IED-IMBA-RAM-Module-2 (Syllabus)

Rural Marketing Mix:

Product Decisions,
Pricing Decisions,
Promotion Decisions,
Distribution Channels,
Relationship Management,
Physical Distribution,
Sales Force Management.

Rural Marketing - Mix

Marketing mix comprises of various controllable elements like product,
price, promotion and place. Success of any business enterprise depends
on marketing mix and these four elements are like powerful weapons in
the hand marketers.

Since behavioural factors of rural consumers are different and almost

unpredictable in nature, the marketers have a challenging task to design
marketing mix strategies for the rural sectors. Due to considerable level
of heterogeneity, marketers need to design specific programs to cater
needs and wants of specific groups.

Product Mix
Product is a powerful tool of an organization’s success. The products must
be acceptable to rural consumers in all significant aspects. The firm must
produce products according to the needs and future demands of rural
buyers. The product features like size, shape, color, weight, qualities,
brand name, packaging, labelling, services, and other relevant aspect
must be fit with needs, demands and capacity of buyers.

Product must undergo necessary changes and improvements to sustain its

suitability over time. The effectiveness of other decisions like pricing,
promotion and place also depends on the product.

Price Mix
Price is the central element of marketing mix, particularly, for rural
markets. Rural consumers are most price sensitive and price plays more
decisive role in buying decisions.

Pricing policies and its strategies must be formulated with care and
caution. Price level, discounts and rebates, then credit and installment
faculties are important considerations while setting prices for rural specific
products.

Normally, the low-priced products always attract the rural buyers, but
rarely some rural customers are quality and status conscious.

Promotion Mix
Rural markets are delicately powerful to cater to the rural masses. The
promotion strategies and distribution strategies and Ad makers have
learned to leverage the benefits of improved infrastructure and media
reach.

Most of the companies advertise their products and services on television

and they are sure it reaches the target audience, because a large section
of the rural India is now glued to TV sets. Marketers have to decide on
promotional tools such as advertisement, sales promotion, personal
selling and publicity and public relations.

The method of promotion needs to meet the expectations of the market.

Vehicle campaigns, edutainment films, generating word of mouth publicity
through opinion leaders, colorful wall posters, etc. — all these techniques
have proved effective in reaching out to the rural masses.

Village fairs and festivals are ideal venues for projecting these programs.
In certain cases, public meetings with Sarpanch and Mukhiya too are used
for rural promotion. Music cassettes are another effective medium for
rural communication and a comparatively less expensive medium.

Different language groups can be a low budget technique and they can be
played in cinema houses or in places where rural people assemble. It is
also important that in all type of rural communication, the rural peoples
must also be in the loop. The theme, the message, the copy, the
language and the communication delivery must match the rural context.

Eventually, the rural communication needs creativity and innovation. In

rural marketing, a greater time lag is involved between the introduction of
a product and its economic size sale, because the rural buyer’s adoption
process is more time consuming.

Nowadays, educated youth of rural area can also influence decision-

making of the rural consumers. Rural consumers are also influenced by
the western lifestyle they watch on television. The less exposure to
outside world makes them innocent and the reach of mass media,
especially, television has influenced the buying behavior greatly.

Place Mix
Rural market faces critical issues of distribution. A marketer has to
strengthen the distribution strategies. Distributing small and medium
sized packets through poor roads, over long distances, into the remote
areas of rural market and getting the stockiest to do it accordingly.

Both physical distribution and distribution channel should be decided

carefully to ensure easy accessibility of products for rural consumers.
Choosing the right mode of transportation, locating warehouses at
strategic points, maintaining adequate inventory, sufficient number of
retail outlets at different regions, and deploying specially trained sales
force are some of the critical decisions in rural distribution.

Normally, indirect channels are more suitable to serve scattered rural

customers. Usually, wholesalers are located at urban and semi urban to
serve rural retailers. Not only in backward states, but also in progressive
states, local rural producers distribute directly to consumers.

For service marketing, employees of rural branches can do better jobs.

Various sectors like banking, insurance, investment, satellite and cable
connection, cell phone, auto sales and services etc. — the market for
these sectors is booming in villages of some states in a rapid speed.
Service industries are trying to penetrate into rural areas by deploying
specially trained employees and local rural area agents.

Nowadays, online marketing is also making its place gradually in rural

areas of the progressive states. Marketers must design and modify their
distribution strategies time to time taking into consideration the nature
and characteristics prevailing in rural areas, may be quite differently than
that of urban markets.
Product Decisions:
Definition: Product Decision in marketing refers to the company’s
mindful decisions, major or minor regarding their product. It ranks first
among the 4Ps of Marketing- Product, Price, Place and Promotion.
Organizations take these decisions to attain their objectives and become
profitable in the long run.

Product Decisions are vital marketing decisions to be made at various

levels. These decisions broadly cover:

• New Product Development

• Modification or Elimination of existing ones
• Variants and Visual elements
• Product Mix and Line, etc.

However, Warehousing is an activity that does not come under the

span of product decisions. This is because its core function is the
storage of goods for selling and distribution as and when required.

The factors affecting product decisions are:

1. Growth
2. Market-share
3. Cash flow
4. Profitability

What is a Product?
Anything of value that fulfils the requirement of the end-user is known
as a Product. It can be goods or services, tangible or intangible, physical
or psychological. The customers and competitors largely depend upon
the products offered by the company.
1. Core or Generic Product
It is the raw product that satisfies the customer’s primary
need. The core product is at its raw form, not bearing any
brand name and remains undifferentiated.
For example: – Wheat is a grain that one can consume.
2. Basic Product
The core products differentiated from the rest become the
basic product. It adds some necessary features to the
products like Brand Name, Packaging and Label, etc.
For example: – Fortune Chakki Fresh Atta (wheat flour).
3. Expected Product
These products include the key features that customers look
forward to. It also contains standard features that a product
should have.
For example: – Chapati is prepared from wheat flour.
4. Augmented Product
To differentiate products from competitors, companies
add distinctive features to them. These additions depend on
the market survey conducted for the product. They try to
 create a Unique Selling Proposition (USP) for their products.
For example -Brown Bread and Cookies.
5. Potential Product
It refers to all the possible features that a product can have
in the future. These features depend on the market
conditions and economic changes.

New Product Decision:

A new product incorporates the elements of newness and varies from
the existing ones. It may include new features, qualities or be
introduced differently. Besides, adding new products can result in
growth, profitability, increased market share and more.

To remain profitable and maintain sales, organizations need to launch

new products. However, the products may fail, so the marketers must
take new product decisions wisely.

The product decisions may include:

1. Original Product
2. Improved Product
3. Modified Product
4. Development of Product
5. Launching Products, etc.
Product Mix
It refers to the aggregate range of products that a company owns. In
other words, the total number of products that a company offers for
sale is the product mix of the company.

Product mix decisions depend upon the following four characteristics:

1. Length 2. Width 3. Depth 4. Consistency

There are various decisions the marketers have to take regarding the
product mix. It may include:-

1. Expansion 2.Contraction 3. Product Differentiation

2. Deepening and Alteration, etc.

Product line

This refers to a range of closely-related products belonging to the

same class. They are sold to the same customers, having identical
attributes marketed by the same distribution channel but for different
segments.

The product decision relating to a product line are:

1. Line Stretching
2. Line Filling

Design

It indicates the appearance or personality of the product. The marketers

have to decide whether to go for the standard design or the creative
design.

Changing the product’s design may be effective but can be risky too.
The customer may or may not like the design and face problems while
using the product.
Branding

Branding is one of the vital decisions taken under product decisions. It

involves the visual and symbolic elements of the product.

he marketers distinguish the product using:

1. Band Name
2. Trade Marks
3. Logo
4. Brand Marks, etc.

Packaging
Packaging is the outermost covering of the product. It enables product
protection, conveys information and creates sale appeal. And is not
restricted to just the safety of the product.

Packaging has evolved as the medium of marketing. Marketers use

packaging to reposition or renovate their products.

Packaging decisions include:

1. Size
2. Design
3. Innovation
4. Aesthetics
5. Convenience
6. Material
7. Environmental factors

Labelling
The label is a part of the packaging. It contains all the essential
details about the product in written form. Also, it conveys information
regarding performance, features, quality and price, etc.
The marketers must perform an in-depth analysis at the time of
Labelling. It is a medium of communicating with customers. Vital
decisions based on labelling are:

1. Brand Label
2. Descriptive Label
3. Grade Label
4. Informative Labels

Positioning
Positioning builds a unique image of the product in the target
audience’s mind. Also, it differentiates products from others using
benefits and attributes in the customer’s mental space.

The product decision concerning positioning are:

1. Segmentation 2. Differentiation
2. Aggregation

Support

Support or Customer Support is the company’s added benefit for the

customers. It may be offered to the end-user by after-sale services,
grievances management, and so on. It assists in creating loyal
customers and recurring sales.

Different customer support services possess varied cost structures.

Therefore, marketers must make decisions to reduce costs and improve
customer experience.
Product Marketing Ethics
Product marketing ethics is a minor term than Marketing ethics. The
marketers must pay attention to the following ethical issues while
marketing:

• Deceitful Practices: The marketers often put faulty or

low-quality products for sale without informing customers.
They also ask for additional charges in the name of customer
services.
The customers acknowledge it while consuming and are left
with no other option than to pay for it.
• Ecofriendly Products: The companies must carry out
production considering the statutory guidelines for pollution
control. The product must not harm the environment at any
stage, from production to post-consumption.
The marketers should convey instructions on the packaging
about product disposal.
• Quality Products: The companies should produce quality
products and disclose complete details. They should contain
important information like ingredients, uses and precautions.
Also, the packaging must mention all the areas of concern
related to the product.
 • While market planning, product-related decisions are vital
decisions the marketer makes. It includes all the critical decisions
for existing and new products, from development to launch.

• The marketers must decide the compelling product mix,

packaging, branding, labelling and positioning. It enables
organizations to remain competitive and thrive in the long run.

Pricing Decisions:

Pricing decisions refer to the process by which a company decides on the most
appropriate pricing for its products or services based on various factors such as
demand, production cost, and competition.

It is a process used to figure out what manufacturers or service providers should get
in return for their products or services. Estimating the right prices relies upon
different variables like raw material costs, manufacturing costs, labor costs, profits
margins, etc. net revenue, and so on.

It involves careful analysis and consideration to arrive at the most effective pricing
strategy. It is common for companies to periodically assess their prices to stay in line
with market trends and competitors. Deciding on prices can be either simple or
complex.

Simple pricing is a strategy that involves charging the same price as competitors for
similar goods and services. Retailers and wholesalers selling commodities typically
use this strategy. In making simple pricing decisions, companies may offer purchase
discounts, volume discounts, and purchase allowances to increase sales in
a competitive market.

Complex pricing is the type of pricing that varies based on the uniqueness of
a product or service, as well as customers’ willingness to pay for it. It is typically
established through discussions with the customer and is often utilized for
customized furniture, art pieces, and consulting services.

Examples of Pricing Decisions

1. To be more competitive than their rivals, businesses sometimes reduce
the online prices of their products. This is typically aimed at attracting
new customers and boosting revenue.
2. Businesses may choose to increase prices to cover higher costs
resulting from inflation or increased demand.
3. To better reflect the value of its products and services, businesses may
adjust their prices based on customer feedback and market trends to
establish fair prices.
4. Businesses adjust prices to stay competitive with other businesses. This
could mean raising prices to match their competitors or lowering prices
to attract more customers.
5. In certain markets, some businesses may use prestige pricing by setting
higher prices to give an impression of exclusivity and higher worth. This
strategy can be effective as some customers are willing to pay more for
premium quality and exclusivity.

How to decide Pricing Decisions?

