Essentials of Marketing

ESSENTIALS OF MARKETING(FROM PRODUCT PLANNING TILL PHYSICAL DISTRIBUTION)

PRODUCT & PRODUCT PLANNING

A PRODUCT is anything that can be offered to a market to satisfy a want or a need

The fundamental level is the CORE BENEFIT-the service or benefit, the customer is really buying e.g. A hotel guest is buying “eat & sleep”

At the second level, the core benefit turns into BASIC PRODUCT.e.g towel,desk,dresser,wardrobe etc

• At the third level, we have the EXPECTED PRODUCT –a set of attributes & conditions buyers normally expect when they purchase this product e.g. clean bed, working lights, fresh towels

At the fourth level, AUGMENTED PRODUCT is prepared where the product attributes exceed expectations. At this level brand positioning & competition takes place.

At the fifth level, we have the POTENTIAL PRODUCT, which encompasses all the possible augmentations & transformations the product or offering might undergo in future.

PRODUCT CLASSIFICATIONSDURABILITY & TANGIBILITY

A. NON-DURABLE GOODS-are tangible goods normally consumed in one or a few uses like soap. These goods are made available at main locations & advertised heavily.

B. DURABLE GOODS – are tangible good that normally survive many uses, e.g. refrigerator, clothing etc. Require more personal selling and service and command high margins.

C. SERVICES –intangible, inseparable, variable & perishable products e.g. haircut, consulting services & service stations.

PRODUCT CLASSIFICATIONSCONSUMER GOODS CLASSIFICATIONS

• CONVENIENCE GOODS – are goods which the consumer usually purchases frequently, immediately, & with minimum of efforts, e.g. staples, newspaper, soaps etc.

A. STAPLES GOODS: are goods consumers purchase on a regular basis, e.g. biscuits, soaps, toothpaste etc.

B. IMPULSE GOODS – are goods which are purchased without any search efforts, e.g. chocolates, potato chips, sweets etc.

C. EMERGENCY GOODS – are goods which are purchased when a need is urgent, e.g. warm clothing in winters, umbrella during rains.

• SHOPPING GOODS – are good that the consumers in the process of selection & purchase, characteristically compares on such parameters as suitability, quality, price, & style e.g. electrical appliances, furnitures, clothing etc.

A. HOMOGENEOUS SHOPPING GOODS – are similar in quality, but different in price to justify shopping comparisons.

B. HETEROGENOUS SHOPPING GOODS – differ in product features & services that may be more important than price.

• SPECIALITY GOODS – these good have unique characteristics for which a sufficient no. of buyers are willing to make a special purchasing effort, e.g. high priced cars, stereo equipments, cameras etc.

• UNSOUGHT GOODS – are those good that the consumer does not know about or does not normally think of buying, e.g. insurance, reference books, smoke detectors etc.

PRODUCT CLASSIFICATIONSINDUSTRIAL GOODS CLASSIFICATIONS

• MATERIALS & PARTS-are goods that enter the manufacturer’s products completely .A) Raw Materials-Farm Products & Natural ProductsB) Manufactured Materials & Products-Components Materials-are usually fabricated

further. Key purchase factors are price & supplier reliability. Component Parts enter the finished product with no further change in form• CAPITAL ITEMS-are long lasting goods that facilitate developing or managing the

finished product.A. Installations-consist of buildings & heavy equipmentsB. Equipments-comprises portable factory equipment and tools and office equipment.• SUPPLIES & BUSINESS SERVICES-are short term goods and services that facilitate

developing or managing the finished products.A. Maintenance & Repair Items e.g.-paints,nails,broomsB. Operating Supplies e.g-lubricants,coals,writing paper, pencils

PRODUCT MIX

• A Product Mix also called a Product Assortment is the set of all products and items a particular seller offers for sale.

• WIDTH-of a product mix refers to how many different product lines the company carries.

• LENGTH-of a product mix refers to the total number of items in the mix.

• DEPTH-of a product mix refers to how many variants are are offered of each product in the line.

• CONSISTENCY-of the product mix refers to how closely related the various product lines are in end use,productionrequirements,distribution channels or in some other way.

PRODUCT MIX FOR HUL

• Personal Laundry Skin Hair Oral Deo Color Tea Coffee Food Ice

Wash Care Care Cosmet Cream -ics Lux Surf Fair Sun Pepso Axe Lakme Brooke Bru Kisan Kwa Lifebuoy Excel & Lovely -silk –dent Rexona Bond Knorr lity Liril Rin Pond’s Clinic Close up Lipton Annap Himani Wheel -urna Breeze Dove Pears Rexona

PRODUCT DIFFERENTIATION

• Products have to be differentiated for being branded.• Some products like edibles have little differentiation, but products

like cars, furniture ,buildings are capable of high differentiation.

Products can be differentiated on the following parameters:

a) FORMS

b) FEATURES

c) PERFORMANCE QUALITY

d) CONFORMANCE QUALITY

e) DURABILITY

f ) RELIABILITY

g) REPAIRABILITY

h) STYLE


• FORMS-Many products can be differentiated in size, shape or physical structure of a product.

• FEATURES-Most products can be offered with varying features that supplement its basic functions. Appropriate new features can be identified and selected by companies by surveying buyers & calculating customer values versus company costs

• PERFORMANCE QUALITY-is the level at which the product’s primary characteristics operate. The performance level can be low,average,high & superior.

• CONFORMANCE QUALITY-is the degree to which all the produced units are identical & meet the specifications.

• DURABILITY-is a measure of the product’s expected life under natural or stressful conditions.


• RELIABILITY-is a measure of the probability that a product will not malfunction or fail within a specified time period.

• REPAIRABILITY-is a measure of the ease of fixing a product when it malfunctions or fails. Ideal reparability would exist if users could fix the product themselves with little costs in money or time.

• STYLE-describes the product’s look & feel to the buyer. It has the advantage of creating disintinctiveness that is difficult to copy.

PRODUCT PLANNING

According to CANNON & WITCHERT Product Planning is the inclusion of all activities conducted by manufacturers and producers in the discovery and development of new products-the improvement of all products, the determination of new uses for existing products and the reduction of product & packaging costs.

Product Planning has the following components

a) Product Innovation

b) Product Diversification

c) Product Standardization

d) Product Elimination

PRODUCT PLANNING & NEW PRODUCT DEVELOPMENT

• Decisions about new product development: Innovation is the design & development of something new, as yet unknown & not in existence which will establish a new economic configuration out of the old, known existing elements. The innovative product may present itself in the following forms:

a) a new product to the firm but not to the market

b) a different size

c) a different physical form

d) an improved version

e) a new package

f) an altogether new product

NEW PRODUCT DEVELOPMENT

• Companies need to increase their revenue over time by developing new products & expanding into new markets. New product development shapes the company’s future; improved or replacement products will maintain or build sale

• Six Categories of new products are identified:

New to the world products-New products that create an entirely new market.

New product lines-New products that allow a company to enter an established market for the first time.

Additions to existing product lines-New products that supplement established product lines(package sizes, flavors etc

Improvements & revisions of existing products-New products that provide improved performance or greater perceived value & replace existing products.

Repositioning-Existing products that are targeted to new markets or market segment

Cost Reductions-New products that provide similar performance at lower cost.

STAGES IN NPD

• IDEAS GENERATION: NPD starts with the search for ideas which can come about from interacting with various groups & from using creativity generating techniques.

• IDEAS SCREENING:Is the product compatible with company objectives, strategies & resources?

• CONCEPT DEV & TESTING: Can we find a good concept about which the consumers say that they would try?

• MKTG STRATEGY DEV:Can we find a cost effective affordable mktg strategy?

• BUSINESS ANALYSIS :Will this product meet our profit goal?• PRODUCT DEVELOPMENT: Have we got a technically & commercially

sound product?• MARKET TESTING; Have product sales met expectations?• COMMERCIALISATION: Are product sales meeting expectations?

PACKAGING

• Packaging is defined as all the activities of designing & producing the container for a product. It may include primary package, secondary package & a shipping package.

• FUNCTIONS & OBJECTIVES:• It identifies the brand.• It conveys descriptive & persuasive information• It facilitates product transportation & protection.• It assists at-home storage• It aids product consumption

TRAITS OF GOOD PACKAGING

Aesthetic considerations should be made in respect of:

COLOR;MATERIAL;SIZE;SHAPE;TEXT;GRAPHICS

Structural design & usage of appropriate packaging material should be good

Packaging elements must be harmonized with decisions on pricing,advtg & other parts of mktg program.

LABELLING

• According to Stanton ‘The label is that part of a product which carries verbal information about the product or the seller. It may be a part of package or it may be a tag attached directly to the product.

• There are three types of labeling • A) BRAND LEVEL: is applied to the product or to the product &

mentions the brand names or marks.• B) GRADE LEVEL: identifies a quality which is depicted either by a

letter or number or word.• C) DESCRIPTIVE LABEL: gives careful information about the

use,care,performance,construction,ingredients or other characteristics of the product. It gives the brand name, name & address of the producer,weight,ingredients,directions for proper use, cautionary measures, special care of the product, nutritional guidelines,date of packing & expiry, retail price & unit price.

STANDARDIZATION

• According to Duddy & Rezvan:A standard is a measure that is generally accepted as having a fixed value. The measure is in units of intrinsic qualities or characteristics of a product or a service.

• Standardization may be defined as the determination of basic limits or grades in the form of specifications to which manufactured goods must conform & classes into which the products of agriculture & the extractive industries may be sorted.

• Indian Standards Institution (ISI) now BIS (Bureau of Indian Standards)

• The ISI was established in 1947 & the main objects are:• preparation of standards relating to products,commodities,materials &

processes & their promotion for adoption.• Coordination of the efforts of producers & users for the improvement of

materials,products,appliances,processes & methods• Certification of industrial & other products.

STANDARDIZATION

• Certification of industrial & other products• Helping in the production of quality goods• Circulation of information relating to standardization• Bringing about variety reduction for achieving economies in

production

GRADING

• Grading is the division of products into classes made up of units possessing similar characteristics of size & quantity.

• Types of Grading: passed i• Fixed Grading-Grading on the basis of fixed standards and• Variable Grading-Grading on the basis of varying standards• AGMARK/FPO• The Agricultural Produce (Grading & Marketing) Act was passed in

1937 with a view to removing the malpractices prevalent in the field of marketing, in general and grading & standardization practices in particular. This act was amended in 1943 to widen its scope and to include additional products.AGMARK standards have been finalised for 157 commodities.

BRANDING

• Brand is defined as 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

• Functions of Branding:

a) It identifies the source or maker of a product and allows consumers to assign responsibility to a particular manufacturer or distributor.

b) They simplify product handling or tracing

c) They help to organize inventory & accounting records.

d) A brand also offers the firm legal protection for unique features or aspects of the products.

e) Brands can signal a certain level of quality so that satisfied buyers can exactly choose the product again.

BRANDING

f) Consumers may evaluate the identical product differently depending on how it is branded.

g) Consumers learn about brands through past experiences with the product & its marketing program. This simplifies decision making and reduces risk.

h) Although competitors may easily duplicate manufacturing processes & product designs they cannot easily match lasting impressions in the minds of individuals and organizations from years of marketing activity and product experience thus securing a competitive advantage for the firm.

BRANDING

• Advantages of a brand

a) Improved perceptions of product performance

b) Greater Loyalty

c) Less vulnerability to marketing crisis.

d) Larger margins

e) More inelastic consumer response to price increases

f) More elastic consumer response to price decreases.

g) Greater trade cooperation & support

h) Increasing marketing communications effectiveness

i) Possible licensing opportunities

j) Additional brand extension opportunities

BRAND EXTENSION

• When firms decide to leverage their brand asset by introducing a host of new products under some of their strongest brands then this action is named as Brand Extension.

• When a brand is combined with an existing brand, the brand extension is called a sub brand e.g. Amul Probiotic Curd,Maruti Esteem cars,etc

• The existing brand that gives birth to a brand extension is referred to as the parent brand

• If the parent brand is already associated with multiple products through brand extensions, then it is called as the family brand.

• Brand extension can be classified into Line Extension & Category Extension

BRAND EXTENSION

• In a Line Extension, the parent brand is used to brand a new product, that targets a new market segment within a product category currently served by the parent brands such as new flavors,forms,colors,added ingredients and package sizes.e.g Lifebuoy Active Red, Lifebuoy Active Orange,International Plus.

• In a Category Extension, the parent brand is used to enter a different product category from that currently served by the parent brand like Honda cars,mobikes,snowmobiles,marine engines etc.

• ADVANTAGES:• Two main advantages of brand extensions are that they can

facilitate new product acceptance as well as provide positive feedback to the parent brand & company.

BRAND EXTENSION

• It assists consumers in making inferences & forms expectations as to the likely composition & performance of a new product based on what they already know about the parent rand itself and the extent to which they feel this information is relevant to the new product.

• Because of the potentially increased consumer demand, resulting from introducing a new product as an extension, it also may be easier to convince retailers to stock and promote a brand extension.

• From the communications perspective, an introductory campaign for an extension does not have to create awareness of both the brand & the new product but instead can concentrate on the new product itself.

• It can result in reduced costs of the introductory launch campaign.• It allows for packaging & labeling efficiencies and results in lower production

costs.• By offering consumers a portfolio of brand variants within a brand category,

consumers21 can also switch to a different product type without leaving the brand family.

BRAND EXTENSION

• It helps to clarify the meaning of a brand & its core brand values or improve consumer perceptions of the credibility of the company behind the extension.

• Line Extensions can renew interest & liking for the brand & benefit the parent brand by expanding market coverage.

Disadvantages: • Line Extensions may cause the brand name to not be as strongly identified with any

one product. This leads to brand dilution which means that consumers no longer associate a brand with a specific product or highly similar products & start thinking less of the brand.

• Different varieties of line extensions may confuse & even frustrate consumers resulting in rejecting of new extensions for “tried & true” favorites or all purpose versions

• Even if sales are high it is possible that this revenue may have resulted from consumers switching to the extension from existing product offerings of the parent brand-in effect cannibalizing the parent brand.

• By introducing a new product as a brand extension, the firm foregoes the chance to create a new brand with its own image & equity.

• When several brands are marketed in the same product category and meets a different consumer want and competes against specific competitors’ brands, this branding is called as multiple branding.

BRAND POSITIONING

• POSITIONING is the act of designing the company’s offerings & image to occupy a disintinctive place in the mind of the target market. This was popularized by “Al Ries & Jack Trout.

• Advantages of Brand Positioning: A good brand positioning helps guide marketing strategy by clarifying the brand’s essence, what goal it helps the consumer achieve & how it does so in a unique way.

• The result is the successful creation of a customer focused value proposition.

