UNIT -II

Operations Management
 PLANT LOCATION
Definition:

Plant location refers to the choice of region and the selection of a particular site for setting up a business or
factory.
But the choice is made only after considering cost and benefits of different alternative sites. It is a strategic
decision that cannot be changed once taken. If at all changed only at considerable loss, the location should be
selected as per its own requirements and circumstances. Each individual plant is a case in itself. Businessman
should try to make an attempt for optimum or ideal location.
What is an ideal location?
An ideal location is one where the cost of the product is kept to minimum, with a large market share, the
least risk and the maximum social gain. It is the place of maximum net advantage or which gives lowest unit
cost of production and distribution. For achieving this objective, small-scale entrepreneur can make use of
locational analysis for this purpose.
LOCATIONAL ANALYSIS
Locational analysis is a dynamic process where entrepreneur analyses and compares the appropriateness or
otherwise of alternative sites with the aim of selecting the best site for a given enterprise.
It consists the following:
(a) Demographic Analysis:
It involves study of population in the area in terms of total population (in no.), age composition, per capita
income, educational level, occupational structure etc.
(b) Trade Area Analysis:
It is an analysis of the geographic area that provides continued clientele to the firm. He would also see the
feasibility of accessing the trade area from alternative sites.
(c) Competitive Analysis:
It helps to judge the nature, location, size and quality of competition in a given trade area.
(d) Traffic analysis:

To have a rough idea about the number of potential customers passing by the proposed site during
the working hours of the shop, the traffic analysis aims at judging the alternative sites in terms of
pedestrian and vehicular traffic passing a site.

(e) Site economics:

Alternative sites are evaluated in terms of establishment costs and operational costs under this. Costs
of establishment is basically cost incurred for permanent physical facilities but operational costs are
incurred for running business on day to day basis, they are also called as running costs.
Two sites A and B are evaluated in terms of above mentioned two costs as follows:

Table: Comparative Costs of Alternative Locations

Costs Site A (Rs.) Site B (Rs.)

Cost of establishments:
Land and Buildings 350000 230000
Equipment 60000 60000
Transport facilities 2000 3000
Cost of operations:
Materials, freight and 34000 24000
carriage
Taxes and insurance 10000 7500
Labour 100000 70000
Water, power and fuel 10000 8000
Total 584000 429500
 The above cost statement indicates that site B is preferable to site A keeping in mind economic
considerations only although in some respects site A has lower costs. By applying the definition of
ideal location which is the place of maximum net advantage or which gives lowest unit cost of
production and distribution, site B would be preferred.

Factors affecting the plant location:

Decisions regarding selecting a location need a balance of several factors. These are divided into primary
factors and secondary factors; here both the factors can influence the business in the long run.
Primary factors
•Availability of raw materials: Availability of raw materials is the most important factor in plant
location decisions. Usually, manufacturing units where there is the conversion of raw materials into
finished goods is the main task then such organizations should be located in a place where the raw
materials availability is maximum and cheap.
•Nearness to the market: Nearness of market for the finished goods not only reduces the transportation
costs, but it can render quick services to the customers. If the plant is located far away from the markets
then the chances of spoiling and breakage become high during transport. If the industry is nearer to the
market then it can grasp the market share by offering quick services.
•Availability of labor: Another most important factor which influences the plant location decisions is
the availability of labor. The combination of the adequate number of labor with suitable skills and
reasonable labor wages can highly benefit the firm. However, labor-intensive firms should select the
plant location which is nearer to the source of manpower.
• Transport facilities:
In order to bring the raw materials to the firm or to carrying the finished goods to the market, transport facilities
are very important. Depending on the size of the finished goods or raw materials a suitable transportation is
necessary such as roads, water, rail, and air. Here the transportation costs highly increase the cost of production,
such organizations can not complete with the rival firms. Here the point considered is transportation costs must
be kept low.

• Availability of fuel and power: Unavailability of fuel and power is the major drawback in selecting a
location for firms. Fuel and power are necessary for all most all the manufacturing units, so locating firms
nearer to the coal beds and power industries can highly reduce the wastage of efforts, money and time due to
the unavailability of fuel and power.