A business must have a pricing strategy, whether it is a simple or complex one.
While making pricing decisions, businesses should pay heed to these points-

• It is important to comprehend how customers make purchasing

decisions based on price.
• It’s important to be aware of what your competitors are offering and the
competitive prices they charge for their products and services.
• Be able to adapt rapidly to changes in markets, vendors, and customers.
• Clarify the pricing of your products or services for customers.
• You should possess the skill of negotiating with wholesalers, retailers,
and other suppliers and resellers.
• Track how changes in pricing impact sales.

Factors to Consider When Making Pricing Decisions

1) Cost

When making pricing decisions, cost should be one of your top priorities. If costs
exceed sales, a business won’t be able to sustain itself. To determine the price, a
basic pricing method is to add a set percentage to costs, which is called a “cost plus”
approach. When setting prices, fixed costs and variable costs need to be considered.

2) Perceived Value

Customers determine the worth of a product based on their perception, and the cost
of production is not their concern. Therefore, if the price is higher than they perceive
its value to be, they will not make the purchase. On the other hand, if the perceived
value is much higher than the production cost, they will not mind paying a higher
price, which will result in a significantly higher profit margin for you.

3) Competition

When it comes to pricing, competitive pricing plays a vital role. In markets that are
open and free, prices can fluctuate depending on demand. Monopolies, on the other
hand, can set prices without many limitations.

4) Spoilage Risk

To make informed decisions, you should take into account both real and effective
spoilage risks. Real spoilage risk refers to items that have an expiry date, such as
milk or calendars, and may no longer be useful. Effective spoilage risk refers to
seasonal items.

5) Loss Leaders

It’s not necessary to make a profit on every item. You can offer some items at a
lower price to attract buyers to your store, with the expectation that they will
purchase other items with higher profit margins, making up for the initial loss on the
lower-priced item.

6) Economies of Scale

When companies increase their production and lower their costs, they can achieve
economies of scale, which are cost advantages gained through increased efficiency.

7) Bundling

One way to boost the average sale price is by offering bundled items at a discounted
rate. This can give price-sensitive customers more value than buying each item
separately and lead to higher customer satisfaction. Cable, internet, and phone
companies have been using bundling as a popular strategy for a long time.
8) Psychological Pricing

Psychological pricing involves pricing an item in a way that makes it seem more
valuable to customers. This could mean using price tags that appear lower, for
example, using numbers like 9 instead of 10.

9) Goal

When making pricing decisions, it’s important to balance revenue and customer
satisfaction. By keeping this goal in mind, you’ll be able to make better decisions
regarding the right price points for your product or service.

Objectives of Pricing Decisions

• Maximizing profit in the short run as well as the long run

• Optimizing return on investment and decreasing sales turnover
• Meeting the sales target value and obtaining the target market share
• Introducing products or services into new markets or penetrating
existing markets more deeply
• Maximize overall profits across all products, without focusing solely on
individual product profit targets
• Tackling competition and recovering investments faster
• Stabling product prices and using affordable pricing to target a
larger consumer group
• Pricing products or services that simulate economic development

Pricing Strategies to attract Customers to

Business
• Different pricing strategies that might impact our pricing decisions are-
• 1) Skimming Pricing
• It lets businesses introduce an item in the market initially at the highest price
to convert premium customers and early adopters, but later, brands lower the
price gradually for the masses.

• 2) Penetration Pricing
• It lets products get launched in the market with low initial prices to optimize
the target purchasers.

• 3) Discounts and Allowances

• It is used to build interest and increase the demand for the product in the
target market segment.

• 4) Geographic Pricing Strategies

• It is utilized to decide the pricing of an item according to its geological area.
When the distance increases from the point of production, costing of products
will increase and so do the prices.

• 5) Premium Pricing
• It is best for brands that make top-notch items and market them to rich
people. It is used for items that are of the best quality and that buyers will view
as high worth.

• 6) Bundle Pricing
• It is used when brands pair a few items together and sell them for lower prices
than each would be offered separately. It is a decent method for moving a ton
of stock rapidly.

• 7) Economic Pricing
• It focuses on those target customers who need to save as much cash as
could reasonably be possible while purchasing a good or service. It relies
upon your overhead costs and the general worth of your item.

• 8) Value-based pricing.
• It is like premium pricing and in this model, brands decide their prices with
respect to how much the customers think the item is worth.
 • 9) Dynamic Pricing
• It enables brands to change the price of their products or services in view of
the market demand.

• 10) Special Pricing Strategies

• It is used for the effective promotion of the product. It revolves around
changes in the prices for the interval of time. Some of such strategies include
one price strategy, flat rate pricing strategy, flexible price strategy, odd pricing,
single price strategy, leader pricing, high low pricing, everyday low pricing,
resale price maintenance, price lining, etc.

Ultimately, it’s up to you to decide how to price your products or services. You must
consider market demand, competition, and other factors, as well as the cost of goods
or services and desired profit margins before making any pricing decisions.

Promotion Decisions:
Promotion Decisions for Products is crucial element in Marketing & Selling of
Products & Services.

Promotion Decisions
Promotion helps marketers to communicate information to potential customers. This
information could be about the product awareness value and benefits offered by the
product. Promotion is done to achieve different objectives like to remind customers
to modify their behaviour or to inform them.

What is Promotion?
Promotion refers to the entire set of activities which communicate the product brand
or service to the user. The idea is to make people aware attracted and induced to
buy the product in preference over others

Promotion refers to the use of communication with the Twin objectives of informing
potential customers about the product and persuading them to buy it.

According to Philip Kotler promotion includes all activities the company undertakes to
communicate or promote its product to the target market

Promotion Decision:
Meaning:

Promotion is a process of marketing communication which attempts to inform,

persuade and remind its target markets, through personal and impersonal means,
about company and its brand. It acts as a powerful tool and creates a link between
marketer (company) and consumer. Marketing communication is necessary as superb
product, best package and fair price cannot ensure sale of product unless people are
made aware of its existence. Promotion can stimulate demand, capture it from rivals
and maintain it.

Objectives of Promotion:
Promotion is an important marketing strategy. Promotion aims at communicating
marketing information to consumers and sellers. It persuades and convinces the buyer
to influence his behaviour and prompt him to take the desired action. The key
objectives of promotion can be summarized as to inform, persuade and remind:

01.To inform :
Company makes use of promotional tools to inform target market about:

(a) New product, brand, new pack size or new feature of product
(b) Reduction in price, new offer like buy one get one or more quantity at same
price
(c) Opening of new outlet in the region like Reliance, Big Bazar
(d) Working of product though demonstration
(e) New packaging of the product
(f) New or multiple uses of the product
(g) Introduction of new technologies in the market
 (h) Genuineness of product or company when some wrong or negative perceptions
have emerged as happened in case of Maggi Noodles
(i) Competitive advantage of the product or service

02.To persuade:
Promotional strategies aim at influencing buyer’s behaviour to take a desired action.
It focuses on :

(a) Insisting consumers to buy now as happens in case of limited stock offers
(b) Initiating brand switching in the favour of company i.e. capturing customers of
rival firms
(c) Stimulating demand and creating brand preference
(d) Insisting consumer to stay loyal to brand i.e. creating brand loyalty

03.To remind :
There is stiff competition in consumer goods market and companies have to
consistently remind the customer about brand, product and its competitive advantage.
The companies aim to:

(a) Remind occasion of use as Cadbury chocolates advertisement reminds

customer about its use on Raksha Bandhan
(b) Remind brand to maintain brand recall
(c) Remind need to buy to fulfil near future demand. This is particularly true in case
of seasonal goods like woollen clothes, water coolers.

Promotion Mix
Promotion mix consists of a group of communication tools which marketing
executives use to communicate with their target audience. The marketer tries to create
a most favourable blend of all promotion elements to influence buyer’s behaviour and
his process of decision making. Sales can be promoted through an effective promotion
mix.

Advertising, sales promotion, personal selling, public relations are important

elements of promotion mix. Different elements of promotion-mix are used by the
companies depending on the marketing objectives and certain other factors.
Advertising :
Advertising is paid form of communication of goods, services or ideas by an identified
sponsor which is directed at mass audience. The sponsor/ advertiser (seller) pays for
time or space used in media in which his advertisement appears. Magazines,
newspapers, radio, television, posters, hoardings, direct mail are different media used
by advertisers to influence and induce the viewers, readers or listeners to buy the
advertised products.
Sales Promotion:
Sales promotion refers to short term special selling efforts to accelerate sales. It is
a promotional activity which provides monetary and non-monetary incentives to spark
an immediate reaction from target consumers (consumer sales promotion) and dealers
or firm’s salesperson (Trade promotions). Consumer Sales promotion pulls a product
or service by stimulating demand and trade promotions push a product or service by
arousing enthusiasm among channel members to sell more of a particular brand.
Sales promotion influences purchase behaviour and provides immediate incentive to
buy. Sales promotion tools provide marvellous results when supported by advertising
and personal selling.
Personal Selling:
Personal selling refers to direct personal contact between a sales representative and
one or more prospective customers to influence the customer in a purchase situation.
It involves securing information about buyer’s unsatisfied needs and wants by the
salesman and supplying information about goods and services to the prospective
buyer. Sales talk and product demonstrations play an important role in personal
selling.

Public relations and Publicity:

Public relations and publicity aim at protecting and promoting company’s image
through number of programmes and activities. Publicity and public relations
increase effectiveness of promotion as consumers are now more interested in
evaluating company brand or product on the basis of what is written about it in the
media.
Publicity :
It is non personal communications through media such as interviews, press
conference, photographs, corporate film, press release. Media space used for
publicity is not bought by the sponsor. American Marketing Association has defined
Publicity as “non-personal stimulation of demand for a product, service, or business
unit by planting commercially significant news about it in a published medium or
obtaining favourable presentation of it on radio, television, or stage that is not paid
for by the sponsor”1.

Public Relations:
It includes certain activities like event sponsorship, cause related marketing
programmes and consumer training programmes.

• Event sponsorship: Companies usually sponsor those events which are

sufficiently newsworthy to attain wide coverage. They can become part of well-
known events like film award functions, cricket match or they can create an
event exclusively for the company or brand like Bournvita Quiz contest. Those
events create stronger ties with brand.
• Consumer education and training programmes : Companies organize seminars
and training programme to educate customers and to create brand preference.
For example, LG run Microwave cooking classes to educate customer about
the use of microwave oven.
• Social Cause related marketing: Under corporate social responsibility
campaign, companies usually support social cause programmes and donate
large funds for these programmes to create a favourable image in the mind
of target audience.
 Each element of promotion mix differs in its ability to influence buyer’s behaviour.
Hence, it is important to analyse the utility as well as limitation of each element before
using it. Moreover, other factors like promotion objectives, funds, cost and nature of
product should also be considered while selecting promotion tool to attain the desired
results.
Promotion as a tool of communication

Promotion is a tool of marketing communication. It presents messages to target

market through various channels of communication. The messages are meant to
create favourable response of target audience towards company’s product or service.
The company attempts to get feedback from consumers to know effectiveness of
communication. Consumer’s response, reaction and interpretation of message can be
understood with the help of audience surveys, dealers, salesman or other consumer
information channel. This feedback helps the company in improving and modifying its
product or service. The marketing communication process comprises of:
(i) Sender
(ii) Encoding of message
(iii) Message channel
(iv) Decoding of message
(v) Receiver
(vi) Feedback

Communication process starts from sender. Sender means the person who intends
to convey his ideas and thoughts. In marketing, sender is the firm who tries to inform,
persuade and remind the target market about firm, its product offerings and services.

Ideas are encoded by the sender to create message. In marketing, message can be
encoded by marketer or advertising agency. Encoding means conversion of ideas into
a message by using words, symbols, or sounds. Marketer should encode the message
in a way that can appeal five senses. Message is transmitted through some channel
such as T.V., Radio, store displays, phone, press, product demonstration and so
on. Marketer must select the channel which is most suitable to the
message. Message is always directed to someone. In marketing communication, it is
meant for the target group to whom marketers want to influence. The receiver/
customer is supposed to have received message when it enters his frame of
reference. The channel distortions, also known as media noise, can interfere with the
reception of message. Message may get distorted due to light, climate, physical
surrounding or competitive advertisement. There can be ineffective reception of
message due to customer’s state of mind or physical discomfort. The target market
decodes the message as per its knowledge and understanding. Decoding
is interpretation of the language, tone and symbols of the message. Interpretation
of message is affected by age, gender, culture, attitude and belief of the consumer.
Each consumer finds his own meaning to the message.

