Principles of Marketing Full Module

Principles of Marketing 2015 E.
WERABE UNIVERSITY
COLLEGE OF BUSINESS AND ECONOMICS
DEPARTMEN OF MARKETING MANAGEMENT
PRINCIPLES OF MARKETING MODULE
Course name:- principles of marketing

Course code:- MKTM 2011
TARGET GROUP:- 4TH Year marketing management students
Complied and Adapted by: - kedir Geletu [MA] in marketing management
March, 2023
Werabe, Ethiopia
Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 1

Principles of Marketing 2015 E.C
CHAPTER ONE
NATURE AND SCOPE OF MARKETING
1. Objectives
After reading this chapter, students should be able to do the following:
 Define marketing
 Describe the basic concepts of marketing and marketing tasks
 Differentiate Philosophies of Marketing
 Outline the difference between marketing and market
 Discuss the importance of marketing
 Explain the scope of marketing
1.1. Introduction
The practice of marketing is as old as the history of human beings. However, the advent
(beginning) of marketing as a discipline and its modern practice is considered as a recently
emerging phenomenon. Over the years, marketing has evolved through three stages that we call
Marketing 1.0, 2.0, and 3.0. Many of today‟s marketers still practice Marketing 1.0, some
practice Marketing 2.0, and a few are moving into Marketing 3.0. Marketing 1.0 understood in
the old sense of making a sale 'selling'. This stage is characterized by product-centric era which
aimed at producing standard product to serve a mass market. Marketing 2.0 is consumer-oriented
stage. The greatest opportunities will come to marketers practicing 3.0. Like consumer-oriented
Marketing 2.0, Marketing 3.0 also aims to satisfy the consumer. However, companies practicing
Marketing 3.0 have bigger missions, visions, and values to contribute to the world; they aim to
provide solutions to address problems in the society.
Marketing must be understood not in the old sense of making a sale 'selling' - but in the new
sense of satisfying customer needs. Marketing, more than any other business function, deals with
customers. Creating customer value and satisfaction are at the very heart of modern marketing
thinking and practice. Marketing is the delivery of customer satisfaction at a profit. The goal of

marketing is to attract new customers by promising superior value, and to keep current customers
by delivering satisfaction.
Many people think that marketing is only selling and advertising. Because they are bombarded with
television commercials, direct-mail/email offers, print media, etc. However, marketing must be
understood in the new sense of satisfying customer needs. Saying this never excludes (omit) the
earliest sense of selling and advertising. Selling and advertising are only the tip of the marketing ice
berg i.e. few activities which exist within the huge marketing sphere. They are only the two
promotional mix elements of marketing.
1.2.Definitions And Basic Concepts Of Marketing
Marketing has been defined by different authors differently. Marketing is about identifying and
meeting human and social needs. One of the shortest good definitions of marketing is “meeting
needs profitably. The American Marketing Association offers the following formal definition:
Marketing is the activity, set of institutions, and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients, partners, and society
at large. Coping with these exchange processes calls for a considerable amount of work and skill.
Marketing management takes place when at least one party to a potential exchange thinks about
the means of achieving desired responses from other parties.
A popular definition, “marketing is the performance of business activities that direct the flow of
goods and services from producer to consumer or user”.
Marketing is also defined as a social and managerial process by which individuals and groups
obtain what they need and want through creating, offering exchanging products and value with
others. In broader terms marketing is defined as a system of business activities designed to plan,
price, distribute and promote want satisfying products (goods and services) to present and
potential customers.
From this definition, we can conclude the following core concept about marketing:
 Needs, Wants and Demand
 Product
 Value, Cost and Satisfaction

 Exchange and Transaction
 Marketing Networks and Relationships
 Market
 Marketers and Prospects
Needs: Human needs are the basic reasons for the emergence and existence of marketing. They are
states of felt deprivation (lack). Needs are naturally endowed and marketers cannot create them but
can identify them and respond to them by developing a solution that will meet the aroused needs.
Basically Needs may be physiological (food, cloth, shelter, safety, sex, etc), social (needs for
belongingness to a group and needs for love and affection), individual (needs for knowledge and
self-expression).
Wants: Wants are the form human needs take as a result of socio-cultural and individual personality
influence. Needs are general and common to all human beings whereas wants are specific which
differ between and among people. Wants are best described in terms of objects. For example, all
people have a need for food but not all people try to satisfy their hunger or thirsty with identical
products. Enjera is a favorite food for Ethiopians; mango is a favorite food for Mauritius; rice is a
staple food for Indians; pour age is a favorite food for Kenyans; etc.
Demands: Demand refers to the quantity of a particular item which customers are able to buy at a
given price level. Human wants become demands when supported by buying power. A mere interest
of customers to a particular product is not enough if are not able to afford the charged price.
Product/Marketing Offer: A marketing offer is anything that can be offered to the market with a
bundle of benefits to satisfy needs and wants. Products may be tangibles or intangibles. E.g.:
commodities, banking services, transportation, hotel, telecommunication, persons, places,
organizations, and ideas.
Values, Cost and Satisfaction: Value refers to the difference between the benefits obtained from
obtaining and using the product and the costs incurred to obtain the desired product. Satisfaction on
the other hand is a person‟s feeling of pleasure or disappointment resulting from comparing

perceived performance and expectation. If the product‟s perceived performance equals to customer
expectation, customers are satisfied.
If the product‟s perceived performance is greater than customer expectation, customers are
delighted. If the product‟s perceived performance is less than customer expectation, customers are
dissatisfied. Satisfied and delighted customers will make a repeat purchase of the company‟s
products, we be the company‟s good advertising medium.
On the other way round, dissatisfied customers disparage the company‟s product to others. Losing a
single customer as a result of discontent, means losing more than a single sale, because bad word of
mouth will spread over the society rapidly than good word of mouth do
Exchange and Transaction: Exchange is the process of obtaining the desired thing from
someone by offering something of value in return. Barter system is the most popular example.
E.g. If Mr. A give X to Mr. B and received Y in return, this is exchange.
There are certain conditions to be fulfilled for potential exchange to occur.
 At least two parties (the buyer and the seller) must exist.
 Each party must have a resource to provide in return for the other party.
 Each party must believe that he/she will be benefited from the exchange.
 The parties must be capable to communicate each other.
 Each party has the right to accept or reject the offer of the counter party.
A transaction is a trade of values between two or more parties. It is an agreement between a

buyer and a seller to exchange an asset for payment.
E.g. Person A is looking for prospective buyers for this car. Person B is willing to purchase the
car from person A, thus both enter into an agreement to execute the transaction.
Marketing consists of actions to be taken to build and maintain desirable exchange relationships
with target audiences. In relationship management the goal is extended from attracting new
customers up to retain and grow their business with the company.
Marketing Network and Relationships: Transaction marketing is part of a larger idea called
relationship marketing. Relationship marketing is the practice of building long-term satisfying
relations with key parties- customers, suppliers, and distributors in order to retain their long-term
preference and business. Smart marketers try to build up long-term/, trusting, and “win-win”
relationships with valued customers, distributors, dealers, &suppliers. The ultimate outcome of
relationship marketing is the building of a unique company asset called a marketing network.
A marketing network consists of the company and all of its supporting stakeholders: customers,
employees, suppliers, distributors, retailers, agencies, and others with whom it has built mutually
profitable business relationships. The operating principle is simple build a good network of
relationships.
Market: traditionally, a “market” was a physical place where buyers and sellers gathered to buy
and sell goods. Economists describe a market as a collection of buyers and sellers who transact
over a particular product or product class (such as the housing market or the grain
market).Marketers use the term market to cover various groupings of customers. They view
sellers as constituting the industry and buyers as constituting the market.
Marketers and prospects: When one party is actively seeking an exchange with the other party,
we call the first party a marketer & a second party a prospect.
A marketer is someone seeking one or more prospects that might engage in an exchange of
values. A prospect is someone whom the marketer identifies as potentially willing and able to
engage in an exchange of values.
1.3.Evolutions And Philosophies Of Marketing

There are five alternative concepts based on which organizations design and carry out their
marketing strategies. These include production concept, product concept, selling concept,
marketing concept and societal concept.
The weight given to the interests of customers, organization‟s objectives and the society‟s interests
vary in each philosophy.
1. Production Concept: Production concept holds that customers prefer products that are highly
available and affordable. Management focuses highly on improving production and
distribution efficiency. The production concept is a useful philosophy in two types of
situation. The first occurs when the demand for a product exceeds the supply. Here,

management should look for ways to increase production. The second situation occurs when
the product's cost is too high and improved productivity is needed to bring it down.
2. Product Concept: This philosophy holds that customers prefer quality products and
innovative features. Management focuses on continuous product quality and feature
improvement. Both production concept and product concept lead to marketing myopia
(focusing too narrowly on their own operations and losing sight of satisfying customer needs
and building customer relationships.
3. Selling Concept: Many organizations follow the selling concept, which holds that consumers
will not buy enough of the organization's products unless it undertakes a large-scale selling
and promotion effort. The concept is typically practiced with unsought floods - those that
buyers do not normally think of buying, such as encyclopedias and funeral plots. These
industries must be good at tracking down prospects and convincing them of product benefits.
In general the following are some of the features of selling concept:
 Practiced highly for unsought/new products and when the company faces excess unsold
inventory.
 Focuses on creating sales rather than building long-term customer relationships.
 Follows make and sell philosophy (inside out perspective)-starts from the company‟s existing
products.
 Views marketing as hunting
 Looking for the right customers for the company‟s product
 Stars with the seller, focuses with the needs of the seller. Seller is the center of business
universe. Activities start with sellers existing products
 Selling emphasize on profit. It seeks to convert quickly products in to cash.
 Selling Views a business as a good producing process.
 It over emphasizes the exchange aspect without caring for the value, satisfaction to the
buyers.
 Seller‟s convenience dominates the formulation of marketing mix.
 The firm makes the product first then decides how to sell it and make profit.
 It emphasizes accepting the existing technology and reducing the cost of production.
 Seller‟s motives dominate marketing communications.
 Cost determine price.

 Transportation, storage and other distribution functions are perceived as mere extension of
the production function.
 There is no coordination among the different functions of the total marketing task.
 Different departments of the business operate separately.
 The firm which practice selling concept, production is central function.
 Selling views the customer as the last link in the business.
4. Marketing Concept: The marketing concept holds that achieving organizational goals
depends on determining the needs and wants of target markets and delivering the desired
satisfactions more effectively and efficiently than competitors do. Surprisingly, this concept
is a relatively recent business philosophy. The following are some of the features of
Marketing Concept:
 Holds that achieving organizational goals depends on knowing the needs and wants of target
markets and delivering superior value than competitors.
 It is an outside-in perspective-starts from a well-defined market
 Find the right products to the right customers
 Sense and respond philosophy
 Considers marketing as gardening (cultivating customers to grow as a gardener cultivates his
crops in order to reap high volume).
 Marketing starts with the buyers. Marketing focuses on the need of the buyer. Buyer is the
center of business universe. Activities follow the buyer and his/her needs.
 Marketing emphasizes on identification of a market opportunity. It seeks to convert customer
needs in to products and emphasizes on fulfilling the needs of the customers.
 Marketing views business as a customer satisfying process.
 It concerns primarily with value, satisfactions that should flow to the customer from the
exchange
 Buyer determines the shape of marketing mix.
 Customer determines what is to be offered as a product and the firm makes a total product
offering that would match the need of the customers.
 It emphasizes on innovation of adopting the most innovative technology.
 Marketing communication acts as the tool for communicating the benefits or satisfactions of
product to the consumers.

 Consumer determines price.

 Transportation, storage and other distribution function seen as vital service to provide
convenience to customers.
 Its emphasis is on integrated marketing approach.
 All department of the business operate in highly integrated manner with view to satisfy
consumers
 The firm which practice marketing concept, marketing central function.
 Marketing view the customer as the very purpose of the business.
The salient features of the marketing concept are:
 Consumer orientation
 Integrated marketing
 Consumer satisfaction
 Realization of organizational goals.
 Consumer Orientation: The most distinguishing feature of the marketing concept is the
importance assigned to the consumer. The determination of what is to be produced should
not be in the hands of the firms but in the hands of the consumers. The firms should
produce what consumers want. All activities of the marketer such as identifying needs
and wants, developing appropriate products and pricing, distributing and promoting then
should be consumer oriented. If these things are done effectively, products will be
automatically bought by the consumers.
 Integrated Marketing: The second feature of the marketing concept is integrated
marketing i.e. integrated management action. Marketing can never be an isolated
management function. Every activity on the marketing side will have some bearing on the
other functional areas of management such as production, personnel or finance. Similarly
any action in a particular area of operation in production on finance will certainly have an
impact on marketing and ultimately in consumer. Therefore, in an integrated marketing
set-up, the various functional areas of management get integrated with the marketing
function.
Integrated marketing presupposes a proper communication among the different
management areas, with marketing influencing the corporate decision making process.

Thus, when the firms‟ objective is to make profit – by providing consumer satisfaction,
naturally it follows that the different departments of the company are fairly integrated
with each other and their efforts are channelized through the principal marketing
department towards the objectives of consumer satisfaction.
 Consumer Satisfaction: Third feature of the marketing is consumer satisfaction. The
marketing concept emphasizes that it is not enough if a firm has consumer orientation; it
is essential that such an orientation leads to consumer satisfaction.
For example, when a consumer buys a tin of coffee, he expects a purpose to be served, a need to
be satisfied. If the coffee does not provide him the expected favor, the taste and the refreshments
his purchase has not served the purpose; or more precisely, the marketer who sold the coffee has
failed to satisfy his consumer. Thus, „satisfaction‟ is the proper foundation on which alone any
business can build its future.
 Realization of Organizational Goals including Profit: If a firm has succeeded in
generating consumer satisfaction, is implies that the firm has given a quality product,
offered competitive price and prompt service and has succeeded in creating good image.
It is quite obvious that for achieving these results, the firm would have tried its maximum
to control costs and simultaneously ensure quality, optimize productivity and maintain
good organizational climate. And in this process, the organizational goals including profit
are automatically realized. The marketing concept never suggests that profit is
unimportant to the firm. The concept is against profiteering only, but not against profits.
5. Societal Concept: This concept questions whether the pure marketing concept overlooks
possible conflicts between consumer immediate wants and consumer long-run welfare.
Its theme is that marketing strategy should deliver value to customers in a way that
maintains or improves both the consumers and the society‟s well-being. In doing so,
companies should balance three considerations in setting their marketing strategies:
company objectives, consumer wants and society‟s interests.
1.4.Importance Of Marketing

Marketing plays a major role in any individual and individual organization in the socio-economic
system of a given country and further in the global economy. It also has significance for you
personally – if not in business, then certainly in your role as a consumers.
Importance of Marketing for an Individual
Marketing is important globally, to the economy and in an individual organization. But what‟s in
it for you? Why should you study marketing? There are a number of reasons:
 Marketing pervades so many daily activities. Companies have designed products, set
prices, create advertisements, and chosen the best methods of making the product
available to their customers.
 Studying marketing will make you a better-informed consumer. You‟ll understand more
about what underlies a seller‟s pricing and how brand names are selected, as well as the
role of promotion and distribution.
 Lastly, marketing probably relates – directly or indirectly – to your career aspirations. If

you are thinking about a marketing major and employment in a marketing position, you
can develop a feel for what marketing managers do.
 Finally, if you are thinking about a career in a non-business field such as health care,
government, music or education, you will learn how to use marketing in these
organizations.
Importance of Marketing to Individual Organizations
The primary focus is on the performance of marketing in an organization. The variety of

managerial useful concepts that apply to business firms marketing goods and services, as well as
non-profit organizations.
Marketing considerations should be an integral part of all short-range and long range planning in
any company. Here is why:
 The success of any business comes from satisfying the wants of its customers, which is
the social and economic basis for the existence of all organizations.
 Although many activities are essential to a company‟s growth, marketing is the only one
that produces revenue directly.
When managers are internally focused products are designed, manufactured by manufacturing
people, priced by financial managers, and then given to sales managers to sell. This approach
generally won‟t work in todays environmental of intense competition and constant changes. Just
building a good product will not result in sales.
Today charities, museums, and even churches- all organization that formerly reflected any
thought of marketing – are embracing it as a means of growth and for some survival.
This trend is accelerating due to the following two reasons:
 Increasing competition among non-profit organizations. For example, the competitor

among colleges and universities for students is intensifying as the numbers of young
people of college are declines, and the search for donors has become more intense as the
number of charities has increased.
 Non-profit organizations need to improve their images and gain greater acceptance
among donors, government agencies, mass media and of course, consumers, all of which
collectively determine an organizations success.
Importance of Marketing to the Society
Aggressive, effective marketing practices have been largely responsible for the high standard of
living to the society. The efficiency of mass marketing – extensive and rapid communication
with customers through a wide variety of media and distribution system that makes products
readily available – combined with mass productions has lowered the cost of many products.
One of the major benefits that marketing provides to the society at large is employment and
costs. The significance of marketing in the society can be considered by working as to show
many of the people are employed in some way in marketing and how much of what we spends
covers the cost of marketing. Because many people in labor forces are engaged in marketing
activities.

This will clearly indicates, employment in retailing, wholesaling, transportations, warehousing

and communication industries, as well as people who work in marketing departments of
manufacturers and those who work in marketing in agricultural, mining, and service industries.
Further, more, over the past century; jobs in marketing have increased at a much more rapid rate
than jobs in production, reflecting economy is expanded role of marketing.
Importance of Marketing to the Global Economy

The technologies that have been created during World War II have created the potential for a
truly global economy. Market has benefited the economies in the area like:
 The war produced massive investments in technology that lead to peace time innovations
in communications and improvement is transportation. The ability to be infrequent and
virtually instantaneous contact with markets around the world and the capability to move
goods had the effect of lowering the barriers to international trade.
 The economic development components of international organizations have produced

recognition of potential markets around the world.
 Most nations today – regardless of their degree of economic development or their

political philosophy – recognize the importance of marketing beyond their own national
borders. Indeed, economic growth in the less developed nations of the world depends
greatly on their ability to design effective marketing system to produce global customers
for their raw materials and industrial output.
Importance of marketing in General

On the average, about 50 percent of each dollar we spend as a consumer goes to cover the
marketing costs. The money pays for designing the products to meet our needs, making products
readily available when and where we want them, and informing us about producers. These
activities add want satisfying ability or what is called utility, to products.
A customer purchases a product because it provides satisfaction. That something that makes a
product capable to satisfying want is its utility. And it is through marketing that much of a
products utility is created. Then potential buyers must be informed about the existence of

products and the benefits it offers through various forms of promotion. The kinds of utility that
marketing provides in the process are as follows:
Possession utility: Possession utility is created when a customer buys the product. That is,
ownership is transferred to the buyer. Thus, for a person to consume and enjoy the product a
transaction must take place. This occurs when you change your money for a product.
Time utility: Time utility refers to having a product available when you want it. Having a
product available when we want it is very convenient but it means that the retailers must
anticipate our desires and maintains an inventory. Thus, there are costs involved in providing
time utility.
Place utility: Place utility exists when a product is readily accessible to potential customers. So
physically moving the products to store near the customers add to its value.
Information utility: Information utility is created by informing prospective buyers that a
product exists. Unless you know a product exist and where you can get it, the product has no
value. Advertising that describes a sales person answering a customer question about the
durability of a product creates information utility. Image utility is a special type of information
utility. It is the emotional or psychological values that a person attaches to a product or brand a
person attaches to a product or brand because of its reputation or social standing.
Form utility: Form utility is associated primarily with production – the physical or chemical
changes that makes a product more valuable. When limber is made into furniture, form utility is
created. This is production not marketing. However, marketing research may aid in decision
making regarding product design, color, quantities produced, or some other aspect of product.
All of these things contribute to the product form utility.
In short, the importance of marketing includes:
 Marketing process brings goods and services to satisfy the needs and wants of the people.
 It helps to bring new varieties and quality goods to consumers.
 Marketing converts latent demand into effective demand.
 It gives wide employment opportunities.
 It creates time, place and possession utilities to the products.
 Efficient marketing results in lower cost of marketing and ultimately lower prices to
consumers.

 It is vital link between production and consumption and primarily responsible to keep the
wheel of production and consumption constantly moving.
 It creates to keep the standard of living of the society.
1.5 Marketing Tasks

Marketers are skilled in stimulating demand for their products. However, this is too limited a
view of the tasks that marketers perform. Just as production and logistics professionals are
responsible for supply management, marketers are responsible for demand management. They
may have to manage negative demand (avoidance of a product), no demand (lack of awareness
or interest in a product), latent demand (a strong need that cannot be satisfied by existing
products), declining demand (lower demand), irregular demand (demand varying by season, day,
or hour), full demand (a satisfying level of demand), overfull demand (more demand than can be
handled), or unwholesome demand (demand for unhealthy or dangerous products). To meet the
organization‟s objectives, marketing managers seek to influence the level, timing, and
composition of these various demand states.
1.5.1 Building Customer Relationships
Earlier customer relationship management (CRM) was understood as managing individual
customer‟s data in order to maximize customer loyalty. However, in the modern business CRM is
the overall process of building and maintaining profitable customer relationships by delivering
superior customer value and satisfaction. It deals with how to acquire, keep and grow customers.
Relationship building blocks: Customer value and satisfaction are components for lasting
relationship. Companies never go ahead profitably with the absence of these two building blocks.
Customer relationship levels and tools: Companies can build customer relationships at many
levels depending on the nature of the target market. For example a company with low-margin
customers may seek to develop basic relationship with them. On the other extreme, in markets with
few customers and high-margin marketers create full partnership with them.
Today, most leading companies are developing customer loyalty and retention programs. Beyond
offering consistently high value and satisfaction, marketers can use specific marketing tools to
develop bonds with customers. For example, many companies now offer frequency marketing
programs that reward marketing programs who buy frequently or in large amounts.

Relating with more carefully selected customers: Few firms today still practice true mass
marketing-selling in a standardized way to any customer who comes along whereas most companies
now are targeting fewer more profitable customers. Through selective relationship management
they undertake customer profitability analysis to weed-out losing customers and target the promising
ones. If there is probability to turn less profitable customers into profitable, the firm tries its best. If
not, the firm decides to fire them.
Partner relationship management: Creating customer value and satisfaction is not the sole
function of marketing personnel but the collective effort of all company‟s functional units. Partner
relationship management means working with partners in other company departments (accounting,
finance, purchasing, operation and others) and outside the company (suppliers and intermediaries) to
jointly bring greater customer value.
1.5.2 Demand Management
Marketing management is the process of planning and executing the conception, pricing, promotion,
and distribution of ideas, goods, and services to rate exchanges that satisfy individual and
organizational goals. This definition recognizes that marketing management is a process involving
analysis, planning, implementation, and control; that it covers goods, services, and ideas; that it rests
on the notion of exchange, and that the goal is to produce satisfaction for the parties involved.
There are eight possible demand states:
None-existent demand: customers may be unaware of or uninterested in the product. They neither
like nor dislike the product. Marketing strategy-Stimulation marketing (the company tries to find
way to associate the benefits of the product with people‟s natural needs and interests through
advertisement.
Negative demand: customers dislike the company‟s product. Marketing strategy: Conversional
marketing (making attitudinal adjustment by promotion, features redesigning, lowering price, etc).
Declining demand: customers begin to buy the product less frequently or not at all may be because
of product obsolescence, stiff competition, high price, etc. Marketing strategy- Remarketing
(changing product features, searching for new target markets, more effective communication, etc
will re-stimulate the declining demand).

