satisfied with reasonable
quality and reasonably priced product.
2) There is fair amount of competition and competing products are sold with complete
knowledge of the products available in the market.
3) The manufacturer should maintain availability of sufficient quantity of products and
consistency in quality.
This concept is one of the oldest philosophies that guide sellers. The production concept is
still a useful philosophy in two types of situations:
1) When the demand for a product exceeds the supply, management should look for ways to
increase production,
2) When the product's cost is too high, improved productivity is needed to bring it down.
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PRODUCT CONCEPT:
The Product concept is a variation of production concept and emerged later as a
management philosophy based on which marketing programmes and efforts were developed.
The concept can be defined as;
The product concept is management philosophy that consumers generally prefer those
products in the market which offer the best in terms of quality and price and essentially all
organizations in marketing business to produce and provide sustainable improved quality
products.
The implication of this concept is that consumers look for products which are
affordable as well as quality wise their requirement. The emphasis is on quality of the product
that is available in the market. The concept is primarily based on following premises:
1) Consumers generally look and prefer quality of the product.
2) Consumers compare quality of products to competing product or brand quality.
3) Consumers generally buy products to meet their overall needs and not specific needs.
4) Consumers are aware of the product quality differences between competing brands and
they choose the quality which comes closest to their preference and their affordable price.
5) Consumers' rating of manufacturers is based on their quality products and reliability and
brand loyalty is also based on quality perception.
Organizations that subscribe to the Product Concept of marketing believe that the
consumers would automatically vote for products of high quality. They concentrate on
achieving product excellence. In addition, many of them also spend considerable energy, time
and money on research and development and bring in a variety of new products.
SALES / SELLING CONCEPT:
Many organizations follow the selling concept, which holds that consumers will not
buy enough of the organization's products unless it undertakes a large-scale selling and
promotion effort. The concept is typically practiced with unsought goods - those that buyers
do not normally think of buying, such as Encyclopedias or Insurance. These industries must
excel at tracking down prospects and selling them on product benefits.
The selling efforts help in getting business and satisfying customers. The selling
concept can be defined as:
The selling concept is a management philosophy based on the premises that
consumers generally do not buy products that are not essential or do not buy in sufficient
quantity unless the organization itself puts efforts to create awareness and interest of the
consumer in its products and makes them inclined positively to buy these products.
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The selling concept to base on following premises:

1) Consumers generally do not waste money in buying things which are not essential or
buying excess quantities than required.
2) Consumers prefer to be motivated to buy things by use of selling efforts by organizations.
3) Consumers appreciate good selling techniques, efforts and criteria and good salesmanship
not aggressive ill behaved salesmanship is always useful.
4) Consumer rating of organization and retail outlets is high where there is an organized and
effective selling effort is made.
Production Distribution Sales Buyers

Via
Channels Ownership Transfer

MARKETING CONCEPT:
The marketing concept as the management philosophy emerged in 1950s and early
1960s, when the organizations started working out in different segments of the market and
found that market characteristics and their needs are not similar, they are not static and
changing with time and place. The needs of the customers gradually took the centre stage of
the marketing plans and programmes. The marketing concept underlines the importance of
customers and their needs and wants and finds solution to satisfy these needs. The marketing
concept can be defined as:
The marketing concept is a management philosophy that focuses on the needs and
wants of the customers of the target markets and the organization would need to find products
and services that will prove to be a useful solution to solve the requirement of such needs and
wants and deriving the satisfaction of the customers.
The marketing concept holds that achieving organizational goals depends on
determining the needs and wants of target markets and delivering the desired satisfaction
more effectively and efficiently than do competitors. J.C. Penny's motto also summarizes the
marketing concept: "To do all in our power to pack the customer's rupee full of value, quality,
and satisfaction".
The main premises on which the marketing concept is based are:
1) The customers' needs and wants are varied and many and these must be understood and
suitable products and services offered to match the requirement.
2) The market consists of different segments and these segments can be grouped according
to the customers' characteristics.
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3) The consumers in any market look for products and services which carry attributes of
features and these are perceived closest to solving their needs and wants and consumers'
preference will be for such products and services.
4) The consumers in any market may not buy a product if they feel that it will not serve the
purpose of solving their needs and wants.
5) The success of marketing concept lies in proper analysis of market research, segmenting
the market and offering products specific to the segments, along with proper marketing
programmes.
Factors Influencing Marketing Concept:

1) Population Growth: The increase in population naturally increases the demand too.
Markets are made up of people. Increase in population causes increasing the markets,
increasing the consumer, who have increased demand for goods, in kinds, varieties,
preferences etc. Thus the producers have to meet the changing demands of people.
2) Increasing Households: The growth of demand for household products is more than it is
to the total population at any time. Joint family system has become unpopular because of
many reasons. Most of the families are sub-divided and this increases the number of families
and their demands. Examples: Automobiles, Refrigerators, Electrical Appliances, Television
sets etc.
3) Disposal Income: Automation in industries, births of many new firms etc. open the door
of employment. Thus people have increased their income and in turn aim for more
satisfaction and more comforts. When the income continues to increase, the purchasing
power also increases.
4) Surplus Income (Discretionary Income): The people have surplus income left after
meeting the expenses on essential items. This surplus amount will be spent on non-necessary
products or luxury good.
5) Technological Development: Science and technology improves day by day.
Some technological advancement may outmode the existing products; in turn the whole
industry may come to a standstill. People always prefer to have the latest model. A number of
new products, in the place of old ones, are being introduced into the market often. Consumers
are at liberty to choose from the new products. Therefore, consumer-oriented marketing
system is essential.
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Limitations of Marketing Concept:

The marketing concept has a shortcoming that, "It focuses solely upon benefiting
consumers and ignores others such as employees, suppliers, investors, etc". The consumer-
orientation is not without limitations on the way to achieve new heights in marketing. There
are several limitations that come in the implementation of the marketing concept. Some are as
follows:
1) Marketing Concept as an Ideology: Marketers' attention should be focused not only on
propagation of the ideology but also on its integration with the demands of other core
business functions in order to achieve a compromise between the satisfaction of consumers
and the achievement of other company requirements.
2) Marketing and Society: A second limitation of the marketing concept concerns its focus
on individual market transactions. Since many individuals weigh heavily their personal
benefits while discounting the societal impact of their purchases, the adoption of the
marketing concept will result in the production of goods and services which do not
adequately correspond to societal welfare.
3) Marketing as a Constraint on Innovation: Many believe that relying on customers to
guide the development of new products has severe limitations. This is because customers
have difficulty articulating needs beyond the realm of their own experience. The effective
exploitation and utilization of technology in developing new products is at least as important
as market-needs analysis.
4) Internal disagreement: In many cases, executives are unwilling to adopt the marketing
concept. Managers with financial, production or engineering background often see the
marketing concept as a threat to their influence within the organization.
5) Organizational Constraints: All needs of customers cannot be satisfied by a company.
It produces only those products for which it has sufficient human and technical resourced and
skills. There are many cases when company's product need modifications, but company is not
able to modify the product because of lack of competency and heavy cost.
SOCIETAL MARKETING CONCEPT:
The societal marketing concept holds that the organization should determine the
needs, wants, and interests of target markets. It should then deliver superior value to
customers in a way that maintains or improves the consumer's and the society's wellbeing.
The societal marketing concept is the newest of the five marketing management philosophies.
According to the societal marketing concept, the pure marketing concept overlooks possible
conflicts between consumer short-run wants and consumer long-run welfare.
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The social marketing has following objectives to meet:

1) To satisfy consumers' long-term needs and wants and satisfy society's long-term interests.
Consumers will prefer and favor such marketing organizations,
2) Consumers are now concerned about safety and environmental problems and marketing
companies need to
understand them.
3) The marketing activity should be synchronized to offer products which will satisfy
consumers' needs and
society's long-term interests.
MARKETING ENVIRONMENT:
MEANING AND DEFINITION OF MARKETING ENVIRONMENT
Environment literally means the surroundings, external objects, influences or

circumstances under which someone or something exists. The environment of any
organization is the aggregate of all conditions, events and influences that surround and affect
it. The concept of environment can be understood by looking at some of its characteristics.
Marketing activities of a business firm are affected by a large number of

environmental factors that surrounds the company. These factors or forces influence the
decision-making capability of the enterprise. The factors or forces are collectively called
marketing environment.
According to PHILIP KOTLER. "Marketing environment refers to external factors
and forces that affect the company's ability to develop and maintain successful relationship
with its target customers".
INDIAN MARKETING ENVIRONMENT:
INTRODUCTION:
The marketing environment across India is changing rapidly and business leaders are
under increasing pressure to cope with this dynamic macro-environment. The IT strategies of
companies are also witnessing corresponding shifts, realignments and modifications in order
to stay competitive, gain market share or reach out to new markets.
India is the second most populated country in the world, with nearly one billion
people. It has a reasonably favorable pro-business environment that aims to attract
multinational companies (MNCs). Because of this enormous market size and positive
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business climate, scores of American firms including General Electric, General Motors,
McDonald's, Kellogg's, and Microsoft have recently entered the Indian market. As a result,
the country has forged strong commercial interests with the United States, with trade and
business relations across many industrial sectors. In fact, the U.S. is India's leading source of
technology and her most valuable investor.
ECONOMIC ENVIRONMENT OF INDIA
The economic environment is also a significant force that affects the marketing
activity of a firm. The size of a market, in terms of population, is not enough but the people
who make-up the market must have purchasing power and should be willing to spend the
money. Therefore, a company's marketing program is affected by economic factors such, as
the disposable income, willingness to spend and save by the people, interest rates, inflation
rates, etc.
For more than four decades since Independence, the Indian economy was a directed
and controlled economy; companies were operating in a highly protective environment. But,
all this changed when the new economic policy was implemented in 1991 and the Indian
economy has been integrated with the global economy. As a result, dramatic changes have
been taking place in the Indian economic environment and the marketing firm needs to
closely monitor the economic environment both at the domestic and international level. The
world economic forces are of paramount importance to marketing, particularly those
companies which are involved with either imports or exports.
Like all other macro environmental factors, economic factors may also be viewed as a
source for both opportunities and threats to a marketing firm. A careful monitoring and
understanding of the economic environment will enable the marketing firm to be in a better
position to capitalize upon the opportunities and reduce the threats.
In India and all over the world, marketing program is specially affected by economic factors
such as industrial structure, disposable income as well as inflation and interest rates:
1) Industrial Structure: Four types of industrial structures can be distinguished:
➢ Subsistence Economies: In subsistence economy, the vast majority of people engage
in simple agriculture. They consume most of their output and barter the rest for simple
goods and services. They offer few opportunities for the marketers.
➢ Raw Material Exporting Economies: These economies are rich in one or more
natural resources but poor in other respects. Much of their revenues come from
exporting these resources,
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➢ Developing Economies: In a developing economy, manufacturing begins to account

for 15 to 25% of the country's gross national products. As manufacturing increases,
the country relies more on import of raw materials, steel, and heavy machinery. The
industrialization creates a new rich class and a growing middle class. Marketers can
adjust their marketing-mix accordingly.
➢ Developed Economies: Developed economies are major exporters of manufactured
goods and services. The large and varied manufacturing activity of these industrial
nations and their strong middle class makes them rich markets for all sorts of goods.
2) Inflation: It is a rise in the prices of goods and services. When prices rise at a faster rate
than personal incomes, consumer buying power declines. Inflation presents some real
challenges in managing a marketing program, especially in pricing and cost control.
Consumers spend less as their buying power declines. At the same time, they may overspend
today for fear that prices will be higher tomorrow.
3) Interest Rates: These rates also influence marketing programs. When interest rates are
high, consumers tend not to make long-term purchases such as housing and automobiles.
Marketers sometimes offer below market interest rates as a promotional device to increase
business.
4) Disposable Income: The level of disposable personal income influences marketing
programs directly. For example, in India lot of people get bonus around Diwali. Since this
increases their disposable income, the sales show a sharp increase during this period, and
hence marketers increase their marketing effort. This factor is usually used as a measure of
potential demand.
POLITICAL ENVIRONMENT OF INDIA
India is a democratic country with a stable political system. The government plays an
active role as a planner, promoter and regulator of economic activity. Businessmen in India
are keenly aware about the political environment faced by their organizations. Political
considerations in line with the political philosophy followed by the ruling party at the centre
and the state level, dictates most governmental decisions related to business.
Political environment too is a major component of the mega environment for an
industrial business firm. In fact, economic environment is often a by-product of the political
environment, since economic and industrial policies followed by a nation greatly depend on
its political environment. Moreover, developments on the political front keep affecting the
economy all the time; industrial growth depends to a great extent on the political
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environment; legislations regulating business are also often a product of the political
configuration.
Political environment has several aspects. Form of government adopted by the
country is the first. Political stability as such is another, for, whatever be the form of
government adopted, and stability of government is an essential requisite of economic
growth. Elements like social and religious organizations, media and pressure groups, and
lobbies of various kinds are also part of the political environment.
SOCIO-CULTURAL ENVIRONMENT OF INDIA
Indians view time differently from the Americans in any business deal they prefer
relaxed interactions. The culture is a major factor in shaping business deals. A proper cultural
understanding leads to a sense of trust between the parties and business proceeds.
communicate with others and develop and maintain relationships. Doing business in a
particular nation requires a focus on a multi-dimensional understanding of its culture and
business practices. Understanding these differences and adapting to them is the key.
India is a complex country, and those arriving here to do business will discover that
the path to success is often, not very smooth.
Socio-cultural environment is important component of the mega environment.
Culture, traditions, beliefs, values, and lifestyles of the people in a given society constitute
the socio-cultural environment. These elements decide to a large extent, what the people will
consume and how they will buy:
1) Culture: Culture is the combined result of factors like religion, language, education, and
upbringing. In any society, some cultural values are deep-rooted; they do not change easily
and are termed core cultural values. There are also values and practices, which constitute
secondary cultural values; they are more amenable to change and can be molded and
manipulated relatively more easily. Meaningful information on the consumption habits,
lifestyles and buying behavior of the people can be obtained through a survey of the socio-
cultural environment.
2) Social Class: It is one important concept in socio-cultural environment. Any society is
composed of different social classes. A social class is determined by income, occupation,
location of residence, etc., of its members. Each class has its own standards with respect to
lifestyle, behavior, etc., they are known as the class values or class norms. These values have
a strong bearing on the consumption pattern and buying behavior of the members of the class.
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LEGAL ENVIRONMENT OF INDIA:

Since the advent of liberalization and the beginning of the economic reforms process
in 1991. there has been hectic activity in the legal-regulatory arena. Investors, project
developers, policy makers and in fact all the interested parties in the new environment have
been analyzing and assessing every legislation and every notification issued by the
government for its legal implications.
Over the last few years several far-reaching legislative changes have taken place in
the Core Sector. Be it insurance, power, telecom, IT or environment these changes have
impacted industry structures and the legal environment in which business was being
conducted or project development was taking place. With greater interest shown by private
sector to participate in infrastructure development, legal issues in areas of agreements and
contract management had to be addressed. In the changing environment, an understanding of
regulatory and legal issues has been very important for all the players.
The laws and regulations of a country have a major impact on the way a company
conducts its business. Marketing activities in particular are greatly influenced by legislation.
Ignorance of law is considered no excuse. Therefore, marketers must be updated with the
important rules, regulations, and Acts that have a significant effect on their businesses.
Important legal Acts with regard to India are given below;
1) Prevention of Food and Adulteration (1954).
2) Drugs Control Act (1954).
3) Company Act (1956).
4) Standard Weights and Measurement Act (1956).
5) Competition Act (2001).
6) Display of Price Order (1963).
7) Indian Patents Act (1970).
8) Packaged Commodities (Regulation) Order (1975).
9) Consumer Protection Act (1986).
10) Water (Prevention and Control of Pollution) Act (1974).
11) Air (Prevention and Control of Pollution) Act (1981).
12) Environment (Protection) Act (1986).
Judiciary System in India
Though India has a quasi-federal structure, the judiciary is unified. Broadly, there is a three
tier structure:
1) Each administrative district (there are over 600 districts) is headed by a District Court.
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2) Each State has a High Court. Since some States share the same High Court, there are 21
High Courts in India.
3) At the apex is the Supreme Court of India situated at New Delhi.
Besides the broad three tier structure there are various specialized tribunals, the more
prominent ones are:
1) Company Law Board,
2) Monopolies and Restrictive Trade Practices Commission,
3) Consumer Protection Forum,
4) Debts Recovery Tribunal, and
5) Tax Tribunal.
TECHNOLOGICAL ENVIRONMENT OF INDIA

One of the most pervasive factors in the environment is technology. The term
technology refers to the sum total of the knowledge we have of ways to do things. But its
main influence is one ways of doing thing, on how we design, produce, distribute, and sell
goods and services.
Technological environment means the development in the field of technology which
affects business by new inventions of productions and other improvements in techniques to
perform the business work.
Status of Technological Environment in India
After independence, India had basic problems like poverty, unemployment and
development challenges. Indian Govt. has taken many following steps for technological
development it, order to remove these problems:
1) Establishment of Technological and Research Institute: Indian govt. has established
500 technological institutes for providing education to Indian students. It has also established
1080 research institutes. In these institutes major names like space research centre, medical
research centre and agricultural research centre have developed India technically.
2) Positive Technical Policy: India has strong and positive technical policy for
technological development. This policy opens door to import technology from foreign
countries for increasing agricultural arid industrial developments.
3) High Growth Rate of Information Technology in India: In India, IT sector is
developing with 35% growth rate; India is second country after China who is using internet at
large scale for e-commerce, e-education and e-accounting.
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UNIT 2
MARKETING SEGMENTATIONS
INTRODUCTION:
Market segmentation is the process of dividing a broad consumer or business market,

normally consisting of existing and potential customers, into sub-groups of consumers based
on some type of shared characteristics. In dividing or segmenting markets, researchers
typically look for common characteristics such as shared needs, common interests, similar
lifestyles or even similar demographic profiles. The overall aim of segmentation is to
identify high yield segments that is, those segments that are likely to be the most profitable
or that have growth potential so that these can be selected for special attention (i.e.
become target markets).
Market segmentation assumes that different market segments require different

marketing programs that is, different offers, prices, promotion, distribution or some
combination of marketing variables. Market segmentation is not only designed to identify the
most profitable segments, but also to develop profiles of key segments in order to better
understand their needs and purchase motivations. Insights from segmentation analysis are
subsequently used to support marketing strategy development and planning. Many marketers
use the S-T-P approach; Segmentation→ Targeting → Positioning to provide the framework
for marketing planning objectives.
INDENTIFIACTION OF MARKET SEGEMENTS:
MEANING AND DEFINITION OF MARKET SEGMENTATION

The concept of market segment is based on the fact that the markets of commodities
are not homogenous but they are heterogeneous. Market represents a group of customers
having common characteristics but two customers are never common in their nature, habits,
hobbies, income and purchasing techniques. They differ in their behavior and buying
decisions. On the basis of these characteristics, customers having similar qualities are
grouped in segments.
2 B
1
3 A
No market Complete Market Segmentation Market Segmentation

Segmentation Segmentation Income Classes by Age
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According to William J. Stanton, "Market segmentation consists of taking the total

heterogeneous market for a product and dividing it into several sub-market or segments, each
of which tends to be homogeneous in full significant aspects".
LEVELS OF MARKET SEGMENTATION:

Levels of market segmentation are as follows:
• Segment Marketing: A market segment consists of a large identifiable group within
a market with similar wants, purchasing power, geographical location, buying
attitudes, or buying habits. For example, an auto company may identify four broad
segments: car buyers who are primarily seeking basic transportation or high
performance or luxury of safety.
• Niche Marketing: A niche is a more narrowly defined group, typically a small
market whose needs are not well served. Marketers usually identity niches by dividing
a segment into sub segments or by defining a group seeking a distinctive mix of
benefits. For example, the segment of heavy smokers includes those who are trying
to stop smoking and those who don't care.
• Local Marketing: Target marketing is leading to marketing programs being tailored
to the needs and wants of local customer groups (trading areas, neighborhoods, even
individual stores). Citibank provides different mixes of banking services in its
branches depending on neighborhood demographics.
• Individual Marketing: The ultimate level of segmentation leads to "segments of
one," "customized marketing," or "one-to-one marketing". For centuries, consumers
were served as individuals: the tailor made the suit and the cobbler designed shoes for
the individual.
CONSUMER AND INSTITUTIONAL/CORPORATE CLIENTELE:
SEGMENTATION BASIS
In order to serve well, marketer often broadly classify the overall market for its
segmentation process such as consumer, business and international market. Somehow the
consumer and business market segment are important for all business firms whether they
have an international presence or not. For segmenting consumer and
institutional/corporate/business markets, basis are usually divided as:
1) Segmenting consumer markets, and
2) Segmenting business / corporate markets.
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SEGMENTING CONSUMER MARKETS:

Market can be segmented into various segments by using different bases. Bases of
market segmentation can be broadly divided into four broad categories:
BASES FOR SEGMENTING THE MARKET
1. Customer based segmentation

➢ Geographic location of customer
➢ Demographic characteristics
➢ Buyer readiness
➢ Psychographic variable
2. Product related segmentation
➢ Product use situations
➢ Benefits segmentation
➢ Quantity consumed
3. Competition related segmentation
➢ Hard core loyal
➢ Soft core loyal
➢ Switchers
4. Consumer response segmentation
➢ Occasion
➢ Benefits
➢ User status
➢ Attitude
➢ Buyer readiness
1) Customer Based Segmentation:
1) Geographic Location of Customer: This is generally the starting point of all market
segmentation strategies. The geographic location of customers does help the firm in planning
its marketing offer. Quite common is the rural and urban divide in the consumer market.
2) Demographic Characteristics: The next commonly used basis for market segmentation is
the demographic characteristics of the market. In demographic segmentation the market is
divided into groups on the basis of variable such as age, family size, family life-cycle,
gender, income, occupation, education, religion, race, generation, nationality and social class.
Some of the demographic variables used are:
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i) Age and Life-Cycle Stage: Consumers wants and liabilities change with age. On the basis
of age, a market can be divided into four parts viz., children, young, adults and old.
ii) Gender and Sexual Orientation: When God created human being he made Males and
Females and gave them distinct survival needs. The gender segmentation is one of the most
common forms of segmentation as around the globe man and woman have always been vocal
about their separate needs.
iii) Marital Status: Life style of a person depends on whether he is married or not. An
unmarried bachelor prefers to enjoy life and his purchase behavior will show more of food
and entertainment and less of furniture. But a married person will purchase house and the
furniture.
iv) Income: Income varies along the population in any country. In India it is as diverse as
from few hundred rupees a month to millions a month. In this scenario the customers will
behave differently in terms of wants as per their income.
v) Social Class: It has a strong influence on preference in cars, clothing, home furnishings,
leisure activities, reading habits etc. Many Companies design products and services for
specific social classes.
vi) Family Size: The size of the family affects the amount and size of purchases. The
consumption pattern of a big-sized joint family differs from a small-sized nucleus family.
vii) Occupation: Various occupations can influence the buying behavior. People in sales and
people in academic training will have different purchase behavior.
viii) Educational Level: The academic standard segments people with same income i.e. with
a similar ability to buy into their different likelihood to buy.
ix) Religion: Religious rituals, traditions and cultures also differentiate and segment the
market.
3) Psychographic Variables: Often it has been seen that two consumers with the same
demographic characteristics may act in an entirely different manner. Even though the two
may be of the same age, from the same profession, with similar education and income, each
of the customers may have a different attitude towards risk-taking and new product and
stores.
i) Life Styles: Life style concept is also considered as another important variable determining
buyer behavior. Life style reflects the overall manner in which persons live and spend time
and money. It is behavioral concept enabling us to grasp and predict buyer behavior. Life
style concept has interdisciplinary approach as it involves sociology, culture, psychology and
demography. Life style concept as a basis for segmentation is quite reasonable and desirable.
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ii) Personality: Marketers have used personality variables to segment markets. They endow
their products with brand personality that corresponds to consumer personalities.
iii) Values: Some marketers segment by core values, i.e. belief systems that underlie
consumer attitudes and behavior. Core values go much deeper than behavior or attitude and
determine, at a basic level, people's choices and desires over the long term. Marketers who
segment by values believe that by appealing to people's inner selves it is possible to influence
their outer-selves, their purchase behavior.
iv) Beliefs: This is one of the parameters of segmentation used by marketers to sell products.
People according to their situation and bringing up develop their own beliefs.
v) Attitudes: People have different attitudes towards different aspects of life, which affect
their consumption pattern also. Some people who develop a very negative attitude towards
life do not enjoy and hence behaves in a very different manner from the person whose
attitude is to always have fun and live life to the fullest, Hence the marketing decision makers
have taken this as a parameter to segment the population.
4) Buyer Readiness: Another variable used for segmenting the market is buyer 'readiness' or
preparedness to buy the product. At any given time, buyers are at different stages of
readiness. There are unaware buyers, people who are aware but not interested, people who
are interested and are desirous to buy and lastly, those who will positively buy the product.
2) Product Related Segmentation o
1) Product Use Situations: One of the important bases is the product use situations.
Different customers may use the same product in different use situations. Rasna, for example,
is shown as being used in different situations like a party, the unexpected guests, a drink at
the end of a long and tiring working day, etc.
2) Benefits Segmentation: Here, the marketer identifies benefits that a customer looks for
when buying a product. This has been a very effective method of segmenting the market for
watches, where a customer may buy for just knowing the time, or durability, or as a gift/ an
accessory/ a dress item/ a jewellery item.
3) Quantity Consumed/Usage Rate: The quantity consumed away given time has also been
the basis for segmenting the beverages (tea, coffee), soft drinks, breweries, and cigarette
markets. Accordingly, the following market segments are visible:
i) Light: These are the categories of the users who are very infrequent users. In case of
cosmetics an average housewife who is not very fashion conscious is a light user of the
cosmetics.
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ii) Medium: The fashion-conscious teenagers are the medium users of cosmetics i.e. they use
it very frequently.
iii) Heavy: There are people for whom the cosmetics are the most important purchase and
they are heavy users of it. Celebrities in entertainment world, the models etc. need cosmetics
on a regular basis, as it is the most important part of their profession.
The differentiation between them is based on the benchmark quantity defined by the marketer
for each segment.
3) Competition Related Segmentation
Consumers have varying degrees of loyalty to specific brands, stores and other
entities. Buyers can be divided into four groups according to brand loyalty status:
1) Hard Core Loyal: Hard core loyals are those customers who continue to buy the same
brand over and over again. Newspaper readers, cigarette smokers and tea drinkers are some
customer groups where such hardcore loyalties are commonly visible.
2) Soft Core Loyal: Those who are loyal to two or three brands in a product group are called
soft-core loyals. For example, a housewife who buys lux, lux, lux; cinthol, cinthol, cinthol;
and pears, pears, lux; in her nine shopping expeditions will be considered as a soft core loyal.
The marketer needs to watch such customers and motivate them to shift to the hard core
loyalty segment.
3) Switchers: Switchers are those customers who never stick to a brand. These are the
customers for whom brand switching is as easy as changing a shirt. They may switch for a
variety or for a special deal.
4) Split or Soft Core Loyals: Consumers who are loyal to two or three brands. Pepsodent
after its launch found some customers of Colgate switching between the two brands.
4) Consumer Response Segmentation
1) Occasions: According to the occasions buyers develop a need, purchase a product or use a
product. It can help firms expand product usage. A company can consider critical life events
to see whether they are accompanied by certain needs. There can be 2 types of occasions:
i) Regular ii) Special.
2) Benefits: Buyers can be classified according to the benefits they seek. On a purchase of
same product different customer look for different benefit because of which they buy
products from different companies which satisfy their specific needs. Let us take the example
of a car. The basic function of a car is transportation. But people prefer different cars because
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they seek different benefits. The benefits can be of four types. Let us explain them with the
choice of cars:
i) Quality: There are people for whom the quality matters most in any purchase. So when
they buy cars they buy Mercedes Benz, Skoda Octavia.
ii) Service: At times people buy things to avail some specific service. At this stage more than
quality or price the service that the product can give matters more. For example, politicians
mostly use Hindustan Motors Ambassador bulletproof car.
iii) Economy: For most of the people belonging to the middle and lower income group price
is the most important deciding factor in case of any purchase. These people look for the
economy in every purchase. These people when go for a purchase of any car apart before
quality and service their first criteria of choice will be the price of the car and their preference
will be for cars like Maruti 800.
iv) Specially: People can be adventurous and sporty in purchase decisions for car and they
would prefer Ferari etc.
3) User Status: Markets can be segmented into following classes depending on the user
status. Let us explain the category of user with an example of a product say Deodorant. Let us
see how we can divide the users of deodorant in different categories:
i) Non-User: A 10-year child or 70-year old in our country generally do not use deodorant.
ii) Potential Users: This is the. category where the usage rate is expected to be highest. In
our example fashionable teenager, corporate people are the potential users of deodorant.
iii) First time Users: The users who use it for the first time. For example, the teenagers first
deodorant used may he in his college days.
iv) Regular User: A corporate big-wig always in big party or conference, a fashion
conscious lady or a regular corporate and nowadays because of fall in its price students also
are the regular users.
v) Ex-User: Somebody who stopped using for some reasons may be due to allergies or due to
switching to some substitutes like perfume are the ex-users of the product.
4) Buyer-Readiness Stage: A market consists of people in different stages of readiness to
by a product. Various stages are:
i) Unaware: People not following technology trend and completely unaware about its
improvement and new innovations.
ii) Aware: People who have seen the advertisements but do not have enough knowledge
about the technology.
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iii) Informed: These people get information from friends, colleagues, relatives who are users
or technical people.
iv) Interested: People who have information and hence are variety-seekers.
v) Desired: These are the people who have gathered detailed knowledge, probably have taken
a trial, but may lack money to purchase the product.
vi) Intended to Buy: People who have the knowledge, has the purchasing capacity and desire
and are ready to buy.
5) Attitude: Five attitude groups can be found in a market. For example, in a credit card
market they can be distinguished as follows:
i) Enthusiastic: These are people having tendency of impulsive purchase. They may not
carry cash all the time but suddenly decide to buy something. They definitely need credit
cards.
ii) Positive: They are serious but mobile people who need to buy suddenly at any time.
iii) Indifferent: There are some people who are technology averse with systematic
purchasing pattern. They would prefer to purchase with cash after thinking over the need for
purchase. They do not prove to be potential users of credit cards.
iv) Negative: People can be spendthrifts who fear of losing money or misusing it. They
would never ever go for a credit card.
v) Hostile: People at times become very much irritated either by salespeople calling or
meeting anytime, giving false promise or by the service provided.
SEGMENTING INSTITUTIONAL/BUSINESS MAEKETS:
➢ Size of the customer
➢ Geographical location
➢ End use
➢ Buyer Behavior/ motivation or purchase criteria
➢ Benefits sought
➢ Type of customer
➢ Usage rate
➢ Purchasing procedures
➢ Situational factors
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SELECTING TRAGET MARKET:

INTRODUCTION TO MARKET TARGETING
Market segmentation reveals the firm's market segment opportunities. The firm now
has to evaluate / identify the various segments and decide how many and which ones to
target.
Market targeting is a broad term that is used to describe the process of identifying
groups of consumers who are highly likely to purchase a specific good or service. There are
several different approaches to this process, with some of them allowing for a broad
cultivation of a market, while others are focused more on identifying markets that are small
but somewhat lucrative.
BASIS FOR IDENTIFYING TARGET MARKET:
1) Market Attractiveness: It is important to determine whether it would be profitable to
enter a market segment because a company has to expend huge amount of resources in
developing a particular marketing mix for the prospective target segment. Following factors
should be evaluated in finding out whether a particular market segment is worth pursuing.
i) Market Factors: Analysis of customers and industry dynamics are essential while
assessing the attractiveness of the market segment. Additionally, the segment size and growth
rate indicate the long-term feasibility of serving the segment.
a)Segment Size: Large-sized segments are more attractive than small ones
since sales potential are greater and the chance of achieving economies of scale gets
improved. But large segments are highly competitive since other companies are also targeting
these bigger segments.
b) Segment Growth Rate: Growing segments are usually more attractive than
stagnant or declining segments as new business opportunities will be greater in growing
markets. But growth markets have heavy competition. Such markets need commitment of
enormous resources in production and marketing as new capacities have to be created to
serve the growing number of customers and the company has to reach the customers through
various promotional means and distribution channels.
c) Price Sensitivity: In segments where customers are price sensitive there is
danger of profit margins being eroded by price competition. Low price sensitive segments are
more attractive since margins can be maintained.
d) Bargaining Power of Customers: Both end and intermediate customers
like retailers can reduce the attractiveness of a market segment if they can exert high
bargaining pressure on suppliers. It results in reduction of profit margins as customers
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negotiate lower prices in return for placing large orders, or under threat of switching
suppliers.
Bargaining of customers is higher when the number of customers are few but each of
them have large buying capacity, when the number of suppliers are more, and the product
sold by all of them is standard, when the customers can develop the capability to make the
item provided by the seller, and when the product being sold is not a very important for the
buyer.
e) Bargaining Power or Suppliers: Where the supply is in the hands of a
few dominant companies, the segment will be less attractive than when served by a large
number of competing suppliers.
f) Barriers to Market Segment Entry: Entry barriers reduce attractiveness.
Barriers take the form of high marketing expenditures required to compete, patents, or high
switching costs for customers. If a company judges that it can afford to overcome barriers to
entry, the segment will be attractive as other new entrants may find the entry barrier daunting.
ii) Competitive Factors: Competition in a segment determines the extent of
resistance faced by a company while entering the market. Well entrenched players would
have erected strong barriers to entry.
a) Nature of Competition: Segments that are characterized by strong
aggressive competition are less attractive than where competition is weak. The quality of
competition is more significant than the number of companies operating in a market segment.
Depending on the nature of industry quality of competitors would be related to their size,
financial strength, innovativeness, technical capability, production facilities, brand equity,
etc.
b) New Entrants: A judgment must be made regarding the likelihood of new
entrants, possibly with new technology which might change the rules of the competitive
game. If it is anticipated that strong players will enter the market, it is best to stay away from
such a market.
c) Competitive Differentiation: Segments will be attractive if there is real
probability of creating a differentiated offering that customer's value. Howsoever intensely
competitive the market may be, it is always possible to differentiate one's offerings and win a
share of such markets. This is dependent upon the company identifying unserved customer
requirements and having the capability to meet these requirements.
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iii) Political, Social and Environmental Factors: The external environment presents
opportunities and threats for a firm. Changes in the regulatory framework, economic policies,
social values and lifestyles, etc., can alter the attractiveness of market segments.
a) Political Issues: Political forces can open up new market segments
(deregulation of the Indian economy). Attraction of entering new geographic segments may
be reduced if political instability exists or is forecast. Governments may encourage or
discourage entry of foreign companies in their markets.
b) Social Trends: Changes in society can give rise to latent market segments
underserved by current products and services. Increasing proportion of working women has
increased the market for precooked, packaged food. Big gains can be made by first entrants.
c) Environmental Issues: The trend towards more environment friendly

products has affected market attractiveness both positively and negatively. Companies which
are damaging the environment are facing pressures from interest groups and they have to
invest in new technologies, equipments and processes to make their operations more
environment-friendly.
2) Firm's Capability to Serve Segments: A market segment may be attractive, but it may
be beyond the resources and competencies of the company to serve it profitably, A company
needs to carry out an audit of its resources and competencies and match them with the
resources and competencies that will be required to serve the target segment.
i) Exploitable Marketing Assets: The target market segment should allow the firm to
exploit its current technological, manufacturing, and marketing strengths. The segment entry
should be consonant with the image of its brands and it should provide distribution synergies.
ii) Cost Advantage: Companies which can exploit cheaper material, labor or
technological cost advantages to achieve a low cost position compared to competition will be
in a strong position particularly if the segment is price sensitive.
iii) Technological Edge: Superior technology may be a source of differentia!
advantage in the market segment. If the company has patent protection it can form the basis
of a strong entry. If the company possesses resources it can invest in building technological
leadership.
iv) Managerial Capabilities and Commitment: The technological capabilities of the
company and its superior products may be insufficient to compete against strong competitors.
Segment needs to be assessed from the viewpoint of managerial skills that will be required to
develop and maintain the marketing mix.
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SEGMENTATION AND TARGETING AS A BASIS FOR STRATEGY

FORMULATION:
The essence of the marketing strategy of any firm can be grasped from the firm's
target market and marketing mix. The target market shows to whom the firm intends to sell
the products; the marketing mix shows how the firm intends to sell. Together, they constitute
the marketing strategy platform of the firm.
When it comes to marketing strategies, most people spontaneously think about the 4p
(Product, Price, Place, Promotion) - maybe extended by three P's for marketing services
(People, Processes, Physical Evidence). Target marketing can be the key to a business's
success.
MEANING AND DEFINITION OF MARKETING STRATEGY
Marketing strategy of a firm is the complete and unbeatable plan or instrument
designed specifically for attaining the marketing objectives of the firm. Marketing strategy is
a broad concept of how resources are to be deployed to achieve market success. If one
examines the content of a marketing strategy, one will find that it shows how the proposed
key features of the firm's offering (product, price, promotion and distribution) are intended to
achieve the firm's objectives.
Marketing strategy is composed of a set of sub-strategies concerned with competition,
segmentation (market positioning or market niche and target markets), pricing, promotion
and distribution. Structural criteria cover the following:
1) Coherence: Do all the sub-strategies fit together in focusing on the market?
2) Consistency: Are there any inconsistencies among the individual elements?
3) Contribution: Does each sub-strategy or element of the strategy make a distinct
contribution?
4) Relative Significance: Has the relative significance of each of the various
strategies been determined?
Product, price, promotion and place or distributions are the factors that, within limits,
are capable of being influenced or controlled. Marketing strategy can be viewed as reflecting
a marketing mix of these four elements.
According to Cundiff, Still and Govoni, "Basically, a company's overall marketing
strategy is its competitive posture in the market place. Formulating an overall marketing
strategy requires integration of all dimensions of the marketing effort".
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According to Prof. Philip Kotler, "Marketing strategy is the basic approach that the
business unit will use to attain its goals and which comprises of elaborate decisions
(strategies) on largest markets, market positioning and mix and marketing expenditure
allocation. Moreover, the marketer should take care of the other two strategic aspects, viz.,
expected environment and competitive conditions while determining the marketing strategy".
Nature of Marketing Strategies
The implied nature of marketing strategies is as follows:
1) Dynamic: The concept of marketing strategy is relative as it is designed to meet the
changing demands of a situation. Each situation and event needs a different strategy that is
why strategies are revised and recast very frequently to cope-up with the changes in a given
situation or event.
2) Futuristic: A marketing strategy is forward looking. It orients towards future. A
marketing strategy is designed to bring-out the organization from a ditch of digression to the
path of progress for better change in the coming times.
3) Complex: A marketing strategy is a very complex plan impounding in its compound other
plans or firms of plans which area must to achieve the organizational goals. It is a
compendium or complex of plans within plan to out beat the strength and vitality of others in
the line.
4) Direction: Marketing strategies provide a set direction in which human and physical
resources will be allocated and deployed for achieving organizational goals in the face of
change environmental pressure, stress and strains and constraints and restraints.
5) Link between the Unit and Environment: The strategic decisions that are basically
related with likely trends in the changing marketing changes in government policies,
technological developments, ecological changeovers, social and cultural - overtones. Then,
the ever-changing environment which is external to the organization has impact on it because
unit is the sub-systems of supra-system namely environment.
6) Interpretative: Marketing strategies are the interpretative plans formulated to interpret
and give meaning to other plans in the spotlight of a specific situation or situations. They
demand an adjustment of plans in anticipation of the reactions of those who will be
influenced.
7) Top Management Blueprint: Marketing strategies and their formulation is the basic
responsibility of top management. It is because, it is top management that spells-out the
missions, objectives and goals and the policies and strategies are the ways to reach them.
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ESSENTIALS OF MARKETING STRATEGIES:

Any marketing strategy to be worth calling as successful or effective must enjoy
certain extras which can be called as essentials or requisites of it. The basic guidelines, used
to call a strategy a successful one used by experts are:
1) Consistent: A marketing strategy to be effective is to be consistent with the overall and
specific objectives and policies and with other strategies and tactics of the marketing
organization. Interval consistency is an essential ingredient of a good strategy as it identifies
the areas where the strategic decisions are to be made imminently or in the long-run.
2) Workable: Any strategy however laudable and theoretically sound is meaningless unless
it is able to meet the ever-changing needs of a situation. In this business world, contingency is
quite common and the strategy that strikes at the head to contribute to the progresses and
prosperity of marketing organization.
3) Suitable: A strategy is emergent of situations or environment; it is the subservient of
changing environment of business world. It is but natural that any strategy not suiting to the
environment can impound the marketing organization in the compounds of danger, digress
and frustration.
4) Non Risky: Any strategy involves risks as uncertainty is certain; what is important is that
the extent of the risk involved or associated with strategy is reasonably low as compared to its
pay-off or returns.
5) Resource Based: A sound strategy is one which is designed in the background of the
available resources at its command. A strategy involves certain amount of risk which can
hardly be segregated.
FACTORS AFFECTING OVERALL MARKETING STRATEGY:
1) Competitors Counter-moves: This differs with various marketing inputs. Most
competitors can easily and quickly match or otherwise adjust to price changes. However, they
often find it difficult to follow or to retaliate against product innovations.
2) Synergistic Potential: Marketing inputs are capable of being, mutually reinforcing or
having synergistic potential and marketer should consider this working towards an optimum
overall marketing strategy.
3) Substitutability: The selection of marketing inputs is also affected by, their degree of
substitutability. It is important to know the extent to which one type of input can be
substituted for another type in as much as the nature of marketing objectives such as that of
returning a certain level of profit presents a decision-maker from making unlimited use of all
inputs.
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4) Diversity in Productivity Levels of Various Marketing Inputs: The marketers should

recognize that not all inputs have equal productivity; some inputs need a minimum level of
use before the\ begin to have measurable effects.
5) Elasticity of Marketing Inputs: Different marketing inputs are elastic and they influence
the demand of the product. The marketing manager must recognize that effect on the product.
The marketing manager must consider all the above factors in mind while formulating
the overall marketing strategy. The strategy must also be elastic so as to incorporate all the
strategic factors of the competitors as and when required,
Formulating Marketing Strategy:
Formulation of marketing strategy consists of four main steps:
1) Segmenting the Market: There are likely to be broad categories of people in this market,
who have similar needs or wants, and who behave similarly vis a vis the marketing activities
performed for a product. Marketers are frequently interested in discovering these groups of
people with similar needs through a process called segmentation. Segmentation divides a
large market into smaller and more manageable sub-markets in order to identify
homogeneous markets (consumer groups) that:
i) Are similar in their needs and reactions to a retail company's marketing activities;
and
ii) Are considerably different from other such groups in the market.
A market segment is thus a group of consumers in a market who have similar needs.
2) Selecting the Target Market: To say that target market selection is a part of marketing
strategy development is an understatement. It does not fully bring out the import of the close
and inseparable linkage between the two. When the selection of the target market is over, an
important part of the marketing strategy of the firm is already determined, defined and
expressed.
The process of market segmentation and market griding throws up not one but several
market segments with varying degrees of potential, profitability and risks. The firm may not
be interested in all these segments. There may be segments assuring immediate profits; there
may be segments demanding heavy investments by way of market development; some other
segments may show very great potential but may display tough barriers to entry.
3) Positioning the Offer: The next major dimension of marketing strategy relates to
positioning of the offer. The firm has already selected the target market and decided its basic
offer. Now, what is the conjunction between these two entities? How do they get connected?
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What is the interface? In other words, what is the locus the firm seeks among the customers
in the chosen target market with its offering? How would the firm want the consumer to view
and receive the offer?
The point is that the firm has to clarify what it proposes to do with its offering, how it
wants the offer to be perceived by the customer, what position it seeks and what image it
proposes to build for its offer.
4) Assembling the Marketing Mix: The target market and the marketing mix together
constitute the marketing strategy platform of the firm. Assembling the marketing mix simply
means assembling the 4Ps of marketing in the right combination. Involved in this process are
the choice of the appropriate marketing activities and the allocation of the appropriate
marketing effort to each one of them. Product strategy is a part of this process. Matching the
products with market needs and consumer aspirations is the purpose of product strategy.
MARKETING STRATEGY AND IMPLEMENTATION:

Marketing strategy and implementation are the two ends of a continuum and it is
difficult to draw a line of distinction between the two. Hence, it is necessary to understand
that marketing strategy and implementation affect each other and in turn the firm's
performance in the market place.
In many firms, implementation problems can be tracked to four factors as outlined
below:
1) Functions: Marketing functions considered by Bonoma are the grass root nones like
selling, trade promotions and distributor management. Most firms have difficulty in
handling these functions because they fail to pursue them in a determined way. Generally,
the top management believes that these functions will, be performed by someone else in the
hierarchy and thus ignore them until a full blown crisis confronts them. Problems in
marketing functions may also arise due to structural issues, like direct versus indirect
marketing, and the failure of managements to pick one function for special concentration
and competence. Rather, they try to do everything and thus emerge as "globally mediocre"
firms.
2) Programmes: At the programmes level, firms have to appreciate that until their marketing
and non-.marketing programmes blend, an excellent marketing strategy may fail to deliver
results. In fact, non-coordination between marketing and non-marketing programmes can
become an excuse for non-performance by the marketing team.
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3) Systems: The marketing systems problem is indeed a serious one. Particularly, when
comes to the grassroots level like-sales reporting systems. Rituals, politicization and
unavailability characterize this system's problems. In fact, because of these problems it isn't
uncommon to come across managements that have dumped these systems. But they too
haven't benefited.
4) Policy Directives: Problems relating to policies occur when the organization lacks a
marketing culture and hence everything else other than the customer occupies center stage in
the management's thinking. Words like "customer is king" become hollow and fail to give a
direction to the organization and hence the marketing team feels discouraged about putting in
its best performance.
POSITIONING:
MEANING AND DEFINITION OF POSITIONING:
Positioning is a platform for the brand. It facilitates the brand to get through to the
target consumer. Positioning is the act of fixing the locus of the product offer in the minds of
the target consumers. In positioning, the firm decides how and around what parameters, the
product offer has to be placed before the target consumers.
According to Kotler, "Positioning is the act of designing the company's offering and
image to occupy a distinctive place in the target market's mind".
According to Ries and Trout, "Positioning starts with a product a piece of
merchandise, a service, a company, an institution, or even a person. But positioning is not
what you do to a product. Positioning is what you do to the mind of the prospect. That is, you
position the product in the mind of the prospect".
IMPORTANCE OF POSITIONING/WHY POSITIONING
Importance of Positioning is as follows:
1) To create a distinctive place of a product or service in the minds of potential customers.
2) To provide a competitive edge to a product or service i.e. an attempt to convey
attractiveness of the product or the service to the target market.
3) Place an intangible service within a more tangible frame of reference.
4) Help influence both service development and the redesign of existing services.
DEVELOPING A POSITIONING STRATEGY:
1. Competitor’s Identification: This step requires broad thinking. Competitors may
not be just those, whose products and/or brands fall into our product class or with
which we compete directly. The marketer must consider all likely competitors as well
as the various effects of use and situations on the consumers.
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2. Determining how Competitors are Perceived and Evaluated: Once we define the
competitors, we must determine how they are perceived by consumers. Which
attributes are important to consumers in evaluating a product and/or brand? As we
might expect, for many products, a wide variety of attributes or product benefits may
be considered - - most if not all of which are important. Much of marketing firm's
research is directed at making such determinations. Consumers are asked to take part
in focus groups and/or complete surveys indicating which attributes are considered
important to them in their purchase decisions.
3. Determining the Competitor's Position: Having determined the relevant attributes
and their relative importance to consumers, we must determine how each competitor
(including our own entry) is positioned with respect to each attribute. This will also
show how the competitors are positioned relative to each other. Consumer research
is required to make this assessment.
4. Analyzing Customer's Preferences: Segmentation distinguishes among groups of
consumers, including life styles, purchase motivations, demographic differences,
and so on. Each of these segments may have different purchase motivations and
different attribute importance ratings.
5. Making the Positioning Decision: After going through the first four steps, the final
positioning decision is to be made. Such a decision is not always clear and well
defined. However, conducting research may provide only limited input; in that case,
the marketing manager must make some subjective judgment.
6. Monitoring the Position: Once a position has been established, it is necessary to
monitor how well this position is being maintained in the market place. Tracking
studies measure the image of the product or firm over time. Changes in consumer's
perception can be determined with any slippage immediately noted and reacted to. At
the same time, the impact of competitors can be determined.
COMMUNICATING THE POSITIONING STRATEGY
The company must not only develop a clear positioning strategy, it must also
communicate it effectively. For example, company chooses the specific user positioning; it
must specify the specific user and should also make endorse the product by the existing user
if any or technical person. High quality can also be communicated through using the signal of
high price. The product's quality image is also affected by packaging, distribution, promotion,
etc.
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UNIT – 3
PRODUCT MANAGEMENT
MEANING AND DEFINITION OF PRODUCT:

Product is anything that can be offered to a market that might satisfy a want or need.
There are two concepts of product - narrow concept and wide concept. In its narrow concept,
a product is a bundle of physical or chemical properties which has some utility. A product is
not a non-living object; it is not a mere assemblage of matter - physical and chemical. Utility
alone is not the function of the product. A product means an object which satisfies the need of
the customer.
According to George Fisk, "Product is a cluster of psychological satisfactions".
According W Alderson, “A product is a bundle of utilities consisting of various
features and accompanying services",
According to Philip Kotler, "A product is a bundle of physical services and symbolic
particulars expected to yield satisfactions or benefits to the buyer".
Introduction to Product Management:
Product management may be defined as the entrepreneurial management of a piece of
business (product, product line, service, brand, segment, 'etc.) as a 'virtual' company, with a
goal of long-term customer satisfaction and competitive advantage."
1) Product managers are generally accountable for this piece of business without having
direct authority over the entities (e.g., employees and suppliers) that "make it happen."
2) Product management may include, but is not synonymous with, project management, new
product development, or sales support.
Objectives of Product Management:
Products are the basis of any organization. Sales are realized through sales of the
products. Thus the overall success of the organization depends upon the planning and
development of products. Product management thus tries to achieve the following objectives:
• To design product strategies with respect to customer, industry and competition
analysis.
• To spot marketing opportunities, and to see whether they are exploitable.
• To seek growth through new product development.
• To plan strategies for each stage of product life cycle.
• To generate new product ideas, and develop them further.
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Features of Product:
From the above definitions, we realize the important features of a product, which
include:
1) Tangibility: It should be perceptible by the touch. An item to be called a product
should have a tangibility character - touch, seen or feeling. For instance, car, shirt, book, etc.
2) Intangible Attributes: The product may be intangible, in the form of services,
for instance, banking insurance services, repairing, etc. It is an associated feature. For
instance, scooter is a tangible product, and when free servicing is offered by the seller, then
the product is not only a tangible item but also an intangible one.
3) Associated Attributes: Such attributes may be brand, package, warranty, etc. For
instance, Hindustan Lever's "vanaspathi ghee" has a brand name DALDA and with its
package it can be identified by the consumers. It has developed an image that all kinds of
vanaspathi ghee sold are being referred to as DALDA ghee
4) Exchange Value: Whether the product is tangible or intangible, it should have exchange
value and must be capable of being exchanged between seller and buyer for mutually agreed
price.
5) Consumer Satisfaction: Products should have the ability to offer value satisfaction to the
consumer. The satisfaction may be both real or/and psychological. For instance, when we buy
SNOW we; also buy beauty a product with a bundle of utilities.
Importance of Product:
The knowledge of product is important in marketing in the sense that there can be no
marketing functions without the existence of a product.
A product assumes its importance in consideration of following facts:
1) The key element in a successful marketing policy and strategy is finding and meeting the
needs of the consumers. A product through its tangible attributes like quality, services, and
amenities can meet the consumers' needs and wants.
2) For the performance of marketing functions like selling, purchasing, distribution, etc., the
existence of a product is must.
3) The success of a company of its marketing efforts, in most cases, depends on the product
policy.
4) The policies relating to pricing, distribution, sales promotion, and customer satisfaction
are all dependent on the product policy.
5) It is the knowledge of the product, whether consumer category or industrial category, that
has led to the concept of product and marketing guided organization structure.
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PRODUCT LIFE CYCLE:

Like a human being, all products have certain length of life during which they pass
through certain identifiable stages. Through the conception of the product, during its
development and up to the market introduction, product remains in pre-initial stage. Its life
begins with its market introduction, then goes through a period during which its market
grows rapidly, eventually, it reaches at maturity and then stands saturated. Afterwards its
market declines and finally its life come to an end.
The important stages from the view point of marketing can be grouped into:
1) Innovation or introduction,
2) Growth,
3) Maturity, and
4) Decline.
Introduction Growth Maturity Decline Stage
Total market sales
Total market profit
Product Life Cycle (PLC)
According to Phillip Kotler, "The product life-cycle is an attempt to recognize

distinct stage in the sales history of the product".
According to Arch Patton, "The life-cycle of a product has many points of similarity
with the human life-cycle; the product is born, grows lustily, attains dynamic maturity then
enters its declining year".
Characteristics of Product Life Cycle
The life cycle is nothing more than the pattern of demand for the product over time. A
basic product life cycle consists of
1) Introduction,
2) Growth,
3) Maturity, and
4) Decline stage.
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Following points are to be understood in studying the product life cycle concept:
1) No every product goes through every stage. Infact, many products never get past the
introduction stage.
2) The length of time a product spends in any one stage may vary.
3) Some products may move through the entire cycle in weeks.
4) Repositioning of a product can lead to a, new life cycle. Repositioning is basically
changing the image-or perceived uses of the product.
Assumptions of Product Life Cycle:
1) Products have a limited life.
2) Product sales pass through distinct stages, each posing different challenges, opportunities,
and problems to the seller,
3) Profits rise and fall at different stages of the product life cycle.
4) Products require different marketing, financial, manufacturing, purchasing, and human
resource strategies in each stage of their life cycle.
Stages of Product Life Cycle:
Most product life-cycle curves are portrayed as bell-shaped. This curve is typically divided
into four stages:
1) Introduction: A period of slow sales growth as the product is introduced in the market.
Profits are nonexistent in this stage because of the heavy expenses incurred with product
introduction.
2) Growth: A period of rapid market acceptance and substantial profit improvement.
3) Maturity: A period of a slowdown in sales growth because the product has achieved
acceptance by most potential buyers. Profits stabilize or decline because of increased
competition.
4) Decline: The period when sales show a downward drift and profits erode.
PLC AS A TOOL FOR MARKETING STRATEGIES/MANAGING THE PLC

1) Introduction Phase: This phase marks the launch of the product in a market.
Organizationally, this phase is characterized by high operational costs arising out of
inefficient production levels or bottlenecks, high learning time, unwillingness of the
trade to deal in the product, demand of higher margins or extended credit terms, and
advertising. During this phase, firm's requirement for each is very high, as all
expenses have to be met. Generally the suppliers, media and others are not willing to
give credit. Hence all payments have to be made in cash.
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According to P. Kotler, management can pursue one of the four strategies on the
basis of high low price and
promotion.
➢ Rapid Skimming Strategy: This strategy of high price and high promotion works
effectively only when the customer awareness for the product is not very high, or for
those who are aware, willingness to pay any price to possess or buy it is high. Here
the marketers want to cover the cost as much as possible during the launch phase of
gather product.
➢ Slow Skimming Strategy: This strategy is based on the assumption that the firm has
sufficient time to recover its pre-launch expenses. Here the company launches the
product at high price but spends lesser money on the promotion. The resultant
profitability is more as company is able to charge higher price but the marketing costs
are lower.
PROMOTION
High Low
Rapid Slow
Skimming Skimming
Stragegy Strategy
Rapid Slow
Penetration Penetration
Stragety Strategy
➢ Rapid Penetration Strategy: The strategy of rapid penetration is based on the same
assumption and environmental conditions as the ones mentioned under the rapid
skimming strategy. The only difference between rapid skimming and penetration is
the firm's long term objectives. Here the company charges low price and spends
heavily on the promotional efforts.
➢ Slow Penetration Strategy: This strategy delivers result when the threat from
competition is minimal, market size is large, market is predominantly price sensitive
and majority of the market is familiar with the product. Here the company launches
the new product at lower price, and low promotional efforts and expenditure.
2) Growth Phase: Once the product crosses the introduction phase, it enters the growth
phase. The introduction phase is indeed the most crucial one, because more than 95%
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of products fail at this phase. However, the 5% of lucky products that enter the growth
phase meet with a more strengthened and increased competition.
According to P. Kotler, following strategies are adopted to sustain the market growth
as long as possible:
➢ Improve products quality.
➢ Add new product features and improved styling.
➢ Enter into new market segments,
➢ Enter into new distribution channels.
➢ Reduce the prices to attract buyers.
3) Maturity Phase: Most products that survive the heat of competition and even
customers' approval enter the maturity phase. This phase is characterized by slowing
of growth rates of sales and profits. In fact, a decline in profits seems to appear now.
For an effective management, the marketing manager should:
➢ Improve the quality of the product.
➢ Give proper attention to increase the usage among the current customers.
➢ Try to convert non-users into users of the product that is, creating new buyers.
➢ Give proper emphasis to advertisement and promotional programmes.
➢ Try to discover new uses for the product.
4) Decline Phase: This is the last and most crucial stage. Sales may decline for a number
of reasons— technical advances, arrival of new products at low cost, changes in
fashion, consumer preference, etc. Sales and profits continue to fall at this stage. If the
substitutes are more attractive and in latest fashion, buyers may turn their eyes
towards them.
DECISIONS INVOLVED IN PRODUCT:
Decisions involved in the managing product are very crucial to the success of the
product. The various decision which come under the product decisions are as follows:
1) Levels of product,
2) Product hierarchy,
3) Product line and product mix,
4) Product line portfolio,
5) Product life cycle,
6) Product differentiation,
7) Branding, and
8) Packaging.
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CONSTITUENTS OF PRODUCT/PRODUCT LEVELS:

On the surface it seems a product is simply a marketing offering, whether tangible or
intangible, that someone wants to purchase and consume. In which case, one might believe
product decisions are focused exclusively on designing and building the consumable
elements of goods, services or ideas.
CORE PRODUCT:
The most fundamental level is the core benefit. It is the fundamental service or benefit
that the customer is really buying, A hotel guest is buying "rest and sleep". The purchaser of a
drill is buying "holes". Marketers must see themselves as benefit providers.
The core product is the actual benefit of the consumer is seeking from the purchase. In
other words core benefit includes the fundamental service or benefit that the customer is
really buying, Generally People make buying decisions that satisfy their needs. While many
needs are addressed by the consumption of a product or service, some needs are not.
AUGMENTED PRODUCT:
The marketer prepares an augmented product that exceeds customer expectations,
i.e., a product containing additional features, services and benefits so that customers is able to
distinguish his product from that of the competitive offers.
The augmented product is the result of voluntary improvements brought about by the
manufacturer in order to enhance the value of the product. The firm goes beyond all
expectations of the consumers. It finds out through market research how the value of its
product can be enhanced.
Items considered as part of the augmented product include:
1) Guarantee: This provides a level of assurance that the product will perform up to
expectations and if not the company marketing the product will support the customer's
decision to replace, have it repaired or return for a refund.
2) Warranty: This offers customers a level of protection that often extends past the
guarantee period to cover repair or replacement of certain product components.
3) Customer Service: This consists of additional services that support the customer's
needs including offering training and assistance via telephone or online.
4) Complementary Products: The value of some product purchases can be enhanced
with add-on products. such as items that make the main product easier to use (e.g.,
laptop carrybag), enhance styling (e.g., cellphone face plates) or extend functionality
(e.g., portal keyboard for PDAs).
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POTENTIAL PRODUCT:
The potential product, which encompasses all the possible augmentation and
transformation the product might undergo in the future. Here is where companies search for
new ways to satisfy customers and distinguish their offer. The potential product is
'tomorrow's product’, carrying all the improvement and finesse that is possible under the
given technological, economic and competitive conditions.
DIFFERENTIATED PRODUCTS:
A company's product is a differentiated product if it is uniquely different than those of
competitors. If the product is different, the producer can make the case that it is better. If it is
a better product, the company can charge a higher price for it.
The producer of a differentiated product is said to be a price maker rather than a price
taker. A price maker has some influence over price, but not as much as most people believe.
Essentially a producer of a differentiated product creates a separate market for his/her
individual product.
The number of differentiation opportunities varies with the type of industry. The BCG
has distinguished four types of industries based on the number of available competitive
advantages and their size.
1) Volume Industry: One in which companies can gain only a few, but rather large,
competitive advantages. In the construction-equipment industry, a company can strive for the
low-cost position or the highly differentiated position and win big on either basis.
Profitability is correlated with company size and market share.
Example: Two wheelers (Bajaj, TVS, Hero Honda, Yamaha, Kinetic).
2) Stalemated Industry: One in which there are few potential competitive advantages and
each is small. In the steel industry, it is hard to differentiate the product or decrease
manufacturing cost. Companies can try to hire better salespeople, entertain more lavishly, and
the like, but these are small advantages. Profitability is unrelated to company market share.
Example: Three wheelers ( Bajaj, Piaggio).
3) Fragmented Industry: One in which companies face many opportunities for
differentiation, but each opportunity for competitive advantage is small. A restaurant can
differentiate in many ways but end up not gaining a large market share. Both small and large
restaurants can be profitable or unprofitable.
Example: Resorts, 5 Star hotels.
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4) Specialized Industry: One in which companies face many differentiation

opportunities, and each differentiation can have a high payoff. Among companies making
specialized machinery for selected market segments, some small companies can be as
profitable as some large companies. Example: Aerospace.
Reasons for Differentiating Products:
The company will have three main reasons for differentiating products:
1) To Simulate Product Preference in the Mind of Customers: The objective is to
influence the intended customer or buyer and to ensure that when the customer or buyer
considers which single product to buy from a range of different products offered by the
company and its competitors. This buying decision must lead to customer satisfaction, repeat
business and loyalty, whether the product be clothes or aircraft.
2) To Distinguish the Product from other Products Marketed by Competitors: In this
case the company tailors the distinctive features of its product mainly vis-a-vis his
competitor's products, and does not aim primarily at greater market satisfaction. In practice,
the company's products and competitive products may well have the same performance
satisfaction value..
3) To Serve or Cover the Market Better: This approach recognizes that each customer, or
group of customers, represents a different market segment with different needs, calling for
variations in products for different applications. In this case, the objective is to identify
attractive market segments, to follow the market in those segments, and provide the customer
with what he or she wants, in other words, to follow the marketing concept.
PRODUCT LINE AND PRODUCT MIX:
"A product mix (also called product assortment) is the set of all product lines and
items that a particular seller offers for sale to buyers". An organization with several product
lines has a product mix. Product mix need not consist of related products. In other words,
product mix is "the composite of products offered for sale by a firm". It is a collection of
products manufactured or distributed by a firm. It is the full list of all products offered by a
firm. For instance, a firm manufactures watches, machinery items, electric lamp, etc. It has
four main characteristics:
1) Product Length,
2) Product Width,
3) Product Depth, and
4) Product Consistency.
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It is necessary to understand the meaning of the term product item and product line
before coming to the definition of the product mix.
Product Item: Product item means a specific product of certain specifications and may be
distinguished from other product, or brands. A particular brand of a product is a product item,
such as Lux Soap, Colgate Toothpaste, Facit Typewriter, H.M.T Watch, Rath Vanaspati,
Televista Television and Bajaj Chctak Scooter.
Product Line: A product line is a group of different product items, closely related
with each other. All the product lines are closely related with each other either because they
satisfy a class of needs, or used* together, or are sold to the same group of customers, or are
sold through the same channel of distribution, or are within same pricing range.
According to American Marketing Association, "Product Mix is the composite of
products offered for sale by a firm or a business unit". For example, if an enterprise
manufactures or deals with different varieties of soap, oil, toothpaste, toothbrush, etc., the
group of all these products is called 'Product Mix. '
On the basis of above discussion, it can be concluded that a single product item is
called as a product item. All the product items of the same group are collectively known as a
product line and all the product lines manufactured or distributed by an enterprise are
collectively known as 'Product Mix.
PRODUCT MIX WIDTH
P
R Product line 1 Product line2 Product line 3 Product line 4 Product line 5
O Skin care Bath soaps Tooth paste Detergent powder Beverages
D
U
C Vaseline Lux Pepsodent Wheel Lipton Green
T Label
L Fair and Lux white Closeup Surf
I lovely Bru
Lifeboy Surf excel
N
Lakeme Taj mahal
E Pears Rin supreme
L Ponds Taaza
E Liril Ala
N Dove Super Dust
Dove
G
T
H
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The length of a product mix refers to the total number of items in the mix. We can
also talk about the average length of a line. This is obtained by dividing the total length by
the number of lines, or an average product length of approximately 5.
The width of a product mix refers to how many different product lines the company
carries.
The depth of a product mix refers to how many variants are offered of each product
in the line.
The consistency of the product mix refers to how closely relate the various product
lines are in end use, production requirements, distribution channels, or some other way.
Factors Influencing Change in Product Mix

1) Change in Market Demand: The change in the demand of a product (due to change in
habits, fashion, purchasing power, income, attitudes and preferences, of consumers) affects
the decision of product mix.
2) Cost of Production: If the company can develop a new product with the help of the same
labor force, plant and machinery and techniques, it can decide to start the production of that
product at lower cost.
3) Quantity of Production: If the production of the new product is considered to be at a
large scale and the company can add one more item to its product line just to get the
economies of large scale production.
4) Advertising and Distribution Factors: Advertising and distribution factors may be the
one of the reasons for the changes in production mix. If the advertising and distribution
organization are the same, the company may take the decision to add one more item to its
product line.
5) Use of Residuals: If residuals can be used gainfully, the company can develop it's by
products into the main products.
6) Change in Company Desire: Keeping in mind the objectives of the firm, i.e.,
maintaining or increasing the profitability of the concern, the firm may eliminate some of its
unprofitable processes or may start a new more profitable product. In this way, the firm tries
to make its product mix an ideal one.
7) Competitors Actions and Reactions: The decision of adding or eliminating the product
may be the reaction of competitors' actions. If company thinks that it can meet the
competition well by making necessary' changes in the size, color, packing or price, it can
make such changes.
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PRODUCT MIX STRATEGIES

A company has several major strategies at its disposal, with respect to the width,
depth and consistency of its product mix. One major management aspect involved in product
policy is the decision concerning product mix. The product mix is one of the elements in the
product policy. This is more important now-a-days since most of the manufacturers are
diversifying their products.
The following strategies are generally employed by the producer or wholesaler of the
product:
1) Expansion of Product Mix: It is also referred to as diversification; A firm may expand
its present product mix by increasing the number of product lines or increasing the number of
product items within the same line. New lines may be related or unrelated to the present
products. For instance, a provision store may add drugs, cosmetics, baby foods, dry fruits,
etc.
2) Contraction of Product Mix: In certain circumstances, the management has to drop the
production of unprofitable products. A firm may either eliminate an entire line or simplify the
assortment within a line; this is termed as contraction of product mix.
3) Alteration of Existing Products: As an alternative for developing a completely new
product, management should take a fresh look at the company's existing products. Often,
improving an established product can be more profitable and less risky than developing a
completely new one. Alterations may be made in the designs, size, color, packaging, quality,
etc.
4) Positioning the Product: When a product can offer satisfaction in the manner the buyer
gets, a strong position is created in the market. The product's position is the image which that
product projects in relation to rival products. A product's features will attract the customers or
prove attractive to the customers. The positioning of the product is attained by:
i) Product differentiation,
ii) Market segmentation, and
iii) Market aggregation. There is a match between product attributes and consumer
expectations.
5) Trading up and Trading down: Trading Up refers to adding of higher priced and more
prestigious products to their existing line, in the hope of increasing the sales of existing low
priced products. In other words, when a marketer has already gained a good reputation
through marketing his low priced products in the initial stage and later on introduces high
priced products, it is termed as trading up.
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PRODUCT MIX DECISIONS:

1) Product-Line Addition/Deletion: A firm may add new product items or delete existing
ones or do both in its existing product-lines. Further, a firm may go-up in its technology and
use state of the art technology or decide to stretch the product-line downwards toward a more
simple technology.
Adding or stretching a product-line, upwards or downwards is done due to structural
changes in the market place - the most important being customer lifestyles and demographic
characteristics like rising incomes and lower proportion of consumer income being spent on
food and other essential items..
2) Product Abandonment: This involves discontinuing or deleting either the individual
product or the entire product-line. Generally, products that are abandoned are those for
which demand is low leading to uneconomical short production runs or frequent
uneconomical price and inventory adjustments.
3) Product Modification: "Sometimes just a cosmetic modification may be required in the
existing product-line or product item. These changes may be tangible or intangible, and may
be achieved by re-formulation, re-design, changing unit sizes, and adding or removing
features.
PRODUCT LINE DECISIONS / MANAGING PRODUCT LINE DECISIONS:
In developing product line strategies, marketers face number of following tough
decisions on product line length and product line featuring:
1) Product Line Length Decision: Product lines tend to lengthen over time but only
adding brands to product line would too much lengthen the line over time and there
would be extra pressure on the market. The product line length decision calls for
adding new brands to the product line and subsequently eliminating the unprofitable
brands from the line.
2) Product Line Stretching Decision: Product line stretching occurs when a company
lengthens its product line beyond its current range by downward stretch, upward
stretch and combined stretch.
i) Downward Stretch: Many companies initially locate at the upper end of the
market and later stretch their lines downward.
ii) Upward Stretch: Companies at the lower end of the market may enter the
higher end as they may be attracted by a faster growth rate or higher margins
at the higher end or may simply want to position themselves as full line
59
manufacturers. Upward stretch decision may be risky as the higher end

competitors may also strike back by entering the lower end of the market.
iii) Combined Stretch: Companies at the middle slot of the market may decide to
stretch their lines in both directions.
New
Product
Present New
Product Product
Present
Product
New Present New

Product Product Product
Downward Stretch Upward Stretch Combined Stretch
3) Product Line Filling Decision: A product line can be lengthened by adding more items
within the present range of the line.
4) Product Line Modernization Decision: In some cases, product line length is adequate,
but there is a need to modernize it.
5) Product Line Featuring Decision: Sometimes, manager selects one or a few items in the
line to feature. They feature promotional models at the low end of the line to serve as traffic
builders.
BRANDING:
The term 'branding' refers to the entire process involved in creating a unique name
and image for a product (good or service) in the consumers' mind, through advertising
campaigns with a consistent theme. Branding aims to establish a significant and differentiated
presence in the market that attracts and retains loyal customers.
In marketing, a brand is the symbolic embodiment of all the information connected
with a product or service, A brand typically includes a name, logo, and other visual elements
such as images, fonts, color schemes, or symbols. It also encompasses the set of expectations
associated with a product or service which typically arise in the minds of people.
According to American Marketing Association, "Brand is a name, term, sign,
symbol, or design, or a combination of them which is intended to identify the goods or
services of one seller or a group of sellers and to differentiate them from those of
competitors".
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A brand name which is well-known and associated with high-satisfaction levels

provides an improved image and added value to the product. This can also lead to consumers
insisting on the product by brand name and being fewer prices sensitive.
Branding is the practice of giving a specified name to a product or group of products
of one seller. Branding is the process of finding and fixing the means of identification. In
other words, naming a product, like naming a baby, is known as branding.
Characteristics of Successful Brands:

Very few brands make an impact in the market and there are varied reasons for this.
Some common characteristics shared by successful brands are as follows:
1) Superior Product Quality: Examples are Sony and BMW, which have developed a very
strong brand image in the market because their products are known worldwide for their
excellent quality. A strong brand image goes automatically with quality and consistency.
2) Additional Services: Maruti has service stations almost in every spot in India, giving it
an edge over other players. This gives Maruti customer preference. This is because customers
know that whenever and wherever they have a problem with their Maruti cars, a Maruti
service station is "never far away", as the slogan says.
3) Differentiation from Competition: Organizations need to differentiate their offerings
from that of competitors, to develop successful brands. The distinction must be clear in the
minds of customers. If this is accomplished, customers will recognize and appreciate the
unique aspect of the product. The quality of service provided by a brand over a period of time
will become a hallmark of the brand..
4) Pioneers in a Way: Dell pioneered a new distribution channel for PCs and servers. Dell
provided a channel through which customers could order PCs, notebooks, etc, independent of
time and place.
BRANDING DECISIONS:
A brand is a product, service, or concept that is publicly distinguished from other
products, services, or concepts so that it can be easily communicated and usually marketed.
Branding can be applied to the entire corporate identity as well as to individual product and
service names.
1) Brand Product Relationship: In marketing, product is anything that can be offered to
the market that may satisfy the need, want, and demand of a certain individual or market. It is
also called as goods or service. It is also an inclusive package of benefits.
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2) Brand Creation: Brand creation is the result of a process that digs into the hearts and
minds of the employees, customers, and other important audiences, and then synthesizes that
information into useful tools and a clearly defined customer experience. The nine step
process has been identified for brand creation. One may be intrinsically involved in every
aspect, or be an observer of the process; but whatever the role is, it is important to know the
process so that one trusts its results.
3) Brand Name: The brand name exclusively identifies the brand owner as the commercial
source of products or services. A brand owner may seek to protect proprietary rights in
relation to a brand name through trademark registration. Advertising spokespersons have also
become part of some brands.
A brand name which is well known and associated with high satisfaction levels
provides an improved image and added value to the product. This can also lead to consumers
insisting on the product by brand name and being fewer prices sensitive. Brand names can be
family brands where each of the company's products adopts the same brand name, such as the
recent Forte Hotel branding exercise.
4) Brand Portfolio: Brand architecture involves the management of brand portfolio. Brand
portfolio includes all the types of brand viz. Brands and sub brands as well as co-brands with
other firms. A brand portfolio can be strengthened by the addition of brand keeping in view
the portfolio perspective. Similarly brands can be deleted by identifying the superfluous
brands which are contributing nothing to the brand portfolio.
5) Brand Identity: Brand identity is the outward expression of the brand, including its
name and visual appearance. The brand's identity is its fundamental means of consumer
recognition and symbolizes the brand's differentiation from competitors. Brand identity is
defined as how you want the consumer to perceive your product or your brand. Brand identity
is the total proposition that a company makes to consumers the promise it makes. It may
consist of features and attributes, benefits, performance, quality, service support, and the
values that the brand possesses.
6) Brand Personality: The personification of brands appeals to one's imagination. The
brand-as-person metaphor also makes understanding these invisible, abstract mental
constructions easier and more fun. Countless human concepts have entered the world of
brands through personification - identity, personality, charisma, relationship, trust, integrity,
birth, death, soul, awareness, and even karma and re-incarnation. All these concepts come
together to create a brand personality.
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7) Brand Image: The image basically expresses a way of a consumer thinks about the brand
and the feelings the brand arouses when the consumer thinks about it. On the basis of these
characteristics, which the consumer associates with the brand, the company can build a
competitive advantage for its brand. Brand image has long been recognized as an important
concept in marketing.
8) Brand Positioning: Positioning is the art of creating a distinct image for a product in the
minds of the customers. Brand positioning is the process of prompting buyers to form a
particular mental impression of our product relative to our competitors.
9) Brand Extension: Brand extension is the application of a brand beyond its initial range
of products, or outside of its category. This becomes possible when the brand image and
attributes have contributed to a perception with the consumer/user where the brand and not
the product is the decision driver.
10) Brand Revitalization: A brand may lose its share/image on the market, when the value it
provides, the functions and benefits it delivers, are no longer in demand. A brand would
always have a market angle to it. Its success lies in its connection with customers, its value,
and its favorability.
NEW PRODUCT DEVELOPMENT:
Once a company has carefully segmented the market, chosen its target customers,
identified their needs, and determined its market positioning, it is better able to develop new
products. Marketers play a key role in the new-product process, by identifying and evaluating
new-product ideas and working with R & D and others in every stage of development.
Meaning and Definition of New Product Development:
Product development is the next step to product planning. Product development is the
process of finding out the possibility of producing a product. It includes the decision as to -
whether it would be feasible or not to produce the product and whether it would be profitable
or not for the enterprise to do so.
According to William J. Stanton, "Product development encompasses the technical
activities of product research, engineering and design".
A company can add new products through acquisition or development. The
acquisition route can take three forms.
1) The company can buy other companies,
2) It can acquire patents from other companies, or
3) It can buy a license or franchise from another company.
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The development route can take two forms.