• Availability of water: Depending on the nature of the plant firms should give importance to the locations
where water is available.
Secondary factors
• Suitability of climate: Climate is really an influencing factor for industries such as agriculture, leather, and
textile, etc. For such industries extreme humid or dry conditions are not suitable for plant location. Climate
can affect the labor efficiency and productivity.

• Government policies: While selecting a location for the plant, it is very important to know the local existed
Government policies such as licensing policies, institutional finance, Government subsidies, Government
benefits associated with establishing a unit in the urban areas or rural areas, etc.

• Availability of finance: Finance is the most important factor for the smooth running of any business; it
should not be far away from the plant location. However, in the case of decisions regarding plant location, it
is the secondary important factor because financial needs can be fulfilled easily if the firm is running
smoothly. But it should be located nearer to the areas to get the working capital and other financial needs
easily.
• Competition between states: In order to attract the investment and large scale industries various states offer
subsidies, benefits, and sales tax exemptions to the new units. However, the incentives may not be big but it
can help the firms during its start-up stages.

• Availability of facilities: Availability of basic facilities such as schools, hospitals, housing and recreation
clubs, etc can motivate the workers to stick to the jobs. On the other hand, these facilities must be provided
by the organization, but here most of the employees give preference to work in the locations where all these
benefits/facilities are available outside also. So while selecting plant location, organizations must give
preference to the location where it is suitable for providing other facilities also.

• Disposal of waste: Disposal of waste is a major problem particularly for industries such as chemical, sugar,
and leather, etc. So that the selected plant location should have provision for the disposal of waste.
 PLANT LAYOUT
Plant layout is a plan for effective utilization of facilities for the manufacture of products;
involving a most efficient and economical arrangement of machines, materials, personnel, storage
space and all supporting services, within available floor space.

“Plant layout is a plan of optimum arrangement of facilities including personnel, equipment’s,

storage space, material handling equipment and all other supporting services along with the decision
of best structure to contain all these facilities.”

Most of managers now realize that after the site for plant location is selected; it is better to
develop the layout and build the building around it – rather than to construct the building first and
then try to fit the layout into it.
Objectives of Plant Layout
• Minimize material handling
• Facilitate manufacturing progress by maintaining balance in the processes
• Maintain flexibility of arrangements and of operation
• Effective utilisation of men, equipment and space
• Minimize interference (i.e. interruption) from machines
• Reduce hazards affecting employees
• Hold down investment (i.e. keep investment at a lower level) in equipment.
 Principles of Plant Layout:

While designing the plant layout, the following principles must be kept in view:
(i) Principle of Minimum Movement:
Materials and labor should be moved over minimum distances; saving cost and time of
transportation and material handling.
(ii) Principle of Space Utilization:
All available cubic space should be effectively utilized – both horizontally and vertically.
(iii) Principle of Flexibility:
Layout should be flexible enough to be adaptable to changes required by expansion or technological
development.
(iv) Principle of Interdependence:
Interdependent operations and processes should be located in close proximity to each other; to
minimize product travel.
(v) Principle of Overall Integration:
All the plant facilities and services should be fully integrated into a single operating unit; to minimize cost of
production.
(vi) Principle of Safety:
There should be in-built provision in the design of layout, to provide for comfort and safety of workers.
(vii) Principle of Smooth Flow:
The layout should be so designed as to reduce work bottlenecks and facilitate uninterrupted flow of work throughout
the plant.
(viii) Principle of Economy:
The layout should aim at effecting economy in terms of investment in fixed assets.
(ix) Principle of Supervision:
A good layout should facilitate effective supervision over workers.
x) Principle of Satisfaction:
A good layout should boost up employee morale, by providing them with maximum work satisfaction.
Types of Plant Layout
There are four types of Plant Layout.

1. Process Layout (Functional Layout)

2. Product Layout (Line Layout)
3. Static Product Layout (Fixed Position)
4. Combination Layout (Hybrid Layout)
A typical process layout is depicted below:
Product layout is depicted below:
 Production Methods
Production is about creating goods and services. Managers have to decide on the most efficient
way of organising production for their particular product. There are three main methods of
Production.

