MCO-06 SOLVED ASSIGNMENT FOR MCOM

Course Code: MCO-06

Course Title: Marketing Management
Assignment Number: MCO-06/TMA/2017-18
Last Date of Submission: 15th March, 2018 (for Jul-2017 batch)
: 15th Sept, 2018(for Jan-2018 batch)

Question No.1 What do you understand by marketing environment? Discuss the

impact of demonetization (ban of Rs. 500 and Rs. 1000 notes) in November,
2016 on the marketing environment in India in the short term and long term.
Ans.

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Marketing Environment:
Introduction

In today's world of marketing, everywhere you go you are being marketed to in one form
or another. Marketing is with you each second of your walking life. From morning to
night you are exposed to thousands of marketing messages everyday. Marketing is
something that affects you even though you may not necessarily be conscious of it.

Definition of Marketing
According to American Marketing Association (2004) - "Marketing is an
organizational function and set of processes for creating, communicating and delivering
value to customers and for managing relationships in a way that benefits both the
organization and the stakeholder."

According to Kotler (2000) - "A societal process by which individuals and groups obtain
what they need and want through creating, offering, and freely exchanging products and
services of value with others."

Marketing Environment
The term Marketing Environment refers to the forces and factors that affects the
organization ability to build and maintain good relationship with its customers. Marketing
environment surrounds the organization and it impacts upon the organization. Marketers
have to interact with internal and external people at micro and macro level and builds
internal and external relationships. The key elements of marketing environment are as
follows :-
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1. Internal Environment,
2. Micro Environment, and
3. Macro Environment.

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Demonetization: The demonetization effort being led by PM Modi in India is appreciable
to an extent but follows positive as well as negative aspects. The aim is to wash the stock of
―black money‖ out of the economy and get it into the banked and taxable part of the economy.

―Cleaning of the black money is a very positive step. However, certain things will happen as a
result of this. Transactions will now begin to move to white economy through the banking
system which means there will be surge in bank deposits. Even savings in terms of deposits will
go up.‖

Many renowned personalities like politicians, businessman, and so on have huge reserves of
black money either in India or abroad. All the notes of are in high – value denominations. Now
with the news of demonetization they will be forced to deposit their black money into the banks,

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after submitting their PAN or Adhar or Passport number, to get new currencies. This will help
the government to catch the culprits and keep an eye on all the fraud people who are helping
them in converting their black money into white money.

Though this move causes some difficulties for the common people because banks and post
offices do not have sufficient amount of cash. People are facing lot of problems with the old
currencies. They have to make long queues either to deposit their money or to exchange them.
Moreover the ATMs are not updated yet. The shopkeepers and the others are refusing to take
2000 rupee note because they don‘t have sufficient amount of small denomination currencies.
The government is taking necessary steps to upgrade the ATMs and printing new currencies at a
very high speed so that it reach the people without making any more chaos in the market.

The sudden stop in the availability of currency has led to a liquidity shock to the people in the
nation. Lack in currency of Rs.500 and Rs.1000 has disturbed economic activities such as
consumption, investment, production, employment etc. In this context, a number of short term
and long terms impacts can be seen on the Indian economy.

Short-term impacts

 GDP formation will be effected with the reduction in consumption demand. Consumption ↓→
Production ↓→ Employment ↓→ Growth ↓→ Tax revenue ↓
 Certain sections of the society namely agriculture sector, small traders, households, SME’s, daily
wage earners etc. will face short term disruptions due to absence of liquid cash.
 Money supply will reduce in the short-run until the new 500Rs. & 2000Rs. gets widely circulated
in the market.
 Negative impact on disposable income and the consumption patterns of the people is expected.
 Less currency circulation will reduce inflation.
 Short term recession in sectors like real-estate, construction material, textile, handicrafts etc.
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 Its impact will be seen on farmers as this is the harvest time and farmers generally deal in cash.
 Rate of capital formation growth will go down as no investments will take place.

Long-term impacts

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 Government revenue will boost up as more earnings would be declared. The unbanked people
will move to banking like Jan-dhan contributing towards government’s efforts of financial
inclusion.
 Demonetization will set accountability in motion as service/sales tax is not paid by people like
local photographers, tailors etc. and thus their income goes unaccounted.
 Collection of higher taxes will help in nation building like development of roads, infrastructure,
transportation and many others.
 Increase in nation developmental projects will demand more labor and other skilled manpower
which will give rise to employment opportunities.
 It will bring more business in taxation i.e. GST benefits.
 Cash in system will boost educational loans and business loans thus bringing more
opportunities.