It is important to take feedback to assess effectiveness of promotion

as communication tool. Feedback indicates who are the receivers, how they have
interpreted the message and what are the responses. The feedback of communication
will be quick and direct in case of interpersonal communication. However, in case of
impersonal communication, it will be indirect. In such cases, feedback can be obtained
through audience surveys, consumer information channels or marketing research. The
effectiveness of communication can be measured through number of people who saw
the communication, recall of communication, brand awareness and purchase
intention.

Promotion as a communication tool becomes effective when marketer understands

consumer’s frame of reference, encodes the message as per customer’s attitudes and
beliefs, uses suitable channel to convey message as well as to ensure best reception
and secures feedback. Marketers must attune themselves to the responses and adjust
their communication programmes.
Promotion as a tool to stimulate demand

Promotion tries to influence consumer’s attitudes, beliefs, preferences and buying

behaviour. The effectiveness of promotion lies in consumer’s response to messages
which may be represented by actual purchase or change in behaviour.

Response Hierarchy Models developed by management thinkers or experts are

used to study how consumers respond to messages. These models outline the
different stages of consumer involvement and response to the messages.

The models assume that consumers respond to marketing message

in Cognitive (learn), Affective (Feel) and Connative (do) sequence. Attention or
awareness is the first stage of response. Marketers through promotion try to draw the
attention of consumers to messages. But it alone will not lead to action. Marketers
through personal selling or sales promotion create opportunities for customers to get
a feel of the product. It creates interest and stimulates their desire to acquire the
products. Through different promotional tools customers are convinced of product’s
superiority over competitor’s products which compel them to act.

It must be remembered that these models do not explain how promotion affects all
types of purchase situations. But still these models are popular and are used to
measure effectiveness of promotional efforts. These are also useful to evaluate
effectiveness of each component of promotion-mix and media-mix in terms of their
ability to create demand or influence buyers’ behaviour.

Factors affecting promotion mix

Promotion is important tool to create and maintain demand. Favourable corporate

image can be developed through promotion. There are various promotion tools
available. A company should use an appropriate tool by considering following factors:

Nature of Product:

Industrial products are customized to buyer’s specification. Personal selling is best

suited to sell these products. Advertising will not serve purpose in such cases.
However, some companies dealing in industrial goods have used advertising to build
or protect corporate image. Industrial goods can be promoted through sales engineer
or journals. Consumer products can be categorized as convenience, shopping or
specialty products. Specialty products should be promoted through selective media
like journals, personal selling. Convenience products are mass selling consumer
goods that can be promoted through radio, newspaper or television. Even sales
promotions can be initiated for such products.

Target Market :

Sex, age and background of target market will determine the use of promotion tool.
Toys or cosmetics can be promoted through television. Press media is not suitable to
sell products which are meant for children. A convenience product targeted
at rural market would call for the use of customer education. In such markets,
advertising supported by personal selling will help in boosting the sales. It will serve
as communication tool and also support the distribution channels. Niche market
products are meant for loyal, educated and concentrated group of customers. The
promotion strategy in this case will focus on building long term relationship. Selective
and informative advertising will work for such product.

Stages in Product Life Cycle :

Promotional strategy will be influenced by product’s stage in life cycle. During the
introductory stage, there is need to create awareness and knowledge about product.
Promotion strategy should be such as to trigger a need and establish product utility.
Product displays and publicity supported by advertising can be relied upon to promote
such product.

The purpose of promotion will be different when product reaches growth stage. As
the product is known to the consumers, therefore, the focus will be to build brand
preference through advertising. In this case, there will be shift from creating awareness
to increasing customer base. Public relations and sales promotion can be used to
support advertising.

Product at maturity stage faces tough competition and declining sale. To retain
customers for matured product, firms can focus on consumer sales promotion and
trade promotion. Huge expenditure on advertising will prove a sheer waste at this
stage.

As product move to decline stage, only sales promotion techniques can be

resorted to.

Availability of Funds :

The new entrants may lack funds to use advertising, personal selling, or sales
promotion tools. They can go for publicity to create awareness among customers. If
established firms do not face any financial crunch they can adopt any promotion tool.

Type of buying decisions:

Promotional tool is determined by the type of buying decisions. Complex decisions
require assurance and conviction. Personal selling is best suited in such cases. Even
company’s website can also play a significant role in providing information and
assisting buyers in decision making.

Simple routine nature buying decisions require reminder communication to maintain

brand recall. Consumer sales promotions are used to keep customer interested in
brand. Trade promotion can also be used to get good shelf space at retail outlet.

Push and Pull Strategy :

Push strategy aims at assisting dealers in increasing sales whereas the purpose of
pull strategy is to encourage customers or end users. A company that wants to use
pull strategy should use advertising or sales promotion. But a company which is opting
push strategy must go for personal selling. However, a company can use a
combination of different promotion tools when push and pull strategy is followed by it.

Promotion strategy

Strategy lays down the broad principles and programmes by which company tries
to secure an advantage over competitors. Promotion strategy chalks out the
communication programme to be followed for achieving marketing objectives.
Promotion strategy aims at stimulating demand, creating brand awareness and
developing brand loyalty. A company can use a pull or push promotion strategy or it
can use a combination of both.

A pull strategy relies heavily on marketing communications to stimulate demand and

‘pull’ the customer into the retail store. Under pull strategy, all efforts of promotion are
directed at the target market, i.e. consumers and then consumers demand the desired
products from the retailer. The retailers in turn demand the products from the
wholesalers who are compelled to stock those products by approaching the
manufacturer. Thus, the request for the product starts from consumers and finally
moves to the manufacturer.

A push strategy relies heavily on the distribution channel to stimulate demand by

‘pushing’ the product. Under push strategy, manufacturer directs all promotional efforts
primarily on the middlemen i.e., wholesalers and retailers. Product is pushed through
the distribution channel. So flow of promotion and goods move from the producer to
the wholesaler and from the wholesaler to the retailer and from the retailer to the
consumer.

Most consumer goods manufacturers generally use a push-pull (mix) strategy to sell
their products. The proportion of pull and push may differ according to the
requirements of market situation. Salesmen are used to push the product through the
marketing channel, while advertising and sales promotion pull the customers and
support personal selling to accelerate sales. Thus, all tools of promotion work together.
Designing effective promotion strategy

The strategy is competitive policy. It lays down the direction by which an

organization tries to secure competitive edge, exhibit attractiveness to buyer and make
efficient use of firm’s resources. A promotion strategy should be intelligently
formulated and must pass through various stages as summarized below:

Identify the target audience:

The marketing executive should decide the target audience (in terms of usage and
loyalty). Typical purchase behaviour of target audience should be assessed.
Marketers may find loyal users, brand switchers, infrequent users of product or
service. Different promotion strategy should be used for different categories of buyers.

Determine the objective :

It is essential to lay down the objective of promotion strategy. The purpose may be to
create need, build awareness, provide knowledge, develop liking, build customer
preference, develop conviction (confidence) or secure purchase. The most effective
strategy can achieve multiple objectives.

Design the promotion message:

It is important to decide what to say (message content), how to say(message

expressed) and who should say to attain a desired response. The management
usually wants to convey appeals, themes or ideas through message for brand
positioning and establishing points of difference. Therefore, message may relate to
features and performance of product or services or image of brand as popular or
traditional. The target customer may expect the message to be providing ego, sensory
or rational satisfaction. For example, the phrase utterly buttery delicious
in message for Amul Butter provides sensory satisfaction. Therefore, message should
be carefully framed to appeal the audience. It is equally important that message
should be expressed properly which demands creativity. The message can be
expressed as informational appeal describing product or service features and uses or
it can be transformational appeal describing non-product related image or benefit.
Message in such appeals may depict the kind of persons using that brand or kind of
experience resulting from the use of that brand. These type messages influence
emotions that will motivate purchase. Further, the decision regarding message source
(i.e. who should say the message) is important. Big business houses usually hire
celebrities for their brand endorsements as they know that these popular sources have
higher attention and recall value. Credibility, likeability, expertise and trustworthiness
of message source can influence target audience response Hence, it should be
carefully decided. The promotion message should be relevant, useful and credible to
stimulate a better response.
Selecting appropriate channel of promotion :

It is important to choose appropriate channel to convey message after considering

certain factors. The prevailing tough competition has made it difficult to rely upon just
one channel. The marketers now prefer to use promotion mix to retain and attract
customers. These involve personal communication channels like salesmanship or
personal selling which are highly individualistic in nature and also impersonal channels
like T.V., Radio, sales promotion which are directed at more than one person.

Establishing the promotion budget :

The company must estimate the likely expenditure on promotional activities. Industries
or companies vary considerably on their expenditures. It may be high for consumer
goods whereas low for industrial goods. Different methods are available to
determine promotion budget. The company should use an appropriate method.

Among other things, it is equally important to take feedback and measure the
effectiveness of promotion strategy so as to make necessary changes in
communication programme and product offerings or services. Effectiveness of
promotion can be measured in terms of increase in demand, brand awareness, or
purchase intention.

Determining promotion budget

Setting promotion budget is an important decision. It involves financial commitments

and has effect on sales and company’s image. There are lots of methods available to
determine promotion budget. Some of them have been described as follows:

Affordable :

In this method, a company sets promotion budget on the basis of funds available. This
method completely overlooks the role of promotion in increasing sales. Moreover, due
to different annual promotional budgets, long term planning becomes difficult.

Percentages of sales Method :

Promotional expenditure may be determined on the basis of relationship between

promotional expenses and sales revenue as indicated by specified percentage of
sales either current or anticipated. This method encourages management to think in
terms of relationship between promotion cost, selling price and profits. It is certain
as company spends same percentage every year. But this method is less flexible as
it does not allow to respond to market need. Moreover, planning of long term
promotion programmes becomes difficult.

Competitive Parity Method :

This method envisages determination of promotion expenses in such a way that parity
with competitor’s promotion expenses can be maintained. For this purpose, relevant
data can be collected from industry publications, inter-firm comparisons published by
industrial association and research studies. This method is not scientific as
objectives, scale of operation and resources vary significantly among companies.

Objective and task method :

In this method, promotion objectives are determined first and then tasks required to
be performed to achieve those objectives are determined. Finally, cost of performing
these tasks is estimated. This method is flexible and scientific. It treats promotion
expenditure as investment which is necessary to achieve objectives. It forces
managers to prepare budget for each promotion campaign.

Distribution Channels:
The following points highlight the top eleven models of rural distribution. The models
are:-
1. Public Distribution System
2. Distribution through Wholesalers
3. Distribution through Sub-Dealers
4. Distribution through Local Dealers
5. Sales through Rural Sales Force
6. Company Outreach Programmes
7. Village Entrepreneurs
8. Local Influencers
9. Rural Retail Chain
10. NGOs and Other Networks
11. Rural Value Chains.

1. Public Distribution System:

The PDS was started in India before independence with the objective of providing
food security to the poor. Under the system, food-grains were sold from fair price
shops at lower prices than the market rate. It was the first structured public
distribution of cereals in India through the rationing of rice or wheat to ration card
holder families. This was followed by successive governments over the years. In
1997, it was changed to Targeted Public Distribution System (TPDS) so that cheap
rations could be delivered to BPL people, identified through a BPL survey.

In 2013, the National Food Security Act (NFSA) came into force, under which a
rights-based approach was adopted instead of the earlier welfare approach. Under
this Act, eligible beneficiaries—identified through Socio-Economic Caste Census
(SECC) 2011 data—are entitled to receive 5 kg of food grain at subsidized prices.
Some states have already adopted the NFSA while the rest of India still follows the
TPDS system.