Methods of Production

Job Batch Flow

Production Production Production
Job production
where items are made individually and each item is finished before the next one is started. Designer dresses are
made using the job production method.
It is where a single product is made at a time. The product is mostly based on the requirements of the customer. Job
production tends to be labour intensive, and often highly skilled labour is required. Examples include building ships,
bridges and buildings, handmade crafts like furniture and made-to-measure clothes.
Advantages:
• Unique, high quality products are made.
• Workers are often more motivated and take pride in their work.
• Products are made according to individual customer needs, hence improves customer satisfaction.
• Production is easy to organize.
Disadvantages:
• Very labour intensive, so selling prices are usually higher.
• Production can take a long time and can be expensive, for instance if special materials or tools are required.
• More expensive product.
• Unit costs are very high.
Batch Production:
where groups of items are made together. Each batch is finished before starting the next block of goods. For
example, a baker first produces a batch of 50 white loaves. Only after they are completed will he or she start
baking 50 loaves of brown bread.

In this type of production, products are made in batches. For example, a shoe factory could make different
batches of shoes based on the size and colour of them. This method is suited to products that are identical to each
other, but are only produced in limited quantities, or for a limited amount of time. Employees focus on one aspect
of production, so labour is not usually highly-skilled. Batch production can also allow for the use of automation.
Advantages
• Since larger numbers are made, unit costs are lower.
• Offers the customer some variety and choice.
• Materials can be bought in bulk, so they are cheap.
• Production is flexible since different batches are made.
• Workers specialize in one process.
• Batch production allows the use of division of labour and specialisation. Therefore, productivity is
increased and quality is improved.
Disadvantages:
• Workers are often de-motivated because the work becomes repetitive as they are specialize in one
production process only
• Goods have to be stored until they are sold, which is expensive.
• Initial set-up costs are high.
• Expensive to move products around the workplace. Storage space will be needed to store raw
materials. Expensive.
 Mass (Flow) Production
where identical, standardised items are produced on an assembly line. Most cars are mass-produced in large
factories using conveyor belts and expensive machinery such as robot arms. Workers have specialised jobs, for
instance, fitting wheels.
In mass production, large numbers of identical products are made. Production is often continuous, and is suited to
high demand, mass market products. Examples include cars, chocolate bars, and electronic goods.
Advantages
• Labour costs are usually lower.
• Materials can be purchased in large quantities, so they are often cheaper.
• Large number of goods are produced.
• Unit costs are relatively low.
Disadvantages
• Machinery is very expensive to buy, so production lines are very expensive to set up.
• Workers are not very motivated, since their work is very repetitive.
• Not very flexible, as a production line is difficult to adapt.
• If one part of the line breaks, the whole production process will have to stop until it is repaired, delaying the production process.
• Maintenance costs are very high.
• Expensive at first place.
Choosing a production method

The best method of production depends on the type of product being made and the size of the market.
Small firms operating in the service sector, such as plumbers, use job production because each customer has
individual needs. Niche manufacturers of items such as made-to-measure suits would also use job production
because each item they make is different.

Batch production is used to meet group orders. For example, a set of machines could be set up to make
500 size 12 dresses and then adjusted to make 600 size 12 dresses. Two batches have been made.

Flow production is used to mass produce everyday standardised (all the same) items such as soap powder
and canned drinks. Economies of scale lead to lower unit costs and prices. Not many small manufacturers can
afford the investment needed to mass produce goods. They instead opt for either batch or job production.
 Inventory Management
As per the APICS (American Production and Inventory Control Society) Dictionary,
“Inventory is defined as those stocks used to support production, such as raw material and Work in
Process, supporting activities, such as maintenance, repair, and operating supplies, and finally
Customer Service in the form of finished goods and spare parts.”
Inventory is all about ordering the right quantity of products and keeping track of all the
company’s goods, and storing them in an appropriate facility for easy retrieval while selling them.