Latent demand: customers may develop a strong need that cannot be satisfied by an existing
product. Marketing strategy- Developmental marketing (the company decides to measure the size
of the potential market and develop a product that satisfies the demand).
Irregular demand: customers purchase the company‟s product on seasonally, monthly, weekly,
daily even hourly basis. Marketing strategy- Synchro-marketing (the company decides to increase
price, decrease advertisement and augmented services during peak periods and doing the reverse
during slack demand periods).
Full demand: customers are adequately buying all the products put into the marketplace. Marketing
strategy-Maintenance marketing (maintain the current level of demand in the face of changing
customers preferences and increasing competition).
Over full demand: Sometimes a demand level that is beyond an organization‟s ability may arise.
Marketing strategy- Demarcating (marketers facing overfull demand decide a temporary or
permanent reduction or shift of demand).
Unwholesome demand: customers may be attracted to products that have undesirable social
consequences. These products are liked some and disliked by others in the society Marketing
strategy-Destroy marketing (marketers attach cautionary label on the package and reduce explicit,
positive and direct promotion, fear messages, price hikes, reduce availability to get people to give it
up. Example product like: cigarettes, alcohol, hard drugs, handguns, etc.
1.6 Scope of Marketing
To prepare to be a marketer, you need to understand what marketing is, how it works, what is
marketed, and how does the marketing. Marketers market different types of entities: goods, services,
events, experiences, persons, places, Properties, organizations, information, and ideas.

CHECK YOUR SELF HERE
1. List and elaborately explain the salient features of the marketing concept
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2. Briefly explain the basic concepts of marketing and marketing tasks in your
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3. Explain the scope of marketing
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CHAPTER TWO
MARKETING ENVIRONMENT
2.0. Objectives
 Define marketing environment
 Describe the internal and external marketing environment
 Differentiate Micro and Macro marketing environment
 Outline the elements of both micro and macro marketing environment
2.1. Introduction
A company's marketing environment consists of the actors and forces outside
marketing that affect marketing management's ability to develop and maintain
successful transactions with its target customers. The environment may be
internal/or external.
The external environment consists of all the factors outside the organization that
provide opportunities and pose threats to the organization. On the other hand the
internal environment refers to all the factors within the organization, which impart
strengths or cause weakness of the strategic nature.
The environment in which an organization exists can be, therefore, described in
terms of opportunities and threats operating in external environment apart from
the strength and weakness existing in internal environment.
Internal environment are controllable because they are under the control of the
firm’s management. This includes.
 Human resource: The characteristics of the human resource like skills, quality, morale
commitment, attitude etc could contribute to the strength or weakness of an organization.

 Company image and brand equity :the image of company matters while raising
finance, forming joint ventures or other forms of alliance, soliciting marketing
intermediaries, entering purchase or sale contracts, launching products etc.
 R&D and technological capabilities: are among other things that increasingly determine
company‟s ability to innovate and complete in the market.
 Marketing mix; these are the company‟s 4p‟s.
External Environment (Opportunities and Threats)

A major purpose of environmental scanning is to detect new marketing opportunities and
threats. A marketing opportunity: is an area of buyer need in which a company can perform
profitability. An environmental threat: is a challenge posed by unfavorable trend or
development that would lead, in the absence of defensive marketing action, to deterioration in
sales or profit.
The systematic approach to understanding the environment is SWOT analysis. Therefore,
marketing environment offers opportunities threats, weakness and strength. Successful
companies know the vital importance of using their marketing research and intelligence systems
constantly to watch and adapt to the changing environment.
The external environment consists of a microenvironment and a macro environment. The
micro environment consists of the forces close to the company that affect its ability to serve its
customers - the company, suppliers, marketing channel firms, customer markets, competitors and
publics. The microenvironment consists of the larger societal forces that affect the whole
microenvironment demographic, economic, natural, technological, political and cultural forces.
We look first at the company's microenvironment.
2.2. THE COMPANY’S MICROENVIRONMENT
Marketing management's job is to create attractive offers for target markets. However, marketing
managers cannot simply focus on the target market's needs. Their success will also be affected
by actors in the company's microenvironment. These actors include other company departments,
suppliers, marketing intermediaries, customers, competitors and various publics.

The Company: In designing marketing plans, marketing management should take other
company groups, such as top management, finance, research and development (R & D),
purchasing, manufacturing and accounting, into consideration.
Marketing manager‟s plans are subject to the influence of the following groups:
 Top Management/executives- set the company‟s mission, objectives, broad strategies and
policies. The marketing manager‟s objectives, strategies and policies are derived from top
management‟s objectives, strategies and policies. Since it is functional objectives which
collectively ensure organizational objectives, each functional unit‟s objectives should
coincide with the objectives and strategies determined at the top.
 Finance Department-is responsible to find and raise funds to carry out the marketing plan.
If finance department is incapable to search for and allocate adequate budget to each
respective marketing activity, planned activities will not be carried out appropriately and in
turn the promised customer value may not be delivered.
 Research and Development-is responsible to design safe and attractive products.
Unfortunately if this department does the other way round, the burden goes to marketing
personnel. If the product looks unsafe and unattractive, customers will not pay premium price
and will decide to shift to competitors. In order to tackle this problem if there will be any, the
marketing manager adds marketing personnel into the research and development team.
 Procurement Department-is responsible to search for alternative input suppliers and deliver
the desired quality and quantity of raw materials. For example, if the marketing objective of
the company is to become quality leader, the purchasing department should supply right
quality inputs. If not, the salability of the output will be in question. On the other extreme, if
the marketing objective of the company is cost leadership, the purchasing department needs
to search for suppliers that offer low price.
 Operations Department-is responsible to process or produce the desired quality and
quantity of the marketing offer in the required form.
 Accounting Department-is responsible to measure total costs incurred and total revenues
earned. This will help marketing knowhow cost effectively it is achieving its objectives.
Suppliers

Suppliers are an important link in the company's overall customer 'value delivery system". They
provide the resources needed by the company to produce its goods and services. Supplier
developments can seriously affect marketing. Marketing managers must watch supply availability -
supply shortages or delays, labor strikes and other events can cost sales in the short run and damage
customer satisfaction in the long run.
Marketing managers must also monitor the price trends of their key inputs. Rising supply costs may
force price increases that can harm the company's sales volume. To alleviate the problems arise from
supply shortage, supply delay and supply quality and price changes; the marketing manager needs to
build and maintain relationships with more than a single supplier. In addition to this, the marketing
manager can arrange advance payment or financial support to suppliers in order to help them relieve
supply shortage and poor quality input.
E.g. food processing plants may make advance payment or provide credit service to farmers who
grow food crops which the food processing plant uses as input. This fund enables the suppliers to
buy or lease agricultural inputs like tractors and combiners, adequate fertilizer, pesticides and spray
equipment‟s and if the farming system is irrigation, modern irrigation technologies will be financed.
Therefore, farmers can yield high volume with high quality to confidently deliver to their customers.
Marketing Intermediaries
Marketing intermediaries are firms that help the company to promote, sell and distribute its
goods to final buyers. They include resellers, physical distribution firms, marketing services
agencies and financial intermediaries. Resellers are distribution channel firms that help the
company find customers or make sales to them). These include wholesalers and retailers which
buy and resell merchandise. Selecting and working with resellers is not easy. No longer do
manufacturers have many small, independent resellers from which to choose. They now face
large and growing reseller organizations. These organizations frequently have enough power to
dictate terms or even shut the manufacturer out of large markets.
Customers
The company must study its customer markets closely. Consumer markets consist of individuals
and household that buys goods and services for personal consumption. Business markets buy

goods and services for further processing or for use in their production process, whereas reseller
markets buy goods and services to resell at a profit.
Institutional markets are made up of schools, hospitals, nursing homes, prisons and other
institutions that provide goods and services to people in their care. Government markets are
made up of government agencies that buy goods and services in order to produce public services
or transfer the goods and services to others who need them.
Finally, international markets consist of buyers in other countries, including consumers,
producers, resellers and governments. Each market type has special characteristics Chat call for
careful study by the seller. At any point in time, the firm may deal with one or more customer
markets: for example, Unilever has to communicate detergent brand benefits to consumers as
well as maintaining a dialogue with retailers that stock and resell its branded products.‟
Competitors
The marketing concept states that, to be successful, a company must provide greater customer
value and satisfaction than its competitors do. Thus, marketers must do more than simply adapt
to the needs of target consumers. They must also gain strategic advantage by positioning their
offerings strongly against competitors' offerings in the minds of consumers. No single
competitive marketing strategy is best for all companies. Each firm should consider its own size
and industry position compared to those of its competitors. Large firms with dominant positions
in an industry can use certain strategies that smaller firms cannot afford. But being large is not
enough. There are winning strategies for large firms, but there are also losing ones. And small
firms can develop strategies that give them better rates of return than large firms enjoy.
Publics/Pr
The company's marketing environment also includes various publics. A public is any group that
has an actual or potential interest in or impact on an organization's ability to achieve its
objectives.
 Financial publics (banks, investment houses, stockholders, etc)
 Media publics (newsletters, magazines, radio and TV stations)
 Citizen-action-publics (consumer organizations, environmental groups, minority groups, etc)
 Local publics (neighborhood residents, opinion leaders, community organizations)
 Genera publics (the entire society)

 Government publics (various government agencies which formulate and enforce laws and
regulations)
 Internal publics include workers, managers, volunteers, and the board of directors.
2.3. THE COMPANY’S MACROENVIRONMENT

The company and all the other actors operate in a larger macro environment of forces that shape
opportunities and pose threats to the company.
The following are the major factors:

Demographic Environment
Demography is the study of human populations in terms of size, density, location, age, gentler,
race, occupation and other statistics. The demographic environment is of considerable interest to
marketers because it involves people, and people make up markets. Here, we discuss the most
important demographic characteristics and trends in the largest world markets. The first
environmental factor of interest to marketers is population, because people make-up markets. For
example
In any geographic market, population size and growth trends can be used to measure its broad
potential for a wide range of goods and services. In addition to this, occupation status, family
size age composition etc.
 Population size-as population size moves up, new market segments emerge and existing
market expands, the demand of various products grows. For example, the new generation is
becoming health conscious, information seeker and sensitive to the ecology.
 Age structure-The products which people buy are different at different age levels. For
instance, different garment factories decide to target kids, teenagers, adults and old age people
separately. Hair styling, recreational centers, the clubs and associations people join, etc are age
dependent. As age grows up, people tend to give up certain behaviors and mix with other behaviors.

 Gender-in product preference not both genders respond the same way. E.g. clothes, shoes,
cosmetics, etc.
 Density-the world population is unevenly distributed. Some regions are densely populated
whereas others are sparsely populated. This characteristics intervenes companies‟ decision as to
which channel of distribution will be used to reach target customers. Sparsely populated markets
can be served through intermediaries whereas densely populated markets can best be served directly
by manufacturers.
 Educational level-the educational level of people highly influences their consumption

pattern in that more educated people are impressed with high quality products and new innovation,
expose them to information (reading numerous written sources, scouring into the internet, listening
to and watching broadcasted information), need much recreation and visit, etc than less educated
people.
 Occupation- people are employed in and will be employed in a multitude of professions.

Accordingly their buying decision differs. Some jobs require people to be obeyed by certain agreed
up on rules. E.g. bank employees, hotel servants, employees in hospitals use formal wear while they
are in duty.
In earlier times, women were considered to be home maids (keeping and feeding children, cooking
food for family members) and not allowed to go and work out of home. Unlike the past, this time
women equally participate to apply for job vacancies in various professions. This trend has resulted
in time squeezed families who haven‟t time to prepare families‟ food and treating children. So,
people tend to buy constantly fast foods and go to the labor market to search for home workers and
baby sitters.
 Religion-the edibles we eat, the beverages we drink, the clothes we wear, the styles we
follow, the festivals we celebrate are religion dependent.
 Geographic shift- by any means people all over the world move from one location to some
other location between and within countries. As a result, the locations people leave from and people
go to suffer market share decline and enjoy new market arrival or increasing market share
respectively.

 Income- people are different in their earning and wealth possession. So, their buying
decisions are guided by their income level and wealth status.
 Climate and Weather-not all people worldwide live in the same climatic regions. People
living in desert regions do not react the same way as people living in tropical and temperate regions.
E.g. the clothes and shoes we wear, public transports we use in Dire Dawa differ from the clothes
and shoes we wear, public transports we use if we would live in Addis Ababa on account of climatic
difference.
 Family size and structure- the traditional family includes husband, wife, children and
retired parents or old age people. The volume of purchase and the type of products being purchased
vary when human beings live alone, live with spouse, bear one child, have many children and retired
parents.
 Diversity- countries vary in their ethnic and racial makeup. At one extreme is Japan where
almost everyone is Japanese. At the other extreme is the United States with people from almost all
nations. As a result, in United States very diverse markets exist. These diverse markets respond to
the marketing stimuli uniquely.
Physical and Technological Environment:

Physical factors such as geographical factors, weather and climatic condition may call for
modifications in the product etc to suit the environment because these environmental factors are
uncontrollable. According to J.K.Galbraith, technology is a systematic application of scientific or
other organized knowledge to practical tasks. Technology has a tremendous impact on the life
style, consumption pattern, and the economic well-being.
Technology is a mixed blessing in other ways also. A new technology may improve the live in
one area while creating environmental and social problems in other areas. Technological
breakthroughs can affect markets in three ways:
 Start entirely new industries, as computers, robots have done.

 Radically alter, or virtually destroy, existing industries. Television crippled the radio and
movie industry; hand-held calculators did in the slide-rule industry; computers did in the
typewriter industry.
 Stimulate markets and industries not related to the new technology. New home
appliances and frozen food gave home makers additional free time to engage in other
activities. In the western world internet has stimulated the postal business.
New technologies create new opportunities and threats because new technologies will result in
the arrival of new markets, serve existing customers better and these same technologies will
replace the existing older technologies.
E.g. Digital camera hurt Kodak and Fuji film manufacturer.
ATM hurt the traditional money withdraw system
Auto and airplane hurt the rail road transport
Xerography hurt the carbon paper business
The internet hurt book printing enterprises, etc
When companies work with the traditional technologies while the modern technologies are timely in
use by competitors, their business will suffer from product obsolescence and in turn customer shift.
Natural Environment:
It includes natural resource endowments, weather and climatic conditions, port facilities
topographical factors, are all relevant to business. Natural environment involves the natural
resources that are needed as inputs by marketers or that are affected by marketing activities.
Marketers should be aware of several trends in the natural environment which include growing
shortage of raw materials, increased pollution and increased government intervention in natural
resource management.
 Growing Shortage of Raw Materials
Recently, those seemingly infinite resources like water, forests, and minerals are threatened. Water
shortage, depletion of forests and scarcity of nonrenewable resources such as oil, coal, etc has
become today‟s serious phenomenon. Thus, firms which use those scarce resources as inputs face
large cost increment even if the materials seem available.

 Increased Pollution
Various industries emit wastes which damage the quality of the natural environment. Consider the
disposal of chemical and nuclear wastes, the quantity of chemical pollutants in the soil and food
supply, the littering of the environment with non-biodegradable bottles, plastics and other packaging
materials.
 Increased government intervention in natural resource management
Some countries‟ governments pursue environmental quality whereas others especially many poorer
nations do little about pollution because they lack funds. The general hope is that companies around
the world will accept more social responsibility and that less expensive devices can be found to
control and reduce pollution.
Today, enlightened companies go beyond government enforcing regulations; they are developing
environmentally sustainable strategies and practice in an effort to create a world economy that the
planet can support indefinitely. They are responding to consumer demands with ecologically safe
products, recyclable or biodegradable packaging, recycled materials and components, better
pollution controls and more energy sufficient operations.
Economic Conditions
People alone do not make a market. They must have money to spend and be willing to spend it.
The available purchasing power in an economy depends on current income, savings, debt, and
credit availability. Marketers must pay close attention to major trends in income and consumer
spending patterns. Consequently, the economic environment is a significant force that affects the
marketing activities of just about any organization. A marketing program is affected especially
by such economic factors as the current and anticipated stage of the business cycle, as well as
inflation and interest rate.
Economic environment comprises all the factors that affect customers‟ buying power and spending
patterns.
1. Stages of Economic Development
 Subsistence Economy: It is the level of economic development where production is lower
than or equal to consumption (hand-to-mouth economic system). Countries experiencing
subsistence economy have no marketable surplus. The society consumes most of the nation‟s
agricultural and industrial output. These countries offer few market opportunities because
they have no enough surpluses to transact with others. It is practiced by 3rd world countries.
 Industrialized economy: constitutes rich markets for many different kinds of commodities.
There is specialization of production and shortage of capital is not the problem. Industrialized
countries try to increase production through the use of modern technology.
 Service based economy: the focus of marketing is not materialism rather focuses on
advanced society needs and welfare. These countries offer significant market opportunities to
numerous industries.
2. Distribution of Income
Income between and among people and nations is unevenly distributed. Now a day we are observing
financially squeezed consumers who spend their income carefully. It is obvious that consumers‟
spending pattern fluctuates as their income fluctuates from time to time. Based on income
distribution the society is classified in to three groups.
Upper class consumers-this class comprises affluent/wealthy society members whose spending
pattern is not affected by current economic events and they are major markets for luxury products.
Middle class consumers-have moderate income and are careful about their spending but can still
afford good life some of the time.
Lower class consumers- are all buyers who stick close to the basics of food, clothing and shelter.
Some marketers decide to specialize in serving upper class consumers who are quality sensitive and
fewer prices sensitive. These groups are not affected by price changes and require more comfort,
extensive services and convenience. Some others decide to target middle class consumers with a
moderate bundle of benefits at a reasonable price.
Still other organizations decide to tailor their marketing programs to lower class consumers. These
consumers want the basic solution for their problems by skipping extra services which will add up
costs to them. Differently some business ventures decide to tailor separate marketing programs
which suit the unique interests of each class consumers.
Marketers are now working with value marketing (rather than offering high quality at a high price,
or lesser quality at very low price, they are looking for ways to offer today‟s more financially

cautious buyers the right combination of product quality and good service at a fair price. Changes in
major economic variables such as income, interest rate, inflation, savings and borrowing patterns
have a large impact on the market place.
Social and Cultural Forces
Cultural environment is made up of institutions and other forces that affect a society‟s basic values,
perceptions, preferences and behaviors. People grow in a particular society that shapes their basic
believes and values.
 Persistence of cultural values
People in a given society hold many believes and values. Among these, some are core ones which
have high degree of persistence. Core believes and values are passed on to the new generation from
parents and society and are reinforced through various institutions (schools, churches, mosques,
business government agencies). For example, getting marriage and getting child are core believes.
 Shifts in secondary believes
Secondary believes and values are more open to change.

E.g.1. Believing in marriage is a core belief whereas believing in early marriage is a secondary
belief.
E.g.2. believing in getting child is a core belief whereas considering many children as wealth is a
secondary belief.
Marketers have some chance of changing secondary believes but have little chance of changing core
believes. Therefore, family planning marketers can argue that early marriage and having many
children irrespective of income level is a harmful practice rather than communicating a message on
no need of getting marriage and getting child.
All the activities we do in our walks of life manifest the culture of the society we are included in.
The major cultural values of a society are expressed in:
 People’s views of themselves: Some people seek personal pressure and wanting fun,
recreation, prestige, etc. Thus, people buy products and do things which they thought suit their
individual personalities and values.
 People’s views of others: People now want to get out of the house and mix with others. This
trend suggests a greater demand for social support products that improve direct communication

between and among people. E.g. sports events, night clubs, recreational centers, are some examples
of marketing phenomenon wherein people want to enjoy together.
 People’s views of organizations: Individuals vary in their attitudes toward corporations,

government agencies, trade unions, universities and other organizations. According to their attitude,
people have a pressing need to be employed and work in reputed and well paying companies, want
to join famous educational institutions and the like.
 People’s views of society: A given society comprises patriots who defend their society,
reformers who want to bring a change in the society, and malcontents who want to leave that society.
Thus, people‟s orientation to their society influences their consumption patterns and attitudes
towards the market place.
For example, patriots are impressed with patriotic products and promotions (I love Ethiopia T-shirt,
proud of your country and buy homeland products logos, etc).
 People’s views of nature and the universe: Some groups feel they are ruled by the natural
world, others feel they are in harmony with it and still others seek to master it. Recently, people are
mastering nature through technology and they believe that nature is bountiful. However, very
recently as recognized by some groups, nature is finite and fragile which can be spoiled and
destroyed by human activities. Therefore, certain people fear that the natural environment will be
damaged very soon and the society‟s welfare will be threatened. To relieve this fear, marketers are
delivering natural and organic products.
The society in which people grow up shapes their beliefs, values, and norms people absorb,
almost unconsciously, a worldview that defines their relationship to themselves, to others, to
nature, and to the universe.
The people living in a particular society hold many core beliefs and values that tend to persists.
People‟s secondary beliefs and values are more open to change. For example believing in the
institution of marriage is a core belief, believing that people ought to get marriage early is a
secondary belief. Marketers have some chance of changing secondary value but little chance of
changing core values. Social and cultural environmental factor that affects marketing:
 Attitude towards income distribution
 Attitude towards environmental pollution
 Attitude towards quality of life

 Women in work force
Political and Legal Forces
Political environment consists of laws, government agencies and pressure groups which
influence or limit various organizations and individuals. Governments develop public policy
(sets of laws and regulations to govern businesses for the good of the society as a whole.
Almost every marketing activity is subject to the influence of a wide range of laws and
regulations covering competition (patent and copy right, protecting home land industries from
abroad competitors‟ attack, protecting illegal trade practice like contraband), fair trade practices,
environmental protection, product safety, consumer privacy, packaging and labeling, truth in
advertising, pricing.
With regard to investment policy, there are business fields which the government in power
encourages and subsidizes. Furthermore, some governments enter into an agreement with foreign
investors as to investors can export their output to the outside world only when the domestic
market‟s demand for the output is saturated.
Understanding the public policy implications of a particular marketing activity is not a simple
matter, yet understanding it well is an indispensable one. New laws and their enforcement will
continue to increase. Business executives must watch these developments when developing their
marketing programs. Marketers need to know the major laws protecting competition, consumers and
the society at the local, state, national and international level.
Every company's conduct is influenced more and more by the political and legal process in the
society. The political and legal forces on marketing can be the following:-
 Monetary and fiscal policies- Government spending, tax legislation etc.
 Social legislation and regulation-Anti pollution law.
 Government relationship with industries- Tariffs and import quotas etc.