TPDS operates through a system in which the Central government procures food-
grains from farmers at a minimum support price (MSP), allocates grains to each
state, and transports them to the central depots in each state. State governments
identify eligible households to which the grains are to be delivered from these depots
to each ration shop. The ration shop is the last point of the distribution channel from
where grains are sold to consumers.

Though the system is supposed to help poor and marginal populations, studies have
revealed that is has not been very effective in its objective. For example, FAO’s ‘The
State of Food Insecurity in the World, 2015’ report points out that 194.6 million
people are undernourished in India, that is, India is home to a quarter of the
undernourished population in the world (FAO 2015). It also says that 51 percent of
women between 15 to 59 years of age are anaemic and 44 percent of children under
5 are underweight. The Global Hunger Index 2014 ranks India at 55 out of 76
countries, pointing to the weaknesses of government distribution system.

Studies have also shown shortcomings in implementation. Problems have been

reported pertaining to inaccurate identification of households and a leaking delivery
system. Studies show that PDS suffers from nearly 61 percent error of exclusion and
25 percent inclusion of beneficiaries. Regarding leakage, an ICRIER study found that
at an all-India level, 46.7 percent or 25.9 MMTs of the grain did not reach the
intended PDS beneficiaries in 2011-12. Leakage was seen to be higher in the poor
states – Uttar Pradesh, Bihar, Madhya Pradesh, Maharashtra and West Bengal.

An NCAER study (NCAER 2015) found that there was inappropriate identification of
BPL families and that the inefficiencies in the supply chain contribute to the high cost
of delivery in most states. The study also found that the supply chain of the PDS is
riddled with malpractices at distribution and administrative levels. It was found that in
some states, people had paid Rs. 14-118 for getting a new ration card even though
the government charges a token fee of just Rs. 1.

The PDS, thus, is in need of an overhaul. A case has been made for direct cash
transfers through Jan Dhan Yojana and the UID generated by the Aadhaar scheme
instead of providing subsidized food-grains, which is easily diverted. PDS is also not
cost effective as its operations are too costly and the ratio between procurement and
transportation is too high. Storage losses are also very high.

Saini and Kozicka (2014) write that there is a case for reducing the role of the
government in food management systems of the country since the country no longer
faces acute food scarcity of the 1960s. Today, the country is self-dependent and it
exports a number of agricultural products. This is the right time, they write, to move
from controlling price through high subsidies to income policy support that includes
cash transfers to the poor. If India can make this switch, it can reap huge economic
gains. Cash transfers would help in better targeting and reduce the huge costs
associated with government intervention in the grain market.

Clearly, the PDS is not enough to serve the growing population of India. Private
individuals and companies step in and build distribution channels to reach markets
across India. They do this in various ways, working through their dealers or creating
new models.

2. Distribution through Wholesalers:

This is the most common method of reaching rural areas. It entails no extra cost for
the company since existing channels are used. Wholesalers load the goods in a
small vehicle and send them to nearby villages. The driver delivers goods to village
retailers and collects payments. Alternately, village dealers make weekly trips to the
town and collect goods from different wholesalers, piling them up in their pick-ups,
and collect goods from various sources for selling back home.

The village dealers add a mark-up and cost of transportation to their cost of
purchase to arrive at the selling price. There are some disadvantages in the model.
First, all villages cannot be covered through this method. Second, goods become
quite expensive by the time they reach the customer. Village retailers thus have to
charge more than the printed MRP to cover their costs and customers are not very
happy about this. A third disadvantage is that sales are dependent on the
wholesaler.

3. Distribution through Sub-Dealers:

In this model, the wholesaler or the company appoints sub-dealers in villages.

Wholesaler commission is shared with these sub-dealers, who take up the task of
supplying to rural retailers through their own salesmen. Sub-dealers are convenient
because the wholesaler is assured of regular business and payment collections.

4. Distribution through Local Dealers/Partners (Hub-and-Spoke Model):

In this case, the company bypasses the town wholesaler and directly appoints local
dealers or partners who are served through company depots in a nearby town. This
resembles the hub-and-spoke model, where the company depot serves as a hub
serving surrounding villages.

Either the company builds its own logistics to supply goods or it requires the dealers
to collect goods from the depot. This model is more expensive than working through
wholesalers as the company has to maintain many depots in towns. However, the
company gains full control of its rural marketing and distribution and is not dependent
on dealers.

5. Sales through Rural Sales Force (Direct Channel):

Some companies appoint rural sales force to visit dealers and retailers in villages.
Goods are then supplied through the company depot in the town. Small companies
follow this route and are able to achieve deep penetration in their areas of operation.
Wholesaler commissions are avoided but the company bears the cost of distribution.
This is an expensive option since the company has to add a large number of sales
people on its payroll. The advantage is that the company can serve the areas it
wants to cover and is not dependent on the wholesaler or the sub-dealer. The
company is also able to establish direct relationship with the rural customers.
6. Company Outreach Programmes:

Outreach programmes are an effective way to reach villages, especially when demos
or consumer education are required. The company uses BTL techniques to involve
communities in their brands. Excitement is built by multimedia devices and direct
customer experience. Consumers can experience products directly through this
method, and brand loyalty can be achieved.

7. Village Entrepreneurs (‘Feet on the Ground’):

This approach is called ‘feet on the ground’ approach, in which the company trains
and develops entrepreneurs in villages who act as distributors and brand
ambassadors. Case studies of Essilor and Project Shakti, are examples of this
approach. The advantage of this model is that the company can reach the remotest
of the villages. The village entrepreneur creates customers for the company and
works for mutual benefit.

8. Local Influencers:

In this case, the company works through people who can influence others. Well-
known or respected people in the village arrange community meetings and product
demos to influence consumers and inculcate brand loyalty.

9. Rural Retail Chains:

Companies can work with retail chains established to serve rural areas. Chains such
as Hariyali, Aadhaar and Choupal, or tying up with petrol pumps, are easy ways to
reach villages. However, many of these initiatives have failed.

10. NGOs and Other Networks:

Another way of reaching villages is to piggyback on existing networks of NGOs,

microcredit groups or SHGs. Companies work with these groups to tap their existing
members. This initiative was used by Tata Tea, which started its ‘Gaon Chalo’
initiative with NGOs and SHGs. This is a beneficial model as the company gets
access to a set of people who are connected by a common cause. Building trust
becomes much easier.

11. Rural Value Chains:

Supply chains are created not only to provide goods to villages but farmers can sell
their produce through the same channel. Such chains help solve farmers’ problems
and help them increase their income, which, in turn, is used to buy products from the
supply chain. The approach, however, calls for huge investments to cover villages.
ITC’s e-choupal and Jain Irrigation show that rural distribution is facilitated by helping
deliver value to farmers, while at the same time solving a problem for village folk.
The aforementioned ten models of distribution serve rural markets in different ways
but, in each case, they have to overcome severe difficulties that arise because rural
areas have traditionally been neglected in public policy. Though the government has
many rural development schemes, its approach has been to throw money at villages.
But, it is estimated that only 10% of government spending reaches the beneficiaries.
The development route followed in India since Independence has been city-centric.

The problems in rural distribution can be described as lack of infrastructure and

logistical challenges. Villages lack basic infrastructure like roads, access to
education, dependable electricity, Internet and public health investments.

Relationship Management:
Relationship management is, as the name suggests, managing relations in your life.
Traditionally, relationship management means to maintain good and positive
relationships between an organization and its clients. But it goes way further — it
means managing and maintaining positive relationships with everyone in your life,
may it be your spouse, your family, your siblings or your work colleagues or
employees.

Relationship management is the art of influencing people to become to best version

of themselves. It is a known fact that we become who we spend time with. It is
important that with the people with whom we spend something as precious as time,
we create an environment where growth comes naturally. It is very important to have
a positive environment in all your relations in life. It is mostly about how well you can
influence people. A great influencer has amazing interpersonal skills, and
interpersonal skills can be learned and taught. The better you get at these skills, the
better you will be able to manage your relationships at work and at home.
Similarly, relationship management is absolutely crucial for the success of an
organization. Following are some points that show the benefits of relationship
management in the workplace:

• Long-Lasting Relationships With Customers. For an organization to flourish, it is

absolutely essential to have better and long-lasting relationships with customers.
Relationship management allows the organization to have better, strong and long-
lasting relationships with its customers.

• Enhancing Our Creativity. Good relationships with people at work help in creating
a joyful environment to work in and give us an opportunity to be creative and
showcase our skills.

• Help In Career Growth. It is important to have good relations with people; by

"good," we mean "loyal" and relationships built on trust. If your boss trusts you and
your colleagues have good relationships with you, only then will they speak well
about you with others. Such conversations open a lot of career opportunities, too.

Now let us discuss the main components of relationship management and how to
build long-lasting relationships with customers:

Be Clear
For an organization to become a brand, your customers need to know exactly what
you are selling, why you are selling and who you are selling to. So in order to build
better relationships with your customers, make sure that the message being
delivered to them is crystal clear.

Similarly, to build better relationships with your team or employees, you have to
make sure that the message is clearly conveyed to them.

Be Consistent

This is one of the most important components of relationship management. If a

brand is not consistent, why would customers want to buy from them again? If we
look around and observe, we will notice that only those brands actually flourish that
stay consistent with their products and services. There is no option of making
mistakes when it comes to building loyal relationships with customers.

Communicate Well

Relationships cannot just be built and then forgotten. Like a plant, which needs water
to grow, relationships need communication to sustain and grow, too. For a
relationship to grow, it is important that you give your time, energy and effort to
maintain it, and this is the key to all relationships, whether work or personal. Similar
is the case with a company and its customers.

It is essential that your company representatives are available for your customers at
all times. If you communicate with your customers through online chats or emails or
phone calls, then make sure a customer representative is always available to cater
to the needs of your customers by responding to them.

Similarly, if you want your team to perform a task, you have to make sure that you
communicate to them well and are available to cater to their confusions. Apart from
that, if you believe you have a problem with an employee for any reason, it is
important you communicate that to them so that they can improve and learn from it.
Communication is the key to having better relationships.

Be Positive

Who wants to spend time with a toxic and negative person? It is important to stay
positive with yourself and others, no matter how hard the situation is. Positivity is
very attractive, and it will help you in building friendships and maintaining
relationships throughout your life.

Develop Interpersonal Skills

If you believe you do not have good interpersonal skills and that is the reason you
cannot maintain your relationships, well, there is nothing to worry about.
Interpersonal skills can be learned. It is important to develop these skills because it
will help you in communicating well with others and you will be able to influence
them, too.
In order to live a happy and wholesome life, it is important to build strong, good and
happy relationships in every aspect of your life. It is important to have good
relationships with your friends, family, neighbors and relatives, and similarly, it is
important to have good relationships with your work colleagues, employees and
bosses. Having sore or bad relationships with any of them can take a toll on your
mind and body and get you all stressed out. Our relationships can have a huge
impact on both our personal and professional lives. Good relationships at home will
make our lives easier and happier, and similarly, good relationships at work can
make us happy and satisfied.

Importance of Customer Relationships

Changes in consumer behaviour

With the popularization of the Internet and smartphones, consumers can now easily
find information on products or services on their own. As a result, the number of
consumers who wait for information to be given to them by sellers, which was
common in the past, has decreased, and consumers who take active steps to gather
information on their own have become the mainstream. This change is a major
reason why relationship marketing has become so important.

Changes in the way consumers gather information

Changes in consumer behavior have made it possible for consumers to gather as

much information as they need, and this has led to a demand for more transparent
information when considering a purchase. The buying process has also lengthened,
as customers take more time to go over each piece of content and continue
searching until they can make a rational decision based on all the facts. This is why
relationship marketing, which emphasizes the building of long-term relationships
rather than fast sales, has received more attention over the years.

Because of these changes, the market is now centered around the consumer. This
situation has created the need for relationship marketing, which considers the
customer's perspective first and foremost.