• COMPETITIVE FRAME OF REFERENCE• A starting point in defining a competitive frame of reference for a brand

positioning is to determine category membership-the products or set of products with which a brand competes and which function as close substitutes.

POINTS OF PARITY

• POINTS OF PARITY & POINTS OF DIFFERENCE:

• POPs are associations that are not necessarily unique to the brand but may in fact be shared with other brands. These associations come in two basic forms: category & competitive.

• Category POPs are associations consumers view as essential to be a legitimate & credible offering within a certain product or service category.e.g Consumers might not consider a travel agency a truly travel agency unless it is able to make air & hotel reservations, provide advice about leisure packages and offer various ticket payment and delivery options.

• Competitive POPs are associations designed to negate competitors’ points of difference.If,in the eyes of consumers, the brand associations designed to be the competitor’s point of difference is as strong for a brand as for a brand as for competitors and the brand is able to establish another associations as strong, favorable & unique as part of its point of its points of difference, then the brand should be in a superior competitive position.

•

POINTS OF DIFFERENCE

• POD are attributes or benefits consumers strongly associate with a brand, positively evaluate me and believe that they could not find to the same extent brand. Strong, favorable and unique brand associations that make up points of difference may be based on virtually any type of attribute or benefit.

• Choosing POPs & PODs• POPs are driven by the needs of category membership & the of negating

competitors’ PODs. In choosing PODs two important considerations are that consumers find the POD desirable and that the firm has the capabilities to deliver on the POD.

• Relevance: Target consumers must find the POD personally relevant & important.

• Distinctiveness: Target consumers must find the POD distinctive & superior. When entering a category where there are established brands,the challenge is to find a viable basis for differentiation.

DIFFERENTIATION STRATEGIES

• PRODUCT DIFFERENTIATION:• Brands can be differentiated on basis of product forms, features,

performance,conformance,durability,repairability,style,design.• Brands can be differentiated on service dimensions as ordering

ease,delivery,installation,customer training, consulting, maintenance & repair.

PERSONAL DIFFERENTIATION:• Products can be sold through direct selling.• Better trained personnel exhibit – Competence,Courtesy,Credibility,

reliability,responsiveness,communication ability.e.g Eureka Forbes• CHANNEL DIFFERENTIATION :• Companies can achieve competitive advantage through their distribution

channels’ coverage, expertise & performance. `

DIFFERENTIATION STRATEGIES

• IMAGE DIFFERENTIATION• Buyers respond differently to company & brand images.• IDENTITY: is the way a company aims to identify or position itself or its

products.• IMAGE: is the way the public perceives the company or its products.• An effective identity does three things:• It establishes the product’s character & value proposition.• It conveys this character in a distinctive way.• It delivers emotional power beyond a mental image.

PRODUCT LIFE CYCLE(PLC)

• Products have a limited life• Product sales pass through distinct stages, each posing different

challenges, opportunities and problems to the seller.• Profits rise & fall at different stages of the product life cycle.• Products require different mktg,financial,manufacturing,purchasing & human

resource strategies in each life cycle stage.

• Sales & Profits

• Introduction Growth Maturity Decline

PRODUCT LIFE CYCLE

• Most PLC curves are portrayed as bell shaped and is divided into four stages:

1. Introduction-A period of slow sales growth as the product is introduced in the market. Profits are non existent because of heavy expenses of product introduction.

2. Growth-A period of rapid market acceptance and substantial profit improvement.

3. Maturity-A slowdown in sales growth because the product has achieved acceptance by most potential buyers. Profits stabilize or decline because of increased competition.

4. Decline: Sales show a downward drift and profits erode.

PRODUCT LIFE CYCLE

• Marketing Strategies-Introduction Stage: Profits are low or negative in this stage.

• The market pioneer gains the most advantage. In a study by Carpenter & Nakamoto, it was found that 19 out of 25 companies who were market leaders in 1923 were still market leaders in 1983.

• Early users will recall the pioneers brand name if the product satisfies them. The pioneer’s brands normally ails at the middle of the market & so captures more users.

• Pioneers can have more effective marketing spending & enjoy higher rates of consumer repeat purchases.

• The pioneer should visualize the various product markets it could initially enter & analyze the profit potential of each product market singly & in combination & decide on a market expansion path.

PRODUCT LIFE CYCLE

• Marketing Strategies: Growth Stage:• This stage is marked by a rapid climb in sales. Early adopters like the

product and additional consumers start buying it.• Prices remain where they are or fall slightly, depending on how fast demand

increases.• Sales rise much faster than promotional expenditures, causing decline in

promotion-sales ratio.• The firm in this stage uses the following strategies:• a) It improves product quality & adds new products features & improved

styling.• b) It adds new models & flanker products (i.e. products of different sizes,

flavors etc that protect the main product.• c) It enters new market segments.• d) It increases its distribution coverage & enters new distribution channels.

PRODUCT LIFE CYCLE

• Marketing Strategies: Growth Stage:• It shifts from product awareness advertising to product preference

advertising.• It lowers price to attract the next layer of price sensitive buyers.• Marketing Strategies: Maturity Stage:• This stage is divided into three phases:growth,stable & decaying maturity.• In the first phase, the sales growth rate starts to decline. There are no

distribution channels to fill.• In the second phase, sales flatten on a per capita basis because of market

saturation. Future sales are governed by population growth & replacement demand.

• In the third phase, decaying maturity, the absolute level of sales starts to decline & customers begin switching to other products.

PRODUCT LIFE CYCLE

• Some companies abandon weaker products & concentrate on more profitable products & on new products.

• MARKET MODIFICATION: A company might try to expand the market for its mature brand by working with the two factors that makes up the sales volume;

Volume=no of brand users*usage rate per user.• It can try to expand the number of brand users by converting non users.• It can also try to expand the number of brand users by entering new market

segments.• It can expand the number of brand users by winning competitors’

customers.• It can convince existing users to increase their brand usage to increase the

sales volume.1) To use the product on more occasions.2) Use more of the product on each occasion3) Use the product in new ways.

PRODUCT LIFE CYCLE• PRODUCT MODIFICATION: The company also tries to stimulate sales by

modifying the product’s characteristics through-• Quality Improvement: It aims at increasing the product’s functional performance.

This strategy is effective to the extent that the quality is improved, buyers accept the claim of improved quality & a sufficient number of buyers will pay for higher quality.

• Feature Improvement: It aims at adding new features like size,weight,materials,additives that expand the product’s performance,versatility,safety or convenience. New features build the company’s image as an innovator & win the loyalty of market segments that value these featurs.But the disadvantage is that the features are easily imitated.

• Style Improvement: It aims at increasing the product’s aesthetic appeal. This gives the product a unique market identity. The disadvantage is that it is difficult to predict whether people would like the new style. A style change usually requires discontinuing the old style and the company risks losing customers.

PRODUCT LIFE CYCLE

• MARKETING PROGRAM MODIFICATIONS: The company might also try to stimulate sale by modifying other marketing program elements.

• Prices-Would a price cut attract new buyers? If so, then either through volume sales or early purchase discounts, freight cost absorption, or easier credit terms.

• Distribution: Can the company obtain more product support & display in existing outlets? Can more outlets be penetrated? Can new distribution channels be adopted?

• Advertising: Should advertising expenditures be increased? Should the media mix,message,copy timing, frequency or size of ads be changed?

• Sales Promotion: Should the company step up sales promotion?• Personal Selling: Should the no or quality of salespeople be increased?

Should the basis for sales force specialization be changed?• Services: Can the company speed up delivery? Can it extend more

technical assistance to customers?Canit extend more credit?

PRODUCT LIFE CYCLE

• Marketing Strategies- Decline Stage: Sales decline due to technological advances, shifts in consumer tastes & increased domestic & foreign competition.

• As sales & profits decline, some firms withdraw from the market. Some may reduce the no of products they offer and cut on their promotional budgets.

• Five strategies are available to the firm:

1) Increasing the firm’s investment to dominate the market or strengthen its competitive position.

2) Maintaining the firm’s investment level until the uncertainties about the industry are resolved.

3) Decreasing the firm’s investment level selectively, by dropping unprofitable customer groups, while simultaneously strengthening the firm’s investment in lucrative niches.

4) Harvesting the firm’s investment to recover cash quickly.

5) Divesting the business quickly by disposing of its assets as advantageously as possible

PRODUCT LIFE CYCLE

• Limitations:Life cycles patterns are too variable in shape & duration.• Marketers can seldom tell what stage the product is in.• A product may appear to be mature when actually it has reached a plateau

prior to another upsurge.• The PLC pattern is the result of marketing strategies rather than an

inevitable course that sales must follow

PRICING

• As per economists, price is the exchange value of a product. From the consumers' point of view, price is an agreement between seller & buyer concerning what each is to receive. The price is the mechanism for translating into quantitative term the perceived value of the product to the consumer.

• A well known authority Pyle opines, "Normal Price is that price at which goods & services would change ownership if free & unrestricted competition prevailed; if accurate market information were distributed promptly & uniformly among both buyers & sellers; if all buyers & sellers were equally aggressive, shrewd & exercised good segment with reference to present & future conditions of supply & demand were so flexible that these two controlling elements of price could be brought readily could be brought readily into equilibrium.”

• Market Price is the price determined by free play of demands & supply. It is the price which affects the price paid to the factors of production.e.g.rent paid to the landlords ,wages paid to the labourer,interest paid to the capitalists & profits paid to the entrepreneurs. Thus this price becomes the regulator of the whole economic system. The tends in the prices affect the payoffs payable to the factors of production. If there is a rising trend in prices, the interest,wages,rent & profit are paid to the factors at an increased rate. On the contrary, the negative trends in prices bring a direct reduction in the payoffs to the factors of production.

PRICING

• OBJECTIVES OF MARKETING-1) Market Penetration Objectives-is meant for setting of a relatively low price mainly to secure a

large share of the market. When any marketer is of the view that they have no alternatives for penetrating the market or for entering a highly sophisticated competitive market, they continue their business without making any profit. In this objective, the unit cost of production & distribution start decreasing, specifically when the level of sales attain a particular target. This is applicable at the initial stages of entering the market & secure a large share of the market by deliberately setting low prices.

2) Market Skimming Objective- In this objective, some of the entrepreneurs study the buyer’s needs & make efforts to provide to them the required goods, but charge higher prices for them. The entrepreneurs prefer making profits over a short time. The ultimate object of the firm is to maximize the rate of profit and the prices are exceptionally high. In this market, the magnitude of competition is very low & the price is minimized if rates are increased by the competitors. But this objective, is not meaningful particularly when the consumers do not adopt the price index or refuse to purchase the goods at the prices fixed by the producers. This works under the following conditions:1) A sufficient number of buyers have a current demand2) the unit costs of producing a small volume are not so high that they cancel the advantage of charging what the traffic will bear3)the high initial price does not attract more competition to the market.4) the high price communicates the image of a superior product.e.g. Sony introduced its CTVin India of Wega model at Rs.18,990in 2001 & reduced to Rs.12.990/- in 2004-05.

PRICING

3) Target Rate of Return Objective-In this, there may be two criteria viz;investment & sales.

a) Targeted Rate on Investment-In this regard, the producers attempt to get handsome dividends in return on the capital invested The main objective of price setting is to get adequate return of investment. Only companies having outstanding reputation in the market can adopt this strategy. The target return price is given by the following formula:

Target-return price=unit cost + desired return * invested capital

unit sales

b) Targeted Return on Sales-This objective of pricing is generally preferred by middlemen who want a specific return on the goods sold.

4) Competition Objective-The trends in competition also determines what strategy the company would like to adopt. The company may like to face competition or may like to be out of it.

b) To follow Competition Objective-is suitable when similarities exist in goods of different producers. The company takes decisions in the background of emerging trends in competition. The cost element has a correlation with trends in competition.

c) To prevent Competition Objective-In this the prices are kept abnormally low to check the number of new firms entering the market. The rival competitors are discouraged with the objective of pricing and those companies which have established leadership in the market, adopt this objective.

PRICING

5) Market Share Objective- The marketers may adopt this objective throgh two criterion:

a) To maintain the Existing Share- The companies prefer to maintain their existing share in the market and generally big companies adopt such pricing objective mainly to maintain profit index.

b) To increase the Market Share Objectives-This objective of pricing assigns due priority to the increased number of shares in the market.Particularly,small businesses are interested in raising the number of shares so as to utilise the benefits of large scale production system. When shares are increased in number, the firms are efficacious in minimizing the costs because large scale production system makes possible over all economies of scale and resulting in pay out of dividends.

6) Profit Maximization Objective- Companies aim at generating profits to a considerable extent & not to show ideological gesture to the society. But the maximization of profits should be on the total output & not on a single item. The setting of abnormally high prices may not be the essence of this objective but rather setting a reasonable price which generates profit without dissatisfying any consumer is the real meaning. Over a longer period, this objective of pricing would be suitable because the firms would get ample time for getting such equlibrium.While adopting this pricing objective, the marketers should attempt to project their image in the market. The advertising & sales promotion activities should start with market penetration. To be more specific in a competitive market, it becomes impossible to charge the maximum possible prices for the goods.Hence,the marketers should watch the reactions of the consumers. The moment they feel that consumers have been showing negative responses, the raising of prices should be checked.

PRICING

7) Product Line Promotion Objective-This objective of pricing adopts equal prices fro the same line. While framing the product line, the marketers includes such goods in the product line, the marketers also include such goods in the product line which are not so popular.Thus,both the goods, popular & unpopular are purchased by the consumers. In this objective, the ultimate object of the marketers is to raise the overall demand of the goods. By doing so or preparing a product line, the marketers are found successful in increasing the sales turnover or profit.

PRICING POLICY CONSIDERATIONS- The decision makers have to concentrate on the pricing objectives. The decision making requires consideration of internal & external variables. The marketers involved indecision making are required to assign due weight age to all the variables and then take a decision. The internal variables are controllable are not so complex because the marketers find it easier to exercise control the saame.But for the external or un-controllable variables, it becomes a complex issue as the firms or corporations have no command over the governmental regulations or on the trends in competition or the economic fluctuation.

A) Internal Factors or Controllable Variables-

The internal factors include factors like product charateristics,costs of the product, objectives of the manufacturer & channel management.

8) Product Characteristics-While studying the characteristics of the product, the marketers are expected to assign due importance to numerous factors viz:the product life cycle, the product perishability,product substitution or the magnitude of resistance.