1. List and elaborately explain marketing environment
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2. Briefly explain internal and external marketing environment
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3. Explain terms of opportunities and threats operating in external environment
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CHAPTER THREE
UNDERSTANDING THE MARKET
3.0 Objectives
 Define market
 Describe the different types of market
 Differentiate Consumer and Organizational markets with their buying behavior
3.1 What Is Market?
The concept of exchange leads to the concept of a market. A market consists of all the potential
customers sharing a particular need or wants who might be willing and able to engage in
exchange to satisfy that need or want. Thus the size of market depends on the number of people
who exhibit the need or want.
Traditionally, a market was a place where buyers and sellers gathered to exchange their goods
such as village square. Economists use the term market to refer to a collection of buyers and
sellers who transact over a particular product or product class. E.g. The grain market, housing
market etc. marketers, however, sees the sellers as constituting the industry and the buyers as
constituting the market.
3.2. Types of Market
 Consumer Market
 Organizational Market
 Governmental Market
 Institutional Market

3.2.1. Consumer Market and Buying Behavior

Marketers need to understand who their customers are in order to target their marketing activity
as precisely as possible. Once they know who their customers are, they also need to know as
much as possible about how those customers behave.
All individuals and households who buy or acquire goods and services for personal consumption
are termed as consumers.
Markets have to be understood before marketing strategies can be developed. People using
consumer markets buy goods and services for personal consumption. Consumers vary
tremendously in age, income, education, tastes, and other factors.
Consumer buying behavior: It refers to the buying behavior of final consumers- individuals
and households who buy goods and service for personal consumption. It is the processes
involved when individuals or groups select, purchase, use, or dispose of products, services, ideas,
or experiences to satisfy needs and desires.
Consumer behavior examines mental and emotional processes in addition to the physical
activities.
 Why we study consumer behavior?
Basic objective of the studying consumer behavior is that the firm needs to know:
 Who buys their product?
 How they buy?
 When and where they buy?
 Why they buy?
 How they respond to marketing stimuli?
 Considers who influences the decisions?
 What is Consumer Behavior about?
All these are important questions, which are to be known to the companies so that they can
design, and implement marketing strategies to satisfy the customers.
 Model of Consumer Behavior
Consumers make many buying decisions every day. Marketers can study actual consumer
purchases to find out what they buy, where, and how much. But learning about the whys of

consumer buying behavior is not so easy the answers are often locked deep within the
Consumer‟s head.
The central question for marketers is: How do consumers respond to various marketing efforts
the company might use? The company that really understands how consumers will respond to
different product features, prices, and advertising appeals has a great advantage over its
competitors.
The starting point is the stimulus-response model of buyer behavior shown in Figure below
which shows that marketing and other stimulus enter the consumer's "black box" and produce
certain responses. Marketers must figure out what is in the buyer's black box.
Marketing Other Buyers Buyers’ Buyer’s Decision

Stimuli Stimuli Characte Decision - Product Choice
Product Economical ristic Process - Brand Choice
Price Technological Cultural Problem - Dealer Choice
Promotion Cultural Social recognition - Purchase Timing
Place Political Personal Information
Psycholog search
ical Evaluation
Post purchase
behavior
Figure 3.1 Stimulus-Response Models

Marketing stimuli consist of the four Ps: product, price, place, and promotion. Other stimuli
include major forces and events in the buyer's environment: economic, technological, political,
and cultural. All these inputs enter the buyer's black box, where they are turned into a set of
observable buyer responses: product choice, brand choice, dealer choice, purchase timing, and
purchase amount.
The marketer wants to understand how the stimuli are changed into responses inside the
consumer's black box, which has two parts. First, the buyer's characteristics influence how he or
she perceives and reacts to the stimuli. Second, the buyer's decision process itself affects the
buyer's behavior Consumer purchases are influenced strongly by cultural, social, personal, and

psychological characteristics, as shown in Figure For the most part, marketers cannot control
such factors, but they must take them into account.
 Major Factors Influencing Consumer Buying Behavior
Consumers‟ buying behavior is influenced by many cultural, social, personal and psychological
factors.
Cultural Forces
Cultural factors exert the broadest and deepest influence on consumer behavior. The roles played
by the buyer‟s culture, subculture, and social classes are particularly important.
Culture is defined as a set of learned beliefs, values, attitudes, habits and forms of behavior that
are shared by society and are transmitted from generation to generation within that society. It is
the complex of symbols and artifacts created by a given society and handed down from
generation to generation as determinants and regulators of human behavior. The symbols may be
intangible (attitudes, beliefs, values, languages, religion) or tangible (tools, housing, products,
and works of art). In short, culture implies a totally learned and 'handed down way of life.
Culture is the most determinant of a person's wants and behavior because human behavior is
largely learned. Then marketers should seriously consider the culture in choosing target markets
and preparing marketing programs. For example, the introduction of processed horsemeat in
Ethiopia would be meaningless while it is delicious and highly demanded in Europe. This shows
us that culture may determine the success or failure of a business organization.
Subculture: each culture consists of smaller subcultures that provide more specific identification
and socialization for its members. It includes nationalities, religions, racial groups, and
geographical regions. Many subcultures make up important market segments, and marketers
often design products and marketing programs tailored to their needs.
Social Class: Virtually all-human societies exhibit social stratification. Social classes are
relatively homogenous divisions in a society, which are hierarchically ordered, and whose
members share similar values, interests and behavior.
Roughly, any society can be divided into three major groups: upper, middle and lower classes.
Social classes do not reflect income alone but also other indicators such as occupation,

education, and area of residence. Social classes differ in their dress, speech, patterns, recreational
preferences, and many other characteristics.
Social Factors
Reference Group: A person‟s reference group consists of all the groups that have a direct (face-
to-face) or indirect influence on the person‟s attitudes or behavior. Groups having a direct
influence on a person are called membership Groups. Some membership groups are primary
groups, such as family, friends, neighbors, and coworkers, those with whom the person interacts
fairly continuously and informally. People also belong to secondary groups, such as religious,
professional, and trade union groups, which tend to be more formal and require less continuous
interaction.
People are also influenced by groups to which they do not belong. The indirect (non-
membership) group consists of:
 Aspirational groups- groups that a person would like to belong.
 Dissociate groups- groups whose behavior is rejected by a person.
Groups commonly have opinion leaders. These are people within a reference group who,
because of special skills, knowledge, personality, or other characteristics, exert influences over
others. Opinion leaders are found in all strata of society, and one person may be an opinion
leader in one product area and a follower in another.
In general reference groups expose the person to new behavior and lifestyle, and influence the
person‟s attitudes and self-concept; they create pressures to conform that may affect the person‟s
product brand and vendor choices.
Family: Family group exerts the strongest and most enduring influence on our perceptions and
behavior. The family is the most important consumer buying organization in society. Marketers
are thus interested in the roles and relative influence of the husband, wife and children in the
purchase of a large variety of products and services.
The dominance of each member has different effects on the purchase of goods and services. For
example, if the wife is dominant, the emphasis of purchase can be households and furniture; and
if the husband is dominant the priority may be life insurance, automobile etc. In fact, the

dominance of each family member varies for different sub decisions of a product category (such
as when and where to buy).
Role and Status: A person belongs to many groups: family, clubs, and organizations. An
individual‟s position in each group can be defined in terms of role and status. Role consists of
the activities that a person is expected to perform according to the persons around him or her.
Each role influences buying behavior. Each role carries a status reflecting the general esteem
given to it by society. For example, a minister or company manager buys the car, clothing,
housing and others that best fit his role and status as expected by the society.
Personal Factors
A buyer‟s decisions are also influenced by personal characteristics. These include, the buyer‟s
age and stage in the life cycle, occupation, economic circumstance, lifestyle, personality, and
self-concept.
Age & stage in the life cycle: The goods and services that people buy change over their lifetime.
The types of food and cloth people need changes with age. People's task in clothes, furniture, and
recreation is related to age. Marital status, presence or absence of children, and their ages also
affect buying decision. Marketers term these factors collectively as family life cycle
Occupation: A person's occupation will lead to certain wants and needs for goods and services.
Accordingly, the clothes, households, furniture, recreational systems needs and tastes, etc for a
manager of a certain corporation is different from the proletariat of corporation.
Economic Circumstance: The buying decision that a person makes is tremendously affected by
the economic conditions of the person. The income that he/she earns, the attitude towards
spending and saving, the borrowing power and so on affect his/her buying decision.
Lifestyle: It is the person's pattern of living in the world expressed in the person's activities,
interests and opinions. It portrays the whole person interacting with his or her environment.
People coming from the same subculture, income, occupation may lead quite different lifestyle
may be reflected by wearing conservative clothes, spending a lot of time for family, helping
church.
Personality and Self-Concept

Each person has a distinct personality that influences his or her buying behavior. By personality,
we mean a person‟s distinguishing psychological characteristics that lead to relatively consistent
and ending responses to his or her environment. Personality is usually described in terms of such
traits as self-confidence, dominance, autonomy, difference, sociability, defensives, and
adaptability.
Psychological Factors
A person‟s buying choices are influenced by four major psychological factors- motivation,
perception, learning, beliefs, and attitudes.
Motivation: A person has many needs at any given time. Some needs are biogenic. They arise
from physiological states of tension such as hunger, thirst, and discomfort. Other needs are
psychogenic; they arise from psychological states of tension such as the need of recognition,
esteem, or belonging. A need becomes a motive when it is aroused to a sufficient level of
intensity. A motive is a need that is sufficiently pressing to drive a person to act. Satisfying the
need reduces the felt tension.
Perception: A motivated person is ready to act. How the motivated person actually acts is
influenced by his or her perception of the situation.
Perception is the process by which an individual selects, organizes, and interprets information
inputs to create a meaningful picture of the world. People can form different perceptions of the
same stimulus because of three perceptual processes: selective attention, selective distortion and
selective retention.
Learning: Learning involves changes in an individual's behavior arising from experience. When
people act, they learn. Learning theorist believe that learning is produced through the interplay of
drives, stimuli, responses, and reinforcement. A drive is a strong internal stimulus that calls for
action. Cues are minor stimuli that determine when, where, and how the person responds. The
practical significant of learning theory for marketers is that they can build up demand for a
product by associating it with strong drives, using motivating cues, and providing positive
reinforcement.

Beliefs and Attitudes: Through doing and learning, People acquire beliefs and attitudes. These
in turn influence their buying behavior. A Belief is a descriptive through that a person holds
about something. These beliefs may be based on real knowledge, opinion or faith, and may or
may not carry an emotional charge. Manufactures are very interested in the beliefs that people
carry in their heads about their products and services. These beliefs make up product and brand
images, and people act on their image.
An Attitude is a person‟s enduring favorable or unfavorable evaluation, emotional, feelings, and

action tendencies toward some object or idea. Attitude is a learned predisposition to respond to
an object or class of objects in a consistently favorable or unfavorable way. People have attitudes
toward almost everything Religion politics, clothes, music, and food and so on. Attitude put them
into frame of mind of liking or disliking an object, moving toward or away from it.
 The Buying Decision Process
The buying process starts long before actual purchase and continues long after purchase. Marketers
need to focus on the entire buying process. For most purchases buyers pass through five stages. But
in some routine purchases consumers often skip or reverse some of these stages.
Need Recognition/Problem Identification: It is the first stage in which the buyer recognizes a
problem. He/she senses a difference between his/her actual state and some desired state. The need
can be triggered or activated by internal stimuli (hungry and thirsty) or external stimuli (advertising).
What should be expected from marketers is researching consumers to find out what kinds of needs
arise, what brought them about and how they lead the buyer to this particular product.
Information Search: This is a stage in which the consumer is triggered to search for information.
An aroused buyer may/may not search for more information. If the buyer‟s need is strong and able
satisfying product is near at hand, the consumer is likely to buy it. If not, the buyer may store the
need or undertake an information search related to the need. The information may be obtained from:
 Personal sources e.g. family, friends, acquaintances.

 Commercial sources e.g. advertising, sales people, dealers, packages.
 Public sources e.g. mass media, consumer rating organization
 Experimental sources e.g. handling, examining or using the product

The influence of each information source varies with product and the buyer. Their effectiveness is
also according to personal viewing. Commercial sources normally inform the buyer but personal
sources legitimize or evaluate products for the buyer.
Evaluation of Alternatives: Buyers use the information they fetched from various sources to
evaluate alternative brands in the choice set and they rank brands according to some specifications.
For example, an auto buyer carries three brands in his/her mind and may consider attributes like
warranty, operating cost, style and price. In his/her evaluation if one brand is rated best or first
against those parameters, that brand will be chosen. Marketers should study buyers to find out how
they actually evaluate alternative brands.
Purchase Decision: It is actually buying the product. Generally the consumers‟ purchase decision
will be to buy the most preferred brand but two factors come between purchase intention and
decision. These factors are (1) Attitudes of others (friends and families) and (2) unexpected
situational factors (income, price and product benefit). For instance you decide to buy an
automobile. In the mean time, if your friend thinks that you should buy a low priced auto; your
chance of buying an expensive one will be interrupted.
Post Purchase Decision: Buyers take further actions after purchase based on previous satisfaction
level. The marketers‟ job does not end when the product is bought. The relationship between buyers‟
expectation and products‟ perceived performance determines the buyers‟ satisfaction level. Buyers
base their expectation on the information they receive. To this end, sellers should promise what their
brands can meet.
 Types of Buying Decision Behavior
Buying behavior differs greatly for different products. More complex decisions usually involve more
buying participants and more buyer deliberation.
Complex Buying Behavior: Consumers go through complex buying behavior when they perceive
significant brand differences and if products are expensive, highly self-expressive, and risky and
purchased infrequently. Because of these factors, there is high involvement of consumers in the
decision process. Consumers first develop a belief, then attitude and then making a thoughtful

purchase choice. Marketers need to help buyers learn about product class attributes and their relative
importance.
Dissonance Reducing Buying Behavior: The situations observed in the complex buying behavior
also appear in this type of buying behavior with the exception of insignificant difference among
different brands. Hence, buyers may shop around to learn what is available but buy relatively
quickly. They may respond primarily to a good price or convenience. After purchase, buyers might
experience dissonance/discomfort when they notice certain disadvantages of the purchased product
or hear favorable things about brands not purchased. To relieve consumers from this dissonance,
marketers‟ after sales communication should provide evidence and support to help consumers feel
about the purchased brand.
Habitual Buying Behavior: In habitual buying behavior, consumes‟ low involvement and little
brand differences exist. Consumers simply go to the store and reach for a brand especially for low
cost and frequently purchased products. Consumers passively read magazines and watch TV to
receive information.
Variety Seeking Buying Behavior: Consumers choose the brand without much evaluation, or the
evaluation of the product is during consumption. The next time buyers seek another brand not
because of dissatisfaction but simply to try something different.
 Consumers’ Buying Role
The six roles people might play in a buying decision:
 Initiator: A person who first suggests the idea of buying the product or service.
 Influencer: A person whose view or advice influences the decision.
 Decider: A person who decides on any component of buying decision- whether to buy,
what to buy, how to buy, or where to buy.
 Buyer: The person who makes the actual purchase
 User: A person who consumes or uses the product or services.
 Gatekeeper: people who have the power to prevent sellers or information from reaching
members of the buying center. For example, purchasing agents, receptionists, and telephone
operators may prevent sales persons from contacting users or deciders.
 The adoption process for new products

Adoption process is defined as the mental process which buyers go through from the first learning
about an innovation to final adoption.
Stages in the adoption process
Consumers pass five stages to adopt a new product.
Awareness: consumers become aware of the new product but lacks information about it.
Interest: consumers seek information to know about the new product.
Evaluation: consumers consider whether trying the new product makes sense.
Trial: the consumers try the new product in a small scale to improve their estimate of its value.
Adoption: consumers decide to make a full and regular use of the product.
3.3.2. ORGANIZATIONAL MARKET AND BUYING BEHAVIOR
The business market (industrial market) or organizational markets consists of all the
organizations that buy goods and services to use in the production of other goods and services or
to resell them for other customers. Traditionally, business markets were referred to as industrial
markets. This caused many people to think the term referred only to manufacturing firms.
Certainly manufactures constitute a major portion of the business market, but there are also other
components – agriculture, resellers, government agencies, service companies, nonprofit
organizations. Although, they are often underrated or overlooked because of the heavy attention
devoted to manufacturing each is a significant part of the business market.
Business buyer behavior refers to the buying behavior of the organizations that buy goods and
services for use in the production of other products and services that are sold, rented, or supplied
to others. It also includes the behavior of retailing and wholesaling firms that acquire goods to
resell or rent them to others at a profit.
 The Business Market versus the Consumer Market

The business market consists of all the organizations that acquire goods and services used in the
production of other products or services that are sold, rented, or supplied to others. The major

industries making up the business market are agriculture, forestry, and fisheries; mining;
manufacturing; construction; transportation; communication; public utilities; banking, finance,
and insurance; distribution; and services.
More dollars and items are involved in sales to business buyers than to consumers. Consider the
process of producing and selling a simple pair of shoes. Hide dealers must sell hides to tanners,
who sell leather to shoe manufacturers, who sell shoes to wholesalers, who sell shoes to retailers,
who finally sell them to consumers. Each party in the supply chain also has to buy many other
goods and services. Business markets have several characteristics that contrast sharply with those
of consumer markets.
 Characteristics of Business Market Demand
The major characteristics differentiate the business market from the consumer market: Demand
is derived; Demands tend to be inelastic; Demand is widely fluctuating; and the market is well
informed.
Demand is derived: The demand for a business product is derived from the demand for the
consumer products in which that business product is used. Thus the demand for steel depends
partially on consumers demand for automobiles and refrigerators etc. This is because the tool,
machines, and other equipment needed to makes these items are made of steel. Consequently, as
the demand for automobiles and refrigerators increases, companies may buy more steel to
produce those products.
Demand is inelastic: The total demand for many business goods and services is inelastic that is,
not much affected by price changes. Shoe manufacturers are not going to buy much more leather
if the price of leather falls, nor will they buy much less leather if the price rises, unless they can
find satisfactory substitutes. Demand is especially inelastic in the short run because producers
cannot make quick changes in production methods.
Demand is widely fluctuating: The demand for business goods and services tends to be more
volatile than the demand for consumer goods and services. A given percentage increase in
consumer demand can lead to a much larger percentage increase in the demand for plant and

equipment necessary to produce the additional output. Economists refer to this as the
acceleration effect.
Buyers are well informed: Typically, business buyers are better informed about what they are
buying than are ultimate consumers. They know more about the relative merits of alternatives
sources of supply and competitive products.
 Buying Situations in Organizational Buying
The business buyer faces many decisions in making a purchase. The number of decisions
depends on the buying situation: complexity of the problem being solved, newness of the buying
requirement, the number of people involved, and time required. Patrick Robinson and others
distinguish three types of buying situations: the straight rebuy, modified rebuy, and new task.
New-task buying: This is the most difficult and complex buying situation because it is a first
time purchase of a major product. Typically more people are involved in new task buying than in
the other two situations because the risk is great. Information needs are high and the evaluation
of alternative is difficult because the decision makers have little experience with the product.
Straight Re-buy: This is a routine, low involvement purchase with seminal information needs
and no great considerations of alternatives. These buying decision are made in the purchasing
department, usually from a predetermined list of acceptable suppliers.
Modified Re-buy: This buying situation is somewhere between the other two in terms of time
and people involved, information needed, and alternative considered.
 GOVERNMENTAL MARKETS
Governmental agencies are the largest purchasers that represent a huge market in almost all
countries. They purchase virtually every kind of product ranging from the smallest dollar amount
to the largest dollar values. As a result of volume purchasing and procurement administration is
highly specialized. Government buyers carefully develop detailed specifications and invite
qualified suppliers to submit a price bid in writing and award the bid to the lowest qualified
supplier. Governmental customers range from the smallest to the largest organizations. These
variations occur in:
 Their buying power or the volume of purchase

 Their buying patterns or practices

 Their purchase procedure
Based on these criteria, government customers are basically classified in to three groups:
Local governments: these are the lowest administrative units of the government. They serve
specific groups in defined areas and are typically responsible for many local government functions.
They include municipalities, districts, peasant associations and kebeles.
State governments: these are organizations which make major expenditures in various projects.
Federal governments: are large buyers of goods and services. There are many functional areas
within federal government. They include both civilian and military buying units such as agencies,
boards, commissions, departments, etc.
Effective marketing strategy for reaching government customers involves in the marketers‟ through
understanding of each group and the complex purchasing procedures. The marketer is primarily
faced with widely dispersed markets at federal, state and local levels. Government buyers are
responsible to and influenced by numerous interest groups who specify, legislate, evaluate and use
the goods and services purchased.
Government purchasing is also based on contractual arrangements. All government contractors must
meet general contact provisions that are set forth by law. Selling to the government is very involved,
complex and time consuming. Within this market, there are the most sophisticated buyer-seller
environments. To assist in selling to government, numerous manuals and publications are provided
which explain the process.
 INSTITUTIONAL MARKETS
Institutions do not fall into a clear-cut classification. Rather their practices lay somewhere between
government and private commercial enterprises. Institutional buyers are a mixture of government
and private organizations and industrial marketers must consider them on an individual basis to
respond successfully according to their unique characteristics, purchasing practices and policies.
They include schools, colleges, and universities, churches, mosques, hospitals, other non-profit
foundations, prisons, etc. Some of these institutions follow rigid rules and purchasing procedures
whereas others follow far more casual procedures. On the one hand, public institutional buyers are
quite similar to government buyers due to the constraints of political considerations and the dictates
of law. On the other hand, private institutions are managed very much like commercial enterprises.
Effective marketing rests on the industrial marketer‟s ability to recognize the way in which each
institution purchases. This distinction enables the marketer to know customers explicitly and
perform detailed research into market segmentation, organizational behavior, purchasing policies &
practices and formal and informal buying influences appropriate for each institution.
1. List and elaborately explain types of markets
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2. Differentiate Consumer and Organizational markets with their buying behavior
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3. Explain the characteristics of business market demand
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CHAPTER FOUR
MARKET SEGMENTATION, TARGETING AND POSITIONING
Objective
 Understand the meaning, bases and benefits of market segmentation
 Understand the concept of market targeting
 Discuss the meaning and types of market positioning and its implications
4.0 Introduction
A market consists of people or organizations with wants, money to spend, and the willingness to
spend it. However, most markets the buyers' needs are not identical. Therefore, a single
marketing program for the entire market is unlikely to be successful. A sound marketing program
starts with identifying the differences that exist within a market, a process called, market
segmentation and deciding which segments will be treated as target markets.
Market segmentation is customer oriented and consistent with the marketing concept. It enables
a company to make more efficient use of its marketing resources. After evaluating the size and
potential of each of the identified segments, it targets them with a unique marketing mix. The
marketer must somehow persuade the members of each segment that its product will satisfy their
needs better than competitive products. To do so, marketers attempt to develop a special image
for their products in the consumer's mind relative to competitive products: that is, it positions its
product as filling a special niche in the market place.
4.1 Market Segmentation

A large, heterogeneous market is comprised of smaller groups with homogeneous preferences.
Market segmentation is the practice of dividing a large heterogeneous market into smaller

subgroups with shared characteristics in order to deliver a market offering that satisfies unmet
needs as closely as possible. Since those within a segment have similar characteristics, marketers
have found they respond similarly to a marketing strategy promoting a given product, at a certain
price that is distributed in a particular fashion.
Market segmentation is also defined as "the process of taking the total, heterogeneous market for
a product and dividing it into several submarkets or segments, each of which tends to be
homogeneous in all significance.
Market segmentation is the process of dividing a market into subset of customers with common
needs and characteristics. It is the process of dividing large, heterogeneous markets into small
homogenous segments that can be reached more efficiently and effectively with products that
match their unique needs.
From the managerial stand point, market segmentation may be defined as subdividing of the
target in to sub groups of consumer population with identifiable, distinct and homogenous
characteristics with a view to develop and pursue distinct and differentiated marketing programs
for each sub group in order to enhance consumer satisfaction and the profit position of business.
According to kotler „‟ market segmentation is the sub dividing of market in to homogenous
subsections of customers, where and sub section may conceivably be selected as a market target
to be reached with distinct marketing mix.‟‟
Market aggregation is just the opposite of segmentation. Aggregation implies the policy of
lumping together into one mass all the markets for the products. Production oriented firms
usually adopt the method of aggregation instead of segmentation. Under this concept,
management having only one product considers the entire buyers as one group. Market
aggregation enables an organization to maximize its economies of scale of production, pricing,
physical distribution and promotion. However, the applicability of this concept in consumer
oriented market is doubtful. The „total market‟ concept as envisaged by market aggregation may
not be realistic in the present-day marketing when consumers fall under heterogeneous groups.
4.1.1 Bases of Segmentation

There is no single way to segment a market. The marketer has to try different segmentation
variables, alone or in combination. The major variables used are: geographic, demographic,
psychographic, and behavioral variables.
 Geographic Segmentation
Geographic segmentation calls for dividing the market into geographical units, such as nations,
regions, cities or neighborhoods. A company may decide to operate in one or a few geographical
areas or to operate in all areas but pay attention to geographical differences in needs and wants.
Many companies today are localizing their products, advertising, promotion and sales efforts to fit
the needs of individual regions, cities and even neighborhoods.
For example: a car producing company may produce and sell more durable cars for developing
countries like all African countries which most probably be the measuring factor countries for a
quality product on the other hand the same company may target western countries for its speedy
and luxurious car which might be the measuring units for quality.
 Demographic Segmentation
Demographic segmentation divides the market into groups based on variables such as age, gender,
family size, family life cycle, income, occupation, education level, religion, nationality and other
demographic characteristics.
Demographic factors are the most popular bases for segmenting customer groups. One reason is that
consumer needs, wants and usage rates often vary closely with demographic variables. Another is
that demographic variables are easier to measure than most other types of variables.
Even market segments are first defined using other bases, such as benefits sought or behavior, their
demographic characteristics must be known in order to assess the size of the target market and to
reach it efficiently. For example, if we consider the age, the wants and abilities change with age.
This means that baby food is different from that of adults. As far gender was concerned, clothing,
cosmetics, cars etc. for example, cosmetics that are provided for females are completely different
from male.
 Psychographics Segmentation

In psychographics segmentation, buyers are divided in to different groups on the bases of, life
style or personality and values. People in the same demographic group can exhibit very different
psychographics profiles:
Lifestyle: achievers, believers, strivers.