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 It will lead to better business environment, less corruption and transparency.
 Substantial increase in the demand of Digital transactions system, E-wallets, usage of plastic
money, online transactions using E-banking etc.
 Gold imports will be reduced because of the investments in gold by people as an alternative to
cash deposit in the bank.

To conclude the decision of demonetization will prove excellent in long run and our tax
consultant will earn a huge profit because now the people will appoint them for the returns and
filling and the government can earn huge economic benefit.

Question No.2 (a) Explain the relationship between market segmentation,

targeting and positioning.

Ans. Today most of the companies are moving away from mass marketing and adopting target
marketing approach. Marketers who want to practice target marketing effectively are required to
take three steps. The first step is Market Segmentation, the second step is market targeting, and
the third step is market positioning Therefore, target marketing is also known as STP marketing
i,e. Market segmentation, targeting, positioning.

As buyers of a product exhibit different needs and wants, and therefore, each group with similar
needs may be treated as a separate market. Customer-oriented companies take these differences
into consideration, but they usually cannot afford to tailor-made n different product and
marketing mix for every consumer. Consequently, most marketers operate between the extremes
of one marketing mix for all (mass marketing) and a different one for each consumer. Therefore,
companies go for market segmentation. We define market segmentation as the process of
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dividing the total market for a product or service into several smaller groups, such that the
members of each group arc similar with respect to the factors that influence demand.
Therefore, companies through market segmentation divide large, heterogeneous markets into
smaller segments that can be reached more efficiently and effectively with products and services
that match their unique needs.

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The strategy of market segmentation involves the development of two or more different
marketing programs for a given product or service, with each marketing program aimed at a
different market segment. A strategy of marketing segmentation requires that the company first
clearly defines the number and nature of the customer groupings (market segments) to which, it
intends to offer its product or service. This is necessary (though not sufficient) condition for
optimizing efficiency of marketing effort against those segments or the total market where it is
likely to yield higher returns on the effort and investment. Some people criticize that marketers
create the segments. This is not true. They do not create the segments but they first identify the
segments and then decide to focus on one or more segments with different marketing mixes.

By applying the learning from the market segmentation chapter, you as a business manager will
be able to identify your firm‘s markets segment opportunities. These opportunities have to be

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evaluated to select either one or a number of strategically significant segments for launching
your marketing program. It is a stage where the firm has to evaluate different segments and
decide how many and which ones to target for this method is called market targeting. A target
market is defined as a set of buyers sharing common needs or characteristics that the
company decides to serve. It is very important to select the target market to which the company
decides to serve because knowledge about how the consumers decide, what are the criteria of
buying products, the characteristics and life style of the targeted customers can help the
marketers to develop a suitable marketing strategy. Every marketing strategy involves marketing
expenditure and the return on a market program can only be identified if we are able to know the
target market for which the marketing program is targeted. It is observed from research that a
majority of the marketing expenditure is actually wastage of company resources as they are spent
on non-buyers. So an understanding of the nature and characteristics of the target market will
help the marketer to derive higher returns on a marketing program. Knowledge on the target
market and its growth and changes in attitude will help the marketer to modify and design new
marketing programs for the success of the enterprise as a whole. Hence, an understanding of the
target market and measurement of their attractiveness is a key decision in marketing.

After the company has decided its market targeting strategy, the next managerial challenge is to
decide what position it wants to occupy in the selected segment(s). Kotler has defined product
positioning as the way the product is defined by consumers on important attributes – the place –
the product occupies in consumer‘s mind relative to competing products. Thus product‘s position
reflects important attributes which a consumer gives to the product. It is the position in the
perceptual space of the consumer‘s mind that the product takes in relation to competitor‘s
products, which is often verbalized by customers on certain attributes. Product positioning
depends on market structure, competitive position of the firm and the concepts of substitution
and competition among products. Product positioning reflects most of the features of the word
position.
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(b) Why it is necessary for a marketer to differentiate between buyer and

consumer?

Ans. When you formulate a business and marketing plan you must take the time to identify your
ideal target market. The target market is the group of people most likely to patronize the

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business. As a business owner or operator, you should understand the difference between a buyer
and a consumer so that you know how to properly market your products and services to the
public.