PRICING

i) Product Life Cycle-The pricing considerations establishes a close relation with the life cycle of the product. The decision makers are required to diagnosis the real stage in which the firms' products belong to the market. In all stages f the PLC,similar strategies cannot be adopted >If the marketers find that the products have entered the first stage or the products have just been introduced in the market the prices should be minimized to a reasonable level. At this stage, the decision makers should assign due importance to the projection of image or creation of goodwill. If the prices are moderate the consumers at large would be induced. At the stage of growth & prosperity the decision makers may raise the price index but it would depend upon on the responses received from the consumers. The more liberal attitude the decision makers follow at the second stage, the more favorable environment they find to enter the third stage. It is in the stage of maturity in which the pricing decisions may be in the interest of the firm. The irrational policies adopted in the third stage bring at the fourth stage. Hence, the decisions makers should study the different stages of THE PLC & should make decisions in the interest of national socio-economic interest.

ii) Product Perishability- If the goods are perishable, the price would be low. Contrary to this when the goods can be preserved or can be stored safely, the price may be kept high, It is not possible to store perishable products therefore, it should be disposed at an even cost.

iii) Product Substitution-The goods having substitutes cannot practise the same pricing strategy as found in goods having no alternatives. If the consumers demand a good even if the prices are raised, the high pricing strategy can be followed. Since in this case, the demand is elastic. On the contrary, the products lacking substitutes would be inelastic because the consumers would have no option but to comnsume that particular goods.

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iv) Postponement of Demand-In respect of products characteristics, the marketers are also required to consider postponement of demand.e.g. the demand for motor vehicles can be deferred. If the marketers adopt rigid pricing strategy or increase prices abnornmally,the consumers would postponement demand.

2) Product Cost-While making strategy, the decision makers should attempt to optimize the cost. The cost optimization is meant setting up of reasonable prices which provide equitable return on the capital vis-à-vis the consumer’s purchasing power..A company’s costs take two forms; fixed & variable. Fixed Costs also known as overheads are costs that do not vary with production or sales revenue. Variable Costs vary directly with the level of production. Total Costs consist of the sum of the fixed & variable costs for any given level of production.

The costs determine whether or not the organization will go into a venture, continue in it or what would be the rate of profits. In the competitive market, the price approximates full costs of production. The production costs determines the business exietence.The demand conditions mainly determine the price. This is based on the reason that the supply is fixed in the short run. In this respect, the market sets the price & not the production costs. Thus costs has a significant bearing on the pricing decision.

3) Channel Management-The distribution channels adopted & the discounts policies adopted influence the pricing decisions. If the channel is long, the price is high. The shorter channels helps to minimize the cost because the middlemen are absent. If the middlemen are required to establish a godown for the storage of goods, the costs index would be naturally high. Where the circumstances require, the distribution channel should be shortened. It would minimize the overall costs .

PRICING

B) External Factors - Changes in governmental regulations, the emerging trends in competiton,fluctuating socio-economic condition, The changing behavior of consumers, growing ethical considerations & the incoming environmental changes are beyond the control of the decision makers in the organization.

1) Emerging Trends in Competition-affect the pricing decisions. The trends may be either positive or negative. The magnitude of competition in the market may be either high or low. The pricing decisions would vary in tune with the changing trends. Generally the marketer is required to follow an optimal pricing strategy. On the contrary, the low magnitude of competition would create favorable environment for raising the prices. If competition exists amongst the producers, producing the same goods, the producers themselves would find it convenient to finalize the pricing policy.

2) Demand for the product-Demand may be elastic, perfectly elastic & highly elastic. Or it may be inelastic or perfectly inelastic. When the decision makers find demand perfectly elastic, they are expected to maintain more precaution because at this stage, even a minor change in the prices of the product would bring a major change in their demand. On the other hand, when the demand is highly elastic, the marketers should prefer escalation in a reasonable condition. At this stage, partial proportionate impact on demand.Further the elastic demand is a stage where we find proportionate rise or fall in the price & demand of the goods. If there is inelastic demand the general rise in the prices partially affect the demand. In the perfectly inelastic the decision making practices may be different.

PRICING

3) Socio-economic environment- Changing trends in socio-economic environment influence pricing decisions. Where disposable income is high, it affects pricing decisions. Where the income is low, the marketers would be required to adopt a distinct pricing strategy.Further,if recession conditions are prevailing in a country, prices have to be brought down. If there is political stability in the country, raising prices may be feasible and on the contrry,where there is political instability, prices cannot be raised.

4) Government Regulations-are made so that pricing of any goods is not based on the desire of the company but is based on ethics & fair play. While deciding on the prices, due weightage has to be given to MRTP Act, Essentials Commodities Act, Consumer Protection Act, Food & Standards Regulation Act etc.All these regulations are to optimise & regulate the distribution of consumer goods in particular. If the marketers fail to maintain regulatory mechanisms, social legislations would come in the way resulting in loss of company image and failure in management of business.

5) Ethical Considerations-include rational attitude of the corporate manager while maintaining quality of the product & cost maximisation.The qualitative transformation of the product strategy & standardization measures is instrumental in integrating ethics with business. The consumers should be offered the right good sat the right price without irrational pricing.

6) Buyer’s Behaviour-A detailed study of the buyer’s behaviour is relevant to the price deciding startegy.If the results of behavioral studies suggest rising of prices the decisions of pricing should be positive. The trends in demand, would be a reliable criterion to measure the reactions of the consumer. The different categories of consumers like industrial consumer or general consumer would determine different strategies of pricing.

PRICING

• Setting up of price: HIGH PRICE(no possible

• The customer’s demand schedule, the cost function demand at this price)

& competitor’s prices are three main considerations CEILING PRICE to select a price. Costs set a floor to the price. (Customers’ assessment of

Competitor’s prices & the price of substitutes provide unique product features)

an orienting point. Customer’s assessment of unique Orienting point

features establishes the price ceiling. Competitors' prices &

prices of substitutes

Costs

FLOOR PRICE

LOW PRICE

Three C’s Model for Price Setting (No possible profit at this price)

PRICING

• PSYCHOLOGICAL PRICING POLICY-This policy is based on behavioural results. At all stages of setting of prices, the marketers assess the psychological impact on the consumers concerned. In India Bata India Ltd has adopted this pricing policy. Their pricing are generally fixed at Rs.0.99 without rounding off. This has a psychological impact on the consumers.

• LOSS LEADER PRICING POLICY-This pricing policy helps in raising the sales volume or makes possible the generation of profits at an increased scale.e.g. A producer after establishing its products in the market, brings down the prices of the product & takes help of advertising. The consumers also respond by making demand for the product.

• FOLLOW THE LEADER PRICING-In this all the firms in an industry follow the pricing practices adopted by the market leader. When the leader increases or decreases the prices, the followers follow the trend. The price leadership is frequently found in industries dominated by a few firms. It is not essential that in all circumstances, the same firm would be the price leader. Sometimes traditional followers will initiate price changes if they feel the situation is sufficiently pressing & if the traditional leader fails to act..The price leader would quickly retaliate against any reduction below his established price & it would be difficult to compete against the leader if the prices were set above his list. There are certain conditions for attaining the stage of price leadership- Production of standard goods by the firms & adaptation of suitable marketing strategies.

• DISCRIMINATING PRICING-Price discrimination occurs when a company sells a product or service at two or more prices that do not reflects a proportional difference in costs.

• In first degree price discrimination, the seller charges a separate price to each customer depending on the intensity of his or her demand.

PRICING

• In second degree price discrimination, the seller charges less to duyers who buy a larger volume.

• In third degree price dicrimination,the seller charges different amounts to different classes of buyers as follows

a) Customer-segment pricing-Different customer groups are charged different prices for the same product or service.e.g. city transport corporations charging concessional fares to students or for monthly pass holders; fair price shops charging subsidized prices for food grains & kerosene oil from under privileged sections of the society.

b) Product –form pricing-Different versions of the product are priced diferently but not proportionately to their respective costs.e.g. laptops are priced much higher than a desktop with similar configurations.

c) Image-pricing-Some companies price the same product at two different levels based on image differences.e.g. cosmetics & garment industry.

d) Channel pricing-Same products are priced differently based on the channels of sale.e.g. soft drinks are priced differently depending on whether it is sold through a fast food counter, a vending machine or a fine restaurants.

e) Location-pricing-The same product is priced differently at different locations even though the cost of offering at each location is same.e,g. A theater varies its seat prices according to audience preferences.

PRICING

f) Time Pricing-Prices are varied by season, day or hour. Public utilities vary energy rates to commercial users by time of day & weekend versus weekday.e.g. restaurants charge less to “early birds” customers.

g) Yield pricing-Prices are based on yield management systems in which discounted but limited early purchases and higher priced late purchases are offered. & the lowest rates on unsold inventory is offered just before it expires.e.g. Airlines charge different fares to passengers on the same flight, depending on the seating class, time of the day, the season etc.

h) Predatory pricing - In this the selling prices are kept below the cost of production. This is a unlawful practice and is illegal.

RESALE PRICE MAINTENANCE(RPM) –is a marketing policy which is adopted by an individual or a group of manufacturers in which an agreement is entered into by both the parties that a branded good would be sold at a certain fixed retail price. In this policy, no retailer would sell the branded product below the fixed retail price. As per the MRTP Act -“Resale price in relation to sale of goods of any description, means any price notified to the dealer or otherwise published by or on behalf of the supplier of goods, in question, as the price or minimum price, which is to be charged on,or is any price prescribed for that purpose by any contract or agreement, between the wholesaler or retailer & any such supplier.”

In a virtual sense, the RPM policy is to utilise the benefit of market, by fixing the prices which suit the manufacturers as well as the moddlemen.Hence, the RPM policy has been restricted. This policy is based on high costs low volumes retailers which mounts to premium on inefficiency.

PRICING

• PRICING POLICIES BASED ON GEOGRAPHICAL CONDFITIONS-Usually transportation expenses are incurred for transporting the goods from the manufacturers’ plant to different regions or zones. There may be two policies adopted by the seller:

a) Ex-factory or F.O.R(free on rail) or F.O.B.factory.(Free On Board) - In this the goods are loaded on the truck at the factory gate or in the train wagon and the cost of transportation is borne by the buyer.

b) Home-delivery pricing or F.O.B. destination pricing-In this the payment for transportation is borne by the seller.

c) Zone pricing-This pricing policy charges different prices for different zones. Equal prices are there for consumers coming under a particular area or zone,

d) Base point pricing-In this, the sellers or the producers charge prices for a given destination after computation transportation charges from a fixed base point which may be the location of the mill nearest to the buyer or it may be some arbitrary location. The main objective of this pricing policy is to quote identical transportation charges to any one buyer. This pricing policy is found in industries producing standardized industrial products.

e) Uniform delivered pricing-In this pricing policy, the sellers charge equal prices from all consumers. The seller’s price includes cost of goods & the transportation charges. This is also called as the postage stamp pricing policy since all postal stationary are sold at the same price and distributed without any price discrimination. This policy is suitable for products covering the least possible transportation charges.

f) Freight absorption pricing-In this policy, the sellers or producers bear a portion of freight. It is preferred by those firms whose fixed cost on production is high but the marginal cost is low & is also adopted to protect the interest of the producers from its nearest rival competitors.e.g. Suppose two cement factories situated at different distances from the point of purchase. The buyers would prefer buying from the factory nearer to them. But if the factory situated at a farther distance absorbs the excess freight payable then the buyer can purchase from that factory also.

PRICING

• DISCOUNTS-Most companies will adjust their list price & give discounts & allowances for early payment, volume purchases & off season buying. Discount pricing has become the modus operandi of a number of companies offering both products & services Some product categories tend to self destruct by always being on sale. The discounts undermine the value perceptions of the offerings. Some companies in an overcapacity situation are tempted to give discounts or even begin to supply a retailer with a store brand version of their product at a deep discount. Because the store brand is priced lower,however,it may start making inroads on the manufacturer’s brand. Manufacturers should stop to consider the implications of supplying products at a discount because they may end up losing long-run profits in an effort to meet short run volume goals. The various discounts policy are as follows:

a) Cash Discount-Such discount is allowed to the buyers who pay their bills within a stipulated period. Legally cash discounts are permissible to all buyers on same terms. e.g.-If the sellers have offered that buyers making payments ten days before the date of purchase, would be allowed a discount of 3% on the invoice price, the buyers making payment ten days before would be required to pay only Rs.970/-,if the purchase amount is Rs.1000/-.Contrary to this the buyers not opting for this would have to pay Rs1000/-within 30 days.

b) Functional Discounts-This is also called as the trade discount policy. A producer is required to sell to the wholesalers at a lower price than he charges to the retailers. The retailers may be charged a functional discount of 40% whereas the same rate may not be charged to the wholesalers. Industrial firms, export firms may be given separate functional discounts. The functional discounts are legal as long as this is paid to bonafide members of designated class of trade.

PRICING

c) Quantity Discounts-is a reduction in the unit prices granted for buying the goods in certain quantity. They are of two types:

i) Cumulative-Discount -is a reduction in the total price paid for the goods purchased over a period of time. The purpose of this kind of discount is to obtain the entire business of the client by offering discount on the total volume of business placed with the firm over a period of time.

ii) Non-Cumulative Discount-is a price reduction depending on the size of individual orders placed by the buyers.e.g. If the seller has fixed a discount of 2% on the purchase of goods amounting to Rs.3000/-,the buyers purchasing goods worth Rs.3000/- or more would be allowed a discount of 2%.If the buyer makes purchases at different times of the year, the discount would be allowed at all times.However,if the buyer makes purchase at different times below Rs.3000/- no discount would be allowed.

iii) Seasonal Discount-In this the goods are sold at a reduced rate particularly during the off season. The purpose of this pricing policy is to enable the manufacturer to level his production throughout the yeear.Sometimes,this discount is given to encourage the buyers to stock up early in anticipation of the season or to transfer the storage function from the producer to the buyer.

iv) Allowances-An extra payment designed to gain reseller participation in special programs. Trade- in allowances are granted for turning in an old item when buying a new one. Promotional allowances reward dealers for participating in advertising & sales support programs.

PRICING

• INITIATING PRICE CHANGE-There are several circumstances leading to price changes. The price may be cut or it may be increased.

1) Initiating Price Cuts-The company may have excess plant capacity.• The firm may need additional business & cannot generate it through increased sales effort, product

improvement or by other measures.• The firm may initiate price cuts in a drive to dominate te market through lower costs. Either the firm

starts with lower costs than its competitors or it initiates price cuts in hope of gaining ,market share & lower costs.

• Disadvantages of price cuts-• Low–quality trap-Consumers will assume that tehe quality is low• Fragile-market share trap-A ,low price buys market share but not market loyalty. The same

customers will shift to any lower-priced firm that comes along.• Shallow-pockets trap-The higher-priced competitors may cut their prices & may have longer

staying power because of deeper cash reserves.