Increased demand for personalization

Now that consumers have easy access to info online, the traditional approach of
treating all customers the same way and providing them all with the same
information is considered to be less effective. It has become necessary to provide
personalized information based on data.

You now need to break your list of prospects and existing clients down into
segments, and send content that is tailored to their interests and needs. One of the
principle ideas in relationship marketing is to treat each customer as an individual,
and personalized content is just one way of achieving this.
Benefits of Relationship Marketing

1. Increased life-time value per customer

Life-time value (LTV) refers to the predicted net profit of an ongoing relationship
between a customer and a business. A maximized LTV is considered a huge benefit
of relationship marketing. This is achieved as there will be more repeat purchases
from existing clients, and you will have to invest less costs into new customer
acquisition.

2. More repeat purchases + lower CPA

If you can gain the trust of your customers, they will be less likely to waver and
switch to a competitor's products, and will repeatedly purchase from you. If you can
develop products and a customer experience that keeps everyone satisfied, you can
avoid customer churn as well.

3. Business growth through word of mouth

These days, when everyone is on social media and look to their peers or influencers
to learn what’s trending, word of mouth advocacy is very powerful. If you can turn
your customers into loyal customers - or better yet, fans - they will act as free
advertisement to promote your products and services in their circles, helping you to
attract new customers.

4. Larger average deal size

By cultivating loyal customers through relationship marketing, you can expect to

increase the average deal size and the amount spent per year, thereby maximizing
the amount spent per customer.

Relationship marketing Strategies

Database marketing

Database marketing aims to increase sales by utilizing customer information such as

purchase history, demographics, and survey data, to provide a more personalized
experience. The purpose of database marketing is not to develop new customers,
but rather to build stronger relationships with existing clients, and it is a very effective
method of relationship marketing.

By focusing on the needs of the customer, it is possible to provide detailed support,

increase the likelihood of receiving orders by approaching customers as their needs
arise, and reduce work time by centralizing customer data. Ultimately, database
marketing leads to a more efficient marketing~sales funnel.

Account-based marketing (ABM)

Account-based marketing (ABM) is arguably the most popular B2B marketing

strategy. ABM involves pinpointing the highest-value clients and targeting all your
marketing messages, content, sales efforts, etc. towards them. By seeking quality
rather than quantity of customers, you can focus your resources on companies with
high LTV potential, thereby expanding your marketing ROI.

Since your target is narrowed down to a select few groups, you need only focus on
their data, making it easier to keep track of which prospects are active and engaging
with your brand online.

One-to-one marketing

One-to-one marketing is a hyper-personalized strategy. Communication is all based

on the customer’s unique values, interests, and situation. The main advantage of this
approach is that it can improve the cost-effectiveness of marketing by sending out
targeted information, while also improving the relationship with customers by
providing a better experience.

Since content is not sent out to your entire list at once, you need to spend time
planning different messages for each target, which can be time-consuming, but also
highly effective.

Physical Distribution:
Physical distribution involves the handling and moving of raw materials and
finished products from producer to consumer often via an intermediary. It is
sometimes used synonymously with logistics (the branch of military science
concerned with procuring, maintaining and transporting equipment and facilities
etc.).

It has been defined as a term employed in manufacturing and commerce to

describe the broad range of activities concerned with efficient movement of
finished products from the end of production line to the consumer. In short
physical distribution refers to the physical flow of the product from producer to
consumers. Physical distribution management consists of the design and
administration of systems to control the flow of products.

Physical distribution creates ‘time’ and ‘place’ utility, which maximises the value
of products “by delivering them to the right customer at the right time and right
place.”
There are two dimensions to physical distribution process, the flow of information
from the individual customer or organizer to the producer and the flow of
materials from the producer to the consumer or the user.

Physical Distribution – Meaning

Physical distribution is an important marketing function describing the marketing

activities relating to the flow of raw materials from the suppliers to the factory and
the movement of finished goods from the end of production line to the final
consumer or user. Marketing agencies such as dealers, merchants and mercan-
tile agents manage the flow of goods and perform the function of physical
supply—right up to the consumer’s homes and stores.

Physical distribution function is responsible for completing the marketing

transaction once the function of exchange is completed, i.e., buyer and seller
come to terms and enter into a contract of sale. It should be noted that before the
sale can be completed, the product must be available at the place the buyer
wants it, at the time he wants it, and in the quantity he wants. In general, the
function of physical supply attempts to accomplish the delivery of goods at the
right place, at the right time and in the right quantity.

According to Philip Kotler, physical distribution “involves planning, implementing

and controlling the physical flows of materials and final goods from place of
production to the place of end use to satisfy buyers’ needs.”

Physical distribution is all about moving and storing the products and finally
making them available to the consumers. Distribution is the process of making
the products/services available to the consumer. It involves movement of the
products/services from the manufacturers to the end user.

Physical distribution requires a distribution infrastructure that includes

transportation, warehousing, material handling, inventory control, processing,
customer services, which facilitate the movement of goods. Physical distribution
includes both the marketing channels and these facilitators.

Physical distribution is purported to delivery of goods in right quantity, time and

at right place. The scholars have defined the physical distribution as related to
material handling, transportation, store, keeping, packaging, inventory control
etc.

Physical Distribution – Definition

Some important definitions of physical distribution are as under::

According to Wendell M. Smith – “Physical distribution is the science of
Business Logistics where by the proper amount of the right kind of product is
made available at the place where demand for its exists. Viewed in this light,
physical distribution is key link between manufacturing and demand creation.”

According to W.J. Stanton – “Physical distribution involves the management of

the physical flow of products and the establishment and operation of flow
system.”

According to Cundiff and Still – “Physical distribution involves the actual

movement and storage of goods after they are produced and before they are
consumed”.

According to Mc Carthy – “Physical distribution is the actual handling and

moving of goods within individual firms and along channel system.”

It is concluded from the definitions that:

(i) Physical distribution is science of logistics.

(ii) Physical distribution is the main mid-look between manufactural and creation
of demand.

(iii) Physical distribution is a management of flow of commodity and flow

arrangement simultaneous to distribution channel of the commodities of company
and inside the firm/company.

(iv) Physical distribution is related to the receipt of proposed and manufactured

commodities, collection, and material handling storage, transportation, packaging
and inventory control etc., functions.

Physical Distribution – Major Steps in Physical Distribution System Process

The design and management of physical distribution systems involve a number

of business functions in addition to marketing including raw materials
management, inventory control, manufacturing, transportation and warehouse
and plant location.

The major steps in designing the PDS are:

1. Establish PDS Objectives:

Customer service as it relates to the physical distribution function consists of

providing products at the time and location corresponding to the customers’
needs. The customer service levels that be provided may range from very good
to very poor. A 100% level of satisfaction would indicate that all customers are
completely satisfied with product availability.
The ideal solution to the problem of P.D.S. design is to develop minimum cost
systems for a range of acceptable levels of customer service and then to select
the service level that markets the greatest contribution of sales less physical
distribution costs. One major difficulty in this approach to PDS Design is
estimating the sales response to different levels of customer service.

Customer would be 100% satisfied if a wide range of products were available at

the right place and time in sufficient quantities to meet the needs and wants of all
who were willing and able to buy. Clearly this condition rarely occurs, since the
cost would be prohibitive. However, it is possible to achieve high level of
customers satisfaction with properly designed distribution systems.

“Customer service is a complex collection if demand related factors under the

control of the firm, but whose importance in determining supplier patronage is
ultimately evaluated by the customer receiving the service”. Five major factors
affect customer service, time, dependability, communication, availability and
convenience. The importance of these factors will vary by product and customer
category.

A minimum cost physical distribution system is the system with the lowest cost
that can provide a specified level of customer service. As customer approaches
100% sales level off and distribution costs sliding upward. The curves in the
exhibit probably resemble those that exist in as wide variety of firms.

The physical distribution design task is clear. Within the range of customer
service lends that considers necessary to achieve the firm’s marketing
objectives, (90 to 100%), the service level and system design that yield the
highest contribution of sales minus physical distribution costs must be identified.

The principle problem in doing this is the difficulty of measuring customer service
and estimating and sales response service level.

The choice of an appropriate measure or measures is situation specific and is

based on the service factor for most closely linked to customer satisfaction. The
pre-transaction elements use measures that designate service capability before it
is provided. A target delivery date indicates the planned time of delivery.

The transaction elements gauge service performance for various components of

buyer seller transactions. The post transaction elements measure customer
service based on results or outcomes. An important factor in customer’s service
is establishing communications between buyers and sellers.

2. Examining Cost Trade Offs:

The cost tradeoffs for physical distribution components must be evaluated to

determine how and to what extent each component will be utilised in the P.D.S.

The interrelationships of various PDS component are shown as below:

(i) Estimating customer service levels.

(ii) Developing purchasing policies.

(iii) Selecting transportation policies.

(iv) Making warehousing decisions.

(v) Setting inventory levels.

Analysing the costs of alternative combinations of PDS components is essential

to guide the design of the system.

3. Identify and Select Design Alternatives:

A key issue in designing the PPS is how to incorporate the customer service
objective into the design process. Management judgement and experience will
often dictate a range of customer satisfaction levels that are acceptable to the
firm.

In many cases, these levels may be expressed not as percentage, but rather in
terms of lost orders, delays, stock outs, and other proxy measures.

To illustrate alternative ways of handling the customer service objectives, we

consider three possible approaches in designing the P.D.S.

(i) Estimates Sales Response to Customer Service:

This approach requires information such as that shown below:

Logistics system design costs as function of various customer service levels.

a. Minimum Cost design to produce the stated customer service level.

b. Percentage of customers receiving goods within one day.

If it is possible to determining the relationship between sales and customers

service, then a minimum cost PDS can be designed for the service level that
fields the highest profit contribution. The difficult part of this approach is
estimating the relationship sales response to service level. What change in sales
will occur if customer satisfaction is increased from 94% to 97%? Possible
methods for estimating the relationship include management judgement and
experience, analysis of historical sales and service data, customer research and
testing under controlled conditions.

Due to the difficulty of obtaining response information or the costs involved in

estimating the response relationship, this approach may be unfeasible for many
firms. The approach would be particularly difficult to apply in situations where
customer patronage depends on several aspects of service.
Developing a composite sales response function incorporating the effects of
product substitutions, delivery delays, and inventory availability on sales
response would be demanding analytic task. However, the data available on
customer service and buyer response should make the approach applicable to
catalog mail order distribution.

The system designs must determine a minimum cost design for each customer
service level analysed. In the six alternatives considered, the service level (e.g.
the sales increase that would be obtained by moving from alternative 3 to
alternative 4) and then select the alternative that offers the greatest contribution
over costs.

(ii) Minimise Total PDS Costs:

With the second PDS design approach, management must estimate the total cost
of customer service. This approach requires estimating costs of lost sales
instead of sales response to customer service. Management might specify a 95%
service level that would mean 5% customer dissatisfaction. The cost of lost sales
is estimated and included with other distribution costs.

Minimise Total PDS costs = Transportation costs + Inventory costs +

Warehousing costs + Order processing cost + Cost of lost sales.

The objective is to minimise the total cost of physical distribution.

(iii) Reduce PDS Costs:

The third approach to the design task involves analyzing the tradeoffs between
PDS components with the objective of improving physical distribution over the
present level. This may mean increasing the customer service level at no
additional costs or reducing total distribution costs with no loss of customer
service.

This approach is often the most feasible of the three, due to the inherent difficulty
of estimating the relationships of sales response or cost to level of service.
Although not an optional solution, it represents a potential starting point for most
firms.

Physical Distribution – Importance

Planned and integrated management of all physical distribution activities
(particularly transport, storage, inventory control and order processing) has
assumed unique importance in the process of marketing since 1960. It can offer
a feasible solution striking an optimum balance between physical distribution
costs (costs of transport, storage, inventory and order processing) and the
customer service level that will be satisfactory to the buyer and also profitable to
the seller.
Marketers now feel that physical distribution costs can be minimised without
adversely affecting the level of customer service and satisfaction. The marketing
functions of warehousing, inventory control, transportation, physical handling,
order processing, etc. are now managed as an integrated whole. All these
activities are coordinated properly and an effective physical distribution package
is evolved to give customers the service they expect and insist and at the same
time to assure the marketer profitable sales.