1) The company can develop new products in its own laboratories, or
2) It can contract with independent researchers or new-product development firms to
develop specific new products.
Classification/ Categories of New Products

In the marketing world, this work has been made flexible through the introduction of
six product categories as described below.
1) New-to-the-world: This category is for those products that have just been invented. No
one knows how they work. So knowledge about what they do and how they are used must be
imparted to potential customers. And once they start getting buyers, they give birth to new
markets and thus companies producing them get to enjoy the first mover advantage. Another
term for new-to-the-world is really-new.
2) New-to-the-Firm: Sometimes companies wish to produce products that are new to them,
but old to the customers. The markets already exist and the companies through the products
just need to enter into them. Now how would the companies categorize these products? They
would mark them as new-to-the-firm. New-to-the-firm is also referred to as new product-
lines.
3) Addition to Existing Product-Lines: Under this category, both new-to- High the-world
and new-to-the-firm products can be added. It is very common for big companies often
embark on creating products to add to the existing product-lines. There are many reasons
behind this. But the ultimate one is profit.
4) Improved and Revised: Companies wishing to offer the best to customers often re-study
their products so every bit of them gives the best service. Such products are categorized as
improved and revised. It is usually seen this category is used by companies specializing in
electronic and make-up products.
5) Re-Positioning: Many existing products often end-up being valuable for other usage.
When companies realize it, they re-introduce them to the customers by emphasizing this other
usage. This is basically known as re-positioning.
6) Reduction in Cost: It can cost a lot of money to make a new product. However, after
careful study sometimes companies find-out that the same product can be made at lower cost
and thus its price can also be reduced. In short, an expensive product's cheaper version is
marked as reduction in cost or cost reduction.
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NEW PRODUCT DEVELOPMENT PROCESS:

In order to be competitive and maintain its market position, firms need to manage
more closely their existing products and strategically introduce new products. Since firms
today operate in a highly competitive marketplace where they compete with firms that
maintain global production capabilities, and are faced with increasingly more informed
consumers, they need to take a broader perspective concerning their innovation efforts,
introduction of new technology, increased productivity, and improve the efficiency of their
new product development programs.
Idea Generation NO
YES
Idea Screening
Concept Development and Testing
D
Marketing Strategy Development
R
O
Business analysis
P
Product Development
Send the idea

Market Testing back for product
development?
Commercialization Modify the product or

marketing program?
Lay future Yes

plans
New – Product Development Decision Process
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1. IDEA GENERATION
A product idea is a possible product the company might offer to the market. It is
almost truism that new product ideas should match the capabilities of the companies and be
generated in sufficient number to present a real choice of opportunities. Drucker suggested
that the sources of ideas can broadly be divided as:
1) Internal sources, i.e., within the company/industry and
2) External sources, i.e., outside the company/industry.
1) Internal Sources: Stimulating a flow of ideas internally is largely a matter of gaining and
holding the interest of groups in the organization. One means of doing this is to provide
adequate machinery for prompt acknowledgement, review, and decision regarding new-
product ideas submitted by insiders. The companies should build a proper arrangement so
that any person can submit new ideas to idea manager. Some important internal sources of
new opportunities are:
i) Unexpected occurrences
ii) Incongruities
iii) Process needs
iv) Industry and market changes.
The more obvious internal sources of new-product ideas are Research and
Development Departments, technical services staffs, salesmen, executive personnel, company
sales records, intermediaries, top management and patent department.
2) External Sources: A variety of sources of new-product ideas may be found outside the
company. The most common of them are consumers, competitors, freelance inventors and
trade literature.
i) Consumers: Technical companies can learn from the lead users.
ii) Competitors: Successful competitors can often be a source of valuable clues concerning
the number of items or models, which should be included in the product line. The concept of
a full line is somewhat difficult to define. While it is often desirable to sell more than a single
product or a single product line, the point of diminishing returns is difficult to identify.
iii) Free-lance Inventors: Although not the important source of new product opportunities
they once were, freelance inventors are still credited with some important product
innovations.
iv) Trade Literature: Literature searches have proved fruitful for some companies.
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2. IDEA SCREENING:
Normally, a new product oriented organization will have at any time, several new
product deals with them. The problem lies in identifying which ones are promising ideas. In
the idea screening stage, the various product ideas are put to rigorous screening by expert
product evaluation committees. As the new product idea moves through development, the
company will constantly need to revise its estimate of the product's overall profitability of
success, using the following formula:
Overall Profitability of Success = Profitability of Technical Completion x Profitability of
Commercialization given Technical Completion x Profitability of Economic Success given
Commercialization
The main criteria for screening may be grouped under the following headings:
1) Management objectives, strategies and policies
2) Technical feasibility
3) Market feasibility
4) Preliminary business analysis
5) Legal, environmental and social constraints.
The screening stage has two major purposes. The first is to eliminate ideas that are clearly
unworthy of further consideration and the second is to select from among the remainder those
with enough promise to warrant exploratory work by technical research. In screening ideas,
the company must about 2 types of errors:
1) DROP Error: It occurs when the company rejects a good idea. IBM thought the market
for personal computers would be too small to operate.
2) GO Error: It occurs when the company permits a poor idea to move into
development and commercialization resulting into product failures. There could be 3 types of
failures:
i) Absolute Product Failure: When the sales do not cover variable cost and the company
looses huge amount of money.
ii) Partial Product Failure: The sales cover all variable costs and some fixed costs and
company incurs a marginal loss.
iii) Relative Product Failure: The company makers a profit but not as expected by the
management.
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3. CONCEPT DEVELOPMENTS AND TESTING:

When a new product idea passes the initial screening is subjected to concept testing.
The product concept involves translating the basic idea into a specific set of features and
attributes that the product will offer to potential consumers. The product image, meanwhile,
is concerned with determining the way the product should be perceived by the customer, and
included in this is some notion of how the product will be marketed to those consumers.
Once a clear product concept has been developed, it would be normal to progress by
testing either the concept or a sample product or both in the market. The feedback from the
testing process will identify any modifications that may be necessary and perhaps more
importantly will provide some indication of whether the product is likely to be successful.
A product concept is an elaborated version of the idea expressed in meaningful
consumer terms. To conceptualize and implement an idea, the concepts need to be developed
and tested.
1) Concept Development: A product idea can be turned into several concepts by asking
following questions:
i) Who will use the product?
ii) What primary benefit the product would provide?
iii) When will the product be consumed?
iv) How will the product be consumed?
2) Concept Testing: It involves presenting the product concept to appropriate target
consumers and getting their reactions. In order to this, conjoint analysis is conducted to
measure consumer preferences for alternative product concepts. This method derives the
utility values that the consumers attach to varying levels of a product's attributes.
4. MARKETING - STRATEGY DEVELOPMENT:
After testing, the new-product manager must develop a preliminary marketing-
strategy plan for introducing the new product into the market. The plan consists of three
parts:
1) The first part describes the target market's size, structure, and behavior; the planned
product positioning; and the sales, market share, and profit goals sought in the first few years.
2) The second part "outlines the planned price, distribution strategy, and marketing budget
for the first year.
3) The third part of the marketing-strategy plan describes the long-run sales and profit goals
and marketing-mix strategy over time.
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5. BUSINESS ANALYSIS:
Once the management develops the product concept and marketing strategy, it should
evaluate the concept's business attractiveness. In order to do so, a proper estimation of total
sales, costs and profits need to be done.
1) Estimating Total Sales: Management needs to estimate whether sales will be high
enough to yield a satisfactory profit. Total estimated sales are the sum of estimated first-time
sales, replacement sales and products depending on the frequency of purchase. They are:
i) One-Time Purchased Product: For these types of the products, the sales rise at the
beginning, peak and later approach zero as the number of potential buyers is exhausted. One
such example is home after retirement.
ii) Infrequently Purchased Product: It exhibits replacement cycles dictated by physical
wearing or obsolescence associated with changing styles, features and peiformance. Sales
forecasting for this product category calls for estimating first-time sales and replacement
sales respectively. The examples are automobiles, industrial equipments etc.
iii) Frequently Purchased Product: The numbers of first-time buyers initially increase and
then decrease few are left. Repeat purchases occur soon as the product satisfies a portion of
the first-time buyers. The sates curve lastly falls to a plateau representing a level of steady
repeat-purchase volume. The examples are consumer non-durables like bathing soaps,
detergents, shampoos etc.
2) Estimating Costs and Profits: After preparing the sales forecast, management should
estimate expected costs and profits. Companies generally use various financial measures to
evaluate the merit of a new-product proposal the simplest and most complex of which are
break-even analysis and risk analysis respectively.
6. PRODUCT DEVELOPMENT:
The idea on paper is converted into product. The product is shaped corresponding to
the needs and desire of the buyers. Product development is the introduction of new markets in
the present market. Laboratory tests, technical evaluations etc., are made strictly on pilot
models.
If the product concept passes the business test, it moves to R&D or engineering
department to be developed into a physical product. Its goal is to find a prototype that serves
the following functions:
1) Consumers see it as embodiment of the key attributes described in the product-concept
statement,
2) It performs safely under normal use and conditions,
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When the prototypes are ready, they must be put through rigorous functional tests and
customer tests:
1) Functional Test: Alpha testing is the name given to test the product within the company
to see how it performs in different applications. After refining the prototype further, it is
moved for beta testing. The company enlists a set of customers to use the prototype and give
feedback on their experiences. According to Tom Peters, Beta test is more useful in the cases:
• Where the potential customers are heterogeneous,
• The potential applications are not fully known,
• Several decision makers are involved in the purchase of the product,
• Opinion leadership from early adopters is sought.
2) Consumer Test: It can take a variety of forms from bringing consumers into a laboratory
to giving them samples to use in their homes. Consumer preferences can be measured in
several ways:
• Rank-Order Method: This asks the consumer to rank items in order of preference
(A>B>C).
• Paired-Comparison Method: It represents the pairs of items and asks the consumers
which one is preferred in each pair (A to B, B to C).
• Monadic-Rating Method: This asks the consumers to rate liking of each product on a
scale (A=6, B=5).
7. MARKET TESTING / TEST MARKETING
After designing, the next step is testing the product in the market. The term 'test
marketing' is also sometimes called 'field-testing'. The word 'test' means examination or trial.
Test marketing, thus, means testing the product in the market before the product is
commercialized on a large scale. This is done with a view to understand the market and the
marketing considerations like nature of competition, nature of demand, and the consumers*
needs, etc.
According to Philip Kotler, "Test marketing is the stage at which the product and
marketing programs are introduced into more realistic market settings".
Though test marketing is not a perfect simulation of full-scale production and
distribution, yet it may provide very useful information for better planning of the full-scale
effort. It also permits initial pricing mistakes to be made on a small rather than large scale.
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Reasons for Test Marketing

There are two reasons for marketing:
1) To Know the Reactions of the Consumers: The main reason of test marketing of the
product is to know the reactions of the consumers and to forecast the sales when the product
is introduced commercially on large scale. If response is encouraging the decision may be
taken to start production on the large scale.
2) To Know Alternatives: Test marketing provides an opportunity to the marketer to know
the reasons why the product was not accepted by the consumers. It also provides an
opportunity to understand what improvements should be made in the product to make it
popular and acceptable to customers. Efforts may be made to develop an alternative product
which may satisfy the needs of the customers.
Objectives of Test Marketing: The objectives of test marketing are:
➢ To evaluate a complete market plan including advertising, distribution sales, pricing,
etc.
➢ To determine media mix, channels etc.
➢ To forecast sales volume.
➢ To ascertain various uses of the product, the class or category of users, and the
motives that prompt the users or buyers.
➢ To gauge the nature of general competitive situations, latest trend in demand, etc.
8. COMMERCIALIZATION
New products approved for commercialization enter the final phase of the
development process. During the period required to get into full scale production, various
activities started in earlier phases, such as package design, promotional literature, and
advertising copy can be completed.
1) When (timing): The market-entry timing is very critical. The company can have 3 choices:
➢ First Entry: The first firm when enters into the market enjoys "first mover
advantage" by locking up key distributors and customers and gaining reputation and
leadership.
➢ Parallel Entry: The Company can time its entry of new product to coincide with the
competitor's entry.
➢ Late Entry: The firm may delay its launch until after the competitor has entered. This
has following advantages
2) Where (Geographic Strategy): The company must decide whether to launch the new
product in a simple locality, a region, several regions, national market or international market
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Unit 4
PRICING STRATEGY
MEANING OF PRICE:
Price is the marketing-mix element that produces revenue; the others produce costs.
Price is also one of the most flexible elements: it can be changed quickly, unlike
product features and channel commitments.
Price may be defined as the exchange of goods or services in terms of money.
Without price there is no marketing, in the society. If money is not there, exchange of goods
can be undertaken, but without price. i.e.,
To a manufacturer, price represents quantity of money (or goods and services in a
barter trade) received by the firm or seller. To a customer, it represents sacrifice and hence
his perception of the value of the product. Conceptually, it is:
Quanity of money received by the seller
Price =
Quantity of goods and services rendered received by the buyer
MEANING AND DEFINITION OF PRICING:
The term 'price' needs not be confused with the term 'pricing'. Pricing is the art of
translating into quantitative terms (rupees and paise) the value of the product or a unit of a
service to customers at a point in time.
According to Prof. K.C. Kite, "Pricing is a managerial task that involves establishing
pricing objectives, identifying the factors governing the price, ascertaining their relevance
and significance, determining the product value in monetary terms and formulation of price
policies and the strategies, implementing them and controlling them for the best results".
PRICING: A CRITICAL MARKETING DECISION
Pricing is a very critical decision in marketing management. The main objective of the
firm, that is, to earn a profit, very much depends upon the correct price decision. After
meeting all the costs involved, the sales revenue generated must yield a surplus before there
can be profits. The sales revenue figure is however materially affected by the price charged
for the product.
OBJECTIVES OF PRICING:
A firm may choose its pricing objectives from any of the following:
1) To Maximize the Profits: The primary objective of the pricing decision is to maximize
profits for the concern and therefore pricing policy should be determined in such a way so
that the company can earn the maximum profits.
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2) Price Stability: As far as possible, the prices should not fluctuate too often. A stable
price policy above can win the confidence of the consumers. It will also add to the goodwill
of the firm. For this purpose, the concern should consider long-run and short-run elements.
3) Competitive Situation: One of the objectives of the price decision is to face the
competitive situation in the market. Prices of the commodities should be fixed keeping in the
mind the competitive situation. Sometimes, the management likes to fix a relatively low price
for its product to discourage potential competitors.
4) Achieving a Target-Return: This is a common objective of well established and reputed
firm in the market (either for the company's name, or its brand or the quality of the product)
to fix a certain rate of return on investment. The prices of the product are so calculated as to
earn that rate of return on investment. Different target return may be fixed for different
product but such returns should be related to a single overall rate of return target.
5) Capturing the Market: One of the objectives of pricing decision may be capturing the
market. A company especially a big company, at the time of introducing the product in the
market fixes comparatively lower prices for its products, keeping in view the competitive
position with an objective of capturing a big share in the market.
6) Ability to Pay: Price decisions are sometimes taken according to the ability of customers
to pay, i.e., more prices can be charged from persons having a capacity to pay. Capacity to
pay is determined on the basis of the purchasing power of the consumers for which the
product is made.
7) Long-run Welfare of the Firm: The main aim of some concerns is to fix the price of the
product which is in the best interest of the firm in the long run keeping the market conditions
and economic situations in mind.
8) Margin of Profit to Middlemen: Pricing of the product should be made keeping in view
that middlemen get a fair return on the sale of company's product. Otherwise they will lose
interest in selling company's products.
9) Resource Mobilization: Under this objective, the firm fixes the prices of its products in
such a way that it can accumulate sufficient resources for its expansion.
PROBLEMS IN SETTING PRICE OBJECTIVES:
The following are the problems in the way of setting price objectives:
1) Problem of Multiple Parties: The theoretical pricing model assumes that the only
significance group to consider the pricing of a product is the firm's customers. But in reality,
several parties have to be considered simultaneously:
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i) Suppliers: The company's suppliers of materials funds and labor also must be
considered. Many suppliers interpret that product's price as indicating the level of the firm's
revenues (and profits), from the product.
ii) Intermediate Customers: The firm must think through its pricing not only for its
ultimate customers but for its intermediate customers as well. Some companies, in fact, set a
price for distributors and allow them to set whatever final price they wish.
iii) Rivals: The price set by the manufacturer influence the rate of entry of new rivals
and the pricing policies of existing rivals. The traditional demand curve is to summary a way
to represent the dynamic reactions and counter reactions occasioned by a pricing policy.
iv) Other Company Executives: Price is a concern of different parties with the
company. The Sales Manager wants a low price so that less salesmen can "talk price"' to
customer. Controller likes to see a price leading to an early payment. The price makes an
important difference in copy and media tactics to the advertising manager.
v) Government: Another price-interested party is the government. Public utilities
must justify their rates before regulatory commissions. The steel industry must move
cautiously with price increases because of the government's interest in price stability.
2) Problem of Estimating Demand and Cost Function: In the case of a new product, there
is no experience upon which to base these estimates. Unless data are available on a similar
established product, estimates are likely to take the form of soft facts and guesses rather than
hard facts. Data on established products are
usually not much more satisfactory.
3) Problem of Marketing Mix Interaction: The theoretical pricing model also assumes
that other marketing variables are held at some constant levels while the effect of price on
sales is being examined. This is evident in the usual treatment of the demand function as a
relationship only between quantity demanded (Q) and Price (P).
IMPORTANCE OF PRICING:
Pricing is one of the important elements of the marketing mix, but lately, it has come
to occupy the centre stage in marketing wars. The reasons for this are:
1) Product Differentiation Getting Blunted: As technologies get standardized,
differentiation among firms on the basis of the product is going to get blunted. More products
and brands will transcend to a commodity situation. This is not a healthy sign as commodities
are always subject to price fluctuations and price wars.
2) Inter-Firm Rivalry: The intensity in inter-firm rivalry increases as the entry and exit
barriers in the industry are lowered. With an increase in this rivalry, we find that a firm's cost
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of operation also increases, as it now has to spend more money to lure customers and
middlemen. It has to also invest money in new product development. "
3) Mature Products and Markets: When the products enter the maturity stage and the
markets are also mature, the only way to differentiate the various offers is on the basis of
augmented service or price cuts.
4) Customers' Value Perception: Another factor contributing to the importance of pricing
decisions is the customer's perception of the product's current and potential value. To a
customer, price always represents the product's value. Many a time, the customer's perception
of the product value may not necessarily be in line with its price.
5) Inflation in the Economy: Pricing decisions become important in the inflationary
economy. Inflation affects pricing in two ways:
• It lowers the purchasing power of the customer and hence a search for low priced
substitutes,
• It increases a firm's cost because of the inputs costing more, thus forcing the price of
the product upwards.
6) Firm Now finds itself in a Dilemma: If it passes the increase in input costs to the
customer in the form of a price increase, and there are equally attractive alternatives at lower
prices available to him, the firm may lose the customer. And if it doesn't increase the price, it
incurs a loss.
METHODS OF PRICING/ BASIC PRICING POLICIES:
Fundamentals which may affect price decisions are consumer situation and cost
considerations. It is quite unfortunate that many firms have no clear pricing policies. The
following are the basic policies recognized for pricing:
1) Cost-oriented pricing policy,
2) Customer Demand-oriented pricing policy,
3) Competition-oriented pricing policy,
4) Other pricing policies,
Cost-Oriented Pricing Policy:
Cost of production of a product is the most important variable and most important
determinant of its price. There may be many types of costs such as - fixed cost, variable cost,
total cost, average cost and marginal cost etc. An analytical study of these costs must be made
for determining the price of a product. Methods of (determining price on the basis of cost are
as under:
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1. Mark-up Pricing or Cost plus Pricing Method: In this method, the marketer
estimates the total cost of producing or manufacturing the product and then adds it a
mark up or the margin that the firm wants. This is indeed the most elementary pricing
method and many of services and projects are priced accordingly, To arrive at the
mark up price, one can use the following formula:
Mark up price = α / (1-r)
Where, alpha - Unit cost (fixed cost + variable cost)
r = Expected return on sales expressed as a percent
This method assumes that no product is sold at a loss. This method is used when there
is no competition in the market or when the cost of production of a product of all the
manufacturers is almost equal and the margin of profit of all the manufacturers is also equal.
This method is used by retail traders also. This method of pricing is based on a simple
arithmetic of adding a fixed percentage of profit to the unit cost. Therefore, this method is
also known as 'The Sum of Margin Method'.
2. Full Cost or Absorption Cost Pricing: Absorption cost pricing or full cost pricing
rests on the estimated unit cost of the product at the normal level of production and
sales. The method uses standard costing techniques and works out the variable and
fixed costs involved in manufacturing, selling and administering the product. By
adding the costs of these three operations, we get the total cost. The selling price of
the product is arrived at by adding the required margin towards profit to such total
costs. This method is also known as full cost pricing since it envisages the realization
of full costs from each unit sold.
3. Marginal Cost or Incremental Cost Pricing Method: Here, the company may work
on the premise of recovering its marginal cost and getting a contribution towards its
overheads. This method works well in a market already dominated by giant firms or
characterized by intense competition and the objective of the firm is to get a foothold
in the market.
When do Firms Adopt Marginal Cost Pricing
This pricing procedure is often adopted when the firm:
i) Wants to introduce its product into new markets;
ii) Faces stiff competition in the market: or iii) Has unutilized capacity.
4. Break Even Point or B.E.P. Pricing Method: Breakeven point is the volume of
sales at which the total sales revenue of the product is equal to its total cost. In other
words, it can also be said that breakeven point is the volume of sales at which there is
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no profit and no loss. Therefore, this method is also known as 'No Profit No Loss
Pricing Method'.For the purpose of determining price under this method, total cost of
production of a product is divided into two parts - Fixed Costs and Variable Costs.
The price is determined equal to the Total cost of production of the product.. This
method of pricing is very useful for determining the price of a competitive product.
Under this method B.E.P. can be calculated as under:
Fixed costs
B.E.P(in Units) =
Selling price per unit – Variable costs per unit
Fixed Costs X Total Sales