Objectives of Inventory Management:

1. To supply the required materials continuously:
There should be a continuous available of materials in the factory or finished goods for trade. The
main objective of inventory management in to maintain required inventory so that production and
sales process run smoothly.
2. To minimize the risk of under and over stocking of material:
If a company keeps inventory without proper analysis, there will be a chance of overstocking, which
will increase the cost of carrying the inventory or under stocking of inventory that create problem in
smooth operation of a business. So one of the main objectives of the inventory management is to
minimize the risk caused due to under and over stocking of inventory.
3. To maintain systematic record of inventory:
management needs different information regarding inventory for planning and decision-making. A
systematic recodes of inventory helps provides such information to the management. It also assists to
evaluate the current inventory management policy.
4. To reduce losses, damages and misappropriation of materials:
inventory management aims to reduce or remove the losses and misappropriate of materials. This is
done by maintaining the proper stocks of materials with utmost care.
5. To minimize the cost associated with inventory:

The proper maintenance of the information regarding inventory helps to make decisions like whether to take
discounts or not, the size of order to be placed, when to order etc. the total cost associated with inventory may
be minimized by analysing the lot size to be acquired, the offer of discount on variable lot size and the timing of
order. Such analysis helps to reduce the unnecessary inventory in inventories.

6. To make stability in price:

An effective inventory management system minimizes the effects of regular price fluctuation. This is turn helps
to gain the stability is selling price
Inventory Control:
Inventory Control is the system by which inventory is managed. The recording of good as they
are received and as they are dispersed, so that an inventory balance maybe maintained and
periodically checked against a physical count.

Costs in Inventory:
1. Ordering Cost:
All the costs associated with placing an order , for purchase of items are classified under this category such as
administrative cost, stationary and postage charges, and other overhead expenses of purchase department.
2. Setup cost:
The setup cost includes all expenses both men and material, that are related to dismantling the old setup and
preparing for the new production run.
3. Carrying Cost:
The amount of expenditure incurred by items stored for future consumption is referred to as
Inventory Carrying Cost.
The Various components of this cost are:
a) Holding Cost: Normally, fund is borrowed to generate the inventory. The rate of interest on the
borrowed capital is used usually taken as a measure of holding cost.
b) Storage Cost: The cost of storing the items such as rent, insurance premium, maintenance
expenses ( preservation etc) is referred as storage cost.
c) Operational Cost: It includes physical handling, proper recording, Information processing,
Stock verification physically etc.,
4. Purchase Cost:
The purchase price for the items that are bought from outside sources referred as purchase cost.
Inventory control techniques:

PURCHASE PROCEDURE
Inventory
Control ECONOMIC ORDER QUANTITY
Techniques
ABC ANALYSIS
PURCHASE PROCEDURE:
Purchase is defined as “The activity responsible for getting the right material to the right place at the right
time in the right quantity at right price.
Procedure:
1. Purchase Requisition
2. Selection of Potential Suppliers
3. Making request for Quotations
4. Receiving and Analyzing Quotations
5. Selection of Right source of supply
6. Issuing of purchase Order
7. Follow-up and expediting the Orders
8. Coordination with production, Quality control and vendors
9. Maintenance of Records and Files
ABC ANALYSIS
ABC analysis is derived from the term “The Pareto Principle” named after an Italian economist Vilfredo
Pareto, also called 80/20 rule. This principle suggests that 80% of the total output is generated only by 20% of
the valuable efforts.

When it comes to stock or inventory management, ABC analysis typically segregates inventory into three
categories based on its revenue and control measures required: A is 20% of items with 80% of total revenue
and hence asks for tight control; B is 30% items with 15% revenue; whereas ‘C’ is 50% of the things with
least 5% revenue and hence treated as most liberal.