Personality: compulsive, gregarious, authoritarian, ambitious. Marketers are increasingly
segmenting their markets consumer lifestyles. Companies making cosmetics, alcoholic
beverages, and furniture are always work personality. Marketers have used personality variables
to segment markets.
Values: - Some marketers segment by core values, the belief system that underlies consumer
attitudes and behavior. Core values go much deeper than behavior or attitude, and determine at a
basic level, people‟s choices and desires over the long term. Marketers that segment by values
behave that by appealing to people‟s inner selves it is possible to influence their purchase
behavior.
 Behavioral Segmentation
Behavioral segmentation divides buyers into groups based on their knowledge, attitude, uses or
responses to a product.
Occasion segmentation- buyers can be grouped according to occasions when they get the idea to
buy, actually make their purchase or use the product.
Benefits sought segmentation- a powerful form of segmentation is to group buyers according to the
different benefits that customers see from the product.
User status segmentation- buyers can be grouped as potential user, first time user, regular user or
ex-user of a product.
Usage rate segmentation- customers can also be categorized into light, medium, and heavy users of
a product
 Requirements for Effective Segmentation

Clearly there are many ways to segment a market but not all segment are effective. To be useful,
market segments must be:

 Measurable: the size, purchasing power, and profiles of the segment need to be measured.
 Accessible: the market segments can be reached and served effectively.
 Substantial: the market segments should be large or profitable enough to serve. A segment
should be the largest possible homogenous group worth pursuing with a tailored marketing program.
 Differentiable: the segments should conceptually be distinguishable and respond differently

to different marketing mix elements.
 Actionable: effective marketing programs should be designed for attracting and serving the
segments.
 Importance of Segmentation
By tailoring marketing programs to individual market segments, management can do a better
marketing job and make more efficient use of its marketing resources. A small firm with limited
resources might compete very effectively in one or two small market segments. By developing
strong positions in specialized market segments, medium sized firms can grow rapidly.
Market segmentation is not only important to meet customers‟ need but it also helps the
management to do better job and make more efficient use of marketing resources by:
 Channeling money and efforts to the potentially most profitable markets.

 Designing products that really match market demands.
 Determining what promotional appeals will be most effective for the company.
 Choosing advertising media more intelligently and determining how to allocate better the
budget among the various media.
 Setting the timing of the promotional efforts, so that they are heavier during those times
when response is likely to be at its peak.
 By understanding potential customers by paying proper attention to them in particular
areas.
 Selecting suitable channels of distribution for their customers.
 By designing appropriate marketing mix-product, price, place, and promotion.

4.2 Market Targeting

It is obvious and logical that a single firm ca not serve the overall market by its products and
services. To this effect it has to segment the market into different segments and after evaluating
the segments attractiveness, it can select one or more segments that it can serve aggressively
more than any other competitors. In evaluating different market segments, the firm must look at
two factors:
 The overall attractiveness of the segment

 Companies objectives and resources
Then, having evaluated different segments the company must decide which and how many
segments to serve. It must decide which segments to target based on the evaluation results above.
A target market consists of set of buyers who share common needs or characteristics that the
company decides to serve. Because buyers have unique needs and wants a seller could potentially
view each buyer as a separate target market. Ideally then, a seller might design a separate marketing
program for each buyer.
More generally, target marketing can be carried out at several different levels. Companies can target
the entire market (undifferentiated marketing), very narrowly (micro marketing) or somewhere in
between (differentiated or concentrated marketing).
Let‟s assume that a company has segmented the total market for its product. Now management is in
a position to select one or more segments as its target markets. The company can follow one of three
strategies –market aggregation, single-segment concentration, or multiple –segment targeting.
Four guidelines govern how to determine which segments should be the target markets.
 The first is that target markets should be compatible with the organizations goal and image.
 The second is to match the market opportunity represented in the target markets with the
company‟s resources.
 Over the long run, a business must generate a profit to survive. This rather obvious statement
translates into our third market –selection –guideline.
 Fourth, a company ordering should seek a market more there are the least and smallest
competitors. A seller should not enter a market that is already saturated with competition

inters it has save overriding differential advantage that will enable it to take customers from
existing firms.
 Target Marketing Strategies includes:
 Micro (local or individual) marketing
 Concentrated (niche) marketing
 Differentiated (segmented) marketing
 Undifferentiated (mass) marketing
Undifferentiated (Mass) Marketing
Using undifferentiated market coverage strategy, a firm might decide to ignore market segment
differences and target the whole market with one offer. Mass marketing strategy focuses on what
is common in the needs of consumers rather than on what is different. The company designs a
product and a marketing program that will appeal to the largest number of buyers.
It relies on mass production, mass distribution, mass promotion and it aims to give the product a
superior image in customers‟ mind. An aggregated market numbers are considered to be alike
with respect to demand for the product. Therefore management can develop a single marketing
mix and reach most of the customers in the entire market. That is the company develop a single
product for this mass audience. It develops one pricing structure and one distribution system of
its product. And it uses a single promotional program aimed at the entire market.
This strategy would be appropriate for firms that are marketing an undifferentiated, staple
product such as salt or sugar. In the eyes of many people, sugar is sugar. Regardless of the brand
and all brands of table salt are pretty much alike.
The strength of a market aggregation is in its cost minimization. It enables a company to

produce, distribute, and promote its product very efficiently. Producing and marketing one
product for the entire market means longer production runs at lower unit costs. Inventory costs
are minimized when there is no (or very limited) variety of colors and size of products.
Warehousing and transportation are most efficient when one product is going to one market.
Promotion costs are minimized when the same message is transmitted to all customers.
This market coverage strategy has the following limitations:

 Difficulties arise in developing a product or brand that will satisfy all customers.
 Firms using this strategy have trouble competing with more focused firms that do a better
job of satisfying the needs of specific segments and niches.
Differentiated (segmented) marketing
Using this market coverage strategy, a firm decides to target several or a single market segment
and designs a separate offer for each segment if any. By offering product and marketing
variations to segments, companies hope for higher sales and stronger position within each market
segment.
Developing a stronger position within several segments creates more total sales than
undifferentiated marketing across all segments. But differentiated marketing also increases the
costs of doing business. A firm usually finds it more expensive to develop and produce, say 10
units of 10 different products than, 100 units of one product. Developing separate marketing
plans for separate segments requires extra marketing research, forecasting, sales analysis,
promotion planning, and channel management. And trying to reach different market segments
with different advertising strategy increases marketing costs. Thus, a company must weigh
increased sales against increased costs when deciding on a differential marketing strategy.
Concentrated (Niche) Marketing
This is especially appealing when company resources are limited. Instead of going after a small
share of a large market, the firm goes after a large share of one or few segments or niches.
Segments are fairly large and normally attract several competitors, whereas niches are smaller and
may attract only one or few competitors. Through concentrated marketing, the firm achieves a strong
market position because of its greater knowledge of consumers‟ needs in the niche it serves and the
special reputation it acquires. It can market more effectively by fine-tuning its products, prices, and
programs to the needs of carefully defined segment.
Niche marketing offers smaller companies an opportunity to compete by focusing their limited
resources on serving niches that may be unimportant to or overlooked by larger competitors. Many
companies start as niches to get a foothold against larger, more resourceful competitors then grow
into broader competitors.

Concentrated marketing can be highly profitable. At the same time, it involves higher than normal
risks. Companies that rely on one or a few segments for all of their business will suffer greatly if the
segment turns sour. Or larger competitors may decide to enter into the same segment.
Micro Marketing
Differentiated and concentrated marketers tailor their offer and marketing programs to meet the
needs of various market segments and niches. At the same time, however, they do not customize
their offers to each individual customer. Micromarketing is the practice of tailoring products and
marketing programs to suit the tastes of specific individuals and locations. Micro marketing includes
local and individual marketing.
I. Local marketing: local marketing involves tailoring a brand and promotions to the needs
and wants of local customer groups, cities, neighborhoods, even specific stores. Local
marketing has some drawbacks;
 It can drive up manufacturing and marketing costs by reducing economies of scale
 It can also create logistics problems as companies try to meet the varied requirements
of different regions and local markets.
 A brand‟s overall image might be diluted if the product and message vary too much
in different localities.
 Local marketing helps a company to market more effectively in the face of
pronounced regional and local differences in demographics and lifestyle.
II. Individual marketing: in the extreme, micro marketing becomes individual marketing i.e.
tailoring products and marketing programs to the needs and preferences of individual
customer. Individual marketing has also been labeled one-to-one marketing, customized
marketing or markets-of-one-marketing.
The wide spread use of mass marketing has obscured the fact that for centuries consumers were
served as individuals. Today, however, new technologies are permitting many companies to return to
customized marketing. More powerful computers detailed robotic production and flexible
manufacturing, immediate and interactive communication media such as e-mail, fax, and internet all
have combined to foster mass customization.

Mass customization is the process through which a firm interacts one-to-one with masses of
clustered to create customer unique value by designing products tailor made to individual needs.
4.3. Market Positioning
Establish and communicate the products key distinctive benefits in the market. Positioning is
what you do to product. Positioning is what you do to the mind of the prospect. Positioning is the
act of designing the company's offering and image so that they occupy a meaning full and
distinctive competitive position in the target customer's minds.
 Tools for competitive differentiations

A company must try to identify the specific way it can differentiate its products to obtain a
competitive advantage. Differentiation is the act of designing a set of meaningful differences to
distinguish the company‟s offering from competitors offering. How exactly can a company
differentiate its market offering from competitors? Here we will examine how a market offering
can be differentiated along time dimensions: - product, services, personnel, channel or image.
Product Differentiation: Differentiation of physical products takes place along a continuous. At

one extreme we find highly standards products that allow little variation. At the other extreme
are products capable of high differentiation, such as automobiles, commercial holdings, and
furniture. Here the seller faces an abundance of design parameters. The main product
differentiations are features, performance, conformance, durability, reliability, reparability, style
and design.
 Features: -
Features are characteristics that supplement the products basic function. The starting point of
feature differentiation is a stripped down, or “bare bones”, version of the product. The company
can create additional version by adding extra features. Thus automobile manufacturers can offer
optional features, such as electric windows, air bags, automatic transmission, and air
conditioning. Each feature has a chance of capturing the fancy of additional buyers.
How can a company identify and select appropriate features? One answer is for the company to
contact recent buyers and ask them a series of questions. How do you like the product? Any bad
features? Good features? Are there any features that could be added that would improve your

satisfaction? What are they? How much would you pay for each feature? How do you feel about
each of several features that other customers suggested? This research will provide the company
with a long list of potential features. The next task is to decide which features one worth adding.
 Performance Quality
Most products are established initially at one of four performance levels, low, average, high and
superior. Performance quality refers to the level at which the products primary characteristics
operate. The important question here is: Does higher product performance produce higher
profitability? Quality‟s link to profitability does not mean that the firms should always design
the highest performance level possible. There are diminishing returns to level increasing
performance, in that fewer buyers are willing to pay for it. The manufacturer must design a
performance level appropriate to the target market and competitor‟s performance levels.
A company must also decide how to manage performance quality through time. Three strategies
are available here. The first, where the manufacture continuously improves the product, often
produces the highest return and market share. The second strategy is to maintain product quality
at a given level. The third strategy is to reduce product quality through time. Some companies
cut quality to offset rising costs, hoping the buyers will not notice any difference. Others reduce
the quality deliberated by in order to increase this current profit, although this course of action
often hurt this long run profitability.
 Conformance Quality
Buyers expect products to have a high conformance quality. Conformance quality is the degree
to which all the produced units are identical and meet the promised target specifications.
Suppose a Porsche 944 is designed to accelerate to 60 miles an hour within 10 seconds. If every
Porsche 944 coming off the assembly line does this, the model is said to have high conformance
quality. However, If 944s vary greatly in their acceleration time, they have low conformance on
this criterion. The problem with low conformance is that the product will felt to deliver on its
promises to many buyers.
 Durability
Durability is a very important product attribute to most buyers. Durability is a measure of the
product‟s expected operating life under natural and/or stressful conditions. Buyers will generally

pay more for products that have more durability. However, this rule is subject to some
qualifications. The extra price must not be exclusive. Furthermore, the product must not be
subject to technological obsolescence, in which case the buyer may not pay more for longer-
lined products.
 Reliability
Buyers normally will pay a premium for product with more reliability. Reliability is a measure of
the probability that a product will not manufacture or fail within a specified time period. Buyers
want to avoid the high costs of product breakdowns and repair time.
 Reparability
Buyers prefer products that are easy to repair. Reparability is a measure of the ease of fixing a
product that manufactures or fails. Thus an automobile made with standard parts that are easily
replaced has high reparability. Ideal reparability would exist if users could fix the product
themselves with little or no cost or time lost. The buyer might simply remove the defective part
and insert a replacement part.
 Style
Buyers are normally willing to pay a premium for products that are attractively styled. Style
describes the product‟s looks and feel to the buyer. Many car buyers pay a premium for jaguar
automobiles because of this extraordinary look, even though Jaguar had in the past a poor record
of reliability. Style has the advantage of creating product distinctiveness that is difficult to copy.
Under style differentiation, we must include packaging as a styling weapon, especially in food
products, cosmetics, toiletries, and small-consumer appliances. The package provides the buyer‟s
first encounter with the product and is capable of turning the buyer on or off.
 Design
As competitions intensify, designs will offer one of the most patent ways to differentiate and
position a company‟s products and services. Design is the totality of features that affect how a
products look and functions in terms of customer requirements. Design is particularity important
in making and marketing desirable equipment, apparel, retail services and packaged goods. All
of the qualities we‟ve discussed under the meaning “Product differentiation are design

parameters. The design has to figure out how much to invest in feature development,
performance, conformance, reliability, reparability, style and so forth.
 Service Differentiation and Personal Differentiation

In addition to differentiating its physical products, a firm can also differentiate its services.
When the physical product cannot easily differentiated, the key to competitive success and
improving their quality. The main service differentiations are ordering ease, delivery,
installation, customer training, customers consulting, maintenance and repair, and a few others.
 Ordering Ease
Ordering ease refers to how easy it is for the customer to place an order with the company. For
example, some companies make the ordering process easy by supplying customers with
computer terminals through which they sell orders directly to the seller. Many banks are now
providing home banking software to help customers get information and transact with the bank
more efficiently.
 Delivery
Delivery refers to how well the product or service is delivered to the customers. It includes the
speed, accuracy, and care attending the delivery process. Buyers will often choose the supplier
with a better reputation for on-time delivery.
 Installation
Installation refers to the work done to make a product operational in its planned location. Buyers
of heavy equipment expect good installation service from the vendor. For examples, some
companies deliver all the purchased equipment to the site at the same time rather than sending in
different components at different times.
 Customer Training
Customer training refers to training the customer‟s employees to use the vendor‟s equipment
properly and efficiently. Some companies are not only selling and install this expensive
equipment‟s but also take on the responsibility for training the uses of this equipment.
 Customer consulting

Customers consulting refer to data, information systems, and advising services that the seller
offers free or for a price to buyers. Some sellers consult their buyers in setting up accounting and
inventory systems, computer ordering systems and so forth.
 Maintenance and repair

Maintenance and repair describes the company‟s service program for helping customers keep
this purchased product in good working order. Automobile buyers are especially concerned with
the quality of repair service that they can expect from this dealer.
 Miscellaneous services
Companies can find many other ways to add value by differentiating their customer services.
They can offer a better product warranty or maintenance contract than their competitors. They
can establish patronage awards, as the airlines have done with their frequent-flyer programs.
 Personal Differentiation
Companies can gain a strong competitive advantage through hiring and training better people
than their competitions do. Better-trained personnel exhibit six characteristics:
Competence –The employees possess the required skill and knowledge.
Courtesy –The employees are friendly, respectful and considerate.
Credibility –The employees are trust worthy.
Reliability –The employees perform the service consistently and accurately.
Responsiveness –The employees respond quickly to customer‟s requests and problems.
Communication –The employees make an effort to understand the customer and communicate
clearly. Others may include Channel differentiation, Image differentiation etc
 Differentiating & Positioning the Market Offering

Attribute positioning: When company‟s positions itself on attributes.
E.g, Size, color. Etc.
Benefit positioning: Here the product is positioned as the leader on a certain benefits.

Use/ Application positioning: Positioning the product as best for some use or application.
User Positioning: Positioning the product as best for some user group.
 Competitor Positioning: Product positions itself as better in some way than a
named or implied competitor.
 Product category positioning: Product positioned as the leader in a certain
product category.
 Quality/Price positioning: Product positioned as offering the best value.
1. Discuss the meaning and types of market positioning and its implications
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2. Briefly explain the concept of market targeting
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3. What are Tools for competitive differentiations
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CHAPTER FIVE
MANAGING PRODUCTS
5.0. Objectives
 Understand the meaning, and classifications of products
 Understand the concept of new product development
 Discuss the product life cycle, product attributes, product mix policies and strategies,
product branding, packaging and labeling.
5.1 Introduction
As consumers, we buy different kinds of products so as to satisfy our needs. We buy food grains,
textile, shaving cream, tooth paste, books, pen, pencil, and many other such items in our daily life.
We name these items as products. However, our decision to buy an item is based not only on its
tangible attributes but also on a variety of associated intangibles and psychological attributes such as
services, brand, package, warranty, image, etc. In order to understand the term product, it would be
appropriate to take recourse on different definitions of product given by different marketing
practitioners and academicians.
5.2. Meaning of Product
 According to Alderson, product is a bundle of utilities consisting of various product features
and accompanying services.
 According to Stephenson, product is everything the purchaser gets in exchange for his/her
money.
 According to Schwartz, it is something a firm markets that will satisfy a personal want or fill
a business of commercial need.
 According to kotler, a product is anything that can be offered to satisfy a need or want.

According to the above definitions, it is obvious that a product is not only a tangible item. The
intangible services and psychological attributes which consumers look for and marketers provide in
these tangible items are also internal parts of the product.
 Levels of a product
There are three levels of a product: The core product, the actual product, and the augmented
product:
 The core product - This is the most basic level, which answers the question, what is the
buyer really buying? The core product constitutes the benefits received. The core product
stands at the center of the total product. It consists of problem solving services or core
benefits that consumers seek when they buy a product.
 The tangible product- The core product must be turned into a tangible product.
Perfume, computers, lipsticks, political candidates, cars, shoes are all tangible products.
Tangible products have multiple characteristics: features, styling, a brand name,
packaging, and quality level.
 The augmented product - includes the additional services and benefits offered around
the core and actual products. Therefore, a product is more than a simple set of tangible
features.
Consumers tend to see products as complex bundles of benefits that satisfy their needs. When
developing products, marketers first must identify the core consumer needs the product will
satisfy. They must then design the actual product and find ways to augment it in order to
create the bundle of benefits that will best satisfy consumers.
In short, to plan a successful product strategy, managers must know what their product is. A
product is like an onion. It has several skins (layers), each of which contributes to the total
product image. Product planners need to think about the product at three levels. The most
basic level is the core benefit, which addresses the question, what is the buyer really buying?
When designing products, marketers must first define the core problem-solving benefits or
services that consumers seek.

The product planner must next build actual products around the core benefit. Actual products
may have as many as five characteristics: a quality level, features, design, a brand name,
and package. For example, a Sony camcorder is an actual product. Its name, parts, styling,
packaging and other attributes have all been combined carefully to deliver core benefits- a
convenient high quality way to capture important moments. Still, the product planner must
build an augmented product around the core benefit and actual product by offering additional
consumer services. Sony must offer more than just a camcorder. It must provide consumers
with a complete solution to their picture taking problems. Thus, when consumers buy a Sony
camcorder, Sony and its dealers also might give buyers a warranty on parts and
workmanship, instructions on how to use the camcorder, quick repair service when needed
and a call free telephone number to call if they have problems.
5.3. Classification of Product
Marketers have traditionally classified products on the basis of varying products characteristics:
durability, tangibility, and use (consumer or industrial). Each product type has an appropriate
marketing mix strategy. Therefore product can be classified based on the following basis:
I. Use (who uses them)
 Consumer products
 Industrial products
II. Tangibility
 Tangibles (goods)
 Intangibles (services)
III. Durability
 Durable
 Non-durable
I. Product classification based on use (who uses the product)
 Consumer products:

Consumer products are those bought by final consumers for immediate or ultimate consumption.
Marketers usually classify these products based on how consumers go about buying them. These
include convenience products, shopping products, specialty products, and unsought products.
 Convenience products: these are products which consumers buy frequently, immediately,
and with a minimum of comparison and buying effort. E.g. soap, candy, newspapers.
Convenience products are usually low priced and marketers place them in many locations to
make them readily available when consumers need them.
Consumer products can be further classified in to three categories.
 Stable products: consumers purchase on a regular basis. E.g. salt.