2) Initiating Price Increases-• The firm may increase price is cost infllation.Rising costs unmatched by productivity gains squeeze

profit margins & lead companies to regular rounds of price increases• Anticipatory pricing-Firms often raise their prices by more than the cost increase, in anticipation of

further inflation or government price controls in anticipatory pricing• Overdemand-The firm may increase prices when it cannot supply to all its customers.

PRICING

• The price can be increased in the following ways:

a) Delayed quotation pricing-The company does not set a final price until the product is finished or delivered. This pricing is prevalent in industries with long production lead times such as industrial construction & heavy equipment.

b) Escalator clauses-The firm requires the customers to pay today’s prices & all or part of any inflation increase that takes place before delivery. Escalator clauses are found in contracts for major industrial projects like aircraft or ship constructions.

c) Unbundling-The firm maintains its price but removes or prices separately one or more elements that were part of the former offer, such as free delivery or installation.

d) Reduction of discounts-The firm instructs its sales force not to offer its normal & quality discounts.

• RESPONDING TO PRICE CHANGE-

Competitors are most likely to react when the number of firms are few, the product is homogeneous & buyers are highly informed. In markets characterized by high product homogeneity, the firm should search for ways to enhance its augmented product. And if that is not possible, it will have to meet price reduction. If the competitor raises the price in a homogeneous market, other firms might not match it unless the increase will benefit the industry as a whole.

In non homogeneous product markets, a firm needs to consider the following:• Why did the competitor change the price?-To steal the market, to utilize excess capacity, to meet

changing cost conditions or to lead an industry-wide price change?

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• Does the competitor plan to make the price change temporary or permanent?• What will happen to the company’s market share & profits if it does not respond?• What are the competitors’ & other firms’ responses likely to be each possible reaction?

Market leaders respond to aggressive price cutting by smaller firms in the following ways;

a) Maintain price-The leader might maintain its price & profit margins, believing that-1)it would lose too much if it reduced its prices.2)it would not lose much market share 3) it could regain market share when necessary.

b) Maintain price & add value-The leader could improve its products, services & communications. The firm may find it cheaper to maintain price & spend money to improve perceived quality than to cut price & operate at lower margins.

c) Reduce price-The leader might drop its price to match the competitor’s price. It might do so because1)its costs fall with volume2)it would lose market share because the market is price sensitive and3)it would be hard to rebuild market share, once it is lost.

d) Increase price & improve quality-The leader might raise its price & introduce new brands to bracket the attacking brand.

e) Launch a low price fighter line-It might add lower priced items to the line or create a separate lower priced brand.

The best response varies with the situation. The company has to consider the product’s stage in the life cycle, its importance in the company’s portfolio, the competitor’s intentions & resources, the market’s price, the quality senstivity,the behaviour of costs with volume and the company’s alternative opportunities.

MARKETING COMMUNICATIONS

• CONCEPT-Marketing communications are the means by which firms attempt to inform, persuade and remind consumers-directly or indirectly-about the products & brands that they sell.

• Marketing Communication Mix consists of six major modes of communication:

1) Advertising-Any paid form of non personal presentation & promotion of ideas, goods or services by an identified sponsor.

2) Sales Promotion: A variety of short term incentives to encourage trial or purchase of a product or services.

3) Events & experiences-Company sponsored activities & programs designed to create daily or special brand related interactions.

4) Public relations & publicity-A variety of programs designed to promote or protect a company’s image or its individual products.

5) Direct Marketing-Use of mail,telephone,fax,e mail, or internet to communicate directly with or solicit response or dialogue from specific consumers & prospects.

6) Personal selling-Face to face interaction with one or more prospective purchasers for the purpose of making presentations,answetring questions & procuring orders.


• Relevance: Marketing communication activities contribute to brand equity by creating awareness of the brand, linking the right associations to the brand image in customer’s memory, eliciting positive brand judgments or feelings or facilitating a stronger consumer brand connection.

• The Communication Process Models: • Macromodel of Communication Process :

SENDER ENCODING MESSAGE DECODING RECEIVER

MEDIA

I

I I

I I

I I

I I

I NOISE I

I I

I FEEDBACK RESPONSE I

I------------- ------------------------------------------------------------------------------------------------ -------I-


• Selective attention-People are bombarded by advt/messages .Ad clutter is a major obstacle to gaining attention.

• Selective distortation-Receivers will hear what fits into their beliuef systems. As a result, receivers often add things to the message that are not there and do not notice other things that are there. The task is to strive for simplicity,clarity,interest & repetition to get the main points across.

• Selective retention-In long term memory, people will retain only a small fraction of the messages that reach them. If the receiver’s initial attitude towards the object is positive and he or she rehearses support arguments, the message is likely to be accepted and have high recall. If the initial attitude is negative the message is likely to be rejected but to stay in long term memory.


• MICROMODEL OF CONSUMER RESPONSES

Stages AIDA Model Hierarchy of Effects Model

Innovation-Adoption

Model

Communications Model

CognitiveStage

Attention ↓ ↓ ↓

Awareness ↓ Knowledge ↓

Awareness ↓ ↓

Exposure ↓ Reception ↓ Cognitive

response

Affective Stage

Interest↓

Desire↓↓

Liking ↓Preference

↓ Conviction

Interest↓

Evaluation↓↓

Attitude↓

Intention↓↓

Behavior Stage↓

Action↓

Purchase↓

Trial↓

Behavior


• DEVELOPING EFFECTIVE COMMUNICATION

→

•

• ↓ ↑ ↓

•

↓ ↑

• →

Identify target audience

Determine Objectives

Design communications

SelectChannels

Establish

Budgets

Design on

media mix

Measure

results

Manage integrated marketing

communications


1) Identify the target audience: The target audience are the potential buyers of the company’s products, current users, deciders or influencers. It is often useful to define target audience in terms of usage & loyalty. Communication strategy will differ depending on the usage & loyalty involved. Image analysis can be conducted to profile the target audience in terms of brand knowledge to provide further insights. IMAGE is the set of beliefs, ideas & impressions a person holds regarding an object.

2) Determine the Communications Objective:Rossiter & Percy identify four possible objectives as follows:

a) Category Need: Establishing a product or service category as necessary to remove or satisfy a perceived discrepancy between a current motivational state and a desired one.

b) Brand Awareness: Ability to identify the brand within the category in sufficient details to make a purchase.

c) Brand Attitude: Evaluation of the brand with respect to its perceived ability to meet a currently relevant need.

d) Brand Purchase Intention: Self instructions to purchase the brand or to take purchase related action.


3) Design the Communications: Formulating the communications to achieve the desired response will require the solving of the following three problems-what to say(message strategy),how to say it(creative strategy) & who should say it(message source).

a) Message Strategy: In this the management searches for appeals, themes or ideas that will tie into the brand positioning & help establish points of parity & points of difference. John Maloney saw buyers as expecting one of four types of reward from a product:rational,sensory,social or ego satisfaction. Buyers might visualize these rewards from results of use experience, product in use experience or incidental to use experience.

b) Creative Strategy: Communication Effectiveness depends on how a message is being expressed as well as the content of the message itself.Creative Strategies are how marketers translate their message into a specific communication. They are classified into Informational appeals or transformational appeals


i) Informational Appeals: elaborates on product or service attributes or benefits. Examples are: problem solution ads (Saridon for headache),product demonstration ads (LG silent washing machines),product comparison ads(as in automobiles) & testimonials from celebrity endorsers .

ii) Transformational Appeals: elaborates on a non product related benefit or image. It might depict what kind of person uses a brand(Raymond’s users are young & successful & emotionally sensitive) or what kind of experience results from using the brand( Liril as a freshness soap).

Communication use negative appeals such as fear, guilt & shame to get people to do things as brushing their teeth, have a heart check up, or stop doing things as smoking,alchohol abuse,overeating.Fear appeals work best when they are not too strong & when the communication promises to relieve in a believable way & efficient way, the fear it arouses.

Brand Theme Ad Tagline

Our car is more spacious More car per car-Tata Indica

Owning this TV is prestigious Neighbor's envy owner’s pride- Onida

This butter is tasty Utterly Butterly delicious-Amul

Our motorbike is fuel efficient Fill it, Shut it, Forget it-Hero Honda

c) Message Source: Messages delivered by attractive or popular sources can potentially achieve higher attention & recall and the source should have expertise,trustworhiness & likability.

The Principle of Congruity implies that communicators can use their good image to reduce some negative feelings towards a brand but ib the process might loose some esteem with the audience.


4) Select the Communication Channels: Selecting efficient channels to carry the massage become more difficult as channels of communication become more fragmented & cluttered. These channels may be personal & non personal.

a) Personal Communication Channels: involve two or more persons communicating directly face to face, person to audience, over the telephone or through the email. These are of three types:

i) Advocate channels consist of company salespeople contacting buyers in the target market.

ii) Expert channels consist of independent experts making statements to target buyers.

iii) Social channels consist of neighbours,friends,family members & associates talking to target buyers.


• Companies can take several steps to stimulate personal influence channels to work on their behalf:

• Identify influential individuals & companies & devote extra effort to them• Create opinion leaders by supplying certain people with the product on attractive

terms.• Work through community influential such as local DJs,class presidents & other

associations.• Use influential or believable people in testimonial advertising.• Develop word of mouth referral channels to build business.• Establish an electronic forum• Use viral marketing: This involves passing on company developed products,

services or information from user to users.

b) Non personal communication channels;

Media-consist of print media(newspapers & magazines);broadcast media(radio & television);network media(telephone, cable,satellite,wireless);electronic media(audiotape, videotape,CD-Rom,Web page)& display media(billboards signs,posters)


• Sales Promotion: consist of consumer promotions(such as samples, coupons& premiums);trade promotions(such as advertising & display media);& business & sales promotion (contests for sales rep)

• Events & experiences include sports,arts,entertainment & cause events as well as less formal activities that create novel brand interactions with customers).

• Public Relations; include communications directed internally to employees of the company or externally to consumers, other firms, the government & media.

5. Establishing the total marketing communications budget: There are four methods to decide on the promotion budget:

a) Affordable Method: Many companies set the promotion budget at what they think the company can afford. It leads to an uncertain annual budget which makes long range planning budget.

b) Percentage of sales method: Many companies set promotion expenditures at a specified percentage of sales or of the sales price.


c) Competitive Parity Method-Some companies set their promotion budget to achieve share of voice parity with competitors.

d) Objective & Task Method-This method calls upon marketers to develop promotion budgets by defining specific objectives, determining the tasks that must be informed to achieve these objectives and estimating the costs of performing these tasks. This method has the advantage of requiring management to spell out its assumptions about the relationships among the funds spent, exposure levels, trial rates and regular uses.

6) Marketing Communication Mix: Companies must allocate the marketing communication budget over six major modes of communication- advertising, sales promotion, public relations& publicity, events & experiences, sales force & direct marketing.

• Characteristics of Marketing Mix:• Advertising; Sales promotion; Public Relations & Publicity; Events &

Experiences; Direct Marketing; Personal Selling


7. Measuring Communication Results: After implementing the communication plan, its impact must be measured on the target audience. Members of the target audience are asked whether they recognize or recall the message, their previous attitudes & current attitudes towards the product & the company.

8. Managing the Integrated Marketing Communication Process: is a concept of marketing communication planning that recognizes the added value of a communication plan. Such a plan evaluates the strategic roles of a variety of communication disciplines-general advertising, direct response, sales promotion & public relations and combines these disciplines to provide clarity & consistence.

ADVERTISING

• Advertising is any paid form of non personal presentation & promotion of ideas, goods or services by an identified sponsor.

• Five Ms of Advertising-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 be evaluated?• An advertising objective is a specific communications tasks & achievement

level to be accomplished with as specific audience in a specific period of time. They can be classified into:

a) Informative advertising: aims to create brand awareness & knowledge of new products or new features of existing products.

b) Persuasive advertising: aims to create liking,preference,conviction and purchase of a product or service. Some persuasive advertising uses comparative advertising which makes an explicit comparison of the attributes of two or more brands.

ADVERTISING

c) Reminder Advertising: aims to stimulate repeat purchase of products & services.

d) Reinforcement Advertising: aims to convince current purchasers that they made the right choice.

Process of Advertising

There are three steps of advertising strategy:

i) Message Generation & Evaluation

ii) Creative Evaluation & Execution

iii) Social Responsibility Execution

i) Message Generation & Evaluation: A good ad normally focuses on any one or two core selling propositions. As part of refining the brand positioning, the advertiser should conduct market research to determine which appeal works best with its target audience. Once they find an effective appeal, advertisers should prepare a creative brief which is an elaboration of the positioning statement and includes key message, target audience, communications objectives, key brand benefits, supports for the brand promise & media.

ADVERTISING

• Creative Generation & Evaluation: In preparing an ad campaign the advertiser can prepare a copy strategy statement describing the objective,content,support & tone of the desired act.

Television Ads: TV is generally acknowledged as the most powerful advertising medium & reaches a broad spectrum of consumers. As per IRS 2005 data, there are also significant variations in the reach of television & satellite network in different states of India.

TV can be an effective means of vividly demonstrating product attributes & persuasively explaining their corresponding consumer benefits. This can be a compelling means for dramatically portraying user & usage imagery. However the drawbacks are that due to the fleting nature of the message & the potentially distracting creative elements often found in a TV ad, product related messages & the brand itself can be overlooked. Further, the large number of ads & non programming material on TV creates clutter that makes it easy for consumer to ignore or forget ads. Fragmentation of the channels affects the viewership of specific programs on each channel.

ADVERTISING

• Print Ads: Magazines & newspapers are more effective at building user & usage imagery. Format elements such as ad size,color,illustration affects a print’s ad’s impact. Minor rearrangement of mechanical elements can improve attention getting power. Larger ads gain more attention.Picture,headline & copy are important. The picture must be strong enough to draw attention, the headline must reinforce the picture and lead the person to read the copy. The copy itself must be engaging & the advertising brand’s name must be sufficiently prominent.

• Radio Ads: Radio listening is low in the urban areas. In 2005, the penetration of radio in the urban areas was about 21%.Radio listening is expected to increase significantly over the coming years, as the second phase of privatization with 392 FM stations scheduled to come up across 91 cities in India. Since the cost of production of advertisements is low, radio is likely to emerge as a significant medium for advertising in India. But the disadvantages are the lack of visual images & the relatively passive nature of the consumer processing that results.

• Film Ads: India is the largest producer of films in the world. India has 135 digital cinemas. In 2004,Hindi cinemas generated approximately 411 million admissions in the theaters. Advertisers can release their advertisements, to be screened along with the film, in theaters either in the beginning of the movie or during the interval time. However the cost of developing of the prints for release in different theaters may be difficult for the advertisers.