Any particular company’s numbers may be different but have a similar distinguishable pattern. This
analysis aims to draw managers’ attention on the critical few (A-items) and not on the trivial many (C-items)
and focusing its inventory control efforts on those particular items where it will have the most significant effect.
Economic Order Quantity
Economic order quantity (EOQ)

EOQ is a formula that helps calculate exactly how much inventory to order. It takes into account a
company’s typical demand, ordering costs and carrying costs to provide the most economical figure
possible:

Economic order quantity (EOQ), refers to the optimum amount of an item that should be ordered at
any given point in time, such that the total annual cost of carrying and ordering that item is
minimized. EOQ is also sometimes known as the optimum lot size. Simply put – how much product
should you purchase to maintain a cost-efficient supply chain?
EOQ formula
• Determine the demand in units
• Determine the order cost (incremental cost to process and order)
• Determine the holding cost (incremental cost to hold one unit in
inventory)
• Multiply the demand by 2, then multiply the result by the order cost. 
• Divide the result by the holding cost. 
• Calculate the square root of the result to obtain EOQ. 
• In short: EOQ = square root of (2 x D x S/H) or √ (2DS / H)
Where:
•D represents demand, or how many units of product you need to buy.
•S represents setup cost.
•H represents the holding fee or storage cost per unit of product.
Example of calculating EOQ
Meet Matt. Matt runs a men’s clothing line. Matt needs to buy 12,000
shirts per year to fulfill demand (D). He incurs a setup cost of $100 (S) and
a holding fee (H) of $16 per shirt. He needs to know his EOQ.
Plugging those numbers into the EOQ formula, you get:

EOQ = √ (2 x 12,000 x 100/16)

EOQ = √ $3,456,000 / $16
EOQ = √216,000
EOQ = 465 units (rounded up to the nearest whole unit)
 Marketing Management
Marketing refers to activities a company undertakes to promote the buying or selling of a product,
service, or good.

Kotler, Armstrong, Saunders and Wong, (2001:5), define marketing as: “A social and managerial process
by which individuals and groups obtain what they need and want though creating and exchanging
products and value with each other.”

Marketing Management identifies market opportunities and comes out with appropriate strategies for
exploring those opportunities profitably.

Marketing management is the process of planning and executing the conception, pricing, promotion, and
distribution of ideas, goods, and services to create exchanges that satisfy individual and organizational
goals.
Product Life Cycle
The product life cycle is the process a product goes through from when it is first introduced into
the market until it declines or is removed from the market.
The life cycle of a product is broken into four stages—
Introduction, 
Growth,
Maturity, and
Decline.
This concept is used by management and by marketing professionals as a factor in deciding
when it is appropriate to increase advertising, reduce prices, expand to new markets, or redesign
packaging.
 Functions of Marketing
1] Identify Consumer Needs
One of the first steps the company needs to take is to identify the needs and wants of the consumers
in the market. To do so they must gather information and analyse this information. Once you
understand your customer thoroughly you can base your product design on this information.
2] Planning
The next logical step would be to make a marketing plan. Firstly you must be very clear about the
objectives of the company and what it wishes to achieve. Then you figure out a timeline to achieve
these objectives. And finally, you plan the marketing strategy of your company accordingly.
3] Product Development
As per your consumer research, we then develop the product that suits the needs of the consumer.
The design of the product is also an important factor in many products. Like for example when
buying a car, the design will play a huge factor. There are other factors to be considered like cost,
durability etc
4] Standardization and Grading
Standardization means ensuring uniformity in the product. All customers must get the same product
of the same design and quality. And these standards need to be maintained throughout.
Grading is the process of classification of products according to similar characteristics and/or
quality. 
5] Packing and Labeling
The package and the label are the first impressions your product makes on the consumer so they are of
essential importance. They are not only to protect and identify the goods but are great marketing tools.
There is proof that an attractive package and label can go a long way in making a product a success.
6] Branding
One important decision the company has to make is whether they want the product to have an
individual identity in the market or they want it to be recognized by the brand name.
Certain brands enjoy incredible goodwill in the market and it can benefit the product. But you may also
want the product to have a separate identity so it can flourish on its own attributes.
7] Setting up Customer Support Services
Depending on your product there may be a variety of customer services that the company has to set up.
Pre-sales service, consumer helpline, maintenance services, technical support are just some of the services
that your product may require. These are important functions of marketing.
8] Pricing
This may be one of the most important functions of marketing. The price of a product will largely
determine its success or failure. Factors like demand, market conditions, competition prices etc will be
considered to come up with the correct pricing strategy.
One other thing the company must remember that prices of the products should not be changed too
frequently. This leads to confusion in the market.
9] Promotion
This is where you inform the customers of your product and persuade them to buy it. There are four major
promotion methods – advertising, personal selling, sales promotion and publicity. The company must
decide on its best promotion mix, a combination involving all or some of these four methods.
10] Distribution
Here the company must ensure the correct distribution channel for its product. It will depend on a variety
of factors such as the concentration of the market, shelf life of the product, company’s capital
requirements etc. Inventory management is another important factor the company must look into.
11] Transportation
The physical movement of the goods from its place of production to its place of consumption is
transportation. It is a very important function of marketing. The company must analyse the geographical
boundaries of its market. This will help them choose the correct modes of transportation.
12] Warehousing
As we have seen there is always a lag time between the production and the consumption of most goods.
Sometimes the products are seasonal or the supply is irregular or there are production difficulties. But
companies like to maintain a smooth flow of goods. So storage and warehousing of goods are necessary.
 Marketing Mix
A marketing mix is the set of marketing tools that a business uses to sell products or services to its target
customers.
Since the 1950s, the elements of marketing mix have undergone various transformations in response to
new technologies and other changes in marketing best practices.