 Impulse products: customers purchase them without any planning or search effort e.g.
newspaper, chewing gum, etc.
 Emergency products: consumers purchase them on urgent needs. E.g. we buy syrup
when infected with cough.
 Shopping products:
Shopping products are less frequently purchased products that consumers compare among brands
carefully on suitability, quality, price and style. When buying shopping products, consumers spend
much time and effort in gathering information and making comparisons. E.g. furniture, clothes,
major appliances (durable goods for home and offices use), etc
 Specialty products:
These are consumer products with unique characteristics or brand identification for which a
significant group of buyers are willing to make a special purchase effort. E.g. high priced
photographic equipment, designer clothes, automobiles, etc.
 Unsought products:
These are products that the consumer either doesn‟t know or knows about but doesn‟t normally think
of buying. E.g. New innovations, insurance, encyclopedia, etc
 Industrial products

Industrial products are those products purchased for further processing, for use in the production of
other goods or for reselling purpose.
 Materials and parts: they fall into two classes- raw materials and manufactured materials and parts.
Raw materials consist of farm products (wheat, cotton, etc) and natural products (fish, lumber, iron
ore, crude oil, etc). Manufactured materials and parts consist of component materials (yarn, cement,
and wire) and component parts (small motors and tire). Most manufactured materials and parts are
sold directly to industrial users. Price and service are the major marketing factors than branding and
advertising.
 Capital items: these are long lasting goods that facilitate developing or managing the finished
products. They include two groups-installations and accessory equipments. Installation consists of
major purchases such as buildings and fixed equipments (generator, drill presses, large computer
systems, factories). Accessory equipments include hand tools, computers, fax machines, desks. They
have short service life than installations.
 Supplies and services: these are short lasting products that facilitate developing and managing the
finished products. Supplies are convenience products of the industrial field because they are usually
purchased with a minimum of effort. Supplies include operating supplies (like lubricants, pen, and
paper) and repair and maintenance items (paint, nails, broom). Business services include
maintenance and repair services and business advisory services (legal, management consulting,
advertising, window cleaning and computer repair).
II. Product classifications based on the tangibility.

Every product falls into either tangible or intangible category. Tangible products are products which
can physically be seen and touched. On the other hand, intangibles are products which do not result
in the ownership of anything when buying them. Buyers only have a temporary access or get
benefits.
II. Product classifications based on the durability
Durable products are products that can normally be used for many years. E.g. TV, washing
machines, refrigerator, etc. Non-durable products are products which normally be consumed in one
or a few periods. For example, soap, salt, biscuit, etc.
5.4 New Product

New product includes all goods and services perceived by certain groups as new. Product planning is
the process of determining the line of a product which can secure maximum net realization from the
intended market. It is an act of marking out and supervising the search, screening, development and
commercialization of new products, and the modification of existing lines.
The managerial division making in these area centers around deciding the types of products the
company should develop and sell so that product serves as an instrument of achieving objectives. It
is suggested that in a company every new product development should undergo a customer-oriented
product planning process before it is introduced in the market. The formal development of new
products provides benefits such as higher success rates, increased customer satisfaction, and greater
achievement of time, quality, and cost objectives for new products.
5.4.1. New Product Development Process
A customer-oriented product planning process reveals that it is composed of the following sequential
activities.
 Idea generation
 Idea screening
 Concept development and testing
 Marketing strategy development
 Business analysis
 Product development
 Market testing
 Commercialization
Idea Generation:
New product development starts with the generation of product idea. Product idea generation means
fusion of a perceived need with recognition of a technical opportunity. The perceived need may be
new or old, apparent or latent, or may be currently unfulfilled or inadequately fulfilled. When a
technical opportunity is recognized to satisfy this need, a product idea is generated. The product idea
may, however, result in a new product or an improved product depending on the customers‟ need.
The major sources of new product idea are:

 Research and development personnel

 Marketing personnel
 Customers
 Competitors
 Distributors and suppliers
Idea Screening:
After product ideas have been generated from different sources, the next step is idea screening.
Screening means critical evaluation of product ideas generated by the participants. The purpose of
screening is to spot good ideas and to drop poor and incompatible ideas to objectives of the
company. The objectives to which product ideas are usually expected to conform include consumer
needs satisfaction, sales volume, profitability, market share increment, company image, etc.
Concept Development and Testing:

An attractive idea must be developed in to a product concept. It is important to distinguish between a
product idea, product concept and product image. A product idea is an idea for a possible product
that the company can see itself offering to the market. A product concept is a detailed version of the
idea stated in meaningful consumer terms. A product image is the way consumers perceive an actual
or potential product. Concept testing calls for new product concepts with groups of target consumers.
The concepts may be presented to consumers symbolically or physically.
Marketing Strategy Development:

Marketing strategy development means designing an initial marketing strategy for introducing a
product in to the market. The marketing strategy statement consists of the following parts. Target
market, the planned product positioning, expected sales, market share and profit goals.
Business Analysis:
Once management has decided on its product concept and marketing strategy, it can evaluate the
business attractiveness of the proposal. Business analysis involves a review of the sales, costs, and
profits projection for a new product to find out whether they satisfy the company‟s objectives. If
they do, the product can move to the product development stage.

To estimate sales, the company might look at the sales history of similar products and conduct
surveys of market opinion. It can then estimate minimum and maximum sales to assess the range of
risk. After preparing the sales forecast, management can estimate the expected cost and profits for
the product, including marketing research and development, operations, accounting and finance
costs. The company uses the sales and costs figure to analyze the new products financial
attractiveness.
Product Development:
The product idea after having been thoroughly screened and analyzed in the preceding stages of
product planning process, the next process is the stage of conversion into an actual product. It is in
this stage that an idea gets the shape of a concrete product associated with all the necessary attributes
on the basis of consumer specification received from the preceding stages. The purpose of this stage
is to attempt to develop product prototype so as to ascertain whether the idea has technical potential
and the company has necessary technology.
Market Testing:
If the product passed functional and customer tests, the next step is market testing; the stage at which
the product and marketing programs are introduced into more realistic market setting. Test
marketing gives the marketer experience with marketing the product before going to the great
expense of full introduction. It lets a company to test the product and its entire marketing program
(positioning strategy, advertising, distribution, pricing, branding, and packaging, and budget levels).
The amount of test marketing needed varies with each new product. Test marketing costs can be
high, and it takes time that may allow competitors to gain advantage.
Commercialization:
Test marketing gives the management the information needed to make a final decision about whether
to launch the new product. If the company goes ahead with commercialization-introducing the new
product into the market, it will face high costs. The company launching a new product must first
decide introduction timing and place.
5.4. 2. Product Life Cycle and Its Management

Product life cycle is a concept that attempts to describe a product‟s sales, profits, market share,
competitors and marketing emphasis from beginning until it is removed from the market.
Product life cycle has the following distinct stages:
I. Introduction:
During the introduction stage, a product is launched into the market in a full-scale marketing
program. It has gone through product development, including idea screening prototype and market
tests. This introductory (Sometimes called pioneering) stage is the most risky and expensive one,
because substantial amount of money spent in seeking consumer's acceptance of the product. This
stage is characterized by:
 Negative or low profit because of high marketing costs

 Basic version of the product is offered
 Low volume of sales
 High costs
 High risks
 Few competitors
 The company and its competitors offer the basic version of the product
Appropriate marketing strategies
 Rapid skimming strategy: Consisting of launching the new product at a high price and
high promotional level.
 Slow skimming strategy: Consists of launching the product at a high price and low
promotion.
 Rapid penetration strategy: Consists of launching the product at a low price and
spending heavily on promotion.
 Slow penetration strategy: Consists of launching the new product at a low price and
low level of promotion.
II. Growth stage:
This stage is characterized by the following features:

 Sales volume grows quickly

 Growth in profit
 Penetration of product into the market
 Attracted by the opportunities for profit new competitors will enter the market
Growth Strategy:-
 It improves product quality and adds new product features and improved styling.
 It adds new model and flankers product(product of different sizes, flavors, etc)
 It enters new market segments
 It increases its distribution coverage and enters new distribution channels.
 It shifts from product awareness advertising to product preference advertising
 It lowers prices to attract the next layer of price sensitive buyers.
III. Maturity stage:

This stage is characterized by,
 Sales continue to rise, but at a slower rate

 The product is bought by the majority
 At early stage, profit reaches its peak-point but starts declining later on
 Well-established competition exists because many companies face overcapacity
 Weaker competitors start dropping out and eventually the industry contains Well-established
competitors
 Lasts longer than other stages
 High research and development cost to find better versions of the product this leads to a drop
in profit
Maturity stage strategies:
Marketers should systematically consider strategies of market, product, and marketing mix
modification:-

A. Marketing modification:-
 Attracting & converting non-users
 Enter new market segments
 Win competitors' customers.
B. Product modification:-
 Strategy of quality improvement
 (Durability, reliability, Speed, taste .etc)
 Strategy of feature- improvement
 (Size, Weight, Materials, additives, accessories)
 Strategies of style improvement (Restyling the package)
C. Marketing Mix- Modification

 Prices: - cut the prices, quantity discounts, credit terms etc.
 Distribution:- More outlets penetration ,new distribution channels
 Advertising: - Increasing advertising expenses, copy or message should be changed,

timing, frequency or size of ads be changed.
 Sales promotion:-trade deals, cents- off, coupons rebates, warranties, gifts, and contests.
 Personal selling: - quality of salespeople be increased, sales territories, be revised, sales

incentives be revised.
 Services:- Speed up delivery ,more technical assistance to customers, extend more

credit.
IV. Decline stage:

In this stage sales and profit decline, the product becomes obsolete, substitute products may appear,
customers‟ taste changes.

Decline stage marketing strategies
 Identify the weak products, and conduct a study about them and then examine the
research result and finally recommend a product to leave it alone, modify its marketing
strategy or drop it.
 In study of company strategies in declining industries, Harrigan identified five decline
strategies available to the firm.
i. Increasing the firm‟s investment ( to dominate the market or strengthen its competitive
position)
ii. Maintaining the firm‟s investment level until the uncertainties about the industry are
resolved.
iii. Decreasing the firm‟s investment level selectively, by dropping unprofitable customer
groups, while simultaneously strengthening the firm‟s investment in lucrative niches.
iv. Harvesting („‟milking‟‟) to trim investment to recover cash quickly.
v. Divesting the business quickly by disposing of its assets as advantageously as possible.
When a company decides to drop a product it faces further decisions. If the product has strong
distribution and industrial good will, the company can probably sell it to another firm.
Introduction Growth Maturity Decline
Sales,
Profit
Sales Value
Profit
Loss
Time in years

Fig. 5.1. Product life cycle stages
5.5. Product Attributes

Developing a product involves defining the benefits that it will offer. These benefits are
communicated and delivered by product attributes such as quality, features, style and design.
Product quality: is one of the marketers‟ major positioning tools. Quality has a direct impact on
product performance. Thus, it is closely linked to customer value and satisfaction. Quality is the
characteristic of a product that bear on its ability to satisfy stated or implied customer needs. This
definition suggests that quality begins with customer needs and ends with customer satisfaction.
Product features: a product can be offered with varying features. Features are competitive tools for
differentiating the company‟s product from competitors‟ product. Being the first producer to
introduce a needed and valued new feature is one of the most effective ways to compete.
Product style and design: another way to add customer value is through distinctive product style
and design. Design is a larger concept than style. Style simply describes the appearance of a product.
Style can be eye catching or yarn producing. Design is more than the skin deep. It goes to the very
heart of a product. Good design contributes to a product‟s usefulness as well as its looks. Good style
and design can attract attention and give the product a strong competitive advantage in the target
market.
5.6. Product Mix Policies and Strategies
The meaning of product line:
A broad group of products, intended for essentially similar uses and having similar physical
characteristics, constitutes a product line. It is a group of product closely related because they
satisfy a class of needs, are used together, are sold to the same customer group, are distributed
through the same outlets, or fall within a given price range.
The product mix is the composite of product offered for sale by a firm. It is collection of
products manufactured and distributes by firm. It is full list of all products. The structure of a

product mix has both breadth & depth. Its breadth is measured by the number of product lines
carried, its depth by the variety of sizes, colors, and models offered within each product line.
Product mix has four main characteristics:
 Product length: is the total number of items in its product mix.

 Product width: is the number of different product lines offered by the company
 Product depth: is the average number of items offered by the company in each product
line. Average depth is always computed by formula: average depth= number of items
Number of lines
 Product consistency: refers to how closely the various product lines are related in
production requirements, distribution and channels etc.
 Product mix Strategies
To be successful in marketing, producers and middlemen need carefully planned strategies for
managing their product mixes.
The major product mix strategies include:
 Positioning
 Alteration
 Expansion
 Contraction
Positioning the Product:

Positioning means developing the image that a product projects in relation to competitive
products and to the firm's other products. Marketing executives can choose from a variety of
positioning strategies. Sometimes they decided to use more than one for particular products.
Several types of positioning includes
 Positioning in relation to a competitor

 Positioning in relation to a product class or attribute
 Positioning by price and quality

 Positioning in relation to a target market

Product Mix Expansions
Product mix expansion is accomplished by increasing the depth with in a particular line and/or
the number of lines a firm offers to consumers. When a company adds a similar item to an
existing product line with the same brand name, is termed as line extension. Another way to
expand the product mix, referred to as mix extension. Under a mix extension the company is to
add a new product line to its present assortment.
The new line may be related or unrelated to current products. Furthermore, it may carry one of
the company's existing brand names or may be given an entirely new name.
The product strategies of trading up and trading down involve a change in product positioning
and an expansion of the product line; trading up means adding a higher price product to a line to
attract a broader market. Also the seller intends that the new product's prestige will help the sale
of its existing lower price products; trading down means adding a lower-price product to a
company's product line. The firm expects that people who cannot afford the original higher price
product or who see it as too expensive will buy the new lower-price one.
Alterations of Existing Products:

Product alteration is often improving an established product. Product alteration can be more
profitable and less risky than developing a new one. Redesigning the product itself can sustain
its appeal or even initiate its renaissance. Alternatively, especially for consumer goods, the
product itself is not changed but its packaging is altered.
Product Mix Contractions:

Another product strategy, product mix contraction, is carried out either by eliminating an entire
line or by simplifying the assortment with in a line. Thinner and/or shorter product lines or
mixes can weed out low-profit and unprofitable products. The intended result of product-mix
contraction is higher profits from fewer products. As firms find that they have unmanageable
number of products or that various terms or lines are unprofitable, or both, product-mix pruning
is likely.

Perhaps the most distinctive skill of professional marketers is their ability to create, maintain,
protect, and enhance brands; marketers say that “Branding is the art and cornerstone of
marketing."
5.7. Product Branding, Packaging and Labeling
 Meaning of a Brand
"A Brand is a name, term, sign, symbol, or design, or a combination of them, intended to identify
the goods or services of one seller or group of sellers and to differentiate them from those of
competitors". A brand is essentially a seller's promise to consistently deliver a specific set of
features, benefits, and services to the buyers.
A brand name is the part of brand consisting of words, letters, and/or numbers that can be
vocalized.
A trademark is defined as a brand that is given legal protection. Therefore, trademark is a legal
term meaning the words, names, or symbols that the law designates as trademarks.
A brand mark is that part of a brand which can be recognized but is not utterable, such as a
symbol, design, or distinctive coloring or lettering.
 Brand Name Selection
A good name can add greatly to a products' success. However, finding the best brand name is a
difficult task. It begins with a careful review of the product and its benefits, the target market
and proposed marketing strategies.
Desirable qualities for a brand name includes:-
 It should suggest something about the product's benefits & qualities
 It should be easy to pronounce, recognize, and remember. The brand name should be
distinctive
 It should be capable of registration and legal protection
Once, chosen, the brand name must be protected. Many times try to build a brand name that will
eventually become identified with the product category.
Brand sponsor: - A manufacture has certain sponsorship option; as illustrated below,
 Manufacturer's brand: The product may be launched as a manufacturer's brand (or
national brand), as when the manufacturer sells its output under its own brand names.

 Private brand: The manufacturer may sell to resellers who give it a private brand (also
called a store brand or distributor brand).
 Licensed brand: The manufacturer may produce some output under its own name and
some under distributor‟s labels.
 Brand Strategy
A company has four choices when it comes to brand strategies, which are as follows:-
Line extension: Line extension occur when a company introduces additional items in the same
product category under the same brand name, usually with features, such as new flavors, forms,
colors, added ingredients, package sizes, and so on.
Brand Extension: A company may decide to use an existing brand name to launch a product in
a new category. Brand extension strategy offers a number of advantages. A well-regarded brand
name gives the new product instant recognition and earlier acceptance. It enables the company to
enter new product categories more easily. I.e. Sony puts its name on most of its electronic
products and instantly establishes a connection of the new products high quality.
Multi brands: A company will often introduce additional brands in the same product category.
There are various motives for doing this. Sometimes the company is trying to establish different
features and/or appeal to different buying motives. A multi branding strategy also enables the
company to lock up more distributors‟ shelf space and to protect its major brand by setting up
flanker brands. For example, Seiko establishes different brand names for its higher priced (Seiko
LaSalle) and lower-priced watch (pulsar) to protect its flanks.
New brand: When a company launches products in a new category, it may find that none of its
current brand names are appropriate.
Co-brands: A rising phenomenon is the appearance of co-branding (also called dual branding),
is which two or more well-known brands are combined in an offer. Each brand sponsor expects
that the other brand name will strengthen brand preference or purchase intention. In the case of
co-packaged products, each brand hopes it might be reaching a new audience by associating with
the other brand.
Advantages of Branding

 The brand name makes it easier for the seller to process orders and track down problems.
Furthermore, he seller find it easier to trace the order if it is misshaped, or to determine
why the beer was rancid if consumes complain.
 The seller's brand name and trademark provide legal protection of unique product
features, which competitors would otherwise be likely to copy.
 Branding gives the seller the opportunity to attract a loyal and profitable set of customers.
Brand loyalty gives sellers some protection from competition and greater control in
planning their marketing program. Branding helps the seller segment markets.
 Strong brands helps build the corporate image, making it easier to launch new brands and
gain acceptance by distributors and consumers.
There is evidence that distributors want manufacturers; brand names because brand makes the
product easier to handle, hold production to certain quality standards, strengthen buyer's
preferences, and make it easier to identify suppliers. Consumers want brand names to help them
identify quality differences and shop more efficiently.
 Packaging
Even after a product is developed and branded, strategies must still be developed for other
product related aspects of the marketing mix. One such product feature, and a critical one for
some products, is packaging, which consists of all activities of designing and producing the
container or wrapper. Thus packaging is a business function and a package is an item.
 Meaning of Packaging :
"Packaging includes the activities of designing and producing the container or wrapper for a
product." The container or wrapper is called the package. The package might include up to three
levels of material. Thus, old spice, after shave lotion is in bottle (primary package) that is in a
cardboard box (secondary package) that is in a corrugated box (shipping package) containing
six-dozen boxes of old spice. In recent times, packaging has become a potent marketing tool.
Well-designed packages can create convenience value for the consumer and promotional value
for the producer.
A product must be packaged to meet the needs of wholesaling and retailing middlemen. For
instance, a packages size and shape must be suitable for displaying and stacking the product in
the store.

Advantages of Packaging:
Packaging and the resulting package are intended to serve several vital purposes.
 Protect the product on its way to the consumer: - A package protects products during
shipment. Furthermore, it can prevent tampering with products, notably medications and
food products, in the warehouse or the retail store.
 Provide protection after the product is purchased:- Compared with bulk (that is
unpackaged) items, packaged goods generally are more convenient, cleaner, and less
susceptible to losses form evaporation, spilling and spoilage.
 Be part of a company's trade marketing program:- A product must be packaged to meet
the needs of wholesaling and retailing middlemen. For instance, a packages size and
shape must be suitable for displaying and stacking the product in the store.
 Be part of a company's consumer marketing program:- Packaging helps identify a
product and thus may prevent substitution of competitive product. At the point of
purchase such as supermarket aisle - the package can serve as a 'silent sales person.'
Ultimately, a package may become a product's differential advantage, or at least a significant part
of it. In the case of convenience goods and operating suppliers buyers feel that are well-known
brand is about as good as another. Thus a feature of the package - reusable jar, self-contained
applicator etc, might differentiate these types of a product.
In general, packaging provides the following advantages:-
 It physically protect the products from damage, theft, pilferage
 It helps in identifying the products
 It encourages impulse buying
 It is used as an advertising media
 It serves as an information tool
 It serves as a sales tool
When packing, the following points should be considered:
i) Product description:- The package is expected to show not only what the product is, but also
what it does in terms of benefits it gives the promotional message. This could be done using
words or pictures.

ii) Product image- The packaging material ought to match the image of the product inside.
Highly prestigious products and inferior products should be packed differently.
iii) Product value: The pack is often designed to make its contents look more than they really
are in terms of value a small value item looks huge in certain packages.
iv) Shelf display: It is also important products are packed in such a way that they occupy small
space, they are protected from shocks damages, their shelf life increases, and they are protected
from pilferage.
Criticism of Packaging:
Packaging in the public eye today, largely because of environmental issues, specific concerns
are:
i) Packaging depletes natural resources: This concern has been addressed through the use of
recycled materials in packaging. A point in favor of effective packaging is that it minimizes
spoilage, thereby reducing a form of resource waste.
ii) Packaging is too expensive: Even it seemingly simple packaging, such as for soft drinks, as
much as one-half of the production cost is for the container. Still, effective packaging reduces
transportation costs and spoilage losses.
iii) Packaging is deceptive: Government regulations plus greater integrity on the part of
business firms regarding packaging have alleviated these concerns to some extent. Used and
discarded packaging contributes significantly to the solid waste problem etc. Marketing
executives are challenged to address these criticisms. At the same time, they must retain or even
enhance the positive features of packaging, such as product protection, consumer convenience,
and marketing support.
 Labeling
Labeling which is closely related to packaging is another product feature that requires
managerial attention.
Meaning of Labeling:
A label is a part of a product that carries information about the product and the seller. A label
may be part of the package, or it may be a tag attached to the product. Obviously there is a close
relationship among labeling, packaging, and branding.
Types of Labels
Labels fall into three primary kinds:
i) A brand label:- It is simply the brand name applied to the product or package.
ii) A descriptive label: It gives objectives information about the products' use construction, care,
performance, and/or other pertinent features ingredients and nutritional contents.
iii) A grade label: It identifies the products judged quality with a letter, number, or word.
Canned peaches are grade labeled A, B,C, corn and wheat are grade labeled 1 & 2. Brand
labeling is an acceptable form of labeling, but it does not supply sufficient information to a
buyer. Descriptive labels provide more product information but not necessarily all that is needed
or desired by a consumer in making a purchase decision.
Functions of Labeling:
Labeling performs several functions. Some of which are illustrated below:-
 The label identifies the product or brand
 The label might also describe several things about the product, which made it, where it
was made, when it was made, its contents, how it is to be used, and how to use it safely.
 The label might promote the product through attractive graphics In general the label may
contain:
 Other want-satisfaction product features may contain product quality, color, design, and
warranty.
In general the label may contain:
 Brand name
 Name & address of manufacturer
 Weights, measures, contents
 Direction of proper use
 Precaution on safety use
 Recipe on food products
 Nutritional guidelines
 Wholesale & retail prices

1. Elaborately explain the concept of new product development
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2. Briefly explain the meaning, and classifications of products
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3. Discuss in your own words the product life cycle, product branding, packaging
and labeling
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CHAPTER SIX
PRICING DECISIONS
6.0. Objectives
 Understand the meaning, and significance of pricing
 Understand the objectives of Pricing
 Discuss the basic factors that affecting pricing decisions
 Discuss the basic methods of determining the price
 Explain the different pricing policies and strategies
6.1. Introduction
In the narrowest sense, price is the amount of money charged for goods or services. More
broadly, price refers to the sum of all the values that consumers exchange for the benefits of
having and using the goods and services. For a longer period, price had been determined by
negotiation between the buyer and the seller. Fixed price polices (setting one price for all buyers)
is a relatively a modern idea.
Price is the only marketing mix element that produces revenue for the company; all other
elements represent costs. Price is also one of the most flexible marketing mix elements. At the
same time, pricing and price competition are the number-one problem facing many marketing
executives.
Companies handle pricing in a variety of ways. In small companies, prices are often set by top
management rather than by marketing or sales people. In a large company, division and product
line managers typically handle pricing. All profit organizations and many non-profit
organizations set prices on their products. Buyers and sellers, negotiating with each other, set
Price. Sellers would ask for a higher price than they expected to receive, and buyers would after
less than they expected to pay. Through bargaining, they would arrive at mutually acceptable
price.