ADVERTISING

• Social Responsibility Review: Advertisers & their agencies must ensure that their advertising does not overstep social & legal norms. As per lndian laws, advertisements for alcoholic beverages & cigarettes cannot be screened on television. Only surrogate advertising or indirect advertising is allowed. Infant food, children targeted advertising,pharmaceautical advertising that promise cure, diagnosis is not allowed. The MRTP Act specifies that any misleading, false & wrong representation either in writing or oral that causes actual or intended injury or loss to consumers is considered as a unfair trade practice. Rules also prohibit advertisements offending the morality, decency & religious suscepbility of the audience. Women cannot be portrayed in a manner that emphasizes passive & submissive qualities. The ASCI,a self regulatory voluntary organizations formed by the advertising industry, provides basic guidelines for ensuring fairness in advertising & has mechanisms to safeguard against misleading messages.

ADVERTISING

• Measuring Media Effectiveness:• Media Selection is finding the most cost-effective media to deliver the desired

number and type of exposures to the target audience. The effect of exposures on audience awareness depends on the exposures,reach,frequency & impact:

• Reach(R):The number of different persons or households exposed to a particular media schedule at leas once during a specified time period.

• Frequency(F):The number of times within the specified time period that an average person or household is exposed to the message.

• Impact(I):The qualitative value of an exposure through a given medium.

Choosing Among Major Media Types: Media planners make their choices by considering the following variables:

Target audience media habits

Product Characteristics

Message Characteristics

Cost

ADVERTISING

• PLACE ADVERTISING: is also called out-of-home advertising & is a broadly defined category that captures many different alternative advertising forms. Some options available are:

• Billboards: The total size of the outdoor media in India is estimated to vary between Rs.70 & Rs100 billion & accounts for approximately 5% of the total media spent. Prominent categories that spend on outdoor media are telecom,entertainment,media & financial products & services.

• Public Spaces: Advertisers are placing traditional TV & print ads in unconventional places such as movies,airlines,sports arenas, office lounges etc.Street furniture such as bus shelters, kiosks is also being used.

• PRODUCT PLACEMENT: has expanded from movies to all types of TV shows & can be combined with special promotions to publicize entertainment tie-ins.

• Advertorials are print ads that offer editorial content that reflects favorably on the brand & it is difficult to distinguish from newspaper or magazine content.

• Advertising inserts are found in monthly bills.

ADVERTISING

• POINTS OF PURCHASE: Advertisers include ads on shopping carts, shelves, in store demonstrations & live sampling. Numerous studies have shown that in many product categories consumers make the bulk of their final decisions in the store.

• EVALUATION ALTERNATIVE MEDIA: Ads now appear virtually anywhere consumers have a few spare minutes or even seconds & thus enough time to notice them.

• Selecting Specific Vehicles: The media planner must search for the most cost effective vehicles within each chosen media type & depend upon measurement services that provide estimates of audience size,composition & media cost.

• Circulation: The number of physical units carrying the advertising.• Audience: The number of people exposed to the vehicle.• Effective audience: The number of people with target audience

characteristics exposed to the vehicle.

ADVERTISING

• Evaluating Advertising Effectiveness: Good planning & control of advertising effectiveness. Most advertisers try to measure the communication effect of an ad.

• Communication Effect Research-seeks to determine whether an ad is communicating effectively. This is called as copy testing. There are three major methods of pretesting. They are: Consumer Feedback testing method; Portfolio Tests; Laboratory Tests.

• Consumer Feedback Tests: asks consumers for their reactions to a proposed ad.

• Portfolio Tests: ask consumers to view or listen to a portfolio of advertisements. Consumers are then asked to recall all the ads & their content, aided or unaided by the interviewer.

• Laboratory Tests: use equipment to measure physiological reactions-heartbeat,blood pressure, pupil dilation, perspiration-to an ad or consumers may be asked to turn a knob to indicate their moment-to-moment liking or interest while viewing sequenced material. Pretest critics maintain that agencies can design ads that test well but may not necessarily perform well in the marketplace.

ADVERTISING

• SALES EFFECT RESEARCH:Advertisering’s sales effect is generally harder to measure than its communication effect. Sales are influenced by many factors such as features, price & availability as well as competitor’s actions.Sales impact is easiest to measure in direct-marketing situations & hardest to measure in brand or corporate image building advertising.

SALES PROMOTION

• Sales Promotion consists of a collection of incentive tools, mostly short term, designed to stimulate quicker or greater purchase of particular products or services by consumers or the trade.

• Whereas advertising offers a reason to buy; sales promotion offers an incentive to buy. Sales promotion includes tools for consumer promotion;(samples,coupons,cash refund offers,prizes,warranties,tie-in-promotions,cross promotions, points of purchase displays free trials & demonstrations) trade promotions;(prices off,advertising,display allowances, free goods) business & sales force promotion(trade shows & conventions, contests for sales representatives,speciality advertising). Companies launch a variety of consumer promotions emphasizing the growing importance of promotions in the company’s communication strategy.

• Objectives & Significance: Sellers use incentive type promotions to attract new triers,to reward loyal customers & to increase the repurchase rates of occasional users.

• Sales promotions used in markets of high brand produce a high sales response in the short run but little permanent gain in market share.

• In markets of high brand dissimilarity sales promotion may be able to alter market share permanently.

SALES PROMOTION

• Sales promotions enable manufacturers to adjust to short term variations in supply and demand.

• They induce consumers to try new products, instead of never straying from current ones.

• They lea to more varied retail formats, such as the everyday low price stores and promotional pricing stores.

• For retailers promotions may increase sales of complementary categories as well as induce some store switching by consumers.

• Sales promotions permit manufacturers to sell more than they would normally sell at the list price.

• They permit manufacturers to sell more than they would normally sell at the list price & help the manufacturers adapt programs to different consumer segments.

SALES PROMOTION

• Comparison between Sales Promotion & Advertising:• Advertising builds brand loyalty and then sales promotion can be utilized.• Sales promotion with its incessant prices off,coupons,deals,premiums may devalue

the product offering in buyer’s minds. Usually when a brand is price promoted too often, the consumer begins to devalue it & buy it mainly when it goes on sale.

• Sales promotions yield faster & more measurable responses in sales than advertising does but do not tend to yield new, long term buyers in mature markets.

• Advertising appears to be more effective at deepening brand loyalty.

SELECTING CONSUMER PROMOTION TOOLS:

Manufacturer’s promotions- e.g. auto industry’s frequent use of rebates, gifts to motivate test drives & purchases & high value trade-in-credit.

Retailer promotion- e.g. price cuts, feature advertising, retailer coupons, retailer contests or premiums.

Consumer franchise-building promotions- e.g. free samples, frequency awards,coupons,premiums.

Non consumer franchise-building promotions- e.g. price-off packs, contests& sweepstakes, consumer refund offers, trade allowances.

SALES PROMOTION

• Major Consumer Promotion Tools:• Samples-Offer for a free amount of a product or service delivered door-to-door, sent in the mail,

picked up in a store, attached to another product or featured in an advertising offer.• Coupons-Certificates entitling the bearer to a stated saving on the purchase of a specific

product;mailed,enclosed in other products or attached to them or inserted in magazine & newspaper ads.

• Cash Refund Offers(rebates)-Provide a price reduction after purchase rather than at the retail shop: consumer sends a specified “proof of purchase” to the manufacturer who “refunds” part of the purchase price by mail.

• Price Packs (cents-off deals)-Offers to consumers of saving off the regular price of the product, flagged on the label or package. A reduced price pack is a single package sold at a reduced price(such as two for the price of one).A banded pack is two related products banded together(such as toothpaste & toothbrush).

• Premium (gifts)-Merchandise offered at a relatively low cost or free as an incentive to purchase a particular product. A with–pack premium accompanies the product inside or on the package. A free-in-the-mail premium is mailed to the consumers who send in a proof of purchase. A self-liquidating premium is sold below its normal retail price to consumers who request it.

• Frequency Programs-Program providing rewards related to the consumer’s frequency & intensify in purchasing the company’s products or services.

SALES PROMOTION

• Prizes(contests, sweepstakes, games )-Prizes are offers of the chance to win cash, trips or merchandise as a result of purchasing something. A contest calls for consumers to submit an entry to be examined by a panel of judges who will select the best entries. A sweepstake asks consumers to submit their names in a drawing. A game presents with consumers with something every time they buy which might help them win a prize.

• Patronage Awards-Values in cash or in other forms that are proportional to patronage of a certain vendor or group of vendors.

• Free Trials-Inviting prospective purchasers to try the product without cost in the hope that they will buy.

• Product Warranties-Explicit or implicit promises by sellers that the product will perform as specified or that the seller will fix it or refund the consumer’s money during a specified period.

• Tie-in-Promotions-Two or more brands or companies team up on coupons, refunds and contests to increase pulling power.

• Cross-Promotions- Using one brand to advertise another non competing brand.• Point-of-Purchase(POP)Displays & Demonstrations: POP displays & demonstrates take place

at the point-of-purchase or sale.

SALES PROMOTION

• SELECTING TRADE PROMOTION TOOLS:• Manufacturers award money to the trade 1) to persuade the retailer or

wholesaler to carry the brand; 2) to persuade the retailer or wholesaler to carry more units than the normal amount; 3) to induce retailers to promote the brand by featuring display & price reductions & 4) to stimulate retailers & their sales clerks to push the product.

• Major Trade Promotion Tools-• Price-Off(Off invoice or off-list)-A straight discount off the list price on each case purchased

during the stated time period.• Allowance-An amount offered in return for the retailer’s agreeing to feature the manufacturer’s

products in some way. An advertising allowance compensates retailers for advertising the manufacturer’s product. A display allowance compensates them for carrying a special product display.

• Free Goods-Offers of extra cases of merchandise to intermediaries who buy a certain quantity or who feature a certain flavor or size.

SALES PROMOTION

• Selecting Business & Sales Force Promotion Tools-• Trade Shows & Conventions-Industry associations organize annual trade shows & conventions.

Participating vendors expect several benefits, including generating new sales leads, maintaining customer contacts, introducing new products, meeting new customers, selling more to present customers and educating customers with publications, videos and other audiovisual materials.

• Sales Contests-A sales contest aims at inducing the sales force or dealers to increase their sales results over a stated period, with prizes (money,trips,gifts or points)going to those who succeed.

• Specialty Advertising-Specialty Advertising consists of useful, low-cost items bearing the company’s name & address & sometimes an advertising an advertising message that salespeople give to prospects & customers. Common items are ballpoint pens,calendars,key chains,flashlights,tote bags & memo cards.

• Events & Advertising-Sponsoring events provides companies opportunities to obtain wider exposure to their brands & influences attitudes towards brands. The sponsorship of cricket in India, for example, is a big business; the BCCI has signed mega deals with Nike for kit sponsorship & Sahara Group for team sponsorships. Participating in car rallies provide visibility & brand image to MRF tyres.

• Marketers sponsor events because:1) To identify with a particular target market or life style

1) To increase awareness of company or product name

SALES PROMOTION

3) To create or reinforce consumer perceptions of key brand image associations

4) To enhance corporate image dimensions

5) To create experiences & evoke feelings

6) To express commitment to the community or on social issues.

7) To entertain key clients or reward key employees

8) To permit merchandising or promotional opportunities.

PUBLIC RELATIONS

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) involves a variety of programs designed to promote or protect a company’s image or its individual products.

The PR department of a company performs the following functions:a) Press Relations: Presenting news & information about the organization in the most light.

b) Product publicity: Sponsoring efforts to publicize specific products.

c) Corporate communications: Promoting understanding of the organization through internal & external communications.

SALES PROMOTION

4) Lobbying-Dealing with legislators & government officials to promote or defeat legislation & regulation.

5) Counseling-Advising management about public issues & company’s positions & image during good times & bad.MAJOR TOOLS IN MARKETING PRPublications-Companies rely extensively on published materials & influence their target markets. These include annual reports,brochures,articles,company newsletters & magazines & audiovisual materials.Events-Companies can draw attention to new products or other company activities by arranging special events like news conferences,seminars,outings,trade shows exhibits, contests & competitions & anniversaries that will reach the targeted publics.Sponsorships-Companies can promote their brands & corporate name by sponsoring sports & cultural events & highly regarded causes.News-One of the major tasks of PR professionals is to find or create favorable news about the company, its products, its people & get the media to accept press releases & attend press conferences.Speeches- Increasingly, company executives must field questions from the media or give talks at trade associations or sales meetings & these appearances can build the company’s image.Public-Service Activities-Companies can build goodwill by contributing money & time to good cause.Identity Media-Companies need a visual identity that the public immediately recognizes. The visual identity is carried by company logos,stationary,brochures,signs,business forms, business cards,buildings,uniforms & dress codes.

SALES PROMOTION

• PRINCIPLES OF PERSONAL SELLING:• There are six major steps in an effective sales process.

1) Prospecting & Qualifying-The first step in selling is to identify & qualify prospects. Companies qualify the leads by contacting them by mail or phone to assess their level of interest & financial capacity. The leads can be categorized with “hot” prospects turned over to the field sales force & “warm” prospects turned over to the telemarketing unit for follow up.

2) Preapproach-The salesperson needs to learn as much as possible about the prospect company (what it needs, who is involved in the purchase decision) & its buyers (personal characteristics & buying styles).The salesperson should set call objectives; to qualify the prospect, gather information, make an immediate sale. The next task is to decide on the best contact approach, which might be a personal visit, a phone call or a letter. Finally, the sales person should plan an overall sales strategy for the accounts.

3) Presentation & Demonstration-The sales person follows the formula of gaining attention, holding interest, arousing desire & obtaining attention.(AIDA).The salesperson uses a features,advantages,benefits & value approach.(FABV).

SALES PROMOTION

4) Overcoming objections-Customers pose objections during the presentation. Psychological resistance includes resistance to interference, preference for established supply sources or brands,apathy,reluctance to giving up something, unpleasant associations created by the sales representatyives,pre determined ideas, dislike in making decisions. Logical Resistance might consist of objections to the price, delivery schedule or certain products or company characteristics. To handle these objections, the sales person maintains a positive approach, asks the buyer to clarify the objections, questions the buyer in away that the buyer has to answer his or her own objection, denies the validity of the objection, or turns the objection into a reason for buying.

5) Closing-The next step is to close the sale. The salesperson need to know how to recognize closing signs from the buyer, including physical actions, statements or comments & questions. They can ask for the order, recapitulate the points of agreement, get the buyer in making choice of colors or size or indicate what the buyer will lose if the order is not placed.