Buyer
A buyer is a customer—he is an individual or business that makes a purchase from a seller.
Regardless of the scenario, the buyer is the party that gives or transfers money to the seller to
secure a product. A teenager getting a video game from a store at the mall is a buyer as is a
distribution company that purchases raw materials from a manufacturer on credit.

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Consumer
On the other hand, a consumer is a person who uses a product or service. The consumer is often
called an ―end user‖ because he is the last stop and does not usually transfer or sell the item to
another party. A buyer can be a consumer, as in the example of a teenager buying and using a
video game. At the same time, a consumer is not necessarily the buyer—for instance, if a mother
purchases cereal for herself and her family, each family member is a consumer of the product.

B2C vs B2B
The difference between a buyer and consumer comes into play when a company is evaluating its
overall business plan. A company usually falls into one, or both, of two categories—B2B
(business to business) or B2C (business to consumer). As the name "business to business"
suggests, this is a scenario where two commercial entities enter into a purchasing agreement. The
purchasing business is simply a buyer when it plans to resell the items purchased, but it is a
consumer when it uses them (as in the case of buying office supplies). A business to consumer
arrangement is between a commercial entity and the end user.

Considerations
When marketing a product or service a company has to identify the needs of both the buyer and
the consumer. For example, a publisher who sells textbooks must market to both the distributor
who will sell the textbooks and the professors who will order them for class. The requirements of
a buyer may be different from the consumer, if they are two separate people, but in many cases
the buyer‘s decision is strongly influenced by the consumer‘s needs.
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Question No.3 “Channels of distribution are different for different products”.
Explain why it is so.

Ans. Different channels are used for different types of products. When there are alternative
channels available, the selection of an appropriate channel becomes a very important decision for
the producers. The choice of a channel for distribution of any product should be such that it
should effectively meet the needs of customers in different markets at reasonable cost. The
factors which generally influence the choice of the channel of distribution may be categorised
under four groups as follows:

1) Market considerations

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2) Product considerations
3) Middlemen considerations
4) Company considerations

1. Market Considerations

1. Size of the customers: It is possible in the case of fewer customers purchasing large quantities
at regular intervals and if they are concentrated in a small area.
2. Potential volume of sales: The choice of channel depends upon the target volume of business.
The ability to reach target customers and the volume of sales varies between different channels.
If one outlet is not adequate for achieving the target, more channels need to be used. Of course,
the competitive situation must be taken into account while examining the potential volume of
sale through different channels.
3. Concentration of buyers: If the buyers are concentrated in a few areas, it is possible for the
manufacturer to establish sales divisions in such areas and sell directly to the buyers. Thus, shod
channels may be feasible when buyers are concentrated in fewer locations. On the other hand,
if buyers are spread over a large geographic area, short channels may become uneconomical
and the manufacturer may have to go for long and multiple channels.
4. Size of the purchase order: Manufacturer can distribute directly or through a short channel in
the case of large scale buyers. Normally long channels are effective and economical in the case
of buyers whose purchase orders are usually too small to justify direct sale.

2. Product Considerations

1. Perishability: The nature of the product influences the choice of channel. Perishable products
like eggs, milk, etc., are supplied either directly or through the short channels. If long channels
are opted for perishable goods, they may get spoiled by the time they reach the consumer. So
products which are perishable must be speeded through the short channels.
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2. Bulkiness: In the case of heavy and bulky products (e.g., cement, steel, heavy machinery, etc.)
where distribution and handling costs are more, short channels are preferred. On the other
hand, long channels are found in the case of lightweight and small-size items like dress material,
readymade garments, pocket calculators, stationery, toothpaste, toothbrush, etc.
3. Technical nature of the product: Sophisticated electrical and electronics equipment which
require careful handling are also generally distributed directly or through short channels. In the
case of sophisticated equipment like computers and Xerox machines, considerable amount of

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presale and postsale service is required, Wholesalers and retailers may not be able to provide
such services. So manufacturers often distribute them directly. However, simple mechanical
products like electronic toys, time-clocks, etc., are supplied through long channels for intensive
distribution.
4. Product value: Unit value of the product is also an important consideration while deciding the
channel of distribution. Normally larger channels are preferred for products whose unit value is
low. However, short channels may be equally economical when such products are sold in bulk or
are combined with other products. .