The Four Ps of Marketing Mix:

PRICE:
The cost to purchase a product. Price depends on the customer's perceived value of the product, and it can dramatically change your 
marketing strategy. A lower price makes a product accessible to more customers, while a higher price appeals to customers seeking
exclusivity. Either way, the price must be greater than the cost of production so your business can make a profit.
PRODUCT:
What is being sold. Marketers must consider the life cycle of the product to address any challenges that may arise once it's in the hands of the
consumer. For example, the earliest version of the iPod had a battery life problem that was only noticeable after a certain amount of time, and
Apple needed to develop ways to combat that problem.

Promotion:

Advertising, direct marketing, and sales promotion. TV commercials, Internet ads, catalogs, trade fairs, billboards, and even ads on the top of
taxi cabs are all types of promotion. This category also includes public relations, such as the distribution of press releases or ongoing
relationships with the media. Promotion encompasses what is communicated, who it is communicated to, how that audience is reached, and
how often promotion happens.

Place:

Any physical location where the customer can use, access, or purchase a product. This includes distribution centres, transport, warehousing,
inventory decisions, and franchises.
The Seven Ps of the Marketing Mix
Sometimes, the four Ps are expanded to include the seven Ps. In addition to the usual four Ps, the seven Ps
include physical evidence, people, and process.
Physical evidence:
Anything tangible related to a product or the physical environment in which a service takes place. Physical
evidence may include product packaging, delivery receipts, signage, or the layout of a physical store.
People:
Employees, including those who interact directly with customers (such as sales, customer service, or
delivery people) as well as staff recruitment and training. This category includes how well employees
perform their jobs, how they appear to customers (for example, what their uniforms look like), and how
customers feel about their experience.
Process:
Anything within the organization that has an impact on how a product or service is handled by employees
and delivered to consumers. Some examples are the order in which employees must perform tasks, how
many queries salespeople receive and where they direct customers for help, or how performance is tracked
and measured. It also covers which parts of the process are standardized and which have room for
customization on a per-customer basis.
 Advertising & Sales Promotion
Definition of 'Advertising’:
Advertising is a means of communication with the users of any product or service. Rather,
advertisements are also the messages paid for by those who send them and are intended to inform or
influence people who receive them.
Sales Promotion: 
And if we talk about the word promotion that drives from the Latin word ‘Promoter’ means “to move
forward” or to push forward. Basically, sales and promotion are two different words and sales promotion is the
combination of these two words.
Advertising Sales Promotion Defined

Advertising positions a product or service against that of competitors to convey a brand message to
consumers and to enhance its value in the consumer's eyes. A television commercial for a brand new
automobile emphasizing the car's new features and styling is an example of advertising.