6.2. Meaning and Significance of Pricing

Simply, price is the amount of money and/or other items with utility needed to acquire a product.
Price represents the value of a good or service for both the seller and the buyer. Price is the only
element of marketing mix which generates revenue otherwise all the elements have cost. Price
may be defined as the value of product attributes expressed in monetary terms which a consumer
pays or is expected to pay in exchange and anticipation of the expected or offered utility.
Price is therefore, a link that binds consumers and the company. Price of a product or service is
what the seller feels it worth, in terms of money, to the buyer.
Utility is an attribute that has the potential to satisfy wants. Price is significant to the economy,
to an individual firm and in the consumer's mind.
Price can also be defined as follows:
Price =cost +profit
Price = birr equivalent of the value of your product or
Price = what the consumer will willingly pay.
6.3. Pricing Objectives
Every marketing activity-include pricing should be directed toward a goal. Thus management
should decide on its pricing objectives before determining the price itself. To be useful, the pricing
objectives management selects must be compatible with the overall goals set by the company and the
goals for its marketing program. Some of the pricing objectives set by the firm may include:
Profit oriented
 To achieve a target return
 To maximize profit
Sales oriented
 To increase sales volume
 To maintain or increase market share
Status quo-oriented
 To stabilize prices
 To meet competition

I. Profit – Oriented Goals

Profit goals may be set for the short or long run. The company may select one or two profit
oriented goals for its pricing policy.
Achieve a target return: A firm may price its product to achieve a target return – a specified
percentage return on its sales or on its investment. Many retailers and wholesalers use a target
return on sales as a pricing objective for short period such as a year or a fashion season. They
add an amount to the rest of the product, called a markup, to cover anticipated operating
expenses and provide a desired profit for the period.
Maximize Profit: The pricing objective of making as much money as possible is probably
followed more than any other goal. The trouble with this goal is that to some people, profit
maximization has an ugly connotation, suggesting profiteering, high price and monopoly.
II. Sales- Oriented Goals
In some companies management‟s pricing is focused on sales volume. The pricing goal may be
to increase sales volume or to maintain or increase the firm‟s market share.
Increase Sales Volume: The pricing goal of increasing sales volume is typically adopted to
achieve rapid growth or to discourage potential competitors from entering a market. The goal is
usually stated as a percentage increase in sales volume over same period. Management may seek
higher sales volume by discounting or by some other aggressive pricing strategy.
Maintain or Increase market share: In some companies, both large and small the pricing
objective is to maintain or increase market share. Most industries today are not grouping much, if
at all, and have excess production capacity. Many firms need added sales to more utilize their
production capacity, and in turn, gain economies of scale and better profit.
III. Status Quo Goals
Two related goals – stabilizing prices and meeting competition – are the least aggressive of all
pricing goals. They are intended simply to maintain the firm‟s current situation – that is, the
status quo. With either of these goals, a firm seeks to avoid price competition. Price stabilization
often is the goal in industries where the product is highly standardized (such as steel or bulk
chemicals) and one large firm.
6.4. FACTORS AFFECTING PRICING DECISIONS

A company‟s pricing decisions are affected by both internal company factors and external
environmental forces. Before a firm develops the pricing strategy, it should take into consideration
the different factors which affect price decisions.
 Internal factors affecting pricing decisions
Internal factors affecting pricing include the company‟s marketing objectives, marketing mix
strategy, company‟s costs and organizational considerations.
Marketing objectives:
Common objectives of a company include survival, current profit maximization, market share
leadership or quality leadership.
Companies set survival as their major objective when they face excess capacity, stiff competition
and changing consumer tastes. To keep the business running, the company may set low price
hopping demand for the product will recover.
If a firm gives priority to current profit maximization, it estimates would be demand level and costs
at different prices. Then, the firm chooses the price that will produce the maximum current profit.
If the firm decides to be a market leader in terms of customers, it should charge relatively low price
to win the competition. Still if the firm‟s intension is to be ranked first as quality leader, it should
discover the promised quality level and charge a comparable price to cover higher performance
quality and the high cost of research and development. Finally, not-for profit organizations employ
partial cost recovering or full cost recovering; charging customers the full cost incurred to produce
and deliver the product. E.g. various supplies from government to the public are priced to cover the
total cost or half.
Marketing mix strategies:

In order to form a consistent and effective marketing program, pricing decisions must be coordinated
with product design, distribution, and promotion decision. Decisions made for other marketing mix
variables may affect pricing decisions. For example, producers using many resellers who are
expected to support and promote their products may have to build larger reseller margins into their

prices. The decision to position the product on high performance quality will mean that the seller
must charge a high price to cover higher costs.
If the product is positioned on non-price factors, then decisions about quality, promotion and
distribution will strongly affect price. If price is a crucial positioning factor, then price will strongly
affect decisions made about the other mix elements.
Costs:
Mostly, costs set the floor for the price that the company charges. The company wants to charge a
price that both covers all its costs for producing, distributing, promoting and selling the product and
delivers a fair rate of return for its effort and risk.
A company‟s costs include fixed/overhead costs (costs that do not vary with production and sales
levels e.g. costs for huge establishments, large equipment‟s and accessories and top executives‟
salary) and variable costs (costs which vary directly with the level of production, e.g. Costs of
factors of production). Thus, companies while deciding prices, they consider both cost categories.
Organizational considerations:
Management must decide who within the organization should set prices. In small companies, prices
are often set by top management rather than by the marketing or sales departments. In large
companies, you will find the other way round; pricing typically handled by divisional or product line
managers. Sometimes even though top management set the pricing objectives and policies it often
approves the prices proposed by lower level management or sales people.
In industries where pricing is a key factor, companies often have a pricing department to set the best
prices or to help others in setting.
Product Differentiation:
The price of the product also depends upon the characteristics of the product. In order to attract
the customers, different characteristic are added to the product, such as quality, size, color,
attractive package, alternative uses etc. Generally, customers pay more prices for the product
which is of the new style, fashion better package etc.
 External Factors

Demand:
Demand for the product is the total volume that is bought by a customer group(s) in a definite
time period, in a definite geographical area, in a particular marketing environment and with the
defined marketing mix. For a marketer it is necessary to understand the relationship between
price and the consumer perception. The relationship can be explained by two economic concepts
Law of Demand and Elasticity of Demand.
The law of demand states that consumer usually purchase more units at a low price than the
high price. The price elasticity of demand shows the sensitivity of buyers to price changes in
terms of quantities they will purchase.
Elastic demand occurs if relatively small changes in price result in large changes in quantity
demanded total revenue goes up when prices are reduced or goes down. Price elasticity is more
than 1.
Inelastic demand takes place if considerable price changes have little impact on quantity
demanded. Price elasticity is less than one. Total revenue goes up when prices are raised.
Unitary demand exists when there is no impact of price on demand. Total sales revenue
remains constant. Price elastic is one.
Negative demand exists if change in price has the adverse impact on demand. Price increase
leads to increase in demand. Research confirms that not all consumers use price as the dominant
purchase determinants. The marketer has to study the type of product and type of customers to
whom he want to serve and price elasticity of demand before arriving at a pricing decision.
Competition:
Another factor that contributes to the degree of control a firm has over prices is the competitive
environment within which it operates. A company‟s marketing program is influenced
considerably by a particular type of competitive structure in which the company operates.
Pure competition is a market situation in which there are too many small buyers and sellers,
each with the complete market information no single buyer or seller controls market demand,
market supply or price. The product is homogenous i.e., each seller markets the same product. It
is easy to enter or leave this type of market. This type of competition is rare.

Monopolistic Competition there are many buyers and sellers but they lack the complete
information. Each seller attempts to gain a differential advantage over its competitions.
An oligopoly is a market structure where there are only a few large sellers, marketing essentially
similar products, and accounts for all or almost all of an industry‟s sales.
A monopoly is a market structure in which only one firm is marketing a particular product or
service and there are no close substitutes. While planning the pricing strategies each seller must
consider the possible reactions of the competitors.
Channel Members:
Each channel members seeks to play a significant role in setting prices in order to generate sales
volume, obtain adequate profit margins, derive a suitable image, ensure repeat purchases and
meet specific goals. A manufacturer can gain greater control over price by using an exclusive
distribution system. A whole seller or retailer can gain stronger control over price by stressing its
importance as a customer to the manufacturer.
To maximize channel member cooperation regarding price decisions, the manufacturer needs to
consider four factors
 Channel member profit margins,
 Price guarantees,
 Special deals, and
 The impact of price increases.
Economic Conditions:
The inflationary or deflationary tendency affects pricing. In recession period, the prices are
reduced to a sizeable extent to maintain the level of turnover. On the other hand, the prices are
increased in boom period to cover the increasing cost of production and distribution. To meet
the changes in demand, price etc, several pricing decisions are available.
 Prices can be boosted to protect profits against rising cost,
 Price protection system can be developed to link the price of delivery to current
cost.

 Emphasis can be shifted from sales volume to profit margin and cost reduction
etc.
Buyers:
The various consumers and businesses that buy a company‟s products or services may have an
influence in the pricing decision. Their nature and behavior for the purchase of a particular
product, brand or services etc. affect pricing when their member is large.
Government:
Price decision is also affected by the price controlled by government through enactment of
legislation, when it is thought proper to arrest the inflationary trend in prices of certain products.
6.5. Basic Methods of Determining the Price
To determine their selling price, most companies establish their prices using one of the following
methods. The common pricing approaches a company considers to use include cost-based
pricing (cost-plus pricing, break even analysis and target profit pricing), the buyer based
approach or value based approach and competition based approach (going rate and sealed bid
pricing).
 Cost-based approach
Cost plus/ mark up pricing:

The simplest pricing method is cost-plus pricing-adding a standard markup to the cost of the product.
Construction companies, for example, submit job bids by estimating the total project cost and adding
a standard markup for profit.
To illustrate, suppose a shoe manufacturer has the following costs and expected sales:
Variable cost = $50
Fixed costs = $300,000
Expected unit sales =50,000
The manufacturer‟s cost per shoe is given by:
Unit cost= variable cost + fixed cost= 50 + 300,000 =$16

Unit sales 50,000
i) Now suppose the manufacturer wants to earn a 20% markup on sales. The
manufacturer‟s markup price is given by:
ii) Markup price = Unit cost

1 - Desired return on sale
iii) Mark up % = markup

selling price
Markup price = unit cost plus desired percent of this unit cost
Mp= $16 + $16×20% = $16 + 3.2= $19.2
The manufacturer would charge dealers $19.2 per shoe and make a profit of $3.2 per unit. If dealers
want to earn 50% on sales price, they will markup the shoe to ($19.2 + 50% of $19.2).
Does using standard markup to set price make sense? Generally, no. Any pricing method that
ignores demand and competitors‟ prices is not likely to lead to the best price. Suppose the shoe
manufacturer charged a $20 but sold only 30,000 shoes instead of 50,000. Then, the unit cost would
has been higher because the fixed cost are spread over fewer units, and the realized percentage
markup on sales would have been lower.
Markup pricing is sensible:
 If that price actually brings in the expected level of sales,

 If sellers are more certain about costs than demand,
 If all firms in the industry use this pricing method, price tends to be similar and price
competition is minimized.
In this pricing approach, sellers earn a fair return on their investment but do not take advantage of
buyers when buyers demand becomes great.
Break-even analysis and target profit pricing:

Another cost oriented pricing approach is break-even pricing, or a variation called target profit
pricing. The firm tries to determine the price at which it will break-even or make the target profit it
seeks. Break-even analysis uses the concept of a break-even chart to develop a system of target
profit pricing in which the organization tries to determine the price that will produce the profit it is
seeking. The chart shows the total cost and total revenue at different sales volume levels.
Example:
 Assume fixed costs to be $300,000
 Assume variable cost per unit to be $10
 Variable cost plus fixed cost gives the total cost (TC)
 Produce total revenue (TR) on the basis of a given price per unit sold.
These are break-even volumes. For instance, at $20, the company must sell at least 30,000 units
to break-even
Break-even = Fixed cost
Volume Price - variable cost (contribution)
= $300,00
$20-10
= 30,000 units
Suppose the enterprise wants to earn a tangent profit, it must sell more than 30,000 units at $20
each. Consider ABC Company has invested $1,000,000 in the business and wants to set price to
earn a 20% return, or $200,000. In that case it must sell at least 50,000 units at $20 each.
 Buyers Based Approach
An increasing number of companies are basing their price on the products perceived value
pricing uses buyers perceptions of value not sellers cost as the key to pricing. The company uses
the none price variables in the marketing needs to build up perceived value in buyers mind. Price

is set to much the perceived value. Example, the various prices that different restaurants charge
for the same items
 Competition Based Approach
Consumers will base their judgments of a products value on the prices that competitors change
for similar products. Here we discuss two forms of competition based pricing going rate pricing
and sealed bid pricing.
Going rate pricing:- in going rate pricing the firm bases its price largely on competitor‟s prices
with less attention paid to its own costs or to demand. The firm might charge the same, more or
less than its major competitors.
Sealed bid pricing:- competition-based pricing is also used when firms bids for jobs using
sealed-bid pricing a firm bases its price on how it thinks competitor‟s will price rather than on its
own costs or on the demand. The firm wants to win a contract, and winning the contract requires
pricing lower than other firms.
6.6. Pricing Procedure
The steps involved in price setting procedure include:
i. Development of pricing objectives

Developing prices objectives are necessary because all subsequent decisions are based on
objectives. In terms of priority of objectives, most companies set their pricing objectives in
terms of profit maximization, market share, or return on investment.
ii. Determination of demand

Demand determination of a product is the responsibility of marketing manager, aided by
marketing research personal. The forecasts furnish the estimate of sales potential of product
reflecting the quantity that can be sold in specific period. This estimation helps to examine the
relationship between products price and quantity likely to be demanded.
iii. Examination of costs

Over a long run, price must exceed the average unit costs to earn profit. The cost set the
lower limit of price while demand and competitors set the upper limit.

iv. Examination of competitors costs, prices and offers
v. Selecting price strategy
vi. Selection of pricing method
vii. Selection of final price
6.7. Pricing Policies and Strategies

 New Product Pricing Strategies/ Market Entry Strategies
In preparing to enter the market with a new product, management must decide whether to adopt a
skimming or a penetration pricing strategy.
Market Skimming Pricing:
Setting a relatively high initial price for a new product is referred to as market skimming pricing.
Ordinarily the price is high in relation to the target market's range of expected prices. That is, the
price is set at the highest possible level that the most interested customers will pay for the new
product. Market-skimming pricing has several purposes. Since it should provide healthy profit
margins, it is intended primarily to recover research and development costs as quickly as
possible. Further it provides the firm with flexibility, because it is much easier to lower an initial
price that meets with consumer resistance etc.
Market Penetration Pricing:
In market penetration pricing, a relatively low initial price is established for a new product. The
price is low in relation to the target market's range of expected prices. The primary aim of this
strategy is to penetrate the mass market immediately and, in so doing generate substantial sales
volume and a large market share. At the same time it is intended to discourage other firms from
introducing competing products.
 Product Mix Pricing Strategies
Price lining:
Often a firm that is selling not just a single product but a line of products may price them at a
number of different specific pricing points, which is called price lining.
Optional product pricing:
Most firms offer optional/ accessory products or features along with their main product. The
pricing strategy is to keep the prices of the optional product on the higher side comparatively.

Captive product pricing:

Companies that make products must be used along with a main product are using captive product
pricing. Examples are razor-blades, camera films, and computer floppy. The price of main
products is kept on the lower side and the prices are comparatively higher for the next part.
By-product pricing:
In pricing of some products there are some residue products which are called as by products. If
the byproducts have little value and are in fact costly to dispose other manufacturer should
accept any price that comes more than the cost of disposing them.
Product –bundle pricing:
It calls for setting the prices of a bundle. Bundle pricing is less than the individual item pricing.
Price bundling can promote the sales of the products consumers might not otherwise buy, but the
combined price must be low enough to get than to buy the bundle.
 Price Adjustment Strategies
Discount & allowances:

Discount & allowances result in a deduction form a base (or list) price. The deduction may be in
the form of a reduced price or some other concession, such as free merchandise or advertising
allowances. Discount & allowances are commonplace in business dealings. Discount takes
several forms as explained below:
Quantity Discounts: Quantity discounts are deductions from a seller's list price intended to
encourage customers to buy in large amounts or to buy most of what they need from the seller
offering the deduction. Discounts are based on the size of the purchase, ether in Birr or in units.
e.g. From 1-10 units none

10-20 units 2% discount
21-40 units 4% discounts etc.
Trade discount: Trade discount sometimes called functional discounts, are reductions form the
list price offered to buyers in payment for marketing functions the buyers will perform -
functions such as storing, promoting and selling the product. A manufacturer may quote a retail

price of $400 with trade discount of 40% and 10%. The retailer pays the wholesaler $240($400
less 40%), and the wholesaler pays the manufacturer $216 ($240 less 10%). The wholesaler is
expected to keep the 10% to cover costs of the wholesaling functions and pass on the 40%
discount to retailers.
Cash discount: A Cash discount is a deduction granted to buyers for paying their bills within a
specified time. The discount is composed on the net amount due after first deducting trade and
quantity discounts from the base price. Every cash discount includes three elements.
 The percentage discount
 The period during which the discount may be taken &
 The time when the bill becomes overdue
Let's say a buyer owes $360 after other discounts have been granted and is offered terms of 2/10,
n/30 on an invoice dated November 8. This means the buyer may deduct a discount of 2%
($7.20) if the bill is paid within 10 days of the invoice date - by November 18, otherwise the
entire (net) bill of $360 must be paid in 30 days - by December 8, etc.
Cumulative quantity discount: This is a discount that increases as the cumulative quantity
increases. Cumulative discount may be offered to resellers who purchase large quantities over
time but who do not wish to place large individual orders.
Seasonal Discounts: This is based on the time that the purchase is made and designed to reduce
seasonal variation in sales. For example, the travel industry offers much lower off-season rates.
Such discounts do not have to be based on the time of the year; they also can be based on day of
the week or time of the day, such as pricing offered by long distance and warless service
providers.
Allowances: Allowances are other types of reeducations from the list price. For example, trade-
in allowances are price reeducations given for turning in an old item when buying a new one.
Trade-in allowances are most common in the automobile industry and are also given for some
other durable goods. Promotional allowances are payments or price reeducations to reward
dealers for participating in advertising and sales-support programs.
Uniform delivered pricing: Under uniform delivered pricing, the same delivered price is quoted
to all buyers regardless of their locations. This strategy is sometimes referred to as postage stamp
pricing, because of its similarity to the pricing of the first class mail service.