3. Middlemen Considerations

1. Types of middlemen: Availability of suitable middlemen in the channel of distribution is another

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factor in the selection of the channel. This is because different functions like standardisation,
grading, packing, branding, storage, aftersale servicing, etc., are expected to be performed by
middlemen. Efficiency of distribution depends upon the size, location and financial position of
middlemen. If the middlemen in a specific channel are dependable and efficient, that channel
may be preferred by producers.
2. Channel competition: There are different situations in which manufacturers compete with each
other for availing the services of particular wholesalers. Similarly, wholesalers often compete
with each other to deal with particular retailers or carrying particular brands of products.
Sometimes producers use the same channel which is used by their competing producers. If any
producer arranges exclusive distribution through a particular wholesaler, the other producers
also do the same. Thus selection of a channel may depend on the competition prevailing in the
distribution system.
3. Availability of middlemen: The producer may wish to make use of the services of specific
category of middlemen, but such middlemen may not be available in the market. They may be
carrying the competitors’ products and may not wish to add another product line. In such
situations, the manufacturer has to make use of the services of the middlemen whoever
available in the

4. Company Considerations

1. Cost of distribution: The various functions carried out in the channel of distribution add to the
cost of distribution. While choosing a channel, the distribution costs of each channel should be
calculated and its impact on the consumer price should be analysed. A channel which is less
expensive is normally preferred. Sometimes, a channel which is convenient to the customers is
preferred even if it is more expensive. In such cases the choice is based on the convenience of
the customers rather than the cost of distribution.
2. Long-run effect on profit: Direct distribution, short channels, and long channels have different
implications with regard to the profits in the short-run and long-run. If demand for a product is
high, reaching the maximum number of customers through more than one’ channel may be
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profitable. But the demand may decline in course of time as competing products appear in the
market. It may not be economical than to use long channels. So while choosing a channel one
should keep in mind the future market implications as well.
3. Experience and ability: A manufacturer who has reasonable experience and expertise in
marketing the products may prefer to distribute his products on his own. But the manufacturers
who do not have marketing know-how prefer to make use of the services of middlemen.

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4. Financial strength: Lots of financial resources are required to establish distribution system. So
only a financially strong manufacturer can establish his own distribution system and a financially
weak firm may have to depend on middlemen.
5. Extent of channel control: Producers who want good control over the distribution of their
products prefer short channels. Controlling of the channels is necessary to undertake aggressive
promotion, to maintain fresh stocks and retail

Thus, in making a choice, the manufacturer has to consider his objectives, resources and the
channels available to him, nature of the product and characteristics of the buyers. He would like
to use the channel of distribution which will produce the combination of sales volume and cost
that yields him the maximum amount of profit. There are no set guidelines for channel selection
and the manufacturer will have to make his own decision in the light of his own judgment and

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experience. However, most companies do use multiple channels of distribution to ensure that
their products reach the maximum number of people.

The task of manufacturer does not end after the channels have been selected. He has to review
the services performed by the agencies involved at fairly frequent intervals, keep in close touch
with the developments related to the distribution of his product and seek to improve his
marketing methods constantly. He may also realise that the best channel when the product was
introduced, may not be the most effective one when the product is established. The following
criteria may be used for the evaluation of channel members: 1) their sales performance, (ii) their
marketing capabilities, (iii) their motivation to increase the volume of sales, (iv) competition
faced by them, and (v) their growth prospects.

Question No.4 “No single medium of advertising is ideal in all respects”. Discuss.

Ans. There are various medium of advertising. The term medium applied to advertising refers to
a channel of communication or a ‗vehicle‘ for carrying the advertiser‘s message to his target
audience. The most brilliant and original advertising ideas will be wasted if they are not
presented in the ,. right place, at the right time to the right people at the lowest possible cost. The
success of an advertisement depends as much on the medium as on the message.

Advertising media can be categorized into five broad types. However, No single medium of
advertising is ideal in all respect. These are given as follows:

1. Print Media
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Print medium comprises newspapers and magazines. In both cases the message is conveyed
through words in print, sometimes along with pictures or photographs. Words in print can be
made as attractive, appealing and informative as possible, so also the accompanying picture.