Advertising is a paid, non-personal sales communication usually directed at a large number of

potential buyers.
Types of advertising include:

Informative Advertising: Advertising approach intended to build initial demand for a good or service
in the introductory phase of the product life cycle.

Persuasive Advertising: Used in the growth and maturity stages of the product life cycle to improve
the competitive status of a product, institution or concept.

Comparative Advertising: Persuasive advertising approach in which direct comparisons are made
with competing goods or services.

Reminder-Oriented Advertising: Method used in the late maturity or decline states of the product
life cycle that seeks to reinforce previous promotional activity by keeping the name of the good or
service in front of the public.
The following are some of the most popular forms of advertising media:

• Newspapers: Can be costly so you want to reach the exact audience that will buy your product or
service. Avoid using small print if possible. You may be able to place an ad in the more affordable
weekly papers where you can run your ad by zip code.

• Television and Radio: Are typically expensive. The most popular stations are typically expensive.
Be sure to know your target audience and study the media kits to determine if the station reaches
that audience.

• Direct Mail: Can be either generated by you individually or can be a part of a co-op program such
as Val-Pak.

• Magazines and Trade Journals: Many have space available regionally.

• Outdoor Advertising: Including Billboards and Transit Ads or buses, cabs.

• Yellow Pages: This is possibly the first type of advertising you should purchase. A large ad is
not necessary, a listing is sufficient to let your potential customer know you are a valid
company, not a fly by night.
• The downfall with Yellow Page advertising is that it takes the customer directly to your
competition! Have a listing but be careful promoting it.
Internet, Website Or Banner Advertising
• Some lower cost advertising opportunities include co-op advertising programs where there
is a cost sharing arrangement between the manufacturer and the retailer, cable TV
advertising, and targeted direct mail postcards.
• You must track the effectiveness of your advertising efforts. You can use a special reference
code on your advertisements or ask each contact how they heard about you.
• Now that you have a basic understanding of the ins and outs of advertising, so let’s talk
about the sales promotions in detail.
Sales promotions

• Include a variety of strategies designed to offer purchasers an extra incentive to buy, usually in the short term.
Examples of sales promotions include cents off coupons, two for the price of one sale and double coupons at
the grocery store, all for a limited period of time.

• Include a variety of strategies designed to offer purchasers an extra incentive to buy, usually in the short term.
Examples of sales promotions include cents off coupons, two for the price of one sale and double coupons at
the grocery store, all for a limited period of time.

• Meanwhile, promotion is another important component of the marketing communications mix. It is

essentially a direct and immediate inducement. It adds extra value to the product and hence prompts the
dealer-consumer to buy the product.
According to American Marketing Association, “These marketing activities, other than personal selling,
advertising and publicity that stimulate consumer purchasing and dealer effectiveness such as display shows and
exhibitions, demonstrations and various non-recurrent selling efforts not in the ordinary routine”.

According to Philip Kotler, “Promotion encompasses all the tools in the marketing mix whose major role is
persuasive communication”.

Objectives of Sales Promotion:

Sales promotion is a vital bridge or a connecting link between personal selling and advertising.
•  To increase sales by publicity through the media which are complementary to press and poster advertising.
• 2. To disseminate information through salesmen, dealers etc., so as to ensure the product getting into
satisfactory use by the ultimate consumers.
• 3. To stimulate customers to make purchases at the point of purchase.
• 4. To prompt existing customers to buy more.
5. To introduce new products.
6. To attract new customers.
7. To meet competition from others effectively.
8. To check seasonal decline in the volume of sales.
Importance of Sales Promotion:
• The importance of sales promotion has increased tremendously in the modern times. Lakhs of rupees are
being spent on sales promotional activities to attract the consumers in our country and also in other
countries of the world.
• Some large companies have also begun to appoint sales promotion managers to handle miscellaneous
promotional tools. All these facts show that the importance of sales promotion activities is increasing at
a faster rate.
Sales Promotion Strategies
Sales promotion strategies can be divided into three broad types. These are –
• Pull Strategy – The pull strategy attempts to get the customers to ‘pull’ the products from the company. It
involves making use of marketing communication and initiatives like seasonal discounts, financial schemes,
etc.
• Push Strategy – The push strategy attempts to push the product away from the company to the customers. It
involves convincing the intermediary channels to push the product from the distribution channels to the final
consumers using promotional and personal selling efforts. This strategy involves making use of tactics
developed especially for resellers, merchants, dealers, distributors, and agents.
• Hybrid Strategy – A hybrid sales promotion strategy makes use of both the pull and push strategy to sell the
product with the least resistance possible. It involves attracting the customers using special coupons and also
providing incentives to the merchants to sell the brand’s products.
Types Of Sales Promotions