Marketers have realised that there is a definite connection between

merchandising programme and physical distribution services e.g., delivery
service and order processing service. Customers often give more importance to
physical distribution rather than price and promotion services. They consider
physical distribution second in importance to product quality as a reason for
buying from a certain firm. Better physical distribution services give higher
overall customer satisfaction.

The main objective of physical distribution is better customer services—an

important selling point. For instance, promises such as – “Third morning rail or
truck delivery anywhere in the state of Karnataka/Tamil Nadu,” “Prompt
availability of installation, repair services and parts from the supplier,” and so on
can generate accelerated sales and profits. In short, effective physical
distribution services give customers the service they expect, i.e., putting the
products within an arm’s length of customer demand or desire.

Physical Distribution – Factors Affecting

Every producer has to find a way to distribute his products to their final users. To
distribute, various channels are available in today’s economy. How does a
producer select one or more channels of distribution to ensure smooth
functioning and minimized cost?

This is understood by studying the factors that influence the choice of

distribution channels, which are described below:

1. Product Factors/Considerations:

The first and most important factor that influences on the choice of the channel of
distribution is the nature of goods. Perishable goods like cakes and breads that
are required to be sold quickly, are sold directly by the manufacturers to the
consumers through retail outlets. Goods that last longer can be handled by more
intermediaries to insure a larger market.

i. Physical and Technical Nature:

Products which are of low unit value and have common use amongst consumers
are generally sold through middle men; whereas, the sale of expensive and elite
consumer goods and industrial products is conducted directly by the producer
himself.
Products that are perishable, i.e., products which are subjected to frequent
changes in fashion or style or trend, as well as those products which are heavy
and bulky, go through relatively shorter routes and, are often distributed directly
in order to minimize costs and damage.

Industrial products that need demonstration, installation and after sale -services
are often sold directly to the consumers; while, retailers generally sell consumer
products which are of technical nature.

Certain technical or complex products need installation and advice of product

use including demonstration, service visits, etc. For this, having exclusive trained
personnel is essential. Some companies prefer exclusive dealership in such
cases.

In case of an entrepreneur who produces a large number of products, he may

find it economical to set up his own retail outlets and sell his products directly to
the consumers. At the same time, companies which have a narrow range of
products may make their sale through wholesalers and retailers.

A new product needs greater promotional effort in the initial stages and, hence,
few middlemen or intermediaries may be required.

ii. The Market Position:

Here, the focus is on the reputation of the manufacturer. A product promoted by

an established and reputed manufacturer has a higher degree of market
acceptance and, therefore, can be sold through various channels with little effort.
A new product, thus, has quick sales based on the producer’s reputation. This
may, however, have long-term risks.

2. Market Factors/Considerations:

i. The Existing Market Structure and Size:

Producers may have to study the existing market structure. It can be

geographically concentrated or wide spread. For example, industrial markets are
usually concentrated in a few large cities involving only large customers.
Producers or channel commanders can have difficulty in changing that.

However, consumer goods market has a different structure, as; it is directly

related to, the masses. Consumer preferences dictate channel selection. For
example, baby food manufacturers changed their channel of distribution to
supermarkets, as; research revealed that mothers preferred super markets over
drug stores.

ii. Consumer Behavior and Nature of the Purchase Deliberation:

Purchase decisions are made differently for different products. Consumers spend
more time and effort on durables such as washing machine and mobile phone
than on a pack of biscuits or toothpaste. The frequency of purchase influences
purchase deliberations. Products, which are purchased frequently by consumers,
have more buyer-seller contacts and middlemen are suggested.

iii. Availability of the Channel:

Availability of a channel refers to the willingness of channel members to accept a

brand. For this, the channel commander or the producer has the task of winning
over the cooperation of the channel members. The producer may adopt push or
pull strategy. In push strategy, the producer resorts to regular activities of
convincing the existing channel members to accept the product and passes it
through various points to reach the retailer and then the final consumer.

In the pull strategy, the producer resorts to aggressive promotional activities on

the final consumer, relying on the fact that strong consumer demand will force
middlemen to accept the product in order to cater to the consumer satisfaction.

iv. Competitor’s Channels:

A new firm always studies the existing distribution pattern and this, necessarily,
includes identifying the distribution channels employed by competitors. Every
business has certain established norms and practices and this may, even, apply
to channels of distribution. If the existing pattern has given success to the
competitors, a new firm may adopt the same channel as long as it is suitable and
logical. As a matter of fact, finding new avenues may prove to be costlier and
cumbersome.

3. Institutional Factors/Considerations:

The channel members also influence the choice of the channel to be selected.

They are briefly discussed as follows:

i. Financial Ability of Channel Members:

In the process of sending the goods through the channels of distribution, it is

found that manufacturers need to aid the retail dealers financially, either through,
interest free loans, or other credit terms. Credit terms being competitive the
willingness to extend credit is a determinant in channel acceptance. Retailers
also sometimes finance their suppliers either directly or by investing in the
company. Usually, government agencies are restricted from making advance
payments.

ii. The Promotional Strengths of Channel Members:

Every producer, i.e., the channel commander, wants his product to be promoted.
For national brands, producers themselves take up the responsibility. However,
for others, distributors promote jointly with the producer. In case of certain
private brands, the job is taken up by wholesalers or retailers who establish the
brand name.

iii. The Post-Sale Service Ability:

Many products carry a warranty and this is used by the consumer post purchase.
The responsibility of serving the warranty has to be well established. It can be
the manufacturer himself or a channel member.

Since the retailer-distributor is the closest in touch with the consumer, the
consumer may expect this service from them itself. In certain cases, the product
may be returned to the manufacturer for servicing or services may be performed
by an independent service outlet established for this purpose.

4. Unit or Firm Specific Factors/Considerations:

Every firm has its own strengths and weaknesses, which influence channel
decisions.

Among them, important ones are discussed below:

i. The Company’s Financial Position:

Huge companies, which have the financial and human resource capability may
not only produce the goods but also may have the ability to set up their own retail
outlets thereby creating a lot of visibility for themselves. On the other hand,
smaller companies which do not have either the financial capability or manpower
resources might just concentrate on production and leave the marketing of goods
to others.

ii. The Extent of Market Control Desired:

Market control refers to the ability of a firm to influence the behaviour of channel
members according to the will of the management.

Here, the entire distribution network is served by factors such as resale price
maintenance, territorial restrictions, quotas and the like. The channel
commander, i.e., the producer or the manufacturer, may desire to exercise such
command from time to time. The extent to which they want the control is the
question to be answered, as, higher the control, higher will be the channel
directness.

iii. The Company’s Reputation:

Popular companies, known for their products or services, have little or no

problem in settling with a particular channel. This is because reputed companies
do not go in search of intermediaries. Instead, the intermediaries come in search
of them.
Reputation is reflected through higher sales, timely and quick replenishment of
stocks, low levels of inventory, easy settlement of claims, competitive margins
granted etc. The selected channel turns out to be cheaper and dependable due
to the willingness and cooperation extended by channel members.

iv. The Company’s Marketing Policies:

A company’s marketing strategy lays down the method of distribution. Important

factors such as advertising, sales promotion, pricing, delivery and after sale
services influence the channel selection the most.

For instance, a company that invests heavily in advertising and sales promotion
makes the selected channel direct, as, little effort is required to push the product
through the chosen line. Alternatively, a company adopting a price penetration
policy, [comes with a low margin], chooses a longer channel.

5. Environmental Factors/Considerations:

i. Economic and Legal Factors:

Due to the economic disparity prevalent in the economy, the government

promotes public distribution system through fair price shops to reach out to the
economically weak sector. This constitutes the public distribution system, which
primarily focuses on the distribution of necessities.

The private distribution system also needs a certain amount of regulation. Much
legislation has been passed from time to time to regulate the functioning of the
various channels of distribution. One such important legislation is the MRTP Act
of 1969.

The provisions of this Act aim at preventing exclusive dealership, regulating

territorial restrictions, reselling price maintenance, full line forcing, etc. The
Companies Act, 1956, forbids sole selling agency arrangements in industries like
paper, cement, vanaspati, etc. Such provisions keep away cut throat competition;
prevent creation of monopoly and the like which are objectionable to public
interests.

ii. Fiscal Factors:

Sales tax rates vary from state to state as it is a state fiscal matter. Although
such sales tax is part of the retail price set for a product, it is actually borne by
the final consumer; it has its role to play in channel arrangements.

For example, let us say, sales tax rate in Karnataka is higher when compared to
Kerala, a producer may, therefore, take advantage of this benefit, prefer to open
his office in Kerala and pass on the reduced tax benefit in the form of reduced
price. This can also become a competitive advantage to the product.

Physical Distribution – Components

The process of physical distribution involves co-ordination and integration
of five components:

1. Order processing,

2. Inventory Control,

3. Warehousing,

4. Material Handling and

5. Transport.

Most important components are warehousing, inventory and transport.

1. Order Processing:

We should have standard procedure for handling and execution of orders. Order
processing time must be reasonable. Any delay in order execution creates ill-will
and may lead to loss of business. Customer demands assured delivery within a
fixed period always. The speed in order execution reflects the degree of
customer service. Even a slight increase in customer service can increase your
business to the extent of 20 per cent. Order serving time can act as a selling
point in our marketing programme.

2. Inventory Control:

In fact the entire physical distribution management, size, location, handling and
transporting of inventories assume unique role in physical distribution.
Inventories are reservoirs of goods held in anticipation of sales. The inventory
inter-connects production activity (purchase activity) and the customers’ orders
(sales activity). Inventory cost increases at an accelerated rate as the customer
service level approaches 100 per cent. We must reconcile and balance the
inventory cost and the customer service level.

We must have a balanced assortment of merchandise for sale to meet the

expected customer demand. Too small inventory will mean stock outs and lost
sales. Too large inventory means huge capital investment, lower turnover and
higher inventory operating cost. The main objective of inventory control is to
secure minimum capital investment and fluctuations in inventories as well as
prompt order execution as per customer demand.

3. Warehousing:
Storage is the process of holding and preserving goods. It can equalise supply
time-wise. The selection and proper location of warehouses is of special
importance in the process of marketing. The distribution centres are now located
around the markets rather than around transport facilities.

Distribution centre (a special kind of warehouse facility, strongly market related)

enables order processing and delivery of goods directly to customers under one
roof. We can have better and quicker customer service at lower cost of
distribution under distribution centres.

We can also have a few warehouses and normal inventory stock. The new
system of distribution reduces delivery time and also storage time. Emphasis is
given on selling and not on storing. Many companies are shifting from storage
warehouses to distribution centres. One distribution centre is set up in one region
around the market and not around transport facilities merely.

Distribution centres use the latest equipment for data processing, material handl -
ing and inventory control. The range of services a distribution centre offers can
be matched with those offered by a wholesaler. However, a wholesaler is the
merchant middleman, whereas a distribution centre is an agent middleman.

4. Material Handling System:

Instead of manhandling, we have automated material handling equipment in

modern warehouses. New concepts of packaging, containerisation, and palletiza-
tion have brought about remarkable reduction in the cost of physical distribution.
We have now conveyor system and forklift trucks. Material handling is now
almost mechanised in the Western countries.

Standard size containers to pack and transport goods can be stored on pallets or
small platforms which can then be moved by mechanical transport. Modern
mechanised handling of goods and protective packaging have improved
customer service, lowered distribution cost, and have also speeded up order
execution.

5. Transport:

Physical distribution is nothing but a network of activities consisting of storage at

many locations interconnected by a series of transport links in the process of
distribution. Transport is called the Gordian Knot, if not the snake pit, of physical
distribution management. The costs of transport are ever — rising since 1970.