B.E.P (in Rs.) =
Total Sales – Total Variable Costs
5. Rate of Return or Target Pricing Method: Under this method of price
determination, first of all, a rate of return desired by the enterprise on the amount of
capital invested by it is determined. The amount of profit desired by the enterprise is
calculated on the basis of this rate of return. This amount of profit is added to the cost
of production of the product and thus, the price per unit of the product is determined.
CUSTOMER DEMAND - ORIENTED PRICING:
The basic feature of all these demand-based method is that profits can be expected
independent of the costs involved, but are dependent on the demand. This pricing method
differs from Cost-driven pricing in that it starts by asking at what price the market will be
prepared to pay for the product and works back to the level of profit and costs, which that
price will afford to the organization.
1) 'What the Traffic Can Bear’ Pricing: Pricing based on 'what the traffic can bear', is not
a sophisticated method. It is used by retail traders as well as by some manufacturing firms.
This method brings high profits in the short term. But 'what the traffic can bear' is not a safe
concept.
2) Skimming Pricing: One of the most commonly discussed Pricing method is the
skimming pricing. This Pricing method to the firm's desire to skim the market, by selling at a
premium price. This Pricing method delivers results in the following situations:
➢ When the target market associates quality of the product with its price, and high price
is perceived to mean high quality of the product.
➢ When the customer is aware and is willing to buy the product at a higher price just to
be an opinion leader.
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➢ When the product is perceived as enhancing the customer's status in society. When
competition is non-existent or the threat from potential competition exists in the
industry because of low entry and exist barriers.
➢ When the product represents significant technological breakthroughs and is perceived
as a 'high’ technology' product.
3) Penetration Pricing: As opposed to the skimming pricing, the objective of penetration
pricing is to gain a foothold in a highly competitive market. The objective of this Pricing
method is market share or market penetration. Here, the firm prices its product lower than the
others do in competition. This method delivers results in the following situations:
➢ When the size of the market is large and it is a growing market.
➢ When customer loyalty is not high customers have been buying the existing brands
more because of habit rather than any specific preferences for it.
➢ When the market is characterized by intensive competition.
➢ When the firm uses it as an entry strategy.
➢ Where price-quality association is weak.
COMPETITION-ORIENTED PRICING POLICY:
Most companies fix the prices of their products after a careful consideration of the
competitors' price structure. Deliberate policy may be formulated to sell its products in the
competitive market. Three policy alternatives are available to the firm under this pricing
method:
1) Parity Pricing or Going Rate Pricing: Under this method, the price of a product is
determined on the basis of the price of competitor's products. This method is used when the
firm is new in the market or when the existing firm introduces a new product in the market.
This method is used when there is a tough competition in the market. The method is based on
the assumption that a new product will create demand only when its price is competitive. The
firm follows the market leader.
2) Pricing Below Competitive Level or Discount Pricing: Discount pricing means when
the firm determines the price of its products below the competitive level i.e., below the price
of the same products of the competitors. This policy pays where customers are price; the
method is used by new firms entering the market.
3) Pricing Above Competitive Level or Premium Pricing: Premium pricing means where
the firm determines the price of its product above the price of the same products of the
competitors. Price of the firm's product remains higher showing that its quality is better. They
became the market leader.
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4) Sealed Bid/Tender Pricing: Another form of competition oriented pricing is the sealed
bid pricing. In a large number of projects, industrial marketing and marketing to the
government, suppliers are asked to submit their quotations, as a part of tender.
OTHER PRICING METHODS:
The major other pricing methods are as follows:
1) Value Based Pricing: Good pricing begins with a complete understanding of the value
that a product or service creates for customers. Value-based pricing uses buyer's perceptions
of value, not he seller's cost, as the key to pricing. Value-based pricing means that the
marketer cannot design a product and marketing program and then set the price.
Essence of Value Based Pricing
Value pricing rests on the premise that the purpose of pricing is not to recover costs,
but to capture the value of the product perceived by the customer. Analysis will readily show
that the following scenarios are possible with the cost-value price chain:
i) Value > Price > Costs: The marketer recovers his costs through price, but fails to recover
the value of his product and thus misses out the profit opportunity.
ii) Price > Value > Costs: The recovers his costs as well as the value, but errs on the excess
side by giving less value to the customer than what is due as per the price. He will lose the
loyalty of the customer and the equity of his brand.
iii) Price > Costs > Value: The value that he passes on to the customer is still lesser and it is
doubtful if he will adequately sell his product at all. Here, his cost itself is higher than the
value of the product and by maintaining his price above his costs; he makes his value delivery
to the customer all the more negative.
iv) Price = Value > Costs: The matches the value and price, and wins customer loyalty; and
since the value created is larger than his costs, he ensures his profits.
2) Product Line Pricing Strategies: These are a set of price strategies, which a multi-
product firm can usefully adopt. An important fact to be noted is that these products have to
be related, in other words belonging to the same product family. Faced with multi-products
and fluctuating demand, the firm may adopt a combination of the following strategies to
effectively manage its product line or maximize its profits across the product line:
i) Price Bundling: This strategy is used by a firm to even out the demand for its product.
This is useful strategy for perishable; time-bound products like food, hotel room or a seat on
a flight and for products which cannot be substituted, like the package of stereo music
system.
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ii) Premium Pricing: This strategy is used by a firm that has heterogeneity of demand for
substitute products with joint economies of scale. Consider the example of a color television
set. There are different models available with different features, like the one with a remote
control and another without it.
iii) Image Pricing: This strategy is used when consumers infer quality from the prices of
substitute models or competing products. The firm varies its prices over different brands of
the same product line. This strategy is commonly used in textiles, cosmetics, toilet soaps and
perfumes.
iv) Complementary Pricing: This strategy is used by a firm that has customers with high
transaction costs for one or more of its products. Transaction costs are all those costs that a
customer has to incur to buy the product, like the registration fees that a flat buyer has to pay
in order to be a legal owner or the processing fees that the bank may charge to give a credit
card to the customer.
v) Captive Pricing Strategy: Here a special price deal is offered to ioya! customers or those
who are regularly buying one of the products of the firm.
vi) Loss Leader Strategy: This is another example of complementary pricing strategy. This
strategy involves dropping the price on a well-known brand to generate demand or traffic at
the retail outlet.
vii) Two-Part Pricing: This strategy is used by products that can be divided into two distinct
parts.
3) Affordability-based Pricing: This method is relevant in respect of essential commodities,
which meet the basic needs of all sections of people. The idea here is to set prices in such a
way that all sections of the population are in a position to try and consume the products to the
required extent. The price is set independent of the costs involved, often an element of state
subsidy is involved and the items are.
4) Differential Pricing Strategy: This strategy involves a firm differentiating its price across
different market segments. The assumption in this strategy is that different market segments
do not communicate or have different search costs and value perceptions of the product. In
other words, heterogeneity in the market motivates a firm to adopt this strategy.
5) Prestige Pricing: As a purchasing motivation, 'prestige' is rarely openly admitted.
Many buyers do not realize that this might be their prime motivation Price for wanting to
possess a particular item. At best, they might see the motive, as the desire to possess
something that is exclusive and such exclusivity is often associated with a high price.
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6) Market and Demand Based Pricing: Good pricing starts with an understanding of how
customers' perceptions of value affect the prices they are willing to pay. Both consumer and
industrial buyers balance the price of a product or service against the benefits of owning it.
We then discuss methods for analyzing the price-demand relationship.
Pricing in Different Types of Markets
The seller's pricing freedom varies with different types of markets. Economists
recognize four types of markets, each presenting a different pricing challenge.
i) Under Pure Competition, the market consists of many buyers and sellers trading in a
uniform commodity. such as wheat, copper, or financial securities. No single buyer or seller
has much effect on the going market price.
ii) Under Monopolistic Competition, the market consists of many buyers and sellers who
trade over a range of prices rather than a single market price. A range of prices occurs
because sellers can differentiate their offers to buyers. Either the physical product can be
varied in quality, features, or style, or the accompanying services can be varied.
iii) Under Oligopolistic Competition, the market consists of a few sellers who are highly
sensitive to each other's pricing and marketing strategies. The product can be uniform (steel,
aluminum) or non-uniform (cars, computers).
iv) In a Pure Monopoly, the market consists of one seller. The seller may be a government
monopoly, a private regulated monopoly (a power company), or a private non-regulated
monopoly. Pricing is handled differently in each case. In a regulated monopoly, the
government permits the company to set rates that will yield a "fair return". Non-regulaled
monopolies are free to price at what the market will bear. However, they do not always
charge the full price for a number of reasons; a desire not to attract competition, a desire to
penetrate the market faster with a low price, or a fear of government regulation.
7) Cycle Pricing: Cyclical pricing is based on the cyclical variations of economic activity
overtime. Time series data reveals that economic/business activity exhibits cyclical variations
that are termed as business/trade cycles. Each cycle has four phases as shown in figure
SELECTING THE FINAL PRICE:
Pricing methods narrow the range form which the company must select its final price.
In selecting that price, the company must consider some additional factors that are described
below:
1) Psychological Pricing: Many consumers use price as an indicator of quality. Price and
quality perceptions of products interact. Higher-priced products such as cars are perceived to
possess high quality and vice versa.
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2) Company's Pricing Policies: The price must be consistent with the company pricing
policies. Many companies set up a pricing department to develop policies and establish or
approve decisions. The aim is to ensure that the salespeople quote prices that are reasonable
to customers and profitable to the company.
3) Impact of Price on Other Parties: Management must also consider the reactions of other
parties to the contemplated price. How will the distributors and dealers feel about it? Will the
sales force be willing to sell at that price? How will the competitors react? Will suppliers
raise their prices when they see the company's prices? Will the government intervene and
prevent this price being charged?
4) Influence of Other Marketing-Mix Elements: The final price must take into account
the brand's quality and advertising relative to competition. Experts examined the relationships
among relative price, quality and advertising and found the following:
➢ Brands with average relative quality but high relative advertising budgets were able to
charge premium prices. Consumers apparently were willing to pay higher prices for
known products than for unknown products.
➢ Brands with high relative quality and high relative advertising obtained highest prices.
Conversely,brands with low quality and low advertising charged the low prices.
➢ The positive relationship between high prices and high advertising held most strongly
in the later stages of PLC for market leaders.
ADAPTING THE PRICE / PRICING STRATEGIES:
Companies usually do not set a single price, but a price structure that reflects several
variables. After selecting the appropriate pricing method, the required price for the particular
offering (product or service) can be adapted by following pricing strategies or price adapting
techniques.
1) Price Discounts and Allowances: The role of discount offering discounts can be a
useful tactic in response to aggressive competition by a competitor. However, discounting
can be dangerous unless carefully controlled and conceived as part of your overall
marketing strategy. Discounting is common in many industries in some it is so endemic as to
render normal price lists practically meaningless. This is not to say that there is anything
particularly wrong with price discounting provided that you are getting something specific
that you want in return. The trouble is that, all too often, companies get themselves embroiled
in a complex structure of cash, quantity and other discounts, whilst getting absolutely nothing
in return except a lower profit margin.
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Types of Discounts:
i) Cash and Settlement Discounts: These are intended to bring payments in faster. What is
more, customers frequently take all the discounts on offer and still do not pay promptly, it is
better either to eliminate these discounts altogether and introduce an efficient credit control
system, or change terms of business so that you can impose a surcharge on overdue accounts
instead.
ii) Quantity Discounts: The trouble with these is that, when formalized on a published price
list, they become an established part of pricing structure and as a result their impact can be
lost. As a general rule, only publish the very minimum of quantity discounts largest
customers will probably try to negotiate something extra anyway.
iii) Promotional Discounts: These are the best kind of discounts because they enable
company to retain the power to be flexible. There may be times when company wants to give
an extra boost to sales to shift an old product before launching an updated one for example.
At times like these special offers or promotional discounts can be useful.
2) Geographic Pricing Strategy: This strategy seeks to exploit economies of scale by
pricing the product below the competitor's in one market and adopting a penetration strategy
in the other. The former is termed as second market discounting. This second market
discounting is a part of the differential pricing strategy where the firm either dumps or sells
below its cost in the market to utilize its existing surplus capacity.
Forms of Counter Trade
i) Barter: The direct exchange of goods, with no money and no third party involved
ii) Compensation Deal: The seller receives some percentage of the payment in cash and the
rest in products.
iii) Buyback Arrangement: The seller sells a plant, equipment, or technology to another
country and agrees to accept as partial payment products manufactured with the supplied
equipment.
iv) Offset: The seller receives full payment in cash but agrees to spend a substantial amount
of the money in that country within a stated time period.
3) Promotional Pricing: Companies can use several pricing techniques to stimulate early
purchase:
i) Loss-leader Pricing: Supermarkets and department stores often drop the price on well-
Known brands to stimulate additional store traffic. This pays if the revenue on the additional
sales compensates for the lower margins on the boss-leader items.
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ii) Special-event Pricing: Sellers will establish special prices in certain seasons to draw in
more customers
iii) Cash Rebates: Auto companies and other consumer-goods companies offer cash rebates
to encourage purchase of the manufacturers' products within a specified time period. Rebates
can help clear inventories without cutting the stated list price.
iv)Low-interest Financing: Instead of cutting its price, the company can offer customers
low- interest financing. Automakers have even announced no-interest financing to attract
Customers.
v) Longer Payment Terms: Sellers, especially mortgage banks and auto companies, stretch
loans over longer periods and thus lower the monthly payments. Consumers often worry less
about the cost of a loan and more about whether they can afford the monthly payment.
vi) Warranties and Service Contracts: Companies can promote sales by adding a free or
low- cost warranty or service contract.
4) Discriminatory Pricing: Companies often adjust their basic price to accommodate
differences in customers, products, locations, and so on. Price discrimination occurs when a
company sells a product or service at two or more prices that do not reflect a proportional
difference in costs. In first degree price discrimination, the seller charges a separate price to
each customer depending on the intensity of his or her demand. In second-degree price
discrimination, the seller charges less to buyers who buy a larger volume. In third-degree
price discrimination, the seller charges different amounts to different classes of buyers, as in
the following cases:
i) Customer-segment Pricing: Different customer groups are charged different prices for the
same product or service. For example, museums often charge a lower admission fee to
students and senior citizens.
ii) Product-form Pricing: Different versions of the product 'are priced differently but not
proportionately to their respective costs
iii) Image Pricing; Some companies price the same product two different levels based on
image differences at.
iv) Channel Pricing: Coca-Cola carries a different price depending on whether it is
purchased in a fine restaurant, a fast-food restaurant, or a vending machine,
v) Location Pricing: The same product is priced differently at different locations even
though the cost of offering at each location is the same. A theater varies its seat prices
according to audience preferences for different locations.
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5) Product-mix Pricing: Price-setting logic must be modified when; the product is part of a
product mix. In this case, the firm searches for a set of prices that maximizes profits on the
total mix. Pricing is difficult because the various products have demand and cost
interrelationships and are subject to different degrees of competition. Six situations involving
product-mix pricing:
i) Product Line Pricing: Companies normally develop product lines rather than single
products and introduce price steps. In many lines of trade, sellers use well-established price
points for the products in their line.
ii) Optional-feature Pricing: 'Many companies offer optional products, features, and
services along with their main product. The automobile buyer can order electric window
controls, defoggers, light dimmers, and an extended warranty. Pricing is a sticky problem
automobiles companies must decide which items to include in the price and which to offer as
options. Restaurants face a similar pricing problem.
iii) Captive-product Pricing: Some products requires the use of ancillary, or captive,
products. Manufacturers of razors and cameras often price them low and set high markups on
razor blades and film, respectively. A cellular service operator may give a cellular phone free
if the person commits to buying two years of phone service.
iv) Two-part Pricing: Service firms often engage in two-part pricing, consisting of a fixed
fee plus a variable usage fee. Telephone users pay a minimum monthly fee plus charges for
calls beyond the minimum number. Amusement parks charge an admission fee plus fees for
rides over a certain minimum.
v) By-product Pricing: The production of certain goods- meats, petroleum products, and
other chemicals often results in by-products. If the by-products have value to a customer
group, they should be priced on their value. Any income earned on the by-products will make
it easier for the company to charge a lower price on its main product if competition forces it
to do so.
vi) Product-bundling Pricing: Sellers often bundle products and features. Pure bundling
occurs when a firm only offers its products as a bundle. In mixed bundling, the seller offers
goods both individually and in bundles. Because customers may not have planned to buy all
the components, the savings on the price bundle must be substantial enough to induce them to
buy the bundle.
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INITIATING AND RESPONDING TO PRICE CHANGES:

Companies are not alone in the market. Hence they cannot sit idle by setting price on
their own products. They have to face competitions and hence they sometimes have to alter
their prices. This can take several forms as
INITIATING PRICE CUTS:
Some circumstances force a company to lower its offering price, which could be:
1) Declining Market Share: The Company cannot set up a rigid pricing policy and must
react promptly to any move made by the competitor. The company initiates price-cutting
when they see that they are losing their market share to their competitors
2) Market Domination: Sometimes the companies drastically reduce the price to dominate
the market by attaining the price leadership. This strategy is not only used to dominate the
market, but also to unsettle the competitors also.
3) Excess Production: When the production or supply of products exceeds the demand in the
market, the companies have to lower the price of their products.
4) Economic Downtrend: In the time of economic recession, the companies have to reduce
the price to matchthe consumer's tendency to lower spending.
But mindless price-cutting may initiate various possible traps:
1) Low Quality Traps: The consumer may perceive price cutting measures as selling low
quality products.
2) Shallow-Pockets Trap: Lowering price may get market share but it does not generate
market loyalty. The consumers who have been lured by lower prices may switch over other
companies that could offer further low prices.
3) Fragile Market Share Trap: The financially strong companies by adopting the same
strategy can weaken the lesser financially strong companies through their power of sticking
to low prices longer.
INITIATING PRICE INCREASES:
The main advantage of raising the prices is that it immediately raises the profits. The
companies increase prices in case of:
1) Escalating operational costs and overheads.
2) Anticipatory pricing when they feel there would be further inflation or change in
governmental rules.
3) The multiplexes charge a higher price when a hyped movie is released or a movie is
considered to be super hit.
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The impacts on the buyers are:

1) Reduction of Discounts: The companies may withdraw the discounts. Sometimes the
companies provide some introductory discount offers, which they withdraw once the offer
period is over.
2) Unbundling: The Company may maintain its price but remove or prices separately one or
more elements that were part of the former offer. The restaurant that earlier offered free home
delivery may have dropped that or introduced delivery charge.
3) Escalator Clauses: The Company can offer its customers to pay presently and pay again
all or a part of any increase due to inflation at the time of delivery. This is normally prevalent
in case of industrial projects of long duration like constructing a flyover.
4) Delayed Quotation Pricing: This is similar to the escalator clauses but the difference is
that here the customers do not have to pay until the product is finished or delivered. This is
also used in industries with long production lead times.
The companies also respond to higher costs or over-demand without raising prices.
The different ways to do this are:
1) Shrinking the amount of product.
2) Substituting less expensive materials or ingredients.
3) Reducing or removing product features.
4) Removing or reducing product services.
5) Using less expensive packaging.
6) Reducing the number of sizes and models offered.
7) Creating new economy brands.
RESPONDING TO COMPETITOR'S PRICE CHANGES:
The companies operating in markets of high product homogeneity can respond
competitor's price cuts either by enhancing its product offerings or lowering the price. In non-
homogeneous market, the companies have to consider the following issues:
1) Intention: The Company has to understand why its competitor has changed the price.
2) Duration: The company has to anticipate whether the change in price temporary or
permanent.
3) Forecasting: Then the company has to estimate what would happen in market share and
profitability if it does not respond to the change.
4) Counter Reaction: Lastly, the company should ponder over the counter reaction of its
competitor in response to whatever reaction of the company.
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The best response varies with the situation. Firms must consider the product's stage in
the life cycle, its importance to the firm's portfolio, the competitor's intentions and resources,
the product's price and quality sensitivity, the behavior of costs with volume, and alternative
opportunities.
1) Maintenance of Price: The leader may have to maintain price if it finds any of the
following cases:
➢ Price reduction will erode a large amount of profits.
➢ Price reduction will tamish the image of the product and the company.
➢ Keeping same price will not cause much loss in market share.
But, sometimes the maintenance of the same price may boomerang. The possible
outcomes are:
➢ Attacker becomes confident and more motivated to unsettle the leaders.
➢ The sales force of the leaders get demotivated.
➢ The leader looses more market share than expected.
➢ The leader finds out that regaining market share is more difficult and costly.
2) Maintenance of Price Along with Addition of Value: Keeping the same price, the leader
may improve its product features, services and other offerings.
3) Increase of Price Along with Improving Quality: Instead of reducing the price, the
leader may introduce enhanced quality and charge a higher price.
4) Reduction of Price: The leader finally responds by lowering the price. The reasons are
more straight-forward:
➢ The sales force of the leaders needs to get motivated.
➢ The leader does not want to lose price sensitive customers.
➢ The leader finds out that regaining market share is more costly than lowering the price
and operating at lower margin.
5) Introduction of Low-Price Alternatives: The leader can introduce low cost alternatives
to fight against the price cuts. Indian automobile and FMCG companies frequently introduce
low cost models, variants and brands to combat the price cut.
This is a game, one need to know what type of message he wants to send to his
competitors but at the same time remembering once reputation is also very important.
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SALES MANAGEMENT
MEANING AND DEFINITION OF SALES MANAGEMENT:
Sales management is a sub-system of marketing management. It is sales management
that translates the marketing plan into marketing performance. That is why sales management
is sometimes described as the muscle behind marketing management. Actually, sales
management does much more than serving as the muscle behind marketing management,
Sales managers in modem Organizations are required to be customer-oriented and profit-
directed and perform several tasks besides setting and achieving personal selling goals of the
firm.
According to Hampton and Zabin, 'Sales management is primarily the direction of
men with all the management functions of organization, control, recruitment, training,
supervision and motivation".
According to American Marketing Association (AMA), "Sales management is
defined as the planning, direction and control of personal selling, including recruiting,
selecting, equipping, assigning, routing, supervising, paying and motivating as these tasks
apply to the personal sales force".
Sales management, according to the above definition encompasses following attributes:
➢ It is the management of the sales force. This is a personnel-type function.
➢ Sales management also organizes the selling effort. To do so, it creates a suitable
organizational structure, with appropriate communication system.
➢ Safes management interfaces with the distribution channels, and external publics.
➢ Sales management provides critical inputs for the key marketing decisions like
budgeting, quotas and territory management.
➢ Sales management interfaces with other marketing functions while policies of these
functions are being formulated.
IMPORTANCE OF SALES MANAGEMENTS:
The success of any business depends upon the success of its sales department.
Efficiency of sales department depends upon effective sales management. With the increase
in supply of consumer goods and increase in the level of competition markets have shifted
from seller's market to buyer's market. It has led to the growth of personal selling.
The importance of sales management is as follows:
1) Helps to Achieve Organizational Broad Objectives: The success of any organization is
largely related to the functioning of sales department. Sales management helps to achieve
organizational broad objectives of sales maximization, profit maximization, and continuous
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business growth. Sales manager manages sales force, formulates sales plans, sales budget,
sets-up sales-quotas, frames sales territories for achieving organizational objectives.
2) Helps in Effective Management of Sales force: Sales management manages various
activities of sales force. It includes determination of size of sales force, recruitment, selection,
training, assigning, equipping, routing, supervising, compensating, directing, motivating,
communicating, and evaluating the sales force. The success of any organization depends
upon effective sales force management,
3) Importance to Top Management: Sales manager provides necessary market information
regarding sales potential, level of competition, strategies adopted by competitors
consumers' likings, disliking, preferences, requirements, complaints, suggestions;
information about dealers, their problems, etc. All such information helps the top
management in effective business planning.
4) Ensures Effective Salesmanship: Salesmanship is the art of persuading prospective
buyers to buy goods and services provided by the institution. Nowadays, markets have
become buyers' market and marketers have to approach buyers through personal selling and
persuade them to buy their products. Effective sales management ensures effective
salesmanship.
6) Promotes Customer Satisfaction: With the increase in the level of competition,
significance of customer satisfaction has increased. It needs regular communication with
customers, studying their needs, requirements, tastes, preferences, and attending their
complaints. All these tasks are performed by sales force.
7) Helps to Face Competition: By analyzing competitions' strategies and plans, sales
management provides necessary information to the top management, so that top management
can make effective counter strategies in time to face the competition. Moreover, better
relations with customers established by sales management also help to face competition.
8) Helps in Promoting Standard of Living: Sales management helps in improving standard
of living of masses by launching new products. Sales management helps manufacturers to
widen their market areas. It leads to large-scale economies which in turn lead to lower unit
cost of production, thus making the optimum use of economy's resources.
9) Helpful in Promoting Foreign Trade: Sales management has widened the market area
from regional to national and even to international markets.
10) Helps in Increasing National Income: Sales management promotes sales, increased
sales promotes increase in production. It leads to increase in national income.
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FUNCTIONS OF SALES MANAGEMENT:

Sales managers work with and through individuals and groups in the company, in the
sales force, and outside the firm to accomplish their goals. The sales manager's main goal is
to achieve the levels of sales volume, profits, and customer satisfaction desired by higher
levels of management. Major roles/functions of a sales manager are as follows:
1) Planning: Planning defines where the organization wants to be in the future and how to
get there. Planning is the conscious, systematic process of making decisions about goals and
activities that an individual, group, work unit, or organization will pursue in the future and
the use of resources needed to attain them.
2) Staffing: Although a good plan is important, a manager usually cannot do the job alone.
Staffing refers to activities undertaken to attract, develop, and maintain effective personnel
within an organization.
3) Training: Sales managers spend much of their time training their salespeople. Sales
training is the effort put forth by an employer to provide the salesperson job-related culture,
skills, knowledge, and attitudes that result in improved performance in the selling
environment.
4) Leading: The fourth sales management function is to provide leadership for sales
personnel - salespeople as well as sales managers. Leading is the ability to influence other
people toward the attainment of objectives. Leading means communicating goals to
people throughout the sales group and infusing people with the desire to perform at a high
level.
5) Controlling: A combination of comprehensive plans, good people, quality training, and
outstanding leaders still does not guarantee success. It also takes understanding the
organization's past and present situation. This involves controlling - the fifth management
function.
DISTRIBUTION MANAGEMENT
MEANING AND DEFINITION OF DISTRIBUTION MANAGEMENT:
In essence, Distribution Management involves controlling the movement of materials
and goods from their source to their destination. While marketing creates demand,
distribution management's goal is to satisfy demand as quickly, capably, and cheaply as
possible.
Distribution management or Physical Distribution Management (PDM) is
concerned with ensuring the product is in the right place at the right time. 'Place' has always
been thought of as being the least dynamic of the 'Four Ps'. Marketing practitioners and
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academics have tended to concentrate on the more conspicuous aspects of marketing. It is

now recognized that PDM is a critical area of overall marketing management, and much of its
expertise is 'borrowed' from military practice. '
Distribution management deals with the 'place' part of the marketing mix.
Distribution Management is the management of the efficient transfer of goods from the place
of manufacture to the point of sale or consumption. Distribution management encompasses
such activities as warehousing, materials handling, packaging, stock control, order
processing, and transportation.
Distribution management is concerned with demand satisfaction through creation of
time and place utility.
Distribution Management = Physical Distribution/Distribution Logistics +
Distribution/Marketing Channel
CHANNEL FUNCTIONS:
There are ten major marketing channel functions as:
1) Information Provider: Middlemen have a role in providing information about the market
to the manufacturer. Developments like changes in customer demography, psychograph,
media habits and the entry of a new competitor or a new brand and changes in customer
preferences are some of the information that all manufacturers want.
2) Price Stability: Maintaining price stability in the market is another function a middleman
performs. Many a time the middlemen absorb an increase in the price of the products and
continue to charge the customer the same old price. This is because of the intra-middlemen
competition. The middleman also maintains price stability by keeping his overheads low.
3) Promotion: Promoting the product/s in his territory is another function that middlemen
perform. Many of them design their own sales incentive programmes, aimed at building
customers traffic at the other outlets.
4) Financing: Middlemen finance manufacturers operation by providing the necessary
working capital in the form of advance payments for goods and services. The payment is in
advance even though the manufacturer may extend credit, because it has to be made even
before the products are bought, consumed and paid for by the ultimate consumer.
5) Title: Most middlemen take the title to the goods, services and trade in their own name.
This helps in diffusing the risks between the manufacturer and middlemen. This also enables
middlemen to be in physical possession of the goods, which in turn enables them to meet
customer demand at very moment it arises.
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6) Help in Production Function: The producer can concentrate on the production function
leaving the marketing problem to middlemen who specialize in the profession. Their services
can best utilized for selling the product.
7) Matching Demand and Supply: The chief function of intermediaries is to assemble the
goods from many producers in such a manner that a customer can affect purchases with ease.
The goal of marketing is the matching of segments of supply and demand. The matching
process is undertaken by performing the following functions:
➢ Contractual: Finding out buyers and sellers.
➢ Merchandising: Producing goods that will satisfy market requirements.
➢ Pricing: Process of attaching value to the product in monetary terms.
➢ Propaganda: Sales promotion activities.
➢ Physical Distribution: Distribution activities.
➢ Termination: Settlement of contract, i.e., paying the value and receiving the goods.
8) Pricing: In pricing a product, the producer should invite the suggestions from the
middlemen who are very close to the ultimate users and know what they can pay for the
product. Pricing may be different for different markets or products depending upon the
channel of distribution.
9) Standardizing Transactions: Standardizing transactions is another function of marketing
channels. Taking the example of the milk delivery system, the distribution is standardized
throughout the marketing channel so that consumers do not need to negotiate with the sellers
on any aspect, whether it is price, quantity, method of payment or location of the product.
10) Matching Buyers and Sellers: The most crucial activity of the marketing channel
members is to match the needs of buyers and sellers. Normally, most sellers do not know
where they can reach potential buyers and similarly, buyers do not know where they can
reach potential sellers.
CHANNEL MANAGEMENT
INTRODUCTION TO CHANNEL MANAGEMENT:
Channel management can be defined as the administration of existing channels to
secure the cooperation of channel members in achieving the firm's distribution objectives.
Three points should be particularly noted in this definition:
1) Channel management deals with existing channels; i.e., assuming that channel
structure(s) has already been designed and that all of the members have been selected.
Channel design decisions are therefore-viewed as separate from channel management
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decisions. In practice, this distinction may be obscured at times. This is particularly the case
when a channel management decision quickly lapses into a channel design decision.
2) Point covers the phrase "secure the cooperation of channel members". Implied in this
is the notion that channel member do not automatically cooperate merely because they are
members of the channel. Rather, administrative actions are necessary to secure their
cooperation.
3) The term 'distribution objectives', with respect to channel design decisions, is equally
relevant for channel management. Distribution objectives are statements describing the part
that the distribution component of the marketing mix is expected to play in achieving the
firm's overall marketing objectives.
According to Rubinstein and Wolinsky, "Emergence of distribution channels could
be attributed to the need for facilitating exchanges by speeding-up the time-consuming
matching process between buyers and sellers'.
Distribution channel management encompasses all activities dealing with the
distribution function of a firm. The distribution strategy provides guidelines for decision
making. It is the organization of the ways in which companies reach and satisfy their
customers. Channel management involves more than just distribution and has been described
as management of how and where a product is used and of how the customer and the product
interact. Channel management covers processes for identifying key customers,
communicating with them and continuing to create value after the first contact. These include
recruiting, selecting, motivating and evaluating channel members.
CHANNEL MANAGEMENT DECISIONS:
Channel management/distribution decisions are relevant for nearly all types of
products. While it is easy to see how distribution decisions impact physical goods, such as
laundry detergent or truck parts, distribution is equally important for digital goods (e.g.,
television programming, downloadable music) and services (e.g., income tax services). In
fact, while the Internet is playing a major role in changing product distribution and is
perceived to offer more opportunities for reaching customers, online marketers still face the
same distribution issues and obstacles as those faced by off-line marketers.
1) Recruiting the Channel Members: Channel member recruitment is the key to the
development or expansion of a successful channel member program, which would ultimately
lead to increased revenue generation and success. In recruiting new channel members, it is
important to establish clear and firm parameters that characterize the criteria for the
identification, qualification, and recruitment of new potential affiliates.
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2) Selecting Channel Members: Producers vary in their ability to attract qualified