1. Newspapers: Published in different languages, newspapers are widely and regularly read by the
educated public. Reading newspaper is the daily habit of many people. Many have also become
accustomed to advertisements in newspapers and look for them as sources of information. As a

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medium of advertising, newspapers reach a very large number of people. Newspaper
advertising is relatively cheaper than other media like radio and television. Newspapers provide
the facility of repeating the message every day, if necessary. Besides, in case of urgency there is
scope for inserting an advertisement without much loss of time. It is possible to select a
particular newspaper suitable for the audience in view. Since newspapers are read by the
general public, they may be used as suitable media for goods of mass consumption. The life of
the advertisement in a newspaper is short.
2. Magazines: Magazines are also called periodicals as they are published at periodical intervals.
Different types of magazines are published for different categories of readers. Each magazine
has a distinct category of readers. They have longer life than newspapers. On the whole, the
cost of advertising in magazines is relatively cheaper compared to other media like radio and TV.
However, magazines have certain limitations.

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 Timing of publication s periodical.
 Lack of flexibility in the choice of size and design of the advertisement.
 Circulation of a magazine does not always indicate the number of readers or the time devoted
by the readers in reading it.

2. Broadcast Media

Broadcast media includes Radio and Television.

1. Radio: Radio is simply an audio medium while TV is an audio-visual medium. Advertisement

appeals can reach the general public in different parts of the country very conveniently through
radio broadcasts. As a mass medium, radio broadcasting is well suited for various consumer
goods having a mass appeal. The advantage of radio advertising is that, being an audio medium,
it does not require education to receive the message. The listners need not be literates. Besides,
the message which is orally communicated may be more impressive than the message in print.
The limitations of radio advertising are:

 it is more expensive than press advertising,

 the life of the advertisement is very short, and
 it is difficult to remember the message in detail.

2. Television: Its importance as a medium of advertising has grown with the use of satellite
transmission and establishment of more relay stations to cover the remote parts of the country.
Use of television for advertising is increasing in recent times due to its extensive coverage and
the impact of visual communication on the viewers. Its combination of sound, vision and
movement permits the use of advertisement to demonstrate the product and its advantages. This
medium is more effective than the press and radio. The major limitation of this medium is the
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heavy cost of advertising, particularly for advertisement before or after popular programme,
known as prime time. Hence, only the large enterprises are in a position to make use of this
medium. The duration of a commercial advertisement is only for a few seconds. Also viewers
often find it difficult to assimilate a large number of advertisements within a short span of time.

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3. Direct Media

Direct response advertising is a type of interactive promotion that solicits a direct response from
the prospect (target audience) without intervention of a third party. It is a two way
communication between the advertiser and the target audience. Direct advertising media are the
channels through which advertisers communicate directly with the target audience. Major direct
media are direct mail and advertising specialties.

Direct Mail: Sending personalized letters by post to the prospective customers is a method of
advertising. The idea behind mailing circulars is to approach the customers directly with the
advertising message and to arouse his interest in the product or service with detailed explanation

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in a convincing manner. A mailing list is thus prepared and the letter is carefully drafted with
personalized wordings. The message having a personal touch is expected to be more effective.
The information may be elaborated and hence likely to be more convincing. Addressed to
individuals by name, the message can draw the attention of the customer without distraction
from competing advertising.

Direct mail is not a suitable medium for advertising products meant for public use on a mass-
scale. It is best suited for products where the people to be contacted can be easily identified. It
would be expensive and time consuming to undertake direct mailing of circular letters to
innumerable consumers of such products who are widely scattered. A booklet, pamphlets,
catalogues, etc. Sent by post to prospective customers also come under direct mail.

Advertising Specialties: These are free gifts imprinted with a message along with the
advertiser‘s name and address. They serve as reminders. This medium gives a personal touch.
But this is expensive and difficult to implement on large scale.

4. Outdoor Medium

Outdoor medium of advertising refers to the medium used to reach people when they are out of
doors or travelling rather than at home or in the office. Pamphlets, posters, hoardings
(billboards), neon signs, and electronic displays come under the category of outdoor media.
Outdoor media like pamphlets, posters, neon signs, electronic displays and hoardings have
different degrees of attention. However all outdoor media are largely less expensive than radio
and television.

There are several other types of media used for outdoor advertising. Some such media are slide
projection in cinema houses, films, exhibitions, display in show-cases, etc.
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5. Interactive Media

Nowadays more and more people are using the computers and interactive media to gather
information and entertain themselves. This invites us to look at internet as a potential media for
communication and product information dissemination. Interactive media allows an individual to
seek information, ask questions and get answers without the assistance of human beings.