Let us now describe the various means of transport, their relative advantages
and disadvantages and the criteria for choice of mode of transport.
Physical Distribution – Key Functions
Physical distribution is part of a larger process called “distribution,” which
includes wholesale and retail marketing, as well the physical movement of
products. The physical distribution functions include transportation and storage
of goods. Until the goods have been sold out they should be kept safe and after
selling they should be transported from one place to another.

The key functions of the physical distribution system can be categorized into
following two areas namely the primary functions and other functions –

Physical Distribution – Key Functions

i. Warehousing:

Produced goods should be safely kept in warehouse until demanded by market,

the same is called warehousing. A firm needs warehouses as storage facilities
for finished goods. One objective of physical distribution is to decide how many
warehouse locations the firm needs, and where to locate them.

If the warehouses are too far away from the consumer, it might mean a slower
time to deliver the product to the customer. On the other hand, if it is close to the
customer location, the cost of the warehouse might increase the total cost of
distribution.

The sub functions of warehousing are –

a. Storage

b. Transportation

c. Balancing demand and supply

ii. Inventory Control:

There is a trade-off between having too much inventory on hand, with its incurred
additional costs, and not having enough inventories on hand to satisfy shifting
customer demand. Another objective for physical distribution is to put in suitable
inventory policies so as to bring down the total cost of the physical distribution
function.

Goods should be kept collected in stock to supply them at right time and place to
the customers when demanded. This task is called inventory management. Both
short stock and large stock are dangerous for any company. So, considering
both aspects, goods should be kept in balance.
The following methods should be studied and analyzed for inventory
management:

a. Economic order quantity (EOQ) – Giving order for supply of goods in the
quantity that minimizes total expense is called economic order quantity.

b. Re-order point – Repeated orders should be given for keeping stock of

goods/inventory. Decision should be taken to give timely re-order for the supply
of goods so that there is neither lack of stock nor unnecessarily huge quantity of
inventor.

c. Safety stock – Sufficient stocks of goods should always be kept in warehouse.

If there is no such stock, goods cannot be distributed according to the demands.
Safety stock should be kept so that there is no shortage of goods at any time.

d. ABC (Activity Based Costing) analysis – Under analysis, stock/inventory goods

are classified in A.B.C. groups according to their cost. A class includes costly
goods, in B average priced goods and in C cheap priced goods.

e. Just in time [JIT] – Receiving just in time method of inventory control has
become very popular. According to this concept, very small amounts of goods
are purchased. They reach at the right time of production or right time of sale. In
some countries, inventory manager can give such direction to high level
management.

iii. Transportation and Logistics:

One factor that influences the decision is the cost of transportation. The
company has to make decisions relating to what mode of transportation to use
for its physical distribution. For instance, it could truck the products, ship them,
send them by train, or fly them. Sending a product by air is faster for international
delivery, but it is also likely to be more expensive. Other decisions related to
transportation include how often to transport goods, or the frequency of
transportation, and the transportation route.

The physical distribution manager should take decision on the following matters
in order to systematize the transportation –

a. Types of carrier

b. Mode of transportation

c. Cost

d. Speed

e. Consistency

f. Safety
g. Availability

iv. Order Processing:

In processing the order of the customer, the company might have to move it
through a number of channels. It could go from the manufacturer to the
wholesaler to the retailer, and finally reach the consumer. Some companies have
found ways to cut down on the multiple middlemen involved in this classic
distribution system.

It is designed to take the customer orders and execute the specifics the customer
has purchased. The business is concerned with this function because it directly
relates to how the customer is serviced and attaining the customer service goals.
If the order processing system is efficient, then the business can avoid other
costs in other functions, such as transportation or inventory control.

The sub functions of order processing are –

a. Billing

b. Granting credit

c. Invoicing

d. Dues collection

v. Packing and Material Handling:

After the order has been received from customers; the order should be kept
recorded and sent to store and account sections. This task is called order
handling. If the quantity of goods is not sufficient in the store to meet the
demand, information is given to factory for production. If the goods as demanded
are stock in store, they should be packed properly and then only they should be
dispatched to the customer.

For handling the materials in such way, appropriate equipment also should be
selected. Efficient and proper equipment cuts down material handling cost and
save from breaks and damages. Nature of goods, package size, and packing
method etc., also determine the sorts of handling equipment.

Material handling can be done in two ways:

a. Mechanical handling – Different types of equipment and machines are used to

move goods from places to places. Lorry, truck, crane, fork-lift conveyer belt, etc.

b. Non-mechanical handling – Under this non-mechanical handling, human

labour is used instead of machines. Porters can be employed to transfer carton
or boxes.
The sub functions of materials handling are –

a. Proper equipment

b. Maintenance

c. Minimising breakage

d. Security against spoilage and theft

2. Other Functions / Facilitating Functions:

Distribution channels offer a variety of services that ease and enhance selling
and buying goods. They offer credit to customers and accept returned
merchandise. They also advertise and promote products through special
displays, sales prices etc. Depending on the product, distribution channels
service the products they sell. This includes maintenance and repair services,
and they often are trained and supported by the manufacturer. Distribution
channels may even add value to products before distributing the customers.

i. Information and customer education

ii. Selling

iii. Financing

iv. Promoting

v. Negotiating

vi. Marketing intelligence

vii. Servicing

viii. Bulk breaking

ix. Consolidation and distribution

x. Customer relationships

i. Information and customer education – It is an important function of physical

distribution to provide every information required by the customer with respect to
product or the company and educating the customer about the features and
utility of the product.

ii. Selling – In case of sale through intermediaries, the selling function is effected
by the physical distribution system only.
iii. Financing – Many dealers design and offer variety of financing services to the
buyer for products which are expensive. Either finance is organized for the
consumers or the dealer lets the consumer pay in instalments.

iv. Promoting – For increasing sale in the outlets the dealers come up with
several promotional schemes that boost the sales.

v. Negotiating – The intermediaries also resort to negotiations in behalf of the

consumer with the company so that the customer gets the best deal.

vi. Marketing intelligence – The distribution system effectively gauges the pulse
of the market and helps the company in taking timely decisions.

vii. Servicing – The customer service function is a strategically designed

standard for consumer satisfaction that the business intends to provide to its
customers.

viii. Bulk breaking – In the pursuit of efficiency, manufacturers often produce

large quantities at a time, but consumers usually buy only a few or even one
product. Distribution channels, such as retail store chains, can sell smaller
quantities, so, wholesalers act as agents between manufacturers and retailers.

ix. Consolidation and distribution – Consumers often prefer to buy a wide variety
of consumer goods at one time and place. Retail stores enable consumers to do
just that because they stock and display a great number of different products. Up
the distribution channel chain, wholesalers can accumulate large amounts of
many different products from different manufacturers and efficiently deliver many
products to many retailers. This lowers carrying and transportation costs.

x. Customer relationships – Consumers often trust distribution channels more

than they do manufacturers. They expect these channels to provide objective
information about products and originating companies. Distribution channels
communicate with customers and perform transaction functions. They are closer
to customers and end users; they can provide manufacturers with a wealth of
information on customer preferences. This helps in building customer
relationships.

Physical Distribution – Subsystems

i. Order Processing Subsystem:

The manufacturer is concerned with order processing— a physical distribution

function— because it directly affects the ability to meet the customer service
standards defined by the owner. It is the method chosen by the organization to
receive orders from the customer. It could be by mail, telephone, through
salespeople, or via computer or the Internet.
Once received, orders must be processed quickly and accurately then shipped to
the customer. If the order processing system is efficient, the owner can avoid the
costs of premium transportation or high inventory levels.

Order processing varies by industry, but often consists of four major activities – a
credit check; recording of the sale, such as – crediting a sales representative’s
commission account; making the appropriate accounting entries; and locating the
item, shipping, and adjusting inventory records.

ii. Warehousing Subsystem:

It is the storing of products while they wait to be sold. This storage function is
necessary because production and consumption cycles rarely match.
Organizations use either storage warehouses or distribution centers to process
their products. A distribution center is a large, highly automated warehouse
designed to receive goods from various plants and suppliers.

The Web has erased many of the distribution barriers between producers and
their potential customers. Many electric commerce sites do not have warehouses
because they do not carry inventory. E-commerce distributors dispense with
warehouses whenever possible.

However, a warehouse enables merchants to exercise more control over service.

Amazon(dot)com Inc. sells books online and believes that the warehouse model
better serves customers.

iii. Inventory Management Subsystem:

It involves knowing both when to order and how much to order. During the past
decade, many companies have greatly reduced their inventories and related
costs through just-in-time logistics systems. For example, FedEx offers order
processing and fulfillment services, streamlined distribution by guaranteeing 48-
hour delivery globally, and just-in-time delivery for manufacturers.

It’s a suite of services that forms the backbone for Web-based companies like
Dell. “Inventory velocity has become a passion for us,” writes Chairman and
Chief Executive Officer Michael Dell in his new book “Direct from Dell” (Harper
Business).

“In 1993, we had $2.9 billion in sales and $220 million in inventory. Four years
later, we posted $12.3 billion in sales and had inventory of $233 million. We’re
now down to less than eight days of inventory [on hand] and we’re starting to
measure it in hours instead of days.”

iv. Material Handling Subsystem:

Another important component of a small business physical distribution system is

material handling. This comprises all of the activities associated with moving
products within a production facility, warehouse, and transportation terminals.
One important innovation is known as unitizing— combining as many packages
as possible into one load, preferably on a pallet. Unitizing is accomplished with
steel bands or shrinks wrapping to hold the unit in place. Advantages of this
material handling methodology include reduced labor, rapid movement, and
minimized damage and pilferage.

A second innovation is containerization—the combining of several unitized loads

into one box. Containers that are presented in this manner are often unloaded in
fewer than 24 hours, whereas the task could otherwise take days or weeks. This
speed allows small export businesses adequate delivery schedules in
competitive international markets. In-transit damage is also reduced because
individual packages are not handled en route to the purchaser.

v. Transportation Subsystem:

It involves the choice of transportation carriers. This affects the pricing of

products, delivery performance, and condition of the goods when they arrive —all
of which affect customer satisfaction. The major forms of transportation available
are rail, truck, water, pipeline, and air.

Each shipping method has its advantages, disadvantages and costs.

Manufacturers need to balance the total costs of a shipping method with its
disadvantages in terms of possible service level. Rail transportation is the most
efficient way to move bulk shipments over long distances. Rail is relatively
dependable and cost-effective, but it is not always flexible.

Trucking offers a fast way to ship and consistent service for both large and small
shippers. Trucks are dependent on highway infrastructures, which may not be
available in some countries. Trucking is very flexible because trucks can haul
goods wherever there are roads.

Air carriers are the fastest way to move shipments but air transport is more
expensive than other transportation modes. Water transportation, although slow,
is one of the least expensive modes of transportation. It lends itself mainly to
hauling bulk commodities that are easily containerized.

Containerization involves putting goods in containers (boxes) that can be

transferred from one transportation mode to another. (Train to truck is called
piggyback and water to truck is called fishy back.) Pipelines form an extremely
efficient transportation network for liquid products like natural gas and petroleum.
The investment needed to establish the pipeline at first is significant.

Many shippers use a combination of transportation methods called intermodal

transportation to move a shipment. This approach allows shippers to gain the
service and cost advantages of various transportation modes.

For example, FedEx handles 59 million pounds of airfreight a month and has 624
airplanes, 42,500 vehicles, 145,000 employees and millions of square feet in its
sorting centers. It sends 58 million electronic transmissions every day. The
company relies on its information network as much as its air force and its ground
troops.

Organizations can contract all of their logistics functions to third party logistics
providers such as – UPS Worldwide Logistics and Emory Global Logistics. These
specialized companies are able to offer smaller companies significant economies
of scale as they invest the capital needed to build advanced distribution systems
for all their customers.

An organization can instantly set up a worldwide distribution system without

incurring the costs and facing the problems of setting up its own system.