6) Follow up & maintenance-are necessary if the salesperson wants to ensure customer satisfaction & repeat business. The salesperson should cement any necessary details on delivery time, purchase terms & other matters that are important to the customer. The salesperson should schedule a follow up call when the initial order is received to make sure about the installation, instructions & servicing. The salesperson should also develop a maintenance & growth plan for the account.

SALES PROMOTION

• SALES FORCE MANAGEMENT-The various steps in management of sales force are as follows:

a) Recruiting & Sales Representatives

b) Training & Supervising Sales Representatives

c) Sales Representative Productivity

d) Motivating Sales Representatives

e) Evaluating Sales Representativesa) Recruiting & Sales Representatives-First the company develops its selection criteria for the

recruitment. Applications are sought by soliciting names from current sales representatives, using employment agencies, placing job ads & contacting college students. The selection procedures can vary from a single informal interview to prolonged testing & interviewing. Formal tests may also be given. Parameters like personal characteristics,references,past employment history, interviewer reactions are considered.

b) Training & Supervising Sales Representatives-The new representatives who are recruited spend a few weeks to several months in training>The median training period is 28 weeks in industrial-products companies,12 in service companies 7 4 in consumer –products companies. Training time varies with the complexity of the selling task & the type of person recruited into the sales organization. Methods like role playing, sensitivity training, use of audio video formats,CD-ROMS,programmed learning, distance learning & films on selling are used.

SALES PROMOTION

Sales representatives who only receive commission, generally receive less supervision. Those who are salaried& must cover definite accounts are likely to receive substantial supervision. In some companies, independent, distributors are also in charge of their own sales force. They are paid a commission on their own sales and on sales of people they recruit & train.

c) Sales Rep Productivity-Companies often specify the time, sales representatives should spend prospecting for new accounts. Some companies want its sales representatives to spend 25 % of their daily time prospecting & to stop calling on a prospect after three unsuccessful calls.

Further, studies have shown that the best sales representatives are those who manage their time efficiently. One planning tool is time-and –duty analysis, which helps representatives to understand how they spend their time & how they increase their productivity. The actual face-to-face selling time amounts to as little as 29 % of total working time. Companies are constantly seeking ways to improve sales force productivity. This includes training sales representatives in the use of ‘phone power', simplifying record keeping & administrative time, using the computer & internet to develop call and routing plans, supply customer & competitive information & automate the order preparation process.

Salespeople are of three types: technical support people, who provide technical information & answers to customers”questions;sales assistants, who provide clerical backup for the outside salespersons, they call ahead & confirm appointments, carry out credit checks, follow up on deliveries & answer customers’ questions & telemarketers who use the phone to find new leads, qualify them & sell to them. The inside sales force frees the outside representatives to spend more time selling to major accounts, identifying & converting new major prospects, placing electronic ordering systems in customers’ facilities & obtaining more blanket orders & systems contracts. Usage of high tech equipment like desktop,laptop,PCs,PDAs,VCRs,automatic dialers,e-mail,fax machines , teleconferencing & videoconferencing. Another important too; is the company website>this helps define the firm’s relationships with individual accounts & identify those whose business warrants a personal sales call.

SALES PROMOTION

d) Motivating Sales Representatives-To increase motivation, marketers reinforce intrinsic & extrinsic rewards of all types. Research has shown that the reward with the highest value is pay, followed by promotion, personal growth & sense of accomplishment. The least valued rewards were liking & respect ,security & recgnition.But it was also found that the importance of motivators varied with demographic characteristics: Financial rewards were mostly valued by older, longer-tenured people & those who had large families. Higher-order rewards like recognition, liking & respect, sense of accomplishment were more valued by young sales people who were unmarried pr had small families. Companies set annual sales quota for representatives at a higher level, to spur extra effort, or more modesty or to build confidence.

e) Evaluating Sales Representatives-The most important source of information about rep is the sales report which are divided into activity plans & write ups of activity results. The activity plans includes the sales person’s work plan which reps submit a week or month in advance & the plan describes intended calls & routing. Sales reps can be evaluated on their ability to “plan their work & work plan". Companies also require rep to develop an annual territory marketing plan in which they outline their programs for eveloping new accounts & increasing business from existing accounts. Sales rep write up completed activities on call reports & also submit expense reports, new business reports, lost-business reports& reports on local business & economic conditions.Key indicators of sales performance are extracted from these reports.1)average number of sales calls per salespersons per day;2) average sales call time per contact,3) average revenue per sales call,4) average cost per sales call, 5) entertainment cost per sales call, 6) percentage of orders per hundred sale calls,7) number of new customers per period,8) number of lost customers per period and 9) sales force cost as a percentage of total sales.

MARKETING CHANNELS

• Marketing Channels are sets of interdependent organizations involved in the process of making a product or service available for use or consumption.

• Some intermediaries-such as wholesalers & retailers- buy, take title to & resell the merchandise are called as merchants.

• Other intermediaries such as brokers, manufacturer’s representatives, sales agents-search for customers & negotiate on the product’s behalf, but do not take title to the goods are called as agents.

• Intermediaries such as transportation companies, independent warehouses,banks,advertising agencies-assist in the distribution process but do not take title to goods nor negotiate purchases or sales are called as facilitators.

• A Marketing Channel System is the particular set of marketing channels employed by a firm.• A push strategy involves the manufacturer using its sales force & trade promotion money to induce

intermediaries to carry, promote & sell the products to end users. Push Strategy involves the manufacturer using its sales force & trade promotion money to induce intermediaries to carry, promote & sell the products to end users. This strategy is appropriate when there is low brand loyalty in a category. brand choice is made in the store, the product is an impulse item & product benefits are well understood.

• A pull strategy involves the manufacturer using advertising & promotion to persuade consumers to ask intermediaries for the product, thus inducing the intermediaries to order it. This is appropriate when there is high brand loyalty & high involvement in the category, when people perceive differences between brands.

MARKETING CHANNELS

• CHANNEL DEVELOPMENT• A new firm typically starts as a local operation selling in a limited market, using existing

intermediaries such as sales agents, a few wholesalers, several established retailers, transportation companies & warehouses. Then the firm uses different channels in different markets. A supply chain view of a firm sees marketers as destination points & amounts to a linear view of the flow. The supply chain should be designed backward from the point of target market & this is called as the demand chain planning. Don Schultz has suggested the acronym SIVA IN place of 4 Ps,which stands for solutions,information,value & access.

• The Role & Functions Of Marketing Channels.i) A marketing channel performs the work of moving goods from producers to consumers.

ii) It gathers information about potential & current customers,competitors & other actors & forces in the marketing environment.

iii) It reaches agreements on price & other terms so that transfer of ownership can be effected.

iv) Place orders with manufacturers.

v) Acquires the funds to finance inventories at different levels in the marketing channel.

vi) Assumes risks connected with carrying out channel work.

vii) Provide for buyer’s payment of their bills through banks & other financial institutions.

viii) Provide for the successive storage & movement of physical products.

ix) Oversee actual transfer of ownership from one organization or person to another.

MARKETING CHANNELS

• A zero level channel also called a direct marketing channel consists of a manufacturer selling directly to the final customer.e.g. Eureka Forbes,Tupperware,Asian Sky Shop,ICICI Bank(telemarketing).

• A one level channel contains one selling intermediary & a two level channel contains two selling intermediaries who can be retailers,distributors,a system house or a combination of stockists/wholesalers & retailers, distributors & dealers.

• Channels normally describe a forward movement of products from source to user. however, we have also reverse flow channels which are used in the following cases. a) to reuse products or containers) to refurbish products such as circuit boards or computers for sale c) to recycle products(such as paper),d) to dispose of products & packaging(waste products).

• Service Sector Channels-Producers of services & ideas develop specific channels for marketing of their output.

• Exclusive Distribution-means severely limiting the number of intermediaries and is used when the producer wants to maintain control over the service level & outputs offered by the resellers. It involves exclusive dealing arrangements. By granting exclusive distribution, the producer hopes to obtain more dedicated & knowledgeable selling. It requires greater partnership between seller & reseller & is used in the distribution of new automobiles, some major appliances & some women’s apparel brands.

MARKETING CHANNELS

• Selective Distribution involves the use of more than a few but less than all of the intermediaries who are willing to carry a particular product. It is used by established companies & by new companies seeking distributors. The company can gain adequate market coverage with more control & less cost than intensive distribution.

• Intensive Distribution consists of the manufacturer placing the goods or services in as many outlets as possible. This strategy is generally used for items, such as tobacco products,soap,snack foods, gum & products for which the consumer requires a great deal of location convenience.

• Vertical Marketing System-comprises the producer, wholesaler & retailer acting as unified systems. One channel member, the channel captain owns the others or franchises them or has so much power that they will cooperate.VMSs arose as a result of strong channel members’ attempts to control channel behavior & eliminate the conflict that results when independent members pursue their own objectives. They achieve economies through size, bargaining power & elimination of duplicated service. They are of two types: Corporate VMS & Administered VMS.

• Corporate VMS-combines the successive stages of production & distribution under a single ownership e.g Indian oil companies

MARKETING CHANNELS

• Administered VMS coordinates successive stages of production & distribution through the size & power of one of the members. Manufacturers of a dominant brand are able to secure strong trade cooperation & support from resellers.e.g.HLL,Gillette command high levels of cooperation from their resellers in connection with displays, shelf space, promotions & price policies. The most advanced supply-distribution arrangement for administered VMSs involve distribution programming which can be defined as building a planned, professionally managed, vertical marketing system that meets the needs of both manufacturer & distributors. The manufacturer establishes a department within the company called distributor-relations planning. Its job is to identify distributor needs & builds up merchandising programs to help each distributor operate as efficiently as possible.e.g Procter & Gamble.

• Contractual VMS consists of independent firms at different levels of production & distribution integrating their programs on a contractual basis to obtain more economies or sales impact than they could achieve alone. They are also called as “value-adding partnerships”(VAP).They are of three types: Wholesaler sponsored voluntary chains; Retailer cooperatives; Franchise organizations.

MARKETING CHANNELS

1) Wholesaler-sponsored voluntary channels-Wholesalers organize voluntary chains of independent retailers to help them compete with large chain organizations. The wholesaler develops a program in which independent retailers standardize their selling practices & achieve buying economies that enable the group to compete effectively with chain organization.

2) Retailer Cooperatives-Retailers take the initiative & organize a new business entity to carry on wholesaling & possibly some production. Members concentrate their purchases through the retailer co-op & plan their advertising jointly. Profits are passed back to members in proportion to their purchases. Nonmember retailers can also buy through the co-op but do not share in the profits.

3) Franchise Organization-A channel member called a franchisor might link several successive stages in the production-distribution process.

Traditional System

1) Manufactured-sponsored retailer franchise-The dealers are independent businesspeople who agree to meet specified conditions of sales & services.e.g. Car dealerships.

4) Manufactured-sponsored wholesaler franchise-Beverages company like Coca Cola licenses bottlers(wholesalers) in various markets who buy its syrup concentrate & then carbonate, bottle & sell it to retailers in retail markets.

5) Service-firm-sponsored retailer functions-A service firm organizes a whole system for bringing its service efficiently to consumers.e.g. NIIT, Apollo Hospitals,McDonalds,Dominos.

MARKETING CHANNELS

• HORIZONTAL MARKETING SYSTEMS-In this two or more unrelated companies put together resources or programs to exploit an emerging marketing opportunity.e.g. Post Offices selling insurance & mutual funds & HLL tying up with PepsiCo India for bottling & distribution of Lipton’s ready-to-drink & other beverages.

• MULTICHANNELMARKETING SYSTEMS- occurs when a single firm uses two or more marketing channels to reach one or more customer segments.

• FACTORS INFLUENCING CHANNEL CHOICE-Since, a large number of channels of distribution are available to the

manufacturer for bringing his product to the consumer, one channel has to be selected that involves least cost & ensures maximum overall profit.However,rational economic analysis alone will not be enable a manufacturer to select the most suitable channel. Other factors such as the product nature, its unit value, its technical characteristics, its degree of differentiation from competitive products, market tends, pricing policies, financial resources & available expertise with the company etc will have to be considered. The following factors have to be considered:

MARKETING CHANNELS

1) PRODUCT FACTOR-Product features exert a very decisive influence on the decision of suitable channels

a) Perishability-A perishable commodity needs speedy movement & hence shorter route of distribution. For durable & standardized goods, longer & diversified channel may be opted for.

b) Size-Bulky & heavier goods generally require short channels so that distance & number of handling from producer to ultimate consumers may be reduced.

c) Style-When the style of goods is subject to frequent changes, the goods are marketed through shorter channels.

d) Unit Value- If the product is of high unit value, more funds may be derived from the unit sold & therefore shorter & more costly channels may be used. If the product is of low value, larger & cheap channels may be used.

e) Type of end users-This also affects the type of channels in a big way. If the product is meant for the consumer market, retailers will have to be employed. But if it is for both consumer & industrial uses, more than one channel will have to be employed.

MARKETING CHANNELS

2) MARKET FACTORS-

a) The Nature Of the Market-is the first & foremost factor affecting the choice of the channel. If the product is meant for the consumer market, the services of retailers will have to be utilized & if it is also for industrial markets, more than one channel has to be used.

b) Market Size-If the size of the market is small, direct marketing is needed & for bigger markets, other channels can be used.

c) Dispersal of Consumers-If the potential buyers are concentrated in a limited geographical area, direct selling may be more effective, but for scattered markets a large number of middlemen have to be used.

d) Size of consumer-Order-If the volume of sales is large, direct selling may be economically feasible & in the reverse situation services of retailers etc may be availed.

3) CONSUMER FACTOR- While determining the channels of distribution, the convenience & inconvenience of the prospective customers has to be taken care of.e.g A large number pf consumer prefer paying for their purchase through credit card. Although they pay a little more, the convenience of paying once a month is a deciding factor. Some appliances like laptops or other things can be purchased through installment systems..For convenience goods long channels are preferred.Shopping & speciality goods are marketed directly.

MARKETING CHANNELS

4) Intermediary Factors-If a product needs aggressive promotion campaigns or special storage facilities which cannot be ordinarily provided by the manufacturers, the service of middlemen such as wholesalers or dealers has to be utilized.

5) Enterprise Factors-such as financial soundness of the enterprise, its size, its willingness to control over the channels of distribution etc. has a decisive influence on the choice of the channel. Enterprises with substantial financial resources can afford to reduce the levels of distribution & can grant credit for a longer period or store their products whereas enterprises with weak financial resources, have to utilize the services of the middlemen.However,a new company may rely on middlemen due to lack of experience on their part.

6) Environmental Factors-If the economy is passing through a recessionary phase, it will be prudent to go in for shorter or cheaper channels, whereas in times of prosperity, a relatively costlier & longer channel may also be opted for.