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A company website is one of the most common forms of internet advertising. A company web
site is an ideal way to reach consumers who want details about specific products, as interactive
media can provide large amount of information. The problems of interactive media can be
categorized as how to build traffic to the site, how to get the traffic stay longer at the site and
how to get the viewers to return to the site again for the content. One of the ways to build traffic
is to advertise on other popular and well-trafficked websites.

Advertising Banners is another form of Internet advertising. The company purchases the space
on a search engine or on the commercial website of an information provider or email facility
provider. A typical objective for a banner ad is to increase brand name recognition. The
advantage of such an advertisement is that the audience has self selected the topic, so the
marketer‘s message reaches the involved, highly targeted market.

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Pop-up boxes are a refined version of banner advertising. A visitor to a particular website might
find that window providing information for subscription pop ups after the web page loads. The
viewer typically has to close the window or enter a response to the advertisement.

Streaming Media is multimedia content such as audio, video that can be accessed on the
internet without being downloaded first. Software allows the internet users to access multimedia
content such as audio and video streams. When visitors to a site use such software to view a
program or an advertisement, they are said to be viewing streaming media. Streaming ads are
more effective than banners and pop ups. Interactive animated environment will take internet
advertising to a different sphere in coming future. Streaming media advertisements will become
more prevalent with the availability of higher bandwidth on broadband technology.

Computer software programs like Smart Agents or Intelligent Agents find information without
the user has to do any searching function. They store that information-sometimes that entire
websites, complete with images and links on the user‘s computer for later viewing. These kind of
smart agents that leans the consumer‘s preferences and searches out information is making
advertising on the internet and other interactive media more targeted and effective.

Email as an Advertising Medium: The use of email advertising as a promotional medium is

gaining prominence after advent of internet technology and e-commerce. This media has the
advantage of personification, speed and interactivity. Advertising via email is very similar to
traditional direct mail advertising. Use of email makes it easier for the marketer to measure the
effectiveness of the medium. A major disadvantage of email advertising is that the receiver may
not read it because he or she considers it spam. If the company sends too many emails, it may
decrease the value of the information and customer may start avoiding the information. Effective
marketers have started sending emails to people who allow them to do so voluntarily through a
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process called as Permissive Marketing.

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Question No.5 Why the information on geographic distribution of consumers is
important in pricing decisions? Describe various methods of geographical
pricing.

Ans. When the product is transported from one place to the other place, you have to , incur costs
like labour charges for loading and unloading, transportation, insurance, storage and
warehousing, customs and excise, etc. Some of these costs increase with the increase in distance.
Since the cost of carrying of the product from the factory to a distant customer will be definitely
more than that of carrying it to the customer in the nearby location, the company has to devise a
carefully thought out method to ensure that it does not lose business from distant customers by

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loading the entire transportation cost on to the price charged to them or alternatively annoy the
nearby customers by making them share a high proportion of the cost of transporting to distant
customers. Therefore, you have to decide the policy whether you charge all customers uniformly
irrespective of their location or charge differently as per the distance or location. Following are
some of the methods of geographical pricing:

1. FOB-Origin Pricing

Under the FOB (Free on Board) Origin Pricing method, the customer has to bear the entire
transportation cost and other incidental costs like unloading, insurance, etc. from the first point
the product is loaded on to the truck, ship/boat, airline or train. The seller bears only the cost up
to loading the merchandise (goods) on the carrier, while the buyer bears all the remaining
expenses. This obviously means that the return to the seller will be constant while the product
price will differ from one group of customers to others depending on their location in relation to
the point of production.

Since each customer is expected to bear the expenses involved in moving the product to the place
where he wants it, it appears that FOB-Origin Pricing is a fair and equitable way to allocate
freight charges as per the distance of buyers. It is also easy for the seller to comprehend and
implement. The advantage of this method is that the product will be highly priced to a distant
customer and quite cheap to a nearby customer. Therefore, customers may like to buy from the
nearby suppliers in order to avoid high costs. In case you adopt this method of geographical
pricing, the distant customers may gradually shift to competitors nearer to their locations. It
means that all companies may have to contend with selling their products only to nearby
customers and no company can perhaps hope to capture a distance market. This, in fact, will
create geographic monopolies, each company enjoying a monopoly in the closely markets and
the consumer being denied the benefit of choice.
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2. Uniform Delivered Pricing

Uniform Delivered Pricing refers to the practice of charging the same price to all the customers,
irrespective of their location. This is done by averaging out the freight cost and distributing it
equally on each unit of the product. This method of pricing is, at times, referred to as ―postage
stamp pricing‖ since postage rates are the same within a country for all destinations. The
advantage of uniform delivered pricing is that it does not discriminate among customers based on

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distances and easy to administer. A company may advertise its price nationally and project a
national image of the company. Many products of common use such as soaps and toothpastes are
priced the same all over the country. However, the risk you face in following this strategy is that
a competitive company which adopts the FOB-Origin Pricing technique may price out your
company‘s product in locations close to that company, because under FOB-Origin pricing
method the costs would be lesser for short distances.