intermediaries. Whether producers find it easy or difficult to recruit intermediaries, they
should at least determine what characteristics distinguish the better intermediaries. They will
want to evaluate number of years in business, other lines carried, growth and profit record,
solvency, cooperativeness and reputation. If the intermediaries are department stores and
want exclusive distribution, the producer will want to evaluate locations, future growth
potential and type of clientele.
3) Training Channel Members: Companies need to plan and implement careful training
programs for their distributors and dealers, because the intermediaries will be viewed as the
company by end users. Training assumes a lot of importance since the market views the
channel member as the company and the intermediary has to maintain a high and right profile
for the company he represents. Training could include:
4) Motivating Channel Members: A company needs to view its intermediaries in the same
way that it views its end users. The company needs to determine intermediaries* needs and
construct a channel positioning such that its channel offering is tailored to provide superior
value to these intermediaries. The company must constantly communicate its view that the
intermediaries are partners in the joint effort to satisfy end-using consumers.
5) Evaluating Channel Members: The evaluation of channel members has an important
bearing on distributor retention, training and motivation decisions. Evaluation provides the
information necessary to decide which channel members to retain and which to drop.
Evaluation criteria include sales volume and value, profitability, level of stocks,
quality and position of display, new accounts opened, selling and marketing capabilities,
quality of service provided to customers, market information feedback, ability and
willingness to keep commitments, attitudes and personal capability.
6) Modifying Channel Arrangements: Companies tend to relax once channels members
are in place. But this is not sufficient and channel members have to be constantly evaluated.
Channel modifications can be made through product life cycle changes, customer-driven
refinement of existing channels and growth of multi-channel marketing systems;
7) Managing Channel Relationships: Good channel relationships can be maintained with
the help of mutual understanding between producers and intermediaries.
➢ Power: A channel member's power "is its ability to control the decision variables in
the marketing strategy of another member in a given channel at a different level of
distribution".
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➢ Conflict: No matter how well channels are designed and managed, there will be some
conflict, if for no other reason than that the interests of independent business entities
do not always coincide.
RETAILING
MEANING AND DEFINITION OF RETAILING:
The word 'retail' is derived from the French word 'retaillier’ meaning 'to cut a piece
off or 'to break bulk'. The distribution of consumer products begins with the producer and
ends at the ultimate consumer. Between the producer and the consumer there is a middleman
the retailer, "who links the producers and the ultimate consumers".
According to Cundiff and Still, "Retailing consists of those activities involved in
selling directly to ultimate consumers".
CHARACTERISTICS OF RETAILING:
The important characteristics of retailing are as follows:
1) Direct Interaction with Customers: Retail businesses have a direct interaction with end-
users of goods or services in the value chain. They act as intermediaries between end-users
and suppliers such as wholesalers or manufacturers.
2) Lower Average Amount of Sales Transaction: The average amount of sales transaction
at retail point is much less in comparison to the other partners in the value chain. Many
consumers buy products in small quantities for household consumption. Inventory
management becomes a challenge for retailers as a result of the many minor transactions with
a large number of customers.
3) Point-of-purchase Display and Promotions: A significant relevant chunk of retail sales
comes from unplanned or impulse purchases. Studies have shown that shoppers often do not
carry a fixed shopping list and pick up merchandise based on impulsive or situational appeal.
4) Larger Number of Retail Business Units: Location of retail store plays an important role
compared to other business units. Manufacturers decide the location on the basis of
availability of factors of productions and market.
FUNCTIONS OF RETAILING:
The major functions of retailing are as follows:
1) Sorting: Manufacturers usually make one or a variety of products and would like to sell
their entire inventory to a few buyers to reduce costs. Final consumers, in contrast, prefer a
large variety of goods and services to choose from and usually buy them in small quantities.
The above process is referred to as the sorting process.
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2) Breaking Bulk: Breaking bulk is another function performed by retailing. The word
retailing is derived from the French word retailer, meaning 'to cut a piece off. To reduce
transportation costs, manufacturers and wholesalers typically ship large cartons of the
product, which are then tailored by the retailers into smaller quantities to meet individual
consumption needs.
3) Holding Stock: Retailers also offer the service of holding stock for the manufacturers.
Retailers maintain an inventor,' that allows for instant availability of the product to the
consumers, it helps to keep prices stable and enables the manufacturer to regulate production.
4) Additional Services: Retailers ease the change in ownership of merchandise by providing
services that make it convenient to buy and use products. Providing product guarantees, after-
sales service, and dealing with consumer complaints are some of the services that add value
to the actual product at the retailers' end.
5) Channel of Communication: Retailers also act as the channel of communication and
information between the wholesalers or suppliers and the consumers. From advertisements,
salespeople, and display, shoppers learn about the characteristics and features of a product or
services offered.
6) Transport and Advertising Functions: Small manufacturers can use retailers to provide
assistance with transport, storage, advertising, and pre-payment of merchandise. This also
works the other way round in case the number of retailers is small.
TRENDS IN RETAILING:
The positive force at work in the retail consumer market in developed economies
today include a high rate of personal expenditures, low interest rates, low unemployment, and
very low inflation.
Globally, three factors influence how consumers shop and will be shopping in the
near future. These are:
1) Cross-Border Movement: Retailers expand their businesses outside their traditional home
markets, leading to the emergence of truly global retailers. Geopolitical developments,
including trade pacts within regions, facilitate movement of goods and businesses across
borders. Wal-Mart, the world's largest retailer, now has a strong presence in South America
and Europe, and a more visible presence in Asia.
2) Consolidation: Another trend that is visible is the rapid pace of mergers and acquisitions.
In recent times, Wal-Mart's acquisition of Asda in the U.K. and many more such mergers
globally in organized retailing has brought tremendous benefits for the consumer and has
actually helped the consumer to be King.
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3) Migration of Formats: A large number of retailers are gradually adopting the classical
formats of department stores, supermarkets, hypermarkets, mail order as they customize their
offerings to different consumer segments. The most important theme for various old and new
retailing formats is convenience in terms of a one-stop location, and ease of shopping or time
saved.
There are many global trends that will affect the retail industry. A retailer should keep
the following trends in mind:
1) Economic Trends: In terms of economic trends, improved manufacturing technology will
continue to boost productivity and reduce the unit cost of goods. The labor market will
remain tight, meaning retailers will need to be' creative in their hiring methods. The growth
of information industries is creating a knowledge-dependent, global society.
2) Environmental Trends: Trends concerning the environment center around new
technology to lessen reliance on oil as a natural resource. Retailers of gas and oil may face
consumer dissatisfaction as prices rise. Alternative energy sources will be explored to keep
prices stable. People around the world are becoming increasingly concerned about
environmental issues such as air pollution and recycling. This means that legislation
addressing the environment may increase. Retailers may need to become more proactive in
protecting the environment, turning their attention from the here-and-now to the future.
3) Societal Trends: Societal trends deal with two major issues - the growth of the world's
population and the lengthening life spans of people in developed countries. Implications for
retailers include growth in the health care industry and a wealth of new products geared
toward an increasingly older population. Costs of healthcare are expected to rise and may
create a crisis in healthcare financing and services.
Top Retail Trends
➢ Modern retail will grow but traditional retail will survive- there is place for both.
➢ Consumption will shift to lifestyle categories - consumers shifting evaluation from
MRP to EMI.
➢ New retail formats will emerge and grow - small format cash and carry; investment
surge in forecourt retailing: growth of super-specialty format
➢ Modern retail will witness enhanced private equity infusion.
➢ There will be creation of large retailer brands 'own label' branding trend on the rise,
more in groceries, home care and clothing provides profit margin advantage to
retailers.
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➢ Modern retail will face a few key bottlenecks - talent, retail space, and supplier base
shortages; India will witness a shortfall of almost one million people in the retail
sector by 2012.
➢ New investments will happen in the backend enhanced focus on improving the supply
chain; process of storing and displaying food will be in focus.
WHOLESALING:
Meaning and Definition of Wholesaling:
Wholesaling includes all the activities involved in selling goods or services to those
who buy for resale or business use. Wholesaling excludes manufacturers and farmers because
they are engaged primarily in production, and it excludes retailers. The person who is
involved in wholesaling activity is called a wholesaler.
According to Philip Kotler, "Wholesaling consists of the sale and all activities in
selling goods or services to those who buy for resale or business use".
According to American Marketing Association, "Wholesalers sell to retailers or
other merchants and or industrial, institutional and commercial users but they do not sell in
significant amounts to ultimate consumers".
CHARACTERISTICS OF WHOLESALERS
The following are the main characteristics of wholesalers:
➢ Wholesalers generally buy merchandise direct from the producers in large quantities
mainly in cash.
➢ They are a trading concern having an army of agents and stock the, large quantities of
goods, supply or sell goods to the retailers directly or through their agents in small
quantities.
➢ Generally, wholesalers are financially of "good health. They purchase goods in cash
from the manufacturers and sell to the retailers on credit.
➢ Wholesalers' profit margin is very small so that they can maximize their sale-volume
to earn maximum profit.
➢ They deal in limited products or product-lines. More often they deal in products of
one manufacturer.
➢ They maintain warehouses at different places in the country to facilitate the
trade at minimum transportation charges.
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FUNCTIONS OF WHOLESALERS:
The following functions are rendered by wholesalers:
1) Selling and Promoting: Wholesalers provides a sales force that helps manufacturers reach
many small business customers at a relatively low cost. Wholesalers have more contacts, and
often buyers trust wholesalers more than they trust a distant manufacturer,
2) Buying and Assortment Building: Wholesalers are able to select items and build the
assortments their customers need, saving the customers considerable work.
3) Bulk Breaking: Wholesalers achieve savings for their customers through buying in large
carload lots and breaking the bulk into smaller units.
4) Warehousing: Wholesalers hold inventories, thereby reducing the inventory costs and
risks to suppliers and customers.
5) Transportation: Wholesalers can often provide quicker delivery to buyers because they
are closer to the buyers.
6) Financing: Wholesalers finance customers by granting credit, and finance suppliers by
ordering early and paying bills on time.
7) Risk Bearing: Wholesalers absorb some risk by taking title and bearing the cost of theft,
damage, spoilage, and obsolescence.
8) Market Information: Wholesalers supply information to suppliers and customers
regarding competitors' activities, new products, price developments, and so on.
GROWTH IN WHOLESALING:
Wholesalers, like retailers, vary in type and function. Some take title to the products
they handle, while others do not; some perform multiple functions, while others are more
specialized.
The wholesale trade industry is a large and diverse sector of the economy. The
industry is highly fragmented, consisting of a few large companies and numerous small firms.
The products that wholesalers distribute to their customers are supplied by other firms in the
manufacturing, mining, agricultural, and wholesale sectors of the economy.
Although the Internet is starting to change the industry, wholesaling has been growing
at a healthy rate. One reason for this is the establishment of larger factories located far from
buyers another is the increasing need for adapting products to the needs of intermediate and
final users in terms of quantities, packages and specific features.
Because of these changing market conditions, wholesalers are concentrating on
strategies to improve service by adding more value-added concepts. Even though wholesaling
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has traditionally involved the handling of goods, the activities, and functions of wholesalers
are being applied more and more in service industries.
International wholesalers will experience stages of growth depending on the economic
development of foreign economies. All-purpose wholesale merchants will dominate in simple
economic conditions, while an expanding economy will see the emergence of inter-regional
wholesalers. Wholesalers that expand through globalization will face the challenge of
competition against current wholesalers, new languages, an array of different legal systems.
TRENDS IN WHOLESALING:
The wholesale business has been moving upward for the past 20 years. The growth of
wholesaling has been driven by changes in business investment, especially in the case of
producer durable goods and equipment, and changes in household consumption. The basic
trends that is responsible for bringing about a significant change in the business of
wholesaling are:
1) Functional Overlap: The manufacturing and distribution activities in an economy can be
fundamentally categorized into four levels - manufacturing, wholesaling, retailing, and
consumption. Wholesale-retail franchising, joint ventures, and conglomeration have given
rise to horizontal and vertical market integration, which has further reduced the distinction
among the intermediaries in the marketing channel.
2) Increased Services: Wholesalers have redesigned their services over time to suit customer
requirements. A number of wholesale druggists in the U.S. now handle the customer records
of retail druggists. This serves to bind the retailers to one wholesaler. In the grocery business,
The aggressiveness of wholesalers in offering increased services is aimed at gaining a
competitive advantage.
3) Pricing and Credit: The pricing of a product or a service is a critical element as the price
influences the customer's decision to buy. The wholesalers in keeping with this concept
constantly work to arrive at a price that maximizes the value offered by the products. Another
key factor in attracting customers is the credit terms that the wholesaler offers.
4) Regional Coverage: Wholesalers use their subsidiaries to cater to the needs of the local
market segments by storing limited fast moving inventory.
5) Organizational Form and Sale: In the past, the wholesale market was dominated by sole
proprietorships, partnerships and family run businesses. The current trend among wholesaling
establishments has been to grow in size and assume a corporate form.
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6) Wholesale Consolidation: The traditional process of product production and distribution

is divided into four types: manufacturing, wholesaling, retailing and consuming.
7) Productivity and Quality: As technological advancement takes place, new methods of
marketing are developed. Wholesalers are adopting new software technologies for efficient
distribution management system.
8) Global Expansion: The increased deregulated environment in the global markets in which
manufacturers operate with the advanced technology is making it easy for wholesalers to
follow suit.
SALES AGENT:
A person or a company that acts as a sales agent on behalf of the exporting company
(principal), introducing its products to potential buyers in the external market, in exchange
for a commission based on the value of the business deals arranged and paid to the principal.
As with the distributor, this relationship does not imply a formal interdependence
between the principal and the agent intermediary, unless the laws of the country of
destination state otherwise. This type of contract is ideal for small companies with little or no
experience in international trade, as it allows them to access international markets without
having to make large investments. Everything is left in the hands of the agent.
Advantages and disadvantages of using commercial agents
Whether using commercial agents can help you develop your business often depends
on the nature of your product or service and where you want to sell it. If you are producing an
easily recognisable product or service for a local market then there may be little point in
appointing an agent. In some cases, using an agent can be a cost effective way to test a new
market. Advantages of using commercial agents. The main benefits of using a commercial
agents to sell your goods are:
➢ Lower overheads - you don't have to pay for the salary, the car or the office of sales
agents.
➢ Easy to find - agents are easier to recruit than experienced sales executives with
specialist knowledge.
➢ Cost - using a network of agents can be a cost-effective way of reaching a wide
variety of markets.
➢ Local experience - some markets, including overseas markets, are difficult to break
into without existing contacts, local knowledge and experience.
Disadvantages of using commercial agents: Some of the downside of using commercial
agents are:
➢ Control - it can be difficult to control the agent's activities and to make sure they
continually work hard on your behalf.
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➢ Sales methods - an agent might not sell your product or service in the way that you
would like.
➢ Customers - they might sell to unsuitable customers who might undermine the
integrity of your product.
➢ Understanding - an agent might not fully understand your product or service and you
may be better off with hands-on control.
➢ Control - they can be entitled to compensation on termination of the contract even if
they breached the agreement.
SALES FORCE
(Described later in Unit 5)
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UNIT 5
MARKETING COMMUNICATIONS
Introduction to Marketing Communication / Promotion
Promotion is a communication process, by which the producers of the products or
services draw attention of the consumers or prospective consumers towards their products
and services. Consumers are informed and reminded about the products and are requested and
persuaded to purchase their products.
According to Philip Kotler, ''Promotion compasses all the tools in the marketing mix
whose major role is persuasive communications".
According to Stanton, "Promotion includes, advertising, personal selling, sales
promotion and other selling tools".
Promotion is that marketing communication activity that attempts to inform and
remind individuals and persuade them to accept, resell, recommend or use a product, service,
idea or institution.
Promotional communication has the triple purpose to perform. To inform, to persuade
and to remind and the three basic purposes are being fulfilled at the different stages of
product life cycle.
CHARACTERISTICS OF MARKETING COMMUNICATION:
➢ Customers are informed about the product or services of the company, either at the
time of introduction of a new product into the market or when any change is made in
the existing product.
➢ Customers are reminded of the products and services of the company.
➢ Customers are requested or persuaded to purchase the products and services of the
company.
➢ Promotion includes, advertising, personal selling and other sales promotion
techniques.
➢ Promotion activities are performed by the manufacturer.
MARKETING COMMUNICATION OBJECTIVES:
1) Leads to Behavior Modification: Promotion seeks to:
➢ Modify behavior and thoughts (for example, persuading to drink Coca Cola rather
than Pepsi),
➢ Reinforces existing behavior (for example, persuading to continue Coca Cola once
customer began to take).The marketer hopes to create the favorable image for itself
and also to motivate purchases of the company's goods and
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2) Objective to Inform: All promotional communications are designed to inform the largest
market about the firm's product or services. Informative promotion is more prevalent in the
early stages of product life cycle of a product or service. It leads the customer in making
more intelligent purchase decision.
3) Objective to Persuade: It is designed to stimulate purchase. Though sometimes the firms
want to create a positive image for the long term gain rather than the immediate purchase.
Persuasion objective is the main objective when the product reaches to the growth stage of its
product life cycle because at that time the consumer formation objective and consumer
retention objective both has to be taken simultaneously.
4) Objective to Remind: It is used to keep the product brand name in the public's mind and
is used in the maturity stage of the product life cycle. This type of promotion is used to fresh
the memory of the target customers assuming that they know the product.
5) Specific Objectives: Broadly speaking the goal of promotion is to change the pattern of
demand for a product by behavior modification-informing, persuading and reminding. In
Economic terms the basic purpose of promotion is to change the location and shape of the
demand curve it means to shift the demand curve upward or to make a change even
temporarily.
PROCESS OF COMMUNICATION:
The communication process is not easy. The words, the presentation, the indication
and the silence should be carefully directed towards the objectives of communication. The
basic ingredient in communication is commonness. If the message is common or single for
the sender and receiver, it will be communication. The message will be communication only
if it means the same thing to the sender and the receiver. The audience must understand what
the sender wants to communicate. The message of communication may be in a silent or subtle
language or verbal language; it may be a written or pictured presentation. Thus, the word, the
picture, the silence and the indication may be termed communication if the sender and the
receiver perceive the same meaning of these messages.
1. Source: The source of a communication or message is known as the encoder,
sponsor, advertiser or sales representative. The source is the sender of the message. It
is the place where the message originates. The spokesperson is the source of the
message of the advertising. The message is carried to the receiver through a channel,
such as the newspaper, magazine, radio or television.
2. Message: The term "message" refers to the content of the communication. It is the
creative ideas of communication; it may include words, pictures, symbols, order of
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presentation, appeal, refuting or ignoring certain statements. Emotional, logical or

rational approaches may be used in the preparation of messages.
3. Perception: Perception is an important factor in the communication process. The
message can be perceived by the receiver according to his nature and culture, its
attention, interest, desire and action. The attitude and desire of the sender also
influence the perception level,
4. Channel: The message is carried through some channel - a newspaper, magazine,
radio, or television -from the sender to the receiver. The impact of a communication is
different when it is transmitted through different channels. The channels are known as
the media. Individual communication may be word-of-mouth or face-to-face
communication. The channel is limited by space, time, money.
5. Receiver: The receiver is the target audience. The receiver's characteristics are
evaluated to design the communication and message. The number, location, type,
awareness, influence, knowledge, etc. of the receiver or audience are evaluated to
frame the content and medium of communication.
6. Feedback: Feedback is an essential factor in making communication more effective.
It indicates how the communication process is working. Feedback is received from
the receivers or audiences. Marketing research and advertising research provide
adequate feedback to the communicator.
MARKETING COMMUNICATION MIX/PROMOTION MIX:
Promotion is one element of Marketing Mix. Promotional activities include
Advertising, sales promotion, and personal selling activities. It also includes internet
marketing, sponsorship marketing, direct marketing, database marketing, and public relations.
And integration of all these promotional tools along with other components of marketing mix
to gain edge over competitor is called promotion mix.
Promotion mix refers to the combination of various promotional elements viz.
advertising, personal selling, publicity and sales promotion techniques used by a business
firm to create, maintain and increase demand of the product. It involves an integration of all
the above elements of promotion.
According to Philip Roller, "A company's total marketing communication mix-also
called promotion mix consists of specific blends of advertising, personal selling, sales
promotion, public relations and direct marketing tools that the company use to pursue its
advertising and marketing objectives".
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ELEMENTS OF MARKETING COMMUNICATION MIX:

Marketers have at their disposal the major methods of promotion advertising, sales
promotion, publicity, pubic relation, personal selling and word of mouth. Taken together
these comprise the promotion mix.
When these tools are integrated in a harmonious manner to reach and exceed the
promotion objective, the outcome is called Integrated Marketing Communication (IMC).
IMC has been adopted as the best possible way to promote one's offering according to the
situation. The major elements of promotion mix / communication mix are as shown in figure
aside.
1) Advertising: Advertising includes any informative or persuasive message carried
by a non-personal medium and paid for by a sponsor whose product is in some way identified
in the message. Traditional mass media, such as television and magazines, are most
commonly used.
2) Sales Promotion: It includes activities other than advertising, personal selling publicity
and public relations which are used in promoting sales of the product or in persuading the
customer to purchase the product.
3) Publicity: Publicity is a non-personal not paid stimulation of demand of the products or
services or business units by planting commercially significant news or editorial comment in
the print media or by obtaining a favorable presentation of it upon radio, television or stage.
4) Public Relations: Most firms in today's environment are not only concerned to customers,
suppliers and dealers but also concerned about the effect of their actions on people outside
their target markets.
5) Personal Selling: Personal selling is a person-to-person dialogue between buyer and
seller. The purpose of the interaction, whether face-to-face or over the phone, is to persuade
the buyer to accept a point of view, to convince the buyer to take a specific course of action,
or to develop a customer relationship.
6) Direct Marketing: In Direct Marketing, organizations communicate directly with target
customers to generate a response and/or a transaction. Traditionally, direct marketing has not
been considered an element of the promotional mix.
7) Word-of-Mouth: Of course, an organization's image can be projected through channels
other than the formal communication process. There is a lot of evidence.
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FACTORS DETERMINING MARKETING COMMUNICATION MIX:

Companies must consider several factors in developing their communications mix.
Following are the major factors considered by companies while determining the promotion
mix strategy.
1) Type of Product: The promotion task depends on the type of product marketed. Low-
priced, frequently purchased consumer goods like toilet soap, toothpastes, soft
drinks, etc., will need frequent repeat messages to influence and remind the existing
consumers about the brand and to persuade new consumers to buy
2) Nature of Market: The intensity of competition in the market, location characteristics of
the consumers, and the requirements of channel members also influence the promotion mix
decision.
3) Stage in the Product Life Cycle: Based on the stage at which the product is in the PLC
the promotion mix has to change. When the product is in the introduction and early growth
stages, the tasks involved are awareness creation and motivating product trials. Aggressive
brand advertising and dealer promotions become important components of the promotion
mix at that stage.
4) Budget Availability: Using each promotion tool adds to the cost. Hence, the budget
availability with a company has to be considered while deciding the promotion mix.
Companies with limited resources will have to go for localized activities like dealer display,
wall paintings, and personal selling.
5) Company Policy: All the considerations given above should fit in with the overall
marketing and promotion policy of the company, while deciding the promotion mix. The
conviction of the top management in the role of promotion, the product market strategy, and
the type of corporate image it wants to project are factors influencing the decision.
ADVERTISING:
Meaning and Definition of Advertising:
The term 'advertising' is derived from the original Latin word 'advertere’ which means
'to turn' the attention. Every piece of advertising turns the attention of the readers or the
listeners or the viewers or the on lookers towards a product or a service or an idea. Therefore,
it can be said that anything that turns the attention to an article or a service or an idea might
be well called as advertising.
According to American Marketing Association, "Advertising is any paid form of
non-personal presentation of ideas, goods or services by an identified sponsor".
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According to Wheeler, "Advertising is any form of paid non-personal presentation of

ideas, goods or services for the purpose of inducing people to buy".
FEATURES OF ADVERTISING:
1) It is Mass-Communication Process: Every piece of advertising guarantees satisfaction of
human wants and wants them from needs and desires. Advertisers manufacturers and dealers
use this mass media to communicate the message to the target audience. Communication
costs and hence, it is speedy and as pervasive as it is purely commercial.
2) It is Informative in Action: Each and every advertisement is a piece of information to the
listeners, readers, viewers and onlookers.
3) It is a Persuasive Act: Persuasion is the power of advertising. It is its stock or strength.
Advertising is, by very nature, persuasive. Advertising in any form contains persuasion
because, the major function of advertising copy and the art-work is to persuade the reader or
the listener or the viewer.
4) It is a Competitive Act: In today's world of business competition is keen, acute and cut-
throat. In each line of activity, there are many manufacturers and it is but natural that they
want to push their products and services to the maximum extent with profit to them and
satisfaction to the consumers.
5) It is Paid-For: Advertising, as an activity, is not possible free of cost. If it is not paid for,
it is publicity, propaganda or a rumor where the person may or may not spend..
PURPOSE / OBJECTIVES OF ADVERTISING:
The specific objectives of advertising are as follows:
1) To Increase Demand: Advertising creates the awareness about the product among the
target audience. They are made to feel the need of the product. Advertising also make them
feel that only advertiser's product can satisfy this need.
2) To Sell a New Product and to build New Brands: Advertising introduces a new product
to potential customers. These potential customers are given information regarding features,
contents, quality, price and availability of the new product. Advertising is done to build brand
familiarity and brand popularity.
3) To Educate the Masses: Non commercial advertisements issued by government
department and social-organizations aim at educating the masses. 4) To Build Brand
Preference: Advertising helps the manufacturers and marketers to build brand preference and
brand loyalty of their products. It will help the manufacturers to stay in the market in long run
and enable them to charge higher price for their products.
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5) To Build Goodwill: Advertising helps to build corporate image and create goodwill
among existing and potential customers, employees, shareholders, government, financial
institutions and public at large.
6) To Attract and to Help Middlemen: It is easy to attract middlemen for the advertised
products or services. Moreover, advertisements also help the middlemen to inform and
persuade the potential customers, because it is easy to persuade customer regarding purchase
of a product which is well advertised and is already known to them.
7) To Support Salesmen: Advertising provides great support to salesman. It becomes easy
for the salesmen to sell the product that are well advertised. People respond favorably to the
call of salesman if the brand is popular.
8) To Remind the Customers of the Product And Company: The regular advertisements
remind the product and the company to the consumers. Many customers are likely to forget
the company and its products, but repeated ads on popular media help the firms to remain in
touch with customers.
9) To Reach Customers Left Out of Salesmen: Some customers may be left out by
salesmen either because they are not easily accessible or because they are too small to justify
sales calls. Advertising helps to bring such customers within the purview of promotion.
10) To Enter in New Geographical Area: If the existing firm wants to enter in new
geographical areas, then advertising is needed to inform the prospective buyers and
middlemen regarding availability of product, entry in this area, features of product and
success of the product in other geographical areas. So advertising is needed to capture a new
market area.
FUNCTIONS OF ADVERTISING:
Advertising is an all-pervasive facet of most growing communities. It has important
consequences for the advertisers who use it and for individuals who are exposed to it. The
following aspects illustrate the basic functions of advertising.
1) Communication with Consumers: There is an increasing need for information about a
wide variety of products as the economy expands and grows more complex. Advertising is a
reminder to the existing consumers and it aims at cultivating new prospects as well.
2) Persuasion: Advertising attempts to persuade prospective buyers to buy a product/service.
The consumer should be aware of the advertiser's persuasive interest, no matter how
restrained or informative the message may be.
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3) Contribution to Economic Growth: Advertising contributes to economic growth by