Uniform delivered pricing is typically used when freight costs are a small part of the seller‟s total
costs. This strategy is also used by many retailers who believe is free delivery is an additional
service that strengthens their market position.
Zone delivered pricing:
Zone – delivered pricing divides a seller‟s market into a limited number of broad geographic
zones and them sets a uniform delivered piece for each zone. Zone delivered pricing is similar to
the system used in pricing package – delivery service. When using this pricing strategy, a seller
must walk a tightrope to avoid charges of illegal price discrimination. The zone must be drawn
so that all buyers who compete for a particular market are in the same zone. This condition is
almost impossible to meet in dense population areas.
 Odd Pricing
Odd pricing, another psychological strategy is commonly used in retailing. Odd pricing sets
prices at uneven (odd) amounts such as 49 cents, or $ 19.95, rather than at even amounts. The
rationale for odd pricing is that it suggests lower prices and as a result yields greater sales than
even pricing. Recent research indicates that odd pricing can be an effective strategy for a firm
that emphasizes low prices.
 Value Pricing
In recent years several companies have adopted value based pricing in which they change a fairly
low price for a fairly high quality offering. Value pricing says that the price should represent a
high value offer to consumers. Lexus is a good example because Toyota could have priced
Lexus, given its extra ordinary quality, much closer to Mercedes price.
 Perceived Value Pricing
An increasing number of companies are basing their price on the product‟s perceived value.
They see the buyer‟s perception of value, not the seller‟s cost, as they key to pricing. They use
the non-price variables on the marketing mix to build up perceived value in the buyer‟s mind.
Price is set to capture the perceived value.
 Going Rate Pricing
In going rate pricing, the firm pays less attention to its own costs or demand and bases its price
largely on competitors‟ prices. The firm might change the same, more or less than its major
competitors.
 Sealed Bid Pricing
Competitive – oriented pricing is common where firms submit sealed bids for jobs. The firm
bases its price on expectations of how competitors will price rather than on a rigid relation to the
firm‟s costs or demand. The firms want to win the contract, and winning normally requires
submitting a lower price than competitors. At the same time, the firm cannot set its price below
cost without worsening its position.
 Discriminatory pricing
Discriminatory pricing Companies often adjust their basic prices to allow for differences in
customers, products, and locations. In discriminatory pricing, the company sells a product or
service at two or more prices, even though the difference in prices is not based on differences in
costs. Discriminatory pricing takes several forms:
Customers- segment pricing- different customers pay different prices for the same product or
service. Museums, for example, often change a lower admission for students and senor citizens.
Product-from pricing –different versions of the product are priced differently but not according
to differences in their costs.
Location pricing-different locations are priced differently even though the cost of offering each
location is the same. For instance, a theater varies its seat prices because of audience preferences
for certain locations.
Time pricing- prices are varied seasonally, by the month, by the day, and even by the hour.
Public utilities vary their prices to commercial users by time of day and weeded versus weekday.
The telephone company offers lower “off-peak charges, and resorts give seasonal discounts.
For discriminatory pricing to an effective strategy for the company, creation conditions must
exist.
The market must be segment able and the segments must show different degrees of demand.
Members of the segment paying the lower price should not be able to turn around and resell the
product to the segment paying the higher price Competitors should not be able to undersell the
firm in the segment being changed the higher price. Nor should the costs of segmenting and
watching the market exceed the extra revenue obtained from the price difference. The practice
should not lead to customer resentment and ill will. Finally, the discriminatory pricing must be
legal.
 Psychological pricing
Price indicates something about the product. For example, many consumers use price to judge
quality. A $100 bottle of perfume may contain only $3 worth of scent, but some people are
willing to pay $100 because this price indicates something special.
In using Psychological pricing sellers consider the psychology of prices and not simply the
economics. For example, one study of the relationship between price and quality perceptions of
cars found that consumers perceive higher priced cars as having higher quality. Buy the same
token, higher quality cars are perceived to be even higher priced than they actually are! When
consumers can judge the quality of a product by examining it or by calling upon past experience
with it, they use price less to judge quality. But when consumers can not judge quality because
they lack the information or skill, price becomes an important quality signal.
Another aspect of psychological pricing is reference prices. These are prices that buyers carry in
their minds and refer to when they look at a given product. The reference price might be formed
by noting current prices, remembering past prices, or assessing the buying situation. Sellers can
influence or use these consumers‟ reference prices when setting price. For example, a company
could display its product next to mere expensive ones in order to imply that it belongs in the
same class. Department stores often sell women‟s clothing in separate departments differentiated
by price: Clothing found in the more expensive department is assumed to be of better quality.
Companies can also influence consumers‟ reference prices by stating high manufacture‟s
suggested prices, or by indicating that the product was originally priced much higher, or by
pointing to a competitor‟s higher price.
Even small differences in price can suggest product differences. Consider a stereo priced at $300
compared to one priced at $ 299.95. The actual price difference is only 5 cents, but the
psychological difference can be much grater. For example, some consumers will see the $299.95
as a price in the $200 range rather than the $ 300 range. Although the $299.95 will more
likely be seen as a bargain price, the $300 price suggests more quality. Some psychologists argue
that each digit has symbolic and visual qualities that should be considered in pricing. Thus, 8 is
round and even and creates a shooting effect, and 7 is angular and creates a jarring effect.
 Promotional pricing
With promotional pricing, companies temporarily price their products below list price and
sometimes even below cost. Promotional pricing takes several forms. Supermarkets and
department stores often price a few products as loss leaders to attract customers to the store in
the hope that they will buy other items at normal markups. Sellers also use special-event pricing
in certain seasons to draw more customers.
 Geographical Pricing
A company also must decide how to price its products for customers located in different parts of
the country or world. Should the company risk losing the business of more distant customers by
charging them higher prices to cover the higher shipping costs? Or should the company charge
all customers the same prices regardless of location? There are some geographic pricing
strategies that can be followed by marketers
1. Elaborately explain different pricing policies and strategies
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2. Briefly explain the basic factors that affecting pricing decisions
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3. Discuss the meaning, and significance of pricing
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CHAPTER SEVEN
PROMOTION
7.1. Introduction
Modern marketing calls for than developing a good product pricing it attractively, and making it
accessible to target customers. Companies must also communicate with their present and
potential customers, retailers, suppliers, other stakeholders, and the general public. Every
company is inevitable cast into the role of communicator and promoter. For most companies, the
question is not whether to communicate but rather what to say, to whom, and how often.
7.2. Meaning and Significance of Promotion
The marketing communications mix (also called the promotion mix consists of five major modes
of communication:
Advertising:- Any Paid form of non personal presentation and promotion of ideas, goods, or
services by an identified sponsor
Sales promotion: -A variety of short-term incentives to encourage trial or purchase of a product
or service
Public relation & Publicity: A variety of programs designed to promote and/or protect a
company's image or its individual products.
Personal selling: Face -to -Face interaction with one or more prospective purchasers for the
purpose of making presentation, answering questions, and processing orders.
Direct Marketing: Use of mail, telephone, fax, e-mail, and other non personal contact tools to
communicate directly with or solicit a direct response from specific customers and prospects.
The starting point in the communication process is thus an audit of all the potential interactions
target customers may have with the product and company. For example, someone purchasing a
new computer would talk to others, see television ads, read articles in newspaper and magazines,
and observe computers in a store.
The marketer needs to assess which of these experiences and impressions will have the most
influence at the different stage of the buying process. To communicate effectively, marketers
need to understand the fundamental elements underlying effective communication. The major
parties in a communication: - sender & receiver. The major communication tools: - message &
media. The major communication functions: - encoding, decoding, response and feedback. The
last element in the system is noise.
The main purpose of promotion is to attract customers and stimulate them to act in the desired
manner. The need for promotional activities has been recognized by the marketer for the
following reasons:
 The physical separation of consumers and producers and an increase in the number of
potential customers.
 Improvements in physical distribution facilities have expanded the area limits of the
market.
 Availability of large number of whole selling and retailing in middle men in the market
 To restore the demand for the existing product when sale begins to decline
7.3. The Promotion Mix Elements
Advertising, sales promotion, and public relations are the mass communication tools available to
customers. As its name suggests, mass communication uses the same message for everyone in an
audience. The mass communicator trades off the advantage of personal selling, the opportunity
to tailor a message to each prospective customer, for the advantage of reaching many people at a
lower cost per person.
 The Promotional Mix Strategy
Producers aim their promotional mix at both middlemen and end users. A promotional program
aimed primarily at middlemen is called a push strategy, and a promotion program directed
primarily at end users is called a pull strategy.
I. Push Strategy
Using a push strategy means a channel member directs its promotion primarily at the middlemen
that are the next link forward in the distribution channel. The product is "pushed" through the
channel.
II. Pull Strategy
With a pull strategy, promotion is directed at end users usually ultimate consumers. The
intention is to motivate them to ask retailers for the product. The retailers, in return will request
the product from the wholesalers, and the wholesalers will order it from the producer. In effect,
promotion to consumers is designed to "pull" the product through the channel. This strategy
relies on heavy advertising and various forms of sales promotion such as premiums, samples, or
in-store demonstration.
 The Promotional Budget
Establishing promotional budget is extremely challenging because management lacks reliable

standards for determining how much to spend all together on advertising or personal selling, and
how much of the total budget to allocate to each promotional-mix elements. Rather than one
generally accepted approach to setting promotional budgets, there are four common promotional
budgeting methods:
a. Percentage of Sales
The promotional budget may be related in some way to company income, as a percentage of
either past or anticipated sales. A common approach for determining the sales base is to
complete an average between the previous year's actual sales and expected sales for the coming
year. Some businesses prefer to budget a fixed amount of money per unit of past or expected
future sales. The percentage - of - sales method is simple to calculate, it is probably the most
widely used budgeting method. Moreover, it sets the cost of promotion in relation to sales
income, making it a variable rather than a fixed expense.
b. All Available Funds
A new company or a firm introducing a new product frequently plows all available funds into its
promotional program. The objective is to build sales and market share as rapidly as possible
during those early, critical years. After a time, management generally finds it necessary to invest
into other things, such as new equipment or expanded production capacity, so the method of
setting the promotional budget is changed.
c. Following Competition
A weak method of determining the promotional budget, but one that is used occasionally is to
match the promotional expenditures of competitors or to spend in proportion to market share.
Sometimes only one competitor is followed. In other cases, if management has access to
industry average expenditures on promotion through a trade association, these become company
benchmarks.
d. Budgeting by Task or Objectives
The best approach for establishing the promotional budget is to determine the task or objectives
the promotional program must accomplish and then decide what they will cost. The task method
forces management to realistically define the goal of its promotional program. In this method,
the promotional budget is build up by adding up the costs of the individual promotional tasks
needed to reach the goal of entering a new territory.
7.3. 1. Advertising
Advertising is one of the most common tools companies use to direct persuasive communication
to target buyers and publics. Advertising can be defined as follows:-
"Advertising is any paid form of non-personal presentation and promotion of ideas, goods, or
services by an identified sponsor."
Advertisers include business firms but also museums, charitable organizations, and government
agencies that advertise to various target publics. Ads are a cost effective way to disseminate
messages, whether to build brand preference or to educate a nation's people to avoid hard drugs.
 Major Decisions in Developing an Advertising Program
In developing an advertising program, marketing, managers must always start by identifying the
target market and buyer motives. Then they can proceed to make the five major decisions in
developing an advertising program, known as the five Ms:
 Mission: What are the advertising objectives?

 Money: How much can be spent?
 Message: What message should be sent?
 Media: What media should be used?
 Measurement: How should the results is evaluated?
 Advertising Objectives
The purpose of advertising is to sell something a good, service, idea, person, or place either now
or later. This goal is reached by setting specific objectives that can be expressed in individual
advertisement that are incorporated into an advertising campaign. Thus, the immediate objective
of an advertisement may be to move target customers to the next stage in the hierarchy say, from
awareness to interest. These objectives must flow from prior decisions on the target market,
market positioning, and marketing mix. The marketing positioning and marketing mix strategies
define the job that advertising must do in the total marketing program. Thus in general the main
objective of advertising is to inform, persuade or remind the potential as well as the ultimate
consumer about the product.
 Advertising Budget
After determining advertising objectives, the company can proceed to establish its advertising
budget for each product. The role of advertising is to increase demand for the product. The
company wants to spend the amount required to achieve the sales goal. But how does a company
know if it is spending the right amount? If the company spends too little, the effect will be
insignificant. If the company spends too much on advertising, then some of the money could
have been put to better use.
 Advertising Message
The products "benefit" message should be decided as part of developing the product concept.
Creative people use several methods to generate possible advertising appeals. Some creative
people use a deductive framework for generating advertising messages. A good advertising
normally focuses on one core selling preposition. That message should be rated on desirability,
exclusiveness, and believability.
 Advertising Media Selection
The appeal and the target audience determine the message and the choice of media. Advertisers
need to make decisions at each of three successive levels to determine which specific advertising
media to use:-
 Which type of media will be used?
 Which category of the selected medium will be used?
 Which specific media vehicles will be used?
Types of Advertising Media
Media is a vehicle through which an advertiser communicates their message to likely customers
or prospects with a view to influencing them in terms of the advertising objectives. The
advertising media can be classified on the following basis.
 (Indoor Advertising) Broadcast media
Indoor advertising includes, television, radio, in slides and cinema as a media to disseminate
advertising messages. Television combines motion, sound, and special visual effects. Products
can be demonstrated as well as described on TV. It offers wide geographic coverage and
flexibility in when the message can be presented. However, television is a relatively expensive
medium.
Radio is the most effective media that has enjoyed a rebirth as an advertising and cultural
medium. When interests on television increased, radio audiences (especially for national
network radio) declined so dramatically that some people predicted radio's demise. Radio makes
only an audio impression, relying entirely on the listener's ability to retain information heard and
not seen. Also audience attention is often at a low level, because radio is frequently used as
background for working, studying, or some other activity. TV slides and cinemas reach a
relatively small audience but can be effective particularity in advertising to local shops.
 Press Advertising (Indoor)
Press advertising includes advertising in newspaper, magazines, trade journals, & business
directory. The newspaper is the most popular form of advertising. It constitutes a valuable
medium for disseminating news and molding public opinions and therefore plays an important
role in social and political life. As an advertising medium, newspaper is flexible and timely.
Advertising can be inserted or cancelled on very short notice, and can vary in size from small
classifieds to multiple pages. Pages can be added or dropped, so newspapers are not limited.
Newspapers can be used to reach an entire city, or, where regional editions are offered, selected
areas. Cost per person reached is relatively low. On the other hand, the life of newspapers is
very short they are discarded soon after being read. They are viewed as providing fairly
complete coverage of a local market. Also, because newspapers don't offer much format variety,
it is difficult to design advertisement that stands out.
Magazines are the medium to use when high quality printing and color are desired in
advertising. Magazines can reach a national market at a relatively low cost per reader. Through
special interest magazines or regional editions of general interest magazines, an advertiser can
reach a selected audience with a minimum of wasted circulation.
Trade journals are the medium used by an advertiser to reach among a particular class of
persons such as doctors and engineers. Thus, where the objective of advertising is to reach such
a specific class of persons, trade journals become very suitable as a form of advertising.
 Direct Mail
Direct mail, also known as direct marketing, is the most personal and selective of all media.
Printing and postage fees make the cost of direct mail per person reached quite high compared
with other media. However, because direct mail goes only to the people the advertiser‟s wishes
to contact, there is almost no wasted coverage. Reaching the prospect does not; however, ensure
that the message is received. Direct mail is pure advertising. Therefore, a direct advertisement
must attract its own readers.
 Outdoor Advertising
It will be realized that press advertising is generally read when the subscriber or reader are
indoors. As against this, there are other media, which are noticed by persons when he is
outdoors. This media includes bill boards, posters, vehicular advertisement and electrical signs.
But because it is seen by people "on the go" outdoor advertising is appropriate only for brief
messages.
Historically, the cigarette and tobacco industries have been the heaviest outdoor advertisers, in
part because they are banned from the broadcast media. However, the effectiveness of billboards
for reminder advertising has also made them attractive to other industries. Recent advances in
computerized billboard paintings have greatly speeded up the production of boards and
standardized their quality.
Billboards provide flexibility in geographic coverage and can provide intense coverage within an
area. However, unless the advertised product is a widely used good or service, considerable
wasted circulation will occur, since many of the passer by will not be prospects.
In summary, there are many forms of advertising media from which the marketing manager has
to make an appropriate decision. The main yardstick for selection of a media should lie on reach
of the maximum number of potential buyers at a minimum cost. Therefore the advertiser should
determine the prospective customer or the market segments at which the advertising is to be
directed. The messages or copies should also be appropriate for the type of media and the nature
of the product involved.
7.3. 2. Personal Selling
The goal of all marketing efforts is to increase profitable sales by offering want satisfaction to
consumers over the long run. Personal selling is by far the major promotional method used to
reach this goal.
Meaning of Personal Selling
Personal selling can be defined as follows:-
“Personal selling is the personal communication of information to persuade somebody to
buy something". Personal selling is the individual, personal communication of information, in
contrasts to the mass, impersonal communication of advertising, sales promotion, and other
promotional tools. This means that the personal selling is more flexible than these other tools.
Sales people can tailor their presentation to fit the needs and behavior of individual customers.
Sales people can see their customer's' reaction to a particular sales approach and make
adjustments on the spot.
Also, personal selling usually can be focused or pinpointed on prospective customers, thus
minimizing wasted effort. In contrast, much of the cost of advertising is spent on sending
messages to people who is no way are real prospects. Another advantage of personal selling is
that its goal is to actually make a sale. Other forms of promotion are designed to more a prospect
closer to a sale. Advertising can attract attention, provide information, and arouse desire, but
seldom does it stimulate buying action or complete the transfer of title from seller to buyer.
A major limitation of personal selling is its high cost. Even though personal selling can
minimize wasted effort, the cost of developing and operation sales force is high. Another
disadvantage is that a company often is unable to attract the quality of people needed to do the
job.
Buyers placing routine reorders or new orders for standardized products by telephone or
computer use less of their time than in –person sales calls. Sellers face increasingly high cost
keeping sales people on the road; selling by telemarketing reduces that expense.
Process of Personal Selling
The personal selling process is logical sequence of four steps that a sales person takes in dealing
with prospective buyer. This process leads, hopefully, to some desired customer action and ends
with a follow-up to ensure customer satisfaction. The desired action usually is to get the
customer to buy a good or a service.
The four-step process may be illustrated as follows.
Pre-approach
Prospecting Presentation Post sale Services
Identification: AIDA Reduce -

Profiles Information Attention dissonance
Leads Habit Interest Build goodwill
Records Preference Desire
Qualifying Action
Capability
Willingness
Fig 7.1. Personal selling process

 Prospecting
The first step in the personal selling process is called prospecting. It consists of first identifying
potential customers and then qualifying them – that is, determining whether they have the
necessary purchasing power, authority, and willingness to buy.
1. Identifying prospective customers
A representative may start the identification process by drawing up a profile of the ideal
prospect. Records of past and current customers can help determine characteristics of and ideal
prospect. From this profile a seller can start a list of potential customers. Many other sources can
be used to build the list of prospects. The representative‟s sales manager may prepare a list;
current customers may need leads; trade association and industry directories can be a good
source; and leads can come from people mailing in a coupon or phoning.
I. Qualifying the prospect
After identifying prospective customers, a seller should qualify them- that is, determine whether
they have the necessary willingness, Purchasing power, and authority to buy. To determine
willingness to buy, a seller can seek information about a prospect‟s relationship with its present
suppliers. To determine a prospect‟s financial ability to buy, a seller can refer to credit-rating
services. For a household consumers or small business in an area, a seller can get information
from a local credit bureau. Identifying who has the authority to buy in a business or a household
can be difficult. In a business the buying authority may rest with a committee or an executive.
Besides deterring the buying authority, a seller should also identify the one or more persons who
influence the buying decision.
2. Pre-approach to Individual Prospects
Before calling on prospect, sales people should learn all they can about the persons or companies
to whom they hope to sell. This Pre-approach in selling might include finding out what products
the prospects are now using and their reaction to these products. In business-to- business selling,
a sales person selling team should find out how buying decisions are made in customer's
organization.
3. Presenting the Sales Message
With the appropriate Pre approach information, a sales person can design a sales presentation
that will attract the prospect's attention. The sales person will then try to hold the prospect's
interest while building a desire for the product, and when the time is right, attempt to stimulate
action by closing the sale. This approach, called AIDAS (an acronym for Attention, interest,
Desire, Action and satisfaction).
 Attract Attention -The Approach
The first task in a sales presentation is to attract the prospect's attention and to generate curiosity
.In cases where the prospect is aware of a need and is seeking a solution; simply stating the
seller's company and product will be enough. However, more creativity often is required.
 Hold interest and Arouse desire
After attraction the prospect's attention, the sales representative can hold it and stimulate a desire
for the product with a sales talk. There is no common pattern here. Usually, however, a product
demonstration is invaluable. Whatever pattern is followed is the talk; the sales person must
always show how the product will benefit the prospect.
 Meet Objections and Close the Sale

After exploring the product and its benefits, a sales person should try to close. The sale-that is,
obtain the customer's agreement to buy. (Achieving the desired action). A sales person should
encourage buyers to state their objections. Then the sales person has an opportunity to meet the
objections and to bring at additional product benefits or reemphasis previously stated points.
4. Post Sale Services
An effective selling job does not end when the order is written up. The final stage of a selling
process is a series of Post sale activities. That can build customer good will and lay the
groundwork for future business. An alert sales person will follow up sales to ensure that no
problems occur in delivery, financing, installation, employee training, and other areas that are
important to customer satisfaction.
In this final stage of the selling process, a sales person can minimize the consumer's dissonance
by:
 Summarizing the products benefit after the purchase,
 Repeating why the product is better than alternatives chosen and
 Emphasizing how satisfied the customer would be with the product.
7.3.3. Sales Promotion
Meaning of Sales Promotion
Sales promotion is a key ingredient in marketing campaign.
It can be defined as follows:
"Sales promotion consists of a diverse collection of incentives tools mostly short term designed
to stimulate quicker and/or greater purchase of particular products by consumer or the trade." In
other words sales promotion is a demand stimulating devices designed to supplement advertising
and facilitate personal selling.
Where advertising offers a reason to buy, sales promotion offers an incentive to buy.
Trade promotion (prices off, advertising, display allowances, and free goods) and business and
sales force promotion (trade shows and conventions, contents for sales representatives and
specialty advertising). Sales promotion is conducted by producers and middlemen. The target
for producers' sales promotions may be middlemen, end users households or business users or
the producer's own sales force, middlemen direct sales promotion at their sales people or
prospects further down the channel of distribution.
Management of Sales Promotion
Sales promotion should be included in a company's promotion plans, along with advertising and
personal selling. This means setting sales promotion objectives and strategies, determining sales
promotion objectives and strategies, determining a sales promotion budget, selecting appropriate
sales promotion techniques, and evaluating the performance of sales promotion activities.
One problem management faces is that many sales promotion techniques are short run, tactical
actions, coupons, premiums, and contests, for example, are designed to produce immediate (but
short-lined) responses. As a result, they tend to be used stopgap measures to reverse in expected
sales decline rather than as integrated parts of a marketing program.
Determining Objectives and Strategies of Sales Promotion
The objectives of a sales promotion may be the following:
 Stimulating business user or household demand for a product
 Improving the marketing performance of middlemen and sales people
 Supplementing advertising and facilitating personal selling.
One sales promotion technique may accomplish one or two but probably not all of these
objectives. More specific objectives of sales promotion are much like those for advertising and
personal selling. Examples are:-
 To gain a trial for a new or improved product
 To disrupt existing buying habits
 To attract new customers
 To combat a competition's promotional activity
 To increase impulse buying
 To get greater retailer cooperation
The choice of sales promotion techniques should be dictated by the objectives of the total
marketing program. A firm's objective is to increase sales by entering new geographic markets.
A pull strategy is one way to encourage product trial and lure consumers away from familiar
brands. Possible sales promotion tactics are coupons, cash rebates, free samples, and premiums.
A firm's objective is to protect market share in the face of intense competition. This goal
suggests a push strategy to improve retailer performance and goodwill's Training retailers' sales
people, supplying effective point of purchase displays, and granting advertising allowances
would be appropriate sales promotion options.
 Determining Budgets
The sales promotion budget should be established as a specific part of the budget for the total
promotional mix. Including sales promotion in an advertising or public relation budget is not
likely to foster the development of a separate sales promotion strategy. And as a result, sales
promotion may be overlooked or poorly integrated with the other components of promotion.
Setting a separate budget for sales promotion forces a company to recognize and manage it.
 Selecting the Appropriate Techniques
Common sales promotion techniques used by a company based on the target audience are as
follows.
 Business users or households
For business users, the most common sales promotion is a trade discount in the form of a reduced
price or free merchandise. Some other common promotion techniques used are:-
Coupons, Cash rebates, Premium (gifts), Free Samples, Contests, Point of purchase displays,
Product demonstrations, Trade show & exhibitions, Advertising specialties.
 Middlemen
Trade associations in industries as diverse as shoes, travel, and furniture sponsor trade shows that
are open only to wholesalers and retailers. Many producers also spend considerable time and
money to train the sales force of their wholesalers and retailers. Some other common promotion
techniques used are:-
Trade shows and exhibition; Point of purchase displays; Free goods, Advertising allowances;
Contests for sales people; Training middlemen's sales forces, Product demonstration;
 Producers' Sales Force
There is overlap between the devices directed at middlemen and those designed for the
producer's own sales force. Sales contests are probably the most significant of these. The most
common incentive is cash, used in over half of all contests. Sales promotion tools for sales
people also includes packet of promotional materials, visual sales aids (flipcharts, slides), and
brochures to reinforce sales presentation. A key step in sales promotion management is deciding
which devices will help the organization reach its promotional goals. Factors that influence the
choice of promotional devices include:
 Nature of the target audience
Is the target group loyal to a competitive brand? If so, a high value coupon may be necessary to
disrupt customers' purchase patterns. Is the product bought on impulse? If so, an eye-catching
point of purchase display may be enough to generate sales.
 The organization's promotional objectives
Does a pull or push strategy best complement the rest of the promotion program
 Nature of the product
Does the product lend itself to sampling, demonstration, or multiple item purchases?
 Cost of the device
Sampling to a large market may be prohibitively expensive.
 Current economic conditions
Coupons, premiums, and rebates are good options during period of recession or
inflation, when consumers are particularly price conscious.
 Evaluating Sales Promotion
Evaluating the effectiveness of sales promotion is much easier and the results more accurate than
evaluating the effectiveness of advertising. For example, to a premium offers or a coupon with a
specified closing date can be counted and compared to a similar period where there were no
premiums or coupons offered. It is easier to measure sales promotion because:-
 Most sales promotion have definite starting & ending points
 Most sales promotions are designed to impact sales directly
7.3.4. Public Relations and Publicity
Like advertising and sales promotion, public relation is an important marketing tool. Not only
must the company relate constructively to its customers, suppliers and dealers, but it must also
relate to a large set of interested publics. Public relation may be defined as follows:
Meaning of Public Relation/Publicity
"A public is any group that has an actual or potential interest in or impact on a company's ability
to achieve its objectives. Public relations (PR) involve a variety of programs designed to
promote and/or protect a company's image or its individual products.
Public relation is management tool designed to favorably influence attitudes toward an
organization, its products, and its policies. It is an often-overlooked form of promotion. In most
organizations this promotional tool is typically a stepchild, relegated far behind personal selling,
advertising, and sales promotion. There are several reasons for management's lack of attention to
public relations:
 Organizational Structure:
In most companies, public relations are not the responsibility of the marketing department. If
there is an organized effort, it is usually handled by a small public relation department that
reports directly to top management.
 Inadequate definitions
Both business and the public use the term public relations, loosely. There are no generally
accepted definitions of the term. As a result, what actually constitutes an organized public
relations effort often is not clearly defined.
 Unrecognized benefits
Only recently have many organizations come to appreciate the value of good public relations. As
the cost of promotion has gone up, firms are realizing that positive exposure through the media
or as a result of community involvement can produce a high return on investment of time and
effort.
 Activities of Public Relation/ Publicity
Publicity is any communication about an organization, its products, or policies through the media
that is not paid for by the organization. Publicity usually takes the form of a news story
appearing in a mass medium or an endorsement provided by an individual, either informally or in
a speech or interview. This is good publicity. There are three means for gaining good publicity:
 Prepare a story (called a news release) and circulate it to the media. The intention is for
the selected newspapers, television stations, or other media to report the information as
news.
 Personal communication with a group. A press conference will draw media
representatives if they feel the subject or speaker has news value. Company tours and
speeches to civic or professional groups are other forms of individual to group