Sales promotion can be broadly divided into two types according to whom the promotion is targeted to.
These are –
1. Consumer Sales Promotion
When the sales promotion strategies are targeted to the end consumers, it is referred to as consumer
sales promotion. An example would be offering 20% off on certain products to the customers. The main
motive of consumer-oriented promotion is to increase sales directly by attracting new customers and
wooing existing ones.
Sales Promotion Techniques Targeted To Consumers
Sales promotion tools used for consumer-oriented promotion are –
• Free Samples: Distributing free samples increases brand awareness and triggers the 
psychology of ownership where the person chooses the promoted product if he liked the sample.
• Free Gifts – Offering free gifts attract customers as they get more while paying for less.
• Discounts/Discount Coupons – Discount coupons are a great method of increasing sales for the short
term. People go for discount coupons as they let them buy the products they couldn’t afford otherwise.
• Exchange Schemes – Exchange schemes attract many customers as they get some value even for their
old product.
• Finance Schemes – Finance schemes like no-cost EMI, low-interest EMI, etc. makes it easier for
customers to purchase expensive products.
• Shipping Schemes – Sometimes huge shipping costs discourage the customers from buying products.
Such short term shipping schemes remove friction.
• Bundle Discounts – These deals are a great way to reduce unsold inventory. It includes selling bundled
products at a price lesser than when those number of products are bought separately.
• Bulk Purchase Deals – This is a great sales promotion tactic to reduce unsold inventory. It includes
providing discount to customers who buy in bulk.
2.Trade Sales Promotion
When the promotion activities are strategized keeping in mind the dealers, distributors, or agents, it
is called trade sales promotion. In this type of sales promotion, offers are provided within the trade
channels with an aim to woo retailers, wholesalers, agents, or distributors. This is done to get more
shelf space as compared to competitors, motivate the dealers to sell more of the brand’s products and
to increase the sales indirectly.
Sales Promotion Techniques Targeted To Traders
• Point Of Purchase Displays – This includes providing free point of purchase (POP) display units
to the retailers to increase their sales.
• Trade Shows – Trade shows are a great sales promotion strategy where the business promotes its
product to thousands of traders in the trade show. Trade shows also witness huge discounts as
compared to when bought usually.
• Push Money – Also known as spiffs, this technique includes extra payments to traders to motivate
them to meet specified goals. For example, giving them a $50 bonus per unit for selling product A
and $30 for selling product B for a specified time period.

• Deal Loaders – These are the gifts provided to the traders (wholesalers and retailers) for ordering
a certain quantity of product.

• Trade Deals – These are special concessions provided to the merchants to encourage them to
promote a specific product and increase its sales for a limited time period.

• Buying Allowances – Special discounts provided to the sellers when they order a specified
number of products.
Sales Promotion Examples
A product can be promoted for a limited time using innumerable tactics. Here are a few examples of
sales promotion tactics that exist –
Black Friday Sale
Black Friday sale is a seasonal sale which occurs only once a year. It involves huge discounts and
special offers which are limited to a day. As a result, it increases the sales manifold.
Buy One Get One
Buy One Get One (BOGO) is a popular type of sales promotion where two products are offered at a
price of one. This works great to promote a new product or clear the inventory at the end of the
season.
Referral Bonuses
Referral marketing is a great sales promotion strategy where the company pushes its own customers
to bring in new customers. This is done by providing them with special discounts, offers, cashback,
or actual monetary benefits.