helping to expand the market, particularly for new products, and by helping to develop new
market segments..
4) Reduce Costs: Advertising may be instrumental in cutting-down production and selling
costs. Increasing unit sales decreases unit costs. Selling costs also may decrease because there
would be fewer wasted calls and less strain on salespeople.
5) Lower Prices: In any market-based and competitive economy, when unit cost of a product
goes down, there are external and internal pressures which compel companies to lower prices
to the advantage of consumers. This often leads to deeper market penetration.
ADVANTAGES OF ADVERTISING
Advantages of advertising can be divided into four major groups which are shown in
figure aside:
1) Advantages to Manufacturers: There is justification in the saying, ''it pays to advertise'"
because of the following advantages of advertising accruing to manufacturers:
➢ Increased Sales: The chief object of the manufacturer in advertising
his products is to promote the sale of his products. Goods produced on a mass
scale are marketed by the method of mass persuasion through advertising. Advertising
acts as an aid to selling.
➢ Steady Demand: Advertising has led to the smoothening out of the seasonal
fluctuations in demand for many products. The manufacturers are generally trying to
discover and advertise new possible uses of which a seasonal product may be put.
➢ Lower Costs: Advertising provides a drive to the sale and increases the turnover
tremendously. This is advantageous in two ways: on one side, the selling costs
including the cost of advertising get spread over a large volume of sales.
➢ Greater Dealer Interest: The retailers who deal in advertised goods are materially
assisted by advertising in the performance of their functions.
➢ Quick Turnover and Smaller Inventories: A well-organized advertisement
campaign creates a highly responsive market thereby facilitating quick turnover of the
goods. This, in turn, results in lower inventories in relation to sales being carried-on
by the manufacturers.
2) Advantages to Consumers:
➢ Facility of Purchasing: Advertising makes purchasing easy for the consumers.
Moreover, the re-sale prices are generally fixed and advertised. Thus, advertising
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offers a definite and positive assurance to the consumer that they will not be
overcharged for the advertised product.
➢ Improvement in Quality: Goods are generally advertised under brand names. When
a person is moved by the advertisement to use the product, they proceeds on the hope
that the articles of the particular brand will be better than the other brands of the same
goods.
➢ Elimination of Unnecessary Intermediaries: By advertising his goods, a
manufacturer may seek to establish direct contacts with the consumers. This will
mean large profits for the manufacturer and cheaper products for the consumers.
➢ Consumer's Surplus: Advertising increases the utility of given commodities for
many people. It points-out and pays even more for certain products which appear to
have higher utility to them.
➢ Education of Consumers: There is considerable truth in Sir William LeverhulnTs
remark that advertising is an educational and dynamic principle. Advertising aims at
educating the buyers about new products and their diverse uses. Advertising thus
paves the way to better standards of living.
3) Advantages to Middleman: In the chain of distribution, middlemen act as the essential
links between the producers and the consumers. Their existence is justified by the functions
they perform and the services they render to both producers and the consumers. The benefits
that the advertising has bestowed upon the retailers as the last link in the channel of
distribution are considered here. Advertising comes to their rescue in three ways:
➢ It Guarantees Quick Sales
➢ It Acts as a Salesman
➢ It Makes Possible Retail Price Maintenance
4) Advantages to Society:
➢ Encouragement to Research
➢ Sustaining the Press
➢ Change in Motivation
➢ Encouragement to Artists
➢ Glimpse of National Life
DISADVANTAGES OF ADVERTISING
Advertising has also been subjected to a number of objections mainly because it has
been misused by some people to serve their own ends, overlooking the business interests.
Following are the main disadvantages advertising has:
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➢ Multiplication of Needs: It is said that advertising compels people to buy things they
do not need. Human instincts, like desire to possess, to be recognized in the society,
etc., are provoked in order to sell products.
➢ Misrepresentation of Facts: By misrepresentation of the benefit a product will give,
goods of no real value are sold. Tall claims are made by the advertisers to tempt
people to take such actions as go purely to their advantage and cause tremendous loss
to the consumer.
➢ Consumer's Deficit: While advertising leads to increased satisfaction from
commodities already in use, it also creates discontent in the minds of many people
who are tempted to purchase some commodities but are not able to do so because of
insufficient purchasing power.
➢ Increased Cost: There is a great deal of controversy as to whether advertising leads
to increase in the cost which the community has to pay for a product. In a sense, it is
true since expenses on it form a part of the total cost of the product.
➢ Wastage of National Resources: A more serious objection against advertising is that
it is used to destroy the utility of goods before the end of their normal period of
usefulness. Now models of automobiles with nominal improvements.
➢ Barriers to Entry: There is a general belief that advertisements promote industrial
concentration to a greater or lesser degree.
➢ Product Proliferation: Critics of advertising point out that advertising encourages
unnecessary product proliferation. It leads to the multiplication of products that are
almost identical, resulting in wastage of resources which could otherwise have been
used to produce other products.
➢ Deferred Revenue Expenditure: Advertising is a deferred revenue expenditure, the
result of which can't be seen immediately rather after a considerable period of time.
And, after all advertising occupies a substantial portion of the total budget of the
organization.
➢ Managerial Difficulties: Much of what advertising can do for a product/institution
depends largely on the way it is managed, i.e., the managerial aspects of establishing
advertising objectives, determining advertising appropriation, selection of media and
coordinating and evaluating tasks, etc. It thus operates along with a number of pre-
requisites or constraints to be overcome and therefore reduces the feasibility of
advertising effectiveness to a large extent.
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SALES PROMOTION
MEANING AND DEFINITION OF SALES PROMOTION:
The word promotion originates from the Latin word 'Promovere’ means "to move
forward" or to push forward. Sales and promotion are two different words and sales
promotion is the combination of these two words.
Sales Promotion is another important component of the marketing communications
mix. It is essentially a direct and immediate inducement. It adds extra value to the product
and hence prompts the dealer/consumer to buy the product.
According to William J. Stanton, "Sales promotion is an exercise in
information, persuasion and influence.
According to Philip Kotler, "Promotion encompasses all the tools in the marketing
mix whose major role is persuasive communication".
CHARACTERISTICS OF SALES PROMOTION:
➢ Sales promotion does not include advertisement, personal selling and publicity.
➢ Sales promotion activities are not regular activities.
➢ It makes advertisement and personal selling more effective.
➢ Sales promotion encourages dealers, distributors and consumers.
OBJECTIVES OF SALES PROMOTION:
➢ To increase buying response at the customers' level,
➢ To increase the sales effort of dealers and sales personnel,
➢ To attract new customers,
➢ To inform the public about the new product and its specialties, attraction and
advantages,
➢ To capture the major share of the market,
➢ To create a favorable attitude towards the product,
➢ To simplify the job of middlemen,
➢ To meet the competition of other firms,
➢ To effect off-season sales to boost the sales,
➢ To stock more at the level of traders, through whom aggressive sales can be effected,
➢ To stimulate the demand by popularizing the products,
➢ To establish and maintain communications with large market segments,
➢ To keep the memory alive and retrieving lost accounts,
➢ To create additional talking points to sales-persons,
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➢ To support and supplement the salesmen's effort and persuading them to sell the full
line of products,
METHODS / TOOLS OF SALES PROMOTION:
The various sales promotion devices can be classified in three ways as shown in
figure aside:
1) Consumer Promotion: Sales promotion directed a products rate of using among existing
consumers or to attract new consumers to the company's product. It may also be undertaken
to retaliate the competitors' sales promotion or other activities. Consumer contests may be
helpful in achievement of marketing objectives such as the following:
➢ Introducing a new product,
➢ Opening up new territories or markets,
➢ Getting consumers to increase the frequency of their purchases, &
➢ Increasing brand awareness and maintaining brand loyalty,
➢ Offsetting price competition,
Forms of Consumer Promotion:
i) Free Distribution of Samples: It involves free distribution of samples to ultimate
consumers. The samples may be distributed door to door, or may be offered in a
retail store, or with the purchase of any particular product. These samples may
also be given to professionals to recommend.
ii) Coupons: A coupon is a certificate that entitles the consumer to a specified saving
on the purchase of a specified product. These coupons are usually issued by the
manufacturers through the retailers or in most of the cases they are kept inside the
package.
iii) Premiums or Bonus Offers: An offer of a certain amount of product at no cost of
consumers who buy a stated amount of a product or a special pack thereof is
called premium offer or bonus offer. This method is very popular now-a-days in
view of the acute competition.
iv) Money Refund Offer: This offer is generally stated in media advertising that the
manufacturer will return the price if the product is not to the satisfaction of the
consumer within a stated period.
v) Price off or Temporary Price Reduction: This involves an offer to consumers of
a certain amount of money off the regular price of a product. This is done to
attract consumers of other brands to his product.
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vi) Bonus Stamps: Such bonus stamps are issued to the consumers by the retailers or
manufacturer in proportion to their purchases. '
2. Middleman Promotion: Incentive programmes for dealers aim at obtaining maximum
cooperation from distribution channels such as wholesalers, semi-wholesalers and retailers,
who form the vital links in the distribution chain. There are different types of deals and the
most common among them are described below:
i) Buying Allowance Discount: The buying allowance or discount is offered to the
dealer to induce him to buy the manufacturer's product. Such discount may be either
deducted on invoice price or on cash paid.
ii) Buy-back Allowance: This method .of promotion is practiced to prevent a post deal
sales decline. Under this method, the manufacturer offers a certain amount of money
for additional new purchases based on the quantity of purchases made on the first
trade deal.
iii) Display and Advertising Allowance: The allowance is offered to the dealer to
display the manufacturer's product. The allowance is given on the basis of space
provided to display the manufacturer's product in the shop.
iv) Dealer-Listed Promotion: Under this method dealer name and address is given on
the advertisement and other publicity material as calendars, diaries, etc.
v) Free Gifts: Under this method, producer gives free gifts to the dealer on the basis of
quantity of product purchased by him.
3) Sales Force Promotions: Personal selling by far is the most important method of sales
promotion. To make it highly effective, sales force promotion schemes are felt necessary. The
tools for sales force promotions are:
i) Bonus to Sales Force: A quota of sale is fixed for each salesman during a
fixed stated period. Bonus is offered on sales in excess of the quota fixed. In
order to get the higher premium the salesman will try to sell more quantities of
goods.
ii) Sales Force Contest: Sales force contests are announced to stimulate
company salesmen to redouble their interest and efforts over a stated period
with prizes to be the top performer.
iii) Sales Meetings, Salesmen's Conventions and Conferences: These
are conducted by the manufacturers for the purpose of education, inspiring
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and rewarding the salesmen. New products and new selling techniques are
described and discussed in such meetings.
ADVANTAGES OF SALES PROMOTION:
The advantages of sales promotion are:
➢ Sellers introduce new products or new brands in the market by the use of sales
promotion.
➢ When an economy is going through a recessionary phase, customers become more
price sensitive. Marketers can tackle this problem with the help of promotional tools
like offering gift or discount coupons, gifts, contests, sweepstakes, etc., to the
customers.
➢ Can be effective for changing a variety of consumer behaviors.
➢ A company seeks to obtain greater co-operation from its retailers. It helps in earning
the goodwill of dealers and distributors.
➢ Can be easily tied in with other promotional tools.
➢ Excellent approach for short term price reductions for stimulating demand.
DISADVANTAGES OF SALES PROMOTION:
The disadvantages of sales promotion are:
➢ There is a feeling that such seasonal sales promotional activities are mainly intended
to sell sub-standard product.
➢ The second criticism is that such discounts are not real, since the prices of the
products are already inflated.
➢ May have only short term impact.
➢ Over use of price related sales promotion tools may hurt brand image and profits.
➢ Effective sales promotions are easily copied by competitors.
PUBLIC RELATIONS
MEANING AND DEFINITION OF PUBLIC RELATIONS:
Most firms in today's environment are not only concerned to customers, suppliers and
dealers but also concerned about the effect of their actions on people outside their target
markets. It is a planned effort by an organization to influence the attitudes and opinions of a
specific group by developing a long term relationship. The target group may include a large
number of" interested public (customers, stock holders, government agency, and special
interest group).
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A public is any group that has an actual or potential interest in or impact on a

company's ability to achieve its objectives. Public relations (PR) involve a variety of
programs/events designed to promote or protect a company's image or its individual products;
"Public relation is a deliberate and continuous effort to establish and maintain
understanding between an organization and its public".
According to Indian Institute of Public Relations, "Public relations practice is the
planned and sustained effort to establish and maintain goodwill and mutual understanding
between an organization and its public",
According to Public Relations Society of America (PRSA), "Public Relations (PR)
help an organization and its publics relate to each other to the benefit of both".
CHARACTERISTICS OF PUBLIC RELATIONS:
The characteristics of public relations are:
1) Relatively Low Cost: The major advantage of public relations is that it tends to be much
cheaper, in terms of cost per person reached, than any other type of promotion. Apart from
nominal production costs, much PR activity can be carried out at almost no cost, in marked
contrast to the high cost of buying space or time in the main media.
2) Can be Targeted: Public relations activities can be targeted to a small specialized
audience if the right media vehicle is used.
3) Credibility: The results of PR activity often have a high degree of credibility, compared
with other promotional sources such as advertising. This is because the audience may regard
such a message as coming from an apparently impartial and non-commercial source.
4) Relatively Uncontrollable: A company can exercise little direct control over how its
public relations activity is subsequently handled and interpreted. If successful, a press release
may be printed in full, although there can be no control over where or when it is printed.
5) Saturation of Effort: The fact that many organizations complete for a finite amount of
media attention puts pressure on the public relations effort to be better than that of
competitors.
OBJECTIVES OF PUBLIC RELATIONS:
The Objectives of Public Relations are:
1) Promoting Goodwill: This is an image-building function of public relations. Industry
events or community activities that reflect favorably on a firm are highlighted.
2) Promoting a Product or Service: Press releases, events or brand "news" that increase
public awareness of a firm's brands can be pursued through public relations.
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3) Preparing Internal Communications: Disseminating information and correcting

misinformation within a firm can reduce the impact of rumors and increase employee
support.
4) Counteracting Negative Publicity: This is the damage control function of public
relations. The attempt here is not to cover up negative events, but rather to prevent the
negative publicity from damaging the image of a firm and its brands.
5) Lobbying: The public relations function can assist a firm in dealing with government
officials and pending legislation.
FUNCTIONS/ROLE OF PUBLIC RELATIONS:
Public Relations (PR) must be viewed as a continuum because of the way companies
use it in modern times. Public relations have two types of function:
1) Marketing Functions: According to Thomas L. Harris, "Marketing Public Relations
(MPR) functions are the PR activities designed to support marketing objectives. Some of the
marketing objectives that may be aided by PR activities include raising awareness, informing
and educating, gaining understanding, building trust, giving consumers a reason to buy and
motivating consumer acceptance".
MPR plays the following roles in integrated marketing communication:
i) Building marketplace excitement before media advertising breaks,
ii) Creating advertising news where there is no product news,
iii) Introducing a product with little or no advertising,
iv) Providing a value-added customer service,
v) Building brand-to-customer bonds,
2) Non- Marketing PR Functions: As a non-marketing function, the primary responsibility
of a PR executive is to maintain mutually beneficial relationship between the organization
and the publics, employees, community, investors, government, customers and other interest
groups. At the other end of the continuum, PR is primarily considered to have marketing
communication functions. In this, all non-customer relationships are perceived as necessary
only in a marketing context.
Marketing and public relations are complementary functions, with each unique and
complementary contribution to build and maintain many relationships essential for
organizational survival and growth. Non marketing PR function could be:
i) Lobbying - dealing with legislators and government officials to promote or defeat
legislation and regulation.
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ii) Counseling - advising management about public issues and company positions
and image. This includes advising in the event of a product mishap.
ADVANTAGES OF PUBLIC RELATIONS:
Public relations enjoy several advantages. These include the following:
➢ Credibility: Public relations enjoy credibility. Basically, public relations
communications tools tend to be believed primarily because these tools do not
necessarily appear as advertisements, especially the tools that appear as stories.
➢ Low Cost: Public relations communications tools typically enjoy low cost. These
tools do not cost as much as advertisements or commercials to produce. Nor do these
tools cost a lot when they appear in the media, especially the tools that sent to media
personnel for consideration.
➢ Not Compete in Other PR Tools: Pubic relations tools do not necessarily compete
with other public relations tools, primarily because these communications usually
appear as stories or articles.
➢ Effective: Pubic relations communications tools can be effective in developing a
positive image in the minds of various publics for a product, service or whatever else
a client wishes to address.
DISADVANTAGES OF PUBLIC RELATIONS:
Pubic relations have a few disadvantages too. These include the following:
➢ May Not Appear in Media: Pubic relations communications tools may not appear in
media, especially the tools that are merely sent to media personnel for consideration.
➢ Incapable to Link Message: Public relations communications tools may be read,
seen or heard, but members of the intended public may not link the messages to the
client.
➢ Fail to Achieve the Objectives: Public relations communications tools may fail to
achieve the objective for which they were created. If this is the case, the client may
never know it, primarily because the effectiveness of public relations is difficult to
measure.
➢ Brief Life: Public relations communications tools usually have a brief life. In fact, in
order for a public relations tool to have any impact, it must be changed frequently
with new information.
➢ Incapable of Changing Perception: Public relations may have difficulty changing an
intended public's perception of a product, service or whatever else a client addresses.
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DIRECT MARKETING
MEANING AND DEFINITION OF DIRECT MARKETING:
Direct marketing (DM) is the process by which a firm approaches its customers on
one-to-one basis and markets its products directly to them. In conventional marketing, a firm
approaches the customers on a mass basis and sells to them indirectly.
According to Direct Marketing Association of USA, "Direct marketing is an
interactive system of marketing which uses one or more advertising media to effect a
measurable response and/or transaction at any location".
An analysis of this definition brings out three key elements, namely:
1) Interactive System: It is an interactive system in the sense that there is a two-way
communication between the marketer and his/her target market; the response or non-
response of the customer completes the communication loop in the direct marketing
programme.
2) Measurability of response: Another element is measurability of response as
mentioned above the number of coupons received indicates the response rate to the
marketers communication.
3) Transaction at any location: Direct marketing activities are not location specific it
is not necessary for the customer to physically interact with the marketer.
FORMS OF DIRECT MARKETING / CHANNELS FOR DIRECT MARKETING:
Direct marketers can use a number of channels for reaching prospects and customers.
These include various types of media channels:
1. Face-to-face Selling: The original and oldest form of direct marketing is the field
sales call. Today most industrial companies rely heavily on a professional sales force
to locate prospects, develop them into customers, and grow the business, Or they hire
manufacturers' representatives and agents to carry out the direct-selling task.
2. Mail Order Marketing/Catalogue Marketing: Mail Order Marketing
(MOM)/Catalogue Marketing, also known as Mail Order Business (MOB), is one of
the well-established methods of direct marketing. Since many mail order marketers
use catalogues for communication with the consumer, this form of marketing is often
referred to as catalogue marketing, In this method, the consumers become aware of a
product through information furnished to them by the marketer through catalogues
dispatched by mail. Business marketers are making inroads as well. Putting their
entire catalog online provides better access to global consumers than ever before,
saving printing and mailing costs.
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3. Direct Mail Marketing: Direct mail marketing (DMM) is similar to MOM. Usually,
when a trading house markets various products by mail order, we refer to it as MOM
or MOB and when a manufacturer markets his products by the same method, we refer
to it as DMM. In direct mail marketing, not only letters/brochures are mailed to the
prospects, but free product samples, gifts and compliments are also mailed, depending
on the context.
4. Telemarketing: Telemarketing describes the use of telephone operators to attract new
customers, to contact existing customers to ascertain satisfaction levels, or to take
orders. In the case of routinely taking orders, it is called telesales. Many customers
routinely order goods and services by telephone.
5. Direct Response Marketing: Direct Response Marketing (DRM) is; another
expression that we come across in the context of direct marketing. It is similar to, but
not exactly the same as direct mail marketing.
6. Tele-shopping/Home Shopping: Tele-shopping, alternatively known as home
shopping, is one of the relatively more recent editions of direct marketing. Mere, the
marketer hawks the product on the air and the consumer watches it on his TV screen
at home, phones up the marketer and buys his requirement.
7. Database Marketing: Database marketing is yet another expression we come across
in direct marketing. Although all forms of direct marketing are database-driven, some
experts treat database marketing as a distinct form of direct marketing.
ADVANTAGES OF DIRECT MARKETING:
1) Focused Approach: It is possible to identify a very specific target market using direct
marketing techniques. This makes it a very useful promotional tool for niche products
because it is possible to target only those who are likely to respond to the promotion there is
less wastage.
2) Cost Effective: Although cost per thousand people reached may be high as compared to
other mass marketing promotional techniques, direct marketing can be very cost effective for
niche products.
3) Immediate and Flexible: Some promotional activities can take a great deal of time to
develop from first idea to final execution - TV ads for example. Direct marketing is flexible
and there are short lead times associated with its use because of which it often has an
immediate impact on customer responses.
4) Easy International Reach: It is relatively easy to adapt a direct marketing campaign to
an international target market.
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5) Tailored Messages: Direct marketing also offers greater opportunities for developing
tailor-made messages for particular groups of consumers.
6) Rapid Delivery: Direct marketing is both swift and flexible in achieving results. This is
especially true for telemarketing, one of the direct marketing tools, as the results of a
conversation can be logged immediately and scripts adjusted straight away to improve
results.
7) Multiple Uses: Direct marketing doesn't just have to be used to sell - it can be used to test
new markets and trial new products or customers, to reward existing customers to build
loyalty, collect information for future campaigns, or segment a customer base.
DISADVANTAGES OF DIRECT MARKETING
1) May be Seen as Competing with Existing Intermediaries: May upset marketing
intermediaries as sales through direct marketing may be taking sales away from them. In
effect, you may end up competing with your own customers, that is, the intermediaries.
2) May be Seen as Intrusive by Consumers: Especially a problem for door-to-door and
telemarketing.
3) Costs: Initial customer acquisition costs are high — high cost per thousand reached; and
database development can be expensive.
4) Fraud: There is also the concern that personal information collected by legitimate direct
marketing agencies could be purchased by unscrupulous or shady companies for the express
purpose of fraud.
5) Lack of Awareness: Many people are unaware of how the personal information they
include on an order form or survey may be used for targeted advertising later.
6) Cost: The cost per thousand will be higher than almost any other form of mass promotion.
7) Waste: Large quantities of paper are thrown away in direct marketing.
SALES FORCE
Introduction to Sales Force
The company's sales force is one of its most important assets and it is the major
component of the firm's promotion mix. Sales force plays a deciding role in deciding the
company's fate because the firm's revenues are derived from sales. Very frequently its
effectiveness to the large extent determines to extent to which overall marketing objectives
will be achieved.
SALES FORCE OBJECTIVES:
Companies must define the specific objectives they expect their sales force to achieve.
The old idea was that the sales force should "sell, sell, and sell." Later, the idea arose that
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sales representatives should know how to diagnose a customer's problem and propose a
solution. They seek to join their company with the customer's company as "partners for
profit."
The sales force of a firm plays a very crucial role and they cover some of the
objectives:
➢ To keep and maintain continuous contact and business relationship with both existing
and potential customers.
➢ To understand and collect regularly information about customer needs and wants and
send reports to the departmental head.
➢ To meet their sales targets and maintain or follow sales policy, credit policy and
pricing strategy.
➢ To keep tracking customer satisfaction and take action as deemed fit.
➢ To keep tracking a competitive position, particularly competitor's new products,
promotional activity and pricing strategy.
➢ To prepare and send comprehensive and useful reports regularly.
SALES FORCE STRUCTURE/SALES ORGANIZATION STRUCTURE
The sales force strategy has implications for the sales force structure. If the company
sells one product line to one end using industry with customers in many locations, it would
use a territorial sales force structure. Sales force structure is more commonly known as the
sales organization structures.
Sales organization is a wing or department of the organization of an enterprise
established for the purpose of directing, coordinating and controlling the sales operations. It
establishes coordination among various sales functions necessary for the achievement of sales
and corporate goals. Sales organization is the part and parcel of the overall organization
structure.
The basic types of sales organization are as follow:
➢ Line sales organization
➢ Line and staff sales organization
➢ Functional sales organization
➢ Horizontal sales organization
➢ Committee sales organization
LINE SALES ORGANIZATION:
The line organization is the oldest and simplest sales organizational structure. It is
widely used in smaller firms and in firms with small numbers of selling personnel - for
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example, in companies that cover a limited geographic area or sell a narrow product line. The
chain of command runs from the top sales executives down through subordinates.
Advantages of Line Sales Organization
1) Easy to Establish; The line organization can be easily established. It is so simple that
salesmen can understand it easily.
2) Unity of Command: All the functions are performed efficiently and quickly because
there is only one superior to order the subordinates.
3) Speedy Action: Under this organizational structure, all the decisions can easily be taken
because there is generally one person to take decisions and he fully knows his authority and
responsibility.
4) Co-ordination: Because of the control of one man over one working group, there is co-
ordination in their work.
5) Discipline: Strict discipline is maintained in this type of sales organization. That is why it
is also known as 'Military type of sales organization'.
6) Flexibility: The organizational structure can be changed easily in case of expansion of
business or due to some other circumstances, as all levels of sales organization are
independent of each other.
Disadvantages of Line Sales Organization:
1) Key Men are Overburdened: In this form of organizational structure, general sales
manager and regional sales managers have to take various routine decisions and get them
implemented from their subordinates.
2) Lack of Specialization: In this organizational structure, a single person has to perform
each and every job in his region. !t is not possible for a single individual to acquire
specialization in each and every job
3) Harmful Employee Turnover: The exit of one or two key personnel cripples the entire
organization.
4) Overdependence on One Person: There is too much responsibility on one man and it is
too difficult to shoulder it.
5) No Upward Communication: There is no upward communication between the
subordinates and the superiors
LINE AND STAFF SALES ORGANIZATION
The line and staff sales department is often found in large and medium-sized firms,
employing substantial numbers of sales personnel, and selling diversified product lines over
wide geographic areas. In contrast to the line organization, the line and staff organization
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provides the top sales executive with a group of specialists experts in dealer and distributor
relations, sales analysis, sales organization, sales personnel, sales planning, sales promotion,
sales training, service, traffic and warehousing, and similar fields. This staff helps to conserve
the top sales executives' time and frees them from excessively detailed work.
Advantages of line and staff sales organization:
1) Sound Decisions: In this organization, the decisions taken by the line executives are
good because usually decisions are made on the basis of advice given by experts.
2) Specialization: The work of thinking and execution are divided and therefore the line
and staff executive attain specialization in their respective fields.
3) Advantage of Line Organization: This organization system is an improved version of
line organization and, therefore, it has all the advantages of line organization.
4) Research Facilities: The staff executives do not have to remain busy in daily routine and
the line executives ask for their suggestions only in special circumstances.
5) More Facilities of Expansion: Legal and other complexities are increasing in modern
business. In these circumstances, the expansion of business becomes difficult. However,
when the organization has the services of experts available to it, there will be less difficulty in
expansion.
Disadvantages of Line and Staff Type of Sales Organization
1) More Administration Cost: In this form of organizational structure, generally more than
one expert are appointed with one line executive. By appointing various experts,
administrative cost of the organization
increases.
2) Conflict between Line and Staff Authority: On one hand the line executives claim that
they play a major role in the attainment of the objectives of the enterprise and in case of
adverse results they are answerable. Therefore, they are important part of the enterprise.
Under this impression the line executives start treating the staff executives as inferior
employees and do not pay any attention to their advice.
3) Only Theoretical Advice: The knowledge and experience of the staff executives happens
to be more theoretical than practical. Thus, they offer advice only on the strength of their
bookish knowledge and they do not know much about the practical problems of the
organization.
4) Lengthy Decision-Making Process: In this form of organization, the decision-making
process gets unduly delayed. First, a problem appears before the line executives, and then
they place the problem before the staff executives, who after deliberations give their advice.
126
The whole process consumes much time and sometimes some good opportunities of profit
slip away.
5) Dependence on Experts: Sometimes, it so happens that the line executives get habituated
to do every work with the advice of the staff executives. The result is that in the absence of
experts, the line executives feel handicapped and their efficiency is reduced.
FUNCTIONAL SALES ORGANIZATION:
Some sales departments use functional organization. This type, derived from the
management theory developed by Frederick W, Taylor, is based upon the premise that each
individual in an organization, executive and employee, should have as few distinct duties as
possible. The principle of specialization is utilized to the fullest extent.
No matter where a particular function appears in the organization, it is in the
jurisdiction of the same executive. In the functional sales department, salespeople receive
instructions from several executives but on different aspects of their work. Instructions, and
even policies, can be put into effect with or without prior approval of the top-level
coordinating executive.
Advantages of Functional Sales Organization
1) Full Use of Experts' Knowledge: Every work is assigned to an expert. He stakes all his
knowledge and experience into the work because he knows that his decision wi!l be
implemented. In this way, the use of experts' knowledge becomes possible.
2) Efficiency is Increased: The salesmen get order from various experts, who are specialist
in their field and each one having expert knowledge. In this way, the burden of their work is
lessened and it results in increase in their efficiency.
3) Better Organization; By appointing various experts and dividing their work on
functional basis, the better execution of the work is ensured.
4) More Flexibility: In view of the expansion or contraction of business, the organizational
structure can easily be adjusted according to requirements of business.
5) Reduces Wastage: Specialization encourages economy and reduces wastage.
6) Encourages Research: It encourages research in sales organization on account of the
appointment of specialists.
Disadvantages of Functional Sales Organization
1) Violations of the Principle of Unity of Command: In this organization, an important
principle of management is violated. A salesman gets orders from many officers
simultaneously, as a result of which he cannot understand as to which order is to be given
priority. As a result of this complexity or confusion, his work efficiency is reduced.
127
2) Lack of Co-ordination: Co-ordination becomes difficult among various functional