communications.
 One on one personal communication often called lobbying. Companies lobby legislators
or other powerful people in an attempt to influence their opinions, and subsequently their
decisions.
Publicity can help to accomplish any communication objective. It can be used to announce new
products, publicize new policies, or report financial performance. Public relation departments
perform the following five activities, not all of which support marketing objectives.
Press relation: Presenting news and information about organization in the most positive light
Product publicity: Sponsoring various efforts to publicize specific products
Corporate Communication: Promoting understanding of the organization with internal and
external communications
Lobbying: Dealing with legislators and government officials to promote or defeat legislation and
regulation
Counseling: Advising management about public issue and company positions and image. This
includes advising in the event of a product mishap when the public confidence in a product is
shaken.
To summarize, publicity, a part of public relations, is any communication about an organization,
its products, or policies through the media that is not paid for by the organization. Typically
these two activities are handled in a department separate from the marketing department in a
firm. Nevertheless, the management process of planning, implementing, and evaluating should
be applied to their performance in the same way it is applied to advertising, sales promotion, and
personal selling.
7.3.5. Direct Marketing
What is direct marketing?
On a simplistic note one can say that direct marketing is nothing but getting the message
through, directly. However, the direct marketing association (USA) defines it as „‟ an interactive
system of marketing which uses one or more advertising media to effect a measurable response
and /or transaction at any location.‟‟ In the above definition we identify some key words which
differentiate direct marketing (DM) from other marketing communications disciplines. These
key words are:
Interactive: one to one communication or interaction between the marketer and the
prospect/customer.
One or more advertising media: a combination of media used to synergize, often more
effective than any single medium.
Measurable response: possible to measure response, quite accurately.
Transaction at any location: may take place by phone or by mail.
 The Benefits of Direct Marketing
Direct marketing brings many benefits to both buyers and sellers. For buyers, direct marketing is
convenient, easy to use, and private. From the comfort of their homes or offices, they can browse
mail catalogs or company web sites at any time of the day or night. Direct marketing gives
buyers ready access to a wealth of products and information, at home and around the globe.
Finally, direct marketing is immediate and interactive-buyers can interact with sellers by phone
or on the seller‟s web site to create exactly the configuration of information, products, or services
they desire, and then order them on the spot.
For sellers, direct marketing is a powerful tool for building customer relationships. Using data
base marketing, today‟s marketers can target small groups or individual consumers, tailor offers
to individual needs and promote these offers through personalized communications. Direct
marketing can also be timed to reach prospects at just the right moment. Because of its one-to-
one, interactive nature, the internet is an especially potent direct-marketing tool. Direct
marketing also gives sellers access to buyers that they could not reach through other channels.
For example, the internet provides access to global markets that might otherwise be out of reach.
Finally, direct marketing can offer sellers a low-cost efficient alternative for reaching their
markets. As a result of these advantages to both buyers and sellers, directing marketing has
become the fastest growing form of marketing.
1. Elaborately explain Meaning and Significance of Promotion
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2. Briefly explain Objectives and Strategies of Sales Promotion
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3. Discuss the advantages and dis advantages of Personal Selling
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CHAPTER EIGHT
DISTRIBUTION
8.1. Introduction
The Ownership of a product has to be transferred somehow from the individual or
organization that makes it to the customer who needs and buys it. Goods also must
be physically transported from where they are produced to where they are needed.
Services ordinarily cannot be shipped but rather are produced and consumed in the
same place. Even before a product is ready for market, management should
determine what methods and routes would be used to get it there. This means
establishing strategies for the products: -
 Distribution channel and
 Physical distribution
Between producers and the final users stands a marketing channel, a host of marketing
intermediaries performing a variety of functions a variety of names. Some intermediaries such
as wholesalers, retailers - buy; take title to and resale the merchandise. Others -such as brokers,
manufacturer's representative, and sales agents - search for customers and may negotiate on the
producer's behalf but do not take title to the goods. The process of getting goods to customers
has traditionally been called physical distribution. Physical distribution starts at the factory.
Managers try to choose a set of warehouses (stocking points) and transportation carriers that will
deliver produced goods to final destinations in the desired time and/or at the lowest total cost.
8.2. Meaning and Significance of Distribution
Channel of distribution or trade channel is the path or route along which goods move from
producers to ultimate consumers or industrial users. In other words, it is the distribution network
through which a producer puts his product in the hands of actual users. The channel distribution
include the original producers, final buyer and middle men either wholesaler or retailer. The
term middle men refers to any institution or individual in the channel which either acquires the
title to the goods or negotiates or sells in the capacity of an agent or broker.
But facilitating agencies that perform or assist in marketing function are not including as middle
men in the channel of distribution. This is because they neither acquire title to the goods nor
negotiate purchase or sale. Such facilitating agencies include banks, railways, road ways,
warehouses, insurance companies, advertising agencies, etc.
Distribution role within a marketing mix is getting the product to its target market. The most
important activity in getting a product to market is arranging of its sale (and transfer of title)
from producer to final customer. Other common activities (or functions) are promoting the
product, storing it, and assuming some to the financial risk during the distribution process.
A producer can carry out these functions in exchange for an order (and, hopefully payment) from
a customer. Or producer and consumer can share these activities. Typically, however, firms
called middlemen perform some of these activities on behalf of the consumer or the producer.
A middleman is a business firm that renders services related directly to the sale/or purchase of a
product as it flows form producer to consumer. A middleman either owns the product at some
point or actively aids in the transfer of ownership. Often, but not always, a middleman takes
physical possession of the product. Middlemen are commonly classified on the bases of whether
or not they take title to the product being distributed. Merchant middlemen actually take title to
the products they help to market. The two groups of merchant middlemen are wholesalers and
retailers. Agent middlemen never actually own the products, but they do arrange the transfer of
title. Real estate brokers, manufacturer's agents, and travel agents are examples of agent
middlemen.
 Meaning of Distribution Channel
A distribution channel consists of the set of people and firms involved in the transfer of title to a
product as the product moves form producer to ultimate consumer or business user. A channel of
distribution always includes both the producer and the final customer for the product in its
present form as well as any middlemen such as retailers and wholesalers.
The channel for a product extends only to the last person or organization that buys it without
making any significant change in its form. When its form is altered and another product
emerges, a new channel is started. i.e. when lumber is milled and then made into furniture, two
separate channels are involved. The channel for the lumber might be lumber mill-broker-
furniture manufacturer. The channel for the furnished furniture might be furniture manufacturer -
retail furniture -store-consumer.
Beside producer, middlemen, and final customer, other institutions aid the distribution process.
Among these intermediaries are banks, insurance companies, storage firms, and transportation
companies. However, because they do not take title to the products and are not actively involved
in purchase or sales activities, these intermediaries are not formally included in the distribution
channel.
8.3. MARKETING INTERMIDIARIES AND THEIR FUNCTIONS
 How channel members add value

Why do producers give some of the selling job to channel partners? After all, doing so means giving
up some control over how and to whom the products are sold. The greater use of marketing
intermediaries results from efficiency in making products available to the target markets. Through
their contacts, experience, specialization, intermediaries usually offer the firm more than it can
achieve on its own.
Marketing intermediaries buy large quantities from many producers and break them down into
smaller quantities and broader assortments wanted by consumers. Thus, intermediaries play an
important role in matching supply and demand. Channel members add value by bridging the major
time, place and possession gaps that separate products from those who would use them. Some key
functions performed by marketing channel members are the following.
 Information- gathering and distributing marketing research and intelligence information

about actors and forces in the market environment.
 Promotion- developing and spreading persuasive communications about an offer.
 Contact- finding and communicating with prospective customers.
 Matching – shaping and fitting the offer to the buyer‟s needs including activities such as
manufacturing, grading, assembling and packaging.
 Negotiation- reaching an agreement on price and other terms of the offer so that the
ownership can be transferred.
 Physical distribution – transporting and storing commodities.
 Financing – acquiring and using funds to cover the costs of the channel work.
 Risk taking–assuming the risks of carrying out the channel work.

The question is not whether these functions need to be performed– they must be but who will
perform them. To the extent that the manufacturer performs these functions, its costs go up and
its prices must be higher. When these functions are shifted to intermediaries, the producer‟s costs
and prices may be lower, but the intermediaries must charge more to cover the costs of their
work.
 Channel Levels
The producer and the final customer are part of every channel. We will use the number of
intermediary levels to designate the length of a channel. Figure l5.3a illustrates several
consumer-goods marketing channels of different lengths.
A zero-level channel (also called a direct marketing channel) consists of a manufacturer selling
directly to the final customer. The major examples are door-to-door sales, home par· ties, mail
order, telemarketing, TV selling, Internet selling, and manufacturer-owned stores. Avon sales
representatives sell cosmetics door-to-door; Tupperware representatives sell kitchen goods
through home parties; Franklin Mint sells collectibles through mail order; Verizon uses the
telephone to prospect for new customers or to sell enhanced services to existing customers;
Time-Life sells music and video collections through TV commercials or longer "infomercials";
Red Envelope sells gifts online; and Apple sells computers and other consumer electronics
through its own stores.
 A one-level channel: - contains one selling intermediary, such as a retailer.
 A two-level channel: - contains two intermediaries. In consumer markets, these are

typically a wholesaler and a retailer.
 A three-level channel contains three intermediaries. In the meatpacking industry,

wholesalers sell to jobbers, who sell to small retailers. In Japan, food distribution mal'
include as many as six levels. From the producer's point of view, obtaining information
about end users and exercising control becomes more difficult as the number of channel
levels increases.
The most common channels for consumer goods, business goods, and services are described as
follows:
 Consumer Goods
Five channels are widely used in marketing tangible products to ultimate consumers:
a) Producer -------->Consumer
b) Producer --------> retailer -------> consumer
c) Producer --------> wholesaler --------> retailer------> consumer
d) Producer --------> agent --------> retailer --------> consumer
e) Producer---->agent---->wholesaler---->retailer---->consumer
 Business Goods
A variety of channels are available to reach organizations that incorporate the products into their
manufacturing process or use them in their operations. In the distribution of business goods, the
term industrial distributor and merchant wholesaler are synonymous. The four common
channels for business goods are: -
a) Producer--------> user
b) Producer--------> industrial distributor--------> user
c) Producer--------> agent--------> user
d) Producer ------->agent-------> industrial distributor------->user
 Services
The intangible nature of services creates special distribution requirements. There are only two
common channels for services:
a) Producer--------> consumer
b) Producer--------> agent--------> consumer
8.4. CHANNEL DESIGN AND MANAGEMENT
Designing a channel system calls for analyzing consumer service needs, setting the channel
objectives and constraints, identifying the major channel alternative and evaluating them.
Deciding on the best channel might not be a problem; the problem might simply be how to convince
one of a few good intermediaries to handle the line. Designing a channel system calls for analyzing
consumer needs, setting channel objectives, and identifying major channel alternatives and
evaluating those alternatives.
 analyzing consumer needs
Marketing channels are part of the overall value delivery network. Thus, designing the marketing
channel starts with finding out what target customers want from the channel. The following
questions may arise; do consumers want to buy from nearby locations or are they willing to travel
more distant centralized location?, would consumers buy in person, over the phone, through mail or
via email?, do consumers want many add-on services (credit, repair, installation, etc.) or will they
obtain these elsewhere?
The company must balance consumer needs not only against the feasibility and costs of meeting
these needs but also against customer price preferences.
 Setting channel objectives
Companies should state their marketing channel objectives in terms of targeted levels of customer
service. Usually a company can identify several segments wanting different levels of service. The
company should decide which segments to serve and the best channels to use in each case.
The company‟s channel objectives are influenced by the nature of the company, its products, its
marketing intermediaries, its competitors and the environment.
The company‟s size and financial situation determines which marketing functions it can handle itself
and which it must give to intermediaries. Companies selling perishable products may require direct
or shorter channels to avoid delays or changes of many hands.
Environmental factors such as economic conditions and legal constraints may affect channel
objectives and design. For example, in a depressed economy, producers want to distribute their
goods using shorter channels and dropping unneeded services that add to the final price.
 Identifying major channel alternatives
When the company has defined its channel objectives, it should next identify its major channel
alternatives in terms of types of intermediaries, the number of intermediaries and the responsibilities
of each channel member.
 Types of intermediaries
A firm beyond its own sales force can identify the types of channel members available to carry out
its channel work. (1) Manufacturers‟ representatives – are independent firms whose sales forces
handle related products from many companies in different regions or industries. (2)
distributors/resellers – independent organizations which purchase merchandises for reselling to other
customers.
 Number of channel members
A company‟s product may reach to final consumers through intensive distribution, selective
distribution or exclusive distribution.
Intensive distribution means stocking the product in as many outlets as possible. Producers of
convenience items and common raw materials typically seek intensive distribution. The products
must be available where and when consumers want them.
Selective distribution – it is the use of more than one but less than all, of intermediaries who are
willing to carry a company‟s products. By using selective distribution, companies can develop good
working relationships with selected channel members. Selective distribution gives producers good
market coverage with more control and less cost than does intensive distribution.
Exclusive distribution – the producer gives only a limited number of dealers the exclusive right to
distribute its products in their territories.
 Responsibilities of channel members
The producer and intermediaries should agree on terms like price policies, conditions of sales,
territorial rights and specific services to be performed by each party.
 Evaluating the major alternatives
Each alternative should be evaluated against economic, control and adaptive criteria.
Economic criteria: a company compares the likely sales, costs and profitability of different channel
alternatives.
Control criteria: using intermediaries usually means giving them some control over the marketing
of the product.
Adaptive criteria: channels often involve long-term commitments, yet the company wants to keep
the channel flexible so that it can adapt the environmental changes. Thus, to be considered, a channel
involving long-term commitments should be greatly superior on economic and control grounds.
Channel Management Decisions
Once the company has reviewed its channel alternatives and decided on the best channel design, it
must implement and manage the chosen channel. Channel management calls for selecting, managing
and motivating individual channel members and evaluating their performance over time.
 Selecting channel members
When selecting intermediaries, the company should determine what characteristics distinguish the
best ones. It will want to evaluate each channel member‟s years of business, other lines carried,
growth and profit records, size and quality of sales force, cooperativeness and reputation.
 Managing and motivating channel members
Once selected, channel members must continuously be managed and motivated to do their best. Most
companies see their intermediaries as first line customers and partners. In managing its channels, a
company must convince distributors that they can succeed better by working together as a part of a
cohesive value delivery system.
 Evaluating channel members
The producer must regularly check channel member performance against standards such as sales
quotas, average inventory levels, customer delivery time, treatment of damaged and lost goods,
cooperation in company promotion and services to customers.
The company should recognize and reward intermediaries who are performing well and adding good
value for consumers. Those who are performing poorly should be assisted or as a last option
replaced.
Desirability of eliminating the middlemen
You have already leant the role of middlemen above, which indicates the significance of middlemen
in the channel of distribution. Indeed without the existence of middlemen goods produced on a mass
scale could not have reached the consumers at the right time and place. However the existence of
middlemen may lead to several short comings. The elimination of middlemen is based on the
following grounds.
i. Excessive number: often there are too many middlemen between the manufacturers and
consumers. As a every middlemen charges some commission or profit, the ultimate
consumer has to pay a very high price for goods. They ate social parasites thriving at a
cost of consumer and their ultimate elimination will reduce prices and burden on
consumers.
ii. Superfluous: middlemen do not render any useful service in liou of profit or
commission. They act as only transfer agents and unnecessarily cause delay in the flow of
goods. Their eliminations will result in quick and smooth flow of goods.
iii. Limited risk taking: middlemen do not bear the producers risk such as lose due to
strikes, lockouts, depression and change in fashions and habits etc.
iv. Anti-social activities: they take undue advantage of adverse conditions in business.
Some business men or middlemen indulge in anti-social activities like hoarding and
adulteration to earn huge amounts to profits.
v. Limiting consumers’ choice: middlemen often promote products which are inferior in
quality and get high margin of profit. Thus they exploit consumers and limit their choice.
8.5. FACTORS AFFECTING MARKETING CHANNEL DECISIONS
A large number of channels of distribution are available to the manufacturer for bringing his
product to the ultimate consumer. From this vast number of potential distribution arrangements,
the marketing executive must screen those that may be appropriate for distribution of the product
at least expense per unit of merchandise and which secure the desired volume of sales. Efficient
distribution at the least cost and attaining the desired volume of sale can be secured only after
experience, study and analysis. The notice of the product, its unit value, its technical features, its
degree of differentiation from competitive products etc., is the factors which may limit the
number of potential channel alternatives. The best channel is one that works best in the
marketing strategy selected by the company. The channel chosen should achieve ideal market
exposure and should meet target customer‟s needs and preferences.
The channel choice is influenced by-
 Distribution Policy
 Product Characteristics
 Supply Characteristics
 Customer Characteristics
 Middlemen Characteristics
 Company Characteristics
 Environmental Characteristics
 Cost of Channel
 Distribution Policy
A firm‟s distribution policy may be of intensive distribution selective distribution or exclusive
distribution. Intensive distribution refers to maximum distribution though every possible type of
outlet. This policy requires the use of more than one channel to reach the target market with m
any intermediaries. Selective distribution is the sale of product through only those outlets which
will be able to sell more products. Exclusive distribution involves granting of exclusive rights to
the channel member to distribute the products. Thus the distribution policy of the firm decides
the choice of a channel.
 Product Characteristics
The product Characteristics such as the use of the product, its frequency of purpose,
perishability, value, the service required etc. decide the channel.
For example, perishable products require more direct marketing; convenience goods such as
soaps, match box which are frequently purchased and low unit value require long channel.
Shopping goods such as refrigerator require selective channel.
 Supply Characteristics
Small number of producers, geographically concentrated use short channel. If the number of
products are large, and geographically dispersed, they use long channel.
 Customer Characteristics
Customer characteristics such as their number, geographical dispersion, frequency and regularity
of purchase greatly influence the channel selection.
 Middlemen Characteristics
The choice of channel is also depends on the strengths and weaknesses of various types of
middlemen performing various marketing functions. Their behavioral differences, product lines,
the number and locations affect the choice of the channel.
 Company Characteristics
The choice of channel is also influenced by company characteristics such as its financial
position, size, product mix, past channel experience etc. The company marketing policies such as
speedy delivery, after-sales services etc. also influence the choice of channels.
 Environmental characteristics
Environmental characteristics such as economic conditions and law also influence the channel
selection. For example, when economic conditions are depressed the products prefer shorter
channels to reduce cost.
 Cost of Channel
As each channel will be doing some of the marketing functions, the cost of performing such
marketing functions at each distribution level and the total cost of performing the entire
marketing task has an influence in the choice of the channel. Those channels which ensure
efficient distribution at least expense and which secure the desired volume of sales should be
chosen.
1. Elaborately explain Marketing Intermediaries and their functions
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2. Briefly explain the Meaning and Significance of Distribution
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3. Briefly explain Factors affecting marketing channel decisions
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Principles of Marketing 2015 E.

Course name:- principles of marketing

Complied and Adapted by: - kedir Geletu [MA] in marketing management

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 1

NATURE AND SCOPE OF MARKETING

 Describe the basic concepts of marketing and marketing tasks

 Differentiate Philosophies of Marketing

 Outline the difference between marketing and market

 Discuss the importance of marketing

 Explain the scope of marketing

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 2

1.2.Definitions And Basic Concepts Of Marketing

 Needs, Wants and Demand

 Value, Cost and Satisfaction

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 3

 Exchange and Transaction

 Marketing Networks and Relationships

 Marketers and Prospects

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 4

There are certain conditions to be fulfilled for potential exchange to occur.

 The parties must be capable to communicate each other.

A transaction is a trade of values between two or more parties. It is an agreement between a

we call the first party a marketer & a second party a prospect.

engage in an exchange of values.

1.3.Evolutions And Philosophies Of Marketing

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 6

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 7

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 8

 Consumer determines price.

The salient features of the marketing concept are:

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 9

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 10

Importance of Marketing for an Individual

 Lastly, marketing probably relates – directly or indirectly – to your career aspirations. If

Importance of Marketing to Individual Organizations

The primary focus is on the performance of marketing in an organization. The variety of

This trend is accelerating due to the following two reasons:

 Increasing competition among non-profit organizations. For example, the competitor

Importance of Marketing to the Society

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 12

This will clearly indicates, employment in retailing, wholesaling, transportations, warehousing

Importance of Marketing to the Global Economy

 The economic development components of international organizations have produced

 Most nations today – regardless of their degree of economic development or their

Importance of marketing in General

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 13

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 14

1.5 Marketing Tasks

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 15

There are eight possible demand states:

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 16

1.6 Scope of Marketing

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 17

CHECK YOUR SELF HERE

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 18

 Define marketing environment

 Describe the internal and external marketing environment

 Differentiate Micro and Macro marketing environment

 Outline the elements of both micro and macro marketing environment

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 19

External Environment (Opportunities and Threats)

2.2. THE COMPANY’S MICROENVIRONMENT

Complied by Kedir Geletu [MA] In Marketing Management, Werabe University Page 20