3. Zone Pricing

Zone pricing is a compromise or a middle path between FOB-Origin Pricing and Uniform
Delivered Pricing. Under this method, the entire market is divided into a number of geographical

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zones and each zone has a separate price fixed on the basis of the average freight cost to the
zone. The product is sold at one price within the zone, irrespective of the location of the
customer in that zone.

The advantage of this method of geographical pricing is that it is a fairly equitable method of
allocation of freight charges since it avoids the extremes of the earlier two methods and it is also
easy to administer. However, customers living in one side of the border of two zones will find
that they have to pay a higher price than those on the other side just because their place did not
fall on the other side when the line dividing the market into zones was drawn. Second, it also
suffers from the same disadvantage as uniform delivered pricing in that customers located in
distant zones may find a competing company‘s price offer attractive since the company is located
nearby and is following the FOB-Origin Pricing strategy.

4. Basing-Point Pricing

In this method of pricing, the company selects a particular city or town as the ―basing point‖ and
the price of the product includes the transportation costs from the selected ―basing point‖ to the
location of the customer irrespective of the place from which the product is transported. Using a
place, other than the place from which the goods are actually transported as ―basing point‖ raises
the product price to customers near the production point and lowers the to those close to the
―basing point‖ even if the latter are located far away from the place of production as compared to
the former. One way of getting over this anomaly is to set up multiple ―basing points‖ and charge
the customer for transportation from the nearest ―basing point‖. This is almost like zone pricing.
Actually, to overcome the disadvantages of zone pricing, basing point pricing is deployed.

5. Freight Absorption Pricing

There may be instances like ―free home delivery‖ where a company charges only sale price and
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does not charge anything additional from any customer as freight charges. The price of the
product includes the freight charges and all customers are charged the same price irrespective of
their locations. Since the freight expenses are mostly borne by the seller, this method is referred
to as ―Freight Absorption Pricing‖.

This method of geographical pricing is suitable in the following situations:

a) when the competition in the market is very severe and the company has no choice but to keep

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the price of its product as low as possible, or
b) when the company wants to penetrate into a new market, or
C) when it expects large business to be generated due to its product price being low, which in
turn will have the effect of lowering average costs.

6. Price Quotations in International Markets

Price quotations for exports depend on the terms of delivery. There are several well accepted
standardized terms in regular use in international marketing. These terms known as ―INCO
Terms‖ have been evolved by the International Chamber of Commerce, Paris. Each price
quotation (term) carries with it the rights and obligations of the sellers and buyers. As a marketer

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involved in exports and imports, you must familiarize yourself with all such price quotations and
the associated rights and obligations. Some of international price quotations are as follows:

EX Works: Under this quotation, the seller delivers the goods at his premises (works, factory,
warehouse, etc.) and the price he quotes includes all expenses upto that designated premises. It is
the buyer‘s responsibility to meet the costs and risks associated in moving the goods from that
seller‘s designated premises.

FCA-Free Carrier: This quotation means that the seller has to hand over the goods into the
charge of the carrier named by the buyer at the named place. The price quoted by seller will
cover the expenses upto the point when the goods are handed over to the carrier.

FAS-Free Alongside Ship: Here, the seller has to ensure that the goods are placed alongside the
vessel on the quay or in lighters at the port of shipment and the price includes the expenses upto
that point.

FOB-Free on Board: Price quotation under an FOB contract should include dl the costs till the
goods have passed over the carrier at the port of shipment named by the importer.

C&F-Cost and Freight: Under a C&F contract, the seller has to incur all costs and freight
charges necessary to bring the goods to the named port of destination.

CIF-Cost, Insurance and Freight: contract means that the seller, in addition to meeting his
obligations under a C&F contract, has also to procure marine insurance against the buyer‘s risk
of loss or damage to goods during carriage.
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