7) Competitor’s Channel- Invariably, similar types of channels as used by the competitor’s channel are made use of. The reason is that, the competitor’s channel is familiar to the purchaser & hence could reach the customer easily.Further,the use of an altogether different channel may affect the sales & even increase the cost of distribution.

8) Cost of Channel-The cost of distribution would reflect in the price of the product. Direct marketing generally is more costlier & distribution arranged through middlemen is more economical>It also requires that the manufacturer always keeps sufficient funds for moving the products to the market.

MARKETING MIDDLEMEN

• The American Marketing Association defines middlemen as “Middlemen is one who specializes in performing operations or rendering services that are directly involved in the purchase & sale of goods in the process of their flow from producer to the final buyer.

Thus, a middleman is an independent marketing institution situated in marketing channels, between the producer & the final consumer. A middleman is a great ‘facilitating force', which ensures a steady flow of goods from the initial producer to the final buyer.

CLASSIFICATION OF MIDDLEMEN-

When a middleman takes title to the goods & later effect sales on hos own accord,he is known as Merchant Middlemen.

When a middleman does not take title to the goods but simply gets an order from the buyer & passes it on to the producers or sellers, he is known as Agent Middlemen.

Wholesalers & Retailers are the prominent types of Merchant Middlemen.

Brokers, Commission Agents, Manufacturer’s Agents, Selling Agents, Auctioneers etc are types of Agent Middlemen.

MARKETING MIDDLEMEN

WHOLESALERS MERCHANT

MIDDLEMEN RETAILERS

• BROKERS MIDDLEMEN COM-AGENTS

MANF’s AGENT

SELLING AGENTS

AGENT MIDDLEMEN AUCTIONEERS

S

MARKETING MIDDLEMEN

a) Commission Agents-Those middlemen who are appointed to make sale of goods on the sole risk & account of the seller at the best terms & conditions are known as commission agents. They take possession of the goods, make necessary warehousing arrangements, pass title to the buyers & get remuneration at a certain percentage of commission on sales. They enjoy broad powers as to prices, methods & terms of sale though they are required to carry out instructions issued by their principles.

b) Brokers-Agents who do not have direct physical control of the goods & whose business is to negotiate & make contacts for the sale or purchase of goods in which they deal, are known as brokers. The brokers may represent either the buyer or the seller in negotiating purchases or sales for their pricipals.The services of the broker are generally utilized in marketing grocery & food articles. The broker generally works for a number of producers. They are important for small manufacturers who cannot maintain their own selling staff.

c) Selling Agents-is one who performs the functions of an independent middleman taking over all the selling activities of a producer. The selling agent generally negotiates sales of merchandise produced by his principal & has full authority & control over prices, terms & conditions of sale. A selling agent sometimes advertises the products he sells & organizes his own selling department.

d) Manufacturer’s Agents-is an agent appointed by the manufacturers who desire to sell in new territories or whose sales in an area is limited.Specialised products like electric goods,furniture & domestic equipment are mostly sold through agents.

MARKETING MIDDLEMEN

e) Auctioneers-are engaged in selling goods under the auction method of sale. They take possession of the goods, display them to the public, sell to the highest bidder & transfer ownership of the goods to the buyers. The goods are passed to the highest bidder, subject to any minimum price fixed by the seller. They are specially employed by agricultural or live-stock producers, used vehicles, art dealers, cotton & tobacco merchants. They provide a location of bidding, making advertisements & other required arrangements & other required arrangements for auction. They get a commission on the sale proceeds of the goods.

f) Export & Import Agents-they operate import cities & may act in the capacity of a broker or a commission agent, a selling agent or manufacturer's agent. They render services in regard to foreign trade.

g) Resident Buyers-An agent who specializes in buying on a fee or commission basis chiefly for retailers.

h) Packing & Forwarding Agents-Agents who are employed to collect, deliver & forward goods on behalf of others.

i) Warehousing Agents-They specialize in storing the merchandise & take all possible care to preserve the goods entrusted to them.

j) Purchasing Agent-Middlemen who specializes in locating sources of supply for buyers of industrial goods.

MARKETING MIDDLEMEN

• WHOLESALERS:

The American Marketing Association defines wholesalers as those middlemen who sell to retailers and/or industrial, institutional & commercial users but they do not sell to ultimate consumers.

Wholesalers are mainly concerned with assembling & dispersing functions of marketing. They collect goods from different centers of production at a central point & distribute the goods among retailers who remain scattered through the market. They generally confine their activities to one product or to a narrow range of products and also carry out grading,storing,transporting,financing activities.

CLASSIFICATION OF WHOLESALERS:

Wholesalers may be classified on the basis of:

A) Commodity they deal in;

B) Territory covered by them;

C) Number & nature of marketing functions performed by them.

MARKETING MIDDLEMEN

A) On the basis of commodities they deal in:

i) General Merchandise Wholesaler-is a merchant wholesaler who carries a general assortment of goods in two or more districts & unrelated merchandise lines.

ii) General Line Wholesaler-deals in a wide assortment of goods within a single product line of goods. He may also deal in other items which are closely related to the items of product line which he stocks.

iii) Single Line Wholesaler-deals only in the merchandise & may offer the whole range of goods. He may also specialize in concentrating on the products of a single or a special group of manufacturers.

B) On the basis of Territory Covered

iv) Local Wholesalers-They operate in a town or city or part of a town or city & supply goods to the local retailer.

v) District Wholesalers-They are also termed as regional wholesalers & operate in a particular district or state grouped in terms of regions.

vi) National Wholesalers-are located at a strategic place & distribute goods all over the country. TheyMARKETING MIDDLEMEN may not be exclusive national and also serve as local or state distributor

MARKETING MIDDLEMEN

C) On the basis of marketing functions performed-

i) Service Wholesalers-They perform full range of marketing functions & render services to the retailers & manufacturers and are also called as ‘Full Function Wholesalers’

ii) Limited Function Wholesalers-perform only a few of the functions normally associated with wholesaling operations. They are of the following types:

a) Wagon or Truck Jobbers-sell from the wagon.He often covers wide territories-often rural-and distributes mostly perishable products to small retailers.

b) Rack Jobbers-are wholesalers who market spaeialised lines of products to certain types of stores only. They keep their merchandise in racks & the retail buyers are allowed to get their supplies for themselves.

c) Cash & Carry Jobbers-These wholesalers require retailers to come to the wholesale warehouse, pick their own orders, pay cash for what they buy & carry away their own purchases. Naturally their operations are less costly & the price of products is also low.

d) Mail Order Wholesaler-sell thriugh post offices but their importance has come down presently.

MARKETING MIDDLEMEN

• Functions of Wholesalers:a) Assembling-This function involves buying of manufacture goods or agricultural produce.

The wholesaler has to be particular regarding the needs & wishes of the retailers and accordingly has to take decide the quality, quantity & variety of the commodities to be purchased & assembled by them.

b) Storing & Warehousing-The goods purchased by the wholesaler are to be stored in warehouses till they are sold to the retailers. Storing of the commodities involves risk to the wholesaler & locking up of his capital.

c) Dispersion-The goods that are stored are distributed by the wholesaler to the retailer who are generally widely spread over a large area. Retailers buy goods from the wholesalers in small quantities to replenish their stock whenever they find their stocks are depleted.

d) Transporting-Wholesalers purchase goods in large quantities from the manufacturers & arrange for their transport first to their warehouses & later on to the retailer’s shops or godowns.This is economical in nature.

e) Financing-The most important form in which wholesaler offers financial assistance to retailers is the credit sale.Further,by storing the manufactured goods in his warehouse, he relieves the manufacturer of a great financial burden of carrying the stock.

MARKETING MIDDLEMEN

e) Risk Bearing-By storing the goods in large quantities, the wholesalers faces a number of risks such as fall in prices or risk of damage,spoilage,pilferage,theft,deterioration in quality, loss by fire etc.Further as wholesaler sells to retailers on credit basis, he has to bear the risk of bad debts.

f) Grading, Packing & Packaging-The wholesaler after purchasing the goods from the manufacturer grades them & repacks them into small lots which are convenient to the retailers. Thus the wholesaler takes the responsibility for performing the functions of grading, packing & packaging.

g) Providing Market Functions-The wholesaler after collecting market information from the retailers passes on this information to the manufacturer.The wholesaler provides information to the retailers about the goods available in the market & gives suggestion on sales promotionetc

MARKETING MIDDLEMEN

• RETAILERS has been coined from a French word meaning ‘to cut again'. A retailer is one who sells his goods in small quantities to the ultimate consumers.`

As per James Stephenson “Retailer is a trading intermediary engaged in the distribution of consumer goods who is in direct contact with the ultimate consumer.”

Stanton “Retailing includes all activities directly to the sale of goods or services to the ultimate consumers for personal or non business use.”

There are four distinguishing features of retail trade:

1) The retailer deals in small quantities.

2) His business is usually local in character.

3) A retailer invariably deals in variety of goods as has has to satisfy the innumerable wants & needs of the consumers &

4) A retailer always sells to the ultimate consumers.

MARKETING MIDDLEMEN

• FUNCTIONS OF RETAILERS-1) Buying & Assembling-The retailer has to stock a wide variety of products for a large number of consumers. This

necessitates the retailer to assemble the products of different manufacturers from different wholesalers through the process of buying.

2) Warehousing & Storing-After buying the products from different wholesalers arranges for their storage. This enables him to meet the requirements of his customers for different types of goods without any delay.

3) Selling-The retailer has to sell the products that he has purchased from the wholesalers.

4) Risk undertaking-The retailer undertakes all risks such as fall in price, physical deterioration in condition of goods, natural calamities, change in fashion or business environment during the period the goods are in his warehouse.

5) Grading & Packing-The retailer arranges for the grading of such goods which are not graded by the wholesaler. The packing of goods in small packs is also done by the retailer.

6) Credit Sale-A retailer has to make sale of his goods to his customers on credit basis.

7) Furnishing Market Information-They collect valuable market information such as consumer’s behaviour,change in taste, fashion demand etc.Thsi information is passed on to the wholesaler who in turn passes this to the producers so that the goods are produced accordingly.

8) Advertising-The retailers are a important medium of advertisement. Window dressing practised by most of the retailers constitute a most dependable source of advertisement for themselves as well as for the producer.

9) Creating Possession Utility-Retailers also create possession utility for the goods by facilitating transfer of title & possession of gods.

MARKETING MIDDLEMEN

• TYPES OF RETAIL FORMATS IN INDIA:• Small Scale Retailing- 1) Unit Stores-occupy the top most position in retail trading on the basis of numerical strength & the

aggressive value of business. These stores are usually established on a proprietary basis by individuals who fully assume the role of active management. Unit stores are invariably situated at convenient places to cater to the needs of a local community. These unit stores may be either general stores dealing is a variety of products or single line stores confining their activities to one kind of products. General stores are popular in rural areas. Facility of formation, simplicity of operstion,intensity of sales efforts & austerity in management are the prominent advantageous of unit stores. The power of perfect adaptability with all changing phases of the business & the scope of personal touch with consumers & employees have enabled the unit stores to hold their position in the market.

2) Speciality Traders-In such shops goods of a particular variety are sold. The dealers specialize & deal only in one line of goods. Shops meant exclusively for shoes,drugs,ready made garments, books etc are some examples of speciality shops.

3) Street Traders-This type of retailers carry on their business in busy streets or on foot paths of cities. They are often found near railway stations, bus stands & similar places where huge floating population is invariably found.

4) Market Traders-Those retail traders who open their shops at different places on fixed market dates are known as “Market Traders". Such dates may fall either weekly, fortnightly or monthly.

MARKETING MIDDLEMEN

5) Hawkers & Peddlers-These retailers do not have any fixed place of business. They carry goods from one place to place with the help of a hand cart & sell their merchandise at the door of the customer.

6) Syndicate Stores-The chief characteristics of syndicate stores is that while they offer a wide variety of merchandise to customers, they seldom sell known brands. Most of the merchandise they sell is generally of their own. The general practice is to purchase unbranded merchandise & later on sell them under their own brand.

7) Departmental Stores-is an integrated retail organization which offers to its customers a variety of products classified into well defined departments under one roof. Clark & Clark have defined them as “the departmental stores is a retail institution that handles a wide variety of merchandise goods grouped into well defined departments for purpose of promotion, service, accounting & control.” A feature of the departmental store is ‘the decentralization buying & centralized selling' It is a horizontal integrated retail institution. Two models of department store success is emerging

a) Strong Retail Brand Approach-In this type of department store, in-house brands feature strongly & managers take an active role in choosing inventory. While these stores tend to have high operating costs, they usually command high margins if their in-house brands are both fashionable & popular.e.g Pantaloons

b) The Showcase Store-This type of store not only sells other people’s brands but often gets the vendors of those brands to take responsibility for stock, staff & even the selling space. The vendor then hands over a percentage of the sales to the store’s owner.Thsi translates into lower gross margins for the department store but also operating costs. Spencer’s Stores

PHYSICAL DISTRIBUTION

• W.J.Stanton- “ Physical Distribution involves the management of physical flow of products & the establishment & operation of flow systems.”

• Cundiff & Still- “ Physical Distribution involves the actual movement & storage of goods after they are produced & before they are consumed.”

Thus it is observed on the basis of the above definitions that physical distribution is a marketing term which refers to the broad range of activities connected with efficient movement of goods from the place of production to the place of consumption. It includes the movement of raw materials from suppliers to the production plant.

Objectives of Physical Distribution:

a) To ensure better customer service

b) To lower the stock level

c) To reduce cost.

Importance of Physical distribution:

a) A well devised physical distribution system helps minimum cost of marketing. Since major components of marketing costs like transportation, materials handling, inventories have registered sharp increase in costs, marketers have to pay particular attention to cost reduction exercise in overall marketing operations.


b) Physical distribution system helps attain the objectives of utmost customer satisfaction by ensuring the best possible warehousing, inventory control,transport,protective packaging, physical handling, order processing etc which gives the customer, the service they expect.

c) It creates time & place utilities by making available a product at the time it is needed & at the place, where it is stored.

d) It cultivates creation of demand. Only such enterprises which are able to offer quality goods at a suitable price & appropriate time will be able to be successful in face of stiff competitoion.Effective customer service can act as an important selling point to attract business from potential customers.

e) It forms a major part of national income, through distribution system through means of railways,highways,trucks,aircrafts,ships docks.

TRANSPORTATION- is the physical means of moving goods from one place to another. It imparts place utility of goods by moving them from different centers of production to the places of consumption. With the improvement in speed & road infrastrusture,transit time in transport has been shortened to a greater extent, thereby increasing the turnover of capital & products of business & preventing risk of price changes. Better transport opens up new markets,which,in turn, increases the volume of production requiring the support of wider & large transport facilities. It has increased the variety & quantity of goods, reduced the price of products & quickened the time of their production & distribution.