Physical Distribution – Organisational Responsibilities

High level co-ordination and integration is a condition precedent for

implementation of physical distribution activities effectively. The responsibility
relating to physical distribution in majority of commercial institution is
decentralised / scattered so badly that optimum the objectives of consumer
service and minimum distribution cost cannot be achieved.

The responsibility of physical distribution of commodities oftenly rests on the top

management but this liability is discharged by one out of following organisational
where the size of a company / firm / institution is very large.

1. Committee of Physical Distribution Committee:

A committee for organising the functions of physical distribution is set up. The
sales manager inventory control manager, transportation / traffic manager etc.
are included as member to the committee. Any chief/top executive is appointed /
nominated chairman to such committee. This committee discharges the
responsibility to increase in efficiency reduction in distribution costs and
establishing a co-ordination in the functions discharged by all these executives.

2. Physical Distribution Department:

A number of institutions have now started a separate dept. with them in order to
establish a co-ordination among all functions of physical distribution. All physical
distribution functions under this dept. are carried on by a chairman. This
department is fully independent from other department.

A problem arises under this system is that for what executive the physical
distribution officer should be made responsible. Gradually, the executive of
physical distribution dept. is being made responsible for the chairman or
marketing manager.

3. Marketing Director:

A number of institutions neither constitute any committee not any department

separately for discharge of the responsibility of physical distribution. The chief
executive of marketing department is assigned with the burden of marketing
director.

Physical Distribution – Advantages

i. Provide Better Customer Services

ii. Increase Sales by –

a. Making goods always available

b. Contingency plans for quick order processing of item

iii. Reduce Costs through –

a. Proper location of warehouses

b. Improve materials handling

c. Correcting inefficient procedures

iv. Gain Advantage over Rivals through –

a. Effective customer services e.g., Rapid deliveries, avoiding delivery of

damaged goods

v. Develop Communication System for Salesmen sending orders to producers

within shortest possible time.

vi. Establish Appropriate Supply Chain of distribution

vii. Inventory Control to ensure economic order quantity of inventory

viii. Maintain Equilibrium in Demand and Supply

ix. Demand Supply Coordination in case of seasonal goods like sugar / wheat
to ensure round the year supply

x. Price Stabilization –

a. Maintain buffer stock

b. Excess production to be stored

c. Extra supplies to be released in case of demand upsurge

xi. Smooth Distribution of Products

xii. Provide Right Quantity at right time and at reasonable cost.

Salesforce Management:
Sales Force Management (SFM) is a sub-system of marketing
management. It is Sales Management that translates the
marketing plan into marketing performance.
Actually sales force management does much more than serving as
the muscle behind marketing management.
Sales force management systems are information systems that
help automate some sales and sales force management functions.
They are often found to be combined with a marketing information
system.

It is the development of a sales force that includes coordination of sales

operations, as well as the training and application of sales methods that
result in achieving sales goals and objectives.

For your business to make revenue, a sales force management strategy is

critical. This enables you to understand the most efficient technique in
achieving and even surpassing sales/revenue targets. It also keeps you
open to new ways to expand within a market or a specific niche, as well as
optimizing sales costs, including marketing/advertising. Your sales team
represents your brand and product so they must be well supervised,
trained, and given the necessary incentives for productivity and reach their
personal sales targets or quota.

Importance of Salesforce Management

As more companies realize the importance of efficient management of
sales teams, they start to invest more in training, formulating strategies and
team building. Here are some more reasons for you to invest in sales force
management:

Better Sales Operations

Efficient sales force management ensures that all moving parts of sales
operations are working well to guarantee the end user a satisfactory
experience. The competitive edge of thriving enterprises lies in sustaining
regular customers. Whatever the product/service may be, a good sales
force is able to guarantee good experiences to customers, which is a direct
result of an efficient sales management system.

Better understanding of the market

Sales force management allows for a better understanding of your market,
keeping you up-to-date with new trends and the ability to apply these
trends to sustain relevance within your market niche. Relevance is key to
sustaining growth in competitive marketplaces. Your sales team is tasked
to keep your brand and product/service relevant and moving towards
excellent customer experience.

Defined sales strategy

Aside from reaching targets, goals, and objectives for the business, sales
force management formulates strategies that are designed specifically for
the product/service offered. Being able to formulate strategies brings in
systematic methods of continuing sales growth, expansion of market reach,
and CRS or Customer Relations Systems tailor-fitted to the company. In
strategizing, one size does not fit all. Enabling your sales team to create
strategies to zero in on specific demographics or niches opens new doors
for the enterprise.
Key Benefits of Salesforce Management
Generating Leads – Sales teams create leads and follow these
leads or probable customers by getting relevant information – such as
personal details, purchasing behaviours and preferences.

Sales Forecasting – Projecting the enterprise’s sales using

previous sales figures is an important tool for management to make
business decisions to increase potential sales, as well as in training
the sales team for specific objectives or goals. Forecasting sales also
enables decision-makers to address aspects such as productivity,
distribution of product/service, and even the marketing budget.

Order Management – Order management covers the

streamlining of processes to efficiently process and fulfil customer
orders – resulting in an increase in sales, retaining customers, and
maintaining excellent customer relations. In a nutshell, an order
management system is a process of delivering a product/service with
minimal to no delay.
Conflict Resolution – While making a purchase, it is highly likely
that your lead might have different ideas from you. In this case, you
need to set their expectations straight. Having a record of all the
conversations you have with your leads ensures that there are no
conflicts later.

Components of Salesforce Management

Sales force management’s purpose is to execute sales and marketing plans
successfully, as well as to teach or train employees. It necessitates a well-
trained sales team, versed with the ins and outs of the product or service, as
well as the ability to answer all customer queries without hesitation. The
purpose encompasses the following:
 Recruitment – This is a basic part of sales team management.
Recruiting the best, as well as those who can fit into the company
culture, is favored. Enterprises have invested in creating selection
programs and processes that include personality, managerial and
behavioral tests to identify perfect candidates. They also take into
account customer preferences, with regards to the personality they
want to interact with.
Training and Supervision – Effective training of a sales force
serves as the linchpin to engaging, relating to, and supplying the
needs of the customers. Supervision boosts the morale of the sales
team. A well trained and supervised team achieves sales objectives
and goals.
Motivation and Incentives – The way to drive your sales team
to success is to motivate them, compensate fairly, and give incentives.
In this way, the team meets sales targets in the most efficient way
possible.
1. Evaluation – Sales force evaluation through sales results,
product numbers and revenue reports are a key aspect of sales team
management.
2. Personality and behavioural elements – One fact is
clear, customers prefer people they can relate to. Personality and
behavioral aspects are important when building relationships as we
move towards newer marketing strategies.

Hence, Sales force management is necessary for building and maintaining

efficient sales processes, from order fulfilment to customer service. It is also
important in bridging the gap between customers, the company, brand and
product or service.

Sales Force Management: Definition, Objectives,

Process, Strategies, Activities, Roles and Other Details
Salesforce Management – Definition of SFM
Salesforce Management – Identifiable Processes Involved with SFM

Sales force management systems are information systems that help automate some

sales and sales force management functions. They are often found to be combined

with a marketing information system. Sales force automation includes sales lead

tracking system that lists potential customers through paid phone lists or customers

of related products. Some of the other elements of sales force automation include

sales forecasting, order management a product knowledge.

Some of the identifiable processes involved with sales force management are:

i. Setting targets and objectives based on inputs

ii. Assigning executives for achieving sales objectives

iii. Control processes are achieved within a given time frame and given markets

iv. Management of system to handle uncertain environment

It is not just about the control systems involved with sales force management

process but also the various metrics involved.

Some of the metrics that are implemented in the sales force management

processes are:

i. Time management- measures the tasks and time required for each task

ii. Call management- planning for customer interactions

iii. Opportunity management- if the sales force management process is correctly

implemented, sales opportunity will be created

iv. Account management- In case of multiple opportunities with a customer, the

account is to be measured by the tools, processes and objectives

v. Territory management- managing sales territories is of utmost experience for

managing sales figures

There are certain distinct advantages and disadvantages of the sales force

management systems as mentioned below:

i. Understanding the economic structure of an industry
ii. Identifying segments within a market

iii. Identifying a target market

iv. Identifying the best customers in place

v. Doing marketing research to develop profiles (demographic, psychographic,

and behavioral) of core customers

vi. Understanding competitors and their products

vii. Developing new products

viii. Establishing environmental scanning mechanisms to detect opportunities

and threats

ix. Understanding company’s strengths and weaknesses

x. Auditing customers’ experience of a brand

xi. Developing marketing strategies for each of one’s products using the marketing

mix variables of price, product, distribution, and promotion

xii. Coordinating the sales function with other parts of the promotional mix, such

as advertising, sales promotion, public relations, and publicity

xiii. Creating a sustainable competitive advantage

xiv. Understanding where brands should be in the future, and providing an

empirical basis to write marketing plans regularly to help get there

xv. Providing input into feedback systems to help monitor and adjust the

process.
The disadvantages are:
i. Difficulty in adopting the system
ii. Too much of time spent on Data Entry

iii. Losing personal touch in the process of automation

iv. Laborious process of continuous maintenance, information updating, information

cleansing and system up gradations

v. Cost involved in Sales Force Automation Systems and Maintenance

vi. Difficulty in integration with other management information systems

Major Steps in Salesforce Management:
1. Establishing Salesforce Objective:
Sales people must be given clear, feasible and attainable objectives.

2. Designing Salesforce Strategy, Structure, Size and Compensation:

(i) Salesforce Strategy:

This includes deciding the type of persons required, type of products added in

product line etc.

(ii) Structure:

Strategy influences the structure.

Possible structures are:

(a) Territorial Salesforce Structure:

A particular territory in which each sales person is assigned to sell company’s full

line. Sales area is small so selling can be done more effectively. The sales man can

understand the needs of the area and can design his strategy accordingly. This

strategy is cost effective as well.

(b) Product Salesforce Structure:

It is used when the products are numerous, unrelated and complex. In this, sales

force sells along the product line. Kodak films and industrial goods are sold by

separate sales force, i.e. for industrial films technical sales force is there and a

separate sales force sells commercial armature films.

(iii) Salesforce Size:

It denotes the number of employees.

(iv) Compensation:

Proper compensation is required. Both monetary and non-monetary compensation

would complete the compensation plan.

Different methods of compensation and incentives are:

(a) Straight salary plan – Sales men are paid a fixed salary.

(b) Straight commission plan – Where only selling commission is paid on every unit

sold.
(c) Salary plus commission plan – Where a fixed minimum salary is ensured and

commission is paid on every unit sold.

(d) Commission plus approved expenses – In this plan, in addition to a commission,

some approved expenses are reimbursed by the firm.

(e) Salary plus group commission plan – As the name suggests, this method

advocates payment of a fixed amount as salary. In addition the entire group is paid

some commission which is an incentive for good or efficient performance as a group.

3. Training Activities:

The activities involved in training are:

(i) Spelling out the aims of the sales training

(ii) Determining the needs of training

(iii) Identifying needs of individual salesman

(iv) Deciding about the nature and type of training required

(v) Content of training

(iv) Change in the methods of training

(vii) Developing the instructional material and training aids

(viii) Timing the training

(ix) Evaluating the effectiveness of the training

(x) Training the trainer

5. Supervising Sales People:

The senior management must supervise the sales force on a regular basis. The

importance of control cannot be undermined or given less emphasis than any other

function. Supervision helps the management in knowing what is going on. Also it

helps in taking a corrective action, if required, at an early stage.

Another important objective of supervision is control. The management can show its

concern for its people, and thereby motivate them by regular and routine supervision.

But such a system must be used in moderation, lest the employees start feeling

hassled and demotivated.

6. Evaluating Sales People:
Regular evaluation of sales people helps the management in identifying people who

are good or who are bad. Those who are good and efficient must be awarded for

their task. Bad ones must be motivated and trained to improve and if after all efforts

they do not improve then punitive measures must be adopted.

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