experts. General sales manager has to remain very alert for achieving co-ordination among
various experts.
3) Difficult to Fix Responsibility: It becomes difficult for top hierarchy to fix responsibility
in view of adverse result. Every expert tries to evade responsibility by shilling his weaknesses
to others.
4) Complicated Procedure: Dividing the work into different parts and sub-parts in itself is
a difficult process.
5) Conflict among Experts: There are usually conflicts among specialists, they being of the
same level. All consider themselves superiors and nobody cares for anybody.
HORIZONTAL SALES ORGANIZATION
This organization structure removes management (hierarchy) levels and also
departmental boundaries. The support functions like strategic planning, human resources, and
finance are looked after by a small team of senior executives. All other people in the
organization are the members of cross-functional teams, which perform many core processes
like product design, sales, and production or operations.
Advantages of a Horizontal Organization Structure
1) Reduction in Hierarchical Levels: A horizontal organization structure reduces the
number of hierarchical levels between the top management and lower-level employee. This
reduction greatly cuts costs.
2) Faster Response: This structure helps organizations to respond to market changes faster
due to less number of hierarchical levels.
3) Encourages Teamwork: A horizontal organizational structure facilitates teamwork and
collaboration among employees.
4) Decision-Making Ability: H helps to improve decision-making in an organization. It
offers employees at lower levels the freedom to make decisions and share responsibility and
contribute towards achievement of organizational objectives.
5) Flexibility: By eliminating too many levels of hierarchy, a horizontal organizational
structure provides flexibility and reduces response time in addressing customer requirements.
Disadvantages of a Horizontal Organization Structure:
1) Loss of Competitiveness: Horizontal organization structures involve trimming the number
of hierarchical levels. However, excessive reduction in levels may result in the organization
losing people with experience and expertise.
128
2) Not Suitable for all Operations: A horizontal organizational structure is not suitable for
all operations in an organization, deciding which operations are most suited to have such a
structure is difficult and time-consuming.
3) Training is Costly: As employees work in cross-functional teams, they have to be
trained on teamwork.
COMMITTEE SALES ORGANIZATION
The committee is never the sole basis for organizing a sales department. It is a method
of organizing the executive group for planning and policy formulation while leaving actual
operations, including implementation of plans and policies, to individual executives. Thus,
many firms have a sales training committee that meets periodically to draft training plans and
formulate sales training policies. Implementation of these plans and policies, however, is the
responsibility of the sales training manager, if the company has one, or of the line and/or staff
executives responsible for sales training in their own jurisdictions.
Advantages of Committee Sales Organization
1) More Effective: Solid and Practical: It is said that "two heads are better than one." Hence
decisions taken by the committee are more effective, solid and practical.
2) Facilitates coordination: This type of sales organization facilitates in coordination of
various functions
3) Mutual Cooperation: It develops the spirit of mutual cooperation and assistance.
4) Less Misunderstanding: Committees are most useful means of communication. Any
ambiguity or misunderstanding can be removed on the spot during discussion.
5) Principles of Democracy: This type of sales organization is based on the principles of
democracy.
Disadvantages of Committee Sales Organization
1) Lack of Secrecy: Because of the interference of many persons in the committee, there is
lack of secrecy. Sometimes the enterprise has to face loss when the decisions get leaked and
reach other competitive enterprises.
2) Lack of Democracy: Generally, it is felt that the committee organization is the
democratic organization. But because of the predominance of some seniors, only their view
points are accepted and the remaining members are just silent spectators.
3) Lack of Initiative: Generally, only some members of the committee have the capacity to
take effective decisions, while the credit for the good results obtained from their decisions is
shared by everyone.
129
4) Against Managerial Development: The establishment of committees checks the

development of managers because they get dependent on the committees for every big or
small decision and they leave their own efforts.
5) Diversion of Routine Functions: Usually, the departmental managers happen to be the
members of the committees. If a manager happens to be the member of more committees at a
time.
ADVANTAGES OF SALES FORCE:
Sales force serves as critical link between company and its customer since they:
➢ It helps in keeping customer informed on change in product line.
➢ It helps in giving advice and assistance to middleman on management
problems.
➢ Sales force helps in building long term personal relationship with key decision
makers.
➢ Sales force helps in adjusting marketing offer to fit the need of customer and
negotiate terms of sale.
➢ It helps in maintaining dealer relationship.
➢ It helps in collecting and report marketing information of interest and use to
company management i.e., It provide feedback for future improvement.
DISADVANTAGES OF SALES FORCE
➢ Sales force is often called expensive proposition because maintaining sales force is
very expensive.
➢ It is a detrimental factor where he keeps his personal agenda on a priority over
organization.
➢ It may lead to high training cost because the cost included in the training of salesman
is very high.
➢ Sales person tend to leave often due to many factors such as pay, promotion or other
matters.
SALES FORCE SIZE:
Determination of sales force size is the essential and the most required dimension of
sales force management. An organization first decides what type of sales people it requires
and then how many of them are necessary so as to meet the sales and profit objectives. Too
few sales people mean loss of opportunities and too many of them, unnecessary expenditure.
The exact number of sales people a company must have is difficult to pin point.
130
There are basically three methods for determining size of sales force:
Work Load Method: In the work load method the basic assumption is that all sales
personnel should shoulder equal work loads. Management first estimates the total work load
involved in covering the company's entire market and then divides by the work load that an
individual salesperson should be able to handle, thus determining the total number of
salespeople required.
The six steps in applying the work load approach are shown in the following example:
➢ Classify Customers, both Present and Prospective, into Sales Volume Potential
Categories.
➢ Decide on the Length of Time Per Sales Call and Desired call Frequencies on Each
Class.
➢ Calculate the Total Work load Involved in Covering the Entire Market.
➢ Determine the Total Work Time Available Per Salesperson.
➢ Divide the Total Work Time Available Per Salesperson by Task.
➢ Calculate the Total Number of Sales people Needed.
Sales Potential Method: In a job description of salesman, several activities are listed.
The performance of one set of activities represents one sales personnel unit. An individual
salesman does not always equal to one sales personnel unit. He may represent more than one
unit or less than it, depending upon his effectiveness. The number of sales personnel unit
required has to be considered and the number of salespersons required performing them.
Incremental Method: This is the soundest method conceptually. The proposition
here is that net profits rise up when additional sales hands are recruited provided that the
additional sales revenue exceeds the additional cost of employing the new hand. The
application of this method requires two essential inputs - additional revenue and additional
costs.
SALES FORCE COMPENSATION:
The literal meaning of compensation is to counter-balance. In the case of human
resource management, compensation is referred to as money and other benefits received by
an employee for providing services to his employer. Money and benefits received may be in
different forms base compensation in money form and various benefits, which may be
associated with employee's service to the employer like provident fund, gratuity, and
insurance scheme, and any other payment which the employee receives or benefits he enjoys
in lieu of such payment.
131
According to Cascio, "Compensation includes direct cash payments, indirect

payments in the form of employee benefits and incentives to motivate employee to strive for
higher levels of productivity".
According to S.P. Robbins, "The term compensation administration or wage and
salary administration denotes the process of managing a company's compensation program.
The goals of compensation administration are to design a cost-effective pay structure that will
attract, motivate and retain competent employees".
The compensation plan refers to the monetary as well as non-monetary expenses
incurred by the sales organization, for paying the services rendered by the sales force. The
compensation, thus, refers to the total payments, the contractual, for example, salary and
wages and non-contractual.
The compensation and reward system is the single most important motivating factor
for sales personnel in any industry or organization, all over the world. It is the key to direct
the behavior of sales personnel in alignment with organizational objectives.
OBJECTIVES OF COMPENSATION PLAN:
The compensation plan meets the objectives of both the parties, i.e., the sales manager
and the organization on one hand and the salesman on the other hand:
1) Sales Manager's Objectives: Sales manager's objectives are as follows.
➢ Attracting the Best Talent: The prime objective of the sales manager is to device a
compensation plan that attracts the best talent, develop and retain them to deliver the
best results, as it is ultimately the team that has to realize the sales plans.
➢ Devising Compensation Plan within Cost Budget: The compensation plan must be
within the cost budget specified by the organization; the emphasis will be to put
minimum strain on the organization finance, which is a difficult task.
➢ Utilizing the Team at Optimum Cost: The objective is to utilize the team at the
optimum cost and not necessarily the minimum. Should the team be able to pay for
itself, the aim will be achieved otherwise lots of juggling will be called for to
accommodate people at lower costs.
➢ Controlling Salesman's Operational Activities: The objective of adequate
compensation plan will be to have a control over the salesman's operational activities.
The compensation plan will not allow 'rest at peace' attitude to set in, nor will it be
low enough leading to de-motivation for the salesmen the productivity should not
suffer.
132
➢ Taking Care of Individual Differences: The plan must take into account the
individual differences in working attitudes, capacities and attainments. The comfort
and the discomfort level of each separate territory must be identifiable through the
remuneration plan.
2) Salesman's Objectives: The individual lakes to any profession to make a living hence the
salesman will be equally interested in this job to make money. Since there are many
discomforts involved in the job, it is anticipated, he will be adequately compensated for that.
A salesman will look at the anticipated and expected remunerations of his job
considering the following:
➢ Acceptable Standard of Living: The salesman feels he is a responsible member of
the organization, who contributes to the revenues of the company. He is aware that the
business procured by him will ultimately add up to the profit margins of the
organization.
➢ Consistency in Income: The salesman will like a certain amount be paid to him in
terms of salary every month in order to take care of regular expenses. That will also
provide him a sense of security.
➢ Performance Linked Incentives: In addition a salesman will like his performance to
be rewarded. The incentive to do better will certainly be there, if it is linked to the
sales performance after a certain cutoff stage.
➢ Simple and Comprehensible: A salesman will like the salary structure to be simple,
easily worked out and one which is easy to compute. The salesman will like to know
what part he gets to take home and how much is being put aside for future security.
➢ Fair and Transparent: The salesman will like the compensation plan to be fair to all
his colleagues as well. The plan must be worked out objectively rather than
subjectively. The salesman's ego does not allow him to look for any kind of favoritism
or nepotism.
FACTORS AFFECTING COMPENSATION PLAN:
An ideal compensation scheme necessarily maximizes the goals of the firm as well as
of the sales force. There are several factors which influence the remuneration plan of any
organization directly. The important factors are as follows:
1) Nature of Sales Job: First, a thorough study of the sales job should be made while
determining a remuneration plan. If the job is complex, time-consuming and need lots of hard
work, the remuneration package should be high and handsome. On the other hand, if the job
is simple and requires little effort, the payment should be a moderate one.
133
2) Nature of the Product: The remuneration plan of an organization also depends on the
nature and number of products, if the product offered for sale is a consumer product, it needs
little selling effort on the part of the salesmen.
3) Class of Salesmen: Some kind of salesmen like traveling salesmen, creative salesmen are
highly paid because their job is time-consuming and requires more selling efforts. On the
other hand, counter salesmen, who perform routine type of activities, are comparatively paid
less.
4) Financial Capacity: Firms which have limited financial capacity, plan the remuneration
plan in such a manner so that it does not become a burden for them. In other words, the
payment of the sales force should be justifiable. They can follow a remuneration plan entirely
based on commission basis. On the other hand, financially sound companies are free to adopt
any remuneration policy.
5) Advertising Activities: Firms spending heavily on advertising and other sales promotion
activities necessarily make the salesman's job comparatively easier. Therefore, the
remuneration package of the sales force of such firms can be kept low as their jobs are made
easy and simple.
6) Channel of Distribution: The longer the channel, the easier is the job of the salesman
since middlemen take a lot of burden from the shoulders of the salesmen. In such cases,
where little personal salesmanship is required, the salesmen usually get a moderate
remuneration.
7) Economically Justified: The remuneration plan should be so designed that there is
adequate provision for inflation. In other words, the compensation package should be so
designed that the salesman earns enough to maintain a decent living. Provision of Dearness
Allowance (D.A) and Additional Dearness Allowance (A.D.A) should be there so that the
sales force does not face any hardship in meeting their usual obligations.
TYPES OF COMPENSATION PLAN:
The types of compensation plans are shown in figure below.
1) Financial Compensation: Sales organizations follow different types ot compensation
plans. One of the popular components is the financial compensation plan. The financial
compensation plan includes a fixed and variable component linked to the salesperson's
productivity, expenses, and fringe benefits. The fixed component helps in providing basic
support for the family of the salesperson.
➢ Straight Salary Method: It is the earliest of all remuneration plans and is the most
common method. Under this system, salesmen are paid a predetermined
134
amount, as a salary, generally at the end of every month. That is, a fixed amount
of salary is payable to the salesman, regardless of his sales volume. The amount is
fixed and does not vary. There is a fixed time-scale, with annual increments, for a
continued service. Generally, the amount consists of basic salary, dearness allowance,
and any other allowances. Other amounts to meet the business expenses will also be
paid.
➢ Straight Commission Method: This method is based on the result, and not on the
basis of time. The productivity, i.e., volume of sales made by a salesman is a basis for
remuneration. The commission is calculated usually as a percentage on total orders
secured total value of sales. The rate of commission may be flat or differential.
Differential rates aim at lower commission up to a standard performance and a higher
rate over and above the standard performance.
➢ Combination of Salary and Commission: The above two methods, discussed, have
merits and demerits. The combination of salary and commission plan takes the
advantages of both the methods -straight salary method and straight commission
method. This plan is the popular method of remuneration. Almost all the salesmen are
satisfied with a regular fixed salary, because people want economic security.
➢ Drawing Account and Commission Plan: This is an improved method over the
straight commission plan in which the sales organization opens a drawing account in
the name of the salesperson and credits the commission due to him every month. The
salesperson can draw from this account within the permissible limit.
2) Non-Financial Compensation: Sales organizations also provide non-financial
compensation for the salespeople to motivate them and keep them in the organization to
contribute towards the long-term goals the organization. The non-financial rewards include
promotions, recognition programs, fringe benefits expense accounts, perks and sales contests.
Though these compensation methods are treated as non-financial, these are directly or
indirectly related to financial gain for the salespeople.
➢ Promotions: Salespeople working in organizations for a longer period of lime always
look for higher job responsibility. There are a few salespeople who always remain in
the field sales force called career salespeople..
➢ Recognition Programs: These are programs designed to honor individual
salespersons' contributions and recognize the excellent performance. These programs
are organized in most organizations.
135
➢ Fringe Benefits: Many sales organizations also use fringe benefits for compensating
the sales force. These are employment benefits in addition to the salary and wages
paid to the sales staff. These include medical benefits, retirement benefits, life
insurance, and other forms of employee motivation tools like stock options and profit
sharing.
➢ Traveling Expense Account: The organizations covering the salesman's expense will
have to devise the system that is foolproof for any kind of business reimbursement
only. They are timely reimbursed and these expenses are confined to the limits
specified.
➢ Perks: Perks are a special category of compensation available to employees with
some special status or expertise in the company. There are a number of perks, which
are considered part of the compensation plan by the company.
➢ Sales Contests: Sales organizations organize sales contests for the salespeople to
stimulate sales. They are part of the sales force promotion program. These programs
are organized to counter the competitive moves in the market, to offload the inventory
in the off-season, to gain sales force commitment for an additional product launched,
and of course to gain support of the salespeople during the maturity stage of a product
life cycle.
ESSENTIAL FEATURES OF A SOUND COMPENSATION PLAN:
The sales manager should plan the remuneration package in such a way that it not
only satisfies the salesmen but also encourages them to work with zeal and enthusiasm.
While formulating a remuneration plan, certain principles should be clearly understood and
incorporated in the plan as follows:
1) Simplicity: The compensation plan should be easy and simple lo understand. In other
words, the remuneration plan should be self-explanatory so that salesmen of
average intelligence are able to understand the same without much difficulty.
2) Flexibility: The plan should be so designed that it is capable of adjusting with the
requirements of different sales territories, salesmen, products and competitive conditions. In
other words, the plan should be able to meet the varying requirements of different
selling conditions, individual employers and the aims of the organization.
3) Economical: A sound compensation plan should be economical. The earnings of the
salesmen should be kept within the economic limits of the organization. In other words,
remuneration of sales force should be in proportion to sales as well as profit volume of the
organization so that it does not become a burden on the firm.
136
4) Promptness: Prompt payment works as an incentive for the sales force to work hard. The
remuneration accruing to the salesmen should be paid at the right time. In other words, the
payment of remuneration and other monetary rewards should be made within the expected
time so that the interest and zeal of the salesmen are kept intact.
5) Fair and Equitable: A sound remuneration plan should always be fair and equitable
towards the entire sales force. It should never be partial and discriminating. The remuneration
plan needs to be decided in accordance with the selling activity, ability and efficiency.
6) Adequacy: While planning a remuneration policy, it should be noted that the salesmen
are getting an adequate income so as to maintain a decent living in the society. The income
package should be enough to provide a reasonable amount of comfort for the sales force.
7) Incentive Oriented: The remuneration plan should be so planned that industrious and
energetic salesmen are able to earn more than others.
8) Controlling Capacity: The compensation plan should be so designed that the firm does
not lose the controlling capacity over the salesmen. When the salesmen work chiefly on
commission basis, they develop an attitude of freedom.
STEPS IN DESIGNING A COMPENSATION PLAN:
Following are the steps in designing a compensation plan as follows.
➢ Define the Sales Job: The first step is to reexamine the nature of the sales job. Up-
to-date written job descriptions are the logical place to start. If job descriptions are
outdated then a revision is in order. If there are no written sales job descriptions, they
are prepared.
➢ Consider the Company's General Compensation Structure: Purpose of job
evaluation is to arrive at fair compensation relationships among jobs. Simple Ranking,
Classification or Grading, Point System, Factor-Comparison Method, Job Evaluation
and Sales Positions.
➢ Consider Compensation Patterns in Community and Industry: Because
compensation levels for sales personnel are related to external supply-and-demand
factors, it is important to consider prevailing compensation patterns in the community
and industry. Management needs answers to four questions:
i) What compensation systems are being used?
ii) What is the average compensation for similar positions?
iii) How are other companies doing with their plans?
iv) What are the pros and cons of departing from industry or community
patterns?
137
➢ Determine Compensation Level: Management must determine the amount of

compensation a salesperson should receive on the average. Management should
ascertain whether the caliber of the present sales force measures up to what the
company would like to have.
➢ Provide for the Various Compensation Elements: A sales compensation plan has as
many as four basic elements:
i) A fixed element, either a salary or a drawing account, to provide some stability of
income;
ii) A variable element to serve as an incentive;
iii) An element covering the fringe or "plus factor", such as paid vacations, sickness
and accident benefits, life insurance, pensions, and the like; and
iv) An element providing for reimbursement of expenses or payment of expense
allowances.
➢ Special Company Needs and Problems: If a company's earnings are depressed
because sales personnel overemphasize low-margin items and neglect more profitable
products, it may be possible, despite the existence of other managerial alternatives, to
adjust the compensation plan to stimulate the selling of better balanced orders.
Specifically, variable commission rates might be set on different products, with the
higher rates applying to neglected products.
➢ Consult the Present Soles Force; Management should consult the present sales
personnel and encourage sales personnel to articulate their likes and dislikes about the
current plan and to suggest changes in it. Criticisms and suggestions are appraised
relative to the plan or plans under consideration.
➢ Reduce Tentative Plan in to Writing and its Presetting: For clarification
and to eliminate inconsistencies, the tentative plan is put in writing. Then it is pre-
tested. The amount of testing required depends upon how much the new plan differs
from the one in use. The greater the difference, the more thorough is the testing.
➢ Revise the Plan: The plan is then revised to eliminate trouble spots or deficiencies. If
alterations are extensive, the revised plan goes through further pretests and perhaps
another pilot test.
➢ Implement the Plan and Provide for Follow-up: At the time the new plan is
implemented, it is explained to sales personnel. Management should convince them of
its basic fairness and logic.
********************ALL THE BEST**********************
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MBA IInd SEM MARKETING MANAGEMENT

MBA203: MARKETING MANAGEMENT:

2018 External Question Paper

1. (a) Discuss the various concepts of marketing?

(b) Overview the Indian Marketing Environment in detail?

2. (a) Explain the steps involved in selecting target marketing?

(b) What are the strategies adopted for developmental position?

(b) Describe the steps involved in NPD process?

5. (a) Explain the process of communication in marketing?

(b) What are the objectives of sales force?

Part – B (20 Marks)

a. What is the real issue in this case ?

9) Information: Information can be produced and marketed as a product. This is essentially

ii) Decreases in Distribution Cost: Marketing aims at reducing the cost of

CORE CONCEPTS OF MARKETING

NEEDS, WANTS AND DEMANDS:

EXCHANGE, TRANSACTION AND RELATIONSHIP:

Needs Wants Demand Exchange Offers Research

Factors Affecting the Exchange Process

• Commercial Transaction: Generally seen day-to-day in our marketing activity,

➢ Standardization: Standardization is related with the division of commodities into

MEANING AND DEFINITION OF MARKETING MANAGEMENT

According to PHILIP KOTLER, "Marketing management is the process of planning

MARKETING MANAGEMENT ORIENTATIONS/ PHILOSOPHIES

The salient features of production concept are:

The selling concept to base on following premises:

Production Distribution Sales Buyers

Channels Ownership Transfer

Factors Influencing Marketing Concept:

Limitations of Marketing Concept:

The social marketing has following objectives to meet:

MEANING AND DEFINITION OF MARKETING ENVIRONMENT

Environment literally means the surroundings, external objects, influences or

Marketing activities of a business firm are affected by a large number of

INDIAN MARKETING ENVIRONMENT:

➢ Developing Economies: In a developing economy, manufacturing begins to account

LEGAL ENVIRONMENT OF INDIA:

TECHNOLOGICAL ENVIRONMENT OF INDIA

Market segmentation is the process of dividing a broad consumer or business market,

Market segmentation assumes that different market segments require different

INDENTIFIACTION OF MARKET SEGEMENTS:

MEANING AND DEFINITION OF MARKET SEGMENTATION

No market Complete Market Segmentation Market Segmentation

According to William J. Stanton, "Market segmentation consists of taking the total

LEVELS OF MARKET SEGMENTATION:

SEGMENTING CONSUMER MARKETS:

BASES FOR SEGMENTING THE MARKET

1. Customer based segmentation

1) Customer Based Segmentation:

SELECTING TRAGET MARKET:

c) Environmental Issues: The trend towards more environment friendly

SEGMENTATION AND TARGETING AS A BASIS FOR STRATEGY

ESSENTIALS OF MARKETING STRATEGIES:

4) Diversity in Productivity Levels of Various Marketing Inputs: The marketers should

MARKETING STRATEGY AND IMPLEMENTATION:

MEANING AND DEFINITION OF PRODUCT:

PRODUCT LIFE CYCLE:

Introduction Growth Maturity Decline Stage

Total market sales

Total market profit

Product Life Cycle (PLC)

According to Phillip Kotler, "The product life-cycle is an attempt to recognize

Characteristics of Product Life Cycle