• MODES OF TRANSPORT: The various modes of transport fall under three categories- Land, Water & Air.

• Land Transport-consists of pathways used for human & animal transport & roads by different types of vehicles like bullock carts,cycles,motor cars,trucks,lorries etc

• Road Transport-is one of the important means of transportation. Road transport acts as a feeder to other agencies, like railways, airways & shipping where people & goods are to be moved over a distance. It consists of passenger carriers like cars,taxis,buses,goods trucks & lorries. Motor transport makes no comparison with those primitive forms of land transport & it has several advantages over railway transport like

a) It renders complete service by loading goods at the consignor’s place of business & unloading them at the door of the consignee;

b) For comparatively short distances, motor transport is speedier as well as cheaper than rail service;

c) It offers a greater flexibility in the adjustment of services as to time & load factors. As is has no scheduled time like the railways, truck services can be adjusted according to requirements.

d) Goods carried by trucks are less liable to loss & damage partcularly in the case of fragile & perishable goods.


• Road transport are best suited for the transit of low & medium unit value goods.• The truck charges can be easily calculated as compared to railways.

Railways-It is the cheapest & quickest means of transportation over long distances & for heavier types of commodities.

a) It is capable of running long distances at high speed & is the only choice for long hauls in land transport.

b) Small power requirement makes the railway a cheaper form of transport for carrying heavy goods to any great distance.

c) It has the power of handling larger volumes of traffic by adjusting the number of wagons.

d) It is generally not obstructed by weather conditions & provides a more dependable service.

e) Goods are more safe & secured against loss & the railway receipt being a document of title to the goods gives rise to some privilege during transit times.

Water Transport has been a important mode of transport. In past, this was only means of transport available for moving bulky goods of cheap value. This consists of inland waterways & ocean transport.


• INLAND WATERWAYS- consists of river & canals. Rivers are natural highways which provide safe transportation for carrying goods from one place to another if at all they are navigable. Canals are artificial waterways constructed for the purpose of navigation & irrigation. They also provide a convenient waterway if they are deep & broad enough to maintain a regular flow of traffic. The advantages of inland waterways are as follows:

a) It is the cheapest mode of transport because of its low operating costs.

b) It is particularly suited for carrying heavier goods like coal, bricks etc.

c) Initial investment is negligible and the maintenance cost is meager.

d) Since traffic density is less on waterways, possibilities of delay is less.

OCEAN TRANSPORT-consists of coastal shipping & overseas shipping.

Coastal Shipping-is a dignified form of inland water transport. It is meant to provide services only within the nation.

Overseas Shipping-is utilized for foreign trade. The ocean going vessels are classified into four categories on the basis of their working. They are:

a) Liners-are those vessels which provide a regular service on specified routes & move on the basis of a pre-determined schedule. They are big & fast vehicles. They carry goods of secondary industries preferably manufactured goods such as machineries,equipments,cars etc.


2) Tramps-Contrary to liners the tramps have no fixed schedule & predetermined routes. A tramp is a handy sized vessel capable of visiting a large number of ports & of being employed in many different trades. The owner decides for himself the load & the route & even change the destination while it is on high seas. A tramp is cheap, flexible & specially important in carrying freight.

3) Tankers-are the ships which are exclusively meant for transporting crude petroleum & petroleum products.

4) Industrial Carrier-are the ships which are owned & operated for the exclusive use of the manufacturers. They are used to transport one’s own finished products & in return they bring raw materials.

Advantages-

Ocean transport is considered to be the cheapest because there are no costs of construction of roads,railway lines as in the case of motor vehicles or railways.

Ocean transport is the only means that has maximum capacity to move goods & people.

It is only feasible means of transport between countries so far as bulk goods are concerned.


• AIR TRANSPORT: is an important carrier for the movement of light & costly goods. Introduction of large-sizes cargo planes & economy in the operating cost have enabled it to go in for untrodden & intractable paths. It has reduced the time & distance barrier between countries & has made the world shorter today than it was in the past.

• Advantages-• It adopts the most direct & the shortest route for carrying goods & reach

thos e places which are not accessible to other forms of transport.• Where speed of transport is essential & time is valuable, it offers the only

choice.• Its unsurpassed capacity to give quick delivery has resulted in reduction of

actual transport cost in several ways. The higher cost of transport is neutralized to some extent by the benefits of increased turn over, reduced inventory, diminished storing cost & expanded market.


• SOME RECENT DEVELOPMENTS: A number of improvements have taken place in the field of transportation which have contributed substantially in removing some of the major bottlenecks of effective & smooth transportation. These include:Containers;Pipeli.nes;Piggybanks;Fishybacks & Palletisation.

• Containers-The containers are specially built boxes which could be taken out & placed in a ship together with its contents. Thus a ship need not wait until the cargo is gradually taken out. As soon as containers are taken out the ship leaves the port.Subsequently,the products are discharged from the containers or the containers themselves are transported to the place of sea.

• Pipelines-For transporting petroleum products from wells to refineries & from refineries to consuming areas, pipelines are used. They cost about one fourth of that of the railways. The USA has the biggest area of pipelines in the world followed by USSR and the Middle East region. The Oil India limited & Indianoil,Reliance Petroleum,Indraprastha Gas are some of the companies whish have laid pipelines in the country for transporting the material.

• Piggybank- Under this method, use of flat railway cars is done to transport truckloads of merchandise over long distances.

• Fishy back- In fishyback services, the goods are loaded on trailers & the trailers are then loaded on to barges or ships. The trailer is attached to a moving vehicle at the destination port & towed to the receiving station. This avoids loading & unloading problems to a considerable extent.

• Palletisation-Under this method, packed articles are handled with the use of pallets & are used as an aid in mechanical handling merchandise.


• STORAGE & WAREHOUSING-Storage implies preserving. It is the process of carrying forward surplus production for future consumption for future consumption & includes all types of storage-country method of storage or scientific methods of storage, whether controlled & maintained by private or public agencies.Onthe other hand, warehousing means scientific facilities for storage of commodities, generally combined with the elements of trade & profit.

• Duddy & Revzan- “Storage is holding back all goods that are produced from the time of completion of production to the time of consumption.”

• Shetty & Reddy- “Storage may be defined as the marketing function that involves holding of goods between the time of its production & its final consumption.”

• Significance of storage:1) The need for storage of agricultural produce arises because most of the agricultural; produce are

seasonal & cannot be disposed of immediately after harvest. But the consumption of food resources is a continuous process & therefore the produce needs to be stored till the consumption stage.

2) Storage is necessary for goods which are purchased or used seasonally.Coolers,refrigerators,fans,geysers have seasonal demand and hence are stored during off season till the requirement arises as the production goes on throughout the year. The expenses of storing in off season is less than the extra cost of providing facilities & labour when products are needed in required quantities..


3) The supply of agricultural production is not regular & uniform, but the demand remains regular. In order to have a regular flow of marketable surplus to the markets, the conservation of agricultural product becomes essential.

4) Generally there is a time lag in between production, marketing & consumption. The storage system tries to shorten this time lag & enables the producers to get a better price at the harvest time. Since a new kind of commercial demand which did not exist is created, it enables the consumer to obtain the commodities during period of scarcity & their prices is reduced as more of the commodities are available in the off season.

5) Storage creates form utility.Cpmmodities like tobacco & cheese are stored for curing purposes. Bananas & mangoes which need ripening are harvested green and are stored. Timber is also stored for ripening.

6) The adequate provision & extension of storage facilities pave the way for minimizing the price fluctuations which characterize agricultural products. Where storage facilities are available, it may be possible to narrow down the annual variation in prices.

7) Where the place of production of goods is away from the place of consumption, there is a need for storing the goods near the market as a protection against delays in supply & uncertainties in transportation.

8) Manufacturers produce goods in anticipation of demands & hence the goods produced in advance have to be stored by the manufacturer until they are demanded in the market.

9) Some perishable goods like vegetables,fruits,butter etc are kept in cold storage to preserve their quality & to enable the consumers to consume them regularly throughout the year.


• WAREHOUSING- Usually a warehouse is used to denote a place of storage & is a building or a room used for storing merchandise. Warehousing embraces storage & helps other marketing functions such as assembling,grading,transportation etc.

• FUNCTIONS OF WAREHOUSE-

1) Storage-Warehousing assumes the responsibility for storage of goods, which are in surplus & make them available to the consumers when the supply is relatively less.

2) Risk-bearing- The warehouseman takes care of the goods from the time of deposit till they are released by the owners & if the goods are damaged or lost or destroyed when they are in his warehouse, he reimburses the loss to the owner of goods.

3) Financing-The warehouse receipt issued towards the storage of goods in government warehouses & designated warehouses is used for financing of the goods to the extent of 80% of the value of the goods ,prevailing on the day of taking finance from financial institutions.

4) Price Stabilization-Warehousing avoids the fall in the price of the goods, when there is more supply than demand & rise in their prices when the demand is more than the supply. Thus warehousing helps in stabilizing the prices of good whose supply is irregular.

5) Packing-Sometimes the warehouse keeper takes the responsibility for blending,mixing,grading & packing of goods in convenient lots for sale purposes.

6) Miscellaneous Functions-It may provide representative samples to the buyers & break up large stocks into small parcels. It may deliver goods to the buyers as per the instructions of the depositor of goods


• CLASSIFICATION OF WAREHOUSES-

Warehouses may be divided on the basis of the following classifications:

i) On the basis of place of necessity

ii) On the basis of ownership

iii) On the basis of commodity stored

On the basis of necessity-a) In-plant warehouses-It is usual that the manufacturers generally required to store their products for

some time before sending them to the market.Moreover,a large number of manufacturers find it convenient to distribute the products from plants directly to retailers or to consumers. This reduces handling cost & improves the services. This requires in-plant warehousing.

b) Field Warehouses-is necessary where products from different plants are to be mixed together. They are centrally located from where distribution is done to wholesalers & retailers.

c) Bonded Warehouses-are generally located near ports. They are meant to store the unloaded goods from the ship, before they are taken delivery by the owner. For outward transportation, the commodities are handed over to the warehouse authorities who keep them until the ship arrives in then port. The importer normally has to take over the goods after paying customs & other duties due, to the shipping & port authorities. The importer can get the goods released from such warehouses proportionately by paying these dues in instalment.It is due to this function that these warehouses are called as bonded warehouses.


d) Household warehouses-Theses warehouses are mostly temporary in character & are not used for commercial purposes. These warehouses are meant for storing furniture & other household articles, when one has to move away from one place or city to another. This service is found in large cities only, where transfers of employed personnel are frequent.

On the basis of ownership-

e) Private Warehouse-is one which is owned & operated by a firm or a trader or a manufacturer exclusively for his own purposes. Private warehouses are generally used by retail dealers. Manufacturers may also own their private warehouses for the purpose of storing raw materials.

f) Public Warehouse- Place of storage for the general public where a variety of merchandise are stored are known as public warehouses. The rental charges to be paid by the users are fixed on the basis of areas occupied, period used, special nature of the commodity etc.Public warehouses are owned either by the private individuals or institutions including government. The warehouse receipt issued fir the goods stored is negotiable and can be given as collateral. This warehouse is adopted to the needs of the person who wishes to carry regional stocks & who does not have enough goods to carry regional stocks & who does not have enough goods in various storage canters to justify the maintenance of his own employees.

g) Cooperative warehouses-is a warehouse constructed by two or more warehousing agencies or private parties to facilitate the storage of goods at a central pl;ace.In India, warehouses are constructed & maintained by cooperative societies.


• On the basis of commodities stored-

a) General Merchandise Warehouses- Practically, any kind of manufactured or non manufactured products that need protection from the weather can be stored in these warehouses. These warehouses also carry out sorting,cleaning,packaging of goods,despatching of goods as per direction of the owner, repairing of damaged packages, issuing of invoices to the buyers on behalf of sellers & in some cases collection of dues from the buyers.

b) Special Commodity Warehouses-These warehouses are specially constructed to house certain commodities like grains,wool,cotton,explosives etc & require special facilities such as maintenance of fixed temperature, on exposure to light. And handle only one kind of product.

c) Perishable Commodity Warehouses-These are refrigerated warehouses and perishable commodities such as fruits,eggs,meat,fish etc are stored in these warehouses.

Latest trends in warehousing-

d) Grain Elevators- is a device for storage of grain in bulk. A grain elevator is a movable warehouse which has got two parts. One is used as a working house, while the other is a storage house with a number of bins. Grain is lifted on to these bins & discharged whenever necessary. All the operations are mechanical which facilitates movement. In addition, bulk storage in elevator minimizes deterioration in quality.

e) Silos-are generally constructed in big cities & at ports where stocks are required to be stored for longer periods & where construction of conventional warehouses prove to be extremely costly due to high labour & land costs. This has a vertical shaped device fitted with mechanical devices such as conveyor belts, automatic aeration,disinfestation & temperature control arrangements.

f) Bins-are small cylindrical hexagonal & cubical structures for bulk storages of varying capacity till 50 tonnes.They are man operated and store bulk grains or other goods.


• INVENTORY-means the stock level of raw materials, components required for making a product and the finished product available with a manufacturer or a producer or a stockist.

• Techniques of inventory control• The stock level at which the manufacturer places his order is called as order(reorder) point. The

order point should balance the risks of stock out against the costs of overstocks. The company needs to balance order processing costs and inventory carrying cost.

• Order–processing costs for a manufacturer consist of set up costs & running costs which are operating costs when production is running for the item. If set up costs are low, the manufacturer can produce the item often & the average cost per item is stable & equal to the running costs. If set up costs are high, the manufacturer can reduce the average cost per unit by producing a long run & carrying more inventory.

• Inventory carrying costs include storage charges, cost of capital, taxes & insurance, depreciation & obsolescence. Carrying costs might run as high as 30 percent of inventory value. If a company wants to carry large inventories, it is essential that larger inventories would produce incremental gross profits to exceed incremental carrying costs.


• OPTIMAL ORDER QUANTITY-

Cost per unit

(Rupees) Total cost per unit

Inventory-carrying cost per unit

Order-processing cost per unit

Q

Order Quantity

The Optimal Order quantity can be determined by observing how order processing units & inventory carrying costs sum at different levels. In the above figure, it is shown that the order processing costs per unit decreases with the number of units ordered because the order costs are spread over more units. Inventory carrying charges per unit increase with the number of units ordered because each unit remains longer in inventory. The two cost curves are summed vertically into a total cost curve. The lowest point on the total cost curve is projected down on the horizontal axis to find the optimal order quantity “Q”

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Essentials of Marketing

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